Dominari (DOMH) - 2022 Q4 - Annual Report

Part I Business Dominari Holdings Inc. transitioned from biotechnology to financial services, acquiring a broker-dealer to offer comprehensive financial services - The company shifted its primary focus from biotechnology to financial services in the second half of 2022 to enhance shareholder value[15] - On March 27, 2023, the company completed the acquisition of a registered broker-dealer, to be renamed Dominari Securities, LLC[13][16] - Dominari Securities will offer a broad range of services, including wealth management, asset management, investment banking, and sales and trading[17][20][25][30] - The company is in the process of winding down its historical biotechnology assets[14] - As of December 31, 2022, the company had 7 full-time and 1 part-time employees[45] Risk Factors The company faces significant risks from its limited financial services operating history, ongoing losses, internal control weaknesses, market volatility, and extensive regulation - The company has a limited operating history in its new financial services business, making it difficult to evaluate its prospects[47] Recent Financial Performance | Metric | Value (as of Dec 31, 2022) | | :--- | :--- | | Net Loss | $22.1 million | | Accumulated Deficit | $185.9 million | - As of December 31, 2022, management concluded that internal controls over financial reporting were not effective due to a lack of segregation of duties[52] - The business is highly dependent on market and economic conditions, impacting fees, transaction volume, and trading revenues[53][56] - The company faces intense competition for qualified employees, and the loss of key personnel could harm the business[59][60] - The financial services industry is subject to extensive regulation by the SEC, FINRA, and state regulators, with potential for significant penalties for non-compliance[96][97][99] - The company's common stock is at risk of being delisted from The Nasdaq Capital Market if it fails to meet continued listing standards[108][111] Unresolved Staff Comments As a smaller reporting company, Dominari Holdings Inc. is not required to provide information for this item - The company is not required to provide this information as it qualifies as a smaller reporting company[116] Properties The company leases office space in New York, NY, which is considered adequate for current operational needs - The company leases offices in New York, New York, considered sufficient for current needs[117] Legal Proceedings The company is not aware of any material, active, or pending legal proceedings, aside from ordinary routine litigation - There are no known material, active, or pending legal proceedings against the company, aside from ordinary routine litigation[118] Mine Safety Disclosures This item is not applicable to the company - This section is not applicable[119] Part II Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities The company's common stock trades on Nasdaq, with no cash dividends paid, and details provided on share repurchases and equity compensation plans - The company's common stock trades on the Nasdaq Capital Market under the symbol "DOMH", with 4,840,597 shares outstanding as of March 20, 2023[5][122][123] - The company has never paid cash dividends and does not plan to in the foreseeable future[124] Share Repurchases - Q4 2022 | Period | Total Number of Shares Purchased | Average Price Paid Per Share | Value Remaining for Purchase (in thousands) | | :--- | :--- | :--- | :--- | | Oct 2022 | - | - | $2,000 | | Nov 2022 | - | - | $2,000 | | Dec 2022 | 18,200 | $3.1563 | $1,942 | Equity Compensation Plan Information (as of Dec 31, 2022) | Plan Category | Securities to be issued upon exercise | Weighted average exercise price | Securities remaining for future issuance | | :--- | :--- | :--- | :--- | | Approved by security holders | 479,654 | $32.35 | 4,555,144 | Management's Discussion and Analysis of Financial Condition and Results of Operations Dominari shifted to financial services in 2022, reporting a $22.1 million net loss due to transition costs and investment losses, with $48.9 million working capital for future operations Financial Results Comparison (Fiscal Years) | Metric | 2022 | 2021 | | :--- | :--- | :--- | | Loss from Operations | $(14.4) million | $(9.4) million | | Other (Expense) Income | $(7.8) million | $2.3 million | | Net Loss | $(22.1) million | $(7.2) million | | Net Loss per Share | $(4.91) | $(1.48) | - The $5.0 million increase in loss from operations was primarily due to a $4.0 million increase in G&A expenses, including $1.5 million in stock grants, $1.5 million in bonuses, and $1.6 million in advisory fees for the business transition[139] - Other expenses of $7.8 million in 2022 were mainly due to a $6.0 million loss on marketable securities and a $2.6 million loss on the change in fair value of investments[139] Cash Flow Summary (Fiscal Years, $ in millions) | Cash Flow Category | 2022 | 2021 | | :--- | :--- | :--- | | Net Cash Used in Operating Activities | $(10.6) | $(6.6) | | Net Cash Used in Investing Activities | $(14.6) | $(8.9) | | Net Cash (Used in) Provided by Financing Activities | $(7.2) | $78.3 | - The company had working capital of approximately $48.9 million as of December 31, 2022, and believes it has adequate cash to fund operations for at least the next twelve months[140][188] Quantitative and Qualitative Disclosures about Market Risk As a smaller reporting company, Dominari Holdings Inc. is not required to provide information for this item - The company is not required to provide this information as it qualifies as a smaller reporting company[145] Consolidated Financial Statements and Supplemental Data Consolidated financial statements for 2022 and 2021 are presented, showing a $22.1 million net loss in 2022, decreased total assets, and the auditor's critical audit matter on investment valuation - The independent auditor, Marcum LLP, identified the valuation of investments and notes receivable as a critical audit matter for the 2022 financial statements[157] Consolidated Balance Sheet Highlights (as of Dec 31, $ in thousands) | Account | 2022 | 2021 | | :--- | :--- | :--- | | Cash and cash equivalents | $33,174 | $65,562 | | Total current assets | $50,656 | $90,889 | | Total Assets | $76,236 | $102,656 | | Total Liabilities | $2,469 | $1,061 | | Total Stockholders' Equity | $73,767 | $101,595 | Consolidated Statement of Operations Highlights (Year ended Dec 31, $ in thousands) | Account | 2022 | 2021 | | :--- | :--- | :--- | | Total operating expenses | $14,346 | $9,441 | | Loss from operations | $(14,346) | $(9,441) | | Total other (expenses) income | $(7,761) | $2,270 | | Net loss | $(22,107) | $(7,171) | - In February 2022, the company issued $22 million in Series O and P Redeemable Convertible Preferred Stock, subsequently redeemed for $23.1 million in the second quarter of 2022[309][313] - The company has significant investments in privately-held companies, including Kerna Health, Tevva Motors, Epic Games, and SpaceX, valued at a total of $23.1 million as of December 31, 2022[236] Part III Changes in and Disagreements with Accountants on Accounting and Financial Disclosure On July 5, 2022, the company changed its independent auditor from WithumSmith+Brown, PC to Marcum LLP, with no reported disagreements - On July 5, 2022, the Audit Committee dismissed WithumSmith+Brown, PC and engaged Marcum LLP as the new independent registered public accounting firm[349][352] - There were no disagreements with Withum on any matter of accounting principles, financial statement disclosure, or auditing scope or procedure during its tenure[351] Controls and Procedures Management concluded that disclosure controls and internal controls over financial reporting were effective as of December 31, 2022, with previously identified material weaknesses remediated - Management concluded that disclosure controls and procedures were effective as of December 31, 2022[355] - Material weaknesses identified in 2021 (lack of segregation of duties and inadequate controls) were remediated as of December 31, 2022[357] - Management concluded that internal controls over financial reporting were effective as of December 31, 2022, based on the COSO framework[359] Directors, Executive Officers and Corporate Governance This section lists directors and executive officers, details independent committee compositions, identifies an audit committee financial expert, and notes the ongoing adoption of a code of ethics Key Executive Officers and Directors | Name | Position | | :--- | :--- | | Robert J. Vander Zanden | Director and Chairman of the Board | | Anthony Hayes | Chief Executive Officer and Director | | Carlos Aldavero | President, Dominari Financial Inc. | | Christopher Devall | Vice President of Operations | - The Audit Committee, comprised of independent directors, includes Timothy Ledwick as the designated 'audit committee financial expert'[383] - The Compensation Committee consists of independent directors Kyle Wool (Chairman), Robert J. Vander Zanden, and Robert Dudley[386] - The company is in the process of adopting a written code of business conduct and ethics[389] Executive Compensation This section details executive compensation for 2022, including CEO Anthony Hayes's $1,693,350 total compensation, employment agreements, and non-employee director compensation Summary of Executive Compensation for 2022 | Name and Principal Position | Salary ($) | Bonus ($) | Stock Awards ($) | Option Awards ($) | All Other Comp ($) | Total ($) | | :--- | :--- | :--- | :--- | :--- | :--- | :--- | | Anthony Hayes, CEO | 500,000 | 500,000 | 484,888 | - | 208,462 | 1,693,350 | | Darrell Dotson, VP | 317,308 | - | - | - | - | 317,308 | | Christopher Devall, VP of Ops | 125,000 | 100,000 | 47,601 | - | - | 272,601 | | Carlos Aldovero, President | 198,750 | 213,000 | 146,250 | - | 71,589 | 629,589 | - CEO Anthony Hayes's employment agreement provides for a $500,000 annual salary and an annual cash bonus of up to $250,000 based on performance criteria[397] - Carlos Aldavero's employment agreement includes a base salary of $450,000 per annum and a cash signing bonus of $213,000[406] - Non-employee directors receive an annual retainer of $65,000, paid in cash, with an additional $5,000 for the Chairman of the Board[412] Security Ownership of Certain Beneficial Owners and Management, and Related Stockholders As of March 20, 2023, directors and officers as a group beneficially owned 9.43% of common stock, with details on individual holdings and preferred stock owners Beneficial Ownership of Common Stock (as of March 20, 2023) | Name of Beneficial Owner | Shares Beneficially Owned | Percentage | | :--- | :--- | :--- | | Anthony Hayes (CEO) | 176,681 | 3.64% | | Kyle Wool (Director) | 197,080 | 4.07% | | All Directors and Officers as a Group (10 persons) | 436,522 | 9.43% | - As of March 20, 2023, there were 4,840,597 shares of Common Stock, 3,825 shares of Series D Preferred Stock, and 834 shares of Series D-1 Preferred Stock outstanding[417] Certain Relationships and Related Transactions, and Director Independence The Board has a majority of independent directors, and the company engaged Revere Securities, LLC, a firm with ties to a director and the CEO, for investment management - The Board has determined that directors Vander Zanden, Ledwick, Wool, Blattner, and Yu are independent[421] - The company engaged Revere Securities, LLC, where director Kyle Wool is president, for investment management services, and CEO Anthony Hayes acquired an 8% ownership interest in Revere[423] Principal Accounting Fees and Services The company paid Marcum LLP $91,417 in audit fees for 2022 and WithumSmith+Brown, PC $41,200 for 2021, with all services pre-approved by the Audit Committee Auditor Fees | Auditor | Fiscal Year | Audit Fees | | :--- | :--- | :--- | | Marcum LLP | 2022 | $91,417 | | WithumSmith+Brown, PC | 2021 | $41,200 | - The Audit Committee has a policy for pre-approving all audit and permissible non-audit services provided by the principal accountants[427] Part IV Exhibits, Consolidated Financial Statements, Schedules This section lists exhibits filed with the Form 10-K, including corporate governance documents, material contracts, and Sarbanes-Oxley Act certifications - This section provides a list of all exhibits filed with the 10-K, including the Amended and Restated Membership Interest Purchase Agreement for the FPS acquisition[431][433] - Certifications from the Principal Executive Officer pursuant to Sections 302 and 906 of the Sarbanes-Oxley Act of 2002 are included as exhibits[433] Form 10-K Summary This item is not applicable to the company - This section is not applicable[434]