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MDB Capital Holdings, LLC Class A (MDBH)
NASDAQ:MDBH
RESEARCH TOOLSreports
Risk Overview Q3, 2024
Risk Distribution
39% Finance & Corporate
23% Tech & Innovation
16% Legal & Regulatory
11% Production
6% Ability to Sell
4% Macro & Political
Finance & Corporate - Financial and accounting risks. Risks related to the execution of corporate activity and strategy
This chart displays the stock's most recent risk distribution according to category. TipRanks has identified 6 major categories: Finance & corporate, legal & regulatory, macro & political, production, tech & innovation, and ability to sell.
Risk Change Over Time
S&P500 Average
Sector Average
Risks removed
Risks added
Risks changed
MDB Capital Holdings, LLC Class A Risk Factors
New Risk (0)
Risk Changed (0)
Risk Removed (0)
No changes from previous report
The chart shows the number of risks a company has disclosed. You can compare this to the sector average or S&P 500 average.
The quarters shown in the chart are according to the calendar year (January to December). Businesses set their own financial calendar, known as a fiscal year. For example, Walmart ends their financial year at the end of January to accommodate the holiday season.
The quarters shown in the chart are according to the calendar year (January to December). Businesses set their own financial calendar, known as a fiscal year. For example, Walmart ends their financial year at the end of January to accommodate the holiday season.
Risk Highlights Q3, 2024
Main Risk Category
Finance & Corporate
With 31 Risks
Finance & Corporate
With 31 Risks
Number of Disclosed Risks
79
No changes from last report
S&P 500 Average: 32
79
No changes from last report
S&P 500 Average: 32
Recent Changes
0Risks added
0Risks removed
0Risks changed
Since Sep 2024
0Risks added
0Risks removed
0Risks changed
Since Sep 2024
Number of Risk Changed
0
No changes from last report
S&P 500 Average: 4
0
No changes from last report
S&P 500 Average: 4
See the risk highlights of MDB Capital Holdings, LLC Class A in the last period.
Risk Word Cloud
The most common phrases about risk factors from the most recent report. Larger texts indicate more widely used phrases.
Risk Factors Full Breakdown - Total Risks 79
Finance & Corporate
Total Risks: 31/79 (39%)Below Sector Average
Share Price & Shareholder Rights15 | 19.0%
Share Price & Shareholder Rights - Risk 1
We may make distributions of the securities of our partner companies, including cash and rights to purchase equity of a partner companiesShare Price & Shareholder Rights - Risk 2
Our capital structure may have anti-takeover effect.The existence of our preferred shares that may be issued at the discretion of the board of directors with the terms it determines may have an anti-takeover effect. The board of directors is authorized to fix the voting rights, if any, designations, powers, preferences, the relative, participating, optional or other special rights and any qualifications, limitations and restrictions thereof, applicable to the preferred shares of each series. The board of directors, without shareholder approval, will be able to issue preferred shares with voting and other rights that could adversely affect the voting power and other rights of the holders of the common shares and could also have anti-takeover effects. The ability of our board of directors to issue preferred shares without shareholder approval could have the effect of delaying, deferring or preventing a change of control of the Company or the removal of existing management. We currently have no preferred shares issued and outstanding as the date hereof. Although we do not currently intend to issue any preferred shares, we cannot assure you that we will not do so in the future.
The fact that the Class B Common Shares have a right to five votes per Class B Common Share on all matters presented for a vote to the shareholders, including in the vote for directors, and the fact that the Class B Common Shares currently have a majority ownership position of all the common shares, means that they have an anti-takeover effect, because it would be difficult for an insurgent to overcome the authority that the Class B Common Shares has in the governance of the Company.
The provisions for shareholder business proposals and director nominations in the operating agreement also could have an anti-takeover effect.
The issuance of securities with voting authority greater than the Class A Common Shares will have a voting and control dilutive effect on outstanding Class A Common Shares.
If the board of directors issues any of the preferred shares or obtains shareholder approval for a new class of common shares with voting rights in excess of the one vote per one Class A Common Share, the holders of Class A Common Shares will suffer a voting dilutive effect, in addition to any other economic dilution resulting from the issuance of those securities.
Share Price & Shareholder Rights - Risk 3
The existence of our registered broker-dealer subsidiary may delay or prevent takeover attempts of our Company.A third party attempting to acquire us or a substantial position in our equity securities may be delayed or ultimately prevented from doing so by change in ownership or control regulations to which our regulated broker-dealer subsidiary is subject. FINRA Rule 1017 generally provides that FINRA approval must be obtained in connection with any transaction resulting in a single person or entity owning, directly or indirectly, 25% or more of a member firm's equity and would include a change of control of a parent company.
Share Price & Shareholder Rights - Risk 4
The dual class structure of our currently issued equity securities may adversely affect the trading market for our Class A Common Shares.Certain stock index providers, such as S&P Dow Jones, exclude companies with multiple classes of shares of equity from being added to certain stock indices, including the S&P 500. In addition, several stockholder advisory firms and large institutional investors oppose the use of multiple class structures. As a result, the dual class structure of our currently issued equity may prevent the inclusion of our Class A Common Shares in such indices, may cause stockholder advisory firms to publish negative commentary about our corporate governance practices or otherwise seek to cause us to change our capital structure, and may result in large institutional investors not purchasing shares of our Class A Common Shares. Any exclusion from stock indices could result in a less active trading market for our Class A Common Shares. Any actions or publications by stockholder advisory firms or institutional investors critical of our corporate governance practices or capital structure could also adversely affect the value of our Class A Common Shares.
Share Price & Shareholder Rights - Risk 5
We are deemed a "controlled company" under the listing rules of Nasdaq because our Class B Common Shares are held by two persons who have more than 50% control of the Company. As a controlled company, MDB will be exempt from certain of the corporate governance obligations that other companies must follow when listing on Nasdaq.The Class B Common Shares are held by two persons who have control over the operations of the Company. Therefore, MDB is a controlled company under the Nasdaq listing rules and is exempt from certain listing requirements, including having (i) a board comprised of a majority of independent directors, (ii) a compensation committee, and (iii) a director nominations committee. Additionally, we are not be required to hold annual meetings. Management intends to take advantage of these exemptions. Accordingly, shareholders will not have the same protections afforded to shareholders of companies that are subject to all of the corporate governance requirements of Nasdaq. Notwithstanding the exemption, currently we have a board that has several independent directors, we are required to have and will have an audit committee, and related party transactions will have to be reviewed by the audit committee. Shareholder approval will be required for stock options or purchase plans, and the financial statements must be audited by an independent public accountant that is registered with the PCAOB.
Share Price & Shareholder Rights - Risk 6
Control by management may limit your ability to influence the outcome of director elections and other transactions requiring shareholder approval.Two persons, Anthony DiGiandomenico and Christopher Marlett, own all the Class B Common Shares. The Class A Common Shares have one vote per share, and the Class B Common Shares have five votes per share. The Class A Common Shares and Class B Common Shares vote together as a single class on all matters, including the election of directors. There are 5,000,000 Class B Common Shares issued and outstanding, currently representing 90.8% of the aggregate voting authority of our common shares immediately prior to the date of this filing. Therefore, even if the maximum offered shares are sold, the Class B Common Shares will continue to be able to dictate the outcome of all matters put before the shareholders. There is no automatic or voluntary conversion of the Class B Common Shares into Class A Common Shares, thus the Class B Common Shares will have control of MDB for an indefinite period of time.
Based on the foregoing, the Class B Common Shares will have significant influence over corporate actions requiring shareholder approval, including the following actions:
- to determine the composition and to elect the board of directors; - to amend or prevent a change in our operating agreement; - to effect or prevent a merger, sale of assets or other corporate transaction; and - to control the outcome of any other matter submitted to our shareholders for vote.
The existence of the Class B Common Shares may discourage a potential acquirer from making a tender offer or otherwise attempting to obtain control of MDB, which in turn could reduce our shares price or prevent our Class A Common Shareholders from realizing a premium over our share price.
Future transfers by holders of Class B Common Shares generally will result in those shares converting to Class A Common Shares, subject to limited exceptions, such as certain transfers effected for estate planning purposes. The conversion of Class B Common Shares to Class A Common Shares will have the effect, over time, of increasing the relative voting power of those holders of Class B Common Shares who retain their shares in the long term. As a result, it is possible that the persons or entities continuing to hold our Class B Common Shares could gain significant voting control as other holders of Class B Common Shares sell or otherwise convert their shares into Class A Common Shares.
Share Price & Shareholder Rights - Risk 7
The United States stock markets recently have experienced price and volume fluctuations due to many factors, including inflationary pressures, changing interest rates, and the conflict in Ukraine.The stock market has recently experienced significant price and volume fluctuations that have affected and continue to affect the market prices of equity securities of many companies, with the financial service and technology sectors more volatile than others. These fluctuations often have been unrelated or disproportionate to the operating performance of those companies. These broad market and industry fluctuations, as well as general economic, political and market conditions such as inflation, the prospect of a recession, and interest rate changes may negatively impact the market price of our Class A Common Shares. These fluctuations may be even more pronounced in the trading market for our Class A Common Shares shortly following the listing of our Class A Common Shares on the Nasdaq Capital Market as a result of the supply and demand forces described above. If the market price of our Class A Common Shares after our listing does not exceed the opening public price, you may not realize any return on your investment in us and may lose some or all of your investment. In the past, companies that have experienced volatility in the market price of their stock have been subject to securities class action litigation. We may be the target of this type of litigation in the future. Securities litigation against us could result in substantial costs and divert our management's attention from other business concerns, which could harm our business.
Share Price & Shareholder Rights - Risk 8
Certain recent initial public offerings of companies with relatively small public floats have experienced extreme volatility that was seemingly unrelated to the underlying performance of the company. Our Class A Common Shares may potentially experience rapid and substantial price volatility, which may make it difficult for prospective investors to assess the value of our Class A Common Shares.In addition to the general volatility risks discussed in this filing, our Class A Common Shares may be subject to rapid and substantial price volatility. We may experience extreme stock price volatility unrelated to our actual or expected operating performance, financial condition or prospects, making it difficult for prospective investors to assess the rapidly changing value of our Class A Common Shares. Recently, there have been instances of extreme stock price run-ups followed by rapid price declines and strong stock price volatility with a number of recent initial public offerings, especially among companies with relatively smaller public floats. As a company with a relatively small public float and recent IPO, the Class A Common Shares may experience greater stock price volatility, extreme price run-ups, lower trading volume, large spreads in bid and asked prices, and less liquidity than large-capitalization companies. The aspects of the trading in the Class A Common Shares may be unrelated to our actual or expected operating performance, financial condition or prospects, making it difficult for prospective investors to assess the value of our common stock. Because of the low public float and the absence of any significant trading volume, the reported prices may not reflect the price at which you would be able to sell shares if you want to sell any shares you own or buy shares if you wish to buy share.
If the trading volumes of the Class A Common Shares are low, persons buying or selling in relatively small quantities may easily influence the prices of the Class A Common Shares. A low volume of trades could also cause the price of the Class A Common Shares to fluctuate greatly, with large percentage changes in price occurring in any trading day session. Broad market fluctuations and general economic and political conditions may also adversely affect the market price of the Class A Common Shares. The volatility also could adversely affect the ability of the company to issue additional shares of common stock or other securities and the ability to obtain stock market based financing in the future. No assurance can be given that an active market in our Class A Common Shares will develop or be sustained.
Share Price & Shareholder Rights - Risk 9
The price of our Class A Common Shares may be volatile, and could, upon listing on the Nasdaq Capital Market, decline significantly and rapidly. Market volatility may affect the value of an investment in our Class A Common Shares and could subject us to litigation.The trading price of our Class A Common Shares may fluctuate substantially. The price of our Class A Common Shares in the market on any particular day will depend on many factors including, but not limited to, the following:
- price and volume fluctuations in the overall stock market from time to time; - investor demand for our Class A Common Shares; - significant volatility in the market price and trading volume of companies operating in the diverse businesses of our core companies and our partner companies; - variations in our operating results and market conditions specific to our businesses sectors; - the emergence of new competitors or new technologies of our partner companies; - operating and market price performance of other companies that investors deem comparable; - changes or departures of any of our board of directors, senior management or key employees; - commencement of, or involvement in, litigation; - changes in governmental regulations; - actual or anticipated changes in our earnings, and fluctuations in our quarterly operating results; and - general economic conditions and trends.
In the past, following periods of volatility in the market price of a company's securities, securities class action litigation has often been brought against that company. Due to the potential volatility of our share price, we may therefore be the target of securities litigation in the future. Securities litigation could result in substantial costs and divert management's attention and resources from our business.
In addition, if the market for equity stocks of companies in our industry or industry segments, or the stock market in general, experiences a loss of investor confidence, the market price of our Class A Common Shares could decline for reasons unrelated to our business, financial condition, or results of operations. If any of the foregoing occurs, it could cause the price of our Class A Common Shares to fall and may expose us to lawsuits that, even if unsuccessful, could be costly to defend and a distraction to our Board of Directors and management.
Share Price & Shareholder Rights - Risk 10
Public Ventures is in the process of finalizing self-clearing capabilities which will be necessary to operate its business as planned.Public Ventures has recently begun self-clearing United States equity securities. As part of this process, in addition to the broker-dealer regulation described above, Public Ventures will be subject to regulation directed to self-clearing operations and must demonstrate that its financial, operational and systems capacities are able perform this business while complying with regulations, including those of the SEC, FINRA, Depository Trust Clearing Corporation ("DTCC"), and National Securities Clearing Corporation ("NSCC"). To operate the self-clearing activity, we must meet different capitalization requirements than those of an introducing broker-dealer, maintaining a capital structure with various cash and cash equivalent assets and retaining access to necessary lines of credit that can assure our ability to comply with changing deposit requirements. We expect that these regulations will continue to undergo substantial changes and will require additional capital as settlement operations move to T+1 in 2024, and to T+0 settlement in the future.
Share Price & Shareholder Rights - Risk 11
Public Ventures plans on conducting offerings where we will act as a placement agent or an underwriter, and thus we will be subject to underwriter and similar liability.As part of our business, as it has been conducted over the last 25 or so years, through Public Ventures, we expect to act as an underwriter and sales agent in a number of capacities. We may be a single underwriter or selling agent of a securities offering or a co-underwriter or selling agent participating in a securities offering. There are other types of offering where Public Ventures may be characterized as an underwriter. In each of these instances, it will bear a liability dictated by Section 11(a) of the Securities Act of 1933, as amended ("Securities Act"). Under the Securities Act, an underwriter is liable at law or in equity if any part of the registration statement or offering documentation used in the offering of securities, in which we participate as an "underwriter" as generally interpreted by the securities laws, "contained an untrue statement of a material fact or omitted to state a material fact required to be stated therein or necessary to make the statements therein not misleading…." What constitutes an offering document with respect to underwriter liability applies to any manner of offering materials. This liability also extends to private offerings of securities and their documentation, where Public Ventures may act as a placement agent. In determining materiality, a court will not inquire into limitations on the underwriter's or placement agent's ability to conduct its due diligence investigation and assessment of the offeror, but will instead assess whether the statements, taken together and in context, would have misled a reasonable investor about the nature of the investment. Section 11(b) of the Securities Act provides two affirmative defenses to Section 11(a) liability: the expert defense and the non-expert defense, which are collectively known as the due diligence defense. Although we conduct due diligence for all our transactions, there is no assurance that the level of due diligence will uncover any failings in the materials used by investors, or that it will uncover deliberate misstatements. Therefore, for any offering of securities, Public Ventures may become liable as an underwriter or selling agent. Such a liability will have a significant impact on our overall business in terms of monetary cost and also on our reputation.
Share Price & Shareholder Rights - Risk 12
We are a smaller reporting company within the meaning of the Securities Act, and if we take advantage of certain exemptions from disclosure requirements available to smaller reporting companies, this could make our securities less attractive to investors and may make it more difficult to compare our performance with other public companies.Rule 12b-2 of the Exchange Act defines a "smaller reporting company" as an issuer that is not an investment company, an asset-backed issuer, or a majority-owned subsidiary of a parent that is not a smaller reporting company and that:
- had a public float of less than $250 million as of the last business day of its most recently completed second fiscal quarter, computed by multiplying the aggregate worldwide number of shares of its voting and non-voting common equity held by non-affiliates by the price at which the common equity was last sold, or the average of the bid and asked prices of common equity, in the principal market for the common equity; or - in the case of an initial registration statement under the Securities Act or the Exchange Act for shares of its common equity, had a public float of less than $250 million as of a date within 30 days of the date of the filing of the registration statement, computed by multiplying the aggregate worldwide number of such shares held by non-affiliates before the registration plus, in the case of a Securities Act registration statement, the number of such shares included in the registration statement by the estimated public offering price of the shares; or - in the case of an issuer whose public float as calculated under paragraph (1) or (2) of this definition was zero or whose public float was less than $700 million, had annual revenues of less than $100 million during the most recently completed fiscal year for which audited financial statements are available.
As a smaller reporting company, we are not be required and may not include a Compensation Discussion and Analysis section in our proxy statements; we need only provide only two years of financial statements; and we need not provide the table of selected financial data. We also have other "scaled" disclosure requirements that are less comprehensive than issuers that are not smaller reporting companies which could make our securities less attractive to potential investors, which could make it more difficult for our security holders to sell their securities.
Share Price & Shareholder Rights - Risk 13
There may be securities market risks resulting from owning the equity securities of our partner companies.Although we are not engaged in the business of investing, reinvesting, or trading in securities, we will own a controlling position in our partner companies pursuant to our business model. We generally will be active in the management and development of our partner companies, as well as actively monitoring their operations to keep abreast of their business development. In time, we anticipate that we will monetize the value we hold in our partner companies. Our monetization process will contemplate the typical forms of merger and acquisition transactions, such as licensing, private and public offerings, asset or company sales and registered common stock distributions. To the extent that any of our partner companies become publicly traded, their value will become subject to market fluctuations. Any fluctuation in the value of our partner companies' securities, for whatever reason, may affect the value of MDB as a holding company resulting in a partial or total loss of your investment.
Share Price & Shareholder Rights - Risk 14
If we are treated as a corporation for U.S. federal income tax purposes, the value of the shares could be materially adversely affected.The value of the Class A Common Shares of MDB that you hold will depend in part on MDB being treated as a partnership for U.S. federal income tax purposes. We intend to manage our affairs so that, upon becoming a "publicly traded partnership" within the meaning of Section 7704 of the Internal Revenue Code of 1986, as amended (the "Code"), we will not be taxable as a corporation because 90% or more of our gross income in each taxable year will be "qualifying income" (see "Certain Material U.S. Federal Tax Considerations-Classification as a Partnership" for a discussion of the rules relating to qualifying income and publicly-traded partnerships). However, there is no assurance or guarantee that we will meet on an ongoing basis the applicable requirements to be taxable as a partnership and, as discussed below, current law may change so as to cause, in either event, MDB to be treated as a corporation for U.S. federal income tax purposes. If we were treated as a corporation for U.S. federal income tax purposes, then, among other things, (i) we would become subject to corporate income tax and (ii) distributions to our shareholders would be taxable as dividends for U.S. federal income tax purposes to the extent of our earnings and profits. In addition, because a tax would be imposed upon MDB as a corporation, its cash available for distribution would be substantially reduced. We have not requested, and do not plan to request, a ruling from the IRS on this or any other tax matter affecting us.
Share Price & Shareholder Rights - Risk 15
Shareholders may be subject to restrictions on deductibility of expenses and other losses.The ability of the shareholders to utilize any tax losses generated by an investment in MDB may be subject to a number of limitations under the Code, including the basis limitations, the passive activity loss limitations, the "at-risk" limitations, and the excess business loss limitations. See "Certain Material U.S. Federal Tax Considerations" for more information regarding such limitations.
Accounting & Financial Operations4 | 5.1%
Accounting & Financial Operations - Risk 1
MDB may provide delayed final Schedules K-1.Accounting & Financial Operations - Risk 2
Our business model does not rely upon the receipt of operating cash flows from our partner companies.Our public venture business model does not rely upon the receipt of operating cash flows from our partner companies. We anticipate that our partner companies, while we own them and they are developing their businesses, will not generate revenues or positive cash flow. To the extent that our partner companies generate any cash from operations, they will retain the funds to develop their own businesses. Our overall day to day operations will rely on cash on hand, dividends from the operation of Public Ventures and PatentVest, and our ability to generate capital from capital raising activities to finance our overall operations and fund the partner companies. If we need capital to fund current and new partner companies, we will seek to raise additional capital. If we are unable to find ways of monetizing our holdings or to raise additional capital on attractive terms, we may face liquidity issues that will require us to curtail our new business efforts, constrain our ability to execute our business strategy, and limit our ability to provide financial support to our existing partner companies. We may also finance our partner companies through their securities offerings or selling, licensing, or joint venturing their businesses. There is no assurance that we will be able to raise any such funding or funding in sufficient amounts to support the early stages of development of our partner companies.
Accounting & Financial Operations - Risk 3
MDB and our partner companies have recognized the need for and have committed to developing a robust infrastructure to ensure the accurate and timely reporting of financial results. Previously, we identified areas within our internal systems of control that were not sufficiently robust, which could potentially lead to delays, errors, and the need for restatement of financial reports. In response, we have taken decisive actions to address and rectify these material weaknesses.MDB transitioned from a private company to a public entity in September 2023, MDB operated with a lean accounting team and limited resources while navigating challenges associated with limited accounting personnel and resources critical for robust internal control over financial reporting. Upon a thorough evaluation of our internal controls over financial reporting across partner companies, subsidiaries, and the holding company itself, we identified and addressed three material weaknesses.
Initially, we encountered gaps in maintaining adequately designed entity-level controls across the five components of internal control, as outlined by the Committee of Sponsoring Organizations (COSO) 2013 Framework, essential for preventing or detecting material misstatements in our consolidated financial statements. Furthermore, our general information technology controls concerning logical access, user terminations, authentication, and user access management required significant enhancement to support the integrity of the Company's business processes effectively. These areas of concern also contributed to segregation of duties conflicts within certain business processes.
To address these challenges, MDB embarked on a comprehensive overhaul of its internal controls framework. We have since established and implemented appropriately designed entity-level controls, aligning with each component of the COSO 2013 Framework, thus fortifying our capacity to prevent or detect material misstatements accurately. Moreover, we have redefined our general information technology controls, ensuring they are now adequately designed, implemented, and operational, thereby safeguarding logical access, managing user terminations, and streamlining authentication and user access processes across all business functions.
Additionally, MDB has developed and instituted formal accounting policies, procedures, and controls across virtually all business and financial reporting processes. This advancement ensures timely, complete, and accurate financial accounting, reporting, and disclosures. These corrective measures have effectively remedied the previously identified material weaknesses, significantly reducing the possibility of material misstatements in our annual or interim consolidated financial statements not being identified or rectified promptly.
Accounting & Financial Operations - Risk 4
Invizyne has a limited operating history on which to evaluate its ability to achieve its operating objectives.Invizyne was founded in 2019, has a limited operating history, and only has incurred losses to date. Therefore, there can be no assurance that the efforts of Invizyne will produce a commercial product, market acceptance or revenues that will sustain its business. With a limited operating history and no commercialized products at this time, it will be difficult for investors to make predictions about its future success or viability and any predictions may not be as accurate as they could be if it had a longer operating history or a company history of successfully developing, commercializing and generating revenue from products for a mass market.
Debt & Financing5 | 6.3%
Debt & Financing - Risk 1
Risks Pertaining to Partner Companies in General Based on our business model, some or all of our partner companies likely will need to raise capital from time to time to fund their operations. We may not be able to fund some or all of these amounts, and the amounts may not be available from third parties on acceptable terms, or at all.Debt & Financing - Risk 2
Our business depends upon our ability to make good decisions regarding the deployment of capital into new or existing partner companies and, ultimately, the performance of our partner companies, both of which are uncertain.If we make poor decisions regarding the deployment of capital into new or existing partner companies, our business model will not succeed. Our success as a holding company ultimately depends on our ability to choose the right partner companies, develop these companies, such that these partner companies are operationally successful. If one or more of our partner companies does not succeed, the value of our assets could be significantly reduced resulting in substantial impairments or write-offs, which could cause the results of our operations and the price of our Class A Common Shares to decline.
The risks relating to our partner companies include:
- most of our partner companies have a history of operating losses and a limited operating history;- the new technologies that our partner companies attempt to develop and launch commercially may never be developed or may never adequately developed to be commercial or even if commercially developed, may not be accepted in the marketplace;- the new technologies that our partner companies develop may not be accepted quickly enough or broadly enough resulting in additional need funding to sustain the partner company or the decision to abandon the business at a loss;- intensifying competition affecting the products and services that our partner companies offer could adversely affect their businesses, financial condition, results of operations and prospects for growth;- technologies of our partner companies that are subject to regulatory examination, testing and approval, may not be approved by any required regulatory authorities;- inability to adapt to the rapidly changing marketplaces;- inability to manage growth;- the need for additional capital to fund partner company operations, which we may not be able to fund or which may not be available from third parties on acceptable terms, if at all;- inability to protect partner company intellectual property rights and/or the costs and limitations that partner companies infringe on the intellectual property rights of others;- inability to put into place, monitor and maintain appropriate compliance programs related to employees, safety or other regulatory requirements which could result in legal liability, bad press and significant additional costs to investigate, address and remediate such issues;- certain of our partner companies could face legal liabilities from claims made against them based upon their operations, products or work;- the impact of economic downturns on their operations, results and growth prospects;- inability to attract and retain qualified personnel; and - government regulations and legal uncertainties may place financial burdens on the businesses of our partner companies.
Debt & Financing - Risk 3
We might require additional capital to support operations and business growth and to fund our partner companies; this capital might not be available when needed.We have funded MDB operations since inception in 2022 primarily through equity financings and revenue generated by the services provided through Public Ventures. We cannot be certain when or if our operations will generate sufficient cash to fully fund our ongoing operations or the growth of our business. We intend to continue to make investments in our business, particularly in our partner companies, to respond to business opportunities and challenges, including developing new products and services, enhancing our operating infrastructure, expanding our operations, and acquiring complementary businesses and technologies. All of the foregoing may require us to secure additional funds. Additional financing may not be available on terms favorable to us, if at all. If we incur additional debt, or issue preferred equity securities, the holders of these debt or preferred security holders would have rights senior to holders of our equity to make claims on our assets, and the terms of any debt could restrict our operations, including our ability to make distributions on our equity. Because our decision to raise capital in the future will depend on numerous considerations, including factors beyond our control, we cannot predict or estimate the amount, timing, dilutive effect or nature of any future issuances of securities. As a result, our equity holders bear the risk that future issuances of debt or equity securities could reduce the value of our Class A Common Shares and dilute their interests. Our inability to obtain adequate financing or financing on terms satisfactory to us, when we require it, could significantly limit our ability to continue supporting our business growth and responding to business opportunities and challenges.
Debt & Financing - Risk 4
Settlement bank services are difficult to arrange, without which Public Ventures will not be able to pursue a clearing business.There are only a limited number of banks currently offering settlement services to clearing firms. Public Ventures could be unable to continue providing clearing services if it is unable to enter into and then maintain a settlement bank arrangement, or if the selected settlement bank decides to exit this business.
Debt & Financing - Risk 5
Public Ventures will have to maintain adequate capitalization levels to conduct its broker-dealer and clearing businesses.To operate the broker-dealer and self-clearing operations, Public Ventures must meet different capitalization requirements in the Company. To do this, it will have to maintain within the capital structure of the Company various cash and cash equivalent assets and retain access to necessary lines of credit that can assure its ability to comply with changing deposit requirements of the SEC and of the Depositary Trust Company, DTC, and the National Securities Clearing Corporation, NSCC. It is expected that these regulations will undergo substantial changes, from time to time, which could require additional capital as settlement operations move to T+1 (one day after the settlement date) and T+0 settlement in the future. Without the required capital at any time, Public Ventures will not be able to operate its business.
Corporate Activity and Growth7 | 8.9%
Corporate Activity and Growth - Risk 1
The clearing operations of Public Ventures will require contractual arrangements with several key industry entities, which, if not followed, will require it to terminate that portion of its business.Corporate Activity and Growth - Risk 2
We incur costs as a result of operating as a public company, and our board of directors is required to devote substantial time to oversight of compliance requirements and corporate governance practices.As a public company listed in the U.S., we incur significant legal, accounting and other expenses. In addition, the Sarbanes-Oxley Act, the Dodd-Frank Wall Street Reform and Consumer Protection Act, the listing requirements of Nasdaq, and other applicable securities rules and regulations impose various requirements on listed public companies, including the establishment and maintenance of effective disclosure and financial controls and corporate governance practices. Our board of directors, management and other personnel will need to devote a substantial amount of time to these compliance initiatives. Moreover, these rules and regulations increase our legal and financial compliance costs and make some activities more time-consuming and costly. However, these rules and regulations are often subject to varying interpretations, in many cases due to their lack of specificity, and, as a result, their application in practice may evolve over time as new guidance is provided by regulatory and governing bodies. This could result in continuing uncertainty regarding compliance matters and higher costs necessitated by ongoing revisions to disclosure and governance practices.
Pursuant to Section 404 of the Sarbanes-Oxley Act, or Section 404, we are required to furnish a report by our management on our internal control over financial reporting. However, while we remain an emerging growth company, we will not be required to include an attestation report on internal control over financial reporting issued by our independent registered public accounting firm. To achieve compliance with Section 404 within the prescribed periods, we will be engaged in a process to document and evaluate our internal controls over financial reporting, which is both costly and challenging. In this regard, we will need to continue to dedicate internal resources, potentially engage outside consultants and adopt a detailed work plan to assess and document the adequacy of internal control over financial reporting, continue steps to improve control processes as appropriate, validate through testing that controls are functioning as documented and implement a continuous reporting and improvement process for internal control over financial reporting. Despite our efforts, there is a risk that we will not be able to conclude, within the prescribed timeframe, that our internal controls over financial reporting are effective as required by Section 404. If we identify one or more material weaknesses, it could result in an adverse reaction in the financial markets due to a loss of confidence in the reliability of our financial statements.
Even after we no longer qualify as an emerging growth company, we may still qualify as a "smaller reporting company" which would allow us to take advantage of many of the same exemptions from disclosure requirements including not being required to comply with the auditor attestation requirements of Section 404 of the Sarbanes-Oxley Act and reduced disclosure obligations regarding executive compensation in this filing and our periodic reports and proxy statements. We cannot predict if investors will find our Class A Common Shares less attractive because we may rely on these exemptions. If some investors find our Class A Common Shares less attractive as a result, there may be a less active trading market for our Class A Common Shares, and our share price may be lower or more volatile.
Corporate Activity and Growth - Risk 3
Invizyne is subject to risks relating to portfolio concentration.Currently, the Invizyne business is highly dependent on a small number of products, which are based on its principal technology. If these products cannot be fully commercialized or are not accepted in the market, Invizyne will have expended significant financial, development and corporate assets that will not necessarily be recovered.
Corporate Activity and Growth - Risk 4
Although our partner company model has been successful in the past, there is no assurance that we will continue to be successful in selecting our partner companies or that these partner companies will generate income returns at the same or similar levels as those of our prior partner companies.There is no assurance that MDB will continue to be as successful as when our broker-dealer business was operating as a single, stand-alone business. As a reorganized holding company, we have a limited operating history. We believe that because of the reorganization of our Company, we are subject to some or all of the risks inherent in the establishment of a new enterprise. Some of the risks may arise from the absence of a significant consolidated operating history, the addition of management responsibilities as a public company, including the production of K-1 tax documents for owners of the Company's shares, and lack of experience in complying with reporting and other obligations associated with being a publicly-traded company listed on Nasdaq. If our business plan, operating as a holding company, turns out to be unsuccessful, investors may lose some or all of their investment in MDB.
Investors in MDB are cautioned that the past successes of the management as executed via their privately held broker-dealer business are no assurance that the newly re-reorganized company will continue to have the same successes or result in same value creation.
Corporate Activity and Growth - Risk 5
Our partner companies will be early-stage development companies, which will make it difficult to judge and evaluate their businesses and their future success.The partner companies are and will continue to be early-stage companies, none of which, it is anticipated, initially will have any finalized products or well-defined development, intellectual property, marketing or distribution plans. Because of these factors and the absence of an operating history, it will be difficult for potential investors to fully evaluate the planned technologies and prospective operations and future potential of our partner companies. As early-stage companies, they will be subject to all the risks inherent in the initial organization, financing, expenditures, complications and delays associated with new businesses. Investors should evaluate an investment in us in light of all of the risks inherent and uncertainties encountered by early-stage companies operating in competitive environments. There can be no assurance that our efforts to finance and nurture our partner companies will be successful or that any of our partner companies will ultimately develop their products to a point where the companies reach profitability.
Corporate Activity and Growth - Risk 6
Our success depends, in part, on the successful development of our partner companies.At this time, we cannot identify the various specific risks that our partner companies will face other than the challenges typically faced by early-stage companies, as well as risks related to general regulatory issues, general technology and product development issues, meeting capital requirements, and market approach and penetration issues that all such early stage and development companies will face in their evolution. To the extent that any of our partner companies fail during the development phase or experience delay until they reach a point where they are able to successfully market their technologies or products in a financially sustainable way, our investment in those partner companies and your investment in MDB will be impaired, and you may sustain a loss in your investment and return on investment.
To be successful, we will need to grow the current businesses and grow the overall size of MDB and, more particularly, the number and businesses of partner companies. Our success will depend on finding and nurturing early-stage companies and transforming them into successful companies through our managerial and funding resources, including sources of external funding. Expanding the number of partner companies will impose significant added responsibilities on members of management, including the need to identify, recruit, maintain, motivate and integrate additional employees at the MDB (parent) level and at the partner company level. In addition, our management may have to divert a disproportionate amount of its attention away from our day-to-day activities and devote a substantial amount of time to managing these growth activities at our partner companies. Our future financial and business performance and our ability to compete effectively will depend, in part, on our ability to effectively manage our future growth.
Corporate Activity and Growth - Risk 7
Collaborations of various sorts, by our partner companies, such as with respect to research, testing, clinical trials, manufacturing and distribution, will be important to their respective businesses. Their inability to enter into collaboration arrangements as needed, or if such collaborations are not successful, may adversely impact their respective businesses.Our partner companies will likely seek to collaborate with third parties to engage in product research, clinical trials, marketing, manufacturing, and distribution as part of its strategy. If our partner companies fail to enter into or maintain collaboration arrangements, as needed and on reasonable terms, their ability to develop their business could be delayed, or the costs of development and commercialization increased beyond what would be reasonable and ultimately hindered to the point of business cessation. Furthermore, our partner companies may need to obtain the use of intellectual property rights held by third parties in order to develop their products. As a result, the growth of a particular business or product may depend in part on the ability to acquire or in-license these intellectual property rights.
Future collaboration arrangements between partner companies and third parties may pose a number of risks, including, but not limited to, the following:
(i) collaborators have significant discretion in determining the efforts and resources that they will apply;(ii) collaborators may not perform their obligations as expected;(iii) collaborators may elect not to continue or renew development or commercialization programs or license arrangements;(iv) collaborators could independently develop, or develop with third parties, products that compete directly or indirectly with products of our partner companies or products the collaborators have may be viewed as competitive with product of our partner companies causing them to cease to devote resources to the commercialization of our partner company products;(v) collaborators may fail to comply with applicable regulatory requirements regarding the development, manufacture, distribution or marketing of a product candidate or product;(vi) collaborators may not commit sufficient resources to the marketing and distribution of our partner company product or products;(vii) disagreements with collaborators, including disagreements over proprietary rights, contract interpretation or the preferred course of development, might cause delays or terminations of the research, development or commercialization of products, might lead to additional responsibilities for our partner companies, or might result in litigation or arbitration, any of which would be time- consuming and expensive;(viii) collaborations may be terminated by the collaborator, and, if terminated, our partner companies may require more capital to pursue further development or commercialization of the applicable product; and (ix) collaborations may not be negotiated on a timely basis or acceptable terms, if at all, or they may require substantial additional capital so as to be able to pursue and fund a collaboration.
If collaborations do not result in the successful discovery, development and commercialization of product candidates or if one of the collaborators terminates its agreement, our partner companies may not receive any future research funding or milestone or royalty payments under such collaboration. If a collaborator terminates its agreement, the partner company may find it more difficult to attract new collaborators, and the perception of the product or the business and financial condition of our partner company could be adversely affected.
Tech & Innovation
Total Risks: 18/79 (23%)Above Sector Average
Innovation / R&D3 | 3.8%
Innovation / R&D - Risk 1
The synthetic biology market is a rapidly growing and changing market, and if Invizyne is unable to keep up to date with developments, its business may be adversely affected.Innovation / R&D - Risk 2
Invizyne may not be successful in its efforts to use its proprietary synthetic biological platform to build a pipeline of products.A key element of Invizyne's strategy is to use its experienced management, engineering and scientific teams to build a pipeline of products using its synthetic biological platform and further develop those pipeline products into commercially viable products faster and cheaper than possible using traditional materials and methods. Although its R&D (research and development) efforts to date have resulted in what it believes to be potential pipeline products, it may not be successful in further developing such products to commercial viability or be able to continue to identify and develop these and other pipeline products. Even if it is successful in continuing to build its product pipeline, not all potential pipeline products it identifies will be suitable for development and use in commercial products. Although management believes that Invizyne's "cell-free" approach will demonstrate commercial success and deliver on the promise of synthetic biology, if Invizyne is unsuccessful in these efforts, the value of the company will be significantly impaired or fully lost, and our holding company investors may suffer loss in relation to the investment in the Company. Further, in such an event, Invizyne may have to curtail or cease its business.
Innovation / R&D - Risk 3
The success of Invizyne depends, in part, on the successful development of its science technologies and its products.To be successful, Invizyne will need to continue to develop its science technologies and the products that it can offer to commercialization entities. If Invizyne does not anticipate correctly and respond with products that are commercially acceptable, it will not be successful. In that event, the value of our business and overall company value would be diminished.
Trade Secrets13 | 16.5%
Trade Secrets - Risk 1
PatentVest is licensed to offer legal services under Arizona law, and it plans to offer legal services as part of its package of intellectual property service offerings. As a result, PatentVest must comply with the ethical and legal provisions, licensing responsibilities and obligations of a law firm under the laws of the State of Arizona.Trade Secrets - Risk 2
We believe patent analysis is a highly competitive business, and if PatentVest fails to develop widespread brand awareness in a cost-effective manner, the business may suffer.The services and reports offered by PatentVest compete with many other providers of similar services, such as other companies performing intellectual property analytics, law firms, and patent filing firms. The services provided are subject to technological changes and evolving client demands. We believe that in order for PatentVest to achieve market acceptance and to maintain and grow a client base, it is critical to develop and maintain the quality of its services and reports and to increase the awareness of the brand. If we fail to provide what the client requires, and it fails to promote and maintain its brand successfully, it may fail to attract or retain clients to the extent necessary to realize a sufficient return on its brand-building efforts and to sustain the business.
Trade Secrets - Risk 3
PatentVest might not be able to scale its business as fast as it believes can be done or be able to maintain the quality of its services and reports.PatentVest has operated, to date, on a small scale, and it has not yet proven its ability to commercialize services on a large scale. PatentVest has plans to serve approximately 30 clients at any one time. In order to do this successfully, it may have to make additional technology and relationship investments that could delay or limit its ability to develop its client base and commercialize its reports and consultative services. The reports may be found to be ineffective, unreliable or otherwise unsatisfactory to potential clients as there may be unforeseen complications in the processes of scaling. These complications could delay or limit the ability of PatentVest to provide client services or reports, could increase the cost of its consultative and report products, prevent it from implementing processes of the appropriate quality and completeness, and thereby cause the business to suffer. Moreover, PatentVest needs to grow sales, marketing and support staff or make appropriate arrangements with strategic partners to market, sell and support its clients and service and report products. If PatentVest is not able to compete effectively with others while scaling commercially on a timely basis, in sufficient quantities or on commercially reasonable terms, it will suffer a loss of business reputation and clients.
Trade Secrets - Risk 4
PatentVest is dependent on relationships with third parties, including public sources, to provide it with data, information and other services; if any of these relationships change, its business could be adversely affected.The PatentVest reports and services are developed using data, information or services obtained from third-party providers and public sources. The commercial relationships with third-party providers whose capabilities complement those of PatentVest, may also be competitors which might make PatentVest vulnerable to unpredictable price increases and unfavorable licensing terms. If public sources of data that are relied upon were to begin competing with PatentVest directly, or if they were to increase the cost that PatentVest pays to access their data, otherwise prohibit if from collecting and synthesizing the data they provide, or cease existing altogether, PatentVest may not be able to perform its services and operating results could be adversely impacted.
Trade Secrets - Risk 5
If clients do not agree that the patents opportunities identified in the PatentVest reports are relevant to their businesses, PatentVest will have difficulty retaining and attracting new clients, which could harm its operating results.The clients of PatentVest use the services to help them analyze their existing and potential intellectual property. If the clients perceive that the analysis and the opportunities are not relevant to their business requirements, then they will not find value in its reports and services. This may harm its reputation and make it difficult to retain a client and attract new clients, with an adverse consequence to operating results.
Trade Secrets - Risk 6
If PatentVest does not identify the full range of patent opportunities relevant to clients' intellectual property portfolio, its reputation will be harmed and it may be liable for service failure.One of the primary services that PatentVest provides its clients is an analysis of their intellectual property portfolio and how the portfolio may be protected and expanded through additional patent and other IP protection opportunities. We believe that its ability to attract and retain clients depends on its ability to identify actual and potential patent assets for clients. Although there is no guarantee that we will be able to identify all potential patent opportunities, if we miss a patent opportunity or fail to provide the services contracted by clients in a workmanlike manner, then the reputation of PatentVest will be harmed, and it may be liable for damages due to providing its services negligently.
Trade Secrets - Risk 7
If trademarks and trade names are not adequately protected, then our partner companies may not be able to build name recognition in the markets of interest and their business may be adversely affected.A trademark or trade name may be challenged, infringed, circumvented or declared generic or determined to be infringing on other marks. Our partner companies may not be able to protect their rights to their trademarks and trade names or may be forced to stop using their names. At times, competitors may adopt trade names or trademarks similar to those of our partner companies, thereby impeding their ability to build brand identity and possibly leading to market confusion. In addition, there could be potential trade name or trademark infringement claims brought by owners of other registered trade names or trademarks that incorporate variations of our unregistered trade names or trademarks. If the partner companies are unable to establish name recognition based on our trademarks and trade names, they may not be able to compete effectively and our business may be adversely affected.
Trade Secrets - Risk 8
Our efforts to maintain and protect our intellectual property rights through means in addition to registration may not be sufficient to protect our business.The patents that our partner companies and we have are important assets. Our partner companies and we also rely on our unpatented proprietary technology, trade secrets, processes and know-how. Generally, protection of intellectual property rights will be through filed patents, registered trademarks and registered copyrights. Other proprietary information will be protected through a combination of trade secret laws and confidentiality, non-disclosure and assignment of invention agreements with employees, contractors, collaborators, vendors, consultants, advisors and third parties. Despite these measures, intellectual property rights could be challenged, invalidated, circumvented or misappropriated. To pursue enforcement of these kinds of agreements could involve significant expense, potentially hinder or limit use of intellectual property rights, or potentially result in the inability to use the intellectual property rights in question. If an alternative cost-effective solution were not available, there may be an adverse effect on our financial position and performance.
Enforcing intellectual property rights against one or more third parties can be expensive and time-consuming, and an adverse result in any proceeding could put the intellectual property rights at risk of being invalidated or narrowed in scope of coverage. Patent and trademark challenges would increase the cost of development, engineering and marketing our products. There may not be adequate resources available to enforce any of the intellectual property rights. In addition, the ability to enforce intellectual property rights depends on the ability to detect infringement, and the ability to obtain evidence of infringement. Where enforcement is sought, a claim may not prevail or the damages, if any, may not be commercially meaningful.
Trade Secrets - Risk 9
Patent terms may be inadequate to protect a competitive position for an adequate amount of time.Patents have a limited lifespan. In the United States, if all maintenance fees are timely paid, the natural expiration of a patent is generally 20 years from its earliest U.S. non-provisional filing date. Various extensions such as patent term adjustments and/or extensions, may be available, but the life of a patent, and the protection it affords, is limited. Even if patents covering a product are obtained, once the patent life has expired, our partner companies may be open to competition from competitive products. Given the amount of time required for the development, testing and regulatory review of new products, patents protecting new products might expire before or shortly after such products are commercialized. As a result, a patent portfolio may not provide sufficient rights to exclude others from commercializing products similar or identical to those of the partner companies.
Trade Secrets - Risk 10
Our partner companies may incur substantial costs as a result of litigation or other proceedings relating to intellectual property, including patents, and they may be unable to protect their rights to their products and technology.If our partner companies or their licensors choose to go to court to stop a third party from using the inventions claimed in their owned or in-licensed patents, that third party may ask the court to rule that the patents are invalid and/or should not be enforced against that third party. These lawsuits are expensive and would consume time and other resources even if our partner companies were successful in stopping the infringement of these patents. In addition, there is a risk that the court will decide that these patents are not valid and that our partner companies do not have the right to stop others from using the inventions. There is also the risk that, even if the validity of these patents is upheld, the court will refuse to stop the third party on the ground that such third party's activities do not infringe our owned or in-licensed patents.
Trade Secrets - Risk 11
Our partner companies have limited foreign intellectual property rights and may not be able to protect their intellectual property rights throughout the world.Currently, our partner companies have limited intellectual property rights outside the United States. Filing, prosecuting and defending patents in all countries throughout the world would be prohibitively expensive, and intellectual property rights in some countries outside the United States can be less extensive than those in the United States. In addition, the laws of some foreign countries do not protect intellectual property rights to the same extent as do federal and state laws in the United States. Consequently, our partner companies may not be able to prevent third parties from practicing our inventions in all countries outside the United States, or from selling or importing products made using our inventions in and into the United States or other jurisdictions. Many countries have compulsory licensing laws under which a patent owner may be compelled to grant licenses to third parties. In addition, many countries limit the enforceability of patents against government agencies or government contractors. In these countries, the patent owner may have limited remedies, which could materially diminish the value of such patent. If our partner companies or any of their licensors are forced to grant a license to third parties with respect to any patents relevant to their business, their competitive position may be impaired, and their business, financial condition, results of operations and prospects may be adversely affected. Also, competitors may use the technologies in jurisdictions where our partner companies have not obtained patent protection to develop their own products and, further, may export otherwise infringing products to territories where there is patent protection but where enforcement is not as strong as that in the United States. These products may compete with the products of our partner companies in jurisdictions where they do not have any issued patents and patent claims or other intellectual property rights may not be effective or sufficient to prevent them from competing.
Many companies have encountered significant problems in protecting and defending intellectual property rights in foreign jurisdictions. The legal systems of certain countries, particularly certain developing countries, do not favor the enforcement of patents, trade secrets and other intellectual property protection, particularly those relating to biopharmaceutical products, which could make it difficult for our partner companies to stop the infringement of patents or marketing of competing products by third parties in violation of proprietary rights generally. Proceedings to enforce patent and other intellectual property rights in foreign jurisdictions could result in substantial costs and divert management efforts and attention from other aspects of business operations, could put the patents at risk of being invalidated or interpreted narrowly and patent applications at risk of not issuing and could provoke third parties to assert claims against our partner companies. The intellectual property holder may not prevail in any lawsuits that are initiated and the damages or other remedies awarded, if any, may not be commercially meaningful. Accordingly, efforts by our partner companies to enforce their intellectual property rights around the world may be inadequate to obtain a significant commercial advantage from the intellectual property that they develop or license.
Trade Secrets - Risk 12
Some of our partner companies may be unable to protect their proprietary rights and may infringe on the proprietary rights of others.Our partner companies, during their development, will assert various forms of intellectual property protection. Intellectual property is likely to constitute an important part of our partner companies' assets and competitive strengths. Federal law, most typically, copyright, patent, trademark and trade secret laws, generally protects intellectual property rights. State law also addresses property rights. Although we expect that our partner companies will take reasonable efforts to protect the rights to their intellectual property, the complexity of United States, individual state and international trade secret, copyright, trademark and patent law, coupled with the limited resources of these partner companies and the demands of quick delivery of products and services to market, create a risk that their efforts will prove inadequate to prevent misappropriation of our partner companies' technology, third parties may develop similar technology independently, or they will otherwise be unable to adequately protected their trade secrets.
Some of our partner companies also license intellectual property from third parties, and it is possible that they could become subject to infringement actions based upon their use of the intellectual property licensed from those third parties. Our partner companies generally obtain representations as to the origin and ownership of such licensed intellectual property; however, this may not adequately protect them. Any claims against our partner companies' proprietary rights, with or without merit, could subject our partner companies to costly litigation and the diversion of their technical and management personnel from other business concerns. If our partner companies incur costly litigation and their personnel are not effectively deployed, the expenses and losses incurred by our partner companies will increase.
Where our partner companies enter into intellectual property license agreements, if they fail to adhere to their obligations thereunder, they may lose the ability to continue the license. Such a loss may be materially adverse to the business and future of a partner company.
Third parties have and may assert infringement or other intellectual property claims against our partner companies based on their patents or other intellectual property claims. Even though we believe our partner companies' products do not infringe any third-party's patents, they may have to pay substantial legal fees to defend against such claims as well as damages, possibly including treble damages, if it is ultimately determined that such claims have merit. They may have to obtain a license to sell their products if it is determined that their products infringe another person's intellectual property. Our partner companies might be prohibited from selling their products before they obtain a license, which, if available at all, may require them to pay substantial royalties. Even if infringement claims against our partner companies are without merit, defending these types of lawsuits takes significant time, may be expensive and may divert management attention from other business concerns.
Trade Secrets - Risk 13
Some intellectual property of our partner companies will be funded through government programs, thus being subject to federal regulation such as "march-in" rights, certain reporting requirements and a preference for U.S. industry. Compliance with these regulations may limit exclusive rights, subject the companies to expenditure of resources with respect to reporting requirements, and limit the ability to contract with foreign manufacturers.When research is funded in part by the U.S. government, the resulting intellectual property is subject to certain federal regulations pursuant to the Bayh-Dole Act of 1980, or the Bayh-Dole Act. In particular, the federal government retains a "nonexclusive, nontransferable, irrevocable, paid-up license" for its own benefit to inventions produced with its financial assistance. The Bayh-Dole Act also provides federal agencies with "march-in rights." March-in rights allow the government, in specified circumstances, to require the contractor or successors in title to the patent or other intellectual property to grant a "nonexclusive, partially exclusive, or exclusive license" to a "responsible applicant or applicants." If the intellectual property owner refuses to do so, the government may grant the license itself. Intellectual property discovered under government-funded programs is also subject to certain reporting requirements, compliance with which may require our partner companies or licensors to expend substantial resources. Such intellectual property is also subject to a preference for U.S. industry, which may limit the ability to contract with foreign product manufacturers for products covered by the intellectual property. Moreover, collaboration with academic institutions to accelerate research or development may be limited or create the march in right. Further, the partner companies may choose to license intellectual property in the future that may be subject to government rights pursuant to the Bayh-Dole Act. If, in the future, a partner company co-owns or licenses in technology that is critical to its business that is developed in whole or in part with federal funds subject to the Bayh-Dole Act, its ability to enforce or otherwise exploit patents covering the technology may be adversely affected.
Cyber Security2 | 2.5%
Cyber Security - Risk 1
Cyberattacks and other security breaches or disruptions suffered by us or third parties upon which we rely could have a materially adverse effect on our business, harm our reputation and expose us to public scrutiny or liability.Cyber Security - Risk 2
We may be exposed to more cybersecurity threats as we expand our business.With the expansion in the business to include clearing services, the Company will handle increased amounts of sensitive financial and other information about investors and company clients' holdings, and transactions that can be targeted by cybercriminals. We will need to have in place an adequate internal security infrastructure to protect clients' information and assets and minimize potential liabilities for the business. In addition, as cybersecurity threats become more and more sophisticated, we will have to continually expend funds to upgrade and expand our security measures, maintain insurance and overall be vigilant to protect our operations and clients.
Legal & Regulatory
Total Risks: 13/79 (16%)Below Sector Average
Regulation6 | 7.6%
Regulation - Risk 1
As a broker-dealer, Public Ventures will have to expend considerable resources on maintaining adequate compliance practices. The failure to be in regulatory compliance will result in fines, sanctions and the possible curtailment of operations.Regulation - Risk 2
Where permitted by regulation, Public Ventures will use an overseas out-source provider for some of the self-clearing operation activities although political and social instability and the threat of sanctions by countries, including the United States, may disrupt or hinder the delivery of such services and result in increased costs.We have a contract with a Nicaraguan company to provide, on an out-sourced, as requested basis, certain back-office services that support our broker dealer activities and patent related services and other requirements. We plan to expand and use this service facility, where permitted, for certain aspects of the self-clearing operations that Public Ventures will engage in. We believe that these operations will provide a competitive advantage to the Company and facilitate developing this new business in an efficient and profitable manner, as human resources and technological infrastructure in Nicaragua allows local companies to provide quality service at the level expected by US clients at a fraction of the cost. Any disruption to social and political stability in Nicaragua could affect the contractor's capacity to achieve its goals. The current political environment in Nicaragua is unsettled due to a political crisis that erupted in 2018, which has yet to be resolved. Continued or escalated political instability and the possibility of sanctions from other countries, including the United States, could disrupt local business and may hinder or disrupt the delivery of services to our United States operations. The United States has several Executive Orders in force which impose sanctions regarding immigration of certain groups of persons and imposing wider sanctions in respect of certain trading activities. We constantly monitor the situation and have a business continuity strategy in place to assure consistent operations and activities in the United States. To the extent we are prohibited from contracting with entities in Nicaragua, our expenses may increase, and there may be disruption in our workforce that will have to be replaced.
Regulation - Risk 3
Invizyne may face unique regulatory hurdles because its bio-synthesized compounds are novel.Because bio-synthesized compounds are still considered novel, regulators and the public, may perceive them differently from naturally occurring molecules, notwithstanding the fact that molecules are the same whether synthetically created or naturally occurring. Therefore, Invizyne may have to provide additional validation related to the science of its compounds in order to obtain regulatory and market approval to gain product adoption. Providing additional validation will cause delays in development and commercialization, which will result in additional funding requirements than may not have been anticipated. Invizyne may never achieve the required approvals in which case its business model will be impaired. Invizyne may not be able to achieve commercial success.
Regulation - Risk 4
We plan to operate as a company not regulated under the Investment Company Act of 1940. We may have to buy, sell or retain assets when we would otherwise not wish to do so in order to avoid registration under the Investment Company Act.We believe our operations are not subject to the Investment Company Act of 1940 (the "Investment Company Act"). We do not hold ourselves out as conducting the business of investing, reinvesting or trading in securities. Rather, we found, own and operate our partner companies to help them develop their businesses. We will have control of our partner companies through a majority ownership position, by being actively engaged on the board of directors and by being involved in the certain management decision processes of the partner companies. We are actively engaged in the development of these companies including creation of the business strategy and path to value creation.
The Investment Company Act regulates companies that are engaged in the business of investing, reinvesting, owning, holding or trading in securities. Under the Investment Company Act, a company may be deemed to be an investment company if it owns investment securities with a value exceeding 40% of the value of its total assets (excluding government securities and cash items) on an unconsolidated basis, unless an exemption or safe harbor applies. We refer to this test as the "40% Test." Securities issued by companies other than majority-owned partner companies are generally considered "investment securities" for the purpose of the Investment Company Act, unless other circumstances exist, such as the holding company management being actively involved in the management of the underlying company. Additionally, there may be other exemptions that we might be eligible to use to avoid regulation under the Investment Company Act. As a company that builds value by cofounding early-stage technology and life sciences companies, we believe we are not engaged in the business of investing, reinvesting or trading in securities. Consequently, we do not believe that we are not now and will not be an investment company under the Investment Company Act.
We will monitor our compliance with the 40% Test and conduct our business activities to comply with this test and other exemptions such that we are exempt from the Investment Company Act. It is not feasible for us to be regulated as an investment company because the Investment Company Act rules are inconsistent with our strategy of actively helping our partner companies in their efforts to build value. We may need to take various actions, however, that we would otherwise not pursue in order to remain in compliance with the 40% Test. For example, we may need to retain a majority interest in a partner company that we no longer consider strategic, we may not be able to acquire an interest in a company unless we are able to obtain a majority ownership interest in the company, or we may be limited in the manner or timing in which we sell or distribute our interests in a partner company. Our ownership levels also may be affected if our partner companies are acquired by third parties or if our partner companies issue stock which dilutes our majority ownership. The actions may require us to take actions to avoid application of the Investment Company Act of 1940 so as to maintain compliance with the 40% Test that could adversely affect our ability to create and realize value at our partner companies.
Regulation - Risk 5
Our partner companies are likely to be operating in businesses that are subject to extensive regulation, which if not compliant with those regulations may be subject to fines, limitations on activity and financial impairment.Our partner companies will likely be subject to a large range of regulations, especially if they are engaged in development of medical or pharmaceutical therapies, medical devices and technologies subject to export and import controls. The failure to adhere to any applicable laws or regulations relating to their business conduct may result in investigations, fines, limitations on activities and recalls. The partner company subject to these kinds of sanctions, and possibly MDB, also could suffer from development, marketing, financial and reputational damage. There may be consequential impairment of the value of the overall company and a loss of investment value in the Company.
Regulation - Risk 6
One of our subsidiaries, Public Ventures, is subject to Securities and Exchange Commission and FINRA regulation, DTC participant requirements, and settlement bank agreements, and, if not compliant with those regulations, may be subject to fines, limitations on activity and financial impairment.One of our subsidiaries is a broker-dealer, subject to a wide range of regulations under the oversight of the Securities and Exchange Commission, FINRA and state securities regulators, and other financially-oriented governmental authorities. To conduct its clearing operations, it is subject to DTC participant requirements and the terms of its settlement bank agreements. Public Ventures is currently subject to regulations related to its status as a broker-dealer and, when we finalize our securities clearing operations, the Company will also be subject to all the regulatory requirements of the Securities and Exchange Commission applicable to our securities clearing operations. As is common in the securities industry, we are subject to regular reviews of and investigations into our operations, some of which progress to regulatory actions that may result in fines, censures, and limitations on activity. Currently, we are the subject of a review of past broker-dealer activities, which may be either resolved or escalated. We do not know at this time whether this review will be escalated to regulatory action, and if it is, what the regulatory assertions would be and what the resolution of such assertions might be. Any adverse result may impair the value of the overall company and a loss of investment value in MDB.
Taxation & Government Incentives6 | 7.6%
Taxation & Government Incentives - Risk 1
Future legislative or regulatory action could significantly change the tax aspects of an investment in our shares.Taxation & Government Incentives - Risk 2
Allocations of income and loss may be re-determined by the IRS.A shareholder's distributive share of MDB income, gains, losses, deductions and credits for U.S. federal income tax purposes is generally determined as set forth in the limited liability company agreement governing our company, which we refer to as the operating agreement, unless such items are allocated in a manner that has no "substantial economic effect." If it is determined that the allocations in the operating agreement do not possess substantial economic effect, then the IRS might seek to allocate MDB related items in a different manner.
Taxation & Government Incentives - Risk 3
You may be subject to state, local and other taxes, including with respect to your own particular circumstances.In addition to U.S. federal income taxes, each shareholder may incur income tax liabilities under the state or local income tax laws of certain jurisdictions in which MDB will operate, as well as in the jurisdiction of that shareholder's residence or domicile. State and local income tax laws vary from one location to another, and federal, state and local income tax laws are both complex and subject to change. The income tax aspects of an investment in MDB are complicated, and each shareholder should review them with his, her or its own professional advisors familiar with the shareholder's own income tax situation and with the income tax laws and regulations applicable to the shareholder.
Taxation & Government Incentives - Risk 4
You may be subject to U.S. federal income tax on your share of our taxable income, regardless of whether you receive any cash distributions from us.The Class A Common Shares are securities issued by a limited liability company and represent limited liability interests.
Under current law, so long as certain conditions are satisfied (see "Certain Material U.S. Federal Tax Considerations - Classification as a Partnership"), we should be treated, for U.S. federal income tax purposes, as a partnership and not as a corporation. As such, MDB will generally not be subject to U.S. federal income tax. Instead, each shareholder of MDB will be required to take into account its allocable share of each item of MDB's income, gain, loss, deduction or credit, whether or not MDB distributes any cash to it, including distributions or dividends MDB receives from its corporate entities (i.e., in partner companies). Consequently, it is possible that in any year, a shareholder's tax liability arising from MDB could exceed the distributions made to him, her or it by MDB. Thus, there may be years in which a shareholder's tax liability exceeds its share of distributed cash from MDB. If this were to occur, a shareholder would have to use funds from other sources to satisfy his, her or its tax liability.
Taxation & Government Incentives - Risk 5
Complying with certain tax-related requirements may cause us to forego otherwise attractive business or investment opportunities or enter into acquisitions, borrowings, financings or arrangements we may not have otherwise entered into.In order for us to be treated as a partnership for U.S. federal income tax purposes, and not as a publicly traded partnership taxable as a corporation, we expect that at least 90% of our gross income in each taxable year will need to be "qualifying income" on a continuing basis and we must not be, if we were a corporation, required to register as an investment company under the Investment Company Act. In order to obtain such treatment, we (or our subsidiaries) may decide to forego attractive business or investment opportunities. This may cause us to incur additional tax liabilities and/or adversely affect our ability to operate solely to maximize our cash flow.
Taxation & Government Incentives - Risk 6
Our structure involves complex provisions of U.S. federal and state income tax law for which no clear precedent or authority may be available. Our structure is also subject to potential legislative, judicial or administrative change and differing interpretations, possibly on a retroactive basis.The U.S. federal income tax treatment of holders of our common shares, including the Class A Common Shares representing limited liability interests, depends in some instances on determinations of fact and interpretations of complex provisions of U.S. federal income tax law for which no clear precedent or authority may be available. You should be aware that the U.S. federal and state income tax rules are constantly under review by persons involved in the legislative process, the IRS and the U.S. Treasury Department, and state governments frequently resulting in revised interpretations of established concepts, statutory changes, revisions to regulations and other modifications and interpretations. The IRS pays close attention to the proper application of tax laws to partnerships and entities taxed as partnerships. The present U.S. federal income tax treatment of an investment in our shares may be modified by administrative, legislative or judicial interpretation at any time, and any such action may affect investments and commitments previously made.
Environmental / Social1 | 1.3%
Environmental / Social - Risk 1
The collection, processing, use, storage, sharing and transmission of personal information and other sensitive data are subject to stringent and changing state, federal and international laws, regulations and standards and policies and could give rise to liabilities as a result of our failure or perceived failure to protect such data, comply with privacy and data protection laws and regulations or adhere to the privacy and data protection practices that we articulate to our clients.Production
Total Risks: 9/79 (11%)Above Sector Average
Manufacturing2 | 2.5%
Manufacturing - Risk 1
Because its compounds are novel, Invizyne will have to perform tests for safety, use, and claim validation.Manufacturing - Risk 2
Laboratory conditions differ from commercial conditions, which could affect the effectiveness of Invizyne's potential products. Failures to effectively move from laboratory to commercial scale would harm its business.Observations and developments that may be achievable under laboratory circumstances may not be able to be replicated in commercial settings. Invizyne has observed multiple results that encourage the development of its technology platform. Invizyne, however, are not certain that these laboratory results will be able to be replicated at a commercial scale. As it advances its technology, Invizyne plans to make products at higher scales until it reaches commercially viable scales. If these results obtained at the current levels are not replicated at commercial scales the attractiveness of the technology will be adversely affected and its business may fail to be successful.
Employment / Personnel5 | 6.3%
Employment / Personnel - Risk 1
Invizyne is highly dependent on its ability to retain its current scientific and other staff to hire additional employees with specialized backgrounds as needed.Employment / Personnel - Risk 2
Hiring and organizing personnel for the clearing operations.To be able to implement and operate the self-clearing activities, Public Ventures will have to hire and retain the human talent capable of handling the operational activities and fulfilling the compliance requirements of the business. Trading and settlement and compliance personnel will be necessary to manage the operations. Further expertise in financial matters and obligations for self-clearing will also be required. Although it is following a conservative approach to launching the business and onboarding clients that will cause less stress on the organization, the firm's ability to perform going forward nonetheless depends on successfully recruiting, training and retaining new personnel. As part of these recruitment and retention efforts, the firm must ensure that it can develop an adequate supervising and leadership structure capable of supporting the successful development of its business model.
Employment / Personnel - Risk 3
If we are not successful in attracting and retaining highly qualified personnel, we may not be able to successfully implement our business strategy. In addition, the loss of the services of the founders of our partner companies could adversely impact their business prospects and the value of our ownership of the partner company.Our ability to properly develop our partner companies and be successful in our business model depends in large part upon our ability to attract and retain at the partner company level and at the MDB level highly qualified managerial, scientific, and technical personnel. We will need to hire additional personnel as we further develop and grow our partner companies. Competition for skilled personnel usually is intense. We may not be able to hire and retain highly qualified personnel on acceptable terms. If we are unable to attract and retain high-quality personnel, especially for our partner companies, the rate and success at which they can develop and commercialize products or succeed at all could be limited.
Employment / Personnel - Risk 4
We may be limited in our ability to attract and continue to employ personnel engaged by our partner companies.In order to recruit and retain existing and future personnel for our partner companies, we may need to increase the level of compensation that we pay and have to use equity grants as incentives. As our partner companies are subsidiaries, we may not be able to use the value of the partner company for equity grants and similar compensation arrangements. We may have to deploy other incentives, such as higher salaries, better benefits or equity in MDB. Any of these may adversely affect the value of MDB or increase our consolidated expenses.
We strive to maintain a work environment that reinforces our culture of collaboration, motivation and alignment of interests with investors. The effects of becoming public, including potential changes in our compensation structure, could adversely affect this culture. If we do not continue to develop and implement the right processes and tools to manage our changing enterprise and maintain our culture, our ability to compete successfully and achieve our business objectives could be impaired, which could negatively impact our business, financial condition and results of operations.
Employment / Personnel - Risk 5
Our ability to retain our senior professionals and recruit additional professionals is critical to the success of our business, and our failure to do so may adversely affect our reputation, business, results of operations and financial condition.Our people are one of our most valuable resources. Our ability to source attractive technologies and companies to deploy our capital depends upon the reputation, judgment, and execution skills of our senior professionals, particularly our directors and senior management. Despite our efforts to retain valuable employees, members of our management team may terminate their employment with us on short notice. The loss of the services of any of our executive officers or other key employees could potentially harm our business, operating results, or financial condition. Currently, we do not maintain key man insurance policies with respect to any of our executive officers or employees.
Supply Chain1 | 1.3%
Supply Chain - Risk 1
The Invizyne systems rely on the need for purified enzymes and co-factors for the conversions of input feedstock into final products. Invizyne will need to find competitively priced sources of these inputs for its processes to be cost competitive and/or develop methods to use these resources efficiently.Costs1 | 1.3%
Costs - Risk 1
We do not have key-man insurance.Ability to Sell
Total Risks: 5/79 (6%)Below Sector Average
Competition3 | 3.8%
Competition - Risk 1
Invizyne expects to experience competition from other companies and research institutions.Competition - Risk 2
We could experience competition from other potential acquirers when we seek to establish partner companies, which may result in not being able to acquire them or having to pay at a higher valuation, thus increasing our risk of loss and reducing potential future gains.We believe that we will face competition from other capital providers and acquisition oriented entities as we seek to acquire and develop our partner companies. Some of our competitors have more experience identifying and acquiring companies in various industries and have greater financial and management resources, brand name recognition or industry contacts than we possess. We compete with those firms on a number of factors, including our history and reputation, our ability to partner, encourage and support development of each company, the abilities and experience of our professionals in working with development-stage companies, and our ability to source and perform due diligence on new technologies and companies. In addition, even though we seek to acquire technologies at their very early stages of development, we may still pay higher prices in our acquisitions and partner company creation because of competition from other potential acquirers and higher valuations. This could increase the risk of loss and result in lower gains to the holding company.
Competition - Risk 3
There is significant competition for the time and capital of our community members and they have no obligation to continue to own MDB member interests, or participate in the development of the partner companies as envisioned by our business model.We will rely on our community of sophisticated investors that have experience with our public venture approach for partner company formation, development and funding. There is competition for their time and capital. There is no obligation for an investor that is part of our community to continue to participate in our public venture approach or even to hold securities of MDB. As is common, investors will circulate in and out of our community as their interests change over time. The loss of a prominent or an active community participant may diminish the effectiveness of our community and may lead others to change their participation level within the community.
Demand1 | 1.3%
Demand - Risk 1
The market, including clients and potential investors, may be skeptical of the viability and benefits of Invizyne's pipeline products because they are relatively novel and are based on complex technology.Sales & Marketing1 | 1.3%
Sales & Marketing - Risk 1
Invizyne does not have any sales, marketing, manufacturing and distribution capabilities or arrangements, and will need to create these as it moves towards commercialization of our products.Macro & Political
Total Risks: 3/79 (4%)Below Sector Average
Economy & Political Environment1 | 1.3%
Economy & Political Environment - Risk 1
Impact of Ukrainian and Israeli ConflictInternational Operations1 | 1.3%
International Operations - Risk 1
We plan on out-sourcing aspects of our business operations in Nicaragua.Natural and Human Disruptions1 | 1.3%
Natural and Human Disruptions - Risk 1
The COVID-19 pandemic, or any other pandemic, epidemic or outbreak of an infectious disease, may materially and adversely affect our business and operations.See a full breakdown of risk according to category and subcategory. The list starts with the category with the most risk. Click on subcategories to read relevant extracts from the most recent report.
FAQ
What are “Risk Factors”?
Risk factors are any situations or occurrences that could make investing in a company risky.
The Securities and Exchange Commission (SEC) requires that publicly traded companies disclose their most significant risk factors. This is so that potential investors can consider any risks before they make an investment.
They also offer companies protection, as a company can use risk factors as liability protection. This could happen if a company underperforms and investors take legal action as a result.
It is worth noting that smaller companies, that is those with a public float of under $75 million on the last business day, do not have to include risk factors in their 10-K and 10-Q forms, although some may choose to do so.
How do companies disclose their risk factors?
Publicly traded companies initially disclose their risk factors to the SEC through their S-1 filings as part of the IPO process.
Additionally, companies must provide a complete list of risk factors in their Annual Reports (Form 10-K) or (Form 20-F) for “foreign private issuers”.
Quarterly Reports also include a section on risk factors (Form 10-Q) where companies are only required to update any changes since the previous report.
According to the SEC, risk factors should be reported concisely, logically and in “plain English” so investors can understand them.
How can I use TipRanks risk factors in my stock research?
Use the Risk Factors tab to get data about the risk factors of any company in which you are considering investing.
You can easily see the most significant risks a company is facing. Additionally, you can find out which risk factors a company has added, removed or adjusted since its previous disclosure. You can also see how a company’s risk factors compare to others in its sector.
Without reading company reports or participating in conference calls, you would most likely not have access to this sort of information, which is usually not included in press releases or other public announcements.
A simplified analysis of risk factors is unique to TipRanks.
What are all the risk factor categories?
TipRanks has identified 6 major categories of risk factors and a number of subcategories for each. You can see how these categories are broken down in the list below.
1. Financial & Corporate
- Accounting & Financial Operations - risks related to accounting loss, value of intangible assets, financial statements, value of intangible assets, financial reporting, estimates, guidance, company profitability, dividends, fluctuating results.
- Share Price & Shareholder Rights – risks related to things that impact share prices and the rights of shareholders, including analyst ratings, major shareholder activity, trade volatility, liquidity of shares, anti-takeover provisions, international listing, dual listing.
- Debt & Financing – risks related to debt, funding, financing and interest rates, financial investments.
- Corporate Activity and Growth – risks related to restructuring, M&As, joint ventures, execution of corporate strategy, strategic alliances.
2. Legal & Regulatory
- Litigation and Legal Liabilities – risks related to litigation/ lawsuits against the company.
- Regulation – risks related to compliance, GDPR, and new legislation.
- Environmental / Social – risks related to environmental regulation and to data privacy.
- Taxation & Government Incentives – risks related to taxation and changes in government incentives.
3. Production
- Costs – risks related to costs of production including commodity prices, future contracts, inventory.
- Supply Chain – risks related to the company’s suppliers.
- Manufacturing – risks related to the company’s manufacturing process including product quality and product recalls.
- Human Capital – risks related to recruitment, training and retention of key employees, employee relationships & unions labor disputes, pension, and post retirement benefits, medical, health and welfare benefits, employee misconduct, employee litigation.
4. Technology & Innovation
- Innovation / R&D – risks related to innovation and new product development.
- Technology – risks related to the company’s reliance on technology.
- Cyber Security – risks related to securing the company’s digital assets and from cyber attacks.
- Trade Secrets & Patents – risks related to the company’s ability to protect its intellectual property and to infringement claims against the company as well as piracy and unlicensed copying.
5. Ability to Sell
- Demand – risks related to the demand of the company’s goods and services including seasonality, reliance on key customers.
- Competition – risks related to the company’s competition including substitutes.
- Sales & Marketing – risks related to sales, marketing, and distribution channels, pricing, and market penetration.
- Brand & Reputation – risks related to the company’s brand and reputation.
6. Macro & Political
- Economy & Political Environment – risks related to changes in economic and political conditions.
- Natural and Human Disruptions – risks related to catastrophes, floods, storms, terror, earthquakes, coronavirus pandemic/COVID-19.
- International Operations – risks related to the global nature of the company.
- Capital Markets – risks related to exchange rates and trade, cryptocurrency.