DRCT 10-K & 10-Q changes, risk factors and insider trading

The following is a summary of some of the risks and uncertainties that could materially adversely affect our business, financial condition and results of operations and could make an investment in our Company speculative or risky. You should be aware that these risk factors and other information may not describe every risk facing our Company. Additional risks and uncertainties not currently known to us may also materially adversely affect our business, financial condition and/or results of operations. You should read this summary together with the more detailed description of each risk factor contained below. Some of these material risks include:

•The substantial doubt raised about our ability to continue as a going concern, which may hinder our ability to obtain future financing;financing.

•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;Market.

Our credit facilities, as defined in Note 3 — Long-Term Debt in the Notes to Consolidatedour Financialconsolidated Statementsfinancial for the fiscal years ended December 31, 2024 and 2023,statements, contain affirmative and negative covenants. On December 27, 2024, the financial covenants in our credit facilities were modified to addincluding a minimum unrestricted cash requirement of $750,000$450,000 at all times and remove the minimum consolidated EBITDA requirement.times. These covenants may limit the amount of our borrowing available under the credit facilities, affect our ability to operate our business and may limit our ability to have sufficient funding or otherwise to take advantage of potential business opportunities as they arise.

Our ability to comply with the covenants and restrictions contained in the credit facilities may be affected by events beyond our control, including prevailing economic, financial, and industry conditions. If the market or other economic conditions deteriorate, our ability to comply with these covenants may be impaired. A failure to comply with these provisions could result in a default or an event of default. Upon an event of default, unless waived, the lenderslender could elect to terminate commitments, cease making further loans, cause theirits loansloan to become due and payable in full and force us into bankruptcy or liquidation. If the payment of our debt is accelerated, our assets may be insufficient to repay such debt in full, and the holders of our stock could experience a partial or total loss of their investment.

Our ability to (1) renew our existing term credit facility, which matures on December 3, 2026, (2) renew our existing revolving credit facility, which matures on July 7, 2025 or (32) enter into any new credit facility may be limited due to various factors, including the status of our business, global credit market conditions and perceptions of our business or industry by sources of financing. In addition, if credit is available, lenders may seek more restrictive covenants and higher interest rates that may reduce our borrowing capacity, increase our costs and reduce our operating flexibility.

We may be subject to fraudulent or malicious activities undertaken by persons seeking to use our sell-side or buy-side platform for improper purposes, which could materially affect us. For example, our sell-side platform could be used to divert or artificially inflate advertiser purchases, or to disrupt or divert the operation of our systems and the devices of our publishers and their consumers in order to misappropriate information, generate fraudulent billings, stage cyberattacks, or for other illicit purposes. In addition, the success of our buy-side advertising business depends on our ability to deliver effective digital advertising campaigns to publishers, advertisers and agencies. Some of those campaigns may experience fraudulent and other invalid impressions, clicks or conversions that advertisers may perceive as undesirable, such as non-human traffic generated by computers designed to simulate human users and artificially inflate user traffic on websites. These activities could overstate the performance of our business, including any given digital advertising campaign, and could harm our reputation. It may be difficult for us to detect fraudulent or malicious activity because we do not own content and rely in part on our digital media properties to control such activity. Industry self- regulatoryself-regulatory bodies, the U.S. Federal Trade Commission (the “FTC”) and certain influential members of Congress have increased their scrutiny and awareness of, and have taken recent actions to addressaddress, advertising fraud and other malicious activity. If we fail to detect or prevent fraudulent or other malicious activity, the affected advertisers may experience or perceive a reduced return on their investment and our reputation may be harmed. High levels of fraudulent or malicious activity could lead to dissatisfaction with our solutions, refusals to pay, refund or future credit demands or withdrawal of future business, any of which could have a material adverse effect on our business, prospects or results of operations.

Our platform is complex and multifaceted. Operational and performance issues could arise from the platform itself or from outside factors, such as cyberattacks or other third-party attacks. Errors, failures, vulnerabilities or bugs have been found in the pastpast, and may be found in the future. Our platform also relies on third-party technology and systems to perform properly. It is often used in connection with computing environments utilizing different operating systems, system management software, equipment and networking configurations, which may cause errors in, or failures of, our platform or such other computing environments. Operational and performance issues with our platform could include the failure of our user interface, outages, errors during upgrades or patches, discrepancies in costs billed versus costs paid, unanticipated volume overwhelming our databases, server failure or catastrophic events affecting one or more server facilities. While we have built redundancies in our systems, full redundancies do not exist. Some failures will shut our platform down completely, others only partially. We provide service-level agreements to some of our customers, and if our platform is not available for specified amounts of time or if there are failures in the interaction between our platform, partner platform and third-party technologies, we may be required to provide credits or other financial compensation to our customers.

Some consumers also download free or paid “ad-blockingad blocking” software on their computers or mobile devices, not only for privacy reasons, but also to counteract the adverse effect advertisements can have on the consumer experience, including increased load times, data consumption and screen overcrowding. Ad-blockingAd- blocking technologies and other global privacy controls may prevent some third-party cookies, or other tracking technologies, from being stored on a consumer’s computer or mobile device. If more consumers adopt these measures, our business, results of operations, and financial condition could be adversely affected. Ad-blocking technologies could have an adverse effect on our business, results of operations and financial condition if they reduce the volume or effectiveness and value of advertising. In addition, some ad-blocking technologies block only ads that are targeted through use of third-party data, while allowing ads based on first-party data (i.e., data owned by the publisher). These ad-blockersad- blockers could place us at a disadvantage because we rely on third-party data, while some large competitors have a significant amount of first-party data they use to direct advertising. Other technologies allow ads that are deemed “acceptable,” which could be defined in ways that place us or our publishers at a disadvantage, particularly if such technologies are controlled or influenced by our competitors. Even if ad-blockersad- blockers do not ultimately have an adverse effect on our business, investor concerns about ad-blockersad- blockers could cause our stock price to decline.

•Government entities typically fund projects through appropriated monies and demand is affected by public sector budgetary cycles and funding authorizations.authorizations;

•Government contracts are subject to heightened reputational and contractual risks compared to contracts with commercial clients, including additional scrutiny and publicity.publicity;

The requirements of being a public company havemay increasedstrain our operating expenses and mayresources, divert our management’s attention.

As a public company, we are subject to the reporting requirements of the Exchange ActAct, and are required to comply with the applicable requirements of the Sarbanes-Oxley Act and the Dodd-Frank Wall Street Reform and Consumer Protection Act, the listing requirements of theThe Nasdaq Capital Market, and other applicable securities rules and regulations. Compliance with these rules and regulations has increased our legal and financial compliance costs, made some activities more difficult, time-consuming or costly and increased demand on our systems and resources. Among other things, the Exchange Act requires that we file annual, quarterly and current reports with respect to our business and operating results and maintain effective disclosure controls and procedures and internal controls over financial reporting. Significant resources and management oversight is required to maintain and, if required, improve our disclosure controls and procedures and internal controls over financial reporting to meet this standard. As a result, management’s attention may be diverted from other business concerns, which could harm our business and operating results. Although we have already hired additional employees to comply with these requirements, we may need to hire even more employees in the future, which will increase our costs and expenses.

Our business depends on the overall demand for advertising and on the economic health of advertisers and publishers that benefit from our platform. Economic downturns or unstable market conditions, such as those potentially created by high price inflation, increasing interest rates, the imposition by the U.S. Government of tariffs and other trade barriers, as well as any retaliation by trade partners, health pandemics or geopolitical instability may cause advertisers to decrease their advertising budgets, which could reduce spend though our platform and adversely affect our business, results of operations, and financial condition. As we explore new countries into which we can expand our business, economic downturns or unstable market conditions in any of those countries could result in our investments not yielding the returns we anticipate. Additionally, actual events involving limited liquidity, defaults, non-performance or other adverse developments that affect financial institutions, transactional counterparties or other companies in the financial services industry or the financial services industry generally, or concerns or rumors about any events of these kinds or other similar risks, have recently and may in the future lead to market-wide liquidity problems, which could also lead advertisers to decrease their advertising budgets and/or reduce their spend though our platform. This uncertainty regarding liquidity concerns in the financial services industry could adversely impact our business, our business partners, or industry as a whole in ways that we cannot predict at this time.

TheA substantial majorityportion of our revenue has been derived from customers that programmatically purchase or sell advertising inventory through our platform. We expect that spending on programmatic ad buying and selling will continue to be our primarya source of revenue for the foreseeable future, and that the velocity of our revenue growth will largely depend on increasing spend through our platform. The market for programmatic ad buying is an emerging market, and our current and potential customers may not shift quickly enough to programmatic ad buying from other buying methods, reducing our growth potential. Because our industry is relatively new, we will encounter risks and difficulties frequently encountered by early-stage companies in similarly rapidly evolving industries, including the need to:

Our sales cycle, from initial contact to contract execution and implementation, can take significant time. Our sell-side sales cycle often has a duration of six-to-12six-to-twelve months, while our buy-side business sales cycle often has a duration of three-to-nine months. As part of our sales cycle, we may incur significant expenses before we generate any revenue from a prospective customer. We have no assurance that the substantial time and money spent on our sales efforts will generate significant revenue. If conditions in the marketplace, generally or with a specific prospective customer, change negatively, it is possible that we will be unable to recover any of these expenses. Our sales efforts involve educating our customers about the use, technical capabilities and benefits of our platform, and working through technical connections and troubleshooting technical issues with prospective customers. Some of our customers undertake an evaluation process that frequently involves not only our platform but also the offerings of our competitors. As a result, it is difficult to predict when we will obtain new customers and begin generating revenue from these new customers. Even if our sales efforts result in obtaining a new customer, the customer controls when and to what extent it uses our platform and therefore the amount of revenue we generate, and it may not sufficiently justify the expenses incurred to acquire the customer and the related training support. As a result, we may not be able to add customers, or generate revenue, as quickly as we may expect, which could harm our growth prospects.

Our business depends on the overall demand for advertising and on the economic health of our current and prospective sellers and advertisers. If advertisers reduce their overall advertising spending, our revenue and results of operations are directly affected. For Colossus SSP, many advertisers devote a disproportionate amount of their advertising budgets to the third and fourth quarters of the calendar year to coincide with the annual holiday purchasing season, and buyers may spend more on advertising campaigns in the second and third quarters for seasonality and budget reasons. As a result, if any events occur to reduce the amount of advertising spending during the second, third or fourth quarters, or reduce the amount of inventory available to advertisers during that period, such as adverse economic conditions or economic uncertainty, it could have a disproportionate adverse effect on our revenue and operating results for that fiscal year. Economic downturns or instability in political or market conditions generally may cause current or new advertisers to reduce their advertising budgets. Reductions in inventory due to loss of sellers would make our solution less robust and attractive to buyers. Adverse economic conditions and general uncertainty about economic recovery are likely to affect our business prospects. In particular, uncertainty regarding the impacts of inflation, increasing interest rates,rates and the imposition by the U.S. Government of tariffs and other trade barriers, as well as any retaliation by trade partners, and military conflictswar in Ukraine andon the Middleeconomy Eastin the United States may cause general business conditions in the United States and elsewhere to deteriorate or become volatile, which could cause advertisers to delay, decrease or cancel purchases of our solution, and expose us to increased credit risk on advertiser orders. Moreover, any changes in the favorable tax treatment of advertising expenses and the deductibility thereof would likely cause a reduction in advertising demand.

We are subject to securities class action litigation, which is expensive and could divert our management’s attention, harm our reputation, and leave us liable for substantial damages. For example, on May 23, 2024, an alleged stockholder, purportedly on behalf of the persons or entities who purchased or acquired publicly traded securities of the Company between April 2023 and March 2024, filed a putative class action against the Company, certain of our officers and directors, and other defendants in the U.S. District Court for the Southern District of Texas, alleging violations of federal securities laws related to alleged false or misleading disclosures made by the Company in its public filings. On July 9, 2024, another alleged stockholder filed a similar securities class action against the Company, certain of our officers and directors, also in the Southern District of Texas. These two actions have now been consolidated. Each of these complaints seeks unspecified damages, plus costs, fees, and attorneys’ fees. AsOn theseAugust actions7, are2025, stillthe district court granted the Company's motion to dismiss in full and with prejudice. The lead plaintiff has since appealed that dismissal and has filed an opening brief on November 3, 2025. The Company filed a response brief on January 2, 2026. The lead plaintiff filed a reply brief on February 6, 2026. The Company now awaits the earlyCourt's stages,decision about whether to set the case for oral argument. The Company cannot predictmake any predictions about the final outcome of this matter or the timing thereof but believes that plaintiffs’ claims lack merit and intends to vigorously defend these matters.lawsuits.

The sale or issuance of our Class A Common Stock to New Circle pursuant to the Purchase Agreement may cause dilution and the sale of the shares of Class A Common Stock acquired by New Circle, or the perception that such sales may occur, could cause the price of our Class A Common Stock to be volatile.decrease.

On October 18, 2024, we entered into a share purchase agreement, dated October 18, 2024 (the “Purchase Agreement”), with New CircleCircle, Principalwhich Investmentswas LLC,subsequently amended, pursuant to which (i) we issued 62,7621,141 shares of Class A Common Stock having an aggregate value of approximately $150,000 (the “Commitment Shares”) to New Circle as the Commitment Shares, as partial consideration for New Circle’s commitment to purchase shares of Class A Common Stock under the Purchase Agreement in lieu of a cash payment, and (ii) New Circle has committed to purchase up to $20$100 million of our Class A Common Stock. In addition, we issued 1,818 shares of Class A Common Stock to New Circle in October 2025 as partial consideration for the amendment that increased the commitment size from $20 million to $100 million.

The shares of our Class A Common Stock that may be issued under the Purchase Agreement may be sold by us to New Circle at our discretion from time to time over athe 36-month period following the date on which all of the conditions set forth in the Purchase Agreement were satisfied, which occurred shortly after the SEC declared our registration statementCommencement (File No. 333-282762) (the “First Registration Statement”) with a prospectus (the “First Prospectus”) effective on November 4, 2024 (the “Commencement”, and such date on which all of such conditions wereare satisfied, the “Commencement Date”). The Firstpurchase Registrationprice Statement andfor the First Prospectus covered the initial resale by New Circle of up to 2,932,113 shares of our Class A Common Stock, which was comprised of: (i) 62,762 Commitment Shares and (ii) 2,869,351 shares that we may issue and sell to New Circle under the Purchase Agreement,Agreement whichwill itfluctuate based on the price of our Class A Common Stock. Depending on market liquidity at the time, sales of such shares may then resell undercause the Priortrading Prospectusprice (suchof shares,our theClass “InitialA ResaleCommon Shares”), if and when we sell sharesStock to New Circle under the Purchase Agreement.decrease.

We have the right to control the timing and amount of any future sales of our shares to New Circle, subject to certain limitations set forth in the Purchase Agreement. Additional sales of theour ResaleClass Shares,A Common Stock, if any, to New Circle will depend upon market conditions and other factors to be determined by us. We may ultimately decide to sell to New Circle all, some or none of the Resaleadditional Sharesshares of our Class A Common Stock that may be available for us to sell pursuant to the Purchase Agreement. If and when we do sell Resaleadditional Sharesshares to New Circle, after New Circle has acquired suchthe shares, New Circle may resell all, some or none of those shares at any time or from time to time in its discretion. Therefore, sales to New Circle by us could result in substantial dilution to the interests of other holders of our Class A Common Stock. Additionally, the sale of a substantial number of shares of our Class A Common Stock to New Circle, or the anticipation of such sales, could make it more difficult for us to sell equity or equity-related securities in the future at a time and at a price that we might otherwise wish to effect sales.

Further, we are not restricted from issuing additional securities in the future (other than through a variable rate transaction, subject to certain exceptions), including shares of our Class A Common Stock, securities that are convertible into or exchangeable for, or that represent the right to receive, our Class A Common Stock or substantially similar securities. To the extent that we raise additional funds through the sale of equity or convertible debt securities, the issuance of such securities will result in further dilution to our stockholders.

We may direct New Circle to purchase up to $20$100 million worth of shares of our Class A Common Stock under our agreement over a 36-month period pursuant to purchase notices that we deliver to New Circle under the Purchase Agreement. Unless otherwise waived by New Circle, the maximum number of shares that may be purchased pursuant to each purchase notice is equal to a number of shares up to the lesser of (i) the number of shares equal to 100% of the average daily trading volume of our Class A Common Stock during the five trading days immediately preceding the date of our purchase notice or (ii) 100,000 shares, provided that New Circle may agree, in its sole discretion to waive such provision and purchase shares in excess of such amounts in connection with one or more particular purchase notices.

The extent we rely on New Circle as a source of funding will depend on a number of factors including the prevailing market price of our Class A Common Stock and the extent to which we are able to secure financing from other sources. If obtaining sufficient financing from New Circle were to prove unavailable or prohibitively dilutive, we may need to secure another source of funding in order to satisfy our financing needs. Even if we sell all $20$100 million under the Purchase Agreement to New Circle, we may still need additional capital to finance our future working capital needs, and we may have to raise funds through the issuance of equity or debt securities. Depending on the type and the terms of any financing we pursue, stockholders’ rights and the value of their investment in our Class A Common Stock could be reduced. A financing could involve one or more types of securities including Class A Common Stock, convertible debt,debt or warrants to acquire Class A Common Stock or preferred stock.Stock. These securities could be issued at or below the then prevailing market price for our Class A Common Stock. We currently have no authorized series of preferred stock, but our board of directors has the authority, subject to limitations prescribed by Delaware law, to issue up to 10,000,000 shares of “blank check” preferred stock in one or more series. In addition, if we issue secured debt securities, the holders of the debt would have a claim to our assets that would be seniorprior to the rights of stockholders until the debt is paid. Interest on these debt securities would increase costs and negatively impact operating results. If the issuance of new securities results in diminished rights to holders of our Class A Common Stock, the market price of our Class A Common Stock could be negatively impacted.

We have identified a material weaknessesweakness in our internal control over financial reporting, which could, if not remediated, result in material misstatements in our financial statements.

The Company is responsible for establishing and maintaining adequate internal control over financial reporting, as defined in Rule 13a-15(f) under the Securities Exchange Act of 1934. As disclosed in Item 9A of this Annual Report on Form 10-K, theThe Company identified a material weaknessesweakness in its internal control over a combination of deficiencies related to journal entry processes, information technology general controls (“ITGC”), and the technical evaluation of accounting matters inthat 2023existed (theas “2023of MaterialDecember Weaknesses”).31, 2023, 2024 and 2025. A material weakness is defined as a deficiency, or combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of the Company’s annual or interim financial statements will not be prevented or detected on a timely basis. As a result of thesethis material weaknesses,weakness, the Company concluded that its internal control over financial reporting was not effective as of December 31, 2023.2025.

The Company began the process of designing and implementing effective internal control measures to improve its internal controls over the journal entry processes and ITGC associated with the 2023 Material Weaknesses and remediated these material weaknesses. The Company believes significant progress was made in 2024 to enhance and strengthen its internal control over the technical evaluation of accounting matters. However, these internal controls were not in all cases in place for a sufficient period of time to demonstrate operating effectiveness as of December 31, 2024. As a result, the Company's management concluded that the material weakness related to technical evaluation of accounting matters was not fully remediated as of December 31, 2024. If additional material weaknesses in the Company’s internal control over financial reporting are discovered or occur in the future, the Company’s consolidated financial statements may contain material misstatements, and the Company could be required to restate its financial results. In addition, our ability to produce timely and accurate financial statements and comply with applicable laws and regulations will be impaired. If we are unable to report our results in a timely and accurate manner, we may not be able to comply with the applicable covenants in our financing arrangements and may be required to seek additional amendments or waivers under these financing arrangements, which may not be granted and could adversely impact our liquidity and financial condition. Failure to produce timely and accurate financial statements could also impair our access to the capital markets and/or materially and adversely impact the trading price of our Class A Common Stock.

The Sarbanes-Oxley Act requires, among other things, that we maintain effective disclosure controls and procedures and internal control over financial reporting. We are continuing to develop and refine our disclosure controls and other procedures that are designed to ensure that information required to be disclosed by us in the reports that we file with the SEC is recorded, processed, summarized and reported within the time periods specified in SEC rules and forms. We are also continuing to improve our internal control over financial reporting. We have expended, and anticipate that we will continue to expend, significant resources in order to maintain and improve the effectiveness of our disclosure controls and procedures and internal control over financial reporting. Our current controls and any new controls that we develop may become inadequate because of changes in conditions in our business. Further, weaknesses in our disclosure controls or our internal control over financial reporting may be discovered in the future. Any failure to develop or maintain effective controls, or any difficulties encountered in their implementation or improvement, could harm our operating results or cause us to fail to meet our reporting obligations and may result in a restatement of our consolidated financial statements for prior periods. Any failure to implement and maintain effective internal control over financial reporting could also adversely affect the results of management reports and independent registered public accounting firm audits of our internal control over financial reporting that we are required to include in our periodic reports that are filed with the SEC. Ineffective disclosure controls and procedures, and internal control over financial reporting could also cause investors to lose confidence in our reported financial and other information, which would likely have a negative effect on the market price of our Class A Common Stock. In addition, if we are unable to continue to meet these requirements, we may not be able to remain listed on the Nasdaq Capital Market. Our independent registered public accounting firm is not required to audit the effectiveness of our internal control over financial reporting until after we are no longer an “emerging growth company,” as defined in the Jumpstart Our Business Startups Act of 2012. At such time, our independent registered public accounting firm may issue a report that is adverse in the event it is not satisfied with the level at which our internal control over financial reporting is documented, designed or operating. Any failure to maintain effective disclosure controls and internal control over financial reporting could have a material and adverse effect on our business and operating results and cause a decline in the market price of our Class A Common Stock.

If we fail to satisfymaintain compliance with 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.

In the past, the Company was not in compliance with the minimum stockholders’ equity requirement for continued listing under Nasdaq Listing Rule 5550(b)(1) (the “Stockholders’ Equity Rule”) or the minimum bid price rule for continued listing under Nasdaq Listing Rule 5550(a)(2) (the "Bid Price Rule"). The Company is also subject to a discretionary panel monitor which lasts until November 7, 2026 for the Stockholders' Equity Rule and February 12, 2027 for the Bid Price Rule. As reported in our consolidated financial statements, the Company believes that it is not in compliance with the Stockholders' Equity Rule as of December 31, 2025. Should Nasdaq determine that the Company fails to maintain compliance with any Nasdaq continued listing requirement during a panel monitor period, the Staff of Nasdaq’s Listing Qualifications Department will issue a delist determination letter and the Company may seek a new hearing with the Panel. There can be no assurances, however, that we will be successful in regaining compliance with the continued listing requirements and maintaining the listing of our Class A Common Stock on the Nasdaq Capital Market. 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.

•our failureability to satisfymaintain applicablecompliance with the listing standards of the Nasdaq Capital Market resulting in a potential delisting of our common stock;

Direct Digital Holdings, Inc., incorporated as a Delaware corporation on August 23, 2021 and headquartered in Houston, Texas, 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 DDH LLC, the business formed by the Company’s founders in 2018 through acquisitions of Colossus Media and Huddled Masses. Colossus Media operates the Company’s proprietary sell-side programmatic platform operating under the trademarked banner of Colossus SSP. In September 2020, DDH LLC acquired 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. completed an initial public offering ofand itscertain securitiesorganizational and,transactions togetherwhich withresulted DDH LLC, effectedin the OrganizationalCompany's Transactionscurrent wherebyUp-C Direct Digital Holdings, Inc. became the sole managing member of DDH LLC, the holder of 100% of the voting interest of DDH LLC and the holder of 19.7% of the economic interests of DDH LLC, commonly referred tostructure as andescribed “Up-C” structure. Seein Note 6 — Related Party Transactions ofto our consolidated financial statements. 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 DDH LLC and as of December 31, 2024,2025, it owns 33.4%88.7% of the economic interest in DDH LLC. DDH LLC was formed on June 21, 2018 and acquired by the Company on February 15, 2022 in connection with theits Organizationalorganizational Transactions.transactions. DDH LLC’s wholly-owned subsidiaries are as follows:

Our sell-side advertising business, operated through Colossus Media, provides advertisers of all sizes a programmatic advertising platform that automates the sale of ad inventory between advertisers and marketers leveraging proprietary technology. Our platform reachesis intended to reach across a wide array of media partners to help brands, media holding companies, independent agencies or emerging businesses reach audiences, curated creators and helps publishers find the right brands for their readers, as well as drive advertising yields across all channels: web, mobile, and CTV. Our platform offers advertising inventory and creator content that aligns with brands, media holding companies and mid-market agencies focusing on key growth audiences.

Providing both the front-end, buy-side advertising operations coupled with our proprietary sell-side operations enablesis intended to enable us to curate the first through the last mile in the ad tech ecosystem execution process to drive higher results.

Operating segments are components of an enterprise for which separate financial information is available and evaluated regularly by our chief operating decision maker (“CODM”) for purpose of assessing performance and allocating resources. Our CODM is our Chairman and Chief Executive Officer. Revenue and operating income (loss) are used by our CODM to assess performance of our operating segments and allocate resources. WeOn operateand prior to December 31, 2025, we have operated 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.142. All our revenues are attributable to the United States. As further described below in the Liquidity and Capital Resources – Going Concern section, the Company has experienced a series of unexpected setbacks in the past two years, particularly in the sell-side. During 2025, the Company worked to reconstitute its prior business, target new customers and develop new products for the sell-side segment but was unable to achieve historical volumes. Beginning in 2026, the Company has shifted its focus to driving intentional digital marketing spend with current and future customers historically classified by the Company as buy-side customers as well as new enterprise customers accessing the digital advertising market through its recently launched product – Ignition+. In connection with this shift in focus, the Company is currently working on aggregating its operations.

Nasdaq RuleCompliance Noncompliance.Status.

On October 18, 2024, the Company entered into a Share Purchase Agreement (as amended, the “Purchase Agreement” and together with the facility as a whole, the “Equity Reserve Facility”) with New Circle Principal Investments LLC, a Delaware limited liability company (“New Circle”), and subsequently entered into amendments with New Circle on October 24, 2025 and on January 23, 2026, pursuant to which New Circle has committed to purchase, subject to certain limitations, up to $20$100 million (the “Total Commitment”) of the Company’s Class A common stock, par value $0.001 per share (the “Class A Common Stock”).Stock. 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. The Company sold 1,580,000433,806 and 28,727 shares of the Company's Class A Common Stock for $7.3 million and $3.0 millionmillion, respectively, during the yearyears ended December 31, 2025 and 2024. InSubsequent 2025,to December 31, 2025 and through the date of this report, the Company sold an additional 1,389,351865,000 shares of the Company's Class A Common Stock for $1.9$1.2 million.

Colossus Media operates our proprietary sell-side programmatic platform operating under the trademarked banner of Colossus SSP. 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 174,000 advertisers per month in 2025, an increase of 6,000, or 4%, over approximately 168,000 advertisers per month in 2024 compared to approximately 115,000 in 2023.2024. 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. To take advantage of this industry shift, we have entered into Supply Path Optimization agreements directly with customers which address acceptable advertisements and data usage. As part of these agreements, we provide advertisers and agencies with benefits ranging from custom data and workflow integrations, product features, volume-based business terms, and visibility into campaign performance data and methodology. As a result of these direct relationships, our existing advertisers and agencies are incentivized to allocate an increasing percentage of their advertising budgets to our platform. However, as discussed elsewhere in this Annual Report, including in Item 1A, "Risk Factors" of this Annual Report on Form 10-K, we continue to face challenges related to our return to historic levels of revenue and profitability.

We alsocontinue to strive to retain existing publishers and add new publishers. Our proprietary Colossus SSP platform was custom developed with a view towards the specific challenges facing small and mid-sized publishers with the belief that smaller publishers often offer a more engaged, highly-valued, unique following but experience technological and budgetary constraints on the path to monetization. Our business strategy on the sell-side also presents significant growth potential, as we believe we are well positioned to provide advertisers of all sizes with extensive market reach connecting partners with curated creators and audiences, optimizing the entire media chain to drive better results for clients. We believe that our technology curates unique, highly optimized audiences informed by data analytics, artificial intelligence and algorithmic machine-learning technology, resulting in increased campaign performance.

Each impression or transaction occurs in a fraction of a second. Given that most transactions take place in an auction/bidding format, we continuehave to make investmentsinvested across the platform to further reduce the processing time. In addition to the robust infrastructure supporting our platform, it is also critical that we align with key industry partners in the digital supply chain. The Colossus SSP is agnostic to any specific demand side platform.

We automate workflow processes whenever feasible to drive predictable and value-added outcomes for our customers and increase the productivity of our organization. InWe theutilize first half of 2023, we transitioned ourbest-in-class server platforminfrastructure toplatforms HPEthat Greenlake,together which providesprovide increased capacity, faster response time,times, and expansion capabilities to align with growth in our business.

We operate in the rapidly evolving digital advertising industry. Due to the scale and complexity of the digital advertising ecosystem, direct sales via manual, person-to-person processes are insufficient for delivering a real-time, personalized ad experience, creating the need for programmatic advertising. In turn, advances in programmatic technologies have enabled publishers to auction their ad inventory to more buyers, simultaneously, and in real time through a process referred to as header bidding. Header bidding has also provided advertisers with transparent access to ad impressions. As advertisers keep pace with ongoing changes in the way that consumers view and interact with digital media we anticipate further innovation and expect that header bidding will be extended into new areas such as OTT/CTV. We believe our focus on publishers and buyers has allowed us to understand their needs and our ongoing innovation has enabled us to quickly adapt to changes in the industry, develop new solutions and do so cost effectively.industry. Our performance depends on our ability to keep pace with industry changes such as header bidding and the evolving needs of our publishers and buyers while continuing our cost efficiency.

Our customers understand the independent nature of our platform and relentless focus on driving results based on ROI. Our value proposition is complete alignment across our entire digital supply platform beginning with the first dollar in and last dollar out. 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 80%90% client retention amongst the clients that represent approximately 80% of our revenue for 2024.retention. In addition, we cultivate client relationships through our pipeline of managed and moderate serve clients that conduct campaigns through our platform. The managed services delivery model allows us to combine our technology with a highly personalized offering to strategically design and manage advertising campaigns.

In connection with our analysis of principal vs agentprincipal-versus-agent considerations, we have evaluated the specified goods or services and we considered whether we control the goods or services before they are provided to the customer, including the three indicators of control. Based upon this analysis and our specific facts and circumstances, we concluded that we are a principal for the goods or services sold through both our sell-side advertising segment and ourbuy-side advertising segment. On the sell-side advertising segment, we combine goods or services into a combined output that forms a single performance obligation to the end customer while on the buy-side segmentadvertising becausesegment, we control the specified goodgoods or serviceservices before it is transferred to the customerend andcustomer. Additionally, we are the primary obligor in the agreement with thecustomers customer.in both our sell-side advertising segment and buy-side advertising segment. Therefore, we report revenue on a gross basis inclusive of all supplier costs and we paypays suppliers for the cost of digital media, advertising inventory, data and any add-on services or features.

Other income. Other income includes income associated with interestrecovery incomeof on cash balancesreceivables and other miscellaneous credit card rebates.

Consistent with the decrease in gross sales across both platforms, costCost of revenues of $24.3 million in 2025 decreased by $20.6 million, or 46%, from $44.9 million in 2024 decreased by $74.6 million, or 62%, from $119.5 million in 2023.2024. Sell-side advertising cost of revenues decreased $71.7$26.0 million, to $34.1$8.0 million, or 96%151% of sell-side revenue for the year ended December 31, 2024,2025, compared to $105.7$34.1 million, or 86%96% of sell-side revenue, for the same period in 2023.2024. The decrease in costs was primarily due to the related decrease in revenue, while the 10%55 percentage point increase as a percentage of revenue was due to an increase in fixed costs ofnot approximatelydecreasing $0.6 million related to an increase in server capacity and approximately $1.2 million related to new analytic, development and technology-related costs to supportat the growthsame asproportionate wellrate as the mixrevenue and concentration of publishers and the related costs.decline. Fixed cost of sell-side revenues for the secondyear halfended December 31, 2025 of 2024 of $2.1$3.5 million decreased by $0.6$1.3 million, or 21%,27%, from fixed cost of sell-side revenues of $2.7$4.8 million for the firstsame halfperiod ofin 2024. Buy-side advertising cost of revenues decreasedincreased $3.0$5.4 million, to $10.8$16.2 million, or 41%55% of buy-side revenuerevenue, for the year ended December 31, 2024,2025, compared to $13.8$10.8 million, or 40%41% of buy-side revenue, for the same period in 2023.2024. See gross profit changes described in more detail below.

Gross profit was $17.4$10.4 million in 2024,2025, or 30% of revenue, compared to $17.4 million, or 28% of revenue, compared to $37.6 million, or 24% of revenue, in 2023,2024, reflecting a decrease of $20.2$7.0 million or 54%.40%. The change in margin for the year ended December 31, 20242025 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 additionallower sell-side fixed costs related to an increase in server capacity and newcapacity, analytic, development and technology-related costs.

Sell-side advertising gross profit decreased $15.1$4.3 million for the year ended December 31, 20242025 as compared to prior year, primarily due to the increase in fixed costs of approximately $1.8 million related to our servers and analytic, development and technology-related costs and the decrease in revenues.revenue partially offset by lower fixed costs. Sell-side advertising gross margin was 4%(51)% and 14%4% for the years ended December 31, 20242025 and 2023,2024, respectively. Buy-side advertising gross profit decreased $5.1$2.7 million for the year ended December 31, 2024,2025, as compared to the same period in the prior year, primarily due to the decrease in revenue.year. Buy-side advertising gross margin was 59%45% and 60%59% for the years ended December 31, 20242025 and 2023,2024, respectively.respectively, with the decrease in gross margin percentage due to higher cost to provide services to customers and the mix of services provided.

As of the date of this Quarterly Report,Report on Form 10-Q, 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, 2025. 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.

On April 2, 2026, the Company received a Staff Delisting Determination Letter from Nasdaq, notifying the Company that it was once again not in compliance with the Stockholders’ Equity Rule, nor was it in compliance with either of the alternative listing standards, market value of listed securities of at least $35 million or net income of $500,000 from continuing operations in the most recently completed fiscal year, or in two of the three most recently completed fiscal years. The Company’s failure to comply with the Stockholders’ Equity Rule was based on the filing of its Annual Report on Form 10-K for the year ended December 31, 2025, reporting a stockholders’ deficit of ($7.0 million). The Company requested a hearing before the Panel, which was granted and was held on May 12, 2026. The hearing request automatically stayed any suspension or delisting action at least pending the hearing and the expiration of any additional extension period that may be granted by the Panel following the hearing. On May 21, 2026, the Company received a Compliance Notice from Nasdaq, notifying the Company that its request for additional time through August 14, 2026 to demonstrate compliance with the Stockholders’ Equity Rule was granted. The Company has provided an update to the Panel as to the Company’s progress toward demonstrating compliance with the Stockholders’ Equity Rule and requested additional time to demonstrate compliance past August 14, 2026. We are awaiting the Panel’s response to our request for an additional extension period to comply with the Stockholders’ Equity Rule.

On April 23, 2026, the Company received an Additional Staff Delisting Determination Letter from Nasdaq, notifying the Company that it was not in compliance with the Bid Price Rule based on the Company’s closing bid price being lower than $1.00 per share for thirty (30) consecutive business days. As described below, the Company implemented a 4-to-1 reverse stock split effective April 27, 2026, in order to regain compliance with the Bid Price Rule. AsOn ofMay 21, 2026, the dateCompany ofreceived thisa report,Compliance Notice from Nasdaq, notifying the Company’sCompany closingthat bidit pricehad has exceeded $1.00 per share for more than ten (10) consecutive trading days, which we believe demonstrates compliance with the Bid Price Rule. In order to evidenceevidenced compliance with the Bid Price Rule, due to the Company must provide evidence of a closing bid price offor our Class A Common Stock having closed at leastor above $1.00 per share for aover minimum of ten, but generally not more than twenty,20 consecutive tradingbusiness days.

The Company is considering all available options to regain and maintain compliance with the Stockholders’ Equity Rule and the Bid Price Rule.Rule and to satisfy the new MVLS continued listing requirement in case such requirement becomes effective. There can be no assurances, however, that we will be successful in regaining compliance with or satisfying the continued listing requirements and maintaining the listing of our Class A Common Stock on the Nasdaq Capital Market. 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.

Direct Digital Holdings, Inc. owns 100% of the voting interest in DDH LLC and as of MarchJune 31,30, 2026, DDH owns 94.3%94.6% of the economic interest in DDH LLC. DDH LLC was formed on June 21, 2018 and acquired by the Company on February 15, 2022 in connection with its organizational transactions. DDH LLC’s wholly-owned subsidiaries are as follows:

The Company provides technology-enabled advertising solutions and consulting services to clients either through multiple leading demand side platforms (“DSPs”) or through its own programmingprogrammatic platform (Colossus SSP), 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.

Operating segments are components of an enterprise for which separate financial information is available and evaluated regularly by our chief operating decision maker (“CODM”) for purpose of assessing performance and allocating resources. Our CODM is our Chairman and Chief Executive Officer. Revenues and operating income (loss) are used by our CODM to assess performance of our operating segmentssegment and allocate resources. We operate in one reportable segment - digital advertising. All our revenues are attributable to the United States.

On April 2, 2026, we received a Staff Delisting Determination Letter from Nasdaq, notifying us that we were once again not in compliance with the Stockholders’ Equity Rule, nor arewere we in compliance with either of the alternative listing standards, market value of listed securities of at least $35 million or net income of $500,000 from continuing operations in the most recently completed fiscal year, in two of the three most recently completed fiscal years. Our failure to comply with the Stockholders’ Equity Rule was based on the filing of our Annual Report on Form 10-K for the year ended December 31, 2025, reporting a stockholders’ deficit of ($7.0 million). We requested a hearing before the Panel, which was granted and was held on May 12, 2026. The hearing request automatically stayed any suspension or delisting action at least pending the hearing and the expiration of any additional extension period that may be granted by the Panel following the hearing. On May 21, 2026, the Company received a Compliance Notice from Nasdaq, notifying the Company that its request for additional time through August 14, 2026 to demonstrate compliance with the Stockholders’ Equity Rule was granted. The Company has provided an update to the Panel as to the Company’s progress toward demonstrating compliance with the Stockholders’ Equity Rule and requested additional time to demonstrate compliance past August 14, 2026. We are awaiting the Panel’s response to our request for an additional extension period to comply with the Stockholders’ Equity Rule.

On April 23, 2026, we received an Additional Staff Delisting Determination Letter from Nasdaq, notifying us that we were not in compliance with the Bid Price Rule based on our closing bid price being lower than $1.00 per share for thirty (30) consecutive business days. As described below, weWe implemented a 4-to-1 reverse stock split effective April 27, 2026, in order to regain compliance with the Bid Price Rule. AsOn ofMay 21, 2026, the dateCompany ofreceived thisa report,Compliance ourNotice closingfrom bidNasdaq, price has exceeded $1.00 per share for more than ten (10) consecutive trading days, which we believe demonstrates compliance withnotifying the BidCompany Pricethat Rule.it Inhad order to evidenceevidenced compliance with the Bid Price Rule, due to the Company must provide evidence of a closing bid price offor our Class A Common Stock having closed at leastor above $1.00 per share for aover minimum of ten, but generally not more than twenty,20 consecutive tradingbusiness days.

We are awaiting a formal determination from Nasdaq, which could take up to thirty days, that we have regained compliance with the Bid Price Rule as well as the Panel’s response to our request for an extension period to comply with the Stockholders’ Equity Rule. There can be no assurance that the Panel will determine to continue the Company’s listing or that we will be able to evidence compliance with the applicable listing criteria within any extension period that may be granted by the Panel. We intend to take all reasonable measures available to regain compliance with the Stockholders’ Equity Rule and remain listed on Nasdaq. 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.

On April 28, 2026, the Company entered into a Common Stock Purchase Agreement (the “Roth Purchase Agreement” and the facility as a whole, the "Committed Equity Facility") with Roth Principal Investments, LLC (“Roth”). Pursuant to the Roth Purchase Agreement, and subject to the satisfaction of specified conditions, the Company has the right, but not the obligation, to sell to Roth up to an aggregate of $50.0 million of newly issued shares of the Company’s Class A common stock, par value $0.001 per share (“Class A Common Stock”), from time to time over a period of up to 36 months following commencement of the Roth Purchase Agreement.. The Companyper‑share willpurchase haveprice sole discretion over the timing and amount of any such sales and is under no obligation to sell anyfor shares sold under the Roth Purchase Agreement.Agreement will be based on the volume‑weighted average trading price of the Class A Common Stock during the applicable valuation period, less a fixed discount at an effective rate of 7.4% (after giving effect to the reimbursement of our expenses in connection with each purchase pursuant to a letter agreement with Roth dated May 18, 2026). The Company sold 38,288 shares of the Company's Class A Common Stock for $0.1 million during the six months ended June 30, 2026.

Our customers understand the independent nature of our platform and relentless focus on driving results based on return on investment (“ROI”). Our value proposition is complete alignment across our entire digital supply platform beginning with the first dollar in and last dollar out. 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 80% client retention amongst the clients that represent approximately 80% of our revenue during the threesix months ended MarchJune 31,30, 2026. In addition, we cultivate client relationships through our pipeline of managed and moderate serve clients that conduct campaigns through our platform. The managed services delivery model allows us to combine our technology with a highly personalized offering to strategically design and manage advertising campaigns.

Increased Adoption of Digital Advertising by Small-andSmall- and Mid-Sized Companies

Advertisers and agencies often have a large portfolio of brands requiring a variety of campaign types and support for a wide array of inventory formats and devices, including OTT/CTV, video and display, in-app, native and audio. Our omni-channel proprietary technology platform is designed to maximize these various advertising channels, which we believe is a further driver of efficiency for our buyers. 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, 2026, we processed approximately 199 billion average monthly impressions across many unique audiences including multicultural growth audiences at scale with 89 billion, or 45%, of those impressions from growing multicultural-focused audiences. The Company continues to expand its capabilities to give our content providers more avenues to distribute ad inventory such as OTT/CTV, digital audio, DOOH, etc. and inform our publishers to enhance their ad selling needs by distributing content in various forms to meet the rising demands of the ad buying community.

Comparison of the Three and Six Months Ended MarchJune 31,30, 2026 and 2025

Our revenues of $6.7$7.8 million for the three months ended MarchJune 31,30, 2026 decreased by $1.5$2.3 million, or 18%,23%, from $8.2$10.1 million for the three months ended MarchJune 31,30, 2025. The decrease in revenue was due primarily to a $2.0$2.5 million decrease in spending from DSP customers and a $0.1$0.4 million decrease from customers no longer actively purchasing from the Company, partially offset by net growth from new and existing customers of $0.6 million primarily due to growth from customers in new verticals added in 2025.

Cost of revenues of $4.4$5.2 million (66% of revenue) for the three months ended MarchJune 31,30, 2026 decreased by $1.3$1.4 million, or 23%21% from $5.8$6.6 million (71%65% of revenue) for the three months ended MarchJune 31,30, 2025. The decrease in costs was primarily due to the related decrease in revenue, while the 5% decrease as a percentage of revenuebut was duealso toimpacted by a reduction of fixed costs of revenue resulting from ongoing cost savings initiatives. Fixed cost of revenues for the three months ended MarchJune 31,30, 2026 of $0.4$0.3 million decreased by $0.5$0.6 million, or 53%,69%, from fixed cost of revenues of $0.9 million for the same period in 2025.

Gross profit was $2.3$2.7 million, or 34% of revenue, for the three months ended MarchJune 31,30, 2026, compared to $2.4$3.6 million, or 29%35% of revenue, for the same period in 2025, reflecting a decrease of $0.1$0.9 million, or 5%.25%. The change in gross profit margin percentage for the three months ended MarchJune 31,30, 2026 is attributable primarilyto tochanges in customer mix, including increased revenue from customers and service offerings with lower gross margin characteristics partially offset by a reduction in fixed costs. While these relationships contributed to near-term margin compression, they supported the Company’s objectives of customer retention, revenue diversification and sustainable long-term growth.

Compensation, taxes and benefits of $3.0$3.2 million decreased by $0.6$0.4 million, or 18%,12%, for the three months ended MarchJune 31,30, 2026 from $3.7$3.6 million for the same period in 2025. The decrease in the three months ended MarchJune 31,30, 2026 compared to the prior year is primarily due to lower payroll costs due to continued cost management efforts, including workforce optimization and a pause on hiring, which have reduced recurring operating expenses in the current period.

General and administrative (“G&A”) expenses of $2.5$2.4 million for the three months ended MarchJune 31,30, 2026 decreasedwere byconsistent $0.2 million fromwith the same period in 2025. G&A expenses as a percentage of revenue were 37%30% and 33%23% for the three months ended MarchJune 31,30, 2026 and 2025, respectively, with the change in percentages primarily due to a decrease in revenues. The overall decrease in G&A expenses was primarily due to lower sales and marketing expenses and travel expenses due to ongoing cost savings measures.

Total other expense, net for the three months ended MarchJune 31,30, 2026 and 2025 includes $0.6$0.8 million and $1.8 million, respectively, of interest expense. Interest expense decreased by $1.3$1.0 million compared to the prior period primarily due to the reduction of outstanding debt resulting from the conversion of debt to preferred stock in the second half of 2025. Total other expense, net for the three months ended March 31, 2026 also includes $1.2 million for the loss on settlement of accounts payable associated with the issuance of common stock through the Continuation Capital program that the Company initiated in 2025 and $0.5 million for loss on debt extinguishment associated with the Eleventh Amendment to the Company's long term debt agreement.

As discussed in Note 9 — Commitments and Contingencies in our condensed consolidated financial statements, the Company has experienced significant disruption in its business due to a series of unexpected setbacks in the past two years. During 2025, the Company worked with its partners to achieve prior volume levels of revenue but was unable to achieve historical volumes. Despite these challenges, the Company was able to reduce expenses, pay off the matured Credit Agreement with a term loan from Lafayette Square (see Note 3 — Long-Term Debt), convert existing debt of $35.0 million to Series A Convertible Preferred Stock and establishraise anadditional equity through the Equity Reserve Facility raisingand additionalthe equityCommitted Equity Facility of $11.6$11.7 million through MarchJune 31,30, 2026. Additionally, the Company (1) incurred a net loss of $5.6$9.2 million for the threesix months ended MarchJune 31,30, 2026 including the impact of the disruption described above, (2) reported an accumulated deficit of $33.0$36.4 million as of MarchJune 31,30, 2026, (3) reported cash and cash equivalents of $0.8$0.5 million and a working capital deficit of $23.9$27.5 million as of MarchJune 31,30, 2026, (4) owes its lender $17.4$18.8 million (combination of principal, accrued fees, interest and the preferred dividends) as of MarchJune 31,30, 2026, under the 2021 Credit Facility (as defined below) which matures in December 2026, (5) was notified by Nasdaq that it was not in compliance with the Stockholders' Equity Rule on April 2, 2026, and has until August 14, 2026 to demonstrate compliance with the Stockholders' Equity Rule (a request for extension is currently under review by the Panel to extend this deadline), and (56) despite demonstrating compliance with the minimum stockholders' equity requirement for continued listing under Nasdaq Listing Rule 5550(b)(1) (the "Stockholders' Equity Rule") on November 7, 2025 and Nasdaq Listing Rule 5550(a)(2) (the "Bid Price Rule") on February 12, 2026 and May 21, 2026, remains subject to a discretionary Panel Monitor through November 7, 2026 for the Stockholders' Equity Rule and through February 12, 2027 for the Bid Price Rule. The Company was not in compliance with the Stockholders' Equity Rule as of March 31, 2026 or the Bid Price Rule as of April 23, 2026. 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, cash generated from its sales under the Company's new Committed Equity Facility and cash generated from other potential sales of equity and/or debt securities and has taken several actions to address liquidity and performance concerns. Such plans include (1) a shift in focus to driving intentional digital marketing spend with current and future customers as well as new enterprise customers accessing the digital advertising market through its recentlyIgnition+, launched productin –March Ignition+2026 allowing for further growth and a return to profitability and (2) refinancing the 2021 Credit Facility by raising additional funds in a registered or private offering. There can be no assurance that the Company’s actions will be successful or that additional financing will be available when needed or on acceptable terms.

The following table summarizes our cash and cash equivalents, and working capital deficit on MarchJune 31,30, 2026 and December 31, 2025 (in thousands):

The following table sets forth our cash flows for the threesix months ended MarchJune 31,30, 2026 and 2025 (in thousands):

Our cash and cash equivalents at MarchJune 31,30, 2026 were held for working capital and general corporate purposes. Cash and cash equivalents as of MarchJune 31,30, 2026 and December 31, 2025 were relatively unchanged with operating cash shortfalls offset by proceeds from issuance of shares under the Equity Reserve Facility and the Committed Equity Facility.

For the threesix months ended MarchJune 31,30, 2026, net cash flows used in operating activities were $1.1$1.9 million and consisted of net loss of $5.6$9.2 million, offset by $3.0$4.3 million in adjustments for non-cash and non-operating items and $1.5$2.9 million of cash inflows from working capital. Adjustments for non-cash and non-operating items mainly consisted of loss on settlement of accounts payable of $1.2 million, depreciation and amortization expense of $1.2 million, interest paid in kind of $1.1 million, loss on debt extinguishment of $0.5 million, depreciation and amortization expense of $0.5 million and stock-based compensation expense of $0.2$0.3 million. The $1.5$2.9 million increase in cash resulting from changes in working capital primarily consisted of a $1.1$2.7 million increase in accounts payable,payable a $0.3 million decrease in accounts receivable, partially offset by a $0.3 million increase inand accrued liabilities and tax receivable agreement payable.liabilities. The increase in accounts payable is mainly due to the timing of payments to vendors. The decrease in accounts receivable is mainly due to the seasonal decrease in revenue in the first quarter of the year compared to the fourth quarter of the year.

For the threesix months ended MarchJune 31,30, 2025, net cash flows used in operating activities were $2.7$5.4 million and consisted of net loss of $5.9$10.1 million, offset by $2.9$5.0 million in adjustments for non-cash and non-operating items and $0.3 million of cash inflowsoutflows from working capital. Adjustments for non-cash and non-operating items mainly consisted of depreciation and amortization expense of $2.4$4.1 million, stock-based compensation expense of $0.3$0.7 million and expenses for the equity reserve facility of $0.2 million. The $0.3 million increasedecrease in cash resulting from changes in working capital primarily consisted of a $0.6$1.5 million decrease in accounts payable and a $0.8 million increase in prepaid expenses and other assets, partially offset by a $1.1 million decrease in accounts receivable and a $0.3$1.0 million increase in accrued expenses such as payroll and payroll related expenses, partially offset by a $0.6 million decrease in accounts payable.expenses. The decrease in accounts payable and accounts receivable is mainly due to the seasonal decrease in revenue in the first quarterhalf of the year compared to the fourthsecond quarterhalf of the prior year.

Our investing activities to date have consisted primarily of purchases of software, office furniture and leasehold improvements. For the threesix months ended MarchJune 31,30, 2026, there were no investing activities. For the threesix months ended MarchJune 31,30, 2025, net cash flows used in investing activities of less than $0.1 million were primarily related to office furniture and leasehold improvements.

For the threesix months ended MarchJune 31,30, 2026, net cash provided by financing activities was $1.1$1.7 million mainly resulting from $1.1$1.2 million of proceeds from issuance of Class A Common Stock under the Equity Reserve Facility.Facility and the Committed Equity Facility as well as $0.5 million advances from related party.

For the threesix months ended MarchJune 31,30, 2025, net cash provided by financing activities was $3.1$5.6 million mainly resulting from $3.3$5.9 million of proceeds issuance of Class A Common Stock under the Equity Reserve Facility partially offset by $0.2 million for payment of expenses for the Equity Reserve Facility.

As of MarchJune 31,30, 2026, our principal contractual obligations expected to give rise to material cash requirements consist of the 2021 Credit Facility 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 $16.9$17.5 million in the remainder of 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 $0.2$0.1 million in the remainder of 2026, $0.3 million in 2027, $0.2 million in 2028, $0.2 million in 2029 and less than $0.1 million in 2030. As of MarchJune 31,30, 2026, we had cash and cash equivalents of $0.8$0.5 million.

In addition to our results determined in accordance with U.S. generally accepted accounting principles (“GAAP”), including, in particular operating income, net cash provided by operating activities, and net income, we believe that earnings before interest, taxes, depreciation and amortization, as adjusted for stock-based compensation, derecognition of tax receivable agreement liability, expenses for the Equity Reserve Facility, loss on settlement of accounts payable and loss on debt extinguishment (“Adjusted EBITDA”), a non-GAAP measure, is useful in evaluating our operating performance. The most directly comparable GAAP measure to Adjusted EBITDA is net income.

•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, derecognition of tax receivable agreement liability, losses from financing activities 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;