UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
FOR
THE QUARTERLY PERIOD ENDED
OR
Commiss
ion
File Number:
(Exact name of registrant as specified in its charter)
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(State or other jurisdiction of incorporation or organization) |
(I.R.S. Employer Identification No.) |
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| (Address of principal executive offices) | (Zip code) |
(
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Exchange Act:
None
| Title of each class | Trading Symbol(s) | Name of each exchange on which registered | ||
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Securities registered pursuant to Section 12(g) of the Act:
None
Indicate by check mark whether the issuer (1) has filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the last 90 days. ☒ NO ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). ☒ NO ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “non-accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
| Large Accelerated Filer | ☐ | Accelerated Filer | ☐ |
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☐ | Smaller Reporting Company |
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| Emerging Growth Company |
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If
an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying
with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.
Indicate
by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
YES ☐
As of November 14, 2023, the number of outstanding shares of Class A Common Shares, representing limited liability interests, of the registrant was .
TABLE OF CONTENTS
| 1 |
PART I – FINANCIAL INFORMATION
CONDENSED UNAUDITED FINANCIAL STATEMENTS
CONSOLIDATED BALANCE SHEETS
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September 30, 2023 (Unaudited) |
December 31, 2022 |
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| Cash and cash equivalents | $ |
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$ |
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| Restricted cash |
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Grants receivable, includes unbilled receivables of $
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| Prepaid expenses and other current assets |
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| Investment securities, at amortized cost (U.S. Treasury Bills) |
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| Investment securities, at fair value (held by our licensed broker dealer) (Note 2) |
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| Investment securities, at cost less impairment (held by our licensed broker dealer) |
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| Investment securities, at cost less impairment |
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| Deferred offering cost |
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| Property and equipment, net |
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| Operating lease right-of-use assets, net |
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| Total assets | $ |
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$ |
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| LIABILITIES AND EQUITY | ||||||||
| Accounts payable | $ |
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$ |
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| Accrued expenses |
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| Income taxes payable |
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| Deferred grant reimbursement |
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| Deferred tax liability |
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| Deferred revenue |
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| Operating lease liabilities |
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| Total liabilities |
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| Commitments and Contingencies (Note 9) | ||||||||
| Equity: | ||||||||
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Preferred shares,
authorized shares at
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Class A common shares,
authorized shares at
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Class B common shares,
authorized shares at
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| Paid-in-capital |
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| Accumulated deficit |
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| Total MDB Capital Holdings, LLC Members’ equity |
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| Non-controlling interest |
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| Total equity |
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| Total liabilities and equity | $ |
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$ |
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See accompanying notes to consolidated financial statements.
| 2 |
CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited)
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Three Months Ended September 30, |
Nine Months Ended September 30, |
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| 2023 | 2022 | 2023 | 2022 | |||||||||||||
| Operating income (loss): | ||||||||||||||||
| Unrealized gain (loss) on investment securities, net (from our licensed broker dealer) (Note 2) | $ |
(
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) | $ |
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$ |
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$ |
(
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| Realized loss on investment securities, net (from our licensed broker dealer) |
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| Fee income |
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| Other operating income |
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| Total operating income (loss), net |
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| Operating costs: | ||||||||||||||||
| General and administrative costs: | ||||||||||||||||
| Compensation |
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| Operating expense, related party |
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| Professional fees |
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| Information technology |
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| Clearing and other charges |
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| General and administrative-other |
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| Total general and administrative costs |
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Research and development costs, net of grants amounting to $
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| Total operating costs |
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| Net operating loss |
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| Other income: | - | |||||||||||||||
| Interest income |
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| Net loss before income taxes |
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| Income taxes |
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| Net loss |
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| Less net loss attributable to non-controlling interests |
(
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(
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(
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| Net loss attributable to MDB Capital Holdings, LLC | $ |
(
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) | $ |
(
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) | $ |
(
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) | $ |
(
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| Net loss per share attributable to MDB Capital Holdings, LLC: | ||||||||||||||||
| Net loss per Class A common share – basic and diluted | $ | ) | $ | ) | $ | ) | $ | ) | ||||||||
| Weighted average of Class A common shares outstanding – basic and diluted | ||||||||||||||||
| Net loss per Class B common share – basic and diluted | $ | ) | $ | ) | $ | ) | $ | ) | ||||||||
| Weighted average of Class B common shares outstanding – basic and diluted | ||||||||||||||||
See accompanying notes to consolidated financial statements.
| 3 |
MDB CAPITAL HOLDINGS, LLC
CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY (Unaudited)
Three Months Ended During the Nine Months Ended September 30, 2023 and 2022
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Class A Common Shares |
Class B Common Shares |
Paid-In | Accumulated | Members’ | Noncontrolling | Total | ||||||||||||||||||||||||||||||
| Shares | Amount | Shares | Amount | Capital | Deficit | Equity | Interest | Equity | ||||||||||||||||||||||||||||
| Balance, December 31, 2022 |
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$ |
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$ | $ |
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$ |
(
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) | $ | $ |
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$ |
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| Stock-based compensation | - | - |
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| Net loss | - | - |
(
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(
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(
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| Balance, March 31, 2023 |
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$ |
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$ | $ |
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$ |
(
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$ |
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| Stock-based compensation | - | - |
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| Net income (loss) | - | - |
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(
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| Balance, June 30, 2023 |
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$ |
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$ | $ |
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$ |
(
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$ |
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| Issuance of Class A common shares |
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- |
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| Issuance of warrants to purchase Class A common shares | - |
- |
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| Stock-based compensation | - | - |
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| Net loss | - | - |
(
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(
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(
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| Balance, September 30, 2023 |
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$ |
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$ | $ |
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$ |
(
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) | $ | $ |
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$ |
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Class A Common Shares |
Class B Common Shares |
Paid-In | Accumulated | Members’ | Noncontrolling | Total | ||||||||||||||||||||||||||||||
| Shares | Amount | Shares | Amount | Capital | Deficit | Equity | Interest | Equity | ||||||||||||||||||||||||||||
| Balance, December 31, 2021 | $ | $ | $ | $ | $ |
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$ |
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$ |
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| Distribution of Invizyne and PatentVest to members’ | - | - |
(
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(
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| Net loss from January 1, 2022 to January 16, 2022 | - | - |
(
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(
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| Balance, January 16, 2022 |
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| Elimination of members’ equity and non-controlling interest upon reorganization (Note 1) | - | - |
(
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(
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| Members contribution of net assets of Public Ventures, Invizyne and PatentVest and establishment of non-controlling interest | - |
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| Issuance of Class A common shares |
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- |
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| Distribution to members (made by our licensed broker dealer) (Notes 1 and 2) | - | - |
(
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(
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| Acquisition of non-controlling interest in PatentVest | - | - |
(
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(
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| Stock-based compensation | - | - |
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| Net loss | - | - |
(
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(
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| Balance, March 31, 2022 |
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| Issuance of Class A common shares, net costs of private placement, net of costs of private placement |
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- |
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| Issuance of warrants to purchase Class A common shares | - | - |
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| Ownership change of non-controlling interest | - | - |
(
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| Stock-based compensation | - | - |
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| Net loss | - | - |
(
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(
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(
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| Balance, June 30, 2022 |
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$ |
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$ | $ |
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$ |
(
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$ |
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| Ownership change of non-controlling interest | - | - |
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(
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| Stock-based compensation | - | - |
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| Net loss | - | - |
(
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(
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(
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| Balance, September 30, 2022 |
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$ |
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$ | $ |
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$ |
(
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) | $ | $ |
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$ |
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See accompanying notes to consolidated financial statements.
| 4 |
MDB CAPITAL HOLDINGS, LLC
CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
| Nine Months Ended September 30, | ||||||||
| 2023 | 2022 | |||||||
| CASH FLOWS FROM OPERATING ACTIVITIES: | ||||||||
| Net loss | $ |
(
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) | $ |
(
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| Adjustments to reconcile net loss to net cash used in operating activities: | ||||||||
| Unrealized (gain) loss on investment securities, net |
(
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| Realized loss on investment securities, net |
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| Stock-based compensation |
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| Accretion of investments at amortized cost (U.S Treasury Bills) |
(
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| Purchases of investment securities, at fair value (made by our licensed broker dealer) |
(
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| Purchases of investment securities, at cost less impairment |
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| Proceeds from sale of investment securities, at fair value (made by our licensed broker dealer) |
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| Deferred income tax |
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| Warrants issued as part of an investment banking deal |
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| Income recognized from warrants received |
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| Depreciation of property and equipment |
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| Accretion of deferred grant reimbursement |
(
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| Deferred revenue |
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| Non-cash lease expense |
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| Changes in operating assets and liabilities: | ||||||||
| (Increase) decrease in - | ||||||||
| Grants receivable |
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(
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| Prepaid expenses and other current assets |
(
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(
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| Increase (decrease) in - | ||||||||
| Accounts payable |
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| Income taxes payable |
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| Accrued expenses |
(
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| Deferred grant reimbursement |
(
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| Net cash used in operating activities |
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| CASH FLOWS FROM INVESTING ACTIVITIES: | ||||||||
| Proceeds of investments securities, at amortized cost (U.S Treasury Bills) |
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| Purchases of investments securities, at amortized cost (U.S Treasury Bills) |
(
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(
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| Purchases of property and equipment |
(
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(
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| Net cash provided by (used in) investing activities |
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(
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| CASH FLOWS FROM FINANCING ACTIVITIES: | ||||||||
| Proceeds from private placement |
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| Proceeds from initial public offering |
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| Costs of private placement |
(
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| Costs from initial public offering |
(
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| Deferred costs of initial public offering |
(
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| Distribution to member |
(
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| Acquisition of non-controlling interest in PatentVest |
(
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| Net cash provided by financing activities |
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| NET INCREASE IN CASH, CASH EQUIVALENTS, AND RESTRICTED CASH |
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| CASH, CASH EQUIVALENTS, AND RESTRICTED CASH - BEGINNING OF PERIOD |
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| CASH, CASH EQUIVALENTS, AND RESTRICTED CASH - END OF PERIOD | $ |
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$ |
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| Supplemental disclosures of cash flow information: | ||||||||
| Cash paid for - | ||||||||
| Interest | $ | $ |
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| Income taxes | $ | $ | ||||||
| Non-cash investing and financing activities: | ||||||||
| Distribution of equity to members and subsequent contribution into MDB Capital Holdings, LLC - Invizyne and PatentVest | $ | $ |
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| Ownership change of non-controlling interest | $ | $ |
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| Partner contribution of members equity into MDB Capital Holdings, LLC | $ |
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| Warrants received as part of an investment banking deal | $ |
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$ | |||||
| Modification of lease - right-of-use asset and lease liability | $ |
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$ | |||||
| Record right-of-use asset and operating lease liability | $ |
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$ | |||||
| Relinquishment of deferred costs of initial public offering from prior year | $ |
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$ | |||||
| Investment securities, at cost less impairment, received in lieu of cash payment | $ |
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$ | |||||
| Issuance of Class A common shares in exchange for non-controlling interest in PatentVest | $ | $ |
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| Issuance of warrants to purchase Class A stock related to the initial public offering closed on September 20, 2023 | $ |
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$ | |||||
| Issuance of warrants to purchase Class A stock related to the private placement offering closed on June 15, 2022 | $ | $ |
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The following table provides a reconciliation of the amount of cash, cash equivalents, and restricted cash reported within the consolidated balance sheets to the total of the same such amounts shown in the consolidated statements of cash flows:
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September 30, 2023 |
December 31, 2022 |
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| Cash and cash equivalents | $ |
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$ |
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| Restricted cash |
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| Total cash, cash equivalents, and restricted cash shown in the consolidated statements of cash flows | $ |
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$ |
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See accompanying notes to consolidated financial statements.
| 5 |
MDB CAPITAL HOLDINGS, LLC
(Formerly Public Ventures, LLC and Subsidiaries)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Nine Months Ended September 30, 2023 and 2022
1. Organization and Description of Business
MDB Capital Holdings, LLC (“the Company” or “MDB”), a Delaware limited liability company, is a holding company that has three wholly-owned subsidiaries: MDB CG Management Company (“MDB Management”); Public Ventures, LLC (“Public Ventures”); and PatentVest, Inc. (“PatentVest”), and has a majority-owned partner company, Invizyne Technologies, Inc. (“Invizyne”).
MDB Management is an “administrative” entity whose purpose is to conduct, and to consolidate wherever possible, to consolidate shared services and other resources, for our US-based operations.
Public Ventures is a U.S. registered broker-dealer under the Securities Exchange Act of 1934, and is a member of the Financial Industry Regulatory Authority (“FINRA”) and the Texas State Securities Board. Public Ventures operates on a fully disclosed basis with a nonrelated FINRA member firm, Interactive Brokers, LLC (“Interactive Brokers”), and is not required to maintain a clearing deposit. Interactive Brokers is the clearing firm and custodian of investments maintained by Public Ventures. Public Ventures has been approved by FINRA to be a clearing broker dealer and will commence operating as such in November.
PatentVest is a wholly-owned subsidiary that performs intellectual property validation services for Public Ventures’, due diligence functions on the intellectual property of clients and prospective client companies, creates an intellectual property roadmap for client companies, and is also a law firm specializing in patent matters,
Invizyne was formed with the business objective of taking nature’s building blocks to make molecules of interest, effectively simplifying nature. Invizyne is a biology technology development company that is a majority-owned subsidiary. Invizyne’s technology is a differentiated and unique synthetic biology platform which is designed to enable the scalable exploration of a large number of molecules and properties found in nature.
Prior
to January 14, 2022, Public Ventures owned majority interests in PatentVest and Invizyne. On January 14, 2022, Public Ventures distributed
The reorganization was completed between entities that were under common control, and the assets contributed and liabilities assumed are recorded based on their historical carrying values. These consolidated financial statements retroactively reflect the financial statements of the Company and Public Ventures on a consolidated basis for the periods presented.
On January 16, 2022, the Company issued 100,000 shares of Class A common shares for all the then non-controlling interests in PatentVest. PatentVest is now wholly owned by the Company.
On
July 1, 2022, the Company made a cash distribution for $
On
June 8, 2022, MDB completed the first closing of a private placement, consisting of the sale of
shares of Class A common shares
at $
per share, for gross proceeds of $
On
September 20, 2023, MDB completed an initial public offering (IPO), consisting of the sale of
shares of Class A common shares at $
per share, for gross proceeds of $
| 6 |
2. Summary of Significant Accounting Policies
Basis of Presentation and Principles of Consolidation
The accompanying unaudited consolidated financial statements include the accounts of the Company and wholly-owned and majority owned subsidiaries. The accompanying unaudited consolidated financial statements and related notes have been prepared in accordance with U.S. generally accepted accounting principles (“U.S. GAAP”) for interim financial statements and with the instructions to Form 10-Q and Article 10 of Regulation S-X. The consolidated balance sheet as of December 31, 2022, and related notes were derived from the audited consolidated financial statements but does not include all disclosures required by U.S. GAAP. Certain information and footnote disclosures normally included in financial statements prepared in accordance with U.S. GAAP have been condensed or omitted pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”). These unaudited consolidated financial statements reflect, in the opinion of management, all material adjustments (which include normal recurring adjustments) necessary to fairly state, in all material respects, the Company’s financial position as of September 30, 2023, the results of operations for the three and nine months ended September 30, 2023 and 2022 and its cash flows for the nine months ended September 30, 2023 and 2022. The results of operations for the three and nine months ended September 30, 2023 are not necessarily indicative of the operating results for the full year or any future period The unaudited consolidated financial information should be read in conjunction with the Company’s audited consolidated financial statements for the year ended December 31, 2022. All intercompany accounts and transactions have been eliminated in consolidation. Non-controlling interests at September 30, 2023 and 2022, relate to the interests of third parties in the majority owned subsidiaries.
The managing members of the Company have a controlling interest in PatentVest, S.A., a company organized and based in Nicaragua (which was renamed MDB Capital, S.A in 2022). As the Company itself does not have a controlling financial interest in this entity, and management has determined PatentVest, S.A. is not a variable interest entity and as such should not be consolidated as it has no ownership interests nor is a variable interest, so has excluded this entity from the Company’s consolidated financial statements. It is the Company’s policy to reevaluate this conclusion on an annual basis or if there are significant changes in ownership.
Income Taxes
The Company is a limited liability company treated as a partnership for federal and state income tax purposes, with the exception of the state of Texas, in which income tax liabilities and/or benefits of the Company are passed through to its unitholders. Limited liability companies are subject to Texas margin tax. Additionally, the Company’s subsidiaries Public Ventures, MDB Management, PatentVest and Invizyne are Subchapter C-corporations subject to federal and state income taxes. As such, with the exception of the state of Texas and certain subsidiaries, the Company is not a taxable entity, it does not directly pay federal and state income taxes and recognition has not been given to federal and state income taxes for the operations of the Company.
| 7 |
Use of Estimates
The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period, as well as the disclosure of contingent assets and liabilities. Some of those judgments can be subjective and complex, and therefore, actual results could differ materially from those estimates under different assumptions or conditions. Management bases its estimates on historical experience and on various assumptions that are believed to be reasonable in relation to the financial statements taken as a whole under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Management regularly evaluates the key factors and assumptions used to develop the estimates utilizing currently available information, changes in facts and circumstances, historical experience and reasonable assumptions. After such evaluations, if deemed appropriate, those estimates are adjusted accordingly. Actual results could differ from those estimates. Significant estimates include those related to assumptions used in the valuation of investment securities, valuing equity instruments issued for services, stock-based compensation and the realization of any deferred tax assets.
Emerging Growth Company
The Company is an “emerging growth company,” or “EGC” as defined in Section 2(a) of the Securities Act of 1933, as amended, or the Securities Act, as modified by the Jumpstart Our Business Startups Act of 2012 (the “JOBS Act”), and it may take advantage of certain exemptions from various reporting requirements that are applicable to other public companies that are not emerging growth companies.
Further, Section 102(b)(1) of the JOBS Act exempts emerging growth companies from being required to comply with new or revised financial accounting standards until private companies (that is, those that have not had a Securities Act registration statement declared effective or do not have a class of securities registered under the Securities Exchange Act of 1934, as amended, or the Exchange Act) are required to comply with the new or revised financial accounting standards. The JOBS Act provides that a company can elect to opt out of the extended transition period and comply with the requirements that apply to non-emerging growth companies but any such election to opt out is irrevocable. The Company has elected to opt out of the extended transition periods.
Cash and Cash Equivalents
The Company considers highly liquid investments with original maturities or remaining maturities upon purchase of three months or less to be cash equivalents.
The
Company’s policy is to maintain its cash balances with financial institutions with high credit ratings and in accounts insured
by the Federal Deposit Insurance Corporation (the “FDIC”) and/or by the Securities Investor Protection Corporation (the “SIPC”).
The Company may periodically have cash balances in financial institutions in excess of the FDIC and SIPC insurance limits of $
The
Company periodically reviews the financial condition of the financial institutions and assesses the credit risk of such investments.
The Company did
| 8 |
Restricted Cash
The Company occasionally places deposits or enters into agreements mandating
the maintenance of funds considered to be restricted cash. As of September 30, 2023, the Company held $
Leases
Leases of the Company consist primarily of contracts for the right to use and direct use of an individual property. Leases were analyzed for evidence of significant additional components and to determine if these components were separately identifiable within the context of the contract. This policy is effective for all current and future property operating leases and applied uniformly and will be disclosed as such within the consolidated financial statements. Operating lease assets are included within right-of-use (ROU) assets and the corresponding operating lease liabilities are included within liabilities on the Company’s consolidated balance sheets as of September 30, 2023 and December 31, 2022.
The Company has elected not to present short-term leases on the consolidated balance sheets as these leases have a lease term of 12 months or less at lease inception and do not contain purchase options or renewal terms that the Company is reasonably certain to exercise. ROU assets represent the Company’s right to use an underlying asset for the lease term, and lease liabilities represent the Company’s obligation to make lease payments. Operating lease ROU assets and liabilities are recognized at the lease commencement date based on the present value of lease payments over the lease term. The Company’s uses the implicit rate in its lease calculations when it is readily determinable. Since the Company’s leases do not provide implicit rates, to determine the present value of lease payments, management uses the Company’s estimated incremental borrowing rate for a fully collateralized loan with a similar term of the lease that is based on the information available at the inception of the lease.
Stock-based compensation primarily consists of restricted stock units with service or market/performance conditions and stock options. The Company’s parent company issues restricted stock units are measured at the fair market value of the underlying stock at the grant date. The Company recognize stock compensation expense using the straight-line attribution method over the requisite service period for the restricted stock units. The Company’s subsidiary issued stock-option and the fair value is determined utilizing Black-Scholes options-pricing model. The Company account for forfeitures as they occur, rather than applying an estimated forfeiture rate. For performance-based restricted stock units, the compensation cost is recognized based on the number of units expected to vest upon the achievement of the performance conditions. Shares are issued on the vesting dates net of the applicable statutory tax withholding to be paid by us on behalf of our employees. As a result, fewer shares are issued to the employee than the number of awards outstanding. The Company record a liability for the tax withholding to be paid by us as a reduction to additional paid-in capital.
| 9 |
Investment Securities
The Company strategically invests funds in U.S. Treasury Bills, early-stage technology companies, and equity securities and options of publicly traded and privately held companies. The Company classifies investment securities as investment securities, at amortized cost, investment securities, at fair value, or investment securities, at cost less impairment.
Investment securities, at amortized cost - This is comprised of debt securities held by MDB and are classified as investment securities held-to-maturity and carried at amortized cost if management has the positive intent and ability to hold the securities to maturity. These securities were originally recorded at fair value and are subsequently measured at amortized cost, adjusted for unamortized purchase premiums and discounts, and an allowance for credit losses. Premiums and discounts are amortized or accreted over the life of the related security as an adjustment to yield using the effective-interest method. Such amortization and accretion are included in the interest income in the statements of operations. Interest income is recognized when earned. The Company recognizes estimated expected credit losses over the life of the investment security through the allowance for credit losses account. The allowance for credit losses is a valuation account that is deducted from, or added to, the amortized cost basis of the investment security to present the net amount expected to be collected. In determining expected credit losses, the Company considers relevant qualitative factors including, but not limited to, term and structure of the instrument, credit rating by rating agencies and historic credit losses adjusted for current conditions and reasonable and supportable forecasts. The Company currently only holds investments securities, at amortized cost in U.S. Treasury Bills, so there are no expected credit losses. Declines in fair value of these securities is due to changes in market interest rates, and because we expect to hold these securities until maturity, we do not expect to realize any losses.
Investment securities, at fair value - This is comprised of equity investments held by the broker dealer subsidiary and are reported at fair value with changes in fair value recognized in the statements of operations. Purchases and sales of equity securities, consisting of common stock and warrants to purchase common stock, are recorded based on the respective market price quotations on the trade date. Realized gains and losses on investments represent the net gains and losses on investments sold during the period based on the average cost method. Changes in fair value of investments are recorded on the consolidated statements of operations as unrealized gains and losses.
Investment securities, at cost less impairment - This is comprised of equity securities and a simple agreement on future equities without a readily determinable fair value held by the broker dealer subsidiary, the Company has elected to apply the measurement alternative of cost minus impairment, if any, plus or minus changes resulting from observable price changes. The Company will reassess whether such an investment qualifies for the measurement alternative at each reporting period. In evaluating an investment for impairment or observable price changes, we will use inputs including recent financing events, as well as other available information regarding the investee’s historical and forecasted performance. The Company has assessed this investment and no impairment is warranted.
| 10 |
Investment securities are as follows:
|
September 30, 2023 |
December 31, 2022 |
|||||||
| Investment securities, at amortized cost: | ||||||||
| U.S Treasury Bills | $ |
|
$ |
|
||||
| Investment securities, at amortized cost | $ |
|
$ |
|
||||
Broker/Dealer Securities
|
September
30,
2023 |
December 31, 2022 |
|||||||
| Investment securities, at fair value: | ||||||||
| Common stock of publicly traded companies | $ |
|
$ |
|
||||
| Warrants of publicly traded companies |
|
|
||||||
| Investment securities, at fair value | $ |
|
$ |
|
||||
| Investment securities, at cost less impairment | ||||||||
| Preferred stock of private company (not market listed) | $ |
|
$ |
|
||||
| Investment securities, at cost less impairment | $ |
|
$ |
|
||||
Non-Broker/Dealer Securities
|
September 30, 2023 |
December 31, 2022 |
|||||||
| Investment securities, at cost less impairment | ||||||||
| Simple agreement on future equities (not market listed) | $ |
|
$ |
|
||||
| Investment securities, at cost less impairment | $ |
|
$ |
|
||||
For
investment securities at fair value, net unrealized loss of $
| 11 |
The amortized cost, excluding gross unrealized holding loss and fair value of held to maturity securities on September 30, 2023 and December 31, 2022 are as follows:
|
Amortized Cost as of September 30,
2023 |
Gross Unrealized Gains |
Gross Unrealized Losses |
Fair Value (Level 1)
as of September 30,
|
|||||||||||||
| U.S Treasury Bills maturing 10/05/23 | $ |
|
$ |
|
$ | $ |
|
|||||||||
| Total assets | $ |
|
$ |
|
$ | $ |
|
|||||||||
|
Amortized
Cost as of December 31,
2022 |
Gross Unrealized Gains |
Gross Unrealized Losses |
Fair Value (Level 1)
as
of December 31,
|
|||||||||||||
| U.S Treasury Bills maturing 05/11/23 and 10/05/23 | $ |
|
$ | $ |
(
|
) | $ |
|
||||||||
| Total assets | $ |
|
$ | $ |
(
|
) | $ |
|
||||||||
Fair Value of Financial Instruments
Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. Assets and liabilities measured at fair value are categorized based on whether the inputs are observable in the market and the degree that the inputs are observable. The categorization of financial assets and liabilities within the valuation hierarchy is based upon the lowest level of input that is significant to the fair value measurement. There is no significant concentration of credit risk, due to the majority of assets being invested in U.S. Treasury Bills.
The Company determines the fair value of its financial instruments based on a fair value hierarchy that prioritizes inputs to valuation techniques used to measure fair value into three levels:
Level 1–- Observable inputs such as quoted prices in active markets for an identical asset or liability that the Company has the ability to access as of the measurement date.
Level 2–- Inputs, other than quoted prices included within Level 1, which are directly observable for the asset or liability or indirectly observable through corroboration with observable market data.
Level 3–- Unobservable inputs in which there is little or no market data for the asset or liability which requires the reporting entity to develop its own assumptions.
The Company’s financial instruments primarily consist of cash and investment securities. As of the consolidated balance sheets date, certain investment securities are required to be recorded at fair value with the change in fair value during the period being recorded as an unrealized gain or loss. As of September 30, 2023 and December 31, 2022, the estimated fair values of investment securities, at amortized cost were not materially different from their carrying values as presented on the consolidated balance sheets. This is primarily attributed to the short-term maturities of these instruments.
| 12 |
Investment securities, at amortized cost: The fair value of U.S. Treasury Bills classified as held-to-maturity investment securities is based on the market price and is classified as level 1 of the fair value hierarchy.
A description of the valuation techniques applied to the Company’s major categories of assets and liabilities measured at fair value on a recurring basis is as follows:
Investment securities: Public equity securities are assessed for valuation at the close of each month. Warrants are valued using the Black-Scholes model, which considers the stock price at the date of the valuation, the warrants strike price, the term to expiry, the risk-free rate of return, and the expected volatility of the underlying stock.
Investment securities, at cost less impairment: Non-public equity securities and simple agreements for future equity are valued based on the initial investment, less impairment. The Company determined that no impairment was warranted. Since these securities are not actively traded, we will apply valuation adjustments when they become available, and they are categorized in level 3 of the fair value hierarchy.
The following table sets forth the fair value of the Company’s financial assets and liabilities measured at fair value on a recurring basis as of September 30, 2023 except for the Level 3 investment that is recorded at cost:
| Assets | Classification | Level 1 | Level 2 | Level 3 | Total | |||||||||||||
| Investment Securities (held by our licensed broker dealer) | Equity securities–- common stock | $ |
|
$ | $ | $ |
|
|||||||||||
| Investment Securities (held by our licensed broker dealer) | Warrants |
|
|
|
||||||||||||||
| Total assets measured at fair value (held by our licensed broker dealer) | $ |
|
$ |
|
$ |
|
$ |
|
||||||||||
| 13 |
During the nine months ended September 30, 2023, the Company did not have any transfers between Level 1, Level 2, or Level 3 of the fair value hierarchy.
Reconciliation of fair value measurements categorized within Level 3 of the fair value hierarchy:
| December 31, 2022 | $ | |||
| Receipt from investment banking fees |
|
|||
| Realized gains | ||||
| Unrealized gains |
|
|||
| Sales or distribution |
(
|
) | ||
| Purchases | ||||
| September 30, 2023 | $ |
|
The following table present information about significant unobservable inputs related to material components of Level 3 warrants as of September 30, 2023.
| Assets | Fair Value | Valuation Techniques | Significant Unobservable Inputs | Ranges of Inputs | Weighted-Average | |||||||||||
| Warrants | $ |
|
Black Scholes | Volatility |
|
% |
|
% | ||||||||
The following table sets forth the fair value of the Company’s financial assets and liabilities measured at fair value on a recurring basis as of December 31, 2022, except for the Level 3 investment that is recorded at cost:
| Assets | Classification | Level 1 | Level 2 | Level 3 | Total | |||||||||||||
| Investment Securities (held by our licensed broker dealer) |
Equity
securities -
common stock |
$ |
|
$ | $ | $ |
|
|||||||||||
| Investment Securities (held by our licensed broker dealer) | Warrants |
|
|
|||||||||||||||
| Total assets measured at fair value (held by our licensed broker dealer) | $ |
|
$ |
|
$ | $ |
|
|||||||||||
During the year ended December 31, 2022, the Company did not have any transfers between Level 1, Level 2, or Level 3 of the fair value hierarchy.
Secured Debt–- Revolving Credit Facility
The
Company entered into a revolving credit facility with a bank, (the “Lender”) on July 26, 2023 for a commitment of up to
$
The
Company granted the Lender a security interest in a cash checking account held at the bank as collateral. The Lender has a right of setoff
available from this cash account when the line of credit is accessed. As of September 30, 2023, there is $
The Company is responsible for the payment of all of the Lender’s legal and other fees incurred in connection with administering the loan. The Company has incurred no such costs or debt issue costs.
As of September 30, 2023, there is
Property and Equipment
Property and equipment are recorded at cost. Major improvements are capitalized, while maintenance and repairs are charged to expense as incurred. Gains and losses from disposition of property and equipment are included in the statements of operations when realized. Depreciation is provided using the straight-line method over the following estimated useful lives:
| Laboratory equipment |
|
|
| Furniture and fixtures |
|
|
| Leasehold improvements |
|
| 14 |
Property and equipment consist of the following as of September 30, 2023 and December 31, 2022, respectively:
|
September 30, 2023 |
December 31, 2022 |
|||||||
| Laboratory equipment | $ |
|
$ |
|
||||
| Furniture and fixtures |
|
|
||||||
| Software development |
|
|||||||
| Leasehold improvements |
|
|
||||||
| Total property and equipment |
|
|
||||||
| Less: Accumulated depreciation |
(
|
) |
(
|
) | ||||
| Property and equipment, net | $ |
|
$ |
|
||||
Revenue
The Company generates revenue primarily from providing brokerage services and underwriting through Public Ventures. PatentVest and Invizyne have had limited activity during the three months and nine months ended September 30, 2023 and 2022.
Brokerage revenues consist of (i) trade-based commission income from executed trade orders, (ii) net realized gains and losses from proprietary trades, and (iii) other income consisting primarily of stock loan income earned on customer accounts. Public Ventures recognizes revenue from trade-based commissions and other income when performance obligations are satisfied through the transfer of control, as specified in the contract, of promised services to the customers of Public Ventures. Commissions are recognized on a trade date basis. Public Ventures believes that each executed trade order represents a single performance obligation that is fulfilled on the trade date because that is when the underlying financial instrument is identified, the pricing is agreed upon, and the risks and rewards of ownership have been transferred to/from the customer. When another party is involved in transferring a good or service to a customer, Public Ventures assesses whether revenue is presented based on the gross consideration received from customers (principal) or net of amounts paid to a third party (agent). Public Ventures has determined that it is acting as the principal as the provider of the brokerage services and therefore records this revenue on a gross basis. Clearing, custody and trade administration fees incurred from Interactive Brokers, the Company’s clearing firm, are recorded effective as of the trade date. The costs are treated as fulfillment costs and are recorded in operating expenses in the consolidated statements of operations.
| 15 |
Brokerage revenue is measured by the transaction price, which is defined as the amount of consideration that Public Ventures expects to receive in exchange for services to customers. The transaction price is adjusted for estimates of known or expected variable consideration based upon the individual contract terms. Variable consideration is recorded as a reduction to revenue based on amounts that Public Ventures expects to refund back to the customer. There were no variable considerations for the three months and the nine months ended September 30, 2023, and 2022, respectively.
Investment banking revenues consist of private placement fees. The Company generally does not incur costs to obtain contracts with customers that are eligible for deferral or receive fees prior to recognizing revenue related to investment banking transactions, and therefore, as of September 30, 2023, the Company did not have any contract assets or liabilities related to these revenues on its consolidated balance sheets.
Private placement fees are related to non-underwritten transactions such as private placements of equity securities, private investments in public equity, and Rule 144A private offerings and are recorded on the closing date of the transaction. Client reimbursements for costs associated for private placement fees are recorded gross within investment banking and various expense captions, excluding compensation. The Company typically receives payments on private placements transactions at the completion of the contract. The Company views the majority of placement fees as a single performance obligation that is satisfied when the transaction is complete, and the revenue is recognized at that point in time.
Taxes and regulatory fees assessed by a government authority or agency that are both imposed on and concurrent with a specified revenue-producing transaction, which are collected by Public Ventures from a customer, are excluded from revenue and recorded against general and administrative expenses.
Public Ventures does not incur any costs to obtain contracts with customers for revenues that are eligible for deferral or receive fees prior to recognizing revenue, and therefore, as of September 30, 2023 and 2022, Public Ventures did not have any contract assets or liabilities related to these revenues in its consolidated balance sheet.
PatentVest recognize revenue when performance obligations are satisfied by transferring promised goods and services to customers in an amount the Company expects to receive in exchange for those goods or services. PatentVest enters into contracts that can include various combinations of its offerings which are generally capable of being distinct and accounted for as a separate performance obligation for the entre contract or a portion of the contract. When performance obligations are combined into a single contract, PatentVest utilize stand-alone selling price to allocate the transaction price among the performance obligations.
Certain contracts or portions of contracts are duration-based which, in the event of customer cancellation, provide PatentVest with an enforceable right to a proportional payment for the portion of the services provided. Accordingly, revenue from duration-based is recognized using a time-based measure of progress, which PatentVest believes best depicts how it satisfies its performance obligations in these arrangements as control is continuously transferred throughout the contract period. Revenue from certain contracts is recognized over the expected period of performance using a single measure of progress, typically based on hours incurred. Payments received in advance of services being rendered are recorded as a component of contract liabilities.
The PatentVest’s contract liabilities which is presented as Deferred revenue, consist of advance payments. The table below shows changes in deferred revenue:
| Balance as of December 31, 2021 | $ | |||
| Amounts billed but not recognized | ||||
| Revenue recognized | ||||
| Balance as of June 30, 2022 | ||||
| Amounts billed but not recognized | ||||
| Revenue recognized | ||||
| Balance as of September 30, 2022 | ||||
| Amounts billed but not recognized | ||||
| Revenue recognized | ||||
| Balance as of December 31, 2022 | ||||
| Amounts billed but not recognized | ||||
| Revenue recognized | ||||
| Balance as of June 30, 2022 | ||||
| Amounts billed but not recognized |
|
|||
| Revenue recognized | ||||
| Balance as of September 30, 2023 | $ |
|
During the three months and nine months ended September 30, 2023, the Company’s technology development segment revenue, which was derived from a single feasibility study, which is not a typical service offered by the Company. The revenue generated from this study represents a direct reimbursement of costs incurred in completing the study.
| 16 |
Research Grants
Invizyne receives grant reimbursements, which are offset against research and development expenses in the consolidated statements of operations. In addition to actual reimbursements, the Company also receives indirect expense grants (which are not reimbursement-based) and fees (typically of minor significance). It is important to note that there may be instances where the grants received for indirect costs exceed the actual costs, resulting in a negative impact. For capitalized assets, grant reimbursements are recognized over the useful life of the assets. Any portion of the grant not yet recognized is recorded as deferred grant reimbursements and included as a liability in the consolidated balance sheet.
Grants that operate on a reimbursement basis are recognized on the accrual basis and are offsets to expenses to the extent of disbursements and commitments that are reimbursable for allowable expenses incurred as of September 30, 2023 and 2022, and respectively, expected to be received from funding sources in the subsequent year. Management considers such receivables at September 30, 2023 and 2022, respectively, to be fully collectable due to the historical experience with the Federal Government of the United States of America. Accordingly, no allowance for credit losses on the grants receivable was recorded in the accompanying consolidated financial statements.
Summary of grants receivable activity for the nine months ended September 30, 2023 and 2022, is presented below:
| 2023 | 2022 | |||||||
| Balance at beginning of period | $ |
|
$ |
|
||||
| Grant costs expensed |
|
|
||||||
| Grants for equipment purchased |
|
|||||||
| Grant fees |
|
|
||||||
| Grant funds received |
(
|
) |
(
|
) | ||||
| Balance at end of period | $ |
|
$ |
|
||||
The
Company has five grants provided by National Institute of Health and the Department of Energy. The first grant was awarded on October
1, 2019 and the latest grant is set to expire on August 31, 2024, however grants can be extended or new phases can be granted, extending
the expiration of the grant. None of the grants has commitments made by the parties, provisions for recapture, or any other contingencies,
beyond the complying with the normal terms of each research and development grant. Research grants received from organizations are subject
to the contract agreement as to how Invizyne conducts its research activities, and Invizyne is required to comply with the agreement
terms relating to those grants. Amounts received under research grants are nonrefundable, regardless of the success of the underlying
research project, to the extent that such amounts are expended in accordance with the approved grant project. Invizyne is permitted to
draw down the research grants after incurring the related expenses. Amounts received under research grants are offset against the related
research and development costs in the Company’s consolidated statements of operations. For the nine-months ended September 30,
2023 and 2022, respectively, grants amounting to $
| 17 |
Research and Development Costs
Research
and development costs are expensed as incurred. Research and development costs consist primarily of compensation costs, fees paid to
consultants, and other expenses relating to the development of Invizyne’s technology. For the three-months ended September 30,
2023 and 2022, research and development costs prior to offset of the grants amounted to $
Patent and Licensing Legal and Filing Fees and Costs
Due to the significant uncertainty associated with the successful development of one or more commercially viable products based on the Company’s research efforts and related patent applications, all patent and licensing legal and filing fees and costs related to the development and protection of its intellectual property are charged to operations as incurred.
Patent
and licensing legal and filing fees and costs were $
Reclassification
Certain
prior year balances have been reclassified to conform to the Company’s current period presentation. In the previous fiscal
year, we reclassified $
3. Segment Reporting
In its operation of the business, management, including the Company’s chief operating decision maker, who is also the Company’s Chief Executive Officer, reviews certain financial information, including segmented statements of operations and the balance sheets.
The Company currently operates in two reportable segments: in the broker dealer and intellectual property service segment as well as in the technology development segment.
The broker dealer and intellectual property service segment currently has two subsidiaries, Public Ventures and PatentVest. Public Ventures is a full-service broker dealer firm focusing on conducting private and public securities offerings. PatentVest offers in-depth patent research used for investment banking due diligence.
The technology development segment currently has one subsidiary, Invizyne. Invizyne is a research and development stage company synthetic biology company.
Non-income generating subsidiaries for management of the business, including MDB CG Management Company, Inc. are reported as other.
The segments are based on the discrete financial information reviewed by the Chief Executive Officer to make resource allocation decisions and to evaluate performance. The reportable segments are each managed separately because they will provide a distinct product or provide services with different processes. All reported segment revenues are derived from external customers.
The accounting policies of the Company’s reportable segments are in consideration of ASC 280 and the same as those described in the summary of significant accounting policies (see Note 2).
| 18 |
The following sets forth the long-lived assets and total assets by segment at September 30, 2023:
| ASSETS | Broker Dealer & Intellectual Property Service | Technology Development | Other | Consolidated | ||||||||||||
| Long-lived assets | $ |
|
$ |
|
$ |
|
$ |
|
||||||||
| Total assets | $ |
|
$ |
|
$ |
|
$ |
|
||||||||
The following sets forth statements of operations by segment for the three-months September 30, 2023:
| Broker Dealer & Intellectual Property Service | Technology Development | Other | Consolidated | |||||||||||||
| Operating income: | ||||||||||||||||
| Unrealized loss on investment securities, net (from our licensed broker dealer) | $ |
(
|
) | $ | $ | $ |
(
|
) | ||||||||
| Other operating income |
|
|
||||||||||||||
| Total operating loss, net |
(
|
) |
(
|
) | ||||||||||||
| Operating costs: | ||||||||||||||||
| General and administrative costs: | ||||||||||||||||
| Compensation |
|
|
|
|
||||||||||||
| Operating expense, related party |
|
|
|
|||||||||||||
| Professional fees |
|
|
|
|
||||||||||||
| Information technology |
|
|
|
|
||||||||||||
| Clearing and other charges |
|
|
||||||||||||||
| General and administrative-other |
|
|
|
|
||||||||||||
| Total general and administrative costs |
|
|
|
|
||||||||||||
| Research and development costs |
|
|
||||||||||||||
| Total operating costs |
|
|
|
|
||||||||||||
| Net operating loss |
(
|
) |
(
|
) |
(
|
) |
(
|
) | ||||||||
| Other income: | ||||||||||||||||
| Interest income |
|
|
|
|||||||||||||
| Net loss before income taxes |
(
|
) |
(
|
) |
(
|
) |
(
|
) | ||||||||
| Income taxes |
|
|
||||||||||||||
| Net loss |
(
|
) |
(
|
) |
(
|
) |
(
|
) | ||||||||
| Less net loss attributable to non-controlling interests |
(
|
) |
(
|
) | ||||||||||||
| Net loss attributable to MDB Capital Holdings, LLC | $ |
(
|
) | $ |
(
|
) | $ |
(
|
) | $ |
(
|
) | ||||
| 19 |
The following sets forth statements of operations by segment for the nine-months ended September 30, 2023:
| Broker Dealer & Intellectual Property Service | Technology Development | Other | Consolidated | |||||||||||||
| Operating income: | ||||||||||||||||
| Unrealized gain on investment securities, net (from our licensed broker dealer) | $ |
|
$ | $ | $ |
|
||||||||||
| Fee income |
|
|
||||||||||||||
| Other operating income |
|
|
|
|||||||||||||
| Total operating income, net |
|
|
|
|||||||||||||
| Operating costs: | ||||||||||||||||
| General and administrative costs: | ||||||||||||||||
| Compensation |
|
|
|
|
||||||||||||
| Operating expense, related party |
|
|
|
|||||||||||||
| Professional fees |
|
|
|
|
||||||||||||
| Information technology |
|
|
|
|
||||||||||||
| Clearing and other charges |
|
|
||||||||||||||
| General and administrative-other |
|
|
|
|
||||||||||||
| Total general and administrative costs |
|
|
|
|
||||||||||||
| Research and development costs |
|
|
||||||||||||||
| Total operating costs |
|
|
|
|
||||||||||||
| Net operating income (loss) |
|
(
|
) |
(
|
) |
(
|
) | |||||||||
| Other income: | ||||||||||||||||
| Interest income |
|
|
|
|
||||||||||||
| Net income (loss) before income taxes |
|
(
|
) |
(
|
) |
(
|
) | |||||||||
| Income taxes |
|
|
|
|||||||||||||
| Net income (loss) |
|
(
|
) |
(
|
) |
(
|
) | |||||||||
| Less net loss attributable to non-controlling interests |
(
|
) |
(
|
) | ||||||||||||
| Net income (loss) attributable to MDB Capital Holdings, LLC | $ |
|
$ |
(
|
) | $ |
(
|
) | $ |
(
|
) | |||||
| 20 |
| ASSETS | Broker Dealer & Intellectual Property Service | Technology Development | Other | Consolidated | ||||||||||||
| Long-lived assets | $ | $ |
|
$ |
|
$ |
|
|||||||||
| Total assets | $ |
|
$ |
|
$ |
|
$ |
|
||||||||
| Broker Dealer & Intellectual Property Service | Technology Development | Other | Consolidated | |||||||||||||
| Operating income: | ||||||||||||||||
| Unrealized gain on investment securities, net (from our licensed broker dealer) | $ |
|
$ | $ | $ |
|
||||||||||
| Other operating income |
|
|
|
|
||||||||||||
| Total operating income, net |
|
|
|
|
||||||||||||
| Operating costs: | ||||||||||||||||
| General and administrative costs: | ||||||||||||||||
| Compensation |
|
|
|
|
||||||||||||
| Operating expense, related party |
|
|
|
|||||||||||||
| Professional fees |
|
|
|
|||||||||||||
| Information technology |
|
|
|
|
||||||||||||
| Clearing and other charges |
|
|
||||||||||||||
| General and administrative-other |
|
|
|
|
||||||||||||
| Total general and administrative costs |
|
|
|
|
||||||||||||
| Research and development costs |
|
|
||||||||||||||
| Total operating costs |
|
|
|
|
||||||||||||
| Net operating loss |
(
|
) |
(
|
) |
(
|
) |
(
|
) | ||||||||
| Other income: | ||||||||||||||||
| Net loss before income taxes |
(
|
) |
(
|
) |
(
|
) |
(
|
) | ||||||||
| Income taxes | ||||||||||||||||
| Net loss |
(
|
) |
(
|
) |
(
|
) |
(
|
) | ||||||||
| Less net loss attributable to non-controlling interests |
(
|
) |
(
|
) | ||||||||||||
| Net loss attributable to MDB Capital Holdings, LLC | $ |
(
|
) | $ |
(
|
) | $ |
(
|
) | $ |
(
|
) | ||||
| 21 |
The following sets forth statements of operations by segment for the nine-months ended September 30, 2022:
| Broker Dealer & Intellectual Property Service | Technology Development | Other | Consolidated | |||||||||||||
| Operating income (loss): | ||||||||||||||||
| Unrealized loss on investment securities, net (from our licensed broker dealer) | $ |
(
|
) | $ | $ | $ |
(
|
) | ||||||||
| Realized loss on investment securities |
(
|
) |
(
|
) | ||||||||||||
| Other operating income |
|
|
|
|
||||||||||||
| Total operating income, net |
|
|
|
|
||||||||||||
| Operating costs: | ||||||||||||||||
| General and administrative costs: | ||||||||||||||||
| Compensation |
|
|
|
|
||||||||||||
| Operating expense, related party |
|
|
|
|||||||||||||
| Professional fees |
|
|
|
|
||||||||||||
| Information technology |
|
|
|
|
||||||||||||
| Clearing and other charges |
|
|
||||||||||||||
| General and administrative-other |
|
|
|
|
||||||||||||
| General and administrative costs |
|
|
|
|
||||||||||||
| Research and development costs |
|
|
||||||||||||||
| Total operating costs |
|
|
|
|
||||||||||||
| Net operating loss |
(
|
) |
(
|
) |
(
|
) |
(
|
) | ||||||||
| Loss before income taxes |
(
|
) |
(
|
) |
(
|
) |
(
|
) | ||||||||
| Income tax | ||||||||||||||||
| Net loss |
(
|
) |
(
|
) |
(
|
) |
(
|
) | ||||||||
| Less net loss attributable to non-controlling interests |
(
|
) |
(
|
) | ||||||||||||
| Net loss attributable to controlling interests | $ |
(
|
) | $ |
(
|
) | $ |
(
|
) | $ |
(
|
) | ||||
| 22 |
4. Equity and Non-Controlling Interests
Equity
Preferred shares - shares authorized, shares issued and outstanding. The board of directors may designate preferred shares to be issued, and may rank preferred shares as junior to, on parity with or senior to other preferred shares (in each case, with respect to distributions or other payments in respect of shares). Since the board of directors may set all the terms of any class of preferred shares, these are considered “blank check” preferred shares. Currently the board has not defined dividend and liquidation preference, participation rights, call prices and dates, sinking-fund requirements, or terms that may change the conversion or exercise price.
Class
A common shares –
shares authorized,
shares issued and outstanding. These shares are common shares and have
Class
B common shares -
shares authorized,
issued and outstanding. These shares are common shares and have
Non-Controlling Interests
During
the nine months ended September 30, 2023, the ownership interest in Invizyne was
The
NCI ownership will be equal to the NCI percentage as of the reporting period. Therefore, there will be a redistribution of equity between
MDB and the Non-controlling interest owner. As of September 30, 2023 and 2022, the Company’s equity interest in Invizyne was
|
For the Nine Months Ended September 30, |
||||||||
| 2023 | 2022 | |||||||
| Invizyne net loss | $ |
(
|
) | $ |
(
|
) | ||
| Weighted average non-controlling percentage |
|
% |
|
% | ||||
| Net loss non-controlling interest | $ |
(
|
) | $ |
(
|
) | ||
| Prior period balance |
|
|
||||||
| Stock-based compensation |
|
|
||||||
| Ownership change of non-controlling interest |
|
|||||||
| Ending period balance | $ |
|
$ |
|
||||
During
the nine-months ended September 30, 2023 and 2022, the Company owned
| 23 |
If a change in the parent ownership in a subsidiary from an additional investment or from the issuance of stock-based compensation, a change of the non-controlling ownership is recognized based on the amount invested and the carrying amount of the non-controlling interest is adjusted to reflect the change in the non-controlling ownership in the subsidiary’s net assets. In 2022, since there was a change in the equity, a reclassification of the non-controlling interest in the subsidiary’s net assets is required and demonstrated in the ending period balance above.
Invizyne’s 2020 Equity Incentive Plan (the “2020 Plan”), which was approved by the Invizyne shareholders, permits grants to its officers, directors, and employees for up to shares of Invizyne’s common stock. The 2020 Plan authorizes the use of stock options, shares of restricted stock, and restricted stock units.
On February 1, 2021, stock options to purchase shares of common stock were granted at an exercise price of $ per share, which was equal to the fair value of the common stock on the date of grant and are exercisable for a period of years. The stock options vest ratably over a period of years. The inputs used to determine the fair value was common stock price of $ , option exercise price of $ , expected life in years of years, with a contract life of years, risk-free rate of , expected annual volatility of , and annual rate of dividends of $ . On May 1, 2023, stock options to purchase shares of common stock were granted at an exercise price of $ per share, which was equal to the fair value of the common stock on the date of grant and are exercisable for a period of years. The stock options vest ratably over a period of years. The inputs used to determine the fair value was common stock price of $ , option exercise price of $ , expected life in years of years, with a contract life of years, risk-free rate of , expected annual volatility of , and annual rate of dividends of $ . As of September 30, 2023, stock options to purchase shares of common stock have vested, the weighted average exercise price is $ , the aggregate intrinsic value is $ , and the weighted average remaining contractual term is years. Invizyne stock-based compensation were $ and $ for the three ended September 30, 2023 and 2022, respectively. Invizyne stock-based compensation were $ and $ for the nine months ended September 30, 2023 and 2022. As of September 30, 2023, the unrecognized stock-based compensation is $ .
| Number of Shares |
Weighted Average Exercise Price |
Weighted Average Remaining Contractual Life (in Years) | ||||||||||
| Stock options outstanding at January 1, 2022 |
|
|
||||||||||
| Granted | - | |||||||||||
| Exercised | - | |||||||||||
| Expired | - | |||||||||||
| Stock options outstanding at September 30, 2022 |
|
|
||||||||||
| Granted | - | |||||||||||
| Exercised | - | |||||||||||
| Expired | - | |||||||||||
| Stock options outstanding at December 31, 2022 |
|
$ |
|
|||||||||
| Granted |
|
|
||||||||||
| Exercised | - | |||||||||||
| Expired | - | |||||||||||
| Stock options outstanding at September 30, 2023 |
|
$ |
|
|||||||||
| Stock options exercisable at September 30, 2022 |
|
$ |
|
|||||||||
| Stock options exercisable at September 30, 2023 |
|
$ |
|
|||||||||
On July 19, 2021, Invizyne granted restricted stock units (“RSUs”) at a value of $ per share. These RSUs were issued in 2020 in lieu of cash bonuses. As these RSUs do not vest until the expiration of any lock up subsequent to an initial public offering of the company, or upon the change of control of the Company by Invizyne, which is outside of the control of the Company, no compensation expense related to these RSUs has been recorded. These RSUs fully vest upon the expiration of any lockup period subsequent to an initial public offering, or upon the change of control of Invizyne. The Company will record stock-based compensation for these RSUs when the RSUs begin to vest.
On March 28, 2022, Invizyne granted restricted stock units (“RSUs”) at a value of $ per share. These RSUs were issued in 2021 in lieu of cash bonuses. As these RSUs do not vest until the expiration of any lock up subsequent to an initial public offering of the Company, or upon the change of control of the Company by Invizyne, which is outside of the control of the Company, no compensation expense related to these RSUs has been recorded. These RSUs fully vest upon the expiration of any lockup period subsequent to an initial public offering, or upon the change of control of Invizyne. The Company will record stock-based compensation for these RSUs when the RSUs begin to vest, and the unrecognized stock-based compensation is $ .
On May 1, 2023, Invizyne granted restricted stock units (“RSUs”) at a value of $ per share. These RSUs were issued in 2023 in lieu of cash bonuses. As these RSUs do not vest until the expiration of any lock up subsequent to an initial public offering of the Company, or upon the change of control of the Company by Invizyne, which is outside of the control of the Company, no compensation expense related to these RSUs has been recorded. These RSUs fully vest upon the expiration of any lockup period subsequent to an initial public offering, or upon the change of control of Invizyne. The Company will record stock-based compensation for these RSUs when the RSUs begin to vest, and the unrecognized stock-based compensation is $ .
| 24 |
Between April 19, 2022 and September 21, 2022, the Company granted restricted stock units (“RSUs”). . These RSUs were granted to officers, directors, employees, and contractors. As these RSUs do not begin to vest until the completion of an initial public offering by the Company, which occurred on September 20, 2023, $ of stock-based compensation expense related to these RSUs was recorded for the three and nine months ended September 30, 2023. The total unrecognized compensation expense based on the shares price sold in the private placement is $ .
On April 19, 2022 the Company granted restricted stock units (“RSUs”). . As these RSUs do not begin to vest until the completion of an initial public offering by the Company, which occurred on September 20, 2023, $ of stock-based compensation expense related to these RSUs was recorded for the three and nine months ended September 30, 2023. The estimated unrecognized compensation expense for performance/market vesting RSUs is $ . A summary of restricted stock unit activity during the nine-months ended September 30, 2023 and 2022 is presented below:
| Time-Based | Performance-Based | |||||||||||||||
| Number of Restricted Stock Units | Weighted Average Grant Date Fair Value | Number of Restricted Stock Units | Weighted Average Grant Date Fair Value | |||||||||||||
| Restricted stock units outstanding at September 30, 2022 |
|
$ |
|
|
$ |
|
||||||||||
| Granted | ||||||||||||||||
| Exercised | ||||||||||||||||
| Expired | ||||||||||||||||
| Restricted stock units outstanding at December 31, 2022 |
|
$ |
|
|
$ |
|
||||||||||
| Granted | ||||||||||||||||
| Exercised | ||||||||||||||||
| Expired | ||||||||||||||||
| Restricted stock units outstanding at September 30, 2023 |
|
$ |
|
|
$ |
|
||||||||||
| Restricted stock units at September 30, 2022 | $ | $ | ||||||||||||||
| Restricted stock units at September 30, 2023 | $ | $ | ||||||||||||||
| 25 |
The Company’s computation of earnings (loss) per share (“EPS”) includes basic and diluted EPS. Basic EPS is measured as the income (loss) attributable to common stockholders divided by the weighted average common shares outstanding for the period. Diluted EPS is similar to basic EPS but presents the dilutive effect on a per share basis of potential common shares (e.g., preferred shares, warrants and stock options) as if they had been converted at the beginning of the periods presented, or issuance date, if later. Potential common shares that have an anti-dilutive effect (i.e., those that increase income per share or decrease loss per share) are excluded from the calculation of diluted EPS.
Loss per common share is computed by dividing net loss by the weighted average number of shares of common stock outstanding during the respective periods. Basic and diluted loss per common share was the same for all periods presented because warrants outstanding were anti-dilutive, for a total of shares.
Earnings (loss) per share is presented below for the three and nine months ended September 30, 2023 and 2022, respectively.
| For the Three Months Ended | ||||||||||||||||
| September 30, 2023 | September 30, 2022 | |||||||||||||||
| Class A common shares | Class B common shares | Class A common shares | Class B common shares | |||||||||||||
| Net loss attributable to MDB Capital Holdings, LLC | $ |
(
|
) | $ |
(
|
) | $ |
(
|
) | $ |
(
|
) | ||||
| Weighted average shares outstanding – basic and diluted | ||||||||||||||||
| Net loss per share – basic and diluted | $ | ) | $ | ) | $ | ) | $ | ) | ||||||||
| For the Nine Months Ended | ||||||||||||||||
| September 30, 2023 | September 30, 2022 | |||||||||||||||
| Class A common shares | Class B common shares | Class A common shares | Class B common shares | |||||||||||||
| Net loss attributable to MDB Capital Holdings, LLC | $ |
(
|
) | $ |
(
|
) | $ |
(
|
) |
(
|
) | |||||
| Weighted average shares outstanding – basic and diluted | ||||||||||||||||
| Net loss per share – basic and diluted | $ | ) | $ | ) | $ | ) | $ | ) | ||||||||
Class A common shares and Class B common stock are equal for ownership, Class B shares have five times the voting rights of Class A shares and Class B shares can be exchanged on a one-to-one basis for purposes of sale.
7. Restatement of Previously Issued Financial Statements
During the preparation of the financial statements for the quarter ended September 30, 2023, a mathematical error was identified in the calculation of weighted average of Class A common shares outstanding for the period ended June 30, 2022, that resulted in a material error in the reported net loss per Class A common share for the three-month and six-month periods ended June 30, 2022. Below are the weighted-average share calculations and net loss per share – basic and diluted and previously reported and as restated:
| For the Three Months Ended | ||||||||
|
June
30, 2022 –
Class A common shares |
June
30, 2022 –
Class A common shares |
|||||||
| Previously Reported |
As
restated |
|||||||
| Weighted average of Class A common shares outstanding – basic and diluted | ||||||||
| Net loss per Class A common share – basic and diluted | $ | ) | $ | ) | ||||
| For the Six Months Ended | ||||||||
| June 30, 2022 - Class A common shares | June 30, 2022 - Class A common shares | |||||||
| Previously Reported |
As
restated |
|||||||
| Weighted average of Class A common shares outstanding – basic and diluted | ||||||||
| Net loss per Class A common share – basic and diluted | $ | ) | $ | ) | ||||
8. Related Party Transactions
The
principal members of the Company have a controlling interest in PatentVest, S.A. (renamed MDB Capital, S.A. in 2022), a company organized
and based in Nicaragua that provides outsourced services to the Company and other non-related entities. During the nine months ended
September 30, 2023 and 2022, the Company paid $
During
the nine-months ended September 30, 2022, the Company utilized
In
January 2022, the Company declared to its two principal members a cash distribution of $
9. Commitments and Contingencies
Legal Claims
The Company may be subject to legal claims and actions from time to time as part of its business activities. As of September 30, 2023 and 2022, the Company was not subject to any pending or threatened legal claims or actions.
External Risks Associated with the Company’s Business Activities
| 26 |
Contract for Sale of Securities
The
Company entered into an agreement to sell equity securities to investors totaling $
Net Capital Requirement (Public Ventures)
Public
Ventures is subject to the uniform net capital rule (SEC Rule 15c3-1) of the Securities and Exchange Commission (the “SEC”),
which requires both the maintenance of minimum net capital and the maintenance of maximum ratio of aggregate indebtedness to net capital.
At September 30, 2023 and 2022, Public Ventures had net capital of $
At
September 30, 2023, the Company’s ratio of aggregate indebtedness of $
The requirement to comply with the Uniform Net Capital Rule 15c3-1 may limit Public Ventures’ ability to issue dividends to its parent company.
Indemnification Provisions
Public Ventures has agreed to indemnify its clearing broker for losses that the clearing broker may sustain from the accounts of customers. Should a customer not fulfill its obligation on a transaction, Public Ventures may be required to buy or sell securities at prevailing market prices in the future on behalf of its customer. The indemnification obligations of Public Ventures to its clearing broker have no maximum amount. All unsettled trades at September 30, 2023 and 2022 have subsequently settled with no resulting material liability to Public Ventures, LLC. For the nine-months ended September 30, 2023 and 2022, Public Ventures had no material loss due to counterparty failure and had no obligations outstanding under the indemnification arrangement as of September 30, 2023 and 2022.
| 27 |
Invizyne Funding Requirements
The
Company has entered into a funding agreement (the “Funding Agreement”) to purchase shares in Invizyne up to a maximum of
$
at a pre-determined purchase price, subject to continuing financial covenants being met. As of September 30, 2023 and December
31, 2022, $
10. Employee Benefit Plans
MDB
Management and Invizyne both sponsored individual 401(k) defined contribution plans for the benefit of each company’s eligible
employees. Public Ventures offered the employees sponsored 401(k) defined contribution plan for the benefit of the employee, this plan
was terminated on July 30, 2021. The plans allow eligible employees to contribute a portion of their annual compensation, not to exceed
annual limits established by the Department of Treasury. Invizyne makes matching contributions for participating employees up to a certain
percentage of the employee contributions; matching contributions were funded for the nine- months ended September 30, 2023 and 2022.
Benefits under the Invizyne plan were available to all employees, and employees become fully vested in the employer contribution upon
receipt. For the nine-months ended September 30, 2023 and 2022, a total of $
MDB Management and Invizyne also provide health and related benefit plans for eligible employees.
11. Exclusive License Agreement (Invizyne)
On April 19, 2019, Invizyne entered into an exclusive license agreement (the “License Agreement”) with the Regents of the University of California (“The Regents”) for patent rights and associated technology relating to the biosynthetic platform (the “Patent”). Certain individuals named as inventors of the Patent are also the founding stockholders of Invizyne. A founder of Invizyne was the head of the laboratory which was used in the research development agreement with The Regents.
Under the License Agreement, Invizyne holds an exclusive license of the Patent and a non-exclusive license for the associated technology to make, have made, use, have used, sell, have sold, offer for sale, and import licensed products. Invizyne also has the rights to sub-license its rights to the patent underlying the License Agreement.
| 28 |
Under
the License Agreement, Invizyne has committed to pay certain royalties on net sales for 10 years after the first commercial sale of such
licensed product. At September 30, 2023, there was
Invizyne is obligated to make payments upon achievement of certain milestones as defined in the License Agreement. At September 30, 2023, none of the milestones had been achieved by Invizyne.
Under the License Agreement, Invizyne is required to achieve certain development milestones. If Invizyne fails to achieve a development milestone by the deadline, The Regents have the right and option to either terminate the License Agreement or reduce Invizyne’s exclusive and non-exclusive license in accordance with the License Agreement. As of September 30, 2023, the performance milestones have been met.
Invizyne may terminate the License Agreement, in whole or in part as to a particular patent right, at any time by providing notice of termination to The Regents as defined in the License Agreement.
Pursuant to a non-dilution provision of the License Agreement, no shares of Invizyne’s common stock were issued to The Regents during the three months ended September 30, 2023 and 2022.
Invizyne
accounts for the costs incurred in connection with the License Agreement in accordance with ASC Topic 730,
Research and
Development
. The Company paid license fees for the three months ended September 30, 2023 and 2022, respectively, of $
12. Leases
For operating leases, the Company records a right-of-use assets and corresponding lease liabilities in the consolidated balance sheets for all leases with terms longer than twelve months. The Company has three operating leases, with no variable lease costs, and no finance leases as of September 30, 2023. The Company has two operating leases, with no variable lease costs, and no finance leases and December 31, 2022.
| 29 |
On
April 3, 2023, the Company executed a lease for new office space next to the existing space at Invizyne in the Los Angeles, California
metropolitan area. The lease with a term of 60 months which began on July 1, 2023 and ending on June 30, 2028, without an option to extend.
The initial base rent was $
In
April 2023, Invizyne made changes to an existing lease agreement, which resulted in an extension of the lease term by an additional
On
July 1, 2022, the Company executed a lease for new office space in the Dallas, Texas metropolitan area. The lease with a term of
|
September 30, 2023 |
December 31, 2022 |
|||||||
| Operating leases: | ||||||||
| Right-of-use assets | $ |
|
$ |
|
||||
| Operating lease liabilities | $ |
|
$ |
|
||||
| Weighted average remaining lease term in years |
|
|
||||||
| Weighted average discount rate |
|
% |
|
% | ||||
| Cash paid for amounts included in the measurement of lease liabilities | $ |
|
$ |
|
||||
| Right-of-use assets obtained in exchange for lease liabilities | $ |
|
$ |
|
||||
| Operating lease cost | $ |
|
$ |
|
||||
| Short-term lease costs |
|
|
||||||
| Total operating lease costs | $ |
|
$ |
|
||||
| 30 |
Future payments due under operating leases as of September 30, 2023 are as follows:
| Year | Amount | |||
| Remainder of 2023 | $ |
|
||
| 2024 |
|
|||
| 2025 |
|
|||
| 2026 |
|
|||
| 2027 |
|
|||
| Thereafter |
|
|||
| Total | $ |
|
||
| Less effects of discounting |
(
|
) | ||
| Total operating lease liabilities | $ |
|
||
13. Income Taxes
The Company is a limited liability company treated as a partnership for federal and state income tax purposes, with the exception of the state of Texas, in which income tax liabilities and/or benefits of the Company are passed through to its unitholders. Limited liability companies are subject to Texas margin tax. Additionally, the Company’s subsidiaries Public Ventures, MDB Management, PatentVest, and Invizyne are Subchapter C-corporations subject to federal and state income taxes.
Amounts recognized as income taxes are included in “income tax expense” on the statements of operations. The Company recognized no income tax expense for the nine months ended September 30, 2023, and September 30, 2022, because of a full valuation allowance recorded against the Company’s net deferred tax assets.
The
Company’s federal and state statutory tax rate net of the federal tax benefit was approximately
In assessing the realizability of deferred tax assets, management considers whether it is more likely than not that some portion or all of the deferred tax assets will not be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which temporary differences become deductible. Management considers the scheduled reversal of deferred tax liabilities, projected future taxable income, and tax planning strategies in making this assessment. At the end of 2022, the Company’s corporate earnings were in a cumulative loss position. Based on the cumulative losses and projections of future taxable income for the periods in which the deferred tax assets are deductible, the Company recorded a valuation allowance against all its net deferred tax assets as of September 30, 2023, and September 30, 2022. The Company intends to maintain a full valuation allowance on its net deferred tax assets until there is sufficient evidence to support the reversal of all or some portion of these allowances. The amount of deferred tax assets considered realizable could materially increase in the future, and the amount of valuation allowance recorded could materially decrease if estimates of future taxable income are increased.
| 31 |
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Overview
MDB Capital Holdings, LLC (“the Company” or “MDB”), a Delaware limited liability company, is a holding company that has three wholly-owned subsidiaries: MDB CG Management Company (“MDB Management”); Public Ventures, LLC (“Public Ventures”); and PatentVest, Inc. (“PatentVest”), and has a majority-owned partner company, Invizyne Technologies, Inc. (“Invizyne”).
MDB Management is an “administrative” entity whose purpose is to conduct, and to consolidate wherever possible, to consolidate shared services and other resources, for our US-based operations.
Public Ventures is a U.S. registered broker-dealer under the Exchange Act and is a member of FINRA and the Texas State Securities Board. Public Ventures is managed by Christopher A. Marlett and Anthony DiGiandomenico, who are also the founders of MDB. Public Ventures operates on a fully disclosed basis with a nonrelated FINRA member firm, Interactive Brokers, LLC (“Interactive Brokers”), and is not required to maintain a clearing deposit. Interactive Brokers is the clearing firm and custodian of investments maintained by Public Ventures. Public Ventures has been approved by FINRA to be a clearing broker dealer and will commence operating as such in November.
PatentVest is a wholly-owned subsidiary that performs intellectual property validation services for Public Ventures’, due diligence functions on the intellectual property of clients and prospective client companies, creates an intellectual property roadmap for client companies, and is also a law firm specializing in patent matters.
Invizyne was formed with the business objective of taking nature’s building blocks to make molecules of interest, effectively simplifying nature. Invizyne is a biology technology development company that is a majority-owned subsidiary. Invizyne’s technology is a differentiated and unique synthetic biology platform which is designed to enable the scalable exploration of a large number of molecules and properties found in nature.
Prior to January 14, 2022, Public Ventures owned majority interests in PatentVest and Invizyne. On January 14, 2022, Public Ventures distributed 100% of its equity interests in PatentVest and Invizyne to its members in proportion to their respective interests. On January 15, 2022, Public Ventures filed with the Internal Revenue Service to be treated as a corporation for federal income tax purposes. On January 16, 2022, the members of Public Ventures contributed their entire interests in the equity of Public Ventures, Invizyne and PatentVest to MDB, as result of which MDB became the new parent holding company. There was no effective change in the beneficial ownership of Public Ventures as a result of this transaction. On the same day as part of the reorganization, MDB established a management company subsidiary, MDB Management. These reorganization steps are collectively referred to as the “reorganization. In connection with the reorganization, 5,000,000 Class B common shares were issued in exchange for the members’ equity.
The reorganization was completed between entities that were under common control, and the assets contributed and liabilities assumed are recorded based on their historical carrying values. These consolidated financial statements retroactively reflect the financial statements of the Company and Public Ventures on a consolidated basis for the periods presented.
On January 16, 2022, the Company issued 100,000 shares of Class A common shares for the non-controlling interest in PatentVest. PatentVest is now wholly owned by the Company.
On July 1, 2022, the Company made a cash distribution for $2,723,700 to the former members of Public Ventures in accordance with its private offering memorandum. This cash distribution was declared on January 16, 2022.
On June 8, 2022, MDB completed the first closing of a private placement, consisting of the sale of 2,517,966 shares of Class A common shares at $10.00 per share, for gross proceeds of $25,179,660. On June 15, 2022, the Company completed the second closing of the private placement, consisting of the sale of an additional 11,000 shares of Class A common shares, for gross proceeds of $110,000. Accordingly, the Company received total gross proceeds of $25,289,660 from the sale of 2,528,966 shares of Class A common shares, or $24,746,142 net of $543,518 of offering expenses. In conjunction with the private placement, the Company issued warrants to the placement agent to purchase 18,477 shares of Class A common shares, exercisable upon issuance for a period of 10 years at $13.00 per share, for a cash consideration of $0.001/share. The placement agent’s warrants had a fair value of $106,940, as calculated pursuant to the Black-Scholes option-pricing model and were accounted for as issuance costs that were recorded against paid in capital. The warrants issued are accounted for as equity and recorded under paid in capital.
On September 20, 2023, MDB completed an initial public offering (IPO), consisting of the sale of 1,666,666 shares of Class A common shares at $12.00 per share, for gross proceeds of $19,999,992. Accordingly, the Company received total gross proceeds of $19,999,992 from the sale of 1,666,666 shares of Class A common shares, or $17,444,659 net of $2,555,333 of offering expenses. In conjunction with the IPO, the Company issued warrants to the placement agent to purchase 16,667 shares of Class A common shares, exercisable upon issuance for a period of 5 years at $15.00 per share, for a cash consideration of $0.001/share. The placement agent’s warrants had a fair value of $65,411, as calculated pursuant to the Black-Scholes option-pricing model and were accounted for as issuance costs that were accounted for as equity instruments and recorded against paid in capital.
| 32 |
Results of Operations
The Company has determined its reporting units in accordance with ASC (Accounting Standards Codification) 280, Segment Reporting. The Company currently operates in two reportable segments: (i) the broker dealer and intellectual property service segment and (ii) the technology development segment.
The Company’s consolidated statements of operations as discussed herein are presented below.
Consolidated Results of Operations for the Three Months Ended September 30, 2023 and 2022
| 2023 | 2022 | $ Change | % Change | |||||||||||||
| Operating income (loss): | ||||||||||||||||
| Unrealized gain (loss) on investment securities, net (from our licensed broker dealer) | $ | (786,906 | ) | $ | 16,072 | $ | (802,978 | ) | (4,996.1 | )% | ||||||
| Other operating income | 11,502 | 57,903 | (46,401 | ) | (80.1 | )% | ||||||||||
| Total operating income (loss), net | (775,404 | ) | 73,975 | (849,379 | ) | (1,148.2 | )% | |||||||||
| Operating costs: | ||||||||||||||||
| General and administrative costs: | ||||||||||||||||
| Compensation | 1,337,771 | 1,130,256 | 207,515 | 18.4 | % | |||||||||||
| Operating expense, related party | 273,821 | 514,798 | (240,977 | ) | (46.8 | )% | ||||||||||
| Professional fees | 459,585 | 51,035 | 408,550 | 800.5 | % | |||||||||||
| Information technology | 93,326 | 93,465 | (139 | ) | (0.1 | )% | ||||||||||
| Clearing and other charges | 3,316 | 2,547 | 769 | 30.2 | % | |||||||||||
| General and administrative-other | 327,896 | 406,536 | (78,640 | ) | (19.3 | )% | ||||||||||
| Total general and administrative costs | 2,495,715 | 2,198,637 | 297,078 | 13.5 | % | |||||||||||
| Research and development costs, net of grants amounting to $743,320 and $645,731 | 27,936 | 103,633 | (75,697 | ) | (73.0 | )% | ||||||||||
| Total operating costs | 2,523,651 | 2,302,270 | 221,381 | 9.6 | % | |||||||||||
| Net operating loss | (3,299,055 | ) | (2,228,295 | ) | (1,070,760 | ) | (48.1 | )% | ||||||||
| Other income: | ||||||||||||||||
| Interest income | 176,300 | - | 176,300 | 100.0 | % | |||||||||||
| Loss before income taxes | (3,122,755 | ) | (2,228,295 | ) | (894,460 | ) | (40.1 | )% | ||||||||
| Income taxes | 63,559 | - | 63,559 | 100.0 | % | |||||||||||
| Net loss | (3,186,314 | ) | (2,228,295 | ) | (958,019 | ) | (43.0 | )% | ||||||||
| Less net loss attributable to non-controlling interests | (177,853 | ) | (144,715 | ) | (33,138 | ) | (22.9 | )% | ||||||||
| Net loss attributable to MDB Capital Holdings, LLC | $ | (3,008,461 | ) | $ | (2,083,580 | ) | $ | (924,881 | ) | (44.4 | )% | |||||
Consolidated Results of Operations for the Nine Months Ended September 30, 2023 and 2022
| 2023 | 2022 | $ Change | % Change | |||||||||||||
| Operating income (loss): | ||||||||||||||||
| Unrealized gain (loss) on investment securities, net (from our licensed broker dealer) | $ | 696,965 | $ | (3,836 | ) | $ | 700,801 | 18,269.1 | % | |||||||
| Realized gain (loss) on investment securities (from our licensed broker dealer) | - | (7 | ) | 7 | 100.0 | % | ||||||||||
| Fee income | 4,233,120 | - | 4,233,120 | 100.0 | % | |||||||||||
| Other operating income | 140,873 | 107,356 | 33,517 | 31.2 | % | |||||||||||
| Total operating income, net | 5,070,958 | 103,513 | 4,967,445 | 4,798.9 | % | |||||||||||
| Operating costs: | ||||||||||||||||
| General and administrative costs: | ||||||||||||||||
| Compensation | 3,183,515 | 2,219,954 | 963,561 | 43.4 | % | |||||||||||
| Operating expense, related party | 829,474 | 882,601 | (53,127 | ) | (6.0 | )% | ||||||||||
| Professional fees | 1,241,089 | 652,713 | 588,376 | 90.1 | % | |||||||||||
| Information technology | 408,875 | 207,944 | 200,931 | 96.6 | % | |||||||||||
| Clearing and other charges | 382,994 | 22,342 | 360,652 | 1,614.2 | % | |||||||||||
| General and administrative-other | 883,233 | 1,024,761 | (141,528 | ) | (13.8 | )% | ||||||||||
| Total general and administrative costs | 6,929,180 | 5,010,315 | 1,918,865 | 38.3 | % | |||||||||||
| Research and development costs, net of grants amounting to $2,265,408 and $1,651,661 | 67,095 | 295,779 | (228,684 | ) | (77.3 | )% | ||||||||||
| Total operating costs | 6,996,275 | 5,306,094 | 1,690,181 | 31.9 | % | |||||||||||
| Net operating loss | (1,925,317 | ) | (5,202,581 | ) | 3,277,264 | 63.0 | % | |||||||||
| Other income: | ||||||||||||||||
| Interest income | 548,479 | - | 548,479 | 100.0 | % | |||||||||||
| Loss before income taxes | (1,376,838 | ) | (5,202,581 | ) | 3,825,743 | 73.5 | % | |||||||||
| Income taxes | 384,143 | - | 384,143 | 100.0 | ||||||||||||
| Net loss | (1,760,981 | ) | (5,202,581 | ) | 3,441,600 | 66.2 | % | |||||||||
| Less net loss attributable to non-controlling interests | (341,631 | ) | (418,677 | ) | 77,046 | 18.4 | % | |||||||||
| Net loss attributable to MDB Capital Holdings, LLC | $ | (1,419,350 | ) | $ | (4,783,904 | ) | $ | 3,364,554 | 70.3 | % | ||||||
| 33 |
Operating Income. For the three-month period ended September 30, 2023, there were unrealized losses primarily related to stock and warrants received in an investment banking deal closed in the second quarter of 2023. For the nine-month periods ended September 30, 2023, operating income was generated from the Company’s fee income and unrealized gains related to warrants received in an investment banking deal closed in the second quarter of 2023 in the broker-dealer and intellectual property service segment. For the three-month and nine-month periods ended September 30, 2022 it is worth noting that during both periods, there was minimal activity.
General and Administrative Costs . During the three-month and nine-month periods ended September 30, 2023, and 2022, respectively, several factors contributed to changes in various expense categories:
| ● | Compensation Expense: The increase in compensation expense was driven by the continued hiring of additional employees in the later half of 2022 and into 2023 to support the anticipated growth in operations. | |
| ● | Related Party Operating Expenses: There was a decrease in related party operating expenses due to outsourcing support in preparation for future self-clearing operations for the broker-dealer and intellectual property service segment in 2022, leading to decreased costs in 2023. | |
| ● | Professional Fees: For the three-month and nine-month period ended September 30, 2023, professional fees increased compared to the previous periods as a result of higher legal, tax, audit, and consulting fees related to the preparation for self-clearing operations, audit fees, tax return preparation fees, the public offering, and K-1s preparation costs that were incurred. | |
| ● | Information Technology Costs: Cost were consistent with the comparative period for the three-month period ended September 30, 2023. The increase in information technology costs for the nine-month period ended September 30, 2023 was due to investments in infrastructure, website development, and other technology expenses as part of the preparation for becoming a self-clearing broker-dealer. A majority of these expense were incurred before the third quarter of 2023 and, as a result, the costs incurred in the three-month comparative periods were consistent. | |
| ● | Clearing and Other Charges: The uptick in costs for the three-month period ended September 30, 2023 was immaterial with respect to the comparative period. For the nine-month period ended September 30, 2023, the increase in clearing and other charges was directly linked to the attorney fees and placement agent fees paid out as part of an investment banking deal in the second quarter of 2023. | |
| ● | Other General and Administrative Costs: The decrease in other general and administrative costs resulted from an overall cost reduction strategy with respect to reduce general and administrative expenses. |
Research and Development Costs . The research and development costs were derived from the Company’s technology development segment. For the three-month period and the nine-month period ended September 30, 2023 there was a decrease in research and development costs that was due to an increase in grant funding of $97,589 and $613,747, respectively. It is important to note that the upswing in grant funding was not linked to any specific event and is expected to fluctuate throughout the year.
Other Income . For the three-month and nine-month periods ended September 30, 2023, the increase in other income was the result of interest generated on U.S. Treasury Bill interest that was not present in the prior period.
Income Taxes. For the three-month and nine-month periods ended September 30, 2023, the increase was primarily attributed to the growth in net income for investment banking revenues and technology revenues. Therefore, the total tax expense amounted to $63,659 for the three-month period ended September 30, 2023 and $384,143 for the nine-month period ended September 30, 2023.
| 34 |
Broker Dealer and Intellectual Property Service Segment (Public Ventures and PatentVest) Results of Operations for the Three Months Ended September 30, 2023 and 2022
| 2023 | 2022 | $ Change | % Change | |||||||||||||
| Operating income (loss): | ||||||||||||||||
| Unrealized gain (loss) on investment securities, net (from our licensed broker dealer) | $ | (786,906 | ) | $ | 16,072 | $ | (802,978 | ) | (4,996.1 | )% | ||||||
| Other operating income | 11,502 | 27,073 | (15,571 | ) | (57.5 | )% | ||||||||||
| Total operating income (loss), net | (775,404 | ) | 43,145 | (818,549 | ) | (1,897.2 | )% | |||||||||
| Operating costs: | ||||||||||||||||
| General and administrative costs: | ||||||||||||||||
| Compensation | 793,061 | 633,083 | 159,978 | 25.3 | % | |||||||||||
| Operating expense, related party | 223,254 | 431,172 | (207,918 | ) | (48.2 | )% | ||||||||||
| Professional fees | 108,959 | 36,865 | 72,094 | 195.6 | % | |||||||||||
| Information technology | 71,988 | 85,978 | (13,990 | ) | (16.3 | )% | ||||||||||
| Clearing and other charges | 3,316 | 2,547 | 769 | 30.2 | % | |||||||||||
| General and administrative-other | 63,266 | 71,743 | (8,477 | ) | (11.8 | )% | ||||||||||
| Total General and administrative costs | 1,263,844 | 1,261,388 | 2,456 | 0.2 | % | |||||||||||
| Research and development costs | - | - | - | - | ||||||||||||
| Total operating costs | 1,263,844 | 1,261,388 | 2,456 | 0.2 | % | |||||||||||
| Net operating loss | (2,039,248 | ) | (1,218,243 | ) | (821,005 | ) | (67.4 | )% | ||||||||
| Other income: | ||||||||||||||||
| Interest income | 28,110 | - | 28,110 | 100.0 | % | |||||||||||
| Loss before income taxes | (2,011,138 | ) | (1,218,243 | ) | (792,895 | ) | (65.1 | )% | ||||||||
| Income taxes | - | - | - | - | ||||||||||||
| Net income (loss) | $ | (2,011,138 | ) | $ | (1,218,243 | ) | $ | (792,895 | ) | (65.1 | )% | |||||
Broker Dealer and Intellectual Property Service Segment (Public Ventures and PatentVest) Results of Operations for the Nine Months Ended September 30, 2023 and 2022
| 2023 | 2022 | $ Change | % Change | |||||||||||||
| Operating income (loss): | ||||||||||||||||
| Unrealized gain (loss) on investment securities, net (from our licensed broker dealer) | $ | 696,965 | $ | (3,836 | ) | $ | 700,801 | 18,269.1 | % | |||||||
| Realized gain (loss) on investment securities (from our licensed broker dealer) | - | (7 | ) | 7 | 100.0 | % | ||||||||||
| Fee income | 4,233,120 | - | 4,233,120 | 100.0 | % | |||||||||||
| Other operating income | 70,104 | 76,513 | (6,409 | ) | (8.4 | )% | ||||||||||
| Total operating income (loss), net | 5,000,189 | 72,670 | 4,927,519 | 6,780.7 | % | |||||||||||
| Operating costs: | ||||||||||||||||
| General and administrative costs: | ||||||||||||||||
| Compensation | 1,912,536 | 1,359,236 | 553,300 | 40.7 | % | |||||||||||
| Operating expense, related party | 687,995 | 794,054 | (106,059 | ) | (13.4 | )% | ||||||||||
| Professional fees | 316,388 | 542,811 | (226,423 | ) | (41.7 | )% | ||||||||||
| Information technology | 333,940 | 187,768 | 146,172 | 77.8 | % | |||||||||||
| Clearing and other charges | 382,994 | 22,342 | 360,652 | 1,614.2 | % | |||||||||||
| General and administrative-other | 262,131 | 471,039 | (208,908 | ) | (44.4 | )% | ||||||||||
| Total General and administrative costs | 3,895,984 | 3,377,250 | 518,734 | 15.4 | % | |||||||||||
| Research and development costs | - | - | - | - | ||||||||||||
| Total operating costs | 3,895,984 | 3,377,250 | 518,734 | 15.4 | % | |||||||||||
| Net operating income (loss) | 1,104,205 | (3,304,580 | ) | 4,408,785 | 133.4 | % | ||||||||||
| Other income: | ||||||||||||||||
| Interest income | 75,991 | - | 75,991 | 100.0 | % | |||||||||||
| Income (loss) before income taxes | 1,180,196 | (3,304,580 | ) | 4,484,776 | 135.7 | % | ||||||||||
| Income taxes | 320,584 | - | 320,584 | 100.0 | % | |||||||||||
| Net income (loss) | $ | 859,612 | $ | (3,304,580 | ) | $ | 4,164,192 | 126.0 | % | |||||||
| 35 |
Operating Income. For the three-month ended September 30, 2023, there were unrealized losses primarily related to stock and warrants received in an investment banking deal closed in the second quarter of 2023. For the nine-month periods ended September 30, 2023, operating income was generated from the Company’s fee income and unrealized gains related to warrants received in an investment banking deal closed in the second quarter of 2023 in the broker-dealer and intellectual property service segment. For the three-month and nine-month periods ended September 30, 2022, it is worth noting that during both periods, there was minimal activity.
General and Administrative Costs . During the three-month and nine-month periods ended September 30, 2023, and 2022, respectively, several factors contributed to changes in various expense categories:
| ● | Compensation Expense: The increase in compensation expense was driven by the continued hiring of additional employees in the in the later half of 2022 to support the anticipated growth in operations. | |
| ● | Related Party Operating Expenses: There was an uptick in related party operating expenses due to outsourcing support in preparation for future self-clearing operations for the broker-dealer and intellectual property service segment, leading to increased costs. | |
| ● | Professional Fees: For the three-month period ended September 30, 2023, professional fees increased compared to the previous period as a result of higher legal, tax, audit, and consulting fees related to the preparation for self-clearing operations. For the nine-month period ended September 30, 2023, audit fees, tax return preparation fees were reduced over the period from the prior comparative period due to higher activity for the audits for multiple prior years in the prior period. | |
| ● | Information Technology Costs: Cost decreased slightly due to IT costs due less costs surrounding to build up of the self clearing operation with the comparative period for the three-month period ended September 30, 2023. The increase in information technology costs for the nine-month period ended September 30, 2023, was due to investments in infrastructure, website development, and other technology expenses as part of the preparation for becoming a self-clearing broker-dealer. | |
| ● | Clearing and Other Charges: The uptick in costs for the three-month period ended September 30, 2023 was immaterial with respect to the comparative period. For the nine-month period ended September 30, 2023, the increase in clearing and other charges was directly linked to the attorney fees and placement agent fees paid out as part of an investment banking deal in the second quarter of 2023. | |
| ● | Other General and Administrative Costs: The decrease in other general and administrative costs resulted from an overall cost reduction strategy to reduce general and administrative expenses. |
| 36 |
Other Income . The rise in other income for both the three-month and nine-month periods ending September 30, 2023, can be attributed to the growth in bank interest income, stemming from an increase in the cash balance.
Income Taxes . For the three-month period ended September 30, 2023 there was no activity. For the period ended nine-month period ended September 30, 2023, increase primarily attributed to the growth in taxable net income. As a consequence, the total tax expense amounted to $94,710.
Technology Development Segment (Invizyne) Results of Operations for the Three Months Ended September 30, 2023 and 2022
| 2023 | 2022 | $ Change | % Change | |||||||||||||
| Total operating income | $ | - | $ | 21 | $ | (21 | ) | (100.0 | )% | |||||||
| Operating costs: | ||||||||||||||||
| General and administrative costs: | ||||||||||||||||
| Compensation | 119,146 | 82,430 | 36,716 | 44.5 | % | |||||||||||
| Professional fees | 92,506 | 14,170 | 78,336 | 552.8 | % | |||||||||||
| Information technology | 7,012 | 5,039 | 1,973 | 39.2 | % | |||||||||||
| General and administrative-other | 145,243 | 150,332 | (5,089 | ) | (3.4 | )% | ||||||||||
| Total general and administrative costs | 363,907 | 251,971 | 111,936 | 44.4 | % | |||||||||||
| Research and development costs, net of grants amounting to $743,320 and $645,731 | 27,936 | 103,633 | (75,697 | ) | (73.0 | )% | ||||||||||
| Total operating costs | 391,843 | 355,604 | 36,239 | 10.2 | % | |||||||||||
| Net operating loss | (391,843 | ) | (355,583 | ) | (36,260 | ) | (10.2 | )% | ||||||||
| Other income: | ||||||||||||||||
| Interest income | - | - | - | - | ||||||||||||
| Loss before income taxes | (391,843 | ) | (355,583 | ) | (36,260 | ) | (10.2 | )% | ||||||||
| Income taxes | 63,559 | - | 63,559 | 100.0 | % | |||||||||||
| Net loss | (455,402 | ) | (355,583 | ) | (99,819 | ) | (28.1 | )% | ||||||||
| Less net loss attributable to non-controlling interests | (177,853 | ) | (144,715 | ) | (33,138 | ) | (22.9 | )% | ||||||||
| Net loss attributable to controlling interests | $ | (277,549 | ) | $ | (210,868 | ) | $ | (66,681 | ) | (31.6 | )% | |||||
Technology Development Segment (Invizyne) Results of Operations for the Nine Months Ended September 30, 2023 and 2022
| 2023 | 2022 | $ Change | % Change | |||||||||||||
| Total operating income | $ | 70,769 | $ | 34 | $ | 70,735 | 208,044.1 | % | ||||||||
| Operating costs: | ||||||||||||||||
| General and administrative costs: | ||||||||||||||||
| Compensation | 289,152 | 313,928 | (24,776 | ) | (7.9 | )% | ||||||||||
| Professional fees | 301,244 | 84,403 | 216,841 | 256.9 | % | |||||||||||
| Information technology | 16,247 | 15,057 | 1,190 | 7.9 | % | |||||||||||
| General and administrative-other | 208,203 | 274,832 | (66,629 | ) | (24.2 | )% | ||||||||||
| Total general and administrative costs | 814,846 | 688,220 | 126,626 | 18.4 | % | |||||||||||
| Research and development costs, net of grants amounting $2,265,408 and $1,651,661 | 67,095 | 295,779 | (228,684 | ) | (77.3 | )% | ||||||||||
| Total operating costs | 881,941 | 983,999 | (102,058 | ) | (10.4 | )% | ||||||||||
| Net operating loss | (811,172 | ) | (983,965 | ) | 172,793 | 17.6 | % | |||||||||
| Other income: | ||||||||||||||||
| Interest income | 100 | - | 100 | 100.0 | % | |||||||||||
| Loss before income taxes | (811,072 | ) | (983,965 | ) | 172,893 | 17.6 | % | |||||||||
| Income taxes | 63,559 | - | 63,559 | 100.0 | % | |||||||||||
| Net loss | (874,631 | ) | (983,965 | ) | 109,334 | 11.1 | % | |||||||||
| Less net loss attributable to non-controlling interests | (341,631 | ) | (418,677 | ) | 77,046 | 18.4 | % | |||||||||
| Net loss attributable to controlling interests | $ | (533,000 | ) | $ | (565,288 | ) | $ | 32,288 | 5.7 | % | ||||||
| 37 |
Operating Income. For the three-month period ended September 30, 2023 there was minimal activity. For the nine-month period ended September 30, 2023, operating income was generated from one feasibility study conducted.
General and Administrative Costs . During the three-month and nine-month periods ended September 30, 2023, and 2022, respectively, several factors contributed to changes in various expense categories:
| ● | Compensation Expense: The increase in compensation expense for the three-month period ended September 30, 2023, was driven by hiring additional administrative non-grant reimbursable personnel. The reallocation of responsibilities from administrative personnel to grant personnel during the nine months ended September 30, 2023 fueled the financial performance, with reimbursement facilitated through grants. | |
| ● | Professional Fees: The increase in professional fees compared to previous periods was a result of legal, tax, audit, and consulting fees related completion of year-end financial audits and preparation of tax returns. | |
| ● | Other General and Administrative Costs: The decrease in other general and administrative costs resulted as an overall cost reduction strategy with respect to reduce general and administrative expenses. |
Research and Development Costs . The research and development costs were derived from the Company’s technology development segment. For the three-month period and the nine-month periods ended September 30, 2023, there was a decrease in research and development costs that was due to an increase in grant funding that is offset against the costs that the grant is reimbursing of $120,758 and $613,747, respectively. It is important to note that the upswing in grant funding was not linked to any specific event and is expected to fluctuate throughout the year.
Consolidated Balance Sheets September 30, 2023 and December 31, 2022
|
September 30,
2023 |
December 31,
2022 |
$ Change | % Change | |||||||||||||
| ASSETS | ||||||||||||||||
| Cash and cash equivalents | $ | 24,445,550 | $ | 4,952,624 | $ | 19,492,926 | 393.6 | % | ||||||||
| Restricted cash | 2,000,000 | - | 2,000,000 | 100.0 | % | |||||||||||
| Grants receivable | 676,452 | 809,532 | (133,080 | ) | (16.4 | )% | ||||||||||
| Prepaid expenses and other current assets | 561,536 | 309,818 | 251,718 | 81.2 | % | |||||||||||
| Investment securities, at amortized cost (U.S. Treasury Bills) | 7,495,988 | 16,188,920 | (8,692,932 | ) | (53.7 | )% | ||||||||||
| Investment securities, at fair value (held by our licensed broker dealer) | 4,964,725 | 832,577 | 4,132,148 | 496.3 | % | |||||||||||
| Investment securities, at cost less impairment (held by our licensed broker dealer) | 50,000 | 50,000 | - | 0.0 | % | |||||||||||
| Investment securities, at cost less impairment | 300,000 | 200,000 | 100,000 | 50.0 | % | |||||||||||
| Deferred offering cost | - | 323,224 | (323,224 | ) | (100.0 | )% | ||||||||||
| Property and equipment, net | 842,306 | 624,644 | 217,662 | 34.8 | % | |||||||||||
| Operating lease right-of-use assets, net | 2,126,213 | 1,409,732 | 716,481 | 50.8 | % | |||||||||||
| Total assets | $ | 43,462,770 | $ | 25,701,071 | $ | 17,761,699 | 69.1 | % | ||||||||
| LIABILITIES AND EQUITY | ||||||||||||||||
| Accounts payable | $ | 1,040,131 | $ | 698,782 | $ | 341,349 | 48.8 | % | ||||||||
| Accrued expenses | 154,264 | 254,745 | (100,481 | ) | (39.4 | )% | ||||||||||
| Income tax payable | 158,269 | - | 158,269 | 100.0 | % | |||||||||||
| Deferred grant reimbursement | 153,663 | 214,998 | (61,335 | ) | (28.5 | )% | ||||||||||
| Deferred tax liability | 225,874 | - | 225,874 | 100.0 | % | |||||||||||
| Deferred revenue | 200,000 | - | 200,000 | 100.0 | % | |||||||||||
| Operating lease liabilities | 2,210,005 | 1,423,538 | 786,467 | 55.2 | % | |||||||||||
| Total liabilities | 4,142,206 | 2,592,063 | 1,550,143 | 59.8 | % | |||||||||||
| Equity: | ||||||||||||||||
| Paid-in-capital | 45,274,523 | 27,764,453 | 17,510,070 | 63.1 | ||||||||||||
| Accumulated deficit | (6,255,406 | ) | (5,124,110 | ) | (1,131,296 | ) | (22.1 | )% | ||||||||
| Total MDB Capital Holdings, LLC Members’ equity | 39,019,117 | 22,640,343 | 16,378,774 | 72.3 | % | |||||||||||
| Non-controlling interest | 301,447 | 468,665 | (167,218 | ) | (35.7 | )% | ||||||||||
| Total equity | 39,320,564 | 23,109,008 | 16,211,556 | 70.2 | % | |||||||||||
| Total liabilities and equity | $ | 43,462,770 | $ | 25,701,071 | $ | 17,761,699 | 69.1 | % | ||||||||
Financial Condition: Overall, the major increase in assets was directly related to the closing of the IPO on September 20, 2023, which resulted in the majority of the increase in cash and cash equivalents. The decrease in investment securities at amortized cost was due to the sale of U.S Treasury bills to fund operating costs, the transfer of $4 million of U.S Treasury Bills to Public Ventures to serve as deposits on hand for the self-clearing operation and the classification of a portion of the U.S. Treasury Bills as a cash equivalent, due to the maturity date at the time of purchase being less than three months. The increase in investment securities at fair value was the result of common stock and warrants being received as part of the investment banking fee completed in the second quarter of 2023. The increase in investment securities, at cost less impairment was the result of PatentVest’s receipt of a new SAFE (Simply Agreement for Future Equity) on account of future work to be performed by Patentvest. The increase in prepaid expenses was due to deposits made for the self-clearing operation. The decrease in grants receivable was driven by the timing of collection of grant funds from the prior period. The decrease in deferred offering costs was due to costs being allocated to the IPO as part of the closing. Lastly, the increase in right of use asset was a result of leasing of new space by the technology sector next to their current space.
The increase in accounts payable was due to audit and legal bills paid in the first part of fourth quarter. The increase in tax payable was due to the taxes due for the investment banking and technology segments. The decrease in accrued expenses was due to the payment of payroll tax liability that was accrued in the fourth quarter of 2022. The decrease in deferred grant reimbursement was driven by the accretion of deferred grant reimbursement and reduction in lab equipment purchase. The increase in deferred revenue was due to contracts for which PatentVest has entered into and received pre-payment on. The increase in deferred tax liability was driven by the income derived from the fair value calculation for the warrants received as part of an investment banking transaction that was completed in the second quarter of 2023. The increase in lease liabilities was a result of from the leasing of new space by the technology sector next to their current space.
The equity increase was primarily driven by the Company’s IPO that closed on September 20, 2023.
The decrease in non-controlling interest was a result of the net loss in Invizyne.
Liquidity and Capital Resources – September 30, 2023 and 2022
The Company’s consolidated statements of cash flows as discussed herein are presented below.
| Nine Months Ended September 30, | ||||||||
| 2023 | 2022 | |||||||
| Net cash used in operating activities | $ | (5,109,442 | ) | $ | (4,934,976 | ) | ||
| Net cash provided by (used in) investing activities | 8,769,074 | (11,223,474 | ) | |||||
| Net cash provided by financing activities | 17,833,294 | 21,523,804 | ||||||
| Net increase in cash and cash equivalents | $ | 21,492,926 | $ | 5,365,354 | ||||
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At September 30, 2023, the Company had $33,826,889 of working capital. This is an increase of $11,509,771, from the working capital of $22,317,118 that the Company had at September 30, 2022. The increase in working capital is primarily attributed to the funds received from the initial public offering, which was offset by the use of cash to fund operations for the nine months ended on September 30, 2023. Additionally, as of September 30, 2023, the Company had $26,445,550 of cash and $7,495,988 of short-term U.S. Treasury bills available to fund its operations.
Operating Activities . For the nine months ending on September 30, 2023, the overall decline in cash remained consistent across the period. Despite a reduction in net loss compared to the previous period, there was a rise in fee income received in the form of warrants instead of cash. Additionally, there was accretion of investments at amortized costs (U.S. Treasury Bills) and the acquisition of investment securities, funded by cash received as part of an investment banking deal. This purchase had been agreed upon as part of the aforementioned deal.
However, this decrease in cash was partly offset by an increase in accounts payable, taxes payable, deferred revenue, and proceeds from the sale of investment securities by the broker dealer. The rise in accounts payable and taxes payable can be attributed to expenses related to the initial public offering, which were paid in the fourth quarter of 2023. Furthermore, there was an increase in taxes due to the investment banking deal transacted in the second quarter of 2023.
For the nine months ended September 30, 2022, operating activities use of cash represented a combination of increased activity in Invizyne, increased professional and consulting fees related to the business reorganization of the Company and payout of pervious equity of the members as part of the reorganization.
Investing Activities . For the nine months ended September 30, 2023, investing activities consisted of the proceeds from the sale and the maturing of U.S. Treasury Bills and purchases of investment securities, which was offset by the reinvestment of the proceeds into new U.S. Treasury Bills and the transfer of cash for operating activities.
For nine months ended September 30, 2022, investing activities consisted of the purchase of laboratory equipment, and leasehold improvements to expand Invizyne’s lab facility, as well as the purchase of U.S. Treasury Bills.
Financing Activities . For the nine months ended September 30, 2023, financing activities consisted of the receipt of net proceeds of $17,833,294 from the initial public offering.
For the nine months ended September 30, 2022 financing activities consisting of the receipt of net proceeds of $24,660,259 from a private placement by the Company.
Recently Issued Accounting Pronouncements
See Note 2 in the consolidated financial statements for the discussion on recently accounting pronouncements.
Critical Accounting Estimates
The preparation of financial statements in conformity with general accepted accounting principles in the United States requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. We have identified certain accounting policies as being critical because they require us to make difficult, subjective, or complex judgments about matters that are uncertain. We believe that the judgment, estimates, and assumptions used in the preparation of our unaudited consolidated financial statements and audited consolidated financial statements are appropriate given the factual circumstances at the time. However, actual results could differ, and the use of other assumptions or estimates could result in material differences in our results of operations or financial condition. Our critical accounting estimates are:
Revenue recognition – Investment Banking and Warrants Valuation
The Company receives income from equity underwriting fees. As an underwriter, the Company helps clients raise capital via the private placement of various types of equity instruments. Underwriting fees are primarily based on the issuance price and quantity of the underlying instruments and are recognized as revenue typically upon execution of the client’s transaction. The Company generally does not incur costs to obtain contracts with customers that are eligible for deferral or receive fees prior to recognizing revenue related to investment banking transactions. If the Company did have any contract assets or liabilities related to these revenues it would be recorded on the consolidated balance sheets.
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Revenue recognition may involve the bundling of investment banking services with other financial instruments. In such cases, we estimate the fair value of the services provided and allocate the revenue accordingly. This estimation process involves significant judgment and sensitivity to market conditions. Additionally, our investment banking activities may include the compensation for our services in warrants granted to us. The valuation of these warrants requires significant estimates, including the use of option pricing models like the Black-Scholes model. The key assumptions in this valuation process include the stock price on the date of valuation, the exercise price of the warrant, the term to expiry, risk-free interest rate, and the expected volatility of the underlying stock.
Fair Value of Financial Instruments
Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. To increase the comparability of fair value measures, the following hierarchy prioritizes the inputs to valuation methodologies used to measure fair value:
Level 1 — Valuations based on quoted prices for identical assets and liabilities in active markets.
Level 2 — Valuations based on observable inputs other than quoted prices included in Level 1, such as quoted prices for similar assets and liabilities in active markets, quoted prices for identical or similar assets and liabilities in markets that are not active, or other inputs that are observable or can be corroborated by observable market data.
Level 3 — Valuations based on unobservable inputs reflecting our own assumptions, consistent with reasonably available assumptions made by other market participants. These valuations require significant judgment.
Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. Assets and liabilities measured at fair value are categorized based on whether the inputs are observable in the market and the degree that the inputs are observable. The categorization of financial assets and liabilities within the valuation hierarchy is based upon the lowest level of input that is significant to the fair value measurement.
The fair value of U.S. Treasury Bills and public equity securities are based on quoted market prices and are classified as level 1 of the fair value hierarchy. The fair value of public equity securities that are not actively traded is based on quoted market prices of similar instruments and other significant inputs derived from or corroborated by observable market data and are classified as level 2 of the fair value hierarchy. The fair value of warrants is based on a Black-Scholes model, which considers the stock price at the date of the valuation, the warrant strike price, the term to expiry, the risk-free rate of return, and the expected volatility of the underlying stock. The level in the fair value hierarchy for warrants depends primarily on whether the stock price is determinable from active trades, and whether the expected volatility of the underlying stock is observable and are either classified as level 2 or level 3. The fair value of non-public equity securities and simple agreements for future equity is based on the initial investment, less impairment, and they are classified as level 3 in the fair value hierarchy. For the significant unobservable inputs and assumptions used in level 3 fair value measurements, see Fair Value of Financial Instruments section of Note 2: Summary of Significant Accounting Policies .
Valuation Allowance for Net Deferred Tax Assets
A valuation allowance is provided for deferred tax assets if it is more likely than not these items will either expire before the Company is able to realize their benefits, or that future deductibility is uncertain. At September 30, 2023 and December 31, 2022, Invizyne, Public Ventures, PatentVest, and MDB CG Management has established a full valuation allowance against all net deferred tax assets.
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Stock-based Compensation
The Company and its subsidiaries may periodically issue common shares, stock options and restricted stock units to officers, directors, employees, and consultants for services rendered. Options vest and expire according to terms established at the issuance date of each grant. Stock grants, which are generally time vested, are measured at the grant date fair value and charged to operations ratably over the vesting period.
The Company accounts for stock-based payments to officers, directors, employees, and consultants by measuring the cost of services received in exchange for equity awards utilizing the grant date fair value of the awards, with the cost recognized as compensation expense on the straight-line basis in the Company’s financial statements over the vesting period of the awards.
The fair value of share options granted as stock-based compensation is determined utilizing the Black-Scholes option-pricing model, and is affected by several variables, the most significant of which are the expected life of the stock option, the exercise price of the share option as compared to the fair market value of the common shares on the grant date, and the estimated volatility of the common shares. Unless sufficient historical exercise data is available, the expected life of the stock option is calculated as the mid-point between the vesting period and the contractual term (the “simplified method”). The estimated volatility is based on the historical volatility of the Company’s common shares, calculated utilizing a look-back period approximately equal to the contractual life of the stock option being granted. The risk-free interest rate is based on the U.S. Treasury yield curve in effect at the time of grant. The fair market value of the common shares is determined by reference to the quoted market price of the Company’s common shares on the grant date. The expected dividend yield is based on the Company’s expectation of dividend payouts and is assumed to be zero. The fair value of performance based restricted stock units was determined by using an independent valuation expert.
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On February 1, 2021, stock options to purchase 513,750 shares of common stock were granted at an exercise price of $2.53 per share, which was equal to the fair value of the common stock on the date of grant and are exercisable for a period of 7 years. The stock options vest ratably over a period of 5 years. On May 1, 2023, stock options to purchase 50,000 shares of common stock were granted at an exercise price of $3.44 per share, which was equal to the tax value of the common stock on the date of grant and are exercisable for a period of 7 years. The stock options vest ratably over a period of 5 years. As of September 30, 2023, stock options to purchase 278,165 shares of common stock have vested, the weighted average exercise price is $2.54, the aggregate intrinsic value is $0.00, and the weighted average remaining contractual term is 4.54 years. As of September 30, 2023, the unrecognized stock-based compensation is $637,862.
The fair value of each option on the date of grant was estimated using the Black-Scholes option-pricing model with the following assumptions for the three months and the nine months ended September 30, 2023:
| Exercise price | $ | 3.44 | ||
| Stock price | $ | 3.44 | ||
| Risk-free interest rate | 0.42 | % | ||
| Expected volatility | 121.7 | % | ||
| Expected life (in years) | 5.0 | |||
| Expected dividend yield | 0 | % |
The fair value of each option on the date of grant was estimated using the Black-Scholes option-pricing model with the following assumptions for the year ended December 31, 2022:
| Exercise price | $ | 2.53 | ||
| Stock price | $ | 2.53 | ||
| Risk-free interest rate | 0.42 | % | ||
| Expected volatility | 123.04 | % | ||
| Expected life (in years) | 5.0 | |||
| Expected dividend yield | 0 | % |
Accounting for Research Grants
Invizyne receives grant reimbursements, which are netted against research and development expenses in the consolidated statement of operations. Grant reimbursements for capitalized assets are recognized over the useful life of the assets, with the unrecognized portion considered a deferred liability and are included in accounts payable and accrued expenses in the consolidated balance sheet.
Grants that operate on a reimbursement basis are recognized on the accrual basis are revenues to extent of disbursements and commitments that are allowable for reimbursement of allowable expenses incurred as of September 30, 2023 and 2022 and expected to be received from funding sources in the subsequent year. Management considers such receivables at September 30, 2023 and 2022 to be fully collectable, due to the historical experience with the Federal Government of the United States of America. Accordingly, no allowance for grants receivable was recorded in the accompanying consolidated financial statements.
Research grants received from organizations are subject to the contract agreement as to how Invizyne conducts its research activities, and Invizyne is required to comply with the agreement terms relating to those grants. Amounts received under research grants are nonrefundable, regardless of the success of the underlying research project, to the extent that such amounts are expended in accordance with the approved grant project. Invizyne is permitted to draw down (a process of submitting expenses for reimbursement) the research grants after incurring the related expenses. Amounts received under research grants are offset against the related research and development costs in the Company’s consolidated statement of operations.
Summary of Business Activities and Plans
On September 20, 2023, the Company completed an initial public offering (IPO), which consisted of the sale of 1,666,666 shares of Class A common shares at $12.00 per share, for gross proceeds of $19,999,992 that will be used for the development of Invizyne, identifying and developing new partner companies, and general corporate and working capital requirements.
On June 15, 2022, the Company completed the first closing of a private placement, consisting of total gross proceeds of $25,289,660 from the sale of 2,528,966 shares of Class A common shares, which have been and will continue to be used for the development of Invizyne, identifying and developing new partner companies, and general corporate and working capital requirements.
External Risks Associated with the Company’s Business Activities
Inflation Risk . The Company does not believe that inflation has had a material effect on its operations to date, other than its impact on the general economy.
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Supply Chain Issues . The Company does not currently expect that supply chain issues will have a significant impact on its business activities.
Potential Recession . There are various indications that the United States economy may be entering a recessionary period. Although unclear at this time an economic recession would likely impact the general business environment and the capital markets, which could, in turn, affect the Company.
The Company is continuing to monitor these matters and will adjust its current business and financing plans as more information and guidance become available.
Technology. Our partner companies’ endeavors to create and bring new technologies to the market may never come to fruition or might not reach a level of development sufficient for commercial viability. Even if they do achieve a commercial level of development, the acceptance of these technologies within the marketplace is uncertain. There’s a possibility that the technologies they develop may not gain widespread or timely acceptance, leading to the necessity for further funding to support the partner companies, or potentially even prompting the difficult choice of discontinuing the business at a financial loss. Moreover, technologies from our partner companies that undergo regulatory scrutiny, testing, and approval may ultimately fail to receive the necessary approvals from relevant regulatory bodies.
Principal Commitments
Net Capital Requirement (Public Ventures)
Public Ventures is subject to the uniform net capital rule (SEC Rule 15c3-1) of the Securities and Exchange Commission (the “SEC”), which requires both the maintenance of minimum net capital and the maintenance of maximum ratio of aggregate indebtedness to net capital. At September 30, 2023 and 2022, Public Ventures had net capital of $6,037,743 and $2,771,585, respectively, which was $5,787,743 and $2,521,585 in excess of the minimum $250,000, as required by the Securities and Exchange Commission Rule 15c3-1.
At September 30, 2023, the Company’s ratio of aggregate indebtedness of $1,195,542 to net capital was 0.20 to 1, as compared to the maximum of a 15 to 1 allowable ratio of a broker dealer. Minimum net capital is based upon the greater of the statutory minimum net capital of $250,000 or 6 2/3% of aggregate indebtedness, which was calculated as $79,703 at September 30, 2023.
The requirement to comply with the Uniform Net Capital Rule 15c3-1 may limit Public Ventures’ ability to issue dividends to its parent company.
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Indemnification Provisions
Public Ventures has agreed to indemnify its clearing broker for losses that the clearing broker may sustain from the accounts of customers. Should a customer not fulfill its obligation on a transaction, Public Ventures may be required to buy or sell securities at prevailing market prices in the future on behalf of its customer. The indemnification obligations of Public Ventures to its clearing broker have no maximum amount. All unsettled trades at September 30, 2023 and 2022 have subsequently settled with no resulting material liability to Public Ventures. For the nine months ended September 30, 2023 and 2022 Public Ventures, had no material loss due to counterparty failure and had no obligations outstanding under the indemnification arrangement as of September 30, 2023 and 2022.
Invizyne Funding Requirements
The Company has entered into a funding agreement (the “Funding Agreement”) to purchase shares in Invizyne up to a maximum of $5,000,000 at a pre-determined purchase price, subject to continuing financial covenants being met. As of September 30, 2023 and December 31, 2022, the maximum amount of $5,000,000, has been funded, bringing the ownership interest of the Company in Invizyne to 60.94% at September 30, 2023 and 2022. The Company waived its 10% cash fee relative to the Funding Agreement in exchange for increased ownership. As a condition of the Funding Agreement, warrants to purchase 197,628 shares of Invizyne common stock were issuable (the “Funding Warrants”), which vest as amounts are funded. As of September 30, 2023 and 2022, 197,628 Funding Warrants have vested. These warrants are eliminated in consolidation.
Trends, Events and Uncertainties
Other than as discussed above, we are not currently aware of any trends, events or uncertainties that are likely to have a material effect on our financial condition in the near term, although it is possible that new trends or events may develop in the future that could have a material effect on our financial condition.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
As a smaller reporting company, we are not required to provide this information.
ITEM 4. CONTROLS AND PROCEDURES
Disclosure Controls and Procedures
The Company, with the participation of the Chief Executive Officer and Chief Accounting Officer, evaluated, as of the end of the period covered by this Quarterly Report on Form 10-Q, the effectiveness of the disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended, or the Exchange Act). Based on that evaluation, and as a result of the material weaknesses in internal control over financial reporting described below, the Chief Executive Officer and Chief Accounting Officer concluded that, as of September 30, 2023, the disclosure controls and procedures were not effective at the reasonable assurance level. In light of this fact, the Company has performed additional analyses, reconciliations, and other post-closing procedures and has concluded that, notwithstanding the material weaknesses in the internal control over financial reporting, the unaudited condensed consolidated financial statements for the periods covered by and included in this Quarterly Report on Form 10-Q fairly state, in all material respects, the financial position, results of operations and cash flows for the periods presented in conformity with GAAP.
Ongoing Remediation of Previously Identified Material Weaknesses
The Company is implementing measures designed to ensure that control deficiencies contributing to the previously disclosed material weakness are remediated, such that these controls are designed, implemented, and operating effectively. These remediation actions are ongoing, and they include our expansion of our controls or control designs based on updated enhanced risk assessments. We have redesigned and implemented controls to rectify the absence of duty segregation, established policies, initiated training programs, augmented our team with enhanced expertise, bolstered documentation, adjusted user access to pertinent IT applications to limit privileged access, and improved both reporting and internal quality reviews on control execution. The remediation actions, including those listed above, remain in process where further modifications are necessary to address material weaknesses. We expect these changes to materially improve our internal controls.
The weaknesses will not be considered remediated until the applicable controls operate for a sufficient period of time and management has concluded, through testing, that these controls are operating effectively.
During the preparation of the financial statements for the quarter ended September 30, 2023, a mathematical error was identified in the calculation of weighted average of Class A common shares outstanding for the period ended June 30, 2022, that resulted in a material error in the reported net loss per Class A common share for the three-month and six-month periods ended June 30, 2022.
Changes in Internal Control Over Financial Reporting
Other than the material weakness remediation efforts underway, there were no changes in the internal control over financial reporting identified in connection with the evaluation required by Rule 13a-15(d) and 15d-15(d) of the Exchange Act that occurred during the three months ended September 30, 2023, that have materially affected, or are reasonably likely to materially affect, the internal control over financial reporting.
Inherent Limitations on Effectiveness of Controls and Procedures
The Company’s management, including the Chief Executive Officer and Chief Accounting Officer, believes that disclosure controls and procedures and internal control over financial reporting are designed to provide reasonable assurance of achieving their objectives and are effective at the reasonable assurance level. However, management does not expect that the disclosure controls and procedures or the internal control over financial reporting will prevent or detect all errors and all fraud. A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within the company have been detected. The design of any system of controls also is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions. Over time, controls may become inadequate because of changes in conditions, or the degree of compliance with the policies or procedures may deteriorate. Because of the inherent limitations in a cost-effective control system, misstatements due to error or fraud may occur and not be detected.
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PART II — OTHER INFORMATION
Item 1. Legal Proceedings
We are not currently a party to any material legal proceedings, and we are not aware of any pending or threatened litigation that would have a material adverse effect on our business, operating results, cash flows, or financial condition should such litigation be resolved unfavorably. We believe that from time to time we will have commercial disputes arising in the ordinary course of our business.
Item 1A. Risk Factors
In addition to the information set forth in this Form 10-Q, you should also carefully review and consider the risk factors contained in our other registration statements, reports and periodic filings with the SEC, including, without limitation, the risk factors and uncertainties contained under the caption “Risk Factors” in our Amendment No. 5, filed on July 6, 2023, to the Registration Statement on Form S-1, initially filed on November 10, 2022, that could materially and adversely affect our business, financial condition, and results of operations. The risk factors we have identified and discussed, however, do not identify all risks that we face because our business operations could also be affected by additional factors that are not known to us or that we currently consider to be immaterial to our operations.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
None.
Item 3. Defaults upon Senior Securities
None.
Item 4. Mine Safety Disclosures
Not applicable.
Item 5. Other Information
Not applicable.
Item 6. Exhibits
The documents listed in the Exhibit Index of this Form 10-Q are incorporated by reference or are filed with this Form 10-Q, in each case as indicated therein (numbered in accordance with Item 601 of Regulation S-K).
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SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
| MDB CAPITAL HOLDINGS, LLC | ||
| (the “Registrant”) | ||
| Dated: November 14, 2023 | By: | /s/ Christopher A. Marlett |
| Christopher A. Marlett | ||
| Chief Executive Officer | ||
| (Principal Executive Officer) | ||
| Dated: November 14, 2023 | By: | /s/ Jeremy W. James |
| Jeremy W. James | ||
| Chief Accounting Officer | ||
| (Principal Financial and Accounting Officer) | ||
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EXHIBIT INDEX
| * | Filed herewith. |
| ** | Furnished herewith. |
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