UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 20212022
OR
☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
811-22156
(Commission File Number)
MILLENNIUM INVESTMENT & ACQUISITION CO. INC.SUSTAINABLE VENTURES CORP.
(Exact(Exact name of registrant as specified in its charter)
| Delaware | 20-4531310 | |
(State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification No.) |
| 301 Winding Road, Old Bethpage, NY | 11804 | |
| (Address of principal executive offices) | (Zip Code) |
(212) 750-0371
(Registrant’s telephone number, including area code)
N/A
(Former name, former address and former fiscal year, if changed since last report)
Securities registered pursuant to Section 12(b) of the Act:
| Title of each class | Trading Symbol(s) | Name of each exchange on which registered | ||
| N/A | N/A | N/A |
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Yes ☒ No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).
Yes ☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
| Large accelerated filer | ☐ | Accelerated filer | ☐ |
| Non-accelerated filer | ☒ | Smaller reporting company | |
| Emerging growth company | ☐ |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes ☐ No ☒
Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.
common shares, $0.001 par value, outstanding at OctoberAugust 15, 2021.2022.
TABLE OF CONTENTS
| 2 |
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements.
MILLENNIUM INVESTMENT & ACQUISITION CO. INC.SUSTAINABLE VENTURES CORP. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
| June 30, 2021 | December 31, 2020 | |||||||
| (Unaudited) | ||||||||
| Assets: | ||||||||
| Current assets: | ||||||||
| Cash and cash equivalents | $ | 5,753,274 | $ | 1,895,597 | ||||
| Inventory (VinCann and Walsenburg Cannabis) | 214,398 | - | ||||||
| Investment in equity securities (SMC Global Securities) | - | 5,662,706 | ||||||
| Prepaid legal fees | 40,000 | - | ||||||
| Other current assets | 55,661 | 50,855 | ||||||
| Total current assets | 6,063,333 | 7,609,158 | ||||||
| Property, plant and equipment: | ||||||||
| Millennium HI Carbon (HI) | 2,765,000 | 2,765,000 | ||||||
| Millennium Carbon (KY) | 347,554 | 139,497 | ||||||
| Net property, plant and equipment | 3,112,554 | 2,904,497 | ||||||
| Security deposits (VinCann and Walsenburg Cannabis) | 327,900 | - | ||||||
| Right of use assets - Millennium HI Carbon (HI) | 1,381,469 | 1,403,190 | ||||||
| Right of use assets - Cannabis | 8,954,991 | - | ||||||
| Right of use asset | ||||||||
| Total assets | $ | 19,840,247 | $ | 11,916,845 | ||||
| Liabilities and Shareholders’ Equity | ||||||||
| Current liabilities: | ||||||||
| Accounts payable and accrued expenses | $ | 266,182 | $ | 222,478 | ||||
| PPP loan - Millennium HI Carbon (HI) | - | 137,700 | ||||||
| Lease liability - Millennium HI Carbon (HI) | 1,109,728 | 1,024,969 | ||||||
| Lease liability | ||||||||
| Total current liabilities | 1,375,910 | 1,385,147 | ||||||
| Lease liability - Millennium HI Carbon (HI) | 1,384,953 | 1,399,285 | ||||||
| Lease liability - Cannabis | 9,057,623 | - | ||||||
| Lease liability | ||||||||
| Total Liabilities | $ | 11,818,486 | $ | 2,784,432 | ||||
| Preferred Stock; par value $ per share, shares authorized, shares issued and outstanding | - | - | ||||||
| Common Stock; par value $ per share, shares authorized, shares issued and outstanding | 1,096 | 1,096 | ||||||
| Paid-in capital | 52,400,025 | 52,400,025 | ||||||
| Accumulated Deficit | (44,379,360 | ) | (43,268,708 | ) | ||||
| Total Equity | $ | 8,021,761 | $ | 9,132,413 | ||||
| Total Liabilities and Equity | $ | 19,840,247 | $ | 11,916,845 | ||||
| June 30, 2022 | December 31, 2021 | |||||||
| (Unaudited) | ||||||||
| Assets: | ||||||||
| Current assets: | ||||||||
| Cash | $ | 768,765 | $ | 1,623,291 | ||||
| Accounts receivable | 20,257 | 5,781 | ||||||
Advances to affiliate | 284,968 | - | ||||||
| Inventory - Millennium Cannabis | 703,341 | 2,108,284 | ||||||
| Inventory - Millennium Produce | 1,813,552 | - | ||||||
| Inventory | 1,813,552 | - | ||||||
| Other current assets | 106,043 | 72,743 | ||||||
| Total current assets | 3,696,926 | 3,810,099 | ||||||
| Property, plant and equipment, net | 646,464 | 483,100 | ||||||
| Other assets: | ||||||||
| Security deposits | 983,650 | 1,249,405 | ||||||
| Right of use assets - Millennium Produce | 6,630,365 | - | ||||||
| Right of use assets - Millennium HI Carbon | 1,328,197 | 1,353,880 | ||||||
| Right of use assets - Millennium Cannabis | 35,876,503 | 37,708,496 | ||||||
| Right of use assets | 35,876,503 | 37,708,496 | ||||||
| Right of use assets - finance leases | 13,313 | 29,829 | ||||||
| Total assets | $ | 49,175,418 | $ | 44,634,809 | ||||
| Liabilities and Shareholders’ Equity (Deficit) | ||||||||
| Current liabilities: | ||||||||
| Accounts payable and accrued expenses | $ | 2,164,403 | $ | 376,634 | ||||
| Line of credit - related party, net of unamortized discount | 1,391,925 | - | ||||||
| Current portion of long-term debt | 735,064 | - | ||||||
| Lease liability - Millennium Produce | 174,372 | - | ||||||
| Lease liability - Millennium HI Carbon | 30,895 | 1,194,556 | ||||||
| Lease liability - Millennium Cannabis | 407,833 | 2,482,649 | ||||||
| Lease liability, current | 407,833 | 2,482,649 | ||||||
| Lease liability - finance leases | 3,164 | 3,264 | ||||||
| Total current liabilities | 4,907,656 | 4,057,103 | ||||||
| Long-term liabilities | ||||||||
| Lease liability - Millennium Produce | 6,730,841 | - | ||||||
| Lease liability - Millennium HI Carbon | 1,354,057 | 1,369,889 | ||||||
| Lease liability - Millennium Cannabis | 39,825,312 | 37,263,981 | ||||||
| Lease liability, noncurrent | 39,825,312 | 37,263,981 | ||||||
| Lease liability - finance leases | 10,196 | 26,607 | ||||||
| Long-term debt | 2,143,495 | - | ||||||
| Total long-term liabilities | 50,063,901 | 38,660,477 | ||||||
| Total Liabilities | 54,971,557 | 42,717,580 | ||||||
| Preferred Stock; par value $ per share, shares authorized, shares issued and outstanding | ||||||||
| Common Stock; par value $ per share, shares authorized, shares issued and outstanding | 1,096 | 1,096 | ||||||
| Paid-in capital | 52,400,025 | 52,400,025 | ||||||
| Accumulated Deficit | (58,197,260 | ) | (50,483,892 | ) | ||||
| Total Equity (Deficit) | (5,796,139 | ) | 1,917,229 | |||||
| Total Liabilities and Equity (Deficit) | $ | 49,175,418 | $ | 44,634,809 | ||||
The accompanying notes are an integral part of these condensed consolidated financial statements.
| 3 |
MILLENNIUM SUSTAINABLE VENTURES CORP. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
| Three Months Ended June 30, | Six Months Ended June 30, | |||||||||||||||
| 2022 | 2021 | 2022 | 2021 | |||||||||||||
| Revenue | $ | 159,499 | $ | - | $ | 414,584 | $ | - | ||||||||
| Cost of goods sold | 1,036,519 | - | 2,397,347 | - | ||||||||||||
| Gross Loss | (877,020 | ) | - | (1,982,763 | ) | - | ||||||||||
| Operating Expenses | ||||||||||||||||
| General & administrative expenses | 459,780 | 376,620 | 921,527 | 438,015 | ||||||||||||
| Provision for tax receivable | - | 633,311 | - | 633,311 | ||||||||||||
| Professional fees | 15,358 | 44,778 | 85,268 | 57,735 | ||||||||||||
| Bad debt expense - related party | 1,505,898 | - | 1,505,898 | - | ||||||||||||
| Lease expense - Millennium Cannabis (MI) | 1,418,780 | 102,632 | 2,837,560 | 92,748 | ||||||||||||
| Lease expense - Millennium Produce (NE) | 274,848 | - | 274,848 | - | ||||||||||||
| Lease expense - Millennium HI Carbon | 47,675 | 46,374 | 95,351 | 102,632 | ||||||||||||
| Lease expense | 47,675 | 46,374 | 95,351 | 102,632 | ||||||||||||
| Total Operating Expenses | 3,722,339 | 1,203,715 | 5,738,928 | 1,324,441 | ||||||||||||
| Net Loss from Operations | $ | (4,599,359 | ) | $ | (1,203,715 | ) | $ | (7,721,691 | ) | $ | (1,324,441 | ) | ||||
| Other Income (Expense) | ||||||||||||||||
| Dividend income | $ | - | $ | - | $ | - | $ | 67,383 | ||||||||
| Interest income | 7 | 176 | 27 | 227 | ||||||||||||
| Other income | 735 | 143,919 | 8,296 | 146,179 | ||||||||||||
| Interest expense | (18,476 | ) | - | (18,476 | ) | - | ||||||||||
| Total Other Income (Expense) | (17,734 | ) | 144,095 | (10,153 | ) | 213,789 | ||||||||||
| Net Loss | $ | (4,617,093 | ) | $ | (1,059,620 | ) | $ | (7,713,368 | ) | $ | (1,110,652 | ) | ||||
| Net loss per share - basic and diluted | $ | (0.42 | ) | $ | (0.10 | ) | $ | (0.70 | ) | $ | (0.10 | ) | ||||
| Weighted average share outstanding, basic and diluted | 10,959,814 | 10,959,814 | 10,959,814 | 10,959,814 | ||||||||||||
The accompanying notes are an integral part of these unauditedcondensed consolidated financial statements.
| 4 |
MILLENNIUM INVESTMENT & ACQUISITION CO. INC.SUSTAINABLE VENTURES CORP. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONSCHANGES IN SHAREHOLDERS’ EQUITY (DEFICIT)
(Unaudited)
| 2021 | 2020 | 2021 | 2020 | |||||||||||||
| Three Months Ended June 30, | Six Months Ended June 30, | |||||||||||||||
| 2021 | 2020 | 2021 | 2020 | |||||||||||||
| Operating Expenses | ||||||||||||||||
| Property taxes | $ | 21,549 | $ | - | $ | 21,549 | $ | - | ||||||||
| General & administrative expense | 214,017 | 39,838 | 258,323 | 81,522 | ||||||||||||
| Utilities | 19,117 | - | 19,117 | - | ||||||||||||
| Insurance | 118,917 | 12,201 | 134,168 | 24,402 | ||||||||||||
| State and franchise tax | 3,020 | 590 | 4,858 | 1,130 | ||||||||||||
| Provision for tax receivable | 633,311 | - | 633,311 | - | ||||||||||||
| Lease expense - Millennium HI Carbon (HI) | 46,374 | 47,676 | 92,748 | 95,352 | ||||||||||||
| Lease expense - Cannabis | 102,632 | - | 102,632 | - | ||||||||||||
| Lease expense | ||||||||||||||||
Impairment on property, plant and equipment – Millennium HI Carbon LLC (HI) | - | 148,636 | - | 3,442,765 | ||||||||||||
| Professional fees | 44,778 | 6,875 | 57,735 | 13,750 | ||||||||||||
| Total Operating Expenses | 1,203,715 | 255,816 | 1,324,441 | 3,658,921 | ||||||||||||
| Net Loss from Operations | $ | (1,203,715 | ) | $ | (255,816 | ) | $ | (1,324,441 | ) | $ | (3,658,921 | ) | ||||
| Other Income (Expenses) | ||||||||||||||||
| Dividend income | $ | - | $ | - | $ | 67,383 | $ | 91,411 | ||||||||
| Interest income | 176 | 126 | 227 | 11,756 | ||||||||||||
| Realized gain on disposal of SMC Global Securities | - | 53,450 | - | 53,450 | ||||||||||||
| Unrealized gain (loss) on investment in SMC Securities | - | 18,457 | - | (541,714 | ) | |||||||||||
| Other income | 143,919 | 13,400 | 146,179 | 18,250 | ||||||||||||
| Total Other Income (Expenses) | 144,095 | 85,433 | 213,789 | (366,847 | ) | |||||||||||
| Net Loss | $ | (1,059,620 | ) | $ | (170,383 | ) | $ | (1,110,652 | ) | $ | (4,025,768 | ) | ||||
| Net loss per share - basic and diluted | $ | (0.10 | ) | $ | (0.02 | ) | $ | (0.10 | ) | $ | (0.37 | ) | ||||
| Weighted average shares outstanding, basic and diluted | 10,959,814 | 10,959,814 | 10,959,814 | 10,959,814 | ||||||||||||
| Common Stock | Paid-in | Accumulated | Total Shareholders’ Equity | |||||||||||||||||
| Shares | Amount | Capital | Deficit | (Deficit) | ||||||||||||||||
| Balance as of December 31, 2021 | 10,959,814 | $ | 1,096 | $ | 52,400,025 | $ | (50,483,892 | ) | $ | 1,917,229 | ||||||||||
| Net Loss | - | - | - | (3,096,275 | ) | (3,096,275 | ) | |||||||||||||
| Balance as of March 31, 2022 | 10,959,814 | 1,096 | 52,400,025 | (53,580,167 | ) | (1,179,046 | ) | |||||||||||||
| Net Loss | - | - | - | (4,617,093 | ) | (4,617,093 | ) | |||||||||||||
| Balance as of June 30, 2022 | 10,959,814 | $ | 1,096 | $ | 52,400,025 | $ | (58,197,260 | ) | $ | (5,796,139 | ) | |||||||||
The accompanying notes are an integral part of these unaudited consolidated financial statements.
MILLENNIUM INVESTMENT & ACQUISITION CO. INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY
(Unaudited)
| Shares | Amount | Capital | Deficit | Equity | ||||||||||||||||
| Total | ||||||||||||||||||||
| Common Stock | Paid-in | Accumulated | Shareholders’ | |||||||||||||||||
| Shares | Amount | Capital | Deficit | Equity | ||||||||||||||||
| Balance as of December 31, 2019 | 10,959,814 | $ | 1,096 | $ | 52,400,025 | $ | (36,772,914 | ) | $ | 15,628,207 | ||||||||||
| Net Loss | - | - | - | (3,855,385 | ) | (3,855,385 | ) | |||||||||||||
| Balance as of March 31, 2020 | 10,959,814 | 1,096 | 52,400,025 | (40,628,299 | ) | 11,772,822 | ||||||||||||||
| Net Loss | - | - | - | (170,383 | ) | (170,383 | ) | |||||||||||||
| Balance as of June 30, 2020 | 10,959,814 | $ | 1,096 | $ | 52,400,025 | $ | (40,798,682 | ) | $ | 11,602,439 | ||||||||||
| Common Stock | Paid-in | Accumulated | Total Shareholders’ | |||||||||||||||||
| Shares | Amount | Capital | Deficit | Equity | ||||||||||||||||
| Balance as of December 31, 2020 | 10,959,814 | $ | 1,096 | $ | 52,400,025 | $ | (43,268,708 | ) | $ | 9,132,413 | ||||||||||
| Net Loss | - | - | - | (51,032 | ) | (51,032 | ) | |||||||||||||
| Balance as of March 31, 2021 | 10,959,814 | 1,096 | 52,400,025 | (43,319,740 | ) | 9,081,381 | ||||||||||||||
| Net Loss | - | - | - | (1,059,620 | ) | (1,059,620 | ) | |||||||||||||
| Balance as of June 30, 2021 | 10,959,814 | $ | 1,096 | $ | 52,400,025 | $ | (44,379,360 | ) | $ | 8,021,761 | ||||||||||
The accompanying notes are an integral part of these unauditedcondensed consolidated financial statements.
| 5 |
MILLENNIUM INVESTMENT & ACQUISITION CO. INC.SUSTAINABLE VENTURES CORP. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
| 2021 | 2020 | |||||||||||||||
| Six Months Ended June 30, | Six Months Ended June 30, | |||||||||||||||
| 2021 | 2020 | 2022 | 2021 | |||||||||||||
| Operating activities | ||||||||||||||||
| Net loss | $ | (1,110,652 | ) | $ | (4,025,768 | ) | $ | (7,713,368 | ) | $ | (1,110,652 | ) | ||||
| Adjustments to reconcile net loss to net cash used in operating activities | ||||||||||||||||
| Gain on PPP loan forgiveness | (137,700 | ) | - | - | (137,700 | ) | ||||||||||
| Noncash operating lease expense - Millennium HI Carbon (HI) | 124,327 | 35,178 | ||||||||||||||
| Impairment on property, plant and equipment– Millennium HI Carbon (HI) | - | 3,442,765 | ||||||||||||||
| Realized gain on disposal of SMC Global Securities | - | (53,450 | ) | |||||||||||||
| Unrealized loss on investment in SMC Global Securities | - | 541,714 | ||||||||||||||
| Noncash operating lease expense - Millennium HI Carbon | 25,683 | 124,327 | ||||||||||||||
| Noncash operating lease expense - Millennium Cannabis | (4,223,448 | ) | - | |||||||||||||
| Noncash operating lease expense | (4,223,448 | ) | - | |||||||||||||
| Noncash finance lease expense | (56,774 | ) | - | |||||||||||||
| Bad Debt Expense – related party | 1,505,898 | - | ||||||||||||||
| Depreciation expense | 29,909 | - | ||||||||||||||
| Changes in operating assets and liabilities | ||||||||||||||||
| Accounts receivable | (14,486 | ) | - | |||||||||||||
| Advances to affiliate | (284,968 | ) | - | |||||||||||||
| Inventory - Millennium Cannabis | 487,410 | (214,398 | ) | |||||||||||||
| Inventory - Millennium Produce | (1,813,552 | ) | - | |||||||||||||
| Inventory | (1,813,552 | ) | - | |||||||||||||
| Accounts payable and accrued expenses | 43,704 | 73,080 | 1,789,130 | 43,704 | ||||||||||||
| Inventory (VinCann and Walsenburg Cannabis) | (214,398 | ) | - | |||||||||||||
| Lease liability - Millennium HI Carbon (HI) | 70,453 | (23,826 | ) | |||||||||||||
| Lease liability - Millennium HI Carbon | (1,179,493 | ) | 70,453 | |||||||||||||
| Lease liability - Millennium Cannabis | 6,742,031 | - | ||||||||||||||
| Lease liability - Millennium Produce | 274,848 | - | ||||||||||||||
| Lease liability | 274,848 | - | ||||||||||||||
| Security deposits | (11,145 | ) | (327,900 | ) | ||||||||||||
| Prepaids and other current assets | (44,806 | ) | 10,151 | (38,300 | ) | (44,806 | ) | |||||||||
| Security deposits (VinCann and Walsenburg Cannabis) | (327,900 | ) | - | |||||||||||||
| Net cash used in operating activities | $ | (1,596,972 | ) | $ | (156 | ) | (4,480,625 | ) | (1,596,972 | ) | ||||||
| Investing activities | ||||||||||||||||
| Acquisition of property, plant and equipment | (208,057 | ) | (496,512 | ) | (353,905 | ) | (208,057 | ) | ||||||||
| Proceeds from sales of marketable securities (SMC Global Securities), net | 5,662,706 | 238,026 | ||||||||||||||
| Net cash provided by (used in) investing activities | $ | 5,454,649 | $ | (258,486 | ) | |||||||||||
| Advances to prior related party | (347,369 | ) | - | |||||||||||||
| Proceeds from disposal of SMC Global Securities | - | 5,662,706 | ||||||||||||||
| Net cash (used) provided by investing activities | (701,274 | ) | 5,454,649 | |||||||||||||
| Financing activities | ||||||||||||||||
| Proceeds from PPP loan | - | 137,700 | ||||||||||||||
| Proceeds from loan from affiliate | 1,391,925 | - | ||||||||||||||
| Proceeds from loan payable | 2,878,559 | - | ||||||||||||||
| Lease liability - finance leases | 56,889 | - | ||||||||||||||
| Net cash provided by financing activities | $ | - | $ | 137,700 | 4,327,373 | - | ||||||||||
| Net increase (decrease) in cash and cash equivalents | 3,857,677 | (120,942 | ) | |||||||||||||
| Net (decrease) increase in cash | (854,526 | ) | 3,857,677 | |||||||||||||
| Cash and cash equivalents, beginning of period | $ | 1,895,597 | $ | 2,001,938 | ||||||||||||
| Cash, beginning of period | 1,623,291 | 1,895,597 | ||||||||||||||
| Cash and cash equivalents, end of period | $ | 5,753,274 | $ | 1,880,996 | ||||||||||||
| Cash, end of period | $ | 768,765 | $ | 5,753,274 | ||||||||||||
| Supplemental disclosure of cash flow information: | ||||||||||||||||
| Cash paid during the period for interest | $ | - | $ | - | $ | 18,476 | $ | - | ||||||||
| Cash paid during the period for income tax | $ | - | $ | - | $ | - | $ | - | ||||||||
| Supplemental disclosure of noncash flow information: | ||||||||||||||||
| Initial recognition of right of use assets and lease liability | $ | 9,057,597 | $ | 1,462,062 | ||||||||||||
| Initial recognition of right of use asset and lease liability | $ | 6,630,365 | $ | 9,057,597 | ||||||||||||
The accompanying notes are an integral part of these unauditedcondensed consolidated financial statements.statements
| 6 |
MILLENNIUM SUSTAINABLE VENTURES CORP. AND SUBSIDIARIES
1. OPERATIONS & NATURE OF BUSINESSNOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1 – GENERAL INFORMATION
Nature of Operations
Millennium Sustainable Ventures Corp., formerly known as Millennium Investment & Acquisition Co. Inc., formallyformerly known as Millennium India Acquisition Company, Inc. (“MILC”, “we”, “our”, the “Company”) is focused on the “Triple Bottom Line” and a commitment to Profit, Planet and People and conducts operations in three segments:
| - | Sustainable cultivation of cannabis in greenhouses | |
| - | Sustainable cultivation of food crops in greenhouses | |
| - | Sustainable production of Activated Carbon |
Greenhouse Cultivation of Cannabis
Millennium Cannabis LLC (“MillCann”), our wholly owned subsidiary, is focused on a sustainable approach to cannabis cultivation through Controlled Environmental Agriculture (“CEA”) in the form of greenhouses. During 2021, MILC added sustainable cultivation of cannabis in greenhouses as an internally managed, non-diversified, closed-end investment company. focus and MillCann invested in three newly formed cannabis operators: Walsenburg Cannabis, LLC (“WC”) which leases a greenhouse cultivation facility located in Walsenburg, Colorado and a Marijuana Infused Products lab (“MIP”) located in Ordway, Colorado; VinCann LLC (“VC”), which leases a greenhouse cultivation facility located in Vinita, Oklahoma and Marengo Cannabis LLC (“MC”) which leases a greenhouse cultivation facility located in Marengo County, Michigan. The cannabis related properties are leased from subsidiaries of Power REIT (NYSE AMEX: PW and PW.PRA). David Lesser is Chairman and CEO of Power REIT and also Chairman and CEO of MILC.
In May 2021, MillCann made a loan to WC including a Framework Agreement whereby upon certain conditions, the loan would convert into a majority ownership position in WC under certain circumstances. During 2021 and 2022, WC harvested and sold crops but, unfortunately, the project was delayed and overbudget which caused financial strains. In addition, pricing in the Colorado cannabis market compressed dramatically in 2021 and has not recovered. Based on poor performance and in an effort to conserve capital resources, MILC determined to stop funding additional operating losses at the Walsenburg cultivation facility in the quarter ended June 30, 2022 and the facility subsequently ceased operations. MILC has no longer believes it will convert its loan into equity and, accordingly has deconsolidated WC. The Company has also written off $1,505,898 as a bad debt expense based on uncertainty around recovery of its loan.
MillCann is currently the majority owner of a cannabis greenhouse cultivation operation in Vinita, Oklahoma. VC currently operates a 9.35-acre property in Vinita, OK that features 40,000 square feet of greenhouse and related space and approximately 100,000 square foot outdoor growing area. During 2021, VC harvested and processed its first crops and sales began in the first quarter of 2022. As of June 30, 2022, MillCann has invested approximately $2,200,000 in VC through a preferred equity interest that receives a full return of invested capital plus a 12.5% preferred return after which MillCann will have an 82.0% ownership stake. The remaining subordinated ownership is held by the management team of VC. As part of the lease with a wholly owned subsidiary of Power REIT, the lessor agreed to fund the rehabilitation and upgrading of the existing improvements to the facility which was a distressed acquisition purchased from an undercapitalized operator.
| 7 |
On September 9, 2021, MILC announced the expansion of its sustainable cannabis cultivation activities by entering into a long-term lease for MillCann’s largest cannabis cultivation facility. A new wholly owned subsidiary of MillCann, MC, was created and entered into a 20-year lease (the “MarCann Lease) with a subsidiary of Power REIT for approximately 12 acres that includes a 556,416 square foot state-of-the-art greenhouse cultivation facility which is located in Marengo County, Michigan (the “MC Property”). As previously disclosed, cannabis licensing was delayed based on a lack of cooperation from Marengo Township where the property is located. As part of the licensing process with the Michigan Cannabis Regulatory Agency (“CRA”) a Certificate of Occupancy (“CO”) is required where applicable. Based on the zoning of the property as Agricultural, it has never received a CO and the CRA agreed to accept a simple two sentence letter from Marengo Township in lieu of a CO. Unfortunately, Marengo Township was initially unwilling to provide the requested letter which ultimately led to the filing of two lawsuits. We recently received the letter and the CRA licensing process is proceeding. While we are optimistic the CRA licensing process can now move quickly, there can be no assurance as to how long it will take. Due to the delays in securing the necessary regulatory approvals for marijuana cultivation and the fact that the greenhouse is not yet growing marijuana, MC was able to amend the lease to provide additional time to commence cash rent payments. As of June 30, 2022, MillCann has invested approximately, $1,500,000 in MC which is a wholly owned subsidiary. As part of the MarCann Lease, the lessor has agreed to fund the rehabilitation and upgrading of the existing improvements. As of the date hereof, the greenhouse is not growing marijuana due to the licensing delays, however, small amounts of hemp are being grown in the greenhouse which will help develop experience growing the cannabis plant.
Greenhouse Cultivation of Food
On April 1, 2022, MILC announced that it was expanding its sustainable greenhouse cultivation activities by establishing its first food related operations. Millennium Produce of Nebraska LLC, (“Millennium Produce”), a wholly-owned subsidiary of MILC, was formed to focus on a sustainable approach to food crop cultivation through a Controlled Environmental Agriculture (CEA) in the form of greenhouses.
Millennium Produce entered into a 10-year lease with a subsidiary of Power REIT. The property consists of 86 acres featuring a 1,121,153 square foot greenhouse cultivation facility and an associated employee housing property located in O’Neil, Nebraska. As part of the transaction, Millennium Produce arranged a $3 million non-recourse loan with a fixed interest rate of 1.5% and a four-year term. The loan is secured by Furniture, Fixtures, and Equipment, which was purchased by Millennium Produce, as well as crops. Currently tomatoes are growing at the greenhouse and revenue should commence in 3Q22.
Activated Carbon
Millennium HI Carbon, LLC (“MHC”) is a wholly owned subsidiary that acquired an activated carbon plant in Hawaii (the “Hawaii Plant”) that was intended to produce a very high-grade form of Activated Carbon for the production of ultracapacitors which are an advanced electrical storage device. During the first half of 2019, MHC concluded that the Hawaii Plant was not capable of producing consistent results and has made efforts to minimize overhead and cash drain while it seeks a strategic alternative for the Hawaii Plant. Effective December 31, 2021, MILC determined to write off $2,765,000, the remaining value of the HI asset for accounting purposes given that the plant is dormant and there is uncertainty around a business plan for this asset.
MillCarbon is a wholly owned subsidiary that has developed a novel method for the sustainable production of activated carbon and has constructed a proof-of-concept pilot-scale plant in Kentucky to produce activated carbon from a waste stream generated by Bourbon distilleries. The plant recently completed its 150th batch of Activated Carbon, Biochar, and Horticultural Vinegar and MillCarbon believes it has proven itself at the pilot level. MILC is evaluating the construction of a commercial scale plant based on the technology it has developed.
On October 1, 2021, MILC filed an application with FINRA for approval to change its name to Millennium Sustainable Ventures Corp and received approval for the name change as disclosed in a Form 8-K and Press Release issued on February 16, 2022. We believe the name change better reflects our focus on sustainable Controlled Environment Agriculture (CEA) cultivation in greenhouses and the sustainable production of activated carbon. MILC, with a focus on the “Triple Bottom Line” and a commitment to Profit, Planet and People is focused on sustainable business practices.
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During 2020, MILC announced that it was seeking to de-register as an Investment Company that is regulated under Investment Company Act of 1940.1940 (the “1940 Act”). As previously announced, MILC is currently seekinghas completed the liquidation of its sole investment in securities - its investment in SMC and plans to invest the proceeds in operating businesses. On October 14, 2020, shareholders approved a proposal to change the nature of the Company’s business from a registered investment company under the 1940 Act to a holding company that focuses primarily on owning and operating businesses (collectively, the “Deregistration Proposal”). On March 1, 2021, as amended on May 11, 2021, December 9, 2021 and January 21, 2022, the Company filed an application pursuant Section 8(f) of the Investment Company Act of 1940 for an Order (the “Order”Declaring that MILC has Ceased to be an Investment Company (the “Deregistration Order”) from. On February 2, 2022, the SEC issued a notice that it was commencing the 25-day public review period in response to MILC’s application. On February 28, 2022, MILC received the Deregistration Order declaring that itis has ceased to be an Investment Company as it no longer meetsCompany. Consequently, the definition of holding itself out as investing in securities but rather has pivoted to focus on direct investments in operating businesses. Consequently, these financial statements presented herein are presented in accordance with the reporting requirements under the Securities Exchange Act of 1934, as amended.
2.2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
TheseThe accompanying unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) for interim financial statements and with the instructions to Form 10-Q and Rule 8-03 of Regulation S-X of the United States Securities and Exchange Commission (“SEC”).” Accordingly, they do not contain all information and footnotes required by accounting principles generally accepted in the United States of America for annual financial statements.
The accompanying interim statements are unaudited; however, inIn the opinion of the Company’s management, the accompanying unaudited condensed consolidated financial statements contain all the adjustments necessary (consisting only of normal recurring accruals) considered necessaryto present the financial position of the Company as of June 30, 2022 and the results of operations and cash flows for a fair presentation have been included.the periods presented. The results of operations for the six months ended June 30, 2022 are not necessarily indicative of the operating results for the full fiscal year or any future period. These unaudited condensed consolidated financial statements should be read in conjunction with our audited consolidated financial statements and notes included in our latest Annual Report on Form 10-K file with the SEC on March 15, 2022.
Principles of Consolidation
The accompanying consolidated financial statements of MILC include the accounts of the Company and its wholly-owned subsidiaries as follows:
| ● | Millennium Carbon LLC | |
| ● | Millennium HI Carbon LLC | |
| ● | Millennium Cannabis, LLC | |
| ● | Millennium HR LLC | |
| ● | Marengo Cannabis LLC (wholly-owned subsidiary of Millennium Cannabis, LLC) | |
| ● | Millennium Produce of Nebraska LLC |
Millennium HI Carbon LLCThe following indirect subsidiaries are included in the accompanying consolidated financial statements:
| ● | VinCann LLC |
Walsenburg CannabisVinCann LLC (“VC”) is 100% consolidated into the financial statements of MILC as of June 30, 2022. MillCann has invested in VC and receives a preferred equity interest that receives a full return of invested capital plus a 12.5% preferred return, after which MillCann has an 82.0% ownership stake. As of June 30, 2022, MillCann has not received its return of capital and preferred return. Once this occurs, the remaining subordinated ownership is held by the management team of VC and a non-controlling interest will be recognized in the consolidated financial statements.
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| ● | Walsenburg Cannabis Deconsolidation |
Walsenburg Cannabis LLC (“WC”) WC was previously accounted for as consolidated in the financial statements of MILC as a variable interest entity (“VIE”). MillCann had issued capital to WC in the form of a convertible loan for its business operations as MILC was in the process of obtaining regulatory approvals for holding cannabis licenses in Colorado. Upon receiving regulatory approval, it was contemplated that the loan would convert into a majority preferred equity interest in WC that would receive a full return of invested capital plus a 12.5% preferred return, after which MillCann would have an 83.5% ownership stake. Given the poor performance at the cultivation facility and MILC’s withdrawal of its application for approval for cannabis licensing in Colorado, WC is no longer considered a VIE as of June 30, 2022 and was deconsolidated. As of June 30, 2022, MillCann has not received its return of capital and preferred return, has stopped funding additional funds to WC and has taken a bad debt expense of $1,505,898 in order to write off the loan.
All intercompany balances have been eliminated in consolidation.
Privately held equity securities are recorded at cost and adjusted for observable transactions for same or similar investments of the issuer (referred to as the measurement alternative) or impairment. All gains and losses on privately held equity securities, realized or unrealized, are recorded through gains or losses on equity securities on the consolidated statement of operations.
Basic income (loss)loss per share is computed by dividing net income (loss)loss by the weighted average number of shares of common stock outstanding during the period. In periods where the Company has a net loss, such as below, the computation of diluted net loss per share does not include dilutive common stock equivalents in the weighted average shares outstanding as their effect would be anti-dilutive. The Company had common stock equivalents for the three and six months ended June 30, 2021 and 2020.
SCHEDULE OF BASIC INCOME (LOSS) PER SHARE
| Three Months Ended | Six Months Ended | |||||||||||||||
| June 30, | June 30, | |||||||||||||||
| 2022 | 2021 | 2022 | 2021 | |||||||||||||
| Loss available to common Shareholders | $ | (4,617,093 | ) | $ | (1,059,620 | ) | $ | (7,713,368 | ) | $ | (1,110,652 | ) | ||||
| Weighted average shares | 10,959,814 | 10,959,814 | 10,959,814 | 10,959,814 | ||||||||||||
| Basic loss per common share | $ | (0.42 | ) | $ | (0.10 | ) | $ | (0.70 | ) | $ | (0.10 | ) | ||||
Property, Plant and Equipment
Property, Plantplant and Equipmentequipment is carriedstated at historical cost, net of adjustments for impairment, if any. Development costs, including land, land development, directcost. The costs of construction,additions and betterments are capitalized and expenditures for repairs and maintenance are expensed in the period incurred. When items of property, plant and equipment are sold or retired, the related costs and indirect carrying costs incurred duringaccumulated depreciation are removed from the developmentaccounts and construction periodany gain or loss is included in income. The Company capitalizes property and leased equipment where the terms of the lease result in the transfer to the Company of substantially all of the benefits and risks of ownership of the equipment.
Depreciation of property and equipment is provided utilizing the straight-line method over the estimated useful lives of the respective assets as follows:
SCHEDULE OF PROPERTY PLANT AND EQUIPMENT ESTIMATED USEFUL LIVES
| Machinery and equipment | 5 years |
| Furniture and fixtures | 5 years |
| Office equipment | 5 years |
Leasehold improvements are capitalized. Capitalizationamortized over the shorter of carrying costs begins when development activities commencethe remaining term of the lease or the useful life of the improvement utilizing the straight-line method.
Depreciation expense for the six months ended June 30, 2022 and ends when the assets are substantially completed2021 was $29,909 and ready for their intended use.$0, respectively.
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The Company assesses the carrying value of its property and equipmentreviews long-lived assets for impairment at least annually or whenever events or changes in circumstances indicate thattheir carrying amount may not be recoverable in accordance with FASB ASC Topic 360, Impairment or Disposal of Long-Lived Assets. Recoverability of long-lived assets is measured by comparing the carrying amount of anthe asset may notor asset group to the undiscounted cash flows that the asset or asset group is expected to generate. If the undiscounted cash flows of such assets are less than the carrying amount, the impairment to be recoverable. Recoverabilityrecognized is measured by comparing estimated undiscounted cash flows, expected to be generated from such assets, to their net book value. If net book valuethe amount by which the carrying amount, if any, exceeds estimated cash flows, the asset is written down to its fair value, determined byvalue. For the estimated discounted cash flows from such asset. When an asset is retired or sold, its costsix months ended June 30, 2022 and related accumulated depreciation and amortization are removed from the accounts. The difference between the net book value of the asset and proceeds on disposition is recorded as a gain or loss in our statements of operations in the period in which they occur.2021, MILC incurred no impairment expenses.
Revenue Recognition
The Company recognizes revenue in accordance with the Financial Accounting Standards Board’s Accounting Standards Codification (“ASC”) 606, Revenue from Contract with Customers, as amended by subsequently issued Accounting Standards Updates. This revenue standard requires an entity to recognize revenue to depict the transfer of goods or services to customers in an amount that reflects the consideration that it expects to be entitled to in exchange for those goods or services. The recognition of revenue is determined by performing the following consecutive steps:
| ● | Identify the contract(s) with a customer; | |
| ● | Identify the performance obligations in the contract(s); | |
| ● | Determine the transaction price; | |
| ● | Allocate the transaction price to the performance obligations in the contract(s); and | |
| ● | Recognize revenue as the performance obligation is satisfied. |
Revenue from the direct sale of cannabis to customers for a fixed price is recognized when the Company transfers control of the good to the customer.
Liquidity and Going Concern
The Company’s objectives when managing its capital are to ensure that there are adequate capital resources to safeguard the Company’s ability to continue operating and maintain adequate levels of funding to support its ongoing operations and development such that it can continue to provide returns to shareholders.
ASU 205-40 – Presentation of Financial Statements – Going Concern requires management to evaluate an entity’s ability to continue as a going concern within one year after the date the financial statements are available for issuance. Specifically, management is required to evaluate whether the presence of adverse conditions or events, when considered individually and in the aggregate, raise substantial doubt about an entity’s ability to continue as a going concern. Substantial doubt exists when it is probable that the entity will be unable to meet its obligations as they become due within one year after the date the financial statements are available for issuance.
As of June 30, 2022, the Company had an accumulated deficit of $58,197,260 and negative working capital of $1,210,730 Additionally, the Company had recurring losses and negative cashflow from operations. These adverse conditions raise substantial doubt regarding the Company’s ability to continue as a going concern. In order to support the Company’s ongoing operations, the Company entered into a credit facility with an affiliate of David H. Lesser, our Chairman and CEO, during the period in which the Company drew down $1,412,617 with the ability to draw up to $1,500,000 through December 31, 2022. Additionally, the Company secured a $3,000,000 non-recourse loan on April 1, 2022 for purposes of financing the Millennium Produce location.
Although the Company believes its cash available as of June 30, 2022 along with its other current assets and ability to secure additional debt and/or equity financing should be sufficient to fund operations and commitments for twelve months from the date of the filing of this Quarterly Report on Form 10-Q, management has concluded the uncertainty raises substantial doubt about the Company’s ability to continue as a going concern. The accompanying consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.
Fair Value
Fair value represents the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. The Company measures its financial assets and liabilities in three levels, based on the markets in which the assets and liabilities are traded and the reliability of the assumptions used to determine fair value.
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| ○ | Level 1 – valuations for assets and liabilities traded in active exchange markets, or interest in open-end mutual funds that allow a company to sell its ownership interest back at net asset value on a daily basis. Valuations are obtained from readily available pricing sources for market transactions involving identical assets, liabilities or funds. | |
| ○ | Level 2 – valuations for assets and liabilities traded in less active dealer, or broker markets, such as quoted prices for similar assets or liabilities or quoted prices in markets that are not active. Level 2 includes U.S. Treasury, U.S. government and agency debt securities, and certain corporate obligations. Valuations are usually obtained from third party pricing services for identical or comparable assets or liabilities. | |
| ○ | Level 3 – valuations for assets and liabilities that are derived from other valuation methodologies, such as option pricing models, discounted cash flow models and similar techniques, and not based on market exchange, dealer, or broker traded transactions. Level 3 valuations incorporate certain assumptions and projections in determining the fair value assigned to such assets or liabilities. |
In determining fair value, the Company utilizes valuation techniques that maximize the use of observable inputs and minimize the use of unobservable inputs to the extent possible as well as considering counterparty credit risk.
The carrying amounts of the Company’s financial instruments, including cash, and cash equivalents, deposits, and accounts payable approximate fair value because of their relatively short-term maturities.
Indemnification
Under MILC’s organizational structure and per the MILC’sCompany’s organizational documents, its officers and directors are indemnified against certain liabilities arising out of the performance of their duties to MILC. In addition, in the normal course of business, MILC enters into contracts with its vendors and others that provide for general indemnifications. MILC’s maximum exposure under these arrangements is unknown as this would involve future claims that may be made against MILC. However, based on experience, MILC expects that risk of loss to be remote.
Use of Estimates
The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
Inventory
Costs incurred during the growing and cultivation process are capitalized as incurred to the extent that cost is less than net realizable value. These costs include materials, labor and overhead used in the growing and cultivation processes. The Company capitalizes pre-harvest costs.
Finished goods inventory is initially valued at cost and subsequently at the lower of cost and net realizable value. Net realizable value is determined as the estimated selling price in the ordinary course of business less the estimated costs of completion, disposal and transportation for inventories in process. The Company periodically reviews its inventory and identifies that which is excess, slow moving or poor product quality by considering factors such as inventory levels and forecasted sales demand. Any identified excess, slow moving and poor-quality inventory is written down to its net realizable value through a charge to cost of goods sold. For the six months ended June 30, 2022 and 2021, $1,087,660 and $0, respectively were expensed through cost of goods sold related to impairment of inventory.
Covid – 19 ImpactLeases
We are monitoring COVID-19 closely, and although our operations have not been materially affected by the COVID-19 outbreak to date, the ultimate severity of the outbreak and its impact on the economic environment is uncertain. Our operations are ongoing as the cultivation of cannabis is currently considered an essential business by the states in which we operate, and the pandemic has not materially impacted our business operations. The uncertain nature of the spread of COVID-19 may impact our business operations for reasons including the potential quarantine of our employees, those of our supply chain partners or a change in our designation as “essential” in states where we operate.
Leases
The Company accounts for leases as required by ASC Topic 842. The guidance requires companies to recognize leased assets and liabilities on the balance sheet and to disclose key information regarding leasing arrangements. ROU assets represent our right to use an underlying asset for the lease term and lease liabilities represent our obligation to make lease payments arising from the lease. We determine if an arrangement is a lease at inception.
Impact of New Accounting Standards
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The Company has evaluated all recent accounting pronouncements and believes either they are not applicable or that none of them will have a significant effect on the Company’s financial statements
Variable Interest Entities
The Company consolidates all variable interest entities in which it holds a variable interest and is the primary beneficiary of the entity. Generally, a variable interest entity (“VIE”) is a legal entity with one or more of the following characteristics: (a) the total at risk equity investment is not sufficient to permit the entity to finance its activities without additional subordinated financial support from other parties; (b) as a group the holders of the equity investment at risk lack any one of the following characteristics: (i) the power, through voting or similar rights, to direct the activities of the entity that most significantly impact its economic performance, (ii) the obligation to absorb the expected losses of the entity, or (iii) the right to receive the expected residual returns of the entity; or (c) some equity investors have voting rights that are not proportional to their economic interests, and substantially all of the entity’s activities either involve, or are conducted on behalf of, an investor that has disproportionately few voting rights. The primary beneficiary of a VIE is required to consolidate the VIE and is the entity that has (a) the power to direct the activities of the VIE that most significantly impact the VIE’s economic performance, and (b) the obligation to absorb losses of the VIE or the right to receive benefits from the VIE that could potentially be significant to the VIE.
In determining whether it is the primary beneficiary of a VIE, the Company considers qualitative and quantitative factors, including, but not limited to: which activities most significantly impact the VIE’s economic performance and which party has the power to direct such activities; the amount and characteristics of Company’s interests and other involvements in the VIE; the obligation or likelihood for the Company or other investors to provide financial support to the VIE; and the similarity with and significance to the business activities of Company and the other investors. Significant judgments related to these determinations include estimates about the current and future fair values and performance of these VIEs and general market conditions.
Impact of New Accounting Standards
The Company has evaluated all recent accounting pronouncements and believes either they are not applicable or that none of them will have a significant effect on the Company’s financial statements
3. PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment consistare recorded at cost, net of accumulated depreciation and impairment and is comprised of the following at June 30, 2021:following:
SCHEDULE OF PROPERTY, PLANT AND EQUIPMENT
| Property, Plant and Equipment: | ||||
| Millennium HI Carbon LLC (HI) | $ | 9,501,536 | ||
| Less: Millennium HI Carbon LLC (HI) - Impairment | (6,736,536 | ) | ||
| Millennium Carbon LLC | 347,554 | |||
| Total Property, Plant and Equipment | $ | 3,112,554 | ||
| June 30, | December 31, | |||||||
| 2022 | 2021 | |||||||
| Machinery and Equipment | $ | 652,452 | $ | 427,388 | ||||
| Furniture and Fixtures | 29,147 | 58,595 | ||||||
| Office Equipment | 3,397 | 9,254 | ||||||
| Property, plant and equipment, gross | 684,996 | 495,237 | ||||||
| Less: accumulated depreciation | (38,532 | ) | (12,137 | ) | ||||
| Property and equipment, net of depreciation | $ | 646,464 | $ | 483,100 | ||||
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As of June 30, 2022, the Company’s Property, Plant and Equipment consisted of Activated Carbon production machinery and equipment at the MillCarbon pilot plant in Kentucky, machinery and equipment at the Millennium Produce operation, as well as, machinery and equipment, furniture and fixtures and office equipment at the two operations related to Millennium Cannabis. Property, plant and equipment are not in service as of June 30, 2021. As such, 02021 included the HI asset that was never commercially operational and therefore did not incur a depreciation expense. Effective December 31, 2021, MILC determined to write off $2,765,000, the remaining value of the HI asset for accounting purposes given that the plant is recognizeddormant and there is uncertainty around a business plan for this asset. Depreciation expense for the six months ended June 30, 2021.2022, and 2021 was $29,909 and $0, respectively.
4. INVESTMENTSINVENTORY
As of June 30, 2021, MILC does not own any investments in SMC Global Securities. From December 2013 to June 2021, MILC sold its entire position in SMC Global. DuringThe Company’s inventories include the six months ended June 30, 2021, MILC sold shares for proceeds of $5,029,396, net of withholding taxes of $633,311. The Company plans to submit a claim with the Government of India for a refund of the withholding taxes. There can be no assurance as to when or how much will be refunded, if any. Consequently, the Company has recorded a provision on the tax receivable for the six months ended June 30, 2021.
SCHEDULE OF INVENTORIES
Millennium Cannabis:
SUMMARY OF SALES OF SHARES
| Sale Date | Shares | Net Proceeds | Net Price Per Share | |||||||||
| 12/12/2013 | 1,131,345 | $ | 1,376,890 | $ | 1.22 | |||||||
| 11/19/2015 | 1,131,345 | 2,139,011 | 1.89 | |||||||||
| 4/19/2016 | 100,000 | 123,159 | 1.23 | |||||||||
| 5/6/2016 | 200,000 | 246,578 | 1.23 | |||||||||
| 8/14/2016 | 300,000 | 367,949 | 1.23 | |||||||||
| 11/25/2016 | 300,000 | 368,775 | 1.23 | |||||||||
| 2/17/2017 | 250,000 | 301,753 | 1.21 | |||||||||
| 3/28/2017 | 250,000 | 314,952 | 1.26 | |||||||||
| 6/1/2017 | 300,000 | 381,570 | 1.27 | |||||||||
| 10/2/2017 | 200,000 | 250,180 | 1.25 | |||||||||
| 11/13/2017 | 200,000 | 250,316 | 1.25 | |||||||||
| 1/24/2019 | 200,000 | 287,673 | 1.44 | |||||||||
| 2/19/2019 | 200,000 | 288,442 | 1.44 | |||||||||
| 3/29/2019 | 900,000 | 1,337,338 | 1.49 | |||||||||
| 7/5/2019 | 200,000 | 299,057 | 1.50 | |||||||||
| 10/1/2019 | 600,000 | 632,683 | 1.05 | |||||||||
| 12/10/2019 | 300,000 | 317,510 | 1.06 | |||||||||
| 6/30/2020 | 300,000 | 238,026 | 0.79 | |||||||||
| 10/30/2020 | 170,000 | 124,048 | 0.73 | |||||||||
| 11/9/2020 | 330,000 | 240,545 | 0.73 | |||||||||
| 12/31/2020 | 371,000 | 274,189 | 0.74 | |||||||||
| 2/17/2021 | 1,229,000 | 718,403 | 0.58 | |||||||||
| 2/18/2021 | 1,500,000 | 876,628 | 0.58 | |||||||||
| 2/23/2021 | 1,800,000 | 1,058,315 | 0.59 | |||||||||
| 2/26/2021 | 704,690 | 405,108 | 0.57 | |||||||||
| 5/19/2021 | 252,148 | 249,627 | 0.99 | |||||||||
| 5/20/2021 | 200,000 | 196,000 | 0.98 | |||||||||
| 5/21/2021 | 611,971 | 599,732 | 0.98 | |||||||||
| 5/24/2021 | 508,834 | 498,657 | 0.98 | |||||||||
| 5/25/2021 | 344,527 | 327,301 | 0.95 | |||||||||
| 5/26/2021 | 190,000 | 174,801 | 0.92 | |||||||||
| 5/27/2021 | 163,646 | 157,100 | 0.96 | |||||||||
| 5/28/2021 | 322,319 | 299,757 | 0.93 | |||||||||
| 6/1/2021 | 106,555 | 101,277 | 0.95 | |||||||||
| Total | 15,867,380 | 15,823,350 | $ | 1.00 | ||||||||
| June 30, | December 31, | |||||||
| 2022 | 2021 | |||||||
| Raw Material: Grow Supplies | $ | 169,893 | $ | 348,244 | ||||
| Work in Progress: Plants | 292,434 | 1,086,544 | ||||||
| Finished Goods: Trim | 92,753 | 361,632 | ||||||
| Finished Goods: Flower | 148,261 | 311,864 | ||||||
| $ | 703,341 | $ | 2,108,284 | |||||
On May 24, 2021, MILC entered into a transaction that represents a new area of focus related to sustainable Cannabis cultivation in greenhouses by investing in a newly formed cannabis operator, Walsenburg Cannabis LLC (“WC”). As part of the transaction, MILC has agreed to lend capital to WC for its business operations and MILC is in the process of obtaining regulatory approvals for holding cannabis licenses in Colorado. Upon receiving regulatory approval, it is contemplated that MILC will own a preferred equity interest that receives a full return of invested capital plus a 12.5% preferred return after which MILC has a 77.5% ownership stake. The remaining subordinated ownership is held by the management of WC. Simultaneous with MILC’s investment, WC entered into a long-term lease (the “Lease”) on an approximately 22.2 acre property including existing greenhouse and processing space (the “Property”). As part of the Lease, the Lessor, a wholly owned subsidiary of Power REIT (ticker: PW), has agreed to fund the rehabilitation and upgrading of the existing improvements and the construction of additional greenhouse space. Upon completion, the Property will have a total of approximately 102,800 square feet of greenhouse and related space. MILC’s total capital commitment for the project is $750,000. For the six months ended June 30, 2021, MILC invested $391,739 in WC.Millennium Produce:
On June 11, 2021, MILC agreed to invest in a newly formed cannabis operator, VinCann LLC (“VC”). As part of the transaction, MILC has agreed to invest $750,000. The investment is in the form of a preferred equity interest that receives a full return of invested capital plus a 12.5% preferred return after which MILC has a 77.5% ownership stake. The remaining subordinated ownership is held by the management team of VC. Concurrent with MILC’s investment, VC entered into a 20-year lease (the “Lease”) for a 9.35 acre plot of land with approximately 40,000 square feet of greenhouse, 3,000 square feet of office space, and 100,000 square feet of fully fenced outdoor growing area with more than 20,000 square feet of hoop structures that was purchased by Power REIT. For the six months ended June 30, 2021, MILC invested $268,628 in VC.
| June 30, | December 31, | |||||||
| 2022 | 2021 | |||||||
| Raw Material: Grow Supplies | $ | 127,109 | $ | - | ||||
| Work in Progress: Tomatoes | 1,686,443 | - | ||||||
| $ | 1,813,552 | $ | - | |||||
Based on the guidance for a Variable Interest Entity and the fact that the Company is considered the primary beneficiary, MILC determined that both WC and VC are considered VIE’s and therefore has consolidated these entities in its financial statements as of and for the six months ended June 30, 2021.
5. COMMITMENTS AND CONTINGENCIES
Operating Leases
A contract is or contains a lease if the contract conveys the right to control the use of identified property (an identified asset) for a period of time in exchange for consideration.
As of June 30, 2021,2022, the Company, through subsidiaries, has entered into threefour operating leases:
| ● | ||
| ● |
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| ● | An operating lease entered into on September 3, 2021 with a lease amendment on November 2, 2021 for land, greenhouse and auxiliary/processing facilities approved for cannabis cultivation located in Michigan with a 20-year term and two options to renew for an additional 5 years. On June 24, 2022, the lease and amendment were once again amended to restructure the monthly rent payments over the course of the lease whereby lease payments will begin on January 1, 2023. The lease has 19.17 years remaining with a discount rate of 14% and the Company recognized a right-of-use asset and lease liability of $29,114,595 during the third quarter of 2021, but as of June 30, | |
| ● | An operating lease entered into on April 1, 2022 for land, greenhouses and auxiliary/processing facilities focused on the cultivation of food crops located in Nebraska with a 10-year term and four options to renew for an additional 5 years each. The lease has 9.75 years remaining with a discount rate of 10% and the Company recognized a right-of-use asset and lease liability of $6,699,933 during the second quarter of 2022. As of June, 30, 2022 and December 31, 2021, the right-of-use asset is $6,630,365 and $0 and the corresponding lease liability is $6,905,213 and $0, respectively. |
The exercise of the lease renewal options is generally at the Company’s sole discretion. The Company is certain that there is no transfer of ownership at the end of the lease terms and considers these leases to be classified as operating leases and the costs are recognized on a straight-line basis over the lease terms.
Operating lease right-of-use assets are amortized over the length of the leases. The renewal options are not included in the calculation of its right-of-use assets and lease liabilities, as the Company does not believe that it is reasonably certain at this time that these renewal options will be exercised. Periodically, the Company assesses its lease to determine whether it is reasonably certain that these options and any renewal options could be reasonably expected to be exercised.
In general, the individual lease contracts do not provide information about the rate implicit in the lease. Because the Company is not able to determine the rate implicit in its lease, it instead generally uses its incremental borrowing rate to determine the present value of lease liability.
Finance Lease
As of June 30, 2021,2022, MillCann has a finance lease for equipment which it uses within the operations of cultivating cannabis. The lease amount financed is $14,757 for VC, with a term of 60 months (50 months remaining) at a rate of 3.99% per annum.
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As of June 30, 2022, the scheduled lease payments are as follows:
SCHEDULE OF FUTURE MINIMUM LEASE PAYMENTS
| 2021 | ||||
| 2021 | $ | 193,350 | ||
| 2022 | 2,389,033 | |||
| 2023 | 2,389,033 | |||
| 2024 | 2,322,002 | |||
| 2025 | 1,062,410 | |||
| Thereafter | 18,963,777 | |||
| Total Lease Payments | 27,319,605 | |||
| Less Imputed Interest | 15,767,301 | |||
| Present Value of Future Minimum Lease Payments | $ | 11,552,304 |
| Operating Leases | Finance Leases | |||||||
| 2022 (Six Months Remaining) | $ | 827,729 | $ | 1,632 | ||||
| 2023 | 8,636,067 | 3,264 | ||||||
| 2024 | 10,770,062 | 3,264 | ||||||
| 2025 | 12,380,542 | 3,264 | ||||||
| 2026 | 5,631,531 | 2,176 | ||||||
| Thereafter | 81,188,041 | - | ||||||
| Total Lease Payments | 119,433,972 | 13,600 | ||||||
| Less: Imputed Interest | 70,910,662 | - | ||||||
| Less: Interest | - | 241 | ||||||
| $ | 48,523,310 | $ | 13,359 | |||||
As ofFor the six months ended June 30, 2022, and 2021, the operating lease costs were as follows:
SCHEDULE OF OPERATING LEASE COSTS
| Total Operating Lease Expense | ||||
| Operating Lease Expense - (HI) | $ | 71,027 | ||
| Amortization of ROU asset - (HI) | 21,027 | |||
| Amortization of ROU asset - Cannabis | 102,632 | |||
| Total Operating Lease Expense | $ | 194,686 | ||
| Six Months Ended June 30, | ||||||||
| Total Operating Lease Expense | 2022 | 2021 | ||||||
| Operating Lease Expense (HI) | $ | 69,669 | $ | 71,027 | ||||
| Amortization of ROU assets - (HI) | 25,683 | 21,027 | ||||||
| Operating Lease Expense (MI) | 2,793,479 | - | ||||||
| Amortization of ROU assets - (MI) | 44,081 | - | ||||||
| Operating Lease Expense - Cannabis (OK)* | 270,825 | 102,632 | ||||||
| Amortization of ROU assets - Cannabis (OK)* | (19,545 | ) | - | |||||
| Operating Lease Expense (NE) | 113,664 | - | ||||||
| Amortization of ROU assets - (NE) | 161,184 | - | ||||||
| Total Operating Lease Expense | $ | 3,459,039 | $ | 196,707 | ||||
| Included in cost of goods sold on the Statement of Operations |
For the six months ended June 30, 2022, and 2021, total finance lease expense was as follows:
SCHEDULE OF FINANCE LEASE EXPENSE
| Six Months Ended June 30, | ||||||||
| Total Finance Lease Expense | 2022 | 2021 | ||||||
| Finance Lease Expense | $ | 1,598 | $ | - | ||||
| Amortization of ROU assets | 60 | - | ||||||
| Total Finance Lease Expense | $ | 1,658 | * | $ | - | |||
| * | Included in cost of goods sold on the statement of operations |
Other Contingencies
MHC is currently subject to a lawsuit which involves ownership of a piece of equipment that MHC believes it acquired as part of its original acquisition of the property through the bankruptcy trustee. MHC prevailed in this lawsuit with the court ruling in MHC’s favor and awarding a portion of MHC’s legal fees to MHC. The plaintiff has filed an appeal which is pending. MHC currently does not believe it is likely that the appeal will overturn the ruling of the lower court. MHC also does not believe it has material exposure in the event the ruling at the lower court is not affirmed.
MHC could, from time to time, be involved in additional litigation proceedings arising out of its normal course of business.
The COVID-19 outbreak in the United States has caused business disruptions through mandated and voluntary closings. Although temporary disruptions can be expected, significant uncertainty exists concerning the magnitude and duration of the COVID-19 pandemic’s impact on the Company’s customers, labor sources, supply chains, and demand for the Company’s services. The potential financial impact cannot be reasonably estimated at this time.
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6.LINE OF CREDIT – AFFILIATE
The Company has entered into a credit facility with an affiliate of David H. Lesser, our Chairman and CEO on March 16, 2022 which provides up to $1.5 million of cash to fund the capital needs of the company with a quarterly variable interest rate as determined by the Special Committee – Related Party Transactions of 0% for 1Q2022, 5% for 2Q2022, 7% for 3Q2022 and 9% for 4Q2022. The credit facility carries a default rate of 16% if not paid in full by maturity date. The Company has the right to prepay amounts outstanding at any time prior to maturity of the Credit Facility without any prepayment penalty and the credit facility matures on December 31, 2022. As of June 30, 2022 and December 31, 2021, the amount drawn on the credit facility is $1,391,924 (total drawn is $1,412,616 net of $20,692 of capitalized debt costs which are being amortized over the life of the financing) and $0, respectively, with accrued interest related to the loan of $11,052 and $0, respectively
7. DEBT
MHC obtainedOn March 31, 2022, Millennium Produce secured a $$137,7003 million non-recourse loan. The loan from American Savings Bank underhas a fixed interest rate of 1.5% and a four-year term and is fully amortized over the Small Business Administration (SBA) Paycheck Protection Program (“PPP”) in April 2020. Under the terms of the PPP, up to 100%life of the loan (and related interest) may be forgiven ifwith monthly payments. The loan is secured by Furniture, Fixtures, and Equipment, as well as crops of Millennium Produce. As of June 30, 2022 and December 31, 2021, the proceeds are used for covered expenses and certain other requirements related to wage rates and maintenance of full-time equivalents are met. MHC applied for and received full forgiveness of the PPP loan from the SBA on May 25, 2021. The amount of loan forgiveness is presented as a component of other income on the consolidated statements of operations. The balance of the PPP Loan as of June 30, 2021loan is $2,878,558 and $0., respectively.
7.8. COMMON STOCK
OurThe Company’s Certificate of Incorporation currently authorizes the issuance of shares of common stock and shares of preferred stock, each with a par value of $ per share. The total shares outstanding as of June 30, 20212022, is .
In November 2013, the Company’s Board of Directors authorized a buyback of up to shares of its common stock. Buybacks will be made from time to time based on the view of the Company of its trading price relative to its underlying value and subject to compliance with applicable legal requirements. No buybacks were made during the sixthree months ended June 30, 2021.2022.
Securities Authorized for Issuance Under Equity Compensation Plans
MILC’s 2021 Equity Incentive Plan (the “2021 Plan”) was adopted by the Board on October 10, 2021 and approved by the shareholders on December 8, 2021. It provides for the grant of the following awards: (i) Incentive Stock Options; (ii) Nonstatutory Stock Options; (iii) SARs; (iv) Restricted Stock Awards; (v) RSU Awards; (vi) Performance Awards; and (vii) Other Awards. The Plan’s purpose is to secure and retain the services of Employees, Directors and Consultants, to provide incentives for such persons to exert maximum efforts for the success of the Company and to provide a means by which such persons may be given an opportunity to benefit from increases in value of the common stock through the granting of awards. awards under 2021 Plan have been granted as of June 30, 2022.
10. RELATED PARTY TRANSACTIONS
Commencing September 2016, the Board approved payment to an entity affiliated with the CEO of the Company, Mr. Lesser, to reimburse such entity for accounting and administrative functions at a rate of $Administrative Fees750 per month for each of Millennium Sustainable Ventures Corp. and Millennium HI Carbon LLC. On October 1, 2021, the Board of Directors approved an increase to $5,000 ($750 from MHC, $1,250 from MILC and $3,000 from MillCann) a month due to the increase in administrative and accounting support needed for the new focus of cannabis cultivation. During the three and six months ended June 30, 2022, the total amount expensed to such affiliate was $15,000 and $30,000, and during the three and six months ended June 30, 2021, the total amount expenses to such affiliate was $1,500 and $9,000, respectively.
The Company has hired Morrison Cohen, LLP (“MoCo”) as its legal counsel with respect to general corporate matters. The spouse of the Company’s CEO is a partner at Morrison.MoCo. During the six months ended June, 30,2022 and 2021, the Company paid $$16,019 0to MoCo. There is no0 outstanding balance as of June 30, 2021.2022.
VinCann LLCVC, MC and Walsenburg Cannabis LLC bothMillennium Produce, have entered into long-term leases for greenhouse cultivation properties that are owned by subsidiaries of Power REIT (ticker: PW)(Ticker: PW and PW.PRA). David Lesser is the Chairman and CEO of both MILC and Power REIT.
WC, previously consolidated into MILC financial reports as a VIE based on the investment structured as a loan which was, under certain circumstances, convertible into a majority ownership position by Millennium Cannabis, as of June 30, 2022, is not included in the condensed consolidated financial reports and a bad debt expense of $1,505,898 was incurred in the second quarter, 2022 and is included in the accompanying condensed consolidated statements of operations.
The Company has entered into a credit facility with an affiliate of David H. Lesser, our Chairman and CEO on March 16, 2022 which provides up to $1.5 million of cash to fund the capital needs of the company with a quarterly variable interest rate as determined by the Special Committee – Related Party Transactions of 0% for 1Q2022, 5% for 2Q2022, 7% for 3Q2022 and 9% for 4Q2022. The credit facility carries a default rate of 16% if not paid in full by maturity date. The Company is recording interest using an average interest rate on a straight-line basis. The credit facility matures on December 31, 2022. As of June 30, 2022 and December 31, 2021, the amount drawn on the credit facility is $1,412,617 and $0, respectively.
Given that a number of recent significant transactions are considered to be Related Party Transactions, the Board of Directors has established the Special Committee – Related Party Transactions. The purpose of this Special Committee is to approve all future transactions that can be considered Related Party Transactions. All such transactions will be presented to the Special Committee – Related Party Transactions which will then meet in an executive session to discuss the proposed transaction and ultimately vote on such transactions. The composition of the Special Committee will only include Independent Directors. The vote of a majority of the members of the Special Committee – Related Party Transactions will serve to approve transactions that are brought before the Special Committee – Related Party Transactions on behalf of the Board of Trustees.
MILC may enter into transactions in which directors, officers or employees have a financial interest, provided however, that in the case of a material financial interest, the transaction is disclosed to the Board of Directors to determine if the transaction is fair and reasonable. After consideration of the terms and conditions described herein, the independent directors approved such arrangements having determined such arrangements are fair and reasonable and in the interest of the Company.
9.11. SEGMENT INFORMATION
According to ASC 280, segment reporting establishes standards for reporting information about operating segments. Operating segments are defined as components of a business about which separate financial information is evaluated regularly by the chief operating decision maker (“CODM”) in deciding how to allocate resources and in assessing performance. The Company’s CODM is the Chief Executive Officer.
As of June 30, 2022, MILC businesses are organized, managed and internally reported as three reportable segments. The reportable segments are determined based on the difference in the product produced. The cannabis cultivation segment, MillCann, is focused on a sustainable approach to cannabis cultivation through Controlled Environmental Agriculture (“CEA”) in the form of greenhouses. The food crop cultivation segment, Millennium Produce, is focused on a sustainable approach to cultivation of produce in greenhouses and currently operates a greenhouse cultivation facility growing tomatoes in Nebraska. The carbon segment, MillCarbon, has developed a novel method for the sustainable production of activated carbon and has constructed a proof-of-concept pilot-scale plant in Kentucky to produce activated carbon from a waste stream generated by Bourbon distilleries.
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Information concerning the Company’s operations by reportable segment for the six months ended June 30, 2022 and 2021 is as follows:
SCHEDULE OF OPERATIONS BY REPORTABLE SEGMENT
| Cultivation | Cultivation | |||||||||||||||||||
| Six Months Ended June 30, 2022 | Cannabis | Food Crops | Carbon | Corporate | Total | |||||||||||||||
| Revenue | 414,584 | - | - | - | 414,584 | |||||||||||||||
| Depreciation | (20,627 | ) | (9,282 | ) | - | - | (29,909 | )* | ||||||||||||
| Net loss | (6,652,490 | ) | (357,504 | ) | (415,568 | ) | (287,806 | ) | (7,713,368 | ) | ||||||||||
| Capital expenditures | (92,329 | ) | (204,843 | ) | (56,733 | ) | - | (353,905 | ) | |||||||||||
| Identifiable assets | 37,601,833 | 9,865,608 | 1,606,063 | 101,914 | 49,175,418 | |||||||||||||||
| Cultivation | Cultivation | |||||||||||||||||||
| Six Months Ended June 30, 2021 | Cannabis | Food Crops | Carbon | Corporate | Total | |||||||||||||||
| Revenue | - | - | - | - | - | |||||||||||||||
| Depreciation | - | - | - | - | - | |||||||||||||||
| Net loss | (92,748 | ) | - | (102,632 | ) | (915,272 | ) | (1,110,652 | ) | |||||||||||
| Capital expenditures | - | - | 208,057 | - | 208,057 | |||||||||||||||
| Identifiable assets | 9,497,289 | - | 4,494,023 | 5,848,935 | 19,840,247 | |||||||||||||||
| * | Included in cost of goods sold on the statement of operations |
12. SUBSEQUENT EVENTS
On September 8, 2021, MILC announcedJuly 15, 2022, the Company granted shares to its Independent Directors at $a share that it is expanding its sustainable cannabis cultivation activities by establishing operationswill vest over four quarters beginning in Michigan. A new wholly owned subsidiary, Marengo Cannabis LLC,3Q22. The Company also granted call options with a strike price of $a newly wholly owned subsidiary of MILC, Millennium Cannabis LLC, was created to execute a long-term lease with Power REIT. The leased property consists of 556,416 square feet of a state-of-the-art greenhouse cultivation facility and is located in Marengo County and is the largest cannabis cultivation facility in Michigan.
Effective October 1, 2021, the Board of Directors approved increasing the reimbursementshare to the affiliateCEO, the Directors of the CEO from $Company and a consultant. The options will vest over to $5,000 per month based on the increasemonths starting in administrationAugust, 2022 and accounting support needed for the new investment focus of cannabis cultivation and the Board’s conclusion is it would pay more for such support from a third party. The Board also approved a special one-time payment of $have 15,00010 to such affiliate to cover expenses incurred during the quarter ended September 30, 2021.-year life.
On October 1, 2021, MILC amended and restated the Company’s by-laws such that the holders of one-third of the stock issued and outstanding and entitled to vote shall constitute a quorum for the transaction of business at all meetings of the stockholders.
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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS
This Quarterly Report on Form 10-Q (this “Report”) includes forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. Forward-looking statements are those that predict or describe future events or trends and that do not relate solely to historical matters. You can generally identify forward-looking statements as statements containing the words “believe,” “expect,” “will,” “anticipate,” “intend,” “estimate,” “project,” “plan,” “assume” or other similar expressions, or negatives of those expressions, although not all forward-looking statements contain these identifying words. All statements contained in this Report regarding our future strategy, future operations, projected financial position, estimated future revenues, projected costs, future prospects, the future of our industries and results that might be obtained by pursuing management’s current or future plans and objectives are forward-looking statements.
Our forward-looking statements are based on the information currently available to us and speak only as of the date of the filing of this Report. New risks and uncertainties arise from time to time, and it is impossible for us to predict these matters or how they may affect us. Over time, our actual results, performance, financial condition or achievements may differ from the anticipated results, performance, financial condition or achievements that are expressed or implied by our forward-looking statements, and such differences may be significant and materially adverse to our security holders. Our forward-looking statements contained herein speak only as of the date hereof, and we make no commitment to update or publicly release any revisions to forward-looking statements in order to reflect new information or subsequent events, circumstances or changes in expectations.
MANAGEMENT’S DISCUSSION AND ANALYSIS
Overview
Millennium Sustainable Ventures Corp., formerly known as Millennium Investment & Acquisition Co. Inc., formallyformerly known as Millennium India Acquisition Company, Inc. (“MILC”, “we”, “our”, the “Company”) is focused on the “Triple Bottom Line” and a commitment to Profit, Planet and People and conducts operations in three segments: sustainable cultivation of cannabis in greenhouses, sustainable cultivation of food in greenhouses and sustainable production of activated carbon.
As of June 30, 2022, MILC has three areas of focus and conducts business in three operating segments as follows:
| 1. | Sustainable cultivation of cannabis in greenhouses | |
| 2. | Sustainable cultivation of food crops in greenhouses | |
| 3. | Sustainable production of Activated Carbon |
Greenhouse Cultivation of Cannabis
Millennium Cannabis LLC (“MillCann”), our wholly owned subsidiary, is focused on a sustainable approach to cannabis cultivation through Controlled Environmental Agriculture (“CEA”) in the form of greenhouses. During 2021, MILC added sustainable cultivation of cannabis in greenhouses as an internally managed, non-diversified, closed-end investment company. focus and MillCann invested in three newly formed cannabis operators: Walsenburg Cannabis, LLC (“WC”) which leases a greenhouse cultivation facility located in Walsenburg, Colorado and a Marijuana Infused Products lab (“MIP”) located in Ordway, Colorado; VinCann LLC (“VC”), which leases a greenhouse cultivation facility located in Vinita, Oklahoma and Marengo Cannabis LLC (“MC”) which leases a greenhouse cultivation facility located in Marengo County, Michigan. The three cannabis related properties are leased from subsidiaries of Power REIT (NYSE AMEX: PW and PW.PRA). David Lesser is Chairman and CEO of Power REIT and also Chairman and CEO of MILC. MILC’s affiliation with Power REIT provides efficient access to capital allowing MILC to establish operations quickly and become a sustainable high-quality, low-cost producer of cannabis.
In May 2021, MillCann made a loan to WC including a Framework Agreement whereby upon certain conditions, the loan would convert into a majority ownership position in WC under certain circumstances. During 2021 and 2022, WC harvested and sold crops but, unfortunately, the project was delayed and overbudget which caused financial strains. In addition, pricing in the Colorado cannabis market compressed dramatically in 2021 and have not recovered. Based on poor performance and in an effort to conserve capital resources, MILC determined to stop funding additional operating losses at the Walsenburg cultivation facility in June, 2022 and the facility subsequently ceased operations. MILC has no longer believes it will convert its loan into equity and has written off $1,505,898 as a bad debt expense based on uncertainty around recovery of its loan and is evaluating alternatives for capital recovery. Separate from the Walsenburg cultivation facility, WC is seeking to continue to operate the Ordway MIP to process a significant amount of existing biomass from the Walsenburg cultivation facility as a way to generate income.
MillCann is currently the majority owner of a cannabis greenhouse cultivation operation in Vinita, Oklahoma. VC currently operates a 9.35-acre property in Vinita, OK that features 40,000 square feet of greenhouse and related space and approximately 100,000 square foot outdoor growing area. During 2021, VC harvested and processed its first crops and sales began in the first quarter of 2022. As of June 30, 2022, MillCann has invested approximately $2,200,000 in VC through a preferred equity interest that receives a full return of invested capital plus a 12.5% preferred return after which MillCann will have an 82.0% ownership stake. The remaining subordinated ownership is held by the management team of VC. As part of the lease with a wholly owned subsidiary of Power REIT, the lessor agreed to fund the rehabilitation and upgrading of the existing improvements to the facility which was a distressed acquisition purchased from an undercapitalized operator. MILC believes that the VC Property has the potential to become a large-scale, low-cost producer of high-quality cannabis to compete effectively in the Oklahoma market. The price for wholesale cannabis in the Oklahoma market has compressed dramatically from historical prices which has had a negative impact on our performance.
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On September 9, 2021, MILC announced the expansion of its sustainable cannabis cultivation activities by entering into a long-term lease for MillCann’s largest cannabis cultivation facility. A new wholly owned subsidiary of MillCann, MC, was created and entered into a 20-year lease (the “MarCann Lease) with a subsidiary of Power REIT for approximately 12 acres that includes a 556,416 square foot state-of-the-art greenhouse cultivation facility which is located in Marengo County, Michigan (the “MC Property”). As previously disclosed, cannabis licensing was delayed based on a lack of cooperation from Marengo Township where the property is located. As part of the licensing process with the Michigan Cannabis Regulatory Agency (“CRA”) a Certificate of Occupancy (“CO”) is required or alternative documentation must be provided where a CO is not applicable. Based on the zoning of the property as Agricultural, it has never received a CO and the CRA agreed to accept a simple two sentence letter from Marengo Township in lieu of a CO. Unfortunately, Marengo Township was initially unwilling to provide the requested letter which ultimately led to the filing of two lawsuits. Marengo Township recently provided the letter that was pre-approved by CRA and the cannabis licensing process is proceeding.
With the licensing process now moving forward, on August 9, 2022, CRA performed a pre-licensure inspection and identified that no deficiencies existed. In addition to the CRA approval we received, we are required to secure an approval from the Michigan Bureau of Fire Services (“BFS”). The BFS process is underway but there is no certainty as to the timing to complete this process and ultimately secure the cannabis licenses. While we are optimistic the cannabis licensing process can now move quickly, there can be no assurance as to how long it will take. We will continue to provide updates as the licensing process progresses.
Due to the delays in securing the necessary regulatory approvals for marijuana cultivation and the fact that the greenhouse is not yet growing marijuana, MC was able to amend the lease to provide additional time to commence cash rent payments. As of June 30, 2022, MillCann has invested approximately, $1,500,000 in MC which is a wholly owned subsidiary. As part of the MarCann Lease, the lessor has agreed to fund the rehabilitation and upgrading of the existing improvements. As of the date of this prospectus, the greenhouse is not growing marijuana due to the licensing delays, however, small amounts of hemp are being grown in the greenhouse which will help develop experience growing the cannabis plant.
Greenhouse Cultivation of Food
On April 1, 2022, MILC announced that it was expanding its sustainable greenhouse cultivation activities by establishing its first food related operations. Millennium Produce of Nebraska LLC, (“Millennium Produce”), a wholly-owned subsidiary of MILC, was formed to focus on a sustainable approach to food crop cultivation through a Controlled Environmental Agriculture (CEA) in the form of greenhouses.
Millennium Produce entered into a 10-year lease with a subsidiary of Power REIT. The property consists of 86 acres featuring a 1,121,153 square foot greenhouse cultivation facility and an associated employee housing property located in O’Neil, Nebraska. As part of the transaction, Millennium Produce arranged a $3 million non-recourse loan with a fixed interest rate of 1.5% and a four-year term. The loan is secured by Furniture, Fixtures, and Equipment, which was purchased by Millennium Produce, as well as crops. Currently tomatoes are growing at the greenhouse and revenue has commenced in 3Q22.
Activated Carbon
Millennium HI Carbon, LLC (“MHC”) is a wholly owned subsidiary that acquired an activated carbon plant in Hawaii (the “Hawaii Plant”) that was intended to produce a very high-grade form of Activated Carbon for the production of ultracapacitors which are an advanced electrical storage device. During the first half of 2019, MHC concluded that the Hawaii Plant was not capable of producing consistent results and has made efforts to minimize overhead and cash drain while it seeks a strategic alternative for the Hawaii Plant. Effective December 31, 2021, MILC determined to write off $2,765,000, the remaining value of the HI asset for accounting purposes given that the plant is dormant and there is uncertainty around a business plan for this asset.
MillCarbon is a wholly owned subsidiary that has developed a novel method for the sustainable production of activated carbon and has constructed a proof-of-concept pilot-scale plant in Kentucky to produce activated carbon from a waste stream generated by Bourbon distilleries. The plant recently completed its 150th batch of Activated Carbon, Biochar, and Horticultural Vinegar and MillCarbon believes it has proven itself at the pilot level. MILC is evaluating the construction of a commercial scale plant based on the technology it has developed.
On October 1, 2021, MILC filed an application with FINRA for approval to change its name to Millennium Sustainable Ventures Corp and received approval for the name change as disclosed in a Form 8-K and Press Release issued on February 16, 2022. We believe the name change better reflects our focus on sustainable Controlled Environment Agriculture (CEA) cultivation in greenhouses and the sustainable production of activated carbon. MILC, with a focus on the “Triple Bottom Line” and a commitment to Profit, Planet and People is focused on sustainable business practices.
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During 2020, MILC announced that it was seeking to de-register as an Investment Company that is regulated under Investment Company Act of 1940.1940 (the “1940 Act”). As previously announced, MILC is currently seekinghas completed the liquidation of its sole investment in securities - its investment in SMC and plans to invest the proceeds in operating businesses. On October 14, 2020, shareholders approved a proposal to change the nature of the Company’s business from a registered investment company under the 1940 Act to a holding company that focuses primarily on owning and operating businesses (collectively, the “Deregistration Proposal”). On March 1, 2021, as amended on May 11, 2021, December 9, 2021 and January 21, 2022, the Company filed an application pursuant Section 8(f) of the Investment Company Act of 1940 for an Order (the “Order”Declaring that MILC has Ceased to be an Investment Company (the “Deregistration Order”) from. On February 2, 2022, the SEC issued a notice that it was commencing the 25-day public review period in response to MILC’s application. On February 28, 2022, MILC received the Deregistration Order declaring that itis has ceased to be an Investment Company as it no longer meets the definition of holding itself out as investing in securities but rather has pivoted to focus on direct investments in operating businesses.Company. Consequently, the financial statements includedpresented in this filingReport on Form 10-Q are presented in accordance with the reporting requirements under the Securities Exchange Act of 1934, as amended.
MILC was incorporated in Delaware on March 15, 2006 as a Special Purpose Acquisition Company for the purpose of effecting a merger, capital stock exchange, asset acquisition or other similar transaction (a “Business Combination”) with an operating business or businesses that have operations primarily in India (a “Target Business”). In January 2008, the acquisition of a 14.75% equity interest in the SMC Group was consummated by MILC upon approval by public stockholders. For stockholders who voted to not approve the acquisition 842,625 shares were redeemed for $6,736,949. As a result of its plan to invest substantially all of its assets in SMC Group stock, MILC was required to register with the SEC as a closed-end, non-diversified investment company under the Investment Company Act of 1940 (the “Act”).
In March 2008, MILC’s interest was reduced to 14.44% due to Bennett Coleman & Co., a leading New Delhi based financial media and investment firm investing in SMC Group. In May 2009, the merger of SMC Group’s two underlying companies, SAM Global Securities Limited (“SAM”) and SMC Global Securities Limited (“SMC Global”) was finalized. In June 2009, MILC’s interest was increased to 15.14% with the shares of SAM and SMC Global (1,298,400 and 1,730,026 shares, respectively) converting to 1,586,738 shares of SMC Global. On July 2, 2011, as previously announced, Sanlam, which is engaged in the business of portfolio management consultancy, increased its stake in SMC Global to a total of approximately 8.36%, by purchasing an additional 3.25% equity stake in SMC Global which reduced MILC’s equity interest in SMC Global to approximately 14.03%. On July 31, 2012, SMC Global held a shareholder meeting and consented to a stock-split of the equity shares of the Company 10:1, increasing MILC’s position of 1,586,738 shares to 15,867,380 shares.
On October 3, 2013, MILC announced that public efforts by MILC shareholder Hudson Bay Partners, LP (“HBP”) to secure shareholder support for the replacement of MILC’s Board of Directors with a new director slate resulted in the delivery to MILC of written consents representing more than 50% of the outstanding shares. Accordingly, all of HBP’s director nominees were appointed to the MILC Board of Directors (the “Board”) including the principal of HBP, David H. Lesser, our CEO and Chairman.
In December 2013, MILC commenced selling its interest in SMC Global with the intent of completely liquidating its position which was completed in June 2021.
On March 4, 2014, our Amended and Restated Certificate of Incorporation, as amended (the “Certificate of Incorporation”) was amended to reduce the number of the Company’s shares of authorized capital stock from 45,005,000 to 12,005,000. Our Certificate of Incorporation currently authorizes the issuance of 12,000,000 shares of common stock and 5,000 shares of preferred stock, each with a par value of $0.0001 per share.
Effective June 11, 2014, MILC completed a corporate reorganization which resulted in the change of its name to Millennium Investment & Acquisition Company Inc. (“MILC” or the “Company”) from Millennium India and Acquisition Company Inc., under the laws and procedures of Delaware, the state where the registrant is incorporated. The corporate reorganization was undertaken following a change of investment policy, pursuant to which the registrant’s Board of Directors decided to abandon the registrant’s former policy of investing at least 80% of the value of its net assets and borrowings in equity securities of companies operating in India. In conjunction with the change in investment policy, the Board effected the change of name to remove reference to India, in compliance with the U.S. Investment Company Act of 1940 and the rules thereunder.
Millennium HI Carbon, LLC (“MHC”) was formed as a wholly owned subsidiary of MILC in September 2014 in the state of Hawaii for the purpose of acquiring an activated carbon plant located near the port of Kawaihae, Hawaii (the “Plant”). The acquisition, which was completed in May 2015, consisted of the existing equipment which is located on 13 acres of land leased from the Department of Hawaiian Home Lands.
Despite commencing operations in 2011, the Plant failed to achieve full commercial operations. It ceased operations in 2012 and its owner filed for bankruptcy protection. Prior to shutting down, the plant produced activated carbon but there were a number of design and operational issues that needed resolution in order to produce premium-grade activated carbon and operate the plant on a full-time basis.
The MHC plant is intended to process a waste stream of macadamia nut shells into a special form of premium-grade activated carbon, which, due to its large surface area and complex network of pores, provides benefits in a variety of chemical processes including filtration, purification and energy storage. In particular, the activated carbon expected to be produced by the Plant was targeted for manufacturing electrical double-layer capacitors, which are commonly referred to as ultracapacitors or supercapacitors, an advanced energy storage alternative to traditional batteries. Ultracapacitors are found in a diverse array of electronic equipment from daily usage engine starting, hybrid and electric vehicles to windmills.
MHC successfully restored all production equipment and necessary support systems to operation and MHC has completed 31 trial run campaigns that produced over 60 tons of activated carbon. The process was iterative where MHC operated the plant for a couple of days to produce Activated Carbon and then performed laboratory testing. MHC produced some very high-grade material that would be attractive to ultracapacitor manufacturers. Unfortunately, MHC has also experienced significant variations in the quality of the material produced which is not commercially viable.
During the first half of 2019, MHC concluded that the existing carbonization reactor intended to remove volatile material and produce char was causing the inconsistent results. In evaluating alternatives, MHC concluded that it had identified a novel and potentially better approach to producing Activated Carbon. Based on this, MILC has made efforts to minimize overhead and cash drain at MHC while it evaluates alternatives for the project which may include repurposing the plant for other uses or a potential sale.
As described above, in evaluating operational issues at MHC, MILC identified a novel approach to producing Activated Carbon and determined to construct a pilot-plant as a proof of concept. This project is located in Kentucky and the initial feedstock is a waste stream that is available in large quantities from bourbon distilleries which is a large industry in Kentucky and which represents a significant waste problem that is impacting the bourbon industry. To build the pilot plant, MILC, through its wholly owned subsidiary, Millennium Carbon LLC (“MC”) purchased several used pieces of equipment at a fraction of the cost of new equipment in order to construct a plant capable of establishing the viability of the process beyond a “lab-scale” demonstration. To date, MC has operated this pilot plant and believes that the concept is valid and can be scaled to a commercial operation. MC is currently formulating a plan for a commercial scale Activated Carbon plant based on the experience with the pilot plant.
MHC has entered into a secured demand note with MILC (“Lender”) with an interest rate of 8% which is repayable upon demand by the Lender. As of June 30, 2021, the amount of the loan outstanding is approximately $2,608,576 with accrued interest of $328,146.
On May 24, 2021, MILC announced that the Company entered into a transaction that represents a new area of focus related to sustainable Cannabis cultivation in greenhouses by investing in a newly formed cannabis operator, Walsenburg Cannabis LLC (“WC”). As part of the transaction, MILC has agreed to lend capital to WC for its business operations and MILC is in the process of obtaining regulatory approvals for holding cannabis licenses in Colorado. Upon receiving regulatory approval, it is contemplated that MILC will own a preferred equity interest that receives a full return of invested capital plus a 12.5% preferred return after which MILC has a 77.5% ownership stake. The remaining subordinated ownership is held by the management of WC. Simultaneous with MILC’s investment, WC entered into a long-term lease (the “Lease”) on an approximately 22.2 acre property including existing greenhouse and processing space (the “Property”). As part of the Lease, the Lessor, a wholly owned subsidiary of Power REIT (ticker: PW), has agreed to fund the rehabilitation and upgrading of the existing improvements and the construction of additional greenhouse space. Upon completion, the Property will have a total of approximately 102,800 square feet of greenhouse and related space. MILC’s total capital commitment for the project is $750,000.
On June 11, 2021, MILC announced that it has agreed to invest in a newly formed cannabis operator, VinCann LLC (“VC”). As part of the transaction, MILC has agreed to invest $750,000. The investment will take the form of a preferred equity interest that receives a full return of invested capital plus a12.5% preferred return after which MILC has a 77.5% ownership stake. The remaining subordinated ownership is held by the management team of VC. Concurrent with MILC’s investment, VC entered into a 20-year lease (the “Lease”) for a 9.35 acre plot of land with approximately 40,000 square feet of greenhouse, 3,000 square feet of office space, and 100,000 square feet of fully fenced outdoor growing area with 20,000+ square feet of hoop structures that was purchased by Power REIT.
As of June 30, 2021, MILC has two areas of focus:
Recent Developments
Carbon
The Company has restored all production equipment and necessary support systems to operation at the MHC facility but unfortunately, MHC has also experienced significant variations in the quality of the material produced which is not commercially viable. Additionally, the Company has operated a pilot plant for operations in Kentucky and believes that the concept is valid and can be scaled to a commercial operation. MC is currently formulating a plan for a commercial scale Activated Carbon plant based on the experience with the pilot plant.
Cannabis
During 2021, MILC added sustainable cultivation of cannabis in greenhouses as an investment focus and as of June 30, 2021, has invested in two newly formed cannabis operators, Walsenburg Cannabis, LLC and VinCann LLC.
The Walsenburg cannabis campus was a distressed acquisition of a facility that had ceased operations. MILC believes that it was acquired at an attractive basis relative to the in-place improvements which provide an attractive opportunity to immediately commercialize the facility for cannabis cultivation. MILC believes that this property has significant potential to become a large-scale, low-cost producer of high-quality cannabis to compete effectively in the Colorado market. The campus is subdivided into five parcels which allows for a significant availability of plant count based on how the Colorado Marijuana licensing works. We currently anticipate a 46,000 harvest plant count at WC per year in Walsenburg. WC intends to seek to increase the allowable plant count as Colorado licensing permits. It is possible that WC will be able to increase the plant count during 2022.
The Vinita facility was a distressed acquisition purchased from an undercapitalized operator. Strong in-place infrastructure and the operational status upon acquisition allows for rapid speed to revenue. MILC believes that it was acquired at an attractive basis relative to the in-place improvements which provide an attractive opportunity to immediately commercialize the facility for cannabis cultivation. MILC believes that this property has significant potential to become a large-scale, low-cost producer of high-quality cannabis to compete effectively in the Oklahoma market. The targeted total harvested plant count in 2022 for the greenhouse and outdoor, respectively, are 26,000 and 50,000 per year.
Technical Strategy
Carbon
The Company identified a novel approach to producing Activated Carbon and determined to construct a pilot-plant as a proof of concept. This project is located in Kentucky and the initial feedstock is a waste stream that is available in large quantities from bourbon distilleries which is a large industry in Kentucky and which represents a significant waste problem that is impacting the industry. To build the pilot plant, MILC, through its wholly owned subsidiary, Millennium Carbon LLC (“MC”) purchased several used pieces of equipment at a fraction of the cost of new equipment in order to construct a plant capable of establishing the viability of the process beyond a “lab-scale” demonstration. To date, MC has operated this pilot plant and believes that the concept is valid and can be scaled to a commercial operation. MC is currently formulating a plan for a commercial scale Activated Carbon plant based on the experience with the pilot plant.
Cannabis
MILC has identified greenhouse cultivation as the sustainable method for growing cannabis in a cost-effective manner with a lower carbon footprint than indoor cultivation. Historically, cannabis in the United States has been grown indoors and this trend has continued even as various States have implemented legalization. MILC believes that its strategy of focusing on greenhouse cultivation represents a competitive advantage. Greenhouses cost less to construct and less to operate than indoor cultivation facilities and as such, we believe we can compete favorably with this approach.
The cannabis industry is experiencing rapidly growing demand amid the tailwind of increasing legalization at the State level. The inefficient availability of capital in the cannabis industry given the illegal status at the federal level presents a potential opportunity for MILC through its strategic affiliation with Power REIT (NYSE-American ticker: PW and PW.A). Power REIT is focused on financing the real estate component of controlled environment agriculture (CEA) facilities in the form of greenhouses.
Outlook
Carbon
While we are disappointed with the status of the Hawaii endeavor, we believe that the experience has led to what could be an extremely exciting opportunity to develop a sustainable approach to the production of activated carbon from waste materials. Typical production of activated carbon has a very high carbon footprint whereas we believe our model should have a negative carbon footprint. We look forward to continuing to develop this novel concept which should have applications beyond our initial waste stream feedstock.
Cannabis
We are excited with our new area of focus – sustainable cannabis cultivation in greenhouses. We are also proud of the rapid progress we are making at each site as well as the teams we are building. We are very focused on building teams that draw from the broader business community and people with a focus on greenhouse cultivation rather than just drawing from the cannabis industry. We are on track to report initial revenue from these activities in the fourth quarter of 2021. We expect to ramp up significantly in 2021 as we seek to generate significant operating income from these operations. The cannabis industry is growing at an incredible rate and our approach which is focused on low-cost and sustainable cultivation in greenhouses is paramount to a long-term and viable business model. Both of our current projects in Colorado and Oklahoma benefit from the potential for rapid speed to revenue. We are focused on bringing best in class, large-scale mainstream agricultural cultivation techniques to the cannabis industry.
Critical Accounting Policies
The consolidated financial statements are prepared in conformity with U.S. GAAP, which requires the use of estimates, judgments and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the consolidated financial statements, and the reported amounts of revenues and expenses in the periods presented. We believe that the accounting estimates employed are appropriate and resulting balances are reasonable; however, due to inherent uncertainties in making estimates, actual results may differ from the original estimates, requiring adjustments to these balances in future periods.
The Company has identified its reportable segments and, for each period for which a statement of operations is presented, discloses certain information, separately by reportable segment, relative to the segment industries. MILC businesses are organized, managed and internally reported as three reportable segments. As of June 30, 2021,2022, the Company’s property,reportable segments are determined based on the difference in the product produced. The cannabis segment, MillCann, is focused on a sustainable approach to cannabis cultivation through Controlled Environmental Agriculture in the form of greenhouses, with operations in Oklahoma and Michigan. The food crop segment, Millennium Produce, is focused on a sustainable approach to tomato cultivation through Controlled Environmental Agriculture in the form of greenhouses, with operations in Nebraska. The carbon segment, MillCarbon, has developed a novel method for the sustainable production of activated carbon and has constructed a proof-of-concept pilot-scale plant and equipment consisted of production equipment and support systems at the MHC facility in Hawaii and at MC’s pilot plant and support systems in Kentucky.Kentucky to produce activated carbon from a waste stream generated by Bourbon distilleries
As of June 30, 2022, the Company’s Property, Plant and Equipment consisted of Activated Carbon production machinery and equipment at the MillCarbon pilot plant in Kentucky, machinery and equipment at the Millennium Produce operations, as well as, machinery and equipment, furniture and fixtures and office equipment at the two operations related to Millennium Cannabis. Property, plant and equipment is carried at historical cost, net of depreciation and adjustments for impairment, if any.impairment. The Company assesses the carrying value of its property, plant and equipment for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable.
Property, plant and equipment was never commercially operational and is not in service yetnow dormant for MHC and MC. Astherefore has not incurred a depreciation expense on this asset and has since written off the asset. Millennium Cannabis recognized depreciation on its property, plant and equipment at its Vinita, OK and Marengo, MI locations on a straight-line basis over the useful life of five years.
Finished goods inventory is initially valued at cost and subsequently at the lower of cost and net realizable value. Net realizable value is determined as the estimated selling price in the ordinary course of business less the estimated costs of completion, disposal and transportation for inventories in process. The Company periodically reviews its inventory and identifies that which is excess, slow moving or poor product quality by considering factors such no depreciationas inventory levels and forecasted sales demand. Any identified excess, slow moving and poor-quality inventory is recognized aswritten down to its net realizable value through a charge to cost of June 30, 2021.goods sold.
Results of Operations
Three and Six Months Ended June 30, 20212022 and 2020:2021:
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Revenue
During the three months ended June 30, 2022, the cultivation segment’s revenue increased by $159,499 and cost of goods sold increased by $1,036,519 resulting in a gross loss of $877,020 compared to no revenue an no cost of goods sold during the three months ended June 30, 2021. This was a result of MILC shifting its focus to cannabis cultivation and the expenses incurred to continue operations in the second quarter of 2022. There was no revenue or cost of goods sold for the carbon segment for both three-month periods ending 2022 and 2021. The gross loss in 2022 is attributable, in part, to the compressed prices for cannabis in OK and supply chain issues resulting in construction delays which, ultimately caused problems with the initial harvests.
During the six months ended June 30, 2022, the cultivation segment’s revenue increased by $414,854 and cost of goods sold increased by $2,397,347 resulting in a gross loss of $1,982,763 compared to no revenue an no cost of goods sold during the six months ended June 30, 2021. This was a result of MILC shifting its focus to cannabis cultivation and the expenses incurred to continue operations in the first half of 2022. There was no revenue or cost of goods sold for the carbon segment for both six-month periods ending 2022 and 2021. The gross loss in 2022 is attributable, in part, to the compressed prices for cannabis in OK and supply chain issues resulting in construction delays which, ultimately caused problems with the initial harvests.
Operating Expenses
During the three months ended June 30, 2021, and 2020,2022, MILC’s total operating expenses increased $947,899were $3,722,339 compared to $1,203,715 during the three months ended June 30, 2021. The increase of $2,518,624 was primarily related to a decrease in impairment expense on PPE of $148,636, increase in property taxes of $21,549, increase in G&A expenses of $174,179, an increase in utilities of $19,117, an increase in insurance of $109,716, an increase of state and franchise taxes of $2,430, an increase in lease expense of $101,330,$1,316,148 for the cannabis cultivation segment, an increase onof $274,848 for the food crop cultivation segment, an India taxincrease of $1,301 for the Activated Carbon segment, an increase of $1,505,898 resulting from the bad debt expense for SMC Global Securitiesthe WC loan write off, an increase in general & administrative expense of $633,311,$83,160 and an increasea decrease in professional fees of $37,903.$29,420 related to the cannabis and activated carbon segments. The increased expenses above are offset by a decrease of $633,311 for a provision of tax receivable that was incurred in 2021.
During the six months ended June 30, 2022, MILC’s total operating expenses were $5,720,452 compared to $1,324,441 during the six months ended June 30, 2021. The increase of $4,396,011 was primarily related to an increase in lease expense of $2,744,812 for the cannabis cultivation segment, an increase of $274,848 for the food crop cultivation segment, with a nominal decrease of $7,281 for the Activated Carbon segment, an increase of $1,505,898 resulted from the bad debt expense for the WC loan write off, an increase in general & administrative expense of $483,512 and professional fees of $27,533 related to the cannabis and activated carbon segments. The increased expenses above are offset by a decrease of $633,311 for a provision of tax receivable that was incurred in 2021.
Other Income (Expense)Income/Expense and Net Loss
Other incomeexpense for the three months ended June 30, 20212022 was $17,734 compared with 2020 increased by $58,662to other income of $144,095 during the three months ended June 30, 2021. The decrease of $161,829 was primarily due primarily to a decrease in realized gainother income of $53,450,$143,184 of which $137,700 was PPP loan forgiveness and $6,219 was a decrease in unrealized gainother income for the activated carbon segment and a decrease in interest income of $18,457 and$169 with an increase in other incomeinterest expense of $130,519 which is primarily due$18,476. As a result, consolidated net loss for MILC for the three months ended June 30, 2022 and 2021 was $4,617,093 compared to the PPP loan forgiveness.$1,059,620, respectively.
Six Months Ended June 30, 2021 and 2020:
Operating Expenses
DuringOther expense for the six months ended June 30, 2021, and 2020, MILC’s operating expenses decreased by $2,334,4802022 was $10,153 compared to other income of $213,789 during the six months ended June 30, 2021. The decrease of $223,942 was primarily relateddue to a decrease in impairment expense on PPEdividend income of $3,442,765, increase in property taxes of $21,549, increase in G&A expenses of $176,801, an increase in utilities of $19,117, an increase in insurance of $109,766, an increase of state and franchise taxes of $3,728, an increase on an India tax expense for SMC Global Securities of $633,311, an increase in lease expense of $102,632$67,383 and an increase in professional feesinterest expense of $43,985.
Other Income (Expense)$18,476. For the activated carbon segment, there was a decrease in the PPP loan of $137,700 forgiveness, a decrease in other income of $183, and Net Loss
Othera decrease in interest income of $200. As a result, consolidated net loss for MILC for the six months ended June 31,30, 2022 and 2021 was $7,713,368 compared with 2020 increased by $580,636 due primarily to a decrease in dividend income from SMC of $24,028, a decrease in interest income of $11,529, a decrease in realized gain of $53,450, a decrease in unrealized loss of $541,714 and an increase in other income of $127,929 which is primarily due to the PPP loan forgiveness.$1,110,652, respectively.
Liquidity and Capital Resources
Our cash and cash equivalents totaled $5,753,274$768,765 as of June 30, 2021,2022 compared to $1,623,291 as of December 31, 2021. The decrease of $854,526 is primarily from an increase of $3,857,677 from December 31, 2020. During the six months ended June 30, 2021, the primary increase of cash wasin expenses in operating and investing activities due to investing activities from selling our remaining position of SMC shares.the cannabis cultivation operations offset by loan proceeds related to the Company’s credit facility with an affiliate (Note 6) and the Company’s non-recourse loan (Note 7).
With the cash available as of June 30, 2021,2022 and access to the credit facility, we believe these resources willmay be sufficient to fund our operations and commitments for at least twelve months from the date of the filing of this Quarterly Report on Form 10-Q. To fund our operations and commitmentsHowever, the Company may seek to raise additional funds through December 31, 2021, MILC plans to generate revenue from our new investment focusthe sale of cannabis cultivation.its securities or other capital sources.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
As a smaller reporting company as defined by Rule 12b-2 of the Exchange Act, we are not required to provide the information required by this Item.
Item 4. Controls and Procedures
Evaluation of Disclosure Controls and Procedures
Management is responsible for establishing and maintaining adequate disclosure controls and procedures (as defined Rules 13a-15(e) and 15d-15(e) under the Exchange Act) and (to provide reasonable assurance regarding the reliability of our financial reporting and preparation of financial statements for external purposes in accordance with U.S. generally accepted accounting principles. Our disclosure controls and procedures are also designed to ensure that such information is accumulated and communicated to management to allow timely decisions regarding required disclosure. A control system, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives. Because of the inherent limitations in all control systems, internal controls over financial reporting may not prevent or detect misstatements. The design and operation of a control system must also reflect that there are resource constraints and management is necessarily required to apply its judgment in evaluating the cost-benefit relationship of possible controls.
Our management assessed the effectiveness of the design and operation of our disclosure controls and procedures. Based on ourthe evaluation we believe thatof our disclosure controls and procedures as of June 30, 20212022, our Chief Executive Officer concluded that, as of such date, our disclosure controls and procedures were effective.not effective due to the material weaknesses in our internal control over financial reporting.
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Previously Reported Material Weakness
As disclosed in Item 9A. on the Annual Form 10-K filed with the SEC on March 15, 2022, we previously identified material weaknesses in our internal control over financial reporting with respect to its current complement of people resources, processes and systems which do not provide for necessary, timely reconciliation of certain accounts and sufficient consideration regarding recoverability of certain assets. The main material weakness was specifically related to inventory and management is taking the necessary steps to correct the deficiencies and improve upon current procedures and processes, as the weaknesses were due to starting up the cannabis cultivation as a new operating business segment.
Remediation Plan
Management has developed and is executing a remediation plan to address the previously disclosed material weaknesses. We are actively engaged in the remediation of the outstanding material weaknesses, including the implementation of better processes to improve tracing and valuation methods for inventory. To remediate the existing material weakness, additional time is required to demonstrate the effectiveness of the remediation efforts. The material weakness cannot be considered remediated until the applicable remedial procedures operate for a sufficient period of time and management has concluded, through testing, that these procedures are operating effectively.
Changes in Internal Control over Financial Reporting:
During the six months ended June 30, 2021,2022, there were no changes in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) of the Exchange Act) that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
We are, from time to time, the subject of claims and suits arising out of matters related to our business. In general, litigation claims can be expensive, and time consuming to bring or defend against and could result in settlements or damages that could significantly affect financial results. It is not possible to predict the final resolution of the current litigation to which we are party to, and the impact of certain of these matters on our business, results of operations, and financial condition could be material. Regardless of the outcome, litigation has adversely impacted our business because of defense costs, diversion of management resources and other factors.
MHC is currently subject to a lawsuit which involves ownership of a piece of equipment that MHC believes it acquired as part of its original acquisition of the property through the bankruptcy trustee. MHC prevailed in this lawsuit with the court ruling in MHC’s favor and awarding a portion of MHC’s legal fees to MHC. The plaintiff has filed an appeal which is pending. MHC currently does not believe it is likely that the appeal will overturn the ruling of the lower court. MHC also does not believe it has material exposure in the event the ruling at the lower court is not affirmed.
On April 1, 2022, Power REIT’s wholly owned subsidiary, PW CanRe Marengo LLC (“PW Marengo”), filed a Complaint, Petition for Writ of Mandamus and Jury Demand against the Township of Marengo, Michigan (the “Complaint”). The Complaint was filed in the United States District Court – Western District of Michigan – Southern Division and the Case Number is: 1:22-cv-00321. The Complaint is an action for equitable, declaratory and injunctive relief arising out of Township’s false promises, constitutional violations by the Township’s deprivation of Plaintiffs’ civil rights through its refusal and failure to comply with its own ordinances and state law as well as a common dispute resolution mechanism. On April 7, 2022, the Trust filed a Motion for expedited trial and on April 21, 2022, the Township of Marengo, Michigan filed a reply brief related thereto. On June 6, 2022, the Township of Marengo, Michigan filed its answer to the Complaint. On July 5, 2022 the court held a status conference which required the parties to participate in a mediation to occur within 30 days. On August 1, 2022, PW Marengo filed a Stipulation dismiss the Complaint, but the parties have agreed to continue the court ordered mediation and extend the deadline for mediation while working to finalize an agreed upon mediator.
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On June 30, 2022, PW Marengo, filed a Verified Complaint in Calhoun County Michigan, (the “Calhoun Complaint”) and the Case Number is 22-1760-AW. The Complaint is an action to compel the Township to allow PW Marengo to appear before the Marengo Township Zoning Board of Appeals (“ZBA”). On June 10, 2022, PW Marengo filed an application to the ZBA to secure an affirmation that, because the greenhouse property is zoned as Agricultural, it is exempt from requirements of seeking building permits and a Certificate of Occupancy. To date, the Township has refused to schedule such a meeting and on June 24, 2022, two representatives of the Township indicated that they were rejecting the application to the ZBA because the property is zoned agricultural and exempt from requiring a Certificate of Occupancy and therefore there is no reason to hold the meeting. Unfortunately, when pressed, the representatives were unwilling to put this in writing which we believe would have been sufficient to resolve the requirements for the State of Michigan cannabis licensing. PW Marengo was seeking documentation that is necessary to secure cannabis licenses from the State of Michigan which has agreed to accept in the form of a simple two sentence statement from Marengo Township that because the property is zoned Agricultural it is exempt from requiring a Certificate of Occupancy. As previously disclosed, PW Marengo recently secured the requested statement from Marengo Township and the application for cannabis licensing has been submitted to the State of Michigan. Power REIT and Marengo Township have agreed to continue with the mediation process to resolve remaining issues.
Item 1A. Risk Factors.
The Company’s results of operations and financial condition are subject to numerous risks and uncertainties as described in the 2021 Form 10-K, which risk factors are incorporated herein by reference. The following information updates, and should be read in conjunction with, the information disclosed in Part I, Item 1A, “Risk Factors,” contained in the 2021 Form 10-K. You should carefully consider the risks set forth in the 2021 Form 10-K and the following risks, together with all the other information in this Quarterly Report on Form 10-Q, including our consolidated financial statements and notes thereto. If any of the risks actually materialize, our operating results, financial condition and liquidity could be materially adversely affected. Except as disclosed below, there have been no material changes from the risk factors disclosed in the 2021 Form 10-K.
The COVID-19 pandemic could adversely affect our business, financial condition and results of operations.
During 2020,In response to the COVID-19 outbreak, and its continued mutations, governmental authorities in the United States, and internationally have introduced various measures to try to limit the pandemic, including travel restrictions, border closures, non-essential business closures, quarantines, self-isolations, shelter-in-place orders and social distancing protocols. The COVID-19 outbreak and the response of governmental authorities to try to limit it are having a global COVID 19 pandemic emerged which has had broad financialsignificant impact on most industriesthe private sector and countries. MILC continuesindividuals. The continued spread of COVID-19 globally could continue to monitor COVID 19have an adverse impact on our business, operations and financial results, including through disruptions in our cultivation and processing activities, supply chains and sales channels, as well as a deterioration of general economic conditions including a possible national or global recession. Shelter-in-place orders and social distancing practices designed to limit the spread of COVID-19 may affect our retail business. Due to the speed with which the COVID-19 situation is developing and the uncertainty of its magnitude, outcome and duration, it is not possible to estimate its impact on our business, operations or financial results; however, the impact could be material.
Our business could be adversely affected by the risks, or the public perception of the risks, related to the COVID-19 pandemic. The risk of a pandemic, or public perception of such a risk, could cause customers to avoid public places and are causing disruptions in our supply chains and/or delays in the delivery of our products. These risks could also adversely affect our customers’ financial condition, resulting in reduced spending on the products we produce. We are also experiencing negative impacts with respect to reliability and consistency of our labor force and the lost of labor as a result of COVID-19. The ultimate extent of the impact of the COVID-19 pandemic highly uncertain. These and other potential impacts could therefore adversely affect our business, growth, and financial implications on its assets and business plans. There can be no assurance what ultimate impact COVID 19 willcondition in ways we may have on MILC on a going forward basis.not yet considered.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.
None.
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Item 3. Defaults Upon Senior Securities.
Not Applicable.
Item 4. Mine Safety Disclosures.
Not Applicable.
Item 5. Other Information.
None.
Item 6. Exhibits.
(1) Filed herewith.
| (1) | Filed herewith. |
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SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this Report on Form 10-Q for the quarter ended June 30, 2021March 31, 2022 to be signed on its behalf by the undersigned thereunto duly authorized.
| MILLENNIUM | |
| /s/ David H. Lesser | |
| David H. Lesser | |
| Chairman of the Board & | |
| Chief Executive Officer, Secretary and Treasurer | |
| Date: |
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