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Item 7. Management’s Discussion and Analysis

2024-03-29 compared with 2023-03-31 · 143 added, 133 removed, 80 unchanged (78% of the section changed)

13 unchanged sentences

or circumstances that exist after the date on which they are made.

following discussion should be read in conjunction with the financial statements and the accompanying notes for the periods ended

December 31, 2022 and December 31, 2021 appearing elsewhere in this Annual Report.

Our actual results could differ materially from

those expressed or implied in any forward-looking statements as a result of various factors, including those set forth under the

caption “Risk Factors” in Part I, Item 1A.

In addition, the financial statements for the year ended December 31, 2022

include the operations of the Range Reclamation Entities and also include a full year of activity, while the financial statements

for the nine months ended December 31, 2021 only included nine months of activity.

following discussion should be read in conjunction with the financial statements and the accompanying notes for the periods ended December

31, 2023 and December 31, 2022 appearing elsewhere in this Annual Report.

Our actual results could differ materially from those expressed

or implied in any forward-looking statements as a result of various factors, including those set forth under the caption “Risk

Factors” in Part I, Item 1A.

Affecting Comparability of Financial Results

the year ended December 31, 2023, we purchased Collins Building, as described in Note 2 to our Consolidated Financial Statements.

the year ended December 31, 2022, we purchased the Range Reclamation Entities, as described in Note 3 to our Consolidated Financial Statements.

of Operations

Malachite Innovations, Inc.

is a public holding company dedicated to improving the health and wellness of people

and the planet through a novel and innovative approach to impact investing.

Malachite owns and operates a balanced portfolio of operating

businesses focused on developing long-term solutions to environmental, social and health challenges, with a particular focus on economically

disadvantaged communities.

Malachite takes an opportunistic approach to impact investing by leveraging its competitive advantages and

looking at solving old problems in new ways.

Malachite seeks to thoughtfully allocate its capital into ventures that are expected to make

a positive impact on the people-planet ecosystem and generate strong investment returns for our shareholders.

We are a public company dedicated

to improving the health and wellness of people and the planet through a novel and innovative approach to impact investing.

operate several complementary operating businesses focused on developing long-term solutions to environmental, social, and health challenges,

with a particular focus on acquiring, reclaiming and repurposing mine sites and other undervalued land in economically disadvantaged communities

throughout Appalachia.

We take an opportunistic approach to impact investing by leveraging our competitive advantages and looking at solving

old problems in new ways.

We seek to thoughtfully allocate our capital into strategic opportunities that are expected to make a positive

impact on the people-planet ecosystem and generate strong investment returns for our shareholders.

Accounting Policies

1 unchanged sentence

of Estimates and Assumptions

preparation of financial statements in conformity with generally accepted accounting principles in the United States requires management

to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and

liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the period.

The more significant

estimates and assumption by management include, among others, assumptions used in valuing assets acquired in business acquisitions, reserves

for accounts receivable, assumptions used in valuing equity instruments issued for services, the valuation allowance for deferred tax

assets, accruals for potential liabilities, and assumptions used in the determination of the Company’s liquidity.

Actual results

could differ from those estimates.

preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires

management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent

assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the period.

results could differ from those estimates.

combinations are accounted for using the purchase method of accounting under ASC 805, “Business Combinations.” This method

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as incurred since the projects are generally short-term and not subject to a contract.

The Company also invoices customers for the provision of environmental security services on an agreed-upon hourly

rate for each project.

All revenue is recognized at a point in time.

The Company also invoices customers for the provision

of environmental security services on an agreed-upon hourly rate for each project.

Company recognizes revenue from contracts for financial reporting purposes over time.

Progress toward completion of the Company’s

contracts is measured by the percentage of cost incurred to date compared to estimated total costs for each contract.

This method is

used because management considers total cost to be the best available measure of progress on contracts.

Because of inherent uncertainties

in estimating costs, it is at least reasonably possible that the estimates used will change significantly within the near term.

Accounting Pronouncements

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of Operations

Ended December 31, 2022 and Nine Months Ended December 31, 2021

following table sets forth our results of operations for the year ended December 31, 2022 and the nine months ended December 31, 2021.

Ended December 31, 2023 and December 31, 2022

following table sets forth our results of operations for the years ended December 31, 2023 and 2022.

December 31, 2023

December 31, 2022

and administrative

and development

from operations

on loan forgiveness

income (expense)

Cost of services

Operating Expenses:

General and administrative

Research and development

Income (loss) from operations

Other Income:

Gain on bargain purchase

Gain on loan forgiveness

Interest expense

Interest income

Total other income (expense)

$ (1,072,176 )

Net income (loss)

$ (1,072,176 )

net loss during the year ended December 31, 2022 was $1,072,176 compared to a net loss of $1,712,969 for the nine months ended December

31, 2021 (a decrease of $640,793).

The Company’s revenue during the year ended December 31, 2022 was $4,832,278 and its gross profit

was $1,393,252.

The Company had no revenue or gross profit during the nine months ended December 31, 2021 as all of the Company’s

revenue was generated by the Range Reclamation Entities acquired in May 2022.

Company’s revenue during the year ended December 31, 2023 was $19,346,306 compared to $4,832,278 for the year ended December 31,

2022 (an increase of $14,514,028).

During the year ended December 31, 2023, we earned a gross profit of $6,234,809 compared to $1,393,252

during the year ended December 31, 2022 (an increase of $4,841,557).

the year ended December 31, 2023, we incurred general and administrative expenses in the aggregate amount of $4,021,556 compared to

incurred during the nine months ended December 31, 2021 (an increase of $609,108).

General and administrative expenses generally include

corporate overhead, salaries and other compensation costs, financial and administrative contracted services, consulting costs and travel

The largest increase related to (i) the general and administrative expenses incurred by our Environmental Services segment of $631,820 during

the year ended December 31, 2022, compared to $17,484 incurred during the nine months ended December 31, 2021 (an increase of $614,336)

and (ii) higher costs related to stock compensation of $393,260 during the year ended December 31, 2022, compared to $297,984 during

the nine months ended December 31, 2021 (an increase of $95,276).

We recorded wages in the amount of $392,344 during the year ended December

31, 2022 compared to $418,519 during the December 31, 2021 period (a decrease of $26,175, which was primarily due to the reallocation of

certain salaries to research and development during the year ended December 31, 2022).

$2,022,882 incurred during the year ended December 31, 2022 (an increase of $1,998,674).

General and administrative expenses

generally include corporate overhead, salaries and other compensation costs, financial and administrative contracted services,

consulting costs and travel expenses.

The largest increase related to (i) the general and administrative expenses incurred by our

Range Reclaim segment of $2,068,677 during the year ended December 31, 2023, compared to $631,820 incurred during the year ended

December 31, 2022 (an increase of $1,436,857), which was due to the acquisition of Collins Building in 2023 and significantly

increased activity in the Range Reclaim segment during the year ended December 31, 2023.

We recorded wages for the Corporate segment

in the amount of $465,057 during the year ended December 31, 2023 compared to $392,344 during the year ended December 31, 2022 (an

increase of $72,713), which was primarily due to additional wages resulting from two new accounting professionals hired during the

year ended December 31, 2023.

the year ended December 31, 2023, we incurred research and development expenses of $458,889 compared to $470,803 incurred during the

nine months ended December 31, 2021 (an increase of $171,878).

The Company’s research and development personnel expenses were

$331,202 during the year ended December 31, 2022, compared to $175,417 for the nine months ended December 31, 2021, (an increase of

$155,785, due to the shorter period of time included in the December 31, 2021 period offset by the reallocation in 2022 of certain

salaries from general and administrative expenses to research and development expenses).

We also recorded $7,083 related to stock-based

compensation in our research and development expenses during the nine months ended December 31, 2021 and no such expenses during the year

ended December 31, 2022.

the year ended December 31, 2022, we recorded other income of $28,257, consisting of a gain on loan forgiveness of $109,435 offset

by interest expense of $81,178, compared to other expense of $270 during the nine months ended December 31, 2021 (an increase of

decrease in net loss for the year ended December 31, 2022 compared

to the nine months ended December 31, 2021 is primarily due to the gross profit of $1,393,252 earned during

the year ended December 31, 2022, arising from the operations of the Range Reclamation Entities acquired in May 2022.

The Company had no gross profit

for the nine months ended December 31, 2021.

year ended December 31, 2022 (a decrease of $11,914).

All of these expenses were incurred by the Company’s Drug Development segment.

The Company’s research and development personnel expenses were $274,912 during the year ended December 31, 2023, compared to $331,202

for the year ended December 31, 2022 (a decrease of $56,290), and consulting expenses totaled $87,000 during the year ended December

31, 2023 compared to $0 during the year ended December 31, 2022.

the year ended December 31, 2023, we recorded other income of $1,376,691, consisting of a gain on bargain purchase of $1,875,150 and

interest income of $7,458, offset by interest expense of $505,917, compared to other income of $28,257 during the year ended

December 31, 2022, consisting of a gain on loan forgiveness of $109,435 offset by interest expense of $81,178 during the year ended

December 31, 2022 (an increase of $1,348,434).

net income during the year ended December 31, 2023 was $3,131,055 compared to a net loss of $1,072,176 for the year ended December

31, 2022 (an improvement of $4,203,231).

The improvement in year over year net income is primarily due to the year over year

increase in gross profit of $4,841,557

which was primarily derived from the operations of the Range Reclaim segment.

and Capital Resources

have incurred losses since inception resulting in an accumulated deficit of $50,212,854.

of December 31, 2022, we had total current assets of $1,424,638, primarily comprised of cash in the amount of $442,369 and accounts

receivable of $981,385.

As of December 31, 2022 we had total current liabilities of $1,553,009, consisting of the current portion of

long-term debt in the amount of $1,319,201 and accounts payable of $233,808.

As a result, on December 31, 2022, the Company had

negative working capital of $(128,371).

At December 31, 2021, the Company had negative working capital of $(390,333).

of December 31, 2023, we had an accumulated deficit of $47,081,799.

of December 31, 2023, we had total current assets of $9,724,845, primarily comprised of cash in the amount of $2,176,800 and

accounts receivable of $7,185,411.

As of December 31, 2023, we had total current liabilities of $8,971,089, primarily consisting of

the current portion of long-term debt in the amount of $2,755,792, accounts payable of $3,714,014 and lines of credit of $2,400,000.

As a result, on December 31, 2023, the Company had working capital of $753,756.

At December 31, 2022, the Company had negative

working capital of $(128,371).

of December 31, 2023, the Company had long-term assets of $14,063,299, comprised of net equipment assets of $13,301,902, goodwill of $751,421,

and deposits of $9,976.

As of December 31, 2022, the Company had long-term liabilities of $3,738,013, comprised of

long-term debt, net of current portion.

As of December 31, 2021, the Company had long-term assets of $8,692, comprised of deposits,

and no long-term liabilities.

on the Company’s current corporate strategy, its net operating losses for the 12 months following December 31, 2022 are

expected to be approximately $1,200,000, which is comprised of general operating and research and development expenses partially

offset by revenue generated by the Range Reclamation Entities.

Based on the Company’s cash balance of $442,369, $1,000,000

available under its revolving credit line, and its estimated net operating losses of approximately $1,200,000 for the 12-month

period ending December 31, 2023, the Company expects to have sufficient funds to operate its business over the next 12 months.

Company expects to generate positive cash flow from its operating businesses, other than its Cannabinoid Drug Development business,

but may also seek additional financing and other sources of capital to accelerate the funding and execution of its growth strategy

and value creation plan.

As of December 31, 2023, the Company had long-term liabilities of $5,250,027, comprised of long-term debt, net

of current portion.

on the Company’s current corporate strategy, its net operating income for the 12 months following December 31, 2023 are expected

to be approximately $1,200,000, which is comprised of revenue generated by the Range Reclaim and Range Security business segments partially

offset by general operating and research and development expenses.

Based on the Company’s cash balance of $2,176,800, and its estimated

net operating income of approximately $1,200,000 for the 12-month period ending December 31, 2024, the Company expects to have sufficient

funds to operate its business over the next 12 months.

The Company expects to generate positive cash flow from its operating businesses,

other than its Drug Development business, but may also seek additional financing and other sources of capital to accelerate the funding

and execution of its growth strategy and value creation plan.

As we have disclosed in our previously-filed

quarterly reports, we are actively seeking capital to advance our leading drug candidate, VBX-100, through Phase II clinical trials.

have no assurance that we will be successful in these capital-raising efforts or whether, as a result of such fund-raising, Graphium would

continue as a wholly-owned subsidiary of the Company.

In the event that we fail to raise the desired amount of capital, the Company will

likely explore a strategic alternative for our Drug Development business so the Company can focus on our income-producing environmental

services business.

Such a disposition of the Drug Development business, were it to occur, would likely have a material effect on

the Company’s operations and financial condition.

estimated total expenditures for the 12-month period ending December 31, 2024 could increase if we encounter unanticipated expenses in

5 unchanged sentences

If any of these were to occur, there is a substantial risk that our business would fail.

inception, we have primarily funded our operations through equity and debt financings.

Until such time as our operating businesses are cash flow positive, we expect to continue funding our operations,

at least in part, through equity and debt financings.

However, sources of additional funds may not be available when needed,

on acceptable terms, or at all.

If we issue equity or convertible debt securities to raise additional funds or to fund, in whole or in

part, acquisitions in furtherance of our business strategy, our existing stockholders may experience substantial dilution, and the new

equity or debt securities may have rights, preferences and privileges senior to those of our existing stockholders.

If we incur additional

debt, it may increase our leverage relative to our earnings or to our equity capitalization, requiring us to pay additional interest

Obtaining commercial loans, assuming those loans would be available, would increase our liabilities and future cash commitments.

If we pursue capital through alternative sources, such as collaborations or other similar arrangements, we may be forced to relinquish

rights to our proprietary glycosylated cannabinoid technology or other intellectual property which, in turn, could result in our receipt of only

a portion of any revenue that may be generated from a partnered product or business.

Moreover, regardless of the manner in which we seek

to raise capital, we may incur substantial costs in those pursuits, including investment banking fees, legal fees, accounting fees, printing

and distribution expenses and other related costs.

Cash Used in Operating Activities

Company has not historically generated positive cash flows from operating activities.

While the Company has been generating revenue as a result of the acquisition of the Range Reclamation Entities in May 2022, we are still not yet generating positive cash flows from

operating activities on a consolidated basis.

For the year ended December 31, 2022, net cash used in operating activities was

$603,778 compared to net cash used in operating activities of $1,365,744 for the nine months ended December 31, 2021.

This decrease

was primarily attributable to a lower net loss of $1,072,176 for the year ended December 31, 2022 compared to a net loss of

$1,712,969 for the nine months ended December 31, 2021 and an increase in the cash adjustment for depreciation expense of $395,543

during the year ended December 31, 2022 compared to no depreciation expense during the nine months ended December 31, 2021.

cash used in operating activities during the year ended December 31, 2022, consisted primarily of a net loss of $1,072,176, offset

by stock-based compensation of $393,260 and depreciation of $395,543.

Net cash used in operating activities during the nine months

ended December 31, 2021 consisted primarily of a net loss of $1,712,969, partially offset by $297,984 related to stock-based

compensation.

Since inception, we have primarily

funded our operations through equity and debt financings.

Until such time as our operating businesses are consistently cash flow positive,

we expect to continue funding our operations, at least in part, through equity and debt financings.

However, sources of additional funds

may not be available when needed, on acceptable terms, or at all.

If we issue equity or convertible debt securities to raise additional

funds or to fund, in whole or in part, acquisitions in furtherance of our business strategy, our existing stockholders may experience

substantial dilution, and the new equity or debt securities may have rights, preferences and privileges senior to those of our existing

stockholders.

If we incur additional debt, it may increase our leverage relative to our earnings or to our equity capitalization, requiring

us to pay additional interest expenses.

Obtaining commercial loans, assuming those loans would be available, would increase our liabilities

and future cash commitments.

Moreover, regardless of the manner in which we seek to raise capital, we may incur substantial costs in those

pursuits, including investment banking fees, legal fees, accounting fees, and other related costs.

Cash Provided By (Used in) Operating Activities

the year ended December 31, 2023, net cash provided by operating activities was $438,637 compared to net cash used in operating

activities of $603,778 for the year ended December 31, 2022 (an improvement of $1,042,415).

This improvement was primarily

attributable to (i) our net income of $3,131,055 for the year ended December 31, 2023 compared to a net loss of $1,072,176 for the

year ended December 31, 2022, (ii) an increase in accounts payable of $3,480,206, and (iii) an increase in the cash adjustment for

depreciation expense of $1,781,573 during the year ended December 31, 2023 compared to $395,543 during the year ended December 31,

2022, offset by an increase in accounts receivable of $6,204,026 in the year ending December 31, 2023.

Net cash used in operating

activities during the year ended December 31, 2022, consisted primarily of a net loss of $1,072,176, offset by stock-based

compensation of $393,260 and depreciation of $395,543.

Cash Used in Investing Activities

the year ended December 30, 2022, net cash used in investing activities was $6,547,230, which consisted primarily of $5,813,057 for

equipment purchased by the Range Reclamation Entities and $750,000 paid in connection with the acquisition of the Range Reclamation Entities.

was used in or provided by investing activities during the nine months ended December 31, 2021.

the year ended December 31, 2023, net cash used in investing activities was $7,162,811, which consisted primarily of $4,035,250 of long-term

debt issued and $1,000,000 paid for the Collins Building acquisition, $1,118,664 for equipment purchased primarily by the Range Reclaim

segment and $1,008,897 for land purchases by the Range Land segment.

For the year ended December 31, 2022, net cash used in investing

activities was $6,547,230, which consisted primarily of $5,813,057 for equipment purchased by the Range Reclaim segment and $750,000

paid in connection with the acquisition of the Range Reclamation Entities.

Cash Provided By Financing Activities

the year ended December 31, 2022, net cash provided by financing activities was $7,555,034, compared to net cash provided from

financing activities of $519,950 during the nine months ended December 31, 2021.

Net cash provided by financing activities for the

year ended December 31, 2022 consisted of $3,250,000 received from the issuance of common stock and warrants, proceeds of $5,091,177

from long-term debt, offset by the payoff of an SBA Disaster Loan of $158,815, the payoff of a revolving line of credit of

$350,000 and repayment of long-term debt of $277,328.

The cash provided during the nine months ended December 31, 2021 was a result of the issuance of common stock and

warrants under an equity line in the amount of $169,950 and proceeds of $350,000 from long-term debt.

the year ended December 31, 2023, net cash provided by financing activities was $8,458,605, compared to net cash provided from financing

activities of $7,555,034 for the year ended December 31, 2022.

Net cash provided by financing activities for the year ended December

31, 2023 consisted of $3,110,000 received from the issuance of common stock and warrants, proceeds of $4,035,250 from long-term debt

issued for the Collins Building acquisition and proceeds of $2,400,000 from lines of credit, offset by the repayment of long-term debt

of $1,650,659.

Net cash provided by financing activities for the year ended December 31, 2022 consisted of $3,250,000 received from

the issuance of common stock and warrants, proceeds of $5,091,177 from long-term debt, offset by the payoff of an SBA Disaster Loan of

$158,815, the payoff of a revolving line of credit of $350,000 and repayment of long-term debt of $277,328.

Sheet Arrangements

8 unchanged sentences

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 7. Management’s Discussion and Analysis