UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
(Mark one)
For the quarterly
period ended
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Securities registered pursuant to Section 12(b) of the Act:
| Title of each class | Trading Symbol(s) | Name of each exchange on which registered | ||
| The |
As of November
6, 2023, there were
DOMINARI HOLDINGS INC.
Form 10-Q
For the Quarter Ended September 30, 2023
Index
i
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
DOMINARI HOLDINGS INC.
Condensed Consolidated Balance Sheets
($ in thousands except share and per share amounts)
(Unaudited)
| September 30, | December 31, | |||||||
| 2023 | 2022 | |||||||
| (Unaudited) | ||||||||
| ASSETS | ||||||||
| Current assets | ||||||||
| Cash and cash equivalents | $ | $ | ||||||
| Marketable securities | ||||||||
| Deposits with clearing broker | ||||||||
| Prepaid expenses and other assets | ||||||||
| Prepaid acquisition cost | ||||||||
| Short-term investments at fair value | ||||||||
| Notes receivable, at fair value - current portion | ||||||||
| Investment in Fieldpoint Securities | ||||||||
| Total current assets | ||||||||
| Property and equipment, net | ||||||||
| Notes receivable, at fair value - non-current portion | ||||||||
| Employee forgivable loan receivable | ||||||||
| Investments | ||||||||
| Right-of-use assets | ||||||||
| Security deposit | ||||||||
| Total assets | $ | $ | ||||||
| LIABILITIES AND STOCKHOLDERS’ EQUITY | ||||||||
| Current liabilities | ||||||||
| Accounts payable and accrued expenses | $ | $ | ||||||
| Accrued salaries and benefits | ||||||||
| Accrued commissions | ||||||||
| Lease liability - current | ||||||||
| Other current liability | ||||||||
| Total current liabilities | ||||||||
| Lease liability | ||||||||
| Total liabilities | ||||||||
| Stockholders’ equity | ||||||||
| Preferred stock, $ | ||||||||
| Series D: | ||||||||
| Series D-1: | ||||||||
| Common stock, $ | ||||||||
| Additional paid-in capital | ||||||||
| Treasury stock, at cost, | ( | ) | ( | ) | ||||
| Accumulated deficit | ( | ) | ( | ) | ||||
| Total stockholders’ equity | ||||||||
| Total liabilities and stockholders’ equity | $ | $ | ||||||
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 September 30, | Nine Months Ended September 30, | |||||||||||||||
| 2023 | 2022 | 2023 | 2022 | |||||||||||||
| Revenues | $ | $ | $ | $ | ||||||||||||
| Operating costs and expenses | ||||||||||||||||
| General and administrative | $ | $ | $ | $ | ||||||||||||
| Research and development | ||||||||||||||||
| Research and development - license acquired | ||||||||||||||||
| Total operating expenses | ||||||||||||||||
| Loss from operations | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Other income (expenses) | ||||||||||||||||
| Other income | ||||||||||||||||
| Interest income | ||||||||||||||||
| (Loss) gain on marketable securities | ( | ) | ( | ) | ( | ) | ||||||||||
| Unrealized loss on note receivable | ( | ) | ||||||||||||||
| Change in fair value of investments | ( | ) | ( | ) | ||||||||||||
| Total other (expenses) income | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Net loss | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||
| Deemed dividends related to Series O and Series P Redeemable Convertible Preferred Stock | ( | ) | ||||||||||||||
| Net Loss Attributable to Common Shareholders | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||
| Net loss per share, basic and diluted | ||||||||||||||||
| $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | |||||
| Weighted average number of shares outstanding, basic and diluted | ||||||||||||||||
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 September 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 June 30, 2023 | $ | - | $ | - | $ | $ | ( | ) | $ | ( | ) | $ | ||||||||||||||||||||||||
| Stock-based compensation | - | |||||||||||||||||||||||||||||||||||
| Net loss | - | - | - | ( | ) | ( | ) | |||||||||||||||||||||||||||||
| Balance at September 30, 2023 | $ | $ | $ | $ | ( | ) | $ | ( | ) | $ | ||||||||||||||||||||||||||
| Series O | Series P | Common Stock | Preferred Stock | Additional Paid-in | Treasury Stock | Accumulated | Total Stockholders’ | |||||||||||||||||||||||||||||||||||||||||||||
| Shares | Amount | Shares | Amount | Shares | Amount | Shares | Amount | Capital | Shares | Amount | Deficit | Equity | ||||||||||||||||||||||||||||||||||||||||
| Balance at June 30, 2022 | - | $ | - | - | $ | - | $ | - | $ | - | $ | $ | ( | ) | $ | ( | ) | $ | ||||||||||||||||||||||||||||||||||
| Purchase of treasury stock | - | - | - | - | ( | ) | ( | ) | ||||||||||||||||||||||||||||||||||||||||||||
| Stock-based compensation | - | - | - | - | ||||||||||||||||||||||||||||||||||||||||||||||||
| Net loss | - | - | - | - | - | ( | ) | ( | ) | |||||||||||||||||||||||||||||||||||||||||||
| Balance at September 30, 2022 | - | $ | - | - | $ | - | $ | - | $ | - | $ | $ | ( | ) | $ | ( | ) | $ | ||||||||||||||||||||||||||||||||||
3
For the Nine Months Ended September 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 | $ | $ | $ | $ | ( | ) | $ | ( | ) | $ | ||||||||||||||||||||||||||
| Stock-based compensation | - | - | ||||||||||||||||||||||||||||||||||
| Cancellation of common stock | - | ( | ) | - | ||||||||||||||||||||||||||||||||
| Purchase of treasury stock | - | - | ( | ) | ( | ) | ||||||||||||||||||||||||||||||
| Retirement of treasury stock | - | ( | ) | ( | ) | ( | ) | |||||||||||||||||||||||||||||
| Net loss | - | - | - | ( | ) | ( | ) | |||||||||||||||||||||||||||||
| Balance at September 30, 2023 | $ | $ | $ | $ | ( | ) | $ | ( | ) | $ | ||||||||||||||||||||||||||
| Redeemable Convertible Preferred Stock | Additional | Total | ||||||||||||||||||||||||||||||||||||||||||||||||||
| Series O | Series P | Common Stock | Preferred 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 | $ | $ | $ | $ | $ | - | $ | ( | ) | $ | ( | ) | $ | |||||||||||||||||||||||||||||||||||||||
| Issuance of Series O redeemable convertible preferred stock for cash | - | - | - | |||||||||||||||||||||||||||||||||||||||||||||||||
| Issuance of Series P redeemable convertible preferred stock for cash | - | - | - | |||||||||||||||||||||||||||||||||||||||||||||||||
| Cost on issuance of Series O and Series P Redeemable Convertible Preferred Stock | - | ( | ) | - | ( | ) | - | - | - | |||||||||||||||||||||||||||||||||||||||||||
| Deemed dividends related to Series O and Series P Redeemable Convertible Preferred Stock | - | - | - | - | ( | ) | - | ( | ) | |||||||||||||||||||||||||||||||||||||||||||
| Redemption of Series O Redeemable Convertible Preferred Stock | ( | ) | ( | ) | - | - | - | - | ||||||||||||||||||||||||||||||||||||||||||||
| Redemption of Series P Redeemable Convertible Preferred Stock | - | ( | ) | ( | ) | - | - | - | ||||||||||||||||||||||||||||||||||||||||||||
| Purchase of treasury stock | - | - | - | - | ( | ) | ( | ) | ||||||||||||||||||||||||||||||||||||||||||||
| Stock-based compensation | - | - | - | - | ||||||||||||||||||||||||||||||||||||||||||||||||
| Cancellation of common stock related to investment in CBM | - | - | ( | ) | - | - | ||||||||||||||||||||||||||||||||||||||||||||||
| Fractional shares adjusted for reverse split | - | - | ( | ) | - | ( | ) | - | ( | ) | ||||||||||||||||||||||||||||||||||||||||||
| Net loss | - | - | - | - | - | ( | ) | ( | ) | |||||||||||||||||||||||||||||||||||||||||||
| Balance at September 30, 2022 | - | $ | - | $ | $ | $ | $ | $ | ( | ) | $ | ( | ) | $ | ||||||||||||||||||||||||||||||||||||||
See accompanying notes to unaudited condensed consolidated financial statements.
4
DOMINARI HOLDINGS INC.
Condensed Consolidated Statements of Cash Flows
($ in thousands)
(Unaudited)
| Nine Months Ended September 30, | ||||||||
| 2023 | 2022 | |||||||
| Cash flows from operating activities | ||||||||
| Net loss | $ | ( | ) | $ | ( | ) | ||
| Adjustments to reconcile net loss to net cash used in operating activities: | ||||||||
| Amortization of right-of-use assets | ||||||||
| Depreciation | ||||||||
| Change in fair value of short-term investment | ||||||||
| Change in fair value of long-term investment | ( | ) | ||||||
| Research and development-acquired license, expensed | - | |||||||
| Stock-based compensation | ||||||||
| Realized loss on marketable securities | ||||||||
| Unrealized (gain) loss on marketable securities | ( | ) | ||||||
| Unrealized loss on note receivable | ||||||||
| Changes in operating assets and liabilities: | ||||||||
| Prepaid expenses and other assets | ( | ) | ( | ) | ||||
| Prepaid acquisition cost | ||||||||
| Clearing broker deposits | ( | ) | ||||||
| Accounts payable and accrued expenses | ( | ) | ||||||
| Accrued salaries and benefits | ( | ) | ||||||
| Accrued commissions | ||||||||
| Lease liabilities | ||||||||
| Other current liabilities | ||||||||
| Notes receivable, at fair value – net interest accrued | ( | ) | ( | ) | ||||
| Deposit | ( | ) | ||||||
| Net cash used in operating activities | ( | ) | ( | ) | ||||
| Cash flows from investing activities | ||||||||
| Purchase of marketable securities | ( | ) | ( | ) | ||||
| Sale of marketable securities | ||||||||
| Proceeds from sale of digital currencies | ||||||||
| Purchase of fixed assets | ( | ) | ||||||
| Acquisition of FPS, net of cash acquired and receivable owed from FPS | ( | ) | ||||||
| Collection of principal on note receivable | ||||||||
| Funds to employee forgivable loan | ( | ) | ||||||
| Purchase of research and development licenses | ( | ) | ||||||
| Purchase of short-term and long-term investments | ( | ) | ( | ) | ||||
| Purchase of short-term and long-term promissory notes | ( | ) | ||||||
| Net cash used in investing activities | ( | ) | ( | ) | ||||
| Cash flows from financing activities | ||||||||
| Proceeds from issuance of Series O and Series P Redeemable Convertible Preferred Stock, net of discount and offering cost | ||||||||
| Payment for fractional shares | ( | ) | ||||||
| Redemption of Series O and Series P Redeemable Convertible Preferred Stock | ( | ) | ||||||
| Purchase of treasury stock | ( | ) | ( | ) | ||||
| Net cash used in financing activities | ( | ) | ( | ) | ||||
| Net decrease in cash and cash equivalents and restricted cash | ( | ) | ( | ) | ||||
| Cash and cash equivalents, beginning of period | ||||||||
| Cash and cash equivalents, end of period | $ | $ | ||||||
| Non-cash investing and financing activities | ||||||||
| Transfer from short-term investment to marketable securities | $ | $ | ||||||
| Reclassify from convertible note receivable to notes receivable at fair value | $ | $ | ||||||
| Promissory convertible note receivable conversion into common shares | $ | $ | ||||||
| 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 | $ | |||||||
| Less - Deposit previously transferred in October 2022 to FPS | $ | ( | ) | |||||
| Net cash paid | $ | |||||||
See accompanying notes to unaudited condensed consolidated financial statements.
5
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.
Related to the shift described above, AIkido Labs, LLC (“Aikido Labs”), a wholly owned subsidiary of the Company, is in the process of winding down its historical pipeline of biotechnology assets. 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.
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 consolidated balance sheet as of September 30, 2023, condensed consolidated statements of operations for the three and nine months ended September 30, 2023 and 2022, condensed consolidated statements of stockholders’ equity for the three and nine months ended September 30, 2023 and 2022, and the condensed consolidated statements of cash flows for the nine months ended September 30, 2023 and 2022 are unaudited, but include all adjustments, consisting only of normal recurring adjustments, which the Company considers necessary for a fair presentation of the financial position, operating results and cash flows for the periods presented. The results for the three and nine months ended September 30, 2023 are not necessarily indicative of results to be expected for the year ending December 31, 2023 or for any future interim period. The condensed consolidated balance sheet at December 31, 2022 has been derived from audited financial statements; however, it does not include all of the information and notes required by U.S. GAAP for complete financial statements. The accompanying unaudited condensed consolidated 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.
6
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 $
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.
7
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. |
| ● | Account advisory fees are earned in connection with investment advisory services. Account advisory fees are recognized over time using the time elapsed method as the Company determined that the customer simultaneously receives and consumes the benefits of investment advisory services as they are provided. Account advisory fees are generally paid in advance of a specified service period (e.g. quarterly) and are initially deferred within in our Condensed Consolidated Balance Sheet. |
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.
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.
8
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
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 to the agreement
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 $
Fair Value of Net Assets Acquired
| March 27, | ||||
| 2023 | ||||
| (Unaudited) | ||||
| ASSETS | ||||
| Cash and cash equivalents | $ | |||
| Deposits with Clearing Broker-Dealer | ||||
| Other receivables | ||||
| Prepaid and other current assets | ||||
| Total assets acquired | ||||
| Liabilities | ||||
| Accrued expenses | $ | |||
| Accrued commissions | ||||
| Wealth management liabilities | ||||
| Total liabilities assumed | ||||
| Total net assets of FPS Acquisition | ||||
9
Note 5. Investments in Marketable Securities
| Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||
| 2023 | 2022 | 2023 | 2022 | |||||||||||||
| Realized loss | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||
| Unrealized gain (loss) | ( | ) | ( | ) | ||||||||||||
| Dividend income | ||||||||||||||||
| Total | $ | ( | ) | $ | ( | ) | $ | $ | ( | ) | ||||||
Note 6. Short-term investments
| September 30,
2023 | December 31,
2022 | |||||||
| Investment in Vicinity Motor Corp. | | |||||||
| Total | ||||||||
There was approximately
$
| September 30,
2023 | December 31,
2022 | |||||||
| Option term (in years) | ||||||||
| Volatility | % | % | ||||||
| Risk-free interest rate | % | % | ||||||
| Expected dividends | % | % | ||||||
| Stock price | $ | $ | ||||||
10
Note 7. Long-Term Investments
| Cost Basis | September 30, 2023 | December 31, 2022 | ||||||||||
| Investment in Kerna Health Inc | $ | $ | $ | |||||||||
| Investment in Kaya Now | ||||||||||||
| Investment in Tevva Motors | ||||||||||||
| Investment in ASP Isotopes | ||||||||||||
| Investment in Unusual Machines | ||||||||||||
| Investment in Qxpress | ||||||||||||
| Investment in Masterclass | ||||||||||||
| Investment in Kraken | ||||||||||||
| Investment in Epic Games | ||||||||||||
| Investment in Tesspay | ||||||||||||
| Investment in SpaceX | ||||||||||||
| Investment in Databricks | ||||||||||||
| Investment in Discord | ||||||||||||
| Investment in Thrasio | ||||||||||||
| Investment in Automation Anywhere | ||||||||||||
| Investment in Anduril | ||||||||||||
| Total | $ | $ | $ | |||||||||
Investment in Unusual Machines, Inc.
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
Note 8. Notes Receivable
| Maturity Date | Stated Interest Rate | Principal Amount | Interest Receivable | Fair Value | ||||||||||||||
| Notes receivable, at fair value | ||||||||||||||||||
| Convergent convertible note - current | % | $ | $ | $ | ||||||||||||||
| Convergent convertible note - non-current | % | $ | $ | $ | ||||||||||||||
| Raefan Industries LLC Investment | % | $ | $ | $ | ||||||||||||||
| American Innovative Robotics Investment | % | $ | $ | $ | ||||||||||||||
| Notes receivable, at fair value - current portion | $ | |||||||||||||||||
| Notes receivable, at fair value - non-current portion | $ | |||||||||||||||||
11
Convergent Therapeutics, Inc. Investment
The Company’s
The principal balance
of the Convergent Convertible Note was approximately $
Raefan Industries LLC Investment
The Company recorded
an interest income receivable of approximately $
American Innovative Robotics, LLC Investment
The Company recorded
interest income of approximately $
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 $
The Company received
and recorded interest income related to the Kaya Now Promissory Note of approximately $
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.
12
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.
| Fair value measured as of September 30, 2023 | ||||||||||||||||
| Total at September 30, | Quoted prices in active markets | Significant other observable inputs | Significant unobservable inputs | |||||||||||||
| 2023 | (Level 1) | (Level 2) | (Level 3) | |||||||||||||
| Assets | ||||||||||||||||
| Marketable securities: | ||||||||||||||||
| Equities | $ | $ | $ | $ | ||||||||||||
| Total marketable securities | $ | $ | $ | $ | ||||||||||||
| Short-term investment | $ | $ | $ | $ | ||||||||||||
| Notes receivable at fair value, current portion | $ | $ | $ | $ | ||||||||||||
| Notes receivable at fair value, non-current portion | $ | $ | $ | $ | ||||||||||||
| 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 | $ | $ | $ | $ | ||||||||||||
| Total marketable securities | $ | $ | $ | $ | ||||||||||||
| Short-term investment | $ | $ | $ | $ | ||||||||||||
| Notes receivable at fair value, current portion | $ | $ | $ | $ | ||||||||||||
| Notes receivable at fair value, non-current portion | $ | $ | $ | $ | ||||||||||||
13
Level 3 Measurement
| Short-term investment at December 31, 2022 | $ | |||
| Change in fair value of investment | ( | ) | ||
| Short-term investment at September 30, 2023 | $ | |||
| Notes receivable at fair value, current portion at December 31, 2022 | $ | |||
| Collection of principal outstanding | ( | ) | ||
| Note receivable, Convergent Therapeutics, non-current portion | ( | ) | ||
| Unrealized loss on note receivable | ( | ) | ||
| Accrued interest receivable | ||||
| Notes receivable at fair value, current portion at September 30, 2023 | $ | |||
| Notes receivable at fair value, non-current portion at December 31, 2022 | $ | |||
| Note receivable, Convergent Therapeutics, non-current portion | ||||
| Accrued interest receivable | ||||
| Notes receivable at fair value, non-current portion at September 30, 2023 | $ |
Note Receivable at fair value
As of September 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 September 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 (
14
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 (
| September 30, 2023 | ||||
| Assets: | ||||
| Operating lease right-of-use-assets | $ | |||
| Liabilities: | ||||
| Current | ||||
| Operating | ||||
| Long-term | ||||
| Operating | ||||
| $ | ||||
September 30, | ||||
| Weighted-average remaining lease term – operating leases (in years) | ||||
| Weighted-average discount rate – operating leases | % | |||
| Three Months Ended | Nine Months Ended | |||||||
| September 30,
2023 | September 30, 2023 | |||||||
| Operating leases | ||||||||
| Operating lease cost | $ | $ | ||||||
| Operating lease expense | ||||||||
| Short-term lease rent expense | ||||||||
| Net rent expense | $ | $ | ||||||
| Nine Months
Ended | ||||
| September 30, 2023 | ||||
| Operating cash flows - operating leases | $ | |||
| Right-of-use assets obtained in exchange for operating lease liabilities | $ | |||
15
| Operating | ||||
| Leases | ||||
| Remaining Period Ended December 31, 2023 | $ | |||
| Year Ended December 31, 2024 | ||||
| Year Ended December 31, 2025 | ||||
| Year Ended December 31, 2026 | ||||
| Year Ended December 31, 2027 | ||||
| Year Ended December 31, 2028 | ||||
| Thereafter | ||||
| Total | ||||
| Less present value discount | ( | ) | ||
| Operating lease liabilities | $ | |||
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.
| As of September 30, | ||||||||
| 2023 | 2022 | |||||||
| Convertible preferred stock | ||||||||
| Warrants to purchase common stock | ||||||||
| Restricted stock awards | ||||||||
| Options to purchase common stock | ||||||||
| Total | ||||||||
Note 12. Stockholders’ Equity and Convertible Preferred Stock
Common Stock
On March 6, 2023,
the Company cancelled
On March 20, 2023,
the Company cancelled
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
16
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
On March 6, 2023,
the Company retired
Warrants
| Warrants | Weighted Average Exercise Price | Total Intrinsic Value | Weighted Average Remaining Contractual Life (in years) | |||||||||||||
| Outstanding as of December 31, 2022 | $ | |||||||||||||||
| Outstanding as of September 30, 2023 | $ | |||||||||||||||
Restricted Stock Awards
| Number of Restricted Stock Awards | Weighted Average Grant Day Fair Value | |||||||
| Nonvested at December 31, 2022 | $ | |||||||
| Granted | $ | |||||||
| Vested | ( | ) | ||||||
| Nonvested at September 30, 2023 | $ | |||||||
Stock-based compensation
associated with the amortization of restricted stock awards expense was approximately $
As of September
30, 2023, there is approximately $
Stock Options
| Number of Shares | Weighted Average Exercise Price | Total Intrinsic Value | Weighted Average Remaining Contractual Life (in years) | |||||||||||||
| Outstanding as of December 31, 2022 | $ | $ | ||||||||||||||
| Employee options granted | ||||||||||||||||
| Employee options forfeited | ( | ) | ||||||||||||||
| Employee options expired | ( | ) | $ | |||||||||||||
| Outstanding as of September 30, 2023 | $ | $ | ||||||||||||||
| Options vested and exercisable | $ | $ | ||||||||||||||
Stock-based compensation
associated with the amortization of stock option expense was approximately $
Estimated future
stock-based compensation expense relating to unvested stock options is approximately $
17
Note 13. Revenue
| Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||
| 2023 | 2022 | 2023 | 2022 | |||||||||||||
| Underwriting | $ | $ | $ | $ | ||||||||||||
| Commissions | ||||||||||||||||
| Advisory fees | - | - | ||||||||||||||
| Other | $ | |||||||||||||||
| Total | $ | $ | $ | $ | ||||||||||||
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 September 30, 2023, Dominari Securities had net capital of approximately
$
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, was previously a member of the board of directors of Revere. The Company incurred fees of approximately
$
18
Note 17. Segment Reporting
The Company operates in two reportable business segments: (1) Dominari Financial and (2) Legacy AIkido. The Dominari Financial reportable business segment represents the Company’s broker-dealer business, which is composed of mostly underwriting and transactional service activities. The Legacy AIkido 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.
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 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.
| Three Months Ended September 30, 2023 | ||||||||||||
| Dominari Financial | Legacy AIkido | Consolidated | ||||||||||
| Revenue | $ | $ | $ | |||||||||
| Operating Costs | ||||||||||||
| General and administrative | $ | |||||||||||
| Research and development | ||||||||||||
| Loss from operations | $ | ( | ) | $ | ( | ) | $ | ( | ) | |||
| Other (expenses) income | ||||||||||||
| Other income | ||||||||||||
| Interest income | ||||||||||||
| Loss on marketable securities | ( | ) | ( | ) | ||||||||
| Unrealized loss on note receivable | ||||||||||||
| Change in fair value of investments | ( | ) | ( | ) | ||||||||
| Total other (expenses) income | $ | $ | ( | ) | $ | ( | ) | |||||
| Net loss | $ | ( | ) | $ | ( | ) | $ | ( | ) | |||
| Nine Months Ended September 30, 2023 | ||||||||||||
| Dominari Financial | Legacy AIkido | Consolidated | ||||||||||
| Revenue | $ | $ | $ | |||||||||
| Operating Costs | ||||||||||||
| General and administrative | ||||||||||||
| Research and development | ||||||||||||
| Loss from operations | $ | ( | ) | $ | ( | ) | $ | ( | ) | |||
| Other (expenses) income | ||||||||||||
| Other income | ||||||||||||
| Interest income | ||||||||||||
| Gain on marketable securities | ||||||||||||
| Unrealized loss on note receivable | ( | ) | ( | ) | ||||||||
| Change in fair value of investments | ( | ) | ( | ) | ||||||||
| Total other (expenses) income | $ | $ | ( | ) | $ | ( | ) | |||||
| Net loss | $ | ( | ) | $ | ( | ) | $ | ( | ) | |||
19
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. 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.
Cautionary Note Regarding Forward-Looking Statements
All statements other than statements of historical fact included in this Report including, without limitation, statements under this “Management’s Discussion and Analysis of Financial Condition and Results of Operations” regarding our financial position, business strategy and the plans and objectives of management for future operations, are forward-looking statements. When used in this Report, terminology such as “may,” “should,” “expect,” “intend,” “will,” “estimate,” “anticipate,” “believe,” “predict,” “project,” “target,” “budget,” “forecast,” “could,” “continue,” “plan,” or “potentially” or the negatives of these terms or variations of them or similar terminology, as they relate to us or our management, identify forward-looking statements. Such forward-looking statements are based on the beliefs of management, as well as assumptions made by, and information currently available to, our management. Actual results could differ materially from those contemplated by the forward-looking statements as a result of certain factors detailed in our filings with the SEC. All subsequent written or oral forward-looking statements attributable to us or persons acting on our behalf are qualified in their entirety by this paragraph.
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.
Related to the shift described above, 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. 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. 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.
20
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 our significant 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 September 30, 2023, compared to the Three Months Ended September 30, 2022
During the three months ended September 30, 2023, we recognized approximately $1.0 million in revenue from operations, primarily driven by the commissions and underwriting revenue earned by Dominari Securities. During the three months ended September 30, 2023, and 2022, we incurred a loss from operations of approximately $3.1 million and $5.1 million, respectively. The decrease in loss from operations was primarily attributable to the following:
| i. | An approximate $0.4 million decrease in general and administrative expenses. The Company incurred decreased compensation expenses of approximately $0.2 million due to decreased stock-based compensation expenses. |
| ii. | An approximate $0.6 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 September 30, 2023 and 2022, other expenses was approximately $0.4 million and $1.1 million, respectively. The activity for the three months ended September 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 loss of approximately $0.2 million for the three months ended September 30, 2023. The decrease of approximately $1.5 million in losses over the prior period is a direct result of a decrease in unrealized losses of approximately $2.0 million and an increase in dividend income of approximately $0.2 million, offset by an increase in realized loss of approximately $0.6 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 September 30, 2023 and 2022 are a function of observable market transactions which resulted in an increase in unrealized loss of approximately $0.8 million on the adjusted fair value of the investments during the three months ended September 30, 2023. |
21
Nine Months Ended September 30, 2023, compared to the Nine months ended September 30, 2022
During the nine months ended September 30, 2023, we recognized approximately $1.0 million in revenue from operations, primarily driven by the underwriting revenue earned by Dominari Securities. During the nine months ended September 30, 2023, and 2022, we incurred a loss from operations of approximately $16.0 million and $11.2 million, respectively. The increase in loss in operations was primarily attributable to the following:
| i. | An approximate $8.4 million increase in general and administrative expenses – driven by approximately $0.1 million and $1.2 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 $5.6 million due to growing operations. |
| ii. | An approximate $2.6 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 nine months ended September 30, 2023 and 2022, other income (expenses) was approximately $17 thousand and $(3.6) million, respectively. The activity for the nine months ended September 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 $0.2 million for the nine months ended September 30, 2023. The decrease of approximately $4.6 million in losses over the prior period is a direct result of a decrease in unrealized losses of approximately $4.8 million and increase in dividend income of approximately $0.3 million, offset by an increase in realized loss of approximately $0.5 million. The decreases were driven by both market improvement and a decrease in sale activity resulting in fewer realized losses. |
| ii. | Short-term and long-term investments –The changes over the nine months ended September 30, 2023 and 2022 are a function of observable market transactions which resulted in an increase in unrealized loss of approximately $0.6 million on the adjusted fair value of the investments during the nine months ended September 30, 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; 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 $33.2 million as of September 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.
22
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 nine months ended September 30, 2023 and 2022, net cash used in operations was approximately $17.5 million and $8.7 million, respectively. The cash used in operating activities for the nine months ended September 30, 2023, is primarily attributable to a net loss of approximately $16.0 million, approximately $0.9 million of unrealized gain on marketable securities and changes in operating assets and liabilities of $4.4 million, partially offset by $1.5 million stock-based compensation expense and approximately $1.2 million in realized losses on marketable securities. The cash used in operating activities for the nine months ended September 30, 2022 primarily resulted from a net loss of $14.9 million and change in fair value of long-term investment of $1.6 million and is partially offset by change in fair value of short-term investment of $1.5 million and unrealized loss on marketable securities of $3.9 million.
Cash Flows from Investing Activities
For the nine months ended September 30, 2023 and 2022, net cash used in investing activities was approximately $10.4 million and $16.0 million, respectively. The cash used in investing activities for the nine months ended September 30, 2023, primarily resulted from our purchase of marketable securities of approximately $34.1 million and the acquisition of FPS for approximately $1.1 million, partially offset by our sale of marketable securities of approximately $24.6 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 nine months ended September 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 $15.0 million, partially offset by our sale of marketable securities of $28.5 million since we invest excess cash into marketable securities until additional cash is needed.
Cash Flows from Financing Activities
For the nine months ended September 30, 2023, cash used in financing activities was approximately $0.9 million, which reflects the cost for the purchase of treasury stock of approximately $0.9 million. Cash used in financing activities for the nine months ended September 30, 2022 was $6.4 million, which reflects the cost for the redemption of Series O and Series P Redeemable Convertible Preferred Stock of $22.0 million and the cost for purchase of treasury stock of $2.2 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.
23
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 September 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 September 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.
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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
As a “smaller reporting company” as defined by Item 10 of Regulation S-K, we are not required to provide information required by this Item. Our current risk factors are set forth in our Annual Report on Form 10-K, which was filed with the SEC on March 30, 2023. Any of our previously disclosed risk factors could result in a significant or material adverse effect on our results of operations or financial condition. Additional risk factors not presently known to us or that we currently deem immaterial may also impair our business or results of operations. We may disclose changes to such risk factors or disclose additional risk factors from time to time in our future filings with the SEC.
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
| * | Filed herewith |
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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: November 6, 2023 | By: | /s/ Anthony Hayes |
| Anthony Hayes | ||
| Chief Executive Officer | ||
| (Principal Executive Officer) | ||
| Date: November 6, 2023 | By: | /s/ George Way |
| George Way | ||
| Chief Financial Officer | ||
| (Principal Financial and Accounting Officer) |
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