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.

Cautionary Note 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 the overall demand for advertising, which could be influenced

by economic downturns;

? any slow-down or unanticipated development in the market for programmatic

advertising campaigns;

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

operational and performance issues with our platform, whether real or

? perceived, including a failure to respond to technological changes or to

upgrade our technology systems;

any significant inadvertent disclosure or breach of confidential and/or

? personal information we hold, or of the security of our or our customers’,

suppliers’ or other partners’ computer systems;

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

software, products and services that we use;

unfavorable publicity and negative public perception about our industry,

? particularly concerns regarding data privacy and security relating to our

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

laws and industry self-regulation;

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

tracking technologies, which could diminish our platform’s effectiveness;

? any inability to compete in our intensely competitive market;

? any significant fluctuations caused by our high customer concentration;

? our limited operating history, which could result in our past results not being

indicative of future operating performance;

? any violation of legal and regulatory requirements or any misconduct by our

employees, subcontractors, agents or business partners;

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

? on our ability to attract and retain qualified board members as a result of

being a public company;

? as a holding company, we depend on distributions from DDH LLC to pay our taxes,

expenses (including payments under the Tax Receivable Agreement) and dividends;

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DDH LLC may make distributions of cash to us substantially in excess of the

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

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

? to the extent not distributed as dividends on our Class A common stock, would

benefit Direct Digital Management, LLC, the entity indirectly owned by our

Chairman and Chief Executive Officer and President, as a result of its

ownership of Class A common stock upon an exchange or redemption of its 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 fiscal year ended 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 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.

Overview

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
Direct Digital Holdings, LLC ("DDH LLC"), which operates the business formed in
2018 through the acquisition of Huddled Masses LLC ("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 as follows:

                                                       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.

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Key Factors Affecting Our Performance

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

Buy-side advertising business

New Customer Acquisitions

On the buy-side of our business, our customers consist of purchasers of
programmatic advertising inventory (ad space) looking to place their
advertisements. We serve the needs of approximately 200 small and mid-sized
clients annually, consisting of advertising space buyers, including small and
mid-sized companies, large advertising holding companies (which may manage
several agencies), independent advertising agencies and mid-market advertising
service organizations. We serve a variety of customers 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 that use our buy-side
advertising businesses for their advertising partner. Our long-term growth and
results of operations will depend on our ability to attract more customers,
including DMOs, across multiple geographies.

Expand 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 three months ended
March 31, 2022. In addition, we cultivate client relationships through our
pipeline of managed and moderate/self-serve clients that conduct campaigns
through our platform that eventually grow into managed service clients, which
has resulted in their increased use of our platform over time. 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.

Shift to Digital Advertising

Media has increasingly become more digital as a result of three key items:

? Advances in technology with more sophisticated digital content delivery across

multiple platforms;

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

using mobile and other devices; and

? Better audience segmentation with more efficient targeting and measurable

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.

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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.

Sell-side advertising business

Increasing revenue from publishers and advertising spend from buyers

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 43,000
advertisers per month in the three months ended March 31, 2021, which increased
to an average of approximately 69,000 advertisers per month in the three months
ended March 31, 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.

Monetizing 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.

Enhancing ad inventory quality

In January 2022, Colossus Media was ranked by MediaMath as 5th 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
three months ended March 31, 2022, less than 1% of inventory was determined to
be invalid, resulting in minimal financial impact to our customers. We address
IVT on a number of fronts, including sophisticated technology, which detects and
avoids invalid traffic 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.

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Growing 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
three months ended March 31, 2022, we processed approximately 570 million bid
requests and had connections to 19 DSPs.

Expanding and managing investments

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 half of 2022, 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 Results of Operations

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 discussed in more detail under “Critical
Accounting Policies and Estimates.”

Cost of Revenues

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

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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.

Operating Expenses

Operating expenses consist of compensation expenses related to our executive,
sales, finance, and administrative personnel (including salaries, commissions,
bonuses, 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 (Expense) Income

Other income. Other income includes income associated with recovery of
receivables and other miscellaneous credit card rebates.

Forgiveness of PPP 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.

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 Months Ended March 31, 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 March 31,             Change
                                                       2022                   2021             Amount          %
Revenues
Buy-side advertising                           $          5,831,041     $       4,828,048    $ 1,002,993      21 %
Sell-side advertising                                     5,539,296               865,686      4,673,610     540 %
Total revenues                                           11,370,337             5,693,734      5,676,603     100 %

Cost of revenues
Buy-side advertising                                      2,069,346             1,954,640        114,706       6 %
Sell-side advertising                                     4,520,192               741,693      3,778,499     509 %
Total cost of revenues                                    6,589,538             2,696,333      3,893,205     144 %

Gross Profit                                              4,780,799             2,997,401      1,783,398      59 %

Operating Expenses                                        4,195,928             3,023,596      1,172,332      39 %
Income (loss) from operations                               584,871              (26,195)        611,066      nm
Other (expense) income                                  (1,256,494)             (783,098)      (473,396)     ­60 %
Tax expense                                                       -                     -              -       - %
Net loss                                       $          (671,623)     $       (809,293)    $   137,670      17 %
Adjusted EBITDA (1)                            $          1,121,308     $         480,919    $   640,389     133 %

(1) For a definition of Adjusted EBITDA, an explanation of our management’s use

of this measure, and a reconciliation of Adjusted EBITDA to net loss see ” –

Non-GAAP Financial Measures.”

Revenues

Our revenues increased from $5.7 million in for the three months ended March 31,
2021 to $11.4 million for the three months ended March 31, 2022, an increase of
$5.7 million or 100%. Buy-side advertising revenue increased $1.0 million, or
21%, while sell-side advertising revenue increased $4.7 million, or 540% over
the 2021 first quarter results. The increase in our sell-side advertising
revenue was the result of an  increase in the number of customers served, and an
increase in the number of publisher connections. The increase in our buy-side
advertising revenue was primarily as a result of higher spending by our current
customers as well as the increase in the number of clients served. We expect
continued revenue growth momentum for both segments as we work to innovate our
programmatic advertising offerings for the middle market segment, enhance our
publisher partner engagement and monetization strategies, and further extend our
reach into the underserved and underrepresented publisher communities.

Cost of Revenues

Along with the increase in gross sales across both platforms, we correspondingly
experienced an increase in cost of revenues from $2.7 million for the
three months ended March 31, 2021 to $6.6 million for the three months ended
March 31, 2022, an increase of $3.9 million or 144%. Buy-side advertising cost
of revenues increased $0.1 million to $2.1 million or 35% of revenue for the
three months ended March 31, 2022 compared to $2.0 million or 40% of revenue for
the three months ended March 31, 2021. Sell-side advertising cost of revenues
increased $3.8 million, to $4.5 million, or 82% of revenue for the three months
ended March 31, 2022, compared to $0.7 million, or 86% of revenue, for the same
period in 2021. Our sell-side cost of media is approximately 80% and our lower
cost of media revenue for the first quarter of 2022 was due to economies of
scale from the higher revenue we generated during this period.

Gross Profit

Gross profit also increased in the three months ended March 31, 2022 to $4.8
million, or 42% of revenue, compared to $3.0 million, or 53% of revenue, for the
three months ended March 31, 2021, an increase of $1.8 million or 60% compared
to the quarter ended

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March 31, 2021. The lower margin for the three months ended March 31, 2022 is
attributable to the mix in revenue between our business segments. Buy-side
advertising gross profit increased $0.9 million, primarily due to a lower cost
of revenue. Sell-side advertising gross profit increased $0.9 million over the
first quarter of 2021, primarily as a result of the increase in revenue and
related economies of scale as discussed above.

Operating Expenses

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

                                       For the Three Months Ended
                                               March 31,                    Change
                                          2022             2021          Amount       %

Compensation, taxes, and benefits    $    2,555,036     $ 1,773,081    $  

781,955    44 %
General and administrative                1,640,892       1,250,515        390,377    31 %
Total operating expenses             $    4,195,928     $ 3,023,596    $ 1,172,332    39 %

Compensation, taxes and benefits

Compensation, taxes and benefits increased from $1.8 million for the
three months ended March 31, 2021 to $2.6 million in for the three months ended
March 31, 2022, an increase of $0.8 million, or 44%. The increase was primarily
due to higher commissions, the transition of professional fee expenses being
converted to full time employees' wages, salaries and benefits, and hiring of
additional personnel to support our growth.

General and administrative expenses

General and administrative ("G&A") expenses also increased from $1.3 million for
the three months ended March 31, 2021 to $1.6 million for the three months ended
March 31, 2022, primarily due to costs associated with our transition to and
operation as a public company. For the three months ended March 31, 2021, G&A
expenses as a percentage of revenue was 14% for the three months ended March 31,
2022 compared to 22% for the three months ended March 31, 2021. During the first
quarter of 2022, we invested in systems, increased insurance, additional
software fees, and incurred additional professional fee expenses.

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, legal and accounting costs, higher insurance premiums,
and compliance costs associated with developing the requisite infrastructure
required for internal controls. As a result, we expect G&A expenses to increase
in absolute dollars in future periods.

Other income (expense)

The following table sets forth the components of other income (expense) for the
periods presented.

                                                  For the Three Months Ended
                                                          March 31,                      Change
                                                     2022             2021          Amount        Pcnt
Other income                                    $        47,982    $    18,659    $    29,323       157 %
Forgiveness of Paycheck Protection
Program loan                                                  -         10,000       (10,000)      ­100 %
Loss on early redemption of non-
participating preferred units                         (590,689)              -      (590,689)      ­100 %
Interest expense                                      (713,787)      (811,757)         97,970        12 %
Total other expense                             $   (1,256,494)    $ (783,098)    $ (473,396)       ­60 %

Other expense for the three months ended March 31, 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 $0.7 million of interest
expense partially offset by other income. Other expense for the three months
ended March 31, 2021 is comprised of approximately $0.8 million of interest
expense partially offset by other income and the forgiveness of the PPP loan.

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Interest Expense

Interest expense decreased for the three months ended March 31, 2022 to $0.7
million compared to $0.8 million for the three months ended March 31, 2021. The
decrease in 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.

Liquidity and Capital Resources

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

                                                           March 31, 2022      December 31, 2021
Cash and cash equivalents                                 $      4,406,800    $         4,684,431
Working capital (deficiency)                              $      (299,659)    $         4,057,243

Availability under Revolving Credit Facility              $      1,459,383 

$ 1,798,145

We anticipate funding our operations for the next twelve months using available
cash, cash flow generated from operations, proceeds from our public offering in
2022, and availability under the revolving credit facility provided under our
credit agreement, as amended, entered into on September 30, 2020, with East West
Bank in the amount of $2,500,000 (the "Revolving Credit Facility"). As of
March 31, 2022 and December 31, 2021, we had cash and cash equivalents of
approximately $4.4 million and $4.7 million, respectively, and $1.5 million and
$1.8 million available under our Revolving Credit Facility, respectively. Based
on our projections of growth in revenue and cash generated from operations in
the coming year, the available cash held by us and availability under our
Revolving Credit Facility, 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. 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 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 were 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 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 bear interest at the LIBOR rate
plus 3.5% per annum, and at March 31, 2022 and December 31, 2021, the rate was
7.6% and 7.0%, respectively, with a 0.50% per annum unused line fee. We expect
that interest rates applicable to the Revolving 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 Revolving Credit
Facility is September 30, 2022. The Revolving Credit Facility is secured by
senior liens on all or substantially all of the assets of DDH LLC and its
subsidiaries, including a priority lien on the trade accounts receivable of DDH
LLC and its subsidiariesand guaranteed by Holdings. The Revolving Credit
Facility includes financial covenants, including that the Company

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maintains (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, and beginning with the fiscal quarter ended December
31, 2021, a minimum fixed charge coverage ratio of not less than 1.50 to 1.00 as
of the end of each fiscal quarter, (ii) a maximum total net leverage ratio of
3.75 to 1.00 for the fiscal quarters ending December 31, 2021 and thereafter and
(iii) a minimum liquidity amount, plus revolving credit availability of at least
$1.3 million at all times for the period of December 31, 2021 to June 29, 2022
and $1.4 million thereafter. As of March 31, 2022, the Company was compliant
with all of its financial covenants under the Revolving Credit Facility. As of
each of March 31, 2022 and December 31, 2021, the Revolving Credit Facility had
borrowings outstanding in the amount of $0.4 million, and $1.5 million of unused
capacity. The Revolving Credit Facility and the 2021 Credit Facility contain
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. From time to time, we are required to post
financial assurances to satisfy contractual and other requirements generated in
the normal course of business. Some of these assurances are posted to comply
with federal, state or other government agencies' statutes and regulations. DDH
LLC was in compliance with all of its financial covenants under the Revolving
Credit Facility and the 2020 Term Loan Facility as of March 31, 2022 and
December 31, 2021.

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 liens on
all or substantially all assets of DDH LLC and its subsidiaries and are
guaranteed by the subsidiaries of DDH LLC. 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.

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