Business Overview and History
MDB Capital Holdings, LLC (NASDAQ:MDBH) is a public venture platform focused on launching category-leading deep technology companies. With a history dating back to its founding in 2022, MDB has evolved into a multifaceted entity that leverages its expertise to identify, finance, and propel innovative technology solutions to the public markets.
MDB Capital Holdings, LLC was formed as a Delaware limited liability company in 2022 as a holding company with three wholly-owned subsidiaries: MDB CG Management Company, Public Ventures, LLC, and PatentVest, Inc. Prior to January 2022, Public Ventures owned the majority of the equity interests in PatentVest and Invizyne Technologies, Inc.
In January 2022, a significant reorganization took place. Public Ventures distributed 100% of its equity interests in PatentVest and Invizyne to its members. Subsequently, Public Ventures filed with the IRS to be treated as a corporation for federal income tax purposes. The members of Public Ventures then contributed their entire interests in Public Ventures, as well as their equity interests in Invizyne and PatentVest, to MDB Capital Holdings, resulting in MDB becoming the new parent holding company of those three entities. This reorganization did not result in any change to the beneficial ownership.
A major financial milestone was achieved in June 2022 when MDB completed the first and second closing of a private placement. The company sold a total of 2.53 million Class A common shares for gross proceeds of $25.29 million. In conjunction with this private placement, MDB issued warrants to the placement agent to purchase additional Class A common shares.
The year 2023 presented some challenges for MDB as it faced the audit, tax, and compliance requirements associated with becoming a publicly traded company after its reorganization. The company had to invest significant resources into building out its accounting, finance, and legal functions to meet public company reporting and governance standards.
In 2024, MDB further expanded its reach by establishing a majority-owned partner company, Invizyne Technologies, Inc., a leading designer of cell-free, enzyme-based biomanufacturing systems. This strategic move allowed MDB to deepen its involvement in the synthetic biology space, a rapidly evolving field with significant growth potential.
MDB's business model revolves around its ability to identify, finance, and support the development of category-leading deep technology companies. Through its subsidiaries, the company provides a range of services, including brokerage activities, intellectual property validation, and technology development.
Public Ventures, LLC, MDB's broker-dealer subsidiary, is a U.S. registered broker-dealer that focuses on conducting private and public securities offerings. PatentVest, on the other hand, offers in-depth patent research and portfolio assessment services to support MDB's investment banking activities.
The company's technology development segment, which includes Invizyne Technologies and MDB Minnesota One, is dedicated to advancing groundbreaking innovations in synthetic biology and longevity-focused therapeutics. These subsidiaries leverage MDB's expertise to transform scientific breakthroughs into commercially viable products and services.
Financial Performance and Metrics
For the fiscal year ended December 31, 2023, MDBH reported revenue of $4.23 million, net income of -$6.97 million, operating cash flow (OCF) of -$7.16 million, and free cash flow (FCF) of -$7.60 million.
In the most recent quarter (Q3 2024), MDBH reported revenue of $4,556,527, net income of -$7,735,433, OCF of -$2,511,430, and FCF of -$2,436,896. Year-over-year, revenue decreased by $2.93 million or 69.2% compared to Q3 2023, primarily driven by a decline in investment banking fee income. The net loss increased by $4.72 million or 157.1% year-over-year due to higher compensation, professional fees, and research and development costs. OCF and FCF also declined significantly year-over-year due to the increase in operating expenses.
As of the most recent 10-Q filing in 2024, MDB Capital reported a net loss of $20.86 million for the nine-month period ending September 30, 2024. This was primarily driven by increased operating expenses, including $15.19 million in compensation costs and $2.41 million in professional fees.
The company's revenue for the nine-month period was $1.01 million, a significant decrease from the $5.07 million recorded in the same period of the previous year. This decline was largely attributed to a $2.93 million reduction in fee income from the broker-dealer segment.
MDB's balance sheet as of September 30, 2024, showed total assets of $34.21 million, with $16.68 million in cash and cash equivalents and $5.08 million in U.S. Treasury bills. Total liabilities amounted to $6.03 million, resulting in a healthy current ratio of 5.13.
The company's working capital position stood at $19.55 million, a decrease from the $33.83 million reported as of September 30, 2023. This reduction was primarily due to the use of cash to fund operations during the nine-month period.
Liquidity and Solvency
MDB Capital's liquidity and solvency position remains strong, as evidenced by its cash and cash equivalents balance of $16.68 million and the $5.08 million in U.S. Treasury bills as of September 30, 2024. The company's current ratio and quick ratio both stand at 5.13, indicating its ability to meet its short-term obligations.
Moreover, MDB's total debt of $2.18 million, primarily consisting of operating lease liabilities, resulted in a debt-to-equity ratio of 0. This low level of leverage underscores the company's financial stability and its capacity to fund its operations and growth initiatives. MDBH has no outstanding debt beyond these lease liabilities.
The company's operating cash flow for the nine-month period ended September 30, 2024, was negative $8.62 million, reflecting the ongoing investments in its technology development segment and the expansion of its broker-dealer operations. However, the company's strong liquidity position and access to capital markets provide a solid foundation for managing its cash flow needs.
MDBH also has access to a $2 million revolving credit facility, which remained undrawn as of September 30, 2024, providing additional financial flexibility if needed.
Risks and Challenges
MDB Capital's business model inherently carries several risks and challenges that investors should be aware of:
1. Regulatory Compliance: As a broker-dealer and a holding company with investments in diverse industries, MDB is subject to extensive regulatory oversight and must maintain compliance with various financial services regulations.
2. Technology Development Risks: The success of MDB's technology development subsidiaries, such as Invizyne Technologies, is dependent on their ability to navigate the complex and often unpredictable path of bringing innovative products and services to market. Delays, setbacks, or failure to achieve regulatory approvals could adversely impact the company's financial performance.
3. Competition and Changing Market Dynamics: MDB operates in highly competitive industries, where the ability to identify, finance, and support disruptive technologies is critical. Failure to stay ahead of market trends and maintain a competitive edge could limit the company's growth potential.
4. Reliance on Key Partnerships and Collaborations: MDB's success is partially dependent on its ability to establish and maintain strategic partnerships and collaborations, such as its agreement with Mayo Clinic to develop an anti-senescence platform. The loss or deterioration of these relationships could hamper the company's progress.
5. Funding and Capital Needs: As a public venture platform, MDB's ongoing operations and growth initiatives require a continuous influx of capital. Inability to secure sufficient funding or adverse changes in the capital markets could constrain the company's ability to execute its business plan.
6. Segment Performance: The company's Broker Dealer and Intellectual Property Service segment has seen a decline in operating income, with a 20.8% decrease in the three-month period ended September 30, 2024, compared to the prior year. This was primarily due to unrealized losses on investment securities held by the broker-dealer subsidiary. The Technology Development segment, while showing promise, currently generates no operating income and has seen a significant increase in operating costs.
7. Market Volatility: The company's investment portfolio within its broker-dealer subsidiary is subject to market fluctuations, which can impact overall financial performance, as evidenced by the unrealized losses reported in the most recent quarter.
Outlook and Conclusion
MDB Capital's multi-faceted approach to identifying, financing, and supporting deep technology companies positions the company as a unique player in the public venture landscape. Despite the challenges faced in 2024, including a significant decline in revenue and increased operating losses, the company's strong liquidity, low leverage, and ongoing initiatives to expand its broker-dealer and technology development capabilities suggest potential for future growth.
The synthetic biology and biomanufacturing industries, in which Invizyne Technologies operates, are expected to see strong growth, with a compound annual growth rate (CAGR) of over 20% through 2029 according to industry reports. This favorable market outlook could provide significant opportunities for MDB's technology development segment in the coming years.
However, the company's broker-dealer and IP services businesses have faced headwinds, contributing to the overall financial challenges. The ability to reverse the trend of declining fee income in the broker-dealer segment will be crucial for improving the company's financial performance.
As MDB continues to navigate the complex and ever-evolving technology landscape, its ability to identify and nurture category-leading innovations will be crucial in driving long-term value creation for its shareholders. The company's completion of its IPO on the Nasdaq in September 2023, raising $20 million in gross proceeds, provides additional resources to support its growth initiatives.
Investors should closely monitor the company's progress in executing its strategic vision, managing regulatory compliance, and delivering on its technology development pipeline. Particular attention should be paid to the performance of the Broker Dealer and Intellectual Property Service segment, as well as the advancement of projects within the Technology Development segment.
Overall, MDB Capital's comprehensive approach to public venture investing, coupled with its diverse portfolio of subsidiaries, presents a compelling yet complex investment opportunity. The company's potential for growth in the deep technology and synthetic biology spaces is balanced against current financial challenges and market risks. As such, potential investors should carefully weigh the company's innovative potential against its current financial performance and market conditions.