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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

__________________________

FORM 10-Q

__________________________

(Mark One)
☒	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
	For the quarterly period ended June 30, 2023

or
☐	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
	For the transition period from _______________________ to ___________________

Commission File Number 001-41472

MILL CITY VENTURES III, LTD.

(Exact name of registrant as specified in its charter)

Minnesota		90-0316651
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)

1907 Wayzata Blvd, #205, Wayzata, Minnesota		55391
(Address of principal executive offices)		(Zip Code)

(952) 479-1923

(Registrant’s telephone number, including area code)

__________________________

N/A

(Former name, former address and former fiscal year, if changed since last report)

__________________________

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. ☒ Yes ☐ No

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). ☒ Yes ☐ No

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer”, “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer	☐	Accelerated filer	☐
Non-accelerated filer	☒	Smaller reporting company	☒
		Emerging growth company	☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). ☐ Yes ☒ No

As of August 15, 2023, Mill City Ventures III, Ltd. had 6,185,255 shares of common stock, and no other classes of capital stock, outstanding.

MILL CITY VENTURES III, LTD.

Index to Form 10-Q

for the Quarter Ended June 30, 2023

PART I.	FINANCIAL INFORMATION	Page No.

Item 1.	Financial Statements (unaudited)	3

	Condensed Balance Sheets – June 30, 2023 and December 31, 2022	3

	Condensed Statements of Operations – Three and six months ended June 30, 2023 and June 30, 2022	4

	Condensed Statements of Shareholders’ Equity – Three and six months ended June 30, 2023 and June 30, 2022	5

	Condensed Statements of Cash Flows – Six months ended June 30, 2023 and June 30, 2022	6

	Condensed Schedule of Investments – June 30, 2023 and Schedule of Investments – December 31, 2022	8

	Condensed Notes to Financial Statements – June 30, 2023	9

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	19

Item 4.	Controls and Procedures	22

PART II.	OTHER INFORMATION	23

Item 5.	Other Information	23

Item 6.	Exhibits	23

SIGNATURES		24

Table of Contents

PART I. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

MILL CITY VENTURES III, LTD.

CONDENSED BALANCE SHEETS


	June 30, 2023 (unaudited)			December 31, 2022
ASSETS
Investments, at fair value:	$	16,528,425		$	16,708,432
Non-control/non-affiliate investments (cost: $16,552,481 and $17,359,804 respectively)
Cash		1,101,527			1,089,641
Note receivable		250,000			250,000
Prepaid expenses		158,839			218,440
Interest and dividend receivables		309,299			250,879
Right-of-use lease asset		5,483			16,398
Deferred taxes		428,000			201,000
Total Assets	$	18,781,573		$	18,734,790

LIABILITIES
Accounts payable	$	77,311		$	776,514
Operating lease liability		5,537			16,562
Deferred interest income		14,279			70,154
Total Liabilities		97,127			863,230

SHAREHOLDERS EQUITY (NET ASSETS)
Common stock, par value $0.001 per share (111,111,111 authorized;		12,215			12,215
6,185,255 outstanding)
Additional paid-in capital		15,043,291			15,043,291
Additional paid-in capital - stock options		1,460,209			—
Accumulated deficit		(1,159,665	)		(1,159,665	)
Accumulated undistributed investment loss		(1,802,749	)		(1,086,739	)
Accumulated undistributed net realized gains on investment transactions		5,155,200			5,713,829
Net unrealized appreciation in value of investments		(24,055	)		(651,371	)
Total Shareholders' Equity (Net Assets)		18,684,446			17,871,560
Total Liabilities and Shareholders' Equity	$	18,781,573		$	18,734,790
Net Asset Value Per Common Share	$	3.02		$	2.89

See accompanying Notes to Financial Statements

Table of Contents

MILL CITY VENTURES III, LTD.

CONDENSED STATEMENTS OF OPERATIONS (UNAUDITED)


	Three Months Ended						Six Months Ended
	June 30, 2023			June 30, 2022			June 30, 2023			June 30, 2022
Investment Income
Interest income	$	907,502		$	1,236,505		$	1,771,530		$	2,236,711
Total Investment Income		907,502			1,236,505			1,771,530			2,236,711
Operating Expenses
Professional fees		287,325			197,591			417,176			392,989
Payroll		147,161			114,542			1,277,600			310,984
Insurance		26,522			26,979			53,522			57,076
Occupancy		21,072			19,141			40,115			35,953
Director's fees		30,000			87,073			562,968			117,073
Interest expense		43,333			47,794			78,000			117,853
Other general and administrative		14,632			9,135			32,481			16,145
Total Operating Expenses		570,045			502,255			2,461,862			1,048,073
Net Investment Gain (Loss)		337,457			734,250			(690,332	)	$	1,188,638
Realized and Unrealized Gain (Loss) on Investments
Net realized gain (loss) on investments		41,371			(5,750	)		(558,629	)		133,020
Net change in unrealized appreciation (depreciation) on investments		(21,107	)		5,750			627,316			(16,297	)
Net Realized and Unrealized Gain (Loss) on Investments		20,264			—			68,687			116,723
Net Increase (Decrease) in Net Assets Resulting from Operations Before Taxes	$	357,721		$	734,250		$	(621,645	)	$	1,305,361

Provision for Income Taxes		287,000			216,242			25,678			375,242
Net Increase (Decrease) in Net Assets Resulting from Operations	$	70,721		$	518,008		$	(647,323	)		930,119

Net Increase (Decrease) in Net Assets Resulting from Operations per share:
Basic and diluted	$	0.01		$	0.11		$	(0.10	)	$	0.19

Weighted-average number of common shares outstanding - basic and diluted		6,185,255			4,821,136			6,185,255			4,808,508

See accompanying Notes to Financial Statements

Table of Contents

MILL CITY VENTURES III, LTD.

CONDENSED STATEMENTS OF SHAREHOLDERS’ EQUITY (UNAUDITED)

Three Months Ended June 30, 2023	Common Shares		Par Value		Additional Paid In Capital		Accumulated Deficit			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		6,185,255	$	12,215	$	16,503,500	$	(1,159,665	)	$	(1,853,206	)	$	5,113,829		$	(2,948	)	$	18,613,725
Dividend Distribution				—		—		—			—			—			—			—
Issuance of stock options		—		—		—		—			—			—						—
Undistributed net investment gain				—		—		—			50,457			—			—			50,457
Undistributed net realized gain on investment transactions				—		—		—			—			41,371			—			41,371
Depreciation in value of investments				—		—		—			—			—			(21,107	)		(21,107	)
Balance as of June 30, 2023		6,185,255	$	12,215	$	16,503,500	$	(1,159,665	)	$	(1,802,749	)	$	5,155,200		$	(24,055	)	$	18,684,446

Three Months Ended June 30, 2022	Common Shares		Par Value		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		10,790,413	$	10,790	$	10,694,163	$	(1,159,665	)	$	(1,582,279	)	$	5,719,580		$	143,571		$	13,826,160
Common shares issued in stock based compensation		65,000		65		82,374		—			—									82,439
Undistributed net investment gain				—		—		—			518,008			—			—			518,008
Undistributed net realized loss on investment transactions				—		—		—			—			(5,750	)		—			(5,750	)
Appreciation in value of investments				—		—		—			—			—			5,750			5,750
Balance as of June 30, 2022		10,855,413	$	10,855	$	10,776,537	$	(1,159,665	)	$	(1,064,271	)	$	5,713,830		$	149,321		$	14,426,607

Six Months Ended June 30, 2023	Common Shares		Par Value		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			Total Shareholders' Equity

Balance as of December 31, 2022		6,185,255	$	12,215	$	15,043,291	$	(1,159,665	)	$	(1,086,739	)	$	5,713,829		$	(651,371	)	$	17,871,560
Issuance of stock options						1,460,209		—			—			—			—			1,460,209
Net investment loss, net of tax benefit of $139,300				—		—		—			(716,010	)		—			—			(716,010	)
Undistributed net realized loss on investment transactions				—		—		—			—			(558,629	)		—			(558,629	)
Appreciation in value of investments				—		—		—			—			—			627,316			627,316
Balance as of June 30, 2022		6,185,255	$	12,215	$	16,503,500	$	(1,159,665	)	$	(1,802,749	)	$	5,155,200		$	(24,055	)	$	18,684,446

Six Months Ended June 30, 2022	Common Shares		Par Value		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			Total Shareholders' Equity

Balance as of December 31, 2021		10,790,413	$	10,790	$	10,694,163	$	(1,159,665	)	$	(1,877,667	)	$	5,580,810		$	165,618		$	13,414,049
Common shares issued in stock based compensation		65,000		65		82,374		—			—									82,439
Undistributed net investment gain				—		—		—			813,396			—			—			813,396
Undistributed net realized gain on investment transactions				—		—		—			—			133,020			—			133,020
Depreciation in value of investments				—		—		—			—			—			(16,297	)		(16,297	)
Balance as of June 30, 2022		10,855,413	$	10,855	$	10,776,537	$	(1,159,665	)	$	(1,064,271	)	$	5,713,830		$	149,321		$	14,426,607

See accompanying Notes to Financial Statements

Table of Contents

MILL CITY VENTURES III, LTD.

CONDENSED STATEMENTS OF CASH FLOWS (UNAUDITED)


	Six Months Ended
	June 30, 2023			June 30, 2022
Cash flows from operating activities:
Net increase (decrease) in net assets resulting from operations	$	(647,323	)	$	930,119
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		(627,316	)		16,297
Net realized (gain) loss on investments		558,629			(133,020	)
Purchases of investments		(8,900,500	)		(9,103,580	)
Proceeds from sales of investments		9,149,194			7,977,898
Issuance of stock options		1,460,209			—
Deferred income taxes		(227,000	)		(1,073,758	)
Common shares issued as consideration for expense payment		—			82,439
Changes in operating assets and liabilities:
Prepaid expenses and other assets		70,516			(39,772	)
Interest and dividends receivable		(58,420	)		(115,072	)
Payable for investment purchase		—			(1,900,000	)
Accounts payable and other liabilities		(710,228	)		(23,127	)
Deferred interest income		(55,875	)		—
Net cash provided (used) in operating activities		11,886			(3,381,576	)
Cash flows from financing activities:
Proceeds from line of credit		2,750,000			6,075,000
Repayments on line of credit		(2,750,000	)		(4,000,000	)
Net cash provided by financing activities		—			2,075,000
Net increase (decrease) in cash		11,886			(1,306,576	)
Cash, beginning of period		1,089,641			1,936,148
Cash, end of period	$	1,101,527		$	629,572

See accompanying Notes to Financial Statements

Table of Contents

MILL CITY VENTURES III, LTD.

CONDENSED SCHEDULE OF INVESTMENTS

JUNE 30, 2023

Investment / Industry

Cost

Fair Value

Percentage of

Net Assets

Short-Term Non-banking Loans

Business Services - 15% secured loans