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Item 2. Management’s Discussion and Analysis

2023-08-09 compared with 2023-05-11 · 106 added, 84 removed, 77 unchanged (71% of the section changed)

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subsidiary, Dominari Financial Inc.

(“Dominari”), with the intent of shifting the Company’s primary operating focus

away from biotechnology to the fintech and financial services industries.

Through Dominari, the Company acquired Dominari Securities LLC

(Dominari Securities), an introducing broker-dealer, registered with the Financial Industry Regulatory Authority (“FINRA”)

(“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”).

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Additionally,

AIkido Labs, LLC (“Aikido Labs”), another wholly owned subsidiary of the Company, has historically explored opportunities

in high growth industries.

To date, Aikido Labs has made equity investments in Anduril Industries, Inc, Databricks, Inc., Discord,

Inc., Epic Games, Inc., Payward, Inc.

AIkido Labs, LLC (“Aikido Labs”), another wholly owned subsidiary of the Company, is in the process of winding down its historical

pipeline of biotechnology assets consisting of patented technologies from leading universities and researchers, including prospective

treatments for pancreatic cancer, acute myeloid leukemia, and acute lymphoblastic leukemia.

Aikido Labs has historically explored opportunities

in high growth industries and has equity holdings including Anduril Industries, Inc, Databricks, Inc., Discord, Inc., Epic Games, Inc.,

Payward, Inc.

dba Kraken, Space Exploration Technologies Corp.

dba SpaceX, Tevva Motors Ltd., Thrasio, LLC, and

Yanka Industries, Inc.

dba SpaceX, Tevva Motors Ltd., Thrasio, LLC, and Yanka Industries, Inc.

dba Masterclass.

Finally, The Company is in the process of winding down its historical pipeline of biotechnology

assets consisting of patented technologies from leading universities and researchers, including prospective treatments for pancreatic

cancer, acute myeloid leukemia, and acute lymphoblastic leukemia.

Reverse Stock Split

On June 7, 2022, the Company effected a seventeen-for-one

(17-for-1) reverse stock split of its class of common stock (the “Reverse Stock Split”).

The Reverse Stock Split, which was

approved by stockholders at an annual stockholder meeting on May 20, 2022, was consummated pursuant to a Certificate of Amendment filed

with the Secretary of State of Delaware on June 2, 2022.

The Reverse Stock Split was effective on June 7, 2022.

All references to common

stock, convertible preferred stock, warrants to purchase common stock, options to purchase common stock, restricted stock units, restricted

stock awards, share data, per share data and related information contained in the unaudited condensed consolidated financial statements

have been retrospectively adjusted to reflect the effect of the Reverse Stock Split for all periods presented.

Payment for fractional

shares resulting from the reverse stock split amounted to $26,000.

On June 7, 2022, the

Company effected a seventeen-for-one (17-for-1) reverse stock split of its class of common stock (the “Reverse Stock Split”).

The Reverse Stock Split, which was approved by stockholders at an annual stockholder meeting on May 20, 2022, was consummated pursuant

to a Certificate of Amendment filed with the Secretary of State of Delaware on June 2, 2022.

The Reverse Stock Split was effective on

June 7, 2022.

All references to common stock, convertible preferred stock, warrants to purchase common stock, options to purchase common

stock, restricted stock units, restricted stock awards, share data, per share data and related information contained in the unaudited

condensed consolidated financial statements have been retrospectively adjusted to reflect the effect of the Reverse Stock Split for all

periods presented.

Payment for fractional shares resulting from the reverse stock split amounted to $26,000.

Critical Accounting Policies

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Results of Operations

Three Months Ended March 31, 2023, compared

to the Three Months Ended March 31, 2022

The Company did not recognize revenue from operations,

nor do we expect to recognize any revenue until our operational transition into the financial services industry is complete.

three months ended March 31, 2023, and 2022, we incurred a loss from operations of approximately $3.8 million and $3.8 million, respectively.

Three Months Ended June 30, 2023, compared

to the Three Months Ended June 30, 2022

During the three months ended June 30, 2023, we

recognized approximately $0.07 million in revenue from operations, primarily driven by the underwriting revenue earned by Dominari Securities.

During the three months ended June 30, 2023, and 2022, we incurred a loss from operations of approximately $9.0 million and $2.3 million,

respectively.

The consistent loss in operations year over year was primarily attributable to the following:

An approximate $2.0 million increase in general and administrative expenses – driven by approximately

$0.4 million and $0.7 million of professional fees (legal, consulting, accounting, etc.) incurred to establish and operate Dominari Financial

and Dominari Securities, respectively.

In addition, the Company also incurred increased compensation expenses of approximately $0.7 million

due to growing operations.

An approximate $2.0 million decrease in research and development expenses – attributable to the

Company’s strategic business decision to transition away from the biotechnology industry and into financial services.

is a decrease in research and development related expenses by almost 100%.

During the three months ended March 31, 2023 and

2022, other income was approximately $0.07 million and $0.3 million, respectively.

The activity for the three months ended March 31, 2023

An approximate $6.8 million increase in general and administrative expenses – driven by approximately $0.02 million and $0.8 million of professional fees (legal, consulting, accounting, etc.) incurred to establish and operate Dominari Financial and Dominari Securities, respectively.

In addition, the Company also incurred increased compensation expenses of approximately $6.3 million due to growing operations.

An approximate $0.03 million decrease in research and development expenses – attributable to the Company’s strategic business decision to transition away from the biotechnology industry and into financial services.

The result is a decrease in research and development related expenses by almost 100%.

During the three months ended June 30, 2023 and

2022, other income (expenses) was approximately $0.3 million and $(2.8) million, respectively.

The activity for the three months ended

June 30, 2023 and 2022, is primarily a result of overall volatility in investment valuations due to macroeconomic uncertainty (i.e.

global tensions in the Ukraine, etc.) impacting marketable securities and the change in fair value of short and long-term investments.

Specifically:

Marketable securities – we recognized a gain of approximately $0.4 million for the three months ended June 30, 2023.

The decrease of approximately $2.6 million in losses over prior year is a direct result of a decrease in unrealized losses of approximately $2.6 million and increase in dividend income of approximately $0.1 million, offset by an increase in realized loss of approximately $0.08 million.

The decreases were driven by both market improvement and decrease in sale activity resulting in fewer realized losses.

Short-term and long-term

investments –The changes over the three months ended June 30, 2023 and 2022 are a function of observable market transactions

which resulted in a decrease in unrealized loss of approximately $0.8 million on the adjusted fair value of the investments during

the three months ended June 30, 2023 and 2022, respectively.

Six Months Ended June 30, 2023, compared to

the Six months ended June 30, 2022

During the six months ended June 30, 2023, we

recognized approximately $0.07 million in revenue from operations, primarily driven by the underwriting revenue earned by Dominari Securities.

During the six months ended June 30, 2023, and 2022, we incurred a loss from operations of approximately $12.8 million and $6.1 million,

respectively.

The consistent loss in operations year over year was primarily attributable to the following:

An approximate $8.9 million increase in general and administrative expenses – driven by approximately $0.1 million and $0.9 million of professional fees (legal, consulting, accounting, etc.) incurred to establish and operate Dominari Financial and Dominari Securities, respectively.

In addition, the Company also incurred increased compensation expenses of approximately $6.3 million due to growing operations.

An approximate $2.0 million decrease in research and development expenses – attributable to the Company’s strategic business decision to transition away from the biotechnology industry and into financial services.

The result is a decrease in research and development related expenses by almost 100%.

During the six months ended June 30, 2023 and

2022, other income (expenses) was approximately $0.4 million and $(2.5) million, respectively.

The activity for the six months ended June

30, 2023 and 2022, is primarily a result of overall volatility in investment valuations due to macroeconomic uncertainty (i.e.

inflation, global

tensions in the Ukraine, etc.) impacting marketable securities and the change in fair value of short and long-term investments.

global tensions in the Ukraine, etc.) impacting marketable securities and the change in fair value of short and long-term investments.

Specifically:

Marketable securities – we recognized a loss of approximately $0.07 million for the three months

ended March 31, 2023.

The decrease of approximately $0.4 million in losses over prior year is a direct result of a decrease in realized

and unrealized losses of approximately $0.2 million, offset by an increase in dividend income related of approximately $0.06 million.

Marketable securities – we recognized a gain of approximately $0.3 million for the six months ended June 30, 2023.

The decrease of approximately $3.1 million in losses over prior year is a direct result of a decrease in unrealized losses of approximately $2.8 million and increase in dividend income of approximately $0.2 million, offset by an increase in realized loss of approximately $0.08 million.

The decreases were driven by both market improvement and decrease in sale activity resulting in fewer realized losses.

Short-term and long-term investments – we did not recognize a

change in the fair value of short-term and long-term for the three months ended March 31, 2023.

The change over the three months ended

March 31, 2022 is a function of observable market transactions which resulted in unrealized gains of approximately $0.5 on the adjusted

fair value of the investments during the three months ended March 31, 2022.

There were no observable market transactions or impairment

indicators identified during the three months ended March 31, 2023.

Short-term and long-term investments –The changes over the six months ended June 30, 2023 and 2022 are a function of observable market transactions which resulted in a decrease in unrealized loss of approximately $0.2 million on the adjusted fair value of the investments during the six months ended June 30, 2023 and 2022, respectively.

Liquidity and Capital Resources

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sustain operations that we need to execute our longer-term business plan to support our transition into the financial services industry.

Our working capital amounted to approximately $43.8 million as of March 31, 2023.

We may need to obtain 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.

If we attempt to obtain additional

debt or equity financing, we cannot assume that such financing will be available to the Company on favorable terms, or at all.

Our working capital amounted to approximately $35.7 million as of June 30, 2023.

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.

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 three months ended March 31, 2023 and

2022, net cash used in operations was approximately $4.0 million and $3.8 million, respectively.

the six months ended June 30, 2023 and 2022, net cash used in operations was approximately $13.9 million and $5.9 million, respectively.

The cash used in operating activities for the six months ended June 30, 2023, is primarily attributable to a net loss of approximately

$11.7 million, approximately $0.5 million of realized gain

on marketable securities and changes in operating assets and liabilities of $4.6 million, partially offset by $2.7 million stock-based

compensation expense and approximately $0.5 million in unrealized losses on marketable securities.

The cash used in operating activities

for the three months ended March 31, 2023, is primarily attributable to a net loss of approximately $3.8 million and changes in operating

assets and liabilities of $0.5 million, partially offset by approximately $0.1 million in unrealized losses on marketable securities and

approximately $0.06 million of realized loss on marketable securities.

The cash used in operating activities for the three months ended

March 31, 2022 primarily resulted from a net loss of $3.5 million and change in fair value of long-term investment of $1.4 million, and

is partially offset by change in fair value of short-term investment of $0.9 million.

for the three months ended June 30, 2022 primarily resulted from a net loss of $8.6 million and change in fair value of long-term investment

of $1.4 million and is partially offset by change in fair value of short-term investment of $1.6 million and unrealized loss on marketable

securities of $2.3 million.

Cash Flows from Investing Activities

For the three months ended March 31, 2023 and

For the six months ended June 30, 2023 and 2022,

net cash used in investing activities was approximately $14.7 million and $15.3 million, respectively.

The cash used in investing

activities for the three months ended March 31, 2023, primarily resulted from our purchase of marketable securities of approximately $17.5

million and the acquisition of FPS of approximately $1.1 million.

The Company also collected approximately $0.3 million in principal related

to its short-term notes.

The cash used in investing activities for the three months ended March 31, 2022, primarily resulted from our

purchase of marketable securities of $27.1 million and purchase of investments of $7.7 million.

The purchases of marketable securities

during the prior year was partially offset by our sale of marketable securities of $24.7 million since we invest excess cash into marketable

securities until additional cash is needed.

The cash used in investing activities

for the six months ended June 30, 2023, primarily resulted from our purchase of marketable securities of approximately $34.0 million and

the acquisition of FPS of approximately $1.1 million, partially offset by our sale of marketable securities of approximately $20.5 million.

The Company also collected approximately $0.5 million in principal related to its short-term notes.

The cash used in investing activities

for the six months ended June 30, 2022 primarily resulted from our purchase of marketable securities of $27.5 million, purchase of promissory

notes of $1.6 million and purchase of investments of $14.6 million, partially offset by our sale of marketable securities of $28.3 million

since we invest excess cash into marketable securities until additional cash is needed.

Cash Flows from Financing Activities

For the three months ended March 31, 2023, cash

used in financing activities was approximately $0.9 million, which reflects the cost for purchase of treasury stock of approximately $0.9

Cash provided by financing activities for the three months ended March 31, 2022, was approximately $19.0 million, which reflects

the net proceeds of approximately $19.0 million from investors in exchange for the issuance of Series O and Series P Redeemable Convertible

For the six months ended June 30, 2023, cash used

in financing activities was approximately $0.9 million, which reflects the cost for purchase of treasury stock of approximately $0.9 million.

Cash used in financing activities for the six months ended June 30, 2022 was $5.6 million, which reflects the cost for redemption of Series

O and Series P Redeemable Convertible Preferred Stock of $22.0 million and cost for purchase of treasury stock of $1.5 million, partially

offset by net proceeds of $17.9 million from investors in exchange of issuance of issuance of Series O and Series P Redeemable Convertible

Preferred Stock.

Off-balance sheet arrangements.

Quantitative and Qualitative Disclosures About Market Risk

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Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 2. Management’s Discussion and Analysis