Dominari Holdings Inc. 10-K

Item 1. BUSINESS. OVERVIEW Dominari Holdings Inc. (“Dominari”) is a holding company that, through its various subsidiaries, is engaged in financial services, investment advising and wealth management, asset management, investment banking, the acquisition of interests in high growth industries, and biotechnology and pharmaceutical research and development. 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”), our wholly-owned financial subsidiary, is the M&A arm of Dominari and will execute the Company’s roll-up strategy in the financial sector. The roll-up strategy seeks to acquire third-party financial assets such as registered investment advisors, broker dealers, asset management firms and fintech firms. Our first transaction in furtherance of our financial roll-up strategy, the acquisition of 100% of a registered broker-dealer from Fieldpoint Private Bank & Trust, was consummated on March 27, 2023. The newly acquired dually registered broker-dealer and investment adviser will be renamed Dominari Securities, LLC (“Dominari Securities”) and is a wholly-owned subsidiary of Dominari Financial. Dominari Securities will provide wealth management services, asset management services, investment banking and sales and trading. The Company is in the process of winding down its historical pipeline of biotechnology assets held by Aikido Labs, LLC. These biotechnology assets consist of patented technology from leading universities and researchers, including prospective treatments for pancreatic cancer, acute myeloid leukemia and acute lymphoblastic leukemia. The Company is also developing a broad-spectrum antiviral platform, in which the lead compounds have activity in cell-based assays against multiple viruses including Influenza virus, Ebolavirus and Marburg virus, SARS-CoV, MERS-CoV, and SARS-CoV-2, the cause of COVID-19. HISTORY The Company was founded in 1967 as Spherix Incorporated. In 2017 the Company changed its name to Aikido Pharma Inc. From 2017 to 2022, the Company operated as a biotechnology company with a diverse portfolio of small-molecule anticancer and antiviral therapeutics in development. During the second half of 2022, in an effort to enhance shareholder value, the Company shifted its primary focus away from biotechnology to a new line of business in the financial services industry. In furtherance of this new focus, in June of 2022, the Company formed Dominari Financial, with the purpose of making strategic acquisitions across the financial services industry. On December 22, 2022, the Company changed its name to Dominari Holdings Inc. On September 9, 2022, we entered into a membership interest purchase agreement (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”) and broker-dealer registered with the Financial Industry Regulatory Authority (“FINRA”). Pursuant to the terms of the FPS Purchase Agreement, we purchased from the Seller 100% of the membership interests in FPS (the “Membership Interests”) and, as a result thereof, will operate the newly acquired dual registered broker-dealer and investment adviser as a wholly owned subsidiary. The FPS Purchase Agreement provided 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 $2,000,000 in consideration for a transfer by the Seller to Dominari of 20% of the Membership Interests. Following FINRA’s approval of the Continuing Membership Application pursuant to FINRA Rule 1017 (the “Rule 1017 Application”) on March 20, 2023, the second closing occurred on March 27, 2023 (the “Second Closing”), at which time Dominari paid to the Seller an additional $1.00 in consideration for a transfer by the Seller to Dominari of the remaining 80% of the Membership Interests. 1 DOMINARI SECURITIES Dominari Securities plans to offer a broad range of broker-dealer and registered investment adviser services, commencing shortly after the completion of its acquisition of FPS, which is expected to begin in April 2023, including: Wealth Management Services Dominari Securities plans to provide a comprehensive array of financial services to high-net-worth individuals and families, corporate executives, and public and private businesses. Clients will be able to choose a variety of ways to establish a relationship and conduct business, including by establishing brokerage accounts with transaction-based pricing and/or investment advisory accounts with asset-based fee pricing. Dominari Securities also plans to provide the following private client services: Full-Service Brokerage . Dominari Securities plans to offer full-service brokerage services covering investment alternatives, including exchange-traded and over-the-counter corporate equity and debt securities, money market instruments, exchange-traded options, municipal bonds, mutual funds, exchange-traded funds, and unit investment trusts. Dominari Securities expects its revenue to be derived from commissions from private clients through accounts with transaction-based pricing. Dominari Securities will charge brokerage commissions on investment products in accordance with a schedule which Dominari Securities plans to formulate. Discounts will be made available to and will able to be negotiated with customers based on transaction size and volume as well as a number of other factors. Wealth Planning . Dominari Securities also plans to offer financial and wealth planning services which will include asset management, individual and corporate retirement solutions, insurance and annuity products, IRAs and 401(k) plans, U.S. stock plan services to corporate executives and businesses, education savings programs, and trust and fiduciary services to individual and corporate clients through third-party trust companies. Margin Lending . Dominari Securities, through its clearing partnerships, also intends to extend credit to its customers, collateralized by securities and cash in the customer’s account, for a portion of the purchase price, and to receive income from interest on such extensions of credit at interest rates derived from Dominari Securities’ posted rate as adjusted, from time to time. Asset Management Dominari Securities also plans to offer discretionary and non-discretionary fee-based programs to provide tailored investment management solutions and services to high-net-worth private clients, institutions and corporations and/or plans sponsored by them. These will include, but will not be limited to, portfolio management, manager research and due diligence through third party partners, asset allocation advice and financial planning. Dominari Securities plans to offer Portfolio management strategies and third-party investment management capabilities through separately managed accounts, alternative investments and discretionary and non-discretionary portfolio management programs as well as managed portfolios of mutual funds. Platform support functions will include sales and marketing along with administrative services such as trade execution, client services, records management and client reporting and performance monitoring. Dominari Securities expects to generate revenues through the receipt of investment advisory and transactional fees for advisory services and to also generate revenue from fees earned through sharing arrangements with registered and private alternative investment vehicles. Dominari Securities also expects to earn investment advisory fees on all assets held in discretionary and non-discretionary asset-based programs. These fees will be typically billed monthly in advance, and will be calculated based on all fee-based assets under management balances at the end of the prior month. Dominari Securities also expects to receive income from revenue-sharing arrangements that are derived from management and incentive fees on alternative investments and will be calculated on a pre-determined basis with registered and private investment companies. The Company’s asset management services are expected to include: Separately Managed Accounts . The Company plans to provide clients with fee-based programs: (i) a unified managed account which allows multiple investment managers, mutual funds and exchange-traded funds to be combined in a single custodial account; and (ii) an asset review dual contract program designed for clients seeking a direct contractual relationship with investment managers. Discretionary Advisory Accounts . Dominari Securities plans to offer client-focused discretionary fee-based investment programs managed by Dominari Securities advisors. Non-Discretionary Advisory Accounts . Dominari plans to provide fee-based non-discretionary investment advisory services and consultation to clients. Alternative Investments . Dominari plans to offer high net worth and institutional investors the opportunity to participate in a wide range of non-traditional investment strategies. Strategies are expected to include single manager hedge funds, fund of funds, diversified private equity funds and single investment late stage private equity funds. Private Market Platform . Through a collaborative effort among the firm’s business units, Dominari’s private market platform will focus on sourcing private investments across various sectors. Transactions are expected to cover the full spectrum of private investments, including early stage, late stage, direct, co-investments, funds and secondary market transactions in debt, equity and hybrid securities. 2 Investment Banking Dominari Securities’ investment banking division will provide strategic advisory services and capital markets products to emerging growth and middle market businesses. The investment banking groups will focus on the consumer and retail, energy, financial institutions, healthcare, rental services, technology, education, and transportation and logistics sectors. Investment banking services include: Financial Advisory . Dominari Securities will advise buyers and sellers on sales, divestitures, mergers, acquisitions, tender offers, privatizations, spin-offs, joint ventures, restructurings and liability management. Dominari Securities intends to provide dedicated senior bankers to clients focusing throughout the financial advisory process, which combines our structuring and negotiating expertise with our industry knowledge, extensive relationships and capital markets capabilities. Equities Capital Markets . Dominari Securities will provide capital raising solutions for corporate clients through initial public offerings, follow-on offerings, confidentially marketed public offerings, registered directs, private investments in public equity, private placements, at-the-market offerings, and equity-linked offerings. Debt Capital Markets . Dominari Securities plans to offer debt capital markets solutions for emerging growth and middle market companies. Dominari Securities will focus on structuring and distributing public and private debt through financing transactions, including leveraged buyouts, acquisitions, growth capital financings, recapitalizations and Chapter 11 exit financings. Dominari Securities will also participate in high yield debt and fixed and floating-rate senior and subordinated debt offerings. Fund Placement . Dominari Securities will provide alternative investment firms with a broad and deep portfolio of value-added services. Services will include bespoke strategic and tactical advisory as well as primary fundraises, co-investments and direct transactions. Debt Advisory & Restructuring . Dominari Securities will offer creative solutions to leveraged corporate issuers and credit investors. We will evaluate a full range of strategic alternatives, identify the appropriate structure and source of funds to provide our clients the ability to pursue an optimal and value maximizing outcome. Sales and Trading We intend to provide a broad range of sales and trading services to our clients. Sales and trading services will include: Institutional Equity Sales and Trading . Dominari Securities will act as an agent in the execution of its customers’ orders through our clearing strategic partners. Equity Derivatives and Index Options . Dominari Securities will offer listed equity and index options strategies for investors seeking to manage risk and optimize returns within the equities market. Institutional Fixed Income Sales and Trading . Dominari Securities will trade and in public and private debt (including sovereign debt) securities, including investment and non-investment grade, distressed and convertible corporate securities as well as municipal securities through our clearing partners. Securities Lending . In connection with both its trading and brokerage activities, Dominari Securities, through its clearing relationships, will borrow securities to cover short sales and to complete transactions in which customers have failed to deliver securities by the required settlement date and lend securities to other brokers and dealers for similar purposes. Dominari Securities will earn interest on its cash collateral provided and will pay interest on the cash collateral received less a rebate earned for lending securities. 3 Regulation Regulation in the United States The financial services industry in which we will operate is subject to extensive regulation. In the U.S., the SEC is the federal agency responsible for the administration of federal securities laws. In addition, the Financial Industry Regulatory Authority, Inc. (“FINRA”) is a self-regulatory organization (“SRO”) that is actively involved in the regulation of securities businesses. In addition to federal regulation, we are subject to state securities regulations in each state and U.S. territory in which we conduct securities or investment advisory activities. The SEC, FINRA, and state securities regulators conduct periodic examinations of broker-dealers and investment advisors. The designated examining authority under the U.S. Securities Exchange Act of 1934, as amended (the “Exchange Act”) for Dominari Securities’ activities as a broker-dealer is FINRA. Financial services businesses are also subject to regulation and examination by state securities regulators and attorneys general in those states in which they do business. In addition, broker-dealers and investment advisors must also comply with the rules and regulation of clearing houses, exchanges, and trading platforms of which they are a member. Broker-dealers are subject to SEC, FINRA, and state securities regulations that cover all aspects of the securities business, including sales and trading methods, trade practices among broker-dealers, use and safekeeping of customers’ funds and securities, capital structure and requirements, anti-money laundering efforts, recordkeeping and the conduct of broker-dealer personnel including officers and employees (although state securities regulations are, in a number of cases, more limited). Registered investment advisors are subject to, among other requirements, SEC regulations concerning marketing, transactions with affiliates, custody of client assets, disclosures to clients, conflict of interest, insider trading and recordkeeping. Additional legislation, changes in rules promulgated by the SEC, FINRA, and other SROs of which the broker-dealer is a member, and state securities regulators, or changes in the interpretation or enforcement of existing laws or rules may directly affect the operations and profitability of broker-dealers and investment advisors. The SEC, FINRA, and state securities regulators and state attorneys general may conduct administrative proceedings or initiate civil litigation that can result in adverse consequences for Dominari Securities, its affiliates, including affiliated investment advisors, as well as its and their officers and employees (including, without limitation, injunctions, censures, fines, suspensions, directives that impact business operations (including proposed expansions), membership expulsions, or revocations of licenses and registrations). SEC Regulation Best Interest (“Reg BI”) requires that a broker-dealer and its associated persons act in a retail customer’s best interest and not place their own financial or other interests ahead of a retail customer’s interests when recommending securities transactions or investment strategies, including recommendations of types of accounts. To meet this best interest standard, a broker-dealer must satisfy four component obligations including a disclosure obligation, a care obligation, a conflict of interest obligation, and a compliance obligation and both broker-dealers and investment advisors are required to provide disclosures about their standard of conduct and conflicts of interest. In addition, certain states, have proposed or adopted measures that would make broker-dealers, sales agents and investment advisors and their representatives subject to a fiduciary duty when providing products and services to customers. The SEC did not indicate an intent to pre-empt state regulation in this area, and some of the state proposals would allow for a private right of action. In the event out wealth management division makes recommendations to retail customers, it will be required to comply with the obligations imposed under Reg BI and applicable state laws. Regulatory Capital Requirements Dominari Securities will be subject to financial capital requirements that are set by regulation. Dominari Securities is a registered broker-dealer and is required to maintain net capital in an amount equal to SEC minimum financial requirements. As a broker-dealer, Dominari Securities is subject to the SEC’s Uniform Net Capital Rule (the “Net Capital Rule”). Compliance with the Net Capital Rule could limit Dominari Securities’ operations, such as underwriting and trading activities, and financing customers’ prime brokerage or other margin activities, in each case, that could require the use of significant amounts of capital, limit its ability to engage in certain financing transactions, such as repurchase agreements, and may also restrict its ability (i) to make payments of dividends, withdrawals or similar distributions or payments to a stockholder/parent or other affiliate, (ii) to make a redemption or repurchase of shares of stock, or (iii) to make an unsecured loan or advance to such shareholders or affiliates. 4 Under the Exchange Act, state securities regulators are not permitted to impose capital, margin, custody, financial responsibility, making and keeping records, bonding, or financial or operational reporting requirements on registered broker-dealers that differ from, or are in addition to, the requirements in those areas established under the Exchange Act, including the rules and regulations promulgated thereunder. Regulation outside the United States In the event Dominari Securities provides financial services internationally, it will be subject to extensive regulations proposed, promulgated and enforced by, among other regulatory bodies, the European Commission and European Supervisory Authorities (including the European Banking Authority and European Securities and Market Authority), U.K. Financial Conduct Authority, German Federal Financial Supervisory Authority (“BaFin”), Investment Industry Regulatory Organization of Canada, Hong Kong Securities and Futures Commission, the Japan Financial Services Agency, the Monetary Authority of Singapore, and the Australian Securities and Investments Commission. Every country in which we may do business will impose upon us laws, rules and regulations similar to those in the U.S., including with respect to some form of capital adequacy rules, customer protection rules, data protection regulations, anti-money laundering and anti-bribery rules, compliance with other applicable trading and investment banking regulations and similar regulatory reform. Competition All aspects of our business are expected to be intensely competitive. We will compete primarily with small to mid-size bank holding companies that engage in wealth management, investment banking and capital markets activities as one of their lines of business and that have greater capital and resources than we do. We will also compete against other broker-dealers, asset managers and boutique firms. We believe the principal factors that will drive our competitiveness in the future will include our ability to: provide differentiated insights to our clients that lead to better business outcomes; attract, retain and develop skilled professionals; deliver a competitive breadth of high-quality service offerings; and to maintain a flat, nimble and entrepreneurial culture built on immediacy and client service. Cybersecurity Cybersecurity presents significant challenges to the business community in general, including to the financial services industry. Increasingly, bad actors, both domestic and international, attempt to steal personal data and/or interrupt the normal functioning of businesses through accessing individuals' and companies' files and equipment connected to the internet. Recent incidents have reflected the increasing sophistication of intruders and their intent to steal personally identifiable information as well as funds and securities. These intruders sometimes use instructions that are seemingly from authorized parties but in fact, are from parties intent on attempting to steal. In other instances these intruders attempt to bypass normal safeguards and disrupt or steal significant amounts of information and then either release it to the internet or hold it for ransom. Regulators are increasingly requiring companies to provide heightened levels of sophisticated defenses. Dominari Securities will maintain ongoing planning and systems to prevent any such attack from disrupting its services to clients as well as to prevent any loss of data concerning its clients, their financial affairs, as well as Company privileged information. 5 Employees As of December 31, 2022, we have 7 full-time employees and 1 part-time employee, none of which are represented by a labor union or covered by a collective bargaining agreement.