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Item 1. Financial Statements

2024-05-15 compared with 2023-11-17 · 137 added, 213 removed, 378 unchanged (48% of the section changed)

2 unchanged sentences

CONDENSED BALANCE SHEETS

September 30, 2023 (unaudited)

March 31, 2024 (unaudited)

December 31, 2023

Investments, at fair value:

Non-control/non-affiliate investments (cost:

Investments, at fair value (cost:

$ 18,366,616 and $ 18,577,481 , respectively)

Note receivable

Note receivable, related party

Prepaid expenses

Interest and dividend receivables

Right-of-use lease asset

Right-of-use operating lease asset

Deferred taxes

Accounts payable

Accrued payroll liabilities

Operating lease liability

Deferred interest income

Total Liabilities

1 unchanged sentence

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

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

6,385,255 issued and outstanding)

Additional paid-in capital

5 unchanged sentences

( 1,052,183 )

( 1,086,739 )

Accumulated undistributed net realized gains on investment transactions

Net unrealized depreciation in value of investments

Net unrealized appreciation (depreciation) in value of investments

( 1,241,053 )

( 1,292,804 )

Total Shareholders' Equity (Net Assets)

5 unchanged sentences

Three Months Ended

Nine Months Ended

September 30, 2023

September 30, 2022

September 30, 2023

September 30, 2022

March 31, 2024

March 31, 2023

Investment Income

8 unchanged sentences

Net Investment Gain (Loss)

( 1,025,767 )

Realized and Unrealized Gain (Loss) on Investments

Net realized gain (loss) on investments

Net change in unrealized appreciation (depreciation) on investments

Net Realized and Unrealized Gain (Loss) on Investments

Net change in unrealized appreciation on investments

Net Realized and Unrealized Gain on Investments

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

$ ( 977,344 )

Provision for (Benefit from) Income Taxes

Provision (Benefit) for 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:

See accompanying Notes to Financial Statements

Basic and diluted

Weighted-average number of common shares outstanding - basic

Weighted-average number of common shares outstanding - diluted

MILL CITY VENTURES III, LTD.

CONDENSED STATEMENTS OF SHAREHOLDERS’ EQUITY (UNAUDITED)

Three Months Ended September 30, 2023

Three Months Ended March 31, 2024

Common Shares

1 unchanged sentence

Accumulated Deficit

Accumulated Undistributed Net Investment Loss

Accumulated Undistributed Net Realized Gain (Loss) on Investments Transactions

Net Unrealized Appreciation in value of Investments

Accumulated Undistributed Net Investment Gain (Loss)

Accumulated Undistributed Net Realized Gain on Investments Transactions

Net Unrealized Appreciation (Depreciation) in Value of Investments

Total Shareholders' Equity

Balance as of June 30, 2023

$ ( 1,159,665 )

$ ( 1,802,749 )

Exercise of stock options

Undistributed net investment gain

Depreciation in value of investments

Balance as of September 30, 2023

Balance as of December 31, 2023

$ ( 1,159,665 )

$ ( 1,052,183 )

Three Months Ended September 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 June 30, 2022

$ ( 1,292,804 )

Undistributed net investment gain

Undistributed net realized gain on investment transactions

Appreciation in value of investments

Balance as of March 31, 2024

$ ( 1,159,665 )

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 loss

Balance as of September 30, 2022

$ ( 746,326 )

$ ( 1,241,053 )

Nine Months Ended September 30, 2023

Three Months Ended March 31, 2023

Common Shares

2 unchanged sentences

Accumulated Undistributed Net Investment Loss

Accumulated Undistributed Net Realized Gain on Investments Transactions

Accumulated Undistributed Net Realized Gain (Loss) on Investments Transactions

Net Unrealized Appreciation (Depreciation) in Value of Investments

5 unchanged sentences

Issuance of stock options

Exercise of stock options

Net investment loss, net of tax benefit of $259,300

Undistributed net realized loss on investment transactions

Net realized loss on investment transactions

Appreciation in value of investments

Balance as of September 30, 2023

$ ( 1,159,665 )

$ ( 1,435,364 )

Nine Months Ended September 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 December 31, 2021

$ ( 1,159,665 )

$ ( 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

Undistributed net realized gain on investment transactions

Depreciation in value of investments

Balance as of September 30, 2022

Balance as of March 31, 2023

$ ( 1,159,665 )

3 unchanged sentences

CONDENSED STATEMENTS OF CASH FLOWS (UNAUDITED)

STATEMENT OF CASH FLOWS

Nine Months Ended

September 30, 2023

September 30, 2022

Three Months Ended

March 31, 2024

March 31, 2023

Cash flows from operating activities:

2 unchanged sentences

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

from operations to net cash used in operating activities:

Net change in unrealized (appreciation) depreciation on investments

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

Net change in unrealized appreciation on investments

Net realized (gain) loss on investments

1 unchanged sentence

( 6,900,500 )

( 13,924,333 )

Proceeds from sales of investments

1 unchanged sentence

Deferred income taxes

Common shares issued as consideration for expense payment

Changes in operating assets and liabilities:

1 unchanged sentence

Interest and dividends receivable

Payable for investment purchase

( 1,900,000 )

Accounts payable and other liabilities

Income taxes payable

( 1,185,200 )

Deferred interest income

Net cash used in operating activities

Net cash provided by (used in) operating activities

( 3,399,812 )

Cash flows from financing activities:

Proceeds from public offering

Proceeds from stock option exercise

Proceeds from line of credit

Repayments on line of credit

( 2,750,000 )

( 6,101,000 )

Net cash provided by financing activities

2 unchanged sentences

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 (UNAUDITED)

SEPTEMBER 30, 2023

CONDENSED SCHEDULE OF INVESTMENTS

MARCH 31, 2024

Investment / Industry

6 unchanged sentences

Financial - 12% secured loans

Information Technology - 15% convertible note

Real Estate - 18% secured loans

Tailwind, LLC

Real Estate - 12% secured loans

5 unchanged sentences

Total Preferred Stock

Information Technology

Total Investments

Total Investments and Cash

$ $ 18,540,341

$ $ 18,518,461

See accompanying Notes to the Financial Statements

MILL CITY VENTURES III, LTD.

5 unchanged sentences

Business Services - 15% secured loans

Liberated Syndication Inc.

Business Services - 15% secured loans

Mustang Litigation Funding

2 unchanged sentences

Financial - 12% secured loans

Benton Financial, LLC

Financial - 12% secured loans

Information Technology - 15% convertible note

Real Estate - 18% secured loans

Tailwind, LLC

Real Estate - 12% secured loans

5 unchanged sentences

Total Preferred Stock

Total Other Equity

Total Investments

Total Investments and Cash

$ $ 18,449,445

$ $ 17,798,073

See accompanying Notes to the Financial Statements

MILL CITY VENTURES III, LTD.

NOTES TO CONDENSED FINANCIAL STATEMENTS (UNAUDITED)

March 31, 2024

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.

6 unchanged sentences

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 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.

For further information, refer to the financial statements and footnotes thereto included in our Annual Report on Form 10-K/A for the year ended December 31, 2022.

Use of estimates:

22 unchanged sentences

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.

MILL CITY VENTURES III, LTD.

NOTES TO CONDENSED FINANCIAL STATEMENTS (UNAUDITED)

March 31, 2024

Our valuation policy and procedures :

3 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 fair value certain circumstances however, impact the qualitative factors that we use in determining fair value.

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

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 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.

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.

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.

8 unchanged sentences

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.

MILL CITY VENTURES III, LTD.

NOTES TO CONDENSED FINANCIAL STATEMENTS (UNAUDITED)

March 31, 2024

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 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 September 30, 2023.

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 2023, which are the tax years that remain subject to examination by major tax jurisdictions as of March 31, 2024.

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, 2024

NOTE 3 – INVESTMENTS

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

The following table shows the composition of our investment portfolio by major class, at amortized cost and fair value, as of March 31, 2024 (together with the corresponding percentage of the fair value of our total portfolio of investments):

As of March 31, 2024

Investments at Amortized Cost

4 unchanged sentences

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 investments):

The following table shows the composition of our investment portfolio by major class, at amortized cost and fair value, as of December 31, 2023 (together with the corresponding percentage of the fair value of our total portfolio of investments):

As of December 31, 2023

5 unchanged sentences

Preferred Stock

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

The following table shows the composition of our investment portfolio by industry grouping, based on fair value as of March 31, 2024:

As of March 31, 2024

Investments at

8 unchanged sentences

Information Technology

MILL CITY VENTURES III, LTD.

NOTES TO CONDENSED FINANCIAL STATEMENTS (UNAUDITED)

March 31, 2024

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 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

Due to the inherent uncertainty in the valuation process, the estimate of the fair value of our investment portfolio as of March 31, 2024 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, 2024, according to the fair value hierarchy:

As of March 31, 2024

Short-term Non-banking Loans

Preferred Stock

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:

The following table presents the fair value measurements of our portfolio investments by major class, as of December 31, 2023, according to the fair value hierarchy:

As of December 31, 2023

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 nine months ended September 30, 2023:

For the nine months ended September 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 three months ended March 31, 2024:

For the three months ended March 31, 2024

ST Non-banking Loans

4 unchanged sentences

Sales and redemptions

( 11,029,625 )

Net realized loss

Transfers out of level 3

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

Balance as of March 31, 2024

The net change in unrealized appreciation for the three months ended March 31, 2024 attributable to Level 3 portfolio investments still held as of March 31, 2024 was $ 22,243 .

MILL CITY VENTURES III, LTD.

NOTES TO CONDENSED FINANCIAL STATEMENTS (UNAUDITED)

March 31, 2024

The following table lists our Level 3 investments held as of March 31, 2024 and the unobservable inputs used to determine their valuation:

Security Type

Valuation Technique

4 unchanged sentences

last secured funding known by company

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

Preferred Stock

last funding secured by company

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:

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, 2023:

For the year ended December 31, 2023

6 unchanged sentences

( 11,029,625 )

Realized gain (loss)

Transfers between level 3 and level 1

Balance as of December 31, 2023

15 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 December 31, 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 July 1, 2024.

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

7 unchanged sentences

See note 7 below for further details.

MILL CITY VENTURES III, LTD.

NOTES TO CONDENSED FINANCIAL STATEMENTS (UNAUDITED)

March 31, 2024

NOTE 6 – INCOME TAXES

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

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.

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

Our tax provision or benefit from income taxes for interim periods is determined using an estimate of our annual effective tax rate.

As of March 31, 2024 and December 31, 2023, we have a deferred tax asset of $ 660,000 and $ 757,000 , respectively.

As of March 31, 2024, our net deferred tax asset consists of foreign tax credit carryforwards, unrealized investment gain/loss, non-qualified stock option expenses, acquisition costs, depreciable assets, 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 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 .

As of March 31, 2024 and December 31, 2023 we had prepaid income taxes of $ 67,700 and $ 131,500 , respectively.

We recorded an increase of income taxes of $ 165,723 ( 30 percent effective tax rate) and a decrease of income taxes of $ 259,300 ( 26 percent effective tax rate) during the three months ended March 2024 and March 2023, respectively.

NOTE 7 – LINE OF CREDIT

4 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.

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.

Amounts drawn under the Loan Agreement accrued interest at the per annum rate of 8 %, and all our obligations under the Loan Agreement were 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;

Berman was obligated to furnish only one-half of the aggregate $ 5 million available under the Loan Agreement.

The Loan Agreement had a five-year term ending on January 3, 2027, at which time all amounts owing under the Loan Agreement were to 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.

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

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 initially required 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.

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

At December 31, 2023, the balance outstanding on the line was $ 0 .

In January 2024, we terminated the Loan Agreement having earlier satisfied all amounts owing thereunder.

Any applicable fees related to early termination of the Agreement were waived.

MILL CITY VENTURES III, LTD.

NOTES TO CONDENSED FINANCIAL STATEMENTS (UNAUDITED)

March 31, 2024

NOTE 8 – STOCK-BASED COMPENSATION

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.

As of March 31, 2024, 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:

The following table summarizes the activity for all stock options outstanding for the three months ended March 31, 2024:

Weighted Average Exercise Price

Options outstanding at beginning of year

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:

Balance at March 31

Options exercisable at March 31:

The following table summarizes additional information about stock options outstanding and exercisable at March 31, 2024:

Options Outstanding

7 unchanged sentences

Aggregate Intrinsic Value

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

Expected volatility

Expected life (years)

Expected dividend yield

The inputs for the Black-Scholes valuation model require management’s significant assumptions.

The price per share of common stock is determined by using the closing market price on the Nasdaq Capital Market on the grant date.

The risk-free interest rates are based on the rate for U.S.

Treasury securities at the date of grant with maturity dates approximately equal to the expected life at the grant date.

The expected life is based on the simplified method in accordance with the SEC Staff Accounting Bulletin Nos.

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.

The Company recognized stock-based compensation expense for stock options of $ 0 and $ 1,460,209 for the three months ended March 31, 2024 and 2023, respectively.

NOTE 9 – SHAREHOLDERS’ EQUITY

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.

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.

All share and per share information has been retrospectively adjusted to reflect the reverse stock split.

At March 31, 2024, we had 6,385,255 shares of common stock issued and outstanding.

In connection with the 2022 public offering, the Company issued a five-year warrant to the underwriter.

The warrant allows the underwriter to purchase up to 75,000 common shares at $5.00 per share.

This warrant is exercisable after 180 days, and expires on August 8, 2027 .

This warrant is equity-classified and the fair value was $ 201,173 on the offering date.

NOTE 10 – PER-SHARE INFORMATION

3 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 September 30,

Net increase in net assets resulting from operations

Weighted-average number of common shares outstanding

Basic and diluted net gain (loss) per common share

For the Nine Months Ended September 30,

For the Three Months Ended March 31,

Net increase (decrease) in net assets resulting from operations

3 unchanged sentences

Basic and diluted net gain (loss) per common share

MILL CITY VENTURES III, LTD.

NOTES TO CONDENSED FINANCIAL STATEMENTS (UNAUDITED)

March 31, 2024

NOTE 11 – OPERATING LEASES

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.

Further, the leases do not contain contingent rent provisions.

The leases do not include options to renew.

Because our leases do not provide an implicit rate, we use our incremental borrowing rate in determining the present value of the lease payments.

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

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.

The lease does not include an option to renew.

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 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

September 30, 2023

The weighted-average discount rate as of March 31, 2024 and March 31, 2023 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, 2024 and 2023 was $ 10,677 and $ 19,043 , respectively.

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

Operating lease costs

1 unchanged sentence

Short-term lease cost

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

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

Operating Lease

3 unchanged sentences

Long term portion

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

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

Total lease payments

1 unchanged sentence

Present value of lease liabilities

MILL CITY VENTURES III, LTD.

NOTES TO CONDENSED FINANCIAL STATEMENTS (UNAUDITED)

March 31, 2024

NOTE 12 – FINANCIAL HIGHLIGHTS

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

Nine Months Ended September 30,

The following is a schedule of financial highlights for the three months ended March 31, 2024 through 2020:

Three Months Ended March 31,

Per Share Data (1)

2 unchanged sentences

Net realized and unrealized gains (losses)

Provision for income taxes

Provision for (benefit from) income taxes

Issuance of stock options

Issuance of common stock

Stock-based compensation

Repurchase of common stock

Other changes in equity

Payment of common stock dividend

Net asset value at end of period

6 unchanged sentences

Average net assets (2)

Total investment return (loss)

Total investment return

Portfolio turnover rate (3)

5 unchanged sentences

NOTE 13 – Subsequent Events

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