SUI Group Holdings Ltd. 10-Q

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Our Management’s Discussion and Analysis of Financial Condition and Results of Operations (MD&A) is intended to provide a reader of our financial statements with a narrative from the perspective of management on our financial condition, results of operations, liquidity and certain other factors that may affect our future results. In addition, unless expressly stated otherwise, the comparisons presented in this MD&A refer to the same period in the prior year. Our MD&A is presented in seven sections: · Overview · Portfolio and Investment Activity · Results of Operations · Financial Condition · Critical Accounting Estimates · Off-Balance Sheet Arrangements · Forward Looking Statements OVERVIEW Mill City Ventures III, Ltd. was incorporated in the State of Minnesota on January 10, 2006. 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.” We are engaged in the business of providing short-term non-bank lending and specialty finance solutions to companies and individuals, generally on a secured basis. The loans we provide typically have maturities that are nine months or shorter, highly illiquid, and ordinarily involve a pledge of collateral or, in the case of loans made to companies, personal guarantees by the principals of the borrower. Our loans may be made for real estate acquisitions, renovation and sale, or other projects relating to real estate, title loans, inventory needs, inventory financing, solve for short-term liquidity needs, or for other similar purposes. We intend to remain opportunistic, however, and may occasionally engage in transactions that involve our acquisition of other rights (such as stock, warrants or other equity-linked investments) or that are structured differently or uniquely. Our business objective is to generate revenues from the interest and fees we charge, and capital appreciation from any related investments we make. Our principal sources of income are interest and fees associated with our loans such as origination fees, closing fees or exit fees. In connection with the short-term non-bank specialty finance loans we provide, we may receive reimbursement of legal costs associated with loan documentation. We occasionally derive income from dividends paid on equity securities we hold from time to time, or from the sale of our equity securities. Our statement of operations also reflect increases and decreases in the carrying value of our assets and investments (i.e., unrealized appreciation and depreciation). Our principal expenses relate to operating expenses, the largest components of which are generally professional fees, payroll, occupancy, and insurance expenses. Our MD&A should be read in conjunction with our Annual Report on Form 10-K for the year ended December 31, 2024, as well as our reports on Forms 10-Q and 8-K and other publicly available information. All amounts herein are unaudited. In addition, the following discussion of our results of operations and financial condition should be read in the context of this overview. PORTFOLIO AND INVESTMENT ACTIVITY During the six months ended June 30, 2025, we made $4,428,530 of investment purchases and had $504,116 of redemptions and repayments, resulting in net investments at amortized cost of $17,641,707 as of June 30, 2025. During the six months ended June 30, 2024, we made $973,438 of investment purchases and had $5,461,479 of redemptions and repayments, resulting in net investments at amortized cost of $14,460,679 as of June 30, 2024. Our portfolio composition by major class, based on fair value at June 30, 2025, was as follows: Investments at Fair Value Percentage of Fair Value Short-term Non-banking Loans $ 6,685,295 37.4 % Commercial Business Loans 10,314,787 57.8 Common Stock 854,879 4.8 Other Equity — — Total $ 17,854,961 100.0 % 21 Table of Contents RESULTS OF OPERATIONS Our operating results for the three and six months ended June 30, 2025 and June 30, 2024 were as follows: : For the Three Months Ended June 30, For the Six Months Ended June 30, 2025 2024 2025 2024 Investment Income: $ 948,034 $ 888,629 $ 1,726,061 $ 1,721,296 Operating Expenses: (316,183 ) (398,059 ) (695,966 ) (759,146 ) Net Investment Gain $ 631,851 $ 490,570 $ 1,030,095 $ 962,150 Investment Income We generate revenue primarily in the form of interest income derived from the short-term non-banking loans we provide, together with fees we charge in connection with those loans, such as commitment, origination, structuring, diligence, or consulting fees. Any such fees will be recognized as earned. In some cases, the interest payable to us on the short-term loans we provide may accrue or be paid in the form of additional debt. The principal amount of the debt instruments, together with any accrued but unpaid interest thereon, will generally become due at the maturity date of those debt instruments. On occasion, we may also generate revenue from dividends and capital gains on equity investments we make, if any, or on warrants or other equity interests that we may acquire. For the three and six months ended June 30, 2025, our total investment income was $948,034 and $1,726,061, respectively. For the three and six months ended June 30, 2024 our total investment income was $888,629 and $1,721,296, respectively. Our loan portfolio generates interest income, with an average rate on the loans of 20%. Professional Fees For the three and six months ended June 30, 2025, we had $98,764 and $241,420 professional fees expense, respectively. For the three and six months ended June 30, 2024, we had $174,098 and $312,469 professional fees expense, respectively. The decrease is due to the decrease in loan activity during the current year. Payroll and Directors Fees For the three and six months ended June 30, 2025, we had $160,230 and $323,499 of payroll expense, respectively, and we had $30,000 and $60,000 of directors fees, respectively. For the three and six months ended June 30, 2024, we had $145,859 and $296,925 of payroll expense, respectively, and we had $30,000 and $60,000 of directors fees, respectively. Interest Expense For the three and six months ended June 30, 2025, we had $0 and $0 of interest expense, respectively. For the three and six months ended June 30, 2024, we had $0 and $320 of interest expense, respectively. The decrease is due to the termination of the line of credit agreement in January 2024. Net Realized Gain (Loss) from Investments For the three and six months ended June 30, 2025, we had $500,017 and $504,116, respectively, of sales of investments resulting in $31 of realized losses and $205 of realized gains, respectively. For the three and six months ended June 30, 2024, we had $5,152,682 and $5,461,479, respectively, of sales of investments resulting in $346,745 and $371,240 of realized gains, respectively. Net Change in Unrealized Appreciation (Depreciation) on Investments For the three and six months ended June 30, 2025, our investments had $314,515 and $476,781 of unrealized appreciation, respectively. For the three and six months ended June 30, 2024, our investments had $289,641 and $237,890 of unrealized depreciation, respectively. 22 Table of Contents Changes in Net Assets from Operations For the three and six months ended June 30, 2025, we recorded a net increase in net assets from operations of $677,035 and $1,128,781, respectively. Based on the weighted-average number of shares of common stock outstanding for the three and six months ended June 30, 2025, our per-share net increase in net assets from operations was $0.11 and $0.18, respectively. For the three and six months ended June 30, 2024, we recorded a net increase in net assets from operations of $412,936 and $795,039, respectively. Based on the weighted-average number of shares of common stock outstanding for the three and six months ended June 30, 2024, our per-share net increase in net assets from operations was $0.06 and $0.12, respectively. Cash Flows for the Six Months Ended June 30, 2025 and 2024 The level of cash flows used in or provided by operating activities is affected by the timing of purchases, redemptions and repayments of portfolio investments, among other factors. For the six months ended June 30, 2025, net cash used in operating activities was $3,898,665. Cash flows used in operating activities for the six months ended June 30, 2025 were primarily related to purchasing of investments totaling $4,428,530. Cash flows used in our financing activities for the six months ended June 30, 2025 were due to the repurchase and retirement of 322,482 of our common shares for $630,436. For the six months ended June 30, 2024, net cash provided in operating activities was $5,048,587. Cash flows provided in operating activities for the six months ended June 30, 2024 were primarily related to the funding of our short-term loans and purchases of investments aggregating $973,438, offset mostly by redemptions and repayments of short-term loans and investments totaling $5,461,479. FINANCIAL CONDITION As of June 30, 2025, we had cash of $1,497,009, a decrease of $4,529,101 from December 31, 2024. The primary use of our existing funds and any funds raised in the future is expected to be for our investments in portfolio companies or for other general corporate purposes, including paying for operating expenses or debt service to the extent we borrow or issue senior securities. Pending investment in portfolio companies, our investments may consist of cash, cash equivalents, U.S. government securities or high-quality debt securities maturing in one year or less from the time of investment, which we refer to collectively as “temporary investments.” Private Placement of Securities and SUI Strategy On July 31, 2025, we closed on a private placement offer and sale of 75,881,625 shares of our common stock at an offering price of $5.42 per share, and pre-funded warrants to purchase up to 7,144,205 shares of our common stock at an offering price of $5.4199 per share, exercisable at a per-share price of $0.0001. On July 27, 2025, and in connection with the private placement, we entered into a Placement Agency Agreement with A.G.P., pursuant to which A.G.P. agreed to serve as our exclusive placement agent in connection with the private placement. Pursuant to the Placement Agency Agreement, we paid A.G.P. a cash placement agent fee of $18,000,000. We also issued to A.G.P. warrants (the “Placement Agent Warrants”) to purchase up to 3,113,469 shares of our common stock (equal to 3.75% of the securities sold in the private placement). The Placement Agent Warrants will become exercisable six months following the issuance date and will be exercisable for a period of five years following the issuance date, at an exercise price of $5.962 per share. In addition, we agreed to reimburse A.G.P. for accountable expenses in an amount of $200,000 for its legal fees in connection with the private placement, as well as non-accountable expenses incurred by A.G.P. for up to $25,000 in connection with the private placement. At the closing of the private placement, we also issued five-year warrants to purchase our common stock as follows: (i) warrants (the “Lead Investor Warrants”) to Karatage Opportunities (“Karatage”), to purchase 3,113,469 shares of common stock at various exercise prices as follows: (i) 1,245,387 common shares at an exercise price of $5.42 per share; (ii) 1,245,387 common shares at an exercise price of $5.962 per share; (iii) 415,129 common shares at an exercise price of $6.504 per share; and (iv) 207,565 common shares at an exercise price of $7.046 per share; (ii) warrants (the “Foundation Investor Warrants”) to the Sui Foundation (the “Foundation Investor”), to purchase 3,113,469 shares of common stock at various exercise prices as follows: (i) 1,245,388 common shares at an exercise price of $5.42 per share; (ii) 1,245,387 common shares at an exercise price of $5.962 per share; (iii) 415,129 common shares at an exercise price of $6.504 per share; and (iv) 207,565 common shares at an exercise price of $7.046 per share; (iii) warrants (the “Management Warrants”) to certain members of the management of the Company to purchase 1,245,388 shares of common stock at various exercise prices as follows: (i) 622,694 common shares at an exercise price of $5.42 per share; (ii) 415,130 common shares at an exercise price of $6.504 per share; and (iii) 207,564 common shares at an exercise price of $7.046 per share; and (iv) warrants (the “Advisor Warrants”) to certain advisors of the Company to purchase 207,565 shares of common stock at an exercise price of $5.962 per share. 23 Table of Contents All of the above-described warrants, other than that Advisor Warrants, will vest over a 24-month period starting six months from the issue date (as defined therein) in four equal installments (being 25% every six months), and in the case of the Management Warrants, subject to the relevant holder still being employed by the Company at each respective vesting date. In the event that a member of the management team is terminated by the Company other than for cause or resigns for good reason (as defined in the individual’s employment agreement), the vesting of all of such individual’s Management Warrants will immediately accelerate and be fully vested as of the date of such termination. The Advisor Warrants are fully exercisable beginning as of January 31, 2026. On July 27, 2025, and in connection with the private placement, we entered into a Registration Rights Agreement with the investors and A.G.P. pursuant to which we agreed to file a registration statement, within 10 days of the closing (i.e., on or before August 10, 2025), providing for the resale by the investors of the common shares and shares of common stock issuable upon exercise of the pre-funded warrants, and the shares of common stock issuable upon exercise of the Lead Investor Warrant, Foundation Investor Warrant, Management Warrants and the Placement Agent Warrants, and to have such registration statement declared effective within 30 days of its filing date (or 60 days, if the SEC conducts a full review), and to maintain the effectiveness of such registration statement until all securities registered pursuant thereto (i) shall have been sold, either thereunder or pursuant to Rule 144, or (ii) starting from the third anniversary of the registration rights agreement, may be sold without volume or manner-of-sale restrictions pursuant to Rule 144 under the Securities Act, and without the requirement for our Company to be in compliance with the current public information requirement Rule 144. Common Stock Purchase Agreement On August 1, 2025, we entered into a Common Stock Purchase Agreement (the “Purchase Agreement”) with A.G.P./Alliance Global Partners (the “Investor”), pursuant to which we have the right, but not the obligation, to direct the Investor to purchase the lesser of (i) $500,000,000 or (ii) a number of shares not to exceed 19.99% of our shares of common stock outstanding on August 1, 2025, unless our shareholders shall have approved the issuance of common stock in excess of such percentage, upon satisfaction of certain terms and conditions contained in the Purchase Agreement, including but not limited to an effective resale registration statement filed with the SEC. In this regard, we also entered into a Registration Rights Agreement with the Investor on August 1, 2025, pursuant to which we agreed to file a resale registration statement registering the resale of shares of common stock that may be purchased by the Investor pursuant to the Purchase Agreement. Any purchases and sales under the Purchase Agreement will be at a per-share purchase price equal 95% of the volume-weighted average price for the applicable period, as calculated pursuant to the Purchase Agreement. Any proceeds from sales of common stock under the Purchase Agreement will be used in the manner set forth in the prospectus included in the related registration statement (and any post-effective amendment thereto), and any prospectus supplement thereto, filed pursuant to the registration rights agreement. CRITICAL ACCOUNTING ESTIMATES Our financial statements are prepared in conformity with accounting principles generally accepted in the United States of America, or U.S. GAAP, which requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting periods. Critical accounting policies are those that require the application of management’s most difficult, subjective or complex judgments, often because of the need to make estimates about the effect of matters that are inherently uncertain and that may change in subsequent periods. In preparing the financial statements, management will make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reporting periods. In preparing the financial statements, management also will utilize available information, including our past history, industry standards and the current economic environment, among other factors, in forming its estimates and judgments, giving due consideration to materiality. Actual results will almost certainly differ from these estimates. In addition, other companies may utilize different estimates, which may impact the comparability of our results of operations to those of companies in similar businesses. As our expected operating results occur, we will describe additional critical accounting policies in the notes to our financial statements. Our most critical accounting policies relate to the valuation of our portfolio investments, and revenue recognition. For more information, refer to our Annual Report on Form 10-K for the year ended December 31, 2024. OFF-BALANCE-SHEET ARRANGEMENTS During the six months ended June 30, 2025, we did not engage in any off-balance sheet arrangements as described in Item 303(a)(4) of Regulation S-K. 24 Table of Contents FORWARD-LOOKING STATEMENTS Some of the statements made in this section of our report are forward-looking statements based on our management’s current expectations for our company. These expectations involve assumptions and are subject to substantial risks and uncertainties that could cause actual results to differ materially from the results expressed in, or implied by, these forward-looking statements. Forward-looking statements relate to future events or our future financial performance, and can ordinarily be identified by terminology such as “may,” “will,” “should,” “expects,” “plans,” “anticipates,” “could,” “intends,” “targets,” “projects,” “contemplates,” “believes,” “estimates,” “predicts,” “potential” or “continue” or the negative of these terms or other similar words. Important assumptions include our ability to identify and consummate new investments, achieve certain margins and levels of profitability, the availability of any needed additional capital, and the ability to maintain compliance with regulations applicable to us. Some of the forward-looking statements contained in this report relate to, and are based our current assumptions regarding, the following: · our future operating results; · the success of our investments; · our relationships with third parties; · the dependence of our success on the general economy and its impact on the industries in which we invest; · the ability of our portfolio companies to achieve their objectives; · our expected financings and investments; · our regulatory structure and tax treatment; · the adequacy of our cash resources and working capital; and · the timing of cash flows, if any, we receive from our investments. The foregoing list is not exhaustive. For a more complete summary of the risks and uncertainties facing our company and its business and relating to our forward-looking statements, please refer to our Annual Report on Form 10-K filed on April 17, 2023 (related to our year ended December 31, 2024) and in particular the section thereof entitled “Risk Factors.” Because of the significant uncertainties inherent in forward-looking statements pertaining to our company, the inclusion of those statements should not be regarded as a representation or warranty by us or any other person that our objectives, plans, expectations or projections that are contained in this filing will be achieved in any specified time frame, if ever. We undertake no obligation to update any forward-looking statement to reflect events or circumstances occurring after the date of this filing. The forward-looking statements made in this report relate only to events as of the date on which the statements are made, and are excluded from the safe harbor protection provided by Section 21E of the Securities Exchange Act of 1934.