MANAGEMENT'S DISCUSSION AND ANALYSIS





Overview

As of December 31, 2021, MILC currently has two areas of focus and conducts business in two operating segments as follows:





  1. Sustainable cultivation of Cannabis in Greenhouses
  2. Activated Carbon




Cannabis

During 2021, MILC added sustainable cultivation of cannabis in greenhouses as an investment focus and as of December 31, 2021, has invested in three newly formed cannabis operators, Walsenburg Cannabis, LLC, VinCann LLC, and Marengo Cannabis LLC.

The Walsenburg cannabis campus was a distressed acquisition of a facility that had ceased operations. MILC believes that it was acquired at an attractive basis relative to the in-place improvements which provided an attractive opportunity to immediately commercialize the facility for cannabis cultivation. MILC believes that this WC property has the 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.

The Vinita facility was a distressed acquisition purchased from an undercapitalized operator. MILC believes that it was acquired at an attractive basis relative to the in-place improvements which provided an attractive opportunity to immediately commercialize the facility for cannabis cultivation. 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 Michigan facility was a distressed acquisition purchase that was vacant at the time of acquisition. MILC believes that it was acquired at an attractive basis relative to the in-place improvements which provide an attractive opportunity to commercialize the facility for cannabis cultivation. MILC believes that this property has the potential to become a large-scale, low-cost producer of high-quality cannabis to compete effectively in the Michigan market.





Activated Carbon

The Company 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. Effective December 31, 2021, MILC determined to write off 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. Impairment of $2,765,000 was recognized for the year ended December 31, 2021 to account for the full write off of the asset.





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Additionally, MillCarbon is developing a proof-of-concept pilot plant in Kentucky and believes that the concept is valid and can be scaled to a commercial operation. MillCarbon is currently formulating a plan for a commercial scale Activated Carbon plant based on the experience with the pilot plant.





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 two reportable segments. 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 Colorado, Oklahoma, and Michigan. 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 December 31, 2021, the Company's Property, Plant and Equipment consisted of Activated Carbon production machinery and equipment at the MillCarbon pilot plant in Kentucky, as well as machinery and equipment, furniture and fixtures and office equipment at the three 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. Millennium Cannabis recognized depreciation on its property, plant and equipment at its Walsenburg, CO, 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

Twelve Months Ended December 31, 2021 and 2020:





Revenue

During the twelve months ended December 31, 2021, the cannabis segment's revenue increased by $41,780 and cost of goods sold increased by $2,365,767 resulting in a gross loss of $2,323,987 compared to no revenue an no cost of goods sold during the twelve months ended December 31, 2020. This was a result of MILC shifting its focus to cannabis cultivation and the expenses incurred to commence operations in 2021. There was no revenue or cost of goods sold for the carbon segment for both years ending 2021 and 2020.





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Operating Expenses

During the twelve months ended December 31, 2021, MILC's total operating expenses were $5,105,255 compared to $7,579,366 during the twelve months ended December 31, 2020. The decrease of $2,474,111 was primarily related to a decrease in impairment on PPE for MHC of $3,971,536 for the carbon segment, and an increase in general & administrative expense of $744,590 and an increase in professional fees of $119,526 which were allocated to both the carbon and cannabis segments. The increased G&A and professional fees were related to the start up costs of the cannabis segment and setting up and starting operations at WC, VC and MarCann.





Other Income and Net Loss

Other income for the twelve months ended December 31, 2021 was $214,058 compared to $1,083,572 during the twelve months ended December 31, 2020. The decrease of $869,514 was due to a decrease in dividend income of $46,727 and a decrease in unrealized/realized gain in SMC securities of $937,812. For the carbon segment, there was a decrease in other income of $22,170, a decrease in interest income of $505 and an increase in government grant income of $137,700. As a result, consolidated net loss for MILC for the twelve months ended December 31, 2021 and 2020 was $7,215,184 compared to $6,495,794, respectively.

Liquidity and Capital Resources

Our cash totaled $1,663,291 as of December 31, 2021 compared to $1,895,597 as of December 31, 2020. This is a decrease of $272,306 due to an increase of cash used in operating activities offset by investing activities from selling our remaining position of SMC shares.

With the cash available as of December 31, 2021 along with our inventory on hand for sale and our potential India withholding tax refund on the SMC security trades, we believe these resources should be sufficient to fund our operations and commitments for twelve months from the date of the filing of this Annual Report on Form 10-K. However, the Company may seek to raise additional funds through the sale of its securities or other capital sources.

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