Dominari Holdings Inc. 10-K

Item 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Forward-Looking Statements The following Management’s Discussion and Analysis of Financial Condition and Results of Operations should be read in conjunction with the Company’s consolidated financial statements as of and for the years ended December 31, 2025 and 2024 and the related notes included in Part II, Item 8 of this Annual Report. This discussion contains forward-looking statements, within the meaning of the safe harbor provisions of the Private Securities Litigation Reform Act of 1995, that involve risks and uncertainties. The Company’s actual results could differ materially from such forward-looking statements. The Company does not undertake to update, revise or correct any of the forward-looking information unless required to do so under the federal securities laws. Readers are cautioned that such forward-looking statements should be read in conjunction with the Company’s disclosures under the heading “Special Cautionary Notice Regarding Forward Looking Statements” included in this Annual Report. Additionally, the Company’s historical results are not necessarily indicative of the results that may be expected in any future period. Amounts are presented in U.S. dollars. You should not place undue reliance on these forward-looking statements. Should one or more of a number of known and unknown risks and uncertainties materialize, or should any of our assumptions prove incorrect, the Company’s actual results or performance may be materially different from those expressed or implied by these forward-looking statements. Factors that could cause actual results to differ include, but are not limited to, those identified below and those discussed in Part I, Item 1A “Risk Factors” of this Annual Report: Our Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”) is provided in addition to the accompanying consolidated financial statements and notes to assist readers in understanding our results of operations, financial condition, and cash flows. The MD&A is organized as follows: ● Overview. Discussion of our business and overall analysis of financial and other highlights affecting the Company in order to provide context for the remainder of the MD&A. ● Critical Accounting Estimate. Accounting estimates we believe are most important to understanding the assumptions and judgments incorporated in our reported financial results and forecasts. ● Recently Issued Accounting Pronouncements. A discussion of recent accounting standards. ● Results of Operations. An analysis of our financial results is presented to compare 2025 to 2024. We also provide a discussion of our Liquidity and Capital Resources position and usage. Overview Dominari is a holding company that, through its various subsidiaries, is engaged in wealth management, investment banking, sales and trading, asset management and insurance. In addition to capital investment, Dominari provides management support to the executive teams of its subsidiaries, helping them to operate efficiently and reduce cost under a streamlined infrastructure. Dominari Financial, a wholly owned subsidiary of Dominari, executes the Company’s growth strategy in the financial services industry. In addition to organic growth, Dominari Financial seeks partnership opportunities and acquisitions of third-party financial assets such as registered investment advisors and businesses, broker dealers, asset management and fintech firms, and insurance brokers. Our first transaction in furtherance of our growth in the financial services industry, the acquisition of 100% of a dually registered broker dealer and investment advisor from Fieldpoint, was consummated on March 27, 2023. The newly acquired dually registered broker-dealer and investment adviser was renamed Dominari Securities and is a wholly owned subsidiary of Dominari Financial. Critical Accounting Estimates We prepare our consolidated financial statements in accordance with U.S. generally accepted accounting principles, which require our management to make estimates that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the balance sheet dates, as well as the reported amounts of revenues and expenses during the reporting periods. To the extent that there are material differences between these estimates and actual results, our financial condition or results of operations would be affected. We base our estimates on our own historical experience and other assumptions that we believe are reasonable after taking account of our circumstances and expectations for the future based on available information. We evaluate these estimates on an ongoing basis. We consider an accounting estimate to be critical if: (i) the accounting estimate requires us to make assumptions about matters that were highly uncertain at the time the accounting estimate was made, and (ii) changes in the estimate that are reasonably likely to occur from period to period or use of different estimates that we reasonably could have used in the current period, would have a material impact on our financial condition or results of operations. We believe that the following accounting estimates we have identified as critical involve a greater degree of judgment and complexity than our other accounting estimates. Accordingly, these are the estimates we believe are the most critical to understanding and evaluating our consolidated financial condition and results of operations. 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. 25 The Company estimates the fair value of time-based vesting stock option grants to employees 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. The fair value of market-based performance awards is calculated using a Monte Carlo simulation. The Company recognizes stock-based compensation expense on a graded-vesting basis over the requisite service period for each separately vesting tranche of each award. Expected Term - The expected term of options represents the period that the Company’s stock-based awards are expected to be outstanding based on either the simplified method, if applicable, which is the half-life from vesting to the end of its contractual term or when applicable, probability estimates of expected exercises of such options. 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. The Company accounts for forfeitures as they occur. Fair Value Financial instruments, including cash and cash equivalents, accounts payable and accrued expenses and accrued compensation and commissions 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 . Securities owned Securities owned consist of equity securities including, common stock and warrants of publicly traded companies which are held by Dominari Securities. Securities owned and securities sold, but not yet purchased are recorded in the balance sheet at fair value, with the change in fair value and any realized gains or losses upon purchase or sale recorded within the statement of operations as principal transactions. Dominari Securities may receive securities, including common or preferred stock and stock purchase warrants, from companies as part of its compensation for underwriting services. These instruments are stated at fair value in accordance with GAAP, and recorded within the balance sheet as securities owned. Such securities that the Company receives may be subject to contractual or instrument specific restrictions which prevent Dominari Securities from reselling the securities within the open market. Under ASC 820 only those restrictions which are an attribute of the instrument, and do not arise from any contractual agreement, are considered when determining fair value. Equities A portion of the Company’s equity securities, which are held by Dominari Securities are subject to restrictions. Equities that have periods of contractual trading restrictions, discounts were considered in determining fair value The Company’s significant unobservable inputs, included the implied probability of 15% of certain marketplace transactions and events occurring which would permit the sale of equities held. These equities are included in securities owned. The Company holds certain other strategic investments that are not part of its broker-dealer trading activities. These investments are accounted for under ASC 321 using the measurement alternative. Equity securities that are not part of our broker-dealer trading activities are included marketable securities on the consolidated balance sheet. These investments are generally strategic in nature and are not actively traded. Unrealized gains and losses on these investments are recognized in earnings when impairment is identified or when observable price changes occur and are classified in other income (loss) in the consolidated statement of operations. 26 Warrant Investments Warrant fair values are primarily determined using a Black Scholes option pricing model, which includes the underlying stock price, warrant strike price, expected remaining term, volatility, and risk-free rate as the primary inputs to the model. Increases or decreases in any of these inputs could result in a material change in fair value. Additionally, for warrants that have periods of contractual trading restrictions, marketability discounts were considered in determining fair value. Warrants held by Dominari Securities are included in securities at fair value owned and other warrants are included in marketable securities. ● The following inputs are considered for determining the fair values of warrants: ● The underlying stock price is equal to the closing price of the underlying stock as of the measurement date. ● The expected remaining term is equal to the time to expiration of the warrant investment. ● Volatility, or the amount of uncertainty or risk about the size of the changes in the warrant investment price. ● The risk-free interest rates are derived from the U.S. Treasury yield curve. The risk-free interest rates are calculated based on a weighted average of the risk-free interest rates that correspond closest to the expected remaining term of the warrant investment. ● Marketability discounts are applied for warrants that have sales restrictions (or lock-up periods). These discounts are calculated using a combination of the Finnerty Model and the Asian Put Model using a term equal to the period of such restriction. 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. Under this guidance, the Company makes certain assumptions as to the fair value of the underlying notes. The primary critical estimate is the credit risk of the underlying companies. Any future credit risk is not known, as there is uncertainty, and subject to further estimates by the Company. Additionally, any future events are not taken into account, which could result in further estimates of the fair value of any outstanding notes. Long-Term 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. Any equity securities with a readily determinable fair value are included within marketable securities on the accompanying consolidated balance sheet. Equity securities without readily determinable fair values are accounted for either at net asset value or using the measurement alternative. Under the measurement alternative, the equity investments are measured at cost, less any impairment, if any, plus or minus changes resulting from observable price changes in orderly transactions for the identical or a similar investment of the same issuer. These investments are accounted for under ASC 321 using the measurement alternative. Equity method investments and other long-term investments that are not part of our broker-dealer trading activities are included in “long term equity investment” on the consolidated balance sheet. These investments are generally strategic in nature and are not actively traded. Unrealized gains and losses on these investments are recognized in earnings when impairment is identified or when observable price changes occur and are classified in other income (loss) in the consolidated statement of operations. The Company, throughout the process of determining if there are any changes resulting from observable price changes is faced with the risk of estimating certain aspects of its underlying investments. There are limited observable and orderly transactions that are known to the Company, due to the fact that its investments are primarily private companies. The Company estimates and uses judgments for these underlying investments, that result in uncertainty and estimates which could result in future changes in the carrying value of the investments. Additionally, the Company uses any information which is known to them, which could be from different types of instruments. Any estimates the Company may use, are its best estimate and may be subject to risk of further changes. Effect of new accounting pronouncements to be adopted in future periods In November 2024, the FASB issued ASU No. 2024-03, “Income Statement - Reporting Comprehensive Income - Expense Disaggregation Disclosures.” This ASU requires that each interim and annual reporting period, an entity discloses more information about the components of certain expense captions that is currently disclosed in the financial statements. This update is effective for annual reporting periods beginning after December 15, 2026. Early adoption is permitted. Management is currently evaluating the effects this guidance will have on its financial statements. 27 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 consolidated financial statements. Recently Issued Accounting Pronouncements See Note 3 to the consolidated financial statements for a discussion of recent accounting standards. Results of Operations Comparison of Results for the Fiscal Year Ended December 31, 2025 and December 31, 2024 Years Ended December 31, 2025 2024 Revenues Underwriting services $ 79,030 $ 11,362 Carried interest 22,681 — Commissions 19,551 6,065 Interest income 1,272 666 Principal transactions (872 ) 2,158 Other revenue 1,442 720 Total revenue 123,104 20,971 Operating costs and expenses Compensation and benefits 145,270 21,980 Advisory fees 21,108 116 Legal fees 2,877 722 Professional and consulting fees 3,003 2,666 Other expenses 6,572 4,189 Total operating expenses 178,830 29,673 Loss from operations (55,726 ) (8,702 ) Other income (expenses) Other income 10 86 Interest income 65 293 Gain on marketable securities, net 42,276 3,085 Realized and unrealized gain (loss) on notes receivable, net 221 (2,347 ) Change in carrying value of investments — (7,118 ) Total other income (expenses) 42,572 (6,001 ) Net loss before income tax expense $ (13,154 ) $ (14,703 ) Provision for income taxes 7,318 — Net loss (20,472 ) (14,703 ) Less: Net income attributable to non-controlling interests 1,963 — Net loss attributable to common stockholders of Dominari Holdings Inc. $ (22,435 ) $ (14,703 ) During the year ended December 31, 2025, we recognized approximately $123.1 million in revenue from operations, an increase of approximately $102.1million as compared to the year ended December 31, 2024, primarily driven by the increase in our activities of Dominari Securities. The increase in revenue was primarily attributable to the following: i. Underwriting service revenue increased by $67.7 million or 596% from $11.4 million to $79.0 million in 2025 as compared to 2024, reflecting the impact of it increased efforts in both private placement and registered offering underwriting activities and deal flow. ii. Carried interest revenue totaled $22.7 million in 2025 as compared to no such revenue in 2024 as a result of receiving variable consideration from investment management customers. iii. Commission revenues increased by $13.5 million or 222% in 2025 as compared to 2024 as a result of the increased trading activity driven from the increased customer base from the Company’s underwriting deals. During the year ended December 31, 2025, we recognized $178.8 million in operating costs and expenses representing an increase of $149.2 million or 503% as compared to the year ended December 31, 2025. The increase in operating costs and expenses is primarily a result of the following: i. Compensation and benefits increased by $123.3 million or 561% in 2025 as compared to the comparable period in 2024 primarily as a result of increased commissions from the significant increase in revenues along with and increase in the stock-based compensation totaling $33.7 million in 2025 as compared to $1.6 million in 2024. ii. The Company recorded $21.1 million of advisory fees in 2025 as compared to $0.1 million in 2024 primarily as a result of issuing 2.55 million shares of common stock to certain advisors in February 2025. 28 iii. During the year ended December 31, 2025, other income was approximately $42.5 million as compared to an other expense of $6.0 million for the year ended December 31, 2024. The activity for the years ended December 31, 2025 and 2024, is primarily a result of the following: iv. Gain on marketable securities, net: In 2025 we recognized a gain of approximately $42.3 million for the year ended December 31, 2025 primarily as a result of the Company’s investment in American Bitcoin Corp (“ABTC”) that resulted in an unrealized gain of $39.4 for the year . For the year ended December 31, 2024, we recorded gains on marketable securities totaling $3.1 million from the securities held that the parent holding company. v. Change in carrying value of investments: we recognized no change in carrying value of long term investments for the year ended December 31, 2025. During the year ended December 31, 2024, we recognized a reduction in the carrying value of long-term investments of $7.1 million. This change of approximately $7.1 million was the direct result of the Company writing down investments due to performance during the year ending December 31, 2025. vi. Realized and unrealized gain (loss) on notes receivable: For the year ended December 31, 2025 the Company recorded a realized gain of $0.2 million on a note that was satisfied during the period a $2.3 million loss for the year ended December 31, 2024 primarily related to a $2.1 million write off of a note that was deemed uncollectible during the year. During the year ended December 31, 2025, we recorded income tax expense of $7.3 million as compared to $0.0 in 2024 primarily as a result of the increase in revenue and the tax impact of certain expenses related to compensation that are not allowable deductions for tax purposes. Net loss of $20.5 million in 2025 was $5.8 million or 39.2% higher than the $14.7 million loss reported in 2024 . In 2025, non-controlling interest of $2.0 million was recorded increasing the net loss attributable to common stockholders’ of the Company to $22.4 million or a $7.7 million increase as compared to $14.7 million in 2024. Non-GAAP Comparison of Results for the Fiscal Year Ended December 31, 2025, and December 31, 2024 To supplement its consolidated financial statements presented in accordance with U.S. generally accepted accounting principles (GAAP), the table below summarizes the additional non-GAAP financial measures of loss from operations, net income (loss) applicable to common stockholders’ of Dominari Holdings and earnings per share as adjusted from excluding non-cash stock-based compensation. Such noncash stock-based compensation represents charges included in compensation and benefits expense and advisory expense as reported on the Company’s consolidated statement of operations. The Company believes that these non-GAAP financial measures are appropriate to enhance understanding of its past performance as well as prospects for future performance. The non-GAAP financial measures should be considered in addition to, not as a substitute for, measures of financial performance prepared in accordance with U.S. GAAP. A reconciliation of the differences between these non-GAAP financial measures with the most directly comparable financial measure calculated in accordance with GAAP is shown in the table below ($ thousands): Year Ended Year Ended December 31, 2025 December 31, 2024 Loss from operations $ (55,726 ) $ (8,702 ) Non-cash stock-based compensation 55,007 1,633 Adjusted loss from operations $ (719 ) $ (7,069 ) Net loss attributable to common stockholders’ of Dominari Holdings $ (22,435 ) $ (14,703 ) Non-cash stock-based compensation 55,007 1,633 Adjusted net income (loss) to common stockholders’ of Dominari Holdings $ 32,572 $ (13,070 ) Adjusted net income (loss) per share, basic $ 2.28 $ (2.11 ) Weighted average number of shares outstanding, basic 14,285,097 6,183,397 Liquidity and Capital Resources We continue to incur ongoing administrative and other expenses, including public company expenses. While we continue to implement our business strategy, we intend to finance our activities through: ● managing current cash and cash equivalents on hand from our past debt and equity offerings; ● seeking additional funds raised through the sale of additional securities in the future; and ● seeking additional liquidity through credit facilities or other debt arrangements. 29 Our ultimate success is dependent on our ability to generate sufficient cash flow to meet our obligations on a timely basis. Our business may require significant amounts of capital to sustain operations that we need to execute our business plan to support our transition into the financial services industry. Our working capital amounted to approximately $53.1million as of December 31, 2025. As of December 31, 2025, we had approximately $34.0 million of cash and cash equivalents, $46.5 million of marketable securities and $9.8 million of securities owned. Additionally, we had approximately $4.0 million in receivable from clearing brokers. All of such funds are available to fund our operations. We believe our cash and cash equivalents and marketable securities, together with the anticipated cash flow from operations will be sufficient to meet our working capital and capital expenditure requirements for at least the next 12 months. In the event that cash flow from operations is not sufficient to fund our operations, as expected, or if our plans or assumptions change, including if inflation begins to have a greater impact on our business or if we decide to move forward with any activities that require more outlays of cash than originally planned, we may need to raise additional capital sooner than expected. We may raise this additional capital by obtaining additional debt or equity financing, especially if we experience downturns in our business that are more severe or longer than anticipated, or if we experience significant increases in expense levels resulting from being a publicly traded company or from continuing operations. Our ability to obtain capital to implement our growth strategy over the longer term will depend on our future operating performance, financial condition and, more broadly, on the availability of equity and debt financing. Capital availability will be affected by prevailing conditions in our industry, the global economy, the global financial markets, and other factors, many of which are beyond our control. Specifically, as a result of recent volatility and weakness in the public markets, due to, among other factors, uncertainty in the global economy and financial markets, it may be much more difficult to raise additional capital, if and when it is needed, unless the public markets become less volatile and stronger at such time that we seek to raise additional capital. In addition, any additional debt service requirements we take on could be based on higher interest rates and shorter maturities and could impose a significant burden on our results of operations and financial condition, and the issuance of additional equity securities could result in significant dilution to stockholders. Cash Flows from Operating Activities For the years ended December 31, 2025, net cash provided by operations was approximately $22.7million as compared to net cash used in operations of $16.7 million for the year ended December 31, 2024. The cash provided by operating activities for the year ending December 31, 2025, is primarily attributable to net loss of approximately $20.5 million, non-cash underwriting revenue of approximately $27.3 million, and an unrealized gain on marketable securities of approximately $42.3 million, offset primarily by non-cash commission expense of approximately $20.3 million, stock-based compensation of approximately $55.0 million, , and changes in operating assets and liabilities of approximately $38.8 million. The cash used in operating activities for the year ending December 31, 2024, is primarily attributable to a net loss of approximately $14.7 million, change in carrying value of long-term investment of approximately $7.1 million, stock-based compensation of approximately $1.6 million, realized gain on marketable securities of approximately $6.4 million, unrealized loss on marketable securities of approximately $1.7 million, realized and unrealized loss on note receivable of approximately $2.3 million and changes in operating assets and liabilities of approximately $8.6 million. Cash Flows from Investing Activities For the years ended December 31, 2025 and 2024, net cash provided by investing activities was approximately $1.9 million and $17.9 million, respectively. The cash provided by investing activities for the year ended December 31, 2025, primarily resulted from our sale of marketable securities of approximately $17.9 million and collection of principal on note receivable of approximately $1.1 million, partially offset by our purchase of marketable securities of approximately $18.0 million and redemption of long-term investments of approximately of $0.5 million. The cash provided by investing activities for the year ended December 31, 2024, primarily resulted from our purchase of marketable securities of approximately $6.2 million, offset by our sale of marketable securities of approximately $21.2 million, sale of long-term investments of $4.3 million, loans to employees of $2.4 million and collection of principal on note receivable of approximately $1.0 million. Cash Flows from Financing Activities For the years ended December 31, 2025 and 2024, net cash provided by financing activities was approximately $5.3 million and $0, respectively. The cash provided by financing activities for the year ended December 31, 2025, was resulted from the issuance of common stock in equity raise of approximately $13.6 million and issuance of common stock for the warrants exercised of approximately $5.6 million offset by the dividends paid of approximately $11.9 million and distributions to non-controlling interest of approximately $2.0 million. Contractual obligations None.