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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

 

 

FORM 8-K

CURRENT REPORT

 

PURSUANT TO SECTION 13 OR 15(d) OF THE

SECURITIES EXCHANGE ACT OF 1934

 

Date of Report (Date of earliest event reported): April 12, 2023

 

ALLIANCE ENTERTAINMENT HOLDING CORPORATION
(Exact Name of Registrant as Specified in its Charter)

 

Delaware   001-40014   85-2373325
(State or Other Jurisdiction   (Commission   (IRS Employer
of Incorporation)   File Number)   Identification No.)

 

8201 Peters Road, Suite 1000

Plantation, FL, 33324

(Address of Principal Executive Offices) (Zip Code)

 

(954) 255-4000

(Registrant’s Telephone Number, Including Area Code)

 

Not Applicable

(Former Name or Former Address, if Changed Since Last Report)

 

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:

 

¨Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)

 

¨Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)

 

¨Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))

 

¨Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e 4(c))

 

Securities registered pursuant to Section 12(b) of the Act:

 

Title of each class   Trading
Symbol(s)
  Name of each exchange on
which registered
Class A common stock, par value $0.0001 per share   *   *
Redeemable warrants, exercisable for shares of Class A common stock at an exercise price of $11.50 per share   *   *

 

*       On February 10, 2023, the registrant’s securities were suspended from trading on the NYSE American LLC (“NYSE American”). Prior to the suspension, the trading symbols of the registrant’s Class A common stock and warrants were “ADRA” and “ADRA.WS,” respectively. Following the suspension, trades in the registrant’s securities began being quoted on the OTC Pink Open Market under the same trading symbols. Effective March 20, 2023, the trading symbols for the registrant’s Class A common stock and warrants were changed to “AENT” and “AENTW,” respectively.

 

Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933 (§230.405 of this chapter) or Rule 12b-2 of the Securities Exchange Act of 1934 (§240.12b-2 of this chapter).

 

Emerging growth company ¨

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ¨

 

 

 

 

 

 

Item 2.02. Results of Operations and Financial Condition.

 

On April 12, 2023, Alliance Entertainment Holding Corporation, a Delaware corporation (the “Company” or “Alliance”) filed a registration statement on Form S-1 (the “Registration Statement”) containing (i) a prospectus relating to an underwritten public offering of shares of the Company’s Class A common stock and (ii) a second prospectus relating to the registration for resale of certain of the Company’s shares of Class A common stock and warrants to purchase shares of Class A common stock. The Registration Statement contains unaudited financial statements for the Company’s six-month period ended December 31, 2022 and certain non-GAAP financial measures for the three and six months ended December 31, 2022. Such unaudited financial statements and non-GAAP financial measures are furnished hereto as Exhibit 99.1 and Exhibit 1 to Exhibit 99.2, respectively, and incorporated herein by reference.

 

The information set forth in this Item 2.02, including the exhibits attached hereto, shall not be deemed to be filed for purposes of Section 18 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), or otherwise be subject to the liabilities of that section, nor shall they be deemed to be incorporated by reference in any filing under the Securities Act of 1933, as amended (the “Securities Act”), or the Exchange Act.

 

Item 7.01. Regulation FD Disclosure.

 

An updated version of an investor presentation of the Company is attached as Exhibit 99.2 to this Current Report on Form 8-K. The presentation will be accessible online through the Investor Relations section of the Company’s website, located at ir.aent.com, under the heading “Latest Presentation.” The information on the Company’s website is not a part of this Current Report on Form 8-K.

 

The information set forth in this Item 7.01, including the exhibit attached hereto, shall not be deemed to be filed for purposes of Section 18 of the Exchange Act, or otherwise be subject to the liabilities of that section, nor shall they be deemed to be incorporated by reference in any filing under the Securities Act or the Exchange Act.

 

Forward-Looking Statements

 

This Current Report on Form 8-K includes certain statements that are not historical facts but are forward-looking statements for purposes of the safe harbor provisions under the United States Private Securities Litigation Reform Act of 1995. These statements are based on various assumptions, whether or not identified in this Current Report on Form 8-K, and on the current expectations of the Company’s management and are not predictions of actual performance. Actual events and circumstances are difficult or impossible to predict and will differ from assumptions. These forward-looking statements are subject to a number of risks and uncertainties, including those factors discussed in the Company’s Registration Statement on Form S-1 filed with the Securities and Exchange Commission (“SEC”) on April 12, 2023 under the heading “Risk Factors,” the Company’s Current Report on Form 8-K filed with the SEC on February 13, 2023 under the heading “Risk Factors,” and other documents of the Company filed, or to be filed, with the SEC, which are accessible through the Investor Relations section of the Company’s website at ir.aent.com. If the risks materialize or assumptions prove incorrect, actual results could differ materially from the results implied by these forward-looking statements. The Company disclaims any obligation to update any forward-looking statements.

 

 

 

Item 9.01. Financial Statements and Exhibits.

 

  (d) Exhibits.

 

Exhibit No.   Exhibit
99.1   Unaudited Condensed Consolidated Financial Statements as of and for the Six-Month Period Ended December 31, 2022.
99.2   Investor Presentation.
104   Cover Page Interactive Data File (embedded within the Inline XBRL document).

 

 

 

SIGNATURE

 

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized. 

 

Dated: April 12, 2023 ALLIANCE ENTERTAINMENT HOLDING CORPORATION
   
  By: /s/ Jeffrey Walker
    Name: Jeffrey Walker
Title:  Chief Executive Officer

 

 

 

Exhibit 99.1

 

INDEX TO FINANCIAL STATEMENTS

 

    Page
Consolidated Financial Statements of Alliance Entertainment Holding Corporation    
Unaudited Condensed Consolidated Financial Statements of Operations for the three and six months ended December 31, 2022 and 2021   F-2
Unaudited Condensed Consolidated Balance Sheets as of December 31, 2022 and June 30, 2022   F-3
Unaudited Condensed Consolidated Statements of Changes in Stockholders’ Equity for the three and six months ended December 31, 2022 and 2021   F-4
Unaudited Condensed Consolidated Statements of Cash Flow for the six months ended December 31, 2022 and 2021   F-8

 

F-1

 

 

ALLIANCE ENTERTAINMENT HOLDING CORPORATION

 

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

 

   Three Months
Ended
   Three Months
Ended
   Six Months
Ended
   Six Months
Ended
 
($ in thousands except share amount)  December 31,
2022
   December 31,
2021
   December 31,
2022
   December 31,
2021
 
Net Revenues  $445,162   $538,445   $683,862   $831,646 
Cost of Revenues (excluding depreciation and amortization)   424,265    465,407    637,495    717,889 
Operating Expenses                    
Distribution and Fulfillment Expense   20,365    19,947    35,230    33,207 
Selling, General and Administrative Expense   15,044    15,831    29,777    29,610 
Depreciation and Amortization   1,529    2,064    3,166    4,373 
Transaction Costs   367    34    1,007    (282)
IC DISC Commissions   1,444    2,767    2,833    6,263 
Loss on Disposal of Fixed Assets   (3)       (3)    
Total Operating Expenses   38,746    40,643    72,010    73,171 
Operating (Loss) Income   (17,849)   32,395    (25,643)   40,586 
Other Expenses                    
Interest Expense, Net   3,544    1,008    5,898    1,736 
Total Other Expenses   3,544    1,008    5,898    1,736 
(Loss) Income Before Income Tax (Benefit) Expense   (21,393)   31,387    (31,541)   38,850 
Income Tax (Benefit) Expense   (5,878)   7,533    (8,516)   9,324 
Net (Loss) Income   (15,515)   23,854    (23,025)   29,526 
Net (Loss) Income per Share – Basic and Diluted  $(17.24)  $26.50   $(25.58)  $32.81 
Shares Used in Computing Net (Loss) Income per Share   900    900    900    900 

 

The accompanying notes are an integral part of these condensed consolidated financial statements

 

F-2

 

 

ALLIANCE ENTERTAINMENT HOLDING CORPORATION

 

UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS

 

($ in thousands)  December 31, 2022   June 30, 2022 
Assets          
Current Assets          
Cash and Cash Equivalents  $1,374   $1,469 
Trade Receivables, Net   170,851    98,699 
Related Party Receivable       245 
Inventory, Net   175,322    249,439 
Other Current Assets   9,431    9,128 
Total Current Assets   356,978    358,980 
Property and Equipment, Net   10,732    3,284 
Operating Lease Right-Of-Use Assets   6,612    8,360 
Goodwill   87,151    79,903 
Intangibles, Net   25,768    18,764 
Other Long-Term Assets   305    3,748 
Deferred Tax Asset, Net   3,409     
Total Assets  $490,955   $473,039 
Liabilities and Stockholders’ Equity          
Current Liabilities          
Accounts Payable  $193,801   $198,187 
Accrued Expenses   12,418    11,573 
Current Portion of Operating Lease Obligations   3,456    4,453 
Revolving Credit Facility, Net   176,615    135,968 
Debt, Current   8,252     
Income Taxes Payable       418 
Total Current Liabilities   394,542    350,599 
Debt, Non-Current       3,377 
Operating Lease Obligations, Non-Current   3,918    4,864 
Deferred Tax Liability       5,271 
Total Liabilities   398,460    364,111 
Commitments and Contingencies (Note 12)          
Stockholders’ Equity          
Common Stock: No Par Value, Authorized 1000 shares Issued 957 Shares, Outstanding 900 Shares as of December 31, 2022, and June 30, 2022          
Paid In Capital   46,592    40,000 
Treasury Stock, 57 Shares Carried at Cost   (2,674)   (2,674)
Accumulated Other Comprehensive Loss   (66)   (66)
Retained Earnings   48,643    71,668 
Total Stockholders’ Equity   92,495    108,928 
Total Liabilities and Stockholders’ Equity  $490,955   $473,039 

 

The accompanying notes are an integral part of these condensed consolidated financial statements

 

F-3

 

 

ALLIANCE ENTERTAINMENT HOLDING CORPORATION

 

CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY

SIX MONTHS ENDED DECEMBER 31, 2022 (UNAUDITED)

 

   Common           Accumulated         
   Stock       Cost of   Other         
   Shares   Paid In   Treasury   Comprehensive   Retained     
($ in thousands)  Issued   Capital   Stock   Loss   Earnings   Total 
Balances at June 30, 2022   900   $40,000   $(2,674)  $(66)  $71,668   $108,928 
Capital Contribution       6,592                6,592 
Net Loss                   (23,025)   (23,025)
Balances at December 31, 2022   900   $46,592   $(2,674)  $(66)  $48,643   $92,495 

 

The accompanying notes are an integral part of these condensed consolidated financial statements

 

F-4

 

 

ALLIANCE ENTERTAINMENT HOLDING CORPORATION

 

CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY

SIX MONTHS ENDED DECEMBER 31, 2021 (UNAUDITED)

 

   Common           Accumulated         
   Stock       Cost of   Other         
   Shares   Paid In   Treasury   Comprehensive   Retained     
($ in thousands)  Issued   Capital   Stock   Loss   Earnings   Total 
Balances at June 30, 2021   900   $40,000   $(2,674)  $(73)  $43,049   $80,302 
Net Income                   29,526    29,526 
Balances at December 31, 2021   900   $40,000   $(2,674)  $(73)  $72,575   $109,828 

 

The accompanying notes are an integral part of these condensed consolidated financial statements

 

F-5

 

 

ALLIANCE ENTERTAINMENT HOLDING CORPORATION

 

CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY

THREE MONTHS ENDED DECEMBER 31, 2022 (UNAUDITED)

 

                         
               Accumulated         
           Cost of   Other         
   Common Stock   Paid In   Treasury   Comprehensive   Retained     
($ in thousands)  Shares Issued   Capital   Stock   Loss   Earnings   Total 
Balances at September 30, 2022   900   $40,000   $(2,674)  $(66)  $64,158    101,418 
Capital Contribution       $6,592                   6,592 
Net Income                   (15,515)   (15,515)
Balances at December 31, 2022   900   $46,592   $(2,674)  $(66)  $48,643   $92,495 

 

The accompanying notes are an integral part of these condensed consolidated financial statements

 

 

F-6

 

ALLIANCE ENTERTAINMENT HOLDING CORPORATION

 

CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY

THREE MONTHS ENDED DECEMBER 31, 2021 (UNAUDITED)

 

                         
               Accumulated         
           Cost of   Other         
   Common Stock   Paid In   Treasury   Comprehensive   Retained     
($ in thousands)  Shares Issued   Capital   Stock   Loss   Earnings   Total 
Balances at September 30, 2021   900   $40,000   $(2,674)  $(73)  $48,721   $85,974 
Net Income                   23,854    23,854 
Balances at December 31, 2021   900   $40,000   $(2,674)  $(73)  $72,575   $109,828 

 

The accompanying notes are an integral part of these condensed consolidated financial statements

 

F-7

 

 

 

ALLIANCE ENTERTAINMENT HOLDING CORPORATION

 

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

 

   Six Months Ended   Six Months Ended 
($ in thousands)  December 31, 2022   December 31, 2021 
Cash Flows from Operating Activities:          
Net (Loss) Income  $(23,025)  $29,526 
Adjustments to Reconcile Net (Loss) Income to Net Cash Used In Operating Activities:          
Inventory write-down   10,800     
Depreciation of Property and Equipment   1,138    1,792 
Amortization of Intangible Assets   2,028    2,581 
Amortization of Deferred Financing Costs (Included in Interest)   83     
Bad Debt Expense   330    (15)
Gain on Disposal of Fixed Assets   (3)    
Changes in Assets and Liabilities, Net of Acquisitions          
Trade Receivables   (69,193)   (66,510)
Related Party Receivable   245    521 
Inventory   68,547    (74,022)
Income Taxes Payable\Receivable   (9,098)   311 
Operating Lease Right-Of-Use Assets   1,748    2,075 
Operating Lease Obligations   (1,943)   (2,760)
Other Assets   (5,424)   (3,895)
Accounts Payable   (28,981)   42,293 
Accrued Expenses   12,088    2,497 
Net Cash Used in Operating Activities   (40,660)   65,606 
Cash Flows from Investing Activities:          
Cash Received for Business Acquisitions, Net of Cash Acquired   1    1 
Net Cash Provided by Investing Activities   1    1 
Cash Flows from Financing Activities:          
Payments on Seller Notes       (3,750)
Payments on Revolving Credit Facility   (580,484)   (727,325)
Borrowings on Revolving Credit Facility   621,048    791,446 
Capital Contribution       3,000 
Net Cash Provided by Financing Activities   40,564    63,371 
Net Decrease in Cash and Cash Equivalents   (95)   (2,234)
Cash, Beginning of the Period   1,469    4,028 
Cash, End of the Period  $1,374   $1,794 
Supplemental disclosure for Cash Flow Information          
Cash Paid for Interest  $5,898   $1,736 
Cash Paid for Income Taxes  $586   $8,937 
Supplemental Disclosure for Non-Cash Investing and Financing Activities          
Fixed Asset Financed with Debt  $8,252   $ 
Capital Contribution (Note 13)  $6,592   $ 

 

The accompanying notes are an integral part of these condensed consolidated financial statements

 

F-8

 

 

ALLIANCE ENTERTAINMENT HOLDING CORPORATION

 

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

 

Note 1: Organization and Principal Business Activity

 

Alliance Entertainment Holding Corporation (the “Company” or “Alliance”) was formed on August 9, 2010. The Company provides full-service distribution of pre-recorded music, video movies, video games and related accessories, and merchandising to retailers and other independent customers primarily in the United States. It provides product and commerce solutions to “brick-and-mortar”, e-commerce retailers, and consumer direct websites, while maintaining trading relationships with manufacturers of pre-recorded music, video movies, video games and related accessories. The Company also provides third party logistics (3PL) products and services to customers.

 

On February 10, 2023, Alliance, Adara Acquisition Corp. (“Adara”) and a Merger Sub consummated the closing of the transactions contemplated by a Business Combination Agreement. Pursuant to the terms of the Business Combination Agreement, a business combination of Alliance and Adara 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 Adara Following the consummation of the Merger on the closing date of the Business Combination, Adara changed its name from Adara Acquisition Corp. to Alliance Entertainment Holding Corporation).

 

On July 1, 2022 the company added Think3Fold LTD. to its portfolio. Previously on September 30, 2020, the Company added COKeM International LTD to its portfolio. Consolidated financial statements are presented for Alliance Entertainment Holding Corporation and business operations are conducted through seven subsidiaries. The Company’s corporate offices are headquartered in Sunrise, FL, with primary warehouse facilities located in Shepherdsville, KY and Shakopee, MN.

 

The accompanying unaudited condensed consolidated financial statements include the accounts of the Company. All material intercompany balances and transactions have been eliminated in consolidation.

 

The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) for interim financial statements. Accordingly, the accompanying unaudited condensed consolidated financial statements do not include certain information and footnotes required by GAAP for complete financial statements. However, in management’s opinion, the accompanying unaudited condensed consolidated financial statements contain all adjustments (consisting only of normal recurring accruals and adjustments) which are necessary in order to state fairly the Company’s results of operations, financial position, stockholders’ equity and cash flows as of and for the periods presented. The results of operations for interim periods are not necessarily indicative of the results to be expected for the full year or any other future period. The unaudited condensed consolidated financial statements should be read in conjunction with the Company’s audited consolidated financial statements and related notes, including the Summary of Significant Accounting Policies, included elsewhere in this Registration Statement for the fiscal year ended June 30, 2022. The June 30, 2022, balance sheet information contained herein was derived from the Company’s audited consolidated financial statements as of that date included elsewhere in this Registration Statement for the fiscal year ended June 30, 2022.

 

The preparation of the unaudited condensed consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. The estimates and assumptions made may not prove to be correct, and actual results could differ from the estimates.

 

Liquidity and Going Concern

 

The accompanying unaudited condensed consolidated financial statements have been prepared assuming the Company will continue as a going concern. The going concern basis of presentation assumes that the Company will continue in operation one year after the date these financial statements are issued and will be able to realize its assets and discharge its liabilities and commitments in the normal course of business.

 

F-9

 

 

Note 1: Organization and Principal Business Activity (continued)

 

Pursuant to the requirements of the Financial Accounting Standards Board’s (the “FASB”) Accounting Standards Codification (“ASC”) Topic 205-40, Disclosure of Uncertainties about an Entity’s Ability to Continue as a Going Concern, management must evaluate whether there are conditions or events, considered in the aggregate, that raise substantial doubt about the Company’s ability to continue as a going concern for one year from the date these financial statements are issued. This evaluation does not take into consideration the potential mitigating effect of management’s plans that have not been fully implemented or are not within control of the Company as of the date the financial statements are issued. When substantial doubt about the Company’s ability to continue as a going concern exists, management evaluates whether the mitigating effect of its plans sufficiently alleviates the substantial doubt. The mitigating effect of management’s plans, however, is only considered if both (1) it is probable that the plans will be effectively implemented within one year after the date that the financial statements are issued, and (2) it is probable that the plans, when implemented, will mitigate the relevant conditions or events that raise substantial doubt about the Company’s ability to continue as a going concern within one year after the date that the financial statements are issued.

 

Our principal source of liquidity is our borrowing capacity under the revolving credit facility (the ‘‘Revolver’’) with Bank of America, which matures less than one year from the balance sheet date, and cash generated from operations. For the six-month period ended December 31, 2022, the Company has suffered losses from operations, experienced negative cash generated from operations, has a working capital deficit, and has failed certain financial covenants of the Revolver. Management is in active discussions with lenders to renew the Revolver prior to its maturity on September 29, 2023. These conditions raise substantial doubt regarding our ability to continue as a going concern for a period of at least one year from the date of issuance of these unaudited condensed consolidated financial statements. As described in Note 17, the Revolver should have been classified as a current liability as of September 30, 2022. Since these conditions that raised substantial doubt about our ability to continue as a going concern at December 31, 2022 were also present at September 30, 2022, the Company should have disclosed there is substantial doubt about the Company’s ability to continue as a going concern in the September 30, 2022 unaudited condensed consolidated financial statements. Mitigation efforts include cost reduction, process efficiencies, and execution of growth and diversification strategies. If we are unable to get an extension of our revolver and implement our mitigation efforts, we may need to alter our operations including ceasing some functions.

 

Note 2: Summary of Significant Accounting Policies

 

There have been no material changes to the Company’s significant accounting policies from those described in Note 1 to the Company’s audited consolidated financial statements for the fiscal year ended June 30, 2022.

 

Note 3: Trade Receivables, Net

 

Trade Receivables, Net consists of the following at:

 

($ in thousands)  December 31, 2022   June 30, 2022 
Trade Receivables  $175,861   $101,064 
Less:          
Allowances for Doubtful Accounts   (311)   (557)
Sales Returns Reserve, Net   (3,100)   (1,898)
Customer Rebate and Discount Reserve   (1,599)   90 
Total Allowances   (5,010)   (2,366)
Trade Receivables, Net  $170,851   $98,699 

 

F-10

 

 

Note 3: Trade Receivables, Net (continued)

 

Concentration of Credit Risk

 

Concentration of Credit Risk consists of the following at:

 

Revenue

 

    Six Months Ended   Six Months Ended  
($ in thousands)   December 31, 2022   December 31, 2021  
Customer #1    19.3 %  24.2 %

 

Receivables Balance

 

($ in thousands)  December 31, 2022   June 30, 2022 
Customer #1   14.2%   21.4%
Customer #2   13.6%   * 
Customer #3   10.2%   14.2%

 

 

*Less than 10%

 

Note 4: Inventory, Net

 

The Company completed an evaluation of the net realizable value of our inventory at December 31, 2022. As a result of this evaluation, the Company recorded a $7.1 million write down of our gaming inventory to reflect it at its net realizable value.

 

Inventory, Net (all finished goods) consists of the following at:

 

($ in thousands)  December 31, 2022   June 30, 2022 
Inventory  $186,895   $255,236 
Less: Reserves   (11,573)   (5,797)
Inventory, Net  $175,322   $249,439 

 

Note 5: Other Current and Long-Term Assets

 

Other Current and Long-Term Assets consists of the following at:

 

($ in thousands)  December 31, 2022   June 30, 2022 
Other Assets – Current          
Prepaid Intellectual Property  $2,197   $2,443 
Prepaid Insurance   639    431 
Prepaid Acquisitions   2,865    2,243 
Prepaid Freight   325    216 
Prepaid Manufacturing Components   28    79 
Prepaid Rent   886     
Prepaid Maintenance   825    885 
Prepaid Shipping Supplies   1,666    2,831 
Total Other Assets – Current  $9,431   $9,128 
Other Long-Term Assets          
Deposits  $305   $3,748 
Total Other Long-Term Assets  $305   $3,748 

 

F-11

 

 

 

Note 6: Property and Equipment, Net

 

Property and Equipment, Net consists of the following at:

 

($ in thousands)  December 31, 2022   June 30, 2022 
Property and Equipment          
Leasehold Improvements  $1,680   $1,680 
Machinery and Equipment   25,430    19,440 
Furniture and Fixtures   1,749    3,530 
Capitalized Software   10,508    11,451 
Equipment Under Capital Leases   12,488    12,917 
Computer Equipment   1,626    2,662 
Construction in Progress   489    154 
    53,970    51,834 
Less: Accumulated Depreciation and Amortization   (43,238)   (48,550)
Total Property and Equipment, Net   10,732   $3,284 

 

Depreciation and Amortization Expense for the three months ended December 31, 2022, and 2021, was $0.5 million and $0.8 million respectively and six months ended December 31, 2022, and 2021 was $1.1 million and $1.8 million, respectively.

 

Note 7: Goodwill and Intangibles, Net

 

($ in thousands)  December 31, 2022   June 30, 2022 
Goodwill:  $79,903   $79,903 
Additions to Goodwill   7,248     
Goodwill, Net  $87,151   $79,903 

  

Intangibles, Net consists of the following at:

 

($ in thousands)  December 31, 2022   June 30, 2022 
Intangibles:          
Customer Relationships  $78,000   $78,000 
Trade Name - Alliance   5,200    5,200 
Covenant Not to Compete   10    10 
Mecca Customer Relationships   8,023    8,023 
Customer List   18,792    9,760 
Total  $110,025   $100,993 
Accumulated Amortization   (84,257)   (82,229)
Intangibles, Net  $25,768   $18,764 

 

During the three months ended December 31, 2022, and 2021 the company recorded amortization expense of $1.0 million and $1.3 million, respectively and during the six months ended December 31, 2022, and 2021, amortization expense of $2.0 million and $2.6 million, respectively.

 

F-12

 

 

Note 7: Goodwill and Intangibles, Net (continued)

 

Expected amortization over the next five years and thereafter, at December 31, 2022, is as follows:

 

($ in thousands)   Intangible Assets 
Year Ended June 30      
2023   $2,781 
2024    4,223 
2025    3,651 
2026    3,339 
2027    3,289 
Thereafter    8,485 
Total Expected Amortization   $25,768 

 

Note 8: Accrued Expenses

 

Accrued Expenses consists of the following at:

 

($ in thousands)  December 31, 2022   June 30, 2022 
Marketing Funds Accruals  $2,768   $2,738 
Payroll and Payroll Tax Accruals   2,802    3,904 
Accruals for Other Expenses   6,848    4,931 
Total Accrued Expenses  $12,418   $11,573 

 

Note 9: Lines of Credit and Long-Term Obligation

 

Line of Credit

 

The Company executed an amendment to its Credit Facility with Bank of America on January 24, 2022, (retroactive to January 1, 2022), to transition the interest rate benchmark from Libor to a Secured Overnight Financing Rate (SOFR). The effective interest rate on the revolver using SOFR for the six months ended December 31, 2022, was 4.76% (SOFR plus a spread of 2.11%). The effective interest rate for the six months ended December 31, 2021, was 2.34% (Libor rate plus 2%). All assets (with certain capitalized lease exceptions) and interest in assets of the Company are pledged as collateral under the Credit Facility.

 

The Credit Facility matures on September 29, 2023, with a variable annual interest rate equal to the higher of the Prime rate, Federal Funds rate plus .5% or Bank of America Libor rate plus 2%, up to January 1, 2022, and SOFR plus a spread of 2.11% going forward. On June 30, 2022, the Credit Facility with Bank of America was increased from $175 million to $225 million.

 

The Credit Facility contains certain financial covenants with which the Company is required to comply. Failure to comply with the financial covenants contained in the Credit Facility could result in an event of default. An event of default, if not cured or waived, would permit acceleration of any outstanding indebtedness under the Credit Facility. The Company obtained a waiver for non-compliance with one non-financial covenant related to its delivery of the monthly unaudited financial statements and compliance certificates for the periods pertaining to June 30, 2022, July 31, 2022, and August 31, 2022. These non-compliances resulted in events of default under the Revolving Credit Facility and accordingly, the Credit Facility was classified as a current liability as of June 30, 2022.

 

The Company failed to meet the Fixed Charge Coverage Ratio covenant requirement as of November 30, 2022, December 31, 2022, and January 31, 2023. The Company is in negotiations with its lender to obtain a waiver for non-compliance. We cannot provide any assurance that our lender will provide us with a waiver for the current event of default related to the non-compliance with the Fixed Charge Coverage Ratio, or any future instances of non-compliance. The Company has other debt in the amount of $8,252 that includes cross-default provisions with other debt. Accordingly, this debt is recorded as a current liability as of December 31, 2022, due to the Credit Facility being in default. The failure to maintain compliance with covenant requirements if not waived by our lender causes the outstanding borrowings to be in default and payable on demand which would have a material adverse effect on us and our ability to continue as a going concern.

 

F-13

 

 

Note 9: Lines of Credit and Long-Term Obligation (continued)

 

Availability under the Credit Facility is limited by the Company’s borrowing base calculation, as defined in the Credit Agreement. In addition, there is a commitment fee of 0.25% for unused credit line with fees for the six months ended December 31, 2022, and 2021 of $60 thousand and $95 thousand, respectively. Availability as of December 31, 2022, was $48.3 million with an outstanding revolver balance of $176.7 million. Because of the event of default, the lenders are under no obligation to fund any loan, arrange for the issuance of any letter of credit, or grant any other accommodation to or for the benefit of the Company. Availability as of June 30, 2022, was $48 million with an outstanding revolver balance of $136 million.

 

Revolver Balance consists of the following at:

 

($ in thousands)  December 31, 2022   June 30, 2022 
Bank of America Revolving Credit Agreement  $176,740   $136,176 
Less: Deferred Finance Costs   (125)   (208)
Revolving Credit, Net  $176,615   $135,968 

 

Note 10: Employee Benefits

 

Company Health Plans

 

The Company sponsors the Alliance Health & Benefits Plan (AHBP) consisting of the following plans: self-insured medical (PPO and HDHP), dental (PPO and HMO), vision, life Insurance, short & long-term disability. The medical insurance is self-insured to a maximum company exposure of $200 thousand per individual occurrence, at which time a stop loss policy covers the balance of covered claims. The Company contributes various percentages to different levels of premium coverage. As of December 31, 2022, the Company fully accrued for estimated run out exposure on a mature claim basis, as provided and calculated by our plan administrator.

 

The Dental insurance HMO is self-insured to a maximum per individual procedure based on a published schedule which measures exposure. The PPO policy is fully insured. The Company contributes various percentages to different levels of premium coverage. As of December 31, 2022, the Company was fully accrued for estimated run out exposure on a mature claim basis, as provided and calculated by the plan administrator. The vision plan, life insurance plan, and short and long-term disability plans are fully insured, sponsored by the Company and premiums are paid by the employer and employee based on various Board approved schedules. At December 31, 2022 and June 30, 2022, the accrued estimated run out exposure totaled approximately $218 thousand and $234 thousand, respectively, for the medical and dental insurance plans. Accrued estimated runout exposure is included in accrued expenses on the consolidated balance sheets.

 

401(k) Plan

 

The Company has the Alliance Entertainment 401(k) Plan (401(k) Plan) covering all eligible employees of the Company. All employees over the age of 18 are eligible to participate in the Plan at the beginning of the month following date of hire. The Plan has automatic deferral at the beginning of the month following date of hire. Employees are automatically enrolled in the Plan with a 3% contribution; however, they have the option to increase/decrease their deferrals or opt out of the Plan at any time. The Company currently offers a match contribution of $.50 of every dollar up to 4% of contribution percentage. The Company conducts a retirement plan review on an annual basis.

 

Note 11: Income Taxes

 

The effective tax rate was 27% for the six months ended December 31,2022, compared to 26% for the same periods of 2021. State tax rates vary among states and average approximately 6.0% although some state rates are higher, and a small number of states do not impose an income tax.

 

F-14

 

 

Note 11: Income Taxes (continued)

 

For the six months ended December 31, 2022, and 2021, the difference between the Company’s effective tax rate and the federal statutory rate primarily resulted from state income taxes.

 

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 December 31, 2022, and June 30, 2022.

 

Litigation, Claims and Assessments

 

We are exposed to claims, litigation and/or cyber-attacks 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.

 

Note 13: Related Party Transactions

 

Interest-Charge Domestic International Sales Corporation (“IC-DISC”)

 

The Company has an affiliate, My Worldwide Market Place, Inc. which is an IC-DISC and was established February 12, 2013. The IC-DISC is owned by the Company Stockholders. Effective December 31, 2022, IC-DISC was discontinued as a result there will be no future accruals or commissions paid out.

 

The IC-DISC is organized to manage sales to certain qualified customers and receive commissions from the Company for this activity. The commissions expenses were $1.4 million and $2.8 million for the three months ended December 31, 2022 and 2021, and $2.8 million and $6.3 million for the six months ended December 31, 2022, and 2021 respectively. The commission is determined under formulas and rules defined in the law and regulations of the US tax code, and under these regulations, the commission is deductible by the Company and results in a specified profit to the IC-DISC. This net profit is not subject to federal income tax. The IC-DISC distributes the profit to its stockholders, who are taxed on the income as a dividend. The owners of the IC-DISC elected to forgive the commissions earned for the twelve months ended December 31, 2022. The forgiveness of $6.6 million was recorded as a deemed capital contribution by the Company Stockholders.

 

Captive Insurance Policies

 

Bruce Ogilvie, Executive Chairman and a principal stockholder of Alliance, and Jeff Walker, Chief executive Office, a director, and a principal stockholder of Alliance, established two insurance companies; Guard Yourself Insurance Company, Ltd. and Super O Insurance Company, Ltd., replaced effective April 1, 2018, with the current new insurance companies, Airlie Protection Ins. Co., Inc. and Protection for You Ins. Co., Inc. These insurance companies additionally insure the general assets, liabilities and claims of Alliance through March 30, 2022, and were not renewed for future periods. Premium payments are allowed based on the Loan Agreement dated February 21, 2017. The Company is not a guarantor and does not have exposure in the event of a loss.

 

F-15

 

 

Note 13: Related Party Transactions (continued)

 

Total captive policy expense for the three months December 31, 2022 and 2021, were $0.0 million and $0.54 million respectively and for the six months ended December 31, 2022, and December 31, 2021, were $0.0 and $1.09 million respectively, which are included in related party receivables on the consolidated balance sheets. Captive Claims receivables for six months ended December 31, 2022, and December 31, 2021, was $0.0 and $0.9 million respectively.

 

Other Related Party Transactions

 

During the three months December 31, 2022 and 2021, and the six-month periods ended December 31, 2022, and 2021, the Company had sales to a related party company owned by the Company’s shareholders of $1.6 million, 2.6 million, $2.3 million, and $4.8 million, respectively. Also, during the same periods, the Company had costs incurred with another related party company in the amount of $3.5 million, $6.7 million, $5.4 million and $7.8 million, respectively.

 

Note 14: Leases

 

The Company leases office and warehouse, computer equipment and vehicles. Certain operating leases may contain one or more options to renew. The renewal terms can extend the lease term from one to 13 years. The exercise of lease renewal options is at the Company’s sole discretion. Renewal option periods are included in the measurement of the Right of Use (ROU) asset and lease liability when the exercise is reasonably certain to occur.

 

The depreciable lives of assets and leasehold improvements are limited by the expected lease term, unless there is a transfer of title or purchase option reasonably certain of exercise.

 

The Company’s lease agreements do not contain any material residual value guarantees or material restrictive covenants. Payments due under the lease contracts include fixed payments plus, may include variable payments. The Company’s office space leases require it to make variable payments for the Company’s proportionate share of the building’s property taxes, insurance, and common area maintenance. These variable lease payments are not included in lease payments used to determine the lease liability and are recognized as variable costs when incurred. Fixed payments may contain predetermined fixed rent escalations.

 

Operating leases are included in the following asset and liability accounts on the Company’s Balance Sheet: Operating Lease Right-of-Use Assets, Current Portion of Operating Lease Obligations, and Noncurrent Operating Lease Obligations. ROU assets and liabilities arising from finance leases are included in the following asset and liability accounts on the Company’s Consolidated Balance Sheet: Property & Equipment - Net, Current Portion of Finance Lease Obligation, and Noncurrent Finance Lease Obligations.

 

F-16

 

 

Note 14: Leases (continued)

 

Components of lease expense were as follows for the three and six months ended December 31, 2022, and December 31, 2021:

 

   Three Months 
Ended
   Three Months 
Ended
   Six Months
 Ended
   Six Months 
Ended
 
   December 31,
 2022
   December 31, 
2021
   December 31, 
2022
   December 31,
 2021
 
Lease Cost                    
Finance Lease Cost:                    
Amortization of Right of Use Assets   51    179    102    475 
Interest on lease liabilities   3    8    7    18 
Operating Lease Cost   1,013    1,132    2,092    2,263 
Short-Term Lease Cost   7        14     
Total Lease Cost   1,074    1,319    2,215    2,756 
Other Information                    
(Gains) and losses on sale and leaseback transactions, net                    
Cash paid for amounts included in the measurement of lease liabilities:                    
Operating cash flows from finance leases   3    8    7    20 
Operating cash flows from Capitalized Operating leases   1,105    1,213    2,264    2,392 
Financing cash flows from finance leases   53    289    105    778 
Net ROU remeasurement   (9)   (1,298)   (9)   (1,190)

 

   Three Months 
Ended
   Three Months 
Ended
   Six Months
Ended
   Six Months
Ended
 
   December 31,
2022
   December 31,
2021
   December 31,
2022
   December 31,
2021
 
Weighted average remaining lease term – finance leases (in Years)   1.59    1.97    1.59    1.97 
Weighted average remaining lease term – Capitalized Operating leases (in Years)   1.94    2.77    1.94    2.77 
Weighted average discount rate – finance leases   3.70    3.67    3.70    3.67 
Weighted average discount rate – Capitalized Operating leases   4.13    4.09    4.13    4.09 

 

Maturities of lease liabilities are as follows as of December 31, 2022:

 

    Operating 
($ in thousands)   Leases 
2023    4,123 
2024    3,312 
2025    110 
2026    100 
Total Lease Payments    7,655 
Less Imputed Interest    (271)
Total   $7,374 

 

Note 15: Earnings per Share (EPS)

 

Basic EPS is computed by dividing net income available to common shareholders by the weighted average shares outstanding during the period. Diluted EPS takes into account the potential dilution that could occur if securities or other contracts to issue shares, such as stock options, warrants, and unvested restricted stock units, were exercised and converted into common shares. Diluted EPS is computed by dividing net income available to common shareholders by the weighted average shares outstanding during the period, increased by the number of additional shares that would have been outstanding if the potential shares had been issued and were dilutive. The Company does not have any potentially dilutive securities outstanding for the three or six months ended December 31, 2022, or 2021.

 

F-17

 

 

Note 16: Business Acquisition

 

On July 1, 2022, Alliance purchased 100% of the stock of Think3Fold, a collectibles distribution company for no consideration. The merged entity expanded and diversified the Company’s portfolio of products and enabled scale and fixed cost leverage.

 

The results of operations of the acquired entity are included in the Consolidated Financial Statements from July 1, 2022, through December 31, 2022. The Company recognized $694 thousand of acquisition-related costs that were expensed in the current period. These costs are included in the consolidated statements of operations and comprehensive income within Transaction Costs.

 

Think3Fold revenue and earnings included in the Company’s consolidated statements of operations for the periods July 1, 2022, through December 31, 2022, are as follows:

 

   Three Months Ended   Six Months Ended 
($ in thousands)  December 31, 2022   December 31, 2022 
Revenue  $6,784   $10,605 
Net Income   1,360    1,086 

  

The Think3Fold acquisition was treated for accounting purposes as a purchase of Think3Fold using the acquisition method of accounting in accordance with ASC 805, Business Combination. Under the acquisition method of accounting, the aggregate consideration was allocated to the acquired assets and assumed liabilities, in each case, based on their respective fair value as of the closing date, with the excess of the consideration transferred over the fair value of the net assets acquired (or net liabilities assumed) being allocated to intangible assets and goodwill.

 

The initial accounting for this business acquisition is incomplete and the following assets and liabilities were recognized on a provisional basis, since the Company is currently assessing the purchase price allocation and the fair value measurements. During the quarter ended December 31, 2022, the Company recorded a measurement period adjustment to reduce the fair value of the inventory acquired by $5.2 million, which resulted in a corresponding increase in goodwill.

 

Provisional Allocation of purchase price consideration ($ in thousands)    
Cash Acquired  $1 
Trade Receivables   3,289 
Inventory   5,232 
Intangibles   9,031 
Other Assets   19 
Accounts Payable   (24,820)
Total identifiable net assets (liabilities)   (7,248)
Goodwill   7,248 
Total Consideration  $ 

 

Goodwill is attributable primarily to the assembled workforce acquired, as well as benefits from the increased scale of the Company as a result of the Think3fold acquisition. The goodwill from this acquisition is not deductible for income tax purposes.

 

F-18

 

 

Note 17: Restatement of Previously Issued Financial Statements

 

Subsequent to the issuance of the Company’s unaudited condensed consolidated financial statements for the three months ended September 30, 2022, included in Amendment No. 4 to Form S-4 filed with the Securities Exchange Commission on November 30, 2022, the Company determined that it incorrectly classified the revolving credit facility, net, as a non-current liability instead of as a current liability. The Company determined that such financial statements were materially misstated and should be restated. The classification error had no impact on the Company’s unaudited condensed consolidated statements of operations, changes in stockholders’ equity and cash flows for the three months ended September 30, 2022.

 

The following table sets forth the effects of the restatement on the consolidated balance sheet at September 30, 2022:

 

   Previously
Reported
   Adjustment   As Restated 
Total Assets  $516,943   $   $516,943 
Liabilities:               
Revolving Credit Facility, net  $   $183,524   $183,524 
Total Current Liabilities  $219,476   $183,524   $403,000 
Revolving Credit Facility, net  $183,524   $(183,524)  $ 
Total Liabilities  $415,524   $   $415,524 
Total Stockholders’ Equity  $101,418   $   $101,418 

 

Note 18: Subsequent Events

 

On February 10, 2023, Alliance, Adara Acquisition Corp. (“Adara”) and a Merger Sub consummated the closing of the transactions contemplated by a Business Combination Agreement. Pursuant to the terms of the Business Combination Agreement, a business combination of Alliance and Adara 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 Adara Following the consummation of the Merger on the closing date of the Business Combination, Adara changed its name from Adara Acquisition Corp. to Alliance Entertainment Holding Corporation). of Adara Following the consummation of the Merger on the closing date of the Business Combination, Adara changed its name from Adara Acquisition Corp. to Alliance Entertainment Holding Corporation).

 

F-19

 

 

Exhibit 99.2

 

Alliance Entertainment Investor Presentation OTC:AENT April 2023

 

 

Legal Disclaimer 2 This presentation (together with oral statements made in connection herewith, this “Presentation”) is for informational purposes only . This Presentation shall not constitute an offer to sell, or the solicitation of an offer to buy, any securities, nor shall there be any sale of securities in any states or jurisdictions in which such offer, solicitation or sale would be unlawful . No representations or warranties, express or implied are given in, or in respect of, this Presentation . Although all information and opinions expressed in this Presentation, including industry and market data obtained from third - party industry publications and sources as well as from research reports prepared for other purposes, were obtained from sources believed to be reliable and are included in good faith, Alliance Entertainment Holding Corporation (“Alliance”) has not independently verified the information obtained from these sources and cannot assure you of the information’s accuracy or completeness . This information is subject to change . Some data are also based on the good faith estimates of Alliance, which are derived from their respective views of internal sources as well as the independent sources described above . Nothing herein should be construed as legal, financial, tax or other advice . You should consult your own advisers concerning any legal, financial, tax or other considerations concerning the opportunity described herein . The general explanations included in this Presentation cannot address, and are not intended to address, your specific investment objectives, financial situations or financial needs . Nothing contained herein shall be deemed a recommendation to any party to enter into any transaction or take any course of action . Forward Looking Statements Certain statements included in this Presentation that are not historical facts are forward - looking statements for purposes of the safe harbor provisions under the United States Private Securities Litigation Reform Act of 1995 . Forward - looking statements generally are accompanied by words such as “believe,” “may,” “will,” “estimate,” “continue,” “anticipate,” “intend,” “expect,” “should,” “would,” “plan,” “predict,” “potential,” “seem,” “seek,” “future,” “outlook,” and similar expressions that predict or indicate future events or trends or that are not statements of historical matters . These forward - looking statements include, but are not limited to, statements regarding estimates and forecasts of other financial and performance metrics and projections of market opportunity . These statements are based on various assumptions, whether identified in this Presentation, and on the current expectations of Alliance’s management and are not predictions of actual performance . These forward - looking statements are provided for illustrative purposes only and are not intended to serve as and must not be relied on by an investor as, a guarantee, an assurance, a prediction, or a definitive statement of fact or probability . Actual events and circumstances are difficult or impossible to predict and will differ from assumptions . Many actual events and circumstances are beyond the control of Alliance . These forward - looking statements are subject to a number of risks and uncertainties, including changes in domestic and foreign business, market, financial, political, and legal conditions ; failure to realize the anticipated benefits of the recently completed business combination ; risks related to the rollout of Alliance’s business and the timing of expected business milestones ; the effects of competition on Alliance’s future business ; risks and failure by Alliance to meet the covenant requirements of its revolving credit facility, one of which, a fixed charged coverage ratio, has been recently breached with a notice of default letter from the lender dated February 8 , 2023 , and is subject to deferred action by the lender, our ability to issue equity or equity - linked securities or obtain debt financing in the future, Alliance’s securities having been delisted from the NYSE American and not trading on a national securities exchange and the potential negative effect on the price and liquidity of Alliance’s securities and those factors discussed in Alliance’s Annual Report on Form 10 - K filed with the SEC on March 30 , 2023 under the heading “Risk Factors” and other documents filed with the SEC . Additional risks related to Alliance’s business in particular include, but are not limited to competition, the ability of Alliance to grow and manage growth profitably, the ability of Alliance to maintain relationships with customers and suppliers and retain key employees ; changes in the applicable laws or regulations ; the possibility that Alliance may be adversely affected by other economic, business, a material weakness in Alliance’s internal control over financial reporting, and/or competitive factors ; the impact of the global COVID - 19 pandemic . There may be additional risks and uncertainties that Alliance does not presently know or currently believes are immaterial that could cause actual results to differ from those contained in the forward - looking statements . Such risk factors also include, among others, future growth expectations and acquisitions ; specific economic conditions in the United States ; changes in laws and regulations ; potential liability from future litigation ; the diversion of management time on acquisitions and integration related issues ; modifications or adjustments to Alliance’s financial statements as a result of applicable securities laws ; and general economic conditions . Most of these factors are outside Alliance’s control and are difficult to predict .

 

 

Legal Disclaimer - Continued 3 Non - GAAP Financial Measures In addition to financial measures prepared in accordance with United States generally accepted accounting principles (“GAAP”) . s ome of the financial information and data contained in this Presentation, such as Adjusted EBITDA, EBITDA - CapEx and EV/EBITDA, has not been prepared in accordanc e with GAAP. Alliance believes these non - GAAP measures of financial results provide useful informant to management and investors regarding certain financial an d business trends relating to Alliance’s financial condition and results of operations. Alliance’s management uses these non - GAAP measures for trend analyses, for purposes of determining management incentive compensation, and for budgeting and planning purposes. Alliance believes that the use of these non - GAAP financial measures provides an additional tool for investors to use in evaluati ng operating results and trends in and in comparing Alliance’s financial measures with other similar companies, many of which present similar non - GAAP financial me asures to investors. Management does not consider these non - GAAP measures in isolation or as an alternative to financial measures determined in accor dance with GAAP. The principal limitation of these non - GAAP financial measures is that they exclude significant expenses and income that are required by GAAP to be recorded in Alliance’s financial statements. In addition, they are subject to inherent limitations as they reflect the exercise of judgme nts by management about which expense and income are excluded or included in determining these non - GAAP financial measures. Accordingly, our Adjusted EBITDA may not be comparable to similarly titled measures of other companies, including companies in our industry, because other companies may calculate Adjusted EBITD A i n a different manner than we calculate this measure. In order to compensate for these limitations, management presents non - GAAP financial measures in connec tion with GAAP results. In evaluating Adjusted EBITDA and EBITDA, you should be aware that in the future we may or may not incur expenses similar to som e o f the adjustments we have reported. Our presentation of Adjusted EBITDA and EBITDA does not imply that our future results will be unaffected by these adj ustments or any unusual or non - recurring items. You should review Alliance’s audited financial statements, which have been included in the proxy statement/ pro spectus filed by Adara Acquisition Corp. with the SEC on December 12, 2022. Trademarks This Presentation contains trademarks, service marks, trade names, and copyrights of Alliance, and other companies, which are th e property of their respective owners. The use or display of third parties’ trademarks, service marks, trade name or products in this Presentation is not in ten ded to, and does not imply, a relationship with Alliance, or an endorsement of sponsorship by or of Alliance. Solely for convenience, the trademarks, servi ce marks and trade names referred to in this Presentation may appear with the ®, TM or SM symbols, but such references are not intended to indicate, in any way, that Al liance will not assert, to the fullest extent under applicable law, their rights or the right of the applicable licensor to these trademarks, service marks and trad e n ames. The information contained herein is as of April 11, 2023, and does not reflect any subsequent events.

 

 

Corporate Overview Alliance Entertainment is a premier distributor of music, movies, video games and consumer electronics 4 OTC: AENT Share Price 1 $3.38 Market Cap 1 $166M FY 2022 Revenue 2 $1,417M FY 2022 Adj. EBITDA 2 $60M Cash & Cash Equivalents 2 $1.37M Shares Outstanding 3 49M Public Float 1 1.06M Headquarters Plantation, FL Employees 1,050+ 1. As of April 10, 2023. 2. As of June 30, 2022. A reconciliation of Adjusted EBITDA to GAAP Net Income is provided on Exhibit 1. 3. See slide 16. • Alliance Entertainment was initially capitalized with less than $200,000 and is now a worldwide distributor and retailer of physical exclusive and non - exclusive media of the biggest brands in the entertainment business without raising equity from outside investors • Alliance Entertainment has grown to over $1.4 billion in annual revenue and employs over 1,050 team members, ships to over 35,000 storefronts and distributes over 425,000 in stock SKUs to the largest retailers in the world • Executive Chairman Bruce Ogilvie and Chief Executive Officer Jeff Walker have acquired over a dozen companies in the last 20 years including Alliance Entertainment, AN Connect, Mecca Electronics, Distribution Solutions, CokeM, and Think3Fold • Trusted supplier for Walmart and a trusted omni channel supplier to Amazon, Best Buy, Costco, Target, Kohl’s, BJ’s, Meijer, and Barnes & Noble. • Continued growth and acquisitions to expand selection and gain market share, enter new markets and continue diversification while maintaining fiscal responsibility “Our vision is simple: be the best in class with service, selection and technology. By being the leader, that will create more growth and opportunities for our vendors, customers, and Alliance.”

 

 

Direct - to - Consumer (DTC) & eCommerce Alliance is a $1.4 Billion leading Direct - to - Consumer (DTC) and eCommerce provider for the entertainment industry We are the gateway between brands and retailers 5

 

 

Expansion Plans Alliance continues to expand and diversify by adding brands, product categories, and retail partnerships Alliance is the conduit for leading brands to reach Alliance’s current customer base, while helping omni - channel retailers expand their product selection and fulfillment goals. Alliance is the retailers’ back office for in store and eCommerce solutions. All Electronic Data Interchange and logistics are operational and ready for existing retail channels to add new products. Alliance’s goal has always been to provide all the meta - data of content & images, service, selection, and purchasing to omni - channel retailers to expand their selection to compete with the leading on - line retailer. Acquire & Consolidate Synergize Create Value 6

 

 

Growth History 2013 Music & Video Distribution • Super D acquires Alliance Entertainment becoming the largest music and video distributor • The first major step in consolidating the 3 main packaged media categories. Super D rebrands to Alliance Entertainment post acquisition 2016 Music & VMI • AN Connect Acquisition • Walmart & Best Buy accounts added • Vendor Managed Inventory system and software systems acquired, providing Alliance with a critical addition to its service offering 2018 Gaming • Mecca Acquisition • Microsoft, Sony, and Nintendo suppliers added • Alliance enters the gaming space, expanding its already diverse physical media product offering 2018 Video Exclusive Distribution • Distribution Solutions Acquisition • Walmart, Amazon, Target, and Best Buy Video Movie Supplier Numbers added • 20 exclusive video distribution studios acquired 2020 Gaming • COKeM Acquisition • Walmart, Best Buy, Target, GameStop, Kohls, and Costco accounts added • Alliances adds the leading gaming distributor with significant store and DTC sales 2022 Toys & Collectibles • Think 3Fold Acquisition • Walmart expansion • Alliance adds collectible toys with 4 feet of shelf space in 3,900 Walmart stores 2023 Public Listing • Adara Acquisition Corp. • Alliance consummates merger with Adara and De - SPACs to become publicly traded company 7

 

 

8 Investment Thesis Alliance is one of the largest physical media and entertainment product distributors in the world and is a leader in fulfillment and eCommerce distribution solutions. Its existing product and service offering has positioned the Company to capitalize on shifts towards eCommerce and omni - channel strategies, especially with retailers and manufacturers vastly increased reliance on their DTC fulfillment and distribution partners. MANAGEMENT EXPERIENCE & ROLLOVER With 30+ years of experience, Alliance management has extensive knowledge and is rolling over all of their equity in preparation to lead Alliance towards future growth. INDUSTRY LEADING MARKET SHARE Alliance is a leader in fulfillment and eCommerce distribution. ORGANIC GROWTH OPPORTUNITIES 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. CONSOLIDATION OPPORTUNITIES Alliance management has significant M&A experience to drive future growth through the acquisition of complementary businesses and competitors. COMPELLING VALUATION Strong core business with high growth potential organically and through acquisition.

 

 

Alliance Strategic Priorities INCREASE MARKET SHARE Expanding its existing product and service offerings and executing its acquisition strategy will drive Alliance’s efforts toward increasing market share. ENHANCE DTC RELATIONSHIPS & CAPABILITIES Alliance’s DTC services are in greater demand as consumer preferences shift and stress retailers' eCommerce and DTC capabilities. Enhancing DTC relationships will grow existing revenue lines and improving capabilities will generate a more attractive overall service offering. 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 more effectively execute on its acquisition strategy. EXPAND INTO NEW CONSUMER PRODUCTS Leveraging existing relationships, Alliance can expand into new consumer product segments, growing its product offering and providing more to its existing customer base while attracting new customers in the process. TECHNOLOGICAL ADVANCEMENT Alliance will further invest in automating facilities and upgrading proprietary software. 9

 

 

SERVICE Product and eCommerce distribution and inventory solutions TECHNOLOGY State - of - the art systems and facilities SELECTION One of the largest physical media and entertainment product distributors Alliance provides traditional retailers with world class eCommerce abilities, leveling the playing field Alliance has specialized in providing superior: 10

 

 

MERCHANDISING SERVICES & IN - STORE OPERATIONS INVENTORY & PRODUCT PLACEMENT OMNI - CHANNEL STRATEGY SUPPORT AUTOMATED DTC PROCESS INVENTORY & CATEGORY MANAGEMENT SYSTEMS Alliance provides efficient, Omni - Channel expansion solutions for retailers eCommerce & DTC Vendor Managed Inventory Alliance provides a full, enterprise - level infrastructure and drop ships orders directly to consumers on behalf of its customers . The entire ordering, confirmation and invoicing process is automated . The functionality allows customers to focus on sales while Alliance performs all stocking, warehousing and shipping functions . END - TO - END ECOMMERCE SOLUTION Alliance is a leader in vendor managed inventory solutions providing solutions tailored to customers to support their inventory needs . These value - add services provide a highly technical, critical business function for partners . Service 11

 

 

Alliance consolidates and distributes a vast portfolio of entertainment products, while its proprietary database powers retailers’ online music and gaming offerings Gaming Products DVD & Blu - Ray CD Consumer Products Currently over 425,000 SKUs in stock Selection Vinyl Retro Arcades 12

 

 

AutoStore Automated Storage & Retrieval System Alliance completed installing an AutoStore Automated Storage & Retrieval System for its Shepherdsville warehouse as of January 2023 . This system is expected to dramatically improve Alliance’s warehouse operations, allowing the Company to achieve increased levels of speed, reliability, capacity, and precision, resulting in significant cost savings. With a 22,200 sqft. footprint and 52,325 total bins, the AutoStore system can hold up to 66 lbs. of product per bin. Each bin allows for up to 8 unique SKUs. Working in combination with current pallet picking and case picking out of the warehouse’s mezzanine, the AutoStore system is projected to have a pick rate of 2,000 lines per hour across 7 picking ports. Increased Storage Capacity 24/7 Access Improved Energy Efficiency Drive Future Savings Alliance is investing in enhancements to its automated handling equipment capable of reducing shipping times, streamlining order processing, and improving overall warehouse management . Technology Click Icon Below For Video 13

 

 

Shakopee, MN 220K Sqft Facility Shepherdsville, KY 873K Sqft Facility Distribution Center • Shepherdsville, KY • Shakopee, MN • Dallas, TX • Los Angeles, CA • Charlotte, NC Offices • Bentonville, AR • Itasca, IL • Irvine, CA • Sacramento, CA • EI Segundo, CA • Minneapolis, MN • Shepherdsville, KY • Sunrise, FL Strategically Located Operations Through its highly skilled workforce and tech enabled facilities, Alliance has established a strong fulfillment and distribution infrastructure that allows Alliance to achieve industry leading speed and accuracy metrics. Click Icons for Videos 14

 

 

FY19 FY20 FY21 FY22 6 Months Ended 12-31-2022 $(19) FY19 FY20 FY21 FY22 6 Months Ended 12-31-2022 REVENUE ($ in millions, Fiscal Year Ended 6/30) ADJUSTED EBITDA ($ in millions, Fiscal Year Ended 6/30) $747 $776 $1,324 $1,417 $25 $33 $69 $60 ADJUSTED EBITDA MARGIN 3.3% 4.2% 5.2% 4.2% Financial Summary GROWING REVENUES $1.417 BILLION FY 2022 Alliance has grown revenues by expanding its customer base and product offering, and through several successful acquisitions. STRONG EBITDA PROFILE $60+ MILLION ADJUSTED EBITDA FY 2022 Alliance has driven margin expansion since inception through effective cost control measures and successful acquisition integrations. MATURE REVENUE BASE FORTUNE 100 CUSTOMERS Alliance has developed years - long relationships as the gateway between the world’s biggest brands in the entertainment business, including Microsoft, Sony Pictures, The Walt Disney Studios, Universal Music Group and Warner Bros., and a strong customer base that includes Fortune 100 retailers such as Amazon, Best Buy, Costco, Target and Walmart. LEADER IN THE SPACE INTERNATIONAL FOOTPRINT Alliance is a premier international distributor of music, movies, video games and consumer electronics, ships to over 35,000 storefronts and distributes over 425,000 in stock SKUs across North America to the largest retailers in the world. 1. A reconciliation of Adjusted EBITDA to GAAP Net Income is provided on Exhibit 1. 2. Adjusted EBITDA for the six months ended December 31, 2022, includes excessive transportation costs, markdowns and other arcade related costs of $34.3M outlined on slide 18. 1 15 - 2.7% $684 2

 

 

Capitalization Table 1 Alliance Entertainment recently became a publicly traded company on February 13, 2023, following the closing of the business combination with Adara Acquisition Corp. 16 1. Does not include up to 60 million shares of contingent common stock which automatically convert into shares of Class A common in three tranches when price of the Class A common stock reaches $ 20 , $ 30 and $ 50 per share, and under a variety of conditions and amounts . Does not include shares of Class A common stock available for grant under Alliance’s equity incentive plan . Class A Common Shares Warrants (WAEP: $11.50) 49,167,170 9,920,000 As of 4 - 11 - 23

 

 

Sales by Configuration 17 (In Thousands) Sales by Configuration 6 Months Ended 12 - 31 - 2022 Fiscal Year Ended 6 - 30 - 2022 Fiscal Year Ended 6 - 30 - 2021 Fiscal Year Ended 6 - 30 - 2020 Gaming $277,974 40.6% $557,658 39.3% $497,817 37.6% $108,735 14.0% Vinyl $166,944 24.4% $329,202 23.2% $288,326 21.8% $158,633 20.5% DVD/Blu - ray/UltraHD $103,273 15.1% $272,921 19.3% $300,522 22.7% $283,371 36.5% CD $65,872 9.6% $151,583 10.7% $148,263 11.2% $164,728 21.2% Collectibles & Consumer Products $46,249 6.8% $57,980 4.1% $40,729 3.1% $17,591 2.3% Freight $11,023 1.6% $21,682 1.5% $22,260 1.7% $19,138 2.5% Exclusive Distribution Fees $8,432 1.2% $17,874 1.3% $17,460 1.3% $17,430 2.2% Digital Delivery $4,097 0.6% $8,476 0.6% $8,191 0.6% $5,967 0.8% Grand Total $683,861 100.0% $1,417,377 100.0% $1,323,567 100.0% $775,596 100.0% $- $50,000 $100,000 $150,000 $200,000 $250,000 $300,000 $350,000 $400,000 $450,000 $500,000 $550,000 $600,000 6 Months Ended 12-31-2022 Fiscal Year Ended 6-30-2022 Fiscal Year Ended 6-30-2021 Fiscal Year Ended 6-30-2020 In Thousands Gaming Vinyl DVD/Blu-ray/UltraHD CD Collectibles & Consumer Products Freight Exclusive Distribution Fees Digital Delivery

 

 

6 Months Ended Fiscal Year 12 - 31 - 2022 06 - 30 - 2022 06 - 30 - 2021 06 - 30 - 2020 06 - 30 - 2019 Revenue $683,863 $1,417,377 $1,323,567 $775,596 $746,529 YoY Revenue Growth % 7.1% 70.7% 3.9% Cost of Goods Sold 637,498 1,234,995 1,140,885 656,485 637,970 Gross Profit $46,365 $182,382 $182,682 $119,111 $108,559 Gross Profit % 6.8% 12.9% 13.8% 15.4% 14.5% Operating Expenses: Distribution and Fulfilment Expense 35,230 64,260 56,885 35,877 37,121 Selling, General and Administrative 29,775 58,110 57,249 50,007 46,929 Total Operating Expenses 65,005 122,370 114,134 85,884 84,050 9.5% 8.6% 8.6% 11.1% 11.3% Non - Operating Expenses: Depreciation 1,137 3,097 5,623 7,124 6,232 Amortization 2,028 5,162 5,772 8,660 7,851 Interest Expense 5,898 4,056 2,938 3,524 6,850 IC - DISC Commissions 2,833 9,907 5,394 8,182 7,050 Income Taxes (Benefits) (8,516) 9,423 10,791 376 2,415 Gain/Loss on Disposal of PPE (3) - 87 - - Mergers & Acquisition Fees 1,077 (251) 3,509 - 4 Total Non - Operating Expenses 4,384 31,394 34,370 27,866 30,402 1.6% 2.2% 2.6% 3.6% 4.1% Adjusted EBITDA $(18,640) $60,018 $68,564 $32,909 $24,541 Adjusted EBITDA % - 2.7% 4.2% 5.2% 4.2% 3.3% Adjusted EBITDA for the six months ended December 31, 2022, includes the following costs: 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 3,078 Consumer Products Inventory Reserve 3,697 Total $34,275 18 Income Statement ($ in 000’s) 1. A reconciliation of Adjusted EBITDA to GAAP Net Income is provided on Exhibit 1. 1

 

 

Unaudited As of 12 - 31 - 2022 Audited As of 06 - 30 - 2022 Audited As of 06 - 30 - 2021 ASSETS Cash and Equivalents. 1,374 1,469 4,028 Accounts Receivable - Trade 170,851 98,699 111,332 Inventory 175,322 249,439 141,661 Other Current Assets 9,431 9,373 8,763 Net PP&E & Operating Lease Right - OF - Use Assets 17,344 11,644 18,988 Net Intangible Assets 25,768 18,764 23,927 Net Goodwill 87,151 79,903 79,903 Total Other Assets 3,714 3,748 361 Total Assets $490,955 $473,039 $388,963 LIABILITIES Accounts Payable 206,219 209,760 227,887 Line of Credit 176,615 135,968 53,580 Other Current Liabilities 11,708 4,871 10,719 Non - Current Liabilities 3,918 13,512 16,475 Total Liabilities 398,460 364,111 308,661 EQUITY 92,495 108,928 80,302 Total Liabilities and Equity $490,955 $473,039 $388,963 ($ in 000’s) Balance Sheet 19

 

 

ENVIRONMENTAL INITIATIVES Alliance has introduced eco - friendly CDF packaging, implemented paperless pick, pack and ship processes, and plans to reduce emissions with its new AutoStore ASRS system. DIVERSITY & INCLUSION EFFORTS Creating and sustaining a diverse and inclusive working environment is a critical component of Alliance’s core values. DEDICATION TO SAFETY Workplace safety is a priority for Alliance having implemented numerous measures to minimize accidents within the workplace. Project Gigaton Alliance participates in Walmart’s Project Gigaton. This project seeks to remove one billion metric tons (a gigaton) of greenhouse gases from the global value chain by 2030. Click the icon for more information. ESG Initiatives Alliance continues to evolve, expanding the efficiency and environmental efficacy of its operations through a number of ESG efforts 20

 

 

BRUCE OGILVIE Executive Chairman Bruce has spent his entire career in the entertainment distribution industry starting with the founding of Abbey Road Distributors in 1980 . Over the next 14 years, Bruce led Abbey Road’s growth to over $ 94 million in sales and successfully sold the business in 1994 . In 1995 , Bruce was awarded E&Y’s Distribution Entrepreneur of the Year Award for his work with Abbey Road . Armed with start - up experience, a successful exit, and street - level distribution knowledge, in 1996 , Bruce was selected by a bank group to turn around the 600 - store chain, Wherehouse Records . Under Bruce’s leadership Wherehouse emerged from bankruptcy within nine months and was sold to Cerberus Capital . Following his success with Wherehouse Records, Bruce bought a one - third interest in Super D in 2001 and assumed the role as CEO, joining with founders Jeff Walker and David Hurwitz . Bruce became the Chairman in 2013 after the merger of Super D and Alliance Entertainment . Tom Finke Director, Chair of Compensation, Audit, and Nominating and Corporate Governance Committees Tom has served as a director of Invesco Ltd . (NYSE : IVZ) since December 3 , 2020 . Mr . Finke served as Chairman of Adara Acquisition Corp . from its inception in August 2020 and as its Chief Executive Officer from June 2022 , in each case until its business combination with Alliance . Prior to joining the Board of Invesco, Mr . Finke was the Chairman and CEO of Barings LLC from 2016 - 2020 , and Chairman and CEO of Babson Capital Management, LLC from 2008 - 2016 . Mr . Finke also served as the Executive Vice President and Chief Investment Officer of MassMutual Life from 2008 - 2011 . Mr . Finke earned a Master of Business Administration degree from Duke University’s Fuqua School of Business in 1991 , and a Bachelor’s of Science degree from the University of Virginia’s McIntire School of Commerce in 1986 . In addition to his distinguished professional career, Mr . Finke is a Trustee of Davidson College, a member of the Board of Visitors of the Fuqua School of Business, Chairman of the Board of Charlotte Center City Partners, a member of the Board of Directors of the National Math & Science Initiative, and a member of the Investment Committee of the Roman Catholic Diocese of Charlotte . Alliance Leadership Team 21 JEFF WALKER Chief Executive Officer, Director After earning a degree in Economics from UC Irvine, Jeff Walker and David Hurwitz founded the CD Listening Bar in 1990 , a retail music store . A few years later, Jeff and David started wholesaling CDs from the back of the store, beginning the journey to create Super D, a music wholesaler founded in 1995 . In 2001 , Jeff and David Hurwitz sold a third of Super D to Bruce Ogilvie . Over the next decade, Bruce and Jeff continued to grow Super D’s presence in the music wholesaling space, culminating with the acquisition of Alliance Entertainment in 2013 . Upon the closing of the Alliance acquisition, Jeff became the CEO of the combined company . In 2015 , Jeff was awarded E&Y’s Distribution Entrepreneur of the Year award in Orange County . Tom Donaldson Director, Compensation, Audit, and Nominating and Corporate Governance Committees Tom is the Founder and Managing Partner of Blystone & Donaldson, a Charlotte, NC - based investment firm that focuses on middle - market companies . Mr . Donaldson was a director of Adara Acquisition Corp . from its inception in August 2020 through its business combination in February 2023 . Prior to Blystone & Donaldson, Mr . Donaldson served as an executive at Investors Management Corporation (“IMC”) where he focused on investment decisions, managing risk and developing relationships with companies of interest . Prior to IMC, he served as a Partner of Morehead Capital Management, LLC (“Morehead”) before it was merged into IMC in 2016 . Prior to Morehead, he practiced law as an associate and then a Partner at McGuireWoods LLP where he represented private funds and their portfolio companies in corporate governance, structuring and financing transactions and operating businesses in a wide variety of industries . Mr . Donaldson received his Master of Business Administration degree and Juris Doctor degree from Villanova University . He earned his undergraduate degree in Political Science from North Carolina State University . Teri Wielenga Director, Chair of Audit Committee Teri is a senior global finance executive, board director, and advisor with more than 30 years of experience at complex, highly regulated Fortune 500 companies and a Big Four accounting firm . She has led global tax policy and strategy for Gilead Sciences (Nasdaq : GILD) . She currently serves as board director, secretary, treasurer for The Gilead Foundation, and also currently serves as audit committee chair for the Arc Research Institute . Teri managed rapid global growth as the Senior Vice President of Tax for Allergan (NYSE : AGN) . She also previously served as board director, chief financial officer of the Allergan Foundation and served as a board director for multiple Allergan subsidiaries in Ireland, Japan, and Bermuda . Chris Nagelson Director, Compensation, and Nominating and Corporate Governance Committees Chris was the Vice President, DMM for Walmart, Inc . in Bentonville, AR . During that period, he was responsible for providing the strategic direction for the department that delivered market share growth as well as supported the overall corporate strategy . Chris also identified and established key performance indicators to improve team efficiencies and sales strategies and led a broad, cross - functional team in strategic executive - level planning . From June 1997 to February 2005 , Chris was the Divisional Merchandise Manager for American Eagle Outfitters, Inc . , based in Pittsburgh, PA . Paul Eibeler Director, COKeM Chairman Paul has served as the chairman of COKeM International Ltd since 2007 . CokeM became a wholly owned subsidiary of Alliance in September 2020 . Previously Paul held positions at Take - Two Interactive as CEO, President and Director during his tenure from 2001 to 2007 . At Take - Two Interactive, Paul oversaw growth from $ 250 million to over $ 1 . 5 billion, with titles such as Grand Theft Auto, Midnight Club, Red Dead, Bioshock, NBA 2 K, MLB 2 K, Max Payne, Carnival Games and Civilization . Previous management positions included Acclaim, Sanyo, and Black & Decker . Paul received a Bachelor of Arts degree from Loyola University Maryland and recently served an 8 - year term as a Trustee . John Kutch CFO John been Alliance’s Chief Financial Officer since February 2018 . From October 2014 to March 2017 , John was Vice President of Finance   —   US Operations for Metalsa, a metals supplier to the automotive manufacturing industry . For the ten years prior, he was employed by Amazon as a Senior Manager   — Senior Regional Controller . John received a bachelor’s degree from Washington State University majoring in Management Information Systems, and a Master of Business Administration from Carnegie Mellon University   —   Tepper School of Business . Senior Management : Board of Directors :

 

 

Recent News 22 News Releases • Alliance Entertainment Completes Business Combination with Adara Acquisition Corp. - Feb 10, 2023 • Alliance Entertainment’s Mill Creek Entertainment Announces New Home Entertainment Licensing Agreement with The Walt Disney Company – Jan 30, 2023 • Alliance Entertainment’s AMPED Distribution Brings Home 26 Grammy Nominations Across Its Family of Independent Labels – Jan 27, 2023 • Alliance Entertainment’s Distribution Solutions Announces Partnership Extension with the Criterion Collection – Jan 18, 2023 • Alliance Entertainment Automates 873,000 Sq Ft Kentucky Warehouse with AutoStore Œ Storage and Retrieval Technology – Jan 5, 2023 • Alliance Entertainment Announces its Latest Exclusive, Funko® Funko Pop! Rocks: Iron Maiden – Eddie “Glow in the Dark” Set – Nov 18, 2022 • Alliance Entertainment’s Mill Creek Entertainment Announces Licensing Deal with The Nacelle Company – Oct 18, 2023

 

 

Contact Investor Relations Chris Tyson/Larry Holub MZ Group ( 949 ) 491 - 8235 AENT@mzgroup . us www.aent.com 23

 

 

Appendix 24

 

 

Exhibit 1 Reconciliation of Adjusted EBITDA to GAAP Net Income 6 Months Ended Fiscal Year 12 - 31 - 2022 06 - 30 - 2022 06 - 30 - 2021 06 - 30 - 2020 06 - 30 - 2019 Operating Earnings Before Depreciation, Amortization & Arcade Adjustment $(18,640) $60,012 $68,548 $33,227 $24,509 Net Income/(Loss) Per GAAP $(23,024) $28,619 $34,178 $5,361 $(5,894) Adj. EBITDA Calculation: Net Income/Loss per GAAP (23,024) 28,619 34,178 5,361 (5,894) Depreciation 1,137 3,097 5,623 7,124 6,232 Amortization 2,028 5,162 6,028 8,660 7,851 Interest Expense 5,898 4,056 2,938 3,524 6,850 IC - DISC Commissions 2,833 9,907 5,394 8,182 7,050 Income Taxes (Benefits) (8,516) 9,423 10,791 376 2,415 Gain/Loss Disposal of PPE & FX Currency (3) 7 102 (318) 33 Mergers & Acquisition Fees 1,077 (251) 3,509 - 4 Adjusted EBITDA $(18,640) $60,018 $68,564 $32,909 $24,541 Adjusted EBITDA % - 2.7% 4.2% 5.2% 4.2% 3.3% Adjusted EBITDA for the six months ended December 31, 2022, includes the following costs: 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 3,078 Consumer Products Inventory Reserve 3,697 Total $34,275 25 ($ in 000’s )

 

 

6 Months Ended 12 - 31 - 2022 Year Ended 6 - 30 - 2022 Year Ended 6 - 30 - 2021 Year Ended 6 - 30 - 2020 Year Ended 6 - 30 - 2019 Cash Flows from Operating Activities Net Income (Loss) $(23,025) $28,619 $34,178 $5,361 $(5,894) Adjustments to Reconcile Net Income Cash provided by (Used In) Operating Activities Depreciation of Property and Equipment 1,138 3,096 5,623 7,124 6,232 Amortization of Intangible Assets 2,028 5,162 5,772 8,660 7,851 Amortization of Deferred Financing Costs (Included in Interest) 83 166 334 358 358 Payment - in - Kind, Interest - - - - 2,600 Bad Debt Expense 330 496 225 155 (188) Deferred Income Taxes - (1,177) 1,543 1,286 2,195 (Gain) Loss on Disposal of Fixed Assets (3) - 87 - - Changes in Assets and Liabilities, Net of Acquisitions Trade Receivables (69,193) 12,138 8,053 13,684 (8,988) Related Party Receivable 245 1,231 157 (1,633) - Inventory 68,547 (107,778) (8,617) 35,821 2,989 Prepaid Expenses - - - - - Income Taxes Payable/Receivable (9,098) (1,867) 4,453 (1,187) 1,733 Operating Lease Right - Of - Use Assets 1,748 4,299 (817) 3,137 (14,979) Operating Lease Obligations (1,943) (4,583) 664 (3,284) 16,518 Other Assets (5,424) (5,230) 1,980 3,228 1,087 Accounts Payable (28,981) (16,146) 18,686 (38,761) (14,136) Accrued Expenses 12,088 (1,980) 2,395 (6,560) (2,602) Net Cash Provided by (Used in) Operating Activities $(40,660) $(83,554) $74,718 $27,391 $(5,224) Exhibit 2 Consolidated Statement of Cash Flows ($ in 000’s ) 26