ALLIANCE ENTERTAINMENT HOLDING CORP 10-K

Item 9A. Controls and Procedures. Disclosure Controls and Procedures Our management, under the direction of and with the participation of our Chief Executive Officer and Chief Financial Officer, evaluated the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act) as of June 30, 2025. Based on the evaluation of our disclosure controls and procedures, our management concluded that, as of June 30, 2025, our disclosure controls and procedures were effective. The material weaknesses previously identified in our internal control over financial reporting have been fully remediated. The Company has implemented the necessary business processes and related internal controls to provide reasonable assurance regarding the reliability of the financial reporting and the preparation of our financial statements in accordance with U.S. generally accepted accounting principles. Remediation of Previously Identified Material Weaknesses in Internal Control Over Financial Reporting A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of a company’s annual consolidated financial statements will not be prevented or detected on a timely basis. As previously disclosed in our Annual Report for the fiscal year ended June 30, 2024, management identified material weaknesses in the Company’s internal control over financial reporting related to (i) the control environment and certain entity-level controls, (ii) information technology general controls, and (iii) certain financial close and reporting processes. These material weaknesses arose primarily due to insufficient qualified personnel, ineffective segregation of duties, and a lack of appropriately designed and documented control activities. 53 Remediation of Material Weaknesses As of June 30, 2025, management has completed the remediation of all previously identified material weaknesses. The following actions were taken to remediate the deficiencies: ● Entity-Level Controls: We enhanced our governance and oversight structure, including increased involvement by the Board of Directors and the Audit Committee in evaluating internal control matters. Additional accounting and compliance personnel were hired to strengthen the control environment and provide appropriate oversight of financial reporting functions. ● Information Technology General Controls: We designed and implemented new user access controls, including periodic access reviews for key IT systems. Logical access and segregation of duties were reinforced to mitigate the risk of unauthorized access. We also centralized key IT processes and engaged third-party service providers to support certain IT functions. ● Financial Close and Reporting Controls: We established formal accounting policies and procedures and implemented improved management review controls over key financial statement areas, including revenue recognition, inventory, accounts payable, payroll, income taxes, and journal entries. Monthly and quarterly close processes were strengthened through enhanced review of journal entries, account reconciliations, and financial analyses. We also implemented procedures to ensure the completeness and accuracy of information used in control execution. A third-party advisor was engaged to assist with documenting transaction flows and implementing key control activities across critical financial processes. These remediation activities were overseen by management and the Audit Committee, which received regular updates on progress and testing outcomes. Management tested the design and operating effectiveness of the remediated controls, which had been in place and operating for a sufficient period, and concluded that, as of June 30, 2025, the controls were operating effectively. As a result, management has concluded that the previously reported material weaknesses have been fully remediated. Ongoing Commitment to Internal Control Excellence Although we have remediated the identified material weaknesses, we remain committed to maintaining a strong internal control environment. We will continue to monitor the effectiveness of our internal controls, address evolving risks, and make enhancements as necessary to support the reliability of our financial reporting and promptly address any future risks that may arise. 54 Management’s Report on Internal Controls Over Financial Reporting As required by SEC rules and regulations implementing Section 404 of the Sarbanes-Oxley Act, our management is responsible for establishing and maintaining adequate internal control over financial reporting (as defined in Rule 13a-15(f) under the Exchange Act). Our internal control over financial reporting is designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of our consolidated financial statements for external reporting purposes in accordance with U.S. GAAP. Our internal control over financial reporting includes those policies and procedures that: (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of our company, (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of consolidated financial statements in accordance with GAAP, and that our receipts and expenditures are being made only in accordance with authorizations of our management and directors, and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of our assets that could have a material effect on the consolidated financial statements. Because of its inherent limitations, internal control over financial reporting may not prevent or detect errors or misstatements in our consolidated financial statements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree or compliance with the policies or procedures may deteriorate. This Annual Report on Form 10-K does not include an attestation report of our independent registered public accounting firm due to our status as an emerging growth company under the JOBS Act, and due to our non-accelerated filer status. Changes in Internal Control over Financial Reporting During the fiscal year ended June 30, 2025, the Company completed the implementation and testing of certain controls that had been operating for a sufficient period to demonstrate effectiveness, as part of the remediation efforts for previously identified material weaknesses in internal control over financial reporting. These changes did not materially affect our internal control over financial reporting. As discussed in “Remediation of Previously Identified Material Weaknesses,” these changes included enhancements to entity-level controls, the implementation of new user access and IT general controls, and improvements to our financial close and reporting processes. Management’s evaluation of internal control over financial reporting, conducted in accordance with the criteria established in the Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) and pursuant to Rules 13a-15(d) and 15d-15(d) under the Exchange Act, concluded that, as of June 30, 2025, these controls were operating effectively. As a result, the previously reported material weaknesses have been fully remediated. Item 9B. Other Information. During the three months ended June 30, 2025, no director or officer of the Company adopted or terminated a “Rule 10b5-1 trading arrangement” or “non-Rule 10b5-1 trading arrangement,” as each term is defined in Item 408(a) of Regulation S-K. On June 30, 2025, the Company entered into a material definitive agreement in the form of an amendment to its already existing Credit Facility with White Oak, which reduced the applicable interest rate margin from a range of 4.5% – 4.75% to a range of 4.0% – 4.25%, effective immediately. The Company expects the reduction in the applicable interest rate range to decrease its interest expense in future periods. Item 9C. Disclosure Regarding Foreign Jurisdictions that Prevent Inspections. Not applicable. 55 PART III Item 10. Directors, Executive Officers and Corporate Governance. Our current directors and executive officers are as follows: Name Age Position Bruce Ogilvie 67 Executive Chairman of the Board and AEC Director Jeffrey Walker 57 Chief Executive Officer and AEC Director Warwick Goldby 49 Chief Operating Officer Amanda Gnecco 46 Chief Financial Officer Robert Black 65 Chief Compliance Officer W. Tom Donaldson III 48 Independent Director Terilea J. Wielenga 66 Independent Director Chris Nagelson 57 Independent Director Ms. Gnecco was appointed Chief Financial Officer effective July 21, 2025, succeeding Jeffrey Walker in that role. Bruce Ogilvie. Bruce Ogilvie has been Alliance’s Executive Chairman since 2023 and has been Executive Chairman of Legacy Alliance since 2013. Prior to assuming his current role, in 1996 Bruce was selected by a bank group to turn around the 600-store chain, Wherehouse Records. Under Bruce’s leadership Wherehouse emerged from bankruptcy within nine months and was sold to Cerberus Capital. Following his success with Wherehouse Records, Bruce bought a one-third interest in Super D in 2001 and assumed the role as CEO, joining with founders Jeff Walker and David Hurwitz. Bruce became the Chairman in 2013 after the merger of Super D and Alliance. Mr. Ogilvie has spent his entire career in the entertainment distribution industry starting with the founding of Abbey Road Distributors in 1980. Over the next 14 years, Bruce led Abbey Road’s growth to over $94 million in sales and successfully sold the business in 1994. In 1995, Bruce was awarded E&Y’s Distribution Entrepreneur of the Year Award for his work with Abbey Road. Jeffrey Walker. Jeffrey Walker has been Alliance’s Chief Executive Officer since February 2023, was Alliance’s Chief Financial Officer from February 2023 until July 2025 and was Legacy Alliance’s Chief Executive Officer since 2013. Mr. Walker has also been a director of Alliance since February 2023 and a director of Legacy Alliance since 2013. In 1990, Jeff co-founded the CD Listening Bar, Inc., a retail music store. A few years later, Jeff started wholesaling CDs from the back of the store, beginning the journey to create Super D, a music wholesaler founded in 1995. In 2001, Jeff and co-founder David Hurwitz sold a third of Super D to Bruce Ogilvie. Over the next decade, Bruce and Jeff continued to grow Super D’s presence in the music wholesaling space, with the acquisition of Alliance in 2013. In 2015, Jeff was awarded E&Y’s Distribution Entrepreneur of the Year award in Orange County. Mr. Walker received a bachelor’s degree in economics from the University of California – Irvine. Warwick Goldby. Warwick Goldby joined Alliance in November 2016 and previously served as Senior Vice President of Distribution Operations until his promotion to Chief Operations Officer in May 2024. Prior to serving as Senior Vice President of Distribution Operations, Mr. Goldby has held several positions with increasing responsibilities in the operations department at Alliance. Mr. Goldby graduated from the University of Natal, South Africa, with a bachelor’s degree in Commerce. Amanda Gnecco, CPA . Amanda Gnecco joined Alliance in August 2018 and previously as Senior Vice President, Accounting and Finance until May 2024, as Chief Accounting Officer in May 2024 until her promotion to Chief Financial Officer in July 2025. As Senior Vice President, Accounting and Finance, Ms. Gnecco, together with Mr. Black, has been responsible for overseeing Alliance’s financial operations and financial and SEC reporting. Ms. Gnecco received a Master of Science in Accounting from the Keller Graduate School of Management and a B.S. in Accounting from Midwestern State University. 56 Robert Black. Robert Black joined Alliance in September 2019 and previously served as Senior Vice President, Accounting and Finance until his promotion to Chief Compliance Officer. In May 2024 As Senior Vice President, Accounting and Finance, Mr. Black, together with Ms. Gnecco, has been responsible for overseeing Alliance’s financial operations and financial and SEC reporting. Prior to joining Alliance, Mr. Black served as Senior Finance Manager at Amazon.com, Inc. from March 2017 through August 2019. Mr. Black earned an M.B.A. from the University of Notre Dame Mendoza College of Business and a B.S. at Ferris State University in Industrial Relations and Machine Tool Technology. Terilea J. Wielenga. Teri Wielenga has served as a director of Alliance since February 2023. Teri is a senior global finance executive, board director, and advisor with more than 30 years of experience at complex, highly regulated Fortune 500 companies and a Big Four accounting firm. She is retired from Gilead Sciences (Nasdaq: GILD) where she served as Vice President, Head of Global Tax Policy and Strategy, and served as board director, secretary, and treasurer for The Gilead Foundation., She currently serves as audit committee chair for the Arc Research Institute. Teri managed rapid global growth as the Senior Vice President of Tax for Allergan (NYSE: AGN). She also previously served as board director and chief financial officer of the Allergan Foundation and served as a board director for multiple Allergan subsidiaries in Ireland, Japan, and Bermuda. In addition to her work as a senior finance executive with public companies, Teri has advised a variety of pharmaceutical start-ups, pre-IPO ventures, and privately held companies. Teri is recognized as a global tax specialist and has taught advanced accounting and business taxation for MBA programs at Chapman University and Loyola Marymount University. She is a Certified Public Accountant. She earned her M.S. in Taxation from Golden Gate University in San Francisco and her B.A. in Business Economics from the University of California, Santa Barbara. We believe Ms. Wielenga is qualified to serve as a member of Alliance’s board of directors based on her experience as a senior global finance executive and, her governance experience with public, private, and non-profit boards of directors. 57 Chris Nagelson. Chris Nagelson has served as a director of Alliance since February 2023. From February 2005 until August 2022, Mr. Nagelson was the Vice President, DMM for Walmart, Inc. in Bentonville, AR. During that period, he was responsible for providing the strategic direction for the department that delivered market share growth as well as supported the overall corporate strategy. Chris also identified and established key performance indicators to improve team efficiencies and sales strategies and led a broad, cross- functional team in strategic executive-level planning. From June 1997 to February 2005, Chris was the Divisional Merchandise Manager for American Eagle Outfitters, Inc., based in Pittsburgh, PA. Mr. Nagelson received a Bachelor of Arts degree from the University of Arkansas, where he majored in advertising and public relations. We believe Mr. Nagelson is qualified to serve as a member of Alliance’s board of directors based on his extensive experience as a senior executive at a global merchandise and sales corporation. W. Tom Donaldson III. Tom Donaldson has served as a director of Alliance since the Business Combination and as a director of Adara from its inception in August 2022 until the Business Combination in August 2020. Mr. Donaldson founded and has been the Managing Partner of Blystone & Donaldson since October 2018, a Charlotte, NC-based investment firm that focuses on middle-market companies. From January 2016 to December 2018, Mr. Donaldson served as an executive at Investors Management Corporation where he focused on investment decisions, managing risk and developing relationships with companies of interest. From around September 2013 to December 2015, he served as a Partner of Morehead Capital Management, LLC before it was merged into Investors Management Corporation in January 2016. From around June 2003 to August 2013, he practiced law as an associate and then a Partner at McGuireWoods LLP where he represented private funds and their portfolio companies in corporate governance, structuring and financing transactions and operating businesses in a wide variety of industries. Mr. Donaldson received his Master of Business Administration degree and Juris Doctor degree from Villanova University. He earned his undergraduate degree in Political Science from North Carolina State University. We believe Mr. Donaldson is qualified to serve on our board of directors based on his breath and depth of experience in varied investment, financing and legal roles. Director Independence An “independent director” is defined generally as a person other than an officer or employee of the company or its subsidiaries or any other individual having a relationship which in the opinion of the company’s board of directors, would interfere with the director’s exercise of independent judgment in carrying out the responsibilities of a director. Our board of directors has determined that Messrs. Donaldson and Nagelson and Ms. Wielenga are “independent directors” as defined in the Nasdaq listing standards and applicable SEC rules. Our independent directors will have regularly scheduled meetings at which only independent directors are present. Committees of the Board of Directors Our board of directors has three standing committees: an audit committee, a compensation committee and a nominating committee. Subject to phase-in rules and a limited exception, the Nasdaq listing rules and Rule 10A-3 of the Exchange Act require that the audit committee of a listed company be comprised solely of independent directors, and the Nasdaq listing rules require that the compensation committee of a listed company be comprised solely of independent directors. Each of the audit committee, the compensation committee and the nominating committee may have as one of its members a “non-independent director” under exceptional and limited circumstances pursuant to the exemptions under Rules 5605(c)(2)(B), 5605(d)(2)(B) and 5605(e)(3) of the Nasdaq listing rules. Audit Committee Ms. Wielenga and Mr. Nagelson serve as members of our audit committee, and Ms. Wielenga chairs the audit committee. Under the Nasdaq listing standards and applicable SEC rules, the audit committee is required to have at least three members, all of whom must be independent, except that the audit committee may have as one of its members a “non-independent director” under exceptional and limited circumstances pursuant to the exemption under Rule 5605(c)(2)(B) of the Nasdaq listing rules. We expect to appoint a third member to the Audit Committee at or prior to our annual stockholder meeting. Each member of the audit committee meets the independent director standard under the Nasdaq listing standards and under Rule 10-A-3(b)(1) of the Exchange Act. 58 Each member of the audit committee is financially literate, and our board of directors has determined that Mr. Nagelson qualifies as an “audit committee financial expert” as defined in applicable SEC rules. We have adopted an audit committee charter, which details the principal functions of the audit committee, including: ● the appointment, compensation, retention, replacement, and oversight of the work of the independent registered public accounting firm engaged by us; ● pre-approving all audit and permitted non-audit services to be provided by the independent registered public accounting firm engaged by us, and establishing pre-approval policies and procedures; ● setting clear hiring policies for employees or former employees of the independent registered public accounting firm, including but not limited to, as required by applicable laws and regulations; ● setting clear policies for audit partner rotation in compliance with applicable laws and regulations; ● obtaining and reviewing a report, at least annually, from the independent registered public accounting firm describing (i) the independent registered public accounting firm’s internal quality-control procedures, (ii) any material issues raised by the most recent internal quality-control review, or peer review, of the audit firm, or by any inquiry or investigation by governmental or professional authorities within the preceding five years respecting one or more independent audits carried out by the firm and any steps taken to deal with such issues and (iii) all relationships between the independent registered public accounting firm and us to assess the independent registered public accounting firm’s independence; ● reviewing the adequacy and effectiveness of internal control policies and procedures, including establishing special audit procedures in response to any material control deficiencies; ● reviewing and approving any related party transaction required to be disclosed pursuant to Item 404 of Regulation S-K promulgated by the SEC prior to us entering into such transaction address any conflicts of interest; ● reviewing with management, the independent registered public accounting firm, and our legal advisors, as appropriate, any legal, regulatory or compliance matters, including any correspondence with regulators or government agencies and any employee complaints or published reports that raise material issues regarding our financial statements or accounting policies and any significant changes in accounting standards or rules promulgated by the Financial Accounting Standards Board, the SEC or other regulatory authorities; ● periodically review risk management policies; ● review, approve and monitor code of ethics for senior officers. Compensation Committee Messrs. Donaldson, Nagelson, and Ms. Wielenga serve as members of our compensation committee, and Mr. Donaldson chairs our compensation committee. Under the Nasdaq listing standards and applicable SEC rules, the compensation committee is required to have at least two members, all of whom must be independent, except that the compensation committee may, if it is comprised of at least three members, have as one of its members a “non-independent director” under exceptional and limited circumstances pursuant to the exemption under Rule 5605(d)(2)(B) of the Nasdaq listing rules. We have adopted a compensation committee charter, which detail the principal functions of the compensation committee, including: ● reviewing and approving on an annual basis the corporate goals and objectives relevant to our Chief Executive Office’s compensation, if any is paid by us, evaluating our Chief Executive Officer’s performance in light of such goals and objectives and determining and approving the remuneration (if any) of our Chief Executive Officer based on such evaluation; 59 ● reviewing and approving on an annual basis the compensation, if any is paid by us, of all of our other officers; ● reviewing on an annual basis our executive compensation policies and plans; ● implementing and administering our incentive compensation equity-based remuneration plans; ● assisting management in complying with our proxy statement and annual report disclosure requirements; ● approving all special perquisites, special cash payments and other special compensation and benefit arrangements for our officers and employees; ● if required, producing a report on executive compensation to be included in our annual proxy statement; and ● reviewing, evaluating and recommending changes, if appropriate, to the remuneration for directors. ● The charter also provides that the compensation committee may, in its sole discretion, retain or obtain the advice of a compensation consultant, legal counsel or other adviser and will be directly responsible for the appointment, compensation and oversight of the work of any such adviser. However, before engaging or receiving advice from a compensation consultant, external legal counsel or any other adviser, the compensation committee will consider the independence of each such adviser, including the factors required by the SEC and any national securities exchange on which the Company is listed. Nominating Committee Mr. Donaldson, and Ms. Wielenga serve as members of the nominating committee, and Mr. Nagelson serves as chair of the nominating committee. Under the Nasdaq listing standards, all of the directors on the nominating committee must be independent, except that the nominating committee may, if it is comprised of at least three members, have as one of its members a “non-independent director” under exceptional and limited circumstances pursuant to the exemption under Rule 5605(e)(3) of the Nasdaq listing rules. The Nominating Committee Charter, which details the purpose and responsibilities of the nominating committee, includes: ● identifying, screening and reviewing individuals qualified to serve as directors, consistent with criteria approved by the board, and recommending to the board of directors candidates for nomination for election at the annual general meeting or to fill vacancies on the board of directors; ● developing and recommending to the board of directors and overseeing implementation of our corporate governance guidelines; ● coordinating and overseeing the annual self-evaluation of the board of directors, its committees, individual directors and management in the governance of the company; and ● reviewing on a regular basis our overall corporate governance and recommending improvements as and when necessary. 60 The charter will also provide that the nominating committee may, in its sole discretion, retain or obtain the advice of, and terminate, any search firm to be used to identify director candidates, and will be directly responsible for approving the search firm’s fees and other retention terms. We have not formally established any specific, minimum qualifications that must be met or skills that are necessary for directors to possess. In general, in identifying and evaluating nominees for director, the board of directors will consider educational background, diversity of professional experience, knowledge of our business, integrity, professional reputation, independence, wisdom, and the ability to represent the best interests of our shareholders. Section 16(a) Beneficial Ownership Reporting Compliance Section 16(a) of the Exchange Act requires our officers, directors and persons who beneficially own more than ten percent of our common stock to file reports of ownership and changes in ownership with the SEC. These reporting persons are also required to furnish us with copies of all Section 16(a) forms they file. Based solely upon a review of such forms, we believe that during the fiscal year ended June 30, 2025, there have been no delinquent filers. Code of Ethics We have adopted a Code of Ethics that applies to our directors, officers, and employees, including our principal executive officer, principal financial officer, and principal accounting officer. The Code of Ethics is designed to promote honest and ethical conduct, full and fair disclosure in reports and documents filed with the SEC, and compliance with applicable laws and regulations. The Code of Ethics was adopted on March 15, 2023. The Code of Ethics is posted on our website at SEC Filings – AENT . Any amendments to, or waivers from, certain provisions of the Code of Ethics applicable to our principal executive officer, principal financial officer, or principal accounting officer require approval by the Board of Directors or the Audit Committee. We intend to disclose such amendments or waivers promptly in a Current Report on Form 8-K. No waivers were granted during the fiscal year ended June 30, 2025. Insider Trading Policy We have adopted an insider trading policy (the “Trading Policy”) that is designed to promote compliance with federal securities laws, rules, and regulations, as well as the rules and regulations of the NASDAQ Stock Market. The Trading Policy provides Alliance’s standards on trading and causing the trading of our securities or securities of other publicly traded companies while in possession of confidential information. It prohibits trading in certain circumstances and applies to all of our directors, officers, and employees, as well as independent contractors or consultants who have access to material nonpublic information of Alliance. Additionally, our Trading Policy imposes special additional trading restrictions applicable to all of our directors and executive officers. The Trading Policy is annexed to this Annual Report as an exhibit and the full text of the Trading Policy is available on our website at www.aent.com. Item 11. Executive Compensation. For the fiscal year ended June 30, 2025, Alliance’s named executive officers were Bruce Ogilvie, Executive Chairman, Jeffrey Walker, Chief Executive Officer and Chief Financial Officer. This section provides an overview of Alliance’s executive compensation programs, including a narrative description of the material factors necessary to understand the information disclosed in the summary compensation table below. 2025 and 2024 Summary Compensation Table The following table shows information regarding the compensation of Alliance’s named executive officers for services performed during the fiscal years ended June 30, 2025, and 2024. Name and Position Fiscal Year Salary Bonus Stock Awards All Other Compensation Total Compensation Bruce Ogilvie (1) 2025 $ 640,000 $ 640,000 — $ 35,628 $ 1,315,628 Executive Chairman 2024 $ 640,000 $ 640,000 — $ 35,859 $ 1,315,859 Jeffrey Walker (2) 2025 $ 640,000 $ 640,000 — $ 35,216 $ 1,315,216 Chief Executive Offer/Chief Financial Officer 2024 $ 640,000 $ 640,000 — $ 39,194 $ 1,319,194 Robert Black (3) 2025 $ 220,000 $ 31,992 - $ 11,622 $ 263,614 Chief Compliance Officer 2024 - - - - - (1) Included in all other compensation expenses is $19,219 and $22,912 for car and phone allowance in FY25 and FY24. Also included is $16,408 in 401K and health benefits in FY25 and $16,151 in FY24. 61 (2) Included in all other compensation expenses is $20,467 for car and phone allowance in FY25 and $19,500 in FY24. Also included is $16,749 in 401K and health benefits in FY25 and $16,151 in FY24. Served as our Chief Financial Officer until July 21, 2025. (3) Included in all other compensation expenses is $11,622 for 401K and health benefits in FY25. Neither of the named executive officers had any outstanding equity awards at June 30, 2025. Outstanding Equity Awards at Fiscal Year-End Option awards Stock awards Name Number of securities underlying unexercised options (#) exercisable Number of securities underlying unexercised options (#) unexercisable Equity incentive plan awards: Number of securities underlying unexercised unearned options (#) Option exercise price ($) Option expiration date Number of shares or units of stock that have not vested (#) Market value of shares of units of stock that have not vested ($) Equity incentive plan awards: Number of unearned shares, units or other rights that have not vested (#) Equity incentive plan awards: Market or payout value of unearned shares, units or other rights that have not vested ($) Warwick Goldby - - - - - 2,000 4,660 - - Amanda Gnecco - - - - - 8,500 19,805 - - Robert Black - - - - - 6,000 13,980 - - Employment Agreements for Named Executive Officers Overview; Salaries and Bonuses On February 10, 2023, Bruce Ogilvie, Alliance’s Chairman, and Jeffrey Walker, Alliance’s Chief Executive Officer, entered into employment agreements for initial three-year terms, which will automatically renew thereafter for successive one-year terms. Following the Business Combination, the two Named Executive Officers are entitled to base salary and a target bonus of a certain percentage of their base salary as follows: Target Name Base Salary ($) Bonus Percentage(%) Bruce Ogilvie 800,000 100 Jeffrey Walker 800,000 100 Equity Incentive Plan Awards In addition to the salaries and bonus targets set forth above, each of the two Named Executive Officers are eligible to participate in and receive awards under the 2023 Plan. Benefits Each of the two Named Executive Officers also has the right to receive or participate in all employee benefit programs and perquisites generally established by the Company from time to time for employees similarly situated to the Named Executive Officer, subject to the general eligibility requirements and other terms of such programs and perquisites, and subject to the Company’s right to amend, terminate or take other similar action with respect to any such programs and perquisites. Each also receives approximately $2,000 per month for an automobile lease and is entitled to first class air travel where available. Termination; Severance Benefits Pursuant to their employment agreements, in the event of a termination of such Named Executive Officer’s employment for any reason, the executive would generally be entitled to receive earned but unpaid salary, accrued but unpaid annual bonus, any owed accrued expenses, as well as amounts payable under any benefit plans, programs or arrangements that such Named Executive Officer participates in or benefits therefrom. In the event that a Named Executive Officer’s employment is terminated due to his death, in addition to the foregoing, he would be entitled to a pro-rated portion of his annual bonus, as determined by the Board. In the event that a Named Executive Officer’s employment is terminated either without “cause” (as defined in the applicable employment agreement) or by the Named Executive Officer for “good reason” (as defined in the applicable employment agreement), subject to his execution and non-revocation of a general release of claims and continued compliance with his restrictive covenant obligations, as described below, such Named Executive Officer would be entitled to payment of an amount (i) equal to the executive’s base salary immediately prior to the termination date (or, if for “good reason” was attributable to the Company’s failure to pay the minimum amount of Base Salary provided herein, such minimum amount) for the period of time from the day after the Termination Date through the last day of the employment term or for a period of twelve (12) months, whichever is greater (the “Severance Period”); (ii) in addition to payment of any unpaid bonuses from a prior fiscal year, a pro-rata portion of the bonus based on the amount of days executive worked for the fiscal year in which the termination occurs, and (iii) payment for such Named Executive Officer’s insurance premiums incurred for participation in COBRA coverage pursuant group health plan through the earliest to occur of (A) the last day of the Severance Period, (B) the date the executive ceases to be eligible for COBRA or (C) such time as Executive is eligible for group health insurance benefits from another employer. 62 Provision of the severance benefits is conditioned on (i) the Named Executive Officer’s continued compliance in all material respects with executive’s continuing obligations to the Company, including, without limitation, the terms of the employment agreement that survive termination of executive’s employment with the Company, and (ii) the Named Executive Officer’s signing (without revoking if such right is provided under applicable law) a separation agreement and general release in a form of that provided to Executive by the Company on or about the termination date. The Named Executive Officer must so execute the separation agreement within 60 days following the termination date. 2025 Director Compensation Name Fees earned or paid in cash Stock awards Option awards Non-equity incentive plan compensation Change in pension value and nonqualified deferred compensation earnings All other compensation Total ($) ($) ($) ($) ($) ($) Teri Wielenga 50,000 - - 50,000 Chris Nagelson 50,000 - - - - - 50,000 Alliance has established a formal arrangement to compensate certain independent directors. Under this arrangement, eligible independent directors receive an annual fee of $50,000 for their service on the board of directors and its committees. Equity Plans Our board of directors adopted and approved the 2023 Omnibus Equity and Incentive Plan, or 2023 Plan, which was subsequently adopted by Alliance’s stockholders. The 2023 Plan became effective on February 10, 2023, and is a comprehensive incentive compensation plan under which we can grant equity-based and other incentive awards to based officers, employees and directors of, and consultants and advisers to, Alliance and its subsidiaries. The purpose of the 2023 Plan is to help us attract, motivate and retain such persons with awards designed for the U.S. market and thereby enhance shareholder value. Grant of Awards; Shares Available for Awards. The 2023 Plan provides for the grant of awards which are distribution equivalent rights, incentive share options, non-qualified share options, performance shares, performance units, restricted common stock, restricted share units, share appreciation rights (“SARs”), tandem share appreciation rights, unrestricted common stock or any combination of the foregoing, to key management employees and non-employee directors of, and non-employee consultants of, Alliance or any of its subsidiaries (each a “participant”) (however, solely Alliance employees or employees of Alliance subsidiaries are eligible for awards which are incentive share options). We have reserved a total of 1,000,000 shares of common stock for issuance as or under awards to be made under the 2023 Plan. To the extent that an award lapses, expires, is canceled, is terminated unexercised or ceases to be exercisable for any reason, or the rights of its holder terminate, any common stock subject to such award shall again be available for the grant of a new award. The 2023 Plan shall continue in effect, unless sooner terminated, until the tenth (10th) anniversary of the date on which it is adopted by the Board of Directors (except as to awards outstanding on that date). The Board of Directors in its discretion may terminate the 2023 Plan at any time with respect to any shares for which awards have not theretofore been granted; provided, however, that the 2023 Plan’s termination shall not materially and adversely impair the rights of a holder, without the consent of the holder, with respect to any award previously granted. The number of shares of common stock for which awards which are options or SARs may be granted to a participant under the 2023 Plan during any calendar year is limited to a number of shares equal to three percent (3%) of the total number of shares of common stock of the Company outstanding on the last day of the prior calendar year. Future new hires, non- employee directors and additional non-employee consultants are eligible to participate in the 2023 Plan as well. The number of awards to be granted to officers, non-employee directors, employees and non-employee consultants cannot be determined at this time as the grant of awards is dependent upon various factors such as hiring requirements and job performance. 63 Options . The term of each share option shall be as specified in the option agreement; provided, however, that except for share options which are incentive share options (“ISOs”), granted to an employee who owns or is deemed to own (by reason of the attribution rules applicable under Code Section 424(d)) more than 10% of the combined voting power of all classes of our common stock or the capital stock of our subsidiaries (a “ten percent shareholder”), no option shall be exercisable after the expiration of ten years from the date of its grant (five (5) years for an employee who is a ten percent shareholder). The price at which a share may be purchased upon exercise of a share option shall be determined by the Plan Committee; provided, however, that such option price (i) shall not be less than the fair market value of a share on the date such share option is granted, and (ii) shall be subject to adjustment as provided in the 2023 Plan. The Plan Committee or the board of directors shall determine the time or times at which or the circumstances under which a share option may be exercised in whole or in part, the time or times at which options shall cease to be or become exercisable following termination of the share option holder’s employment or upon other conditions, the methods by which such exercise price may be paid or deemed to be paid, the form of such payment, and the methods by or forms in which common stock will be delivered or deemed to be delivered to participants who exercise share options. Options which are ISOs shall comply in all respects with Section 422 of the Code. In the case of ISOs granted to a ten percent shareholder, the per share exercise price under such ISO (to the extent required by the Code at the time of grant) shall be no less than 110% of the fair market value of a share on the date such ISO is granted. ISOs may only be granted to employees of Alliance or one of its subsidiaries. In addition, the aggregate fair market value of the shares subject to an ISO (determined at the time of grant) which are exercisable for the first time by an employee during any calendar year may not exceed $100,000. An Option which specifies that it is not intended to qualify as ISOs or any Option that fails to meet the requirement of an ISO at any point in time will automatically be treated as a nonqualified option (“NQSO”) under the terms of the Plan. Restricted Share Awards. A restricted share award is a grant or sale of common stock to the participant, subject to such restrictions on transferability, risk of forfeiture and other restrictions, if any, as the Plan Committee or the board of directors may impose, which restrictions may lapse separately or in combination at such times, under such circumstances (including based on achievement of performance goals and/or future service requirements), in such installments or otherwise, as the Plan Committee or the board of directors may determine at the date of grant or purchase or thereafter. Except to the extent restricted under the terms of the 2023 Plan and any agreement relating to the restricted share award, a participant who is granted or has purchased restricted shares shall have all of the rights of a shareholder, including the right to vote the restricted shares and the right to receive dividends thereon (subject to any mandatory reinvestment or other requirement imposed by the Plan Committee or the Board of Directors or in the award agreement). During the restricted period applicable to the restricted shares, subject to certain exceptions, the restricted shares may not be sold, transferred, pledged, hypothecated, or otherwise disposed of by the participant. Unrestricted Share Awards. An unrestricted share award is the award of common stock which is not subject to transfer restrictions. Pursuant to the terms of the applicable unrestricted share award agreement, a holder may be awarded (or sold) common stock which are not subject to transfer restrictions, in consideration for past services rendered thereby to us or an affiliate or for other valid consideration. Restricted Share Unit Awards. A restricted share unit award provides for a cash payment to be made to the holder upon the satisfaction of predetermined individual service-related vesting requirements, based on the number of units awarded to the holder. The Plan Committee shall set forth in the applicable restricted share unit award agreement the individual service-based or performance-based vesting requirement which the holder would be required to satisfy before the holder would become entitled to payment and the number of units awarded to the Holder. The vesting restrictions under any restricted share unit award shall constitute a “substantial risk of forfeiture” under Section 409A of the Code. At the time of such an award, the Plan Committee may, in its sole discretion, prescribe additional terms and conditions or restrictions. The holder of a restricted share unit shall be entitled to receive a cash payment equal to the fair market value of a share, or one (1) share, as determined in the sole discretion of the Plan Committee and as set forth in the restricted share unit award agreement, for each restricted share unit subject to such restricted share unit award, if and to the extent the applicable vesting requirement is satisfied. Such payment shall be made no later than by the fifteenth (15th) day of the third (3rd) calendar month next following the end of the calendar year in which the restricted share unit first becomes vested. 64 Performance Unit Awards. A performance unit award provides for a cash payment to be made to the holder upon the satisfaction of predetermined individual and/or Alliance performance goals or objectives, based on the number of units awarded to the holder. The Plan Committee shall set forth in the applicable performance unit award agreement the performance goals and objectives (and the period of time to which such goals and objectives shall apply) which the holder and/or Alliance would be required to satisfy before the holder would become entitled to payment, the number of units awarded to the holder and the dollar value assigned to each such unit. The vesting restrictions under any performance under award shall constitute a “substantial risk of forfeiture” under Section 409A of the Code. At the time of such an award, the Plan Committee may, in its sole discretion, prescribe additional terms and conditions or restrictions. The holder of a performance unit shall be entitled to receive a cash payment equal to the dollar value assigned to such unit under the applicable performance unit award agreement if the holder and/or Alliance satisfy (or partially satisfy, if applicable under the applicable performance unit award agreement) the performance goals and objectives set forth in such performance unit award agreement. If achieved, such payment shall be made no later than by the 15th day of the third calendar month following the end of Alliance’s fiscal year to which such performance goals and objectives relate. Performance Share Awards. A performance share award provides for distribution of common stock to the holder upon the satisfaction of predetermined individual and/or Alliance goals or objectives. The Plan Committee shall set forth in the applicable performance share award agreement the performance goals and objectives (and the period of time to which such goals and objectives shall apply) which the holder and/or Alliance would be required to satisfy before the holder would become entitled to the receipt of common stock pursuant to such holder’s performance share award and the number of shares of common stock subject to such performance share award. The vesting restrictions under any performance under award shall constitute a “substantial risk of forfeiture” under Section 409A of the Code and, if such goals and objectives are achieved, the distribution of such common stock shall be made no later than by the 15th day of the 3rd calendar month next following the end of our fiscal year to which such goals and objectives relate. At the time of such an award, the Plan Committee may, in its sole discretion, prescribe additional terms and conditions or restrictions. The holder of a performance share award shall have no rights as an Alliance shareholder until such time, if any, as the holder actually receives common stock pursuant to the performance share award. Distribution Equivalent Rights. A distribution equivalent right entitles the holder to receive bookkeeping credits, cash payment and/or share distributions equal in amount to the distributions that would be made to the holder had the holder held a specified number of common stock during the period the holder held the distribution equivalent rights. The Plan Committee shall set forth in the applicable distribution equivalent rights award agreement the terms and conditions, if any, including whether the holder is to receive credits currently in cash, is to have such credits reinvested (at fair market value determined as of the date of reinvestment) in additional common stock or is to be entitled to choose among such alternatives. Such receipt shall be subject to a “substantial risk of forfeiture” under Section 409A of the Code and, if such award becomes vested, the distribution of such cash or common stock shall be made no later than by the 15th day of the third calendar month next following the end of the Company’s fiscal year in which the holder’s interest in the award vests. Distribution equivalent rights awards may be settled in cash or in common stock, as set forth in the applicable distribution equivalent rights award agreement. A distribution equivalent rights award may, but need not be, awarded in tandem with another award other than an Option or SAR award, whereby, if so awarded, such distribution equivalent rights award shall terminate or be forfeited by the holder, as applicable, under the same conditions as under such other award. The distribution equivalent rights award agreement for a distribution equivalent rights award may provide for the crediting of interest on a distribution rights award to be settled in cash at a future date (but in no event later than by the 15th day of the third calendar month next following the end of the Company’s fiscal year in which such interest was credited), at a rate set forth in the applicable distribution equivalent rights award agreement, on the amount of cash payable thereunder. Share Appreciation Rights. A SAR provides the participant to whom it is granted the right to receive, upon its exercise, the excess of (A) the fair market value of the number of shares of common stock subject to the SAR on the date of exercise, over (B) the product of the number of shares of common stock subject to the SAR multiplied by the base value under the SAR, as determined by the Plan Committee or the board of directors. The base value of a SAR shall not be less than the fair market value of a share on the date of the grant. If the Plan Committee grants a share appreciation right which is intended to be a tandem SAR, additional restrictions apply. 65 Amendment and Termination . The 2023 Plan shall continue in effect, unless sooner terminated pursuant to its terms, until February 10, 2033, the tenth anniversary of the date on which it is adopted by the Board of Directors (except as to awards outstanding on that date). As of June 30, 2025, a total of 561,300 awards have been granted under the 2023 Plan. Bonus Incentive Plan In fiscal year 2024, the Company updated its cash Bonus Incentive Plan (the “Plan”) designed to align leadership compensation with the Company’s financial performance, specifically its growth in earnings before interest, taxes, depreciation, and amortization (“EBITDA”). The Plan is structured as follows: The Plan applies to executives and leaders as determined by the Compensation Committee of the Board of Directors. The bonus payout under the Plan is directly linked to the Company’s EBITDA growth year-over-year. The Plan uses the percentage increase in the Company’s EBITDA for the current fiscal year as compared to the prior fiscal year as the performance metric. A full payout of the cash bonus will occur if the Company’s EBITDA for the current fiscal year increases by 10% or more compared to the prior year’s EBITDA. For EBITDA growth below 10%, the bonus payout is pro rata down to 1% of the bonus amount based on the percentage increase in EBITDA. 10% or greater EBITDA increase: 100% bonus payout. 9% EBITDA increase: 90% bonus payout. 8% EBITDA increase: 80% bonus payout. This pattern continues, with a 10% reduction in payout for every 1% decrease in EBITDA growth. No bonus will be paid if EBITDA growth is less than 1%. Bonuses earned under the Plan, if any, will be paid in the first quarter of the following fiscal year, after the Company’s financial results for the relevant year are finalized and audited. The Compensation Committee retains the discretion to adjust the final bonus payouts in the event of extraordinary or non-recurring items that materially affect the Company’s reported EBITDA. The Company will accrue bonuses based on its estimated performance to the Plan’s EBITDA targets throughout the fiscal year. Clawback Policy The Board has adopted a clawback policy which allows us to recover performance-based compensation, whether cash or equity, from a current or former executive officer in the event of an Accounting Restatement. The clawback policy defines an Accounting Restatement as an accounting restatement of our financial statements due to our material noncompliance with any financial reporting requirement under the securities laws. Under such policy, we may recoup incentive-based compensation previously received by an executive officer that exceeds the amount of incentive-based compensation that otherwise would have been received had it been determined based on the restated amounts in the Accounting Restatement. The Board has the sole discretion to determine the form and timing of the recovery, which may include repayment, forfeiture and/or an adjustment to future performance-based compensation payouts or awards. The remedies under the clawback policy are in addition to, and not in lieu of, any legal and equitable claims available to the Company. The clawback policy is incorporated by reference into this Annual Report as an exhibit. Equity Compensation Policy and Practices While we do not have a formal written policy in place with regard to the timing of awards of options in relation to the disclosure of material nonpublic information, the Compensation Committee does not seek to time equity grants to take advantage of information, either positive or negative, about our company that has not been publicly disclosed. It has been our practice to grant equity awards to our officers and directors upon their appointment. We intend to issue equity grants to our officers and/or directors at the same time each year, in connection with our first meeting of the Board of Directors each fiscal year. Option grants are effective on the date the award determination is made by the Compensation Committee, and the exercise price of options is the closing market price of our Common Stock on the business day of the grant or, if the grant is made on a weekend or holiday, on the prior business day. During the fiscal year ended June 30, 2025, we did not award any options to a named executive officer in the period beginning four business days before the filing of a periodic report on Form 10-Q or Form 10-K, or the filing or furnishing of a current report on Form 8-K that discloses material nonpublic information, and ending one business day after the filing or furnishing of such report. Alliance Indemnification Agreements In connection with the IPO, Alliance entered into agreements with its officers and directors to provide contractual indemnification in addition to the indemnification provided for in its certificate of incorporation. Alliance also purchased a policy of directors’ and officers’ liability insurance that insures its officers and directors against the cost of defense, settlement or payment of a judgment in some circumstances and insures Alliance against its obligations to indemnify its officers and directors. Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters. The information included under the heading “ Equity Plans ” in Item 11 and Part III of this annual report is hereby incorporated by reference into this Item 12 of Part II of this annual report. 66 The following table sets forth information regarding the beneficial ownership of our Class A common stock as of the date of this annual report, by: ● each person known by us to be the beneficial owner of more than 5% of our outstanding shares of Class A common stock; ● each of our executive officers and directors; and ● all our executive officers and directors as a group. Beneficial ownership is determined according to the rules of the SEC, which generally provide that a person has beneficial ownership of a security if he, she or it possesses sole or shared voting or investment power over that security, including options and warrants that are currently exercisable or exercisable within 60 days. Except as described in the footnotes below and subject to applicable community property laws and similar laws, we believe that each person listed below has sole voting and investment power with respect to such shares. The beneficial ownership percentages set forth in the table below are based on 50,957,370 shares of Class A common stock issued and outstanding as of September 10, 2024. Number of Shares of Class A Common Stock Percentage of Outstanding Class Name of Beneficial Owner (1) Beneficially Owned A Common Stock Bruce Ogilvie (2)(3) 15,339,097 30.1 % Jeffrey Walker (2) 23,186,238 45.3 % W. Tom Donaldson III (4) 2,569,362 4.9 % Terilea J. Wielenga 13,000 — Chris Nagelson 5,000 — Amanda Gnecco 7,500 — Robert Black 20,000 — Warwick Goldby 14,000 — Directors and executive officers as a group (8 individuals) 41,144,197 77.6 % Ogilvie Legacy Trust dated September 14, 2021 (5) 8,554,025 16.8 % (1) Unless otherwise indicated, the business address of Alliance’s directors and executive officers is c/o Alliance Entertainment Holding Corporation, 8201 Peters Road, Suite 1000, Plantation, Florida 33324. (2) Excludes Class E common stock. (3) The shares are beneficially owned by the Bruce Ogilvie, Jr. Trust dated January 20, 1994, having Mr. Bruce Ogilvie, Jr. as trustee, Mr. Ogilvie disclaims individual ownership of such shares except for his individual pecuniary interest in such trusts. (4) Includes (i) 40,000 shares held directly, (ii) 2,468,362 shares, including 1,837,335 shares issuable upon exercise of private warrants, held directly by B&D Series 2020, LLC, of which Mr. Donaldson is the manager and (iii) 83,300 shares held by Blystone & Donaldson, LLC, of which Mr. Donaldson is the manager. Mr. Donaldson disclaims beneficial ownership of such shares except to the extent of his pecuniary interest therein (5) Mr. Ogilvie’s two adult children are trustees of the Ogilvie Legacy Trust dated September 14, 2021. Mr. Ogilvie disclaims beneficial ownership of the shares held by such trust. 67 Item 13. Certain Relationships and Related Transactions. Registration Rights Agreement The holders of the Initial Stockholder Shares and private warrants (and in each case holders of their underlying securities, as applicable) have registration rights to require us to register a sale of any of our securities held by them pursuant to a registration rights agreement that was signed on February 8, 2021. This agreement provided that these holders are entitled to make up to three demands, excluding short form registration demands, that we register such securities for sale under the Securities Act. In addition, these holders were granted “piggy-back” registration rights to include their securities in other registration statements filed by us. In connection with the closing of the Business Combination, the Adara Initial Stockholders and the Legacy Alliance stockholders entered into the Registration Rights Agreement, which amended and restated the former registration rights agreement. Pursuant to the Registration Rights Agreement, Alliance filed a resale registration statement, and it was declared effective in accordance with the terms of the registration statement. In certain circumstances, the Adara Initial Stockholders and the Legacy Alliance stockholders may each demand up to two registrations, which may be underwritten offerings, and all of the registration rights holders will be entitled to piggyback registration rights. Alliance Related Party Transactions GameFly Holdings, LLC During the years ended June 30, 2025, and 2024, Alliance has made sales of new release movies, video games, and video game consoles to GameFly Holdings LLC in the amount of $2.7 million and $8.4 million, respectively. GameFly, a customer of Alliance, is equally owned by Bruce Ogilvie and Jeff Walker, the two shareholders of Alliance. Alliance believes the amounts that GameFly paid for New Release, movies, video games, and video game consoles are at fair market value. GameFly does fulfillment services of fast selling new releases by providing 3PL services at market rates. The agreement between Alliance and GameFly can be terminated by either party at any time. GameFly is free to purchase from any competitor of Alliance. On February 1, 2023, Alliance entered into a Distribution Agreement (the “Agreement”) with GameFly, which is effective from February 1, 2023, through March 31, 2028. At that time, the Agreement continues indefinitely until either party provides the other party with six-month advance notice to terminate it. During the year ended June 30, 2025, and 2024, Alliance had distribution revenue in the amount of $0 and $0.25 million respectively. 68 MVP Logistics, LLC MVP Logistics is an independent contractor, which, prior to August 31, 2023, was partially owned by Joe Rehak, the SVP of Operations of COKeM International Limited, which Alliance acquired in September 2020. Subsequent to August 31, 2023, Mr. Rehak no longer has an equity stake in MVP Logistics and retired from COKeM in January 2024. Alliance believes the amounts payable to MVP Logistics are at fair market value. During the years ended June 30, 2025, and 2024 Alliance incurred costs with MVP Logistics, LLC, in the amount of $0 , and $1.0 million, respectively, for freight shipping fees, transportation costs, warehouse distribution, and 3PL management services (for Arcades) at the Santa Fe Springs, California and South Gate, California distribution facilities. Ogilvie Loans On July 3, 2023, the Company entered into a $17 million line of credit (the “Ogilvie Loan”) with Bruce Ogilvie, a principal stockholder. Initial borrowings amounted to $10 million on that date, followed by an additional $5 million on July 10, 2023. These sums were repaid on July 26, 2023. Subsequently, on August 10, 2023, the Company accessed the Ogilvie Loan for the full $17 million, repaying $7 million on August 28, 2023. Further transactions occurred on September 14, 2023, with a borrowing of $7 million, repaid on September 28, 2023. On October 10, 2023, an additional $7 million was borrowed and repaid on October 18, 2023. As of June 30, 2025, and June 30, 2024, the outstanding balance on the Ogilvie Loan was $10 million. The Ogilvie Loan is subordinated to the Company’s revolving credit facility, meaning that in the event of liquidation or default, repayment of the Ogilvie Loan is subordinate to amounts outstanding under the Company’s debt arrangements. The Ogilvie Loan matures on December 22, 2026, and bears interest at the rate of the 30-day SOFR plus 5.5% (4.34% and 5.29% at June 30, 2025, and June 30, 2024, respectively). Interest expenses for the fiscal year ended June 30, 2025, and 2024 were $1.0 million each. The interest rate on June 30, 2025, and 2024, was 9.80% and 10.8% respectively. B&D Capital Partners, LLC During the fiscal year ending June 30, 2024, Alliance Entertainment Holding Corporation (the “Company”) entered into a financial advisory agreement with B&D Capital Partners, LLC (“BDCP”). Donaldson, a director of the company, is managing partner and a principal equity holder of Blystone & Donaldson, the parent company of BDPC. The agreement, dated July 28, 2023, engaged BDCP as a non-exclusive financial advisor to assist the Company in issuing privately held debt securities and related transactions. BDCP is owned by Blystone & Donaldson, LLC, and Mr. Donaldson, an independent director of the Company, is a principal of BDCP. Under the terms of the agreement, BDCP provided financial advisory services, including the review of confidential information, identification and engagement of potential transaction parties, and assistance with investor presentations. During the fiscal year ended June 30, 2025, the Company did not incur any related party fees with BDCP. For the fiscal year ended June 30, 2024, the Company paid BDCP approximately $1.8 million, which included an advisory fee equal to 1.5% of the gross proceeds from transactions involving White Oak Commercial Finance, LLC. Policies and Procedures for Related Person Transactions Our board of directors adopted a related person transaction policy setting forth the policies and procedures for the identification, review and approval or ratification of related person transactions. This policy covers, with certain exceptions set forth in Item 404 of Regulation S-K under the Securities Act, any transaction, arrangement or relationship, or any series of similar transactions, arrangements or relationships, in which we and a related person were or will be participants and the amount involved exceeds $120,000, including purchases of goods or services by or from the related person or entities in which the related person has a material interest, indebtedness and guarantees of indebtedness. In reviewing and approving any such transactions, our audit committee will consider all relevant facts and circumstances as appropriate, such as the purpose of the transaction, the availability of other sources of comparable products or services, whether the transaction is on terms comparable to those that could be obtained in an arm’s length transaction, management’s recommendation with respect to the proposed related person transaction, and the extent of the related person’s interest in the transaction. 69 Director Independence An “independent director” is defined generally as a person other than an officer or employee of the company or its subsidiaries or any other individual having a relationship which in the opinion of the company’s board of directors, would interfere with the director’s exercise of independent judgment in carrying out the responsibilities of a director. Our board of directors has determined that Messrs. Donaldson, Finke, and Nagelson and Ms. Wielenga are “independent directors” as defined in the Nasdaq listing standards and applicable SEC rules. Our independent directors will have regularly scheduled meetings at which only independent directors are present. Item 14 . Principal Accountant Fees and Services. Fee Type Year Ended June 30, 2025 Year Ended June 30, 2024 Audit Fees (Grassi) $ 327,500 $ - Professional Audit-related services (Grassi) $ 46,500 - Audit Fees (BDO) $ 205,800 $ 389,200 Total Audit Fees $ 579,800 $ 389,200 Pre-Approval Policy Our audit committee was formed upon the consummation of the Merger. As a result, the audit committee did not pre-approve all the foregoing services, although any services rendered prior to the formation of our audit committee were approved by our board of directors. Since the formation of our audit committee, and on a going-forward basis, the audit committee has and will pre-approve all auditing services and permitted non-audit services to be performed for us by our auditors, including the fees and terms thereof (subject to the de minimis exceptions for non-audit services described in the Exchange Act which are approved by the audit committee prior to the completion of the audit). 70 PART IV Item 15. Exhibits, Financial Statement Schedules. (a) The following documents are filed as part of this Form 10-K: (1) Financial Statements: (34) As part of this annual report, the consolidated financial statements are listed in the accompanying index to financial statements on page F-2. (2) Financial Statement Schedules: (34) All financial statement schedules have been omitted because they are not applicable, not required or the information required is shown in the financial statements or the notes thereto. (3) Exhibits: We hereby file as part of this annual report the exhibits listed in the attached Exhibit Index. Exhibits which are incorporated herein by reference can be inspected and copied at the public reference facilities maintained by the SEC, 100 F Street, N.E., Room 1580, Washington, D.C. 20549. Copies of such material can also be obtained from the Public Reference Section of the SEC, 100 F Street, N.E., Washington, D.C. 20549, at prescribed rates or on the SEC website at www.sec.gov. Incorporated by Reference Exhibit Number Description of Document Schedule/Form File Number Exhibits Filing Date 2.1** Business Combination Agreement, dated as of June 22, 2022, by and among Alliance, Merger Sub and Alliance. Form 8-K 001-40014 2.1 June 23, 2022 3.1 Second Amended and Restated Certificate of Incorporation. Form 8-K 001-40014 3.4 February 13, 2023 3.2 Amended and Restated Bylaws. Form 8-K 001-40014 3.5 February 13, 2023 4.1 Specimen Class A Common Stock Certificate. Form S-4 333-266098 4.5 October 18, 2022 4.2 Specimen Warrant Certificate. Form S-4 333-266098 4.6 October 18, 2022 4.3 Warrant Agreement, dated February 8, 2021, by and between the Company and Continental Stock Transfer & Trust Company, as warrant agent. Form 8-K 001-40014 4.1 February 11, 2021 4.4 Description of the Registrant’s Securities Form 10 K 001 40014 4.4 October 19, 2023 71 Incorporated by Reference Exhibit Number Description of Document Schedule/Form File Number Exhibits Filing Date 10.1 Form of Lock-Up Agreement (included in Exhibit 2.1). Form 8-K 001-40014 2.1 June 23, 2022 10.2 Alliance Entertainment Holding Corporation 2023 Omnibus Equity Incentive Plan. Form 10 K 001 40014 4.4 October 19, 2023 10.3 Form of Indemnity Agreement. Form S-4 333-266098 10.11 October 18, 2022 10.4 Lease Agreement, dated as of August 18, 2017, by and between Liberty Property Limited Partnership and COKeM International, Ltd. Form S-4 333-266098 10.16 October 18, 2022 10.5 First Amendment to Lease, dated as of January 22, 2018, by and among Liberty Property Limited Partnership and COKeM International, Ltd. Form S-4 333-266098 10.17 October 18, 2022 10.6 Multi-Tenant Industrial Triple Net Lease, dated as of December 14, 2007, by and between Cedar Grove - Crossdock, LLC and Alliance Entertainment, LLC. Form S-4 333-266098 10.18 October 18, 2022 10.7 First Amendment to Lease Agreement, dated as of January 18, 2013, by and between KTR LOU I LLC and Alliance Entertainment, LLC. Form S-4 333-266098 10.19 October 18, 2022 10.8 Second Amendment to Lease Agreement, dated as of August 1, 2014, by and between KTR LOU I LLC and Alliance Entertainment, LLC. Form S-4 333-266098 10.20 October 18, 2022 10.9 Guaranty Agreement, dated as of November 9, 2012, by and between Project Panther Acquisition Corporation and KTR LOU I LLC. Form S-4 333-266098 10.21 October 18, 2022 10.10 Office Lease, dated as of January 7, 2011, by and between French Overseas Company, LLC and Alliance Entertainment, LLC. Form S-4 333-266098 10.22 October 18, 2022 72 Incorporated by Reference Exhibit Number Description of Document Schedule/Form File Number Exhibits Filing Date 10.11 First Amendment to Lease, dated as of January 31, 2012, by and between French Overseas Company, LLC and Alliance Entertainment, LLC. Form S-4 333-266098 10.23 October 18, 2022 10.12 Second Amendment to Lease, dated August 2016, by and between French Overseas Company, LLC and Alliance Entertainment, LLC. Form S-4 333-266098 10.24 October 18, 2022 10.13 Standard Industrial Lease, dated as of August 12, 2020, by and between SCRS Valley Park Business Center, LLC and COKeM International, Ltd. Form S-4 333-266098 10.25 October 18, 2022 10.14 Second Amendment to Lease, dated as of June 26, 2020, by and between Liberty Property Limited Partnership and COKeM International, Ltd. Form S-4 333-266098 10.26 October 18, 2022 10.15 † Form of Employment Agreement, by and between Alliance Entertainment Holding Corporation and Bruce Ogilvie. Form S-4 333-266098 10.27 October 18, 2022 10.16 † Form of Employment Agreement, by and between Alliance Entertainment Holding Corporation and Jeffrey Walker. Form S-4 333-266098 10.28 October 18, 2022 10.17 Contingent Consideration Escrow Agreement by and among the Combined Company, Bruce Ogilvie and Continental Stock Transfer and Trust Company dated February 10, 2023. Form 8-K 001-40014 10.29 February 13, 2023 73 Incorporated by Reference Exhibit Number Description of Document Schedule/Form File Number Exhibits Filing Date 10.18 Loan and Security Agreement, dated as of December 31, 2023 by and among Alliance Entertainment Holding Corporation, as Parent and Guarantor, each of its subsidiaries from time to time party thereto, as Borrowers and Guarantors, the Lenders from time to time parties thereto, and White Oak Commercial Finance LLC, as Administration Agent and Collateral Agent Form 8-K 001-40014 10.1 December 26, 2023 10.19 Gamefly Distribution Agreement Form 10-Q 001-40014 10.1 February 8, 2024 10.20* Amendment to Revolving Credit Facility 16 Letter from WithumSmith+Brown PC to the U.S. Securities and Exchange Commission dated February 10, 2023. Form 8-K 001-40014 16.1 February 13, 2023 19* Insider Trading Policy 21.1 List of Subsidiaries. Form 10-K 001-40014 21.1 March 30, 2023 23.1* Consent of BDO USA, P.C. 23.2* Consent of GRASSI 31.1* Certification of Principal Executive Officer and Principal Financial Officer Pursuant to Securities Exchange Act Rules 13a-14(a) and 15(d)-14(a), as adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. 32.1* Certification of Principal Executive Officer and Principal Financial Officer Pursuant to 18 U.S.C. Section 1350, as adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. 97.1 Clawback Policy Form 10-K 001-40014 97.1 September 20, 2024 74 Incorporated by Reference Exhibit Number Description of Document Schedule/Form File Number Exhibits Filing Date 101.INS Inline XBRL Instance Document 101.SCH Inline XBRL Taxonomy Extension Schema Document 101.CAL Inline XBRL Taxonomy Extension Calculation Linkbase Document 101.DEF Inline XBRL Taxonomy Extension Definition Linkbase Document 101. LAB Inline XBRL Taxonomy Extension Label Linkbase Document 101.PRE Inline XBRL Taxonomy Extension Presentation Linkbase Document 104 Cover Page Interactive Data File (Embedded within the Inline XBRL document and included in Exhibit) * Filed herewith. ** Certain of the exhibits and schedules to this Exhibit have been omitted in accordance with Regulation S-K Item 601(a)(5). The Company agrees to furnish a copy of all omitted exhibits and schedules to the SEC upon its request. † Indicates a management contract or compensatory plan, contract or arrangement. Item 16. Form 10-K Summary. None. 75 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, as amended, the Registrant has duly caused this annual report to be signed on its behalf by the undersigned, thereunto duly authorized, in Irvine, California, on the 10th day of September 2025. Alliance Entertainment Holding Corporation By: /s/ Jeffrey Walker Name: Jeffrey Walker Title: Chief Executive Officer Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, this annual report has been signed below by the following persons in the capacities and on the dates indicated. Name Position Date /s/ Jeffrey Walker Chief Executive Officer and Director September 10, 2025 Jeffrey Walker (Principal Executive Officer ) /s/ Bruce Ogilvie Executive Chairman of the Board of Directors September 10, 2025 Bruce Ogilvie / s/ Amanda Gnecco Chief Financial Officer (Principal Accounting Officer) September 10, 2025 Amanda Gnecco /s/ W. Tom Donaldson III Director September 10, 2025 W. Tom Donaldson III /s/ Chris Nagelson Director September 10, 2025 Chris Nagelson /s/ Terilea J. Wielenga Director September 10, 2025 Terilea J. Wielenga 76 ALLIANCE ENTERTAINMENT HOLDING CORPORATION. INDEX TO CONSOLIDATED FINANCIAL STATEMENTS Report of Independent Registered Public Accounting Firm (PCAOB ID # 606 ) F-2 Report of Independent Registered Public Accounting Firm (PCAOB ID # 243 ) F-3 Financial Statements: Consolidated Balance Sheets as of June 30, 2025, and 2024 F-4 Consolidated Statements of Income and Comprehensive Income for the years end June 30, 2025, and 2024 F-5 Consolidated Statements of Changes in Stockholders’ Equity for the years end June 30, 2025, and 2024 F-6 Consolidated Statements of Cash Flows for the years end June 30, 2025, and 2024 F-7 Notes to Consolidated Financial Statements F-8 to F-32 F- 1 REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM To the Board of Directors and Stockholders of Alliance Entertainment Holding Corporation Opinion on the Financial Statements We have audited the accompanying consolidated balance sheets of Alliance Entertainment Holding Corporation (the Company) as of June 30, 2025, and the related consolidated statements of income and comprehensive income, changes in stockholders’ equity, and cash flows for the year ended June 30, 2025, and the related notes (collectively referred to as the financial statements). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of June 30, 2025, and the results of its operations and its cash flows for the year ended June 30, 2025, in conformity with accounting principles generally accepted in the United States of America. Basis for Opinion These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audit. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audit, we are required to obtain an understanding of internal control over financial reporting, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. Our audit included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audit also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audit provides a reasonable basis for our opinion. Grassi & Co., CPAs, P.C. We have served as the Company’s auditor since 2024. Jericho, New York September 10, 2025 F- 2 Report of Independent Registered Public Accounting Firm Shareholders and Board of Directors Alliance Entertainment Holding Corporation Plantation, Florida Opinion on the Consolidated Financial Statements We have audited the accompanying consolidated balance sheet of Alliance Entertainment Holding Corporation (the “Company”) as of June 30, 2024, the related consolidated statements of income and comprehensive income, changes in stockholders’ equity, and cash flows for the year then ended, and the related notes (collectively referred to as the “consolidated financial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company at June 30, 2024, and the results of its operations and its cash flows for the year then ended , in conformity with accounting principles generally accepted in the United States of America. Basis for Opinion These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s consolidated financial statements based on our audit. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audit we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. Our audit included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audit also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audit provides a reasonable basis for our opinion. /s/ BDO USA, P.C. We served as the Company’s auditor from 2021 to 2024. Miami, Florida September 19, 2024, except for Note 10, as to which the date is September 10, 2025 F- 3 ALLIANCE ENTERTAINMENT HOLDING CORPORATION CONSOLIDATED BALANCE SHEETS ($ in thousands, except per share amounts) June 30, 2025 June 30, 2024 Assets Current Assets Cash $ 1,236 $ 1,129 Trade Receivables, Net of Allowance for Credit Losses of $ 867 and $ 648 , respectively 97,369 92,357 Inventory, Net 102,848 97,429 Other Current Assets 16,679 5,298 Total Current Assets 218,132 196,213 Property and Equipment, Net 11,291 12,942 Operating Lease Right-Of-Use Assets, Net 19,214 22,124 Goodwill 89,116 89,116 Intangibles, Net 18,475 13,381 Other Long-Term Assets 789 503 Deferred Tax Asset, Net 4,211 6,533 Total Assets $ 361,228 $ 340,812 Liabilities and Stockholders’ Equity Current Liabilities Accounts Payable $ 155,300 $ 133,221 Accrued Expenses 9,548 9,371 Current Portion of Operating Lease Obligations 3,229 1,979 Current Portion of Finance Lease Obligations 3,075 2,838 Contingent Liability 1,577 511 Total Current Liabilities 172,729 147,920 Revolving Credit Facility, Net 55,268 69,587 Finance Lease Obligation, Non- Current 1,931 5,016 Operating Lease Obligations, Non-Current 17,432 20,413 Shareholder Loan (subordinated), Non-Current 10,000 10,000 Warrant Liability 646 247 Total Liabilities 258,006 253,183 Commitments and Contingencies (Note 12) - - Stockholders’ Equity Preferred Stock: Par Value $ 0.0001 per share, Authorized 1,000,000 shares, Issued and Outstanding 0 shares as of June 30, 2025 and June 30, 2024 - — Common Stock: Par Value $ 0.0001 per share, Authorized 550,000,000 shares at June 30, 2025, and at June 30, 2024; Issued and Outstanding 50,957,370 shares at June 30, 2025, and at June 30, 2024 5 5 Paid In Capital 48,570 48,058 Accumulated Other Comprehensive Loss ( 76 ) ( 79 ) Retained Earnings 54,723 39,645 Total Stockholders’ Equity 103,222 87,629 Total Liabilities and Stockholders’ Equity $ 361,228 $ 340,812 The accompanying notes are an integral part of the consolidated financial statements. F- 4 ALLIANCE ENTERTAINMENT HOLDING CORPORATION CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME Year Ended Year Ended ($ in thousands except share and per share amounts) June 30, 2025 June 30, 2024 Net Revenues $ 1,063,457 $ 1,100,483 Cost of Revenues (excluding depreciation and amortization) 930,605 971,594 Operating Expenses Distribution and Fulfillment Expense 40,375 48,818 Selling, General and Administrative Expense 55,992 57,651 Depreciation and Amortization 5,334 5,880 Transaction Costs 957 2,086 Restructuring Cost 73 280 (Gain) Loss on Disposal of Fixed Assets ( 15 ) 33 Total Operating Expenses 102,716 114,748 Operating Income 30,136 14,141 Other Expenses Interest Expense 10,575 12,247 Change in Fair Value of Warrants 853 41 Total Other Expenses 11,428 12,288 Income Before Income Tax Expense (Benefit) 18,708 1,853 Income Tax Expense (Benefit) 3,630 ( 2,728 ) Net Income 15,078 4,581 Other Comprehensive Income (Loss) Foreign Currency Translation 3 ( 2 ) Total Comprehensive Income 15,081 4,579 Net Income per Share – Basic and Diluted $ 0.30 $ 0.09 Weighted Average Common Shares Outstanding – Basic 50,957,370 50,828,548 Weighted Average Common Shares Outstanding – Diluted 51,016,546 50,837,148 The accompanying notes are an integral part of the consolidated financial statements. F- 5 ALLIANCE ENTERTAINMENT HOLDING CORPORATION CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY YEARS ENDED JUNE 30, 2025 AND 2024 Common Stock Shares Issued and Paid In Accumulated Other Comprehensive Retained ($ in thousands) Outstanding Par Value Capital (Loss) Income Earnings Total Balances at June 30, 2023 49,167,170 $ 5 $ 44,542 $ ( 77 ) $ 35,064 $ 79,534 Issuance of common stock, net of transaction costs of $ 1.9 million 1,335,000 — 2,130 — — 2,130 Currency Translation Adjustment — — — ( 2 ) — ( 2 ) Stock-based Compensation 455,200 — 1,386 — — 1,386 Net Income - — 4,581 4,581 Balances at June 30, 2024 50,957,370 $ 5 $ 48,058 $ ( 79 ) $ 39,645 $ 87,629 Balances 50,957,370 $ 5 $ 48,058 $ ( 79 ) $ 39,645 $ 87,629 ) Warrant Conversion - - 454 - - 454 Currency Translation Adjustment - - - 3 - 3 Stock-based Compensation - - 58 - - 58 Net Income - - - - 15,078 15,078 Balances at June 30, 2025 50,957,370 $ 5 $ 48,570 $ ( 76 ) $ 54,723 $ 103,222 Balances 50,957,370 $ 5 $ 48,570 $ ( 76 ) $ 54,723 $ 103,222 The accompanying notes are an integral part of the consolidated financial statements. F- 6 ALLIANCE ENTERTAINMENT HOLDING CORPORATION CONSOLIDATED STATEMENTS OF CASH FLOWS Year Ended Year Ended ($ in thousands) June 30, 2025 June 30, 2024 Cash Flows from Operating Activities: Net Income $ 15,078 $ 4,581 Adjustments to Reconcile Net Income to Net Cash Provided by Operating Activities: Adjustments to Reconcile Net Income to Net Cash Provided by (Used in) Operating Activities: Depreciation of Property and Equipment 1,828 1,904 Amortization of Intangible Assets 3,506 3,976 Amortization of Deferred Financing Costs (Included in Interest Expense) 1,404 861 Allowance for Credit Losses 1,068 687 Change in Fair Value of Warrants 853 41 Deferred Income Taxes 2,322 ( 3,634 ) Non-cash lease expense 2,910 4,631 Stock-based Compensation Expense 58 1,386 (Gain) Loss on Disposal of Fixed Assets ( 15 ) 33 Changes in Assets and Liabilities Trade Receivables ( 6,080 ) 11,896 Inventory ( 4,665 ) 49,334 Income Taxes Payable\Receivable ( 384 ) 517 Operating Lease Obligations ( 1,731 ) ( 4,932 ) Other Assets ( 11,340 ) 3,357 Accounts Payable 22,079 ( 18,401 ) Accrued Expenses and Contingent Liability ( 82 ) ( 464 ) Net Cash Provided by Operating Activities 26,809 $ 55,773 Cash Flows from Investing Activities: Capital Expenditures ( 54 ) ( 183 ) Cash Inflow from Asset Disposal 15 66 Cash Paid for Business Asset Purchase ( 7,595 ) - Cash Paid for Contract ( 500 ) - Net Cash Used in Investing Activities ( 8,134 ) ( 117 ) Cash Flows from Financing Activities: Payments on Financing Leases ( 2,848 ) ( 2,965 ) Payments on Revolving Credit Facility ( 986,132 ) ( 1,095,772 ) Borrowings on Revolving Credit Facility 970,409 1,035,428 Payments on Shareholder Note (Subordinated), Current - ( 36,000 ) Proceeds from Shareholder Note (Subordinated), Non-Current - 46,000 Issuance of common stock, net of transaction costs - 2,130 Deferred Financing Costs - ( 4,211 ) Net Cash Used in Financing Activities ( 18,571 ) ( 55,390 ) Net Increase in Cash 104 266 Net Effect of Currency Translation on Cash 3 ( 2 ) Cash, Beginning of the Year 1,129 865 Cash, End of the Year $ 1,236 $ 1,129 Supplemental disclosure for Cash Flow Information Cash Paid for Interest $ 9,171 $ 12,247 Cash Paid for Income Taxes $ 1,727 $ 444 Supplemental Disclosure for Non-Cash Investing and Financing Activities Fixed Assets Financed with Debt $ - $ 7,853 Right-of-use assets obtained in exchange for new operating lease liabilities $ - $ 21,900 Conversion of Warrants from liability to Equity $ 454 - Contract Acquisition $ 1,800 - The accompanying notes are an integral part of the consolidated financial statements. F- 7 Note 1: Organization and Summary of Significant Accounting Policies Alliance Entertainment Holding Corporation (“Alliance”) was formed on August 9, 2010. The Company provides full-service distribution of pre-recorded music, video movies, video games and related accessories, and merchandising to retailers and other independent customers primarily in the United States. It provides product and commerce solutions to “brick-and-mortar”, e-commerce retailers, and consumer direct websites, while maintaining trading relationships with manufacturers of pre-recorded music, video movies, video games and related accessories. On February 10, 2023, Alliance completed its business combination with Adara Acquisition Corp., which was accounted for as a reverse recapitalization with Alliance treated as the accounting acquirer. The recapitalization has been retroactively reflected in all periods presented. The Company continues to recognize certain warrant and equity-related impacts from this transaction, including the outstanding Class E contingent shares and warrant liabilities, as discussed further in Notes 15 and 20. A summary of the significant accounting policies consistently applied in the preparation of the consolidated financial statements: Reclassification Certain amounts from prior periods have been reclassified to conform to the current period presentation. Basis of Presentation The consolidated financial statements have been prepared on the accrual basis of accounting in accordance with accounting principles generally accepted in the United States of America (U.S. GAAP). The consolidated financial statements include the accounts of Alliance Entertainment Holding Corporation and its wholly owned subsidiaries. Intercompany transactions have been eliminated in consolidation. Liquidity On December 21, 2023, the Company entered into a new three 3 -year credit facility with White Oak Commercial Finance, LLC, which will mature on December 21, 2026. The facility is a $ 120 million asset-based revolving credit facility (the “Revolving Credit Facility”). Additionally, the Company has implemented certain strategic initiatives to reduce expenses and focus on the sale of higher margin products. As a result of the new credit facility, combined with these initiatives and the Company’s financial performance for the year ended June 30, 2025, the Company has concluded that it has sufficient cash to fund its operations and obligations (from its cash on hand, operations, working capital and availability on the credit facility) for at least twelve months from the issuance of these consolidated financial statements. F- 8 Revenue Recognition The Company enters into contracts with its customers for the purchase of products in the ordinary course of business. A contract with commercial substance exists once the Company receives and accepts a purchase order under a sales contract. Payment terms on invoiced amounts generally range from 0 to 90 days. Revenue from the sale and distribution of pre-recorded music, video, games, accessories, and other related products are recognized when the performance obligations under the terms of a contract with its customer are satisfied, which occurs with the transfer of control of the product. For the majority of the Company’s products, control is transferred, and revenue is recognized when the product is shipped from the Company’s distribution center to the Company’s customers, which primarily consist of retailers. For most of the Company’s distribution contracts, the Company is considered to be the principal to these transactions, and the revenue is recognized on a gross basis, since the Company is the primary obligor for fulfilling the promise to its customers on these arrangements, has inventory risk, and has latitude in establishing prices. In limited circumstances, the Company has determined that it acts as an agent (ASC 606-10-55-36 through 55-40) because it does not control the specified goods before they are transferred to the customer. For these arrangements, revenue is recognized on a net basis, reflecting only the fee or commission to which the Company is entitled in exchange for arranging the sale. Additionally, the Company ships some of its products to retailers on a consignment basis. The Company retains ownership of its products stored at these retailers. As the Company’s products are sold by the retailer, ownership is transferred from the Company to the retailer. At that time, the Company invoices the retailer and recognizes revenue for these consignment transactions. If a contract contains more than one performance obligation, the transaction price is allocated to each performance obligation based on relative standalone selling price. Shipping and handling activities are treated as a fulfillment activity rather than a promised service, and therefore, are not considered a performance obligation. Sales, use, value-added, and other excise taxes the Company collects concurrent with revenue producing activities are excluded from revenue. Incidental items that are immaterial in the context of the contract are recognized as expense when incurred. The Company applies ASC 606, Revenue from Contracts with Customers , (ASC 606) utilizing the following allowable exemptions or practical expedients: ● Portfolio approach practical expedient relative to the estimation of variable consideration. ● Shipping and handling practical expedient to account for shipping and handling activities that occur after control of the related good transfers as fulfillment activities. ● Costs of obtaining a contract practical expedient to recognize the incremental costs of obtaining a contract as an expense when incurred if the amortization period of the asset is one year or less. ● Sales taxes practical expedient to exclude sales taxes and other similar taxes from the transaction price. ● Significant financing component practical expedient Revenue is recognized at the transaction price which the Company expects to be entitled to receive. When determining the transaction price, the Company estimates variable consideration by applying the portfolio approach practical expedient under ASC 606. The primary sources of variable consideration for the Company are rebate programs, incentive programs and product returns. The rebate and incentives are recorded as a reduction to revenue at the time of the initial sale or when offered. The Company estimates variable consideration related to products sold under its rebate and incentive programs using the expected value method, which is based on sales terms with customers, historical experience, inventory levels, volume purchases, and known changes in relevant trends in the future. There are no material instances where variable consideration is constrained and not recorded at the initial time of sale. Substantially all of the Company’s sales are domestic and are made to customers under agreements permitting certain limited rights of return based upon the prior months’ sales and vendor return rights. Except for video games and vinyl sales, which are not returnable, generally it is the Company’s policy not to accept product returns that cannot be returned to the Company’s vendors. Revenue from product sales is recognized net of estimated returns. Sales in the pre-recorded music and video movies industry generally give certain customers the right to return products. In addition, the Company’s suppliers generally permit the Company to return products that are in the supplier’s current product listing, except for video games and vinyl. F- 9 Based on historical returns, review of current catalog list and the change of mass merchant’s floor space and store locations carrying the Company’s products, management provides for estimated net returns at the time of sale and other specific reserves when appropriate. This is typically done using a twelve-month average return rate by product. The Company has determined that the nature, amount, timing, and uncertainty of revenue and cash flows are most significantly affected by the overall economic health of the consumer product industry in the United States. Cash Cash includes all investments with original maturities of three months or less when purchased. The Company maintains its cash in bank deposit accounts which, at times, may exceed federally insured limits. The Company has not experienced any losses in such accounts. Trade Receivables, Net The Company grants credit to customers on credit terms in the ordinary course of business. Credit is extended based on an evaluation of a customer’s financial condition, and collateral is generally not required. Trade receivables are carried at the original invoice amount less estimates made for allowances for credit losses based on a periodic review of all outstanding amounts. Management measures all expected losses based on a forward-looking expected loss model, which reflects probable losses based on historical experience, current conditions, and reasonable and supportable forecasts. Trade receivables are written off against the allowance when they are deemed uncollectable. Recoveries of trade receivables previously written off are recorded as a credit to the allowance for uncollectable accounts when received. Escrow Receivable As of June 30, 2025, the Company had $ 8.5 million held in escrow related to a terminated acquisition transaction. The Company does not have access to or control over the escrow account, and the acquisition did not proceed. The funds are classified as a receivable within Other Current Assets, and the Company is actively pursuing return of the escrowed funds. Management believes the balance is recoverable within the next 12 months. Inventory and Inventory Reserves Inventory is stated at the lower of cost, using the weighted average cost method, or net realizable value. Net realizable value is the estimated selling price in the ordinary course of business, less reasonably predictable costs of completion, disposal, and transportation. Excess or obsolete inventory reserves that reduce the cost basis of the assets are established when inventory is estimated to not be sellable or returnable to suppliers based on product demand and product life cycle. Property and Equipment, Net Property and equipment are recorded at cost less accumulated depreciation. Depreciation and amortization are calculated using the straight-line method over the asset’s estimated useful life. Costs of major additions and improvements are capitalized, while repair and maintenance costs are charged to expense as incurred. When items are disposed of, the cost and accumulated depreciation are eliminated from the accounts, and any gain or loss is reflected in the consolidated statements of income and comprehensive income. Depreciation and Amortization Depreciation is provided in amounts sufficient to allocate the cost of depreciable assets to operations over their estimated useful lives using the straight-line method. The estimated useful lives are as follows: Schedule of Estimated Useful Lives Asset Class Useful Life Leasehold Improvements 5  –  10 years Machinery and Equipment 3  –  7 years Furniture and Fixtures 5  –  7 years Capitalized Software 1  –  3 years Equipment Under Finance Leases 5 - 7 years Computer Equipment 2  –  5 years Leasehold improvements and equipment under financed ROU leases are amortized over the shorter of the useful life of the asset or the life of the lease. F- 10 Goodwill and Definite-Lived Intangible Assets, Net Goodwill is assessed using either a qualitative assessment or quantitative approach to determine whether it is more likely than not that the fair value of the reporting unit is less than the carrying amount. The qualitative assessment evaluates factors including macroeconomic conditions, industry-specific and company-specific considerations, legal and regulatory environments, and historical performance. If the Company determines that it is more likely than not that the fair value of a reporting unit is less than its carrying value, a quantitative assessment is performed. Otherwise, no further assessment is required. The quantitative approach compares the estimated fair value of the reporting units to it carrying amount, including goodwill. Impairment is indicated if the estimated fair value of the reporting unit is less than the carrying amount of the reporting unit, and an impairment charge is recognized for the differential. The Company completes its annual goodwill impairment tests in the fourth quarter, or whenever there are indicators that the fair value of the reporting unit might be less than the carrying amount. For the years ended June 30, 2025, and 2024, the Company did not record any impairment. Definite-Lived intangible assets are stated at cost, less accumulated amortization. Amortization of customer relationships and lists is recorded using an accelerated method over the useful lives of the related assets, which range from 10 to 15 years. Covenants not to compete and trade names are amortized using the straight-line method over the estimated useful lives of the related assets, which range from 5 to 15 years. Indefinite-lived intangible assets, such as certain trade names, are not amortized but are tested for impairment annually, or more frequently if events or changes in circumstances indicate that the asset might be impaired. For the years ended June 30, 205 and 2024 the company did no t record any impairment. Impairment of Long-Lived Assets Recoverability of long-lived assets, including property and equipment and certain identifiable intangible assets are evaluated whenever events or circumstances indicate that the carrying amount of an asset may not be recoverable. Factors considered important which could trigger an impairment review include but are not limited to significant underperformance relative to historical or projected future operating results, significant changes in the manner of use of the assets or the strategy for the overall business, significant decrease in the market value of the assets and significant negative industry or economic trends. In the event the carrying amount of the long-lived assets may not be recoverable based upon the existence of one or more of the indicators, the assets are assessed for impairment based on the estimated future undiscounted cash flows expected to result from the use of the asset and its eventual deposition. If the carrying amount of an asset exceeds the sum of the estimated future undiscounted cash flow, an impairment loss is recorded for the excess of the asset’s carrying amount over its fair value. There was no impairment during the years ended June 30, 2025, and 2024. Use of Estimates The preparation of consolidated financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements and revenues and expenses during the reporting period. Actual results could differ from those estimates. Significant estimates inherent in the preparation of the accompanying consolidated financial statements include management’s estimates of sales returns reserve, warrants fair value, customer rebates and discount reserves, goodwill impairment, and inventory valuation. On an ongoing basis, management evaluates its estimates compared to historical experience and trends, which form the basis for making judgments about the carrying value of assets and liabilities. Fair Value of Financial Instruments The Company complies with ASC 820, Fair Value Measurements and Disclosures , which defines fair value, establishes a framework for measuring fair value in accordance with U.S. generally accepted accounting principles and expands disclosure requirements about fair value measurements. Under ASC 820, there are three categories for the classification and measurement of assets and liabilities carried at fair value: Level 1: Valuation based on quoted market prices in active markets for identical assets or liabilities. Since valuations are based on quoted prices that are readily and regularly available in an active market, valuation of these products does not entail a significant degree of judgment. Examples include publicly traded equity securities and publicly traded mutual funds that are actively traded on a major exchange or over-the-counter market. F- 11 Level 2: Valuation based on quoted market prices of investments that are not actively traded or for which certain significant inputs are not observable, either directly or indirectly. Examples include municipal bonds, where fair value is estimated using recently executed transactions, bid asked prices and pricing models that factor in, where applicable, interest rates, bond spreads and volatility. Level 3: Valuation based on inputs that are unobservable and reflect management’s best estimate of what market participants would use as fair value. Examples include limited partnerships and private equity investments. The estimated fair value of cash, trade receivables, accounts payable, accrued expenses and other current liabilities are based on Level 1 inputs as the fair values approximate carrying amounts as of June 30, 2025, and 2024, based on the short-term nature and maturity of these instruments. The estimated fair values of subordinated shareholder debt and the credit facility is based on Level 2 inputs, which consist of interest rates that are currently available to the Company for issuance of debt with similar terms and remaining maturities. As of June 30, 2025, and 2024 the estimated fair value of the Company’s short and long-term debt approximates it carrying value due to market interest rates charged on such debt or their short-term maturities. The estimated fair value of the tangible and intangible assets acquired, and the liabilities assumed in connection with the acquisition of Think3Fold were measured using Level 2 and Level 3 inputs. The estimated fair value of warrants, and contingent shares is determined based on various valuation methodologies, including the Black-Scholes option pricing model and other appropriate valuation techniques. These methodologies consider factors such as the exercise price, expected volatility, expected term, and risk-free interest rate. Warrants Management evaluates all of the Company’s financial instruments, including warrants issued to purchase its Class A Common Stock, to determine if such instruments are derivatives or contain features that qualify as embedded derivatives, pursuant to ASC 480, Distinguishing Liabilities from Equity and ASC 815-15, Derivatives and Hedging-Embedded Derivatives . The classification of derivative instruments, including whether such instruments should be recorded as liabilities or as equity, is assessed at issuance of the financial instrument and re-assessed at the end of each reporting period. As a result of the Merger, the Company initially had 5,750,000 Public Warrants, 4,120,000 Private Placement Warrants, and 50,090 Representative Warrants issued that are exercisable to purchase shares of Class A Common Stock. The Public Warrants qualify for the derivative scope exception under ASC 815 and are therefore presented as a component of Stockholders’ Equity on the consolidated balance sheets without subsequent fair value re-measurement. The Private Placement Warrants and Representative Warrants are recognized as derivative liabilities in accordance with ASC 815-40. Accordingly, the Company recognizes the Private Placement Warrants and Representative Warrants as liabilities at fair value in the consolidated balance sheets with the warrant liabilities subject to re-measurement at each balance sheet date until exercised, and any change in fair value recognized in the consolidated statements of income and comprehensive income. The Company re-computes the fair value of the Private and the Representative Warrants at the issuance date and the end of each quarterly reporting period. Such value computation includes subjective input assumptions that are consistently applied each period. If the Company were to alter its assumptions or the numbers input based on such assumptions, the resulting fair value could be materially different. Refer to Note 20, Warrants and Note 21, Fair Value for additional details of the Warrants and related valuation. F- 12 Earnings per Share Basic Earnings Per Share is computed by dividing net income available to common shareholders by the weighted average shares outstanding during the period. Diluted EPS takes into account the potential dilution that could occur if securities or other contracts to issue shares, such as stock options, warrants, and unvested restricted stock units, were exercised and converted into common shares and the impact would not be antidilutive. Diluted EPS is computed by dividing net income available to common shareholders by the weighted average shares outstanding during the period, increased by the number of additional shares that would have been outstanding if the potential shares had been issued and were dilutive. Contingently issuable shares are included in basic net loss per share only when there is no circumstance under which those shares would not be issued. The following table sets forth the computation of basic and diluted net earnings per share of Common Stock for the years ended June 30, 2025, and 2024 respectively: Schedule of Computation of Basic and Diluted Net Earnings (loss) Per Share of Common Stock Year Ended Year Ended June 30, 2025 June 30, 2024 Net Income (in thousands) $ 15,078 $ 4,581 Basic and diluted shares Weighted-average Class A Common Stock outstanding (basic) 50,957,370 50,828,548 Weighted-average Class A Common Stock outstanding (diluted) 51,016,546 50,837,148 Income per share for Class A Common Stock — Basic and Diluted $ 0.30 $ 0.09 There are 60,000,000 shares of contingently issuable Common Stock that were not included in the computation of basic or diluted earnings per share since the contingencies for the issuance of these shares have not been met as of June 30, 2025. For the year ended June 30, 2025, there are 9,920,090 warrants outstanding that have been excluded from diluted earnings per share because they are anti-dilutive. For the year ended June 30, 2025, there are also 9,920,090 warrants outstanding and 660,000 restricted shares that have been excluded from diluted earnings per share because they are anti-dilutive. Advertising Costs Advertising costs, which consist primarily of mailers, catalogs, online marketing and other promotions, are expensed in the period in which the advertisement or promotion occurs. Additionally, the Company maintains cooperative advertising agreements with certain vendors to include their logos and product descriptions prominently in the catalogs and calendars. The fee revenues charged to the vendors for the cooperative advertising arrangements are recorded as a reduction of advertising expense and any excess fees are recorded as a reduction of cost of goods sold. Advertising costs, which are included as selling, general and administrative expenses, were $ 7.7 million and $ 7.3 million for the years ended June 30, 2025, and 2024, respectively. Deferred Financing Costs Deferred financing costs relating to the Company’s revolving credit facility are deferred and amortized ratably over the life of the debt using the straight-line method. Deferred financing costs are included as an addition to interest expense on the consolidated statements of income and comprehensive income and are included in Revolving Credit Facility, Net on the consolidated balance sheets. F- 13 Shipping and Handling The Company accounts for shipping and handling activities as fulfillment activities. As such, the Company does not evaluate shipping and handling as promised services to its customers. Shipping and handling costs are included in cost of revenues in the accompanying consolidated statements of income and comprehensive income. Foreign Currency Translation and Transactions The financial position and results of operations of the Company’s foreign subsidiary is measured using the local currency as the functional currency. Assets and liabilities of this subsidiary are translated into United States dollars at the exchange rate in effect at each period end. Income statement accounts are translated at the average rate of exchange prevailing during the period. Foreign currency translation income (loss) totaled $ 3 thousand and ($ 2 ) thousand for the years ended June 30, 2025, and 2024, respectively. The Company does not typically hedge its foreign exchange rate position. Realized gains or losses from foreign currency transactions are included in operations as incurred. Business Combinations — Valuation of Acquired Assets and Liabilities Assumed The Company allocates the purchase price for each business combination, or acquired business, based upon (i) the fair value of the consideration paid and (ii) the fair value of net assets acquired, and liabilities assumed. The determination of the fair value of net assets acquired and liabilities assumed requires estimates and judgements of future cash flow expectations for the acquired business and the allocation of those cash flows to identifiable tangible and intangible assets. Fair values are calculated by applying estimates related to Internal Rate of Return (IRR) and Weighted Average Cost of Capital (WACC) assumptions as well as incorporating expected cash flows into industry standard valuation techniques. Goodwill is the amount by which the purchase price consideration exceeds the fair value of tangible and intangible assets acquired, less assumed liabilities. Intangible assets, such as customer relationships and trade names, when identified, are separately recognized and amortized over their estimated useful lives, if considered definite lived. Acquisition costs are expensed as incurred and are included in the consolidated statements of income and comprehensive income. Leases The Company is a lessee in multiple noncancelable operating and financing leases. If the contract provides the Company with the right to substantially all the economic benefits and the right to direct the use of the identified asset, it is generally considered to be or contain a lease. Right-of-Use (ROU) assets and lease liabilities are recognized at the lease commencement date based on the present value of the future lease payments over the expected lease term. The ROU asset is also adjusted for any lease prepayments made, lease incentives received, and initial direct costs incurred. The lease liability is initially and subsequently recognized based on the present value of its future lease payments. Variable payments are included in the future lease payments when those variable payments depend on an index or a rate. Increases (decreases) to variable lease payments due to subsequent changes in an index or rate are recorded as variable lease expense (income) in the future period in which they are incurred. The discount rate used is the implicit rate in the lease contract, if it is readily determinable, or the Company’s incremental borrowing rate. The Company uses the incremental borrowing rate based on the information available at the commencement date for all leases. The Company’s incremental borrowing rate for a lease is the rate of interest it would have to pay on a collateralized basis to borrow an amount equal to the lease payments under similar terms and in a similar economic environment. F- 14 The ROU asset for operating leases is subsequently measured throughout the lease term at the amount of the remeasured lease liability (i.e., present value of the remaining lease payments), plus unamortized initial direct costs, plus (minus) any prepaid (accrued) lease payments, less the unamortized balance of lease incentives received, and any impairment recognized. Operating leases with fluctuating lease payments: For operating leases with lease payments that fluctuate over the lease term, the total lease costs are recognized on a straight-line basis over the lease term. The ROU asset for finance leases is amortized on a straight-line basis over the lease term. For all underlying classes of assets, the Company has elected the practical expedient to not recognize ROU assets and lease liabilities for short-term leases that have a lease term of 12 months or less at lease commencement and do not include an option to purchase the underlying asset that the Company is reasonably certain to exercise. Leases containing termination clauses in which either party may terminate the lease without cause and the notice period is less than 12 months are generally deemed short-term leases with lease costs included in short- term lease expense. The Company recognizes short-term lease cost on a straight-line basis over the lease term. Variable Interest Entity The Company evaluates its ownership, contractual, and other interests in entities to determine if it has any variable interest in a variable interest entity (VIE). These evaluations are complex, involve judgment, and the use of estimates and assumptions based on available historical information, among other factors. If the Company determines that an entity in which it holds a contractual, or ownership, interest is a VIE and that the Company is the primary beneficiary, the Company consolidates such entity in its consolidated financial statements. The primary beneficiary of a VIE is the party that meets both of the following criteria: (i) has the power to make decisions that most significantly affect the economic performance of the VIE; and (ii) has the obligation to absorb losses or the right to receive benefits that in either case could potentially be significant to the VIE. Management performs ongoing reassessments of whether changes in the facts and circumstances regarding the Company’s involvement with a VIE will cause the consolidation conclusion to change. Changes in consolidation status are applied prospectively. The Company evaluated its transactions with a related party included in Note 13 and concluded that the arrangements do not result in variable interests and do not require consolidation of any of the related party entities. Concentrations Schedule of Concentration of Credit Risk Customers: Year Ended Year Ended Revenues June 30, 2025 June 30, 2024 Customer #1 14.5 % 17.8 % Customer #2 14.0 % 11.0 % Customer #3 11.4 % 10.2 % Receivables June 30, 2025 June 30, 2024 Customer #1 30.2 % 20.2 % Customer #2 13.1 % 12.3 % F- 15 Suppliers: Year Ended Year Ended Purchases June 30, 2025 June 30, 2024 Supplier #1 23.5 % 21.1 % Supplier #2 12.1 % 18.4 % Supplier #3 10.4 % 10.4 % Payables June 30, 2025 June 30, 2024 Supplier #1 18.8 % 15.8 % Supplier #2 - * 12.3 % Supplier #3 12.9 % 10.6 % * Less than 10% Segments Operating segments are defined as components of an enterprise where discrete financial information is available and evaluated regularly by the chief operating decision maker or decision-making group, in deciding how to allocate resources and in assessing performance. The Company’s chief operating decision makers (CEO and Executive Chairman) manage the business, allocate resources, and assess performance on a consolidated basis. Accordingly, the Company has one operating and reportable segment. Accounting Pronouncements Recently Issued and Adopted Pronouncements In November 2023, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2023-07, Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures. ASU 2023-07 requires public entities to disclose significant segment expense categories that are regularly provided to the Chief Operating Decision Maker (“CODM”) and included in the measure of segment profit or loss, as well as the title and position of the CODM. The amendments also require disclosure of all annual segment profit or loss and asset disclosures in interim periods and provide expanded disclosure requirements for entities with a single reportable segment. ASU 2023-07 is effective for fiscal years beginning after December 15, 2023, and interim periods beginning after December 15, 2024. The Company adopted ASU 2023-07 for its fiscal year ended June 30, 2025, in accordance with the required effective date for non-accelerated filers. The adoption did not impact the Company’s consolidated financial position, results of operations, or cash flows; however, it resulted in enhanced segment disclosures in the notes to the consolidated financial statements in accordance with ASC 280, Segment Reporting . These enhancements include the identification of significant segment expense categories, disclosure of the measures of segment profit or loss used by the CODM, related reconciliations to the most comparable GAAP measure, and expanded disclosures for entities with a single reportable segment. Prior period comparative disclosures have been updated to conform to the current year presentation. The Company will include comparable disclosures in its interim financial statements beginning with the quarter ending September 30, 2025. Recently Issued but Not Yet Adopted Accounting Pronouncements Accounting Standard Update 2024-03, In 2024, Income Statement Reporting Comprehensive Income. The Financial Accounting Standards Board issued Accounting Standards Update (ASU) 2024-03, Income Statement Reporting Comprehensive Income Expense Disaggregation Disclosures (Subtopic 220-40): Disaggregation of Income Statement Expenses. This ASU provides guidance on the disaggregation of income statement expenses, aiming to enhance the transparency of financial reporting by requiring more detailed disclosures of expense categories. This ASU is effective for annual reporting periods beginning after December 15, 2026, and interim reporting periods beginning after December 15, 2027, with early adoption permitted. The Company is currently evaluating the impact of this ASU on its financial statements to determine the potential effect on its financial reporting and disclosures. F- 16 Accounting Standard Update 2024-02, In 2024, Codification Improvements Amendments to Remove References to the Concepts Statements. The Financial Accounting Standards Board (FASB) issued ASU 2024-02, which updates accounting standards for revenue recognition (ASC 606), lease accounting (ASC 842), and impairment of long-lived assets (ASC 360). The ASU provides enhanced guidance for estimating variable consideration, accounting for contract modifications, determining lease terms, and simplifying impairment testing for long-lived assets. It also introduces increased disclosure requirements for financial instruments and derivatives. ASU 2024-02 is effective for fiscal years beginning after December 15, 2024, with early adoption permitted. The Company is currently evaluating the impact of this ASU on its financial statements. Accounting Standard Update 2024-01 In 2024, Compensation Stock Compensation (Topic 718): Scope Application of Profits Interest and Similar Awards. The Financial Accounting Standards Board (FASB) issued ASU 2024-01, which introduces updates to accounting standards related to the classification and measurement of financial instruments under ASC 320. The update primarily focuses on clarifying guidance for equity securities, debt instruments, and other financial assets, particularly in the areas of fair value measurement and impairment recognition. It aims to improve consistency and comparability in the reporting of financial instruments by refining the criteria for classifying securities and enhancing the methodology for recognizing and measuring impairments. ASU 2024- 01 also mandates additional disclosures to provide greater transparency around the valuation techniques and assumptions used in determining the fair value of financial instruments. The update is effective for fiscal years beginning after December 15, 2024, with early adoption permitted. The Company is currently evaluating the impact of this ASU on its financial statements and disclosures. Accounting Standard Update 2023-09, Improvements to Income Tax Disclosures (“ASU 2023-09”). In December 2023, the FASB issued ASU 2023-09, which requires more detailed income tax disclosures. The guidance requires entities to disclose disaggregated information about their effective tax rate reconciliation as well as expanded information on income taxes paid by jurisdiction. The disclosure requirements will be applied on a prospective basis, with the option to apply them retrospectively. The standard is effective for fiscal years beginning after December 15, 2024, with early adoption permitted. We are evaluating the disclosure requirements related to the new standard. Note 2: Trade Receivables, Net Trade Receivables, Net consists of the following at: Schedule of Trade Receivables, Net ($ in thousands) June 30, 2025 June 30, 2024 Trade Receivables $ 100,799 $ 93,827 Less: Allowance for Credit Losses ( 867 ) ( 648 ) Sales Returns Reserve ( 2,257 ) ( 1,064 ) Customer Rebate and Discount Reserve ( 306 ) 242 Total Allowances ( 3,430 ) ( 1,470 ) Trade Receivables, Net $ 97,369 $ 92,357 Schedule of Allowance for Credit Losses Allowance for Credit Losses Roll forward June 30, 2025 June 30, 2024 ($ in thousands) Beginning Balance ( 648 ) ( 235 ) Current Period Provision for Expected Credit Losses ( 1,068 ) ( 686 ) Write-offs 861 285 Recoveries of Previously Written-off Accounts ( 12 ) ( 12 ) Ending Balance ( 867 ) ( 648 ) F- 17 Note 3: Inventory, Net Inventory, Net (all finished goods) consists of the following at: Schedule of Inventory, Net ($ in thousands) June 30, 2025 June 30, 2024 Inventory $ 108,590 $ 105,749 Less: Reserves ( 5,742 ) ( 8,320 ) Inventory, Net $ 102,848 $ 97,429 There were no inventory write-downs recorded for the fiscal years ended June 30, 2025, and 2024. Note 4: Other Current and Long-Term Assets Other Current and Long-Term Assets consist of the following at: Schedule of Other Current and Long-term Assets ($ in thousands) June 30, 2025 June 30, 2024 Other Assets–Current Prepaid Intellectual Property $ 2,786 $ 2,628 Escrow Receivable 8,500 - Insurance Receivable 1,377 - Prepaid Insurance 377 183 Prepaid Acquisitions - 55 Prepaid Catalogs 632 310 Prepaid Manufacturing Components 385 - Prepaid Maintenance 1,041 795 Prepaid Inventory - 559 Prepaid Molding 140 - Prepaid Shipping Supplies 1,270 768 Prepaid Vault 154 - Prepaid Royalties 17 - Total Other Assets–Current $ 16,679 $ 5,298 Other Long-Term Assets Deposits $ 175 $ 273 Income tax receivable 614 230 Total Other Long-Term Assets $ 789 $ 503 Note 5: Property and Equipment, Net Property and Equipment, Net consists of the following at: Schedule of Property and Equipment, Net ($ in thousands) June 30, 2025 June 30, 2024 Property and Equipment Leasehold Improvements $ 908 $ 908 Machinery and Equipment 30,624 30,490 Furniture and Fixtures 1,717 1,717 Capitalized Software 10,377 10,377 Equipment Under Finance Leases 12,488 12,488 Computer Equipment 1,757 1,757 Construction in Progress 43 - Property and Equipment, Gross 57,914 57,737 Less: Accumulated Depreciation and Amortization ( 46,623 ) ( 44,795 ) Total Property and Equipment, Net $ 11,291 $ 12,942 Depreciation Expense for the years ended June 30, 2025, and 2024 was $ 1.8 million and $ 1.9 million respectively. F- 18 Note 6: Goodwill and Intangibles, Net Schedule of Goodwill ($ in thousands) June 30, 2025 June 30, 2024 Goodwill, Beginning Balance $ 89,116 89,116 Goodwill, Ending Balance $ 89,116 89,116 Intangibles, Net consists of the following at: Schedule of Intangible Assets, Net ($in thousands) Year ended June 2025 Year Ended June 2024 Intangibles: Intangibles Cost Accum. Amortization Intangibles, Net Accum. Amortization Intangibles, Net Customer Relationships $ 78,000 ( 73,928 ) $ 4,072 ( 72,019 ) $ 5,981 Trade Name – Alliance $ 5,200 ( 5,200 ) $ - ( 5,200 ) $ - Contract Acquisition $ 1,800 ( 180 ) $ 1,620 - $ - Tradename - HMBR $ 6,800 - $ 6,800 - - Mecca Customer Relationships $ 8,023 ( 6,393 ) $ 1,630 ( 5,818 ) $ 2,205 Customer List $ 12,760 ( 8,407 ) $ 4,353 ( 7,565 ) $ 5,195 Total $ 112,583 ( 94,108 ) $ 18,475 ( 90,602 ) $ 13,381 During the years ended June 30, 2025, and 2024, the Company recorded amortization expense of $ 3.5 million and $ 4.0 million, respectively. Expected amortization over the next five years and thereafter, as of June 30, 2025, is as follows: Schedule of Expected Amortization Over the Next Five Years and Thereafter ($ in thousands) Intangible Assets Year Ended June 30, 2026 $ 3,375 2027 3,326 2028 2,298 2029 1,019 2030 379 Thereafter 1,278 Total Expected Amortization $ 11,675 Indefinite-lived Intangible asset 6,800 Total Intangible Assets $ 18,475 Note 7: Accrued Expenses Accrued Expenses consists of the following at: Schedule of Accrued Expenses ($ in thousands) June 30, 2025 June 30, 2024 Marketing Funds Accruals $ 4,870 $ 5,012 Payroll and Payroll Tax Accruals 1,690 2,782 Accruals for Other Expenses 1,688 1,577 Accrued Contract Liability 1,300 - Total Accrued Expenses $ 9,548 $ 9,371 F- 19 Note 8: Revolving Credit Facility On December 21, 2023, the Company entered into a new credit facility with White Oak Commercial Finance, LLC, which will mature on December 21, 2026 . The facility is a $ 120 million asset-based revolving credit facility (the “Revolving Credit Facility”). Borrowings under the Revolving Credit facility bear interest at the 30-day SOFR rate, subject to a floor of 2 %, plus a margin ranging from 4.00 % to 4.25 %, depending on the Company’s utilization and consolidated fixed charge coverage ratio. The 30-day SOFR rates as of June 30, 2025, and June 30, 2024, were 4.35 % and 5.29 % , respectively. The effective interest rates at June 30, 2025, and June 30, 2024, were 9.2 % and 9.5 %, respectively. On June 30, 2025, the Company entered into an amendment to its Credit Facility with White Oak, which reduced the applicable interest rate margin from a range of 4.5 % – 4.75 % to a range of 4.0 % – 4.25 %, effective immediately. The Company expects the reduction in the applicable interest rate range to decrease its interest expense in future periods. If the Company reduces or terminates the commitments under the Revolving Credit Facility before its maturity, it will incur an early termination fee of 1 % if done between December 21, 2024, and August 21, 2025. As of August 21, 2025, the Company is no longer subject to any early termination fees. Availability under the Revolving Credit Facility is determined by the Company’s borrowing base calculation, as defined in the credit agreement relating to this facility. The Company also incurs a commitment fee of 0.25 % for unused credit line with fees for the fiscal year ended June 30, 2025, and June 30, 2024, of $ 0.22 million and $ 0.15 million, respectively. Availability as of June 30, 2025, was approximately $ 54 million with an outstanding revolver balance of approximately $ 57 million. Availability as of June 30, 2024, was $ 44 million with an outstanding revolver balance of $ 73 million. The maximum borrowings under the Revolving Credit Facility are determined by a formula based on eligible accounts receivable and inventory, subject to lender discretion. The facility includes standard representations and warranties, events of default, and financial reporting requirements, including maintaining a fixed charge coverage ratio of at least 1.1 to 1.0 on a trailing twelve-month basis. The facility also imposes covenants restricting the Company’s ability to incur additional indebtedness, grant liens, pay dividends, make unpermitted investments, or materially change its business operations. The facility is secured by a first-priority security interest in the Company’s and its subsidiaries’ cash, accounts receivable, and related assets. The Company was in compliance with its covenants as of June 30, 2025 and 2024. Revolving Credit Facility, net consists of the following at: Schedule of Revolver Balance ($ in thousands) June 30, 2025 June 30, 2024 Outstanding Balance $ 57,257 $ 72,979 Less: Deferred Finance Costs ( 1,988 ) ( 3,392 ) Revolving Credit Facility, Net $ 55,269 $ 69,587 During the years ended June 30, 2025, and 2024, the Company had interest expenses of $ 7.2 million and $ 11.2 million, respectively, and amortization of deferred finance costs of $ 1.4 million and $ 0.9 million, respectively. F- 20 Note 9: Employee Benefits Company Health Plans During the year ended June 30, 2025, the Company transitioned its health insurance coverage from a self-funded model to an Individual Coverage Health Reimbursement Arrangement (“ICHRA”). As a result, the self-insured medical plans (including both PPO and HDHP options) under the Alliance Health & Benefits Plan (“AHBP”) were terminated. Under the ICHRA model, the Company reimburses employees and executive officers for individual health insurance premiums, with contribution levels varying based on coverage tiers. There were no changes to the Company’s dental (PPO and HMO), vision, life insurance, or short-term disability plans. The Company’s dental HMO plan remains self-insured, with exposure limited to a maximum per individual procedure based on a published fee schedule. The dental PPO plan is fully insured. The Company contributes various percentages toward premium costs across benefit offerings, based on coverage levels and Board-approved schedules. The vision, life insurance, and short- and long-term disability plans are fully insured and Company-sponsored, with premiums paid by both the employer and employees in accordance with Board-approved contribution structures. As of June 30, 2025, the Company had no remaining liability related to the terminated self-insured medical plans, as the previously accrued estimated run-out exposure was fully settled during the fourth quarter of fiscal 2025. At June 30, 2024, the accrued estimated run-out exposure for the medical and dental plans totaled approximately $ 332,000 and was included in accrued expenses on the Company’s consolidated balance sheet. Effective in fiscal 2025, the Company implemented an Individual Coverage Health Reimbursement Arrangement (“ICHRA”) plan, which eliminates the Company’s exposure to self-insured medical and dental claims; therefore, no similar liabilities are expected under the current plan structure. 401(k) Plan The Company has the Alliance Entertainment 401(k) Plan (the Plan) covering all eligible employees of the Company. All employees over the age of 18 are eligible to participate in the Plan at the beginning of the month following date of hire. The Plan has automatic deferral at the beginning of the month following the date of hire. Employees are automatically enrolled in the Plan with a 3 % contribution; however, they have the option to increase/decrease their deferrals or opt out of the Plan at any time. The Company currently offers a match contribution of $ 0.50 of every dollar up to 4 % of contribution percentage. For the fiscal year ending June 30, 2025, and 2024 the company’s matching expense was approximately $ 588,000 and $ 620,000 , respectively. The Company conducts a retirement plan review on an annual basis. Note 10: Segment Information In November 2023, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2023-07, Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures, which requires enhanced disclosures about a public entity’s reportable segments, including significant segment expense categories and expanded interim reporting requirements. The amendments are effective for fiscal years beginning after December 15, 2023, and interim periods beginning after December 15, 2024. Early adoption is permitted. The Company adopted ASU 2023-07 for the fiscal year ended June 30, 2025. Management performed an assessment of the Company’s operating segments in accordance with ASC 280-10-50-1 through 50-9. Based on this evaluation, the Company determined that it operates as a single operating segment, which is also its sole reportable segment. Segment revenue is derived from the sale of distribution of pre-recorded music, video movies, video games and related accessories, and merchandising. This conclusion is consistent with prior periods. The Company’s Chief Executive Officer and Chairman are the Chief Operating Decision Makers (“CODM”) and review financial performance and make resource allocation decisions at the consolidated entity level. The CODM uses net income, prepared in accordance with U.S. GAAP to assess performance and make resource allocation decisions. The CODM utilizes net income, prepared in accordance with U.S. GAAP, to evaluate financial performance, monitor variances against budget and forecast, and guide strategic decisions. Segment assets are reported as consolidated assets on the Company’s balance sheet. F- 21 Significant expense categories regularly reviewed by the CODM include: ● Cost of Revenues (excluding depreciation and Amortization ) ● Distribution and Fulfillment Expense ● Sales and Marketing Other Segment Items : Other segment items include expenses that are part of segment profit or loss but are not classified as significant segment expenses. These include: ● General and Administrative Expense ● Technology Expense ● Interest Expense ● Income Tax Expense The following table presents segment revenue, net loss, and the significant segment expenses for the Company’s single reportable segment for the fiscal years ended June 30, 2025, and 2024 (in thousands): Reconciliation to Consolidated Net Income: Schedule of Segment Reporting for Financial Information 2025 2024 Fiscal Year ended June 30 2025 2024 Net Revenues $ 1,063,457 $ 1,100,483 Cost of Revenues (excluding depreciation and Amortization) 930,605 971,594 Distribution and Fulfillment Expense 40,375 48,818 Sales and Marketing 26,919 27,220 Other Segment items * 50,480 23,776 Net income 15,078 4,581 * Other segment items include interest expense, income tax expense, general and administrative expenses, and technology expenses, which are reported separately on the consolidated statements of income. Note 11: Income Taxes The Company accounts for income taxes under an asset and liability approach that requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of events that have been recognized in the Company’s consolidated financial statements or tax returns as well as tax credits carry forward. In estimating future tax consequences, the Company generally considers all expected future events other than enactments of changes in the tax laws or rates. Valuation allowances are established as necessary to reduce deferred tax assets to an amount more likely than not to be realized. F- 22 The Company’s policy on income statement classification of interest and penalties related to income tax obligations is to include such items as part of total interest expense and other expense, respectively. As of June 30, 2025, and 2024, the Company did not have any material uncertain tax positions and thus has not recognized any interest or penalties in these consolidated financial statements. The Federal income tax return remains open for examination by the U.S. tax authorities for all years subsequent to 2020. The components of the provision for (benefit from) income taxes for the fiscal year-ended June 30, 2025 and 2024 are as follows: Schedule of Income Tax Provision ($ in thousands) 2025 2024 Year Ended June 30 ($ in thousands) 2025 2024 Income Tax Expense: Current: Federal $ 592 $ 475 State 715 431 Total Current Expense $ 1,308 $ 906 Deferred: Federal $ 2,404 $ ( 2,856 ) State ( 81 ) ( 778 ) Total Deferred Expense (Benefit) 2,322 ( 3,634 ) Income Tax Expense (Benefit) $ 3,630 $ ( 2,728 ) The items accounting for the difference between income taxes computed at the U.S. federal statutory income tax rate and the income tax expense (benefit) at the effective tax rate for each of the years are as follows: Schedule of Effective Income Tax Rate Reconciliation Year Ended June 30 ($ in thousands) 2025 2024 Federal Income Tax Provision at Statutory Rate $ 3,922 21 % $ 389 21 % State Taxes, Net of Federal Benefits 634 3 % ( 347 ) ( 19 )% Other – Permanent Adjustments 26 0 % 20 1 % Fair Value Adjustments on Warrants 178 1 % - - Foreign Derived Intangible Income ( 349 ) ( 2 )% ( 293 ) ( 16 )% Deferred Tax True-Up ( 682 ) 0 % ( 2,730 ) ( 147 )% Immaterial Income Tax out-of-period Adjustment ( 99 ) ( 4 )% - 0 % Equity Compensation - 0 % 233 13 % Income Tax Expense (Benefit) $ 3,630 20 % $ ( 2,728 ) ( 147 )% Deferred income taxes reflect the net tax effects of temporary differences between the amount of assets and liabilities for accounting purposes and the amounts used for tax purposes. The components of deferred taxes consist of the following (amounts in thousands): Schedule of Components of Deferred Taxes Year Ended Year Ended ($in thousands) June 30, 2025 June 30, 2024 Deferred Tax Assets: Other Deferred Tax Assets (ICDISC) $ - $ 590 Net Operating Losses 4,856 8,607 Credit Losses 234 149 Inventory 2,364 2,990 Section 248 Organization Costs 1,674 1,827 Accruals Not Currently Deductible 5,170 3,481 Lease Liability 5,347 5,800 Total Deferred Tax Assets 19,645 23,444 Deferred Tax Liabilities: Prepaids ( 1,033 ) ( 918 ) Property and Equipment ( 2,223 ) ( 3,864 ) Operating Lease Assets ( 4,970 ) ( 5,732 ) Goodwill/Intangibles ( 7,208 ) ( 6,397 ) Total Deferred Tax Liabilities ( 15,434 ) ( 16,911 ) Net Deferred Tax Asset, Net $ 4,211 $ 6,533 F- 23 As of June 30, 2025, 2024 and 2023, The Company had recorded no unrecognized tax benefits and, therefore, no accrued interest or penalties for unrecognized tax positions. In addition, The Company is under examination by the Florida tax authorities. These proceedings may lead to adjustments or proposed adjustments to their taxes or provisions for uncertain tax provisions. The Company believes that it would prevail under such examination and, accordingly, has not recorded a provision for uncertain tax positions. The Company evaluates deferred tax assets each period for recoverability. The Company records a valuation allowance for assets that do not meet the threshold of “more likely than not” to be realized in the future. To make that determination, the Company evaluates the likelihood of realization based on the weight of all positive and negative evidence available. As of June 30, 2025 and 2024, The Company has not recorded a valuation allowance. The Company will reevaluate this determination quarterly and record a tax expense if and when future evidence requires a valuation allowance. As of June 30, 2025, the Company had federal net operating loss carryforwards (“NOLs”) of $ 14.7 million and state NOLs of $ 19.3 million. Of these carryforwards, approximately $ 10.3 million will expire, if not utilized, in various years through 2043. The remaining carryforwards have no expiration. The Internal Revenue Code of 1986, as amended, imposes restrictions on the utilization of net operating losses and certain credits in the event of an “ownership change” of a corporation. Accordingly, a company’s ability to use net operating losses and certain credits may be limited as prescribed under. Note 12: Commitments and Contingencies Commitments The Company enters into various agreements with suppliers for the products it distributes. The Company had no long-term purchase commitments or arrangements with its suppliers as of June 30, 2025, and June 30, 2024. Litigation, Claims and Assessments We are exposed to claims and litigations of varying degrees arising in the ordinary course of business and use various methods to resolve these matters. When a loss is probable, we record an accrual based on the reasonably estimable loss or range of loss. When no point of loss is more likely than another, we record the lowest amount in the estimated range of loss and, if material, disclose the estimated range of loss. We do not record liabilities for reasonably possible loss contingencies but do disclose a range of reasonably possible losses if they are material and we are able to estimate such a range. If we cannot provide a range of reasonably possible losses, we explain the factors that prevent us from determining such a range. Historically, adjustments to our estimates have not been material. We believe the recorded reserves in our consolidated financial statements are adequate in light of the probable and estimable liabilities. We do not believe that any of these identified claims or litigation will be material to our results of operations, cash flows, or financial condition. F- 24 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. 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. Office Create Corporation is seeking damages of no less than $ 20,913,200 , plus interest of 9 % accruing from October 3, 2022. On August 29, 2024, COKeM filed a response denying all allegations. COKeM intends to vigorously defend the lawsuit. On September 12, 2024, COKeM filed a Third-Party Complaint against Planet Entertainment LLC and Steven Grossman asserting claims for indemnification and contribution. Mediation has been postponed. Office Create Corporation has filed an amended complaint impleading the former owner, chairman, CFO and SVP of Sales for COKeM seeking willful trademark infringement claims and civil conspiracy. Alliance filed an amended Answer insofar as any new claims pertain to COKeM directly on March 12, 2025. The Amended Complaint is now seeking damages in excess of $ 35 MM. The court did schedule a settlement conference for August 11, 2025 but Office Create Corporation cancelled it with no new date scheduled. COKeM has offered a settlement amount of $ 330,000 which has been rejected by Office Create Corporation. COKeM believes that Office Create Corporation is relying on case law that has been overturned and precedent that is not-binding in the 8th Circuit. COKeM has some insurance coverage for this claim with CNA but the policy is capped at $ 2.5 million for all claims and also has to be shared with the VPPA class action claim(s) discussed below. Jonathan Hoang To v. DirectToU, LLC, United States District Court for the Northern District of California; Case No. 3:24-cv-06447; Douglas Feller, Jeffry Haise, and Joseph Mull v. Alliance Entertainment, LLC and DirectToU, LLC, United States District Court for the Southern District of Florida, Case No. 0:24-cv-61444; and Vivek Shah v. DirectToU, LLC, JAMS Arbitration, No. 5220006749.- On or about September 12, 2024, Jonathan Hoang To, who allegedly used the website www.deepdiscount.com; Douglas Feller and Jeffry Haise, who allegedly used the website www.ccvideo.com; Joseph Mull and Vivek Shah, who allegedly used the website www.moviesunlimited.com. The lawsuits also put at issue any other website owned or operated by Alliance Entertainment, LLC (“Alliance”) or one of its corporate affiliates, including the websites www.ccmusic.com and wowhd.co.uk. The lawsuits bring claims against DirectToU, LLC (“DirectToU”) and/or Alliance, alleging a violation of the Video Privacy Protection Act (“VPPA”) related to the alleged collection of, and alleged disclosure to Meta and other third parties, including data brokers, of alleged private information and user data regarding a user’s account information and video viewing/purchasing history from the respective Websites. Plaintiff Hoang To also alleges violations of California’s state VPPA equivalent, as well as violations of California’s Unfair Competition Law. DirectToU and Alliance dispute the allegations and will defend the lawsuits vigorously. The parties in the Hoang To matter have reached a settlement with respect to all potential class members. The settlement agreement has been submitted to the court for approval, slated for December 15, 2024. An approved settlement would cover the class members covered by the Feller matter, rendering such litigation moot. A motion to stay the Feller matter pending court approval of the settlement in Hoang To has been filed and granted. Counsel for the Feller parties filed a motion to intervene and stay the settlement in Hoang, which motions were rejected. The parties await final settlement approval. The settlement was rejected and the court has mandated the parties initiate discovery with respect to third-party data collection. The Alliance parties have filed a reply memorandum in support of its motion to compel arbitration on April 28, 2025. The parties reached a settlement on June 12, 2025, whereby COKeM will pay to the class a settlement amount of $ 1.577 MM and COKeM’s insurance carrier CNA has approved to cover their part of the settlement amount. COKeM will have an estimated receivable of $ 1.377 M. The company had accrued for the liability and the receivables from CNA on the balance sheet for the fiscal year ended June 30, 2025. The settlement approval before the court is pending and is expected to be ruled on in late October/early November 2025. McConigle v. Alliance/DirectToU, LLC: On December 29, 2024, McConigle filed a class action lawsuit against the Company in the United States District Court for the Southern District of Florida (Case No. 0:24-cv-62443-DSL), alleging violations of the Telephone Consumer Protection Act, 47 U.S.C. § 227 (“TCPA”). On August 8, 2025, subsequent to year-end, the parties entered into a settlement agreement for $ 70,000 . The Company did not record an accrual for this matter as of June 30, 2025, as the amount was not considered material to the consolidated financial statements. The Company does not expect any further material impact from this matter . Balabbo v Abysse America, Inc., Target Corporation, DirectToU, LLC (Prop 65): On or about December 11, 2024, DirectToU received a tender of defense from Target Corporation citing a possible violation of California Proposition 65 for a product sold by DirectToU allegedly containing lead. The product in question was supplied to Alliance by Abysse America. Alliance/DTU have tendered defense to Abysse. Abysse has engaged counsel to respond to the Prop 65 Violation Notice. At this time, Alliance/DTU have discontinued the product, but have documentation supplied by Abysse showing that the product was properly tested and was within allowable thresholds for lead and other substances. Algomus v. Alliance: Alliance received a cease and desist notice from Algomus on July 24, 2025, alleging that Alliance breached a non-solicitation provision of a Master Services Agreement between the parties when Alliance agreed to become the Category Advisor for Walmart. Alliance responded to the letter on August 8, 2025, asserting that Algomus’s position lacks merit. Alliance had been conducting business with Walmart prior to the Master Services Agreement, and Algomus and Walmart’s relationship is not governed by the language of the non-solicitation provision. On June 9, 2025, Sparkle Pop, LLC v. Alliance Entertainment Holding Corporation and Alliance Entertainment. LLC (U.S. Bankruptcy Court for MD-In Re Diamond Comic Distributors): Sparkle Pop has sued the Alliance entities in bankruptcy court alleging theft of trade secrets and tortious interference with contracts arising out of Alliance’s successful bid and subsequent termination of the Asset Purchase Agreement in the DCD bankruptcy matter. Alliance brought a motion to dismiss the original complaint with prejudice, but during the pendency of the motion plaintiff filed an Amended Complaint. Alliance will file a motion to dismiss the Amended Complaint shortly. Note 13: Related Party Transactions GameFly Holdings, LLC On February 1, 2023, Alliance entered into a Distribution Agreement (the “Agreement”) with GameFly Holdings, LLC, a customer owned by the principal stockholders of Alliance, effective from February 1, 2023, through March 31, 2028. At that time, the Agreement continues indefinitely until either party provides the other party with six-month advance notice to terminate the Agreement. During the year ending June 30, 2025, and 2024, Alliance had distribution revenue of $ 0 and $ 0.25 million, respectively. During the fiscal year ended June 30, 2025, and 2024, the Company had sales to GameFly LLC, owned by the Company’s shareholders, of $ 2.7 million and $ 8.4 million, respectively. As of June 30, 2025, and June 30, 2024, the Company had receivables from GameFly of $ 0.20 million and $ 1.8 million, respectively, recorded within other receivables, net, on the consolidated balance sheets. During the year ended June 30, 2024, the Company repaid $ 0.50 million of outstanding promissory notes to two former Adara shareholders to fund operating costs. These interest-free notes were due for payment at the earlier of the Merger’s closing of February 10, 2023. MVP Logistics, LLC MVP Logistics is an independent contractor, which, prior to August 31, 2023, was partially owned by Joe Rehak, the SVP of Operations of COKeM International Limited, which Alliance acquired in September 2020. Subsequent to August 31, 2023, Mr. Rehak no longer has an equity stake in MVP Logistics and retired from COKeM in January 2024. Alliance believes the amounts payable to MVP Logistics are at fair market value. During the years ended June 30, 2025 and 2025, Alliance incurred costs with MVP Logistics, LLC, in the amount of $ 0 and $ 1.0 million, respectively, for freight shipping fees, transportation costs, warehouse distribution, and 3PL management services (for Arcades) at the Santa Fe Springs, California and South Gate, California distribution facilities. F- 25 Ogilvie Loans On July 3, 2023, the Company entered into a $ 17 million line of credit (the “Ogilvie Loan”) with Bruce Ogilvie, a principal stockholder. Initial borrowings amounted to $ 10 million on that date, followed by an additional $ 5 million on July 10, 2023. These sums were repaid on July 26, 2023. On August 10, 2023, the Company accessed the Ogilvie Loan for the full $ 17 million, repaying $ 7 million on August 28, 2023. Further transactions occurred on September 14th, with a borrowing of $ 7 million, repaid on September 28, 2023. On October 10, 2023, an additional $ 7 million was borrowed and repaid on October 18th, 2023. As of June 30, 2025, the outstanding balance on the Ogilvie Loan was $ 10 million. The Ogilvie Loan matures on December 22, 2026, and bears interest at the rate of the 30-day SOFR plus 5.5 %. Interest expenses for the fiscal years ended June 30, 2025, and June 30, 2024, were $ 1.0 million each. The interest rate as of June 30, 2025, and 2024, was 9.8 % and 10.8 % respectively. B&D Capital Partners, LLC During the fiscal year ended June 30, 2024, the Company entered into a financial advisory agreement with B&D Capital Partners, LLC (“BDCP”). W. Tom Donaldson III, a director of the company, is a managing partner and a principal equity holder of Blystone & Donaldson, the parent company of BDPC. The agreement, dated July 28, 2023, engaged BDCP as a non-exclusive financial advisor to assist the Company in issuing privately held debt securities and related transactions. BDCP is owned by Blystone & Donaldson, LLC, and Mr. Donaldson, an independent director of the Company, is a principal of BDCP. Under the terms of the agreement, BDCP provided financial advisory services, including the review of confidential information, identification and engagement of potential transaction parties, and assistance with investor presentations. During the fiscal year ended June 30, 2025, the Company did not incur any related party fees with BDCP. For the fiscal year ended June 30, 2024, the Company paid BDCP approximately $ 1.8 million, which included an advisory fee equal to 1.5 % of the gross proceeds from transactions involving White Oak Commercial Finance, LLC. Note 14: Leases The Company leases offices, warehouses, computer equipment, and vehicles. Certain leases include options to renew, which may extend the lease term from 1 one to 13 years. The decision to exercise renewal options is at the Company’s sole discretion and is included in the lease term when it is reasonably certain that the option will be exercised. Leasehold improvements and assets are depreciated over the shorter of their useful life or the lease term unless the lease includes a purchase option or title transfer that is reasonably certain to occur. Our lease agreements do not include material residual value guarantees or restrictive covenants. Lease payments generally include fixed payments, with some leases requiring variable payments. These variable payments typically cover the Company’s proportionate share of property taxes, insurance, and common area maintenance and are recognized as incurred rather than being included in the lease liability. On the balance sheet, operating leases are reflected in “Operating Lease Right-of-Use Assets, Net,” “Current Portion of Operating Lease Obligations,” and “Operating Lease Obligations, Non-Current.” Finance leases are included under “Property & Equipment, Net,” “Current Portion of Finance Lease Obligations,” and “Finance Lease Obligations, Non-Current. On June 1, 2024, the Company executed a modification to one of its existing lease agreements to extend the lease term for an additional seventy-four months. As a result of this modification, the Company recognized an additional $ 21.9 million to its right-of-use (ROU) asset. The extended lease term will result in continued amortization of the ROU asset over the remaining lease period, with the associated lease liabilities being remeasured in accordance with ASC 842, Leases . The Company will continue to amortize the ROU asset in line with the revised lease terms and conditions, reflecting the financial impact of the extension in future periods. F- 26 Components of lease expense were as follows for the years ended June 30, 2025, and 2024: Schedule of Components of Lease Expense Year Ended Year Ended June 30, 2025 June 30, 2024 Lease Cost ($ in thousands) Finance Lease Cost: Amortization of Right of Use Assets $ 1,581 $ 183 Interest on lease liabilities 492 4 Operating Lease Cost 4,292 3,779 Short - Term Lease Cost 79 73 Variable Lease Cost 1,117 2,273 Total Lease Cost $ 7,561 $ 6,312 Other Information ($ in thousands) Cash paid for amounts included in the measurement of lease liabilities: Operating cash flows from finance leases $ - $ 5 Operating cash flows from operating leases $ 3,112 $ 4,080 Financing cash flows from finance leases $ 2,870 $ 196 Right of use assets obtained in exchange for new finance lease liabilities - 7,853 Right of use assets obtained in exchange for new operating lease liabilities $ - $ 21,900 Net Right of use asset remeasurement - ( 9 ) Weighted average remaining lease term - finance leases (in Years) 1.58 0.28 Weighted average remaining lease term - operating leases (in Years) 5.52 6.50 Weighted average discount rate - finance leases 7.08 % 3.33 % Weighted average discount rate - operating leases 5.69 % 5.68 % Maturities of operating and finance lease liabilities as of June 30, 2025 are as follows: Schedule of Maturities of Lease Liabilities ($ in thousands) Operating Leases Finance Leases 2026 $ 4,223 $ 3,340 2027 4,154 1,987 2028 4,232 - 2029 4,352 - 2030 4,493 - Thereafter 2,680 - Total Lease Payments 24,134 5,327 Less Imputed Interest ( 3,473 ) ( 321 ) Present Value Obligation 20,661 5,006 Short-term Liability 3,229 3,075 Total $ 17,432 $ 1,931 Finance ROU leases are recorded in Property and Equipment, net on the consolidated balance sheets. Schedule of Finance leases in Property and Equipment June 30, 2025 June 30, 2024 Cost 13,831 13,831 Additions 10 - Accumulated Depreciation ( 3,403 ) ( 1,843 ) Net Book Value 10,438 11,988 Note 15: Merger As disclosed in Note 1, on February 10, 2023, the Company completed the Merger with Alliance and a Merger Sub, resulting in the Company becoming a publicly traded company. While Alliance was the legal acquirer in the Merger, for financial accounting and reporting purposes under U.S. GAAP, Legacy Alliance was the accounting acquirer, and the Merger was accounted for as a “reverse recapitalization.” A reverse recapitalization (i.e., a capital transaction involving the exchange of stock by Alliance for Legacy Alliance’s stock) does not result in a new basis of accounting, and the consolidated financial statements of the combined entity represent the continuation of the consolidated financial statements of Legacy Alliance. Accordingly, the consolidated assets, liabilities, and results of operations of Legacy Alliance became the historical consolidated financial statements of the combined company, and Alliance’s assets, liabilities and results of operations were consolidated with Legacy Alliance beginning on the acquisition date. Operations prior to the Merger are presented as those of Legacy Alliance in future reports. The net assets of Alliance were recognized at historical cost (which was consistent with carrying value), with no goodwill or other intangible assets recorded. F- 27 At the closing of the Merger, each of the then issued and outstanding shares of Alliance common stock were cancelled and automatically converted into the right to receive the number of shares of Alliance common stock equal to the exchange ratio (determined in accordance with the Business Combination Agreement). The Company’s 900 shares of previously outstanding common stock were exchanged for 47,500,000 shares of Class A Common Stock. In addition, the treasury stock was cancelled. This change in equity structure has been retroactively reflected in the financial statements for all periods presented. The following table summarizes the shares of Class A outstanding following consummation of the Merger: Schedule of Consummation of Merger Alliance Public Shares 167,170 Alliance Sponsor Shares 1,500,000 Legacy Alliance Shares 47,500,000 Total Shares of Common Stock Outstanding after Merger 49,167,170 Up to 60 million additional Class E shares may be issued to the Legacy Alliance shareholders at no cost based on future performance of the company’s stock price, and 9.9 million warrants (Class A) that can be exercised for common shares at $ 11.50 per share (See Note 20). The 60 million Class E shares are set aside in an escrow account as additional consideration contingent on triggering events occurring within 10 years after the Merger. Upon reaching the following triggering events, the Class E shares will be released from the escrow account to the three major shareholders, and converted to Class A shares on a 1:1 basis: ● If the stock price increases to $ 20 per share within 5 years, 20 million Class E shares will be released. ● If the stock price increases to $ 30 per share within 7 years, 20 million Class E shares will be released. ● If the stock price increases to $ 50 per share within 10 years, 20 million Class E shares will be released. Each share of Class A and Class E common stock has one vote, and the common shares collectively will possess all voting power and will have the exclusive right to vote for the election of directors and on all other matters properly submitted to a vote of the stockholders. Since the Class E shares are subject to vesting conditions and meet the contingent exercise and settlement provisions to be considered indexed to the Company’s stock, they are accounted for as equity instruments, and are reflected as a reduction of retained earnings, at their fair value on the date of the Merger. The Company incurred total transaction costs of approximately $ 5.0 million, including legal, financial advisory and other professional fees related to the Merger, which was recorded as an expense as the offering costs exceeded the proceeds received in the Merger. In connection with the Merger, the Company’s 2023 Omnibus Equity Incentive Plan (the “2023 Plan”) became effective. The 2023 Plan is a comprehensive incentive compensation plan under which the Company can grant equity-based and other incentives awards to based officers, employees and directors of, and consultants and advisers to, Alliance and its subsidiaries. The Company has reserved a total of 600,000 shares of common stock for issuance as or under awards to be made under the 2023 Plan. To the extent that an award lapses, expires, is canceled, is terminated unexercised or ceases to be exercisable for any reason, or the rights of its holder terminate, any common stock subject to such award shall again be available for the grant of a new award. The 2023 Plan shall continue in effect, unless sooner terminated, until the tenth anniversary of the date on which it is adopted by the Board of Directors (except as to awards outstanding on that date). The Board of Directors, in its discretion, may terminate it at any time with respect to any shares for which awards have not theretofore been granted, provided certain conditions are met, in accordance with the 2023 Plan. The price at which a share may be purchased upon exercise of a share option shall be determined by the Plan Committee; provided, however, that such option price (i) shall not be less than the fair market value of a share on the date such share option is granted, and (ii) shall be subject to adjustment as provided in the 2023 Plan. As of June 30, 2025, and 2024, 101,300 and 463,800 shares, respectively, were awarded under the 2023 Plan. F- 28 Note 16: Asset Purchase On December 17, 2024, the Company completed an asset purchase from Bensussen Deutsch & Associates, LLC, “an unrelated third party” for a total cash consideration to the seller of $7,551,000. The asset purchase included inventory, tooling equipment, and a trademark. The allocation of the purchase price was as follows: Schedule of Allocation of Purchase Price ($ in thousands) Inventory $ 753 Property and Equipment, tooling 124 Prepaid Assets 2 Accrued Liability ( 25 ) Total Identifiable net assets (liabilities) 854 Intangible assets (Trademark) (including capitalized costs) 6,800 Total Purchase Price (allocated) $ 7,654 Total Cash Consideration Paid to Seller $ 7,551 Capitalized Acquisition Costs (Legal and Shipping fees) 103 The acquired intangible asset represents a trademark associated with the Company’s recently acquired product line, Handmade by Robots. The trademark is determined to have an indefinite useful life and will not be amortized. Instead, it will be tested for impairment annually or more frequently if events or changes in circumstances indicate that the asset may be impaired, in accordance with ASC 350 (Intangibles – Goodwill and Other). Inventory was recorded at its estimated fair value on the acquisition date and is expected to be sold within 18 months. Acquisition-related costs of $ 59 thousand, consisting of capitalized legal and shipping fees, included in the value of the intangible asset in accordance with ASC 805 -50-30-1. As a result, the total allocated purchase price, including capitalized costs, is $ 7,610 thousand. Note 17: Reclassification of Private Warrants to Public Warrants Reclassification from Liability to Equity During the fiscal year ended June 30, 2025, certain shareholders of the Company sold private warrants to third parties who were not deemed “permitted transferees” under the terms of the Warrant Agreement. In accordance with the Warrant Agreement, upon such a sale, the private warrants became subject to the same redemption provisions as the Company’s public warrants. As a result of this change in terms, the affected warrants, which had previously been accounted for as a liability, were reclassified to equity. Accordingly, the Company reclassified approximately 769,000 warrants with a carrying value of $ 0.5 million from warrant liabilities to Paid-in Capital during fiscal 2025. This reclassification had no impact on the Company’s consolidated statements of income and comprehensive income or cash flows. Prior period balances were not restated (See Note 20). Note 18: Stock-Based Compensation : As part of the merger with Adara on February 10, 2023, 600,000 shares were authorized for a one-time employee stock plan. The compensation committee approved 463,800 shares of restricted stock awards to employees on June 15, 2023. The shares fully vest on October 4, 2023.The company does not have an annual stock-based compensation plan. In September 2024, the Company’s Board approved, subject to stockholder approval, an amendment to the 2023 Plan to increase the number of shares authorized for issuance thereunder by 400,000 shares of Class A common stock, for a total amount reserved under the 2023 Plan of 1,000,000 shares of Class A common stock. On November 7, 2024, the Company’s stockholder approved the amendment to the 2023 Plan. Schedule of Stock Based Compensation Plan Number of RSAs Outstanding as of June 30, 2023 459,200 Vested ( 449,000 ) Forfeited ( 10,200 ) Outstanding as of June 30, 2024 - Granted 101,300 Vested - Forfeited - Outstanding as of June 30, 2025 101,300 In connection with awards granted, the Company recognized $ 0.05 million and $ 1.4 million in stock-based compensation during the years ended June 30, 2025, and 2024, respectively. No restricted stock vested during the year ended June 30, 2025. The total fair value of restricted stock that vested during the year ended June 30, 2024, was $ 1.4 million. F- 29 Note 19: Impact of Warrant Liabilities on Earnings Per Share (EPS) Certain outstanding warrants issued by the Company are classified as liabilities in accordance with ASC 815-40, Derivatives and Hedging – Contracts in Entity’s Own Equity, due to specific terms that require them to be remeasured at fair value at each reporting date. Changes in fair value are recognized as a non-cash gain or loss in the consolidated statements of income and comprehensive income, which resulted in fluctuations in the Company’s reported net income and earnings per share (EPS). During the fiscal year ended June 30, 2025, and 2024, the Company recorded a loss of $ 0.9 million, and a loss of $ 0.04 million, respectively, related to the fair value measurement of warrant liabilities, primarily due to changes in the market price of our common stock and the volatility assumptions used in the valuation model. The fair value of the warrant liabilities at June 30, 2025, and 2024, was $ 0.6 million and $ 0.2 million, respectively, and is recorded under warrant liabilities on the consolidated balance sheets. Investors should note that the remeasurement of warrant liabilities is a non-operational, non-cash item. Future changes in fair value will continue to be recorded in earnings until the warrants are either exercised or expire. Additional details on the fair value assumptions and measurement techniques are provided in Note 21 – Fair Value. Note 20: Warrants As a result of the Merger, at June 30, 2025 and 2024, there were 5,750,000 Public Warrants , 4,120,000 Private Placement Warrants and 50,090 Representatives Warrants issued and outstanding, each exercisable for one share of Class A Common Stock with an exercise price of $ 11.50 (the “Warrants”). The Company will not be obligated to deliver any shares of Class A common stock pursuant to the exercise of a warrant. It will have no obligation to settle such warrant exercise unless a registration statement under the Securities Act covering the issuance of the shares of Class A common stock underlying the Warrants is then effective. A prospectus relating thereto is current, subject to the Company satisfying its obligations with respect to registration. Additionally, no warrant will be exercisable, and the Company will not be obligated to issue shares of Class A common stock upon exercise of a warrant unless Class A common stock issuable upon such warrant exercise has been registered, qualified, or deemed to be exempt under the securities laws of the state of residence of the registered holder of the Warrants. The Company filed with the SEC on April 11, 2023, its registration statement covering the shares of Class A common stock issuable upon exercise of the Warrants, to cause such registration statement to become effective and to maintain a current prospectus relating to those shares of Class A common stock until the warrants expire or are redeemed, as specified in the warrant agreement. The registration, as amended, became effective June 29, 2023. Public Warrants: The Public Warrants qualify for the derivative scope exception under ASC 815 and are therefore classified as equity on the consolidated balance sheets. They may only be exercised for a whole number of shares. The Public Warrants are currently exercisable at $ 11.50 per share and will expire five years after the completion of the Merger or earlier upon redemption or liquidation. The Company may redeem for cash the outstanding Public Warrants: ● in whole and not in part. ● at a price of $ 0.01 per Public Warrant. ● upon not less than 30 days’ prior written notice of redemption after the warrants become exercisable to each warrant holder; and ● if, and only if, the reported last sale price of the Class A common stock equals or exceeds $ 18.00 per share (as adjusted for stock splits, stock dividends, reorganizations, recapitalizations, and the like) for any 20 trading days within a 30 -trading day period commencing once the Public Warrants become exercisable and ending three business days before the Company sends the notice of redemption to the warrant holders. If and when the Public Warrants become redeemable by the Company, the Company may exercise its redemption right. F- 30 Even if it is unable to register or qualify the underlying securities for sale under all applicable state securities laws. If the Company calls the Public Warrants for redemption, management will have the option to require all holders that wish to exercise the Public Warrants to do so on a “cashless basis,” as described in the warrant agreement. The exercise price and number of shares of Class A common stock issuable upon exercise of the Public Warrants may be adjusted in certain circumstances including in the event of a stock dividend, or recapitalization, reorganization, merger, or consolidation. However, the Public Warrants will not be adjusted for issuances of Class A common stock at a price below its exercise price. Additionally, in no event will the Company be required to net cash settle the Public Warrants. Private Placement Warrants: The Private Placement Warrants are identical to the Public Warrants underlying the Units sold in the Initial Public Offering but are classified as liabilities on the consolidated balance sheet as they are not considered indexed to the company’s own stock. Additionally, the Private Placement Warrants are exercisable on a cashless basis and are non-redeemable, so long as they are held by the initial purchasers or their permitted transferees. If the Private Placement Warrants are held by someone other than the initial purchasers or their permitted transferees, the Private Placement Warrants will be redeemable by the Company and exercisable by such holders on the same basis as the Public Warrants as described above. Representative Warrants The Company issued Representative Warrants, for minimal consideration to ThinkEquity, a division of Fordham Financial Management, Inc. (and/or its designees), in a private placement simultaneously with the closing of Alliance’s initial public offering, which are also classified as liabilities on the consolidated balance sheet. The Representative Warrants are identical to the Private Warrants except that so long as the Representative Warrants are held by ThinkEquity (and/or its designees) or its permitted transferees, the Representative Warrants (i) will not be redeemable by the Company, (ii) may be exercised by the holders on a cashless basis, (iii) are entitled to registration rights and (iv) are not exercisable more than five years from the effective date of the Merger. Note 21: Fair Value The Company complies with the provisions of ASC 820, Fair Value Measurements, for its financial and non-financial assets and liabilities. ASC 820 defines fair value, establishes a framework for measuring fair value and expands disclosure for each major asset and liability category measured at fair value on either a recurring or nonrecurring basis. The Company accounts for certain assets and liabilities at fair value. The hierarchy below lists three levels of fair value based on the extent to which inputs used in measuring fair value are observable in the market. The company categorizes each of its fair value measurements in one of these three levels based on the lowest level input that is significant to the fair value measurement in its entirety. As of June 30, 2025 and 2024, the Company has classified the Private Placement Warrants and the Representative Warrants as Level 3 fair value measurements. Management evaluates a variety of inputs and then estimates fair value based on those inputs. As discussed below, the Company utilized the Black Scholes Model in valuing the Private Placement Warrants and Representative Warrants. The estimated fair value of cash, trade receivables, accounts payable, accrued expenses and other current liabilities are based on Level 1 inputs as the fair values approximate carrying amounts as of June 30, 2025, and 2024, based on the short-term nature and maturity of these instruments. The estimated fair values of subordinated shareholder debt and the credit facility is based on Level 2 inputs, which consist of interest rates that are currently available to the Company for issuance of debt with similar terms and remaining maturities. As of June 30, 2025, and 2024 the estimated fair value of the Company’s short and long-term debt approximates it carrying value due to market interest rates charged on such debt or their short-term maturities. F- 31 The Company recomputes the fair value of the Private and the Representative Warrants at the issuance date and the end of each quarterly reporting period. Such value computation includes subjective input assumptions that are consistently applied each period. If the Company were to alter its assumptions or the numbers input based on such assumptions, the resulting fair value could be materially different. The Company utilized the following assumptions to estimate fair value of the Private Warrants and Representative Warrants as of: Schedule of Estimate Fair Value of Private Warrants and Representative Warrants June 30, June 30, 2025 2024 Stock Price $ 3.77 $ 3.00 Exercise price per share $ 11.50 $ 11.50 Risk-free interest rate 3.63 % 4.41 % Expected term (years) 2.62 3.6 Expected volatility 47.1 % 36.0 % Expected dividend yield - — Warrants and rights outstanding measurement input - — The significant assumptions using the Lattice model approach for valuation of the Private Placement Warrants and Representative Warrants were determined in the following manner: (i) Risk-free interest rate: the risk-free interest rate is based on the U.S. Treasury rate with a term matching the time to expiration. (ii) Expected term: the expected term is estimated to be equivalent to the remaining contractual term. (iii) Expected volatility: expected stock volatility is based on daily observations of the Company’s historical stock value and implied by market price of the Public Warrants, adjusted by guideline public company volatility. (iv) Expected dividend yield: expected dividend yield is based on the Company’s anticipated dividend payments. As the Company has never issued dividends, the expected dividend yield is 0 %, and this assumption will be continued in future calculations unless the Company changes its dividend policy. The table below presents the balances of assets and liabilities measured at fair value on a recurring basis by level within the hierarchy as follows (in thousands) Schedule of Assets and Liabilities Measured at Fair Value on Recurring Basis As of June 30, 2025 Total Level 1 Level 2 Level 3 Private Placement and Representative Warrants $ 646 $ - $ - $ 646 As of June 30, 2024 Total Level 1 Level 2 Level 3 Private Placement and Representative Warrants $ 247 $ — $ — $ 247 The table below presents the change in the number and fair value of the Private and Representative Warrants since the Merger on June 30, 2025 (in thousands, except the number of shares) Schedule of Change in Number and Fair Value of Private and Representative Warrants Private Warrants Representative Warrants Total Shares Value Shares Value Shares Value June 30, 2023 4,120,000 $ 203 50,090 $ 3 4,170,090 $ 206 Exercised - - - - - - Change in value - $ 41 - - - 41 June 30, 2024 4,120,000 $ 244 50,090 $ 3 4,170,090 $ 247 Exercised - - - - - - Classification change from Private to Public ( 763,233 ) - ( 6,750 ) - ( 769,083 ) ( 454 ) Change in value - 394 - 5 - 853 June 30, 2025 3,356,767 $ 638 43,340 $ 8 3,401,007 $ 646 Note 22 – Issuance of Common Stock During the fiscal year ended June 30, 2024, the Company sold 1,335,000 shares of its Class A common stock at a price of $ 3.00 per share, generating gross proceeds of approximately $ 4.0 million. After deducting underwriting discounts, offering expenses, and representative warrants, net proceeds were approximately $ 2.1 million. No shares were issued during the fiscal year ended June 30, 2025. Note 23: Subsequent Events The Company has evaluated subsequent events through September 10, 2025, the date the consolidated financial statements were issued, and determined that there are no subsequent events that require adjustment to or disclosure in the consolidated financial statements. F- 32