SEC Form 10-Q filed by Dominari Holdings Inc.
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
(Mark one)
For the quarterly period ended
or
For the transition period from ____________ to ____________
Commission File Number:
| (Exact name of registrant as specified in its charter) |
| (State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification No.) |
| (Address of principal executive offices and Zip Code) |
| (Registrant’s telephone number, including area code) |
| Not Applicable |
| (Former name, former address and former fiscal year, if changed since last report) |
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 |
Indicate by check mark whether the registrant
(1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities 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.
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).
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 definitions 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 | ☐ |
| ☒ | 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
As of November 7, 2024, there were 6,336,286
shares of the Company’s common stock issued and
DOMINARI HOLDINGS INC.
FORM 10-Q
FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 2024
TABLE OF CONTENTS
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, | |||||||
| 2024 | 2023 | |||||||
| (Unaudited) | ||||||||
| ASSETS | ||||||||
| Current assets | ||||||||
| Cash and cash equivalents | $ | $ | ||||||
| Marketable securities | ||||||||
| Deposits with clearing broker | ||||||||
| Prepaid expenses and other assets | ||||||||
| Notes receivable, at fair value - current portion | ||||||||
| Total current assets | ||||||||
| Property and equipment, net | ||||||||
| Notes receivable, at fair value - non-current portion | ||||||||
| Long Term Equity 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, less current portion | ||||||||
| Total liabilities | ||||||||
| Stockholders’ equity | ||||||||
| Series D: | ||||||||
| Series D-1: | ||||||||
| Common stock, $ | ||||||||
| Additional paid-in capital | ||||||||
| Treasury stock, as of 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, | |||||||||||||||
| 2024 | 2023 | 2024 | 2023 | |||||||||||||
| Revenues | $ | $ | $ | $ | ||||||||||||
| Operating costs and expenses | ||||||||||||||||
| General and administrative | $ | $ | $ | $ | ||||||||||||
| Research and development | - | |||||||||||||||
| Total operating expenses | ||||||||||||||||
| Loss from operations | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Other income (expenses) | ||||||||||||||||
| Interest income | ||||||||||||||||
| Gain (loss) on marketable securities, net | ( | ) | ||||||||||||||
| Realized and unrealized loss on note receivable, net | ( | ) | - | ( | ) | ( | ) | |||||||||
| Change in carrying value of investments | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Total other expenses | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Net loss | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||
| Net loss per share, basic and diluted | ||||||||||||||||
| Basic and Diluted | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||
| Weighted average number of shares outstanding, basic and diluted | ||||||||||||||||
| 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, 2024 and 2023
| 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, 2024 | $ | $ | $ | $ | ( | ) | $ | ( | ) | $ | ||||||||||||||||||||||||||
| Stock-based compensation | - | - | ||||||||||||||||||||||||||||||||||
| Net loss | - | - | - | ( | ) | ( | ) | |||||||||||||||||||||||||||||
| Balance at September 30, 2024 | $ | $ | $ | $ | ( | ) | $ | ( | ) | $ | ||||||||||||||||||||||||||
| 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 | $ | $ | $ | $ | ( | ) | $ | ( | ) | $ | ||||||||||||||||||||||||||
See accompanying notes to unaudited condensed consolidated financial statements
3
For the Nine Months Ended September 30, 2024 and 2023
| Preferred Stock | Common Stock | Additional Paid-in | Treasury Stock | Accumulated | Total Stockholders’ | |||||||||||||||||||||||||||||||
| Shares | Amount | Shares | Amount | Capital | Shares | Amount | Deficit | Equity | ||||||||||||||||||||||||||||
| Balance at December 31, 2023 | $ | $ | $ | $ | ( | ) | $ | ( | ) | $ | ||||||||||||||||||||||||||
| Stock-based compensation | - | - | ||||||||||||||||||||||||||||||||||
| Net loss | - | - | - | ( | ) | ( | ) | |||||||||||||||||||||||||||||
| Balance at September 30, 2024 | $ | $ | $ | $ | ( | ) | $ | ( | ) | $ | ||||||||||||||||||||||||||
| 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 | $ | $ | $ | $ | ( | ) | $ | ( | ) | $ | ||||||||||||||||||||||||||
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, | ||||||||
| 2024 | 2023 | |||||||
| 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 short-term investments | ||||||||
| Change in carrying value of long-term investment | ||||||||
| Stock-based compensation | ||||||||
| Realized (gain) loss on marketable securities | ( | ) | ||||||
| Unrealized (gain) loss on marketable securities | ( | ) | ||||||
| Realized and 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 | ( | ) | ||||||
| Net cash used in operating activities | ( | ) | ( | ) | ||||
| Cash flows from investing activities | ||||||||
| Purchase of marketable securities | ( | ) | ( | ) | ||||
| Sale of marketable securities | ||||||||
| Purchase of fixed assets | ( | ) | ||||||
| Acquisition of FPS, net of cash acquired and receivable owed from FPS | ( | ) | ||||||
| Collection of principal on note receivable | ||||||||
| Loans to employees | ( | ) | ( | ) | ||||
| Purchase of short-term and long-term investments | ( | ) | ( | ) | ||||
| Redemption of long-term investments | ||||||||
| Collection of loans to employees | ||||||||
| Net cash provided by (used in) investing activities | ( | ) | ||||||
| Cash flows from financing activities | ||||||||
| Purchase of treasury stock | ( | ) | ||||||
| Net cash used in financing activities | ( | ) | ||||||
| Net increase (decrease) in cash and cash equivalents and restricted cash | ( | ) | ||||||
| Cash and cash equivalents, beginning of period | ||||||||
| Cash and cash equivalents, end of period | $ | $ | ||||||
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 operated as a biotechnology company with a diverse portfolio of small-molecule anticancer and antiviral therapeutics and their related patent technology. The Company is in the process of winding down its historical pipeline of biotechnology assets held by Aikido Labs, LLC. 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.
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 the Financial
Industry Regulatory Authority (“FINRA”) and an investment adviser registered with the SEC. Pursuant to the terms
of the FPS Purchase Agreement, Dominari Financial purchased from the Seller
On October 13, 2023, the Company entered into two separate Limited Liability Agreements with Dominari Manager LLC (“Manager”) and Dominari IM LLC (“Investment Manager”) which are both wholly owned subsidiaries and whose operations are included within the consolidated condensed financial statements of Dominari Holdings Inc. Manager was named as the manager of Dominari Master SPV LLC (the “Master SPV”), a limited liability company formed by the Company in 2022, and is responsible for the day-to-day operations of the Master SPV. Dominari IM LLC (“Investment Manager”) was named the investment manager of Master SPV and is responsible for providing investment advice and decisions on behalf of the Master SPV. Beginning in March 2024, the Manager established various series of funds (the “Series”) of the Master SPV for the purpose of making investments in companies identified by the Investment Manager with proceeds generated by the sale of non-voting interests in such Series by the Master SPV to investors, in which the Company may, from time to time as it deems appropriate, also invest in such series alongside third-party investors.
On May 21, 2024, Dominari Financial and Heritage
Strategies LLC (“HS”) entered into a Limited Liability Company Operating Agreement (the “JV Agreement”) of Dominari
Financial Heritage Strategies LLC (“DFHS”). The JV Agreement governs the operation of DFHS, including the distributions to
the members of DFHS upon the offer, sale and renewal of various insurance products and services, including life insurance, private placement
insurance, group medical plans, qualified plans, business insurance, and family office and estate planning services. Pursuant to the terms
of the JV Agreement, Dominari Financial and HS are the co-managing members (the “Co-Managing Members”), each with fifty percent
(
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.
6
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 2023 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, 2024, condensed consolidated statements of operations for the three months and nine months ended September 30, 2024 and 2023, condensed consolidated statements of stockholders’ equity for the three months and nine months ended September 30, 2024 and 2023, and the condensed consolidated statements of cash flows for the nine months ended September 30, 2024 and 2023 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 months and nine months ended September 30, 2024 are not necessarily indicative of results to be expected for the year ending December 31, 2024 or for any future interim period. The condensed consolidated balance sheet as of December 31, 2023 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, 2023.
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.
Joint Ventures
On May 21,
2024, the Company entered into a limited liability company operating agreement to form Dominari Financial Heritage Strategies LLC (“DFHS”).
The Company has a
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 8 - Leases).
7
Revenue
The Company recognizes revenue under ASC 606 - Revenue from Contracts with Customers (“ASC 606”). Revenue is 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 revenue from contracts with customers:
| ● | Underwriting services include underwriting and private placement agent services in both the public and private 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 revenue 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 revenue associated with trade execution are recognized at a point in time on trade-date. Commissions revenue 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. |
| ● | Other revenue includes revenues such as miscellaneous fees and reimbursed expenses. |
Long-term equity investments
The Company accounts for long-term equity investments under Accounting Standards Codification (“ASC”) 321 “Investments—Equity Securities” (“ASC 321”). In accordance with ASC 321, equity securities with readily determinable fair values are accounted for at fair value based on quoted market prices. Equity securities without readily determinable fair values are accounted for either at fair value or using the measurement alternative. Under the measurement alternative, the equity investments are measured at cost, less any impairment, if any, plus or minus changes resulting from observable price changes in orderly transactions for the identical or a similar investment of the same issuer.
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.
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 adopted ASU 2022-03 on January 1, 2024. There was no material impact to the Company’s unaudited condensed consolidated financial statements from the implementation of ASU 2022-03.
8
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 adopted ASU 2023-01 on January 1, 2024. There was no material impact to the Company’s unaudited condensed consolidated financial statements from the implementation of 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. Marketable Securities
| Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||
| 2024 | 2023 | 2024 | 2023 | |||||||||||||
| Realized gain (loss) | $ | $ | ( | ) | $ | $ | ( | ) | ||||||||
| Unrealized gain (loss) | ( | ) | ( | ) | ||||||||||||
| Dividend income | ||||||||||||||||
| Total | $ | $ | ( | ) | $ | $ | ||||||||||
Note 5. Long-Term Equity Investments
The Company holds interests in several privately
held and publicly traded companies as long-term investments.
| December 31, 2023 | September 30, 2024 | |||||||||||||||
| Cost Basis | Carrying Value | Cost Basis | Carrying Value | |||||||||||||
| Investment in Kerna Health Inc | $ | $ | $ | $ | ||||||||||||
| Investment in Kaya Now | ||||||||||||||||
| Investment in Tevva Motors* | ||||||||||||||||
| 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 XAI* | ||||||||||||||||
| Investment in Cerebras* | ||||||||||||||||
| Investment in Groq* | ||||||||||||||||
| Investment in AdvEn | ||||||||||||||||
| Investment in Anduril* | ||||||||||||||||
| Total | $ | $ | $ | $ | ||||||||||||
| * |
| ** |
9
The Company recorded an increase in the carrying
values of approximately $
Investment in SpaceX
The Company redeemed its holdings in SpaceX in
April of 2024 totaling
Investment in xAI
On May 2, 2024, the Company entered into an agreement
(the “xAI Agreement”) with Dominari Master SPV LLC whereby the Company agreed to purchase
Investment in Cerebras
On June 17, 2024, the Company entered into an
agreement (the “Cerebras Agreement”) with Dominari Master SPV LLC whereby the Company agreed to purchase
Investment in Groq
On July 25, 2024, the Company entered into an
agreement (the “Groq Agreement”) with Dominari Master SPV LLC whereby the Company agreed to purchase
Investment in Unusual Machines
Unusual Machines, Inc, an emerging leader in first-person
view (FPV) drone technology, closed its initial public offering of common stock on February 14, 2024 at a public offering price of $
Investment in Tevva Motors
On September 22, 2021, the Company entered into
a securities purchase agreement (the “Tevva Motors Subscription Agreement”) with Big Sky Opportunities Fund, LLC, who handled
the offering for Tevva Motors. As of December 31, 2023 the investment was valued at $
Investment in Tesspay
On March 23, 2022, the Company entered into a
securities purchase agreement (the “Tesspay Securities Purchase Agreement”) with Tesspay. Under the Tesspay Securities Purchase
Agreement, the Company agreed to purchase
10
Investment in Anduril
In April 2022, the Company entered into a securities
purchase agreement (the “Anduril Securities Purchase Agreement”) with Forge Investments LLC, Fund FG-MHM, who handled the
offering of Anduril Industries, Inc. shares, a privately-held defense products company. As of December 31, 2023 the investment was valued
at $
Investment in Thrasio
In April 2022, the Company entered into a securities
purchase agreement (the “Thrasio Securities Purchase Agreement”) with privately-held company Thrasio, LLC, an aggregator of
private brands of top Amazon businesses and direct-to-consumer brands. As of December 31, 2023 the investment was valued at $
Investment in Epic Games
On March 22, 2022, the Company entered into a
securities purchase agreement (the “Epic Games Securities Purchase Agreement”) with Aeon Partners Fund, Series EG, who handled
the offering of Epic Games shares. Under the Epic Games Securities Purchase Agreement, the Company agreed to purchase an aggregate of
Investment in AdvEn
On December 26, 2021, the Company entered into
a securities purchase agreement (the “AdvEn Securities Purchase Agreement”) with AdvEn Inc. (“AdvEn’), formerly
known as Nano Innovations Inc. Under the AdvEn Securities Purchase Agreement, the Company purchased a
On September 11, 2024, the Company entered into
a securities exchange agreement with AdvEn in which the Company agreed to cancel and retire the AdvEn Convertible Securities in exchange
for a number of shares of Series D preferred stock of AdvEn equal to
11
Note 6. Notes Receivable
September 30, 2024
| Maturity Date | Stated Interest Rate | Principal Amount | Interest Receivable | Fair Value | ||||||||||||||
| Notes receivable, at fair value | ||||||||||||||||||
| Convergent convertible note | % | $ | $ | $ | ||||||||||||||
| Raefan Industries LLC | % | $ | $ | $ | ||||||||||||||
| American Innovative Robotics | | % | $ | $ | | $ | ||||||||||||
| Notes receivable, at fair value - current portion | $ | |||||||||||||||||
| Notes receivable, at fair value - non-current portion | $ | |||||||||||||||||
December 31, 2023
| Maturity Date | Stated Interest Rate | Principal Amount | Interest Receivable | Fair Value | ||||||||||||||
| Notes receivable, at fair value | ||||||||||||||||||
| Convergent convertible note | % | $ | $ | | $ | |||||||||||||
| Raefan Industries LLC | | % | $ | $ | $ | |||||||||||||
| American Innovative Robotics | % | $ | $ | $ | ||||||||||||||
| Notes receivable, at fair value - current portion | $ | |||||||||||||||||
| Notes receivable, at fair value - non-current portion | $ | |||||||||||||||||
Convergent Therapeutics, Inc.
The Company recorded principal repayment of approximately
$
The Company recorded principal repayment of $
Raefan Industries LLC
The Company recorded a realized loss as a result
of directly writing off approximately $
American Innovative Robotics, LLC
The Company recorded interest income of approximately
$
The Company recorded interest income of approximately
$
Note 7. 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.
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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, 2024 | ||||||||||||||||
| Total at September 30, | Quoted prices in active markets | Significant other observable inputs | Significant unobservable inputs | |||||||||||||
| 2024 | (Level 1) | (Level 2) | (Level 3) | |||||||||||||
| Assets | ||||||||||||||||
| Marketable securities: | ||||||||||||||||
| Equities | $ | $ | $ | $ | ||||||||||||
| Total marketable securities | $ | $ | $ | $ | ||||||||||||
| Notes receivable at fair value, current portion | $ | $ | $ | $ | ||||||||||||
| Notes receivable at fair value, non-current portion | $ | $ | $ | $ | ||||||||||||
| Fair value measured as of December 31, 2023 | ||||||||||||||||
| Total at December 31, |
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 | $ | $ | $ | $ | ||||||||||||
| Notes receivable at fair value, current portion | $ | $ | $ | $ | ||||||||||||
| Notes receivable at fair value, non-current portion | $ | $ | $ | $ | ||||||||||||
Level 3 Measurement
September 30, 2024
| Notes receivable at fair value, current portion at December 31, 2023 | $ | |||
| Collection of principal outstanding | ( | ) | ||
| Realized and unrealized gain (loss) on note receivable, net | ( | ) | ||
| Change in interest receivable | ( | ) | ||
| Notes receivable at fair value, current portion at September 30, 2024 | $ | |||
| Notes receivable at fair value, non-current portion at December 31, 2023 | $ | |||
| Unrealized gain (loss) on notes receivable | ( | ) | ||
| Notes receivable at fair value, non-current portion at September 30, 2024 | $ |
13
September 30, 2023
| 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 | $ |
Notes Receivable at fair value
As of September 30, 2024, the fair value of the
notes receivable was measured taking into consideration cost basis, market participant inputs, market conditions, liquidity, operating
results and other qualitative and quantitative factors. For the nine month period ended September 30, 2024 the Company had realized and
unrealized losses on notes receivable of $
Note 8. 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 (
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, 2024 | ||||
| Assets: | ||||
| Operating lease right-of-use-assets | $ | |||
| Liabilities: | ||||
| Current | ||||
| Operating | ||||
| Long-term | ||||
| Operating | ||||
| $ | ||||
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| September 30, 2024 | ||||
| Weighted-average remaining lease term – operating leases (in years) | ||||
| Weighted-average discount rate – operating leases | % | |||
| Three Months Ended | Nine Months Ended | |||||||
| September 30, 2024 | September 30, 2024 | |||||||
| Operating leases | ||||||||
| Operating lease cost | $ | | $ | | ||||
| Short-term lease rent expense | ||||||||
| Net rent expense | $ | $ | ||||||
| Three Months Ended | Nine Months Ended | |||||||
| September 30, 2023 | September 30, 2023 | |||||||
| Operating leases | ||||||||
| Operating lease cost | $ | | $ | | ||||
| Short-term lease rent expense | ||||||||
| Net rent expense | $ | $ | ||||||
| Nine Months Ended | ||||
| September 30, 2024 | ||||
| Operating cash flows - operating leases | $ | | ||
| Operating | ||||
| Leases | ||||
| Remaining Period 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 | $ | |||
15
Note 9. 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 for the period. 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 the first day of the period.
| As of September 30, | ||||||||
| 2024 | 2023 | |||||||
| Convertible preferred stock | ||||||||
| Warrants to purchase common stock | ||||||||
| Restricted stock awards | ||||||||
| Options to purchase common stock | ||||||||
| Total | ||||||||
Note 10. Stockholders’ Equity and Convertible Preferred Stock
Common Stock
As of September 30, 2024, there are
Treasury Stock
There are
Warrants
| Warrants | Weighted Average Exercise Price | Total Intrinsic Value | Weighted Average Remaining Contractual Life (in years) | |||||||||||||
| Outstanding as of December 31, 2023 | $ | | | |||||||||||||
| Granted | $ | |||||||||||||||
| Outstanding as of September 30, 2024 | $ | |||||||||||||||
Restricted Stock Awards
In October 2023, the Company issued an aggregate
of
On June 11, 2024, the Company executed grant agreements
with each of Messrs. Anthony Hayes and Kyle Wool pursuant to their employment agreements with the Company, and in accordance with the
Company’s 2022 Equity Incentive Plan. Pursuant to the grant agreements, each received
16
| Number of Restricted Stock Awards | Weighted Average Grant Day Fair Value | |||||||
| Nonvested at December 31, 2023 | $ | |||||||
| Granted | $ | |||||||
| Vested | ( | ) | $ | |||||
| Forfeited | ( | ) | $ | |||||
| Nonvested at September 30, 2024 | $ | |||||||
Stock-based compensation associated with the amortization
of restricted stock awards expense was approximately $
As of September 30, 2024, 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, 2023 | $ | $ | | |||||||||||||
| Employee options expired | ( | ) | $ | |||||||||||||
| Outstanding as of September 30, 2024 | $ | $ | ||||||||||||||
| 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 $
Note 11. Revenue
| Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||
| 2024 | 2023 | 2024 | 2023 | |||||||||||||
| Underwriting | $ | $ | $ | $ | ||||||||||||
| Commissions | ||||||||||||||||
| Advisory fees | ||||||||||||||||
| Other | ||||||||||||||||
| Total | $ | $ | $ | $ | ||||||||||||
17
Note 12. Commitments and Contingencies
Legal Proceedings
The Company may be subject to certain legal and other claims that arise in the ordinary course of its business. In particular, the Company and its subsidiaries may be named in and subject to various proceedings and claims arising primarily from the Company’s securities business activities, including lawsuits, arbitration claims, class actions, and regulatory matters. Some of these claims may seek substantial compensatory, punitive, or indeterminate damages. The Company and its subsidiaries may also be subject to other reviews, investigations, and proceedings by governmental and self-regulatory organizations regarding the Company’s business, which may result in adverse judgments, settlements, fines, penalties, injunctions, and other relief. Due to the inherent difficulty of predicting the outcome of litigation and other claims the Company cannot state with certainty what the eventual outcome of potential litigation or other claims will be. Notwithstanding this uncertainty, the Company does not believe that the results of these potential claims are likely to have a material effect on its financial position or results of operations.
In March 2024, the Company received a notice of petition of a filed action seeking relief related to the hiring in March 2024 of new registered representatives from the representatives’ former employer. This notice was filed against the Company’s subsidiary, Dominari Securities. The Company does not agree with the plaintiff’s claims. While the Company intends to defend itself vigorously from this claim, it is unable to predict the outcome of such legal proceeding. Any potential loss as a result of this legal proceeding cannot be reasonably estimated. As a result, the Company has not recorded a loss contingency for the aforementioned claim.
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 13. 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, 2024, Dominari Securities had net capital of approximately $
Note 14. Related Party Transaction
In 2021, the Company engaged the services of Revere
Securities, LLC (“Revere”) to assist in the management and building of the Company’s investment processes. Kyle Wool,
one of the Company’s board members, was previously a member of the board of directors of Revere until June 2023, and currently holds
approximately
Note 15. Segment Reporting
The Company operates in
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.
18
| Nine Months Ended September 30, 2024 | ||||||||||||
| Dominari Financial | Legacy AIkido Pharma | 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 | $ | ( | ) | $ | ( | ) | $ | ( | ) | |||
| Three Months Ended September 30, 2024 | ||||||||||||
| Dominari Financial | Legacy AIkido Pharma | 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 | $ | ( | ) | $ | ( | ) | $ | ( | ) | |||
Note 16. Income Taxes
The Company recorded income tax expense for the three months ended September 30, 2024 and 2023 because the estimated annual effective tax rate was zero. In determining the estimated annual effective income tax rate, the Company analyzes various factors, including projections of the Company’s annual earnings and taxing jurisdictions in which the earnings will be generated, the impact of state and local income taxes, the ability to use tax credits and net operating loss carry forwards, and available tax planning alternatives.
As of September 30, 2024, and December 31, 2023, the Company provided a full valuation allowance against its net deferred tax assets since the Company believes it is more likely than not that its deferred tax assets will not be realized.
19
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
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
This Quarterly Report on Form 10-Q (“Quarterly Report”) contains statements that the Company believes are “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. These forward-looking statements include, without limitation, statements relating to expectations for future financial performance, business strategies or expectations for the Company’s business. These statements are based on the beliefs and assumptions of the management of the Company. Although the Company believes that its plans, intentions and expectations reflected in or suggested by these forward-looking statements are reasonable, it cannot provide assurance that it will achieve or realize these plans, intentions or expectations. These statements constitute projections, forecasts and forward-looking statements, and are not guarantees of performance. Such statements can be identified by the fact that they do not relate strictly to historical or current facts. When used in this Quarterly Report, words such as “anticipate,” “believe,” “can,” “continue,” “could,” “estimate,” “expect,” “forecast,” “intend,” “may,” “might,” “plan,” “possible,” “potential,” “predict,” “project,” “seek,” “should,” “strive,” “target,” “will,” “would” and similar expressions may identify forward-looking statements, but the absence of these words does not mean that a statement is not forward-looking. 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. We undertake no obligation to revise or publicly release the results of any revision to these forward-looking statements, except as required by law. You should not place undue reliance on these forward-looking statements. Should one or more of a number of known and unknown risks and uncertainties materialize, or should any of our assumptions prove incorrect, the Company’s actual results or performance may be materially different from those expressed or implied by these forward-looking statements.
Overview
Dominari Holdings Inc. (“Dominari”) is a holding company that, through its various subsidiaries, is engaged in wealth management, investment banking, sales and trading, asset management and insurance. In addition to capital investment, Dominari provides management support to the executive teams of its subsidiaries, helping them to operate efficiently and reduce cost under a streamlined infrastructure. Dominari and its subsidiaries are collectively referred to herein as “Company,” “we,” “our” or “us.”
Dominari Financial Inc. (“Dominari Financial”), a wholly-owned subsidiary of Dominari Holdings Inc., executes the Company’s growth strategy in the financial services industry. In addition to organic growth, Dominari Financial seeks partnership opportunities and acquisitions of third-party financial assets such as registered investment advisors and businesses, broker dealers, asset management and fintech firms, and insurance brokers. Our first transaction in furtherance of our growth in the financial services industry, the acquisition of 100% of a dually-registered broker dealer and investment advisor from Fieldpoint Private Bank & Trust (“Fieldpoint”), was consummated on March 27, 2023. The newly acquired dually registered broker-dealer and investment adviser was renamed Dominari Securities LLC (“Dominari Securities”) and is a wholly-owned subsidiary of Dominari Financial.
On May 21, 2024, Dominari Financial and Heritage Strategies LLC (“HS”) entered into a Limited Liability Company Operating Agreement (the “JV Agreement”) of Dominari Financial Heritage Strategies LLC (“DFHS”). The JV Agreement governs the operation of DFHS, including the distributions to the members of DFHS upon the offer, sale and renewal of various insurance products and services, including life insurance, private placement insurance, group medical plans, qualified plans, business insurance, and family office and estate planning services. Pursuant to the terms of the JV Agreement, Dominari Financial and HS are the co-managing members (the “Co-Managing Members”), each with fifty percent (50%) ownership interests in DFHS. Revenues from the sale of the various insurance products and services after deducting general and administrative costs are distributed to the Co-Managing Members as set forth in the JV Agreement.
Critical Accounting Estimates
We prepare our condensed consolidated financial statements in accordance with GAAP. The preparation of these condensed consolidated financial statements in conformity with GAAP requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the condensed consolidated financial statements and the reported amounts of revenue and expenses during the reporting period. We base our estimates on historical experience and other assumptions that we believe are reasonable under the circumstances. Our actual results could differ significantly from these estimates under different assumptions and conditions.
20
There have been no material changes to our critical accounting estimates as compared to the critical accounting estimates discussed in the Form 10-K.
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, 2024, compared to the three months ended September 30, 2023
During the three months ended September 30, 2024 and 2023, we recognized approximately $4.0 million and $1.0 million in revenue from operations, respectively, primarily driven by the commissions and underwriting revenue earned by Dominari Securities and Dominari Manager LLC (“Manager”). During the three months ended September 30, 2024 and 2023, we incurred a loss from operations of approximately $3.2 million and $3.1 million, respectively.
During the three months ended September 30, 2024 and 2023, other expenses was approximately $1.0 million and $0.4 million, respectively.
The activity described above for the three months ended September 30, 2024 and 2023, is primarily a result of the Company’s entrance into the financial services industry, overall volatility in investment valuations due to macroeconomic uncertainty impacting marketable securities and the change in carrying value of long-term equity investments. Specifically:
| i. | Marketable securities - we recognized a realized gain of approximately $0.4 million for the three months ended September 30, 2024. We also recognized an unrealized loss of approximately $0.4 million and dividend income of $78,000 for the three months ended September 30, 2024.The increase of approximately $1.2 million in realized gains over the three months ended September 30, 2023, was driven by both market improvement and an increase in sale activity resulting in more realized gains. |
| ii. | Notes receivable - we recognized $0.4 million realized and unrealized loss over the three months ended September 30, 2024, versus no gain or loss during the three months ended September 30, 2023 on notes receivable. |
| iii. | Long-term equity investments - changes over the three months ended September 30, 2024 and 2023 are a function of observable market transactions which resulted in a decrease of approximately $1.0 million on the adjusted carrying value of the investments for the three months ended September 30, 2024, which is an increase of approximately $0.5 million from the three months ended September 30, 2023. |
Nine months ended September 30, 2024, compared to the nine months ended September 30, 2023
During the nine months ended September 30, 2024, we recognized approximately $11.6 million and $1.0 million in revenue from operations, respectively, primarily driven by the commissions and underwriting revenue earned by Dominari Securities and Manager. During the nine months ended September 30, 2024 and 2023, we incurred a loss from operations of approximately $8.7 million and $16.0 million, respectively.
During the nine months ended September 30, 2024 and 2023, other expenses was approximately $7.0 million and $17,000, respectively.
The activity described above for the nine months ended September 30, 2024 and 2023, is primarily a result of the Company’s entrance into the financial services industry, overall volatility in investment valuations due to macroeconomic uncertainty impacting marketable securities and the change in carrying value of long-term equity investments. Specifically:
| i. | Marketable securities - we recognized a realized gain of approximately $3.8 million for the nine months ended September 30, 2024. We recognized an unrealized loss of $3.4 million and dividend income of $0.4 million for the nine months ended September 30, 2024. The increase of approximately $5.0 million in realized gains over the nine months ended September 2023 was driven by both market improvement and an increase in sale activity resulting in more realized gains. |
| ii. | Notes receivable - the changes over the nine months ended September 30, 2024 and 2023 which resulted in an increase in net realized and unrealized loss of approximately $1.9 million on the adjusted fair value of our notes receivable during the nine months ended September 30, 2024. This was largely driven by the adjustment to the fair value from the direct write off of the note receivable from Raefan Industries LLC. |
| iii. | Long-term equity investments -the changes over the nine months ended September 30, 2024 and 2023 are a function of observable market transactions which resulted in a decrease of approximately $6.4 million on the adjusted carrying value of the investments for the nine months ended September 30, 2024 and approximately $6.0 million greater than that of the nine months ended September 30, 2023. |
21
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 $22.3 million as of September 30, 2024. 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 nine months ended September 30, 2024 and 2023, net cash used in operations was approximately $11.9 million and $17.5 million, respectively. The cash used in operating activities for the nine months ended September 30, 2024, is primarily attributable to a net loss of approximately $15.8 million, $3.8 million realized gain on marketable securities and changes in operating assets and liabilities of $5.7 million, of which $6.5 million is clearing broker deposits, partially offset by approximately $6.4 million of change in carrying value of long-term equity investment, $3.4 million unrealized loss on marketable securities and $2 million unrealized and realized loss on note receivable. The cash used in operating activities for the nine months ended September 30, 2023, is primarily attributable to a net loss of approximately $16 million, approximately $1.2 million of realized loss on marketable securities and changes in operating assets and liabilities of $4.4 million, partially offset by $1.4 million stock-based compensation expense and approximately $0.9 million in unrealized gain on marketable securities.
Cash Flows from Investing Activities
For the nine months ended September 30, 2024 and 2023, net cash provided by (used in) investing activities was approximately $12.5 million and $(10.4) million, respectively. The cash provided by investing activities for the nine months ended September 30, 2024, primarily resulted from our sales of marketable securities of approximately $14.8 million and the sale of a short-term investments of $3.5 million, partially offset by purchase of marketable securities of $4.0 million and funds to employee loans of $2.4 million. 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 of approximately $1.1 million, partially offset by our sale of marketable securities approximately of $24.6 million. The Company also collected approximately $0.8 million in principal related to its short-term notes.
Cash Flows from Financing Activities
For the nine months ended September 30, 2024, there are no 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 purchase of treasury stock of approximately $0.9 million.
22
Item 3. Quantitative and Qualitative Disclosures About Market Risk.
Not Applicable.
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.
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, as of September 30, 2024, our principal executive officer and principal financial officer concluded that our disclosure controls and procedures were not effective due to the material weakness in our internal controls.
A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there is a reasonably possibility that a material misstatement of the Company’s annual or interim financial statements will not be prevented or detected on a timely basis.
Material Weaknesses in Internal Controls
The Company’s management has concluded that our controls around the accounting for certain notes receivable accounted for at fair value and certain long-term investments accounted for at fair value or with the equity security measurement alternative was not effectively designed or maintained, and therefore initially were not accounted for correctly. As a result, our management performed additional analysis as deemed necessary to ensure that our financial statements were prepared in accordance with accounting principles generally accepted in the United States of America. Management understands that the accounting standards applicable to our financial statements are complex and will seek to enhance internal controls over financial reporting and engage experienced third-party professionals with whom management can consult with respect to accounting matters and remediate this material weakness.
Changes in Internal Control Over Financial Reporting
In response to the material weakness identified above, the Company has implemented changes to our internal control over financial reporting (as defined in Rule 13a-15(f) and 15d-15(f) under the Exchange Act) as of the quarter ended September 30, 2024. The Company is actively increasing the quantity and quality of our internal accounting personnel and has engaged external valuation specialists and accounting advisors with financial reporting expertise, so as to provide the Company with resources sufficient to properly design and implement internal controls which will prevent and detect material misstatements to the financial statements in a timely manner. In addition, the Company has implemented a multi-layered process to establish and review the valuation of long-term investments with such outside specialists discussed above.
As a result of these changes, the Company believes the material weakness described above will be remediated. However, due to the nature of the material weakness, it will not be considered remediated until the controls have been applied for a sufficient amount of time and management has performed testing of the controls to conclude that the controls are operating effectively.
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
Many aspects of the Company’s business involve substantial risks of liability. In the ordinary course of business, the Company may be named as defendant or co-defendant in various legal actions, including arbitrations, class actions and other litigation, which could create substantial exposure and periodic expenses. The Company may also be involved, from time to time, in other reviews, investigations and proceedings (both formal and informal) by governmental and self-regulatory agencies regarding the Company’s business, which may result in expenses, adverse judgments, settlements, fines, penalties, injunctions or other relief. In the past in the ordinary course of business, the Company has actively pursued legal remedies to enforce its intellectual property rights and to stop unauthorized use of its technology.
In March 2024, the Company received a notice of petition of a filed action seeking relief related to the hiring in March 2024 of new registered representatives from the representatives’ former employer. This notice was filed against the Company’s subsidiary Dominari Securities. The Company does not agree with the claim of the plaintiff and will defend itself accordingly. While the Company intends to defend itself vigorously from this claim, it is unable to predict the outcome of such legal proceeding. Any potential loss as a result of this legal proceeding cannot be reasonably estimated. As a result, the Company has not recorded a loss contingency for the aforementioned claim.
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 April 1, 2024. 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.
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Item 6. Exhibits
| * | Filed herewith. |
| ** | Furnished 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 8, 2024 | By: | /s/ Anthony Hayes |
| Anthony Hayes | ||
| Chief Executive Officer | ||
| (Principal Executive Officer, Principal Financial Officer) | ||
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