What changed in this filing

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Item 1. Financial Statements

2023-08-15 compared with 2023-05-22 · 154 added, 121 removed, 426 unchanged (39% of the section changed)

2 unchanged sentences

CONDENSED BALANCE SHEETS

June 30, 2023 (unaudited)

December 31, 2022

Investments, at fair value:

1 unchanged sentence

$ 16,552,481 and $ 17,359,804 respectively)

Note receivable, related party

Note receivable

Prepaid expenses

Interest and dividend receivables

Right-of-use operating lease asset

Right-of-use lease asset

Deferred taxes

Accounts payable

Line of credit

Operating lease liability

13 unchanged sentences

Accumulated undistributed net realized gains on investment transactions

Net unrealized appreciation (depreciation) in value of investments

Net unrealized appreciation in value of investments

Total Shareholders' Equity (Net Assets)

5 unchanged sentences

Three Months Ended

Six Months Ended

June 30, 2023

June 30, 2022

June 30, 2023

June 30, 2022

Investment Income

8 unchanged sentences

Net Investment Gain (Loss)

( 1,025,767 )

Realized and Unrealized Gain (Loss) on Investments

1 unchanged sentence

Net change in unrealized appreciation (depreciation) on investments

Net Realized and Unrealized Gain on Investments

Net Realized and Unrealized Gain (Loss) on Investments

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

$ ( 621,645 )

Provision (Benefit) for Income Taxes

Provision for Income Taxes

Net Increase (Decrease) in Net Assets Resulting from Operations

6 unchanged sentences

CONDENSED STATEMENTS OF SHAREHOLDERS’ EQUITY (UNAUDITED)

Three Months Ended March 31, 2023

Three Months Ended June 30, 2023

Common Shares

2 unchanged sentences

Accumulated Undistributed Net Investment Loss

Accumulated Undistributed Net Realized Gain (Loss) on Investments Transactions

Net Unrealized Appreciation in value of Investments

Total Shareholders' Equity

Balance as of March 31, 2023

$ ( 1,159,665 )

$ ( 1,853,206 )

Dividend Distribution

Issuance of stock options

Undistributed net investment gain

Undistributed net realized gain on investment transactions

Depreciation in value of investments

Balance as of June 30, 2023

$ ( 1,159,665 )

$ ( 1,802,749 )

Three Months Ended June 30, 2022

Common Shares

Additional Paid In Capital

Accumulated Deficit

Accumulated Undistributed Net Investment Loss

Accumulated Undistributed Net Realized Gain on Investments Transactions

Net Unrealized Appreciation in value of Investments

Total Shareholders' Equity

Balance as of March 31, 2022

$ ( 1,159,665 )

$ ( 1,582,279 )

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

$ ( 1,159,665 )

$ ( 1,064,271 )

Six Months Ended June 30, 2023

Common Shares

Additional Paid In Capital

Accumulated Deficit

Accumulated Undistributed Net Investment Loss

Accumulated Undistributed Net Realized Gain on Investments Transactions

Net Unrealized Appreciation (Depreciation) in value of Investments

6 unchanged sentences

Net investment loss, net of tax benefit of $139,300

Net realized loss on investment transactions

Undistributed net realized loss on investment transactions

Appreciation in value of investments

Balance as of March 31, 2023

Balance as of June 30, 2022

$ ( 1,159,665 )

$ ( 1,802,749 )

Three Months Ended March 31, 2022

Six Months Ended June 30, 2022

Common Shares

8 unchanged sentences

$ ( 1,877,667 )

Net investment gain, net of tax of $159,000

Net realized gain on investment transactions

Common shares issued in stock based compensation

Undistributed net investment gain

Undistributed net realized gain on investment transactions

Depreciation in value of investments

Balance as of March 31, 2022

Balance as of June 30, 2022

$ ( 1,159,665 )

3 unchanged sentences

CONDENSED STATEMENTS OF CASH FLOWS (UNAUDITED)

Three Months Ended

Six Months Ended

June 30, 2023

June 30, 2022

Cash flows from operating activities:

2 unchanged sentences

Adjustments to reconcile net increase (decrease) in net assets resulting

from operations to net cash provided (used) in operating activities:

from operations to net cash used in operating activities:

Net change in unrealized (appreciation) depreciation on investments

6 unchanged sentences

Deferred income taxes

( 1,073,758 )

Common shares issued as consideration for expense payment

Changes in operating assets and liabilities:

1 unchanged sentence

Interest and dividends receivable

Accounts payable and other liabilities

Deferred interest income

Accrued income taxes

Payable for investment purchase

( 1,900,000 )

Net cash used in operating activities

( 3,399,812 )

Accounts payable and other liabilities

Deferred interest income

Net cash provided (used) in operating activities

( 3,381,576 )

1 unchanged sentence

Proceeds from line of credit

Repayments on line of credit

( 2,750,000 )

( 4,000,000 )

Net cash provided by financing activities

Net decrease in cash

Net increase (decrease) in cash

( 1,306,576 )

4 unchanged sentences

CONDENSED SCHEDULE OF INVESTMENTS

MARCH 31, 2023

JUNE 30, 2023

Investment / Industry

Percentage of

Short-Term Non-banking Loans

8 unchanged sentences

Financial - 12% secured loans

Benton Financial, LLC

Financial - 12% secured loans

Information Technology - 15% convertible note

1 unchanged sentence

Real Estate - 12% secured loans

Alatus Development Corp

8 unchanged sentences

$ $ 17,629,952

See accompanying Notes to the Financial Statements

MILL CITY VENTURES III, LTD.

2 unchanged sentences

Investment / Industry

Percentage of

Short-Term Non-banking Loans

22 unchanged sentences

$ $ 17,798,073

MILL CITY VENTURES III, LTD.

NOTES TO CONDENSED FINANCIAL STATEMENTS (UNAUDITED)

March 31, 2023

See accompanying Notes to the Financial Statements

NOTE 1 – ORGANIZATION

13 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 March 31, 2023 are not necessarily indicative of the results that may be expected for the year ending December 31, 2023.

Operating results for the quarter ended June 30, 2023 are not necessarily indicative of the results that may be expected for the year ending December 31, 2023.

The condensed balance sheet as of December 31, 2022 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.

15 unchanged sentences

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.

MILL CITY VENTURES III, LTD.

NOTES TO CONDENSED FINANCIAL STATEMENTS (UNAUDITED)

March 31, 2023

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.

30 unchanged sentences

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.

MILL CITY VENTURES III, LTD.

NOTES TO CONDENSED FINANCIAL STATEMENTS (UNAUDITED)

March 31, 2023

We record net deferred tax assets to the extent we believe these assets will more likely than not be realized.

3 unchanged sentences

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, 2020 through 2022, which are the tax years that remain subject to examination by major tax jurisdictions as of March 31, 2023.

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, 2020 through 2022, which are the tax years that remain subject to examination by major tax jurisdictions as of June 30, 2023.

Revenue recognition :

27 unchanged sentences

Our executive management team manages our investments as part of their employment responsibilities.

MILL CITY VENTURES III, LTD.

NOTES TO CONDENSED FINANCIAL STATEMENTS (UNAUDITED)

March 31, 2023

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, 2023 (together with the corresponding percentage of the fair value of our total portfolio of investments):

Investments at Amortized Cost

Percentage of Amortized Cost

Investments at Fair Value

Percentage of Fair Value

The following table shows the composition of our investment portfolio by major class, at amortized cost and fair value, as of June 30, 2023 (together with the corresponding percentage of the fair value of our total portfolio of investments):

As of June 30, 2023

Investments at

Amortized Cost

Percentage of

Amortized Cost

Investments at

Percentage of

Short-term Non-banking Loans

Preferred Stock

The following table shows the composition of our investment portfolio by major class, at amortized cost and fair value, as of December 31, 2022 (together with the corresponding percentage of the fair value of our total portfolio of investments):

Investments at Amortized Cost

Percentage of Amortized Cost

Investments at Fair Value

Percentage of Fair Value

As of December 31, 2022

Investments at

Amortized Cost

Percentage of

Amortized Cost

Investments at

Percentage of

Short-term Non-banking Loans

Preferred Stock

The following table shows the composition of our investment portfolio by industry grouping, based on fair value as of March 31, 2023:

Investments at Fair Value

Percentage of Fair Value

The following table shows the composition of our investment portfolio by industry grouping, based on fair value as of June 30, 2023:

As of June 30, 2023

Investments at

Percentage of

Business Services

1 unchanged sentence

The following table shows the composition of our investment portfolio by industry grouping, based on fair value as of December 31, 2022:

As of December 31, 2022

Investments at

2 unchanged sentences

Information Technology

MILL CITY VENTURES III, LTD.

NOTES TO CONDENSED FINANCIAL STATEMENTS (UNAUDITED)

March 31, 2023

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, 2023 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, 2023, according to the fair value hierarchy:

As of March 31, 2023

Due to the inherent uncertainty in the valuation process, the estimate of the fair value of our investments portfolio as of June 30, 2023 may differ materially from values that would have been used had a readily available market for the investments existed.

The following table presents the fair value measurements of our portfolio investments by major class, as of June 30, 2023, according to the fair value hierarchy:

As of June 30, 2023

Short-term Non-banking Loans

Preferred Stock

The following table presents the fair value measurements of our portfolio investments by major class, as of December 31, 2022, according to the fair value hierarchy:

Common Stock *

* Common shares are subject to a lock up holding period and not freely tradeable until August 15, 2023.

The following table presents the fair value measurements of our investment portfolio by major class, as of December 31, 2022, according to the fair value hierarchy:

As of December 31, 2022

1 unchanged sentence

Preferred Stock

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, 2023:

For the three months ended March 31, 2023

ST Non-banking

The following table presents a reconciliation of the beginning and ending fair value balances for our Level 3 portfolio investment assets for the six months ended June 30, 2023:

For the six months ended June 30, 2023

ST Non-banking Loans

Preferred Stock

Balance as of January 1, 2023

5 unchanged sentences

Transfers out of level 3

Balance as of March 31, 2023

The net change in unrealized appreciation for the three months ended March 31, 2023 attributable to Level 3 portfolio investments still held as of March 31, 2023 was $ 651,602 .

MILL CITY VENTURES III, LTD.

NOTES TO CONDENSED FINANCIAL STATEMENTS (UNAUDITED)

March 31, 2023

The following table lists our Level 3 investments held as of March 31, 2023 and the unobservable inputs used to determine their valuation:

Balance as of June 30, 2023

The net change in unrealized appreciation for the six months ended June 30, 2023 attributable to Level 3 portfolio investments still held as of June 30, 2023 is $ 634,081 .

The following table lists our Level 3 investments held as of June 30, 2023 and the unobservable inputs used to determine their valuation:

Security Type

9 unchanged sentences

economic changes since last funding

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, 2022:

The following table presents a reconciliation of the beginning and ending fair value balances for our Level 3 portfolio investment assets for the year ended December 31, 2022:

For the year ended December 31, 2022

ST Non-banking

ST Non-banking Loans

Preferred Stock

Balance as of January 1, 2022

29 unchanged sentences

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 8 above for further details.

MILL CITY VENTURES III, LTD.

NOTES TO CONDENSED FINANCIAL STATEMENTS (UNAUDITED)

March 31, 2023

See note 7 below 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, 2023 and December 31, 2022, we have a deferred tax asset of $ 461,000 and $ 201,000 , respectively.

As of March 31, 2023, our net deferred tax asset consists of net operating losses (NOLs), foreign tax credit carryforwards, unrealized investment gain/loss, future tax-deductible stock option expenses, and right of use assets.

We are a C-Corporation for tax purposes and have booked an income tax provision for the periods described below.

As of June 30, 2023 and December 31, 2022, we have a deferred tax asset of $ 428,000 and $ 201,000 , respectively.

As of June 30, 2023, our net deferred tax asset consists of foreign tax credit carryforwards, unrealized investment gain/loss, non-qualified stock option expenses, and right of use assets.

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.

As of March 31, 2023 and December 31, 2022 we had prepaid income taxes of $ 178,600 and $ 179,300 , respectively.

We recorded a benefit from income taxes of $ 259,300 ( 26 percent effective tax rate) and a provision for income taxes of $ 159,000 ( 28 percent effective tax rate) during the three months ended March 31, 2023 and March 31, 2022, respectively.

As of March 31, 2023, we had a federal NOL of approximately $ 168,000 .

The federal NOL may be carried forward to offset future taxable income, subject to applicable provisions of the Internal Revenue Code.

Due to tax reform enacted in 2017, NOLs created after 2017 carry forward indefinitely.

The estimated federal NOL that does not expire included in the total above is $ 168,000 .

States may vary in their treatment of post-2017 NOLs.

Minnesota is the only state carrying forward a NOL which was $ 100,000 at March 31, 2023.

The state NOL carryforwards may expire in 2043 if not used.

As of June 30, 2023 and December 31, 2022 we had prepaid income taxes of $ 44,600 and $ 179,300 , respectively.

We recorded a an increase in income taxes of $ 25,700 ( 26 percent effective tax rate) and an increase of income taxes of $ 324,000 ( 29 percent effective tax rate) during the three months ended June 30, 2023 and June 30, 2022, respectively.

NOTE 7 – LINE OF CREDIT

15 unchanged sentences

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

At March 31, 2023 and December 31, 2022, the balance outstanding on the line was $ 2,750,000 and $ 0 , respectively, with a maturity date of January 3, 2027 .

MILL CITY VENTURES III, LTD.

NOTES TO CONDENSED FINANCIAL STATEMENTS (UNAUDITED)

March 31, 2023

As of June 30, 2023 and December 31, 2022, there was no balance outstanding on the line.

NOTE 8 – STOCK-BASED COMPENSATION

The Board approved a 2022 Stock Incentive Plan which authorized 900,000 shares of common stock available to be issued.

To date, 870,000 shares were issued under the Plan, leaving 30,000 shares available for issuance.

The following table summarizes the activity for all stock options outstanding for the three months ended March 31, 2023:

The Company’s 2022 Stock Incentive Plan authorized the issuance of incentives relating to 900,000 shares of common stock.

As of June 30, 2023, incentives relating to the issuance of 870,000 shares have been issued under the Plan, leaving 30,000 shares available for issuance.

The following table summarizes the activity for all stock options outstanding for the six months ended June 30, 2023:

Weighted Average Exercise Price

Options outstanding at beginning of year

Balance at March 31

Options exercisable at March 31:

Balance at June 30, 2023

Options exercisable at June 30:

Weighted Average Grant Date Fair Value for options granted during the period:

The following table summarizes additional information about stock options outstanding and exercisable at March 31, 2023:

The following table summarizes additional information about stock options outstanding and exercisable at June 30, 2023:

Options Outstanding

1 unchanged sentence

Options Outstanding

Weighted Average Remaining Contractual

Weighted Average Exercise

Aggregate Intrinsic

Weighted Average Remaining Contractual Life

Weighted Average Exercise Price

Aggregate Intrinsic Value

Options Exercisable

Weighted Average Exercise

Weighted Average Exercise Price

Aggregate Intrinsic Value

The Company recognized stock-based compensation expense for stock options of $1,460,209 for the three months ended March 31, 2023.

The Black-Scholes option-pricing model was used to estimate the fair value of equity-based awards with the following weighted-average assumptions for the three months ended March 31, 2023:

The Company recognized stock-based compensation expense for stock options of $ 1,460,209 for the six months ended June 30, 2023.

The Black-Scholes option-pricing model was used to estimate the fair value of equity-based awards with the following weighted-average assumptions for the six months ended June 30, 2023:

Risk-free interest rate

8 unchanged sentences

The expected volatility is estimated based on historical volatility information of peer companies that are publicly available in combination with the Company’s calculated volatility.

MILL CITY VENTURES III, LTD.

NOTES TO CONDENSED FINANCIAL STATEMENTS (UNAUDITED)

March 31, 2023

NOTE 9 – SHAREHOLDERS’ EQUITY

At March 31, 2023, we had 6,185,255 shares of common stock issued and outstanding.

At June 30, 2023, 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.

6 unchanged sentences

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 June 30,

Net increase in net assets resulting from operations

Weighted-average number of common shares outstanding

Basic and diluted net gain per common share

For the Six Months Ended June 30,

Net increase (decrease) in net assets resulting from operations

3 unchanged sentences

NOTE 11 – OPERATING LEASES

We are a party to two non-cancelable operating leases for office space expiring April 2, 2023.

We are a party to two non-cancelable operating leases for office space expiring October 24, 2023.

These leases do not have significant lease escalations, holidays, concessions, leasehold improvements, or other build-out clauses.

3 unchanged sentences

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 March 31, 2023 and March 31, 2022 was 4.5 % and the weighted-average remaining lease term is one year.

Rent expense for office facilities for the three months ended March 31, 2023 and 2022 was $ 19,043 and $ 16,812 , respectively.

The components of our operating leases were as follows for the three months ended March 31:

The weighted-average discount rate as of June 30, 2023 and June 30, 2022 was 4.5 % and the weighted-average remaining lease term is one year .

Rent expense for office facilities for the six months ended June 30, 2023 and June 30, 2022 was $ 40,115 and $ 35,953 , respectively.

The components of our operating lease were as follows for the three and six months ended June 30, 2023:

Three Months Ended

Six Months Ended

June 30, 2023

Operating lease costs

1 unchanged sentence

Short-term lease cost

MILL CITY VENTURES III, LTD.

NOTES TO CONDENSED FINANCIAL STATEMENTS (UNAUDITED)

March 31, 2023

Supplemental balance sheet information consisted of the following at March 31:

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

Operating Lease

3 unchanged sentences

Long term portion

Maturity analysis under this lease extension agreement consists of the following as of March 31:

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

Total lease payments

2 unchanged sentences

NOTE 12 – FINANCIAL HIGHLIGHTS

The following is a schedule of financial highlights for the three months ended March 31, 2023 through 2019:

Three Months Ended March 31,

The following is a schedule of financial highlights for the six months ended June 30, 2023 through 2019:

Six Months Ended June 30,

Per Share Data (1)

13 unchanged sentences

Average net assets (2)

Total investment return

Total investment return (loss)

Portfolio turnover rate (3)

6 unchanged sentences

NOTE 13 – Subsequent Events

On August 14, 2023, the Board of Directors amended the exercise provisions of the 2022 Stock Incentive Plan to permit holders of stock options to exercise their options on a net-exercise/cashless basis, subject to the discretion of the board’s compensation committee (which administers the plan) to limit such exercises.

On the same date, the compensation committee approved the accelerated vesting of stock options earlier issued to non-executives and non-directors, immediately upon any change of control of the Company.

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