Amendment to Quarterly Report (Form 10-Q/A)

Table of Contents

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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q/A

(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, 2021

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 811-22778

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 October 8, 2021, Mill City Ventures III, Ltd. had 10,790,413 shares of common stock, and no other classes of capital stock, outstanding.

​

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Table of Contents

NOTE OF EXPLANATION

​

This Amendment No. 1 to the Quarterly Report on Form 10-Q (this "Amendment") of Mill City Ventures III, Ltd. (the "Company") amends the Company's Quarterly Report on Form 10-Q for the three-month period ended June 30, 2021 originally filed with the SEC on August 16, 2021. The Company is filing this Amendment to (i) include the inline XBRL files required as Exhibit 101, and (ii) update the Exhibit Index (Part II, Item 6). In addition, new Section 302 and 907 certifications are being filed with this Amendment, as required under Rule 12b- 15 under the Securities Exchange of 1934. No other changes to the report, including the financial statements and accompanying notes thereto, are being made pursuant to this Amendment.

​

MILL CITY VENTURES III, LTD.

Index to Form 10-Q

for the Quarter Ended June 30, 2021

​

PART I.		FINANCIAL INFORMATION		Page No.
Item 1.		Financial Statements (unaudited)
		Condensed Balance Sheets - June 30, 2021 and December 31, 2020		3
		Condensed Statements of Operations - Three and six months ended June 30, 2021 and June 30, 2020		4
		Condensed Statements of Shareholders' Equity - Three and six months ended June 30, 2021 and June 30, 2020		5
		Condensed Statements of Cash Flows - Six months ended June 30, 2021 and June 30, 2020		7
		Condensed Schedule of Investments - June 30, 2021 and Schedule of Investments - December 31, 2020		8
		Condensed Notes to Financial Statements - June 30, 2021		10
Item 2.		Management's Discussion and Analysis of Financial Condition and Results of Operations		19
Item 4.		Controls and Procedures		19
PART II.		OTHER INFORMATION		19
Item 6.		Exhibits		19
SIGNATURES		20

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- 2 -

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Table of Contents

PART I. FINANCIAL INFORMATION

​

ITEM 1.FINANCIAL STATEMENTS

MILL CITY VENTURES III, LTD.

CONDENSED BALANCE SHEETS

​

​	​	​	​	​	​	​
​		June 30, 2021		​	​
​		(unaudited)		December 31, 2020
ASSETS	​		​	​		​
Investments, at fair value:	​	$	13,133,933	​	$	6,667,897
Non-control/non-affiliate investments (cost: $11,864,762 and $4,968,576 respectively)	​			​
Cash	​		1,515,005	​		5,440,579
Note receivable	​		250,000	​		250,000
Prepaid expenses	​		188,838	​		43,838
Receivable for sale of investments	​		94,778	​		19,313
Interest and dividend receivables	​		331,415	​		65,911
Right-of-use lease asset	​		14,279	​		23,345
Total Assets	​	$	15,528,248	​	$	12,510,883
​	​	​	​	​	​	​
LIABILITIES	​			​
Accounts payable	​	$	40,687	​	$	32,917
Dividend payable	​		-	​		539,296
Lease liability	​		15,973	​		26,061
Accrued income tax expense	​		920,000	​		13,722
Deferred taxes	​		363,000	​		258,000
Total Liabilities	​		1,339,660	​		869,996
Commitments and Contingencies	​			​
​	​	​	​	​	​	​
SHAREHOLDERS EQUITY (NET ASSETS)	​			​
Common stock, par value $0.001 per share (250,000,000 authorized; 10,790,413 and 10,785,913 outstanding)	​		10,790	​		10,786
Additional paid-in capital	​		10,694,163	​		10,673,014
Accumulated deficit	​		(1,159,665)	​		(1,159,665)
Accumulated undistributed investment loss	​		(2,697,320)	​		(2,124,419)
Accumulated undistributed net realized gains on investment transactions	​		6,071,449	​		2,541,850
Net unrealized appreciation in value of investments	​		1,269,171	​		1,699,321
Total Shareholders' Equity (Net Assets)	​		14,188,588	​		11,640,887
Total Liabilities and Shareholders' Equity	​	$	15,528,248	​	$	12,510,883
Net Asset Value Per Common Share	​	$	1.31	​	$	1.08

​

See accompanying Notes to Financial Statements

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- 3 -

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Table of Contents

MILL CITY VENTURES III, LTD.

CONDENSED STATEMENTS OF OPERATIONS (UNAUDITED)

​

​	​	​	​	​	​	​	​	​	​	​	​	​
​		Three Months Ended		Six Months Ended
​	​	June 30,	​	June 30,	​	June 30,	​	June 30,
​		2021		2020		2021		2020
Investment Income		​			​			​			​
Interest income	​	$	675,549	​	$	276,425	​	$	1,222,391	​	$	454,670
Dividend income	​		-	​		7,031	​		-	​		13,765
Total Investment Income	​		675,549	​		283,456	​		1,222,391	​		468,435
Operating Expenses	​			​			​			​
Professional fees	​		77,539	​		90,529	​		220,347	​		74,297
Payroll	​		85,346	​		58,080	​		387,426	​		116,577
Insurance	​		27,854	​		20,668	​		52,133	​		41,121
Occupancy	​		16,337	​		16,569	​		33,026	​		33,131
Director's fees	​		30,000	​		22,500	​		60,000	​		45,000
Depreciation and amortization	​		-	​		644	​		-	​		1,287
Other general and administrative	​		13,080	​		4,920	​		31,082	​		7,889
Total Operating Expenses	​		250,156	​		213,910	​		784,014	​		319,302
Net Investment Gain	​		425,393	​		69,546	​		438,377	​	$	149,133
Realized and Unrealized Gain on Investments	​			​			​			​
Net realized gain on investments	​		621,600	​		175,222	​		3,529,599	​		199,724
Net change in unrealized appreciation (depreciation) on investments	​		83,100	​		348,602	​		(430,150)	​		(37,405)
Net Realized and Unrealized Gain on Investments	​		704,700	​		523,824	​		3,099,449	​		162,319
Net Increase in Net Assets Resulting from Operations Before Taxes	​	$	1,130,093	​	$	593,370	​	$	3,537,826	​	$	311,452
Provision for Income Taxes	​		348,587	​		-	​		1,011,278	​		-
Net Increase in Net Assets Resulting from Operations	​	$	781,506	​	$	593,370	​	$	2,526,548	​		311,452
Net Increase in Net Assets Resulting from Operations per share:	​			​			​			​
Basic and diluted	​	$	0.07	​	$	0.05	​	$	0.23	​	$	0.03
Weighted-average number of common shares outstanding - basic and diluted	​		10,790,413	​		10,882,039	​		10,788,175	​		10,974,721

​

See accompanying Notes to Financial Statements

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- 4 -

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Table of Contents

MILL CITY VENTURES III, LTD.

CONDENSED STATEMENTS OF SHAREHOLDERS' EQUITY (UNAUDITED)

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​

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​

​

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​

​

​

​

​

​

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​

​

​

​

​

​

​

​

​

​

Net

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

Accumulated

​

Unrealized

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

Accumulated

​

Undistributed

​

Appreciation

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

Undistributed

​

Net

​

(Depreciation)

​

​

​

​

​

​

​

​

​

​

Additional

​

​

​

​

Net

​

Realized Gain on

​

in value

​

Total

​

​

Common

​

Par

​

Paid In

​

Accumulated

​

Investment

​

Investments

​

of

​

Shareholders'

Three Months Ended June 30, 2021

Shares

Value

Capital

Deficit

Loss

Transactions

Investments

Equity

Balance as of March 31, 2021

​

10,786,913

​

$

10,787

​

$

10,678,763

​

$

(1,159,665)

​

$

(2,774,126)

​

$

5,449,849

​

$

1,186,071

​

$

13,391,679

Common shares issued in consideration for expense payment

3,500

​

3

​

15,400

​

-

​

-

​

-

​

-

​

15,403

Undistributed net investment gain

-

​

-

​

-

​

-

​

76,806

​

-

​

-

​

76,806

Undistributed net realized gain on investment transactions

-

​

-

​

-

​

-

​

-

​

621,600

​

-

​

621,600

Appreciation in value of investments

-

​

-

​

-

​

-

​

-

​

-

​

83,100

​

83,100

Balance as of June 30, 2021

10,790,413

​

$

10,790

​

$

10,694,163

​

$

(1,159,665)

​

$

(2,697,320)

​

$

6,071,449

​

$

1,269,171

​

$

14,188,588

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

Accumulated

​

Net Unrealized

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

Undistributed

​

Appreciation

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

Accumulated

​

Net Realized Gain

​

(Depreciation)

​

Total

​

​

Common

​

​

​

​

Additional

​

Accumulated

​

Undistributed

​

on Investments

​

in value of

​

Shareholders'

Three Months Ended June 30, 2020

Shares

Par Value

Paid In Capital

Deficit

Net Investment Loss

Transactions

Investments

Equity

Balance as of March 31, 2020

​

11,067,402

​

$

11,067

​

$

10,774,653

​

$

(1,159,665)

​

$

(2,318,278)

​

$

3,100,318

​

$

(621,480)

​

$

9,786,615

Repurchase of shares

​

(370,667)

​

​

(371)

​

​

(157,896)

​

​

-

​

​

-

​

​

-

​

​

-

​

(158,267)

Undistributed net investment loss

​

​

-

​

-

​

-

​

69,546

​

-

​

-

​

69,546

Undistributed net realized gain on investment transactions

​

​

-

​

-

​

-

​

-

​

175,222

​

-

​

175,222

Appreciation in value of investments

​

​

-

​

-

​

-

​

-

​

-

​

348,602

​

348,602

Balance as of June 30, 2020

10,696,735

​

$

10,696

​

$

10,616,757

​

$

(1,159,665)

​

$

(2,248,732)

​

$

3,275,540

​

$

(272,878)

​

$

10,221,718

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- 5 -

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Table of Contents

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Accumulated

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

Accumulated

​

Undistributed

​

Net

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

Undistributed

​

Net

​

Unrealized

​

​

​

​

​

​

​

​

​

​

Additional

​

​

​

​

Net

​

Realized Gain on

​

Appreciation

​

Total

​

​

Common

​

Par

​

Paid In

​

Accumulated

​

Investment

​

Investments

​

in value of

​

Shareholders'

Six Months Ended June 30, 2021

Shares

Value

Capital

Deficit

Loss

Transactions

Investments

Equity

Balance as of December 31, 2020

​

10,785,913

​

$

10,786

​

$

10,673,014

​

$

(1,159,665)

​

$

(2,124,419)

​

$

2,541,850

​

$

1,699,321

​

$

11,640,887

Issuance of shares

​

4,500

​

​

4

​

​

21,149

​

​

-

​

​

-

​

​

​

​

​

​

21,153

Undistributed net investment loss

​

-

​

​

-

​

​

-

​

​

-

​

​

(572,901)

​

​

-

​

​

-

​

(572,901)

Undistributed net realized loss on investment transactions

​

-

​

​

-

​

​

-

​

​

-

​

​

-

​

​

3,529,599

​

​

-

​

3,529,599

Depreciation in value of investments

​

-

​

​

-

​

​

-

​

​

-

​

​

-

​

​

-

​

​

(430,150)

​

(430,150)

Balance as of June 30, 2021

10,790,413

​

$

10,790

​

$

10,694,163

​

$

(1,159,665)

​

$

(2,697,320)

​

$

6,071,449

​

$

1,269,171

​

$

14,188,588

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

Accumulated

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

Accumulated

​

Undistributed Net

​

​

Net Unrealized

​

​

​

​

​

​

​

​

​

​

Additional

​

​

​

​

Undistributed

​

Realized Gain

​

Appreciation

​

Total

​

​

Common

​

​

​

​

Paid

​

Accumulated

​

Net Investment

​

on Investments

​

in value

​

Shareholders'

Six Months Ended June 30, 2020

Shares

Par Value

In Capital

Deficit

Loss

Transactions

of Investments

Equity

Balance as of December 31, 2019

​

11,067,402

​

$

11,067

​

$

10,774,653

​

$

(1,159,665)

​

$

(2,397,865)

​

$

3,075,816

​

$

(235,473)

​

$

10,068,533

Repurchase of shares

​

(370,667)

​

​

(371)

​

​

(157,896)

​

​

-

​

​

-

​

​

-

​

​

-

​

(158,267)

Undistributed net investment loss

​

​

-

​

-

​

-

​

149,133

​

-

​

-

​

149,133

Undistributed net realized loss on investment transactions

​

​

-

​

-

​

-

​

-

​

199,724

​

-

​

199,724

Depreciation in value of investments

​

​

-

​

-

​

-

​

-

​

-

​

(37,405)

​

(37,405)

Balance as of June 30, 2020

10,696,735

​

$

10,696

​

$

10,616,757

​

$

(1,159,665)

​

$

(2,248,732)

​

$

3,275,540

​

$

(272,878)

​

$

10,221,718

​

See accompanying Notes to Financial Statements

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- 6 -

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Table of Contents

MILL CITY VENTURES III, LTD.

CONDENSED STATEMENTS OF CASH FLOWS (UNAUDITED)

​

​	​	​	​	​	​	​
​		Six Months Ended
​	​	​	June 30, 2021		June 30, 2020	​
Cash flows from operating activities:		​			​
Net increase (decrease) in net assets resulting from operations	​	$	2,526,548	​	$	311,452
Adjustments to reconcile net increase (decrease) in net assets resulting from operations to net cash provided (used) in operating activities:	​			​
Net change in unrealized depreciation on investments	​		430,150	​		37,405
Net realized gain on investments	​		(3,529,599)	​		(199,724)
Purchases of investments	​		(13,250,664)	​		(6,217,296)
Proceeds from sales of investments	​		9,889,827	​		1,192,824
Depreciation & amortization expense	​		-	​		1,287
Deferred income taxes	​		1,011,278	​		-
Common shares issued as consideration for expense payment	​		15,403	​		-
Changes in operating assets and liabilities:	​			​
Prepaid expenses and other assets	​		(135,934)	​		(32,007)
Interest and dividends receivable	​		(265,504)	​		(62,644)
Receivable for investment sales	​		(75,465)	​		(158,649)
Payable for investment purchase	​		-	​		1,680,000
Accounts payable and other liabilities	​		(2,318)	​		(10,047)
Deferred interest income	​		-	​		-
Payable for investment purchase	​		-	​		-
Net cash used in operating activities	​		(3,386,278)	​		(3,457,399)
Cash flows from financing activities:	​			​
Payments for repurchase of common stock	​		-	​		(158,267)
Payments for common stock dividend	​		(539,296)	​		-
Net cash used by financing activities	​		(539,296)	​		(158,267)
Net decrease in cash	​		(3,925,574)	​		(3,615,666)
Cash, beginning of period	​		5,440,579	​		8,066,656
Cash, end of period	​	$	1,515,005	​	$	4,450,990
​	​	​	​	​	​	​
Non-cash financing activities:	​			​
Common shares issued as consideration for investment	​	$	5,750	​		-

​

See accompanying Notes to Financial Statements

​

- 7 -

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Table of Contents

MILL CITY VENTURES III, LTD.

CONDENSED SCHEDULE OF INVESTMENTS

JUNE 30, 2021

​

​	​	​	​	​	​	​	​	​	​
​	​	​	​	​	​	​	​	Percentage
​	​	​	​	​	​	​	​	of Net	​
Investment / Industry		Cost		Fair Value		Assets	​
Short-Term Non-banking Loans	​		​	​		​	​
Consumer - 20% secured loans	​	$	400,000	​	$	400,000		2.82	%
Financial - 47% secured loans	​			​					​
Benton Financial, LLC	​		1,133,333	​		1,133,333		7.99	%
Financial - 44% secured loans	​			​					​
Benton Financial, LLC	​		840,000	​		840,000		5.92	%
Financial - 42% secured loans	​		313,333	​		313,333		2.21	%
Financial - 40% secured loans	​			​					​
Benton Financial, LLC	​		1,333,334	​		1,333,334		9.40	%
Financial - 34% secured loans	​		293,333	​		293,333		2.07	%
Financial - 12% secured loans	​		500,000	​		500,000		3.52	%
Litigation Financing - 23% secured loans	​			​					​
The Cross Law Firm, LLC	​		1,805,750	​		1,800,000		12.68	%
Real Estate - 15% secured loans	​			​					​
Alatus Development, LLC	​		1,250,000	​		1,250,000		8.81	%
Real Estate - 12% secured loans	​			​					​
Tailwinds, LLC	​		3,000,000	​		3,000,000		21.14	%
Total Short-Term Non-Banking Loans	​		10,869,083	​		10,863,333		76.56	%
​	​	​	​	​	​	​	​	​	​
Common Stock	​			​					​
Consumer	​			​					​
Ammo, Inc.	​		245,000	​		1,370,600		9.66	%
​	​	​	​	​	​	​	​	​	​
Preferred Stock	​			​					​
Information Technology	​		150,000	​		300,000		2.11	%
​	​	​	​	​	​	​	​	​	​
Warrants	​			​					​
Healthcare	​		679	​		-		0.00	%
​	​	​	​	​	​	​	​	​	​
Other Equity	​			​					​
Financial	​		600,000	​		600,000		4.23	%
​	​	​	​	​	​	​	​	​	​
Total Investments	​	$	11,864,762	​	$	13,133,933		92.56	%
​	​	​	​	​	​	​	​	​	​
Total Cash	​		1,515,005	​		1,515,005		10.68	%
​	​	​	​	​	​	​	​	​	​
Total Investments and Cash	​	$	13,379,767	​	$	14,648,938		103.24	%

​

See accompanying Notes to the Financial Statements

​

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Table of Contents

MILL CITY VENTURES III, LTD.

SCHEDULE OF INVESTMENTS

DECEMBER 31, 2020

​

​	​	​	​	​	​	​	​	​	​
​	​	​	​	​	​	​	​	Percentage	​
​	​	​	​	​	​	​	​	of Net	​
Investment / Industry		Cost		Fair Value		Assets
Short-Term Non-banking Loans	​		​	​		​	​
Consumer - 20% secured loans	​	$	400,000	​	$	400,000		3.44	%
Financial - 44% secured loans	​		400,000	​		400,000		3.44	%
Financial - 36% secured loans	​		500,000	​		500,000		4.30	%
Real Estate - 15% secured loans	​			​					​
Alatus Development, LLC	​		1,250,000	​		1,250,000		10.74	%
Other	​		239,000	​		239,000		2.05	%
Total Short-Term Non-Banking Loans	​		2,789,000	​		2,789,000		23.97	%
​	​	​	​	​	​	​	​	​	​
Common Stock	​			​					​
Consumer	​			​					​
Ammo, Inc.	​		1,750,000	​		3,300,000		28.34	%
​	​	​	​	​	​	​	​	​	​
Preferred Stock	​			​					​
Information Technology	​		150,000	​		300,000		2.58	%
​	​	​	​	​	​	​	​	​	​
Warrants	​			​					​
Healthcare	​		679	​		-		0.00	%
​	​	​	​	​	​	​	​	​	​
Other Equity	​			​					​
Leisure & Hospitality	​		278,897	​		278,897		2.40	%
​	​	​	​	​	​	​	​	​	​
Total Investments	​	$	4,968,576	​	$	6,667,897		57.30	%
​	​	​	​	​	​	​	​	​	​
Total Cash	​		5,440,579	​		5,440,579		46.74	%
​	​	​	​	​	​	​	​	​	​
Total Investments and Cash	​	$	10,409,155	​	$	12,108,476		104.04	%

​

​

​

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Table of Contents

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. Until December 13, 2012, we were a development-stage company that focused on promoting and placing a proprietary poker game online and into casinos and entertainment facilities nationwide. In 2013, we elected to become a business development company ("BDC") under the Investment Company Act of 1940 (the "1940 Act"). We operated as a BDC until we withdrew our BDC election on December 27, 2019. As of the time of this filing, we remain a public reporting company that files periodic reports with the SEC. We offer short-term specialty finance solutions primarily to private businesses, small-cap public companies and high-net-worth individuals. To avoid regulation under the 1940 Act, we generally seek to structure our investments so they do not constitute "investment securities" for purposes of federal securities law, and we monitor our investments as a whole to ensure that no more than 40% of our total assets may consist of investment securities.

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 June 30, 2021 are not necessarily indicative of the results that may be expected for the year ending December 31, 2021.

The condensed balance sheet as of December 31, 2020 has been derived from the audited consolidated 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 for the year ended December 31, 2020.

Use of estimates: The preparation of financial statements in conformity with GAAP requires management and our Board of Directors to make estimates and assumptions that affect the reported amounts of assets and liabilities, and disclosures of contingent assets and liabilities, at the date of the financial statements, as well as the reported amounts of expenses during the reporting period. Actual results could differ from those estimates, and the differences could be material. For more information, see the "Valuation of portfolio investments" caption below, and "Note 4 - Fair Value of Financial Instruments" below. The Company is an investment company following accounting and reporting guidance in ASC 946.

Cash deposits: We maintain our cash balances in financial institutions and with regulated financial investment brokers. Cash on deposit in excess of FDIC and similar coverage is subject to the usual banking risk of funds in excess of those limits.

Valuation of investments: We carry our investments in accordance with ASC Topic 820, Fair Value Measurements and Disclosures ("ASC 820"), issued by the Financial Accounting Standards Board ("FASB"), which defines fair value, establishes a framework for measuring fair value, and requires disclosures about fair value measurements. Fair value is generally based on quoted market prices provided by independent pricing services, broker or dealer quotations, or alternative price sources. In the absence of quoted market prices, broker or dealer quotations, or alternative price sources, investments are measured at fair value as determined by our Board of Directors, or by the Valuation Committee of our Board of Directors, based on, among other things, the input of our executive management, the Audit Committee of our Board of Directors, and any independent third-party valuation experts that may be engaged by management to assist in the valuation of our investments, but in all cases consistent with our written valuation policies and procedures.

Due to the inherent uncertainties of valuation, certain estimated fair values may differ significantly from the values that would have been realized had a ready market for these investments existed, and these differences could be material. In addition, such investments are generally less liquid than publicly traded securities. If we were required to liquidate an investment in a forced or liquidation sale, we could realize significantly less than the value at which we have recorded it.

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Table of Contents

Accounting guidance establishes a hierarchal disclosure framework that prioritizes and ranks the level of market price observability of inputs used in measuring investments at fair value. Observable inputs must be used when available. Observable inputs are inputs that market participants would use in valuing the asset or liability based on market data obtained from independent sources. Unobservable inputs are inputs that reflect our assumptions about the factors market participants would use in valuing the asset or liability based upon the best information available. Assets and liabilities measured at fair value are to be categorized into one of the three hierarchy levels based on the relative observability of inputs used in the valuation. The three levels are defined as follows:

●	Level 1: Observable inputs based on quoted prices (unadjusted) in active markets for identical assets or liabilities.

●	Level 2: Observable inputs based on quoted prices for similar assets and liabilities in active markets, or quoted prices for identical assets and liabilities in inactive markets.

●	Level 3: 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.

Our valuation policy and procedures: Under our valuation policies and procedures, we evaluate the source of inputs, including any markets in which our investments are trading, and then apply the resulting information in determining fair value. For our Level 1 investment assets, our valuation policy generally requires us to use a market approach, considering the last quoted closing price of a security we own that is listed on a securities exchange, and in a case where a security we own is listed on an over-the-counter market, to average the last quoted bid and ask price on the most active market on which the security is quoted. In the case of traded debt securities the prices for which are not readily available, we may value those securities using a present value approach, at their weighted-average yield to maturity.

The estimated fair value of our Level 3 investment assets is determined on a quarterly basis by our Board of Directors, pursuant to our written Valuation Policy and Procedures. These policies and procedures generally require that we value our Level 3 equity investments at fair market value, unless circumstances warrant a different approach. Our Valuation Policy and Procedures provide examples of these circumstances, such as when a company in which we have invested 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 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). Other situations identified in our Valuation Policy and Procedures that may serve as input supporting a change in the valuation of our Level 3 equity investments include (i) a third-party valuation conducted by an independent and qualified professional, (ii) changes in the performance of long-term financial prospects of the company, (iii) a subsequent financing that changes the distribution rights associated with the equity security we hold, or (iv) sale transactions involving comparable companies, but only if further supported by a third-party valuation conducted by an independent and qualified professional.

When valuing preferred equity investments, we generally view intrinsic value as a key input. Intrinsic value means the value of any conversion feature (if the preferred investment is convertible) or the value of any liquidation or other preference. 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 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. Generally, "out-of-the-money" warrants will be valued at cost or zero.

For non-traded (Level 3) debt investments with a residual maturity less than or equal to 60 days, the value will generally be based on a present value approach, considering the straight-line amortized face value of the debt unless justification for impairment exists. The fair value for short-term non-banking loans is determined as the present value of future contractual cash flows discounted at an interest rate that reflects the risks inherent to those cash flows. The discount ranges from 14% to 47% and approximate rates currently observed in publicly traded debt markets for debt of similar terms to companies with comparable credit risk.

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Table of Contents

On a quarterly basis, our management provides members of our Board of Directors with (i) valuation reports for each investment (which reports include our cost, the most recent prior valuation and any current proposed valuation, and an indication of the valuation methodology used, together with any other supporting materials); (ii) Mill City Ventures' bank and other statements pertaining to our cash and cash equivalents; (iii) quarter- or period-end statements from our custodial firms holding any of our investments; and (iv) recommendations to change any existing valuations of our investments or hierarchy levels for purposes of determining the fair value of such investments based upon the foregoing. The board or committee then discusses these materials and, consistent with the policies and approaches outlined above, makes final determinations respecting the valuation and hierarchy levels of our investments.

We made no changes to our Valuation Policy and Procedures during the reporting period other than to have our entire Board of Directors involved in implementing and discharging those policies and procedures.

Income taxes:

We account for income taxes under the asset and liability method, which requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of events that have been included in the financial statements. Deferred tax assets and liabilities are recognized for the expected future tax consequences of temporary differences between the financial statement carrying amount and tax basis of assets and liabilities using enacted tax rates in effect for the year in which the differences are expected to reverse. The effect of a change in tax rates on deferred tax assets and liabilities is recognized in income in the period that includes the enactment date.

We record net deferred tax assets to the extent we believe these assets will more likely than not be realized. In making such determination, we consider all available evidence, including future reversals of existing taxable temporary differences, projected future taxable income, tax planning strategies and recent financial operations. 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.

We file income tax returns in the U.S. Federal jurisdiction and various state jurisdictions. The Company does 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, 2017 through 2020, which are the tax years that remain subject to examination by major tax jurisdictions as of June 30, 2021.

Revenue recognition: Realized gains or losses on the sale of investments are calculated using the specific investment method.

Interest income, adjusted for amortization of premiums and accretion of discounts, is recorded on an accrual basis. Discounts from and premiums to par value on securities or other instruments purchased are accreted or amortized, as applicable, into interest income over the life of the related security using the effective-yield method. The amortized cost of investments represents the original cost, adjusted for the accretion of discounts and amortization of premiums, if any. Loans are generally placed on non-accrual status when principal or interest payments are past due 30 days or more, or when there is reasonable doubt that principal or interest will be collected in full. Loan origination fees are recognized when loans are issued. Accrued and unpaid interest is generally reversed when a loan is placed on non-accrual status. Interest payments received on non-accrual loans may be recognized as income or applied to principal depending upon management's judgment regarding collectability. Non-accrual loans are restored to accrual status when past-due principal and interest is paid and, in management's judgment, are likely to remain current. We may make exceptions to the policy described above if a loan has sufficient collateral value and is in the process of collection.

Dividend income on preferred equity securities is recorded as dividend income on an accrual basis to the extent that such amounts are payable by a company in which we have invested and are expected to be collected. Dividend income on common equity securities is recorded on the record date for private companies or on the ex-dividend date for publicly traded companies.

Certain investments may have contractual payment-in-kind ("PIK") interest or dividends. PIK represents accrued interest or accumulated dividends that are added to the loan principal or stated value of the investment on the respective interest- or dividend-payment dates rather than being paid in cash, and generally becomes due at maturity or upon being repurchased by the issuer. PIK interest or dividends is recorded as interest or dividend income, as applicable. If at any point we believe that PIK interest or dividends is not expected be realized, the PIK-generating investment will be placed on non-accrual status. Accrued PIK interest or dividends are generally reversed through interest or dividend income, respectively, when an investment in placed on non-accrual status.

Allocation of net gains and losses:All income, gains, losses, deductions and credits for any investment are allocated in a manner proportionate to the shares owned.

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Table of Contents

Recently adopted accounting pronouncements

In December 2019, the FASB issued ASU No. 2019-12, Income Taxes (Topic 740)-Simplifying the Accounting for Income Taxes. ASU 2019-12 is intended to simplify accounting for income taxes. It removes certain exceptions to the general principles in Topic 740 and amends existing guidance to improve consistent application. ASU 2019-12 is effective for fiscal years beginning after December 15, 2020 and interim periods within those fiscal years, which is fiscal 2021 for us, with early adoption permitted. The adoption of the ASU effective January 1, 2021 did not have a material impact on the Company's financial statements.

NOTE 3 - INVESTMENTS

The following table shows the composition of our investments by major class, at amortized cost and fair value, as of June 30, 2021 (together with the corresponding percentage of the fair value of our total investments):

​

​	​	​	​	​	​	​	​	​	​	​	​
​		As of June 30, 2021
​		Investments at		Percentage of		Investments at		Percentage of
​		Amortized Cost		Amortized Cost		Fair Value		Fair Value	​
Short-term Non-banking Loans	​	$	10,869,083		91.6	%	$	10,863,333		82.7	%
Preferred Stock	​		150,000		1.3	​		300,000		2.3	​
Common Stock	​		245,000		2.1	​		1,370,600		10.4	​
Warrants	​		679		-	​		-		-	​
Other Equity	​		600,000		5.0	​		600,000		4.6	​
Total	​	$	11,864,762		100.0	%	$	13,133,933		100.0	%

​

The following table shows the composition of our investments by major class, at amortized cost and fair value, as of December 31, 2020 (together with the corresponding percentage of the fair value of our total investments):

​

​	​	​	​	​	​	​	​	​	​	​	​
​	​	As of December 31, 2020
​		Investments at		Percentage of		Investments at		Percentage of
​		Amortized Cost		Amortized Cost		Fair Value		Fair Value	​
Short-term Non-banking Loans	​	$	2,789,000		56.2	%	$	2,789,000		41.8	%
Preferred Stock	​		150,000		3.0	​		300,000		4.5	​
Common Stock	​		1,750,000		35.2	​		3,300,000		49.5	​
Warrants	​		679		-	​		-		-	​
Other Equity	​		278,897		5.6	​		278,897		4.2	​
Total	​	$	4,968,576		100.0	%	$	6,667,897		100.0	%

​

The following table shows the composition of our investments by industry grouping, based on fair value as of June 30, 2021:

​

​	​	​	​	​	​	​
​		As of June 30, 2021
​		Investments at		Percentage of
​		Fair Value		Fair Value	​
Consumer	​	$	1,770,600		13.5	%
Financial	​		6,813,333		51.8	​
Information Technology	​		300,000		2.3	​
Real Estate	​		4,250,000		32.4	​
​	​		-		-	​
Total	​	$	13,133,933		100.0	%

​