SUI Group Holdings Ltd. 10-Q

ITEM 1.FINANCIAL STATEMENTS MILL CITY VENTURES III, LTD. CONDENSED BALANCE SHEETS ​ ​ ​ ​ ​ ​ ​ ​ ​ March 31, 2022 ​ ​ ​ (unaudited) ​ December 31, 2021 ASSETS ​ ​ ​ ​ Investments, at fair value: ​ $ 20,087,500 ​ $ 14,098,675 Non-control/non-affiliate investments (cost: $ 19,943,929 and $ 13,933,057 respectively) ​ ​ ​ ​ Cash ​ 71,020 ​ 1,936,148 Note receivable ​ 250,000 ​ 250,000 Prepaid expenses ​ 29,658 ​ 83,674 Interest and dividend receivables ​ 562,993 ​ 324,350 Right-of-use lease asset ​ — ​ 4,984 Total Assets ​ $ 21,001,171 ​ $ 16,697,831 ​ ​ ​ ​ ​ ​ ​ LIABILITIES ​ ​ Line of credit ​ $ 5,325,000 ​ $ — Accounts payable ​ ​ 104,911 ​ ​ 64,028 Dividend payable ​ 100 ​ 100 Payable for purchase of investments ​ ​ — ​ ​ 1,900,000 Lease liability ​ — ​ 5,654 Deferred interest income ​ ​ 272,000 ​ ​ — Accrued income tax ​ 1,434,000 ​ 1,269,000 Deferred taxes ​ 39,000 ​ 45,000 Total Liabilities ​ 7,175,011 ​ 3,283,782 ​ ​ ​ ​ ​ ​ ​ SHAREHOLDERS EQUITY (NET ASSETS) ​ ​ Common stock, par value $ 0.001 per share ( 250,000,000 authorized; 10,790,413 outstanding ) ​ 10,790 ​ 10,790 Additional paid-in capital ​ 10,694,163 ​ 10,694,163 Accumulated deficit ​ ( 1,159,665 ) ​ ( 1,159,665 ) Accumulated undistributed investment loss ​ ( 1,582,279 ) ​ ( 1,877,667 ) Accumulated undistributed net realized gains on investment transactions ​ 5,719,580 ​ 5,580,810 Net unrealized appreciation in value of investments ​ 143,571 ​ 165,618 Total Shareholders’ Equity (net assets) ​ 13,826,160 ​ 13,414,049 Total Liabilities and Shareholders’ Equity ​ $ 21,001,171 ​ $ 16,697,831 Net Asset Value Per Common Share ​ $ 1.28 ​ $ 1.24 ​ See accompanying Notes to Financial Statements ​ - 3 - Table of Contents MILL CITY VENTURES III, LTD. CONDENSED STATEMENTS OF OPERATIONS (UNAUDITED) ​ ​ ​ ​ ​ ​ ​ ​ ​ Three Months Ended ​ ​ March 31, ​ March 31, ​ 2022 2021 Investment Income ​ ​ Interest income ​ $ 1,000,206 ​ $ 546,842 Total Investment Income ​ 1,000,206 ​ 546,842 ​ ​ ​ ​ ​ ​ ​ Operating Expenses ​ ​ Professional fees ​ 198,518 ​ 142,808 Payroll ​ 196,442 ​ 302,080 Insurance ​ 30,097 ​ 24,279 Occupancy ​ 16,812 ​ 16,689 Director’s fees ​ 30,000 ​ 30,000 Interest expense ​ ​ 66,939 ​ ​ — Other general and administrative ​ 7,010 ​ 18,002 Total Operating Expenses ​ 545,818 ​ 533,858 Net Investment Gain ​ 454,388 ​ 12,984 ​ ​ ​ ​ ​ ​ ​ Realized and Unrealized Gain (Loss) on Investments ​ ​ Net realized gain on investments ​ 138,770 ​ 2,907,999 Net change in unrealized depreciation on investments ​ ( 22,047 ) ​ ( 513,250 ) Net Realized and Unrealized Gain on Investments ​ 116,723 ​ 2,394,749 Net Increase in Net Assets Resulting from Operations Before Taxes ​ $ 571,111 ​ $ 2,407,733 Provision for Income Taxes ​ 159,000 ​ 662,691 Net Increase in Net Assets Resulting from Operations ​ $ 412,111 ​ $ 1,745,042 ​ ​ ​ ​ ​ ​ ​ Net Increase in Net Assets Resulting from Operations per share: ​ ​ Basic and diluted ​ $ 0.04 ​ $ 0.16 Weighted-average number of common shares outstanding - basic and diluted ​ 10,790,413 ​ 10,785,913 ​ See accompanying Notes to Financial Statements ​ - 4 - Table of Contents MILL CITY VENTURES III, LTD. CONDENSED STATEMENTS OF SHAREHOLDERS’ EQUITY (UNAUDITED) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Accumulated ​ Net Unrealized ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Accumulated ​ Undistributed ​ Appreciation ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Additional ​ ​ ​ ​ Undistributed ​ Net Realized Gain ​ (Depreciation) ​ Total ​ ​ Common ​ ​ ​ Paid In ​ Accumulated ​ Net Investment ​ on Investments ​ in Value of ​ Shareholders’ Three Months Ended March 31, 2022 Shares Par Value Capital Deficit Loss Transactions Investments Equity Balance as of December 31, 2021 ​ 10,790,413 ​ $ 10,790 ​ $ 10,694,163 ​ $ ( 1,159,665 ) ​ $ ( 1,877,667 ) ​ $ 5,580,810 ​ $ 165,618 ​ $ 13,414,049 Net investment gain, net of tax of $ 159,000 ​ — ​ ​ — ​ ​ — ​ ​ — ​ ​ 295,388 ​ ​ — ​ ​ — ​ ​ 295,388 Net realized gain on investment transactions ​ — ​ ​ — ​ ​ — ​ ​ — ​ ​ — ​ ​ 138,770 ​ ​ — ​ ​ 138,770 Depreciation in value of investments — ​ — ​ ​ — ​ — ​ — ​ — ​ ( 22,047 ) ​ ( 22,047 ) Balance as of March 31, 2022 10,790,413 ​ $ 10,790 ​ $ 10,694,163 ​ $ ( 1,159,665 ) ​ $ ( 1,582,279 ) ​ $ 5,719,580 ​ $ 143,571 ​ $ 13,826,160 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Accumulated ​ Net Unrealized ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Accumulated ​ Undistributed ​ Appreciation ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Additional ​ ​ ​ ​ Undistributed ​ Net Realized Gain ​ (Depreciation) ​ Total ​ ​ Common ​ ​ ​ ​ Paid In ​ Accumulated ​ Net Investment ​ on Investments ​ in Value of ​ Shareholders’ Three Months Ended March 31, 2021 Shares Par Value Capital Deficit Loss Transactions Investments Equity Balance as of December 31, 2020 ​ 10,785,913 ​ $ 10,786 ​ $ 10,673,014 ​ $ ( 1,159,665 ) ​ $ ( 2,124,419 ) ​ $ 2,541,850 ​ $ 1,699,321 ​ $ 11,640,887 Issuance of shares ​ 1,000 ​ ​ 1 ​ ​ 5,749 ​ ​ — ​ ​ — ​ ​ — ​ ​ — ​ ​ 5,750 Net investment loss, net of tax of $ 662,691 ​ — ​ ​ — ​ ​ — ​ ​ — ​ ​ ( 649,707 ) ​ ​ — ​ ​ — ​ ​ ( 649,707 ) Net realized gain on investment transactions ​ — ​ ​ — ​ ​ — ​ ​ — ​ ​ — ​ ​ 2,907,999 ​ ​ — ​ ​ 2,907,999 Depreciation in value of investments ​ — ​ ​ — ​ ​ — ​ ​ — ​ ​ — ​ ​ — ​ ​ ( 513,250 ) ​ ​ ( 513,250 ) Balance as of March 31, 2021 10,786,913 ​ $ 10,787 ​ $ 10,678,763 ​ $ ( 1,159,665 ) ​ $ ( 2,774,126 ) ​ $ 5,449,849 ​ $ 1,186,071 ​ $ 13,391,679 ​ ​ See accompanying Notes to Financial Statements ​ - 5 - Table of Contents MILL CITY VENTURES III, LTD. CONDENSED STATEMENTS OF CASH FLOWS (UNAUDITED) ​ ​ ​ ​ ​ ​ ​ ​ ​ Three Months Ended ​ ​ March 31, 2022 March 31, 2021 Cash flows from operating activities: ​ ​ Net increase in net assets resulting from operations ​ $ 412,111 ​ $ 1,745,042 ​ ​ ​ ​ ​ ​ ​ Adjustments to reconcile net increase (decrease) in net assets resulting from operations to net cash provided (used) in operating activities: ​ ​ Net change in unrealized depreciation on investments ​ 22,047 ​ 513,250 Net realized gain on investments ​ ( 138,770 ) ​ ( 2,907,999 ) Purchases of investments ​ ( 7,025,000 ) ​ ( 9,430,664 ) Proceeds from sales of investments ​ 1,152,898 ​ 5,036,657 Deferred income taxes ​ ​ ( 6,000 ) ​ ​ 662,691 ​ ​ ​ ​ ​ ​ ​ Changes in operating assets and liabilities: ​ ​ ​ ​ Prepaid expenses and other assets ​ 59,000 ​ ( 62,043 ) Interest and dividends receivable ​ ( 238,643 ) ​ ( 144,136 ) Receivable for investment sales ​ — ​ 19,313 Accounts payable and other liabilities ​ 35,229 ​ 21,763 Deferred interest income ​ 272,000 ​ 144,000 Accrued income taxes ​ ​ 165,000 ​ ​ — Payable for investment purchase ​ ( 1,900,000 ) ​ — Net cash used in operating activities ​ ( 7,190,128 ) ​ ( 4,402,126 ) ​ ​ ​ ​ ​ ​ ​ Cash flows from financing activities: ​ ​ ​ ​ Proceeds from line of credit ​ 5,325,000 ​ — Payments for common stock dividend ​ — ​ ( 539,296 ) Net cash provided (used) by financing activities ​ 5,325,000 ​ ( 539,296 ) Net decrease in cash ​ ( 1,865,128 ) ​ ( 4,941,422 ) Cash, beginning of period ​ 1,936,148 ​ 5,440,579 Cash, end of period ​ $ 71,020 ​ $ 499,157 ​ ​ ​ ​ ​ ​ ​ Non-cash financing activities: ​ ​ Common shares issued as consideration for investment ​ $ — ​ $ 5,750 ​ See accompanying Notes to Financial Statements ​ - 6 - Table of Contents MILL CITY VENTURES III, LTD. CONDENSED SCHEDULE OF INVESTMENTS MARCH 31, 2022 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Percentage ​ ​ ​ ​ ​ ​ ​ ​ of Net ​ Investment / Industry Cost Fair Value Assets ​ Short-Term Non-banking Loans ​ ​ ​ ​ ​ Consumer - 15% secured loans ​ ​ ​ ​ ​ ​ ​ ​ ​ AirDog Supplies, Inc. ​ $ 1,250,000 ​ $ 1,250,000 9.04 % Intelligent Mapping, LLC ​ ​ 2,500,000 ​ ​ 2,500,000 ​ 18.08 % Financial - 33.33% secured loans ​ ​ ​ ​ ​ ​ ​ ​ ​ Benton Financial, LLC ​ ​ 1,125,000 ​ ​ 1,125,000 ​ 8.14 % Financial - 12% secured loans ​ 500,000 ​ 500,000 3.61 % Litigation Financing - 23% secured loans ​ ​ ​ ​ ​ ​ ​ The Cross Law Firm, LLC ​ 1,805,750 ​ 1,800,000 ​ 13.02 % Real Estate - 15% secured loans ​ 600,000 ​ 600,000 ​ 4.34 % Tailwinds, LLC ​ 3,000,000 ​ 3,000,000 ​ 21.70 % Real Estate - 12% secured loans ​ ​ ​ ​ ​ ​ ​ ​ ​ Alatus Development, LLC ​ 3,900,000 ​ 3,900,000 ​ 28.21 % Real Estate - 48% secured loans ​ ​ ​ ​ ​ ​ ​ ​ ​ Villas at 79th, LLC ​ ​ 3,400,000 ​ ​ 3,400,000 ​ 24.59 % Total Short-Term Non-Banking Loans ​ 18,080,750 ​ 18,075,000 ​ 130.73 % ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Preferred Stock ​ ​ ​ ​ ​ ​ ​ ​ ​ Consumer ​ ​ ​ ​ ​ ​ ​ Wisdom Gaming, Inc ​ ​ 900,000 ​ ​ 900,000 ​ 6.51 % Information Technology ​ 150,000 ​ 300,000 2.17 % Total Other Equity ​ ​ 1,050,000 ​ ​ 1,200,000 ​ 8.68 % ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Warrants ​ ​ ​ Healthcare ​ 679 ​ — 0.00 % ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Other Equity ​ ​ ​ ​ Consumer ​ ​ 212,500 ​ ​ 212,500 ​ 1.54 % Financial ​ 600,000 ​ 600,000 4.34 % Total Other Equity ​ ​ 812,500 ​ ​ 812,500 ​ 5.88 % ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Total Investments ​ $ 19,943,929 ​ $ 20,087,500 145.29 % ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Total Cash ​ 71,020 ​ 71,020 0.51 % ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Total Investments and Cash ​ $ 20,014,949 ​ $ 20,158,520 145.80 % ​ ​ - 7 - Table of Contents MILL CITY VENTURES III, LTD. SCHEDULE OF INVESTMENTS DECEMBER 31, 2021 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Percentage ​ ​ ​ ​ ​ ​ ​ ​ ​ of Net ​ ​ Cost Fair Value Assets Short-Term Non-banking Loans ​ ​ ​ ​ ​ Consumer - 15% secured loans ​ ​ ​ ​ ​ ​ ​ ​ ​ AirDog Supplies, Inc. ​ $ 1,250,000 ​ $ 1,250,000 ​ 9.32 % Financial - 52% secured loans ​ 500,000 ​ 500,000 3.73 % Financial - 12% secured loans ​ 500,000 ​ 500,000 3.73 % Litigation Financing - 23% secured loans ​ ​ ​ ​ ​ ​ ​ ​ ​ The Cross Law Firm, LLC ​ ​ 1,805,750 ​ ​ 1,800,000 ​ 13.42 % Real Estate - 15% secured loans ​ 700,000 ​ 700,000 5.22 % Tailwinds, LLC ​ ​ 3,000,000 ​ ​ 3,000,000 ​ 22.36 % Real Estate - 12% secured loans ​ ​ ​ ​ ​ ​ ​ ​ ​ Alatus Development, LLC ​ 3,900,000 ​ 3,900,000 29.07 % Total Short-Term Non-Banking Loans ​ 11,655,750 ​ 11,650,000 86.85 % ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Common Stock ​ ​ ​ Financial Services ​ ​ 414,128 ​ ​ 436,175 ​ 3.25 % ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Preferred Stock ​ ​ ​ ​ ​ ​ ​ ​ ​ Consumer ​ ​ ​ Wisdom Gaming, Inc ​ ​ 900,000 ​ ​ 900,000 ​ 6.71 % Information Technology ​ 150,000 ​ 300,000 2.24 % Total Other Equity ​ ​ 1,050,000 ​ ​ 1,200,000 ​ 8.95 % ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Warrants ​ ​ ​ Healthcare ​ 679 ​ — 0.00 % ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Other Equity ​ ​ ​ ​ ​ ​ Consumer ​ ​ 212,500 ​ ​ 212,500 ​ 1.58 % Financial ​ ​ 600,000 ​ ​ 600,000 ​ 4.47 % Total Other Equity ​ ​ 812,500 ​ ​ 812,500 ​ 6.05 % ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Total Investments ​ $ 13,933,057 ​ $ 14,098,675 105.10 % ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Total Cash ​ 1,936,148 ​ 1,936,148 14.43 % ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Total Investments and Cash ​ $ 15,869,205 ​ $ 16,034,823 119.53 % ​ ​ ​ ​ - 8 - Table of Contents MILL CITY VENTURES III, LTD. NOTES TO CONDENSED FINANCIAL STATEMENTS (UNAUDITED) March 31, 2022 NOTE 1 – ORGANIZATION In this report, we generally refer to Mill City Ventures III, Ltd. in the first person “we.” On occasion, we refer to our company in the third person as “Mill City Ventures” or the “Company.” The Company follows accounting and reporting guidance in Accounting Standards (“ASC”) 946. We were incorporated in Minnesota in January 2006. Until December 13, 2012, we were a development-stage company that focused on promoting and placing a proprietary poker game online and into casinos and entertainment facilities nationwide. In 2013, we elected to become a business development company (“BDC”) under the Investment Company Act of 1940 (the “1940 Act”). We operated as a BDC until we withdrew our BDC election on December 27, 2019. As of the time of this filing, we remain a public reporting company that files periodic reports with the SEC. We offer short-term specialty finance solutions primarily to private businesses, small-cap public companies and high-net-worth individuals. To avoid regulation under the 1940 Act, we generally seek to structure our investments so they do not constitute “investment securities” for purposes of federal securities law, and we monitor our investments as a whole to ensure that no more than 40 % of our total assets may consist of investment securities. ​ NOTE 2 – SIGNIFICANT ACCOUNTING POLICIES Basis of presentation : The accompanying unaudited condensed financial statements of Mill City Ventures have been prepared in accordance with accounting principles generally accepted in the United States for interim financial information and with the instructions to Form 10-Q and Regulation S-X. Accordingly, they do not include all of the information and footnotes required by accounting principles generally accepted in the United States (GAAP) for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring adjustments) considered necessary for a fair presentation have been included. Operating results for the quarter ended March 31, 2022 are not necessarily indicative of the results that may be expected for the year ending December 31, 2022. The condensed balance sheet as of December 31, 2021 has been derived from the audited financial statements at that date but does not include all of the information and footnotes required by GAAP for complete financial statements. For further information, refer to the financial statements and footnotes thereto included in our Annual Report on Form 10-K for the year ended December 31, 2021. Use of estimates: The preparation of financial statements in conformity with GAAP requires management and our Board of Directors to make estimates and assumptions that affect the reported amounts of assets and liabilities, and disclosures of contingent assets and liabilities, at the date of the financial statements, as well as the reported amounts of expenses during the reporting period. Actual results could differ from those estimates, and the differences could be material. For more information, see the “Valuation of portfolio investments” caption below, and “Note 4 – Fair Value of Financial Instruments” below. The Company is an investment company following accounting and reporting guidance in ASC 946. Cash deposits: We maintain our cash balances in financial institutions and with regulated financial investment brokers. Cash on deposit in excess of FDIC and similar coverage is subject to the usual banking risk of funds in excess of those limits. Valuation of portfolio investments: We carry our investments in accordance with ASC Topic 820, Fair Value Measurements and Disclosures (“ASC 820”), issued by the Financial Accounting Standards Board (“FASB”), which defines fair value, establishes a framework for measuring fair value, and requires disclosures about fair value measurements. Fair value is generally based on quoted market prices provided by independent pricing services, broker or dealer quotations, or alternative price sources. In the absence of quoted market prices, broker or dealer quotations, or alternative price sources, investments are measured at fair value as determined by our Board of Directors, based on, among other things, the input of our executive management, the Audit Committee of our Board of Directors, and any independent third-party valuation experts that may be engaged by management to assist in the valuation of our portfolio investments, but in all cases consistent with our written valuation policies and procedures. Due to the inherent uncertainties of valuation, certain estimated fair values may differ significantly from the values that would have been realized had a ready market for these investments existed, and these differences could be material. In addition, such investments are generally less liquid than publicly traded securities. If we were required to liquidate a portfolio investment in a forced or liquidation sale, we could realize significantly less than the value at which we have recorded it. - 9 - Table of Contents MILL CITY VENTURES III, LTD. NOTES TO CONDENSED FINANCIAL STATEMENTS (UNAUDITED) March 31, 2022 Accounting guidance establishes a hierarchal disclosure framework that prioritizes and ranks the level of market price observability of inputs used in measuring investments at fair value. Observable inputs must be used when available. Observable inputs are inputs that market participants would use in valuing the asset or liability based on market data obtained from independent sources. Unobservable inputs are inputs that reflect our assumptions about the factors market participants would use in valuing the asset or liability based upon the best information available. Assets and liabilities measured at fair value are to be categorized into one of the three hierarchy levels based on the relative observability of inputs used in the valuation. The three levels are defined as follows: ● Level 1: Observable inputs based on quoted prices (unadjusted) in active markets for identical assets or liabilities. ● Level 2: Observable inputs based on quoted prices for similar assets and liabilities in active markets, or quoted prices for identical assets and liabilities in inactive markets. ● Level 3: Unobservable inputs that reflect an entity’s own assumptions about what inputs a market participant would use in pricing the asset or liability based on the best information available in the circumstances. Our valuation policy and procedures : Under our valuation policies and procedures, we evaluate the source of inputs, including any markets in which our investments are trading, and then apply the resulting information in determining fair value. For our Level 1 investment assets, our valuation policy generally requires us to use a market approach, considering the last quoted closing price of a security we own that is listed on a securities exchange, and in a case where a security we own is listed on an over-the-counter market, to average the last quoted bid and ask price on the most active market on which the security is quoted. In the case of traded debt securities the prices for which are not readily available, we may value those securities using a present value approach, at their weighted-average yield to maturity. The estimated fair value of our Level 3 investment assets is determined on a quarterly basis by our Board of Directors, pursuant to our written Valuation Policy and Procedures. These policies and procedures generally require that we value our Level 3 equity investments at cost plus any accrued interest, unless circumstances warrant a different approach. Our Valuation Policy and Procedures provide examples of these circumstances, such as when a portfolio company has engaged in a subsequent financing of more than a de minimis size involving sophisticated investors (in which case we may use the price involved in that financing as a determinative input absent other known factors), or when a portfolio company is engaged in the process of a transaction that we determine is reasonably likely to occur (in which case we may use the price involved in the pending transaction as a determinative input absent other known factors). Other situations identified in our Valuation Policy and Procedures that may serve as input supporting a change in the valuation of our Level 3 equity investments include (i) a third-party valuation conducted by an independent and qualified professional, (ii) changes in the performance of long-term financial prospects of the portfolio company, (iii) a subsequent financing that changes the distribution rights associated with the equity security we hold, or (iv) sale transactions involving comparable companies, but only if further supported by a third-party valuation conducted by an independent and qualified professional. When valuing preferred equity investments, we generally view intrinsic value as a key input. Intrinsic value means the value of any conversion feature (if the preferred investment is convertible) or the value of any liquidation or other preference. Discounts to intrinsic value may be applied in cases where the issuer’s financial condition is impaired or, in cases where intrinsic value relating to a conversion is determined to be a key input, to account for resale restrictions applicable to the securities issuable upon conversion. When valuing warrants, our Valuation Policy and Procedures indicate that value will generally be the difference between closing price of the underlying equity security and the exercise price, after applying an appropriate discount for restriction, if applicable, in situations where the underlying security is marketable. If the underlying security is not marketable, then intrinsic value will be considered consistent with the principles described above. Generally, “out-of-the-money” warrants will be valued at cost or zero. For non-traded (Level 3) debt securities with a residual maturity less than or equal to 60 days, the value will generally be based on a present value approach, considering the straight-line amortized face value of the debt unless justification for impairment exists. The fair value for short-term non-banking loans is determined as the present value of future contractual cash flows discounted at an interest rate that reflects the risks inherent to those cash flows. The discount ranges from 12 % to 48 % and approximate rates currently observed in publicly traded debt markets for debt of similar terms to companies with comparable credit risk. - 10 - Table of Contents MILL CITY VENTURES III, LTD. NOTES TO CONDENSED FINANCIAL STATEMENTS (UNAUDITED) March 31, 2022 On a quarterly basis, our management provides members of our Board of Directors with (i) valuation updates for each portfolio investment; (ii) Mill City Ventures’ bank and other statements pertaining to our cash and cash equivalents; (iii) quarter- or period-end statements from our custodial firms holding any of our portfolio investments; and (iv) recommendations to change any existing valuations of our portfolio investments or hierarchy levels for purposes of determining the fair value of such investments based upon the foregoing. The board then discusses these materials and, consistent with the policies and approaches outlined above, makes final determinations respecting the valuation and hierarchy levels of our portfolio investments. Income taxes: We account for income taxes under the asset and liability method, which requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of events that have been included in the financial statements. Deferred tax assets and liabilities are recognized for the expected future tax consequences of temporary differences between the financial statement carrying amount and tax basis of assets and liabilities using enacted tax rates in effect for the year in which the differences are expected to reverse. The effect of a change in tax rates on deferred tax assets and liabilities is recognized in income in the period that includes the enactment date. We record net deferred tax assets to the extent we believe these assets will more likely than not be realized. In making such determination, we consider all available evidence, including future reversals of existing taxable temporary differences, projected future taxable income, tax planning strategies and recent financial operations. In the event we were to determine we would be able to realize our deferred income tax assets in the future in excess of their recorded amount, we would make an adjustment to the valuation allowance, which would reduce the provision for income taxes. We file income tax returns in the U.S. Federal jurisdiction and various state jurisdictions. We do not believe there will be any material changes in its unrecognized tax positions over the next 12 months. Our evaluation was performed for the tax years ended December 31, 2019 through 2021, which are the tax years that remain subject to examination by major tax jurisdictions as of March 31, 2022. Revenue recognition : Realized gains or losses on the sale of investments are calculated using the specific investment method. Interest income, adjusted for amortization of premiums and accretion of discounts, is recorded on an accrual basis. Discounts from and premiums to par value on securities purchased are accreted or amortized, as applicable, into interest income over the life of the related security using the effective-yield method. The amortized cost of investments represents the original cost, adjusted for the accretion of discounts and amortization of premiums, if any. Loans are generally placed on non-accrual status when principal or interest payments are past due 30 days or more, or when there is reasonable doubt that principal or interest will be collected in full. Loan origination fees are recognized when loans are issued. Accrued and unpaid interest is generally reversed when a loan is placed on non-accrual status. Interest payments received on non-accrual loans may be recognized as income or applied to principal depending upon management’s judgment regarding collectability. Non-accrual loans are restored to accrual status when past-due principal and interest is paid and, in management’s judgment, are likely to remain current. We may make exceptions to the policy described above if a loan has sufficient collateral value and is in the process of collection. Dividend income on preferred equity securities is recorded as dividend income on an accrual basis to the extent that such amounts are payable by the portfolio company and are expected to be collected. Dividend income on common equity securities is recorded on the record date for private portfolio companies or on the ex-dividend date for publicly traded portfolio companies. Certain investments may have contractual payment-in-kind (“PIK”) interest or dividends. PIK represents accrued interest or accumulated dividends that are added to the loan principal or stated value of the investment on the respective interest- or dividend-payment dates rather than being paid in cash, and generally becomes due at maturity or upon being repurchased by the issuer. PIK interest or dividends is recorded as interest or dividend income, as applicable. If at any point we believe that PIK interest or dividends is not expected be realized, the PIK-generating investment will be placed on non-accrual status. Accrued PIK interest or dividends are generally reversed through interest or dividend income, respectively, when an investment in placed on non-accrual status. Allocation of net gains and losses: All income, gains, losses, deductions and credits for any investment are allocated in a manner proportionate to the shares owned. - 11 - Table of Contents MILL CITY VENTURES III, LTD. NOTES TO CONDENSED FINANCIAL STATEMENTS (UNAUDITED) March 31, 2022 Management and service fees: We do not incur expenses related to management and service fees. Our executive management team manages our investments as part of their employment responsibilities. NOTE 3 – INVESTMENTS The following table shows the composition of our investment portfolio by major class, at amortized cost and fair value, as of March 31, 2022 (together with the corresponding percentage of the fair value of our total portfolio of investments): ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Investments at Percentage of Investments at Percentage of ​ Amortized Cost Amortized Cost Fair Value Fair Value ​ Short-term Non-banking Loans ​ $ 18,080,750 90.6 % $ 18,075,000 90.0 % Preferred Stock ​ 1,050,000 5.3 ​ 1,200,000 5.9 ​ Warrants ​ 679 — ​ — — ​ Other Equity ​ 812,500 4.1 ​ 812,500 4.1 ​ Total ​ $ 19,943,929 100.0 % $ 20,087,500 100.0 % ​ The following table shows the composition of our investment portfolio by major class, at amortized cost and fair value, as of December 31, 2021 (together with the corresponding percentage of the fair value of our total portfolio of investments): ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Investments at Percentage of Investments at Percentage of ​ Amortized Cost Amortized Cost Fair Value Fair Value ​ Short-term Non-banking Loans ​ $ 11,655,750 83.7 % $ 11,650,000 82.6 % Preferred Stock ​ 1,050,000 7.5 ​ 1,200,000 8.5 ​ Common Stock ​ 414,128 3.0 ​ 436,175 3.1 ​ Warrants ​ 679 — ​ — — ​ Other Equity ​ 812,500 5.8 ​ 812,500 5.8 ​ Total ​ $ 13,933,057 100.0 % $ 14,098,675 100.0 % ​ The following table shows the composition of our investment portfolio by industry grouping, based on fair value as of March 31, 2022: ​ ​ ​ ​ ​ ​ ​ ​ ​ As of March 31, 2022 ​ Investments at Percentage of ​ Fair Value Fair Value ​ Consumer ​ $ 4,862,500 24.2 % Financial ​ 4,025,000 20.0 ​ Information Technology ​ 300,000 1.5 ​ Real Estate ​ 10,900,000 54.3 ​ Total ​ $ 20,087,500 100.0 % ​ The following table shows the composition of our investment portfolio by industry grouping, based on fair value as of December 31, 2021: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ As of December 31, 2021 ​ Investments at Percentage of ​ Fair Value Fair Value ​ Consumer ​ $ 2,362,500 16.8 % Financial ​ 3,836,175 27.2 ​ Information Technology ​ 300,000 2.1 ​ Real Estate ​ 7,600,000 53.9 ​ Total ​ $ 14,098,675 100.0 % ​ ​ ​ - 12 - Table of Contents MILL CITY VENTURES III, LTD. NOTES TO CONDENSED FINANCIAL STATEMENTS (UNAUDITED) March 31, 2022 NOTE 4 – FAIR VALUE OF FINANCIAL INSTRUMENTS Level 3 valuation information : Due to the inherent uncertainty in the valuation process, the estimate of the fair value of our investment portfolio as of March 31, 2022 may differ materially from values that would have been used had a readily available market for those investments existed. The following table presents the fair value measurements of our portfolio investments by major class, as of March 31, 2022, according to the fair value hierarchy: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ As of March 31, 2022 ​ Level 1 Level 2 Level 3 Total Short-term Non-banking Loans ​ $ — ​ $ — ​ $ 18,075,000 ​ $ 18,075,000 Preferred Stock ​ — ​ — ​ 1,200,000 ​ 1,200,000 Other Equity ​ — ​ — ​ 812,500 ​ 812,500 Total ​ $ — ​ $ — ​ $ 20,087,500 ​ $ 20,087,500 ​ The following table presents the fair value measurements of our portfolio investments by major class, as of December 31, 2021, according to the fair value hierarchy: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ As of December 31, 2021 ​ Level 1 Level 2 Level 3 Total Short-term Non-banking Loans ​ $ — ​ $ — ​ $ 11,650,000 ​ $ 11,650,000 Preferred Stock ​ — ​ — ​ 1,200,000 ​ 1,200,000 Common Stock ​ 436,175 ​ — ​ — ​ 436,175 Other Equity ​ — ​ — ​ 812,500 ​ 812,500 Total ​ $ 436,175 ​ $ — ​ $ 13,662,500 ​ $ 14,098,675 ​ The following table presents a reconciliation of the beginning and ending fair value balances for our Level 3 portfolio investment assets for the three months ended March 31, 2022: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ For the three months ended March 31, 2022 ​ ​ ST Non-banking ​ ​ ​ ​ Common ​ ​ ​ ​ ​ ​ ​ ​ Loans ​ Preferred Stock ​ Stock ​ Warrants ​ Other Equity Balance as of January 1, 2022 $ 11,650,000 $ 1,200,000 $ — $ — $ 812,500 Net change in unrealized appreciation ​ — ​ — ​ — ​ — ​ — Purchases and other adjustments to cost ​ 7,025,000 ​ — ​ — ​ — ​ — Sales and redemptions ​ ( 600,000 ) ​ — ​ — ​ — ​ — Net realized loss ​ — ​ — ​ — ​ — ​ — Balance as of March 31, 2022 ​ $ 18,075,000 ​ $ 1,200,000 ​ $ — ​ $ — ​ $ 812,500 ​ The net change in unrealized depreciation for the three months ended March 31, 2022 attributable to Level 3 portfolio investments still held as of March 31, 2022 was $ 0 . - 13 - Table of Contents MILL CITY VENTURES III, LTD. NOTES TO CONDENSED FINANCIAL STATEMENTS (UNAUDITED) March 31, 2022 The following table lists our Level 3 investments held as of March 31, 2022 and the unobservable inputs used to determine their valuation: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Security Type 3/31/22 FMV Valuation Technique Unobservable Inputs Range ST Non-banking Loans ​ $ 18,075,000 discounted cash flow determining private company credit rating 12 - 48 % Other Equity ​ 812,500 last secured funding known by company economic changes since last funding ​ Preferred Stock ​ 1,200,000 last funding secured by company economic changes since last funding ​ ​ ​ $ 20,087,500 ​ ​ ​ ​ ​ ​ ​ ​ The following table presents a reconciliation of the beginning and ending fair value balances for our Level 3 portfolio investment assets for the period ended December 31, 2021: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ For the year ended December 31, 2021 ​ ​ ​ ​ ST ​ ​ ​ ​ ​ ​ ​ ​ ​ Non-banking Preferred Common ​ ​ ​ ​ ​ ​ ​ Loans ​ Stock ​ Stock ​ Warrants ​ Other Equity Balance as of January 1, 2021 ​ $ 2,789,000 ​ $ 300,000 ​ $ — ​ $ — ​ $ 278,897 Net change in unrealized appreciation ​ — ​ — ​ — ​ — ​ — Purchases and other adjustments to cost ​ 24,765,333 ​ 900,000 ​ — ​ — ​ 812,500 Sales and redemptions ​ ( 15,904,333 ) ​ — ​ — ​ — ​ ( 278,897 ) Net realized loss ​ — ​ — ​ — ​ — ​ — Balance as of December 31, 2021 ​ $ 11,650,000 ​ $ 1,200,000 ​ $ — ​ $ — ​ $ 812,500 ​ The net change in unrealized depreciation for the year ended December 31, 2021 attributable to Level 3 portfolio investments still held as of December 31, 2021 was $ 0 . The following table lists our Level 3 investments held as of December 31, 2021 and the unobservable inputs used to determine their valuation: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Security Type 12/31/21 FMV Valuation Technique Unobservable Inputs Range ST Non-banking Loans ​ $ 11,650,000 discounted cash flow determining private company credit rating 12 - 44 % Other Equity ​ 812,500 last secured funding known by company economic changes since last funding ​ Preferred Stock ​ 1,200,000 last funding secured by company economic changes since last funding ​ ​ ​ $ 13,662,500 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ - 14 - Table of Contents MILL CITY VENTURES III, LTD. NOTES TO CONDENSED FINANCIAL STATEMENTS (UNAUDITED) March 31, 2022 NOTE 5 – RELATED-PARTY TRANSACTIONS We maintain a conflicts of interest and related-party transactions policy. Nevertheless, from time to time we may hold investments in portfolio companies in which certain members of our management, our Board of Directors, or significant shareholders of ours, are also directly or indirectly invested. In this regard, during the period covered by this report we entered into the following related-party transactions: ● On August 10, 2018, we entered into a loan transaction with Elizabeth Zbikowski who, along with her husband Scott Zbikowski, owned and continues to own approximately 1,765,000 shares of our common stock. In the transaction, we obtained a two-year promissory note in the principal amount of $ 250,000 , which was subsequently amended such that the note presently matures in August 2022. The promissory note bears interest payable monthly at the rate of 10 % per annum. The note is secured by the debtors’ pledge to us of 625,000 shares of our common stock. The pledged shares are held in physical custody for us by Millennium Trust Company, as our custodial agent. ● On January 3, 2022, we entered into a Loan and Security Agreement (the “Loan Agreement”) with Eastman Investment, Inc., a Nevada corporation, and Lyle A. Berman, as trustee of the Lyle A. Berman Revocable Trust (collectively, the “Lenders”). Mr. Berman is a director of our Company. Under the Loan Agreement, the Lenders made available to us a $ 5 million revolving line of credit for us to use in the ordinary course of our short-term specialty finance business. See note 7 for further details. NOTE 6 – INCOME TAXES Presently, we are a c-Corporation for tax purposes and have booked an income tax provision for the periods described below. As of March 31, 2022 and December 31, 2021, we have a net deferred tax liability of $ 39,000 and $ 45,000 , respectively. Our determination of the realizable deferred tax assets and liabilities requires the exercise of significant judgment, based in part on business plans and expectations about future outcomes. In the event the actual results differ from these estimates in future periods, we may need to record a valuation allowance, which could materially impact our financial position and results of operations. We will continue to assess the need for a valuation allowance in future periods. As of March 31, 2022 and December 31, 2021 we had accrued income taxes of $ 1,434,000 and $ 1,269,000 , respectively. We recorded income taxes of $ 159,000 ( 28 percent effective tax rate) and $ 662,691 ( 29 percent effective tax rate) during the three months ended March 31, 2022 and March 31, 2021, respectively. $ 1,362,000 of federal and state tax payments were made after March 31, 2022. As of December 31, 2020, we had a federal NOL of approximately $ 350,000 . The remaining federal NOL was used in its entirety to offset taxable income during the 2021 tax year. At March 31, 2022, we have no federal or state NOLs available to offset taxable income, all NOLs have been exhausted. Due to tax reform enacted in 2017, any newly created NOLs will carry forward indefinitely. - 15 - Table of Contents MILL CITY VENTURES III, LTD. NOTES TO CONDENSED FINANCIAL STATEMENTS (UNAUDITED) March 31, 2022 NOTE 7 – LINE OF CREDIT On January 3, 2022, we entered into a Loan and Security Agreement (the “Loan Agreement”) with Eastman Investment, Inc., a Nevada corporation, and Lyle A. Berman, as trustee of the Lyle A. Berman Revocable Trust (collectively, the “Lenders”). Mr. Berman is a director of our Company. Under the Loan Agreement, the Lenders made available to us a $ 5 million revolving line of credit for us to use in the ordinary course of our short-term specialty finance business. Amounts drawn under the Loan Agreement accrue interest at the per annum rate of 8 %, and all our obligations under the Loan Agreement are secured by a grant of a collateral security interest in substantially all of our assets. As a Lender, Mr. Berman is obligated to furnish only one-half of the aggregate $ 5 million available under the Loan Agreement. The Loan Agreement has a five-year term ending on January 3, 2027, at which time all amounts owing under the Loan Agreement will become due and payable; subject, however, to each Lender’s right, including Mr. Berman, to terminate the Loan Agreement, solely with respect to such Lender’s obligation to provide further credit, at any time after January 3, 2023. In the event that a Lender, including Mr. Berman, terminates its lending obligations, the Loan Agreement requires that we repay such Lender, prior to the five-year maturity date, with the proceeds derived from specified investments. The Loan Agreement provides for us to pay a quarterly unused commitment fee equal to one-quarter of one percent of the amount of credit available but unused under the Loan Agreement, and requires us to pay such fee in the form of shares of our common stock based on our net asset value per share on the last day of the applicable fiscal quarter. The Loan Agreement grants the Lenders piggyback registration rights subject to customary terms, conditions and exceptions. At March 31, 2022, the balance outstanding on the line was $ 5,325,000 with a maturity date of January 3, 2027 . NOTE 8 – SHAREHOLDERS’ EQUITY At March 31, 2022, we had 10,790,413 shares of common stock issued and outstanding . ​ NOTE 9 – PER-SHARE INFORMATION Basic net gain per common share is computed by dividing net increase in net assets resulting from operations by the weighted-average number of common shares outstanding during the period. A reconciliation of the numerator and denominator used in the calculation of basic and diluted net gain (loss) per common share is set forth below: ​ ​ ​ ​ ​ ​ ​ ​ ​ For the Three Months Ended ​ ​ March 31, ​ ​ 2022 ​ 2021 Numerator: Net increase (decrease) in net assets resulting from operations ​ $ 412,111 ​ $ 1,745,042 Denominator: Weighted-average number of common shares outstanding ​ 10,790,413 ​ 10,785,913 Basic and diluted net gain (loss) per common share ​ $ 0.04 ​ $ 0.16 ​ ​ ​ NOTE 10 – OPERATING LEASES We were subject to two non-cancelable operating leases for office space which expired March 31, 2022. The leases did not have significant lease escalations, holidays, concessions, leasehold improvements, or other build-out clauses. Further, the leases did not contain contingent rent provisions. Because our lease does not provide an implicit rate, we use our incremental borrowing rate in determining the present value of the lease payments. The incremental borrowing rate represents an estimate of the interest rate we would incur at lease commencement to borrow an amount equal to the lease payments on a collateralized basis over the term of a lease. The weighted average discount rate as of December 31, 2021 was 4.5 %. - 16 - Table of Contents MILL CITY VENTURES III, LTD. NOTES TO CONDENSED FINANCIAL STATEMENTS (UNAUDITED) March 31, 2022 Under ASC 840, rent expense for office facilities for the three months ended March 31, 2022 and March 31, 2021 was $ 16,812 and $ 16,689 , respectively. The components of our operating lease were as follows for the three months ended March 31, 2022 and 2021: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Three Months Ended ​ March 31, 2022 March 31, 2021 Operating lease costs ​ $ 4,779 ​ $ 4,779 Variable lease cost ​ 4,601 ​ 4,478 Short-term lease cost ​ 7,432 ​ 7,432 Total ​ $ 16,812 ​ $ 16,689 ​ On March 22, 2022, we signed an extension to our operating lease for office space which begins April 2, 2022 and expires October 2, 2023. The lease does not have significant lease escalations, holidays, concessions, leasehold improvements, or other build-out clauses. Further, the lease does not contain contingent rent provisions. Maturity analysis under this lease extension agreement consists of the following as of March 31, 2022: ​ ​ ​ ​ ​ ​ Operating ​ ​ Leases 2022 ​ $ 18,164 2023 ​ 14,859 Total lease payments ​ 33,023 Less: interest ​ ( 1,035 ) Present value of lease liabilities ​ $ 31,988 ​ ​ ​ - 17 - Table of Contents MILL CITY VENTURES III, LTD. NOTES TO CONDENSED FINANCIAL STATEMENTS (UNAUDITED) March 31, 2022 NOTE 11 – FINANCIAL HIGHLIGHTS The following is a schedule of financial highlights for the three months ended March 31, 2022 through 2018: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Three Months Ended March 31, ​ 2022 2021 2020 2019 2018 Per Share Data (1) ​ ​ Net asset value at beginning of period ​ $ 1.24 1.08 0.91 1.02 0.87 ​ Net investment income (loss) ​ 0.04 0.00 0.00 ( 0.02 ) ( 0.01 ) ​ Net realized and unrealized gains (losses) ​ 0.01 0.22 ( 0.03 ) 0.12 0.06 ​ Provision for income taxes ​ ( 0.01 ) ( 0.06 ) 0.00 0.00 0.00 ​ Payment of common stock dividend ​ 0.00 0.00 0.00 ( 0.05 ) 0.00 ​ Net asset value at end of period ​ $ 1.28 1.24 0.88 1.07 0.92 ​ ​ ​ ​ Ratio / Supplemental Data ​ ​ Per share market value of investments at end of period ​ $ 1.86 1.25 0.41 0.78 0.76 ​ Shares outstanding at end of period ​ 10,790,413 10,786,913 11,067,402 11,067,402 11,067,402 ​ Average weighted shares outstanding for the period ​ 10,790,413 10,785,913 11,067,402 11,067,402 11,863,392 ​ Net assets at end of period ​ $ 13,826,160 13,391,679 9,786,615 11,890,188 9,783,191 ​ Average net assets (2) ​ $ 13,620,104 12,516,283 9,927,574 12,911,895 9,770,410 ​ Total investment return ​ 3.23 % 14.81 % ( 3.30 ) % 4.90 % 5.75 % Portfolio turnover rate (3) ​ 8.46 % 40.24 % 0.75 % 0.93 % 0.80 % Ratio of operating expenses to average net assets (3) ​ ( 15.28 ) % ( 16.20 ) % ( 7.82 ) % ( 6.06 ) % ( 7.52 ) % Ratio of net investment income (loss) to average net assets (3) ​ 14.24 % 0.42 % 0.87 % ( 4.87 ) % ( 6.16 ) % Ratio of realized gains (losses) to average net assets (3) ​ 4.20 % 133.32 % 1.00 % 137.57 % 2.17 % (1) Per-share data was derived using the ending number of shares outstanding for the period. (2) Based on the monthly average of net assets as of the beginning and end of each period presented. (3) Ratios are annualized. NOTE 12 – Subsequent Events On April 11, 2022, we issued 15,000 shares of restricted common stock to each of our three independent directors, and 10,000 shares of restricted common stock to our two non-independent directors. The shares are subject to forfeiture in the event the recipients are terminated from their board positions or employment, if applicable, on or prior to January 23, 2023. On April 12, 2022 we received $ 3,900,000 in advanced principal repayment of a short-term loan that had a maturity date of September 27, 2022. The note bore interest at a rate of 12 %. On April 18, 2022 we received $ 1,800,000 in advanced principal repayment of a short-term loan that had a maturity date of September 30, 2022. The note bore interest at a rate of 23 %. On April 26, 2022, we filed a registration statement on Form S-1 with the U.S. Securities and Exchange Commission seeking to register an offer and sale of shares of our common stock in a firm-commitment underwritten offering. ​ - 18 - Table of Contents