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Item 2. Management’s Discussion and Analysis

2024-05-09 compared with 2023-11-06 · 146 added, 195 removed, 11 unchanged (97% of the section changed)

Management’s Discussion

and Analysis of Financial Condition and Results of Operations

Forward-Looking Statements

Discussion and Analysis of Financial Condition and Results of Operations

You should read this discussion together with

4 unchanged sentences

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,

This Quarterly Report

on Form 10-Q (“Quarterly Report”) contains statements that the Company believes are “forward-looking statements”

within the meaning of the Private Securities Litigation Reform Act of 1995.

These forward-looking statements include, without limitation,

statements relating to expectations for future financial performance, business strategies or expectations for the Company’s business.

These statements are based on the beliefs and assumptions of the management of the Company.

Although the Company believes that its plans,

intentions and expectations reflected in or suggested by these forward-looking statements are reasonable, it cannot provide assurance

that it will achieve or realize these plans, intentions or expectations.

These statements constitute projections, forecasts and forward-looking

statements, and are not guarantees of performance.

Such statements can be identified by the fact that they do not relate strictly to historical

or current facts.

When used in this Quarterly Report, words such as “anticipate,” “believe,” “can,”

“continue,” “could,” “estimate,” “expect,” “forecast,” “intend,”

“may,” “might,” “plan,” “possible,” “potential,” “predict,” “project,”

“seek,” “should,” “strive,” “target,” “will,” “would” and similar

expressions may identify forward-looking statements, but the absence of these words does not mean that a statement is not forward-looking.

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.

We undertake no obligation to revise or publicly release the results of any revision

to these forward-looking statements, except as required by law.

You should not place undue reliance on these forward-looking statements.

Should one or more of a number of known and unknown risks and uncertainties 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

Dominari Holdings Inc.

(“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 and its

subsidiaries are collectively referred to herein as “Company,” “we,” “our” or “us.”

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”).

Dominari Securities provides investment

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

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 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”).

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

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

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.

(“Dominari Financial”), a wholly-owned subsidiary of Dominari Holdings Inc., 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 Private Bank & Trust (“Fieldpoint”), was consummated

on March 27, 2023.

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

Securities”) and is a wholly-owned subsidiary of Dominari Financial.

The 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.

Critical Accounting Estimates

We prepare our condensed consolidated financial

statements in accordance with GAAP.

The preparation of these condensed consolidated financial statements in conformity with GAAP requires

us to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and

liabilities at the date of the condensed consolidated financial statements and the reported amounts of revenue and expenses during the

reporting period.

We base our estimates on historical experience and other assumptions that we believe are reasonable under the circumstances.

Our actual results could differ significantly from these estimates under different assumptions and conditions.

There have been no material changes to our critical accounting estimates

as compared to the critical accounting estimates discussed in the Form 10-K.

Refer to Note 3 of the Annual Report for a discussion

of our significant accounting policies.

Recently Issued Accounting Pronouncements

See Note 3 to the unaudited condensed consolidated

financial statements for a discussion of recent accounting standards.

Results of Operations

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 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 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.

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.

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.

Three Months Ended March 31, 2024, compared

to the Three Months Ended March 31, 2024

During the three months ended March 31, 2024,

we recognized approximately $1.4 million in revenue from operations, primarily driven by the commissions and underwriting revenue earned

by Dominari Securities.

During the three months ended March 31, 2024 and 2023, we incurred a loss from operations of approximately $2.8

million and $3.8 million, respectively.

The decrease in loss from operations was primarily general

and administrative expenses related to the process of winding down the assets held by Aikido Labs, LLC and was offset by a calendar year

loss of $1.3 million from operations in the operations of Dominari Securities.

There is a $1.0 million decrease in net operating loss during the three months ended March 31, 2024 compared to same period in 2023, which was driven by $2.3 million decrease in general and administrative expenses for Aikido segment and was offset by $1.3 million loss from operations Dominari Financial segment during the three months ended March 31, 2024.

During the three months ended March 31, 2024 and

2023, other (expenses) income was approximately $(2.6) million and $72,000, respectively.

The activity for the three months ended March

31, 2024 and 2023, is primarily a result of overall volatility in investment valuations due to macroeconomic uncertainty (i.e.

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

Specifically:

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.

Marketable securities – we recognized a gain of approximately $0.6 million for the three months ended March 31, 2024.

The increase of approximately $0.6 million in gains over the prior period is driven by both market improvement and an increase in sale activity resulting in more realized gains.

Notes receivable – the changes over the three months ended March 31, 2024 and 2023 are a function of observable market transactions which resulted in an increase in unrealized loss of approximately $0.9 million on the adjusted fair value of our notes receivable during the three months ended March 31, 2024.

Long-term equity investments –the changes over the three months ended March 31, 2024 and 2023

are a function of observable market transactions which resulted in an increase in unrealized loss of approximately $2.5 million on the

adjusted fair value of the investments during the three months ended March 31, 2024.

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 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,

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 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.

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 $23.8 million as of March 31, 2024.

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, 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, 2024 and

2023, net cash used in operations was approximately $8.6 million and $4.0 million, respectively.

The cash used in operating activities

for the three months ended March 31, 2024, is primarily attributable to a net loss of approximately $5.4 million and changes in operating

assets and liabilities of $6.5 million, partially offset by approximately $2.5 million of change in fair value of long-term equity investment.

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.

Cash Flows from Investing Activities

For the three months ended March 31, 2024 and

2023, net cash provided by (used in) investing activities was approximately $7.7 million and $(18.7) million, respectively.

The cash used

in investing activities for the three months ended March 31, 2024, primarily resulted from our sales of marketable securities of approximately

$8.8 million, partially offset by funds to employee forgivable loan of $1.3 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, 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 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.

Cash Flows from Financing Activities

For the three months ended March 31, 2024, there

is no 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 million.

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