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Item 9A. Controls and Procedures

2024-10-15 compared with 2023-04-17 · 613 added, 77 removed, 111 unchanged (86% of the section changed)

1 unchanged sentence

Evaluation of Disclosure Controls and Procedures

The Company maintains disclosure controls and procedures that are designed to ensure that information required to be disclosed in the reports the Company files or submits under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, to allow timely decisions regarding required disclosure.

Our management, with the participation of our Chief Executive Officer and Chief Financial Officer, has evaluated the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act), as of the end of the period covered by this Annual Report on Form 10-K.

Based on such evaluation, our Chief Executive Officer and Chief Financial Officer concluded that, as of such date, based on the identification of the material weakness described below, our disclosure controls and procedures were not effective.

Management's Annual Report on Internal Control Over Financial Reporting.

Direct Digital’s management is responsible for establishing and maintaining adequate internal control over financial reporting.

The Company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles.

This includes policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect transactions and dispositions of assets of the Company;

(2) provide reasonable assurances that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures are being made only in accordance with authorizations of management and the directors of the Company;

and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the Company’s assets that could have a material effect on our financial statements.

Our management, including our Chief Executive Officer and Chief Financial Officer, do not expect that our disclosure controls or our internal control over financial reporting will prevent all errors and all fraud.

A control system, no matter how well designated and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met.

Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs.

Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, have been detected.

These inherent limitations include the realities that judgments in decision-making can be faulty, and that breakdowns can occur because of a simple error or mistake.

Additionally, controls can be circumvented by the individual acts of some persons, by collusion of two or more people or by management override of the controls.

The design of any system of controls is also based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions;

over time, controls may become inadequate because of changes in conditions, or the degree of compliance with policies or procedures may deteriorate.

Because of its inherent limitations, internal control over financial reporting is not intended to provide absolute assurance that a misstatement of our consolidated financial statements would be prevented or detected.

Management assessed the effectiveness of the Company’s internal control over financial reporting as of December 31, 2022.

In making this assessment, management used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework) (COSO) in Internal Control-Integrated Framework.

Based on this assessment and those criteria, management concluded that our internal control over financial reporting was not effective as of December 31, 2022.

We identified a material weakness in our controls over completeness of revenue that existed as of December 31, 2022.

A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting,

such that there is a reasonable possibility that a material misstatement of our annual or interim financial statements will not be prevented or detected on a timely basis.

The material weakness is a result of our processes and related controls not operating effectively to properly recognize revenue on a timely basis.

As further detailed in Note 16 – Revision of Previously Issued Financial Information (Unaudited), the Company identified digital advertising transactions performed by its sell-side advertising business for which invoices were not sent to a particular, individual customer during the period from August 1, 2022 through December 31, 2022.

Billing procedures related to that particular customer were modified effective August 1, 2022, and, as a result, these transactions were not captured in our standard invoicing and revenue recognition procedures.

There were no material misstatements as a result of this material weakness;

however, it could have resulted in understated revenue that could have resulted in a material misstatement to the annual or interim financial statements that would not have been prevented or detected on a timely basis.

The Company maintains disclosure controls and procedures (“Disclosure Controls”) as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act that are designed to ensure that information required to be disclosed in our Exchange Act reports is recorded, processed, summarized and reported within the time periods specified in the SEC rules and forms, and that such information is accumulated and communicated to management, including the Chief Executive Officer (“CEO”) and Chief Financial Officer (“CFO”) as appropriate to allow timely decisions regarding required disclosure.

The Company conducted an evaluation (the “Evaluation”), under the supervision and with the participation of the CEO and CFO, of the effectiveness of the design and operation of our Disclosure Controls as of December 31, 2023 pursuant to the Rules 13a-5(b) and 15d-15(b) of the Exchange Act.

In designing and evaluating the Disclosure Controls, management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives and management was required to apply judgement in evaluating its controls and procedures.

Based on this Evaluation, due to the material weaknesses described below, the CEO and CFO concluded that the Company’s Disclosure Controls were not effective as of December 31, 2023.

Management's Report on Internal Control Over Financial Reporting

The Company’s management, including the Company’s CEO and CFO, is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Exchange Act Rules 13a-15(f) and 15d-15(f).

The Company’s internal control over financial reporting is a process designed to provide reasonable assurance to our management and board of directors regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with accounting principles generally accepted in the United States.

The internal control over financial reporting includes policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect transactions and dispositions of assets of the Company;

(ii) provide reasonable assurances that transactions are recorded as necessary to permit preparation of financial statements in accordance with accounting principles generally accepted in the United States, and that receipts and expenditures of the Company are being made only in accordance with authorizations of management and directors of the Company;

and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the Company’s assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal controls over financial reporting may not prevent or detect misstatements.

All internal control systems, no matter how well designed, have inherent limitations, including the possibility of human error and the circumvention of overriding controls.

Accordingly, even effective internal control over financial reporting can provide only reasonable assurance with respect to financial statement preparation.

Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions or that the degree of compliance with the policies or procedures may deteriorate.

The Company’s management assessed the effectiveness of the Company’s internal control over financial reporting as of December 31, 2023.

In making this assessment, management used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission in Internal Control-Integrated Framework (2013).

Based on this evaluation, management concluded that the Company’s internal control over financial reporting was not effective as of December 31, 2023 due to the material weaknesses described below.

We identified material weaknesses in our controls over the journal entry processes, information technology general controls (“ITGC”) and the technical evaluation of accounting matters that existed as of December 31, 2023.

A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of our annual or interim financial statements will not be prevented or

detected on a timely basis.

The material weaknesses are a result of our processes and related controls not operating effectively related to journal entry processes, ITGC and the technical evaluation of accounting matters.

As further detailed in Note 13 – Restatement (Unaudited) to the Company’s audited financial statements, the Company identified prior year accounting errors in the Company’s previously reported unaudited interim consolidated financial statements beginning March 31, 2022 resulting from the incorrect (1) accounting for and presentation of NCI, (2) recognition of an organizational transaction in connection with the Company’s initial public offering, (3) presentation of earnings per share considering the effect of certain features of the Company’s warrants and the impact of correcting the accounting for, and presentation of, NCI, and (4) timing of the recording of the 2023 redemption of warrants.

The Company’s management and the audit committee of the Company’s Board of Directors concluded that it was appropriate to restate the quarterly unaudited consolidated financial statements for the quarterly periods ended March 31, 2023, June 30, 2023, and September 30, 2023.

Other than the described above, there were no material misstatements as a result of this material weakness;

however, it could have resulted in a material misstatement to the annual or interim financial statements that would not have been prevented or detected on a timely basis.

Due to the material weakness, we have concluded that our internal control over financial reporting was not effective as of December 31, 2023.

Management’s Plan to Remediate the Material Weakness

Management has implemented remediation steps to address the material weakness and to improve our internal control over revenue recognition.

Specifically, we have improved our review process including the reconciliation and documentation of the demand-side platform reports to our sell-side platform data, as well as improved contract management and review processes.

In addition, the Company will engage outside consultants to review business process analysis and flow of data to the accounting software platform and financial reporting.

Management has implemented remediation steps to address the material weaknesses and to improve our internal control environment.

Specifically, in late 2023, the Company engaged consultants to assist in identifying and testing the design of control over business processes as well as ITGC.

The first phase of this project was completed in the first quarter of 2024.

We are in the process of enhancing the design of certain internal control procedures and implementing new internal controls over (1) the segregation of duties within the journal entry process, (2) the access to program and change management within our information technology environment, and (3) the evaluation of technical accounting matters.

These controls are planned to be tested for design and operating effectiveness in future periods.

The Company will continue the engagement with outside consultants to review the revised control processes and procedures.

While the Company has implemented remediation steps, the material weakness cannot be considered fully remediated until the improved controls have been in place and operate for a sufficient period of time.

However, our management, including our Chief Executive Officer and Chief Financial Officer, has concluded that, notwithstanding the identified material weakness in our internal control over financial reporting, the financial statements fairly present, in all material respects, our financial condition, results of operations and cash flows for the periods presented in conformity with U.S.

However, our management, including our Chief Executive Officer and Chief Financial Officer, has concluded that, notwithstanding the identified material weaknesses in our internal control over financial reporting, the financial statements fairly present, in all material respects, our financial condition, results of operations and cash flows for the periods presented in conformity with U.S.

Remediation of Previously Reported Material Weakness

During the year ended December 31, 2023, the Company completed its efforts to remediate the material weakness identified in 2022 in our controls over completeness of revenue.

Upon completion of those efforts, the Company concluded that the material weakness had been remediated as of December 31, 2023.

As part of those remediation efforts, the Company implemented remediation actions during 2023 that included improving its review process including the reconciliation and documentation of the demand-side platform reports to the sell-side platform data, improving contract management and review processes, engaging outside consultants to review business process analysis and flow of data to the accounting software platform and financial reporting, identifying and documenting the risk assessment and internal controls, and testing the effectiveness of the design of our internal controls.

Changes in Internal Controls Over Financial Reporting

Other than as discussed above, there were no changes in internal control over financial reporting during the year ended December 31, 2023 that have materially affected, or are reasonably likely to materially affect, the Company’s internal control system over financial reporting.

Other Information

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Directors, Executive Officers and Corporate Governance

Executive Officers and Directors

The following table sets forth information regarding our executive officers and directors as of the date of this Annual Report on Form 10-K:

Executive Officers

Chairman and Chief Executive Officer

President and Director

Chief Financial Officer

Maria Vilchez Lowrey

Chief Growth Officer

Chief Technology Officer

Non-Employee Directors

Richard Cohen

December 2021

Antoinette R.

December 2021

Mistelle Locke

Executive Officers

Walker became our Chairman and Chief Executive Officer on August 23, 2021 and, from 2018 until August 22, 2021, served in the role of Managing Partner of Direct Digital Holdings LLC, a subsidiary of the Company and our holding company prior to the completion of our initial public offering (“DDH LLC”).

Prior to founding Direct Digital with Mr.

Walker worked at CVG Group, LLC (“CVG Group”), a private equity firm, from October 2016 to May 2019 as the Chief Operating Officer responsible for the operations of the portfolio companies within CVG Group’s holdings.

In this role, he was the Acting COO for Ebony Media Operations (“Ebony Media”), where he was responsible for initiating and overseeing the digital transformation of Ebony Media from a print publication to a digital-first organization.

Prior to CVG Group and Ebony Media, he worked for the largest retail electricity provider within the United States, NRG Energy Inc.

NRG), from 2005 to 2016, in positions of progressively increasing scope and responsibility.

While at NRG Energy, he built multiple revenue streams through digital, retail and business development activities while increasing overall revenue to NRG Energy, where he represented approximately 40% of new revenue of NRG Energy Home division.

Walker brings nearly 20 years of experience building relationships and revenue generating operations for Fortune 500 corporations, working in business development and marketing for Deloitte, and startup organizations.

Throughout his career, Mr.

Walker has sat on multiple advisory boards within the industry, such as Hitwise and Dentsu Aegis, and has written multiple articles and case studies that have been showcased in Jupiter Research and Search Engine Watch.

We believe that Mr.

Walker is qualified to serve as a member of our board of directors because of the perspective and experience he brings as our Chief Executive Officer and a founder of the Company, as well as his other extensive executive experience.

Walker holds a B.A.

in Economics from The University of Texas and was a member of the Board of Directors of the University of Texas Alumni Association.

Smith is a co-founder of the Company and became our President on August 23, 2021 and, from 2018 until August 22, 2021, served in the role of Managing Partner of DDH LLC.

Prior to founding Direct Digital, Mr.

Smith was a Managing Partner at Parkview Advisors, LLC, and President and CEO of Parkview Capital Credit, Inc., from November 2014 to April 2020, where he invested and managed more than $75 million with small and mid-sized businesses to provide acquisition and growth capital.

Prior to Parkview, Mr.

Smith served as Managing Director for a private equity-led, direct lending platform, Capital Point Partners, where he invested and managed more than $150 million in direct lending first lien, second lien and mezzanine investments, as well as complimentary minority equity investments.

Prior to Capital Point Partners, he worked for Rabobank International (“RI”) from 2006 to 2009, where he was a Vice President and Portfolio Manager of more than $2 billion in direct lending and structured credit bank assets for one of the company’s special investment vehicles.

He played a key role in originating new client transactions as well as managing a book of

existing bank clients.

Prior to RI, he was an Associate Director in the Structured Finance Group of Standard & Poor’s from 2003 to 2006, where he analyzed and rated transactions across a broad spectrum of asset types.

In addition to his investment banking background, Mr.

Smith also has over six years of legal experience as an attorney and has served on the boards of numerous portfolio companies.

We believe that Mr.

Smith is qualified to serve as a member of our board of directors because of the perspective and experience he brings as our President and a co-founder of the Company, as well as his other executive experience and financial, investment and management experience.

Smith holds a B.A.

in Economics from The University of Texas at Austin;

from Southern Methodist University;

and an M.B.A.

from The Olin School of Business at Washington University in St.

Diaz became our Chief Financial Officer in October 2023 after serving as the Company’s interim Chief Financial Officer since June 2023.

Diaz joined the Company from Sharps Compliance Corp.

(previously Nasdaq listed (SMED)) until its acquisition), a leading national healthcare waste management provider to customers in multiple healthcare-related markets, specializing in regulated waste streams including medical, pharmaceutical and hazardous, where she served for a total of 13 years, including as Vice President and Chief Financial Officer from June 2010 to February 2022.

Diaz’s prior positions include Chief Financial Officer of University General Hospital in Houston, Texas from September 2006 to May 2009, Controller at Memorial Hermann Healthcare System, Texas Medical Center from September 2002 to August 2006 and Controller of the wholesale group at Reliant Energy from July 1998 to May 2002.

Diaz started her career at Deloitte & Touch LLP where she worked from July 1985 to June 1998, ending her tenure at that firm as Audit Senior Manager.

Diaz received her BBA in Accounting from The University of Texas at Austin and her MBA from Rice University’s Jesse H.

Jones Graduate School of Management.

Maria Vilchez Lowrey.

Maria Vilchez Lowrey was named Chief Growth Officer of Direct Digital in August 2022.

Lowrey is responsible for leading business development, channel development, and integrating the management of brand related marketing activities across Direct Digital’s portfolio of brands.

With over 20 years of senior level leadership experience working across energy, home services, and steel sectors, Ms.

Lowrey has delivered game-changing business transformation initiatives for Fortune 500 retail giants and multi-billion-dollar companies.

As an energetic and ambitious leader, she has a passion for building new customer acquisition sales channels, scaling sales channels, and forging relationships that deliver material growth through B2B or B2B2C strategic partnerships.

Her strategic partnerships encompass launching transformational energy retail programs for well-known brands like Sam's Club, Home Depot, Kroger, Best Buy, and AT&T / DIRECTV.

Lowrey comes to Direct Digital from Just Energy, where she served as Senior Vice President of Direct Sales and Partnerships for Just Energy Group (OTC:

JE), Amigo Energy, Tara Energy, and Terrapass, its affiliate brands from December 2016 to August 2022.

There, she was responsible for diversifying the company's direct sales channels by launching its first national retail partnership with one of the largest retailers in the world.

Prior to that, she served in various key management positions across sales leadership, business development, operations, and project management at NRG Energy, Inc.(NYSE:

NRG) from 2007 to 2016, primarily responsible for building new go-to-market sales channels and developing strategic partnerships with the most well-known brands in the country.

Prior to NRG, Ms.

Lowrey started her career in the steel industry as global supply chain transportation and procurement manager serving large multi-national consumer companies.

Lowrey spends her free time as a strong advocate of community service, serving on non-profit boards such as Homemade Hope and is on the advisory board for Houston Arts Alliance and Dress for Success Houston which all help underserved communities, especially Hispanics, African Americans and women.

Lowrey holds a B.S.

in Management Information Systems from Texas A&M University.

Anu Pillai was named Chief Technology Officer of Direct Digital in March 2021.

Pillai brings extensive experience in defining and executing new product development solutions as well as large enterprise IT implementations and has successfully led global projects with complete responsibility for cross-functional teams in program management, product design, software development, system architecture, cybersecurity, integration and implementation.

Prior to serving at Digital Direct Holdings, Ms.

Pillai held executive positions and led digital transformations at several companies, including BLK/OPL, a direct-to-consumer e-commerce cosmetic brand, from 2019 to 2021, where she served as SVP, Digital Technology & Ecommerce, and Ebony Media, publisher of the iconic EBONY magazine, from 2011 to 2019, where she served as SVP, Digital Technology & Monetization.

She was responsible at both of these companies for the execution of all technology and digital initiatives including system design and architecture, development, project management, resource planning of onsite/offshore resources and monetization across all digital properties with specific emphasis on increasing revenues through various programmatic channels.

Prior to that, Ms.

held leadership roles with leading Fortune 50 technology and infrastructure companies, such as General Electric, from 2005 to 2007, where she served as an IT leaser;

Intel Corporation, from 2000 to 2003, where she served as a Senior Software Engineer;

and Motorola, from 1996 to 1998, where she served as an analyst, and we believe she has proven experience in managing and leading small and large global development teams with technology resources spread across the U.S., China, Mexico and India.

Pillai holds a B.S.

in Computer Science and Engineering from Bharathiar in India.

Non-Employee Directors

Richard Cohen.

Cohen became a member of our board of directors in November 2021.

He has served as President of Richard M Cohen Consultants since 1996, where he provides corporate financial consulting services to a number of clients.

Cohen served as Founder and Managing Partner of Chord Advisors from March 2012 to July 2015, a firm providing outsourced CFO services to both public and private companies.

Prior to founding Chord Advisors, Mr.

Cohen served as the Interim CEO, and as a member of the board of directors, of CorMedix Inc.

CRMD), from March 2012 to July 2015.

Cohen has also served as a partner with Novation Capital from July 2001 to August 2012 until its sale to a private equity firm.

He has served as a member of numerous boards and committees, including as a member of the audit committee of Rodman and Renshaw, an investment banking firm, from July 2008 to August 2012, and as a member of the board of directors of Great Elm Capital Corp., a public company which operates as a management investment company, since March 2022;

Smart for Life, Inc.

SMFL), a public company which develops, manufactures and sells nutritional and related products, from February 2022 to August 2022;

20/20 GeneSystems Inc., a private company in the digital diagnostics sector, since 2018;

Ondas Networks, Inc.

ONDS), a public company which provides private wireless data and drone solutions, since 2016;

and Helix BioMedix, a former public company specializing in dermatology and consumer products, since 2005, where he has also served as a member of the audit committee.

We believe that Mr.

Cohen is qualified to serve as a member of our board of directors because of his extensive financial experience, as well as his leadership and management skills gained from his prior board experience.

He holds a B.S.

with honors in Economics from the University of Pennsylvania Wharton School and an M.B.A.

from Stanford University.

Antoinette R.

Leatherberry.

Leatherberry became a member of our board of directors in November 2021.

Leatherberry retired from Deloitte, a consulting, audit, tax and advisory services company, in September 2020, where she served in a number of roles during her 30-year career, including Board Relations Leader for the Risk and Financial Advisory practice, from September 2017 to September 2020, and Principal, Technology Strategy, from 2008 to August 2017.

She also served as President of the Deloitte Foundation, from 2016 until her retirement.

Leatherberry has served as a member of the board of directors, audit committee, and human resource committee of Zoetis Inc.

ZTS), a public animal health company, since December 2020, and as a member of the board of directors, the nominating and governance committee, and the compensation committee of American Family Insurance Mutual Holding Company, Inc., a private mutual company, since January 2021.

She has also served on the Widener University Board of Trustees, since 2015, and the Boston University Board of Trustees since September 2020.

She previously served as chair of The Executive Leadership Council from January 2019 until December 2020.

We believe that Ms.

Leatherberry is qualified to serve as a member of our board of directors because of her extensive experience with complex technology transformations, her strategic digital technology experience, and her corporate governance expertise.

She holds a B.S.

in Mechanical Engineering from Boston University and an M.B.A.

in Operations Management and Supervision from Northeastern University.

Mistelle Locke.

Locke was appointed to our Board in January 2023, upon the recommendation of the Nominating and Corporate Governance Committee.

Locke served as an advisor to the Board from February 2022 through January 2023.

She previously served as Chief Marketing Officer for industry leader Dentsu Media.

Prior to that, Ms.

Locke served in several senior executive positions for iProspect, including President of iProspect Americas, Global Chief Client Officer and Global Chief Marketing Officer.

Locke transformed iProspect, a company that she helped grow through a merger in 2008 with her company, Range Online Media, from an SEO brand into the largest and most innovative digital media and performance agency in the world scaled across more than 90 markets with more than 8,000 media and performance specialists.

In her career, Ms.

Locke has worked with some of the world's most iconic brands, including General Motors, Adidas, NIKE, The GAP Brands, Microsoft, Estée Lauder Companies, Accor Hotels, Burberry, Heineken and Kering.

She also received the e-Microsoft Bing "Lifetime Achievement" award, for her contribution to the digital advertising industry, and Fast Company listed her on its list of "25 Top Women Business Builders." We believe Ms.

Locke is qualified to serve

as a member of our board of directors because of her tremendous amount of industry insight and expertise and will be a valuable asset for the senior leadership team and our strategic decision-making.

She holds a Bachelor’s Degree in Corporate Communications from the University of Texas.

Family Relationships

There are no family relationships between or among any of our directors or executive officers.

Involvement in Certain Legal Proceedings

None of our directors, executive officers or control persons have been involved in any of the following events during the past ten years:

any bankruptcy petition filed by or against any business of which such person was a general partner or executive officer either at the time of the bankruptcy or within two years prior to that time;

any conviction in a criminal proceeding or being subject to a pending criminal proceeding (excluding traffic violations and other minor offences);

being subject to any order, judgment, or decree, not subsequently reversed, suspended or vacated, of any court of competent jurisdiction, permanently or temporarily enjoining, barring, suspending or otherwise limiting his involvement in any type of business, securities or banking activities;

being found by a court of competent jurisdiction (in a civil action), the Commission or the Commodity Futures Trading Commission to have violated a federal or state securities or commodities law, and the judgment has not been reversed, suspended, or vacated.

Audit Committee

Our audit committee consists of Mr.

Cohen and Mses.

Leatherberry and Locke.

Under the Nasdaq listing rules and Rule 10A-3 under the Exchange Act (“Rule 10A-3”), the audit committee is required to be comprised of at least three directors who meet certain independence and experience standards, subject to transitional relief during the one-year period following the completion of an initial public offering.

Our board of directors has determined that each of Mr.

Cohen and Mses.

Leatherberry and Locke satisfy the independence requirements under the Nasdaq listing standards and Rule 10A-3.

The chair of our audit committee is Mr.

Cohen, whom our board of directors determined is an “audit committee financial expert” within the meaning of SEC regulations.

Each member of our audit committee can read and understand fundamental financial statements in accordance with applicable requirements.

The primary purpose of the audit committee is to discharge the responsibilities of our board of directors with respect to our corporate accounting and financial reporting processes, systems of internal control and financial statement audits, and to oversee our independent registered public accounting firm.

Specific responsibilities of our audit committee include:

● helping our board of directors oversee our corporate accounting and financial reporting processes;

● reviewing and discussing with management all press releases regarding our financial results and any other information provided to securities analysts and rating agencies, including any non-GAAP financial information;

● managing the selection, engagement, qualifications, independence and performance of a qualified firm to serve as the independent registered public accounting firm to audit our financial statements;

● discussing the scope and results of the audit with the independent registered public accounting firm, and reviewing, with management and the independent accountants, our interim and year-end operating results;

● developing procedures for employees to submit concerns anonymously about questionable accounting or audit matters;

● reviewing and approving any related-party transactions, after reviewing each such transaction for potential conflicts of interests and other improprieties;

● obtaining and reviewing a report by the independent registered public accounting firm at least annually that describes our internal quality control procedures, any material issues with such procedures and any steps taken to deal with such issues when required by applicable law;

● approving or, as permitted, pre-approving, audit and permissible non-audit services to be performed by the independent registered public accounting firm;

● reviewing and investigating conduct alleged to be in violation of our code of business conduct and ethics, and adopting, as necessary or appropriate, remedial, disciplinary, or other measures with respect to such conduct.

Our audit committee operates under a written charter that satisfies the applicable Nasdaq listing standards.

Code of Business Conduct and Ethics

4 unchanged sentences

We intend to disclose future amendments to certain provisions of our code of business conduct and ethics, or waivers of these provisions, on our website or in filings under the Exchange Act.

The additional information required by this Item is incorporated herein by reference from our Proxy Statement for our 2023 Annual Meeting of Stockholders.

Executive Compensation

The information required by this Item is incorporated herein by reference from our Proxy Statement for our 2023 Annual Meeting of Stockholders.

We have opted to comply with the executive compensation disclosure rules applicable to “smaller reporting companies,” as such term is defined in the rules promulgated under the Securities Act.

In accordance with these rules, our “named executive officers” for fiscal year 2023 were:

● Mark Walker, Chairman and Chief Executive Officer;

● Keith Smith, President and Director;

Diaz, Chief Financial Officer;

● Susan Echard, former Chief Financial Officer.

Summary Compensation Table

The following table sets forth information concerning the compensation of our named executive officers for the fiscal years ended December 31, 2023 and 2022 below.

Name and principal

incentive plan

Option awards

All other compensation

Chairman and Chief Executive Officer

Chief Financial Officer

Former Chief Financial Officer

(1) Represents the aggregate grant date fair value computed in accordance with FASB ASC Topic 718, excluding the effect of estimated forfeitures.

The assumptions used in calculating these values are described in Note 2 to the Company’s consolidated financial statements contained herein.

Diaz was employed by Vaco, LLC, a consulting firm, to which we paid a total of $290,000 in fees for fiscal year 2023, prior to Ms.

Diaz joining the Company in October 2023.

Echard’s employment with the Company ceased on June 5, 2023.

As a result of that cessation, Ms.

Echard become entitled to severance payments equal to 12 months of her base salary, subject to her continued compliance with restrictive covenants.

This amount represents the portion of those severance payments made to her in 2023.

The remaining $257,000 in severance payments were made to Ms.

Echard in 2024 .

Annual Incentive Program

Our named executive officers are each eligible to participate in an annual incentive program.

Under this program, each participating executive has a target annual incentive amount and may earn between zero and 90% of that target amount based on the Company’s achievement of specified performance goals.

For 2022, Messrs.

Walker and Smith and Ms.

Echard had target annual incentive amounts equal to 75%, 75% and 50% of their base salaries, respectively, and based on 2022 corporate performance, they each earned annual incentive payouts equal to 150% of their target amounts.

For 2023, Messrs.

Walker and Smith and Ms.

Diaz had target annual incentive amounts equal to 75%, 75% and 50% of their base salaries, respectively, and based on 2023 corporate performance, they each earned annual incentive payouts equal to 85% of their target amounts.

The earned annual incentive payouts in 2023 for 2022 performance are reported in the Summary Compensation Table above under the heading “Non-Equity Incentive Plan Compensation” and were paid in cash.

The earned annual incentive payouts for 2023 were paid in 2024 in the form of unrestricted shares of our common stock.

Executive Employment Agreements with our Named Executive Officers

Walker and Smith and Ms.

Diaz have each entered into employment agreements with our subsidiary DDH LLC.

The employment agreements set forth their annual base salaries of $500,000, $500,000 and $350,000, respectively, their eligibility for annual bonuses and long-term incentive awards, the at-will nature of their employment, certain expense

reimbursements, and their eligibility to participate in our benefit plans generally.

In addition, the employment agreements include customary non-competition, non-solicitation, non-disparagement, confidentiality, and intellectual property covenants.

The severance provisions of each executive’s employment agreement are substantially the same.

If the executive’s employment ceases for any reason, the executive will be entitled to receive (i) accrued but unpaid base salary through the termination date, (ii) reimbursement for any unreimbursed and reasonable business expenses incurred through the termination date consistent with the expense reimbursement policy of DDH LLC, (iii) payout of accrued but unpaid paid-time-off days, if required by applicable law;

and (iv) any other payments, benefits, or fringe benefits to which he or she is entitled as of the termination date under any applicable plan, program or grant.

In addition, if the executive’s employment is terminated without “cause” by DDH LLC or by the executive for “good reason”, in either case prior to a “change in control” (as those terms are defined in the executive’s employment agreement), the executive will be entitled to continuation of his or her base salary for twelve months.

However, if such termination without cause or resignation with good reason occurs upon or following a Change in Control, the executive’s period of base salary continuation will be extended from twelve to twenty-four months and the executive will also be entitled to a lump sum payment equal to his or her target bonus for the year of separation.

In each case, these severance payments will be conditioned on the executive’s execution of a general release of claims.

Equity Awards

Each of our named executive officers is also eligible to receive equity awards under our 2022 Omnibus Incentive Plan.

The size and other terms of equity awards are determined by the compensation committee of our board of directors, in their discretion.

In 2023, the compensation committee made both restricted stock unit and stock option awards to our named executive officers.

These restricted stock unit and stock option awards generally vest (subject to the continued service of the grantee) in three equal annual installments, although vesting may accelerate in connection with certain employment terminations or a change in control.

Outstanding Equity Awards at Fiscal Year End

Exercisable (#)

Unexercisable (#)(1)

Vested (#)(2)

Mark Walker Chairman and Chief Executive Officer

Keith Smith President

Diana Diaz, Chief Financial Officer

Susan Echard, Former Chief Financial Officer

(1) Options vest in equal annual installments over the three years after the option grant date.

Each option is subject to the condition that the optionee will have remained employed by the Company, or any one or more of its subsidiaries, through such vesting dates, and each option is further subject to the terms and conditions set forth in the Company’s 2022 Omnibus Incentive Plan and in the applicable stock option agreement.

(2) Restricted stock units vest in equal annual installments over the three years after the restricted stock unit grant date.

Each restricted stock unit is subject to the condition that the recipient will have remained employed by the Company, or any one or more of its subsidiaries, through such vesting dates, and each restricted stock unit is further subject to the terms and conditions set forth in the Company’s 2022 Omnibus Incentive Plan and in the applicable restricted stock unit agreement.

Clawback Policy

In 2023, the Company adopted a clawback policy (the “Clawback Policy”) to comply with the requirements of the Exchange Act, SEC rules and the Nasdaq Stock Market’s listing rules, such that in the event of an accounting restatement due to the material noncompliance of the Company with any financial reporting requirement under the securities laws, the Company is required to seek recoupment of certain cash and performance-based equity incentive compensation received or deemed to be received by the Company’s current or former executive officers to the extent such compensation is determined to have been erroneously paid.

The recovery of such compensation applies regardless of whether an executive officer engaged in misconduct or otherwise caused or contributed to the requirement for a restatement.

The policy is administered by the Company’s Board of Directors or, if so designated by the Board of Directors, a committee of the Board of Directors.

Any determinations made by the Board of Directors or a committee to which the Board’s authority under the Clawback Policy has been delegated shall be final and binding on all affected individuals.

Erroneously Awarded Compensation Analysis

As discussed below in the notes to the Company’s consolidated financial statements under the heading “Note 13 – Restatement,” the Company is restating its quarterly unaudited interim financial statements as of March 31, 2023, June 30, 2023 and September 30, 2023, for the three-month period ended March 31, 2023, the three- and six-month periods ended June 30, 2023 and for the three- and nine-month periods ended September 30, 2023, as well as certain financial information from 2022.

Under the Clawback Policy, in the event of an accounting restatement of financial statements due to the Company’s material noncompliance with any financial reporting requirement under the securities laws, the amount of Covered Compensation (as defined in the Clawback Policy) subject to recovery from an executive officer is the amount received in excess of the amount that would have been paid to the executive officer absent the restatement, calculated on a pre-tax basis.

The Clawback Policy defines “Covered Compensation” to include any non-equity incentive plan awards, bonuses paid from a bonus pool, cash awards, equity or equity-based awards, or proceeds received upon sale of shares acquired through an incentive plan, provided that such compensation is granted, earned, and/or vested based wholly or in part on the attainment of a financial performance measure.

Upon review and consideration, upon authority delegated by the Board of Directors, the Compensation Committee concluded that the revisions to the Company’s previously issued financial statements did not impact any financial metric utilized to determine Covered Compensation during the relevant periods.

As a result, the compensation committee determined that there was no erroneously awarded compensation to be recovered under the Company’s Clawback Policy as a result of the restatements.

Director Compensation

Director compensation for the year ended December 31, 2023, which was pro-rated for board members who served less than the entire service period during fiscal 2023, is shown in the table below:

Fees earned or

Richard Cohen

Antoinette R.

Mistelle Locke(3)

(1) Represents the aggregate grant date fair value computed in accordance with FASB ASC Topic 718, excluding the effect of estimated forfeitures.

The assumptions used in calculating these values are described in Note 2 to our consolidated financial statements included herein.

(2) Unvested restricted stock unit awards held by our non-employee directors as of December 31, 2023 are summarized below:

Shares to Award

Richard Cohen

June 10, 2022

June 12, 2023

Antoinette R.

June 10, 2022

June 12, 2023

Mistelle Locke

January 16, 2023

June 12, 2023

Locke was appointed to our Board on January 16, 2023.

Our non-employee director compensation policy is designed to enable us to attract and retain, on a long-term basis, highly qualified non-employee directors.

Under the policy each director who is not an employee is paid cash compensation as set forth below:

Annual Retainer

Board of Directors:

All non-employee members

Additional retainer for non-executive chairperson

Audit Committee:

Additional retainer for chair

Compensation Committee:

Additional retainer for chair

Nominating and Corporate Governance Committee:

Additional retainer for chair

These fees are payable in four equal quarterly installments, provided that the amount of such payment will be prorated for any portion of such quarter that the director is not serving on our board of directors or any committee of the board of directors.

We also reimburse our non-employee directors for reasonable travel and other expenses incurred in connection with attending our board of directors and committee meetings.

Equity Awards

We have no fixed policy regarding the issuance of equity awards to our non-employee directors.

However, our board of directors has in recent years approved annual awards of restricted stock units to our non-employee directors.

Those awards generally vest (subject to the continued service of the grantee) in three equal annual installments, although vesting may accelerate in certain circumstances, such as in connection with a change in control.

2022 Omnibus Incentive Plan

General Information About the 2022 Plan

On January 17, 2022, our board of directors adopted and our stockholders approved the 2022 Plan.

The purpose of the 2022 Plan is to enable the Company to attract, retain and motivate its employees by providing for or increasing their proprietary interests in the Company.

The 2022 Plan is a stock incentive plan under which we may offer securities of the Company to our employees.

The 2022 Plan is not subject to any provisions of the U.S.

Employee Retirement Income Security Act of 1974 and is not

qualified under Section 401(a) of the Internal Revenue Code of 1986, as amended (the “Code”).

The 2022 Plan permits the Company to satisfy any awards under the 2022 Plan by distributing to participants (1) authorized and unissued shares of the Company’s common stock, (2) shares of common stock held in the Company treasury, (3) shares of the Company’s common stock purchased on the open market or (4) shares of the Company’s common stock acquired through private purchase.

Employees, directors, officers and consultants or advisors of the Company and its affiliates are eligible for awards under the 2022 Plan.

The Committee (as discussed below) has the sole and complete authority to determine who will be granted awards under the 2022 Plan.

Eligible individuals are not required to make contributions to the 2022 Plan in order to participate.

However, as described below, depending on what method is chosen to exercise any stock options granted, an individual may be required to make a cash payment to the Company upon that exercise.

In addition, the Company may require payment of some amount for the shares subject to a restricted stock award.

Administration

The 2022 Plan is administered by the Committee, which consists of the members of our compensation committee, or if our board of directors is acting as our compensation committee, the individuals constituting “eligible” directors of our board of directors.

The Committee administers the 2022 Plan, except in the case of awards to non-employee directors.

Awards to non-employee directors are administered by our board of directors.

The Committee in its discretion may delegate any and all of its duties to officers of the Company.

The Committee or, in the case of awards to non-employee directors, our board of directors, has the authority to determine the terms and conditions of any agreements relating to awards granted under the 2022 Plan (agreements may differ among participants), and to adopt, alter and repeal rules, guidelines and practices relating to the 2022 Plan.

The Committee or, in the case of awards to non-employee directors, our board of directors, has full discretion to administer and interpret the 2022 Plan, and to adopt whatever rules, regulations and procedures it deems necessary or advisable.

The Committee or, in the case of awards to non- employee directors, our board of directors, also has full discretion to determine, among other things, the times at which the awards may be exercised and under what circumstances an award may be exercised.

Plan Amendments

The 2022 Plan expires by its terms on the tenth anniversary of the effective date of the 2022 Plan.

However, our board of directors may terminate the 2022 Plan before that date.

No awards can be granted under the 2022 Plan after the 2022 Plan has terminated.

However, awards granted prior to the date on which the 2022 Plan terminates will not be affected by the termination and the terms and conditions of the 2022 Plan will continue to apply to those awards.

Our board of directors has the right to amend, alter, suspend, or terminate the 2022 Plan, even before the date on which the 2022 Plan is otherwise scheduled to terminate.

The Committee may also amend outstanding awards or cancel any award and provide a substitute award, subject to the participants’ consent.

However, neither our board of directors nor the Committee may amend or terminate the 2022 Plan or any outstanding awards in a manner that would impair rights of award holders without their written consent, unless the amendment is made to comply with applicable law, stock exchange rules, or accounting rules.

Shares Available for Awards

Shares Available for Issuance

The maximum number of shares of common stock that may be issued pursuant to awards granted under the 2022 Plan is 1,500,000, subject to certain adjustments for corporate transactions, as described in the section entitled “— Additional Information — Adjustments” below.

On termination, forfeiture, or expiration of an unexercised stock option grant or other award, in whole or in part, the number of shares of common stock subject to such unexercised stock option grant or other

award will become available again for grant under the 2022 Plan.

Also, shares subject to a stock option grant or other award that are not delivered to a participant because they are used to satisfy a tax withholding obligation or that are withheld to pay all or a portion of an option’s exercise price will again become available for grant under the 2022 Plan.

In addition, shares of the Company’s common stock will not be considered used if the award to which they relate is settled in cash.

Further, shares subject to awards granted in assumption or substitution of outstanding awards of an acquired entity shall not be counted against the shares of our common stock available for issuance under the 2022 Plan.

Stock Options

Stock options may be granted under the 2022 Plan.

The Committee sets the terms of the stock option grant at the time the grant is made.

These terms are described in a stock option award agreement.

The Committee, in its discretion, may designate stock options granted under the 2022 Plan as either nonqualified stock options or incentive stock options (“ISOs”).

ISOs have certain unique tax characteristics discussed below.

The stock option agreement will indicate whether the stock options are nonqualified stock options or ISOs.

Please note, however, that, even if all of the stock options are designated as ISOs, only those stock options so designated that first become vested and exercisable in a calendar year having an aggregate fair market value (determined at the date of grant) of $100,000 will be eligible to receive ISO tax treatment.

Any additional stock options that first become vested during that calendar year will be treated as nonqualified stock options for tax purposes.

Once a stock option vests, holders of stock options granted pursuant to the 2022 Plan will be able to exercise that stock option for a period determined by the Committee and set forth in their stock option agreement.

Although the period during which an option may be exercised may vary from award to award, the longest period of time for which an option will remain exercisable is ten years from the date it is granted.

If a participant’s employment terminates, the period during which they can exercise their vested stock options may change depending on the terms of their option agreement.

Restricted Stock Awards

Restricted stock awards may be granted under the 2022 Plan.

The Committee will set the terms of the restricted stock award at the time of grant and will describe these terms in a restricted stock award agreement.

If the specified performance criteria are not achieved within the established time frame, the shares will be forfeited, unless the terms of the applicable restricted stock award agreement also provide for service- based vesting, catch-up vesting or otherwise specifically alter this treatment.

Restricted Stock Units

Restricted stock unit awards may be granted under the 2022 Plan.

The Committee will set the terms of the restricted stock unit award at the time of grant and will describe these terms in a restricted stock unit agreement.

Stock Bonus Awards

Participants may receive under the 2022 Plan a grant of unrestricted shares of the Company’s common stock or other awards, including fully-vested deferred stock units, denominated in common stock, as determined by the Committee.

Cash Bonus Awards

Participants may also receive under the 2022 Plan a cash bonus award.

Any such award may be subject to a performance period, performance goals or such other terms and conditions as the Committee may designate in the applicable award agreement.

Stock Appreciation Rights

Stock appreciation rights may be granted under the 2022 Plan.

The Committee will set the terms of the stock appreciation right at the time of grant and will describe these terms in the applicable award agreement.

Additional Information

The 2022 Plan provides for appropriate adjustments in the number of shares of common stock subject to awards and available for future awards, the exercise price of outstanding awards, as well as the maximum award limits under the 2022 Plan, in the event of changes in our outstanding common stock by reason of a merger, stock split, reorganization, recapitalization or similar events.

The Committee may also make these types of adjustments if a change in law or circumstances would result in any substantial dilution or enlargement of the rights of participants under the 2022 Plan.

Repricing of options and SARs (as defined in the 2022 Plan) is generally prohibited under the 2022 Plan without approval of our stockholders.

Change in Control

Unless the applicable award agreement provides otherwise, in the event of a “change in control” (as defined in the 2022 Plan),

● if a participant’s employment or service with the Company is terminated by the Company without “cause” (as defined in the 2022 Plan) or by the participant for “good reason” (as defined in the 2022 Plan) within twelve months of a change in control of the Company or in contemplation of a change in control, all awards held by such participant become fully vested and immediately exercisable, and any applicable restricted period ends on the termination date;

● all incomplete performance periods in effect on the date the change in control occurs will end on the date of the change in control, and the Committee will determine the extent to which performance goals with respect to each such award period have been met based upon such audited or unaudited financial information then available as it deems relevant;

and each participant will be paid partial or full awards with respect to performance goals for each relevant award period based upon the Committee’s determination of the degree of attainment of any performance goals;

● the acquiring entity may choose to either (i) continue the terms and conditions of each award under the 2022 Plan, or (ii) replace the outstanding awards with a substantially equivalent award with respect to the acquiring entity’s stock;

● if an excise tax under Code Section 4999 will be triggered by any payments owed to a participant in connection with or contingent upon the change in control, the Company will reduce the aggregate amount of the payments payable to the participant such that no excise tax will be assessed, unless the after-tax payment, even with the excise tax, will be a greater value than the value resulting from the reduction and avoidance of the excise tax.

In the event of a change in control, the Committee may in its discretion also make adjustments to the stock options and restricted stock units granted under the 2022 Plan.

The Committee may substitute shares of the surviving entity or another corporation that is party to the transaction for shares of Company common stock.

In connection with such an event, the Committee may also determine that outstanding awards will be cancelled in return for a cash payment equal to the value of the cancelled awards.

In the event that the Committee decides to cancel outstanding awards, holders of outstanding awards will receive reasonable advanced notice.

Tax withholding

Participants, other than non-employee directors, in the 2022 Plan must make a cash payment to the Company, or make other arrangements satisfactory to the Committee, to satisfy the tax withholding obligations that arise under applicable law with respect to a stock option or other award granted under the 2022 Plan, including without limitation any U.S.

federal income and employment taxes and other applicable state and local taxes.

Under certain circumstances, participants may be permitted to satisfy their tax withholding obligation, in whole or in part, by having us withhold from the shares of common stock otherwise deliverable to them on the exercise of a stock option, restricted stock unit or stock appreciation right, or by surrendering shares having a fair market value on the date of exercise equal to the exercise price.

Transferability and assignment

In general, participants in the 2022 Plan can exercise an option or other award received under the 2022 Plan only during their lifetime.

Unless the agreement under which the stock option or other award was granted provides otherwise, participants cannot transfer stock options or other awards (except for shares that are not subject to a restricted period), except by will or the laws of descent and distribution or pursuant to a domestic relations order issued by a court of competent jurisdiction.

Award Termination;

The Committee has full power and authority to determine whether, to what extent and under what circumstances any award will be terminated or forfeited.

To the extent provided in the award agreement, if a participant is terminated for “cause” (as defined in the 2022 Plan), then any stock options or restricted stock units granted to such participant may be cancelled.

Awards granted under the 2022 Plan are also subject to any clawback, compensation recovery policy or minimum stock holding period requirement adopted by the Company.

Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters

The information required by this Item is incorporated herein by reference from our Proxy Statement for our 2023 Annual Meeting of Stockholders.

Certain Relationships and Related Transactions, and Director Independence

The information required by this Item is incorporated herein by reference from our Proxy Statement for our 2023 Annual Meeting of Stockholders.

The following table sets forth the beneficial ownership of our Class A common stock and Class B common stock by:

● each person, or group of affiliated persons, who is known to beneficially own more than 5% of either our Class A common stock or our Class B common stock;

● each of our named executive officers for fiscal year 2023;

● each of our current directors;

● all of our current directors and executive officers as a group.

Beneficial ownership is determined in accordance with the rules of the SEC.

These rules generally attribute beneficial ownership of securities to persons who possess sole or shared voting power or investment power with respect to such securities.

As described in Item 13 “Certain Relationships and Related Person Transactions, and Director Independence,” DDM is entitled to have its LLC Units redeemed for shares of Class A common stock on a one-for-one basis (subject to customary adjustments, including for stock splits, stock dividends and reclassifications) in accordance with the terms of the DDH LLC Agreement;

provided that, at Direct Digital Holdings’ election, Direct Digital Holdings may effect a direct exchange of such Class A common stock.

In connection with our initial public offering, we issued to DDM one share of Class B common stock for each LLC Unit it owns.

The percentage of beneficial ownership of our Class A common stock and our Class B common stock is based on 3,795,199 shares of Class A common stock and 10,868,000 shares of Class B common stock issued and outstanding as of October 11, 2024 (the “Measurement Date”).

DDM holds all of the issued and outstanding shares of our Class B common stock.

The shares of Class B common stock have no economic rights, but each share entitles the holder to one vote per share on all matters on which stockholders of Direct Digital Holdings are entitled to vote generally.

The voting power afforded to the DDM by its shares of Class B common stock will be automatically and correspondingly reduced as it exchanges shares of Class B common stock, together with a corresponding number of LLC Units, as applicable, for shares of Class A common stock of Direct Digital Holdings.

See Item 13 “Certain Relationships and Related Person Transactions, and Director Independence — DDH LLC Agreement.”

Except as otherwise indicated, all persons listed below have sole voting and investment power with respect to the shares beneficially owned by them, subject to applicable community property laws.

Unless otherwise indicated, the address of each person or entity named in the table below is 1177 West Loop South, Suite 1310, Houston, TX 77027.

Shares of Class A

Shares of Class B

Stock Beneficially

Total Voting Power

Beneficially Owned

5% Stockholders

Direct Digital Management, LLC (1)

Named Executive Officers and Directors

Mark Walker, Chairman and Chief Executive Officer

Keith Smith, President and Director

Diaz, Chief Financial Officer

Richard Cohen, Director

Antoinette R.

Leatherberry, Director

Mistelle Locke, Director

All executive officers and directors as a group (8 persons) (3)

* Less than 1%

(1) Direct Digital Management, LLC is a holding company in which Mark Walker, our Chairman and Chief Executive Officer, and Keith Smith, our President, each indirectly hold an approximately 50% economic and voting interest, as adjusted for redemptions of LLC Units in exchange for shares of Class A Common Stock of the Company.

AJN Energy & Transport Ventures, LLC and SKW Financial LLC directly hold the equity interests in Direct Digital Management, LLC.

Walker and his wife share voting and dispositive power with respect to the shares of Class B common stock held by AJN Energy & Transport Ventures, LLC.

Smith and his wife share voting and dispositive power with respect to the shares of Class B common stock held by SKW Financial LLC.

(2) Consists of the shares owned by Direct Digital Management, LLC.

Each of Messrs.

Walker and Smith indirectly hold an approximately 50% economic and voting interest in Direct Digital Management, LLC, as adjusted for redemptions of LLC Units in exchange for shares of Class A Common Stock of the Company.

AJN Energy & Transport Ventures, LLC and SKW Financial LLC directly hold the equity interests in Direct Digital Management, LLC.

Walker and his wife share voting and dispositive power with respect to the shares of Class B common stock held by AJN Energy & Transport Ventures, LLC.

Smith and his wife share voting and dispositive power with respect to the shares of Class B common stock held by SKW Financial LLC.

(3) Includes:

(i) 6,217 shares of Class A common stock that can be acquired by Ms.

Diaz upon the exercise of stock options that are vested or vesting within 60 days of the Measurement Date and (ii) 6,217 shares of Class A common stock to be issued upon vesting of restricted stock units within 60 days of the Measurement Date.

Equity Compensation Plan Information

The following table contains information about our equity compensation plans as of December 31, 2023.

Equity Compensation Plan Information

Number of securities

remaining available

for future issuance

Number of securities to be

exercise price of

compensation plans

issued upon exercise of

(excluding securities

outstanding options,

options, warrants

Plan Category

warrants and rights

Equity compensation plans approved by security holders

Equity compensation plans not approved by security holders

(1) Includes stock options and restricted stock units with respect to 371,116 and 542,396 shares of our common stock, respectively.

(2) Restricted stock units have no exercise price and are therefore not included in the calculation of this weighted average exercise price.

(3) Represents the number of shares of our common stock available for issuance in respect of awards under our 2022 Omnibus Incentive Plan.

In addition to stock options and restricted stock units, our 2022 Omnibus Incentive Plan authorizes the issuance of stock appreciation rights, restricted stock awards and stock bonus awards.

All shares reserved for issuance under this plan are available for issuance in respect of any type of award that may be made under the plan.

Certain Relationships and Related Person Transactions, and Director Independence

The following are summaries of certain provisions of transactions since the beginning of our last fiscal year to which we have been a party, in which the amount involved exceeds or will exceed $120,000 and in which any of our directors, executive officers or holders of more than 5% of our capital stock, or immediate family member thereof, had or will have a direct or indirect material interest, and are qualified in their entirety by reference to all of the provisions of such agreements.

We believe the terms obtained or consideration that we paid or received, as applicable, in connection with the transactions described below were comparable to terms available or the amounts that we would pay or receive, as applicable, in arm’s-length transactions.

Tax Receivable Agreement

We expect to obtain an increase in our share of the tax basis of the assets of DDH LLC when (as described below under “— DDH LLC Agreement — LLC Unit Redemption Right”) DDM (a) redeems or exchanges its LLC Units for newly issued shares of our Class A common stock on a one-for-one basis and (b) receives payments under the Tax Receivable Agreement (such basis increase, a “Basis Adjustment”).

We intend to treat such redemptions or exchanges of LLC Units as the direct purchase of LLC Units by Direct Digital Holdings from DDM for U.S.

federal income and other applicable tax purposes, regardless of whether such LLC Units are surrendered by DDM to DDH LLC for redemption or sold to Direct Digital Holdings upon the exercise of our election to acquire such LLC Units directly.

A Basis Adjustment

may have the effect of reducing the amounts that we would otherwise pay in the future to various tax authorities to the extent that we have positive taxable income in a future tax period that is offset by tax depreciation or amortization deductions arising from such Basis Adjustment.

The Basis Adjustments may also decrease gains (or increase losses) on future dispositions of certain capital assets to the extent tax basis is allocated to those capital assets, which could also generate tax savings for us.

We entered into the Tax Receivable Agreement with DDH LLC and DDM.

The Tax Receivable Agreement provides for our payment to DDM of 85% of the amount of tax benefits, if any, that we actually realize, or in some circumstances, are deemed to realize (calculated using certain assumptions), as a result of any Basis Adjustments and certain other tax benefits arising from payments under the Tax Receivable Agreement.

DDH LLC has, in effect, an election under Section 754 of the Code effective for each taxable year in which a redemption or exchange (including deemed exchange) of LLC Units for shares of our Class A common stock occurs.

These Tax Receivable Agreement payments are not conditioned upon any continued ownership interest in either DDH LLC or us by DDMs.

The rights of DDM under the Tax Receivable Agreement are assignable to transferees of its LLC Units (other than Direct Digital Holdings as transferee pursuant to subsequent redemptions (or exchanges) of the transferred LLC Units);

provided, however, DDM may not, directly or indirectly, assign or otherwise transfer its rights under the Tax Receivable Agreement to any Person (as defined in the Tax Receivable Agreement) (other than to certain “Permitted Transferees” specified in the DDH LLC Agreement) without the express prior written consent of Direct Digital Holdings, and without such Person (including a permitted transferee) executing and delivering a joinder to the Tax Receivable Agreement agreeing to become a party to the Tax Receivable Agreement.

We expect to benefit from the remaining 15% of tax benefits, if any, that we may realize.

Actual tax benefits realized by us may differ from tax benefits calculated under the Tax Receivable Agreement as a result of the use of certain assumption in the Tax Receivable Agreement, including the use of an assumed weighted-average state and local income tax rate to calculate tax benefits.

The Basis Adjustments, as well as any amounts paid to DDM under the Tax Receivable Agreement, will vary depending on a number of factors, including:

● the timing of any subsequent redemptions or exchanges — for instance, the increase in any tax deductions will vary depending on the fair value, which may fluctuate over time, of the depreciable or amortizable assets of DDH LLC at the time of each redemption or exchange;

● the price of shares of our Class A common stock at the time of redemptions or exchanges — the Basis Adjustments, as well as any related increase in any tax deductions, are directly related to the price of shares of our Class A common stock at the time of each redemption or exchange;

● the extent to which such redemptions or exchanges are taxable — if a redemption or exchange is not taxable for any reason, increased tax deductions will not be available;

● the amount and timing of our taxable income (prior to taking into account the tax depreciation or amortization deductions arising from the Basis Adjustments) — the Tax Receivable Agreement generally requires Direct Digital Holdings to pay 85% of the tax benefits as and when those benefits are treated as realized under the terms of the Tax Receivable Agreement.

Except as discussed below, in cases of (i) a material breach of a material obligation under the Tax Receivable Agreement, (ii) a change of control or (iii) an early termination of the Tax Receivable Agreement, if Direct Digital Holdings does not have taxable income, it will generally not be required to make payments under the Tax Receivable Agreement for that taxable year because no tax benefits will have been realized.

However, any tax benefits that do not result in realized tax benefits in a given taxable year may generate tax attributes that may be utilized to generate tax benefits in future taxable years.

The utilization of any such tax attributes will result in payments under the Tax Receivable Agreement.

The aggregate balance of tax receivable liabilities owed to DDM as of December 31, 2023 and 2022, is as follows (in thousands):

Liability related to tax receivable agreement:

Total liability related to tax receivable agreement

For purposes of the Tax Receivable Agreement, cash savings in income tax is computed by comparing Direct Digital Holdings’ actual income tax liability to the amount of such taxes that it would have been required to pay had there been no Basis Adjustments and had the Tax Receivable Agreement not been entered into.

The Tax Receivable Agreement generally applies to each of our taxable years.

The actual and hypothetical tax liabilities determined in the Tax Receivable Agreement is calculated using the actual U.S.

federal income tax rate in effect for the applicable period and an assumed, weighted-average state and local income tax rate based on apportionment factors for the applicable period (along with the use of certain other assumptions).

There is no maximum term for the Tax Receivable Agreement;

however, the Tax Receivable Agreement may be terminated by us pursuant to an early termination procedure that requires us to pay DDM an agreed upon amount equal to the estimated present value of the remaining payments to be made under the agreement (calculated based on certain assumptions, including regarding tax rates and utilization of the Basis Adjustments).

The payment obligations under the Tax Receivable Agreement are obligations of Direct Digital Holdings and not of DDH LLC.

Although the actual timing and amount of any payments that may be made under the Tax Receivable Agreement will vary, we expect that the payments that we may be required to make to DDM could be significant.

The actual increases in tax basis with respect to future taxable redemptions, exchanges or purchases of LLC Units, as well as the amount and timing of any payments we are required to make under the Tax Receivable Agreement in respect of the acquisition of LLC Units from DDM in connection with future taxable redemptions, exchanges or purchases of LLC Units, may differ materially from the amounts set forth above because the potential future reductions in our tax payments, as determined for purposes of the Tax Receivable Agreement, and the payments we are required to make under the Tax Receivable Agreement, will each depend on a number of factors, including the market value of our Class A common stock at the time of redemption or exchange, the prevailing federal tax rates applicable to us over the life of the Tax Receivable Agreement (as well as the assumed combined state and local tax rate), the amount and timing of the taxable income that we generate in the future and the extent to which future redemptions, exchanges or purchases of LLC Units are taxable transactions.

There may be a material negative effect on our liquidity if, as described below, the payments made by us to DDM under the Tax Receivable Agreement exceed the actual benefits we receive in respect of the tax attributes subject to the Tax Receivable Agreement and/or distributions to us by DDH LLC are not sufficient to permit us to make payments under the Tax Receivable Agreement.

To the extent that we are unable to make payments under the Tax Receivable Agreement for any reason, the unpaid amounts generally will be deferred and will possibly accrue interest until paid by us.

Decisions made by us in the course of running our business, such as with respect to mergers, asset sales, other forms of business combinations or other changes in control, may influence the timing and amount of payments that are received by DDM under the Tax Receivable Agreement.

For example, the earlier disposition of assets following a transaction that results in a Basis Adjustment will generally accelerate payments under the Tax Receivable Agreement and increase the present value of such payments.

In addition, although we are not aware of any issue that would cause the IRS to challenge the tax basis increases or other benefits arising under the Tax Receivable Agreement, DDM will not reimburse us for any payments previously made if such tax basis increases or other tax benefits are subsequently disallowed, except that any excess payments made to DDM will be netted against future payments otherwise to be made under the Tax Receivable Agreement, if any, after our determination of such excess.

In addition, a challenge to any tax benefits initially claimed by us may not arise for a number of years following the initial time of such payment.

As a result, in such circumstances we could make payments to DDM under the Tax Receivable Agreement that are greater than our actual cash tax savings and may not be able to recoup those payments, which could negatively impact our liquidity.

In addition, the Tax Receivable Agreement provides that, upon certain mergers, asset sales or other forms of business combination or certain other changes of control, our or our successor’s obligations with respect to tax benefits would be based on certain assumptions, including that we or our successor would have sufficient taxable income to fully utilize the benefits arising from the increased tax deductions and tax basis and other benefits covered by the Tax Receivable Agreement.

As a result, upon a change of control, we could be required to make payments under the Tax Receivable Agreement that are greater than or less than the specified percentage of our actual cash tax savings, which could negatively impact our liquidity.

This provision of the Tax Receivable Agreement may result in situations where DDM, a holding company indirectly owned by our Chairman and Chief Executive Officer and our President, have interests that differ from or are in addition to those of our other stockholders.

See “Risk Factors— Risks Related to Our Organizational Structure.” In addition, we could be required to make payments under the Tax Receivable Agreement that are substantial and in excess of our, or a potential acquirer’s, actual cash savings in income tax.

Finally, because we are a holding company with no operations of our own, our ability to make payments under the Tax Receivable Agreement is dependent on the ability of DDH LLC to make distributions to us.

To the extent that we are unable to make payments under the Tax Receivable Agreement for any reason, such payments will be deferred and will possibly accrue interest until paid.

DDH LLC Agreement

We operate our business through DDH LLC and its subsidiaries.

We and DDM entered into DDH LLC’s amended and restated limited liability company agreement, which we refer to as the “DDH LLC Agreement,” on February 15, 2022.

The operations of DDH LLC, and the rights and obligations of the holders of LLC Units, are set forth in the DDH LLC Agreement.

Appointment as Manager and Voting Rights

Under the DDH LLC Agreement, we are a member and the sole manager of DDH LLC.

As the sole manager, we are able to control all of the day-to-day business affairs and decision-making of DDH LLC.

As such, we, through our officers and directors, are responsible for all operational and administrative decisions of DDH LLC and the day-to-day management of DDH LLC’s business.

Pursuant to the terms of the DDH LLC Agreement, we cannot, under any circumstances, be removed as the sole manager of DDH LLC except by our election.

In addition, as a result of our 100% ownership of all of the voting interests in DDH LLC, we control the decision-making of any matter required to be approved by the members of DDH LLC as provided under the DDH LLC Agreement.

We are not entitled to compensation for our services as manager.

We are entitled to reimbursement or capital contribution credit by DDH LLC for fees and expenses incurred on behalf of DDH LLC, including all expenses associated with maintaining our corporate existence.

Distributions

The DDH LLC Agreement requires “tax distributions” to be made by DDH LLC to its members, as that term is defined in the agreement.

Tax distributions are made to members on a pro rata basis, including us, in amounts intended to be sufficient to allow the members, including us, to pay taxes owed in respect of income allocated by DDH LLC and to allow us to meet our obligations under the Tax Receivable Agreement (as described above under “— Tax Receivable Agreement”).

The DDH LLC Agreement also allows for distributions to be made by DDH LLC to its members on a pro rata basis out of “distributable cash,” as that term is defined in the agreement.

We expect DDH LLC may make distributions out of distributable cash periodically to the extent permitted by our agreements governing our indebtedness and necessary to enable us to cover our operating expenses and other obligations, including our tax liability and obligations under the Tax Receivable Agreement, as well as to make dividend payments, if any, to the holders of our Class A common stock.

LLC Unit Redemption Right

The DDH LLC Agreement provides a redemption right to DDM which entitles it to have its LLC Units redeemed, from time to time at its election (subject to the terms of the DDH LLC Agreement), for newly issued shares of our Class A common stock on a one-for-one basis (subject to customary adjustments, including for stock splits, stock dividends and reclassifications).

Upon the exercise of the redemption right, DDM will surrender its LLC Units to DDH LLC for cancellation.

The DDH LLC Agreement requires that we contribute shares of our Class A common stock to DDH LLC in exchange for an amount of newly issued LLC Units in DDH LLC that are issued to us equal to the number of LLC Units redeemed from DDM.

DDH LLC will then distribute the shares of our Class A common stock to DDM to complete the redemption.

In the event of such a redemption election by DDM, Direct Digital Holdings may effect a direct exchange of Class A common stock.

Whether by redemption or exchange, we are obligated to ensure that at all times the number of LLC Units that we own equals the number of shares of Class A common stock issued by us (subject to certain exceptions for treasury shares and shares underlying certain convertible or exchangeable securities).

Indemnification

The DDH LLC Agreement provides for indemnification of the manager, members and officers of DDH LLC and their respective subsidiaries or affiliates.

Director Independence

Our Class A common stock is listed on The Nasdaq Capital Market under the symbol “DRCT”.

Under the rules of The Nasdaq Capital Market, independent directors must comprise a majority of a listed company’s board of directors within a specified period of the completion of our initial public offering, which closed on February 15, 2022.

In addition, the rules require that, subject to specified exceptions, each member of a listed company’s audit, compensation and nominating and corporate governance committees be independent.

Audit committee members must also satisfy the independence criteria set forth in Rule 10A-3.

Under the rules of The Nasdaq Capital Market, a director will only qualify as an “independent director” if, in the opinion of that company’s board of directors, that person does not have a relationship that would interfere with the exercise of independent judgment in carrying out the responsibilities of a director.

To be considered independent for purposes of Rule 10A-3, a member of an audit committee of a listed company may not, other than in his or her capacity as a member of the audit committee, the board of directors or any other board committee:

(1) accept, directly or indirectly, any consulting, advisory or other compensatory fee from the listed company or any of its subsidiaries;

or (2) be an affiliated person of the listed company or any of its subsidiaries.

In October 2024, our board of directors undertook a review of its composition, the composition of its committees and the independence of our directors and considered whether any director has a material relationship with us that could compromise his or her ability to exercise independent judgment in carrying out his or her responsibilities.

Based upon information requested from and provided by each director concerning his or her background, employment and affiliations, including family relationships, our board of directors has determined that none of our non-employee directors has a relationship that would interfere with the exercise of independent judgment in carrying out the responsibilities of a director and that each of these non-employee directors is “independent” as that term is defined under the rules of The Nasdaq Capital Market.

In October 2024, our board of directors also determined that Mr.

Cohen and Mses.

Leatherberry and Locke, each of whom sit on our audit committee, compensation committee and nominating and corporate governance committee, satisfy the independence standards for those committees established by applicable SEC rules and the rules of The Nasdaq Capital Market.

In making this determination, our board of directors considered the relationships that each non-employee director has with us and all other facts and circumstances our board of directors deemed relevant in determining their independence, including the beneficial ownership of our capital stock by each non-employee director.

Principal Accountant Fees and Services

The information required by this Item is incorporated herein by reference from our Proxy Statement for our 2023 Annual Meeting of Stockholders.

A udit Fees and Services

As previously reported, the Audit Committee appointed BDO USA, P.C.

to serve as the Company’s registered public accounting firm for fiscal year ended December 31, 2023.

The following table summarizes the fees BDO USA, P.C.

billed to us for the last two fiscal years.

Years Ended December 31,

Audit Fees (1) (BDO USA, P.C.)

(1) Audit fees consist of fees billed for professional services rendered by BDO USA, P.C.

for the audits of our annual consolidated financial statements, the reviews of our interim consolidated financial statements, and related services that are normally provided in connection with statutory and regulatory filings or engagements.

Predecessor A udit Fees and Services

Marcum LLP was our independent registered public accounting firm for the year ended December 31, 2022.

The following table summarizes the fees Marcum LLP billed to us for the last two fiscal years.

Years Ended December 31,

Audit Fees (1) (Marcum LLP)

Audit-Related Fees (2)

All Other Fees

(1) Audit fees consist of fees billed for professional services rendered by Marcum LLP for the audits of our annual consolidated financial statements, the reviews of our interim consolidated financial statements, and related services that are normally provided in connection with statutory and regulatory filings or engagements.

(2) Audit-related fees consist of fees for assurance and related services performed by Marcum LLP that are reasonably related to the performance of the audit or review of our financial statements and are traditionally performed by the independent registered public accounting firm.

These include services related to consultation with respect to special procedures required to meet certain regulatory requirements.

(3) Tax fees consist of fees for professional services with respect to tax compliance, tax advice and tax planning.

Audit Committee Pre-Approval Policies and Procedures

Our audit committee has and will pre-approve all auditing services and permitted non-audit services to be performed for us by our auditors, including the fees and terms thereof (subject to the de minimis exceptions for non-audit services described in the Exchange Act which are approved by the audit committee prior to the completion of the audit).

All of the fees paid to BDO USA, P.C.

and Marcum LLP in the years ended December 31, 2023 and 2022 were pre-approved by the audit committee.

Exhibits and Financial Statement Schedules

12 unchanged sentences

Filed or furnished

Underwriting Agreement, dated February 10, 2022, by and among the Company, The Benchmark Company, LLC and Roth Capital Partners, LLC, as representatives of the underwriters

February 16, 2022

Amended and Restated Certificate of Incorporation of Direct Digital Holdings, Inc.

2 unchanged sentences

February 16, 2022

Unit Purchase Option, dated February 15, 2022, issued by the Company to The Benchmark Company, LLC

February 16, 2022

Unit Purchase Option, dated February 15, 2022, issued by the Company to Roth Capital Partners, LLC .

February 16, 2022

Warrant Agent Agreement, dated February 15, 2022, by and between the Company and American Stock Transfer & Trust Company, LLC

February 16, 2022

Description of the Registrant’s Securities.

14 unchanged sentences

June 13, 2022

Credit Agreement, dated as of September 30, 2020, by and among Direct Digital Holdings, LLC, Colossus Media, LLC, Huddled Masses LLC, Orange142, LLC, Universal Standards for Digital Marketing, LLC, and East West Bank.

November 15, 2021

Revolving Credit Note, dated as of September 30, 2020, by and among Direct Digital Holdings, LLC, Colossus Media, LLC, Huddled Masses, LLC, Orange142, LLC, and Universal Standards for Digital Marketing, LLC and East West Bank.

November 15, 2021

Preferred Equity Subordination Agreement, entered into as of September 30, 2020, among East West Bank, USDM Holdings, Inc., and Direct Digital Holdings, LLC.

November 15, 2021

First Amendment to Credit Agreement, dated as of December 17, 2021, by and among Direct Digital Holdings, LLC, Colossus Media, LLC, Huddled Masses LLC, Orange142, LLC, Universal Standards for Digital Marketing, LLC and East West Bank.

November 15, 2021

Secured Term Promissory Note, with a closing date of September 30, 2020, Direct Digital Holding LLC, Huddled Masses LLC, Colossus Media, LLC, Orange142, LLC and Universal Standards for Digital Marketing, LLC (collectively, the Borrower), jointly and severally promise to pay Silverpeak Credit Opportunities AIV LP (the Lender).

November 15, 2021

Loan and Security Agreement, dated as of September 30, 2020, by and among Direct Digital Holdings, LLC and the other Borrower Entities identified therein, as Borrower, the Several Financial Institutions or Entities from time to time parties thereto, as Lenders and Silverpeak Credit Partners, LP as Agent.

November 15, 2021

Executive Employment Agreement, dated as of February 15, 2022, by and between Direct Digital Holdings, LLC and Mark Walker.

2 unchanged sentences

March 31, 2022

Executive Employment Agreement, dated as of February 15, 2022, by and between Direct Digital Holdings, LLC and Susan Echard .

March 31, 2022

Executive Employment Agreement, dated as of March 9, 2022, by and between Direct Digital Holdings, LLC and Anu Pillai.

March 31, 2022

Redemption Agreement, dated as of November 14, 2021, by and between Direct Digital Holdings, LLC and USDM Holdings, Inc.

January 18, 2022

Second Redemption Agreement, dated as of July 28, 2022, by and between Direct Digital Holdings, LLC and USDM Holdings, Inc.

November 14, 2022

Executive Employment Agreement, effective as of October 16, 2023, between Direct Digital Holdings, LLC and Diana Diaz.

October 18, 2023

Executive Employment Agreement, effective as of August 22, 2022, between Direct Digital Holdings, LLC and Maria Vilchez Lowrey .

Term Loan and Security Agreement, dated as of December 3, 2021, by and among Direct Digital Holdings, LLC, as borrower, Orange142, LLC, Huddled Masses LLC, Colossus Media, LLC, and Universal Standards for Digital Marketing, LLC, as guarantors, Lafayette Square Loan Servicing, LLC, as administrative agent, and the various financial institutions signatory to the Term Loan and Security Agreement as lenders.

4 unchanged sentences

November 14, 2022

Intercreditor Agreement, dated as of December 3, 2021, by and between Lafayette Square Loan Servicing, LLC and East West Bank.

Third Amendment to Term Loan and Security Agreement, dated January 9, 2023, by and between Direct Digital, LLC, as borrower, Colossus Media, LLC, Huddled Masses LLC, Orange142, LLC, and Direct Digital Holdings, Inc., as guarantors, and Lafayette Square Loan Servicing, LLC, as administrative agent, and the various lenders thereto.

January 11, 2023

Preferred Equity Subordination Agreement, dated as of December 3, 2021, by and among the Lafayette Square Loan Servicing, LLC, USDM Holdings, Inc., and Direct Digital Holdings, LLC.

Fourth Amendment to Term Loan and Security Agreement, dated October 3, 2023, by and between Direct Digital, LLC, as borrower, Colossus Media, LLC, Huddled Masses LLC, Orange142, LLC, and Direct Digital Holdings, Inc., as guarantors, and Lafayette Square Loan Servicing, LLC, as administrative agent, and the various lenders thereto.

October 10, 2023

Early Opt-in Election, dated June 1, 2023, by and among Direct Digital Holdings, Inc., Direct Digital Holdings, LLC, Huddled Masses LLC, Colossus Media, LLC, Orange142, LLC, Lafayette Square Loan Servicing, LLC and Lafayette Square USA, Inc.

Intercreditor Agreement, dated as of December 3, 2021, by and between Lafayette Square Loan Servicing, LLC and East West Bank.

January 18, 2022

Second Amendment to Credit Agreement, dated as of February 10, 2022, by and among Direct Digital Holdings, LLC, Colossus Media, LLC, Huddled Masses LLC, Orange142, LLC, Universal Standards for Digital Marketing, LLC and East West Bank.

March 31, 2022

Exclusive License and Sale Agreement, effective as of November 9, 2022, by and between Colossus Media, LLC and SmartyAds, Inc.

November 15, 2022

Credit Agreement, dated July 7, 2023, by and among the Company, Direct Digital Holdings, LLC, Huddled Masses LLC, Colossus Media, LLC, and Orange142, LLC, as borrowers, and East West Bank, as lender.

July 12, 2023

Second Amendment to Credit Agreement, dated November 27, 2023, by and among the Company, Direct Digital Holdings, LLC, Colossus Media, LLC, Huddled Masses LLC, and Orange142, LLC, as borrowers, and East West Bank, as lender.

November 30, 2023

List of Subsidiaries.

January 18 2022

Consent of BDO USA, P.C., independent registered public accounting firm.

Consent of Marcum LLP, independent registered public accounting firm.

5 unchanged sentences

Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

Direct Digital Holdings, Inc.

Clawback Policy

Inline XBRL Instance Document

14 unchanged sentences

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, as amended, the Registrant has duly caused this Annual Report on Form 10-K to be signed on its behalf by the undersigned hereunto duly authorized.

April 17, 2023

October 15, 2024

DIRECT DIGITAL HOLDINGS, INC.

/s/ Susan Echard

Chief Financial Officer

4 unchanged sentences

Director (Principal Executive Officer)

April 17, 2023

October 15, 2024

/s/ KEITH SMITH

President and Director

April 17, 2023

/s/ Susan Echard

October 15, 2024

Chief Financial Officer (Principal Financial and

Accounting Officer)

April 17, 2023

October 15, 2024

/s/ RICHARD COHEN

April 17, 2023

October 15, 2024

Richard Cohen

/s/ ANTOINETTE R.

April 17, 2023

October 15, 2024

Antoinette R.

/s/ MISTELLE LOCKE

April 17, 2023

October 15, 2024

Mistelle Locke

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-K

Item 9A. Controls and Procedures