UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

For the quarterly period ended March 31,September 30, 2023

For the transition period from _____ to _____

Commission File Number: 000-53832

MALACHITE INNOVATIONS, INC.

(Exact name of registrant as specified in its charter)

(216) 304-6556

Registrant’s telephone number, including area code

Securities registered pursuant to Section 12(b) of the Act:

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer,” “non-accelerated filer,” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yes ☐ No ☒

As of May 15,November 13, 2023, there were 80,850,14889,690,149 shares of the registrant’s common stock outstanding.

MALACHITE INNOVATIONS, INC.

Quarterly Report on Form 10-Q

For the Quarterly Period Ended

March 31,September 30, 2023

INDEX

PART I - FINANCIAL INFORMATION

Item 1. Financial Statements (unaudited)

MALACHITE INNOVATIONS, INC.

CONSOLIDATED FINANCIAL STATEMENTS

THREE AND NINE MONTHS ENDED MARCH 31,SEPTEMBER 30, 2023 AND 2022

(Unaudited)

MALACHITE INNOVATIONS, INC.

CONSOLIDATED BALANCE SHEETS

See accompanying notes to the consolidated financial statements.

MALACHITE INNOVATIONS, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)

See accompanying notes to the consolidated financial statements.

MALACHITE INNOVATIONS, INC.

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY (DEFICIT)

THREE MONTHS ENDED MARCH 31, 2023 AND 2022(Unaudited)

See accompanying notes to the consolidated financial statements.

MALACHITE INNOVATIONS, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

See accompanying notes to the consolidated financial statements.

MALACHITE INNOVATIONS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

THREE AND NINE MONTHS ENDED MARCH 31,SEPTEMBER 30, 2023 AND 2022

(Unaudited)

1. BUSINESS OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Malachite Innovations, Inc. (the “Company”, “we”, “us”, “our” or “Malachite”), was incorporated in the State of Nevada on June 29, 2007. Malachite 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 ofseveral complementary 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 venturesstrategic opportunities that are expected to make a positive impact on the people-planet ecosystem and generate strong investment returns for our shareholders.

Originally founded in 2007 as Legend Mining Inc., the Company began operations as a mineral extraction exploration business.business focused on Canadian gold reserves, but failed to secure any mineral reserves to execute its strategy. In 2011, the Company changed its name to Stevia First CorpCorp., relocated its operations to California, and pursued a new strategy focused on developing stevia-based sweetener additives for the food and beverage industry.industry by using a novel glycosylation process it developed to chemically attach glucose molecules to stevia molecules. In 2015, due a lack of commercial viability of its glycosylated stevia product, the Company changed its name to Vitality Biopharma, Inc. and pursued a new strategy focused on developing cannabinoid-based prodrugs anticipatedused the same glycosylation process to treatdevelop non-psychoactive glycosylated cannabinoids for the treatment of chronic inflammatory conditions of the gastrointestinal tract by unlocking the therapeutic properties of cannabinoids but without their unwanted psychoactive side effects.tract.

In October 2021, the Company changed its name to Malachite Innovations, Inc. and reorganized its corporate structure and created the following two wholly-owned operating subsidiaries: (i) Graphium Biosciences, Inc., a Nevada corporation (“Graphium”), into which the Company contributed all of its drug development assets; and (ii) Daedalus Ecosciences, Inc., a Nevada corporation (“Daedalus”) which was formed to serve as a holding company for the Company’s future impact investing operating businesses.

InIn May 2022, Daedalus 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, sells water treatment chemicals manufactured by third parties to their customers. Range Natural also provides resource mining services for customers incidental to the reclamation and repurposing of mine sites. In August 2023, the Company acquired Collins Building & Contracting, Inc., a West Virginia corporation (“Collins Building”). Collins Building is an environmental services business that primarily focuses on the reclamation of abandoned mine land sites in West Virginia.

On December 31, 2022, Daedalus was merged into Malachite Innovations, Inc., leaving Malachite Innovations, Inc., as the parent company with full ownership of all of its wholly-owned operating subsidiaries, including the Range Reclamation Entities, Terra Preta, Inc., Pristine Stream Ventures, Inc., Range Security Resources, Inc. and Graphium.

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 threenine months ended March 31,September 30, 2023, the Company incurred arecorded net lossincome of $226,8603,214,077 and $675,796 of cash was provided by the Company’s operating activities. These factors raise substantial doubt about the Company’s ability to continue as a going concern within one yearactivities provided $1,074,719 of the date that the financial statements are issued.cash. 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 March 31,September 30, 2023, that it has sufficient funds to operate the business for 12 months given its cash balance of $229,0181,026,286, line of credit availability of $900,000100,000, and revenues being generated by the Range Reclamation Entities. 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 differchange 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.

Basis of Presentation

The consolidated financial statements include the accounts of the Company and its wholly ownedwholly-owned subsidiaries Graphium Biosciences, Inc., Range Environmental Resources, Inc., Range Natural Resources, Inc., Terra Preta, Inc., Pristine Stream Ventures, Inc., Range Security Resources, Inc., Aether Credit Ventures, Inc., NextGen AgriTech, Inc., and Daedalus Ecosciences, Inc. (merged into Malachite Innovations, Inc. on December 31, 2022), and have been prepared in accordance with accounting principles generally accepted in the United States of America. Intercompany balances and transactions have been eliminated in consolidation.

Use of Estimates

The 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. Actual results could differ from those estimates.

Revenue Recognition

The Company recognizes revenue under ASC 606, “Revenue from Contracts with Customers”. The core principle of the revenue standard is that a company should recognize revenue by analyzing the following five steps: (1) identify the contract with the customer; (2) identify the performance obligations in the contract; (3) determine the transaction price; (4) allocate the transaction price to the performance obligations; and (5) recognize revenue when (or as) each performance obligation is satisfied. The Company primarily invoices customers and recognizes revenue on a periodic basis for equipment and labor hours provided to a customer on a particular job based on an agreed-upon hourly rate sheet or a fixed amount for a project. The Company also invoices customers and recognizes revenue for equipment mobilization fees and materials and supplies required to complete a project. The Company invoices for the sales of chemicals, stone and other products and recognizes revenue when the products are delivered to the customer’s designated site.site or when control of these products is transferred to its customers, in an amount that reflects the consideration the Company expects to be entitled to in exchange for those products. Sales and other taxes that the Company collects concurrent with revenue producing activities are excluded from revenue. Costs for equipment, labor and chemicals are generally expensed 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 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.

Cash and Cash Equivalents

The Company considers all highly liquid investments with an original maturity of three months or less at the date of acquisition to be cash equivalents. From time to time, the Company’s cash account balances exceed the balances covered by the Federal Deposit Insurance System. The Company has never suffered a loss due to such excess balances.

Accounts Receivable

Trade accounts receivable are stated at the amount management expects to collect from the balances outstanding at the end of each fiscal period reflected in the consolidated balance sheets. Based on management’s assessment, it has concluded that losses on balances outstanding as of those dates will be immaterial and, therefore, no allowances were recorded for the three months ended March 31,September 30, 2023 or the three months ended March 31,September 30, 2022. Accounts receivable were $1,233,5322,897,234 and $981,385 at March 31,September 30, 2023 and December 31, 2022, respectively. No bad debt expense was accrued in either the three months ended March 31,September 30, 2023 or the three months ended March 31,September 30, 2022 and there is no allowance for doubtful accounts as of March 31,September 30, 2023 or December 31, 2022.

EquipmentUnbilled Receivables

Unbilled receivables represent revenue that has been recognized on projects for which billings have not been presented to the customer because the amounts were earned but not billable at the balance sheet date.

Property and Equipment

Property and equipment is carried at cost. Expenditures for maintenance and repairs are charged to cost of services. Additions and betterments are capitalized. The cost and related accumulated depreciation of equipment sold or otherwise disposed of are removed from the accounts and any gain or loss is reflected in the current year’s earnings.

 SCHEDULE OF EQUIPMENT

The Company provides for depreciation of property and equipment using the straight-line method for both financial reporting and federal income tax purposes over the estimated six-yearsix-year useful lives of the equipment.

The Company assesses the recoverability of its property and equipment by determining whether the depreciation of the assets over their remaining lives can be recovered through projected future cash flows generated by the assets. There were no assets identified for impairment.

Land

Land is carried at cost. The Company assesses the recoverability of its land by determining whether the cost of the land can be recovered through projected future cash flows generated by the land. No land was identified for impairment.

Delivery Costs

Delivery costs are classified as cost of sales.

Goodwill

Goodwill is tested for impairment annually and more frequently if events or changes in circumstances indicate that it is more likely than not (i.e., a likelihood greater than 50%) that the intangible asset is impaired.

Income Taxes

The Company follows the asset and liability method of accounting for income taxes. Under this method, deferred income tax assets and liabilities are recognized for the estimated tax consequences attributable to differences between the financial statement carrying values and their respective income tax basis (temporary differences). The effect on deferred income tax assets and liabilities of a change in tax rates is recognized as income (loss) in the period that includes the enactment date.

Leases

The Company determines whether a contract is, or contains, a lease at inception. Right-of-use assets represent the Company’s right to use an underlying asset during the lease term, and lease liabilities represent the Company’s obligation to make lease payments arising from the lease. Right-of-use assets and lease liabilities are recognized at lease commencement based upon the estimated present value of unpaid lease payments over the lease term. The Company uses its incremental borrowing rate based on the information available at lease commencement in determining the present value of unpaid lease payments. TheAs of September 30, 2023, the Company had no material lease commitments for longer than one year as of March 31, 2023. The laboratory space lease in Rocklin, California was renewed in March 2023 and ends on March 31, 2024.commitments.

Stock-Based Compensation

The Company periodically issues stock options and restricted stock awards to employees and non-employees in non-capital raising transactions for services. The Company accounts for such grants issued and vesting based on ASC 718, Compensation-Stock Compensation whereby the value of the award is measured on the date of grant and recognized for employees as compensation expense on the straight-line basis over the vesting period. Recognition of compensation expense for non-employees is in the same period and manner as if the Company had paid cash for the services. The Company recognizes the fair value of stock-based compensation within its Consolidated Statements of Operations with classification depending on the nature of the services rendered.

The fair value of the Company’s stock options is estimated using the Black-Scholes-Merton Option Pricing model, which uses certain assumptions related to risk-free interest rates, expected volatility, expected life of the stock options or restricted stock, and future dividends. Compensation expense is recorded based upon the value derived from the Black-Scholes-Merton Option Pricing model and based on actual experience. The assumptions used in the Black-Scholes-Merton Option Pricing model could materially affect compensation expense recorded in future periods.

Basic and Diluted LossIncome (Loss) Per Share

Basic lossincome (loss) per share is computed by dividing the net lossincome (loss) applicable to common stockholders by the weighted average number of outstanding common shares during the period. Shares of restricted stock are included in the basic weighted average number of common shares outstanding from the time they vest. Diluted lossincome (loss) per share is computed by dividing net loss applicable to common stockholders by the weighted average number of common shares outstanding plus the number of additional common shares that would have been outstanding if all dilutive potential common shares had been issued. Shares of restricted stock are included in the diluted weighted average number of common shares outstanding from the date they are granted unless they are antidilutive. Diluted lossincome (loss) per share excludes all potential common shares if their effect is anti-dilutive. The following potentially dilutive shares were excluded from the shares used to calculate diluted earnings per share as their inclusion would be anti-dilutive:

SCHEDULE OF ANTI-DILUTIVE SECURITIES EXCLUDED FROM COMPUTATION OF EARNINGS PER SHARE 

Patents and Patent Application Costs

Although the Company believes that its patents and underlying technology have continuing value, the amount of future benefits to be derived from the patents is uncertain. Accordingly, patent costs are expensed as incurred.

Research and Development

Research and development costs consist primarily of fees paid to consultants and outside service providers, patent fees and costs, and other expenses relating to the acquisition, design, development and testing of the Company’s treatments and productglycosylated cannabinoid drug candidates. Research and development costs are expensed as incurred.

Fair Value of Financial Instruments

FASB ASC 825, “Financial Instruments” requires that the Company disclose estimated fair values of financial instruments. Financial instruments held by the Company include, among others, accounts receivable, accounts payable and long-term debt. The carrying amounts reported in the balance sheets for assets and liabilities qualifying as financial instruments are a reasonable estimate of fair value.

Segments

As of March 31,September 30, 2023, the Company has five operating business segments: (i) Environmental Services,Range Reclaim, (ii) Biochar Products and Solutions,Range Water, (iii) Stream Mitigation Banking,Range Security, (iv) Environmental Security Services,Range Land, and (v) Cannabinoid Drug Development. InPreviously, beginning in October 2021, the Company began operating under two segments: (i) Graphium Biosciences, Inc., a wholly-owned subsidiary of the Company,which reports the operating results of our cannabinoid drug development segment, which is advancing a broad portfolio of glycosylated cannabinoid prodrugs that have beenare being developed to unlock the rebalancing effects of the endocannabinoid system to address numerous chronic inflammatory conditions, and (ii) the Range Reclamation Entities, which are wholly-owned subsidiaries of the Company, report the operating results of the Environmental ServicesRange Reclaim segment, which provides land reclamation, water restoration and environmental consulting servicesincidental mining to mining and non-mining customers throughout Appalachia. The Biochar ProductsRange Water, Range Security and Solutions, Stream Mitigation Banking, and Environmental Security ServicesRange Land business segments began operations in 2023.

In accordance with the first quarter“Segment Reporting” Topic of 2023.the ASC, the Company’s chief operating decision maker has been identified as the Chief Executive Officer, who reviews operating results to make decisions about allocating resources and assessing performance for the entire Company. Existing guidance, which is based on a management approach to segment reporting, establishes requirements to report selected segment information quarterly and to report annually entity-wide disclosures about products and services and major customers. All material operating units qualify for aggregation under “Segment Reporting” due to their similar customer base and similarities in: economic characteristics; geographic location of operation; nature of products and services; and procurement, manufacturing, and distribution processes.

Recent Accounting Pronouncements

In June 2016, the FASB issued ASU 2016-13, Measurement of Credit Losses on Financial Instruments. ASU 2016-13 requires entities to use a forward-looking approach based on current expected credit losses to estimate credit losses on certain types of financial instruments, including trade receivables. This may result in the earlier recognition of allowances for losses. ASU 2016-13 was effective for the Company beginning January 1, 2023. This did not have a material effect on the Company’s financial position, results of operations, or cash flows.

Other recent accounting pronouncements issued by the FASB, including its Emerging Issues Task Force, the American Institute of Certified Public Accountants, and the Securities and Exchange Commission did not or are not believed by management to have a material impact on the Company’s present or future financial statements.

2. ACQUISITION OF COLLINS BUILDING & CONTRACTING

On August 31, 2023, the Company entered into a stock purchase agreement with the owner of Collins Building & Contracting, Inc. (“Collins Building”), pursuant to which the owner agreed to sell all of the outstanding common stock of Collins Building to the Company in exchange for (a) cash consideration of $1,000,000, (b) a five-year secured promissory note in the principal amount of $2,000,000, bearing interest at 7.0% per annum (the “First Promissory Note”), and (c) a two-year secured promissory note in the principal amount of $2,035,250, bearing interest at 8.25% per annum (the “Second Promissory Note”). The First Promissory Note is secured by the acquired real property and quarry infrastructure, and the Second Promissory Note is secured by the acquired equipment.

The Company accounted for the transaction as a business combination in accordance ASC 805 “Business Combinations”. The Company has performed an allocation of the purchase price paid for the assets acquired and the liabilities assumed. The fair values of the assets acquired are set forth below. Because the fair values exceeded the purchase price, we recognized a gain on the purchase of $1,875,150. The allocation of the purchase price is based on management’s estimates.

SCHEDULE OF BUSINESS ACQUISITION ALLOCATION OF PURCHASE PRICE

3. ACQUISITION OF RANGE ENVIRONMENTAL RESOURCES AND RANGE NATURAL RESOURCES

In May 2022, the Company and its wholly-owned subsidiary, Daedalus Ecosciences, Inc., entered into a share purchase agreement with Range Environmental Resources, Inc. (“Range Environmental”) and Range Natural Resources, Inc. (“Range Natural”, and collectively with Range Environmental, the “Range Reclamation Entities”), and the two (2) shareholders of the Range Reclamation Entities (the “Range Shareholders”) (the “Range Share Purchase Agreement”), pursuant to which the Company issued a total of 10,000,000 shares of the Company’s common stock to the Range Shareholders and paid cash consideration of $1,000,000 to the Range Shareholders in exchange for 80% of the outstanding common stock of each of the Range Reclamation Entities.

Subsequent to entering into the Range Share Purchase Agreement, the Company discovered that Joshua Justice, one of the Range Shareholders (“Justice”), made certain misrepresentations in the Range Share Purchase Agreement. On July 12, 2022, the Company entered into a Separation Agreement, by and among the Company, Daedalus Ecosciences, the Range Reclamation Entities, and Justice and his spouse (the “Separation Agreement”) pursuant to which Justice: a) acknowledged that his employment with the Range Reclamation Entities was terminated for cause effective June 30, 2022; b) returned the 5,000,000 shares of the Company’s common stock that had been issued to him under the terms of the Range Share Purchase Agreement; c) transferred his 10% interest in each of the Range Reclamation Entities to Daedalus Ecosciences; and d) paid cash in an amount of $250,000. As a result, only 5,000,000 of the Company’s common stock issued to the Range Shareholders is considered to have been issued in exchange for 90% of the outstanding common stock of each of the Range Reclamation Entities.

Subsequently, on October 11, 2022, Daedalus Ecosciences and Jeremy Starks, the remaining Range Shareholder (“Starks”), entered into a share purchase agreement, effective as of May 11, 2022 (the “Starks Agreement”), pursuant to which Starks exchanged his 10% common stock ownership of the Range Reclamation Entities for 10% of the Cash Dividends and Sale Proceeds (as both terms are defined in the Starks Agreement) of the Range Reclamation Entities. As a result of the merger of Daedalus Ecosciences into Malachite as of December 31, 2022, the Range Reclamation Entities are reported as wholly-owned subsidiaries of the Company in the financial statements made part of this Form 10-Q. No other changes were made to the consideration received by Starks as part of the Range Share Purchase Agreement and he remains as President of each of the Range Reclamation Entities.

The Company accounted for the above transactions as a business combination in accordance ASC 805 “Business Combinations”. The Company has performed an allocation of the purchase price paid for the assets acquired and the liabilities assumed. The fair values of the assets acquired are set forth below. The allocation of the purchase price is based on management’s estimates.

SCHEDULE OF BUSINESS ACQUISITION ALLOCATION OF PURCHASE PRICE

Goodwill has an assigned value of $751,421 and represents the value of the Range Reclamation Entities’ brand reputation, customer base and employee relations.

4. GOODWILL

Goodwill was $751,421 at September 30, 2023 and at December 31, 2022. The goodwill as of both dates represents the value of the Range Reclamation Entities’ employee relations. Goodwill by reportable segment is as follows:

SCHEDULE OF GOODWILL

5. EQUITY

Issuance of Common Stock and Warrants

On April 11, 2023, the Company entered into securities purchase agreements providing for the issuance and sale by the Company of (i) 2,733,334 shares of the Company’s common stock (the “April Shares”) at a price of $0.15 per share and (ii) warrants to purchase up to an additional 2,733,333 shares of the Company’s common stock (the “Warrants”, and the shares issuable upon exercise of the Warrant, the “Warrant Shares”) at a price of $0.60 per share. The Warrants expire on April 11, 2028. The aggregate proceeds to the Company from the sale of the April Shares and Warrants were approximately $400,000.

On August 24, 2023, the Company entered into a securities purchase agreement providing for the issuance and sale by the Company of 6,666,667 shares of the Company’s common stock (the “August Shares”) at a price of $0.15 per share. After deducting for fees and expenses, the aggregate net proceeds from the sale of the August Shares were approximately $1,000,000.

6. STOCK OPTIONS

Stock options issued during the three months ended September 30, 2023 and the three months ended September 30, 2022

During the three months ended September 30, 2023, the Company granted options to an outside advisor to purchase 100,000 shares of the Company’s common stock with exercise prices of $0.1337 per share that expire five years from the date of grant. Options to purchase all 100,000 shares vested upon grant. The fair value of each option award was estimated on the date of grant using the Black-Scholes-Merton Option Pricing model based on the following assumptions: (i) volatility rate of 273.24%, (ii) discount rate of 4.27%, (iii) zero expected dividend yield, and (iv) expected life of 5 years, which is the term of the options. The total fair value of the option grants at their grant dates was approximately $13,340 which was allocated to general and administrative expenses during the three months ended September 30, 2023.

No stock options were granted to directors, advisors, and employees during the three months ended September 30, 2022.

During the three months ended September 30, 2023, total stock-based compensation expense related to vested stock options was $17,830. During the three months ended September 30, 2022, the Company recorded no stock-based compensation expense related to vested stock options. At September 30, 2023, the remaining unamortized cost of the outstanding stock-based awards was approximately $31,430 and will be amortized on a straight-line basis over the remaining vesting period of 2 years.

A summary of the Company’s stock option activity during the nine months ended September 30, 2023 is as follows:

SUMMARY OF STOCK OPTION ACTIVITY

At September 30, 2023, the 9,862,544 outstanding stock options had intrinsic value of $2,630.

A summary of the Company’s stock options outstanding as of September 30, 2023 is as follows:

SCHEDULE OF STOCK OPTION OUTSTANDING

A summary of the Company’s stock options outstanding and exercisable as of September 30, 2023 is as follows:

SCHEDULE OF STOCK OPTIONS OUTSTANDING AND EXERCISABLE

7. WARRANTS

A summary of warrants to purchase common stock issued during the nine months ended September 30, 2023 is as follows:

SCHEDULE OF WARRANTS ACTIVITY

At September 30, 2023, the 25,046,669 outstanding stock warrants had no intrinsic value.

8. LINES OF CREDIT

In November 2022, the Company secured a bank line of credit with a limit of $1,000,000. The line of credit expires on November 30, 2023 and bears interest at one percent (1%) above the prime rate (9.50% at September 30, 2023). As of September 30, 2023, the balance due under the line of credit was $1,000,000.

In June 2023, the Range Reclamation Entities secured a separate bank line of credit with a limit of $1,000,000. This line of credit is secured by all of the Range Reclamation Entities’ fixed assets. This line of credit expires on June 24, 2024 and bears interest at the prime rate (8.50% at September 30, 2023). As of September 30, 2023, the balance due under this line of credit was $900,000.

9. LONG-TERM DEBT OBLIGATIONS

Long-term debt consists of debt on vehicles and equipment, which serves as the collateral, and debt issued as part of the acquisition of Collins Building. Interest rates range from 3.69% to 9.95% for 2023. The debt matures from 2023 through 2028.

A summary of payments due under the long-term debt by year is as follows:

SCHEDULE OF MATURITIES OF LONG TERM DEBT

10. MAJOR CUSTOMER AND CONCENTRATION OF CREDIT RISK

Sales to the Company’s two largest customers were 95% and 93% of total sales for the three months ended September 30, 2023 and the nine months ended September 30, 2023, respectively. Sales to the Company’s largest customer were 74% and 73% of total sales for the three and nine months ended September 30, 2022, respectively.

Accounts receivable from one customer were 96% of total accounts receivable and unbilled receivables as of September 30, 2023. Accounts receivable from the Company’s largest customer were 61% of total accounts receivable and unbilled receivables as of September 30, 2022.

11. COMMITMENTS AND CONTINGENCIES

The Company received a letter in February 2021 from counsel for the Company’s director’s and officer’s insurance carrier (the “insurer”) demanding that the Company reimburse the insurer for sums advanced by the insurer to a former director of the Company as defense costs in connection with a claim purportedly arising under a previous directors and officers insurance policy. The Company believes it has no liability for this claim on the basis of, among other things, Nevada law, the Company’s governing documents and the language of the policy. Accordingly, as of September 30, 2023, no contingent liability has been recorded in the Company’s consolidated statements of financial condition for this matter.

12. SEGMENT INFORMATION

ASC 280, “Segment Reporting” establishes standards for reporting information about operating segments on a basis consistent with the Company’s internal organization structure as well as information about services, categories, business segments and major customers in financial statements. The Company has five reportable segments that are based on the following business units: (i) Range Reclaim, (ii) Range Water, (iii) Range Security, (iv) Range Land, and (v) Drug Development. In accordance with the “Segment Reporting” Topic of the ASC, the Company’s chief operating decision maker has been identified as the Chief Executive Officer, who reviews operating results to make decisions about allocating resources and assessing performance for the entire Company. Existing guidance, which is based on a management approach to segment reporting, establishes requirements to report selected segment information quarterly and to report annually entity-wide disclosures about products and services, major customers and the countries in which the entity holds material assets and reports revenue. All material operating units qualify for aggregation under “Segment Reporting” due to their similar customer base and similarities in: economic characteristics; nature of products and services; and procurement, manufacturing and distribution processes.

Recent Accounting Pronouncements

In June 2016, the FASB issued ASU 2016-13, Measurement of Credit Losses on Financial Instruments. ASU 2016-13 requires entities to use a forward-looking approach based on current expected credit losses to estimate credit losses on certain types of financial instruments, including trade receivables. This may result in the earlier recognition of allowances for losses. ASU 2016-13 is effective for the Company beginning January 1, 2023, and early adoption is permitted. This did not have a material effect on the Company’s financial position, results of operations, or cash flows.

Other recent accounting pronouncements issued by the FASB, including its Emerging Issues Task Force, the American Institute of Certified Public Accountants, and the Securities and Exchange Commission did not or are not believed by management to have a material impact on the Company’s present or future financial statements.

2. ACQUISITION OF RANGE ENVIRONMENTAL RESOURCES AND RANGE NATURAL RESOURCES

In May 2022, the Company and its wholly-owned subsidiary, Daedalus Ecosciences, Inc., entered into a share purchase agreement with Range Environmental Resources, Inc. (“Range Environmental”), and Range Natural Resources, Inc. (“Range Natural”, and collectively with Range Environmental, the “Range Reclamation Entities”), and the two (2) shareholders of the Range Reclamation Entities (the “Range Shareholders”) (the “Share Purchase Agreement”), under which the Company issued a total of 10,000,000 shares of the Company’s common stock to the Range Shareholders and Daedalus Ecosciences paid cash consideration of $1,000,000 to the Range Shareholders for 80% of the outstanding common stock of each of the Range Reclamation Entities.

Subsequent to entering into the Share Purchase Agreement, the Company discovered that Joshua Justice, one of the Range Shareholders (“Justice”), made certain misrepresentations in the Share Purchase Agreement. On July 12, 2022, the Company entered into a Separation Agreement, by and among the Company, Daedalus Ecosciences, the Range Reclamation Entities, and Justice and his spouse (the “Separation Agreement”) pursuant to which Justice: a) acknowledged that his employment with the Range Reclamation Entities was terminated for cause effective June 30, 2022; b) returned the 5,000,000 shares of the Company’s common stock that had been issued to him under the terms of the Share Purchase Agreement; c) transferred his 10% interest in each of the Range Reclamation Entities to Daedalus Ecosciences; and d) paid Daedalus Ecosciences cash in an amount of $250,000. As a result, only 5,000,000 of the Company’s common stock issued to the Range Shareholders is considered to have been issued in exchange for 90% of the outstanding common stock of each of the Range Reclamation Entities.

Subsequently, on October 11, 2022, Daedalus Ecosciences and Jeremy Starks, the remaining Range Shareholder (“Starks”), entered into a share purchase agreement, effective as of May 11, 2022 (the “Starks Agreement”), pursuant to which Starks exchanged his 10% common stock ownership of the Range Reclamation Entities for 10% of the Cash Dividends and Sale Proceeds (as both terms are defined in the Starks Agreement) of the Range Reclamation Entities, as a result of which, the Range Reclamation Entities are now wholly-owned subsidiaries of Daedalus Ecosciences and the Range Reclamation Entities are reported as wholly-owned indirect subsidiaries of the Company in the financial statements made part of this Form 10-Q. No other changes were made to the consideration received by Starks as part of the Share Purchase Agreement and he remains as President of each of the Range Reclamation Entities.

The Company accounted for the transaction as a business combination in accordance ASC 805 “Business Combinations”. The Company has performed an allocation of the purchase price paid for the assets acquired and the liabilities assumed. The fair values of the assets acquired are set forth below. The allocation of the purchase price is based on management’s estimates.

SCHEDULE OF BUSINESS ACQUISITION ALLOCATION OF PURCHASE PRICE

Goodwill has an assigned value of $751,421 and represents the value of the Range Reclamation Entities’ brand reputation, customer base and employee relations.

3. GOODWILL

Goodwill is $751,421 at March 31, 2023 and at December 31, 2022. The goodwill as of both dates represents the value of the Range Reclamation Entities’ employee relations. Goodwill by reportable segment is as follows:

SCHEDULE OF GOODWILL

4. STOCK OPTIONS

Stock options issued during the three months ended March 31, 2023 and the three months ended March 31, 2022

No stock options were granted to directors, advisors, and employees during the three months ended March 31, 2023 or the three months ended March 31, 2022.

During the three months ended March 31, 2023 and the three months ended March 31, 2022, the Company recorded no stock-based compensation expense related to vested stock options. At March 31, 2023, there was no remaining unamortized cost of the outstanding stock-based awards.

A summary of the Company’s stock option activity during the three months ended March 31, 2023 is as follows:

SUMMARY OF STOCK OPTION ACTIVITY

At March 31, 2023, the 9,392,544 outstanding stock options had no intrinsic value.

A summary of the Company’s stock options outstanding and exercisable as of March 31, 2023 is as follows:

SCHEDULE OF STOCK OPTIONS OUTSTANDING AND EXERCISABLE

5. WARRANTS

A summary of warrants to purchase common stock issued during the three months ended March 31, 2023 is as follows:

SCHEDULE OF WARRANTS ACTIVITY

At March 31, 2023, the 22,313,335 outstanding stock warrants had no intrinsic value.

6. NOTES PAYABLE

The Company had no notes payable outstanding as of March 31, 2023.

7. LINE OF CREDIT

In November 2022, the Company secured a line of credit with a bank with a limit of $1,000,000. The line of credit has a maturity date of November 30, 2023, and bears interest at one percent (1%) above the prime rate. As of March 31, 2023, the balance due under the line of credit was $100,000.

8. LONG-TERM DEBT OBLIGATIONS

Long-term debt consists of debt on vehicles and equipment, which serves as the collateral. Interest rates range from 3.69% to 9.95% for 2023. The debt matures from 2023 through 2028.

A summary of payments due under the long-term debt by year is as follows:

SCHEDULE OF MATURITIES OF LONG TERM DEBT

9. MAJOR CUSTOMER AND CONCENTRATION OF CREDIT RISK

Sales to the Company’s largest customer were 89% of total sales for the three months ended March 31, 2023.

Accounts receivable from the same customer were 95% of total accounts receivable as of March 31, 2023.

10. COMMITMENTS AND CONTINGENCIES

The Company received a letter in February 2021 from counsel for the Company’s director’s and officer’s insurance carrier (the “insurer”) demanding that the Company reimburse the insurer for sums advanced by the insurer to a former director of the Company as defense costs in connection with a claim purportedly arising under a previous directors and officers insurance policy. The Company believes it has no liability for this claim on the basis of, among other things, Nevada law, the Company’s governing documents and the language of the policy. Accordingly, as of March 31, 2023, no contingent liability has been recorded in the Company’s consolidated statements of financial condition for this matter.

11. SEGMENT INFORMATION

ASC 280, “Segment Reporting” establishes standards for reporting information about operating segments on a basis consistent with the Company’s internal organization structure as well as information about services, categories, business segments and major customers in financial statements. The Company has five reportable segments that are based on the following business units: (i) Environmental Services, (ii) Biochar Products and Solutions, (iii) Stream Mitigation Banking, (iv) Environmental Security Services, and (v) Cannabinoid Drug Development. In accordance with the “Segment Reporting” Topic of the ASC, the Company’s chief operating decision maker has been identified as the Chief Executive Officer, who reviews operating results to make decisions about allocating resources and assessing performance for the entire Company. Existing guidance, which is based on a management approach to segment reporting, establishes requirements to report selected segment information quarterly and to report annually entity-wide disclosures about products and services, major customers and the countries in which the entity holds material assets and reports revenue. All material operating units qualify for aggregation under “Segment Reporting” due to their similar customer base and similarities in: economic characteristics; nature of products and services; and procurement, manufacturing and distribution processes.

The five reportable segments that result from applying the aggregation criteria are as follows:

The Company operated two reportable business segments during the three and nine months ended March 31,September 30, 2022, the Cannabinoid Drug Development and Environmental ServicesRange Reclaim segments. The other business segments began operating in 2023.

The Company had no inter-segment sales for the periods presented.

Summarized financial information concerning the Company’s reportable segments is shown as below:

SCHEDULE OF FINANCIAL INFORMATION OF REPORTABLE SEGMENT

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