What changed in this filing

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Item 1. Financial Statements

2023-11-17 compared with 2023-08-15 · 118 added, 107 removed, 473 unchanged (32% of the section changed)

2 unchanged sentences

CONDENSED BALANCE SHEETS

June 30, 2023 (unaudited)

September 30, 2023 (unaudited)

December 31, 2022

13 unchanged sentences

Common stock, par value $ 0.001 per share ( 111,111,111 authorized;

6,185,255 outstanding)

6,385,255 and 6,185,255 outstanding)

Additional paid-in capital

7 unchanged sentences

Accumulated undistributed net realized gains on investment transactions

Net unrealized appreciation in value of investments

Net unrealized depreciation 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

Nine Months Ended

September 30, 2023

September 30, 2022

September 30, 2023

September 30, 2022

Investment Income

14 unchanged sentences

$ ( 315,685 )

Provision for Income Taxes

Provision for (Benefit from) Income Taxes

Net Increase (Decrease) in Net Assets Resulting from Operations

1 unchanged sentence

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

Basic and diluted

Weighted-average number of common shares outstanding - basic and diluted

See accompanying Notes to Financial Statements

1 unchanged sentence

CONDENSED STATEMENTS OF SHAREHOLDERS’ EQUITY (UNAUDITED)

Three Months Ended June 30, 2023

Three Months Ended September 30, 2023

Common Shares

5 unchanged sentences

Total Shareholders' Equity

Balance as of March 31, 2023

Balance as of June 30, 2023

$ ( 1,159,665 )

$ ( 1,802,749 )

Dividend Distribution

Issuance of stock options

Exercise 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

Balance as of September 30, 2023

$ ( 1,159,665 )

$ ( 1,435,364 )

Three Months Ended June 30, 2022

Three Months Ended September 30, 2022

Common Shares

5 unchanged sentences

Total Shareholders' Equity

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 )

Six Months Ended June 30, 2023

Nine Months Ended September 30, 2023

Common Shares

10 unchanged sentences

Issuance of stock options

Exercise of stock options

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

1 unchanged sentence

Appreciation in value of investments

Balance as of June 30, 2022

Balance as of September 30, 2023

$ ( 1,159,665 )

$ ( 1,435,364 )

Six Months Ended June 30, 2022

Nine Months Ended September 30, 2022

Common Shares

3 unchanged sentences

Accumulated Undistributed Net Realized Gain on Investments Transactions

Net Unrealized Appreciation (Depreciation) in value of Investments

Net Unrealized Appreciation in value of Investments

Total Shareholders' Equity

2 unchanged sentences

$ ( 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 )

3 unchanged sentences

CONDENSED STATEMENTS OF CASH FLOWS (UNAUDITED)

Six Months Ended

June 30, 2023

June 30, 2022

STATEMENT OF CASH FLOWS

Nine Months Ended

September 30, 2023

September 30, 2022

Cash flows from operating activities:

11 unchanged sentences

Deferred income taxes

( 1,073,758 )

Common shares issued as consideration for expense payment

5 unchanged sentences

Accounts payable and other liabilities

Income taxes payable

( 1,185,200 )

Deferred interest income

Net cash provided (used) in operating activities

Net cash used in operating activities

( 6,429,293 )

Cash flows from financing activities:

Proceeds from public offering

Proceeds from stock option exercise

Proceeds from line of credit

4 unchanged sentences

Net increase (decrease) in cash

( 1,306,576 )

Cash, beginning of period

Cash, end of period

Supplemental disclosure of cash flow information:

Cash paid for interest

Non-cash investing activities:

See accompanying Notes to Financial Statements

MILL CITY VENTURES III, LTD.

CONDENSED SCHEDULE OF INVESTMENTS

JUNE 30, 2023

CONDENSED SCHEDULE OF INVESTMENTS (UNAUDITED)

SEPTEMBER 30, 2023

Investment / Industry

Percentage of

Percentage of Net Assets

Short-Term Non-banking Loans

4 unchanged sentences

Financial - 12% secured loans

Benton Financial, LLC

Financial - 34% secured loans

Benton Financial, LLC

Financial - 12% secured loans

Information Technology - 15% convertible note

16 unchanged sentences

Investment / Industry

Percentage of

Percentage of Net Assets

Short-Term Non-banking Loans

38 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, 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 September 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.

29 unchanged sentences

The estimated fair value of our Level 3 investment assets is determined on a quarterly basis by our Board of Directors.

In general, we value our Level 3 equity investments at cost unless circumstances warrant a different approach.

In general, we value our Level 3 equity investments at fair value certain circumstances however, impact the qualitative factors that we use in determining fair value.

Examples of these circumstances includes a situation in which 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).

3 unchanged sentences

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 the 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.

When valuing warrants, our valuation approach indicates that value will generally be the difference between the 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.

2 unchanged sentences

For level 3 non-banking loans with a maturity in excess of 60 days, fair value is determined based on the initial purchase price and adjusted as necessary to reflect any changes in the financial strength of the creditor and changes in interest rates in the high-yield credit markets.

We value Level 2 investments based on quoted prices for similar instruments or investments traded in active markets.

If there are no active markets for similar instruments or investments, then we value our Level 2 investments based on quoted prices not traded in active markets, or on valuation models whose inputs or significant value drivers consist of observable market data.

On a quarterly basis, our management provides members of our Board of Directors with recommendations, if any, 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.

11 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, 2020 through 2022, which are the tax years that remain subject to examination by major tax jurisdictions as of June 30, 2023.

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 September 30, 2023.

Revenue recognition :

28 unchanged sentences

NOTE 3 – INVESTMENTS

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

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

As of September 30, 2023

Investments at Amortized Cost

Percentage of Amortized Cost

Investments at

4 unchanged sentences

As of December 31, 2022

Investments at

Amortized Cost

Percentage of

Amortized Cost

Investments at Amortized Cost

Percentage of Amortized Cost

Investments at

2 unchanged sentences

Preferred Stock

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

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

As of September 30, 2023

Investments at

10 unchanged sentences

Level 3 valuation information :

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

Due to the inherent uncertainty in the valuation process, the estimate of the fair value of our investments portfolio as of September 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 September 30, 2023, according to the fair value hierarchy:

As of September 30, 2023

Short-term Non-banking Loans

Preferred Stock

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:

2 unchanged sentences

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 six months ended June 30, 2023:

For the six months ended June 30, 2023

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

For the nine months ended September 30, 2023

ST Non-banking Loans

7 unchanged sentences

Transfers out of level 3

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

Balance as of September 30, 2023

The net change in unrealized appreciation for the nine months ended September 30, 2023 attributable to Level 3 portfolio investments still held as of September 30, 2023 is $ 89,486 .

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

Investement Type

Valuation Technique

4 unchanged sentences

last secured funding known by company

economic changes since last funding

data obtained from issuer, and stated value of instrument (if any), less assumed transaction costs.

Preferred Stock

last funding secured by company

economic changes since last funding

data obtained from issuer, and stated value of instrument (if any), less assumed transaction costs.

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:

24 unchanged sentences

· 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 534,445 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 on August 30, 2023.

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 on December 31, 2023.

The promissory note bears interest payable monthly at the rate of 10 % per annum.

9 unchanged sentences

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.

As of September 30, 2023 and December 31, 2022, we have a deferred tax asset of $ 397,000 and $ 201,000 , respectively.

As of September 2023, our net deferred tax asset consists of foreign tax credit carryforwards, unrealized investment gain/loss, non-qualified stock option expenses, net operating losses (NOL), 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 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.

As of September 30, 2023 and December 31, 2022 we had prepaid income taxes of $ 139,200 and $ 179,300 , respectively.

We recorded a decrease of income taxes of $ 38,000 ( 27 percent effective tax rate) and an increase of income taxes of $ 346,000 ( 27 percent effective tax rate) during the nine months ended September 2023 and September 2022, respectively.

As of September 30, 2023, we had a federal NOL of approximately $277,000.

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 $277,000.

States vary in their treatment of post-2017 NOLs.

The state NOL of $200,000 is expected to be used by December 31, 2024.

The remaining state NOL carryforwards may expire in 2038 if not used .

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.

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.

During the period January 3 to September 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 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.

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

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

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

NOTE 8 – STOCK-BASED COMPENSATION

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:

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

As of September 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 Plan was amended by the Board of Directors on August 14, 2023, and a registration statement on Form S-8 respecting the Plan was filed with the SEC on August 23, 2023.

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

Weighted Average Exercise Price

Options outstanding at beginning of year

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 June 30, 2023:

Balance at September 30, 2023

Options exercisable at September 30:

Grant Date Fair Value for options granted during the period:

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

Options Outstanding

7 unchanged sentences

Aggregate Intrinsic Value

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:

The Company recognized stock-based compensation expense for stock options of $ 1,460,209 for the nine months ended September 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 nine months ended September 30, 2023:

Risk-free interest rate

9 unchanged sentences

NOTE 9 – SHAREHOLDERS’ EQUITY

At June 30, 2023, we had 6,185,255 shares of common stock issued and outstanding.

At September 30, 2023, we had 6,385,255 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.

4 unchanged sentences

NOTE 10 – 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.

Diluted net gain (loss) per common share is computed by dividing net increase in net assets resulting from operations by the weighted-average number of dilutive common shares outstanding during the period calculated using the Treasury Stock method.

The Treasury Stock method assumes that the proceeds received upon exercise of stock options are used to repurchase stock at the average market price during the period, thereby increasing the number of shares to be added in computing diluted earnings per share.

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 June 30,

For the Three Months Ended September 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,

Basic and diluted net gain (loss) per common share

For the Nine Months Ended September 30,

Net increase (decrease) in net assets resulting from operations

$ ( 277,763 )

Weighted-average number of common shares outstanding

1 unchanged sentence

NOTE 11 – OPERATING LEASES

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

We are a party to two non-cancelable operating leases for office space expiring May 31, 2024.

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 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:

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

Rent expense for office facilities for the nine months ended September 30, 2023 and September 30, 2022 was $ 55,005 and $ 54,542 , respectively.

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

Three Months Ended

Six Months Ended

June 30, 2023

September 30, 2023

Operating lease costs

1 unchanged sentence

Short-term lease cost

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

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

Operating Lease

3 unchanged sentences

Long term portion

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

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

Total lease payments

2 unchanged sentences

NOTE 12 – FINANCIAL HIGHLIGHTS

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

Six Months Ended June 30,

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

Nine Months Ended September 30,

Per Share Data (1)

4 unchanged sentences

Issuance of stock options

Issuance of common stock

Stock-based compensation

Repurchase of common stock

Other changes in equity

Payment of common stock dividend

3 unchanged sentences

Shares outstanding at end of period

Average weighted shares outstanding for the period

Average weighted shares outstanding for the period - basic

Average weighted shares outstanding for the period - diluted

Net assets at end of period

4 unchanged sentences

Ratio of net investment income (loss) to average net assets (3)

Ratio of realized gains (losses) to average net assets (3)

Per-share data was derived using the ending number of shares outstanding for the period.

2 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.

At the Company's 2023 annual shareholder meeting held on October 31, 2023, the shareholders of the Company re-elected all directors to serve another term on our Board of Directors, approved on an advisory basis the executive compensation paid to the Company's named executives, and voted on an advisory basis in favor of future advisory votes on the Company's executive compensation every three years.

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