Financial Analysis

Note 22: Business Combinations Endstate Authentic LLC On December 31, 2025, Alliance Entertainment Holding Corporation (the Company), through a wholly owned subsidiary, completed the acquisition of substantially all of the assets of Endstate (the Acquisition). The Acquisition was accounted for as a business combination under ASC 805, Business Combinations . The Acquisition was completed to enhance the Companys technology capabilities and expand its digital and direct-to-consumer product offerings. The results of operations of the acquired business were included in the Companys consolidated financial statements at June 30, 2026, since the acquisition date was not material. Purchase Consideration The total consideration transferred in connection with the Acquisition was $ 7.9 million, which consisted of the following (in thousands): Schedule of Purchase Consideration Amount Cash paid at closing $ 1,150 Deferred payment payable one year after closing 1,300 Fair value of contingent consideration 5,500 Total consideration transferred $ 7,950 Certain payments to the founders, including guaranteed payments and sign-on bonuses that were not contingent on continued employment, were determined to represent consideration transferred in exchange for the acquired business and were included in purchase consideration. Payments contingent on continued employment were excluded from purchase consideration and will be recognized as compensation expense over the requisite service period. Prelimi …

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Note 12: Commitments and Contingencies Commitments The Company enters into various agreements with suppliers for the products it distributes. The Company had no long-term purchase commitments or arrangements with its suppliers as of June 30, 2026, and June 30, 2025. Litigation, Claims and Assessments We are exposed to claims and litigations of varying degrees arising in the ordinary course of business and use various methods to resolve these matters. When a loss is probable, we record an accrual based on the reasonably estimable loss or range of loss. When no point of loss is more likely than another, we record the lowest amount in the estimated range of loss and, if material, disclose the estimated range of loss. We do not record liabilities for reasonably possible loss contingencies but do disclose a range of reasonably possible losses if they are material and we are able to estimate such a range. If we cannot provide a range of reasonably possible losses, we explain the factors that prevent us from determining such a range. Historically, adjustments to our estimates have not been material. We believe the recorded reserves in our consolidated financial statements are adequate in light of the probable and estimable liabilities. We do not believe that any of these identified claims or litigation will be material to our results of operations, cash flows, or financial condition. On June 6, 2024, Office Create Corporation (Office Create) filed a complaint against COKeM Internati …

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Note 8: Revolving Credit Facility New Credit Facility On October 1, 2025, the Company entered into an asset-based revolving credit facility (the New Revolving Credit Facility) with Bank of America, which refinanced and replaced its prior asset-based revolving credit facility with White Oak Commercial Finance, LLC. The Revolving Credit Facility provides for borrowings of up to $ 120.0 million, subject to a borrowing base, and matures on October 1, 2030 . Borrowings under the Revolving Credit Facility bear interest at the 30-day SOFR rate, subject to a floor of 2.00 %, plus an applicable margin of 1.50 % through March 31, 2026 and 1.625 % thereafter. The 30-day SOFR rate as of June 30, 2026 was 3.61 %. The Company also pays a commitment fee of 0.15 % per annum on unused availability. Commitment fees incurred during the year ended June 30, 2026 and 2025 were $ 0.12 million and $ 0.22 million, respectively. Included in interest expense for the year ended June 30, 2026, is $ 1.6 million related to the accelerated amortization of unamortized deferred financing costs associated with the prior revolving credit facility that was refinanced and replaced. Availability under the Revolving Credit Facility is based on eligible accounts receivable and inventory. As of June 30, 2026, availability was approximately $ 45.7 million, with outstanding borrowings of approximately $ 74.3 million. The Revolving Credit Facility contains customary affirmative and negative covenants, including limitati …

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Note 18: Stock-Based Compensation : As part of the merger on February 10, 2023, 600,000 shares were authorized for a one-time employee stock plan. The compensation committee approved 463,800 shares of restricted stock awards to employees on June 15, 2023. The shares fully vest on October 4, 2023. The company does not have an annual stock-based compensation plan. In September 2024, the Companys Board approved, subject to stockholder approval, an amendment to the 2023 Plan to increase the number of shares authorized for issuance thereunder by 400,000 shares of Class A common stock, bringing the total reserved under the 2023 Plan of 1,000,000 shares of Class A common stock. On November 7, 2024, the Companys stockholders approved the amendment to the 2023 Plan. Restricted stock awards granted under the 2023 Plan vest in full on the third anniversary of the grant date. Schedule of Restricted Stock Awards Number of RSAs Outstanding as of June 30, 2024 - Granted 101,300 Vested - Forfeited - Outstanding as of June 30, 2025 101,300 Granted 206,900 Vested (9,800 ) Forfeited (4,000 ) Outstanding as of June 30, 2026 294,400 In connection with awards granted, the Company recognized $ 0.3 million and $ 0.05 million in stock-based compensation during the years ended June 30, 2026, and 2025, respectively. The total fair value of restricted stock that vested during the year ended June 30, 2026, was $ 0.03 million. …

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Note 21: Fair Value The Company complies with the provisions of ASC 820, Fair Value Measurements, for its financial and non-financial assets and liabilities. ASC 820 defines fair value, establishes a framework for measuring fair value and expands disclosure for each major asset and liability category measured at fair value on either a recurring or nonrecurring basis. The Company accounts for certain assets and liabilities at fair value. The hierarchy below lists three levels of fair value based on the extent to which inputs used in measuring fair value are observable in the market. The company categorizes each of its fair value measurements in one of these three levels based on the lowest level input that is significant to the fair value measurement in its entirety. As of June 30, 2026 and 2025, the Company has classified the Private Placement Warrants and the Representative Warrants as Level 3 fair value measurements. Management evaluates a variety of inputs and then estimates fair value based on those inputs. As discussed below, the Company utilized the Black Scholes Model in valuing the Private Placement Warrants and Representative Warrants. The estimated fair value of cash, trade receivables, accounts payable, accrued expenses and other current liabilities are based on Level 1 inputs as the fair values approximate carrying amounts as of June 30, 2026, and 2025, based on the short-term nature and maturity of these instruments. The estimated fair value of the credit facilit …

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Note 6: Goodwill and Intangibles, Net Goodwill reported is the result of multiple acquisitions made by Alliance Entertainment Holding Corporation over the years. The $ 4.97 million increase in goodwill during the fiscal year ended June 30, 2026 relates to the Endstate business combination discussed in Note 22, Business Combination (Endstate). For the fiscal year ended June 30, 2026 and June 30, 2025, goodwill activity consisted of the following: Schedule of Goodwill ($ in thousands) June 30, 2026 June 30, 2025 Goodwill, Beginning Balance $ 89,116 89,116 Additions $ 4,965 - Goodwill, Ending Balance $ 94,081 89,116 Intangibles, Net consists of the following at: Schedule of Intangible Assets, Net ($in thousands) Year ended June 2026 Year Ended June 2025 Intangibles: Intangibles Cost Accum. Amortization Intangibles, Net Accum. Amortization Intangibles, Net Customer Relationships $ 78,000 (75,582 ) $ 2,418 (73,928 ) $ 4,072 Contract Acquisition $ 2,100 (570 ) $ 1,530 (180 ) $ 1,620 Tradename - HMBR $ 6,800 - $ 6,800 - 6,800 Trademark - Endstate $ 800 (40 ) $ 760 - - Technology - Endstate $ 1,550 (78 ) $ 1,473 - - Customer Relationships - Endstate $ 900 (45 ) $ 855 - - Mecca Customer Relationships $ 8,023 (6,969 ) $ 1,054 (6,393 ) $ 1,630 Customer List $ 12,760 (9,192 ) $ 3,568 (8,407 ) $ 4,353 Total $ 110,933 (92,476 ) $ 18,457 (88,908 ) $ 18,475 During the years ended June 30, 2026, and 2025, the Company recorded amortization expense of $ 3.6 million and $ 3.5 million, respective …

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Note 11: Income Taxes The Company accounts for income taxes under the asset and liability method in accordance with ASC 740, Income Taxes. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases, and for operating loss and tax credit carryforwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the periods in which those temporary differences are expected to reverse. Effective July 1, 2025, the Company adopted Accounting Standards Update (ASU) 2023-09, Improvements to Income Tax Disclosures. This standard requires enhanced disaggregation of the statutory rate reconciliation and cash income taxes paid. The Company has adopted this standard on a prospective basis. Accordingly, the enhanced disclosures required by ASU 2023-09 are presented for fiscal year 2026 only, and prior-period disclosures have not been revised. Income Before Income Taxes The components of income before income taxes from continuing operations were as follows (in thousands): Schedule Of Components of Income Before Income Tax From Continuing Operations Year Ended June 30, 2026 2025 United States $ 18,814 $ 18,708 Foreign Total income before income taxes $ 18,814 $ 18,708 Provision for Income Taxes The provision for income taxes consisted of the following (in thousands): Schedule …

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Accounting Pronouncements Recently Issued and Adopted Accounting Pronouncements Accounting Standards Update 2023-07, In 2023, Segment Reporting. The Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) 2023-07, Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures. This ASU provides guidance intended to improve reportable segment disclosures, principally through enhanced disclosure of significant segment expenses that are regularly provided to the chief operating decision maker and included within each reported measure of segment profit or loss, disclosure of an amount for other segment items by reportable segment and a description of its composition, disclosure of the title and position of the chief operating decision maker and an explanation of how the reported measures of segment profit or loss are used in assessing performance and allocating resources, and extension of the annual segment disclosures to interim periods. The ASU also requires that an entity with a single reportable segment provide all of the disclosures required by the amendments and all existing segment disclosures in Topic 280. This ASU is effective for fiscal years beginning after December 15, 2023, and interim periods within fiscal years beginning after December 15, 2024, with early adoption permitted, and is required to be applied retrospectively to all prior periods presented. The Company adopted the annual disclosure requirements of this ASU for …

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Note 9: Employee Benefits Company Health Plans During the year ended June 30, 2025, the Company transitioned its health insurance coverage from a self-funded model to an Individual Coverage Health Reimbursement Arrangement (ICHRA), which eliminates the Companys exposure to self-insured medical and dental claims; therefore, no similar liabilities are expected under the current plan structure. As a result, the self-insured medical plans (including both PPO and HDHP options) under the Alliance Health & Benefits Plan (AHBP) were terminated. Under the ICHRA model, the Company reimburses employees and executive officers for individual health insurance premiums, with contribution levels varying based on coverage tiers. There were no changes to the Companys dental (PPO and HMO), vision, life insurance, or short-term disability plans. The Companys dental HMO plan remains self-insured, with exposure limited to a maximum per individual procedure based on a published fee schedule. The dental PPO plan is fully insured. The Company contributes various percentages toward premium costs across benefit offerings, based on coverage levels and Board-approved schedules. The vision, life insurance, and short- and long-term disability plans are fully insured and Company-sponsored, with premiums paid by both the employer and employees in accordance with Board-approved contribution structures. As of June 30, 2026, and June 30, 2025, the Company had no remaining liability related to the terminated …

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Note 13: Related Party Transactions GameFly Holdings, LLC During the years ended June 30, 2026 and 2025, Alliance sold new-release movies, video games and video game consoles to GameFly Holdings LLC totaling approximately $ 2.7 million in each year. GameFly, a customer of Alliance, is equally owned by Bruce Ogilvie and Jeff Walker, two Alliance shareholders. Alliance believes the amounts that GameFly paid for New Release, movies, video games, and video game consoles are at fair market value. GameFly does fulfillment services of fast selling new releases by providing 3PL services at market rates. Either party may terminate the agreement at any time. GameFly is free to purchase from any competitor of Alliance. As of June 30, 2026 and 2025, the Company had receivables from GameFly LLC of $ 0.2 million at each year-end, which were included in Other receivables, net on the consolidated balance sheets. For the year ended June 30, 2026 and 2025, the Company recognized revenue for consulting services provided to Gamefly of $ 0.3 million in each period. For the year ended June 30, 2026 and 2025, the Company incurred consulting expense of $ 0.09 million and $ 0.2 million, respectively, for services received from GameFly. Ogilvie Loans On July 3, 2023, the Company entered into a $ 17.0 million line of credit with Bruce Ogilvie, a principal stockholder (the Ogilvie Loan), which bore interest at a rate equal to 30-day SOFR plus 5.0 % and would have matured on December 22, 2026. In connect …

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Note 10: Segment Information In November 2023, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) 2023-07, Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures, which requires enhanced disclosures about a public entitys reportable segments, including significant segment expense categories and expanded interim reporting requirements. The amendments are effective for fiscal years beginning after December 15, 2023, and interim periods beginning after December 15, 2024. Early adoption is permitted. The Company adopted ASU 2023-07 for the fiscal year ended June 30, 2025. Management performed an assessment of the Companys operating segments in accordance with ASC 280-10-50-1 through 50-9. Based on this evaluation, the Company determined that it operates as a 1 single operating segment, which is also its sole reportable segment. Segment revenue is derived from the sale of distribution of pre-recorded music, video movies, video games and related accessories, and merchandising. This conclusion is consistent with prior periods. The Companys Chief Executive Officer and Chairman are the Chief Operating Decision Makers (CODM) and review financial performance and make resource allocation decisions at the consolidated entity level. The CODM utilizes net income, prepared in accordance with U.S. GAAP, to evaluate financial performance, monitor variances against budget and forecast, and guide strategic decisions. Segment assets are …

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Note 23: Subsequent Events The Company has evaluated subsequent events through September 10, 2026, the date the consolidated financial statements were issued, and determined that there are no subsequent events that require adjustment to or disclosure in the consolidated financial statements.

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