Direct Digital Holdings, Inc. 10-Q

ITEM 1A. Risk Factors As of the date of this Quarterly Report, other than the below, there have not been any material changes to the information related to the Item 1A. “Risk Factors” disclosure in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2024. Our business involves significant risks. You should carefully consider the risks and uncertainties described in our Annual Report, together with all of the other information in this Quarterly Report on Form 10-Q, as well as our audited consolidated financial statements and related notes as disclosed in our Annual Report. The risks and uncertainties described below and in our Annual Report are not the only ones we face. Additional risks and uncertainties that we are unaware of or that we deem immaterial may also become important factors that adversely affect our business. The realization of any of these risks and uncertainties could have a material adverse effect on our reputation, business, financial condition, results of operations, growth and future prospects as well as our ability to accomplish our strategic objectives. In that event, the market price of our common stock could decline and you could lose part or all of your investment. If we fail to satisfy applicable listing standards, including compliance with the rules requiring timely filing of our periodic reports with the SEC, our Class A Common Stock may be delisted from the Nasdaq Capital Market. On October 18, 2024, the Company received a deficiency letter (the “Letter”) from the Staff of the Listing Qualifications Department (the “Staff”) of The Nasdaq Stock Market LLC (“Nasdaq”) notifying the Company that it was not in compliance with the minimum stockholders’ equity requirement for continued listing on the Nasdaq under Nasdaq Listing Rule 5550(b)(1). This rule requires companies listed on The Nasdaq Capital Market to maintain stockholders’ equity of at least $2.5 million (the “Stockholders’ Equity Requirement”). For the year ended December 31, 2024, the Company reported stockholders’ equity of negative $19.7 million. The Letter further noted that as of the letter date, the Company did not have a market value of listed securities of $35 million, or net income from continued operations of $500,000 in the most recently completed fiscal year or in two of the last three most recently completed fiscal years, the alternative quantitative standards for continued listing on the Nasdaq Capital Market. Following the Staff’s review of the Company’s compliance plan (the “Plan”), on February 4, 2025, the Staff notified the Company that it had granted the Company an extension (the “Extension”) through March 31, 2025, and later extended to April 16, 2025, to complete the Plan and evidence compliance with the Stockholders’ Equity Requirement. As of April 16, 2025, the Company had not gained compliance with the Stockholders’ Equity Requirement. Accordingly, on April 17, 2025, the Company received a Staff determination letter from the Staff stating that the Company did not meet the terms of the extension because it did not complete its capital raising initiative and demonstrate compliance with the Stockholders’ Equity Requirement, and therefore that trading of the Company’s Class A Common Stock would be suspended at the opening of business on April 28, 2025 and subsequently delisted. The Company has filed an appeal and request a Hearing before a Nasdaq Hearings Panel (the “Panel”) which Hearing request was granted and set for late May 2025. At the hearing, the Company will present its plan for regaining and sustaining compliance with the Stockholders’ Equity Requirement for continued listing. However, there can be no assurance that the Hearings Panel will grant the Company an extension of time to regain compliance, or that the Company will be able to regain compliance during any extension period. During the appeal process, there is a stay on Nasdaq's delisting and the Company’s Class A Common Stock will continue to trade on The Nasdaq Capital Market under the symbol “DRCT.” If the Company is not able to regain compliance with Nasdaq’s continued listing requirements within the time period permitted by Nasdaq, then the Company’s securities will be delisted from Nasdaq. Delisting from the Nasdaq could adversely affect our ability to raise additional financing through the public or private sale of equity securities, would significantly affect the ability of investors to trade our securities and would negatively affect the value and liquidity of our Class A Common Stock. Delisting could also have other negative results, including the potential loss of confidence by employees, the loss of institutional investor interest and fewer business development 40 Table of Contents opportunities. If our Class A Common Stock is delisted by the Nasdaq, the price of our Class A Common Stock may decline and our Class A Common Stock may be eligible to trade on the OTC Markets or other over-the-counter quotation system, where an investor may find it more difficult to dispose of their Class A Common Stock or obtain accurate quotations as to the market value of our Class A Common Stock. Further, if we are delisted, we would incur additional costs under requirements of state “blue sky” laws in connection with any sales of our securities. These requirements could severely limit the market liquidity of our Class A Common Stock and the ability of our stockholders to sell our Class A Common Stock in the secondary market. ITEM 2. Unregistered Sales of Equity Securities and Use of Proceeds Unregistered Sales of Equity Securities None. Use of Proceeds None. Purchases of Equity Securities by the Issuer None. ITEM 3. Defaults Upon Senior Securities None. ITEM 4. Mine Safety Disclosures Not applicable.