Form 10-Q - Quarterly report [Sections 13 or 15(d)]

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

__________________________

FORM 10-Q

__________________________

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

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

Commission File Number 001-41472

MILL CITY VENTURES III, LTD.

(Exact name of registrant as specified in its charter)

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

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

(952) 479-1923

(Registrant’s telephone number, including area code)

__________________________

N/A

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

__________________________

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

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

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

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

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

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

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

MILL CITY VENTURES III, LTD.

Index to Form 10-Q

for the Quarter Ended June 30, 2023

PART I.	FINANCIAL INFORMATION	Page No.

Item 1.	Financial Statements (unaudited)	3

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

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

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

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

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

	Condensed Notes to Financial Statements – June 30, 2023	9

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

Item 4.	Controls and Procedures	22

PART II.	OTHER INFORMATION	23

Item 5.	Other Information	23

Item 6.	Exhibits	23

SIGNATURES		24

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PART I. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

MILL CITY VENTURES III, LTD.

CONDENSED BALANCE SHEETS


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

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

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

See accompanying Notes to Financial Statements

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MILL CITY VENTURES III, LTD.

CONDENSED STATEMENTS OF OPERATIONS (UNAUDITED)


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

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

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

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

See accompanying Notes to Financial Statements

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MILL CITY VENTURES III, LTD.

CONDENSED STATEMENTS OF SHAREHOLDERS’ EQUITY (UNAUDITED)

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

Three Months Ended June 30, 2022	Common Shares		Par Value		Additional Paid In Capital		Accumulated Deficit			Accumulated Undistributed Net Investment Loss			Accumulated Undistributed Net Realized Gain on Investments Transactions			Net Unrealized Appreciation in value of Investments			Total Shareholders' Equity
Balance as of March 31, 2022		10,790,413	$	10,790	$	10,694,163	$	(1,159,665	)	$	(1,582,279	)	$	5,719,580		$	143,571		$	13,826,160
Common shares issued in stock based compensation		65,000		65		82,374		—			—									82,439
Undistributed net investment gain				—		—		—			518,008			—			—			518,008
Undistributed net realized loss on investment transactions				—		—		—			—			(5,750	)		—			(5,750	)
Appreciation in value of investments				—		—		—			—			—			5,750			5,750
Balance as of June 30, 2022		10,855,413	$	10,855	$	10,776,537	$	(1,159,665	)	$	(1,064,271	)	$	5,713,830		$	149,321		$	14,426,607

Six Months Ended June 30, 2023	Common Shares		Par Value		Additional Paid In Capital		Accumulated Deficit			Accumulated Undistributed Net Investment Loss			Accumulated Undistributed Net Realized Gain on Investments Transactions			Net Unrealized Appreciation (Depreciation) in value of Investments			Total Shareholders' Equity

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

Six Months Ended June 30, 2022	Common Shares		Par Value		Additional Paid In Capital		Accumulated Deficit			Accumulated Undistributed Net Investment Loss			Accumulated Undistributed Net Realized Gain on Investments Transactions			Net Unrealized Appreciation (Depreciation) in value of Investments			Total Shareholders' Equity

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

See accompanying Notes to Financial Statements

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MILL CITY VENTURES III, LTD.

CONDENSED STATEMENTS OF CASH FLOWS (UNAUDITED)


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

See accompanying Notes to Financial Statements

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MILL CITY VENTURES III, LTD.

CONDENSED SCHEDULE OF INVESTMENTS

JUNE 30, 2023

Investment / Industry	Cost		Fair Value		Percentage of Net Assets

Short-Term Non-banking Loans
Business Services - 15% secured loans

Mustang Litigation Funding	$	7,000,000	$	7,012,891		37.53	%
Consumer - 18% secured loans

Intelligent Mapping, LLC		2,900,000		2,900,324		15.52	%
Financial - 33% secured loans

Benton Financial, LLC		1,202,500		1,202,361		6.44	%
Financial - 34% secured loans

Benton Financial, LLC		772,500		773,022		4.14	%

Financial - 12% secured loans		500,000		389,831		2.08	%

Information Technology - 15% convertible note		212,500		212,482		1.14	%

Real Estate - 15% secured loans		745,000		747,178		4.00	%
Real Estate - 12% secured loans

Alatus Development Corp		2,000,000		2,002,214		10.72	%

Total Short-Term Non-Banking Loans		15,332,500		15,240,303		81.57	%

Preferred Stock
Consumer

Wisdom Gaming, Inc		900,000		900,000		4.82	%

Information Technology		150,000		300,000		1.61	%

Total Preferred Stock		1,050,000		1,200,000		6.43	%

Common Stock

Consumer		159,302		78,122		0.42	%

Warrants
Healthcare		679		—		0.00	%

Other Equity
Financial		10,000		10,000		0.05	%

Total Investments	$	16,552,481	$	16,528,425		88.47	%

Total Cash		1,101,527		1,101,527		5.90	%

Total Investments and Cash	$	$17,654,008	$	$17,629,952		94.37	%

See accompanying Notes to the Financial Statements

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MILL CITY VENTURES III, LTD.

SCHEDULE OF INVESTMENTS

DECEMBER 31, 2022

Investment / Industry	Cost		Fair Value		Percentage of Net Assets

Short-Term Non-banking Loans
Business Services - 18% secured loans
Liberated Syndication Inc.	$	2,250,000	$	2,255,625		12.62	%
Business Services - 15% secured loans
Mustang Litigation Funding		5,000,000		4,975,955		27.84	%
Consumer - 15% secured loans		400,000		398,635		2.23	%
Intelligent Mapping, LLC		2,900,000		2,873,893		16.08	%
Financial - 33% secured loans
Benton Financial, LLC		2,479,125		2,478,030		13.87	%
Financial - 12% secured loans		500,000		345,421		1.93	%
Information Technology - 15% convertible note		212,500		213,656		1.20	%
Real Estate - 15% secured loans		745,000		746,354		4.17	%
Real Estate - 12% secured loans
Alatus Development Corp		1,000,000		998,363		5.59	%
Total Short-Term Non-Banking Loans		15,486,625		15,285,932		85.53	%

Preferred Stock
Consumer
Wisdom Gaming, Inc		900,000		900,000		5.04	%
Information Technology		150,000		300,000		1.68	%
Total Preferred Stock		1,050,000		1,200,000		6.72	%

Warrants
Healthcare		679		—		0.00	%

Other Equity
Consumer		212,500		212,500		1.19	%
Financial		610,000		10,000		0.06	%
Total Other Equity		822,500		222,500		1.25	%

Total Investments	$	17,359,804	$	16,708,432		93.50	%

Total Cash		1,089,641		1,089,641		6.10	%

Total Investments and Cash	$ $18,449,445		$ $17,798,073			99.60	%

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

Basis of presentation: The accompanying unaudited condensed financial statements of Mill City Ventures have been prepared in accordance with accounting principles generally accepted in the United States for interim financial information and with the instructions to Form 10-Q and Regulation S-X. Accordingly, they do not include all of the information and footnotes required by accounting principles generally accepted in the United States (GAAP) for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring adjustments) considered necessary for a fair presentation have been included. Operating results for the quarter ended June 30, 2023 are not necessarily indicative of the results that may be expected for the year ending December 31, 2023.

The condensed balance sheet as of December 31, 2022 has been derived from the audited financial statements at that date but does not include all of the information and footnotes required by GAAP for complete financial statements. For further information, refer to the financial statements and footnotes thereto included in our Annual Report on Form 10-K/A for the year ended December 31, 2022.

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

Valuation of portfolio investments: 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.

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

We file income tax returns in the U.S. Federal jurisdiction and various state jurisdictions. We do not believe there will be any material changes in our unrecognized tax positions over the next 12 months. Our evaluation was performed for the tax years ended December 31, 2020 through 2022, which are the tax years that remain subject to examination by major tax jurisdictions as of June 30, 2023.

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, 2023 (together with the corresponding percentage of the fair value of our total portfolio of investments):

	As of June 30, 2023
	Investments at Amortized Cost		Percentage of Amortized Cost			Investments at Fair Value		Percentage of Fair Value

Short-term Non-banking Loans	$	15,332,500		92.6	%	$	15,240,303		92.2	%
Preferred Stock		1,050,000		6.3			1,200,000		7.2
Common Stock		159,302		1.0			78,122		0.5
Warrants		679		—			—		—
Other Equity		10,000		0.1			10,000		0.1
Total	$	16,552,481		100.0	%	$	16,528,425		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, 2022 (together with the corresponding percentage of the fair value of our total investments):

	As of December 31, 2022
	Investments at Amortized Cost		Percentage of Amortized Cost			Investments at Fair Value		Percentage of Fair Value

Short-term Non-banking Loans	$	15,486,625		89.2	%	$	15,285,932		91.5	%
Preferred Stock		1,050,000		6.1			1,200,000		7.2
Common Stock		—		—			—		—
Warrants		679		—			—		—
Other Equity		822,500		4.7			222,500		1.3
Total	$	17,359,804		100.0	%	$	16,708,432		100.0	%

The following table shows the composition of our investment portfolio by industry grouping, based on fair value as of June 30, 2023:

	As of June 30, 2023
	Investments at Fair Value		Percentage of Fair Value

Business Services	$	7,012,891		42.4	%
Consumer		3,878,446		23.5
Financial		2,375,214		14.4
Information Technology		512,482		3.1
Real Estate		2,749,392		16.6
Total	$	16,528,425		100.0	%

The following table shows the composition of our investment portfolio by industry grouping, based on fair value as of December 31, 2022:

	As of December 31, 2022
	Investments at Fair Value		Percentage of Fair Value

Business Services	$	7,231,580		43.3	%
Consumer		4,385,028		26.2
Financial		2,833,451		17.0
Information Technology		513,656		3.1
Real Estate		1,744,717		10.4
Total	$	16,708,432		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, 2023 may differ materially from values that would have been used had a readily available market for the investments existed.

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The following table presents the fair value measurements of our portfolio investments by major class, as of June 30, 2023, according to the fair value hierarchy:

	As of June 30, 2023
	Level 1		Level 2		Level 3		Total

Short-term Non-banking Loans	$	—	$	—	$	15,240,303	$	15,240,303
Preferred Stock						1,200,000		1,200,000
Common Stock *				78,122		—		78,122
Warrants		—		—		—		—
Other Equity		—		—		10,000		10,000
Total	$	—	$	78,122	$	16,450,303	$	16,528,425

* Common shares are subject to a lock up holding period and not freely tradeable until August 15, 2023.

The following table presents the fair value measurements of our investment portfolio by major class, as of December 31, 2022, according to the fair value hierarchy:

	As of December 31, 2022
	Level 1		Level 2		Level 3		Total

Short-term Non-banking Loans	$	—	$	—	$	15,285,932	$	15,285,932
Preferred Stock		—		—		1,200,000		1,200,000
Common Stock		—		—		—		—
Other Equity		—		—		222,500		222,500
Total	$	—	$	—	$	16,708,432	$	16,708,432

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, 2023:

	For the six months ended June 30, 2023
	ST Non-banking Loans			Preferred Stock		Common Stock		Warrants		Other Equity

Balance as of January 1, 2023	$	15,285,932		$	1,200,000	$	—	$	—	$	222,500
Net change in unrealized appreciation		108,496			—		—		—		600,000
Purchases and other adjustments to cost		8,900,500			—		—		—		—
Sales and redemptions		(9,054,625	)		—		—		—
Net realized loss		—			—		—		—		(600,000	)
Transfers out of level 3		—			—		—		—		(212,500	)
Balance as of June 30, 2023	$	15,240,303		$	1,200,000	$	—	$	—	$	10,000

The net change in unrealized appreciation for the six months ended June 30, 2023 attributable to Level 3 portfolio investments still held as of June 30, 2023 is $634,081.

The following table lists our Level 3 investments held as of June 30, 2023 and the unobservable inputs used to determine their valuation:

Security Type		6/30/23 FMV	Valuation Technique	Unobservable Inputs	Range
ST Non-banking Loans	$	15,240,303	discounted cash flow	determining private company interest rate based on changes in market rates of instruments with comparable creditworthiness	12-34	%
Other Equity		10,000	last secured funding known by company	economic changes since last funding
Preferred Stock		1,200,000	last funding secured by company	economic changes since last funding
	$	16,450,303

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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, 2022:

	For the year ended December 31, 2022
	ST Non-banking Loans			Preferred Stock		Common Stock		Warrants		Other Equity

Balance as of January 1, 2022	$	11,650,000		$	1,200,000	$	—	$	—	$	812,500
Net change in unrealized depreciation		(200,693	)		—		—		—		(600,000	)
Purchases and other adjustments to cost		23,548,458			—		—		—		10,000
Sales and redemptions		(19,711,833	)		—		—		—		—
Balance as of December 31, 2022	$	15,285,932		$	1,200,000	$	—	$	—	$	222,500

The net change in unrealized depreciation for the year ended December 31, 2022 attributable to Level 3 portfolio investments still held as of December 31, 2022 was $651,371.

The following table lists our Level 3 investments held as of December 31, 2022 and the unobservable inputs used to determine their valuation:

Security Type		12/31/22 FMV	Valuation Technique	Unobservable Inputs	Range
ST Non-banking Loans	$	15,285,932	discounted cash flow	determining private company interest rate based on changes in market rates of instruments with comparable creditworthiness	12-33%
Other Equity		222,500	last secured funding known by company
Preferred Stock		1,200,000	last funding secured by company	economic changes since last funding
	$	16,708,432

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:

	·	On August 10, 2018, we entered into a loan transaction with Elizabeth Zbikowski who, along with her husband Scott Zbikowski, owned and continues to own approximately 534,445 shares of our common stock. In the transaction, we obtained a two-year promissory note in the principal amount of $250,000, which was subsequently amended such that the note presently matures on August 30, 2023. The promissory note bears interest payable monthly at the rate of 10% per annum. The note is secured by the debtors’ pledge to us of 277,778 shares of our common stock. The pledged shares are held in physical custody for us by Millennium Trust Company, as our custodial agent.

	·	On January 3, 2022, we entered into a Loan and Security Agreement (the “Loan Agreement”) with Eastman Investment, Inc., a Nevada corporation, and Lyle A. Berman, as trustee of the Lyle A. Berman Revocable Trust (collectively, the “Lenders”). Mr. Berman is a director of our Company. Under the Loan Agreement, the Lenders made available to us a $5 million revolving line of credit for us to use in the ordinary course of our short-term specialty finance business. See note 7 below for further details.

NOTE 6 – INCOME TAXES

We are a C-Corporation for tax purposes and have booked an income tax provision for the periods described below.

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As of June 30, 2023 and December 31, 2022, we have a deferred tax asset of $428,000 and $201,000, respectively. As of June 30, 2023, our net deferred tax asset consists of foreign tax credit carryforwards, unrealized investment gain/loss, non-qualified stock option expenses, 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, 2023 and December 31, 2022 we had prepaid income taxes of $44,600 and $179,300, respectively. We recorded a an increase in income taxes of $25,700 (26 percent effective tax rate) and an increase of income taxes of $324,000 (29 percent effective tax rate) during the three months ended June 30, 2023 and June 30, 2022, respectively.

NOTE 7 – LINE OF CREDIT

On January 3, 2022, we entered into a Loan and Security Agreement (the “Loan Agreement”) with Eastman Investment, Inc., a Nevada corporation, and Lyle A. Berman, as trustee of the Lyle A. Berman Revocable Trust (collectively, the “Lenders”). Mr. Berman is a director of our Company. Under the Loan Agreement, the Lenders made available to us a $5 million revolving line of credit for us to use in the ordinary course of our short-term specialty finance business. Amounts drawn under the Loan Agreement accrue interest at the per annum rate of 8%, and all our obligations under the Loan Agreement are secured by a grant of a collateral security interest in substantially all of our assets.

As a Lender, Mr. Berman is obligated to furnish only one-half of the aggregate $5 million available under the Loan Agreement. The Loan Agreement has a five-year term ending on January 3, 2027, at which time all amounts owing under the Loan Agreement will become due and payable; subject, however, to each Lender’s right, including Mr. Berman, to terminate the Loan Agreement, solely with respect to such Lender’s obligation to provide further credit, at any time after January 3, 2023. In the event that a Lender, including Mr. Berman, terminates its lending obligations, the Loan Agreement requires that we repay such Lender, prior to the five-year maturity date, with the proceeds derived from specified investments.

During the period January 3 to June 30, 2022, the Loan Agreement provided for us to pay a quarterly unused commitment fee equal to one-quarter of one percent of the amount of credit available but unused under the Loan Agreement, and requires us to pay such fee in the form of shares of our common stock based on our net asset value per share on the last day of the applicable fiscal quarter. The Loan Agreement grants the Lenders piggyback registration rights subject to customary terms, conditions and exceptions. Beginning July 1, 2022, we became obligated under the Loan Agreement to pay the quarterly unused commitment fee in cash.

As of June 30, 2023 and December 31, 2022, there was no balance outstanding on the line.

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, 2023, 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, 2023:

	Shares		Weighted Average Exercise Price
Options outstanding at beginning of year		—	$	—
Granted		870,000		2.11
Exercised		—		—
Forfeited		—		—
Balance at June 30, 2023		870,000	$	2.11

Options exercisable at June 30:		870,000	$	2.11

Weighted Average Grant Date Fair Value for options granted during the period:			$	1,242,902

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The following table summarizes additional information about stock options outstanding and exercisable at June 30, 2023:

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
	870,000		9.42	$	2.11	$	262,100		870,000	$	2.11	$	262,100

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

The Black-Scholes option-pricing model was used to estimate the fair value of equity-based awards with the following weighted-average assumptions for the six months ended June 30, 2023:

	2023
Risk-free interest rate		3.48	%
Expected volatility		90.00	%
Expected life (years)		5.0
Expected dividend yield		—	%

The inputs for the Black-Scholes valuation model require management’s significant assumptions. The price per share of common stock is determined by using the closing market price on the Nasdaq Capital Market on the grant date. The risk-free interest rates are based on the rate for U.S. Treasury securities at the date of grant with maturity dates approximately equal to the expected life at the grant date. The expected life is based on the simplified method in accordance with the SEC Staff Accounting Bulletin Nos. 107 and 110. The expected volatility is estimated based on historical volatility information of peer companies that are publicly available in combination with the Company’s calculated volatility.

NOTE 9 – SHAREHOLDERS’ EQUITY

At June 30, 2023, we had 6,185,255 shares of common stock issued and outstanding.

On August 9, 2022, the Company effected a stock combination (reverse stock split) of its common shares on a 1-for-2.25 basis such that every 2.25 shares of common stock issued and outstanding on that date were combined into one share of common stock. Any fractional share resulting from the reverse stock split was rounded up to the nearest whole share. The reverse stock split was approved by the Company's board of directors in accordance with Minnesota law and resulted in a proportionate reduction in the number of authorized shares of capital stock available for issuance under the Company's articles of incorporation. This reduction was affected pursuant to the filing of articles of amendment with the Minnesota Secretary of State indicating that the Company, on a post-reverse-split basis, is authorized to issue up to 111,111,111 shares of capital stock. All share and per share information has been retrospectively adjusted to reflect the reverse stock split.

NOTE 10 – PER-SHARE INFORMATION

Basic net gain 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. 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,
	2023		2022
Numerator: Net increase in net assets resulting from operations	$	70,721	$	518,008
Denominator: Weighted-average number of common shares outstanding		6,185,255		4,821,136
Basic and diluted net gain per common share	$	0.01	$	0.11

	For the Six Months Ended June 30,
	2023			2022
Numerator: Net increase (decrease) in net assets resulting from operations	$	(647,323	)	$	930,119
Denominator: Weighted-average number of common shares outstanding		6,185,255			4,808,508
Basic and diluted net gain (loss) per common share	$	(0.10	)	$	0.19

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NOTE 11 – OPERATING LEASES

We are a party to two non-cancelable operating leases for office space expiring October 24, 2023. These leases do not have significant lease escalations, holidays, concessions, leasehold improvements, or other build-out clauses. Further, the leases do not contain contingent rent provisions. The leases do not include options to renew.

Because our leases do not provide an implicit rate, we use our incremental borrowing rate in determining the present value of the lease payments. The incremental borrowing rate represents an estimate of the interest rate we would incur at lease commencement to borrow an amount equal to the lease payments on a collateralized basis over the term of a lease. The weighted-average discount rate as of June 30, 2023 and June 30, 2022 was 4.5% and the weighted-average remaining lease term is one year.

Rent expense for office facilities for the six months ended June 30, 2023 and June 30, 2022 was $40,115 and $35,953, respectively.

The components of our operating lease were as follows for the three and six months ended June 30, 2023:

	Three Months Ended		Six Months Ended
	June 30, 2023		June 30, 2023

Operating lease costs	$	5,504	$	11,008
Variable lease cost		4,828		9,733
Short-term lease cost		10,740		19,374
Total	$	21,072	$	40,115

Supplemental balance sheet information consisted of the following at June 30:

Operating Lease	2023			2022
Right-of-use assets	$	5,483		$	26,804

Operating Lease Liability	$	5,537		$	26,859
Less: short term portion		(5,537	)		(23,832	)
Long term portion	$	—		$	3,027

Maturity analysis under lease agreements consisted of the following as of June 30:

	2023			2022
2022	$	—		$	12,715
2023		5,613			14,859
Total lease payments		5,613			27,574
Less: Present value discount		(76	)		(715	)
Present value of lease liabilities	$	5,537		$	26,859

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NOTE 12 – FINANCIAL HIGHLIGHTS

The following is a schedule of financial highlights for the six months ended June 30, 2023 through 2019:

	Six Months Ended June 30,
	2023			2022			2021			2020			2019
Per Share Data ⁽¹⁾
Net asset value at beginning of period	$	2.89			1.24			1.08			0.91			1.02
Net investment income (loss)		(0.11	)		0.11			0.04			0.01			(0.03	)
Net realized and unrealized gains (losses)		0.01			0.01			0.28			0.02			0.02
Provision for income taxes		(0.01	)		(0.04	)		(0.09	)		0.00			0.00
Issuance of stock options		0.24			0.01			0.00			0.00			0.00
Repurchase of common stock		0.00			0.00			0.00			0.02			0.00
Payment of common stock dividend		0.00			0.00			0.00			0.00			(0.05	)
Net asset value at end of period	$	3.02			1.33			1.31			0.96			0.96

Ratio / Supplemental Data
Per share market value of investments at end of period	$	2.67			1.41			1.22			0.65			0.70
Shares outstanding at end of period		6,185,255			4,824,628			4,795,739			4,754,104			4,918,845
Average weighted shares outstanding for the period		6,185,255			4,808,508			4,794,744			4,877,654			4,918,845
Net assets at end of period	$	18,684,446			14,426,607			14,188,588			10,221,718			10,588,689
Average net assets ⁽²⁾	$	18,389,910			13,888,938			13,073,718			10,025,622			12,304,975
Total investment return (loss)		(3.81	)%		6.45	%		21.30	%		3.30	%		(5.88	)%
Portfolio turnover rate (3)		48.40	%		65.55	%		75.65	%		11.90	%		7.11	%
Ratio of operating expenses to average net assets ⁽³⁾		(25.16	)%		(14.63	)%		(11.72	)%		(9.41	)%		(7.70	)%
Ratio of net investment income (loss) to average net assets⁽³⁾		(7.43	)%		18.01	%		6.88	%		3.02	%		(6.40	)%
Ratio of realized gains (losses) to average net assets ⁽³⁾		(6.03	)%		1.94	%		61.92	%		4.06	%		57.36	%

(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 13 – Subsequent Events

On August 14, 2023, the Board of Directors amended the exercise provisions of the 2022 Stock Incentive Plan to permit holders of stock options to exercise their options on a net-exercise/cashless basis, subject to the discretion of the board’s compensation committee (which administers the plan) to limit such exercises. On the same date, the compensation committee approved the accelerated vesting of stock options earlier issued to non-executives and non-directors, immediately upon any change of control of the Company.

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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, 2022, 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, 2023, we made $8,900,500 of investment portfolio and had $9,149,194 of redemptions and repayments, resulting in net investments at amortized cost of $16,552,481 at the end of the period.

During the six months ended June 30, 2022, we made $9,103,580 of investment portfolio and had $7,977,898 of redemptions and repayments, resulting in net investments at amortized cost of $15,191,759 at the end of that period.

Our portfolio composition by major class, based on fair value at June 30, 2023, was as follows:

	Investments at Fair Value		Percentage of Fair Value
Short-term Non-banking Loans	$	15,240,303		92.2	%
Equity/Other		1,288,122		7.8
Total	$	16,528,425		100.0	%

RESULTS OF OPERATIONS

Our operating results for the three and six months ended June 30, 2023 and June 30, 2022 were as follows:

	For the Three Months Ended June 30,						For the Six Months Ended June 30,
	2023			2022			2023			2022
Investment Income:	$	907,502		$	1,236,505		$	1,771,530		$	2,236,711
Operating Expenses:		(570,045	)		(502,255	)		(2,461,862	)		(1,048,073	)
Net Investment Gain (Loss)	$	337,457		$	734,250		$	(690,332	)	$	1,188,638

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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, 2023, our total investment income was $907,502 and $1,771,530, respectively For the three and six months ended June 30, 2022 our total investment income was $1,236,505 and $2,236,711, respectively. The decrease is due to a decrease in our short-term non-bank lending activity. Our loan portfolio generates interest income, with an average rate on the loans of 17.6%.

Professional Fees

For the three and six months ended June 30, 2023, we had $287,325 and $417,176 professional fees expense, respectively. For the three and six months ended June 30, 2022, we had $197,591 and $392,989 professional fees expense, respectively. The increase is due to the costs incurred to amend our Form 10K filing for December 31, 2022.

Payroll and Directors Fees

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. For the three and six months ended June 30, 2022, we had $114,542 and $310,984 of payroll expense, respectively, and we had $87,073 and $117,073 of directors fees, respectively. The increase in the current period was due in large part to the company’s issuance of 870,000 10-year options to directors, officers and consultants in November and December 2022 (which were issued subject to shareholder approval). On January 20, 2023 company shareholders approved the options and the related incentive plan at a special meeting held for that purpose. These options generated a noncash expense of $1,460,209.

Interest Expense

For the three and six months ended June 30, 2023, we had $43,333 and $78,000 of interest expense, respectively. For the three and six months ended June 30, 2022, we had $47,794 and $117,853 of interest expense, respectively. The decrease is due less borrowing on the line of credit during the current period.

Net Realized Gain (Loss) from Investments

For the three and six months ended June 30, 2023, we had $94,569 and $94,569, respectively, of sales of investments and $5,109,625 and 9,054,625, respectively, of repayments on short-term loans, resulting in $41,371 of realized gains and $558,629 of realized losses, respectively. For the three and six months ended June 30, 2022, we had $0 and $552,898, respectively, of sales of investments and $6,825,000 and 7,425,000, respectively, of repayments on short-term loans, resulting in $5,750 of realized losses and $133,020 of realized gains, respectively.

Net Change in Unrealized Appreciation (Depreciation) on Investments

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. For the three and six months ended June 30, 2022, our investments had $5,750 of unrealized appreciation and $16,297 of unrealized depreciation, respectively.

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Changes in Net Assets from Operations

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. For the three and six months ended June 30, 2022, we recorded a net increase in net assets from operations of $518,008 and $930,119, respectively. Based on the weighted-average number of shares of common stock outstanding for the three and six months ended June 30, 2022, our per-share net increase in net assets from operations was $0.11 and $0.19, respectively.

Cash Flows for the Six Months Ended June 30, 2023 and 2022

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, 2023, net cash provided in operating activities was $11,886. Cash flows provided 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. For the six months ended June 30, 2022, net cash used in operating activities was $3,381,576. Cash flows used in operating activities for the six months ended June 30, 2022 were primarily related to the funding of our short-term loans and purchases of investments aggregating $9,103,580, offset mostly by redemptions and repayments of short-term loans and investments totaling $7,977,898.

FINANCIAL CONDITION

As of June 30, 2023, we had cash of $1,101,527, an increase of $11,886 from December 31, 2022. 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.”

On August 9, 2022, we effected a stock combination (reverse stock split) of our common shares on a 1-for-2.25 basis such that every 2.25 shares of common stock issued and outstanding on that date were combined into one share of common stock. Any fractional share resulting from the reverse stock split was rounded up to the nearest whole share. The reverse stock split was approved by our Board of Directors in accordance with Minnesota law, and resulted in a proportionate reduction in the number of authorized shares of capital stock available for issuance under our articles of incorporation. On a post-reverse-split basis, we are authorized to issue up to 111,111,111 shares of capital stock.

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

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, 2022.

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OFF-BALANCE-SHEET ARRANGEMENTS

During the six months ended June 30, 2023, we did not engage in any off-balance sheet arrangements as described in Item 303(a)(4) of Regulation S-K.

FORWARD-LOOKING STATEMENTS

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

	·	our future operating results;
	·	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 17, 2023 (related to our year ended December 31, 2022) 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, 2023, 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, 2023 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, 2022.

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

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PART II. OTHER INFORMATION

ITEM 5. OTHER INFORMATION

On August ___, 2023, the Board of Directors amended the exercise provisions of the 2022 Stock Incentive Plan to permit holders of stock options to exercise their options on a net-exercise/cashless basis, subject to the discretion of the board’s compensation committee (which administers the plan) to limit such exercises. On the same date, the compensation committee approved the accelerated vesting of stock options earlier issued to non-executives and non-directors, immediately upon any change of control of the Company.

ITEM 6. 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)
	10.1*		Amendment to 2022 Stock Incentive Plan, dated August ---, 2023
	31.1 *		Section 302 Certification of the Chief Executive Officer
	31.2 *		Section 302 Certification of the Chief Financial Officer
	32.1 *		Certification of Chief Executive Officer and Chief Financial Officer Pursuant to 18 U.S.C. §1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

____________________

* Filed herewith

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SIGNATURES

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

	MILL CITY VENTURES III, LTD.

Date: August 15, 2022	By:	/s/ Douglas M. Polinsky
		Douglas M. Polinsky
		Chief Executive Officer

Date: August 15, 2022	By:	/s/ Joseph A. Geraci, II
		Joseph A. Geraci, II
		Chief Financial Officer

nullnullnullnull

Cover - shares	6 Months Ended
Cover - shares	Jun. 30, 2023	Aug. 15, 2023
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, 2023
Entity Filer Category	Non-accelerated Filer
Document Fiscal Period Focus	Q2
Document Fiscal Year Focus	2023
Entity Common Stock Shares Outstanding		6,185,255
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
Entity Address Address Line 2	#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

CONDENSED BALANCE SHEETS - USD ($)	Jun. 30, 2023	Dec. 31, 2022
ASSETS
Investments, at fair value: Non-control/non-affiliate investments (cost: $16,552,481 and Non-control/non-affiliate investments (cost: $16,552,481 and	$ 16,528,425	$ 16,708,432
Cash	1,101,527	1,089,641
Note receivable	250,000	250,000
Prepaid expenses	158,839	218,440
Interest and dividend receivables	309,299	250,879
Right-of-use lease asset	5,483	16,398
Deferred taxes	428,000	201,000
Total Assets	18,781,573	18,734,790
LIABILITIES
Accounts payable	77,311	776,514
Operating lease liability	5,537	16,562
Deferred interest income	14,279	70,154
Total Liabilities	97,127	863,230
SHAREHOLDERS EQUITY (NET ASSETS)
Common stock, par value $0.001 per share (111,111,111 authorized; 6,185,255 outstanding)	12,215	12,215
Additional paid-in capital	15,043,291	15,043,291
Additional paid-in capital - stock options	1,460,209	0
Accumulated deficit	(1,159,665)	(1,159,665)
Accumulated undistributed investment loss	(1,802,749)	(1,086,739)
Accumulated undistributed net realized gains on investment transactions	5,155,200	5,713,829
Net unrealized appreciation in value of investments	(24,055)	(651,371)
Total Shareholders' Equity (Net Assets)	18,684,446	17,871,560
Total Liabilities and Shareholders' Equity	$ 18,781,573	$ 18,734,790
Net Asset Value Per Common Share	$ 3.02	$ 2.89

CONDENSED BALANCE SHEETS (Parenthetical) - USD ($)	Jun. 30, 2023	Dec. 31, 2022
CONDENSED BALANCE SHEETS
Non control/non affiliate investment cost	$ 16,552,481	$ 17,359,804
Common stock, par value	$ 0.001	$ 0.001
Common stock, shares authorized	111,111,111	111,111,111
Common stock, shares outstanding	6,185,255	6,185,255

CONDENSED STATEMENTS OF OPERATIONS (UNAUDITED) - USD ($)	3 Months Ended		6 Months Ended
	Jun. 30, 2023	Jun. 30, 2022	Jun. 30, 2023	Jun. 30, 2022
Investment Income
Interest income	$ 907,502	$ 1,236,505	$ 1,771,530	$ 2,236,711
Total Investment Income	907,502	1,236,505	1,771,530	2,236,711
Operating Expenses
Professional fees	287,325	197,591	417,176	392,989
Payroll	147,161	114,542	1,277,600	310,984
Insurance	26,522	26,979	53,522	57,076
Occupancy	21,072	19,141	40,115	35,953
Director's fees	30,000	87,073	562,968	117,073
Interest expense	43,333	47,794	78,000	117,853
Other general and administrative	14,632	9,135	32,481	16,145
Total Operating Expenses	570,045	502,255	2,461,862	1,048,073
Net Investment Gain (Loss)	337,457	734,250	(690,332)	1,188,638
Realized and Unrealized Gain (Loss) on Investments
Net realized gain (loss) on investments	41,371	(5,750)	(558,629)	133,020
Net change in unrealized appreciation (depreciation) on investments	(21,107)	5,750	627,316	(16,297)
Net Realized and Unrealized Gain (Loss) on Investments	20,264	0	68,687	116,723
Net Increase (Decrease) in Net Assets Resulting from Operations Before Taxes	357,721	734,250	(621,645)	1,305,361
Provision for Income Taxes	287,000	216,242	25,678	375,242
Net Increase (Decrease) in Net Assets Resulting from Operations	$ 70,721	$ 518,008	$ (647,323)	$ 930,119
Net Increase (Decrease) in Net Assets Resulting from Operations per share:
Basic and diluted	$ 0.01	$ 0.11	$ (0.10)	$ 0.19
Weighted-average number of common shares outstanding - basic and diluted	6,185,255	4,821,136	6,185,255	4,808,508

CONDENSED STATEMENTS OF SHAREHOLDERS' EQUITY (UNAUDITED) - USD ($)	Total	Common Stock	Additional Paid-In Capital	Retained Earnings (Accumulated Deficit)	Accumulated Undistributed Net Investment Loss	Accumulated Undistributed Net Realized Gain On Investments Transaction	Net Unrealized Appreciation Depreciation In Value Of Investments
Balance, shares at Dec. 31, 2021		10,790,413
Balance, amount at Dec. 31, 2021	$ 13,414,049	$ 10,790	$ 10,694,163	$ (1,159,665)	$ (1,877,667)	$ 5,580,810	$ 165,618
Common shares issued in stock based compensation, shares		65,000
Common shares issued in stock based compensation, amount	82,439	$ 65	82,374	0	0
Undistributed net investment gain	813,396	0	0	0	813,396	0	0
Undistributed net realized gain on investment transactions	133,020	0	0	0	0	133,020	0
Depreciation in value of investments	(16,297)	$ 0	0	0	0	0	(16,297)
Balance, shares at Jun. 30, 2022		10,855,413
Balance, amount at Jun. 30, 2022	14,426,607	$ 10,855	10,776,537	(1,159,665)	(1,064,271)	5,713,830	149,321
Balance, shares at Mar. 31, 2022		10,790,413
Balance, amount at Mar. 31, 2022	13,826,160	$ 10,790	10,694,163	(1,159,665)	(1,582,279)	5,719,580	143,571
Common shares issued in stock based compensation, shares		65,000
Common shares issued in stock based compensation, amount	82,439	$ 65	82,374	0	0
Undistributed net investment gain	518,008	0	0	0	518,008	0	0
Undistributed net realized loss on investment transactions	(5,750)	0	0	0	0	(5,750)	0
Appreciation in value of investments	5,750	$ 0	0	0	0	0	5,750
Balance, shares at Jun. 30, 2022		10,855,413
Balance, amount at Jun. 30, 2022	14,426,607	$ 10,855	10,776,537	(1,159,665)	(1,064,271)	5,713,830	149,321
Balance, shares at Dec. 31, 2022		6,185,255
Balance, amount at Dec. 31, 2022	17,871,560	$ 12,215	15,043,291	(1,159,665)	(1,086,739)	5,713,829	(651,371)
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
Issuance of stock options	1,460,209		1,460,209	0	0	0	0
Net investment loss, net of tax benefit of $139,300	(716,010)	$ 0	0	0	(716,010)	0	0
Balance, shares at Jun. 30, 2023		6,185,255
Balance, amount at Jun. 30, 2023	18,684,446	$ 12,215	16,503,500	(1,159,665)	(1,802,749)	5,155,200	(24,055)
Balance, shares at Mar. 31, 2023		6,185,255
Balance, amount at Mar. 31, 2023	18,613,725	$ 12,215	16,503,500	(1,159,665)	(1,853,206)	5,113,829	(2,948)
Undistributed net investment gain	50,457	0	0	0	50,457	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)
Issuance of stock options	0	0	0	0	0	0
Dividend Distribution	0	$ 0	0	0	0	0	0
Balance, shares at Jun. 30, 2023		6,185,255
Balance, amount at Jun. 30, 2023	$ 18,684,446	$ 12,215	$ 16,503,500	$ (1,159,665)	$ (1,802,749)	$ 5,155,200	$ (24,055)

CONDENSED STATEMENTS OF CASH FLOWS (UNAUDITED) - USD ($)	6 Months Ended
	Jun. 30, 2023	Jun. 30, 2022
Cash flows from operating activities:
Net increase (decrease) in net assets resulting from operations	$ (647,323)	$ 930,119
from operations to net cash used in operating activities:
Net change in unrealized (appreciation) depreciation on investments	(627,316)	16,297
Net realized (gain) loss on investments	558,629	(133,020)
Purchases of investments	(8,900,500)	(9,103,580)
Proceeds from sales of investments	9,149,194	7,977,898
Issuance of stock options	1,460,209	0
Deferred income taxes	(227,000)	(1,073,758)
Common shares issued as consideration for expense payment	0	82,439
Changes in operating assets and liabilities:
Prepaid expenses and other assets	70,516	(39,772)
Interest and dividends receivable	(58,420)	(115,072)
Payable for investment purchase	0	(1,900,000)
Accounts payable and other liabilities	(710,228)	(23,127)
Deferred interest income	(55,875)	0
Net cash provided (used) in operating activities	11,886	(3,381,576)
Cash flows from financing activities:
Proceeds from line of credit	2,750,000	6,075,000
Repayments on line of credit	(2,750,000)	(4,000,000)
Net cash provided by financing activities	0	2,075,000
Net increase (decrease) in cash	11,886	(1,306,576)
Cash, beginning of period	1,089,641	1,936,148
Cash, end of period	$ 1,101,527	$ 629,572

Investment Schedule - USD ($)	6 Months Ended	12 Months Ended
Investment Schedule - USD ($)	Jun. 30, 2023	Dec. 31, 2022
Total Cash, Percentage of Net Assets	5.90%	6.10%
Total Investment, Percentage of Net Assets	88.47%	93.50%
Total Investments, Cost	$ 16,552,481	$ 17,359,804
Total Investments at Fair Value	16,528,425	16,708,432
Total Cash, Cost	1,101,527	1,089,641
Total Cash, Fair Value	1,101,527	1,089,641
Total Investments and Cash, Cost	17,654,008	18,449,445
Total Investments and Cash, Fair Value	$ 17,629,952	$ 17,798,073
Total Investments and Cash, Percentage of Net Assets	94.37%	99.60%
Consumer \| Represents the member information pertaining to 15% secured loans
Total Investments, Cost		$ 400,000
Total Investments at Fair Value		$ 398,635
Total Investments, Percentage of Net Assets		2.23%
Consumer \| Represents the member information pertaining to 18% secured loans
Total Investments, Cost		$ 2,900,000
Total Investments at Fair Value		$ 2,873,893
Total Investments, Percentage of Net Assets		16.08%
Information Technology \| Represents the member information pertaining to 15% convertible note
Total Investments, Cost	$ 212,500	$ 212,500
Investments at Fair Value	$ 212,482	$ 213,656
Total Investments, Percentage of Net Assets	1.14%	1.20%
Common Stock \| Consumer
Total Investments, Cost	$ 159,302
Total Investments at Fair Value	$ 78,122
Total Investments, Percentage of Net Assets	0.42%
Preferred Stock \| Represents information pertaining to the Wisdom Gaming, Inc.
Total Investments, Cost	$ 900,000	$ 900,000
Total Investments at Fair Value	$ 900,000	$ 900,000
Total Investments, Percentage of Net Assets	4.82%	5.04%
Preferred Stock \| Information Technology
Total Investments, Cost	$ 150,000	$ 150,000
Investments at Fair Value	$ 300,000	$ 300,000
Total Investments, Percentage of Net Assets	1.61%	1.68%
Preferreds Stock [Member][
Total Investments, Cost	$ 1,050,000	$ 1,050,000
Total Investments at Fair Value	$ 1,200,000	$ 1,200,000
Total Investments, Percentage of Net Assets	6.43%	6.72%
Represents the member information pertaining to short term banking loans.
Total Investments, Cost	$ 15,332,500	$ 15,486,625
Total Investments at Fair Value	$ 15,240,303	$ 15,285,932
Total Investments, Percentage of Net Assets	81.57%	85.53%
Represents the member information pertaining to short term banking loans. \| Represents the member information pertaining to 15% secured loans \| Real Estate
Total Investments, Cost	$ 745,000	$ 745,000
Total Investments at Fair Value	$ 747,178	$ 746,354
Total Investments, Percentage of Net Assets	4.00%	4.17%
Represents the member information pertaining to short term banking loans. \| Represents the member information pertaining to 18% secured loans \| Real Estate
Total Investments, Cost	$ 2,900,000
Total Investments at Fair Value	$ 2,900,324
Total Investments, Percentage of Net Assets	15.52%
Represents the member information pertaining to short term banking loans. \| Represents the member information pertaining to Alatus Development, Corp. \| Represents the member information pertaining to 15% secured loans \| Real Estate
Total Investments, Cost	$ 2,000,000	$ 1,000,000
Total Investments at Fair Value	$ 2,002,214	$ 998,363
Total Investments, Percentage of Net Assets	10.72%	5.59%
Represents the member information pertaining to short term banking loans. \| Financial \| Represents the member information pertaining to 33% secured loans
Total Investments, Cost	$ 1,202,500	$ 2,479,125
Total Investments at Fair Value	$ 1,202,361	$ 2,478,030
Total Investments, Percentage of Net Assets	6.44%	13.87%
Represents the member information pertaining to short term banking loans. \| Financial \| Represents the member information pertaining to 34% secured loans
Total Investments, Cost	$ 772,500
Total Investments at Fair Value	$ 773,022
Total Investments, Percentage of Net Assets	4.14%
Represents the member information pertaining to short term banking loans. \| Consumer \| Represents the member information pertaining to 15% secured loans
Total Investments, Cost	$ 7,000,000	$ 5,000,000
Total Investments at Fair Value	$ 7,012,891	$ 4,975,955
Total Investments, Percentage of Net Assets	37.53%	27.84%
Represents the member information pertaining to short term banking loans. \| Consumer \| Represents the member information pertaining to 18% secured loans
Total Investments, Cost		$ 2,250,000
Total Investments at Fair Value		$ 2,255,625
Total Investments, Percentage of Net Assets		12.62%
Represents the member information pertaining to short term banking loans. \| Financial \| Represents the member information pertaining to 12% secured loans
Total Investments, Cost	$ 500,000	$ 500,000
Total Investments at Fair Value	$ 389,831	$ 345,421
Total Investments, Percentage of Net Assets	2.08%	1.93%
Warrants One \| Healthcare
Total Investments, Cost	$ 679	$ 679
Total Investments, Percentage of Net Assets	0.00%	0.00%
Represents the member information pertaining to other equity securities.
Total Investments, Cost		$ 822,500
Total Investments at Fair Value		$ 222,500
Total Investments, Percentage of Net Assets		1.25%
Represents the member information pertaining to other equity securities. \| Financial
Total Investments, Cost	$ 10,000	$ 610,000
Total Investments at Fair Value	$ 10,000	$ 10,000
Total Investments, Percentage of Net Assets	0.05%	0.06%
Represents the member information pertaining to other equity securities. \| Consumer
Total Investments, Cost		$ 212,500
Total Investments at Fair Value		$ 212,500
Total Investments, Percentage of Net Assets		1.19%

ORGANIZATION

6 Months Ended

Jun. 30, 2023

ORGANIZATION

ORGANIZATION

NOTE 1 – ORGANIZATION

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

6 Months Ended

Jun. 30, 2023

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

NOTE 2 – SIGNIFICANT ACCOUNTING POLICIES

	·	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.

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

Income taxes:

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

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

Management and service fees:

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

INVESTMENTS

6 Months Ended

Jun. 30, 2023

INVESTMENTS

INVESTMENTS

NOTE 3 – INVESTMENTS

	As of June 30, 2023
	Investments at Amortized Cost		Percentage of Amortized Cost			Investments at Fair Value		Percentage of Fair Value

Short-term Non-banking Loans	$	15,332,500		92.6	%	$	15,240,303		92.2	%
Preferred Stock		1,050,000		6.3			1,200,000		7.2
Common Stock		159,302		1.0			78,122		0.5
Warrants		679		—			—		—
Other Equity		10,000		0.1			10,000		0.1
Total	$	16,552,481		100.0	%	$	16,528,425		100.0	%

	As of December 31, 2022
	Investments at Amortized Cost		Percentage of Amortized Cost			Investments at Fair Value		Percentage of Fair Value

Short-term Non-banking Loans	$	15,486,625		89.2	%	$	15,285,932		91.5	%
Preferred Stock		1,050,000		6.1			1,200,000		7.2
Common Stock		—		—			—		—
Warrants		679		—			—		—
Other Equity		822,500		4.7			222,500		1.3
Total	$	17,359,804		100.0	%	$	16,708,432		100.0	%

The following table shows the composition of our investment portfolio by industry grouping, based on fair value as of June 30, 2023:

	As of June 30, 2023
	Investments at Fair Value		Percentage of Fair Value

Business Services	$	7,012,891		42.4	%
Consumer		3,878,446		23.5
Financial		2,375,214		14.4
Information Technology		512,482		3.1
Real Estate		2,749,392		16.6
Total	$	16,528,425		100.0	%

The following table shows the composition of our investment portfolio by industry grouping, based on fair value as of December 31, 2022:

	As of December 31, 2022
	Investments at Fair Value		Percentage of Fair Value

Business Services	$	7,231,580		43.3	%
Consumer		4,385,028		26.2
Financial		2,833,451		17.0
Information Technology		513,656		3.1
Real Estate		1,744,717		10.4
Total	$	16,708,432		100.0	%

FAIR VALUE OF FINANCIAL INSTRUMENTS

6 Months Ended

Jun. 30, 2023

FAIR VALUE OF FINANCIAL INSTRUMENTS

FAIR VALUE OF FINANCIAL INSTRUMENTS

NOTE 4 – FAIR VALUE OF FINANCIAL INSTRUMENTS

The following table presents the fair value measurements of our portfolio investments by major class, as of June 30, 2023, according to the fair value hierarchy:

	As of June 30, 2023
	Level 1		Level 2		Level 3		Total

Short-term Non-banking Loans	$	—	$	—	$	15,240,303	$	15,240,303
Preferred Stock						1,200,000		1,200,000
Common Stock *				78,122		—		78,122
Warrants		—		—		—		—
Other Equity		—		—		10,000		10,000
Total	$	—	$	78,122	$	16,450,303	$	16,528,425

* Common shares are subject to a lock up holding period and not freely tradeable until August 15, 2023.

The following table presents the fair value measurements of our investment portfolio by major class, as of December 31, 2022, according to the fair value hierarchy:

	As of December 31, 2022
	Level 1		Level 2		Level 3		Total

Short-term Non-banking Loans	$	—	$	—	$	15,285,932	$	15,285,932
Preferred Stock		—		—		1,200,000		1,200,000
Common Stock		—		—		—		—
Other Equity		—		—		222,500		222,500
Total	$	—	$	—	$	16,708,432	$	16,708,432

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, 2023:

	For the six months ended June 30, 2023
	ST Non-banking Loans			Preferred Stock		Common Stock		Warrants		Other Equity

Balance as of January 1, 2023	$	15,285,932		$	1,200,000	$	—	$	—	$	222,500
Net change in unrealized appreciation		108,496			—		—		—		600,000
Purchases and other adjustments to cost		8,900,500			—		—		—		—
Sales and redemptions		(9,054,625	)		—		—		—
Net realized loss		—			—		—		—		(600,000	)
Transfers out of level 3		—			—		—		—		(212,500	)
Balance as of June 30, 2023	$	15,240,303		$	1,200,000	$	—	$	—	$	10,000

The net change in unrealized appreciation for the six months ended June 30, 2023 attributable to Level 3 portfolio investments still held as of June 30, 2023 is $634,081.

The following table lists our Level 3 investments held as of June 30, 2023 and the unobservable inputs used to determine their valuation:

Security Type		6/30/23 FMV	Valuation Technique	Unobservable Inputs	Range
ST Non-banking Loans	$	15,240,303	discounted cash flow	determining private company interest rate based on changes in market rates of instruments with comparable creditworthiness	12-34	%
Other Equity		10,000	last secured funding known by company	economic changes since last funding
Preferred Stock		1,200,000	last funding secured by company	economic changes since last funding
	$	16,450,303

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, 2022:

	For the year ended December 31, 2022
	ST Non-banking Loans			Preferred Stock		Common Stock		Warrants		Other Equity

Balance as of January 1, 2022	$	11,650,000		$	1,200,000	$	—	$	—	$	812,500
Net change in unrealized depreciation		(200,693	)		—		—		—		(600,000	)
Purchases and other adjustments to cost		23,548,458			—		—		—		10,000
Sales and redemptions		(19,711,833	)		—		—		—		—
Balance as of December 31, 2022	$	15,285,932		$	1,200,000	$	—	$	—	$	222,500

The net change in unrealized depreciation for the year ended December 31, 2022 attributable to Level 3 portfolio investments still held as of December 31, 2022 was $651,371.

The following table lists our Level 3 investments held as of December 31, 2022 and the unobservable inputs used to determine their valuation:

Security Type		12/31/22 FMV	Valuation Technique	Unobservable Inputs	Range
ST Non-banking Loans	$	15,285,932	discounted cash flow	determining private company interest rate based on changes in market rates of instruments with comparable creditworthiness	12-33%
Other Equity		222,500	last secured funding known by company
Preferred Stock		1,200,000	last funding secured by company	economic changes since last funding
	$	16,708,432

RELATEDPARTY TRANSACTIONS

6 Months Ended

Jun. 30, 2023

RELATEDPARTY TRANSACTIONS

RELATED-PARTY TRANSACTIONS

NOTE 5 – RELATED-PARTY TRANSACTIONS

	·	On August 10, 2018, we entered into a loan transaction with Elizabeth Zbikowski who, along with her husband Scott Zbikowski, owned and continues to own approximately 534,445 shares of our common stock. In the transaction, we obtained a two-year promissory note in the principal amount of $250,000, which was subsequently amended such that the note presently matures on August 30, 2023. The promissory note bears interest payable monthly at the rate of 10% per annum. The note is secured by the debtors’ pledge to us of 277,778 shares of our common stock. The pledged shares are held in physical custody for us by Millennium Trust Company, as our custodial agent.

	·	On January 3, 2022, we entered into a Loan and Security Agreement (the “Loan Agreement”) with Eastman Investment, Inc., a Nevada corporation, and Lyle A. Berman, as trustee of the Lyle A. Berman Revocable Trust (collectively, the “Lenders”). Mr. Berman is a director of our Company. Under the Loan Agreement, the Lenders made available to us a $5 million revolving line of credit for us to use in the ordinary course of our short-term specialty finance business. See note 7 below for further details.

INCOME TAXES

6 Months Ended

Jun. 30, 2023

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.

LINE OF CREDIT

6 Months Ended

Jun. 30, 2023

LINE OF CREDIT

LINE OF CREDIT

NOTE 7 – LINE OF CREDIT

As of June 30, 2023 and December 31, 2022, there was no balance outstanding on the line.

STOCKBASED COMPENSATION

6 Months Ended

Jun. 30, 2023

STOCKBASED COMPENSATION

STOCK-BASED COMPENSATION

NOTE 8 – STOCK-BASED COMPENSATION

The following table summarizes the activity for all stock options outstanding for the six months ended June 30, 2023:

	Shares		Weighted Average Exercise Price
Options outstanding at beginning of year		—	$	—
Granted		870,000		2.11
Exercised		—		—
Forfeited		—		—
Balance at June 30, 2023		870,000	$	2.11

Options exercisable at June 30:		870,000	$	2.11

Weighted Average Grant Date Fair Value for options granted during the period:			$	1,242,902

The following table summarizes additional information about stock options outstanding and exercisable at June 30, 2023:

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
	870,000		9.42	$	2.11	$	262,100		870,000	$	2.11	$	262,100

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

The Black-Scholes option-pricing model was used to estimate the fair value of equity-based awards with the following weighted-average assumptions for the six months ended June 30, 2023:

	2023
Risk-free interest rate		3.48	%
Expected volatility		90.00	%
Expected life (years)		5.0
Expected dividend yield		—	%

SHAREHOLDERS EQUITY

6 Months Ended

Jun. 30, 2023

SHAREHOLDERS EQUITY

SHAREHOLDERS' EQUITY

NOTE 9 – SHAREHOLDERS’ EQUITY

At June 30, 2023, we had 6,185,255 shares of common stock issued and outstanding.

PER SHARE INFORMATION

6 Months Ended

Jun. 30, 2023

PER SHARE INFORMATION

PER-SHARE INFORMATION

NOTE 10 – PER-SHARE INFORMATION

	For the Three Months Ended June 30,
	2023		2022
Numerator: Net increase in net assets resulting from operations	$	70,721	$	518,008
Denominator: Weighted-average number of common shares outstanding		6,185,255		4,821,136
Basic and diluted net gain per common share	$	0.01	$	0.11

	For the Six Months Ended June 30,
	2023			2022
Numerator: Net increase (decrease) in net assets resulting from operations	$	(647,323	)	$	930,119
Denominator: Weighted-average number of common shares outstanding		6,185,255			4,808,508
Basic and diluted net gain (loss) per common share	$	(0.10	)	$	0.19

OPERATING LEASES

6 Months Ended

Jun. 30, 2023

OPERATING LEASES

OPERATING LEASES

NOTE 11 – OPERATING LEASES

Rent expense for office facilities for the six months ended June 30, 2023 and June 30, 2022 was $40,115 and $35,953, respectively.

The components of our operating lease were as follows for the three and six months ended June 30, 2023:

	Three Months Ended		Six Months Ended
	June 30, 2023		June 30, 2023

Operating lease costs	$	5,504	$	11,008
Variable lease cost		4,828		9,733
Short-term lease cost		10,740		19,374
Total	$	21,072	$	40,115

Supplemental balance sheet information consisted of the following at June 30:

Operating Lease	2023			2022
Right-of-use assets	$	5,483		$	26,804

Operating Lease Liability	$	5,537		$	26,859
Less: short term portion		(5,537	)		(23,832	)
Long term portion	$	—		$	3,027

Maturity analysis under lease agreements consisted of the following as of June 30:

	2023			2022
2022	$	—		$	12,715
2023		5,613			14,859
Total lease payments		5,613			27,574
Less: Present value discount		(76	)		(715	)
Present value of lease liabilities	$	5,537		$	26,859

FINANCIAL HIGHLIGHTS

6 Months Ended

Jun. 30, 2023

FINANCIAL HIGHLIGHTS

FINANCIAL HIGHLIGHTS

NOTE 12 – FINANCIAL HIGHLIGHTS

The following is a schedule of financial highlights for the six months ended June 30, 2023 through 2019:

	Six Months Ended June 30,
	2023			2022			2021			2020			2019
Per Share Data ⁽¹⁾
Net asset value at beginning of period	$	2.89			1.24			1.08			0.91			1.02
Net investment income (loss)		(0.11	)		0.11			0.04			0.01			(0.03	)
Net realized and unrealized gains (losses)		0.01			0.01			0.28			0.02			0.02
Provision for income taxes		(0.01	)		(0.04	)		(0.09	)		0.00			0.00
Issuance of stock options		0.24			0.01			0.00			0.00			0.00
Repurchase of common stock		0.00			0.00			0.00			0.02			0.00
Payment of common stock dividend		0.00			0.00			0.00			0.00			(0.05	)
Net asset value at end of period	$	3.02			1.33			1.31			0.96			0.96

Ratio / Supplemental Data
Per share market value of investments at end of period	$	2.67			1.41			1.22			0.65			0.70
Shares outstanding at end of period		6,185,255			4,824,628			4,795,739			4,754,104			4,918,845
Average weighted shares outstanding for the period		6,185,255			4,808,508			4,794,744			4,877,654			4,918,845
Net assets at end of period	$	18,684,446			14,426,607			14,188,588			10,221,718			10,588,689
Average net assets ⁽²⁾	$	18,389,910			13,888,938			13,073,718			10,025,622			12,304,975
Total investment return (loss)		(3.81	)%		6.45	%		21.30	%		3.30	%		(5.88	)%
Portfolio turnover rate (3)		48.40	%		65.55	%		75.65	%		11.90	%		7.11	%
Ratio of operating expenses to average net assets ⁽³⁾		(25.16	)%		(14.63	)%		(11.72	)%		(9.41	)%		(7.70	)%
Ratio of net investment income (loss) to average net assets⁽³⁾		(7.43	)%		18.01	%		6.88	%		3.02	%		(6.40	)%
Ratio of realized gains (losses) to average net assets ⁽³⁾		(6.03	)%		1.94	%		61.92	%		4.06	%		57.36	%

(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.

SUBSEQUENT EVENTS

6 Months Ended

Jun. 30, 2023

SUBSEQUENT EVENTS

SUBSEQUENT EVENTS

NOTE 13 – Subsequent Events

SIGNIFICANT ACCOUNTING POLICIES (Policies)

6 Months Ended

Jun. 30, 2023

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of presentation

Use of estimates

Cash deposits

Valuation of portfolio investments

	·	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

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

Income taxes

Revenue recognition

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

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

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.

INVESTMENTS (Tables)

6 Months Ended

Jun. 30, 2023

INVESTMENTS

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

	As of June 30, 2023
	Investments at Amortized Cost		Percentage of Amortized Cost			Investments at Fair Value		Percentage of Fair Value

Short-term Non-banking Loans	$	15,332,500		92.6	%	$	15,240,303		92.2	%
Preferred Stock		1,050,000		6.3			1,200,000		7.2
Common Stock		159,302		1.0			78,122		0.5
Warrants		679		—			—		—
Other Equity		10,000		0.1			10,000		0.1
Total	$	16,552,481		100.0	%	$	16,528,425		100.0	%

	As of December 31, 2022
	Investments at Amortized Cost		Percentage of Amortized Cost			Investments at Fair Value		Percentage of Fair Value

Short-term Non-banking Loans	$	15,486,625		89.2	%	$	15,285,932		91.5	%
Preferred Stock		1,050,000		6.1			1,200,000		7.2
Common Stock		—		—			—		—
Warrants		679		—			—		—
Other Equity		822,500		4.7			222,500		1.3
Total	$	17,359,804		100.0	%	$	16,708,432		100.0	%

Schedule of investments by industry grouping, based on fair value

	As of June 30, 2023
	Investments at Fair Value		Percentage of Fair Value

Business Services	$	7,012,891		42.4	%
Consumer		3,878,446		23.5
Financial		2,375,214		14.4
Information Technology		512,482		3.1
Real Estate		2,749,392		16.6
Total	$	16,528,425		100.0	%

	As of December 31, 2022
	Investments at Fair Value		Percentage of Fair Value

Business Services	$	7,231,580		43.3	%
Consumer		4,385,028		26.2
Financial		2,833,451		17.0
Information Technology		513,656		3.1
Real Estate		1,744,717		10.4
Total	$	16,708,432		100.0	%

FAIR VALUE OF FINANCIAL INSTRUMENTS (Tables)

6 Months Ended

Jun. 30, 2023

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, 2023
	Level 1		Level 2		Level 3		Total

Short-term Non-banking Loans	$	—	$	—	$	15,240,303	$	15,240,303
Preferred Stock						1,200,000		1,200,000
Common Stock *				78,122		—		78,122
Warrants		—		—		—		—
Other Equity		—		—		10,000		10,000
Total	$	—	$	78,122	$	16,450,303	$	16,528,425

	As of December 31, 2022
	Level 1		Level 2		Level 3		Total

Short-term Non-banking Loans	$	—	$	—	$	15,285,932	$	15,285,932
Preferred Stock		—		—		1,200,000		1,200,000
Common Stock		—		—		—		—
Other Equity		—		—		222,500		222,500
Total	$	—	$	—	$	16,708,432	$	16,708,432

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

	For the six months ended June 30, 2023
	ST Non-banking Loans			Preferred Stock		Common Stock		Warrants		Other Equity

Balance as of January 1, 2023	$	15,285,932		$	1,200,000	$	—	$	—	$	222,500
Net change in unrealized appreciation		108,496			—		—		—		600,000
Purchases and other adjustments to cost		8,900,500			—		—		—		—
Sales and redemptions		(9,054,625	)		—		—		—
Net realized loss		—			—		—		—		(600,000	)
Transfers out of level 3		—			—		—		—		(212,500	)
Balance as of June 30, 2023	$	15,240,303		$	1,200,000	$	—	$	—	$	10,000

	For the year ended December 31, 2022
	ST Non-banking Loans			Preferred Stock		Common Stock		Warrants		Other Equity

Balance as of January 1, 2022	$	11,650,000		$	1,200,000	$	—	$	—	$	812,500
Net change in unrealized depreciation		(200,693	)		—		—		—		(600,000	)
Purchases and other adjustments to cost		23,548,458			—		—		—		10,000
Sales and redemptions		(19,711,833	)		—		—		—		—
Balance as of December 31, 2022	$	15,285,932		$	1,200,000	$	—	$	—	$	222,500

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

Security Type		6/30/23 FMV	Valuation Technique	Unobservable Inputs	Range
ST Non-banking Loans	$	15,240,303	discounted cash flow	determining private company interest rate based on changes in market rates of instruments with comparable creditworthiness	12-34	%
Other Equity		10,000	last secured funding known by company	economic changes since last funding
Preferred Stock		1,200,000	last funding secured by company	economic changes since last funding
	$	16,450,303

Security Type		12/31/22 FMV	Valuation Technique	Unobservable Inputs	Range
ST Non-banking Loans	$	15,285,932	discounted cash flow	determining private company interest rate based on changes in market rates of instruments with comparable creditworthiness	12-33%
Other Equity		222,500	last secured funding known by company
Preferred Stock		1,200,000	last funding secured by company	economic changes since last funding
	$	16,708,432

STOCKBASED COMPENSATION (Tables)

6 Months Ended

Jun. 30, 2023

STOCKBASED COMPENSATION

Schedule of stock options activity

	Shares		Weighted Average Exercise Price
Options outstanding at beginning of year		—	$	—
Granted		870,000		2.11
Exercised		—		—
Forfeited		—		—
Balance at June 30, 2023		870,000	$	2.11

Options exercisable at June 30:		870,000	$	2.11

Weighted Average Grant Date Fair Value for options granted during the period:			$	1,242,902

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
	870,000		9.42	$	2.11	$	262,100		870,000	$	2.11	$	262,100

Schedule of fair value of equity-based awards

	2023
Risk-free interest rate		3.48	%
Expected volatility		90.00	%
Expected life (years)		5.0
Expected dividend yield		—	%

PER SHARE INFORMATION (Tables)

6 Months Ended

Jun. 30, 2023

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,
	2023		2022
Numerator: Net increase in net assets resulting from operations	$	70,721	$	518,008
Denominator: Weighted-average number of common shares outstanding		6,185,255		4,821,136
Basic and diluted net gain per common share	$	0.01	$	0.11

	For the Six Months Ended June 30,
	2023			2022
Numerator: Net increase (decrease) in net assets resulting from operations	$	(647,323	)	$	930,119
Denominator: Weighted-average number of common shares outstanding		6,185,255			4,808,508
Basic and diluted net gain (loss) per common share	$	(0.10	)	$	0.19

OPERATING LEASES (Tables)

6 Months Ended

Jun. 30, 2023

OPERATING LEASES

Summary of components of operating lease

	Three Months Ended		Six Months Ended
	June 30, 2023		June 30, 2023

Operating lease costs	$	5,504	$	11,008
Variable lease cost		4,828		9,733
Short-term lease cost		10,740		19,374
Total	$	21,072	$	40,115

Summary of supplemental balance sheet information

Operating Lease	2023			2022
Right-of-use assets	$	5,483		$	26,804

Operating Lease Liability	$	5,537		$	26,859
Less: short term portion		(5,537	)		(23,832	)
Long term portion	$	—		$	3,027

Summary of maturity analysis under lease agreements

	2023			2022
2022	$	—		$	12,715
2023		5,613			14,859
Total lease payments		5,613			27,574
Less: Present value discount		(76	)		(715	)
Present value of lease liabilities	$	5,537		$	26,859

FINANCIAL HIGHLIGHTS (Tables)

6 Months Ended

Jun. 30, 2023

FINANCIAL HIGHLIGHTS

Schedule of financial highlights

	Six Months Ended June 30,
	2023			2022			2021			2020			2019
Per Share Data ⁽¹⁾
Net asset value at beginning of period	$	2.89			1.24			1.08			0.91			1.02
Net investment income (loss)		(0.11	)		0.11			0.04			0.01			(0.03	)
Net realized and unrealized gains (losses)		0.01			0.01			0.28			0.02			0.02
Provision for income taxes		(0.01	)		(0.04	)		(0.09	)		0.00			0.00
Issuance of stock options		0.24			0.01			0.00			0.00			0.00
Repurchase of common stock		0.00			0.00			0.00			0.02			0.00
Payment of common stock dividend		0.00			0.00			0.00			0.00			(0.05	)
Net asset value at end of period	$	3.02			1.33			1.31			0.96			0.96

Ratio / Supplemental Data
Per share market value of investments at end of period	$	2.67			1.41			1.22			0.65			0.70
Shares outstanding at end of period		6,185,255			4,824,628			4,795,739			4,754,104			4,918,845
Average weighted shares outstanding for the period		6,185,255			4,808,508			4,794,744			4,877,654			4,918,845
Net assets at end of period	$	18,684,446			14,426,607			14,188,588			10,221,718			10,588,689
Average net assets ⁽²⁾	$	18,389,910			13,888,938			13,073,718			10,025,622			12,304,975
Total investment return (loss)		(3.81	)%		6.45	%		21.30	%		3.30	%		(5.88	)%
Portfolio turnover rate (3)		48.40	%		65.55	%		75.65	%		11.90	%		7.11	%
Ratio of operating expenses to average net assets ⁽³⁾		(25.16	)%		(14.63	)%		(11.72	)%		(9.41	)%		(7.70	)%
Ratio of net investment income (loss) to average net assets⁽³⁾		(7.43	)%		18.01	%		6.88	%		3.02	%		(6.40	)%
Ratio of realized gains (losses) to average net assets ⁽³⁾		(6.03	)%		1.94	%		61.92	%		4.06	%		57.36	%

ORGANIZATION (Details Narrative)	6 Months Ended
ORGANIZATION (Details Narrative)	Jun. 30, 2023
ORGANIZATION
Maximuum percentage total assets of investment securities	40.00%

INVESTMENTS (Details) - USD ($)	6 Months Ended	12 Months Ended
INVESTMENTS (Details) - USD ($)	Jun. 30, 2023	Dec. 31, 2022
Investments at amortized cost	$ 16,552,481	$ 17,359,804
Percentage of amortized cost	100.00%	100.00%
Investment at fair value	$ 16,528,425	$ 16,708,432
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	6.30%	6.10%
Investment at fair value	$ 1,200,000	$ 1,200,000
Percentage of fair value	7.20%	7.20%
Represents the member information pertaining to short term banking loans.
Investments at amortized cost	$ 15,332,500	$ 15,486,625
Percentage of amortized cost	92.60%	89.20%
Investment at fair value	$ 15,240,303	$ 15,285,932
Percentage of fair value	92.20%	91.50%
Common Stocks [Member]
Investments at amortized cost	$ 159,302
Percentage of amortized cost	1.00%
Investment at fair value	$ 78,122
Percentage of fair value	0.50%
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	$ 822,500
Percentage of amortized cost	0.10%	4.70%
Investment at fair value	$ 10,000	$ 222,500
Percentage of fair value	0.10%	1.30%

INVESTMENTS (Details 1) - USD ($)	6 Months Ended	12 Months Ended
INVESTMENTS (Details 1) - USD ($)	Jun. 30, 2023	Dec. 31, 2022
Percentage of fair value	100.00%	100.00%
Investment at fair value	$ 16,528,425	$ 16,708,432
Business Services
Percentage of fair value	42.40%	43.30%
Investment at fair value	$ 7,012,891	$ 7,231,580
Consumer
Percentage of fair value	23.50%	26.20%
Investment at fair value	$ 3,878,446	$ 4,385,028
Financial
Percentage of fair value	14.40%	17.00%
Investment at fair value	$ 2,375,214	$ 2,833,451
Information Technology
Percentage of fair value	3.10%	3.10%
Investment at fair value	$ 512,482	$ 513,656
Real Estate
Percentage of fair value	16.60%	10.40%
Investment at fair value	$ 2,749,392	$ 1,744,717

FAIR VALUE OF FINANCIAL INSTRUMENTS (Details) - USD ($)	Jun. 30, 2023	Dec. 31, 2022
Short-term Non-banking Loans	$ 15,240,303	$ 15,285,932
Preferred stock	1,200,000	1,200,000
Common Stock	78,122	0
Warrants	0
Other Equity	10,000	222,500
Total	16,528,425	16,708,432
Level 1
Short-term Non-banking Loans	0	0
Preferred stock		0
Common Stock		0
Warrants	0
Other Equity	0	0
Total	0	0
Level 2
Short-term Non-banking Loans	0	0
Preferred stock		0
Common Stock	78,122	0
Warrants	0
Other Equity	0	0
Total	78,122	0
Level 3
Short-term Non-banking Loans	15,240,303	15,285,932
Preferred stock	1,200,000	1,200,000
Common Stock	0	0
Warrants	0
Other Equity	10,000	222,500
Total	$ 16,450,303	$ 16,708,432

FAIR VALUE OF FINANCIAL INSTRUMENTS (Details 1) - USD ($)	3 Months Ended		6 Months Ended		12 Months Ended
	Jun. 30, 2023	Jun. 30, 2022	Jun. 30, 2023	Jun. 30, 2022	Dec. 31, 2022
Net realized loss	$ 41,371	$ (5,750)	$ (558,629)	$ 133,020
Preferreds Stock [Member][
Balance at the beginning balance			1,200,000	1,200,000	$ 1,200,000
Purchases and other adjustments to cost			0		0
Balance at the ending balance	1,200,000		1,200,000		1,200,000
Represents the member information pertaining to short term banking loans.
Balance at the beginning balance			15,285,932	11,650,000	11,650,000
Net change in unrealized depreciation			(108,496)		200,693
Purchases and other adjustments to cost			8,900,500		23,548,458
Sales and redemptions			9,054,625		19,711,833
Balance at the ending balance	15,240,303		15,240,303		15,285,932
Represents the member information pertaining to other equity securities.
Balance at the beginning balance			222,500	$ 812,500	812,500
Net change in unrealized depreciation			(600,000)		600,000
Purchases and other adjustments to cost			0		10,000
Sales and redemptions					0
Net realized loss			(600,000)
Transfers out of level 3			(212,500)
Balance at the ending balance	$ 10,000		$ 10,000		$ 222,500

FAIR VALUE OF FINANCIAL INSTRUMENTS (Details 2)	Jun. 30, 2023 USD ($)	Dec. 31, 2022 USD ($)
Investment at fair value	$ 16,528,425	$ 16,708,432
Total Lable [Member]
Investment at fair value	16,450,303	16,708,432
Preferred Stock
Investment at fair value	1,200,000	1,200,000
Represents the member information pertaining to short term banking loans.
Investment at fair value	$ 15,240,303	$ 15,285,932
Represents the member information pertaining to short term banking loans. \| Minimum \| Level 3 \| Interest rate
Interest rate	12	12
Represents the member information pertaining to short term banking loans. \| Maximum \| Level 3 \| Interest rate
Interest rate	34	33
Represents the member information pertaining to other equity securities.
Investment at fair value	$ 10,000	$ 222,500

FAIR VALUE OF FINANCIAL INSTRUMENTS (Details Narrative) - USD ($)	6 Months Ended	12 Months Ended
	Jun. 30, 2023	Dec. 31, 2022
Attributable To Level 3 Portfolio Investment [Member]
Net change in unrealized depreciation	$ 634,081	$ 651,371

RELATEDPARTY TRANSACTIONS (Details Narrative) - USD ($)	Aug. 10, 2018	Jan. 03, 2022
Ms Zbikowski Along With Her Husband Scott Zbikowsk
Promissory note term	two-year
Shares of common stock owned by related party	534,445
Interest payable monthly (as a percent)	10.00%
Principal amount of note obtained	$ 250,000
Debtors' pledge in number of common stock	277,778
Lyle A. Berman \| Revolving line of credit
Line of credit facility maximum borrowing capacity		$ 5,000,000

INCOME TAXES (Details Narrative) - USD ($)	6 Months Ended
INCOME TAXES (Details Narrative) - USD ($)	Jun. 30, 2023	Jun. 30, 2022	Dec. 31, 2022
INCOME TAXES
Deferred tax liability	$ 428,000		$ 201,000
Income taxes payable	$ 25,700	$ 324,000
Effective Income Tax Rate Reconciliation, Percent	26.00%	29.00%
Prepaid income taxes	$ 44,600		$ 179,300

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

STOCKBASED COMPENSATION (Details)	6 Months Ended
STOCKBASED COMPENSATION (Details)	Jun. 30, 2023 USD ($) $ / shares shares
STOCKBASED COMPENSATION
Shares, Options outstanding at beginning of year \| shares	0
Granted \| shares	870,000
Shares, Options outstanding at end of year \| shares	870,000
Shares, Options exercisable at end of year \| shares	870,000
Weighted Average Exercise Price, Options outstanding at beginning of year	$ 0
Weighted Average Exercise Price, Granted	2.11
Weighted Average Exercise Price, Exercised	0
Weighted Average Exercise Price, Forfeited	0
Weighted Average Exercise Price, Options outstanding at end of year	2.11
Weighted Average Exercise Price, Options exercisable at end of year	$ 2.11
Weighted Average Grant Date Fair Value for options granted during the period \| $	$ 1,242,902

STOCKBASED COMPENSATION (Details 1) - USD ($)	6 Months Ended
STOCKBASED COMPENSATION (Details 1) - USD ($)	Jun. 30, 2023	Dec. 31, 2022
Options Outstanding	870,000	0
Options Outstanding, Weighted Average Exercise Price	$ 2.11	$ 0
Options Exercisable	870,000
Options Exercisable, Weighted Average Exercise Price	$ 2.11
Options [Member]
Options Outstanding	870,000
Options Outstanding, Weighted Average Exercise Price	$ 2.11
Options Outstanding, Weighted Average Remaining Contractual Life	9 years 5 months 1 day
Options Outstanding, Aggregate Intrinsic Value	$ 262,100
Options Exercisable	870,000
Options Exercisable, Weighted Average Exercise Price	$ 2.11
Options Exercisable, Aggregate Intrinsic Value	$ 262,100

STOCKBASED COMPENSATION (Details 2)	6 Months Ended
STOCKBASED COMPENSATION (Details 2)	Jun. 30, 2023
STOCKBASED COMPENSATION
Risk-free interest rate	3.48%
Expected volatility	90.00%
Expected life (years)	5 years
Expected dividend yield	0.00%

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

SHAREHOLDERS EQUITY (Details Narrative) - shares	Aug. 09, 2022	Jun. 30, 2023
SHAREHOLDERS EQUITY
Common stock issued		6,185,255
Reverse stock split Description	common shares on a 1-for-2.25 basis such that every 2.25 shares of common stock
Post reverse split share issue	111,111,111

PERSHARE INFORMATION (Details) - USD ($)	3 Months Ended		6 Months Ended
PERSHARE INFORMATION (Details) - USD ($)	Jun. 30, 2023	Jun. 30, 2022	Jun. 30, 2023	Jun. 30, 2022
PER SHARE INFORMATION
Numerator: Net increase in net assets resulting from operations	$ 70,721	$ 2,022	$ 647,323	$ 930,119
Denominator: Weighted-average number of common shares outstanding, basic	6,185,255	4,821,136	6,185,255	4,808,508
Basic and diluted net gain per common share	$ 0.01	$ 0.11	$ (0.10)	$ 0.19

OPERATING LEASES (Details) - USD ($)	3 Months Ended	6 Months Ended
OPERATING LEASES (Details) - USD ($)	Jun. 30, 2023	Jun. 30, 2023
OPERATING LEASES
Operating lease costs	$ 11,008	$ 5,504
Variable lease cost	9,733	4,828
Short-term lease cost	19,374	10,740
Total	$ 40,115	$ 21,072

OPERATING LEASES (Details 1) - USD ($)	Jun. 30, 2023	Dec. 31, 2022	Jun. 30, 2022
OPERATING LEASES
Right-of-use assets	$ 5,483	$ 16,398	$ 26,804
Operating Leases Liability	5,537		26,859
Less: short term portion	(5,537)		(23,832)
Long term portion	$ 0		$ 3,027

OPERATING LEASES (Details 2) - USD ($)	Jun. 30, 2023	Dec. 31, 2022	Jun. 30, 2022
Maturity analysis under lease agreements
2022	$ 0		$ 12,715
2023	5,613		14,859
Total lease payments	5,613		27,574
Plus: interest	(76)		(715)
Present value of lease liabilities	$ 5,537	$ 16,562	$ 26,859

OPERATING LEASES (Details Narrative) - USD ($)	6 Months Ended
OPERATING LEASES (Details Narrative) - USD ($)	Jun. 30, 2023	Jun. 30, 2022
OPERATING LEASES
Rent expense	$ 40,115	$ 35,953
Lease Term	one year
Weighted-average discount rate	4.50%	4.50%

FINANCIAL HIGHLIGHTS (Details) - USD ($)	6 Months Ended
FINANCIAL HIGHLIGHTS (Details) - USD ($)	Jun. 30, 2023	Jun. 30, 2022	Jun. 30, 2021	Jun. 30, 2020	Jun. 30, 2019
Per Share Data
Net asset value at beginning of period	$ 2.89	$ 1.24	$ 1.08	$ 0.91	$ 1.02
Net investment income (loss)	(0.11)	0.11	0.04	0.01	(0.03)
Net realized and unrealized gains(losses)	0.01	0.01	0.28	0.02	0.02
Provision for income taxes	(0.01)	(0.04)	(0.09)	0.00	0.00
Issuance of stock options	0.24	0.01	0.00	0.00	0.00
Repurchase of common stock	0.00	0.00	0.00	0.02	0.00
Payment of common stock dividend	(0.00)	(0.00)	(0.00)	(0.00)	(0.05)
Net asset value at end of period	3.02	1.33	1.31	0.96	0.96
Ratio / Supplemental Data
Per share market value of investments at end of period	$ 2.67	$ 1.41	$ 1.22	$ 0.65	$ 0.70
Shares outstanding at end of period	6,185,255	4,824,628	4,795,739	4,754,104	4,918,845
Average weighted shares outstanding for the period	6,185,255	4,808,508	4,794,744	4,877,654	4,918,845
Net assets at end of period	$ 18,684,446	$ 14,426,607	$ 14,188,588	$ 10,221,718	$ 10,588,689
Average net assets	$ 18,389,910	$ 13,888,938	$ 13,073,718	$ 10,025,622	$ 12,304,975
Total investment return	(3.81%)	6.45%	21.30%	3.30%	(5.88%)
Portfolio turnover rate	48.40%	65.55%	75.65%	11.90%	7.11%
Ratio of operating expenses to average net assets	(25.16%)	(14.63%)	(11.72%)	(9.41%)	(7.70%)
Ratio of net investment income (loss) to average net assets	(7.43%)	18.01%	6.88%	3.02%	(6.40%)
Ratio of realized gains (losses) to average net assets	(6.03%)	1.94%	61.92%	4.06%	57.36%

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