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., formerly 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 investment 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.
20
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.
21
During 2020, MILC announced that it was seeking to de-register as an Investment
Company that is regulated under Investment Company Act of 1940 (the "1940 Act").
As previously announced, MILC has 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 Declaring that MILC has Ceased to be
an Investment Company (the "Deregistration Order"). 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 is has ceased to be an Investment Company.
Consequently, the financial statements presented in this Report on Form 10-Q are
presented in accordance with the reporting requirements under the Securities
Exchange Act of 1934, as amended.
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, 2022, the 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 in
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. 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 now
dormant for MHC and therefore 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
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.
Results of Operations
Three and Six Months Ended June 30, 2022 and 2021:
22
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, 2022, MILC's total operating expenses
were $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 an increase in lease
expense of $1,316,148 for the cannabis cultivation segment, an increase of
$274,848 for the food crop cultivation segment, an increase of $1,301 for the
Activated Carbon segment, an increase of $1,505,898 resulting from the bad debt
expense for the WC loan write off, an increase in general & administrative
expense of $83,160 and a decrease in professional fees of $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 and Net Loss
Other expense for the three months ended June 30, 2022 was $17,734 compared to
other income of $144,095 during the three months ended June 30, 2021. The
decrease of $161,829 was primarily due to a decrease in other income of $143,184
of which $137,700 was PPP loan forgiveness and $6,219 was a decrease in other
income for the activated carbon segment and a decrease in interest income of
$169 with an increase in interest expense of $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 $1,059,620, respectively.
Other expense for the six months ended June 30, 2022 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 due to a decrease in dividend income of $67,383 and an
increase in interest expense of $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 a decrease in interest income of $200. As a result,
consolidated net loss for MILC for the six months ended June 30, 2022 and 2021
was $7,713,368 compared to $1,110,652, respectively.
Liquidity and Capital Resources
Our cash totaled $768,765 as of June 30, 2022 compared to $1,623,291 as of
December 31, 2021. The decrease of $854,526 is primarily from an increase in
expenses in operating and investing activities due to 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, 2022 and access to the credit facility,
we believe these resources may be sufficient to fund our operations and
commitments for twelve months from the date of the filing of this Quarterly
Report on Form 10-Q. However, the Company may seek to raise additional funds
through the sale of its securities or other capital sources.
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MILLENNIUM INVESTMENT & ACQUISITION COMPANY INC. 
