MILC Millennium Sustainable Ventures Corporation (CE)

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:

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 $1,505,898 as a bad debt expense based on uncertainty around recovery of its loan.

MillCann is currently the majority owner of a cannabis greenhouse cultivation operation in Vinita, Oklahoma. VC currently operates a 9.35-acre property in Vinita, OK that features 40,000 square feet of greenhouse and related space and approximately 100,000 square foot outdoor growing area. During 2021, VC harvested and processed its first crops and sales began in the first quarter of 2022. As of June 30, 2022, MillCann has invested approximately $2,200,000 in VC through a preferred equity interest that receives a full return of invested capital plus a 12.5% preferred return after which MillCann will have an 82.0% ownership stake. The remaining subordinated ownership is held by the management team of VC. As part of the lease with a wholly owned subsidiary of Power REIT, the lessor agreed to fund the rehabilitation and upgrading of the existing improvements to the facility which was a distressed acquisition purchased from an undercapitalized operator.

On September 9, 2021, MILC announced the expansion of its sustainable cannabis cultivation activities by entering into a long-term lease for MillCann’s largest cannabis cultivation facility. A new wholly owned subsidiary of MillCann, MC, was created and entered into a 20-year lease (the “MarCann Lease) with a subsidiary of Power REIT for approximately 12 acres that includes a 556,416 square foot state-of-the-art greenhouse cultivation facility which is located in Marengo County, Michigan (the “MC Property”). As previously disclosed, cannabis licensing was delayed based on a lack of cooperation from Marengo Township where the property is located. As part of the licensing process with the Michigan Cannabis Regulatory Agency (“CRA”) a Certificate of Occupancy (“CO”) is required where applicable. Based on the zoning of the property as Agricultural, it has never received a CO and the CRA agreed to accept a simple two sentence letter from Marengo Township in lieu of a CO. Unfortunately, Marengo Township was initially unwilling to provide the requested letter which ultimately led to the filing of two lawsuits. We recently received the letter and the CRA licensing process is proceeding. While we are optimistic the CRA licensing process can now move quickly, there can be no assurance as to how long it will take. Due to the delays in securing the necessary regulatory approvals for marijuana cultivation and the fact that the greenhouse is not yet growing marijuana, MC was able to amend the lease to provide additional time to commence cash rent payments. As of June 30, 2022, MillCann has invested approximately, $1,500,000 in MC which is a wholly owned subsidiary. As part of the MarCann Lease, the lessor has agreed to fund the rehabilitation and upgrading of the existing improvements. As of the date hereof, the greenhouse is not growing marijuana due to the licensing delays, however, small amounts of hemp are being grown in the greenhouse which will help develop experience growing the cannabis plant.

Greenhouse Cultivation of Food

On April 1, 2022, MILC announced that it was expanding its sustainable greenhouse cultivation activities by establishing its first food related operations. Millennium Produce of Nebraska LLC, (“Millennium Produce”), a wholly-owned subsidiary of MILC, was formed to focus on a sustainable approach to food crop cultivation through a Controlled Environmental Agriculture (CEA) in the form of greenhouses.

Millennium Produce entered into a 10-year lease with a subsidiary of Power REIT. The property consists of 86 acres featuring a 1,121,153 square foot greenhouse cultivation facility and an associated employee housing property located in O’Neil, Nebraska. As part of the transaction, Millennium Produce arranged a $3 million non-recourse loan with a fixed interest rate of 1.5% and a four-year term. The loan is secured by Furniture, Fixtures, and Equipment, which was purchased by Millennium Produce, as well as crops. Currently tomatoes are growing at the greenhouse and revenue should commence in 3Q22.

Activated Carbon

Millennium HI Carbon, LLC (“MHC”) is a wholly owned subsidiary that acquired an activated carbon plant in Hawaii (the “Hawaii Plant”) that was intended to produce a very high-grade form of Activated Carbon for the production of ultracapacitors which are an advanced electrical storage device. During the first half of 2019, MHC concluded that the Hawaii Plant was not capable of producing consistent results and has made efforts to minimize overhead and cash drain while it seeks a strategic alternative for the Hawaii Plant. Effective December 31, 2021, MILC determined to write off $2,765,000, the remaining value of the HI asset for accounting purposes given that the plant is dormant and there is uncertainty around a business plan for this asset.

MillCarbon is a wholly owned subsidiary that has developed a novel method for the sustainable production of activated carbon and has constructed a proof-of-concept pilot-scale plant in Kentucky to produce activated carbon from a waste stream generated by Bourbon distilleries. The plant recently completed its 150^th 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.

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:

The following indirect subsidiaries are included in the accompanying consolidated financial statements:

VinCann LLC (“VC”) is 100% consolidated into the financial statements of MILC as of June 30, 2022. MillCann has invested in VC and receives a preferred equity interest that receives a full return of invested capital plus a 12.5% preferred return, after which MillCann has an 82.0% ownership stake. As of June 30, 2022, MillCann has not received its return of capital and preferred return. Once this occurs, the remaining subordinated ownership is held by the management team of VC and a non-controlling interest will be recognized in the consolidated financial statements.

Walsenburg Cannabis LLC (“WC”) WC was previously accounted for as consolidated in the financial statements of MILC as a variable interest entity (“VIE”). MillCann had issued capital to WC in the form of a convertible loan for its business operations as MILC was in the process of obtaining regulatory approvals for holding cannabis licenses in Colorado. Upon receiving regulatory approval, it was contemplated that the loan would convert into a majority preferred equity interest in WC that would receive a full return of invested capital plus a 12.5% preferred return, after which MillCann would have an 83.5% ownership stake. Given the poor performance at the cultivation facility and MILC’s withdrawal of its application for approval for cannabis licensing in Colorado, WC is no longer considered a VIE as of June 30, 2022 and was deconsolidated. As of June 30, 2022, MillCann has not received its return of capital and preferred return, has stopped funding additional funds to WC and has taken a bad debt expense of $1,505,898 in order to write off the loan.

All intercompany balances have been eliminated in consolidation.

Loss per Common Share

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.

The following table sets forth the computation of basic loss per 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:

SCHEDULE OF PROPERTY PLANT AND EQUIPMENT ESTIMATED USEFUL LIVES

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 $29,909 and $0, respectively.

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:

Revenue from the direct sale of cannabis to customers for a fixed price is recognized when the Company transfers control of the good to the customer.

Liquidity and Going Concern

The Company’s objectives when managing its capital are to ensure that there are adequate capital resources to safeguard the Company’s ability to continue operating and maintain adequate levels of funding to support its ongoing operations and development such that it can continue to provide returns to shareholders.

ASU 205-40 – Presentation of Financial Statements – Going Concern requires management to evaluate an entity’s ability to continue as a going concern within one year after the date the financial statements are available for issuance. Specifically, management is required to evaluate whether the presence of adverse conditions or events, when considered individually and in the aggregate, raise substantial doubt about an entity’s ability to continue as a going concern. Substantial doubt exists when it is probable that the entity will be unable to meet its obligations as they become due within one year after the date the financial statements are available for issuance.

As of June 30, 2022, the Company had an accumulated deficit of $58,197,260 and negative working capital of $1,210,730 Additionally, the Company had recurring losses and negative cashflow from operations. These adverse conditions raise substantial doubt regarding the Company’s ability to continue as a going concern. In order to support the Company’s ongoing operations, the Company entered into a credit facility with an affiliate of David H. Lesser, our Chairman and CEO, during the period in which the Company drew down $1,412,617 with the ability to draw up to $1,500,000 through December 31, 2022. Additionally, the Company secured a $3,000,000 non-recourse loan on April 1, 2022 for purposes of financing the Millennium Produce location.

Although the Company believes its cash available as of June 30, 2022 along with its other current assets and ability to secure additional debt and/or equity financing should be sufficient to fund operations and commitments for twelve months from the date of the filing of this Quarterly Report on Form 10-Q, management has concluded the uncertainty raises substantial doubt about the Company’s ability to continue as a going concern. The accompanying consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.

Fair Value

Fair value represents the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. The Company measures its financial assets and liabilities in three levels, based on the markets in which the assets and liabilities are traded and the reliability of the assumptions used to determine fair value.

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, $1,087,660 and $0, respectively were expensed through cost of goods sold related to impairment of inventory.

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.

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:

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 $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. Depreciation expense for the six months ended June 30, 2022, and 2021 was $29,909 and $0, respectively.

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:

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 $14,757 for VC, with a term of 60 months (50 months remaining) at a rate of 3.99% per annum.

As of June 30, 2022, the scheduled lease payments are as follows:

For the six months ended June 30, 2022, and 2021, the operating lease costs were as follows:

For the six months ended June 30, 2022, and 2021, total finance lease expense was as follows:

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.

6. LINE OF CREDIT – AFFILIATE

The Company has entered into a credit facility with an affiliate of David H. Lesser, our Chairman and CEO on March 16, 2022 which provides up to $1.5 million of cash to fund the capital needs of the company with a quarterly variable interest rate as determined by the Special Committee – Related Party Transactions of 0% for 1Q2022, 5% for 2Q2022, 7% for 3Q2022 and 9% for 4Q2022. The credit facility carries a default rate of 16% if not paid in full by maturity date. The Company has the right to prepay amounts outstanding at any time prior to maturity of the Credit Facility without any prepayment penalty and the credit facility matures on December 31, 2022. As of June 30, 2022 and December 31, 2021, the amount drawn on the credit facility is $1,391,924 (total drawn is $1,412,616 net of $20,692 of capitalized debt costs which are being amortized over the life of the financing) and $0, respectively, with accrued interest related to the loan of $11,052 and $0, respectively

7. DEBT

On March 31, 2022, Millennium Produce secured a $3 million non-recourse loan. The loan has a fixed interest rate of 1.5% and a four-year term and is fully amortized over the life of the loan with monthly payments. The loan is secured by Furniture, Fixtures, and Equipment, as well as crops of Millennium Produce. As of June 30, 2022 and December 31, 2021, the balance of the loan is $2,878,558 and $0, respectively.

8. COMMON STOCK

The Company’s 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. The total shares outstanding as of June 30, 2022, is 10,959,814.

In November 2013, the Company’s Board of Directors authorized a buyback of up to 800,000 shares of its common stock. Buybacks will be made from time to time based on the view of the Company of its trading price relative to its underlying value and subject to compliance with applicable legal requirements. No buybacks were made during the three months ended June 30, 2022.

9. EQUITY AND LONG-TERM COMPENSATION

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. No 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 $750 per month for each of Millennium Sustainable Ventures Corp. and Millennium HI Carbon LLC. On October 1, 2021, the Board of Directors approved an increase to $5,000 ($750 from MHC, $1,250 from MILC and $3,000 from MillCann) a month due to the increase in administrative and accounting support needed for the new focus of cannabis cultivation. During the three and six months ended June 30, 2022, the total amount expensed to such affiliate was $15,000 and $30,000, and during the three and six months ended June 30, 2021, the total amount expenses to such affiliate was $1,500 and $9,000, respectively.

The Company has hired Morrison Cohen, LLP (“MoCo”) as its legal counsel with respect to general corporate matters. The spouse of the Company’s CEO is a partner at MoCo. During the six months ended June, 2022 and 2021, the Company paid $0 to MoCo. There is no outstanding balance as of June 30, 2022.

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 $1,505,898 was incurred in the second quarter, 2022 and is included in the accompanying condensed consolidated statements of operations.

The Company has entered into a credit facility with an affiliate of David H. Lesser, our Chairman and CEO on March 16, 2022 which provides up to $1.5 million of cash to fund the capital needs of the company with a quarterly variable interest rate as determined by the Special Committee – Related Party Transactions of 0% for 1Q2022, 5% for 2Q2022, 7% for 3Q2022 and 9% for 4Q2022. The credit facility carries a default rate of 16% if not paid in full by maturity date. The Company is recording interest using an average interest rate on a straight-line basis. The credit facility matures on December 31, 2022. As of June 30, 2022 and December 31, 2021, the amount drawn on the credit facility is $1,412,617 and $0, respectively.

Given that a number of recent significant transactions are considered to be Related Party Transactions, the Board of Directors has established the Special Committee – Related Party Transactions. The purpose of this Special Committee is to approve all future transactions that can be considered Related Party Transactions. All such transactions will be presented to the Special Committee – Related Party Transactions which will then meet in an executive session to discuss the proposed transaction and ultimately vote on such transactions. The composition of the Special Committee will only include Independent Directors. The vote of a majority of the members of the Special Committee – Related Party Transactions will serve to approve transactions that are brought before the Special Committee – Related Party Transactions on behalf of the Board of Trustees.

MILC may enter into transactions in which directors, officers or employees have a financial interest, provided however, that in the case of a material financial interest, the transaction is disclosed to the Board of Directors to determine if the transaction is fair and reasonable. After consideration of the terms and conditions described herein, the independent directors approved such arrangements having determined such arrangements are fair and reasonable and in the interest of the Company.

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.

Information concerning the Company’s operations by reportable segment for the six months ended June 30, 2022 and 2021 is as follows:

SCHEDULE OF OPERATIONS BY REPORTABLE SEGMENT

12. SUBSEQUENT EVENTS

On July 15, 2022, the Company granted 40,000 shares to its Independent Directors at $0.50 a share that will vest over four quarters beginning in 3Q22. The Company also granted 247,500 call options with a strike price of $0.50 a share to the CEO, the Directors of the Company and a consultant. The options will vest over 36 months starting in August, 2022 and have 10-year life.