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. Any shutdown of the federal government, including the one that began on October 1, 2025, can delay our ability to conduct public offerings including by filing a registration statement with the U.S. Securities and Exchange Commission, which could have a material adverse effect on our business and operations. Over the last several years, the U.S. government shut down several times and certain regulatory agencies, such as the Securities and Exchange Commission (the “SEC”), had to furlough critical employees and stop critical activities. The U.S. federal government’s new fiscal year began October 1, 2025, without the passage of appropriation acts or a continuing resolution (“CR”) and the government began its shutdown procedures, to include furloughing government civilian employees. It is unclear at this time when either a CR or appropriations act will be enacted. Federal agencies have published guidance for identifying those functions that may continue to be carried out in the absence of available appropriations. Certain SEC functions, like the Staff of the SEC’s Division of Corporation Finance’s review and acceleration of effectiveness of registration statements filed pursuant to the Securities Act of 1933, as amended, have been suspended. This means that the Company may not be able to have declared effective a registration statement for a public offering or a resale registration statement for a selling stockholder on the timeline desired by the Company, or at all. If a 45 Table of Contents prolonged government shutdown occurs, it could significantly impact our ability to access the public markets and obtain necessary capital in order to properly capitalize and continue our operations. 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”). The Company’s Quarterly Report on Form 10-Q for the period ended June 30, 2024 reported a stockholders’ deficit of $8.77 million. 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, and granted the Company’s request for an extension through October 14, 2025 to do so, subject to the Company’s satisfaction of certain interim conditions. Since June 30, 2025, the Company completed a series of transactions including the sale of Class A Common Stock under the Equity Reserve Facility and a conversion and exchange of term loans of $35.0 million into shares of Series A Preferred Stock, as described elsewhere. On November 7, 2025, the Panel notified the Company that the Staff has determined that the Company has evidenced compliance with the Stockholders’ Equity Requirement, but that the Panel has imposed a discretionary panel monitor for a period of one year. Should the Company fail to maintain compliance with any continued listing requirement, the Staff will issue a delist determination letter and the Company may seek a new hearing with the Panel. Also as previously disclosed, on May 12, 2025, the Company received a second notice (the “Second Notice”) from the Staff notifying the Company that because 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, 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 5550(a)(2) (the “Bid Price Rule”). The Second Notice states that the Company has 180 calendar days from the date of the Second Notice, or until November 10, 2025, to regain compliance with the Bid Price Rule. As of November 10, 2025, the Company was not in compliance with the Bid Price Rule; however, on November 7, 2025, the Panel granted the Company an exception until January 30, 2026, to demonstrate compliance with that rule. If at any time before November 10, 2025, the bid price for the Company’s Class A Common Stock closes at or above $1.00 per share for a minimum of 10 consecutive business days (which number of days may be extended by Nasdaq), Nasdaq will provide written notification that the Company has achieved compliance with the Bid Price Rule, and the matter will be closed. The Company is considering all available options to resolve the deficiency and regain compliance with the applicable Nasdaq Listing Rules within the timeframes required by Nasdaq. However, there can be no assurance that the Company will be able to complete 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.” 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 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. In addition, holders of our Series A Preferred Stock may be impacted due to the lack of liquidity of the Class A Common Stock into which the Series A Preferred Stock is convertible. 46 Table of Contents 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.