DIRECT MARKETS HOLDINGS CORP.

          The Company has experienced recurring losses from operations, and such losses may continue for the foreseeable future. As of August 9, 2012, the Company had approximately $6.8 million in liquid assets. If the Company cannot generate revenue in the near term, it will need to raise additional capital to continue to fund its operating activities. The Company is currently exploring several financing and strategic options; however, there can be no assurance that the Company will be able to complete any such transaction in a timely manner, if at all, and cannot predict what the terms of any such transaction will be. Any financing or strategic transaction may be dilutive to existing stockholders and may include covenants restricting the Company’s ability to operate freely or make it more difficult for the Company to raise money in the future. If the Company’s capital raising and/or strategic initiative efforts are unsuccessful, its inability to finance ongoing operations could have a material adverse effect on the Company’s financial position, results of operations and business and the Company may have to curtail its operations. These factors raise substantial doubt about the Company’s ability to continue as a going concern.

          On July 2, 2012, the Company announced that it had entered into a nonbinding letter of intent for the sale of R&R to an entity controlled by Michael Vasinkevich, one of the Company’s founders and former vice chairman of the board of directors. The closing of the transaction is subject to conditions including the negotiation and execution of a definitive agreement, FINRA approval of the proposed change in control and approval of the transaction by a majority of the disinterested stockholders of the Company.

          In August 2012, the Company satisfied an account payable due to a service provider in the approximate amount of $1.6 million through the payment of $600,000 and the transfer and assignment of other assets (an accounts receivable and judgments) with an aggregate carrying value of $630,000. This transaction was recorded as an approximate $1 million reduction of accounts payable and professional and consulting expenses during the second quarter of 2012.

          Merchant banking revenue, consisting of gains and losses on investments by our Aceras BioMedical joint venture and other principal investments activity, was a $0.1 million loss in the three months ended June 30, 2012. The value of Aceras BioMedical’s assets as of June 30, 2012 and December 31, 2011 was determined based on an independent valuation performed by a “third party valuation firm”, which takes into consideration, when applicable, cash received, cost of the investment, market participant inputs, estimated cash flows based on entity specific criteria, purchase multiples paid in other comparable third-party transactions, market conditions, liquidity, operating results and other qualitative and quantitative factors. The values at which our investments are carried on our books are adjusted to estimated fair value at the end of each quarter taking into account, factors including, general economic and stock market conditions.

          Non-compensation expense was $17.9 million for the six months ended June 30, 2012, comparable to the $21.0 million for the same prior year period. The decrease from the same prior year period’s non-compensation expense was mostly due to the cost cutting initiatives that were implemented during the fall of 2011, which resulted in a $2.9 million reduction in conference expense, a $1.0 million decrease in business development expenses and a $0.4 million decrease in professional and consulting expense, partially offset by a $0.9 increase in other expense, a $0.7 million increase in communication and market research expenses, a $0.6 million increase in execution and clearing, and a $0.4 million increase in interest expense. In August 2012, we satisfied an account payable due to a service provider in the approximate amount of $1.6 million through the payment of $600,000 and the transfer and assignment of other assets (an accounts receivable and judgments) with an aggregate carrying value of $630,000. This transaction was recorded as an approximate $1 million reduction of accounts payable and professional and consulting expenses during the second quarter of 2012.