What changed in this filing

/stocks — the workspaceLOADING

Item 1. Financial Statements

2024-11-13 compared with 2024-10-15 · 227 added, 169 removed, 592 unchanged (40% of the section changed)

4 unchanged sentences

(in thousands, except share and par value amounts)

March 31, 2024 December 31, 2023

September 30, 2024 December 31, 2023

CURRENT ASSETS

1 unchanged sentence

Accounts receivable, net of provision for credit losses of $ 385 and $ 344

21,435 37,207

Prepaid expenses and other current assets 1,112 759

32 unchanged sentences

See accompanying notes to the unaudited condensed consolidated financial statements.

Table o f Contents

DIRECT DIGITAL HOLDINGS, INC.

3 unchanged sentences

Three Months Ended

September 30, Nine Months Ended

September 30,

2024 2023 2024 2023

Sell-side advertising $ 2,202 $ 51,622 $ 33,001 $ 89,006

10 unchanged sentences

Total operating expenses 7,172 7,259 22,973 21,652

Loss from operations ( 2,807 ) ( 141 )

(Loss) income from operations ( 3,658 ) 4,494 ( 8,529 ) 6,607

Other income (expense)

1 unchanged sentence

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

Derecognition of tax receivable agreement liability 5,201 — 5,201 —

Interest expense ( 1,413 ) ( 1,060 ) ( 4,068 ) ( 3,104 )

Total other expense, net ( 1,212 ) ( 1,267 )

Loss before income taxes ( 4,019 ) ( 1,408 )

Income tax benefit ( 200 ) ( 74 )

Net loss ( 3,819 ) ( 1,334 )

Net loss attributable to noncontrolling interest ( 3,044 ) ( 1,120 )

Net loss attributable to Direct Digital Holdings, Inc.

Total other income (expense), net 3,887 ( 977 ) 1,323 ( 3,229 )

Income (loss) before income taxes 229 3,517 ( 7,206 ) 3,378

Income tax expense 6,606 166 6,132 166

Net (loss) income ( 6,377 ) 3,351 ( 13,338 ) 3,212

Net (loss) income attributable to noncontrolling interest ( 3,687 ) 2,780 ( 9,283 ) 2,663

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

$ ( 2,690 ) $ 571 $ ( 4,055 ) $ 549

Net loss per common share:

Net (loss) income per common share:

Basic $ ( 0.71 ) $ 0.09 $ ( 1.11 ) $ 0.09

4 unchanged sentences

See accompanying notes to the unaudited condensed consolidated financial statements.

Table o f Contents

DIRECT DIGITAL HOLDINGS, INC.

2 unchanged sentences

(in thousands except share data)

Three Months Ended March 31, 2024

Nine Months Ended September 30, 2024

Common Stock APIC Accumulated

10 unchanged sentences

Noncontrolling interest rebalancing — — — — ( 1,615 ) — 1,615 —

Balance, March 31, 2024 3,684,278 $ 4 10,868,000 $ 11 $ 3,441 $ ( 3,313 ) $ ( 5,933 ) $ ( 5,790 )

Three Months Ended March 31, 2023

Balance, September 30, 2024 3,795,199 $ 4 10,868,000 $ 11 $ 3,481 $ ( 6,593 ) $ ( 11,893 ) $ ( 14,990 )

Three Months Ended September 30, 2024

Common Stock APIC Accumulated

2 unchanged sentences

Units Amount Units Amount

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

Stock-based compensation — — — — 149 — — 149

Issuance related to vesting of restricted stock units, net of tax withholdings 2,950 — — — — — — —

Stock options exercised 3,803 — — — 10 — — 10

Net loss — — — — — ( 2,690 ) ( 3,687 ) ( 6,377 )

Noncontrolling interest rebalancing — — — — ( 122 ) — 122 —

Balance, September 30, 2024 3,795,199 $ 4 10,868,000 $ 11 $ 3,481 $ ( 6,593 ) $ ( 11,893 ) $ ( 14,990 )

Nine Months Ended September 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

Stock-based compensation — — — — 546 — — 546

Issuance related to vesting of restricted stock units, net of tax withholdings 89,459 — — — — — — —

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

Net loss — — — — — ( 214 ) ( 1,120 ) ( 1,334 )

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

Warrant redemption accrual — — — — ( 3,540 ) — — ( 3,540 )

Stock options exercised 133 — — — — — — —

Distributions to holders of LLC Units — — — — — — ( 1,968 ) ( 1,968 )

Net income — — — — — 549 2,663 3,212

Balance, September 30, 2023 2,991,792 $ 3 11,278,000 $ 11 $ ( 371 ) $ 205 $ 4,009 $ 3,857

Three Months Ended September 30, 2023

Common Stock APIC Accumulated

Deficit Noncontrolling Interest Stockholders’

Class A Class B

Units Amount Units Amount

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

Stock-based compensation — — — — 242 — — 242

Issuance related to vesting of restricted stock units, net of tax withholdings 2,743 — — — — — — —

Warrant redemption accrual — — — — ( 3,540 ) — — ( 3,540 )

Stock options exercised 133 — — — — — — —

Distributions to holders of LLC Units — — — — — — ( 1,216 ) ( 1,216 )

Net income — — — — — 571 2,780 3,351

Balance, September 30, 2023 2,991,792 $ 3 11,278,000 $ 11 $ ( 371 ) $ 205 $ 4,009 $ 3,857

See accompanying notes to the unaudited condensed consolidated financial statements.

Table o f Contents

DIRECT DIGITAL HOLDINGS, INC.

1 unchanged sentence

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

Three Months Ended March 31,

(in thousands)

Nine Months Ended September 30,

Cash Flows (Used In) Provided By Operating Activities:

Net loss $ ( 3,819 ) $ ( 1,334 )

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

Net (loss) income $ ( 13,338 ) $ 3,212

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

Amortization of deferred financing costs 558 435

3 unchanged sentences

Stock-based compensation 811 546

Deferred income taxes ( 200 ) ( 74 )

Deferred income tax expense 6,132 82

Loss on early termination of line of credit — 300

Derecognition of tax receivable agreement liability ( 5,201 ) —

Provision for credit losses/bad debt expense, net of recoveries 36 98

14 unchanged sentences

Proceeds from lines of credit 6,700 —

Payments on shares withheld for taxes ( 551 ) —

Payment of deferred financing costs — ( 442 )

1 unchanged sentence

Proceeds from warrants exercised 215 12

Distributions to holders of LLC Units — ( 1,988 )

Net cash provided by (used in) financing activities 6,083 ( 2,909 )

5 unchanged sentences

Cash paid for interest $ 3,472 $ 2,667

Non-cash Financing Activities:

Accrual of warrant redemption liability $ — $ 3,540

See accompanying notes to the unaudited condensed consolidated financial statements.

Table o f Contents

DIRECT DIGITAL HOLDINGS, INC.

13 unchanged sentences

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

The subsidiaries of Direct Digital Holdings, Inc.

are as follows:

Direct Digital Holdings, Inc.

owns 100 % of the voting interest in Direct Digital Holdings, LLC.

As of September 30, 2024, DDH owns 25.9 % 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.

Direct Digital Holdings, LLC was formed on June 21, 2018 and acquired by DDH on February 15, 2022 in connection with the Organizational Transactions.

Direct Digital Holdings, LLC’s wholly-owned subsidiaries are as follows:

Subsidiary Current %

4 unchanged sentences

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

Direct Digital Holdings, LLC (1)

N/A June 21, 2018 February 15, 2022

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

As of March 31, 2024, DDH owns 25.3 % 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.

5 unchanged sentences

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.

Table o f Contents

position as of March 31, 2024, the results of operations, changes in stockholders’ deficit and cash flows for the three-months ended March 31, 2024 and 2023, respectively.

The results of operations for the three-months ended March 31, 2024 and 2023, respectively, are not necessarily indicative of the results to be expected for the full year.

The condensed consolidated balance sheet as of 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 September 30, 2024, the results of its operations for the three and nine months ended September 30, 2024 and 2023, cash flows for the nine months ended September 30, 2024 and 2023, and stockholders’ deficit for the three and nine months ended

September 30, 2024 and 2023.

The results of operations for the three and nine months ended September 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.

20 unchanged sentences

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.

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).

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.

6 unchanged sentences

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-

Table o f Contents

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 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.

12 unchanged sentences

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

The Company recorded deferred revenue (contract liabilities) to account for billings in excess of revenue recognized, primarily related to contractual minimums billed in advance and customer prepayment, of $ 0.6 million and $ 0.4 million as of March 31, 2024 and December 31, 2023, respectively.

Revenue recognized during the three months ended March 31, 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.

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 $ 1.0 million and $ 0.4 million as of September 30, 2024 and December 31, 2023, respectively.

Revenue recognized during the nine months ended September 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 March 31, 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.

As of September 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.

5 unchanged sentences

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 three months ended March 31, 2024 and 2023.

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

Intangible assets, net

2 unchanged sentences

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 condensed consolidated statements of

Table o f Contents

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.

2 unchanged sentences

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 three months ended March 31, 2024 and 2023.

No impairment loss was recognized during the nine months ended September 30, 2024 and 2023.

Stock-based compensation

18 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 three months ended March 31, 2024 and 2023, members of DDM exchanged no shares of Class B Common Stock into shares of Class A Common Stock.

During the nine months ended September 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.

2 unchanged sentences

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

Table o f Contents

As of September 30, 2024 and December 31, 2023, the Company recorded a valuation allowance of $ 7.3 million and $ 0.5 million, respectively.

Accounts receivable, net

9 unchanged sentences

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

For the three months ended March 31, 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.

For the nine months ended September 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 March 31, 2024 and 2023, one customer of the sell-side of the business represented 68 % and 60 % of revenues, respectively.

As of March 31, 2024 and December 31, 2023, one customer of the sell-side of the business accounted for 71 % and 83 %, respectively, of accounts receivable.

As of March 31, 2024 and December 31, 2023, three sellers of advertising inventory each accounted for at least 10%, and collectively accounted for 57 % and 77 %, respectively, of consolidated accounts payable.

For the three months ended September 30, 2024 and 2023, one buy-side customer represented 12 % and one sell-side customer represented 82 % of revenues, respectively.

For the nine months ended September 30, 2024 and 2023, one sell-side customer represented 52 % and 72 % of revenues, respectively.

As of September 30, 2024 and December 31, 2023, three customers and one customer accounted for 35 % and 83 %, respectively, of accounts receivable.

As of September 30, 2024 and December 31, 2023, one vendor and three sellers of advertising inventory each accounted for at least 10%, and collectively accounted for 17 % and 77 %, respectively, of consolidated accounts payable.

Accrued Liabilities

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

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

September 30,

2024 December 31,

11 unchanged sentences

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

Table o f Contents

Deferred offering costs

1 unchanged sentence

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

As of March 31, 2024 and December 31, 2023, $ 1.5 million and $ 1.7 million, respectively, of unamortized deferred financing costs are netted against debt in the condensed consolidated balance sheets.

As of September 30, 2024 and December 31, 2023, $ 1.3 million and $ 1.7 million, respectively, of unamortized deferred financing costs are netted against debt in the condensed consolidated balance sheets.

As of September 30, 2024 and December 31, 2023, $ 0.1 million and $ 0.2 million, respectively, of unamortized deferred issuance costs are classified as prepaid expenses and other current assets in the condensed consolidated balance sheets.

Fair value measurements

15 unchanged sentences

Accounting pronouncements not yet adopted

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

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.

5 unchanged sentences

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

Table o f Contents

15, 2023, and interim periods within fiscal years beginning after December 15, 2024.

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.

5 unchanged sentences

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 to the condensed consolidated financial statements, 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.

Management’s assessment is based on the relevant conditions that are known or reasonably knowable as of the date these condensed 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.

1 unchanged sentence

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 $ 3.8 million in the three months ended March 31, 2024 consistent with seasonal historical trends for the Company, (2) reported an accumulated deficit of $ 3.3 million as of March 31, 2024, (3) reported cash and cash equivalents of $ 3.3 million as of March 31, 2024, (4) has borrowed $ 7.0 million and $ 9.7 million as of March 31, 2024 and the date of this report, respectively, 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.

Additionally, the Company (1) incurred a net loss of $ 13.3 million for the nine months ended September 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 $ 6.6 million as of September 30, 2024, (3) reported cash and cash equivalents of $ 4.1 million as of September 30, 2024, (4) has borrowed $ 9.7 million and $ 8.7 million, respectively, as of September 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, (6) was unable to timely file its 2023 annual report and quarterly reports for the first two quarters of 2024 and (7) was notified by Nasdaq on October 18, 2024 that it was not in compliance with Nasdaq's minimum stockholders' equity requirements.

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

1 unchanged sentence

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 relief from debt covenants (see Note 3 – Long-Term Debt in the condensed consolidated financial statements) 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.

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) putting in place a program to raise capital through an equity reserve facility (see Note 4 — Stockholders’ Deficit and Stock-Based Compensation ) , (4) regaining compliance with respect to delinquent SEC filings on October 15, 2024 which will allow the Company to access the capital markets as well as other financing sources and (5) a plan to achieve compliance with Nasdaq's minimum stockholders' equity requirements.

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.

Table o f Contents

The accompanying condensed 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

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

March 31, 2024 December 31, 2023

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

September 30, 2024 December 31, 2023

2021 Credit Facility $ 28,221 $ 28,594

1 unchanged sentence

Economic Injury Disaster Loan 150 150

Total long-term debt 35,371 31,744

Total debt 38,071 31,744

deferred financing costs ( 1,254 ) ( 1,688 )

Total long-term debt, net of deferred financing costs 33,829 30,056

Total debt, net of deferred financing costs 36,817 30,056

current portion ( 36,667 ) ( 1,478 )

2 unchanged sentences

Three Months Ended

September 30, Nine Months Ended

September 30,

2024 2023 2024 2023

Interest expense – Lafayette Square $ 1,020 $ 896 $ 2,975 $ 2,665

14 unchanged sentences

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.

Table o f Contents

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.

3 unchanged sentences

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 Company did not meet these conditions as of September 30, 2024 and therefore DDH LLC assets are considered restricted and no dividends or distributions to the Company and any shareholders is permitted while these conditions are not met.

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 March 31, 2024, the Company owed a balance on the 2021 Credit Facility of $ 28.2 million.

No additional deferred financing costs were incurred during the three months ended March 31, 2024 and less than $ 0.1 million of additional deferred financing costs were incurred during the three months ended March 31, 2023.

Unamortized deferred financing costs as of March 31, 2024 and December 31, 2023 were $ 1.5 million and $ 1.7 million respectively.

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

As of September 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 nine months ended September 30, 2024 and less than $ 0.1 million of additional deferred financing costs were incurred during the nine months ended September 30, 2023.

Unamortized deferred financing costs as of September 30, 2024 and December 31, 2023 were $ 1.3 million and $ 1.7 million respectively.

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

The 2021 Credit Facility contains customary affirmative and negative covenants.

1 unchanged sentence

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.

T he Company was in compliance with all the financial covenants under the 2021 Credit Facility as of March 31, 2024 .

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:

10 unchanged sentences

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

Table o f Contents

* TTM = Trailing Twelve Months

The Company was in compliance with all the financial covenants under the 2021 Credit Facility as of September 30, 2024 after giving effect to the amendments to the 2021 Credit Facility under the Fifth Amendment, except for the minimum trailing twelve months EBITDA covenant.

The Company is in discussion with Lafayette Square to waive the current non-compliance with the financial covenant.

While the Company expects to negotiate an acceptable resolution, there can be no assurance that it will be able to negotiate a waiver or an amendment, or that such waiver or amendment will be on terms acceptable to the Company.

If the Company is unable to obtain a waiver from or enter into an amendment with Lafayette Square, it could have a material adverse effect on our financial position and our ability to execute our business plan.

Because of the non-compliance, the debt under the 2021 Credit Facility is classified as current as of September 30, 2024.

2023 Revolving Line of Credit - East West Bank

13 unchanged sentences

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 Credit Agreement as of March 31, 2024.

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.

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.

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:

Table o f Contents

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

10 unchanged sentences

(4) Beginning April 15, 2025

The Company was in compliance with all the financial covenants under the Credit Agreement as of September 30, 2024 after giving effect to the amendments to the Credit Agreement under the Third Amendment, except for the minimum trailing twelve months EBITDA covenant.

The Company is in discussion with EWB to waive the current non-compliance with the financial covenant.

If the Company is unable to obtain a waiver from or enter into an amendment with EWB, it could have a material adverse effect on our financial position and our ability to execute our business plan.

Because of the maturity date, the debt under the Credit Agreement is classified as current as of September 30, 2024.

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 three months ended March 31, 2024, the Company did not incur any deferred financing costs associated with the Credit Agreement.

As of March 31, 2024, there was $ 7.0 million outstanding under the Credit Agreement.

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

As of September 30, 2024, there was $ 9.7 million outstanding under the Credit Agreement which was classified as short term due to the Maturity Date being within twelve months of the reporting period.

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

8 unchanged sentences

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 three months ended March 31, 2023, the Company incurred $ 0.2 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 three months ended March 31, 2023 .

Table o f Contents

During the nine months ended September 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 nine months ended September 30, 2023.

Small Business Administration Loans

7 unchanged sentences

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

Accrued and unpaid interest expense as of March 31, 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 March 31, 2024, future minimum payments related to long-term debt are as follows (in thousands):

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

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

Remaining 2024 $ 1,109

Thereafter 140

7 unchanged sentences

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

As of March 31, 2024, DDM held 10,868,000 shares of Class B Common Stock.

As of September 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.

2 unchanged sentences

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

At March 31, 2024, none of these warrants were outstanding.

As of September 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 March 31, 2024, none of these warrants were outstanding.

Table o f Contents

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.

As of September 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.

9 unchanged sentences

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.

Equity Reserve Facility

On October 18, 2024, the Company entered into a Share Purchase Agreement (the “Purchase Agreement”) with New Circle Principal Investments LLC, a Delaware limited liability company (“New Circle”), pursuant to which New Circle has committed to purchase, subject to certain limitations, up to $ 20 million (the “Total Commitment”) of the Company’s Class A common stock, par value $ 0.001 per share (the “Class A Common Stock”).

Under the applicable Nasdaq rules, the Company may not issue to New Circle under the Purchase Agreement more than 19.99 % of the shares of all classes of the Company’s common stock outstanding immediately prior to the execution of the Purchase Agreement (the “Exchange Cap”), unless (i) the Company obtains stockholder approval to issue shares of its Class A Common Stock in excess of the Exchange Cap in accordance with applicable Nasdaq rules, or (ii) the average purchase price per share paid by New Circle for all shares of the Company’s Class A Common Stock, if any, that the Company elects to sell to New Circle under the Purchase Agreement equals or exceeds certain minimums permitted under the rules of the Nasdaq Stock Market.

The purchase price of the shares that may be sold to New Circle under the Purchase Agreement will be based on an agreed upon fixed discount to the market price of our Class A Common Stock as computed under the Purchase Agreement.

As consideration for New Circle’s irrevocable commitment to purchase shares of the Company’s Class A Common Stock upon the terms of and subject to satisfaction of the conditions set forth in the Purchase Agreement, the Company paid New Circle structuring and legal fees of less than $ 0.1 million.

In addition, the Company will pay a commitment fee of $ 150,000 to New Circle, which we may issue in the form of the Company’s Class A Common Stock (the “Commitment Fee”), the market value of which shall be determined based on the closing price of the Class A Common Stock on the date the Registration Statement is declared effective by the SEC;

provided, however, that the Company may, in its sole discretion, elect to pay any portion of the Commitment Fee in cash, so long as such amount is paid on or prior to the day of filing of the Registration Statement filed in order to register the Company’s Class A Common Stock sold under the Purchase Agreement.

The Purchase Agreement will automatically terminate on the earliest of (i) the 36-month anniversary of the of the Purchase Agreement, (ii) the date on which New Circle shall have made payment to the Company for Class A Common Stock equal to the Total Commitment or (iii) the date any statute, rule, regulation, executive order, decree, ruling or injunction that would prohibit any of the transactions contemplated by the Purchase Agreement goes into effect.

The Company has the right to terminate the Purchase Agreement at any time, at no cost or penalty, upon five trading days’ prior written notice to New Circle so long as (a) there are no outstanding purchase notices under which our Class A Common Stock have yet to be issued and (b) the Company has paid all amounts owed to New Circle pursuant to the Purchase Agreement.

The Company and New Circle may also agree to terminate the Purchase Agreement by mutual written consent.

Noncontrolling Interest

10 unchanged sentences

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

During the three months ended March 31, 2024 and 2023, the Company recognized $ 0.5 million and $ 0.1 million, respectively, of total stock-based compensation expense in the condensed consolidated statement of operations in compensation, tax and benefits.

During the nine months ended September 30, 2024 and 2023, the Company recognized $ 0.8 million and $ 0.5 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 March 31, 2024:

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

Stock Options

8 unchanged sentences

Forfeited ( 17,701 ) $ 2.98 — $ 36

Outstanding at March 31, 2024 361,362 $ 2.51 8.53 $ 4,596

Vested and exercisable at March 31, 2024 103,072 $ 2.55 8.48 $ 1,308

Table o f Contents

As of March 31, 2024, unrecognized stock-based compensation of $ 0.3 million related to 258,290 of unvested stock options which will be recognized on a straight-line basis over a weighted-average vesting period of 1.02 years.

Outstanding at September 30, 2024 340,858 $ 2.49 7.92 $ 97

Vested and exercisable at September 30, 2024 172,543 $ 2.17 7.64 $ 63

As of September 30, 2024, unrecognized stock-based compensation of $ 0.2 million related to 168,315 of unvested stock options which will be recognized on a straight-line basis over a weighted-average vesting period of 1.20 year.

Restricted Stock Units

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

A summary of RSU activity during the three months ended March 31, 2024 and related information is as follows:

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

Restricted Stock Units

5 unchanged sentences

Forfeited ( 14,111 ) $ 3.01

Unvested- March 31, 2024 412,055 $ 2.53

Unvested- September 30, 2024 264,960 $ 2.79

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 98,036 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 March 31, 2024, there was unrecognized stock-based compensation of $ 0.8 million related to unvested RSUs which will be recognized on a straight-line basis over a weighted average period of 1.01 years.

As of September 30, 2024, there was unrecognized stock-based compensation of $ 0.5 million related to unvested RSUs which will be recognized on a straight-line basis over a weighted average period of 1.23 years.

Note 5 — Tax Receivable Agreement and Income Taxes

6 unchanged sentences

federal income tax rate and assumed combined state and local income tax rate driven by the apportionment factors applicable to each state.

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

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

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

Any taxable income or loss generated by the Company will be allocated to TRA Holders in accordance with the LLC Agreement and 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 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 March 31, 2024 and December 31, 2023.

The Company has recorded a deferred tax asset primarily from the outside basis difference in the partnership interest of $ 6.3 million and $ 6.2 million as of March 31, 2024 and December 31, 2023, respectively.

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

Payments of less than $ 0.1 million were made during the three months ended March 31, 2024 and 2023.

The Company has recorded a liability related to the tax receivable agreement of less than $0.1 million and $ 5.2 million as of September 30, 2024 and December 31, 2023, respectively.

The Company has recorded a deferred tax asset primarily from the outside basis difference in the partnership interest of $ 0.0 million and $ 6.1 million as of September 30, 2024 and December 31, 2023, respectively.

The deferred tax asset is net of a valuation allowance of $ 7.3 million and $ 0.5 million as of September 30, 2024 and December 31, 2023, respectively.

TRA payments of $ 0 and less than $ 0.1 million were made during the nine months ended September 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.

2 unchanged sentences

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 three months ended March 31, 2024 and 2023, no amounts were recorded as income in other income (expense) for such change.

For the three and nine months ended September 30, 2024, $ 5.2 million was recognized as income under other income (expense) due to the derecognition of the TRA liability, as a valuation allowance was recorded against the deferred taxes associated with the TRA.

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.

Table o f Contents

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.

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.

Through the Organizational Transactions completed in February 2022, the Company formed an Up-C structure which allows DDM to continue to realize tax benefits associated with owning interests in an entity that is treated as a partnership for U.S.

1 unchanged sentence

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

The Company's 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 first three months ended March 31, 2024 .

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 nine months ended September 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

Income tax benefit $ ( 200 ) $ ( 74 )

September 30, Nine Months Ended

September 30,

2024 2023 2024 2023

Income tax expense $ 6,606 $ 166 $ 6,132 $ 166

Effective income tax rate 2884.7 % 4.7 % ( 85.1 %) 4.9 %

The effective tax rates were lower than the statutory tax rates for the three months ended March 31, 2024 and 2023 primarily due to the Company’s partnership loss that is not subject to federal and state taxes.

As of March 31, 2024, the Company had federal net operating loss carryforwards of $ 2.5 million that can be carried forward indefinitely.

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 loss that is not subject to federal and state taxes.

The effective tax rates were different from the statutory rates for the three and nine months ended September 30, 2024 primarily due to recording a valuation allowance against deferred taxes.

As of September 30, 2024, the Company had federal net operating loss carryforwards of $ 4.4 million that can be carried forward indefinitely.

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

3 unchanged sentences

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 March 31, 2024.

Federal and various states returns for the years ended December 2022 and 2021 remain open as of September 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 March 31, 2024 and December 31, 2023, the Company had no uncertain tax positions.

As of September 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.

2 unchanged sentences

Member Payable

As of March 31, 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.

As of September 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

1 unchanged sentence

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).

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.

1 unchanged sentence

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

Table o f Contents

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 March 31, 2024 and December 31, 2023 , is as follows (in thousands):

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.

As described in Note 5 — Tax Receivable Agreement and Income Taxes, for the three and nine months ended September 30, 2024, $ 5.2 million was recorded as income in other income (expense) for such change as the deferred taxes giving rise to the TRA have a valuation allowance recorded to offset the deferred tax assets.

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

September 30,

2024 December 31,

6 unchanged sentences

Three Months Ended

September 30, Nine Months Ended

September 30,

2024 2023 2024 2023

Sell-side advertising $ 2,202 $ 51,622 $ 33,001 $ 89,006

3 unchanged sentences

Three Months Ended

September 30, Nine Months Ended

September 30,

2024 2023 2024 2023

Sell-side advertising $ ( 873 ) $ 6,206 $ 536 $ 9,657

1 unchanged sentence

Corporate office expenses ( 4,134 ) ( 3,263 ) ( 12,555 ) ( 10,030 )

Total operating loss ( 2,807 ) ( 141 )

Total operating (loss) income ( 3,658 ) 4,494 ( 8,529 ) 6,607

Corporate other expense 3,887 ( 977 ) 1,323 ( 3,229 )

Loss before taxes $ ( 4,019 ) $ ( 1,408 )

Income (loss) before income taxes $ 229 $ 3,517 $ ( 7,206 ) $ 3,378

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

September 30,

2024 December 31,

3 unchanged sentences

Total assets $ 31,291 $ 70,672

Note 8 — Net Loss Per Share

Note 8 — Net (Loss) Income Per Share

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

1 unchanged sentence

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

Table o f Contents

outstanding participating securities in the form of warrants for the three months ended March 31, 2023.

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

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 nine months ended September 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

Net loss $ ( 775 ) $ ( 214 )

September 30, Nine Months Ended

September 30,

2024 2023 2024 2023

Net (loss) income attributable to Class A shareholders and participating securities $ ( 2,690 ) $ 571 $ ( 4,055 ) $ 549

net income allocated to participating securities — 296 — 285

Net (loss) income allocated to Class A shareholders $ ( 2,690 ) $ 275 $ ( 4,055 ) $ 264

Weighted average common shares outstanding - basic 3,793 2,990 3,667 2,938

3 unchanged sentences

Weighted average common shares outstanding - diluted 3,793 3,044 3,667 3,080

Net loss per common share, basic $ ( 0.22 ) $ ( 0.07 )

Net loss per common share, diluted $ ( 0.22 ) $ ( 0.07 )

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

Net (loss) income per common share, basic $ ( 0.71 ) $ 0.09 $ ( 1.11 ) $ 0.09

Net (loss) income per common share, diluted $ ( 0.71 ) $ 0.09 $ ( 1.11 ) $ 0.09

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

September 30, Nine Months Ended

September 30,

2024 2023 2024 2023

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

Warrants to purchase common stock — 3,219

Options to purchase common stock 346 343 362 365

3 unchanged sentences

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.

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 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.

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.

4 unchanged sentences

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

Table o f Contents

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 three months ended March 31, 2024 and 2023, the Company incurred fixed rent expense associated with operating leases for real estate of less than $ 0.1 million.

During the nine months ended September 30, 2024 and 2023, the Company incurred fixed rent expense associated with operating leases for real estate of $ 0.2 million.

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

During the three months ended March 31, 2024 and 2023, the Company had the following cash and non-cash activities associated with leases (in thousands):

Three-Months Ended March 31,

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

Three Months Ended September 30, Nine Months Ended September 30,

2024 2023 2024 2023

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

Operating cash outflow for operating leases $ 71 $ 41 $ 142 $ 121

The weighted-average remaining lease term and discount rate for the Company’s operating lease is 5.3 years and 8.3 %, respectively, as of March 31, 2024.

The weighted-average remaining lease term and discount rate for the Company's operating leases is 6.5 years and 8.4 %, respectively, as of March 31, 2023 .

The future payments due under operating leases as of March 31, 2024 us as follows (in thousands):

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 $ —

The weighted-average remaining lease term and discount rate for the Company’s operating leases is 4.8 years and 8.3 %, respectively, as of September 30, 2024.

The weighted-average remaining lease term and discount rate for the Company's operating leases is 6.1 years and 8.4 %, respectively, as of September 30, 2023 .

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

Thereafter 200

5 unchanged sentences

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

Useful Life (Years) March 31,

Useful Life (Years) September 30,

2024 December 31,

6 unchanged sentences

Total property, equipment and software, net $ 409 $ 599

Table o f Contents

The following table summarizes depreciation and amortization expense related to property, equipment and software by line item for the three months ended March 31, 2024 and 2023 (in thousands):

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, 2024 and 2023 (in thousands):

Three Months Ended

September 30, Nine Months Ended

September 30,

2024 2023 2024 2023

Cost of revenue $ 41 $ 42 $ 125 $ 125

2 unchanged sentences

Note 11 — Intangible Assets, net

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

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 $ 4.1 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 March 31, 2024 and 2023, amortization expense of $ 0.5 million was recognized.

As of March 31, 2024 and December 31, 2023, intangible assets net of accumulated amortization was $ 11.2 million and $ 11.7 million, respectively.

As of March 31, 2024, intangible assets and the related accumulated amortization, weighted-average remaining life and future amortization expense are as follows:

March 31, 2024

The Company records amortization expense on a straight-line basis over the life of the identifiable intangible assets related to an acquisition in September 2020.

For the three months ended September 30, 2024 and 2023, amortization expense of $ 0.5 million and for the nine months ended September 30, 2024 and 2023, amortization expense of $ 1.5 million, respectively, was recognized.

As of September 30, 2024 and December 31, 2023, intangible assets net of accumulated amortization was $ 10.2 million and $ 11.7 million, respectively.

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

September 30, 2024

Weighted-Average Original Accumulated Net

13 unchanged sentences

Total future amortization expense $ 10,219

Table o f Contents

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