Direct Digital Holdings, Inc. 10-Q

ITEM 1. FINANCIAL STATEMENTS DIRECT DIGITAL HOLDINGS, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (Unaudited) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ March 31, 2023 December 31, 2022 ​ ​ ​ ​ ​ ​ ​ ​ ​ ASSETS ​ ​ ​ CURRENT ASSETS ​ ​ ​ Cash and cash equivalents $ 6,718,559 ​ $ 4,047,453 ​ Accounts receivable, net 19,050,300 ​ 26,354,114 ​ Prepaid expenses and other current assets 1,037,877 ​ 883,322 ​ Total current assets 26,806,736 ​ 31,284,889 ​ ​ ​ ​ ​ ​ ​ ​ ​ Property, equipment, and software, net of accumulated depreciation and amortization of $ 90,711 and $ 34,218 , respectively ​ ​ 664,937 ​ ​ 673,218 ​ Goodwill ​ 6,519,636 ​ 6,519,636 ​ Intangible assets, net (Note 4) ​ 13,149,304 ​ 13,637,759 ​ Deferred tax asset, net (Note 13) ​ ​ 5,240,074 ​ ​ 5,164,776 ​ Operating lease right-of-use assets ​ 756,654 ​ 798,774 ​ Other long-term assets ​ 46,987 ​ 46,987 ​ Total assets ​ $ 53,184,328 ​ $ 58,126,039 ​ ​ ​ ​ ​ ​ ​ ​ ​ LIABILITIES AND STOCKHOLDERS’ EQUITY (DEFICIT) ​ ​ ​ ​ ​ CURRENT LIABILITIES: ​ ​ ​ ​ ​ Accounts payable ​ $ 13,786,543 ​ $ 17,695,404 ​ Accrued liabilities ​ 4,673,785 ​ 4,777,764 ​ Current portion of liability related to tax receivable agreement ​ ​ 41,141 ​ ​ 182,571 ​ Notes payable, current portion ​ 818,750 ​ 655,000 ​ Deferred revenues ​ 949,604 ​ 546,710 ​ Operating lease liabilities, current portion ​ 70,014 ​ 91,989 ​ Income taxes payable ​ ​ 182,840 ​ ​ 174,438 ​ Related party payables (Note 8) ​ 1,448,333 ​ 1,448,333 ​ Total current liabilities ​ 21,971,010 ​ 25,572,209 ​ ​ ​ ​ ​ ​ ​ ​ ​ Notes payable, net of short-term portion and deferred financing cost of $ 1,994,724 and $ 2,115,161 , respectively ​ 22,706,526 ​ 22,913,589 ​ Economic Injury Disaster Loan ​ 150,000 ​ 150,000 ​ Liability related to tax receivable agreement, net of current portion ​ ​ 4,245,234 ​ ​ 4,149,619 ​ Operating lease liabilities, net of current portion ​ 743,572 ​ 745,340 ​ Total liabilities ​ 49,816,342 ​ 53,530,757 ​ ​ ​ ​ ​ ​ ​ ​ ​ COMMITMENTS AND CONTINGENCIES (Note 9) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ STOCKHOLDERS’ EQUITY (DEFICIT) ​ ​ ​ ​ ​ Class A common stock, $ 0.001 par value per share, 160,000,000 shares authorized, 3,491,318 and 3,252,764 shares issued and outstanding as of March 31, 2023 and December 31, 2022, respectively ​ 3,491 ​ 3,253 ​ Class B common stock, $ 0.001 par value per share, 20,000,000 shares authorized, 11,278,000 shares issued and outstanding as of March 31, 2023 and December 31, 2022 ​ 11,278 ​ 11,278 ​ Additional paid-in capital ​ 8,330,412 ​ 8,224,012 ​ Accumulated deficit ​ ( 4,977,195 ) ​ ( 3,643,261 ) ​ Total stockholders’ equity ​ 3,367,986 ​ 4,595,282 ​ Total liabilities and stockholders’ equity ​ $ 53,184,328 ​ $ 58,126,039 ​ ​ See accompanying notes to the unaudited consolidated financial statements. ​ 3 Table of Contents DIRECT DIGITAL HOLDINGS, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ For the Three Months Ended ​ ​ ​ March 31, ​ ​ 2023 2022 ​ Revenues ​ ​ ​ ​ ​ ​ ​ Buy-side advertising ​ $ 7,439,666 ​ $ 5,831,041 ​ Sell-side advertising ​ ​ 13,783,244 ​ ​ 5,539,296 ​ Total revenues ​ ​ 21,222,910 ​ ​ 11,370,337 ​ ​ ​ ​ ​ ​ ​ ​ ​ Cost of revenues ​ ​ ​ ​ ​ ​ ​ Buy-side advertising ​ ​ 2,949,153 ​ ​ 2,069,346 ​ Sell-side advertising ​ ​ 11,840,706 ​ ​ 4,520,192 ​ Total cost of revenues ​ ​ 14,789,859 ​ ​ 6,589,538 ​ Gross profit ​ ​ 6,433,051 ​ ​ 4,780,799 ​ ​ ​ ​ ​ ​ ​ ​ ​ Operating expenses ​ ​ ​ ​ ​ ​ ​ Compensation, taxes and benefits ​ ​ 3,634,296 ​ ​ 2,555,036 ​ General and administrative ​ ​ 2,940,094 ​ ​ 1,640,892 ​ Total operating expenses ​ ​ 6,574,390 ​ ​ 4,195,928 ​ (Loss) income from operations ​ ​ ( 141,339 ) ​ ​ 584,871 ​ ​ ​ ​ ​ ​ ​ ​ ​ Other income (expense) ​ ​ ​ ​ ​ ​ ​ Other income ​ ​ 49,828 ​ ​ 47,982 ​ Loss on redemption of non-participating preferred units ​ ​ — ​ ​ ( 590,689 ) ​ Contingent loss on early termination of line of credit ​ ​ ( 299,770 ) ​ ​ — ​ Interest expense ​ ​ ( 1,017,301 ) ​ ​ ( 713,787 ) ​ Total other expense ​ ​ ( 1,267,243 ) ​ ​ ( 1,256,494 ) ​ ​ ​ ​ ​ ​ ​ ​ ​ Loss before taxes ​ ​ ( 1,408,582 ) ​ ​ ( 671,623 ) ​ Tax (benefit) ​ ​ ( 74,648 ) ​ ​ — ​ Net loss ​ $ ( 1,333,934 ) ​ $ ( 671,623 ) ​ ​ ​ ​ ​ ​ ​ ​ ​ Net loss per common share: ​ ​ ​ ​ ​ ​ ​ Basic and diluted ​ $ ( 0.09 ) ​ $ ( 0.09 ) ​ ​ ​ ​ ​ ​ ​ ​ ​ Weighted-average number of shares of common stock outstanding: ​ ​ ​ ​ ​ ​ ​ Basic and diluted ​ ​ 14,575,845 ​ ​ 7,106,471 ​ ​ See accompanying notes to the unaudited consolidated financial statements. ​ 4 Table of Contents DIRECT DIGITAL HOLDINGS, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY (DEFICIT) (Unaudited) Three Months Ended March 31, 2023 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Common Stock ​ ​ ​ ​ ​ Class A ​ Class B ​ ​ ​ ​ Accumulated ​ Stockholders’ ​ Units Amount Units Amount APIC deficit equity Balance, December 31, 2022 ​ 3,252,764 ​ $ 3,253 ​ 11,278,000 ​ $ 11,278 ​ $ 8,224,012 ​ $ ( 3,643,261 ) ​ $ 4,595,282 Stock-based compensation ​ — ​ ​ — ​ — ​ ​ — ​ ​ 94,538 ​ ​ — ​ ​ 94,538 Issuance of restricted stock ​ 236,754 ​ ​ 236 ​ — ​ ​ — ​ ​ ( 236 ) ​ ​ — ​ ​ — Restricted stock forfeitures ​ ( 400 ) ​ ​ — ​ — ​ ​ — ​ ​ — ​ ​ — ​ ​ — Warrants exercised ​ 2,200 ​ ​ 2 ​ — ​ ​ — ​ ​ 12,098 ​ ​ — ​ ​ 12,100 Net loss — ​ — — ​ — ​ ​ — ​ ( 1,333,934 ) ​ ( 1,333,934 ) Balance, March 31, 2023 3,491,318 ​ $ 3,491 11,278,000 ​ $ 11,278 ​ $ 8,330,412 ​ $ ( 4,977,195 ) ​ $ 3,367,986 ​ Three Months Ended March 31, 2022 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Common Stock ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Stockholders’ ​ ​ Common Units ​ Class A ​ Class B ​ ​ ​ ​ Accumulated ​ equity ​ Units ​ Amount Units ​ Amount Units ​ Amount ​ APIC deficit ​ (deficit) Balance, December 31, 2021 34,182 ​ $ 4,294,241 — ​ $ — — ​ $ — ​ $ — ​ $ ( 4,669,097 ) ​ $ ( 374,856 ) Issuance of Class A common stock, net of transaction costs — ​ — 2,800,000 ​ 2,800 — ​ — ​ 10,189,993 ​ — ​ 10,192,793 Conversion of member units to Class B shares ​ ( 28,545 ) ​ ( 200 ) — ​ — 11,378,000 ​ 11,378 ​ ( 11,178 ) ​ — ​ — Redemption of common units ( 5,637 ) ​ ​ ( 4,294,041 ) — ​ — — ​ — ​ ( 2,905,959 ) ​ — ​ ( 7,200,000 ) Distributions to members — ​ — — ​ — — ​ — ​ — ​ ( 148,450 ) ​ ( 148,450 ) Net loss — ​ — — ​ — — ​ — ​ — ​ ( 671,623 ) ​ ( 671,623 ) Balance, March 31, 2022 — ​ $ — 2,800,000 ​ $ 2,800 11,378,000 ​ $ 11,378 ​ $ 7,272,856 ​ $ ( 5,489,170 ) ​ $ 1,797,864 ​ See accompanying notes to the unaudited consolidated financial statements. 5 Table of Contents DIRECT DIGITAL HOLDINGS, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) ff ​ ​ ​ ​ ​ ​ ​ For the Three Months Ended March 31, ​ 2023 2022 Cash Flows Provided By (Used In) Operating Activities: ​ ​ ​ ​ Net loss $ ( 1,333,934 ) ​ $ ( 671,623 ) Adjustments to reconcile net loss to net cash provided by (used in) operating activities: ​ ​ ​ ​ ​ Amortization of deferred financing costs 136,004 ​ 152,287 Amortization of intangible assets 488,455 ​ 488,455 Amortization of right-of-use assets ​ 42,120 ​ 17,602 Amortization of capitalized software ​ ​ 47,654 ​ ​ — Depreciation of property and equipment ​ ​ 8,839 ​ ​ — Stock-based compensation ​ 94,538 ​ — Deferred income taxes ​ ​ ( 75,298 ) ​ ​ — Payment on tax receivable agreement ​ ​ ( 45,815 ) ​ ​ — Loss on redemption of non-participating preferred units — ​ ​ 590,689 Contingent loss on early termination of line of credit ​ ​ 299,770 ​ ​ — Bad debt recovery ​ ( 120 ) ​ ​ ( 2,425 ) Changes in operating assets and liabilities: ​ ​ ​ ​ ​ ​ Accounts receivable 7,303,934 ​ ​ 119,515 Prepaid expenses and other assets ( 242,391 ) ​ ​ 304,425 Accounts payable ( 3,908,861 ) ​ ​ ( 926,581 ) Accrued liabilities ( 39,479 ) ​ ​ 80,104 Income taxes payable ​ ​ 8,402 ​ ​ — Deferred revenues 402,894 ​ ​ ( 916,661 ) Operating lease liability ​ ​ ( 23,743 ) ​ ​ ( 17,303 ) Related party payable — ​ ​ ( 70,801 ) Net cash provided by (used in) operating activities 3,162,969 ​ ​ ( 852,317 ) ​ ​ ​ ​ ​ ​ ​ Cash Flows Used In Investing Activities: ​ ​ ​ ​ ​ ​ Cash paid for capitalized software and property and equipment ​ ​ ( 48,212 ) ​ ​ — Net cash used in investing activities ​ ​ ( 48,212 ) ​ ​ — ​ ​ ​ ​ ​ ​ ​ Cash Flows (Used In) Provided by Financing Activities: ​ ​ ​ ​ Payments on term loan ( 163,750 ) ​ ​ ( 137,500 ) Payments of litigation settlement ​ ​ ( 64,500 ) ​ ​ — Payment of deferred financing costs ( 227,501 ) ​ ​ ( 185,093 ) Proceeds from Issuance of Class A common stock, net of transaction costs — ​ ​ 11,329,818 Redemption of common units — ​ ​ ( 3,237,838 ) Redemption of non-participating preferred units ​ ​ — ​ ​ ( 7,046,251 ) Proceeds from warrants exercised 12,100 ​ ​ — Distributions to members — ​ ​ ( 148,450 ) Net cash (used in) provided by financing activities ​ ​ ( 443,651 ) ​ ​ 574,686 ​ ​ ​ ​ ​ ​ ​ Net increase (decrease) in cash and cash equivalents 2,671,106 ​ ​ ( 277,631 ) Cash and cash equivalents, beginning of the period ​ 4,047,453 ​ 4,684,431 Cash and cash equivalents, end of the period ​ $ 6,718,559 ​ $ 4,406,800 ​ ​ ​ ​ ​ ​ ​ Supplemental Disclosure of Cash Flow Information: ​ ​ ​ Cash paid for taxes ​ $ 650 ​ $ — Cash paid for interest ​ $ 879,361 ​ $ 559,069 ​ ​ ​ ​ ​ ​ ​ Non-cash Financing Activities: ​ ​ ​ ​ Transaction costs related to issuances of Class A shares included in accrued liabilities ​ $ — ​ $ 1,137,025 Common unit redemption balance included in accrued liabilities ​ $ — ​ $ 3,962,162 ​ See accompanying notes to the unaudited consolidated financial statements. ​ 6 Table of Contents DIRECT DIGITAL HOLDINGS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) Note 1 — Organization and Description of Business Direct Digital Holdings, Inc., incorporated as a Delaware corporation on August 23, 2021 and headquartered in Houston, Texas, together with its subsidiaries, operates an end-to-end, full-service programmatic advertising platform primarily focused on providing advertising technology, data-driven campaign optimization and other solutions to underserved and less efficient markets on both the buy- and sell-side of the digital advertising ecosystem. Direct Digital Holdings, Inc. is the holding company for Direct Digital Holdings, LLC (“DDH LLC”), which is, in turn, the holding company for the business formed by DDH LLC’s founders in 2018 through the acquisition of Huddled Masses, LLC (“Huddled Masses TM ” or “Huddled Masses”) and Colossus Media, LLC (“Colossus Media”). Colossus Media operates our proprietary sell-side programmatic platform operating under the trademarked banner of Colossus SSP TM (“Colossus SSP”). In late September 2020, DDH LLC acquired Orange142, LLC (“Orange142”) to further bolster its overall programmatic buy-side advertising platform and to enhance its offerings across multiple industry verticals such as travel, healthcare, education, financial services, consumer products and other sectors with particular emphasis on small and mid-sized businesses transitioning into digital with growing digital media budgets. In February 2022, Direct Digital Holdings, Inc. completed an initial public offering of its securities and, together with DDH LLC, effected a series of transactions (together, the “Organizational Transactions”) whereby Direct Digital Holdings, Inc. became the sole managing member of DDH LLC, the holder of 100 % of the voting interests of DDH LLC and the holder of 19.7 % of the economic interests of DDH LLC, commonly referred to as an “Up-C” structure. (See Note 8 – Related Party Transactions). In these financial statements, the “Company,” “Direct Digital,” “Direct Digital Holdings,” “DDH,” “we,” “us” and “our” refer (i) following the completion of the Organizational Transactions, including the initial public offering, to Direct Digital Holdings, Inc., and, unless otherwise stated, all of its subsidiaries, including DDH LLC, and, unless otherwise stated, its subsidiaries, and (ii) on or prior to the completion of the Organizational Transactions, to DDH LLC and, unless otherwise stated, its subsidiaries. All of the subsidiaries are incorporated in the state of Delaware, except for DDH LLC, which was formed under the laws of the State of Texas. The subsidiaries of Direct Digital Holdings, Inc. are as follows: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Advertising ​ ​ ​ ​ ​ ​ Solution ​ ​ ​ Date ​ ​ Current % ​ and ​ ​ ​ Of Subsidiary Ownership Segment Date of Formation Acquisition Direct Digital Holdings, LLC 100.0 % N/A ​ June 21, 2018 ​ August 26, 2018 Huddled Masses, LLC 100.0 % Buy-side ​ November 13, 2012 ​ June 21, 2018 Colossus Media, LLC 100.0 % Sell-side ​ September 8, 2017 ​ June 21, 2018 Orange142, LLC 100.0 % Buy-side ​ March 6, 2013 ​ September 30, 2020 ​ Both buy-side subsidiaries, Huddled Masses and Orange142, offer technology-enabled advertising solutions and consulting services to clients through multiple leading demand side platforms (“DSPs”). Colossus SSP is a stand-alone tech-enabled, data-driven platform that helps deliver targeted advertising to diverse and multicultural audiences, including African Americans, Latin Americans, Asian Americans and LGBTQIA+ customers, as well as other specific audiences. Providing both the front-end, buy-side operations coupled with our proprietary sell-side operations enables us to curate the first through the last mile in the ad tech ecosystem execution process to drive higher results. Note 2 — Basis of Presentation and Summary of Significant Accounting Policies Basis of presentation The Company’s consolidated financial statements are presented in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) and reflect the financial position, results of operations and cash flows for all periods presented. The accompanying unaudited consolidated financial statements should be read in conjunction with the audited consolidated financial statements and notes included in the Company's Annual Report on Form 10-K for the year ended December 31, 2022, which was filed with the SEC on April 17, 2023. In the opinion of management, the unaudited interim consolidated financial statements reflect all adjustments, which include only normal recurring adjustments, necessary for the fair statement of the results for the periods presented. 7 Table of Contents The Company is an emerging growth company, as defined in the Jumpstart Our Business Startups Act of 2012 (the “JOBS Act”). Under the JOBS Act, emerging growth companies can delay adopting new or revised accounting standards otherwise applicable to public companies until such time as those standards apply to private companies. The Company has elected to use this extended transition period for complying with new or revised accounting standards that have different effective dates for public and private companies until the earlier of the date that it (i) is no longer an emerging growth company or (ii) it affirmatively and irrevocably opts out of the extended transition period provided in the JOBS Act. As a result, these financial statements may not be comparable to companies that comply with the new or revised accounting pronouncements as of public company effective dates. The adoption dates discussed below reflect this election. Basis of consolidation The consolidated financial statements include the accounts of Direct Digital Holdings, Inc. and its wholly owned subsidiaries. All material intercompany accounts and transactions have been eliminated in consolidation. Business combinations The Company analyzes acquisitions to determine if the acquisition should be recorded as an asset acquisition or a business combination. The Company accounts for acquired businesses using the acquisition method of accounting under Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) 805, Business Combinations , (“ASC 805”), which requires that assets acquired and liabilities assumed be recorded at the date of acquisition at their respective fair values. The fair value of the consideration paid, including any contingent consideration as applicable, is assigned to the underlying net assets of the acquired business based on their respective fair values based on widely accepted valuation techniques in accordance with ASC Topic 820, Fair Value Measurement , as of the closing date. Any excess of the purchase price over the estimated fair values of the net tangible assets and identifiable intangible assets acquired is recorded as goodwill. Significant judgments are used in determining the estimated fair values assigned to the assets acquired and liabilities assumed and in determining estimates of useful lives of long-lived assets. Fair value determinations and useful life estimates are based on, among other factors, estimates of expected future net cash flows, estimates of appropriate discount rates used to calculate the present value of expected future net cash flows, the assessment of each asset’s life cycle, and the impact of competitive trends on each asset’s life cycle and other factors. These judgments can materially impact the estimates used to allocate acquisition date fair values to assets acquired and liabilities assumed, and the resulting timing and amounts charged to, or recognized in, current and future operating results. For these and other reasons, actual results may vary significantly from estimated results. Use of estimates The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. Actual results could differ from these estimates. Significant estimates include the allocation of purchase price consideration in the business combination and the related valuation of acquired assets and liabilities, intangible assets, and goodwill impairment testing. The Company bases its estimates on past experiences, market conditions, and other assumptions that the Company believes are reasonable under the circumstances, and the Company evaluates these estimates on an ongoing basis. Cash and cash equivalents Cash and cash equivalents consist of funds deposited with financial institutions and highly liquid instruments with original maturities of three months or less. Such deposits may, at times, exceed federally insured limits. As of March 31, 2023, $ 5,218,686 of the Company’s cash and cash equivalents exceeded the federally insured limits, none of which is held at Silicon Valley Bank (“SVB”). The Company has not experienced any losses in such amounts and believes it is not exposed to any significant credit risk to cash. Accounts receivable Accounts receivable primarily consists of billed amounts for products and services rendered to customers under normal trade terms. The Company performs credit evaluations of its customers’ financial condition and generally does not require collateral. Accounts receivables are stated at net realizable value. The Company began insuring its accounts receivable with unrelated third-party insurance companies in an effort to mitigate any future write-offs and establishes an allowance for doubtful accounts as deemed necessary for accounts not covered by this insurance. As of March 31, 2023 and December 31, 2022, the Company’s allowance for doubtful accounts 8 Table of Contents was $ 4,203 and $ 4,323 , respectively. Management periodically reviews outstanding accounts receivable for reasonableness. If warranted, the Company processes a claim with the third-party insurance company to recover uncollected balances, rather than writing the balances off to bad debt expense. The guaranteed recovery for the claim is approximately 90 % of the original balance, and if the full amount is collected by the insurance company, the remaining 10 % is remitted to the Company. If the insurance company is unable to collect the full amount, the Company records the remaining 10 % to bad debt expense. For the three months ended March 31, 2023 and 2022, we recovered $ 120 and $ 2,425 , respectively, on receivables previously written off. Concentrations of credit risk The Company has customers on both the buy-and sell-side of its business. The following table sets forth our consolidated concentration of accounts receivable: ​ ​ ​ ​ ​ ​ ​ ​ March 31, December 31, ​ 2023 2022 Customer A 67.3 % 79.8 % Customer H 8.7 % 5.0 % ​ Property and equipment, net Property and equipment are recognized in the consolidated balance sheets at cost less accumulated depreciation and amortization. The Company capitalizes purchases and depreciates its property and equipment using the straight-line method of depreciation over the estimated useful lives of the respective assets, generally ranging from three to five years . Leasehold improvements are amortized over the shorter of their useful lives or the remaining terms of the related leases. The cost of repairs and maintenance are expensed as incurred. Major renewals or improvements that extend the useful lives of the assets are capitalized. When assets are retired or disposed of, the cost and accumulated depreciation thereon are removed, and any resulting gain or loss is recognized in the consolidated statements of operations. Internal Use of Software Development Costs (Capitalized Software) The Company capitalizes costs related to the development of internal-use software. Costs incurred during the application development phase are capitalized and amortized using the straight-line method over the estimated useful life. Goodwill Under the purchase method of accounting pursuant to ASC 805, goodwill is calculated as the excess of purchase price over the fair value of the net tangible and identifiable intangible assets acquired. In testing goodwill for impairment, we have the option to begin with a qualitative assessment, commonly referred to as “Step 0”, to determine whether it is more likely than not that the fair value of a reporting unit containing goodwill is less than its carrying value. This qualitative assessment may include, but is not limited to, reviewing factors such as macroeconomic conditions, industry and market considerations, cost factors, entity-specific financial performance and other events, such as changes in our management, strategy and primary user base. If the Company determines that it is more likely than not that the fair value of a reporting unit is less than its carrying value, then a quantitative goodwill impairment analysis is performed, which is referred to as “Step 1”. Depending upon the results of the Step 1 measurement, the recorded goodwill may be written down, and an impairment expense is recorded in the consolidated statements of operations when the carrying amount of the reporting unit exceeds the fair value of the reporting unit. Goodwill is reviewed annually and tested for impairment upon the occurrence of a triggering event. As of March 31, 2023, goodwill was $ 6,519,636 , which includes $ 2,423,936 as a result of the acquisition of Huddled Masses and Colossus Media in 2018 and $ 4,095,700 of goodwill recognized from the acquisition of Orange142 in September 2020. Intangible assets, net Our intangible assets consist of customer relationships, trademarks and non-compete agreements. Our intangible assets are recorded at fair value at the time of their acquisition and are stated within our consolidated balance sheets net of accumulated amortization. Intangible assets are amortized on a straight-line basis over their estimated useful lives and recorded as amortization expense within general and administrative expenses in our consolidated statements of operations. 9 Table of Contents Impairment of long-lived assets The Company evaluates long-lived assets, including property and equipment, and acquired intangible assets consisting of customer relationships, trademarks and trade names, and non-compete agreements, for impairment whenever events or changes in circumstances indicate that the carrying value of an asset may not be recoverable. Recoverability is assessed based on the future cash flows expected to result from the use of the asset and its eventual disposition. If the sum of the undiscounted cash flows is less than the carrying amount of the asset, an impairment loss is recognized. Any impairment loss, if indicated, is measured as the amount by which the carrying amount of the asset exceeds its estimated fair value and is recognized as a reduction in the carrying amount of the asset. As of March 31, 2023 and December 31, 2022, there were no events or changes in circumstances to indicate that the carrying amount of the assets may not be recoverable. Fair value measurements The Company follows ASC 820-10, Fair Value Measurement , which defines fair value, establishes a framework for measuring fair value in U.S. GAAP, and requires certain disclosures about fair value measurements. ASC 820-10 defines fair value as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the most advantageous market for the asset or liability in an orderly transaction. Fair value measurement is based on a hierarchy of observable or unobservable inputs. The standard describes three levels of inputs that may be used to measure fair value. Level 1 — Inputs to the valuation methodology are quoted prices available in active markets for identical securities as of the reporting date; Level 2 — Inputs to the valuation methodology are other significant observable inputs, including quoted prices for similar securities, interest rates, credit risk etc. as of the reporting date, and the fair value can be determined through the use of models or other valuation methodologies; and Level 3 — Inputs to the valuation methodology are unobservable inputs in situations where there is little or no market activity of the securities and the reporting entity makes estimates and assumptions relating to the pricing of the securities, including assumptions regarding risk. We segregate all financial assets and liabilities that are measured at fair value on a recurring basis into the most appropriate level within the fair value hierarchy based on the inputs used to determine the fair value at the measurement date. Deferred financing costs The Company records costs related to its line of credit and the issuance of debt obligations as deferred financing costs. These costs are deferred and amortized to interest expense using the straight-line method over the life of the debt. In December 2021, the Company amended its line of credit with East West Bank (see Note 6 – Long-Term Debt) and incurred additional deferred financing costs of $ 4,613 during the three months ended March 31, 2022. On July 26, 2022, the Company repaid the line of credit and terminated the Revolving Credit Facility as of such date and the remaining deferred financing costs of $ 33,434 were amortized to interest expense during the year ended December 31, 2022. Unamortized deferred financing costs related to the line of credit was $ 0 as of March 31, 2023 and December 31, 2022 and due to the revolving nature of this debt, was classified as an asset on the consolidated balance sheets. In January 2023, the Company entered into a Loan and Security Agreement with Silicon Valley Bank (the “SVB Loan Agreement”) and incurred $ 211,934 of deferred financing costs during the three months ended March 31, 2023. As the Company had not yet drawn any amounts on the agreement, on March 13, 2023 the Company issued a notice of termination and expensed the deferred financing costs which totaled $ 299,770 to contingent loss on early termination of line of credit during the three months ended March 31, 2023. Termination of the facility with Silicon Valley Bank became effective April 20, 2023. ​ In December 2021, the Company entered into an agreement with Lafayette Square Loan Servicing, LLC (“Lafayette Square”) (see Note 5 – Long-Term Debt) and incurred additional deferred financing costs of $ 15,567 and $ 180,480 during the three months ended March 31, 2023 and 2022, respectively. Unamortized deferred financing costs for the note payable was $ 1,994,724 and $ 2,115,161 as of March 31, 2023 and December 31, 2022, respectively, and netted against the outstanding debt on the consolidated balance sheets. 10 Table of Contents Right-of-use assets The Company adopted ASU 2016-02 (“ASU 2016-02”), Leases (Topic 842) as of January 1, 2022, and recognizes operating lease assets and lease liabilities on the balance sheets. The standard requires us to increase our assets and liabilities by equal amounts through the recognition of Right-of-Use (“ROU”) assets and lease liabilities for our operating leases and to recognize the initial and the monthly payments as operating expenses when paid or accrued on our consolidated statements of operations and consolidated statements of cash flows. Revenue recognition The Company adopted FASB ASU 2014-09, Revenue from Contracts with Customers (“Topic 606”), as of January 1, 2019, for all contracts not completed as of the date of adoption and this has had no impact on the financial position or results of operations using the modified retrospective method. The Company recognizes revenue using the following five steps: ● Identification of a contract(s) with a customer; ● Identification of the performance obligation(s) in the contract; ● Determination of the transaction price; ● Allocation of the transaction price to the performance obligation(s) in the contract; and ● Recognition of revenue when, or as, the performance obligation(s) are satisfied. The Company’s revenues are derived primarily from two sources: buy-side advertising and sell-side advertising. Buy-side advertising The Company purchases media based on the budget established by its customers with a focus on leveraging data services, customer branding, real-time market analysis and micro-location advertising. The Company offers its services on a fully managed and a self-serve basis, which is recognized over time using the output method when the performance obligation is fulfilled. An “impression” is delivered when an advertisement appears on pages viewed by users. The performance obligation is satisfied over time as the volume of impressions are delivered up to the contractual maximum for fully managed revenue and the delivery of media inventory for self-serve revenue. Many customers run several different campaigns throughout the year to capitalize on different seasons, special events and other happenings at their respective regions and localities. The Company provides digital advertising and media buying capabilities with a focus on generating measurable digital and financial life for its customers. Revenue arrangements are evidenced by a fully executed insertion order (“IO”). Generally, IOs specify the number and type of advertising impressions to be delivered over a specified time at an agreed upon price and performance objectives for an ad campaign. Performance objectives are generally a measure of targeting, as defined by the parties in advance, such as number of ads displayed, consumer clicks on ads or consumer actions (which may include qualified leads, registrations, downloads, inquiries or purchases). These payment models are commonly referred to as CPM (cost per impression), CPC (cost per click) and CPA (cost per action). The majority of the Company’s contracts are flat-rate, fee-based contracts. In instances where the Company contracts with third-party advertising agencies on behalf of their advertiser clients, a determination is made to recognize revenue on a gross or net basis based on an assessment of whether the Company is acting as the principal or an agent in the transaction. The Company is acting as the principal in these arrangements and therefore revenue earned and costs incurred are recognized on a gross basis as the Company has control and is responsible for fulfilling the advertisement delivery, establishing the selling prices and delivering the advertisements for fully managed revenue and providing updates and performing all billing and collection activities for the self-serve proprietary platform. Cash payments received prior to the Company’s delivery of its services are recorded to deferred revenue until the performance obligation is satisfied. The Company recorded deferred revenue (contract liabilities) to account for billings in excess of revenue recognized, primarily related to contractual minimums billed in advance and customer prepayment, of $ 949,604 and $ 546,710 as of March 31, 2023 and December 31, 2022, respectively. 11 Table of Contents Sell-side advertising The Company partners with publishers to sell advertising inventory to the Company’s existing buy-side clients, as well as its own Colossus Media-curated clients and the open markets (collectively referred to as “buyers”) seeking to access the general market as well as unique multi-cultural audiences. The Company generates revenue from the delivery of targeted digital media solutions, enabling advertisers to connect intelligently with their audiences across online display, video, social and mobile mediums using its proprietary programmatic sell-side platform (“SSP”). The Company refers to its publishers, app developers, and channel partners collectively as its publishers. The Company generates revenue through the monetization of publisher ad impressions on its platform. The Company’s platform allows publishers to sell, in real time, ad impressions to buyers and provides automated inventory management and monetization tools to publishers across various device types and digital ad formats. The Company recognizes revenue when an ad is delivered in response to a winning bid request from ad buyers. The Company is acting as the principal in these arrangements and therefore revenue earned and costs incurred are recognized on a gross basis, as the Company has control and is responsible for fulfilling the advertisement delivery, establishing the selling prices and delivering the advertisements for fully managed revenue and providing updates and performing all billing and collection activities for its self-serve proprietary platform. The Company maintains agreements with each DSP in the form of written service agreements, which set out the terms of the relationship, including payment terms (typically 30 to 90 days ) and access to its platform. In an effort to reduce the risk of nonpayment, the Company has insurance with a third-party carrier for its accounts receivable as noted above. The following table sets forth our concentration of revenue sources as a percentage of total net revenues on a consolidated basis. ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ March 31, ​ ​ ​ ​ 2023 2022 ​ Customer A ​ 60.3 % 47.0 % ​ Customer E ​ 5.6 % 10.3 % ​ Customer F ​ 3.6 % 9.0 % ​ ​ Cost of revenues Buy-side advertising Cost of revenues consists primarily of digital media fees, third-party platform access fees, and other third-party fees associated with providing services to our customers. Sell-side advertising The Company pays publishers a fee, which is typically a percentage of the value of the ad impressions monetized through the Company’s platform. Cost of revenues consists primarily of publisher media fees and data center co-location costs. Media fees include the publishing and real-time bidding costs to secure advertising space. Advertising costs The Company expenses advertising costs as incurred. Advertising expense incurred during the three months ended March 31, 2023 and 2022 was $ 463,438 and $ 102,348 . These costs are included in general and administrative expenses in the consolidated statements of operations. Stock-based compensation The Company recognizes and measures compensation expense for all stock-based payment awards granted to employees, directors and non-employee directors, including stock options and restricted stock units (“RSUs”) based on the fair value of the awards on the date of grant. The fair value of stock options is estimated using the Black Scholes option pricing model. The grant date fair value of RSUs is based on the prior day closing market price of the Company’s Class A common stock. The Black Scholes option pricing model inputs include the fair value of the Company’s common stock, as well as assumptions regarding the expected common stock price volatility over the term of the stock options, the expected term of the stock options, risk-free interest rates, and the expected dividend yield. 12 Table of Contents For additional information regarding stock-based compensation and the assumptions used for determining the fair value of stock options, see Note 10 — Stockholders’ Equity (Deficit) and Stock-Based Compensation Plans. Income (loss) per share Basic income (loss) per share is calculated by dividing net income available to common stockholders by the weighted average number of shares outstanding for the period. Potentially dilutive securities include potential shares of common stock related to our stock options and RSUs. Diluted earnings per share considers the impact of potentially dilutive securities except in periods in which there is a loss because the inclusion of potential shares of common stock would have an anti-dilutive effect. Diluted income per share excludes the impact of potential shares of common stock related to our stock options in periods in which the options exercise price is greater than the average market price of our common stock for the period. Income taxes Effective February 15, 2022, concurrent with the closing of the Company’s initial public offering, the Company entered into a tax receivable agreement (“Tax Receivable Agreement” or “TRA”) with DDH LLC and Direct Digital Management, LLC (“DDM” or the “Continuing LLC Owner”). The TRA provides for certain income (loss) allocations between the Company and DDH LLC under the agreement. DDH LLC is a limited liability company and will continue to be treated as a partnership for federal income tax purposes and, as such, generally will not be subject to any entity-level U.S. federal income tax and certain state and local income taxes. Any taxable income or loss generated by the Company will be allocated to holders of LLC units (“LLC Units”) in accordance with the Second Amended and Restated Limited Liability Company Agreement (“LLC Agreement”), and distributions to the owners of LLC Units in an amount sufficient to fund their tax obligations will be made. The Company is subject to U.S. federal income taxes, in addition to state and local income taxes with respect to its allocable share of any taxable income or loss under the LLC Agreement. Pursuant to the Company’s election under Section 754 of the Internal Revenue Code (the “Code”), the Company expects to obtain an increase in its share of the tax basis in the net assets of DDH, LLC when LLC Units are redeemed or exchanged by the members of DDH, LLC. The Company plans to make an election under Section 754 of the Code for each taxable year in which a redemption or exchange of LLC interest occurs. During year ended December 31, 2022, a member of DDM exchanged 100,000 Class B shares into Class A shares. The Company applies ASC 740-10, Income Taxes , in establishing standards for accounting for uncertain tax positions. The Company evaluates uncertain tax positions with the presumption of audit detection and applies a “more likely than not” standard to evaluate the recognition of tax benefits or provisions. ASC 740-10 applies a two-step process to determine the amount of tax benefits or provisions to record in the consolidated financial statements. First, the Company determines whether any amount may be recognized and then determines how much of a tax benefit or provision should be recognized. As of March 31, 2023 and December 31, 2022, the Company had no uncertain tax positions. Accordingly, the Company has not recognized any penalty, interest or tax impact related to uncertain tax positions. If the Company were to incur an income tax liability in the future, interest on any income tax liability would be reported as interest expense and penalties on any income tax liability would be reported as income taxes. The Company’s conclusion regarding uncertain tax positions may be subject to review and adjustments at a later date based upon ongoing analyses of tax laws regulations and interpretations thereof as well as other factors. See Note 13 – Tax Receivable Agreement and Income Taxes. Segment information Operating segments are components of an enterprise for which separate financial information is available and is evaluated regularly by the Company’s chief operating decision maker in deciding how to allocate resources and assessing performance. The Company’s chief operating decision maker is its Chairman and Chief Executive Officer. The Company views its business as two reportable segments, buy-side advertising, which includes the results of Huddled Masses and Orange142, and sell-side advertising, which includes the results of Colossus Media. Accounting pronouncements not yet adopted In June 2016, the FASB issued ASU No. 2016-13 , Financial Instruments — Credit Losses (Topic 326), Measurement of Credit Losses on Financial Instruments , as amended, which requires, among other things, the use of a new current expected credit loss (“CECL”) model in order to determine the Company’s allowances for doubtful accounts with respect to accounts receivable. The CECL model requires that the Company estimate its lifetime expected credit loss with respect to its receivables and contract assets and record allowances that, when deducted from the balance of the receivables, represent the net amounts expected to be collected. The Company will also be required to disclose information about how it developed the allowances, including changes in the factors that influenced its estimate of expected credit losses and the reasons for those changes. This ASU is effective for annual periods, including interim periods 13 Table of Contents within those annual periods, beginning after December 15, 2022. The Company adopted the new guidance on January 1, 2023 on a modified retrospective basis and determined it did not have a material impact on its consolidated financial statements of financial position, results of operations, cash flows or net loss per share. Liquidity and capital resources As of March 31, 2023, the Company had cash and cash equivalents of $ 6,718,559 . Based on projections of growth in revenue and operating results in the coming year and the available cash held by us, the Company believes that it will have sufficient cash resources to finance its operations and service any maturing debt obligations for at least the next twelve months following the issuance of these financial statements. ​ Note 3 — Property, Equipment and Software, net Property, equipment and software, net consists of the following: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ March 31, December 31, ​ ​ ​ 2023 2022 ​ Furniture and fixtures ​ $ 127,932 ​ $ 118,601 ​ Computer equipment ​ ​ 19,636 ​ ​ 16,985 ​ Leasehold Improvements ​ ​ 36,230 ​ ​ — ​ Capitalized software ​ ​ 571,850 ​ ​ 571,850 ​ Property, equipment and software, gross ​ ​ 755,648 ​ ​ 707,436 ​ Less: accumulated depreciation and amortization ​ ​ ( 90,711 ) ​ ​ ( 34,218 ) ​ Total property, equipment and software, net ​ $ 664,937 ​ $ 673,218 ​ ​ The Company moved headquarters in 2022 and capitalized furniture and fixtures, computer equipment and leasehold improvements related to the move. The Company acquired the license to our proprietary Colossus SSP platform in November 2022 from our third-party developer. Depreciation and amortization expense related to property, equipment, and software was $ 56,493 and $ 0 for the three months ended March 31, 2023 and 2022, respectively. The following table summarizes depreciation and amortization expense by line item for the three months ended March 31, 2023 and 2022: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ For the Three Months ​ ​ ​ Ended ​ ​ ​ March 31, ​ ​ ​ 2023 2022 ​ Cost of revenue ​ $ 47,654 ​ $ — ​ General and administrative ​ ​ 8,839 ​ ​ — ​ Total depreciation and amortization ​ $ 56,493 ​ $ — ​ ​ 14 Table of Contents ​ Note 4 — Intangible Assets Effective September 30, 2020, the Company acquired 100 % of the equity interests of Orange142 for a purchase price of $ 26,207,981 . The acquisition of Orange142 was recorded by allocating the total purchase consideration to the fair value of the net tangible assets acquired, including goodwill and intangible assets, in accordance with ASC 805. The purchase consideration exceeded the fair value of the net assets, resulting in goodwill of $ 4,095,700 and intangible assets of $ 18,033,850 . Intangible assets consist of $ 13,028,320 of 10-year amortizable customer relationships, $ 3,501,200 of 10-year amortizable trademarks and tradenames, and $ 1,504,330 of 5-year amortizable non-compete agreements. The Company records amortization expense on a straight-line basis over the life of the identifiable intangible assets. For the three months ended March 31, 2023 and 2022, amortization expense of $ 488,455 and $ 488,455 , respectively, was recognized, and as of March 31, 2023 and December 31, 2022, intangible assets net of accumulated amortization was $ 13,149,304 and $ 13,637,759 , respectively. As of March 31, 2023, intangible assets and the related accumulated amortization, weighted-average remaining life and future amortization expense are as follows: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Trademarks and ​ Non-compete ​ ​ ​ ​ Customer lists tradenames agreements Total Fair value at acquisition date ​ $ 13,028,320 ​ $ 3,501,200 ​ $ 1,504,330 ​ $ 18,033,850 Accumulated amortization ​ ( 3,257,080 ) ​ ( 875,300 ) ​ ( 752,166 ) ​ ( 4,884,546 ) Intangible assets, net ​ $ 9,771,240 ​ $ 2,625,900 ​ $ 752,164 ​ $ 13,149,304 Estimated life (years) ​ 10.0 ​ 10.0 ​ 5.0 ​ Weighted-average remaining life (years) ​ 7.5 ​ ​ 7.5 ​ 2.5 ​ ​ ​ ​ ​ ​ ​ Total 2023 $ 1,465,364 2024 ​ 1,953,818 2025 ​ 1,878,602 2026 ​ 1,652,952 2027 ​ 1,652,952 Thereafter ​ 4,545,616 Total future amortization expense ​ $ 13,149,304 ​ The Company expects to deduct goodwill for tax purposes in future years. The factors that make up goodwill include entry into new markets not previously accessible and generation of future growth opportunities. ​ Note 5 — Accrued Liabilities Accrued liabilities consisted of the following: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ March 31, December 31, ​ ​ 2023 2022 ​ Accrued compensation and benefits ​ $ 3,312,350 ​ $ 4,128,505 ​ Accrued litigation settlement ​ 364,596 ​ 429,096 ​ Accrued expenses ​ 712,631 ​ 206,639 ​ Accrued severance ​ ​ 271,495 ​ ​ — ​ Accrued interest ​ 12,713 ​ 13,524 ​ Total accrued liabilities ​ $ 4,673,785 ​ $ 4,777,764 ​ ​ On July 10, 2019, Huddled Masses was named as a defendant in a lawsuit related to a delinquent balance to a vendor. On July 28, 2022, the Company entered into a settlement agreement with the vendor and agreed to pay a total of $ 515,096 with monthly installment payments over 24 months beginning September 1, 2022. 15 Table of Contents Note 6 — Long-Term Debt Revolving Line of Credit - East West Bank On September 30, 2020, the Company entered into a credit agreement that provided for a revolving credit facility with East West Bank in the amount of $ 4,500,000 with an initial availability of $ 1,000,000 (the “Revolving Credit Facility”). On December 17, 2021, the Company amended the Revolving Credit Facility, which increased the amount of the revolving loan to $ 5,000,000 with an initial availability of $ 2,500,000 , and in connection with the amendment, the Company incurred additional deferred financing fees of $ 4,613 in January 2022. The loans under the Revolving Credit Facility bore interest at the LIBOR rate plus 3.5 % per annum, and as of March 31, 2022, the rate was 7.0 % with a 0.50 % unused fee. On July 26, 2022, the Company terminated the Revolving Credit Facility. As of March 31, 2023 and December 31, 2022, the Company did not have any outstanding borrowings or deferred financing costs under the Revolving Credit Facility. The components of interest expense and related fees for the Revolving Credit Facility are as follows: ​ ​ ​ ​ ​ ​ ​ ​ ​ For the Three Months ​ ​ Ended ​ ​ March 31, ​ ​ 2023 2022 ​ Interest expense – East West Bank ​ $ — ​ $ 9,605 ​ Amortization of deferred financing costs ​ — ​ 33,896 ​ Total interest expense and amortization of deferred financing costs ​ $ — ​ $ 43,501 ​ ​ Silicon Valley Bank Financing On January 9, 2023, the Company entered into the SVB Loan Agreement, by and among Silicon Valley Bank, as lender, and DDH LLC, the Company, Huddled Masses, Colossus Media and Orange142, as borrowers. The SVB Loan Agreement provided for a revolving credit facility (the “SVB Revolving Credit Facility”) in the original principal amount of $ 5 million, subject to a borrowing base determined based on eligible accounts, and up to an additional $ 2.5 million incremental revolving facility subject to the lender’s consent, which would increase the aggregate principal amount of the Credit Facility to $ 7.5 million. Loans under the SVB Revolving Credit Facility were to mature on September 30, 2024 unless the Credit Facility was otherwise terminated pursuant to the terms of the Loan Agreement. ​ On March 10, 2023, the California Department of Financial Protection and Innovation closed SVB and appointed the Federal Deposit Insurance Corporation as receiver. As the Company had not yet drawn any amounts under the SVB Revolving Credit Facility, on March 13, 2023, the Company issued a notice of termination of the SVB Loan Agreement. The termination of the SVB Revolving Credit Facility became effective April 20, 2023. Prior to issuing the notice of termination, the Company received consent to terminate the SVB Revolving Credit Facility and a waiver of the terms relating to the SVB Revolving Credit Facility under its Term Loan and Security Agreement, dated as of December 3, 2021, with Lafayette Square Loan Servicing, LLC (“Lafayette Square”). The Company did not hold material cash deposits or securities at Silicon Valley Bank and as of the date of this report, has not experienced any adverse impact to its liquidity or to its current and projected business operations, financial condition or results of operations. During the three months ended March 31, 2023, the Company incurred $ 211,934 of deferred financing costs. After the Company issued the notice of termination, total deferred financing costs of $ 299,770 were expensed to contingent loss on early termination of line of credit during the three months ended March 31, 2023. ​ Lafayette Square On December 3, 2021, DDH LLC entered into the Term Loan and Security Agreement (the “2021 Credit Facility”) with Lafayette Square as administrative agent, and the various lenders thereto. The term loan under the 2021 Credit Facility provides for a term loan in the principal amount of up to $ 32,000,000 , consisting of a $ 22,000,000 closing date term loan and an up to $ 10,000,000 delayed draw term loan (“Delayed Draw Loan”). The loans under the 2021 Credit Facility bear interest at LIBOR plus the applicable margin minus any applicable impact discount. The applicable margin under the 2021 Credit Facility is determined based on the consolidated total net leverage ratio of the Company and its consolidated subsidiaries, at a rate of 6.50 % per annum if the consolidated total net leverage ratio is less than 2.00 to 1.00 and up to 9.00 % per annum if the consolidated total net leverage ratio is greater than 4.00 to 1.00. The applicable impact discount under the 2021 Credit Facility is a discount of 0.05 % per annum to the extent that DDH LLC adopts certain services 16 Table of Contents intended to improve overall employee satisfaction and retention plus an additional discount of 0.05 % per annum to the extent that DDH LLC maintains a B Corp certification by Standards Analysts at the non-profit B Lab (or a successor certification or administrator). We expect that interest rates applicable to the 2021 Credit Facility will be modified upon the implementation of a LIBOR replacement rate that will apply to our current and future borrowings. The maturity date of the 2021 Credit Facility is December 3, 2026. The Delayed Draw Loan is required to be repaid in quarterly installments payable on the last day of each fiscal quarter in an amount equal to (i) commencing with the fiscal quarter ending March 31, 2022 through and including the fiscal quarter ending December 31, 2023, $ 137,500 , and (ii) commencing March 31, 2024 and continuing on the last day of each fiscal quarter thereafter, $ 275,000 , with a final installment due December 31, 2026 in an amount equal to the remaining entire principal balance thereof. On July 28, 2022, the Company entered into the Second Amendment and Joinder to Term Loan and Security Agreement (the “Term Loan Amendment”) and received proceeds of $ 4,260,000 borrowed under the Delayed Draw Loan to pay the balance owed on the common unit redemption as well as costs associated with the transaction. Pursuant to the Term Loan Amendment, DDH LLC will indemnify the Company from and against any claims, losses, expenses and other liabilities incurred by the Company arising from the Company’s guarantor obligations under the 2021 Credit Facility and related term loan documents. The Delayed Draw Loan is required to be repaid in quarterly installments payable on the last day of each fiscal quarter in an amount equal to (i) commencing with the fiscal quarter ending December 31, 2022 through and including the fiscal quarter ending December 31, 2023, $ 26,250 , and (ii) commencing March 31, 2024 and continuing on the last day of each fiscal quarter thereafter, $ 52,500 , with a final installment due December 3, 2026 in an amount equal to the remaining entire principal balance thereof. After giving effect to the Delayed Draw Loan on the effective date of the Term Loan Amendment, no additional delayed draw loans will be available under the 2021 Credit Facility. The obligations under the 2021 Credit Facility are secured by senior, first-priority liens on all or substantially all assets of DDH LLC and its subsidiaries and are guaranteed by the subsidiaries of DDH LLC and include a pledge and guarantee by the Company. As of March 31, 2023, the Company owed a balance on the 2021 Credit Facility of $ 25,520,000 . Additional deferred financing costs of $ 15,567 and $ 180,480 were incurred during the three months ended March 31, 2023 and 2022, respectively. Unamortized deferred financing costs as of March 31, 2023 and December 31, 2022 were $ 1,994,724 and $ 2,115,161 respectively. Accrued and unpaid interest was $ 0 as of March 31, 2023 and December 31, 2022. The components of interest expense and related fees for the 2021 Term Loan Facility are as follows: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ March 31, ​ ​ ​ 2023 2022 ​ Interest expense – Lafayette Square ​ $ 879,362 ​ $ 487,500 ​ Amortization of deferred financing costs – Lafayette Square ​ 136,004 ​ 118,391 ​ Total interest expense and amortization of deferred financing costs ​ $ 1,015,366 ​ $ 605,891 ​ ​ U.S. Small Business Administration Loans Economic Injury Disaster Loan In 2020, the Company applied and was approved for a loan pursuant to the Economic Injury Disaster Loan (“EIDL”), administered by the U.S. Small Business Administration (“SBA”). The Company received the loan proceeds of $ 150,000 on June 15, 2020. The loan bears interest at a rate of 3.75 % and matures on June 15, 2050. Installment payments, including principal and interest, of $ 731 began monthly on December 15, 2022. Each payment will first be applied to pay accrued interest, then the remaining balance will be used to reduce principal. The loan is secured by substantially all assets of DDH LLC. Accrued and unpaid interest expense as of March 31, 2023 and December 31, 2022 was $ 12,713 and $ 13,524 , respectively, and is included in accrued expenses on the consolidated balance sheets. Paycheck Protection Program In 2020, the Company applied and was approved for a loan pursuant to the Paycheck Protection Program (“PPP”), administered by the SBA (the “PPP-1 Loan”). The PPP was authorized in the Coronavirus Aid, Relief, and Economic Security (“CARES”) Act and was designed to provide a direct financial incentive for qualifying business to keep their workforce employees. The SBA made PPP loans 17 Table of Contents available to qualifying businesses in amounts up to 2.5 times their average monthly payroll expenses, and loans were forgivable after a “covered period” (eight or twenty-four weeks) as long as the borrower maintained its payroll and utilities. The forgiveness amount would be reduced if the borrower terminated employees or reduced salaries and wages more than 25% during the covered period. Any unforgiven portion was payable over two years if issued before, or five years if issued after, June 5, 2020 at an interest rate of 1.0 % with payments deferred until the SBA remits the borrower’s loan forgiveness amount to the lender, or if the borrower did not apply for forgiveness, then six months after the end of the covered period. In March 2021, DDH LLC applied for and received a PPP loan (the “PPP-2 Loan”) for a principal amount of $ 287,143 and there were no collateral or guarantee requirements. On April 11, 2022 , the balance on the PPP-2 Loan was forgiven. As of March 31, 2023, future minimum payments related to long-term debt are as follows for the years ended December 31: ​ ​ ​ ​ 2023 $ 491,250 2024 1,310,000 2025 1,310,473 2026 22,411,965 2027 3,337 Thereafter ​ 142,975 Total ​ 25,670,000 Less current portion ​ ( 818,750 ) Less deferred financing costs ​ ( 1,994,724 ) Long-term debt, net ​ $ 22,856,526 ​ ​ ​ Note 7 — Mandatorily Redeemable Preferred Units ASC 480, Distinguishing Liabilities from Equity, defines mandatorily redeemable financial instruments as any financial instruments issued in the form of shares that have an unconditional obligation requiring the issuer to redeem the instrument by transferring its assets at a specified or determinable date (or dates) or upon an event that is certain to occur. A mandatorily redeemable financial instrument shall be classified as a liability unless the redemption is required to occur only upon the liquidation or termination of the reporting entity. Under ASC 480, mandatorily redeemable financial instruments shall be measured initially at fair value. In connection with the acquisition of Orange142, DDH LLC issued mandatorily redeemable preferred units that are only redeemable for a fixed amount of cash at a date specific to each class. Due to the mandatory redemption feature, ASC 480 requires that these preferred units be classified as a liability rather than as a component of equity, with preferred annual returns being accrued and recorded as interest expense. Class B Preferred Units In connection with the Orange142 acquisition, DDH LLC issued 7,076 non-voting Class B Preferred Units at a purchase price of $ 7,046,251 , and a fair value of $ 6,455,562 . Class B Preferred Units were mandatorily redeemable for $ 7,046,251 on September 30, 2024, with 7 % preferred annual returns paid on a quarterly basis. Due to the mandatory redemption feature, ASC 480 requires that the Class B Preferred Units be classified as a liability rather than as a component of equity, with the preferred annual returns being accrued and recorded as interest expense. 18 Table of Contents In February 2022, DDH LLC redeemed the Class B Preferred Units and recognized a loss on the redemption of $ 590,689 in connection with the write-off of the fair value associated with the units. The Company recorded interest expense relating to the Class B Preferred Units of $ 0 and $ 62,162 , for the three months ended March 31, 2022 and 2021, respectively. Note 8 — Related Party Transactions Related Party Transactions Member Payable The Company had a net payable to members that totaled $ 1,448,333 as of March 31, 2023 and December 31, 2022, which is included as a related party payable on the consolidated balance sheets. Up-C Structure In February 2022, the Company completed an initial public offering of its securities, and through the Organizational Transactions, formed an Up-C structure, which is often used by partnership and limited liability companies and allows the Continuing LLC Owner, a Delaware limited liability company indirectly owned by Walker and Smith, to retain its equity ownership in DDH LLC and to continue to realize tax benefits associated with owning interests in an entity that is treated as a partnership, or “pass-through” entity, for U.S. federal income tax purposes. The Continuing LLC owner will hold economic nonvoting LLC Units in DDH LLC and will also hold noneconomic voting equity interests in the form of the Class B common stock in Direct Digital Holdings (See Note 10 – Stockholders’/Members’ Equity (Deficit) and Stock-Based Compensation Plans). One of the tax benefits to the Continuing LLC Owner associated with this structure is that future taxable income of DDH LLC that is allocated to the Continuing LLC Owner will be taxed on a pass-through basis and therefore will not be subject to corporate taxes at the entity level. Additionally, the Continuing LLC Owner may, from time to time, redeem or exchange its LLC Units for shares of our Class A common stock on a one -for-one basis. The Up-C structure also provides the Continuing LLC Owner with potential liquidity that holders of non-publicly traded limited liability companies are not typically afforded. If we ever generate sufficient taxable income to utilize the tax benefits, Digital Direct Holdings expects to benefit from the Up-C structure because, in general, we expect cash tax savings in amounts equal to 15 % of certain tax benefits arising from such redemptions or exchanges of the Continuing LLC Owner's LLC Units for Class A common stock or cash and certain other tax benefits covered by the TRA. (See Note 13 - Tax Receivable Agreement and Income Taxes). The aggregate change in the balance of gross unrecognized tax benefits, which includes interest and penalties for 2023 and 2022, is as follows: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ As of ​ As of ​ ​ March 31, ​ December 31, ​ 2023 2022 Tax Receivable Agreement Liabilities ​ ​ ​ ​ ​ ​ Short Term ​ $ 41,141 ​ $ 182,571 Long Term ​ ​ 4,245,234 ​ ​ 4,149,619 Net total deferred tax assets ​ $ 4,286,375 ​ $ 4,332,190 ​ Board Services and Consulting Agreement On September 30, 2020, the Company entered into board services and consulting agreements with Walker, Smith and Leah Woolford (“Woolford”). Walker, Smith and Woolford were then all members of DDH LLC. Prior to the Organizational Transactions, Walker served as a Manager on the Board of Managers of DDH LLC, and now serves as Chairman of the Board of Directors and Chief Executive Officer of the Company. Prior to the Organizational Transactions, Smith served as a Manager on the Board of Managers of DDH LLC and now serves as a director on the Board of Directors and President of the Company. Woolford previously served as a Manager on the Board of Managers of DDH LLC and Senior Advisor of DDH LLC. In exchange for these services, the Company paid Walker and Smith annual fees of $ 450,000 each and employee benefits for their direct families. The Company paid Woolford $ 300 per hour for up to 50 hours per month and employee benefits for Woolford and her direct family. In connection with the Organizational Transactions, the consulting agreements were canceled, and for the three months ended March 30, 2023 and 2022, total fees paid to Walker, Smith and Woolford were $ 0 , $ 0 and $ 0 , and $ 56,250 , $ 56,250 , and $ 22,500 , respectively. 19 Table of Contents Note 9 — Commitments and Contingencies Litigation The Company may from time to time be subject to various legal or administrative claims and proceedings arising in the ordinary course of business. In management’s opinion, the outcome of any such currently pending litigation will not materially affect the Company’s financial condition. Nevertheless, due to uncertainties in the settlement process, it is at least reasonably possible that management’s view of the outcome could change materially in the near term. Huddled Masses was named as a defendant in a lawsuit on July 10, 2019 related to a delinquent balance to a vendor. On July 28, 2022, the Company entered into a settlement agreement with the vendor and agreed to pay a total of $ 515,096 with monthly installment payments over 24 months beginning September 1, 2022. The liability has been recorded and included in accrued liabilities on the consolidated balance sheets as of March 31, 2023 and December 31, 2022 (See Note 5 – Accrued Liabilities). Operating Leases In June 2019, the Company entered into a sublease for its corporate office headquarters at 1233 West Loop South, Ste 1170 in Houston, TX. The lease term expired on July 1, 2022 and had a base monthly rent of approximately $ 3,600 per month. In March 2022, the Company entered into a new lease to move its corporate headquarters to 1177 West Loop South, Ste 1310 in Houston, TX effective July 1, 2022, and paid a security deposit of approximately $ 29,000 . The lease is for 7,397 square feet of office space that expires February 28, 2030. The base monthly rent varies annually over the term of the lease. The Company also leases office furniture for its corporate headquarters under a lease agreement effective April 2019 and expiring July 2023. In March 2021, the Company extended its lease for office space at 716 Congress Ave, Ste 100 in Austin, Texas with an effective date of January 1, 2022. The lease expires on December 31, 2023 and has a base rent of approximately $ 6,700 per month. For the three months ended March 31, 2023 and 2022, the Company incurred rent expense of $ 79,761 and $ 52,288 , respectively, for the combined leases. Supplemental balance sheet information related to operating leases is included in the table below for the year ended March 31, 2023: ​ ​ ​ ​ ​ 2023 Operating lease - right-of-use asset ​ $ 756,654 ​ ​ ​ ​ Operating lease liabilities - current ​ $ 70,014 Operating lease liabilities - long-term ​ 743,572 Total lease liability ​ $ 813,586 ​ The weighted-average remaining lease term for the Company’s operating lease is seven years as of ended March 31, 2023, with a weighted-average discount rate of 8 %. Lease liability with enforceable contract terms that have greater than one-year terms are as follows: ​ ​ ​ ​ 2023 $ 121,831 2024 ​ 110,215 2025 ​ 156,077 2026 ​ 159,755 2027 ​ 163,474 Thereafter ​ 413,729 Total lease payments ​ 1,125,081 Less imputed interest ​ ( 311,495 ) Total lease liability ​ $ 813,586 ​ ​ 20 Table of Contents Note 10 — Stockholders’ Equity (Deficit) and Stock-Based Compensation Stockholders’ Equity – Initial Public Offering Following the completion of the Organizational Transactions, DDH LLC’s limited liability company agreement was amended and restated to, among other things, appoint the Company as the sole managing member of DDH LLC and effectuate a recapitalization of all outstanding preferred units and common units into (i) economic nonvoting units of DDH LLC held by the Company and, through their indirect ownership of DDM, our Chairman and Chief Executive Officer and our President, and (ii) noneconomic voting units of DDH LLC, 100 % of which are held by the Company. In August 2022, DDM tendered 100,000 of its limited liability company units to the Company in exchange for newly issued shares of Class A common stock of the Company on a one-for-one basis. In connection with this exchange, an equivalent number of the holder’s shares of Class B common stock were cancelled. As of March 31, 2023, DDM held 11,278,000 shares of Class B common stock. The Company is authorized to issue 160,000,000 shares of Class A common stock, par value $ 0.001 per share, 20,000,000 shares of Class B common stock, par value $ 0.001 per share, and 10,000,000 shares of preferred stock, par value $ 0.001 per share. On February 15, 2022, the Company completed its initial public offering of 2,800,000 units (“Units”), each consisting of (i) one share of our Class A common stock and (ii) one warrant entitling the holder to purchase one share of our Class A Common Stock at an exercise price of $ 5.50 per share. The warrants became immediately exercisable upon issuance and are exercisable for a period of five years after the issuance date. The shares of Class A Common Stock and warrants were immediately transferable separately upon issuance. At March 31, 2023, 2,797,800 of these warrants are outstanding and the intrinsic value of these warrants is $ 0 . The underwriters in our initial public offering were granted a 45 -day option to purchase up to an additional 420,000 shares and/or warrants, or any combination thereof, to cover over-allotments, which they initially exercised, in part, electing to purchase warrants to purchase an additional 420,000 shares of Class A Common Stock. As of March 31, 2023, 420,000 of these warrants are outstanding. In connection with our initial public offering, we issued to the underwriters of the offering a unit purchase option to purchase (i) an additional 140,000 Units at a per Unit exercise price of $ 6.60 , which was equal to 120 % of the public offering price per Unit sold in the initial public offering, and (ii) warrants to purchase 21,000 shares of Class A Common Stock at a per warrant exercise price of $ 0.012 , which was equal to 120 % of the public offering price per warrant sold in the offering. The underwriters have not exercised this option as of March 31, 2023. The Units were sold at a price of $ 5.50 per Unit, and the net proceeds from the offering were $ 10,167,043 , after deducting underwriting discounts and commissions and offering expenses payable by the Company. The offering expenses recorded in accrued liabilities are approximately $ 1,000,000 as of March 31, 2023, and relate to executive performance bonuses which are payable upon a certain level of cash generated by warrant exercises. DDH LLC used the proceeds, together with pre-existing cash and cash equivalents, to purchase all of the remaining 5,637 common units and 7,046 Class B Preferred Units held indirectly by Woolford for an aggregate purchase price of approximately $ 14,246,251 , of which $ 10,284,089 was paid on the closing date of the initial public offering. On July 28, 2022, DDH LLC entered into the Redemption Agreement Amendment with USDM Holdings, Inc. that amended the previously disclosed Redemption Agreement by and between DDH LLC and USDM Holdings, Inc. dated as of November 14, 2021 (the “Original Redemption Agreement”), as amended by the Amendment to Redemption Agreement dated as of February 15, 2022. The Redemption Agreement Amendment, among other things, amended the remainder of the principal and interest for the Common Units Redemption Price to be $ 3,998,635 , which was paid in full on July 28, 2022. The warrants had a fair value of $ 0 that was calculated using the Black-Scholes option -pricing model. Variables used in the Black-Scholes option-pricing model include: (1) discount rate of 1.94 % based on the applicable U.S. Treasury bill rate, (2) expected life of 5 years, (3) expected volatility of approximately 66 % based on the trading history of similar companies, and (4) zero expected dividends. 21 Table of Contents The following table summarizes warrant activity as of March 31, 2023: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Warrants ​ ​ ​ ​ ​ ​ Weighted Average ​ ​ ​ ​ ​ ​ ​ Weighted Average ​ Contractual Life ​ Aggregate ​ Shares Exercise Price (in years) Intrinsic Value Outstanding at January 1, 2023 3,220,000 ​ $ 5.50 4.38 ​ $ — Granted — ​ $ — — ​ $ — Exercised ( 2,200 ) ​ $ 5.50 — ​ $ — Canceled — ​ $ — — ​ $ — Outstanding at March 31, 2023 3,217,800 ​ $ 5.50 4.38 ​ $ — Exercisable at March 31, 2023 3,217,800 ​ ​ ​ ​ ​ ​ ​ ​ ​ Stock-Based Compensation Plans In connection with our IPO, the Company adopted the 2022 Omnibus Incentive Plan (“2022 Omnibus Plan”) to facilitate the grant of equity awards to our employees, consultants and non-employee directors. The Company’s board of directors reserved 1,500,000 shares of Class A common stock for issuance in equity awards under the 2022 Omnibus Plan. Information on activity for both the stock options and RSUs is detailed below. During the three months ended March 31, 2023, the Company recognized $ 94,538 of total stock-based compensation expense in the consolidated statement of operations with compensation, tax and benefits. Stock Options Options to purchase shares of common stock vest annually on the grant date anniversary over a period of three years and expire 10 years following the date of grant. The following table summarizes the stock option activity under the 2022 Omnibus Plan as of March 31, 2023: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Stock Options ​ ​ ​ ​ Weighted Average ​ ​ ​ ​ ​ ​ Weighted Average ​ Contractual Life ​ Aggregate ​ ​ Shares ​ Exercise Price ​ (in years) ​ Intrinsic Value Outstanding at December 31, 2022 254,000 ​ $ 1.69 9.44 $ 19,486 Granted 135,015 ​ $ 3.96 9.97 ​ $ 24,303 Exercised — ​ $ — ​ ​ $ — Forfeited ( 400 ) ​ $ 1.62 ​ ​ $ 908 Outstanding at March 31, 2023 388,615 ​ $ 2.48 9.47 ​ $ 393,705 Exercisable at March 31, 2023 — ​ ​ ​ As of March 31, 2023, all stock options remain unvested with related unamortized stock-based compensation expense totaling $ 510,375 and the weighted-average period over which such stock-based compensation expense will be recognized is 2.69 years. 22 Table of Contents Restricted Stock Units RSUs vest annually on the grant date anniversary over a period of three years . A summary of RSU activity and related information is as follows: ​ ​ ​ ​ ​ ​ ​ ​ ​ Restricted Stock Units ​ ​ ​ ​ Weighted Average ​ ​ ​ ​ Grant Date Fair Value ​ Number of Shares ​ per Share Unvested- December 31, 2022 ​ 352,764 ​ $ 1.67 Granted 236,754 ​ ​ 3.93 Exercised — ​ — Forfeited ( 400 ) ​ $ 1.62 Canceled — ​ — Unvested- March 31, 2023 589,118 ​ $ 2.58 ​ As of March 31, 2023, unrecognized stock-based compensation of $ 1,342,261 related to unvested RSUs will be recognized on a straight- line basis over a period of 2.7 years. ​ Note 11 — Loss Per Share The Company has two classes of common stock, Class A and Class B. Basic and diluted earnings per share (“EPS”) attributable to common stockholders for Class A and Class B common stock were the same because they were entitled to the same liquidation and dividend rights. The following table sets forth the computation of the Company’s basic and diluted loss per share. ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ For the Three Months Ended ​ ​ March 31, ​ ​ 2023 2022 ​ Net loss ​ $ ( 1,333,934 ) ​ $ ( 671,623 ) ​ ​ ​ ​ ​ ​ ​ ​ ​ Weighted average common shares outstanding - basic ​ 14,575,845 ​ 7,106,471 ​ Options to purchase common stock ​ — ​ — ​ Restricted stock ​ — ​ — ​ Weighted average common shares outstanding - diluted ​ 14,575,845 ​ 7,106,471 ​ Net loss per common share, basic and diluted ​ $ ( 0.09 ) ​ $ ( 0.09 ) ​ ​ ​ ​ ​ The following weighted-average outstanding shares of common stock equivalents were excluded from the computation of diluted net income per share attributable to common stockholders for the periods presented because including them would have been anti-dilutive: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ March 31, ​ ​ 2023 2022 ​ Warrants to purchase common stock ​ 3,217,800 ​ 3,220,000 ​ Options to purchase common stock ​ 388,615 ​ — ​ Total excludable from net loss per share attributable to common stockholders - diluted ​ 3,606,415 ​ 3,220,000 ​ ​ Note 12 — Employee Benefit Plans The Company sponsors a safe harbor, defined contribution 401(k) and profit-sharing plan (the “Plan”) that allows eligible employees to contribute a percentage of their compensation. The Company matches employee contributions up to a maximum of 100 % of the participant’s salary deferral, limited to 4 % of the employee’s salary. For the three ended March 31, 2023 and 2022, the Company’s matching contributions were $ 64,871 and $ 50,561 , respectively. Additionally, the Company may make a discretionary profit- sharing contribution to the Plan. During the three months ended March 31, 2023 and 2022, no profit-sharing contributions were made. 23 Table of Contents The Company has an Employee Benefit Plan Trust (the “Trust”) to provide for the payment or reimbursement of all or a portion of covered medical, dental and prescription expenses for the employees of Orange 142. The Trust is funded with contributions made by the Company and participating employees at amounts sufficient to keep the Trust on an actuarially sound basis. The self-funded plan has an integrated stop loss insurance policy for the funding of the Trust benefits in excess of the full funding requirements. As of March 31, 2023 and December 31, 2022, the Company analyzed the incurred but not reported claims and recorded an estimated liability, as required. ​ Note 13 — Tax Receivable Agreement and Income Taxes Tax Receivable Agreement In connection with our initial public offering in February 2022, the Company entered into a tax receivable agreement (“TRA”) with DDH LLC and DDM (together, the “TRA Holders”) which provides for payment by the Company to the TRA Holders of 85 % of the net cash savings, if any, in U.S. federal, state and local income tax and franchise tax that the Company actually realizes or is deemed to realize in certain circumstances. Direct Digital Holdings, Inc. will retain the benefit of the remaining 15 % of these net cash savings, and as a result, the Company recorded $ 823,481 during 2022 as additional paid-in capital. The TRA liability is calculated by determining the tax basis subject to the TRA (“tax basis”) and applying a blended tax rate to the basis differences and calculating the resulting impact. The blended tax rate consists of the U.S. federal income tax rate and assumed combined state and local income tax rate driven by the apportionment factors applicable to each state. Any taxable income or loss generated by the Company will be allocated to TRA Holders in accordance with the TRA, and distributions to the owners of LLC Units in an amount sufficient to fund their tax obligations will be made. Pursuant to the Company’s election under Section 754 of the Code, the Company expects to obtain an increase in its share of the tax basis in the net assets of DDH, LLC when LLC interests are redeemed or exchanged by the members of DDH, LLC. The Company plans to make an election under Section 754 if the Code for each taxable year in which a redemption or exchange of LLC interest occurs. During the year ended December 31, 2022, a member of DDM exchanged 100,000 Class B shares into Class A shares. As of March 31, 2023, the Company has recorded a deferred tax asset primarily from the outside basis difference in the partnership interest of $ 5,240,074 , and a total TRA liability of $ 4,286,375 , of which $ 41,141 is reflected as a current liability in which $ 45,815 was paid during the three months ended March 31, 2023. The payments under the TRA will not be conditional on holder of rights under the TRA having a continued ownership interest in either DDH LLC or the Company. We may elect to defer payments due under the TRA if we do not have available cash to satisfy our payment obligations under the TRA. Any such deferred payments under the TRA generally will accrue interest from the due date for such payment until the payment date. We account for any amounts payable under the TRA in accordance with ASC Topic 450, Contingencies, and will recognize subsequent period changes to the measurement of the liability from the TRA in the statement of operations as a component of income before taxes. The term of the TRA commenced upon completion of our IPO and will continue until all tax benefits that are subject to the TRA have been utilized or expired, unless we exercise our right to terminate the TRA. If we elect to terminate the TRA early (or it is terminated early due to changes in control), our obligations under the TRA would accelerate and we would be required to make an immediate payment equal to the present value of the anticipated future payments to be made by us under the TRA. Income Taxes Through the Organizational Transactions completed in February 2022, the Company formed an Up-C structure which allows DDM to continue to realize tax benefits associated with owning interests in an entity that is treated as a partnership for U.S. federal income tax purposes. Under the Up-C structure, the Company is subject to corporation income tax on the variable ownership changes of 19.7 % and 20.45 % that occurred in the first and third quarters of 2022, respectively. As a result, the Company recorded a tax provision benefit for federal and state income tax of $ 74,648 and $ 0 for the three months ended March 31, 2023 and 2022, respectively. 24 Table of Contents The benefit for income taxes is based on the estimated annual effective rate for the year, which includes estimated federal and state income taxes on the Company’s projected pre-tax income. The (benefit)/expense for income taxes and the effective income tax rates were as follows: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ For the Three Months Ended ​ ​ March 31, ​ 2023 2022 Benefit for income taxes ​ $ ( 74,648 ) ​ $ — Effective income tax rate ​ 5.3 % — ​ The effective tax rates were lower than the statutory tax rates for the three months ended March 31, 2023 primarily due to the Company partnership income that is not subject to federal and state taxes. The change in tax expense of $ 74,648 when compared to the prior year is primarily attributed to losses reported in the current quarter for which benefit of those losses are expected when compared to losses from the prior year in which those benefits were uncertain. ​ The Company files for income tax returns in the United States federal jurisdiction and various state jurisdictions. In the normal course of business, the Company can be examined by various tax authorities, including the Internal Revenue Service in the United States. There are currently no federal or state audits in process. ​ Note 14 — Segment Information Operating segments are components of an enterprise for which separate financial information is available and is evaluated regularly by the Company’s chief operating decision maker in deciding how to allocate resources and assess performance. The Company’s chief operating decision maker is its Chairman and Chief Executive Officer. The Company views its business as two reportable segments, buy-side advertising, which includes the results of Huddled Masses and Orange142, and sell-side advertising, which includes the results of Colossus Media. All of the Company’s revenues are attributed to the United States. Revenue by business segment is as follows: ​ ​ ​ ​ ​ ​ ​ ​ ​ March 31, ​ ​ 2023 2022 ​ Buy-side advertising ​ $ 7,439,666 ​ $ 5,831,041 ​ Sell-side advertising ​ ​ 13,783,244 ​ 5,539,296 ​ Total revenues ​ $ 21,222,910 ​ $ 11,370,337 ​ ​ Operating income (loss) by business segment reconciled to income (loss) before taxes is as follows: ​ ​ ​ ​ ​ ​ ​ ​ ​ March 31, ​ ​ 2023 2022 ​ Buy-side advertising ​ $ 1,504,861 ​ $ 1,074,210 ​ Sell-side advertising ​ 1,278,332 ​ 651,042 ​ Corporate office expenses ​ ( 2,924,532 ) ​ ( 1,140,381 ) ​ Total operating income (loss) ​ ​ ( 141,339 ) ​ ​ 584,871 ​ Corporate other expense ​ ​ ( 1,267,243 ) ​ ​ ( 1,256,494 ) ​ Loss before taxes ​ $ ( 1,408,582 ) ​ $ ( 671,623 ) ​ ​ Total assets by business segment are as follows: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ March 31, ​ December 31, ​ ​ 2023 2022 ​ Buy-side advertising ​ $ 25,840,255 ​ $ 25,685,528 ​ Sell-side advertising ​ 20,140,458 ​ 25,512,367 ​ Corporate office ​ 7,203,615 ​ 6,928,144 ​ Total assets ​ $ 53,184,328 ​ $ 58,126,039 ​ ​ ​ 25 Table of Contents Note 15 — Subsequent Events The Company has evaluated events and transactions occurring subsequent to March 31, 2023, through the date of this report and determined there were no events or transactions that would require recognition or disclosure. ​