Financial Analysis

Note 12: Commitments and Contingencies Commitments The Company enters into various agreements with suppliers for the products it distributes. The Company had no long-term purchase commitments or arrangements with its suppliers as of June 30, 2025, and June 30, 2024. Litigation, Claims and Assessments We are exposed to claims and litigations of varying degrees arising in the ordinary course of business and use various methods to resolve these matters. When a loss is probable, we record an accrual based on the reasonably estimable loss or range of loss. When no point of loss is more likely than another, we record the lowest amount in the estimated range of loss and, if material, disclose the estimated range of loss. We do not record liabilities for reasonably possible loss contingencies but do disclose a range of reasonably possible losses if they are material and we are able to estimate such a range. If we cannot provide a range of reasonably possible losses, we explain the factors that prevent us from determining such a range. Historically, adjustments to our estimates have not been material. We believe the recorded reserves in our consolidated financial statements are adequate in light of the probable and estimable liabilities. We do not believe that any of these identified claims or litigation will be material to our results of operations, cash flows, or financial condition. On August 8, 2024, a class action complaint, Feller v. Alliance Entertainment, LLC and DirectToU, LL …

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Note 8: Revolving Credit Facility On December 21, 2023, the Company entered into a new credit facility with White Oak Commercial Finance, LLC, which will mature on December 21, 2026 . The facility is a $ 120 million asset-based revolving credit facility (the Revolving Credit Facility). Borrowings under the Revolving Credit facility bear interest at the 30-day SOFR rate, subject to a floor of 2 %, plus a margin ranging from 4.00 % to 4.25 %, depending on the Companys utilization and consolidated fixed charge coverage ratio. The 30-day SOFR rates as of June 30, 2025, and June 30, 2024, were 4.35 % and 5.29% , respectively. The effective interest rates at June 30, 2025, and June 30, 2024, were 9.2 % and 9.5 %, respectively. On June 30, 2025, the Company entered into an amendment to its Credit Facility with White Oak, which reduced the applicable interest rate margin from a range of 4.5 % 4.75 % to a range of 4.0 % 4.25 %, effective immediately. The Company expects the reduction in the applicable interest rate range to decrease its interest expense in future periods. If the Company reduces or terminates the commitments under the Revolving Credit Facility before its maturity, it will incur an early termination fee of 1 % if done between December 21, 2024, and August 21, 2025. As of August 21, 2025, the Company is no longer subject to any early termination fees. Availability under the Revolving Credit Facility is determined by the Companys borrowing base calculation, as defined in …

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Note 18: Stock-Based Compensation : As part of the merger with Adara on February 10, 2023, 600,000 shares were authorized for a one-time employee stock plan. The compensation committee approved 463,800 shares of restricted stock awards to employees on June 15, 2023. The shares fully vest on October 4, 2023.The company does not have an annual stock-based compensation plan. In September 2024, the 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, for a total amount reserved under the 2023 Plan of 1,000,000 shares of Class A common stock. On November 7, 2024, the Companys stockholder approved the amendment to the 2023 Plan. Schedule of Stock Based Compensation Plan Number of RSAs Outstanding as of June 30, 2023 459,200 Vested (449,000 ) Forfeited (10,200 ) Outstanding as of June 30, 2024 - Granted 101,300 Vested - Forfeited - Outstanding as of June 30, 2025 101,300 In connection with awards granted, the Company recognized $ 0.05 million and $ 1.4 million in stock-based compensation during the years ended June 30, 2025, and 2024, respectively. No restricted stock vested during the year ended June 30, 2025. The total fair value of restricted stock that vested during the year ended June 30, 2024, was $ 1.4 million. …

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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, 2025 and 2024, the Company has classified the Private Placement Warrants and the Representative Warrants as Level 3 fair value measurements. Management evaluates a variety of inputs and then estimates fair value based on those inputs. As discussed below, the Company utilized the Black Scholes Model in valuing the Private Placement Warrants and Representative Warrants. The estimated fair value of cash, trade receivables, accounts payable, accrued expenses and other current liabilities are based on Level 1 inputs as the fair values approximate carrying amounts as of June 30, 2025, and 2024, based on the short-term nature and maturity of these instruments. The estimated fair values of subordinated shar …

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Note 6: Goodwill and Intangibles, Net Schedule of Goodwill ($ in thousands) June 30, 2025 June 30, 2024 Goodwill, Beginning Balance $ 89,116 89,116 Goodwill, Ending Balance $ 89,116 89,116 Intangibles, Net consists of the following at: Schedule of Intangible Assets, Net ($in thousands) Year ended June 2025 Year Ended June 2024 Intangibles: Intangibles Cost Accum. Amortization Intangibles, Net Accum. Amortization Intangibles, Net Customer Relationships $ 78,000 (73,928 ) $ 4,072 (72,019 ) $ 5,981 Trade Name Alliance $ 5,200 (5,200 ) $ - (5,200 ) $ - Contract Acquisition $ 1,800 (180 ) $ 1,620 - $ - Tradename - HMBR $ 6,800 - $ 6,800 - - Mecca Customer Relationships $ 8,023 (6,393 ) $ 1,630 (5,818 ) $ 2,205 Customer List $ 12,760 (8,407 ) $ 4,353 (7,565 ) $ 5,195 Total $ 112,583 (94,108 ) $ 18,475 (90,602 ) $ 13,381 During the years ended June 30, 2025, and 2024, the Company recorded amortization expense of $ 3.5 million and $ 4.0 million, respectively. Expected amortization over the next five years and thereafter, as of June 30, 2025, is as follows: Schedule of Expected Amortization Over the Next Five Years and Thereafter ($ in thousands) Intangible Assets Year Ended June 30, 2026 $ 3,375 2027 3,326 2028 2,298 2029 1,019 2030 379 Thereafter 1,278 Total Expected Amortization $ 11,675 Indefinite-lived Intangible asset 6,800 Total Intangible Assets $ 18,475 …

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Note 11: Income Taxes The Company accounts for income taxes under an asset and liability approach that requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of events that have been recognized in the Companys consolidated financial statements or tax returns as well as tax credits carry forward. In estimating future tax consequences, the Company generally considers all expected future events other than enactments of changes in the tax laws or rates. Valuation allowances are established as necessary to reduce deferred tax assets to an amount more likely than not to be realized. The Companys policy on income statement classification of interest and penalties related to income tax obligations is to include such items as part of total interest expense and other expense, respectively. As of June 30, 2025, and 2024, the Company did not have any material uncertain tax positions and thus has not recognized any interest or penalties in these consolidated financial statements. The Federal income tax return remains open for examination by the U.S. tax authorities for all years subsequent to 2020. The components of the provision for (benefit from) income taxes for the fiscal year-ended June 30, 2025 and 2024 are as follows: Schedule of Income Tax Provision ($ in thousands) 2025 2024 Year Ended June 30 ($ in thousands) 2025 2024 Income Tax Expense: Current: Federal $ 592 $ 475 State 715 431 Total Current Expense $ 1,308 $ 906 Deferred: Fed …

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Accounting Pronouncements Recently Issued and Adopted Pronouncements In November 2023, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) 2023-07, Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures. ASU 2023-07 requires public entities to disclose significant segment expense categories that are regularly provided to the Chief Operating Decision Maker (CODM) and included in the measure of segment profit or loss, as well as the title and position of the CODM. The amendments also require disclosure of all annual segment profit or loss and asset disclosures in interim periods and provide expanded disclosure requirements for entities with a single reportable segment. ASU 2023-07 is effective for fiscal years beginning after December 15, 2023, and interim periods beginning after December 15, 2024. The Company adopted ASU 2023-07 for its fiscal year ended June 30, 2025, in accordance with the required effective date for non-accelerated filers. The adoption did not impact the Companys consolidated financial position, results of operations, or cash flows; however, it resulted in enhanced segment disclosures in the notes to the consolidated financial statements in accordance with ASC 280, Segment Reporting . These enhancements include the identification of significant segment expense categories, disclosure of the measures of segment profit or loss used by the CODM, related reconciliations to the most comparable GAAP measu …

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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). 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, 2025, the Company had no remaining liability related to the terminated self-insured medical plans, as the previously accrued estimated run-out exposure was fully settled during the fourth quarter of fiscal 2025. At June 30, 2024, the accrued estimated …

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Note 13: Related Party Transactions GameFly Holdings, LLC On February 1, 2023, Alliance entered into a Distribution Agreement (the Agreement) with GameFly Holdings, LLC, a customer owned by the principal stockholders of Alliance, effective from February 1, 2023, through March 31, 2028. At that time, the Agreement continues indefinitely until either party provides the other party with six-month advance notice to terminate the Agreement. During the year ending June 30, 2025, and 2024, Alliance had distribution revenue of $ 0 and $ 0.25 million, respectively. During the fiscal year ended June 30, 2025, and 2024, the Company had sales to GameFly LLC, owned by the Companys shareholders, of $ 2.7 million and $ 8.4 million, respectively. As of June 30, 2025, and June 30, 2024, the Company had receivables from GameFly of $ 0.20 million and $ 1.8 million, respectively, recorded within other receivables, net, on the consolidated balance sheets. During the year ended June 30, 2024, the Company repaid $ 0.50 million of outstanding promissory notes to two former Adara shareholders to fund operating costs. These interest-free notes were due for payment at the earlier of the Mergers closing of February 10, 2023. MVP Logistics, LLC MVP Logistics is an independent contractor, which, prior to August 31, 2023, was partially owned by Joe Rehak, the SVP of Operations of COKeM International Limited, which Alliance acquired in September 2020. Subsequent to August 31, 2023, Mr. Rehak no longer has a …

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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 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 uses net income, prepared in accordance with U.S. GAAP to assess performance and make resource allocation decisions. The CODM utilizes net income, prepared in accordance with U.S. GAAP, to eval …

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Note 23: Subsequent Events The Company has evaluated subsequent events through September 10, 2025, the date the consolidated financial statements were issued, and determined that there are no subsequent events that require adjustment to or disclosure in the consolidated financial statements.

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