What changed in this filing

/stocks — the workspaceLOADING

Item 1. Financial Statements

2023-08-11 compared with 2023-05-15 · 226 added, 161 removed, 556 unchanged (41% of the section changed)

3 unchanged sentences

CONSOLIDATED BALANCE SHEETS

March 31, 2023

June 30, 2023

December 31, 2022

5 unchanged sentences

Property, equipment and software, net of accumulated depreciation and amortization of $ 155,698 and $ 34,218 , respectively

Intangible assets, net (Note 4)

Deferred tax asset, net (Note 13)

Intangible assets, net

Deferred tax asset, net

Operating lease right-of-use assets

Other long-term assets

LIABILITIES AND STOCKHOLDERS’ EQUITY (DEFICIT)

LIABILITIES AND STOCKHOLDERS’ EQUITY

CURRENT LIABILITIES

1 unchanged sentence

Accrued liabilities

Current portion of liability related to tax receivable agreement

Liability related to tax receivable agreement, current portion

Notes payable, current portion

2 unchanged sentences

Income taxes payable

Related party payables (Note 8)

Related party payables

Total current liabilities

5 unchanged sentences

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

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

STOCKHOLDERS’ EQUITY

Class A common stock, $ 0.001 par value per share, 160,000,000 shares authorized, 3,519,780 and 3,252,764 shares issued and outstanding , respectively

Class B common stock, $ 0.001 par value per share, 20,000,000 shares authorized, 11,278,000 shares issued and outstanding

Additional paid-in capital

9 unchanged sentences

For the Three Months Ended

For the Six Months Ended

Buy-side advertising

9 unchanged sentences

Total operating expenses

(Loss) income from operations

Income from operations

Other income (expense)

Forgiveness of Paycheck Protection Program loan

Loss on redemption of non-participating preferred units

2 unchanged sentences

( 1,027,493 )

Total other expense

( 2,044,794 )

( 1,364,038 )

Loss before taxes

Total other expense

( 2,252,423 )

Tax (benefit)

( 1,619,602 )

Net loss per common share:

Basic and diluted

Income (loss) before taxes

Tax expense (benefit)

Net income (loss)

Net income (loss) per common share:

Weighted-average number of shares of common stock outstanding:

Basic and diluted

See accompanying notes to the unaudited consolidated financial statements.

1 unchanged sentence

AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY (DEFICIT)

Three Months Ended March 31, 2023

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY

Six Months Ended June 30, 2023

Stockholders’

2 unchanged sentences

Stock-based compensation

Issuance of restricted stock

Issuance of restricted stock net of shares withheld for vested awards

Restricted stock forfeitures

Warrants exercised

( 1,333,934 )

Distributions to members

Balance, June 30, 2023

( 4,534,925 )

Three Months Ended June 30, 2023

Stockholders’

Balance, March 31, 2023

( 4,977,195 )

Three Months Ended March 31, 2022

Stock-based compensation

Issuance of restricted stock net of shares withheld for vested awards

Restricted stock forfeitures

Distributions to members

Balance, June 30, 2023

( 4,534,925 )

Six Months Ended June 30, 2022

Stockholders'

7 unchanged sentences

( 7,200,000 )

Stock-based compensation

Issuance of restricted stock

Distributions to members

Additional paid-in capital related to tax receivable agreement

Balance, June 30, 2022

( 3,036,348 )

Three Months Ended June 30, 2022

Stockholders'

Balance, March 31, 2022

( 5,489,170 )

Transaction costs associated with IPO

Stock-based compensation

Issuance of restricted stock

Distributions to members

Additional paid-in capital related to tax receivable agreement

Balance, June 30, 2022

( 3,036,348 )

See accompanying notes to the unaudited consolidated financial statements.

2 unchanged sentences

CONSOLIDATED STATEMENTS OF CASH FLOWS

For the Three Months Ended March 31,

Cash Flows Provided By (Used In) Operating Activities:

( 1,333,934 )

Adjustments to reconcile net loss to net cash provided by (used in) operating activities:

For the Six Months Ended June 30,

Cash Flows Provided By Operating Activities:

Net income (loss)

Adjustments to reconcile net income (loss) to net cash provided by operating activities:

Amortization of deferred financing costs

4 unchanged sentences

Stock-based compensation

Forgiveness of Paycheck Protection Program loan

Deferred income taxes

2 unchanged sentences

Contingent loss on early termination of line of credit

Bad debt recovery

Bad debt expense

Changes in operating assets and liabilities:

Accounts receivable

( 3,326,215 )

( 6,996,667 )

Prepaid expenses and other assets

Accounts payable

( 3,908,861 )

Accrued liabilities

3 unchanged sentences

Related party payable

Net cash provided by (used in) operating activities

Net cash provided by operating activities

Cash Flows Used In Investing Activities:

1 unchanged sentence

Net cash used in investing activities

Cash Flows (Used In) Provided by Financing Activities:

Cash Flows Provided by (Used In) Financing Activities:

Payments on term loan

8 unchanged sentences

Distributions to members

Net cash (used in) provided by financing activities

Net increase (decrease) in cash and cash equivalents

Net cash provided by (used in) financing activities

( 1,424,587 )

Net increase in cash and cash equivalents

Cash and cash equivalents, beginning of the period

6 unchanged sentences

Common unit redemption balance included in accrued liabilities

Outside basis difference in partnership

Tax receivable agreement payable to Direct Digital Management, LLC

Tax benefit on tax receivable agreement

See accompanying notes to the unaudited consolidated financial statements.

65 unchanged sentences

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”).

As of June 30, 2023, $ 5,668,479 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.

4 unchanged sentences

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

As of June 30, 2023 and December 31, 2022, the Company’s allowance for doubtful accounts

was $ 25,754 and $ 4,323 , respectively.

3 unchanged sentences

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:

Bad debt expense was $ 51,652 and $ 27,224 for the three months ended June 30, 2023 and 2022, respectively, and $ 51,532 and $ 24,799 for the six months ended June 30, 2023 and 2022, respectively.

Concentration of customers

There is an inherent concentration of credit risk associated with accounts receivable arising from revenue from major customers on both the buy-side and sell-side of the business.

For the three months ended June 30, 2023 and 2022, one customer represented 63 % and 56 % of revenues, respectively, and a second customer represented 10 % and 0 % of revenues, respectively.

For the six months ended June 30, 2023 and 2022, one customer represented 62 % and 53 % of revenues, respectively, and a second customer represented 1 % and 11 % of revenues, respectively.

As of June 30, 2023 and December 31, 2023, one customer accounted for 75 % and 80 %, respectively, of accounts receivable.

Property and equipment, net

14 unchanged sentences

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.

As of June 30, 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

7 unchanged sentences

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.

As of June 30, 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

12 unchanged sentences

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.

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 six months ended June 30, 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.

There were no unamortized deferred financing costs related to the line of credit as of June 30, 2023 and December 31, 2022.

Termination of the facility with Silicon Valley Bank (“SVB”) 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 six months ended June 30, 2023 and 2022, respectively.

Unamortized deferred financing costs for the note payable was $ 1,858,720 and $ 2,115,161 as of June 30, 2023 and December 31, 2022, respectively, and netted against the outstanding debt on the consolidated balance sheets.

Right-of-use assets

2 unchanged sentences

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:

3 unchanged sentences

4) allocation of the transaction price to the performance obligation(s) in the contract;

● Recognition of revenue when, or as, the performance obligation(s) are satisfied.

and 5) recognition of revenue when, or as, the performance obligation(s) are satisfied.

The Company’s revenues are derived primarily from two sources:

15 unchanged sentences

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.

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 $ 950,831 and $ 546,710 as of June 30, 2023 and December 31, 2022, respectively.

Sell-side advertising

5 unchanged sentences

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.

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 its customers 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.

Cost of revenues

7 unchanged sentences

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 .

Advertising expense incurred during the three months ended June 30, 2023 and 2022 was $ 533,825 and $ 220,236 , respectively and $ 1,002,263 and $ 322,667 for the six months ended June 30, 2023 and 2022, respectively.

These costs are included in general and administrative expenses in the consolidated statements of operations.

4 unchanged sentences

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.

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.

For additional information regarding stock-based compensation and the assumptions used for determining the fair value of stock options, see Note 10 — Stockholders’ Equity 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.

Basic income (loss) per share is calculated by dividing net income (loss) 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.

1 unchanged sentence

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.

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”).

“Continuing LLC Owner”).

The TRA provides for certain income (loss) allocations between the Company and DDH LLC under the agreement.

11 unchanged sentences

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.

As of June 30, 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.

6 unchanged sentences

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

Accounting pronouncements recently adopted

In June 2016, the FASB issued ASU No.

2 unchanged sentences

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

within those annual periods, beginning after December 15, 2022.

This ASU is effective for annual periods, including interim periods 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 .

As of June 30, 2023, the Company had cash and cash equivalents of $ 5,668,479 .

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.

9 unchanged sentences

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

The Company acquired the license to our proprietary Colossus SSP platform in November 2022 from its third-party developer.

Depreciation and amortization expense related to property, equipment and software was $ 64,987 and $ 0 for the three months ended June 30, 2023 and 2022, respectively, and $ 121,480 and $ 0 for the six months ended June 30, 2023 and 2022, respectively.

The following table summarizes depreciation and amortization expense by line item for the three and six months ended June 30, 2023 and 2022:

Three Months Ended

For the Six Months

Cost of revenue

7 unchanged sentences

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:

For the three months ended June 30, 2023 and 2022, amortization expense of $ 488,455 and $ 488,455 , respectively, and for the six months ended June 30, 2023 and 2022, amortization expense of $ 976,909 and $ 976,909 , respectively, was recognized, and as of June 30, 2023 and December 31, 2022, intangible assets net of accumulated amortization was $ 12,660,850 and $ 13,637,759 , respectively.

As of June 30, 2023, intangible assets and the related accumulated amortization, weighted-average remaining life and future amortization expense are as follows:

Trademarks and

21 unchanged sentences

Note 6 — Long-Term Debt

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 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).

On June 1, 2023 the Company entered into an agreement with Lafayette Square to convert the existing LIBOR based rate to a Term SOFR

Rate with a credit spread of 0.15 % per annum for the interest periods of three months and provides for a credit spread adjustment of 0.10 %, 0.15 % or 0.25 % per annum for interest periods of one month, three months or six months, respectively.

The maturity date of the 2021 Credit Facility is December 3, 2026.

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 2021 Credit Facility, as amended by 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 June 30, 2023, the Company owed a balance on the 2021 Credit Facility of $ 25,356,250 .

Additional deferred financing costs of $ 15,567 and $ 180,480 were incurred during the six months ended June 30, 2023 and 2022, respectively.

Unamortized deferred financing costs as of June 30, 2023 and December 31, 2022 were $ 1,858,720 and $ 2,115,161 respectively.

Accrued and unpaid interest was $ 0 as of June 30, 2023 and December 31, 2022.

The 2021 Credit Facility contains affirmative and negative covenants that, among other things, require the Company to maintain a net leverage ratio of no more than 3.50 to 1.00 as of the last day of each fiscal quarter through December 31, 2023, as adjusted thereafter, and a fixed charge coverage ratio of not less than 1.50 to 1.00 as of the last day of each fiscal quarter, as well as restrictions on the ability to incur indebtedness, create certain liens, make certain investments, make certain dividends and other types of distributions, and enter into or undertake certain mergers, consolidations, acquisitions and sales of certain assets and subsidiaries.

The Company was in compliance with all the financial covenants under the 2021 Credit Facility as of June 30, 2023.

The components of interest expense and related fees for the 2021 Credit Facility are as follows:

For the Three Months

For the Six Months

Interest expense – Lafayette Square

Amortization of deferred financing costs – Lafayette Square

Total interest expense and amortization of deferred financing costs

2020 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 September 30, 2020, the Company entered into a credit agreement that provided for a revolving credit facility with East West Bank (“EWB”) in the amount of $ 4,500,000 with an initial availability of $ 1,000,000 (the “2020 Revolving Credit Facility”).

On December 17, 2021, the Company amended the 2020 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.

1 unchanged sentence

On July 26, 2022, the Company terminated the 2020 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.

As of June 30, 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 2020 Revolving Credit Facility are as follows:

For the Three Months

For the Six Months

Interest expense – East West Bank

1 unchanged sentence

Total interest expense and amortization of deferred financing costs

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.

On July 7, 2023, the Company entered into a Credit Agreement (the “Credit Agreement”) with EWB which provides for a new revolving credit facility as described in Note 15 – Subsequent Events.

Silicon Valley Bank (“SVB”) Financing

On January 9, 2023, the Company entered into the SVB Loan Agreement, by and among SVB, 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.

5 unchanged sentences

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 loans under the 2021 Credit Facility bear interest at LIBOR plus the applicable margin minus any applicable impact discount.

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

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.

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.

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.

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:

Interest expense – Lafayette Square

Amortization of deferred financing costs – Lafayette Square

Total interest expense and amortization of deferred financing costs

During the six months ended June 30, 2023, the Company incurred $ 211,934 of deferred financing costs.

Small Business Administration Loans

7 unchanged sentences

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.

Accrued and unpaid interest expense as of June 30, 2023 and December 31, 2022 was $ 11,918 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

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 PPP was authorized in the Coronavirus Aid, Relief, and Economic Security Act and was designed to provide a direct financial incentive for qualifying business to keep their workforce employees.

The SBA made PPP loans 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.

2 unchanged sentences

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:

As of June 30, 2023, future minimum payments related to long-term debt are as follows for the years ended December 31:

Less current portion

3 unchanged sentences

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.

Due to the mandatory redemption feature, the Class B Preferred Units were classified as a liability rather than as a component of equity, with the preferred annual returns being accrued and recorded as interest expense.

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.

The Company recorded interest expense relating to the Class B Preferred Units of $ 0 and $ 0 , for the three months ended June 30, 2023 and 2022, respectively, and $ 0 and $ 62,162 for the six months ended June 30, 2023 and 2022, respectively.

Note 8 — Related Party Transactions

1 unchanged sentence

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.

As of June 30, 2023 and December 31, 2022, the Company had a net payable to members that totaled $ 1,197,175 and $ 1,448,333 , respectively, 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.

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 partnerships and limited liability companies and allows the Continuing LLC Owner, a Delaware limited liability company indirectly owned by Mark Walker (“Walker”) and Keith Smith (“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.

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.

3 unchanged sentences

The aggregate change in the balance of gross unrecognized tax benefits, which includes interest and penalties for 2023 and 2022, is as follows:

Tax Receivable Agreement Liabilities

Net total deferred tax assets

Liability related to tax receivable agreement

Total liability related to tax receivable agreement

Board Services and Consulting Agreement

6 unchanged sentences

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.

In connection with the Organizational Transactions, the consulting agreements were canceled, and for the three months ended June 30, 2023 and 2022 and the six months ended June 30, 2023, no fees were paid to Walker, Smith and Woolford.

For the six months ended June 30, 2022, total fees paid to Walker, Smith, and Woolford were $ 56,250 , $ 56,250 , and $ 22,500 , respectively.

Note 9 — Commitments and Contingencies

4 unchanged sentences

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).

The liability has been recorded and included in accrued liabilities on the consolidated balance sheets as of June 30, 2023 and December 31, 2022 (See Note 5 – Accrued Liabilities).

Operating Leases

2 unchanged sentences

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 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.

2 unchanged sentences

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:

For the three months ended June 30, 2023 and 2022, the Company incurred rent expense of $ 78,725 and $ 52,183 , respectively, for the combined leases.

For the six months ended June 30, 2023 and 2022, the Company incurred rent expense of $ 158,486 and $ 103,561 , respectively, for the combined leases.

Supplemental balance sheet information related to operating leases is included in the table below as of June 30, 2023:

Operating lease right-of-use asset

1 unchanged sentence

Operating lease liabilities - long-term

Total lease liability

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 %.

Total operating lease liability

The weighted-average remaining lease term for the Company’s operating lease is 6.35 years as June 30, 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:

2 unchanged sentences

Total lease liability

Note 10 — Stockholders’ Equity (Deficit) and Stock-Based Compensation

Note 10 — Stockholders’ Equity and Stock-Based Compensation

Stockholders’ Equity – Initial Public Offering

2 unchanged sentences

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.

As of June 30, 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.

On February 15, 2022, the Company completed its initial public offering of 2,800,000 units (“Units”), each consisting of (i) one share of its Class A common stock and (ii) one warrant entitling the holder to purchase one share of its 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.

At June 30, 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 June 30, 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 underwriters have not exercised this option as of June 30, 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.

The offering expenses recorded in accrued liabilities are approximately $ 1,000,000 as of June 30, 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.

7 unchanged sentences

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.

The following table summarizes warrant activity as of March 31, 2023:

The following table summarizes warrant activity as of June 30, 2023:

Weighted Average

4 unchanged sentences

Outstanding at January 1, 2023

Outstanding at March 31, 2023

Exercisable at March 31, 2023

Outstanding at June 30, 2023

Exercisable at June 30, 2023

Stock-Based Compensation Plans

2 unchanged sentences

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.

During the six months ended June 30, 2023, the Company recognized $ 304,013 of total stock-based compensation expense in the consolidated statement of operations in 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:

The following table summarizes the stock option activity under the 2022 Omnibus Plan as of June 30, 2023:

Stock Options

5 unchanged sentences

Outstanding at December 31, 2022

Outstanding at March 31, 2023

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.

Outstanding at June 30, 2023

Vested and exercisable at June 30, 2023

As of June 30, 2023, unrecognized stock-based compensation of $ 435,403 related to 289,436 of unvested stock options will be recognized on a straight-line basis over a weighted-average vesting period of 2.45 years.

Restricted Stock Units

6 unchanged sentences

Unvested- December 31, 2022

Unvested- March 31, 2023

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

Unvested- June 30, 2023

The majority of vested RSUs were net share settled such that the Company withheld shares with a value equivalent to the employees’ obligation for the applicable income and other employment taxes.

The total shares withheld was 19,568 and were based on the value of the RSUs on their respective vesting dates as determined by the Company’s closing stock price.

As of June 30, 2023, unrecognized stock-based compensation of $ 1,355,297 related to unvested RSUs will be recognized on a straight- line basis over a weighted average period of 2.21 years.

Note 11 — Income (Loss) Per Share

The Company has two classes of common stock, Class A and Class B.

2 unchanged sentences

For the Three Months Ended

( 1,333,934 )

For the Six Months Ended

Net income (loss)

Weighted average common shares outstanding - basic

Options to purchase common stock

Restricted stock

Weighted average common shares outstanding - diluted

Net loss per common share, basic and diluted

Net income (loss) per common share, basic and diluted

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:

For the Three Months Ended

For the Six Months Ended

Warrants to purchase common stock

Options to purchase common stock

Total excludable from net loss per share attributable to common stockholders - diluted

Total excludable from net income (loss) per share attributable to common stockholders - diluted

Note 12 — Employee Benefit Plans

1 unchanged sentence

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.

For the three and six months ended June 30, 2023 and 2022, the Company’s matching contributions were $ 66,083 and $ 52,501 , respectively and $ 130,954 and $ 103,062 , 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.

During the three and six months ended June 30, 2023 and 2022, no profit-sharing contributions were made.

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.

1 unchanged sentence

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.

As of June 30, 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

11 unchanged sentences

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.

As of June 30, 2023, the Company has recorded a deferred tax asset primarily from the outside basis difference in the partnership interest of $ 5,170,870 , and a total TRA liability of $ 4,286,375 , of which $ 40,112 is reflected as a current liability in which $ 752,686 was paid during the six months ended June 30, 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.

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.

4 unchanged sentences

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.

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:

As a result, the Company recorded a tax provision for federal and state income tax for the three months ended June 30, 2023 and 2022 and six months ended June 30, 2022 of $ 74,312 , $ 86,676 , and $ 86,676 , respectively, and a tax benefit of $ 336 for the six months ended June 30, 2023.

Income tax expense (benefit) 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 expense (benefit) for income taxes and the effective income tax rates were as follows:

For the Three Months Ended

Benefit for income taxes

For the Six Months Ended

Income tax expense (benefit)

Effective income tax rate

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.

The effective tax rates were lower than the statutory tax rates for the three and six months ended June 30, 2023 primarily due to the Company partnership income that is not subject to federal and state taxes.

The Company files 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.

6 unchanged sentences

Revenue by business segment is as follows:

For the Three Months

For the Six Months Ended

Buy-side advertising

2 unchanged sentences

Operating income (loss) by business segment reconciled to income (loss) before taxes is as follows:

For the Three Months

For the Six Months Ended

Buy-side advertising

3 unchanged sentences

( 1,707,313 )

Total operating income (loss)

Corporate other expense

( 6,766,119 )

( 2,847,695 )

Loss before taxes

Total operating income

Corporate other expense

( 2,252,423 )

( 1,619,602 )

Income (loss) before taxes

Total assets by business segment are as follows:

3 unchanged sentences

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.

The Company has evaluated events and transactions occurring subsequent to June 30, 2023, through the date of this report and determined there were no events or transactions other than those described below that would require recognition or disclosure.

On July 7, 2023, the Company entered into a Credit Agreement (the “Credit Agreement”), by and among EWB, as lender, and DDH LLC, the Company, Huddled Masses, Colossus Media, and Orange142, as borrowers.

The Credit Agreement provides for a revolving credit facility (the “2023 Credit Facility”) in the original principal amount of up to $ 5 million, subject to a borrowing base determined based on eligible accounts, and an up to $ 5 million uncommitted incremental revolving facility.

Loans under the 2023 Credit Facility mature on July 7, 2025 (the “Maturity Date”), unless the 2023 Credit Facility is otherwise terminated pursuant to the terms of the Credit Agreement.

Borrowings under the 2023 Credit Facility bear interest at a rate per annum equal to the one-month Term Secured Overnight Financing Rate, as administered by the CME Group Benchmark Administration Limited (“CBA”) (or a successor administrator of the secured overnight financing rate) and displayed by Bloomberg LP (or any successor thereto, or replacement thereof, as approved by EWB) and as determined by EWB on the first day of the applicable interest period, plus 0.10 % (10 basis points), plus 3.00 % per annum (the “Loan Rate”);

provided, that, in no event shall the Loan Rate be less than 0.50 % of the Loan Rate effective as of the date of the Credit Agreement nor more than the maximum rate of interest allowed under applicable law.

Upon an event of default under the Credit Agreement, the outstanding principal amounts of any advances will accrue interest at a rate per annum equal to the Loan Rate plus five percent ( 5 %), but in no event in excess of the maximum rate of interest allowed under applicable law.

At the Company’s option, the Company may at any time prepay the outstanding principal balance of the 2023 Credit Facility in whole or in part, without fee, penalty or premium.

All accrued but unpaid interest on outstanding advances under the Credit Agreement are payable in monthly installments on the last day of each monthly interest period until the Maturity Date when the then outstanding principal balance of the advances and all accrued but unpaid interest thereon becomes due and payable.

The Company and the other borrowers are required to maintain compliance at all times with the following financial covenants on a consolidated basis:

(i) a fixed charge coverage ratio of not less than 1.25 to 1.0, beginning with the fiscal quarter ended on June 30, 2023 and at the end of each fiscal quarter thereafter;

(ii) a total funded debt-to-EBITDA ratio of 3.50 to 1.00 as of the last day of each fiscal quarter from June 30, 2023 through December 31, 2023, 3.25 to 1.00 as of the last day of each fiscal quarter from March 31, 2024 through March 31, 2025 and 3.00 to 1.00 as of the last day of each fiscal quarter from June 30, 2025 and thereafter;

and (iii) a liquidity covenant requiring the Company and the other borrowers to maintain minimum liquid assets at all times (calculated using unencumbered

cash and cash equivalents and marketable securities), in one or more accounts held with EWB plus Revolving Credit Availability in the amount of $ 1,000,000 .

Revolving Credit Availability is defined as an amount such that the ratio of the value of eligible accounts to the aggregate amount of all outstanding advances under the credit agreement at such time is not less than 2.0 to 1.0.

The obligations under the 2023 Credit Facility are secured by all or substantially all of the borrowers’ assets.

The Credit Agreement contains customary representations and warranties and includes affirmative and negative covenants applicable to the borrowers and their respective subsidiaries.

The affirmative covenants include, among others, covenants requiring the Company to maintain its legal existence and governmental compliance, deliver certain financial reports and maintain insurance coverage.

The negative covenants include, among others, restrictions on indebtedness, liens, investments, mergers, dispositions, prepayment of other indebtedness and dividends and other distributions.

The Credit Agreement also includes customary events of default, including, among other things, non-payment defaults, covenant defaults, inaccuracy of representations and warranties, defaults under any of the loan documents, certain cross-defaults to other indebtedness, certain bankruptcy and insolvency events, invalidity of guarantees or grant of security interest, certain ERISA-related transactions and events, certain orders of forfeiture, change of control, certain undischarged attachments, sequestrations, or similar proceedings, and certain undischarged or non-stayed judgments, in certain cases subject to certain thresholds and grace periods.

The occurrence of an event of default could result in the acceleration of the obligations under the Credit Agreement of the Company or other borrowers.

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 1. Financial Statements