UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q

 

☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 2023

 

OR

 

☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

Commission File Number: 001-41751

 

MDB CAPITAL HOLDINGS, LLC

(Exact name of registrant as specified in its charter)

 

Delaware		87-4366624
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)

 

14135 Midway Road, Suite G-150 Addison, TX 75001		75001
(Address of principal executive offices)		(Zip code)

 

(310) 526-5000

(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
Class A Common Shares, representing Limited Liability Interests		MDBH		Nasdaq Capital Markets

 

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. YES ☒ 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). YES ☒ 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	☐
Non-accelerated Filer	☐	Smaller Reporting Company	☒
		Emerging Growth Company	☒

 

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 ☐ NO ☒

 

As of November 14, 2023, the number of outstanding shares of Class A Common Shares, representing limited liability interests, of the registrant was 4,295,632.

 

 

 

TABLE OF CONTENTS

 

		Page
		Number
PART I	FINANCIAL INFORMATION	2
Item 1	Unaudited Consolidated Financial Statements	2
Consolidated Balance Sheets –September 30, 2023 and December 31, 2022		2
Consolidated Statements of Operations – Three and Nine Months Ended September 30, 2023 and 2022		3
Consolidated Statements of Changes in Equity – Three and Nine Months Ended September 30, 2023 and 2022		4
Consolidated Statements of Cash Flows – Nine Months Ended September 30, 2023 and 2022		5
Notes to Consolidated Financial Statements		6
Item 2	Management’s Discussion and Analysis of Financial Conditions and Results of Operations	32
Item 3	Quantitative and Qualitative Disclosures About Market Risk	44
Item 4	Controls and Procedures	44
PART II	OTHER IFNORMATION	45
Item 1	Legal Proceedings	45
Item 1A	Risk Factors	45
Item 2	Unregistered Sales of Equity Securities and Use of Proceeds	45
Item 3	Defaults upon Senior Securities	45
Item 4	Mine Safety Disclosures	45
Item 5	Other Information	45
Item 6	Exhibits	45

 

 

PART I – FINANCIAL INFORMATION

 

CONDENSED UNAUDITED FINANCIAL STATEMENTS

 

CONSOLIDATED BALANCE SHEETS

 

		September 30, 2023 (Unaudited)				December 31, 2022
Assets
Cash and cash equivalents		$	24,445,550			$	4,952,624
Restricted cash			2,000,000				-
Grants receivable, includes unbilled receivables of $503,777 and $783,520			676,452				809,532
Prepaid expenses and other current assets			561,536				309,818
Investment securities, at amortized cost (U.S. Treasury Bills)			7,495,988				16,188,920
Investment securities, at fair value (held by our licensed broker dealer) (Note 2)			4,964,725				832,577
Investment securities, at cost less impairment (held by our licensed broker dealer)			50,000				50,000
Investment securities, at cost less impairment			300,000				200,000
Deferred offering cost			-				323,224
Property and equipment, net			842,306				624,644
Operating lease right-of-use assets, net			2,126,213				1,409,732
Total assets		$	43,462,770			$	25,701,071
LIABILITIES AND EQUITY
Accounts payable		$	1,040,131			$	698,782
Accrued expenses			154,264				254,745
Income taxes payable			158,269				-
Deferred grant reimbursement			153,663				214,998
Deferred tax liability			225,874				-
Deferred revenue			200,000				-
Operating lease liabilities			2,210,005				1,423,538
Total liabilities			4,142,206				2,592,063
Commitments and Contingencies (Note 9)			-				-
Equity:
Preferred shares, 10,000,000 authorized shares at no par value; 0 issued and outstanding			-				-
Class A common shares, 95,000,000 authorized shares at no par value; 4,295,632 and 2,628,966 shares issued and outstanding as of September 30, 2023 and December 31, 2022, respectively			-				-
Class B common shares, 5,000,000 authorized shares at no par value; 5,000,000 shares issued and outstanding			-				-
Common stock value			-				-
Paid-in-capital			45,274,523				27,764,453
Accumulated deficit			(6,255,406	)			(5,124,110	)
Total MDB Capital Holdings, LLC Members’ equity			39,019,117				22,640,343
Non-controlling interest			301,447				468,665
Total equity			39,320,564				23,109,008
Total liabilities and equity		$	43,462,770			$	25,701,071

 

See accompanying notes to consolidated financial statements.

 

 

CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited)

 

		2023				2022				2023				2022
		Three Months Ended September 30,								Nine Months Ended September 30,
		2023				2022				2023				2022
Operating income (loss):
Unrealized gain (loss) on investment securities, net (from our licensed broker dealer) (Note 2)		$	(786,906	)		$	16,072			$	696,965			$	(3,836	)
Realized loss on investment securities, net (from our licensed broker dealer)			-				-				-				(7	)
Fee income			-				-				4,233,120				-
Other operating income			11,502				57,903				140,873				107,356
Total operating income (loss), net			(775,404	)			73,975				5,070,958				103,513
Operating costs:
General and administrative costs:
Compensation			1,337,771				1,130,256				3,183,515				2,219,954
Operating expense, related party			273,821				514,798				829,474				882,601
Professional fees			459,585				51,035				1,241,089				652,713
Information technology			93,326				93,465				408,875				207,944
Clearing and other charges			3,316				2,547				382,994				22,342
General and administrative-other			327,896				406,536				883,233				1,024,761
Total general and administrative costs			2,495,715				2,198,637				6,929,180				5,010,315
Research and development costs, net of grants amounting to $743,320 and $645,731, for the three months ended September 30 and $2,265,408 and $1,651,661, for the nine months ended September 30			27,936				103,633				67,095				295,779
Total operating costs			2,523,651				2,302,270				6,996,275				5,306,094
Net operating loss			(3,299,055	)			(2,228,295	)			(1,925,317	)			(5,202,581	)
Other income:															-
Interest income			176,300				-				548,479				-
Net loss before income taxes			(3,122,755	)			(2,228,295	)			(1,376,838	)			(5,202,581	)
Income taxes			63,559				-				384,143				-
Net loss			(3,186,314	)			(2,228,295	)			(1,760,981	)			(5,202,581	)
Less net loss attributable to non-controlling interests			(177,853	)			(144,715	)			(341,631	)			(418,677	)
Net loss attributable to MDB Capital Holdings, LLC		$	(3,008,461	)		$	(2,083,580	)		$	(1,419,350	)		$	(4,783,904	)
Net loss per share attributable to MDB Capital Holdings, LLC:
Net loss per Class A common share – basic and diluted		$	(0.49	)		$	(0.27	)		$	(0.24	)		$	(1.43	)
Weighted average of Class A common shares outstanding – basic and diluted			2,828,241				2,628,966				2,696,121				1,154,420
Net loss per Class B common share – basic and diluted		$	(0.32	)		$	(0.27	)		$	(0.15	)		$	(0.63	)
Weighted average of Class B common shares outstanding – basic and diluted			5,000,000				5,000,000				5,000,000				5,000,000

 

See accompanying notes to consolidated financial statements.

 

 

MDB CAPITAL HOLDINGS, LLC

 

CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY (Unaudited)

 

Three Months Ended During the Nine Months Ended September 30, 2023 and 2022

 

		Shares				Amount				Shares				Amount				Capital				Deficit				Equity				Interest				Equity
		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			2,628,966			$	-				5,000,000			$	-			$	27,764,453			$	(5,124,110	)		$	-			$	468,665			$	23,109,008
Stock-based compensation			-				-				-				-				-				-				-				54,126				54,126
Net loss			-				-				-				-				-				(1,873,748	)			-				(94,193	)			(1,967,941	)
Balance, March 31, 2023			2,628,966			$	-				5,000,000			$	-			$	27,764,453			$	(6,997,858	)		$	-			$	428,598			$	21,195,193
Stock-based compensation			-				-				-				-				-				-				-				58,951				58,951
Net income (loss)			-				-				-				-				-				3,462,859				-				(69,585	)			3,393,274
Balance, June 30, 2023			2,628,966			$	-				5,000,000			$	-			$	27,764,453			$	(3,534,999	)		$	-			$	417,964			$	24,647,418
Issuance of Class A common shares			1,666,666				-				-				-				17,444,659				-				-				-				17,444,659
Issuance of warrants to purchase Class A common shares			-				-				-				-				65,411				-				-				-				65,411
Stock-based compensation			-				-				-				-				-				288,054				-				61,336				349,390
Net loss			-				-				-				-				-				(3,008,461	)			-				(177,853	)			(3,186,314	)
Balance, September 30, 2023			4,295,632			$	-				5,000,000			$	-			$	45,274,523			$	(6,255,406	)		$	-			$	301,447			$	39,320,564

 

		Shares				Amount				Shares				Amount				Capital				Deficit				Equity				Interest				Equity
		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			-			$	-				-			$	-			$	-			$	-			$	6,239,168			$	522,169			$	6,761,337
Distribution of Invizyne and PatentVest to members’			-				-				-				-				-				-				(661,799	)			-				(661,799	)
Net loss from January 1, 2022 to January 16, 2022			-				-				-				-				-				-				(189,943	)			(19,239	)			(209,182	)
Balance, January 16, 2022			-				-				-				-				-				-				5,387,426				502,930				5,890,356
Elimination of members’ equity and non-controlling interest upon reorganization (Note 1)			-				-				-				-				-				-				(5,387,426	)			(502,930	)			(5,890,356	)
Members contribution of net assets of Public Ventures, Invizyne and PatentVest and establishment of non-controlling interest			-				-				5,000,000				-				6,049,225				-				-				502,930				6,552,155
Issuance of Class A common shares			100,000				-				-				-				200,000				-				-				-				200,000
Distribution to members (made by our licensed broker dealer) (Notes 1 and 2)			-				-				-				-				(2,723,700	)			-				-				-				(2,723,700	)
Acquisition of non-controlling interest in PatentVest			-				-				-				-				(325,000	)			-				-				-				(325,000	)
Stock-based compensation			-				-				-				-				-				-				-				54,126				54,126
Net loss			-				-				-				-				-				(944,934	)			-				(133,770	)			(1,078,704	)
Balance, March 31, 2022			100,000				-				5,000,000				-				3,200,525				(944,934	)			-				423,286				2,678,877
Issuance of Class A common shares, net costs of private placement, net of costs of private placement			2,528,966				-				-				-				24,746,142				-				-				-				24,746,142
Issuance of warrants to purchase Class A common shares			-				-				-				-				106,940				-				-				-				106,940
Ownership change of non-controlling interest			-				-				-				-				(464,698	)			-				-				464,698				-
Stock-based compensation			-				-				-				-				-				-				-				56,015				56,015
Net loss			-				-				-				-				-				(1,565,447	)			-				(120,953	)			(1,686,400	)
Balance, June 30, 2022			2,628,966			$	-				5,000,000			$	-			$	27,588,909			$	(2,510,381	)		$	-			$	823,046			$	25,901,574
Balance			2,628,966			$	-				5,000,000			$	-			$	27,588,909			$	(2,510,381	)		$	-			$	823,046			$	25,901,574
Ownership change of non-controlling interest			-				-				-				-				27,804				-				-				(27,804	)			-
Stock-based compensation			-				-				-				-				-				-				-				54,087				54,087
Net loss			-				-				-				-				-				(2,083,580	)			-				(144,715	)			(2,228,295	)
Net income (loss)			-				-				-				-				-				(2,083,580	)			-				(144,715	)			(2,228,295	)
Balance, September 30, 2022			2,628,966			$	-				5,000,000			$	-			$	27,616,713			$	(4,593,961	)		$	-			$	704,614			$	23,727,366
Balance			2,628,966			$	-				5,000,000			$	-			$	27,616,713			$	(4,593,961	)		$	-			$	704,614			$	23,727,366

 

See accompanying notes to consolidated financial statements.

 

 

MDB CAPITAL HOLDINGS, LLC

 

CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)

 

		2023				2022
		Nine Months Ended September 30,
		2023				2022
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss		$	(1,760,981	)		$	(5,202,581	)
Adjustments to reconcile net loss to net cash used in operating activities:
Unrealized (gain) loss on investment securities, net			(696,965	)			3,836
Realized loss on investment securities, net			-				7
Stock-based compensation			462,467				164,228
Accretion of investments at amortized cost (U.S Treasury Bills)			(431,776	)			-
Purchases of investment securities, at fair value (made by our licensed broker dealer)			(1,587,500	)			-
Purchases of investment securities, at cost less impairment			-				(200,000	)
Proceeds from sale of investment securities, at fair value (made by our licensed broker dealer)			632,851				-
Deferred income tax			225,874				-
Warrants issued as part of an investment banking deal			165,087				-
Income recognized from warrants received			(2,645,620	)			-
Depreciation of property and equipment			137,972				104,614
Accretion of deferred grant reimbursement			(38,880	)			(32,909	)
Deferred revenue			100,000				-
Non-cash lease expense			69,986				8,626
Changes in operating assets and liabilities:
(Increase) decrease in -
Grants receivable			133,080				(370,516	)
Prepaid expenses and other current assets			(251,718	)			(813	)
Increase (decrease) in -
Accounts payable			341,348				38,308
Income taxes payable			158,269				-
Accrued expenses			(100,481	)			471,814
Deferred grant reimbursement			(22,455	)			80,410
Net cash used in operating activities			(5,109,442	)			(4,934,976	)
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds of investments securities, at amortized cost (U.S Treasury Bills)			15,078,020				-
Purchases of investments securities, at amortized cost (U.S Treasury Bills)			(5,953,312	)			(11,061,058	)
Purchases of property and equipment			(355,634	)			(162,416	)
Net cash provided by (used in) investing activities			8,769,074				(11,223,474	)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from private placement			-				25,289,660
Proceeds from initial public offering			19,999,992				-
Costs of private placement			-				(436,578	)
Costs from initial public offering			(2,166,698	)
Deferred costs of initial public offering			-				(480,578	)
Distribution to member			-				(2,723,700	)
Acquisition of non-controlling interest in PatentVest			-				(125,000	)
Net cash provided by financing activities			17,833,294				21,523,804
NET INCREASE IN CASH, CASH EQUIVALENTS, AND RESTRICTED CASH			21,492,926				5,365,354
CASH, CASH EQUIVALENTS, AND RESTRICTED CASH - BEGINNING OF PERIOD			4,952,624				6,225,458
CASH, CASH EQUIVALENTS, AND RESTRICTED CASH - END OF PERIOD		$	26,445,550			$	11,590,812
Supplemental disclosures of cash flow information:
Cash paid for -
Interest		$	-			$	9
Income taxes		$	-			$	-
Non-cash investing and financing activities:
Distribution of equity to members and subsequent contribution into MDB Capital Holdings, LLC - Invizyne and PatentVest		$	-			$	661,799
Ownership change of non-controlling interest		$	-			$	436,894
Partner contribution of members equity into MDB Capital Holdings, LLC		$	-				6,049,225
Warrants received as part of an investment banking deal		$	2,480,533			$	-
Modification of lease - right-of-use asset and lease liability		$	198,544			$	-
Record right-of-use asset and operating lease liability		$	698,249			$	-
Relinquishment of deferred costs of initial public offering from prior year		$	323,224			$	-
Investment securities, at cost less impairment, received in lieu of cash payment		$	100,000			$	-
Issuance of Class A common shares in exchange for non-controlling interest in PatentVest		$	-			$	200,000
Issuance of warrants to purchase Class A stock related to the initial public offering closed on September 20, 2023		$	65,411			$	-
Issuance of warrants to purchase Class A stock related to the private placement offering closed on June 15, 2022		$	-			$	106,940

 

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:

 

		September 30, 2023				December 31, 2022
Cash and cash equivalents		$	24,445,550			$	4,952,624
Restricted cash			2,000,000				-
Total cash, cash equivalents, and restricted cash shown in the consolidated statements of cash flows		$	26,445,550			$	4,952,624

 

See accompanying notes to consolidated financial statements.

 

 

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 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 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 $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 accounted for as issuance costs that were accounted for as equity instruments and recorded against paid in capital.

 

 

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.

 

 

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 $250,000 and $500,000, respectively.

 

The Company periodically reviews the financial condition of the financial institutions and assesses the credit risk of such investments. The Company did not experience any credit risk losses during the three and the nine months ended September 30, 2023 and 2022.

 

 

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 $2,000,000 of restricted cash in an account for the purposes of collateralizing a line of credit.  As of December 31, 2022, the Company did not have any funds subject to restrictions.

 

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

 

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.

 

 

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.

 

 

Investment securities are as follows:

Schedule of Investment Securities 

		September 30, 2023				December 31, 2022
Investment securities, at amortized cost:
U.S Treasury Bills		$	7,495,988			$	16,188,920
Investment securities, at amortized cost		$	7,495,988			$	16,188,920

 

Broker/Dealer Securities

Schedule of Investment Securities Broker Dealer 

		September 30, 2023				December 31, 2022
Investment securities, at fair value:
Common stock of publicly traded companies		$	2,383,141			$	787,137
Warrants of publicly traded companies			2,581,584				45,440
Investment securities, at fair value		$	4,964,725			$	832,577
Investment securities, at cost less impairment
Preferred stock of private company (not market listed)		$	50,000			$	50,000
Investment securities, at cost less impairment		$	50,000			$	50,000

 

Non-Broker/Dealer Securities

Schedule of Investment Securities Non Broker Dealer 

		September 30, 2023				December 31, 2022
Investment securities, at cost less impairment
Simple agreement on future equities (not market listed)		$	300,000			$	200,000
Investment securities, at cost less impairment		$	300,000			$	200,000

 

For investment securities at fair value, net unrealized loss of $786,906 and net unrealized gain of $16,072 were recognized in the statements of operations for three-months ended September 30, 2023 and 2022, respectively. For investment securities at fair value, net unrealized gain of $696,965 and net unrealized loss $3,836 were recognized in the statements of operations for nine-months ended September 30, 2023 and 2022, respectively.

 

 

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:

Schedule of Amortized Cost, Unrealized Holding Loss and Fair Value of Held to Maturity Securities 

		Amortized Cost				Gross Unrealized Gains				Gross Unrealized Gain				Fair Value
		Amortized Cost as of September 30, 2023				Gross Unrealized Gains				Gross Unrealized Losses				Fair Value (Level 1) as of September 30, 2023
U.S Treasury Bills maturing 10/05/23		$	7,495,988			$	693			$	-			$	7,496,681
Total assets		$	7,495,988			$	693			$	-			$	7,496,681

 

		Amortized Cost				Gross Unrealized Gains				Gross Unrealized Losses				Fair Value
		Amortized Cost as of December 31, 2022				Gross Unrealized Gains				Gross Unrealized Losses				Fair Value (Level 1) as of December 31, 2022
U.S Treasury Bills maturing 05/11/23 and 10/05/23		$	16,188,920			$	-			$	(51,645	)		$	16,137,275
Total assets		$	16,188,920			$	-			$	(51,645	)		$	16,137,275

 

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.

 

 

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:

Schedule of Fair Value of Company’s Financial Assets and Liabilities Measured at Fair Value On a Recurring Basis 

Assets		Classification		Level 1				Level 2				Level 3				Total
Investment Securities (held by our licensed broker dealer)		Equity securities–- common stock		$	2,383,141			$	-			$	-			$	2,383,141
Investment Securities (held by our licensed broker dealer)		Warrants			-				28,222				2,553,362				2,581,584
Total assets measured at fair value (held by our licensed broker dealer)				$	2,383,141			$	28,222			$	2,553,362			$	4,964,725

 

 

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		$	-
Beginning Balance		$	-
Receipt from investment banking fees			2,645,620
Realized gains			-
Unrealized gains			72,829
Sales or distribution			(165,087	)
Purchases			-
September 30, 2023		$	2,553,362
Ending Balance		$	2,553,362

 

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		$	2,553,362			Black Scholes		Volatility			99.34	%			99.34	%

 

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		$	787,137			$	-			$	-			$	787,137
Investment Securities (held by our licensed broker dealer)		Warrants			-				45,440				-				45,440
Total assets measured at fair value (held by our licensed broker dealer)				$	787,137			$	45,440			$	-			$	832,577

 

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 $2,000,000 and which matures July 26, 2024. The loan has a variable interest rate equal to a defined index, currently the Lender’s rate on the sale of Federal Funds, plus 2.25%. The loan commenced with a calculated interest rate of 7.75%. If the Lender determines, in its sole discretion, that the index becomes unavailable or unreliable, either temporary, indefinitely, or permanently, during the term of this loan, the Lender may amend this loan by designating a substantially similar substitute index. The agreement provides for a quarterly payment of the greater of accrued interest or a non-usage fee of $5,000. The Company has not made any draw downs on the credit facility.

 

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 $2,002,446 deposited in this account.

 

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 no outstanding indebtedness under the credit facility and interest expense totaled $0. The Company is in compliance with all covenants under the agreement.

 

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:

Schedule of Straight-Line Method Over the Following Estimated Useful Lives 

Laboratory equipment		5 years
Furniture and fixtures		7 years
Leasehold improvements		Lesser of the lease duration or the life of the improvements

 

 

Property and equipment consist of the following as of September 30, 2023 and December 31, 2022, respectively:

Schedule of Property And Equipment 

		September 30, 2023				December 31, 2022
Laboratory equipment		$	811,281			$	803,030
Furniture and fixtures			49,838				10,270
Software development			104,379				-
Leasehold improvements			279,161				75,725
Total property and equipment			1,244,659				889,025
Less: Accumulated depreciation			(402,353	)			(264,381	)
Property and equipment, net		$	842,306			$	624,644

 

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.

 

 

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:

 

Schedule of contract liabilities

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			200,000
Revenue recognized			-
Balance as of September 30, 2023		$	200,000

 

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.

 

 

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:

Summary of Grants Receivable Activity 

		2023				2022
Balance at beginning of period		$	809,532			$	468,353
Grant costs expensed			2,180,581				1,596,936
Grants for equipment purchased			-				49,626
Grant fees			84,827				54,725
Grant funds received			(2,398,488	)			(1,330,771	)
Balance at end of period		$	676,452			$	838,869

 

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 $2,180,581 and $1,596,936 were offset against the research and development costs. Grant drawdowns, which includes grants costs expensed, grants for equipment purchased, and grant fees, for the nine-months ended September 30, 2023 and 2022, respectively, totaled $2,265,408 and $1,701,287.

 

 

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 $771,256, and $749,364, respectively; and for the nine-months ended September 30, 2023 and 2022, research and development costs prior to offset of the grants amounted to $2,332,503, and $1,947,440, respectively, which includes grant costs expensed, grants fees, and research and development costs, net of the grant received.

 

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 $43,196 and $80,680 for the three months ended September 30, 2023 and 2022, respectively. Patent and licensing legal and filing fees and costs were $107,925 and $172,057 for the nine months ended September 30, 2023 and 2022, respectively. Patent and licensing legal and filing fees and costs are included in general and administrative costs in the Company’s consolidated statements of operations.

 

Reclassification

 

Certain prior year balances have been reclassified to conform to the Company’s current period presentation. In the previous fiscal year, we reclassified $11,040 of compensation expense to clearing and other charges.

 

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).

 

 

The following sets forth the long-lived assets and total assets by segment at September 30, 2023:

Schedule of Long-lived Assets, Total Assets and Statements of Operations by Segment 

ASSETS		Broker Dealer & Intellectual Property Service				Technology Development				Other				Consolidated
Long-lived assets		$	104,379			$	2,114,910			$	749,230			$	2,968,519
Total assets		$	11,000,067			$	3,422,464			$	29,040,239			$	43,462,770

 

The following sets forth statements of operations by segment for the three-months September 30, 2023:

Schedule of Statement of Operation by Segment 

		Broker Dealer & Intellectual Property Service				Technology Development				Other				Consolidated
Operating income:
Unrealized loss on investment securities, net (from our licensed broker dealer)		$	(786,906	)		$	-			$	-			$	(786,906	)
Realized loss on equity securities
Other operating income			11,502				-				-				11,502
Total operating loss, net			(775,404	)			-				-				(775,404	)
Operating costs:
General and administrative costs:
Compensation			793,061				119,146				425,564				1,337,771
Operating expense, related party			223,254				-				50,567				273,821
Professional fees			108,959				92,506				258,120				459,585
Information technology			71,988				7,012				14,326				93,326
Clearing and other charges			3,316				-				-				3,316
General and administrative-other			63,266				145,243				119,387				327,896
Total general and administrative costs			1,263,844				363,907				867,964				2,495,715
Research and development costs			-				27,936				-				27,936
Total operating costs			1,263,844				391,843				867,964				2,523,651
Net operating loss			(2,039,248	)			(391,843	)			(867,964	)			(3,299,055	)
Other income:
Interest income			28,110				-				148,190				176,300
Net loss before income taxes			(2,011,138	)			(391,843	)			(719,774	)			(3,122,755	)
Income taxes			-				63,559				-				63,559
Net loss			(2,011,138	)			(455,402	)			(719,774	)			(3,186,314	)
Less net loss attributable to non-controlling interests			-				(177,853	)			-				(177,853	)
Net loss attributable to MDB Capital Holdings, LLC		$	(2,011,138	)		$	(277,549	)		$	(719,774	)		$	(3,008,461	)

 

 

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)		$	696,965			$	-			$	-			$	696,965
Realized loss on equity securities
Fee income			4,233,120				-				-				4,233,120
Other operating income			70,104				70,769				-				140,873
Total operating income, net			5,000,189				70,769				-				5,070,958
Operating costs:
General and administrative costs:
Compensation			1,912,536				289,152				981,827				3,183,515
Operating expense, related party			687,995				-				141,479				829,474
Professional fees			316,388				301,244				623,457				1,241,089
Information technology			333,940				16,247				58,688				408,875
Clearing and other charges			382,994				-				-				382,994
General and administrative-other			262,131				208,203				412,899				883,233
Total general and administrative costs			3,895,984				814,846				2,218,350				6,929,180
Research and development costs			-				67,095				-				67,095
Total operating costs			3,895,984				881,941				2,218,350				6,996,275
Net operating income (loss)			1,104,205				(811,172	)			(2,218,350	)			(1,925,317	)
Other income:
Interest income			75,991				100				472,388				548,479
Net income (loss) before income taxes			1,180,196				(811,072	)			(1,745,962	)			(1,376,838	)
Income taxes			320,584				63,559				-				384,143
Net income (loss)			859,612				(874,631	)			(1,745,962	)			(1,760,981	)
Less net loss attributable to non-controlling interests			-				(341,631	)			-				(341,631	)
Net income (loss) attributable to MDB Capital Holdings, LLC		$	859,612			$	(533,000	)		$	(1,745,962	)		$	(1,419,350	)

 

 

The following sets forth the long-lived assets and total assets by segment at December 31, 2022:

 

The following sets forth statements of operations by segment for the three-months ended September 30, 2022:

 

 

4. Equity and Non-Controlling Interests

 

Equity

 

Preferred shares - 10,000,000 shares authorized, no 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 – 95,000,000 shares authorized, 4,295,632 shares issued and outstanding. These shares are common shares and have one vote per share. Currently there is not a defined dividend or liquidation preference.

 

Class B common shares - 5,000,000 shares authorized, 5,000,000 issued and outstanding. These shares are common shares and have five votes per share. Currently there is not a defined dividend or liquidation preference. These shares may be converted one to one for a Class A common shares at any time and from time to time.

 

Non-Controlling Interests

 

During the nine months ended September 30, 2023, the ownership interest in Invizyne was 60.94% and the non-controlling interest was 39.06%. During the nine months ended September 30, 2022, the ownership interest in Invizyne ranged from 56.4% to 59.25%, with the non-controlling interest ranging from 43.6% to 40.75% (weighted average of 42.6%). Invizyne is accounted for the nine-months ended September 30, 2023 and 2022 , respectively, under the consolidation method.

 

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 60.94% and 59.58%, respectively, and the remaining equity interest was owned by the non-controlling interests as presented below:

 

Schedule of Equity and Non-Controlling Interests

		For the Nine Months Ended September 30,
		2023				2022
Invizyne net loss		$	(874,631	)		$	(983,965	)
Weighted average non-controlling percentage			39.06	%			42.6	%
Net loss non-controlling interest		$	(341,631	)		$	(418,677	)
Prior period balance			468,665				522,169
Stock-based compensation			174,413				164,228
Ownership change of non-controlling interest			-				436,894
Ending period balance		$	301,447			$	704,614

 

During the nine-months ended September 30, 2023 and 2022, the Company owned 100% for both periods, respectively, of PatentVest.

 

 

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.

 

5. Stock-Based Compensation

 

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 903,780 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 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. The inputs used to determine the fair value was common stock price of $2.53, option exercise price of $2.53, expected life in years of 5 years, with a contract life of 7 years, risk-free rate of 0.42%, expected annual volatility of 123.04%, and annual rate of dividends of $0. 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 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. The inputs used to determine the fair value was common stock price of $3.44, option exercise price of $3.44, expected life in years of 5 years, with a contract life of 7 years, risk-free rate of 3.64%, expected annual volatility of 121.70%, and annual rate of dividends of $0. 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. Invizyne stock-based compensation were $61,336 and $54,087 for the three ended September 30, 2023 and 2022, respectively. Invizyne stock-based compensation were $174,413 and $164,228 for the nine months ended September 30, 2023 and 2022. As of September 30, 2023, the unrecognized stock-based compensation is $637,862.

 

A summary of stock option activity during the nine months ended September 30, 2023 and 2022 is presented below:

 

Schedule of stock option activity

		Number of Shares				Weighted Average Exercise Price				Weighted Average Remaining Contractual Life (in Years)
Stock options outstanding at January 1, 2022			513,750				2.53				6.08
Granted			-				-				-
Exercised			-				-				-
Expired			-				-				-
Stock options outstanding at September 30, 2022			513,750				2.53				5.58
Granted			-				-				-
Exercised			-				-				-
Expired			-				-				-
Stock options outstanding at December 31, 2022			513,750			$	2.53				5.08
Granted			50,000				3.44				6.84
Exercised			-				-				-
Expired			-				-				-
Stock options outstanding at September 30, 2023			563,750			$	2.61				4.54
Stock options exercisable at September 30, 2022			171,249			$	2.53				5.34
Stock options exercisable at September 30, 2023			278,165			$	2.54				4.37

 

On July 19, 2021, Invizyne granted 79,052 restricted stock units (“RSUs”) at a value of $2.53 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 232,689 restricted stock units (“RSUs”) at a value of $2.53 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 $788,705.

 

On May 1, 2023, Invizyne granted 97,050 restricted stock units (“RSUs”) at a value of $3.44 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 $333,852.

 

 

Between April 19, 2022 and September 21, 2022, the Company granted 3,675,000 restricted stock units (“RSUs”). These units will vest when 20% of the one-half of the total number of RSUs, by each individual person, on the thirteenth (13) month anniversary of the listing of the Class A Shares on a United States national exchange, then at a rate of 10% of one-half the number of RSUs each nine months after the date of the initial vesting, until the last vesting on the fifth year anniversary of the Date of Grant, at which any previously unvested will fully vest. 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, $201,370 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 $36,548,630.

 

On April 19, 2022 the Company granted 2,000,000 restricted stock units (“RSUs”). These units will vest when 20% of the one-half of the total number of RSUs, by each individual person, on the thirteenth (13) month anniversary of the listing of the Class A Shares on a United States national exchange. Class A Share have traded in the market since September 20, 2023. The RSUs will vest once the Class A Shares are listed for any 90 consecutive calendar days at an average price of $20.00 or more during the period commencing from the Date of Grant and prior to the five year anniversary of the Date of Grant, with an average monthly trading volume of 2,000,000 Class A Shares or more during the 90 consecutive calendar day period, or the Class A Shares are listed for any 90 consecutive calendar days at an average price of $25.00 or more during the period commencing the Date of Grant and prior to the five year anniversary of the Date of Grant; provided further, that if there is a distribution of cash, stock or other property by the Company on the Class A Shares, then the foregoing average amounts of $20.00 or $25.00 will be reduced, from time to time, by the value of any one or more per share distributions after the Date of Grant until vested. 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, $86,685 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 $15,733,315. A summary of restricted stock unit activity during the nine-months ended September 30, 2023 and 2022 is presented below:

 

 Schedule of Restricted Stock Unit Activity

		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			3,675,000			$	10.00				2,000,000			$	7.91
Granted			-				-				-				-
Exercised			-				-				-				-
Expired			-				-				-				-
Restricted stock units outstanding at December 31, 2022			3,675,000			$	10.00				2,000,000			$	7.91
Granted			-				-				-				-
Exercised			-				-				-				-
Expired			-				-				-				-
Restricted stock units outstanding at September 30, 2023			3,675,000			$	10.00				2,000,000			$	7.91
Restricted stock units at September 30, 2022			-			$	-				-			$	-
Restricted stock units at September 30, 2023			-			$	-				-			$	-

 

 

6. Earnings Per Share

 

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 35,144 shares.

 

Earnings (loss) per share is presented below for the three and nine months ended September 30, 2023 and 2022, respectively.

 

Basic and fully diluted earnings (loss) per share is calculated at follows for the three and nine months ended September 30, 2023 and 2022:

 

Schedule of Basic and Fully Diluted

		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		$	(1,390,236	)		$	(1,618,198	)		$	(718,008	)		$	(1,365,572	)
Weighted average shares outstanding – basic and diluted			2,828,241				5,000,000				2,628,966				5,000,000
Net loss per share – basic and diluted		$	(0.49	)		$	(0.32	)		$	(0.27	)		$	(0.27	)

 

		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		$	(655,900	)		$	(763,450	)		$	(1,648,548	)			(3,135,356	)
Weighted average shares outstanding – basic and diluted			2,696,121				5,000,000				1,154,420				5,000,000
Net loss per share – basic and diluted		$	(0.24	)		$	(0.15	)		$	(1.43	)		$	(0.63	)

 

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:

 Schedule of Correction on Previously Reported Weighted Average of Shares

		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			400,763				738,343
Net loss per Class A common share – basic and diluted		$	(1.35	)		$	(0.73	)

 

		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			400,763				412,648
Net loss per Class A common share – basic and diluted		$	(2.32	)		$	(2.25	)

 

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 $829,474 and $882,601, respectively, which is inclusive of expenses and fees, for contracted labor, recorded against general and administrative expenses.

 

During the nine-months ended September 30, 2022, the Company utilized 1,300 square feet provided by the controlling member of the Company for a monthly charge of $1,600 per month.

 

In January 2022, the Company declared to its two principal members a cash distribution of $2,723,700, it was distributed in July 2022.

 

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

 

 

Contract for Sale of Securities

 

The Company entered into an agreement to sell equity securities to investors totaling $697,246, and as of December 31, 2022 certain conditions for completing the sale transaction had not yet occurred. The Company recorded the value of these securities on its balance sheet as Investment securities at fair value of $632,851 and recorded the commitment to sell the equity securities in Prepaid expenses and other assets on the consolidated balance sheets. The change in fair value as of December 31, 2022, of $64,395 was recorded in other operating income on the consolidated statements of operations. The transaction was completed on January 18, 2023.

 

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.

 

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.

 

 

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, $5,000,000, the maximum amount, has been funded, bringing the ownership interest of the Company in Invizyne to 60.94% and 59.58% at September 30, 2023 and 2022. respectively. The Company waived its 10% cash fee relative to the Funding Agreement in exchange for other modifications. 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. Through September 30, 2023 and 2022, 197,628 Funding Warrants have vested. These warrants are eliminated in consolidation.

 

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 $391,960 and $197,528, respectively, was contributed to the plans. The majority of the expense was included in general and administrative cost, however for any research and development employees their portion of the expense is recorded in research and development costs.

 

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.

 

 

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 no accrued royalties recorded.

 

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 $1,250 and $625 and nine months ended September 30, 2023 and 2022, respectively, of $3,750 and $1,875.

 

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.

 

 

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 $13,277 per month. The lease provides for annual increases. The base rent for the lease in the final year is $14,943 per month.

  

In April 2023, Invizyne made changes to an existing lease agreement, which resulted in an extension of the lease term by an additional 21 months. The revised lease maintained the same escalation rate for lease payments as the previous arrangement. To account for this modification, the Company reevaluated the remaining lease term at the time of execution. As the Company was actively utilizing the premises, adjustments were made to reflect the revaluation of both the right-to-use asset and the corresponding lease liability in line with the updated lease term. This was originally entered into in August 2021, with a term of 60 months beginning on May 1, 2023 and ending on April 30, 2028, with an option to extend for 60 additional months. At the time the lease commenced, it was not probable the Company would exercise the one five-year option to extend the facility lease; therefore, this extension option is not included in the lease analysis. The initial base rent is $14,371 per month. The lease provides for annual increases. The base rent for the lease in the final year is $16,259 per month. Additionally, Invizyne is responsible for annual operating cost increases of 2.5%, which are included in the rent.

 

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 91 months which began on December 20, 2022 and ending on July 20, 2030, without an option to extend. The initial base rent was $12,556 per month, after 7 months of free rent. The lease provides for annual increases. The base rent for the lease in the final year is $13,937 per month.

Schedule of Operating Lease Cost 

		September 30, 2023				December 31, 2022
Operating leases:
Right-of-use assets		$	2,126,213			$	1,409,732
Operating lease liabilities		$	2,210,005			$	1,423,538
Weighted average remaining lease term in years			5.44				5.62
Weighted average discount rate			7.66	%			6.71	%
Cash paid for amounts included in the measurement of lease liabilities		$	206,837			$	147,661
Right-of-use assets obtained in exchange for lease liabilities		$	896,803			$	813,003
Operating lease cost		$	276,823			$	106,980
Short-term lease costs			29,049				19,200
Total operating lease costs		$	305,872			$	126,180

 

 

Future payments due under operating leases as of September 30, 2023 are as follows:

Schedule of Future payments Due Under Operating Lease 

Year		Amount
Remainder of 2023		$	121,688
2024			491,624
2025			503,684
2026			516,001
2027			528,586
Thereafter			576,564
Total		$	2,738,147
Less effects of discounting			(528,142	)
Total operating lease liabilities		$	2,210,005

 

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 27% for the nine months ended September 30, 2023, and September 30, 2022.

 

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.

 

 

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.

 

 

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	%

 

 

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.

 

 

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	%

 

 

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.

 

 

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	%

 

 

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

 

 

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.

 

 

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.

 

 

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.

 

 

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.

 

 

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.

 

 

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.

 

 

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).

 

 

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)

 

 

EXHIBIT INDEX

 

Exhibit
Number		Description of Exhibit
31.1 *		Certification of Principal Executive Officer, pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2 *		Certification of Principal Financial and Accounting Officer, pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32.1**		Certification of Principal Executive Officer, pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
32.2**		Certification of Principal Financial and Accounting, pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
101.INS*		Inline XBRL Instance Document
101.SCH*		Inline XBRL Taxonomy Schema
101.CAL*		Inline XBRL Taxonomy Calculation Linkbase
101.DEF*		Inline XBRL Taxonomy Definition Linkbase
101.LAB*		Inline XBRL Taxonomy Label Linkbase
101.PRE*		Inline XBRL Taxonomy Presentation Linkbase
104*		Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101).

 

*	Filed herewith.
**	Furnished herewith.