10-Q: MDB Capital Reports Q3 Loss, Assets Decline Amid Shifts

MDB Capital Holdings, LLC reported a net loss for Q3 2025, with total assets and equity decreasing significantly, while actively addressing material weaknesses in internal controls and navigating strategic shifts in its technology development segment.

Summary

• MDB Capital Holdings, LLC reported a net loss attributable to the company of $(4,656,811) for the three months ended September 30, 2025, an improvement from a net loss of $(7,735,433) for the same period in 2024.
• For the nine months ended September 30, 2025, the net loss attributable to MDB Capital Holdings, LLC was $(19,491,804), slightly worse than the $(19,225,299) loss reported for the nine months ended September 30, 2024.
• Total assets decreased by 14.5% to $61,511,325 as of September 30, 2025, from $71,976,399 at December 31, 2024.
• Total equity decreased by 14.9% to $59,631,200 as of September 30, 2025, from $70,073,334 at December 31, 2024.
• Cash and cash equivalents declined by 26.1% to $15,094,286 as of September 30, 2025, from $20,437,492 at December 31, 2024.
• The company's technology development segment, eXoZymes Inc., was deconsolidated on November 14, 2024, and is now accounted for under the equity method, impacting R&D costs and compensation expenses.
• Fee income for the nine months ended September 30, 2025, increased by 64.2% to $2,140,238 from $1,303,398 in the prior year period, primarily due to investment banking activity.
• Net cash used in operating activities improved to $(5,323,638) for the nine months ended September 30, 2025, compared to $(8,620,720) for the same period in 2024.
• The company's disclosure controls and procedures were deemed not effective as of September 30, 2025, due to material weaknesses in internal control over financial reporting, with remediation efforts ongoing.

Sentiment

Score: 3

Explanation: The company reported worsening year-to-date net losses, significant declines in total assets and equity, and identified material weaknesses in internal controls. While there were some operational improvements like increased fee income and reduced cash burn from operations, the overall financial health and control environment present significant concerns.

Positives

• Net loss for the three months ended September 30, 2025, improved by $3,078,622 (39.8%) compared to the same period in 2024.
• Fee income from investment banking activities increased by 64.2% to $2,140,238 for the nine months ended September 30, 2025, compared to the prior year.
• Net cash used in operating activities decreased significantly to $(5,323,638) for the nine months ended September 30, 2025, from $(8,620,720) in the prior year, indicating reduced cash burn.
• Public Ventures, the broker-dealer subsidiary, maintained net capital of $7,778,582 as of September 30, 2025, which is $7,528,582 in excess of the minimum required $250,000.
• The revolving credit facility was extended on July 26, 2025, and has no outstanding indebtedness as of September 30, 2025.

Negatives

• Net loss attributable to MDB Capital Holdings, LLC for the nine months ended September 30, 2025, worsened slightly by $266,505 (1.4%) compared to the same period in 2024.
• Total assets decreased by $10,465,074 (14.5%) from December 31, 2024, to September 30, 2025, primarily due to utilization for operational activities.
• Total equity decreased by $10,442,134 (14.9%) from December 31, 2024, to September 30, 2025, mainly due to net losses.
• Cash and cash equivalents decreased by $5,343,206 (26.1%) from December 31, 2024, to September 30, 2025.
• Unrealized loss on investment securities, net, for the nine months ended September 30, 2025, was $(2,430,483), a significant worsening from $(566,215) in the prior year period.
• The company's disclosure controls and procedures were concluded to be not effective as of September 30, 2025, due to material weaknesses in internal control over financial reporting.
• Equity in loss of equity method investee amounted to $(3,048,283) for the nine months ended September 30, 2025, a new loss component following the deconsolidation of eXoZymes.

Risks

• Material weaknesses in internal control over financial reporting could adversely affect the company's ability to record, process, summarize, and report financial information.
• Inflation risk may have a material effect on operations, impacting the general economy.
• A potential recession could impact the general business environment and capital markets, affecting the company's financial services segment and the value of its financial assets.
• Technology development risks for partner companies, including the possibility that new technologies may not reach commercial viability, gain widespread acceptance, or receive necessary regulatory approvals, potentially requiring further funding or leading to business discontinuation at a financial loss.
• Government actions such as tariffs, changes in trade policies, and limitations on research grants and other funding may increase costs, disrupt collaborative research, and make capital raising more difficult for the company's partner companies and clients.
• The requirement to comply with the Uniform Net Capital Rule 15c3-1 may limit Public Ventures' ability to issue dividends to its parent company.
• Public Ventures has indemnification obligations to its clearing broker with no maximum amount, posing a potential liability if customers fail to fulfill transaction obligations.

Future Outlook

The company is actively implementing measures to remediate previously identified material weaknesses in internal control over financial reporting, expecting these changes to materially improve internal controls. Management is also evaluating the impact of the recently signed One Big Beautiful Bill Act (OBBBA) on its income tax provision and overall tax position. The company continues to monitor external risks such as inflation, potential recession, and government actions (tariffs, research grants) that could affect its business and capital markets.

Management Comments

• The Chief Executive Officer and Chief Financial Officer concluded that, as of September 30, 2025, the disclosure controls and procedures were not effective at the reasonable assurance level due to material weaknesses in internal control over financial reporting.
• Management has performed additional analyses, reconciliations, and other post-closing procedures and concluded that, notwithstanding the material weaknesses, the financial statements for the periods covered are fairly stated in all material respects.
• Remediation actions are ongoing, including the expansion of controls and redesign of the financial reporting process, with the expectation that these changes will materially improve internal controls.
• The weaknesses will not be considered remediated until the applicable controls operate for a sufficient period of time and management has concluded, through testing, that these controls are operating effectively.
• Management is currently evaluating the impact of the One Big Beautiful Bill Act (OBBBA) on its income tax provision and overall tax position.

Industry Context

The company operates in the financial services sector through its broker-dealer and intellectual property service segment, and in the technology development sector, particularly pharmaceuticals, through its majority-owned subsidiary M1 and its equity method investment eXoZymes. The financial services segment is navigating increased activity from self-clearing operations. The technology development segment faces inherent risks associated with bringing new technologies to market and regulatory approvals. The broader economic environment, including potential recessionary periods and government trade policies, is noted as a significant external factor that could influence the company's operations and capital-raising efforts for its partner companies.

Corporate Governance

Related Party Transactions

• Paid $1,376,724 to Point 1286 and MDB Capital, S.A. (entities with controlling interest by company principals) for outsourced services, including contracted labor, during the nine months ended September 30, 2025.
• PatentVest (wholly-owned subsidiary) engaged in transactions with eXoZymes, recognizing revenues of $78,140 during the nine months ended September 30, 2025.
• MDB Capital Holdings acquired a 30.6% ownership interest in Paulex on May 15, 2025, issuing a promissory note with an outstanding balance of $252,448 as of September 30, 2025.
• Recorded related party receivables totaling $26,275 for services performed by PatentVest on behalf of eXoZymes and accounting support from MDB Management as of September 30, 2025.
• Recorded accrued expenses of $21,755 payable to officers and directors for reimbursable expenses and miscellaneous invoices payable to Exozymes as of September 30, 2025.

Stakeholder Impact

• Shareholders: Experienced a decrease in total equity and ongoing net losses, potentially impacting share value. Changes in stock-based compensation structure for management could affect long-term incentives.
• Employees: Benefited from 401(k) defined contribution plans and health benefits. Stock-based compensation changes (RSUs to options) affect incentive structures.
• Customers: Public Ventures' self-clearing operations and indemnification obligations to its clearing broker introduce potential risks related to counterparty failure, though no material losses were reported.
• Creditors: The company has a revolving credit facility with no outstanding indebtedness, but overall asset reduction could be a concern.
• Mayo Foundation: Partnered with M1 through a license agreement for pharmaceutical development, with M1 having future milestone payment obligations.

Next Steps

• Continue remediation efforts to address material weaknesses in internal control over financial reporting, including expanding controls and redesigning the financial reporting process.
• Evaluate the impact of the One Big Beautiful Bill Act (OBBBA) on the company's income tax provision and overall tax position.
• M1 is required to achieve certain development milestones within designated time periods for its small molecule senescence platform, including payments for Phase II and Phase III clinical trial initiation, and FDA New Drug Application (NDA) acceptance and approval.

Key Dates

Recommendation

MDB Capital Holdings, LLC presents a mixed financial picture. While the Q3 net loss improved year-over-year and fee income increased, the year-to-date net loss worsened, and total assets and equity saw significant declines. The disclosed material weaknesses in internal controls are a serious concern, although remediation efforts are underway. The strategic shift with eXoZymes and the investment in M1 introduce new dynamics. Given the ongoing losses, operational challenges, and the need for successful remediation of internal controls, a 'hold' recommendation is appropriate. Investors should monitor the effectiveness of control improvements and the progress of the technology development segment before making further investment decisions.

Keywords

Broker-dealer, Investment banking, Intellectual property, Technology development, Pharmaceuticals, SEC filing, 10-Q, Financial services, MDB Capital, eXoZymes, MDB Minnesota One, Internal controls, Net capital