Exhibit 10.3(1)
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
For
the quarterly period ended
OR
(Commission File Number)
(Exact name of registrant as specified in its charter)
(State or other jurisdiction of incorporation or organization) |
(I.R.S. Employer Identification No.) | |
| (Address of principal executive offices) | (Zip Code) |
(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.
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).
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 | ☐ |
| ☒ | 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
☐
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 August 15, 2022.
TABLE OF CONTENTS
| 2 |
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements.
MILLENNIUM SUSTAINABLE VENTURES CORP. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
| June 30, 2022 | December 31, 2021 | |||||||
| (Unaudited) | ||||||||
| Assets: | ||||||||
| Current assets: | ||||||||
| Cash | $ | $ | ||||||
| Accounts receivable | ||||||||
Advances to affiliate | ||||||||
| Inventory - Millennium Cannabis | ||||||||
| Inventory - Millennium Produce | ||||||||
| Other current assets | ||||||||
| Total current assets | ||||||||
| Property, plant and equipment, net | ||||||||
| Other assets: | ||||||||
| Security deposits | ||||||||
| Right of use assets - Millennium Produce | ||||||||
| Right of use assets - Millennium HI Carbon | ||||||||
| Right of use assets - Millennium Cannabis | ||||||||
| Right of use assets - finance leases | ||||||||
| Total assets | $ | $ | ||||||
| Liabilities and Shareholders’ Equity (Deficit) | ||||||||
| Current liabilities: | ||||||||
| Accounts payable and accrued expenses | $ | $ | ||||||
| Line of credit - related party, net of unamortized discount | ||||||||
| Current portion of long-term debt | ||||||||
| Lease liability - Millennium Produce | ||||||||
| Lease liability - Millennium HI Carbon | ||||||||
| Lease liability - Millennium Cannabis | ||||||||
| Lease liability - finance leases | ||||||||
| Total current liabilities | ||||||||
| Long-term liabilities | ||||||||
| Lease liability - Millennium Produce | ||||||||
| Lease liability - Millennium HI Carbon | ||||||||
| Lease liability - Millennium Cannabis | ||||||||
| Lease liability - finance leases | ||||||||
| Long-term debt | ||||||||
| Total long-term liabilities | ||||||||
| Total Liabilities | ||||||||
| Preferred Stock; par value $ per share, shares authorized, shares issued and outstanding | ||||||||
| Common Stock; par value $ per share, shares authorized, shares issued and outstanding | ||||||||
| Paid-in capital | ||||||||
| Accumulated Deficit | ( | ) | ( | ) | ||||
| Total Equity (Deficit) | ( | ) | ||||||
| Total Liabilities and Equity (Deficit) | $ | $ | ||||||
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 | $ | $ | $ | $ | ||||||||||||
| Cost of goods sold | ||||||||||||||||
| Gross Loss | ( | ) | ( | ) | ||||||||||||
| Operating Expenses | ||||||||||||||||
| General & administrative expenses | ||||||||||||||||
| Provision for tax receivable | ||||||||||||||||
| Professional fees | ||||||||||||||||
| Bad debt expense - related party | ||||||||||||||||
| Lease expense - Millennium Cannabis (MI) | ||||||||||||||||
| Lease expense - Millennium Produce (NE) | ||||||||||||||||
| Lease expense - Millennium HI Carbon | ||||||||||||||||
| Total Operating Expenses | ||||||||||||||||
| Net Loss from Operations | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||
| Other Income (Expense) | ||||||||||||||||
| Dividend income | $ | $ | $ | $ | ||||||||||||
| Interest income | ||||||||||||||||
| Other income | ||||||||||||||||
| Interest expense | ( | ) | ( | ) | ||||||||||||
| Total Other Income (Expense) | ( | ) | ( | ) | ||||||||||||
| Net Loss | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||
| Net loss per share - basic and diluted | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||
| Weighted average share outstanding, basic and diluted | ||||||||||||||||
The accompanying notes are an integral part of these condensed consolidated financial statements.
| 4 |
MILLENNIUM SUSTAINABLE VENTURES CORP. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY (DEFICIT)
(Unaudited)
| Common Stock | Paid-in | Accumulated | Total Shareholders’ Equity | |||||||||||||||||
| Shares | Amount | Capital | Deficit | (Deficit) | ||||||||||||||||
| Balance as of December 31, 2021 | $ | $ | $ | ( | ) | $ | ||||||||||||||
| Net Loss | - | ( | ) | ( | ) | |||||||||||||||
| Balance as of March 31, 2022 | ( | ) | ( | ) | ||||||||||||||||
| Net Loss | - | ( | ) | ( | ) | |||||||||||||||
| Balance as of June 30, 2022 | $ | $ | $ | ( | ) | $ | ( | ) | ||||||||||||
| Common Stock | Paid-in | Accumulated | Total Shareholders’ | |||||||||||||||||
| Shares | Amount | Capital | Deficit | Equity | ||||||||||||||||
| Balance as of December 31, 2020 | $ | $ | $ | ( | ) | $ | ||||||||||||||
| Net Loss | - | ( | ) | ( | ) | |||||||||||||||
| Balance as of March 31, 2021 | ( | ) | ||||||||||||||||||
| Net Loss | - | ( | ) | ( | ) | |||||||||||||||
| Balance as of June 30, 2021 | $ | $ | $ | ( | ) | $ | ||||||||||||||
The accompanying notes are an integral part of these condensed consolidated financial statements.
| 5 |
MILLENNIUM SUSTAINABLE VENTURES CORP. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
| Six Months Ended June 30, | ||||||||
| 2022 | 2021 | |||||||
| Operating activities | ||||||||
| Net loss | $ | ( | ) | $ | ( | ) | ||
| Adjustments to reconcile net loss to net cash used in operating activities | ||||||||
| Gain on PPP loan forgiveness | ( | ) | ||||||
| Noncash operating lease expense - Millennium HI Carbon | ||||||||
| Noncash operating lease expense - Millennium Cannabis | ( | ) | ||||||
| Noncash finance lease expense | ( | ) | ||||||
| Bad Debt Expense – related party | ||||||||
| Depreciation expense | ||||||||
| Changes in operating assets and liabilities | ||||||||
| Accounts receivable | ( | ) | ||||||
| Advances to affiliate | ( | ) | ||||||
| Inventory - Millennium Cannabis | ( | ) | ||||||
| Inventory - Millennium Produce | ( | ) | ||||||
| Accounts payable and accrued expenses | ||||||||
| Lease liability - Millennium HI Carbon | ( | ) | ||||||
| Lease liability - Millennium Cannabis | ||||||||
| Lease liability - Millennium Produce | ||||||||
| Security deposits | ( | ) | ( | ) | ||||
| Prepaids and other current assets | ( | ) | ( | ) | ||||
| Net cash used in operating activities | ( | ) | ( | ) | ||||
| Investing activities | ||||||||
| Acquisition of property, plant and equipment | ( | ) | ( | ) | ||||
| Advances to prior related party | ( | ) | ||||||
| Proceeds from disposal of SMC Global Securities | ||||||||
| Net cash (used) provided by investing activities | ( | ) | ||||||
| Financing activities | ||||||||
| Proceeds from loan from affiliate | ||||||||
| Proceeds from loan payable | ||||||||
| Lease liability - finance leases | ||||||||
| Net cash provided by financing activities | ||||||||
| Net (decrease) increase in cash | ( | ) | ||||||
| Cash, beginning of period | ||||||||
| Cash, end of period | $ | $ | ||||||
Supplemental disclosure of cash flow information: | ||||||||
| Cash paid during the period for interest | $ | $ | ||||||
| Supplemental disclosure of noncash flow information: | ||||||||
| Initial recognition of right of use asset and lease liability | $ | $ | ||||||
The accompanying notes are an integral part of these condensed consolidated financial statements
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MILLENNIUM SUSTAINABLE VENTURES CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1 – GENERAL INFORMATION
Nature of Operations
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 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 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 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 $
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
| 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
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
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 $
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.
| 8 |
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 herein are presented in accordance with the reporting requirements under the Securities Exchange Act of 1934, as amended.
2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
The 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.
In 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) to present the financial position of the Company as of June 30, 2022 and the results of operations and cash flows for 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 |
The following indirect subsidiaries are included in the accompanying consolidated financial statements:
| ● | VinCann LLC |
| 9 |
| ● | Walsenburg Cannabis Deconsolidation |
All intercompany balances have been eliminated in consolidation.
Basic loss per share is computed by dividing net 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.
| Three Months Ended | Six Months Ended | |||||||||||||||
| June 30, | June 30, | |||||||||||||||
| 2022 | 2021 | 2022 | 2021 | |||||||||||||
| Loss available to common Shareholders | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||
| Weighted average shares | ||||||||||||||||
| Basic loss per common share | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||
Property, Plant and Equipment
Property, plant and equipment is stated at cost. The costs of 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 accumulated depreciation are removed from the accounts and any 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:
| Machinery and equipment | |
| Furniture and fixtures | |
| Office equipment |
Leasehold improvements are amortized over the shorter of the 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 2021 was $
| 10 |
The Company reviews long-lived assets for impairment at least annually or whenever events or changes in circumstances indicate their 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 the asset or 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 recognized is measured by the amount by which the carrying amount, if any, exceeds its fair value. For the six months ended June 30, 2022 and 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 $
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.
| 11 |
| ○ | 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, deposits, and accounts payable approximate fair value because of their relatively short-term maturities.
Indemnification
Under MILC’s organizational structure and per the Company’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, $
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.
| 12 |
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 are recorded at cost, net of accumulated depreciation and impairment and is comprised of the following:
| June 30, | December 31, | |||||||
| 2022 | 2021 | |||||||
| Machinery and Equipment | $ | $ | ||||||
| Furniture and Fixtures | ||||||||
| Office Equipment | ||||||||
| Less: accumulated depreciation | ( | ) | ( | ) | ||||
| Property and equipment, net of depreciation | $ | $ | ||||||
| 13 |
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 as of
June 30, 2021 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 $
4. INVENTORY
The Company’s inventories include the following:
Millennium Cannabis:
| June 30, | December 31, | |||||||
| 2022 | 2021 | |||||||
| Raw Material: Grow Supplies | $ | $ | ||||||
| Work in Progress: Plants | ||||||||
| Finished Goods: Trim | ||||||||
| Finished Goods: Flower | ||||||||
| $ | $ | |||||||
Millennium Produce:
| June 30, | December 31, | |||||||
| 2022 | 2021 | |||||||
| Raw Material: Grow Supplies | $ | $ | ||||||
| Work in Progress: Tomatoes | ||||||||
| $ | $ | |||||||
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, 2022, the Company, through subsidiaries, has entered into four operating leases:
| ● |
| ● |
| 14 |
| ● | ||
| ● |
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, 2022, MillCann has a finance lease for equipment which it uses within the operations of cultivating cannabis. The lease amount
financed is $
| 15 |
As of June 30, 2022, the scheduled lease payments are as follows:
| Operating
Leases | Finance
Leases | |||||||
| 2022 (Six Months Remaining) | $ | $ | ||||||
| 2023 | ||||||||
| 2024 | ||||||||
| 2025 | ||||||||
| 2026 | ||||||||
| Thereafter | ||||||||
| Total Lease Payments | ||||||||
| Less: Imputed Interest | ||||||||
| Less: Interest | ||||||||
| $ | $ | |||||||
For the six months ended June 30, 2022, and 2021, the operating lease costs were as follows:
| Six Months Ended June 30, | ||||||||
| Total Operating Lease Expense | 2022 | 2021 | ||||||
| Operating Lease Expense (HI) | $ | $ | ||||||
| Amortization of ROU assets - (HI) | ||||||||
| Operating Lease Expense (MI) | ||||||||
| Amortization of ROU assets - (MI) | ||||||||
| Operating Lease Expense - Cannabis (OK)* | ||||||||
| Amortization of ROU assets - Cannabis (OK)* | ( | ) | ||||||
| Operating Lease Expense (NE) | ||||||||
| Amortization of ROU assets - (NE) | ||||||||
| Total Operating Lease Expense | $ | $ | ||||||
| * |
For the six months ended June 30, 2022, and 2021, total finance lease expense was as follows:
| Six Months Ended June 30, | ||||||||
| Total Finance Lease Expense | 2022 | 2021 | ||||||
| Finance Lease Expense | $ | $ | ||||||
| Amortization of ROU assets | ||||||||
| $ | * | $ | ||||||
| * |
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.
| 16 |
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 $
7. DEBT
On
March 31, 2022, Millennium Produce secured a $
8. COMMON STOCK
The 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, 2022, 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. buybacks were made during the three months ended June 30, 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 $
| 17 |
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 MoCo. During the six months ended June, 2022 and 2021, the Company paid $
VC, MC and Millennium Produce, have entered into long-term leases for greenhouse cultivation properties that are owned by subsidiaries of Power REIT (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 $
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 $
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.
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:
| Cultivation | Cultivation | |||||||||||||||||||
| Six Months Ended June 30, 2022 | Cannabis | Food Crops | Carbon | Corporate | Total | |||||||||||||||
| Revenue | ||||||||||||||||||||
| Depreciation | ( | ) | ( | ) | ( | )* | ||||||||||||||
| Net loss | ( | ) | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||||
| Capital expenditures | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||||||
| Identifiable assets | ||||||||||||||||||||
| Cultivation | Cultivation | |||||||||||||||||||
| Six Months Ended June 30, 2021 | Cannabis | Food Crops | Carbon | Corporate | Total | |||||||||||||||
| Revenue | ||||||||||||||||||||
| Depreciation | ||||||||||||||||||||
| Net loss | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||||||
| Capital expenditures | ||||||||||||||||||||
| Identifiable assets | ||||||||||||||||||||
| * |
12. SUBSEQUENT EVENTS
On
July 15, 2022, the Company granted shares
to its Independent Directors at $a
share that will vest over four quarters beginning in 3Q22. The Company also granted call
options with a strike price of $a
share to the CEO, the Directors of the Company and a consultant. The options will vest over months
starting in August, 2022 and have
| 19 |
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., 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.
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 the evaluation of our disclosure controls and procedures as of June 30, 2022, our Chief Executive Officer concluded that, as of such date, our disclosure controls and procedures were 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, 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.
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 significant impact on the private sector and individuals. The continued spread of COVID-19 globally could continue to have 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 condition in ways we may have 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. |
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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 March 31, 2022 to be signed on its behalf by the undersigned thereunto duly authorized.
| MILLENNIUM SUSTAINABLE VENTURES CORP. | |
| /s/ David H. Lesser | |
| David H. Lesser | |
| Chairman of the Board & | |
| Chief Executive Officer, Secretary and Treasurer | |
| Date: August 15, 2022 |
| 27 |
Exhibit 10.3(1)
Exhibit 31.1
CERTIFICATION PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT
I, David H. Lesser, certify that:
1. I have reviewed this annual report on Form 10-Q of the registrant, Millennium Sustainable Ventures Corp.;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements and other financial information included in this report fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4. I am responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under my supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under my supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report my conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report, based on such evaluation; and
d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
5. I have disclosed, based on my most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
| Date: August 15, 2022 | /s/ David H. Lesser |
| David H. Lesser | |
| Chairman, CEO, CFO, Secretary and Treasurer | |
| (Principal executive officer and principal financial officer) |
Exhibit 32.1
CERTIFICATION PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT
In connection with the quarterly report of Millennium Sustainable Ventures Corp. (the “registrant”) on Form 10-Q for the period ended June 30, 2022 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, David H. Lesser, Chairman of the Board, Chief Executive Officer, Secretary and Treasurer, certify, to the best of my knowledge, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:
(1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the registrant.
| /s/ David H. Lesser | |
| David H. Lesser | |
| Chairman of the Board, CEO, CFO, Secretary and Treasurer | |
| (Principal Executive Officer and Principal Financial Officer) |
Date: August 15, 2022
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