What changed in this filing

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Item 1. Financial Statements

2022-11-18 compared with 2022-08-15 · 125 added, 121 removed, 419 unchanged (37% of the section changed)

ITEM 1.FINANCIAL STATEMENTS

FINANCIAL STATEMENTS

MILL CITY VENTURES III, LTD.

CONDENSED BALANCE SHEETS

June 30, 2022

September 30, 2022

December 31, 2021

2 unchanged sentences

$ 17,913,927 and $ 13,933,057 respectively)

Note receivable

Note receivable, related party

Prepaid expenses

Receivable for sale of investments

Interest and dividend receivables

Right-of-use lease asset

Deferred taxes

Line of credit

26 unchanged sentences

Three Months Ended

Six Months Ended

Nine Months Ended

September 30,

Investment Income

Interest income

Dividend income

Total Investment Income

5 unchanged sentences

Total Operating Expenses

Net Investment Gain

Realized and Unrealized Gain on Investments

Net realized gain (loss) on investments

Net Investment Gain (Loss)

Realized and Unrealized Gain (Loss) on Investments

Net realized gain on investments

Net change in unrealized appreciation (depreciation) on investments

Net Realized and Unrealized Gain on Investments

Net Increase in Net Assets Resulting from Operations Before Taxes

Provision for Income Taxes

Net Increase in Net Assets Resulting from Operations

Net Increase in Net Assets Resulting from Operations per share:

( 1,204,319 )

Net Realized and Unrealized Gain (Loss) on Investments

Net Increase (Decrease) in Net Assets Resulting from Operations Before Taxes

Provision For (Benefit From) Income Taxes

Net Increase (Decrease) in Net Assets Resulting from Operations

Net Increase (Decrease) in Net Assets Resulting from Operations per share:

Basic and diluted

3 unchanged sentences

CONDENSED STATEMENTS OF SHAREHOLDERS’ EQUITY (UNAUDITED)

Three Months Ended September 30, 2022

Undistributed

Net Unrealized

Undistributed

Net Realized Gain

Net Investment

(Loss) on Investments

(Depreciation)

Shareholders’

Three Months Ended June 30, 2022

Balance as of March 31, 2022

Balance as of June 30, 2022

$ ( 1,159,665 )

$ ( 1,064,271 )

Common shares issued in public offering

Common shares issued in reverse stock split rounding

Common shares issued in stock-based compensation

Undistributed net investment gain

Undistributed net realized loss on investment transactions

Appreciation in value of investments

Balance as of June 30, 2022

Common shares issued in consideration for expense payment

Undistributed net investment loss

Balance as of September 30, 2022

$ ( 1,159,665 )

$ ( 1,100,397 )

Three Months Ended September 30, 2021

Undistributed

Net Unrealized

Undistributed

Net Realized Gain

Net Investment

on Investments

(Depreciation)

Shareholders’

Three Months Ended June 30, 2021

of Investments

Balance as of March 31, 2021

Balance as of June 30, 2021

$ ( 1,159,665 )

$ ( 2,697,320 )

Dividend Declared

( 1,079,041 )

Common shares issued in consideration for expense payment

1 unchanged sentence

Undistributed net realized gain on investment transactions

Appreciation in value of investments

Balance as of June 30, 2021

Depreciation in value of investments

Balance as of September 30, 2021

$ ( 1,159,665 )

$ ( 2,181,001 )

Net Unrealized

Nine Months Ended September 30, 2022

Undistributed

Net Realized Gain

(Depreciation)

Net Investment

on Investments

Shareholders’

Six Months Ended June 30, 2022

Balance as of December 31, 2021

1 unchanged sentence

$ ( 1,877,667 )

Common shares issued in public offering

Common shares issued in reverse stock split rounding

Common shares issued in stock-based compensation

Common shares issued in consideration for expense payment

Undistributed net investment gain

1 unchanged sentence

Depreciation in value of investments

Balance as of June 30, 2022

Balance as of September 30, 2022

$ ( 1,159,665 )

$ ( 1,100,397 )

Net Unrealized

Nine Months Ended September 30, 2021

Undistributed

Net Realized Gain

(Depreciation)

Net Investment

on Investments

Shareholders’

Six Months Ended June 30, 2021

Balance as of December 31, 2020

1 unchanged sentence

$ ( 2,124,419 )

Issuance of shares

Common shares issued in consideration for expense payment

Dividend declared

( 1,079,041 )

Undistributed net investment loss

1 unchanged sentence

Depreciation in value of investments

Balance as of June 30, 2021

( 1,204,319 )

Balance as of September 30, 2021

$ ( 1,159,665 )

$ ( 2,181,001 )

See accompanying Notes to Financial Statements

1 unchanged sentence

CONDENSED STATEMENTS OF CASH FLOWS (UNAUDITED)

Six Months Ended

June 30, 2022

June 30, 2021

Nine Months Ended

September 30, 2022

September 30, 2021

Cash flows from operating activities:

8 unchanged sentences

Proceeds from sales of investments

Deferred income taxes

( 1,073,758 )

Common shares issued as consideration for expense payment

Stock-based compensation

Changes in operating assets and liabilities:

5 unchanged sentences

Accounts payable and other liabilities

Deferred interest income

Income taxes payable

Net cash used in operating activities

2 unchanged sentences

Cash flows from financing activities:

Proceeds from public offering

Proceeds from line of credit

5 unchanged sentences

( 1,846,071 )

( 3,925,574 )

Cash, beginning of period

1 unchanged sentence

Non-cash financing activities:

Common shares issued as consideration for investment

Common shares issued as consideration

Dividend declared to common stock shareholders

See accompanying Notes to Financial Statements

1 unchanged sentence

CONDENSED SCHEDULE OF INVESTMENTS

JUNE 30, 2022

SEPTEMBER 30, 2022

Investment / Industry

Percentage of Net Assets

Short-Term Non-banking Loans

3 unchanged sentences

Financial - 53% secured loans

Financial - 33% secured loans

Benton Financial, LLC

Financial - 36% secured loans

Financial - 12% secured loans

Information Technology - 15% convertible note

Real Estate - 15% secured loans

1 unchanged sentence

Real Estate - 12% secured loans

Alatus Development Corp

Real Estate - subordinated debt

Villas at 79th, LLC

3 unchanged sentences

Information Technology

Total Other Equity

Total Preferred Stock

Total Other Equity

1 unchanged sentence

Total Investments and Cash

See accompanying Notes to the Financial Statements

MILL CITY VENTURES III, LTD.

2 unchanged sentences

Investment / Industry

Percentage of

Short-Term Non-banking Loans

25 unchanged sentences

We operated as a BDC until we withdrew our BDC election at the end of December 2019.

Since that time, we have remained a public reporting company that files periodic reports with the SEC.

We engaged in the business of providing short-term specialty finance solutions primarily to small businesses, both private and public, and high-net-worth individuals.

Since that time, we have remained a public reporting company filing periodic reports with the SEC.

We engage in the business of providing short-term specialty finance solutions, typically in the form of loans, primarily to small businesses, both private and public, and high-net-worth individuals.

To avoid regulation under the 1940 Act, we generally seek to structure our investments so they do not constitute “securities” for purposes of federal securities laws, and we monitor our investments as a whole to ensure that no more than 40 % of our total assets consist of “investment securities” as defined under the 1940 Act.

4 unchanged sentences

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 June 30, 2022 are not necessarily indicative of the results that may be expected for the year ending December 31, 2022.

Operating results for the quarter ended September 30, 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.

55 unchanged sentences

We do not believe there will be any material changes in our unrecognized tax positions over the next 12 months.

Our evaluation was performed for the tax years ended December 31, 2019 through 2021, which were the tax years that remain subject to examination by major tax jurisdictions as of June 30, 2022.

Our evaluation was performed for the tax years ended December 31, 2019 through 2021, which were the tax years that remain subject to examination by major tax jurisdictions as of September 30, 2022.

Revenue recognition :

22 unchanged sentences

NOTE 3 – INVESTMENTS AND LOANS

The following table shows the composition of our investments and loans by major class, at amortized cost and fair value, as of June 30, 2022 (together with the corresponding percentage of the fair value of our total investments):

As of June 30, 2022

The following table shows the composition of our investments and loans by major class, at amortized cost and fair value, as of September 30, 2022 (together with the corresponding percentage of the fair value of our total investments):

As of September 30, 2022

Investments at

Amortized Cost

Percentage of

Amortized Cost

Investments at

Percentage of

Amortized Cost

Short-term Non-banking Loans

3 unchanged sentences

Investments at

Amortized Cost

Percentage of

Amortized Cost

Investments at

Percentage of

Amortized Cost

Short-term Non-banking Loans

Preferred Stock

The following table shows the composition of our investments and loans by industry grouping, based on fair value as of June 30, 2022:

As of June 30, 2022

The following table shows the composition of our investments and loans by industry grouping, based on fair value as of September 30, 2022:

As of September 30, 2022

Investments at

6 unchanged sentences

Information Technology

For the three months ended September 30, 2022, one investment accounted for 49 % of the interest income earned.

This investee did not make any cash interest payments during the three months ended September 30, 2022, and owes accrued interest of approximately $ 650,000 at September 30, 2022.

The Company believes it is probable that all interest will be collected from this investee.

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 investments and loans as of June 30, 2022 may differ materially from values that would have been used had a readily available market for the investments and loans existed.

The following table presents the fair value measurements of our investments and loans by major class, as of June 30, 2022, according to the fair value hierarchy:

As of June 30, 2022

Due to the inherent uncertainty in the valuation process, the estimate of the fair value of our investments and loans as of September 30, 2022 may differ materially from values that would have been used had a readily available market for the investments and loans existed.

The following table presents the fair value measurements of our investments and loans by major class, as of September 30, 2022, according to the fair value hierarchy:

As of September 30, 2022

Short-term Non-banking Loans

4 unchanged sentences

Preferred Stock

The following table presents a reconciliation of the beginning and ending fair value balances for our Level 3 investment and loan assets for the six months ended June 30, 2022:

For the six months ended June 30, 2022

The following table presents a reconciliation of the beginning and ending fair value balances for our Level 3 investment and loan assets for the nine months ended September 30, 2022:

For the nine months ended September 30, 2022

ST Non-banking

Preferred Stock

Balance as of January 1, 2022

3 unchanged sentences

( 9,523,585 )

Net realized loss

Balance as of June 30, 2021

The net change in unrealized appreciation for the six months ended June 30, 2022 attributable to Level 3 investments and loans still held as of June 30, 2022 is $ 0 , and is included in net change in unrealized appreciation (depreciation) on investments on the statement of operations.

The following table lists our Level 3 investments held as of June 30, 2022 and the unobservable inputs used to determine their valuation:

Balance as of September 30, 2022

The net change in unrealized appreciation for the nine months ended September 30, 2022 attributable to Level 3 investments and loans still held as of September 30, 2022 is $ 0 , and is included in net change in unrealized appreciation (depreciation) on investments on the statement of operations.

The following table lists our Level 3 investments held as of September 30, 2022 and the unobservable inputs used to determine their valuation:

Security Type

11 unchanged sentences

For the year ended December 31, 2021

ST Non-banking Loans

Balance as of January 1, 2021

3 unchanged sentences

( 15,904,333 )

Net realized loss

Balance as of December 31, 2021

29 unchanged sentences

Presently, we are a C-corporation for tax purposes and have booked an income tax provision for the periods described below.

As of June 30, 2022 and December 31, 2021, we had a net deferred tax liability of $ 39,000 and $ 45,000 , respectively.

As of September 30, 2022 and December 31, 2021, we have a deferred tax asset of $ 4,000 and a deferred tax liability of $ 45,000 , respectively.

As of September 30, 2022, our net deferred tax asset consists of foreign tax credit carryforwards, unrealized gain/loss, and other book to tax timing differences.

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 June 30, 2022 and December 31, 2021 we had accrued income taxes of $ 201,242 and $ 1,269,000 , respectively.

The change in accrued income taxes was driven by $ 1,449,000 of federal and state tax payments made shortly after quarter one of 2022 ended.

We recorded income taxes of $ 216,242 ( 29 percent effective tax rate) and $ 348,587 ( 29 percent effective tax rate) during the three months ended June 30, 2022 and June 30, 2021, respectively.

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 June 30, 2022, we have no federal or state NOLs available to offset taxable income, as all NOLs have been exhausted.

Due to tax reform enacted in 2017, any newly created NOLs will carry forward indefinitely.

As of September 30, 2022 and December 31, 2021 we had accrued income taxes of $ 128,800 and $ 1,269,000 , respectively.

The change in accrued income taxes was largely driven by $ 1,536,000 of federal and state tax payments made during 2022.

We recorded a benefit from income taxes of $ 28,442 ( 27 % effective tax rate) and a benefit from income taxes of $ 300 ( 27 % effective tax rate) during the three months ended September 30, 2022 and September 30, 2021, respectively.

We recorded income taxes of approximately $ 346,000 ( 27 % effective tax rate) and $ 1,010,978 ( 30.4 % effective tax rate) during the nine months ended September 30, 2022 and September 30, 2021, respectively.

NOTE 7 – LINE OF CREDIT

12 unchanged sentences

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.

During the period January 3 to June 30, 2022, the Loan Agreement provided 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 June 30, 2022, the balance outstanding on the line was $ 2,075,000 with a maturity date of January 3, 2027 .

Beginning July 1, 2022, we became obligated under the Loan Agreement to pay the quarterly unused commitment fee in cash.

At September 30, 2022, the balance outstanding on the line was $ 2,313,000 with a maturity date of January 3, 2027 .

NOTE 8 – SHAREHOLDERS’ EQUITY

At June 30, 2022, we had 10,855,413 shares of common stock issued and outstanding .

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.

At September 30, 2022, we had 6,185,255 shares of common stock issued and outstanding.

On August 9, 2022, the Company effected a stock combination (reverse stock split) of its common shares on a 1-for-2.25 basis such that every 2.25 shares of common stock issued and outstanding on that date were combined into one share of common stock.

Any fractional share resulting from the reverse stock split was rounded up to the nearest whole share.

The reverse stock split was approved by the Company’s board of directors in accordance with Minnesota law and resulted in a proportionate reduction in the number of authorized shares of capital stock available for issuance under the Company’s articles of incorporation.

This reduction was affected pursuant to the filing of articles of amendment with the Minnesota Secretary of State indicating that the Company, on a post-reverse-split basis, is authorized to issue up to 111,111,111 shares of capital stock.

On August 11, 2022, the Company completed its public offer and sale of 1,250,000 common shares pursuant to a registration statement filed with the SEC and declared effective on August 9, 2022.

Shares were sold by the Company at $ 4.00 per share, resulting in gross proceeds of $ 5,000,000 .

As part of the registered public offering, the Company granted the underwriters a 45-day option to purchase up to 187,500 additional common shares at the offering price, less underwriting discounts.

In connection with the offering, the Company issued the underwriter a five-year warrant to purchase up to 75,000 common shares at the per-share price of $ 5.00 .

Net proceeds to the Company after the payment of underwriting discounts, underwriting expenses, and the Company’s own offering-related expenses were approximately $ 4,041,000 .

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.

Basic net gain (loss) 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

For the Three Months

Ended September 30,

Net increase in net assets resulting from operations

1 unchanged sentence

Basic and diluted net gain per common share

For the Six Months Ended

For the Nine Months

Ended September 30,

Net increase in net assets resulting from operations

9 unchanged sentences

The weighted-average discount rate as of December 31, 2021 was 4.5 % and the weighted-average remaining lease term is one year.

Under ASC 840, rent expense for office facilities for the three months ended June 30, 2022 and June 30, 2021 was $ 19,141 and $ 16,337 , respectively.

The components of our operating lease were as follows for the three and six months ended June 30, 2022:

Under ASC 840, rent expense for office facilities for the three months ended September 30, 2022 and September 30, 2021 was $ 18,589 and $ 16,689 , respectively.

The components of our operating lease were as follows for the three and nine months ended September 30, 2022:

Three Months Ended

Six Months Ended

June 30, 2022

Nine Months Ended

September 30, 2022

Operating lease costs

1 unchanged sentence

Short-term lease cost

Supplemental balance sheet information consisted of the following at June 30, 2022:

Supplemental balance sheet information consisted of the following at September 30, 2022:

Operating Lease

3 unchanged sentences

Long term portion

Maturity analysis under lease agreements consisted of the following as of June 30, 2022:

Maturity analysis under lease agreements consisted of the following as of September 30, 2022:

Total lease payments

1 unchanged sentence

NOTE 11 – FINANCIAL HIGHLIGHTS

The following is a schedule of financial highlights for the six months ended June 30, 2022 through 2018:

Six Months Ended June 30,

The following is a schedule of financial highlights for the nine months ended September 30, 2022 through 2018:

Nine Months Ended September 30,

Per Share Data (1)

Net asset value at beginning of period

Net investment income (loss)

Net investment gain (loss)

Net realized and unrealized gains (losses)

2 unchanged sentences

Repurchase of common stock

Other changes in equity

Payment of common stock dividend

14 unchanged sentences

Ratios are annualized.

NOTE 12 – Subsequent Events

Any fractional share resulting from the reverse stock split was rounded up to the nearest whole share.

The reverse stock split was approved by the Company’s board of directors in accordance with Minnesota law, and resulted in a proportionate reduction in the number of authorized shares of capital stock available for issuance under the Company's articles of incorporation.

This reduction was effected pursuant to the filing of articles of amendment with the Minnesota Secretary of State indicating that the Company, on a post-reverse-split basis, is authorized to issue up to 111,111,111 shares of capital stock.

The condensed financial statements included herein have not been adjust for the August 9, 2022 reverse stock split.

Also on August 9, 2022, the Company’s common stock was listed and began trading on the Nasdaq Capital Market under the same ticker symbol MCVT.

On August 11, 2022, the Company completed its public offer and sale of 1,250,000 common shares pursuant to a registration statement filed with the SEC and declared effective on August 9, 2022.

Shares were sold by the Company at $ 4.00 per share, resulting in gross proceeds of $ 5,000,000 .

As part of the registered public offering, the Company granted the underwriters a 45 -day option to purchase up to 187,500 additional common shares at the offering price, less underwriting discounts.

In connection with the offering, the Company issued the underwriter a five-year warrant to purchase up to 75,000 common shares at the per-share price of $ 5.00 .

Net proceeds to the Company after the payment of underwriting discounts, underwriting expenses, and the Company’s own offering-related expenses were approximately $ 4,041,000 .

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 1. Financial Statements