ALLIANCE ENTERTAINMENT HOLDING CORP Fair Value Disclosure
Note 21: Fair Value
The Company complies with the provisions of ASC 820, Fair Value Measurements, for its financial and non-financial assets and liabilities. ASC 820 defines fair value, establishes a framework for measuring fair value and expands disclosure for each major asset and liability category measured at fair value on either a recurring or nonrecurring basis.
The Company accounts for certain assets and liabilities at fair value. The hierarchy below lists three levels of fair value based on the extent to which inputs used in measuring fair value are observable in the market. The company categorizes each of its fair value measurements in one of these three levels based on the lowest level input that is significant to the fair value measurement in its entirety.
As of June 30, 2025 and 2024, the Company has classified the Private Placement Warrants and the Representative Warrants as Level 3 fair value measurements. Management evaluates a variety of inputs and then estimates fair value based on those inputs. As discussed below, the Company utilized the Black Scholes Model in valuing the Private Placement Warrants and Representative Warrants.
The estimated fair value of cash, trade receivables, accounts payable, accrued expenses and other current liabilities are based on Level 1 inputs as the fair values approximate carrying amounts as of June 30, 2025, and 2024, based on the short-term nature and maturity of these instruments.
The estimated fair values of subordinated shareholder debt and the credit facility is based on Level 2 inputs, which consist of interest rates that are currently available to the Company for issuance of debt with similar terms and remaining maturities. As of June 30, 2025, and 2024 the estimated fair value of the Company’s short and long-term debt approximates it carrying value due to market interest rates charged on such debt or their short-term maturities.
The Company recomputes the fair value of the Private and the Representative Warrants at the issuance date and the end of each quarterly reporting period. Such value computation includes subjective input assumptions that are consistently applied each period. If the Company were to alter its assumptions or the numbers input based on such assumptions, the resulting fair value could be materially different.
The Company utilized the following assumptions to estimate fair value of the Private Warrants and Representative Warrants as of:
| June 30, | June 30, | |||||||
| 2025 | 2024 | |||||||
| Stock Price | $ | 3.77 | $ | 3.00 | ||||
| Exercise price per share | $ | 11.50 | $ | 11.50 | ||||
| Risk-free interest rate | 3.63 | % | 4.41 | % | ||||
| Expected term (years) | 2.62 | 3.6 | ||||||
| Expected volatility | 47.1 | % | 36.0 | % | ||||
| Expected dividend yield | ||||||||
The significant assumptions using the Lattice model approach for valuation of the Private Placement Warrants and Representative Warrants were determined in the following manner:
| (i) | Risk-free interest rate: the risk-free interest rate is based on the U.S. Treasury rate with a term matching the time to expiration. | |
| (ii) | Expected term: the expected term is estimated to be equivalent to the remaining contractual term. | |
| (iii) | Expected volatility: expected stock volatility is based on daily observations of the Company’s historical stock value and implied by market price of the Public Warrants, adjusted by guideline public company volatility. | |
| (iv) | Expected dividend yield: expected dividend yield is based on the Company’s anticipated dividend payments. As the Company has never issued dividends, the expected dividend yield is %, and this assumption will be continued in future calculations unless the Company changes its dividend policy. |
The table below presents the balances of assets and liabilities measured at fair value on a recurring basis by level within the hierarchy as follows (in thousands)
| As of June 30, 2025 | ||||||||||||||||
| Total | Level 1 | Level 2 | Level 3 | |||||||||||||
| Private Placement and Representative Warrants | $ | 646 | $ | $ | $ | 646 | ||||||||||
| As of June 30, 2024 | ||||||||||||||||
| Total | Level 1 | Level 2 | Level 3 | |||||||||||||
| Private Placement and Representative Warrants | $ | 247 | $ | $ | $ | 247 | ||||||||||
The table below presents the change in the number and fair value of the Private and Representative Warrants since the Merger on June 30, 2025 (in thousands, except the number of shares)
| Private Warrants | Representative Warrants | Total | ||||||||||||||||||||||
| Shares | Value | Shares | Value | Shares | Value | |||||||||||||||||||
| June 30, 2023 | 4,120,000 | $ | 203 | 50,090 | $ | 3 | 4,170,090 | $ | 206 | |||||||||||||||
| Exercised | ||||||||||||||||||||||||
| Change in value | $ | 41 | 41 | |||||||||||||||||||||
| June 30, 2024 | 4,120,000 | $ | 244 | 50,090 | $ | 3 | 4,170,090 | $ | 247 | |||||||||||||||
| Exercised | ||||||||||||||||||||||||
| Classification change from Private to Public | (763,233 | ) | (6,750 | ) | (769,083 | ) | (454 | ) | ||||||||||||||||
| Change in value | 394 | 5 | 853 | |||||||||||||||||||||
| June 30, 2025 | 3,356,767 | $ | 638 | 43,340 | $ | 8 | 3,401,007 | $ | 646 | |||||||||||||||
Historical Timeline
| Fiscal Year | Filed | |
|---|---|---|
| 2025 | Sep 10, 2025 | Showing above |
| 2024 | Sep 20, 2024 | |
| 2023 | Oct 19, 2023 | |
| 2022 | Mar 30, 2023 | |
| 2021 | Mar 28, 2022 | |
About Fair Value Disclosures
Fair value disclosures classify all assets and liabilities measured at fair value into a three-level hierarchy: Level 1 (quoted market prices), Level 2 (observable inputs like yield curves), and Level 3 (unobservable inputs requiring management estimates). The proportion of Level 3 assets directly reflects how much of the balance sheet depends on internal models rather than market evidence.
Key signals: a growing Level 3 balance relative to total fair-value assets increases valuation uncertainty and earnings volatility risk. Watch for transfers between levels — assets moving from Level 2 to Level 3 often signal deteriorating market liquidity. Unrealized gains and losses on Level 3 positions flow through earnings or other comprehensive income, so large swings deserve scrutiny. For financial institutions, examine the sensitivity disclosures that show how Level 3 valuations change under alternative assumptions. Compare the fair value of debt against its carrying amount to gauge hidden leverage.