Environmental Services
In May 2022, the Company acquired Range Environmental Resources, Inc., a West
Virginia corporation ("Range Environmental") and Range Natural Resources, Inc.,
a West Virginia corporation ("Range Natural" and together with Range
Environmental, the "Range Reclamation Entities"). The Range Reclamation Entities
provide land reclamation, water restoration and environmental consulting
services to mining and non-mining customers throughout the Appalachian region
with the goal of returning land to pre-mining conditions or repurposing the land
for natural, commercial, agricultural or recreational use. The Range Reclamation
Entities' water restoration services seek to improve rivers, streams and
discharges through novel and innovative treatment applications to help customers
meet their various regulatory standards and requirements. The Range Reclamation
Entities also provide environmental consulting services to customers, typically
in connection with land reclamation and water restoration projects, and, as an
additional value-add service, sell water treatment chemicals manufactured by
third parties to their customers. Range Natural also mines natural resources,
including coal, for customers incidental to the reclamation and repurposing of
mine sites.
4
According to the U.S. Energy Information Administration ("EIA"), the United
States had 551 coal mines in 2020, comprised of 370 active mines, 141 idled or
closed mines, and 40 new or activated mines. Approximately 82% of those coal
mines were located in Appalachia (which comprises the Appalachian Mountains and
is commonly known as the cultural region in the Eastern United States stretching
from the southern part of New York to the northern parts of Alabama and
Georgia). According to the EIA, there were approximately three times as many
coal mines in the United States in 2008 (compared to 2020) with approximately
89% located in Appalachia. The precipitous decline in the number of operating
coal mines since 2008 is due to various supply, demand and regulatory factors,
including a reduction in demand for coal as a source of electricity due to the
increased use of natural gas and renewable energy, an increase in coal
production costs due to inflation and the dearth of cost-effective locations
remaining for mining, and a more stringent and costly regulatory environment,
all of which have resulted in an increasingly difficult market for coal
producers.
In 2000, coal was responsible for 1,966 billion kWh of electricity generation,
which represented 52% of the total electricity generation in the United States.
However, in 2022, coal was responsible for only 828 billion kWh of electricity
generation, which represented 20% of the total electricity generation in the
United States. According to the EIA, 23% of the 200,568 megawatts of coal-fired
capacity currently operating in the United States is scheduled to retire by the
end of 2029 due to the high cost of operations, continued competition from
natural gas and renewable energy resources, and sustainable initiatives of
energy producers.
However, the reclamation of closed and inactive mine sites has not kept pace
with the increase in closed and idled mine sites, thus creating a substantial
backlog of reclamation work that needs to be completed on former mine sites.
According to the U.S. Office of Surfacing Mining Reclamation and Enforcement
("OSMRE"), there are approximately 50,000 high-priority abandoned mine land
locations in the United States resulting from legacy coal mining operations that
failed to adequately reclaim the land and waterways back to their natural state.
Additionally, there are tens of thousands of active mine sites in the United
States that require contemporaneous reclamation of land and waterways during the
active mining process, and an estimated equally large number of idled mine
locations that also require significant land reclamation and water restoration
services.
Under the Surface Mining Control and Reclamation Act of 1977 ("SMRCA"), OSMRE
was established for two basic purposes: (i) to ensure coal mines in the United
States operate in a manner that protects citizens and the environment during
mining operations and to restore the land to beneficial use following mining,
and (ii) to implement an Abandoned Mine Land ("AML") reclamation program to
address the hazards and environmental degradation resulting from two centuries
of coal mining activities that occurred before SMRCA was passed in 1977. The AML
reclamation program is funded through fees levied against coal producers based
on tons of coal produced. As of September 2020, the AML reclamation fund had
collected a total of $11.7 billion in coal mining fees over the life of the
program, with $9.5 billion (81%) appropriated and distributed in accordance with
SMCRA, and $2.2 billion (19%) unappropriated and available for future
disbursement. In November 2021, the Infrastructure Investment and Jobs Act was
enacted, which, among other things, authorized $11.3 billion in new funding to
be appropriated for deposit into the AML reclamation fund. Importantly, the AML
reclamation fund is only available to help fund the reclamation of mines
abandoned before SMCRA was enacted in 1977; therefore, all mines abandoned after
the year 1977 cannot access funding from the AML reclamation fund and must
obtain funding from other sources.
Additionally, each state in Appalachia has a Department of Environmental
Protection ("DEP") or an equivalent agency that oversees coal mining permitting,
operations, and reclamation. Under DEP rules and regulations, coal mining
companies are required to develop a mining and reclamation plan that is approved
by the applicable state agency, obtain a mining permit from the state, and
secure a reclamation surety bond from a qualified third-party insurance company
or provide a comparable financial guarantee. The reclamation surety bond
provides the state with financial assurances that land reclamation and waterway
restoration will be performed in accordance with the original reclamation plan
once mining is complete if the coal mining company, as primary obligor, fails to
perform. Therefore, there are at least three groups who may need land
reclamation, water restoration and environmental auditing services: (i) mining
companies when permits are active and reclamation bonds are not in default, (ii)
surety bond insurers when reclamation bonds are in default, and (iii) states
through their AML reclamation funds for mine lands abandoned before 1977 and for
mine lands with defaulted coal mining companies and surety bond insurers after
1977.
5
At the time of acquisition in May 2022, the Range Reclamation Entities had one
reclamation customer, 15 pieces of owned and financed equipment, eight pieces of
rented equipment, and 12 employees, all located and operating in West Virginia.
As of March 30, 2023, less than one year later, the businesses had three
reclamation customers, more than 40 pieces of owned and financed equipment, and
27 employees in West Virginia. For the full year 2021, the Range Reclamation
Entities had revenues of approximately $2.5 million. Since their acquisition in
March 2022, the Range Reclamation Entities have generated revenues of
approximately $4.8 million representing pro-forma annualized revenues of
approximately $6.0 million. The Range Reclamation Entities have also made a
significant investment in recruiting, retaining and rewarding employees,
including providing new benefits such as health insurance, paid time off,
vacation days, 401K retirement plan, and job advancement training. The Range
Reclamation Entities' employees are their most valuable asset, and therefore we
are committed to building a best-in-class culture and financially rewarding our
talented, hard-working employees so that we can maximize the good we can do for
our people and their families.
The Range Reclamation Entities are planning for continued growth in their land
reclamation, water restoration and consulting businesses by expanding their
market share with existing coal mining customers and reclamation bond insurers,
adding new coal mining and non-coal mining customers, and collaborating with the
Company's other operating businesses to generate incremental sales
opportunities. We will seek to add additional people, equipment and technologies
to support these ambitious growth goals to ensure we successfully execute our
value creation plans for the Company and our shareholders.
Biochar Products and Solutions
Terra Preta, Inc., an Ohio corporation ("Terra Preta"), is a biochar product
development and environmental solutions business started by the Company in
December 2022. Terra Preta is developing a novel and innovative combination of
biochar, proprietary materials and structural designs intended to create several
first-of-its-kind agricultural and water filtration products and solutions.
Biochar is a solid, lightweight carbon-rich material produced by the thermal
decomposition of organic material (such as cellulosic feedstock, including wood
and plants) using a chemical-conversion process known as pyrolysis.
Carbonization pyrolysis is a chemical degradation process that heats organic
materials to produce carbon-rich biochar, liquid bio-oils, and syngas products.
Since organic material is thermally decomposed without oxygen during the
pyrolysis process, combustion does not occur, so the process allows for the
permanent capture of carbon in the biochar end-product and eliminates the
release of climate-damaging carbon dioxide into the atmosphere. The specific
yield of biochar during the carbonization pyrolysis process depends on several
variables such as temperature, heating time and heating rate. Lower
temperatures, longer heating times and lower heating rates typically yield more
biochar and less bio-oil and syngas.
Terra Preta has been launched to build a full-cycle, carbon-negative business
that reduces greenhouse gases from the atmosphere, passively filters
contaminated water without the use of harsh chemicals, and provides a fortified,
nutrient-rich soil amendment to improve the growth of agricultural products.
Greenhouse gases, comprised of carbon dioxide, methane, nitrous oxide and
fluorinated gases, are gases that trap heat in the atmosphere, and are generally
believed to result in warmer temperatures and climate change, including changing
weather patterns, rising sea levels, and more extreme weather events. Carbon
dioxide enters the atmosphere through, among other things, the burning of fossil
fuels, solid waste and other biomass materials, and is removed from the
atmosphere when absorbed by plants during the photosynthesis process. Terra
Preta is in discussions with a large affiliated landowner to enter into a
long-term lease or purchase of at least 100 acres of former mine land in West
Virginia for the planting, growth and harvesting of crops to serve as the
primary feedstock for our biochar production operations. The newly planted crops
would then act as a "carbon sink", drawing substantial amounts of carbon dioxide
from the atmosphere into the plants through the photosynthesis process. When the
plants are harvested, biochar is produced through the carbonization pyrolysis
process and the captured carbon dioxide is permanently preserved as carbon in
the biochar product for use in water treatment and agricultural end uses.
Pursuant to rules adopted under the Clean Water Act of 1972 ("Clean Water Act"),
the U.S. Environmental Protection Agency ("EPA") has implemented various
pollution control programs such as wastewater standards for industry and
recommendations for pollutants in surface waters. The Clean Water Act prohibits
any party from discharging pollutants into a water of the United States unless
they have a permit issued under the National Pollutant Discharge Elimination
System ("NPDES"), which contains limits on what a party can discharge and
establishes monitoring and reporting requirements. On mining sites, coal
operators are required to sample and test their water discharges on a regular
basis to ensure compliance with the Clean Water Act and applicable NPDES
permits. Currently, most mining operators treat non-compliant water with
temporary holding ponds and expensive chemicals such as pH adjusters, coagulants
and flocculants that require constant reapplication to ensure compliance. Terra
Preta will focus on developing a proprietary, biochar-based passive treatment
system that treats non-compliant mine site discharges to ensure compliance with
the Clean Water Act and NPDES permits without the need for holding ponds or
expensive chemicals.
6
Sustainable agriculture plays a critical role in the stability, growth, and
diversification of our future food supply chain and the growth of plants
intended to serve as a carbon sink to reduce greenhouse gases. High-quality
soil, a key condition for sustainable agriculture, requires organic matter,
microorganisms, nutrients, and optimal compaction. Subsoils with a sufficient
number of air-filled pores have little restriction to drainage and aeration, and
typically are able to decompose and cycle organic matter and nutrients more
efficiently. Alternatively, soil with poor aeration leads to the build-up of
carbon dioxide, reduces the ability of plants to absorb water and nutrients, and
leads to increased plant stress and root disease. To help address the ill
effects of soil compaction, Terra Preta is developing a proprietary, fortified
biochar soil amendment that provides unique soil structuring characteristics
that will allow plants to grow strong roots that optimize the absorption of
water and nutrients, thereby reducing root stress and disease.
In December 2022, Terra Preta filed trademarks for biochar goods and services
related to agricultural and water treatment applications. In March 2023, Terra
Preta filed provisional patents related to novel and innovative agricultural and
water treatment solutions and designs. Additionally, in March 2023, Terra Preta
purchased two pyrolysis ovens that each produce one ton of biochar per day to
advance our research and development activities. We anticipate that several
biochar-based water filtration and soil amendment products will be available for
production and sale by the end of 2023.
Stream Mitigation Banking
In December 2022, the Company formed Pristine Stream Ventures, Inc., an Ohio
corporation ("Pristine Stream") to engage in the business of establishing
"mitigation banks" throughout the Appalachian region in order to restore and
preserve environmentally degraded streams and waterways and support new economic
development, with a particular focus on coal mine sites in economically
disadvantaged areas that are being repositioned for next generation industries
and job creation.
A mitigation bank is a stream, wetland or other aquatic resource that has been
restored or preserved for the purpose of providing compensation for
environmental impacts to other aquatic resources. A mitigation bank is created
to ensure that ecological loss resulting from new development is offset by the
restoration and preservation of other nearby natural habitats so there is no net
loss to the environment. Regulatory agencies determine the number of mitigation
credits that a mitigation bank may earn and sell upon the completion of each
specific restoration project, and likewise, the number of mitigation credits
that a developer is required to purchase to offset the environmental impact of
the new development project.
Under Section 404 of the Clean Water Act, a permit from the U.S. Army Corps of
Engineers ("Army Corps") is required to begin a new development that impacts a
wetland, stream or other aquatic resource. The Army Corps, following the
guidance set forth by the EPA, will grant a permit if the applicant: (i) takes
all practicable steps to avoid an adverse impact to a wetland, stream, or other
aquatic resource, (ii) minimizes unavoidable damage to a wetland, stream, or
other aquatic resource, and (iii) compensates for permanent destruction of a
wetland, stream, or other aquatic resource by creating a new comparable aquatic
resource, or by restoring a degraded one.
When a wetland, stream or aquatic resource is permanently destroyed as part of a
project, the developer must either restore or preserve a new wetland, stream or
aquatic resource, or purchase available credits from a qualified and approved
mitigation bank that has already restored or preserved a wetland, stream or
aquatic resource in a qualifying hydrological unit code ("HUC") zone. The United
States Geological Survey created HUC zones based on a hierarchical land area
classification system incorporating surface hydrological features in a standard,
uniform graphical framework. HUC zone requirements are used to ensure a restored
waterway is proximally located to an impacted waterway so that the no net-loss
principle incorporates a geographic factor.
Compensatory mitigation can be accomplished through three options approved by
the Army Corps: (i) the developer purchases appropriate credits from an approved
mitigation bank, (ii) the developer pays into an approved in-lieu fee fund, or
(iii) the developer performs the requisite amount of aquatic restoration. The
Army Corps determines, on a case-by-case basis, the appropriate compensation
option and amount of compensation mitigation required by a developer to off-set
unavoidable adverse effects to the aquatic environment. In determining the
amount of compensation mitigation, the Army Corps will consider the functional
loss at the development site, the expected functional gain at the mitigation
site, the net loss of aquatic resource surface area, risk and uncertainty of the
mitigation project, and loss of natural habitat.
7
Pristine Stream is planning to establish mitigation banks throughout the
Appalachian region to earn mitigation credits which Pristine Stream would later
sell to developers to allow them to offset the impact of development activities
in similar geographical areas. Pristine Stream plans to identify and select
qualifying aquatic sites, work closely with applicable federal and state
regulatory agencies, and use the Range Reclamation Entities to repair and
restore damaged waterways to earn mitigation credits that can be sold by
Pristine Stream. Pristine Stream is currently analyzing the supply and demand
dynamics of many HUC zones throughout the Appalachian region to determine the
optimal areas of focus for its new mitigation banks, and anticipates initiating
its first mitigation banking project in Appalachia by the end of 2023.
Environmental Security Services
Range Security Resources, Inc., an Ohio corporation ("Range Security"), is an
environmental security services business started by the Company in November
2022. Range Security is focused on providing eco-friendly, technology-driven
security services to active and former mine sites, with a particular focus on
locations transitioning from coal mining to next generation industries. Range
Security is intended to serve as a complementary business to the Range
Reclamation Entities.
Mine sites in the Appalachian region frequently comprise thousands of acres of
natural habitat with valuable infrastructure and operating assets disbursed
across large tracts of land. However, many of these mine sites lack adequate
broadband access or cellular service, and therefore traditional technology-based
security solutions are not available. Also, due to the large land areas and
often challenging access roads and mountainous terrain, consistent visual
confirmation of the safety and security of high value assets is problematic, and
unnecessary amounts of carbon dioxide are emitted from heavy-duty trucks used to
perform frequent visual security checks. Furthermore, due to the remoteness and
lack of technological options, most security services in the market fail to
provide an independent verification of the security status of a mine site and
confirmation of visual security checks, resulting in a customer's uncertainty
regarding the actual security services being provided.
Valuable assets commonly found on mine sites requiring high-levels of security
services include office buildings, coal operation facilities such as preparation
plants and loadout facilities, power stations and electrical lines, vehicles and
heavy equipment, supplies and chemicals, and spare parts and components. These
high-value assets are frequently the target of theft since all or parts of these
assets can be easily removed from the mine site and sold for cash.
Unfortunately, the actual damage to the operation resulting from this type of
destructive theft is frequently many times the market value of the stolen item,
primarily due to the losses resulting from the down-time of operations, the cost
of repairs and replacement components, and the long-term damage to critical
infrastructure that can be repurposed and used to attract next generation
industries once the mining is complete.
In March 2023, Range Security was engaged by its first customer for
environmental security services covering a 13,000-acre coal mine site in West
Virginia. Range Security has hired seven new security professionals, and is
focusing its recruitment efforts on military veterans, police officers, and
other professionals with security experience. Range Security has purchased two
fuel-efficient utility task vehicles for ground surveillance and a
thermal-imaging drone for aerial surveillance, all of which use significantly
less fuel and electricity to operate than traditional security vehicles and
provide a much broader coverage range with a substantially lower carbon
footprint. Range Security is also in the process of establishing satellite-based
wireless service to support video surveillance and enable a mobile technology
solution used by our security professionals to provide real-time evidence of
visual security checks. Range Security plans to expand its security service
business onto several additional mine sites prior to the end of 2023, with a
particular focus on locations with valuable infrastructure being repurposed into
non-coal multi-use complexes with attractive job growth prospects and next
generation industry opportunities.
Cannabinoid Drug Development
Graphium Biosciences, Inc., a Nevada corporation ("Graphium"), is a
cannabinoid-based drug development company tracing its history of technological
innovation and drug advancement back to October 2011 through two predecessor
entities, Stevia First Corp. and Vitality Biopharma, Inc. In October 2021, the
Company formed Graphium as a wholly-owned subsidiary and transferred all of its
drug development assets to this newly-formed entity.
8
Graphium is advancing a broad portfolio of glycosylated cannabinoid prodrugs
that have been developed to unlock the rebalancing effects of the
endocannabinoid system to address numerous chronic conditions with inadequate
pharmaceutical options. Graphium's leading drug candidate, VBX-100, is a
glycosylated tetrahydrocannabinol ("THC") cannabinoid that targets inflammatory
conditions of the gastrointestinal tract but without unwanted psychoactive or
intoxicating side effects.
Cannabinoids, including THC and cannabidiol ("CBD"), have well-known therapeutic
benefits through their interaction with the human endocannabinoid system, which
serves a regulating and rebalancing function in the body. For decades, patients
have used cannabinoids to activate the endocannabinoid system to provide relief
for numerous chronic and debilitating ailments, including inflammation, pain,
anxiety, depression, and cancer. However, THC, a commonly-used cannabinoid with
significant therapeutic benefit, is psychoactive and intoxicating, and therefore
its use has many practical, and in some cases legal, limitations. Nevertheless,
many patients with chronic health conditions, including gastrointestinal
inflammation, continue to use cannabinoids because current pharmaceutical
offerings do not provide adequate therapeutic relief or result in unwanted side
effects.
Our novel scientific discovery was the development of a proprietary enzymatic
bioprocessing technology that adds one or more glucose molecules to a
cannabinoid, resulting in our proprietary glycosylated cannabinoid compounds.
Our glycosylated cannabinoids act as prodrugs that achieve targeted delivery of
the bioactive cannabinoids within the body once they are activated. Prodrugs are
compounds that, after administration, are metabolized into a pharmacologically
active drug and are often designed to improve drug properties and reduce known
or expected toxicities and adverse side effects. The advantages of our
glycosylated cannabinoid prodrugs may include: (i) administration in a
convenient oral formulation, (ii) targeted delivery with release in the colon or
large intestine, (iii) improved stability with limited degradation or drug
metabolism, and (iv) delayed release enabling longer-lasting effects and fewer
administrations by patients.
We have learned through our animal studies that glucose bound to cannabinoid
molecules are inactive and poorly absorbed from the intestines, allowing the
combined molecule to reach the large intestine where glycoside hydrolase enzymes
cleave the glucose and the cannabinoid is released in a targeted and restricted
manner. Further, we have learned through our animal studies that a targeted
release of THC, which could be provided in very low doses to achieve
physiologically beneficial results, serves as an anti-inflammatory agent in the
lower gastrointestinal tract and minimizes the amount of THC absorbed into the
blood stream. Therefore, we anticipate our glycosylated cannabinoid prodrug will
provide the anti-inflammatory benefits of low-dose THC while avoiding the
psychoactive and intoxicating properties that hinder the broader pharmaceutical
use of THC. Initially, we are targeting the $20 billion inflammatory bowel
disease ("IBD") market in the United States, which is composed of patients
suffering from ulcerative colitis and Crohn's disease, both chronic and
debilitating conditions with no cure. We also believe our glycosylated
cannabinoids could also be used to treat other indications, including, among
others, irritable bowel syndrome ("IBS"), anxiety, depression, autism and
cancer.
By using our proprietary enzymatic bioprocessing technologies, our research team
has developed a novel family of over 100 glycosylated cannabinoid prodrugs.
These glycosylated cannabinoids have unique commercial applications and
patentable compositions of matter, which are separate and distinct from ordinary
cannabinoids. Currently, our intellectual property is comprised of the following
patents: (i) Cannabinoid Glycoside Prodrugs and Methods of Synthesis: Patent
filed in 2016 and granted in 2021 for the invention of novel glycosylated
cannabinoids and methods of targeted delivery for the treatment of
gastrointestinal disorders, including IBD and IBS, (ii) Antimicrobial
Compositions Comprising Cannabinoids and Methods of Using the Same: Patent filed
in 2018 and granted in 2021 for the use of cannabinoids as antibiotics for the
treatment of Clostridioides difficile, (iii) Novel Cannabinoid Glycosides and
Uses Thereof: Patent filed in 2020 and in prosecution for additional novel
cannabinoid glycosides and includes research data supporting the improved
characteristics and commercial production strategies for these new molecules,
and (iv) Continuous Enzymatic Perfusion Reactor System: Patent filed in 2021 and
in prosecution for our improved reactor system for the efficient enzymatic
glycosylation of hydrophobic small molecules, including cannabinoids. We believe
our intellectual property portfolio of glycosylated cannabinoids possess
significant value and, as a result, we have allocated substantial resources to
ensure that our U.S. and international patents are properly filed and
successfully prosecuted. As our research efforts involving glycosylated
cannabinoids continue to progress, we plan to file additional patents to further
expand our growing family of intellectual property assets and create long-term
value for our shareholders.
9
Our research team has performed 23 animal studies to test the safety, efficacy
and dosing levels of our glycosylated cannabinoids, which have provided us with
favorable scientific data and the opportunity to further refine our drug
development plan. We have performed two industry standard colitis disease mouse
models: (i) TNBS model in 2017 and 2018 that generated favorable colitis
prevention data, and (ii) DSS model in 2021 that generated favorable colitis
treatment data. In 2021, we received a letter from the Food and Drug
Administration's ("FDA") Office of Orphan Products Development stating that we
have been granted Orphan Drug Designation for our glycosylated cannabinoid
VBX-100 for the treatment of pediatric ulcerative colitis. An Orphan Drug
Designation provides several benefits, including fee waivers, tax credits, fast
tracking of regulatory processes, and seven years of market exclusivity.
Due to our development of pharmaceutical products, we are subject to extensive
regulation by the FDA and other federal, state, and local agencies. Also, since
we are researching and developing cannabinoid-based products, we are subject to
regulation by the U.S. Drug Enforcement Administration ("DEA"). Our research and
development activities focus on cannabinoids, particularly THC and CBD derived
from the cannabis plant, which the DEA has classified as Schedule I substances.
Schedule I substances are defined as drugs with no currently accepted medical
use and a high potential for abuse. In May 2019, the DEA informed us that it had
determined that they consider our VBX-100 prodrug a Schedule I substance. As a
result, any developing, testing, manufacturing, or clinical studies involving
our VBX-100 prodrug, and by inference potentially all of our THC-glycoside
molecules, are required to be properly licensed by the DEA and adhere to strict
diversion control standards.
We are working closely with a third-party contract research organization to
develop a detailed drug development plan to advance our leading drug candidate,
VBX-100, through Phase II clinical trials by the end of 2025, subject to receipt
of sufficient funding, which is currently estimated to be approximately $10.5
million. If we are successful in advancing VBX-100 through Phase II clinical
studies, then we would seek to maximize shareholder value by either selling our
drug development assets to a strategic purchaser or raising additional capital
to advance VBX-100 through Phase III clinical trials.
Impact Investing Strategy
Our impact investing strategy aims to improve the health and wellness of people
and the planet, while also generating long-term sustainable financial returns
for our shareholders. We believe that doing well and doing good are not mutually
exclusive, and that an impact investing strategy can balance the environmental,
social and economic needs of people and the planet while also generating
attractive risk-adjusted financial returns for shareholders.
Our impact investing strategy provides an opportunity for our dedicated team to
address pressing environmental, social and economic challenges, such as climate
change, air and water pollution, educational inequality and economic disparity,
through the development of technology-based solutions. By actively directing
investment capital towards businesses that are working to create positive
environmental, social and economic outcomes, our impact investing strategy can
meaningfully contribute to an improved people-planet ecosystem and a healthier
and happier way of life.
We have a particular interest in providing environmental and social solutions in
economically-disadvantaged regions of the United States. Initially, the Company
is targeting the Appalachian region, which is home to communities with some of
the most disadvantaged income, education and employment demographics in the
United States. Our ambitious strategy is to allocate investment capital and
build operating businesses that provide positive environmental and social impact
in the disadvantaged coal communities of Appalachia to maximize the good we can
do for people and the planet.
Impact Investing Process
Our Company maintains a rigorous investment process comprised of sourcing,
underwriting, acquiring or originating, growing, and exiting impact investing
opportunities. Our executive management team is responsible for the
construction, execution, and continued refinement of our impact investing
process, which relies upon the decades of experience of our executive management
team and a periodic review, evaluation and adoption of best practices employed
in the direct investment and private equity industry.
10
Our impact investing process starts with identifying and evaluating potential
investment opportunities. We use a variety of sources to identify potential
impact investments, including our extensive network of industry contacts, third
party intermediaries and proprietary research performed by our executive
management team. Each potential impact investment is evaluated based on its fit
with our corporate strategy, the individual risks and opportunities of each
potential investment, and any synergies with our other impact investments
("Portfolio Companies"). This detailed due diligence review is aimed at
identifying and addressing material investment risks and opportunities to create
long-term sustainable value for our shareholders. Furthermore, our evaluation of
each potential impact investment incorporates, to the extent appropriate,
consideration of environmental, social and governance ("ESG") and diversity,
equity and inclusion ("DEI") factors in the investment decision-making process.
Our impact investments are commonly structured as stock or asset acquisitions
with transaction consideration in the form of cash and the Company's common
stock so the former owners of impact investment acquisitions are properly
aligned with our public shareholders in the creation of future value.
Additionally, the Company has developed innovative business projects that fit
within our corporate strategy and have been allocated capital and resources to
grow and increase shareholder value. Each such organic innovation has been
developed within a newly-created, wholly-owned Portfolio Company (e.g., Terra
Preta, Pristine Stream and Range Security) so the executive management team can
properly monitor the performance of each organic innovation and optimize the
allocation of capital and management resources to maximize the positive overall
impact to the Company and its shareholders.
After a potential impact investment is acquired, or an organic innovation is
launched, our executive management team is responsible for closely monitoring on
a regular basis the performance of each investment. Each Portfolio Company has
an experienced management team that is responsible for executing a value
creation plan with active support, collaboration and input from the Company's
executive management team. Our complementary hybrid approach to investment
management enables the management teams of each Portfolio Company to manage the
daily operations of the business in a decentralized manner, while the executive
management team of the Company serves as an active collaborator to the
management team of each Portfolio Company to ensure the value creation plan is
being successfully executed and cross-pollination of ideas, capabilities and
synergies are achieved across each Portfolio Company. We believe a balanced
approach to individual management and corporate governance provides Portfolio
Company management teams with the freedom and autonomy to preserve their
ownership mindset while also providing the Company's executive team with the
optimal level of involvement in order to maximize the overall benefits to the
Company's shareholders.
As the value creation plan is executed for each Portfolio Company, the Company's
executive team, in consultation with the management team of each Portfolio
Company, will regularly evaluate the strategic options for the business, which
could include additional investment to fund strategic growth and expansion,
maximizing current cash flow without further investments, or a potential exit to
a strategic or financial buyer. This process of evaluating strategic options is
dynamic and involves many considerations, including an evaluation of the current
and future market conditions, the Portfolio Company's current and future
financial performance, changes in the Portfolio Company's competitive
advantages, macro and micro market conditions, and exit valuations. Since the
Company is structured as a perpetual investment vehicle without predetermined
hold periods, our executive management team possesses the flexibility to
regularly evaluate the risk-return profile of each Portfolio Company and make
strategic decisions that maximize the investment returns and value creation for
the Company's shareholders.
Structure and Operation
The Company is organized as a public holding company. Currently, all Portfolio
Companies are wholly-owned subsidiaries of the Company and are consolidated in
our financial reporting.
11
The Company's executive management team works closely with the management team
of each Portfolio Company on strategy, operations and financial matters. The
Company allocates the time and resources of several executives to support the
operations of Portfolio Companies, including accounting, insurance and human
resources, to recognize operational efficiencies and cost savings resulting from
the Company's larger scale.
Environmental, Social and Governance
ESG principles are central to our mission of improving the health and wellness
of people and the planet. Our impact investing strategy is dedicated to pursuing
opportunities that improve the long-term sustainability of our people-planet
ecosystem, reverse the damaging effects of climate change, and revitalize
disadvantaged communities into next generation cities. We believe that
considering ESG principles, along with the profit potential of an investment,
enables our team to take a broader, more holistic approach to capital deployment
by considering a wide range of stakeholders, including shareholders, the
environment and local communities.
We believe our genuine commitment to ESG principles, which is at the heart of
our impact investing strategy, truly differentiates our Company from other
businesses whose dedication to ESG principles is more peripheral. We believe our
strong commitment to ESG principles will allow us to attract similarly-committed
customers, suppliers, employees, financial partners, and federal, state and
local partnerships who are motivated by our shared sense of purpose and
commitment to doing well by doing good.
Diversity, Equity and Inclusion
Our employees are integral to fostering a culture of honesty, integrity and
respect. We believe hiring, training, motivating and retaining talented
individuals is critical to the successful execution of our impact investing
strategy. Our employees are our single most important asset.
We seek to attract employees with different backgrounds and unique perspectives,
and provide a safe environment for them to collaborate in a respectful manner so
our Company can benefit from their best collective thinking. We believe a
diverse, equitable and inclusive workforce increases innovation and creativity,
improves decision making, increases adaptability and flexibility, and improves
stakeholder engagement. Additionally, we believe these benefits will ultimately
result in greater profits and an increase in long-term shareholder value.
Competition
Our Company is focused on a large and growing marketplace for impact investing
and ESG business initiatives, and therefore, is anticipated to face competition
from a variety of operating businesses and investment funds who are developing
business plans and operating strategies to satisfy the increasing demands of
these types of investments in the marketplace. In almost all cases, these
competitors are larger and better capitalized operating businesses and
investment funds.
Our Company competes on the basis of a number of factors, including access to
capital, access to impact investing opportunities, recruitment and retention of
key personnel, market share with key customers, and supply relationships with
critical vendors. Our ability to continue to compete effectively in our
businesses will depend upon our ability to attract new employees and retain and
motivate our existing employees.
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Information Systems
Since inception, the Company and its subsidiaries have used QuickBooks as its
general ledger accounting software. However, given the significant current and
anticipated growth of its Portfolio Companies and the need for more robust
information for management analysis and decision-making, the Company has decided
to transition all of its accounting software services from QuickBooks to
Foundation Software.
Foundation Software, founded in Cleveland, Ohio in 1985, is specifically
designed for service companies, particularly those in the construction,
contracting and reclamation industries. Foundation Software offers the Company
several enhanced features critical to the successful execution of its value
creation plan, including (i) general ledger accounting, including accounts
payable, accounts receivable, inventory and customer billing, (ii) equipment
tracking on job sites, maintenance, utilization and depreciation, (iii) employee
tracking on job sites, time and materials, utilization, and billing, (iv) job
costing and profitability reporting segmented by customers, job types and
location, and (v) numerous real-time management dashboard and key performance
indicator reports that will allow management to closely monitor the performance
of each Portfolio Company and quickly react to business opportunities and
issues. Furthermore, Foundation Software will allow the Company and its
Portfolio Companies to quickly scale operations and efficiently and
cost-effectively support the anticipated growth of each business, thereby
preventing our accounting and management systems from becoming a limiting factor
to our growth initiatives.
The Company has officially engaged Foundation Software as its new accounting
software provider and is in the process of converting all of the Company
accounting system operations from QuickBooks to Foundation Software, which is
expected to be completed during the second quarter of 2023.
Going Concern
The accompanying financial statements have been prepared on a going concern
basis, which contemplates the realization of assets and the settlement of
liabilities and commitments in the normal course of business. As reflected in
the accompanying financial statements, during the year ended December 31, 2022,
the Company incurred a net loss of $1,072,176 and used $603,778 of cash in the
Company's operating activities. These factors raise substantial doubt about the
Company's ability to continue as a going concern within one year of the date
that the financial statements are issued. The financial statements do not
include any adjustments that might be necessary should the Company be unable to
continue as a going concern.
The ability to continue as a going concern is dependent on the Company attaining
and maintaining profitable operations in the future and/or raising additional
capital to meet its obligations and repay its liabilities arising from normal
business operations when they come due. The Company estimates, as of December
31, 2022, that it has sufficient funds to operate the business for 12 months
given its cash balance of $442,369, line of credit availability of $1,000,000,
and revenues being generated by the Company's operating subsidiaries. Although
the Company's existing cash balances are estimated to be sufficient to fund its
currently planned level of operations, the Company is actively seeking
additional financing and other sources of capital to accelerate the funding and
execution of its growth strategy and value creation plan. However, these
estimates could differ if the Company encounters unanticipated difficulties, or
if its estimates of the amount of cash necessary to operate its business prove
to be wrong, and the Company uses its available financial resources faster than
it currently expects. No assurance can be given that any future financing or
capital, if needed, will be available or, if available, that it will be on terms
that are satisfactory to the Company.
General Information
We maintain a corporate website at: www.malachiteinnovations.com. Information
contained on our website is not incorporated by reference in this Annual Report.
We file reports with the Securities and Exchange Commission ("SEC") and make
available free-of-charge through our website our annual reports, quarterly
reports, current reports, proxy and information statements and amendments to
those reports filed or furnished pursuant to Section 13(a) or 15(d) of the
Securities Exchange Act of 1934, as amended (the "Exchange Act").
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