MALACHITE INNOVATIONS, INC. Management's Discussion and Analysis of Financial Condition and Results of Operations." (form 10-K)

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.

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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.

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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.

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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.

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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.

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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.

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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.

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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.

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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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