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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, 2024

 

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)

 

(945) 262-9010

(Registrant’s telephone number, including area code)

 

Securities registered pursuant to Section 12(b) of the Exchange Act:

 

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 12, 2024, the number of outstanding shares of Class A Common Shares, representing limited liability interests, of the registrant was 4,950,632.

 

 

 

 
 

 

TABLE OF CONTENTS

 

   

Page

Number

PART I FINANCIAL INFORMATION 3
   
Item 1 Unaudited Condensed Consolidated Financial Statements 3
   
Condensed Consolidated Balance Sheets –September 30, 2024 and December 31, 2023 3
   
Unaudited Condensed Consolidated Statements of Operations – Three and Nine Months Ended September 30, 2024 and 2023 4
   
Unaudited Condensed Consolidated Statements of Changes in Equity – Three and Nine Months Ended September 30, 2024 and 2023 5
   
Unaudited Condensed Consolidated Statements of Cash Flows – Nine Months Ended September 30, 2024 and 2023 6
   
Notes to Unaudited Condensed Consolidated Financial Statements 7
   
Item 2 Management’s Discussion and Analysis of Financial Conditions and Results of Operations 32
     
Item 3 Quantitative and Qualitative Disclosures About Market Risk 45
     
Item 4 Controls and Procedures 45
     
PART II OTHER IFNORMATION 46
     
Item 1 Legal Proceedings 46
     
Item 1A Risk Factors 46
     
Item 2 Unregistered Sales of Equity Securities and Use of Proceeds 46
     
Item 3 Defaults upon Senior Securities 46
     
Item 4 Mine Safety Disclosures 46
     
Item 5 Other Information 46
     
Item 6 Exhibits 46

 

2
 

 

PART I – FINANCIAL INFORMATION

 

UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

 

CONDENSED CONSOLIDATED BALANCE SHEETS

 

   September 30, 2024   December 31, 2023 
   (Unaudited)     
Cash and cash equivalents  $16,679,428   $6,109,806 
Cash segregated in compliance with regulations   1,584,734    1,247,881 
Grants receivable   553,963    882,319 
Clearing deposits   516,774    260,000 
Prepaid expenses and other current assets   428,692    523,788 
Investment securities, at amortized cost (U.S. Treasury Bills)   5,084,197    24,658,611 
Investment securities, at fair value (held by our licensed broker dealer) (Note 2)   5,566,955    5,771,634 
Investment securities, at cost less impairment   200,000    200,000 
Deferred offering cost   587,368    69,303 
Deferred costs related to deferred revenue   110,958    75,328 
Property and equipment, net   835,753    866,490 
Operating lease right-of-use assets, net   2,062,015    2,320,119 
Total assets  $34,210,837   $42,985,279 
           
LIABILITIES AND EQUITY          
Accounts payable  $1,044,209   $578,214 
Accrued expenses   304,271    1,105,078 
Payables to non-customers   21    1,405,293 
Payables to customers   2,361,514    - 
Deferred grant reimbursement   137,035    140,703 
Deferred revenue   -    20,000 
Operating lease liabilities   2,181,780    2,415,889 
Total liabilities   6,028,830    5,665,177 
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 4,295,632 shares issued and outstanding as of September 30, 2024 and December 31, 2023, respectively   -    - 
Class B common shares, 5,000,000 authorized shares at no par value; 5,000,000 shares issued and outstanding   -    - 
           
Paid-in-capital   60,314,806    49,405,779 
Accumulated deficit   (31,318,226)   (12,092,927)
Total MDB Capital Holdings, LLC Members’ equity   28,996,580    37,312,852 
Non-controlling interest   (814,573)   7,250 
Total equity   28,182,007    37,320,102 
Total liabilities and equity  $34,210,837   $42,985,279 

 

See accompanying notes to the unaudited condensed consolidated financial statements.

 

3
 

 

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited)

 

   2024   2023   2024   2023 
   Three Months Ended September 30,   Nine Months Ended September 30, 
   2024   2023   2024   2023 
Operating income:                    
Unrealized gain (loss) on investment securities, net (from our licensed broker dealer) (Notes 1 and 2)  $(718,491)  $(786,906)  $(566,215)  $696,965 
Realized loss on investment securities, net (from our licensed broker dealer)   -    -    -    - 
Fee income   -    -    1,303,398    4,233,120 
Other operating income   104,246    11,502    276,633    140,873 
Total operating income (loss), net   (614,245)   (775,404)   1,013,816    5,070,958 
                     
Operating costs:                    
General and administrative costs:                    
Compensation   5,170,772    1,337,771    15,188,205    3,183,515 
Operating expense, related party   489,954    273,821    1,115,200    829,474 
Professional fees   850,013    459,585    2,409,722    1,241,089 
Information technology   236,469    93,326    651,856    408,875 
Clearing and other charges   876    3,316    229,338    382,994 
General and administrative-other   633,799    327,896    1,972,556    883,233 
Total general and administrative costs   7,381,883    2,495,715    21,566,877    6,929,180 
Research and development costs, net of grants amounting to $489,798 and $743,320, for the three months ended September 30 and $1,807,706 and $2,265,408, for the nine months ended September 30   723,487    27,936    1,238,463    67,095 
Total operating costs   8,105,370    2,523,651    22,805,340    6,996,275 
Net operating loss   (8,719,615)   (3,299,055)   (21,791,524)   (1,925,317)
Other income:                    
Interest income   279,125    176,300    937,985    548,479 
Net loss before income taxes   (8,440,490)   (3,122,755)   (20,853,539)   (1,376,838)
Income taxes   -    63,559    2,143    384,143 
Net loss   (8,440,490)   (3,186,314)   (20,855,682)   (1,760,981)
Less: Net loss attributable to non-controlling interests   (705,057)   (177,853)   (1,630,383)   (341,631)
Net loss attributable to MDB Capital Holdings, LLC  $(7,735,433)  $(3,008,461)  $(19,225,299)  $(1,419,350)
Net loss per share attributable to MDB Capital Holdings, LLC:                    
Net loss per Class A common share – basic and diluted  $(0.83)  $(0.49)  $(2.07)  $(0.24)
Weighted average of Class A common shares outstanding – basic and diluted   4,295,632    2,828,241    4,295,632    2,696,121 
Net loss per Class B common share – basic and diluted  $(0.83)  $(0.32)  $(2.07)  $(0.15)
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 the unaudited condensed consolidated financial statements.

 

4
 

 

MDB CAPITAL HOLDINGS, LLC

 

CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY (Unaudited)

 

Three Months Ended During the Nine Months Ended September 30, 2024 and 2023

 

   Shares   Amount   Shares   Amount   Capital   Deficit   Interest   Equity 
  

Class A

Common Shares

  

Class B

Common Shares

   Paid-In   Accumulated   Non-controlling   Total 
   Shares   Amount   Shares   Amount   Capital   Deficit   Interest   Equity 
                                 
Balance, December 31, 2023   4,295,632   $-    5,000,000   $-   $49,405,779   $(12,092,927)  $7,250   $37,320,102 
Stock-based compensation   -    -    -    -    3,669,998    -    142,810    3,812,808 
Net loss   -    -    -    -    -    (7,215,425)   (393,903)   (7,609,328)
Balance, March 31, 2024   4,295,632   $-    5,000,000   $-   $53,075,777   $(19,308,352)  $(243,843)  $33,523,582 
Stock-based compensation   -    -    -    -    3,489,868    -    348,275    3,838,143 
Net loss   -    -    -    -    -    (4,274,441)   (531,423)   (4,805,864)
Balance, June 30, 2024   4,295,632   $-    5,000,000   $-   $56,565,645   $(23,582,793)  $(426,991)  $32,555,861 
Stock-based compensation   -    -    -    -    3,749,161    -    317,277    4,066,636 
Ownership change of non-controlling interest   -    -    -    -    -    -    198    198 
Net loss   -    -    -    -    -    (7,735,433)   (705,057)   (8,440,490)
Balance, September 30, 2024   4,295,632   $-    5,000,000   $-   $60,314,806   $(31,318,226)  $(814,573)  $28,182,007 

 

   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 

 

See accompanying notes to the unaudited condensed consolidated financial statements.

 

5
 

 

MDB CAPITAL HOLDINGS, LLC

 

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)

 

   2024   2023 
   Nine Months Ended September 30, 
   2024   2023 
         
CASH FLOWS FROM OPERATING ACTIVITIES:          
Net loss  $(20,855,682)  $(1,760,981)
Adjustments to reconcile net loss to net cash used in operating activities:          
Unrealized (gain) loss on investment securities, net   566,215    (696,965)
Stock-based compensation   11,717,587    462,467 
Accretion of investments at amortized cost (U.S Treasury Bills)   (533,790)   (431,776)
Purchases from sale of investment securities, at fair value (made by our licensed broker dealer)   -    (1,587,500)
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   (359,605)   (2,645,620)
Depreciation of property and equipment   130,937    137,972 
Deferred costs related to revenue   (35,630)   - 
Accretion of deferred grant reimbursement   (40,904)   (38,880)
Deferred revenue   (20,000)   100,000 
Change in ROU Asset   258,104    166,957 
Change in lease liability   (234,109)   (96,971)
Changes in operating assets and liabilities:          
(Increase) decrease in -          
Grants receivable   328,356    133,080 
Prepaid expenses and other current assets   95,096    (251,718)
Clearing deposits   (256,774)   - 
Increase (decrease) in -          
Accounts payable   464,044    341,348 
Payables to non-customers   21    - 
Payables to customers   956,221    - 
Income taxes payable   -    158,269 
Accrued expenses   (800,807)   (100,481)
Net cash used in operating activities   (8,620,720)   (5,086,987)
           
CASH FLOWS FROM INVESTING ACTIVITIES:          
Proceeds of investments securities, at amortized cost (U.S Treasury Bills)   37,874,534    15,078,020 
Purchases of investments securities, at amortized cost (U.S Treasury Bills)   (17,766,330)   (5,953,312)
Deferred grant reimbursement   37,256    (22,455)
Purchases of property and equipment   (100,200)   (355,634)
Net cash provided by investing activities   20,045,260    8,746,619 
           
CASH FLOWS FROM FINANCING ACTIVITIES:          
Proceeds from initial public offering   -    19,999,992 
Costs from initial public offering   -    (2,166,698)
Deferred costs of initial public offering   (518,065)   - 
Net cash (used in ) provided by financing activities   (518,065)   17,833,294 
           
NET INCREASE IN CASH, CASH EQUIVALENTS, AND RESTRICTED CASH   10,906,475    21,492,926 
           
CASH, CASH EQUIVALENTS, AND RESTRICTED CASH - BEGINNING OF PERIOD   7,357,687    4,952,624 
           
CASH, CASH EQUIVALENTS, AND RESTRICTED CASH - END OF PERIOD  $18,264,162   $26,445,550 
           
Supplemental disclosures of cash flow information:          
Cash paid for -          
Interest  $-   $- 
Income taxes  $-   $- 
           
Non-cash investing and financing activities:          
           
Warrants received as part of an investment banking deal  $359,605   $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 warrants to purchase Class A stock related to the initial public offering closed on September 20, 2023  $-   $65,411 
Deferred costs of initial public offering  $284,602   $- 

 

The following table provides a reconciliation of the amount of cash, cash equivalents, and restricted cash reported within the condensed consolidated balance sheets to the total of the same such amounts shown in the unaudited condensed consolidated statements of cash flows:

 

   September 30, 2024   December 31, 2023 
Cash and cash equivalents  $16,679,428   $6,109,806 
Cash segregated in compliance with regulations   1,584,734    1,247,881 
Total cash, cash equivalents, and restricted cash shown in the unaudited condensed consolidated statements of cash flows  $18,264,162   $7,357,687 

 

See accompanying notes to the unaudited condensed consolidated financial statements.

 

6
 

 

MDB CAPITAL HOLDINGS, LLC

 

NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

 

Nine Months Ended September 30, 2024 and 2023

 

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”) doing business under the name MDB Capital; and PatentVest, Inc. (“PatentVest”), and has a majority-owned partner company, Invizyne Technologies, Inc. (“Invizyne”), who is in the process of financing which will reduce the ownership by action of dilution.

 

MDB Management is an “administrative” entity whose purpose is to conduct, and to consolidate, wherever possible, 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”), the Depository Trust Company (“DTC”), and the National Securities Clearing Corporation (“NSCC”). Public Ventures is dual clearing, operating as a self-clearing firm and carrying accounts for its customers, and on a fully disclosed basis with a nonrelated FINRA member firm, Interactive Brokers, LLC (“Interactive Brokers”). Interactive Brokers serves as custodian of certain investments maintained by Public Ventures.

 

PatentVest performs intellectual property validation services for broker-dealer due diligence functions on the intellectual property of clients and prospective client companies and intellectual property assessment and roadmap for client companies, and it is also an Arizona licensed 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. 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 the majority of the equity interests in PatentVest and Invizyne. On January 14, 2022, Public Ventures distributed 100% of its equity interests in PatentVest and Invizyne to its members. 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, and their then equity interests in Invizyne and PatentVest to MDB, as result of which MDB became the new parent holding company of those three entities. 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 MDB Management as a management company subsidiary. 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 transferred equity interests.

 

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 unaudited condensed consolidated financial statements retroactively reflect the financial statements of the Company and Public Ventures on an unaudited condensed consolidated basis for the periods presented.

 

On January 16, 2022, the Company issued 100,000 shares of Class A common shares in exchange 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. This cash distribution was declared on January 16, 2022.

 

7
 

 

On June 8, 2022, MDB completed the first closing of a private placement, consisting of the sale of 2,517,966 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 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 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 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 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 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 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.

 

On July 1, 2024, the founding ownership of MDB Minnesota One, Inc. (Minnesota One”) had MDB owning 67% and Mayo Foundation for Medical Education and Research (“Mayo”) owning 33% of the issued and outstanding common stock. Minnesota One was formed with the purpose of developing pharmaceuticals, based on patents and licensed technology from Mayo. After the initial formation of Minnesota One and finalization and entry into a license agreement between Mayo and Minnesota One, MDB entered into a Term Equity Purchase Agreement (“Purchase Agreement”) to provide capital for operations of Minnesota One in exchange for the issuance of shares of common stock of Minnesota One to MDB. The objective of the License Agreement is for Minnesota One to develop a small molecule senescence platform. Under the terms of the License Agreement Minnesota One has paid an up-front license fee to Mayo of One Hundred Fifty Thousand Dollars ($150,000). To maintain its rights under the License Agreement, Minnesota One is subject to achieving certain developmental and funding milestones within designated time periods and to paying Mayo royalties on net sales of licensed products. Under the terms of the Purchase Agreement, MDB may invest up to $5,000,000 over a five-year period into Minnesota One in amounts and increments tied to its business operating requirements. In an ancillary agreement to the license agreement, Mayo has the right of participation in future financings of Minnesota One.

 

2. Summary of Significant Accounting Policies

 

Basis of Presentation and Principles of Consolidation

 

The accompanying unaudited condensed consolidated financial statements include the accounts of the Company and wholly-owned and partly owned subsidiaries. The accompanying unaudited condensed 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, 2023, 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 condensed 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, 2024, the results of operations for the three and nine months ended September 30, 2024 and 2023 and its cash flows for the nine months ended September 30, 2024 and 2023. The results of operations for the three and nine months ended September 30, 2024 are not necessarily indicative of the operating results for the full year or any future period. The unaudited condensed consolidated financial information should be read in conjunction with the Company’s audited consolidated financial statements for the year ended December 31, 2023. All intercompany accounts and transactions have been eliminated in consolidation. Non-controlling interests at September 30, 2024 and 2023, 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 does not have a controlling financial interest in this entity, and management has determined PatentVest, S.A. is not a variable interest entity, as such PatentVest, S.A. should not be consolidated as it has no ownership interests nor is a variable interest. Therefore, management has excluded this entity from the Company’s unaudited condensed 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, and it does not directly pay federal and state income taxes; Therefor, recognition has not been given to federal and state income taxes for the operations of the Company.

 

8
 

 

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 nine-months ended September 30, 2024 and 2023.

 

Segregated Cash and Deposits

 

From time to time the Company provides deposits or enters into agreements that would require funds to be held in a segregated cash account. At September 30, 2024, the Company had $1,584,734 of segregated cash consisting of funds held in reserve for non-customers and customers. At December 31, 2023, the Company had $1,247,881 of segregated cash consisting of funds held in reserve for non-customers.

 

Clearing Deposits

 

The Company is obligated to maintain security deposits with the DTC and NSCC in connection with its securities business. At September 30, 2024, these deposits totaled $516,774.

 

9
 

 

Prepaid Expenses and Other Current Assets

 

The Company has prepaid and other expenses totaling $428,692 at September 30, 2024, consisting of acquired intangible assets totaling $43,500, prepaid professional fees totaling $75,000, security deposits totaling $47,380, prepaid lab equipment totaling $85,000, various prepaid expense of $147,712, and other current assets of $30,100. Prepaid expenses and other assets totaling $523,788 at December 31, 2023, consists of acquired intangible assets totaling $43,500, prepaid professional fees totaling $95,000, security deposits totaling $47,380, various prepaid expense of $325,777, and other assets of $12,131.

 

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. As an accounting policy, to account for these components, the Company has elected the practical expedient for property leases that have both lease and non-lease components for them to be combined into a single component and account for as a lease. This policy is effective for all current and future property operating leases and applied uniformly and will be disclosed as such within the financial statements. Operating lease assets are included within right-of-use assets and the corresponding operating lease liabilities are included within liabilities on the Company’s unaudited condensed consolidated balance sheet as of September 30, 2024 and audited condensed consolidated balance sheet as of December 31, 2023.

 

The Company has elected not to present short-term leases on the consolidated balance sheet 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. All other right-of-use assets and lease liabilities are recognized based on the present value of lease payments over the lease term at the lease commencement date. Because the Company’s leases do not provide an implicit rate of return, the Company used the Company’s incremental borrowing rate based on the information available at lease commencement date in determining the present value of lease payments.

 

Stock-based Compensation

 

Stock-based compensation primarily consists of restricted stock units with service or market/performance conditions and stock options. The MDB and Invizyne issues restricted stock units are measured at the fair market value of the underlying stock at the grant date. The Company recognizes 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-options and the fair value is determined utilizing Black-Scholes options-pricing model. The Company accounts 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 or about the vesting dates net of the applicable statutory tax withholding to be paid by us and may be net of the amounts to be paid on behalf of our employees. As a result, fewer shares may issue to the employee than the number of awards outstanding. The Company records 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.

 

10
 

 

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 unaudited condensed 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:

 

   September 30, 2024   December 31, 2023 
Investment securities, at amortized cost:          
U.S Treasury Bills  $5,084,197   $24,658,611 
Investment securities, at amortized cost  $5,084,197   $24,658,611 

 

Broker/Dealer Securities

 

   September 30, 2024   December 31, 2023 
Investment securities, at fair value:          
Common stock of publicly traded companies  $2,516,170   $2,603,579 
Warrants of publicly traded companies   3,050,785    3,168,055 
Investment securities, at fair value  $5,566,955   $5,771,634 

 

Non-Broker/Dealer Securities

 

   September 30, 2024   December 31, 2023 
Investment securities, at cost less impairment          
Simple agreement on future equities (not market listed)  $200,000   $200,000 
Investment securities, at cost less impairment  $200,000   $200,000 

 

For investment securities at fair value, net unrealized loss of $718,491 and unrealized loss of $786,906 were recognized in the statements of operations for three-months ended September 30, 2024 and 2023, respectively. For investment securities at fair value, net unrealized loss of $566,215 and unrealized gain of $696,965 were recognized in the statements of operations for nine-months ended September 30, 2024 and 2023, respectively.

 

11
 

 

The amortized cost, excluding gross unrealized holding loss and fair value of held to maturity securities on September 30, 2024 and December 31, 2023, are as follows:

 

   Amortized Cost   Gross Unrealized Gains   Gross Unrealized Losses   Fair Value 
  

Amortized

Cost as of

September 30, 2024

  

Gross

Unrealized

Gains

  

Gross

Unrealized

Losses

  

Fair Value

(Level 1)

as of

September 30, 2024

 
U.S Treasury Bills maturing 10/11/24  $5,084,197   $1,160   $-   $5,085,357 
Total assets  $5,084,197   $1,160   $-   $5,085,357 

 

  

Amortized

Cost as of

December 31, 2023

  

Gross

Unrealized

Gains

  

Gross

Unrealized

Losses

  

Fair Value

(Level 1)

as of

December 31, 2023

 
U.S Treasury Bills maturing 02/13/24, 04/04/24, 04/18/24 and 04/23/24  $24,658,611   $6,031   $-   $24,664,642 
Total assets  $24,658,611   $6,031   $-   $24,664,642 

 

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 unaudited condensed 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, 2024 and December 31, 2023, the estimated fair values of investment securities, at amortized cost were not materially different from their carrying values as presented on the unaudited condensed consolidated balance sheets. This is primarily attributed to the short-term maturities of these instruments.

 

12
 

 

Investment securities, at amortized cost: The fair value of U.S. Treasury Bills classified as held-to-maturity investment securities is based on the market price and is classified as level 1 of the fair value hierarchy.

 

A description of the valuation techniques applied to the Company’s major categories of assets and liabilities measured at fair value on a recurring basis is as follows:

 

Investment securities: Public equity securities are assessed for valuation at the close of each month. Warrants are valued using the Black-Scholes model, which considers the stock price at the date of the valuation, the warrants strike price, the term to expiry, the risk-free rate of return, and the expected volatility of the underlying stock.

 

Investment securities, at cost less impairment: Non-public equity securities and simple agreements for future equity are valued based on the initial investment, less impairment. The Company determined that no impairment was warranted. Since these securities are not actively traded, we will apply valuation adjustments when they become available, and they are categorized in level 3 of the fair value hierarchy.

 

The following table sets forth the fair value of the Company’s financial assets and liabilities measured at fair value on a recurring basis as of September 30, 2024, 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  $2,516,170   $-   $-   $2,516,170 
                        
Investment Securities (held by our licensed broker dealer)  Warrants   -    304,730    2,746,055    3,050,785 
                        
Total assets measured at fair value (held by our licensed broker dealer)     $2,516,170   $304,730   $2,746,055   $5,566,955 

 

During the nine months ended September 30, 2024, 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, 2023  $3,133,458 
      
Receipt from investment banking fees   - 
Realized gains   - 
Unrealized losses   (387,403)
Sales or distribution     
Purchases   - 
September 30, 2024  $2,746,055 

 

The following table presents information about significant unobservable inputs related to material components of Level 3 warrants as of September 30, 2024.

 

Assets  Fair Value   Valuation Techniques  Significant Unobservable Inputs  Range of Inputs   Weighted-Average 
                      
Warrants  $2,746,055   Black Scholes  Volatility   111.90 -113.72%    111.90%

 

13
 

 

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, 2023, except for the Level 3 investment that is recorded at cost:

 

Assets  Classification  Level 1   Level 2   Level 3   Total 
                    
Investment Securities (held by our licensed broker dealer)  Equity securities -
common stock		  $2,603,579   $-   $-   $2,603,579 
                        
Investment Securities (held by our licensed broker dealer)  Warrants   -    34,597    3,133,458    3,168,055 
                        
Total assets measured at fair value (held by our licensed broker dealer)     $2,603,579   $34,597   $3,133,458   $5,771,634 

 

Reconciliation of fair value measurements categorized within Level 3 of the fair value hierarchy:

 

      
December 31, 2022  $- 
Receipt from investment banking fees   2,645,620 
Realized gains   - 
Unrealized gains   652,925 
Sales or distribution   (165,087)
Purchases   - 
December 31, 2023  $3,133,458 

 

During the year ended December 31, 2023, 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, 2024, for a commitment of up to $2,000,000, which matures July 26, 2025. 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, 2024, there is $1,584,734 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, 2024, 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.

 

14
 

 

Property and Equipment

 

Property and equipment are recorded at cost. Major improvements are capitalized, while maintenance and repairs are charged to expense as incurred. Gains and losses from disposition of property and equipment are included in the statements of operations when realized. Depreciation is provided using the straight-line method over the following estimated useful lives:

 

Laboratory equipment   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, 2024 and December 31, 2023, respectively:

 

   September 30, 2024   December 31, 2023 
         
Laboratory equipment  $1,067,241   $885,696 
Furniture and fixtures   54,338    49,838 
Developed software   96,147    113,114 
Leasehold improvements   279,161    279,161 
Total property and equipment   1,496,887    1,327,809 
Less: Accumulated depreciation   (661,134)   (461,319)
Property and equipment, net  $835,753   $866,490 

 

Revenue

 

The Company generates revenue primarily from providing brokerage services and investment banking services through Public Ventures. PatentVest and Invizyne have had limited financial activity during the three and nine-months ended September 30, 2024 and 2023, respectively.

 

Brokerage revenues consist of (a) 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 are recorded effective as of the trade date. The costs are treated as fulfillment costs and are recorded in operating expenses in the unaudited condensed 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 and nine-months ended September 30, 2024, and 2023, respectively.

 

Investment banking revenues consist of private placement fees. Public Ventures 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, 2024, the Company did not have any contract assets or liabilities related to these revenues on its unaudited condensed consolidated balance sheets.

 

15
 

 

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.

 

PatentVest recognizes 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 utilizes a 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.

 

Patent Vest’s contract liabilities which is presented as deferred revenue, consist of advance payments. The table below shows changes in deferred revenue:

 

Balance as of December 31, 2022  $- 
Amounts billed but not recognized   - 
Revenue recognized   - 
Balance as of March 31, 2023   - 
Amounts billed but not recognized   - 
Revenue recognized   - 
Balance as of June 30, 2023   - 
Amounts billed but not recognized   100,000 
Revenue recognized   80,000 
Balance as of December 31, 2023   20,000 
Amounts billed but not recognized   - 
Revenue recognized   - 
Balance as of March 31, 2024   20,000 
Amounts billed but not recognized   - 
Revenue recognized   20,000 
Balance as of June 30, 2024  $- 
Amounts billed but not recognized   - 
Revenue recognized   - 
Balance as of September 30, 2024  $- 

 

During the three and nine-months ended September 30, 2023, the Company’s technology development segment revenue was derived from a single feasibility study, which is not a typical service offered by the Company. The revenue generated from this study represents a direct reimbursement of costs incurred in completing the study.

 

16
 

 

Research Grants

 

Invizyne receives grant reimbursements, which are offset against research and development expenses in the unaudited condensed consolidated statements of operations. In addition to actual reimbursements, Invizyne 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 unaudited condensed 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, 2024 and 2023, and respectively, expected to be received from funding sources in the subsequent year. Management considers such receivables at September 30, 2024 and 2023, 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 unaudited condensed consolidated financial statements.

 

Summary of grants receivable activity for the nine-months ended September 30, 2024 and 2023, is presented below:

 

   2024   2023 
         
Balance at beginning of period  $882,319   $809,532 
Grant costs expensed   1,756,852    2,180,581 
Grants for equipment purchased   6,379    - 
Grant fees   50,854    84,827 
Grant funds received   (2,142,441)   (2,398,488)
Balance at end of period  $553,963   $676,452 

 

Invizyne has received 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 complying with the 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 unaudited condensed consolidated statements of operations. For the nine-months ended September 30, 2024 and 2023, respectively, grants amounting to $1,756,852 and $2,180,581 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, 2024 and 2023, respectively, totaled $1,814,085 and $2,265,408.

 

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, 2024 and 2023, research and development costs prior to offset of the grants amounted to $1,213,285, and $771,256, respectively, which includes grant costs expensed, grants fees, and research and development costs, net of the grant received. For the nine-months ended September 30, 2024 and 2023, research and development costs prior to offset of the grants amounted to $3,046,169, and $2,332,503, 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 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.

 

17
 

 

Patent and licensing legal and filing fees and costs were $148,456 and $43,196 for the three-months ended September 30, 2024 and 2023, respectively. Patent and licensing legal and filing fees and costs were $210,993 and $107,925 for the nine-months ended September 30, 2024 and 2023, respectively. Patent and licensing legal and filing fees and costs are included in general and administrative costs in the unaudited condensed consolidated statements of operations.

 

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: a broker dealer and intellectual property service segment and a technology development segment.

 

The broker dealer and intellectual property service segment consists of 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 and client patent portfolio assessment.

 

The technology development segment currently has two subsidiaries, Invizyne and MDB Minnesota One. Invizyne is a research and development stage company synthetic biology company. Minnesota One research and development stage company that is developing a small molecule senescence platform.

 

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, 2024:

 

ASSETS  Broker
Dealer &
Intellectual
Property
Service		   Technology
Development		   Other   Eliminations   Consolidated 
Long-lived assets  $96,147   $2,137,774   $663,847   $-   $2,897,768 
Total assets  $23,477,369   $3,495,387   $7,238,081   $-   $34,210,837 

 

18
 

 

The following sets forth statements of operations by segment for the three-months ended September 30, 2024:

 

  

Broker

Dealer &

Intellectual

Property

Service

   Technology Development   Other   Eliminations   Consolidated 
Operating income:                         
Unrealized gain on investment securities, net (from our licensed broker dealer)  $(718,491)  $-   $-   $-   $(718,491)
Fee income   -                   - 
Other operating income   104,246    -    -    -    104,246 
Total operating income, net   (614,245)   -    -    -    (614,245)
                          
Operating costs:                         
General and administrative costs:                         
Compensation   854,973    546,097    3,769,702    -    5,170,772 
Operating expense, related party   405,771    -    84,183    -    489,954 
Professional fees   190,277    445,532    214,204    -    850,013 
Information technology   195,304    15,661    25,504    -    236,469 
Clearing and other charges   876    -    -    -    876 
General and administrative-other   166,771    56,941    410,087    -    633,799 
General and administrative costs   1,813,972    1,064,231    4,503,680    -    7,381,883 
Research and development costs   -    723,487    -    -    723,487 
Total operating costs   1,813,972    1,787,718    4,503,680    -    8,105,370 
Net operating loss   (2,428,217)   (1,787,718)   (4,503,680)   -    (8,719,615)
Other income and expense:                         
Less: interest expense   183,625    45,568    -    (229,193)   - 
Interest income   106,298   921   401,099   (229,193)   279,125 
Loss before income taxes   (2,505,544)   (1,832,365)   (4,102,581)   -    (8,440,490)
Income tax expense   -    -    -    -    - 
Net loss   (2,505,544)   (1,832,365)   (4,102,581)   -    (8,440,490)
Less net loss attributable to non-controlling interests   -    (705,057)   -    -    (705,057)
Net loss attributable to MDB Capital Holdings, LLC  $(2,505,544)  $(1,127,308)  $(4,102,581)  $-   $(7,735,433)

 

19
 

 

The following sets forth statements of operations by segment for the nine-months September 30, 2024:

 

  

Broker

Dealer &

Intellectual

Property

Service

   Technology Development   Other   Eliminations   Consolidated 
Operating income:                         
Unrealized gain on investment securities, net (from our licensed broker dealer)  $(566,215)  $-   $-   $-   $(566,215)
Fee income   1,303,398                   1,303,398 
Other operating income   276,633    -    -    -    276,633 
Total operating income, net   1,013,816    -    -    -    1,013,816 
                          
Operating costs:                         
General and administrative costs:                         
Compensation   2,354,897    1,667,748    11,165,560    -    15,188,205 
Operating expense, related party   923,292    -    191,908    -    1,115,200 
Professional fees   489,910    991,998    927,814    -    2,409,722 
Information technology   561,420    29,267    61,169    -    651,856 
Clearing and other charges   229,338    -    -    -    229,338 
General and administrative-other   592,090    197,304    1,183,162    -    1,972,556 
General and administrative costs   5,150,947    2,886,317    13,529,613    -    21,566,877 
Research and development costs   -    1,238,463    -    -    1,238,463 
Total operating costs   5,150,947    4,124,780    13,529,613    -    22,805,340 
Net operating loss   (4,137,131)   (4,124,780)   (13,529,613)   -    (21,791,524)
Other income and expense:                         
Less: interest expense   459,875    77,066    -    (536,941)   - 
Interest income   303,532    2,637    1,168,757    (536,941)   937,985 
Income (loss) before income taxes   (4,293,474)   (4,199,209)   (12,360,856)   -    (20,853,539)
Income tax expense   -    2,143    -    -    2,143 
Net loss   (4,293,474)   (4,201,352)   (12,360,856)   -    (20,855,682)
Less net loss attributable to non-controlling interests   -    (1,630,383)   -    -    (1,630,383)
Net loss attributable to MDB Capital Holdings, LLC  $(4,293,474)  $(2,570,969)  $(12,360,856)  $-   $(19,225,299)

 

The following sets forth the long-lived assets and total assets by segment at December 31, 2023:

 

ASSETS 

Broker

Dealer &

Intellectual

Property

Service

  

Technology

Development

   Other   Consolidated 
Long-lived assets  $113,114   $2,344,895   $728,600   $3,186,609 
Total assets  $15,038,602   $3,558,509   $24,388,168   $42,985,279 

 

20
 

 

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

 

   Broker Dealer & Intellectual Property Service   Technology Development   Other   Consolidated 
Operating income:                    
Unrealized loss on investment securities, net (from our licensed broker dealer)  $(786,906)  $-   $-   $(786,906)
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)

 

21
 

 

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 
                     
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)

 

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.

 

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, these shares do not have 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, these shares do not have 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, at the election of the holder.

 

22
 

 

Non-Controlling Interests

 

During the nine-months ended September 30, 2024, the ownership interest in Invizyne was 60.94% and the non-controlling interest was 39.06% and the ownership Minnesota One 67.00% and 33.00% of non-controlling interest, the average ownership was 62.00%. During the nine-months ended September 30, 2023, the ownership interest in Invizyne was 60.94%, the non-controlling interest (“NCI”) was 39.06%, Minnesota One was not formed until July 1, 2024. Invizyne and MDB Minnesota One is accounted for in the nine-months periods ended September 30, 2024 and 2023, 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 NCI owner. As of September 30, 2024 and 2023, the Company’s equity interest in Invizyne was 60.94% and 60.94% respectively, and as of September 30, 2024 and 2023 the Company’s equity in Minnesota One was 67.00% and 0.00%, respectively, for and the remaining equity interest was owned by the NCIs as presented below:

 

  

For the Nine Months Ended

September 30,

 
   2024   2023 
         
Non-controlling net loss  $(4,201,352)  $(874,631)
Weighted average non-controlling percentage   38.81%   39.06%
Net loss non-controlling interest  $(1,630,383)  $(341,631)
Prior period balance   7,250    468,665 
Ownership change of non-controlling interest   198    - 
Stock-based compensation   808,362    174,413 
Ending period balance  $(814,573)  $301,447 

 

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 NCI ownership is recognized based on the amount invested and the carrying amount of the NCI is adjusted to reflect the change in the NCI ownership in the subsidiary’s net assets.

 

5. Stock-Based Compensation