Alliance Entertainment Holding (AENT) risk factors, FY2025 10-K

Risks Related to Our Business and Industry

1. 01If we fail to respond to or capitalize on the rapid technological development in the music, video, gaming, and entertainment industry, including changes in entertainment delivery formats, our business could be harmed
2. 02If we do not successfully optimize and operate our fulfillment network, our business could be harmed61% rewritten
3. 03Disruptions in Alliance’s supply chain have increased product expenditures and could result in an adverse impact on results of operations
4. 04Inflation may continue to cause Alliance’s product costs and operating and administrative expenses to grow more rapidly than net sales, which could result in lower gross margins and lower net earnings
5. 05Weakness in the economy, market trends and other conditions affecting the profitability and financial stability of Alliance’s customers could negatively impact Alliance’s sales growth and results of operations
6. 06If we incurred any significant impairment charges, our net earnings would be reduced

Risks Related to Expansion of our Business

1. 07Our expansion places a strain on our management, operational, financial, and other resources28% rewritten
2. 08We may not realize the anticipated benefits of acquisitions or investments in our acquisitions or joint ventures, or those benefits may be delayed or reduced in their realizationNew
3. 09Our expansion into new products, services, technologies, and geographic regions subjects us to additional business, legal, financial, and competitive risks
4. 10We may experience significant fluctuations in our operating results and growth rate
5. 11Our international operations expose us to a number of risks
6. 12Our business will suffer if we are not successful in developing and expanding our partner brands across our consumer base

Risks Related to Shifts in Consumer Demand

1. 13Consumer interests change rapidly, and acceptance of products and entertainment offerings are influenced by outside factors
2. 14An inability to develop, introduce and ship planned products, product lines and new brands in a timely and cost-effective manner may damage our business

Risks Related to Our Supply Chain and Sales Channels

1. 15Disruptions or inefficiencies in our supply chain or logistics network could adversely affect our ability to fulfill customer demand and may increase our costsNew
2. 16If we are unable to adapt our business to the continued shift to e-commerce, our business may be harmed48% rewritten
3. 17For the year ended June 30, 2025, our top three customers generated approximately 40% of our net sales, and our largest customer accounted for approximately 15% of our total net sales. For the year ended June 30, 2024, our top customer accounted for 18% of total net salesNew
4. 18Our business, including our costs and supply chain, is subject to risks associated with sourcing, manufacturing, warehousing, distribution and logistics, and the loss of any of our key suppliers or service providers could negatively impact our business
5. 19We face significant inventory risk
6. 20If our third-party suppliers’ labels, studios, and publishers do not comply with applicable laws and regulations, our reputation, business, financial condition, results of operations and prospects could be harmed
7. 21Shipping is a critical part of our business and any changes in our shipping arrangements or any interruptions in shipping could adversely affect our operating results
8. 22We are subject to risks related to online payment methods, including third-party payment processing-related risks
9. 23We do not own or operate any manufacturing facilities. We use multiple third-party suppliers and labels, studios, publishers, suppliers based primarily in the United States, China and Mexico and other countries to a lesser extent, to manufacture and supply all the products we offer and sell
10. 24We are party to short-term contracts with some of our retail and ecommerce partners, and upon expiration of these existing agreements, we may not be able to renegotiate the terms on a commercially reasonable basis, or at all

Risks Related to Our Debt

1. 25Alliance’s existing and any future indebtedness could adversely affect its ability to operate its business68% rewritten
2. 26On June 30, 2025, the Company entered into an amendment to 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 periodsNew
3. 27Availability under the Revolving Credit Facility is limited by formula based on eligible accounts receivable and eligible inventory, subject to adjustment at the discretion of the lenders
4. 28Covenants and events of default under Alliance’s Credit Facility could limit our ability to undertake certain types of transactions and adversely affect our liquidity
5. 29Government efforts to combat inflation, along with other interest rate pressures arising from an inflationary economic environment, could lead to us to incur even higher interest rates and financing costs
6. 30We operate the business with an asset-based line of credit to fund working capital to support our Accounts Payable and our Inventory purchases
7. 31If we were unable to obtain or service our other external financing, or if the restrictions imposed by such financing were too burdensome, our business would be harmed

Risks Related to our Management

1. 32Our success is dependent on the efforts and dedication of our officers and other employees
2. 33If we fail to develop diverse top talent, we may be unable to compete, and our business may be harmed
3. 34Alliance has engaged in transactions with related parties, and such transactions present possible conflicts of interest that could have an adverse effect on our business and results of operations

Risks Related to Our Technology and Intellectual Property

1. 35Our business may be harmed if we are unable to protect our critical intellectual property rights
2. 36Failure to successfully operate our information systems and implement new technology effectively could disrupt our business or reduce our sales or profitability
3. 37If our electronic data is compromised, our business could be significantly harmed

Risks Related to International Trade Policies and Tariffs

1. 38We are subject to risks arising from changes in international trade policies, including the imposition of new or increased tariffs on imported goods. These risks are particularly relevant to our gaming and collectibles categories, where a significant portion of our inventory is sourced from foreign suppliersNew
2. 39There have recently been significant changes to international trade policies and tariffs affecting imports and exports. Any significant increases in tariffs on goods or materials or other changes in trade policy could negatively affect our search for a target and/or our ability to complete a business combinationNew
3. 40Adverse economic conditions in the markets in which we and our employees, consumers, customers, suppliers, and manufacturers operate could negatively impact our ability to produce and ship our products, and lower our revenues, margins and profitability
4. 41Changes in U.S., global or regional economic conditions could harm our business and financial performance
5. 42Our quarterly and annual operating results may fluctuate due to seasonality in our business and union strikes impacting the availability of content47% rewritten
6. 43Our entertainment business is also subject to seasonal variations based on the timing of music, television, film, gaming content releases. Release dates are determined by several factors, including the timing of holiday periods, geographical release dates and competition in the marketNew

Risks Related to Taxes and Government Related Matters

1. 44We face additional tax liabilities and collection obligations. Changes in, or differing interpretations of, income tax laws and rules, and changes in our geographic operating results, may impact our effective tax rate98% rewritten
2. 45We are subject to various government regulations, violations of which could subject us to sanctions or otherwise harm our business. In addition, we could be the subject of future product liability suits or merchandise recalls, which could harm our business

Risks Related to Litigation

1. 46We may face increased costs in achieving our sustainability goals and any failure to achieve our goals could result in reputational damage
2. 47Our entertainment business involves risks of liability claims for media content, which could adversely affect our business, results of operations and financial condition
3. 48We are involved in litigation, arbitration or regulatory matters where the outcome is uncertain, and which could entail significant expense89% rewritten

Risks Related to Accounting Matters

1. 49Alliance Has Fully Remediated Previously Identified Material Weaknesses in Its Internal Controls Over Financial ReportingNew
2. 50Since Alliance currently qualifies as an “emerging growth company” and a “smaller reporting company” within the meaning of the Securities Act, it could make Alliance’s securities less attractive to investors and may make it more difficult to compare Alliance’s performance to the performance of other public companies

Risks Related to Our Securities

1. 51(y) having service of process made upon such warrant holder in any such enforcement action by service upon such warrant holder’s counsel in the foreign action as agent for such warrant holder
2. 52Alliance may redeem unexpired Warrants prior to their exercise at a time that is disadvantageous to a Warrant holder, thereby making the Warrants worthless
3. 53If Warrant holders exercise Public Warrants on a “cashless basis,” they will receive fewer shares of Alliance common stock from such exercise than if you were to exercise such warrants for cash
4. 54The receipt of cash proceeds from the exercise of our Warrants is dependent upon the market price exceeding the $11.50 exercise price and the Warrants being exercised for cash
5. 55As of the date of this Form 10-K, the executive officers and directors and their affiliates collectively beneficially owned, directly, or indirectly, excluding the Contingent Consideration Shares, approximately 99% of the outstanding Class A common stock
6. 56An active trading market may not develop for our securities, and you may not be able to sell your Class A common stock at or above the price per share for which you purchased it
7. 57We might not be able to maintain the listing of our Class A common stock on the Nasdaq Capital Market
8. 58If securities or industry analysts do not publish or cease publishing research or reports about Alliance, its business, or its market, or if they change their recommendations regarding Alliance’s securities adversely, the price and trading volume of Alliance’s securities could decline
9. 59Because we have no current plans to pay cash dividends on Alliance’s common stock for the foreseeable future, you may not receive any return on investment unless you sell Alliance’s common stock for a price greater than that which you paid for it
10. 60Anti-takeover provisions in the Certificate of Incorporation and under Delaware law could make an acquisition of Alliance, which may be beneficial to its stockholders, more difficult and may prevent attempts by its stockholders to replace or remove Alliance’s then current management
11. 61A possible “short squeeze” due to a sudden increase in demand of our Class A common stock that largely exceeds supply may lead to price volatility in our Class A common stock
12. 62We may issue additional shares of Class A common stock or preferred shares under the 2023 Plan, which would dilute the interest of our stockholders