What changed in this filing

/stocks — the workspaceLOADING

Item 1. Financial Statements

2024-10-15 compared with 2023-11-09 · 573 added, 636 removed, 212 unchanged (85% of the section changed)

2 unchanged sentences

AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

September 30, 2023

December 31, 2022

CONDENSED CONSOLIDATED BALANCE SHEETS

(in thousands, except share and par value amounts)

June 30, 2024 December 31, 2023

CURRENT ASSETS

Cash and cash equivalents $ 1,069 $ 5,116

Accounts receivable, net

Accounts receivable, net of provision for credit losses of $ 335 and $ 344

19,517 37,207

Prepaid expenses and other current assets 889 759

Total current assets 21,475 43,082

Property, equipment and software, net of accumulated depreciation and amortization of $ 219,386 and $ 34,218 , respectively

Property, equipment and software, net 471 599

Goodwill 6,520 6,520

Intangible assets, net 10,707 11,684

1 unchanged sentence

Operating lease right-of-use assets 912 788

Related party receivable 1,737 1,737

Other long-term assets 47 130

LIABILITIES AND STOCKHOLDERS’ EQUITY

Total assets $ 48,476 $ 70,672

LIABILITIES AND STOCKHOLDERS’ DEFICIT

CURRENT LIABILITIES

2 unchanged sentences

Liability related to tax receivable agreement, current portion 41 41

Notes payable, current portion

Current maturities of long-term debt 1,840 1,478

Deferred revenues 734 381

1 unchanged sentence

Income taxes payable 44 34

Related party payables

Total current liabilities 16,335 39,802

Notes payable, net of short-term portion and deferred financing cost of $ 1,722,716 and $ 2,115,161 , respectively

Economic Injury Disaster Loan

Long-term debt, net of current portion 34,833 28,578

Liability related to tax receivable agreement, net of current portion 5,201 5,201

2 unchanged sentences

COMMITMENTS AND CONTINGENCIES (Note 9)

STOCKHOLDERS’ EQUITY

STOCKHOLDERS’ DEFICIT

Class A Common Stock, $ 0.001 par value per share, 160,000,000 shares authorized, 3,788,446 and 3,478,776 shares issued and outstanding, respectively

2 unchanged sentences

Accumulated deficit ( 3,903 ) ( 2,538 )

( 2,399,479 )

( 3,643,261 )

Total stockholders’ equity

Total liabilities and stockholders’ equity

See accompanying notes to the unaudited consolidated financial statements.

Noncontrolling interest ( 8,328 ) ( 4,225 )

Total stockholders’ deficit ( 8,772 ) ( 3,682 )

Total liabilities and stockholders’ deficit $ 48,476 $ 70,672

See accompanying notes to the unaudited condensed consolidated financial statements.

DIRECT DIGITAL HOLDINGS, INC.

AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

For the Three Months Ended

For the Nine Months Ended

September 30,

Buy-side advertising

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(in thousands, except per-share data)

Three Months Ended

June 30, Six Months Ended

2024 2023 2024 2023

Sell-side advertising $ 14,298 $ 23,601 $ 30,799 $ 37,384

Buy-side advertising 7,557 11,803 13,331 19,243

Total revenues 21,855 35,404 44,130 56,627

Cost of revenues

Buy-side advertising

Sell-side advertising 13,209 20,743 28,016 32,584

Buy-side advertising 2,715 4,588 5,185 7,537

Total cost of revenues 15,924 25,331 33,201 40,121

Gross profit 5,931 10,073 10,929 16,506

Operating expenses

2 unchanged sentences

Total operating expenses 7,996 7,818 15,802 14,392

Income from operations

(Loss) income from operations ( 2,065 ) 2,255 ( 4,873 ) 2,114

Other income (expense)

Forgiveness of Paycheck Protection Program loan

Loss on redemption of non-participating preferred units

Contingent loss on early termination of line of credit

Other income 8 42 92 92

Loss on early termination of line of credit — — — ( 300 )

Interest expense ( 1,358 ) ( 1,028 ) ( 2,655 ) ( 2,045 )

( 1,059,890 )

( 3,104,684 )

( 2,269,643 )

Total other expense

( 3,228,982 )

Total other expense, net ( 1,350 ) ( 986 ) ( 2,563 ) ( 2,253 )

(Loss) income before income taxes ( 3,415 ) 1,269 ( 7,436 ) ( 139 )

Income tax (benefit) expense ( 274 ) 74 ( 475 ) —

Net (loss) income ( 3,141 ) 1,195 ( 6,961 ) ( 139 )

Net (loss) income attributable to noncontrolling interest ( 2,551 ) 1,003 ( 5,596 ) ( 117 )

Net (loss) income attributable to Direct Digital Holdings, Inc.

$ ( 590 ) $ 192 $ ( 1,365 ) $ ( 22 )

Income before taxes

Net income per common share:

Net (loss) income per common share:

Basic $ ( 0.16 ) $ 0.03 $ ( 0.38 ) $ ( 0.01 )

Diluted $ ( 0.16 ) $ 0.03 $ ( 0.38 ) $ ( 0.01 )

Weighted-average number of shares of common stock outstanding:

See accompanying notes to the unaudited consolidated financial statements.

Basic 3,701 2,921 3,604 2,912

Diluted 3,701 3,113 3,604 2,912

See accompanying notes to the unaudited condensed consolidated financial statements.

DIRECT DIGITAL HOLDINGS, INC.

AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY

Nine Months Ended September 30, 2023

Stockholders’

CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ DEFICIT

(in thousands except share data)

Six Months Ended June 30, 2024

Common Stock APIC Accumulated

Deficit Noncontrolling Interest Stockholders’

Class A Class B

Units Amount Units Amount

Balance, December 31, 2023 3,478,776 $ 3 10,868,000 $ 11 $ 3,067 $ ( 2,538 ) $ ( 4,225 ) $ ( 3,682 )

( 3,643,261 )

Stock-based compensation — — — — 662 — — 662

2 unchanged sentences

Stock options exercised 8,754 — — — 82 — — 82

Distributions to members

( 1,968,094 )

Balance, September 30, 2023

( 2,399,479 )

Three Months Ended September 30, 2023

Stockholders’

Issuance of stock in lieu of cash bonus, net of tax withholdings 69,677 — — — 912 — — 912

Net loss — — — — — ( 1,365 ) ( 5,596 ) ( 6,961 )

Noncontrolling interest rebalancing — — — — ( 1,493 ) — 1,493 0

Balance, June 30, 2024 3,788,446 $ 4 10,868,000 $ 11 $ 3,444 $ ( 3,903 ) $ ( 8,328 ) $ ( 8,772 )

( 4,534,925 )

Three Months Ended June 30, 2024

Common Stock APIC Accumulated

Deficit Noncontrolling Interest Stockholders’

Class A Class B

Units Amount Units Amount

Balance, March 31, 2024 3,684,278 $ 4 10,868,000 $ 11 $ 3,441 $ ( 3,313 ) $ ( 5,934 ) $ ( 5,791 )

Stock-based compensation — — — — 158 — — 158

1 unchanged sentence

Stock options exercised 416 — — — 2 — — 2

Distributions to members

( 1,215,408 )

Balance, September 30, 2023

( 2,399,479 )

Nine Months Ended September 30, 2022

Stockholders'

Net loss — — — — — ( 590 ) ( 2,551 ) ( 3,141 )

Noncontrolling interest rebalancing — — — — ( 157 ) — 157 —

Balance, June 30, 2024 3,788,446 $ 4 10,868,000 $ 11 $ 3,444 $ ( 3,903 ) $ ( 8,328 ) $ ( 8,772 )

Six Months Ended June 30, 2023

Common Stock APIC Accumulated

Deficit Noncontrolling Interest Stockholders’

Class A Class B

Units Amount Units Amount

Balance, December 31, 2022 2,900,000 $ 3 11,278,000 $ 11 $ 2,611 $ ( 344 ) $ 3,314 $ 5,595

( 4,669,097 )

Issuance of Class A common stock, net of transaction costs

Conversion of member units to Class B shares

Conversion of Class B shares to Class A common stock

Redemption of common units

( 4,294,041 )

( 2,905,959 )

( 7,200,000 )

Stock-based compensation — — — — 304 — — 304

Distributions to members

Additional paid-in capital related to tax receivable agreement

Balance, September 30, 2022

( 2,832,007 )

Three Months Ended September 30, 2022

Stockholders'

Warrants exercised 2,200 — — — 12 — — 12

Issuance related to vesting of restricted stock units, net of tax withholdings 86,716 — — — — — — —

Distributions to holders of LLC Units — — — — — — ( 752 ) ( 752 )

Net loss — — — — — ( 22 ) ( 117 ) ( 139 )

Balance, June 30, 2023 2,988,916 $ 3 11,278,000 $ 11 $ 2,927 $ ( 366 ) $ 2,445 $ 5,020

( 3,036,348 )

Conversion of Class B shares to Class A common stock

Three Months Ended June 30, 2023

Common Stock APIC Accumulated

Deficit Noncontrolling Interest Stockholders’

Class A Class B

Units Amount Units Amount

Balance, March 31, 2023 2,902,200 $ 3 11,278,000 $ 11 $ 2,717 $ ( 558 ) $ 2,194 $ 4,367

Stock-based compensation — — — — 210 — — 210

Distributions to members

Balance, September 30, 2022

( 2,832,007 )

See accompanying notes to the unaudited consolidated financial statements.

Issuance related to vesting of restricted stock units, net of tax withholdings 86,716 — — — — — — —

Distributions to holders of LLC Units — — — — — — ( 752 ) ( 752 )

Net income (loss) — — — — — 192 1,003 1,195

Balance, June 30, 2023 2,988,916 $ 3 11,278,000 $ 11 $ 2,927 $ ( 366 ) $ 2,445 $ 5,020

See accompanying notes to the unaudited condensed consolidated financial statements.

DIRECT DIGITAL HOLDINGS, INC.

AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

For the Nine Months Ended September 30,

Cash Flows Provided By Operating Activities:

Adjustments to reconcile net income to net cash provided by operating activities:

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

Six Months Ended June 30,

Cash Flows (Used In) Provided By Operating Activities:

Net loss $ ( 6,961 ) $ ( 139 )

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

Amortization of deferred financing costs 372 272

Amortization of intangible assets 977 977

Amortization of right-of-use assets

Amortization of capitalized software

Depreciation of property and equipment

Reduction in carrying amount of right-of-use assets 76 85

Depreciation and amortization of property, equipment and software 137 121

Stock-based compensation 662 304

Forgiveness of Paycheck Protection Program loan

Deferred income taxes ( 475 ) ( 6 )

Payment on tax receivable agreement

Loss on redemption of non-participating preferred units

Contingent loss on early termination of line of credit

Bad debt expense

Loss on early termination of line of credit — 300

Provision for credit losses/bad debt expense, net of recoveries ( 13 ) 52

Changes in operating assets and liabilities:

Accounts receivable 17,704 ( 3,326 )

( 28,381,260 )

( 13,520,067 )

Prepaid expenses and other assets ( 130 ) ( 257 )

Accounts payable ( 21,554 ) 5,662

Accrued liabilities

Accrued liabilities and tax receivable agreement payable ( 1,226 ) ( 944 )

Income taxes payable 10 ( 152 )

2 unchanged sentences

Related party payable — ( 251 )

Net cash provided by operating activities

Net cash (used in) provided by operating activities ( 10,111 ) 3,054

Cash Flows Used In Investing Activities:

1 unchanged sentence

Net cash used in investing activities ( 10 ) ( 137 )

Cash Flows Used In Financing Activities:

Proceeds from note payable

Cash Flows Provided by (Used In) Financing Activities:

Payments on term loan ( 372 ) ( 328 )

Payments of litigation settlement

Payments on lines of credit

Proceeds from lines of credit 6,700 —

Payments on shares withheld for taxes ( 551 ) —

Payment of deferred financing costs — ( 228 )

Proceeds from Issuance of Class A common stock, net of transaction costs

Redemption of common units

( 7,200,000 )

Redemption of non-participating preferred units

( 7,046,251 )

Proceeds from options exercised 82 —

Proceeds from warrants exercised 215 12

Distributions to members

( 1,988,333 )

Net cash used in financing activities

( 3,102,949 )

( 1,073,436 )

Net increase in cash and cash equivalents

Distributions to holders of LLC Units — ( 752 )

Net cash provided by (used in) financing activities 6,074 ( 1,296 )

Net (decrease) increase in cash and cash equivalents ( 4,047 ) 1,621

Cash and cash equivalents, beginning of the period 5,116 4,047

3 unchanged sentences

Cash paid for interest $ 2,235 $ 1,769

Non-cash Financing Activities:

Transaction costs related to issuances of Class A shares included in accrued liabilities

Outside basis difference in partnership

Tax receivable agreement payable to Direct Digital Management, LLC

Tax benefit on tax receivable agreement

Issuance related to vesting of restricted stock units, net of tax withholdings

See accompanying notes to the unaudited consolidated financial statements.

See accompanying notes to the unaudited condensed consolidated financial statements.

DIRECT DIGITAL HOLDINGS, INC.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Note 1 — Organization and Description of Business

Direct Digital Holdings, Inc., incorporated as a Delaware corporation on August 23, 2021 and headquartered in Houston, Texas, together with its subsidiaries, operates an end-to-end, full-service programmatic advertising platform primarily focused on providing advertising technology, data-driven campaign optimization and other solutions to underserved and less efficient markets on both the buy- and sell-side of the digital advertising ecosystem.

Direct Digital Holdings, Inc., incorporated as a Delaware corporation on August 23, 2021 and headquartered in Houston, Texas, together with its subsidiaries, operates an end-to-end, programmatic advertising platform primarily focused on providing advertising technology, data-driven campaign optimization and other solutions intended for underserved and less efficient markets on both the sell- and buy-side of the digital advertising ecosystem.

Direct Digital Holdings, Inc.

is the holding company for Direct Digital Holdings, LLC (“DDH LLC”), which is, in turn, the holding company for the business formed by DDH LLC’s founders in 2018 through the acquisition of Huddled Masses, LLC (“Huddled Masses TM ” or “Huddled Masses”) and Colossus Media, LLC (“Colossus Media”).

is the holding company for Direct Digital Holdings, LLC (“DDH LLC”), which is, in turn, the holding company for the business formed by DDH LLC’s founders in 2018 through the acquisition of Colossus Media, LLC (“Colossus Media”) and Huddled Masses, LLC (“Huddled Masses ® ” or “Huddled Masses”).

Colossus Media operates the Company’s proprietary sell-side programmatic platform operating under the trademarked banner of Colossus SSP TM (“Colossus SSP”).

In late September 2020, DDH LLC acquired Orange142, LLC (“Orange142”) to further bolster its overall programmatic buy-side advertising platform and to enhance its offerings across multiple industry verticals such as travel, healthcare, education, financial services, consumer products and other sectors with particular emphasis on small and mid-sized businesses transitioning into digital with growing digital media budgets.

In late September 2020, DDH LLC acquired Orange142, LLC (“Orange 142”) to further bolster its overall programmatic buy-side advertising platform and to enhance its offerings across multiple industry verticals such as travel, healthcare, education, financial services, consumer products, and other sectors with particular emphasis intended for small and mid-sized businesses transitioning into digital with growing digital media budgets.

In February 2022, Direct Digital Holdings, Inc.

2 unchanged sentences

(See Note 6 — Related Party Transactions).

In these financial statements, the “Company,” “Direct Digital,” “Direct Digital Holdings,” “DDH,” “we,” “us” and “our” refer (i) following the completion of the Organizational Transactions, including the initial public offering, to Direct Digital Holdings, Inc., and, unless otherwise stated, all of its subsidiaries, including DDH LLC, and, unless otherwise stated, its subsidiaries, and (ii) on or prior to the completion of the Organizational Transactions, to DDH LLC and, unless otherwise stated, its subsidiaries.

In these condensed consolidated financial statements, the “Company,” “Direct Digital,” “Direct Digital Holdings,” “DDH,” “we,” “us” and “our” refer to Direct Digital Holdings, Inc., and, unless otherwise stated, all of its subsidiaries, including DDH LLC and its subsidiaries.

All of the subsidiaries are incorporated in the state of Delaware, except for DDH LLC, which was formed under the laws of the State of Texas.

1 unchanged sentence

are as follows:

Date of Formation

Subsidiary Current %

Ownership Business

Segment Date of Formation Date of

Colossus Media, LLC 100 % Sell-side September 8, 2017 June 21, 2018

Orange142, LLC 100 % Buy-side March 6, 2013 September 30, 2020

Huddled Masses, LLC 100 % Buy-side November 13, 2012 June 21, 2018

Direct Digital Holdings, LLC (1)

June 21, 2018

August 26, 2021

Huddled Masses, LLC

November 13, 2012

June 21, 2018

Colossus Media, LLC

September 8, 2017

June 21, 2018

Orange142, LLC

March 6, 2013

September 30, 2020

Both buy-side subsidiaries, Huddled Masses and Orange142, offer technology-enabled advertising solutions and consulting services to clients through multiple leading demand side platforms (“DSPs”).

Colossus SSP is a stand-alone tech-enabled, data-driven platform that helps deliver targeted advertising to diverse and multicultural audiences, including African Americans, Latin Americans, Asian Americans and LGBTQIA+ customers, as well as other specific audiences.

N/A June 21, 2018 February 15, 2022

(1) DDH owns 100 % of the voting interest in Direct Digital Holding, LLC.

As of June 30, 2024, DDH owns 25.8 % of the economic interest in Direct Digital Holdings, LLC.

See further discussion of the Up-C structure in Note 6 of our condensed consolidated financial statements.

Colossus SSP is a stand-alone platform intended to deliver targeted advertising to diverse and multicultural audiences as well as to general audiences.

Both buy-side subsidiaries, Orange 142 and Huddled Masses, offer technology-enabled advertising solutions and consulting services to clients through demand side platforms (“DSPs”).

Providing both the front-end, buy-side operations coupled with the Company’s proprietary sell-side operations enables the Company to curate the first through the last mile in the ad tech ecosystem execution process to drive higher results.

Note 2 — Basis of Presentation and Summary of Significant Accounting Policies

Basis of presentation

The Company’s consolidated financial statements are presented in accordance with accounting principles generally accepted in the United States of America (“U.S.

GAAP”) and reflect the financial position, results of operations and cash flows for all periods presented.

The accompanying unaudited consolidated financial statements should be read in conjunction with the audited consolidated financial statements and notes included in the Company's Annual Report on Form 10-K for the year ended December 31, 2022, which was filed with the SEC on April 17, 2023.

In the opinion of management, the unaudited interim consolidated financial statements reflect all adjustments, which include only normal recurring adjustments, necessary for the fair statement of the results for the periods presented.

Note 2 — Basis of Presentation and Consolidation and Summary of Significant Accounting Policies

Basis of presentation and consolidation

The accompanying condensed unaudited consolidated financial statements have been prepared by the Company in accordance with accounting principles generally accepted in the United States (“GAAP”) for interim financial reporting and as required by Rule 8-03 of Regulation S-X.

Accordingly, the condensed unaudited consolidated financial statements may not include all of the information and notes required by GAAP for audited financial statements.

The consolidated financial statements data for the year ended December 31, 2023 included herein was derived from audited financial statements but does not include all disclosures required by GAAP for complete financial statements.

In the opinion of the Company’s management, the accompanying condensed unaudited consolidated financial statements contain all adjustments, consisting of items of a normal and recurring nature, necessary to present fairly the Company’s financial

position as of June 30, 2024, the results of its operations for the three and six months ended June 30, 2024 and 2023, cash flows for the six months ended June 30, 2024 and 2023, and stockholders’ deficit for the three and six months ended June 30, 2024 and 2023.

The results of operations for the three and six months ended June 30, 2024, respectively, are not necessarily indicative of the results to be expected for the full year.

The preparation of condensed consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the amounts of assets and liabilities, and related disclosures, as of the date of the financial statements, and the amounts of revenues and expenses reported during the period.

Actual results could differ from estimates.

The accompanying condensed unaudited consolidated financial statements should be read in conjunction with the Company’s audited financial statements and the accompanying notes for the year ended December 31, 2023, which was included in Form 10-K filed with the SEC on October 15, 2024.

The condensed consolidated financial statements include the accounts of Direct Digital Holdings, Inc.

and its wholly owned subsidiaries.

All material intercompany accounts and transactions have been eliminated in consolidation.

The Company is an emerging growth company, as defined in the Jumpstart Our Business Startups Act of 2012 (the “JOBS Act”).

1 unchanged sentence

The Company has elected to use this extended transition period for complying with new or revised accounting standards that have different effective dates for public and private companies until the earlier of the date that it (i) is no longer an emerging growth company or (ii) it affirmatively and irrevocably opts out of the extended transition period provided in the JOBS Act.

As a result, these financial statements may not be comparable to companies that comply with the new or revised accounting pronouncements as of public company effective dates.

As a result, these condensed consolidated financial statements may not be comparable to companies that comply with the new or revised accounting pronouncements as of public company effective dates.

The adoption dates discussed below reflect this election.

Basis of consolidation

The consolidated financial statements include the accounts of Direct Digital Holdings, Inc.

and its wholly owned subsidiaries.

All material intercompany accounts and transactions have been eliminated in consolidation.

Business combinations

The Company analyzes acquisitions to determine if the acquisition should be recorded as an asset acquisition or a business combination.

The Company accounts for acquired businesses using the acquisition method of accounting under Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) 805, Business Combinations , (“ASC 805”), which requires that assets acquired and liabilities assumed be recorded at the date of acquisition at their respective fair values.

The fair value of the consideration paid, including any contingent consideration as applicable, is assigned to the underlying net assets of the acquired business based on their respective fair values based on widely accepted valuation techniques in accordance with ASC Topic 820, Fair Value Measurement , as of the closing date.

Any excess of the purchase price over the estimated fair values of the net tangible assets and identifiable intangible assets acquired is recorded as goodwill.

Significant judgments are used in determining the estimated fair values assigned to the assets acquired and liabilities assumed and in determining estimates of useful lives of long-lived assets.

Fair value determinations and useful life estimates are based on, among other factors, estimates of expected future net cash flows, estimates of appropriate discount rates used to calculate the present value of expected future net cash flows, the assessment of each asset’s life cycle, and the impact of competitive trends on each asset’s life cycle and other factors.

These judgments can materially impact the estimates used to allocate acquisition date fair values to assets acquired and liabilities assumed, and the resulting timing and amounts charged to, or recognized in, current and future operating results.

For these and other reasons, actual results may vary significantly from estimated results.

Use of estimates

The preparation of financial statements in conformity with U.S.

GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period.

Actual results could differ from these estimates.

Significant estimates include the allocation of purchase price consideration in the business combination and the related valuation of acquired assets and liabilities, intangible assets, and goodwill impairment testing.

The Company bases its estimates on past experiences, market conditions, and other assumptions that the Company believes are reasonable under the circumstances, and the Company evaluates these estimates on an ongoing basis.

Cash and cash equivalents

Cash and cash equivalents consist of funds deposited with financial institutions and highly liquid instruments with original maturities of three months or less.

Such deposits may, at times, exceed federally insured limits.

As of September 30, 2023, $ 4,555,527 of the Company’s cash and cash equivalents exceeded the federally insured limits, none of which is held at Silicon Valley Bank (“SVB”).

The Company has not experienced any losses in such amounts and believes it is not exposed to any significant credit risk to cash.

Accounts receivable, net

Accounts receivable primarily consists of billed amounts for products and services rendered to customers under normal trade terms.

The Company performs credit evaluations of its customers’ financial condition and generally does not require collateral.

Accounts receivables are stated at net realizable value.

The Company insures a significant portion of its accounts receivable with unrelated third-party insurance companies in an effort to mitigate any future write-offs and establishes an allowance for doubtful accounts as deemed necessary for accounts not covered by this insurance.

As of September 30, 2023 and December 31, 2022, the Company’s allowance for

doubtful accounts was $ 46,433 and $ 4,323 , respectively.

Management periodically reviews outstanding accounts receivable for reasonableness.

If warranted, the Company processes a claim with the third-party insurance company to recover uncollected balances, rather than writing the balances off to bad debt expense.

The guaranteed recovery for the claim is approximately 90 % of the original balance, and if the full amount is collected by the insurance company, the remaining 10 % is remitted to the Company.

If the insurance company is unable to collect the full amount, the Company records the remaining 10 % to bad debt expense.

Bad debt expense was $ 46,208 for the three months ended September 30, 2023 and for the three months ended September 30, 2022, the Company recovered $ 22,082 on receivables previously written off.

Bad debt expense was $ 97,740 and $ 2,717 for the nine months ended September 30, 2023 and 2022, respectively.

Concentration of customers

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

For the three months ended September 30, 2023 and 2022, one customer represented 82 % and 70 % of revenues, respectively.

For the nine months ended September 30, 2023 and 2022, one customer represented 72 % and 60 % of revenues.

As of September 30, 2023 and December 31, 2022, one customer accounted for 90 % and 80 %, respectively, of accounts receivable.

Property and equipment, net

Property and equipment are recognized in the consolidated balance sheets at cost less accumulated depreciation and amortization.

The Company capitalizes purchases and depreciates its property and equipment using the straight-line method of depreciation over the estimated useful lives of the respective assets, generally ranging from three to five years .

Leasehold improvements are amortized over the shorter of their useful lives or the remaining terms of the related leases.

The cost of repairs and maintenance are expensed as incurred.

Major renewals or improvements that extend the useful lives of the assets are capitalized.

When assets are retired or disposed of, the cost and accumulated depreciation thereon are removed, and any resulting gain or loss is recognized in the consolidated statements of operations.

Internal Use of Software Development Costs (Capitalized Software)

The Company capitalizes costs related to the development of internal-use software.

Costs incurred during the application development phase are capitalized and amortized using the straight-line method over the estimated useful life, estimated at three years .

Under the purchase method of accounting pursuant to ASC 805, goodwill is calculated as the excess of purchase price over the fair value of the net tangible and identifiable intangible assets acquired.

In testing goodwill for impairment, the Company has the option to begin with a qualitative assessment, commonly referred to as “Step 0”, to determine whether it is more likely than not that the fair value of a reporting unit containing goodwill is less than its carrying value.

This qualitative assessment may include, but is not limited to, reviewing factors such as macroeconomic conditions, industry and market considerations, cost factors, entity-specific financial performance and other events, such as changes in management, strategy and primary user base.

If the Company determines that it is more likely than not that the fair value of a reporting unit is less than its carrying value, then a quantitative goodwill impairment analysis is performed, which is referred to as “Step 1”.

Depending upon the results of the Step 1 measurement, the recorded goodwill may be written down, and an impairment expense is recorded in the consolidated statements of operations when the carrying amount of the reporting unit exceeds the fair value of the reporting unit.

Goodwill is reviewed annually and tested for impairment upon the occurrence of a triggering event.

As of September 30, 2023, goodwill was $ 6,519,636 , which includes $ 2,423,936 as a result of the acquisition of Huddled Masses and Colossus Media in 2018 and $ 4,095,700 of goodwill recognized from the acquisition of Orange142 in September 2020.

Intangible assets, net

Intangible assets consist of customer relationships, trademarks and non-compete agreements.

Intangible assets are recorded at fair value at the time of their acquisition and are stated within the consolidated balance sheets net of accumulated amortization.

Intangible assets are amortized on a straight-line basis over their estimated useful lives and recorded as amortization expense within general and administrative expenses in the consolidated statements of operations.

Impairment of long-lived assets

The Company evaluates long-lived assets, including property and equipment, and acquired intangible assets consisting of customer relationships, trademarks and trade names, and non-compete agreements, for impairment whenever events or changes in circumstances indicate that the carrying value of an asset may not be recoverable.

Recoverability is assessed based on the future cash flows expected to result from the use of the asset and its eventual disposition.

If the sum of the undiscounted cash flows is less than the carrying amount of the asset, an impairment loss is recognized.

Any impairment loss, if indicated, is measured as the amount by which the carrying amount of the asset exceeds its estimated fair value and is recognized as a reduction in the carrying amount of the asset.

As of September 30, 2023 and December 31, 2022, there were no events or changes in circumstances to indicate that the carrying amount of the assets may not be recoverable.

Fair value measurements

The Company follows ASC 820-10, Fair Value Measurement , which defines fair value, establishes a framework for measuring fair value in U.S.

GAAP, and requires certain disclosures about fair value measurements.

ASC 820-10 defines fair value as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the most advantageous market for the asset or liability in an orderly transaction.

Fair value measurement is based on a hierarchy of observable or unobservable inputs.

The standard describes three levels of inputs that may be used to measure fair value.

Level 1 — Inputs to the valuation methodology are quoted prices available in active markets for identical securities as of the reporting date;

Level 2 — Inputs to the valuation methodology are other significant observable inputs, including quoted prices for similar securities, interest rates, credit risk etc.

as of the reporting date, and the fair value can be determined through the use of models or other valuation methodologies;

Level 3 — Inputs to the valuation methodology are unobservable inputs in situations where there is little or no market activity of the securities and the reporting entity makes estimates and assumptions relating to the pricing of the securities, including assumptions regarding risk.

The Company segregates all financial assets and liabilities that are measured at fair value on a recurring basis into the most appropriate level within the fair value hierarchy based on the inputs used to determine the fair value at the measurement date.

Deferred financing costs

The Company records costs related to its line of credit and the issuance of debt obligations as deferred financing costs.

These costs are deferred and amortized to interest expense using the straight-line method over the life of the debt.

In December 2021, the Company amended its line of credit with East West Bank (see Note 6 – Long-Term Debt) and incurred additional deferred financing costs of $ 4,613 during the nine months ended September 30, 2022.

On July 26, 2022, the Company repaid the line of credit and terminated the revolving credit facility as of such date and the remaining deferred financing costs of $ 33,434 were amortized to interest expense during the year ended December 31, 2022.

On July 7, 2023, the Company entered into a new revolving credit facility with East West Bank and incurred deferred financing costs of $ 214,680 during the three months ended September 30, 2023.

Unamortized deferred financing costs related to the new line of credit were $ 187,845 and $ 0 as of September 30, 2023 and December 31, 2022, respectively.

As of September 30, 2023, $ 80,505 of these unamortized deferred financing costs were included in prepaid expenses and other current assets with the balance in other long-term assets.

In January 2023, the Company entered into a Loan and Security Agreement with Silicon Valley Bank (the “SVB Loan Agreement”) and incurred $ 211,934 of deferred financing costs during the nine months ended September 30, 2023.

As the Company had not yet drawn any amounts on the agreement, on March 13, 2023 the Company issued a notice of termination and expensed the deferred financing costs which totaled $ 299,770 to contingent loss on early termination of line of credit during the nine months ended September 30, 2023.

Termination of the facility with Silicon Valley Bank (“SVB”) became effective April 20, 2023.

In December 2021, the Company entered into an agreement with Lafayette Square Loan Servicing, LLC (“Lafayette Square”) (see Note 6 – Long-Term Debt) and incurred additional deferred financing costs of $ 15,567 and $ 520,682 during the nine months ended September 30, 2023 and 2022, respectively.

Unamortized deferred financing costs for the note payable was $ 1,722,716 and $ 2,115,161

as of September 30, 2023 and December 31, 2022, respectively, and netted against the outstanding debt on the consolidated balance sheets.

Right-of-use assets

The Company adopted ASU 2016-02 (“ASU 2016-02”), Leases (Topic 842) as of January 1, 2022, and recognizes operating lease assets and lease liabilities on the balance sheets.

The standard requires the Company to increase assets and liabilities by equal amounts through the recognition of Right-of-Use (“ROU”) assets and lease liabilities for the operating leases and to recognize the initial and the monthly payments as operating expenses when paid or accrued on the consolidated statements of operations and consolidated statements of cash flows.

Revenue recognition

The Company recognizes revenue using the following five steps:

1) identification of a contract(s) with a customer;

1) identification of a contract with a customer;

2) identification of the performance obligation(s) in the contract;

3 unchanged sentences

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

buy-side advertising and sell-side advertising.

sell-side advertising and buy-side advertising.

Thus, the Company disaggregates the revenue earned into these two segments.

For additional segment disclosures, refer to Note 7 — Segment Information of our condensed consolidated financial statements.

The Company maintains agreements with its customers in the form of written service agreements, which set out the terms of the relationship, including payment terms (typically 30 to 90 days) and access to its platform.

For the sell-side advertising segment, the Company generates revenue by selling advertising inventory (digital ad units) that the Company purchases from publishers to advertisers through a process of monetizing ad impressions on the Company’s proprietary sell-side programmatic platform operating under the trademarked banner Colossus SSP.

For the buy-side advertising segment, the Company generates revenue from customers that enter into agreements with the Company to provide managed advertising campaigns, which include digital marketing and media services to purchase digital advertising space, data and other add-on features.

In connection with the Company’s analysis of principal vs agent considerations, the Company has evaluated the specified goods or services and considered whether the Company controls the goods or services before they are provided to the customer, including the three indicators of control.

Based upon this analysis and the Company’s specific facts and circumstances, the Company concluded that it is a principal for the goods or services sold through both the Company’s sell-side advertising segment and buy-side advertising segment because the Company controls the specified good or service before it is transferred to the customer and the Company is the primary obligor in the agreement with customers.

Therefore, the Company reports revenue on a gross basis inclusive of all supplier costs and pays suppliers for the cost of digital media, advertising inventory, data and any add-on services or features.

In the advertising industry, companies commonly experience seasonal fluctuations in revenue.

For example, in our sell-side advertising segment, many advertisers allocate the largest portion of their budgets to the fourth quarter of the calendar year in order to coincide with increased holiday purchasing while, in our buy-side segment, the second and third quarters of the year reflect our highest levels of advertising activity and the first quarter reflects the lowest level of such activity.

Sell-side advertising

The Company partners with publishers to sell advertising inventory to the Company’s Colossus Media-curated clients and the open markets (collectively referred to as “buyers”) seeking to access the general market as well as unique multi-cultural audiences.

The Company generates revenue from the delivery of targeted digital media solutions, enabling advertisers to connect intelligently with their audiences across online display, video, social and mobile mediums using its proprietary programmatic sell-side platform (“SSP”).

The Company refers to its publishers, app developers, and channel partners collectively as its "publishers".

The Company’s platform allows the Company to sell, in real time, ad impressions from publishers to buyers and provides automated inventory management and monetization tools to publishers across various device types and digital ad formats.

The Company recognizes revenue at a point in time when an ad is delivered or displayed in response to a winning bid request from ad buyers.

Buy-side advertising

2 unchanged sentences

An “impression” is delivered when an advertisement appears on pages viewed by users.

The performance obligation is satisfied over time as the volume of impressions are delivered up to the contractual maximum for fully managed revenue.

The performance obligation is satisfied over time as the volume of impressions are delivered up to the contractual maximum.

Many customers run several different campaigns throughout the year to capitalize on different seasons, special events and other happenings at their respective regions and localities.

5 unchanged sentences

The majority of the Company’s contracts are flat-rate, fee-based contracts.

In instances where the Company contracts with third-party advertising agencies on behalf of their advertiser clients, a determination is made to recognize revenue on a gross or net basis based on an assessment of whether the Company is acting as the principal or an agent in the transaction.

The Company is acting as the principal in these arrangements and therefore revenue earned and costs incurred are recognized on a gross basis as the Company has control of the digital ad units and is responsible for fulfilling the advertisement delivery, establishing the minimum selling prices, delivering the advertisements, providing updates and performing all billing and collection activities for the applicable platform.

Cash payments received prior to the Company’s delivery of its services are recorded to deferred revenue until the performance obligation is satisfied.

The Company recorded deferred revenue (contract liabilities) to account for billings in excess of revenue recognized, primarily related to contractual minimums billed in advance and customer prepayment, of $ 1,044,069 and $ 546,710 as of September 30, 2023 and December 31, 2022, respectively.

Sell-side advertising

The Company refers to its publishers, app developers, and channel partners collectively as its publishers.

The Company generates revenue

through the monetization of publisher ad impressions on its platform.

The Company recognizes revenue when an ad is delivered or displayed in response to a winning bid request from ad buyers.

The Company is acting as the principal in these arrangements and therefore revenue earned and costs incurred are recognized on a gross basis, as the Company has control of the digital ad units and is responsible for fulfilling the advertisement delivery, establishing the minimum selling prices, delivering the advertisements, providing updates and performing all billing and collection activities for its proprietary platform.

In an effort to reduce the risk of nonpayment, the Company has insurance with a third-party carrier for its accounts receivable as noted above.

Cost of revenues

Buy-side advertising

Cost of revenues consists primarily of digital media fees, third-party platform access fees, and other third-party fees associated with providing services to the Company’s customers.

Sell-side advertising

The Company pays publishers a fee, which is typically a percentage of the value of the ad impressions monetized through the Company’s platform.

Cost of revenues consists primarily of publisher media fees and data center co-location costs.

Media fees include the publishing and real-time bidding costs to secure advertising space.

Advertising costs

The Company expenses advertising costs as incurred.

Advertising expense incurred during the three months ended September 30, 2023 and 2022 was $ 471,987 and $ 295,794 , respectively and $ 1,474,250 and $ 618,461 for the nine months ended September 30, 2023 and 2022, respectively.

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

The Company recorded deferred revenue (contract liabilities) to account for billings in excess of revenue recognized, primarily related to contractual minimums billed in advance and customer prepayment, of $ 0.7 million and $ 0.4 million as of June 30, 2024 and December 31, 2023, respectively.

Revenue recognized during the six months ended June 30, 2024 and 2023 from amounts included within the deferred revenue balances at the beginning of each respective period amounted to $ 0.4 million and $ 0.5 million, respectively.

Accounting Standards Codification ("ASC") 606 provides various optional practical expedients.

The Company elected the use of the practical expedient relating to the disclosure of remaining performance obligations within a contract and will not disclose remaining performance obligations for contracts with an original expected duration of one year or less.

As of June 30, 2024 and December 31, 2023, goodwill was $ 6.5 million, which includes $ 2.4 million as a result of the acquisition of Huddled Masses and Colossus Media in 2018 and $ 4.1 million from the acquisition of Orange 142 in 2020.

The Company expects to deduct goodwill for tax purposes in future years.

Goodwill is attributable to entry into new markets not previously accessible and generation of future growth opportunities.

Goodwill is assessed for impairment at least annually (December 31) starting with a qualitative assessment to determine whether it is more likely than not that the fair value of a reporting unit containing goodwill is less than its carrying value.

If the Company determines that it is more likely than not that the fair value of a reporting unit is less than its carrying value, then a quantitative goodwill impairment analysis is performed.

Depending upon the results of the quantitative measurement, the recorded goodwill may be written down and an impairment expense is recorded in the condensed consolidated statements of operations when the carrying amount of the reporting unit exceeds the fair value of the reporting unit.

Goodwill is reviewed annually and tested for impairment upon the occurrence of a triggering event.

The Company determined that there was no impairment of goodwill during the six months ended June 30, 2024 and 2023.

Intangible assets, net

Intangible assets consist of customer relationships, trademarks and non-compete agreements.

Intangible assets are recorded at fair value at the time of their acquisition and are stated within the condensed consolidated balance sheets net of accumulated amortization.

The Company’s intangible assets are being amortized over their estimated useful lives, using the straight-line method with non-compete agreements over 5 years and other intangibles over 10 years.

Impairment of long-lived assets

The Company evaluates the recoverability of long-lived assets, including property, equipment and software costs and intangible assets if facts or circumstances indicate that any of those assets might be impaired.

ASC 360-10-15 requires the Company to group assets and liabilities at the lowest level for which identifiable cash flows are largely independent of the cash flows of other assets and liabilities and evaluate the asset group against the sum of the undiscounted future cash flows to determine if a write-down to fair value is necessary.

No impairment loss was recognized during the six months ended June 30, 2024 and 2023.

Stock-based compensation

The Company recognizes and measures compensation expense for all stock-based payment awards granted to employees, directors and non-employee directors, including stock options and restricted stock units (“RSUs”), based on the fair value of the awards on the date of grant.

The fair value of stock options is estimated using the Black Scholes option pricing model.

The grant date fair value of RSUs is based on the prior day closing market price of the Company’s Class A common stock.

The Black Scholes option pricing model inputs include the fair value of the Company’s common stock, as well as assumptions regarding the expected common stock price volatility over the term of the stock options, the expected term of the stock options, risk-free interest rates, and the expected dividend yield.

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

Income per share

Basic income per share is calculated by dividing net income available to common stockholders by the weighted average number of shares outstanding for the period.

Potentially dilutive securities include potential shares of common stock related to the Company’s stock options and RSUs.

Diluted earnings per share considers the impact of potentially dilutive securities except in periods in which there is a loss because the inclusion of potential shares of common stock would have an anti-dilutive effect.

Diluted income per share excludes the impact of potential shares of common stock related to the Company’s stock options in periods in which the options exercise price is greater than the average market price of the Company’s common stock for the period.

Effective February 15, 2022, concurrent with the closing of the Company’s initial public offering, the Company entered into a tax receivable agreement (“Tax Receivable Agreement” or “TRA”) with DDH LLC and Direct Digital Management, LLC (“DDM” or the “Continuing LLC Owner”).

Stock-based compensation cost for options and restricted stock units (“RSU”) awarded to employees and directors is measured at the grant date based on the calculated fair value of the award and is recognized as an expense over the requisite service period (generally the vesting period of the equity grant).

Contingently issued awards with a requisite service period that precedes the grant date are measured and recognized at the start of the requisite service period and remeasured each reporting period until the grant date.

The Company estimates the fair value of RSU’s based on the closing price of the Company’s common stock on the date of the grant.

The Company estimates the fair value of stock options using the Black-Scholes valuation model.

Key input assumptions used to estimate the fair value of stock options include the fair value of the Company’s common stock, as well as assumptions regarding the expected common stock price volatility over the term of the stock options, the expected term of the stock options, risk-free interest rates and the expected dividend yield.

Given the Company's short history as a public company, the expected volatility is determined based on the trading history of several unrelated public companies within the industry that the Company considers to be comparable and the expected term is determined based on a combination of the terms of stock options and peer data.

The risk-free interest rate is derived using the U.S.

Treasury yield curve in effect at date of grant.

Other assumptions are based on historical experience and activity.

The Company considers an estimated forfeiture rate for stock options based on historical experience and the anticipated forfeiture rates during the future contract life.

In February 2022, concurrent with the Organizational Transactions, the Company entered into a tax receivable agreement (“Tax Receivable Agreement” or “TRA”) with DDH LLC and Direct Digital Management, LLC (“DDM”).

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

DDH LLC is a limited liability company and will continue to be treated as a partnership for federal income tax purposes and, as such, generally will not be subject to any entity-level U.S.

DDH LLC is a limited liability company, is treated as a partnership for federal income tax purposes and generally is not subject to any entity-level U.S.

federal income tax and certain state and local income taxes.

Any taxable income or loss generated by the Company will be allocated to holders of LLC units (“LLC Units”) in accordance with the Second Amended and Restated Limited Liability Company Agreement (“LLC Agreement”), and distributions to the owners of LLC Units in an amount sufficient to fund their tax obligations will be made.

Any taxable income or loss generated by the Company is allocated to holders of LLC units (“LLC Units”) in accordance with the Second Amended and Restated Limited Liability Company Agreement (“LLC Agreement”), and distributions to the owners of LLC Units in an amount sufficient to fund their tax obligations.

The Company is subject to U.S.

2 unchanged sentences

The Company made an election under Section 754 of the Code for each taxable year in which a redemption or exchange of LLC interest occurred.

During the year ended December 31, 2022, a member of DDM exchanged 100,000 Class B shares into Class A shares.

The Company applies ASC 740-10, Income Taxes , in establishing standards for accounting for uncertain tax positions.

The Company evaluates uncertain tax positions with the presumption of audit detection and applies a “more likely than not” standard to evaluate the recognition of tax benefits or provisions.

ASC 740-10 applies a two-step process to determine the amount of tax benefits or provisions to record in the consolidated financial statements.

First, the Company determines whether any amount may be recognized and then determines how much of a tax benefit or provision should be recognized.

As of September 30, 2023 and December 31, 2022, the Company had no uncertain tax positions.

Accordingly, the Company has not recognized any penalty, interest or tax impact related to uncertain tax positions.

If the Company were to incur an income tax liability in the future, interest on any income tax liability would be reported as interest expense and penalties on any income tax liability would be reported as income taxes.

The Company’s conclusion regarding uncertain tax positions may be subject to review and adjustments at a later date based upon ongoing analyses of tax laws regulations and interpretations thereof as well as other factors.

See Note 13 – Tax Receivable Agreement and Income Taxes.

Segment information

Operating segments are components of an enterprise for which separate financial information is available and is evaluated regularly by the Company’s chief operating decision maker in deciding how to allocate resources and assessing performance.

The Company’s chief operating decision maker is its Chairman and Chief Executive Officer.

The Company views its business as two reportable segments, buy-side advertising, which includes the results of Huddled Masses and Orange142, and sell-side advertising, which includes the results of Colossus Media.

Recent Accounting Pronouncements

Accounting pronouncements recently adopted

In June 2016, the FASB issued ASU No.

2016-13 , Financial Instruments — Credit Losses (Topic 326), Measurement of Credit Losses on Financial Instruments , as amended, which requires, among other things, the use of a new current expected credit loss (“CECL”) model in order to determine the Company’s allowances for doubtful accounts with respect to accounts receivable.

The CECL model requires that the Company estimate its lifetime expected credit loss with respect to its receivables and contract assets and record allowances that, when deducted from the balance of the receivables, represent the net amounts expected to be collected.

The Company is required to disclose information about how it developed the allowances, including changes in the factors that influence its estimate of expected credit losses and the reasons for those changes.

This ASU is effective for annual periods, including interim periods within those annual periods, beginning after December 15, 2022.

The Company adopted the new guidance on January 1, 2023 on a modified retrospective basis and determined it did not have a material impact on its consolidated financial statements of financial position, results of operations, cash flows or net income per share.

Accounting pronouncements not yet adopted

There are no accounting pronouncements that the Company has not yet adopted that it believes are applicable or would have a material impact on the consolidated financial statements of the Company.

Liquidity and capital resources

As of September 30, 2023, the Company had cash and cash equivalents of $ 5,481,949 .

Based on projections of growth in revenue and operating results in the coming year, the available cash held by the Company and the amounts the Company may borrow under the Credit Agreement (as defined below) executed in July 2023, the Company believes that it will have sufficient cash resources to finance its operations and service any maturing debt obligations for at least the next twelve months following the issuance of these financial statements.

Note 3 — Property, Equipment and Software, net

Property, equipment and software, net consists of the following:

September 30,

Furniture and fixtures

Computer equipment

Leasehold Improvements

Capitalized software

Property, equipment and software, gross

accumulated depreciation and amortization

Total property, equipment and software, net

The Company moved headquarters in 2022 and capitalized furniture and fixtures, computer equipment and leasehold improvements related to the move.

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

The following table summarizes depreciation and amortization expense related to property, equipment and software by line item for the three and nine months ended September 30, 2023 and 2022:

Three Months Ended

Nine Months Ended

September 30,

Cost of revenue

General and administrative

Total depreciation and amortization

Note 4 — Intangible Assets

Effective September 30, 2020, the Company acquired 100 % of the equity interests of Orange142 for a purchase price of $ 26,207,981 .

The acquisition of Orange142 was recorded by allocating the total purchase consideration to the fair value of the net tangible assets acquired, including goodwill and intangible assets, in accordance with ASC 805.

The purchase consideration exceeded the fair value of the net assets, resulting in goodwill of $ 4,095,700 and intangible assets of $ 18,033,850 .

The Company records amortization expense on a straight-line basis over the life of the identifiable intangible assets.

For the three months ended September 30, 2023 and 2022, amortization expense of $ 488,455 and $ 488,455 , respectively, and for the nine months ended September 30, 2023 and 2022, amortization expense of $ 1,465,363 and $ 1,465,364 , respectively, was recognized.

As of September 30, 2023 and December 31, 2022, intangible assets net of accumulated amortization was $ 12,172,396 and $ 13,637,759 , respectively.

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

Trademarks and

Customer lists

Fair value at acquisition date

Accumulated amortization

( 3,908,496 )

( 1,050,360 )

( 5,861,454 )

Intangible assets, net

Estimated life (years)

Weighted-average remaining life (years)

Total future amortization expense

The Company expects to deduct goodwill for tax purposes in future years.

The factors that make up goodwill include entry into new markets not previously accessible and generation of future growth opportunities.

Note 5 — Accrued Liabilities

Accrued liabilities consisted of the following:

September 30,

During the six months ended June 30, 2024 and 2023, members of DDM exchanged no shares of Class B Common Stock into shares of Class A Common Stock.

Deferred tax assets and liabilities are determined based on differences between financial reporting and tax bases of assets and liabilities and are measured using the enacted tax rates and laws that will be in effect when the differences are expected to reverse.

A valuation allowance is established when it is more likely than not that some portion or all of the deferred tax assets will not be realized.

The establishment of a valuation allowance requires significant judgment and is impacted by various estimates.

Both positive and negative evidence, as well as the objectivity and verifiability of that

evidence, is considered in determining the appropriateness of recording a valuation allowance on deferred tax assets.

As of June 30, 2024 and December 31, 2023, the Company recorded a valuation allowance of $ 0.5 million and $ 0.5 million, respectively.

Accounts receivable, net

Accounts receivable primarily consists of billed amounts for products and services rendered to customers under normal trade terms.

The Company performs credit evaluations of its customers’ financial condition and generally does not require collateral.

Accounts receivable are stated at net realizable value.

The Company insures a significant portion of its accounts receivable with unrelated third-party insurance companies in an effort to mitigate any future write-offs and establishes provision for credit losses as deemed necessary for accounts not covered by this insurance.

Management periodically reviews outstanding accounts receivable for reasonableness.

If warranted, the Company processes a claim with the third-party insurance company to recover uncollected balances, rather than writing the balances off to bad debt expense.

The guaranteed recovery for the claim is approximately 90 % of the original balance, and if the full amount is collected by the insurance company, the remaining 10 % is remitted to the Company.

If the insurance company is unable to collect the full amount, the Company records the remaining 10 % to bad debt expense.

The Company’s provision for credit losses reflects the current expected credit loss inherent in the accounts receivable considering the Company’s aging analysis, historical collection experience, customer creditworthiness, current and future economic conditions and market conditions.

Accounts receivable balances are written off against the provision when the Company believes it is probable the receivable will not be recovered.

For the six months ended June 30, 2024 and 2023 the Company's provision for credit losses net of recoveries, as reflected in the condensed consolidated statements of cash flows was less than $ 0.1 million.

Concentrations of customers and suppliers

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

For the three months ended June 30, 2024 and 2023, one customer of the sell-side of the business represented 28 % and 63 % of revenues, respectively.

For the six months ended June 30, 2024 and 2023, one customer of the sell-side of the business represented 62 % and 62 % of revenues, respectively.

As of June 30, 2024 and December 31, 2023, one customer of the sell-side of the business accounted for 64 % and 83 %, respectively, of accounts receivable.

As of June 30, 2024 and December 31, 2023, three sellers of advertising inventory each accounted for at least 10%, and collectively accounted for 36 % and 77 %, respectively, of consolidated accounts payable.

Accrued Liabilities

The components of accrued liabilities on the balance sheet as of June 30, 2024 and December 31, 2023 are as follows (in thousands):

2024 December 31,

Accrued compensation and benefits $ 371 $ 2,789

4 unchanged sentences

Total accrued liabilities $ 1,125 $ 3,816

On July 10, 2019, Huddled Masses was named as a defendant in a lawsuit related to a delinquent balance to a vendor.

On July 28, 2022, the Company entered into a settlement agreement with the vendor and agreed to pay a total of $ 515,096 with monthly installment payments over 24 months beginning September 1, 2022.

(1) In July 2022, the Company entered into a litigation settlement agreement with a vendor of Huddled Masses related to a delinquent balance from 2019 and agreed to pay a total of $ 0.5 million with monthly installment payments over 24 months beginning September 1, 2022.

Cash and cash equivalents

Cash and cash equivalents consist of funds deposited with financial institutions and highly liquid instruments with original maturities of three months or less.

Such deposits may, at times, exceed federally insured limits.

The risk of loss attributable to any uninsured balances is mitigated by depositing funds only in high credit quality financial institutions.

Company has not experienced any losses in such amounts and believes it is not exposed to any significant credit risk to cash.

Deferred offering costs

The Company records certain legal, accounting and other third-party fees that are directly associated with an offering to stockholders’ equity or debt in the event that the Company completes an offering.

Costs associated with debt offerings are amortized to interest expense using the straight-line method over the life of the debt.

As of June 30, 2024 and December 31, 2023, $ 1.4 million and $ 1.7 million, respectively, of unamortized deferred financing costs are netted against debt in the condensed consolidated balance sheets.

Fair value measurements

The Company employs a hierarchy which prioritizes the inputs used to measure recurring fair value into three distinct categories based on the lowest level of input that is significant to the fair value measurement.

The methodology for categorizing assets and liabilities that are measured at fair value pursuant to this hierarchy gives the highest priority to unadjusted quoted prices in active markets and the lowest levels to unobservable inputs, summarized as follows:

• Level 1 – Quoted prices in active markets for identical assets or liabilities.

• Level 2 – Other significant observable inputs (including quoted prices in active markets for similar assets or liabilities).

• Level 3 – Significant unobservable inputs (including our own assumptions in determining fair value).

We use the cost, income or market valuation approaches to estimate the fair value of our assets and liabilities when insufficient market-observable data is available to support our valuation assumptions.

Fair value of financial instruments

The Company considers the fair value of all financial instruments, including cash, accounts receivable and accounts payable to approximate their carrying values at year-end due to their short-term nature.

The carrying value of the Company’s debt approximates fair value due to the market rates of interest.

Net income (loss) per share

Basi c net income (loss) per share excludes dilution and is determined by dividing net income (loss) by the w eighted average number of common shares outstanding including participating securities during the period.

Diluted net income (loss) per share reflects the potential dilution that could occur if securities and other contracts to issue common stock were exercised or converted into common stock.

Recent Accounting Pronouncements

Accounting pronouncements adopted

No standards have been adopted which have had a material impact on the Company’s condensed consolidated financial statements.

Accounting pronouncements not yet adopted

In December 2023, the Financial Accounting Standards Board (the “FASB”) issued Accounting Standards Update ("ASU") 2023-09, Improvements to Income Tax Disclosures , a final standard on improvements to income tax disclosures.

The standard requires disaggregated information about a reporting entity's effective tax rate reconciliation as well as information on income taxes paid.

The standard is intended to benefit investors by providing more detailed income tax disclosures that would be useful in making capital allocation decisions and applies to all entities subject to income taxes.

The new standard is effective for emerging growth companies for annual periods beginning after December 15, 2025.

This accounting standard is effective in the first quarter of the Company's fiscal year ending December 31, 2026.

The Company is currently evaluating the impact of adoption on our financial disclosures.

In November 2023, the FASB issued ASU 2023-07, Segment Reporting (Topic 280) - Improvements to Reportable Segment Disclosures .

The ASU requires that an entity disclose significant segment expenses impacting profit and loss that

are regularly provided to the Company's chief operating decision maker ("CODM").

The update is required to be applied retrospectively to prior periods presented, based on the significant segment expense categories identified and disclosed in the period of adoption.

The amendments in this ASU are required to be adopted for fiscal years beginning after December 15, 2023, and interim periods within fiscal years beginning after December 15, 2024.

Early adoption is permitted.

The Company is currently evaluating the impact of adoption on our financial disclosures.

Other accounting standards that have been issued or proposed by the FASB or other standards-setting bodies that do not require adoption until a future date are not expected to have a material impact on the Company’s condensed consolidated financial statements.

Liquidity and capital resources

Going Concern

The Company evaluated whether relevant conditions or events, considered in the aggregate, raise substantial doubt about the Company’s ability to continue as a going concern.

Substantial doubt exists when conditions and events, considered in the aggregate, indicate it is probable that a company will not be able to meet its obligations as they become due within one year after the issuance date of its financial statements.

Management’s assessment is based on the relevant conditions that are known or reasonably knowable as of the date these consolidated financial statements were issued or were available to be issued.

As discussed in Note 9, one of the Company’s sell-side customers paused its connection to the Company for a couple of weeks in May 2024, which reduced sell-side sales volumes.

As of the date of this report, sell-side volumes related to this customer have resumed but not yet at the levels experienced prior to the pause in May 2024 which has created significant disruption in the Company’s sell-side business.

The Company is actively working with its partners to achieve prior volume levels.

However, there can be no assurance that the Company will be able to achieve prior volume levels with its partners or on the timing of achieving such volume levels.

Additionally, the Company (1) incurred a net loss of $ 6.8 million in 2023 primarily related to payments made to a few publishers of $ 8.8 million associated with a disputed short payment from a customer and a net loss of $ 7.0 million in the six months ended June 30, 2024 reflecting the impact of the sell-side disruption described above and a decrease in customer spend on the buy-side, (2) reported an accumulated deficit of $ 3.9 million as of June 30, 2024, (3) reported cash and cash equivalents of $ 1.1 million as of June 30, 2024, (4) has borrowed $ 9.7 million as of June 30, 2024 and the date of this report, under the Credit Agreement which matures in July 2025, (5) was notified on April 17, 2024 that the Company’s auditor had resigned and (6) was unable to timely file its 2023 annual report and quarterly reports for the first two quarters of 2024.

The delay in filing the Company’s annual and quarterly reports disrupted existing capital-raising efforts and created additional audit, legal and other expenses.

These factors raise substantial doubt about the Company’s ability to continue as a going concern over the next twelve months.

The Company anticipates sources of liquidity to include cash on hand and cash flow from operations and has taken several actions to address liquidity concerns.

These actions include (1) a plan to reduce expenses through a staff reduction, a pause on hiring and cost savings measures that were executed on July 1, 2024, (2) working with lenders to provide temporary various relief from debt covenants (see Note 3 – Long-Term Debt) while rebuilding sell-side volumes, (3) raising capital through arrangements with various providers, and (4) regaining compliance with respect to delinquent SEC filings which will allow the Company to access the capital markets as well as other financing sources.

There can be no assurance that the Company’s actions will be successful or that additional financing will be available when needed or on acceptable terms.

The accompanying consolidated financial statements have been prepared assuming the Company will continue to operate as a going concern, which contemplates the realization of assets and settlement of liabilities in the normal course of business, and do not include any adjustments to reflect the possible future effects on the recoverability and classification of assets or the amounts and classifications of liabilities that may result from uncertainty related to its ability to continue as a going concern.

Note 3 — Long-Term Debt

Lafayette Square

On December 3, 2021, DDH LLC entered into the Term Loan and Security Agreement (the “2021 Credit Facility”) with Lafayette Square as administrative agent, and the various lenders thereto.

The term loan under the 2021 Credit Facility provides for a term loan in the principal amount of up to $ 32,000,000 , consisting of a $ 22,000,000 closing date term loan and an up to $ 10,000,000 delayed draw term loan (“Delayed Draw Loan”).

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

The applicable margin under the 2021 Credit Facility is determined based on the consolidated total net leverage ratio of the Company and its consolidated subsidiaries, at a rate of 6.50 % per annum if the consolidated total net leverage ratio is less than 2.00 to 1.00 and up to 9.00 % per annum if the consolidated total net leverage ratio is greater than 4.00 to 1.00.

The applicable impact discount under the 2021 Credit Facility is a discount of 0.05 % per annum to the extent that DDH LLC adopts certain services intended to improve overall employee satisfaction and retention plus an additional discount of 0.05 % per annum to the extent that DDH LLC maintains a B Corp certification by Standards Analysts at the non-profit B Lab (or a successor certification or administrator).

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

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

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

On July 28, 2022, the Company entered into the Second Amendment and Joinder to Term Loan and Security Agreement (the “Term Loan Amendment”) and received proceeds of $ 4,260,000 borrowed under the Delayed Draw Loan to pay the balance owed on the common unit redemption as well as costs associated with the transaction.

Pursuant to the 2021 Credit Facility, as amended by the Term Loan Amendment, DDH LLC will indemnify the Company from and against any claims, losses, expenses and other liabilities incurred by the Company arising from the Company’s guarantor obligations under the 2021 Credit Facility and related term loan documents.

The Delayed Draw Loan is required to be repaid in quarterly installments payable on the last day of each fiscal quarter in an amount equal to (i) commencing with the fiscal quarter ending December 31, 2022 through and including the fiscal quarter ending December 31, 2023, $ 26,250 , and (ii) commencing March 31, 2024 and continuing on the last day of each fiscal quarter thereafter, $ 52,500 , with a final installment due December 3, 2026 in an amount equal to the remaining entire principal balance thereof.

The obligations under the 2021 Credit Facility are secured by senior, first-priority liens on all or substantially all assets of DDH LLC and its subsidiaries and are guaranteed by the subsidiaries of DDH LLC and include a pledge and guarantee by the Company.

As of September 30, 2023, the Company owed a balance on the 2021 Credit Facility of $ 25,192,500 .

Additional deferred financing costs of $ 15,567 and $ 520,682 were incurred during the nine months ended September 30, 2023 and 2022, respectively.

Unamortized deferred financing costs as of September 30, 2023 and December 31, 2022 were $ 1,722,716 and $ 2,115,161 respectively.

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

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

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

On October 3, 2023, the Company entered into the Fourth Amendment to the 2021 Credit Facility and received proceeds of $ 3.6 million borrowed under the Delayed Draw Term Loan to make payments in connection with the consummation of the 2023 warrant tender offer and fees and expenses incurred as described in Note 16 – Subsequent Events.

In connection with this Fourth Amendment, the Company agreed it would not be permitted to request any additional funds under the Delayed Draw Term Loan, and Lafayette Square would not be obligated to fund any such requests.

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

For the Three Months

Nine Months Ended

September 30,

At June 30, 2024 and December 31, 2023, long-term debt consisted of the following (in thousands):

June 30, 2024 December 31, 2023

2021 Credit Facility $ 28,221 $ 28,594

Credit Agreement 9,700 3,000

Economic Injury Disaster Loan 150 150

Total long-term debt 38,071 31,744

deferred financing costs ( 1,398 ) ( 1,688 )

Total long-term debt, net of deferred financing costs 36,673 30,056

current portion ( 1,840 ) ( 1,478 )

Total long-term debt, net of current portion $ 34,833 $ 28,578

The components of interest expense and related fees for long-term debt is as follows (in thousands):

Three Months Ended

June 30, Six Months Ended

2024 2023 2024 2023

Interest expense – Lafayette Square $ 981 $ 890 $ 1,955 $ 1,769

Amortization of deferred financing costs – Lafayette Square

Interest expense – East West Bank 189 — 324 —

Interest expense – Other 2 2 4 4

Amortization of deferred financing costs 186 136 372 272

Total interest expense and amortization of deferred financing costs $ 1,358 $ 1,028 $ 2,655 $ 2,045

Lafayette Square

On December 3, 2021, the Company entered into the Term Loan and Security Agreement (the “2021 Credit Facility”) with Lafayette Square Loan Services, LLC ("Lafayette Square") as administrative agent, and the various lenders thereto.

The term loan under the 2021 Credit Facility initially provided for a term loan in the principal amount of up to $ 32.0 million, consisting of a $ 22.0 million closing date term loan (the "Term Loan") and an up to $ 10.0 million delayed draw term loan (the “Delayed Draw Loan”).

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

The applicable margin under the 2021 Credit Facility was determined based on the consolidated total net leverage ratio of the Company and its consolidated subsidiaries, at a rate of 6.50 % per annum if the consolidated total net leverage ratio is less than 2.00 to 1.00 and up to 9.00 % per annum if the consolidated total net leverage ratio was greater than 4.00 to 1.00.

On June 1, 2023, as originally contemplated under the 2021 Credit Facility, the Company entered into an agreement with Lafayette Square to convert the existing LIBOR based rate to a Term Secured Overnight Financing Rate ("SOFR") with a credit spread of 0.15 % per annum for the interest periods of three months and providing for a credit spread adjustment of 0.10 %, 0.15 % or 0.25 % per annum for interest periods of one month, three months or six months, respectively.

The loans under the 2021 Credit Facility bear interest at SOFR plus the applicable credit spread adjustment plus the applicable margin minus any applicable impact discount.

Prior to entering into the Fifth Amendment as defined below, the applicable margin under the 2021 Credit Facility was based on the consolidated total net leverage ratio of the Company at a rate of 7.00 % per annum if the consolidated total net leverage ratio was less than or equal to 1.00 to 1.00 with gradual increases as the ratio increased up to 10.00 % per annum if the consolidated total net leverage ratio was greater than 3.50 to 1.00.

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

On July 28, 2022, the Company entered into the Second Amendment and Joinder to Term Loan and Security Agreement and received proceeds of $ 4.3 million borrowed under the Delayed Draw Loan to pay the balance owed on the common unit redemption as well as costs associated with the transaction.

Subsequently, on October 3, 2023, the Company entered into the Fourth Amendment to the 2021 Credit Facility (the “Fourth Amendment”) and received proceeds of $ 3.6 million borrowed under the Delayed Draw Loan to make payments in connection with the consummation of the 2023 warrant tender offer and fees and expenses incurred as described in Note 4 — Stockholders’ Deficit and Stock-Based Compensation in the notes to the condensed consolidated financial statements.

connection with the Fourth Amendment, the Company agreed it would not be permitted to request any additional funds under the Delayed Draw Loan, and Lafayette Square would not be obligated to fund any such requests.

Quarterly installment payments on the Term Loan and the Delayed Draw Loan, due on the last day of each fiscal quarter, began March 31, 2022 with a final installment due December 3, 2026 for remaining balances outstanding under each loan.

Each quarterly installment payment under the closing date term loan was $ 0.1 million from January 1, 2022 through December 31, 2023, and each installment payment thereafter until maturity is $ 0.3 million.

Each quarterly installment payment under the Delayed Draw Loan was 0.625 % of the amount of the Delayed Draw Loan through December 31, 2023, and each installment payment thereafter until maturity is 1.25 % of the amount of the Delayed Draw Loan.

Under the 2021 Credit Facility, dividends and distributions by DDH LLC to the Company and any shareholders of the Company are permitted so long as (i) no default or event of default is continuing or would occur after giving pro forma effect to such dividends and distributions under the 2021 Credit Facility, (ii) the Company, on a pro forma basis, maintains a consolidated senior net leverage ratio of not greater than 1.5 to 1.0, and (iii) the Company, on a pro forma basis, maintains liquidity of not less than $ 15.0 million.

The obligations under the 2021 Credit Facility are secured by senior, first-priority liens on all or substantially all assets of the Company.

As of June 30, 2024, the Company owed a balance on the 2021 Credit Facility of $ 28.2 million.

No additional deferred financing costs were incurred during the six months ended June 30, 2024 and less than $ 0.1 million of additional deferred financing costs were incurred during the six months ended June 30, 2023.

Unamortized deferred financing costs as of June 30, 2024 and December 31, 2023 were $ 1.4 million and $ 1.7 million respectively.

Accrued and unpaid interest was less than $ 0.1 million and $ 0.1 million as of June 30, 2024 and December 31, 2023, respectively.

The 2021 Credit Facility contains customary affirmative and negative covenants.

Prior to entering into the Fifth Amendment, the Company was required to maintain a net leverage ratio of no more than 3.50 to 1.00 as of December 31, 2021 and the last day of each fiscal quarter through December 31, 2023, 3.25 to 1.00 as of March 31, 2024 and the last day of each fiscal quarter through March 31, 2025, 3.00 to 1.00 as of June 30, 2025 and September 30, 2025, with incremental tightening of the ratio to 2.50 to 1.00 as of June 30, 2026 and thereafter through maturity.

Prior to entering into the Fifth Amendment, the 2021 Credit Facility also required the Company to maintain a fixed charge coverage ratio of not less than 1.50 to 1.00 as of the last day of each fiscal quarter, as well as restrictions on the ability to incur indebtedness, create certain liens, make certain investments, make certain dividends and other types of distributions, and enter into or undertake certain mergers, consolidations, acquisitions and sales of certain assets and subsidiaries.

The Company was in compliance with all the financial covenants under the 2021 Credit Facility as of June 30, 2024 after giving effect to the amendments to the 2021 Credit Facility under the Fifth Amendment.

With the Fifth Amendment, the Company expects to be in compliance with all amended covenants for at least one year from the balance sheet date in this quarterly report.

On October 15, 2024, with an effective date of June 30, 2024, the Company and Lafayette Square entered into the Fifth Amendment to the Term Loan and Security Agreement (the “Fifth Amendment”) which among other things, (1) defers quarterly installment payments on the Term Loan and the Delayed Draw Loan for the periods from June 30, 2024 through December 31, 2025, (2) requires that the Company pay a commitment fee of 50 basis points or an amount of $ 0.1 million to Lafayette Square, (3) allows proceeds from future equity raises by the Company, if any, to cure potential financial covenant noncompliance, (4) provides for one-month and three-month interest periods, (5) replaces the calculation of the consolidated total net leverage ratio with a consolidated total leverage ratio for purposes of calculating the applicable margin and the financial covenant and (6) replaces the financial covenants under the 2021 Credit Facility (effective as of June 30, 2024) with the following:

As of Minimum TTM* EBITDA ($ in millions) Minimum Liquidity ($ in millions) Maximum Consolidated Total Leverage Ratio Minimum Fixed Charge Coverage Ratio

June 30, 2024 n/a n/a n/a n/a

September 30, 2024 $ 5.0 $ 1.5 n/a n/a

December 31, 2024 $ 3.5 $ 1.5 n/a n/a

March 31, 2025 $ 5.5 $ 2.0 n/a n/a

June 30, 2025 $ 7.5 $ 2.0 n/a 1.50 to 1.00

September 30, 2025 n/a $ 2.0 4.25 to 1.00

December 31, 2025 n/a $ 2.0 4.00 to 1.00

March 31, 2026 n/a $ 2.0 3.75 to 1.00

June 30, 2026 n/a $ 2.0 3.50 to 1.00

September 30, 2026 n/a $ 2.0 3.25 to 1.00

* TTM = Trailing Twelve Months

2023 Revolving Line of Credit - East West Bank

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

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

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

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

On July 7, 2023, the Company entered into a Credit Agreement (as amended, the “Credit Agreement”), with East West Bank (“EWB”), as lender.

The Credit Agreement provides for a revolving credit facility in the principal amount of up to $ 10 million, subject to a borrowing base determined based on eligible accounts, and an up to $ 5 million uncommitted incremental revolving facility.

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

Borrowings under the Credit Agreement bear interest at a rate per annum equal to the one-month Term SOFR rate and as determined by EWB on the first day of the applicable interest period, plus 0.10 % (10 basis points), plus 3.00 % per annum (the “Loan Rate”);

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

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

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

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

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

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

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

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

Prior to entering into the Third Amendment as defined below, the Company was required to maintain compliance at all times with the following financial covenants on a consolidated basis:

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

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

and (iii) a liquidity covenant requiring the Company and the other borrowers to maintain minimum liquid assets at all times (calculated using unencumbered cash and cash equivalents and marketable securities), in one or more accounts held with EWB plus Revolving Credit Availability in the amount of $ 1,000,000 .

(ii) a total funded debt-to-EBITDA ratio of no more than 3.50 to 1.00 as of June 30, 2023 and the last day of each fiscal quarter through December 31, 2023, 3.25 to 1.00 as of March 31, 2024 and the last day of each fiscal quarter through March 31, 2025 and 3.00 to 1.00 as of June 30, 2025 and thereafter through maturity;

and (iii) a liquidity covenant requiring the Company to maintain minimum liquid assets at all times (calculated in the manner provided for in the Credit Agreement), in one or more accounts held with EWB plus Revolving Credit Availability in the amount of $ 1.0 million.

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

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

The Company was in compliance with all the financial covenants under the Credit Agreement as of June 30, 2024 after giving effect to the amendments to the Credit Agreement under the Third Amendment.

Additionally, the amounts outstanding under the Credit Agreement exceeded the Company’s borrowing base as of June 30, 2024 by $ 0.5 million, which was addressed in the Third Amendment, requiring a $ 1.0 million principal payment on the outstanding loans under the Credit Agreement as of the date of the Third Amendment.

With the Third Amendment, the Company expects to be in compliance with all amended covenants for at least one year from the balance sheet date in this quarterly report.

On October 15, 2024, with an effective date of June 30, 2024, the Company and EWB entered into the Third Amendment to the Credit Agreement (the “Third Amendment”) which, among other things, (1) provides that the Company

will make prepayments of the outstanding principal balance of the Credit Agreement of $ 1.0 million upon execution of the Third Amendment, $ 1.0 million on or before January 15, 2025 and $ 2.0 million on or before April 15, 2025, (2) requires the Company to file a registration statement with the SEC to establish an equity line of credit offering on or before October 31, 2024 and to use commercially reasonable efforts to cause such registration statement to become effective, (3) requires the net proceeds of a potential equity line of credit to be applied to the outstanding principal balance under the Credit Agreement in an amount that would cause the ratio of the value of eligible accounts to the aggregate amount of revolving credit advances to be not less than 1.00 to 1.00, (4) requires the consent of EWB prior to the ability of the Company to make certain restricted payments, including cash dividends, (5) requires the Company to make additional prepayments in the amount by which the outstanding loans under the Credit Agreement exceed the borrowing base between the calendar months ending November 30, 2024 and April 15, 2025, and (6) replaces the financial covenants under the Credit Agreement, effective as of June 30, 2024, with the following:

As of Minimum TTM (1) EBITDA ($ in millions)

Minimum Liquid Assets ($ in millions) Maximum Total Funded Debt to EBITDA Leverage Ratio Minimum Fixed Charge Coverage Ratio Revolving Credit Availability (as of each month end)

June 30, 2024 n/a $ 1.0 n/a n/a n/a

September 30, 2024 $ 5.0 $ 1.5 n/a n/a n/a

December 31, 2024 $ 3.5 $ 1.5 n/a n/a 1.00 to 1.00 (2)

March 31, 2025 $ 5.5 $ 2.0 n/a n/a 1.50 to 1.00 (3)

June 30, 2025 $ 7.5 $ 2.0 n/a 1.25 to 1.00

2.00 to 1.00 (4)

(1) TTM = Trailing Twelve Months

(2) Beginning November 30, 2024

(3) Beginning January 31, 2025

(4) Beginning April 15, 2025

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

3 unchanged sentences

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

During the nine months ended September 30, 2023, the Company incurred $ 214,680 of deferred financing costs associated with the 2023 Credit Facility.

2020 Revolving Line of Credit - East West Bank

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

On December 17, 2021, the Company amended the 2020 Revolving Credit Facility, which increased the amount of the revolving loan to $ 5,000,000 with an initial availability of $ 2,500,000 , and in connection with the amendment, the Company incurred additional deferred financing fees of $ 4,613 in January 2022.

The loans under the 2020 Revolving Credit Facility bore interest at the LIBOR rate plus 3.5 % per annum, and as of March 31, 2022, the rate was 7.0 % with a 0.50 % unused fee.

On July 26, 2022, the Company terminated the 2020 Revolving Credit Facility.

As of September 30, 2023 and December 31, 2022, the Company did not have any outstanding borrowings or deferred financing costs under the Revolving Credit Facility.

The components of interest expense and related fees for the 2023 Revolving Credit Facility and 2020 Revolving Credit Facility are as follows:

For the Three Months

Nine Months Ended

September 30,

Interest expense – 2020 Revolving Credit Facility

Amortization of deferred financing costs – 2023 Revolving Credit Facility

Amortization of deferred financing costs – 2020 Revolving Credit Facility

Total interest expense and amortization of deferred financing costs

During the six months ended June 30, 2024, the Company did not incur any deferred financing costs associated with the Credit Agreement.

As of June 30, 2024, there was $ 9.7 million outstanding under the Credit Agreement.

The collateral securing the obligations under the 2021 Credit Facility and the Credit Agreement is subject to intercreditor agreements between Lafayette Square and EWB.

Silicon Valley Bank (“SVB”) Financing

6 unchanged sentences

Prior to issuing the notice of termination, the Company received consent to terminate the SVB Revolving Credit Facility and a waiver of the terms relating to the SVB Revolving Credit Facility under its Term Loan and Security Agreement, dated as of December 3, 2021, with Lafayette Square Loan Servicing, LLC (“Lafayette Square”).

The Company did not hold material cash deposits or securities at Silicon Valley Bank and as of the date of this report, has not experienced any adverse impact to its liquidity or to its current and projected business operations, financial condition or results of operations.

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

After the Company issued the notice of termination, total deferred financing costs of $ 299,770 were expensed to contingent loss on early termination of line of credit during the nine months ended September 30, 2023.

The Company did not hold material cash deposits or securities at Silicon Valley Bank and did not experience any adverse impact to its liquidity or to its current and projected b usiness operations, financial condition or results of operations as a result of the SVB closure.

During the six months ended June 30, 2023, the Company incurred $ 0.4 million of deferred financing costs.

After the Company issued the notice of termination, total deferred financing costs of $ 0.3 million were expensed to loss on early termination of line of credit during the six months ended June 30, 2023 .

Small Business Administration Loans

2 unchanged sentences

Small Business Administration (“SBA”).

The Company received the loan proceeds of $ 150,000 on June 15, 2020.

The Company received the loan proceeds of $ 0.2 million on June 15, 2020.

The loan bears interest at a rate of 3.75 % and matures on June 15, 2050.

Installment payments, including principal and interest, of $ 731 began monthly on December 15, 2022.

Installment payments, including principal and interest, of less than $ 0.1 million began monthly on December 15, 2022.

Each payment will first be applied to pay accrued interest, then the remaining balance will be used to reduce principal.

The loan is secured by substantially all assets of DDH LLC.

Accrued and unpaid interest expense as of September 30, 2023 and December 31, 2022 was $ 11,138 and $ 13,524 , respectively, and is included in accrued expenses on the consolidated balance sheets.

Paycheck Protection Program

In 2020, the Company applied and was approved for a loan pursuant to the Paycheck Protection Program (“PPP”), administered by the SBA (the “PPP-1 Loan”).

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

The SBA made PPP loans available to qualifying businesses in amounts up to 2.5 times their average monthly payroll expenses, and loans were forgivable after a “covered period” (eight or twenty-four weeks) as long as the borrower maintained its payroll and utilities.

The forgiveness amount would be reduced if the borrower terminated employees or reduced salaries and wages more than 25% during the covered period.

Any unforgiven portion was payable over two years if issued before, or five years if issued after, June 5, 2020

at an interest rate of 1.0 % with payments deferred until the SBA remits the borrower’s loan forgiveness amount to the lender, or if the borrower did not apply for forgiveness, then six months after the end of the covered period.

In March 2021, DDH LLC applied for and received a PPP loan (the “PPP-2 Loan”) for a principal amount of $ 287,143 and there were no collateral or guarantee requirements.

On April 11, 2022 , the balance on the PPP-2 Loan was forgiven.

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

Accrued and unpaid interest expense as of June 30, 2024 and December 31, 2023 was less than $ 0.1 million and is included in accrued expenses on the condensed consolidated balance sheets.

As of June 30, 2024, future minimum payments related to long-term debt are as follows (in thousands):

Thereafter 139

Less current portion ( 1,840 )

( 1,146,250 )

Less deferred financing costs ( 1,398 )

( 1,722,716 )

Long-term debt, net $ 34,833

Note 7 — Mandatorily Redeemable Preferred Units

In connection with the Orange142 acquisition, DDH LLC issued 7,076 non-voting Class B Preferred Units at a purchase price of $ 7,046,251 , and a fair value of $ 6,455,562 .

Class B Preferred Units were mandatorily redeemable for $ 7,046,251 on September 30, 2024, with 7 % preferred annual returns paid on a quarterly basis.

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

In February 2022, DDH LLC redeemed the Class B Preferred Units and recognized a loss on the redemption of $ 590,689 in connection with the write-off of the fair value associated with the units.

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

Note 8 — Related Party Transactions

Related Party Transactions

Member Payable

As of September 30, 2023 and December 31, 2022, the Company had a net payable to members that totaled $ 1,428,093 and $ 1,448,333 , respectively, which is included as a related party payable on the consolidated balance sheets.

Up-C Structure

In February 2022, the Company completed an initial public offering of its securities, and through the Organizational Transactions, formed an Up-C structure, which is often used by partnerships and limited liability companies and allows the Continuing LLC Owner, a Delaware limited liability company indirectly owned by Mark Walker (“Walker”) and Keith Smith (“Smith”), to retain its equity ownership in DDH LLC and to continue to realize tax benefits associated with owning interests in an entity that is treated as a partnership, or “pass-through” entity, for U.S.

federal income tax purposes.

The Continuing LLC owner holds economic nonvoting LLC Units in DDH LLC and also holds noneconomic voting equity interests in the form of the Class B common stock in Direct Digital Holdings (See Note 10 – Stockholders’ Equity and Stock-Based Compensation Plans).

One of the tax benefits to the Continuing LLC Owner associated with this structure is that future taxable income of DDH LLC that is allocated to the Continuing LLC Owner will be taxed on a pass-through basis and therefore will not be subject to corporate taxes at the entity level.

Additionally, the Continuing LLC Owner may, from time to time, redeem or exchange its LLC Units for shares of the Company’s Class A common stock on a one -for-one basis.

structure also provides the Continuing LLC Owner with potential liquidity that holders of non-publicly traded limited liability companies are not typically afforded.

If the Company ever generates sufficient taxable income to utilize the tax benefits, Digital Direct Holdings expects to benefit from the Up-C structure because, in general, the Company expects cash tax savings in amounts equal to 15 % of certain tax benefits arising from such redemptions or exchanges of the Continuing LLC Owner's LLC Units for Class A common stock or cash and certain other tax benefits covered by the TRA.

(See Note 13 - Tax Receivable Agreement and Income Taxes).

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

September 30,

Liability related to tax receivable agreement

Total liability related to tax receivable agreement

Board Services and Consulting Agreement

On September 30, 2020, the Company entered into board services and consulting agreements with Walker, Smith and Leah Woolford (“Woolford”).

Walker, Smith and Woolford were then all members of DDH LLC.

Prior to the Organizational Transactions, Walker served as a Manager on the Board of Managers of DDH LLC, and now serves as Chairman of the Board of Directors and Chief Executive Officer of the Company.

Prior to the Organizational Transactions, Smith served as a Manager on the Board of Managers of DDH LLC and now serves as a director on the Board of Directors and President of the Company.

Woolford previously served as a Manager on the Board of Managers of DDH LLC and Senior Advisor of DDH LLC.

In exchange for these services, the Company paid Walker and Smith annual fees of $ 450,000 each and employee benefits for their direct families.

The Company paid Woolford $ 300 per hour for up to 50 hours per month and employee benefits for Woolford and her direct family.

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

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

Note 9 — Commitments and Contingencies

The Company may from time to time be subject to various legal or administrative claims and proceedings arising in the ordinary course of business.

In management’s opinion, the outcome of any such currently pending litigation will not materially affect the Company’s financial condition.

Nevertheless, due to uncertainties in the settlement process, it is at least reasonably possible that management’s view of the outcome could change materially in the near term.

Huddled Masses was named as a defendant in a lawsuit on July 10, 2019 related to a delinquent balance to a vendor.

On July 28, 2022, the Company entered into a settlement agreement with the vendor and agreed to pay a total of $ 515,096 with monthly installment payments over 24 months beginning September 1, 2022.

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

Operating Leases

In June 2019, the Company entered into a sublease for its corporate office headquarters at 1233 West Loop South, Suite 1170 in Houston, TX.

The lease term expired on July 1, 2022 and had a base monthly rent of approximately $ 3,600 per month.

In March 2022, the Company entered into a new lease to move its corporate headquarters to 1177 West Loop South, Suite 1310 in Houston, TX effective July 1, 2022, and paid a security deposit of approximately $ 29,000 .

The lease is for 7,397 square feet of office space that expires February 28, 2030.

The base monthly rent varies annually over the term of the lease.

The Company also leased office furniture for its corporate headquarters under a lease agreement effective April 2019 which expired July 2023.

In March 2021, the Company extended its lease for office space at 716 Congress Ave, Suite 100 in Austin, Texas with an effective date of January 1, 2022.

The lease expires on December 31, 2023 and has a base rent of approximately $ 6,700 per month.

For the three months ended September 30, 2023 and 2022, the Company incurred rent expense of $ 73,496 and $ 89,452 , respectively, for the combined leases.

For the nine months ended September 30, 2023 and 2022, the Company incurred rent expense of $ 231,982 and $ 193,013 , respectively, for the combined leases.

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

Operating lease right-of-use asset

Operating lease liabilities - current

Operating lease liabilities - long-term

Total operating lease liability

The weighted-average remaining lease term for the Company’s operating lease is 6.25 years as of September 30, 2023, with a weighted-average discount rate of 8 %.

Lease liability with enforceable contract terms that have greater than one-year terms are as follows:

Total lease payments

Less imputed interest

Total lease liability

Note 10 — Stockholders’ Equity and Stock-Based Compensation

Note 4 — Stockholders’ Deficit and Stock-Based Compensation

Stockholders’ Equity – Initial Public Offering

Following the completion of the Organizational Transactions, DDH LLC’s limited liability company agreement was amended and restated to, among other things, appoint the Company as the sole managing member of DDH LLC and effectuate a recapitalization of all outstanding preferred units and common units into (i) economic nonvoting units of DDH LLC held by the Company and, through their indirect ownership of DDM, its Chairman and Chief Executive Officer and its President, and (ii) noneconomic voting units of DDH LLC, 100 % of which are held by the Company.

In August 2022, DDM tendered 100,000 of its limited liability company units to the Company in exchange for newly issued shares of Class A common stock of the Company on a one-for-one basis.

In connection with this exchange, an equivalent number of the holder’s shares of Class B common stock were cancelled.

As of September 30, 2023, DDM held 11,278,000 shares of Class B common stock.

Following the completion of the Organizational Transactions, DDH LLC’s limited liability company agreement was amended and restated to, among other things, appoint the Company as the sole managing member of DDH LLC and effectuate a recapitalization of all outstanding preferred units and common units into (i) economic nonvoting units of DDH LLC held by the Company and, through their indirect ownership of DDM, the Company's Chairman and Chief Executive Officer and President, and (ii) noneconomic voting units of DDH LLC, 100 % of which are held by the Company.

In August 2022 and December 2023, DDM tendered 100,000 and 410,000 , respectively, of its limited liability company units to the Company in exchange for newly issued shares of Class A Common Stock of the Company on a one-for-one basis.

In connection with these exchanges, an equivalent number of the holder’s shares of Class B Common Stock were cancelled.

As of June 30, 2024, DDM held 10,868,000 shares of Class B Common Stock.

The Company is authorized to issue 160,000,000 shares of Class A Common Stock, par value $ 0.001 per share, 20,000,000 shares of Class B Common Stock, par value $ 0.001 per share, and 10,000,000 shares of preferred stock, par value $ 0.001 per share.

On February 15, 2022, the Company completed its initial public offering of 2,800,000 units (“Units”), each consisting of (i) one share of its Class A Common Stock and (ii) one warrant entitling the holder to purchase one share of its Class A Common Stock at an exercise price of $ 5.50 per share.

The warrants became immediately exercisable upon issuance and are exercisable for a period of five years after the issuance date.

The warrants became immediately exercisable upon issuance and were exercisable for a period of five years after the issuance date.

The shares of Class A Common Stock and warrants were immediately transferable separately upon issuance.

At September 30, 2023, 2,797,800 of these warrants are outstanding and the intrinsic value of these warrants is $ 0 .

The underwriters in the initial public offering were granted a 45 -day option to purchase up to an additional 420,000 shares and/or warrants, or any combination thereof, to cover over-allotments, which they initially exercised, in part, electing to purchase warrants to purchase an additional 420,000 shares of Class A Common Stock.

As of September 30, 2023, 420,000 of these warrants are outstanding.

connection with the Company’s initial public offering, the Company issued to the underwriters of the offering a unit purchase option to purchase (i) an additional 140,000 Units at a per Unit exercise price of $ 6.60 , which was equal to 120 % of the public offering price per Unit sold in the initial public offering, and (ii) warrants to purchase 21,000 shares of Class A Common Stock at a per warrant exercise price of $ 0.012 , which was equal to 120 % of the public offering price per warrant sold in the offering.

The underwriters have not exercised this option as of September 30, 2023.

The Units were sold at a price of $ 5.50 per Unit, and the net proceeds from the offering were $ 10,167,043 , after deducting underwriting discounts and commissions and offering expenses payable by the Company.

The offering expenses recorded in accrued liabilities are approximately $ 1,000,000 as of September 30, 2023, and relate to executive performance bonuses which are payable upon a certain level of cash generated by warrant exercises.

DDH LLC used the proceeds, together with pre-existing cash and cash equivalents, to purchase all of the remaining 5,637 common units and 7,046 Class B Preferred Units held indirectly by Woolford for an aggregate purchase price of approximately $ 14,246,251 , of which $ 10,284,089 was paid on the closing date of the initial public offering.

On July 28, 2022, DDH LLC entered into the Redemption Agreement Amendment with USDM Holdings, Inc.

that amended the previously disclosed Redemption Agreement by and between DDH LLC and USDM Holdings, Inc.

dated as of November 14, 2021 (the “Original Redemption Agreement”), as amended by the Amendment to Redemption Agreement dated as of February 15, 2022.

The Redemption Agreement Amendment, among other things, amended the remainder of the principal and interest for the Common Units Redemption Price to be $ 3,998,635 , which was paid in full on July 28, 2022.

At June 30, 2024, none of these warrants were outstanding.

The underwriters in our initial public offering were granted a 45 -day option to purchase up to an additional 420,000 shares and/or warrants, or any combination thereof, to cover over-allotments, which they initially exercised, in part, electing to purchase warrants to purchase an additional 420,000 shares of Class A Common Stock.

As of June 30, 2024, none of these warrants were outstanding.

In connection with the Company’s initial public offering, the Company issued to the underwriters of the offering a unit purchase option to purchase (i) an additional 140,000 Units at a per Unit exercise price of $ 6.60 , which was equal to 120 % of the public offering price per Unit sold in the initial public offering, and (ii) warrants to purchase 21,000 shares of Class A Common Stock at a per warrant exercise price of $ 0.012 , which was equal to 120 % of the public offering price per warrant sold in the offering.

A group of underwriters exercised 70,000 Units and 10,500 warrants in November 2023 and exercised 70,000 Units and 10,500 warrants in February 2024.

The warrants had a fair value of $ 0 that was calculated using the Black-Scholes option-pricing model.

2 unchanged sentences

Treasury bill rate, (2) expected life of 5 years, (3) expected volatility of approximately 66 % based on the trading history of similar companies, and (4) zero expected dividends.

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

Weighted Average

Contractual Life

Exercise Price

Intrinsic Value

Outstanding at January 1, 2023

Outstanding at September 30, 2023

Exercisable at September 30, 2023

On August 29, 2023, the Company filed a Tender Offer Statement on Schedule TO pursuant to which the Company offered to purchase all of its outstanding warrants for $ 1.20 per warrant in cash.

The Tender Offer expired at one minute after 11:59 PM, Eastern Time on September 28, 2023.

The Company accepted all validly tendered warrants for purchase and settlement on October 2, 2023.

As a result of the Tender Offer, a total of 2,213,652 warrants were tendered and not validly withdrawn prior to the expiration of the tender offer for a total purchase price of approximately $ 2.7 million.

On October 23, 2023, the Company distributed a notice of redemption to the registered holders of the remaining outstanding warrants announcing the redemption of those warrants for $ 0.35 per warrant.

The redemption closed on October 30, 2023, and all remaining 1,004,148 warrants were purchased for an aggregate price of approximately $ 0.4 million.

Noncontrolling Interest

Direct Digital Holdings, Inc.

is the sole managing member of DDH LLC, and consolidates the financial results of DDH LLC.

Therefore, Direct Digital Holdings, Inc.

reports a noncontrolling interest ("NCI") based on the common units of DDH LLC held by DDM.

While Direct Digital Holdings, Inc.

retains its controlling interest in DDH LLC, changes in its ownership interest in DDH LLC are accounted for as equity transactions.

As such, future redemptions or direct exchanges of LLC Units by DDM will result in a change in ownership and reduce or increase the amount recorded as noncontrolling interest and increase or decrease additional paid-in capital when DDH LLC has positive or negative net assets, respectively.

Stock-Based Compensation Plans

In connection with the IPO, the Company adopted the 2022 Omnibus Incentive Plan (“2022 Omnibus Plan”) to facilitate the grant of equity awards to the Company’s employees, consultants and non-employee directors.

In connection with the initial public offering, the Company adopted the 2022 Omnibus Incentive Plan (“2022 Omnibus Plan”) to facilitate the grant of equity awards to the Company’s employees, consultants and non-employee directors.

The Company’s board of directors reserved 1,500,000 shares of Class A Common Stock for issuance in equity awards under the 2022 Omnibus Plan.

Information on activity for both the stock options and RSUs is detailed below.

During the nine months ended September 30, 2023, the Company recognized $ 545,504 of total stock-based compensation expense in the consolidated statement of operations in compensation, tax and benefits.

During the six months ended June 30, 2024 and 2023, the Company recognized $ 0.7 million and $ 0.3 million, respectively, of total stock-based compensation expense in the condensed consolidated statement of operations in compensation, tax and benefits.

Stock Options

Options to purchase shares of common stock vest annually on the grant date anniversary over a period of three years and expire 10 years following the date of grant.

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

The following table summarizes the stock option activity under the 2022 Omnibus Plan as of June 30, 2024:

Stock Options

Weighted Average

Shares Weighted Average

Exercise Price Weighted Average

Contractual Life

Exercise Price

Intrinsic Value

(in years) Aggregate

Intrinsic Value (in thousands)

Outstanding at January 1, 2024 371,116 $ 2.51 8.77 $ 4,591

Outstanding at September 30, 2023

Vested and exercisable at September 30, 2023

As of September 30, 2023, unrecognized stock-based compensation of $ 389,598 related to 285,537 of unvested stock options will be recognized on a straight-line basis over a weighted-average vesting period of 2.21 years.

Granted — $ — — $ —

Exercised ( 8,754 ) $ 2.62 — $ 172

Forfeited ( 2,383 ) $ 2.82 — $ 17

Outstanding at June 30, 2024 359,979 $ 2.51 8.09 $ 549

Vested and exercisable at June 30, 2024 175,405 $ 2.17 7.99 $ 327

As of June 30, 2024, unrecognized stock-based compensation of $ 0.3 million related to 184,574 of unvested stock options which will be recognized on a straight-line basis over a weighted-average vesting period of 1.09 years.

Restricted Stock Units

RSUs vest annually on the grant date anniversary over a period of three years .

A summary of RSU activity and related information is as follows:

RSUs generally vest annually on the grant date anniversary over a period of three years .

A summary of RSU activity during the six months ended June 30, 2024 and related information is as follows:

Restricted Stock Units

Weighted Average

Number of Shares Weighted Average

Grant Date Fair Value

Number of Shares

Unvested- January 1, 2024 542,396 $ 2.87

Unvested- September 30, 2023

Granted 99,474 $ 16.90

Vested ( 358,899 ) $ 8.24

Forfeited ( 1,751 ) $ 3.25

Unvested- June 30, 2024 281,220 $ 2.81

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

The total shares withheld were 97,086 and were based on the value of the RSUs on their respective vesting dates as determined by the Company’s closing stock price.

As of September 30, 2023, unrecognized stock-based compensation of $ 1,159,610 related to unvested RSUs will be recognized on a straight-line basis over a weighted average period of 2.04 years.

Note 11 — Income Per Share

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

Basic and diluted earnings per share (“EPS”) attributable to common stockholders for Class A and Class B common stock were the same because they were entitled to the same liquidation and dividend rights.

The following table sets forth the computation of the Company’s basic and diluted income per share:

For the Three Months Ended

For the Nine Months Ended

September 30,

Weighted average common shares outstanding - basic

Options to purchase common stock

Unvested restricted stock units

Weighted average common shares outstanding - diluted

Net income per common share, basic

Net income per common share, diluted

The following weighted-average outstanding shares of common stock equivalents were excluded from the computation of diluted net income per share attributable to common stockholders for the periods presented because including them would have been anti-dilutive:

For the Three Months Ended

For the Nine Months Ended

September 30,

Warrants to purchase common stock

Options to purchase common stock

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

Note 12 — Employee Benefit Plans

The Company sponsors a safe harbor, defined contribution 401(k) and profit-sharing plan (the “Plan”) that allows eligible employees to contribute a percentage of their compensation.

The Company matches employee contributions up to a maximum of 100 % of the participant’s salary deferral, limited to 4 % of the employee’s salary.

For the three and nine months ended September 30, 2023 and 2022, the Company’s matching contributions were $ 53,981 and $ 56,158 , respectively and $ 184,935 and $ 159,219 , respectively.

Additionally, the Company may make a discretionary profit- sharing contribution to the Plan.

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

The Company has an Employee Benefit Plan Trust (the “Trust”) to provide for the payment or reimbursement of all or a portion of covered medical, dental and prescription expenses for the employees of the Company.

The Trust is funded with contributions made by the Company and participating employees at amounts sufficient to keep the Trust on an actuarially sound basis.

The self-funded plan has an integrated stop loss insurance policy for the funding of the Trust benefits in excess of the full funding requirements.

As of September 30, 2023 and December 31, 2022, the Company analyzed the incurred but not reported claims and recorded an estimated liability, as required within accrued compensation and benefits in accrued liabilities.

As of June 30, 2024, there was unrecognized stock-based compensation of $ 0.7 million related to unvested RSUs which will be recognized on a straight-line basis over a weighted average period of 1.13 years.

Note 5 — Tax Receivable Agreement and Income Taxes

Tax Receivable Agreement

In connection with the initial public offering in February 2022, the Company entered into a tax receivable agreement (“TRA”) with DDH LLC and DDM (together, the “TRA Holders”) which provides for payment by the Company to the TRA Holders of 85 % of the net cash savings, if any, in U.S.

federal, state and local income tax and franchise tax that the Company actually realizes or is deemed to

realize in certain circumstances.

Direct Digital Holdings, Inc.

will retain the benefit of the remaining 15 % of these net cash savings, and as a result, the Company recorded $ 823,481 during 2022 as additional paid-in capital.

The Company's TRA with DDH LLC and DDM (together, the “TRA Holders”) provides for payment by the Company to the TRA Holders of 85 % of the net cash savings, if any, in U.S.

federal, state and local income tax and franchise tax that the Company actually realizes or is deemed to realize in certain circumstances.

The Company retains the benefit of the remaining 15 % of these net cash savings.

The TRA liability is calculated by determining the tax basis subject to the TRA (“tax basis”) and applying a blended tax rate to the basis differences and calculating the resulting impact.

2 unchanged sentences

Any taxable income or loss generated by the Company will be allocated to TRA Holders in accordance with the TRA, and distributions to the owners of LLC Units in an amount sufficient to fund their tax obligations will be made.

Pursuant to the Company’s election under Section 754 of the Code, the Company expects to obtain an increase in its share of the tax basis in the net assets of DDH, LLC when LLC interests are redeemed or exchanged by the members of DDH, LLC.

The Company plans to make an election under Section 754 if the Code for each taxable year in which a redemption or exchange of LLC interest occurs.

During the year ended December 31, 2022, a member of DDM exchanged 100,000 Class B shares into Class A shares.

As of September 30, 2023, the Company has recorded a deferred tax asset primarily from the outside basis difference in the partnership interest of $ 5,082,424 , and a total TRA liability of $ 4,286,375 , of which $ 41,141 is reflected as a current liability in which $ 45,815 was paid during the nine months ended September 30, 2023.

Pursuant to the Company’s election under Section 754 of the Code in 2022, the Company expects to obtain an increase in its share of the tax basis in the net assets of DDH, LLC when LLC interests are redeemed or exchanged by the members of DDH, LLC.

In August 2022 and December 2023, members of DDM exchanged 100,000 and 410,000 Class B shares into Class A shares, respectively.

The Company has recorded a liability related to the tax receivable agreement of $ 5.2 million as of June 30, 2024 and December 31, 2023.

The Company has recorded a deferred tax asset primarily from the outside basis difference in the partnership interest of $ 6.6 million and $ 6.1 million as of June 30, 2024 and December 31, 2023, respectively.

The deferred tax asset is net of a valuation allowance of $ 0.5 million as of June 30, 2024 and December 31, 2023.

Payments of less than $ 0.1 million and $ 0.8 million were made during the six months ended June 30, 2024 and 2023, respectively.

The payments under the TRA will not be conditional on holder of rights under the TRA having a continued ownership interest in either DDH LLC or the Company.

1 unchanged sentence

Any such deferred payments under the TRA generally will accrue interest from the due date for such payment until the payment date.

The Company accounts for any amounts payable under the TRA in accordance with ASC Topic 450, Contingencies, and will recognize subsequent period changes to the measurement of the liability from the TRA in the statement of operations as a component of income before taxes.

The term of the TRA commenced upon completion of the IPO and will continue until all tax benefits that are subject to the TRA have been utilized or expired, unless the Company exercises its right to terminate the TRA.

The Company accounts for any amounts payable under the TRA in accordance with ASC Topic 450, Contingencies , and recognizes subsequent period changes to the measurement of the liability from the TRA in the statement of operations as a component of income before taxes.

For the six months ended June 30, 2024 and 2023, no amounts were recorded as income in other income (expense) for such change.

The term of the TRA commenced upon completion of the initial public offering and will continue until all tax benefits that are subject to the TRA have been utilized or expired, unless the Company exercises its right to terminate the TRA.

If the Company elects to terminate the TRA early (or it is terminated early due to changes in control), the obligations under the TRA would accelerate and the Company would be required to make an immediate payment equal to the present value of the anticipated future payments to be made by the Company under the TRA.

1 unchanged sentence

federal income tax purposes.

Under the Up-C structure, the Company is subject to corporation income tax on the variable ownership changes of 19.7 % and 20.45 % that occurred in the first and third quarters of 2022, respectively.

As a result, the Company recorded a tax provision for federal and state income tax for the three months ended September 30, 2023 and 2022 of $ 165,994 and $ 128,436 , respectively, and for the nine months ended September 30, 2023 and 2022 of $ 165,658 and $ 215,112 , respectively.

Income tax expense is based on the estimated annual effective rate for the year, which includes estimated federal and state income taxes on the Company’s projected pre-tax income.

The expense for income taxes and the effective income tax rates were as follows:

For the Three Months Ended

For the Nine Months Ended

September 30,

Income tax expense

Under the Up-C structure, the Company is subject to corporation income tax on the variable ownership changes.

The ownership was 20.45 % as of January 1, 2023 and increased to 23.35 % in the fourth quarter of 2023.

There was no exchange of shares of Class B common stock for shares of Class A common stock in the six months ended June 30, 2024.

The Company recorded a tax benefit for federal and state income tax for which the components and the effective income tax rates are as follows (in thousands):

Three Months Ended

June 30, Six Months Ended

2024 2023 2024 2023

Income tax expense (benefit) $ ( 274 ) $ 74 $ ( 475 ) $ —

Effective income tax rate 8.0 % 5.8 % 6.4 % — %

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

The effective tax rates were lower than the statutory tax rates for the three and six months ended June 30, 2024 and 2023 primarily due to the Company’s partnership loss that is not subject to federal and state taxes.

As of June 30, 2024, the Company had federal net operating loss carryforwards of $ 3.3 million that can be carried forward indefinitely.

The Company files income tax returns in the United States federal jurisdiction and various state jurisdictions.

1 unchanged sentence

There are currently no federal or state audits in process.

Note 14 — Correction of Immaterial Error in Prior Consolidated Financial Statements

During the quarter ended September 30, 2023 , the Company identified a prior period accounting error in the Company’s previously reported unaudited interim consolidated financial statements beginning June 30, 2022.

The prior period accounting error resulted from the incorrect accounting for granted but unvested restricted stock units.

Based on management’s evaluation of the error in consideration of the SEC Staff’s Accounting Bulletins Topic 1.M, Materiality and Topic 1.N, Considering the Effects of Misstatements when Quantifying Misstatements in the Current Year Financial Statements and interpretations therewith, the Company concluded the error is not material to the Company’s previously reported financial statements.

Accordingly, the Company’s consolidated balance sheet as of December 31, 2022 and the related consolidated statements of operations and changes in stockholders’ equity for the three and nine months ended September 30, 2022 reflect the correction of these immaterial errors.

Consolidated Balance Sheet as of December 31, 2022

Class A Common Stock Units

Class A Common Stock Amount

Consolidated Statement of Operations for the Nine Months Ended September 30, 2022

Weighted-average number of shares of common stock outstanding - basic

Consolidated Statement of Operations for the Three Months Ended September 30, 2022

Weighted-average number of shares of common stock outstanding - basic

Consolidated Statement of Changes in Stockholders' Equity as of December 31, 2022

Class A Common Stock Units

Class A Common Stock Amount

Consolidated Statement of Changes in Stockholders' Equity as of June 30, 2023

Class A Common Stock Units

Class A Common Stock Amount

Consolidated Statement of Changes in Stockholders' Equity as of June 30, 2022

Class A Common Stock Units

Class A Common Stock Amount

The Company analyzes its tax filing positions in all of the U.S.

federal, state and local tax jurisdictions where it is required to file income tax returns, as well as for all open tax years in these jurisdictions.

Federal and various states returns for the years ended December 2022 and 2021 remain open as of June 30, 2024.

The Company evaluates tax positions taken or expected to be taken in the course of preparing an entity’s tax returns to determine whether it is “more-likely-than-not” that each tax position will be sustained by the applicable tax authority.

As of June 30, 2024 and December 31, 2023, the Company had no uncertain tax positions.

Accordingly, the Company has not recognized any penalty, interest or tax impact related to uncertain tax positions.

Note 6 — Related Party Transactions

Related Party Transactions

Member Payable

As of June 30, 2024 and December 31, 2023, the Company had a net receivable from members that totaled $ 1.7 million, which is included as a related party receivable on the condensed consolidated balance sheets.

Up-C Structure

In February 2022, the Company completed an initial public offering of its securities, and through the Organizational Transactions, formed an Up-C structure, which is often used by partnerships and limited liability companies and allows DDM, a Delaware limited liability company indirectly owned by Mark Walker (“Walker”) and Keith Smith (“Smith”), to retain its equity ownership in DDH LLC and to continue to realize tax benefits associated with owning interests in an entity that is treated as a partnership, or “pass-through” entity, for U.S.

federal income tax purposes.

DDM holds economic nonvoting LLC Units in DDH LLC and holds noneconomic voting equity interests in the form of the Class B Common Stock in Direct Digital Holdings (See Note 4 — Stockholders’ Deficit and Stock-Based Compensation).

One of the tax benefits to DDM associated with this structure is that future taxable income of DDH LLC that is allocated to DDM will be taxed on a pass-through basis and therefore will not be subject to corporate taxes at the entity level.

Additionally, DDM may, from time to time, redeem or exchange its LLC Units for shares of the Company’s Class A Common Stock on a one -for-one basis.

The Up-C structure also provides DDM with potential liquidity that holders of non-publicly traded limited liability companies are not typically afforded.

If the Company ever generates sufficient taxable income to utilize the tax benefits, DDH expects to benefit from the Up-C structure because, in general, the Company expects cash tax savings in amounts equal to 15 % of certain tax benefits arising from such redemptions or exchanges of DDM's LLC Units for Class A Common Stock or cash and certain other tax benefits covered by the TRA.

(See Note 5 — Tax Receivable Agreement and Income Taxes).

The aggregate balance of tax receivable liabilities as of June 30, 2024 and December 31, 2023, is as follows (in thousands):

2024 December 31,

Liability related to tax receivable agreement

Short term $ 41 $ 41

Long term 5,201 5,201

Total liability related to tax receivable agreement $ 5,242 $ 5,242

Note 7 — Segment Information

The Company’s chief operating decision maker is its Chairman and Chief Executive Officer.

All of the Company’s revenues are attributed to the United States.

Revenue by business segment is as follows:

For the Three Months

For the Nine Months Ended

September 30,

Buy-side advertising

Revenue by business segment is as follows (in thousands):

Three Months Ended

June 30, Six Months Ended

2024 2023 2024 2023

Sell-side advertising $ 14,298 $ 23,601 $ 30,799 $ 37,384

Total revenues

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

For the Three Months

For the Nine Months Ended

September 30,

Buy-side advertising 7,557 11,803 13,331 19,243

Total revenues $ 21,855 $ 35,404 $ 44,130 $ 56,627

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

Three Months Ended

June 30, Six Months Ended

2024 2023 2024 2023

Sell-side advertising $ 447 $ 2,172 $ 1,409 $ 3,450

Buy-side advertising 1,848 3,924 2,141 5,429

Corporate office expenses ( 4,360 ) ( 3,841 ) ( 8,423 ) ( 6,765 )

( 3,263,818 )

( 1,878,306 )

Total operating loss ( 2,065 ) 2,255 ( 4,873 ) 2,114

Corporate other expense ( 1,350 ) ( 986 ) ( 2,563 ) ( 2,253 )

Loss before taxes $ ( 3,415 ) $ 1,269 $ ( 7,436 ) $ ( 139 )

Total assets by business segment are as follows (in thousands):

2024 December 31,

Sell-side advertising $ 15,302 $ 34,354

Buy-side advertising 22,560 22,539

Corporate office 10,614 13,779

Total assets $ 48,476 $ 70,672

Note 8 — Net (Loss) Income Per Share

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

Shares of the Company’s Class B Common Stock do not share in the earnings or losses attributable to Direct Digital Holdings, Inc.

and are therefore not participating securities.

The Company uses the two-class method to calculate basic and diluted earnings per share as a result of outstanding participating securities in the form of warrants for the three and six months ended June 30, 2023.

The following table sets forth the computation of the Company’s basic and diluted net (loss) income per share (in thousands, except per share amounts):

Three Months Ended

June 30, Six Months Ended

2024 2023 2024 2023

Net (loss) income attributable to Class A shareholders and participating securities $ ( 590 ) $ 192 $ ( 1,365 ) $ ( 22 )

net income allocated to participating securities — 99 — —

Net (loss) income allocated to Class A shareholders $ ( 590 ) $ 93 $ ( 1,365 ) $ ( 22 )

Weighted average common shares outstanding - basic 3,700,615 2,921,258 3,604,220 2,911,801

Class B Common Stock — — — —

Options to purchase common stock — 51,180 — —

Unvested restricted stock units — 140,751 — —

Weighted average common shares outstanding - diluted 3,700,615 3,113,189 3,604,220 2,911,801

Net (loss) income per common share, basic $ ( 0.16 ) $ 0.03 $ ( 0.38 ) $ ( 0.01 )

Net (loss) income per common share, diluted $ ( 0.16 ) $ 0.03 $ ( 0.38 ) $ ( 0.01 )

The following weighted-average outstanding shares of common stock equivalents were excluded from the computation of diluted net (loss) income per share attributable to common stockholders for the periods presented because including them would have been anti-dilutive (in thousands):

Three Months Ended

June 30, Six Months Ended

2024 2023 2024 2023

Total operating income

Corporate other expense

Class B Common Stock 10,868 11,278 10,868 11,278

Warrants to purchase common stock — — — 3,218

Options to purchase common stock 360 312 364 307

Unvested restricted stock units 392 432 464 485

Total excludable from net loss per share attributable to common stockholders - diluted 11,620 12,022 11,696 15,288

Note 9 — Commitments and Contingencies

We may from time to time be subject to various legal or administrative claims and proceedings arising in the ordinary course of business.

As of the date hereof, except as set forth below, we are not a party to any material legal or administrative proceedings nor are there any proceedings in which any of our directors, executive officers or affiliates, or any registered or beneficial stockholder, is an adverse party or has a material interest adverse to our interest.

Litigation or any other legal or administrative proceeding, regardless of the outcome, is likely to result in substantial cost and diversion of our resources, including our management’s time and attention.

On May 23, 2024, an alleged stockholder, purportedly on behalf of the persons or entities who purchased or acquired publicly traded securities of the Company between April 2023 and March 2024, filed a putative class action against the Company, certain of our officers and directors, and other defendants in the U.S.

District Court for the Southern District of Texas, alleging violations of federal securities laws related to alleged false or misleading disclosures made by the Company in its public filings.

On July 9, 2024, another alleged stockholder filed a similar securities class action against the Company, certain of our officers and directors, also in the Southern District of Texas.

The two actions have been consolidated.

Each of these complaints seeks unspecified damages, plus costs, fees, and attorneys’ fees.

The Company cannot make any predictions about the final outcome of this matter or the timing thereof but believes that plaintiffs’ claims lack merit and intends to vigorously defend these lawsuits.

On May 10, 2024, the Company was the subject of a defamatory article / blog post.

In connection with this post, one of the Company’s sell-side customers paused its connection to the Company while the allegations were investigated.

This customer reconnected the Company on May 22, 2024 and sell-side volumes have resumed but not yet at the levels experienced prior to the pause in May 2024.

The Company is actively working with its partners to achieve prior volume levels.

On May 14, 2024, the Company filed a lawsuit against the author of the defamatory article and is vigorously pursuing its rights.

The Company cannot make any predictions about the final outcome of this litigation matter or the timing thereof.

Operating Leases

During the six months ended June 30, 2024 and 2023, the Company incurred fixed rent expense associated with operating leases for real estate of $ 0.1 million.

The Company did not have any finance leases, short-term leases nor variable leases over this time period.

During the three and six months ended June 30, 2024 and 2023, the Company had the following cash and non-cash activities associated with leases (in thousands):

Three Months Ended June 30, Six Months Ended June 30,

2024 2023 2024 2023

Cash paid for amounts included in the measurement of lease liabilities:

Operating cash outflow for operating leases $ 41 $ 40 $ 78 $ 80

Non-cash changes to the operating lease ROU assets and operating lease liabilities

Additions and modifications to ROU asset obtained from new operating liabilities $ 200 $ — $ 200 $ —

The weighted-average remaining lease term and discount rate for the Company’s operating lease is 5.0 years and 8.4 %, respectively, as of June 30, 2024.

The weighted-average remaining lease term and discount rate for the Company's operating leases is 6.3 years and 8.4 %, respectively, as of June 30, 2023 .

The future payments due under operating leases as of June 30, 2024 us as follows (in thousands):

Thereafter 200

Total undiscounted lease payments 1,287

Less effects of discounting ( 229 )

Less current lease liability ( 179 )

Total operating lease liability, net of current portion $ 879

Note 10 — Property, Equipment and Software, net

Property, equipment and software, net consists of the following (in thousands):

Useful Life (Years) June 30,

2024 December 31,

Furniture and fixtures 5 $ 137 $ 128

Computer equipment 3 20 20

Leasehold improvements 15 36 36

Capitalized software 3 702 702

Property, equipment and software, gross 895 886

accumulated depreciation and amortization ( 424 ) ( 287 )

Total property, equipment and software, net $ 471 $ 599

The following table summarizes depreciation and amortization expense related to property, equipment and software by line item for the three and six months ended June 30, 2024 and 2023 (in thousands):

Three Months Ended

June 30, Six Months Ended

2024 2023 2024 2023

Income before taxes

Total assets by business segment are as follows:

September 30,

Buy-side advertising

Sell-side advertising

Corporate office

Note 16 — Subsequent Events

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

On August 29, 2023, the Company filed a Tender Offer Statement on Schedule TO pursuant to which the Company offered to purchase all of its outstanding warrants for $ 1.20 per warrant in cash.

The Tender Offer expired at one minute after 11:59 PM, Eastern Time on September 28, 2023.

The Company accepted all validly tendered warrants for purchase and settlement on October 2, 2023.

On October 23, 2023, the Company distributed a notice of redemption to the registered holders of the remaining outstanding warrants announcing the redemption of those warrants for $ 0.35 per warrant.

The redemption closed on October 30, 2023, and all remaining 1,004,148 warrants were purchased for an aggregate price of approximately $ 0.4 million.

On October 3, 2023, the Company entered into the Fourth Amendment to the 2021 Credit Facility .

Under the terms of the Fourth Amendment, among other changes, the Company entered into a delayed draw term loan under the 2021 Credit Facility in the principal amount of $ 3,587,274.03 (the “ Delayed Draw Term Loan ”) to make payments due, among other things, in connection with the consummation of the 2023 warrant tender offer and fees and expenses incurred in connection therewith.

After giving effect to the Delayed Draw Term Loan made on the effective date of the Amendment, no additional term loans or Delayed Draw Term Loan will be available under the 2021 Credit Facility.

Additionally, the Amendment made certain technical amendments to the negative covenants under the 2021 Credit Facility in order to permit the transactions consummated pursuant to the 2023 warrant tender.

Cost of revenue $ 59 $ 56 $ 120 $ 104

General and administrative 9 9 17 17

Total depreciation and amortization $ 68 $ 65 $ 137 $ 121

Note 11 — Intangible Assets, net

In September 2020, the Company acquired Orange142 for a purchase price of $ 26.2 million.

The purchase consideration exceeded the fair value of the net assets, resulting in goodwill of $ 4.1 million and intangible assets of $ 18.0 million.

The Company records amortization expense on a straight-line basis over the life of the identifiable intangible assets.

For the three months ended June 30, 2024 and 2023, amortization expense of $ 0.5 million and for the six months ended June 30, 2024 and 2023, amortization expense of $ 1.0 million, respectively, was recognized.

As of June 30, 2024 and December 31, 2023, intangible assets net of accumulated amortization was $ 10.7 million and $ 11.7 million, respectively.

As of June 30, 2024, intangible assets and the related accumulated amortization, weighted-average remaining life and future amortization expense are as follows:

June 30, 2024

Weighted-Average Original Accumulated Net

Remaining Life (Years) Amount Amortization Total

Customer Lists 6.3 $ 13,028 $ ( 4,886 ) $ 8,143

Trademarks and tradenames 6.3 3,501 ( 1,313 ) 2,188

Non-compete agreements 1.3 1,504 ( 1,128 ) 376

Total intangible assets, net $ 18,034 $ ( 7,327 ) $ 10,707

December 31, 2023

Weighted-Average Original Accumulated Net

Remaining Life (Years) Amount Amortization Total

Customer Lists 6.8 $ 13,028 $ ( 4,234 ) $ 8,794

Trademarks and tradenames 6.8 3,501 ( 1,138 ) 2,363

Non-compete agreements 1.8 1,504 ( 978 ) 527

Total intangible assets, net $ 18,034 $ ( 6,350 ) $ 11,684

Thereafter 2,892

Total future amortization expense $ 10,707

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

What changed 10-Q

Item 1. Financial Statements