Dominari Holdings Inc

Notes to Condensed 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 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.

On October 13, 2023, the Company entered into two separate Limited Liability Agreements with Dominari Manager LLC (“Manager”) and Dominari IM LLC (“Investment Manager”) which are both wholly owned subsidiaries and whose operations are included within the consolidated condensed financial statements of Dominari Holdings Inc. Manager was named as the manager of Dominari Master SPV LLC (the “Master SPV”), a limited liability company formed by the Company in 2022, and is responsible for the day-to-day operations of the Master SPV. Dominari IM LLC (“Investment Manager”) was named the investment manager of Master SPV and is responsible for providing investment advice and decisions on behalf of the Master SPV. Beginning in March 2024, the Manager established various series of funds (the “Series”) of the Master SPV for the purpose of making investments in companies identified by the Investment Manager with proceeds generated by the sale of non-voting interests in such Series by the Master SPV to investors, in which the Company may, from time to time as it deems appropriate, also invest in such series alongside third-party investors.

On May 21, 2024, Dominari Financial and Heritage Strategies LLC (“HS”) entered into a Limited Liability Company Operating Agreement (the “JV Agreement”) of Dominari Financial Heritage Strategies LLC (“DFHS”). The JV Agreement governs the operation of DFHS, including the distributions to the members of DFHS upon the offer, sale and renewal of various insurance products and services, including life insurance, private placement insurance, group medical plans, qualified plans, business insurance, and family office and estate planning services. Pursuant to the terms of the JV Agreement, Dominari Financial and HS are the co-managing members (the “Co-Managing Members”), each with fifty percent (50%) ownership interests in DFHS. Revenues from the sale of the various insurance products and services after deducting general and administrative costs are distributed to the Co-Managing Members as set forth in the JV Agreement.

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.

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 September 30, 2024, condensed consolidated statements of operations for the three months and nine months ended September 30, 2024 and 2023, condensed consolidated statements of stockholders’ equity for the three months and nine months ended September 30, 2024 and 2023, and the condensed consolidated statements of cash flows for the nine months ended September 30, 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 and nine months ended September 30, 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.

Joint Ventures

On May 21, 2024, the Company entered into a limited liability company operating agreement to form Dominari Financial Heritage Strategies LLC (“DFHS”). The Company has a 50% interest in DFHS. The purpose of DFHS is to sell various insurance products and services, including life insurance, private placement insurance, group medical plans, qualified plans, business insurance, and family office and estate planning services. The Company has determined it is not the primary beneficiary of DFH and thus will not consolidate the activities in its consolidated financial statements. The Company will account for its interest in DFHS under the equity method accounting in accordance with ASC 323. As of September 30, 2024, there has been no material activity in DFHS.

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 $14.2 million held in money market funds and liquid insured deposits maintained by the Company with its clearing broker as of September 30, 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).

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:

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 same issuer.

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.

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 and nine months ended September 30, 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):

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 September 30, 2024, and December 31, 2023 ($ in thousands):

The Company recorded an increase in the carrying values of approximately $0.9 million for the three month period ended September 30, 2024 and a decrease in the carrying values of approximately $4.6 million for the nine month period ended September 30, 2024. The Company also recorded a $(0.5) million change in carrying value of investment upon transferring Unusual Machine, Inc shares to marketable securities in addition to the $(6.0) million year to date change from the above table. See Investment in Unusual Machine, Inc below.

Investment in SpaceX

The Company redeemed its holdings in SpaceX in April of 2024 totaling 36,842 shares of participating membership unites of SpaceX for $3.5 million. This resulted in the Company recording a decrease in the carrying value of the investment for the nine month period ended September 30, 2024.

Investment in xAI

On May 2, 2024, the Company entered into an agreement (the “xAI Agreement”) with Dominari Master SPV LLC whereby the Company agreed to purchase 100,000 Series XI xAI Units for $0.1 million.

Investment in Cerebras

On June 17, 2024, the Company entered into an agreement (the “Cerebras Agreement”) with Dominari Master SPV LLC whereby the Company agreed to purchase 25,000 Series XI Cerebras Units for $25,000.

Investment in Groq

On July 25, 2024, the Company entered into an agreement (the “Groq Agreement”) with Dominari Master SPV LLC whereby the Company agreed to purchase 25,000 Series XII Groq Units for $25,000.

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 September 30, 2024, the value of the Company’s holdings in UMAC are presented within the Marketable Securities line item of the financial statements, as the investment has a readily determinable fair value.

Investment in Tevva Motors

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. As of December 31, 2023 the investment was valued at $2.8 million. During the second quarter of 2024, the Company identified indicators of impairment for the Tevva investment as a result of liquidity concerns As a result, the Company recorded an impairment charge of approximately $2.8 million and the investment in Tevva was valued at $0 as of September 30, 2024.

Investment in Tesspay

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 shares with Revere Master SPV LLC-Series VI, who handled the offering for Tesspay. As of December 31, 2023 the investment was valued at $2.7 million. Management noted that Tesspay filed an amendment to its SEC Form S-1 Registration Statement on April 30, 2024 wherein Tesspay disclosed its intent to IPO at between $5.0 and $6.0 price per share. However, given the uncertainty around the probability of the timing of an IPO, the Company has written its investment down to its cost basis. Through the first nine months of 2024 the Company has recorded a decrease in the carrying value of the investment of $1.4 million, with a carrying value of $1.2 million as of September 30, 2024.

Investment in Anduril

In April 2022, the Company entered into a securities purchase agreement (the “Anduril Securities Purchase Agreement”) with Forge Investments LLC, Fund FG-MHM, who handled the offering of Anduril Industries, Inc. shares, a privately-held defense products company. As of December 31, 2023 the investment was valued at $0.5 million. During the second quarter 2024 review of the investment Dominari noted news activity related to a recent arm’s length funding round, raising $1.5 billion. As a result of this the implied holding value of the investment had decreased slightly per the Company’s independent third-party valuation. As a result, the Company recorded an impairment charge of approximately $0.1 million and the investment in Anduril was valued at $0.4 million as of the third quarter of 2024.

Investment in Thrasio

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 of December 31, 2023 the investment was valued at $0.3 million. During our first quarter 2024 review of the Thrasio investment Dominari noted news activity related to Thrasio had filed for Chapter 11 bankruptcy protection. As a result, the Company recorded an impairment charge of approximately $0.3 million and the investment in Thrasio was valued at $0 as of September 30, 2024.

Investment in Epic Games

On March 22, 2022, the Company entered into a securities purchase agreement (the “Epic Games Securities Purchase Agreement”) with Aeon Partners Fund, Series EG, who handled the offering of Epic Games shares. 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 through the Aeon Partners Fund, Series EG. As of December 31, 2023 the investment was valued at $3.5 million. During the Company’s first quarter of 2024 review of the investment Dominari noted a $1.5 billion funding round at a lower price per share than the Company’s initial investment in Epic Games resulting in a $0.9 million decrease in the carrying value of this investment during the nine months ended September 30, 2024. The investment was valued at $2.7 million as of September 30, 2024.

Investment in AdvEn

On December 26, 2021, the Company entered into a securities purchase agreement (the “AdvEn Securities Purchase Agreement”) with AdvEn Inc. (“AdvEn’), formerly known as Nano Innovations Inc. Under the AdvEn Securities Purchase Agreement, the Company purchased a 10% senior secured convertible promissory note (the “AdvEn Convertible Note”) in the principal amount of $750,000 and warrants (“AdvEn Warrants”, and together with the AdvEn Convertible Note, the “AdvEn Convertible Securities”) permitting the Company to purchase an amount of AdvEn’s common voting shares equal to 50% of the number of common shares issuable upon the conversion of the AdvEn Convertible Note. The Company paid a purchase price of $750,000 for the AdvEn Convertible Note and the AdvEn Warrants. In the fourth quarter of 2022, the Company identified indicators of impairment and recorded an impairment loss on the total investment held.

On September 11, 2024, the Company entered into a securities exchange agreement with AdvEn in which the Company agreed to cancel and retire the AdvEn Convertible Securities in exchange for a number of shares of Series D preferred stock of AdvEn equal to 110% of the outstanding amount of the AdvEn Convertible Note that was cancelled multiplied by AdvEn’s initial public offering price, which is convertible into shares and warrants (the “Exchange”) and carries a liquidation preference of $1,000 per share. The investment was valued at $0.9 million as of September 30, 2024.

Note 6. Notes Receivable

The following table presents the Company’s notes receivable as of September 30, 2024 and December 31, 2023 ($ in thousands):

September 30, 2024

December 31, 2023

Convergent Therapeutics, Inc.

The Company recorded principal repayment of approximately $0.3 million, interest income of approximately $53,000 and an unrealized loss on the note of approximately $21,000 on the Convergent Convertible Note for the three months ended September 30, 2024.

The Company recorded principal repayment of $0.7 million, interest income of approximately $0.2 million on the Convergent Convertible Note for the nine months ended September 30, 2024.

Raefan Industries LLC

The Company recorded a realized loss as a result of directly writing off approximately $0.4 million and $2.1 million of principal and interest, which the Company deemed uncollectible during the three and nine months ended September 30, 2024, respectively.

American Innovative Robotics, LLC

The Company recorded interest income of approximately $22,000, and an unrealized loss on the note of approximately $500 on the Robotics Promissory Note for the three months ended September 30, 2024.

The Company recorded interest income of approximately $67,000, and an unrealized loss on the note of approximately $1,700 on the Robotics Promissory Note for the nine months ended September 30, 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.

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 September 30, 2024, and December 31, 2023 ($ in thousands):

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):

September 30, 2024

September 30, 2023

Notes Receivable at fair value

As of September 30, 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. For the nine month period ended September 30, 2024 the Company had realized and unrealized losses on notes receivable of $2.1 million and for the three month period ended the Company had realized and unrealized losses on notes receivable of $0.4 million.

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 September 30, 2024:

The following tables summarize quantitative information about the Company’s operating leases, under the adoption of ASC 842:

During the three and nine months ended September 30, 2024 and 2023, the Company recorded approximately $0.2 million, respectively, of lease expense to current period operations.

Supplemental cash flow information related to leases were as follows:

As of September 30, 2024, future minimum payments during the next five years and thereafter are as follows:

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 nine months ended September 30, 2024, and 2023 are as follows:

Note 10. Stockholders’ Equity and Convertible Preferred Stock

Common Stock

As of September 30, 2024, there are 6,336,286 shares of common stock issued and 6,276,138 shares outstanding.

Treasury Stock

There are 60,148 shares of treasury stock as of September 30, 2024.

Warrants

A summary of warrant activity for the three months ended September 30, 2024, is presented below:

Restricted Stock Awards

In October 2023, the Company issued an aggregate of 96,311 shares of the Company’s common stock to a member of the Company’s Board of Directors for services rendered. These restricted stock awards were vested in 1/3 increments in annual installments beginning April 13, 2024. During the nine months ended September 30, 2024,32,103 shares were vested and the remaining shares forfeited.

On June 11, 2024, the Company executed grant agreements with each of Messrs. Anthony Hayes and Kyle Wool pursuant to their employment agreements with the Company, and in accordance with the Company’s 2022 Equity Incentive Plan. Pursuant to the grant agreements, each received 154,559 shares of the Company’s common stock. Upon issuance, the shares were fully-vested and nonforfeitable with a total fair value of approximately $0.7 million. See Restricted Stock roll-forward below.

A summary of restricted stock awards activity for the nine months ended September 30, 2024, is presented below:

Stock-based compensation associated with the amortization of restricted stock awards expense was approximately $41,000 and $93,000 for the three months ended September 30, 2024, and 2023, respectively, and $0.8 million and $2.7 million for the nine months ended September 30, 2024 and 2023, respectively. All stock compensation was recorded as a component of general and administrative expenses.

As of September 30, 2024, there is approximately $82,800 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 nine months ended September 30, 2024, is presented below:

Stock-based compensation associated with the amortization of stock option expense was approximately $0.1 million and $5,000 for the three months ended September 30, 2024, and 2023, respectively, and $0.3 million and $26,000 for the nine months ended September 30, 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 $0.2 million.

Note 11. Revenue

The following table presents our total revenue disaggregated by revenue type for the three and nine months ended September 30, 2024 and 2023 (in thousands):

Note 12. Commitments and Contingencies

Legal Proceedings

The Company may be subject to certain legal and other claims that arise in the ordinary course of its business. In particular, the Company and its subsidiaries may be named in and subject to various proceedings and claims arising primarily from the Company’s securities business activities, including lawsuits, arbitration claims, class actions, and regulatory matters. Some of these claims may seek substantial compensatory, punitive, or indeterminate damages. The Company and its subsidiaries may also be subject to other reviews, investigations, and proceedings by governmental and self-regulatory organizations regarding the Company’s business, which may result in adverse judgments, settlements, fines, penalties, injunctions, and other relief. Due to the inherent difficulty of predicting the outcome of litigation and other claims the Company cannot state with certainty what the eventual outcome of potential litigation or other claims will be. Notwithstanding this uncertainty, the Company does not believe that the results of these potential claims are likely to have a material effect on its financial position or results of operations.

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.

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 September 30, 2024, Dominari Securities had net capital of approximately $12.46 million, which was approximately $12.31 million in excess of net capital requirement of $0.15 million.

Note 14. Related Party Transaction

In 2021, the Company engaged the services of Revere Securities, LLC (“Revere”) to assist in the management and building of the Company’s investment processes. Kyle Wool, one of the Company’s board members, was previously a member of the board of directors of Revere until June 2023, and currently holds approximately 30% of Revere’s outstanding equity. From time to time, Company participates in offerings of securities as an underwriter in transactions in which Revere is also participating as an underwriter. On such transactions, the Company earned $313,960 and $39,000 in the nine months ending September 30, 2024 and 2023, respectively. The Company incurred referral fees of approximately $45,000 and $80,000 during the three months ending September 30, 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 intwo 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.

Note 16. Income Taxes

The Company recordedno income tax expense for the three months ended September 30, 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 September 30, 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.