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What changed in ALLIANCE ENTERTAINMENT HOLDING CORP's 10-K — 2023 vs 2024

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Paragraph-level year-over-year comparison of ALLIANCE ENTERTAINMENT HOLDING CORP's 2023 and 2024 10-K annual filings, covering the Business, Risk Factors, Legal Proceedings, Cybersecurity, MD&A and Market Risk sections. Every new, removed and edited paragraph is highlighted side-by-side so you can see exactly what management changed in the 2024 report.

+321 added−407 removedSource: 10-K (2024-09-20) vs 10-K (2023-10-19)

Top changes in ALLIANCE ENTERTAINMENT HOLDING CORP's 2024 10-K

321 paragraphs added · 407 removed · 227 edited across 6 sections

Item 1. Business

Business — how the company describes what it does

69 edited+25 added−20 removed48 unchanged
Biggest changeFulfillment. ● The global e-commerce fulfillment services market size was valued at $110 billion in 2023 and is expected to grow at a compound annual growth rate (CAGR) of 14% from 2023 to 2030). ● The market is anticipated to witness substantial growth during the period due to the proliferation of the e-commerce industry, especially in emerging markets leading to an unprecedented rise in the number of online buyers. ● It is anticipated that fulfilment in North America will continue to be funneled into established brands (for example, Amazon, Walmart, Best Buy and Target). ● The global third-party logistics market was valued at $1,022 billion in 2023 and is forecasted to reach $1,590 billion by the year 2028.
Biggest changeThe global e-commerce fulfillment services market is expected to experience substantial growth due to the proliferation of the e-commerce industry, particularly in emerging markets, leading to an unprecedented rise in online buyers. This growth is anticipated to be driven by established brands in North America, such as Amazon, Walmart, Best Buy, and Target.
Market Opportunity The Company has identified three primary market areas where it currently conducts business and plans to grow its business: Content Media ● As technology and social trends evolve, the film and music market studios are overhauling their business models to take advantage of changing consumer behavior and expanding media platforms.
Market Opportunity The Company has identified three primary market areas where it currently conducts business and plans to grow its business: Content Media As technology and social trends evolve, film and music market studios are overhauling their business models to take advantage of changing consumer behavior and expanding media platforms.
Alliance has written supply agreements with many of its suppliers and these agreements usually provide for nonexclusive distribution rights and often include territorial restrictions that limit the countries, and in some cases certain channels, in which it may distribute the products. Some of Alliance’s agreements with suppliers may contain limitations of liability with respect to our suppliers’ obligations and warranties.
Alliance has written supply agreements with many of its suppliers. These agreements usually provide for nonexclusive distribution rights and often include territorial restrictions that limit the countries and, in some cases, certain channels in which it may distribute the products. Some of Alliance’s agreements with suppliers may contain limitations of liability with respect to our suppliers’ obligations and warranties.
It is the policy of many suppliers to offer distributors limited protection from the loss in value of inventory due to technological change or a supplier’s price reductions.
It is the policy of many suppliers to offer distributors limited protection from the loss in inventory value due to technological change or a supplier’s price reductions.
Pursuant to the Business Combination Agreement, Alliance issued (i) 47,500,000 shares of Class A common stock of Alliance to holders of common stock of Legacy Alliance and (ii) 60,000,000 shares of Class E common stock of Alliance to the Legacy Alliance stockholders were placed in an escrow account to be released to such Legacy Alliance stockholders and converted into Class A common stock upon the occurrence of certain triggering events.
Pursuant to the Business Combination Agreement, Alliance issued (i) 47,500,000 shares of Class A common stock of Alliance to holders of common stock of Legacy Alliance and (ii) 60,000,000 contingent shares of Class E common stock of Alliance to the Legacy Alliance stockholders were placed in an escrow account to be released to such Legacy Alliance stockholders and converted into Class A common stock upon the contingent occurrence of certain triggering events.
With a public listing, we have access to additional capital to finance future growth. Our strategy will include: ● Execute Acquisition Strategy. Alliance has a proven track record of successfully acquiring and integrating competitors and complementary businesses. With additional capital, Alliance will be able to execute on its acquisition strategy more effectively. ● Increase Market Share.
With a public listing, we have access to additional capital to finance future growth. Our strategy will include: ● Execute Acquisition Strategy. Alliance has a proven track record of successfully acquiring and integrating competitors and complementary businesses. With additional capital, Alliance will be able to execute its acquisition strategy more effectively. ● Increase Market Share.
Alliance’s business, like that of other distributors, is subject to the risk that the value of our inventory will be impacted adversely by suppliers’ price reductions or by technological changes affecting the usefulness or desirability of the products comprising the inventory.
Alliance’s business, like that of other distributors, is subject to the risk that our inventory’s value will be adversely impacted by suppliers’ price reductions or by technological changes affecting the usefulness or desirability of the products comprising the inventory.
As such, we are eligible to take advantage of certain exemptions from various reporting requirements that are applicable to other public 10 Table of Contents companies that are not “ emerging growth companies” including, but not limited to, not being required to comply with the auditor attestation requirements of Section 404 of the Sarbanes-Oxley Act, reduced disclosure obligations regarding executive compensation in our periodic reports and proxy statements, and exemptions from the requirements of holding a non-binding advisory vote on executive compensation and shareholder approval of any golden parachute payments not previously approved.
As such, we are eligible to take advantage of certain exemptions from various reporting requirements that are applicable to other public companies that are not “ emerging growth companies” including, but not limited to, not being required to comply with the auditor attestation requirements of Section 404 of the Sarbanes-Oxley Act, reduced disclosure obligations regarding executive compensation in our periodic reports and proxy statements, and exemptions from the requirements of holding a non-binding advisory vote on executive compensation and shareholder approval of any golden parachute payments not previously approved.
On an ongoing basis, Alliance reduces inventory values for excess and obsolescence to assist in the liquidation of impacted inventories. Music CD’s and Video Movies are 100% returnable back to Alliance’s suppliers. Products that have exclusive distributions for Amped and Distribution Solutions are not owned by Alliance and are treated as consignment as for ownership and title.
On an ongoing basis, Alliance reduces inventory values for excess and obsolescence to assist in the liquidation of impacted inventories. Music CD’s and Video Movies are 100% returnable back to Alliance’s suppliers. Products that have exclusive distributions for AMPED and Distribution Solutions are not owned by Alliance and are treated as consignments for ownership and title.
With over 30 years of operations and experience, Alliance management has extensive knowledge and is rolling over all of their equity in the Business Combination in preparation to lead the Company towards future growth. ● Significant barriers to entry and market leadership. Alliance is a leader in fulfillment and e-commerce distribution with over 375,000 SKUs in stock.
With over 30 years of operations and experience, Alliance management has extensive knowledge and is rolling over all their equity in the Business Combination in preparation to lead the Company towards future growth. ● Significant barriers to entry and market leadership. Alliance is a leader in fulfillment and e-commerce distribution with over 325,000 SKUs in stock.
In addition, the Company typically experiences an increase in demand in the September-to-December period, driven primarily by pre-holiday stocking levels in the retail channel for its North American business. How We Manage Our Inventory Alliance strives to maintain enough product inventories to achieve optimum order fill rates.
In addition, the Company typically experiences an increase in demand in the October-to-December period, driven primarily by pre-holiday stocking levels in the retail channel for its North American business. How We Manage Our Inventory Alliance strives to maintain enough product inventories to achieve optimum order fill rates.
COKeM is one of the leading and innovative distribution service companies in the video game and accessory industries. COKeM continues to expand its capabilities, providing full-service distribution, fulfillment and 3PL services for a wide array of industries and across many product categories. Alliance acquired Mecca Electronics in 2018 and, in 2021, Mecca Electronics was merged into COKeM.
COKeM is one of the leading and innovative distribution service companies in the video game and accessory industries. COKeM continues to expand its capabilities, providing full-service distribution and fulfillment for a wide array of industries and across many product categories. Alliance acquired Mecca Electronics in 2018 and, in 2021, Mecca Electronics was merged into COKeM.
Alliance expects to continue pursuing strategic opportunities that strengthen its platforms, expand the breadth and depth of its content, and enhance its distribution infrastructure. Alliance will continue to actively monitor and evaluate these and future opportunities in its acquisition pipeline in both the near and mid-term. ● Enhance DTC Relationships and Capabilities.
Alliance expects to continue pursuing strategic opportunities that strengthen its platforms, expand the breadth and depth of its content, and enhance its distribution infrastructure. Alliance will continue to actively monitor and evaluate these and future opportunities in its acquisition pipeline in both the near and mid-term. ● Enhance Direct to Consumer (DTC) Relationships and Capabilities.
Leveraging existing relationships, Alliance can expand into new consumer product segments, growing its product offering and providing more to its existing customer base while attracting new customers in the process. ● Continue Technological Advancement. Alliance will further invest in automating facilities and upgrading proprietary software.
Leveraging existing relationships, Alliance can expand into new consumer product segments, growing its product offering and providing more to its existing customer base while attracting new customers in the process. ● Continuing Technological Advancement. Alliance will further invest in automating facilities and upgrading proprietary software.
Pay structures for hourly employees are reviewed annually and for all other employees, compensation is benchmarked according to the position when a vacancy becomes available. This ensures best practices in a competitive market and, as part of that review, compensation will be realigned where appropriate for existing employees and new hires. Health, Safety & Welfare.
Pay structures for hourly employees are reviewed annually and for all other employees, compensation is benchmarked according to the position when a vacancy becomes available. This ensures best practices in a competitive market and, as part of that review, compensation will be realigned where appropriate for existing employees and new hires.
Through a series of acquisitions and organic growth, Alliance has expanded and strengthened its global footprint and product breadth, and greatly increased its service capabilities. Since its inception, Alliance has made nine accretive business acquisitions, including Phantom Sound and Vision, MSI Music, Infinity Resources, Alliance, ANConnect, Mecca Electronics, Distribution Solutions, Mill Creek, and COKeM.
Through a series of acquisitions and organic growth, Alliance has expanded and strengthened its global footprint and product breadth, and greatly increased its service capabilities. Since its inception, Alliance has made ten accretive business acquisitions, including Phantom Sound and Vision, MSI Music, Infinity Resources, Alliance, ANconnect, Mecca Electronics, Distribution Solutions, Mill Creek, COKeM, and Think3Fold.
In cases in which suppliers are not obligated to accept inventory returns upon termination, some suppliers will nevertheless elect to repurchase the inventory while other suppliers will assist with either liquidation or resale of the inventory. 6 Table of Contents Customers Alliance conducts business with most of the leading retailers of entertainment products and services around the world.
In cases in which suppliers are not obligated to accept inventory returns upon termination, some suppliers will nevertheless elect to repurchase the inventory while other suppliers will assist with either liquidation or resale of the inventory. Customers Alliance conducts business with most of the leading retailers of entertainment products and services around the world.
These technology-led platforms with access to the Company’s in stock inventory of over 375,000 SKU products, consisting of vinyl records, video games, compact discs, DVD, Blu-Rays, toys and collectibles, combined with Alliance’s sales and distribution network, create a modern entertainment physical product marketplace that provides the discerning customer with enhanced options on efficient consumer-friendly platforms inventory.
These technology-led platforms with access to the Company’s in stock inventory of over 325,000 SKU products, consisting of vinyl records, video games, compact discs, DVD, Blu-Rays, toys, and collectables, combined with Alliance’s sales and distribution network, create a modern entertainment physical product marketplace that provides the discerning customer with enhanced options on efficient consumer-friendly platforms inventory.
Alliance’s program resulted in an annualized turnover rate of about 15% for the fiscal year ended June 30, 2023. Compensation Practice & Pay Equality. As Alliance evolves and expands operations, Human Resources, in partnership with the leadership team, will continue to evaluate the existing workforce to ensure that best practices are maintained across the entire team without risk of inequality.
Alliance’s program resulted in an annualized turnover rate of about 14% for the fiscal year ended June 30, 2024. Compensation Practice & Pay Equality. As Alliance evolves and expands operations, Human Resources, in partnership with the leadership team, will continue to evaluate the existing workforce to ensure that best practices are maintained across the entire team without risk of inequality.
Pursuant to the terms of the Business Combination Agreement, a business combination of Legacy Alliance and Alliance was effected by the merger of Merger Sub with and into Alliance (the “Merger”), with Alliance surviving the Merger as a wholly owned subsidiary of Alliance.
Pursuant to the terms of the Business Combination Agreement, a business combination of Legacy Alliance and Alliance was affected by the merger of Merger Sub with and into Alliance (the “Merger”), with Alliance surviving the Merger as a wholly owned subsidiary of Alliance.
Alliance also owns over 140 domain names including www.deepdiscount.com, www.aent.com, www.cokem.com, www.importcds.com, www.ds.aent.com, and www.ampeddistribution.com. The Company relies on trade secrets and confidential information to develop and maintain its competitive advantage.
Alliance also owns 128 domain names including www.deepdiscount.com, www.aent.com, www.cokem.com, www.importcds.com, www.ds.aent.com, and www.AMPEDdistribution.com. The Company relies on trade secrets and confidential information to develop and maintain its competitive advantage.
Amped Distribution — is a division of Alliance that consists of 118 small music labels where Amped is the exclusive supplier of physical media to all retailers in the United States. Distribution Solutions — is the largest aggregator and distributor of independent film labels in North America.
AMPED Distribution — is a division of Alliance that consists of over 90 small music labels where AMPED is the exclusive supplier of physical media to retailers in the United States. Distribution Solutions — is the largest aggregator and distributor of independent film labels in North America.
These agreements generally may be terminated by either party without cause following reasonable notice. None of the Company’s customer contracts exceed a one-year term, with most contracts having auto-renewal clauses. For the year ended June 30, 2023, Alliance’s top five customers represented approximately 50% of its consolidated revenue. Alliance’s top customer represented 23% of its consolidated net sales.
These agreements generally may be terminated by either party without cause following reasonable notice. None of the Company’s customer contracts exceed a one-year term, with most contracts having auto-renewal clauses. For the year ended June 30, 2024, Alliance’s top five customers represented approximately 47% of its consolidated revenue. Alliance’s top customer represented 18% of its consolidated net sales.
The Company’s technology platform increases the efficiency of transactions, provides great mobile accessibility, and incorporates modern marketing and Fintech tools. 5 Table of Contents Strategy for Future Growth Alliance will continue to capitalize on its services, selection, and scalable distribution network technology, to propel its future growth both organically and through acquisitions.
The Company’s technology platform increases transaction efficiency, provides great mobile accessibility, and incorporates modern marketing and Fintech tools. 5 Strategy for Future Growth Alliance will continue to capitalize on its services, selection, and scalable distribution network technology to propel its future growth both organically and through acquisitions.
This M&A activity has built scale and added capabilities to the Company’s platforms. Further, Alliance has demonstrated an ability to integrate those companies into its existing platforms to improve the acquired businesses fundamentally. Alliance management believes there remain significant consolidation opportunities to drive future growth through the acquisition of complementary businesses and competitors. ● Modern technology distribution platform and interface.
This M&A activity has built scale and added capabilities to the Company’s platforms. Further, Alliance has demonstrated an ability to integrate those companies into its existing platforms to fundamentally improve the acquired businesses. Alliance management believes significant consolidation opportunities remain to drive future growth by acquiring complementary businesses and competitors. ● Modern technology distribution platform and interface.
By comparison, for the fiscal year ended June 30, 2022, the top five customers generated approximately 55% of consolidated revenue with one customer representing almost 27%. Our Business is Affected by Seasonality Alliance experiences some seasonal fluctuation in demand in our business due to changes in consumer behavior and schedules of new releases.
By comparison, for the fiscal year ended June 30, 2023, the top five customers generated approximately 50% of consolidated revenue with one customer representing almost 23%. Our Business is Affected by Seasonality Alliance experiences some seasonal fluctuation in demand in our business due to changes in consumer behavior and schedules of new releases.
Leading products distributed are: Nintendo, Microsoft, Arcade1Up, and all third party video game publishers. For the year ended June 30, 2022, gaming represented approximately 39% of Alliance revenues on a consolidated basis. ● Vinyl Records: For the fiscal year ended June 30, 2023, vinyl represented 28% of all Company revenues on a consolidated basis.
Leading products distributed are: Nintendo, Microsoft, Arcade1Up, and third party video game publishers. For the year ended June 30, 2023, gaming represented approximately 34% of Alliance revenues on a consolidated basis. ● Vinyl Records: For the fiscal year ended June 30, 2024, vinyl represented 30% of all Company revenues on a consolidated basis.
Accordingly, Alliance’s trade secrets may otherwise become known or be independently discovered by competitors. Human Capital Resources As of June 30, 2023, Alliance had approximately 761 employees on its payroll and approximately 266 workers hired through staffing agencies throughout the U.S. and internationally.
Accordingly, Alliance’s trade secrets may otherwise become known or be independently discovered by competitors. Human Capital Resources As of June 30, 2024, Alliance had approximately 657 employees on its payroll and approximately 226 workers hired through staffing agencies throughout the U.S. and internationally.
Some of Alliance’s competitors may have access to significant financial resources, greater name recognition and well-established client bases in their target customer segments, differentiated business models, technology and other capabilities, or a differentiated geographic coverage, which may make it more difficult for Alliance to attract new customers. Intellectual Property Alliance’s intellectual property is an important component of its business.
Some of Alliance’s competitors may have access to significant financial resources, greater name recognition and well-established client bases in their target customer segments, differentiated business models, technology and other capabilities, or a differentiated geographic coverage, which may make it more difficult for Alliance to attract new customers.
As of June 30, 2022, Alliance had approximately 797 employees on its payroll and approximately 332 workers hired through staffing agencies throughout the U.S. and internationally. Staffing agencies are used to flex labor capacity to ensure the labor supply and demand are in balance.
As of June 30, 2023, Alliance had approximately 761 employees on its payroll and approximately 266 workers hired through staffing agencies throughout the U.S. and internationally. Staffing agencies are used to flex labor capacity to ensure the labor supply and demand are in balance.
None of Alliance’s employees are subject to a collective bargaining agreement and Alliance believes it has a good relationship with its employees and staffing agencies. Employees & Demographics. With respect to global demographics at June 30, 2023, approximately 47% of the Company’s payroll employees are female and 53% are male. Talent & Turnover.
None of Alliance’s employees are subject to a collective bargaining agreement and Alliance believes it has a good relationship with its employees and staffing agencies. Employees & Demographics. With respect to global demographics on June 30, 2024, approximately 50% of the Company’s payroll employees are female and 50% are male. Talent & Turnover.
We believe that our key strengths position us to deliver on our strategy to grow profitably and optimize our core physical media and entertainment product distributors fulfillment and e-commerce distribution solutions while expanding and investing in higher margin advanced technology solutions and high value services.
We believe that our key strengths position us to deliver on our strategy to grow profitably, optimize our core physical media and entertainment product distributors’ fulfillment and e-commerce distribution solutions, and expand and invest in higher-margin advanced technology solutions and high-value services.
Through the expansion of partnerships with vendors and customers as well as investment in existing facilities, Alliance expects to continue to grow revenue and expand margins. ● Proven track record of building scale through significant acquisitions. Since inception, Alliance has successfully acquired and integrated nine businesses that have greatly expanded our vendors and customers we are supporting.
Alliance will seek to grow revenue and expand margins through the expansion of partnerships with vendors and customers and investment in existing facilities. ● Proven track record of building scale through significant acquisitions. Since its inception, Alliance has successfully acquired and integrated ten businesses that have greatly expanded the vendors and customers we are supporting.
As of June 30, 2023, Alliance has no active patents or patent applications, but intends to pursue patent protection to the extent it believes it would be beneficial and cost effective. As of June 30, 2023, the Company owned 22 U.S. registered or pending trademarks and registered or pending trademarks in two other jurisdictions.
As of June 30, 2024, Alliance has no active patents or patent applications, but intends to pursue patent protection to the extent it believes it would be beneficial and cost effective. As of June 30, 2024, the Company owned 22 U.S. registered or pending trademarks and one registered or pending trademark in another jurisdiction.
Its existing product and service offering has positioned the Company to capitalize on shifts towards e-commerce and Omni-Channel strategies, especially with retailers and manufacturers vastly increased reliance on their DTC fulfillment and distribution partners.
Its existing product and service offering has positioned the Company to capitalize on shifts towards e-commerce and Omni-Channel strategies, especially as retailers and manufacturers greatly increase their reliance on their direct-to-consumer fulfillment and distribution partners.
These value-add services provide a highly technical, critical business function for our partners using traiting of locations and min/max system of supply. ● Subsidiary Brands — We operate under the following subsidiaries which focus on the following product brand areas: COKeM — Alliance acquired COKeM International Ltd. in September 2020.
These value-add services provide a highly technical, critical business function for our partners using traiting of locations and min/max system of supply. ● Subsidiary Brands — We operate under the following subsidiaries which focus on the following product brand areas: Alliance — was a competitor to CD Listening Bar when CD Listening Bar acquired Alliance in 2013.
For the year ended June 30, 2022, vinyl represented approximately 23% of Alliance revenues on a consolidated basis. ● Digital Video Discs and Blu-Ray: DVD sales for the fiscal year ended June 30, 2023, represent 16% of Alliance’s consolidated revenue.
For the year ended June 30, 2023, vinyl represented approximately 28% of Alliance revenues on a consolidated basis. ● Digital Video Discs (DVD)/Blu-Ray/UltraHD: Sales for the fiscal year ended June 30, 2024, represented 19% of Alliance’s consolidated revenue.
For the year ended June 30, 2022, digital video discs and blu-ray represented approximately 19% of Alliance revenues on a consolidated basis. ● Compact Discs: CDs for the fiscal year ended June 30, 2023, represent 11% of Alliance’s consolidated revenue.
For the year ended June 30, 2023, DVD, Blu-Ray and UltraHD represented approximately 16% of Alliance revenues on a consolidated basis. ● Compact Discs: CDs for the fiscal year ended June 30, 2024, represent 12% of Alliance’s consolidated revenue.
In addition, payment terms with inventory suppliers may vary from time to time and could result in fewer inventories being financed by suppliers and a greater amount of inventory being financed by our own capital.
In addition, payment terms with inventory suppliers may vary from time to time and could result in fewer inventories being financed by suppliers and a greater amount of inventory being financed by our own capital. Our payment patterns can be influenced by incentives, such as early pay discounts offered by suppliers.
For the year ended June 30, 2022, CDs represented approximately 11% of Alliance revenues on a consolidated basis. ● Consumer Products and Collectibles: Alliance has experienced steady growth in collectible and consumer products, representing 7% of the Company consolidated revenue for the fiscal year ended June 30, 2023.
For the year ended June 30, 2023, CDs represented approximately 11% of Alliance revenues on a consolidated basis. ● Collectables and Consumer Products: Sales in Collectables and Consumer Products represented 4% of the Company consolidated revenue for the fiscal year ended June 30, 2024, and approximately 7% of Alliance revenues on a consolidated basis for the year ended June 30, 2023.
Alliance provides state-of-the art warehousing and distribution technologies, operating systems and services that seamlessly enable entertainment product transactions to better serve customers directly or through our distribution affiliates.
Currently, the company sells its products, permitted for export, to more than 70 countries worldwide. Alliance provides state-of-the-art warehousing and distribution technologies, operating systems, and services that seamlessly enable entertainment product transactions to better serve customers directly or through our distribution affiliates.
Risk Factors.” Privacy and Data Protection Regulation In processing purchase transactions and information about customers, the Company receives and stores a large volume of personally identifiable data.
For additional information regarding the laws and regulations that affect the Company’s business, see “Item 1A. Risk Factors.” Privacy and Data Protection Regulation In processing purchase transactions and information about customers, the Company receives and stores a large volume of personally identifiable data.
Fulfillment Express sources music from the UK music suppliers that is then transferred (exported from the United Kingdom) to Kentucky where that music product is prepared to sell in the US market. Fulfillment Express makes no sales of any kind, it is a buying office.
Alliance has a buying office in the UK and operates under the name Fulfillment Express. Fulfillment Express sources music from the UK music suppliers that is then transferred (exported from the United Kingdom) to Kentucky where that music product is prepared to sell in the US market.
Alliance believes that it is a single source for all customer entertainment product needs. As a solutions-based operation, Alliance seeks to drive sales for their suppliers with broad product selection and cost-efficient processing.
Alliance believes that it is a single source for all customer entertainment product needs. As a solutions-based operation, Alliance seeks to drive sales for their suppliers with broad product selection and cost-efficient processing. 1 Alliance’s distribution business is built around three areas, where our marketplace value is created: Service, Selection and Technology.
Alliance — was a competitor to CD Listening Bar when CD Listening Bar acquired Alliance in 2013. Alliance primarily serviced B&N and Best Buy, and hundreds of independent retailers. This reverse merger by which CD Listening Bar merged into Alliance made Alliance the largest music and video distributor in the world.
Alliance primarily serviced Barnes &Noble and Best Buy, and hundreds of independent retailers. This reverse merger by which CD Listening Bar merged into Alliance made Alliance the largest music and video distributor in the world. COKeM — Alliance acquired COKeM International Ltd. in September 2020.
By comparison, for the fiscal year ended June 30, 2022, five suppliers made up approximately 52% of the product receipts and 20 suppliers made up 80%. One supplier comprised of approximately 15% of Alliance’s total receipts for the year ended June 30, 2022, and 2023.
By comparison, for the fiscal year that ended June 30, 2023, five suppliers made up approximately 49% of the product receipt value, and 23 suppliers made up 80% of the product receipt value. One supplier comprised of approximately 21% of Alliance’s total product receipt value for the year ended June 30, 2024, versus 15% in 2023.
Our payment patterns can be influenced by incentives, such as early pay discounts offered by suppliers. 7 Table of Contents Sales and Marketing Alliance’s product management and marketing groups help create demand for Alliance’s suppliers’ products and services, enable the launch of new products, and facilitate customer contact. Our marketing programs are tailored to meet specific supplier and customer needs.
Sales and Marketing Alliance’s product management and marketing groups help create demand for Alliance’s suppliers’ products and services, enable the launch of new products, and facilitate customer contact. Our marketing programs are tailored to meet specific supplier and customer needs.
In December 2022, Alliance completed installation of a state-of-the art AutoStore Automated Storage & Retrieval System (ASRS) for its Shepherdsville, KY warehouse. This system has improved Alliance’s warehouse operations, allowing the Company to achieve increased levels of speed, reliability, capacity, and precision, resulting in significant cost savings. The Company’s platforms enable stakeholders to search and purchase personalized product selections efficiently.
This system significantly improved Alliance’s warehouse operations, allowing the Company to achieve increased levels of speed, reliability, capacity, and precision, resulting in significant cost savings. The Company’s platforms enable stakeholders to search and purchase personalized product selections efficiently.
These needs are met through a wide offering of services by our in-house marketing organization, including advertising, market research, online marketing, retail programs, sales promotions, training, and solutions marketing. In addition, Alliance creates and utilizes specialized channel marketing communities to deliver focused resources and business building support to solution providers.
These needs are met through a wide offering of services by our in-house marketing organization, including advertising, market research, online marketing, retail programs, sales promotions, training, and solutions marketing.
Periodic Reporting and Financial Information Our Class A common stock and warrants are registered under the Exchange Act and we have reporting obligations, including the requirement that we file annual, quarterly and current reports with the SEC.
Periodic Reporting and Financial Information Our Class A common stock and warrants are registered under the Exchange Act, and as a smaller reporting company, we have specific reporting obligations. We file annual, quarterly, and current reports with the SEC, which include audited financial statements prepared by our independent registered public accountants.
Alliance tries to reduce our exposure to the impact of business fluctuations by maintaining a balance in the customer categories we serve. Alliance has over 4,000 customers shipping to over 35,000 storefronts and service over 2,000 independent music and video retailers. In most cases Alliance conducts business with our customers under our general terms and conditions, without minimum purchase requirements.
Alliance has over 4,000 customers shipping to over 35,000 storefronts and distributes to over 2,500 independent music and video retailers. 6 In most cases Alliance conducts business with our customers under our general terms and conditions, without minimum purchase requirements.
For its DTC division, the Company deploys performance marketing strategies through digital and offline channels to drive additional traffic and transactions from high-intent prospective customers. To increase the efficiency of its performance marketing initiatives, the Company utilizes a Customer Relationship management platform, which provides further opportunities to personalize marketing campaigns and target advertising to specific market segments.
To increase the efficiency of its performance marketing initiatives, the Company utilizes a Customer Relationship management platform, which provides further opportunities to personalize marketing campaigns and target advertising to specific market segments.
Mill Creek Entertainment — is the home entertainment industry’s leading independent studio for Blu-ray, DVD, and digital distribution.
Most of these brands were purchased from Infinity Resources in 2010. Mill Creek Entertainment — is the home entertainment industry’s leading independent studio for Blu-ray, DVD, and digital distribution.
Alliance provides a full, enterprise-level infrastructure and dropships orders directly to consumers on behalf of its customers. The entire ordering, confirmation and invoicing process is automated.
Service Alliance provides efficient, Omni-Channel expansion solutions for retailers, including: ● E-Commerce and Direct to Consumer (DTC) Alliance provides leading product and e-commerce distribution and inventory solutions. Alliance provides a full, enterprise-level infrastructure and whitelists dropships orders directly to consumers on behalf of its omni customers. The entire ordering, confirmation and invoicing process is automated.
Alliance incorporates a variety of technical and organizational security measures and other procedures and protocols to protect data within the Company’s platforms and business services, including personally identifiable data pertaining to guests and employees, and Alliance is engaged in an ongoing process of evaluating and considering additional steps to maintain compliance with the California Consumer Privacy Act, GDPR, PIPEDA, the UK General Data Protection Regulation, and the UK Data Protection Act.
Alliance is engaged in an ongoing process of evaluating and considering additional steps to maintain compliance with the California Consumer Privacy Act, GDPR, PIPEDA, the UK General Data Protection Regulation, and the UK Data Protection Act.
The Company relies on a combination of domain names, trademarks, copyright, know-how and trade secrets, as well as contractual provisions and restrictions, to protect its intellectual 8 Table of Contents property.
As the market evolves, distributors that can innovate and meet the demands of niche audiences will likely thrive. 8 Intellectual Property Alliance’s intellectual property is an important component of its business. The Company relies on a combination of domain names, trademarks, copyright, know-how and trade secrets, as well as contractual provisions and restrictions, to protect its intellectual property.
Further, Alliance’s technology offers a multi-channel marketing platform supporting retailer marketplace participants’ growth and business development with fully integrated product marketing and CRM tools. Management believes the result is a more comprehensive, engaging and cost-effective transaction process designed to make all stakeholders more productive and competitive.
Further, Alliance’s technology offers a multi-channel marketing platform supporting retailer marketplace participants’ growth and business development with fully integrated product marketing and CRM tools.
Moreover, certain laws and regulations have not historically been applied to an innovative hospitality provider such as Alliance, which often makes their application to its business uncertain. For additional information regarding the laws and regulations that affect the Company’s business, see “Item 1A.
Some relevant laws and regulations are inconsistent, ambiguous and could be interpreted by regulators and courts in ways that could adversely affect the Company’s business, results of operations, and financial condition. Moreover, certain laws and regulations have not historically been applied to an innovative hospitality provider such as Alliance, which often makes their application to its business uncertain.
Our Competitive Strengths Alliance is one of the largest physical media and entertainment product distributors in the world and is a leader in fulfillment and e-commerce distribution solutions.
In addition, retailers and manufacturers are increasingly focusing on their core competencies to sustain intense competition, leading them to outsource fulfillment activities to third-party vendors. Our Competitive Strengths Alliance is one of the largest physical media and entertainment product distributors in the world and a leader in fulfillment and e-commerce distribution solutions.
Suppliers Alliance distributes and markets over 600,000 products worldwide from approximately 400 of the industry’s premier physical media entertainment products suppliers. Typically, it maintains approximately over 375,000 SKUs of unique items in its on-hand inventory. For the fiscal year ended June 30, 2023, five suppliers made up approximately 49% of product receipt value and 23 suppliers made up 80%.
Suppliers Alliance distributes and markets over 400,000 products worldwide from more than 600 of the industry’s premier physical media entertainment products suppliers. The Company maintains approximately 325,000 SKUs of unique items in its inventory.
Direct2You — division consists of Alliances owned retail brands using the dba’s of ImportCDs, Deep Discount, Collectors Choice Music, Collectors Choice, Vinyl, Blow It Out of Here, Wow, Pop Market, Collectors Choice Video, and Movies Unlimited. These brands were purchased from Infinity Resources in 2010.
Alliance acquired Distribution Solutions in 2018 and has over 50 movie studios that are exclusively distributed to over 30,000 retail stores through Distribution Solutions. DirectToU — division consists of Alliances owned retail brands using the dba’s of ImportCDs, Deep Discount, Collectors Choice Music, Collectors Choice, Vinyl, Blow It Out of Here, Wow, Pop Market, Collectors Choice Video, and Movies Unlimited.
As we transition into the post-pandemic period, we are evaluating the effectiveness of these changes and identifying opportunities to address our policies in the event of a recurrence. 9 Table of Contents Regulatory Compliance The Company’s overall business approach and strategy includes rigorous attention to regulatory compliance, as its operations are subject to regulations in the following principal areas, across a wide variety of jurisdictions.
Regulatory Compliance The Company’s overall business approach and strategy includes rigorous attention to regulatory compliance, as its operations are subject to regulations in the following principal areas, across a wide variety of jurisdictions. Alliance’s business is subject to a wide array of laws, regulations, and standards in each domestic and foreign jurisdiction where we operate.
The information contained on, or that may be accessed through, our website is not part of, and is not incorporated into, this annual report. We are an “emerging growth company,” as defined in Section 2(a) of the Securities Act, as modified by the JOBS Act.
We are an “emerging growth company,” as defined in Section 2(a) of the Securities Act, as modified by the JOBS Act.
References herein to “emerging growth company” will have the meaning associated with it in the JOBS Act. Additionally, we are a “smaller reporting company” as defined in Item 10(f)(1) of Regulation S-K. Smaller reporting companies may take advantage of certain reduced disclosure obligations, including, among other things, providing only two years of audited financial statements.
References herein to “emerging growth company” will have the meaning associated with it in the JOBS Act. Additionally, we currently qualify as a “smaller reporting company” under SEC regulations. This status allows us to benefit from certain reduced disclosure obligations, such as the option to provide only two years of audited financial statements.
For the year ended June 30, 2022, collectibles and consumer products represented approximately 4% of Alliance revenues on a consolidated basis. Technology: Alliance’s technology platforms combine customer-friendly applications and efficient operating systems with access to the Company’s global content inventory across all current market segments.
Technology: Alliance’s technology platforms combine customer-friendly applications and efficient operating systems with access to the Company’s global content inventory across all current market segments. These platforms offer the Alliance marketplace stakeholders feature-rich tools and services for all aspects of consumer engagement, transaction processing and business development.
A large opportunity for licensing and distributing products exists for companies with the technology, process, and relationships to efficiently manage supply chain logistics in bulk to major retailers and direct to consumers. ● Consumers continue to trend towards vinyl records due to the desire to own the physical product, the sound quality, and the intrinsic value of the album artwork. 4 Table of Contents ● Despite the rise of digital distribution models, 66% of console consumers still prefer to buy physical versions of games.
Consumers continue to trend towards vinyl records due to the desire to own the physical product, the sound quality, and the intrinsic value of the album artwork. Despite the rise of digital distribution models, many consumers still prefer to buy physical versions of games because of the ability to share and display like hardcover book collections. 4 Fulfillment.
Alliance acquired Distribution Solutions in 2018 and has over 95 small movie studios that are exclusively distributed through Distribution Solutions. 2 Table of Contents Selection: Product Categories — Alliance consolidates and distributes a portfolio of entertainment products with over 375,000 SKUs in stock in core media and entertainment product areas in five primary categories: ● Gaming Products: For the fiscal year ended June 30, 2023, gaming represented 34% of Alliance revenues on a consolidated basis.
NCircle’s library includes many of the most loved and best-selling children’s brands including Gigantosaurus, The Cat in the Hat Knows a Lot About That!, Llama, The Octonauts, Sonic Boom, The Snowman and many more. 2 Selection: Product Categories — Alliance consolidates and distributes a portfolio of entertainment products with over 325,000 SKUs in stock in core media and entertainment product areas in five primary categories: ● Gaming Products: For the fiscal year ended June 30, 2024, gaming represented 31% of Alliance revenues on a consolidated basis.
Industry Background The industries in which the Company participates are: ● Packaged Goods consisting of physical media and entertainment content; ● Gaming Consoles and Accessories; and 3 Table of Contents ● Toys and Collectibles.
Management believes the result is a more comprehensive, engaging, and cost-effective transaction process designed to make all stakeholders more productive and competitive. 3 Industry Background The industries in which the Company distributes product are: ● Packaged Goods consisting of licensed physical media and entertainment content; ● Gaming Consoles and Accessories; and ● Licensed Toys and Collectables.
Through the Investors Relations section of our website, we make available, free of charge, annual, quarterly and current reports, proxy statements and other information as soon as reasonably practicable after they are electronically filed with, or furnished to, the SEC.
These reports and other important information are available on our website at www.aent.com under the Investor Relations section, free of charge, as soon as they are filed with the SEC. Please note that information on our website is not incorporated by reference into this report.
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Item 1. Business. Alliance is a leading global wholesaler, direct-to-consumer (“DTC”) distributor and e-commerce provider for the entertainment industry.
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Item 1. Business. Alliance is a leading global wholesaler/retailer of entertainment products consisting of music, movies, gaming, collectables, and a key player in the entertainment industry. Alliance boasts of a diverse portfolio of owned retail brands, including Critics ’ Choice, Collectors ’ Choice, Movies Unlimited, DeepDiscount, popmarket, blowitoutahere, Fulfillment Express, importCDs, GamerCandy, WowHD, and others.
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Alliance serves as the gateway between well-known international branded manufacturers of entertainment content, such as Universal Pictures, Universal Music Group, Warner Brothers Home Video, Walt Disney Studios, Sony Music, Sony Pictures, Microsoft, Nintendo, and others, and leading retailer customers in the United States and internationally, including Walmart, Amazon, Best Buy, Barnes & Noble, Wayfair, Costco and Target, among others.
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As a leading global wholesaler, direct-to-consumer ( “ DTC ” ) distributor, and e-commerce provider, Alliance operates as the vital link between renowned suppliers of music labels, home video studios, video game publishers, and collectables of entertainment content, such as Universal Pictures, Warner Brothers Home Video, Walt Disney Studios, Sony Pictures, Lionsgate, Paramount, Universal Music Group, Sony Music, Warner Music Group, Microsoft, Nintendo, Take Two, Electronic Arts, Ubisoft, Square Enix, and others.
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The Company distributes its physical media, entertainment products, hardware and accessories through an established multi-channel strategy. The Company currently sells its products that it is allowed to export to more than 100 countries around the world.
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This pivotal role extends to connecting these suppliers with domestic and international top-tier retail partners. Notable partners encompass giants like Walmart, Amazon, Best Buy, Barnes & Noble, Wayfair, Costco, Dell, Verizon, Kohl’s, Target, Shopify, and others. Employing an established multi-channel strategy, Alliance distributes physical media, entertainment products, hardware, and accessories across various platforms.
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Alliance’s distribution business is built around three areas, where our marketplace value is created: Service, Selection and Technology. 1 Table of Contents Service Alliance provides efficient, Omni-Channel expansion solutions for retailers, including: ● E-Commerce and DTC Alliance provides leading product and e-commerce distribution and inventory solutions.
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Alliance continues to invest in automated handling equipment in our Shepherdsville, KY warehouse resulting in reduced shipping times, streamlined order processing, and improved warehouse efficiency. In April 2024, we implemented a new piece of automation equipment from OPEX Sure Sort X® for the sortation of non-standard size products.
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NCircle’s library includes many of the most loved and best-selling children’s brands including Gigantosarus, The Cat in the Hat Knows a Lot About That!, Llama, The Octonauts, Sonic Boom, The Snowman and many more.
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Since most of these products were being manually sorted, the increased sortation capacity reduces labor cost and minimizes the potential for product damage. In December 2022, we implemented a state-of-the art AutoStore Automated Storage & Retrieval System (ASRS).
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These platforms offer the Alliance marketplace stakeholders feature-rich tools and services for all aspects of consumer engagement, transaction processing and business development. We continue to invest in enhancements to our automated handling equipment capable of reducing shipping times, streamlining order processing, and improving overall warehouse.

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Item 1A. Risk Factors

Risk Factors — what could go wrong, per management

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Biggest changeIt is important that investors and stakeholders read this summary together with the more detailed description of each risk contained below: ● If Alliance fails to respond to or capitalize on the rapid technological development in the music, video, gaming, and entertainment industry, including changes in entertainment delivery formats, its business could be harmed; ● If Alliance does not successfully optimize and operate its fulfillment network, its business could be harmed; ● Disruptions in Alliance’s supply chain have increased product expenditures and could result in an adverse impact on results of operations; ● Inflation could cause Alliance’s product costs and operating and administrative expenses to grow more rapidly than net sales, which could result in lower gross margins and lower net earnings; ● Weakness in the economy, market trends and other conditions affecting the profitability and financial stability of Alliance’s customers could negatively impact Alliance’s sales growth and results of operations; ● Our expansion places a strain on our management, operational, financial, and other resources; 11 Table of Contents ● Our expansion into new products, services, technologies, and geographic regions subjects us to additional business, legal, financial, and competitive risks; ● Our business will suffer if we are not successful in developing and expanding our partner brands across our consumer base; ● Consumer interests change rapidly and acceptance of products and entertainment offerings are influenced by outside factors; ● If we are unable to navigate through global supply chain challenges, our business may be harmed; ● If we are unable to adapt our business to the continued shift to ecommerce, our business may be harmed; ● Our business, including our costs and supply chain, is subject to risks associated with sourcing, manufacturing, warehousing, distribution and logistics, and the loss of any of our key suppliers or service providers could negatively impact our business; ● We face significant inventory risk; ● We rely on third-party suppliers, labels, studios, publishers, suppliers, retail and ecommerce partners and other vendors, and they may not continue to produce products or provide services that are consistent with our standards or applicable regulatory requirements, which could harm our brand, cause consumer dissatisfaction, and require us to find alternative suppliers of our products or services; ● The maturity of our Credit Facility, along with the Company’s losses from operations and negative cash generated from operations for the nine-month period ended June 30, 2023, has raised substantial doubt regarding our ability to continue as a going concern; ● Alliance’s existing and any future indebtedness could adversely affect its ability to operate its business; ● Covenants and events of default under Alliance’s Credit Facility could limit our ability to undertake certain types of transactions and adversely affect our liquidity; ● Alliance has engaged in transactions with related parties, and such transactions present possible conflicts of interest that could have an adverse effect on our business and results of operations; ● Our indebtedness may limit our availability of cash, cause us to divert cash to fund debt service payments or make it more difficult to take certain other actions; ● If we were unable to obtain or service our other external financings, or if the restrictions imposed by such financing were too burdensome, our business would be harmed; ● Alliance has identified material weaknesses in its internal controls over financial reporting.
Biggest changeIt is important that investors and stakeholders read this summary together with the more detailed description of each risk contained below: ● If Alliance fails to respond to or capitalize on the rapid technological development in the music, video, gaming, and entertainment industry, including changes in entertainment delivery formats, its business could be harmed. ● If Alliance does not successfully optimize and operate its fulfillment network, its business could be harmed. ● Disruptions in Alliance’s supply chain have increased product expenditures and could result in an adverse impact on results of operations. ● Inflation could cause Alliance’s product costs and operating and administrative expenses to grow more rapidly than net sales, which could result in lower gross margins and lower net earnings. ● Weakness in the economy, market trends and other conditions affecting the profitability and financial stability of Alliance’s customers could negatively impact Alliance’s sales growth and results of operations. ● Our expansion places a strain on our management, operational, financial, and other resources. ● Our expansion into new products, services, technologies, and geographic regions subjects us to additional business, legal, financial, and competitive risks; ● Our business will suffer if we are not successful in developing and expanding our partner brands across our consumer base. ● Consumer interests change rapidly and acceptance of products and entertainment offerings are influenced by outside factors; ● If we are unable to navigate through global supply chain challenges, our business may be harmed; ● If we are unable to adapt our business to the continued shift to ecommerce, our business may be harmed; ● Our business, including our costs and supply chain, is subject to risks associated with sourcing, manufacturing, warehousing, distribution and logistics, and the loss of any of our key suppliers or service providers could negatively impact our business; ● We face significant inventory risk; ● We rely on third-party suppliers, labels, studios, publishers, suppliers, retail and ecommerce partners and other vendors, and they may not continue to produce products or provide services that are consistent with our standards or applicable regulatory requirements, which could harm our brand, cause consumer dissatisfaction, and require us to find alternative suppliers of our products or services; ● Alliance’s existing and any future indebtedness could adversely affect its ability to operate its business; 11 ● Covenants and events of default under Alliance’s Credit Facility could limit our ability to undertake certain types of transactions and adversely affect our liquidity; ● Our indebtedness may limit our availability of cash, cause us to divert cash to fund debt service payments or make it more difficult to take certain other actions; ● If we were unable to obtain or service our other external financings, or if the restrictions imposed by such financing were too burdensome, our business would be harmed; ● Alliance has engaged in transactions with related parties, and such transactions present possible conflicts of interest that could have an adverse effect on our business and results of operations; ● Alliance has identified material weaknesses in its internal controls over financial reporting.
Video game services can be accessed through Xbox Game Pass, PlayStation Now, GeForce, Steam, Stadia, xCloud, Shadow, Luna, and Switch Online. Some entertainment offerings have gone direct to streaming channels and not produced a physical content format. Direct release to streaming channels is likely to continue.
Video game services can be accessed through Xbox Game Pass, PlayStation Now, GeForce, Steam, Stadia, xCloud, Shadow, Luna, and Switch Online. Some entertainment offerings have gone direct to streaming channels and have not produced a physical content format. Direct release to streaming channels is likely to continue.
We also rely on third parties to provide payment processing services, and for certain payment methods, we pay interchange and other fees, which may increase over time and raise our operating costs and affect ability to achieve or maintain profitability.
We also rely on third parties to provide payment processing services, and for certain payment methods, we pay interchange and other fees, which may increase over time and raise our operating costs and affect our ability to achieve or maintain profitability.
Our failure to accurately predict and respond to consumer demand, resulting in underproducing popular items and/or overproducing less popular items, would reduce our total sales and harm our results of operations.
Our failure to accurately predict and respond to consumer demand, resulting in our underproducing popular items and/or overproducing less popular items, would reduce our total sales and harm our results of operations.
In addition to risks described elsewhere in this section, our international sales and operations are subject to a number of risks, including: ● local economic and political conditions; ● government regulation and compliance requirements (such as regulation of our product and service offerings and of competition), restrictive governmental actions (such as trade protection measures, including export duties and quotas and custom duties and tariffs), nationalization, and restrictions on foreign ownership; ● restrictions on sales or distribution of certain products or services and uncertainty regarding liability for products, services, and content, including uncertainty as a result of less Internet- friendly legal systems, local laws, lack of legal precedent, and varying rules, regulations, and practices regarding the physical and digital distribution of media products and enforcement of intellectual property rights; ● business licensing or certification requirements, such as for imports, exports, web services, and electronic devices; ● limitations on the repatriation and investment of funds and foreign currency exchange restrictions; ● limited fulfillment and technology infrastructure; ● shorter payable and longer receivable cycles and the resultant negative impact on cash flow; ● laws and regulations regarding consumer and data protection, privacy, network security, encryption, payments, and restrictions on pricing or discounts; ● lower levels of consumer spending and fewer opportunities for growth compared to the U.S.; ● lower levels of credit card usage and increased payment risk; ● difficulty in staffing, developing, and managing foreign operations as a result of distance, language, and cultural differences; ● different employee/employer relationships and the existence of works councils and labor unions; ● compliance with the U.S.
In addition to risks described elsewhere in this section, our international sales and operations are subject to a number of risks, including: ● local economic and political conditions; 16 ● government regulation and compliance requirements (such as regulation of our product and service offerings and of competition), restrictive governmental actions (such as trade protection measures, including export duties and quotas and custom duties and tariffs), nationalization, and restrictions on foreign ownership; ● restrictions on sales or distribution of certain products or services and uncertainty regarding liability for products, services, and content, including uncertainty as a result of less Internet- friendly legal systems, local laws, lack of legal precedent, and varying rules, regulations, and practices regarding the physical and digital distribution of media products and enforcement of intellectual property rights; ● business licensing or certification requirements, such as for imports, exports, web services, and electronic devices; ● limitations on the repatriation and investment of funds and foreign currency exchange restrictions; ● limited fulfillment and technology infrastructure; ● shorter payable and longer receivable cycles and the resultant negative impact on cash flow; ● laws and regulations regarding consumer and data protection, privacy, network security, encryption, payments, and restrictions on pricing or discounts; ● lower levels of consumer spending and fewer opportunities for growth compared to the U.S.; ● lower levels of credit card usage and increased payment risk; ● difficulty in staffing, developing, and managing foreign operations as a result of distance, language, and cultural differences. ● different employee/employer relationships and the existence of works councils and labor unions; ● compliance with the U.S.
For more information, see the section titled “ Description of Securities — Certain Anti-Takeover Provisions of Delaware Law and the Existing Certificate of Incorporation and Bylaws .” The Certificate of Incorporation requires, to the fullest extent permitted by law, that derivative actions brought in our name, actions against our directors, officers, other employees or stockholders for breach of fiduciary duty and certain other actions may be brought only in the Court of Chancery in the State of Delaware and, if brought outside of Delaware, the stockholder bringing the suit will, subject to certain exceptions, be deemed to have consented to service of process on such stockholder’s counsel, which may have the effect of discouraging lawsuits against our directors, officers, other employees or stockholders.
For more information, see the section titled “ Description of Securities — Certain Anti-Takeover Provisions of Delaware Law and the Existing Certificate of Incorporation and Bylaws .” 35 The Certificate of Incorporation requires, to the fullest extent permitted by law, that derivative actions brought in our name, actions against our directors, officers, other employees or stockholders for breach of fiduciary duty and certain other actions may be brought only in the Court of Chancery in the State of Delaware and, if brought outside of Delaware, the stockholder bringing the suit will, subject to certain exceptions, be deemed to have consented to service of process on such stockholder’s counsel, which may have the effect of discouraging lawsuits against our directors, officers, other employees or stockholders.
Our sales and operating results will also fluctuate for many other reasons, including due to risks described elsewhere in this section and the following: ● our ability to retain and increase sales to existing customers, attract new customers, and satisfy our customers’ demands; ● our ability to retain and expand our network of customers; ● our ability to offer products on favorable terms, manage inventory, and fulfill orders; ● the introduction of competitive stores, websites, products, services, price decreases, or improvements; ● changes in usage or adoption rates of the Internet, e-commerce, electronic devices, and web services, including outside the U.S.; ● timing, effectiveness, and costs of expansion and upgrades of our systems and infrastructure; ● the success of our geographic, service, and product line expansions; ● the extent to which we finance, and the terms of any such financing for, our current operations and future growth; ● the outcomes of legal proceedings and claims, which may include significant monetary damages or injunctive relief and could have a material adverse impact on our operating results; ● variations in the mix of products and services we sell; ● variations in our level of merchandise and vendor returns; ● the extent to which we offer free shipping, continue to reduce prices worldwide, and provide additional benefits to our customers; ● factors affecting our reputation or brand image; ● the extent to which we invest in technology and content, fulfillment, and other expense categories; ● increases in the prices of fuel and gasoline, as well as increases in the prices of other energy products and commodities like paper and packing supplies; ● the extent to which our equity-method investees record significant operating and non-operating items; ● the extent to which operators of the networks between our customers and our stores successfully charge fees to grant our customers unimpaired and unconstrained access to our online services; ● our ability to collect amounts owed to us when they become due; ● the extent to which use of our services is affected by spyware, viruses, phishing and other spam emails, denial of service attacks, data theft, computer intrusions, outages, and similar events; ● terrorist attacks and armed hostilities; 16 Table of Contents ● supply chain issues either in chip shortages; and ● long lead time in the manufacturing vinyl LP’s.
Our sales and operating results will also fluctuate for many other reasons, including due to risks described elsewhere in this section and the following: ● our ability to retain and increase sales to existing customers, attract new customers, and satisfy our customers’ demands; ● our ability to retain and expand our network of customers; ● our ability to offer products on favorable terms, manage inventory, and fulfill orders; ● the introduction of competitive stores, websites, products, services, price decreases, or improvements; 15 ● changes in usage or adoption rates of the Internet, e-commerce, electronic devices, and web services, including outside the U.S.; ● timing, effectiveness, and costs of expansion and upgrades of our systems and infrastructure; ● the success of our geographic, service, and product line expansions; ● the extent to which we finance, and the terms of any such financing for, our current operations and future growth; ● the outcomes of legal proceedings and claims, which may include significant monetary damages or injunctive relief and could have a material adverse impact on our operating results; ● variations in the mix of products and services we sell; ● variations in our level of merchandise and vendor returns; ● the extent to which we offer free shipping, continue to reduce prices worldwide, and provide additional benefits to our customers; ● factors affecting our reputation or brand image; ● the extent to which we invest in technology and content, fulfillment, and other expense categories; ● increases in the prices of fuel and gasoline, as well as increases in the prices of other energy products and commodities like paper and packing supplies; ● the extent to which our equity-method investees record significant operating and non-operating items; ● the extent to which operators of the networks between our customers and our stores successfully charge fees to grant our customers unimpaired and unconstrained access to our online services; ● our ability to collect amounts owed to us when they become due; ● the extent to which use of our services is affected by spyware, viruses, phishing and other spam emails, denial of service attacks, data theft, computer intrusions, outages, and similar events; ● terrorist attacks and armed hostilities; ● supply chain issues either in chip shortages; and ● long lead time in the manufacturing vinyl LP’s.
Quality control problems could result in regulatory action, such as restrictions on importation, products of inferior quality or product stock outages or shortages, harming our sales and creating inventory write-downs for unusable products. We have also outsourced minute portions of our fulfillment process, as well as certain technology-related functions, to third-party service providers.
Quality control problems could result in regulatory action, such as restrictions on importation, products of inferior quality or product stock outages or shortages, harming our sales and creating inventory write-downs for unusable products. 21 We have also outsourced minute portions of our fulfillment process, as well as certain technology-related functions, to third-party service providers.
We operate the business with an asset-based line of credit to fund working capital to support our Accounts Payable and our Inventory purchases. ● make it more difficult and/or costly for us to pay or refinance our debts as they become due, particularly during adverse economic and industry conditions, because a decrease in revenues or increase in costs could cause cash flow from operations to be insufficient to make scheduled debt service payments; 25 Table of Contents ● require a substantial portion of our available cash to be used for debt service payments, thereby reducing the availability of our cash to fund working capital, capital expenditures, development projects, acquisitions or other strategic opportunities, dividend payments, share repurchases and other general corporate purposes; ● make it more difficult for us to raise capital to fund working capital, make capital expenditures, pay dividends, pursue strategic initiatives or for other purposes and result in higher interest expense, which could be further increased in case of current or future borrowings subject to variable rates of interest; ● require that materially adverse terms, conditions, or covenants be placed on us under our debt instruments, which could include, for example, limitations on additional borrowings or limitations on our ability to create liens, pay dividends, repurchase our common stock or make investments, any of which could hinder our access to capital markets or our flexibility in the conduct of our business and make us more vulnerable to economic downturns and adverse competitive industry conditions; and ● jeopardize our ability to pay our indebtedness if our business experienced a severe downturn.
We operate the business with an asset-based line of credit to fund working capital to support our Accounts Payable and our Inventory purchases. ● make it more difficult and/or costly for us to pay or refinance our debts as they become due, particularly during adverse economic and industry conditions, because a decrease in revenues or increase in costs could cause cash flow from operations to be insufficient to make scheduled debt service payments; ● require a substantial portion of our available cash to be used for debt service payments, thereby reducing the availability of our cash to fund working capital, capital expenditures, development projects, acquisitions or other strategic opportunities, dividend payments, share repurchases and other general corporate purposes; ● make it more difficult for us to raise capital to fund working capital, make capital expenditures, pay dividends, pursue strategic initiatives or for other purposes and result in higher interest expense, which could be further increased in case of current or future borrowings subject to variable rates of interest; ● require that materially adverse terms, conditions, or covenants be placed on us under our debt instruments, which could include, for example, limitations on additional borrowings or limitations on our ability to create liens, pay dividends, repurchase our common stock or make investments, any of which could hinder our access to capital markets or our flexibility in the conduct of our business and make us more vulnerable to economic downturns and adverse competitive industry conditions; and ● jeopardize our ability to pay our indebtedness if our business experienced a severe downturn.
Evolving consumer tastes and shifting interests, coupled with an ever-changing and expanding pipeline of entertainment and consumer properties and products which compete for consumer interest and acceptance, create an environment in which some products and entertainment offerings can fail to achieve consumer acceptance, and other products and entertainment offerings can be popular during a certain period of time but then be rapidly replaced.
Evolving consumer tastes and shifting interests, coupled with an ever-changing and expanding pipeline of entertainment and consumer properties and products that compete for consumer interest and acceptance, create an environment in which some products and entertainment offerings can fail to achieve consumer acceptance, and other products and entertainment offerings can be popular during a certain period of time but then be rapidly replaced.
The loss of any of our other significant suppliers, or the discontinuance of any preferential pricing or exclusive incentives they currently offer to us could have an adverse effect on our business, financial condition, results of operations and prospects. We continually seek to expand our base of product suppliers, especially as we identify new markets.
The loss of any of our other significant suppliers, or the discontinuance of any preferential pricing or exclusive incentives they currently offer to us could have an adverse effect on our business, financial condition, results of operations and prospects. 19 We continually seek to expand our base of product suppliers, especially as we identify new markets.
The failure of our information systems or third-party hosted technology to perform as designed or our failure to implement and operate them effectively could disrupt our business, require significant capital investments to remediate a problem or subject us to liability. If our electronic data is compromised our business could be significantly harmed.
The failure of our information systems or third-party hosted technology to perform as designed or our failure to implement and operate them effectively could disrupt our business, require significant capital investments to remediate a problem or subject us to liability. 26 If our electronic data is compromised our business could be significantly harmed.
Such a weakened economic and business climate, as well as consumer uncertainty created by such a climate, could significantly harm our revenues and profitability. Our success and profitability not only depend on consumer demand for our products, but also on our ability to produce and sell those products at costs which allow us to make a profit.
Such a weakened economic and business climate, as well as consumer uncertainty created by such a climate, could significantly harm our revenues and profitability. 27 Our success and profitability not only depend on consumer demand for our products, but also on our ability to produce and sell those products at costs which allow us to make a profit.
If we are unable to successfully develop, maintain and expand key partner brands across our brand blueprint, our business performance will suffer. Risks Related to Shifts in Consumer Demand Consumer interests change rapidly and acceptance of products and entertainment offerings are influenced by outside factors.
If we are unable to successfully develop, maintain and expand key partner brands across our brand blueprint, our business performance will suffer. 17 Risks Related to Shifts in Consumer Demand Consumer interests change rapidly, and acceptance of products and entertainment offerings are influenced by outside factors.
We intend to satisfy our current and future debt service obligations with our then existing cash and cash equivalents. However, we may not have sufficient funds, and may be unable to arrange for additional financing, to pay the amounts due under the Credit Facility or any other debt instruments.
We intend to satisfy our current and future debt service obligations with our then existing cash and cash equivalents. However, we may not have sufficient funds, and may be unable to arrange for additional financing, to pay the amounts due under the Revolving Credit Facility or any other debt instruments.
In such case, we may be unable to maintain compliance with securities law requirements regarding timely filing of periodic reports in addition to applicable stock exchange listing requirements, investors may lose confidence in our financial reporting and our stock price may decline as a result.
In such case, we may be unable to maintain compliance with securities law requirements regarding the timely filing of periodic reports, in addition to applicable stock exchange listing requirements. Investors may lose confidence in our financial reporting, and our stock price may decline as a result.
We may not be able to manage growth effectively, which could damage our reputation, limit our growth, and negatively affect our operating results. We may not realize the anticipated benefits of acquisitions or investments in our acquisitions or joint ventures, or those benefits may be delayed or reduced in their realization.
We may not be able to manage growth effectively, which could damage our reputation, limit our growth, and negatively affect our operating results. 14 We may not realize the anticipated benefits of acquisitions or investments in our acquisitions or joint ventures, or those benefits may be delayed or reduced in their realization.
Alliance believes the amounts payable to GameFly are at fair market value. Although the agreement between Alliance and GameFly can be terminated by either party at any time, given Mr. Ogilvie’s and Mr. Walker’s positions with Alliance as Executive Chairman and Chief Executive Officer, respectively.
Alliance believes the amounts payable to GameFly are at fair market value. Although the agreement between Alliance and GameFly can be terminated by either party at any time, given Mr. Ogilvie’s and Mr. Walker’s positions with Alliance as Executive Chairman and Chief Executive Officer/Chief Financial Officer, respectively.
See “Certain Relationships and Related Party Transactions.” Transactions with such related parties present potential for conflicts of interest, as the interests of the third-party owned related entity and its shareholders may not align with the interests of our stockholders with respect to the negotiation of, and certain other matters.
See “Certain Relationships and Related Party Transactions.” 25 Transactions with such related parties present potential for conflicts of interest, as the interests of the third-party owned related entity and its shareholders may not align with the interests of our stockholders with respect to the negotiation of, and certain other matters.
A breach of the covenants under the Credit Facility could result in an event of default under the applicable indebtedness. Such a default may allow the creditors to accelerate the related debt and may result in the acceleration of any other debt to which a cross-acceleration or cross-default provision applies.
A breach of the covenants under the Revolving Credit Facility could result in an event of default under the applicable indebtedness. Such a default may allow the creditors to accelerate the related debt and may result in the acceleration of any other debt to which a cross-acceleration or cross-default provision applies.
Further, our third-party labels, studios, publishers, suppliers and retail and ecommerce partners may: ● have economic or business interests or goals that are inconsistent with ours; ● take actions contrary to our instructions, requests, policies or objectives; ● be unable or unwilling to fulfill their obligations under relevant purchase orders, including obligations to meet our production deadlines, quality standards, pricing guidelines and product specifications, and to comply with applicable regulations, including those regarding the safety and quality of products; ● have financial difficulties; ● encounter raw material or labor shortages; ● encounter increases in raw material or labor costs which may affect our procurement costs; ● encounter difficulties with proper payment of custom duties or excise taxes; 22 Table of Contents ● disclose our confidential information or intellectual property to competitors or third parties; ● engage in activities or employ practices that may harm our reputation; and ● work with, be acquired by, or come under control of, our competitors.
Further, our third-party labels, studios, publishers, suppliers and retail and ecommerce partners may: ● have economic or business interests or goals that are inconsistent with ours; ● take actions contrary to our instructions, requests, policies, or objectives; ● be unable or unwilling to fulfill their obligations under relevant purchase orders, including obligations to meet our production deadlines, quality standards, pricing guidelines and product specifications, and to comply with applicable regulations, including those regarding the safety and quality of products; ● have financial difficulties; ● encounter raw material or labor shortages; ● encounter increases in raw material or labor costs which may affect our procurement costs; ● encounter difficulties with proper payment of custom duties or excise taxes; ● disclose our confidential information or intellectual property to competitors or third parties; ● engage in activities or employ practices that may harm our reputation; and ● work with, be acquired by, or come under control of, our competitors.
We cannot be certain that the key talented individuals at these companies will continue to work for us after the acquisition or that they would develop popular and profitable products, entertainment or services in the future.
We cannot be certain that the key talented individuals at these companies will continue to work for us after the acquisition or that they will develop popular and profitable products, entertainment, or services in the future.
The increasing prevalence of remote work creates further challenges in retaining employees as some employees desire more flexibility in their employment and the ability to work remotely opens up more employment opportunities.
The increasing prevalence of remote work creates further challenges in retaining employees as some employees desire more flexibility in their employment and the ability to work remotely opens more employment opportunities.
If we were unable to obtain or service our other external financings, or if the restrictions imposed by such financing were too burdensome, our business would be harmed.
If we were unable to obtain or service our other external financing, or if the restrictions imposed by such financing were too burdensome, our business would be harmed.
Our Class A common stock and warrants are listed on the Nasdaq Capital Market. However, there can be no assurance that we will be able to maintain the listing standards of that exchange, which includes requirements that we maintain our stockholders’ equity, total value of shares held by unaffiliated stockholders, and market capitalization above certain specified levels.
Our Class A common stock and warrants are listed on the Nasdaq Capital Market. However, there can be no assurance that we will be able to maintain the listing standards of that exchange, which include requirements that we maintain our stockholders’ equity, total value of shares held by unaffiliated stockholders, and market capitalization above certain specified levels.
Our quarterly and annual operating results may fluctuate due to seasonality in our business and union strikes impacting the availability of content. Sales of our music, video movies, video games and other entertainment products are seasonal, with an increase of retail sales occurring during the period from September through December for the holiday season.
Our quarterly and annual operating results may fluctuate due to seasonality in our business and union strikes impacting the availability of content. Sales of our music, video movies, video games and other entertainment products are seasonal, with an increase of retail sales occurring during the period from October through December for the holiday season.
In fiscal year 2023, ecommerce sales represented approximately 24% of our top four customers overall sales as consumers increasingly purchased our products online as compared to through in-store shopping due to the continued transition to ecommerce accelerated by the shutdown and limited access to retail stores during the COVID-19 pandemic.
In fiscal year 2024, ecommerce sales represented approximately 24% of our top four customers overall sales as consumers increasingly purchased our products online as compared to through in-store shopping due to the continued transition to ecommerce accelerated by the shutdown and limited access to retail stores during the COVID-19 pandemic.
Among other things, these provisions include: ● the limitation of the liability of, and the indemnification of, its directors and officers. 38 Table of Contents ● a prohibition on actions by its stockholders except at an annual or special meeting of stockholders. ● a prohibition on actions by its stockholders by written consent; and ● the ability of the board of directors to issue preferred stock without stockholder approval, which could be used to institute a “poison pill” that would work to dilute the stock ownership of a potential hostile acquirer, effectively preventing acquisitions that have not been approved by the board of directors.
Among other things, these provisions include: ● the limitation of the liability of, and the indemnification of, its directors and officers. ● a prohibition on actions by its stockholders except at an annual or special meeting of stockholders. ● a prohibition on actions by its stockholders by written consent; and ● the ability of the board of directors to issue preferred stock without stockholder approval, which could be used to institute a “poison pill” that would work to dilute the stock ownership of a potential hostile acquirer, effectively preventing acquisitions that have not been approved by the board of directors.
Alliance’s executive officers have limited experience in the management of a publicly traded company. Alliance’s management team may not successfully or effectively manage its transition to a public company that will be subject to significant regulatory oversight and reporting obligations under federal securities laws.
Alliance’s management has limited experience in operating a public company. Alliance’s executive officers have limited experience in the management of a publicly traded company. Alliance’s management team may not successfully or effectively manage its transition to a public company that will be subject to significant regulatory oversight and reporting obligations under federal securities laws.
Release dates are determined by several factors, including the timing of holiday periods, geographical release dates and competition in the market. Additionally, the SAG AFTRA strike has created a lack of content for CDs, DVDs and other entertainment sectors. This could negatively effect our business.
Release dates are determined by several factors, including the timing of holiday periods, geographical release dates and competition in the market. Additionally, the SAG AFTRA strike has created a lack of content for CDs, DVDs and other entertainment sectors. This could negatively affect our business.
For additional information about this plan, please read the discussion under the heading “ Alliance’s Executive Compensation — Employee Benefit Plans .” Additionally, as of the date of this 10-K, Alliance has Warrants outstanding to purchase an aggregate of 9,920,000 shares of common stock.
For additional information about this plan, please read the discussion under the heading “ Alliance’s Executive Compensation — Employee Benefit Plans .” Additionally, as of the date of this 10-K, Alliance has Warrants outstanding to purchase an aggregate of 9,920,090 shares of common stock.
The warrant agreement provides that, subject to applicable law, (i) any action, proceeding or claim against us arising out of or relating in any way to the warrant agreement, including under the Securities Act, will be brought and enforced in the courts of the State of New York or the United States District Court for the Southern District of New York, and (ii) that we irrevocably submit to 35 Table of Contents such jurisdiction, which jurisdiction shall be the exclusive forum for any such action, proceeding or claim.
The warrant agreement provides that, subject to applicable law, (i) any action, proceeding or claim against us arising out of or relating in any way to the warrant agreement, including under the Securities Act, will be brought and enforced in the courts of the State of New York or the United States District Court for the Southern District of New York, and (ii) that we irrevocably submit to such jurisdiction, which jurisdiction shall be the exclusive forum for any such action, proceeding or claim.
Moreover, because Alliance is incorporated in Delaware, it is governed by the provisions of Section 203 of the DGCL, which prohibits a person who owns 15% or more of its outstanding voting stock from merging or combining with Alliance for a period of three years after the date of the transaction in which the person acquired 15% or more of Alliance’s outstanding voting stock, unless the merger or combination is approved in a prescribed manner.
Moreover, because Alliance is incorporated in Delaware, it is governed by the provisions of Section 203 of the Delaware General Corporation Law (the DGCL), which prohibits a person who owns 15% or more of its outstanding voting stock from merging or combining with Alliance for a period of three years after the date of the transaction in which the person acquired 15% or more of Alliance’s outstanding voting stock, unless the merger or combination is approved in a prescribed manner.
Our results of operations and cash flows could be adversely affected by additional taxes imposed on us prospectively or retroactively or additional taxes or penalties resulting from the failure to comply with any collection obligations or failure to provide information about our customers, suppliers, and other third parties for tax reporting purposes to various government 31 Table of Contents agencies.
Our results of operations and cash flows could be adversely affected by additional taxes imposed on us prospectively or retroactively or additional taxes or penalties resulting from the failure to comply with any collection obligations or failure to provide information about our customers, suppliers, and other third parties for tax reporting purposes to various government agencies.
Some of our current and potential competitors have greater resources, longer histories, more customers, and/or greater brand recognition. They may also secure better terms from vendors, adopt more aggressive pricing, and devote more resources to technology, infrastructure, fulfillment, and marketing. 13 Table of Contents The music, video, gaming and entertainment industry is highly competitive.
Some of our current and potential competitors have greater resources, longer histories, more customers, and/or greater brand recognition. They may also secure better terms from vendors, adopt more aggressive pricing, and devote more resources to technology, infrastructure, fulfillment, and marketing. The music, video, gaming, and entertainment industry is highly competitive.
Unforeseen delays or difficulties in the development process, significant increases in the 18 Table of Contents planned cost of development, or changes in anticipated consumer demand for our products and new brands may cause the introduction date for products to be later than anticipated, may reduce or eliminate the profitability of such products or, in some situations, may cause a product or new brand introduction to be discontinued.
Unforeseen delays or difficulties in the development process, significant increases in the planned cost of development, or changes in anticipated consumer demand for our products and new brands may cause the introduction date for products to be later than anticipated, may reduce or eliminate the profitability of such products or, in some situations, may cause a product or new brand introduction to be discontinued.
While we have taken actions to lessen the impact of these supply chain challenges, such as through the use of alternative ports and air freight, such actions resulted in higher costs and there can be no assurance that the actions taken will continue to be effective. We have also increased prices in some cases to help offset increased costs.
While we have taken actions to lessen the impact of these supply chain challenges, such as by alternative ports and air freight, such actions resulted in higher costs and there can be no assurance that the actions taken will continue to be effective. We have also increased prices in some cases to help offset increased costs.
We are subject to various government regulations, violation of which could subject us to sanctions or otherwise harm our business. In addition, we could be the subject of future product liability suits or merchandise recalls, which could harm our business.
We are subject to various government regulations, violations of which could subject us to sanctions or otherwise harm our business. In addition, we could be the subject of future product liability suits or merchandise recalls, which could harm our business.
Included on Alliance’s balance sheet as of June 30, 2023, contained elsewhere in this Form 10-K are derivative liabilities related to embedded features contained within the Warrants.
Included on Alliance’s balance sheet as of June 30, 2024, and 2023, contained elsewhere in this Form 10-K, are derivative liabilities related to embedded features contained within the Warrants.
As international physical, e-commerce, and other services grow, competition will intensify, including through adoption of evolving business models. Local companies may have a substantial competitive advantage because of their greater understanding of, 17 Table of Contents and focus on, the local customer, as well as their more established local brand names.
As international physical, e-commerce, and other services grow, competition will intensify, including through adoption of evolving business models. Local companies may have a substantial competitive advantage because of their greater understanding of, and focus on, the local customer, as well as their more established local brand names.
Any one of the inventory risk factors set forth above may adversely affect our operating results. 20 Table of Contents If our third-party suppliers’ labels, studios, and publishers do not comply with applicable laws and regulations, our reputation, business, financial condition, results of operations and prospects could be harmed.
Any one of the inventory risk factors set forth above may adversely affect our operating results. If our third-party suppliers’ labels, studios, and publishers do not comply with applicable laws and regulations, our reputation, business, financial condition, results of operations and prospects could be harmed.
Our small global operations mean we transact business in many different jurisdictions with many different currencies.
Our global operations mean we transact business in many different jurisdictions with many different currencies.
We may effect such a reduction in exercise price without the consent of such warrant holders and such reduction would decrease the maximum amount of cash proceeds we would receive upon the exercise in full of the Warrants for cash.
We may affect such a reduction in exercise price without the consent of such warrant holders and such reduction would decrease the maximum amount of cash proceeds we would receive upon the exercise in full of the Warrants for cash.
To 21 Table of Contents mitigate credit card fraud, we use Kount to score all credit card orders for risk of fraud. In addition, we may be subject to additional fraud risk if third-party service providers or our employees fraudulently use consumer information for their own gain or facilitate the fraudulent use of such information.
To mitigate credit card fraud, we use Kount to score all credit card orders for risk of fraud. In addition, we may be subject to additional fraud risk if third-party service providers or our employees fraudulently use consumer information for their own gain or facilitate the fraudulent use of such information.
As a result of the recurring fair value measurement, our financial statements and results of operations may fluctuate quarterly based on factors which are outside of our control.
As a result of the recurring fair value measurement, our financial statements and results of operations may fluctuate quarterly based on factors that are outside of our control.
The global outbreak of the coronavirus which continues to adversely impact global populations, and any other variants or outbreaks of communicable infections, diseases or other adverse public health conditions in markets in which we, our employees, consumers, customers, partners, licensees, licensors, suppliers and manufacturers operate, could have a significant negative impact on our business, revenues and profitability.
The global outbreak of the coronavirus which had adversely impacted global populations, and any other variants or outbreaks of communicable infections, diseases or other adverse public health conditions in markets in which we, our employees, consumers, customers, partners, licensees, licensors, suppliers and manufacturers operate, could have a significant negative impact on our business, revenues and profitability.
Additionally, the risk of cyber-attacks or 29 Table of Contents other privacy or data security incidents may be heightened as a result of our moving increasingly towards a remote working environment, which may be less secure and more susceptible to hacking attacks.
Additionally, the risk of cyber-attacks or other privacy or data security incidents may be heightened as a result of our moving increasingly towards a remote working environment, which may be less secure and more susceptible to hacking attacks.
A significant portion of our expenses and investments is fixed, and we may not be able to adjust our spending quickly enough if our sales are less than expected. 15 Table of Contents Our revenue growth may not be sustainable, and our percentage growth rates may decrease.
A significant portion of our expenses and investments is fixed, and we may not be able to adjust our spending quickly enough if our sales are less than expected. Our revenue growth may not be sustainable, and our percentage growth rates may decrease.
While these techniques reduce a retailer’s investment in inventory, they increase pressure on suppliers like us to fill orders 30 Table of Contents promptly and thereby shift a significant portion of inventory risk and carrying costs to the supplier.
While these techniques reduce a retailer’s investment in inventory, they increase pressure on suppliers like us to fill orders promptly and thereby shift a significant portion of inventory risk and carrying costs to the supplier.
Additionally, our reputation could be damaged if we fail 32 Table of Contents to achieve our sustainability goals, or if we or others in our industry do not act, or are perceived not to act, responsibly with respect to the production and packaging of our products.
Additionally, our reputation could be damaged if we fail to achieve our sustainability goals, or if we or others in our industry do not act, or are perceived not to act, responsibly with respect to the production and packaging of our products.
If such a market does not develop or is not sustained, it may be difficult for you to sell your shares of Class A common stock at the time you wish to sell them, at a price that is attractive to you, or at all.
If such a market does not develop or is not sustained, it may be difficult for you to sell your shares of Class A common stock at a time or at price that is attractive to you, or at all.
(federal and state) and numerous foreign jurisdictions. We may recognize additional tax expense and be subject to additional tax liabilities, including other liabilities for tax collection obligations due to changes in laws, regulations, administrative practices, principles, and interpretations related to tax, including changes to the global tax framework, competition, and other laws and accounting rules in various jurisdictions.
We may recognize additional tax expense and be subject to additional tax liabilities, including other liabilities for tax collection obligations due to changes in laws, regulations, administrative practices, principles, and interpretations related to tax, including changes to the global tax framework, competition, and other laws and accounting rules in various jurisdictions.
For the year ended June 30, 2023 and 2022, Alliance made sales of new release movies, video games, and video game consoles to GameFly Holdings LLC in the amount of $16.8 million and $7.5 million respectively. GameFly, a customer of Alliance, is equally owned by Bruce Ogilvie and Jeff Walker, the two shareholders of Alliance.
For the year ended June 30, 2024, and 2023, Alliance made sales of new release movies, video games, and video game consoles to GameFly Holdings LLC in the amount of $8.4 million and $16.8 million, respectively. GameFly, a customer of Alliance, is equally owned by Bruce Ogilvie and Jeff Walker, the two shareholders of Alliance.
It is their skill, innovation and hard work that drive our success. We compete with many other potential employers in recruiting, hiring, and retaining our management team and our many other skilled 26 Table of Contents officers and employees around the world.
It is their skill, innovation and hard work that drive our success. We compete with many other potential employers in recruiting, hiring, and retaining our management team and our many other skilled officers and employees around the world.
Furthermore, our stock price may be impacted by factors that are unrelated or disproportionate to our operating performance. These market fluctuations, as well as general economic, political and market conditions, such as recessions, interest rates or international currency fluctuations may adversely affect the market price of our Class A common stock.
Furthermore, our stock price may be impacted by unrelated or disproportionate factors to our operating performance. These market fluctuations, along with general economic, political, and market conditions—such as recessions, interest rates, or international currency fluctuations—may adversely affect the market price of our Class A common stock.
Due to the seasonal nature of our business, in order to meet our working capital needs we rely on a revolving credit agreement which provides for a $175,000,000 committed revolving asset-based loan Credit Facility. The Credit Facility contains certain restrictive covenants setting forth leverage and coverage requirements, and certain other limitations typical of an investment grade facility.
Due to the seasonal nature of our business, to meet our working capital needs, we rely on a revolving credit agreement that provides for a $120,000,000 committed revolving asset-based loan Revolving Credit Facility. The Revolving Credit Facility contains certain restrictive covenants setting forth leverage and coverage requirements and certain other limitations typical of an investment-grade facility.
We are subject to risks related to online payment methods, including third-party payment processing-related risks. We currently accept payments using a variety of methods, including checks, ACH, wire transfers, credit card, debit card, PayPal, and gift cards. As we offer new payment options to consumers, we may be subject to additional regulations, compliance requirements, fraud, and other risks.
We currently accept payments using a variety of methods, including checks, ACH, wire transfers, credit card, debit card, PayPal, and gift cards. As we offer new payment options to consumers, we may be subject to additional regulations, compliance requirements, fraud, and other risks.
Inflation has caused and may continue to experience Alliance’s product costs and operating and administrative expenses to grow more rapidly than net sales, which could result in lower gross margins and lower net earnings.
Inflation may continue to cause Alliance’s product costs and operating and administrative expenses to grow more rapidly than net sales, which could result in lower gross margins and lower net earnings .
As a result of the seasonal nature of our business, we would be significantly and adversely affected, in a manner disproportionate to the impact on a company with sales spread more evenly throughout the year, by unforeseen events such as a natural disaster, a terrorist attack, economic shock or pandemic that harms the retail environment or consumer buying patterns during our key selling season, or by events such as strikes or port delays or other supply chain challenges that interfere with the shipment of goods, particularly from the Far East, during the critical months leading up to the holiday shopping season.
As a result of the seasonal nature of our business, we would be significantly and adversely affected, in a manner disproportionate to the impact on a company with sales spread more evenly throughout the year, by unforeseen events such as a natural disaster, a terrorist attack, economic shock or pandemic that harms the retail environment or consumer buying patterns during our key selling season, or by events such as strikes or port delays or other supply chain challenges that interfere with the shipment of goods, particularly from the Far East, during the critical months leading up to the holiday shopping season. 28 Risks Related to Taxes and Government Related Matters We face additional tax liabilities and collection obligations.
For the year ended June 30, 2022, our top customer accounted for 27% of our total net sales including all channels, market segments and lines of business.
For the year ended June 30, 2023, our top customer accounted for 23% of our total net sales including all channels, market segments and lines of business.
Additionally supply chain disruptions can be the result of the bankruptcy or failure of trucking and other logistics businesses. Labor shortages can also cause supply chain disruptions.
Additionally supply chain disruptions can be the result of the bankruptcy or failure of trucking and other logistics businesses.
The trading market for our Class A common stock in the future could be subject to wide fluctuations in response to several factors, including, but not limited to: ● actual or anticipated variations in our results of operations. ● our ability or inability to generate revenues or profit. 37 Table of Contents ● the number of shares in our public float; and ● increased competition.
The trading market for our Class A common stock in the future could be subject to wide fluctuations in response to several factors, including, but not limited to: ● Actual or anticipated variations in our results of operations. ● Our ability or inability to generate revenues or profit. ● The relatively small number of shares in our public float, which could exacerbate stock price volatility. ● Increased competition.
For the year ended June 30, 2023, our top five customers generated approximately 50% of net sales and our top customer accounted for approximately 23% (Including all channels, market segments and lines of business) of our total net sales and purchased a mix of products comprised of approximately 47% music, 24% games, 23% movies, and 6% Consumer Products.
For the year ended June 30, 2024, our top five customers generated approximately 47% of net sales and our top customer accounted for approximately 18% (Including all channels, market segments and lines of business) of our total net sales and purchased a mix of products comprised of approximately 67% music, 4% games, 24% movies, and 5% Consumer Products.
Second, if a registration statement covering the Class A common stock issuable upon exercise of the warrants is not effective within a specified period following the consummation of the Business Combination, warrant holders may, until such time as there is an effective registration statement and during any period when Alliance shall have failed to maintain an effective registration statement, exercise Warrants on a cashless basis pursuant to the exemption provided by Section 3(a)(9) of the Securities Act, provided that such exemption is available; if that exemption, or another exemption, is not available, holders will not be able to exercise their Warrants on a cashless basis. 36 Table of Contents Third, if Alliance calls the Public Warrants for redemption, Alliance’s management will have the option to require all holders that wish to exercise Warrants to do so on a cashless basis.
Second, if a registration statement covering the Class A common stock issuable upon exercise of the warrants is not effective within a specified period following the consummation of the Business Combination, warrant holders may, until such time as there is an effective registration statement and during any period when Alliance shall have failed to maintain an effective registration statement, exercise Warrants on a cashless basis pursuant to the exemption provided by Section 3(a)(9) of the Securities Act, provided that such exemption is available; if that exemption, or another exemption, is not available, holders will not be able to exercise their Warrants on a cashless basis.
If our products are not delivered in a timely fashion or are damaged or lost during the delivery process, our consumers could become dissatisfied and cease shopping on our site or retailer or third-party ecommerce sites, which could have an adverse effect on our business, financial condition, operating results and prospects.
If our products are not delivered in a timely fashion or are damaged or lost during the delivery process, our consumers could become dissatisfied and cease shopping on our site or retailer or third-party ecommerce sites, which could have an adverse effect on our business, financial condition, operating results, and prospects. 20 We are subject to risks related to online payment methods, including third-party payment processing-related risks.
Such government efforts, along with other interest rate pressures arising from an inflationary economic environment, could lead to us to incur even higher interest rates and financing costs on our credit line with Bank of America and have material adverse effect on our business, financial condition and results of operations.
Such government efforts, along with other interest rate pressures arising from an inflationary economic environment, could lead to us to incur even higher interest rates and financing costs on our Credit Agreement with White Oak Commercial Financing, LLC. and have material adverse effects on our business, financial condition, and results of operations.
Cyber-attacks could include the deployment of harmful malware and key loggers, ransomware, a denial-of-service attack, a malicious website, the use of social engineering and other means to affect the confidentiality, integrity and availability of our technology systems and data.
Cyber-attacks could include the deployment of harmful malware and key loggers, ransomware, a denial-of-service attack, a malicious website, the use of social engineering and other means to affect the confidentiality, integrity and availability of our technology systems and data. Cyber-attacks could also include supply chain attacks, which could cause a delay in the manufacturing of our products.
Pursuant to Alliance’s 2023 Omnibus Equity Incentive Plan, Alliance may issue an aggregate of up to 600,000 shares of Class A common stock, which amount may be subject to increase from time to time.
We may issue a substantial number of additional shares of common stock or shares of preferred stock under the 2023 Plan. Pursuant to Alliance’s 2023 Omnibus Equity Incentive Plan, Alliance may issue an aggregate of up to 600,000 shares of Class A common stock, which amount may be subject to increase from time to time.
If any action, the subject matter of which is within the scope the forum provisions of the warrant agreement, is filed in a court other than a court of the State of New York or the United States District Court for the Southern District of New York (a “foreign action”) in the name of any holder of the Warrants, such holder shall be deemed to have consented to: (x) the personal jurisdiction of the state and federal courts located in the State of New York in connection with any action brought in any such court to enforce the forum provisions (an “enforcement action”), and (y) having service of process made upon such warrant holder in any such enforcement action by service upon such warrant holder’s counsel in the foreign action as agent for such warrant holder.
If any action, the subject matter of which is within the scope the forum provisions of the warrant agreement, is filed in a court other than a court of the State of New York or the United States District Court for the Southern District of New York (a “foreign action”) in the name of any holder of the Warrants, such holder shall be deemed to have consented to: (x) the personal jurisdiction of the state and federal courts located in the State of New York in connection with any action brought in any such court to enforce the forum provisions (an “enforcement action”), and (y) having service of process made upon such warrant holder in any such enforcement action by service upon such warrant holder’s counsel in the foreign action as agent for such warrant holder. 32 This choice of forum provision may limit a warrant holder’s ability to bring a claim in a judicial forum that it finds favorable for disputes with our company, which may discourage such lawsuits.
These factors have resulted in higher product inventory cost positions in certain products as well as delays in delivering those products to Alliance’s distribution centers, branches or customers, and similar results may occur in the future.
Labor shortages can also cause supply chain disruptions. 13 These factors have resulted in higher product inventory cost positions in certain products as well as delays in delivering those products to Alliance’s distribution centers, branches or customers, and similar results may occur in the future.
Revolver balance consists of the following at: ​ ​ ​ ​ ​ ​ ​ ($ in thousands) June 30, 2023 June 30, 2022 Bank of America Revolving Credit Facility ​ $ 133,323 ​ $ 136,176 Less: Deferred Finance Costs ​ (42) ​ (208) Revolving Credit, Net ​ $ 133,281 ​ $ 135,968 ​ Alliance’s outstanding indebtedness, including any additional indebtedness beyond our borrowings from Bank of America, combined with its other financial obligations and contractual commitments could have significant adverse consequences, including: ● requiring us to dedicate a portion of our cash resources to the payment of interest and principal, reducing money available to fund working capital, capital expenditures, potential acquisitions, international expansion, new product development, new enterprise relationships and other general corporate purposes; ● increasing our vulnerability to adverse changes in general economic, industry and market conditions; ● subjecting us to restrictive covenants that may reduce our ability to take certain corporate actions or obtain further debt or equity financing; ● limiting our flexibility in planning for, or reacting to, changes in our business and the industry in which we compete; and ● placing us at a competitive disadvantage compared to our competitors that have less debt or better debt servicing options.
Alliance’s outstanding indebtedness, including any additional indebtedness beyond our borrowings under the Credit Agreement, combined with its other financial obligations and contractual commitments could have significant adverse consequences, including: ● Requiring us to dedicate a portion of our cash resources to the payment of interest and principal, reducing money available to fund working capital, capital expenditures, potential acquisitions, international expansion, new product development, new enterprise relationships and other general corporate purposes; ● Increasing our vulnerability to adverse changes in general economic, industry and market conditions; ● Subjecting us to restrictive covenants that may reduce our ability to take certain corporate actions or obtain further debt or equity financing; ● Limiting our flexibility in planning for, or reacting to, changes in our business and the industry in which we compete; and ● Placing us at a competitive disadvantage compared to our competitors that have less debt or better debt servicing options.
Pursuant to our related party transactions policy, all additional material related party transactions that we enter into require either (i) the unanimous consent of our audit committee or (ii) the approval of a majority of the members of our board of directors. See “Certain Relationships and Related Party Transactions — Policies and Procedures for Related Party Transactions”.
Pursuant to our related party transactions policy, all additional material related party transactions that we enter require either (i) the unanimous consent of our audit committee or (ii) the approval of a majority of the members of our board of directors.
This is often referred to as a “short squeeze.” A short squeeze could lead to volatile price movements in our common stock that are not directly correlated to the performance or prospects of our Class A common stock and once investors purchase the shares of Class A common stock necessary to cover their short position the price of our Class A common stock may decline.
This is often referred to as a “short squeeze.” A short squeeze could lead to volatile price movements in our common stock that are not directly correlated to the performance or prospects of our Class A common stock and once investors purchase the shares of Class A common stock necessary to cover their short position the price of our Class A common stock may decline. 36 We may issue additional shares of Class A common stock or preferred shares under the 2023 Plan, which would dilute the interest of our stockholders.
If the price of our Class A Common Stock remains below the respective Warrant exercise prices per share, we believe warrant holders will be unlikely to cash exercise their Warrants, resulting in little or no cash proceeds to us.
If the price of our Class A Common Stock remains below the respective Warrant exercise prices per share, warrant holders will unlikely cash exercise their Warrants, resulting in little or no cash proceeds to us. 33 In addition, we may lower the exercise price of the Warrants in accordance with the Warrant Agreement to induce the holders to exercise such warrants.
If we incurred any significant impairment charges, our net earnings would be reduced. Declines in the profitability of acquired brands or our decision to reduce our focus or exit these brands may impact our ability to recover the carrying value of the related assets and could result in an impairment charge.
Declines in the profitability of acquired brands or our decision to reduce our focus or exit these brands may impact our ability to recover the carrying value of the related assets and could result in an impairment charge.
Risks Related to Taxes and Government Related Matters We face additional tax liabilities and collection obligations. Changes in, or differing interpretations of, income tax laws and rules, and changes in our geographic operating results, may impact our effective tax rate. We are subject to a variety of taxes and tax collection obligations in the U.S.
Changes in, or differing interpretations of, income tax laws and rules, and changes in our geographic operating results, may impact our effective tax rate. We are subject to a variety of taxes and tax collection obligations in the U.S. (federal and state) and numerous foreign jurisdictions.
Accordingly, we would not receive any proceeds from a cashless exercise of Warrants. Concentration of ownership among Alliance’s executive officers, directors and their affiliates may prevent new investors from influencing significant corporate decisions.
A prospectus is not currently available for issuing Class A common stock shares upon such exercise. Accordingly, we would not receive any proceeds from a cashless exercise of Warrants. Concentration of ownership among Alliance’s executive officers, directors and their affiliates may prevent new investors from influencing significant corporate decisions.
Further, the holders of the Private Warrants and the Underwriter Warrants may exercise such Warrants on a cashless basis at any time and the holders of the Public Warrants may exercise such Warrants on a cashless basis at any time a registration statement is not effective, and a prospectus is not currently available for the issuance of shares of Class A common stock upon such exercise.
Further, the holders of the Private Warrants and the Underwriter Warrants may exercise such Warrants on a cashless basis at any time. The holders of the Public Warrants may exercise such Warrants on a cashless basis at any time a registration statement is not effective.
The receipt of cash proceeds from the exercise of our Warrants is dependent upon the market price exceeding the $11.50 exercise price and the Warrants being exercised for cash. The $11.50 exercise price per share of the Warrants is considerably higher than the $1.32 closing sale price of the Class A common stock on October 17, 2023.
The receipt of cash proceeds from our Warrants’ exercise depends on the market price exceeding the $11.50 exercise price and the Warrants being exercised for cash. The $11.50 exercise price per share of the Warrants is considerably higher than the $2.11 closing sale price of the Class A common stock on September 18, 2024.
We rely on a number of shipping companies to deliver inventory to us and complete orders to our customers. If we are not able to negotiate acceptable terms with these companies or they experience performance problems or other difficulties, it could negatively impact our operating results and customer experience.
If we are not able to negotiate acceptable terms with these companies or they experience performance problems or other difficulties, it could negatively impact our operating results and customer experience.

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Item 2. Properties

Properties — owned and leased real estate

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Biggest changeWe have the right to extend for two additional terms of five years each at fair market rent. 40 Table of Contents ● Shakopee, Minnesota — A 162,753 square foot facility leased for $4.43 per square foot with 2% annual escalations through May 31, 2024. ● Shakopee, Minnesota — A 29,688 square foot facility leased for $5.53 per square foot through September 30, 2025.
Biggest changeIn addition, we retain the right to extend for an additional term of five years at fair market rent. ● Shakopee, Minnesota — A 162,753 square foot facility leased for $4.43 per square foot with 2% annual escalations through May 31, 2024, at which time the lease was allowed to expire, and operations were consolidated in our Shepherdsville, KY location. ● Shakopee, Minnesota — A 29,688 square foot facility leased for $5.53 per square foot through September 30, 2025.
We also maintain marketing and sales offices in nine cities throughout the United States. We believe our facilities are adequate and suitable for our current business needs and expect to continue to reduce reliance on fixed office space in the future. ​ 41 Table of Contents
We also maintain marketing and sales offices in six cities throughout the United States and believe our facilities are adequate and suitable for our current business needs and expect to continue to reduce reliance on fixed office space in the future.
We lease several distribution center facilities: ● Shepherdsville, Kentucky — A 672,087 square foot facility (including 30,000 square feet of cold storage) leased for $4.48 per square foot through November 30, 2024.
We lease several distribution center facilities: ● Shepherdsville, Kentucky — A 672,087 square foot facility (including 30,000 square feet of cold storage) leased for $4.48 per square foot through November 30, 2024. We have revised the lease and extended the term through January 31, 2031, at a rate of $5.86 per square foot with 3.25% annual increases to base rent.

Item 3. Legal Proceedings

Legal Proceedings — active lawsuits and investigations

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Biggest changeTom Donaldson III, Dylan Glenn, and Frank Quintero , was filed in the Delaware Court of Chancery against our pre-Business Combination board of directors and executive officers and the Sponsor, alleging breaches of fiduciary duties by purportedly failing to disclose certain information in connection with the Business Combination and by approving the Business Combination.
Biggest changeTom Donaldson III, Dylan Glenn, and Frank Quintero, was filed in the Delaware Court of Chancery against our pre-Business Combination board of directors and executive officers and Adara Sponsor LLC, alleging breaches of fiduciary duties by purportedly failing to disclose certain information in connection with the Business Combination and by approving the Business Combination.
While it is not possible to determine the outcomes, the Company believes based on its current knowledge that the resolution of all such pending matters will not, either individually or in the aggregate, have a material adverse effect on the business, results of operations, cash flows or financial condition. Item 4. Mine Safety Disclosures.
While it is not possible to determine the outcomes, the Company believes based on its current knowledge that the resolution of all such pending matters will not, either individually or in the aggregate, have a material adverse effect on the business, results of operations, cash flows or financial condition.
The outcomes of legal proceedings, claims, and government investigations are inherently unpredictable and subject to significant judgment to determine the likelihood and amount of loss related to such matters. In fiscal year 2023, a class action complaint, titled Matthew McKnight v. Alliance Entertainment Holding Corp. f/k/a Alliance Acquisition Corp., Alliance Sponsor LLC, Thomas Finke, Paul G. Porter, Beatriz Acevedo-Greiff, W.
The outcomes of legal proceedings, claims, and government investigations are inherently unpredictable and subject to significant judgment to determine the likelihood and amount of loss related to such matters. On March 31, 2023, a class action complaint, titled Matthew McKnight v. Alliance Entertainment Holding Corp. f/k/a Adara Acquisition Corp., Adara Sponsor LLC, Thomas Finke, Paul G. Porter, Beatriz Acevedo-Greiff, W.
Removed
We intend to vigorously defend the lawsuit. There can be no assurance, however, that we will be successful. The Company has accrued $150,000 as of June 30, 2023, based on the expected loss.
Added
On August 8, 2024, the Company entered into a settlement agreement regarding pending litigation. A settlement hearing is scheduled for November 25, 2024. The Company has accrued $511,000 and $150,000 as of June 30, 2024, and June 30, 2023, respectively, based on the expected loss. On June 6, 2024, Office Create Corporation filed a complaint against COKeM International Ltd.
Removed
Not applicable. ​ 42 Table of Contents PART II
Added
(“COKeM”) in the United States District Court for the District of Minnesota alleging contributory trademark infringement, contributory false designation of origin and unjust enrichment relating to COKeM’s alleged] distribution of a specific video game, Cooking Mama: Cookstar. Plaintiff is seeking damages of no less $20,913,200, plus interest of 9% accruing from October 3, 2022.
Added
On August 29, 2024, COKeM filed a response denying all allegations. COKeM intends to vigorously defend the lawsuit. At this time, we are unable to estimate potential losses, if any, related to this lawsuit. On August 8, 2024, a class action complaint, Feller v. Alliance Entertainment, LLC and DirectToU, LLC , was filed under the Video Privacy Protection Act (“VPPA”).
Added
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.
Added
At this time, the potential outcome or range of financial impact cannot be reasonably estimated.

Item 5. Market for Registrant's Common Equity

Market for Common Equity — stock, dividends, buybacks

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Biggest changeMarket Information Our Class A common stock and warrants are quoted on the NASDAQ under the symbol “AENT.” Holders Although there are a larger number of beneficial owners, at June 30, 2023, there were 47 holders of record of our Class A common stock and 39 holders of record of our warrants.
Biggest changeMarket Information Our Class A common stock and warrants are quoted on the NASDAQ under the symbol “AENT.” Holders Although there are a larger number of beneficial owners, at June 30, 2024, there were [47] holders of record of our Class A common stock and [39] holders of record of our warrants.
Recent Sales of Unregistered Securities; Use of Proceeds from Registered Offerings We had no sales of unregistered equity securities during the period covered by this annual report that were not previously reported in a Quarterly Report on Form 10-Q or a Current Report on Form 8-K.
Recent Sales of Unregistered Securities; Use of Proceeds from Registered Offerings We had no sales of unregistered equity securities during the period covered by this annual report that were not previously reported in a Quarterly Report on Form 10-Q or a Current Report on Form 8-K. Item 6. Reserved.
Removed
On February 11, 2021, we consummated our initial public offering of 11,500,000 units, including 1,500,000 over-allotment units. The units were sold at an offering price of $10.00 per unit, generating total gross proceeds of $115 million. The securities in the offering were registered under the Securities Act on a registration statement on Form S-1 (No. 333-250157).
Removed
The SEC declared the registration statement effective on February 8, 2021. We paid approximately $1.1 million in underwriting discounts and commissions, including $60,189 in deferred underwriting commissions upon the Closing of the Business Combination, and $5,294,620 for other offering costs related to the initial public offering.
Removed
Of the gross proceeds received from our initial public offering, the full exercise of the over-allotment option and the sale of private placement warrants in connection with the initial public offering, $116.15 million was placed in a trust account.
Removed
After deducting payments to existing stockholders of approximately $116.6 million in connection with their exercise of redemption rights, the remaining balance immediately prior to the Closing of approximately $1.7 million remained in the trust account. The remaining amount in the trust account was used to fund the Closing and related transaction expenses. Item 6. Reserved.

Item 7. Management's Discussion & Analysis

Management's Discussion & Analysis (MD&A) — revenue / margin commentary

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Biggest changeSee the table below for a reconciliation, for the periods presented, of our GAAP net income (loss) to Adjusted EBITDA. ​ ​ ​ ​ ​ ​ ​ ​ Year Ended Year Ended ($ in thousands) ​ June 30, 2023 ​ June 30, 2022 Net (Loss) Income ​ $ (35,404) ​ $ 28,619 Add back: ​ ​ Interest Expense ​ 11,715 ​ 4,056 Income Tax (Benefit) Expense ​ (9,058) ​ 9,423 Depreciation and Amortization ​ 6,629 ​ 8,259 EBITDA ​ (26,118) ​ 50,357 Adjustments ​ ​ IC-DISC ​ 2,833 ​ 9,907 SPAC Merger Transaction Cost ​ ​ 5,014 ​ ​ (251) Restructuring Cost ​ ​ 306 ​ ​ — Stock-based Compensation Expense ​ ​ 216 ​ ​ — Change in Fair Value of Warrants ​ ​ 1 ​ ​ — Contingent Loss ​ 150 ​ — Gain on Disposal of PPE ​ (3) ​ — Adjusted EBITDA ​ $ (17,601) ​ $ 60,013 ​ ​ ​ ​ ​ ​ ​ Adjusted EBITDA for the year ended June 30, 2023, includes the following expenses: ​ ​ ​ ​ ​ ​ ​ ​ ​ Excessive International Transportation Costs (Units Sold) ​ $ 8,241 ​ ​ — Excessive International Transportation Costs (On Hand) ​ 7,100 ​ ​ — Markdown for Arcades Sold ​ 12,156 ​ ​ — Incremental Storage Fees Arcades ​ 4,643 ​ ​ — Consumer Products Inventory Reserve ​ 3,700 ​ ​ — Total ​ $ 35,840 ​ ​ — ​ LIQUIDITY AND CAPITAL RESOURCES Liquidity: As of June 30, 2023 we had cash and cash equivalents and borrowing capacity under the revolving credit facility of $0.9 million and of $1.7 million, respectively.
Biggest changeYear Ended Year Ended ($ in thousands) June 30, 2024 June 30, 2023 Net Income (Loss) $ 4,581 $ (35,404 ) Add back: Interest Expense 12,247 11,715 Income Tax (Benefit) Expense (2,728 ) (9,058 ) Depreciation and Amortization 5,880 6,629 EBITDA 19,980 (26,118 ) Adjustments IC-DISC - 2,833 Transaction Costs 2,086 5,014 Restructuring Costs 280 306 Stock-based Compensation Expense 1,386 216 Change in Fair Value of Warrants 41 1 Contingent Loss 461 150 Loss (Gain) on Disposal of PPE 33 (3 ) Adjusted EBITDA $ 24,267 $ (17,601 ) Adjusted EBITDA for the year ended June 30, 2023, included the following expenses: Excessive International Transportation Costs (Units Sold) 8,241 Excessive International Transportation Costs (On Hand) 7,100 Markdown for Arcades Sold 12,156 Incremental Storage Fees Arcades 4,643 Consumer Products Inventory Reserve 3,700 Total 35,840 44 LIQUIDITY AND CAPITAL RESOURCES Liquidity: On December 21, 2023, Alliance Entertainment Holding Corporation entered into a Revolving Credit Facility, which is a three-year $120 million senior secured asset-based credit facility with White Oak Commercial Finance, LLC.
We define Adjusted EBITDA as net gain or loss adjusted to exclude: (i) income tax expense; (ii) other income (loss); (iii) interest expense; and (iv) depreciation and amortization expense and (v) other infrequent, non- recurring expenses.
We define Adjusted EBITDA as net income or loss adjusted to exclude: (i) income tax expense; (ii) other income (loss); (iii) interest expense; and (iv) depreciation and amortization expense and (v) other infrequent, non- recurring expenses.
The net assets of Adara were recognized at historical cost (which was consistent with carrying value), with no goodwill or other intangible assets recorded. Upon consummation of the Merger, the most significant change in Legacy Alliance’s future reported financial position and results of operations was a decrease in net Equity of $787,000 as compared to Legacy Alliance’s consolidated balance sheet.
The net assets of Adara were recognized at historical cost (which was consistent with carrying value), with no goodwill or other intangible assets recorded. Upon consummation of the Merger, the most significant change in Legacy Alliance’s future reported financial position and results of operations was a decrease in net Equity of $787,000 compared to its consolidated balance sheet.
Critical Accounting Policies and Estimates The consolidated financial statements and disclosures have been prepared in accordance with generally accepted accounting principles (GAAP) which requires that management apply accounting policies, estimates, and assumptions that impact the results of operations and the reported amounts of assets and liabilities in the financial statements.
Critical Accounting Policies and Estimates The consolidated financial statements and disclosures have been prepared in accordance with generally accepted accounting principles (GAAP), which require that management apply accounting policies, estimates, and assumptions that impact the results of operations and the reported amounts of assets and liabilities in the financial statements.
Although the Company does not currently intend to do so, following this offering, the Company may seek to raise additional capital through the sale of equity securities. The receipt of cash proceeds from the exercise of our Warrants is dependent upon the market price exceeding the $11.50 exercise price and the Warrants being exercised for cash.
Although the Company does not currently intend to do so, the Company may seek to raise additional capital through the sale of equity securities. The receipt of cash proceeds from the exercise of our Warrants is dependent upon the market price exceeding the $11.50 exercise price and the Warrants being exercised for cash.
These technology-led platforms with access to the Company’s in stock inventory of over 375,000 SKU products, consisting of vinyl records, video games, compact discs, DVD, Blu-Rays, toys, and collectibles, combined with Alliance’s sales and distribution network, create a modern entertainment physical product marketplace that provides the discerning customer with enhanced options on efficient consumer-friendly platforms inventory.
These technology-led platforms with access to the Company’s in stock inventory of over 325,000 SKU products, consisting of vinyl records, video games, compact discs, DVD, Blu-Rays, toys, and collectables, combined with Alliance’s sales and distribution network, create a modern entertainment physical product marketplace that provides the discerning customer with enhanced options on efficient consumer-friendly platforms inventory.
This measure is not a recognized 47 Table of Contents measure of financial performance under GAAP in the United States and should not be considered as a substitute for operating earnings (losses), net earnings (loss) from continuing operations or cash flows from operating activities, as determined in accordance with GAAP.
This measure is not a recognized measure of financial performance under GAAP in the United States and should not be considered as a substitute for operating earnings (losses), net earnings (loss) from continuing operations or cash flows from operating activities, as determined in accordance with GAAP.
Following the consummation of the Merger on the closing of the Business Combination, Adara changed its name from Adara Acquisition Corp. to Alliance Entertainment Holding Corporation. While the legal acquirer in the Business Combination Agreement was Adara, for financial accounting and reporting purposes under U.S.
Following the Merger’s consummation on the closing of the Business Combination, Adara changed its name from Adara Acquisition Corp. to Alliance Entertainment Holding Corporation (the “Company”). While the legal acquirer in the Business Combination Agreement was Adara, for financial accounting and reporting purposes under U.S.
Accordingly, the consolidated assets, liabilities, and results of operations of Legacy Alliance became the historical consolidated financial statements of the combined company, and Adara’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.
Accordingly, the consolidated assets, liabilities, and results of Legacy Alliance operations became the company’s historical consolidated financial statements. Adara’s assets, liabilities, and operations results 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.
For all product categories, the Company records any adjustments to net realizable value, if appropriate, based on historical sales, current inventory levels, anticipated customer demand, and general market conditions. For the year ended June 30, 2023, the Company performed a net realizable value analysis to determine if a reserve or write- down was necessary for excess or obsolete inventory.
For all product categories, the Company records any adjustments to net realizable value, if appropriate, based on historical sales, current inventory levels, anticipated customer demand, and general market conditions. For the year ended June 30, 2024, the Company continued to perform a net realizable value analysis to determine if a reserve or write-down was necessary for excess or obsolete inventory.
Further, the holders of the Private Warrants and the Underwriter Warrants may exercise such Warrants on a cashless basis at any time and the holders of the Public Warrants may exercise such Warrants on a cashless basis at any time a registration statement is not effective and a 10-K is not currently available for the issuance of shares of Class A common stock upon such exercise.
Further, the holders of the Private Warrants and the Underwriter Warrants may exercise such Warrants on a cashless basis at any time and the holders of the Public Warrants may exercise such Warrants on a cashless basis at any time an effective registration statement is not available for the issuance of shares of Class A common stock upon such exercise.
The Company will continue to evaluate opportunities to identify targets that meet strategic and economic criteria. On July 1, 2022, Alliance purchased the assets and liabilities of Think3Fold, Inc, a collectibles distribution company. This acquisition resulted in increased shelf space at our largest customer and expanded our product offerings.
The Company will continue to evaluate opportunities to identify targets that meet strategic and economic criteria. On July 1, 2022, Alliance purchased the assets and liabilities of Think3Fold, LLC, a collectables distribution company. This acquisition resulted in increased shelf space for our largest customer and expanded our product offerings.
Pursuant to the terms of the Business Combination Agreement, a business combination of Legacy Alliance and Adara was effected by the merger of Merger Sub with and into Alliance (the “Merger”), with Alliance surviving the Merger as a wholly-owned subsidiary of Adara.
Pursuant to the terms of the Business Combination Agreement, a business combination of Legacy Alliance and Adara was affected by the merger of Merger Sub with and into Alliance (the “Merger” or the “Business Combination”), with Alliance surviving the Merger as a wholly-owned subsidiary of Adara.
Significant inputs into the respective models at June 30, 2023 and February 10, 2023 (the initial recognition) are as follows: ​ ​ ​ ​ ​ ​ ​ ​ ​ June 30, February 10, ​ ​ 2023 ​ 2023 ​ Stock Price ​ $ 2.55 ​ $ 3.30 ​ Exercise price per share ​ $ 11.50 ​ $ 11.50 ​ Risk-free interest rate ​ 4.16 % 3.58 % Expected term (years) ​ 4.6 ​ 4.8 ​ Expected volatility ​ 34.6 % 28.6 % Expected dividend yield ​ ​ — ​ ​ — ​ ​ The warrants are scheduled to expire on February 10, 2028.
Significant inputs into the respective models at June 30, 2024 and June 30, 2023 are as follows: June 30, 2024 February 10, 2023 Stock Price $ 3.00 $ 2.55 Exercise price per share $ 11.50 $ 11.50 Risk-free interest rate 4.41 % 4.16 % Expected term (years) 3.6 4.6 Expected volatility 36.0 % 34.6 % Expected dividend yield — — The warrants are scheduled to expire on February 10, 2028.
Income Tax: For the year ended June 30, 2023, an income tax benefit of $9.1 million was recorded compared to an expense of $9.4 million for the same period in the prior year. Alliance reported a pretax loss of $(44.5) million and pretax net income of $38.0 million for the years ended June 30, 2023, and 2022, respectively.
Income Tax: For the year ended June 30, 2024, an income tax benefit of $2.7 million was recorded compared to tax benefit of $9.1 million for the same period in the prior year. Alliance reported a pretax income of $1.9 million and pretax net loss of $(44.5) million for the years ended June 30, 2024, and 2023, respectively.
Selling, General and Administrative Expenses: The Selling, General and Administrative Expenses are payroll and operating costs for Information Technology, Sales & Marketing, and General & Administrative functions. In addition, we include Depreciation and Amortization expenses and Transaction Costs, if applicable.
The Distribution and Fulfillment Expenses are the payroll and operating expenses associated with the receipt, warehousing, and distribution of product. Selling, General and Administrative Expenses: The Selling, General and Administrative Expenses are payroll and operating costs for Information Technology, Sales & Marketing, and General & Administrative functions. In addition, we include Depreciation and Amortization expenses and Transaction Costs, if applicable.
This analysis contains forward-looking statements concerning the Company’s performance expectations and estimates. Other than statements with historical context, commentary should be considered forward- looking and carries with it risks and uncertainties. See 43 Table of Contents “Statement Regarding Forward-Looking Statements” and Part I, Item 1A.
This analysis contains forward-looking statements concerning the Company’s performance expectations and estimates. Other than statements with historical context, commentary should be considered forward- looking and carries with it risks and uncertainties. See “Statement Regarding Forward-Looking Statements” and Part I, Item 1A. Risk Factors, of this Form 10-K for a discussion of other uncertainties, risks and assumptions associated with these statements.
Alliance provides state-of-the art warehousing and distribution technologies, operating systems and services that seamlessly enable entertainment product transactions to better serve customers directly or through our distribution affiliates.
Currently, the company sells its products, permitted for export, to more than 70 countries worldwide. Alliance provides state-of-the art warehousing and distribution technologies, operating systems and services that seamlessly enable entertainment product transactions to better serve customers directly or through our distribution affiliates.
Our liquidity position has not changed significantly since the Merger, and we intend to principally rely on our borrowing capacity under the Credit Facility as well as any renewal of such facility.
($in millions) June 30, 2024 June 30, 2023 Revolver Balance $ 73 $ 133 Availability 44 2 Our liquidity position has not changed significantly since the Merger, and we intend to principally rely on our borrowing capacity under the Revolving Credit Facility as well as any renewal of such facility.
Management completed an analysis of the net realizable value of inventory and recognized a $7.1 million write-down for gaming arcades and $3.7 million for consumer products to their estimated net realizable value, which was recorded in 50 Table of Contents cost of revenue during the year ended June 30, 2023.
During the year ended June 30, 2023, the Company recognized write-downs of $7.1 million for gaming arcades and $3.7 million for consumer products to their estimated net realizable value. These write-downs were recorded in cost of revenue.
Intangible assets, such as customer relations and trade names, when identified, are separately recognized and amortized over their estimated useful lives, if considered definite lived.
Intangible assets, such as customer relations and trade names, when identified, are separately recognized and amortized over their estimated useful lives, if considered definite lived. Acquisition costs are expensed as incurred and are included in the consolidated statements of operations and comprehensive income.
Accordingly, we would not receive any proceeds from a cashless exercise of Warrants. 49 Table of Contents Cash Flow: The following table summarizes our net cash provided by or used on operating activities, investing activities and financing activities for the periods indicated and should be read in conjunction with our consolidated financial statements for the year ended June 30, 2023 and 2022. ​ ​ ​ ​ ​ ​ ​ ​ ​ Year Ended ($ in thousands) ​ June 30, 2023 ​ June 30, 2022 Net Income (Loss) $ (35,404) $ 28,619 Net Cash (Used In) Provided By: ​ ​ ​ ​ Operating Activities ​ ​ 3,388 ​ ​ (83,554) Investing Activities ​ (824) ​ (50) Financing Activities ​ (3,157) ​ 81,038 ​ For the year ended June 30, 2023, on a net loss of $(35.4) million, the Company’s cash provided by operating activities was $3.4 million versus $(83.6) million used in operations for the year ended June 30, 2022.
Accordingly, we would not receive any proceeds from a cashless exercise of Warrants. Cash Flow: The following table summarizes our net cash provided by or used on operating activities, investing activities and financing activities for the periods indicated and should be read in conjunction with our consolidated financial statements for the year ended June 30, 2024 and 2023.
As the Company has never issued dividends, the expected dividend yield is 0% and this assumption will be continued in future calculations unless the Company changes its dividend policy. ​ Item 7A. Quantitative and Qualitative Disclosures about Market Risk. Not applicable. Item 8. Financial Statements and Supplementary Data.
As the Company has never issued dividends, the expected dividend yield is 0% and this assumption will be continued in future calculations unless the Company changes its dividend policy.
Balance Sheet Indicators: The Company views cash, product inventory, accounts payable, and working capital as key indicators of its financial position. ​ 45 Table of Contents Alliance Entertainment Holding Corporation Results of Operations Year Ended June 30, 2023, Compared to Year Ended June 30, 2022 ​ ​ ​ ​ ​ ​ ​ ​ Year Ended Year Ended ($ in thousands) ​ June 30, 2023 ​ June 30, 2022 Net Revenues ​ $ 1,158,722 ​ $ 1,417,377 Cost of Revenues (excluding depreciation and amortization) ​ 1,054,788 ​ 1,234,995 Operating Expenses ​ ​ Distribution and Fulfillment Expense ​ 62,841 ​ 64,260 Selling, General and Administrative Expense ​ 59,057 ​ 58,110 Depreciation and Amortization ​ 6,629 ​ 8,259 Transaction Costs ​ 5,014 ​ (251) IC DISC Commissions ​ 2,833 ​ 9,907 Restructuring Costs ​ ​ 306 ​ ​ — Total Operating Expenses ​ 136,680 ​ 140,285 Operating (Loss) Income ​ (32,746) ​ 42,098 Other Expenses ​ ​ ​ Change in Fair Value of Warrants ​ ​ 1 ​ ​ — Interest Expense, Net ​ 11,715 ​ 4,056 Total Other Expenses ​ 11,716 ​ 4,056 (Loss) Income Before Income Tax (Benefit) Expense ​ (44,462) ​ 38,042 Income Tax (Benefit) Expense ​ (9,058) ​ 9,423 Net (Loss) Income ​ (35,404) ​ 28,619 ​ Net Revenue: Year-over-year, total Net Revenues decreased from $1,417 million to $1,159 million (-$259 million or -18%) for the year ended June 30, 2023.
Balance Sheet Indicators: The Company views cash, product inventory, accounts payable, and working capital as key indicators of its financial position. 41 Alliance Entertainment Holding Corporation Results of Operations Year Ended June 30, 2024, Compared to Year Ended June 30, 2023 Year Ended Year Ended ($ in thousands) June 30, 2024 June 30, 2023 Net Revenues $ 1,100,483 $ 1,158,722 Cost of Revenues (excluding depreciation and amortization) 971,594 1,054,788 Operating Expenses Distribution and Fulfillment Expense 48,818 62,841 Selling, General and Administrative Expense 57,651 59,060 Depreciation and Amortization 5,880 6,629 Transaction Costs 2,086 5,014 IC DISC Commissions - 2,833 Restructuring Costs 280 306 Loss (Gain) on Disposal of Fixed Assets 33 (3 ) Total Operating Expenses 114,748 136,680 Operating Income (Loss) 14,141 (32,746 ) Other Expenses Change in Fair Value of Warrants 41 1 Interest Expense, Net 12,247 11,715 Total Other Expenses 12,288 11,716 Income (Loss) Before Income Tax Expense (Benefit) 1,853 (44,462 ) Income Tax (Benefit) (2,728 ) (9,058 ) Net Income (Loss) 4,581 (35,404 ) Other Comprehensive loss (2 ) - Total Comprehensive Income (Loss) 4,579 (35,404 ) Net Revenue: Year-over-year, total Net Revenues decreased from $1,159 million to $1,100 million (-$59 million, -5%) for the year ended June 30, 2024.
The primary drivers, year over year, was a $64.0 million decline in Net Income combined with a $99.7 million reduction in Inventory vs. an increase of $108 million prior year.
The primary drivers, year over year, was a $40 million increase to Net Income combined with a $49.3 million reduction of Inventory versus a $99.7 million reduction of prior year.
Key Performance Indicators Management monitors and analyzes key performance indicators to evaluate financial performance, including: Net Revenue: To derive Net Revenue, the Company reduces total gross sales by customer returns, returns reserve, and allowances including discounts. Cost of Revenues (excluding depreciation and amortization): Our cost of revenues reflects the total costs incurred to market and distribute products to customers.
Risk Factors”. 40 Key Performance Indicators Management monitors and analyzes key performance indicators to evaluate financial performance, including: Net Revenue: To derive Net Revenue, the Company reduces total gross sales by customer returns, returns reserve, and allowances including discounts.
Acquisition costs are expensed as incurred and are included in the consolidated statements of operations and comprehensive income. 51 Table of Contents Warrant Liability – The Company’s warrant liability is remeasured at fair value as of the reporting period balance sheet date. The fair value of the Private Warrant was measured using the Lattice model approach.
Warrant Liability – The Company’s warrant liability is remeasured at fair value as of the reporting period balance sheet date. The fair value of the Private Warrant was measured using the Lattice model approach.
Operating Expenses: Our Operating Expenses are the direct and indirect costs associated with the distribution and fulfillment of products and services. They include both Distribution and Fulfillment and Selling, General and Administrative (SG&A) Expenses. The Distribution and Fulfillment Expenses are the payroll and operating expenses associated with the receipt, warehousing, and distribution of product.
Margins: To analyze profitability, the Company reviews gross and net margins in dollars and as a percentage of revenue by line of business and product line. Operating Expenses: Our Operating Expenses are the direct and indirect costs associated with the distribution and fulfillment of products and services. They include both Distribution and Fulfillment and Selling, General and Administrative (SG&A) Expenses.
Other Assets decreased by $5.0 million primarily due to the merger-related transactions costs that were classified as prepaids and subsequently expensed. The cashflow from investing activities was marginal due to the combined net working capital structure of the acquisition transaction attributed to Cash Paid for Business Acquisition of Think3Fold that was acquired for no consideration.
By comparison, for the 12 months ended June 30, 2023, cashflow from investing activities was $0.8 million due to the combined net working capital structure of the acquisition transaction attributed to Cash Paid for Business Acquisition of Think3Fold that was acquired for no consideration.
Net cash used in financing activities was $3.2 million for the year ended June 30, 2023, versus cash provided of $81.0 million for the same period prior year. The primary reason for the decline was reduced borrowing, necessary to maintain lower, desired inventory levels.
Net cash from financing activities was $55.4 million for the year ended June 30, 2024 versus cash used in financing activities of $3.2 million for the same period prior year.
Operating Expenses: Total Operating Expenses as a percentage of net revenue increased year-over-year from 9.9% to 11.8%. Total Distribution and Fulfillment Expense, as a percentage of net revenue, increased from 4.5% to 5.4% for the year ended June 30, 2023, versus the same period prior year.
Total Distribution and Fulfillment Expense, as a percentage of net revenue, decreased from 5.4% to 4.4% (1.0 percentage point) for the year ended June 30, 2024, versus the same period prior year. We successfully reduced fulfillment and payroll expenses as we executed our plan to rationalize fulfillment center capacity without degradation of services.
Provision for income taxes, effective tax rate and statutory federal income tax rate for the years ended June 30, 2023 and 2022 were as follows: ​ ​ ​ ​ ​ ​ ​ ​ ​ Year Ended Year Ended ($ in thousands) ​ June 30, 2023 ​ June 30, 2022 Income tax (benefit) expense $ (9,058) $ 9,423 ​ Effective tax rate ​ (21) % ​ 26 % Statutory federal income tax rate ​ 21 % ​ 21 % ​ Non-GAAP Financial Measures: For the year ended June 30, 2023, we had non-GAAP Adjusted EBITDA of approximately $(17.6) million compared with Adjusted EBITDA of approximately $60.0 million prior year.
The annual effective tax rate (“ETR”) for the year ended June 30, 2024, was 147% due to an immaterial true up adjustment to deferred income taxes related to the net tax effects of temporary differences between the amount of assets and liabilities for accounting purposes and the amounts used for tax purposes. 43 Provision for income taxes, effective tax rate and statutory federal income tax rate for the years ended June 30, 2024, and 2023 were as follows: Year Ended Year Ended ($ in thousands) June 30, 2024 June 30, 2023 Income tax benefit $ (2,728 ) $ (9,058 ) Effective tax rate 147 % 21 % Statutory federal income tax rate 21 % 21 % Non-GAAP Financial Measures: For the year ended June 30, 2024, we had non-GAAP Adjusted EBITDA of $24.3 million compared with Adjusted EBITDA of $(17.6) million prior year or an improvement of $41.9 million year-over-year.
For the year ended June 30, 2023, the Company tested goodwill for impairment at the entity level, since there is one Reporting Unit. As part of the analysis, we performed a discounted cash flow based on the Company’s three-year projections and determined that the fair value of equity is higher than the carrying value of equity.
For the year ended June 30, 2024, the Company performed a quantitative assessment of goodwill at the entity level, which is considered a single reporting unit. Based on this analysis, the Company determined that the fair value of the reporting unit exceeded its carrying value, and no impairment was recognized.
The change in MDF in future periods is dependent on consumer demand for gaming products and the volume and success of new movie and music releases. In addition, higher freight costs negatively impacted the cost of sales due to general rate hikes and incremental fuel surcharges.
As such, gaming products typically require the distributor to bear the risk of slow-moving inventory. The change in MDF in future periods is dependent on consumer demand for gaming products and the volume and success of new movie and music releases.
Similarly, physical movie sales declined 28% year over year as the average price increase was not enough to offset the reduction of volume. Cost of Revenues: Total cost of revenues, excluding depreciation and amortization, decreased from $1,235 million to $1,055 million ($180 million or 15%) year over year primarily due to the direct relation of product costs to sales volume.
Cost of Revenues: Total cost of revenues, excluding depreciation and amortization, decreased from $1,055 million to $972 million ($83 million or 8%) year over year primarily due to the direct relation of product costs to sales volume. Gross Margin dollars increased $25 million year over year on lower sales and higher gross margins.
Changes in cost are impacted primarily by sales volume, product mix, product obsolescence, freight costs, and market development funds (“MDF”). Margins: To analyze profitability, the Company reviews gross and net margins in dollars and as a percent of revenue by line of business and product line.
Cost of Revenues (excluding depreciation and amortization): Our cost of revenues reflects the total costs incurred to market and distribute products to customers. Changes in cost are impacted primarily by sales volume, product mix, product obsolescence, freight costs, and market development funds (“MDF”).
Alliance serves as the gateway between well-known international branded manufacturers of entertainment content, such as Universal Pictures, Warner Brothers Home Video, Walt Disney Studios, Sony Pictures, Lionsgate, Paramount, Universal Music Group, Sony Music, Warner Music Group, Microsoft, Nintendo, Take Two, Electronic Arts, Ubisoft, Square Enix, and others, and leading retailer customers in the United States and internationally, including Walmart, Amazon, Best Buy, Barnes & Noble, Wayfair, Costco, Dell, Verizon, Kohl’s, Target and Shopify, among others.
As a leading global wholesaler, direct-to-consumer (“DTC”) distributor, and e- commerce provider, Alliance operates as the vital link between renowned international manufacturers of entertainment content, such as Universal Pictures, Warner Brothers Home Video, Walt Disney Studios, Sony Pictures, Lionsgate, Paramount, Universal Music Group, Sony Music, Warner Music Group, Microsoft, Nintendo, Take Two, Electronic Arts, Ubisoft, Square Enix, and others.
Interest Expense: For the year ended June 30, 2023, Interest Expense increased from $4.1 million to $11.7 million ($7.6 million or 189%) versus the prior year. The primary driver for the increase was a higher average revolver balance of $156 million and an increase of 3.7% points of effective interest rate to 6.0%.
Despite a significantly higher average effective interest rate this fiscal year that increased year over year from 6.0% to 9.5% (+3.5 percentage points), we successfully reduced the revolver balance $53 million or 34% from an average of $156 million for the 12 months ended June 30, 2023 to an average of $103 million for the 12 months ended June 30, 2024.
On February 10, 2023, Alliance, Adara and Merger Sub consummated the closing of the transactions contemplated by the Business Combination Agreement.
On February 10, 2023, AENT Corporation (f/k/a Alliance Entertainment Holding Corporation) (“Legacy Alliance”), Adara Acquisition Corp. (“Adara”) and Adara Merger Sub, Inc. (“Merger Sub”) consummated the closing of the transactions contemplated by the Business Combination Agreement, dated as of June 22, 2022, by and among Adara, Merger Sub and Legacy Alliance.
We expect to incur additional annual expenses as a public company for, among other things, directors’ and officers’ liability insurance, director fees and additional internal and external accounting, legal and administrative resources, including increased audit and legal fees. 44 Table of Contents Covid-19 and Macroeconomic Uncertainties The residual effects of the Covid-19 pandemic will continue to directly or indirectly impact our business and the results of operations and financial impact, including expenses and employee-related costs, but are highly dependent on future developments that are uncertain at this time.
We expect to incur additional annual expenses as a public company for, among other things, directors’ and officers’ liability insurance, director fees and additional internal and external accounting, legal and administrative resources, including increased audit and legal fees.
Also, since gaming products are largely non-returnable, the supply chain does not have an established practice and cadence for mark downs like the movie and music industries. As such, gaming products typically require the distributor to bear the risk of slow-moving inventory which may increase the cost of goods sold as a percentage of sales.
In addition, business conditions allowed us to reduce our company sponsored marketing development funds (MDF) for arcades r elative to prior year. Since gaming products are largely non-returnable, the supply chain does not have an established practice and cadence for mark downs like the movie and music industries.
For the year ended June 30, 2023, the average selling price of Vinyl was flat and volume was down marginally; however, for the trailing three months, both price and volume improved year over year. Consumer Products, including revenue from our July 1, 2022, acquisition of Think3Fold, increased from $58 million to $80 million ($22 million, 37%) versus the prior year.
For the 12 months ended June 30, 2024, Consumer Products revenue decreased from $80 million to $43 million (-$37 million, -46%) versus the same period prior year. The average selling price increased by approximately 28% this year and while volume declined, margins improved significantly as we rationalized our inventory.
Goodwill and Definite-Lived Intangible Assets, Net: The Company tests its goodwill for impairment on an annual basis, or upon the occurrence of an event or circumstances that may indicate the fair value of the entity is less than it’s carrying amount.
The Company continues to monitor macroeconomic factors such as interest rates, inflation, and supply chain disruptions, which could materially impact future net realizable value assessments. The Company tests its goodwill for impairment when events or circumstances indicate that the fair value of the entity may be less than its carrying amount.
Our primary sources of liquidity are existing cash and cash equivalents, cash provided by operating activities, and borrowings under our credit facilities. On September 29, 2020, the credit line with Bank of America was extended for three years and increased from $125 million to $175 million.
Our primary sources of liquidity are existing cash and cash equivalents, cash provided by operating activities, and borrowings under our credit facility. As of June 30, 2024, in addition to the $1.1 million of cash, we carried a $73 million revolver balance on our $120 million credit facility under the Loan and Security Agreement with White Oak Commercial Finance, LLC.
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Risk Factors, of this Form 10-K for a discussion of other uncertainties, risks and assumptions associated with these statements. Alliance is a leading global wholesaler, direct-to-consumer (“DTC”) distributor and e-commerce provider for the entertainment industry.
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Alliance is a leading global wholesaler and a key player in the entertainment industry, boasts a diverse portfolio of owned brands, including Critics’ Choice, Collectors’ Choice, Movies Unlimited, DeepDiscount, popmarket, blowitoutahere, Fulfillment Express, importCDs GamerCandy, WowHD, and others.
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The Company distributes its physical media, entertainment products, hardware, and accessories through an established multi-channel strategy. The Company currently sells its products that it is allowed to export to more than 100 countries around the world.
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This pivotal role extends to connecting these manufacturers with top-tier retail partners both domestically and internationally. Notable partners encompass giants like Walmart, Amazon, Best Buy, Barnes & Noble, Wayfair, Costco, Dell, Verizon, Kohl’s, Target, Shopify, and others. 39 Employing an established multi-channel strategy, Alliance distributes physical media, entertainment products, hardware, and accessories across various platforms.
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While we maintained uninterrupted operations during the pandemic, macroeconomic conditions and supply chain disruptions resulted in downstream shocks. The most pronounced consequences were the exorbitant international shipping costs for arcades, and the incremental Marketing Development Funds in the form of customer rebates recorded during year ended June 30, 2023.
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Macroeconomic Uncertainties Unfavorable conditions in the economy in the United States and abroad may negatively affect the growth of our business and have affected our results of operations. For example, macroeconomic events, including inflation, interest rates, geopolitical issues, and uncertainty regarding the U.S. elections in the Fall of 2024 have led to economic uncertainty globally.
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The disruptions in the transportation industry resulted in higher landed costs and a $8.2 million write down was recorded for units sold and a $7.1 million write down for gaming arcade units on-hand. In addition, customer rebates of approximately $12.2 million were incurred to spur demand for arcades.
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The effect of macroeconomic conditions may not be fully reflected in our results of operations until future periods. If, however, economic uncertainty increases or the global economy worsens, our business, financial condition and results of operations may be harmed.
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Finally, approximately $4.6 million of incremental storage costs was recognized to warehouse excess arcade inventory. Any new information that emerges concerning Covid-19, including the actions taken to contain or manage, as well as the economic impact on local, regional, national customers, suppliers and markets, are uncertain and cannot be predicted at this time.
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For further discussion of the potential impacts of macroeconomic events on our business, financial condition, and operating results, see the section titled Part I “Item 1A.
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However, the management team is actively monitoring internal and external factors and assessing the potential impact on its financial performance, liquidity, operations, and workforce; however, the full extent of the risk is uncertain. Inflation typically affects us by increasing our cost of finished products purchased from studios and manufacturers, freight & shipping costs, and payroll.
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Along with other retailers and distributors in the United States, we are not immune to the macroeconomic headwinds caused by high interest rates and consumer spending discretion prompted by reduced buying power and geopolitical risks. Alliance Entertainment stands out as a value-added retail distributor with exclusive distribution rights for approximately 150 studios and labels in the film and music industry.
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The short-term impact of inflation on the results of the company’s operations is largely dependent on whether we can pass through incremental cost to our customers, which is subject to market conditions. During fiscal year 2021, we began to experience inflationary pressure on freight and labor.
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This extensive portfolio of unique content, combined with our deep inventory portfolio, enables us to cater to bulk B2B and direct-to-consumer (DTC) businesses with a vast selection of products unavailable through other distributors.
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Disruptions in the transportation industry resulted in higher landed costs of $15.3 million, which was recorded as an inventory write down for the year ended June 30, 2023. Subsequently, cargo container shipping costs have returned to pre-Covid levels.
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Our unique DTC suite of distribution and inventory solutions for the e-commerce retail industry, including our consumer direct subsidiary DirectToU LLC, enabled approximately 36% of gross revenue for the 12 months ended June 30, 2024, versus 31% for the 12 months ended June 30, 2023. Physical music and movie products continue to show resilience.
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More recently, consistent with other retailers and distributors, higher interest rates and energy costs began to affect economic conditions in the United States. Inflation risk may deter consumer spending if economic conditions worsen, and our results of operations could be adversely affected if the high inflation continues for an extended period.
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Year over year, Vinyl record sales increased from $324 million to $329 million ($5 million, 2%) for the 12 months ended June 30, 2024. The average selling price of Vinyl was up 6% and partially offset by decreased volume resulting in net revenue improvement versus the prior year.
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We continue to monitor interest rates and believe they will have some impact on operations until they stabilize. Combined, general business conditions and inflationary factors may impact sales, gross profits, and gross margins.
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We expect music enthusiasts and collectors to extend this upward trend because of their passion for music, their appreciation for the artwork, and a desire to enhance their physical collection. Likewise, music Compact Discs (CDs) sales increased from $128 million to $130 million ($2 million, 2%).
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Along with other Retailers and Distributors in the United States, we are not immune to the macroeconomic headwinds caused by increased inflation and interest rates. Our business to business (“B2B”) customer base, which are primarily retailers, are reacting relatively conservatively with their inventory positions due to economic uncertainty and those retailers have their own inventory supply chain challenges.
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The average selling price of CDs increased by 12%, however, the decline in volume, partially due to the delay of some new K-Pop releases, offset some of the gains. Physical movie sales, which include DVDs, Blu-Ray, and Ultra HD, increased from $190 million to $204 million ($14 million, 8%) versus the same period last year.
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Our direct to consumer (“DTC”) channels are facing constant competition and it’s important for our merchants to keep investing while keeping a tight rein on inventories. Our B2B wholesale customer base revenue was down almost 20% over the previous year due to their relatively rigorous inventory management.
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The average selling price of physical film products increased 19% year over year and was partially offset by a decline in volume. Digital sales of our exclusive content increased approximately 135% over the same period prior year. The consistent flow of new theatrical releases, combined with 4K and collectable SteelBook content, continues to drive home video sales.
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However, as economic conditions stabilized, our B2B revenues improved to -8% year over year in Q4. For the year ended June 30, 2023, our DTC omni-channel sales decreased 11%, our Direct2You division outperformed B2B with sales up 7% year over year. Year-over-year, for the year ended June 30, 2023, vinyl sales decreased 2% to $324 million.
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We expect the trend of higher price points to continue as brick & mortar retailers cater to the consumer preference for omnichannel shopping experiences and curated content versus inexpensive, mass market product offerings.
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Gaming products revenue decreased 30% to $391 million; however, the decline in demand for physical gaming products presents an opportunity as we expect to benefit from industry consolidation.
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Alliance Entertainment’s ability to offer retailers in-store and on-line channels a deep, extensive library of both music and movies helps provide them the products for a cohesive shopping experience based on personal preference and engagement with their respective brands. 42 Year-over-year, gaming sales decreased from $391 million to $338 million (-$53 million, -14%) for the 12 months ended June 30, 2024.
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Combined, for the year ended June 30, 2023, gaming and vinyl revenue totaled $715 million and 62% of our revenue mix compared to $887 million and 63% of total revenue in the prior year. While we captured an increase in the average selling price in Gaming, it was not enough to offset the negative impact of decreased volume.
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The average selling price of gaming products more than doubled for the period versus prior year but was offset by a decrease in unit volume. The revenue derived from a higher price point was the direct result of our success selling more hardware and retro arcades than prior periods.
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We benefited from an increase in both the average selling price and volume. As the popularity of collectibles grows, an increasing number of musicians, celebrities, sport organizations, and content providers are expanding their portfolio of merchandise as a way to connect with their audiences.
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Gaming suppliers continue to transition to subscription-based models, and we expect to benefit from new hardware releases during the next year. We continue to proactively monitor gaming industry trends to ensure we have the right product mix to meet market demand and maximize profitability.
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The average selling price of music Compact Disc’s (CD’s) was essentially flat, and a decrease in volume resulted in a 16% year-over-year revenue decline. We expect this trend for CDs to continue due to the popularity and growth of on-line streaming services.
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The toys & collectables industry appears to have stabilized in the post- pandemic era and major trade shows have resumed their promotion of these unique products. The collectables market is an integral part of the entertainment market segment due to its mix of nostalgic, investment, and intrinsic value. As such, we believe there is continued profitable growth in this category.
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Gross Margin dollars declined as a result of lower sales and a lower overall product margin of 9.0% compared to 12.9% in the prior year.
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Product margins increased from 9.0% to 11.7% (+2.7percentage points) for the 12 months ended June 30, 2024 versus June 30, 2023. The gross margin improvement was primarily driven by reduced costs compared to the previous year, as a result of inventory adjustments to manage the high landed costs caused by supply chain disruptions during the pandemic.

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