Dominari Holdings Inc. 10-K

Item 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK. As a smaller reporting company, we are not required to provide the information required by this item. 22 Item 8. CONSOLIDATED FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA Consolidated financial statements and supplementary data required by this Item 8 follow. Index to Consolidated Financial Statements Page Report of Independent Registered Public Accounting Firms (PCAOB ID Number 688 ) 24 Report of Independent Registered Public Accounting Firms (PCAOB ID Number 100) 25 Consolidated Balance Sheets as of December 31, 2022 and 2021 26 Consolidated Statements of Operations for the Years Ended December 31, 2022 and 2021 27 Consolidated Statements of Changes in Stockholders’ Equity for the Years Ended December 31, 2022 and 2021 28 Consolidated Statements of Cash Flows for the Years Ended December 31, 2022 and 2021 29 Notes to the Consolidated Financial Statements 30 23 REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM To the Shareholders and Board of Directors of Dominari Holdings Inc. Opinion on the Financial Statements We have audited the accompanying consolidated balance sheet of Dominari Holdings Inc. (the “Company”) as of December 31, 2022, the related consolidated statement of operations, stockholders’ equity and cash flows for the year ended December 31, 2022, and the related notes (collectively referred to as the “financial statements”). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2022, and the results of its operations and its cash flows for the year in the period ended December 31, 2022, in conformity with accounting principles generally accepted in the United States of America. Basis for Opinion These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company's financial statements based on our audit. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) ("PCAOB") and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audit we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company's internal control over financial reporting. Accordingly, we express no such opinion. Our audit included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audit also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audit provides a reasonable basis for our opinion. Critical Audit Matters The critical audit matter communicated below is a matter arising from the current period audit of the financial statements that were communicated or required to be communicated to the audit committee and that: (1) relate to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing separate opinions on the critical audit matter or on the accounts or disclosures to which they relate. Valuation of investments and notes receivable Description of the Matter As of December 31, 2022, the Company held $23.1 million of investments measured using an adjusted cost method measurement alternative for investments in equity securities without readily determinable fair values, and $8.6 million of notes receivable measured using the fair value option at each reporting date. We identified the valuation of these investments and notes receivable as a critical audit matter because of the significant judgement management uses to estimate their value. This is a challenging audit area due to the subjectivity in assessing, for the investments, whether there has been an observable transaction involving the same or a similar investment with the same issuer, or if there has been impairment, and for notes receivable, whether the general economic and stock market conditions and those characteristics specific to the underlying issuer indicate there should be a change in the measurement of fair value. How we Addressed the Matter in our Audit Our audit procedures addressing the matter involved (1) obtaining an understanding of management’s process for accounting for their investments that do not have readily determinable fair values. (2) We evaluated the characteristics specific to the issuer of notes and general economic and stock market conditions that indicate if there should be a change in the measurement of fair value. (3) We evaluated the accounting conclusions reached by the Company as to whether any observable transactions had occurred that were identical or similar in nature through inspecting the Company’s available financial and other information regarding the investments. For the investments and the notes (4) we considered the appropriateness of the Company’s application of accounting policy by obtaining and reviewing the Company’s analysis and confirming its compliance with accounting principles generally accepted in the United States. (5) We tested the mathematical accuracy of the Company’s carrying value calculations and (6) considered whether or not any of the investments or notes should be impaired. (7) We also performed public searches for corroborating or contradictory information. (8) We evaluated the adequacy of the Company’s disclosures in the notes to the consolidated financial statements in relation to this matter. /s/ Marcum llp Marcum llp We have served as the Company’s auditor since 2022 . New York NY March 31, 2023 24 Report of Independent Registered Public Accounting Firm To the Shareholders and the Board of Directors of Dominari Holdings Inc. Opinion on the Consolidated Financial Statements We have audited the accompanying consolidated balance sheet of Dominari Holdings Inc. (formerly AIkido Pharma, Inc.) (the “Company”) as of December 31, 2021, the related consolidated statements of operations, changes in stockholders’ equity and cash flows, for the year then ended, and the related notes (collectively referred to as the “financial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the consolidated financial position of the Company as of December 31, 2021 and the consolidated results of its operations and its cash flows for the year ended December 31, 2021, in conformity with accounting principles generally accepted in the United States of America. Basis for Opinion These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s consolidated financial statements based on our audit. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (“PCAOB”) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audit we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. Our audit included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audit also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audit provides a reasonable basis for our opinion. Critical Audit Matters The critical audit matter communicated below is a matter arising from the current period audit of the financial statements that is communicated or required to be communicated to the audit committee and that: (1) relates to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates. Valuation of investments in privately-held companies Description of the Matter As of December 31, 2021, the Company had $9.5 million of investments in companies without readily determinable fair values. The Company typically measures these investments at cost less any impairment, adjusted for observable price changes in orderly transactions for an identical or similar investment. We identified the valuation of these investments as a critical audit matter because of the significant judgement management uses to estimate the investment value. This is a challenging audit area due to the subjectivity in assessing whether observable price changes have occurred for investments that are identical or similar to the investment the Company holds, and in assessing whether an investment is impaired. How we Addressed the Matter in our Audit Addressing the matter involved obtaining an understanding of management’s process for accounting for their investments that do not have readily determinable fair values. We considered the appropriateness of the Company’s application of accounting policy by obtaining and reviewing the Company’s analysis and confirming its compliance with accounting principles generally accepted in the United States. We tested the mathematical accuracy of the Company’s carrying value calculations and considered whether or not any of the investments should be impaired. We evaluated the accounting conclusions reached by the Company as to whether any observable transactions had occurred that were identical or similar in nature through reading of the Company’s available financial and other information regarding the investee and through public searches for corroborating or contradictory information. Further, we evaluated the Company’s impairment conclusions considering this internal and external information. We also evaluated the adequacy of the Company’s disclosures in Note 7 in relation to this matter. /s/WithumSmith+Brown, PC We have served as the Company's auditor since 2021. New York, New York March 28, 2022 PCAOB ID Number 100 25 DOMINARI HOLDINGS INC. (Formerly AIkido Pharma, Inc.) Consolidated Balance Sheets ($ in thousands except share and per share amounts) December 31, December 31, 2022 2021 ASSETS Current assets Cash and cash equivalents $ 33,174 $ 65,562 Marketable securities 7,130 11,427 Prepaid expenses and other assets 564 442 Prepaid acquisition cost 301 - Short-term investments at fair value 13 2,273 Notes receivable at fair value 7,474 6,984 Investment deposit - 4,201 Investment in FieldPoint Securities 2,000 - Total current assets 50,656 90,889 Convertible note receivable at fair value - 2,147 Notes receivable at fair value 1,100 - Investments 23,103 9,465 Right-of-use assets 919 - Security deposit 458 155 Total assets $ 76,236 $ 102,656 LIABILITIES AND STOCKHOLDERS’ EQUITY Current liabilities Accounts payable and accrued expenses $ 447 $ 381 Accrued salaries and benefits 1,260 680 Lease liability - current 82 - Total current liabilities 1,789 1,061 Lease liability 680 - Total liabilities 2,469 1,061 Stockholders’ equity Preferred stock, $ .0001 par value, 50,000,000 Authorized Series D: 5,000,000 shares designated; 3,825 shares issued and outstanding at December 31, 2022 and 2021; liquidation value of $ 0.0001 per share - - Series D-1: 5,000,000 shares designated; 834 shares issued and outstanding at December 31, 2022 and 2021; liquidation value of $ 0.0001 per share - - Common stock, $ 0.0001 par value, 100,000,000 shares authorized; 5,485,096 and 5,275,329 shares issued at December 31, 2022 and 2021, respectively; 5,017,079 and 5,275,329 shares outstanding at December 31, 2022 and 2021, respectively - - Additional paid-in capital 262,970 265,633 Treasury stock, at cost, 468,017 and 0 shares at December 31, 2022 and 2021, respectively ( 3,322 ) ( 264 ) Accumulated deficit ( 185,881 ) ( 163,774 ) Total stockholders’ equity 73,767 101,595 Total liabilities and stockholders’ equity $ 76,236 $ 102,656 See accompanying notes to consolidated financial statements. 26 DOMINARI HOLDINGS INC. (Formerly AIkido Pharma, Inc.) Consolidated Statements of Operations ($ in thousands except share and per share amounts) Years Ended December 31, 2022 2021 Operating costs and expenses General and administrative $ 11,683 $ 7,734 Research and development 830 559 Research and development - license acquired 1,833 1,148 Total operating expenses 14,346 9,441 Loss from operations ( 14,346 ) ( 9,441 ) Other (expenses) income Other income 64 135 Interest income 687 252 Loss on marketable securities ( 5,952 ) ( 1,743 ) Change in fair value of investments ( 2,560 ) 3,626 Total other (expenses) income ( 7,761 ) 2,270 Net loss $ ( 22,107 ) $ ( 7,171 ) Deemed dividends related to Series O and Series P Redeemable Convertible Preferred Stock ( 4,109 ) - Net Loss Attributable to Common Shareholders $ ( 26,216 ) $ ( 7,171 ) Net loss per share, basic and diluted Basic and Diluted $ ( 4.91 ) $ ( 1.48 ) Weighted average number of shares outstanding, basic and diluted Basic and Diluted 5,334,075 4,846,925 See accompanying notes to consolidated financial statements. 27 DOMINARI HOLDINGS INC. (Formerly AIkido Pharma, Inc.) Consolidated Statements of Changes in Stockholders’ Equity ($ in thousands except share and per share amounts) Redeemable Convertible Preferred Stock Additional Total Series O Series P Common Stock Preferred Stock Paid-in Treasury Stock Accumulated Stockholders’ Shares Amount Shares Amount Shares Amount Shares Amount Capital Shares Amount Deficit Equity Balance at December 31, 2020 2,054,096 $ - 5,559 $ - $ 186,485 - $ ( 264 ) $ ( 156,603 ) $ 29,618 Issuance of common stock and warrants (net of offering costs of $ 8,031 ) 3,170,935 - - - 78,219 - - - 78,219 Exercise of warrants 4,705 - - - 84 - - - 84 Issuance of common stock for research and development license acquired 36,764 - - - 531 - - - 531 Conversion of Series D Preferred stock 112 - ( 900 ) - - - - - - Stock-based compensation 8,823 - - - 314 - - - 314 Fractional shares adjusted for reverse split ( 106 ) - - - - - - - - Net loss - - - - - - - ( 7,171 ) ( 7,171 ) Balance at December 31, 2021 - $ - - $ - 5,275,329 $ - 4,659 $ - $ 265,633 - $ ( 264 ) $ ( 163,774 ) $ 101,595 Issuance of Series O redeemable convertible preferred stock for cash 11,000 11,000 - - - - - - - - - - - Issuance of Series P redeemable convertible preferred stock for cash - - 11,000 11,000 - - - - - - - - - Cost on issuance of Series O and Series P Redeemable Convertible Preferred Stock - ( 1,504 ) - ( 1,505 ) - - - - - - - - - Deemed dividends related to Series O and Series P Redeemable Convertible Preferred Stock - 1,504 - 1,505 - - - - ( 4,109 ) - - - ( 4,109 ) Redemption of Series O Redeemable Convertible Preferred Stock ( 11,000 ) ( 11,000 ) - - - - - - - - - - - Redemption of Series P Redeemable Convertible Preferred Stock - - ( 11,000 ) ( 11,000 ) - - - - - - - - - Purchase of treasury stock - - - - - - - - - 468,017 ( 3,058 ) - ( 3,058 ) Stock-based compensation - - - - 238,244 - - - 1,472 - - - 1,472 Cancellation of common stock related to investment in CBM - - - - ( 22,812 ) - - - - - - - - Fractional shares adjusted for reverse split - - - - ( 5,665 ) - - - ( 26 ) - - - ( 26 ) Net loss - - - - - - - - - - - ( 22,107 ) ( 22,107 ) Balance at December 31, 2022 - $ - - $ - 5,485,096 $ - 4,659 $ - $ 262,970 468,017 $ ( 3,322 ) $ ( 185,881 ) $ 73,767 See accompanying notes to consolidated financial statements. 28 DOMINARI HOLDINGS INC. (Formerly AIkido Pharma, Inc.) Consolidated Statements of Cash Flows ($ in thousands) Years Ended December 31, 2022 2021 Cash flows from operating activities Net loss $ ( 22,107 ) $ ( 7,171 ) Adjustments to reconcile net loss to net cash used in operating activities: Amortization of right-of-use assets ( 188 ) - Change in fair value of short-term investment 2,621 ( 3,626 ) Change in fair value of long-term investment ( 61 ) - Research and development-acquired license, expensed 1,833 1,148 Stock-based compensation 1,472 314 Realized loss on marketable securities 1,405 67 Unrealized loss on marketable securities 4,867 3,115 Changes in operating assets and liabilities: Prepaid expenses and other assets ( 215 ) ( 227 ) Prepaid acquisition cost ( 301 ) - Accounts payable and accrued expenses 66 ( 186 ) Accrued salaries and benefits 580 370 Lease liabilities 31 - Interest receivable on convertible note ( 600 ) ( 252 ) Deposit - ( 155 ) Net cash used in operating activities ( 10,597 ) ( 6,603 ) Cash flows from investing activities Purchase of membership interest in FPS ( 2,000 ) - Purchase of marketable securities ( 26,798 ) ( 93,432 ) Sale of marketable securities 28,658 103,043 Proceeds from sale of digital currencies 93 - Proceeds from sale of DatChat common shares - 900 Return of deposit (funding of deposit) into a managed account, net 3,898 ( 4,201 ) Purchase of short-term and long-term investments ( 15,016 ) ( 5,666 ) Purchase of research and development licenses ( 1,833 ) ( 617 ) Purchase of short-term and long-term promissory notes ( 1,600 ) ( 6,880 ) Purchase of convertible note - ( 2,000 ) Net cash used in investing activities ( 14,598 ) ( 8,853 ) Cash flows from financing activities Proceeds from issuance of common stock and warrants, net of offering cost - 78,219 Proceeds from issuance of Series O and Series P Redeemable Convertible Preferred Stock, net of discount and offering cost 17,891 - Proceeds from exercise of warrants - 84 Payment for fractional shares ( 26 ) - Redemption of Series O and Series P Redeemable Convertible Preferred Stock ( 22,000 ) - Purchase of treasury stock ( 3,058 ) - Net cash (used in) provided by financing activities ( 7,193 ) 78,303 Net (decrease) increase in cash and cash equivalents and restricted cash ( 32,388 ) 62,847 Cash and cash equivalents, beginning of period 65,562 2,715 Cash and cash equivalents, end of period $ 33,174 $ 65,562 Non-cash investing and financing activities Transfer from short-term investment to marketable securites $ 1,497 $ - Transfer from long-term investment to marketable securites $ 1,439 Reclassify from convertible note receivable to notes receivable at fair value $ 2,147 $ - Promissory convertible note receivable conversion into common shares $ 899 $ - See accompanying notes to consolidated financial statements. 29 DOMINARI HOLDINGS INC. (Formerly AIkido Pharma, Inc.) Notes to Consolidated Financial Statements 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 this year, 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 plans to make strategic acquisitions across the fintech and financial services industries. 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 the Financial Industry Regulatory Authority (“FINRA”) and an investment adviser registered with the Securities and Exchange Commission (“SEC”). 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 will be operated as 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 $ 1.00 in consideration for a transfer by the Seller to Dominari of the remaining 80 % of the Membership Interests. The Second Closing is subject to customary closing conditions, including the accuracy of the representations and warranties of the applicable parties under the FPS Purchase Agreement and compliance therewith. Additionally, AIkido Labs, LLC (“Aikido Labs”), another wholly owned subsidiary of the Company, has and will continue to explore other 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 will continue to foster and develop 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. 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, the Marburg virus, SARS-CoV, MERS-CoV, and SARS-CoV-2, the cause of COVID-19. Reverse Stock Split On June 7, 2022, the Company effected a seventeen-for-one (17-for-1) reverse stock split of its class of common stock (the “Reverse Stock Split”). The Reverse Stock Split, which was approved by stockholders at an annual stockholder meeting on May 20, 2022, was consummated pursuant to a Certificate of Amendment filed with the Secretary of State of Delaware on June 2, 2022. The Reverse Stock Split was effective on June 7, 2022. All references to common stock, convertible preferred stock, warrants to purchase common stock, options to purchase common stock, restricted stock units, restricted stock awards, share data, per share data and related information contained in the consolidated financial statements have been retrospectively adjusted to reflect the effect of the Reverse Stock Split for all periods presented. Payment for fractional shares resulting from the reverse stock split amounted to $ 26,000 . 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 consolidated financial statements. 30 DOMINARI HOLDINGS INC. (Formerly AIkido Pharma, Inc.) Notes to Consolidated Financial Statements Note 3. Summary of Significant Accounting Policies Basis of Presentation and Principles of Consolidation The accompanying consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles (“U.S. GAAP”) for financial information. Our policy is to consolidate all entities that we control by ownership of a majority of the membership interest or outstanding voting stock. The accompanying consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries, Aikido Labs and Dominari. All significant intercompany balances and transactions have been eliminated in consolidation. Use of Estimates The accompanying consolidated financial statements have been prepared in conformity with US 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 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. Segments Operating segments are defined as components of an entity for which discrete financial information is available that is regularly reviewed by the Chief Operating Decision Maker (“CODM”) in deciding how to allocate resources to an individual segment and in assessing performance. The CODM reviews financial information for the purposes of making operating decisions, allocating resources, and evaluating financial performance of the business of the reportable operating segments, based on discrete financial information. The Company’s chief executive officer is the CODM. As of December 31, 2022, the CODM does not receive or evaluate the business lines separately and therefore the Company currently operates as one segment and, accordingly, no further segment disclosures have been presented herein. Concentration of Cash The Company maintains cash balances at two financial institutions in checking accounts. From time to time, the Company’s cash account balances exceed the balances as covered by the Federal Deposit Insurance System. The Company has never suffered a loss due to such excess balances. As of December 31, 2022 and 2021, the Company had no cash equivalents. Marketable Securities Marketable securities are classified as trading and are carried at fair value. The Company’s marketable securities consist of highly liquid mutual funds and exchange-traded & closed-end funds which are valued at quoted market prices. Research and Development Research and development costs, including acquired in-process research and development expenses for which there is no alternative future use, are expensed as incurred. Advance payments for goods and services that will be used in future research and development activities are expensed when the activity has been performed or when the goods have been received rather than when the payment is made. Accounting for Warrants The Company accounts for the issuance of common stock purchase warrants issued in connection with the equity offerings in accordance with the provisions of Accounting Standards Codification (“ASC”) 815, Derivatives and Hedging (“ASC 815”). The Company classifies as equity any contracts that (i) require physical settlement or net-share settlement or (ii) gives the Company a choice of net-cash settlement or settlement in its own shares (physical settlement or net-share settlement). 31 DOMINARI HOLDINGS INC. (Formerly AIkido Pharma, Inc.) Notes to Consolidated Financial Statements Stock-based Compensation The Company accounts for share-based payment awards exchanged for services at the estimated grant date fair value of the award. Stock options issued under the Company’s long-term incentive plans are granted with an exercise price equal to no less than the market price of the Company’s stock at the date of grant and expire up to ten years from the date of grant. These options generally vest over a one- to five-year period. The Company estimates the fair value of stock option grants using the Black-Scholes option pricing model and the assumptions used in calculating the fair value of stock-based awards represent management’s best estimates and involve inherent uncertainties and the application of management’s judgment. Expected Term - The expected term of options represents the period that the Company’s stock-based awards are expected to be outstanding based on the simplified method, which is the half-life from vesting to the end of its contractual term. Expected Volatility - The Company computes stock price volatility over expected terms based on its historical common stock trading prices. Risk-Free Interest Rate - The Company bases the risk-free interest rate on the implied yield available on U. S. Treasury zero-coupon issues with an equivalent remaining term. Expected Dividend - The Company has never declared or paid any cash dividends on its common shares and does not plan to pay cash dividends in the foreseeable future, and, therefore, uses an expected dividend yield of zero in its valuation models. The Company accounts for forfeitures as they occur. Fair Value Option - Short-term Note and Convertible Note The guidance in ASC 825, Financial Instruments , provides a fair value option election that allows entities to make an irrevocable election of fair value as the initial and subsequent measurement attribute for certain eligible financial assets and liabilities. The Company has elected to measure the purchases of its notes using the fair value option at each reporting date. Under the fair value option, bifurcation of an embedded derivative is not necessary, and all related gains and losses on the host contract and derivative due to change in the fair value will be reflected in interest income and other, net in the consolidated statements of operations. Interest accrues on the unpaid principal balance on a quarterly basis and is recognized in interest income in the consolidated statements of operations. The decision to elect the fair value option is determined on an instrument-by-instrument basis and must be applied to an entire instrument and is irrevocable once elected. Pursuant to this guidance, assets and liabilities are measured at fair value based, in part, on general economic and stock market conditions and those characteristics specific to the underlying investments. The carrying value is adjusted to estimated fair value at the end of each quarter, required to be reported separately in our consolidated balance sheets from those instruments using another accounting method Long-term investments Effective January 1, 2018, the Company adopted Accounting Standards Update (“ASU”) 2016-01 and related ASU 2018-03 and ASU 2019-04 concerning recognition and measurement of financial assets and financial liabilities. In adopting this guidance, the Company has made an accounting policy election to adopt an adjusted cost method measurement alternative for investments in equity securities without readily determinable fair values. For equity investments that are accounted for using the measurement alternative, the Company initially records equity investments at cost but is required to adjust the carrying value of such equity investments through earnings when there is an observable transaction involving the same or a similar investment with the same issuer or upon an impairment. 32 DOMINARI HOLDINGS INC. (Formerly AIkido Pharma, Inc.) Notes to Consolidated Financial Statements Investment deposit In April 2021, the Company deposited $ 5 million with a fund to identify opportunities to expand the Company’s investments in Asia. The cash is held, net management expenses, in bank accounts on behalf of the Company until the fund manager identified investments. In October 2022, the Company withdrew and transferred the funds to its marketable securities account. During the period ended October 2022 and the year ended December 31, 2021, the Company incurred legal and advisory fees related to the account of approximately $ 8 thousand and $ 0.8 million, respectively. Investment deposit was $ 0 and $ 4.2 million as of December 31, 2022 and 2021, respectively. Investment in FPS October 4, 2022, the Company completed the first of two closings related the FPS Purchase Agreement, wherein, the Company paid to the Seller $ 2.0 million in consideration for a transfer by the Seller to the Company of 20 % of the Membership Interests in FPS. The $ 2.0 million is held in a bank account as collateral pending the completion of the second closing. Upon completion of the second closing, the $ 2.0 million will be released back to the Company. There were no indicators of impairment from date of investment, October 4, 2022, through December 31, 2022. The Investment in FPS was $ 2.0 million as of December 31, 2022. 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 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 14 - Commitment and Contingencies . Treasury Stock Treasury stock is recorded at cost and is presented as a reduction of stockholders’ equity. Income Taxes The Company uses the asset and liability method of accounting for income taxes in accordance with ASC 740, “ Income Taxes ” (“ASC 740”). Under this method, income tax expense is recognized as the amount of: (i) taxes payable or refundable for the current year and (ii) deferred tax consequences of temporary difference resulting from matters that have been recognized in the Company’s consolidated financial statement or tax returns. Deferred tax assets and liabilities are determined based on the difference between the consolidated financial statement and tax bases of assets and liabilities measured at the enacted tax rates in effect for the year in which these items are expected to reverse. Deferred tax assets are reduced by valuation allowances if, based on the consideration of all available evidence, it is more likely than not that some portion or all of the deferred tax asset will not be realized. On August 16, 2022, the Inflation Reduction Act of 2022 was enacted into law and is effective for taxable years beginning after December 31, 2022, and remains subject to future guidance releases. This legislation, among other tax law changes, imposes a Corporate Alternative Minimum Tax as well as a 1 % excise tax on stock buy-backs. The Company has not completed its analysis of this legislation, but it is not expected to have a material impact on the Company’s tax liability. Recently Adopted Accounting Standards In December 2019, the Financial Accounting Standards Board (“FASB”) issued ASU No. 2019-12, “ Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes (“ASU 2019-12”), which is intended to simplify various aspects related to accounting for income taxes. ASU 2019-12 removes certain exceptions to the general principles in Topic 740 and also clarifies and amends existing guidance to improve consistent application. This guidance is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2020, with early adoption permitted. The Company adopted ASU No. 2019-12 effective January 1, 2021, and the adoption did not have a material impact on its consolidated financial statements. 33 DOMINARI HOLDINGS INC. (Formerly AIkido Pharma, Inc.) Notes to Consolidated Financial Statements 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 . Effect of new accounting pronouncements to be adopted in future periods We reviewed all other recently issued accounting pronouncements and concluded that they were either not applicable or not expected to have a significant impact on our consolidated financial statements. Note 4. License agreements Silo Pharma Inc. Effective January 5, 2021, the Company entered into an exclusive patent license agreement (the “License Agreement”) with Silo Pharma Inc., a Delaware corporation and Silo Pharma Inc., a Florida corporation, and their affiliates/subsidiaries (collectively, “Silo Pharma”). On April 12, 2021, the Company entered into an amendment to the License Agreement, effective as of January 5, 2021, in which 500 shares of the Company’s Series M Convertible Preferred Stock were exchanged for 36,764 restricted shares of the Company’s common stock, par value $ 0.001 per share, or approximately $ 0.5 million. The Company paid a one-time nonrefundable cash payment of $ 0.5 million to Silo Pharma for the License Agreement. The restricted stock and cash payment were recorded as research and development expense when incurred. The Company paid Silo Pharma a running royalty equal to 2 % of “net sales” (as such term is defined in the License Agreement). Running royalties are amounts paid to the licensor over time based on the revenue earned by the licensee from sales of products that embody the licensed IP, if any. University of Maryland On April 13, 2020, the Company entered into a license agreement with the University of Maryland (“UM”) pursuant to which UM granted the Company an exclusive, worldwide, royalty bearing license to certain intellectual property to, among other things, discover, develop, make, have made, use and sell certain licensed products and sell, use and practice certain licensed services with respect to cancer. During the year ended December 31, 2022, the Company paid approximately $ 1.8 million of additional license fees to UM. Note 5. Investments in Marketable Securities The realized gain or loss, unrealized gain or loss, and dividend income related to marketable securities for the years ended December 31, 2022 and 2021, which are recorded as a component of gains and (losses) on marketable securities on the consolidated statements of operations, are as follows ($ in thousands): Years Ended December 31, 2022 2021 Realized (loss) gain $ ( 1,405 ) $ ( 67 ) Unrealized loss ( 4,867 ) ( 3,115 ) Dividend income 320 1,439 Total $ ( 5,952 ) $ ( 1,743 ) Note 6. Short-term investments The following table presents the Company’s short-term investments as of December 31, 2022 and 2021 ($ in thousands): December 31, 2022 December 31, 2021 Investment in Hoth Therapeutics, Inc. - 770 Investment in DatChat, Inc. - 1,084 Investment in Vicinity Motor Corp. 13 419 Total 13 2,273 34 DOMINARI HOLDINGS INC. (Formerly AIkido Pharma, Inc.) Notes to Consolidated Financial Statements The change in the fair value of the short-term investments for the year ended December 31, 2022, is summarized as follows: ($ in thousands): Beginning balance $ 2,273 Transfer to marketable securities ( 1,497 ) Change in fair value of short-term investment ( 763 ) Ending balance $ 13 Investment in Hoth Therapeutics, Inc. On March 11, 2022, 1,130,701 shares of Hoth common stock were transferred to the marketable securities account and were sold for net proceeds of approximately $ 0.9 million. On August 17, 2022, the remaining 35,714 shares of Hoth common stock were transferred to and subsequently sold from the marketable securities account, resulting in an investment in Hoth of $ 0 as of December 31, 2022. The following table summarizes the Company’s investment in Hoth as of December 31, 2021: Security Name Shares Owned as of December 31, 2021 Fair value per Share as of December 31, 2021 Fair value as of December 31, 2021 (in thousands) HOTH 1,166,415 $ 0.66 $ 770 Investment in DatChat, Inc. DatChat, Inc. (“DatChat”) is a communications software company that gives users the ability to communicate with privacy and protection. On August 17, 2021, DatChat closed its initial public offering (the “IPO”) at an initial offering price to the public of $ 4.15 per share under the ticker DATS. The Company records this investment at fair value and records any change in fair value in the statements of operations (see Note 9). On September 22, 2021, the Company entered into a Stock Transfer Agreement, by and between the Company and a purchaser, and sold 167,084 shares of DatChat common stock for net proceeds of approximately $ 0.9 million. On February 14, 2022, 357,916 shares of DatChat common stock were transferred to and subsequently sold from the marketable securities account, resulting in an investment in DatChat of $ 0 as of December 31, 2022. The following table summarizes the Company’s investment in DatChat as of December 31, 2021: Security Name Shares Owned as of December 31, 2021 Fair value per Share as of December 31, 2021 Fair value as of December 31, 2021 (in thousands) DATS 357,916 $ 3.03 $ 1,084 Investment in Vicinity Motor Corp. On October 25, 2021, the Company entered into a warrant agreement with Vicinity Motor Corp. (“Vicinity”) that entitles the Company to purchase up to 246,399 shares of Vicinity common stock at $ 5.10 per share. The warrant expires on October 25, 2024 . The fair value was determined using a Black-Scholes simulation. The Company recorded the fair value of the Vicinity warrant of approximately $ 13,000 and $ 0.4 million in the consolidated balance sheet as of December 31,2022 and 2021, respectively, reflecting the benefit received as part of its purchase of Vicinity common shares through its brokerage account. The initial investment in Vicinity was measured at approximately $ 0.6 million. Gains or losses associated with changes in the fair value of investments in Vicinity warrants are recognized as Change in fair value of investment on the consolidated statements of operations. During the year ended December 31, 2022, the Company recorded approximately $ 0.4 million of change in fair value of investment for this investment. 35 DOMINARI HOLDINGS INC. (Formerly AIkido Pharma, Inc.) Notes to Consolidated Financial Statements The following table provides quantitative information regarding Level 3 fair value measurements inputs at their measurement dates: December 31, 2022 December 31, 2021 Option term (in years) 1.8 2.8 Volatility 76.90 % 95.52 % Risk-free interest rate 4.47 % 0.97 % Expected dividends 0.00 % 0.00 % Stock price $ 0.96 $ 3.50 Note 7. Long-Term Investments The following table presents the Company’s other investments as of December 31, 2022, and 2021 ($ in thousands): December 31, 2022 December 31, 2021 Investment in Kerna Health Inc $ 4,940 $ 3,800 Investment in Kaya Now - 1,665 Investment in Tevva Motors 2,794 2,000 Investment in ASP Isotopes - 1,000 Investment in AerocarveUS Corporation 1,000 1,000 Investment in Qxpress 1,000 - Investment in Masterclass 170 - Investment in Kraken 597 - Investment in Epic Games 3,500 - Investment in Tesspay 2,500 - Investment in SpaceX 3,674 - Investment in Databricks 1,200 - Investment in Discord 476 - Investment in Thrasio 300 - Investment in Automation Anywhere 476 - Investment in Anduril 476 - Total $ 23,103 $ 9,465 The change in the value of the long-term investments for the year ended December 31, 2022, is summarized as follows: ($ in thousands): Beginning balance $ 9,465 Purchase of investments 15,016 Change in fair value of long-term investments 61 Transfer to marketable securities ( 1,439 ) Ending balance $ 23,103 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 December 31, 2022. 36 DOMINARI HOLDINGS INC. (Formerly AIkido Pharma, Inc.) Notes to Consolidated Financial Statements 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 December 31, 2022. 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 unrealized gain of approximately $ 1.4 million offset by a second quarter unrealized loss of approximately $ 0.6 million. The investment in Tevva was valued at approximately $ 2.8 million as of December 31, 2022. 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 December 31, 2022. 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 December 31, 2022. 37 DOMINARI HOLDINGS INC. (Formerly AIkido Pharma, Inc.) Notes to Consolidated Financial Statements 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 December 31, 2022. 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 December 31, 2022. 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 December 31, 2022. 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 raise, Tesspay had an additional fund raise in the fourth quarter 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 December 31, 2022. 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 December 31, 2022. 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 December 31, 2022. 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 December 31, 2022. 38 DOMINARI HOLDINGS INC. (Formerly AIkido Pharma, Inc.) Notes to Consolidated Financial Statements 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 December 31, 2022. 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 December 31, 2022. 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 December 31, 2022. Note 8. Notes Receivable The following table presents the Company’s notes receivable as of December 31, 2022 and 2021 ($ in thousands): December 31, 2022 Maturity Date Stated Interest Rate Principal Amount Interest Receivable Fair Value Shor-term convertible notes receivable Convergent Investment 01/29/2023 8 % $ 2,000 $ 307 $ 2,307 Short-term notes receivable Raefan Industries LLC Investment 6/30/2023 8 % $ 4,730 $ 437 $ 5,167 Total $ 7,474 Long-term notes receivable American Innovative Robotics Investment 04/01/2027 8 % $ 1,100 $ - $ 1,100 December 31, 2021 Maturity Date Stated Interest Rate Interest Receivable Fair Value Shor-term convertible notes receivable Slinger Bag Inc Investment 08/06/2022 8 % $ 45 $ 1,445 Nano Innovations Inc Investment 12/26/2022 10 % $ 1 $ 751 Short-term notes receivable Raefan Group LLC Investment 10/13/2022 8 % $ 48 $ 2,828 Raefan Industries LLC Investment 12/06/2022 8 % $ 11 $ 1,961 Long-term convertible note receivable Convergent Investment 01/29/2023 8 % $ 147 $ 2,147 Convergent Therapeutics, Inc. Investment On January 29, 2021, the Company purchased an 8 % convertible promissory note (“Convergent Convertible Note”) issued by Convergent Therapeutics, Inc. (“Convergent”) in the principal amount of $ 2.0 million pursuant to a Note Purchase Agreement with Convergent. The Company paid a purchase price for the Convergent Convertible Note of $ 2 million. The Company will receive interest on the Convergent Convertible Note at the rate of 8 % per annum payable upon conversion or maturity of the Convergent Convertible Note. The Convergent Convertible Note shall mature on January 29, 2023 . 39 DOMINARI HOLDINGS INC. (Formerly AIkido Pharma, Inc.) Notes to Consolidated Financial Statements The Company recorded an interest income receivable of approximately $ 0.2 million and $ 0.1 million on the Convergent Convertible Note as of December 31, 2022 and 2021, respectively. Mr. Jeffrey Cooper Investment On October 13, 2021, the Company purchased an 8 % promissory note (“Raefan Group Promissory Note”) issued by Raefan Group, LLC (“Raefan Group”) in the principal amount of approximately $ 2.8 million pursuant to a Note Purchase Agreement with Raefan Group. The Company will receive interest on the Raefan Group Promissory Note at the rate of 8 % per annum payable upon conversion or maturity of the Raefan Group Promissory Note. The Raefan Group Promissory Note shall mature on October 13, 2022 . Raefan Group LLC promissory note was satisfied and replaced with a personal note issued to Mr. Jeffrey Cooper, of Raefan Industries. The Mr. Jeffrey Cooper Promissory Note shall mature on March 11, 2023 . On December 6, 2022, Mr. Jeffrey Cooper agreed to amend the original promissory note. See Raefan Industries LLC Investment described below. The Company recorded an interest income receivable of approximately $ 0.2 million on the Mr. Jeffrey Cooper Promissory Note as of December 6, 2022. The Company recorded an interest income receivable of approximately $ 48,000 on the Raefan Group Promissory Note as of December 31, 2021. Raefan Industries LLC Investment On December 6, 2021, the Company purchased an 8 % promissory note (“Raefan Industries Promissory Note”) issued by Raefan Industries, LLC (“Raefan Industries”) in the principal amount of approximately $ 2.0 million pursuant to a Note Purchase Agreement with Raefan Industries. The Company paid a purchase price for the Raefan Industries Promissory Note of approximately $ 2.0 million. The Company will receive interest on the Raefan Industries Promissory Note at the rate of 8 % per annum payable upon conversion or maturity of the Raefan Industries Promissory Note. The Raefan Industries Promissory Note shall mature on December 6, 2022 . The Company recorded an interest income receivable of approximately $ 0.1 million on the Raefan Industries Promissory Note as of December 6, 2022. The Company recorded an interest income receivable of approximately $ 11,000 on the Raefan Industries Promissory Note as of December 31, 2021. On December 6, 2022, the Company, Raefan Industries and Mr. Jeffrey Cooper entered into a Consolidated, Amended and Restated Promissory Note agreement (the “Raefan Amended Note Agreement”). Pursuant to the Raefan Amended Note Agreement, Raefan Industries and Mr. Jeffrey Cooper agreed to consolidate, amend, restate and replace (i) Raefan Industries Promissory Note dated December 6, 2021 in the principal amount of approximately $ 2.0 million and (ii) Mr. Jeffrey Cooper Promissory Note dated March 11, 2022 issued by Mr. Jeffrey Cooper in the principal amount of approximately $ 2.8 million with Raefan Amended Note in the principal amount of approximately $ 4.8 million. All accrued and unpaid interest due under the original notes prior to December 6, 2022 remain due and payable accordance with the terms of this Amended Note. The Company will receive interest on the Raefan Amended Note at the rate of 8 % per annum payable upon conversion or maturity of the Raefan Amended Note. The Raefan Amended Note shall mature on September 30, 2023. The Company recorded an interest income receivable of approximately $ 26,000 on the with Raefan Amended Note as of December 31, 2022. Slinger Bag Inc. (a.k.a, Connexa Sports Technologies Inc.) Investment On August 6, 2021, the Company entered into a securities purchase agreement (the “Slinger Bag Securities Purchase Agreement”) with Slinger Bag Inc., (“Slinger Bag”). Under the Slinger Bag Securities Purchase Agreement, the Company purchased an 8 % convertible promissory note (“Slinger Bag Convertible Note”) in the principal amount of $ 1.4 million and a common stock purchase warrant to purchase up to 933,333 shares of common stock of Slinger Bag. The Company paid a purchase price of $ 1.4 million for the Slinger Bag Convertible Note and the common stock purchase warrant. The Company will receive interest on the Slinger Bag Convertible Note at the rate of 8 % per annum payable upon conversion or maturity of the Slinger Bag Convertible Note. The Slinger Bag Convertible Note shall mature on August 6, 2022. 40 DOMINARI HOLDINGS INC. (Formerly AIkido Pharma, Inc.) Notes to Consolidated Financial Statements The Company recorded an interest income receivable of approximately $ 45,000 on the Slinger Bag Convertible Note as of December 31, 2021. The Company recorded an interest income receivable of approximately $ 63,000 on the Slinger Bag Convertible Note as of June 17, 2022. On June 17, 2022, the Company received 558,659 shares of common stock of Connexa Sports Technologies Inc. as a result of conversion of principal and accrued interest on the Slinger Bag Convertible Note. All the 558,659 shares of common stock of Connexa Sports received were transferred to marketable securities account. Nano Innovations Inc. Investment On December 26, 2021, the Company entered into a securities purchase agreement (the “Nano Securities Purchase Agreement”) with Nano Innovations Inc., (“Nano”). Under the Nano Securities Purchase Agreement, the Company purchased a 10 % senior secured convertible promissory note (“Nano Convertible Note”) in the principal amount of $ 750,000 and warrants permitting the Company to purchase an amount of Nano’s common voting shares equal to 50 % of the number of common shares issuable upon the conversion of Nano Convertible Note. The Company paid a purchase price of $ 750,000 for the Nano Convertible Note and the common stock purchase warrants. The Company will receive interest on the Nano Convertible Note at the rate of 10 % per annum payable upon conversion or maturity of the Nano Convertible Note. The Nano Convertible Note shall mature on December 26, 2022. During the fourth quarter of 2022, the Company identified indicators of impairment for the Nano investment as a result of adverse changes in Nano’s business operations, including liquidity concerns. As a result, the Company recorded an impairment charge in the fourth quarter of 2022 of $ 750,000 , which represents an impairment loss on the total investment held. The investment in Nano was valued at $ 0 as of December 31, 2022. The Company recorded an interest income receivable of approximately $ 0 and $ 1,000 on the Nano Convertible Note as of December 31, 2022, and 2021, respectively. Kaya Now Inc. Investment On April 5, 2022, the Company purchased an 8 % promissory note (“Kaya Now Promissory Note”) issued by Kaya Now Inc. (“Kaya”) in the principal amount of $ 0.5 million pursuant to a Note Purchase Agreement with Kaya Now. The Company paid a purchase price for the Kaya Now Promissory Note of $ 0.5 million. The Company will receive interest on the Kaya Now Promissory Note at the rate of 8 % per annum payable upon conversion or maturity of the Kaya Now Promissory Note. The Kaya Now Promissory Note shall mature on February 1, 2023 . On July 21, 2022, the Company and Kaya executed an amendment of the Kaya Now Promissory Note (“Kaya Amendment”) such that the Kaya Now Promissory Note shall mature on February 1, 2023 . In consideration of the Kaya Amendment, Kaya has agreed to issue to the Company 1,000,000 additional shares at $ 0.2 per share of Kaya’s common stock. Under the Kaya Amendment, interest on the Note during the extended term shall be paid on October 1, 2022 and January 1, 2023 at the rate of 8 % per annum. 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 December 31, 2022. The Company recorded interest income related to the Kaya Now Promissory Note of approximately $ 20,000 for the year ending December 31, 2022. American Innovative Robotics, LLC Investment On April 1, 2022, the Company purchased an 8 % promissory note (“Robotics Promissory Note”) issued by American Innovative Robotics, LLC (“Robotics”) in the principal amount of $ 1.1 million pursuant to a Note Purchase Agreement with Robotics. The Company paid a purchase price for the Robotics Promissory Note of $ 1.1 million. The Company will receive interest on the Robotics Promissory Note at the rate of 8 % per annum payable every three months starting from July 1, 2022. The Robotics Promissory Note shall mature on April 1, 2027 . The Company recorded an interest income of approximately $ 67,000 on the Robotics Promissory Note as of December 31, 2022. 41 DOMINARI HOLDINGS INC. (Formerly AIkido Pharma, Inc.) Notes to Consolidated Financial Statements Note 9. Fair Value of Financial Assets and Liabilities Financial instruments, including cash and cash equivalents, accounts payable and accrued liabilities are carried at cost, which management believes approximates fair value due to the short-term nature of these instruments. The Company measures the fair value of financial assets and liabilities based on the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. The Company maximizes the use of observable inputs and minimizes the use of unobservable inputs when measuring fair value. The Company uses three levels of inputs that may be used to measure fair value: Level 1 - quoted prices in active markets for identical assets or liabilities Level 2 - quoted prices for similar assets and liabilities in active markets or inputs that are observable Level 3 - inputs that are unobservable (for example, cash flow modeling inputs based on assumptions) Observable inputs are based on market data obtained from independent sources, while unobservable inputs are based on the Company’s market assumptions. Unobservable inputs require significant management judgment or estimation. In some cases, the inputs used to measure an asset or liability may fall into different levels of the fair value hierarchy. In those instances, the fair value measurement is required to be classified using the lowest level of input that is significant to the fair value measurement. Such determination requires significant management judgment. The following table presents the Company’s assets and liabilities that are measured at fair value as of December 31, 2022 and 2021 ($ in thousands): 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 Short-term notes receivable at fair value $ 7,474 $ - $ - $ 7,474 Long-term notes receivable at fair value $ 1,100 $ - $ - $ 1,100 Fair value measured as of December 31, 2021 Total at December 31, Quoted prices in active markets Significant other observable inputs Significant unobservable inputs 2021 (Level 1) (Level 2) (Level 3) Assets Marketable securities: Equities $ 11,427 $ 11,427 $ - $ - Total marketable securities $ 11,427 $ 11,427 $ - $ - Short-term investment $ 2,273 $ 1,854 $ - $ 419 Notes receivable at fair value $ 6,984 $ - $ - $ 6,984 Convertible note receivable at fair value $ 2,147 $ - $ - $ 2,147 42 DOMINARI HOLDINGS INC. (Formerly AIkido Pharma, Inc.) Notes to Consolidated Financial Statements 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): Fair Value of Level 3 short-term investment December 31, 2022 December 31, 2021 Beginning balance $ 419 $ - Change in fair value of investment ( 406 ) 419 Ending balance $ 13 $ 419 Fair Value of Level 3 Notes receivable at fair value December 31, 2022 December 31, 2021 Beginning balance $ 6,984 $ - Accrued interest receivable 600 104 Reclassify from convertible note receivable to notes receivable at fair value 2,147 - Purchase of notes receivable 500 6,880 Change in fair value of short-term investment ( 1,858 ) - Conversion of note receivable to marketable securities ( 899 ) - Ending balance $ 7,474 $ 6,984 Fair Value of Level 3 Convertible note receivable December 31, 2022 December 31, 2021 Beginning balance $ 2,147 $ - Purchase of notes receivable - 2,000 Reclassification to notes receivable at fair value ( 2,147 ) - Accrued interest receivable - 147 Ending balance $ - $ 2,147 Fair Value of Level 3 Long-term notes receivable at fair value December 31, 2022 December 31, 2021 Beginning balance $ - Purchase of notes receivable 1,100 Ending balance $ 1,100 Short-term Note Receivable and Convertible Notes Receivable Convergent Therapeutics, Inc. Investment As of December 31, 2022, the fair value of the Convergent Convertible Note was measured at $ 2.3 million, taking into consideration cost of the investment, market participant inputs, market conditions, liquidity, operating results and other qualitative and quantitative factors. No change in fair value was recorded during the year ended December 31, 2022. 43 DOMINARI HOLDINGS INC. (Formerly AIkido Pharma, Inc.) Notes to Consolidated Financial Statements Raefan Industries LLC Investment As of December 31, 2022, the fair value of the Raefan Industries Promissory Note was measured at approximately $ 5.2 million, taking into consideration cost of the investment, market participant inputs, market conditions, liquidity, operating results and other qualitative and quantitative factors. No change in fair value was recorded during the year ended December 31, 2022. Slinger Bag Inc. Investment The Company recorded an interest income receivable of approximately $ 63,000 on the Slinger Bag Convertible Note as of June 17, 2022. On June 17, 2022, the Company received 558,659 shares of common stock of Connexa Sports Technologies Inc (also known as Slinger Bag) as a result of conversion of principal and accrued interest on the Slinger Bag Convertible Note. All the 558,659 shares of common stock of Connexa Sports received were transferred to marketable securities account. As of December 31, 2022, the fair value of the Slinger Bag Convertible Note was $ 0 . Nano Innovations Inc. Investment During the fourth quarter of 2022, the Company identified indicators of impairment for the Nano Convertible Note as a result of adverse changes in Nano’s business operations, including liquidity concerns. As a result, the Company recorded an impairment charge in the fourth quarter of 2022 resulting in a $ 0 fair value for the Nano Convertible Note as of December 31, 2022. Kaya Now Inc. Investment On July 21, 2022, the Company and Kaya executed an amendment of the Kaya Now Promissory Note (“Amendment”) such that the Kaya Now Promissory Note shall mature on February 1, 2023. In consideration of the Amendment, Kaya has agreed to issue to the Company 1,000,000 additional shares at 20 cents per share of Kaya’s common stock. Under the amendment, interest on the Note during the extended term shall be paid on October 1, 2022 and January 1, 2023 at the rate of 8 % per annum. 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 in the fourth quarter of 2022 of $ 0.5 million, which represents an unrealized loss on the total investment held. The investment in Kaya was valued at $ 0 as of December 31, 2022. American Innovative Robotics LLC Investment As of December 31, 2022, the fair value of the Robotics Promissory Note was measured at $ 1.1 million, taking into consideration cost of the investment, market participant inputs, market conditions, liquidity, operating results and other qualitative and quantitative factors. No change in fair value for principal was recorded during the year ended December 31, 2022. 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 “22 nd Floor Premises”). The Company plans to use the 22 nd 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 22 nd 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. 44 DOMINARI HOLDINGS INC. (Formerly AIkido Pharma, Inc.) Notes to Consolidated Financial Statements The tables below represent the Company’s lease assets and liabilities as of December 31, 2022: December 31, 2022 Assets: Operating lease right-of-use-assets $ 919 Liabilities: Current Operating 82 Long-term Operating 680 $ 762 The following tables summarize quantitative information about the Company’s operating leases, under the adoption of ASC 842: December 31, 2022 Weighted-average remaining lease term - operating leases (in years) 7.1 Weighted-average discount rate - operating leases 10.0 % During the year ended December 31, 2022, the Company recorded approximately $ 0.1 million as lease expense to current period operations. Year Ended December 31, 2022 Operating leases Operating lease cost $ 73 Variable lease cost - Operating lease expense 73 Short-term lease rent expense 67 Net rent expense $ 140 Supplemental cash flow information related to leases were as follows: Year Ended December 31, 2022 Operating cash flows - operating leases $ 231 Right-of-use assets obtained in exchange for operating lease liabilities $ 960 As of December 31, 2022, future minimum payments during the next five years and thereafter are as follows: Operating Leases Remaining Period Ended December 31, 2023 $ 154 Year Ended December 31, 2024 154 Year Ended December 31, 2025 142 Year Ended December 31, 2026 142 Year Ended December 31, 2027 142 Thereafter 337 Total 1,071 Less present value discount ( 309 ) Operating lease liabilities $ 762 45 DOMINARI HOLDINGS INC. (Formerly AIkido Pharma, Inc.) Notes to Consolidated Financial Statements Note 11. Net Loss per Share Basic loss per common share 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 as of December 31, 2022 and 2021 are as follows: As of December 31, 2022 2021 Convertible preferred stock 34 34 Warrants to purchase common stock 444,796 341,268 Options to purchase common stock 54,722 28,203 Total 499,552 369,505 Note 12. Redeemable Convertible Preferred Stock Series O and Series P Redeemable Convertible Preferred Stock On February 24, 2022, the Company entered into a Securities Purchase Agreement (the “Purchase Agreement”) with certain institutional investors (the “Investors”), pursuant to which the Company agreed to issue and sell, in concurrent registered direct offerings (the “Offerings”), (i) 11,000 shares of the Company’s Series O Redeemable Convertible Preferred Stock, par value $ 0.001 per share (the “Series O Preferred Stock”), and (ii) 11,000 shares of the Company’s Series P Redeemable Convertible Preferred Stock, par value $ 0.001 per share (the “Series P Preferred Stock” and together with the Series O Preferred Stock, the “Preferred Stock”), in each case, at an offering price of $ 952.38 per share, representing a 5 % original issue discount to the stated value of $ 1,000 per share of Preferred Stock, for gross proceeds of each Offering of $ 10,476,180 , or approximately $ 21.0 million in the aggregate for the Offerings, before the deduction of the placement agent’s fee and offering expenses. The shares of Series O Preferred Stock will have a stated value of $ 1,000 per share and will be convertible, at a conversion price of $ 1.00 per share, into 11,000,000 shares of common stock (subject in certain circumstances to adjustments). The shares of Series P Preferred Stock will have a stated value of $ 1,000 per share and will be convertible, at a conversion price of $ 1.00 per share, into 11,000,000 shares of common stock (subject in certain circumstances to adjustments). The Series O Preferred Stock and the Series P Preferred Stock are being offered by the Company pursuant to a registration statement on Form S-3 (File No. 333-238172) (the “Registration Statement”) filed under the Securities Act of 1933, as amended (the “Securities Act”). The Purchase Agreement contains customary representations, warranties and agreements by the Company and customary conditions to closing. The closing of the Offerings occurred on March 2, 2022. In connection with this transaction, the Company received net proceeds of $ 21.0 million, which was deposited in an escrow account. In connection with the Offerings, the Company has entered into an engagement agreement (the “Engagement Agreement Agreement”) with H.C Wainwright & Company, LLC, as placement agent (“HCW”), pursuant to which the Company agreed to pay HCW an aggregate cash fee equal to 8 % of the aggregate gross proceeds raised in the offerings and issue HCW common stock purchase warrants to purchase up to 103,528 shares of common stock in the aggregate at an exercise price of $ 21.25 . The warrants were recorded as a component of stockholders’ equity in accordance with ASC 815. Redemption Rights After (i) the earlier of (1) the receipt of stockholder approval and (2) the date that is 90 days following the Original Issue Date (the date of the first issuance of any shares of the Preferred Stock regardless of the number of transfers of any particular shares of Preferred Stock and regardless of the number of certificates which may be issued to evidence such Preferred Stock) and (ii) before the date that is 120 days after the Original Issue Date (the “ Redemption Period ”), each Holder shall have the right to cause the Company to redeem all or part of such Holder’s shares of Preferred Stock at a price per share equal to 105 % of the Stated Value. As a result, the Preferred Stock were recorded separately from stockholders’ equity because they are redeemable upon the occurrence of redemption events that are considered not solely within the Company’s control. During the second quarter of 2022, the Company redeemed for cash at a price equal to 105% of the $1,000 stated value per share all of its 11,000 outstanding shares of Series O Preferred Stock and its 11,000 Series P Preferred Stock. The total redemption amount was $ 23.1 million. As a result, all shares of the Series O Preferred Stock and Series P Preferred Stock have been retired and are no longer outstanding. 46 DOMINARI HOLDINGS INC. (Formerly AIkido Pharma, Inc.) Notes to Consolidated Financial Statements During the year ended December 31, 2022, the Company recognized approximately $ 4.1 million in deemed dividends related to the Preferred Stock in the consolidated statements of operations and the consolidated statements of changes in redeemable preferred stock and stockholders’ equity. Note 13. Stockholders’ Equity and Convertible Preferred Stock Common Stock Public Offering On February 19, 2021, the Company consummated the public offering pursuant to an amended and restated underwriting agreement (the “Underwriting Agreement”) with H.C. Wainwright & Co., LLC, as representative to the underwriters named therein (the “Underwriter”), pursuant to which the Company agreed to issue and sell to the Underwriter in an underwritten public offering (the “Offering”) an aggregate of 2,757,352 shares (the “Shares”) of common stock, $ 0.0001 par value per share, of the Company (the “Common Stock”). The Company received gross proceeds of approximately $ 75 million before deducting underwriting discounts and commissions and estimated offering expenses payable by the Company. On February 23, 2021, the Underwriter partially exercised its over-allotment option and purchased an additional 413,583 Shares, resulting in aggregate proceeds of approximately $ 86.2 million, before deducting underwriting discounts and commissions and other expenses. The total net proceeds received from these two offerings were approximately $ 78.2 million. In connection with the Offering, the Company issued the Underwriter warrants (the “Underwriter’s Warrants”) to purchase up to 253,674 shares of Common Stock, or 8 % of the Shares sold in the Offering. The Underwriter’s Warrants will be exercisable for a period of five years from February 19, 2021 at an exercise price of $ 34.00 per share, subject to adjustment. 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 year ended December 31, 2022, the Company repurchased 468,017 shares at a cost of approximately $ 3.1 million or $ 6.53 per share through marketable securities account under the Share Buyback Program. The Company records treasury stock using the cost method. Preferred Stock Series D Convertible Preferred Stock In connection with the acquisition of North South’s patent portfolio in September 2013, the Company issued 1,379,685 shares of its Series D Convertible Preferred Stock (“Series D Preferred Stock”) to the stockholders of North South. Each share of Series D Preferred Stock has a stated value of $ 0.0001 per share and is convertible into 10 over 1,373 of a share of Common Stock. Upon the liquidation, dissolution or winding up of the Company’s business, each holder of Series D Preferred Stock shall be entitled to receive, for each share of Series D Preferred Stock held, a preferential amount in cash equal to the greater of (i) the stated value or (ii) the amount the holder would receive as a holder of Common Stock on an “as converted” basis. Each holder of Series D Preferred Stock shall be entitled to vote on all matters submitted to its stockholders and shall be entitled to such number of votes equal to the number of shares of Common Stock such shares of Series D Preferred Stock are convertible into at such time, taking into account the beneficial ownership limitations set forth in the governing Certificate of Designation and the conversion limitations described below. The conversion ratio of the Series D Preferred Stock is subject to adjustment in the event of stock splits, stock dividends, combination of shares and similar recapitalization transactions. On December 21, 2021, the Company issued 112 shares of common stock upon the conversion of 900 shares of Series D Convertible Preferred stock. As of December 31, 2022, and 2021, 5,000,000 Series D Preferred Stock was designated; 3,825 and 3,825 shares remained issued and outstanding, respectively. 47 DOMINARI HOLDINGS INC. (Formerly AIkido Pharma, Inc.) Notes to Consolidated Financial Statements Series D-1 Convertible Preferred Stock The Company’s Series D-1 Convertible Preferred Stock (“Series D-1 Preferred Stock”) was established on November 22, 2013. Each share of Series D-1 Preferred Stock has a stated value of $ 0.0001 per share and is convertible into 10 over 1,373 of a share of Common Stock. Upon the liquidation, dissolution or winding up of the Company’s business, each holder of Series D-1 Preferred Stock shall be entitled to receive, for each share of Series D-1 Preferred Stock held, a preferential amount in cash equal to the greater of (i) the stated value or (ii) the amount the holder would receive as a holder of Common Stock on an “as converted” basis. Each holder of Series D-1 Preferred Stock shall be entitled to vote on all matters submitted to the Company’s stockholders and shall be entitled to such number of votes equal to the number of shares of Common Stock such shares of Series D-1 Preferred Stock are convertible into at such time, taking into account the beneficial ownership limitations set forth in the governing Certificate of Designation. The conversion ratio of the Series D-1 Preferred Stock is subject to adjustment in the event of stock splits, stock dividends, combination of shares and similar recapitalization transactions. The Company commenced an exchange with holders of Series D Convertible Preferred Stock pursuant to which the holders of the Company’s outstanding shares of Series D Preferred Stock acquired in the Merger could exchange such shares for shares of the Company’s Series D-1 Preferred Stock on a one-for-one basis. As of December 31, 2022 and 2021, 5,000,000 Series D-1 Preferred Stock was designated; 834 shares remained issued and outstanding. Warrants A summary of warrant activity for year ended December 31, 2022, and 2021 is presented below: Warrants Weighted Average Exercise Price Total Intrinsic Value Weighted Average Remaining Contractual Life (in years) Outstanding as of December 31, 2020 101,347 $ 52.26 57,333 1.11 Issued 253,670 34.00 - 4.14 Exercised ( 4,705 ) 17.85 - - Expired ( 9,044 ) 334.51 - - Outstanding as of December 31, 2021 341,268 $ 31.68 - 3.87 Issued 103,528 21.25 - 4.15 Outstanding as of December 31, 2022 444,796 $ 29.25 - 3.20 Confirmation of Mutual Understanding - In March 2022, pursuant to a Confirmation of Mutual Understanding (the “Confirmation”), all parties to the Confirmation acknowledged and confirmed a scrivener’s error set forth in warrants to purchase shares of the Company’s common stock (the “Warrants”) dated March 10, 2020, April 15, 2020 and March 2, 2021. Pursuant to the Confirmation, all parties, which were involved in the original execution of the warrants, agreed that clause (v) of the definition of Fundamental Transaction in Section 3(d) of the Warrants, is as follows: “ the Company, directly or indirectly, in one or more related transactions consummates a stock or share purchase agreement or other business combination (including, without limitation, a reorganization, recapitalization, spin-off, merger or scheme of arrangement) with another Person or group of Persons whereby such other Person or group acquires more than 50 % of the voting power of the Company’s outstanding equity securities, including with respect to the election of directors (not including any shares of Common Stock held by the other Person or other Persons making or party to, or associated or affiliated with the other Persons making or party to, such stock or share purchase agreement or other business combination) ”. Restricted Stock Awards Pursuant to the January 5, 2021, License Agreement, the Company issued and delivered to Silo Pharma 36,764 shares of the Company’s restricted stock as consideration for the license of the Silo Pharma patents. This restricted stock award vested immediately. On July 31, 2021, the Company issued each of its six directors 1,470 shares of the Company’s common stock pursuant to the Company’s 2014 Equity Incentive Plan. These shares have a total fair value of approximately $ 0.1 million. These restricted stock awards vested immediately. 48 DOMINARI HOLDINGS INC. (Formerly AIkido Pharma, Inc.) Notes to Consolidated Financial Statements During the year ended December 31, 2022, the Company issued an aggregate of 238,244 shares of the Company’s common stock to members of the Company’s Board of Directors and an employee for services rendered. A summary of restricted stock awards activity for the year ended December 31, 2022, is presented below: Number of Restricted Stock Awards Weighted Average Grant Day Fair Value Nonvested at December 31, 2021 - $ - Granted 238,244 6.13 Vested ( 230,176 ) 6.15 Nonvested at December 31, 2022 8,068 $ 5.64 As of December 31, 2022, approximately $ 300 of unrecognized stock-based compensation expense was related to restricted stock awards. The weighted average remaining contractual terms of unvested restricted stock awards was approximately 0.01 year as of December 31, 2022. Stock Options A summary of option activity under the Company’s stock option plan for year ended December 31, 2022 and 2021 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, 2020 22,591 $ 680.79 $ 68,996 8.9 Employee options granted 5,882 21.08 - 9.1 Employee options expired ( 270 ) - - - Outstanding as of December 31, 2021 28,203 $ 548.35 $ - 8.2 Employee options granted 170,587 5.95 - 0.3 Employee options forfeited ( 167,381 ) 41.90 - - Employee options expired ( 216 ) 73.70 - - Outstanding as of December 31, 2022 31,193 $ 302.97 $ - 7.9 Options vested and exercisable 25,311 $ 372.00 $ - 7.6 The fair value of options granted in 2022 and 2021 was estimated using the following assumptions: For the Years Ended December 31, 2022 2021 Exercise price $ 5.95 $ 21.08 Term (years) 10.00 10.00 Expected stock price volatility 117.0 % 124.1 % Risk-free rate of interest 2.92 % 0.45 % Stock-based compensation associated with the amortization of stock option expense was $ 13,000 and $ 0.2 million for the years ended December 31, 2022, and 2021, 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 $ 76,000 . 2014 Plan and Option Grants On November 17, 2020, the Board of Directors approved to amend 2014 Equity Incentive Plan to increase the number of shares of common stock authorized to be issued pursuant to the 2014 Plan from 14,314 to 294,117 shares. At December 31, 2022, there were 25,537 shares available for grant under the 2014 Equity Incentive Plan. 49 DOMINARI HOLDINGS INC. (Formerly AIkido Pharma, Inc.) Notes to Consolidated Financial Statements Note 14. Commitments and Contingencies Legal Proceedings In the past, in the ordinary course of business, the Company actively pursued legal remedies to enforce its intellectual property rights and to stop unauthorized use of our technology. Other than ordinary routine litigation incidental to the business, we know of no material, active or pending legal proceedings against us. Note 15. Income Taxes The income tax provision consists of the following ($ in thousands): For the years ended December 31, 2022 2021 Federal Current $ - $ - Deferred ( 3,618 ) ( 1,581 ) Increase in valuation allowance 3,618 1,581 State and local Current Deferred ( 4,825 ) 2,492 Increase in valuation allowance 4,825 ( 2,492 ) Income Tax Provision (Benefit) $ - $ - The following is a reconciliation of the U.S. federal statutory rate to the effective income tax rates for the years ended December 31, 2022 and 2021: For the years ended December 31, 2022 2021 U.S. Statutory Federal Rate 21.00 % 21.00 % State Taxes, Net of Federal Tax Benefit 13.58 % % Other Permanent Differences ( 0.11 )% ( 0.87 )% State rate change in effect 2.95 % ( 5.65 )% AMT credit benefit - % - % Decrease due to true up of State NOL 0.69 % ( 44.95 )% Decrease due to change in Federal NOL and other true ups 0.04 % 12.96 % Change in Valuation Allowance ( 38.15 )% 17.51 % Income Tax Benefit 0.00 % 0.00 % As of December 31, 2022 and 2021, the Company’s deferred tax assets and liabilities consisted of the effects of temporary differences attributable to the following ($ in thousands): As of December 31, 2022 2021 Deferred tax assets: Net-operating loss carryforward $ 26,241 $ 20,161 Stock based compensation 8,358 8,196 Patent portfolio and other 15,299 13,917 Total Deferred Tax assets 49,898 42,274 Valuation allowance ( 49,115 ) ( 39,759 ) Deferred Tax Asset, Net of Allowance $ 783 $ 2,516 Deferred tax liability: Fair value adjustment of investment $ ( 726 ) $ ( 2,516 ) Net lease liability ( 56 ) - 50 DOMINARI HOLDINGS INC. (Formerly AIkido Pharma, Inc.) Notes to Consolidated Financial Statements In assessing the realization of deferred tax assets, management considers whether it is more likely than not that some portion or all of the deferred tax assets will be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the period in which those temporary differences become deductible. Management considers the scheduled reversal of deferred tax liabilities, projected future taxable income and tax planning strategies in making this assessment. The Company has determined that, based on objective evidence currently available, it is more likely than not, the deferred tax assets will not be realized in future periods. Accordingly, the Company has provided a full allowance for the deferred tax assets as of December 31, 2022 and 2021. As of December 31, 2022, the change in valuation allowance is approximately $ 9.4 million. As of December 31, 2022, the Company has approximately $ 41 million federal net operating loss carryovers (“NOLs”), which expire from 2033 through 2037 , and $ 49 million of federal NOLs with indefinite utilization. The Company has approximately $ 113 million of state and city NOLs, which expire from 2024 through 2041 . The NOL carryover may be subject to limitation under Internal Revenue Code section 382, should there be a greater than 50 % ownership change as determined under the regulations. No study has been performed since the last known ownership change of September 10, 2013. As required by the provisions of ASC 740, the Company recognizes the financial statement benefit of a tax position only after determining that the relevant tax authority would more likely than not sustain the position following an audit. For tax positions meeting the more likely than not threshold, the amount recognized in the consolidated financial statements is the largest benefit that has a greater than 50 percent likelihood of being realized upon ultimate settlement with the relevant tax authority. Differences between tax positions taken or expected to be taken in a tax return and the net benefit recognized and measured pursuant to the interpretation are referred to as “unrecognized benefits.” A liability is recognized (or amount of NOL or amount of tax refundable is reduced) for an unrecognized tax benefit because it represents an enterprise’s potential future obligation to the taxing authority for a tax position that was not recognized as a result of applying the provisions of ASC 740. If applicable, interest costs and penalties related to unrecognized tax benefits are required to be calculated and would be classified as interest and penalties in general and administrative expense in the statement of operations. As of December 31, 2022 and 2021, no liability for unrecognized tax benefit was required to be reported. No interest or penalties were recorded during the years ended December 31, 2022 and 2021. The Company does not expect any significant changes in its unrecognized tax benefits in the next year. The Company files U.S. federal and state income tax returns. As of December 31, 2022, the Company’s U.S. and state tax returns (Delaware, New York, New York City, Pennsylvania, Virginia, and Texas) remain subject to examination by tax authorities beginning with the tax return filed for the year ended December 31, 2018, however, there were no audits pending in any of the above-mentioned jurisdictions during 2022 and 2021. The Company believes that its income tax positions would be sustained upon an audit and does not anticipate any adjustments that would result in material changes to its consolidated financial position. Note 16. Related Party Transaction In 2021, the Company engaged the services of Revere Securities, LLC (“Revere”) to strategically manage and build our investment processes. Kyle Wool, Board Member, is the president of Revere. The Company incurred fees of approximately $ 1.0 million and $ 1.2 million during the years ending December 31, 2022, and 2021, respectively. These fees were included in general and administrative expense in the consolidated statements of operations. Note 17. Subsequent Events Amendment to Christopher Devall’s Employment Agreement Effective as of January 1, 2023, Dominari Holdings Inc. (the “Company”) and Christopher Devall amended his employment agreement with the Company, dated as of July 1, 2022 (the “Employment Agreement”). In accordance with the terms of Mr. Devall’s Employment Agreement, which is for a term of five (5) years, Mr. Devall was employed by the Company as the Vice President of Operations. Under the provisions of the Employment Agreement, Mr. Devall was to become Chief Operating Officer of the Company on July 1, 2024, but the Company and Mr. Devall entered into an Amendment to the Employment Agreement, dated as of January 1, 2023 (the “Amendment” and collectively with the Employment Agreement, the “Amended Employment Agreement”), pursuant to which his appointment as Chief Operating Officer of the Company was accelerated to January 1, 2023, and his base salary was increased to $ 350,000 per year, as of January 1, 2023. In addition to the payment of base salary, Mr. Devall received a signing bonus in the form of a restricted stock grant of 8,068 shares of the Company’s common stock, which was fully vested on January 1, 2023. The Amended Employment Agreement also provides for a grant of restricted stock to Mr. Devall with a value of $ 1,000,000 , on the later of July 1, 2022, or such date as there are a sufficient number of shares of common stock reserved under any of the Company’s equity incentive plans for the awarding of such shares of restricted stock. This restricted stock award has not yet been granted. Upon grant, the award will vest in equal amounts over a period of twelve (12) consecutive calendar quarters, subject to certain rights of acceleration upon a change of control and as otherwise provided in the Amended Employment Agreement. Mr. Devall is also entitled to an annual bonus, as determined by the Company’s Compensation Committee, based on certain performance criteria, provided that such annual bonus will not be less than $ 50,000 . Annual bonuses and all stock-based compensation are subject to certain clawback rights as provided in the Amended Employment Agreement. Company Stock Repurchases During the period January 1, 2023 through March 20, 2023, the Company spent approximately $ 865,000 to repurchase 223,909 shares of its common stock at an average price per share of $ 3.86 per share. 51 Closing of FPS Acquisition On September 9, 2022, Dominari Securities LLC (“Dominari Securities ”), a wholly owned subsidiary of Dominari Holdings Inc., entered into a membership interest purchase agreement, as amended and restated on March 27, 2023, (the “FPS Purchase Agreement”) with Fieldpoint Private Bank & Trust (the “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 on March 20, 2023, the second closing occurred on March 27, 2023, at which time Dominari Holdings paid to the Seller an additional $1.00 in consideration for a transfer by the Seller to Dominari Securities of the remaining 80% of the Membership Interests. In connection with the Second Closing, Dominari Securities received approximately $2,000,000 of marketable securities from FPS. Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE. Dismissal of independent registered accounting firm On July 5, 2022, the Company dismissed WithumSmith+Brown, PC (“Withum”) as the Company’s independent registered public accounting firm, effective immediately. The decision to dismiss Withum was approved by the Company’s Audit Committee. The reports of Withum on the Company’s consolidated financial statement as of and for the year ended December 31, 2021 contained no adverse opinion or disclaimer of opinion nor were any such reports qualified or modified as to uncertainty, audit scope or accounting principle. During the fiscal year ending December 31, 2021 and through the date of this Annual Report, there have been no (i) disagreements with Withum on any matter or accounting principles or practices, consolidated financial statement disclosure, or auditing scope or procedure, which connects with its reports; or (ii) “reportable events” as defined in Item 304(a)(1)(v) of Regulation S-K. Withum did not act as the Company’s independent registered public accounting firm during the fiscal year ending December 31, 2020. New independent registered public accounting firm On July 5, 2022, the Company engaged Marcum LLP (“Marcum”), as the Company’s new independent registered public accounting firm. The decision to engage Marcum was approved by the Company’s Audit Committee. During the fiscal year ending December 31, 2021, and through July 5, 2022, the Company has not consulted Marcum regarding (i) application of accounting principles to any specified transaction, either completed or proposed, (ii) the type of audit opinion that might be rendered on the Company’s consolidated financial statements, or (iii) any matter that was either the subject of a disagreement (as defined in Item 304(a)(1)(iv)) or a reportable event (as defined in Item 304(a)(1)(v)). During the fiscal year ending December 31, 2020, Marcum acted as the Company’s independent registered public accounting firm.