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Item 2. Management’s Discussion and Analysis

2023-11-20 compared with 2023-08-14 · 396 added, 186 removed, 1 unchanged (100% of the section changed)

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

References to the “Company,” “us,” “our,” or “we” refer to Data Knights Acquisition Corp.

The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our unaudited condensed financial statements and related notes included herein.

Cautionary Note Regarding Forward-Looking Statements

All statements other than statements of historical fact included in this Form 10-Q including, without limitation, statements under “Management’s Discussion and Analysis of Financial Condition and Results of Operations” regarding the Company’s financial position, business strategy and the plans and objectives of management for future operations, are forward- looking statements.

When used in this Form 10-Q, words such as “anticipate,” “believe,” “estimate,” “expect,” “intend” and similar expressions, as they relate to us or the Company’s 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, the Company’s management.

Actual results may differ materially due to various factors, including, but not limited to:

● our ability to complete our initial business combination with the Target (as defined below) or an alternative business combination;

● our success in retaining or recruiting, or changes required in, our officers, key employees or directors following our initial business combination;

● our officers and directors allocating their time to other businesses and potentially having conflicts of interest with our business or in approving our initial business combination, as a result of which they would then receive expense reimbursements;

● in the event the Business Combination (as defined below) is consummated, our ability to implement business plans, forecasts, and other expectations regarding the Target after the completion of the proposed transactions and optimize the Target’s business;

● in the event the Business Combination is not consummated, the ability of our officers and directors to generate a number of potential alternative acquisition opportunities;

● in the event the Business Combination is not consummated, our pool of prospective target businesses;

● our public securities’ potential liquidity and trading;

● the lack of a market for our securities;

● our continued liquidity and our ability to continue as a going concern;

● the use of proceeds not held in the trust account or available to us from interest income on the trust account balance;

● our financial performance.

All subsequent written or oral forward-looking statements attributable to us or persons acting on the Company’s behalf are qualified in their entirety by this paragraph.

The following discussion and analysis of our financial condition and results of operations should be read in conjunction with the financial statements and the notes thereto contained elsewhere in this Form 10-Q.

Certain information contained in the discussion and analysis set forth below includes forward-looking statements that involve risks and uncertainties.

The Company is a blank check company formed under the laws of the State of Delaware on February 8, 2021 for the purpose of effecting a merger, share exchange, asset acquisition, stock purchase, reorganization or similar business combination with one or more businesses.

The Company intends to effectuate its initial business combination using cash from the proceeds of its initial public offering (the “Initial Public Offering”) and the private placement consummated in connection therewith (the “Private Placement”), the proceeds of the sale of the Company’s securities in connection with its initial business combination, shares issued to the owners of the target of the initial business combination, debt issued to a bank or other lenders or the owners of the target, or a combination of the foregoing.

The issuance of additional shares in connection with an initial business combination to the owners of the target or other investors:

may significantly dilute the equity interest of investors, which dilution would increase if the anti-dilution provisions in the Class B Common Stock resulted in the issuance of Class A Common Stock on a greater than one -to-one basis upon conversion of the Class B Common Stock;

may subordinate the rights of holders of our common stock if preferred stock is issued with rights senior to those afforded our common stock;

could cause a change in control if a substantial number of shares of our common stock is issued, which may affect, among other things, our ability to use our net operating loss carry forwards, if any, and could result in the resignation or removal of our present officers and directors;

may have the effect of delaying or preventing a change of control of us by diluting the stock ownership or voting rights of a person seeking to obtain control of us;

may adversely affect prevailing market prices for our Class A Common Stock and/or warrants.

Similarly, if we issue debt securities or otherwise incur significant debt to bank or other lenders or the owners of a target, it could result in:

default and foreclosure on our assets if our operating revenues after an initial business combination are insufficient to repay our debt obligations;

acceleration of our obligations to repay the indebtedness even if we make all principal and interest payments when due if we breach certain covenants that require the maintenance of certain financial ratios or reserves without a waiver or renegotiation of that covenant;

our immediate payment of all principal and accrued interest, if any, if the debt security is payable on demand;

our inability to obtain necessary additional financing if the debt security contains covenants restricting our ability to obtain such financing while the debt security is outstanding;

our inability to pay dividends on our common stock;

using a substantial portion of our cash flow to pay principal and interest on our debt, which will reduce the funds available for dividends on our common stock if declared, our ability to pay expenses, make capital expenditures and acquisitions, and fund other general corporate purposes;

limitations on our flexibility in planning for and reacting to changes in our business and in the industry in which we operate;

increased vulnerability to adverse changes in general economic, industry and competitive conditions and adverse changes in government regulation;

limitations on our ability to borrow additional amounts for expenses, capital expenditures, acquisitions, debt service requirements, and execution of our strategy;

other purposes and other disadvantages compared to our competitors who have less debt.

We expect to continue to incur significant costs in the pursuit of our initial business combination.

We cannot assure you that our plans to complete our initial business combination will be successful.

Initial Business Combination

The Merger Agreement

On February 11, 2022, we, Data Knights Merger Sub, Inc., a Delaware corporation (“Merger Sub”), and Data Knights, LLC, the Company’s sponsor (the “Sponsor”), entered into a definitive Agreement and Plan of Merger (the “Merger Agreement”) with OneMedNet Corporation, Inc., a Delaware corporation (the “Target”, and together with the Company and Merger Sub, the “Parties”) and Paul Casey, as seller representative (“Casey”).

Pursuant to the Merger Agreement, upon the closing of the transactions contemplated thereby (the “Business Combination”), we will effect the merger of Merger Sub with and into the Target, with the Target continuing as the surviving entity (the “Merger”), as a result of which all of the issued and outstanding capital stock of the Target shall be exchanged shares of the Class A Common Stock of the Company upon the terms set forth as follows:

the Target’s stockholders collectively shall be entitled to receive from the Company, in the aggregate, a number of Company’s securities with an aggregate value equal to (a) $200,000,000 minus (b) the amount, if any, by which the Target’s net working capital amount exceeds the net working capital amount (but not less than zero), minus (c) the amount of Closing Net Indebtedness (as defined in the Merger Agreement) minus (d) the amount of any transaction expenses, provided that the merger consideration otherwise payable to the Target’s stockholders is subject to adjustment after the Closing in accordance with the terms of the Merger Agreement.

The obligations of the parties to consummate the Business Combination are subject to the satisfaction or waiver of certain customary closing conditions of the respective parties, including, without limitation:

(a) the representations and warranties of the respective Parties being true and correct subject to the materiality standards contained in the Merger Agreement;

(b) material compliance by the Parties of their respective pre-closing covenants and agreements, subject to the standards contained in the Merger Agreement;

(d) the approval by the Target’s stockholders of the Business Combination;

(e) the absence of any Material Adverse Effect (as defined in the Merger Agreement) with respect to the Company or with respect to the Target since the effective date of the Merger Agreement that is continuing and uncured;

(f) the election of the members of the post-Closing Board consistent with the provisions of the Merger Agreement, a majority of which are to be independent in accordance with the Nasdaq rules;

(g) the Company having at least $5,000,001 in tangible net assets upon the Closing;

(h) the entry into certain ancillary agreements as of the Closing;

(i) the lack of any notice or communication from, or position of, the U.S.

Securities and Exchange Commission (the “SEC”) requiring the Company to amend or supplement the Prospectus and Proxy Statement (as defined below);

and (j) the receipt of certain closing deliverables.

In connection with entry into the Merger Agreement, the Company entered into Voting Agreements with the Target’s stockholders pursuant to which the Target’s stockholders have agreed to vote their securities in favor of the approval of the Merger Agreement and the Business Combination, be bound by certain covenants and agreements related to the Business Combination and to take other customary actions to cause the Business Combination to occur.

The Company, the Sponsor, and the Target also entered into a Sponsor Support Agreement pursuant to which the Sponsor has agreed to vote its Company securities in favor of the approval of the Merger Agreement and the Business Combination and to take other customary actions to cause the Business Combination to occur.

The Merger Agreement and agreements related thereto are further described in the Form 8-K, filed by us on April 25, 2022.

Business Combination Period

At a special meeting of the Company’s stockholders held on November 11, 2022, the stockholders of the Company approved the First Amendment to the Second Amended and Restated Certificate of Incorporation of the Company, giving the Company the right to extend the date by which the Company must (i) consummate a merger, capital stock exchange, asset acquisition, stock purchase, reorganization or similar business combination involving the Company and one or more businesses, (ii) cease its operations if it fails to complete such business combination, and (iii) redeem or repurchase 100% of the Company’s Class A Common Stock included as part of the units sold in the Initial Public Offering from November 11, 2022 up to nine (9) one-month extensions to August 11, 2023.

In connection with approval of the First Amendment to the Second Amended and Restated Certificate of Incorporation of the Company, the Sponsor caused $0.045 per outstanding share of Class A Common Stock, giving effect to redemptions made in connection with the special meeting, or approximately $122,920, to be deposited in the Trust Account in connection with the exercise of the first monthly extension of the Extended Date to December 11, 2022.

Eight subsequent monthly extensions have since been exercised.

On August 11, 2023, the Company held a "Special Meeting".

At the Special Meeting, the Company stockholders entitled to vote at the Special Meeting (the "Stockholders") cast their votes and approved the proposal (the "Trust Amendment Proposal") to authorize the Company to enter into Amendment No.

2 to the Trust Agreement (the "Trust Agreement Amendment") to amend the Trust Agreement to allow the Company to extend beyond August 11, 2023 the date by which either the Company must have completed its initial business combination or Continental must liquidate the Trust Account established in connection with the IPO (the "Trust Account").

Following approval of the Trust Amendment Proposal by the Stockholders, the Company and Continental promptly entered into the Trust Agreement Amendment.

The Company is able to extend its termination date in a series of up to nine (9) one-month extensions until May 11, 2024 in exchange for depositing into Trust Account with Continental Stock Transfer and Trust Company the lesser of $75,000 or $0.045 per share for each public share outstanding (the "Extension Amount").

In connection with the voting on the Extension Amendment Proposal and the Trust Amendment Proposal at the Special Meeting, holders of 1,018,846 shares of Class A ordinary shares exercised the right to redeem such shares for cash.

Results of Operations

We have neither engaged in any operations nor generated any revenues to date.

Our only activities from inception through June 30, 2023 were organizational activities, those necessary to prepare for our Initial Public Offering, described below, and, after our Initial Public Offering, identifying a target company for an initial Business Combination.

We do not expect to generate any operating revenues until after the completion of our initial Business Combination.

We generate non-operating income in the form of interest income on marketable securities held in the Trust Accounts.

We incur expenses as a result of being a public company (for legal, financial reporting, accounting and auditing compliance), as well as for due diligence expenses.

For the three months ended June 30, 2023, we had a net loss of $5,158, which consists of realized and unrealized gain and dividends of $343,002, offset with operating expense of $241,054 and franchise tax expense of $44,400 and income tax provision of $62,706.

For the three months ended June 30, 2022, we had a net income of $949,937, which consists of unrealized gain from marketable securities held in the Trust Account of $149,350, change in fair value of warrant liabilities of $1,595,082 and offset by operating costs of $794,495.

For the six months ended June 30, 2023, we had a net loss of $91,140, which consists of realized and unrealized gain and dividends of $670,401, offset with operating expense of $547,356 and franchise tax expense of $91,881 and income tax provision of $122,304.

For the six months ended June 30, 2022, we had a net income of $3,145,445, which consists of unrealized gain from marketable securities held in the Trust Account of $192,403, change in fair value of warrant liabilities of $4,357,722 and offset by operating costs of $1,404,680.

Going Concern, Liquidity and Capital Resources

As of June 30, 2023 and December 31, 2022, we had cash of $3,438 and $30,870 outside of the Trust Account, respectively.

We intend to use the funds held outside the Trust Account primarily to identify and evaluate target businesses, perform business due diligence on prospective target businesses, travel to and from the offices, plants or similar locations of prospective target businesses or their representatives or owners, review corporate documents and material agreements of prospective target businesses, and structure, negotiate and complete our initial business combination.

For the six months ended June 30, 2023, cash used in operating activities was $646,580.

For the six months ended June 30, 2022, cash used in operating activities was $445,671.

As of June 30, 2023 and December 31, 2022, we had investments of $29,978,639 and $29,029,416 held in the Trust Accounts, respectively.

We intend to use substantially all of the funds held in the Trust Accounts, including any amounts representing interest earned on the Trust Accounts (less taxes paid and deferred underwriting commissions) to complete our initial business combination.

We may withdraw interest to pay taxes.

During the six months ended June 30, 2023 and 2022, For the six months ended June 30, 2023, we withdraw $458,697 and nil of interest earned on the Trust Account pay Delaware Franchise Tax and Income Tax, respectively.

To the extent that our capital stock or debt is used, in whole or in part, as consideration to complete our initial business combination, the

remaining proceeds held in the Trust Accounts will be used as working capital to finance the operations of the target business or businesses, make other acquisitions and pursue our growth strategies.

The accompanying consolidated financial statements have been prepared in conformity with U.S.

GAAP, which contemplates the continuation of the Company as a going concern and the realization of assets and the satisfaction of liabilities in the normal course of business.

The consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.

Further, we have incurred and expect to continue to incur significant costs in pursuit of our financing and acquisition plans.

Management plans to address this uncertainty during the period leading up to the business combination;

however, this cannot be guaranteed.

The Company will have until August 11, 2023, subject to nine one-month extensions, to consummate a business combination.

If our initial business combination is not consummated by August 11, 2023, less than one year after the date the financial statements are issued, then our existence will terminate, and we will distribute all amounts in the trust account.

The Company intends to complete a business combination before the liquidation date, and no adjustments have been made to the carrying amounts of assets or liabilities should the company be required to liquidate after such date.

There can be no assurance that the Company will be able to consummate an initial business combination by August 11, 2023 and/or have sufficient working capital and borrowing capacity to meet its needs.

Based upon the above analysis, management determined that these conditions raise substantial doubt about the Company’s ability to continue as a going concern.

Off-Balance Sheet Financing Arrangements

We have no obligations, assets or liabilities, which would be considered off-balance sheet arrangements as of June 30, 2023 and December 31, 2022.

We do not participate in transactions that create relationships with unconsolidated entities or financial partnerships, often referred to as variable interest entities, which would have been established for the purpose of facilitating off-balance sheet arrangements.

We have not entered into any off-balance sheet financing arrangements, established any special purpose entities, guaranteed any debt or commitments of other entities, or purchased any non-financial assets.

Contractual Obligations

We do not have any long-term debt, capital lease obligations, operating lease obligations or long-term liabilities, other than an agreement to pay an affiliate of the Sponsor a monthly fee up to $10,000 for office space, utilities and secretarial and administrative support services.

We began incurring these fees on May 7, 2021 and will continue to incur these fees monthly until the earlier of the completion of the Business Combination and our liquidation.

For the six months ended June 30, 2023 and 2022, we have incurred $60,000 in fees under this agreement, respectively.

The underwriters are entitled to a deferred fee of $4,025,000 in the aggregate.

The deferred fee will become payable to the underwriters from the amounts held in the Trust Accounts solely in the event that the Company completes a Business Combination, subject to the terms of the underwriting agreement.

Related Party Transactions

Working Capital Loan

In order to fund working capital deficiencies or finance transaction costs in connection with our initial business combination, our Sponsor or an affiliate of our Sponsor or certain of our officers and directors may, but are not obligated to, loan us funds as may be required (the “Working Capital Loans”).

If we complete our initial business combination, we would repay such loaned amounts.

In the event that our initial business combination does not close, we may use a portion of the working capital held outside the Trust Account to repay such loaned amounts but no proceeds from our Trust Account would be used for such repayment.

Up to $1,500,000 of such loans may be convertible into units identical to the Placement Units, at a price of $10.00 per unit at the option of the lender.

As of June 30, 2023 and December 31, 2022, we had $367,832 and $207,081 in Working Capital Loans outstanding, respectively.

Extension Loan

As discussed above, on November 11, 2022, we held a special meeting of stockholders to seek stockholder approval of certain proposals to extend the date by which we must consummate a business combination from November 11, 2022 to August 11, 2023 subject to nine one-month extensions (each an “Extension”), each of which Extensions requiring us to cause to be deposited into the Trust Account an amount equal $0.045 per unit sold in the Initial Public Offering (each such deposit an “Extension Payment”).

In connection with the Extensions, the Sponsor agreed to loan us of the funds to make the associated Extension Payments (the “Extension Loans”).

As of June 30, 2023 and December 31, 2022, we had $3,283,358 and $2,545,838 in Extension Loans outstanding, respectively.

Introducing Advisor Agreement

On June 26, 2021, we entered into an introducing advisor agreement (the “Introducing Advisor Agreement”) with ARC Group Limited, the Company’s financial advisor (“ARC”), pursuant to which ARC will make strategic introductions to the Company of potential target companies and/or their subsidiaries, affiliates, or representatives (each an “Advisor Target”) who may be interested in potential business combinations with the Company.

In consideration for ARC’s services under the Introducing Advisor Agreement, we agreed to (i) pay to ARC (a) a retainer of $50,000 upon execution of the Introducing Advisor Agreement and (b) a success fee of $100,000 upon closing our initial business combination, and (ii) cause to be issued to ARC equity interests in the post-combination company representing a five-percent (5%) ownership interest in the post-combination company, if at any time prior to June 25, 2022 (the “Termination Date”), or within six (6) months thereafter, we closed on an initial business combination or any financing with any Advisor Target or any affiliate of an Advisor Target (the “Equity Issuance”).

On March 22, 2022, we and ARC entered into the First Amendment to the Introducing Advisor Agreement, pursuant to which both parties agreed that we would pay to ARC an additional success fee equivalent to five percent (5%) on any PIPE that was brought by ARC in connection with our initial business combination upon the closing of our initial business combination.

On December 31, 2022, we and ARC entered into the Second Amendment to the Introducing Advisor Agreement, pursuant to which both parties agreed to extend the Termination Date to December 31, 2024, and to change the performance condition for the Equity Issuance from the closing of our initial business combination to the execution of a business combination agreement.

On December 31, 2022, following the execution of the Second Amendment to the Introducing Advisor Agreement, the performance condition for the Equity Issuance was deemed to have been met, and ARC was issued 1,378,517 shares of the Company’s Class B Common Stock, up to 143,766 shares of which are subject to forfeiture if our public stockholders exercise redemption rights with respect to any of our remaining outstanding shares of Class A Common Stock.

Critical Accounting Policies

The preparation of financial statements and related disclosures in conformity with GAAP requires the Company’s management to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the financial statements, and income and expenses during the periods reported.

Actual results could materially differ from those estimates.

The Company has identified the following as its critical accounting policies:

Use of Estimates

The preparation of condensed financial statements in conformity with GAAP requires the Company’s management 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 financial statements and the reported amounts of revenues and expenses during the reporting periods.

Making estimates requires management to exercise significant judgment.

It is at least reasonably possible that the estimate of the effect of a condition, situation or set of circumstances that existed at the date of the financial statements, which management considered in formulating its estimate, could change in the near term due to one or more future confirming events.

Accordingly, the actual results could differ significantly from those estimates.

Financial Instruments

The Company determines fair value based on assumptions that market participants would use in pricing an asset or liability in the principal or most advantageous market.

When considering market participant assumptions in fair value measurements, the following fair value hierarchy distinguishes between observable and unobservable inputs, which are categorized in one of the following levels:

Level 1 Inputs:

Unadjusted quoted prices for identical assets or instruments in active markets.

Level 2 Inputs:

Quoted prices for similar instruments in active markets and quoted prices for identical or similar instruments in markets that are not active and model derived valuations whose inputs are observable or whose significant value drivers are observable.

Level 3 Inputs:

Significant inputs into the valuation model are unobservable.

The Company does not have any recurring Level 2 or Level 3 assets or liabilities.

The carrying value of the Company’s financial instruments including its cash and accrued liabilities approximate their fair values principally because of their short-term nature.

Net Income (Loss) Per Share of Common Stock

Net income (loss) per share is computed by dividing net income (loss) by the weighted average number of common stock shares outstanding for the period.

The calculation of diluted income (loss) per share does not consider the effect of the warrants issued in connection with the Initial Public Offering and warrants issued as components of the Private Placement Units (the “Placement Warrants”) since the exercise of the warrants are contingent upon the occurrence of future events and the inclusion of such warrants would be anti-dilutive.

The Company applies the two-class method in calculating earnings per share.

The contractual formula utilized to calculate the redemption amount approximates fair value.

The Class feature to redeem at fair value means that there is effectively only one class of stock.

Changes in fair value are not considered a dividend of the purposes of the numerator in the earnings per share calculation.

Net income per common share is computed by dividing the pro rata net loss between the redeemable shares and the non-redeemable shares by the weighted average number of common shares outstanding for each of the periods.

The calculation of diluted income per common stock does not consider the effect of the warrants issued in connection with the IPO since the exercise of the warrants are contingent upon the occurrence of future events and the inclusion of such warrants would be anti-dilutive.

The warrants are exercisable for 11,500,000 shares of common stock in the aggregate.

Derivative Financial Instruments

The Company evaluates its financial instruments to determine if such instruments are derivatives or contain features that qualify as embedded derivatives in accordance with ASC Topic 815, “Derivatives and Hedging”.

For derivative financial instruments that are accounted for as liabilities, the derivative instrument is initially recorded at its fair value on the grant date and is then re-valued at each reporting date, with changes in the fair value reported in the statements of operations.

The classification of derivative instruments, including whether such instruments should be recorded as liabilities or as equity, is evaluated at the end of each reporting period.

Derivative liabilities are classified in the balance sheet as current or non-current based on whether net-cash settlement or conversion of the instrument could be required within 12 months of the balance sheet date.

Warrant Liabilities

The Company accounts for its warrants in accordance with the guidance contained in ASC 815-40 under which the warrants do not meet the criteria for equity treatment and must be recorded as liabilities.

Accordingly, the Company classifies the warrants as liabilities at their fair value and adjusts the Warrants to fair value at each reporting period.

This liability is subject to re-measurement at each balance sheet date until exercised, and any change in fair value is recognized in the statements of operations.

The warrants for periods where no observable traded price was available are valued using a binomial/lattice model.

For periods subsequent to the detachment of the public warrants from the public units, the public warrant quoted market price will be used as the fair value as of each relevant date.

Class A Common stock subject to possible redemption

The Company accounts for its common stock subject to possible redemption in accordance with the guidance in Accounting Standards Codification (“ASC”) Topic 480 “Distinguishing Liabilities from Equity.” Common stock subject to mandatory redemption (if any) is classified as a liability instrument and is measured at fair value.

Conditionally redeemable common stock (including common stock that features redemption rights that are either within the control of the holder or subject to redemption upon the occurrence of events not solely within the Company’s control) is classified as temporary equity.

At all other times, common stock is classified as stockholders’ equity.

The Company’s common stock features certain redemption rights that are outside of the Company’s control and subject to occurrence of uncertain future events.

Accordingly, as of June 30, 2023, there were 3,316,819 shares of Class A Common Stock outstanding, excluding 2,731,544 shares of Class A Common Stock are subject to possible redemption.

Recent Accounting Pronouncements

In August 2020, the FASB issued Accounting Standards Update (“ASU”) No.

2020-06, “Debt—Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging—Contracts in Entity’s Own Equity (Subtopic 815-40):

Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity” (“ASU 2020-06”), which simplifies accounting for convertible instruments by removing major separation models required under current U.S.

The ASU also removes certain settlement conditions that are required for equity-linked contracts to qualify for the derivative scope exception, and it simplifies the diluted earnings per share calculation in certain areas.

ASU 2020-06 is effective for fiscal years beginning after December 15, 2023 and should be applied on a full or modified retrospective basis, with early adoption permitted beginning on January 1, 2021.

The Company is currently assessing the impact, if any, that ASU 2020-06 would have on its financial position, results of operations or cash flows.

Management does not believe that any other recently issued, but not yet effective, accounting pronouncements, if currently adopted, would have a material effect on the Company’s financial statements.

following discussion and analysis of the Company’s financial condition and results of operations should be read in conjunction

with our audited financial statements and the notes related thereto which are included in “Item 1.

Financial Statements and Supplementary

Data” of this Quarterly Report on Form 10-Q.

Certain information contained in the discussion and analysis set forth below includes

forward-looking statements.

Our actual results may differ materially from those anticipated in these forward-looking statements as a

result of many factors, including those set forth under “Special Note Regarding Forward-Looking Statements” in this Quarterly

Report on Form 10-Q and “Item 1A.

Risk Factors” in our Annual Report on Form 10-K (“Annual Report”) filed with

the Securities and Exchange Commission (“Commission”) on September 30, 2023.

Corporation, a Delaware corporation (the “Company,” “we,” “us,” or “OneMedNet”) together

with its wholly-owned subsidiary, OneMedNet Solutions Corporation, a Delaware corporation (“OneMedNet Solutions”) and its

wholly-owned subsidiary, OneMedNet Technologies (Canada)

Inc., incorporated on October 16, 2015 under the provisions of the Business Corporations Act of British Columbia whose functional currency

is the Canadian dollar, is an expert in clinical imaging innovation solutions that connects healthcare providers and patients and satisfies

a crucial need with the life sciences.

It offers direct access to clinical images and associated contextual patient record.

proved the commercial and regulatory viability of imaging Regulatory Grade Real-World Data (“iRWD TM ”), a promising

emerging market, that exactly matches OneMedNet’s life science partners’ case selection protocol.

refences in this report on Form 10-Q to the “Company,” “we,” “us,” or “OneMedNet” include

OneMedNet, OneMedNet Solutions and OneMedNet Technologies (Canada) Inc .

were originally incorporated as a Delaware corporation on February 8, 2021 under the name “Data Knights Acquisition Corp”

as a special purpose acquisition company, formed for the purpose of effecting a merger, capital stock exchange, asset acquisition, stock

purchase, reorganization or similar business combination with one or more businesses.

On May 11, 2021, we consummated an initial public

On November 7, 2023, we consummated a merger (the “Merger”) following

the approval at the special meeting of the shareholders of Data Knights Acquisition Corp., a Delaware corporation held on October 17,

2023 (the “Special Meeting”), Data Knights Merger Sub, Inc., a Delaware corporation (“Merger Sub”) and a wholly-owned

subsidiary of Data Knights Acquisition Corp., a Delaware corporation (“Data Knights”), consummated a merger (the “Merger”)

with and into OneMedNet Solutions Corporation (formerly named OneMedNet Corporation), a Delaware corporation (“OneMedNet”)

pursuant to an agreement and plan of merger, dated as of April 25, 2022 (the “Merger Agreement”), by and among Data Knights,

Merger Sub, OneMedNet, Data Knights, LLC, a Delaware limited liability company (“Sponsor” or “Purchaser Representative”)

in its capacity as the representative of the stockholders of Data Knights, and Paul Casey in his capacity as the representative of the

stockholders of OneMedNet (“Seller Representative”).

Accordingly, the Merger Agreement was adopted, and the Merger and other

transactions contemplated thereby (collectively, the “Business Combination”) were approved and completed.

Business Combination was accounted for as a as a reverse

recapitalization with OneMedNet as the accounting acquirer under the accounting principles generally

accepted in the United States of America (“U.S.

Accordingly, the financial statements of the combined company represent

a continuation of the financial statements of OneMedNet.

June 28, 2023, the Company and Data Knights entered into a Securities Purchase Agreement (the “SPA”) with certain investors

(collectively referred to herein as the “Purchasers”) for PIPE financing in the aggregate original principal amount of $1,595,744.70

and the purchase price of $1.5 million.

Pursuant to the Securities Purchase Agreement, Data Knights will issue and sell to each of the

Purchasers, a new series of senior secured convertible notes (the “PIPE Notes”), which are convertible into shares of Common

Stock at the Purchasers election at a conversion price equal to the lower of (i) $10.00 per share, and (ii) 92.5% of the lowest volume

weighted average trading price for the ten (10) Trading Days immediately preceding the Conversion Date.

The Purchasers’ $1.5 million

investment in the PIPE Notes closed and funded contemporaneous to the Closing of the Business Combination.

immediately prior to the Closing, OneMedNet, Inc.

issued the PIPE Notes to the Purchasers under the private offering exemptions under

Securities Act of 1933, as amended (the “Securities Act”).

Business Combination occurred after the period for which the financial information herein is presented.

The financial information included

in this “Management’s Discussion and Analysis of Financial Condition and Results of Operations” reflects the historical

operations of the Company prior to the Business Combination and the combined operations after the Business Combination, unless otherwise

is a global provider of clinical imaging innovation and curator of regulatory-grade Imaging Real-World Data3 or iRWD TM .

innovative solutions connect healthcare providers and patients satisfying a crucial need within the Life Sciences field offering direct

access to clinical images and the associated contextual patient record.

OneMedNet’s innovative technology proved the commercial

and regulatory viability of imaging Real-World Data, an emerging market, and provides regulatory-grade image-centric iRWD TM

that exactly matches OMN’s Life Science partners Case Selection Protocols and paves the way for Real World Evidence.

was founded in 2006 to solve a deficiency in how clinical images were shared between healthcare providers.

This resulted in OMN’s

initial product BEAM TM image exchange that enabled the successful sharing of images for more than a decade with OMN’s

largest customer being the Country of Ireland.

continued to innovate by responding to the demand for and utilization of Real-World Data and Real-World Evidence, specifically data that

focused on clinical images with its associated contextual clinical record.

We were able to leverage internal technological competencies

along with OneMedNet’s formidable healthcare provider installed base from its first product with BEAMTM to become the first RWD

solution for Life Science companies with its launch of iRWD TM in 2019.

provides innovative solutions that unlock the significant value contained within clinical image archives.

With a growing federated network

of 95+ healthcare facilities, OneMedNet has the immediate ability to quickly search and extensively curate multi-layer data from a Federated

group of healthcare facilities.

The term “healthcare facilities” refers specifically to the hospitals, integrated delivery

networks (“IDNs”) and imaging centers that provide imaging to OneMedNet, which represent the core source of our data.

present, OneMedNet works with more than 95 facilities who provide regulatory grade imaging to us.

OneMedNet has access to these more

than 95 facilities because these 95+ contracted facilities have more than 200 locations among them including offices and clinics, which

in total generates regulatory grade imaging from more than 200 customers.

Among these customers, all are data providers and some are

data purchasers.

Market Opportunities

recent report by Deloitte, “Measuring the Return from Pharmaceutical Innovation 2020,” revealed that there is a pressing

need to optimize processes and fundamentally change the drug development paradigm through the use of digital and transformative approaches.

The COVID-19 pandemic spurred on need for greater innovation in fact, according to Deloitte’s report, as of 2020, 70% of the biopharma

interviewees noted a lack of research-grade data as hindering their efforts to incorporate Real World Evidence in their research and

development (“R&D”).

Moreover, 80% of the biopharma interviewees reported that they are presently entering, or seeking

to enter, strategic partnerships to access new sources of Real-World Data because obtaining this data would accelerate their time to

market substantially.

has the knowledge, tools, and experience to access and harmonize complete patient profiles across fragmented data silos.

We use robust

real-world datasets to offer customized consulting services to generate fit-for-purpose data and insights for their stakeholders instead

of providing terabytes of data.

We curate information to the most stringent multi-level stratified requirements while providing unmatched

data accuracy and ensuring the security and privacy of protected health information.

Moreover, we deliver this curated data quickly and

efficiently to address the rapidly growing needs of life science researchers and to speed life science product development.

factors have accelerated the adoption of Real World Evidence, including an industry-wide shift from volume-to-value-based payment models,

personalized medicine, and the need to adapt clinical trials during the pandemic.

These factors have influenced regulatory bodies globally

and fuel interest in using Real World Evidence to “understand and demonstrate the value of pharmaceutical and medical device innovations.”

global Real World Evidence solutions market size was valued at $37.2 billion in 2020 and is expected to expand at a compound annual growth

rate (CAGR) of 7.6% from 2021 to 2028 according to Grand View Research.

The drug development and approvals segment accounted for the

highest revenue share of around 28.9% in 2020.

Real-world evidence solutions services allow pharmaceutical companies and healthcare providers

as well as payers for efficient management of operations and accelerate the process of drug development and its approval, which fuels

market growth.

Support from regulatory bodies for using Real World Evidence solutions and an increase in research and development spending

are anticipated to boost the market growth.

the growing need for evidence generated from Real-World Data, the increasing importance of epidemiological data in decision making, and

a shift from volume to value-based care, there has been an increased focus on patient registries, a rise in the adoption of EMR in hospitals,

and exponential growth in mobile health data and social media which have resulted in the generation of huge amounts of medical data.

In 2021, the real-world datasets segment is estimated to account for the larger share of 51.2% of the global real-world evidence solutions

The market size of this segment is projected to reach $1,792.0 million by 2028 from $1,038.3 million in 2021, at a CAGR of 8.1%

during the forecast period according to Meticulous Research® Analysis.

on end user, the global Real World Evidence solutions market is segmented into pharmaceutical, biotechnology, and medical device companies;

healthcare payers;

healthcare providers;

and other end-users (academic research institutions, patient advocacy groups, regulators, and

health technology assessment agencies).

In 2021, the pharmaceutical, biotechnology, and medical device companies segment is estimated

to account for the largest share of 36.5% of the global real-world evidence solutions market.

The market size of this segment is projected

to reach $2,025.7 million by 2028 from $739.7 million in 2021, at a CAGR of 15.5% during the forecast period according to Meticulous

Research® Analysis.

The large share of this segment is primarily attributed to the increasing importance of Real World Evidence studies

in drug development and approvals and the growing need to avoid costly drug recalls and assess drug performance in real-world settings.

Factors that Affect Our Results of Operations

from our providers of Real World Data.

business is affected by many factors which we discuss under the heading “ Risk Factors ” in our definitive Registration

Statement on Form S-4 dated September 21, 2023 and filed with the Commission on October 2, 2023, and in subsequent filings.

The following

are a few of those key factors that may affect our financial condition and results of operations:

business is highly competitive.

Competition could present an ongoing threat to the success of OneMedNet’s business, which competition

could result from national and regional providers of imaging data, which could affect our ability to obtain and retain new customers

and pricing pressures.

We cannot assure you that we will be able to build our network in a timely or cost-effective manner, efficiently

acquire additional customers or achieve target projected returns by penetrating the market as effectively as projected if OneMedNet is

unable to compete effectively for imaging date providers and RWD customers.

As a result, OneMedNet’s business and operating results

could be harmed.

some instances, our competitors have easier access to financing, greater resources, greater operating capabilities and efficiencies of

scale, stronger brand-name recognition, longstanding relationships with customers, and more customers.

This provides these competitors

with certain advantages in competing against us, including the ability to aggressively promote their products in markets in which we

This competition may affect our ability to add and retain customers, which in turn adversely affects our business, financial

condition and results of operations.

the RWD and real-world evidence (“RWE”) arena, there is a high number of service providers globally who sell electronic health

The competition can be organized into two groups — the first is RWD providers that access imaging along

with electronic health records.

This includes firms such as Flatiron, Aetion, ConcertAI, Life Image and Optum among many others.

groups have deep disease insights but do not focus on imaging, and, we believe, are not imaging experts.

The other group includes firms

such as Nuance and Truveta that provide support for research projects using RWE where imaging may be part of the deliverables but imaging

is not the central focus of these companies in our opinion.

We believe that anywhere imaging is required to diagnosis, assess disease

progression, regression, status quo or measure the impact of a therapy, device or procedure, OneMedNet has the required radiology imaging

to support these clients.

a reason OneMedNet’s customer base is growing as it develops its reputation as a reliable source for regulatory-grade imaging RWD.

We believe it is because it requires specialized expertise in Artificial Intelligence/Machine Learning technology, data privacy/security,

as well as expertise in clinical patient condition(s) and healthcare record keeping.

Having, or achieving, expertise in all essential

disciplines is a challenging achievement.

Our current customer base is in the United States, Canada, Ireland, Israel, Germany, Netherlands,

Norway and the United Kingdom.

OneMedNet has plans to expand into Africa and Asia, we expect these expansions to be completed in 2023,

however there is no assurance of that timetable.

OneMedNet has a team of experienced curators with previous radiology, technical and

clinical expertise.

OneMedNet had a significant head start with our clinical image exchange solution which served to launch the company

nearly a decade ago.

Finally, OneMedNet has the most experienced and clinically trained data curators in the industry.

This team appreciates

the complexity and criticality of clinical data and can effectively communicate with both Provider and Life Science specialists.

Nevertheless,

we believe that competition for users of OneMedNet’s products and services will be intense.

Although OneMedNet intends to continue

to develop a global platform for its OneMedNet iRWD™ solution, it will face strong competition in its business.

of Operations

of Our Technology

our inception, we have focused on attracting and retaining best-in-class talent to provide innovative solutions that unlock the significant

value contained within the clinical image archives of healthcare providers.

Employing our proven OneMedNet iRWD™ solution, we securely

de-identify data, searches, and curates a data archive locally, bringing a wealth of internal and third-party research opportunities

to providers.

By leveraging this extensive federated provider network, together with cutting-edge proprietary technology and in-house

clinical expertise, OneMedNet successfully meets the most rigorous Real-World Data Life Science requirements.

continue to invest in employee recruitment and retention to advance our technology.

Additionally, our team has made purposeful and foundational

technological investments in hardware and software.

We believe these early investments in our technology will enable us to move toward

additional technical innovation more safely and quickly than would otherwise be possible.

When we have deemed it to be beneficial, we

have entered into strategic partnerships to expand and accelerate our technology development.

believe that our developmental approach provides us with meaningful technological advantages in areas such as our fusion of artificial

intelligence and imaging with our proprietary curation and innovation approaches.

The successful execution of these details of clinical

imaging is what we believe will allow us to continue to differentiate ourselves through our proven OneMedNet iRWD™ solution.

we believe we are best positioned to address advanced imaging solutions, potential competition may exist from other imaging providers

using other approaches.

Future success will be dependent on our ability to continue to execute innovative solutions that unlock the significant

value contained within the clinical image archives of healthcare providers.

Commercialization

and Strategic Partnerships

set forth on a corporate journey to create safer and more intelligent care solutions for patients, providers and hospitals.

has been solely focused on creating innovative solutions that enable healthcare providers to gain increased value from medical imaging

Whether requesting or transferring an image, the process must be straightforward and streamlined on both ends.

BEAM™ Image Sharing solution has been exceeding customer expectations for more than a decade with customer renewal rates exceeding

as important as the initial (or secondary) read may be to patient care, the value and impact of imaging goes well beyond an individual

It’s about the entire patient population archive utility and the potential data mining benefits for improving care.

institutions often have difficulty gathering cohort data — even from their own internal center(s).

only cumbersome but very time consuming.

And community hospitals increasingly leverage data for self-analysis and patient care advancement.

Using our OneMedNet iRWD™, we can de-identify, index, and curate an archive resulting in fast, yet detailed search capabilities.

can also advance healthcare on a much broader basis by sharing de-identified imaging data with external researchers.

OneMedNet continually

receives patient cohort requests from “Data Users” (e.g ., Pharma, CRO’s, Core Labs, AI, Medical Devices).

a cohort match is found at one of our networked providers, OneMedNet will present that provider with a potential monetizing agreement.

If agreement is reached, only then will the de-identified data be shared externally.

and Operations

expects to incur significant operating costs that will impact its future profitability, including research and development expenses as

it continues to introduce new offerings and upgrades its existing iRWD™ offering plus additional operating costs and expenses as

it scales its operations;

interest expense from debt financing activities;

and selling and distribution expenses as it builds its brand

and markets its iRWD™.

the period January 1, 2022 to September 30, 202, the company generated revenue totaling $888,970 and for the period January 1, 2023 to September

30, 2023 the company generated revenue totaling $680,918.

The decrease is attributable to an iRWD revenue delivery being delayed to of the fourth quarter of 2023.

2023, the Company changed its accounting policy to allocate the discovery portion of curation expenses to Research and Development resulting

in a decrease to compensation costs of $294,083.

and development expenses

and development expenditures were charged to operating expense as incurred for the periods ended September 30, 2023 and December 31,

OneMedNet expects to incur significant operating costs that will impact its future profitability, including research and development

expenses as it continues to introduce new offerings and upgrades its existing iRWD™ offering plus additional operating costs and

expenses as it scales its operations;

interest expense from debt financing activities;

and selling and distribution expenses as it builds

its brand and markets its iRWD™.

Our research and development expenses primarily consist of employee salaries and welfare, and

outsourcing expenses.

and development costs consist of payroll, hardware and electrical engineering prototyping, cloud computing, data labeling, and third-party

development services, as well as costs associated curating and testing.

These costs are included within research and development within

the statement of operations.

We expect our research and development expenses to increase in absolute dollars as we increase our investment

in scaling our proprietary technologies.

and development increased by $422,787 or 37.3% in the nine-months ended September 30, 2023 of $1,133,149 compared to $710,362 at yearend

December 31, 2022 with the addition of employees and the change in accounting policy to allocate the discovery portion of curation expenses

to research and development.

In 2023, the company started allocating hosting costs specific to research and development work.

Income (Expenses), Net

other income (expenses) primarily includes interest expense on financings and financial related expenses.

other income (expense), net, increased by $243,617 or 44.6% from $302,624 of other income (expense) for the for the period ended

September 30, 2022 to $546,241 of other income (expense) for the nine months ended September 30, 2023.

a result of the foregoing, we reported a net loss of $4,057,060 for the nine months ending September 30, 2022 representing a $900,587 or 18.2%

increase to a net loss of $4,957,647 for the nine months ended September 30, 2023.

All net income is attributable to OneMedNet Solutions

Corporation (formerly, OneMedNet Corporation).

and Capital Resources

of September 30, 2023, we had $611,822 in cash and cash equivalents as compared to $270,859 as of December 31, 2022.

We also had $86,392

in accounts receivable as of September 30, 2023 as compared to $18,975 as of December 31, 2022.

Our accounts receivable primarily include

balances due from compensation for services provided to our customers.

As of September 30, 2023, our accumulated deficit was $36,834,868

as compared to $31,877,221 as of December 31, 2022 and has had negative cash flows from operating activities for the period ended September

30, 2023 and year ended December 31, 2022.

These conditions raise substantial doubt about the Company’s ability to continue as

a going concern.

In assessing our liquidity, management monitors and analyzes our cash, our ability to raise funds and to generate sufficient

revenue in the future, and our operating and capital expenditure commitments.

We are looking for other sources, such as raising additional

capital by issuing shares of stock, to meet our needs for cash.

Flows for the Nine Months Ended September 30, 2023 and 2022

following table sets forth summary of our cash flows for the periods indicated:

Cash flow from Operating

$ (4,957,647 )

$ (4,057,060 )

Adjustments to reconcile

net loss to net cash flows from operating activities:

Depreciation and amortization

Stock-based compensation

Changes in assets and liabilities:

Accounts Receivable

Other current assets

Accounts payable &

accrued expenses

Net cash flows from operating activities

Cash used for Investing

Purchase of property and

Cash flow from Financing

Proceeds from Canada Emergency

Business Loan Act

Proceeds from Shareholders

from issuance of convertible promissory note payable

Net cash flows from financing activities

Net change in cash and cash equivalents

and Cash Equivalents, Beginning

and Cash Equivalents, Ending

cash used in operating activities was $4,712,547 for the nine months ended September 30, 2023, primarily consisting of the following:

Net loss of $4,957,647 for the nine months ended September 30, 2023.

Share-based compensation of $888,632.

Stock-based compensation expenses of $19,529.

Accounts Receivable of $(67,417).

Other current assets of $(1,146,266).

Accounts payable & accrued expenses of $340,525.

Deferred revenue of $210,097.

cash provided by financing activities amounted to $5,082,310, for the nine months ended September 30, 2023 and primarily consisted of

proceeds from the issuance of convertible promissory note payable loans of $4,378,124, Proceeds from shareholders of $704,000, and Proceeds

from Canada Emergency Business Loan Act of $186.

Company’s long-term debts included loans borrowed from banks and other financial institutions.

As of September 30, 2023, future

minimum loan payments are as follows:

ending December 31,

Less interest

Balance as of September 30, 2023

Sheet Arrangements

did not have any off-balance sheet arrangements as of September 30, 2023.

Accounting Policies and Estimates

discussion and analysis of our financial condition and results of operations are based upon our consolidated financial statements.

financial statements are prepared in accordance with U.S.

GAAP, which requires us to make estimates and assumptions that affect the reported

amounts of our assets and liabilities and revenue and expenses, to disclose contingent assets and liabilities on the date of the consolidated

financial statements, and to disclose the reported amounts of revenue and expenses incurred during the financial reporting period.

most significant estimates and assumptions include the valuation of accounts receivable, advances to suppliers, useful lives of property

and equipment, the recoverability of long-lived assets, provision necessary for contingent liabilities, and revenue recognition.

to evaluate these estimates and assumptions that we believe to be reasonable under the circumstances.

We rely on these evaluations as

the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources.

Since the use of estimates is an integral component of the financial reporting process, actual results could differ from those estimates.

Some of our accounting policies require higher degrees of judgment than others in their application.

believe critical accounting policies as disclosed in this prospectus reflect the more significant judgments and estimates used in preparation

of our consolidated financial statements.

following critical accounting policies rely upon assumptions and estimates and were used in the preparation of our consolidated financial

preparation of financial statements in conformity with U.S.

GAAP requires management 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 financial statements

and the reported amounts of revenue and expenses during the reporting period.

Actual results could differ from those estimates.

estimates are based on information available as of the date of the consolidated financial statements.

Significant estimates required

to be made by management include, but are not limited to, the allowance for doubtful accounts, useful lives of property and equipment,

the impairment of long- lived assets, valuation allowance of deferred tax assets, and revenue recognition.

Actual results could differ

from those estimates.

receivable are unsecured, recorded at net realizable value, and do not bear interest.

Accounts receivable are considered past due if

not paid within the terms established between the Company and the customer.

Amounts are only written off after all attempts at collections

have been exhausted.

The Company determines the need for an allowance for doubtful accounts based upon factors surrounding the credit

risk of specific customers, historical trends and other information.

As of December 31, 2022 the Company established allowances of $102,700.

The net receivable balances outstanding are fully collectible.

from all customers is recognized when a performance obligation is satisfied by transferring control of a distinct good or service to

A performance obligation is a promise in a contract to transfer a distinct good or service to the customer and is the unit

of account under topic 606.

A contract’s transaction price is allocated to each distinct performance obligation in proportion to

the standalone selling price for each and recognized as revenue when, or as, the performance obligation is satisfied.

steps the company uses to determine revenue recognition are as follows:

identification of the contract with a customer, identification

of the performance obligations, determining the transaction price, allocation of the transaction price to the performance obligation

and recognition of revenue when the Company satisfies the performance obligation.

promised goods and services in a contract are considered a performance obligation and accounted for separately if the good or service

A good or service is considered distinct if the customer can benefit from the good or service on its own or with other resources

that are readily available to the customer and the good or service is separately identifiable from other promises in the arrangement.

Company generates revenue from two streams:

(1) iRWD (imaging Real World Data) which provides regulatory

grade imaging and clinical data in the Pharmaceutical, Device Manufacturing, CRO’s and AI markets and (2) BEAM which is a Medical

Imaging Exchange platform between Hospital/Healthcare Systems, Imaging Centers, Physicians and Patients.

is sold on a fixed fee basis based on the number of data units and the cost per data unit committed to in the customer contract.

is recognized when the data is delivered to the customer.

revenue is subscription-based revenue which is recognized ratably over the subscription period committed to by the customer.

invoices its Beam customers quarterly or annually in advance with the customer contracts automatically renewing unless the customer issues

a cancellation notice.

Company excludes from revenue taxes collected from a customer that are assessed by a governmental authority and imposed on and concurrent

with a specific revenue-producing transaction.

transaction price for the products is the invoiced amount.

Advanced billings from contracts are deferred and recognized as revenue when

revenue consists of payments received in advance of performance under the contract.

Such amounts are generally recognized as revenue

over the contractual period.

The Company receives payments from customers based upon contractual billing schedules.

Accounts receivable

is recorded when the right to consideration becomes unconditional.

Payment terms on invoiced amounts typically range from zero to 90

days, with typical terms of 30 days.

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

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