MILL CITY VENTURES III, LTD. 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
We are engaged in the business of providing short-term non-bank lending and specialty finance solutions to companies and individuals, generally on a secured basis. The loans we provide typically have maturities that are nine months or shorter, highly illiquid, and ordinarily involve a pledge of collateral or, in the case of loans made to companies, personal guarantees by the principals of the borrower. Our loans may be made for real estate acquisitions, renovation and sale, or other projects relating to real estate, title loans, inventory needs, inventory financing, solve for short-term liquidity needs, or for other similar purposes. We intend to remain opportunistic, however, and may occasionally engage in transactions that involve our acquisition of other rights (such as stock, warrants or other equity-linked investments) or that are structured differently or uniquely. Our business objective is to generate revenues from the interest and fees we charge, and capital appreciation from any related investments we make.
Our principal sources of income are interest and fees associated with our loans such as origination fees, closing fees or exit fees. In connection with the short-term non-bank specialty finance loans we provide, we may receive reimbursement of legal costs associated with loan documentation. We occasionally derive income from dividends paid on equity securities we hold from time to time, or from the sale of our equity securities. Our statement of operations also reflect increases and decreases in the carrying value of our assets and investments (i.e., unrealized appreciation and depreciation). Our principal expenses relate to operating expenses, the largest components of which are generally professional fees, payroll, occupancy, and insurance expenses.
Our MD&A should be read in conjunction with our Annual Report on Form 10-K for
the year ended
- 19 -
Table of Contents
PORTFOLIO AND INVESTMENT ACTIVITY
During the six months ended
During the six months ended
Our investment composition by major class, based on fair value at
Investments at Percentage of
Fair Value Fair Value
Short-term Non-banking Loans $ 13,328,580 86.9 %
Equity/Other 2,012,500 13.1
Total $ 15,341,080 100.0 %
RESULTS OF OPERATIONS
Our operating results for the three and six months ended
For the Three Months Ended For the Six Months Ended
June 30, June 30,
2022 2021 2022 2021
Investment Income: $ 1,236,505 $ 675,549 $ 2,236,711 $ 1,222,391
Operating Expenses: (502,255) (250,156) (1,048,073) (784,014)
Net Investment Gain $ 734,250 $ 425,393 $ 1,188,638 $ 438,377
Investment Income
We generate revenue primarily in the form of interest income derived from the short-term non-banking loans we provide, together with fees we charge in connection with those loans, such as commitment, origination, structuring, diligence, or consulting fees. Any such fees will be recognized as earned. In some cases, the interest payable to us on the short-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. On occasion, we may also generate revenue from dividends and capital gains on equity investments we make, if any, or on warrants or other equity interests that we may acquire.
For the three and six months ended
Professional Fees
For the three and six months ended
Net Realized Gain from Investments
For the three and six months ended
- 20 -
Table of Contents
Net Change in Unrealized Appreciation (Depreciation) on Investments
For the three and six months ended
Changes in Net Assets from Operations
For the three and six months ended
Cash Flows for the Six Months Ended
The level of cash flows used in or provided by operating activities is affected
primarily by our provision of short-term loans, purchases of other investments,
redemptions and repayments of our loans or investments, and other related
factors. For the six months ended
FINANCIAL CONDITION
As of
On
CRITICAL ACCOUNTING ESTIMATES
Our financial statements are prepared in conformity with accounting principles
generally accepted in
- 21 -
Table of Contents
In preparing the financial statements, management will make estimates and
assumptions that affect the reported amounts of assets and liabilities at the
date of the financial statements, and the reported amounts of revenues and
expenses during the reporting periods. In preparing the financial statements,
management also will utilize available information, including our past history,
industry standards and the current economic environment, among other factors, in
forming its estimates and judgments, giving due consideration to materiality.
Actual results will almost certainly differ from these estimates. In addition,
other companies may utilize different estimates, which may impact the
comparability of our results of operations to those of companies in similar
businesses. As our expected operating results occur, we will describe additional
critical accounting policies in the notes to our financial statements. Our most
critical accounting policies relate to the valuation of our portfolio
investments, and revenue recognition. For more information, refer to our Annual
Report on Form 10-K for the year ended
OFF-BALANCE-SHEET ARRANGEMENTS
During the six months ended
FORWARD-LOOKING STATEMENTS
Some of the statements made in this section of our report are forward-looking statements based on our management's current expectations for our company. These expectations involve assumptions and are subject to substantial risks and uncertainties that could cause actual results to differ materially from the results expressed in, or implied by, these forward-looking statements. Forward-looking statements relate to future events or our future financial performance, and can ordinarily be identified by terminology such as "may," "will," "should," "expects," "plans," "anticipates," "could," "intends," "targets," "projects," "contemplates," "believes," "estimates," "predicts," "potential" or "continue" or the negative of these terms or other similar words. Important assumptions include our ability to identify and consummate new investments, achieve certain margins and levels of profitability, the availability of any needed additional capital, and the ability to maintain compliance with regulations applicable to us. Some of the forward-looking statements contained in this report relate to, and are based our current assumptions regarding, the following:
? our future operating results;
? the success of our investments;
? our relationships with third parties;
? the dependence of our success on the general economy and its impact on the
industries in which we invest;
? the ability of our portfolio companies to achieve their objectives;
? our expected financings and investments;
? our regulatory structure and tax treatment;
? the adequacy of our cash resources and working capital; and
? the timing of cash flows, if any, we receive from our investments.
The foregoing list is not exhaustive. For a more complete summary of the risks
and uncertainties facing our company and its business and relating to our
forward-looking statements, please refer to our Annual Report on Form 10-K filed
on
- 22 -
Table of Contents
© Edgar Online, source
