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 June 30, 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 August 8, 2023, there were 5,345,312 shares of the Company’s common stock issued and outstanding.

 

 

  

DOMINARI HOLDINGS INC.

Form 10-Q

For the Quarter Ended June 30, 2023

Index 

 

		Page No.
Part I. Financial Information
Item 1.	Financial Statements (Unaudited)	1
	Condensed Consolidated Balance Sheets as of June 30, 2023 (Unaudited) and December 31, 2022	1
	Condensed Consolidated Statements of Operations for the three and six months ended June 30, 2023 and 2022 (Unaudited)	2
	Condensed Consolidated Statements of Changes in Redeemable Convertible Preferred Stock and Stockholders’ Equity for the three and six months ended June 30, 2023 and 2022 (Unaudited)	3
	Condensed Consolidated Statements of Cash Flows for the six months ended June 30, 2023 and 2022 (Unaudited)	5
	Notes to the Condensed Consolidated Financial Statements (Unaudited)	6
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	20
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	24
Item 4.	Controls and Procedures	24
Part II. Other Information
Item 1.	Legal Proceedings	25
Item 1A.	Risk Factors	25
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	25
Item 3.	Defaults Upon Senior Securities	25
Item 4.	Mine Safety Disclosures	25
Item 5.	Other Information	25
Item 6.	Exhibits	25
Signatures		26

 

  

PART I - FINANCIAL INFORMATION

 

Item 1. Financial Statements

DOMINARI HOLDINGS INC.

Condensed Consolidated Balance Sheets

($ in thousands except share and per share amounts)

 

		June 30,				December 31,
		2023				2022
		(Unaudited)
ASSETS
Current assets
Cash and cash equivalents		$	3,598			$	33,174
Marketable securities			20,675				7,130
Deposits with clearing broker			7,082				-
Prepaid expenses and other assets			715				564
Prepaid acquisition cost			-				301
Short-term investments, at fair value			13				13
Notes receivable, at fair value - current portion			6,339				7,474
Investment in Fieldpoint Securities			-				2,000
Total current assets			38,422				50,656
Property and equipment, net			387				-
Notes receivable, at fair value - non-current portion			1,622				1,100
Employee forgivable loan receivable			98				-
Investments			23,178				23,103
Right-of-use assets			3,530				919
Security deposit			458				458
Total assets		$	67,695			$	76,236
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities
Accounts payable and accrued expenses		$	232			$	447
Accrued salaries and benefits			632				1,260
Income taxes withheld			1,300				-
Accrued Commissions			17				-
Lease liability - current			353				82
Other Current liability			124				-
Total current liabilities			2,658				1,789
Lease liability			3,259				680
Total liabilities			5,917				2,469
Stockholders’ equity
Preferred stock, $.0001 par value, 50,000,000 Authorized
Series D: 5,000,000 shares designated; 3,825 shares issued and outstanding at June 30, 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 June 30, 2023 and December 31, 2022; liquidation value of $0.0001 per share			-				-
Common stock, $0.0001 par value, 100,000,000 shares authorized; 5,345,312 and 5,485,096 shares issued at June 30, 2023 and December 31, 2022, respectively; 5,285,164 and 5,017,079 shares outstanding at June 30, 2023 and December 31, 2022, respectively			-				-
Additional paid-in capital			260,585				262,970
Treasury stock, at cost, 60,148 and 468,017 shares at June 30, 2023 and December 31, 2022, respectively			(501	)			(3,322	)
Accumulated deficit			(198,306	)			(185,881	)
Total stockholders’ equity			61,778				73,767
Total liabilities and stockholders’ equity		$	67,695			$	76,236

 

See accompanying notes to unaudited condensed consolidated financial statements.

 

 

DOMINARI HOLDINGS INC.

Condensed Consolidated Statements of Operations

($ in thousands except share and per share amounts)

(Unaudited)

 

		Three Months Ended June 30,								Six Months Ended June 30,
		2023				2022				2023				2022
Revenues		$	71			$	-			$	71			$	-
Operating costs and expenses
General and administrative		$	9,080			$	2,262			$	12,913			$	4,049
Research and development			2				36				3				2,052
Total operating expenses			9,082				2,298				12,916				6,101
Loss from operations			(9,011	)			(2,298	)			(12,845	)			(6,101	)
Other income (expenses)
Other income			-				-				-				64
Interest income			160				220				297				399
Gain (loss) on marketable securities			400				(2,239	)			335				(2,736	)
Unrealized loss on note receivable			(212	)			-				(212	)			-
Change in fair value of investments			-				(760	)			-				(238	)
Total other income  (expenses)			348				(2,779	)			420				(2,511	)
Net loss		$	(8,663	)		$	(5,077	)		$	(12,425	)		$	(8,612	)
Deemed dividends related to Series O and Series P Redeemable Convertible Preferred Stock			-				(1,100	)			-				(4,109	)
Net Loss Attributable to Common Shareholders		$	(8,663	)		$	(6,177	)		$	(12,425	)		$	(12,721	)
Net loss per share, basic and diluted
Basic and Diluted		$	(1.79	)		$	(1.18	)		$	(2.45	)		$	(2.42	)
Weighted average number of shares outstanding, basic and diluted
Basic and Diluted			4,827,239				5,251,023				5,065,055				5,251,766

 

See accompanying notes to unaudited condensed consolidated financial statements.

 

  

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 June 30, 2023 and 2022

 

		Preferred Stock								Common Stock								Additional Paid-in				Treasury Stock								Accumulated				Total Stockholders’
		Shares				Amount				Shares				Amount				Capital				Shares				Amount				Deficit				Equity
Balance at March 31, 2023			4,659			$	-				4,815,597			$	-			$	259,215				60,148			$	(501	)		$	(189,643	)		$	69,071
Stock-based compensation			-				-				529,715				-				1,370				-				-				-				1,370
Net loss			-				-				-				-				-				-				-				(8,663	)			(8,663	)
Balance at June 30, 2023			4,659			$	-				5,345,312			$	-			$	260,585				60,148			$	(501	)		$	(198,306	)		$	61,778

 

		Redeemable Convertible Preferred Stock																									Preferred								Additional																Total
		Series O								Series P									Common Stock								Stock								Paid-in				Treasury Stock								Accumulated				Stockholders’
		Shares				Amount				Shares				Amount					Shares				Amount				Shares				Amount				Capital				Shares				Amount				Deficit				Equity
Balance at March 31, 2022			11,000			$	11,000				11,000		$		11,000					5,252,517			$	-				4,659			$	-			$	262,624				-			$	(264	)		$	(167,309	)		$	95,051
Redemption of Series O Redeemable Convertible Preferred Stock			(11,000	)			(11,000	)			-				-					-				-				-				-				-				-				-				-				-
Redemption of Series P Redeemable Convertible Preferred Stock			-				-				(11,000	)			(11,000	)				-				-				-				-				-				-				-				-				-
Deemed dividends related to Series O and Series P  Redeemable Convertible Preferred Stock			-				-				-				-					-				-				-				-				(1,100	)			-				-				-				(1,100	)
Repurchase of treasury stock			-				-				-				-					-				-				-				-				-				242,902				(1,486	)							(1,486	)
Stock-based compensation			-				-				-				-					-				-				-				-				105				-				-				-				105
Fractional shares adjusted for reverse split			-				-				-				-					(5,665	)			-				-				-				(26	)			-				-				-				(26	)
Net loss			-				-				-				-					-				-				-				-				-				-				-				(5,077	)			(5,077	)
Balance at June 30, 2022			-			$	-				-			$	-					5,246,852			$	-				4,659			$	-			$	261,603				242,902			$	(1,750	)		$	(172,386	)		$	87,467

 

 

For the Six Months Ended June 30, 2023 and 2022

 

		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			-				-				529,715				-				1,375				-				-				-				1,375
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			-				-				-				-				-				-				-				(12,425	)			(12,425	)
Balance at June 30, 2023			4,659			$	-				5,345,312			$	-			$	260,585				60,148			$	(501	)		$	(198,306	)		$	61,778

 

		Redeemable Convertible Preferred Stock																									Preferred								Additional																Total
		Series O								Series P									Common Stock								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			-			$	-				-			$	-					5,275,329			$	-				4,659			$	-			$	265,633				-			$	(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					-				-				-				-				(4,109	)			-				-				-				(4,109	)
Redemption of Series O Redeemable Convertible Preferred Stock			(11,000	)			(11,000	)			-				-					-				-				-				-				-				-				-				-				-
Redemption of Series P Redeemable Convertible Preferred Stock			-				-				(11,000	)			(11,000	)				-				-				-				-				-				-				-				-				-
Repurchase of treasury stock			-				-				-				-					-				-				-				-				-				242,902				(1,486	)			-				(1,486	)
Stock-based compensation			-				-				-				-					-				-				-				-				105				-				-				-				105
Cancellation of common stock related to investment in CBM			-				-				-				-					(22,812	)			-				-				-				-				-				-				-				-
Fractional shares adjusted for reverse split			-				-				-				-					(5,665	)			-				-				-				(26	)			-				-				-				(26	)
Net loss			-				-				-				-					-				-				-				-				-				-				-				(8,612	)			(8,612	)
Balance at June 30, 2022			-			$	-				-			$	-					5,246,852			$	-				4,659			$	-			$	261,603				242,902			$	(1,750	)		$	(172,386	)		$	87,467

 

See accompanying notes to unaudited condensed consolidated financial statements.

 

 

DOMINARI HOLDINGS INC.

Condensed Consolidated Statements of Cash Flows

($ in thousands)

(Unaudited)

 

		Six Months Ended June 30,
		2023				2022
Cash flows from operating activities
Net loss		$	(12,425	)		$	(8,612	)
Adjustments to reconcile net loss to net cash used in operating activities:
Amortization of right-of-use assets			182				-
Depreciation			32				-
Change in fair value of short-term investment			-				1,646
Change in fair value of long-term investment			-				(1,408	)
Stock-based compensation			2,675				105
Realized loss on marketable securities			487				568
Unrealized (gain) loss on marketable securities			(514	)			2,299
Unrealized loss on note receivable			212				-
Changes in operating assets and liabilities:
Prepaid expenses and other assets			(229	)			153
Prepaid acquisition cost			301				-
Deposits with clearing broker			(3,532	)			-
Accounts payable and accrued expenses			(428	)			(239	)
Accrued salaries and benefits			(628	)			7
Accrued commissions			(8	)			-
Lease liabilities			58				-
Other current liabilities			3				-
Notes receivable, at fair value – net interest accrued			(99	)			(377	)
Deposit			-				8
Net cash used in operating activities			(13,913	)			(5,850	)
Cash flows from investing activities
Purchase of marketable securities			(34,014	)			(27,460	)
Sale of marketable securities			20,494				28,272
Proceeds from sale of digital currencies			-				93
Purchase of fixed assets			(419	)			-
Acquisition of FPS, net of cash acquired and receivable owed from FPS			(1,112	)			-
Collection of principal on note receivable			502				-
Funds to employee forgivable loan			(100	)			-
Purchase of short-term and long-term investments			(75	)			(14,605	)
Purchase of short-term and long-term promissory notes			-				(1,600	)
Net cash used in investing activities			(14,724	)			(15,300	)
Cash flows from financing activities
Proceeds from issuance of Series O and Series P Redeemable Convertible Preferred Stock, net of discount and offering cost			-				17,891
Payment for fractional shares			-				(26	)
Redemption of Series O and Series P Redeemable Convertible Preferred Stock			-				(22,000	)
Purchase of treasury stock			(939	)			(1,486	)
Net cash used in financing activities			(939	)			(5,621	)
Net decrease in cash and cash equivalents and restricted cash			(29,576	)			(26,771	)
Cash and cash equivalents, beginning of period			33,174				65,562
Cash and cash equivalents, end of period		$	3,598			$	38,791
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
Promissory convertible note receivable conversion into common shares		$	-			$	1,508
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		$	3,112
Less - Deposit previously transferred in October 2022 to FPS		$	(2,000	)
Net cash paid		$	1,112

 

See accompanying notes to unaudited condensed consolidated financial statements.

 

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 Financial”), with the intent of shifting the Company’s primary operating focus away from biotechnology to the fintech and financial services industries. Through Dominari Financial, 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, 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. Aikido Labs has historically explored opportunities in high growth industries and has equity holdings including 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. 

 

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 and cash equivalents and marketable securities to fund its operations for at least the next twelve months from the date of the issuance of these unaudited condensed consolidated financial statements.

 

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 Financial, 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 Dominari Securities’ clearing broker consisted of approximately $7.1 million held in money market funds and liquid insured deposits maintained by the Company with its clearing broker as of June 30, 2023.

 

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).

 

Revenue

 

The Company recognizes revenues under ASC 606 - Revenue from Contracts with Customers (“ASC 606”). Revenues are recognized when control of the promised goods or performance obligations for services is transferred to the Company’s customers, in an amount that reflects the consideration the Company expects to be entitled to in exchange for the goods or services.

 

 

The following provides detailed information on the recognition of the Company’s revenues from contracts with customers:

 

●

Underwriting services include underwriting and placement agent services in both the equity and debt capital markets, including private equity placements, initial public offerings, follow-on offerings, and underwriting and distributing public and private debt. Underwriting and placement agent revenues are recognized at a point in time on trade-date, as the client obtains the control and benefit of the underwriting offering at that point. Costs associated with underwriting transactions are deferred until the related revenue is recognized or the engagement is otherwise concluded and are recorded on a gross basis within the general and administrative line item in the unaudited condensed consolidated statements of operations as the Company is acting as a principal in the arrangement. Any expenses reimbursed by the Company’s clients are recognized as other income.

 

●

Commissions are earned by executing, transactions for clients primarily in equity, equity-related, and debt products. Commission revenues associated with trade execution are recognized at a point in time on trade-date. Commissions revenues are generally paid on settlement date and the Company records receivables to account for timing between trade-date and payment on settlement date.

 

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 these unaudited condensed consolidated financial statements.

 

 

Note 4. FPS Acquisition

 

On September 9, 2022, Dominari Financial 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 Financial purchased from the Seller 100% of the membership interests in FPS (the “FPS Membership Interests”). FPS’s registered broker-dealer and investment adviser businesses were renamed and will operate as Dominari Securities, a wholly owned subsidiary of Dominari Financial. The FPS Purchase Agreement provides for Dominari Financial’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 Financial paid to the Seller $2.0 million in consideration for a transfer by the Seller to Dominari Financial 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 Financial paid to the Seller an additional approximate $1.6 million consideration for a transfer by the Seller to Dominari Financial of the remaining 80% of the FPS Membership Interests. 

 

Consideration Transferred

 

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

 

Under the terms of the FPS Purchase Agreement and subsequent Amendments and Side Letters, 100% of the FPS Membership Interests were 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 Financial 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 Financial 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.

 

Fair Value of Net Assets Acquired

 

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 $7.7 million for the three-months ended June 30, 2023. Revenue for the period ended June 30, 2023, was approximately $0.07 million. The net loss was primarily a result of approximately $5.4 million of bonus and employee compensation expense and professional services of approximately $0.9 million. The bonus and compensation expense and professional service fees related to establishing the operations of the broker-dealer and are included in the general and administrative expenses line item within the unaudited condensed consolidated statement of operations.

 

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 and six months ended June 30, 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 June 30,								Six Months Ended June 30,
		2023				2022				2023				2022
Realized loss		$	(432	)		$	(344	)		$	(487	)		$	(568	)
Unrealized gain (loss)			643				(1,967	)			514				(2,299	)
Dividend income			188				72				308				131
Total		$	400			$	(2,239	)		$	335			$	(2,736	)

 

Note 6. Short-term investments

 

The following table presents the Company’s short-term investments as of June 30, 2023, and December 31, 2022 ($ in thousands):

 

		June 30, 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 six months ended June 30, 2023.

 

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

 

		June 30, 2023				December 31, 2022
Option term (in years)			1.3				1.8
Volatility			76.9	%			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 Company holds interests in several privately held companies as long-term investments that the Company perceives as potential IPO candidates. The following table presents the Company’s long-term investments as of June 30, 2023, and December 31, 2022 ($ in thousands):

 

		Cost Basis				June 30, 2023				December  31, 2022
Investment in Kerna Health Inc		$	2,140			$	4,940			$	4,940
Investment in Kaya Now			1,500				-				-
Investment in Tevva Motors			1,972				2,794				2,794
Investment in ASP Isotopes			1,300				-				-
Investment in AerocarveUS Corporation			1,075				1,075				1,000
Investment in Qxpress			1,000				1,000				1,000
Investment in Masterclass			170				170				170
Investment in Kraken			597				597				597
Investment in Epic Games			3,500				3,500				3,500
Investment in Tesspay			1,240				2,500				2,500
Investment in SpaceX			3,500				3,674				3,674
Investment in Databricks			1,200				1,200				1,200
Investment in Discord			476				476				476
Investment in Thrasio			300				300				300
Investment in Automation Anywhere			476				476				476
Investment in Anduril			476				476				476
Total		$	20,922			$	23,178			$	23,103

 

Investment in AerocarveUS Corporation

 

On November 22, 2021, the Company entered into an agreement (the “AerocarveUS Agreement”) with AerocarveUS Corporation, (“AerocarveUS”). Under the AerocarveUS Agreement, the Company agreed to purchase 250,000 shares of common stock of AerocarveUS for $1.0 million. AerocarveUS changed its name to “Unusual Machines, Inc.” on July 5, 2022. In March of 2023, the Company was issued an additional 64,377 shares at no cost. In June 2023, the Company purchased an additional 150,000 shares of common stock for approximately $0.08 million. The investment in AerocarveUS Corporation (a.k.a. Unusual Machines, Inc.) was valued at approximately $1.08 million as of June 30, 2023.

 

Note 8. Notes Receivable

 

The following table presents the Company’s notes receivable as of June 30, 2023 ($ in thousands):

 

		Maturity Date		Stated Interest Rate				Principal Amount				Interest Receivable				Fair Value
Notes receivable, at fair value
Convergent convertible note - current		01/29/2023			8	%		$	1,000			$	199			$	1,199
Convergent convertible note - non-current		01/29/2023			8	%		$	500			$	-			$	500
Raefan Industries LLC Investment		12/31/2023			8	%		$	4,518			$	623			$	5,141
American Innovative Robotics Investment		04/01/2027			8	%		$	1,100			$	22			$	1,122
Notes receivable, at fair value - current portion																$	6,339
Notes receivable, at fair value - non-current portion																$	1,622

 

 

 

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 was approximately $1.8 million as of June 30, 2023. The Company recorded principal repayment of $0.5 million and interest income of approximately $0.1 million on the Convergent Convertible Note for the six months ended June 30, 2023.

 

Raefan Industries LLC Investment

  

The Company recorded an interest income receivable of approximately $0.6 million on the Raefan Industries Promissory Note as of June 30, 2023 and an unrealized loss on the note of approximately $0.2 million.

  

American Innovative Robotics, LLC Investment

  

The Company recorded interest income of approximately $44,000 on the Robotics Promissory Note for the six months ended June 30, 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 June 30, 2023.

 

The Company received and recorded interest income related to the Kaya Now Promissory Note of approximately $10,000 for the six months ended June 30, 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.

 

The following table presents the Company’s assets and liabilities that are measured at fair value as of June 30, 2023, and December 31, 2022 ($ in thousands):

 

		Fair value measured as of June 30, 2023
		Total at  June 30,				Quoted prices in active markets				Significant other observable inputs				Significant unobservable inputs
		2023				(Level 1)				(Level 2)				(Level 3)
Assets
Marketable securities:
Equities		$	20,675			$	20,675			$	-			$	-
Total marketable securities		$	20,675			$	20,675			$	-			$	-
Short-term investment		$	13			$	-			$	-			$	13
Notes receivable at fair value, current portion		$	6,339			$	-			$	-			$	6,339
Notes receivable at fair value, non-current portion		$	1,622			$	-			$	-			$	1,622

 

		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 June 30, 2023		$	13
Notes receivable at fair value, current portion at December 31, 2022		$	7,474
Collection of principal outstanding			(500	)
Note receivable, Convergent Therapeutics, non-current portion			(500	)
Unrealized loss on note receivable			(212	)
Accrued interest receivable			77
Notes receivable at fair value, current portion at June 30, 2023		$	6,339

 

Notes receivable at fair value, non-current portion at December 31, 2022		$	1,100
Note receivable, Convergent Therapeutics, non-current portion			500
Accrued interest receivable			22
Notes receivable at fair value, non-current portion at June 30, 2023		$	1,622

 

Note Receivable at fair value

   

As of June 30, 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 June 30, 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 rents a portion of the twenty-second floor at 725 Fifth Avenue, New York, New York (the “22nd Floor Premises”). The Company currently uses 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 is required to 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 Financial entered into a Lease Agreement (“Dominari Financial’s Lease”) with Trump Tower Commercial LLC, a New York limited liability company. Under Dominari Financial’s Lease, Dominari Financial rents a portion of a floor at 725 Fifth Avenue, New York, New York (the “Premises”). Dominari Financial currently uses the Premises to run its day-to-day operations. The initial term of Dominari Financial’s Lease is seven (7) years commencing on the date that possession of the Premises is delivered to Dominari Financial. Under Dominari Financial’s Lease, Dominari Financial is required to pay monthly rent equal to $49,368. Effective for the sixth and seventh years of Dominari Financial’s Lease, the rent shall increase to $51,868 per month. The Company took possession of the Premises in February 2023.

  

The tables below represent the Company’s lease assets and liabilities as of June 30, 2023:

 

		June 30, 2023
Assets:
Operating lease right-of-use-assets		$	3,530
Liabilities:
Current
Operating			353
Long-term
Operating			3,259
		$	3,612

 

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

 

		June 30, 2023
Weighted-average remaining lease term – operating leases (in years)			7.0
Weighted-average discount rate – operating leases			10.0	%

 

During the six months ended June 30, 2023, the Company recorded approximately $0.4 million of lease expense to current period operations.

 

		Three Months Ended				Six  Months Ended
		June 30, 2023				June 30, 2023
Operating leases
Operating lease cost		$	179			$	313
Operating lease expense			179				313
Short-term lease rent expense			33				63
Net rent expense		$	212			$	376

 

Supplemental cash flow information related to leases were as follows:

 

		Six Months Ended
		June 30, 2023
Operating cash flows - operating leases		$	72
Right-of-use assets obtained in exchange for operating lease liabilities		$	2,796

 

 

As of June 30, 2023, future minimum payments during the next five years and thereafter are as follows:

 

		Operating
		Leases
Remaining Period Ended December 31, 2023		$	327
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			5,077
Less present value discount			(1,465	)
Operating lease liabilities		$	3,612

 

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 six months ended June 30, 2023, and 2022 are as follows:

 

		As of June 30,
		2023				2022
Convertible preferred stock			34				34
Warrants to purchase common stock			444,796				444,796
Options to purchase common stock			30,336				198,574
Total			475,166				643,404

 

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.

 

June 27, 2023, pursuant to Soo Yu’s employment agreement and the Company’s 2022 Equity Incentive Plan, the Company executed a Grant Agreement, through which Soo Yu was granted 1,033,591 shares of the Company’s common stock. Upon issuance, the shares were fully-vested and nonforfeitable with a total fair value of approximately $2.7 million. Pursuant to the Grant Agreement, the Company withheld 503,876 of the shares granted to satisfy Soo Yu’s tax obligation of approximately $1.3 million and recorded as income taxes withheld within the unaudited condensed consolidated balance sheet. See Restricted Stock roll-forward below.

  

 

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 six months ended June 30, 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 six months ended June 30, 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 June 30, 2023			444,796			$	29.25				-				2.71

 

Restricted Stock Awards

 

A summary of restricted stock awards activity for the six months ended June 30, 2023, is presented below:

 

		Number of Restricted Stock Awards				Weighted Average Grant Day Fair Value
Nonvested at December 31, 2022			8,068			$	5.64
Granted			529,715			$	2.58
Vested			(537,783	)			2.63
Nonvested at June 30, 2023			-			$	-

 

As of June 30, 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 six months ended June 30, 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
Employee options expired			(857	)		$	9,719.07
Outstanding as of June 30, 2023			30,336			$	36.97			$	-				7.6
Options vested and exercisable			26,578			$	41.35			$	-				7.5

 

Stock-based compensation associated with the amortization of stock option expense was approximately $8,000 and $0 for the six months ended June 30, 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 $7,000.

 

 

Note 13. Revenue

 

The following table presents our total revenues disaggregated by revenue type for the three and six months ended June 30, 2023 and 2022 (in thousands):

 

		Three Months Ended June 30,									Six Months Ended June 30,
		2023						2022					2023				2022
Underwriting		$	43				$	-			$		43			$	-
Commissions			14					-					14				-
Other			14					-			$		14				-
Total		$	71				$	-			$		71			$	-

 

Note 14. 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.

 

Note 15. 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 June 30, 2023, Dominari Securities had net capital of approximately $7.3 million, which was approximately $7.2 million in excess of required minimum net capital of $0.1 million.

 

Note 16. 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 also a member of the board of directors of Revere. The Company incurred fees of approximately $0.08 million and $0.6 million during the six months ending June 30, 2023, and 2022, respectively. These fees were included in general and administrative expense in the unaudited condensed consolidated statements of operations.

 

 

Note 17. Segment Reporting

 

The Company operates in two reportable business segments: (1) Dominari Securities and (2) Legacy AIkido Pharma. The Dominari Securities reportable business segment represents the Company’s broker-dealer business, which is composed of underwriting and transactional service activities. The Legacy AIkido Pharma reportable business segment includes Aikido Labs, which manages the investments holdings of the legacy entity. Prior to the FPS Acquisition, the Company operated as a single operating segment comprised of Legacy AIkido Pharma.

 

The chief operating decision-maker (“CODM”) has access to and regularly reviews internal financial reporting for each business and uses that information to make operational decisions and allocate resources. Accounting policies applied by the reportable segments are the same as those used by the Company and described in the “Summary of Significant Accounting Policies.” While assets are primarily held within the Legacy AIkido Pharma reportable business segment, total assets by segment is not disclosed as the CODM does not assess performance, make strategic decisions, or allocate resources based on assets.

 

The measures of segment profitability that are most relied upon by the CODM are gross revenues and net loss, as presented within the table below and reconciled to the statement of operations.

 

		Three Months Ended June 30, 2023
		Dominari Securities				Legacy AIkido Pharma				Consolidated
Revenue		$	71			$	-			$	71
Operating Costs
General and administrative			6,957				2,123			$	9,080
Research and development							2				2
Loss from operations		$	(6,886	)		$	(2,125	)		$	(9,011	)
Other (expenses) income
Other income											-
Interest income			44				116				160
Loss on marketable securities							400				400
Unrealized loss on note receivable							(212	)			(212	)
Total other (expenses) income		$	44			$	304			$	348
Net loss		$	(6,842	)		$	(1,821	)		$	(8,663	)

 

		Six Months Ended June 30, 2023
		Dominari Securities				Legacy AIkido Pharma				Consolidated
Revenue		$	71			$	-			$	71
Operating Costs
General and administrative			8,056				4,857				12,913
Research and development							3				3
Loss from operations		$	(7,985	)		$	(4,860	)		$	(12,845	)
Other (expenses) income
Other income							-				-
Interest income			44				253				297
Loss on marketable securities							335				335
Unrealized loss on note receivable							(212	)			(212	)
Total other (expenses) income		$	44			$	376			$	420
Net loss		$	(7,941	)		$	(4,484	)		$	(12,425	)

 

 

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 Financial”), with the intent of shifting the Company’s primary operating focus away from biotechnology to the fintech and financial services industries. Through Dominari Financial, 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, 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. Aikido Labs has historically explored opportunities in high growth industries and has equity holdings including 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.  

  

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.  

 

Results of Operations

 

Three Months Ended June 30, 2023, compared to the Three Months Ended June 30, 2022

 

During the three months ended June 30, 2023, we recognized approximately $0.07 million in revenue from operations, primarily driven by the underwriting revenue earned by Dominari Securities. During the three months ended June 30, 2023, and 2022, we incurred a loss from operations of approximately $9.0 million and $2.3 million, respectively. The consistent loss in operations year over year was primarily attributable to the following:

 

i.

An approximate $6.8 million increase in general and administrative expenses – driven by approximately $0.02 million and $0.8 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 $6.3 million due to growing operations.

 

ii.

An approximate $0.03 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 June 30, 2023 and 2022, other income (expenses) was approximately $0.3 million and $(2.8) million, respectively. The activity for the three months ended June 30, 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 gain of approximately $0.4 million for the three months ended June 30, 2023. The decrease of approximately $2.6 million in losses over prior year is a direct result of a decrease in unrealized losses of approximately $2.6 million and increase in dividend income of approximately $0.1 million, offset by an increase in realized loss of approximately $0.08 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 –The changes over the three months ended June 30, 2023 and 2022 are a function of observable market transactions which resulted in a decrease in unrealized loss of approximately $0.8 million on the adjusted fair value of the investments during the three months ended June 30, 2023 and 2022, respectively.

 

 

Six Months Ended June 30, 2023, compared to the Six months ended June 30, 2022

 

During the six months ended June 30, 2023, we recognized approximately $0.07 million in revenue from operations, primarily driven by the underwriting revenue earned by Dominari Securities. During the six months ended June 30, 2023, and 2022, we incurred a loss from operations of approximately $12.8 million and $6.1 million, respectively. The consistent loss in operations year over year was primarily attributable to the following:

 

i.

An approximate $8.9 million increase in general and administrative expenses – driven by approximately $0.1 million and $0.9 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 $6.3 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 six months ended June 30, 2023 and 2022, other income (expenses) was approximately $0.4 million and $(2.5) million, respectively. The activity for the six months ended June 30, 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 gain of approximately $0.3 million for the six months ended June 30, 2023. The decrease of approximately $3.1 million in losses over prior year is a direct result of a decrease in unrealized losses of approximately $2.8 million and increase in dividend income of approximately $0.2 million, offset by an increase in realized loss of approximately $0.08 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 –The changes over the six months ended June 30, 2023 and 2022 are a function of observable market transactions which resulted in a decrease in unrealized loss of approximately $0.2 million on the adjusted fair value of the investments during the six months ended June 30, 2023 and 2022, respectively.

 

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; and

 

●

seeking additional liquidity through credit facilities or other debt arrangements.

 

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 $35.7 million as of June 30, 2023. We believe our cash and cash equivalents and marketable securities, together with the anticipated cash flow from operations will be sufficient to meet our working capital, and capital expenditure requirements for at least the next 12 months. In the event that cash flow from operations is not sufficient to fund our operations, as expected, or if our plans or assumptions change, including if inflation begins to have a greater impact on our business or if we decide to move forward with any activities that require more outlays of cash than originally planned, we may need to raise additional capital sooner than expected. We may raise this additional capital by obtaining 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.

 

 

Our ability to obtain capital to implement our growth strategy over the longer term will depend on our future operating performance, financial condition and, more broadly, on the availability of equity and debt financing. Capital availability will be affected by prevailing conditions in our industry, the global economy, the global financial markets, and other factors, many of which are beyond our control. Specifically, as a result of recent volatility and weakness in the public markets, due to, among other factors, uncertainty in the global economy and financial markets, it may be much more difficult to raise additional capital, if and when it is needed, unless the public markets become less volatile and stronger at such time that we seek to raise additional capital. In addition, any additional debt service requirements we take on could be based on higher interest rates and shorter maturities and could impose a significant burden on our results of operations and financial condition, and the issuance of additional equity securities could result in significant dilution to stockholders.

 

Cash Flows from Operating Activities

 

For the six months ended June 30, 2023 and 2022, net cash used in operations was approximately $13.9 million and $5.9 million, respectively. The cash used in operating activities for the six months ended June 30, 2023, is primarily attributable to a net loss of approximately $11.7 million, approximately $0.5 million of realized gain on marketable securities and changes in operating assets and liabilities of $4.6 million, partially offset by $2.7 million stock-based compensation expense and approximately $0.5 million in unrealized losses on marketable securities. The cash used in operating activities for the three months ended June 30, 2022 primarily resulted from a net loss of $8.6 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 $1.6 million and unrealized loss on marketable securities of $2.3 million. 

 

Cash Flows from Investing Activities

 

For the six months ended June 30, 2023 and 2022, net cash used in investing activities was approximately $14.7 million and $15.3 million, respectively. The cash used in investing activities for the six months ended June 30, 2023, primarily resulted from our purchase of marketable securities of approximately $34.0 million and the acquisition of FPS of approximately $1.1 million, partially offset by our sale of marketable securities of approximately $20.5 million. The Company also collected approximately $0.5 million in principal related to its short-term notes. The cash used in investing activities for the six months ended June 30, 2022 primarily resulted from our purchase of marketable securities of $27.5 million, purchase of promissory notes of $1.6 million and purchase of investments of $14.6 million, partially offset by our sale of marketable securities of $28.3 million since we invest excess cash into marketable securities until additional cash is needed.

 

Cash Flows from Financing Activities

 

For the six months ended June 30, 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 used in financing activities for the six months ended June 30, 2022 was $5.6 million, which reflects the cost for redemption of Series O and Series P Redeemable Convertible Preferred Stock of $22.0 million and cost for purchase of treasury stock of $1.5 million, partially offset by net proceeds of $17.9 million from investors in exchange of issuance of issuance of Series O and Series P Redeemable Convertible Preferred Stock. 

 

 

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 June 30, 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 June 30, 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.

 

  

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. 

 

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, 20234, by and between Dominari Securities LLC and Soo Yu filed with the Securities and Exchange Commission on May 11, 2023, as Exhibit 10.1 to the Company’s Quarterly Report on Form 10-Q for the quarterly period ended March 31, 2023
10.2		Amendment to Employment Agreement, made and entered into as of April 19, 2023, by and between Dominari Securities LLC and Soo Yu filed with the Securities and Exchange Commission on May 11, 2023, as Exhibit 10.2 to the Company’s Quarterly Report on Form 10-Q for the quarterly period ended March 31, 2023
31.1*		Certification of Principal Executive Officer of Dominari Holdings Inc. pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
31.2*		Certification of 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 of Dominari Holdings Inc. pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
32.2*		Certification of 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

 

 

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: August 9, 2023	By:	/s/ Anthony Hayes
		Anthony Hayes
		Chief Executive Officer
		(Principal Executive Officer)

 

Date: August 9, 2023	By:	/s/ George Way
		George Way
		Chief Financial Officer
		(Principal Financial and Accounting Officer)

 

 

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