What changed in this filing

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Item 2. Management’s Discussion and Analysis

2023-11-06 compared with 2023-08-09 · 166 added, 143 removed, 40 unchanged (89% of the section changed)

Management’s Discussion and Analysis of Financial

Condition and Results of Operations

Management’s Discussion

and Analysis of Financial Condition and Results of Operations

Forward-Looking Statements

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the Financial Statements, related Notes and other financial information included elsewhere in this Form 10-Q.

The following discussion

contains assumptions, estimates and other forward-looking statements that involve a number of risks and uncertainties.

These risks could

cause our actual results to differ materially from those anticipated in these forward-looking statements.

All references to “we,”

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subsidiaries unless the context requires otherwise.

Holdings Inc.

Cautionary Note Regarding Forward-Looking Statements

All statements other than statements of historical fact included in

this Report including, without limitation, statements under this “Management’s Discussion and Analysis of Financial Condition

and Results of Operations” regarding our financial position, business strategy and the plans and objectives of management for future

operations, are forward-looking statements.

When used in this Report, terminology such as “may,” “should,” “expect,”

“intend,” “will,” “estimate,” “anticipate,” “believe,” “predict,”

“project,” “target,” “budget,” “forecast,” “could,” “continue,”

“plan,” or “potentially” or the negatives of these terms or variations of them or similar terminology, as they

relate to us or our management, identify forward-looking statements.

Such forward-looking statements are based on the beliefs of management,

as well as assumptions made by, and information currently available to, our management.

Actual results could differ materially from those

contemplated by the forward-looking statements as a result of certain factors detailed in our filings with the SEC.

All subsequent written

or oral forward-looking statements attributable to us or persons acting on our behalf are qualified in their entirety by this paragraph.

Dominari Holdings

(the “Company”), formerly AIkido Pharma, Inc., was founded in 1967 as Spherix Incorporated.

Since 2017, the

Company has operated as a biotechnology company with a diverse portfolio of small-molecule anticancer and antiviral therapeutics and their

related patent technology.

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”)

Since 2017, the Company

has operated as a biotechnology company with a diverse portfolio of small-molecule anticancer and antiviral therapeutics and their related

patent technology.

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”).

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advisory services and annuity and insurance products of certain insurance carriers as an insurance agency through independent and affiliated

Additionally,

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.

Related to the shift described above, AIkido Labs, LLC (“Aikido

Labs”), another wholly owned subsidiary of the Company, is in the process of winding down its historical pipeline of biotechnology

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.

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”).

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

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Critical Accounting Policies

Our discussion and analysis of our financial condition

and results of operations is based on our unaudited condensed consolidated financial statements.

We have identified the accounting policies

that we believe require application of management’s most subjective judgments, often requiring the need to make estimates about

the effect of matters that are inherently uncertain and may change in subsequent periods.

Our actual results may differ substantially

from these estimates under different assumptions or conditions.

There have been no significant changes to our critical accounting policies

and estimates since December 31, 2022.

The following represent those critical accounting policies that we believe most significantly impact

the judgments and estimates used in the preparation of our unaudited condensed consolidated financial statements.

Our discussion

and analysis of our financial condition and results of operations is based on our unaudited condensed consolidated financial statements.

We have identified the accounting policies that we believe require application of management’s most subjective judgments, often

requiring the need to make estimates about the effect of matters that are inherently uncertain and may change in subsequent periods.

Our actual results may differ substantially from these estimates under different assumptions or conditions.

The following represent those

critical accounting policies that we believe most significantly impact the judgments and estimates used in the preparation of our unaudited

condensed consolidated financial statements.

Long-term investments

Effective January 1, 2018, the Company adopted

Accounting Standards Update (“ASU”) 2016-01 and related ASU 2018-03 and ASU 2019-04 concerning recognition and measurement

of financial assets and financial liabilities.

In adopting this guidance, the Company has made an accounting policy election to adopt

an adjusted cost method measurement alternative for investments in equity securities without readily determinable fair values.

For equity investments that are accounted for

using the measurement alternative, the Company initially records equity investments at cost but is required to adjust the carrying value

of such equity investments through earnings when there is an observable transaction involving the same or a similar investment with the

same issuer or upon an impairment.

Refer to Note 3 of the Annual Report for a discussion

of all accounting policies.

Recently Issued Accounting Pronouncements

See Note 3 to the unaudited condensed consolidated

financial statements for a discussion of recent accounting standards.

Effective January

1, 2018, the Company adopted Accounting Standards Update (“ASU”) 2016-01 and related ASU 2018-03 and ASU 2019-04 concerning

recognition and measurement of financial assets and financial liabilities.

In adopting this guidance, the Company has made an accounting

policy election to adopt an adjusted cost method measurement alternative for investments in equity securities without readily determinable

For equity investments

that are accounted for using the measurement alternative, the Company initially records equity investments at cost but is required to

adjust the carrying value of such equity investments through earnings when there is an observable transaction involving the same or a

similar investment with the same issuer or upon an impairment.

Refer to Note 3 of the Annual Report for a discussion of our significant

accounting policies.

Issued Accounting Pronouncements

See Note 3 to the

unaudited condensed consolidated financial statements for a discussion of recent accounting standards.

Results of Operations

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,

Ended September 30, 2023, compared to the Three Months Ended September 30, 2022

During the three months ended September 30, 2023, we recognized approximately

$1.0 million in revenue from operations, primarily driven by the commissions and underwriting revenue earned by Dominari Securities.

the three months ended September 30, 2023, and 2022, we incurred a loss from operations of approximately $3.1 million and $5.1 million,

respectively.

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

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.

The decrease in loss from operations was primarily attributable to the following:

approximate $0.4 million decrease in general and administrative expenses.

The Company incurred decreased compensation expenses of

approximately $0.2 million due to decreased stock-based compensation expenses.

approximate $0.6 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 September 30, 2023 and 2022, other expenses was approximately $0.4 million and $1.1 million, respectively.

for the three months ended September 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.

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.

Marketable securities – we recognized a loss of approximately $0.2 million for the three months ended September 30, 2023.

The decrease of approximately $1.5 million in losses over the prior period is a direct result of a decrease in unrealized losses of approximately $2.0 million and an increase in dividend income of approximately $0.2 million, offset by an increase in realized loss of approximately $0.6 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,

and long-term investments –The changes over the three months ended September 30, 2023 and 2022 are a function of observable

market transactions which resulted in an increase in unrealized loss of approximately $0.8 million on the adjusted fair value of

the investments during the three months ended September 30, 2023.

Ended September 30, 2023, compared to the Nine months ended September 30, 2022

During the nine months ended September 30, 2023, we recognized approximately

$1.0 million in revenue from operations, primarily driven by the underwriting revenue earned by Dominari Securities.

During the nine months

ended September 30, 2023, and 2022, we incurred a loss from operations of approximately $16.0 million and $11.2 million, respectively.

The increase in loss in operations was primarily attributable to the following:

approximate $8.4 million increase in general and administrative expenses – driven by approximately $0.1 million and $1.2 million

of professional fees (legal, consulting, accounting, etc.) incurred to establish and operate Dominari Financial and Dominari Securities,

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.

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

In addition, the Company also incurred increased compensation expenses of approximately $5.6 million due to growing

approximate $2.6 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%.

nine months ended September 30, 2023 and 2022, other income (expenses) was approximately $17 thousand and $(3.6) million,

respectively.

The activity for the nine months ended September 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.

Specifically:

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 –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.

Marketable securities – we recognized a gain of approximately $0.2 million for the nine months ended September 30, 2023.

The decrease of approximately $4.6 million in losses over the prior period is a direct result of a decrease in unrealized losses of approximately $4.8 million and increase in dividend income of approximately $0.3 million, offset by an increase in realized loss of approximately $0.5 million.

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

and long-term investments –The changes over the nine months ended September 30, 2023 and 2022 are a function of observable

market transactions which resulted in an increase in unrealized loss of approximately $0.6 million on the adjusted fair value of

the investments during the nine months ended September 30, 2023.

Liquidity and Capital Resources

We continue to incur ongoing administrative and

other expenses, including public company expenses.

While we continue to implement our business strategy, we intend to finance our activities

managing current cash and cash equivalents on hand from our past debt and equity offerings;

seeking additional funds raised through the sale of additional securities in the future;

seeking additional liquidity through credit facilities or other debt arrangements.

Our ultimate success is dependent on our ability

to generate sufficient cash flow to meet our obligations on a timely basis.

Our business may require significant amounts of capital to

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 $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.

We continue to

incur ongoing administrative and other expenses, including public company expenses.

While we continue to implement our business strategy,

we intend to finance our activities through:

current cash and cash equivalents on hand from our past debt and equity offerings;

additional funds raised through the sale of additional securities in the future;

additional liquidity through credit facilities or other debt arrangements.

Our ultimate success

is dependent on our ability to generate sufficient cash flow to meet our obligations on a timely basis.

Our business may require significant

amounts of capital to 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 $33.2 million as of September 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.

Our 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,

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and financial condition, and the issuance of additional equity securities could result in significant dilution to stockholders.

Cash Flows from Operating Activities

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 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 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 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.

Cash Flows from

Operating Activities

For the nine months

ended September 30, 2023 and 2022, net cash used in operations was approximately $17.5 million and $8.7 million, respectively.

used in operating activities for the nine months ended September 30, 2023, is primarily attributable to a net loss of approximately $16.0

million, approximately $0.9 million of unrealized gain on marketable securities and changes in operating assets and liabilities of $4.4

million, partially offset by $1.5 million stock-based compensation expense and approximately $1.2 million in realized losses on marketable

The cash used in operating activities for the nine months ended September 30, 2022 primarily resulted from a net loss of

$14.9 million and change in fair value of long-term investment of $1.6 million and is partially offset by change in fair value of short-term

investment of $1.5 million and unrealized loss on marketable securities of $3.9 million.

Cash Flows from

Investing Activities

For the nine months ended September 30, 2023 and 2022, net cash used

in investing activities was approximately $10.4 million and $16.0 million, respectively.

The cash used in investing activities for the

nine months ended September 30, 2023, primarily resulted from our purchase of marketable securities of approximately $34.1 million and

the acquisition of FPS for approximately $1.1 million, partially offset by our sale of marketable securities of approximately $24.6 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 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.

Quantitative and Qualitative Disclosures About Market Risk

Not required for smaller reporting companies.

for the nine months ended September 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 $15.0 million, partially offset by our sale of marketable securities

of $28.5 million since we invest excess cash into marketable securities until additional cash is needed.

Cash Flows from

Financing Activities

For the nine months ended September 30, 2023, cash used in financing

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

used in financing activities for the nine months ended September 30, 2022 was $6.4 million, which reflects the cost for the redemption

of Series O and Series P Redeemable Convertible Preferred Stock of $22.0 million and the cost for purchase of treasury stock of $2.2 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.

Quantitative and Qualitative

Disclosures About Market Risk

Not required for

smaller reporting companies.

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