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

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes¨ Nox

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes¨Nox

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 the filing requirements for the past 90 days.x Yes¨ No

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

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.¨

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

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 Act).¨ Yesx No

The aggregate market value of the voting stock held by persons other than officers, directors and more than 5% shareholders of the registrant as of June 30, ~~2017~~2020 was approximately ~~$1,416,562~~$1,512,115 based on the closing sales price of ~~$0.75~~$0.60 per share as reported on the ~~OTCQX.~~OTCPK. As of March ~~30, 2018,~~10, 2021, there were ~~11,067,402~~10,785,913 shares of the registrant’s common stock, $0.001 par value, outstanding.

Mill City Ventures III, ~~Ltd., formerly known as Poker Magic, Inc.~~Ltd, (the “Company” or “we”), is a Minnesota corporation that was incorporated in January 2006. ~~Until~~From our inception 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. On December 13, 2012, we filed a Form N-8A with the Securities and Exchange Commission (“SEC”), notifying the SEC of our intent to register as an internally managed, non-diversified, closed-end investment company under the Investment Company Act of 1940 (the “1940 Act”). On February 7,In 2013, we ~~filed Form N-54A~~elected to become a business development company (“BDC”) under the Investment Company Act of 1940 ~~Act.~~(the “19440 Act”). We operated as a BDC until we withdrew our BDC election by filing a Form N-54C with SEC on December 27, 2019. Presently, we are ~~regulated~~engaged in the business of providing short-term specialty finance on an opportunistic basis. Nevertheless, we manage our investments to ensure that no more than 40% of our total assets consist of investment securities so as ~~a BDC and intend~~ to ~~be taxed as a regulated investment company.~~avoid the regulatory requirements of the 1940 Act.

As a BDC, we primarily ~~focus~~focused on investing in or lending to private and small-capitalization public companies and making managerial assistance available to such companies. ~~A BDC generally provides shareholders with the ability~~Our investments included stock of or membership interests (typically referred to ~~retain the liquidity of a publicly traded stock, while sharing~~as units) in ~~the possible benefits of investing in emerging-growth or expansion-stage~~private companies, ~~that are privately or publicly owned. As permitted by BDC regulations, we may acquire securities directly from private and~~ small-cap public ~~issuers, their affiliates,~~company stocks, and promissory notes. In some cases the stock or ~~from third parties,~~membership interests we acquired was preferred stock or units, and ~~may acquire securities issued by small-cap public issuers~~ in ~~open-market purchases effected through public exchanges and automated quotation systems.~~other cases the stock or membership interests acquired was common stock or units. In connection with our investments in promissory notes, we also obtained warrants to purchase common stock.

~~Our revenues~~Revenues from our operations as a BDC relate to the earnings we ~~receive~~received from our portfolio investments. Our objective is to obtain superior returns from investments in securities and other investment opportunities available to BDCs under the 1940 Act. We intend to invest capital in portfolio companies for purposes of financing acquisitions, organic growth, recapitalizations, buyouts and working capital. In this regard, buyouts generally include transactions that involve the acquisition of a controlling interest in an entity, either by management or other investors. Organic growth refers to growth through the internal operations of the company, whether through investments in marketing initiatives, capital expenditures or other internal growth initiatives, rather than growth by means of acquisitions.

We plan to identify potential investments through multiple sources, including without limitation private equity sponsors, investment bankers, brokers, professional contacts, and owners and operators of businesses. We expect to base our investment decisions on our analyses of actual and potential business operations, asset valuations and viable exit strategies to establish appropriate pricing and maximize our return on investment. Subject to regulations applicable to BDCs, we plan to invest in private companies, small-cap public stocks, notes and other forms of debt, investment contracts, and other investments commonly referred to as securities.

As a BDC, we compete with strategic buyers, private equity funds, subordinated debt funds and other buyers and financing sources, including traditional financial services companies such as finance companies, commercial banks, investment banks and other equity and non-equity based investment funds. Some of our competitors will be substantially larger and have considerably greater financial resources than we do. Competitors may have a lower cost of funds and many have access to funding sources that are not available to us. In addition, certain of our competitors may have higher risk tolerances or different risk assessments, which could allow them to consider a wider variety of investments, establish more relationships and build their market shares. Competitive pressures may have a material adverse effect on our results of operations. In addition, as a result of this competition, we may be unable to take advantage of attractive investment opportunities and meet our investment goals.

~~We believe that we are well positioned to secure appropriate investments in target companies for the following reasons:~~

We have identified several criteria that we believe will prove important in achieving our investment objectives with respect to target portfolio companies. These criteria will provide general guidelines for our investment decisions. Nevertheless, not all of these criteria will be met by each prospective portfolio company in which we choose to invest.

If we believe a target portfolio company generally meets the characteristics described above or if we believe that certain of the most important characteristics for that particular target portfolio company or the industry in which it operates are met, or if we have other reasons to believe in the potential profitability of an investment in a target portfolio company, we may perform initial due diligence on that company. Our due-diligence examination for each target portfolio company will differ based on a number of factors but is generally likely to include our:

The assessments delineated above provide our general approach for our investment decisions, although not all of such activities will be followed in each instance, or some may be stressed moreso than others depending on facts and circumstances. Upon successful completion of this preliminary evaluation, we will decide whether to move forward towards negotiating a letter of intent and, thereafter, definitive documentation for our investment. Depending on timing, we may not use a letter of intent and will instead proceed directly to definitive documentation.

We expect to engage in various investment strategies in order to achieve our overall investment objectives. The particular type of investment strategy we select will depend, among other things, upon market opportunities, the skills and experience of our management and Board of Directors and our overall portfolio composition. Our strategies generally seek to provide (i) in the case of debt, current cash yields and favorable loan-to-value ratios, or other financial guarantees or credit enhancements with respect to loan collateral, and (ii) in the case of equity, favorable long-term growth and income potential together with viable exit or liquidity strategies.

We intend to tailor the terms of each debt investment we make to the facts and circumstances of the transaction and prospective portfolio company, negotiating a structure that seeks to protect our rights and manage our risk while creating incentives for the portfolio company to achieve its business plan. Our expected primary source of return on debt investments is the monthly cash interest we collect on those investments. The particular types of debt investments we may make include, but are not limited to, the following:

Like debt investments, we intend to tailor the terms of each equity investment we make to the facts and circumstances of the transaction and prospective portfolio company, negotiating a structure that seeks to protect our rights and manage our risk while creating incentives for the portfolio company to achieve its business plan. As an equity holder, the rights we will generally seek to protect or obtain include minority rights, event-driven rights to “put” or sell our equity back to the portfolio company or certain affiliates or sponsors, and registration rights such as “demand” or “piggyback” registration rights. We may invest in common stock and preferred stock, and may receive warrants in connection with our investments. When we make a debt investment, we may also be granted equity participation in the form of warrants to purchase common equity in the company in the same class of security that the owners or equity sponsors receive upon funding. In addition to purchasing equity securities from the issuer or its affiliates, we may choose to purchase publicly traded equity securities of the issuer, if any, on the open market (i.e., the particular stock exchange or automated quotation system on which the issuer’s equity primarily trades).

We monitor our portfolio companies in order to determine whether they are meeting our financing criteria and their respective business plans. We may decline to make additional investments in portfolio companies that do not continue to meet our financing criteria or that fail to successfully execute their business plans. Of course, we may choose to make additional investments in portfolio companies that do not do so, but that we believe will nevertheless perform well in the future.

We expect to monitor the financial trends of each portfolio company and their respective industries to assess the appropriate course of action for each company and to evaluate our overall portfolio quality. In this regard, our management team will monitor the status and performance of each individual company on at least a quarterly and, in some cases, a monthly basis.

~~We have several methods of evaluating and monitoring the performance and fair value of our debt and equity positions. By way of example, we may:~~

~~We expect that current and annual financial statements of portfolio companies will often be available to us to assist us in our fair value reporting obligations under the 1940 Act.~~

As a BDC, we offer, and in some cases may provide, significant managerial assistance to those of our portfolio companies intended to qualify as “eligible portfolio companies” under the 1940 Act. We expect that this assistance, if any, will typically involve monitoring the operations of our portfolio companies, participating in their board and management meetings, consulting with and advising their officers and providing other organizational, financial, strategic and transactional guidance.investmenst.

At December 31, ~~2017,~~2020, we held investments in 22eight portfolio companies, which had an aggregate amortized cost of $4,968,576 and a fair value of $6,667,897. At December 31, 2019, we held investments in eight eligible portfolio investments, which had an aggregate amortized cost of ~~$6,894,523~~$1,976,370 and a fair value of $~~7,133,860,~~and our non-eligible portfolio holdings had an aggregate cost of $106,222 and a fair market value of $107,000. At December 31, 2016, we held 22 eligible portfolio investments, which had an aggregate amortized cost of $6,574,490 and a fair value of $6,211,043.$1,740,897. Our ~~eligible~~ portfolio investments at December 31, ~~2017~~2020 were as follows:

The following discussion is a general summary of some of the material prohibitions and restrictions governing BDCs generally. It does not purport to be a complete description of all the laws and regulations affecting BDCs.

The 1940 Act contains prohibitions and restrictions relating to transactions between BDCs and their directors and officers and principal underwriters and certain other related persons, and requires that a majority of the directors be persons other than “interested persons,” as that term is defined in the 1940 Act. In addition, the 1940 Act provides that we may not change the nature of our business so as to cease to be, or to withdraw our election as, a BDC unless approved by a majority of our outstanding voting securities. A majority of the outstanding voting securities of a company is defined under the 1940 Act as the lesser of (i) 67% or more of such company’s shares present at a meeting or represented by proxy if more than 50% of the outstanding shares of such company are present or represented by proxy or (ii) more than 50% of the outstanding shares of such company.

Under the 1940 Act, a BDC may not acquire any asset other than “qualifying assets” listed in Section 55(a) of the 1940 Act unless, at the time the acquisition is made, qualifying assets represent at least 70% of the BDC’s total assets. The principal categories of qualifying assets relevant to our business are the following:

Securities of an “ eligible portfolio company ” purchased from the issuer of such securities, from any person who is, or who was within the 13 months prior to the date of purchase, an affiliate of the issuer, or from any other person (subject to limitation by SEC rules), in any case in transactions not involving any public offering. The 1940 Act defines an “eligible portfolio company” as any issuer which:

A BDC must have been organized and have its principal place of business in the United States and must be operated for the purpose of making investments in the types of securities described above. However, to count portfolio securities as qualifying assets for the purpose of the foregoing 70% test, the BDC must either control the issuer of the securities or offer to make available to the issuer of the securities (other than small and solvent companies described above) significant managerial assistance; except that, where the BDC purchases such securities in conjunction with one or more other persons acting together, one of the other persons in the group may make available such managerial assistance. Making available significant managerial assistance means, among other things, any arrangement whereby the BDC, whether through its directors, officers or employees, offers to provide, and, if accepted, does in fact so provide, significant guidance and counsel concerning the management, operations or business objectives and policies of a portfolio company through monitoring of portfolio company operations, selective participation in board and management meetings, consulting with and advising a portfolio company’s officers or other organizational or financial guidance.

Pending investment in other types of qualifying assets, as described above, 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, whichIn 2019, we refer to, collectively, as temporary investments, so that at least 70% of our assets are qualifying assets. We plan to invest in money markets or cash equivalent instruments. We may, however, invest in repurchase agreements provided that such agreements are fully collateralized by cash or securities issued by the U.S. government or its agencies. A repurchase agreement involves the purchase by an investor, such as us,disposed of a ~~specified security and~~substantial portion of the ~~simultaneous agreement~~investments we had earlier made as a BDC. These dispositions were effected by ~~the seller~~management in an orderly fashion, at prices management believed to ~~repurchase it at an agreed upon future date~~be fair, and at ~~a price which is greater than the purchase price by an amount that reflects an agreed-upon interest rate. There is no percentage restriction on the proportion~~times management believed to advantageous. In all, we disposed of ~~our assets that may be invested~~$9,110,237 in such repurchase agreements. However, if more than 25% of our total assets constitute repurchase agreements from a single counterparty, we would not meet the diversification tests imposed on us by the Internal Revenue Code to qualify for tax treatment as a “regulated investment company” (“RIC”) for federal income tax purposes. Thus, we do not intend to enter into repurchase agreements with a single counterpartyinvestments (measured at fair value) in ~~excess of this limit. We will monitor the creditworthiness of the counterparties with which we enter into repurchase agreement transactions.~~

We will be permitted, under specified conditions, to issue multiple classes of indebtedness and one class of stock senior to our common stock, but only if our “asset coverage,” as defined in the 1940 Act, is at least equal to 200% immediately after each such issuance. In addition, while any senior securities remain outstanding, we must not make any dividend distribution to our shareholders or repurchase securities unless we meet the applicable asset-coverage ratios at the time of the dividend distribution or repurchase. We may also borrow amounts up to 5% of the value of our total assets for temporary or emergency purposes.

We will be periodically examined by the SEC for compliance with the 1940 Act, the rules and regulations thereunder, and good governance practices. We will not “concentrate” our investments (i.e., invest 25% or more of our assets in any particular industry, determined at the time of investment). We will be required to provide and maintain a bond issued by a reputable fidelity insurance company to protect us against larceny and embezzlement. Furthermore, as a BDC, we are prohibited from indemnifying any director or officer against any liability to our shareholders arising from willful malfeasance, bad faith, gross negligence or reckless disregard of the duties involved in the conduct of such person’s office. We are required to adopt and implement written policies and procedures reasonably designed to prevent violation of the federal securities laws, and review these policies and procedures annually for their adequacy and the effectiveness of their implementation.2019.

Currently, Mr. Douglas M. Polinsky, the Chief Executive Officer and Chairman of our Board of Directors, and Joseph A. Geraci, II, our Chief Financial Officer and a director of the Company, ~~both~~ serve as our senior management team. ~~Our~~

As of the time of this filing, we remain a public reporting company and file periodic reports with the SEC. Since the withdrawal of our BDC election, we have focused our business on the provision of short-term specialty financing to small business, small-cap public companies and high-net-worth individuals. We structure these investments carefully so as to avoid them, to the extent possible, from being characterized as “investment securities” under federal securities laws. In this regard, we generally seek to provide financing solutions that mature in nine months or less. Because of the short-term nature of our investments, and our ability to ~~achieve~~manage the due-diligence process swiftly and efficiently, our finance solutions typically involve high rates of interest and premiums, as well as other terms advantageous to us. In addition, to avoid becoming subject to the regulatory requirements of the 1940 Act, we monitor our investment ~~objective will depend on~~holdings as a whole to ensure that investments and other holdings which may be considered “investment securities” do not comprise more than 40% of our senior management team’s ability to identify, evaluate, finance and invest in suitable companies that meet our investment goals. Accomplishing this result in a cost-effective manner will largely be a functiontotal assets.

Pending the consummation of ~~managing the due-diligence and investment process, efficiently monitoring~~ investments, we ~~make and,~~intend to keep the majority of our assets in ~~some cases, accessing financing sources on acceptable terms.~~cash, cash equivalents such as money-market investments, U.S. government securities or high quality debt securities maturing in one year or less from the time of investment.

ITEM 1A RISK FACTORS

You should consider the following risk factors, in addition to the other information presented or incorporated by reference into this Annual Report on Form 10-K, in evaluating our business and any investment decision relating to our securities.

~~Our management team has no prior experience managing a BDC.~~We have little operating history upon which to evaluate our business.

~~On December~~We only recently – within the past 13 ~~2012, we changed~~months - withdrew our ~~business to become an internally managed, closed-end investment company and subsequently elected~~election to be treated as a BDC under the 1940 ~~Act. We~~Act, and during that same short span of time have ~~no prior experience managing~~refocused our business on providing short-term specialty finance to private businesses, small-cap public companies and high-net-worth individuals. The financial results included in this report relate to our business operations as a BDC ~~which may affect our ability to successfully manage and grow our business.~~

~~The 1940 Act imposes numerous constraints on the operations of BDCs. For example, BDCs are required to invest at least 70% of their total assets~~during 2019 (a business in specified types of securities, primarily in private companies or small-cap traded U.S. public companies, cash, cash equivalents, U.S. government securities and other high quality debt investments that mature in one year or less. Our management team’s lack of experience in managing a portfolio of assets under such regulatory constraints may hinder our ability to take advantage of attractive investment opportunities and, as a result, achieve our investment objective. Furthermore, our failure to comply with the complex BDC requirements could cause the SEC to bring an enforcement action against us, expose us to private claims and/or cause us to lose our status as a BDC.

~~We operate in a highly competitive market for portfolio investment opportunities.~~

We expect that many entities will compete with us to make the types of investments we plan to make in prospective portfolio companies. We will compete with private equity firms as well as other BDCs, investment funds, investment banks and other sources of financing, including traditional financial services companies such as commercial banks and finance companies. Many of our competitors are substantially larger and have considerably greater financial, technical, marketing and other resources than we do. For example, some competitors may have a lower cost of funds and access to funding sources not available to us. These resources may enable our competitors to offer terms that we cannot match. We may lose prospective portfolio investments if we do not match our competitors’ pricing, terms and structure. If, on the other hand, we do match our competitors’ pricing, terms or structure, we may experience decreased net interest income and increased risk of credit losses. In addition, some of our competitors may have higher risk tolerances or different risk assessments, which could allow them to consider a wider variety of investments, establish more relationships and build their market shares. Importantly, many of our potential competitors have greater experience operating under, or are not subject to, the regulatory restrictions that the 1940 Act does impose on us as a BDC. If we are ~~not able to compete effectively,~~no longer engaged) and our new short-term specialty finance business operations during 2020. Given that our current business has been developed and ~~financial condition~~pursued over the prior 13 months, and the comparative prior-year financials included in this report reflect the results of operations ~~will be adversely affected.~~for a different business, investors have little means to evaluate the likelihood of our future success.

We may ~~be unable to make distributions, which failure could materially and adversely affect your investment.~~

Although we intend to make periodic distributions to our shareholders, we may be unable to achieve operating results that will allow us to make such distributions. For example, the BDC asset-coverage requirements may limit our ability to make distributions. In addition, restrictions and provisions in any future credit facilities may limit our ability to make distributions. Although we intend to elect RIC taxation under the Internal Revenue Code, if we fail to meet certain annual income-distribution requirements, we could lose our RIC status and be subject to corporate-level income tax. Any failure to make distributions or any loss of our RIC status could materially and adversely affect your investment.

~~Any unrealized losses we experience may be an indication of future realized losses, which could reduce our income available for distribution.~~

As a BDC, we are required to carry our investments at market value or, if no market value is ascertainable, at the fair value as determined in good faith by our Board of Directors and consistent with our Company’s valuation policy. Decreases in the market values or fair values of our investments will be recorded as unrealized depreciation on our statement of operations. Any unrealized losses in our portfolio could be an indication of a portfolio company’s inability to meet its repayment obligations to us (if a loan), or of its diminishing value (if equity). This could result in future realized losses and, ultimately, income available for distribution in future periods.

Many of our portfolio investments will be recorded at fair value as determined in good faith by our Board of Directors. As a result, there may be uncertainty as to the ultimate value of our investments.

Our investments are expected to consist in material part of securities issued by privately held companies, the fair value of which is not readily determinable. In addition, we will not be permitted to maintain a general reserve for anticipated loan losses. Instead, we will be required by the 1940 Act to specifically value each investment and record an unrealized gain or loss for any asset that we believe has increased or decreased in value. Our Board of Directors will value these securities at fair value as they determine in good faith and consistent with the written policies and procedures that we have adopted for this purpose. Where appropriate, our board may utilize the services of an independent valuation firm to assist in the determination of fair value. Because valuations, and particularly valuations of private investments, are inherently uncertain and may be based on estimates, our fair value determinations may differ materially from those that would be assessed if a liquid market for these securities existed. Our net asset value could be adversely affected if we determine the fair value of our investments to be materially higher than the values we ultimately realize from those investments.

~~If we are unable to source investments effectively, we may be unable to achieve our investment objectives.~~

Our ability to achieve our investment objective will depend on our senior management team’s ability to identify, evaluate, finance and invest in suitable companies that meet our investment criteria. Accomplishing this result in a cost-effective manner will largely be a function of our management of the investment process, our ability to provide efficient services and our access to financing sources on acceptable terms. In addition to monitoring the performance of our investments, our management team must offer managerial assistance to our portfolio companies. These demands on their time may distract them, slowing the rate of overall investment. To grow, we expect that we will need to hire, train, supervise and manage new employees and to implement computer and other systems capable of effectively accommodating our growth. Our failure to effectively manage our future growth could materially and adversely affect our business, financial condition and results of operations.

~~We will be exposed to risks associated with changes in interest rates.~~

General interest rate fluctuations may have a substantial and negative impact on our investments, the value of our common stock and our rate of return on invested capital. A reduction in interest spreads on new investments could also have an adverse impact on our net interest income. An increase in interest rates could decrease the value of any investments we hold which earn fixed interest rates. Also, an increase in interest rates could make investment in our common stock less attractive if we are unable to increase our dividend rate, which could reduce the value of our common stock.

~~We may have difficulty paying our required distributions if we recognize income before or without receiving cash representing such income.~~

Once we become a BDC subject to RIC taxation upon making a RIC election, we may be required to include in our taxable income certain amounts that we have not yet received in cash. Any of these amounts will increase the amounts we are required to distribute to qualify under the RIC rules. In any such event, we would need to obtain cash from other sources to satisfy our RIC-related distribution requirements. If we are unable to so obtain cash, we may fail to qualify for tax treatment as a RIC, and thus could become subject to a corporate-level income tax on all of our income. Accordingly, we may have to sell some of our assets, raise additional debt or equity capital, or reduce new investment originations to meet these distribution requirements and avoid a corporate-level income tax.

~~If we incur additional debt, it could increase the risk of investing in our Company.~~

We expect, in the future, that we may borrow from, and issue senior debt securities to, banks, insurance companies and other lenders. In such a case, lenders will have fixed-dollar claims on our assets that are superior to the claims of our shareholders, and we may grant a security interest in our assets in connection with our borrowings. In the case of a liquidation event, those lenders would receive proceeds before our shareholders. In addition, borrowings generally magnify the potential for gain or loss on amounts invested and, therefore, increase the risks associated with investing in our securities. Leverage is generally considered a speculative investment technique. If the value of our assets increases, then leveraging would cause the net asset value attributable to our common stock to increase more than it otherwise would have had we not leveraged. Conversely, if the value of our assets decreases, leveraging would cause the net asset value attributable to our common stock to decline more than it otherwise would have had we not leveraged. Similarly, any increase in our revenue in excess of interest expense on our borrowed funds would cause our net income to increase more than it would without the leverage; and any decrease in our revenue would cause our net income to decline more than it would have had we not borrowed funds, and could negatively affect our ability to make distributions on our common stock. Our ability to service any debt that we incur will depend largely on our financial performance and will be subject to prevailing economic conditions and competitive pressures.

As a BDC, we will be required to meet an asset-coverage ratio, calculated as total assets (less all liabilities and indebtedness not represented by senior securities) to total indebtedness represented by senior securities, of at least 200%. If this ratio declines below 200%, we will be unable to incur additional debt and may need to sell a portion of our investments to repay debt when it is otherwise disadvantageous to do so, and we may be unable to make distributions.

Because we intend to distribute substantially all of our income and net realized capital gains to our shareholders once we make a RIC election, we will likely need additional capital to finance our growth.

To qualify for RIC taxation and avoid payment of excise taxes and minimize or avoid payment of income taxes, we intend to distribute to our shareholders substantially all of our net ordinary income and realized net capital gains except for certain net long-term capital gains (which we may retain, pay applicable income taxes with respect thereto, and elect to treat as deemed distributions to our shareholders). As described elsewhere, as a BDC we will be required to meet a 200% asset-coverage ratio limiting the amount that we may borrow. Because we will continue to need capital to grow our investment portfolio, this limitation may require us to raise additional ~~equity at a time when it may be disadvantageous~~capital in the near future to ~~do so. While we expect to be able to borrow~~fund operations, and ~~issue additional debt and equity securities, debt and equity financing~~such capital may not be available to us in sufficient amounts or on acceptable terms.

For the time being, management believes that our current cash is sufficient to continue operations for the foreseeable future, and has no potential or actual plans to seek additional financing. Nevertheless, various future developments may cause us to seek or require additional financing.

Additional financing could be sought from a number of sources, including but not limited to additional sales of equity or debt securities, or loans from banks, other financial institutions or affiliates of the Company. We cannot, however, be certain that any such financing will be available on terms favorable ~~terms,~~or acceptable to us if at all. ~~In addition, as a BDC, we will generally not be permitted to issue equity securities below our net asset value without shareholder approval.~~ If additional funds are raised by the issuance of our equity securities, such as through the issuance of stock, convertible securities, or the issuance and exercise of warrants, then the ownership interest of our existing shareholders will be diluted. If additional funds are raised by the issuance of debt or other equity instruments, we may become subject to certain operational limitations, and such securities may have rights senior to the rights of our common shareholders. If adequate funds are not available on acceptable terms, we may be unable to ~~us, we could be forced to curtail~~consummate acquisitions or ~~cease new investment activities,~~investments desired by our management and ~~our net asset value could decline.~~board.

Our ~~Board of Directors~~ability to identify and consummate investment opportunities, and any need we may ~~change our investment objective, operating policies and strategies without prior notice or shareholder approval.~~have for additional capital, will almost certainly be affected by general economic conditions.

Our Board of Directors has the authority from time to time to modify or waive certain of our operating policies and strategies without prior notice (except as required by the 1940 Act) and without shareholder approval. Under Section 58 of the 1940 Act, our Board of Directors may not, however, choose to withdraw our status as a BDC, or change its operations so as to cease to be a BDC, without the prior approval of our shareholders. The effects of any such exercise of authority may adversely affect our business and the value of your investment.

~~Failure to achieve and maintain effective internal controls could limit~~General economic conditions will almost certainly impact our ability to ~~detect~~(i) identify and ~~prevent fraud~~pursue and ~~thereby adversely affect our business~~consummate investment opportunities, and ~~stock price.~~

~~Effective internal controls are~~(ii) if necessary, ~~for~~seek and obtain additional financing on terms acceptable or favorable to us, ~~to provide reliable financial reports. Nevertheless, all internal control systems, no matter how well designed, have inherent limitations. Eventhose internal control systemsdetermined to be effective can provide only reasonable assurance with respect to financial statement preparation and presentation. Our most recent evaluation~~if at all. Therefore, a deterioration in general economic conditions may slow the development of our internal controls resulted in our conclusion that our disclosure controls and procedures were effective. Our inability to maintain an effective control environment may cause investors to lose confidence in our reported financial information, which could in turn have a material adverse effect on our stock price.business.

We are highly dependent on the services provided by certain executives and key personnel.

Our success depends in significant part upon the continued service of ~~certain~~our senior management ~~and other key~~ personnel. In particular, the Company is materially dependent upon the services of Douglas M. Polinsky, our Chief Executive Officer and Chairman, and Joseph A. Geraci, II, our Chief Financial Officer and a director of the Company. ~~Presently,~~Although we currently have ~~no written~~ employment agreements with ~~either Mr. Geraci~~these individuals, these agreements will not necessarily prevent the departure of these executives, whether due to death, disability, retirement or ~~Mr. Polinsky (their prior written employment agreements having expired in March 2016). Nevertheless, we expect~~otherwise. Any loss of services provided by these executives would likely have a material and adverse effect on our operations and ability to enter into employment agreements with Messrs. Polinsky and Geraci in 20188 that will be substantially similar to their prior written agreements. We do not have any key-man insurance in place with respect to Messrs. Geraci and Polinsky.execute our business plans.

Our articles of incorporation grant our ~~Board~~board of ~~Directors~~directors the power to designate and issue additional shares and classes of common and preferred stock.

Our authorized capital consists of 250,000,000 shares of capital stock. ~~Unless otherwise specifically so designated upon issuance, all shares of capital issued we issue will be common stock.~~ Pursuant to authority granted by our articles of incorporation, our ~~Board~~board of ~~Directors,~~directors, without any action by our shareholders, may designate and issue shares in such classes or series (including other classes or series of preferred stock) as it deems appropriate, and may establish the rights, preferences and privileges of such shares, including dividends, liquidation and voting rights. The rights of holders of ~~other~~new classes or series of stock that may be so designated and issued could be superior to the rights of holders of our common shares. The designation and issuance of shares of capital stock having preferential rights could adversely affect other rights appurtenant to shares of our common stock. Furthermore, any issuances of additional ~~stock (common~~stock—common or ~~preferred)~~ preferred—will dilute the ~~percentage of~~ ownership interest of then-current holders of our capital stock and may dilute our book value per share.

Our stock is thinly traded, which may make it difficult to sell shares of our common stock.

Our common stock is thinly traded ~~on the OTCQX~~ and ~~we expect that our common stock will generally~~may remain thinly traded for the foreseeable future. A low trading volume will generally make it difficult for our shareholders to sell their shares as and when they choose. Furthermore, low trading volumes are generally understood to depress market prices. As a result, our shareholders may not always be able to resell shares of our common stock publicly at the time and prices that they feel are fair or appropriate.

~~Our common stock qualifies as a “penny stock,” which~~We may ~~make it difficult to sell shares of~~not pay dividends on our common stock.

Our common stock is categorized as a “penny stock” subject to the requirements of Rule 15g-9 under the Securities and Exchange Act of 1934. Under this rule, broker-dealers who sell penny stocks must provide purchasers of these stocks with a standardized risk-disclosure document prepared by the SEC. Under applicable regulations, our common stock will generally remain a “penny stock” until and for such time as its per-share price is $5.00 or more (as determined in accordance with SEC regulations), or until we meet certain net asset or revenue thresholds. These thresholds include the possession of net tangible assets (i.e., total assets less intangible assets and liabilities) in excess of $2,000,000 in the event we have been operating for at least three years or $5,000,000 in the event we have been operating for fewer than three years, and the recognition of average revenues equal to at least $6,000,000 for each of the last three years. We ~~do not anticipate meeting any of the foregoing thresholds in the foreseeable future.~~

The penny-stock rules severely limit the liquidity of securities in the secondary market, and many brokers choose not to participate in penny-stock transactions. As a result, there is generally less trading in penny stocks. If you become a holder of our common stock, you may not ~~always be able to resell shares of our common stock in public broker’s transaction, if at all, at the times and prices that you feel are fair or appropriate.~~

Our investments may involve significant risks, which could ultimately materially and adversely affect our results of operation, financial condition and the value of our common stock. You could lose all of your investment.

We expect to invest primarily in senior secured term loans, mezzanine debt and selected equity investments issued by privately held and public “small- and micro-capitalization” companies, and may also use short sales and options in connection with our business.

~~Senior Secured Loans~~. When we extend senior secured term loans, we will generally take a security interest in the available assets of these portfolio companies, including the equity interests of their subsidiaries, which we expect to help mitigate the risk of default. However, there is a risk that the collateral securing our loans may decrease in value over time, may be difficult to sell in a timely manner, may be difficult to appraise and may fluctuate in value based upon the success of the business and market conditions. In some circumstances, our lien could be subordinate to claims of other creditors. Consequently, the fact that a loan is secured does not guarantee that we will receive principal and interest payments according to the loan’s terms, or at all, or that we will be able to collectpay cash dividends on ~~the loan should we be forced to enforce our remedies.~~

~~Mezzanine Debt~~. Any mezzanine debt investments will generally be unsecured and subordinated to senior loans. We expect this will result in above-average risk and volatility, which could adversely affect our investment returns. Because mezzanine debt generally does not receive any cash prior to maturity of the debt, the investment will be of greater risk. To the extent interest payments associated with such debt are deferred, such debt will necessarily be subject to greater fluctuations in value based on changes in interest rates, and such debt could subject us to phantom income.

~~Equity Investments~~. We expect to make equity investments. In addition, when we invest in senior loans or mezzanine debt, we may acquire warrants in connection with such investments. Our goal is ultimately to dispose of such equity interests and realize gains upon our disposition of such interests. Nevertheless, the equity interests we receive may not appreciate in value and may in fact decline in value. Accordingly, we may not be able to realize gains from our equity interests, and any gains that we do realize on the disposition of any equity interests may not be sufficient to offset any other losses we experience.

~~Short Sales~~. We may engage in short selling. In certain circumstances, short sales can substantially increase the impact of adverse price movements in our investment positions. A short sale involves the theoretically unlimited increase in the market price of the security and uncertainty as to the availability of such security for purchase—theoretically an unlimited loss.

~~Options~~. We may buy or sell (write) both call options and put options, and may do so on a “covered” or an “uncovered” basis. Any options transactions may be part of a hedging tactic (i.e., offsetting the risk involved in another securities position) or as a form of leverage, in which we have the right to benefit from price movements in a large number of securities with a small commitment of capital. These activities involve risks that can be large, depending on the circumstances under which a particular transaction or position is entered into. When we buy an option, a decrease (or inadequate increase) in the price of the underlying security in the case of a call, or an increase (or inadequate decrease) in the price of the underlying security in the case of a put, could result in a total loss of our investment in the option. When we sell (write) an option, the risk can be substantially greater. The seller of an uncovered call option bears the risk of an increase in the market price of the underlying security above the exercise price. This risk is theoretically unlimited unless the option is “covered.” If it is covered, an increase in the market price of the security above the exercise price would cause us to lose the opportunity for gain on the underlying security—assuming it bought the security for less than the exercise price.

~~Middle-Market Companies. Investments in middle-market companies also involve a number of additional significant risks, including:~~

~~The lack of liquidity in our investments may adversely affect our business.~~

We may invest in private companies and certain public companies. These securities may be subject to legal and other restrictions on resale or otherwise be less liquid than other publicly traded securities. The relative illiquidity of these investments may make it difficult for us to sell these investments when desired. In addition, if we are required to liquidate all or a portion of our portfolio quickly, we may realize significantly less than the value at which we had previously recorded these investments. As a result, we do not expect to achieve near-term liquidity in our investments. Our investments may occasionally be subject to contractual or legal restrictions on resale or will be otherwise illiquid due to the fact that there is no established trading market for such securities, or such trading market is thinly traded. The relative illiquidity of our investments may make it difficult for us to dispose of them at a favorable price, and, as a result, we may suffer losses.

~~Economic recessions or downturns could impair our portfolio companies and harm our operating results.~~

Many of our portfolio companies may be susceptible to economic slowdowns or recessions and may be unable to repay our loans during these periods. Therefore, our non-performing assets are likely to increase and the value of our portfolio is likely to decrease during these periods. Adverse economic conditions may also decrease the value of collateral securing our loans and the value of our equity investments. Economic slowdowns or recessions could lead to financial losses in our portfolio and a decrease in revenues, net income and assets. Unfavorable economic conditions also could increase our funding costs, limit our access to the capital markets or result in a decision by lenders not to extend credit to us. These events could prevent us from increasing investments and harm our operating results.

A portfolio company’s failure to satisfy financial or operating covenants imposed by us or other debt holders could lead to defaults and, potentially, acceleration of the time when the loans are due and foreclosure on its secured assets. Such events could trigger cross-defaults under other agreements and jeopardize a portfolio company’s ability to meet its obligations under the debt that we hold and the value of any equity securities we own. We may incur expenses to the extent necessary to seek recovery upon default or to negotiate new terms with a defaulting portfolio company.

When we are a debt or minority equity investor in a portfolio company, we may not be in a position to control the entity, and its management may make decisions that could decrease the value of our investment.

We anticipate making both debt and minority equity investments in our portfolio companies. Therefore, we will be subject to the risk that a portfolio company may make business decisions with which we disagree, and may take risks or otherwise act in ways that do not immediately or ultimately serve our interests and that could decrease the value of our portfolio holdings. We will not be in a position to control any portfolio company, and mitigate these risks, by investing in its debt securities or minority equity positions.

~~The prepayment of our debt investments could adversely impact our results of operations and reduce our return on equity.~~

We will be subject to the risk that our portfolio investments may be repaid prior to maturity. When this occurs, we generally expect to reinvest these proceeds in temporary investments, pending their future investment in new portfolio companies. These temporary investments will typically have substantially lower yields than the debt that has been prepaid, and we could experience significant delays in reinvesting these prepaid amounts. Any future investment in a new portfolio company may also be at lower yields than the prepaid debt. As a result, our results of operations could be materially and adversely affected if one or more of our portfolio companies were to prepay amounts owed to us. Additionally, prepayments could negatively impact our return on equity, which could result in a decline in the market price of our common stock.

~~Our portfolio companies may incur debt that ranks equally with or senior to our investments.~~

In some cases, portfolio companies will have other debt ranking equal or senior to the debt securities in which we invest. By their terms, such debt instruments may provide that holders thereof are entitled to receive payment of interest or principal on or before us. Also, in the event of insolvency, liquidation, dissolution, reorganization or bankruptcy of a portfolio company, senior debt holders will typically be entitled to receive full payment before we receive distributions in respect of our investment, if any. In the case of debt ranking equal to our investment, we would have to share distributions on a pro rata basis with other creditors holding such debt upon any insolvency, liquidation, dissolution, reorganization or bankruptcy.

~~There may be circumstances where our debt investments could be subordinated to claims of other creditors or we could be subject to lender-liability claims.~~

Even though we may structure investments as senior loans, if one of our portfolio companies goes bankrupt, a bankruptcy court might recharacterize our debt investment and subordinate all or a portion of our claim to that of other creditors. In addition, lenders such as us can be subject to lender-liability claims when they become too involved in the borrower’s business or exercise control over the borrower.

~~Investments in equity securities involve a substantial degree of risk.~~

We may purchase common stock and other equity securities. The equity securities we acquire may fail to appreciate and may decline in value or become worthless, and our ability to recover our investment will depend on our portfolio company’s success. Investments in equity securities involve a number of significant risks, including the risk of dilution as a result of additional issuances. Even investments in preferred securities involve unique risks, such as the risk of deferred distributions, credit risk, illiquidity and limited voting rights.

~~Our ability to enter into transactions with our affiliates will be restricted.~~

The 1940 Act prohibits us from participating in certain transactions with certain of our directors, officers and affiliates without the prior approval of our independent directors and, in some cases, the SEC. In this regard, any person owning, directly or indirectly, 5% or more of our outstanding voting securities will be our affiliate for purposes of the 1940 Act. The 1940 Act also prohibits certain “joint” transactions with certain of our affiliates, which could include co-investments in a portfolio company, without prior approval of our independent directors and, in some cases, the SEC. In this regard, if a person acquires more than 25% of our voting securities, we will be prohibited from buying or selling any security from or to such person or certain of that person’s affiliates, or entering into prohibited joint transactions with such persons absent the prior approval of the SEC. As a result of these restrictions, the scope of investment opportunities that would otherwise be available to us may be materially limited.

We will likely require additional capital. We may acquire additional capital by issuing senior securities or indebtedness, by issuing additional common shares or from securitization transactions. Nonetheless, we may be unable to raise additional capital on favorable terms, if at all. We may issue debt securities or preferred securities, which we refer to collectively as “senior securities,” and we may borrow money from banks or other financial institutions, up to the maximum amount permitted by the 1940 Act. Our ability to pay dividends or issue additional senior securities would be restricted if our asset-coverage ratio were not at least 200%. If the value of our assets declines, we may be unable to satisfy this test. In such a case, we may be required to liquidate a portion of our investments and repay a portion of our indebtedness at a time when such sales may be disadvantageous.

Changes in the laws or regulations governing our business, or in the interpretations thereof, and any failure by us to comply with these laws or regulations, could negatively affect the profitability of our operations.

Changes in the laws, regulations or the interpretations thereof that govern BDCs, RICs or non-depository commercial lenders, could significantly affect our operations and our cost of doing business. We are subject to federal, state and local laws and regulations and are subject to judicial and administrative decisions that affect our operations, including our loan originations, maximum interest rates, fees and other charges, disclosures to portfolio companies, the terms of secured transactions, collection and foreclosure procedures and other trade practices. If these laws, regulations or decisions change, or if we expand our business into jurisdictions that have adopted more stringent requirements, we may have to incur significant compliance expenses or we might have to restrict our operations. If we fail to comply with applicable laws, regulations and decisions, we may lose licenses needed for the conduct of our business and be subject to civil fines or criminal penalties, any of which could have a material adverse effect upon our business, results of operations or financial condition.

~~If our primary investments are not deemed to be qualifying assets, we could fail to qualify as a BDC or be precluded from investing according to our current business strategy.~~

To maintain qualification as a BDC, we must not acquire any assets other than “qualifying assets” unless, at the time of and after giving effect to such acquisition, at least 70% of our total assets are qualifying assets. If we fail to meet this “qualifying assets test,” we could be forced to dispose of certain investments, be precluded from investing in the manner described in this Form 10K, or lose our status as a BDC, any of which would have a material adverse effect on our business, financial condition and results of operations. The disposition of such investments may need to occur quickly, which would make it difficult to dispose of such investments on favorable terms. In addition, because these types of investments will generally be illiquid, we may have difficulty in finding a buyer and, even if we do find a buyer, we may have to sell the investments at a substantial loss.

~~If we are unable to qualify for RIC tax treatment, we will be subject to corporate-level income tax, which will adversely affect our results of operations and financial condition.~~

Provided we qualify for tax treatment as a RIC, we can generally avoid corporate-level federal income taxes on income distributed to our shareholders as dividends. We will not qualify for this pass-through tax treatment, and thus will be subject to corporate-level federal income taxes, if we are unable to comply with the source of income, diversification and distribution requirements contained in the Internal Revenue Code, or if we fail to maintain our registration under the 1940 Act. If we fail to qualify for RIC tax treatment, the resulting taxes could substantially reduce our net assets, the amount of income available for distribution to shareholders and the actual amount of our distributions. As such, any such failure would have a material adverse effect on us, the net asset value of our common stock and ~~the total return obtainable from your investment~~have only a limited history of paying dividends. Accordingly, investors in our common ~~stock.~~stock may only obtain a return on their investment, if any, upon a subsequent sale of their shares.

On June 6, 2013, we entered into an agreement to lease approximately 1,917 square feet of commercial space and two parking spots, for a period of 62 months. The leased space became available for occupancy on September 23, 2013. The 62-month lease term began on October 1, 2013 and runs through November 30, 2018. The total base rent expense for the year ended December 31, 2017 and December 31, 2016 was $45,378 and $45,378, respectively.

The ~~following~~Company is ~~a schedule of~~subject to two operating leases for office space expiring March 31, 2022. These leases do not have significant lease escalations, holidays, concessions, leasehold improvements, or other build-out clauses. Further, the ~~required annual minimum lease payments.~~

On March 15, 2017, we filed a complaint in the Superior Court for the State of Arizona, Maricopa County, against defendants Mix 1 Life, Inc., a Nevada corporation, and Messrs. Christopher Larson and Cameron Robb.leases do not contain contingent rent provisions. The complaint alleges a breach of contract on the part of Mix 1 Life for its default on two senior secured promissory notes. The first secured note is convertible into common stock of Mix 1 Life, was purchased on February 6, 2014 in the original principal amount of $500,000 and originally became due on February 6, 2016. The second secured note isleases do not convertible by its terms, was purchased on March 13, 2015 in the original principal amount of $250,000, and originally became due on March 13, 2016. Mr. Larson is a guarantor of Mix 1 Life’s obligations under the promissory notes, and each of Mr. Larson and Mr. Robb caused certain shares of Mix 1 Life common stockinclude options to be pledged to us as collateral security for the obligations under the promissory notes. As a result, the complaint also alleges breaches of related security contracts on the part of Messrs. Larson and Robb.renew.

The complaint seeks recovery of the full aggregate original principal amount of $750,000, plus accrued but unpaid interest, plus attorney’s fees and other costs of collection and enforcement under the promissory notes and related security documents, from each of Mix 1 Life and Mr. Larson, and further seeks recovery of all attorney’s fees and costs of collection and enforcement of the related security documents from Mr. Robb. The complaint also seeks (i) appointment of a receiver, pursuant to an Arizona state statute, over the business operations of Mix 1 Life to preserve and liquidate our collateral, and (ii) an equitable relief enjoining Messrs. Robb and Larson from interfering with the functions of the court-appointed receiver.

A receiver was appointed in mid-2017, but the receiver has been unable to locate any assets of Mix 1 Life other than office furniture in an abandoned office building. All remaining inventory was taken by a departing officer as alleged compensation. The Company received $190,000 in prior interest payments and just over $40,000 from liquidation of Mix 1 Life’s stock.

ITEM 5 MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED SHAREHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES

Our common stock is listed for trading on the ~~OTCQX~~OTCQB under the symbol “MCVT”. The transfer agent and registrar for our common stock is Pacific Stock Transfer Company, ~~4045 South Spencer Street,~~6725 Via Austi Parkway, Suite ~~403,~~300, Las Vegas, NV 89119. The following table sets forth the high and low bid prices for our common stock as reported by the ~~OTCQX~~OTCPK in ~~2016~~2019 through September, and ~~2015.~~the OTCQB from October through present. These quotations reflect inter-dealer prices, without retail mark-up, markdown, or commission, and may not represent actual transactions. Trading in our common stock during the period represented was infrequent, exemplified by low trading volume and many days during which no trades occurred.

As of the date of this filing, we had approximately ~~183~~253 holders of record of our common stock.

~~We have not paid any dividends on~~On February 15, 2019, our ~~common stock and do not anticipate paying any such dividends in the near future. We do, however, intend to distribute dividends annually~~Board of Directors declared a cash dividend of $0.05 per share to our shareholders ~~once we make an election~~of record as of March 8, 2019. The dividend was paid on March 15, 2019.

On December 8, 2020, our Board of Directors declared a cash dividend of $0.05 per share to ~~be treated~~our shareholders of record as ~~a regulated investment company (RIC) under the Internal Revenue Code.~~of December 21, 2020. The dividend was paid on January 4, 2021.

As of December 31, ~~2017,~~2020, we had no outstanding options, warrants or other rights to purchase any equity securities of the

Company under any equity compensation plan or “individual compensation arrangement,” as defined in Item 201 of Regulation S-K. Furthermore, as of the date of this filing, we are not a party to any equity compensation plan, nor are we obligated under any “individual compensation arrangement” to issue any options, warrants, rights or other securities. We are not required by applicable state law or the listing standards of any self-regulatory agency (e.g., the OTCQX, NASD, AMEX or NYSE) to obtain the approval of our security holders prior to issuing any such compensatory options, warrants or other rights to purchase securities of the Company. ~~Nevertheless, there~~

In August 2020, the Compensation Committee approved, and the Company issued, 50,000 shares of restricted stock to each of Mr. Douglas M. Polinsky and Joseph A. Geraci, II. The shares vest upon the one-year anniversary of their issuance and until such time are ~~restrictions and limitations under the 1940 Act on our ability~~subject to ~~grant options and warrants to members of our management and our non-interested, non-employee directors that, in our case, generally prohibit any such grants in the absence of prior SEC approval.~~forfeiture.

Recent Purchases of Securities

During the course of 2020, the Company engaged in the following repurchases of its common stock, all of which were consummated in private transactions:

ITEM 7 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 set forth below should be read in conjunction with our audited financial statements, and notes thereto, filed together with this Form 10-K.

Some of the statements made in this section of our report are forward-looking statements. These forward-looking statements generally relate to and are based upon our current plans, expectations, assumptions and projections about future events. Our management currently believes that the various plans, expectations, and assumptions reflected in or suggested by these forward-looking statements are reasonable. Nevertheless, all forward-looking statements involve risks and uncertainties and our actual actions or future results may be materially different from the plans, objectives or expectations, or our assumptions and projections underlying our present plans, objectives and expectations, which are expressed in this report. An example of specific factors that might cause our actual results to differ from our current expectations include but are not limited to:

The foregoing list is not exhaustive, and readers are urged to read carefully and consider the risk factors described elsewhere in this report. In light of the foregoing, prospective investors are cautioned that the ~~forward looking~~forward-looking statements included in this filing may ultimately prove to be ~~inaccurate―~~inaccurate—even materially inaccurate. Because of the significant uncertainties inherent in such ~~forward looking~~forward-looking statements, the inclusion of such information should not be regarded as a representation or warranty by the Company 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.

For the year ended December 31, ~~2017, the Company~~2020, we earned ~~$129,900~~$44,026 in interest payments from ~~three eligible portfolio companies―~~one investment— DBR Enclave US Investors, ~~LLC, Dala Petroleum, Inc. and Bravo Financial, LLC―~~LLC;— an ~~additional $563~~aggregate of $993,795 from six promissory note investments; an aggregate of $26,994 in bank interest on cash balances and note receivable; an aggregate of ~~$38,439~~$217,360 in origination fees; and an aggregate of $15,462 in dividend payments from four investments—Manning & Napier, Inc., Educational Development Corp., Manhattan Bridge Capital, Inc.; and Windstream Holdings, Inc.

For the year ended December 31, 2019, we earned $78,264 in interest payments from one eligible portfolio company— DBR Enclave US Investors, LLC — an additional $33,925 in bank interest on cash balances and note receivable; an aggregate of $46,293 in dividend payments from five eligible portfolio companies—~~OTC Markets Group Cl A,~~Manning & Napier, Inc., Simulations Plus, Inc., Tessco Technologies, Inc., Escalade Inc., and National American University Holdings, Inc., and $5,161 in non-eligible portfolio company dividends. For the year ended December 31, 2016, the Company earned $289,990 in interest payments from four eligible portfolio companies― Mix 1 Life, Inc. DBR Phase III US Investors, LLC, Creative Realities, Inc. and Bravo Financial, LLC―an additional $170 bank interest on cash balances, and an aggregate of~~$48,949 in dividend payments from six eligible portfolio companies—~~ Educational Development Corp., ~~OTC Markets Group Cl A, Simulations Plus,~~and Taitron Components, Inc.~~, Tessco Technologies, Inc., Escalade Inc.,~~; and ~~National American University Holdings, Inc.~~ ~~and $49,726~~$3,180 in dividends received from non-eligible portfolio ~~company dividends.~~companies.

As the table above indicates, we incurred ~~general and administrative~~operating expenses aggregating ~~$689,086~~$735,790 for the year ended December 31, ~~2017,~~2020, and ~~$618,943~~$834,430 for the year ended December 31, ~~2016.~~2019. A discussion of the various components of our ~~general and administrative~~operating expenses for these periods is set forth below.

General Operating Expenses. Our general operating expenses ~~which primarily include rent occupancy expense, bad debt expense and miscellaneous office supply expenses,~~ were ~~$111,348~~$83,447 for the year ended December 31, ~~2017. Our general operating expenses were $149,909~~2020 and $111,757 for the year ended December 31, ~~2016.~~2019. The decrease in the current period is primarily related to ~~our bad debt expense~~expenses incurred in ~~2016.~~2019 for an off-site board meeting as well as a decrease in our office lease premiums for the year 2020.

Legal and Accounting Expenses. Our legal and accounting expenses were ~~$221,598~~$175,612 for the year ended December 31, ~~2017~~2020 and ~~$174,454~~$209,897 for the year ended December 31, ~~2016.~~2019. The ~~increase~~decrease in the current period is primarily related to costs we ~~have~~ incurred during 2019 related to ~~initiate~~the process of planning for, seeking, and ~~prosecute legal proceedings on investment loan defaults.~~obtaining authority for, the withdrawal of our BDC election.

Executive Management Compensation. ~~For~~Our executive management compensation was $301,494 for the year ended December 31, ~~2017~~2020 and $340,003 for the year ended December 31, ~~2016, executive management compensation aggregated $217,275 and $157,490, respectively, in cash payments.~~2019. The ~~increase~~decrease in the current period is primarily ~~due~~related to a one-time bonus payment made during the ~~payment of executive health insurance benefits beginning in 2017.~~year 2019.

For the year ended December 31, ~~2017 and~~2020 our net investment gain was $561,847. For the year ended December 31, ~~2016,~~2019, our net investment loss was ~~$515,023 and $230,278, respectively.~~$672,768. The increased net investment ~~loss is~~gain during 2020 was primarily the result of ~~lower~~higher interest income ~~received on our investment portfolio.~~earned during 2020 from the short-term specialty finance solutions we provided in the form of short-term promissory notes bearing higher rates of interest and return, including related origination fees, than we were able to obtain when operating as a BDC.

For the year ended December 31, ~~2017,~~2020, we had an increase in net assets of ~~$675,443.~~$1,572,354. This increase in net assets was primarily due to the ~~gains realized on the sale~~appreciation of ~~several investment~~our portfolio ~~positions.~~holdings. Our net assets ~~increased~~decreased by ~~$646,120~~$1,210,356 for the year ended December 31, ~~2016,~~2019, primarily due to ~~the increase in valuation~~our payment of ~~our holding in BiteSquad.com, LLC, offset by the decrease in valuation of our holding in Mix 1 secured loans.~~a dividend during 2019.

We are not a party to any credit facilities or other sources of liquidity, and we have no present plans to become party to any credit facility. As a result, our ~~$2,158,314~~$5,440,579 of cash at the end fiscal ~~2017~~2020 and our ~~$2,344,751~~$8,066,656 of cash at the end of fiscal ~~2016~~2019 constituted our sole source of liquidity. Management believes cash on hand is sufficient to fund our anticipated operational and financing activities through fiscal ~~2018.~~

~~Presently, we expect that our $2.1 million in cash as of December 31, 2017 will be substantially invested within the next 12 months.~~2021.

We did not have any material commitments for capital expenditures in fiscal ~~2017~~2020 and we do not anticipate any such capital expenditures for fiscal ~~2018. Given our business model, investment in capital resources is not required beyond investments in certain securities.~~2021.

We do not have any off-balance sheet arrangements, nor are we a party to any contract or other obligation not included on its balance sheet that has, or is reasonably likely to have, a current or future effect on our financial condition.

Critical accounting policies are policies that are both most important to the portrayal of the Company’s financial condition and results, and that require management’s most difficult, subjective or complex judgments, often as a result of the need to make estimates about the effect of matters that are inherently uncertain. Our critical accounting policies relate to investment valuation and interest and dividend income as ~~a BDC.~~an investment company.

Investment transactions are recorded on the trade date. Realized gains or losses are measured by the difference between the net proceeds from the repayment or sale and the amortized cost basis of the investment without regard to unrealized gains or losses previously recognized, and include investments charged off during the period, net of recoveries. Unrealized gains or losses primarily reflect the change in investment values, including the reversal of previously recorded unrealized gains or losses when gains or losses are realized.

Investments for which market quotations are readily available are typically valued at such market quotations. In order to validate market quotations, we look at a number of factors to determine if the quotations are representative of fair value, including the source and nature of the quotations. Debt and equity securities that are not publicly traded or whose market prices are not readily available are valued at fair value as determined in good faith by our Board of Directors or, during our time as BDC, by the Valuation Committee of our Board of Directors, based on, among other things, the input of our executive management, Audit Committee and independent third party valuation expert that may be engaged by management to assist in the valuation of our portfolio investments. Valuation determinations are in all cases made in conformity with the written valuation policies and procedures respecting the valuation of Company investments.

Interest income is recorded on an accrual basis and includes the accretion of discounts and amortization of premiums. Discounts from and premiums to par value on securities purchased are accreted/amortized into interest income over the life of the respective security using the effective yield method. The amortized cost of investments represents the original cost adjusted for the accretion of discounts and amortization of premiums, if any.

Loans are generally placed on non-accrual status when principal or interest payments are past due 30 days or more or when there is reasonable doubt that principal or interest will be collected in full. Accrued and unpaid interest is generally reversed when a loan is placed on non-accrual status. Interest payments received on non-accrual loans may be recognized as income or applied to principal depending upon management’s judgment regarding collectability. Non-accrual loans are restored to accrual status when past due principal and interest is paid and, in management’s judgment, are likely to remain current. We may make exceptions to this if the 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.

Our financial statements are prepared in accordance with accounting principles generally accepted in the United States of America, or GAAP. The application of GAAP requires that we make estimates that affect our reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. We base our estimates on historical experience and on various other assumptions that we believe to be reasonable under the circumstances. We evaluate our estimates and assumptions on an ongoing basis. Our actual results may differ significantly from these estimates.

To the ~~shareholders~~Board of Directors and ~~the board of directors~~
Shareholders’ of Mill City Ventures III, ~~Ltd:~~Ltd.

We have audited the accompanying balance sheets of Mill City Ventures III, Ltd. (the ~~"Company")~~Company) as of December 31, ~~2017~~2020 and ~~2016,~~2019, including the ~~schedule of investments as of December 31, 2017~~investment schedules and ~~2016,~~ the related statements of operations, shareholders’ equity, and cash flows for each of the ~~two~~ years in the two-year period ended December 31, ~~2017,~~2020 and 2019, and the related notes (collectively referred to as the ~~"financial statements")~~financial statements). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, ~~2017~~2020 and ~~2016,~~2019, and the results of its operations and its cash flows for ~~each of~~ the ~~two~~ years ~~in the period~~then ended, ~~December 31, 2017,~~ in conformity with accounting principles generally accepted in the United States of America.

These financial statements are the responsibility of the ~~Company's~~Company’s management. Our responsibility is to express an opinion on the ~~Company's~~Company’s financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) ~~("PCAOB")~~(PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits, we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.

Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. ~~Such procedures also included confirmation of investments as of December 31, 2017.~~ Our audits also included evaluating the accounting principles used and significant estimates made by management as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.

As explained in ~~note~~Note 7 to the financial statements, the accompanying financial statements include investments valued at ~~$3,833,855,~~$3,367,897 and $834,200 for 2020 and 2019, respectively, whose fair values have been estimated by the valuation committee and management in ~~the~~absence of readily determinable fair values. Such estimates are based on financial and other information provided by management in absence of readily determinable fair values. Such estimates are based on financial and other information provided by management of its portfolio companies and pertinent market and industry data. These investments are valued in accordance with FASB ASC 820, “Fair Value Measurement”, which requires the Company to assume that the portfolio investments are sold in a principal market to market participants. The Company has considered its principal market as the market in which the Company exits its portfolio investments with the greatest volume and level of activity. ASC 820 specifies a hierarchy of valuation techniques based on whether the inputs to these valuation techniques are observable or unobservable. ~~As of December 31, 2017, $3,833,855 of~~The investments are valued based on unobservable ~~inputs.~~inputs as of December 31, 2020 and 2019 of $3,367,897 and $834,200, respectively. Because such valuations, and particularly valuations of private investments and private companies, are inherently uncertain, they may fluctuate significantly over short periods of time. These determinations of fair value could differ materially from the values that would have been utilized had a ready market for these investments existed.

The critical audit matters communicated below are matters arising from the current period audit of the financial statements that were communicated or required to be communicated to the audit committee and that: (1) relate to accounts or disclosures that are material to the financial statements and (2) involved our especially, subjective, or complex judgements. The communication of critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate.

Mill City Ventures III, Ltd.
Statements of Cash Flows

Year Ended
December
31, 2020 December
31, 2019
Cash flows from operating activities:
Net increase (decrease) in net assets resulting from operations $ 2,213,570 $ (656,986 )
Adjustments to reconcile net increase (decrease) in net assets resulting from operations to net cash provided (used) in operating activities:
Net change in unrealized (appreciation) depreciation on investments (1,934,794 ) 3,236,838
Net realized gain on investments (5,330 ) (3,252,620 )
Purchases of investments (9,405,802 ) (875,160 )
Proceeds from sales of investments 6,418,926 9,080,118
Proceeds from sales of investments sold short — 30,119
Stock-based compensation 61,000 —
Depreciation & amortization expense 2,071 2,574
Deferred income taxes 271,722 —
Changes in operating assets and liabilities:
Prepaid expenses and other assets 5,197 32,299
Interest and dividends receivable (59,411 ) 66,401
Receivable for investment sales (19,313 ) 18,999
Payable for investment purchase —
Accounts payable and other liabilities (10,993 ) (28,677 )
Net cash provided (used) in operating activities (2,463,157 ) 7,653,905
Cash flows from financing activities:
Payments for repurchase of common stock (162,920 ) —
Payments for common stock dividend — (553,370 )
Net cash used by financing activities (162,920 ) (553,370 )
Net increase (decrease) in cash (2,626,077 ) 7,100,535
Cash, beginning of period 8,066,656 966,121
Cash, end of period $ 5,440,579 $ 8,066,656

Supplemental disclosure of cash flow information:
Cash paid for income taxes $ 16,679 $ 2,064
Non-cash financing activities:
Dividend to common stock shareholders $ 539,296 $ —
The accompanying notes are an integral part of these financial statements.

Mill City Ventures III, Ltd.
Investment Schedule
As of December 31, 2020
Investment / Industry Cost Fair Value Percentage
of Net
Assets
Short-Term Non-banking Loans
Consumer - 20% secured loans $ 400,000 $ 400,000 3.44 %
Financial - 44% secured loans 400,000 400,000 3.44 %
Financial - 36% secured loans 500,000 500,000 4.30 %
Real Estate - 15% secured loans
Alatus Development, LLC 1,250,000 1,250,000 10.74 %
Other 239,000 239,000 2.05 %
Total Short-Term Non-Banking Loans 2,789,000 2,789,000 23.97 %

Common Stock
Consumer
Ammo, Inc. 1,750,000 3,300,000 28.34 %

Preferred Stock
Information Technology 150,000 300,000 2.58 %

Warrants
Healthcare 679 — 0.00 %

Other Equity
Leisure & Hospitality 278,897 278,897 2.40 %

Total Investments $ 4,968,576 $ 6,667,897 57.30 %

Total Cash 5,440,579 5,440,579 46.74 %

Total Investments and Cash $ 10,409,155 $ 12,108,476 104.04 %

Investment Schedule
As of December 31, ~~2017~~2019

Investments⁽¹⁾ Investment Type Interest
Rate⁽²⁾ Maturity
Date Principal
Amount Cost Fair Value Percentage
of Net
Assets Gross
Unrealized
Appreciation Gross
Unrealized
Depreciation Net Unrealized
Appreciation
(Depreciation)
Debt Investments
Consumer
Mix 1 Life, Inc. Secured Loan⁽⁴⁾ 12 % 2/6/2016 $ 500,000 500,000 — — 500,000 (500,000 )
Mix 1 Life, Inc. Secured Loan 12 % 3/13/2016 $ 250,000 250,000 — — 250,000 (250,000 )
750,000 — 0.00 % — 750,000 (750,000 )
Financial
Bravo Financial LLC Secured Loan 12 % 8/31/2018 $ 500,000 500,000 500,000 5.19 % — — —

Total Debt Investments 1,250,000 500,000 5.19 % — 750,000 (750,000 )
Investments ⁽¹⁾ Investment Type ⁽⁵⁾ Interest
Rate ⁽²⁾⁽⁶⁾ Expiration
Date ⁽⁷⁾ Shares/Units Cost Fair Value Percentage
of Net
Assets Gross
Unrealized
Appreciation Gross
Unrealized
Depreciation Net Unrealized
Appreciation
(Depreciation)
Equity Investments
Advertising
Creative Realities, Inc. Warrants ⁽⁸⁾ n/a 12/28/2020 35,714 $ — $ — 0.00 % $ — $ — $ —

Consumer
Tzfat Spirits of Israel, LLC LLC Membership Units ⁽⁸⁾ n/a n/a 55,000 101,019 15,000 — 86,019 (86,019 )
101,019 15,000 0.15 % — 86,019 (86,019 )
Financial
Manning & Napier, Inc. Common Stock n/a n/a 86,700 188,969 150,858 — 38,111 (38,111 )
188,969 150,858 1.50 % — 38,111 (38,111 )
Healthcare
Reshape Life Sciences Inc. Warrants ⁽⁸⁾ n/a 8/16/2024 67,860 679 — — 679 (679 )
679 — 0.00 % — 679 (679 )
Information Technology
Kwikbit Inc. (fka MAX 4G) Preferred Stock ⁽⁸⁾ n/a n/a 300,000 150,000 300,000 150,000 — 150,000
150,000 300,000 2.98 % 150,000 — 150,000
Leisure & Hospitality
DBR Enclave US Investors, LLC LLC Units Units n/a n/a 369,200 369,200 369,200 — — —
369,200 369,200 3.67 % — — —
Oil & Gas
Northern Capital Partners I, LP Limited Partnership Units ⁽⁸⁾ n/a n/a 550,000 550,000 150,000 — 400,000 (400,000 )
550,000 150,000 1.49 % — 400,000 (400,000 )
Publishing
Educational Development Corp. Common Stock n/a n/a 122,304 616,503 755,839 7.50 % 150,106 10,770 139,336

Total Equity Investments 1,976,370 1,740,897 17.29 % 300,106 535,579 (235,473 )

Total Cash 8,066,656 8,066,656 80.12 % — — —

Total Investments and Cash $ 10,043,026 $ 9,807,553 97.41 % $ 300,106 $ 535,579 ($ 235,473 )

Investments⁽¹⁾ Investment Type⁽⁵⁾ Interest
Rate⁽⁶⁾ Expiration
Date⁽⁷⁾ Shares/Units Cost Fair Value Percentage
of Net
Assets Gross
Unrealized
Appreciation Gross
Unrealized
Depreciation Net Unrealized
Appreciation
(Depreciation)
Equity Investments
Advertising
Creative Realities, Inc. Warrants⁽⁸⁾ n/a 12/28/2020 1,071,429 — 42,857 0.45 % 42,857 — 42,857
Consumer
Famous Daves of America, Inc. Common Stock n/a n/a 37,923 159,087 248,395 89,308 — 89,308
Forward Industries, Inc. Common Stock⁽⁸⁾ n/a n/a 20,100 23,969 24,723 778 24 754
Mix 1 Life, Inc. Common Stock⁽¹⁰⁾ n/a n/a 100,000 46,160 800 — 45,360 (45,360 )
Stanley Furniture Co., Inc. Common Stock⁽⁸⁾ n/a n/a 171,292 181,871 149,024 — 32,847 (32,847 )
Tzfat Spirits of Israel, LLC LLC Membership Units⁽⁸⁾ n/a n/a 55,000 101,019 25,000 — 76,019 (76,019 )
512,106 447,942 4.65 % 90,086 154,250 (64,164 )
Education
Nat'l Amer. Univ. Holdings, Inc. Common Stock n/a n/a 100,000 172,757 142,000 1.47 % 3,321 34,078 (30,757 )
Financial
OTC Markets Group Cl A Common Stock n/a n/a 11,279 182,557 327,655 145,098 — 145,098
Hi-Crush Partners, LP Common Stock⁽⁹⁾ n/a n/a 10,000 106,222 107,000 778 — 778
QC Holdings, Inc. Common Stock⁽⁸⁾ n/a n/a 15,000 10,655 6,862 — 3,793 (3,793 )
299,434 441,517 4.59 % 145,876 3,793 142,083
Healthcare
Reshape Life Sciences Inc Pfd Conv Ser B Preferred LLC Units^{(4) (8)} n/a n/a 156 155,321 100,433 — 54,888 (54,888 )
Reshape Life Sciences Inc Pfd Conv Ser B Warrants⁽⁸⁾ n/a 8/16/2024 67,860 679 — — 679 (679 )
HemaCare Corp. Common Stock⁽⁸⁾ n/a n/a 136,897 421,839 413,429 6,396 14,806 (8,410 )
577,839 513,862 5.34 % 6,396 70,373 (63,977 )
Industrial Goods
ClearSign Combustion Corporation Common Stock n/a n/a 3,400 11,310 12,240 930 — 930
Information Technology
Insite Software Solutions, Inc Warrants⁽⁸⁾ n/a 12/30/2023 108,960 — — — — —
MAX 4G, Inc. Preferred Stock⁽⁸⁾ n/a n/a 300,000 150,000 300,000 150,000 — 150,000
Simulations Plus, Inc. Common Stock n/a n/a 25,001 246,710 402,509 155,799 — 155,799
Travelzoo, Inc. Common Stock n/a n/a 30,000 324,848 193,500 — 131,348 (131,348 )
721,558 896,009 9.31 % 305,799 131,348 174,451
Leisure & Hospitality
Bitesquad.com LLC Preferred LLC Units^{(4) (8)} n/a n/a 73,543 1,014,893 2,020,226 1,005,333 — 1,005,333
DBR Enclave US Investors, LLC LLC Membership Units 15 % 1/31/2020 500,000 500,000 500,000 — — —
1,514,893 2,520,226 26.17 % 1,005,333 — 1,005,333
Oil & Gas
Northern Capital Partners I, LP Limited Partnership Units⁽⁸⁾ n/a n/a 550,000 550,000 488,629 — 61,371 (61,371 )
Southern Plains Resources, Inc. Common Stock⁽⁸⁾ n/a n/a 600,000 730,000 — — 730,000 (730,000 )
1,280,000 488,629 5.07 % — 791,371 (791,371 )
Publishing
Educational Development Corp. Common Stock n/a n/a 65,202 660,848 1,235,578 12.83 % 574,730 — 574,730

Total Equity Investments 5,750,745 6,740,860 70.00 % 2,175,328 1,185,213 990,115

Total Cash and Cash Equivalents 2,158,314 2,158,314 22.41 % — — —

Total Investments, Cash and Cash Equivalents⁽¹¹⁾ 9,159,059 9,399,174 97.60 % 2,175,328 1,935,213 240,115
⁽¹⁾ All investments and all cash, restricted cash and cash equivalents are “qualifying assets” under Section 55(a) of the Investment Company Act of 1940 unless indicated to the contrary in the table or by footnote.
⁽²⁾ Interest is presented on a per annum basis.
⁽³⁾ ~~Investment is secured but payment and collateral are subordinated to the debt of another creditor by contract.~~
⁽⁴⁾ ~~Investment is convertible into common equity of the issuer.~~
⁽⁵⁾ In the case of warrants, warrants provide for the right to purchase common equity of the issuer.
⁽⁶⁾ In the case of preferred stock, this represents the right to annual cumulative dividends calculated on a per annum basis.
⁽⁷⁾ In the case of warrants, purchase rights under the warrants will expire at the close of business on this date.
⁽⁸⁾ Investment is not an income-producing investment.
⁽⁹⁾ ~~Investment is neither a “qualifying asset” under Section 55(a) of the Investment Company Act of 1940, nor a restricted security.~~
~~At December 31, 2017, aggregate non-qualifying assets represented approximately 1.1% of our total assets.~~
⁽¹⁰⁾ ~~Value reflects 20% discount for restricted nature of securities~~
⁽¹¹⁾ At December 31, ~~2017, the estimated net unrealized gain for federal tax purposes was $541,796, based on a tax cost basis~~2019, aggregate non-qualifying assets represented approximately 0.9% of ~~$6,699,064.~~our total assets.
At December 31, 2017, the estimated aggregate gross unrealized gain for federal income tax purposes was $2,365,077, and the estimated aggregate gross unrealized loss for federal income tax purposes was $1,823,281
27
~~Mill City Ventures III, Ltd.~~
~~Investment Schedule~~
~~As of December 31, 2016~~
Investments⁽¹⁾ Investment Type Interest
Rate⁽²⁾ Maturity
Date Principal
Amount Cost Fair Value Percentage
of Net
Assets Gross
Unrealized
Appreciation Gross
Unrealized
Depreciation Net Unrealized
Appreciation
(Depreciation)
Debt Investments
Consumer
Mix 1 Life, Inc. Secured Loan⁽⁴⁾ 12 % 2/6/2016 $ 500,000 500,000 180,000 — 320,000 (320,000 )
Mix 1 Life, Inc. Secured Loan 12 % 3/13/2016 $ 250,000 250,000 — — 250,000 (250,000 )
750,000 180,000 1.92 % — 570,000 (570,000 )
Financial
Bravo Financial LLC Secured Loan 12 % 8/31/2018 $ 500,000 500,000 500,000 5.33 % — — —
Oil & Gas
Dala Petroleum, Inc. Secured Loan 12 % 12/31/2015 $ 25,000 25,000 — — 25,000 (25,000 )
Dala Petroleum, Inc. Secured Loan 12 % 12/22/2016 $ 35,195 35,195 — — 35,195 (35,195 )
Dala Petroleum, Inc. Secured Loan 12 % 12/16/2017 $ 22,500 22,500 — — 22,500 (22,500 )
82,695 — 0.00 % — 82,695 (82,695 )

Total Debt Investments 1,332,695 680,000 7.24 % — 652,695 (652,695 )
Investments⁽¹⁾ Investment Type⁽⁵⁾ Interest
Rate⁽⁶⁾ Expiration
Date⁽⁷⁾ Shares/Units Cost Fair Value Percentage
of Net
Assets Gross
Unrealized
Appreciation Gross
Unrealized
Depreciation Net Unrealized
Appreciation
(Depreciation)
Equity Investments
Advertising
Creative Realities, Inc. Warrants⁽⁸⁾ n/a 12/28/2020 1,071,429 — 32,143 0.34 % 32,143 — 32,143
Bio-technology
Bio Life Solutions, Inc. Warrants⁽⁸⁾ n/a 3/20/2021 100,000 — — — — —
Combimatrix Corporation Warrants⁽⁸⁾ n/a 5/6/2019 5,464 — — — — —
Combimatrix Corporation Warrants⁽⁸⁾ n/a 6/28/2019 5,464 — — — — —
Combimatrix Corporation Warrants⁽⁸⁾ n/a 12/19/2018 16,666 — — — — —
— — 0.00 % — — —
Consumer
Escalade Inc. Common Stock n/a n/a 7,929 93,975 104,663 10,688 — 10,688
Mix 1 Life, Inc. Common Stock⁽⁸⁾ n/a n/a 40,051 — 15,219 15,219 — 15,219
Mix 1 Life, Inc. Common Stock⁽¹⁰⁾ n/a n/a 100,000 46,160 30,000 — 16,160 (16,160 )
Tzfat Spirits of Israel, LLC LLC Membership Units⁽⁸⁾ n/a n/a 55,000 101,019 25,000 — 76,019 (76,019 )
241,154 174,882 1.86 % 25,907 92,179 (66,272 )
Education
Nat'l Amer. Univ. Holdings, Inc. Common Stock n/a n/a 59,839 119,027 116,686 1.24 % 992 3,333 (2,341 )
Financial
Comm. Sales & Leasing Common Stock⁽⁹⁾ n/a n/a 2,000 65,620 50,820 — 14,800 (14,800 )
OTC Markets Group Cl A Common Stock n/a n/a 19,074 297,381 438,702 141,321 — 141,321
QC Holdings, Inc. Common Stock⁽⁸⁾ n/a n/a 15,000 10,655 11,100 445 — 445
373,656 500,622 5.33 % 141,766 14,800 126,966
Healthcare
WaferGen Bio-Systems, Inc. Common Stock⁽⁸⁾ n/a n/a 85,210 369,800 420,085 50,285 — 50,285
WaferGen Bio-Systems, Inc. Warrants⁽⁸⁾ n/a 10/21/2020 40,000 — — — — —
369,800 420,085 4.47 % 50,285 — 50,285
Information Technology
Insite Software Solutions, Inc Warrants⁽⁸⁾ n/a 12/30/2023 108,960 — — — — —
MAX 4G, Inc. Preferred Stock⁽⁸⁾ n/a n/a 300,000 150,000 300,000 150,000 — 150,000
Mitek Systems Inc. Common Stock⁽⁸⁾ n/a n/a 7,772 50,540 47,798 — 2,742 (2,742 )
Simulations Plus, Inc. Common Stock n/a n/a 18,639 173,310 179,862 10,659 4,107 6,552
Travelzoo, Inc. Common Stock n/a n/a 15,100 177,459 141,940 — 35,519 (35,519 )
551,309 669,600 7.13 % 160,659 42,368 118,291
Investment Fund
Calamos Conv. & High Inc. Fund Common Stock⁽⁹⁾ n/a n/a 10,000 128,357 105,500 — 22,857 (22,857 )
Solar Senior Capital Ltd Common Stock⁽⁹⁾ n/a n/a 6,047 91,983 99,412 7,429 — 7,429
220,340 204,912 2.18 % 7,429 22,857 (15,428 )
Leisure & Hospitality
Bitesquad.com LLC Preferred LLC Units^{(4) (8)} n/a n/a 100,000 1,380,000 2,747,011 29.26 % 1,367,011 — 1,367,011
Media
Discovery Communications Inc. Common Stock⁽⁹⁾ n/a n/a 5,000 149,609 137,050 1.46 % — 12,559 (12,559 )
Oil & Gas
Dala Petroleum, Inc. Preferred Stock⁽⁸⁾ n/a n/a 500 500,000 — — 500,000 (500,000 )
Dala Petroleum, Inc. Warrants⁽⁸⁾ n/a 6/3/2017 714,286 — — — — —
Northern Capital Partners I, LP Limited Partnership Units⁽⁸⁾ n/a n/a 550,000 550,000 488,629 — 61,371 (61,371 )
Southern Plains Resources, Inc. Common Stock⁽⁸⁾ n/a n/a 600,000 730,000 — — 730,000 (730,000 )
1,780,000 488,629 5.21 % — 1,291,371 (1,291,371 )
Publishing
Educational Development Corp. Common Stock n/a n/a 36,905 409,380 367,205 3.91 % 3,141 45,316 (42,175 )

Telecommunications
AT&T Common Stock⁽⁹⁾ n/a n/a 5,000 175,260 212,650 37,390 — 37,390
CenturyLink, Inc. Common Stock⁽⁹⁾ n/a n/a 5,000 157,360 118,900 — 38,460 (38,460 )
MagicJack VocalTek Ltd. Common Stock^{(8) (9)} n/a n/a 5,754 34,141 39,415 5,274 — 5,274
Tessco Technologies Inc. Common Stock n/a n/a 5,000 83,090 65,000 — 18,090 (18,090 )
Windstream Holdings Inc. Common Stock⁽⁹⁾ n/a n/a 1,666 21,087 12,212 — 8,875 (8,875 )
470,938 448,177 4.77 % 42,664 65,425 (22,761 )

Total Equity Investments 6,065,213 6,307,002 67.19 % 1,831,997 1,590,208 241,789

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

Total Investments, Cash and Cash Equivalents⁽¹¹⁾ $ 9,742,659 $ 9,331,753 99.41 % $ 1,831,997 $ 2,242,903 $ (410,906 )
⁽¹⁾ All investments and all cash, restricted cash and cash equivalents are “qualifying assets” under Section 55(a) of the Investment Company Act of 1940 unless indicated to the contrary in the table or by footnote.
⁽²⁾ ~~Interest is presented on a per annum basis.~~
⁽³⁾ ~~Investment is secured but payment and collateral are subordinated to the debt of another creditor by contract.~~
⁽⁴⁾ ~~Investment is convertible into common equity of the issuer.~~
⁽⁵⁾ ~~In the case of warrants, warrants provide for the right to purchase common equity of the issuer.~~
⁽⁶⁾ ~~In the case of preferred stock, this represents the right to annual cumulative dividends calculated on a per annum basis.~~
⁽⁷⁾ ~~In the case of warrants, purchase rights under the warrants will expire at the close of business on this date.~~
⁽⁸⁾ ~~Investment is not an income-producing investment.~~
⁽⁹⁾ ~~Investment is neither a “qualifying asset” under Section 55(a) of the Investment Company Act of 1940, nor a restricted security.~~
~~At December 31, 2016, aggregate non-qualifying assets represented approximately 8.3% of our total assets.~~
⁽¹⁰⁾ ~~Value reflects 20% discount for restricted nature of securities~~
⁽¹¹⁾ At December 31, ~~2016,~~2019, the estimated net unrealized loss for federal tax purposes was ~~$211,630,~~$58,586, based on a tax cost basis of ~~$9,543,383.~~$1,799,483.
At December 31, 2019, the estimated aggregate gross unrealized gain for federal income tax purposes was $300,106 and the estimated aggregate gross unrealized loss for federal income tax purposes was $358,692
At December 31, 2016, the estimated aggregate gross unrealized gain for federal income tax purposes was $1,927,115, and the estimated aggregate gross unrealized loss for federal income tax purposes was $2,138,745

The accompanying notes are an integral part of these financial statements.

28

~~Mill City Ventures III, Ltd.~~
NOTE 1 — ORGANIZATION

~~Mill City Ventures III, Ltd. is an investment company incorporated in the State of Minnesota on January 10, 2006.~~ In this report, we generally refer to Mill City Ventures III, Ltd. in the first person “we.” On occasion, we refer to our company in the third person as “Mill City Ventures” or the “Company.” The Company follows accounting and reporting guidance in Accounting Standards (“ASC”) 946.

We ~~are an internally managed closed-end non-diversified management investment company. We have~~were incorporated in Minnesota in January 2006. Until December 13, 2012, we were a development-stage company that focused on promoting and placing a proprietary poker game online and into casinos and entertainment facilities nationwide. In 2013, we elected to ~~be regulated as~~become a business development company ~~or “BDC,”~~(“BDC”) under the ~~Investment Company Act of~~ 1940 ~~(the “1940 Act”). To date, we have not made an election to be treated~~Act. We operated as a ~~regulated~~BDC until we withdrew our BDC election on December 27, 2019. As of the time of this filing, we remain a public reporting company that files periodic reports with the SEC. We offer short-term specialty finance solutions primarily to private businesses, small-cap public companies and high-net-worth individuals. To avoid regulation under the 1940 Act, we generally seek to structure our investments so they do not constitute “investment securities” for purposes of federal securities law, and we monitor our investments as a whole to ensure that no more than 40% of our total assets may consist of investment securities.
Because we operated as a BDC or investment company ~~or “RIC,” under~~from 2013 through December 27, 2019, the ~~Internal Revenue Code of 1986.~~
We2019 financial statements in this report reflect our operations as a BDC subject to the 1940 Act including our December 31, 2019 balance sheet. During that time, we were primarily ~~focus~~focused on investing in or lending to privately held and small capitalization publicly traded U.S. companies, and making managerial assistance available to such companies. ~~These~~A majority of our investments ~~are typically~~by dollar amount were structured as purchases of preferred or common stock or loans evidenced by promissory notes that may behave been convertible into stock by their terms or that may behave been accompanied by the issuance to us of warrants or similar rights to purchase stock. Our investments may be made for purposes of financing acquisitions, recapitalizations, buyouts, organic growth and working capital. Our future revenues will relate to the gain we realize from the sale of securities we purchase, and to dividends and interest we derive from those securities. Our investment objective is to generate ~~both current~~ income and capital appreciation that ultimately ~~become~~became realized gains.

NOTE 2 — SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Use of estimates:The preparation of financial statements in conformity with GAAP requires management and our independent board members to make estimates and assumptions that affect the reported amounts of assets and liabilities, and disclosures of contingent assets and liabilities, at the date of the financial statements, as well as the reported amounts of expenses during the reporting period. Actual results could differ from those estimates. For more information, see the “Valuation of portfolio investments” caption below, and “Note 7 – Fair Value of Financial Instruments” below. The Company ispresents its financial statements as an investment company following accounting and reporting guidance in ~~Accounting Standards Codification (“ASC”)~~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 or, during our time as BDC, by the Valuation Committee of our Board of Directors, based on, among other things, the input of our executive management, the Audit Committee of our Board of Directors, and any independent third-party valuation experts that may be engaged by management to assist in the valuation of our portfolio investments, but in all cases consistent with our written valuation policies and procedures.

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

~~Income taxes:~~ We account for income taxes under the liability method. Under this method, deferred tax assets and liabilities are determined based on the difference between the financial statement and tax bases of assets and liabilities using enacted tax rates in effect for the year in which the differences are expected to affect taxable income. Valuation allowances are established when necessary to reduce deferred tax assets to the amounts expected to be realized. For more information, see Note 10 “Income Taxes.”
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~~Revenue recognition~~~~: Realized gains or losses on the sale of investments are calculated using the specific investment method.~~
Interest income, adjusted for amortization of premiums and accretion of discounts, is recorded on an accrual basis. Discounts from and premiums to par value on securities purchased are accreted or amortized, as applicable, into interest income over the life of the related security using the effective-yield method. The amortized cost of investments represents the original cost, adjusted for the accretion of discounts and amortization of premiums, if any. Loans are generally placed on non-accrual status when principal or interest payments are past due 30 days or more, or when there is reasonable doubt that principal or interest will be collected in full. Accrued and unpaid interest is generally reversed when a loan is placed on non-accrual status. Interest payments received on non-accrual loans may be recognized as income or applied to principal depending upon management’s judgment regarding collectability. Non-accrual loans are restored to accrual status when past-due principal and interest is paid and, in management’s judgment, are likely to remain current. We may make exceptions to the policy described above if a loan has sufficient collateral value and is in the process of collection.
Dividend income on preferred equity securities is recorded as dividend income on an accrual basis to the extent that such amounts are payable by the portfolio company and are expected to be collected. Dividend income on common equity securities is recorded on the record date for private portfolio companies or on the ex-dividend date for publicly traded portfolio companies.
Certain investments may have contractual payment-in-kind (“PIK”) interest or dividends. PIK represents accrued interest or accumulated dividends that are added to the loan principal or stated value of the investment on the respective interest- or dividend-payment dates rather than being paid in cash, and generally becomes due at maturity or upon being repurchased by the issuer. PIK interest or dividends is recorded as interest or dividend income, as applicable. If at any point we believe that PIK interest or dividends is not expected be realized, the PIK-generating investment will be placed on non-accrual status. Accrued PIK interest or dividends are generally reversed through interest or dividend income, respectively, when an investment in placed on non-accrual status.
~~Allocation of net gains and losses:~~ ~~All income, gains, losses, deductions and credits for any investment are allocated in a manner proportionate to the shares owned.~~
~~Management and service fees:~~ ~~We do not incur expenses related to management and service fees. Our executive management team manages our investments as part of their employment responsibilities.~~
~~Recent accounting pronouncements:~~
~~In February 2016, the Financial Accounting Standards Board issued Accounting Standards Update (“ASU”) No. 2016-02,~~~~Leases (Topic 842)~~~~. The guidance in this ASU supersedes the leasing guidance in~~~~Leases (Topic 840)~~. Under the new guidance, lessees are required to recognize lease assets and lease liabilities on the balance sheet for those leases previously classified as operating leases. The guidance requires the use of a modified retrospective transition approach, which includes a number of optional practical expedients that entities may elect to apply. The amendments in ASU No. 2016-02 are effective for annual reporting periods beginning after December 15, 2018, including interim periods within that reporting period, with early adoption permitted. While we are currently evaluating the impact of ASU No. 2016-02, we expect an increase to the consolidated balance sheets for the lease assets and associated lease liabilities for our lease agreements previously accounted for as operating leases.
~~NOTE 3 — NET GAIN PER COMMON SHARE~~
Basic net gain per common share is computed by dividing net gain by the weighted-average number of vested common shares outstanding during the period. A reconciliation of the numerator and denominator used in the calculation of basic and diluted net gain per common share follows:
Year Ended Year Ended
December 31, December 31,
2017 2016
Numerator:  Net Gain $ 675,443 $ 646,120
Denominator:  Weighted-average number of common shares outstanding 11,863,392 12,151,493
Basic and diluted net gain per common share $ 0.06 $ 0.05
~~At December 31, 2017 and 2016, the Company did not have any options or warrants outstanding or any other dilutive common equivalent shares.~~
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~~NOTE 4—COMMITMENTS AND CONTINGENCIES~~
On June 6, 2013, we entered into an agreement to lease approximately 1,917 square feet of commercial space and two parking spots, for a period of 62 months. The leased space became available for occupancy on September 23, 2013. The 62-month lease term began October 1, 2013 and runs through November 30, 2018. The total base rent expense for the years ended December 31, 2017 and December 31, 2016 was $45,378 and $45,378, respectively.
~~The following is a schedule of the required annual minimum lease payments.~~
Year Amount
2018 $ 46,988
TOTAL $ 46,988
~~NOTE 5—SHAREHOLDERS’ EQUITY~~
On September 25, 2017, the Company repurchased and retired 1,084,091 shares of common stock at a purchase price of $0.40. At December 31, 2017, a total of 11,067,402 shares of common stock were issued and outstanding.
~~NOTE 6—INVESTMENTS~~
The following table shows the composition of our investment portfolio by major class, at amortized cost and fair value, as of December 31, 2017 (together with the corresponding percentage of total portfolio investments):
As of December 31, 2017
Investments at
Amortized Cost Percentage of
Amortized Cost Investments at
Fair Value Percentage of
Fair Value
Loans (Secured) $ 1,250,000 17.8 % $ 500,000 6.9 %
Preferred Stock 1,320,214 19.0 2,420,659 33.4
Common Stock 3,278,833 46.8 3,263,715 45.1
Warrants 679 - 42,857 0.6
Other Equity 1,151,019 16.4 1,013,629 14.0
Total $ 7,000,745 100.0 % $ 7,240,860 100.0 %
The following table shows the composition of our investment portfolio by major class, at amortized cost and fair value, as of December 31, 2016 (together with the corresponding percentage of total portfolio investments):
As of December 31, 2016
Investments at
Amortized Cost Percentage of
Amortized Cost Investments at
Fair Value Percentage of
Fair Value
Loans (Secured) $ 1,332,695 18.0 % $ 680,000 9.7 %
Preferred Stock 2,030,000 27.4 3,047,011 43.6
Common Stock 3,384,194 45.8 2,714,219 38.8
Warrants - - 32,143 0.5
Other Equity 651,019 8.8 513,629 7.4
Total $ 7,397,908 100.0 % $ 6,987,002 100.0 %
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~~The following table shows the composition of our investment portfolio by industry grouping, based on fair value as of December 31, 2017:~~
As of December 31, 2017
Investments at
Fair Value Percentage of
Fair Value
Advertising $ 42,857 0.6 %
Consumer 447,942 6.2
Education 142,000 2.0
Financial 941,517 13.0
Healthcare 513,862 7.1
Industrial Goods 12,240 0.2
Information Technology 896,009 12.4
Leisure & Hospitality 2,520,226 34.8
Oil & Gas 488,629 6.7
Publishing 1,235,578 17.0
Total $ 7,240,860 100.0 %
~~The following table shows the composition of our investment portfolio by industry grouping, based on fair value as of December 31, 2016:~~
As of December 31, 2016
Investments at
Fair Value Percentage of
Fair Value
Advertising $ 32,143 0.5 %
Consumer 354,882 5.1
Education 116,686 1.7
Financial 1,000,622 14.3
Healthcare 420,085 6.0
Information Technology 669,600 9.6
Investment Fund 204,912 2.9
Leisure & Hospitality 2,747,011 39.3
Media 137,050 2.0
Oil & Gas 488,629 7.0
Publishing 367,205 5.2
Telecommunications 448,177 6.4
Total $ 6,987,002 100.0 %
We do not “control,” and we are not an “affiliate” (as each of those terms is defined in the 1940 Act), of any of our portfolio companies as of December 31, 2017 and 2016. Under the 1940 Act, we would generally be presumed to “control” a portfolio company if we owned more than 25% of its voting securities, and be an “affiliate” of a portfolio company is we owned at least 5% and up to 25% of its voting securities.
~~NOTE 7 — FAIR VALUE OF FINANCIAL INSTRUMENTS~~
~~General information~~: Accounting guidance establishes a hierarchal disclosure framework that prioritizes and ranks the level of market price observability of inputs used in measuring investments at fair value. Observable inputs must be used when available. Observable inputs are inputs that market participants would use in valuing the asset or liability based on market data obtained from independent sources. Unobservable inputs are inputs that reflect our assumptions about the factors market participants would use in valuing the asset or liability based upon the best information available. Assets and liabilities measured at fair value are to be categorized into one of the three hierarchy levels based on the relative observability of inputs used in the valuation. The three levels are defined as follows:

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

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

· Level 3:Unobservable inputs that reflect an entity’s own assumptions about what inputs a market participant would use in pricing the asset or liability based on the best information available in the circumstances.

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

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The estimated fair value of our Level 3 investment assets is determined on a quarterly basis by ~~the Valuation Committee of~~ our Board of Directors, pursuant to our written Valuation Policy and Procedures. During our time as a BDC, this function was performed by a Valuation Committee of our Board of Directors. These policies and procedures generally require that we value our Level 3 equity investments at cost plus any accrued interest, unless circumstances warrant a different approach. Our Valuation Policy and Procedures provide examples of these circumstances, such as when a portfolio company has engaged in a subsequent financing of more than ade minimis size involving sophisticated investors (in which case we may use the price involved in that financing as a determinative input absent other known factors), or when a portfolio company is engaged in the process of a transaction that we determine is reasonably likely to occur (in which case we may use the price involved in the pending transaction as a determinative input absent other known factors). Other situations identified in our Valuation Policy and Procedures that may serve as input supporting a change in the valuation of our Level 3 equity investments include (i) a third-party valuation conducted by an independent and qualified professional, (ii) changes in the performance of long-term financial prospects of the 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 closing price of the underlying equity security and the exercise price, after applying an appropriate discount for restriction, if applicable, in situations where the underlying security is marketable. If the underlying security is not marketable, then intrinsic value will be considered consistent with the principles described above. Generally, “out-of-the-money” warrants will be valued at cost or zero.

For non-traded (Level 3) debt securities with a residual maturity less than or equal to 60 days, the value will generally be based on a present value approach, considering the straight-line amortized face value of the debt unless justification for impairment exists.

On a quarterly basis, our management provides members of our Board of Directors (or Valuation Committee, prior to 2020) with (i) valuation reports for each portfolio investment (which reports include our cost,, the most recent prior valuation and any current proposed valuation, and an indication of the valuation methodology used, together with any other supporting materials); (ii) Mill City Ventures’ bank and other statements pertaining to our cash and cash equivalents; (iii) quarter- or period-end statements from our custodial firms holding any of our portfolio investments; and (iv) recommendations 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. The board or committee then discusses these materials and, consistent with the policies and approaches outlined above, makes final determinations respecting the valuation and hierarchy levels of our portfolio investments.

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

Income taxes:
Due to our change in business model, we now account for income taxes under the asset and liability method, which requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of events that have been included in the financial statements.   Deferred tax assets and liabilities are recognized for the expected future tax consequences of temporary differences between the financial statement carrying amount and tax basis of assets and liabilities using enacted tax rates in effect for the year in which the differences are expected to reverse. The effect of a change in tax rates on deferred tax assets and liabilities is recognized in income in the period that includes the enactment date.
We record net deferred tax assets to the extent we believe these assets will more likely than not be realized. In making such determination, we consider all available evidence, including future reversals of existing taxable temporary differences, projected future taxable income, tax planning strategies and recent financial operations. In the event we were to determine we would be able to realize our deferred income tax assets in the future in excess of their recorded amount, we would make an adjustment to the valuation allowance, which would reduce the provision for income taxes.
We file income tax returns in the U.S. federal jurisdiction and various state jurisdictions. The Company does not believe there will be any material changes in its unrecognized tax positions over the next 12 months. Our evaluation was performed for the tax years ended December 31, 2017 through 2020, which are the tax years that remain subject to examination by major tax jurisdictions as of December 31, 2020.
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 in placed on non-accrual status.
Allocation of net gains and losses: All income, gains, losses, deductions and credits for any investment are allocated in a manner proportionate to the shares owned.

Management and service fees: We do not incur expenses related to management and service fees. Our executive management team manages our investments as part of their employment responsibilities.
Recently Adopted Accounting Pronouncements:
In August 2018, the FASB issued ASU No. 2018-13, Disclosure Framework – Changes to the Disclosure Requirements for Fair Value Measurement. This ASU removes, modifies and adds certain disclosure requirements for fair value measurements. Among other changes, entities will no longer be required to disclose the amount of and reasons for transfers between Level 1 and Level 2 of the fair value hierarchy, the policy for timing of transfers between levels and the valuation processes for Level 3 fair value measurements, but will be required to disclose the range and weighted average of significant observable inputs used to develop Level 3 fair value measurements held at the end of the reporting period. The amendments in this ASU are effective for all entities for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2019. Early adoption is permitted upon issuance of the ASU. The adoption of the ASU effective January 1, 2020 did not have a material impact on our financial statements.
New Accounting Standards Not Yet Adopted:
In December 2019, the FASB issued ASU No. 2019-12, Income Taxes (Topic 740)—Simplifying the Accounting for Income Taxes. ASU 2019-12 is intended to simplify accounting for income taxes. It removes certain exceptions to the general principles in Topic 740 and amends existing guidance to improve consistent application. ASU 2019-12 is effective for fiscal years beginning after December 15, 2020 and interim periods within those fiscal years, which is fiscal 2021 for us, with early adoption permitted. We do not expect adoption of the new guidance to have a significant impact on our financial statements.
NOTE 3 — NET GAIN PER COMMON SHARE
Basic net gain (loss) per common share is computed by dividing net increase (decrease) in net assets resulting from operations by the weighted-average number of vested common shares outstanding during the period. A reconciliation of the numerator and denominator used in the calculation of basic and diluted net gain per common share follows:
For the Year  Ended December 31,
2020 2019
Numerator:  Net increase (decrease) in net assets resulting from operations $ 2,213,570 $ (656,986 )
Denominator:  Weighted-average number of common shares outstanding 10,869,054 11,067,402
Basic and diluted net gain (loss) per common share $ 0.20 $ (0.06 )
At December 31, 2020 and 2019, the Company did not have any options or warrants outstanding or any other dilutive common equivalent shares.
NOTE 4—LEASES
We are subject to two non-cancelable operating leases for office space expiring March 31, 2022. These leases do not have significant lease escalations, holidays, concessions, leasehold improvements, or other build-out clauses. Further, the leases do not contain contingent rent provisions. The leases do not include options to renew.
Because our lease does not provide an implicit rate, we use our incremental borrowing rate in determining the present value of the lease payments. The incremental borrowing rate represents an estimate of the interest rate we would incur at lease commencement to borrow an amount equal to the lease payments on a collateralized basis over the term of a lease. The weighted average discount rate as of December 31, 2020 was 4.5% and the weighted average remaining lease term is one year.
Under ASC 840, rent expense for office facilities for the year ended December 31, 2020 and December 31, 2019 was $66,307 and $73,685, respectively.

The components of our operating leases were as follows for the twelve months ended December 31, 2020 and 2019:
Year Ended
December 31,
2020 December 31,
2019
Operating lease costs $ 19,116 $   19,008
Variable lease cost   17,461 16,654
Short-term lease cost 29,730 29,660
Total $ 66,307 $ 65,322
Supplemental balance sheet information consisted of the following at December 31, 2020:
Operating Lease
Right-of-use assets $ 23,345

Operating Lease Liability $ 26,061
Less: short term portion (20,406 )
Long term portion $ 5,655
Maturity analysis under lease agreements consisted of the following as of December 31, 2020:
Operating
Leases
2021 $ 21,162
2022 5,396
Total minimum lease payments 26,558
Less: present value discount (497 )
Present value of net minimum lease payments $ 26,061
NOTE 5—SHAREHOLDERS’ EQUITY
At December 31, 2020 a total of 10,785,913 shares of common stock were issued and outstanding. At December 31, 2019 a total of 11,067,402 shares of common stock were issued and outstanding.
During 2020, there were 381,489 shares repurchased and 100,000 shares issued by the Company.
On October 26, 2020, the Board of Directors approved a stock repurchase program of up to $400,000 of the Company’s outstanding shares of common stock. Repurchases may be completed in public or private transactions. The repurchase program does not require the Company to acquire any specific number of shares, and may be suspended from time to time in accordance with the Company's insider trading policy and existing best practices, or it may be discontinued. Repurchases completed under the program are expected to be funded from available working capital.

NOTE 6—INVESTMENTS
The following table shows the composition of our investment portfolio by major class, at amortized cost and fair value, as of December 31, 2020 (together with the corresponding percentage of total portfolio investments):
As of December 31, 2020
Investments at
Amortized Cost Percentage of
Amortized Cost Investments at
Fair Value Percentage of
Fair Value
Short-term Non-banking Loans $ 2,789,000 56.2 % $ 2,789,000 41.8 %
Preferred Stock 150,000 3.0 300,000 4.5
Common Stock 1,750,000 35.2 3,300,000 49.5
Warrants 679 — — —
Other Equity 278,897 5.6 278,897 4.2
Total $ 4,968,576 100.0 % $ 6,667,897 100.0 %
The following table shows the composition of our investment portfolio by major class, at amortized cost and fair value, as of December 31, 2019 (together with the corresponding percentage of total portfolio investments):
As of December 31, 2019
Investments at
Amortized Cost Percentage of
Amortized Cost Investments at
Fair Value Percentage of
Fair Value
Preferred Stock $ 150,000 7.6 % $ 300,000 17.2 %
Common Stock            805,472 40.8 906,697 52.1
Warrants 679 — — —
Other Equity 1,020,219 51.6 534,200 30.7
Total $ 1,976,370 100.0 % $ 1,740,897 100.0 %
The following table shows the composition of our investment portfolio by industry grouping, based on fair value as of December 31, 2020:
As of December 31, 2020
Investments at
Fair Value Percentage of
Fair Value
Consumer $ 3,700,000 55.5 %
Financial 900,000 13.5
Information Technology 300,000 4.5
Leisure & Hospitality 278,897 4.2
Real Estate 1,489,000 22.3
Total $ 6,667,897 100.0 %
The following table shows the composition of our investment portfolio by industry grouping, based on fair value as of December 31, 2019:
As of December 31, 2019
Investments at
Fair Value Percentage of
Fair Value
Consumer $ 15,000 0.9 %
Financial 150,858 8.7
Information Technology 300,000 17.2
Leisure & Hospitality 369,200 21.2
Oil & Gas 150,000 8.6
Publishing 755,839 43.4
Total $ 1,740,897 100.0 %

We did not and do not, “control,” and we were not and are not, an “affiliate” (as each of those terms is defined in the 1940 Act), of any of our portfolio companies as of December 31, 2020 or 2019. Under the 1940 Act, we would generally be presumed to have had “control” over a portfolio company if we owned more than 25% of its voting securities, and to have been an “affiliate” of a portfolio company in which we owned at least 5% and up to 25% of its voting securities.
NOTE 7 — FAIR VALUE OF FINANCIAL INSTRUMENTS

Level 3 valuation information: Due to the inherent uncertainty in the valuation process, the estimate of the fair value of our investment portfolio as of December 31, ~~2017,~~2020 and 2019 may differ materially from values that would have been used had a readily available market for the securities existed.

The following table presents the fair value measurements of our portfolio investments by major class, as of December 31, ~~2017,~~2020, according to the fair value hierarchy:

As of December 31, 2017
Level 1 Level 2 Level 3 Total
Loans (Secured) $ - $ - $ 500,000 $ 500,000
Preferred Stock - 100,433 2,320,226 2,420,659
Common Stock 3,262,915 800 - 3,263,715
Warrants - 42,857 - 42,857
Other Equity - - 1,013,629 1,013,629
Total $ 3,262,915 $ 144,090 $ 3,833,855 $ 7,240,860

	As of December 31, 2020
	Level 1		Level 2		Level 3		Total
Short-term Non-banking Loans	$	—	$	—	$	2,789,000	$	2,789,000
Preferred Stock		—		—		300,000		300,000
Common Stock		3,300,000		—		—		3,300,000
Warrants		—		—		—		—
Other Equity		—		—		278,897		278,897
Total	$	3,300,000	$	—	$	3,367,897	$	6,667,897

The following table presents the fair value measurements of our portfolio investments by major class, as of December 31, ~~2016,~~2019, according to the fair value hierarchy:

	As of December 31, 2016								As of December 31, 2019
	Level 1		Level 2		Level 3		Total		Level 1		Level 2		Level 3		Total
Loans (Secured)	$	-	$	-	$	680,000	$	680,000
Preferred Stock		-		-		3,047,011		3,047,011	$	—	$	—	$	300,000	$	300,000
Common Stock		2,684,219		30,000		-		2,714,219		906,697		—		—		906,697
Warrants		-		32,143		-		32,143		—		—		—		—
Other Equity		-		-		513,629		513,629		—		—		534,200		534,200
Total	$	2,684,219	$	62,143	$	4,240,640	$	6,987,002	$	906,697	$	—	$	834,200	$	1,740,897

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, ~~2017:~~2020:

Secured
Loans
Preferred Stock

Common Stock

Warrants

Other Equity

Balance as of December 31, 2016 $ 680,000 $ 3,047,011 $ - $ - $ 513,629
Net change in unrealized appreciation (97,305 ) 138,321 - - -
Purchases and other adjustments to cost 10,000 - - - 500,000
Sales and redemptions (182,695 ) (746,225 ) - (5,884 ) -
Net realized gain (loss) 90,000 (118,881 ) - 5,884 -
Balance as of December 31, 2017 $ 500,000 $ 2,320,226 $ - $ - $ 1,013,629

Net change in unrealized depreciation) on investment securities still held $ (180,000 ) $ - $ - $ - $ -

	For the year ended December 31, 2020
	ST Non-banking Loans			Preferred Stock		Common Stock		Warrants		Other Equity
Balance as of January 1, 2020	$	—		$	300,000	$	—	$	—	$	534,200
Net change in unrealized appreciation		—			—		—		—		486,018
Purchases and other adjustments to cost		7,543,000			—		—		—		—
Sales and redemptions		(4,754,000	)		—		—		—		(91,313	)
Net realized loss		—			—		—		—		(650,008	)
Balance as of December 31, 2020	$	2,789,000		$	300,000	$	—	$	—	$	278,897

The net change in unrealized ~~depreciation~~appreciation for the year ended December 31, ~~2017~~2020 attributable to Level 3 portfolio investments still held as of December 31, ~~2017~~2020 is ~~$180,000,~~$0, and is included in net change in unrealized appreciation (depreciation) on investments on the statement of operations.

~~The following table lists our level 3 investments held as of December 31, 2017 and the unobservable inputs used to determine their valuation:~~

Security Type 12/31/17 FMV Unobservable Inputs
Mix 1 Life, Inc. Loans (Secured) $ — company is in default
Bravo Financial LLC Loans (Secured) 500,000 cost
Insite Software Solutions, Inc Warrants — company is in default
Tzfat Spirits of Israel, LLC Other Equity 25,000 last funding secured by company
MAX 4G, Inc. Preferred Stock 300,000 last funding secured by company
Bitesquad.com LLC Preferred Stock 2,020,226 last funding secured by company
DBR Enclave US Investors, LLC Other Equity 500,000 cost
Northern Capital Partners I, LP Other Equity 488,629 last K-1 valuation received
Southern Plains Resources, Inc. Common Stock — company in default on its balance sheet debt
$ 3,833,855

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, ~~2016:~~2019:

Secured
Loans

Preferred Stock

Common Stock

Warrants

Other Equity

Balance as of December 31, 2015 $ 1,850,000 $ 1,080,000 $ - $ - $ 1,230,258
Net change in unrealized appreciation (122,500 ) 1,367,011 - (5,579 )
Purchases and other adjustments to cost 64,500 600,000 - - 50,000
Sales and redemptions (724,000 ) - - - (761,050 )
Net realized loss (388,000 ) - - - -
Balance as of December 31, 2016 $ 680,000 $ 3,047,011 $ - $ - $ 513,629

Net change in unrealized depreciation on investment securities still held $ (647,500 ) $ 1,367,011 $ - $ - $ (5,579 )

	For the year ended December 31, 2019
	Preferred Stock			Common Stock			Warrants			Other Equity
Balance as of January 1, 2019	$	1,014,258		$	3,136,432		$	—		$	1,013,629
Net change in unrealized appreciation (depreciation)		12,478			(2,848,275	)		—			(348,629	)
Purchases and other adjustments to cost		—			—			—			—
Sales and redemptions		(726,691	)		(3,341,639	)		(128,775	)		(130,800	)
Net realized gain (loss)		(45	)		3,053,482			128,775			—
Balance as of December 31, 2019	$	300,000		$	—		$	—		$	534,200

The net change in unrealized ~~depreciation~~appreciation for the year ended December 31, ~~2016~~2019 attributable to Level 3 portfolio investments still held as of December 31, ~~2016 was $713,932,~~2019 is $348,629, and is included in net change in unrealized appreciation (depreciation) on investments on the statement of operations.

The following table lists our ~~level~~Level 3 investments held as of December 31, ~~2016~~2020 and the unobservable inputs used to determine their valuation:

Security Type 12/31/16 FMV Unobservable Inputs
Mix 1 Life, Inc. Loans (Secured) $ 180,000 company is in default
Bravo Financial LLC Loans (Secured) 500,000 cost
Dala Petroleum, Inc. Loans (Secured) — company is in default
Dala Petroleum, Inc. Preferred Stock — company is in default
Dala Petroleum, Inc. Warrants — company is in default
Combimatrix Corporation Warrants — out of money on conversion
WaferGen Bio-Systems, Inc. Warrants — out of money on conversion
Insite Software Solutions, Inc Warrants — out of money on conversion
Tzfat Spirits of Israel, LLC Other Equity 25,000 last funding secured by company
MAX 4G, Inc. Preferred Stock 300,000 last funding secured by company
Bitesquad.com LLC Preferred Stock 2,747,011 last funding secured by company
Northern Capital Partners I, LP Other Equity 488,629 last K-1 valuation received
Southern Plains Resources, Inc. Common Stock — company in default on its balance sheet debt
$ 4,240,640

Security Type

12/31/20 FMV

Valuation Technique

Unobservable Inputs

Range

ST Non-banking Loans

2,789,000

discounted cash flow

determining private company credit rating

14-44%

Other Equity

278,897

last secured funding known by company

economic changes since purchase

Preferred Stock

300,000

last funding secured by company

economic changes since last funding

3,367,897

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, 2019:

Security Type

12/31/19 FMV

Valuation Technique

Unobservable Inputs

Range

Other Equity

384,200

last secured funding known by company

economic changes since last funding

150,000

discounted cash flow

cash flow based on oil market price per barrel

$35 - $45 per barrel

Preferred Stock

300,000

last funding secured by company

economic changes since last funding

834,200

There were no transfers between levels during the years ended December 31, ~~2017~~2020 and ~~2016.~~2019.

~~NOTE 8 — MINIMUM ASSET COVERAGE~~

As a BDC, we are required to meet various regulatory tests. Among other things, these tests will require us to invest at least 70% of our total assets in private or small-cap public U.S.-based companies, and to maintain an asset coverage ratio of total assets (less all liabilities and indebtedness not represented by senior securities) to total indebtedness represented by senior securities and borrowings (including accrued interest payable) of at least 200%. As of December 31, 2017, approximately 98% of our investments (by fair value at that date) were in private or small-cap public U.S.-based companies and we did not carry any debt.

NOTE 98 – RELATED-PARTY TRANSACTIONS

We maintain a Code of Ethics and certain other policies relating to conflicts of interest and related-party transactions, as well as policies and procedures relating to what regulations ~~applicable to BDCs generally describe as “affiliate transactions.”~~applicable. Nevertheless, from time to time we may hold investments in portfolio companies in which certain members of our ~~management,~~manageme, our Board of Directors, or significant shareholders of ours, are also directly or indirectly invested. Our Board of Directors has adopted a policy to require our disclosure of these instances in our periodic filings with the SEC. Our only related-party ~~transactions~~transaction requiring disclosure under this policy ~~are:~~relates to an August 10, 2018 loan transaction we entered into with Elizabeth Zbikowski. Ms. Zbikowski, along with her husband Scott Zbikowski, owns approximately 1,765,000 shares of our common stock. In the transaction, we obtained a two-year promissory note in the principal amount of $250,000. The promissory note was subsequently amended such that it matures in August 2021. The note bears interest payable monthly at the rate of 10% per annum and is secured by the debtors’ pledge to us of 625,000 shares of our common stock. The pledged shares are held in physical custody for us by our custodial agent Millennium Trust Company.

NOTE 9 — RETIREMENT SAVINGS PLANS

Our two employees, Messrs. Geraci and Polinsky, are eligible to participate in a qualified defined contribution 401(k) plan whereby they may elect to have a specified portion of their salary contributed to the plan. We will make a safe harbor match equal to 100% of their elective deferrals up to 5% of eligible earnings in addition to our option to make discretionary contributions to the plan. We made contributions totaling $10,550 and $10,000 to the plans for the years ended 2020 and 2019, respectively.

Mr. Joseph A. Geraci, II, our Chief Financial Officer, and Mr. Douglas M. Polinsky, our Chief Executive Officer, hold direct and indirect interests in the common stock of Southern Plains Resources, Inc., a company in which we made investments in common stock in each of March and July 2013.

A former director of our company, Christopher Larson, had a direct interest in Mix 1 Life, Inc. and served as that company’s Chief Financial Officer at the time of a portfolio investment we made in secured convertible debt of Mix 1 Life (together with common stock purchase warrants) in February 2014. In June 2014, Mr. Larson became a director of Mix 1 Life. In August 2014, we exercised our common stock purchase warrant on a cashless basis for the purchase of Mix 1 Life common stock. In March 2015, we invested in additional secured debt of Mix 1 Life. Mr. Larson resigned from his position as a director of Mill City Ventures in November 2015.

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

NOTE 10 — INCOME TAXES

~~We plan~~Prior to December 27, 2019, before we withdrew our election to be treated as a BDC, we planned to be taxed as a regulated investment company ~~or “RIC,” and intend to comply~~(RIC). Compliance with the requirements of the Internal Revenue Code applicable to ~~RICs. Currently, however, we have not elected to be treated as a RIC. Upon our election to be taxed as a RIC, we will be required~~RICs required us to distribute at least 90% of our investment company taxable income ~~and we intend at that time~~to shareholders. Our intention was to distribute ~~to shareholders~~ (or retain through a deemed distribution) all of our investment company taxable income and net capital ~~gain. Based on the foregoing,~~gain, therefore we ~~have~~ made no provision for income ~~taxes. The characterization~~taxes prior to December 27, 2019. We never made an election to be a RIC, and our ability to do so expired with the withdrawal of our BDC election on December 27, 2019. Presently, we are a C-corporation for tax purposes and have booked an income tax provision for the year ended December 31, 2020. Income taxes as of December 31, 2020 and 2019 are described below.

	December 31,
	2020		2019
Current taxes
Federal	$	—	$	—
State		16,679		—
Deferred taxes
Federal		258,000		(446,000	)
State		13,722		—
Valuation allowance		—		446,000
Provision for (benefit from) income taxes	$	288,401	$	—

A reconciliation of income tax provisions at the U.S. statutory rate for fiscal 2020 and ~~gains~~2019 is as follows:

	December 31,
	2020			2019
Rate Reconciliation:
Tax expense at U.S. statutory rate	$	716,966		$	(154,099	)
Change in valuation allowance		(446,000	)		157,000
Provision-to-return reconciliation		21,657			—
Other		(4,222	)		(2,901	)
Income tax provision	$	288,401		$	—

The Company had Federal net operating loss carryforwards of approximately $371,000 at December 31, 2020 that ~~we will distribute is determined in accordance with~~do not expire. The Company had Minnesota net operating loss carryforwards of approximately $1,325,000 at December 31, 2020 expiring from 2021 through 2023.

Deferred income taxes reflect the net tax effects of temporary differences between the carrying amount of assets and liabilities for financial reporting purposes and the amounts used for income tax ~~regulations that may differ from GAAP. Book~~purposes. Significant components of our deferred tax assets and ~~tax basis differences relating to shareholder dividends~~liabilities as of December 31, 2020 and ~~distributions and other permanent book and tax differences are reclassified to paid-in capital.~~2019 were as follows:

	December 31,
	2020			2019
Deferred tax components:
Unrealized (gain) loss on marketable securities	$	(488,419	)	$	56,000
Depreciation		3,002			—
Net operating loss carryforwards		180,460			356,000
R&D and foreign tax credits		46,957			34,000
	$	(258,000	)	$	446,000

Valuation Allowance		—			(446,000	)

Net deferred tax asset (liability)	$	(258,000	)	$	—

NOTE 11 — FINANCIAL HIGHLIGHTS

The following is a schedule of financial highlights for the years ended December 31, ~~2017~~2020 through ~~2013:~~2016:

	Year Ended Dec 31, 2017			Year Ended Dec 31, 2016			Year Ended Dec 31, 2015			Year Ended Dec 31, 2014			Year Ended Dec 31, 2013			Year Ended December 31,
Per Share Data
																2020			2019			2018			2017			2016
Per Share Data ⁽¹⁾
Net asset value at beginning of period	$	0.77			0.72			0.94			0.86			0.04		$	0.91			1.02			0.87			0.77			0.72
Net investment income (loss)		(0.05	)		(0.02	)		0.00			(0.04	)		(0.05	)		0.05			(0.06	)		(0.05	)		(0.05	)		(0.02	)
Net realized and unrealized gains (losses)		0.11			0.07			(0.22	)		0.12			0.03			0.18			0.00			0.20			0.11			0.07
Issuance of common stock		0.00			0.00			0.00			0.00			0.84
Provision for income taxes																	(0.02	)		0.00			0.00			0.00			0.00
Stock based compensation																	(0.01	)		0.00			0.00			0.00			0.00
Repurchase of common stock		0.04			0.00			0.00			0.00			0.00			0.02			0.00			0.00			0.04			0.00
Payment of common stock dividend																	(0.05	)		(0.05	)		0.00			0.00			0.00
Net asset value at end of period	$	0.87			0.77			0.72			0.94			0.86		$	1.08			0.91			1.02			0.87			0.77

Ratio / Supplemental Data
Per share market value of investments at end of period	$	0.65			0.57			0.47			0.59			0.27		$	0.62			0.16			0.90			0.65			0.57
Shares outstanding at end of period		11,067,402			12,151,493			12,151,493			12,151,493			12,169,422			10,785,913			11,067,402			11,067,402			11,067,402			12,151,493
Average weighted shares outstanding for the period		11,863,392			12,151,493			12,151,493			12,166,608			10,219,737			10,869,054			11,067,402			11,067,402			11,863,392			12,151,493
Net assets at end of period	$	9,629,215			9,387,408			8,741,288			11,473,690			10,521,830		$	11,640,887			10,068,533			11,278,889			9,629,215			9,387,408
Average net assets (2)	$	9,444,440			8,651,742			10,520,199			11,416,452			8,538,872		$	10,504,563			11,473,535			10,341,702			9,444,440			8,651,742
Total investment return		7.79	%		6.94	%		(23.40	)%		9.30	%		(50.00	)%		23.08	%		(5.88	)%		17.24	%		7.79	%		6.94	%
Portfolio turnover rate (3)		35.03	%		24.94	%		26.26	%		11.21	%		7.53	%		61.11	%		7.63	%		26.93	%		35.03	%		24.94	%
Ratio of operating expenses to average net assets (3)		(7.30	)%		(7.15	)%		(6.08	)%		(7.00	)%		(7.12	)%		(7.16	)%		(7.27	)%		(6.59	)%		(7.30	)%		(7.15	)%
Ratio of net operating loss to average net assets (3)		(5.45	)%		(2.66	)%		(0.68	)%		(4.02	)%		(6.71	)%
Ratio of realized gains to average net assets (3)		5.71	%		(2.12	)%		1.74	%		2.54	%		1.51	%
Ratio of net investment income (loss) to average net assets ⁽³⁾																	5.35	%		(5.86	)%		(5.13	)%		(5.45	)%		(2.66	)%
Ratio of realized gains (losses) to average net assets ⁽³⁾																	0.05	%		28.35	%		(5.62	)%		5.71	%		(2.12	)%

(1)Per-share data was derived using the weighted-average 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.

~~(1)~~

~~Per-share data was derived using the weighted-average 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.~~

(3)Ratios are annualized.

NOTE 12 — SUBSEQUENT EVENTS

~~None.~~On January 12, 2021, we invested $600,000 in a special purpose acquisition company sponsor by purchasing 150,000 common membership units.

On January 13, 2021, we made a short-term loan evidenced by a $1.05 million in principal amount promissory note. The note accrues interest at the per annum rate of 44.44%, and matures on April 13, 2021.

On January 18, 2021, we made a short-term loan evidenced by a $720,000 in principal amount promissory note. The note accrues interest at the per annum rate of 44.44%, and matures on April 18, 2021.

ITEM 9 CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

None.

ITEM 9A CONTROLS AND PROCEDURES

Evaluation of Disclosure 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 December 31, ~~2017,~~2020, our Chief Executive Officer and Chief Financial Officer in conjunction with our Chief Compliance Officer carried out an evaluation of the effectiveness of our disclosure controls and procedures as such term is defined in Rule 13a-15(e) under the Securities and Exchange Act of 1934. Based on that evaluation, our Chief Executive Officer and Chief Financial Officer concluded our disclosure controls and procedures are effective as of December 31, ~~2017.~~2020.

Report of Management on Internal Control Over Financial Reporting

Board of Directors and Shareholders Mill City Ventures III, Ltd.:

The management of Mill City Ventures III, Ltd. (the “Company”) is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Rules 13a-15(f) under the Securities and Exchange Act of 1934. The Company’s internal control system is designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements in accordance with U.S. generally accepted accounting principles. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. It should be noted that any system of internal control, however well designed and operated, can provide only reasonable, and not absolute, assurance that the objectives of the system will be met. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

Under the supervision and with the participation of management, including its principal executive officer and principal financial officer, the Company’s management assessed the design and operating effectiveness of internal control over financial reporting as of December 31, ~~2017~~2020 based on the framework set forth in Internal Control — Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission.

Based on this assessment, management concluded that the Company’s internal control over financial reporting was effective as of December 31, ~~2017. Baker Tilly Virchow Krause, LLP,~~2020. Boulay PLLP, an independent registered public accounting firm, is not required to issue, and thus has not issued, an attestation report on the Company’s internal control over financial reporting as of December 31, ~~2017.~~2020.

/s/ Douglas M. Polinsky
Chairman, President and Chief Executive Officer

/s/ Joseph A. Geraci, II
Chief Financial Officer

Changes in Internal ~~Controls~~Control

There were no changes in our internal control over financial reporting during the year ended December 31, ~~2017~~2020 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

PART III

ITEM 10 DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE

Directors, Executive Officers, Promoters, and Control Persons

Name	Age	Positions
Douglas M. Polinsky	5861	Chairman, Chief Executive Officer and President
Joseph A. Geraci, II	4851	Director and Chief Financial Officer
Howard Liszt	7175	Director
Lyle Berman	7679	Director
Laurence Zipkin	7681	Director

Douglas M. Polinsky co-founded the Company in January 2006 and since that time has been the Chairman and Chief Executive Officer of the Company. Since 1994, Mr. Polinsky has been the President of Great North Capital Consultants, Inc., a financial advisory and investment company that he founded. Great North Capital Consultants, Inc. primarily engages in the business of investing in hard money lending with collateral on the loans being first or second mortgages in both residential and commercial properties. In addition, Great North Capital Consultants, Inc. makes direct investments into public and private companies. Since 2007, Mr. Polinsky has been an independent director of FAB Universal, Inc., a Colorado corporation based in Pennsylvania which did specialize in digital content distribution but is now dormant. Mr. Polinsky is a member of the Audit and Compensation Committees of the Board of Directors. Since 2012, Mr. Polinsky has been an independent director of Future Healthcare of America, Inc., a Wyoming Corporation with headquarters in Pennsylvania. Future Healthcare of America is an in-home healthcare company with operations in Wyoming and Montana. Mr. Polinsky is a member of the Audit and Compensation Committees of the Board of Directors. Since 2015, Mr. Polinsky has been an independent director of Liberated Syndication, Inc., a Nevada corporation with its operations in Pennsylvania. Liberated Syndication, Inc. is a host and publisher of podcasts. Mr. Polinsky is a member of the Audit and Compensation ~~committees~~Committees of the Board of ~~Directors.~~Directors of Liberated Syndication. Mr. Polinsky earned a Bachelor of Science degree in hotel administration at the University of Nevada, at Las Vegas in 1981.

Joseph A. Geraci, II co-founded the Company in January 2006 and has been a director and the Chief Financial Officer of the Company since that time. Since February 2002 through the present time, Mr. Geraci has been managing member of Isles Capital, LLC, an advisory and consulting firm that assists small businesses, both public and private, in business development. In March 2005, Mr. Geraci also became the managing member of Mill City Advisors, LLC, the general partner of Mill City Ventures, LP, and Mill City Ventures II, LP, each a Minnesota limited partnership that invested directly into both private and public companies. From January 2005 until August 2005, Mr. Geraci served as the Director of Finance for Gelstat Corporation, a purveyor of homeopathic remedies, based in Bloomington, Minnesota. Mr. Geraci provided investment advice to clients as a stockbroker and Vice President of Oak Ridge Financial Services, Inc., a Minneapolis-based broker-dealer firm, from June 2000 to December 2004. While at Oak Ridge Financial Services, Mr. Geraci’s business was focused on structuring and negotiating debt and equity private placements with both private and publicly held companies. Mr. Geraci was employed at other Minneapolie brokerage firms from July 1991 to June 2000. From his career and investment experiences, Mr. Geraci has established networks of colleagues, clients, co-investors, and the officers and directors of public and private companies. ~~Mr. Geraci was employed at other Minneapolis brokerage firms from July 1991 to June 2000.~~ These networks offer a range of contacts across a number of sectors and companies that may provide opportunities for investment, including many that meet the Company’s screening criteria.

In August 2003, the National Association of Securities Dealers (NASD) found in an administrative hearing that Mr. Geraci, while employed by and affiliated with a NASD member, had violated NASD Conduct Rule 2110 and SEC Rule 10b-5 in August 1999, and barred him from associating with any NASD member in the future.

Howard Liszt served as Chief Executive Officer of Campbell Mithun, a national marketing communications agency he joined in 1976, until 2001. Under his leadership, Campbell Mithun grew to be one of the 20 largest agencies in the world. He currently serves on the board of ~~the following companies:~~: Eggland’s ~~Best,~~Best. Mr. Liszt has served as a ~~branded egg company;~~Board member for several industry-leading companies including Land O’O' Lakes, ~~the second largest cooperative in the United States; OCO Holdings, an independent marketing communications company;~~ShuffleMaster, Ocular Sciences, and ~~Wireless Ronin (now known as Creative Realities, Inc.), a marketing technology company.~~Coleman Natural Foods. Mr. Liszt holds a Bachelor of Arts in Journalism and Marketing and a Masters of Science in Marketing from the University of Minnesota, Minneapolis.

Lyle Berman is a 1964 graduate of the University of Minnesota with a degree in Business Administration. Mr. Berman began his career with Berman Buckskin, his family's leather business. He helped grow the business into a major specialty retailer with 27 outlets. In 1990, Mr. Berman participated in the founding of Grand Casinos, Inc. Mr. Berman is credited as one of the early visionaries in the development of casinos outside of the traditional gaming markets of Las Vegas and Atlantic City. In less than five years, the company opened eight casino resorts in four states. In 1994, Mr. Berman financed the initial development of Rainforest Cafe. He served as the Chairman and CEO from1994 until2000. In October 1995, Mr. Berman was honored with the B'nai B'rith "Great American Traditions Award." In April 1996, he received the Gaming Executive of the Year Award; in 2004, Mr. Berman was inducted into the Poker Hall of Fame; and in 2009, he received the Casino Lifetime Achievement Award from Raving Consulting & Casino Journal. In 1998, Lakes Entertainment, Inc. was formed. In 2002, as Chairman of the Board and CEO of Lakes Entertainment, Inc., Mr. Berman was instrumental in creating the World Poker Tour. Since January 2005, Mr. Berman has also served as Chairman of the Board of Pokertek, Inc.

Laurence Zipkin is nationally recognized for his expertise in the gaming industry, restaurants, and emerging small growth companies. From 1996 to 2006, Mr. Zipkin owned Oakridge Securities, Inc. where, as an investment banker, he successfully raised capital for various early growth-stage companies and advising clients with regard to private placements, initial public offerings, mergers, debt offerings, bridge and bank financings, developing business plans and evaluating cash needs and resources. He has extensive experience in the merger and acquisition field and has represented companies on both the buy and sell side. Since 2006, Mr. Zipkin has been self-employed, engaging in various consulting activities, owning and operating two restaurant properties, and purchasing distressed real estate. Mr. Zipkin is a licensed insurance agent for both life and health insurance. Mr. Zipkin attended the University of Pennsylvania Wharton School of Finance.

Under the Company’s bylaws, the directors serve for indefinite terms expiring upon the next annual meeting of the Company’s shareholders.

When considering whether directors and nominees have the experience, qualifications, attributes and skills to enable the Board of Directors to satisfy its oversight responsibilities effectively in light of the Company’s business and structure, the Board of Directors focuses primarily on the industry and transactional experience, and other background, in addition to any unique skills or attributes associated with a director. With regard to Messrs. Polinsky and Geraci, the Board of Directors considered their significant experience, expertise and background with regard to investing in general and the Company in particular. With regard to Mr. Berman, the Board of Directors considered his background and experience with the public securities markets and his former employment and experience in operational capacities. With regard to Mr. Liszt, the Board of Directors considered his experience on other boards of public companies, his past experience in the communications and advertising fields, and his organizational experience. With regard to Mr. Zipkin, the Board of Directors considered his knowledge, experience and skills in the finance, public securities and investment banking fields.

Code of Ethics

Our Board of Directors adopted a Code of Ethics on August 5, 2008, and revised March 6, ~~2013.~~2013 in connection with the Company’s election to become a BDC. The Code of Ethics includes our Company’s principal executive officer and principal financial officer, or persons performing similar functions, as required by Sections 406 and 407 of the Sarbanes-Oxley Act of 2002. The Company formally revised the Code of Ethics again in March 2021, to reflect the Company’s withdrawal of its BDC election. Our Code of Ethics is available at our website, www.millcityventures3.com, or without charge, to any shareholder upon written request made to Mill City Ventures III, Ltd., Attention: Chief Executive Officer, ~~328 Barry Ave. S.~~1907 Wayzata Blvd., Suite ~~210,~~205, Wayzata, MN 55391.

The Code of Ethics has been drafted in order to facilitate compliance with the requirements applicable to the Company, as a BDC, under Section 17 of the 1940 Act. In this regard, the Company has recently implemented procedures to ensure compliance with the provisions of the Code of Ethics, which procedures are part of the various requirements applicable to the Company under Section 17 of the 1940 Act and Rule 17j-1 promulgated by the SEC thereunder.

Changes to Board of Director Nomination Procedures

~~We have not had any material changes to~~In March 2021, the ~~procedures for shareholder nominations of candidates to serve on our~~ Board of Directors ~~during~~formally created a Nominating and Governance Committee and adopted and associated charter. The charter alters the ~~fiscal year ended December 31, 2017.~~manner in which candidates for service as directors will be nominated for election or re-election and delegates that authority to the committee in lieu of the entire Board of Directors.

Committees of the Board of Directors; Audit Committee Financial Expert

The Board of Directors has an Audit Committee, a Compensation Committee, and a ~~Valuation~~Nominating and Governance Committee. The members of the Audit Committee are Laurence Zipkin, Howard Liszt and Lyle Berman., each of whom is independent for purposes of the Securities Exchange Act of ~~1934 and “non-interested” directors for purposes of the 1940 Act.~~1934. Mr. Berman currently serves as chair of the Audit Committee. The board has adopted a charter for the Audit Committee a copy of which is available at the Company’s website at ~~http://~~www.millcityventures3.com. The Audit Committee is responsible for approving the Company’s independent accountants and recommending them to the board (including a majority of the independent directors) for approval and submission to the shareholders for ratification, if any, reviewing with its independent accountants the plans and results of the audit engagement, approving professional services provided by its independent accountants, reviewing the independence of its independent accountants and reviewing the adequacy of its internal accounting controls. The Audit Committee is also responsible for discussing with management the Company’s major financial risk exposures and the steps management has taken to monitor and control such exposures, including the Company's risk assessment and risk management policies. The board has determined that Mr. Berman is an “audit committee financial expert” within the meaning of the rules of the Commission. Mr. Berman’s relevant experience is detailed in his biography above. The Board of Directors has determined that each of the Audit Committee members is able to read and understand fundamental financial statements and that at least one member of the Audit Committee has past employment experience in finance or accounting.

The members of the Compensation Committee are Messrs. Zipkin, Liszt and Berman, each of whom is independent for purposes of the Securities Exchange Act of ~~1934 and “non-interested” directors for purposes of the 1940 Act.~~1934. Mr. Liszt currently serves as chair of the Compensation Committee. The compensation committee is responsible for approving the Company’s compensation arrangements with its executive management, including bonus-related decisions and employment agreements with respect to such individuals. The board has adopted a charter for the Compensation Committee, a copy of which is available at ~~http//~~www.millcityventures3.com.

~~The members~~As explained elsewhere, our entire Board of ~~the~~Directors values our investments pursuant to Valuation ~~Committee are Messrs. Zipkin, Liszt~~Policies and ~~Berman, each of whom is independent for purposes of the Securities Exchange Act of 1934 and “non-interested” directors for purposes of the 1940 Act. Mr. Zipkin currently serves as chair of the~~Procedures. Prior to 2020, this function was performed by a Valuation Committee. ~~The Valuation Committee~~Accordingly, the entire Board of Directors is responsible for approving the fair value of debt and equity securities comprising the Company’s investment portfolio pursuant to the Company’s written valuation policy and procedures.

The members of the Nominating and Corporate Governance Committee are Messrs. Zipkin, Liszt and Berman, each of whom is independent for purposes of the Securities Exchange Act of 1943. Mr. Liszt currently serves as chair of the Nominating and Corporate Governance Committee. The Nominating and Corporate Governance committee is responsible for advising the Board on a broad range of issues surrounding the composition and operation of the Board of Directors and its committees, specifically including identifying criteria for suitable board candidates, identifying individuals suited to service on the board (consistent with those criteria), recommending director candidates to the board and to the shareholders, conducting annual reviews of corporate governance matters and making related recommendations to the Board of Directors and its committees.

Of the directors presently serving on the board, Messrs. Berman, Liszt and Zipkin are “independent” as that term is defined in Section 4200(a)(15) of National Association of Securities Dealers’ listing ~~standards, and “non-interested” persons as that term is defined in~~standards.

While the ~~1940 Act. Our company~~Company is not ~~however,~~presently subject to the Nasdaq listing standards because its common stock is not listed for trading on any Nasdaq market ~~tier.~~tier, the Company has submitted an application to have its common stock listed on the Nasdaq Capital Markets.

Section 16(a) Beneficial Ownership Reporting Compliance

Section 16(a) of the Securities Exchange Act of 1934, requires our directors, executive officers and beneficial owners of more than 10% of our common stock to file with the SEC certain reports regarding their ownership of common stock or any changes in such ownership. Based on our own review, we believe that there were no late filings during ~~2017.~~2020 other than: a Form 4 report filed by Mr. Geraci on May 26 reporting a transaction on May 20; a Form 4 report filed by Mr. Polinsky on June 9 reporting a transaction on June 5; Form 4 reports filed by Messrs. Geraci and Polinsky on September 1 reporting a transaction on August 25; Form 4 reports filed on September 17 by Messrs. Geraci, Polinsky and Zipkin reporting transactions on September 14; and a Form 4 report filed by Mr. Zipkin on December 7 reporting a transaction on December 3.

ITEM 11 EXECUTIVE AND DIRECTOR COMPENSATION

Executive Compensation — Summary Compensation Table

The following table sets forth the total compensation paid by the Company during its two most recent fiscal years ended December 31, ~~2017~~2020 and ~~2016~~2018 to those persons who served as the Company’s President or Chief Executive Officer and Chief Financial Officer during such periods (collectively, the “named executives”).

				Stock		All Other
		Salary		Awards		Compensation			Total
Name and Principal Position	Year	($)		($)		($)			($)		Year		Salary ($)		Stock Awards ($)		All Other Compensation ($)			Total ($)
Douglas M. Polinsky,	2017	$	50,000	$	0	$	26,267	*	$	76,267		2020	$	50,000	$	30,500	$	31,845	*	$	112,345
Chief Executive Officer	2016	$	50,000	$	0	$	—		$	50,000		2019	$	100,000	$	0	$	31,831	*	$	131,831
Joseph A. Geraci, II,	2017	$	100,000	$	0	$	21,011	*	$	121,011		2020	$	100,000	$	30,500	$	37,918	*	$	168,418
Chief Financial Officer	2016	$	95,000	$	0	$	—		$	95,000		2019	$	150,000	$	0	$	35,702	*	$	185,702

*includes additional compensation of payment of health insurance premiums and 401(k) matching contributions under the employment retirement program.

Outstanding Equity Awards at Fiscal Year End

We had no outstanding options, warrants, unvested stock awards or equity incentive plan awards as of December 31, ~~2017~~2020 held by any named executive. In addition, we have no options, warrants, unvested stock awards or equity incentive plan awards outstanding and held by any named executive as of the date of this filing.

^* ~~includes additional compensation of payment of health insurance premiums and 401(k) matching contributions under the employment retirement program~~

Director Compensation

For ~~2017,~~2020, we paid a total of ~~$60,000~~$90,000 in director fees to our independent directors. Presently, each such director receives an annualized fee of ~~$20,000.~~$30,000.

Name	Year	Compensation		Total		Year		Compensation		Total
Joseph A. Geraci, III	2017		—		—
Joseph A. Geraci, II							2020		—		—
Douglas M. Polinsky	2017		—		—		2020		—		—
Lyle Berman	2017	$	20,000	$	20,000		2020	$	30,000	$	30,000
Howard P. Liszt	2017	$	20,000	$	20,000		2020	$	30,000	$	30,000
Laurence S. Zipkin	2017	$	20,000	$	20,000		2020	$	30,000	$	30,000

ITEM 12 SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED SHAREHOLDER MATTERS

The table below sets forth certain information with respect to beneficial ownership of our common stock as of ~~March 15, 2018~~

~~(on~~December 31, 2020 (on which date there were ~~1111,067,402~~10,785,913 shares of common stock outstanding), by:

each director of the Company

each named executive (see Item 11 above)

all current directors and executive officers of the Company as a group, and

each person or entity known by the Company to beneficially own more than 5% of our common stock.

Unless otherwise indicated in the table or its footnotes, the business address of each of the following persons or entities is ~~328 Barry Avenue S.~~1907 Wayzata Blvd., Suite ~~210,~~205, Wayzata, Minnesota 55391, and each such person or entity has sole voting and investment power with respect to the shares of common stock set forth opposite their respective name.

Number of
Shares Percentage of
Beneficially Outstanding
Owned⁽¹⁾ Shares⁽¹⁾
Douglas M. Polinsky⁽²⁾ 554,858 5.01 %
Joseph A. Geraci, II⁽³⁾ 639,079 5.77 %
Howard Liszt⁽⁴⁾ — *
Lyle Berman⁽⁵⁾ — *
Laurence Zipkin⁽⁶⁾ — *
Neal Linnihan SEP/IRA 2,500,000 22.59 %
Scott and Elizabeth Zbikowski⁽⁷⁾ 1,865,000 16.85 %

Donald Schreifels 1,060,001 9.58 %
David Bester 1,000,000 9.04 %
Patrick Kinney⁽⁸⁾ 942,278 8.51 %
William Hartzell 650,000 5.87 %
All current directors and executive officers as a group⁽⁹⁾ (five persons) 1,193,937 10.79 %

	Number of Shares Beneficially Owned ⁽¹⁾		Percentage of Outstanding Shares ⁽¹⁾
Douglas M. Polinsky ⁽²⁾		900,899		8.35	%
Joseph A. Geraci, II ⁽³⁾		1,009,828		9.36	%
Howard Liszt ⁽⁴⁾		20,000		—	*
Lyle Berman ⁽⁵⁾		20,000		—	*
Laurence Zipkin ⁽⁶⁾		60,650		—	*
Neal Linnihan SEP/IRA		2,500,000		23.18	%
Scott and Elizabeth Zbikowski ⁽⁷⁾		1,765,000		16.36	%
David Bester		1,000,000		9.27	%
Patrick Kinney ⁽⁸⁾		933,187		8.65	%
William Hartzell		650,000		6.03	%
All current directors and executive officers as a group ⁽⁹⁾ (five persons)		1,721,322		15.96	%

*less than one percent

(1)

Beneficial ownership is determined in accordance with the rules of the SEC and includes general voting power and/or investment power with respect to securities. Shares of common stock subject to options or warrants currently exercisable, or exercisable within 60 days of the applicable record date, are deemed outstanding for computing the beneficial ownership percentage of the person holding such options or warrants but are not deemed outstanding for computing the beneficial ownership percentage of any other person.

(2)

Mr. Polinsky is the Company’s Chairman and Chief Executive Officer. Includes ~~69,411 common shares held by Great North Capital Consultants, Inc. (f/k/a Great North Capital Corp.), a Minnesota corporation of which Mr. Polinsky is the sole shareholder, officer and director,~~ 290,055 common shares held by Lantern Advisers, LLC, a Minnesota limited liability company co-owned by Messrs. Polinsky and Geraci, ~~180,164~~528,705 common shares held individually by Mr. Polinsky, 69,411 common shares held by Great North Capital Corp., and 12,728 common shares Mr. Polinsky holds as a custodian for his children (beneficial ownership of which Mr. Polinsky disclaims).

(3)

Mr. Geraci is a director and the Company’s Chief Financial Officer. Includes 290,055 common shares held by Lantern Advisers, LLC, a Minnesota limited liability company co-owned by Messrs. Geraci and Polinsky, ~~258,802~~702,500 common shares held by Mr. Geraci and 17,273 common shares held individually by Mr. Geraci’s spouse.

(4)

Mr. Liszt is a director of the Company.

(5)

Mr. Berman is a director of the Company.

(6)

Mr. Zipkin is a director of the Company.

(7)

Based upon a Schedule 13G filed by Mr. and Mrs. Zbikowski, Mr. Zbikowski is the beneficial owner of ~~1,240,000~~1,140,000 shares, and Mrs. Zbikowski is the beneficial owner of 625,000 shares. Mr. and Mrs. Zbikowski are husband and wife.

(8)

Based upon a Schedule 13G filed by Mr. Kinney on March 19, 2013, Mr. Kinney may be deemed to be the beneficial owner of ~~942,278~~933,187 shares, which includes 3,640 shares that are held in custodial accounts for the benefit of his grandchildren.

(9)

Consists of Messrs. Polinsky, Geraci, Liszt, Berman and Zipkin.

ITEM 13 CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS AND DIRECTOR INDEPENDENCE

Transactions with Related Persons and Certain Conflict Disclosures

Our Board of Directors has adopted a policy to require our disclosure of instances in our periodic filings with the SEC. Our only related-party transactions requiring disclosure under this policy ~~are:~~relates to a promissory note that we held at all times in 2019 and 2020. On August 10, 2018, we entered into a loan transaction with Elizabeth Zbikowski who, along with her husband Scott Zbikowski, owns approximately 1,765,000 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 so that the note matures in August 2021. 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 625,000 shares of our common stock. The pledged shares are held in physical custody for us by our custodial agent Millennium Trust Company.

A former director of our company, Christopher Larson, had a direct interest in Mix 1 Life, Inc. and served as that company’s Chief Financial Officer at the time of a portfolio investment we made in secured convertible debt of Mix 1 Life (together with common stock purchase warrants) in February 2014. In June 2014, Mr. Larson became a director of Mix 1 Life. In August 2014, we exercised our common stock purchase warrant on a cashless basis for the purchase of Mix 1 Life common stock. In March 2015, we invested in additional unsecured debt of Mix 1 Life. Mr. Larson resigned from his position as a director of Mill City Ventures in November 2015.

~~Related Party~~Related-Party Transaction Policy

The Board of Directors has adopted a written Conflict of Interest and Related Party Transaction Policy. That policy governs the approval of all ~~related party~~related-party transactions, subject only to certain customary exceptions (e.g., compensation, certain charitable donations, transactions made available to all employees generally, etc.). The policy contains a minimum dollar threshold of $5,000.

The entire Board of Directors administers the policy and approves any ~~related party transactions, subject to conflicting requirements of the 1940 Act or the Company’s written Code of Ethics.~~related-party transactions. In general, after full disclosure of all material facts, review and discussion, the board approves or disapproves ~~related party~~related-party transactions by a vote of a majority of the directors who have no interest in such transaction, direct or indirect. Procedurally, no director is allowed vote in any approval of a ~~related party~~related-party transaction for which he or she is the related party, except that such a director may otherwise participate in a related discussion and shall provide to the board all material information concerning the ~~related party~~related-party transaction and the director’s interest therein. If a ~~related party~~related-party transaction will be ongoing, the board may establish guidelines for management to follow in its ongoing dealings with the related party.

Director Independence

The Company currently has five directors, three of whom—Messrs. Liszt, Berman and Zipkin, are “independent” as that term is defined in Section 4200(a)(15) of National Association of Securities Dealers’ listing standards. ~~None of our independent directors are “interested persons” as that term is defined in the 1940 Act.~~ The Company is not subject to those listing standards, however, because its common stock is presently not listed for trading on a Nasdaq market. The Company has, however, submitted an application for its common stock to be listed and traded on the Nasdaq Capital Markets. Based upon information requested from each such director concerning his background, employment and affiliations, the board has affirmatively determined that none of the independent directors has a material business or professional relationship with the Company, other than in his or her capacity as a member of the board or any committee thereof.

ITEM 14 PRINCIPAL ACCOUNTANT FEES AND SERVICES

~~Aggregate~~The following table summarizes the fees for professional audit services provided by (i) Boulay PLLP for the audit of the Company’s annual financial statements for the year ended December 31, 2020 and December 31, 2019, as well as the fees billed for other services rendered by ~~our principal independent registered public accounting firm for the fiscal years indicated:~~Boulay PLLP during year ended December 31, 2020.

	2017		2016		2020		2019
Audit Fees	$	53,346	$	50,004	$	80,875	$	56,310
Audit-Related Fees		—		—		—		—
Tax Fees		5,823		4,750		9,100		8,660
Total	$	59,169	$	54,754	$	89,975	$	58,810

Audit Fees. The fees identified under this caption were for professional services rendered by ~~Baker Tilly Virchow Krause, LLP~~Boulay PLLP for the years ended ~~2017~~2020 and ~~2016~~2019 in connection with the audit of our annual financial statements and review of the financial statements included in our quarterly reports on Form 10-Q. The amounts also include fees for services that are normally provided by the independent public registered accounting firm in connection with statutory and regulatory filings and engagements for the years identified.

Audit-Related Fees. The fees identified under this caption were for assurance and related services that were related to the performance of the audit or review of our financial statements and were not reported under the caption “Audit Fees.” This category may include fees related to the performance of audits and attestation services not required by statute or regulations, and accounting consultations about the application of generally accepted accounting principles to proposed transactions.

Tax Fees. The fees identified under this caption were for tax compliance and corporate tax services. Corporate tax services encompass a variety of permissible services, including technical tax advice related to tax matters; assistance with state and local taxes.

Approval Policy. The Audit Committee of our Board of Directors approves in advance all services provided by our independent registered public accounting firm. All engagements of our independent registered public accounting firm in years ended ~~2017~~2020 and ~~2016~~2019 were pre-approved by the Audit Committee.

PART IV

ITEM 15 EXHIBITS AND FINANCIAL STATEMENT SCHEDULES

Financial Statements

~~Financial Statements~~

Report of Independent Registered Public Accounting Firm on Financial Statements			2210
Balance Sheets — December 31, ~~2017~~2020 and December 31, ~~2016~~2019			2312
Statements of Operations — Year ended December 31, ~~2017~~2020 and December 31, ~~2016~~2019			2413
Statements of Shareholders’ Equity (Deficit) — Years ended December 31, ~~2017,~~2020, December 31, ~~2016~~2019			2514
Statements of Cash Flows — Year ended December 31, ~~2017~~2020 and December 31, ~~2016~~2019			2615
Notes to Financial Statements			2918

~~Exhibits~~

Exhibits

Exhibit
Number		Description
3.1		Amended and Restated Articles of Incorporation of Mill City Ventures III, Ltd. (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)
4		Form of Common Stock Certificate (incorporated by reference to Exhibit 4.1 to the registrant’s registration statement on Form 10-SB filed on January 29, 2008)
10.1		Safekeeping Agreement with Millennium Trust Company, LLC dated as of March 22, 2013 (incorporated by reference to Exhibit (j)(1) to the registrant’s amendment to Registration Statement on Form N-2 filed on May 31, 2013)
10.2		Addendum to Safekeeping Agreement with Millennium Trust Company, LLC dated as of March 22, 2013 (incorporated by reference to Exhibit (j)(2) to the registrant’s amendment to Registration Statement on Form N2 filed on May 31, 2013)
10.3		Safekeeping Agreement with Maxwell Simon, Inc. dated as of May 30, 2013 (incorporated by reference to Exhibit (j)(3) to the registrant’s amendment to Registration Statement on Form N-2 filed on May 31, 2013)
10.4		Securities Purchase Agreement with Mix 1 Life, Inc. dated effective February 6, 2014 (incorporated by reference to Exhibit 10.6 to the registrant’s Annual Report on Form 10-K filed on March 31, 2015)
10.5		Senior Secured Convertible Debenture of Mix 1 Life, Inc. dated effective February 6, 2014 (incorporated by reference to Exhibit 10.7 to the registrant’s Annual Report on Form 10-k filed on March 31, 2015)
10.6		Warrant of Mix 1 Life, Inc. dated effective February 6, 2014 (incorporated by reference to Exhibit 10.8 to the registrant’s Annual Report on Form 10-K filed on March 31, 2015)
10.7		Security Agreement with Mix 1 Life, Inc. dated effective February 6, 2014 (incorporated by reference to Exhibit 10.9 to the registrant’s Annual Report on Form 10-K filed on March 31, 2015)
10.8		Guaranty and Pledge Agreement with Christopher Larson and Cameron Robb dated effective February 6, 2014 (incorporated by reference to Exhibit 10.10 to the registrant’s Annual Report on Form 10-K filed on March 31, 2015)
10.9		Note Purchase Agreement with Mix 1 Life, Inc. dated effective March 13, 2015 (incorporated by reference to Exhibit 10.11 to the registrant’s Annual Report on Form 10-K filed on March 31, 2015)
10.10		Senior Secured Promissory Note of Mix 1 Life, Inc. dated effective March 13, 2015 (incorporated by reference to Exhibit 10.12 to the registrant’s Annual Report on Form 10-K filed on March 31, 2015)
10.11		Employment agreement with Douglas Polinsky
10.12		Employmnet agreement with Joseph Geraci
14		Code of Ethics (incorporated by reference to Exhibit 14.1 to the registrant’s Annual Report on Form 10-K filed on April 1, 2013)
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 electronically herewith.~~

* Filed electronically herewith.

SIGNATURES

~~SIGNATURES~~

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

	MILL CITY VENTURES III, LTD.

	/s/ Douglas Polinsky
	Douglas Polinsky
	Chief Executive Officer

	Dated: March ~~30, 2018~~10, 2021

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.

/s/ Douglas M. Polinsky	Chief Executive Officer, President and	March ~~30, 2018~~10, 2021
Douglas M. Polinsky	Director (principal executive officer)

/s/ Joseph A. Geraci, II	Chief Financial Officer and Director	March ~~30, 2018~~10, 2021
Joseph A. Geraci, II	(principal accounting and financial officer)

/s/ Lyle Berman	Director	March ~~30, 2018~~10, 2021
Lyle Berman

/s/ Howard Liszt	Director	March ~~30, 2018~~10, 2021
Howard Liszt

/s/ Laurence Zipkin	Director	March ~~30, 2018~~
~~Laurence Zipkin~~		10, 2021

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

~~328 Barry Ave. S. #210~~
1907 Wayzata Blvd #205
Wayzata, Minnesota		55391
(Address of principal executive offices)		(Zip Code)

Large accelerated filer¨	~~Accelerated filer~~¨	~~Non accelerated filer~~¨	~~Smaller reporting company~~x
		Accelerated filer ¨	~~Emerging growth~~	Non-accelerated filer x		Smaller reporting company¨x

~~For the Fiscal Year/Quarter~~	~~Market Price~~ ~~(High/Low)~~ ~~2017~~		~~Market Price~~ ~~(High/Low)~~ ~~2016~~
~~First Quarter~~	$	~~0.75 - 0.75~~	$	~~0.75 - 0.60~~
~~Second Quarter~~	$	~~0.75 - 0.62~~	$	~~0.65 - 0.37~~
~~Third Quarter~~	$	~~0.75 - 0.55~~	$	~~0.75 - 0.40~~
~~Fourth Quarter~~	$	~~0.80 - 0.50~~	$	~~0.80 - 0.28~~

	Market Price	Market Price
	(High/Low)	(High/Low)
For the Fiscal Year/Quarter	2020	2019
First Quarter	$0.63 - 0.50	$1.70 - 0.47
Second Quarter	$0.65 - 0.43	$0.70 - 0.58
Third Quarter	$0.84 - 0.44	$0.59 - 0.46
Fourth Quarter	$3.03 - 0.66	$0.70 - 0.41

x		ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
	For the fiscal year ended December 31, 2020 or


~~PART I~~

ITEM 7	MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS	185


ITEM 9	CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE	3728


ITEM 10	DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE	3830


ITEM 12	SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED SHAREHOLDER MATTERS	4233


ITEM 13	CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS AND DIRECTOR INDEPENDENCE	4334


ITEM15	EXHIBITS AND FINANCIAL STATEMENT SCHEDULES	45

~~SIGNATURES~~		4636

	•	~~review and assessment of the company’s financing history, as well as the likely need for additional financings,~~

	•	~~risk analysis relating to the terms of the investment and the transaction size, and~~

	Year Ended			Year Ended
	December 31,			December 31,
Item	2017			2016
Investment Income:
Interest Income	$	130,463		$	289,990
Dividend Income		43,600			98,675

Operating Expenses:
General Operating Expenses		111,348			149,909
Legal and Accounting Expenses		221,598			174,454
Executive Management Compensation		217,275			157,490
Insurance Expense		78,865			78,134
Director’s Fees		60,000			58,956
Net Investment Loss	$	(515,023	)	$	(230,278	)

	For the Year Ended December 31,
	2020		2019
Investment Income:
Interest Income	$	1,282,175	$	112,189
Dividend Income		15,462		49,473

Operating Expenses:
General Operating Expenses		83,447		111,757
Legal and Accounting Expenses		175,612		209,897
Executive Management Compensation		301,494		340,003
Insurance Expense		85,237		82,773
Director's Fees		90,000		90,000

Net Investment Gain (Loss)	$	561,847	$	(672,768	)

Item		Page
~~Report~~Reports of Independent Registered Public Accounting Firm		2210
Balance Sheets — December 31, ~~2017~~2020 and December 31, ~~2016~~2019		2312
Statements of Operations — Years ended December 31, ~~2017~~2020 and December 31, ~~2016~~2019		2413
Statements of Shareholders’ Equity — Years ended December 31, ~~2017~~2020 and December 31, ~~2016~~2019		2514
Statements of Cash Flows — Years ended December 31, ~~2017~~2020 December 31, ~~2016~~2019		2615
Notes to Financial Statements		2918

~~/s/ Baker Tilly Virchow Krause, LLP~~Description of the Matter	At December 31, 2020, the balances of the Company’s investments, at fair value, categorized as Level 3 within the fair value hierarchy totaled approximately $3,368,000. The fair value of these investments is determined by management using the valuation techniques and significant unobservable inputs described in Notes 6 and 7 to the financial statements. Auditing the fair value of the Company’s investments categorized as Level 3 within the fair value hierarchy was complex and involved a high degree of auditor subjectivity due to the estimation uncertainty resulting from the unobservable nature of the inputs used in the valuations and the limited number of comparable market transactions for the same or similar investments.

How We ~~have served~~Addressed the Matter in Our Audit	We obtained an understanding and evaluated the design of controls over the Company’s valuation process, including management’s assessment of the significant inputs and estimates used in the fair value measurements. We performed the following procedures, among others, for the Company’s Level 3 investments: ·We evaluated the valuation techniques used by the Company and considered the consistency in application of the valuation techniques to each subject investment and investment class. ·We involved senior, more experienced audit team members to perform audit procedures. ·We evaluated the reasonableness of the significant unobservable inputs by comparing the inputs used by the Company to third-party sources, such as market indexes or other market data. ·We considered other information obtained during the ~~Company's auditor since 2007.~~

~~Minneapolis, Minnesota~~

~~March 30, 2018~~	audit that corroborated or contradicted the Company’s inputs or fair value measurements. ·For investments sold during the year, we compared the transaction price to the Company’s fair value estimate to assess the reasonableness of management’s fair value estimates.

	December 31, 2020			December 31, 2019
ASSETS
Investments, at fair value:	$	6,667,897		$	1,740,897
Non-control/non-affiliate investments (cost: $4,968,576 and $1,976,370 respectively)
Cash		5,440,579			8,066,656
Note receivable		250,000			250,000
Prepaid expenses		43,838			31,557
Receivable for sale of investments		19,313			—
Interest and dividend receivables		65,911			6,500
Right-of-use lease asset		23,345			40,823
Property and equipment, net		—			2,071
Total Assets	$	12,510,883		$	10,138,504

LIABILITIES
Accounts payable	$	32,917		$	24,996
Dividend payable		539,296			—
Lease liability		26,061			44,975
Accrued tax expense		13,722			—
Long-term deferred taxes		258,000			—
Total Liabilities		869,996			69,971
Commitments and Contingencies

SHAREHOLDERS EQUITY (NET ASSETS)
Common stock, par value $0.001 per share (250,000,000 authorized; 10,785,913 and 11,067,402 outstanding)		10,786			11,067
Additional paid-in capital		10,673,014			10,774,653
Accumulated deficit		(1,159,665	)		(1,159,665	)
Accumulated undistributed investment loss		(2,124,419	)		(2,397,865	)
Accumulated undistributed net realized gains on investment transactions		2,541,850			3,075,816
Net unrealized appreciation (depreciation) in value of investments		1,699,321			(235,473	)
Total Shareholders' Equity (net assets)		11,640,887			10,068,533
Total Liabilities and Shareholders' Equity	$	12,510,883		$	10,138,504
Net Asset Value Per Common Share	$	1.08		$	0.91

	Year Ended
	December 31, 2020		December 31, 2019
Investment Income
Interest income	$	1,282,175	$	112,189
Dividend income		15,462		49,473
Total Investment Income		1,297,637		161,662
Operating Expenses
Professional fees		175,612		209,897
Payroll		301,494		340,003
Insurance		85,237		82,773
Occupancy		66,307		73,685
Director's fees		90,000		90,000
Depreciation and amortization		2,071		2,574
Other general and administrative		15,069		35,498
Total Operating Expenses		735,790		834,430
Net Investment Gain (Loss)		561,847		(672,768	)
Realized and Unrealized Gain (Loss) on Investments
Net realized gain on investments		5,330		3,252,620
Net change in unrealized appreciation (depreciation) on investments		1,934,794		(3,236,838	)
Net Realized and Unrealized Gain (Loss) on Investments		1,940,124		15,782
Net Increase (Decrease) in Net Assets Resulting from Operations Before Taxes	$	2,501,971	$	(656,986	)

Provision for Income Taxes		288,401		—
Net Increase (Decrease) in Net Assets Resulting from Operations	$	2,213,570	$	(656,986	)

Net Increase (Decrease) in Net Assets Resulting from Operations per share:
Basic and diluted	$	0.20	$	(0.06	)

Weighted-average number of common shares outstanding - basic and diluted		10,869,054		11,067,402

																Accumulated
																Undistributed			Net
													Accumulated			Net Realized			Unrealized
							Additional						Undistributed			Gains on			Appreciation			Total
	Common Stock						Paid In			Accumulated			Investment			Investments			in value of			Shareholders'
	Shares			Amount			Capital			Deficit			Loss			Transactions			Investments			Equity
Balance as of January 1, 2016		12,151,493		$	12,151		$	11,857,660		$	(1,159,665	)	$	(1,099,927	)	$	601,392		$	(1,470,323	)	$	8,741,288
Undistributed investment loss		—			—			—			—			(230,278	)		—			—			(230,278	)
Undistributed net realized loss on investment transactions		—			—			—			—			—			(183,019	)		—			(183,019	)
Depreciation in value of investments		—			—			—			—			—			—			1,059,417			1,059,417
Balance as of December 31, 2016		12,151,493		$	12,151		$	11,857,660		$	(1,159,665	)	$	(1,330,205	)	$	418,373		$	(410,906	)	$	9,387,408
Repurchase of common stock for cash of $0.40 per share on September 25, 2017		(1,084,091	)		(1,084	)		(1,083,007	)		—			650,455			—			—			(433 ,636)
Undistributed investment loss		—			—			—			—			(515,023	)		—			—			(515,023	)
Undistributed net realized gains on investment transactions		—			—			—			—			—			539,445			—			539,445
Appreciation in value of investments		—			—			—			—			—			—			651,021			651,021
Balance as of December 31, 2017		11,067,402		$	11,067		$	10,774,653		$	(1,159,665	)	$	(1,194,773	)	$	957,818		$	240,115		$	9,629,215

Year Ended December 31, 2020	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, 2019		11,067,402		$	11,067		$	10,774,653		$	(1,159,665	)	$	(2,397,865	)	$	3,075,816		$	(235,473	)	$	10,068,533
Repurchase of shares		(381,489	)		(381	)		(162,539	)		—			—			—			—			(162,920	)
Stock based compensation		100,000			100			60,900			—			—			—			—			61,000
Dividend declared					—			—			—			—			(539,296	)		—			(539,296	)
Net investment gain, net of tax					—			—			—			273,446			—			—			273,446
Net realized gain on investment transactions					—			—			—			—			5,330			—			5,330
Appreciation in value of investments					—			—			—			—			—			1,934,794			1,934,794
Balance as of December 31, 2020		10,785,913		$	10,786		$	10,673,014		$	(1,159,665	)	$	(2,124,419	)	$	2,541,850		$	1,699,321		$	11,640,887

Year Ended December 31, 2019	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, 2018		11,067,402	$	11,067	$	10,774,653	$	(1,159,665	)	$	(1,725,097	)	$	376,566		$	3,001,365		$	11,278,889
Dividend distribution				—		—		—			—			(553,370	)		—			(553,370	)
Net investment loss				—		—		—			(672,768	)		—			—			(672,768	)
Net realized gain on investment transactions				—		—		—			—			3,252,620			—			3,252,620
Depreciation in value of investments				—		—		—			—			—			(3,236,838	)		(3,236,838	)
Balance as of December 31, 2019		11,067,402	$	11,067	$	10,774,653	$	(1,159,665	)	$	(2,397,865	)	$	3,075,816		$	(235,473	)	$	10,068,533

	Year Ended
	December 31, 2020			December 31, 2019
Cash flows from operating activities:
Net increase (decrease) in net assets resulting from operations	$	2,213,570		$	(656,986	)
Adjustments to reconcile net increase (decrease) in net assets resulting from operations to net cash provided (used) in operating activities:
Net change in unrealized (appreciation) depreciation on investments		(1,934,794	)		3,236,838
Net realized gain on investments		(5,330	)		(3,252,620	)
Purchases of investments		(9,405,802	)		(875,160	)
Proceeds from sales of investments		6,418,926			9,080,118
Proceeds from sales of investments sold short		—			30,119
Stock-based compensation		61,000			—
Depreciation & amortization expense		2,071			2,574
Deferred income taxes		271,722			—
Changes in operating assets and liabilities:
Prepaid expenses and other assets		5,197			32,299
Interest and dividends receivable		(59,411	)		66,401
Receivable for investment sales		(19,313	)		18,999
Payable for investment purchase		—
Accounts payable and other liabilities		(10,993	)		(28,677	)
Net cash provided (used) in operating activities		(2,463,157	)		7,653,905
Cash flows from financing activities:
Payments for repurchase of common stock		(162,920	)		—
Payments for common stock dividend		—			(553,370	)
Net cash used by financing activities		(162,920	)		(553,370	)
Net increase (decrease) in cash		(2,626,077	)		7,100,535
Cash, beginning of period		8,066,656			966,121
Cash, end of period	$	5,440,579		$	8,066,656

Supplemental disclosure of cash flow information:
Cash paid for income taxes	$	16,679		$	2,064
Non-cash financing activities:
Dividend to common stock shareholders	$	539,296		$	—

Investment / Industry	Cost		Fair Value		Percentage of Net Assets
Short-Term Non-banking Loans
Consumer - 20% secured loans	$	400,000	$	400,000		3.44	%
Financial - 44% secured loans		400,000		400,000		3.44	%
Financial - 36% secured loans		500,000		500,000		4.30	%
Real Estate - 15% secured loans
Alatus Development, LLC		1,250,000		1,250,000		10.74	%
Other		239,000		239,000		2.05	%
Total Short-Term Non-Banking Loans		2,789,000		2,789,000		23.97	%

Common Stock
Consumer
Ammo, Inc.		1,750,000		3,300,000		28.34	%

Preferred Stock
Information Technology		150,000		300,000		2.58	%

Warrants
Healthcare		679		—		0.00	%

Other Equity
Leisure & Hospitality		278,897		278,897		2.40	%

Total Investments	$	4,968,576	$	6,667,897		57.30	%

Total Cash		5,440,579		5,440,579		46.74	%

Total Investments and Cash	$	10,409,155	$	12,108,476		104.04	%

Investments⁽¹⁾	Investment Type	Interest Rate⁽²⁾			Maturity Date	Principal Amount		Cost		Fair Value		Percentage of Net Assets			Gross Unrealized Appreciation		Gross Unrealized Depreciation		Net Unrealized Appreciation (Depreciation)
Debt Investments
Consumer
Mix 1 Life, Inc.	Secured Loan⁽⁴⁾		12	%	2/6/2016	$	500,000		500,000		—					—		500,000		(500,000	)
Mix 1 Life, Inc.	Secured Loan		12	%	3/13/2016	$	250,000		250,000		—					—		250,000		(250,000	)
									750,000		—		0.00	%		—		750,000		(750,000	)
Financial
Bravo Financial LLC	Secured Loan		12	%	8/31/2018	$	500,000		500,000		500,000		5.19	%		—		—		—

Total Debt Investments									1,250,000		500,000		5.19	%		—		750,000		(750,000	)

Investments ⁽¹⁾	Investment Type ⁽⁵⁾	Interest Rate ⁽²⁾⁽⁶⁾	Expiration Date ⁽⁷⁾	Shares/Units		Cost		Fair Value		Percentage of Net Assets			Gross Unrealized Appreciation		Gross Unrealized Depreciation		Net Unrealized Appreciation (Depreciation)
Equity Investments
Advertising
Creative Realities, Inc.	Warrants ⁽⁸⁾	n/a	12/28/2020		35,714	$	—	$	—		0.00	%	$	—	$	—	$	—

Consumer
Tzfat Spirits of Israel, LLC	LLC Membership Units ⁽⁸⁾	n/a	n/a		55,000		101,019		15,000					—		86,019		(86,019	)
							101,019		15,000		0.15	%		—		86,019		(86,019	)
Financial
Manning & Napier, Inc.	Common Stock	n/a	n/a		86,700		188,969		150,858					—		38,111		(38,111	)
							188,969		150,858		1.50	%		—		38,111		(38,111	)
Healthcare
Reshape Life Sciences Inc.	Warrants ⁽⁸⁾	n/a	8/16/2024		67,860		679		—					—		679		(679	)
							679		—		0.00	%		—		679		(679	)
Information Technology
Kwikbit Inc. (fka MAX 4G)	Preferred Stock ⁽⁸⁾	n/a	n/a		300,000		150,000		300,000					150,000		—		150,000
							150,000		300,000		2.98	%		150,000		—		150,000
Leisure & Hospitality
DBR Enclave US Investors, LLC	LLC Units Units	n/a	n/a		369,200		369,200		369,200					—		—		—
							369,200		369,200		3.67	%		—		—		—
Oil & Gas
Northern Capital Partners I, LP	Limited Partnership Units ⁽⁸⁾	n/a	n/a		550,000		550,000		150,000					—		400,000		(400,000	)
							550,000		150,000		1.49	%		—		400,000		(400,000	)
Publishing
Educational Development Corp.	Common Stock	n/a	n/a		122,304		616,503		755,839		7.50	%		150,106		10,770		139,336

Total Equity Investments							1,976,370		1,740,897		17.29	%		300,106		535,579		(235,473	)

Total Cash							8,066,656		8,066,656		80.12	%		—		—		—

Total Investments and Cash						$	10,043,026	$	9,807,553		97.41	%	$	300,106	$	535,579	($	235,473	)

Investments⁽¹⁾	Investment Type⁽⁵⁾	Interest Rate⁽⁶⁾			Expiration Date⁽⁷⁾	Shares/Units		Cost		Fair Value		Percentage of Net Assets			Gross Unrealized Appreciation		Gross Unrealized Depreciation		Net Unrealized Appreciation (Depreciation)
Equity Investments
Advertising
Creative Realities, Inc.	Warrants⁽⁸⁾		n/a		12/28/2020		1,071,429		—		42,857		0.45	%		42,857		—		42,857
Consumer
Famous Daves of America, Inc.	Common Stock		n/a		n/a		37,923		159,087		248,395					89,308		—		89,308
Forward Industries, Inc.	Common Stock⁽⁸⁾		n/a		n/a		20,100		23,969		24,723					778		24		754
Mix 1 Life, Inc.	Common Stock⁽¹⁰⁾		n/a		n/a		100,000		46,160		800					—		45,360		(45,360	)
Stanley Furniture Co., Inc.	Common Stock⁽⁸⁾		n/a		n/a		171,292		181,871		149,024					—		32,847		(32,847	)
Tzfat Spirits of Israel, LLC	LLC Membership Units⁽⁸⁾		n/a		n/a		55,000		101,019		25,000					—		76,019		(76,019	)
									512,106		447,942		4.65	%		90,086		154,250		(64,164	)
Education
Nat'l Amer. Univ. Holdings, Inc.	Common Stock		n/a		n/a		100,000		172,757		142,000		1.47	%		3,321		34,078		(30,757	)
Financial
OTC Markets Group Cl A	Common Stock		n/a		n/a		11,279		182,557		327,655					145,098		—		145,098
Hi-Crush Partners, LP	Common Stock⁽⁹⁾		n/a		n/a		10,000		106,222		107,000					778		—		778
QC Holdings, Inc.	Common Stock⁽⁸⁾		n/a		n/a		15,000		10,655		6,862					—		3,793		(3,793	)
									299,434		441,517		4.59	%		145,876		3,793		142,083
Healthcare
Reshape Life Sciences Inc Pfd Conv Ser B	Preferred LLC Units^{(4) (8)}		n/a		n/a		156		155,321		100,433					—		54,888		(54,888	)
Reshape Life Sciences Inc Pfd Conv Ser B	Warrants⁽⁸⁾		n/a		8/16/2024		67,860		679		—					—		679		(679	)
HemaCare Corp.	Common Stock⁽⁸⁾		n/a		n/a		136,897		421,839		413,429					6,396		14,806		(8,410	)
									577,839		513,862		5.34	%		6,396		70,373		(63,977	)
Industrial Goods
ClearSign Combustion Corporation	Common Stock		n/a		n/a		3,400		11,310		12,240					930		—		930
Information Technology
Insite Software Solutions, Inc	Warrants⁽⁸⁾		n/a		12/30/2023		108,960		—		—					—		—		—
MAX 4G, Inc.	Preferred Stock⁽⁸⁾		n/a		n/a		300,000		150,000		300,000					150,000		—		150,000
Simulations Plus, Inc.	Common Stock		n/a		n/a		25,001		246,710		402,509					155,799		—		155,799
Travelzoo, Inc.	Common Stock		n/a		n/a		30,000		324,848		193,500					—		131,348		(131,348	)
									721,558		896,009		9.31	%		305,799		131,348		174,451
Leisure & Hospitality
Bitesquad.com LLC	Preferred LLC Units^{(4) (8)}		n/a		n/a		73,543		1,014,893		2,020,226					1,005,333		—		1,005,333
DBR Enclave US Investors, LLC	LLC Membership Units		15	%	1/31/2020		500,000		500,000		500,000					—		—		—
									1,514,893		2,520,226		26.17	%		1,005,333		—		1,005,333
Oil & Gas
Northern Capital Partners I, LP	Limited Partnership Units⁽⁸⁾		n/a		n/a		550,000		550,000		488,629					—		61,371		(61,371	)
Southern Plains Resources, Inc.	Common Stock⁽⁸⁾		n/a		n/a		600,000		730,000		—					—		730,000		(730,000	)
									1,280,000		488,629		5.07	%		—		791,371		(791,371	)
Publishing
Educational Development Corp.	Common Stock		n/a		n/a		65,202		660,848		1,235,578		12.83	%		574,730		—		574,730

Total Equity Investments									5,750,745		6,740,860		70.00	%		2,175,328		1,185,213		990,115

Total Cash and Cash Equivalents									2,158,314		2,158,314		22.41	%		—		—		—

Total Investments, Cash and Cash Equivalents⁽¹¹⁾									9,159,059		9,399,174		97.60	%		2,175,328		1,935,213		240,115

	⁽¹¹⁾	At December 31, ~~2016,~~2019, the estimated net unrealized loss for federal tax purposes was ~~$211,630,~~$58,586, based on a tax cost basis of ~~$9,543,383.~~$1,799,483.
	At December 31, 2019, the estimated aggregate gross unrealized gain for federal income tax purposes was $300,106 and the estimated aggregate gross unrealized loss for federal income tax purposes was $358,692

	As of December 31, 2017
	Investments at Amortized Cost		Percentage of Amortized Cost			Investments at Fair Value		Percentage of Fair Value
Loans (Secured)	$	1,250,000		17.8	%	$	500,000		6.9	%
Preferred Stock		1,320,214		19.0			2,420,659		33.4
Common Stock		3,278,833		46.8			3,263,715		45.1
Warrants		679		-			42,857		0.6
Other Equity		1,151,019		16.4			1,013,629		14.0
Total	$	7,000,745		100.0	%	$	7,240,860		100.0	%

Operating Lease
Right-of-use assets	$	23,345

Operating Lease Liability	$	26,061
Less: short term portion		(20,406	)
Long term portion	$	5,655

	Operating Leases
2021	$	21,162
2022		5,396
Total minimum lease payments		26,558
Less: present value discount		(497	)
Present value of net minimum lease payments	$	26,061

	Secured Loans			Preferred Stock			Common Stock		Warrants			Other Equity
Balance as of December 31, 2016	$	680,000		$	3,047,011		$	-	$	-		$	513,629
Net change in unrealized appreciation		(97,305	)		138,321			-		-			-
Purchases and other adjustments to cost		10,000			-			-		-			500,000
Sales and redemptions		(182,695	)		(746,225	)		-		(5,884	)		-
Net realized gain (loss)		90,000			(118,881	)		-		5,884			-
Balance as of December 31, 2017	$	500,000		$	2,320,226		$	-	$	-		$	1,013,629

Net change in unrealized depreciation) on investment securities still held	$	(180,000	)	$	-		$	-	$	-		$	-

	Security Type	12/31/17 FMV		Unobservable Inputs
Mix 1 Life, Inc.	Loans (Secured)	$	—	company is in default
Bravo Financial LLC	Loans (Secured)		500,000	cost
Insite Software Solutions, Inc	Warrants		—	company is in default
Tzfat Spirits of Israel, LLC	Other Equity		25,000	last funding secured by company
MAX 4G, Inc.	Preferred Stock		300,000	last funding secured by company
Bitesquad.com LLC	Preferred Stock		2,020,226	last funding secured by company
DBR Enclave US Investors, LLC	Other Equity		500,000	cost
Northern Capital Partners I, LP	Other Equity		488,629	last K-1 valuation received
Southern Plains Resources, Inc.	Common Stock		—	company in default on its balance sheet debt
		$	3,833,855

	Security Type	12/31/16 FMV		Unobservable Inputs
Mix 1 Life, Inc.	Loans (Secured)	$	180,000	company is in default
Bravo Financial LLC	Loans (Secured)		500,000	cost
Dala Petroleum, Inc.	Loans (Secured)		—	company is in default
Dala Petroleum, Inc.	Preferred Stock		—	company is in default
Dala Petroleum, Inc.	Warrants		—	company is in default
Combimatrix Corporation	Warrants		—	out of money on conversion
WaferGen Bio-Systems, Inc.	Warrants		—	out of money on conversion
Insite Software Solutions, Inc	Warrants		—	out of money on conversion
Tzfat Spirits of Israel, LLC	Other Equity		25,000	last funding secured by company
MAX 4G, Inc.	Preferred Stock		300,000	last funding secured by company
Bitesquad.com LLC	Preferred Stock		2,747,011	last funding secured by company
Northern Capital Partners I, LP	Other Equity		488,629	last K-1 valuation received
Southern Plains Resources, Inc.	Common Stock		—	company in default on its balance sheet debt
		$	4,240,640