Dominari Holdings Inc. — Q1 2023 Form 10-Q
Reporting period: Three months ended March 31, 2023; unaudited. Dollar amounts below are in millions unless otherwise stated. The company is shifting its primary focus from biotechnology to financial services, while winding down its historical biotechnology pipeline.
Financial performance and position
| Metric | Q1 2023 | Q1 2022 / comparison |
|---|---|---|
| Operating revenue | None reported | None reported |
| Operating expenses | $3.834 | $3.803 |
| Operating loss | $(3.834) | $(3.803) |
| Net loss | $(3.762) | $(3.535) |
| Net loss attributable to common shareholders | $(3.762); $(0.71) per share | $(6.544); $(1.25) per share, including $3.009 of preferred-stock deemed dividends |
| Net cash used in operating activities | $(3.991) | $(3.836) |
| Net cash used in investing activities | $(18.711) | $(10.078) |
| Cash from/(used in) financing activities | $(0.939) | $18.991 |
With no operating revenue, a revenue margin is not meaningful. Management said it does not expect operating revenue until the transition into financial services is complete. General and administrative expense rose about $2.0 million to $3.833 million, driven by professional fees and higher compensation; research and development expense fell about $2.0 million to $0.001 million as the company shifted away from biotechnology. Other income was $0.072 million, compared with $0.268 million in the prior-year quarter; marketable securities produced a $0.065 million loss, while no change in fair value of short- or long-term investments was recorded in Q1 2023.
At March 31, 2023, cash and cash equivalents were $9.533 million, marketable securities $24.394 million, clearing-broker deposits $3.550 million, current assets $44.771 million, and current liabilities $1.720 million. Working capital was approximately $43.8 million. Total assets were $74.154 million, total liabilities $5.083 million, and stockholders’ equity $69.071 million. The filing reports no conventional borrowings; lease liabilities totaled $3.561 million, including $0.198 million current. Cash fell $23.641 million during the quarter, principally reflecting purchases of marketable securities and the FPS acquisition. No cash-flow or revenue guidance was provided.
Material changes and developments
- On March 27, Dominari completed the second closing of its acquisition of Fieldpoint Private Securities (FPS), obtaining the remaining 80% after acquiring 20% in October 2022. The broker-dealer and investment adviser business now operates as Dominari Securities. The purchase-price allocation was not finalized at quarter-end; the filing reports approximately $3.4 million of consideration/net assets and a $0.2 million receivable due from the seller. The company paid approximately $1.6 million at the second closing and reported $1.149 million net cash paid after the previously transferred deposit and acquired cash/receivable presentation. FPS revenue was not material and its reported period loss was approximately $0.7 million, including approximately $0.3 million of transaction costs.
- Cash and cash equivalents declined from $33.174 million at December 31, 2022, to $9.533 million; marketable securities increased from $7.130 million to $24.394 million. The company purchased $17.519 million of marketable securities during the quarter.
- The company repurchased 236,630 shares for approximately $0.939 million, retired 644,499 treasury shares, and cancelled another 25,000 shares. Issued common shares were 4,815,597 at quarter-end; 4,755,449 were outstanding. The cover reports 4,592,578 shares issued and outstanding as of May 8, 2023.
- Operating lease right-of-use assets increased to $3.619 million, principally in connection with the financial-services subsidiary’s new office lease. Future undiscounted minimum lease payments were $5.115 million.
Outlook, risks and unusual items
- Management stated that available cash was expected to fund operations for at least the next 12 months from issuance of the statements. It also identified possible future funding through additional securities, credit facilities, or other debt, while cautioning that financing may not be available on favorable terms or at all.
- The company holds $23.103 million of long-term investments, largely in private-company securities, and $8.386 million of notes receivable measured using Level 3 inputs. These valuations rely on significant judgment and may be affected by liquidity, operating results, market conditions, or valuation estimates. The notes include a matured Convergent note being repaid under a schedule, and a Raefan note with a June 30, 2023 maturity.
- On April 3, 2023, the company’s broker-dealer entered into an employment agreement, amended April 19, with a director. In addition to salary and commissions, the agreement provides for up to $7.8 million in payments tied to client account asset thresholds. This is a post-quarter event; the filing does not quantify any resulting expense or payment.
- The company reported no material active or pending legal proceedings and no off-balance-sheet arrangements. Management concluded disclosure controls were effective at March 31, 2023. The risk-factor discussion also says internal control over financial reporting was considered ineffective at December 31, 2022 and effective at March 31, 2023; future effectiveness is not assured.
Important facts for investors to verify
- FPS’s finalized purchase-price allocation, seller receivable, and subsequent contribution to revenue and earnings.
- Whether the financial-services transition produces revenue sufficient to offset ongoing operating losses and cash use.
- Liquidity, recoverability, and fair-value assumptions for private-company investments and Level 3 notes receivable.
- Cash available for operations after securities purchases, lease commitments, and any further investment or acquisition activity.
- Potential cost and conditions of the director’s employment agreement, including the contingent payments of up to $7.8 million.
- The reported improvement in internal-control effectiveness and the updated share count after quarter-end.