What changed in this filing

/stocks — the workspaceLOADING

Item 7A. Quantitative and Qualitative Disclosures About Market Risk

2025-03-28 compared with 2024-10-15 · 340 added, 891 removed, 605 unchanged (67% of the section changed)

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Report of Independent Registered Public Accounting Firm (PCAOB ID Number 243 )

Report of Independent Registered Public Accounting Firm (PCAOB ID Number 688 )

Consolidated Balance Sheets

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Opinion on the Consolidated Financial Statements

We have audited the accompanying consolidated balance sheet of Direct Digital Holdings, Inc.

(the “Company”) as of December 31, 2023, the related consolidated statements of operations, changes in stockholders’ (deficit) equity and cash flows for the year then ended, and the related notes (collectively referred to as the “consolidated financial statements”).

In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2023, and the results of its operations and its cash flows for the year then ended, in conformity with accounting principles generally accepted in the United States of America.

We have audited the accompanying consolidated balance sheets of Direct Digital Holdings, Inc.

(the “Company”) as of December 31, 2024 and 2023, the related consolidated statements of operations, changes in stockholders’ (deficit) equity, and cash flows for each of the years then ended, and the related notes (collectively referred to as the “consolidated financial statements”).

In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company at December 31, 2024 and 2023, and the results of its operations and its cash flows for the years then ended, in conformity with accounting principles generally accepted in the United States of America.

Going Concern Uncertainty

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These consolidated financial statements are the responsibility of the Company’s management.

Our responsibility is to express an opinion on the Company’s consolidated financial statements based on our audit.

Our responsibility is to express an opinion on the Company’s consolidated financial statements based on our audits.

We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S.

federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audit in accordance with the standards of the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB.

Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud.

The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting.

As part of our audit we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company's internal control over financial reporting.

As part of our audits we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting.

Accordingly, we express no such opinion.

Our audit included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks.

Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks.

Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements.

Our audit also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements.

We believe that our audit provides a reasonable basis for our opinion.

Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements.

We believe that our audits provide a reasonable basis for our opinion.

/s/ BDO USA, P.C.

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New York, New York

October 15, 2024

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Stockholders and Board of Directors of

Direct Digital Holdings, Inc.

Opinion on the Financial Statements

We have audited the accompanying consolidated balance sheet of Direct Digital Holdings, Inc.

(the “Company”) as of December 31, 2022, the related consolidated statements of operations, changes in stockholders’ / members’ equity (deficit) and cash flows for the year in the period ended December 31, 2022, and the related notes (collectively referred to as the “financial statements”).

In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2022, and the results of its operations and its cash flows for the year in the period then ended, in conformity with accounting principles generally accepted in the United States of America.

Basis for Opinion

These financial statements are the responsibility of the Company's management.

Our responsibility is to express an opinion on the Company's financial statements based on our audit.

We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) ("PCAOB") and are required to be independent with respect to the Company in accordance with the U.S.

federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audit in accordance with the standards of the PCAOB and in accordance with auditing standards generally accepted in the United States of America.

Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud.

The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting.

Accordingly, we express no such opinion.

Our audit included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks.

Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements.

Our audit also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements.

We believe that our audit provides a reasonable basis for our opinion.

/s/ Marcum LLP

We served as the Company’s auditor from 2021 to 2024.

Houston, Texas

April 17, 2023, except for the effects of the revisions disclosed in Note 2 as to which the date is October 15, 2024

March 27, 2025

DIRECT DIGITAL HOLDINGS, INC.

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Property, equipment and software, net 341 599

Goodwill 6,520 6,520

Intangible assets, net 9,730 11,684

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Operating lease right-of-use assets 832 788

Related party receivable

Other long-term assets 48 130

LIABILITIES AND STOCKHOLDERS’ (DEFICIT) EQUITY

Total assets $ 26,006 $ 68,935

LIABILITIES AND STOCKHOLDERS’ DEFICIT

CURRENT LIABILITIES

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Income taxes payable — 34

Related party payables

Total current liabilities 13,350 39,802

Long-term debt, net of current portion and deferred financing cost

Long-term debt, net of current portion, deferred financing cost and debt discount 31,603 28,578

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

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COMMITMENTS AND CONTINGENCIES (Note 9)

STOCKHOLDERS’ (DEFICIT) EQUITY

STOCKHOLDERS’ DEFICIT

Class A Common Stock, $ 0.001 par value per share, 160,000,000 shares authorized, 5,450,554 and 3,478,776 shares issued and outstanding, respectively

Class B Common Stock, $ 0.001 par value per share, 20,000,000 shares authorized, 10,868,000 and 11,278,000 shares issued and outstanding , respectively

Class B Common Stock, $ 0.001 par value per share, 20,000,000 shares authorized, 10,868,000 shares issued and outstanding

Additional paid-in capital 3,769 3,067

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Noncontrolling interest ( 14,742 ) ( 5,962 )

Total stockholders’ (deficit) equity

Total liabilities and stockholders’ (deficit) equity

Total stockholders’ deficit ( 19,730 ) ( 5,419 )

Total liabilities and stockholders’ deficit $ 26,006 $ 68,935

See accompanying notes to the consolidated financial statements.

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Total cost of revenues 44,897 119,536

Gross profit 17,391 37,574

Operating expenses

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Total operating expenses 30,624 39,759

(Loss) income from operations

Loss from operations ( 13,233 ) ( 2,185 )

Other income (expense)

Other income 199 256

Revaluation of tax receivable agreement liability — 331

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

Forgiveness of Paycheck Protection Program loan

Loss on redemption of non-participating preferred units

Derecognition of tax receivable agreement liability 5,201 —

Commitment shares and expenses for Equity Reserve Facility ( 532 ) —

Interest expense ( 5,410 ) ( 4,378 )

Total other expense, net ( 542 ) ( 4,091 )

(Loss) income before income taxes

Loss before income taxes ( 13,775 ) ( 6,276 )

Income tax expense 6,132 568

Net (loss) income

Net (loss) income attributable to noncontrolling interest

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

Net (loss) income per share:

Net loss $ ( 19,907 ) $ ( 6,844 )

Net loss attributable to noncontrolling interest ( 13,671 ) ( 4,650 )

Net loss attributable to Direct Digital Holdings, Inc.

$ ( 6,236 ) $ ( 2,194 )

Net loss per common share attributable to Direct Digital Holdings, Inc.:

Basic $ ( 1.66 ) $ ( 0.73 )

Diluted $ ( 1.66 ) $ ( 0.73 )

Weighted-average number of shares of common stock outstanding:

Basic 3,758 2,988

Diluted 3,758 2,988

See accompanying notes to the consolidated financial statements.

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(in thousands except share data)

Noncontrolling

Stockholders'

Balance, January 1, 2022

Net loss prior to Organizational Transactions

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

Effect of the Organizational Transactions on noncontrolling interest

Stock-based compensation

Distributions to holders of LLC Units

Additional paid-in capital related to tax receivable agreement

Balance, December 31, 2022

Noncontrolling

Stockholders’ (Deficit)

Common Stock Accumulated

Deficit Noncontrolling

Interest Stockholders’ (Deficit)

Class A Class B

Units Amount Units Amount APIC

Balance, January 1, 2023 2,900,000 $ 3 11,278,000 $ 11 $ 2,611 $ ( 344 ) $ 3,314 $ 5,595

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Additional paid-in capital related to tax receivable agreement — — — — 250 — — 250

Distributions to holders of LLC Units — — — — — — ( 1,737 ) ( 1,737 )

Net loss — — — — — ( 2,194 ) ( 4,650 ) ( 6,844 )

Noncontrolling interest rebalancing — — — — 2,744 — ( 2,744 ) —

Balance, December 31, 2023 3,478,776 $ 3 10,868,000 $ 11 $ 3,067 $ ( 2,538 ) $ ( 5,962 ) $ ( 5,419 )

Stock-based compensation — — — — 1,552 — — 1,552

Issuance related to vesting of restricted stock units, net of tax withholdings 207,681 1 — — ( 328 ) — — ( 327 )

Warrants exercised 39,101 — — — 215 — — 215

Stock options exercised 12,557 — — — 92 — — 92

Issuance of stock in lieu of cash bonus, net of tax withholdings 69,677 — — — 906 — — 906

Commitment shares issued in connection with the Equity Reserve Facility 62,762 — — — 150 — — 150

Issuance pursuant to the Equity Reserve Facility 1,580,000 2 — — 3,006 — — 3,008

Net loss — — — — — ( 6,236 ) ( 13,671 ) ( 19,907 )

Noncontrolling interest rebalancing — — — — ( 4,891 ) — 4,891 —

Balance, December 31, 2024 5,450,554 $ 6 10,868,000 $ 11 $ 3,769 $ ( 8,774 ) $ ( 14,742 ) $ ( 19,730 )

See accompanying notes to the consolidated financial statements.

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For the Year Ended December 31,

Cash Flows Provided By Operating Activities:

Net (loss) income

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

Amortization of deferred financing costs

Cash Flows (Used In) Provided By Operating Activities:

Net loss $ ( 19,907 ) $ ( 6,844 )

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

Amortization of deferred financing cost and debt discount 1,092 615

Amortization of intangible assets 1,954 1,954

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Stock-based compensation 1,552 706

Forgiveness of Paycheck Protection Program loan

Deferred income taxes 6,132 568

Loss on redemption of non-participating preferred units

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

Revaluation of tax receivable agreement liability — ( 331 )

Loss on early termination of line of credit — 300

Commitment shares and expenses for Equity Reserve Facility 532 —

Provision for credit losses/bad debt expense 619 422

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Operating lease liability ( 127 ) ( 92 )

Related party payable

Net cash provided by operating activities

Net cash (used in) provided by operating activities ( 8,648 ) 2,558

Cash Flows Used In Investing Activities:

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Net cash used in investing activities ( 17 ) ( 178 )

Cash Flows Used In Financing Activities:

Cash Flows Provided by (Used In) Financing Activities:

Proceeds from note payable 4,000 3,516

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Payments on lines of credit ( 6,000 ) ( 2,000 )

Payment of deferred financing costs

Proceeds from Issuance of Class A Common Stock, net of transaction costs

Payment of expenses for Equity Reserve Facility ( 382 ) —

Payment of deferred financing cost ( 26 ) ( 576 )

Proceeds from issuance of Class A Common Stock 1,646 —

Acquisition and redemption of warrants, including expenses — ( 3,540 )

Redemption of common units

Redemption of non-participating preferred units

Payment of tax related to shares withheld upon vesting ( 878 ) —

Proceeds from options exercised 92 29

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Distributions to holders of LLC Units — ( 3,185 )

Net cash used in financing activities

Net increase (decrease) in cash and cash equivalents

Net cash provided by (used in) financing activities 4,994 ( 1,311 )

Net (decrease) increase in cash and cash equivalents ( 3,671 ) 1,069

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

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Non-cash Activities:

Property and equipment purchased included in accounts payable

Common stock issued for subscription receivable $ 1,362 $ —

Funding of interest reserve through debt $ 2,000 $ —

Accrued term loan exit fee $ 3,000 $ —

Issuance of stock in lieu of cash bonus, net of tax withholdings $ 906 $ —

Financed insurance premiums $ 129 $ —

Outside basis difference in partnership $ — $ 1,536

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Tax benefit on tax receivable agreement $ — $ 250

Prepaid distributions to holders of LLC Units included in related party receivable

See accompanying notes to the 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, 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., incorporated as a Delaware corporation on August 23, 2021 and headquartered in Houston, Texas, together with its subsidiaries, is an end-to-end, full-service advertising and marketing platform primarily focused on providing advertising technology, data-driven campaign optimization and other solutions to help brands, agencies and middle market businesses deliver successful marketing results that drive return on investment ("ROI") across 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 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 (“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.

is the holding company for Direct Digital Holdings, LLC (“DDH LLC”), the business formed by the Company's founders in 2018 through acquisitions 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 ("SSP") operating under the trademarked banner of Colossus SSP TM (“Colossus SSP”).

In 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.

In February 2022, Direct Digital Holdings, Inc.

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(See Note 6 — Related Party Transactions).

In these consolidated 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 October 2024, the Company announced the unification of its buy-side businesses, Orange 142 and Huddled Masses.

In these 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, unless otherwise stated, its subsidiaries.

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

The subsidiaries of Direct Digital Holdings, Inc.

are as follows:

Date of Formation

Date of Acquisition

Colossus Media, LLC

September 8, 2017

June 21, 2018

Orange142, LLC

March 6, 2013

September 30, 2020

Huddled Masses, LLC

November 13, 2012

June 21, 2018

Direct Digital Holdings, LLC (1)

June 21, 2018

February 15, 2022

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

As of December 31, 2023, DDH owns 24.2 % of the economic interest in Direct Digital Holdings, LLC.

See further discussion of the Up-C structure in Note 6 of our 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.

Direct Digital Holdings, Inc.

owns 100 % of the voting interest in DDH LLC and as of December 31, 2024 , it owns 33.4 % of the economic interest in DDH LLC.

See further discussion of the Up-C structure in Note 6 — Related Party Transactions of our consolidated financial statements.

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

DDH LLC’s wholly-owned subsidiaries are as follows:

Subsidiary Business

Segment Date of Formation Date of Acquisition

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

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

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

Our sell-side advertising business, operated through Colossus Media, provides advertisers of all sizes an advertising platform that automates the sale of ad inventory between advertisers and marketers.

Our platform is intended to help brands, media holding companies, independent agencies or emerging businesses reach audiences, curated creators and publishers find the right brands for their readers, as well as drive advertising yields across all channels:

web, mobile, and connected TV ("CTV").

Our platform offers advertising inventory and creator content that is intended to align with brands, media holding companies and mid-market agencies focusing on key growth audiences.

Our buy-side advertising business, now operating as Orange 142, provides technology-enabled advertising solutions and consulting services to clients through multiple demand side platforms (“DSPs”), across multiple industry verticals such as travel and tourism, higher education, energy, healthcare, 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 the digital advertising space, buyers, particularly small and mid-sized businesses, can potentially achieve significantly higher ROI on their advertising spend compared to traditional media advertising by leveraging data-driven over-the-top/connected TV (“OTT/CTV”), video and display, in-app, native including programmatic, search, social, influencer marketing and audio advertisements that are delivered both at scale and on a highly targeted basis.

Providing both the front-end, buy-side operations coupled with the Company’s proprietary sell-side operations is intended to enable 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 Consolidation and Summary of Significant Accounting Policies

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

For additional segment disclosures, refer to Note 7 of our 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 additional segment disclosures, refer to Note 7 — Segment Information of our 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).

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.

In connection with the Company’s analysis of principal-versus-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 generates revenue through the monetization of publisher ad

impressions on its platform.

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 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.

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As of December 31, 2024 and 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.

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

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.

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

The carrying value of the Company’s sell-side reporting unit was negative as of December 31, 2024, and therefore the Company performed a qualitative goodwill impairment assessment and determined it was more likely than not that the fair value of the sell-side reporting unit exceeded the carrying value.

The Company also performed a qualitative goodwill impairment assessment on the buy-side reporting unit.

The Company determined that there was no impairment of goodwill during the years ended December 31, 2024 and 2023.

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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.

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.

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.

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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 did not grant any stock options during the 2024 period.

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.

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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 terms of the stock options and peer data.

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

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

The fair value of the Company’s stock options was estimated on the grant date using the Black-Scholes option pricing model with the following weighted-average input assumptions used by the Company were as follows:

Year Ended December 31,

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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.

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 years ended December 31, 2024 and 2023, the Company’s matching contributions were $ 0.2 million and $ 0.2 million, respectively.

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

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.

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The Company also has an incentive plan for executives and employees of the Company which provides for performance based awards payable in cash or stock-based compensation as determined by the Compensation Committee of the Company’s Board of Directors.

There was $ 2.4 million and $ 2.3 million recognized during the years ended December 31, 2023 and 2022, respectively, for awards pursuant to this plan.

$ 1.4 million of the 2023 awards was recorded as stock-based compensation in compensation, taxes and benefits with the remainder of 2023 and all of 2022 recorded as compensation expense in compensation, taxes and benefits and payable in cash subsequent to the applicable year end.

There was $ 0 and $ 2.4 million recognized during the years ended December 31, 2024 and 2023, respectively, for awards pursuant to this plan.

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”).

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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 years ended December 31, 2023 and 2022, members of DDM exchanged 410,000 and 100,000 shares of Class B Common Stock into shares of Class A Common Stock, respectively.

During the year ended December 31, 2023, members of DDM exchanged 410,000 shares of Class B Common Stock into shares of Class A Common Stock.

No shares were exchanged or converted during the year ended December 31, 2024.

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.

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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 December 31, 2023 and 2022, the Company recorded a valuation allowance of $ 0.5 million and $ 0 , respectively.

As of December 31, 2024 and 2023, the Company recorded a valuation allowance of $ 7.7 million and $ 0.5 million, respectively.

Accounts receivable, net

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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.

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.

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

Bad debt expense was approximately $ 0.4 million and less than $ 0.1 million for the years ended December 31, 2023 and 2022, respectively.

For the years ended December 31, 2024 and 2023, the Company's provision for credit losses net of recoveries, as reflected in the consolidated statements of cash flows was $ 0.6 million and $ 0.4 million, respectively.

The following table presents the changes in the provision for credit losses (in thousands):

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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 years ended December 31, 2023 and 2022, one customer of the sell-side of the business represented 73 % and 63 % of revenues, respectively.

As of December 31, 2023 and 2022, one customer of the sell-side of the business accounted for 83 % and 80 %, respectively, of accounts receivable.

As of December 31, 2023 and 2022, three sellers of advertising inventory each accounted for at least 10%, and collectively accounted for 57 % and 63 %, respectively, of consolidated accounts payable.

For the years ended December 31, 2024 and 2023, one sell-side customer represented 46 % and 73 % of revenues, respectively.

As of December 31, 2024, three customers (two buy-side and one sell-side) accounted for 34 % of accounts receivable.

As of December 31, 2023, one sell-side customer accounted for 83 % of accounts receivable.

As of December 31, 2024 one vendor accounted for 16 % of consolidated accounts payable.

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

Accrued liabilities

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(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.

Prepaid expenses and other current assets

The components of prepaid expenses and other current assets on the balance sheet as of December 31, 2024 and 2023 are as follows (in thousands):

Prepaid expenses $ 566 $ 533

Stock subscription receivable (1)

Other current assets

Total prepaid expenses and other current assets $ 2,117 $ 759

(1) The stock subscription receivable consists of amounts receivable for Class A Common Stock issued under the Equity Reserve Facility but not yet paid as of December 31, 2024.

The Company collected the receivable in January 2025.

Segment information

Operating segments are components of an enterprise for which separate financial information is available and evaluated regularly by the Company’s chief operating decision maker (“CODM”) for purpose of allocating resources and assessing performance.

The Company’s CODM is its Chairman and Chief Executive Officer.

Revenue and operating income (loss) are used by our CODM to assess performance of our operating segments and allocate resources.

Revenue is used by our CODM to identify underlying trends in the performance of our business and provide insights into customer demand.

Operating income (loss) provides useful information regarding performance of each segment as it reflects profitability and performance of each segment on a consistent and comparable basis.

The significant segment expenses reviewed by the CODM are consistent with the cost of revenues line item presented in the Company's consolidated statements of operations.

Our CODM does not evaluate operating segments using asset or liability information.

The Company operates two reportable segments:

sell-side advertising, which includes the results of Colossus Media, and buy-side advertising, which includes the results of Orange 142 and Huddled Masses.

In October 2024, the Company announced the unification of its buy-side businesses, Orange 142 and Huddled Masses.

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

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and other expense (including transactions that are unusual in nature or which are occurring infrequently).

See further discussion of Other Expenses within Operating Expenses for the year ended December 31, 2023 in Note 9 of the consolidated financial statements.

See further discussion of Other Expenses within Operating Expenses for the year ended December 31, 2023 in Note 9 — Commitments and Contingencies.

Advertising costs

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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.

The Company has operating leases for real estate.

The Company has operating leases for real estate and determines if an arrangement is, or contains, a lease at inception.

Operating leases are included in Operating Lease Right of Use ("ROU") Assets and Operating Lease Liabilities on the consolidated balance sheets.

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On the statement of cash flows, operating lease expense is included in operating cash flows.

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.

The Company’s operating leases may include both lease components (rent) and non-lease components (common area maintenance, utilities and other service charges).

Non-lease components are accounted for separately.

Deferred offering, financing, discount and issuance costs

The Company records certain legal, accounting and other third-party fees that are directly associated with a debt financing to deferred financing costs in the event that the Company completes the debt financing.

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

As of December 31, 2024 and 2023, $ 4.2 million and $ 1.7 million, respectively, of unamortized deferred financing costs are netted against debt in the consolidated balance sheets.

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

The Company records the differences between the face amount and the proceeds upon issuance of debt as a discount.

As of December 31, 2024 and 2023, $ 1.7 million and $ 0 , respectively, of unamortized debt discount related to the interest reserve added under the LS Amendment are netted against debt in the consolidated balance sheets.

Fees that are directly associated with an equity offering are recorded to additional paid-in capital in the event the Company completes an equity issuance.

Business combinations

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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:

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.

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

Net income (loss) per share

Basic net income (loss) per share excludes dilution and is determined by dividing net income (loss) by the weighted 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.

Net loss per share

Basic net loss per share excludes dilution and is determined by dividing net loss by the weighted average number of common shares outstanding including participating securities during the period.

Diluted net loss per share attributable to common stockholders reflects the potential dilution that could occur if securities and other contracts to issue common stock were exercised or converted into common stock including stock options, restricted stock units and warrants using the treasury stock method.

Adjustment to prior period consolidated financial statements

Subsequent to the issuance of the Company’s consolidated financial statements as of and for the year ended December 31, 2023, the Company determined that prepaid distributions of $ 1.7 million to holders of LLC Units were incorrectly classified as a related party receivable instead of noncontrolling interest on the consolidated balance sheet.

The Company determined that the 2023 consolidated financial statements were not materially misstated but has adjusted the 2023 consolidated financial statements to correct the immaterial error, resulting in a reversal of the prepaid distributions and a reduction in non-controlling interest.

In addition, in future filings, the Company will adjust the interim consolidated financial statements in the periods ending March 31, 2024, June 30, 2024 and September 30, 2024 to correct the immaterial error.

Recent accounting pronouncements

Accounting pronouncements adopted in 2023

In June 2016, the Financial Accounting Standards Board (the “FASB”) issued ASU No.

2016-13, Financial Instruments — Credit Losses (Topic 326):

Measurement of Credit Losses on Financial Instruments (“ASU 2016-13”), which requires entities to estimate all expected credit losses for certain types of financial instruments, including trade receivables, held at the reporting date based on historical experience, current conditions, and reasonable and supportable forecasts.

The updated guidance also expands the disclosure requirements to enable users of financial statements to understand the entity’s assumptions, models and methods for estimating expected credit losses over the entire contractual term of the instrument from the date of initial recognition of that instrument.

ASU 2016-13, as subsequently amended for various technical issues, is effective for emerging growth companies following private company adoption dates for fiscal years, and for interim periods within those fiscal years, beginning after December 15, 2022, with early adoption permitted.

The Company adopted this ASU effective January 1, 2023.

Accounting pronouncements adopted

In November 2023, the Financial Accounting Standards Board (the “FASB”) issued Accounting Standards Update ("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 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 adoption of this ASU did not have a material impact on the Company's consolidated financial statements.

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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 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 consolidated financial statements.

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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 discussed in Note 9 — Commitments and Contingencies , 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.

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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, (2) reported an accumulated deficit of $ 2.5 million as of December 31, 2023, (3) reported cash and cash equivalents of $ 5.1 million as of December 31, 2023, (4) has borrowed $ 3.0 million and $ 9.7 million as of December 31, 2023 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.

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

Additionally, the Company (1) incurred a net loss of $ 19.9 million in 2024 including 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 $ 8.8 million as of December 31, 2024, (3) reported cash and cash equivalents of $ 1.4 million as of December 31, 2024, (4) has borrowed $ 3.7 million as of December 31, 2024 and the date of this report, under the Credit Agreement which matures in July 2025, and (5) was notified by Nasdaq on October 18, 2024 that it was not in com pliance with Nasdaq's minimum stockholders' equity requirements.

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 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.

The Company anticipates sources of liquidity to include cash on hand, cash flow from operations and cash generated from its sales under the Company's Equity Reserve Facility , 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 was executed on July 1, 2024 with continuing cost savings impacts through December 31, 2024, (2) working with lenders to provide temporary various relief from debt covenants via amendments on October 15, 2024 and December 27, 2024 (see Note 3 — Long-Term Debt ) while rebuilding sell-side volumes, (3) putting in place a program to ra ise capital through an Equity Reserve Facility with stock sales continuing into 2025 (see Note 4 — Stockholders’ Deficit and Stock-Based Compensation ), and (4) a plan to achieve compliance with Nasdaq's minimum stockholders' equity requirements by raising additional funds in a registered or private offering .

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.

Correction of Immaterial Errors in Prior Consolidated Financial Statements

For 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 resulting from the incorrect accounting for granted but unvested restricted stock units.

For the year ended December 31, 2023, the Company

identified prior year accounting errors in the Company’s previously reported unaudited interim consolidated financial statements beginning March 31, 2022 resulting from the incorrect (1) accounting for and presentation of noncontrolling interests (NCI), (2) recognition of an organizational transaction, and (3) presentation of earnings per share considering the effect of certain features of the Company’s warrants and the impact of correcting the accounting for, and presentation of, NCI .

Based on management’s evaluation of the errors 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 these errors are not material to the Company’s previously reported financial statements included in the 2022 Form 10-K filed on April 17, 2023.

The following tables reflect the impact of the correction of these immaterial errors (in thousands):

Consolidated Balance Sheet as of December 31, 2022

Accrued liabilities

Total current liabilities

Total liabilities

Class A Common Stock Units

Class A Common Stock Amount

Additional paid-in capital

Accumulated deficit

Total stockholders’ equity attributable to Direct Digital Holdings, Inc.

Noncontrolling interest

Total stockholders’ equity

Consolidated Statement of Operations for the Twelve Months Ended December 31, 2022

Net income attributable to non-controlling interests

Net income attributable to Direct Digital Holdings, Inc.

Basic net income per share

Diluted net income per share

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

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

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

Class A Common Stock Units

Class A Common Stock Amount

Additional Paid-in Capital

Accumulated Deficit

Noncontrolling Interest

Total Stockholders’ Equity

Consolidated Statement of Changes in Stockholders' Equity for the Twelve Months Ended December 31, 2022

Distributions to members (Accumulated Deficit)

Distributions to holders of LLC Units (NCI)

Issuance of restricted stock units

Restricted stock forfeitures units

Net loss prior to Organizational Transactions

Net income (Accumulated Deficit)

Net income (NCI)

Note 3 — Long-Term Debt

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2021 Credit Facility (1)

$ 37,362 $ 28,594

Credit Agreement 3,700 3,000

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Total long-term debt 41,212 31,744

deferred financing costs

Total long-term debt, net of deferred financing costs

deferred financing cost (1)

( 4,238 ) ( 1,688 )

debt discount (2)

Total long-term debt, net of deferred financing cost and debt discount 35,303 30,056

current portion ( 3,700 ) ( 1,478 )

Total long-term debt, net of current portion

Total long-term debt, net of current portion, deferred financing cost and debt discount $ 31,603 $ 28,578

(1) As of December 31, 2024, amount includes an exit fee of $ 3.0 million, which is non-interest bearing and due at maturity or prepayment.

(2) As of December 31, 2024, amount includes $ 1.7 million for the interest reserve, pursuant to the LS Amendment, as defined below, net of amounts amortized for interest.

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

Interest expense – 2021 Credit Facility $ 3,617 $ 3,655

Interest expense – Credit Agreement 693 102

Interest expense – other 8 6

Amortization of deferred financing cost and debt discount 1,092 615

Total interest expense and amortization of deferred financing cost and debt discount $ 5,410 $ 4,378

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.

term loan (the “Delayed Draw Loan”).

The loans under the 2021 Credit Facility bear interest at the 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.

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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’ Equity and Stock-Based Compensation in the notes to the consolidated financial statements.

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 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 $ 137,000 from January 1, 2022 through December 31, 2023, and each installment payment thereafter until maturity is $ 275,000 .

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 $ 15,000,000 .

Each quarterly installment payment under the closing date term loan was $ 0.1 million from January 1, 2022 through December 31, 2023, and each quarterly 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 quarterly installment payment thereafter until maturity is 1.25 % of the amount of the Delayed Draw Loan.

The Company did not meet these conditions as of December 31, 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 2021 Credit Facility contains customary affi rmative and negative covenants.

Prior to entering into the Fifth Amendment, the Company was required to maintain varying threshold levels by quarter for net leverage ratio and fixed charge coverage ratio, 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.

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) deferred quarterly installment payments on the Term Loan and the Delayed Draw Loan for the periods from June 30, 2024 through December 31, 2025, (2) required that the Company pay a commitment fee of 50 basis points or an amount of $ 0.1 million to Lafayette Square, (3) allowed proceeds from future equity raises by the Company, if any, to cure potential financial covenant noncompliance, (4) provided for one-month and three-month interest periods, (5) replaced 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) replaced the financial covenants under the 2021 Credit Facility (effective as of June 30, 2024) with varying threshold levels by quarter for minimum trailing twelve months EBITDA, minimum liquidity, maximum consolidated total leverage ratio and minimum fixed charge coverage ratio.

The Fifth Amendment was accounted for as a modification.

In connection with the amendment, fees paid to Lafayette Square totaling $ 0.1 million were capitalized and are being amortized to interest expense using the straight-line method, which approximates the effective interest method, over the life of the debt.

On December 27, 2024, the Company and Lafayette Square entered into the Sixth Amendment and Waiver (the “LS Amendment”) to the 2021 Credit Facility.

Under the terms of the LS Amendment, among other changes, Lafayette Square extended a term loan equal to $ 6.0 million (the “Sixth Amendment Term Loan”).

Lafayette Square and the Company

agreed to use (1) $ 4.0 million out of the Sixth Amendment Term Loan to prepay the revolving credit notes under the Credit Agreement as described below, and (2) $ 2.0 million to fund an interest reserve under the 2021 Credit Facility.

The LS Amendment also (1) implemented a minimum unrestricted cash requirement of $ 750,000 at all times and removed the minimum consolidated EBITDA, (2) requires Lafayette Square’s prior written consent for certain permitted dividends, including dividends to the Company’s shareholders and (3) waived certain existing events of default related to minimum EBITDA covenants.

Additionally, the Company is required to provide to Lafayette Square a weekly cash flow forecast, prepared on a cumulative, weekly roll forward basis through a thirteen (13) week projection period.

Lastly, a $ 3.0 million exit fee, which was earned upon execution of the LS Amendment and is payable directly to Lafayette Square at maturity or prepayment, as defined, was added to the term loan balance.

The Company was in compliance with all the financial covenants under the 2021 Credit Facility, as amended, as of December 31, 2024.

The LS Amendment was accounted for as a modification.

In connection with the amendment, the $ 3.0 million exit fee was capitalized and is being amortized to interest expense using the straight-line method, which approximates the effective interest method, over the life of the debt, and fees paid to third parties totaling $ 0.1 million were expensed as incurred.

At the Company's option, the Company may at any time prepay the outstanding principal balance of the 2021 Credit Facility in whole or in part, without fee, penalty or premium other than the $ 3.0 million exit fee due at maturity or prepayment, as defined under the LS Amendment.

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 December 31, 2024, the Company owed a balance on the 2021 Credit Facility of $ 37.4 million.

Additional deferred financing costs of less than $ 0.1 million and $ 0.5 million were incurred during the year ended December 31, 2023 and 2022, respectively.

Additional deferred financing costs of $ 3.3 million and less than $ 0.1 million were incurred during the year ended December 31, 2024 and 2023, respectively.

Unamortized deferred financing costs as of December 31, 2024 and 2023 were $ 4.2 million and $ 1.7 million, respectively.

Unamortized debt discount related to the interest reserve added under the LS Amendment as of December 31, 2024 and 2023 was $1.7 million and $0, respectively.

Accrued and unpaid interest was $ 0 as of December 31, 2024 and 2023.

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 to 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 December 31, 2023.

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 annual report.

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

Interest expense – Lafayette Square

Amortization of deferred financing costs – Lafayette Square

Total interest expense and amortization of deferred financing costs

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:

Minimum TTM* EBITDA ($ in millions)

Minimum Liquidity ($ in millions)

Maximum Consolidated Total Leverage Ratio

Minimum Fixed Charge Coverage Ratio

June 30, 2024

September 30, 2024

December 31, 2024

March 31, 2025

June 30, 2025

September 30, 2025

December 31, 2025

March 31, 2026

June 30, 2026

September 30, 2026

*TTM = Trailing Twelve Months

2023 Revolving Line of Credit - East West Bank

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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”);

Borrowings under the Credit Agreement bear interest at a rate per annum equal to the one-month Term SOFR rate as determined by EWB on the first day of the applicable interest period, plus 0.10 %, 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.

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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 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 $ 1,000,000 .

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

The Company was in compliance with all the financial covenants under the Credit Agreement as of December 31, 2023.

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 annual 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:

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

September 30, 2024

December 31, 2024

1.0 to 1.0 (2)

March 31, 2025

1.5 to 1.0 (3)

June 30, 2025

2.0 to 1.0 (4)

(1) TTM = Trailing Twelve Months

(2) Beginning November 30, 2024

(3) Beginning January 31, 2025

(4) Beginning April 15, 2025

Prior to entering into the Third Amendment as defined below, the Company was required to maintain compliance at all times with financial covenants with varying threshold levels by quarter for fixed charge coverage ratio, total funded debt-to-EBITDA ratio and a liquidity covenant.

Revolving Credit Availability was 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.

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.

31, 2024 and to use commercially reasonable efforts to cause such registration statement to become effective, (3) required 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) replaced the financial covenants under the Credit Agreement, effective as of June 30, 2024, with varying threshold levels by quarter for minimum trailing twelve months EBITDA, minimum liquid assets, maximum total funded debt to EBITDA leverage ratio, minimum fixed charge coverage ratio and revolving credit availability.

The Third Amendment was accounted for as a modification.

In connection with the amendment, fees paid to third parties totaling less than $ 0.1 million were expensed as incurred.

On December 27, 2024, the Company and EWB entered into the Waiver and Fourth Amendment (the “EWB Amendment”) to Credit Agreement.

Under the terms of the EWB Amendment, among other things, (1) the Company made prepayments on the revolving credit notes under the Credit Agreement equal to $ 5.0 million, consisting of (a) $ 4.0 million from the proceeds of the LS Amendment (as defined above) and (b) $ 1.0 million as the Company's out-of-pocket prepayment, (2) such prepayments were used to permanently reduce the commitment under the Credit Agreement to $ 5.0 million, (3) the financial covenants under the Credit Agreement were amended to implement a minimum unrestricted cash requirement of $ 750,000 at all times and to remove the minimum EBITDA covenant;

and (4) EWB waived certain existing events of default related to the prior minimum EBITDA covenant.

Additionally, the Company is required to provide to EWB a weekly cash flow forecast, prepared on a cumulative, weekly roll forward basis through a thirteen (13) week projection period.

The Company was in compliance with all the financial covenants under the Credit Agreement, as amended, as of December 31, 2024.

The EWB Amendment was accounted for as a modification.

In connection with the amendment, fees paid to third parties totaling less than $ 0.1 million were expensed as incurred.

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

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

The Credit Agreement also includes customary events of default, including, among other things, non-payment defaults, covenant defaults, inaccuracy of representations and warranties, defaults under any of the loan documents, certain cross-defaults to other indebtedness, certain bankruptcy and insolvency events, invalidity of guarantees or grant of security interest, certain ERISA-related transactions and events, certain orders of forfeiture, change of control, certain undischarged

attachments, sequestrations, or similar proceedings, and certain undischarged or non-stayed judgments, in certain cases subject to certain thresholds and grace periods.

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

During the year ended December 31, 2023, the Company incurred $ 0.3 million of deferred financing costs associated with the Credit Agreement.

During the year ended December 31, 2024, the Company incurred less than $ 0.1 million of deferred financing costs associated with the Credit Agreement.

As of December 31, 2024, there was $ 3.7 million outstanding under the Credit Agreement.

As of the date of this report, 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.

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 $ 4.5 million with an initial availability of $ 1.0 million (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 $ 5.0 million with an initial availability of $ 2.5 million, and in connection with the amendment, the Company incurred additional deferred financing fees of less than $ 0.1 million 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 December 31, 2023 and 2022, the Company did not have any outstanding borrowings under the 2020 Revolving Credit Facility.

The components of interest expense and related fees for the Credit Agreement and 2020 Revolving Credit Facility is as follows (in thousands):

Interest Expense:

Credit Agreement

2020 Revolving Credit Facility

Amortization of deferred financing costs:

Credit Agreement

2020 Revolving Credit Facility

Total interest expense and amortization of deferred financing costs

Silicon Valley Bank (“SVB”) Financing

On January 9, 2023, the Company entered into the SVB Loan Agreement, by and among SVB, as lender, and DDH LLC, the Company, Huddled Masses, Colossus Media and Orange 142, as borrowers.

On January 9, 2023, the Company entered into a Loan and Security Agreement (the "SVB Loan Agreement"), by and among SVB, as lender, and DDH LLC, the Company, Huddled Masses, Colossus Media and Orange 142, as borrowers.

The SVB Loan Agreement provided for a revolving credit facility (the “SVB Revolving Credit Facility”) in the original principal amount of $ 5 million, subject to a borrowing base determined based on eligible accounts, and up to an additional $ 2.5 million incremental revolving facility subject to the lender’s consent, which would increase the aggregate principal amount of the Credit Facility to $ 7.5 million.

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The termination of the SVB Revolving Credit Facility became effective April 20, 2023.

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

The Company did not hold material cash deposits or securities at Silicon Valley Bank and did not experience any adverse impact to its liquidity or to its current and projected

business operations, financial condition or results of operations as a result of the SVB closure.

with Lafayette Square.

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 business operations, financial condition or results of operations as a result of the SVB closure.

During the year ended December 31, 2023, the Company incurred $ 0.3 million of deferred financing costs.

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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 less than $ 1,000 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 December 31, 2023 and 2022 was less than $ 0.1 million, 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”).

In February 2021, the $ 10,000 of the PPP-1 loan was forgiven.

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 $ 0.3 million and there were no collateral or guarantee requirements.

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

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

As of December 31, 2024, future minimum payments related to long-term debt are as follows (in thousands):

Thereafter 136

Less current portion ( 3,700 )

Less deferred financing costs

Long-term debt, net

Note 4 — Stockholders’ (Deficit) Equity and Stock-Based Compensation

Less deferred financing cost ( 4,238 )

Less debt discount ( 1,671 )

Long-term debt, net of current portion, deferred financing cost and debt discount $ 31,603

Note 4 — Stockholders’ Deficit and Stock-Based Compensation

Stockholders’ Equity – Initial Public Offering

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.

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 December 2023, DDM tendered 410,000 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 these exchanges, an equivalent number of the holder’s shares of Class B Common Stock were cancelled.

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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.

Common Stock at an exercise price of $ 5.50 per share.

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

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At December 31, 2024, 70,000 Units and 10,500 warrants were outstanding.

The Units were sold at a price of $ 5.50 per Unit, and the net proceeds from the offering were $ 10.2 million after deducting underwriting discounts and commissions and offering expenses payable by the Company.

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 by USDM Holdings, Inc., a former co-owner of DDH LLC, for an aggregate purchase price of approximately $ 14.2 million of which $ 10.3 million 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 $ 4.0 million which was paid in full on July 28, 2022.

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

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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.

The following table summarizes the public warrant activity during the years ended December 31, 2023 and 2022:

Weighted Average

Contractual Life

Intrinsic Value

Exercise Price

(in thousands)

Outstanding at January 1, 2022

Outstanding at December 31, 2022

( 3,217,800 )

Outstanding at December 31, 2023

Exercisable at December 31, 2023

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 was not permitted to 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 obtained 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 elected to sell to New Circle under the Purchase Agreement equaled or exceeded 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 is based on an agreed upon fixed discount to the market price of our Class A Common Stock as computed under the Purchase Agreement.

On December 27, 2024, the Company’s stockholders approved the issuance and sale of up to 8.5 million shares above the Exchange Cap to New Circle 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 issued 62,762 shares of the Company’s Class A Common Stock to New Circle.

The Company sold 1,580,000 shares of the Company's Class A Common Stock for $ 3.0 million during the year ended December 31, 2024.

In 2025, through the date of this report, the Company sold an additional 1,389,351 shares of the Company's Class A Common Stock for $ 1.9 million.

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

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Therefore, Direct Digital Holdings, Inc.

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

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

While Direct Digital Holdings, Inc.

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As of December 31, 2024, there were 2,452,030 shares available for grant under the 2022 Omnibus Plan.

During the years ended December 31, 2023 and 2022, the Company recognized $ 2.2 million and $ 0.1 million, respectively, of total stock-based compensation expense in the consolidated statements of operations in compensation, tax and benefits.

During the years ended December 31, 2024 and 2023, the Company recognized $ 1.6 million and $ 2.1 million, respectively, of total stock-based compensation expense in the consolidated statement of operations in compensation, tax and benefits.

The 2023 stock-based compensation expense includes $ 1.4 million of bonus accrued for 2023 performance by certain Company executives which was paid out via a grant of Company stock in March 2024.

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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 during the years ended December 31, 2023 and 2022:

The following table summarizes the stock option activity under the 2022 Omnibus Plan during the year ended December 31, 2024:

Stock Options

Weighted Average

Shares Weighted Average

Exercise Price Weighted Average

Contractual Life

(in years) Aggregate

Intrinsic Value

Exercise Price

(in thousands)

Outstanding at January 1, 2022

Outstanding at December 31, 2023 371,116 $ 2.51 8.77 $ 4,591

Granted — $ — — $ —

Exercised ( 12,557 ) $ 2.39 — $ 179

Forfeited and expired ( 22,676 ) $ 2.85 — $ 41

Outstanding at December 31, 2024 335,883 $ 2.49 7.78 $ —

Vested and exercisable at December 31, 2024 173,784 $ 2.18 7.65 $ —

The weighted average fair value of options granted during the years ended December 31, 2023 and 2022 was $ 2.44 and $ 1.01 , respectively.

As of December 31, 2023, there was unrecognized stock-based compensation of $ 0.4 million related to 300,969 of unvested stock options which will be recognized on a straight-line basis over a weighted-average vesting period of 1.86 years.

As of December 31, 2024, unrecognized stock-based compensation of $ 0.2 million was related to 162,099 of unvested stock options which will be recognized on a straight-line basis over a weighted-average vesting period of 0.64 years.

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 years ended December 31, 2023 and 2022 and related information is as follows:

A summary of RSU activity during the year ended December 31, 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, 2022

Unvested - December 31, 2023 542,396 $ 2.87

Granted 173,319 $ 10.07

Vested ( 442,860 ) $ 5.72

Forfeited ( 14,111 ) $ 3.01

Unvested - December 31, 2024 258,744 $ 2.80

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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, and as a result, recorded $ 0.8 million during 2022 as additional paid-in capital in connection with the Organizational Transactions.

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.

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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 of the Code for each taxable year in which a redemption or exchange of LLC interest occurs.

During the years ended December 31, 2023 and 2022, members of DDM exchanged 410,000 and 100,000 Class B shares into Class A shares, respectively.

The Company has recorded a liability related to the tax receivable agreement of $ 5.2 million and $ 4.3 million as of December 31, 2023 and 2022, respectively.

The Company has recorded a deferred tax asset primarily from the outside basis difference in the partnership interest of $ 6.2 million and $ 5.2 million as of December 31, 2023 and 2022, respectively.

Payments of less than $ 0.1 million were made during the years ended December 31, 2023 and 2022.

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 December 31, 2023, members of DDM exchanged 410,000 Class B shares into Class A shares.

The Company has recorded a liability related to the tax receivable agreement of $ 0 and $ 5.2 million as of December 31, 2024 and 2023, respectively.

The Company has recorded a deferred tax asset of $ 0 and $ 6.2 million as of December 31, 2024 and 2023, respectively.

The deferred tax asset is net of a valuation allowance of $ 7.7 million and $ 0.5 million as of December 31, 2024 and 2023, respectively.

Payments of $ 0 and less than $ 0.1 million were made during the years ended December 31, 2024 and 2023.

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

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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 year ended December 31, 2023, $ 0.3 million was recorded as income in other expense, net for such change.

For the year ended December 31, 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.

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.

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.

federal income tax purposes.

Under the Up-C structure, the Company is subject to corporation income tax on the variable ownership changes that occurred in the first and third quarters of 2022, and in the fourth quarter of 2023.

As a result, the Company recorded a provision for federal and state deferred income tax of $ 0.6 million primarily attributed to valuation allowances of $ 0.5 million recorded against deferred taxes associated with loss carryforwards and interest expense for which the realization of such deferred taxes is uncertain.

Prior to 2022, the Company was treated as a partnership, and therefore no income tax expense was recognized.

For the year ended December 31, 2022, income taxes

on the financial statements include income taxes of $ 0.2 million as shown in the following table as well as $ 0.1 million of non-income related franchise taxes.

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

There was no exchange of shares of Class B Common Stock for shares of Class A Common Stock in the year ended December 31, 2024.

The components of income tax expense are as follows (in thousands):

Year Ended December 31,

Federal $ — $ —

Total current — —

Federal $ 5,192 $ 205

State 940 363

Total deferred 6,132 568

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Deferred tax remeasurement — % ( 6.5 ) %

Derecognition of tax receivable agreement liability 7.9 % — %

Other 0.5 % 0.1 %

Effective income tax rate ( 44.5 ) % ( 9.1 ) %

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Deferred tax assets related to:

Partnership basis difference, net of valuation allowance

Net operating loss carryforwards $ 1,454 $ 280

Deferred tax assets, net

As of December 31, 2023, the Company had federal net operating loss carryforwards of $ 1.1 million that can be carried forward indefinitely.

Partnership basis difference and other 6,255 6,312

Total deferred tax assets $ 7,709 $ 6,592

Valuation allowance ( 7,709 ) ( 460 )

Total deferred tax assets, net $ — $ 6,132

As of December 31, 2024, the Company had federal and state net operating loss carryforwards of $ 5.8 million and $ 3.7 million, respectively.

Federal net operating loss carryforwards can be carried forward indefinitely and state net operating loss carryforwards are carried forward to each jurisdiction based on the varying state statutes.

The Company recorded a valuation allowance of $ 7.7 million against its deferred tax assets at December 31, 2024.

The valuation allowance increased by $ 7.2 million when compared to the valuation allowance $ 0.5 million recorded as of December 31, 2023.

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

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

Accordingly, the Company has no t recognized any penalty, interest or tax impact related to 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 December 31, 2023 and 2022, the Company’s balances with members related to the timing of distributions to holders of LLC Units were a receivable of $ 1.7 million and payable of $ 1.4 million, respectively, which are included as a related party receivable and payable, respectively, on the consolidated balance sheets.

Up-C Structure

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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’ Equity 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.

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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).

As described in Note 5 — Tax Receivable Agreement and Income Taxes, for the year ended December 31, 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 December 31, 2024 and 2023, is as follows (in thousands):

Liability related to tax receivable agreement:

Short term $ 41 $ 41

Long term — 5,201

Total liability related to tax receivable agreement $ 41 $ 5,242

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.

Walker now serves as Chairman of the Board of Directors and Chief Executive Officer of the Company.

Smith 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 connection with the Organizational Transactions, the consulting agreements were canceled, and, for the year end December 31, 2023 , no fees were paid to Walker, Smith and Woolford.

For the year end December 31, 2022 , total fees paid to Walker, Smith and Woolford were $ 0.1 million, $ 0.1 million, and less than $ 0.1 million, respectively.

Note 7 — Segment Information

4 unchanged sentences

Total revenues $ 62,288 $ 157,110

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

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

Year Ended December 31,

2 unchanged sentences

Corporate office expenses ( 16,655 ) ( 14,851 )

(Loss) income from operations

Total operating loss ( 13,233 ) ( 2,185 )

Corporate other expense ( 542 ) ( 4,091 )

(Loss) income before income taxes

Loss before income taxes $ ( 13,775 ) $ ( 6,276 )

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

2 unchanged sentences

Corporate office 3,587 12,042

Note 8 — Net (Loss) Income Per Share

Total assets $ 26,006 $ 68,935

Note 8 — Net Loss 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

outstanding participating securities in the form of warrants.

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

Net (loss) income

net loss prior to Organizational Transactions

Net (loss) income attributable to Class A shareholders and participating securities

net income allocated to participating securities

Net (loss) income allocated to Class A shareholders

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.

The holders of warrants do not have a contractual obligation to share in the Company’s losses.

As such, losses are attributed entirely to common stockholders and for periods in which the Company has reported a net loss, diluted loss per common share is the same as basic loss per common share.

The following

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

Year Ended December 31,

Net loss attributable to Class A shareholders and participating securities ( 6,236 ) ( 2,194 )

net loss allocated to participating securities — —

Net loss allocated to Class A shareholders $ ( 6,236 ) $ ( 2,194 )

Weighted average common shares outstanding - basic 3,758 2,988

Class B Common Stock — —

Options to purchase common stock — —

1 unchanged sentence

Weighted average common shares outstanding - diluted 3,758 2,988

Net (loss) income per share, basic

Net (loss) income per share, diluted

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):

Net loss per common share, basic $ ( 1.66 ) $ ( 0.73 )

Net loss per common share, diluted $ ( 1.66 ) $ ( 0.73 )

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):

Year Ended December 31,

Class B Common Stock 10,868 11,249

Restricted stock units

Options to purchase common stock 352 511

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

Restricted stock units 364 347

Total excludable from net loss per share attributable to common stockholders - diluted 11,584 12,107

Note 9 — Commitments and Contingencies

2 unchanged sentences

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.

2 unchanged sentences

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.

In May 2024, the Company, as plaintiff, filed a lawsuit against the author of the defamato ry article.

On March 5, 2025, the United States District Court for the District of Maryland denied the defendant’s motion to dismiss in its entirety, and the Company will continue to vigorously pursue its claims and rights.

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

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.

Other Expense (within Operating Expenses)

18 unchanged sentences

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

Thereafter 29

Total undiscounted lease payments 1,159

4 unchanged sentences

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

Useful Life (Years)

Useful Life (Years) December 31,

Furniture and fixtures 5 $ 138 $ 128

5 unchanged sentences

Total property, equipment and software, net $ 341 $ 599

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

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

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

Year Ended December 31,

Cost of revenues $ 167 $ 218

1 unchanged sentence

Total depreciation and amortization $ 275 $ 253

Note 11 — Intangible Assets

In September 2020, the Company acquired Orange 142 for a purchase price of $ 26.2 million which was allocated to the fair value of the net tangible assets acquired, including goodwill and intangible assets.

The purchase consideration exceeded the fair value of the net tangible 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 years ended December 30, 2023 and 2022, amortization expense was $ 2.0 million and $ 2.0 million, respectively.

Note 11 — Intangible Assets, net

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 years ended December 31, 2024 and 2023, amortization expense of $ 2.0 million and $ 2.0 million, respectively, was recognized.

As of December 31, 2024 and 2023, intangible assets net of accumulated amortization was $ 9.7 million and $ 11.7 million, respectively.

As of December 31, 2023 and 2022, intangible assets consisted of the following (in thousands):

As of December 31, 2024 and 2023, intangible assets and the related accumulated amortization, weighted-average remaining life and future amortization expense are as follows (in thousands):

December 31, 2024

Weighted-Average

Remaining Life (Years)

Remaining Life (Years) Original

Amount Accumulated

Amortization Net

Customer Lists 5.8 $ 13,028 $ ( 5,537 ) $ 7,491

4 unchanged sentences

Weighted-Average

Remaining Life (Years)

Remaining Life (Years) Original

Amount Accumulated

Amortization Net

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

2 unchanged sentences

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

As of December 31, 2023, future amortization of intangible assets is as follows (in thousands):

December 31, 2024

Thereafter 1,239

Total future amortization expense $ 9,730

Note 12 — Mandatorily Redeemable Preferred Units

In connection with the Orange 142 acquisition, DDH LLC issued 7,076 non-voting Class B Preferred Units at a purchase price of $ 7.1 million, and a fair value of $ 6.5 million.

Class B Preferred Units were mandatorily redeemable for $ 7.1 million 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 $ 0.6 million 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 less than $ 0.1 million for the year ended December 31, 2022.

Note 13 — Restatement (Unaudited)

During the preparation of the consolidated financial statements as of and for the year ended December 31, 2023, the Company identified prior period accounting errors in the Company’s previously reported unaudited interim consolidated financial statements beginning March 31, 2022 resulting from the incorrect (1) accounting for, and presentation of, NCI, (2) recognition of an organizational transaction in connection with the Company’s initial public offering, (3) presentation of earnings per share considering the effect of certain features of the Company’s warrants and the impact of correcting the accounting for, and presentation of, NCI, and (4) timing of the recording of the 2023 redemption of warrants.

The Company’s management and the audit committee of the Company’s Board of Directors determined that these errors in the unaudited interim consolidated financial statements for the quarterly periods ended March 31, 2023, June 30, 2023 and September 30, 2023 required a restatement of these prior period financial statements.

In addition, certain prior year amounts have been revised in the consolidated statement of cash flows.

These are shown in the following statements of cash flows as “Immaterial Revisions.”

The following tables present the restated quarterly unaudited interim financial statements as of March 31, 2023, June 30, 2023 and September 30, 2023, for the three-month period ended March 31, 2023, the three- and six-month periods ended June 30, 2023 and the three- and nine-month periods ended September 30, 2023.

March 31, 2023

As Previously

(in thousands, except per share and share amounts)

CURRENT ASSETS

Cash and cash equivalents

Accounts receivable, net

Prepaid expenses and other current assets

Total current assets

Property, equipment, and software, net

Intangible assets, net

Deferred tax asset, net

Operating lease right-of-use assets

Other long-term assets

LIABILITIES AND STOCKHOLDERS’ EQUITY

CURRENT LIABILITIES:

Accounts payable

Accrued liabilities

Current portion of liability related to tax receivable agreement

Current maturities of long-term debt

Deferred revenues

Operating lease liabilities, current portion

Income taxes payable

Related party payables

Total current liabilities

Long-term debt, net of current portion and deferred financing cost

Economic Injury Disaster Loan

Liability related to tax receivable agreement, net of current portion

Operating lease liabilities, net of current portion

Total liabilities

COMMITMENTS AND CONTINGENCIES

STOCKHOLDERS’ EQUITY

Class A Common Stock, $ 0.001 par value per share, 160,000,000 shares authorized, 2,902,200 shares issued and outstanding as of March 31, 2023

Class B Common Stock, $ 0.001 par value per share, 20,000,000 shares authorized, 11,278,000 shares issued and outstanding as of March 31, 2023

Additional paid-in capital

Accumulated deficit

Noncontrolling interest

Total stockholders’ equity

Total liabilities and stockholders’ equity

June 30, 2023

As Previously

(in thousands, except per share and share amounts)

CURRENT ASSETS

Cash and cash equivalents

Accounts receivable, net

Prepaid expenses and other current assets

Total current assets

Property, equipment, and software, net

Intangible assets, net

Deferred tax asset, net

Operating lease right-of-use assets

Other long-term assets

LIABILITIES AND STOCKHOLDERS’ EQUITY

CURRENT LIABILITIES

Accounts payable

Accrued liabilities

Liability related to tax receivable agreement, current portion

Current maturities of long-term debt

Deferred revenues

Operating lease liabilities, current portion

Income taxes payable

Related party payables

Total current liabilities

Long-term debt, net of current portion and deferred financing cost

Economic Injury Disaster Loan

Liability related to tax receivable agreement, net of current portion

Operating lease liabilities, net of current portion

Total liabilities

COMMITMENTS AND CONTINGENCIES

STOCKHOLDERS’ EQUITY

Class A Common Stock, $ 0.001 par value per share, 160,000,000 shares authorized, 2,988,916 shares issued and outstanding as of June 30, 2023

Class B Common Stock, $ 0.001 par value per share, 20,000,000 shares authorized, 11,278,000 shares issued and outstanding as of June 30, 2023

Additional paid-in capital

Accumulated deficit

Noncontrolling interest

Total stockholders’ equity

Total liabilities and stockholders’ equity

September 30, 2023

As Previously

(in thousands, except per share and share amounts)

CURRENT ASSETS

Cash and cash equivalents

Accounts receivable, net

Prepaid expenses and other current assets

Total current assets

Property, equipment, and software, net

Intangible assets, net

Deferred tax asset, net

Operating lease right-of-use assets

Other long-term assets

LIABILITIES AND STOCKHOLDERS’ EQUITY

CURRENT LIABILITIES

Accounts payable

Accrued liabilities

Liability related to tax receivable agreement, current portion

Current maturities of long-term debt

Deferred revenues

Operating lease liabilities, current portion

Income taxes payable

Warrant liability

Related party payables

Total current liabilities

Long-term debt, net of current portion and deferred financing cost

Economic Injury Disaster Loan

Liability related to tax receivable agreement, net of current portion

Operating lease liabilities, net of current portion

Total liabilities

COMMITMENTS AND CONTINGENCIES

STOCKHOLDERS’ EQUITY

Class A Common Stock, $ 0.001 par value per share, 160,000,000 shares authorized, 2,991,792 shares issued and outstanding as of September 30, 2023

Class B Common Stock, $ 0.001 par value per share, 20,000,000 shares authorized, 11,278,000 shares issued and outstanding as of September 30, 2023

Additional paid-in capital

Retained earnings

Noncontrolling interest

Total stockholders’ equity

Total liabilities and stockholders’ equity

For the Three Months Ended

As Previously

(in thousands, except per share data)

Buy-side advertising

Sell-side advertising

Total revenues

Cost of revenues

Buy-side advertising

Sell-side advertising

Total cost of revenues

Operating expenses

Compensation, taxes and benefits

General and administrative

Total operating expenses

Loss from operations

Other income (expense)

Loss on redemption of non-participating preferred units

Loss on early termination of line of credit

Interest expense

Total other expense, net

Loss before taxes

Income tax (benefit)

Net loss attributable to noncontrolling interest

Net loss attributable to Direct Digital Holdings, Inc.

Net loss per common share:

Weighted-average number of shares of common stock outstanding:

For the Three Months Ended

As Previously

(in thousands, except per share data)

Buy-side advertising

Sell-side advertising

Total revenues

Cost of revenues

Buy-side advertising

Sell-side advertising

Total cost of revenues

Operating expenses

Compensation, taxes and benefits

General and administrative

Total operating expenses

Income from operations

Other income (expense)

Loss on redemption of non-participating preferred units

Loss on early termination of line of credit

Interest expense

Total other expense, net

Income before taxes

Income tax expense

Net income attributable to noncontrolling interest

Net income attributable to Direct Digital Holdings, Inc.

Net income per common share:

Weighted-average number of shares of common stock outstanding:

For the Three Months Ended

September 30,

As Previously

(in thousands, except per share data)

Buy-side advertising

Sell-side advertising

Total revenues

Cost of revenues

Buy-side advertising

Sell-side advertising

Total cost of revenues

Operating expenses

Compensation, taxes and benefits

General and administrative

Total operating expenses

Income from operations

Other income (expense)

Loss on redemption of non-participating preferred units

Loss on early termination of line of credit

Interest expense

Total other expense, net

Income before income taxes

Income tax expense

Net income attributable to noncontrolling interest

Net income attributable to Direct Digital Holdings, Inc.

Net income per share:

Weighted-average number of shares of common stock outstanding:

For the Six Months Ended

As Previously

(in thousands, except per share data)

Buy-side advertising

Sell-side advertising

Total revenues

Cost of revenues

Buy-side advertising

Sell-side advertising

Total cost of revenues

Operating expenses

Compensation, taxes and benefits

General and administrative

Total operating expenses

Income from operations

Other income (expense)

Loss on redemption of non-participating preferred units

Loss on early termination of line of credit

Interest expense

Total other expense, net

Loss before taxes

Income tax expense

Net loss attributable to noncontrolling interest

Net loss attributable to Direct Digital Holdings, Inc.

Net loss per common share:

Weighted-average number of shares of common stock outstanding:

For the Nine Months Ended

September 30,

As Previously

(in thousands, except per share data)

Buy-side advertising

Sell-side advertising

Total revenues

Cost of revenues

Buy-side advertising

Sell-side advertising

Total cost of revenues

Operating expenses

Compensation, taxes and benefits

General and administrative

Total operating expenses

Income from operations

Other income (expense)

Loss on early termination of line of credit

Loss on redemption of non-participating preferred units

Interest expense

Total other expense, net

Income before income taxes

Income tax expense

Net income attributable to noncontrolling interest

Net income attributable to Direct Digital Holdings, Inc.

Net income per share:

Weighted-average number of shares of common stock outstanding:

(in thousands, except per share data)

Noncontrolling

Stockholders’

As Previously Reported

Balance, December 31, 2022

Stock-based compensation

Issuance of restricted stock

Restricted stock forfeitures

Warrants exercised

Balance, March 31, 2023

Balance, December 31, 2022

Issuance of restricted stock

Restricted stock forfeitures

Total Adjustments

Balance, December 31, 2022

Stock-based compensation

Warrants exercised

Balance, March 31, 2023 - As Restated

(in thousands, except per share data)

Noncontrolling

Stockholders’

As Previously Reported

Balance, March 31, 2023

Stock-based compensation

Issuance of restricted stock net of shares withheld for vested awards

Restricted stock forfeitures

Distributions to members

Balance, June 30, 2023

Balance, March 31, 2023

Issuance of restricted stock net of shares withheld for vested awards

Restricted stock forfeitures

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

Distributions to members

Total Adjustments

Balance, March 31, 2023

Stock-based compensation

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

Distributions to holders of LLC Units

Balance, June 30, 2023 - As Restated

(in thousands, except per share data)

Noncontrolling

Stockholders’

As Previously Reported

Balance, June 30, 2023

Stock-based compensation

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

Stock options exercised

Distributions to members

Balance, September 30, 2023

Balance, June 30, 2023

Acquisition and redemption of warrants including expenses

Distributions to members

Total Adjustments

Balance, June 30, 2023

Stock-based compensation

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

Acquisition and redemption of warrants including expenses

Stock options exercised

Distributions to holders of LLC Units

Balance, September 30, 2023 - As Restated

(in thousands, except per share data)

Noncontrolling

Stockholders’

As Previously Reported

Balance, December 31, 2022

Stock-based compensation

Issuance of restricted stock net of shares withheld for vested awards

Restricted stock forfeitures

Warrants exercised

Distributions to members

Balance, June 30, 2023

Balance, December 31, 2022

Issuance of restricted stock net of shares withheld for vested awards

Restricted stock forfeitures

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

Distributions to members

Total Adjustments

Balance, December 31, 2022

Stock-based compensation

Warrants exercised

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

Distributions to holders of LLC Units

Balance, June 30, 2023 - As Restated

(in thousands, except per share data)

Noncontrolling

Stockholders’

As Previously Reported

Balance, December 31, 2022

Stock-based compensation

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

Warrants exercised

Stock options exercised

Distributions to members

Balance, September 30, 2023

Balance, December 31, 2022

Acquisition and redemption of warrants including expenses

Distributions to members

Total Adjustments

Balance, December 31, 2022

Stock-based compensation

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

Acquisition and redemption of warrants including expenses

Warrant redemption

Stock options exercised

Distributions to holders of LLC Units

Balance, September 30, 2023 As Restated

(in thousands)

For the Three Months Ended March 31, 2023

As Previously

Cash Flows Provided By Operating Activities:

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

Amortization of deferred financing costs

Amortization of intangible assets

Reduction in carrying amount of right-of-use assets

Depreciation and amortization of property, equipment and software

Stock-based compensation

Deferred income taxes

Payment on tax receivable agreement

Loss on early termination of line of credit

Changes in operating assets and liabilities:

Accounts receivable

Prepaid expenses and other assets

Accounts payable

Accrued liabilities and TRA payable

Income taxes payable

Deferred revenues

Operating lease liability

Net cash provided by operating activities

Cash Flows Used In Investing Activities:

Cash paid for capitalized software and property and equipment

Net cash used in investing activities

Cash Flows Used In Financing Activities:

Payments on term loan

Payments of litigation settlement

Payment of deferred financing costs

Proceeds from warrants exercised

Net cash used in financing activities

Net increase in cash and cash equivalents

Cash and cash equivalents, beginning of the period

Cash and cash equivalents, end of the period

Supplemental Disclosure of Cash Flow Information:

Cash paid for interest

(in thousands)

For the Six Months Ended June 30, 2023

As Previously

Cash Flows Provided By Operating Activities:

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

Amortization of deferred financing costs

Amortization of intangible assets

Reduction in carrying amount of right-of-use assets

Depreciation and amortization of property, equipment and software

Stock-based compensation

Deferred income taxes

Payment on tax receivable agreement

Loss on early termination of line of credit

Bad debt expense

Changes in operating assets and liabilities:

Accounts receivable

Prepaid expenses and other assets

Accounts payable

Accrued liabilities and TRA payable

Income taxes payable

Deferred revenues

Operating lease liability

Related party payable

Net cash provided by operating activities

Cash Flows Used In Investing Activities:

Cash paid for capitalized software and property and equipment

Net cash used in investing activities

Cash Flows Used In Financing Activities:

Payments on term loan

Payments of litigation settlement

Payment of deferred financing costs

Proceeds from warrants exercised

Distributions to holders of LLC Units

Net cash used in financing activities

Net increase in cash and cash equivalents

Cash and cash equivalents, beginning of the period

Cash and cash equivalents, end of the period

Supplemental Disclosure of Cash Flow Information:

Cash paid for taxes

Cash paid for interest

(in thousands)

For the Nine Months Ended September 30, 2023

As Previously

Cash Flows Provided By Operating Activities:

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

Amortization of deferred financing costs

Amortization of intangible assets

Reduction in carrying amount of right-of-use assets

Depreciation and amortization of property, equipment and software

Stock-based compensation

Deferred income taxes

Payment on tax receivable agreement

Loss on early termination of line of credit

Bad debt expense

Changes in operating assets and liabilities:

Accounts receivable

Prepaid expenses and other assets

Accounts payable

Accrued liabilities and TRA payable

Income taxes payable

Deferred revenues

Operating lease liability

Net cash provided by operating activities

Cash Flows Used In Investing Activities:

Cash paid for capitalized software and property and equipment

Net cash used in investing activities

Cash Flows Used In Financing Activities:

Payments on term loan

Payments of litigation settlement

Payment of deferred financing costs

Proceeds from warrants exercised

Distributions to members

Net cash used in financing activities

Net increase in cash and cash equivalents

Cash and cash equivalents, beginning of the period

Cash and cash equivalents, end of the period

Supplemental Disclosure of Cash Flow Information:

Cash paid for taxes

Cash paid for interest

Non-cash Financing Activities:

Accrual of warrant redemption liability

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

Changes in and Disagreement with Accountants on Accounting and Financial Disclosure

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

What changed 10-K

Item 7A. Quantitative and Qualitative Disclosures About Market Risk