Dominari Holdings Inc. 10-Q

Item 1. Financial Statements DOMINARI HOLDINGS INC. Condensed Consolidated Balance Sheets ($ in thousands except share and per share amounts) (Unaudited) March 31, December 31, 2024 2023 (Unaudited) ASSETS Current assets Cash and cash equivalents $ 1,956 $ 2,833 Marketable securities 5,123 13,547 Deposits with clearing broker 14,094 7,687 Prepaid expenses and other assets 2,230 898 Notes receivable, at fair value - current portion 1,955 3,177 Total current assets 25,358 28,142 Property and equipment, net 317 344 Notes receivable, at fair value - non-current portion 1,128 1,129 Long-term equity investments 21,691 24,150 Right-of-use assets 3,242 3,335 Security deposit 458 458 Total assets $ 52,194 $ 57,558 LIABILITIES AND STOCKHOLDERS’ EQUITY Current liabilities Accounts payable and accrued expenses $ 840 $ 1,036 Accrued salaries and benefits - 51 Accrued commissions 295 77 Lease liability - current 419 421 Other current liability 42 22 Total current liabilities 1,596 1,607 Lease liability, less current portion 2,929 3,028 Total liabilities 4,525 4,635 Stockholders’ equity Preferred stock, $.0001 par value, 50,000,000 authorized Series D: 5,000,000 shares designated; 3,825 shares issued and outstanding as of March 31, 2024 and December 31, 2023; liquidation value of $ 0.0001 per share - - Series D-1: 5,000,000 shares designated; 834 shares issued and outstanding as of March 31, 2024 and December 31, 2023; liquidation value of $ 0.0001 per share - - Common stock, $ 0.0001 par value, 100,000,000 shares authorized; 5,995,065 shares issued as of March 31, 2024 and December 31, 2023; 5,934,917 shares outstanding as of March 31, 2024 and December 31, 2023 - - Additional paid-in capital 262,374 262,187 Treasury stock, as of cost, 60,148 shares as of March 31, 2024 and December 31, 2023 ( 501 ) ( 501 ) Accumulated deficit ( 214,204 ) ( 208,763 ) Total stockholders’ equity 47,669 52,923 Total liabilities and stockholders’ equity $ 52,194 $ 57,558 See accompanying notes to unaudited condensed consolidated financial statements. 1 DOMINARI HOLDINGS INC. Condensed Consolidated Statements of Operations ($ in thousands except share and per share amounts) (Unaudited) Three Months Ended March 31, 2024 2023 Revenue $ 1,367 $ - Operating costs and expenses General and administrative 4,172 3,834 Total operating expenses 4,172 3,834 Loss from operations ( 2,805 ) ( 3,834 ) Other income (expenses) Interest income 164 137 Gain (loss) on marketable securities, net 574 ( 65 ) Realized and unrealized gain and loss on notes receivable, net ( 915 ) - Change in fair value of long-term equity investments ( 2,459 ) - Total other income (expenses) ( 2,636 ) 72 Net loss $ ( 5,441 ) $ ( 3,762 ) Net loss per share, basic and diluted Basic and Diluted $ ( 0.91 ) $ ( 0.71 ) Weighted average number of shares outstanding, basic and diluted Basic and Diluted 5,995,065 5,305,513 See accompanying notes to unaudited condensed consolidated financial statements. 2 DOMINARI HOLDINGS INC. Condensed Consolidated Statements of Changes in Redeemable Convertible Preferred Stock and Stockholders’ Equity ($ in thousands except share and per share amounts) (Unaudited) For the Three Months Ended March 31, 2024 and 2023 Preferred Stock Common Stock Additional Paid-in Treasury Stock Accumulated Total Stockholders' Shares Amount Shares Amount Capital Shares Amount Deficit Equity Balance at December 31, 2023 4,659 $ - 5,995,065 $ - $ 262,187 60,148 $ ( 501 ) $ ( 208,763 ) $ 52,923 Stock-based compensation - - - - 187 - - - 187 Net loss - - - - - - - ( 5,441 ) ( 5,441 ) Balance at March 31, 2024 4,659 $ - 5,995,065 $ - $ 262,374 60,148 $ ( 501 ) $ ( 214,204 ) $ 47,669 Preferred Stock Common Stock Additional Paid-in Treasury Stock Accumulated Total Stockholders’ Shares Amount Shares Amount Capital Shares Amount Deficit Equity Balance at December 31, 2022 4,659 $ - 5,485,096 $ - $ 262,970 468,017 $ ( 3,322 ) $ ( 185,881 ) $ 73,767 Stock-based compensation - - - - 5 - - - 5 Cancellation of common stock - - ( 25,000 ) - - - - - - Purchase of treasury stock - - - - - 236,630 ( 939 ) - ( 939 ) Retirement of treasury stock - - ( 644,499 ) - ( 3,760 ) ( 644,499 ) 3,760 - - Net loss - - - - - - - ( 3,762 ) ( 3,762 ) Balance at March 31, 2023 4,659 $ - 4,815,597 $ - $ 259,215 60,148 $ ( 501 ) $ ( 189,643 ) $ 69,071 See accompanying notes to unaudited condensed consolidated financial statements. 3 DOMINARI HOLDINGS INC. Condensed Consolidated Statements of Cash Flows ($ in thousands) (Unaudited) Three Months Ended March 31, 2024 2023 Cash flows from operating activities Net loss $ ( 5,441 ) $ ( 3,762 ) Adjustments to reconcile net loss to net cash used in operating activities: Amortization of right-of-use assets 93 92 Depreciation 26 7 Change in fair value of long-term equity investments 2,459 - Stock-based compensation 187 5 Realized loss on marketable securities 93 56 Unrealized (gain) loss on marketable securities ( 473 ) 130 Realized and unrealized gain and loss on notes receivable, net 915 - Changes in operating assets and liabilities: Prepaid expenses and other assets 6 ( 221 ) Prepaid acquisition cost - 301 Clearing broker deposits ( 6,407 ) - Accounts payable and accrued expenses ( 196 ) ( 19 ) Accrued salaries and benefits ( 51 ) ( 528 ) Accrued commissions 218 - Lease liabilities ( 101 ) 7 Other current liabilities 20 3 Notes receivable, at fair value – net interest accrued 58 ( 62 ) Net cash used in operating activities ( 8,594 ) ( 3,991 ) Cash flows from investing activities Purchase of marketable securities ( 24 ) ( 17,519 ) Sale of marketable securities 8,829 68 Purchase of fixed assets - ( 361 ) Acquisition of FPS, net of cash acquired and receivable owed from FPS - ( 1,149 ) Collection of principal on notes receivable 250 250 Loans to employees ( 1,340 ) - Collection of loans to employees 2 - Net cash provided by (used in) investing activities 7,717 ( 18,711 ) Cash flows from financing activities Purchase of treasury stock - ( 939 ) Net cash used in financing activities - ( 939 ) Net decrease in cash and cash equivalents and restricted cash ( 877 ) ( 23,641 ) Cash and cash equivalents, beginning of period 2,833 33,174 Cash and cash equivalents, end of period $ 1,956 $ 9,533 See accompanying notes to unaudited condensed consolidated financial statements. 4 DOMINARI HOLDINGS INC. Notes to Condensed Consolidated Financial Statements (Unaudited) Note 1. Organization and Description of Business and Recent Developments Organization and Description of Business Dominari Holdings Inc. (the “Company”), formerly AIkido Pharma, Inc., was founded in 1967 as Spherix Incorporated. Since 2017, the Company has operated as a biotechnology company with a diverse portfolio of small-molecule anticancer and antiviral therapeutics and their related patent technology. The Company is in the process of winding down its historical pipeline of biotechnology assets held by Aikido Labs, LLC. In an effort to enhance shareholder value, in June of 2022, the Company formed a wholly owned financial services subsidiary, Dominari Financial Inc. (“Dominari Financial”), with the intent of shifting the Company’s primary operating focus away from biotechnology to the fintech and financial services industries. Through Dominari Financial, the Company acquired Dominari Securities LLC (“Dominari Securities”), an introducing broker-dealer, registered with the Financial Industry Regulatory Authority (“FINRA”) and an investment adviser registered with the Securities and Exchange Commission (“SEC”). Dominari Securities provides investment advisory services and annuity and insurance products of certain insurance carriers as an insurance agency through independent and affiliated brokers. On September 9, 2022, Dominari Financial entered into a membership interest purchase agreement, as amended and restated on March 27, 2023 (the “FPS Purchase Agreement”) with Fieldpoint Private Bank & Trust (“Seller”), a Connecticut bank, for the purchase of its wholly owned subsidiary, Fieldpoint Private Securities, LLC, a Connecticut limited liability company (“FPS”), that is a broker-dealer registered with the Financial Industry Regulatory Authority (“FINRA”) and an investment adviser registered with the SEC. Pursuant to the terms of the FPS Purchase Agreement, Dominari Financial purchased from the Seller 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 Financial. The FPS Purchase Agreement provides for Dominari Financial’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 Financial paid to the Seller $ 2.0 million in consideration for a transfer by the Seller to Dominari Financial 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 occurred on March 27, 2023. Dominari Financial paid to the Seller an additional $ 1.4 million in consideration for a transfer by the Seller to Dominari Financial of the remaining 80 % of the Membership Interests. As a result of the ownership change, FPS was renamed Dominari Securities LLC. Note 2. Liquidity and Capital Resources The Company continues to incur ongoing administrative and other expenses, including public company expenses, in excess of corresponding (non-financing related) revenue. While the Company continues to implement its business strategy, it intends to finance its activities through managing current cash on hand from the Company’s past equity offerings. Based upon projected cash flow requirements, the Company has adequate cash and cash equivalents and marketable securities to fund its operations for at least the next twelve months from the date of the issuance of these unaudited condensed consolidated financial statements. 5 Note 3. Summary of Significant Accounting Policies There have been no material changes in the Company’s significant accounting policies from those previously disclosed in the 2023 Annual Report. Basis of Presentation and Principles of Consolidation The accompanying unaudited condensed consolidated financial statements have been prepared in conformity with U.S. generally accepted accounting principles (“U.S. GAAP”), and in conformity with the rules and regulations of the SEC. In the opinion of management, these financial statements contain all adjustments, consisting of only normal recurring adjustments, necessary for a fair statement of the results of the interim periods presented. The condensed consolidated balance sheet as of March 31, 2024, condensed consolidated statements of operations for the three months ended March 31, 2024 and 2023, condensed consolidated statements of stockholders’ equity for the three months ended March 31, 2024 and 2023, and the condensed consolidated statements of cash flows for the three months ended March 31, 2024 and 2023 are unaudited, but include all adjustments, consisting only of normal recurring adjustments, which the Company considers necessary for a fair presentation of the financial position, operating results and cash flows for the periods presented. The results for the three months ended March 31, 2024 are not necessarily indicative of results to be expected for the year ending December 31, 2024 or for any future interim period. The condensed consolidated balance sheet as of December 31, 2023 has been derived from audited financial statements; however, it does not include all of the information and notes required by U.S. GAAP for complete financial statements. The accompanying unaudited condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements and notes thereto included in the Company’s annual report on Form 10-K for the year ended December 31, 2023. The Company’s policy is to consolidate all entities that it controls by ownership of a majority of the membership interest or outstanding voting stock. The accompanying unaudited condensed consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries, Aikido Labs, Dominari Financial, and Dominari Securities. All significant intercompany balances and transactions have been eliminated in consolidation. Use of Estimates The accompanying unaudited condensed consolidated financial statements have been prepared in conformity with U.S. GAAP. This requires management to make estimates and assumptions that affect certain reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the unaudited condensed consolidated financial statements, and the reported amounts of revenue and expenses during the period. The Company’s significant estimates and assumptions include stock-based compensation, the valuation of investments, the valuation of notes receivable and the valuation allowance related to the Company’s deferred tax assets. Certain of the Company’s estimates could be affected by external conditions, including those unique to the Company and general economic conditions. It is reasonably possible that these external factors could have an effect on the Company’s estimates and could cause actual results to differ from those estimates and assumptions. Deposits with clearing broker Deposits with Dominari Securities’ clearing broker consisted of approximately $ 14.1 million held in money market funds and liquid insured deposits maintained by the Company with its clearing broker as of March 31, 2024. Leases The Company accounts for its leases under ASC 842, Leases (“ASC 842”). Under this guidance, arrangements meeting the definition of a lease are classified as operating or financing leases and are recorded on the unaudited condensed consolidated balance sheet as both a right-of-use asset and lease liability, calculated by discounting fixed lease payments over the lease term at the rate implicit in the lease or the Company’s incremental borrowing rate. Lease liabilities are increased by interest and reduced by payments each period, and the right-of-use asset is amortized over the lease term. For operating leases, interest on the lease liability and the amortization of the right-of-use asset result in straight-line rent expense over the lease term. For finance leases, interest on the lease liability and the amortization of the right-of-use asset results in front-loaded expense over the lease term. Variable lease expenses are recorded when incurred (see Note 8 - Leases ). 6 Revenue The Company recognizes revenue under ASC 606 - Revenue from Contracts with Customers (“ASC 606”) . Revenue is recognized when control of the promised goods or performance obligations for services is transferred to the Company’s customers, in an amount that reflects the consideration the Company expects to be entitled to in exchange for the goods or services. The following provides detailed information on the recognition of the Company’s revenue from contracts with customers: ● Underwriting services include underwriting and placement agent services in both the equity and debt capital markets, including private equity placements, initial public offerings, follow-on offerings, and underwriting and distributing public and private debt. Underwriting and placement agent revenue are recognized at a point in time on trade-date, as the client obtains the control and benefit of the underwriting offering at that point. Costs associated with underwriting transactions are deferred until the related revenue is recognized or the engagement is otherwise concluded and are recorded on a gross basis within the general and administrative line item in the unaudited condensed consolidated statements of operations as the Company is acting as a principal in the arrangement. Any expenses reimbursed by the Company’s clients are recognized as other income. ● Commissions are earned by executing transactions for clients primarily in equity, equity-related, and debt products. Commission revenue associated with trade execution are recognized at a point in time on trade-date. Commissions revenue are generally paid on settlement date and the Company records receivables to account for timing between trade-date and payment on settlement date. ● Account advisory fees are earned in connection with investment advisory services. Account advisory fees are recognized over time using the time elapsed method as the Company determined that the customer simultaneously receives and consumes the benefits of investment advisory services as they are provided. Account advisory fees are generally paid in advance of a specified service period (e.g. quarterly) and are initially deferred within in our Condensed Consolidated Balance Sheet. ● Other revenue includes placement agent services in the equity capital markets for privately held companies distributing private equity. Placement agent revenue are recognized at a point in time on trade-date, as the client obtains the control and benefit of the membership interest offering at that point. Long-term equity investments The Company accounts for long-term equity investments under Accounting Standards Codification (“ASC”) 321 “Investments—Equity Securities” (“ASC 321”). In accordance with ASC 321, equity securities with readily determinable fair values are accounted for at fair value based on quoted market prices. Equity securities without readily determinable fair values are accounted for either at fair value or using the measurement alternative. Under the measurement alternative, the equity investments are measured at cost, less any impairment, if any, plus or minus changes resulting from observable price changes in orderly transactions for the identical or a similar investment of the Company. Recently adopted accounting standards In October 2021, the FASB issued ASU 2021-08, Business Combinations (Topic 805) Accounting for Contract Assets and Contract Liabilities from Contracts with Customers (“ASU 2021-08”). This update amends Topic 805 to add contract assets and contract liabilities to the list of exceptions to the recognition and measurement principles that apply to business combinations and to require that an entity (acquirer) recognize and measure contract assets and contract liabilities in accordance with ASC 606. The Company adopted ASU 2021-08 on January 1, 2023. There was no material impact to the Company’s unaudited condensed consolidated financial statements from the implementation of ASU 2021-08. In June 2022, the FASB issued ASU 2022-03, Fair Value Measurement of Equity Securities Subject to Contractual Sale Restrictions , to clarify that a contractual restriction on the sale of an equity security is not considered part of the unit of account of the equity security and, therefore, is not considered in measuring the fair value of the equity security. ASU 2022-03 also clarifies that an entity cannot recognize and measure a contractual sale restriction as a separate unit of account. The amendments in ASU 2022-03 may be early adopted and are effective on a prospective basis for fiscal years beginning after December 15, 2023, and interim periods within those fiscal years. The Company adopted ASU 2022-03 on January 1, 2024. There was no material impact to the Company’s unaudited condensed consolidated financial statements from the implementation of ASU 2022-03. 7 In March 2023, the FASB issued ASU 2023-01, Leases , to require entities to classify and account for leases with related parties on the basis of legally enforceable terms and conditions of the arrangement. The amendments are effective in periods beginning after December 15, 2023, including interim periods within those fiscal years. The Company adopted ASU 2023-01 on January 1, 2024. There was no material impact to the Company’s unaudited condensed consolidated financial statements from the implementation of ASU 2023-01. Effect of new accounting pronouncements to be adopted in future periods The Company reviewed all other recently issued accounting pronouncements and concluded that they were either not applicable or not expected to have a significant impact on these unaudited condensed consolidated financial statements. Note 4. Marketable Securities The realized gain or loss, unrealized gain or loss, and dividend income related to marketable securities for the three months ended March 31, 2024 and 2023, which are recorded as a component of gains and (losses) on marketable securities on the unaudited condensed consolidated statements of operations, are as follows ($ in thousands): Three Months Ended March 31, 2024 2023 Realized loss $ ( 93 ) $ ( 56 ) Unrealized gain (loss) 473 ( 130 ) Dividend income 193 121 Total $ 574 $ ( 65 ) Note 5. Long-Term Equity Investments The Company holds interests in several privately held and publicly traded companies as long-term investments. The following table presents the Company’s long-term investments as of March 31, 2024, and December 31, 2023 ($ in thousands): Cost Basis as of March 31, 2024 and December 31, 2023 March 31, 2024 December 31, 2023 Investment in Kerna Health Inc $ 2,140 $ 4,940 $ 4,940 Investment in Kaya Now 1,500 - - Investment in Tevva Motors 1,972 2,794 2,794 Investment in ASP Isotopes 1,300 - - Investment in Unusual Machines 1,075 813 1,033 Investment in Qxpress* 1,000 1,000 1,000 Investment in Masterclass* 170 170 170 Investment in Kraken* 597 597 597 Investment in Epic Games* 3,500 2,626 3,500 Investment in Tesspay** 1,240 2,981 2,679 Investment in SpaceX* 3,500 3,500 4,867 Investment in Databricks* 1,200 842 842 Investment in Discord* 476 476 476 Investment in Thrasio* 300 - 300 Investment in Automation Anywhere* 476 476 476 Investment in Anduril* 476 476 476 Total $ 20,922 $ 21,691 $ 24,150 * Investments made in these companies are through a Special Purpose Vehicle (“SPV”). The SPV is the holder of the actual stock. The Company does not hold these stock certificates directly. ** Investments made in these companies are through both an SPV and direct investments. 8 Investment in SpaceX The Company redeemed its entire investment in the portfolio company during April 2024 in exchange for return of cost basis of $ 3.5 million. Investment in Unusual Machines Unusual Machines, Inc, an emerging leader in first-person view (FPV) drone technology, closed its initial public offering of common stock on February 14, 2024 at a public offering price of $ 4 per share and the shares began trading on the NYSE American under the ticker symbol “UMAC”. As of March 31, 2024 the Company valued its investment in Unusual Machines based on UMAC’s market price. Note 6. Notes Receivable The following table presents the Company’s notes receivable as of March 31, 2024 and December 31, 2023 ($ in thousands): March 31, 2024 Maturity Date Stated Interest Rate Principal Amount Interest Receivable Fair Value Notes receivable, at fair value Convergent convertible note 12/2/2024 8 % $ 816 $ - $ 816 Raefan Industries LLC 12/31/2024 8 % $ 389 $ 751 $ 1,139 American Innovative Robotics 04/01/2027 8 % $ 1,106 $ 22 $ 1,128 Notes receivable, at fair value - current portion $ 1,955 Notes receivable, at fair value - non-current portion $ 1,128 December 31, 2023 Maturity Date Stated Interest Rate Principal Amount Interest Receivable Fair Value Notes receivable, at fair value Convergent convertible note 12/2/2024 8 % $ 1,006 $ 58 $ 1,064 Raefan Industries LLC 12/31/2024 8 % $ 1,363 $ 751 $ 2,114 American Innovative Robotics 04/01/2027 8 % $ 1,106 $ 22 $ 1,129 Notes receivable, at fair value - current portion $ 3,177 Notes receivable, at fair value - non-current portion $ 1,129 Convergent Therapeutics, Inc. The Company recorded principal repayment of approximately $ 0.3 million, interest income of approximately $ 63,000 and an unrealized gain on the note of approximately $ 60,000 on the Convergent Convertible Note for the three months ended March 31, 2024. Raefan Industries LLC The Company recorded a realized loss as a result of directly writing off approximately $ 1.0 million of principal, which the Company deemed uncollectible during the three months ended March 31, 2024. American Innovative Robotics, LLC The Company recorded interest income of approximately $ 22,000 , and an unrealized loss on the note of approximately $ 1,000 on the Robotics Promissory Note for the three months ended March 31, 2024. Note 7. Fair Value of Financial Assets and Liabilities Financial instruments, including cash and cash equivalents, accounts payable and accrued liabilities are carried at cost, which management believes approximates fair value due to the short-term nature of these instruments. The Company measures the fair value of financial assets and liabilities based on the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. The Company maximizes the use of observable inputs and minimizes the use of unobservable inputs when measuring fair value. 9 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 March 31, 2024, and December 31, 2023 ($ in thousands): Fair value measured as of March 31, 2024 Total at December 31, Quoted prices in active markets Significant other observable inputs Significant unobservable inputs 2023 (Level 1) (Level 2) (Level 3) Assets Marketable securities: Equities $ 5,123 $ 5,123 $ - $ - Total marketable securities $ 5,123 $ 5,123 $ - $ - Notes receivable at fair value, current portion $ 1,955 $ - $ - $ 1,955 Notes receivable at fair value, non-current portion $ 1,128 $ - $ - $ 1,128 Fair value measured as of December 31, 2023 Total at December 31, Quoted prices in active markets Significant other observable inputs Significant unobservable inputs 2023 (Level 1) (Level 2) (Level 3) Assets Marketable securities: Equities $ 13,547 $ 13,547 $ - $ - Total marketable securities $ 13,547 $ 13,547 $ - $ - Notes receivable at fair value, current portion $ 3,177 $ - $ - $ 3,177 Notes receivable at fair value, non-current portion $ 1,129 $ - $ - $ 1,129 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): Notes receivable at fair value, current portion at December 31, 2023 $ 3,177 Collection of principal outstanding ( 250 ) Realized and unrealized gain and loss on note receivable, net ( 915 ) Change in interest receivable ( 57 ) Notes receivable at fair value, current portion at March 31, 2024 $ 1,955 Notes receivable at fair value, non-current portion at December 31, 2023 $ 1,129 Unrealized loss on notes receivable ( 1 ) Notes receivable at fair value, non-current portion at March 31, 2024 $ 1,128 10 Notes Receivable at fair value As of March 31, 2024, the fair value of the notes receivable was measured taking into consideration cost basis, market participant inputs, market conditions, liquidity, operating results and other qualitative and quantitative factors. No material change was noted in the fair value of the notes receivable during the three months ended March 31, 2024. Note 8. Leases On December 1, 2021, the Company entered into a Lease Agreement (the “Company’s Lease”) with Trump Tower Commercial LLC, a New York limited liability company. Under the Company’s Lease, the Company rents a portion of the twenty-second floor at 725 Fifth Avenue, New York, New York (the “22 nd Floor Premises”). The Company currently uses 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 is required to 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 Financial entered into a Lease Agreement (“Dominari Financial’s Lease”) with Trump Tower Commercial LLC, a New York limited liability company. Under Dominari Financial’s Lease, Dominari Financial rents a portion of a floor at 725 Fifth Avenue, New York, New York (the “Premises”). Dominari Financial currently uses the Premises to run its day-to-day operations. The initial term of Dominari Financial’s Lease is seven ( 7 ) years commencing on the date that possession of the Premises is delivered to Dominari Financial. Under Dominari Financial’s Lease, Dominari Financial is required to pay monthly rent equal to $ 49,368 . Effective for the sixth and seventh years of Dominari Financial’s Lease, the rent shall increase to $ 51,868 per month. The Company took possession of the Premises in February 2023. The tables below represent the Company’s lease assets and liabilities as of March 31, 2024: March 31, 2024 Assets: Operating lease right-of-use-assets $ 3,242 Liabilities: Current Operating 419 Long-term Operating 2,929 $ 3,348 11 The following tables summarize quantitative information about the Company’s operating leases, under the adoption of ASC 842: March 31, 2024 March 31, 2023 Weighted-average remaining lease term – operating leases (in years) 6.2 7.2 Weighted-average discount rate – operating leases 10.0 % 10.0 % During the three months ended March 31, 2024 and 2023, the Company recorded approximately $ 0.2 million, respectively, of lease expense to current period operations. Three Months Ended Three Months Ended March 31, 2024 March 31, 2023 Operating leases Operating lease cost $ 178 $ 134 Operating lease expense 178 134 Short-term lease rent expense 22 30 Net rent expense $ 200 $ 164 Supplemental cash flow information related to leases were as follows: Three Months Ended Three Months Ended March 31, 2024 March 31, 2023 Operating cash flows - operating leases $ 187 $ 34 Right-of-use assets obtained in exchange for operating lease liabilities $ - $ 2,796 As of March 31, 2024, future minimum payments during the next five years and thereafter are as follows: Operating Leases Remaining Period Ended December 31, 2024 560 Year Ended December 31, 2025 685 Year Ended December 31, 2026 685 Year Ended December 31, 2027 685 Year Ended December 31, 2028 766 Thereafter 1,160 Total 4,541 Less present value discount ( 1,193 ) Operating lease liabilities $ 3,348 12 Note 9. Net Loss per Share Basic loss per share of common stock is computed by dividing the net loss allocable to common stockholders by the weighted-average number of shares of common stock or common stock equivalents outstanding for the period. Diluted loss per common share is computed similar to basic loss per share except that it reflects the potential dilution that could occur if dilutive securities or other obligations to issue common stock were exercised or converted into common stock as of the first day of the period. Securities that could potentially dilute loss per share in the future that were not included in the computation of diluted loss per share for the three months ended March 31, 2024, and 2023 are as follows: As of March 31, 2024 2023 Convertible preferred stock 34 34 Warrants to purchase common stock 444,796 444,796 Restricted stock awards 136,309 - Options to purchase common stock 420,096 31,193 Total 1,001,235 476,023 Note 10. Stockholders’ Equity and Convertible Preferred Stock Common Stock As of March 31, 2024, there are 5,995,065 shares of common stock issued and 5,934,917 shares outstanding. Treasury Stock There are 60,148 shares of treasury stock as of March 31, 2024. Warrants A summary of warrant activity for the three months ended March 31, 2024, is presented below: Warrants Weighted Average Exercise Price Total Intrinsic Value Weighted Average Remaining Contractual Life (in years) Outstanding as of December 31, 2023 444,796 $ 29.25 - 2.20 Granted - $ - - - Outstanding as of March 31, 2024 444,796 $ 29.25 - 1.95 Restricted Stock Awards A summary of restricted stock awards activity for the three months ended March 31, 2024, is presented below: Number of Restricted Stock Awards Weighted Average Grant Day Fair Value Nonvested at December 31, 2023 136,309 $ 2.26 Granted - $ - Vested - $ - Nonvested at March 31, 2024 136,309 $ 2.26 Stock-based compensation associated with the amortization of restricted stock awards expense was approximately $ 75,000 and $ 257 for the three months ended March 31, 2024, and 2023, respectively. All stock compensation was recorded as a component of general and administrative expenses. 13 As of March 31, 2024, there is approximately $ 0.2 million unrecognized stock-based compensation expense related to restricted stock awards. Stock Options A summary of option activity under the Company’s stock option plan for the three months ended March 31, 2024, 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, 2023 420,168 $ 5.80 $ - 9.3 Employee options expired ( 72 ) $ 6,410.74 - - Outstanding as of March 31, 2024 420,096 $ 4.71 $ - 9.0 Options vested and exercisable 108,666 $ 8.37 $ - 8.6 Stock-based compensation associated with the amortization of stock option expense was approximately $ 0.1 million and $ 5,000 for the three months ended March 31, 2024, and 2023, 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 $ 0.4 million. Note 11. Revenue The following table presents our total revenue disaggregated by revenue type for the three months ended March 31, 2024 and 2023 (in thousands): Three Months Ended March 31 2024 2023 Underwriting $ 409 $ - Commissions 310 - Advisory fees 341 - Other 307 - Total $ 1,367 $ - Note 12. Commitments and Contingencies Legal Proceedings In March 2024, the Company received a notice of petition of a filed action seeking relief related to the hiring in March 2024 of new registered representatives from the representatives’ former employer. This notice was filed against the Company’s subsidiary, Dominari Securities. The Company does not agree with the plaintiff’s claims. While the Company intends to defend itself vigorously from this claim, it is unable to predict the outcome of such legal proceeding. Any potential loss as a result of this legal proceeding cannot be reasonably estimated. As a result, the Company has not recorded a loss contingency for the aforementioned claim. In the past, in the ordinary course of business, the Company actively pursued legal remedies to enforce its intellectual property rights and to stop unauthorized use of the Company’s technology. Other than ordinary routine litigation incidental to the business, the Company is not aware of any material, active or pending legal proceedings brought against it. 14 Note 13. Regulatory Dominari Securities, the Company’s broker-dealer subsidiary, is registered with the SEC as an introducing broker-dealer and is a member of FINRA. The Company’s broker-dealer subsidiary is subject to SEC Uniform Net Capital Rule (Rule 15c3-1) which requires the maintenance of minimum net capital and requires that the ratio of aggregate indebtedness to net capital, both as defined, shall not exceed 15 to 1. As such, the subsidiary is subject to the minimum net capital requirements promulgated by the SEC and has elected to calculate minimum capital requirements using the basic method permitted by Rule 15c3-1. As of March 31, 2024, Dominari Securities had net capital of approximately $ 13.4 million, which was approximately $ 13.3 million in excess of required minimum net capital of $ 0.1 million. Note 14. Related Party Transaction In 2021, the Company engaged the services of Revere Securities, LLC (“Revere”) to strategically manage and build the Company’s investment processes. Kyle Wool, Board Member, was previously a member of the board of directors of Revere. The Company incurred fees of approximately $ 0 and $ 80,000 during the three months ending March 31, 2024 and 2023, respectively. These fees were included in general and administrative expenses in the unaudited condensed consolidated statements of operations. Note 15. Segment Reporting The Company operates in two reportable business segments: (1) Dominari Financial and (2) Legacy AIkido. The Dominari Financial reportable business segment represents the Company’s broker-dealer business, which is composed of mostly underwriting and transactional service activities. The Legacy AIkido reportable business segment includes Aikido Labs, which manages the investments holdings of the legacy entity. Prior to the FPS Acquisition, the Company operated as a single operating segment comprised of Legacy AIkido. The chief operating decision-maker (“CODM”) has access to and regularly reviews internal financial reporting for each business and uses that information to make operational decisions and allocate resources. Accounting policies applied by the reportable segments are the same as those used by the Company and described in the “ Summary of Significant Accounting Policies. ” While assets are primarily held within the Legacy AIkido reportable business segment, total assets by segment is not disclosed as the CODM does not assess performance, make strategic decisions, or allocate resources based on assets. The measures of segment profitability that are most relied upon by the CODM are gross revenue and net loss, as presented within the table below and reconciled to the statement of operations. Three Months Ended March 31, 2024 Dominari Financial Legacy AIkido Consolidated Revenue $ 1,367 $ - $ 1,367 Operating Costs General and administrative 2,712 1,460 $ 4,172 Loss from operations $ ( 1,345 ) $ ( 1,460 ) $ ( 2,805 ) Other income (expenses) Other income - - - Interest income 137 27 164 Gain on marketable securities - 574 574 Realized and unrealized gain and loss on notes receivable, net - ( 915 ) ( 915 ) Change in fair value of long-term equity investments ( 2,459 ) ( 2,459 ) Total other income (expenses) $ 137 $ ( 2,773 ) $ ( 2,636 ) Net loss $ ( 1,208 ) $ ( 4,233 ) $ ( 5,441 ) Note 16. Income Taxes The Company recorded no income tax expense for the three months ended March 31, 2024 and 2023 because the estimated annual effective tax rate was zero. In determining the estimated annual effective income tax rate, the Company analyzes various factors, including projections of the Company’s annual earnings and taxing jurisdictions in which the earnings will be generated, the impact of state and local income taxes, the ability to use tax credits and net operating loss carry forwards, and available tax planning alternatives. As of March 31, 2024, and December 31, 2023, the Company provided a full valuation allowance against its net deferred tax assets since the Company believes it is more likely than not that its deferred tax assets will not be realized. 15