Notes to Condensed Consolidated Financial Statements
(Unaudited)
Note
1. Organization and Description of Business and Recent Developments
Organization
and Description of Business
Dominari
Holdings Inc. (the “Company”), formerly AIkido Pharma, Inc., was founded in 1967 as Spherix Incorporated. Since 2017, the
Company has operated as a biotechnology company with a diverse portfolio of small-molecule anticancer and antiviral therapeutics and
their related patent technology. In an effort to enhance shareholder value, in June of 2022, the Company formed a wholly owned financial
services subsidiary, Dominari Financial Inc. (“Dominari”), with the intent of shifting the Company’s primary operating
focus away from biotechnology to the fintech and financial services industries. Through Dominari, the Company acquired Dominari Securities
LLC (Dominari Securities), an introducing broker-dealer, registered with the Financial Industry Regulatory Authority (“FINRA”)
and an investment adviser registered with the Securities and Exchange Commission (“SEC”). Dominari Securities provides investment
advisory services and annuity and insurance products of certain insurance carriers as an insurance agency through independent and affiliated
brokers.
Additionally, AIkido Labs, LLC (“Aikido
Labs”), another wholly owned subsidiary of the Company, has historically explored opportunities in high growth industries.
To date, Aikido Labs has made equity investments in Anduril Industries, Inc, Databricks, Inc., Discord, Inc., Epic Games, Inc., Payward,
Inc. dba Kraken, Space Exploration Technologies Corp. dba SpaceX, Tevva Motors Ltd., Thrasio, LLC, and Yanka Industries, Inc. dba Masterclass.
Finally, the Company is in the process of winding down its historical pipeline of biotechnology assets consisting of patented technologies
from leading universities and researchers, including prospective treatments for pancreatic cancer, acute myeloid leukemia, and acute lymphoblastic
leukemia.
Reverse
Stock Split
On
June 7, 2022, the Company effected a seventeen-for-one (17-for-1) reverse stock split of its class of common stock (the “Reverse
Stock Split”). The Reverse Stock Split, which was approved by stockholders at an annual stockholder meeting on May 20, 2022, was
consummated pursuant to a Certificate of Amendment filed with the Secretary of State of Delaware on June 2, 2022. The Reverse Stock Split
was effective on June 7, 2022. All references to common stock, convertible preferred stock, warrants to purchase common stock, options
to purchase common stock, restricted stock units, restricted stock awards, share data, per share data and related information contained
in these unaudited condensed consolidated financial statements have been retrospectively adjusted to reflect the effect of the Reverse
Stock Split for all periods presented. Payment for fractional shares resulting from the reverse stock split amounted to $0.03 million.
Note
2. Liquidity and Capital Resources
The
Company continues to incur ongoing administrative and other expenses, including public company expenses, in excess of corresponding (non-financing
related) revenue. While the Company continues to implement its business strategy, it intends to finance its activities through managing
current cash on hand from the Company’s past equity offerings.
Based
upon projected cash flow requirements, the Company has adequate cash to fund its operations for at least the next twelve months from
the date of the issuance of these unaudited condensed consolidated financial statements.
DOMINARI HOLDINGS INC.
Notes to Condensed Consolidated Financial Statements
(Unaudited)
Note
3. Summary of Significant Accounting Policies
There
have been no material changes in the Company’s significant accounting policies from those previously disclosed in the 2022 Annual
Report other than those discussed below.
Basis
of Presentation and Principles of Consolidation
The
accompanying unaudited condensed consolidated financial statements have been prepared in conformity with U.S. generally accepted accounting
principles (“U.S. GAAP”), and in conformity with the rules and regulations of the SEC. In the opinion of management, these
financial statements contain all adjustments, consisting of only normal recurring adjustments, necessary for a fair statement of the
results of the interim periods presented. The condensed balance sheet at December 31, 2022, was derived from audited annual financial
statements but does not contain all of the footnote disclosures from the annual financial statements. Accordingly, these financial statements
should be read in conjunction with the audited consolidated financial statements and notes thereto included in the Company’s Annual
Report on Form 10-K for the year ended December 31, 2022.
The
Company’s policy is to consolidate all entities that it controls by ownership of a majority of the membership interest or outstanding
voting stock. The accompanying unaudited condensed consolidated financial statements include the accounts of the Company and its wholly
owned subsidiaries, Aikido Labs, Dominari, and Dominari Securities. All significant intercompany balances and transactions have been
eliminated in consolidation.
Results
for interim periods are not necessarily indicative of results to be expected for a full year or any future period.
Use
of Estimates
The
accompanying unaudited condensed consolidated financial statements have been prepared in conformity with U.S. GAAP. This requires management
to make estimates and assumptions that affect certain reported amounts of assets and liabilities and disclosures of contingent assets
and liabilities at the date of the unaudited condensed consolidated financial statements, and the reported amounts of revenue and expenses
during the period. The Company’s significant estimates and assumptions include stock-based compensation, the valuation of investments,
the valuation of notes receivable and the valuation allowance related to the Company’s deferred tax assets. Certain of the Company’s
estimates could be affected by external conditions, including those unique to the Company and general economic conditions. It is reasonably
possible that these external factors could have an effect on the Company’s estimates and could cause actual results to differ from
those estimates and assumptions.
Deposits
with clearing broker
Deposits with clearing broker consisted of approximately
$3.4 million held in money market funds and liquid insured deposits and a $0.1 million good faith deposit maintained by the Company with
its clearing broker. These amounts are recorded as deposits with clearing broker within the unaudited condensed consolidated balance sheet
as of March 31, 2023.
DOMINARI HOLDINGS INC.
Notes to Condensed Consolidated Financial Statements
(Unaudited)
Leases
The
Company accounts for its leases under ASC 842, Leases (“ASC 842”). Under this guidance, arrangements meeting
the definition of a lease are classified as operating or financing leases and are recorded on the unaudited condensed consolidated balance
sheet as both a right-of-use asset and lease liability, calculated by discounting fixed lease payments over the lease term at the rate
implicit in the lease or the Company’s incremental borrowing rate. Lease liabilities are increased by interest and reduced by payments
each period, and the right-of-use asset is amortized over the lease term. For operating leases, interest on the lease liability and the
amortization of the right-of-use asset result in straight-line rent expense over the lease term. For finance leases, interest on the
lease liability and the amortization of the right-of-use asset results in front-loaded expense over the lease term. Variable lease expenses
are recorded when incurred (see Note 10 - Leases).
Recently
adopted accounting standards
In
October 2021, the FASB issued ASU 2021-08, Business Combinations (Topic 805) Accounting for Contract Assets and Contract Liabilities
from Contracts with Customers (“ASU 2021-08”). This update amends Topic 805 to add contract assets and contract
liabilities to the list of exceptions to the recognition and measurement principles that apply to business combinations and to require
that an entity (acquirer) recognize and measure contract assets and contract liabilities in accordance with ASC 606. The Company
adopted ASU 2021-08 on January 1, 2023. There was no material impact to the Company’s unaudited condensed consolidated financial
statements from the implementation of ASU 2021-08.
Effect
of new accounting pronouncements not yet adopted
In
June 2022, the FASB issued ASU 2022-03, Fair Value Measurement of Equity Securities Subject to Contractual Sale Restrictions,
to clarify that a contractual restriction on the sale of an equity security is not considered part of the unit of account of the equity
security and, therefore, is not considered in measuring the fair value of the equity security. ASU 2022-03 also clarifies
that an entity cannot recognize and measure a contractual sale restriction as a separate unit of account. The amendments in ASU 2022-03 may
be early adopted and are effective on a prospective basis for fiscal years beginning after December 15, 2023, and interim periods within
those fiscal years. The Company is currently evaluating the impact of the amendments on the Company’s consolidated financial statements
and whether it will early adopt the amendments in ASU 2022-03.
In
March 2023, the FASB issued ASU 2023-01, Leases, to require entities to classify and account for leases with related
parties on the basis of legally enforceable terms and conditions of the arrangement. The amendments are effective in periods beginning
after December 15, 2023, including interim periods within those fiscal years. The Company is currently evaluating the provisions of the
amendments and the impact on its future consolidated financial statements and whether it will early adopt the amendments in ASU 2023-01.
Effect
of new accounting pronouncements to be adopted in future periods
The Company
reviewed all other recently issued accounting pronouncements and concluded that they were either not applicable or not expected to have
a significant impact on the unaudited condensed consolidated financial statements.
DOMINARI HOLDINGS INC.
Notes to Condensed Consolidated Financial Statements
(Unaudited)
Note
4. FPS Acquisition
On
September 9, 2022, Dominari entered into a membership interest purchase agreement, as amended and restated on March 27, 2023 (the “FPS
Purchase Agreement”) with Fieldpoint Private Bank & Trust (“Seller”), a Connecticut bank, for the purchase of its
wholly owned subsidiary, Fieldpoint Private Securities, LLC, a Connecticut limited liability company (“FPS”), that is a broker-dealer
registered with FINRA and an investment adviser registered with the SEC (the “FPS Acquisition”). Pursuant to the terms
of the FPS Purchase Agreement, Dominari purchased from the Seller 100% of the membership interests in FPS (the “Membership
Interests”). FPS’s registered broker-dealer and investment adviser businesses was renamed and will operate as Dominari Securities,
a wholly owned subsidiary of Dominari. The FPS Purchase Agreement provides for Dominari’s acquisition of FPS’s Membership
Interests in two closings, the first of which occurred on October 4, 2022 (the “Initial Closing”), at which Dominari
paid to the Seller $2.0 million in consideration for a transfer by the Seller to Dominari of 20% of the FPS Membership Interests.
Following the Initial Closing, FPS filed a continuing membership application requesting approval for a change of ownership, control,
or business operations with FINRA in accordance with FINRA Rule 1017 (the “Rule 1017 Application”). The Rule 1017 Application
was approved by FINRA on March 20, 2023. The second closing (the “Second Closing”) occurred on March 27, 2023. Dominari paid
to the Seller an additional approximate $1.6 million consideration for a transfer by the Seller to Dominari of the remaining 80%
of the Membership Interests.
Consideration
Transferred
The FPS Acquisition was accounted for a business
combination under ASC 805.
Under
the terms of the FPS Purchase Agreement and subsequent Amendments and Side Letters, 100% of the membership interest was acquired for
cash consideration of approximately $3.4 million, which reflected the fair value of net assets acquired, plus a $1 purchase price. At
March 31, 2023, Dominari had not finalized the purchase accounting related to the fair value of assets acquired in the FPS Acquisition.
Pursuant to the Initial Closing and Second Closing, Dominari had wired a total of approximately $3.6 million in cash to the Seller. The
purchase price allocation identified net assets of approximately $3.4 million, resulting in a receivable due from the Seller for approximately
$0.2 million. The receivable is not included within the consideration transferred as part of the FPS Acquisition but is included within
prepaid expenses and other assets within the unaudited condensed consolidated balance sheet as of March 31, 2023.
Under
the acquisition method of accounting, the assets acquired, and liabilities assumed of FPS were recorded as of the acquisition date, at
their respective fair values, and consolidated with those of the Company. Acquisition-related costs are not included as a component of
consideration transferred but are expensed in the periods in which costs are incurred. The Company incurred approximately $0.3 million
of transaction costs associated with the FPS Acquisition. The transaction costs are included in general and administrative expenses in
the unaudited condensed consolidated statement of operations.
DOMINARI HOLDINGS INC.
Notes to Condensed Consolidated Financial Statements
(Unaudited)
Fair
Value of Net Assets Acquired
The
Company is in the process of finalizing the purchase price allocation as of March 31, 2023. The following table summarizes
the fair values of the assets acquired and liabilities assumed of FPS at the date of acquisition:
| | |
March 27, | |
| | |
2023 | |
| | |
(Unaudited) | |
| ASSETS | |
| |
| Cash and cash equivalents | |
$ | 92 | |
| Deposits with Clearing Broker-Dealer | |
| 3,550 | |
| Other receivables | |
| 53 | |
| Prepaid and other current assets | |
| 89 | |
| Total assets acquired | |
| 3,784 | |
| | |
| | |
| Liabilities | |
| | |
| Accrued expenses | |
$ | 273 | |
| Accrued commissions | |
| 25 | |
| Wealth management liabilities | |
| 62 | |
| Total liabilities assumed | |
| 360 | |
| | |
| | |
| Total net assets of FPS Acquisition | |
| 3,424 | |
Dominari
Securities reported a net loss of approximately $0.7 million for the period ended March 31, 2023. Revenue for the period ended March
31, 2023, was not material. The net loss was a result of professional service costs incurred of approximately $0.6 million, which included
transaction costs of approximately $0.3 million. The approximate $0.6 million of professional service costs is included in the general
and administrative expenses in the unaudited condensed consolidated statement of operations.
Proforma
disclosures were omitted for this acquisition as it does not have a significant impact on the Company’s financial results.
Note
5. Investments in Marketable Securities
The
realized gain or loss, unrealized gain or loss, and dividend income related to marketable securities for the three months ended March
31, 2023 and 2022, which are recorded as a component of gains and (losses) on marketable securities on the unaudited condensed consolidated
statements of operations, are as follows ($ in thousands):
| | |
Three Months Ended
March 31, | |
| | |
2023 | | |
2022 | |
| Realized (loss) gain | |
$ | (56 | ) | |
$ | (224 | ) |
| Unrealized loss | |
| (130 | ) | |
| (333 | ) |
| Dividend income | |
| 119 | | |
| 60 | |
| Total | |
$ | (65 | ) | |
$ | (497 | ) |
DOMINARI HOLDINGS INC.
Notes to Condensed Consolidated Financial Statements
(Unaudited)
Note 6. Short-term investments
The following table presents the Company’s
short-term investments as of March 31, 2023, and December 31, 2022 ($ in thousands):
| | |
March 31,
2023 | | |
December 31,
2022 | |
| Investment in Vicinity Motor Corp. | |
| 13 | | |
| 13 | |
| Total | |
| 13 | | |
| 13 | |
There was no change in the fair value of the
short-term investments for the three months ended March 31, 2023.
The following table provides quantitative information
regarding Level 3 fair value measurements inputs at their measurement dates:
| | |
March 31,
2023 | | |
December 31,
2022 | |
| Option term (in years) | |
| 1.6 | | |
| 1.8 | |
| Volatility | |
| 76.90 | % | |
| 76.90 | % |
| Risk-free interest rate | |
| 4.47 | % | |
| 4.47 | % |
| Expected dividends | |
| 0.00 | % | |
| 0.00 | % |
| Stock price | |
$ | 0.96 | | |
$ | 0.96 | |
Note 7. Long-Term Investments
The following table presents the Company’s
other investments as of March 31, 2023, and December 31, 2022 ($ in thousands):
| | |
March 31,
2023 | | |
December 31,
2022 | |
| Investment in Kerna Health Inc | |
$ | 4,940 | | |
$ | 4,940 | |
| Investment in Kaya Now | |
| - | | |
| - | |
| Investment in Tevva Motors | |
| 2,794 | | |
| 2,794 | |
| Investment in ASP Isotopes | |
| - | | |
| - | |
| Investment in AerocarveUS Corporation | |
| 1,000 | | |
| 1,000 | |
| Investment in Qxpress | |
| 1,000 | | |
| 1,000 | |
| Investment in Masterclass | |
| 170 | | |
| 170 | |
| Investment in Kraken | |
| 597 | | |
| 597 | |
| Investment in Epic Games | |
| 3,500 | | |
| 3,500 | |
| Investment in Tesspay | |
| 2,500 | | |
| 2,500 | |
| Investment in SpaceX | |
| 3,674 | | |
| 3,674 | |
| Investment in Databricks | |
| 1,200 | | |
| 1,200 | |
| Investment in Discord | |
| 476 | | |
| 476 | |
| Investment in Thrasio | |
| 300 | | |
| 300 | |
| Investment in Automation Anywhere | |
| 476 | | |
| 476 | |
| Investment in Anduril | |
| 476 | | |
| 476 | |
| Total | |
$ | 23,103 | | |
$ | 23,103 | |
There was no change in the value of the long-term
investments for the three months ended March 31, 2023.
DOMINARI HOLDINGS INC.
Notes to Condensed Consolidated Financial Statements
(Unaudited)
Investment in Kerna Health Inc
On September 15, 2021, the Company entered into
a securities purchase agreement (the “Kerna Securities Purchase Agreement”) with Kerna Health Inc., (“Kerna”).
Under the Kerna Securities Purchase Agreement, the Company agreed to purchase 1,333,334 shares of common stock of Kerna for
$1.0 million. Kerna, a private company, raised capital during the fourth quarter of 2021, increasing its share price value to $2.85 per
share. Therefore, the Company recorded a $2.8 million unrealized gain on this investment during the fourth quarter of 2021. The investment
in Kerna was valued at $3.8 million as of December 31, 2021. In May 2022, the Company purchased additional 400,000 shares
of common stock of Kerna Health Inc, (“Kerna”) for approximately $1.1 million. The investment in Kerna was valued at
$4.9 million as of March 31, 2023.
Investment in Kaya Holding Corp. (a.k.a
Kaya Now Inc.)
On September 29, 2021, the Company entered into
a securities purchase agreement (the “Kaya Securities Purchase Agreement”) with Kaya Holding Corp., (“Kaya”).
Under the Kaya Securities Purchase Agreement, the Company agreed to purchase 8,325,000 shares of common stock of Kaya for approximately
$0.7 million. Kaya, a private company, raised capital during the fourth quarter of 2021, increasing its share price value to $0.20 per
share. Therefore, the Company recorded approximately $1.0 million in unrealized gain on this investment during the fourth quarter
of 2021. The investment in Kaya was valued at approximately $1.7 million as of December 31, 2021. On March 2, 2022, the Company purchased
additional 3,375,000 shares of common stock of Kaya Now Inc., aka Kaya Holding Corp., (“Kaya”) for approximately
$0.6 million.
On July 21, 2022, in consideration for extending
the maturity date of the Kaya Now Promissory Note (See Note 8 – Notes Receivable) to February 1, 2023, Kaya agreed to
issue to the Company 1,000,000 shares at $0.2 per share of common stock.
During the fourth quarter of 2022, the Company
identified indicators of impairment for the Kaya investment as a result of adverse changes in Kaya’s business operations, including
liquidity concerns. As a result, the Company recorded an impairment charge of approximately $3.1 million in the fourth quarter of
2022. The impairment charge represents an unrealized impairment loss of approximately $2.5 million in stock, $0.5 million related
to the promissory note (see Note 8 – Notes Receivable), and $50,000 in Kaya warrants (see Note 9 – Fair
Value of Financial Assets and Liabilities). The investment in Kaya was valued at $0 as of March 31, 2023.
Investment in Tevva Motors Ltd.
On September 22, 2021, the Company entered into
a securities purchase agreement (the “Tevva Motors Subscription Agreement”) with Big Sky Opportunities Fund, LLC, who handled
the offering for Tevva Motors. Under the Tevva Motors Subscription Agreement, the Company agreed to purchase 29,004 interests
of Tevva Motors for approximately $1.0 million. Subsequently, on September 30, 2021, the Company entered into a second securities
purchase agreement with Big Sky Opportunities Fund, LLC to purchase an additional 29,004 interests of Tevva Motors for approximately
$1.0 million. The investment in Tevva was valued at approximately $2.0 million as of December 31, 2021. Tevva Motors (“Tevva”),
a private company, raised capital during the first quarter of 2022, increasing its share price value to $58.0 per share. Subsequent
to the first quarter raise, Tevva had an additional fund raise in the second quarter at a lower valuation of $48.16 per share. Therefore,
the Company recorded a first quarter of 2022 unrealized gain of approximately $1.4 million offset by a second quarter of 2022 unrealized
loss of approximately $0.6 million. The investment in Tevva was valued at approximately $2.8 million as of as of March 31, 2023.
DOMINARI HOLDINGS INC.
Notes to Condensed Consolidated Financial Statements
(Unaudited)
Investment in ASP Isotopes Inc.
On November 18, 2021, the Company entered into
a securities purchase agreement (the “ASP Securities Purchase Agreement”) with ASP Isotopes Inc., (“ASP Isotopes”).
Under the ASP Securities Purchase Agreement, the Company agreed to purchase 500,000 shares of common stock of ASP Isotopes for
$1.0 million. The investment in ASP Isotopes was valued at approximately $1.0 million as of December 31, 2021. In August 2022,
the Company purchased additional 100,000 shares of common stock of ASP Isotopes Inc. (“ASP”) for $0.3 million.
In November 2022, the Company transferred all 600,000 shares of ASP Isotopes common stock, approximately $1.4 million,
inclusive of a $0.1 million unrealized gain, to the marketable securities account.
Investment in AerocarveUS Corporation
On November 22, 2021, the Company entered into
a securities purchase agreement (the “AerocarveUS Securities Purchase Agreement”) with AerocarveUS Corporation, (“AerocarveUS”).
Under the AerocarveUS Securities Purchase Agreement, the Company agreed to purchase 250,000 shares of common stock of AerocarveUS
for $1.0 million. The investment in AerocarveUS was valued at approximately $1.0 million as of December 31, 2021. The investment
in AerocarveUS Corporation was valued at $1.0 million as of March 31, 2023.
Investment in Qxpress
On January 27, 2022, the Company entered into
a securities purchase agreement (the “Qxpress Securities Purchase Agreement”) with Qxpress. Under the Qxpress Securities Purchase
Agreement, the Company agreed to purchase 46,780 shares of common stock of Qxpress for $1.0 million. The investment in
Qxpress was valued at $1.0 million as of March 31, 2023.
Investment in Masterclass (a.k.a. Yanka
Industries Inc.)
In March of 2022, the Company entered into a securities
purchase agreement (the “Masterclass Securities Purchase Agreement”) with Masterclass. Under the Masterclass Securities Purchase
Agreement, the Company agreed to purchase 4,841 shares of common stock of Masterclass for approximately $0.2 million. Although
there was also a private fund raise in the second quarter, the per share amount approximated the fair value of the Company’s investment
in Masterclass, resulting in no unrealized gain or loss. The investment in Masterclass was valued at approximately $0.2 million as
of March 31, 2023.
Investment in Kraken (a.k.a. Payward, Inc.)
In March of 2022, the Company entered into a securities
purchase agreement (the “Kraken Securities Purchase Agreement”) with Kraken. Under the Kraken Securities Purchase Agreement,
the Company agreed to purchase a total of 8,409 shares of common stock of Kraken for approximately $0.5 million. In August
2022, the Company entered into a common stock transfer agreement with a private seller to purchase 3,723 shares of Kraken for
approximately $0.1 million. The investment in Kraken was valued at approximately $0.6 million as of March 31, 2023.
Investment in Epic Games, Inc.
On March 22, 2022, the Company entered into a
securities purchase agreement (the “Epic Games Securities Purchase Agreement”) with Epic Games. Under the Epic Games Securities
Purchase Agreement, the Company agreed to purchase an aggregate of 901 shares of common stock of Epic Games for a total $1.5 million.
In April 2022, the Company invested an additional $2 million for the purchase of additional shares of common stock of Epic Games.
Although there was also a fund raise in April, the per share amount approximated the fair value of the Company’s investment in Epic
Games, resulting in no unrealized gain or loss. The investment in Epic Games was valued at $3.5 million as of March 31, 2023.
DOMINARI HOLDINGS INC.
Notes to Condensed Consolidated Financial Statements
(Unaudited)
Investment in Tesspay Inc.
On March 23, 2022, the Company entered into a
securities purchase agreement (the “Tesspay Securities Purchase Agreement”) with Tesspay. Under the Tesspay Securities Purchase
Agreement, the Company agreed to purchase 1,000,000 shares of common stock of Tesspay for approximately $0.2 million. The
Company also invested an additional $1.0 million for pre-IPO. Tesspay, a private company, raised capital during the first quarter
of 2022, increasing its share price value to $0.25 per share. Therefore, the Company recorded $10,000 in unrealized gain on
this investment during the first quarter of 2022. Subsequent to the first quarter of 2022 raise, Tesspay had an additional fund raise
in the fourth quarter of 2022 at $0.50 per share, resulting in an additional unrealized gain of approximately $1.3 million.
The investment in Tesspay was valued at approximately $2.5 million as of March 31, 2023.
Investment in SpaceX (a.k.a. Space Exploration
Technologies Corp.)
On March 30, 2022, the Company entered into a
securities purchase agreement (the “SpaceX Securities Purchase Agreement”) with SpaceX, under which the company agreed to
purchase shares of common stock of SpaceX for $1.5 million. In April 2022, the Company invested an additional $2.0 million for
the purchase of additional shares of common stock of SpaceX. The Company identified a private fund raise on January 3, 2023. Given the
proximity to the December 31, 2022 valuation date, the value of the fund raise was used as a proxy for the fair valuation of the Company’s
investment in SpaceX as of December 31, 2022. The per share price of SpaceX’s recent fund raise resulted in an unrealized gain of
approximately $0.6 million. The investment in SpaceX was valued at approximately $3.7 million as of March 31, 2023.
Investment in Databricks, Inc.
On March 25, 2022, the Company entered into a
securities purchase agreement (the “Databricks Securities Purchase Agreement”) with Databricks. Under the Databricks Securities
Purchase Agreement, the Company agreed to purchase an aggregate of 3,830 shares of common stock of Databricks for a total $1.2 million.
The investment in Databricks was valued at $1.2 million as of March 31, 2023.
Investment in Discord Inc.
In May 2022, the Company entered into a securities
purchase agreement (the “Discord Securities Purchase Agreement”) with privately-held company Discord, Inc., a social communications
platform provider that is particularly popular with gamers, as one of the Company’s pursuits of potentially high growth interests
with near term monetization events. Under the Discord Securities Purchase Agreement, the Company agreed to purchase a total of 618 shares
of common stock of Discord for approximately $0.5 million. The investment in Discord was valued at $0.5 million as of March 31, 2023.
Investment in Thrasio Holdings, Inc.
In April 2022, the Company entered into a securities
purchase agreement (the “Thrasio Securities Purchase Agreement”) with privately-held company Thrasio, LLC, an aggregator of
private brands of top Amazon businesses and direct-to-consumer brands, as one of the Company’s pursuits of potentially high growth
interests with near term monetization events. Under the Thrasio Securities Purchase Agreement, the Company agreed to purchase a total
of 20,000 shares of common stock of Thrasio for $0.3 million. The investment in Thrasio was valued at $0.3 million
as of March 31, 2023.
DOMINARI HOLDINGS INC.
Notes to Condensed Consolidated Financial Statements
(Unaudited)
Investment in Automation Anywhere, Inc.
In April 2022, the Company entered into a securities
purchase agreement (the “Automation Anywhere Securities Purchase Agreement”) with privately-held company Automation Anywhere,
Inc., a provider of business automation solutions, as one of the Company’s pursuits of potentially high growth interests with near
term monetization events. Under the Automation Anywhere Securities Purchase Agreement, the Company agreed to purchase a total of 18,490 shares
of common stock of Automation Anywhere for approximately $0.5 million. The investment in Automation Anywhere was valued at $0.5 million
as of March 31, 2023.
Investment in Anduril Industries, Inc.
In April 2022, the Company entered into a securities
purchase agreement (the “Anduril Securities Purchase Agreement”) with privately-held company Anduril Industries, Inc., a defense
products company, as one of the Company’s pursuits of potentially high growth interests with near term monetization events. Under
the Anduril Securities Purchase Agreement, the Company agreed to purchase a total of 14,880 shares of common stock of Anduril
for approximately $0.5 million. The investment in Anduril was valued at $0.5 million as of March 31, 2023.
Note 8. Notes Receivable
The following table presents the Company’s
notes receivable as of March 31, 2023 ($ in thousands):
| | |
Maturity Date | | |
Stated Interest
Rate | | |
Principal
Amount | | |
Interest
Receivable | | |
Fair Value | |
| Notes receivable, at fair value | |
| | |
| | |
| | |
| | |
| |
| Convergent convertible note, current
portion | |
| 01/29/2023 | | |
| 8% | | |
$ | 1,000 | | |
$ | 277 | | |
$ | 1,277 | |
| Convergent convertible note, non-current portion | |
| 01/29/2023 | | |
| 8% | | |
$ | 750 | | |
$ | - | | |
$ | 750 | |
| Raefan Industries LLC Investment | |
| 6/30/2023 | | |
| 8% | | |
$ | 4,730 | | |
$ | 529 | | |
$ | 5,259 | |
| American Innovative Robotics Investment | |
| 04/01/2027 | | |
| 8% | | |
$ | 1,100 | | |
$ | - | | |
$ | 1,100 | |
| | |
| | | |
| | | |
| | | |
| | | |
| | |
| Notes receivable, at fair value - current portion | |
| | | |
| | | |
| | | |
| | | |
$ | 6,536 | |
| | |
| | | |
| | | |
| | | |
| | | |
| | |
| Notes receivable, at fair value - non-current portion | |
| | | |
| | | |
| | | |
| | | |
$ | 1,850 | |
Convergent Therapeutics, Inc. Investment
The Company’s 8% convertible promissory
note (“Convergent Convertible Note”) issued by Convergent Therapeutics, Inc. (“Convergent”) in the principal amount
of approximately $1.8 million pursuant to a Note Purchase Agreement matured on January 29, 2023. Upon maturity, Convergent entered
into a contractual repayment schedule with the Company. Pursuant to the schedule, Convergent will make a total of eight payments in the
amount of $250 thousand and accrued interest, every three months until fully satisfied.
The principal balance of the Convergent Convertible
Note is approximately $1.8 million as of March 31, 2023. The Company recorded principal repayment of $0.25 million and interest income
of approximately $0.04 million on the Convergent Convertible Note as of March 31, 2023.
DOMINARI HOLDINGS INC.
Notes to Condensed Consolidated Financial Statements
(Unaudited)
Raefan Industries LLC Investment
The Company recorded an interest income receivable
of approximately $0.5 million on the Raefan Industries Promissory Note as of March 31, 2023
American Innovative Robotics, LLC Investment
The Company recorded interest income of approximately
$22,000 on the Robotics Promissory Note for the three months ended March 31, 2023.
Kaya Now Inc. Investment
During the fourth quarter of 2022, the Company
identified indicators of impairment for the Kaya investment as a result of adverse changes in Kaya’s business operations, including
liquidity concerns. As a result, the Company recorded an impairment charge of $0.5 million in the fourth quarter of 2022. The impairment
charge represents an impairment loss of the total investment held as a promissory note resulting in a $0 balance for the Kaya Now
Promissory Note as of March 31, 2023.
The Company received and recorded interest income
related to the Kaya Now Promissory Note of approximately $10,000 for the three months ended March 31, 2023.
Note 9. Fair Value of Financial Assets and
Liabilities
Financial instruments, including cash and cash
equivalents, accounts payable and accrued liabilities are carried at cost, which management believes approximates fair value due to the
short-term nature of these instruments. The Company measures the fair value of financial assets and liabilities based on the exchange
price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market
for the asset or liability in an orderly transaction between market participants on the measurement date. The Company maximizes the use
of observable inputs and minimizes the use of unobservable inputs when measuring fair value.
The Company uses three levels of inputs that may
be used to measure fair value:
Level 1 - quoted prices in active markets
for identical assets or liabilities
Level 2 - quoted prices for similar
assets and liabilities in active markets or inputs that are observable
Level 3 - inputs that are unobservable
(for example, cash flow modeling inputs based on assumptions)
Observable inputs are based on market data obtained
from independent sources, while unobservable inputs are based on the Company’s market assumptions. Unobservable inputs require significant
management judgment or estimation. In some cases, the inputs used to measure an asset or liability may fall into different levels of the
fair value hierarchy. In those instances, the fair value measurement is required to be classified using the lowest level of input that
is significant to the fair value measurement. Such determination requires significant management judgment.
DOMINARI HOLDINGS INC.
Notes to Condensed Consolidated Financial Statements
(Unaudited)
The following table presents the Company’s
assets and liabilities that are measured at fair value as of March 31, 2023, and December 31, 2022 ($ in thousands):
| | |
Fair value measured as of March 31, 2023 | |
| | |
Total at
March 31, | | |
Quoted
prices in
active
markets | | |
Significant other
observable inputs | | |
Significant
unobservable
inputs | |
| | |
2023 | | |
(Level 1) | | |
(Level 2) | | |
(Level 3) | |
| Assets | |
| | |
| | |
| | |
| |
| Marketable securities: | |
| | |
| | |
| | |
| |
| Equities | |
$ | 24,394 | | |
$ | 24,394 | | |
$ | - | | |
$ | - | |
| Total marketable securities | |
$ | 24,394 | | |
$ | 24,394 | | |
$ | - | | |
$ | - | |
| Short-term investment | |
$ | 13 | | |
$ | - | | |
$ | - | | |
$ | 13 | |
| Notes receivable, at fair value - current portion | |
$ | 6,536 | | |
$ | - | | |
$ | - | | |
$ | 6,536 | |
| Notes receivable, at fair value - non-current portion | |
$ | 1,850 | | |
$ | - | | |
$ | - | | |
$ | 1,850 | |
| | |
Fair value measured as of December 31, 2022 | |
| | |
Total at
December 31, | | |
Quoted
prices in
active
markets | | |
Significant other
observable inputs | | |
Significant
unobservable
inputs | |
| | |
2022 | | |
(Level 1) | | |
(Level 2) | | |
(Level 3) | |
| Assets | |
| | |
| | |
| | |
| |
| Marketable securities: | |
| | |
| | |
| | |
| |
| Equities | |
$ | 7,130 | | |
$ | 7,130 | | |
$ | - | | |
$ | - | |
| Total marketable securities | |
$ | 7,130 | | |
$ | 7,130 | | |
$ | - | | |
$ | - | |
| Short-term investment | |
$ | 13 | | |
$ | - | | |
$ | - | | |
$ | 13 | |
| Notes receivable, at fair value - current portion | |
$ | 7,474 | | |
$ | - | | |
$ | - | | |
$ | 7,474 | |
| Notes receivable, at fair value - non-current portion | |
$ | 1,100 | | |
$ | - | | |
$ | - | | |
$ | 1,100 | |
Level 3 Measurement
The following table sets forth a summary of the
changes in the fair value of the Company’s Level 3 financial assets that are measured at fair value on a recurring basis ($ in thousands):
| Short-term investment at December 31, 2022 | |
$ | 13 | |
| Short-term investment at March 31, 2023 | |
$ | 13 | |
| | |
| | |
| Notes receivable, at fair value - current portion, at December 31, 2022 | |
$ | 7,474 | |
| Collection of principal outstanding | |
| (250 | ) |
| Accrued interest receivable, net | |
| 62 | |
| Note receivable, Convergent Convertible Note, non-current portion | |
| (750 | ) |
| Notes receivable, at fair value - current portion at March 31, 2023 | |
$ | 6,536 | |
| | |
| | |
| Notes receivable, at fair value - non-current portion, at December 31, 2022 | |
$ | 1,100 | |
| Note receivable, Convergent Convertible Note, non-current portion | |
| 750 | |
| Notes receivable, at fair value - non-current portion, value at March 31, 2023 | |
$ | 1,850 | |
DOMINARI HOLDINGS INC.
Notes to Condensed Consolidated Financial Statements
(Unaudited)
Note Receivable at fair value
As of March 31, 2023, the fair value of the notes
receivable was measured taking into consideration cost of the investment, market participant inputs, market conditions, liquidity, operating
results and other qualitative and quantitative factors. No material change was noted in the fair value of the notes receivable during
the three months ended March 31, 2023.
Note 10. Leases
On December 1, 2021, the Company entered into
a Lease Agreement (the “Company’s Lease”) with Trump Tower Commercial LLC, a New York limited liability company. Under
the Company’s Lease, the Company will rent a portion of the twenty-second floor at 725 Fifth Avenue, New York, New York (the “22nd Floor
Premises”). The Company plans to use the 22nd Floor Premises to run its day-to-day operations. The initial term
of the Company’s Lease is seven (7) years commencing on July 11, 2022 (“Commencement Date). Under the Company’s Lease,
the Company will pay monthly rent, commencing on January 11, 2023, equal to $12,874. Effective for the sixth and seventh years of the
Company’s Lease, the rent shall increase to $13,502. The Company took possession of the 22nd Floor Premises on the
Commencement Date.
On September 23, 2022, Dominari entered into a
Lease Agreement (“Dominari’s Lease”) with Trump Tower Commercial LLC, a New York limited liability company. Under Dominari’s
Lease, Dominari will rent a portion of a floor at 725 Fifth Avenue, New York, New York (the “Premises”). Dominari plans to
use the Premises to run its day-to-day operations. The initial term of Dominari’s Lease is seven (7) years commencing on the date
that possession of the Premises is delivered to Dominari. Under Dominari’s Lease, Dominari will pay monthly rent equal to $49,368.
Effective for the sixth and seventh years of Dominari’s Lease, the rent shall increase to $51,868 per month. The Company has
taken possession of the Premises in February 2023.
The tables below represent the Company’s
lease assets and liabilities as of March 31, 2023:
| | |
March 31,
2023 | |
| Assets: | |
| |
| Operating lease right-of-use-assets | |
$ | 3,619 | |
| | |
| | |
| Liabilities: | |
| | |
| Current | |
| | |
| Operating | |
| 198 | |
| Long-term | |
| | |
| Operating | |
| 3,363 | |
| | |
$ | 3,561 | |
The following tables summarize quantitative information
about the Company’s operating leases, under the adoption of ASC 842:
| | |
March 31,
2023 | |
| Weighted-average remaining lease term – operating leases (in years) | |
| 7.2 | |
| Weighted-average discount rate – operating leases | |
| 10.0 | % |
DOMINARI HOLDINGS INC.
Notes to Condensed Consolidated Financial Statements
(Unaudited)
During the three months ended March 31, 2023,
the Company recorded approximately $0.1 million as lease expense to current period operations.
| | |
Three Months
Ended | |
| | |
March 31,
2023 | |
| Operating leases | |
| |
| Operating lease cost | |
$ | 134 | |
| Operating lease expense | |
| 134 | |
| Short-term lease rent expense | |
| 30 | |
| Net rent expense | |
$ | 164 | |
Supplemental cash flow information related to leases were as follows:
| | |
Three Months
Ended | |
| | |
March 31,
2023 | |
| Operating cash flows - operating leases | |
$ | 34 | |
| Right-of-use assets obtained in exchange for operating lease liabilities | |
$ | 2,796 | |
As of March 31, 2023, future minimum payments
during the next five years and thereafter are as follows:
| | |
Operating | |
| | |
Leases | |
| Remaining Period Ended December 31, 2023 | |
$ | 365 | |
| Year Ended December 31, 2024 | |
| 750 | |
| Year Ended December 31, 2025 | |
| 688 | |
| Year Ended December 31, 2026 | |
| 688 | |
| Year Ended December 31, 2027 | |
| 688 | |
| Year Ended December 31, 2028 | |
| 770 | |
| Thereafter | |
| 1,166 | |
| Total | |
| 5,115 | |
| Less present value discount | |
| (1,554 | ) |
| Operating lease liabilities | |
$ | 3,561 | |
Note 11. Net Loss per Share
Basic loss per share of common stock is computed
by dividing the net loss allocable to common stockholders by the weighted-average number of shares of common stock or common stock equivalents
outstanding. Diluted loss per common share is computed similar to basic loss per share except that it reflects the potential dilution
that could occur if dilutive securities or other obligations to issue common stock were exercised or converted into common stock. Securities
that could potentially dilute loss per share in the future that were not included in the computation of diluted loss per share for the
three months ended March 31, 2023, and 2022 are as follows:
| | |
As of March 31, | |
| | |
2023 | | |
2022 | |
| Convertible preferred stock | |
| 34 | | |
| 129,446 | |
| Warrants to purchase common stock | |
| 444,796 | | |
| 444,796 | |
| Options to purchase common stock | |
| 31,193 | | |
| 28,203 | |
| Total | |
| 476,023 | | |
| 602,445 | |
DOMINARI HOLDINGS INC.
Notes to Condensed Consolidated Financial Statements
(Unaudited)
Note 12. Stockholders’ Equity and Convertible
Preferred Stock
Common Stock
On March 6, 2023, the Company cancelled 644,499
shares of common stock as a result of retirement of 644,499 shares of treasury stock.
On March 20, 2023, the Company cancelled 25,000
shares of common stock owned by a board member.
Treasury Stock
On January 21, 2022, the Company’s board
of directors authorized a share buyback program (the “Share Buyback Program”), pursuant to which the Company authorized the
Share Buyback Program in an amount of up to three million dollars. During the three months ended March 31, 2023, the Company
repurchased 236,630 shares at a cost of approximately $0.9 million or $3.97 per share through marketable securities account
under the Share Buyback Program. The Company records treasury stock using the cost method.
On March 6, 2023, the Company retired 644,499
shares of treasury stock with original cost of approximately $3.8 million.
Warrants
A summary of warrant activity for the three months
ended March 31, 2023, is presented below:
| | |
Warrants | | |
Weighted
Average
Exercise Price | | |
Total
Intrinsic
Value | | |
Weighted
Average
Remaining
Contractual
Life
(in years) | |
| Outstanding as of December 31, 2022 | |
| 444,796 | | |
$ | 29.25 | | |
| - | | |
| 3.20 | |
| Outstanding as of March 31, 2023 | |
| 444,796 | | |
$ | 29.25 | | |
| - | | |
| 2.95 | |
DOMINARI HOLDINGS INC.
Notes to Condensed Consolidated Financial Statements
(Unaudited)
Restricted Stock Awards
A summary of restricted stock awards activity
for the three months ended March 31, 2023, is presented below:
| | |
Number of
Restricted
Stock Awards | | |
Weighted
Average
Grant Day
Fair Value | |
| Nonvested at December 31, 2022 | |
| 8,068 | | |
$ | 5.64 | |
| Vested | |
| (8,068 | ) | |
| 5.64 | |
| Nonvested at December 31, 2022 | |
| - | | |
$ | - | |
As of March 31, 2023, there is no unrecognized
stock-based compensation expense related to restricted stock awards.
Stock Options
A summary of option activity under the Company’s
stock option plan for the three months ended March 31, 2023 is presented below:
| | |
Number of
Shares | | |
Weighted
Average
Exercise Price | | |
Total Intrinsic
Value | | |
Weighted
Average
Remaining
Contractual
Life (in years) | |
| Outstanding as of December 31, 2022 | |
| 31,193 | | |
$ | 302.97 | | |
$ | - | | |
| 7.9 | |
| Outstanding as of March 31, 2023 | |
| 31,193 | | |
$ | 302.97 | | |
$ | - | | |
| 7.7 | |
| Options vested and exercisable | |
| 25,311 | | |
$ | 372.00 | | |
$ | - | | |
| 7.4 | |
Stock-based compensation associated with the amortization
of stock option expense was approximately $4,800 and $0 for the three months ended March 31, 2023, and 2022, respectively. All stock compensation
was recorded as a component of general and administrative expenses.
Estimated future stock-based compensation expense
relating to unvested stock options is approximately $10,000.
Note 13. Commitments and Contingencies
Legal Proceedings
In the past, in the ordinary course of business,
the Company actively pursued legal remedies to enforce its intellectual property rights and to stop unauthorized use of the Company’s technology.
Other than ordinary routine litigation incidental to the business, the Company is not aware of any material, active or pending legal proceedings brought against it.
DOMINARI HOLDINGS INC.
Notes to Condensed Consolidated Financial Statements
(Unaudited)
Note 14. Regulatory
Dominari Securities, the Company’s broker-dealer
subsidiary, is registered with the SEC as an introducing broker-dealer and is a member of FINRA. The Company’s broker-dealer subsidiary
is subject to SEC Uniform Net Capital Rule (Rule 15c3-1) which requires the maintenance of minimum net capital and requires that the ratio
of aggregate indebtedness to net capital, both as defined, shall not exceed 15 to 1. As such, the subsidiary is subject to the minimum
net capital requirements promulgated by the SEC and has elected to calculate minimum capital requirements using the basic method permitted
by Rule 15c3-1. As of March 31, 2023, Dominari Securities had net capital of approximately $2.9 million, which was approximately $2.9
million in excess of required minimum net capital of $0.1 million.
Note 15. Related Party Transaction
In 2021, the Company engaged the services of Revere
Securities, LLC (“Revere”) to strategically manage and build the Company’s investment processes. Kyle Wool, Board Member,
is the president of Revere. The Company incurred fees of approximately $0.08 million and $0.3 million during the three months
ending March 31, 2023, and 2022, respectively. These fees were included in general and administrative expense in the unaudited condensed consolidated statements of operations.
Note 16. Subsequent Events
Soo
Yu Employment Agreement
On April
3, 2023, Dominari Securities, the Company’s broker-dealer subsidiary, entered into an employment
agreement (the Agreement), as amended on April 19, 2023, with Soo Yu. Ms. Yu is currently a member of the Company’s board of directors.
Pursuant to the Agreement, which is for a term of one year, Ms. Yu will serve as a registered brokerage representative for Dominari Securities
and a special projects manager for the Company. Under the Agreement, Ms. Yu is paid a base salary of $150,000 per year and receives a
60% commission on the gross revenue she generates at Dominari Securities. In addition to her base salary and commissions, Ms. Yu is eligible
to receive up to $7.8 million based on the assets under management or account value of accounts she opens at Dominari Securities. Upon
Ms. Yu completing all required registrations and opening accounts for clients with assets under management or account value of
at least $50 million, Ms. Yu will be entitled to a payment of $2.4 million. Upon Ms. Yu opening
accounts for clients with assets under management or account value of at least $150 million (inclusive of prior account values), Ms. Yu
will be entitled to a payment of $2.7 million. Upon Ms. Yu opening accounts for clients with
assets under management or account value of at least $560 million (inclusive of prior account values), Ms. Yu will be entitled to a payment
of $2.7 million.
