DIRECT DIGITAL HOLDINGS, INC. Management’s Discussion and Analysis of Financial Condition and Results of Operations (Form 10-Q)

You should read the following discussion together with our unaudited
consolidated financial statements and the related notes included elsewhere in
this Quarterly Report on Form 10-Q and our audited consolidated financial
statements and the related notes included in our Annual Report on Form 10-K for
the fiscal year ended December 31, 2021. This discussion contains
forward-looking statements based upon current expectations that involve risks
and uncertainties. Our actual results may differ materially from those
anticipated in these forward-looking statements as a result of various factors,
including those set forth under the section titled "Risk Factors" in our Annual
Report on Form 10-K or in other parts of this Quarterly Report on Form 10-Q. See
"- Cautionary Note Regarding Forward-Looking Statements" below. Our historical
results are not necessarily indicative of the results that may be expected
for
any period in the future.

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Caution Regarding Forward-Looking Statements

This Quarterly Report on Form 10-Q contains forward-looking statements within
the meaning of the federal securities laws and which are subject to certain
risks, trends and uncertainties. We use words such as "could," "would," "may,"
"might," "will," "expect," "likely," "believe," "continue," "anticipate,"
"estimate," "intend," "plan," "project" and other similar expressions to
identify forward-looking statements, but not all forward-looking statements
include these words. All of our forward-looking statements involve estimates and
uncertainties that could cause actual results to differ materially from those
expressed in or implied by the forward-looking statements. Accordingly, any such
statements are qualified in their entirety by reference to the information
described under the caption "Risk Factors" in our Annual Report on Form 10-K and
elsewhere in this Quarterly Report on Form 10-Q and in our Annual Report on
Form 10-K for the fiscal year ended December 31, 2021.

The forward-looking statements contained in this Quarterly Report on Form 10-Q
are based on assumptions that we have made in light of our industry experience
and our perceptions of historical trends, current conditions, expected future
developments and other factors we believe are appropriate under the
circumstances. As you read and consider this Quarterly Report on Form 10-Q, you
should understand that these statements are not guarantees of performance or
results. They involve risks, uncertainties (many of which are beyond our
control) and assumptions.

Although we believe that these forward-looking statements are based on
reasonable assumptions, you should be aware that many factors could affect our
actual operating and financial performance and cause our performance to differ
materially from the performance expressed in or implied by the forward-looking
statements. We believe these factors include, but are not limited to, the
following:

? our dependence on overall advertising demand, which could be influenced

by economic downturns;

? any unforeseen slowdown or development in the programmatic market

advertising campaigns;

? the effects of health epidemics, such as the current global COVID-19 pandemic;

operational and performance issues with our platform, whether actual or

? perceived, including an inability to respond to changes in technology or

upgrade our technology systems;

any material inadvertent disclosure or breach of confidentiality and/or

? personal information we hold, or the safety of our customer(s),

the IT systems of suppliers or other partners;

? any unavailability or non-performance of non-proprietary technology,

the software, products and services we use;

unfavorable publicity and negative public perception of our industry,

? in particular concerns about the privacy and security of data relating to our

technology and industry practices, and any perceived failure to comply with

laws and industry self-regulation;

? restrictions on the use of third-party “cookies”, mobile device identifiers or other

tracking technologies, which may reduce the effectiveness of our platform;

? any inability to compete in our extremely competitive marketplace;

? any significant fluctuations caused by our high concentration of customers;

? our limited operating history, which could cause our past results not to be

indicative of future operating performance;

? any violation of legal and regulatory requirements or any fault of our

employees, contractors, agents or business partners;

any strain on our resources, diversion of our management’s attention, or impact

? our ability to attract and retain qualified directors through

be a public company;

as a holding company, we depend on the distributions of Direct Digital Funds,

? LLC (“DDH SARL“) to pay our taxes, expenses (including payments on account of Tax

Admissible Agreement) and dividends;

DDH SARL may pay us cash distributions substantially in excess of the

amounts we use to make distributions to our shareholders and pay our expenses

(including our taxes and payments under the Tax Receivables Agreement), which,

? to the extent that they are not distributed as dividends on our Class A common stock,

benefit to Direct Digital Management, LLCthe entity indirectly owned by our

Chairman of the Board and Chief Executive Officer and President, by virtue of his

ownership of Class A common stock on an exchange or redemption of his LLC

Units; and

other factors and assumptions discussed under “Risk Factors” and elsewhere in

? this Quarterly Report on Form 10-Q and in our Annual Report on Form 10-K for

the financial year closed December 31, 2021.


Should one or more of these risks or uncertainties materialize or should any of
these assumptions prove to be incorrect, our actual operating and financial
performance may vary in material respects from the performance projected in
these forward-looking statements. Further, any forward-looking statement speaks
only as of the date on which it is made, and except as required by law, we
undertake no obligation to update any forward-looking statement contained in
this Quarterly Report on Form 10-Q to reflect events or circumstances

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Contents

after the date on which it is made or to reflect the occurrence of anticipated
or unanticipated events or circumstances. New factors that could cause our
business not to develop as we expect emerge from time to time, and it is not
possible for us to predict all of them. Further, we cannot assess the impact of
each currently known or new factor on our results of operations or the extent to
which any factor, or combination of factors, may cause actual results to differ
materially from those contained in any forward-looking statements.

Insight

Direct Digital Holdings, Inc. and its subsidiaries (collectively the "Company,"
"DDH," "we," "us" and "our"), headquartered in Houston, Texas, is an end-to-end,
full-service programmatic advertising platform primarily focused on providing
advertising technology, data-driven campaign optimization and other solutions to
underserved and less efficient markets on both the buy- and sell-side of the
digital advertising ecosystem. Direct Digital Holdings, Inc. ("Holdings") is the
holding company that, since the completion of our initial public offering on
February 15, 2022, owns certain common units, and serves as the manager, of DDH
LLC, which operates the business formed in 2018 through the acquisition of
Huddled Masses LLC ("Huddled Masses™" or, "Huddled Masses") a buy-side marketing
platform, and Colossus Media LLC ("Colossus Media") a sell-side marketing
platform.

On September 30, 2020, DDH LLC acquired Orange142, LLC ("Orange142") to further
bolster its overall programmatic buy-side advertising platform and enhance its
offerings across multiple industry verticals such as travel, healthcare,
education, financial services, consumer products and other sectors, with
particular emphasis on small- and mid-sized businesses transitioning into
digital with growing digital media budgets.

The subsidiaries of Direct Digital Holdings, Inc. are the following:

                                                       Advertising
                                                        Solution                                  Date
                                          Current %        and                                     of
Subsidiary                                Ownership      Segment      Date of Formation       Acquisition
Direct Digital Holdings, LLC                    100 %          N/A        June 21, 2018       August 26, 2021
Huddled Masses, LLC                             100 %     Buy-side    November 13, 2012         June 21, 2018
Colossus Media, LLC                             100 %    Sell-side    September 8, 2017         June 21, 2018
Orange142, LLC                                  100 %     Buy-side       

March 6, 2013 September 30, 2020


Both buy-side advertising businesses, Huddled Masses and Orange142, offer
technology-enabled advertising solutions and consulting services to clients
through multiple leading demand side platforms ("DSPs"). Colossus Media is our
proprietary sell-side programmatic platform operating under the trademarked
banner of Colossus SSP™ ("Colossus SSP"). Colossus SSP is a stand-alone
tech-enabled, data-driven sell-side platform ("SSP") that helps deliver targeted
advertising to diverse and multicultural audiences, including African Americans,
Latin Americans, Asian Americans and LGBTQ+ customers, as well as other specific
audiences.

Providing both the front-end, buy-side advertising businesses coupled with our
proprietary sell-side business, enables 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 is evaluated regularly by our chief operating
decision maker in deciding how to allocate resources and assessing performance.
Our chief operating decision maker is our Chairman and Chief Executive Officer.
We view our business as two reportable segments, buy-side advertising, which
includes the results of Huddled Masses and Orange142, and sell-side advertising,
which includes the results of Colossus Media.

Key factors affecting our performance

We believe that our growth and financial performance depends on many factors, including those described below.

Buy side advertising business

Acquisition of new customers

On the buy side of our business, our clients are buyers of programmatic ad inventory (ad space) looking to place their ads. We serve the needs of approximately 200 small to medium sized clients per year, made up of buyers of advertising space, including small to medium sized businesses, large advertising companies (which may run multiple agencies),

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independent advertising agencies and mid-market advertising services companies. We serve a variety of clients across multiple industries, including Travel/Tourism (including Destination Marketing Organizations (“DMOs”)), Energy, Consumer Packaged Goods, Healthcare, Education, financial services (including cryptocurrency technologies) and other industries.

We are focused on increasing the number of customers who use our buy-side advertising business for their advertising partner. Our long-term growth and operating results will depend on our ability to attract more customers, including DMOs, in multiple geographies.

Develop sales to existing customers

Our customers understand the independent nature of our platform and our
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, DSP 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 90% client retention
amongst the clients that represent approximately 80% of our revenue on an annual
basis during the year ended December 31, 2021 and the nine months ended
September 30, 2022. As our clients expand their usage of our technology
platform, they often transition to our managed services delivery model, which in
turn drives higher profitability for us, as well as increased client loyalty.
The managed services delivery model allows us to combine our technology with a
highly personalized offering to strategically design and manage advertising
campaigns.

Will pass Digital advertising

Media has become increasingly digital due to three key elements:

? Advances in technology with more sophisticated digital content delivery across

multiple platforms;

? Changes in consumer behavior, including spending longer portions of the day

use mobile and other devices; and

? Better audience segmentation with more effective and measurable targeting

results.


The resulting shift has enabled a variety of options for advertisers to
efficiently target and measure their advertising campaigns across nearly every
media channel and device. These efforts have been led by big- budgeted, large,
multi-national corporations incentivized to cast a broad advertising net to
support national brands.

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

Only recently have small and mid-sized businesses begun to leverage the power of
digital media in meaningful ways, as emerging technologies have enabled
advertising across multiple channels in a highly localized nature. Campaign
efficiencies yielding measurable results and higher advertising ROI, as well as
the needs necessitated by the COVID-19 pandemic, have prompted these companies
to begin utilizing digital advertising on an accelerated pace. We believe this
market is rapidly expanding, and that small-to-mid-sized advertisers will
continue to increase their digital spend.

Seasonality

In general, the advertising industry experiences seasonal trends that affect the
vast majority of participants in the digital marketing ecosystem. Our buy-side
advertising revenue is weighted to DMOs and historically, marketing spend is
higher in the second and third quarters of our fiscal year with the increase in
marketing spend taking place over the summer months. As a result, the fourth and
first quarters tend to reflect lower activity levels and lower revenue. We
generally expect these seasonality trends to continue and our ability to
effectively manage our resources in anticipation of these trends may affect
our
operating results.

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Sell ​​side advertising business

Increase publisher revenue and buyer ad spend

Colossus Media operates our proprietary sell-side programmatic platform
operating under the trademarked banner of Colossus SSP. The buyers on our
platform include DSPs, agencies and individual advertisers. We have broad
exposure to the ecosystem of buyers, reaching on average approximately 54,000
advertisers per month in the nine months ended September 30, 2021, which
increased to an average of approximately 95,000 advertisers per month in the
nine months ended September 30, 2022. 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 buyers. As part of these agreements, we
are providing 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.

We have broad exposure to the ecosystem of buyers, which has consistently
increased since the formation of Colossus Media in September 2017. Our growing
sales team seeks to increase our business with the addition of new and existing
publishers as well as by increasing our universe of buyers. In addition,
establishing multiple header bidding integrations by leveraging our technology
capabilities allows us to maximize our access to publishers' ad formats, devices
and various properties that a publisher may own. We may also up-sell additional
products to publisher customers including our header bidding management,
identity, and audience solutions. Our business strategy on the sell-side
advertising business represents growth potential, and we believe we are well
positioned to be able to bring underserved multicultural publishers into the
advertising ecosystem, thereby increasing our value proposition across all
clients, including our large clients.

Monetize ad impressions for publishers and buyers

We focus on monetizing digital impressions by coordinating daily real-time
auctions and bids. The publisher makes its ad inventory available on Colossus
SSP and invites advertisers to bid based on the user's data received. 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 (or 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 and pay
the second highest price for the winning impression to serve the ads. We
continuously review our available inventory from existing publishers across
every format (mobile, desktop, digital video, OTT, CTV, and rich media). The
factors we consider when determining which impressions we process include
transparency, viewability, and whether or not the impression is human sourced.
By consistently applying these criteria, we believe the ad impressions we
process will be valuable and marketable to advertisers.

Improved quality of ad inventory

In MediaMath's quarterly survey, Colossus Media has consistently ranked in the
top 10 among the industry's approximately 80 supply- side companies in terms of
key quality measures such as transparency, fraud detection, and accountability.
In the advertising industry, inventory quality is assessed in terms of invalid
traffic ("IVT") which can be impacted by fraud such as "fake eyeballs" generated
by automated technologies set up to artificially inflate impression counts. As a
result of our platform design and proactive IVT mitigation efforts, in the nine
months ended September 30, 2022, we determined that less than 1% of inventory
was invalid, resulting in minimal financial impact to our customers. We address
IVT on a number of fronts, including sophisticated technology, which detects and
avoids IVT on the front end; direct publisher and inventory relationships, for
supply path optimization; and ongoing campaign and inventory performance review,
to ensure inventory quality and brand protection controls are in place.

Increase access to valuable ad impressions

Our recent growth has been driven by a variety of factors including increased
access to mobile web (display and video) and mobile app (display and video)
impressions and desktop video impressions. Our performance is affected by our
ability to maintain and grow our access to valuable ad impressions from current
publishers as well as through new relationships with publishers. For the nine
months ended September 30, 2022, we processed approximately 2.6 trillion bid
requests and had connections to approximately 19 DSPs.

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Investment development and management

Each impression or transaction occurs in a fraction of a second. Given that most
transactions take place in an auction/bidding format, we continue to make
investments 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 productivity of our
organization. In the first quarter of 2023, we expect to transition our server
platform to HPE Greenlake, which we expect will provide increased capacity,
faster response time, and expansion capabilities to align with growth in our
business.

Managing industry dynamics
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. 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.

Seasonality

In general, the advertising industry experiences seasonal trends that affect the
vast majority of participants in the digital marketing ecosystem. 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. As a result, the first quarter tends to
reflect lower activity levels and lower revenue. We generally expect these
seasonality trends to continue and our ability to effectively manage our
resources in anticipation of these trends may affect our operating results.

Components of our operating results

Revenue

On the buy-side advertising segment, we generate revenue from clients that enter
into agreements with us to provide digital marketing and media services to
purchase digital advertising space, data, and other add-on features. On the
sell-side advertising segment, we generate revenue from publishing clients by
selling their advertising inventory to national and local advertisers.

We report revenue on a gross basis inclusive of all supplier costs because we
bear the full obligation of any costs to provide our services. We pay suppliers
for the cost of digital media, advertising inventory, data and any add-on
services or features.

Our revenue recognition policies are further described in the “Critical Accounting Policies and Estimates” section.

Revenue cost

Cost of revenues for our buy-side advertising segment consists primarily of
digital media fees, third-party platform access fees, and other third-party fees
associated with providing services to our customers. For the sell-side
advertising segment, we pay publishers a fee, which is typically a percentage of
the value of the ad impressions monetized through our platform. Cost of revenues
consists primarily of publisher media fees and data center co-location costs.
Media fees include the publishing and real time bidding costs to secure
advertising space.

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Operating expenses

Operating expenses consist of compensation expenses related to our executive,
sales, finance, and administrative personnel (including salaries, commissions,
bonuses, stock-based compensation, benefits, and taxes), general and
administrative expenses for rent expense, professional fees, independent
contractor costs, selling and marketing fees, and administrative and operating
system subscription costs, insurance, as well as amortization expense related to
our intangible assets.

Other income (expense)

Other income. Other revenue includes revenue associated with debt collection and other miscellaneous credit card discounts.

Forgiveness of Paycheck Protection Program Loan. From time to time, we obtain
loans pursuant to the Paycheck Protection Program ("PPP"), administered by the
U.S. Small Business Administration ("SBA"). Forgiveness of PPP loans is
recognized as a gain in the period it is granted. We received the PPP-1 Loan
proceeds of $287,100 on May 8, 2020. On February 16, 2021, the remaining $10,000
balance of the PPP-1 Loan was forgiven. In March 2021, DDH LLC received the
PPP-2 Loan proceeds of $287,143. On April 11, 2022, the balance on the PPP-2
Loan was forgiven.

Interest expense. Interest expense is mainly related to our debt as further
described below in " -Liquidity and Capital Resources." In connection with the
acquisition of Orange142, we issued mandatorily redeemable non-participating
preferred A and B units, and in accordance with Accounting Standards
Codification ("ASC") 480, Distinguishing Liabilities from Equity, the value of
these units are classified as a liability, and the corresponding distributions
are recognized as interest expense.

Loss on early redemption of non-participating preferred units. In February 2022,
we redeemed the non-participating Class B Preferred Units and recognized a loss
on the redemption of $590,689 in connection with the write-off of the fair value
associated with the units.

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Results of Operations

Comparison of the three and nine month periods ended September 30, 2022 and 2021

The following tables set forth our consolidated results of operations for the
periods presented. The period-to-period comparison of results is not necessarily
indicative of results for future periods.

                            For the Three Months Ended                                   For the Nine Months Ended
                                  September 30,                     Change                     September 30,                    Change
                               2022             2021           Amount         %            2022             2021            Amount        %
Revenues

Buy-side advertising $7,130,736 $6,033,883 $1,096,853

18% $22,283,044 $19,975,235 $2,307,809 12% Commercial advertising 18,854,639 2,326,862 16,527,777

710% 36,333,976 5,261,135 31,072 841,591% Total revenue

                 25,985,375      8,360,745      17,624,630    

211% 58,617,020 25,236,370 33,380,650 132%

Cost of revenues
Buy-side advertising            2,471,170      2,174,432         296,738   

14% 7,694,987 7,480,727 214,260 3% Sell-side advertising 16,053,461 1,951,350 14,102,111

723% 30,344,670 4,348,756 25,995,914 598% Total revenue cost 18,524,631 4,125,782 14,398,849

349% 38,039,657 11,829,483 26,210,174 222%

Gross profit                    7,460,744      4,234,963       3,225,781   

76% 20,577,363 13,406,887 7,170,476 53%

Operating expenses              5,615,920      3,668,051       1,947,869   

53% 15,083,521 10,346,159 4,737,362 46% Operating income 1,844,824 566,912 1,277,912

225% 5,493,842 3,060,728 2,433,114 79% Other expenses

                   (905,605)      (792,400)       (113,205)    

(14)% (2,525,207) (2,382,149) (143,058) 6% Profit before tax

               939,219      (225,488)       1,164,707    

517% 2,968,635 678,579 2,290,056 337% Tax expense

                       128,436            878         127,558    14,528 %         215,112           54,878         160,234     292 %

Net profit (loss) $810,783 ($226,366) $1,037,149

458% $2,753,523 $623,701 $2,129,822 341% adjusted EBITDA(1) $2,403,309 $1,055,367 $1,347,942

128% $7,092,606 $4,545,278 $2,547,328 56%

(1) For a definition of Adjusted EBITDA, an explanation of how our management uses

     of this measure, and a reconciliation of Adjusted EBITDA to net income see
     " - Non-GAAP Financial Measures."

Revenue

Our revenues increased from $8.4 million for the three months ended September
30, 2021 to $26.0 million for the three months ended September 30, 2022, an
increase of $17.6 million or 211%. Buy-side advertising revenue increased $1.1
million, or 18%, primarily due to expanded spending from our existing customer
base as well as new middle market client spending. Sell-side advertising revenue
increased $16.6 million, or 710% over the 2021 three-month results, due to
continued revenue growth momentum from enhanced publisher partner engagement and
monetization strategies, an increase in impression inventory, as well as the
extension of our reach into the underserved and underrepresented publisher
communities.  For the three months ended September 30, 2022, the Company
processed approximately 125 billion average monthly impressions through its
sell-side advertising segment, an increase of 248% from the prior year.

Our revenues increased from $25.2 million in for the nine months ended September
30, 2021 to $58.6 million for the nine months ended September 30, 2022, an
increase of $33.4 million, or 132%. Buy-side advertising revenue increased $2.3
million, or 12%, primarily due to expanded spending from our existing customer
base as well as new middle market client spending. Sell-side advertising revenue
increased $31.1 million, or 591% over the 2021 nine-month results due to
continued revenue growth momentum from enhanced publisher partner engagement and
monetization strategies, an increase in impression inventory, as well as the
extension of our reach into the underserved and underrepresented publisher
communities. For the nine months ended September 30, 2022, the Company processed
approximately 104 billion average monthly impressions, through its sell-side
advertising segment, an increase of 165% from the prior year.

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Cost of revenues

Along with the increase in revenues across both segments, we correspondingly
experienced an increase in cost of revenues from $4.1 million for the three
months ended September 30, 2021 to $18.5 million for the three months ended
September 30, 2022, an increase of $14.4 million or 349%. Buy-side advertising
cost of revenues increased $0.3 million to $2.5 million, or 35% of revenue, for
the three months ended September 30, 2022 due to the increase in revenue
partially offset by lower media costs, compared to $2.2 million or 36% of
revenue for the three months ended September 30, 2021. Sell-side advertising
cost of revenues increased $14.1 million, to $16.0 million, or 85% of revenue
for the three months ended September 30, 2022, compared to $2.0 million, or 84%
of revenue, for the same period in 2021.

Cost of revenues increased from $11.8 million for the nine months ended
September 30, 2021 to $38.0 million for the nine months ended September 30,
2022, an increase of $26.2 million, or 222%. Buy-side advertising cost of
revenues increased $0.2 million to $7.7 million, or 35% of revenue for the nine
months ended September 30, 2022, compared to $7.5 million, or 37% of revenue for
the nine months ended September 30, 2021. The increase in the buy-side of cost
of revenues is due to the increase in revenues partially offset by a decrease in
the cost of digital media in the nine months ended September 30, 2022. Sell-side
advertising cost of revenues increased $26.0 million, to $30.3 million, or 84%
of revenue for the nine months ended September 30, 2022, compared to $4.3
million, or 83% of revenue, for the same period in 2021.

Gross profit

Gross profit also increased in the three months ended September 30, 2022 to $7.5
million, or 29% of revenue, compared to $4.2 million, or 49% of revenue, for the
three months ended September 30, 2021, an increase of $3.2 million or 76%. Gross
profit also increased in the nine months ended September 30, 2022 to $20.6
million, or 35% of revenue, compared to $13.4 million, or 53% of revenue, for
the nine months ended September 30, 2021, an increase of $7.2 million or 53%.
The change in margin for the three and nine months ended September 30, 2022 is
attributable to the mix in revenue between our business segments, as our
sell-side segment, whose revenues grew as a percentage of our overall revenue,
has a lower gross margin than our buy-side segment.

Buy-side advertising gross profit increased $0.8 million and $2.1 million for
three and nine months ended September 30, 2022, respectively, as compared to
prior the same periods in the prior year. This increase is primarily due to a
lower cost of media advertising, as well as higher revenue. Sell-side
advertising gross profit increased $2.5 million and $5.1 million for the three
and nine months ended September 30, 2022, respectively, as compared to prior
year. This increase primarily is a result of the increase in revenue since the
gross margins are relatively flat period over period.

Operating Expenses

The following table shows the components of operating expenses for the periods presented.

                             For the Three Months Ended                              For the Nine Months Ended
                                   September 30,                  Change                  September 30,                  Change
                                2022             2021          Amount       %          2022             2021          Amount       %
Compensation, tax and
benefits                   $    3,845,918     $ 2,235,066    $ 1,610,852    72 %   $   9,895,646    $  6,131,930    $ 3,763,716    61 %
General and
administrative                  1,770,002       1,432,985        337,017    24 %       5,187,875       4,214,229        973,646    23 %
Total operating
expenses                   $    5,615,920     $ 3,668,051    $ 1,947,869    53 %   $  15,083,521    $ 10,346,159    $ 4,737,362    46 %

Compensation, taxes and benefits

Compensation, taxes and benefits increased from $2.2 million for the three
months ended September 30, 2021 to $3.8 million in for the three months ended
September 30, 2022, an increase of $1.6 million, or 72%. The increase is due to
a one-time severance charge of $0.5 million, as well as headcount additions
primarily in our operations area to support our growth, and higher commission
expense and bonus expense, partially offset by lower consulting expenses as a
result of these consultants being converted to full-time employees.

Compensation, taxes and benefits increased from $6.1 million for the nine months
ended September 30, 2021 to $9.9 million in for the nine months ended September
30, 2022, an increase of $3.8 million, or 61%. The increase is due to a one-time
severance charge of $0.5 million, as well as headcount additions primarily in
our operations area to support our growth, and higher commission expense and
bonus expense, partially offset by lower consulting expenses as a result of
these consultants being converted to full-time employees.

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We expect to continue to invest in corporate infrastructure and incur additional
expenses associated with our transition to and operation as a public company,
including increased compensation associated with additional headcount to support
our sales initiatives.

General and administrative expenses

General and administrative ("G&A") expenses also increased from $1.4 million for
the three months ended September 30, 2021 to $1.8 million for the three months
ended September 30, 2022. G&A expenses as a percentage of revenue was 7% for the
three months ended September 30, 2022, compared to 17% for the three months
ended September 30, 2021.

G&A expenses increased from $4.2 million for the nine months ended September 30,
2021 to $5.2 million for the nine months ended September 30, 2022. G&A expenses
as a percentage of revenue was 9% for the nine months ended September 30, 2022,
compared to 17% for the nine months ended September 30, 2021.

The increase in G&A costs during the three and nine months ended September 30,
2022 was primarily due to costs associated with our transition to and operation
as a public company. During the three and nine months ended September 30, 2022,
we invested in systems, increased insurance, incurred additional software fees,
and professional fees. We expect to continue to invest in and incur additional
expenses associated with our transition to operating as a public company,
including increased professional fees, investment in automation, and compliance
costs associated with developing the requisite infrastructure required for
internal controls.

In connection with our IPO, the Company adopted the 2022 Omnibus Incentive Plan
("2022 Omnibus Plan") to facilitate the grant of equity awards to our employees,
consultants and non-employee directors. On June 10, 2022, our board of directors
granted stock options and restricted stock units ("RSUs") to our employees and
non-employee directors. The stock options and RSUs granted did not have a
material impact to G&A expense for the three and nine months ended, September
30, 2022.

Other income (expense)

The following table presents the components of other income (expenses) for the periods presented.

                                For the Three Months Ended                               For the Nine Months Ended
                                      September 30,                   Change                   September 30,                    Change
                                   2022             2021          Amount        %          2022             2021           Amount         %
Forgiveness of Paycheck
Protection Program loan       $            -     $         -    $         -

nm $287,143 $10,000 $277,143 2,771% Other income

                               -               -              -     nm            47,982           19,186         28,796      150 %
Loss on redemption of
non-participating
preferred units                            -               -              -     nm         (590,689)                -      (590,689)       nm
Gain from revaluation and
settlement of seller notes
and earnout liability                      -               -              -     nm                 -           21,232       (21,232)    (100) %
Interest expense                   (905,605)       (792,400)      (113,205)     14 %     (2,269,643)      (2,432,567)        162,924      (7) %
Total other expense           $    (905,605)     $ (792,400)    $ (113,205)     14 %   $ (2,525,207)    $ (2,382,149)    $ (143,058)        6 %


nm - not meaningful

Other expense for the three months ended September 30, 2022 primarily consists
of $0.9 million of interest expense.  Other expense for the three months ended
September 30, 2021 is comprised of approximately $0.8 million of interest
expense.

Other expense for the nine months ended September 30, 2022 primarily consists of
$0.6 million associated with the loss on the early redemption of DDH LLC's
previously outstanding Class B Preferred Units and $2.3 million of interest
expense, partially offset by $0.3 forgiveness of the PPP loan and other income.
Other expense for the nine months ended September 30, 2021 is comprised of
approximately $2.4 million of interest expense partially offset by other income
and the forgiveness of the PPP loan.

Interest expense

Interest expense increased for the three months ended September 30, 2022 to $0.9
million compared to $0.8 million for the three months ended September 30, 2021.
The increase in interest expense in the three months period is due to the
additional borrowings under

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the Term Loan Amendment in July 2022.  Interest expense decreased for the nine
months ended September 30, 2022 to $2.3 million compared to $2.4 million for the
nine months ended September 30, 2021. The decrease in year over year interest
expense was the result of the refinancing of our debt to a lower interest rate,
as well as the redemption of DDH LLC's Class A Preferred Units in December 2021
and DDH LLC's Class B Preferred Units in February 2022.  This was partially
offset by higher interest on the additional borrowings on the Term Loan in 2022.

Cash and capital resources

The following table summarizes our cash and cash equivalents, working capital and availability under our Revolving Credit Facility (as defined below) at
September 30, 2022 and December 31, 2021:

                                                         September 30, 2022      December 31, 2021
Cash and cash equivalents                               $          7,010,796    $         4,684,431
Working capital                                         $          6,606,168    $         4,057,243
Availability under Revolving Credit Facility            $                 

– $1,798,145


We anticipate funding our operations for the next twelve months using available
cash, cash flow generated from operations, and proceeds from our public offering
in 2022. As of September 30, 2022 and December 31, 2021, we had cash and cash
equivalents of approximately $7.0 million and $4.7 million, respectively, and as
of December 31, 2021 we had $1.8 million available under our Revolving Credit
Facility.  On July 26, 2022 we repaid the outstanding balance of $400,000 plus
accrued interest and terminated the Revolving Credit Facility as of such date.
 We are working with a lender on a line of credit, and expect to finalize the
agreement in the fourth quarter of 2022, but there can be no assurance that we
will close on such new facility in a timely basis, or at all.

Based on our expectations of continued growth in revenue and cash generated from
operations in the coming year and the available cash held by us, we believe that
we will have sufficient cash resources to finance our operations and service any
maturing debt for at least the next twelve months following the issuance of this
Quarterly Report on Form 10-Q. To fund our operations and service our debt
thereafter, depending on our growth and results of operations, we may have to
raise additional capital through the issuance of additional equity and/or debt,
which could have the effect of diluting our stockholders. We are also seeking to
secure a new source of revolving indebtedness, but there can be no assurance
that we will close on such new facility in a timely basis, or at all.  Any
equity or debt financings, if available at all, may be on terms which are not
favorable to us. As our debt or credit facilities become due, we will need to
repay, extend or replace such indebtedness. Our ability to do so will be subject
to future economic, financial, business and other factors, many of which are
beyond our control.

In conjunction with the acquisition of Orange142 on September 30, 2020, DDH LLC
and each of its subsidiaries as co-borrowers entered into a loan and security
agreement (the "2020 Term Loan Facility") with SilverPeak Credit Partners, LP in
the amount of $12.825 million, maturing on September 15, 2023. Interest in year
one was 15%, of which 12% was payable monthly and 3% was paid-in-kind ("PIK").
All accrued but unpaid interest under the 2020 Term Loan Facility was payable in
monthly installments on each interest payment date, and we were required to
repay the outstanding principal balance on January 15 and July 15 of each
calendar year in an amount equal to 37.5% of excess cash flow over the preceding
six calendar months until the term loan was paid in full. The remaining
principal balance, and all accrued but unpaid interest was to be due on the
maturity date. The obligations under the 2020 Term Loan Facility were secured by
first-priority liens on all or substantially all assets of DDH LLC and its
subsidiaries. The 2020 Term Loan Facility contained a number of financial
covenants and customary affirmative covenants. In addition, the 2020 Term Loan
Facility included a number of negative covenants, including (subject to certain
exceptions) limitations on (among other things): indebtedness, liens,
investments, acquisitions, dispositions, and restricted payments. Each of Mark
Walker ("Walker"), Chairman of the Board and Chief Executive Officer, and Keith
Smith ("Smith"), President, provided limited guarantees of the obligations under
the 2020 Term Loan Facility. The maturity date of the 2020 Term Loan Facility
was September 15, 2023; however, on December 3, 2021, DDH LLC entered into the
Term Loan and Security Agreement (the "2021 Credit Facility") with Lafayette
Square Loan Servicing, LLC ("Lafayette Square") and used the proceeds to repay
and terminate the 2020 Term Loan Facility.

Also in conjunction with the acquisition of Orange142 on September 30, 2020, DDH
LLC and each of its subsidiaries as co-borrowers entered into the Revolving
Credit Facility that provides for a revolving credit facility with East West
Bank in the amount of $4.5 million with an initial availability of $1.0 million.
On December 17, 2021, we amended the Revolving Credit Facility, which increased
the availability to $5.0 million with an initial availability of $2.5 million.
The loans under the Revolving Credit Facility bore interest at the LIBOR rate
plus 3.5% per annum, and at September 30, 2022 and December 31, 2021, the rate
was 0.0% and 7.0%, respectively, with a 0.50% unused line fee. The maturity date
of the Revolving Credit Facility is September 30, 2022, however, on July 26,
2022, the Company repaid the $400,000 that was outstanding pursuant to the
Revolving Credit Facility and terminated the Revolving

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Credit Facility as of such date. The Revolving Credit Facility was secured by
the trade accounts receivable of DDH LLC and guaranteed by Holdings. The
Revolving Credit Facility includes financial covenants, including that the
Company have (i) a minimum fixed charge coverage ratio of not less than 1.25 to
1.00 as of the end of each fiscal quarter, commencing with the fiscal quarter
ending September 30, 2020, (ii) a maximum total net leverage ratio of 2.50 to
1.00 for the fiscal quarters ending December 31, 2021 and September 30, 2022,
and 2.25 to 1.00 for the fiscal quarters ending thereafter and (iii) a minimum
liquidity amount of at least $1.3 million for the period of December 31, 2021 to
June 29, 2022 and $1.4 million thereafter. As of each of September 30, 2022 and
December 31, 2021, the Revolving Credit Facility had borrowings outstanding in
the amount of $0.0 million, and $1.9 million of unused capacity. The Revolving
Credit Facility contained customary events of default, including with respect to
a failure to make payments when due, cross-default and cross-judgment default
and certain bankruptcy and insolvency events. DDH LLC was in compliance with all
of its financial covenants under the Revolving Credit Facility and the 2020 Term
Loan Facility as of December 31, 2021, and such financial covenants were no
longer binding on the Company as of September 30, 2022.

On December 3, 2021, DDH LLC entered into the 2021 Credit Facility with
Lafayette Square, as administrative agent, and the various lenders thereto. The
term loan under the 2021 Credit Facility provides for a term loan in the
principal amount of up to $32.0 million, consisting of a $22.0 million closing
date term loan and an up to $10.0 million delayed draw term loan. The loans
under the 2021 Credit Facility bear interest at LIBOR plus the applicable margin
minus any applicable impact discount. The applicable margin under the 2021
Credit Facility is determined based on the consolidated total net leverage ratio
of the Company and its consolidated subsidiaries, at a rate of 6.50% per annum
if the consolidated total net leverage ratio is less than 2.00 to 1.00 and up to
9.00% per annum if the consolidated total net leverage ratio is greater than
4.00 to 1.00. The applicable impact discount under the 2021 Credit Facility is a
discount of 0.05% per annum to the extent that DDH LLC adopts certain services
intended to improve overall employee satisfaction and retention plus an
additional discount of 0.05% per annum to the extent that DDH LLC maintains a B
Corp certification by Standards Analysts at the non-profit B Lab (or a successor
certification or administrator). We expect that interest rates applicable to the
2021 Credit Facility will be modified upon the implementation of a LIBOR
replacement rate that will apply to our current and future borrowings. The
maturity date of the 2021 Credit Facility is December 3, 2026.

The obligations under the 2021 Credit Facility are secured by senior,
first-priority liens on all or substantially all assets of DDH LLC and its
subsidiaries and are guaranteed by the subsidiaries of DDH LLC and include a
pledge and guarantee by the Company. The 2021 Credit Facility contains customary
events of default, including with respect to a failure to make payments when
due, cross-default and cross-judgment default and certain bankruptcy and
insolvency events.  The 2021 Credit Facility is subject to an intercreditor
agreement pursuant to which the lenders under the Revolving Credit Facility have
a priority lien on the trade accounts receivable of DDH LLC and its subsidiaries
that constitute eligible accounts under the Revolving Credit Facility and
related proceeds, and the lenders under the 2021 Credit Facility have a priority
lien on all other collateral. In connection with the entry into the 2021 Credit
Facility, we paid off in full and terminated the 2020 Term Loan Facility.

On July 28, 2022, the Company entered into the Second Amendment and Joinder to
Term Loan and Security Agreement (the "Term Loan Amendment") with DDH LLC,
Colossus Media, Huddled Masses, Orange142, USDM, LLC, Lafayette Square, and the
Lenders party thereto, pursuant to which the Company was joined as a guarantor
of the obligations under the 2021 Credit Facility.

Pursuant to the Term Loan Amendment, DDH LLC will indemnify the Company from and
against any claims, losses, expenses and other liabilities incurred by the
Company arising from the Company's guarantor obligations under the 2021 Credit
Facility and related term loan documents. Additionally, under the Term Loan
Amendment, DDH LLC borrowed $4,260,000 under the Delayed Draw Loan. The Delayed
Draw Loan is required to be repaid in quarterly installments payable on the last
day of each fiscal quarter in an amount equal to (i) commencing with the fiscal
quarter ending December 31, 2022 through and including the fiscal quarter ending
December 31, 2023, $26,250, and (ii) commencing March 31, 2024 and continuing on
the last day of each fiscal quarter thereafter, $52,500, with a final
installment due December 3, 2026 in an amount equal to the remaining entire
principal balance thereof. After giving effect to the Delayed Draw Loan on the
effective date of the Term Loan Amendment, no additional delayed draw loans will
be available under the 2021 Credit Facility.

On July 28, 2022, DDH LLC entered into the Redemption Agreement Amendment with
USDM Holdings, Inc. that amends the previously disclosed Redemption Agreement by
and between DDH LLC and USDM Holdings, Inc., dated as of November 14, 2021 (the
"Original Redemption Agreement"), as amended by the Amendment to Redemption
Agreement dated as of February 15, 2022. The Redemption Agreement Amendment,
among other things, amends the remainder of the principal and interest for the
Common Units Redemption Price (as defined in the Original Redemption Agreement)
to be $3,998,635.

Pursuant to the terms of the Amendment to the Repayment Agreement, the proceeds of the Deferred Drawdown Loan were used to repay the outstanding balance and related expenses of the Upfront Repayment Agreement, as well as other transaction costs.

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