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 September 30, 2017~~

	¨ For the quarterly period ended September 30, 2022

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 ~~814-00991~~001-41472

__________________________

MILL CITY VENTURES III, LTD.

~~MILL CITY VENTURES III, LTD.~~
(Exact name of registrant as specified in its charter)

__________________________

Minnesota

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

~~328 Barry Avenue South #210,~~ 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.x ☒ 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).x ☒ 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 companyx	☒
	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 x☒ No

As of ~~September 30, 2017,~~November 18, 2022, Mill City Ventures III, Ltd. had ~~11,067,402~~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 September 30, ~~2017~~2022

		~~Page No.~~
PART I.	FINANCIAL INFORMATION		Page No.

Item 1.	Financial Statements (unaudited)		3

	Condensed Balance Sheets – September 30, ~~2017~~2022 and December 31, ~~2016~~2021		3

	Condensed Statements of Operations – Three and nine months ended September 30, ~~2017~~2022 and September 30, ~~2016~~2021		4

	Condensed Statements of ~~Changes in Net Assets~~Shareholders’ Equity – ~~Nine~~Three and nine months ended September 30, ~~2017~~2022 and September 30, ~~2016~~2021		5

	Condensed Statements of Cash Flows – Nine months ended September 30, ~~2017~~2022 and September 30, ~~2016~~2021	6	7

	Condensed Schedule of Investments – September 30, ~~2017~~2022 and Schedule of Investments – December 31, ~~2016~~2021	7	8

	Condensed Notes to Financial Statements – September 30, ~~2017~~2022	9	10

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	17	19

Item 4.	Controls and Procedures	21	22

PART II.	OTHER INFORMATION		23

Item 6.	Exhibits		23

SIGNATURES			24


~~PART II.~~	~~OTHER INFORMATION~~

~~Item 6.~~	~~Exhibits~~	22

~~SIGNATURES~~		22

	- 2 -

Table of Contents

PART I. FINANCIAL INFORMATION

~~ITEM 1.~~

~~FINANCIAL STATEMENTS~~

ITEM 1. FINANCIAL STATEMENTS

MILL CITY VENTURES III, LTD.

CONDENSED BALANCE SHEETS

	September 30, 2017 (unaudited)			December 31, 2016 (audited)			September 30, 2022 (unaudited)			December 31, 2021
ASSETS
Investments at fair value:
Non-control/non-affiliate investments (cost of $6,904,057 and $7,397,908, respectively)	$	6,793,306		$	6,987,002
Investments, at fair value:							$	18,063,248		$	14,098,675
Non-control/non-affiliate investments (cost: $17,913,927 and $13,933,057 respectively)
Cash		2,336,878			2,344,751			1,861,650			1,936,148
Note receivable, related party								250,000			250,000
Prepaid expenses		63,142			61,661			116,307			83,674
Interest and dividends receivable		28,137			4,853
Leasehold improvements, net		9,584			15,665
Property and equipment, net		7,862			9,946
Receivable for sale of investments								—			—
Interest and dividend receivables								939,299			324,350
Right-of-use lease asset								21,563			4,984
Deferred taxes								4,000			—
Total Assets	$	9,238,909		$	9,423,878		$	21,256,067		$	16,697,831

LIABILITIES
Current Liabilities:
Line of credit							$	2,313,000		$	—
Accounts payable	$	19,420		$	25,097			134,000			64,028
Deferred rent		10,901			11,373
Total Current Liabilities		30,321			36,470
Dividend payable								—			100
Payable for purchase of investments								—			1,900,000
Lease liability								21,672			5,654
Accrued income tax								128,800			1,269,000
Deferred taxes								—			45,000
Total Liabilities		30,321			36,470			2,597,472			3,283,782
Commitments and Contingencies (Note 4)
Commitments and Contingencies

SHAREHOLDERS’ EQUITY (NET ASSETS)
Common stock, par value $0.001 per share (250,000,000 authorized; 11,067,402 and 12,151,493 issued and outstanding)		11,067			12,151
SHAREHOLDERS EQUITY (NET ASSETS)
Common stock, par value $0.001 per share (111,111,111 authorized; 6,185,255 and 4,795,739 outstanding)								12,215			10,790
Additional paid-in capital		10,774,653			11,857,660			15,043,291			10,694,163
Accumulated deficit		(1,159,665	)		(1,159,665	)		(1,159,665	)		(1,159,665	)
Accumulated undistributed investment loss		(1,068,702	)		(1,330,205	)		(1,100,397	)		(1,877,667	)
Accumulated undistributed net realized gains on investment transactions		761,986			418,373			5,713,830			5,580,810
Net unrealized depreciation in value of investments		(110,751	)		(410,906	)
Total Shareholders’ Equity (net assets)		9,208,588			9,387,408

Net unrealized appreciation in value of investments								149,321			165,618
Total Shareholders’ Equity (Net Assets)								18,658,595			13,414,049
Total Liabilities and Shareholders’ Equity	$	9,238,909		$	9,423,878		$	21,256,067		$	16,697,831

Net Asset Value Per Common Share	$	0.83		$	0.77		$	3.02		$	2.80

See accompanying Notes to Financial Statements

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Table of Contents

MILL CITY VENTURES III, LTD.

CONDENSED STATEMENTS OF OPERATIONS (UNAUDITED)

	Three Months Ended						Nine Months Ended						Three Months Ended						Nine Months Ended
	September 30, 2017			September 30, 2016			September 30, 2017			September 30, 2016			September 30, 2022			September 30, 2021			September 30, 2022			September 30, 2021
Investment Income
Interest income	$	44,362		$	89,062		$	95,413		$	215,222		$	1,115,224		$	755,601		$	3,351,935		$	1,977,992
Dividend income		7,992			24,170			30,014			64,061			—			—			—			—
Total Investment Income		52,354			113,232			125,427			279,283			1,115,224			755,601			3,351,935			1,977,992

Operating Expenses
Professional fees		39,175			47,632			165,725			133,116			916,359			79,950			1,309,348			300,297
Payroll		51,562			40,487			160,349			122,445			122,477			80,840			433,461			468,266
Insurance		24,030			18,782			60,170			58,869			27,016			27,890			84,092			80,023
Occupancy		22,225			21,571			64,556			60,175			18,589			16,689			54,542			49,716
Directors’ fees		15,000			15,000			45,000			43,956
Depreciation and amortization		2,670			3,213			8,165			9,637
Director’s fees														30,000			30,000			147,073			90,000
Interest expense														46,779			—			164,632			—
Other general and administrative		4,970			5,711			10,414			14,012			18,572			4,213			34,717			35,294
Total Operating Expenses		159,632			152,396			514,379			442,210			1,179,792			239,582			2,227,865			1,023,596
Net Investment Loss	$	(107,278	)	$	(39,164	)	$	(388,952	)	$	(162,927	)

Net Investment Gain (Loss)														(64,568	)		516,019			1,124,070			954,396
Realized and Unrealized Gain (Loss) on Investments
Net realized gain (loss) on investments	$	(404,457	)	$	186,427		$	343,613		$	(346,854	)
Net realized gain on investments														—			289,138			133,020			3,818,737
Net change in unrealized appreciation (depreciation) on investments		598,408			(5,009	)		300,155			275,912			—			(774,169	)		(16,297	)		(1,204,319	)
Net Realized and Unrealized Gain (Loss) on Investments		193,951			181,418			643,768			(70,942	)		—			(485,031	)		116,723			2,614,418
Net Increase (Decrease) in Net Assets Resulting from Operations Before Taxes														(64,568	)		30,988			1,240,793			3,568,814

Provision For (Benefit From) Income Taxes														(28,442	)		(300	)		346,800			1,010,978
Net Increase (Decrease) in Net Assets Resulting from Operations	$	86,673		$	142,254		$	254,816		$	(233,869	)	$	(36,126	)	$	31,288		$	893,993			2,557,836

Net Increase (Decrease) in Net Assets Resulting from Operations per share:
Basic and diluted	$	0.01		$	0.01		$	0.02		$	(0.02	)	$	(0.01	)	$	0.01		$	0.18		$	0.53

Weighted-average number of common shares outstanding		12,092,575			12,151,493			12,131,638			12,151,493
Weighted-average number of common shares outstanding - basic and diluted														5,512,737			4,795,739			5,045,830			4,795,075

See accompanying Notes to Financial Statements

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MILL CITY VENTURES III, LTD.

CONDENSED STATEMENTS OF ~~CHANGES IN NET ASSETS~~SHAREHOLDERS’ EQUITY (UNAUDITED)

Nine Months Ended Nine Months Ended
September 30, 2017 September 30, 2016
Net Assets at Beginning of Period $ 9,387,408 $ 8,741,288
Net investment loss (388,952 ) (162,927 )
Net realized gain (loss) on investments 343,613 (346,854 )
Net increase in unrealized appreciation on investments 300,155 275,912
Net increase (decrease) in net assets resulting from operations 254,816 (233,869 )
Total net increase (decrease) in net assets resulting from operations 254,816 (233,869 )
Net decrease in net assets resulting from share repurchase (433,636 ) -
Net Assets at End of Period $ 9,208,588 $ 8,507,419

Accumulated undistributed net investment loss $ (1,068,702 ) $ (1,262,854 )

Three Months Ended September 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 June 30, 2022		4,824,628	$	10,855	$	10,776,537	$	(1,159,665	)	$	(1,064,271	)	$	5,713,830	$	149,321	$	14,426,607
Common shares issued in public offering		1,250,000		1,250		4,040,545		—			—							4,041,795
Common shares issued in reverse stock split rounding		735		—		—												—
Common shares issued in stock-based compensation		32,115		32		66,844		—			—							66,876
Common shares issued in consideration for expense payment		77,777		78		159,365		—			—							159,443
Undistributed net investment loss				—		—		—			(36,126	)		—		—		(36,126	)
Balance as of September 30, 2022		6,185,255	$	12,215	$	15,043,291	$	(1,159,665	)	$	(1,100,397	)	$	5,713,830	$	149,321	$	18,658,595

Three Months Ended September 30, 2021	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 June 30, 2021		4,795,739	$	10,790	$	10,694,163	$	(1,159,665	)	$	(2,697,320	)	$	6,071,449		$	1,269,171		$	14,188,588
Dividend Declared				—		—		—			—			(1,079,041	)		—			(1,079,041	)
Common shares issued in consideration for expense payment				—		—		—			—									—
Undistributed net investment gain				—		—		—			516,319			—			—			516,319
Undistributed net realized gain on investment transactions				—		—		—			—			289,138			—			289,138
Depreciation in value of investments				—		—		—			—			—			(774,169	)		(774,169	)
Balance as of September 30, 2021		4,795,739	$	10,790	$	10,694,163	$	(1,159,665	)	$	(2,181,001	)	$	5,281,546		$	495,002		$	13,140,835

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Table of Contents

Nine Months Ended September 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 December 31, 2021		4,795,739	$	10,790	$	10,694,163	$	(1,159,665	)	$	(1,877,667	)	$	5,580,810	$	165,618		$	13,414,049
Common shares issued in public offering		1,250,000		1,250		4,040,545		—			—								4,041,795
Common shares issued in reverse stock split rounding		735		—		—													—
Common shares issued in stock-based compensation		31,248		97		149,218		—			—								149,315
Common shares issued in consideration for expense payment		107,533		78		159,365		—			—			—		—			159,443
Undistributed net investment gain				—		—		—			777,270			—		—			777,270
Undistributed net realized gain on investment transactions				—		—		—			—			133,020		—			133,020
Depreciation in value of investments				—		—		—			—			—		(16,297	)		(16,297	)
Balance as of September 30, 2022		6,185,255	$	12,215	$	15,043,291	$	(1,159,665	)	$	(1,100,397	)	$	5,713,830	$	149,321		$	18,658,595

~~MILL CITY VENTURES III, LTD.~~

~~STATEMENTS OF CASH FLOWS (UNAUDITED)~~

Nine Months Ended
September 30,
2017 September 30,
2016
Cash flows from operating activities:
Net increase (decrease) in net asset value resulting from operations $ 254,816 $ (233,869 )

Adjustments to reconcile net increase (decrease) in net assets resulting from operations to net cash provided (used) in operating activities:
Net change in unrealized appreciation on investments (300,155 ) (275,912 )
Net realized (gain) loss on investments (343,613 ) 346,854
Payments for purchases of investments (1,872,499 ) (2,049,581 )
Payments for purchases of investments sold short (111,913 ) -
Proceeds from sales of investments 2,735,940 1,381,928
Proceeds from sales of investments sold short 85,936 -
Depreciation and amortization expense 8,165 9,637

Changes in operating assets and liabilities:
Prepaid expenses (1,481 ) (17,051 )
Interest and dividends receivable (23,284 ) (1,561 )
Accounts payable (5,677 ) 4,530
Deferred interest income - (5,645 )
Deferred rent (472 ) 246
Payable for investment purchase - (65,622 )
Net cash provided (used) in operating activities 425,763 (906,046 )

Cash flows from financing activities:
Payments for repurchase of common stock (433,636 ) -

Net cash used by financing activities (433,636 ) -

Net decrease in cash (7,873 ) (906,046 )

Cash, beginning of period 2,344,751 2,980,659
Cash, end of period $ 2,336,878 $ 2,074,613

Nine Months Ended September 30, 2021	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 December 31, 2020		4,793,739	$	10,786	$	10,673,014	$	(1,159,665	)	$	(2,124,419	)	$	2,541,850		$	1,699,321		$	11,640,887
Common shares issued in consideration for expense payment		2,000		4		21,149		—			—									21,153
Dividend declared				—		—		—			—			(1,079,041	)		—			(1,079,041	)
Undistributed net investment loss				—		—		—			(56,582	)		—			—			(56,582	)
Undistributed net realized gain on investment transactions														3,818,737						3,818,737
Depreciation in value of investments				—		—		—			—			—			(1,204,319	)		(1,204,319	)
Balance as of September 30, 2021		4,795,739	$	10,790	$	10,694,163	$	(1,159,665	)	$	(2,181,001	)	$	5,281,546		$	495,002		$	13,140,835

See accompanying Notes to Financial Statements

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Table of Contents

MILL CITY VENTURES III, LTD.

~~SCHEDULE~~CONDENSED STATEMENTS OF ~~INVESTMENTS~~

~~September 30, 2017~~CASH FLOWS (UNAUDITED)

	Nine Months Ended
	September 30, 2022			September 30, 2021
Cash flows from operating activities:
Net increase in net assets resulting from operations	$	893,993		$	2,557,836
Adjustments to reconcile net increase in net assets resulting from operations to net cash used in operating activities:
Net change in unrealized appreciation on investments		16,297			1,204,319
Net realized gain on investments		(133,020	)		(3,818,737	)
Purchases of investments		(13,924,333	)		(18,133,352	)
Proceeds from sales of investments		10,076,483			16,363,964
Stock-based compensation		308,758			15,403
Changes in operating assets and liabilities:
Prepaid expenses and other assets		(21,225	)		(71,160	)
Interest and dividends receivable		(614,949	)		(405,429	)
Receivable for investment sales		—			(40,767	)
Payable for investment purchase		(1,900,000	)		30,689
Accounts payable and other liabilities		53,903			(20,519	)
Income taxes payable		(1,185,200	)		1,010,978
Net cash used in operating activities		(6,429,293	)		(1,306,775	)
Cash flows from financing activities:
Proceeds from public offering		4,041,795			—
Proceeds from line of credit		8,414,000			—
Repayments on line of credit		(6,101,000	)		—
Payments for common stock dividend		—			(539,296	)
Net cash provided (used) by financing activities		6,354,795			(539,296	)
Net decrease in cash		(74,498	)		(1,846,071	)
Cash, beginning of period		1,936,148			5,440,579
Cash, end of period	$	1,861,650		$	3,594,508

Non-cash financing activities:
Common shares issued as consideration	$	308,758		$	5,750
Dividend declared to common stock shareholders		—			1,079,041

Investments⁽¹⁾ Investment Type Interest
Rate⁽²⁾ Maturity
Date Principal
Amount Cost Fair Value Percentage
of Net
Assets Gross
Unrealized
Appreciation Gross
Unrealized
Depreciation Net Unrealized
Appreciation
(Depreciation)
Debt Investments
Consumer
Mix 1 Life, Inc. Secured Loan⁽⁴⁾ 12 % 2/6/2016 $ 500,000 500,000 — — 500,000 (500,000 )
Mix 1 Life, Inc. Secured Loan 12 % 3/13/2016 $ 250,000 250,000 — — 250,000 (250,000 )
750,000 — 0.00 % — 750,000 (750,000 )
Financial
Bravo Financial LLC Secured Loan 12 % 8/31/2018 $ 500,000 500,000 500,000 5.43 % — — —

Total Debt Investments 1,250,000 500,000 5.43 % — 750,000 (750,000 )

See accompanying Notes to Financial Statements

Investments⁽¹⁾ Investment Type⁽⁵⁾ Interest
Rate⁽⁶⁾ Expiration
Date⁽⁷⁾ Shares/Units Cost Fair Value Percentage
of Net
Assets Gross
Unrealized
Appreciation Gross
Unrealized
Depreciation Net Unrealized
Appreciation
(Depreciation)
Equity Investments
Advertising
Creative Realities, Inc. Warrants⁽⁸⁾ n/a 12/28/2020 1,071,429 — 128,572 1.40 % 128,572 — 128,572

Bio-technology
Bio Life Solutions, Inc. Warrants⁽⁸⁾ n/a 3/20/2021 100,000 — 96,000 96,000 — 96,000
Combimatrix Corporation Warrants⁽⁸⁾ n/a 5/6/2019 2,732 — — — — —
Combimatrix Corporation Warrants⁽⁸⁾ n/a 6/28/2019 2,733 — — — — —
Combimatrix Corporation Warrants⁽⁸⁾ n/a 12/19/2018 8,333 — — — — —
— 96,000 1.04 % 96,000 — 96,000
Consumer
Escalade Inc. Common Stock n/a n/a 7,929 93,975 107,835 13,860 — 13,860
Famous Daves of America, Inc. Common Stock n/a n/a 38,614 164,584 160,090 3,159 7,653 (4,494 )
Forward Industries, Inc. Common Stock⁽⁸⁾ n/a n/a 20,100 23,969 24,703 758 24 734
Mix 1 Life, Inc. Common Stock⁽¹⁰⁾ n/a n/a 100,000 46,160 800 — 45,360 (45,360 )
Stanley Furniture Co., Inc. Common Stock⁽⁸⁾ n/a n/a 147,118 160,346 173,599 15,769 2,516 13,253
Tzfat Spirits of Israel, LLC LLC Membership Units⁽⁸⁾ n/a n/a 55,000 101,019 25,000 — 76,019 (76,019 )
590,053 492,027 5.34 % 33,546 131,572 (98,026 )
Education
Nat'l Amer. Univ. Holdings, Inc. Common Stock n/a n/a 59,839 119,027 128,055 1.39 % 9,032 4 9,028
Financial
OTC Markets Group Cl A Common Stock n/a n/a 12,618 203,015 372,231 169,216 — 169,216
QC Holdings, Inc. Common Stock⁽⁸⁾ n/a n/a 15,000 10,655 6,300 — 4,355 (4,355 )
Planet Payment, Inc. Common Stock⁽⁸⁾ n/a n/a 15,800 69,858 67,782 — 2,076 (2,076 )
283,528 446,313 4.85 % 169,216 6,431 162,785
Healthcare
Enteromedics, Inc. Preferred LLC Units^{(4) (8)} n/a n/a 156 155,321 120,112 — 35,209 (35,209 )
Enteromedics, Inc. Warrants⁽⁸⁾ n/a 8/16/2024 67,860 679 — — 679 (679 )
HemaCare Corp. Common Stock⁽⁸⁾ n/a n/a 84,284 263,937 252,852 1,156 12,241 (11,085 )
419,937 372,964 4.05 % 1,156 48,129 (46,973 )
Information Technology
Insite Software Solutions, Inc Warrants⁽⁸⁾ n/a 12/30/2023 108,960 — — — — —
MAX 4G, Inc. Preferred Stock⁽⁸⁾ n/a n/a 300,000 150,000 300,000 150,000 — 150,000
Simulations Plus, Inc. Common Stock n/a n/a 25,001 246,710 387,508 140,798 — 140,798
Travelzoo, Inc. Common Stock n/a n/a 30,000 324,848 258,000 — 66,848 (66,848 )
721,558 945,508 10.27 % 290,798 66,848 223,950
Leisure & Hospitality
Bitesquad.com LLC Preferred LLC Units^{(4) (8)} n/a n/a 73,543 1,014,893 2,020,226 1,005,333 — 1,005,333
DBR Enclave US Investors, LLC LLC Membership Units 15 % 1/31/2020 500,000 500,000 500,000 — — —
1,514,893 2,520,226 27.37 % 1,005,333 — 1,005,333
Oil & Gas
Northern Capital Partners I, LP Limited Partnership Units⁽⁸⁾ n/a n/a 550,000 550,000 488,629 — 61,371 (61,371 )
Southern Plains Resources, Inc. Common Stock⁽⁸⁾ n/a n/a 600,000 730,000 — — 730,000 (730,000 )
1,280,000 488,629 5.31 % — 791,371 (791,371 )
Publishing
Educational Development Corp. Common Stock n/a n/a 63,702 641,971 612,762 6.65 % 33,182 62,391 (29,209 )

Telecommunications
Tessco Technologies Inc. Common Stock n/a n/a 5,000 83,090 62,250 0.68 % — 20,840 (20,840 )

Total Equity Investments 5,654,057 6,293,306 68.34 % 1,766,835 1,127,586 639,249

Total Cash and Cash Equivalents 2,336,878 2,336,878 25.38 % — — —

Total Investments, Cash and Cash Equivalents $ 9,240,935 $ 9,130,184 99.15 % $ 1,766,835 $ 1,877,586 $ (110,751 )

⁽¹⁾

All investments and all cash, restricted cash and cash equivalents are “qualifying assets” under Section 55(a) of the Investment Company Act of 1940 unless indicated to the contrary in the table or by footnote.

⁽²⁾

~~Interest is presented on a per annum basis.~~

⁽³⁾

~~Investment is secured but payment and collateral are subordinated to the debt of another creditor by contract.~~

⁽⁴⁾

~~Investment is convertible into common equity of the issuer.~~

⁽⁵⁾

~~In the case of warrants, warrants provide for the right to purchase common equity of the issuer.~~

⁽⁶⁾

~~In the case of preferred stock, this represents the right to annual cumulative dividends calculated on a per annum basis.~~

⁽⁷⁾

~~In the case of warrants, purchase rights under the warrants will expire at the close of business on this date.~~

⁽⁸⁾

~~Investment is not an income-producing investment.~~

⁽⁹⁾

~~Investment is neither a “qualifying asset” under Section 55(a) of the Investment Company Act of 1940, nor a restricted security.~~

~~At September 30, 2017, aggregate non-qualifying assets represented approximately 0.0% of our total assets.~~

⁽¹⁰⁾

~~Value reflects 20% discount for restricted nature of securities~~

- 7 -

Table of Contents

MILL CITY VENTURES III, LTD.

CONDENSED SCHEDULE OF INVESTMENTS

SEPTEMBER 30, 2022

Investment / Industry	Cost		Fair Value		Percentage of Net Assets

Short-Term Non-banking Loans
Consumer - 15% secured loans	$	$400,000	$	$400,000		2.14	%
AirDog Supplies, Inc.		1,250,000		1,250,000		6.70	%
Intelligent Mapping, LLC		2,900,000		2,900,000		15.54	%
Financial - 53% secured loans		635,086		635,086		3.40	%
Financial - 33% secured loans
Benton Financial, LLC		1,976,667		1,976,667		10.59	%
Financial - 36% secured loans		550,000		550,000		2.95	%
Financial - 12% secured loans		500,000		500,000		2.68	%
Information Technology - 15% convertible note		212,500		212,500		1.14	%
Real Estate - 15% secured loans		216,495		216,495		1.16	%
Tailwinds, LLC		3,000,000		3,000,000		16.08	%
Real Estate - 12% secured loans
Alatus Development Corp		1,000,000		1,000,000		5.36	%
Real Estate - subordinated debt
Villas at 79th, LLC		3,400,000		3,400,000		18.22	%
Total Short-Term Non-Banking Loans		16,040,748		16,040,748		85.96	%

Preferred Stock
Consumer
Wisdom Gaming, Inc		900,000		900,000		4.82	%
Information Technology		150,000		300,000		1.61	%
Total Preferred Stock		1,050,000		1,200,000		6.43	%

Warrants
Healthcare		679		-		0.00	%

Other Equity
Consumer		212,500		212,500		1.14	%
Financial		600,000		600,000		3.22	%
Financial		10,000		10,000		0.05	%
Total Other Equity		822,500		822,500		4.41	%

Total Investments		$17,913,927		$18,063,248		96.80	%

Total Cash		1,861,650		1,861,650		9.98	%

Total Investments and Cash	$	19,775,577	$	19,924,898		106.78	%

- 8 -

Table of Contents

MILL CITY VENTURES III, LTD.

SCHEDULE OF INVESTMENTS

DECEMBER 31, ~~2016~~2021

Investments⁽¹⁾ Investment Type Interest
Rate⁽²⁾ Maturity
Date Principal
Amount Cost Fair Value Percentage
of Net
Assets Gross
Unrealized
Appreciation Gross
Unrealized
Depreciation Net
Unrealized
Appreciation
(Depreciation)
Debt Investments
Consumer
Mix 1 Life, Inc. Secured Loan⁽⁴⁾ 12 % 2/6/2016 $ 500,000 500,000 180,000 — 320,000 (320,000 )
Mix 1 Life, Inc. Secured Loan 12 % 3/13/2016 $ 250,000 250,000 — — 250,000 (250,000 )
750,000 180,000 1.92 % — 570,000 (570,000 )
Financial
Bravo Financial LLC Secured Loan 12 % 8/31/2018 $ 500,000 500,000 500,000 5.32 % — — —
Oil & Gas
Dala Petroleum, Inc. Secured Loan 12 % 12/31/2015 $ 25,000 25,000 — — 25,000 (25,000 )
Dala Petroleum, Inc. Secured Loan 12 % 12/22/2016 $ 35,195 35,195 — — 35,195 (35,195 )
Dala Petroleum, Inc. Secured Loan 12 % 12/16/2017 $ 22,500 22,500 — — 22,500 (22,500 )
82,695 — 0.00 % — 82,695 (82,695 )

Total Debt Investments 1,332,695 680,000 7.24 % — 652,695 (652,695 )

Investments⁽¹⁾ Investment Type⁽⁵⁾ Interest
Rate⁽⁶⁾ Expiration
Date⁽⁷⁾ Shares/Units Cost Fair Value Percentage
of Net
Assets Gross
Unrealized
Appreciation Gross
Unrealized
Depreciation Net
Unrealized
Appreciation
(Depreciation)
Equity Investments
Advertising
Creative Realities, Inc. Warrants⁽⁸⁾ n/a 12/28/2020 1,071,429 — 32,143 0.34 % 32,143 — 32,143
Bio-technology
Bio Life Solutions, Inc. Warrants⁽⁸⁾ n/a 3/20/2021 100,000 — — — — —
Combimatrix Corporation Warrants⁽⁸⁾ n/a 5/6/2019 5,464 — — — — —
Combimatrix Corporation Warrants⁽⁸⁾ n/a 6/28/2019 5,464 — — — — —
Combimatrix Corporation Warrants⁽⁸⁾ n/a 12/19/2018 16,666 — — — — —
— — 0.00 % — — —
Consumer
Escalade Inc. Common Stock n/a n/a 7,929 93,975 104,663 10,688 — 10,688
Mix 1 Life, Inc. Common Stock⁽⁸⁾ n/a n/a 40,051 — 15,219 15,219 — 15,219
Mix 1 Life, Inc. Common Stock⁽¹⁰⁾ n/a n/a 100,000 46,160 30,000 — 16,160 (16,160 )
Tzfat Spirits of Israel, LLC LLC Membership Units⁽⁸⁾ n/a n/a 55,000 101,019 25,000 — 76,019 (76,019 )
241,154 174,882 1.86 % 25,907 92,179 (66,272 )
Education
Nat'l Amer. Univ. Holdings, Inc. Common Stock n/a n/a 59,839 119,027 116,686 1.24 % 992 3,333 (2,341 )
Financial
Comm. Sales & Leasing Common Stock⁽⁹⁾ n/a n/a 2,000 65,620 50,820 — 14,800 (14,800 )
OTC Markets Group Cl A Common Stock n/a n/a 19,074 297,381 438,702 141,321 — 141,321
QC Holdings, Inc. Common Stock⁽⁸⁾ n/a n/a 15,000 10,655 11,100 445 — 445
373,656 500,622 5.33 % 141,766 14,800 126,966
Healthcare
WaferGen Bio-Systems, Inc. Common Stock⁽⁸⁾ n/a n/a 85,210 369,800 420,085 50,285 — 50,285
WaferGen Bio-Systems, Inc. Warrants⁽⁸⁾ n/a 10/21/2020 40,000 — — — — —
369,800 420,085 4.48 % 50,285 — 50,285
Information Technology
Insite Software Solutions, Inc Warrants⁽⁸⁾ n/a 12/30/2023 108,960 — — — — —
MAX 4G, Inc. Preferred Stock⁽⁸⁾ n/a n/a 300,000 150,000 300,000 150,000 — 150,000
Mitek Systems Inc. Common Stock⁽⁸⁾ n/a n/a 7,772 50,540 47,798 — 2,742 (2,742 )
Simulations Plus, Inc. Common Stock n/a n/a 18,639 173,310 179,862 10,659 4,107 6,552
Travelzoo, Inc. Common Stock n/a n/a 15,100 177,459 141,940 — 35,519 (35,519 )
551,309 669,600 7.13 % 160,659 42,368 118,291
Investment Fund

Calamos Conv. & High Inc. Fund Common Stock⁽⁹⁾ n/a n/a 10,000 128,357 105,500 — 22,857 (22,857 )
Solar Senior Capital Ltd Common Stock⁽⁹⁾ n/a n/a 6,047 91,983 99,412 7,429 — 7,429
220,340 204,912 2.18 % 7,429 22,857 (15,428 )
Leisure & Hospitality
Bitesquad.com LLC Preferred LLC Units^{(4) (8)} n/a n/a 100,000 1,380,000 2,747,011 29.26 % 1,367,011 — 1,367,011
Media
Discovery Communications Inc. Common Stock⁽⁹⁾ n/a n/a 5,000 149,609 137,050 1.46 % — 12,559 (12,559 )
Oil & Gas
Dala Petroleum, Inc. Preferred Stock⁽⁸⁾ n/a n/a 500 500,000 — — 500,000 (500,000 )
Dala Petroleum, Inc. Warrants⁽⁸⁾ n/a 6/3/2017 714,286 — — — — —
Northern Capital Partners I, LP Limited Partnership Units⁽⁸⁾ n/a n/a 550,000 550,000 488,629 — 61,371 (61,371 )
Southern Plains Resources, Inc. Common Stock⁽⁸⁾ n/a n/a 600,000 730,000 — — 730,000 (730,000 )
1,780,000 488,629 5.21 % — 1,291,371 (1,291,371 )
Publishing
Educational Development Corp. Common Stock n/a n/a 36,905 409,380 367,205 3.91 % 3,141 45,316 (42,175 )

Telecommunications
AT&T Common Stock⁽⁹⁾ n/a n/a 5,000 175,260 212,650 37,390 — 37,390
CenturyLink, Inc. Common Stock⁽⁹⁾ n/a n/a 5,000 157,360 118,900 — 38,460 (38,460 )
MagicJack VocalTek Ltd. Common Stock^{(8) (9)} n/a n/a 5,754 34,141 39,415 5,274 — 5,274
Tessco Technologies Inc. Common Stock n/a n/a 5,000 83,090 65,000 — 18,090 (18,090 )
Windstream Holdings Inc. Common Stock⁽⁹⁾ n/a n/a 1,666 21,087 12,212 — 8,875 (8,875 )
470,938 448,177 4.78 % 42,664 65,425 (22,761 )

Total Equity Investments 6,065,213 6,307,002 67.18 % 1,831,997 1,590,208 241,789

Total Cash and Cash Equivalents 2,344,751 2,344,751 24.98 % — — —

Total Investments, Cash and Cash Equivalents $ 9,742,659 $ 9,331,753 99.40 % $ 1,831,997 $ 2,242,903 $ (410,906 )

Investment / Industry	Cost		Fair Value		Percentage of Net Assets
Short-Term Non-banking Loans
Consumer - 15% secured loans
AirDog Supplies, Inc.	$	1,250,000	$	1,250,000		9.32	%
Financial - 52% secured loans		500,000		500,000		3.73	%
Financial - 12% secured loans		500,000		500,000		3.73	%
Litigation Financing - 23% secured loans
The Cross Law Firm, LLC		1,805,750		1,800,000		13.42	%
Real Estate - 15% secured loans		700,000		700,000		5.22	%
Tailwinds, LLC		3,000,000		3,000,000		22.36	%
Real Estate - 12% secured loans
Alatus Development, LLC		3,900,000		3,900,000		29.07	%
Total Short-Term Non-Banking Loans		11,655,750		11,650,000		86.85	%

Common Stock
Financial Services		414,128		436,175		3.25	%

Preferred Stock
Consumer
Wisdom Gaming, Inc		900,000		900,000		6.71	%
Information Technology		150,000		300,000		2.24	%
Total Other Equity		1,050,000		1,200,000		8.95	%

Warrants
Healthcare		679		-		0.00	%

Other Equity
Consumer		212,500		212,500		1.58	%
Financial		600,000		600,000		4.47	%
Total Other Equity		812,500		812,500		6.05	%

Total Investments	$	13,933,057	$	14,098,675		105.10	%

Total Cash		1,936,148		1,936,148		14.43	%

Total Investments and Cash	$	15,869,205	$	16,034,823		119.53	%

⁽¹⁾- 9 -

~~All investments and all cash, restricted cash and cash equivalents are “qualifying assets” under Section 55(a)~~

Table of ~~the Investment Company Act of 1940 unless indicated to the contrary in the table or by footnote.~~

⁽²⁾

~~Interest is presented on a per annum basis.~~

⁽³⁾

~~Investment is secured but payment and collateral are subordinated to the debt of another creditor by contract.~~

⁽⁴⁾

~~Investment is convertible into common equity of the issuer.~~

⁽⁵⁾

~~In the case of warrants, warrants provide for the right to purchase common equity of the issuer.~~

⁽⁶⁾

~~In the case of preferred stock, this represents the right to annual cumulative dividends calculated on a per annum basis.~~

⁽⁷⁾

~~In the case of warrants, purchase rights under the warrants will expire at the close of business on this date.~~

⁽⁸⁾

~~Investment is not an income-producing investment.~~

⁽⁹⁾

~~Investment is neither a “qualifying asset” under Section 55(a) of the Investment Company Act of 1940, nor a restricted security.~~

~~At December 31, 2016, aggregate non-qualifying assets represented approximately 8.3% of our total assets.~~

⁽¹⁰⁾

~~Value reflects 20% discount for restricted nature of securities~~Contents

~~- 8 -~~

~~MILL CITY VENTURES III, LTD.~~

~~NOTES TO FINANCIAL STATEMENTS (UNAUDITED)~~

~~September 30, 2017~~

NOTE 1 – ORGANIZATION

~~Mill City Ventures III, Ltd. is an investment company 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.~~“Company.” The Company follows accounting and reporting guidance in Accounting Standards (“ASC”) 946.

We ~~are an internally managed closed-end non-diversified management investment company. We have~~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 ~~be regulated as~~become a business development company ~~or “BDC,”~~(“BDC”) under the Investment Company Act of 1940 (the “1940 Act”). ~~To date,~~We operated as a BDC until we withdrew our BDC election at the end of December 2019. Since that time, we have ~~not made an election~~remained a public reporting company filing periodic reports with the SEC. We engage in the business of providing short-term specialty finance solutions, typically in the form of loans, primarily to ~~be treated as a regulated investment company, or “RIC,”~~small businesses, both private and public, and high-net-worth individuals. To avoid regulation under the ~~Internal Revenue Code of 1986 (the “Code”).~~

~~We primarily focus on investing in or lending~~1940 Act, we generally seek to ~~privately held and small-cap publicly traded U.S. companies, and making managerial assistance available to such companies. These~~structure our investments are typically structured as purchases of preferred or common stock, investment contracts, or loans evidenced by promissory notes that may be convertible into stock by their terms or that may be accompanied by the issuance to us of warrants or similar rights to purchase stock. Our investments may be madeso they do not constitute “securities” for purposes of ~~financing acquisitions, recapitalizations, buyouts, organic growth~~federal securities laws, and ~~working capital. Our future revenues will relate~~we monitor our investments as a whole to ensure that no more than 40% of our total assets consist of “investment securities” as defined under the gain we realize from the sale of securities we purchase, and to dividends and interest we derive from those securities. Our investment objective is to generate both current income and capital appreciation that ultimately become gains.1940 Act.

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, ~~2017~~2022 are not necessarily indicative of the results that may be expected for the year ending December 31, ~~2017.~~2022.

The condensed balance sheet atas of December 31, ~~2016~~2021 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 ~~consolidated~~ financial statements and footnotes thereto included in our Annual Report on Form 10-K for the year ended December 31, ~~2016.~~2021.

Use of ~~estimates~~: estimates: The preparation of financial statements in conformity with GAAP requires management and our ~~independent board members~~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.~~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. For purposes of its financial statement presentation, the Company is an investment company following accounting and reporting guidance in ASC 946.

Cash ~~deposits~~: 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 portfolio ~~investments~~: 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 ~~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 portfolio 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 a portfolio investment in a forced or liquidation sale, we could realize significantly less than the value at which we have recorded it.

~~- 9 -~~

~~MILL CITY VENTURES III, LTD.~~

~~NOTES TO FINANCIAL STATEMENTS (UNAUDITED)~~

~~September 30, 2017~~

~~For more information, see Note 4 “Fair Value of Financial Instruments.”~~

~~Income taxes~~: We account for income taxes under the liability method. Under this method, deferred tax assets and liabilities are determined based on the difference between the financial statement and tax bases of assets and liabilities using enacted tax rates in effect for the year in which the differences are expected to affect taxable income. Valuation allowances are established when necessary to reduce deferred tax assets to the amounts expected to be realized. For more information, see Note 7 “Income Taxes.”

~~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 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. 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 the portfolio company and are expected to be collected. Dividend income on common equity securities is recorded on the record date for private portfolio companies or on the ex-dividend date for publicly traded portfolio companies.

Certain investments may have contractual payment-in-kind (“PIK”) interest or dividends. PIK represents accrued interested 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 to 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.

~~Recent accounting pronouncements~~~~: No new accounting pronouncement issued or effective during the fiscal quarter covered by this report has had or is expected to have a material impact on our condensed financial statements.~~

~~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.~~

~~Management and service fees:~~ ~~We do not incur expenses related to management and service fees. Our executive management team manages our investments as part of their employment responsibilities.~~

~~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, 2017 (together with the corresponding percentage of total portfolio investments):

As of September 30, 2017
Investments at
Amortized Cost Percentage of
Amortized Cost Investments at
Fair Value Percentage of
Fair Value
Senior Secured Loans $ 1,250,000 18.1 % $ 500,000 7.4 %
Preferred Stock 1,320,214 19.1 2,440,338 35.9
Common Stock 3,182,145 46.1 2,614,767 38.5
Warrants 679 - 224,572 3.3
Other Equity 1,151,019 16.7 1,013,629 14.9
Total $ 6,904,057 100.0 % $ 6,793,306 100.0 %

	- 10 -

Table of Contents

~~MILL CITY VENTURES III, LTD.~~

~~NOTES TO FINANCIAL STATEMENTS (UNAUDITED)~~

~~September 30, 2017~~

The following table shows the composition of our investment portfolio by major class, at amortized cost and fair value, as of December 31, 2016 (together with the corresponding percentage of total portfolio investments):

As of December 31, 2016
Investments at
Amortized Cost Percentage of
Amortized Cost Investments at
Fair Value Percentage of
Fair Value
Senior Secured Loans $ 1,332,695 18.0 % $ 680,000 9.7 %
Preferred Stock 2,030,000 27.4 3,047,011 43.6
Common Stock 3,384,194 45.8 2,714,219 38.8
Warrants - - 32,143 0.5
Other Equity 651,019 8.8 513,629 7.4
Total $ 7,397,908 100.0 % $ 6,987,002 100.0 %

~~The following table shows the composition of our investment portfolio by industry grouping, based on fair value as of September 30, 2017:~~

As of September 30, 2017
Investments at
Fair Value Percentage of
Fair Value
Advertising $ 128,572 1.9 %
Bio-technology 96,000 1.4
Consumer 492,027 7.3
Education 128,055 1.9
Financial 946,313 13.9
Healthcare 372,964 5.5
Information Technology 945,508 13.9
Leisure & Hospitality 2,520,226 37.1
Oil & Gas 488,629 7.2
Publishing 612,762 9.0
Telecommunications 62,250 0.9
Total $ 6,793,306 100.0 %

~~The following table shows the composition of our investment portfolio by industry grouping, based on fair value as of December 31, 2016:~~

As of December 31, 2016
Investments at
Fair Value Percentage of
Fair Value
Advertising $ 32,143 0.5 %
Consumer 354,882 5.1
Education 116,686 1.7
Financial 1,000,622 14.3
Healthcare 420,085 6.0
Information Technology 669,600 9.6
Investment Fund 204,912 2.9
Leisure & Hospitality 2,747,011 39.3
Media 137,050 2.0
Oil & Gas 488,629 7.0
Publishing 367,205 5.2
Telecommunications 448,177 6.4
Total $ 6,987,002 100.0 %

~~- 11 -~~

~~MILL CITY VENTURES III, LTD.~~

~~NOTES TO FINANCIAL STATEMENTS (UNAUDITED)~~

~~September 30, 2017~~

We do not “control,” and we are not an “affiliate” (as each of those terms is defined in the 1940 Act), of any of our portfolio companies as of September 30, 2017. Under the 1940 Act, we would generally be presumed to “control” a portfolio company if we owned more than 25% of its voting securities, and be an “affiliate” of a portfolio company if we owned at least 5% and up to 25% of its voting securities.

~~NOTE 4 – FAIR VALUE OF FINANCIAL INSTRUMENTS~~

~~General information~~: 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 ~~the Valuation Committee of~~ our Board of Directors, pursuant to our written ~~Valuation Policy~~valuation policy and ~~Procedures.~~procedures. These policies and procedures generally require that we value our Level 3 equity investments at cost plus any accrued interest, unless circumstances warrant a different approach. ~~Our Valuation Policy and Procedures provide examples~~An example of ~~these~~such circumstances ~~such as when~~may include a situation in which a portfolio company has engaged in a subsequent financing of more than ade 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). Other situations identified in our ~~Valuation Policy~~valuation policy and ~~Procedures~~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 portfolio 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~~valuation policy and ~~Procedures~~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 securities 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.

~~- 12 -~~

~~MILL CITY VENTURES III, LTD.~~

~~NOTES TO FINANCIAL STATEMENTS (UNAUDITED)~~

~~September 30, 2017~~ 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 applied discount ranges from 12% to 53% and approximate rates currently observed in publicly traded debt markets for debt of similar terms issued by companies with comparable credit risk.

On a quarterly basis, our management provides members of our ~~Valuation Committee~~Board of Directors with (i) valuation ~~reports~~updates for each ~~portfolio~~ 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);~~loan we hold; (ii) Mill City Ventures’ bank and other statements pertaining to our cash and cash equivalents; ~~and~~ (iii) quarter- or period-end statements from ~~our~~ custodial firms holding any of our ~~portfolio investments.~~investments; and (iv) recommendations to change any existing valuations of our investments or loans, or hierarchy levels, for purposes of determining the fair value of such investments or loans based upon the foregoing. The ~~committee~~board then discusses these materials and, consistent with the policies and approaches outlined above, makes final determinations respecting the valuation and hierarchy levels of our portfolio investments.

Income taxes:

We ~~made no~~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.

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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. 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, 2019 through 2021, which were the tax years that remain subject to examination by major tax jurisdictions as of September 30, 2022.

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 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.

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.

Management and service fees: We do not incur expenses related to management and service fees. Our executive management team manages our ~~Valuation Policy~~investments as part of their employment responsibilities.

NOTE 3 – INVESTMENTS AND LOANS

The following table shows the composition of our investments and ~~Procedures~~loans by major class, at amortized cost and fair value, as of September 30, 2022 (together with the corresponding percentage of the fair value of our total investments):

	As of September 30, 2022
	Investments at Amortized Cost		Percentage of Amortized Cost			Investments at Fair Value		Percentage of Fair Value
Short-term Non-banking Loans	$	16,040,748		89.5	%	$	16,040,748		88.8	%
Preferred Stock		1,050,000		5.9			1,200,000		6.6
Warrants		679		—			—		—
Other Equity		822,500		4.6			822,500		4.6
Total	$	17,913,927		100.0	%	$	18,063,248		100.0	%

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The following table shows the composition of our investments by major class, at amortized cost and fair value, as of December 31, 2021 (together with the corresponding percentage of the fair value of our total investments):

	As of December 31, 2021
	Investments at Amortized Cost		Percentage of Amortized Cost			Investments at Fair Value		Percentage of Fair Value
Short-term Non-banking Loans	$	11,655,750		83.7	%	$	11,650,000		82.6	%
Preferred Stock		1,050,000		7.5			1,200,000		8.5
Common Stock		414,128		3.0			436,175		3.1
Warrants		679		—			—		—
Other Equity		812,500		5.8			812,500		5.8
Total	$	13,933,057		100.0	%	$	14,098,675		100.0	%

The following table shows the composition of our investments and loans by industry grouping, based on fair value as of September 30, 2022:

	As of September 30, 2022
	Investments at Fair Value		Percentage of Fair Value
Consumer	$	5,662,500		31.35	%
Financial		4,261,753		23.59
Information Technology		512,500		2.84
Real Estate		7,626,495		42.2
Total	$	18,063,248		100.0	%

The following table shows the composition of our investments by industry grouping, based on fair value as of December 31, 2021:

	As of December 31, 2021
	Investments at Fair Value		Percentage of Fair Value
Consumer	$	2,362,500		16.8	%
Financial		3,836,175		27.2
Information Technology		300,000		2.1
Real Estate		7,600,000		53.9
Total	$	14,098,675		100.0	%

For the three months ended September 30, 2022, one investment accounted for 49% of the interest income earned. This investee did not make any cash interest payments during the ~~reporting period.~~three months ended September 30, 2022, and owes accrued interest of approximately $650,000 at September 30, 2022. The Company believes it is probable that all interest will be collected from this investee.

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 ~~investment portfolio~~investments and loans as of September 30, ~~2017~~2022 may differ materially from values that would have been used had a readily available market for the ~~securities~~investments and loans existed.

The following table presents the fair value measurements of our ~~portfolio~~ investments and loans by major class, as of September 30, ~~2017,~~2022, according to the fair value hierarchy:

	As of September 30, 2017								As of September 30, 2022
	Level 1		Level 2		Level 3		Total		Level 1		Level 2		Level 3		Total
Senior Secured Loans	$	-	$	-	$	500,000	$	500,000
Short-term Non-banking Loans									$	—	$	—	$	16,040,748	$	16,040,748
Preferred Stock		-		120,112		2,320,226		2,440,338		—		—		1,200,000		1,200,000
Common Stock		2,613,967		800		-		2,614,767
Warrants		-		224,572		-		224,572		—		—		—		—
Other Equity		-		-		1,013,629		1,013,629		—		—		822,500		822,500
Total	$	2,613,967	$	345,484	$	3,833,855	$	6,793,306	$	—	$	—	$	18,063,248	$	18,063,248

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The following table presents the fair value measurements of our ~~portfolio~~ investments and loans by major class, as of December 31, ~~2016,~~2021, according to the fair value ~~hierarchy~~hierarchy:

	As of December 31, 2016								As of December 31, 2021
	Level 1		Level 2		Level 3		Total		Level 1		Level 2		Level 3		Total
Senior Secured Loans	$	-	$	-	$	680,000	$	680,000
Short-term Non-banking Loans									$	—	$	—	$	11,650,000	$	11,650,000
Preferred Stock		-		-		3,047,011		3,047,011		—		—		1,200,000		1,200,000
Common Stock		2,684,219		30,000		-		2,714,219		436,175		—		—		436,175
Warrants		-		32,143		-		32,143
Other Equity		-		-		513,629		513,629		—		—		812,500		812,500
Total	$	2,684,219	$	62,143	$	4,240,640	$	6,987,002	$	436,175	$	—	$	13,662,500	$	14,098,675

The following table presents a reconciliation of the beginning and ending fair value balances for our Level 3 ~~portfolio~~ investment and loan assets for the nine months ended September 30, ~~2017:~~2022:

Senior Secured
Loans Preferred Stock Common Stock Warrants Other Equity
Balance as of December 31, 2016 $ 680,000 $ 3,047,011 $ - $ - $ 513,629
Net change in unrealized appreciation (depreciation) (97,305 ) 138,321 - - -
Purchases and other adjustments to cost 10,000 - - - 500,000
Sales and redemptions (182,695 ) (746,225 ) - - -
Net realized gain 90,000 (118,881 ) - - -
Balance as of September 30, 2017 $ 500,000 $ 2,320,226 $ - $ - $ 1,013,629

	For the nine months ended September 30, 2022
	ST Non-banking Loans			Preferred Stock		Common Stock		Warrants		Other Equity
Balance as of January 1, 2022	$	11,650,000		$	1,200,000	$	—	$	—	$	812,500
Net change in unrealized appreciation		—			—		—		—		—
Purchases and other adjustments to cost		13,914,333			-		—		—		10,000
Sales and redemptions		(9,523,585	)		—		—		—		—
Balance as of September 30, 2022	$	16,040,748		$	1,200,000	$	—	$	—	$	822,500

The net change in unrealized ~~depreciation~~appreciation for the nine months ended September 30, ~~2017~~2022 attributable to Level 3 ~~portfolio~~ investments and loans still held atas of September 30, ~~2017~~2022 is ~~$541,678,~~$0, and is included in net change in unrealized appreciation (depreciation) on investments on the statement of operations.

The following table lists our Level 3 investments held as of September 30, 2022 and the unobservable inputs used to determine their valuation:

Security Type	9/30/22 FMV		Valuation Technique	Unobservable Inputs	Range
ST Non-banking Loans	$	16,040,748	discounted cash flow	determining private company interest rate based on credit	12-53	%
Other Equity		822,500	last secured funding known by company	economic changes since last funding
Preferred Stock		1,200,000	last funding secured by company	economic changes since last funding
	$	18,063,248

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~~MILL CITY VENTURES III, LTD.~~

~~NOTES TO FINANCIAL STATEMENTS (UNAUDITED)~~

~~September 30, 2017~~

The following table presents a reconciliation of the beginning and ending fair value balances for our Level 3 ~~portfolio~~ investment and loan assets for the ~~period~~year ended December 31, ~~2016:~~2021:

	Senior Secured Loans			Preferred Stock		Common Stock		Warrants		Other Equity			For the year ended December 31, 2021
Balance as of December 31, 2015	$	1,850,000		$	1,080,000	$	-	$	-	$	1,230,258
													ST Non-banking Loans			Preferred Stock		Common Stock		Warrants		Other Equity
Balance as of January 1, 2021													$	2,789,000		$	300,000	$	—	$	—	$	278,897
Net change in unrealized appreciation		(122,500	)		1,367,011		-		-		(5,579	)		—			—		—		—		—
Purchases and other adjustments to cost		64,500			600,000		-		-		50,000			24,765,333			900,000		—		—		812,500
Sales and redemptions		(724,000	)		-		-		-		(761,050	)		(15,904,333	)		—		—		—		(278,897	)
Net realized gain		(388,000	)		-		-		-		-
Balance as of December 31, 2016	$	680,000		$	3,047,011	$	-	$	-	$	513,629
Balance as of December 31, 2021													$	11,650,000		$	1,200,000	$	—	$	—	$	812,500

The net change in unrealized ~~appreciation~~depreciation for the ~~period~~year ended December 31, ~~2016~~2021 attributable to Level 3 ~~portfolio~~ investments and loans still held atas of December 31, ~~2016 was $713,932,~~2021 is $0, and is included in net change in unrealized appreciation (depreciation) on investments on the statement of operations.

The following table lists our Level 3 investments held as of December 31, 2021 and the unobservable inputs used to determine their valuation:

Security Type	12/31/21 FMV		Valuation Technique	Unobservable Inputs	Range
ST Non-banking Loans	$	11,650,000	discounted cash flow	determining private company credit rating	12-44	%
Other Equity		812,500	last secured funding known by company	economic changes since last funding
Preferred Stock		1,200,000	last funding secured by company	economic changes since last funding
	$	13,662,500

NOTE 5 – RELATED-PARTY TRANSACTIONS

We maintain a ~~Code of Ethics and certain other policies relating to~~ conflicts of interest and related-party transactions ~~as well as policies and procedures relating to what regulations applicable to BDCs generally describe as “affiliate transactions.”~~policy. Nevertheless, from time to time we may hold investments in portfolio companies in which certain members of our management, our Board of Directors, or significant shareholders of ours, are also directly or indirectly invested. ~~Our Board of Directors has adopted a policy to require our disclosure of these instances in our periodic filings with~~In this regard, we entered into the ~~SEC. Our~~following related-party ~~transactions requiring disclosure under this policy are:~~transactions:

	·	~~Mr. Joseph A. Geraci, II,~~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 ~~Chief Financial Officer, and Mr. Douglas M. Polinsky, our Chief Executive Officer, hold direct and indirect interests~~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 in December 2022. The promissory note bears interest payable monthly at the rate of 10% per annum. The note is secured by the debtors’ pledge to us of 277,778 shares of our common ~~stock of Southern Plains Resources,~~stock. The pledged shares are held in physical custody for us by Millennium Trust Company, as our custodial agent.

	·	On January 3, 2022, we entered into a Loan and Security Agreement (the “Loan Agreement”) with Eastman Investment, Inc., a ~~company in which we made investments in common stock in each~~Nevada corporation, and Lyle A. Berman, as trustee of ~~March and July 2013.~~

~~A former~~the Lyle A. Berman Revocable Trust (collectively, the “Lenders”). Mr. Berman is a director of our ~~company, Christopher Larson, had~~Company. Under the Loan Agreement, the Lenders made available to us a ~~direct interest~~$5 million revolving line of credit for us to use in ~~Mix 1 Life, Inc. and served as that company’s Chief Financial Officer at~~ the ~~time~~ordinary course of a portfolio investment we made in secured convertible debt of Mix 1 Life (together with common stock purchase warrants) in February 2014. In June 2014, Mr. Larson became a director of Mix 1 Life. In August 2014, we exercised our ~~common stock purchase warrant on a cashless basis~~short-term specialty finance business. See note 7 for the purchase of Mix 1 Life common stock. In March 2015, we invested in additional secured debt of Mix 1 Life. Mr. Larson resigned from his position as a director of Mill City Ventures in November 2015.further details.

Lantern Advisors, LLC is a limited liability company equally owned by Messrs. Geraci and Polinsky, and owns a cashless warrant to purchase up to 153,846 shares of Creative Realities, Inc. at a price of $0.70 per share through July 14, 2019. We made an initial investment in secured convertible debt of Creative Realities (together with common stock purchase warrants) in February 2015, and then a subsequent investment in secured convertible debt of Creative Realities (together with common stock purchase warrants) in December 2015. In December 2015, we also exchanged our common stock purchase warrant obtained in February 2015 for shares of Creative Realities common stock.

~~- 14 -~~

~~MILL CITY VENTURES III, LTD.~~

~~NOTES TO FINANCIAL STATEMENTS (UNAUDITED)~~

~~September 30, 2017~~

NOTE 6 – ~~COMMITMENTS AND CONTINGENCIES~~INCOME TAXES

WePresently, we are a C-corporation for tax purposes and have booked an agreement to lease approximately 1,917 square feet of commercial space, and two parking spots, for a period of 62 months. The 62-month lease term began October 1, 2013 and runs through November 30, 2018. The total base rent expenseincome tax provision for the periods described below.

As of September 30, 2022 and December 31, 2021, we have a deferred tax asset of $4,000 and a deferred tax liability of $45,000, respectively. As of September 30, 2022, our net deferred tax asset consists of foreign tax credit carryforwards, unrealized gain/loss, and other book to tax timing differences. 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.

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As of September 30, 2022 and December 31, 2021 we had accrued income taxes of $128,800 and $1,269,000, respectively. The change in accrued income taxes was largely driven by $1,536,000 of federal and state tax payments made during 2022. We recorded a benefit from income taxes of $28,442 (27% effective tax rate) and a benefit from income taxes of $300 (27% effective tax rate) during the three ~~and nine-month periods~~months ended September 30, ~~2017 was $11,345~~2022 and ~~$34,034,~~September 30, 2021, respectively. ~~The table below sets forth~~We recorded income taxes of approximately $346,000 (27% effective tax rate) and $1,010,978 (30.4% effective tax rate) during the ~~required annual minimum lease payments:~~nine months ended September 30, 2022 and September 30, 2021, respectively.

Year Amount
2017 $ 12,655
2018 46,988
Total $ 59,643

NOTE 7 – ~~INCOME TAXES~~

We plan to be taxed as a regulated investment company, or “RIC,” and intend to comply with the requirements of the Code applicable to RICs. Currently, however, we have not elected to be treated as a RIC. Upon our election to be taxed as a RIC, we will be required to distribute at least 90% of our investment company taxable income, and we intend at that time to distribute to shareholders (or retain through a deemed distribution) all of our investment company taxable income and net capital gain. Based on the foregoing, we have made no provision for income taxes. The characterization of income and gains that we will distribute is determined in accordance with income tax regulations that may differ from GAAP. Book and tax basis differences relating to shareholder dividends and distributions and other permanent book and tax differences are reclassified to paid-in capital.

~~NOTE 8 – SHAREHOLDERS’ EQUITY~~LINE OF CREDIT

On ~~September 25, 2017~~January 3, 2022, we ~~repurchased~~entered into a Loan and ~~retired 1,084,091~~Security Agreement (the “Loan Agreement”) with Eastman Investment, Inc., a Nevada corporation, and Lyle A. Berman, as trustee of the Lyle A. Berman Revocable Trust (collectively, the “Lenders”). Mr. Berman is a director of our Company. 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.

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; 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 June 30, 2022, the Loan Agreement provided for us to pay a quarterly unused commitment fee equal to one-quarter of one percent of the amount of credit available but unused under the Loan Agreement, and requires us to pay such fee in the form of shares of our common stock ~~at a per-share price~~based on our net asset value per share on the last day of ~~$0.40.~~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.

At September 30, ~~2017,~~2022, the balance outstanding on the line was $2,313,000 with a maturity date of January 3, 2027.

NOTE 8 – SHAREHOLDERS’ EQUITY

At September 30, 2022, we had ~~11,067,402~~6,185,255 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.

On August 11, 2022, the Company completed its public offer and sale of 1,250,000 common shares pursuant to a registration statement filed with the SEC and declared effective on August 9, 2022. Shares were sold by the Company at $4.00 per share, resulting in gross proceeds of $5,000,000. As part of the registered public offering, the Company granted the underwriters a 45-day option to purchase up to 187,500 additional common shares at the offering price, less underwriting discounts. In connection with the offering, the Company issued the underwriter a five-year warrant to purchase up to 75,000 common shares at the per-share price of $5.00. Net proceeds to the Company after the payment of underwriting discounts, underwriting expenses, and the Company’s own offering-related expenses were approximately $4,041,000.

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NOTE 9 – PER-SHARE INFORMATION

Basic net ~~loss~~gain (loss) per common share is computed by dividing net ~~loss~~increase in net assets resulting from operations by the weighted-average number of common shares outstanding during the period. 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,				For the Three Months Ended September 30,
	2017		2016		2022			2021
Numerator: Net increase in net asset value resulting from operations	$	86,673	$	142,254
Numerator: Net increase in net assets resulting from operations					$	(36,126	)	$	31,288
Denominator: Weighted-average number of common shares outstanding		12,092,575		12,151,493		5,512,737			4,795,739
Basic and diluted net gain per common share	$	0.01	$	0.01	$	(0.01	)	$	0.01

	For the Nine Months Ended September 30,
	2022		2021
Numerator: Net increase in net assets resulting from operations	$	893,993	$	2,557,836
Denominator: Weighted-average number of common shares outstanding		5,045,830		4,795,075
Basic and diluted net gain per common share	$	0.18	$	0.53

For the Nine Months Ended
September 30,
2017 2016
Numerator: Net increase (decrease) in net asset value resulting from operations $ 254,816 $ (233,869 )
Denominator: Weighted-average number of common shares outstanding 12,131,638 12,151,493
Basic and diluted net gain (loss) per common share $ 0.02 $ (0.02 )

~~- 15 -~~

~~MILL CITY VENTURES III, LTD.~~

~~NOTES TO FINANCIAL STATEMENTS (UNAUDITED)~~

~~September 30, 2017~~

NOTE 10 – OPERATING LEASES

We are subject to two non-cancelable operating leases for office space expiring April 2, 2023. 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 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 December 31, 2021 was 4.5% and the weighted-average remaining lease term is one year.

Under ASC 840, rent expense for office facilities for the three months ended September 30, 2022 and September 30, 2021 was $18,589 and $16,689, respectively.

The components of our operating lease were as follows for the three and nine months ended September 30, 2022:

	Three Months Ended		Nine Months Ended
	September 30, 2022		September 30, 2022

Operating lease costs	$	5,504	$	15,787
Variable lease cost		4,601		13,724
Short-term lease cost		8,484		25,031
Total	$	18,589	$	54,542

Supplemental balance sheet information consisted of the following at September 30, 2022:

Operating Lease
Right-of-use assets	$	21,563

Operating Lease Liability	$	21,672
Less: short term portion		(21,672	)
Long term portion	$	—

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Maturity analysis under lease agreements consisted of the following as of September 30, 2022:

	Operating Leases
2022	$	6,357
2023		14,859
Total lease payments		21,216
Plus: interest		456
Present value of lease liabilities	$	21,672

NOTE 11 – FINANCIAL HIGHLIGHTS

The following is a schedule of financial highlights for the nine months ended September 30, ~~2017 and 2016:~~2022 through 2018:

Nine Months Ended
September 30, 2017 Nine Months Ended
September 30, 2016
Per-share data⁽¹⁾:
Net asset value at beginning of period $ 0.77 $ 0.72
Net investment loss (0.04 ) (0.01 )
Net realized and unrealized gains (losses) 0.06 (0.01 )
Repurchase of common stock 0.04 -
Net asset value at end of period $ 0.83 $ 0.70

Ratio/supplemental data:
Per-share market value of investments at end of period $ 0.59 $ 0.52
Shares outstanding at end of period 11,067,402 12,151,493
Weighted-average shares outstanding for period 12,131,638 12,151,493
Net assets at end of period $ 9,208,588 $ 8,507,419
Average net assets⁽²⁾ $ 9,446,407 $ 8,601,680
Portfolio turnover rate⁽³⁾ 21.01 % 16.07 %
Ratio of operating expenses to average net assets⁽³⁾ (7.21 )% (6.51 )%
Ratio of net investment loss to average net assets⁽³⁾ (5.47 )% (2.52 )%
Ratio of realized gains (losses) to average net assets⁽³⁾ 4.89 % (5.35 )%

	Nine Months Ended September 30,
	2022			2021			2020			2019			2018
Per Share Data ⁽¹⁾
Net asset value at beginning of period	$	2.80			2.43			2.05			2.30			1.96
Net investment gain (loss)		0.18			0.20			0.05			(0.11	)		(0.09	)
Net realized and unrealized gains (losses)		0.02			0.54			0.14			0.02			0.34
Provision for income taxes		(0.05	)		(0.20	)		0.00			0.00			0.00
Stock-based compensation		0.05			0.00			0.00			0.00			0.00
Repurchase of common stock		0.00			0.00			0.05			0.00			0.00
Other changes in equity		0.02			0.00			0.00			0.00			0.00
Payment of common stock dividend		0.00			(0.23	)		0.00			(0.11	)		0.00
Net asset value at end of period	$	3.02			2.74			2.29			2.10			2.21

Ratio / Supplemental Data
Per share market value of investments at end of period	$	2.92			2.30			1.71			1.58			1.85
Shares outstanding at end of period		6,185,255			4,795,739			4,754,104			4,918,845			4,918,845
Average weighted shares outstanding for the period		5,045,830			4,795,075			4,836,170			4,918,845			4,918,845
Net assets at end of period	$	18,658,595			13,140,835			10,805,062			10,588,689			11,278,889
Average net assets ⁽²⁾	$	15,081,352			13,090,497			10,220,482			12,304,975			9,955,674
Total investment return		6.07	%		22.22	%		8.79	%		(8.82	)%		12.64	%
Portfolio turnover rate (3)		66.81	%		124.55	%		18.18	%		7.11	%		11.55	%
Ratio of operating expenses to average net assets ⁽³⁾		(19.24	)%		(10.31	)%		(6.49	)%		(7.70	)%		(6.98	)%
Ratio of net investment income (loss) to average net assets⁽³⁾		10.09	%		9.87	%		3.35	%		(6.40	)%		(5.53	)%
Ratio of realized gains (losses) to average net assets ⁽³⁾		1.18	%		40.81	%		7.06	%		57.36	%		(12.79	)%

(1)

~~(1)~~

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

(2)

~~(2)~~

Based on the monthly average of net assets as of the beginning and end of each period presented.

(3)

~~(3)~~

Ratios are annualized.

~~NOTE 11 – SUBSEQUENT EVENTS~~

~~None.~~

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~~ITEM 2.~~

~~MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS~~

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. ~~is an investment company~~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 ~~an internally managed closed-end non-diversified management investment company. We have elected~~engaged in the business of providing short-term non-bank lending and specialty finance solutions to be regulated as a business development company, or “BDC,” under the Investment Company Act of 1940 (the “1940 Act”). To date, we have not made an election to be treated as a regulated investment company, or “RIC,” under the Internal Revenue Code of 1986 (the “Code”).

~~We primarily focus on investing in or lending to privately held and small-cap publicly traded U.S.~~ companies and ~~making managerial assistance available~~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 such companies. These investments are typically structured as purchases of preferred or common stock, investment contracts, or loans evidenced by promissory notes that may be convertible into stock by their terms or that may be accompaniedcompanies, personal guarantees by the ~~issuance to us~~principals of ~~warrants or similar rights to purchase stock.~~the borrower. Our ~~investments~~loans may be made for ~~purposes~~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 ~~financing acquisitions, recapitalizations, buyouts, organic growth and working capital.~~other rights (such as stock, warrants or other equity-linked investments) or that are structured differently or uniquely. Our ~~revenues relate to the gain we realize from the sale of securities we purchase, and to dividends and interest we derive from those securities. Our investment~~business objective is to generate ~~both current income~~revenues from the interest and fees we charge, and capital appreciation ~~that ultimately become gains.~~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 ~~earn on our investments, and proceeds~~hold from time to time, or from the sale ~~or redemption~~ of our ~~investments.~~equity securities. Our ~~statements~~statement of operations also reflect ~~gain from~~ increases and decreases in the carrying value of our assets and investments (i.e., unrealized ~~appreciation)~~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 statements of operations also reflect loss from decreases in the carrying value of our investments (i.e., unrealized depreciation).~~

As a BDC, we are required to comply with certain regulatory requirements. For example, we must invest at least 70% of our total assets in “qualifying assets,” including securities of private or small-cap publicly traded U.S. companies and cash, cash equivalents, U.S. government securities and high quality debt investments that mature in one year or less. We may from time to time invest up to 30% of our assets opportunistically in other types of investments, including the securities of larger public companies and foreign securities. In addition, we will be permitted, under certain conditions, to issue multiple classes of indebtedness and one class of stock senior to our common stock, but only if our “asset coverage,” as defined in the 1940 Act, is at least equal to 200% immediately after each such issuance. In addition, while any senior securities remain outstanding, we must not make any dividend distribution to our shareholders or repurchase securities unless we meet the applicable asset-coverage ratios at the time of the dividend distribution or repurchase. We may also borrow amounts up to 5% of the value of our total assets for temporary or emergency purposes.

Our MD&A should be read in conjunction with our Annual Report on Form 10-K for the ~~fiscal~~ year ended December 31, ~~2016,~~2021, 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.

~~- 17 -~~

PORTFOLIO AND INVESTMENT ACTIVITY

During the nine months ended September 30, ~~2017,~~2022, we made ~~$1,984,412 in purchases~~$13,924,333 of investments ~~in portfolio companies~~and loans and had ~~$2,821,876~~$10,076,483 of redemptions and repayments, resulting in net investments at amortized cost of ~~$6,904,057 for~~$17,913,927 at the end of the period.

During the nine months ended September 30, ~~2016,~~2021, we made ~~$2,049,581 in purchases~~$18,133,352 of investments ~~in portfolio companies~~and loans and had ~~$1,381,928~~$16,363,964 of redemptions and repayments, resulting in net investments at amortized cost of ~~$7,538,930 for~~$10,562,451 at the end of that period.

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Our ~~portfolio~~investment composition by major class, based on fair value at September 30, ~~2017,~~2022, was as follows:

Investments at
Fair Value Percentage of
Fair Value
Senior Secured Loans $ 500,000 7.4 %
Equity/Other 6,293,306 92.6
Total $ 6,793,306 100.0 %

	Investments at Fair Value		Percentage of Fair Value
Short-term Non-banking Loans	$	16,040,748		88.8	%
Preferred Stock		1,200,000		6.6
Other Equity		822,500		4.6
Total	$	18,063,248		100.0	%

RESULTS OF OPERATIONS

Our operating results for the three and nine months ended September 30, ~~2017~~2022 and September 30, ~~2016~~2021 were as follows:

For the three months ended
September 30, For the nine months ended
September 30,
2017 2016 2017 2016
Total investment income $ 52,354 $ 113,232 $ 125,427 $ 279,283
Total expenses (159,632 ) (152,396 ) (514,379 ) (442,210 )
Net investment loss $ (107,278 ) $ (39,164 ) $ (388,952 ) $ (162,927 )

	For the Three Months Ended September 30,						For the Nine Months Ended September 30,
	2022			2021			2022			2021
Investment Income:	$	1,115,224		$	755,601		$	3,351,935		$	1,977,992
Operating Expenses:		(1,179,792	)		(239,582	)		(2,227,865	)		(1,023,596	)
Net Investment Gain (Loss)	$	(64,568	)	$	516,019		$	1,124,070		$	954,396

Investment Income

We generate revenue primarily in the form of interest income ~~and capital gains, if any, on~~derived from the ~~debt securities~~short-term non-banking loans we ~~own. We may also generate revenue from dividends and capital gains on equity investments~~provide, together with fees we ~~make, if any,~~charge in connection with those loans, such as commitment, origination, structuring, diligence, or ~~on warrants or other equity interests that we may acquire.~~consulting fees. Any such fees will be recognized as earned. In some cases, the interest payable to us on ~~our investments~~the short-erm 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. WeOn occasion, we may also generate revenue ~~in the form of commitment, origination, structuring, diligence,~~from dividends and capital gains on equity investments we make, if any, or ~~consulting fees. Any such fees will be recognized as earned.~~on warrants or other equity interests that we may acquire.

For the three and nine months ended September 30, ~~2017,~~2022, interest earned on our ~~total investment income~~loan portfolio was ~~$52,354~~$1,053,714 and ~~$125,427,~~$2,840,425, respectively, and our fees charged in connection with the loans was ~~attributable~~$61,510 and $511,510, respectively. For the three and nine months ended September 30, 2021, interest earned on our loan portfolio was $663,101 and $1,756,492, respectively, and our fees charged in connection with the loans was $92,500 and $221,500, respectively. The increase in the most recent period is primarily due to a combination of strong demand for our short-term loans and our enhanced ability to satisfy that demand with the additional cash resources we have derived from prior loans that have been repaid to us. Our loan portfolio generates interest income, ~~from two eligible portfolio companies, Bravo Financial, LLC and DBR Enclave LLC, and dividend payments received~~with a weighted-average interest rate on ~~account~~the loans of investments in five eligible portfolio companies - OTC Markets Group Cl A, Simulations Plus, Inc., Tessco Technologies, Inc., Escalade Inc., and National American University Holdings, Inc., and dividends received on account of investments in three non-eligible portfolio companies.26%.

Professional Fees

For the three and nine months ended September 30, ~~2016, our total investment income was $113,232~~2022, we had $916,359 and $279,283, respectively, and was attributable to interest income from four eligible portfolio companies - Bravo Financial, LLC, Mix 1 Life, Inc., Creative Realities, Inc. and DBR Phase III US Investors, LLC - and dividend payments received on account of investments in five eligible portfolio companies - Educational Development Corp., OTC Markets Group Cl A, Tessco Technologies, Inc., National American University Holdings, Inc., and Simulations Plus, Inc .- and on account of investments in seven non-eligible portfolio companies.

~~Operating Expenses~~

~~The composition of our operating expenses for the three and nine months ended September 30, 2017 and September 30, 2016 was as follows:~~

For the three months ended
September 30, For the nine months ended
September 30,
Expense item 2017 2016 2017 2016
Professional fees $ 39,175 $ 47,632 $ 165,725 $ 133,116
Payroll 51,562 40,487 160,349 122,445
Occupancy 22,225 21,571 64,556 60,175
Insurance 24,030 18,782 60,170 58,869
Directors’ fees 15,000 15,000 45,000 43,956
Depreciation and amortization 2,670 3,213 8,165 9,637
Other general and administrative 4,970 5,711 10,414 14,012
Total $ 159,632 $ 152,396 $ 514,379 $ 442,210

~~- 18 -~~

~~For the three and nine months ended September 30, 2017, our~~$1,309,348 professional ~~fee~~fees expense, ~~was $39,175 and $165,725,~~ respectively. For the three and nine months ended September 30, ~~2016, our~~2021, we had $79,950 and $300,297 professional ~~fee~~fees expense, ~~was $47,632 and $133,116,~~ respectively. The increase for the nine months in ~~2017~~2022 is due to legal costs incurred to close on several new short-term banking loans, to obtain our listing on the ~~payment~~Nasdaq exchange,and our efforts to seek additional financing through a public offering of ~~legal fees in connection with~~ our ~~collection efforts on bad debt, specifically relating~~common stock to ~~the Mix 1 Life Notes.~~grow our business.

Net Realized Gain from Investments

For the three and nine months ended September 30, ~~2017, our payroll expense was $51,562~~2022, we had $2,098,585 and ~~$160,349,~~$10,076,483, respectively, of sales of investments, resulting in $0 and $133,020 of realized gains, respectively. For the three and nine months ended September 30, ~~2016, our payroll expense was $40,487~~2021, we had $6,474,137 and ~~$122,445, respectively. The increase~~$16,363,964, respectively, of sales of investments, resulting in ~~2017 is due to the payment~~$289,138 and $3,818,737, respectively, of ~~the Officers’ health insurance benefits beginning in 2017.~~realized gains.

Net ~~Realized Gain from~~Change in Unrealized Appreciation (Depreciation) on Investments

For the three and nine months ended September 30, ~~2017, we~~2022, our investments had ~~$338,241~~$0 of unrealized appreciation and ~~$2,821,876, respectively,~~$16,297 of ~~principal repayments, resulting in ($404,457) and $343,613, respectively, of realized gains and losses.~~unrealized depreciation, respectively. For the three and nine months ended September 30, ~~2016, we~~2021, our investments had ~~$350,549~~$774,169 and ~~$1,381,928, respectively,~~$1,204,319 of ~~principal repayments, resulting in $186,427 and ($346,854), respectively, of realized gain and losses.~~unrealized depreciation, respectively.

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Changes in Net ~~Change in Unrealized Appreciation (Depreciation) on Investments~~Assets from Operations

For the three and nine months ended September 30, 2017, our investments had $598,408 and $300,155 of unrealized appreciation, respectively. For the three and nine months ended September 30, 2016, our investments had ($5,009) and $275,912 of unrealized appreciation (depreciation), respectively.

~~Changes in Net Assets from Operations~~

~~For the three and nine months ended September 30, 2017,~~2022, we recorded a net decrease in net assets from operations of $36,126 and a net increase in net assets from operations of ~~$86,673 and $254,816,~~$893,993, respectively. Based on the weighted-average number of shares of common stock outstanding for the three and nine months ended September 30, ~~2017,~~2022, our per-share net ~~increase~~decrease in net assets from operations was $0.01 and ~~$0.02,~~our per share net increase from operations was $0.18, respectively. For the three and nine months ended September 30, ~~2016,~~2021, we recorded a net increase ~~(decrease)~~ in net assets from operations of ~~$142,254~~$31,288 and ~~($233,869),~~$2,557,836, respectively. Based on the weighted-average number of shares of common stock outstanding for the three and nine months ended September 30, ~~2016,~~2021, our per-share net increase ~~(decrease)~~ in net assets from operations was $0.01 and ~~($0.02),~~$0.53, respectively.

Cash Flows for the Nine ~~Months~~months Ended September 30, ~~2017~~2022 and ~~2016~~2021

The level of cash flows used in or provided by operating activities is affected primarily by ~~the timing~~our provision of short-term loans, purchases of other investments, redemptions and repayments of ~~portfolio~~our loans or investments, ~~among~~and other related factors. For the nine months ended September 30, 2017, net cash provided in operating activities was $425,763. Cash flows provided in operating activities for the nine months ended September 30, 2017 were primarily related to redemptions and repayments of $2,821,876, offset mostly by purchases of investments totaling $1,984,412. For the nine months ended September 30, 2016,2022, net cash used in operating activities was ~~$906,046.~~$6,429,293. Cash flows used in operating activities for the nine months ended September 30, ~~2016~~2022 were primarily related to the funding of our short-term loans and purchases of investments aggregating $13,924,333, offset mostly by redemptions and repayments of ~~$1,381,928 offset mostly by purchases of~~short-term loans and investments totaling ~~$2,049,581.~~

~~The level of cash flows used in or provided by financing activities is affected by the issuance or retirement of common stock, among other factors.~~$10,076,483. For the nine months ended September 30, ~~2017,~~2021, net cash used in operating activities was $1,306,775. Cash flows used in operating activities for the nine months ended September 30, 2021 were primarily related to the funding of our short-term loans and purchases of investments aggregating $18,133,352, offset mostly by redemptions and repayments of short-term loans and investments totaling $16,363,964.

For the nine months ended September 30, 2022, net cash provided in financing activities was $6,354,795. Cash flows provided in financing activities for the nine months ended September 30, 2022 were primarily related to our public offering and our draw on the available line of credit, offset by payments against the line of credit. For the nine months ended September 30, 2021, net cash used in financing activities was ~~$433,636.~~$539,296. Cash flows used in financing activities for the nine months ended September 30, ~~2017 was~~2021 were related to the ~~purchase and retirement~~payment of ~~1,084,091 shares of common~~our stock ~~during the third quarter. For the nine months ended September 30, 2016, there was no cash provided or used by financing activities.~~dividend to investors.

FINANCIAL CONDITION

As of September 30, ~~2017,~~2022, we had cash of ~~$2,336,878,~~$1,861,650, a decrease of ~~$7,873~~$74,498 from December 31, ~~2016. The primary use of~~2021. We expect that our existing funds, ~~and~~together with any funds raised in the future, ~~is expected~~will be used primarily to ~~be for~~fund our ~~investments in portfolio companies, cash distributions to our shareholders~~provision of short-term non-bank loans and specialty finance solutions or for other general corporate purposes, including paying ~~for~~our operating expenses ~~or debt service to the extent~~and servicing our existing debt. Pending use of our cash as described, we ~~borrow or issue senior securities. Pending investment~~may invest some portion of our cash in ~~portfolio companies, our investments may consist of cash, cash equivalents,~~ U.S. government securities or other high quality debt securities maturing in one year or less from the time of ~~investment, which~~investment.

On August 9, 2022, we ~~refer to collectively as “temporary investments.” As of the date of this filing, we expect that substantially all~~effected a stock combination (reverse stock split) of our ~~temporary investments will be redeployed~~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 ~~portfolio company investments~~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 ~~December 31, 2017.~~

~~- 19 -~~

~~To the extent~~ our Board of Directors ~~determines~~in accordance with Minnesota law, and resulted in a proportionate reduction in the ~~future, based on~~number of authorized shares of capital stock available for issuance under our ~~financial condition and~~articles of incorporation. On a post-reverse-split basis, we are authorized to issue up to 111,111,111 shares of capital market conditions, that additional capital would allow us to take advantage of additional investment opportunities, we may seek to raise additional equity capital or to engage in borrowing, subject to the limitations on borrowing applicable to BDCs.stock.

~~RELATED-PARTY TRANSACTIONS~~On August 11, 2022, we completed a public offer and sale of 1,250,000 common shares pursuant to a registration statement filed with the SEC and declared effective on August 9, 2022. We sold these shares at $4.00 per share, resulting in gross proceeds of $5,000,000. As part of the registered public offering, we granted the underwriters a 45-day option to purchase up to 187,500 additional common shares at the offering price, less underwriting discounts, which option was not exercised. In connection with the offering, we issued the underwriter a five-year warrant to purchase up to 75,000 common shares at the per-share price of $5.00. Our net proceeds after the payment of underwriting discounts, underwriting expenses, and offering-related expenses we incurred were otherwise obligated to pay, were approximately $4,041,000.

~~See Note 5 to our Financial Statements for disclosure of our related-party transactions and potential conflicts of interest.~~

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, ~~see Note 2 “Significant Accounting Policies.”~~refer to our Annual Report on Form 10-K for the year ended December 31, 2021.

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OFF-BALANCE-SHEET ARRANGEMENTS

During the nine months ended September 30, ~~2017,~~2022, we did not engage in any off-balance sheet arrangements as described in Item 303(a)(4) of Regulation S-K.

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;

~~our business prospects and the prospects of our portfolio companies;~~

~~the outcome of compliance inspections conducted from time to time by the SEC’s Office of Compliance and Inspections;~~

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;

~~our ability to operate as a BDC and to be taxed as a RIC;~~

the adequacy of our cash resources and working capital; and

the timing of cash flows, if any, we receive from ~~the operations of~~ our ~~portfolio companies.~~investments.

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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 March ~~28, 2017~~10, 2021 (related to our year ended December 31, ~~2016)~~2021) 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.

ITEM 4. CONTROLS AND PROCEDURES

We maintain disclosure controls and procedures designed to provide reasonable assurance that information required to be disclosed in our reports filed pursuant to the Securities Exchange Act of 1934 is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer as appropriate, to allow timely decisions regarding required disclosure. A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance the objectives of the control system are met.

As of September 30, ~~2017,~~2022, our Chief Executive Officer and Chief Financial Officer carried out an evaluation of the effectiveness of our disclosure controls and procedures as such term is defined in Rule 13a-15(e) under the Securities and Exchange Act of 1934. Based on that evaluation, our Chief Executive Officer and Chief Financial Officer concluded our disclosure controls and procedures are effective as of September 30, ~~2017.~~2022.

There were no significant changes in our internal controls over financial reporting that occurred during the fiscal quarter covered by this report that materially affected, or were reasonably likely to materially affect such controls.

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PART II. OTHER INFORMATION

ITEM 6. EXHIBITS

Exhibit Number	~~Exhibit~~ ~~Number~~		Description
	3.1			Amended and Restated Articles of Incorporation (incorporated by reference to Exhibit 3.1 to the registrant’s Current Report on Form 8-K filed January 23, 2013)
	3.2		Amended and Restated Bylaws of Mill City Ventures III, Ltd. (incorporated by reference to Exhibit 3.2 to the registrant’s registration statement on Form 10-SB filed on January 29, 2008)
	31.1	*	Section 302 Certification of the Chief Executive Officer
	31.2	*	Section 302 Certification of the Chief Financial Officer
	32.1	*	Certification of Chief Executive Officer and Chief Financial Officer Pursuant to 18 U.S.C. §1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

* Filed herewith

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SIGNATURES

Pursuant to the requirements of the Securities and Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

	MILL CITY VENTURES III, LTD.

Date: November ~~14, 2017~~18, 2022	By:	/s/ Douglas M. Polinsky
		Douglas M. Polinsky
		~~Chief Executive Officer~~
		Chief Executive Officer

Date: November ~~14, 2017~~18, 2022	By:	/s/ Joseph A. Geraci, II
		Joseph A. Geraci, II
		Chief Financial Officer


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