MDB Capital Holdings, LLC — Form 10-K Summary
Reporting period: Year ended December 31, 2023; filed March 29, 2024. The filing is an annual report, not a standalone fourth-quarter report. MDB completed its initial public offering on September 20, 2023, listing Class A common shares on Nasdaq under “MDBH.”
Business context
MDB is a Delaware limited liability holding company focused on creating and financing early-stage technology and life-sciences companies. Its principal businesses are Public Ventures, a registered broker-dealer and emerging self-clearing operation; PatentVest, an intellectual-property services and Arizona alternative business structure law firm; and Invizyne Technologies, a majority-owned synthetic-biology development company. MDB reported approximately 40 full-time employees and operates in broker-dealer and intellectual-property services and technology development segments.
Financial performance and condition
| Metric | 2023 | 2022 | Change |
|---|---|---|---|
| Total operating income, net | $5.995 million | $1.219 million | +391.8% |
| Fee income | $4.233 million | $1.115 million | +279.7% |
| Unrealized investment gains | $1.504 million | $0.015 million | + $1.488 million |
| Total operating costs | $14.498 million | $7.321 million | +98.0% |
| Net operating loss | $(8.503) million | $(6.102) million | Loss increased 39.3% |
| Net loss | $(7.712) million | $(5.875) million | Loss increased 31.3% |
| Net loss attributable to MDB | $(6.969) million | $(5.314) million | Loss increased 31.1% |
| Operating cash flow | $(7.161) million | $(6.572) million | Greater use of cash |
| Investing cash flow | $(8.198) million | $(16.382) million | Lower use of cash |
| Financing cash flow | $17.764 million | $21.681 million | Primarily IPO proceeds |
| Total assets | $42.985 million | $25.701 million | +67.3% |
| Total liabilities | $5.665 million | $2.592 million | +118.6% |
Reported operating income was more than offset by expenses, producing an operating margin of approximately negative 142% when measured against operating income and a net loss margin of approximately negative 129%; these ratios are not economically comparable to conventional revenue margins because operating income includes investment gains and other nontraditional items. Compensation expense increased to $8.627 million, including approximately $4.1 million of restricted stock unit expense following the IPO.
At December 31, 2023, cash and cash equivalents were $6.110 million, cash segregated for regulatory purposes was $1.248 million, and U.S. Treasury bills were $24.659 million. Including segregated cash, total cash, cash equivalents and restricted cash were $7.358 million. Working capital was $30.594 million, compared with $21.307 million in 2022.
MDB reported no outstanding borrowings under its $2.0 million revolving credit facility. The facility matures July 26, 2024, bears a variable rate, and is secured by approximately $2.020 million deposited in a collateral account. Operating lease liabilities totaled $2.416 million. Public Ventures reported net capital of $7.331 million, $7.081 million above the regulatory minimum of $250,000, with aggregate indebtedness to net capital of 0.46 to 1.
Material changes versus 2022
- Fee income increased by $3.118 million, while unrealized investment gains increased by $1.488 million. The filing attributes much of the 2023 income to an investment-banking transaction, including warrants received as compensation.
- Operating costs nearly doubled, driven primarily by compensation, IPO-related restricted stock unit vesting, technology investments for self-clearing, additional leased space, and transaction-related legal and placement-agent costs.
- MDB raised gross IPO proceeds of approximately $20.0 million and reported net proceeds of $17.764 million. Approximately $2.45 million had been used for self-clearing setup, PatentVest’s law firm, marketing, partner-company evaluation, working capital and general purposes.
- Cash flow remained negative from operations, while financing cash flow turned positive because of the IPO. Treasury-bill holdings increased substantially as excess funds were invested.
- Invizyne generated $70,769 of operating income but incurred a $2.102 million net loss, with $1.359 million attributable to MDB after non-controlling interests. MDB owned approximately 60.94% of Invizyne at year-end.
- Management stated that previously identified internal-control material weaknesses were remediated, but disclosure controls and procedures were still concluded to be ineffective as of December 31, 2023 because of material weaknesses and auditor-corrected misstatements. The auditor did not provide an internal-control attestation.
Guidance, outlook, risks and unusual items
The filing provides no quantitative revenue, earnings or cash-flow guidance. Management expects to continue funding existing and new partner companies, expand Public Ventures’ self-clearing capabilities, develop PatentVest, and seek approximately one or two new partner-company opportunities annually, although there is no assurance that suitable opportunities will be found.
Invizyne’s SimplePath technology remains in laboratory, pilot-production and pre-commercial development. Invizyne reported scaling one process from 1 milliliter to as much as 100 liters, but the filing cautions that commercial-scale success, customer acceptance, regulatory approvals, commercial agreements and profitability remain uncertain. Invizyne had no agreements for commercial application of its intellectual property as of the filing date.
- Public Ventures began self-clearing U.S. equity securities in January 2024, creating additional capitalization, operational, technology, settlement-bank, DTC, NSCC, cybersecurity and regulatory requirements.
- Public Ventures is subject to two reviews of past broker-dealer activities. Management does not know whether these reviews will result in regulatory action, penalties or other resolution.
- MDB depends on additional financing and on dividends, fee income and monetization of partner-company holdings. Partner companies are expected to require additional capital and may not generate operating cash flow while under development.
- The company relies on a related-party Nicaraguan service provider. U.S. sanctions or political instability could disrupt those services and increase costs. Payments to the provider were $1.123 million in 2023.
- MDB is treated generally as a partnership for U.S. federal income-tax purposes. Shareholders may owe tax on allocated income even without receiving cash distributions, and the partnership treatment is not guaranteed.
- Two holders of Class B shares control approximately 90.8% of aggregate voting power because each Class B share carries five votes. MDB is therefore a Nasdaq “controlled company” and intends to use related governance exemptions.
- MDB reported no material legal proceedings and no reportable cybersecurity breach during 2023. Cybersecurity, privacy, intellectual-property, regulatory and underwriter-liability risks remain material.
- After year-end, Invizyne approved a stock dividend and filed an S-1 registration statement for a potential IPO. Completion remains subject to SEC review and market conditions.
Most important facts for investors to verify
- Reconcile the sources and sustainability of 2023 operating income, particularly the $1.504 million unrealized investment gain and warrant-related compensation.
- Review cash burn, restricted cash, Treasury-bill maturities, regulatory capital requirements and the undrawn revolving facility against expected funding needs.
- Assess the effect of approximately $4.4 million of 2023 stock-based compensation and substantial unrecognized future equity compensation on dilution and expenses.
- Monitor the two broker-dealer reviews, Public Ventures’ self-clearing implementation, required capital and any regulatory developments.
- Evaluate Invizyne’s commercialization milestones, financing needs, intellectual-property position, regulatory path and potential IPO status.
- Review the effectiveness of disclosure controls, the auditor-corrected misstatements and whether remediation is sustained.
- Consider Class B voting control, related-party outsourcing, partnership tax allocations and the absence of regular dividend commitments.