10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

__________________________

FORM 10-Q

__________________________

(Mark One)
☒	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
	For the quarterly period ended June 30, 2024
or
☐	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
	For the transition period from _______________________ to ___________________

Commission File Number 001-41472

__________________________

MILL CITY VENTURES III, LTD.

(Exact name of registrant as specified in its charter)

 __________________________

Minnesota	90-0316651
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)
1907 Wayzata Blvd, #205, Wayzata, Minnesota	55391
(Address of principal executive offices)	(Zip Code)

(952) 479-1923

(Registrant’s telephone number, including area code)

__________________________

N/A

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

__________________________

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

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

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

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

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

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

As of August 15, 2024, Mill City Ventures III, Ltd. had 6,385,255 shares of common stock, and no other classes of capital stock, outstanding.

MILL CITY VENTURES III, LTD.

Index to Form 10-Q

for the Quarter Ended June 30, 2024

PART I.	FINANCIAL INFORMATION	Page No.
Item 1.	Financial Statements (unaudited)
	Condensed Balance Sheets – June 30, 2024 and December 31, 2023
	Condensed Statements of Operations – Three and six months ended June 30, 2024 and June 30, 2023
	Condensed Statements of Shareholders’ Equity – Three and six months ended June 30, 2024 and June 30, 2023
	Condensed Statements of Cash Flows – Six months ended June 30, 2024 and June 30, 2023
	Condensed Schedule of Investments – June 30, 2024 and Schedule of Investments – December 31, 2023
	Condensed Notes to Financial Statements – June 30, 2024
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations
Item 4.	Controls and Procedures
PART II.	OTHER INFORMATION
Item 5.	Other Information
Item 6.	Exhibits
SIGNATURES

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PART I.  FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

MILL CITY VENTURES III, LTD.

CONDENSED BALANCE SHEETS

	June 30, 2024 (unaudited)			December 31, 2023
ASSETS
Investments, at fair value:	$	12,929,985		$	17,284,676
Non-control/non-affiliate investments (cost: $14,460,679 and
$18,577,481 respectively)
Cash and cash equivalents		5,424,611			376,024
Note receivable		250,000			250,000
Prepaid expenses		103,762			165,301
Interest and dividend receivables		177,792			264,413
Right-of-use operating lease asset		—			9,283
Deferred taxes		772,000			757,000
Total Assets	$	19,658,150		$	19,106,697
LIABILITIES
Accounts payable	$	87,644		$	71,702
Accrued payroll liabilities		7,604			435,449
Operating lease liability		—			9,283
Accrued income tax		177,600			—
Total Liabilities		272,848			516,434
SHAREHOLDERS EQUITY (NET ASSETS)
Common stock, par value $0.001 per share (111,111,111 authorized;		6,385			6,385
6,385,255 outstanding)
Additional paid-in capital		15,473,121			15,473,121
Additional paid-in capital - stock options		1,460,209			1,460,209
Accumulated deficit		(1,159,665	)		(1,159,665	)
Accumulated undistributed investment loss		(390,494	)		(1,052,183	)
Accumulated undistributed net realized gains on investment transactions		5,526,440			5,155,200
Net unrealized depreciation in value of investments		(1,530,694	)		(1,292,804	)
Total Shareholders' Equity (Net Assets)		19,385,302			18,590,263
Total Liabilities and Shareholders' Equity	$	19,658,150		$	19,106,697
Net Asset Value Per Common Share	$	3.04		$	2.91

See accompanying Notes to Financial Statements

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MILL CITY VENTURES III, LTD.

CONDENSED STATEMENTS OF OPERATIONS (UNAUDITED)

	Three Months Ended						Six Months Ended
	June 30, 2024			June 30, 2023			June 30, 2024			June 30, 2023
Investment Income
Interest income	$	888,629		$	907,502		$	1,721,296		$	1,771,530
Total Investment Income		888,629			907,502			1,721,296			1,771,530
Operating Expenses
Professional fees		174,098			287,325			312,469			417,176
Payroll		145,859			147,161			296,925			1,277,600
Insurance		24,602			26,522			51,492			53,522
Occupancy		9,545			21,072			20,222			40,115
Director's fees		30,000			30,000			60,000			562,968
Interest expense		—			43,333			320			78,000
Other general and administrative		13,955			14,632			17,718			32,481
Total Operating Expenses		398,059			570,045			759,146			2,461,862
Net Investment Gain (Loss)	$	490,570		$	337,457		$	962,150		$	(690,332	)
Realized and Unrealized Gain (Loss) on Investments
Net realized gain (loss) on investments		346,745			41,371			371,240			(558,629	)
Net change in unrealized appreciation (depreciation) on investments		(289,641	)		(21,107	)		(237,890	)		627,316
Net Realized and Unrealized Gain on Investments		57,104			20,264			133,350			68,687
Net Increase (Decrease) in Net Assets Resulting from Operations Before Taxes	$	547,674		$	357,721		$	1,095,500		$	(621,645	)
Provision for Income Taxes		134,738			287,000			300,461			25,678
Net Increase (Decrease) in Net Assets Resulting from Operations	$	412,936		$	70,721		$	795,039		$	(647,323	)
Net Increase (Decrease) in Net Assets Resulting from Operations per share:
Basic	$	0.06		$	0.01		$	0.12		$	(0.10	)
Diluted	$	0.06		$	0.01		$	0.12		$	(0.10	)

See accompanying Notes to Financial Statements

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MILL CITY VENTURES III, LTD.

CONDENSED STATEMENTS OF SHAREHOLDERS’ EQUITY (UNAUDITED)

Three Months Ended June 30, 2024	Common Shares		Par Value		Additional Paid In Capital		Accumulated Deficit			Accumulated Undistributed Net Investment Gain (Loss)			Accumulated Undistributed Net Realized Gain on Investments Transactions		Net Unrealized Depreciation in value of Investments			Total Shareholders' Equity
Balance as of March 31, 2024		6,385,255	$	6,385	$	16,933,330	$	(1,159,665	)	$	(746,326	)	$	5,179,695	$	(1,241,053	)	$	18,972,366
Undistributed net investment gain				—		—		—			355,832			—		—			355,832
Undistributed net realized gain on investment transactions				—		—		—			—			346,745		—			346,745
Depreciation in value of investments				—		—		—			—			—		(289,641	)		(289,641	)
Balance as of June 30, 2024		6,385,255	$	6,385	$	16,933,330	$	(1,159,665	)	$	(390,494	)	$	5,526,440	$	(1,530,694	)	$	19,385,302

Three Months Ended June 30, 2023	Common Shares		Par Value		Additional Paid In Capital		Accumulated Deficit			Accumulated Undistributed Net Investment Gain (Loss)			Accumulated Undistributed Net Realized Gain on Investments Transactions		Net Unrealized Depreciation in value of Investments			Total Shareholders' Equity
Balance as of March 31, 2023		6,185,255	$	12,215	$	16,503,500	$	(1,159,665	)	$	(1,853,206	)	$	5,113,829	$	(2,948	)	$	18,613,725
Undistributed net investment gain				—		—		—			50,457			—		—			50,457
Undistributed net realized gain on investment transactions				—		—		—			—			41,371		—			41,371
Depreciation in value of investments				—		—		—			—			—		(21,107	)		(21,107	)
Balance as of June 30, 2023		6,185,255	$	12,215	$	16,503,500	$	(1,159,665	)	$	(1,802,749	)	$	5,155,200	$	(24,055	)	$	18,684,446

Six Months Ended June 30, 2024	Common Shares		Par Value		Additional Paid In Capital		Accumulated Deficit			Accumulated Undistributed Net Investment Gain (Loss)			Accumulated Undistributed Net Realized Gain on Investments Transactions		Net Unrealized Depreciation in value of Investments			Total Shareholders' Equity
Balance as of December 31, 2023		6,385,255	$	6,385	$	16,933,330	$	(1,159,665	)	$	(1,052,183	)	$	5,155,200	$	(1,292,804	)	$	18,590,263
Undistributed net investment gain				—		—		—			661,689			—		—			661,689
Undistributed net realized gain on investment transactions				—		—		—			—			371,240		—			371,240
Depreciation in value of investments				—		—		—			—			—		(237,890	)		(237,890	)
Balance as of June 30, 2024		6,385,255	$	6,385	$	16,933,330	$	(1,159,665	)	$	(390,494	)	$	5,526,440	$	(1,530,694	)	$	19,385,302

Six Months Ended June 30, 2023	Common Shares		Par Value		Additional Paid In Capital		Accumulated Deficit			Accumulated Undistributed Net Investment Loss			Accumulated Undistributed Net Realized Gain (Loss) on Investments Transactions			Net Unrealized Appreciation (Depreciation) in value of Investments			Total Shareholders' Equity
Balance as of December 31, 2022		6,185,255	$	12,215	$	15,043,291	$	(1,159,665	)	$	(1,086,739	)	$	5,713,829		$	(651,371	)	$	17,871,560
Issuance of stock options				—		1,460,209		—			—									1,460,209
Net investment loss, net of tax benefit of $139,300				—		—		—			(716,010	)		—			—			(716,010	)
Undistributed net realized loss on investment transactions				—		—		—			—			(558,629	)		—			(558,629	)
Appreciation in value of investments				—		—		—			—			—			627,316			627,316
Balance as of June 30, 2023		6,185,255	$	12,215	$	16,503,500	$	(1,159,665	)	$	(1,802,749	)	$	5,155,200		$	(24,055	)	$	18,684,446

See accompanying Notes to Financial Statements

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MILL CITY VENTURES III, LTD.

CONDENSED STATEMENTS OF CASH FLOWS (UNAUDITED)

	Six Months Ended
	June 30, 2024			June 30, 2023
Cash flows from operating activities:
Net increase (decrease) in net assets resulting from operations	$	795,039		$	(647,323	)
Adjustments to reconcile net increase (decrease) in net assets resulting
from operations to net cash provided by operating activities:
Net change in unrealized (appreciation) depreciation on investments		237,890			(627,316	)
Net realized (gain) loss on investments		(371,240	)		558,629
Purchases of investments		(973,438	)		(8,900,500	)
Proceeds from sales of investments		5,461,479			9,149,194
Issuance of stock options		—			1,460,209
Deferred income taxes		(15,000	)		(227,000	)
Changes in operating assets and liabilities:
Prepaid expenses and other assets		70,822			70,516
Interest and dividends receivable		86,621			(58,420	)
Accounts payable and other liabilities		(243,586	)		(710,228	)
Deferred interest income		—			(55,875	)
Net cash provided by operating activities		5,048,587			11,886
Cash flows from financing activities:
Proceeds from line of credit		—			2,750,000
Repayments on line of credit		—			(2,750,000	)
Net cash provided by financing activities		—			—
Net increase in cash and cash equivalents		5,048,587			11,886
Cash and cash equivalents, beginning of period		376,024			1,089,641
Cash and cash equivalents, end of period	$	5,424,611		$	1,101,527
Supplemental disclosure of cash flow information:
Cash paid for income taxes	$	1,438		$	—

See accompanying Notes to Financial Statements

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MILL CITY VENTURES III, LTD.

CONDENSED SCHEDULE OF INVESTMENTS (UNAUDITED)

JUNE 30, 2024

Investment / Industry	Cost		Fair Value		Percentage of Net Assets
Short-Term Non-banking Loans
Business Services - 15% secured loans
Mustang Litigation Funding	$	10,000,000	$	10,024,533		51.71	%
Consumer - 15% secured loans
Bankers American Capital Corp		900,000		903,493		4.66	%
Financial - 12% secured loans		500,000		-		0.00	%
Real Estate - 12% secured loans
Alatus Development Corp		2,000,000		2,001,959		10.33	%
Total Short-Term Non-Banking Loans		13,400,000		12,929,985		66.70	%
Preferred Stock
Consumer
Wisdom Gaming, Inc		900,000		-		0.00	%
Information Technology		150,000		-		0.00	%
Total Preferred Stock		1,050,000		-		0.00	%
Warrants
Healthcare		679		—		0.00	%
Other Equity
Financial		10,000		-		0.00	%
Total Investments	$	14,460,679	$	12,929,985		66.70	%
Total Cash and cash equivalents		5,424,611		5,424,611		27.98	%
Total Investments and Cash	$	19,885,290	$	18,354,596		94.68	%

See accompanying Notes to the Financial Statements

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MILL CITY VENTURES III, LTD.

SCHEDULE OF INVESTMENTS

DECEMBER 31, 2023

Investment / Industry	Cost		Fair Value		Percentage of Net Assets
Short-Term Non-banking Loans
Business Services - 15% secured loans
Mustang Litigation Funding	$	10,000,000	$	10,069,354		54.16	%
Consumer - 23% secured loans
Intelligent Mapping, LLC		2,900,000		2,906,464		15.63	%
Financial - 12% secured loans		500,000		-		0.00	%
Information Technology - 15% convertible note		212,500		213,501		1.15	%
Real Estate - 18% secured loans		745,000		760,119		4.09	%
Tailwind, LLC		1,000,000		1,001,954		5.39	%
Real Estate - 12% secured loans
Alatus Development Corp		2,000,000		2,010,374		10.81	%
Total Short-Term Non-Banking Loans		17,357,500		16,961,766		91.23	%
Preferred Stock
Consumer
Wisdom Gaming, Inc		900,000		265,000		1.43	%
Information Technology		150,000		-		0.00	%
Total Preferred Stock		1,050,000		265,000		1.43	%
Common Stock
Consumer		159,302		47,910		0.26	%
Warrants
Healthcare		679		—		0.00	%
Other Equity
Financial		10,000		10,000		0.05	%
Total Investments	$	18,577,481	$	17,284,676		92.97	%
Total Cash		376,024		376,024		2.02	%
Total Investments and Cash	$	18,953,505	$	17,660,700		94.99	%

See accompanying Notes to the Financial Statements

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NOTE 1 – ORGANIZATION

In this report, we generally refer to Mill City Ventures III, Ltd. in the first person “we.” On occasion, we refer to our company in the third person as “Mill City Ventures” or the “Company.”  The Company follows accounting and reporting guidance in Accounting Standards (“ASC”) 946.

We were incorporated in Minnesota in January 2006. Until December 13, 2012, we were a development-stage company that focused on promoting and placing a proprietary poker game online and into casinos and entertainment facilities nationwide. In 2013, we elected to become a business development company (“BDC”) under the Investment Company Act of 1940 (the “1940 Act”). We operated as a BDC until we withdrew our BDC election at the end of December 2019. Since that time, we have 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 short-term loans, primarily to small businesses, both private and public, and high-net-worth individuals. To avoid regulation under the 1940 Act, we generally seek to structure our investments so they do not constitute “securities” for purposes of federal securities laws, and 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 1940 Act.

NOTE 2 – SIGNIFICANT ACCOUNTING POLICIES

Use of estimates: The preparation of financial statements in conformity with GAAP requires management and our independent board members 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. For more information, see the “Valuation of portfolio investments” caption below, and “Note 4 – Fair Value of Financial Instruments” below. The Company presents its financial statements as an investment company following accounting and reporting guidance in ASC 946.

Cash and cash equivalents:  Cash represents cash on hand and demand deposits held at financial institutions. Cash equivalents include short-term, highly liquid investments of sufficient credit quality that are readily convertible to known amounts of cash and have original maturities of three months or less. Cash equivalents are carried at cost, plus accrued interest, which approximates fair value. Cash equivalents are held to meet short-term liquidity requirements, rather than for investment purposes. Cash and cash equivalents are held at major financial institutions and are subject to credit risk to the extent those balances exceed applicable Federal Deposit Insurance Corporation (FDIC) or Securities Investor Protection Corporation (SIPC) limitations.

Valuation of portfolio investments:  We carry our investments in accordance with ASC Topic 820, Fair Value Measurements and Disclosures (“ASC 820”), issued by the Financial Accounting Standards Board (“FASB”), which defines fair value, establishes a framework for measuring fair value, and requires disclosures about fair value measurements. Fair value is generally based on quoted market prices provided by independent pricing services, broker or dealer quotations, or alternative price sources. In the absence of quoted market prices, broker or dealer quotations, or alternative price sources, investments are measured at fair value as determined by our Board of Directors, 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.

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.

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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 discounted cash flows approach, at their weighted-average yield to maturity.

The estimated fair value of our Level 3 investment assets is determined on a quarterly basis by our Board of Directors. In general, we value our Level 3 equity investments at cost unless circumstances warrant a different approach.  Examples of these circumstances includes a situation in which a portfolio company has engaged in a subsequent financing of more than a de minimis size involving sophisticated investors (in which case we may use the price involved in that financing as a determinative input absent other known factors), or when a 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 facts and circumstances that may serve as an 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 and procedures indicate that value will generally be the difference between the 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 instruments with a residual maturity less than or equal to 60 days, we will generally value such instruments based on a discounted cash flows approach, considering the straight-line amortized face value of the debt unless justification for impairment exists. For level 3 non-banking loans with a maturity in excess of 60 days, fair value is determined based on the initial purchase price and adjusted as necessary to reflect any changes in the financial strength of the creditor and changes in interest rates in the high-yield credit markets.

On a quarterly basis, our management provides members of our Board of Directors with recommendations, if any, to change any existing valuations of our portfolio investments or hierarchy levels for purposes of determining the fair value of such investments based upon the foregoing.  In such a case, the Board of Directors would then discuss these materials and, consistent with the policies and approaches outlined above, makes final determinations respecting the valuation and hierarchy levels of our portfolio investments.

We made no changes to our valuation policy and procedures during the reporting period.

Income taxes: 

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

We record net deferred tax assets to the extent we believe these assets will more likely than not be realized. In making such determination, we consider all available evidence, including future reversals of existing taxable temporary differences, projected future taxable income, tax planning strategies and recent financial operations. In the event we were to determine we would be able to realize our deferred income tax assets in the future in excess of their recorded amount, we would make an adjustment to the valuation allowance, which would reduce the provision for income taxes.

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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, 2020 through 2023, which are the tax years that remain subject to examination by major tax jurisdictions as of June 30, 2024. 

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.

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 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 is 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.

Stock-based compensation:  The Company’s stock-based compensation consists of stock options issued to certain employees and directors of the Company. The Company recognizes compensation expense based on an estimated grant date fair value using the Black Sholes option-pricing method. If the factors change and different assumptions are used, the Company’s stock-based compensation expense could be materially different in the future. The Company recognizes stock-based compensation expense for these options on a straight-line basis over the requisite service period. The Company has elected to account for forfeitures as they occur.

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 June 30, 2024 (together with the corresponding percentage of the fair value of our total portfolio of investments):

	As of June 30, 2024
	Investments at Amortized Cost		Percentage of Amortized Cost			Investments at Fair Value		Percentage of Fair Value
Short-term Non-banking Loans	$	13,400,000		92.7	%	$	12,929,985		100.0	%
Preferred Stock		1,050,000		7.2			—		—
Warrants		679		—			—		—
Other Equity		10,000		0.1			—		—
Total	$	14,460,679		100.0	%	$	12,929,985		100.0	%

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The following table shows the composition of our investment portfolio by major class, at amortized cost and fair value, as of December 31, 2023 (together with the corresponding percentage of the fair value of our total investments):

	As of December 31, 2023
	Investments at Amortized Cost		Percentage of Amortized Cost			Investments at Fair Value		Percentage of Fair Value
Short-term Non-banking Loans	$	17,357,500		93.4	%	$	16,961,766		98.1	%
Preferred Stock		1,050,000		5.6			265,000		1.5
Common Stock		159,302		0.9			47,910		0.3
Warrants		679		—			—		—
Other Equity		10,000		0.1			10,000		0.1
Total	$	18,577,481		100.0	%	$	17,284,676		100.0	%

The following table shows the composition of our investment portfolio by industry grouping, based on fair value as of June 30, 2024:

	As of June 30, 2024
	Investments at Fair Value		Percentage of Fair Value
Business Services	$	10,024,533		77.5	%
Consumer		903,493		7.0
Real Estate		2,001,959		15.5
Total	$	12,929,985		100.0	%

The following table shows the composition of our investment portfolio by industry grouping, based on fair value as of December 31, 2023:

	As of December 31, 2023
	Investments at Fair Value		Percentage of Fair Value
Business Services	$	10,069,354		58.3	%
Consumer		3,219,374		18.6
Financial		10,000		0.1
Information Technology		213,501		1.2
Real Estate		3,772,447		21.8
Total	$	17,284,676		100.0	%

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 investments portfolio as of June 30, 2024 may differ materially from values that would have been used had a readily available market for the investments existed. 

The following table presents the fair value measurements of our portfolio investments by major class, as of June 30, 2024, according to the fair value hierarchy:

	As of June 30, 2024
	Level 1		Level 2		Level 3		Total
Short-term Non-banking Loans	$	—	$	—	$	12,929,985	$	12,929,985
Total	$	—	$	—	$	12,929,985	$	12,929,985

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The following table presents the fair value measurements of our investment portfolio by major class, as of December 31, 2023, according to the fair value hierarchy:

	As of December 31, 2023
	Level 1		Level 2		Level 3		Total
Short-term Non-banking Loans	$	—	$	—	$	16,961,766	$	16,961,766
Preferred Stock		—		—		265,000		265,000
Common Stock		47,910		—		—		47,910
Other Equity		—		—		10,000		10,000
Total	$	47,910	$	—	$	17,236,766	$	17,284,676

The following table presents a reconciliation of the beginning and ending fair value balances for our Level 3 portfolio investment assets for the six months ended June 30, 2024:

	For the six months ended June 30, 2024
	ST Non-banking Loans			Preferred Stock			Other Equity
Balance as of January 1, 2024	$	16,961,766		$	265,000		$	10,000
Net change in unrealized appreciation		(74,281	)		(265,000	)		(10,000	)
Purchases and other adjustments to cost		973,438			—			—
Sales and redemptions		(4,770,000	)		—
Transfers out of level 3		(160,938	)		—			—
Balance as of June 30, 2024	$	12,929,985		$	—		$	—

The net change in unrealized depreciation for the six months ended June 30, 2024 attributable to Level 3 portfolio investments still held as of June 30, 2024 is $324,743.

The following table lists our Level 3 investments held as of June 30, 2024 and the unobservable inputs used to determine their valuation:

Security Type		6/30/24 FMV	Valuation Technique	Unobservable Inputs	Range
ST Non-banking Loans	$	12,929,985	discounted cash flow	determining private company interest rate based on changes in market rates of instruments with comparable creditworthiness	12-15%
	$	12,929,985

The following table presents a reconciliation of the beginning and ending fair value balances for our Level 3 portfolio investment assets for the year ended December 31, 2023:

	For the year ended December 31, 2023
	ST Non-banking Loans			Preferred Stock			Other Equity
Balance as of January 1, 2023	$	15,285,932		$	1,200,000		$	222,500
Net change in unrealized depreciation		(195,041	)		(935,000	)		600,000
Purchases and other adjustments to cost		12,900,500			—			—
Realized gain (loss)		—			—			(600,000	)
Transfers between level 3 and level 1		(11,029,625	)		—			(212,500	)
Balance as of December 31, 2023	$	16,961,766		$	265,000		$	10,000

The net change in unrealized depreciation for the year ended December 31, 2023 attributable to Level 3 portfolio investments still held as of December 31, 2023 was $1,180,734.

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The following table lists our Level 3 investments held as of December 31, 2023 and the unobservable inputs used to determine their valuation:

Security Type	12/31/23 FMV		Valuation Technique	Unobservable Inputs	Range
ST Non-banking Loans	$	16,961,766	discounted cash flow	determining private company interest rate based on changes in market rates of instruments with comparable creditworthiness	12-23%
Other Equity		10,000	last secured funding known by company
Preferred Stock		265,000	last funding secured by company	economic changes since last funding
	$	17,236,766

NOTE 5 – RELATED-PARTY TRANSACTIONS

We maintain a conflicts of interest and related-party transactions policy requiring (i) certain disclosures be made to our Board of Directors in relation to situations where officers, directors, significant shareholders, or any of their affiliates may enter into transactions with us, and (ii) certain disclosures appear in the reports we prepare and file with the SEC.  In this regard, during the period covered by this report we entered into, or remained a party to, the following related-party transactions:

● We hold a promissory note with two shareholders in the principal amount of $250,000, through January 1, 2025. 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 common stock. The pledged shares are held in physical custody for us by our custodial agent.

● As disclosed in Note 7, a component of our now terminated loan agreement is with a director of our Company.

NOTE 6 – INCOME TAXES

We are a C-Corporation for tax purposes and have booked an income tax provision for the periods described below. Our tax provision or benefit from income taxes for interim periods is determined using an estimate of our annual effective tax rate.

As of June 30, 2024 and December 31, 2023, we have a deferred tax asset of $772,000 and $757,000, respectively. As of June 30, 2024, our net deferred tax asset consists of foreign tax credit carryforwards, unrealized investment gain/loss, non-qualified stock option expenses, acquisition costs, depreciable assets, and right of use assets.  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.

As of June 30, 2024 and December 31, 2023 we had accrued income taxes of $177,600 and prepaid income taxes $131,500, respectively. We recorded an increase of income taxes of $300,000 (26 percent effective tax rate) and $25,700 (26 percent effective tax rate) during the six months ended June 30, 2024 and June 30, 2023, respectively.

NOTE 7 – LINE OF CREDIT

The Company had a Loan and Security Agreement (the “Loan Agreement”) with a third party and director (collectively, the Lenders). 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, of which our director was required to fund one half of the amount. Amounts drawn under the Loan Agreement accrue interest at the per annum rate of 8%, through January 3, 2027, subject to early termination provisions at the Lender’s right at any time after January 3, 2023. Our obligations under the Loan Agreement were secured by a grant of a collateral security interest in substantially all of our assets.

At December 31, 2023, the balance outstanding on the line was $0. In January 2024, we terminated the Loan Agreement. Any applicable fees related to early termination of the Agreement were waived.

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NOTE 8 – STOCK-BASED COMPENSATION

The Company’s 2022 Stock Incentive Plan authorized the issuance of incentives relating to 900,000 shares of common stock. As of June 30, 2024, incentives relating to the issuance of 870,000 shares have been issued under the Plan, leaving 30,000 shares available for issuance.

The following table summarizes the activity for all stock options outstanding for the six months ended June 30, 2024:

	Shares		Weighted Average Exercise Price
Options outstanding at beginning of year		670,000	$	2.11
Granted		—		—
Exercised		—		—
Forfeited		—		—
Balance at June 30, 2024		670,000	$	2.11
Options exercisable at June 30:		670,000	$	2.11

The following table summarizes additional information about stock options outstanding and exercisable at June 30, 2024:

Options Outstanding								Options Exercisable
Options Outstanding		Weighted Average Remaining Contractual Life		Weighted Average Exercise Price		Aggregate Intrinsic Value		Options Exercisable		Weighted Average Exercise Price		Aggregate Intrinsic Value
	670,000		8.42	$	2.11	$	586,000		670,000	$	2.11	$	586,000

The Company recognized stock-based compensation expense for stock options of $0 and $1,460,209 for the six months ended June 30, 2024 and 2023, respectively.

NOTE 9 – SHAREHOLDERS’ EQUITY

At June 30, 2024, we had 6,385,255 shares of common stock issued and outstanding.          

In connection with the 2022 public offering, the Company issued a five-year warrant to the underwriter. The warrant allows the underwriter to purchase up to 75,000 common shares at $5.00 per share. This warrant is exercisable after 180 days, and expires on August 8, 2027. This warrant is equity-classified and the fair value was $201,173 on the offering date.

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NOTE 10 – PER-SHARE INFORMATION

Basic net gain (loss) per common share is computed by dividing net increase in net assets resulting from operations by the weighted-average number of common shares outstanding during the period. Diluted net gain (loss) per common share is computed by dividing net increase in net assets resulting from operations by the weighted-average number of dilutive common shares outstanding during the period calculated using the Treasury Stock method. The Treasury Stock method assumes that the proceeds received upon exercise of stock options are used to repurchase stock at the average market price during the period, thereby increasing the number of shares to be added in computing diluted earnings per share. 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 June 30,
	2024				2023
	Basic		Diluted		Basic		Diluted
Numerator:  Net increase in net assets resulting from operations	$	412,936	$	412,936	$	70,721	$	70,721
Denominator:  Weighted-average number of common shares outstanding		6,385,255		6,501,823		6,185,255		6,185,255
Basic and diluted net gain (loss) per common share	$	0.06	$	0.06	$	0.01	$	0.01

	For the Six Months Ended June 30,
	2024				2023
	Basic		Diluted		Basic			Diluted
Numerator:  Net increase (decrease) in net assets resulting from operations	$	795,039	$	795,039	$	(647,323	)	$	(647,323	)
Denominator:  Weighted-average number of common shares outstanding		6,385,255		6,501,823		6,185,255			6,185,255
Basic and diluted net gain (loss) per common share	$	0.12	$	0.12	$	(0.10	)	$	(0.10	)

NOTE 11 – FINANCIAL HIGHLIGHTS

The following is a schedule of financial highlights for the six months ended June 30, 2024 through 2020:

	Six Months Ended June 30,
	2024			2023			2022			2021			2020
Per Share Data (1)
Net asset value at beginning of period	$	2.91			2.89			1.24			1.08			0.91
Net investment income (loss)		0.15			(0.11	)		0.11			0.04			0.01
Net realized and unrealized gains (losses)		0.02			0.01			0.01			0.28			0.02
Provision for income taxes		(0.04	)		(0.01	)		(0.04	)		(0.09	)		0.00
Issuance of stock options		0.00			0.24			0.01			0.00			0.00
Repurchase of common stock		0.00			0.00			0.00			0.00			0.02
Net asset value at end of period	$	3.04			3.02			1.33			1.31			0.96
Ratio / Supplemental Data
Per share market value of investments at end of period	$	2.02			2.67			1.41			1.22			0.65
Shares outstanding at end of period		6,385,255			6,185,255			4,824,628			4,795,739			4,754,104
Average weighted shares outstanding for the period		6,385,255			6,185,255			4,808,508			4,794,744			4,877,654
Net assets at end of period	$	19,385,302			—			14,426,607			14,188,588			10,221,718
Average net assets (2)	$	18,982,643			18,389,910			13,888,938			13,073,718			10,025,622
Total investment return (loss)		4.47	%		(3.81	)%		6.45	%		21.30	%		3.30	%
Portfolio turnover rate (3)		5.13	%		48.40	%		65.55	%		75.65	%		11.90	%
Ratio of operating expenses to average net assets (3)		(7.90	)%		(25.16	)%		(14.63	)%		(11.72	)%		(9.41	)%
Ratio of net investment income (loss) to average net assets (3)		10.46	%		(7.43	)%		18.01	%		6.88	%		3.02	%
Ratio of realized gains (losses) to average net assets (3)		3.98	%		(6.03	)%		1.94	%		61.92	%		4.06	%

(1)     Per-share data was derived using the ending number of shares outstanding for the period.

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

(3)     Ratios are annualized.

NOTE 12 – Subsequent Events

In July 2024, the Company purchased, for $1.15 million, a 50% participation interest from Great North Capital Corp. ("Great North") in a secured loan that Great North had made to an unaffiliated borrower named Coventry Holdings of Minnesota, LLC, involved in the development, construction and operation of senior-living communities.  Great North is a Minnesota corporation that is wholly owned by our Chief Executive Officer, Douglas Polinsky.  The transaction was approved by the full Board of Directors of the Company, with Mr. Polinsky abstaining, after disclosure by Mr. Polinsky of his relationship and interest in the transaction.

On August 13, 2024, the company entered into a mediated settlement agreement with Innovative Computer Professionals, Inc., pursuant to which the company agreed to accept $400,000 in full satisfaction of an outstanding debt principal, accrued but unpaid interest and related collection costs.  The company had earlier written off the full amount of this investment position.  The settlement agreement included a confession of judgment from the debtor, in the full amount of $809,181, if the debtor fails to pay the settlement payment on or before August 23, 2024.

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ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Our Management’s Discussion and Analysis of Financial Condition and Results of Operations (MD&A) is intended to provide a reader of our financial statements with a narrative from the perspective of management on our financial condition, results of operations, liquidity and certain other factors that may affect our future results. In addition, unless expressly stated otherwise, the comparisons presented in this MD&A refer to the same period in the prior year. Our MD&A is presented in seven sections:

● Overview

● Portfolio and Investment Activity

● Results of Operations

● Financial Condition

● Critical Accounting Estimates

● Off-Balance Sheet Arrangements

● Forward Looking Statements

OVERVIEW

Mill City Ventures III, Ltd. was incorporated in the State of Minnesota on January 10, 2006. In this report, we generally refer to Mill City Ventures III, Ltd. in the first person “we.” On occasion, we refer to our company in the third person as “Mill City Ventures” or the “company.”

We are engaged in the business of providing short-term non-bank lending and specialty finance solutions to companies and individuals, generally on a secured basis. The loans we provide typically have maturities that are nine months or shorter, highly illiquid, and ordinarily involve a pledge of collateral or, in the case of loans made to companies, personal guarantees by the principals of the borrower.  Our loans may be made for real estate acquisitions, renovation and sale, or other projects relating to real estate, title loans, inventory needs, inventory financing, solve for short-term liquidity needs, or for other similar purposes. We intend to remain opportunistic, however, and may occasionally engage in transactions that involve our acquisition of other rights (such as stock, warrants or other equity-linked investments) or that are structured differently or uniquely.  Our business objective is to generate revenues from the interest and fees we charge, and capital appreciation from any related investments we make.

Our principal sources of income are interest and fees associated with our loans such as origination fees, closing fees or exit fees.  In connection with the short-term non-bank specialty finance loans we provide, we may receive reimbursement of legal costs associated with loan documentation. We occasionally derive income from dividends paid on equity securities we hold from time to time, or from the sale of our equity securities.  Our statement of operations also reflect increases and decreases in the carrying value of our assets and investments (i.e., unrealized appreciation and depreciation). Our principal expenses relate to operating expenses, the largest components of which are generally professional fees, payroll, occupancy, and insurance expenses.

Our MD&A should be read in conjunction with our Annual Report on Form 10-K for the year ended December 31, 2023, as well as our reports on Forms 10-Q and 8-K and other publicly available information. All amounts herein are unaudited.  In addition, the following discussion of our results of operations and financial condition should be read in the context of this overview.

PORTFOLIO AND INVESTMENT ACTIVITY

During the six months ended June 30, 2024, we made $973,438 of investment purchases and had $5,461,479 of redemptions and repayments, resulting in net investments at amortized cost of $14,460,679 at the end of the period.

During the six months ended June 30, 2023, we made $8,900,500 of investment purchases and had $9,149,194 of redemptions and repayments, resulting in net investments at amortized cost of $16,552,481 at the end of that period. 

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Our portfolio composition by major class, based on fair value at June 30, 2024, was as follows:

	Investments at Fair Value		Percentage of Fair Value
Short-term Non-banking Loans	$	12,929,985		100.0	%
Total	$	12,929,985		100.0	%

RESULTS OF OPERATIONS

Our operating results for the three and six months ended June 30, 2024 and June 30, 2023 were as follows:

	For the Three Months Ended June 30,						For the Six Months Ended June 30,
	2024			2023			2024			2023
Investment Income:	$	888,629		$	907,502		$	1,721,296		$	1,771,530
Operating Expenses:		(398,059	)		(570,045	)		(759,146	)		(2,461,862	)
Net Investment Gain (Loss)	$	490,570		$	337,457		$	962,150		$	(690,332	)

Investment Income

We generate revenue primarily in the form of interest income derived from the short-term non-banking loans we provide, together with fees we charge in connection with those loans, such as commitment, origination, structuring, diligence, or consulting fees. Any such fees will be recognized as earned. In some cases, the interest payable to us on the short-term loans we provide may accrue or be paid in the form of additional debt. The principal amount of the debt instruments, together with any accrued but unpaid interest thereon, will generally become due at the maturity date of those debt instruments. On occasion, we may also generate revenue from dividends and capital gains on equity investments we make, if any, or on warrants or other equity interests that we may acquire.

For the three and six months ended June 30, 2024, our total investment income was $888,629 and $1,721,296, respectively. For the three and six months ended June 30, 2023 our total investment income was $907,502 and $1,771,530, respectively. Our loan portfolio generates interest income, with an average rate on the loans of 14.4%.

Professional Fees

For the three and six months ended June 30, 2024, we had $174,098 and $312,469 professional fees expense, respectively. For the three and six months ended June 30, 2023, we had $287,325 and $417,176 professional fees expense, respectively. The decrease is due to the decrease in loan activity during the current year.

Payroll and Directors Fees

For the three and six months ended June 30, 2024, we had $145,859 and $296,925 of payroll expense, respectively, and we had $30,000 and $60,000 of directors fees, respectively. For the three and six months ended June 30, 2023, we had $147,161 and $1,277,600 of payroll expense, respectively, and we had $30,000 and $562,968 of directors fees, respectively. The increase in 2023 over 2024 is due to a stock option issuance recognized in January 2023.

Interest Expense

For the three and six months ended June 30, 2024, we had $0 and $320 of interest expense, respectively. For the three and six months ended June 30, 2023, we had $43,333 and $78,000 of interest expense, respectively. The decrease is due to the termination of the line of credit agreement in January 2024.

Net Realized Gain (Loss) from Investments

For the three and six months ended June 30, 2024, we had $5,152,682 and $5,461,479, respectively, of sales of investments resulting in $346,745 and $371,240 of realized gains, respectively. For the three and six months ended June 30, 2023, we had $5,204,194 and $9,149,194, respectively, of sales of investments resulting in $41,371 of realized gains and $558,629 of realized losses, respectively.

Net Change in Unrealized Appreciation (Depreciation) on Investments

For the three and six months ended June 30, 2024, our investments had $289,641 and $237,890 of unrealized depreciation, respectively. For the three and six months ended June 30, 2023, our investments had $21,107 of unrealized depreciation and $627,316 of unrealized appreciation, respectively. The decrease is due to the sale of appreciated stock during the current year.

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Changes in Net Assets from Operations

For the three and six months ended June 30, 2024, we recorded a net increase in net assets from operations of $412,936 and $795,039, respectively. Based on the weighted-average number of shares of common stock outstanding for the three and six months ended June 30, 2024, our per-share net increase in net assets from operations was $0.06 and $0.12, respectively. For the three and six months ended June 30, 2023, we recorded a net increase in net assets from operations of $70,721 and a net decrease in net assets from operations of $647,323, respectively. Based on the weighted-average number of shares of common stock outstanding for the three and six months ended June 30, 2023, our per-share net increase in net assets from operations was $0.01 and our per share net decrease in net assets from operations was $0.10, respectively.

Cash Flows for the Six Months Ended June 30, 2024 and 2023

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 June 30, 2024, net cash provided in operating activities was $5,048,587. Cash flows provided in operating activities for the six months ended June 30, 2024 were primarily related to the funding of our short-term loans and purchases of investments aggregating $973,438, offset mostly by redemptions and repayments of short-term loans and investments totaling $5,461,479. For the six months ended June 30, 2023, net cash provided in operating activities was $11,886. Cash flows used in operating activities for the six months ended June 30, 2023 were primarily related to the funding of our short-term loans and purchases of investments aggregating $8,900,500, offset mostly by redemptions and repayments of short-term loans and investments totaling $9,149,194.

FINANCIAL CONDITION

As of June 30, 2024, we had cash and cash equivalents of $5,424,611, an increase of $5,048,587 from December 31, 2023.  The primary use of our existing funds and any funds raised in the future is expected to be for our investments in portfolio companies or for other general corporate purposes, including paying for operating expenses or debt service to the extent we borrow or issue senior securities.  Pending investment in portfolio companies, our investments may consist of cash, cash equivalents, U.S. government securities or high-quality debt securities maturing in one year or less from the time of investment, which we refer to collectively as “temporary investments.”  

CRITICAL ACCOUNTING ESTIMATES

Our financial statements are prepared in conformity with accounting principles generally accepted in the United States of America, or U.S. GAAP, which requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting periods. Critical accounting policies are those that require the application of management’s most difficult, subjective or complex judgments, often because of the need to make estimates about the effect of matters that are inherently uncertain and that may change in subsequent periods.

In preparing the financial statements, management will make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reporting periods. In preparing the financial statements, management also will utilize available information, including our past history, industry standards and the current economic environment, among other factors, in forming its estimates and judgments, giving due consideration to materiality. Actual results will almost certainly differ from these estimates. In addition, other companies may utilize different estimates, which may impact the comparability of our results of operations to those of companies in similar businesses. As our expected operating results occur, we will describe additional critical accounting policies in the notes to our financial statements. Our most critical accounting policies relate to the valuation of our portfolio investments, and revenue recognition.  For more information, refer to our Annual Report on Form 10-K for the year ended December 31, 2023.

OFF-BALANCE-SHEET ARRANGEMENTS

During the six months ended June 30, 2024, we did not engage in any off-balance sheet arrangements as described in Item 303(a)(4) of Regulation S-K.

19

Table of Contents

FORWARD-LOOKING STATEMENTS

Some of the statements made in this section of our report are forward-looking statements based on our management’s current expectations for our company.  These expectations involve assumptions and are subject to substantial risks and uncertainties that could cause actual results to differ materially from the results expressed in, or implied by, these forward-looking statements. Forward-looking statements relate to future events or our future financial performance, and can ordinarily be identified by terminology such as “may,” “will,” “should,” “expects,” “plans,” “anticipates,” “could,” “intends,” “targets,” “projects,” “contemplates,” “believes,” “estimates,” “predicts,” “potential” or “continue” or the negative of these terms or other similar words.  Important assumptions include our ability to identify and consummate new investments, achieve certain margins and levels of profitability, the availability of any needed additional capital, and the ability to maintain compliance with regulations applicable to us.  Some of the forward-looking statements contained in this report relate to, and are based our current assumptions regarding, the following:

● our future operating results;

● the success of our investments;

● our relationships with third parties;

● the dependence of our success on the general economy and its impact on the industries in which we invest;

● the ability of our portfolio companies to achieve their objectives;

● our expected financings and investments;

● our regulatory structure and tax treatment;

● the adequacy of our cash resources and working capital; and

● the timing of cash flows, if any, we receive from our investments.

The foregoing list is not exhaustive. For a more complete summary of the risks and uncertainties facing our company and its business and relating to our forward-looking statements, please refer to our Annual Report on Form 10-K filed on April 2, 2024 (related to our year ended December 31, 2023) 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 June 30, 2024, 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 were not effective as of June 30, 2024 due to the material weakness in our internal control over financial reporting identified and disclosed in Item 9A of our Annual Report on Form 10-K for the year ended December 31, 2023.

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.

20

Table of Contents

PART II. OTHER INFORMATION

ITEM 5. EXHIBITS

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

21

Table of Contents

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:  August 14, 2024	By:	/s/ Douglas M. Polinsky
		Douglas M. Polinsky
		Chief Executive Officer
Date:  August 14, 2024	By:	/s/ Joseph A. Geraci, II
		Joseph A. Geraci, II
		Chief Financial Officer

22

EX-31.1

EXHIBIT 31.1

SECTION 302 CERTIFICATION

I, Douglas M. Polinsky, certify that:

1. I have reviewed this quarterly report on Form 10-Q of Mill City Ventures III, Ltd.;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date:  August 14, 2024	/s/ Douglas M. Polinsky
	Chief Executive Officer

EX-31.2

EXHIBIT 31.2

SECTION 302 CERTIFICATION

I, Joseph A. Geraci, II, certify that:

1. I have reviewed this quarterly report on Form 10-Q of Mill City Ventures III, Ltd.;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date:  August 14, 2024	/s/ Joseph A. Geraci, II
	Chief Financial Officer

EX-32.1

EXHIBIT 32.1

CERTIFICATION PURSUANT TO

18 U.S.C. §1350,

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Quarterly Report of Mill City Ventures III, Ltd. (the “Company”) on Form 10-Q for the quarter ended June 30, 2024, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Douglas M. Polinsky, Chief Executive Officer of the Company, and I, Joseph A. Geraci, II, Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. §1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:

1.	The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Act of 1934; and
2.	The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

/s/ Douglas M. Polinsky

Douglas M. Polinsky

Chief Executive Officer

August 14, 2024

/s/ Joseph A. Geraci, II

Joseph A. Geraci, II

Chief Financial Officer

August 14, 2024

XML

Cover - shares	6 Months Ended
	Jun. 30, 2024	Aug. 15, 2024
Cover [Abstract]
Entity Registrant Name	MILL CITY VENTURES III, LTD.
Entity Central Index Key	0001425355
Document Type	10-Q
Amendment Flag	false
Current Fiscal Year End Date	--12-31
Entity Small Business	true
Entity Shell Company	false
Entity Emerging Growth Company	false
Entity Current Reporting Status	Yes
Document Period End Date	Jun. 30, 2024
Entity Filer Category	Non-accelerated Filer
Document Fiscal Period Focus	Q2
Document Fiscal Year Focus	2024
Entity Common Stock Shares Outstanding		6,385,255
Document Quarterly Report	true
Document Transition Report	false
Entity File Number	001-41472
Entity Incorporation State Country Code	MN
Entity Tax Identification Number	90-0316651
Entity Address Address Line 1	1907 Wayzata Blvd, #205
Entity Address City Or Town	Wayzata
Entity Address State Or Province	MN
Entity Address Postal Zip Code	55391
City Area Code	952
Local Phone Number	479-1923
Entity Interactive Data Current	Yes

XML

CONDENSED BALANCE SHEETS - USD ($)	Jun. 30, 2024	Dec. 31, 2023
ASSETS
Investments, at fair value: Non-control/non-affiliate investments (cost: $14,460,679 and $18,577,481 respectively)	$ 12,929,985	$ 17,284,676
Cash and cash equivalents	5,424,611	376,024
Note receivable	250,000	250,000
Prepaid expenses	103,762	165,301
Interest and dividend receivables	177,792	264,413
Right-of-use operating lease asset	0	9,283
Deferred taxes	772,000	757,000
Total Assets	19,658,150	19,106,697
LIABILITIES
Accounts payable	87,644	71,702
Accrued payroll liabilities	7,604	435,449
Operating lease liability	0	9,283
Accrued income tax	177,600	0
Total Liabilities	272,848	516,434
SHAREHOLDERS EQUITY (NET ASSETS)
Common stock, par value $0.001 per share (111,111,111 authorized; 6,385,255 outstanding)	6,385	6,385
Additional paid-in capital	15,473,121	15,473,121
Additional paid-in capital - stock options	1,460,209	1,460,209
Accumulated deficit	(1,159,665)	(1,159,665)
Accumulated undistributed investment loss	(390,494)	(1,052,183)
Accumulated undistributed net realized gains on investment transactions	5,526,440	5,155,200
Net unrealized depreciation in value of investments	(1,530,694)	(1,292,804)
Total Shareholders' Equity (Net Assets)	19,385,302	18,590,263
Total Liabilities and Shareholders' Equity	$ 19,658,150	$ 19,106,697
Net Asset Value Per Common Share	$ 3.04	$ 2.91

XML

CONDENSED BALANCE SHEETS (Parenthetical) - USD ($)	Jun. 30, 2024	Dec. 31, 2023
CONDENSED BALANCE SHEETS
Non control/non affiliate investment cost	$ 14,460,679	$ 18,577,481
Common stock, par value	$ 0.001	$ 0.001
Common stock, shares authorized	111,111,111	111,111,111
Common stock, shares outstanding	6,385,255	6,385,255
Common stock, shares issued	6,385,255	6,385,255

XML

CONDENSED STATEMENTS OF OPERATIONS (UNAUDITED) - USD ($)	3 Months Ended		6 Months Ended
	Jun. 30, 2024	Jun. 30, 2023	Jun. 30, 2024	Jun. 30, 2023
Investment Income
Interest income	$ 888,629	$ 907,502	$ 1,721,296	$ 1,771,530
Total Investment Income	888,629	907,502	1,721,296	1,771,530
Operating Expenses
Professional fees	174,098	287,325	312,469	417,176
Payroll	145,859	147,161	296,925	1,277,600
Insurance	24,602	26,522	51,492	53,522
Occupancy	9,545	21,072	20,222	40,115
Director's fees	30,000	30,000	60,000	562,968
Interest expense	0	43,333	320	78,000
Other general and administrative	13,955	14,632	17,718	32,481
Total Operating Expenses	398,059	570,045	759,146	2,461,862
Net Investment Gain (Loss)	490,570	337,457	962,150	(690,332)
Realized and Unrealized Gain (Loss) on Investments
Net realized gain (loss) on investments	346,745	41,371	371,240	(558,629)
Net change in unrealized appreciation (depreciation) on investments	(289,641)	(21,107)	(237,890)	627,316
Net Realized and Unrealized Gain on Investments	57,104	20,264	133,350	68,687
Net Increase (Decrease) in Net Assets Resulting from Operations Before Taxes	547,674	357,721	1,095,500	(621,645)
Provision for Income Taxes	134,738	287,000	300,461	25,678
Net Increase (Decrease) in Net Assets Resulting from Operations	$ 412,936	$ 70,721	$ 795,039	$ (647,323)
Net Increase (Decrease) in Net Assets Resulting from Operations per share:
Basic	$ 0.06	$ 0.01	$ 0.12	$ (0.10)
Diluted	$ 0.06	$ 0.01	$ 0.12	$ (0.10)

XML

CONDENSED STATEMENTS OF SHAREHOLDERS' EQUITY (UNAUDITED) - USD ($)	Total	Accumulated Undistributed Net Investment Gain (Loss)	Common Stock	Additional Paid-In Capital	Retained Earnings (Accumulated Deficit)	Accumulated Undistributed Net Realized Gain On Investments Transaction	Net Unrealized Appreciation Depreciation In Value Of Investments
Balance, shares at Dec. 31, 2022			6,185,255
Balance, amount at Dec. 31, 2022	$ 17,871,560	$ (1,086,739)	$ 12,215	$ 15,043,291	$ (1,159,665)	$ 5,713,829	$ (651,371)
Issuance of stock options	1,460,209	0	0	1,460,209	0
Net investment loss, net of tax benefit of $139,300	(716,010)	(716,010)	0	0	0	0	0
Undistributed net realized loss on investment transactions	(558,629)	0	0	0	0	(558,629)	0
Appreciation in value of investments	627,316	0	$ 0	0	0	0	627,316
Balance, shares at Jun. 30, 2023			6,185,255
Balance, amount at Jun. 30, 2023	18,684,446	(1,802,749)	$ 12,215	16,503,500	(1,159,665)	5,155,200	(24,055)
Balance, shares at Mar. 31, 2023			6,185,255
Balance, amount at Mar. 31, 2023	18,613,725	(1,853,206)	$ 12,215	16,503,500	(1,159,665)	5,113,829	(2,948)
Undistributed net investment gain	50,457	50,457	0	0	0	0	0
Undistributed net realized gain on investment transactions	41,371	0	0	0	0	41,371	0
Depreciation in value of investments	(21,107)	0	$ 0	0	0	0	(21,107)
Balance, shares at Jun. 30, 2023			6,185,255
Balance, amount at Jun. 30, 2023	18,684,446	(1,802,749)	$ 12,215	16,503,500	(1,159,665)	5,155,200	(24,055)
Balance, shares at Dec. 31, 2023			6,385,255
Balance, amount at Dec. 31, 2023	18,590,263	(1,052,183)	$ 6,385	16,933,330	(1,159,665)	5,155,200	(1,292,804)
Undistributed net investment gain	661,689	661,689	0	0	0	0	0
Undistributed net realized gain on investment transactions	371,240	0	0	0	0	371,240	0
Depreciation in value of investments	(237,890)	0	$ 0	0	0	0	(237,890)
Balance, shares at Jun. 30, 2024			6,385,255
Balance, amount at Jun. 30, 2024	19,385,302	(390,494)	$ 6,385	16,933,330	(1,159,665)	5,526,440	(1,530,694)
Balance, shares at Mar. 31, 2024			6,385,255
Balance, amount at Mar. 31, 2024	18,972,366	(746,326)	$ 6,385	16,933,330	(1,159,665)	5,179,695	(1,241,053)
Undistributed net investment gain	355,832	355,832	0	0	0	0	0
Undistributed net realized gain on investment transactions	346,745	0	0	0	0	346,745	0
Depreciation in value of investments	(289,641)	0	$ 0	0	0	0	(289,641)
Balance, shares at Jun. 30, 2024			6,385,255
Balance, amount at Jun. 30, 2024	$ 19,385,302	$ (390,494)	$ 6,385	$ 16,933,330	$ (1,159,665)	$ 5,526,440	$ (1,530,694)

XML

CONDENSED STATEMENTS OF CASH FLOWS (UNAUDITED) - USD ($)	6 Months Ended
	Jun. 30, 2024	Jun. 30, 2023
Cash flows from operating activities:
Net increase (decrease) in net assets resulting from operations	$ 795,039	$ (647,323)
Adjustments to reconcile net increase (decrease) in net assets resulting
Net change in unrealized (appreciation) depreciation on investments	237,890	(627,316)
Net realized (gain) loss on investments	(371,240)	558,629
Purchases of investments	(973,438)	(8,900,500)
Proceeds from sales of investments	5,461,479	9,149,194
Issuance of stock options	0	1,460,209
Deferred income taxes	(15,000)	(227,000)
Changes in operating assets and liabilities:
Prepaid expenses and other assets	70,822	70,516
Interest and dividends receivable	86,621	(58,420)
Accounts payable and other liabilities	(243,586)	(710,228)
Deferred interest income	0	(55,875)
Net cash provided by operating activities	5,048,587	11,886
Cash flows from financing activities:
Proceeds from line of credit	0	2,750,000
Repayments on line of credit	0	(2,750,000)
Net cash provided by financing activities	0	0
Net increase in cash and cash equivalents	5,048,587	11,886
Cash and cash equivalents, beginning of period	376,024	1,089,641
Cash and cash equivalents, end of period	5,424,611	1,101,527
Supplemental disclosure of cash flow information:
Cash paid for income taxes	$ 1,438	$ 0

XML

SCHEDULE OF INVESTMENTS - USD ($)	Jun. 30, 2024	Dec. 31, 2023
Total Investments, Cost	$ 14,460,679	$ 18,577,481
Total Investments at Fair Value	12,929,985	17,284,676
Consumer | Represents the member information pertaining to 15% secured loans.
Total Investments, Cost	900,000
Total Investments at Fair Value	$ 903,493
Total Investments, Percentage of Net Assets	4.66%
Consumer | Represents the member information pertaining to 23% secured loans.
Total Investments, Cost		2,900,000
Total Investments at Fair Value		$ 2,906,464
Total Investments, Percentage of Net Assets		15.63%
Preferred Stock | Information Technology
Total Investments, Cost	$ 150,000	$ 150,000
Total Investments at Fair Value	$ 0	$ 0
Total Investments, Percentage of Net Assets	0.00%	0.00%
Common Stock | Consumer
Total Investments, Cost		$ 159,302
Total Investments at Fair Value		$ 47,910
Total Investments, Percentage of Net Assets		0.26%
Represents information pertaining to the Wisdom Gaming, Inc. | Preferred Stock
Total Investments, Cost	$ 900,000	$ 900,000
Total Investments at Fair Value	$ 0	$ 265,000
Total Investments, Percentage of Net Assets	0.00%	1.43%
Represents the member information pertaining to short term banking loans.
Total Investments, Cost	$ 13,400,000	$ 17,357,500
Total Investments at Fair Value	$ 12,929,985	$ 16,961,766
Total Investments, Percentage of Net Assets	66.70%	91.23%
Preferreds Stock [Member][
Total Investments, Cost	$ 1,050,000	$ 1,050,000
Total Investments at Fair Value	$ 0	$ 265,000
Total Investments, Percentage of Net Assets	0.00%	1.43%
Warrants One | Healthcare
Total Investments, Cost	$ 679	$ 679
Total Investments at Fair Value	$ 0	$ 0
Total Investments, Percentage of Net Assets	0.00%	0.00%
Represents the member information pertaining to other equity securities. | Financial
Total Investments, Cost	$ 10,000	$ 10,000
Total Investments at Fair Value	$ 0	$ 10,000
Total Investments, Percentage of Net Assets	0.00%	0.05%
Total Investment [Member]
Total Investments, Cost	$ 14,460,679	$ 18,577,481
Total Investments at Fair Value	$ 12,929,985	$ 17,284,676
Total Investments, Percentage of Net Assets	66.70%	92.97%
Total Cash [Member]
Total Investments, Cost	$ 5,424,611	$ 376,024
Total Investments at Fair Value	$ 5,424,611	$ 376,024
Total Investments, Percentage of Net Assets	27.98%	2.02%
Total Investments and Cash [Member]
Total Investments, Cost	$ 19,885,290	$ 18,953,505
Total Investments at Fair Value	$ 18,354,596	$ 17,660,700
Total Investments, Percentage of Net Assets	94.68%	94.99%
Represents the member information pertaining to 12% secured loans | Represents the member information pertaining to short term banking loans. | Financial
Total Investments, Cost	$ 500,000	$ 500,000
Total Investments at Fair Value	$ 0	$ 0
Total Investments, Percentage of Net Assets	0.00%	0.00%
Represents the member information pertaining to 15% convertible note | Information Technology
Total Investments, Cost		$ 212,500
Total Investments at Fair Value		$ 213,501
Total Investments, Percentage of Net Assets		1.15%
Represents the member information pertaining to 15% secured loans | Represents the member information pertaining to short term banking loans. | Consumer
Total Investments, Cost	$ 10,000,000	$ 10,000,000
Total Investments at Fair Value	$ 10,024,533	$ 10,069,354
Total Investments, Percentage of Net Assets	51.71%	54.16%
Real Estate | Represents the member information pertaining to 18% secured loans | Represents the member information pertaining to short term banking loans.
Total Investments, Cost		$ 745,000
Total Investments at Fair Value		$ 760,119
Total Investments, Percentage of Net Assets		4.09%
Real Estate | Represents the member information pertaining to 18% secured loans | Represents the member information pertaining to short term banking loans. | Tailwind LLC Secured Loans [Member]
Total Investments, Cost		$ 1,000,000
Total Investments at Fair Value		$ 1,001,954
Total Investments, Percentage of Net Assets		5.39%
Real Estate | Represents the member information pertaining to 12% secured loans | Represents the member information pertaining to short term banking loans. | Alatus Development Corp [Member]
Total Investments, Cost	$ 2,000,000	$ 2,000,000
Total Investments at Fair Value	$ 2,001,959	$ 2,010,374
Total Investments, Percentage of Net Assets	10.33%	10.81%

XML

ORGANIZATION

6 Months Ended

Jun. 30, 2024

ORGANIZATION

ORGANIZATION

NOTE 1 – ORGANIZATION

In this report, we generally refer to Mill City Ventures III, Ltd. in the first person “we.” On occasion, we refer to our company in the third person as “Mill City Ventures” or the “Company.”  The Company follows accounting and reporting guidance in Accounting Standards (“ASC”) 946.

We were incorporated in Minnesota in January 2006. Until December 13, 2012, we were a development-stage company that focused on promoting and placing a proprietary poker game online and into casinos and entertainment facilities nationwide. In 2013, we elected to become a business development company (“BDC”) under the Investment Company Act of 1940 (the “1940 Act”). We operated as a BDC until we withdrew our BDC election at the end of December 2019. Since that time, we have 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 short-term loans, primarily to small businesses, both private and public, and high-net-worth individuals. To avoid regulation under the 1940 Act, we generally seek to structure our investments so they do not constitute “securities” for purposes of federal securities laws, and 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 1940 Act.

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SIGNIFICANT ACCOUNTING POLICIES

6 Months Ended

Jun. 30, 2024

SIGNIFICANT ACCOUNTING POLICIES

SIGNIFICANT ACCOUNTING POLICIES

NOTE 2 – SIGNIFICANT ACCOUNTING POLICIES

Use of estimates: The preparation of financial statements in conformity with GAAP requires management and our independent board members 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. For more information, see the “Valuation of portfolio investments” caption below, and “Note 4 – Fair Value of Financial Instruments” below. The Company presents its financial statements as an investment company following accounting and reporting guidance in ASC 946.

Cash and cash equivalents:  Cash represents cash on hand and demand deposits held at financial institutions. Cash equivalents include short-term, highly liquid investments of sufficient credit quality that are readily convertible to known amounts of cash and have original maturities of three months or less. Cash equivalents are carried at cost, plus accrued interest, which approximates fair value. Cash equivalents are held to meet short-term liquidity requirements, rather than for investment purposes. Cash and cash equivalents are held at major financial institutions and are subject to credit risk to the extent those balances exceed applicable Federal Deposit Insurance Corporation (FDIC) or Securities Investor Protection Corporation (SIPC) limitations.

Valuation of portfolio investments:  We carry our investments in accordance with ASC Topic 820, Fair Value Measurements and Disclosures (“ASC 820”), issued by the Financial Accounting Standards Board (“FASB”), which defines fair value, establishes a framework for measuring fair value, and requires disclosures about fair value measurements. Fair value is generally based on quoted market prices provided by independent pricing services, broker or dealer quotations, or alternative price sources. In the absence of quoted market prices, broker or dealer quotations, or alternative price sources, investments are measured at fair value as determined by our Board of Directors, 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.

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 discounted cash flows approach, at their weighted-average yield to maturity.

The estimated fair value of our Level 3 investment assets is determined on a quarterly basis by our Board of Directors. In general, we value our Level 3 equity investments at cost unless circumstances warrant a different approach.  Examples of these circumstances includes a situation in which a portfolio company has engaged in a subsequent financing of more than a de minimis size involving sophisticated investors (in which case we may use the price involved in that financing as a determinative input absent other known factors), or when a 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 facts and circumstances that may serve as an 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 and procedures indicate that value will generally be the difference between the 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 instruments with a residual maturity less than or equal to 60 days, we will generally value such instruments based on a discounted cash flows approach, considering the straight-line amortized face value of the debt unless justification for impairment exists. For level 3 non-banking loans with a maturity in excess of 60 days, fair value is determined based on the initial purchase price and adjusted as necessary to reflect any changes in the financial strength of the creditor and changes in interest rates in the high-yield credit markets.

On a quarterly basis, our management provides members of our Board of Directors with recommendations, if any, to change any existing valuations of our portfolio investments or hierarchy levels for purposes of determining the fair value of such investments based upon the foregoing.  In such a case, the Board of Directors would then discuss these materials and, consistent with the policies and approaches outlined above, makes final determinations respecting the valuation and hierarchy levels of our portfolio investments.

We made no changes to our valuation policy and procedures during the reporting period.

Income taxes: 

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

We record net deferred tax assets to the extent we believe these assets will more likely than not be realized. In making such determination, we consider all available evidence, including future reversals of existing taxable temporary differences, projected future taxable income, tax planning strategies and recent financial operations. In the event we were to determine we would be able to realize our deferred income tax assets in the future in excess of their recorded amount, we would make an adjustment to the valuation allowance, which would reduce the provision for income taxes.

We file income tax returns in the U.S. Federal jurisdiction and various state jurisdictions.  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, 2020 through 2023, which are the tax years that remain subject to examination by major tax jurisdictions as of June 30, 2024. 

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.

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 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 is 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.

Stock-based compensation:  The Company’s stock-based compensation consists of stock options issued to certain employees and directors of the Company. The Company recognizes compensation expense based on an estimated grant date fair value using the Black Sholes option-pricing method. If the factors change and different assumptions are used, the Company’s stock-based compensation expense could be materially different in the future. The Company recognizes stock-based compensation expense for these options on a straight-line basis over the requisite service period. The Company has elected to account for forfeitures as they occur.

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.

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INVESTMENTS

6 Months Ended

Jun. 30, 2024

INVESTMENTS

INVESTMENTS

NOTE 3 – INVESTMENTS

The following table shows the composition of our investment portfolio by major class, at amortized cost and fair value, as of June 30, 2024 (together with the corresponding percentage of the fair value of our total portfolio of investments):

	As of June 30, 2024
	Investments at Amortized Cost		Percentage of Amortized Cost			Investments at Fair Value		Percentage of Fair Value
Short-term Non-banking Loans	$	13,400,000		92.7	%	$	12,929,985		100.0	%
Preferred Stock		1,050,000		7.2			—		—
Warrants		679		—			—		—
Other Equity		10,000		0.1			—		—
Total	$	14,460,679		100.0	%	$	12,929,985		100.0	%

The following table shows the composition of our investment portfolio by major class, at amortized cost and fair value, as of December 31, 2023 (together with the corresponding percentage of the fair value of our total investments):

	As of December 31, 2023
	Investments at Amortized Cost		Percentage of Amortized Cost			Investments at Fair Value		Percentage of Fair Value
Short-term Non-banking Loans	$	17,357,500		93.4	%	$	16,961,766		98.1	%
Preferred Stock		1,050,000		5.6			265,000		1.5
Common Stock		159,302		0.9			47,910		0.3
Warrants		679		—			—		—
Other Equity		10,000		0.1			10,000		0.1
Total	$	18,577,481		100.0	%	$	17,284,676		100.0	%

The following table shows the composition of our investment portfolio by industry grouping, based on fair value as of June 30, 2024:

	As of June 30, 2024
	Investments at Fair Value		Percentage of Fair Value
Business Services	$	10,024,533		77.5	%
Consumer		903,493		7.0
Real Estate		2,001,959		15.5
Total	$	12,929,985		100.0	%

The following table shows the composition of our investment portfolio by industry grouping, based on fair value as of December 31, 2023:

	As of December 31, 2023
	Investments at Fair Value		Percentage of Fair Value
Business Services	$	10,069,354		58.3	%
Consumer		3,219,374		18.6
Financial		10,000		0.1
Information Technology		213,501		1.2
Real Estate		3,772,447		21.8
Total	$	17,284,676		100.0	%

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FAIR VALUE OF FINANCIAL INSTRUMENTS

6 Months Ended

Jun. 30, 2024

FAIR VALUE OF FINANCIAL INSTRUMENTS

FAIR VALUE OF FINANCIAL INSTRUMENTS

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 investments portfolio as of June 30, 2024 may differ materially from values that would have been used had a readily available market for the investments existed. 

The following table presents the fair value measurements of our portfolio investments by major class, as of June 30, 2024, according to the fair value hierarchy:

	As of June 30, 2024
	Level 1		Level 2		Level 3		Total
Short-term Non-banking Loans	$	—	$	—	$	12,929,985	$	12,929,985
Total	$	—	$	—	$	12,929,985	$	12,929,985

The following table presents the fair value measurements of our investment portfolio by major class, as of December 31, 2023, according to the fair value hierarchy:

	As of December 31, 2023
	Level 1		Level 2		Level 3		Total
Short-term Non-banking Loans	$	—	$	—	$	16,961,766	$	16,961,766
Preferred Stock		—		—		265,000		265,000
Common Stock		47,910		—		—		47,910
Other Equity		—		—		10,000		10,000
Total	$	47,910	$	—	$	17,236,766	$	17,284,676

The following table presents a reconciliation of the beginning and ending fair value balances for our Level 3 portfolio investment assets for the six months ended June 30, 2024:

	For the six months ended June 30, 2024
	ST Non-banking Loans			Preferred Stock			Other Equity
Balance as of January 1, 2024	$	16,961,766		$	265,000		$	10,000
Net change in unrealized appreciation		(74,281	)		(265,000	)		(10,000	)
Purchases and other adjustments to cost		973,438			—			—
Sales and redemptions		(4,770,000	)		—
Transfers out of level 3		(160,938	)		—			—
Balance as of June 30, 2024	$	12,929,985		$	—		$	—

The net change in unrealized depreciation for the six months ended June 30, 2024 attributable to Level 3 portfolio investments still held as of June 30, 2024 is $324,743.

The following table lists our Level 3 investments held as of June 30, 2024 and the unobservable inputs used to determine their valuation:

Security Type		6/30/24 FMV	Valuation Technique	Unobservable Inputs	Range
ST Non-banking Loans	$	12,929,985	discounted cash flow	determining private company interest rate based on changes in market rates of instruments with comparable creditworthiness	12-15%
	$	12,929,985

The following table presents a reconciliation of the beginning and ending fair value balances for our Level 3 portfolio investment assets for the year ended December 31, 2023:

	For the year ended December 31, 2023
	ST Non-banking Loans			Preferred Stock			Other Equity
Balance as of January 1, 2023	$	15,285,932		$	1,200,000		$	222,500
Net change in unrealized depreciation		(195,041	)		(935,000	)		600,000
Purchases and other adjustments to cost		12,900,500			—			—
Realized gain (loss)		—			—			(600,000	)
Transfers between level 3 and level 1		(11,029,625	)		—			(212,500	)
Balance as of December 31, 2023	$	16,961,766		$	265,000		$	10,000

The net change in unrealized depreciation for the year ended December 31, 2023 attributable to Level 3 portfolio investments still held as of December 31, 2023 was $1,180,734.

The following table lists our Level 3 investments held as of December 31, 2023 and the unobservable inputs used to determine their valuation:

Security Type	12/31/23 FMV		Valuation Technique	Unobservable Inputs	Range
ST Non-banking Loans	$	16,961,766	discounted cash flow	determining private company interest rate based on changes in market rates of instruments with comparable creditworthiness	12-23%
Other Equity		10,000	last secured funding known by company
Preferred Stock		265,000	last funding secured by company	economic changes since last funding
	$	17,236,766

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RELATEDPARTY TRANSACTIONS

6 Months Ended

Jun. 30, 2024

RELATEDPARTY TRANSACTIONS

RELATED-PARTY TRANSACTIONS

NOTE 5 – RELATED-PARTY TRANSACTIONS

We maintain a conflicts of interest and related-party transactions policy requiring (i) certain disclosures be made to our Board of Directors in relation to situations where officers, directors, significant shareholders, or any of their affiliates may enter into transactions with us, and (ii) certain disclosures appear in the reports we prepare and file with the SEC.  In this regard, during the period covered by this report we entered into, or remained a party to, the following related-party transactions:

● We hold a promissory note with two shareholders in the principal amount of $250,000, through January 1, 2025. 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 common stock. The pledged shares are held in physical custody for us by our custodial agent.

● As disclosed in Note 7, a component of our now terminated loan agreement is with a director of our Company.

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INCOME TAXES

6 Months Ended

Jun. 30, 2024

INCOME TAXES

INCOME TAXES

NOTE 6 – INCOME TAXES

We are a C-Corporation for tax purposes and have booked an income tax provision for the periods described below. Our tax provision or benefit from income taxes for interim periods is determined using an estimate of our annual effective tax rate.

As of June 30, 2024 and December 31, 2023, we have a deferred tax asset of $772,000 and $757,000, respectively. As of June 30, 2024, our net deferred tax asset consists of foreign tax credit carryforwards, unrealized investment gain/loss, non-qualified stock option expenses, acquisition costs, depreciable assets, and right of use assets.  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.

As of June 30, 2024 and December 31, 2023 we had accrued income taxes of $177,600 and prepaid income taxes $131,500, respectively. We recorded an increase of income taxes of $300,000 (26 percent effective tax rate) and $25,700 (26 percent effective tax rate) during the six months ended June 30, 2024 and June 30, 2023, respectively.

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LINE OF CREDIT

6 Months Ended

Jun. 30, 2024

LINE OF CREDIT

LINE OF CREDIT

NOTE 7 – LINE OF CREDIT

The Company had a Loan and Security Agreement (the “Loan Agreement”) with a third party and director (collectively, the Lenders). 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, of which our director was required to fund one half of the amount. Amounts drawn under the Loan Agreement accrue interest at the per annum rate of 8%, through January 3, 2027, subject to early termination provisions at the Lender’s right at any time after January 3, 2023. Our obligations under the Loan Agreement were secured by a grant of a collateral security interest in substantially all of our assets.

At December 31, 2023, the balance outstanding on the line was $0. In January 2024, we terminated the Loan Agreement. Any applicable fees related to early termination of the Agreement were waived.

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STOCKBASED COMPENSATION

6 Months Ended

Jun. 30, 2024

STOCKBASED COMPENSATION

STOCK-BASED COMPENSATION

NOTE 8 – STOCK-BASED COMPENSATION

The Company’s 2022 Stock Incentive Plan authorized the issuance of incentives relating to 900,000 shares of common stock. As of June 30, 2024, incentives relating to the issuance of 870,000 shares have been issued under the Plan, leaving 30,000 shares available for issuance.

The following table summarizes the activity for all stock options outstanding for the six months ended June 30, 2024:

	Shares		Weighted Average Exercise Price
Options outstanding at beginning of year		670,000	$	2.11
Granted		—		—
Exercised		—		—
Forfeited		—		—
Balance at June 30, 2024		670,000	$	2.11
Options exercisable at June 30:		670,000	$	2.11

The following table summarizes additional information about stock options outstanding and exercisable at June 30, 2024:

Options Outstanding								Options Exercisable
Options Outstanding		Weighted Average Remaining Contractual Life		Weighted Average Exercise Price		Aggregate Intrinsic Value		Options Exercisable		Weighted Average Exercise Price		Aggregate Intrinsic Value
	670,000		8.42	$	2.11	$	586,000		670,000	$	2.11	$	586,000

The Company recognized stock-based compensation expense for stock options of $0 and $1,460,209 for the six months ended June 30, 2024 and 2023, respectively.

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SHAREHOLDERS EQUITY

6 Months Ended

Jun. 30, 2024

SHAREHOLDERS EQUITY

SHAREHOLDERS' EQUITY

NOTE 9 – SHAREHOLDERS’ EQUITY

At June 30, 2024, we had 6,385,255 shares of common stock issued and outstanding.          

In connection with the 2022 public offering, the Company issued a five-year warrant to the underwriter. The warrant allows the underwriter to purchase up to 75,000 common shares at $5.00 per share. This warrant is exercisable after 180 days, and expires on August 8, 2027. This warrant is equity-classified and the fair value was $201,173 on the offering date.

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PER SHARE INFORMATION

6 Months Ended

Jun. 30, 2024

PER SHARE INFORMATION

PER-SHARE INFORMATION

NOTE 10 – PER-SHARE INFORMATION

Basic net gain (loss) per common share is computed by dividing net increase in net assets resulting from operations by the weighted-average number of common shares outstanding during the period. Diluted net gain (loss) per common share is computed by dividing net increase in net assets resulting from operations by the weighted-average number of dilutive common shares outstanding during the period calculated using the Treasury Stock method. The Treasury Stock method assumes that the proceeds received upon exercise of stock options are used to repurchase stock at the average market price during the period, thereby increasing the number of shares to be added in computing diluted earnings per share. 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 June 30,
	2024				2023
	Basic		Diluted		Basic		Diluted
Numerator:  Net increase in net assets resulting from operations	$	412,936	$	412,936	$	70,721	$	70,721
Denominator:  Weighted-average number of common shares outstanding		6,385,255		6,501,823		6,185,255		6,185,255
Basic and diluted net gain (loss) per common share	$	0.06	$	0.06	$	0.01	$	0.01

	For the Six Months Ended June 30,
	2024				2023
	Basic		Diluted		Basic			Diluted
Numerator:  Net increase (decrease) in net assets resulting from operations	$	795,039	$	795,039	$	(647,323	)	$	(647,323	)
Denominator:  Weighted-average number of common shares outstanding		6,385,255		6,501,823		6,185,255			6,185,255
Basic and diluted net gain (loss) per common share	$	0.12	$	0.12	$	(0.10	)	$	(0.10	)

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FINANCIAL HIGHLIGHTS

6 Months Ended

Jun. 30, 2024

FINANCIAL HIGHLIGHTS

FINANCIAL HIGHLIGHTS

NOTE 11 – FINANCIAL HIGHLIGHTS

The following is a schedule of financial highlights for the six months ended June 30, 2024 through 2020:

	Six Months Ended June 30,
	2024			2023			2022			2021			2020
Per Share Data (1)
Net asset value at beginning of period	$	2.91			2.89			1.24			1.08			0.91
Net investment income (loss)		0.15			(0.11	)		0.11			0.04			0.01
Net realized and unrealized gains (losses)		0.02			0.01			0.01			0.28			0.02
Provision for income taxes		(0.04	)		(0.01	)		(0.04	)		(0.09	)		0.00
Issuance of stock options		0.00			0.24			0.01			0.00			0.00
Repurchase of common stock		0.00			0.00			0.00			0.00			0.02
Net asset value at end of period	$	3.04			3.02			1.33			1.31			0.96
Ratio / Supplemental Data
Per share market value of investments at end of period	$	2.02			2.67			1.41			1.22			0.65
Shares outstanding at end of period		6,385,255			6,185,255			4,824,628			4,795,739			4,754,104
Average weighted shares outstanding for the period		6,385,255			6,185,255			4,808,508			4,794,744			4,877,654
Net assets at end of period	$	19,385,302			—			14,426,607			14,188,588			10,221,718
Average net assets (2)	$	18,982,643			18,389,910			13,888,938			13,073,718			10,025,622
Total investment return (loss)		4.47	%		(3.81	)%		6.45	%		21.30	%		3.30	%
Portfolio turnover rate (3)		5.13	%		48.40	%		65.55	%		75.65	%		11.90	%
Ratio of operating expenses to average net assets (3)		(7.90	)%		(25.16	)%		(14.63	)%		(11.72	)%		(9.41	)%
Ratio of net investment income (loss) to average net assets (3)		10.46	%		(7.43	)%		18.01	%		6.88	%		3.02	%
Ratio of realized gains (losses) to average net assets (3)		3.98	%		(6.03	)%		1.94	%		61.92	%		4.06	%

(1)     Per-share data was derived using the ending number of shares outstanding for the period.

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

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SUBSEQUENT EVENTS

6 Months Ended

Jun. 30, 2024

SUBSEQUENT EVENTS

SUBSEQUENT EVENTS

NOTE 12 – Subsequent Events

In July 2024, the Company purchased, for $1.15 million, a 50% participation interest from Great North Capital Corp. ("Great North") in a secured loan that Great North had made to an unaffiliated borrower named Coventry Holdings of Minnesota, LLC, involved in the development, construction and operation of senior-living communities.  Great North is a Minnesota corporation that is wholly owned by our Chief Executive Officer, Douglas Polinsky.  The transaction was approved by the full Board of Directors of the Company, with Mr. Polinsky abstaining, after disclosure by Mr. Polinsky of his relationship and interest in the transaction.

On August 13, 2024, the company entered into a mediated settlement agreement with Innovative Computer Professionals, Inc., pursuant to which the company agreed to accept $400,000 in full satisfaction of an outstanding debt principal, accrued but unpaid interest and related collection costs.  The company had earlier written off the full amount of this investment position.  The settlement agreement included a confession of judgment from the debtor, in the full amount of $809,181, if the debtor fails to pay the settlement payment on or before August 23, 2024.

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SIGNIFICANT ACCOUNTING POLICIES (Policies)

6 Months Ended

Jun. 30, 2024

SIGNIFICANT ACCOUNTING POLICIES

Use of estimates

Use of estimates: The preparation of financial statements in conformity with GAAP requires management and our independent board members 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. For more information, see the “Valuation of portfolio investments” caption below, and “Note 4 – Fair Value of Financial Instruments” below. The Company presents its financial statements as an investment company following accounting and reporting guidance in ASC 946.

Cash and cash equivalents

Cash and cash equivalents:  Cash represents cash on hand and demand deposits held at financial institutions. Cash equivalents include short-term, highly liquid investments of sufficient credit quality that are readily convertible to known amounts of cash and have original maturities of three months or less. Cash equivalents are carried at cost, plus accrued interest, which approximates fair value. Cash equivalents are held to meet short-term liquidity requirements, rather than for investment purposes. Cash and cash equivalents are held at major financial institutions and are subject to credit risk to the extent those balances exceed applicable Federal Deposit Insurance Corporation (FDIC) or Securities Investor Protection Corporation (SIPC) limitations.

Valuation of portfolio investments

Valuation of portfolio investments:  We carry our investments in accordance with ASC Topic 820, Fair Value Measurements and Disclosures (“ASC 820”), issued by the Financial Accounting Standards Board (“FASB”), which defines fair value, establishes a framework for measuring fair value, and requires disclosures about fair value measurements. Fair value is generally based on quoted market prices provided by independent pricing services, broker or dealer quotations, or alternative price sources. In the absence of quoted market prices, broker or dealer quotations, or alternative price sources, investments are measured at fair value as determined by our Board of Directors, 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.

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

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 discounted cash flows approach, at their weighted-average yield to maturity.

The estimated fair value of our Level 3 investment assets is determined on a quarterly basis by our Board of Directors. In general, we value our Level 3 equity investments at cost unless circumstances warrant a different approach.  Examples of these circumstances includes a situation in which a portfolio company has engaged in a subsequent financing of more than a de minimis size involving sophisticated investors (in which case we may use the price involved in that financing as a determinative input absent other known factors), or when a 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 facts and circumstances that may serve as an 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 and procedures indicate that value will generally be the difference between the 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 instruments with a residual maturity less than or equal to 60 days, we will generally value such instruments based on a discounted cash flows approach, considering the straight-line amortized face value of the debt unless justification for impairment exists. For level 3 non-banking loans with a maturity in excess of 60 days, fair value is determined based on the initial purchase price and adjusted as necessary to reflect any changes in the financial strength of the creditor and changes in interest rates in the high-yield credit markets.

On a quarterly basis, our management provides members of our Board of Directors with recommendations, if any, to change any existing valuations of our portfolio investments or hierarchy levels for purposes of determining the fair value of such investments based upon the foregoing.  In such a case, the Board of Directors would then discuss these materials and, consistent with the policies and approaches outlined above, makes final determinations respecting the valuation and hierarchy levels of our portfolio investments.

We made no changes to our valuation policy and procedures during the reporting period.

Income taxes

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

We record net deferred tax assets to the extent we believe these assets will more likely than not be realized. In making such determination, we consider all available evidence, including future reversals of existing taxable temporary differences, projected future taxable income, tax planning strategies and recent financial operations. In the event we were to determine we would be able to realize our deferred income tax assets in the future in excess of their recorded amount, we would make an adjustment to the valuation allowance, which would reduce the provision for income taxes.

We file income tax returns in the U.S. Federal jurisdiction and various state jurisdictions.  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, 2020 through 2023, which are the tax years that remain subject to examination by major tax jurisdictions as of June 30, 2024. 

Revenue recognition

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.

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 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 is placed on non-accrual status.

Allocation of net gains and losses

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.

Stock-based compensation

Stock-based compensation:  The Company’s stock-based compensation consists of stock options issued to certain employees and directors of the Company. The Company recognizes compensation expense based on an estimated grant date fair value using the Black Sholes option-pricing method. If the factors change and different assumptions are used, the Company’s stock-based compensation expense could be materially different in the future. The Company recognizes stock-based compensation expense for these options on a straight-line basis over the requisite service period. The Company has elected to account for forfeitures as they occur.

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.

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INVESTMENTS (Tables)

6 Months Ended

Jun. 30, 2024

INVESTMENTS

Schedule of investments by major class, at amortized cost and fair value

	As of June 30, 2024
	Investments at Amortized Cost		Percentage of Amortized Cost			Investments at Fair Value		Percentage of Fair Value
Short-term Non-banking Loans	$	13,400,000		92.7	%	$	12,929,985		100.0	%
Preferred Stock		1,050,000		7.2			—		—
Warrants		679		—			—		—
Other Equity		10,000		0.1			—		—
Total	$	14,460,679		100.0	%	$	12,929,985		100.0	%

	As of December 31, 2023
	Investments at Amortized Cost		Percentage of Amortized Cost			Investments at Fair Value		Percentage of Fair Value
Short-term Non-banking Loans	$	17,357,500		93.4	%	$	16,961,766		98.1	%
Preferred Stock		1,050,000		5.6			265,000		1.5
Common Stock		159,302		0.9			47,910		0.3
Warrants		679		—			—		—
Other Equity		10,000		0.1			10,000		0.1
Total	$	18,577,481		100.0	%	$	17,284,676		100.0	%

Schedule of investments by industry grouping, based on fair value

	As of June 30, 2024
	Investments at Fair Value		Percentage of Fair Value
Business Services	$	10,024,533		77.5	%
Consumer		903,493		7.0
Real Estate		2,001,959		15.5
Total	$	12,929,985		100.0	%

	As of December 31, 2023
	Investments at Fair Value		Percentage of Fair Value
Business Services	$	10,069,354		58.3	%
Consumer		3,219,374		18.6
Financial		10,000		0.1
Information Technology		213,501		1.2
Real Estate		3,772,447		21.8
Total	$	17,284,676		100.0	%

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FAIR VALUE OF FINANCIAL INSTRUMENTS (Tables)

6 Months Ended

Jun. 30, 2024

FAIR VALUE OF FINANCIAL INSTRUMENTS

Schedule of fair value measurements of our investments by major class according to the fair value hierarchy

	As of June 30, 2024
	Level 1		Level 2		Level 3		Total
Short-term Non-banking Loans	$	—	$	—	$	12,929,985	$	12,929,985
Total	$	—	$	—	$	12,929,985	$	12,929,985

	As of December 31, 2023
	Level 1		Level 2		Level 3		Total
Short-term Non-banking Loans	$	—	$	—	$	16,961,766	$	16,961,766
Preferred Stock		—		—		265,000		265,000
Common Stock		47,910		—		—		47,910
Other Equity		—		—		10,000		10,000
Total	$	47,910	$	—	$	17,236,766	$	17,284,676

Schedule of reconciliation of the beginning and ending fair value balances for our Level 3 investment assets

	For the six months ended June 30, 2024
	ST Non-banking Loans			Preferred Stock			Other Equity
Balance as of January 1, 2024	$	16,961,766		$	265,000		$	10,000
Net change in unrealized appreciation		(74,281	)		(265,000	)		(10,000	)
Purchases and other adjustments to cost		973,438			—			—
Sales and redemptions		(4,770,000	)		—
Transfers out of level 3		(160,938	)		—			—
Balance as of June 30, 2024	$	12,929,985		$	—		$	—

	For the year ended December 31, 2023
	ST Non-banking Loans			Preferred Stock			Other Equity
Balance as of January 1, 2023	$	15,285,932		$	1,200,000		$	222,500
Net change in unrealized depreciation		(195,041	)		(935,000	)		600,000
Purchases and other adjustments to cost		12,900,500			—			—
Realized gain (loss)		—			—			(600,000	)
Transfers between level 3 and level 1		(11,029,625	)		—			(212,500	)
Balance as of December 31, 2023	$	16,961,766		$	265,000		$	10,000

Schedule of Level 3 investments held and the unobservable inputs used to determine their valuation

Security Type		6/30/24 FMV	Valuation Technique	Unobservable Inputs	Range
ST Non-banking Loans	$	12,929,985	discounted cash flow	determining private company interest rate based on changes in market rates of instruments with comparable creditworthiness	12-15%
	$	12,929,985

Security Type	12/31/23 FMV		Valuation Technique	Unobservable Inputs	Range
ST Non-banking Loans	$	16,961,766	discounted cash flow	determining private company interest rate based on changes in market rates of instruments with comparable creditworthiness	12-23%
Other Equity		10,000	last secured funding known by company
Preferred Stock		265,000	last funding secured by company	economic changes since last funding
	$	17,236,766

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STOCKBASED COMPENSATION (Tables)

6 Months Ended

Jun. 30, 2024

STOCKBASED COMPENSATION

Schedule of stock options activity

	Shares		Weighted Average Exercise Price
Options outstanding at beginning of year		670,000	$	2.11
Granted		—		—
Exercised		—		—
Forfeited		—		—
Balance at June 30, 2024		670,000	$	2.11
Options exercisable at June 30:		670,000	$	2.11

Schedule of stock options outstanding and exercisable

Options Outstanding								Options Exercisable
Options Outstanding		Weighted Average Remaining Contractual Life		Weighted Average Exercise Price		Aggregate Intrinsic Value		Options Exercisable		Weighted Average Exercise Price		Aggregate Intrinsic Value
	670,000		8.42	$	2.11	$	586,000		670,000	$	2.11	$	586,000

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PER SHARE INFORMATION (Tables)

6 Months Ended

Jun. 30, 2024

PER SHARE INFORMATION

Summary of reconciliation of the numerator and denominator used in the calculation of basic and diluted net gain (loss) per common share

	For the Three Months Ended June 30,
	2024				2023
	Basic		Diluted		Basic		Diluted
Numerator:  Net increase in net assets resulting from operations	$	412,936	$	412,936	$	70,721	$	70,721
Denominator:  Weighted-average number of common shares outstanding		6,385,255		6,501,823		6,185,255		6,185,255
Basic and diluted net gain (loss) per common share	$	0.06	$	0.06	$	0.01	$	0.01

	For the Six Months Ended June 30,
	2024				2023
	Basic		Diluted		Basic			Diluted
Numerator:  Net increase (decrease) in net assets resulting from operations	$	795,039	$	795,039	$	(647,323	)	$	(647,323	)
Denominator:  Weighted-average number of common shares outstanding		6,385,255		6,501,823		6,185,255			6,185,255
Basic and diluted net gain (loss) per common share	$	0.12	$	0.12	$	(0.10	)	$	(0.10	)

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FINANCIAL HIGHLIGHTS (Tables)

6 Months Ended

Jun. 30, 2024

FINANCIAL HIGHLIGHTS

Schedule of financial highlights

	Six Months Ended June 30,
	2024			2023			2022			2021			2020
Per Share Data (1)
Net asset value at beginning of period	$	2.91			2.89			1.24			1.08			0.91
Net investment income (loss)		0.15			(0.11	)		0.11			0.04			0.01
Net realized and unrealized gains (losses)		0.02			0.01			0.01			0.28			0.02
Provision for income taxes		(0.04	)		(0.01	)		(0.04	)		(0.09	)		0.00
Issuance of stock options		0.00			0.24			0.01			0.00			0.00
Repurchase of common stock		0.00			0.00			0.00			0.00			0.02
Net asset value at end of period	$	3.04			3.02			1.33			1.31			0.96
Ratio / Supplemental Data
Per share market value of investments at end of period	$	2.02			2.67			1.41			1.22			0.65
Shares outstanding at end of period		6,385,255			6,185,255			4,824,628			4,795,739			4,754,104
Average weighted shares outstanding for the period		6,385,255			6,185,255			4,808,508			4,794,744			4,877,654
Net assets at end of period	$	19,385,302			—			14,426,607			14,188,588			10,221,718
Average net assets (2)	$	18,982,643			18,389,910			13,888,938			13,073,718			10,025,622
Total investment return (loss)		4.47	%		(3.81	)%		6.45	%		21.30	%		3.30	%
Portfolio turnover rate (3)		5.13	%		48.40	%		65.55	%		75.65	%		11.90	%
Ratio of operating expenses to average net assets (3)		(7.90	)%		(25.16	)%		(14.63	)%		(11.72	)%		(9.41	)%
Ratio of net investment income (loss) to average net assets (3)		10.46	%		(7.43	)%		18.01	%		6.88	%		3.02	%
Ratio of realized gains (losses) to average net assets (3)		3.98	%		(6.03	)%		1.94	%		61.92	%		4.06	%

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ORGANIZATION (Details Narrative)	6 Months Ended
	Jun. 30, 2024
ORGANIZATION
Maximuum percentage total assets of investment securities	40.00%

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INVESTMENTS (Details) - USD ($)	6 Months Ended	12 Months Ended
	Jun. 30, 2024	Dec. 31, 2023
Investments at amortized cost	$ 14,460,679	$ 18,577,481
Percentage of amortized cost	100.00%	100.00%
Investment at fair value	$ 12,929,985	$ 17,284,676
Percentage of fair value	100.00%	100.00%
Preferreds Stock [Member]
Investments at amortized cost	$ 1,050,000	$ 1,050,000
Percentage of amortized cost	7.20%	5.60%
Investment at fair value	$ 0	$ 265,000
Percentage of fair value	0.00%	1.50%
Warrants [Member]
Investments at amortized cost	$ 679	$ 679
Percentage of amortized cost	0.00%	0.00%
Investment at fair value	$ 0	$ 0
Percentage of fair value	0.00%	0.00%
Other Equity [Member]
Investments at amortized cost	$ 10,000	$ 10,000
Percentage of amortized cost	0.10%	0.10%
Investment at fair value	$ 0	$ 10,000
Percentage of fair value	0.00%	0.10%
Common Stocks [Member]
Investments at amortized cost		$ 159,302
Percentage of amortized cost		0.90%
Investment at fair value		$ 47,910
Percentage of fair value		0.30%
Short Term Banking Loans [Member]
Investments at amortized cost	$ 13,400,000	$ 17,357,500
Percentage of amortized cost	92.70%	93.40%
Investment at fair value	$ 12,929,985	$ 16,961,766
Percentage of fair value	100.00%	98.10%

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INVESTMENTS (Details 1) - USD ($)	6 Months Ended	12 Months Ended
	Jun. 30, 2024	Dec. 31, 2023
Percentage of fair value	100.00%	100.00%
Investment at fair value	$ 12,929,985	$ 17,284,676
Business Services
Percentage of fair value	77.50%	58.30%
Investment at fair value	$ 10,024,533	$ 10,069,354
Consumer
Percentage of fair value	7.00%	18.60%
Investment at fair value	$ 903,493	$ 3,219,374
Real Estate
Percentage of fair value	15.50%	21.80%
Investment at fair value	$ 2,001,959	$ 3,772,447
Financial
Percentage of fair value		0.10%
Investment at fair value		$ 10,000
Information Technology
Percentage of fair value		1.20%
Investment at fair value		$ 213,501

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FAIR VALUE OF FINANCIAL INSTRUMENTS (Details) - USD ($)	Jun. 30, 2024	Dec. 31, 2023
Short-term Non-banking Loans	$ 12,929,985	$ 16,961,766
Preferred stock		265,000
Common Stock		47,910
Other Equity		10,000
Total	12,929,985	17,284,676
Level 1
Short-term Non-banking Loans	0	0
Preferred stock		0
Common Stock		47,910
Other Equity		0
Total	0	47,910
Level 2
Short-term Non-banking Loans	0	0
Preferred stock		0
Common Stock		0
Other Equity		0
Total	0	0
Level 3
Short-term Non-banking Loans	12,929,985	16,961,766
Preferred stock		265,000
Common Stock		0
Other Equity		10,000
Total	$ 12,929,985	$ 17,236,766

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FAIR VALUE OF FINANCIAL INSTRUMENTS (Details 1) - USD ($)	3 Months Ended		6 Months Ended		12 Months Ended
	Jun. 30, 2024	Jun. 30, 2023	Jun. 30, 2024	Jun. 30, 2023	Dec. 31, 2023
Realized gain (loss)	$ 346,745	$ 41,371	$ 371,240	$ (558,629)
Preferreds Stock [Member]
Balance at the beginning balance			265,000	1,200,000	$ 1,200,000
Net change in unrealized appreciation			(265,000)		(935,000)
Purchases and other adjustments to cost			0		0
Sales and redemptions			0
Transfers out of level 3 and level 1			0		0
Balance at the ending balance	0		0		265,000
Realized gain (loss)					0
Short Term Banking Loans [Member]
Balance at the beginning balance			16,961,766	15,285,932	15,285,932
Net change in unrealized appreciation			74,281		(195,041)
Purchases and other adjustments to cost			973,438		12,900,500
Sales and redemptions			(4,770,000)
Transfers out of level 3 and level 1			(160,938)		(11,029,625)
Balance at the ending balance	12,929,985		12,929,985		16,961,766
Realized gain (loss)					0
Other Equity Securities [Member]
Balance at the beginning balance			10,000	$ 222,500	222,500
Net change in unrealized appreciation			(10,000)		600,000
Purchases and other adjustments to cost			0		0
Transfers out of level 3 and level 1			0		(212,500)
Balance at the ending balance	$ 0		$ 0		10,000
Realized gain (loss)					$ (600,000)

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FAIR VALUE OF FINANCIAL INSTRUMENTS (Details 2)	Jun. 30, 2024 USD ($)	Dec. 31, 2023 USD ($)
Investment at fair value	$ 12,929,985	$ 17,284,676
Preferred Stock
Investment at fair value		265,000
Total Lable [Member]
Investment at fair value	12,929,985	17,236,766
Short Term Banking Loans [Member]
Investment at fair value	$ 12,929,985	$ 16,961,766
Short Term Banking Loans [Member] | Minimum | Level 3 | Interest rate
Interest rate	12	12
Short Term Banking Loans [Member] | Maximum | Level 3 | Interest rate
Interest rate	15	23
Other Equity Securities [Member]
Investment at fair value		$ 10,000

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FAIR VALUE OF FINANCIAL INSTRUMENTS (Details Narrative) - USD ($)	6 Months Ended	12 Months Ended
	Jun. 30, 2024	Dec. 31, 2023
Attributable To Level 3 Portfolio Investment [Member]
Net change in unrealized appreciation	$ 324,743	$ 1,180,734

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RELATED PARTY TRANSACTIONS (Details Narrative)	Jun. 30, 2024 USD ($) shares
RELATEDPARTY TRANSACTIONS
Interest payable monthly (as a percent)	10.00%
Debtors' pledge in number of common stock | shares	277,778
Principal amount of note obtained | $	$ 250,000

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INCOME TAXES (Details Narrative) - USD ($)	6 Months Ended	12 Months Ended
	Jun. 30, 2024	Dec. 31, 2023
INCOME TAXES
Deferred tax assets	$ 772,000	$ 757,000
Income taxes increase decrease	$ 300,000	$ 25,700
Effective Income Tax Rate Reconciliation, Percent	26.00%	26.00%
Prepaid income taxes	$ 177,600	$ 131,500

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LINE OF CREDIT (Details Narrative) - USD ($)	Dec. 31, 2023	Jan. 03, 2022
Revolving line of credit | This member stands for Eastman Investment, Inc. | Represents information pertaining to the loan and security agreement.
Interest rate at per annum		8.00%
Lyle A. Berman | Revolving line of credit
Line of credit facility maximum borrowing capacity		$ 5,000,000
Line of Credit [Member]
Balance outstanding line of credit	$ 0

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STOCKBASED COMPENSATION (Details)	6 Months Ended
	Jun. 30, 2024 $ / shares shares
STOCKBASED COMPENSATION
Shares, Options outstanding at beginning of year | shares	670,000
Shares, Options outstanding Granted | shares	0
Shares, Options outstanding Exercised | shares	0
Shares, Options outstanding Forfeited | shares	0
Shares, Options outstanding at end of year | shares	670,000
Shares, Options exercisable at end of year | shares	670,000
Weighted Average Exercise Price, Options outstanding at beginning of year | $ / shares	$ 2.11
Weighted Average Exercise Price, Granted | $ / shares	0
Weighted Average Exercise Price, Exercised | $ / shares	0
Weighted Average Exercise Price, Forfeited | $ / shares	0
Weighted Average Exercise Price, Options outstanding at end of year | $ / shares	2.11
Weighted Average Exercise Price, Options exercisable at end of year | $ / shares	$ 2.11

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STOCKBASED COMPENSATION (Details 1) - USD ($)	6 Months Ended
	Jun. 30, 2024	Dec. 31, 2023
Options Outstanding	670,000	670,000
Options Outstanding, Weighted Average Exercise Price	$ 2.11	$ 2.11
Options Exercisable	670,000
Options Exercisable, Weighted Average Exercise Price	$ 2.11
Options [Member]
Options Outstanding	670,000
Options Outstanding, Weighted Average Exercise Price	$ 2.11
Options Outstanding, Weighted Average Remaining Contractual Life	8 years 5 months 1 day
Options Outstanding, Aggregate Intrinsic Value	$ 586,000
Options Exercisable	670,000
Options Exercisable, Weighted Average Exercise Price	$ 2.11
Options Exercisable, Aggregate Intrinsic Value	$ 586,000

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STOCKBASED COMPENSATION (Details Narrative) - USD ($)	6 Months Ended
	Jun. 30, 2024	Jun. 30, 2023	Dec. 31, 2023
Stock-based compensation expense	$ 0	$ 1,460,209
Authorized shares of common stock	111,111,111		111,111,111
2022 Stock Incentive Plan [Member]
Authorized shares of common stock	900,000
Shares issued	870,000
Leaving shares available for issuance	30,000

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SHAREHOLDERS EQUITY (Details Narrative) - USD ($)	6 Months Ended
	Jun. 30, 2024	Dec. 31, 2023	Jun. 30, 2023	Jun. 30, 2022	Jun. 30, 2021	Jun. 30, 2020
SHAREHOLDERS EQUITY
Warrants Description	The warrant allows the underwriter to purchase up to 75,000 common shares at $5.00 per share. This warrant is exercisable after 180 days, and expires on August 8, 2027
Fair value of warrant	$ 201,173
Common stock, shares outstanding	6,385,255	6,385,255	6,185,255	4,824,628	4,795,739	4,754,104
Common stock, shares issued	6,385,255	6,385,255

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PERSHARE INFORMATION (Details) - USD ($)	3 Months Ended		6 Months Ended
	Jun. 30, 2024	Jun. 30, 2023	Jun. 30, 2024	Jun. 30, 2023	Jun. 30, 2022	Jun. 30, 2021	Jun. 30, 2020
Denominator: Weighted-average number of common shares outstanding, basic			6,385,255	6,185,255	4,808,508	4,794,744	4,877,654
Basic and diluted net gain per common share	$ 0.06	$ 0.01	$ 0.12	$ (0.10)
Basic [Member]
Numerator: Net increase in net assets resulting from operations	$ 412,936	$ 70,721	$ 795,039	$ (647,323)
Denominator: Weighted-average number of common shares outstanding, basic	6,385,255	6,185,255	6,385,255	6,185,255
Basic and diluted net gain per common share	$ 0.06	$ 0.01	$ 0.12	$ (0.10)
Diluted [Member]
Numerator: Net increase in net assets resulting from operations	$ 412,936	$ 70,721	$ 795,039	$ (647,323)
Denominator: Weighted-average number of common shares outstanding, diluted	6,501,823	6,185,255	6,501,823	6,185,255
Basic and diluted net gain per common share	$ 0.06	$ 0.01	$ 0.12	$ (0.10)

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FINANCIAL HIGHLIGHTS (Details) - USD ($)	6 Months Ended
	Jun. 30, 2024	Jun. 30, 2023	Jun. 30, 2022	Jun. 30, 2021	Jun. 30, 2020
Per Share Data
Net asset value at beginning of period	$ 2.91	$ 2.89	$ 1.24	$ 1.08	$ 0.91
Net investment income (loss)	0.15	(0.11)	0.11	0.04	0.01
Net realized and unrealized gains(losses)	0.02	0.01	0.01	0.28	0.02
Provision for income taxes	(0.04)	(0.01)	(0.04)	(0.09)	0.00
Issuance of stock options	0.00	0.24	0.01	0.00	0.00
Repurchase of common stock	0.00	0.00	0.00	0.00	0.02
Net asset value at end of period	3.04	3.02	1.33	1.31	0.96
Ratio / Supplemental Data
Per share market value of investments at end of period	$ 2.02	$ 2.67	$ 1.41	$ 1.22	$ 0.65
Shares outstanding at end of period	6,385,255	6,185,255	4,824,628	4,795,739	4,754,104
Average weighted shares outstanding for the period basic	6,385,255	6,185,255	4,808,508	4,794,744	4,877,654
Net assets at end of period	$ 19,385,302	$ 0	$ 14,426,607	$ 14,188,588	$ 10,221,718
Average net assets	$ 18,982,643	$ 18,389,910	$ 13,888,938	$ 13,073,718	$ 10,025,622
Total investment return	4.47%	(3.81%)	6.45%	21.30%	3.30%
Portfolio turnover rate	5.13%	48.40%	65.55%	75.65%	11.90%
Ratio of operating expenses to average net assets	(7.90%)	(25.16%)	(14.63%)	(11.72%)	(9.41%)
Ratio of net investment income (loss) to average net assets	10.46%	(7.43%)	18.01%	6.88%	3.02%
Ratio of realized gains (losses) to average net assets	3.98%	(6.03%)	1.94%	61.92%	4.06%

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SUBSEQUENT EVENTS (Details Narrative) - Subsequent Event [Member] - USD ($)	1 Months Ended
	Jul. 31, 2024	Aug. 13, 2024
Full satisfaction amount from outstanding debt		$ 400,000
Purchase of participation interest from related party, percent	50.00%
Purchase of participation interest from related party	$ 1,150,000
Future confession settlement amount		$ 809,181