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.
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.
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.
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.
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.
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.
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.
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.
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.
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”).
Item
1A. Risk Factors
The
following risk factors should be considered carefully in addition to the other information contained in this Annual Report. This Annual
Report contains forward-looking statements. Our business, financial condition, results of operations and stock price could be materially
adversely affected by any of these risks.
Risks
Related to Our Business
We
have a history of operating losses and expect to continue to incur losses. We may never become profitable. The Company’s independent
registered public accounting firm has issued a report questioning our ability to continue as a going concern.
For
the year ended December 31, 2022, the Company incurred a net loss of $1,072,176 and used $603,778 of cash in our operating activities.
We have incurred losses since inception, resulting in an accumulated deficit of $50,212,854 as of December 31, 2022. These factors raise
substantial doubt about the Company’s ability to continue as a going concern for the next twelve months from the date that the
financial statements which are a part of this Annual Report on Form 10-K are issued. In addition, the Company’s independent registered
public accounting firm, in their report on the Company’s December 31, 2021 audited financial statements, raised substantial doubt
about the Company’s ability to continue as a going concern. We expect to incur further losses as we continue to develop our business.
We have not yet received significant revenues from sales of products or services and have recurring losses from operations.
We
expect to incur substantial losses for the near future, and we may never achieve or maintain profitability. Even if we succeed in obtaining
regulatory approval to market our glycosylated cannabinoid prodrugs, we may still incur losses for the foreseeable future. We also expect
to experience negative cash flow for the near future, as we plan to use all available resources to fund our operations and if we proceed
with an expansion of our corporate strategy as discussed elsewhere in this Annual Report, to make significant capital expenditures. As
a result, we would need to generate significant revenues if we are to achieve and maintain profitability. We may not be able to generate
these revenues or achieve profitability. Our failure to achieve or maintain profitability could negatively impact the value of our common
stock and you could lose some or all of your investment.
We
will need to raise substantial additional capital to operate our business. If we cannot obtain the capital we need to continue our operations,
our business could fail.
We
will need to raise additional funds in order to continue operating our business beyond the near term. Since inception, we have primarily
funded our operations through equity and debt financings. If we do 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 would increase our leverage relative to our earnings, if any, or to our equity capitalization, requiring
us to pay additional interest expense. 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 compounds, technology or other intellectual property
or marketing rights, which could result in our receipt of only a portion of any revenue that may be generated from a partnered product
or business. We also may raise funds by selling some or all of our assets. 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.
For
the 12 months following December 31, 2022, we expect our total operating losses to be approximately $1,200,000 (not including any
capital expenditures). However, our estimate of total operating losses could increase if we encounter unanticipated difficulties. In addition,
our estimates of the amount of cash necessary to fund our business may prove to be wrong and we could spend our available financial resources
much faster than we currently expect. Further, our operational expenses may increase substantially during our current fiscal year if
we pursue an expansion of our current operational goals and research and development activities. If we cannot raise the money that we
need in order to continue to develop our business, we will be forced to delay, scale back or eliminate some or all of our proposed operations
and/or forego other attractive business opportunities that may arise. If any of these were to occur, there is a substantial risk that
our business would fail. Sources of additional funds may not be available on acceptable terms or at all. In addition, weak economic and
capital market conditions could result in increased difficulties in raising capital for our operations. We may not be able to raise money
through the sale of our equity securities or through borrowing funds on terms we find acceptable, or at all. If we cannot raise the funds
that we need, we will be unable to continue our operations, and our stockholders could lose their entire investment in the Company.
Our
limited operating experience could make our operations inefficient or ineffective.
We
have only a limited operating history upon which to base an evaluation of our current business and future prospects and how we will respond
to competitive, financial or technological challenges. In order to conserve our cash resources, we have significantly scaled back our
glycosylated cannabinoid product research and development efforts until additional capital is raised to advance our drug development program. In addition, because of our limited operating history, we have limited insight into trends that may emerge
and affect our businesses, and limited experience responding to such trends. We may make errors in predicting and reacting to relevant
business trends and we will be subject to the risks, uncertainties and difficulties frequently encountered by early-stage companies in
evolving markets. We may not be able to successfully address any or all of these risks and uncertainties. Failure to adequately do so
could cause our business, results of operations and financial condition to suffer or fail.
The
coronavirus pandemic is adversely affecting and will continue to adversely affect our current business.
Since
inception, the Company has funded its operations primarily through equity and debt financings. In the event that the coronavirus pandemic
has an adverse financial effect on our potential sources of financing, our operations would be negatively affected. The coronavirus pandemic
may also make it more difficult for us to pursue capital through alternative sources, such as pharmaceutical drug collaborations or other
similar arrangements, since potential strategic partners may be either suffering financially or operationally as a result of the coronavirus
pandemic or are focused on the development of treatment therapies or vaccines for the coronavirus. The duration and breadth of the coronavirus
pandemic is uncertain and the ultimate impact cannot be reasonably estimated at this time.
We
may not be able to manage our expansion of operations effectively.
Assuming
we are able to attract additional capital, we intend to expand our operations. To manage this growth, we may need to expand our facilities,
augment our operational, financial and management systems and hire and train qualified personnel. Our management will also be required
to develop new relationships with customers, suppliers and other third parties. Our current and planned operations, personnel, systems,
and internal procedures and controls may not be adequate to support our future growth. If we are unable to manage our growth effectively,
we may not be able to take advantage of market opportunities, execute our business strategies or respond to competitive pressures.
If
we are unable to hire and retain qualified personnel, we may not be able to implement our business plan.
As
of March 30, 2023, we employed 40 full-time employees. Attracting and retaining personnel will be critical to our success. We may not be able to attract and retain the qualified
personnel necessary for the development of our business. In addition, we may have difficulty recruiting necessary personnel as a result
of our limited operating history. The loss of key personnel or the failure to recruit necessary additional personnel could impede the
achievement of our business objectives.
Certain
of our employees, officers, directors and consultants may from time to time serve as employees, officers, directors and consultants
of other companies. In fact, our current CEO, Michael Cavanaugh, currently serves as Chief Investment Officer of Tower 1
Partnership, LLC, an investment firm focused on private and public investments in a variety of industries, and as manager of several
affiliated investment partnerships, pursuant to which he devotes a significant portion of his time. The commitments of our
employees, officers, directors and consultants to these other companies may cause them to devote less time to the Company than would
otherwise be the case.
In
addition, we expect to rely on independent organizations, advisors and consultants to provide certain services. The services of these
independent organizations, advisors and consultants may not be available to us on a timely basis when needed or on acceptable terms,
and if they are not available, we may not be able to find qualified replacements. If we are unable to retain the services of qualified
personnel, independent organizations, advisors and consultants, we may not be able to implement our business plan.
Cyber
incidents or attacks directed at us could result in information theft, data corruption, operational disruption and/or financial loss.
We
depend on digital technologies, including information systems, infrastructure and cloud applications and services, including those of
third parties with which we may deal. Sophisticated and deliberate attacks on, or security breaches in, our systems or infrastructure,
or the systems or infrastructure of third parties or the cloud, could lead to corruption or misappropriation of our assets, proprietary
information and sensitive or confidential data. As an early-stage company without significant investments in data security protection,
we may not be sufficiently protected against such occurrences. We may not have sufficient resources to adequately protect against, or
to investigate and remediate any vulnerability to, cyber incidents. It is possible that any of these occurrences, or a combination of
them, could have adverse consequences on our business and lead to financial loss.
Risks
Related to Our Environmental-Related Businesses
We
may have difficulty accomplishing our growth strategy within and outside of our current service areas.
Our
ability to expand our business, both within our current service areas and into new areas, involves significant risks, including, but
not limited to:
|
● |
changes
in regulatory landscape reducing the demand for, and incentives relating
to, our land reclamation, water treatment and related environmental services; |
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● |
receiving
or maintaining necessary regulatory permits, licenses or approvals; |
|
|
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● |
downturns
in economic or population growth and development in our service areas, particularly in the coal mining industry and in those agricultural
and commercial businesses and real estate developments which benefit from our land reclamation and water treatment services; |
|
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|
● |
risks
related to planning and commencing new operations, including inaccurate
assessment of the demand for our land reclamation, water treatment and related environmental services and products and inability to begin
operations as scheduled; and |
|
|
|
|
● |
our
potential inability to identify suitable acquisition opportunities or to form the relationships with coal mining operators or other
landowners necessary to form strategic partnerships. |
Operating
costs, construction costs and costs of providing services may rise faster than revenue.
Our
ability to increase the rates at which we provide our land reclamation,
water treatment and related environmental services may be limited by a variety of factors. However, our costs are subject to market conditions
and other factors, and may increase significantly. The second largest component of our equipment operating costs is made up of salaries
and wages. These costs are affected by the local supply and demand for qualified labor. Other large components of our costs are general
insurance, workers compensation insurance, employee benefits and health insurance costs. These costs may increase disproportionately to
our service rate increases and may have a material adverse effect on our financial condition and results of operations.
Our
suppliers may fail to deliver materials and parts according to schedules, prices, quality and volumes that are acceptable to us, or we
may be unable to manage these materials and parts effectively.
The
equipment we use in our land reclamation and water treatment and reclamation business contains materials and parts purchased
globally from many suppliers which exposes us to potential component shortages or delays. Unexpected changes in business conditions,
materials pricing, labor issues, wars such as the current conflict in Ukraine, trade policies, natural disasters, health epidemics
such as the global COVID-19 pandemic, trade and shipping disruptions, port congestions and other factors beyond our or our
suppliers’ control could also affect these suppliers’ ability to deliver components to us or to remain solvent and
operational. Additionally, if our suppliers do not accurately forecast and effectively allocate production or if they are not
willing to allocate sufficient production to us, it may reduce our access to components and require us to search for new suppliers.
The unavailability of any component or supplier could result in delays in providing our services and products. Our suppliers may not
be willing or able to sustainably meet our timelines or our cost, quality and volume needs, or to do so may cost us more, which may
require us to replace them with other sources. While we believe that we will be able to secure additional or alternate sources for
most of our necessary components or products, there is no assurance that we will be able to do so quickly or at all.
Our
financial results depend on successful project execution and may be adversely affected by cost overruns, failure to meet customer schedules
or other execution issues.
A
portion of our revenue is derived from projects that are technically complex and that may last over many months. These projects are subject
to a number of significant risks, including project delays, cost overruns, changes in scope, unanticipated site conditions, design and
engineering issues, incorrect cost assumptions, increases in the cost of materials and labor, safety hazards, third party performance
issues, weather issues and changes in laws or permitting requirements. If we are unable to manage these risks, we may incur higher costs,
liquidated damages and other liabilities to our customers, which may decrease our profitability and harm our reputation. Our continued
growth will depend in part on executing a higher volume of large projects, which will require us to expand and retain our project management
and execution personnel and resources.
We
face competition in our industry, and we may be unable to attract customers and maintain a viable business.
There
can be no assurance that we will be able to successfully compete with our competitors. Our competitors may prove more successful in offering
similar services which prove to be more popular with potential customers than our services. Our ability to grow and achieve profitability
will depend on our ability to satisfy our customers and withstand increasing competition by providing superior environmental services
at reasonable cost. There can be no assurance that we will be able to achieve or maintain a successful competitive position.
If
we become subject to environmental-related claims, we could incur significant cost and time to comply.
Our
land reclamation and water treatment business activities create a risk of significant environmental liabilities and reputational
damage. Under applicable environmental laws and regulations, we could be strictly, jointly and severally liable for releases of regulated
substances by us at the properties of others, including if such releases result in contamination of air or water or cause harm to individuals.
Our business activities also create a risk of contamination or injury to our employees, customers or third parties, from the use, treatment,
storage, transfer, handling and/or disposal of these materials.
In
the event that our business activities result in environmental liabilities, such as those described above, we could incur significant
costs or reputational damage in connection with the investigation and remediation of environmental contamination, and we could be liable
for any resulting damages including natural resource damages. Such liabilities could exceed our available cash or any applicable insurance
coverage we may have. Additionally, we are subject to, on an ongoing basis, federal, state and local laws and regulations governing the
use, storage, handling and disposal of these materials and specified waste products. The cost of compliance with these laws and regulations
may become significant and could have a material adverse effect on our business, financial condition, results of operations or prospects.
Further,
we may incur costs to defend our position even if we are not liable for consequences arising out of environmental damage. Our insurance
policies may not be sufficient to cover the costs of such claims.
Failure
to effectively treat emerging contaminants could result in material liabilities.
A
number of emerging contaminants might be found in water that we treat that may cause a number of illnesses. In applications where treated
water enters the human body, illness and death may result if contaminants or pathogens are not eliminated during the treatment process.
The potential impact of a contamination of water treated using our products, services or solutions is difficult to predict and could
lead to an increased risk of exposure to product liability claims, increased scrutiny by federal and state regulatory agencies and negative
publicity. Further, an outbreak of disease in any one of the markets we serve could result in a widespread loss of customers across such
markets.
We
may incur liabilities to customers as a result of failure to meet performance guarantees, which could reduce our profitability.
Our
customers may seek performance guarantees as to our equipment and services. Failure to meet specifications of our customers or our failure
to meet our performance guarantees may increase costs by requiring additional resources and services, monetary reimbursement to a customer
or could otherwise result in liability to our customers. To the extent that we incur substantial performance guarantee claims in any
period, our reputation, earnings and ability to obtain future business could be materially adversely affected.
Developments
in, and compliance with, current and future environmental and climate change laws and regulations could impact our land reclamation and
water treatment business, financial condition or results of operations.
Our
business, operations, and product and service offerings are subject to and affected by many federal, state, local and foreign environmental
laws and regulations, including those enacted in response to climate change concerns. Compliance with existing laws and regulations currently
requires, and compliance with future laws is expected to continue to require, increasing operating and capital expenditures in order
to conform to changing environmental standards and regulations, which could impact our business, financial condition and results of operations.
Furthermore, environmental laws and regulations may authorize substantial fines and criminal sanctions to address violations, and may
require the installation of costly pollution control equipment or operational changes to limit emissions or discharges. We also incur,
and expect to continue to incur, costs to comply with current environmental laws and regulations. At the same time, the demand for our
land reclamation and water treatment services also is driven by federal and state laws, regulations and programs which
create incentives for our services. Developments such as the adoption of new environmental laws and regulations, stricter enforcement
of existing laws and regulations, violations by us of such laws and regulations, discovery of previously unknown or more extensive contamination,
litigation involving environmental impacts, our inability to recover costs associated with any such developments, or financial insolvency
of other responsible parties could in the future have a material adverse effect on our financial condition and results of operations.
Our
insurance may not provide adequate coverage.
Although
we maintain general and product liability, property and commercial insurance coverage, which we consider prudent, there can be no assurance
that such insurance will prove adequate in the event of actual casualty losses or broader calamities such as earthquakes, financial crises,
economic depressions or other catastrophic events, which are either uninsurable or not economically insurable. Any such losses could
have a material adverse effect on the performance of our systems.
Our
land reclamation and water treatment business is subject to various statutory and regulatory requirements, which may
increase in the future.
Our
land reclamation and water treatment business is subject to various statutory and regulatory requirements. Our ability
to continue to hold licenses and permits required for our land reclamation and water treatment business is subject to
maintaining satisfactory compliance with such requirements. We may incur significant costs to maintain compliance. Our ability to obtain
modifications to our permits may be met with resistance, substantial statutory or regulatory requirements or may be too costly to achieve.
These requirements may cause us to postpone or cancel our plans. Future statutory and regulatory requirements, including any legislation
focused on combating climate change, may require significant cost to comply or may require changes to our products or services.
The
environmental regulations to which we are subject may increase our costs and potential liabilities and limit our ability to operate.
Our
land reclamation and water treatment business is subject to various federal, state, and local environmental requirements,
including those relating to emissions to air, discharged wastewater, storage, treatment, transport and disposal of regulated materials
and cleanup of coal mining and groundwater contamination. Efforts to conduct our operations in compliance with all applicable laws and
regulations, including environmental rules and regulations, require programs to promote compliance, such as training employees and customers,
purchasing health and safety equipment and in some cases hiring outside consultants and lawyers. Even with these programs, we face the
risk of being subject to government enforcement proceedings, which can result in fines or other sanctions and require expenditures for
remedial work on contaminated sites. The landscape of environmental regulation to which we are subject can change. Changes to environmental
regulation often present new business opportunities for us; however, such changes may also result in increased operating and compliance
costs. While we seek to monitor the landscape of environmental regulation, our ability to navigate is limited by our small size and resources,
and any changes to such regulations may result in a material effect on our operations, cash flows or financial condition.
Regulators
also have the power to suspend or revoke permits or licenses needed for operation of our equipment and vehicles based on, among other
factors, our compliance record, and customers may decide not to do business with us because of concerns about our compliance record.
Suspension or revocation of permits or licenses would impact our land reclamation and water treatment business and
could have a material impact on our financial results. Although we have never had any of our operating permits revoked, suspended or
non-renewed involuntarily, it is possible that such an event could occur in the future.
Some
environmental laws and regulations impose liability and responsibility on present and former owners, operators or users of facilities
and sites for contamination at such facilities and sites without regard to causation or knowledge of contamination. Investigations undertaken
in connection with these activities may lead to discoveries of contamination that must be remediated, and closures of facilities might
trigger compliance requirements that are not applicable to operating facilities.
Within
the coal mining remediation market, demand for our services will be limited to a specific customer base and highly correlated to the
coal mining industry. The coal mining industry’s demand for our services and products is affected by a number of factors including
the volatile nature of the coal mining industry’s business, increased use of alternative types of energy and technological developments
in the coal mining extraction process. A significant reduction in the target market’s demand for coal mining would reduce the demand
for our services and products, which would have a material adverse effect upon our business, financial condition, results of operations
and cash flows.
We
require a variety of permits to operate our business. If we are not successful in obtaining and/or maintaining those permits it will
adversely impact our operations.
Our
land reclamation and water treatment business requires permits to operate. Our inability to obtain permits in a timely
manner could result in substantial delays to our business. The issuance of permits is dependent on the applicable government agencies
and is beyond our control and that of our customers. There can be no assurance that we and/or our customers will receive the permits
necessary to operate, which could substantially and adversely affect our operations and financial condition.
Based
on the nature of our business we currently depend and are likely to continue to depend on a limited number of customers for a significant
portion of our revenues.
We
currently have three customers in West Virginia that account for substantially all of our land reclamation and water treatment business. The failure to obtain additional customers or the loss of all or a portion of the revenues attributable to any current or future
customer as a result of competition, creditworthiness, inability to negotiate extensions or replacement of contracts or otherwise could
have a material adverse effect on our business, financial condition, results of operations and cash flows.
If
our customers do not enter into, extend or honor their contracts with us, our profitability could be adversely affected. Our ability
to receive payment for production depends on the continued solvency and creditworthiness of our customers and prospective customers.
If any of our customers’ creditworthiness suffers, we may bear an increased risk with respect to payment defaults. If customers
refuse to make payments for which they have a contractual obligation, our revenues could be adversely affected.
Risks
Related to Our Cannabinoid Drug Development Business
If
we are unable to market and distribute our products effectively, we may be unable to generate significant revenue.
We
currently have no sales, marketing or distribution capabilities with respect to our cannabinoid drug development business. We may
decide to build sales, marketing or distribution capabilities internally or pursue collaborative arrangements for the sales and
marketing of our products, including steps necessary to commercialize our pharmaceutical products. Any such collaborative
arrangements may not provide us with the sales and marketing benefits we expect. To the extent that we decide not to, or are unable
to, enter into successful collaborative arrangements with respect to the sales and marketing of our cannabinoid products,
significant capital expenditures, management resources and time will be required to establish and develop an in-house marketing and
sales force with appropriate expertise. We may be unable to establish or maintain relationships with third party collaborators or
develop in-house sales and distribution capabilities. To the extent that we depend on third parties for marketing and distribution,
any revenues we receive will depend upon the efforts of such third parties and there can be no assurance that such third parties
will establish adequate sales and distribution capabilities or be successful in gaining market acceptance of any approved product.
If we are not successful in commercializing any product approved in the future, either on our own or through third parties, our
business, financial condition and results of operations could be materially adversely affected.
We
may seek orphan drug status for our products for the treatment of certain diseases or conditions, but we may be unable to obtain such
designation or to maintain the benefits associated with orphan drug status, including market exclusivity, which may cause our revenue,
if any, to be reduced.
Regulatory
authorities in some jurisdictions, including the United States and European Union, may designate drugs for relatively small patient populations
as orphan drugs. The FDA may grant Orphan Drug Designation to drugs intended to treat a rare disease or condition that affects fewer
than 200,000 individuals annually in the United States, or, if the disease or condition affects more than 200,000 individuals annually
in the United States, if there is no reasonable expectation that the cost of developing and making the drug would be recovered from sales
in the United States. In the European Union, the EMA’s Committee for Orphan Medicinal Products grants Orphan Drug Designation to
promote the development of products that are intended for the diagnosis, prevention or treatment of life-threatening or chronically debilitating
conditions affecting not more than five in 10,000 persons in the European Union. Additionally, designation is granted for products intended
for the diagnosis, prevention or treatment of a life-threatening, seriously debilitating or serious and chronic condition and when, without
incentives, it is unlikely that sales of the drug in the European Union would be sufficient to justify the necessary investment in developing
the drug.
In
the United States, Orphan Drug Designation entitles a party to financial incentives, such as opportunities for grant funding towards
clinical trial costs, tax credits for certain research and user fee waivers under certain circumstances. In addition, if a product receives
the first FDA approval for the indication for which it has orphan designation, the product is entitled to seven years of market exclusivity,
which means the FDA may not approve any other application for the same drug for the same indication for a period of seven years, except
in limited circumstances, such as a showing of clinical superiority over the product with orphan exclusivity. Orphan drug exclusivity
does not prevent the FDA from approving a different drug for the same disease or condition, or the same drug for a different disease
or condition. In the European Union, Orphan Drug Designation also entitles a party to financial incentives such as reduction of fees
or fee waivers and ten years of market exclusivity following drug approval. This period may be reduced to six years if the Orphan Drug
Designation criteria are no longer met, including where it is shown that the product is sufficiently profitable so that market exclusivity
is no longer justified.
As
a result, even if our products receive orphan exclusivity, the FDA or European Medicines Agency (EMA) can still approve other drugs that
have a different active ingredient for use in treating the same indication. Furthermore, the FDA can waive orphan exclusivity if we are
unable to manufacture sufficient supply of our products or the EMA could reduce the term of exclusivity if our products are sufficiently
profitable.
While
we have received orphan drug designation for our VBX-100 prodrug for the treatment of pediatric ulcerative colitis, exclusive marketing
rights in the United States may be limited if we seek approval for an indication broader than the orphan designated indication and may
be lost if the FDA or EMA later determines that the request for designation was materially defective or if the manufacturer is unable
to assure sufficient quantities of the product to meet the needs of patients with the rare disease or condition.
We
are dependent on the success of our products, which are still in pre-clinical development and will require significant capital resources
and years of clinical development effort.
We
currently have no pharmaceutical products on the market, and our product candidates are still in pre-clinical development. Our business
depends on the successful clinical development, regulatory approval and commercialization of our product candidates, and additional pre-clinical
testing and substantial clinical development and regulatory approval efforts will be required before we are permitted to commence commercialization,
if ever. Any clinical trials and manufacturing and marketing of product candidates will be subject to extensive and rigorous review and
regulation by numerous government authorities in the United States and other jurisdictions where we intend to test and, if approved,
market our product candidates. Before obtaining regulatory approvals for the commercial sale of any product candidate, we would need
to demonstrate through pre-clinical testing and clinical trials that the product candidate is safe and effective for use in each target
indication, and potentially in specific patient populations. This process can take many years and may include post-marketing studies
and surveillance, which would require the expenditures of substantial resources beyond our current resources. Of the large number of
drugs in development for approval in the United States and the European Union, only a small percentage successfully complete the FDA
or EMA regulatory approval processes, as applicable, and are commercialized. Accordingly, even if we are able to obtain the requisite
financing to continue to fund our research, development and clinical programs, we are not certain that any of our product candidates
will be successfully developed or commercialized.
Because
the results of pre-clinical testing are not necessarily predictive of future results, our products may not have favorable results in
their clinical trials.
Any
positive results from our pre-clinical testing of our products may not necessarily be predictive of the results from clinical trials
in humans. Many companies in the pharmaceutical and biotechnology industries have suffered significant setbacks in clinical trials after
achieving positive results in pre-clinical development, and we cannot be certain that we will not face similar setbacks. Moreover, pre-clinical
and clinical data are often susceptible to varying interpretations and analyses, and many companies that believed their product candidates
performed satisfactorily in pre-clinical studies and clinical trials nonetheless failed to obtain FDA or EMA approval. If we fail to
produce positive results in our clinical trials, the development timeline and regulatory approval and commercialization prospects for
our products and, correspondingly, our business and financial prospects, would be materially adversely affected.
Failures
or delays in the completion of our pre-clinical studies or the commencement and completion of our clinical trials could result in increased
costs to us and could delay, prevent or limit our ability to generate revenue and continue our business.
To
date, we have not completed our pre-clinical animal studies or commenced any clinical trials. Successful completion of such pre-clinical
animal studies and clinical trials is a prerequisite to submitting an NDA to the FDA or a marketing authorization application (MAA) to
the EMA. Clinical trials are expensive, difficult to design and implement, can take many years to complete and their outcomes are uncertain.
A product candidate can unexpectedly fail at any stage of clinical development. The historic failure rate for product candidates is high
due to scientific feasibility, safety, efficacy, changing standards of medical care and other variables. The commencement and completion
of clinical trials can be delayed or prevented for a number of reasons, including, among others:
●
delays in reaching or failing to reach agreement on acceptable terms with prospective clinical trial sites, the terms of which can be
subject to extensive negotiation and may vary significantly among different clinical trial sites;
●
delays or inability in manufacturing or obtaining sufficient quantity or quality of a product candidate or other materials necessary
to conduct clinical trials due to regulatory and manufacturing constraints, including delays or an inability to hire appropriate staff
or consultants with requisite expertise in chemistry and manufacturing controls for pharmaceutical products;
●
difficulties obtaining Institutional Review Board (IRB), DEA or comparable foreign regulatory authority, or ethics committee approval
to conduct a clinical trial at a prospective site or sites;
●
challenges in recruiting and enrolling patients to participate in clinical trials, including the size and nature of the patient population,
the proximity of patients to clinical trial sites, eligibility criteria for the clinical trial, the nature of the clinical trial protocol,
the availability of approved effective treatments for the relevant indication and competition from other clinical trial programs for
similar indications;
●
severe or unexpected toxicities or drug-related side effects experienced by patients in our clinical trials or by individuals using drugs
similar to our product candidates;
●
DEA or comparable foreign regulatory authority-related recordkeeping, reporting or security violations at a clinical trial site, leading
the DEA, state authorities or comparable foreign regulatory authorities to suspend or revoke the controlled substance license
at the site and causing a delay or termination of planned or ongoing clinical trials;
●
regulatory concerns with cannabinoid products generally and the potential for abuse of those products;
●
difficulties retaining patients who have enrolled in a clinical trial who may withdraw due to lack of efficacy, side effects, personal
issues or loss of interest;
●
ambiguous or negative interim results; or
●
lack of adequate funding to continue the clinical trial.
In
addition, a clinical trial may be suspended or terminated by us, the FDA, IRBs, ethics committees, data safety monitoring boards or other
foreign regulatory authorities overseeing the clinical trial at issue or other regulatory authorities due to a number of factors, including,
among others:
●
failure to conduct the clinical trial in accordance with regulatory requirements or our clinical trial protocols;
●
inspection of the clinical trial operations, clinical trial sites, or drug manufacturing facilities by the FDA, the DEA, the EMA or other
foreign regulatory authorities that reveals deficiencies or violations that require us to undertake corrective action, including the
imposition of a clinical hold;
●
unforeseen safety issues, including any safety issues that could be identified in our ongoing toxicology studies;
●
adverse side effects or lack of effectiveness; and
●
changes in government regulations or administrative actions.
We
intend to focus on prodrugs for certain indications, and may fail to capitalize on other product candidates or other indications that
may be more profitable or for which there is a greater likelihood of success.
Because
we have limited financial and managerial resources, we have reduced the scope of our research program and have limited that research
to our proprietary products for certain indications, which concentrates the risk of product failure in the event the products prove to
be unsafe, ineffective or inadequate for clinical development or commercialization. As a result, we may forego or delay pursuit of opportunities
with other product candidates or for other indications that could later prove to have greater commercial potential. Our resource allocation
decisions may cause us to fail to capitalize on viable commercial products or profitable market opportunities. Our spending on proprietary
research and development programs relating to our products may not yield any commercially viable products. If we do not accurately evaluate
the commercial potential or target market for our products, we may relinquish valuable rights to our products through collaboration,
licensing or other royalty arrangements in cases in which it would have been more advantageous for us to retain sole development and
commercialization rights to our products.
The
regulatory approval processes of the FDA, the EMA and other comparable foreign regulatory authorities are lengthy, time-consuming and
inherently unpredictable, and if we are ultimately unable to obtain regulatory approval for our product candidates, our business will
be substantially harmed.
We
are not permitted to market our product candidates in the United States or the European Union until we receive approval of an NDA from
the FDA or an MAA from the EMA, respectively, or in any foreign countries until we receive the requisite approval from such countries.
Prior to submitting an NDA to the FDA or an MAA to the EMA for approval of our product candidates we will need to complete our ongoing
pre-clinical studies, as well as Phase 1, Phase 2 and Phase 3 clinical trials. We are still conducting pre-clinical studies and have
not yet commenced our clinical program or tested any product in humans. Successfully initiating and completing our clinical program and
obtaining approval of an NDA or MAA is a complex, lengthy, expensive and uncertain process, and the FDA or EMA may delay, limit or deny
approval of our product candidates for many reasons, including, among others, because:
●
we may not be able to demonstrate that our product candidates are safe and effective in treating patients to the satisfaction of the
FDA or EMA;
●
the results of our clinical trials may not meet the level of statistical or clinical significance required by the FDA or EMA for marketing
approval;
●
the FDA or EMA may disagree with the number, design, size, conduct or implementation of our clinical trials;
●
the FDA or EMA may require that we conduct additional clinical trials;
●
the FDA or EMA or other applicable foreign regulatory authorities may not approve the formulation, labeling or specifications of our
product candidates;
●
the contract research organizations, or CROs, and other contractors that we may retain to conduct our clinical trials may take actions
outside of our control that materially adversely impact our clinical trials;
●
the FDA or EMA may find the data from pre-clinical studies and clinical trials insufficient to demonstrate that our products’ clinical
and other benefits outweigh their safety risks;
●
the FDA or EMA may disagree with our interpretation of data from our pre-clinical studies and clinical trials;
●
the FDA or EMA may not accept data generated at our clinical trial sites or may disagree with us over whether to accept efficacy results
from clinical trial sites outside the United States where the standard of care is potentially different from that in the United States;
●
if and when our NDAs or MAAs are submitted to the FDA or EMA, as applicable, the regulatory agency may have difficulties scheduling the
necessary review meetings in a timely manner, may recommend against approval of our application or may recommend or require, as a condition
of approval, additional pre-clinical studies or clinical trials, limitations on approved labeling or distribution and use restrictions;
●
the FDA may require development of a Risk Evaluation and Mitigation Strategy (REMS), which would use risk minimization strategies beyond
the professional labeling to ensure that the benefits of certain prescription drugs outweigh their risks, as a condition of approval
or post-approval, and the EMA may grant only conditional approval or impose specific obligations as a condition for marketing authorization,
or may require us to conduct post-authorization safety studies;
●
the FDA, EMA, DEA or other applicable foreign regulatory agencies may not approve the manufacturing processes or facilities of third-party
manufacturers with which we contract;
●
the DEA or other applicable foreign regulatory agency may establish quotas that limit the quantities of controlled substances available
to our manufacturers; or
●
the FDA or EMA may change their approval policies or adopt new regulations.
Any
of these factors, many of which are beyond our control, could jeopardize our ability to obtain regulatory approval for and successfully
market our products.
Even
if our products receive regulatory approval, they may still face future development and regulatory difficulties.
If
we seek and obtain regulatory approval for any of our products, such approval would be subject to extensive ongoing requirements by the
DEA, FDA, EMA and other foreign regulatory authorities related to the manufacture, quality control, further development, labeling, packaging,
storage, distribution, safety surveillance, import, export, advertising, promotion, recordkeeping and reporting of safety and other post-market
information. The safety profile of any product will continue to be closely monitored by the FDA, EMA and other comparable foreign regulatory
authorities. If the FDA, EMA or any other comparable foreign regulatory authority becomes aware of new safety information after approval
of any of our product candidates, these regulatory authorities may require labeling changes or establishment of a REMS, impose significant
restrictions on a product’s indicated uses or marketing, impose ongoing requirements for potentially costly post-approval studies
or post-market surveillance, or impose a recall.
In
addition, manufacturers of therapeutic products and their facilities are subject to continual review and periodic inspections by the
FDA, the EMA and other comparable foreign regulatory authorities for compliance with current good manufacturing practices (cGMP) regulations.
Our current facilities and staff have never undergone such an inspection, and we currently rely upon outside consultants and advisors
to provide guidance on chemistry and manufacturing controls for pharmaceutical products. Further, manufacturers of controlled substances
must obtain and maintain necessary DEA and state registrations and registrations with applicable foreign regulatory authorities and must
establish and maintain processes to ensure compliance with DEA and state requirements and requirements of applicable foreign regulatory
authorities governing, among other things, the storage, handling, security, recordkeeping and reporting for controlled substances. If
we or a regulatory agency discover previously unknown problems with a product, such as adverse events of unanticipated severity or frequency,
or problems with the facility where the product is manufactured, a regulatory agency may impose restrictions on that product, the manufacturing
facility or us, including requiring recall or withdrawal of the product from the market or suspension of manufacturing. If we, our product
candidates or the manufacturing facilities for our product candidates fail to comply with applicable regulatory requirements, a regulatory
agency may, among other things:
●
issue untitled letters or warning letters;
●
mandate modifications to promotional materials or require us to provide corrective information to healthcare practitioners;
●
require us to enter into a consent decree, which can include imposition of various fines, reimbursements for inspection costs, required
due dates for specific actions and penalties for noncompliance;
●
seek an injunction or impose civil or criminal penalties or monetary fines;
●
suspend or withdraw regulatory approval;
●
suspend any ongoing clinical trials;
●
refuse to approve pending applications or supplements to applications filed by us; or
●
require us to initiate a product recall.
The
occurrence of any event or penalty described above may inhibit our ability to commercialize our product candidates and may otherwise
have a material adverse effect on our business, financial condition and results of operations.
Our
products will be subject to controlled substance laws and regulations; failure to receive necessary approvals may delay the launch of
our products and failure to comply with these laws and regulations may adversely affect the results of our business operations.
Our
products will contain controlled substances as defined in the federal Controlled Substances Act of 1970 (CSA). Controlled substances
that are pharmaceutical products are subject to a high degree of regulation under the CSA, which establishes, among other things, certain
registration, manufacturing quotas, security, recordkeeping, reporting, import, export and other requirements administered by the DEA.
The DEA classifies controlled substances into five schedules: Schedule I, II, III, IV or V substances. Schedule I substances by definition
have a high potential for abuse, have no currently “accepted medical use” in the United States, lack accepted safety for
use under medical supervision, and may not be prescribed, marketed or sold in the United States. Pharmaceutical products approved for
use in the United States may be listed as Schedule II, III, IV or V, with Schedule II substances considered to present the highest potential
for abuse or dependence and Schedule V substances the lowest relative risk of abuse among such substances. Schedule I and II drugs are
subject to the strictest controls under the CSA, including manufacturing and procurement quotas, security requirements and criteria for
importation. In addition, dispensing of Schedule II drugs is further restricted. For example, they may not be refilled without a new
prescription.
While
cannabis is a Schedule I controlled substance, products approved for medical use in the United States that contain cannabis or cannabis
extracts must be placed in Schedules II – V, since approval by the FDA satisfies the “accepted medical use” requirement.
If and when our products receive FDA approval, the DEA will make a scheduling determination and place them in a schedule other than Schedule
I in order for it to be prescribed to patients in the United States. If approved by the FDA, we expect the finished dosage forms of our
products to be listed by the DEA as a Schedule II, III, IV or V controlled substance. Consequently, their manufacture, importation, exportation,
domestic distribution, storage, sale and legitimate use will be subject to a significant degree of regulation by the DEA. The scheduling
process may take additional time after FDA approval, thereby significantly delaying the launch of our products. Furthermore, if the FDA,
DEA or any foreign regulatory authority determines that our products may have potential for abuse, it may require us to generate more
clinical data than that which is currently anticipated, which could increase the cost and/or delay the launch of our products.
Because
our products will contain compounds considered to be Schedule I substances, to conduct pre-clinical studies and clinical trials with
our products in the United States prior to approval, each of our research sites must submit a research protocol to the DEA and obtain
and maintain a DEA researcher registration that will allow those sites to procure necessary materials from suppliers, and to handle and
dispense our products. If the DEA delays or denies the grant of a research registration to one or more research sites, the pre-clinical
studies or clinical trials could be significantly delayed, and we could lose and be required to replace clinical trial sites, resulting
in additional costs.
We
will also need to identify wholesale distributors with the appropriate DEA registrations and authority to distribute our products to
pharmacies and other healthcare providers, and these distributors would need to obtain Schedule II through V distribution registrations.
The failure to obtain, or delay in obtaining, or the loss of any of those registrations could result in increased costs to us. If our
products are Schedule II drugs, pharmacies would have to maintain enhanced security with alarms and monitoring systems and they must
adhere to recordkeeping and inventory requirements. Furthermore, state and federal enforcement actions, regulatory requirements, and
legislation intended to reduce prescription drug abuse, such as the requirement that physicians consult a state prescription drug monitoring
program, may make physicians less willing to prescribe, and pharmacies to dispense, Schedule II products.
We
may manufacture the commercial supply of our products, or necessary raw materials, outside of the United States. If our products are
each approved by the FDA and classified as a Schedule II or III substance, an importer can import that product for commercial purposes
if it obtains from the DEA an importer registration and files an application with the DEA for an import permit for each importation.
The DEA provides annual assessments/estimates to the International Narcotics Control Board which guides the DEA in the amounts of controlled
substances that the DEA authorizes to be imported. The failure to identify an importer or obtain the necessary import authority, including
specific quantities, could affect the availability of our products and have a material adverse effect on our business, results of operations
and financial condition. In addition, an application for a Schedule II importer registration must be published in the Federal Register,
and there is a waiting period for third-party comments to be submitted.
Individual
states have also established controlled substance laws and regulations. Although state-controlled substance laws often mirror federal
law, states may schedule our product candidates in a different manner. While some states automatically schedule a drug based on federal
action, other states schedule drugs through rulemaking or a legislative action. State scheduling may delay commercial sale of any product
for which we obtain federal regulatory approval and adverse scheduling could have a material adverse effect on the commercial attractiveness
of such product. We or our partners must also obtain separate state registrations, permits or licenses in order to be able to obtain,
handle, and distribute controlled substances for clinical trials or commercial sale, and failure to meet applicable regulatory requirements
could lead to enforcement actions and sanctions by the states in addition to those from the DEA or otherwise arising under federal law.
We
currently face, and will continue to face, significant competition in our pharmaceutical business.
Our
major competitors for the development of pharmaceutical products related to cannabinoids and inflammatory disorders include major pharmaceutical
companies, smaller companies, and academic research groups that are devoted to biological or pharmaceutical research either independently
or by providing contract research services. A number of multinational pharmaceutical companies are developing products in similar therapeutic
areas, including, but not limited to, Biogen, Teva Neuroscience, Pfizer, Endo Pharmaceuticals, Genzyme, Novartis, Bayer Healthcare, and
additional companies such as Jazz Pharmaceuticals, Corbus Pharmaceuticals, Trait Biosciences, and Zynerba Pharmaceuticals
are developing cannabinoid pharmaceuticals for treatment of various clinical indications and commercial applications.
Failure
to obtain regulatory approval in jurisdictions outside the United States and the European Union would prevent our product candidates
from being marketed in those jurisdictions.
In
order to market and sell our products in jurisdictions other than the United States and the European Union, we must obtain separate marketing
approvals and comply with numerous and varying regulatory requirements. The regulatory approval process outside the United States and
the European Union generally includes all of the risks associated with obtaining FDA and EMA approval, but can involve additional testing.
We may need to partner with third parties in order to obtain approvals outside the United States and the European Union. In addition,
in many countries worldwide, it is required that the product be approved for reimbursement before the product can be approved for sale
in that country. We may not obtain approvals from regulatory authorities outside the United States and the European Union on a timely
basis, if at all. Even if we were to receive approval in the United States or the European Union, approval by the FDA or the EMA does
not ensure approval by regulatory authorities in other countries or jurisdictions. Similarly, approval by one regulatory authority outside
the United States and the European Union would not ensure approval by regulatory authorities in other countries or jurisdictions or by
the FDA or the EMA. We may not be able to file for marketing approvals and may not receive necessary approvals to commercialize our products
in any market. If we are unable to obtain approval of our product candidates by regulatory authorities in other foreign jurisdictions,
the commercial prospects of those product candidates may be significantly diminished and our business prospects could decline.
Healthcare
legislation, including potentially unfavorable pricing regulations or other healthcare reform initiatives, may increase the difficulty
and cost for us to obtain marketing approval of and commercialize our product candidates.
In
the United States there have been a number of legislative and regulatory changes and proposed changes regarding the healthcare system
that could prevent or delay marketing approval of our product candidates, restrict or regulate post-approval activities or affect our
ability to profitably sell any product candidates for which we obtain marketing approval.
The
Patient Protection and Affordable Care Act, as amended by the Health Care and Education Reconciliation Act, or the Affordable Care Act,
among other things, imposes a significant annual fee on companies that manufacture or import branded prescription drug products. It also
contains substantial provisions intended to broaden access to health insurance, reduce or constrain the growth of healthcare spending,
enhance remedies against healthcare fraud and abuse, add new transparency requirements for the healthcare and health insurance industries,
impose new taxes and fees on pharmaceutical and medical device manufacturers, and impose additional health policy reforms, any of which
could negatively impact our business. We expect that the Affordable Care Act, as well as other healthcare reform measures that have been
and may be adopted in the future, may result in more rigorous coverage criteria and in additional downward pressure on the price that
we receive for any approved product, and could negatively impact our future revenues. Any reduction in reimbursement from Medicare or
other government programs may result in a similar reduction in payments from private payors. The implementation of cost containment measures
or other healthcare reforms may compromise our ability to generate revenue, attain profitability or commercialize our products.
Even
if we are able to commercialize our products, the products may not receive coverage and adequate reimbursement from third-party payors,
which could harm our business.
The
availability of reimbursement by governmental and private payors is essential for most patients to be able to afford expensive treatments.
Sales of our products, if approved, will depend substantially on the extent to which the costs of these products will be paid by health
maintenance, managed care, pharmacy benefit and similar healthcare management organizations, or reimbursed by government health administration
authorities, private health coverage insurers and other third-party payors. If reimbursement is not available, or is available only to
limited levels, we may not be able to successfully commercialize our products. Even if coverage is provided, the approved reimbursement
amount may not be high enough to allow us to establish or maintain pricing sufficient to realize a sufficient return on our investment.
In
the United States, the Medicare Prescription Drug, Improvement, and Modernization Act of 2003, or Medicare Modernization Act, established
the Medicare Part D program and provided authority for limiting the number of drugs that will be covered in any therapeutic class thereunder.
The Medicare Modernization Act, including its cost reduction initiatives, could decrease the coverage and reimbursement rate that we
receive for any of our approved products. Furthermore, private payors often follow Medicare coverage policies and payment limitations
in setting their own reimbursement rates. Therefore, any reduction in reimbursement that results from the Medicare Modernization Act
may result in a similar reduction in payments from private payors.
There
is significant uncertainty related to the insurance coverage and reimbursement of newly approved products. In the United States, the
principal decisions about reimbursement for new medicines are typically made by the Centers for Medicare & Medicaid Services (CMS),
an agency within the U.S. Department of Health and Human Services (HHS), as CMS decides whether and to what extent a new medicine will
be covered and reimbursed under Medicare. Private payors tend to follow CMS to a substantial degree.
The
intended use of a drug product by a physician can also affect pricing. For example, CMS could initiate a National Coverage Determination
administrative procedure, by which the agency determines which uses of a therapeutic product would and would not be reimbursable under
Medicare. This determination process can be lengthy, thereby creating a long period during which the future reimbursement for a particular
product may be uncertain.
Outside
the United States, particularly in member states of the European Union, the pricing of prescription drugs is subject to governmental
control. In these countries, pricing negotiations or the successful completion of health technology assessment procedures with governmental
authorities can take considerable time after receipt of marketing approval for a product. In addition, there can be considerable pressure
by governments and other stakeholders on prices and reimbursement levels, including as part of cost containment measures. Certain countries
allow companies to fix their own prices for medicines, but monitor and control company profits. Political, economic and regulatory developments
may further complicate pricing negotiations, and pricing negotiations may continue after reimbursement has been obtained. Reference pricing
used by various European Union member states and parallel distribution, or arbitrage between low-priced and high-priced member states,
can further reduce prices. In some countries, we or our collaborators may be required to conduct a clinical trial or other studies that
compare the cost-effectiveness of our product candidates to other available therapies in order to obtain or maintain reimbursement or
pricing approval. Publication of discounts by third-party payors or authorities may lead to further pressure on the prices or reimbursement
levels within the country of publication and other countries. If reimbursement of any product candidate approved for marketing is unavailable
or limited in scope or amount, or if pricing is set at unsatisfactory levels, our business, financial condition, results of operations
or prospects could be adversely affected.
Our
relationships with customers and third-party payors will be subject to applicable anti-kickback, fraud and abuse and other healthcare
laws and regulations, which could expose us to criminal sanctions, civil penalties, contractual damages, reputational harm and diminished
profits and future earnings.
Healthcare
providers, physicians and third-party payors play a primary role in the recommendation and prescription of any product candidates for
which we obtain marketing approval. Our future arrangements with third-party payors and customers may expose us to broadly applicable
fraud and abuse and other healthcare laws and regulations that may constrain the business or financial arrangements and relationships
through which we market, sell and distribute our products for which we obtain marketing approval. As a pharmaceutical company, even though
we do not and will not control referrals of healthcare services or bill directly to Medicare, Medicaid or other third-party payors, certain
federal and state healthcare laws and regulations pertaining to fraud and abuse and patients’ rights are and will be applicable
to our business. Restrictions under applicable federal and state healthcare laws and regulations that may affect our ability to operate
include the following:
●
the U.S. federal healthcare Anti-Kickback Statute impacts our marketing practices, educational programs, pricing policies and relationships
with healthcare providers or other entities, by prohibiting, among other things, persons from knowingly and willfully soliciting, offering,
receiving or providing remuneration, directly or indirectly, in cash or in kind, to induce or reward, or in return for, either the referral
of an individual for, or the purchase, order or recommendation of, any good or service, for which payment may be made under a federal
healthcare program such as Medicare and Medicaid;
●
federal civil and criminal false claims laws and civil monetary penalty laws impose criminal and civil penalties, including through civil
whistleblower or qui tam actions, against individuals or entities for knowingly presenting, or causing to be presented, to the federal
government, including the Medicare and Medicaid programs, claims for payment that are false or fraudulent (including through impermissible
promotion of our products for off-label uses) or making a false statement or record to avoid, decrease or conceal an obligation to pay
money to the federal government;
●
the U.S. federal Health Insurance Portability and Accountability Act of 1996 (HIPAA), imposes criminal and civil liability for executing
a scheme to defraud any healthcare benefit program and also created federal criminal laws that prohibit knowingly and willfully falsifying,
concealing or covering up a material fact or making any materially false statements in connection with the delivery of or payment for
healthcare benefits, items or services;
●
HIPAA, and the rules and regulations promulgated thereunder, establish federal standards for maintaining the privacy and security of
certain patient health information known as Protected Health Information (PHI). As amended by the Health Information Technology for Economic
and Clinical Health Act (HITECH), HIPAA establishes federal standards for administrative, technical and physical safeguards relevant
to the electronic transmission of PHI and imposes notification obligations in the event of a breach of the privacy or security of PHI.
In addition to adhering to the requirements of HIPAA, entities considered “covered entities” under HIPAA (such as health
plans, healthcare clearinghouses, and certain healthcare providers) are required to obtain assurances in the form of a written contract
from certain business associates to which they transmit PHI (or who create, receive, transmit or maintain PHI on the covered entity’s
behalf) to ensure that the privacy and security of such information is maintained in accordance with HIPAA requirements. HITECH made
changes to HIPAA including extending the reach of HIPAA beyond HIPAA covered entities to business associates, increased the maximum civil
monetary penalties for violations of HIPAA, and granted enforcement authority to state attorneys general. Failure to comply with HIPAA/HITECH
can result in civil and criminal liability, including civil monetary penalties, fines and imprisonment;
●
the U.S. federal physician payment transparency requirements under the Affordable Care Act require applicable manufacturers of covered
drugs, devices, biologics and medical supplies to report annually to HHS information related to payments and other transfers of value
to physicians, certain other healthcare providers, and teaching hospitals, and ownership and investment interests held by physicians
and certain other healthcare providers and their immediate family members and applicable group purchasing organizations; and
●
analogous state laws and regulations, such as state anti-kickback and false claims laws, may apply to sales or marketing arrangements
and claims involving healthcare items or services reimbursed by non-governmental third-party payors, including private insurers. Some
state laws require pharmaceutical companies to comply with the pharmaceutical industry’s voluntary compliance guidelines and the
relevant compliance guidance promulgated by the federal government and may require drug manufacturers to report information related to
payments and other transfers of value to physicians and certain other healthcare providers or marketing expenditures. Additionally, state
and foreign laws govern the privacy and security of health information in certain circumstances, many of which differ from each other
in significant ways and often are not preempted by HIPAA/HITECH, thus complicating compliance efforts.
Comparable
laws and regulations exist in the countries within the European Economic Area (EEA). Although such laws are partially based upon European
Union law, they may vary from country to country. Healthcare specific, as well as general European Union and national laws, regulations
and industry codes constrain, for example, our interactions with government officials and healthcare practitioners, and the handling
of healthcare data. Non-compliance with any of these laws or regulations could lead to criminal or civil liability.
Efforts
to ensure that our business arrangements with third parties will comply with applicable healthcare laws and regulations will involve
substantial costs. It is possible that governmental authorities will conclude that our business practices may not comply with current
or future statutes, regulations or case law involving applicable fraud and abuse or other healthcare laws and regulations. If our operations
are found to be in violation of any of these laws or any other governmental regulations that may apply to us, we may be subject to significant
civil, criminal and administrative penalties, damages, fines, imprisonment, exclusion from government funded healthcare programs, such
as Medicare and Medicaid, and the curtailment or restructuring of our operations. If any physicians or other healthcare providers or
entities with whom we expect to do business are found to not be in compliance with applicable laws, they may be subject to criminal,
civil or administrative sanctions, including exclusions from government funded healthcare programs.
Also,
the U.S. Foreign Corrupt Practices Act and similar worldwide anti-bribery laws generally prohibit companies and their intermediaries
from making improper payments to non-U.S. officials for the purpose of obtaining or retaining business. Our internal control policies
and procedures may not protect us from reckless or negligent acts committed by our employees, future distributors, licensees or agents.
Violations of these laws, or allegations of such violations, could result in fines, penalties or prosecution and have a negative impact
on our business, results of operations and reputation.
Our
products, if approved, may be unable to achieve broad market acceptance and, consequently, limit our ability to generate revenue from
new products.
Even
when product development is successful and regulatory approval has been obtained, our ability to generate significant revenue depends
on the acceptance of our products by physicians and patients. The market acceptance of any product depends on a number of factors, including
the indication statement and warnings approved by regulatory authorities in the product label, continued demonstration of efficacy and
safety in commercial use, physicians’ willingness to prescribe the product, reimbursement from third-party payors such as government
healthcare systems and insurance companies, the price of the product, the nature of any post-approval risk management plans mandated
by regulatory authorities, competition, and marketing and distribution support. Any factor preventing or limiting the market acceptance
of our product candidates could have a material adverse effect on our business, results of operations and financial condition.
If
we receive regulatory approvals, we may market our products in multiple jurisdictions where we have limited or no operating experience
and may be subject to increased business and economic risks that could affect our financial results.
If
we receive regulatory approvals, we may market our products in jurisdictions where we have limited or no experience in marketing, developing
and distributing our products. Certain markets have substantial legal and regulatory complexities that we may not have experience navigating.
We are subject to a variety of risks inherent in doing business internationally, including risks related to the legal and regulatory
environment in non-U.S. jurisdictions, including with respect to privacy and data security, trade control laws and unexpected changes
in laws, regulatory requirements and enforcement, as well as risks related to fluctuations in currency exchange rates and political,
social and economic instability in foreign countries. In addition, controlled substance legislation may differ in other jurisdictions
and could restrict our ability to market our products internationally. If we are unable to manage our international operations successfully,
our financial results could be adversely affected.
Our
products will contain controlled substances, the use of which may generate public controversy.
Since
our products will contain controlled substances, their regulatory approval may generate public controversy. Political and social pressures
and adverse publicity could lead to delays in approval of, and increased expenses for, our products. These pressures could also limit
or restrict the introduction and marketing of our products. Adverse publicity from cannabis misuse or adverse side effects from cannabis
or other cannabinoid products may adversely affect the commercial success or market penetration achievable by our products. The nature
of our business attracts a high level of public and media interest, and in the event of any resultant adverse publicity, our reputation
may be harmed.
If
we fail to protect or enforce our intellectual property rights or secure rights to the intellectual property of others, the value of
our intellectual property rights would diminish.
We
expect to continue to develop our intellectual property portfolio as we increase our research and development efforts. We may be unable
to obtain patents or other protection for any technologies we develop, because such technologies are not coverable by patents or other
forms of registered intellectual property, because third parties file patents covering the same claims earlier than we do, or for other
reasons. If we are able to obtain issued patents, we cannot predict the degree and range of protection any patents will afford us against
competitors, including whether third parties will find ways to invalidate or otherwise circumvent our patents. Others may obtain patents
claiming aspects similar to those covered by our patents and patent applications, which may limit the efficacy of the protections afforded
by any patents we may obtain.
Our
success will also depend upon the skills, knowledge and experience of our personnel, our consultants and advisors as well as our licensors
and contractors. To help protect any proprietary know-how we develop and any inventions for which patents may be unobtainable or difficult
to obtain, we expect to rely on trade secret protection and confidentiality agreements. To this end, we expect to require our employees,
consultants, advisors and contractors to enter into agreements which prohibit the disclosure of confidential information and, where applicable,
require disclosure and assignment to us of the ideas, developments, discoveries and inventions important to our business. These agreements
may not provide adequate protection for our trade secrets, know-how or other proprietary information in the event of any unauthorized
use or disclosure or the lawful development by others of such information. If any of our trade secrets, know-how or other proprietary
information is disclosed, the value of our trade secrets, know-how and other proprietary rights would be significantly impaired and our
business and competitive position would suffer.
If
we infringe the rights of third parties we could be prevented from selling products and forced to pay damages or defend against litigation.
If
our products, methods, processes and other technologies infringe the proprietary rights of other parties, we could incur substantial
costs. In that case, we could be required to:
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obtain
licenses from such third parties, which may not be available on commercially reasonable terms, if at all; |
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redesign
our products or processes to avoid infringement, which may not be feasible; |
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stop
using the subject matter claimed in the patents held by others; |
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pay
damages; and/or |
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defend
litigation or administrative proceedings, which may be costly whether we win or lose, and which could result in a substantial diversion
of our valuable management resources. |
Any
of these outcomes could divert management attention and other resources and could significantly harm our operations and financial condition.
We
may incur substantial liabilities and may be required to limit commercialization of our products in response to product liability lawsuits.
If
we are able to develop and commercialize our proposed products, we could become subject to product liability claims. If we are not able
to successfully defend against such claims, we may incur substantial liabilities or be required to limit commercialization of our proposed
products. If we are unable to obtain sufficient product liability insurance at an acceptable cost to protect against potential product
liability, claims could prevent or inhibit the commercialization of products we develop, alone or with collaborators. Even if our agreements
with any future collaborators entitle us to indemnification against losses, such indemnification may not be available or adequate should
any claim arise.
Government
regulation of our products could increase our costs, prevent us from offering certain products or cause us to recall products.
The
processing, formulation, manufacturing, packaging, labeling, advertising and distribution of our products is subject to regulation by
one or more federal agencies, and various agencies of the states and localities in which our products are manufactured and sold. These
government regulatory agencies may attempt to regulate any of our products that fall within their jurisdiction. Such regulatory agencies
may not accept the evidence of safety for any new ingredients that we may want to market, may determine that a particular product or
product ingredient presents an unacceptable health risk, may determine that a particular statement of nutritional support that we want
to use is an unacceptable drug claim or an unauthorized version of a food “health claim,” may determine that a particular
product is an unapproved new drug, or may determine that particular claims are not adequately supported by available scientific evidence.
Such a determination would prevent us from marketing particular products or using certain statements of nutritional support on our products.
We also may be unable to disseminate third-party literature that supports our products if the third-party literature fails to satisfy
certain requirements.
In
addition, a government regulatory agency could require us to remove a particular product from the market. Any product recall or removal
would result in additional costs to us, including lost revenues from any products that we are required to remove from the market, any
of which could be material. Any such product recalls or removals could lead to liability, substantial costs and reduced growth prospects.
If
any of our products contain plants, herbs or other substances not recognized as safe by a government regulatory agency, we may not be
able to market or sell such products in that jurisdiction. Any such prohibition could materially adversely affect our results of operations
and financial condition. Further, if more stringent statutes are enacted, or if more stringent regulations are promulgated, we may not
be able to comply with such statutes or regulations without incurring substantial expense, or at all.
We
are not able to predict the nature of future laws, regulations, repeals or interpretations or to predict the effect additional governmental
regulation, if and when it occurs, would have on our business in the future. Such developments could, however, require reformulation
of certain products to meet new standards, recalls or discontinuance of certain products not able to be reformulated, additional record-keeping
requirements, increased documentation of the properties of certain products, additional or different labeling, additional scientific
substantiation, or other new requirements. Any such developments could involve substantial additional costs to us, which we may not be
able to fund, and could have a material adverse effect on our business operations and financial condition.
We
use hazardous materials in our drug development business and may use such materials in our environmental businesses in the future. Any
claims relating to improper handling, storage or disposal of these materials could be time consuming and costly.
Our
cannabinoid research and development efforts and manufacturing processes may involve the controlled storage, use and disposal of certain
hazardous materials and waste products. The same may be true for our environmental businesses. We and our suppliers and other collaborators
are subject to federal, state and local regulations governing the use, manufacture, storage, handling and disposal of materials and waste
products. Even if we and these suppliers and collaborators comply with the standards prescribed by law and regulation, the risk of accidental
contamination or injury from hazardous materials cannot be eliminated. We may not be able to obtain and maintain insurance on acceptable
terms, or at all, to cover costs associated with any such accidental contamination. In the event of such an accident, we could be held
liable for any damages that result, and any liability could exceed the limits or fall outside the coverage of any insurance we may obtain
and exceed our financial resources. We may incur significant costs to comply with current or future environmental laws and regulations.
Risks
Related to our Impact Investing Strategy
If
we are unable to identify and acquire businesses or assets in furtherance of our impact investing strategy, we may be unable to generate
significant revenue.
We intend to acquire additional businesses and assets that will generate revenue related to our impact investing strategy
and there can no assurance that we will be able to do so, or to do so on terms that are acceptable to us, or in a manner that will provide
us with the revenue we expect.
Our
consideration of sustainability and environmental criteria as the pre-eminent part of our business and investment strategy will limit
the types and number of business opportunities available to the Company and may result in the Company engaging in industry sectors that
underperform the market as a whole, or forgoing opportunities to invest available capital in businesses that might otherwise be advantageous
to buy. If we are not successful in acquiring or developing desirable businesses or assets which fit within our business strategy or
if those assets do not generate sufficient revenue, our business, financial condition and results of operations could be materially adversely
affected.
Our
impact investing strategy is new, untested and may not be successful.
Our
impact investing strategy is qualitative and subjective by nature, and there is no guarantee that the factors we utilize in making capital
and other resource allocation decisions or any judgment exercised by our management or Board will reflect the opinions of any particular
shareholder, and the criteria utilized by the Company may differ from the criteria that any particular shareholder considers relevant
in evaluating a company’s sustainability or ESG practices. In making allocation and investment decisions, Company management will
be dependent upon information and data obtained through voluntary or third-party reporting that may be incomplete, inaccurate or unavailable,
or present conflicting information and data with respect to a particular opportunity, which in each case could cause the Company to incorrectly
assess a potential target’s business practices with respect to its sustainability and ESG practices. Socially and environmentally-responsible
norms differ by region. In implementing its impact investing strategy, management will seek to exclude businesses deemed to be fundamentally
misaligned with the Company’s sustainability principles. In addition, as a result of the Company’s engagement activities,
the Company may make an investment in activities or companies that do not currently engage in sustainability or ESG practices that meet
criteria established by the Company in an effort to improve such target’s ESG practices. Successful application of the Company’s
impact investing strategy and management’s engagement efforts will depend on management’s skill in properly identifying and
analyzing material ESG issues, and there can be no assurance that the strategy or techniques employed will be successful.
We
have limited experience operating an impact investing strategy and may be subject to
increased business and economic risks that could affect our financial results.
We
have limited experience operating a business with an impact investing strategy. If we are unable to manage our ESG-related operations successfully, our financial results could be adversely
affected.
We
may be unable to obtain the financing we need to pursue our impact investing strategy and any future financing we receive may be less
favorable to us than our current financing arrangements, either of which may adversely affect our ability to expand our operations.
ESG-
and sustainability-related projects and businesses we may seek to acquire or develop will require substantial capital investment. Our
access to capital on acceptable or favorable terms to us is necessary for the success of our impact investing strategy, particularly
in enhancing our portfolio through M&A activities. Our attempts to obtain the necessary future financing may not be successful or
on favorable terms. Our ability to arrange for financing on a substantially non-recourse or limited recourse basis, and the costs of
such financing, are dependent on numerous factors, including general economic conditions, conditions in the global capital and credit
markets, investor confidence, the success of our business, the credit quality of the businesses being financed, and the continued existence
of tax laws which are conducive to raising capital for these types of activities. If we are not able to obtain financing on a substantially
non-recourse or limited recourse basis, we may have to finance them using recourse capital such as direct equity investments or the incurrence
of additional debt by us. Also, in the absence of favorable financing options, we may decide not to develop or acquire facilities or
businesses from third parties. Any of these alternatives could have a material adverse effect on our growth prospects.
We
may also need additional financing to implement our impact investing strategic plan. For example, our cash flow from operations and existing
liquidity facilities may not be adequate to finance any acquisitions we may want to pursue or new technologies we may want to develop
or acquire. Financing for acquisitions or technology development activities may not be available on terms we find acceptable.
Unfavorable
legislative changes could affect our financial results.
Most
of the types of environmental assets we are considering purchasing are subject to environmental regulations and we expect such regulatory
conditions to influence the assumptions we will make regarding future revenues and expenses. If those regulatory conditions change, our
revenues may be decreased and our expenses could increase, adversely affecting our financial results.
The
reduction or elimination of government incentives could adversely affect our business, financial condition, future results and cash flows.
Our
planned impact investing strategy may benefit in the future from public policies and government incentives that support renewable energy
and enhance the economic feasibility of sustainability-based projects in regions where we operate. Such policies and incentives include
tax credits, accelerated depreciation tax benefits, renewable portfolio standards, carbon trading mechanisms, rebates, and may include
similar or other incentives to end users, distributors, or other participants in the energy or mining industry. Some of these measures
have been implemented at the federal level, while others have been implemented by different states within the United States. The availability
and continuation of these public policies and government incentives are likely to have a significant effect on the economics and viability
of our environmental businesses. Any changes to such public policies, or any reduction in or elimination or expiration of such government
incentives could affect us in different ways. For example, policies supporting or deregulating the exploration, production and use of
fossil fuels may create regulatory uncertainty in the renewable energy industry. Any of the foregoing outcomes could have a material
adverse effect on our business, financial condition, future results, and cash flows.
We
may decide not to implement, or may not be successful in implementing, one or more elements of our multi-year strategic plan, and the
plan as implemented may not achieve its goal of enhancing shareholder value through the long-term growth of our Company
We
are implementing a multi-year strategic plan to develop an impact investing business engaged in a number of complimentary ESG businesses in the United
States which will permit us to explore synergistic growth opportunities utilizing our core competencies.
There
are uncertainties and risks associated with our strategic plan, including with respect to implementation and outcome. We may decide to
change, or to not implement, one or more elements of the plan over time or we may not be successful in implementing one or more elements
of the plan, in each case for a number of reasons. For example, we may face significant challenges and risks expanding into an impact investing business
including:
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our
ability to compete with the large number of other companies pursuing similar business opportunities in the ESG field, many of which
already have established businesses in these areas and/or have greater financial, strategic, technological or other resources than
we have; |
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our
ability to obtain financing on terms we consider acceptable, or at all, which we may need, for example, to develop new projects,
to obtain any technology, personnel, intellectual property, or to acquire one or more existing businesses as a platform for our expansion,
or to fund internal research and development; |
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our
ability to provide services or products that keep pace with rapidly changing technology, customer preferences, equipment costs,
increasing raw materials and transportation costs, market conditions and other factors that currently are unknown to us that
will impact these markets; |
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our
ability to manage the risks and uncertainties associated with our operating the facilities and projects in this line of business,
including the variability of revenues and profitability of such projects; |
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our
ability to devote the amount of management time and other resources required to implement this plan; and |
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our
ability to recruit appropriate employees and labor market challenges. |
Apart
from the risks associated with implementing the plan, the plan itself will expose us to other risks and uncertainties once implemented.
Expanding our customer base may expose us to customers with different credit profiles than our current customers. Expanding our geographic
base will subject us to risks associated with doing business in new foreign countries in which we will have to learn the business and
political environment. In addition, expanding into new technologies will expose us to new risks and uncertainties that are unknown to
us now in addition to the risks and uncertainties that may be similar to those we now face. The success of the plan, once implemented,
will depend, among other things, on our ability to manage these risks effectively.
The
trading price of our common stock could decline if securities, industry analysts or our investors disagree with our strategic plan or
the way we implement it. Accordingly, there is no assurance that the plan will enhance shareholder value through long-term growth of
the Company to the extent currently anticipated by our management or at all.
We
may engage in a business combination with one target business that has relationships with entities that may be affiliated with our sponsor,
executive officers, directors or initial shareholder which may raise potential conflicts of interest.
In
carrying our impact investing strategy, we may decide to acquire a business affiliated with our executive officers, directors or our
largest shareholder. We would pursue a transaction with an affiliated entity if we determined that such affiliated entity met our criteria
and guidelines for a business combination and such transaction was approved by a majority of our independent and disinterested directors.
We may not obtain an opinion from an independent investment banking firm or another independent entity regarding the fairness to the
Company from a financial point of view of a business combination with a business affiliated with our executive officers, directors or
largest shareholder. In the event of a transaction with an affiliated entity, potential conflicts of interest may exist and, as a result,
the terms of the transaction may not be as advantageous to our public shareholders as they would be absent any conflicts of interest.
We
may not be able to successfully conclude the transactions, integrate companies, which we may acquire in the future, which could materially
and adversely affect our business, financial condition, future results and cash flow.
Our
impact investing strategy is to develop our ESG business primarily through acquisitions. Integrating acquisitions is often costly,
and we may not be able to successfully integrate our acquired businesses with our existing operations without substantial costs,
delays or other adverse operational or financial consequences. Completion of M&A transactions may be subject to fulfilling
conditions and receiving regulatory approval. Integrating our acquired companies involves a number of risks that could materially
and adversely affect our business, including:
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failure
of the acquired companies to achieve the results we expect; |
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inability
to retain key personnel of the acquired companies; |
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risks
associated with unanticipated events or liabilities; and |
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the
difficulty of establishing and maintaining uniform standards, controls, procedures and policies, including accounting controls and
procedures. |
If
any of our acquired companies suffers customer dissatisfaction or performance problems, this could adversely affect the reputation of
our group of companies and could materially and adversely affect our business, financial condition, future results and cash flow.
Concentration
of customers, specific projects and regions may expose us to heightened financial exposure.
Our
ESG businesses may be heavily dependent on a single or limited number of customers. The financial performance of our ESG businesses depends
on the ability of each customer to perform its obligations, possibly under a long-term agreement between the parties. Our financial results
could be materially and adversely affected if any of our customers fail to fulfill its contractual obligations and we are unable
to find other customers in the marketplace to purchase at the same level of profitability. We cannot assure that such performance failures
by our customers will not occur, or that if they do occur, such failures will not adversely affect the cash flows or profitability of
our businesses. Moreover, there can be no assurance that we will be able to enter into replacement agreements on favorable terms or at
all.
Although
we have identified general criteria and guidelines that we believe are important in evaluating prospective target ESG businesses, we
may enter into business combinations that do not have attributes entirely consistent with our general criteria and guidelines.
Although
we have identified general criteria and guidelines for evaluating prospective target ESG businesses, it is possible that we may not acquire
or enter into transactions with a target business which will not have all of these positive attributes. If shareholder approval of the
transaction is required by applicable law or other requirements, or we decide to obtain shareholder approval for business or other reasons,
it may be more difficult for us to attain shareholder approval of those business combinations if the target business does not meet our
general criteria and guidelines.
We
may make future acquisitions or form partnerships and joint ventures that may involve numerous risks that could impact our financial
condition, results of operations and cash flows.
Our
impact investing strategy may include expanding our scope of products and services organically or through selective acquisitions, investments
or creating partnerships and joint ventures. We may selectively acquire other businesses, product or service lines, assets or technologies
that are complementary to our business. We may be unable to find or consummate future acquisitions at acceptable prices and terms, or
we may be unable to integrate existing or future acquisitions effectively and efficiently and may need to divest those acquisitions.
We expect to continually evaluate potential acquisition opportunities in the ordinary course of business. Acquisitions involve numerous
risks, including among others:
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our
evaluation of the synergies and/or long-term benefits of an acquired business; |
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integration
difficulties, including challenges and costs associated with implementing systems, processes and controls to comply with the requirements
of a publicly-traded company; |
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diverting
management’s attention; |
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litigation
arising from acquisition activity; |
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potential
increased debt leverage; |
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potential
issuance of dilutive equity securities; |
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entering
markets in which we have no or limited direct prior experience and where competitors in such markets have stronger market positions;
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unanticipated
costs and exposure to undisclosed or unforeseen liabilities or operating challenges; |
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potential
goodwill or other intangible asset impairments; |
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potential
loss of key employees and customers of the acquired businesses, product or service lines, assets or technologies; |
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our
ability to properly establish and maintain effective internal controls over an acquired company; and |
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increasing
demands on our operational and IT systems. |
The
success of acquisitions of businesses, new technologies and products, or arrangements with third parties is not always predictable and
we may not be successful in realizing our objectives as anticipated. Furthermore, any future credit facility we may have may contain
certain covenants that limit, or that may have the effect of limiting, among other things, the payment of dividends, acquisitions, capital
expenditures, the sale of assets and the incurrence of additional indebtedness.
We
could be exposed to significant liability for violations of hazardous substances laws because of the use or presence of such substances
at our facilities or properties.
Our
ESG business operations will be subject to numerous federal, regional, state and local statutory and regulatory standards relating to
the generation, handling, transportation, use, storage, treatment and disposal of hazardous substances. If any hazardous substances are
found to have been released into the environment at or by one of our facilities or on one of our properties in concentrations that exceed
regulatory limits, we could become liable for the investigation and removal of those substances, regardless of their source and time
of release. If we fail to comply with these laws, ordinances or regulations (or any change thereto), we could be subject to civil or
criminal liability, the imposition of liens or fines, and cessation of operations, large expenditures to bring our operations into compliance
or other sanctions. Furthermore, under certain federal and states laws in the United States, we can be held liable for the cleanup of
releases of hazardous substances at any of our current or former facilities or at any other locations where we arranged for disposal
of those substances, even if we did not cause the release at that location or if the release complied with applicable law at the time
it occurred. Liability under these laws can be joint and several. The cost of any remediation activities in connection with a spill or
other release of such substances could be significant and could expose us to significant liability.
Our
operations could be adversely impacted by climate change.
Our
Environmental Services operations may be susceptible to losses and interruptions caused by extreme weather conditions such as droughts, hurricanes, floods,
wildfires, and water or other natural resource shortages, occurrences of which may increase in frequency and severity as a result of
climate change. Climate change may also produce general changes in weather or other environmental conditions, including temperature or
precipitation levels. To the extent weather conditions continue to be impacted by climate change, our Environmental Services operations and facilities may
be adversely impacted in a manner that we could not predict which may in turn adversely impact our results of operations. In addition,
the potential physical effects of climate change, such as increased frequency and severity of storms, floods, and other climatic events,
could disrupt our operations and cause us to incur significant costs to prepare for or respond to these effects.
If
we are deemed to be an investment company under the Investment Company Act, we may be required to institute burdensome compliance requirements
and our activities may be restricted, which may make it difficult for us to carry out our impact investing strategy.
If
we are deemed to be an investment company under the Investment Company Act, our activities may be restricted, including: (i) restrictions
on the nature of our investments; and (ii) restrictions on the issuance of securities, each of which may make it difficult for us to
carry out our planned impact investing strategy.
In
addition, we may have imposed upon us burdensome requirements, including: (X) registration as an investment company with the SEC; (Y)
adoption of a specific form of corporate structure; and (Z) reporting, record keeping, voting, proxy and disclosure requirements and
other rules and regulations that we are currently not subject to.
If
we were deemed to be subject to the Investment Company Act, compliance with these additional regulatory burdens would require additional
expenses for which we have not allotted funds and may hinder our ability to carry out our impact investing strategy.
In
order not to be regulated as an investment company under the Investment Company Act, unless we can qualify for an exclusion, we must
ensure that we are engaged primarily in a business other than investing, reinvesting or trading of securities and that our activities
do not include investing, reinvesting, owning, holding or trading “investment securities” constituting more than 40% of our
assets (exclusive of U.S. government securities and cash items) on an unconsolidated basis. Our business will include identifying and
completing business combination and thereafter to operate the post-transaction business or assets for the long term. We do not plan to
buy businesses or assets with a view to resale or profit from their resale. We do not plan to buy unrelated businesses or assets or to
be a passive investor.
We
do not believe that our principal activities will subject us to the Investment Company Act.
Risks
Related to our Common Stock
Our
common stock is illiquid and the price of our common stock may be negatively impacted by any negative operational results and factors
unrelated to our operations.
Our
common stock is quoted on the OTC and trading on the OTC is frequently highly volatile, with low trading volume. We have experienced
significant fluctuations in the price and trading volume of our common stock, which may be caused by factors relating to our business
and operational results and/or factors unrelated to the Company, including general market conditions. An active market for our common
stock may never develop, in which case it could be difficult for stockholders to sell their common stock. The market price of our common
stock could continue to fluctuate substantially.
Trading
of our stock is restricted by the SEC’s “penny stock” regulations and certain FINRA rules, which may limit a stockholder’s
ability to buy and sell our common stock.
Our
securities are covered by certain “penny stock” rules, which impose additional sales practice requirements on broker-dealers
who sell low-priced securities to persons other than established customers and accredited investors. For transactions covered by these
rules, a broker-dealer must make a special suitability determination for the purchaser and have received the purchaser’s written
consent to the transaction prior to sale, among other things. These rules may affect the ability of broker-dealers and holders to sell
our common stock and may negatively impact the level of trading activity for our common stock. To the extent our common stock remains
subject to the penny stock regulations, such regulations may discourage investor interest in and adversely affect the market liquidity
of our common stock.
The
Financial Industry Regulatory Authority (FINRA) has adopted rules that require a broker-dealer, when recommending an investment to a
customer, to have reasonable grounds for believing that the investment is suitable for that customer. Prior to recommending speculative
low-priced securities to their non-institutional customers, broker-dealers must make reasonable efforts to obtain information about the
customer’s financial status, tax status, investment objectives and other information. Under interpretations of these rules, FINRA
believes that there is a high probability that speculative low-priced securities will not be suitable for at least some customers. FINRA
requirements make it more difficult for broker-dealers to recommend that their customers buy our common stock, which may limit an investor’s
ability to buy and sell our common stock and could have an adverse effect on the market for our shares.
If
we issue and sell additional shares of our common stock in the future, our existing stockholders will be diluted and our stock price
could fall.
Our
articles of incorporation authorize the issuance of up to 1,000,000,000 shares of common stock, of which, as of March 30, 2023, 78,116,814
shares were outstanding and 37,905,879 shares were reserved for issuance under our stock incentive plan and other outstanding options
or warrants. As a result, we have a large number of shares of common stock that are authorized for issuance that are not outstanding or
otherwise reserved, and could be issued at the discretion of our Board of Directors. We expect to seek additional financing in the future
in order to fund our operations, and if we issue additional shares of common stock or securities convertible into common stock, our existing
stockholders will be diluted. Our Board of Directors may also choose to issue shares of our common stock or securities convertible into
or exercisable for our common stock to acquire assets or companies, for compensation to employees, officers, directors, consultants and
advisors, to fund capital expenditures and to enter into strategic partnerships. Additionally, shares of common stock could be issued
for anti-takeover purposes or to delay or prevent changes in control or management of the Company. Our Board of Directors may determine
to issue shares of our common stock on terms that our stockholders do not believe enhance stockholder value, or that may ultimately have
an adverse effect on our business or the trading price of our common stock. Further, the issuance of any such shares may cause further
dilution to the ownership interest of our current stockholders, reduce the book value per share of our common stock and may contribute
to a reduction in the market price for our common stock.
Our
principal stockholders and management own a significant percentage of our stock and will be able to exert significant control over matters
subject to stockholder approval.
Certain
of our executive officers, directors and stockholders own a significant percentage of our outstanding capital stock. As of March 30,
2023, our executive officers, directors, holders of 5% or more of our capital stock and their respective affiliates beneficially owned
approximately 55.6% of our outstanding shares of common stock. Accordingly, our directors, executive officers and certain stockholders
have significant influence over our affairs due to their substantial stock ownership coupled with their positions on our management team.
For example, these stockholders may be able to control or influence elections of directors, amendments of our organizational documents,
or approval of any merger, sale of assets, or other major corporate transaction. This concentration of ownership may prevent or discourage
unsolicited acquisition proposals or offers for our common stock that some of our stockholders may believe is in their best interest.
We
are subject to the reporting requirements of federal securities laws, compliance with which involves significant time, expense and expertise.
We
are a public reporting company and are subject to the information and reporting requirements of the Exchange Act and other federal securities
laws, including the obligations imposed by the Sarbanes-Oxley Act of 2002. The ongoing costs associated with preparing and filing annual,
quarterly and current reports, proxy statements and other information with the SEC in the ordinary course, as well as preparing and filing
audited financial statements, are significant and may cause unexpected increases in operational expenses. Our present management team
is relatively small and may be unable to manage the ongoing costs and compliance effectively. It may be time consuming, difficult and
costly for us to hire additional financial reporting, accounting and other finance staff in order to build and retain a management team
with adequate expertise and experience in operating a public company.
We
have never paid dividends on our capital stock, and we do not anticipate paying any cash dividends in the foreseeable future.
The
continued operation and expansion of our business will require substantial funding. We have paid no cash dividends on any of our capital
stock to date and we currently intend to retain our available cash to fund the development and growth of our business. Any determination
to pay dividends in the future will be at the discretion of our Board of Directors and will depend upon our results of operations, financial
condition, contractual restrictions, restrictions imposed by applicable law and other factors our Board of Directors deems relevant.
We do not anticipate paying any cash dividends on our common stock in the foreseeable future. Any return to stockholders will therefore
be limited to the appreciation of their stock, which may never occur.