UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q

 

(Mark one) 

☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the quarterly period ended March 31, 2023

 

☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the transition period from ____________ to ____________

 

Commission file number 000-05576

 

DOMINARI HOLDINGS INC.
(Exact name of registrant as specified in its charter)

 

Delaware   52-0849320
(State or other jurisdiction
of incorporation or organization)		   (I.R.S. Employer
Identification No.)

 

725 5th Avenue, 22nd Floor, New York, NY 10022
(Address of Principal Executive Offices, including zip code)

 

(703) 992-9325
(Registrant’s telephone number, including area code)

 

Not Applicable
(Former name, former address and former fiscal year, if changed since last report)

 

Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

 

Indicate by check mark whether the Registrant has submitted electronically every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the Registrant was required to submit such files.) Yes ☒ No ☐

 

Indicate by check mark whether the Registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See definition of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

 

Large Accelerated Filer ☐ Accelerated Filer ☐
Non-accelerated Filer ☒ Smaller Reporting Company ☒
Emerging growth company ☐    

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

 

Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒

 

Securities registered pursuant to Section 12(b) of the Act:

 

Title of each class   Trading Symbol(s)   Name of each exchange on which registered
Common Stock, $0.0001 par value   DOMH   The Nasdaq Capital Market LLC

 

As of May 8, 2023, there were 4,592,578 shares of the Company’s common stock issued and outstanding.

 

 

 

 

 

 

DOMINARI HOLDINGS INC.

Form 10-Q

For the Quarter Ended March 31, 2023

Index 

 

    Page No.
     
Part I. Financial Information
     
Item 1. Financial Statements (Unaudited) 1
     
  Condensed Consolidated Balance Sheets as of March 31, 2023 (Unaudited) and December 31, 2022 1
     
  Condensed Consolidated Statements of Operations for the three months ended March 31, 2023 and 2022 (Unaudited) 2
     
  Condensed Consolidated Statements of Changes in Redeemable Convertible Preferred Stock and Stockholders’ Equity for the three months ended March 31, 2023 and 2022 (Unaudited) 3
     
  Condensed Consolidated Statements of Cash Flows for the three months ended March 31, 2023 and 2022 (Unaudited) 4
     
  Notes to the Condensed Consolidated Financial Statements (Unaudited) 5
     
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations 22
     
Item 3. Quantitative and Qualitative Disclosures About Market Risk 25
     
Item 4. Controls and Procedures 25
     
Part II. Other Information  
     
Item 1. Legal Proceedings 26
     
Item 1A. Risk Factors 26
     
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds 27
     
Item 3. Defaults Upon Senior Securities 27
     
Item 4. Mine Safety Disclosures 27
     
Item 5. Other Information 27
     
Item 6. Exhibits 27
     
Signatures 28

 

i

 

 

PART I - FINANCIAL INFORMATION

 

Item 1. Financial Statements

DOMINARI HOLDINGS INC.

Condensed Consolidated Balance Sheets

($ in thousands except share and per share amounts)

 

   March 31,   December 31, 
   2023   2022 
   (Unaudited)     
ASSETS        
Current assets        
Cash and cash equivalents  $9,533   $33,174 
Marketable securities   24,394    7,130 
Clearing broker deposits   3,550    
-
 
Prepaid expenses and other current assets  745    564 
Prepaid acquisition cost   
-
    301 
Short-term investments at fair value   13    13 
Notes receivable, at fair value - current portion   6,536    7,474 
Investment in Fieldpoint Securities   
-
    2,000 
Total current assets   44,771    50,656 
           
Property and equipment, net   353    
-
 
Notes receivable, at fair value - non-current portion   1,850    1,100 
Investments   23,103    23,103 
Right-of-use assets   3,619    919 
Security deposit   458    458 
Total assets  $74,154   $76,236 
           
LIABILITIES AND STOCKHOLDERS’ EQUITY          
Current liabilities          
Accounts payable and accrued expenses  $641   $447 
Accrued salaries and benefits   732    1,260 
Accrued Commissions   25    
-
 
Lease liability - current   198    82 
Other Current liability   124    
-
 
Total current liabilities   1,720    1,789 
           
Lease liability   3,363    680 
Total liabilities   5,083    2,469 
           
Stockholders’ equity          
Preferred stock, $0.0001 par value, 50,000,000 Authorized
   
 
    
 
 
Series D: 5,000,000 shares designated; 3,825 shares issued and outstanding at March 31, 2023 and December 31, 2022; liquidation value of $0.0001 per share   
-
    
-
 
Series D-1: 5,000,000 shares designated; 834 shares issued and outstanding at March 31, 2023 and December 31, 2022; liquidation value of $0.0001 per share   
-
    
-
 
Common stock, $0.0001 par value, 100,000,000 shares authorized; 4,815,597 and 5,485,096 shares issued at March 31, 2023 and December 31, 2022, respectively; 4,755,449 and 5,017,079 shares outstanding at March 31, 2023 and December 31, 2022, respectively   
-
    
-
 
Additional paid-in capital   259,215    262,970 
Treasury stock, at cost, 60,148 and 468,017 shares at March 31, 2023 and December 31, 2022, respectively   (501)   (3,322)
Accumulated deficit   (189,643)   (185,881)
Total stockholders’ equity   69,071    73,767 
Total liabilities and stockholders’ equity  $74,154   $76,236 

 

See accompanying notes to unaudited condensed consolidated financial statements.

 

1

 

 

DOMINARI HOLDINGS INC.

Condensed Consolidated Statements of Operations

($ in thousands except share and per share amounts)

(Unaudited)

 

   Three Months Ended
March 31,		 
   2023   2022 
Operating costs and expenses        
General and administrative  $3,833   $1,787 
Research and development   1    2,016 
Total operating expenses   3,834    3,803 
Loss from operations   (3,834)   (3,803)
           
Other (expenses) income          
Other income   
-
    64 
Interest income   137    179 
Loss on marketable securities   (65)   (497)
Change in fair value of investments   
-
    522 
Total other (expenses) income   72    268 
Net loss  $(3,762)  $(3,535)
Deemed dividends related to Series O and Series P Redeemable Convertible Preferred Stock   
-
    (3,009)
Net Loss Attributable to Common Shareholders  $(3,762)  $(6,544)
           
Net loss per share, basic and diluted          
Basic and Diluted
  $(0.71)  $(1.25)
           
Weighted average number of shares outstanding, basic and diluted          
Basic and Diluted
   5,305,513    5,252,517 

 

See accompanying notes to unaudited condensed consolidated financial statements.

 

2

 

 

DOMINARI HOLDINGS INC.

Condensed Consolidated Statements of Changes in Redeemable Convertible Preferred Stock and Stockholders’ Equity

($ in thousands except share and per share amounts)

(Unaudited)

 

For the Three Months Ended March 31, 2023

 

   Preferred Stock   Common Stock   Additional
Paid-in		   Treasury Stock   Accumulated   Total
Stockholders’		 
   Shares   Amount   Shares   Amount   Capital   Shares   Amount   Deficit   Equity 
Balance at December 31, 2022   4,659   $
          -
    5,485,096   $
         -
   $262,970    468,017   $(3,322)  $(185,881)  $73,767 
Stock-based compensation   -    
-
    
-
    
-
    5    -    
-
    
-
    5 
Cancellation of common stock   -    
-
    (25,000)   
-
    
-
    -    
-
    
-
    
     -
 
Purchase of treasury stock   -    
-
    -    
-
    
-
    236,630    (939)   
-
    (939)
Retirement of treasury stock   -    
-
    

(644,499

)   
-
    (3,760)   (644,499)   3,760    
-
    
-
 
Net loss   -    
-
    -    
-
    
-
    -    
-
    (3,762)   (3,762)
Balance at March 31, 2023   4,659   $
-
    4,815,597   $
-
   $259,215    60,148   $(501)  $(189,643)  $69,071 

 

For the Three Months Ended March 31, 2022

 

    Redeemable Convertible Preferred Stock                 Additional                  Total  
    Series O     Series P     Preferred Stock     Common Stock     Paid-in     Treasury Stock     Accumulated     Stockholders’  
    Shares     Amount     Shares     Amount     Shares     Amount     Shares     Amount     Capital     Shares     Amount     Deficit     Equity  
Balance at December 31, 2021     -     $ -       -     $ -       4,659     $         -       5,275,329     $          -     $ 265,633       0     $ (264 )   $ (163,774 )   $ 101,595  
Issuance of Series O redeemable convertible preferred stock for cash     11,000       11,000              
 
       -       -       -      
 
       -              -       -       -       -  
Issuance of Series P redeemable convertible preferred stock for cash                     11,000       11,000       -       -       -      
 
       -       -       -       -       -  
Cost on issuance of Series O and Series P Redeemable Convertible Preferred Stock     -       (1,504 )     -       (1,505 )     -       -       -               -       -       -       -       -  
Deemed dividends related to Series O and Series P Redeemable Convertible Preferred Stock     -       1,504       -       1,505       -      
 
       -       -       (3,009 )     -       -       -       (3,009 )
Cancellation of common stock related to investment in CBM     -       -       -       -       -       -       (22,812 )     -       -       -       -       -       -  
Net loss     -       -       -       -       -           -       -       -       -       -       -       (3,535 )     (3,535 )
Balance at March 31, 2022       11,000     $ 11,000       11,000     $ 11,000       4,659     $ -       5,252,517     $ -     $ 262,624       0     $ (264 )   $ (167,310 )   $ 95,051  

 

See accompanying notes to unaudited condensed consolidated financial statements.

 

3

 

 

DOMINARI HOLDINGS INC.

Condensed Consolidated Statements of Cash Flows

($ in thousands)

(Unaudited)

 

   Three Months Ended
March 31,		 
   2023   2022 
Cash flows from operating activities        
Net loss  $(3,762)  $(3,535)
Adjustments to reconcile net loss to net cash used in operating activities:          
Amortization of right-of-use assets   92    
-
 
Depreciation   7    
-
 
Change in fair value of short-term investment   -    886 
Change in fair value of long-term investment   
-
    (1,408)
Stock-based compensation   5    
-
 
Realized loss on marketable securities   56    224 
Unrealized loss on marketable securities   130    333 
Realized gain on sale of digital currencies   
-
    (64)
Changes in operating assets and liabilities:          
Prepaid expenses and other assets   (221)   66 
Prepaid acquisition cost   301    
-
 
Accounts payable and accrued expenses   (19)   (172)
Accrued salaries and benefits   (528)   6 
Lease liabilities   7    
-
 
Other current liabilities   3    
-
 
Notes receivable, at fair value – net interest accrued   (62)   (179)
Deposit   
-
    7 
Net cash used in operating activities   (3,991)   (3,836)
           
Cash flows from investing activities          
Purchase of marketable securities   (17,519)   (27,096)
Sale of marketable securities   68    24,662 
Proceeds from sale of digital currencies   
-
    93 
Purchase of fixed assets   (361)   
-
 
Acquisition of FPS, net of cash acquired and receivable owed from FPS   (1,149)   - 
Collection of principal on note receivable   250    - 
Purchase of short-term and long-term investments   
-
    (7,737)
Net cash used in investing activities   (18,711)   (10,078)
           
Cash flows from financing activities          
Proceeds from issuance of Series O and Series P Redeemable Convertible Preferred Stock, net of discount and offering cost   
-
    18,991 
Purchase of treasury stock   (939)   
-
 
Net cash (used in) provided by financing activities   (939)   18,991 
           
Net (decrease) increase in cash and cash equivalents and restricted cash   (23,641)   5,077 
Cash and cash equivalents, beginning of period   33,174    65,562 
           
Cash and cash equivalents, end of period  $9,533   $70,639 
           
Non-cash investing and financing activities          
Transfer from short-term investment to marketable securities  $
-
   $1,482 
Reclassify from convertible note receivable to notes receivable at fair value  $
-
   $2,147 
           
On March 27, 2023, the Company acquired all assets and liabilities of FPS as disclosed in Note 4:          
Net assets acquired, net of cash acquired and receivable owed from FPS  $3,149      
Less - Deposit previously transferred in October 2022 to FPS  $(2,000)     
Net cash paid  $1,149      

 

See accompanying notes to unaudited condensed consolidated financial statements.

 

4

 

 

DOMINARI HOLDINGS INC.

Notes to Condensed Consolidated Financial Statements

(Unaudited)

 

Note 1. Organization and Description of Business and Recent Developments

 

Organization and Description of Business

 

Dominari Holdings Inc. (the “Company”), formerly AIkido Pharma, Inc., was founded in 1967 as Spherix Incorporated. Since 2017, the Company has operated as a biotechnology company with a diverse portfolio of small-molecule anticancer and antiviral therapeutics and their related patent technology. In an effort to enhance shareholder value, in June of 2022, the Company formed a wholly owned financial services subsidiary, Dominari Financial Inc. (“Dominari”), with the intent of shifting the Company’s primary operating focus away from biotechnology to the fintech and financial services industries. Through Dominari, the Company acquired Dominari Securities LLC (Dominari Securities), an introducing broker-dealer, registered with the Financial Industry Regulatory Authority (“FINRA”) and an investment adviser registered with the Securities and Exchange Commission (“SEC”). Dominari Securities provides investment advisory services and annuity and insurance products of certain insurance carriers as an insurance agency through independent and affiliated brokers. 

 

Additionally, AIkido Labs, LLC (“Aikido Labs”), another wholly owned subsidiary of the Company, has historically explored opportunities in high growth industries.  To date, Aikido Labs has made equity investments in Anduril Industries, Inc, Databricks, Inc., Discord, Inc., Epic Games, Inc., Payward, Inc. dba Kraken, Space Exploration Technologies Corp. dba SpaceX, Tevva Motors Ltd., Thrasio, LLC, and Yanka Industries, Inc. dba Masterclass. Finally, the Company is in the process of winding down its historical pipeline of biotechnology assets consisting of patented technologies from leading universities and researchers, including prospective treatments for pancreatic cancer, acute myeloid leukemia, and acute lymphoblastic leukemia. 

 

Reverse Stock Split

 

On June 7, 2022, the Company effected a seventeen-for-one (17-for-1) reverse stock split of its class of common stock (the “Reverse Stock Split”). The Reverse Stock Split, which was approved by stockholders at an annual stockholder meeting on May 20, 2022, was consummated pursuant to a Certificate of Amendment filed with the Secretary of State of Delaware on June 2, 2022. The Reverse Stock Split was effective on June 7, 2022. All references to common stock, convertible preferred stock, warrants to purchase common stock, options to purchase common stock, restricted stock units, restricted stock awards, share data, per share data and related information contained in these unaudited condensed consolidated financial statements have been retrospectively adjusted to reflect the effect of the Reverse Stock Split for all periods presented. Payment for fractional shares resulting from the reverse stock split amounted to $0.03 million.

 

Note 2. Liquidity and Capital Resources

 

The Company continues to incur ongoing administrative and other expenses, including public company expenses, in excess of corresponding (non-financing related) revenue. While the Company continues to implement its business strategy, it intends to finance its activities through managing current cash on hand from the Company’s past equity offerings.

 

Based upon projected cash flow requirements, the Company has adequate cash to fund its operations for at least the next twelve months from the date of the issuance of these unaudited condensed consolidated financial statements.

 

5

 

 

DOMINARI HOLDINGS INC.

Notes to Condensed Consolidated Financial Statements

(Unaudited)

 

Note 3. Summary of Significant Accounting Policies

 

There have been no material changes in the Company’s significant accounting policies from those previously disclosed in the 2022 Annual Report other than those discussed below.

 

Basis of Presentation and Principles of Consolidation

 

The accompanying unaudited condensed consolidated financial statements have been prepared in conformity with U.S. generally accepted accounting principles (“U.S. GAAP”), and in conformity with the rules and regulations of the SEC. In the opinion of management, these financial statements contain all adjustments, consisting of only normal recurring adjustments, necessary for a fair statement of the results of the interim periods presented. The condensed balance sheet at December 31, 2022, was derived from audited annual financial statements but does not contain all of the footnote disclosures from the annual financial statements. Accordingly, these financial statements should be read in conjunction with the audited consolidated financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2022.

 

The Company’s policy is to consolidate all entities that it controls by ownership of a majority of the membership interest or outstanding voting stock. The accompanying unaudited condensed consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries, Aikido Labs, Dominari, and Dominari Securities. All significant intercompany balances and transactions have been eliminated in consolidation.

 

Results for interim periods are not necessarily indicative of results to be expected for a full year or any future period.

 

Use of Estimates

 

The accompanying unaudited condensed consolidated financial statements have been prepared in conformity with U.S. GAAP. This requires management to make estimates and assumptions that affect certain reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the unaudited condensed consolidated financial statements, and the reported amounts of revenue and expenses during the period. The Company’s significant estimates and assumptions include stock-based compensation, the valuation of investments, the valuation of notes receivable and the valuation allowance related to the Company’s deferred tax assets. Certain of the Company’s estimates could be affected by external conditions, including those unique to the Company and general economic conditions. It is reasonably possible that these external factors could have an effect on the Company’s estimates and could cause actual results to differ from those estimates and assumptions.

 

Deposits with clearing broker

 

Deposits with clearing broker consisted of approximately $3.4 million held in money market funds and liquid insured deposits and a $0.1 million good faith deposit maintained by the Company with its clearing broker. These amounts are recorded as deposits with clearing broker within the unaudited condensed consolidated balance sheet as of March 31, 2023.

 

6

 

 

DOMINARI HOLDINGS INC.

Notes to Condensed Consolidated Financial Statements

(Unaudited)

 

Leases

 

The Company accounts for its leases under ASC 842, Leases (“ASC 842”). Under this guidance, arrangements meeting the definition of a lease are classified as operating or financing leases and are recorded on the unaudited condensed consolidated balance sheet as both a right-of-use asset and lease liability, calculated by discounting fixed lease payments over the lease term at the rate implicit in the lease or the Company’s incremental borrowing rate. Lease liabilities are increased by interest and reduced by payments each period, and the right-of-use asset is amortized over the lease term. For operating leases, interest on the lease liability and the amortization of the right-of-use asset result in straight-line rent expense over the lease term. For finance leases, interest on the lease liability and the amortization of the right-of-use asset results in front-loaded expense over the lease term. Variable lease expenses are recorded when incurred (see Note 10 - Leases).

 

Recently adopted accounting standards

 

In October 2021, the FASB issued ASU 2021-08, Business Combinations (Topic 805) Accounting for Contract Assets and Contract Liabilities from Contracts with Customers (“ASU 2021-08”). This update amends Topic 805 to add contract assets and contract liabilities to the list of exceptions to the recognition and measurement principles that apply to business combinations and to require that an entity (acquirer) recognize and measure contract assets and contract liabilities in accordance with ASC 606. The Company adopted ASU 2021-08 on January 1, 2023. There was no material impact to the Company’s unaudited condensed consolidated financial statements from the implementation of ASU 2021-08.

 

Effect of new accounting pronouncements not yet adopted

 

In June 2022, the FASB issued ASU 2022-03, Fair Value Measurement of Equity Securities Subject to Contractual Sale Restrictions, to clarify that a contractual restriction on the sale of an equity security is not considered part of the unit of account of the equity security and, therefore, is not considered in measuring the fair value of the equity security. ASU 2022-03 also clarifies that an entity cannot recognize and measure a contractual sale restriction as a separate unit of account. The amendments in ASU 2022-03 may be early adopted and are effective on a prospective basis for fiscal years beginning after December 15, 2023, and interim periods within those fiscal years. The Company is currently evaluating the impact of the amendments on the Company’s consolidated financial statements and whether it will early adopt the amendments in ASU 2022-03. 

 

In March 2023, the FASB issued ASU 2023-01, Leases, to require entities to classify and account for leases with related parties on the basis of legally enforceable terms and conditions of the arrangement. The amendments are effective in periods beginning after December 15, 2023, including interim periods within those fiscal years. The Company is currently evaluating the provisions of the amendments and the impact on its future consolidated financial statements and whether it will early adopt the amendments in ASU 2023-01.

 

Effect of new accounting pronouncements to be adopted in future periods

 

The Company reviewed all other recently issued accounting pronouncements and concluded that they were either not applicable or not expected to have a significant impact on the unaudited condensed consolidated financial statements.

 

7

 

 

DOMINARI HOLDINGS INC.

Notes to Condensed Consolidated Financial Statements

(Unaudited)

 

Note 4. FPS Acquisition

 

On September 9, 2022, Dominari entered into a membership interest purchase agreement, as amended and restated on March 27, 2023 (the “FPS Purchase Agreement”) with Fieldpoint Private Bank & Trust (“Seller”), a Connecticut bank, for the purchase of its wholly owned subsidiary, Fieldpoint Private Securities, LLC, a Connecticut limited liability company (“FPS”), that is a broker-dealer registered with FINRA and an investment adviser registered with the SEC (the “FPS Acquisition”). Pursuant to the terms of the FPS Purchase Agreement, Dominari purchased from the Seller 100% of the membership interests in FPS (the “Membership Interests”). FPS’s registered broker-dealer and investment adviser businesses was renamed and will operate as Dominari Securities, a wholly owned subsidiary of Dominari. The FPS Purchase Agreement provides for Dominari’s acquisition of FPS’s Membership Interests in two closings, the first of which occurred on October 4, 2022 (the “Initial Closing”), at which Dominari paid to the Seller $2.0 million in consideration for a transfer by the Seller to Dominari of 20% of the FPS Membership Interests.  Following the Initial Closing, FPS filed a continuing membership application requesting approval for a change of ownership, control, or business operations with FINRA in accordance with FINRA Rule 1017 (the “Rule 1017 Application”).  The Rule 1017 Application was approved by FINRA on March 20, 2023. The second closing (the “Second Closing”) occurred on March 27, 2023. Dominari paid to the Seller an additional approximate $1.6 million consideration for a transfer by the Seller to Dominari of the remaining 80% of the Membership Interests. 

 

Consideration Transferred

 

The FPS Acquisition was accounted for a business combination under ASC 805.

 

Under the terms of the FPS Purchase Agreement and subsequent Amendments and Side Letters, 100% of the membership interest was acquired for cash consideration of approximately $3.4 million, which reflected the fair value of net assets acquired, plus a $1 purchase price. At March 31, 2023, Dominari had not finalized the purchase accounting related to the fair value of assets acquired in the FPS Acquisition. Pursuant to the Initial Closing and Second Closing, Dominari had wired a total of approximately $3.6 million in cash to the Seller. The purchase price allocation identified net assets of approximately $3.4 million, resulting in a receivable due from the Seller for approximately $0.2 million. The receivable is not included within the consideration transferred as part of the FPS Acquisition but is included within prepaid expenses and other assets within the unaudited condensed consolidated balance sheet as of March 31, 2023.

 

Under the acquisition method of accounting, the assets acquired, and liabilities assumed of FPS were recorded as of the acquisition date, at their respective fair values, and consolidated with those of the Company. Acquisition-related costs are not included as a component of consideration transferred but are expensed in the periods in which costs are incurred. The Company incurred approximately $0.3 million of transaction costs associated with the FPS Acquisition. The transaction costs are included in general and administrative expenses in the unaudited condensed consolidated statement of operations.

 

8

 

 

DOMINARI HOLDINGS INC.

Notes to Condensed Consolidated Financial Statements

(Unaudited)

 

Fair Value of Net Assets Acquired

 

The Company is in the process of finalizing the purchase price allocation as of March 31, 2023. The following table summarizes the fair values of the assets acquired and liabilities assumed of FPS at the date of acquisition:

 

   March 27, 
   2023 
   (Unaudited) 
ASSETS    
Cash and cash equivalents  $92 
Deposits with Clearing Broker-Dealer   3,550 
Other receivables   53 
Prepaid and other current assets   89 
Total assets acquired   3,784 
      
Liabilities     
Accrued expenses  $273 
Accrued commissions   25 
Wealth management liabilities   62 
Total liabilities assumed   360 
      
Total net assets of FPS Acquisition   3,424 

 

Dominari Securities reported a net loss of approximately $0.7 million for the period ended March 31, 2023. Revenue for the period ended March 31, 2023, was not material. The net loss was a result of professional service costs incurred of approximately $0.6 million, which included transaction costs of approximately $0.3 million. The approximate $0.6 million of professional service costs is included in the general and administrative expenses in the unaudited condensed consolidated statement of operations.

 

Proforma disclosures were omitted for this acquisition as it does not have a significant impact on the Company’s financial results.

 

Note 5. Investments in Marketable Securities

 

The realized gain or loss, unrealized gain or loss, and dividend income related to marketable securities for the three months ended March 31, 2023 and 2022, which are recorded as a component of gains and (losses) on marketable securities on the unaudited condensed consolidated statements of operations, are as follows ($ in thousands):

 

   Three Months Ended
March 31,		 
   2023   2022 
Realized (loss) gain  $(56)  $(224)
Unrealized loss   (130)   (333)
Dividend income   119    60 
Total  $(65)  $(497)

 

9

 

 

DOMINARI HOLDINGS INC.

Notes to Condensed Consolidated Financial Statements

(Unaudited)

 

Note 6. Short-term investments

 

The following table presents the Company’s short-term investments as of March 31, 2023, and December 31, 2022 ($ in thousands):

 

   March 31,
2023		   December 31,
2022		 
Investment in Vicinity Motor Corp.   13    13 
Total   13    13 

 

There was no change in the fair value of the short-term investments for the three months ended March 31, 2023.

 

The following table provides quantitative information regarding Level 3 fair value measurements inputs at their measurement dates:

 

   March 31,
2023		   December 31,
2022		 
Option term (in years)   1.6    1.8 
Volatility   76.90%   76.90%
Risk-free interest rate   4.47%   4.47%
Expected dividends   0.00%   0.00%
Stock price  $0.96   $0.96 

  

Note 7. Long-Term Investments

 

The following table presents the Company’s other investments as of March 31, 2023, and December 31, 2022 ($ in thousands):

 

   March 31,
2023		   December 31,
2022		 
Investment in Kerna Health Inc  $4,940   $4,940 
Investment in Kaya Now   
-
    
-
 
Investment in Tevva Motors   2,794    2,794 
Investment in ASP Isotopes   
-
    
-
 
Investment in AerocarveUS Corporation   1,000    1,000 
Investment in Qxpress   1,000    1,000 
Investment in Masterclass   170    170 
Investment in Kraken   597    597 
Investment in Epic Games   3,500    3,500 
Investment in Tesspay   2,500    2,500 
Investment in SpaceX   3,674    3,674 
Investment in Databricks   1,200    1,200 
Investment in Discord   476    476 
Investment in Thrasio   300    300 
Investment in Automation Anywhere   476    476 
Investment in Anduril   476    476 
Total  $23,103   $23,103 

 

There was no change in the value of the long-term investments for the three months ended March 31, 2023.

 

10

 

 

DOMINARI HOLDINGS INC.

Notes to Condensed Consolidated Financial Statements

(Unaudited)

 

Investment in Kerna Health Inc

 

On September 15, 2021, the Company entered into a securities purchase agreement (the “Kerna Securities Purchase Agreement”) with Kerna Health Inc., (“Kerna”). Under the Kerna Securities Purchase Agreement, the Company agreed to purchase 1,333,334 shares of common stock of Kerna for $1.0 million. Kerna, a private company, raised capital during the fourth quarter of 2021, increasing its share price value to $2.85 per share. Therefore, the Company recorded a $2.8 million unrealized gain on this investment during the fourth quarter of 2021. The investment in Kerna was valued at $3.8 million as of December 31, 2021. In May 2022, the Company purchased additional 400,000 shares of common stock of Kerna Health Inc, (“Kerna”) for approximately $1.1 million. The investment in Kerna was valued at $4.9 million as of March 31, 2023.

 

Investment in Kaya Holding Corp. (a.k.a Kaya Now Inc.)

 

On September 29, 2021, the Company entered into a securities purchase agreement (the “Kaya Securities Purchase Agreement”) with Kaya Holding Corp., (“Kaya”). Under the Kaya Securities Purchase Agreement, the Company agreed to purchase 8,325,000 shares of common stock of Kaya for approximately $0.7 million. Kaya, a private company, raised capital during the fourth quarter of 2021, increasing its share price value to $0.20 per share. Therefore, the Company recorded approximately $1.0 million in unrealized gain on this investment during the fourth quarter of 2021. The investment in Kaya was valued at approximately $1.7 million as of December 31, 2021. On March 2, 2022, the Company purchased additional 3,375,000 shares of common stock of Kaya Now Inc., aka Kaya Holding Corp., (“Kaya”) for approximately $0.6 million.

 

On July 21, 2022, in consideration for extending the maturity date of the Kaya Now Promissory Note (See Note 8 – Notes Receivable) to February 1, 2023, Kaya agreed to issue to the Company 1,000,000 shares at $0.2 per share of common stock.

 

During the fourth quarter of 2022, the Company identified indicators of impairment for the Kaya investment as a result of adverse changes in Kaya’s business operations, including liquidity concerns. As a result, the Company recorded an impairment charge of approximately $3.1 million in the fourth quarter of 2022. The impairment charge represents an unrealized impairment loss of approximately $2.5 million in stock, $0.5 million related to the promissory note (see Note 8 – Notes Receivable), and $50,000 in Kaya warrants (see Note 9 – Fair Value of Financial Assets and Liabilities). The investment in Kaya was valued at $0 as of March 31, 2023.

 

Investment in Tevva Motors Ltd.

 

On September 22, 2021, the Company entered into a securities purchase agreement (the “Tevva Motors Subscription Agreement”) with Big Sky Opportunities Fund, LLC, who handled the offering for Tevva Motors. Under the Tevva Motors Subscription Agreement, the Company agreed to purchase 29,004 interests of Tevva Motors for approximately $1.0 million. Subsequently, on September 30, 2021, the Company entered into a second securities purchase agreement with Big Sky Opportunities Fund, LLC to purchase an additional 29,004 interests of Tevva Motors for approximately $1.0 million. The investment in Tevva was valued at approximately $2.0 million as of December 31, 2021. Tevva Motors (“Tevva”), a private company, raised capital during the first quarter of 2022, increasing its share price value to $58.0 per share. Subsequent to the first quarter raise, Tevva had an additional fund raise in the second quarter at a lower valuation of $48.16 per share. Therefore, the Company recorded a first quarter of 2022 unrealized gain of approximately $1.4 million offset by a second quarter of 2022 unrealized loss of approximately $0.6 million. The investment in Tevva was valued at approximately $2.8 million as of as of March 31, 2023.

 

11

 

 

DOMINARI HOLDINGS INC.

Notes to Condensed Consolidated Financial Statements

(Unaudited)

 

Investment in ASP Isotopes Inc.

 

On November 18, 2021, the Company entered into a securities purchase agreement (the “ASP Securities Purchase Agreement”) with ASP Isotopes Inc., (“ASP Isotopes”). Under the ASP Securities Purchase Agreement, the Company agreed to purchase 500,000 shares of common stock of ASP Isotopes for $1.0 million. The investment in ASP Isotopes was valued at approximately $1.0 million as of December 31, 2021. In August 2022, the Company purchased additional 100,000 shares of common stock of ASP Isotopes Inc. (“ASP”) for $0.3 million. In November 2022, the Company transferred all 600,000 shares of ASP Isotopes common stock, approximately $1.4 million, inclusive of a $0.1 million unrealized gain, to the marketable securities account.

 

Investment in AerocarveUS Corporation

 

On November 22, 2021, the Company entered into a securities purchase agreement (the “AerocarveUS Securities Purchase Agreement”) with AerocarveUS Corporation, (“AerocarveUS”). Under the AerocarveUS Securities Purchase Agreement, the Company agreed to purchase 250,000 shares of common stock of AerocarveUS for $1.0 million. The investment in AerocarveUS was valued at approximately $1.0 million as of December 31, 2021. The investment in AerocarveUS Corporation was valued at $1.0 million as of March 31, 2023.

 

Investment in Qxpress

 

On January 27, 2022, the Company entered into a securities purchase agreement (the “Qxpress Securities Purchase Agreement”) with Qxpress. Under the Qxpress Securities Purchase Agreement, the Company agreed to purchase 46,780 shares of common stock of Qxpress for $1.0 million. The investment in Qxpress was valued at $1.0 million as of March 31, 2023.

 

Investment in Masterclass (a.k.a. Yanka Industries Inc.)

 

In March of 2022, the Company entered into a securities purchase agreement (the “Masterclass Securities Purchase Agreement”) with Masterclass. Under the Masterclass Securities Purchase Agreement, the Company agreed to purchase 4,841 shares of common stock of Masterclass for approximately $0.2 million. Although there was also a private fund raise in the second quarter, the per share amount approximated the fair value of the Company’s investment in Masterclass, resulting in no unrealized gain or loss. The investment in Masterclass was valued at approximately $0.2 million as of March 31, 2023.

 

Investment in Kraken (a.k.a. Payward, Inc.)

 

In March of 2022, the Company entered into a securities purchase agreement (the “Kraken Securities Purchase Agreement”) with Kraken. Under the Kraken Securities Purchase Agreement, the Company agreed to purchase a total of 8,409 shares of common stock of Kraken for approximately $0.5 million. In August 2022, the Company entered into a common stock transfer agreement with a private seller to purchase 3,723 shares of Kraken for approximately $0.1 million. The investment in Kraken was valued at approximately $0.6 million as of March 31, 2023.

 

Investment in Epic Games, Inc.

 

On March 22, 2022, the Company entered into a securities purchase agreement (the “Epic Games Securities Purchase Agreement”) with Epic Games. Under the Epic Games Securities Purchase Agreement, the Company agreed to purchase an aggregate of 901 shares of common stock of Epic Games for a total $1.5 million. In April 2022, the Company invested an additional $2 million for the purchase of additional shares of common stock of Epic Games. Although there was also a fund raise in April, the per share amount approximated the fair value of the Company’s investment in Epic Games, resulting in no unrealized gain or loss. The investment in Epic Games was valued at $3.5 million as of March 31, 2023.

 

12

 

 

DOMINARI HOLDINGS INC.

Notes to Condensed Consolidated Financial Statements

(Unaudited)

 

Investment in Tesspay Inc.

 

On March 23, 2022, the Company entered into a securities purchase agreement (the “Tesspay Securities Purchase Agreement”) with Tesspay. Under the Tesspay Securities Purchase Agreement, the Company agreed to purchase 1,000,000 shares of common stock of Tesspay for approximately $0.2 million. The Company also invested an additional $1.0 million for pre-IPO. Tesspay, a private company, raised capital during the first quarter of 2022, increasing its share price value to $0.25 per share. Therefore, the Company recorded $10,000 in unrealized gain on this investment during the first quarter of 2022. Subsequent to the first quarter of 2022 raise, Tesspay had an additional fund raise in the fourth quarter of 2022 at $0.50 per share, resulting in an additional unrealized gain of approximately $1.3 million. The investment in Tesspay was valued at approximately $2.5 million as of March 31, 2023.

 

Investment in SpaceX (a.k.a. Space Exploration Technologies Corp.)

 

On March 30, 2022, the Company entered into a securities purchase agreement (the “SpaceX Securities Purchase Agreement”) with SpaceX, under which the company agreed to purchase shares of common stock of SpaceX for $1.5 million. In April 2022, the Company invested an additional $2.0 million for the purchase of additional shares of common stock of SpaceX. The Company identified a private fund raise on January 3, 2023. Given the proximity to the December 31, 2022 valuation date, the value of the fund raise was used as a proxy for the fair valuation of the Company’s investment in SpaceX as of December 31, 2022. The per share price of SpaceX’s recent fund raise resulted in an unrealized gain of approximately $0.6 million. The investment in SpaceX was valued at approximately $3.7 million as of March 31, 2023.

 

Investment in Databricks, Inc.

 

On March 25, 2022, the Company entered into a securities purchase agreement (the “Databricks Securities Purchase Agreement”) with Databricks. Under the Databricks Securities Purchase Agreement, the Company agreed to purchase an aggregate of 3,830 shares of common stock of Databricks for a total $1.2 million. The investment in Databricks was valued at $1.2 million as of March 31, 2023.

 

Investment in Discord Inc.

 

In May 2022, the Company entered into a securities purchase agreement (the “Discord Securities Purchase Agreement”) with privately-held company Discord, Inc., a social communications platform provider that is particularly popular with gamers, as one of the Company’s pursuits of potentially high growth interests with near term monetization events. Under the Discord Securities Purchase Agreement, the Company agreed to purchase a total of 618 shares of common stock of Discord for approximately $0.5 million. The investment in Discord was valued at $0.5 million as of March 31, 2023.

 

Investment in Thrasio Holdings, Inc.

 

In April 2022, the Company entered into a securities purchase agreement (the “Thrasio Securities Purchase Agreement”) with privately-held company Thrasio, LLC, an aggregator of private brands of top Amazon businesses and direct-to-consumer brands, as one of the Company’s pursuits of potentially high growth interests with near term monetization events. Under the Thrasio Securities Purchase Agreement, the Company agreed to purchase a total of 20,000 shares of common stock of Thrasio for $0.3 million. The investment in Thrasio was valued at $0.3 million as of March 31, 2023.

 

13

 

 

DOMINARI HOLDINGS INC.

Notes to Condensed Consolidated Financial Statements

(Unaudited)

 

Investment in Automation Anywhere, Inc.

 

In April 2022, the Company entered into a securities purchase agreement (the “Automation Anywhere Securities Purchase Agreement”) with privately-held company Automation Anywhere, Inc., a provider of business automation solutions, as one of the Company’s pursuits of potentially high growth interests with near term monetization events. Under the Automation Anywhere Securities Purchase Agreement, the Company agreed to purchase a total of 18,490 shares of common stock of Automation Anywhere for approximately $0.5 million. The investment in Automation Anywhere was valued at $0.5 million as of March 31, 2023.

 

Investment in Anduril Industries, Inc.

 

In April 2022, the Company entered into a securities purchase agreement (the “Anduril Securities Purchase Agreement”) with privately-held company Anduril Industries, Inc., a defense products company, as one of the Company’s pursuits of potentially high growth interests with near term monetization events. Under the Anduril Securities Purchase Agreement, the Company agreed to purchase a total of 14,880 shares of common stock of Anduril for approximately $0.5 million. The investment in Anduril was valued at $0.5 million as of March 31, 2023.

 

Note 8. Notes Receivable

 

The following table presents the Company’s notes receivable as of March 31, 2023 ($ in thousands):

 

   Maturity Date   Stated Interest
Rate		   Principal
Amount		   Interest
Receivable		   Fair Value 
Notes receivable, at fair value                    
Convergent convertible note, current portion   01/29/2023    8%  $1,000   $277   $1,277 
Convergent convertible note, non-current portion   01/29/2023    8%  $750   $
-
   $750 
Raefan Industries LLC Investment   6/30/2023    8%  $4,730   $529   $5,259 
American Innovative Robotics Investment   04/01/2027    8%  $1,100   $
-
   $1,100 
                          
Notes receivable, at fair value - current portion                      $6,536 
                          
Notes receivable, at fair value - non-current portion                      $1,850 

 

Convergent Therapeutics, Inc. Investment

 

The Company’s 8% convertible promissory note (“Convergent Convertible Note”) issued by Convergent Therapeutics, Inc. (“Convergent”) in the principal amount of approximately $1.8 million pursuant to a Note Purchase Agreement matured on January 29, 2023. Upon maturity, Convergent entered into a contractual repayment schedule with the Company. Pursuant to the schedule, Convergent will make a total of eight payments in the amount of $250 thousand and accrued interest, every three months until fully satisfied.

 

The principal balance of the Convergent Convertible Note is approximately $1.8 million as of March 31, 2023. The Company recorded principal repayment of $0.25 million and interest income of approximately $0.04 million on the Convergent Convertible Note as of March 31, 2023.

 

14

 

 

DOMINARI HOLDINGS INC.

Notes to Condensed Consolidated Financial Statements

(Unaudited)

 

Raefan Industries LLC Investment

  

The Company recorded an interest income receivable of approximately $0.5 million on the Raefan Industries Promissory Note as of March 31, 2023

  

American Innovative Robotics, LLC Investment

  

The Company recorded interest income of approximately $22,000 on the Robotics Promissory Note for the three months ended March 31, 2023.

 

Kaya Now Inc. Investment

 

During the fourth quarter of 2022, the Company identified indicators of impairment for the Kaya investment as a result of adverse changes in Kaya’s business operations, including liquidity concerns. As a result, the Company recorded an impairment charge of $0.5 million in the fourth quarter of 2022. The impairment charge represents an impairment loss of the total investment held as a promissory note resulting in a $0 balance for the Kaya Now Promissory Note as of March 31, 2023.

 

The Company received and recorded interest income related to the Kaya Now Promissory Note of approximately $10,000 for the three months ended March 31, 2023.

   

Note 9. Fair Value of Financial Assets and Liabilities

 

Financial instruments, including cash and cash equivalents, accounts payable and accrued liabilities are carried at cost, which management believes approximates fair value due to the short-term nature of these instruments. The Company measures the fair value of financial assets and liabilities based on the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. The Company maximizes the use of observable inputs and minimizes the use of unobservable inputs when measuring fair value.

 

The Company uses three levels of inputs that may be used to measure fair value:

 

Level 1 - quoted prices in active markets for identical assets or liabilities

 

Level 2 - quoted prices for similar assets and liabilities in active markets or inputs that are observable

 

Level 3 - inputs that are unobservable (for example, cash flow modeling inputs based on assumptions)

 

Observable inputs are based on market data obtained from independent sources, while unobservable inputs are based on the Company’s market assumptions. Unobservable inputs require significant management judgment or estimation. In some cases, the inputs used to measure an asset or liability may fall into different levels of the fair value hierarchy. In those instances, the fair value measurement is required to be classified using the lowest level of input that is significant to the fair value measurement. Such determination requires significant management judgment.

 

15

 

 

DOMINARI HOLDINGS INC.

Notes to Condensed Consolidated Financial Statements

(Unaudited)

 

The following table presents the Company’s assets and liabilities that are measured at fair value as of March 31, 2023, and December 31, 2022 ($ in thousands):

 

   Fair value measured as of March 31, 2023 
   Total at
March 31,		   Quoted
prices in
active
markets		   Significant other
observable inputs		   Significant
unobservable
inputs		 
   2023   (Level 1)   (Level 2)   (Level 3) 
Assets                
Marketable securities:                
Equities  $24,394   $24,394   $
         -
   $
-
 
Total marketable securities  $24,394   $24,394   $
-
   $
-
 
Short-term investment  $13   $
-
   $
-
   $13 
Notes receivable, at fair value - current portion  $6,536   $
-
   $
-
   $6,536 
Notes receivable, at fair value - non-current portion  $1,850   $
-
   $
-
   $1,850 

 

   Fair value measured as of December 31, 2022 
   Total at
December 31,		   Quoted
prices in
active
markets		   Significant other
observable inputs		   Significant
unobservable
inputs		 
   2022   (Level 1)   (Level 2)   (Level 3) 
Assets                
Marketable securities:                
Equities  $7,130   $7,130   $
                  -
   $
-
 
Total marketable securities  $7,130   $7,130   $
-
   $
-
 
Short-term investment  $13   $
-
   $
-
   $13 
Notes receivable, at fair value - current portion  $7,474   $
-
   $
-
   $7,474 
Notes receivable, at fair value - non-current portion  $1,100   $
-
   $
-
   $1,100 

 

Level 3 Measurement

 

The following table sets forth a summary of the changes in the fair value of the Company’s Level 3 financial assets that are measured at fair value on a recurring basis ($ in thousands):

  

Short-term investment at December 31, 2022  $13 
Short-term investment at March 31, 2023  $13 
      
Notes receivable, at fair value - current portion, at December 31, 2022  $7,474 
Collection of principal outstanding   (250)
Accrued interest receivable, net   62 
Note receivable, Convergent Convertible Note, non-current portion   (750)
Notes receivable, at fair value - current portion at March 31, 2023  $6,536 
      
Notes receivable, at fair value - non-current portion, at December 31, 2022  $1,100 
Note receivable, Convergent Convertible Note, non-current portion   750 
Notes receivable, at fair value - non-current portion, value at March 31, 2023  $1,850 

 

16

 

 

DOMINARI HOLDINGS INC.

Notes to Condensed Consolidated Financial Statements

(Unaudited)

 

Note Receivable at fair value

   

As of March 31, 2023, the fair value of the notes receivable was measured taking into consideration cost of the investment, market participant inputs, market conditions, liquidity, operating results and other qualitative and quantitative factors. No material change was noted in the fair value of the notes receivable during the three months ended March 31, 2023.

 

Note 10. Leases

 

On December 1, 2021, the Company entered into a Lease Agreement (the “Company’s Lease”) with Trump Tower Commercial LLC, a New York limited liability company. Under the Company’s Lease, the Company will rent a portion of the twenty-second floor at 725 Fifth Avenue, New York, New York (the “22nd Floor Premises”). The Company plans to use the 22nd Floor Premises to run its day-to-day operations. The initial term of the Company’s Lease is seven (7) years commencing on July 11, 2022 (“Commencement Date). Under the Company’s Lease, the Company will pay monthly rent, commencing on January 11, 2023, equal to $12,874. Effective for the sixth and seventh years of the Company’s Lease, the rent shall increase to $13,502. The Company took possession of the 22nd Floor Premises on the Commencement Date.

 

On September 23, 2022, Dominari entered into a Lease Agreement (“Dominari’s Lease”) with Trump Tower Commercial LLC, a New York limited liability company. Under Dominari’s Lease, Dominari will rent a portion of a floor at 725 Fifth Avenue, New York, New York (the “Premises”). Dominari plans to use the Premises to run its day-to-day operations. The initial term of Dominari’s Lease is seven (7) years commencing on the date that possession of the Premises is delivered to Dominari. Under Dominari’s Lease, Dominari will pay monthly rent equal to $49,368. Effective for the sixth and seventh years of Dominari’s Lease, the rent shall increase to $51,868 per month. The Company has taken possession of the Premises in February 2023.

  

The tables below represent the Company’s lease assets and liabilities as of March 31, 2023:

 

   March 31,
2023		 
Assets:    
Operating lease right-of-use-assets  $3,619 
      
Liabilities:     
Current     
Operating   198 
Long-term     
Operating   3,363 
   $3,561 

 

The following tables summarize quantitative information about the Company’s operating leases, under the adoption of ASC 842:

 

  

March 31,

2023

 
Weighted-average remaining lease term – operating leases (in years)   7.2 
Weighted-average discount rate – operating leases   10.0%

 

17

 

 

DOMINARI HOLDINGS INC.

Notes to Condensed Consolidated Financial Statements

(Unaudited)

 

During the three months ended March 31, 2023, the Company recorded approximately $0.1 million as lease expense to current period operations.

 

   Three Months
Ended		 
   March 31,
2023		 
Operating leases    
Operating lease cost  $      134 
Operating lease expense   134 
Short-term lease rent expense   30 
Net rent expense  $164 

 

Supplemental cash flow information related to leases were as follows:

 

   Three Months
Ended		 
   March 31,
2023		 
Operating cash flows - operating leases  $34 
Right-of-use assets obtained in exchange for operating lease liabilities  $2,796 

 

As of March 31, 2023, future minimum payments during the next five years and thereafter are as follows:

 

   Operating 
   Leases 
Remaining Period Ended December 31, 2023  $365 
Year Ended December 31, 2024   750 
Year Ended December 31, 2025   688 
Year Ended December 31, 2026   688 
Year Ended December 31, 2027   688 
Year Ended December 31, 2028   770 
Thereafter   1,166 
Total   5,115 
Less present value discount   (1,554)
Operating lease liabilities  $3,561 

 

Note 11. Net Loss per Share

 

Basic loss per share of common stock is computed by dividing the net loss allocable to common stockholders by the weighted-average number of shares of common stock or common stock equivalents outstanding. Diluted loss per common share is computed similar to basic loss per share except that it reflects the potential dilution that could occur if dilutive securities or other obligations to issue common stock were exercised or converted into common stock. Securities that could potentially dilute loss per share in the future that were not included in the computation of diluted loss per share for the three months ended March 31, 2023, and 2022 are as follows:

 

   As of March 31, 
   2023   2022 
Convertible preferred stock   34    129,446 
Warrants to purchase common stock   444,796    444,796 
Options to purchase common stock   31,193    28,203 
Total   476,023    602,445 

 

18

 

 

DOMINARI HOLDINGS INC.

Notes to Condensed Consolidated Financial Statements

(Unaudited)

 

Note 12. Stockholders’ Equity and Convertible Preferred Stock

 

Common Stock

 

On March 6, 2023, the Company cancelled 644,499 shares of common stock as a result of retirement of 644,499 shares of treasury stock.

 

On March 20, 2023, the Company cancelled 25,000 shares of common stock owned by a board member.

  

Treasury Stock

 

On January 21, 2022, the Company’s board of directors authorized a share buyback program (the “Share Buyback Program”), pursuant to which the Company authorized the Share Buyback Program in an amount of up to three million dollars. During the three months ended March 31, 2023, the Company repurchased 236,630 shares at a cost of approximately $0.9 million or $3.97 per share through marketable securities account under the Share Buyback Program. The Company records treasury stock using the cost method.

 

On March 6, 2023, the Company retired 644,499 shares of treasury stock with original cost of approximately $3.8 million.

 

Warrants

 

A summary of warrant activity for the three months ended March 31, 2023, is presented below:

 

   Warrants   Weighted
Average
Exercise Price		   Total
Intrinsic
Value		   Weighted
Average
Remaining
Contractual
Life
(in years)		 
Outstanding as of December 31, 2022   444,796   $29.25    
      -
      3.20 
Outstanding as of March 31, 2023   444,796   $29.25    
-
    2.95 

 

19

 

 

DOMINARI HOLDINGS INC.

Notes to Condensed Consolidated Financial Statements

(Unaudited)

 

Restricted Stock Awards

 

A summary of restricted stock awards activity for the three months ended March 31, 2023, is presented below:

 

   Number of
Restricted
Stock Awards		   Weighted
Average
Grant Day
Fair Value		 
Nonvested at December 31, 2022   8,068   $5.64 
Vested   (8,068)   5.64 
Nonvested at December 31, 2022   
-
   $
-
 

 

As of March 31, 2023, there is no unrecognized stock-based compensation expense related to restricted stock awards.

 

Stock Options

 

A summary of option activity under the Company’s stock option plan for the three months ended March 31, 2023 is presented below:

 

   Number of
Shares		   Weighted
Average
Exercise Price		   Total Intrinsic
Value		   Weighted
Average
Remaining
Contractual
Life (in years)		 
Outstanding as of December 31, 2022   31,193   $302.97   $
       -
         7.9 
Outstanding as of March 31, 2023   31,193   $302.97   $
-
    7.7 
Options vested and exercisable   25,311   $372.00   $
-
    7.4 

 

Stock-based compensation associated with the amortization of stock option expense was approximately $4,800 and $0 for the three months ended March 31, 2023, and 2022, respectively. All stock compensation was recorded as a component of general and administrative expenses.

 

Estimated future stock-based compensation expense relating to unvested stock options is approximately $10,000.

  

Note 13. Commitments and Contingencies

 

Legal Proceedings

 

In the past, in the ordinary course of business, the Company actively pursued legal remedies to enforce its intellectual property rights and to stop unauthorized use of the Company’s technology. Other than ordinary routine litigation incidental to the business, the Company is not aware of any material, active or pending legal proceedings brought against it.

 

20

 

 

DOMINARI HOLDINGS INC.

Notes to Condensed Consolidated Financial Statements

(Unaudited)

 

Note 14. Regulatory

 

Dominari Securities, the Company’s broker-dealer subsidiary, is registered with the SEC as an introducing broker-dealer and is a member of FINRA. The Company’s broker-dealer subsidiary is subject to SEC Uniform Net Capital Rule (Rule 15c3-1) which requires the maintenance of minimum net capital and requires that the ratio of aggregate indebtedness to net capital, both as defined, shall not exceed 15 to 1. As such, the subsidiary is subject to the minimum net capital requirements promulgated by the SEC and has elected to calculate minimum capital requirements using the basic method permitted by Rule 15c3-1. As of March 31, 2023, Dominari Securities had net capital of approximately $2.9 million, which was approximately $2.9 million in excess of required minimum net capital of $0.1 million.

 

Note 15. Related Party Transaction

 

In 2021, the Company engaged the services of Revere Securities, LLC (“Revere”) to strategically manage and build the Company’s investment processes. Kyle Wool, Board Member, is the president of Revere. The Company incurred fees of approximately $0.08 million and $0.3 million during the three months ending March 31, 2023, and 2022, respectively. These fees were included in general and administrative expense in the unaudited condensed consolidated statements of operations.

 

Note 16. Subsequent Events

 

Soo Yu Employment Agreement

 

On April 3, 2023, Dominari Securities, the Company’s broker-dealer subsidiary, entered into an employment agreement (the Agreement), as amended on April 19, 2023, with Soo Yu. Ms. Yu is currently a member of the Company’s board of directors. Pursuant to the Agreement, which is for a term of one year, Ms. Yu will serve as a registered brokerage representative for Dominari Securities and a special projects manager for the Company. Under the Agreement, Ms. Yu is paid a base salary of $150,000 per year and receives a 60% commission on the gross revenue she generates at Dominari Securities. In addition to her base salary and commissions, Ms. Yu is eligible to receive up to $7.8 million based on the assets under management or account value of accounts she opens at Dominari Securities. Upon Ms. Yu completing all required registrations and opening accounts for clients with assets under management or account value of at least $50 million, Ms. Yu will be entitled to a payment of $2.4 million. Upon Ms. Yu opening accounts for clients with assets under management or account value of at least $150 million (inclusive of prior account values), Ms. Yu will be entitled to a payment of $2.7 million. Upon Ms. Yu opening accounts for clients with assets under management or account value of at least $560 million (inclusive of prior account values), Ms. Yu will be entitled to a payment of $2.7 million.

 

21

 

 

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

 

Forward-Looking Statements

 

You should read this discussion together with the Financial Statements, related Notes and other financial information included elsewhere in this Form 10-Q. The following discussion contains assumptions, estimates and other forward-looking statements that involve a number of risks and uncertainties. These risks could cause our actual results to differ materially from those anticipated in these forward-looking statements. All references to “we,” “us,” “our” and the “Company” refer to Dominari Holdings Inc., a Delaware corporation and its consolidated subsidiaries unless the context requires otherwise.

 

Overview

 

Dominari Holdings Inc. (the “Company”), formerly AIkido Pharma, Inc., was founded in 1967 as Spherix Incorporated. Since 2017, the Company has operated as a biotechnology company with a diverse portfolio of small-molecule anticancer and antiviral therapeutics and their related patent technology. In an effort to enhance shareholder value, in June of 2022, the Company formed a wholly owned financial services subsidiary, Dominari Financial Inc. (“Dominari”), with the intent of shifting the Company’s primary operating focus away from biotechnology to the fintech and financial services industries. Through Dominari, the Company acquired Dominari Securities LLC (Dominari Securities), an introducing broker-dealer, registered with the Financial Industry Regulatory Authority (“FINRA”) and an investment adviser registered with the Securities and Exchange Commission (“SEC”). Dominari Securities provides investment advisory services and annuity and insurance products of certain insurance carriers as an insurance agency through independent and affiliated brokers.  

 

Additionally, AIkido Labs, LLC (“Aikido Labs”), another wholly owned subsidiary of the Company, has historically explored opportunities in high growth industries.  To date, Aikido Labs has made equity investments in Anduril Industries, Inc, Databricks, Inc., Discord, Inc., Epic Games, Inc., Payward, Inc. dba Kraken, Space Exploration Technologies Corp. dba SpaceX, Tevva Motors Ltd., Thrasio, LLC, and Yanka Industries, Inc. dba Masterclass. Finally, The Company is in the process of winding down its historical pipeline of biotechnology assets consisting of patented technologies from leading universities and researchers, including prospective treatments for pancreatic cancer, acute myeloid leukemia, and acute lymphoblastic leukemia.   

 

Reverse Stock Split

 

On June 7, 2022, the Company effected a seventeen-for-one (17-for-1) reverse stock split of its class of common stock (the “Reverse Stock Split”). The Reverse Stock Split, which was approved by stockholders at an annual stockholder meeting on May 20, 2022, was consummated pursuant to a Certificate of Amendment filed with the Secretary of State of Delaware on June 2, 2022. The Reverse Stock Split was effective on June 7, 2022. All references to common stock, convertible preferred stock, warrants to purchase common stock, options to purchase common stock, restricted stock units, restricted stock awards, share data, per share data and related information contained in the unaudited condensed consolidated financial statements have been retrospectively adjusted to reflect the effect of the Reverse Stock Split for all periods presented. Payment for fractional shares resulting from the reverse stock split amounted to $26,000.

 

Critical Accounting Policies

 

Our discussion and analysis of our financial condition and results of operations is based on our unaudited condensed consolidated financial statements. We have identified the accounting policies that we believe require application of management’s most subjective judgments, often requiring the need to make estimates about the effect of matters that are inherently uncertain and may change in subsequent periods. Our actual results may differ substantially from these estimates under different assumptions or conditions. There have been no significant changes to our critical accounting policies and estimates since December 31, 2022. The following represent those critical accounting policies that we believe most significantly impact the judgments and estimates used in the preparation of our unaudited condensed consolidated financial statements. 

 

Long-term investments

 

Effective January 1, 2018, the Company adopted Accounting Standards Update (“ASU”) 2016-01 and related ASU 2018-03 and ASU 2019-04 concerning recognition and measurement of financial assets and financial liabilities. In adopting this guidance, the Company has made an accounting policy election to adopt an adjusted cost method measurement alternative for investments in equity securities without readily determinable fair values.

 

For equity investments that are accounted for using the measurement alternative, the Company initially records equity investments at cost but is required to adjust the carrying value of such equity investments through earnings when there is an observable transaction involving the same or a similar investment with the same issuer or upon an impairment.

 

Refer to Note 3 of the Annual Report for a discussion of all accounting policies.

 

Recently Issued Accounting Pronouncements

 

See Note 3 to the unaudited condensed consolidated financial statements for a discussion of recent accounting standards.

 

22

 

 

Results of Operations

 

Three Months Ended March 31, 2023, compared to the Three Months Ended March 31, 2022

 

The Company did not recognize revenue from operations, nor do we expect to recognize any revenue until our operational transition into the financial services industry is complete. During the three months ended March 31, 2023, and 2022, we incurred a loss from operations of approximately $3.8 million and $3.8 million, respectively. The consistent loss in operations year over year was primarily attributable to the following:

 

i.An approximate $2.0 million increase in general and administrative expenses – driven by approximately $0.4 million and $0.7 million of professional fees (legal, consulting, accounting, etc.) incurred to establish and operate Dominari Financial and Dominari Securities, respectively. In addition, the Company also incurred increased compensation expenses of approximately $0.7 million due to growing operations.

 

ii.An approximate $2.0 million decrease in research and development expenses – attributable to the Company’s strategic business decision to transition away from the biotechnology industry and into financial services. The result is a decrease in research and development related expenses by almost 100%.

 

During the three months ended March 31, 2023 and 2022, other income was approximately $0.07 million and $0.3 million, respectively. The activity for the three months ended March 31, 2023 and 2022, is primarily a result of overall volatility in investment valuations due to macroeconomic uncertainty (i.e. inflation, global tensions in the Ukraine, etc.) impacting marketable securities and the change in fair value of short and long-term investments. Specifically:

 

i.Marketable securities – we recognized a loss of approximately $0.07 million for the three months ended March 31, 2023. The decrease of approximately $0.4 million in losses over prior year is a direct result of a decrease in realized and unrealized losses of approximately $0.2 million, offset by an increase in dividend income related of approximately $0.06 million. The decreases were driven by both market improvement and decrease in sale activity resulting in fewer realized losses.

 

ii.Short-term and long-term investments – we did not recognize a change in the fair value of short-term and long-term for the three months ended March 31, 2023. The change over the three months ended March 31, 2022 is a function of observable market transactions which resulted in unrealized gains of approximately $0.5 on the adjusted fair value of the investments during the three months ended March 31, 2022. There were no observable market transactions or impairment indicators identified during the three months ended March 31, 2023.

 

Liquidity and Capital Resources

 

We continue to incur ongoing administrative and other expenses, including public company expenses. While we continue to implement our business strategy, we intend to finance our activities through:

 

  ● managing current cash and cash equivalents on hand from our past debt and equity offerings;

 

  ● seeking additional funds raised through the sale of additional securities in the future;

 

  ● seeking additional liquidity through credit facilities or other debt arrangements; and

 

23

 

 

Our ultimate success is dependent on our ability to generate sufficient cash flow to meet our obligations on a timely basis. Our business may require significant amounts of capital to sustain operations that we need to execute our longer-term business plan to support our transition into the financial services industry. Our working capital amounted to approximately $43.8 million as of March 31, 2023. We may need to obtain additional debt or equity financing, especially if we experience downturns in our business that are more severe or longer than anticipated, or if we experience significant increases in expense levels resulting from being a publicly-traded company or from continuing operations. If we attempt to obtain additional debt or equity financing, we cannot assume that such financing will be available to the Company on favorable terms, or at all.

 

Cash Flows from Operating Activities

 

For the three months ended March 31, 2023 and 2022, net cash used in operations was approximately $4.0 million and $3.8 million, respectively. The cash used in operating activities for the three months ended March 31, 2023, is primarily attributable to a net loss of approximately $3.8 million and changes in operating assets and liabilities of $0.5 million, partially offset by approximately $0.1 million in unrealized losses on marketable securities and approximately $0.06 million of realized loss on marketable securities. The cash used in operating activities for the three months ended March 31, 2022 primarily resulted from a net loss of $3.5 million and change in fair value of long-term investment of $1.4 million, and is partially offset by change in fair value of short-term investment of $0.9 million. 

 

Cash Flows from Investing Activities

 

For the three months ended March 31, 2023 and 2022, net cash used in investing activities was approximately $18.7 million and $10.1 million, respectively. The cash used in investing activities for the three months ended March 31, 2023, primarily resulted from our purchase of marketable securities of approximately $17.5 million and the acquisition of FPS of approximately $1.1 million. The Company also collected approximately $0.3 million in principal related to its short-term notes. The cash used in investing activities for the three months ended March 31, 2022, primarily resulted from our purchase of marketable securities of $27.1 million and purchase of investments of $7.7 million. The purchases of marketable securities during the prior year was partially offset by our sale of marketable securities of $24.7 million since we invest excess cash into marketable securities until additional cash is needed. 

 

Cash Flows from Financing Activities

 

For the three months ended March 31, 2023, cash used in financing activities was approximately $0.9 million, which reflects the cost for purchase of treasury stock of approximately $0.9 million. Cash provided by financing activities for the three months ended March 31, 2022, was approximately $19.0 million, which reflects the net proceeds of approximately $19.0 million from investors in exchange for the issuance of Series O and Series P Redeemable Convertible Preferred Stock.

 

Off-balance sheet arrangements.

 

None.

 

24

 

 

Item 3. Quantitative and Qualitative Disclosures About Market Risk

 

Not required for smaller reporting companies.

 

Item 4. Controls and Procedures

 

Evaluation of Disclosure Controls and Procedures

 

We maintain disclosure controls and procedures that are designed to ensure that material information required to be disclosed in our periodic reports filed or submitted under the Securities Exchange Act of 1934, as amended, or the Exchange Act, is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms. Our disclosure controls and procedures are also designed to ensure that information required to be disclosed in the reports we file or submit under the Exchange Act are accumulated and communicated to our management, including our principal executive officer and principal financial officer as appropriate, to allow timely decisions regarding required disclosure.

 

During the quarter ended March 31, 2023, we carried out an evaluation, under the supervision and with the participation of our management, including our principal executive officer and principal financial officer, of the effectiveness of the design and operation of our disclosure controls and procedures, as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act. Based upon that evaluation, our principal executive officer and principal financial officer concluded that our disclosure controls and procedures were effective, as of the end of the period covered by this report.

  

Changes in Internal Control Over Financial Reporting

 

We have not made any changes to our internal control over financial reporting (as defined in Rule 13a-15(f) and 15d-15(f) under the Exchange Act) during the quarter ended March 31, 2023 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting. 

 

Limitations on Effectiveness of Controls

 

Our management does not expect that our disclosure controls and procedures or our internal controls will prevent all errors and all fraud. A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within our company have been detected.

 

25

 

 

Part II. Other Information

 

Item 1. Legal Proceedings

 

In the past, in the ordinary course of business, we actively pursued legal remedies to enforce our intellectual property rights and to stop unauthorized use of our technology. Other than ordinary routine litigation incidental to the business, we know of no material, active or pending legal proceedings against us.

 

Item 1A. Risk Factors

 

Investing in our common stock involves a high degree of risk. You should consider carefully the risks and uncertainties described below, together with all of the other information contained in this Quarterly Report on Form 10-Q and in the other periodic and current reports and other documents we file with the Securities and Exchange Commission, including but not limited to our annual report on Form 10-K for the fiscal year ended December 31, 2022, before deciding to invest in our common stock. If any of the following risks materialize, our business, financial condition, results of operation and future prospects will likely be materially and adversely affected. In that event, the market price of our common stock could decline and you could lose all or part of your investment. This list is not exhaustive and the order of presentation does not reflect management’s determination of priority or likelihood.

 

BUSINESS RISKS

 

If we fail to maintain an effective system of internal controls over financial reporting, we may not be able to accurately report our financial results or prevent fraud and our business may be harmed and our stock price may be adversely impacted.

 

Effective internal controls over financial reporting are necessary for us to provide reliable financial reports and to effectively prevent fraud. Any inability to provide reliable financial reports or to prevent fraud could harm our business. The Sarbanes-Oxley Act of 2002 requires management to evaluate and assess the effectiveness of our internal control over financial reporting. In order to continue to comply with the requirements of the Sarbanes-Oxley Act, we are required to continuously evaluate and, where appropriate, enhance our policies, procedures and internal controls. If we fail to maintain the adequacy of our internal controls over financial reporting, we could be subject to litigation or regulatory scrutiny and investors could lose confidence in the accuracy and completeness of our financial reports. We cannot assure you that in the future we will be able to fully comply with the requirements of the Sarbanes-Oxley Act or that management will conclude that our internal control over financial reporting is effective. If we fail to fully comply with the requirements of the Sarbanes-Oxley Act, our business may be harmed and our stock price may decline. While our assessment, testing and evaluation of the design and operating effectiveness of our internal control over financial reporting resulted in our conclusion that, as of December 31, 2022, our internal control over financial reporting was not effective, due to our lack of segregation of duties, and lack of controls in place to ensure that all material transactions and developments impacting the consolidated financial statements are reflected, our assessment, testing and evaluation of the design and operating effectiveness of our internal control over financial reporting, as of March 31, 2023, resulted, in our conclusion, that, as of that date, our internal control over financial reporting were effective. We can provide no assurance as to conclusions of management with respect to the effectiveness of our internal control over financial reporting in the future.

 

26

 

 

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

 

None.

 

Item 3. Defaults Upon Senior Securities.

 

None.

 

Item 4. Mine Safety Disclosures.

 

Not Applicable.

 

Item 5. Other Information.

 

None.

 

Item 6. Exhibits

 

10.1*  

Employment Agreement, made and entered into as of April 3, 2023, by and between Dominari Securities LLC and Soo Yu

10.2*   Amendment to Employment Agreement, made and entered into as of April 19, 2023, by and between Dominari Securities LLC and Soo Yu
31.1**   Certification of Principal Executive Officer and Principal Financial Officer of Dominari Holdings Inc. pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
32.1**   Certification of Principal Executive Officer and Principal Financial Officer of Dominari Holdings Inc. pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
101.INS   Inline XBRL Instance Document
101.SCH   Inline XBRL Taxonomy Extension Schema Document.
101.CAL   Inline XBRL Taxonomy Extension Calculation Linkbase Document.
101.DEF   Inline XBRL Taxonomy Extension Definition Linkbase Document.
101.LAB   Inline XBRL Taxonomy Extension Label Linkbase Document.
101.PRE   Inline XBRL Taxonomy Extension Presentation Linkbase Document.
104   Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101).

 

*Filed herewith
**Furnished, not filed

 

27

 

 

Signatures

 

Pursuant to the requirements of the Exchange Act of 1934, as amended, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

 

DOMINARI HOLDINGS INC.
     

Date: May 10, 2023

 By: /s/ Anthony Hayes
    Anthony Hayes
    Chief Executive Officer
    (Principal Executive Officer,
Principal Financial Officer and
Principal Accounting Officer)

 

 

28

 

 

 

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