What changed in this filing

/stocks — the workspaceLOADING

Item 2. Management’s Discussion and Analysis

2025-08-06 compared with 2025-05-07 · 111 added, 86 removed, 280 unchanged (41% of the section changed)

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Direct Digital Holdings, Inc.

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

owns 100% of the voting interest in DDH LLC and as of June 30, 2025, DDH owns 53.6% of the economic interest in DDH LLC.

DDH LLC was formed on June 21, 2018 and acquired by the Company on

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We operate as two reportable segments:

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

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

All our revenues are attributable to the United States.

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The Letter further noted that as of the letter date, the Company did not have a market value of listed securities of $35.0 million, or net income from continued operations of $0.5 million in the most recently completed fiscal year or in two of the last three most recently completed fiscal years, which are the alternative quantitative standards to the Stockholders’ Equity Requirement for continued listing on 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, par value $0.001 per share (the “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.

See “Risk Factors” in Item 1A herein.

Subsequent to the end of an extension period granted by the Staff, the Company received a letter indicating that its common stock would be delisted.

The Company then requested a hearing before the Nasdaq Hearings Panel (the “Panel”).

The hearing was held on May 29, 2025 and, by decision dated June 9, 2025, the Panel accepted the Company’s proposed plan to regain compliance with the Stockholders’ Equity Requirement (the “Compliance Plan”), and granted the Company’s request for an extension through October 14, 2025, subject to the Company’s satisfaction of certain interim conditions.

If the Company is not able to evidence compliance with Nasdaq’s continued listing requirements within the time period permitted by Nasdaq, then the Company’s securities will be delisted from Nasdaq.

Separately, on May 12, 2025, the Company received notice from the Staff that the closing bid price of the Company’s Class A common stock was below $1.00 per share for the prior 30 consecutive business days, and therefore, the Company was not in compliance with the minimum bid price requirement for continued listing on The Nasdaq Capital Market, as set forth in Nasdaq Listing Rule

The notice stated that the Company has 180 calendar days from the date of such notice, or until November 10, 2025, to regain compliance with the minimum bid price rule.

The Company intends to take all reasonable measures available to regain compliance and remain listed on Nasdaq.

However, there can be no assurance that the Company will be able to complete the steps outlined in the Compliance Plan or regain compliance with the minimum bid price rule.

The Company’s noncompliance has no immediate effect on the listing or trading of the Company’s Class A Common Stock, which will continue to trade on the Nasdaq Capital Market under the symbol “DRCT.” See “Risk Factors” in Item 1A herein.

Equity Reserve Facility.

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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 six months ended June 30, 2025, the Company sold 6,059,351 shares of the Company's Class A Common Stock for $4.6 million.

The Purchase Agreement will automatically terminate on the earliest of (i) the 36-month anniversary 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.

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Our customers (or buyers) include ad exchanges, DSPs, agencies and individual advertisers.

We have broad exposure to the ecosystem of buyers, reaching on average approximately 160,000 advertisers per month in the three months ended March 31, 2025, an increase of 19,000 over the 141,000 advertisers per month in the three months ended March 31, 2024.

We have broad exposure to the ecosystem of buyers, reaching on average approximately 182,000 advertisers per month in the six months ended June 30, 2025, an increase of 33,000, or 22%, over the 149,000 advertisers per month in the six months ended June 30, 2024.

As spending on programmatic advertising increasingly becomes a larger share of the overall ad spend, advertisers and agencies are seeking greater control of their digital advertising supply chains.

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Each time the publisher’s web page loads, an ad request is sent to multiple ad exchanges and, in some cases, to the demand side platform directly from Colossus SSP.

In case of real-time bidding (“RTB”) media buys, many DSPs would place bids to the impressions being offered by the publisher during the auction.

In case of real-

time bidding (“RTB”) media buys, many DSPs would place bids to the impressions being offered by the publisher during the auction.

The advertiser that bids a higher amount compared to other advertisers will win the bid.

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The platform is comprised of publishers across multiple channels including OTT/CTV, display, native, in-app, online video (“OLV”), audio and digital out of home (“DOOH").

In the three months ended March 31, 2025, we processed approximately 188 billion average monthly impressions across many unique audiences including multicultural growth audiences at scale with 61 billion, or 33% , of those impressions from growing multicultural-focused audiences.

In the six months ended June 30, 2025, we processed approximately 202 billion average monthly impressions across many unique audiences including multicultural growth audiences at scale with 79 billion, or 39% , of those impressions from growing multicultural-focused audiences.

The Colossus SSP continues to expand its capabilities to give our content providers more avenues to distribute ad inventory such as OTT/CTV, digital audio, DOOH, etc.

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

For example, in our sell-side advertising segment, many advertisers allocate the largest portion of their budgets to the fourth quarter of the calendar year in order to coincide with increased holiday purchasing.

For example, in our sell-side advertising segment, many advertisers allocate the largest portion of their budgets to the fourth quarter of the

calendar year in order to coincide with increased holiday purchasing.

We expect our sell-side revenue to continue to fluctuate based on seasonal factors that affect the advertising industry as a whole.

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We are technology and media agnostic, and we believe our clients trust us to provide the best opportunity for success of their brands and businesses.

As a result, our clients have been loyal, with approximately 81% client retention amongst the clients that represent approximately 80% of our revenue during the three months ended March 31, 2025.

As a result, our clients have been loyal, with approximately 88% client retention amongst the clients that represent approximately 80% of our revenue during the six months ended June 30, 2025.

In addition, we cultivate client relationships through our pipeline of managed and moderate serve clients that conduct campaigns through our platform.

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

Historically, for our buy-side advertising segment, the second and third quarters of the year reflect our highest levels of advertising activity and

the first quarter reflects the lowest level of such activity.

Historically, for our buy-side advertising segment, the second and third quarters of the year reflect our highest levels of advertising activity and the first quarter reflects the lowest level of such activity.

We expect our buy-side revenue to continue to fluctuate based on seasonal factors that affect the advertising industry as a whole.

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Expenses for Equity Reserve Facility.

Expenses are is mainly related to our Equity Reserve Facility as further described below in “ —Liquidity and Capital Resources.

Expenses are mainly related to our Equity Reserve Facility as further described below in “ —Liquidity and Capital Resources.

Results of Operations

Comparison of the Three Months Ended March 31, 2025 and 2024

Comparison of the Three and Six Months Ended June 30, 2025 and 2024

The following tables set forth our condensed consolidated results of operations for the periods presented (in thousands).

The period-to-period comparison of results is not necessarily indicative of results for future periods.

Three Months Ended March 31, Change

2025 2024 Amount %

Sell-side advertising $ 2,028 $ 16,500 $ (14,472) (88) %

Buy-side advertising 6,129 5,775 354 6 %

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

2025 2024 Amount % 2025 2024 Amount %

Sell-side advertising $ 2,483 $ 14,298 $ (11,815) (83) % $ 4,511 j $ 30,799 j $ (26,288) (85) %

Buy-side advertising 7,661 7,557 104 1 % 13,790 j 13,331 j 459 3 %

Total revenues 10,144 21,855 (11,711) (54) % 18,301 44,130 (25,829) (59) %

Cost of revenues

Sell-side advertising 2,638 14,807 (12,169) (82) %

Buy-side advertising 3,126 2,470 656 27 %

Sell-side advertising 2,851 13,209 (10,358) (78) % 5,489 j 28,016 j (22,527) (80) %

Buy-side advertising 3,732 2,715 1,017 37 % 6,858 j 5,185 j 1,673 32 %

Total cost of revenues 6,583 15,924 (9,341) (59) % 12,347 33,201 (20,854) (63) %

Gross profit 3,561 5,931 (2,370) (40) % 5,954 10,929 (4,975) (46) %

Operating expenses 6,317 7,805 (1,488) (19) %

Operating expenses 5,987 7,996 (2,009) (25) % 12,304 j 15,802 j (3,498) (22) %

Loss from operations (2,426) (2,065) (361) 17 % (6,350) (4,873) (1,477) 30 %

Other expense, net (2,016) (1,212) (804) 66 %

Other expense, net (1,770) (1,350) (420) 31 % (3,786) j (2,563) j (1,223) 48 %

Loss before income taxes (4,196) (3,415) (781) 23 % (10,136) (7,436) (2,700) 36 %

Income tax benefit — (200) 200 (100) %

Income tax benefit — (274) 274 (100) % — j (475) j 475 (100) %

Net loss $ (4,196) $ (3,141) $ (1,055) 34 % $ (10,136) $ (6,961) $ (3,175) 46 %

Adjusted EBITDA (1)

$ (3,024) $ (1,659) $ (1,365) 82 %

$ (1,452) $ (1,343) $ (109) 8 % $ (4,476) k $ (3,005) k $ (1,471) 49 %

_______________________________________________________

(1) For a definition of Adjusted EBITDA, an explanation of our management’s use of this measure, and a reconciliation of Adjusted EBITDA to net income see “ – Non-GAAP Financial Measures .”

Our revenues of $8.2 million for the three months ended March 31, 2025 decreased by $14.1 million, or 63%, from $22.3 million for the three months ended March 31, 2024.

Our revenues of $10.1 million for the three months ended June 30, 2025 decreased by $11.7 million, or 54%, from $21.9 million for the three months ended June 30, 2024.

Sell-side advertising revenue decreased $11.8 million, or 83% while buy-side revenue increased $0.1 million, or 1%, compared to the prior year period.

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Management attributes the cause of this decrease to unexpected business disruption amongst our partners, advertisers and clients caused by multiple short attacks and a market-discredited blog post against our supply-side platform, Colossus SSP, in mid May 2024.

Sell-side volumes have resumed but not yet at the levels experienced prior to the post in May 2024, which negatively affected revenue in the first quarter of 2025.

The Company sold approximately 188 million average monthly impressions in the first quarter of 2025, a decrease of 90% from the prior period.

The increase in buy-side revenue of $0.4 million was due to growth from new and existing customers of $2.6 million, including $1.2 million from customers in new verticals, partially offset by a $2.2 million decrease in spending from customers, including a $1.0 million decrease from customers no longer actively purchasing from the Company.

Sell-side volumes have resumed but not yet at the levels experienced prior to the post in May 2024, which negatively affected revenue in the first half of 2025.

The Company sold approximately 182 million average monthly impressions in the second quarter of 2025, a decrease of 91% from the prior period.

The increase in buy-side revenue of $0.1 million was due to growth from new customers of $2.1 million, including $1.0 million from customers in new verticals, partially offset by a $2.0 million decrease in spending from existing customers, including a $1.6 million decrease from customers no longer actively purchasing from the Company.

Our revenues of $18.3 million for the six months ended June 30, 2025 decreased by $25.8 million, or 59%, from $44.1 million for the six months ended June 30, 2024.

Sell-side advertising revenue decreased $26.3 million, or 85%, while buy-side revenue increased $0.5 million, or 3%, compared to the prior year period.

The decrease in sell-side advertising revenue was primarily due to a decrease in impression inventory and the unexpected business disruption described above.

The Company sold approximately 185 million average monthly impressions in the first six months of 2025, a decrease of 91% from the prior period.

The increase in buy-side revenue of $0.5 million was due to growth from new customers of $3.8 million, including $2.2 million from customers in new verticals, partially offset by a $3.3 million decrease in spending

from existing customers, including a $2.9 million decrease from customers no longer actively purchasing from the Company.

Cost of revenues

Cost of revenues of $5.8 million for the three months ended March 31, 2025 decreased by $11.5 million, or 67% from $17.3 million for the three months ended March 31, 2024.

Sell-side advertising cost of revenues decreased $12.2 million, to $2.6 million, or 130% of sell-side revenue for the three months ended March 31, 2025, compared to $14.8 million, or 90% of revenue of sell-side revenue, for the same period in 2024.

The decrease in costs was primarily due to the related decrease in revenue, while the 40% increase as a percentage of revenue was due to fixed costs not decreasing at the same

proportionate rate as the revenue decline.

Fixed cost of sell-side revenues for the three months ended March 31, 2025 of $0.9 million decreased by $0.3 million, or 25%, from fixed cost of sell-side revenues of $1.2 million for the same period in 2024.

Buy-side advertising cost of revenues increased $0.7 million, to $3.1 million, or 51% of buy-side revenue for the three months ended March 31, 2025, compared to $2.5 million, or 43% of buy-side revenue, for the same period in 2024.

Gross profit was $2.4 million, or 29% of revenue, for the three months ended March 31, 2025, compared to $5.0 million, or 22% of revenue, for the same period in 2024, reflecting a decrease of $2.6 million, or 52%.

The change in gross profit margin percentage for the three months ended March 31, 2025 is attributable to the mix in revenue between our business segments as our sell-side segment has higher cost of revenues compared to our buy-side segment, as well as the lower sell-side fixed costs related to server capacity, analytic, development and technology-related costs.

Sell-side advertising gross profit decreased $2.3 million for the three months ended March 31, 2025 as compared to the same period in 2024, primarily due to the decrease in revenue partially offset by lower fixed costs.

Sell-side advertising gross margin percentage was (30)% and 10% for the three months ended March 31, 2025 and 2024, respectively.

Buy-side advertising gross profit decreased $0.3 million for the three months ended March 31, 2025, as compared to the same period in the prior year.

Buy-side advertising gross margin percentage was 49% and 57% for the three months ended March 31, 2025 and 2024, respectively, with the decrease in gross margin percentage due to higher cost to provide services to customers and the mix of services provides.

Cost of revenues of $6.6 million for the three months ended June 30, 2025 decreased by $9.3 million, or 59% from $15.9 million for the three months ended June 30, 2024.

Sell-side advertising cost of revenues decreased $10.4 million, to $2.9 million, or 115% of sell-side revenue, for the three months ended June 30, 2025, compared to $13.2 million, or 92% of sell-side revenue, for the same period in 2024.

The decrease in costs was primarily due to the related decrease in revenue, while the 23% increase as a percentage of revenue was due to fixed costs not decreasing at the same proportionate rate as the revenue decline.

Fixed cost of sell-side revenues for the three months ended June 30, 2025 of $0.9 million decreased by $0.5 million, or 40%, from fixed cost of sell-side revenues of $1.4 million for the same period in 2024.

Buy-side advertising cost of revenues increased $1.0 million to $3.7 million, or 49% of buy-side revenue, for the three months ended June 30, 2025, compared to $2.7 million, or 36% of buy-side revenue, for the same period in 2024.

Cost of revenues of $12.3 million for the six months ended June 30, 2025 decreased by $20.9 million, or 63% from $33.2 million for the six months ended June 30, 2024.

Sell-side advertising cost of revenues decreased $22.5 million to $5.5 million, or 122% of sell-side revenue, for the three months ended June 30, 2025, compared to $28.0 million, or 91% of sell-side revenue, for the same period in 2024.

The decrease in costs was primarily due to the related decrease in revenue, while the 31% increase as a percentage of revenue was due to fixed costs not decreasing at the same proportionate rate as the revenue decline.

Fixed cost of sell-side revenues for the six months ended June 30, 2025 of $1.8 million decreased by $0.9 million, or 33%, from fixed cost of sell-side revenues of $2.7 million for the same period in 2024.

Buy-side advertising cost of revenues increased $1.7 million, to $6.9 million, or 50% of buy-side revenue, for the six months ended June 30, 2025, compared to $5.2 million, or 39% of buy-side revenue, for the same period in 2024.

Gross profit was $3.6 million, or 35% of revenue, for the three months ended June 30, 2025, compared to $5.9 million, or 27% of revenue, for the same period in 2024, reflecting a decrease of $2.4 million, or 40%.

The change in gross profit margin percentage for the three months ended June 30, 2025 is attributable to the mix in revenue between our business segments as our sell-side segment has higher cost of revenues compared to our buy-side segment, as well as the lower sell-side fixed costs related to server capacity, analytic, development and technology-related costs.

Sell-side advertising gross profit decreased $1.5 million for the three months ended June 30, 2025 as compared to the same period in 2024, primarily due to the decrease in revenue partially offset by lower fixed costs.

Sell-side advertising gross margin percentage was (15)% and 8% for the three months ended June 30, 2025 and 2024, respectively.

Buy-side advertising gross profit decreased $0.9 million for the three months ended June 30, 2025, as compared to the same period in the prior year.

Buy-side advertising gross margin percentage was 51% and 64% for the three months ended June 30, 2025 and 2024, respectively, with the decrease in gross margin percentage due to higher cost to provide services to customers and the mix of services provided.

Gross profit was $6.0 million, or 33% of revenue, for the six months ended June 30, 2025, compared to $10.9 million, or 25% of revenue, for the same period in 2024, reflecting a decrease of $5.0 million, or 46%.

The change in gross profit margin percentage for the six months ended June 30, 2025 is attributable to the mix in revenue between our business segments as our sell-side segment has higher cost of revenues compared to our buy-side segment, as well as the lower sell-side fixed costs related to server capacity, analytic, development and technology-related costs.

Sell-side advertising gross profit decreased $3.8 million for the six months ended June 30, 2025 as compared to the same period in 2024, primarily due to the decrease in revenue partially offset by lower fixed costs.

Sell-side advertising gross margin percentage was (22)% and 9% for the six months ended June 30, 2025 and 2024, respectively.

Buy-side advertising gross profit decreased $1.2 million for the six months ended June 30, 2025, as compared to the same period in the prior year.

Buy-side advertising gross margin percentage was 50% and 61% for the six months ended June 30, 2025 and 2024, respectively, with the decrease in gross margin percentage due to higher cost to provide services to customers and the mix of services provided.

Operating expenses

The following table sets forth the components of operating expenses for the periods presented (in thousands):

Three Months Ended March 31, Change

2025 2024 Amount %

Compensation, tax and benefits $ 3,664 $ 4,524 $ (860) (19) %

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

2025 2024 Amount % 2025 2024 Amount %

Compensation, taxes and benefits $ 3,639 $ 4,166 $ (527) (13) % $ 7,303 $ 8,690 $ (1,387) (16) %

General and administrative 2,348 3,830 (1,482) (39) % 5,001 7,112 (2,111) (30) %

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Compensation, taxes and benefits

Compensation, taxes and benefits of $3.7 million, decreased by $0.9 million, or 19%, for the three months ended March 31, 2025 from $4.5 million for the same period in 2024 primarily due to lower payroll costs resulting from a staff reduction made effective July 1, 2024 when we began to execute an internal reorganization plan that included a staff reduction, a pause on hiring and cost savings measures, which has lowered certain ongoing expenses that positively affected the current period.

Compensation, taxes and benefits of $3.6 million decreased by $0.5 million, or 13%, for the three months ended June 30, 2025 from $4.2 million for the same period in 2024.

Compensation, taxes and benefits of $7.3 million decreased by $1.4 million, or 16%, for the six months ended June 30, 2025 from $8.7 million for the same period in 2024.

The decrease is primarily due to lower payroll costs resulting from a staff reduction made effective July 1, 2024 when we began to execute an internal reorganization plan that included a staff reduction, a pause on hiring and cost savings measures, which has lowered certain ongoing expenses that positively affected the current period.

General and administrative expense

General and administrative (“G&A”) expenses of $2.7 million for the three months ended March 31, 2025 decreased by $0.6 million for the same period in 2024.

G&A expenses as a percentage of revenue was 33% and 15% for the three months ended March 31, 2025 and 2024, respectively.

General and administrative (“G&A”) expenses of $2.3 million for the three months ended June 30, 2025 decreased by $1.5 million from the same period in 2024.

G&A expenses as a percentage of revenue were 23% and 18% for the three months ended June 30, 2025 and 2024, respectively.

The decrease in G&A expenses was primarily due to lower professional fees and sales and marketing expenses.

G&A expenses of $5.0 million for the six months ended June 30, 2025 decreased by $2.1 million from the same period in 2024.

G&A expenses as a percentage of revenue were 27% and 16% for the six months ended June 30, 2025 and 2024, respectively.

The decrease in G&A expenses was primarily due to lower professional fees and sales and marketing expenses.

We expect to continue to invest in and incur additional expenses associated with our operation as a public company, including professional fees, inve stment in automation, and compliance costs associated with developing the requisite infrastructure required for internal controls.

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The following table sets forth the components of other expense, net for the periods presented (in thousands):

Three Months Ended March 31, Change

2025 2024 Amount %

Interest expense $ (1,846) $ (1,297) $ (549) 42 %

Expenses for Equity Reserve Facility (198) — $ (198) nm

Other income 28 85 (57) (67) %

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

2025 2024 Amount % 2025 2024 Amount %

Interest expense $ (1,789) $ (1,358) $ (431) 32 % $ (3,635) j $ (2,655) j $ (980) 37 %

Expenses for Equity Reserve Facility — — $ — nm (198) j — j $ (198) nm

Other income 19 8 11 138 % 47 j 92 j (45) (49) %

Total other expense, net $ (1,770) $ (1,350) $ (420) 31 % $ (3,786) $ (2,563) $ (1,223) 48 %

nm – not meaningful

Total other expense, net for the three months ended March 31, 2025 and 2024 primarily consists of $1.8 million and $1.3 million, respectively, of interest expense.

Total other expense, net for the three months ended June 30, 2025 and 2024 primarily consists of $1.8 million and $1.4 million, respectively, of interest expense.

Interest expense increased by $0.4 million compared to the prior period primarily due to the debt discount amortization partially offset by lower interest rates.

Total other expense, net for the six months ended June 30, 2025 and 2024 primarily consists of $3.6 million and $2.7 million, respectively, of interest expense.

Interest expense increased by $1.0 million compared to the prior period primarily due to the debt discount amortization partially offset by lower interest rates.

Liquidity and Capital Resources

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In connection with this post, 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.

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

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

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

Additionally, the Company (1) incurred a net loss of $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 amended, the “Credit Agreement”), dated July 7, 2023, with East West Bank (“EWB”), as lender, which matures in July 2025, (5) was notified by Nasdaq on October 18, 2024 that it was not in compliance with Nasdaq's minimum stockholders' equity requirement and is currently subject to a delisting letter and a hearings and appeal process.

Additionally, the Company (1) incurred a net loss of $10.1 million for the six months ended June 30, 2025 including the impact of the sell-side disruption described above, (2) reported an accumulated deficit of $13.4 million as of June 30, 2025, (3) reported cash and cash equivalents of $1.6 million as of June 30, 2025, (4) has borrowed $3.7 million as of June 30, 2025 and the date of this report, under the Credit Agreement (as amended, the “Credit Agreement”), dated July 7, 2023, with East West Bank (“EWB”), as lender, which matured in July 2025, (5) was notified by Nasdaq on October 18, 2024 that it was not in compliance with Nasdaq's minimum stockholders' equity requirement 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, cash flow from operations and cash generated from its sales under the Company's Equity Reserve Facility and has taken several actions to address liquidity concerns.

These actions include (1) a plan to reduce expenses through a staff reduction, a pause on hiring and cost savings measures that were executed on July 1, 2024 with continuing cost saving 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 to our condensed consolidated financial statements) 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 to our condensed consolidated financial statements ) , and (4) a plan to achieve compliance with Nasdaq's minimum stockholders' equity requirements by raising additional funds in a registered or private offering.

The Company anticipates sources of liquidity to include cash on hand, cash flow from operations, cash generated from its sales under the Company's Equity Reserve Facility and cash generated from other potential sales of equity and/or debt securities 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 with continuing cost saving impacts through June 30, 2025, (2) working with lenders to provide temporary various relief from debt covenants via amendments on October 15, 2024, December 27, 2024, July 17, 2025 and August 5, 2025 (see Note 3 — Long-Term Debt to our condensed consolidated financial statements) 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 to our condensed consolidated financial statements ) , and (4) a plan to achieve compliance with Nasdaq's minimum stockholders' equity requirements by raising additional funds in a registered or private offering.

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

Sources of Liquidity

The following table summarizes our cash and cash equivalents, and working capital deficit on March 31, 2025 and December 31, 2024 (in thousands):

March 31, 2025 December 31, 2024

The following table summarizes our cash and cash equivalents, and working capital deficit on June 30, 2025 and December 31, 2024 (in thousands):

June 30, 2025 December 31, 2024

Cash and cash equivalents $ 1,593 $ 1,445

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Historical Cash Flows:

The following table sets forth our cash flows for the three months ended March 31, 2025 and 2024 (in thousands):

Three Months Ended March 31,

The following table sets forth our cash flows for the six months ended June 30, 2025 and 2024 (in thousands):

Six Months Ended June 30,

Net cash used in operating activities $ (5,398) $ (10,111)

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Net increase (decrease) in cash and cash equivalents $ 148 $ (4,047)

Our cash and cash equivalents at March 31, 2025 were held for working capital and general corporate purposes.

Our cash and cash equivalents at June 30, 2025 were held for working capital and general corporate purposes.

The increase in cash and cash equivalents compared with December 31, 2024, primarily resulted from $5.6 million in cash flows provided by financing activities partially offset by $5.4 million in cash flows used in operating activities.

Operating Activities

For the Three Months Ended March 31, 2025 and 2024

For the Six Months Ended June 30, 2025 and 2024

Cash provided by operating activities has typically been generated from net income and by changes in our operating assets and liabilities, particularly in the areas of accounts receivable and accounts payable and accrued expenses, adjusted for certain non-cash and non-operating expense items such as depreciation, amortization, stock-based compensation and deferred income taxes.

For the three months ended March 31, 2025, net cash flows used in operating activities were $2.7 million and consisted of net loss of $5.9 million, offset by $2.9 million in adjustments for non-cash and non-operating items and $0.3 million of cash inflows from working capital.

For the six months ended June 30, 2025, net cash flows used in operating activities were $5.4 million and consisted of net loss of $10.1 million, offset by $5.0 million in adjustments for non-cash and non-operating items and $0.3 million of cash outflows from working capital.

Adjustments for non-cash and non-operating items mainly consisted of depreciation and amortization expense of $4.1 million, stock-based compensation expense of $0.7 million and expenses for the equity reserve facility of $0.2 million.

The $0.3 million increase in cash resulting from changes in working capital primarily consisted of a $0.6 million decrease in accounts receivable and a $0.3 million increase in accrued expenses such as payroll and payroll related expenses, partially offset by a $0.6 million decrease in accounts payable.

The decrease in accounts payable and accounts receivable is mainly due to the continued impact from the May 2024 temporary disconnection by a significant customer as a result of a customer investigating a defamatory article / blog post against the Company.

For the three months ended March 31, 2024, net cash flows used in operating activities were $5.7 million and consisted of net loss of $3.8 million, offset by $1.1 million in adjustments for non-cash and non-operating items and $3.0 million of cash outflows from working capital.

Adjustments for non-cash and non-operating items mainly consisted of depreciation and amortization expense of $0.8 million, stock-based compensation expense of $0.5 million and partially offset by deferred tax benefit of $0.2 million.

The $3.0 million decrease in cash resulting from changes in working capital primarily consisted of a $18.1 million decrease in accounts payable and a $0.7 million decrease in accrued expenses

partially offset by a $15.8 million decrease in accounts receivable.

The decrease in accounts payable and accounts receivable is mainly due to the typical seasonal decrease in revenue in the first quarter compared to the fourth quarter.

The $0.3 million decrease in cash resulting from changes in working capital primarily consisted of a $1.5 million decrease in accounts payable and a $0.8 million increase in prepaid expense partially offset by a $1.1 million decrease in accounts receivable and a $1.0 million increase in accrued expenses such as payroll and payroll related expenses.

The decrease in accounts payable and accounts receivable is mainly due to the continued impact from the May 2024 temporary disconnection by a significant customer as a result of the customer investigating a defamatory article / blog post against the Company.

For the six months ended June 30, 2024, net cash flows used in operating activities were $10.1 million and consisted of net loss of $7.0 million, offset by $1.7 million in adjustments for non-cash and non-operating items and $4.9 million of cash outflows from working capital.

Adjustments for non-cash and non-operating items mainly consisted of depreciation and amortization expense of $1.6 million and stock-based compensation expense of $0.7 million partially offset by a deferred tax benefit of $0.5 million.

The $4.9 million decrease in cash resulting from changes in working capital primarily consisted of a $21.6 million decrease in accounts payable and a $1.2 million decrease in accrued expenses partially offset by a $17.7 million decrease in accounts receivable.

The decrease in accounts payable and accounts receivable is mainly due to the typical seasonal decrease in revenue in the first half of the year compared to the fourth quarter.

Investing Activities

For the Three Months Ended March 31, 2025 and 2024

For the Six Months Ended June 30, 2025 and 2024

Our investing activities to date have consisted primarily of purchases of software, office furniture and leasehold improvements.

For the three months ended March 31, 2025 and 2024, net cash flows used in investing activities of less than $0.1 million were primarily related to office furniture and leasehold improvements.

For the six months ended June 30, 2025 and 2024, net cash flows used in investing activities of less than $0.1 million were primarily related to office furniture and leasehold improvements.

Financing Activities

For the Three Months Ended March 31, 2025 and 2024

For the three months ended March 31, 2025, net cash provided by financing activities was $3.1 million mainly resulting from $3.3 million of proceeds from issuance of Class A Common Stock under the Equity Reserve Facility partially offset by $0.2 million for payments on deferred financing costs.

For the three months ended March 31, 2024, net cash provided by financing activities was $3.9 million mainly resulting from $4.0 million of proceeds from line of credit.

For the Six Months Ended June 30, 2025 and 2024

For the six months ended June 30, 2025, net cash provided by financing activities was $5.6 million mainly resulting from $5.9 million of proceeds from issuance of Class A Common Stock under the Equity Reserve Facility partially offset by $0.2 million for payments of expenses for the Equity Reserve Facility and deferred financing costs.

For the six months ended June 30, 2024, net cash provided by financing activities was $6.1 million mainly resulting from $6.7 million of proceeds from line of credit.

Contractual Obligations and Future Cash Requirements

As of March 31, 2025, our principal contractual obligations expected to give rise to material cash requirements consist of the 2021 Credit Facility, the Credit Agreement and non-cancelable leases for our various facilities.

We anticipate that the future minimum payments related to our current indebtedness over the next five years will be $3.7 million in 2025, $37.4 million in 2026, less than $0.1 million in each of 2027, 2028, and 2029, and $0.1 million thereafter, assuming we do not refinance our indebtedness or enter into a new credit facility.

As of June 30, 2025, our principal contractual obligations expected to give rise to material cash requirements consist of the 2021 Credit Facility, the Credit Agreement and non-cancelable leases for our various facilities.

We anticipate that the future minimum payments related to our current indebtedness over the next five years will be $3.7 million in the remainder of 2025, $37.4 million in 2026, less than $0.1 million in each of 2027, 2028, and 2029, and $0.1 million thereafter, assuming we do not refinance our indebtedness or enter into a new credit facility.

The leases will require minimum payments of $0.1 million in 2025, $0.3 million in 2026, $0.3 million in 2027, $0.2 million in 2028, $0.2 million in 2029, and less than $0.1 million thereafter.

As of March 31, 2025, we had cash and cash equivalents of $1.8 million.

As of June 30, 2025, we had cash and cash equivalents of $1.6 million.

Non-GAAP Financial Measures

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Three Months Ended

June 30, Six Months Ended

2025 2024 2025 2024

Net loss $ (4,196) $ (3,141) $ (10,136) $ (6,961)

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We believe that this non-GAAP financial measure is useful to investors for period-to-period comparisons of our business and in understanding and evaluating our operating results for the following reasons:

• Adjusted EBITDA is widely used by investors and securities analysts to measure a company’s operating performance without regard to items such as depreciation and amortization, interest expense, provision for income taxes, stock-based compensation, and certain one-time items such as acquisition transaction costs and costs for the Equity Reserve Line that can vary substantially from company to company depending upon their financing, capital structures and the method by which assets were acquired;

• Adjusted EBITDA is widely used by investors and securities analysts to measure a company’s operating performance without regard to items such as depreciation and amortization, interest expense, provision for income taxes, stock-based compensation, and certain one-time items such as acquisition transaction costs and costs for the Equity Reserve Facility that can vary substantially from company to company depending upon their financing, capital structures and the method by which assets were acquired;

• Our management uses Adjusted EBITDA in conjunction with GAAP financial measures for planning purposes, including the preparation of our annual operating budget, as a measure of operating performance and the effectiveness of our business strategies and in communications with our board of directors concerning our financial performance;

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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 2. Management’s Discussion and Analysis