What changed in this filing

/stocks — the workspaceLOADING

Item 1. Financial Statements

2025-05-07 compared with 2024-11-13 · 244 added, 337 removed, 482 unchanged (55% of the section changed)

4 unchanged sentences

(in thousands, except share and par value amounts)

September 30, 2024 December 31, 2023

March 31, 2025 December 31, 2024

CURRENT ASSETS

Cash and cash equivalents $ 1,789 $ 1,445

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

Accounts receivable, net of provision for credit losses of $ 978

Prepaid expenses and other current assets 701 2,117

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Intangible assets, net 9,242 9,730

Deferred tax asset, net — 6,132

Operating lease right-of-use assets 838 832

Related party receivable 1,737 1,737

Other long-term assets 48 48

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Total current liabilities 13,478 13,350

Long-term debt, net of current portion 150 28,578

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

Long-term debt, net of current portion, deferred financing cost and debt discount 32,878 31,603

Operating lease liabilities, net of current portion 776 783

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Class A Common Stock, $ 0.001 par value per share, 160,000,000 shares authorized, 7,093,480 and 5,450,554 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

Class B Common Stock, $ 0.001 par value per share, 20,000,000 shares authorized, 10,798,000 and 10,868,000 shares issued and outstanding, respectively

Additional paid-in capital 3,776 3,769

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Three Months Ended

September 30, Nine Months Ended

September 30,

2024 2023 2024 2023

Sell-side advertising $ 2,028 $ 16,500

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Total operating expenses 6,317 7,805

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

Loss from operations ( 3,924 ) ( 2,807 )

Other income (expense)

Other income 28 85

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

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

Expenses for Equity Reserve Facility ( 198 ) —

Interest expense ( 1,846 ) ( 1,297 )

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

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

Income tax expense 6,606 166 6,132 166

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

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

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

Total other expense, net ( 2,016 ) ( 1,212 )

Loss before income taxes ( 5,940 ) ( 4,019 )

Income tax benefit — ( 200 )

Net loss ( 5,940 ) ( 3,819 )

Net loss attributable to noncontrolling interest ( 3,585 ) ( 3,044 )

Net loss attributable to Direct Digital Holdings, Inc.

$ ( 2,355 ) $ ( 775 )

Net (loss) income per common share:

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

Basic $ ( 0.35 ) $ ( 0.22 )

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(in thousands except share data)

Nine Months Ended September 30, 2024

Three Months Ended March 31, 2025

Common Stock APIC Accumulated

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Issuance related to vesting of restricted stock units, net of tax withholdings 33,575 — — — — — — —

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 — — — 912 — — 912

Net loss — — — — — ( 4,055 ) ( 9,283 ) ( 13,338 )

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

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

Three Months Ended September 30, 2024

Common Stock APIC Accumulated

Deficit Noncontrolling Interest Stockholders’

Class A Class B

Units Amount Units Amount

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

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

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

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

Issuance pursuant to the Equity Reserve Facility 1,539,351 1 — — 2,038 — — 2,039

Conversion of Class B to Class A Common Stock 70,000 — ( 70,000 ) — ( 95 ) — 95 —

Net loss — — — — — ( 2,355 ) ( 3,585 ) ( 5,940 )

Noncontrolling interest rebalancing — — — — ( 2,252 ) — 2,252 —

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

Nine Months Ended September 30, 2023

Balance, March 31, 2025 7,093,480 $ 7 10,798,000 $ 11 $ 3,776 $ ( 11,129 ) $ ( 15,980 ) $ ( 23,315 )

Three Months Ended March 31, 2024

Common Stock APIC Accumulated

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

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

Stock options exercised 8,338 — — — 79 — — 79

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

Net income — — — — — 549 2,663 3,212

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

Three Months Ended September 30, 2023

Common Stock APIC Accumulated

Deficit Noncontrolling Interest Stockholders’

Class A Class B

Units Amount Units Amount

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

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

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

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

Stock options exercised 133 — — — — — — —

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

Net income — — — — — 571 2,780 3,351

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

Issuance of stock in lieu of cash bonus, net of tax withholdings 69,677 — — — 913 — — 913

Net loss — — — — — ( 775 ) ( 3,044 ) ( 3,819 )

Noncontrolling interest rebalancing — — — — ( 1,336 ) — 1,336 —

Balance, March 31, 2024 3,684,278 $ 4 10,868,000 $ 11 $ 3,441 $ ( 3,313 ) $ ( 7,670 ) $ ( 7,527 )

See accompanying notes to the unaudited condensed consolidated financial statements.

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(in thousands)

Nine Months Ended September 30,

Cash Flows (Used In) Provided By Operating Activities:

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

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

Amortization of deferred financing costs 558 435

Three Months Ended March 31,

Cash Flows Used In Operating Activities:

Net loss $ ( 5,940 ) $ ( 3,819 )

Adjustments to reconcile net loss to net cash used in operating activities:

Amortization of deferred financing cost and debt discount 1,818 186

Amortization of intangible assets 488 488

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Stock-based compensation 316 504

Deferred income tax expense 6,132 82

Loss on early termination of line of credit — 300

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

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

Deferred income taxes — ( 200 )

Expenses for Equity Reserve Facility 198 —

Provision for credit losses/bad debt expense — ( 11 )

Changes in operating assets and liabilities:

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Operating lease liability ( 44 ) ( 20 )

Net cash (used in) provided by operating activities ( 7,095 ) 4,481

Net cash used in operating activities ( 2,708 ) ( 5,704 )

Cash Flows Used In Investing Activities:

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Net cash used in investing activities ( 15 ) —

Cash Flows Provided by (Used In) Financing Activities:

Cash Flows Provided by Financing Activities:

Payments on term loan — ( 372 )

Proceeds from lines of credit 6,700 —

Payments on shares withheld for taxes ( 551 ) —

Payment of deferred financing costs — ( 442 )

Proceeds from line of credit — 4,000

Payment of expenses for Equity Reserve Facility ( 198 ) —

Proceeds from issuance of Class A Common Stock 3,311 —

Payment of deferred financing cost ( 46 ) —

Proceeds from options exercised — 79

Proceeds from warrants exercised — 215

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

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

Net (decrease) increase in cash and cash equivalents ( 1,029 ) 1,435

Net cash provided by financing activities 3,067 3,922

Net increase (decrease) in cash and cash equivalents 344 ( 1,782 )

Cash and cash equivalents, beginning of the period 1,445 5,116

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Non-cash Financing Activities:

Accrual of warrant redemption liability $ — $ 3,540

Common stock issued for subscription receivable $ 90 $ —

See accompanying notes to the unaudited condensed consolidated financial statements.

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

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

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.

Direct Digital Holdings, Inc.

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

As of September 30, 2024, DDH owns 25.9 % of the economic interest in Direct Digital Holdings, LLC.

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

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

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

Subsidiary Current %

Ownership Business

owns 100 % of the voting interest in DDH LLC and as of March 31, 2025, it owns 39.6 % of the economic interest in DDH LLC.

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

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

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

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.

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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The condensed consolidated balance sheet as of December 31, 2024 included herein was derived from audited financial statements but does not include all disclosures required by GAAP for complete financial statements.

In the opinion of the Company’s management, the accompanying condensed unaudited consolidated financial statements contain all adjustments, consisting of items of a normal and recurring nature, necessary to present fairly the Company’s financial position as of September 30, 2024, the results of its operations for the three and nine months ended September 30, 2024 and 2023, cash flows for the nine months ended September 30, 2024 and 2023, and stockholders’ deficit for the three and nine months ended

September 30, 2024 and 2023.

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

In the opinion of the Company’s management, the accompanying condensed unaudited consolidated financial statements contain all adjustments, consisting of items of a normal and recurring nature, necessary to present fairly the Company’s financial position as of March 31, 2025, the results of its operations for the three months ended March 31, 2025 and 2024, cash flows for the three months ended March 31, 2025 and 2024, and stockholders’ deficit for the three months ended March 31, 2025 and 2024.

The results of operations for the three months ended March 31, 2025 are not necessarily indicative of the results to be expected for the full year.

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

Actual results could differ from estimates.

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

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

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

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

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

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).

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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.

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.

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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 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 SSP.

The Company refers to its publishers, app developers, and channel partners collectively as its "publishers." The Company’s platform allows the Company to sell, in real time, ad impressions from publishers to buyers and provides automated inventory management and monetization tools to publishers across various device types and digital ad formats.

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

The Company recorded deferred revenue (contract liabilities) to account for billings in excess of revenue recognized, primarily related to contractual minimums billed in advance and customer prepayment, of $ 1.0 million and $ 0.4 million as of September 30, 2024 and December 31, 2023, respectively.

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

The Company recorded deferred revenue (contract liabilities) to account for billings in excess of revenue recognized, primarily related to contractual minimums billed in advance and customer prepayment, of $ 0.6 million and $ 0.5 million as of March 31, 2025 and December 31, 2024, respectively.

Revenue recognized during the three months ended March 31, 2025 and 2024 from amounts included within the deferred revenue balances at the beginning of each respective period amounted to $ 0.2 million and $ 0.4 million, respectively.

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

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

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

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

As of March 31, 2025 and December 31, 2024, goodwill was $ 6.5 million, including amounts related to acquisitions in 2018 and in 2020.

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.

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

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

If the Company determines that it is more likely than not that the fair value of a reporting

unit is less than its carrying value, then a quantitative goodwill impairment analysis is performed.

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

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

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

The carrying value of the Company's sell-side reporting unit was negative as of March 31, 2025.

Goodwill of $ 1.2 million as of March 31, 2025 is allocated to the sell-side reporting unit, which is included in the sell-side reportable segment.

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 three months ended March 31, 2025 and 2024.

Intangible assets, net

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

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

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

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

No impairment loss was recognized during the three months ended March 31, 2025 and 2024.

Stock-based compensation

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

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

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

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

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

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

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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 nine months ended September 30, 2024 and 2023, members of DDM exchanged no shares of Class B Common Stock into shares of Class A Common Stock.

During the three months ended March 31, 2025, members of DDM exchanged 70,000 shares of Class B Common Stock into shares of Class A Common Stock.

No shares were exchanged or converted during the three months ended March 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 September 30, 2024 and December 31, 2023, the Company recorded a valuation allowance of $ 7.3 million and $ 0.5 million, respectively.

Accounts receivable, net

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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.

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

For the three months ended March 31, 2025 and 2024, the Company's provision for credit losses net of recoveries, as reflected in the condensed consolidated statements of cash flows was $ 0 and less than $ 0.1 million, respectively.

Concentrations of customers and suppliers

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

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

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

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

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

For the three months ended March 31, 2025, three customers (one sell-side and two buy-side) accounted for 39 % of revenues.

For the three months ended March 31, 2024, one sell-side customer represented 68 % of revenues.

As of March 31, 2025 two customers (one sell-side and one buy-side) accounted for 29 % of accounts receivable.

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

As of March 31, 2025 and December 31, 2024, two vendors and one vendor each accounted for at least 10%, and collectively accounted for 26 % and 16 %, r espectively, of accounts payable.

Accrued liabilities

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

September 30,

The components of accrued liabilities on the condensed consolidated balance sheet as of March 31, 2025 and December 31, 2024 are as follows (in thousands):

2025 December 31,

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Accrued expenses 1,108 877

Accrued severance — 189

Accrued litigation settlement (1)

Accrued interest 31 50

Total accrued liabilities $ 1,512 $ 1,257

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

Cash and cash equivalents

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

Deferred offering costs

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

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

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

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

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 March 31, 2025 and December 31, 2024, $ 3.7 million and $ 4.2 million, respectively, of unamortized deferred financing costs are netted against debt in the condensed consolidated balance sheets.

As of March 31, 2025 and December 31, 2024, less than $ 0.1 million and $ 0.1 million, respectively, of unamortized deferred financing costs are classified as prepaid expenses and other current assets in the condensed consolidated balance sheets.

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

As of March 31, 2025 and December 31, 2024, $ 0.5 million and $ 1.7 million, respectively, of unamortized debt discount related to the interest reserve added under the LS Amendment are netted against debt in the condensed 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.

Fair value measurements

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

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

Diluted net income 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.

Recent accounting pronouncements

Accounting pronouncements adopted

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

In August 2023, the FASB issued ASU 2023-05, Business Combinations - Joint Ventures Formations, which requires that joint ventures, upon formation, apply a new basis of accounting by initially measuring assets and liabilities at fair value.

The amendments in ASU 2023-05 are effective for joint ventures that are formed on or after January 1, 2025.

Early adoption is permitted.

The adoption of this ASU did not have a material impact on the Company's condensed consolidated financial statements.

During the three months ended March 31, 2025, the Company entered into a joint venture, but no material activity has occurred to date.

Accounting pronouncements not yet adopted

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

In December 2023, the FASB issued ASU 2023-09, Improvements to Income Tax Disclosures, a final standard on improvements to income tax disclosures.

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

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

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

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

The ASU requires that an entity disclose significant segment expenses impacting profit and loss that are regularly provided to the Company's chief operating decision maker ("CODM").

The update is required to be applied

retrospectively to prior periods presented, based on the significant segment expense categories identified and disclosed in the period of adoption.

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

The Company is currently evaluating the impact on the disclosures of the Company's condensed consolidated financial statements.

In November 2024, the FASB issued ASU 2024-03, Disaggregation of Income Statement Expenses, which requires a tabular disclosure of the amounts of specified natural expense categories included in each relevant expense caption.

Additionally, ASU 2024-03 requires the disclosure of the total amount of selling expenses and, in annual reporting periods, an entity’s definition of selling expenses.

The new standard is effective for annual reporting periods beginning after December 15, 2026, and interim periods within fiscal years beginning after December 15, 2027, on a prospective basis.

Early adoption is permitted.

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

The Company is currently evaluating the impact on the disclosures of the Company's condensed consolidated financial statements.

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

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

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

As 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 $ 13.3 million for the nine months ended September 30, 2024 reflecting the impact of the sell-side disruption described above and a decrease in customer spend on the buy-side, (2) reported an accumulated deficit of $ 6.6 million as of September 30, 2024, (3) reported cash and cash equivalents of $ 4.1 million as of September 30, 2024, (4) has borrowed $ 9.7 million and $ 8.7 million, respectively, as of September 30, 2024 and the date of this report, under the Credit Agreement which matures in July 2025, (5) was notified on April 17, 2024 that the Company’s auditor had resigned, (6) was unable to timely file its 2023 annual report and quarterly reports for the first two quarters of 2024 and (7) was notified by Nasdaq on October 18, 2024 that it was not in compliance with Nasdaq's minimum stockholders' equity requirements.

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

Additionally, the Company (1) incurred a net loss of $ 5.9 million for the three months ended March 31, 2025 including the impact of the sell-side disruption described above, (2) reported an accumulated deficit of $ 11.1 million as of March 31, 2025, (3) reported cash and cash equivalents of $ 1.8 million as of March 31, 2025, (4) has borrowed $ 3.7 million as of March 31, 2025 and the date of this report, under the Credit Agreement (as defined below) which matures in July 2025 and (5) was notified by Nasdaq on October 18, 2024 that it was not in compliance with Nasdaq's minimum stockholders' equity requirements and is currently subject to a delisting letter and a hearings and appeal process.

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

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

These actions include (1) a plan to reduce expenses through a staff reduction, a pause on hiring and cost savings measures that were executed on July 1, 2024, (2) working with lenders to provide temporary various relief from debt covenants (see Note 3 — Long-Term Debt) while rebuilding sell-side volumes, (3) putting in place a program to raise capital through an equity reserve facility (see Note 4 — Stockholders’ Deficit and Stock-Based Compensation ) , (4) regaining compliance with respect to delinquent SEC filings on October 15, 2024 which will allow the Company to access the capital markets as well as other financing sources and (5) a plan to achieve compliance with Nasdaq's minimum stockholders' equity requirements.

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 with New Circle Principal Investments LLC 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 March 31, 2025, (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 raise 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 requirement 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.

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Note 3 — Long-Term Debt

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

September 30, 2024 December 31, 2023

At March 31, 2025 and December 31, 2024, long-term debt consisted of the following (in thousands):

March 31, 2025 December 31, 2024

2021 Credit Facility (1)

$ 37,362 $ 37,362

Credit Agreement 3,700 3,700

Economic Injury Disaster Loan 150 150

Total debt 38,071 31,744

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

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

Total long-term debt 41,212 41,212

deferred financing cost (1)

( 3,718 ) ( 4,238 )

debt discount (2)

( 494 ) ( 1,671 )

Total long-term debt, net of deferred financing cost and debt discount 37,000 35,303

current portion ( 4,122 ) ( 3,700 )

Total long-term debt, net of current portion $ 150 $ 28,578

Total long-term debt, net of current portion, deferred financing cost and debt discount $ 32,878 $ 31,603

(1) As of March 31, 2025 and 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 March 31, 2025 and December 31, 2024, amount includes $ 0.5 million and $ 1.7 million, respectively, 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):

Three Months Ended

September 30, Nine Months Ended

September 30,

Interest expense – 2021 Credit Facility (1)

$ 1,131 $ 974

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

Interest expense – East West Bank 206 — 531 —

Interest expense – Credit Agreement 70 136

Interest expense – other 4 1

Amortization of deferred financing costs 186 163 558 435

Total interest expense and amortization of deferred financing costs $ 1,413 $ 1,060 $ 4,068 $ 3,104

Amortization of deferred financing cost and debt discount 641 186

Total interest expense and amortization of deferred financing cost and debt discount $ 1,846 $ 1,297

(1) For the three months ended March 31, 2025, the interest expense related to the 2021 Credit Facility was applied against the interest reserve, as described below, and included in amortization of deferred financing cost and debt discount in the condensed consolidated statement of cash flows.

Lafayette Square

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

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

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

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

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

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

The loans under the 2021 Credit Facility are calculated using Term Secured Overnight Financing Rate with a credit spread adjustment of 0.10 % per annum for interest periods of one month and 0.15 % per annum for interest periods of three months ("Term SOFR").

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

greater than 3.50 to 1.00.

After giving effect to the Fifth Amendment, the applicable margin under the 2021 Credit Facility is based on the consolidated total leverage ratio of the Company at a rate of 7.00 % per annum if the consolidated total leverage ratio is less than or equal to 1.00 to 1.00 with gradual increases as the ratio increases up to 10.00 % per annum if the consolidated total leverage ratio is greater than 3.50 to 1.00.

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

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

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

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

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 $ 0.1 million from January 1, 2022 through December 31, 2023, and each installment payment thereafter until maturity is $ 0.3 million.

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

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

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

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 2021 Credit Facility contains customary affirmative and negative covenants, including 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.

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

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 and (5) 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 Fifth 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 and minimum liquidity financial covenants, (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 fully earned upon execution of the LS Amendment and is payable directly to Lafayette Square at maturity or prepayment, 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 March 31, 2025.

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

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

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

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

The 2021 Credit Facility contains customary affirmative and negative covenants.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

* TTM = Trailing Twelve Months

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

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

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

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

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

Additional deferred financing costs of less than $ 0.1 million and $ 0 were incurred during the three months ended March 31, 2025 and 2024, respectively.

Unamortized deferred financing costs as of March 31, 2025 and December 31, 2024 were $ 3.7 million and $ 4.2 million , respectively.

Unamortized debt discount related to the interest reserve added under the LS Amendment as of March 31, 2025 and December 31, 2024 was $ 0.5 million and $ 1.7 million, respectively.

Accrued and unpaid interest was less than $ 0.1 million as of March 31, 2025 and December 31, 2024 .

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”);

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 $ 1.0 million.

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

Additionally, the amounts

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

On October 15, 2024, with an effective date of June 30, 2024, the Company and EWB entered into the Third Amendment to the Credit Agreement (the “Third Amendment”) which, among other things, (1) provides that the Company will make prepayments of the outstanding principal balance of the Credit Agreement of $ 1.0 million upon execution of the Third Amendment, $ 1.0 million on or before January 15, 2025 and $ 2.0 million on or before April 15, 2025, (2) requires the Company to file a registration statement with the SEC to establish an equity line of credit offering on or before October 31, 2024 and to use commercially reasonable efforts to cause such registration statement to become effective, (3) requires the net proceeds of a potential equity line of credit to be applied to the outstanding principal balance under the Credit Agreement in an amount that would cause the ratio of the value of eligible accounts to the aggregate amount of revolving credit advances to be not less than 1.00 to 1.00, (4) requires the consent of EWB prior to the ability of the Company to make certain restricted payments, including cash dividends, (5) requires the Company to make additional prepayments in the amount by which the outstanding loans under the Credit Agreement exceed the borrowing base between the calendar months ending November 30, 2024 and April 15, 2025, and (6) replaces the financial covenants under the Credit Agreement, effective as of June 30, 2024, with the following:

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

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

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

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

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

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

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

2.00 to 1.00 (4)

(1) TTM = Trailing Twelve Months

(2) Beginning November 30, 2024

(3) Beginning January 31, 2025

(4) Beginning April 15, 2025

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

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

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

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

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.

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) provided that the Company 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) required 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) 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) required the consent of EWB prior to the ability of the Company to make certain restricted payments, including cash dividends, (5) required 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 in an amount of $ 1.0 million, 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 Third 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 March 31, 2025.

The EWB Amendment was accounted for as a modification.

In connection with the EWB 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 occurrence of an event of default could result in the acceleration of the obligations under the Credit Agreement of the Company or other borrowers.

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

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

Additional deferred financing costs of less than $ 0.1 million and $ 0 were incurred during the three months ended March 31, 2025 and 2024, respectively.

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

Silicon Valley Bank (“SVB”) Financing

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.

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.

Loans under the SVB Revolving Credit Facility were to mature on September 30, 2024 unless the Credit Facility was otherwise terminated pursuant to the terms of the Loan Agreement.

On March 10, 2023, the California Department of Financial Protection and Innovation closed SVB and appointed the Federal Deposit Insurance Corporation as receiver.

As the Company had not yet drawn any amounts under the SVB Revolving Credit Facility, on March 13, 2023, the Company issued a notice of termination of the SVB Loan Agreement.

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

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

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

Small Business Administration Loans

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

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

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

As of March 31, 2025, future minimum payments related to long-term debt are as follows (in thousands):

Remaining 2025 $ 3,700

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Less current portion ( 4,122 )

Less deferred financing costs ( 1,254 )

Long-term debt, net $ 150

Less deferred financing cost ( 3,718 )

Less debt discount ( 494 )

Long-term debt, net of current portion, deferred financing cost and debt discount $ 32,878

Note 4 — Stockholders’ Deficit and Stock-Based Compensation

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

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

In March 2025, DDM tendered 70,000 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.

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

As of March 31, 2025, DDM held 10,798,000 shares of Class B Common Stock.

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

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

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

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

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

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

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

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

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

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

In connection with the Company’s initial public offering of units (“Units”), each consisting of (i) one share of its Class A Common Stock and (ii) one warrant entitling the holder to purchase one share of its Class A Common Stock at an exercise price of $ 5.50 per share, the Company issued to the underwriters of the offering a unit purchase option to purchase (i) an additional 140,000 Units at a per Unit exercise price of $ 6.60 , which was equal to 120 % of the public offering price per Unit sold in the initial public offering, and (ii) warrants to purchase 21,000 shares of Class A Common Stock at a per warrant exercise price of $ 0.012 , which was equal to 120 % of the public offering price per warrant sold in the offering.

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

At March 31, 2025, 70,000 Units and 10,500 were outstanding.

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

Variables used in the Black-Scholes option-pricing model include:

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

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

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

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

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

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

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

There were no warrants outstanding as of March 31, 2025 and December 31, 2024.

Equity Reserve Facility

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

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

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

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

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

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

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.

During the three months ended March 31, 2025, the Company sold 1,539,351 shares of the Company's Class A Common Stock for $ 2.0 million.

Subsequently and through the date of this report, the Company sold an additional 1,020,000 shares of the Company's Class A Common Stock for $ 0.5 million.

During the three months ended March 31, 2025, the Company incurred incremental issuance costs, which were expensed in the condensed consolidated statements of operations, given the nature of the Equity Reserve Facility.

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.

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Direct Digital Holdings, Inc.

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

is the sole managing member of DDH LLC, and consolidates the financial results of DDH LLC but does not own all the economic interests in DDH LLC.

Therefore, Direct Digital Holdings, Inc.

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

During the nine months ended September 30, 2024 and 2023, the Company recognized $ 0.8 million and $ 0.5 million, respectively, of total stock-based compensation expense in the condensed consolidated statement of operations in compensation, tax and benefits.

During the three months ended March 31, 2025 and 2024, the Company recognized $ 0.3 million and $ 0.5 million, respectively, of total stock-based compensation expense in the condensed consolidated statement of operations in compensation, tax and benefits.

Stock Options

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

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

The following table summarizes the stock option activity under the 2022 Omnibus Plan during the three months ended March 31, 2025:

Stock Options

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Intrinsic Value (in thousands)

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

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

Granted 277,575 $ 1.38 9.82 $ —

Exercised — $ — — $ —

Forfeited ( 17,701 ) $ 2.98 — $ 36

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

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

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

Forfeited and expired ( 2,834 ) $ 1.55 — $ —

Outstanding at March 31, 2025 610,624 $ 1.99 8.56 $ —

Vested and exercisable at March 31, 2025 212,102 $ 2.50 7.51 $ —

As of March 31, 2025, unrecognized stock-based compensation of $ 0.4 million was related to 398,522 of unvested stock options which will be recognized on a straight-line basis over a weighted-average vesting period o f 0.73 y ears.

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 nine months ended September 30, 2024 and related information is as follows:

A summary of RSU activity during the three months ended March 31, 2025 and related information is as follows:

Restricted Stock Units

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Grant Date Fair Value

Unvested- January 1, 2024 542,396 $ 2.87

Unvested - December 31, 2024 258,744 $ 2.80

Granted 457,575 $ 1.31

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Forfeited ( 2,618 ) $ 1.48

Unvested- September 30, 2024 264,960 $ 2.79

Unvested- March 31, 2025 667,921 $ 1.71

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

The total shares withheld were 13,978 and were based on the value of the RSUs on their respective vesting dates as determined by the Company’s closing stock price.

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

As of March 31, 2025, there was unrecognized stock-based compensation o f $ 0.8 million related to unvested RSUs which will be recognized on a straight-line basis over a weighted average period of 0.69 yea rs.

Note 5 — Tax Receivable Agreement and Income Taxes

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

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

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

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

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

TRA payments of $ 0 and less than $ 0.1 million were made during the nine months ended September 30, 2024 and 2023, respectively.

During the three months ended March 31, 2025, members of DDM exchanged 70,000 Class B shares into Class A shares.

The Company has recorded a liability related to the tax receivable agreement of less than $0.1 million as of March 31, 2025 and December 31, 2024.

The Company has recorded a deferred tax asset of $ 0 as of March 31, 2025 and December 31, 2024 which is net of a valuation allowance.

Payments of $ 0 were made during the three months ended March 31, 2025 and 2024.

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

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

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

The 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 condensed consolidated statement of operations as a component of income before taxes.

For the three months ended March 31, 2025 and 2024, no amounts were recorded as income in other income (expense) for such change.

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

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federal income tax purposes.

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

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

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

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

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

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

Three Months Ended

September 30, Nine Months Ended

September 30,

2024 2023 2024 2023

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

Income tax benefit $ — $ ( 200 )

Effective income tax rate — % 5.0 %

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

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

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

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

The effective tax rates were different from the statutory rates for the three months ended March 31, 2025 primarily due to the Company’s partnership loss that is not subject to federal and state taxes and recording a valuation allowance against deferred taxes.

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

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

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

Federal and various states returns for the years ended December 2023 and 2022 remain open as of March 31, 2025.

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

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

As of March 31, 2025 and December 31, 2024, the Company had no uncertain tax positions.

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

Note 6 — Related Party Transactions

Related Party Transactions

Member Payable

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

Up-C Structure

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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’ Deficit and Stock-Based Compensation).

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

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

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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.

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

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

September 30,

The aggregate balance of tax receivable liabilities as of March 31, 2025 and December 31, 2024, is as follows (in thousands):

2025 December 31,

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Short term $ 41 $ 41

Long term — 5,201

Total liability related to tax receivable agreement $ 41 $ 41

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Three Months Ended

September 30, Nine Months Ended

September 30,

2024 2023 2024 2023

Sell-side advertising $ 2,028 $ 16,500

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Three Months Ended

September 30, Nine Months Ended

September 30,

2024 2023 2024 2023

Sell-side advertising $ ( 992 ) $ 962

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Corporate office expenses ( 3,753 ) ( 4,062 )

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

Total operating loss ( 3,924 ) ( 2,807 )

Corporate other expense ( 2,016 ) ( 1,212 )

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

Loss before income taxes $ ( 5,940 ) $ ( 4,019 )

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

September 30,

2025 December 31,

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Total assets $ 23,817 $ 26,006

Note 8 — Net (Loss) Income Per Share

Note 8 — Net Loss Per Share

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

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and are therefore not participating securities.

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

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

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

Three Months Ended

September 30, Nine Months Ended

September 30,

2024 2023 2024 2023

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

net income allocated to participating securities — 296 — 285

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

Net loss allocated to Class A shareholders $ ( 2,355 ) $ ( 775 )

Weighted average common shares outstanding - basic 6,710 3,509

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Weighted average common shares outstanding - diluted 6,710 3,509

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

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

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

Net loss per common share, basic $ ( 0.35 ) $ ( 0.22 )

Net loss per common share, diluted $ ( 0.35 ) $ ( 0.22 )

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):

Three Months Ended

September 30, Nine Months Ended

September 30,

2024 2023 2024 2023

Class B Common Stock 10,864 10,868

Options to purchase common stock 477 367

Unvested restricted stock units 268 495 402 382

Restricted stock units 560 535

Total excludable from net loss per share attributable to common stockholders - diluted 11,901 11,770

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

any registered or beneficial stockholder, is an adverse party or has a material interest adverse to our interest.

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

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

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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 defamatory 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 and any defenses against counterclaims.

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

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Operating Leases

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

During the three months ended March 31, 2025 and 2024, the Company incurred fixed rent expense associated with operating leases for real estate of $ 0.1 million.

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

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

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

2024 2023 2024 2023

During the three months ended March 31, 2025 and 2024, the Company had the following cash and non-cash activities associated with leases (in thousands):

Three Months Ended March 31,

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

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Additions and modifications to ROU asset obtained from new operating liabilities $ 52 $ —

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

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

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

The weighted-average remaining lease term and discount rate for the Company’s operating leases is 4.3 years and 8.2 %, respectively, as of March 31, 2025.

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

The future payments due under operating leases as of March 31, 2025 are as follows (in thousands):

Thereafter 31

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

Useful Life (Years) September 30,

Useful Life (Years) March 31,

2025 December 31,

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Total property, equipment and software, net $ 288 $ 341

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

The following table summarizes depreciation and amortization expense related to property, equipment and software by line item for the three months ended March 31, 2025 and 2024 (in thousands):

Three Months Ended

September 30, Nine Months Ended

September 30,

2024 2023 2024 2023

Cost of revenue $ 42 $ 42

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

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

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

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

September 30, 2024

For the three months ended March 31, 2025 and 2024, amortization expense of $ 0.5 million was recognized.

As of March 31, 2025 and December 31, 2024, intangible assets net of accumulated amortization was $ 9.2 million and $ 9.7 million, respectively.

As of March 31, 2025, intangible assets and the related accumulated amortization, weighted-average remaining life and future amortization expense are as follows (in thousands):

March 31, 2025

Weighted-Average Original Accumulated Net

14 unchanged sentences

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

What changed 10-Q

Item 1. Financial Statements