What changed in this filing

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Item 7. Management’s Discussion and Analysis

2024-04-01 compared with 2023-03-31 · 210 added, 141 removed, 27 unchanged (93% of the section changed)

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Forward-Looking

should read this discussion together with the Consolidated Financial Statements, related Notes and other financial information included

elsewhere in this Form 10-K.

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

MANAGEMENT’S DISCUSSION AND ANALYSIS

OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Forward-Looking Statements

Dominari Holdings Inc.

(the “Company”), formerly known

as 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 this year, the Company formed a wholly owned financial services 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

Through Dominari Holdings, the Company plans to make strategic acquisitions across the fintech and financial services industries.

On September 9, 2022, Dominari entered into a

membership interest purchase agreement (the “FPS Purchase Agreement”) with Fieldpoint Private Bank & Trust (“Seller”),

a Connecticut bank, for the purchase of its wholly owned subsidiary, Fieldpoint Private Securities, LLC, a Connecticut limited liability

company (“FPS”), that is a broker-dealer registered with the Financial Industry Regulatory Authority (“FINRA”)

and an investment adviser registered with the Securities and Exchange Commission (“SEC”).

Pursuant to the terms

of the FPS Purchase Agreement, Dominari purchased from the Seller 100% of the membership interests in FPS (the “Membership Interests”).

FPS’s registered broker-dealer and investment adviser businesses will be operated as a wholly owned subsidiary of Dominari.

The FPS Purchase Agreement provides for Dominari’s acquisition of FPS’s Membership Interests in two closings, the first

of which occurred on October 4, 2022 (the “Initial Closing”), at which Dominari paid to the Seller $2,000,000 in consideration

for a transfer by the Seller to Dominari of 20% of the FPS Membership Interests.

Following the Initial Closing, FPS filed

a continuing membership application requesting approval for a change of ownership, control, or business operations with FINRA in accordance

with FINRA Rule 1017 (the “Rule 1017 Application”) which was approved on March 20, 2023.

The second closing “Second

Closing”), occurred on March 27, 2023.

Dominari paid the Seller an additional $1.00 in consideration for the transfer by the Seller

to Dominari of the remaining 80% of the Membership Interests.

The Second Closing is subject to customary closing conditions, including

the accuracy of the representations and warranties of the applicable parties under the FPS Purchase Agreement and compliance therewith.

Additionally, AIkido Labs, LLC (“Aikido Labs”), another

wholly owned subsidiary of the Company, has 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.

dba Kraken, Space Exploration

Technologies Corp.

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

dba Masterclass.

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.

Company is also developing a broad-spectrum antiviral platform, in which the lead compounds have activity in cell-based assays against

multiple viruses including Influenza virus, Ebolavirus, the Marburg virus, SARS-CoV, MERS-CoV, and SARS-CoV-2, the cause of COVID-19.

The following Management’s Discussion and Analysis of Financial

Condition and Results of Operations should be read in conjunction with the Company’s consolidated financial statements as of and

for the years ended December 31, 2023 and 2022 and the related notes included in Part II, Item 8 of this Annual Report.

This discussion

contains forward-looking statements, within the meaning of the safe harbor provisions of the Private Securities Litigation Reform Act

of 1995, that involve risks and uncertainties.

The Company’s actual results could differ materially from such forward-looking statements.

The Company does not undertake to update, revise or correct any of the forward-looking information unless required to do so under the

federal securities laws.

Readers are cautioned that such forward-looking statements should be read in conjunction with the Company’s

disclosures under the heading “Special Cautionary Notice Regarding Forward Looking Statements and Risk Factor Summary” included

in this report.

Additionally, the Company’s historical results are not necessarily indicative of the results that may be expected

in any future period.

Amounts are presented in U.S.

You should not place undue reliance on these

forward-looking statements.

Should one or more of a number of known and unknown risks and u ncertainties

materialize, or should any of our assumptions prove incorrect, the Company’s actual results or performance may be materially different

from those expressed or implied by these forward-looking statements.

Factors that could cause actual results to differ include, but are

not limited to, those identified below and those discussed in Part I, Item 1A “Risk Factors” of this Annual Report:

Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”) is provided in addition

to the accompanying consolidated financial statements and notes to assist readers in understanding our results of operations, financial

condition, and cash flows.

The MD&A is organized as follows:

Discussion of our business and overall analysis of financial and other highlights affecting

the Company in order to provide context for the remainder of the MD&A.

Accounting Estimate.

Accounting estimates we believe are most important to understanding

the assumptions and judgments incorporated in our reported financial results and forecasts.

Issued Accounting Pronouncements.

A discussion of recent accounting standards.

of Operations.

An analysis of our financial results is presented to compare 2023 to 2022.

We also provide a discussion of our Liquidity and Capital Resources position and usage.

Dominari is a holding

company that, through its various subsidiaries, is engaged in wealth management, investment banking, sales and trading and asset management.

In addition to capital investment, Dominari provides management support to the executive teams of its subsidiaries, helping them to operate

efficiently and reduce cost under a streamlined infrastructure.

Dominari Financial, a wholly-owned subsidiary

of Dominari, executes the Company’s growth strategy in the financial services industry.

In addition to organic growth, Dominari

Financial seeks partnership opportunities and acquisitions of third-party financial assets such as registered investment advisors and

businesses, broker dealers, asset management and fintech firms, and insurance brokers.

Our first transaction in furtherance of our growth

in the financial services industry, the acquisition of 100% of a dually-registered broker dealer and investment advisor from Fieldpoint

was consummated on March 27, 2023.

The newly acquired dually registered broker-dealer and investment adviser was renamed Dominari Securities

and is a wholly-owned subsidiary of Dominari Financial.

Company is in the process of winding down its historical pipeline of biotechnology assets held by Aikido Labs, LLC.

These biotechnology

assets consist of patented technology from leading universities and researchers, including prospective treatments for pancreatic cancer,

acute myeloid leukemia, SARS-CoV-2 and acute lymphoblastic leukemia.

June 7, 2022, the Company effected a seventeen-for-one (17-for-1) reverse stock split of its class of common stock (the “Reverse

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

Accounting Policies

critical accounting policies are disclosed in Note 3 to the consolidated financial statements.

Accounting Estimates

Company accounts for share-based payment awards exchanged for services at the estimated grant date fair value of the award.

Stock options

issued under the Company’s long-term incentive plans are granted with an exercise price equal to no less than the market price

of the Company’s stock at the date of grant and expire up to ten years from the date of grant.

These options generally vest over

a one- to five-year period.

Company estimates the fair value of stock option grants using the Black-Scholes (“Black-Scholes”) option pricing model.

determination of fair value within Black-Scholes involves a number of significant estimates, judgements and assumptions that may affect

the value of employee stock options used in the model.

These include the expected volatility of our stock and employee exercise behavior

which are based on historical data as well as uncertain expectations of future developments over the term of the option.

The assumptions

used in calculating the fair value of stock-based awards represent management’s best estimates and involve inherent uncertainties

and the application of management’s judgment.

The uncertainty of these judgments and assumption could result in significant change

in our stock-based compensation expense amounts in the future.

Term - The expected term of options represents the period that the Company’s stock-based awards are expected to be outstanding

based on the simplified method, which is the half-life from vesting to the end of its contractual term.

Volatility - The Company computes stock price volatility over expected terms based on its historical common stock trading prices.

Interest Rate - The Company bases the risk-free interest rate on the implied yield available on U.

Treasury zero-coupon issues with

an equivalent remaining term.

Dividend - The Company has never declared or paid any cash dividends on its shares of common stock and does not plan to pay cash dividends

in the foreseeable future, and, therefore, uses an expected dividend yield of zero in its valuation models.

Company accounts for forfeitures as they occur.

Value Option - Short-Term Note and Convertible Note

guidance in ASC 825, Financial Instruments , provides a fair value option election that allows entities to make an irrevocable

election of fair value as the initial and subsequent measurement attribute for certain eligible financial assets and liabilities.

Company has elected to measure the purchases of its notes using the fair value option at each reporting date.

Under the fair value option,

bifurcation of an embedded derivative is not necessary, and all related gains and losses on the host contract and derivative due to change

in the fair value will be reflected in interest income and other, net in the consolidated statements of operations.

Interest accrues

on the unpaid principal balance on a quarterly basis and is recognized in interest income in the consolidated statements of operations.

decision to elect the fair value option is determined on an instrument-by-instrument basis and must be applied to an entire instrument

and is irrevocable once elected.

Pursuant to this guidance, assets and liabilities are measured at fair value based, in part, on general

economic and stock market conditions and those characteristics specific to the underlying investments.

The carrying value is adjusted

to estimated fair value at the end of each quarter, required to be reported separately in our consolidated balance sheets from those

instruments using another accounting method.

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.

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.

Our investments are valued at $24 million as of December

In valuing these investments there are judgements and assumptions that may affect the values derived for each security

including the determination of a change in value and whether or not there are indicators of an impairment of value.

These judgments

could impact the estimation uncertainty and the impact of these estimates could have an effect on the financial condition and results

of operations.

Management’s estimates and assumptions include considerations of industry and market conditions and well as uncertain

factors identified specific to each investment that could impact the carrying values.

of new accounting pronouncements not yet adopted

June 2022, the FASB issued ASU 2022-03, Fair Value Measurement of Equity Securities Subject to Contractual Sale Restrictions ,

to clarify that a contractual restriction on the sale of an equity security is not considered part of the unit of account of the equity

security and, therefore, is not considered in measuring the fair value of the equity security.

ASU 2022-03 also clarifies

that an entity cannot recognize and measure a contractual sale restriction as a separate unit of account.

The amendments in ASU 2022-03 may

be early adopted and are effective on a prospective basis for fiscal years beginning after December 15, 2023, and interim periods within

those fiscal years.

The Company is currently evaluating the impact of the amendments on the Company’s consolidated financial statements

and whether it will early adopt the amendments in ASU 2022-03 .

Issued Accounting Pronouncements

2 unchanged sentences

Year Ended December 31, 2023 Compared to Fiscal Year Ended December 31, 2022

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.

the years ended December 31, 2022, and 2021, we incurred a loss from operations of approximately $14.4 million and $9.4 million, respectively.

The approximate $5.0 million increase in loss was primarily attributable to the following:

An approximate $4.0 million increase in general and administrative

expenses – driven by approximately $1.5 million of fully-vested restricted stock grants issued to the members of the board of directors

and approximately $1.5 million of discretionary bonus expense for employees.

We also incurred approximately $1.6 million in legal and

accounting advisory fees related to our transition into a financial services business.

approximate $0.3 million increase in research and development expenses – attributable

to an approximate $0.3 million increase in expense related to our previous development of

a broad-spectrum antiviral platform, in which the lead compounds have activity in cell-based

assays against multiple viruses including the Influenza virus, Ebolavirus and Marburg virus,

SARS-CoV, MERS-CoV, and SARS-CoV-2, the cause of COVID-19;

approximate increase of $0.7 million in research and development - license acquired –

attributable to an approximate $1.2 million payment under our license agreement with the

University of Maryland (“UM”) pursuant to which the UM granted us an exclusive,

worldwide, royalty bearing license to certain intellectual property to, among other things,

discover, develop, make, have made, use and sell certain licensed products and sell, use

and practice certain licensed services with respect to the treatment of cancer.

The additional

license payment was partially offset by a decrease, year-over-year, of $0.5 million related

to a one-time recognition of restricted stock expense in 2021 in relation to the license

arrangements.

the year ended December 31, 2022, and 2021, other (expense) income was approximately $(7.8) million and $2.3 million, respectively.

activity for the years ended December 31, 2022, and 2021, 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.

the year ended December 31, 2023, we recognized approximately $2.0 million in revenue from operations, primarily driven by the underwriting

revenue earned by Dominari Securities.

During the years ended December 31, 2023 and 2022, we incurred a loss from operations of approximately

$21.8 million and $14.3 million, respectively.

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

approximate $12.2 million increase in general and administrative expenses – driven by approximately $0.1 million and $1.9 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 $9.5 million due to growing

approximate $2.7 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 years ended December 31, 2023 and

2022, other expenses was approximately $(1.1) million and $(7.8) million, respectively.

The activity for the years ended December 31,

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 note receivable, and short and

long-term investments.

Specifically:

securities – we recognized a loss of approximately $6.0 million for the year ending

December 31, 2022.

The increase in losses over prior year is a direct result of an increase

in both realized and unrealized losses on marketable securities of $1.3 million and $1.8

million, respectively, and a $1.1 million decrease in related dividend income.

and long-term investments – we recognized a loss on change in fair value of investments

for the year ending December 31, 2022, of approximately $2.6 million.

The change over prior

year is a function of unrealized losses of approximately $3.8 million on our investments

of Kaya Holding Corp.

and Nano Innovations Inc.

for the year ending December 31, 2022, as

compared to approximately $3.6 million in unrecognized gains on our investments in Kaya Holding

and Kerna Health, Inc.

recorded for the year ending December 31, 2021.

also recognized approximately $0.5 million in net realized losses on our investments in DatChat,

Inc., Hoth Therapeutics Inc., and Vicinity Motor Corp and an approximate $0.9 million realized

loss on our conversion of the Slinger Bag, Inc.

convertible promissory note into common stock

of Connexa Sports Technologies Inc.

(formerly Slinger Bag Inc.).

The aforementioned losses

were driven by increased volatility in the market.

securities – we recognized a gain of approximately $0.6 million for the year ended December 31, 2023.

The decrease of approximately

$6.6 million in losses over the prior period is a direct result of a decrease in unrealized losses of approximately $6.0 million,

an increase in dividend income of approximately $0.4 million and a decrease in realized loss of approximately $0.2 million.

The decreases

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

receivable – the changes over the years ended December 31, 2023 and 2022 are a function of observable market transactions which

resulted in an increase in unrealized loss of approximately $3.2 million on the adjusted fair value of the note receivable during

the year ended December 31, 2023.

and long-term investments – the changes over the years ended December 31, 2023 and 2022 are a function of observable market

transactions which resulted in an increase in unrealized gain of approximately $3.3 million on the adjusted fair value of the investments

during the year ended December 31, 2023.

and Capital Resources

5 unchanged sentences

additional liquidity through credit facilities or other debt arrangements.

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

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 $48.9 million as of December 31, 2022.

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 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 business plan to support our transition into the financial services industry.

capital amounted to approximately $26.5 million as of December 31, 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.

Flows from Operating Activities

the years ended December 31, 2022, and 2021, net cash used in operations was approximately $10.6 million and $6.6 million, respectively.

The cash used in operating activities for the year ending December 31, 2022, is primarily attributable to a net loss of approximately

$22.1 million.

The net loss was slightly offset by approximately $4.9 million in unrealized losses on marketable securities, approximately

$2.6 million relating to the change in fair value of short-term investments, approximately $1.8 million in research and development expense

related to acquired licenses, approximately $1.5 million related to stock-based compensation, and approximately $1.4 million of realized

loss on marketable securities.

The cash used in operating activities for the year ended December 31, 2021, is primarily attributable

to a net loss of approximately $7.2 million, further increased by approximately $3.6 million for a change in fair value of short-term

investments, and slightly offset by approximately $3.1 million in unrealized losses on marketable securities and approximately $1.1 million

in research and development expense related to acquired licenses.

For the years ended December 31, 2023 and 2022,

net cash used in operations was approximately $22.2 million and $10.6 million, respectively.

The cash used in operating activities for

the year ending December 31, 2023, is primarily attributable to a net loss of approximately $22.9 million, approximately $1.0 million

of unrealized gain on marketable securities, change in fair value of long-term investment of approximately $0.8 million and changes in

operating assets and liabilities of $5.3 million, partially offset by $3.0 million stock-based compensation expense, approximately $3.2

million in unrealized losses on note receivable and approximately $1.2 million in realized losses on marketable securities.

used in operating activities for the year ending December 31, 2022, is primarily attributable to a net loss of approximately $22.1 million.

The net loss was slightly offset by approximately $4.9 million in unrealized losses on marketable securities, approximately $2.6 million

relating to the change in fair value of short-term investments, approximately $1.8 million in research and development expense related

to acquired licenses, approximately $1.5 million related to stock-based compensation, and approximately $1.4 million of realized loss

on marketable securities.

Flows from Investing Activities

the years ended December 31, 2022, and 2021, net cash used in investing activities was approximately $14.6 million and $8.9 million,

respectively.

The cash used in investing activities for the year ended December 31, 2022, primarily resulted from our purchase of marketable

securities of approximately $26.8 million, purchase of investments of approximately $15.0 million, purchase of research and development

licenses of approximately $1.8 million, and the purchase of promissory notes of approximately $1.6 million, partially offset by our sale

of marketable securities of approximately $28.7 million since we invest excess cash into marketable securities until additional cash

The cash used in investing activities for the year ended December 31, 2021, primarily resulted from our purchase of marketable

securities of approximately $93.4 million, the purchase of promissory notes of approximately $6.9 million, purchase of short-term and

long-term investments of approximately $5.7 million, deposits of approximately $4.2 million and the purchase of convertible notes of

approximately $2.0 million, partially offset by our sale of marketable securities of approximately $103.0 million.

the years ended December 31, 2023 and 2022, net cash used in investing activities was approximately $7.2 million and $14.6 million, respectively.

The cash used in investing activities for the year ended December 31, 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 $27.6 million and collection of principal on note receivable of approximately $1.1 million.

The cash used

in investing activities for the year ended December 31, 2022, primarily resulted from our purchase of marketable securities of approximately

$26.8 million, purchase of investments of approximately $15.0 million, purchase of research and development licenses of approximately

$1.8 million, and the purchase of promissory notes of approximately $1.6 million, partially offset by our sale of marketable securities

of approximately $28.7 million since we invest excess cash into marketable securities until additional cash is needed.

Flows from Financing Activities

the year ended December 31, 2022, cash used in financing activities was approximately $7.2 million, which reflects the cost for redemption

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

of approximately $3.1 million, partially offset by net proceeds of approximately $17.9 million from investors in exchange of issuance

of issuance of Series O and Series P Redeemable Convertible Preferred Stock.

For the year ended December 31, 2021, cash provided by financing

activities was approximately $78.2 million, which is primarily attributable to the approximate $78.2 million from investors in exchange

of issuance of common stock and warrants.

the year ended December 31, 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.

For the year ended December 31, 2022, cash used in financing activities was approximately

$7.2 million, which reflects the cost for redemption of Series O and Series P Redeemable Convertible Preferred Stock of approximately

$22.0 million and cost for purchase of treasury stock of approximately $3.1 million, partially offset by net proceeds of approximately

$17.9 million from investors in exchange of issuance of issuance of Series O and Series P Redeemable Convertible Preferred Stock.

the year ended December 31, 2021, cash provided by financing activities was approximately $78.2 million, which is primarily attributable

to the approximate $78.2 million from investors in exchange of issuance of common stock and warrants.

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-K

Item 7. Management’s Discussion and Analysis