Item
1. Reports to Stockholders.
MILLENNIUM
INVESTMENT & ACQUISITION COMPANY INC.
PORTFOLIO
OF INVESTMENTS
June
30, 2018
|
|
Shares
|
|
|
Value
|
|
India — 40.88%
|
|
|
|
|
|
|
|
|
Financials — 40.88%
|
|
|
|
|
|
|
|
|
Private placement
- 40.88%
|
|
|
|
|
|
|
|
|
SMC
Global Securities LTD (cost $33,848,967) (1)
|
|
|
11,504,690
|
|
|
|
14,035,722
|
|
|
|
|
|
|
|
|
|
|
United States —
54.14%
|
|
|
|
|
|
|
|
|
Materials — 54.14%
|
|
|
|
|
|
|
|
|
Millennium
HI Carbon, LLC (cost $5,999,444) (1)
|
|
|
N/A
|
|
|
|
18,587,444
|
|
|
|
|
|
|
|
|
|
|
Total Investments
— 95.03% (Cost $39,222,043)
|
|
|
|
|
|
$
|
32,623,166
|
|
|
|
|
|
|
|
|
|
|
Cash
and other assets, less liabilities — 4.97%
|
|
|
|
|
|
|
1,707,857
|
|
|
|
|
|
|
|
|
|
|
NET
ASSETS - 100.00%
|
|
|
|
|
|
$
|
34,331,022
|
|
Notes:
(1)
Represents an affiliate investment based on greater than 10% ownership as of June 30, 2018
See
accompanying notes which are an integral part of these financial statements.
Millennium
Investment & Acquisition Company Inc.
Semi-Annual
Report
June
30, 2018
MILLENNIUM
INVESTMENT & ACQUISITION COMPANY INC.
STATEMENT
OF ASSETS AND LIABILITIES
June
30, 2018
Assets:
|
|
|
|
|
Affiliate investments, at
fair value (Cost $38,848,410)
|
|
$
|
32,623,166
|
|
Cash
|
|
|
1,707,857
|
|
Prepaid expenses and other assets
|
|
|
38,288
|
|
Total
Assets
|
|
|
34,369,311
|
|
|
|
|
|
|
Liabilities:
|
|
|
|
|
Accrued expenses and other payables
|
|
|
279,446
|
|
Deferred Rent
|
|
|
443,262
|
|
Total
Liabilities
|
|
|
722,708
|
|
|
|
|
|
|
Net Assets
|
|
$
|
33,646,603
|
|
|
|
|
|
|
Net Assets Consist
of:
|
|
|
|
|
|
|
|
|
|
Preferred shares; par value $0.0001 per share, 5,000 share authorized,
no shares issued
|
|
$
|
-
|
|
Common Stock; par value $0.0001 per
share, 12,000,000 shares authorized, 10,959,814 issued and outstanding
|
|
|
1,096
|
|
Paid-in capital
|
|
|
52,400,025
|
|
Accumulated net investment loss
|
|
|
(18,754,518
|
)
|
Net Assets
|
|
$
|
33,646,603
|
|
|
|
|
|
|
Net Asset Value Per Share:
|
|
|
|
|
Net assets
|
|
$
|
33,646,603
|
|
|
|
|
|
|
Basic and diluted
shares of common stock outstanding
|
|
|
10,959,814
|
|
|
|
|
|
|
Net asset value
(Net Assets/Shares of Common Stock Outstanding)
|
|
$
|
3.07
|
|
See
accompanying notes which are an integral part of these financial statements.
Millennium
Investment & Acquisition Company Inc.
Semi-Annual
Report
June
30, 2018
MILLENNIUM
INVESTMENT & ACQUISITION COMPANY INC.
STATEMENT
OF OPERATIONS
For
the Six Months ended June 30, 2018
Investment Income:
|
|
|
|
|
Dividend income from affiliate investment
|
|
$
|
-
|
|
Other income
|
|
|
7,602
|
|
Total
Income
|
|
|
7,602
|
|
|
|
|
|
|
Operating Expenses:
|
|
|
|
|
Franchise tax
|
|
|
10,850
|
|
State tax
|
|
|
9,162
|
|
Insurance expense
|
|
|
21,714
|
|
Trustee fees
|
|
|
-
|
|
General & administrative expense
|
|
|
71,380
|
|
Public company expenses
|
|
|
36,701
|
|
Total
Operating Expenses
|
|
|
149,807
|
|
|
|
|
|
|
Net Investment Income
|
|
|
(142,205
|
)
|
|
|
|
|
|
Realized and Unrealized
Gain on Investments:
|
|
|
|
|
Net change in unrealized
loss on investments
|
|
|
-
|
|
Net realized loss
on investment
|
|
|
-
|
|
Net
Realized and Unrealized Gain on Investments:
|
|
|
-
|
|
|
|
|
|
|
Net Increase in Net
Assets Resulting From Operations
|
|
$
|
(142,205
|
)
|
See
accompanying notes which are an integral part of these financial statements.
Millennium
Investment & Acquisition Company Inc.
Semi-Annual
Report
June
30, 2018
MILLENNIUM
INVESTMENT & ACQUISITION COMPANY INC.
STATEMENT
OF CHANGES IN NET ASSETS
|
|
Six Months Ended
|
|
|
Year Ended
|
|
|
|
June 30, 2018
|
|
|
December 31, 2017
|
|
|
|
(unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
Operations:
|
|
|
|
|
|
|
|
|
Net
investment income (loss)
|
|
$
|
(142,205
|
)
|
|
$
|
37,602
|
|
Net change in unrealized
loss on investments
|
|
|
-
|
|
|
|
10,178,947
|
|
Net
realized loss on investment
|
|
|
-
|
|
|
|
(2,031,854
|
)
|
Net
Increase in Net Assets Resulting from Operations
|
|
|
(142,205
|
)
|
|
|
8,184,695
|
|
|
|
|
|
|
|
|
|
|
Net Assets:
|
|
|
|
|
|
|
|
|
Beginning of
year
|
|
|
33,791,373
|
|
|
|
25,606,678
|
|
End
of period*
|
|
$
|
33,649,168
|
|
|
$
|
33,791,373
|
|
*
Millennium Investment & Acquisition Company Inc. does not have any undistributed net investment income.
See
accompanying notes which are an integral part of these financial statements.
Millennium
Investment & Acquisition Company Inc.
Semi-Annual
Report
June
30, 2018
MILLENNIUM
INVESTMENT & ACQUISITION COMPANY INC.
STATEMENT
OF CASH FLOWS
For
the Six Months ended June 30, 2018
CASH FLOWS FROM OPERATING
ACTIVITIES
|
|
|
|
|
Net increase in net assets
from operations
|
|
$
|
(142,205
|
)
|
|
|
|
|
|
Adjustments to reconcile net decrease
in net assets from operations to net cash provided by operating activities:
|
|
|
|
|
Change in unrealized
loss on private placement
|
|
|
-
|
|
Realized loss on
private placement
|
|
|
-
|
|
Investment in Millennium
HI Carbon, LLC
|
|
|
(1,151,002
|
)
|
Changes in operating
Assets and Liabilities:
|
|
|
|
|
Prepaid expenses
and other assets
|
|
|
11,294
|
|
Accrued expenses
and other payables
|
|
|
21,400
|
|
Deferred
rent
|
|
|
8,400
|
|
Net
Cash Provided by Operating Activities
|
|
|
(1,252,113
|
)
|
|
|
|
|
|
Net
increase in cash for the year
|
|
$
|
(1,252,113
|
)
|
|
|
|
|
|
CASH:
|
|
|
|
|
Cash
at beginning of year
|
|
|
2,959,970
|
|
Cash at end
of period
|
|
$
|
1,707,857
|
|
See
accompanying notes which are an integral part of these financial statements.
Millennium
Investment & Acquisition Company Inc.
Semi-Annual
Report
June
30, 2018
MILLENNIUM
INVESTMENT & ACQUISITION COMPANY INC.
FINANCIAL
HIGHLIGHTS
Per
Share Data and Ratios for a Share of Common Stock Outstanding Through Each Period
|
|
6 Months Ended
|
|
|
For the Year Ended December 31,
|
|
|
|
June 30, 2018**
|
|
|
2017
|
|
|
2016
|
|
|
2015
|
|
|
2014
|
|
|
2013
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Asset
Value, Beginning of Year
|
|
$
|
3.08
|
|
|
$
|
2.34
|
|
|
$
|
2.29
|
|
|
$
|
1.07
|
|
|
$
|
0.91
|
|
|
$
|
2.72
|
|
Income (Loss) from
Investment Operations:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net investment income
(loss)*
|
|
|
(0.01
|
)
|
|
|
0.00
|
|
|
|
(0.01
|
)
|
|
|
(0.01
|
)
|
|
|
0.03
|
|
|
|
0.09
|
|
Net
realized and unrealized gain (loss)*
|
|
|
-
|
|
|
|
0.74
|
|
|
|
0.05
|
|
|
|
1.04
|
|
|
|
0.13
|
|
|
|
(1.90
|
)
|
Total
from investment operations
|
|
|
(0.01
|
)
|
|
|
0.74
|
|
|
|
0.05
|
|
|
|
1.03
|
|
|
|
0.16
|
|
|
|
(1.81
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
Asset Value, End of Year
|
|
$
|
3.07
|
|
|
$
|
3.08
|
|
|
$
|
2.34
|
|
|
$
|
2.29
|
|
|
$
|
1.07
|
|
|
$
|
0.91
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Market Value,
End of Year
|
|
$
|
0.86
|
|
|
$
|
0.90
|
|
|
$
|
0.82
|
|
|
$
|
0.58
|
|
|
$
|
0.62
|
|
|
$
|
1.14
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Return
|
|
|
-4.71
|
%
|
|
|
9.76
|
%
|
|
|
41.38
|
%
|
|
|
-6.45
|
%
|
|
|
-45.61
|
%
|
|
|
52.00
|
%
|
Ratios and Supplemental
Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average net assets (000s)
|
|
$
|
33,720
|
|
|
$
|
29,417
|
|
|
$
|
25,607
|
|
|
$
|
25,097
|
|
|
$
|
8,833
|
|
|
$
|
7,485
|
|
Ratio of operating
expenses to average net assets
|
|
|
0.44
|
%
|
|
|
0.95
|
%
|
|
|
1.51
|
%
|
|
|
1.90
|
%
|
|
|
4.91
|
%
|
|
|
3.69
|
%
|
Net investment income
(loss) to average net assets
|
|
|
-0.42
|
%
|
|
|
0.13
|
%
|
|
|
2.28
|
%
|
|
|
-0.59
|
%
|
|
|
6.23
|
%
|
|
|
7.40
|
%
|
Portfolio Turnover
Rate
|
|
|
0.0
|
%
|
|
|
6.1
|
%
|
|
|
2.0
|
%
|
|
|
25.6
|
%
|
|
|
0
|
%
|
|
|
0
|
%
|
*
Calculated based on average shares outstanding
**
Unaudited
See
accompanying notes which are an integral part of these financial statements.
1.
ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
Millennium
India Acquisition Company Inc. (“MILC” or the “Company”) was incorporated in Delaware on March 15, 2006
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 the Company 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”). As a registered
investment company, MILC is subject to the Act and the related rules, which contain detailed requirements for the organization
and operation of investment companies.
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. On December 12, 2013, the Company announced that it sold 1,131,345
shares of its investment in SMC Global, reducing MILC’s equity interest in SMC Global to 13%. On November 20, 2015, the
Company sold an additional 1,131,345 shares of its investment in SMC Global, reducing MILC’s equity interest in SMC Global
to 13,604,690 shares. As previously disclosed, MILC has entered into a Right to Sell Agreement (the “Right to Sell”)
with the “promoter group” of SMC Global pursuant to which MILC will have a right to sell 100,000 shares of SMC Global
back to the “promoter group” on the first day of each month commencing April 1, 2016, and continuing until SMC completes
a qualified public offering and listing on either a primary stock exchange in India or the Unites States. The purchase price will
be the Fair Market Value, as defined, of the stock at the time of the transaction. There can be no assurance the “promoter
group” will comply with their obligations related to the Right to Sell Agreement. Pursuant to the Right to Sell, during
2016, MILC completed the sale of 900,000 shares of SMC Global for net proceeds of approximately $1,100,000 which is approximately
$1.23 per SMC Global share. Pursuant to the Right to Sell, during the year of 2017, MILC completed the sale of 1,200,000 shares
of SMC Global for net proceeds of approximately $1,499,000 which is approximately $1.25 per SMC Global share. As of June 30, 2018
MILC holds 11,504,690 shares of SMC Global which represents an approximately 10.2% ownership of SMC Global (See Note 3).
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.
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, in each case with a par value of $0.0001 per share.
Effective
June 11, 2014, the Fund completed a corporate reorganization which has resulted in the change of its name to Millennium Investment
& Acquisition Company Inc. 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.
These
financial statements are prepared in accordance with accounting principles generally accepted in the United States of America
(“GAAP”). The Company is considered an investment company under GAAP and follows the accounting and reporting guidance
applicable to investment companies in the Financial Accounting Standards Board (“FASB”) Accounting Standards Codification
(“ASC”) Topic 946, “Financial Services—Investment Companies.” The following is a summary of significant
accounting policies followed by the Company in preparation of its financial statements:
(a)
|
Valuation
of Investments
|
Fair
Value of Financial Instruments
—The Company’s investments are valued at (1) the market price for those securities
for which a market quotation is readily available and (2) for all other securities and assets, fair value as determined by the
Company’s Board pursuant to procedures approved by the Board. Except as otherwise specifically provided in the valuation
procedures the Company will value portfolio securities for which market quotations are readily available at market value. The
Company values all other securities and assets, including the shares of SMC Global, at fair value as determined in accordance
with the valuation procedures approved by the Board. Because of the inherent uncertainty of determining the fair value of investments
that do not have a readily available market value, the fair value of the Company’s investments determined under the Company’s
procedures may differ significantly from the values that would have been used had a ready market existed for the investments or
from the values that would have been placed on the Company’s assets by other market participants, and the differences could
be material.
Determining
fair value requires that judgment be applied to the specific facts and circumstances of each portfolio investment. The Company
has a significant investment in stock ownership of SMC Global, which is listed, but not traded on the New Delhi Stock Exchange.
The Company values its position in SMC Global based on a valuation methodology that includes the examination of, among other things,
(1) the nature and price (if any) of the portfolio security; (2) whether any broker quotations for the portfolio security are
available; (3) the last sale price of the portfolio security; (4) whether any other financial or derivative security traded on
other markets or among dealers is indicative of the appropriate price; (5) whether values of baskets of securities, or indices,
traded on other markets, exchanges, or among brokers are indicative of the appropriate price; (6) the extent to which the fair
value to be determined for the portfolio security will result from the use of data or formulas produced by third parties independent
of management; (7) the liquidity or illiquidity of the market for the particular portfolio security; (8) the financial statements
and condition of SMC Global; (9) general information concerning the issuer’s business including, without limitation, material
developments in business prospects, management changes, litigation, governmental approvals, actions and contracts and extraordinary
events; (10) the competitive position of the issuer’s major products, the demand therefore or any material changes in the
marketplace; (11) general and specific market trends and the existence of any merger proposals, tender offers or other similar
corporate actions affecting the securities; (12); the market value of any unrestricted securities of the same class; (13) the
availability of registration rights; (14) legal or other restrictions on the disposition of the securities (including any registration
expenses that might be borne by the Company in connection with such disposition); (15) the characteristics of the market in which
the securities are purchased and sold; (16) the market value of similar securities of the same issuer or comparable companies;
(17) in the case of securities that trade primarily in markets that close before the valuation time, financial market or other
developments that occur after such market close but before the valuation time; (18) changes in interest rates; (19) observations
from financial institutions; (20) government (U.S. or non-U.S.) actions or pronouncements; (21) other news events; (22) for securities
traded on non-U.S. markets, the value of non-U.S securities traded on other non-U.S. markets, ADR trading, closed-end fund trading,
non-U.S. currency exchange activity, the trading prices of financial products that are tied to baskets of non-U.S. securities
(such as ADRs and World Equity Benchmark Shares) and futures contracts or other derivative securities based on indices representative
of the appropriate market; and (23) the nature and duration of any material event and the forces influencing the operation of
financial markets, factors relating to the event that precipitated the problem, whether the event is likely to recur, whether
the effects of the event are isolated or whether they affect entire markets, countries or regions.
For
all securities held by the Company, when market quotations or other information used in valuing such securities are not readily
available or current or otherwise appropriate, management may be required to supply an “unobservable input” or determine
whether to adjust a supplied price, as described below.
Generally,
management must act reasonably and in good faith in considering all appropriate information available to it in identifying fair
valuation situations and may consult with, as appropriate, investment personnel, general news and financial market information
sources, industry sources, regulatory authorities, other market participants and legal, compliance and accounting personnel. Management
has also engaged the services of third-party vendors to assist it. Management may believe at times that a significant event affecting
a portfolio security has occurred that would require it to adjust a supplied price. In the case of holdings denominated in foreign
currencies, management converts the values of fund assets nominally reported in foreign currencies into U.S. Dollars daily at
the valuation time. The Company is responsible for monitoring currency prices and related markets to identify significant events
that call into question whether the exchange rate (established as of an earlier pricing time) applied to a security denominated
in a foreign currency reliably represents the security’s market value at the valuation time.
In
determining the fair value of securities held by the Company, no single factor is determinative. Each Director may have accorded
a different weight, or no weight, to different factors and, thus, each Director may have had a different basis for his ultimate
determination of value.
The
fair values of the Company’s assets and liabilities that qualify as financial instruments approximate their carrying amounts
presented in the statement of assets and liabilities at June 30, 2018.
The
Company utilizes various methods to measure the fair value of most of its investments on a recurring basis. GAAP establishes a
hierarchy that prioritizes inputs to valuation methods. The three levels of input are:
Level
1
– Unadjusted quoted prices in active markets for identical assets and liabilities that the Company has the ability
to access.
Level
2
– Observable inputs other than quoted prices included in Level 1 that are observable for the asset or liability, either
directly or indirectly. These inputs may include quoted prices for the identical instrument in an inactive market, prices for
similar instruments, interest rates, prepayment speeds, credit risk, yield curves, default rates and similar data.
Level
3
– Unobservable inputs for the asset or liability, to the extent relevant observable inputs are not available, representing
the Company’s own assumptions about the assumptions a market participant would use in valuing the asset or liability, and
would be based on the best information available.
The
availability of observable inputs can vary from security to security and is affected by a wide variety of factors, including,
for example, the type of security, whether the security is new and not yet established in the marketplace, the liquidity of markets,
and other characteristics particular to the security. To the extent that valuation is based on models or inputs that are less
observable or unobservable in the market, the determination of fair value requires more judgment. Accordingly, the degree of judgment
exercised in determining fair value is greatest for instruments categorized in Level 3.
The
inputs used to measure fair value may fall into different levels of the fair value hierarchy. In such cases, for disclosure purposes,
the level in the fair value hierarchy within which the fair value measurement falls in its entirety, is determined based on the
lowest level input that is significant to the fair value measurement in its entirety.
The
inputs or methodology used for valuing securities are not necessarily an indication of the risk associated with investing in those
securities. The following tables summarize the inputs used as of June 30, 2018 for the Company’s investments measured at
fair value:
|
|
Level
1
|
|
|
Level
2
|
|
|
Level
3
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Private Placement - SMC
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
14,035,722
|
|
|
$
|
14,035,722
|
|
Materials
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
18,587,444
|
|
|
$
|
18,587,444
|
|
Total
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
32,623,166
|
|
|
$
|
32,623,166
|
|
There
were no transfers into or out of Level 1 and Level 2 during the six months ended June 30, 2018. It is the Company’s policy
to recognize transfers into and out of Level 1 and Level 2 at the end of the reporting year.
The
following is a reconciliation of assets in which significant unobservable inputs (Level 3) were used in determining fair value:
|
|
Private
|
|
|
Millennium
|
|
|
|
|
|
|
Placement
|
|
|
HI
Carbon
|
|
|
Total
|
|
Beginning balance
|
|
$
|
14,035,722
|
|
|
|
17,436,442
|
|
|
$
|
31,472,164
|
|
Investment in Millennium HI Carbon,
LLC
|
|
|
-
|
|
|
|
1,151,002
|
|
|
|
1,151,002
|
|
Net realized loss on investment
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Proceeds from sale of SMC Global
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Change in unrealized
loss on investment
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Ending Balance
|
|
$
|
14,035,722
|
|
|
$
|
18,587,444
|
|
|
$
|
32,623,166
|
|
In
valuing its investment in SMC Global, the Company uses a valuation model, in addition to the previously disclosed valuation factors,
which considers revenue, earnings and book value multiples of comparable companies as well as transactions with respect to similar
securities.
The
table below presents quantitative information about the significant unobservable inputs used in the fair value measurement for
the Company’s Level 3 investments as of June 30, 2018:
Investment
|
|
Fair
Value at 6/30/18
|
|
|
Valuation
Technique
|
|
Unobservable
Inputs
|
|
Range
(Weighted Average)
|
|
SMC
|
|
$
|
14,035,722
|
|
|
Market
Approach
|
|
TTM
Net Income Multiple
|
|
|
26.17x
– 116.66x
(56.24x)
|
|
|
|
|
|
|
|
|
|
Equity
Multiples
|
|
|
4.93x
– 25.62x (9.99x)
|
|
|
|
|
|
|
|
|
|
Liquidity
Discount
|
|
|
20%
|
|
MHC
|
|
$
|
18,587,444
|
|
|
Cost
Approach
|
|
Long-term
Revenue Growth Rate
|
|
|
0%
- 8%
(2%)
|
|
|
|
|
|
|
|
|
|
Discount
Rate
|
|
|
20%
|
|
As
of June 30, 2013, MILC valued its investment in SMC Global at $21,804,829 ($1.37 per SMC share). As described in MILC’s
annual report to shareholders for the year ended December 31, 2013, the new management of MILC appointed in October 2013 reviewed
the valuation methodology and conclusions used by MILC previously to value its SMC Global holding, and established a new valuation
for that holding of $6,500,000 ($0.41 per SMC share). The principal change in valuation approach between the old valuation and
the new was the re-weighting certain valuation metrics. The new management gave a greater weighting to the valuation of the investment
based on a Multiple of Net Income, and gave zero weight to the use of a prior transaction in SMC Global stock that MILC’s
new management did not deem relevant for purposes of establishing a current valuation.
As
of December 31, 2015, MILC valued its investment in SMC Global at approximately $7,616,080 ($0.52 per SMC share). The increase
in valuation is attributable primarily to improved earnings at SMC Global, offset by reducing to zero the weight given to the
use of a Multiple of Revenue as a valuation metric.
As
of December 31, 2016, MILC valued its investment in SMC Global at approximately $7,919,724 ($0.58 per SMC share).
As
of December 31, 2017, MILC valued its investment in SMC Global at approximately $14,035,700 ($1.22 per SMC share).
As
of June 30, 2018, MILC valued its investment in SMC Global at approximately $14,035,700 ($1.22 per SMC share).
(b)
Foreign Currency Translation
The
books and records of the Company are maintained in U.S. Dollars. Foreign currency amounts are translated into U.S. Dollars on
the following basis: (i) market value of investment securities, assets, and liabilities at the closing daily rate of exchange,
and (ii) purchases and sales of investment securities and dividend income at the rate of exchange prevailing on the respective
dates of such transactions.
(c)
Cash
The
Company maintains a cash account at financial institutions, which are federally insured up to $250,000. At various times during
the year, the account balance may have exceeded the insured limit. The Company mitigates this risk by regularly monitoring the
financial stability of the financial institution.
(d)
Use of Estimates
The
preparation of financial statements in accordance with GAAP requires management to make estimates and assumptions that affect
certain 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 revenue and expenses during the reporting period. The accounting estimates that require
management’s most difficult and subjective judgments are reflected in management’s valuation of its interests in SMC
Group and the realization of deferred tax assets. Because of the uncertainty in such estimates, actual results may differ from
these estimates.
(e)
Income Taxes
Deferred
income tax assets and liabilities are computed for differences between the financial statement and tax bases of assets and liabilities
that will result in future taxable or deductible amounts and are based on enacted tax laws and rates applicable to the periods
in which the differences are expected to affect taxable income. Valuation allowances are established when necessary to reduce
deferred income tax assets to the amount expected to be realized.
The
Company recognizes the tax benefits of uncertain tax positions only when the position is “more likely than not” to
be sustained assuming examination by tax authorities. Management reviewed the tax positions during the year ended December 31,
2017, and concluded that no liability for unrecognized tax benefits should be recorded related to uncertain tax positions taken.
The Company recognizes interest and penalties, if any, related to unrecognized tax benefits as income tax expense in the statement
of operations. During the six months ended June 30, 2018, the Company did not incur any interest or penalties. Generally tax authorities
can examine tax returns filed for the last three years.
(f)
Security Transactions, Dividend Income and Other Income
Security
transactions are recorded on the trade date. In determining the gain or loss from the sale of securities, the cost of securities
sold is determined on the basis of identified cost. Dividends are recorded on the ex-dividend date.
(g)
Indemnification
Under
the Company’s organizational documents, its officers and directors are indemnified against certain liabilities arising out
of the performance of their duties to the Company. In addition, in the normal course of business, the Company enters into contracts
with its vendors and others that provide for general indemnifications. The Company’s maximum exposure under these arrangements
is unknown as this would involve future claims that may be made against the Company. However, based on experience, the Company
expects that risk of loss to be remote.
2.
|
ADMINISTRATION
FEES AND OTHER TRANSACTIONS WITH AFFILIATES AND RELATED PARTIES
|
Administrative
Fees
|
(a)
|
The
Board has approved base compensation for the CEO of the Company, David Lesser, at a rate
of $10,000 per month from MILC. In addition, the Board approved base compensation for
Mr. Lesser at a monthly rate of $10,000 from the wholly owned subsidiary, Millennium
HI Carbon, LLC .
|
|
(b)
|
Commencing
September 2016, the Board approved payment to an entity affiliated with the CEO of the
company, David Lesser, to reimburse such entity for accounting and administrative functions
at a rate of $750 per month for each of MILC and Millennium Carbon. During the six months
ended June 30, 2018, the total amount paid to such affiliate of David Lesser was $9,000.
|
|
(c)
|
The
Company has hired Morrison Cohen, LLP (“MoCo”) as its legal counsel with
respect to general corporate matters. A spouse of the Company’s CEO is a partner
at Morrison. During the six months ended June 30, 2018, the Company did not pay any legal
fees to MoCo.
|
3.
INVESTMENT TRANSACTIONS
MILC
has entered into a Right to Sell Agreement (the “Right to Sell”) with the “promoter group” (management)
of SMC pursuant to which MILC will have a right to sell 100,000 shares of SMC back to the “promoter group” of SMC
on the first day of each month commencing with April 1, 2016 continuing until SMC completes a qualified public offering and listing
on either a primary stock exchange in India or the Unites States. The purchase price will be the Fair Market Value of the stock
at the time of the transaction. There can be no assurance the “promoter group” will comply with their obligations
related to the Right to Sell Agreement. Pursuant to the Right to Sell, during 2016, MILC completed the sale of 900,000 shares
of SMC Global for net proceeds of approximately $1,100,000 which is approximately $1.23 per SMC Global share. Pursuant to the
Right to Sell, during the year, 2017, MILC completed the sale of 1,200,000 shares of SMC Global for net proceeds of approximately
$1,499,000 which is approximately $1.25 per SMC Global share.
To
date, pursuant to the Right to Sell, MILC has sold 2.1 million shares for total proceeds of $2.6 million which translates to an
average price of $1.24 per SMC share. As of June 30, 2018, MILC owned 11,504,690 shares of SMC.
As
previously disclosed, SMC explored an initial public offering (“IPO”) and listing in the United States as an alternative
to an offering and listing in India. Unfortunately, SMC has notified MILC that such a transaction cannot proceed at this time
due to India regulatory issues.
At
the SMC 2018 annual meeting held on July 21, 2018, SMC received approval from its shareholders to proceed with a public offering
and listing on the primary stock exchanges in India. There can be no assurance as to when or if such an offering will occur or
what the ultimate price per share will be.
Effective
June 30, 2018, the Company adopted a valuation of $1.22 per SMC share for the Company’s investment in SMC which translates
to a total value of $14,035,700.
On
June 11, 2015, MILC, through a wholly owned subsidiary (“Millennium Carbon”) completed the acquisition of an Activated
Carbon plant located near the port of Kawaihae, Hawaii for $1.28 million. The acquisition consisted of 13 acres of land leased
from the Department of Hawaiian Home Lands, the existing equipment and approximately 24,000 tons of macadamia nutshells which
represent more than a 2-year feedstock supply.
MILC
believes this acquisition is a compelling opportunity that should generate an attractive return on investment. The acquisition
price is a small fraction of the more than $44 million originally invested in the plant from 2009 to 2012. Despite commencing
operations in 2011, the plant failed to achieve full commercial operations and generate profits. It ceased operating in 2012 and
its owner filed for bankruptcy. 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 the premium Activated Carbon that it was targeting and operate
the plant on a full time basis. MILC is in the late stages of upgrading the plant to establish full commercial operation.
When
operating, the Millennium Carbon plant will process a waste stream of macadamia nutshells into a special form of Activated Carbon.
Activated Carbon has many small pores that create an extremely large surface area. By way of example, one teaspoon of the Activated
Carbon the plant intends to produce has a surface area greater than a football field. Activated Carbon’s large surface area
and complex network of pores provide benefits in a variety of chemical processes including filtration, purification and energy
storage.
The
Millennium Carbon plant is designed to produce a premium-grade Activated Carbon with characteristics that are particularly attractive
for energy storage applications and that should command a price premium relative to commodity-grade Activated Carbon. In particular,
the Activated Carbon produced by the plant is targeted for manufacturing Electrical Double-Layer Capacitor (or “EDLC”),
which is commonly referred to as Ultracapacitors or Supercapacitors, an advanced energy storage alternative to traditional batteries.
Ultracpacitors are found in a diverse array of electronic equipment from daily usage engine starting, hybrid and electric vehicles
to windmills.
Millennium
Carbon is in the late stages of commercializing the plant for continuous production of premium Activated Carbon. From a production
standpoint, the plant can be thought of as having three phases:
|
1)
|
Material
handling and pre-processing
|
|
a.
|
Screening
out debris
|
|
b.
|
Hammer
mill to create uniform nutshell chips
|
|
c.
|
Screening
to appropriate size nutshell chips and eliminate fines
|
|
a.
|
Macadamia
nutshell chips are heated to high temperature in the absence of oxygen in a Char Reactor
to perform pyrolysis
|
|
b.
|
Pyrolysis
reaction breaks down the nutshells into high purity char of carbon and removes volatile
matter which will provides an energy stream to help power the plant (biogas and condensed
bio-oil)
|
|
a.
|
The
nutshell char is heated in a rotary kiln and mixed with high temperature steam to create
the large surface area/pore structure
|
In
addition, the Millennium Carbon plant has numerous support systems including:
|
●
|
Laboratory
|
|
●
|
Nitrogen
generation
|
|
●
|
Low
grade steam boilers
|
|
●
|
High
temperature steam “super-heater”
|
|
●
|
Water
well and Reverse Osmosis water treatment plant
|
|
●
|
Integrated
instrumentation and controls system
|
|
●
|
Thermal
oxidizer to meet emissions requirements
|
|
●
|
2
MW Diesel generator
|
As
of the date of this report, Millennium Carbon has restored all production equipment and necessary support systems to operational
status and has produced Activated Carbon. Achieving full-scale commercial operation and associated revenue generation may still
take a year or more after which the plant should generate an attractive return on its invested capital. There can be no assurance
as to how much capital or how long this process will take or what the ultimate stabilized cash flow, if any, from the project
will be. MILC believes that purchasing the plant at a substantial discount to the capital investment made by the original developer
increases the likelihood of generating attractive rates of return.
Millennium
Carbon is an unconsolidated subsidiary and, therefore, pursuant to Rule 3-09 of Regulation S-X, the Company has attached separate
audited financial statements of Millennium Carbon as an exhibit to this report.
4.
INVESTMENTS IN RESTRICTED OR ILLIQUID SECURITIES
Restricted
securities include securities that have not been registered under the Securities Act of 1933, as amended, and securities that
are subject to restrictions on resale. An investment company may invest in restricted securities that are consistent with the
Company’s investment objective and investment strategies. Investments in restricted securities are valued at fair value
as determined in good faith in accordance with procedures adopted by the Board. It is possible that the estimated value may differ
significantly from the amount that might ultimately be realized in the near term, and the difference could be material. As of
June 30, 2018, the Company was invested in the following restricted securities:
Security
|
|
Acquisition Date
|
|
Shares
|
|
|
Cost
|
|
|
Cost/Share
|
|
|
Value
|
|
|
Value/SMC Share
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
SMC Global Securities LTD
|
|
January 21, 2008
|
|
|
11,504,690
|
|
|
|
33,848,967
|
|
|
$
|
2.94
|
|
|
|
14,035,722
|
|
|
|
1.220
|
|
5.
INCOME TAXES
The
provision for income taxes is comprised of the following for the year ended December 31, 2017:
The
provision for income taxes consists of the following:
|
|
December
31, 2017
|
|
Current
|
|
|
|
|
Federal
|
|
$
|
-
|
|
State
and Local
|
|
|
-
|
|
Total
Current Tax Expense (Benefit)
|
|
|
-
|
|
|
|
|
|
|
Deferred
|
|
|
|
|
Federal
|
|
|
(446,817
|
)
|
State
and Local
|
|
|
-
|
|
Total
Deferred Tax Expense (Benefit)
|
|
|
(446,817
|
)
|
Less
Valuation allowance adjustment
|
|
|
446,817
|
|
|
|
|
|
|
Total
Tax Expense (Benefit)
|
|
$
|
-
|
|
At
December 31, 2017, the Company had total net operating and capital loss carry forwards of approximately $5.0 million for federal
income tax purposes available to offset future taxable income as follows. The loss carry forwards can be carried forward 20 years
and will expire at various dates ranging from 2018 through 2035.
Deferred
tax assets reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial
statement purposes and the amounts used for income tax purposes and consist of the following:
|
|
December
31, 2017
|
|
Deferred
Tax Assets
|
|
|
|
|
Net
unrealized loss on investments
|
|
$
|
4,160,781
|
|
Net
loss carry-forwards
|
|
|
844,235
|
|
Total
Deferred Tax Assets
|
|
|
5,005,016
|
|
Less:
Valuation Allowance
|
|
|
(5,005,016
|
)
|
Net
Deferred Taxes
|
|
$
|
-
|
|
A
reconciliation of the statutory United States federal tax rate to the Company’s effective income tax rate is as follows:
|
|
December
31, 2017
|
|
Tax
at Federal Statutory Rate
|
|
|
35.0
|
%
|
Impact
of Tax Reform tax rate change
|
|
|
(14.0
|
)%
|
Change
in Valuation Allowance
|
|
|
(21.0
|
)%
|
Provision
for Taxes
|
|
|
0.0
|
%
|
Management
evaluates the Company’s deferred income tax assets and liabilities to determine whether or not a valuation allowance is
necessary. Deferred tax assets are reduced by a valuation allowance if, based on the weight of available evidence, it is more
likely than not that some portion or all of the deferred tax assets will not be realized. Realization of future tax benefits related
to the deferred tax assets is dependent on many factors, including the Company’s ability to generate future taxable income
during those periods in which temporary differences become deductible and/or credits can be utilized. Based on decrease in value
of the Company’s investment in SMC Global, and the uncertainty as to when the value will improve enough to allow the Company
to recognize gains on the SMC Global investment and enable the Company to utilize its deferred tax assets, the Company recorded
a full valuation allowance against its deferred tax assets as of December 31, 2018.
The
Company’s policy for recording interest and penalties associated with uncertain tax positions is to record such items as
a component of income tax expense. There were no amounts accrued for penalties or interest as of or during the period from February
14, 2007 (inception) through December 31, 2017. The Company does not expect its unrecognized tax benefit position to change during
the next twelve months and is currently unaware of any issues that could result in significant payments, accruals or material
deviations from its position. The Company’s tax positions for 2011 to 2017 have been analyzed, and concluded that no liability
for unrecognized tax benefits should be recorded related to uncertain tax positions taken on returns filed for open tax years.
On
December 22, 2017, the Tax Cuts and Jobs Act (“The Tax Act”) was enacted. The Tax Act makes significant changes to
the U.S. federal income tax rules for taxation of individuals and corporations, generally effective for taxable years beginning
after December 31, 2017. In addition to reducing corporate and non-corporate tax rates, the Tax Act eliminates and restricts various
deductions and limits the ability to utilize net operating losses (“NOLs”) arising in taxable years beginning after
December 31, 2017. Most of the changes applicable to individuals are temporary and apply only to taxable years beginning after
December 31, 2017 and before January 1, 2026.
While
the changes in the Act generally appear to be favorable with respect to the Company, the extensive changes to provisions in the
Code may have unanticipated effects on us or our stockholders. Moreover, Congressional leaders have recognized that the process
of adopting extensive tax legislation in a short amount of time without hearings and substantial time for review is likely to
have led to drafting errors, issues needing clarification and unintended consequences that will have to be review in subsequent
tax legislation. At this point, it is not clear when Congress will address these issues or when the Internal Revenue Service will
be able to issue administrative guidance on the changes made in the Tax Act.
6.
COMMON STOCK
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 six months ended June 30, 2018.
American
Stock Transfer & Trust Company, LLC serves as the transfer agent and dividend disbursing agent for the Company under a transfer
agency agreement.
8.
SUBSEQUENT EVENTS
The
Company is required to recognize in the financial statements the effects of all subsequent events that provide additional evidence
about conditions that existed at the date of the Statement of Assets and Liabilities. For non- recognized subsequent events that
must be disclosed to keep the financial statements from being misleading, the Company is required to disclose the nature of the
event as well as an estimate of its financial effect, or a statement that such an estimate cannot be made. Management has determined
that there were no subsequent events to report through the issuance of these financial statements.
Additional
Information
The
Company files its complete schedule of portfolio holdings with the Securities and Exchange Commission for the first and third
quarters of each fiscal year on Form N-Q. The Company’s Form N-Q is available on the Commission’s website at http://www.sec.gov
and may also be reviewed and copied at the Commission’s Public Reference Room in Washington, DC. Information on the operation
of the Public Reference Room may be obtained by calling 1-800-SEC-0330.
A
description of the policies and procedures that the Company uses to determine how to vote proxies relating to portfolio securities
is available without charge, upon request, by calling collect (212) 751-0371 and on the Commission’s website at http://www.sec.gov.
Information
regarding how the Company voted proxies relating to portfolio securities during the most recent 12-month period ended June 30
is available without charge, upon request, by calling collect (212) 751-0371 and on the Commission’s website at http://www.sec.gov.
The
Company’s Statement of Additional Information includes additional information about directors of the Company and is available,
without charge, upon request, by calling collect (212) 751-0371.