Dominari Holdings Inc. — Q1 2024 Form 10-Q
Reporting period: Three months ended March 31, 2024. Financial statements are unaudited; dollar amounts below are in thousands unless stated otherwise.
Business context
Dominari is transitioning from its legacy biotechnology activities toward financial services. Its Dominari Financial segment includes the broker-dealer and investment-adviser business Dominari Securities; Legacy Aikido is winding down its biotechnology asset pipeline. The company also holds marketable securities, private-company equity investments and notes receivable.
Financial results and position
| Metric | Q1 2024 | Q1 2023 / Dec. 31, 2023 |
|---|---|---|
| Revenue | $1,367 | $0 in Q1 2023 |
| General and administrative expense | $4,172 | $3,834 |
| Operating loss | $(2,805) | $(3,834) |
| Other income (expense), net | $(2,636) | $72 |
| Net loss | $(5,441) | $(3,762) |
| Basic and diluted loss per share | $(0.91) | $(0.71) |
| Cash and cash equivalents | $1,956 | $2,833 at Dec. 31, 2023 |
| Marketable securities | $5,123 | $13,547 at Dec. 31, 2023 |
| Deposits with clearing broker | $14,094 | $7,687 at Dec. 31, 2023 |
| Total assets | $52,194 | $57,558 at Dec. 31, 2023 |
| Total liabilities | $4,525 | $4,635 at Dec. 31, 2023 |
| Operating cash flow | $(8,594) | $(3,991) |
Revenue comprised underwriting ($409), commissions ($310), advisory fees ($341) and other revenue ($307); all was reported by Dominari Financial. The filing does not report a gross margin. No borrowings are listed; reported lease liabilities totaled $3,348, including $419 current and $2,929 long-term. Working capital was approximately $23.8 million. The broker-dealer reported net capital of approximately $13.4 million, about $13.3 million above its $0.1 million minimum.
Changes and notable items
- Revenue rose from zero in the prior-year quarter, reflecting financial-services operations; the company acquired the broker-dealer business in March 2023.
- Operating loss narrowed by $1,029, while net loss increased by $1,679. Management attributed the lower operating loss primarily to reduced Legacy Aikido expenses, partly offset by a $1.3 million Dominari Financial operating loss.
- Other expense included a $2,459 decline in fair value of long-term equity investments and a net $915 loss on notes receivable, partly offset by a $574 gain on marketable securities.
- The company wrote off approximately $1.0 million of Raefan Industries principal as uncollectible. It also advanced $1.34 million in employee loans during the quarter.
- Operating cash use increased year over year to $8.6 million. Investing activities provided $7.7 million, mainly from $8.8 million of marketable-security sales; financing cash flow was zero.
- After quarter-end, in April 2024, the company redeemed its SpaceX investment for return of its $3.5 million cost basis.
Outlook, risks and controls
Management stated that cash, cash equivalents and marketable securities, together with anticipated operating cash flows, should fund working-capital and capital-expenditure needs for at least 12 months. The company expects to manage existing resources and may seek additional securities or debt financing. Management cautioned that weaker or volatile markets could make financing harder; debt could increase interest and repayment burdens, while equity issuance could dilute shareholders.
Disclosure controls and procedures were deemed ineffective due to a material weakness in accounting controls over certain fair-value notes receivable and long-term investments. Management said it performed additional analysis and intends to strengthen controls, including by consulting experienced third-party professionals; no material control changes were made during the quarter.
A March 2024 legal action against Dominari Securities concerns the hiring of registered representatives from their former employer. The company disputes the claims and plans to defend itself; the outcome and any potential loss cannot be estimated, and no loss contingency was recorded. The company recorded no income-tax expense and maintained a full valuation allowance against net deferred tax assets.
Important facts for investors to verify
- Whether financial-services revenue and operating performance can grow enough to reduce recurring losses and cash burn.
- The liquidity and availability of clearing-broker deposits, and how the company’s stated 12-month funding outlook reconciles with operating cash use.
- Valuation assumptions and collectability of private investments and notes receivable, including the Raefan write-off and subsequent SpaceX redemption.
- Progress in remediating the material weakness and the status and potential exposure of the hiring-related legal action.
- Potential dilution from outstanding warrants, options and restricted stock awards; the filing lists approximately 1.0 million potentially dilutive securities excluded from diluted loss per share.