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 Investment & Acquisition Co. Inc., formally known as Millennium India
Acquisition Company, Inc. ("MILC", "we", "our", the "Company") is an internally
managed, non-diversified, closed-end investment company. During 2020, MILC
announced that it was seeking to de-register as an Investment Company that is
regulated under Investment Company Act of 1940. MILC is currently seeking an
Order (the "Order") from the SEC declaring that it has ceased to be an
Investment Company as it no longer meets the definition of holding itself out as
investing in securities but rather has pivoted to focus on direct investments in
operating businesses. Consequently, the financial statements included in this
filing are presented in accordance with the reporting requirements under the
Securities Exchange Act of 1934, as amended.
MILC was incorporated in Delaware on March 15, 2006 as a Special Purpose
Acquisition Company for the purpose of effecting a merger, capital stock
exchange, asset acquisition or other similar transaction (a "Business
Combination") with an operating business or businesses that have operations
primarily in India (a "Target Business"). In January 2008, the acquisition of a
14.75% equity interest in the SMC Group was consummated by MILC upon approval by
public stockholders. For stockholders who voted to not approve the acquisition
842,625 shares were redeemed for $6,736,949. As a result of its plan to invest
substantially all of its assets in SMC Group stock, MILC was required to
register with the SEC as a closed-end, non-diversified investment company under
the Investment Company Act of 1940 (the "Act").
In March 2008, MILC's interest was reduced to 14.44% due to Bennett Coleman &
Co., a leading New Delhi based financial media and investment firm investing in
SMC Group. In May 2009, the merger of SMC Group's two underlying companies, SAM
Global Securities Limited ("SAM") and SMC Global Securities Limited ("SMC
Global") was finalized. In June 2009, MILC's interest was increased to 15.14%
with the shares of SAM and SMC Global (1,298,400 and 1,730,026 shares,
respectively) converting to 1,586,738 shares of SMC Global. On July 2, 2011, as
previously announced, Sanlam, which is engaged in the business of portfolio
management consultancy, increased its stake in SMC Global to a total of
approximately 8.36%, by purchasing an additional 3.25% equity stake in SMC
Global which reduced MILC's equity interest in SMC Global to approximately
14.03%. On July 31, 2012, SMC Global held a shareholder meeting and consented to
a stock-split of the equity shares of the Company 10:1, increasing MILC's
position of 1,586,738 shares to 15,867,380 shares.
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On October 3, 2013, MILC announced that public efforts by MILC shareholder
Hudson Bay Partners, LP ("HBP") to secure shareholder support for the
replacement of MILC's Board of Directors with a new director slate resulted in
the delivery to MILC of written consents representing more than 50% of the
outstanding shares. Accordingly, all of HBP's director nominees were appointed
to the MILC Board of Directors (the "Board") including the principal of HBP,
David H. Lesser, our CEO and Chairman.
In December 2013, MILC commenced selling its interest in SMC Global with the
intent of completely liquidating its position which was completed in June 2021.
On March 4, 2014, our Amended and Restated Certificate of Incorporation, as
amended (the "Certificate of Incorporation") was amended to reduce the number of
the Company's shares of authorized capital stock from 45,005,000 to 12,005,000.
Our Certificate of Incorporation currently authorizes the issuance of 12,000,000
shares of common stock and 5,000 shares of preferred stock, each with a par
value of $0.0001 per share.
Effective June 11, 2014, MILC completed a corporate reorganization which
resulted in the change of its name to Millennium Investment & Acquisition
Company Inc. ("MILC" or the "Company") from Millennium India and Acquisition
Company Inc., under the laws and procedures of Delaware, the state where the
registrant is incorporated. The corporate reorganization was undertaken
following a change of investment policy, pursuant to which the registrant's
Board of Directors decided to abandon the registrant's former policy of
investing at least 80% of the value of its net assets and borrowings in equity
securities of companies operating in India. In conjunction with the change in
investment policy, the Board effected the change of name to remove reference to
India, in compliance with the U.S. Investment Company Act of 1940 and the rules
thereunder.
Millennium HI Carbon, LLC ("MHC") was formed as a wholly owned subsidiary of
MILC in September 2014 in the state of Hawaii for the purpose of acquiring an
activated carbon plant located near the port of Kawaihae, Hawaii (the "Plant").
The acquisition, which was completed in May 2015, consisted of the existing
equipment which is located on 13 acres of land leased from the Department of
Hawaiian Home Lands.
Despite commencing operations in 2011, the Plant failed to achieve full
commercial operations. It ceased operations in 2012 and its owner filed for
bankruptcy protection. Prior to shutting down, the plant produced activated
carbon but there were a number of design and operational issues that needed
resolution in order to produce premium-grade activated carbon and operate the
plant on a full-time basis.
The MHC plant is intended to process a waste stream of macadamia nut shells into
a special form of premium-grade activated carbon, which, due to its large
surface area and complex network of pores, provides benefits in a variety of
chemical processes including filtration, purification and energy storage. In
particular, the activated carbon expected to be produced by the Plant was
targeted for manufacturing electrical double-layer capacitors, which are
commonly referred to as ultracapacitors or supercapacitors, an advanced energy
storage alternative to traditional batteries. Ultracapacitors are found in a
diverse array of electronic equipment from daily usage engine starting, hybrid
and electric vehicles to windmills.
MHC successfully restored all production equipment and necessary support systems
to operation and MHC has completed 31 trial run campaigns that produced over 60
tons of activated carbon. The process was iterative where MHC operated the plant
for a couple of days to produce Activated Carbon and then performed laboratory
testing. MHC produced some very high-grade material that would be attractive to
ultracapacitor manufacturers. Unfortunately, MHC has also experienced
significant variations in the quality of the material produced which is not
commercially viable.
During the first half of 2019, MHC concluded that the existing carbonization
reactor intended to remove volatile material and produce char was causing the
inconsistent results. In evaluating alternatives, MHC concluded that it had
identified a novel and potentially better approach to producing Activated
Carbon. Based on this, MILC has made efforts to minimize overhead and cash drain
at MHC while it evaluates alternatives for the project which may include
repurposing the plant for other uses or a potential sale.
As described above, in evaluating operational issues at MHC, MILC identified a
novel approach to producing Activated Carbon and determined to construct a
pilot-plant as a proof of concept. This project is located in Kentucky and the
initial feedstock is a waste stream that is available in large quantities from
bourbon distilleries which is a large industry in Kentucky and which represents
a significant waste problem that is impacting the bourbon industry. To build the
pilot plant, MILC, through its wholly owned subsidiary, Millennium Carbon LLC
("MC") purchased several used pieces of equipment at a fraction of the cost of
new equipment in order to construct a plant capable of establishing the
viability of the process beyond a "lab-scale" demonstration. To date, MC has
operated this pilot plant and believes that the concept is valid and can be
scaled to a commercial operation. MC is currently formulating a plan for a
commercial scale Activated Carbon plant based on the experience with the pilot
plant.
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MHC has entered into a secured demand note with MILC ("Lender") with an interest
rate of 8% which is repayable upon demand by the Lender. As of June 30, 2021,
the amount of the loan outstanding is approximately $2,608,576 with accrued
interest of $328,146.
On May 24, 2021, MILC announced that the Company entered into a transaction that
represents a new area of focus related to sustainable Cannabis cultivation in
greenhouses by investing in a newly formed cannabis operator, Walsenburg
Cannabis LLC ("WC"). As part of the transaction, MILC has agreed to lend capital
to WC for its business operations and MILC is in the process of obtaining
regulatory approvals for holding cannabis licenses in Colorado. Upon receiving
regulatory approval, it is contemplated that MILC will own a preferred equity
interest that receives a full return of invested capital plus a 12.5% preferred
return after which MILC has a 77.5% ownership stake. The remaining subordinated
ownership is held by the management of WC. Simultaneous with MILC's investment,
WC entered into a long-term lease (the "Lease") on an approximately 22.2 acre
property including existing greenhouse and processing space (the "Property"). As
part of the Lease, the Lessor, a wholly owned subsidiary of Power REIT (ticker:
PW), has agreed to fund the rehabilitation and upgrading of the existing
improvements and the construction of additional greenhouse space. Upon
completion, the Property will have a total of approximately 102,800 square feet
of greenhouse and related space. MILC's total capital commitment for the project
is $750,000.
On June 11, 2021, MILC announced that it has agreed to invest in a newly formed
cannabis operator, VinCann LLC ("VC"). As part of the transaction, MILC has
agreed to invest $750,000. The investment will take the form of a preferred
equity interest that receives a full return of invested capital plus a12.5%
preferred return after which MILC has a 77.5% ownership stake. The remaining
subordinated ownership is held by the management team of VC. Concurrent with
MILC's investment, VC entered into a 20-year lease (the "Lease") for a 9.35 acre
plot of land with approximately 40,000 square feet of greenhouse, 3,000 square
feet of office space, and 100,000 square feet of fully fenced outdoor growing
area with 20,000+ square feet of hoop structures that was purchased by Power
REIT.
As of June 30, 2021, MILC has two areas of focus:
1 Sustainable cultivation of Cannabis in Greenhouses
2 Activated Carbon
Recent Developments
Carbon
The Company has restored all production equipment and necessary support systems
to operation at the MHC facility but unfortunately, MHC has also experienced
significant variations in the quality of the material produced which is not
commercially viable. Additionally, the Company has operated a pilot plant for
operations in Kentucky and believes that the concept is valid and can be scaled
to a commercial operation. MC is currently formulating a plan for a commercial
scale Activated Carbon plant based on the experience with the pilot plant.
Cannabis
During 2021, MILC added sustainable cultivation of cannabis in greenhouses as an
investment focus and as of June 30, 2021, has invested in two newly formed
cannabis operators, Walsenburg Cannabis, LLC and VinCann LLC.
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The Walsenburg cannabis campus was a distressed acquisition of a facility that
had ceased operations. MILC believes that it was acquired at an attractive basis
relative to the in-place improvements which provide an attractive opportunity to
immediately commercialize the facility for cannabis cultivation. MILC believes
that this property has significant potential to become a large-scale, low-cost
producer of high-quality cannabis to compete effectively in the Colorado market.
The campus is subdivided into five parcels which allows for a significant
availability of plant count based on how the Colorado Marijuana licensing works.
We currently anticipate a 46,000 harvest plant count at WC per year in
Walsenburg. WC intends to seek to increase the allowable plant count as Colorado
licensing permits. It is possible that WC will be able to increase the plant
count during 2022.
The Vinita facility was a distressed acquisition purchased from an
undercapitalized operator. Strong in-place infrastructure and the operational
status upon acquisition allows for rapid speed to revenue. MILC believes that it
was acquired at an attractive basis relative to the in-place improvements which
provide an attractive opportunity to immediately commercialize the facility for
cannabis cultivation. MILC believes that this property has significant potential
to become a large-scale, low-cost producer of high-quality cannabis to compete
effectively in the Oklahoma market. The targeted total harvested plant count in
2022 for the greenhouse and outdoor, respectively, are 26,000 and 50,000 per
year.
Technical Strategy
Carbon
The Company identified a novel approach to producing Activated Carbon and
determined to construct a pilot-plant as a proof of concept. This project is
located in Kentucky and the initial feedstock is a waste stream that is
available in large quantities from bourbon distilleries which is a large
industry in Kentucky and which represents a significant waste problem that is
impacting the industry. To build the pilot plant, MILC, through its wholly owned
subsidiary, Millennium Carbon LLC ("MC") purchased several used pieces of
equipment at a fraction of the cost of new equipment in order to construct a
plant capable of establishing the viability of the process beyond a "lab-scale"
demonstration. To date, MC has operated this pilot plant and believes that the
concept is valid and can be scaled to a commercial operation. MC is currently
formulating a plan for a commercial scale Activated Carbon plant based on the
experience with the pilot plant.
Cannabis
MILC has identified greenhouse cultivation as the sustainable method for growing
cannabis in a cost-effective manner with a lower carbon footprint than indoor
cultivation. Historically, cannabis in the United States has been grown indoors
and this trend has continued even as various States have implemented
legalization. MILC believes that its strategy of focusing on greenhouse
cultivation represents a competitive advantage. Greenhouses cost less to
construct and less to operate than indoor cultivation facilities and as such, we
believe we can compete favorably with this approach.
The cannabis industry is experiencing rapidly growing demand amid the tailwind
of increasing legalization at the State level. The inefficient availability of
capital in the cannabis industry given the illegal status at the federal level
presents a potential opportunity for MILC through its strategic affiliation with
Power REIT (NYSE-American ticker: PW and PW.A). Power REIT is focused on
financing the real estate component of controlled environment agriculture (CEA)
facilities in the form of greenhouses.
Outlook
Carbon
While we are disappointed with the status of the Hawaii endeavor, we believe
that the experience has led to what could be an extremely exciting opportunity
to develop a sustainable approach to the production of activated carbon from
waste materials. Typical production of activated carbon has a very high carbon
footprint whereas we believe our model should have a negative carbon footprint.
We look forward to continuing to develop this novel concept which should have
applications beyond our initial waste stream feedstock.
Cannabis
We are excited with our new area of focus - sustainable cannabis cultivation in
greenhouses. We are also proud of the rapid progress we are making at each site
as well as the teams we are building. We are very focused on building teams that
draw from the broader business community and people with a focus on greenhouse
cultivation rather than just drawing from the cannabis industry. We are on track
to report initial revenue from these activities in the fourth quarter of 2021.
We expect to ramp up significantly in 2021 as we seek to generate significant
operating income from these operations. The cannabis industry is growing at an
incredible rate and our approach which is focused on low-cost and sustainable
cultivation in greenhouses is paramount to a long-term and viable business
model. Both of our current projects in Colorado and Oklahoma benefit from the
potential for rapid speed to revenue. We are focused on bringing best in class,
large-scale mainstream agricultural cultivation techniques to the cannabis
industry.
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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.
As of June 30, 2021, the Company's property, plant and equipment consisted of
production equipment and support systems at the MHC facility in Hawaii and at
MC's pilot plant and support systems in Kentucky.
Property, plant and equipment is carried at historical cost, net of adjustments
for impairment, if any. The Company assesses the carrying value of its property
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 is not in service yet for MHC and MC. As such, no
depreciation is recognized as of June 30, 2021.
Results of Operations
Three Months Ended June 30, 2021 and 2020:
Operating Expenses
During the three months ended June 30, 2021, and 2020, MILC's operating expenses
increased $947,899 primarily related to a decrease in impairment expense on PPE
of $148,636, increase in property taxes of $21,549, increase in G&A expenses of
$174,179, an increase in utilities of $19,117, an increase in insurance of
$109,716, an increase of state and franchise taxes of $2,430, an increase in
lease expense of $101,330, an increase on an India tax expense for SMC Global
Securities of $633,311, and an increase in professional fees of $37,903.
Other Income (Expense) and Net Loss
Other income for the three months ended June 30, 2021 compared with 2020
increased by $58,662 due primarily to a decrease in realized gain of $53,450, a
decrease in unrealized gain of $18,457 and an increase in other income of
$130,519 which is primarily due to the PPP loan forgiveness.
Six Months Ended June 30, 2021 and 2020:
Operating Expenses
During the six months ended June 30, 2021, and 2020, MILC's operating expenses
decreased by $2,334,480 primarily related to a decrease in impairment expense on
PPE of $3,442,765, increase in property taxes of $21,549, increase in G&A
expenses of $176,801, an increase in utilities of $19,117, an increase in
insurance of $109,766, an increase of state and franchise taxes of $3,728, an
increase on an India tax expense for SMC Global Securities of $633,311, an
increase in lease expense of $102,632 and an increase in professional fees of
$43,985.
Other Income (Expense) and Net Loss
Other income for the six months ended June 31, 2021 compared with 2020 increased
by $580,636 due primarily to a decrease in dividend income from SMC of $24,028,
a decrease in interest income of $11,529, a decrease in realized gain of
$53,450, a decrease in unrealized loss of $541,714 and an increase in other
income of $127,929 which is primarily due to the PPP loan forgiveness.
Liquidity and Capital Resources
Our cash and cash equivalents totaled $5,753,274 as of June 30, 2021, an
increase of $3,857,677 from December 31, 2020. During the six months ended June
30, 2021, the primary increase of cash was due to investing activities from
selling our remaining position of SMC shares.
With the cash available as of June 30, 2021, we believe these resources will be
sufficient to fund our operations and commitments for at least twelve months
from the date of this Quarterly Report on Form 10-Q. To fund our operations and
commitments through December 31, 2021, MILC plans to generate revenue from our
new investment focus of cannabis cultivation.
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MILLENNIUM INVESTMENT & ACQUISITION COMPANY INC. 