~~For the transition period from _______________________ to ___________________~~

MILL CITY VENTURES III, LTD.

(Exact name of registrant as specified in its charter)

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

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

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

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

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

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

As of ~~September~~October 30, ~~2017,~~2020, Mill City Ventures III, Ltd. had ~~11,067,402~~10,696,735 shares of common stock, and no other classes of capital stock, outstanding.

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

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

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

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

We ~~are an internally managed closed-end non-diversified management investment company.~~were incorporated in Minnesota in January 2006. On February 7, 2013, we filed Form N-54A to become a business development company (“BDC”) under the 1940 Act. We ~~have elected~~operated as a BDC until we withdrew our election to be ~~regulated~~treated as a BDC by filing a Form N-54C with SEC on December 27, 2019. As of the time of this filing, we remain a public reporting company that files periodic reports with the SEC, and we are seeking opportunities to invest in short-term non-bank lending and specialty finance. Nevertheless, any investment we make in business will be limited and structured in such a way as to ensure that no more than 40% of our total assets consist of investment securities.

Because we operated as a BDC or investment company from 2013 through December 27, 2019, the comparative financial statements for the periods during or ending on December 31, 2019 in this report reflect our operations as a business development company, or “BDC,” under the Investment Company Act of 1940 (the “1940 Act”). ~~To date,~~During that time, we ~~have not made an election to be treated as a regulated investment company, or “RIC,” under the Internal Revenue Code of 1986 (the “Code”).~~

Wewere primarily ~~focus~~focused on investing in or lending to privately held and ~~small-cap~~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 ~~investment contracts,~~ 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 iswas to generate ~~both current~~ income and capital appreciation that ultimately ~~become~~became realized gains.

Basis of presentation: ~~The~~Our accompanying unaudited condensed financial statements ~~of Mill City Ventures~~ have been prepared in accordance with accounting principles generally accepted in the United States for interim financial information and with the instructions to Form 10-Q and Regulation S-X. Accordingly, they do not include all of the information and footnotes required by accounting principles generally accepted in the United States (GAAP) for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring adjustments) considered necessary for a fair presentation have been included. Operating results for the ~~quarter~~nine months ended September 30, ~~2017~~2020 are not necessarily indicative of the results that may be expected for the year ending December 31, ~~2017.~~2020.

The condensed balance sheet atas of December 31, ~~2016~~2019 has been derived from the audited consolidated financial statements at that date but does not include all of the information and footnotes required by GAAP for complete financial statements. For further information, refer to the ~~consolidated~~ financial statements and footnotes thereto included in our Annual Report on Form 10-K for the year ended December 31, ~~2016.~~2019.

Use of ~~estimates~~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.~~estimates, and the differences could be material. For more information, see the “Valuation of portfolio investments” caption below, and “Note 4 – Fair Value of Financial Instruments” below. We present our financial statements as an investment company following accounting and reporting guidance in ASC 946.

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

Valuation of portfolio ~~investments~~investments: : We carry our investments in accordance with ASC Topic 820,Fair Value Measurements and Disclosures (“ASC 820”), issued by the Financial Accounting Standards Board (“FASB”), which defines fair value, establishes a framework for measuring fair value, and requires disclosures about fair value measurements. Fair value is generally based on quoted market prices provided by independent pricing services, broker or dealer quotations, or alternative price sources. In the absence of quoted market prices, broker or dealer quotations, or alternative price sources, investments ~~are~~were measured at fair value as determined by the Valuation Committee of our Board of Directors based on, among other things, the input of our executive management, the Audit Committee of our Board of Directors, and any independent third-party valuation experts that may behave been 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~~taxes:~~: We~~ Due to our change in business model, we now account for income taxes under the asset and liability ~~method. Under this~~ 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 ~~determined based on~~recognized for the ~~difference~~expected future tax consequences of temporary differences between the financial statement carrying amount and tax ~~bases~~basis 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~~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 ~~amounts expected~~extent we believe these assets will more likely than not be realized. In making such determination, we consider all available evidence, including future reversals of existing taxable temporary differences, projected future taxable income, tax planning strategies and recent financial operations. In the event we were to determine we would be able to realize our deferred income tax assets in the future in excess of their recorded amount, we would make an adjustment to the valuation allowance, which would reduce the provision for income taxes.

We file income tax returns in the U.S. federal jurisdiction and various state jurisdictions. We believe we have no significant unrecognized tax positions. Our evaluation was performed for the tax years ended December 31, 2016 through 2019, which are the tax years that remain subject to examination by major tax jurisdictions as of September 30, 2020. We do not believe there will be any material changes in its unrecognized tax positions over the next 12 months.

Prior to the business model change in 2019, we operated as a BDC under the 1940 Act. As such, we planned to be ~~realized.~~taxed as a regulated investment company, or “RIC”. Compliance with the requirements of the Internal Revenue Code applicable to RICs required us to distribute at least 90% of our investment company taxable income to shareholders. Our intention was to distribute (or retain through a deemed distribution) all of our investment company taxable income and net capital gain, therefore we made no provision for income taxes prior to 2019. Book and tax basis differences relating to shareholder dividends and distributions and other permanent book and tax differences were reclassified to paid-in capital. For more information of the current year provision, see Note 76, “Income Taxes.”

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

Interest income, adjusted for amortization of premiums and accretion of discounts, is recorded on an accrual basis. Discounts from and premiums to par value on securities purchased are accreted or amortized, as applicable, into interest income over the life of the related security using the effective-yield method. The amortized cost of investments represents the original cost, adjusted for the accretion of discounts and amortization of premiums, if any. Loans are generally placed on non-accrual status when principal or interest payments are past due 30 days or more, or when there is reasonable doubt that principal or interest will be collected in full. 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 ~~interested~~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 to be realized, the PIK-generating investment will be placed on non-accrual status. Accrued PIK interest or dividends are generally reversed through interest or dividend income, respectively, when an investment in placed on non-accrual status.

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

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

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

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 ~~incur expenses related to management and service fees. Our executive management team manages~~have a material impact on our ~~investments as part of their employment responsibilities.~~financial statements.

The following table shows the composition of our investment portfolio by major class, at amortized cost and fair value, as of September 30, ~~2017~~2020 (together with the corresponding percentage of the fair value of our total portfolio of investments):

The following table shows the composition of our investment portfolio by major class, at amortized cost and fair value, as of December 31, ~~2016~~2019 (together with the corresponding percentage of the fair value of our total portfolio of investments):

The following table shows the composition of our investment portfolio by industry grouping, based on fair value as of September 30, ~~2017:~~2020:

The following table shows the composition of our investment portfolio by industry grouping, based on fair value as of December 31, ~~2016:~~2019:

We do not “control,” and we are not an “affiliate” of (as each of those terms is defined in the 1940 Act), of any of our portfolio companies as of September 30, 2017. Under the 1940 Act, we would generally be presumed to “control” a portfolio company if we owned more than 25% of its voting securities, and be an “affiliate” of a portfolio company if we owned at least 5% and up to 25% of its voting securities.2020.

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:

~~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 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 at their weighted-average yield to maturity.

The estimated fair value of our Level 3 investment assets is determined on a quarterly basis by the Valuation Committee of our Board of Directors, pursuant to our written Valuation Policy and Procedures. These policies and procedures generally require that we value our Level 3 equity investments at cost plus any accrued interest, unless circumstances warrant a different approach. Our Valuation Policy and Procedures provide examples of these circumstances, such as when a portfolio company has engaged in a subsequent financing of more than a~~de minimis~~ size involving sophisticated investors (in which case we may use the price involved in that financing as a determinative input absent other known factors), or when a portfolio company is engaged in the process of a transaction that we determine is reasonably likely to occur (in which case we may use the price involved in the pending transaction as a determinative input absent other known factors). Other 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 the straight-line amortized face value of the debt unless justification for impairment exists.

~~- 12 -~~

- 14 -

MILL CITY VENTURES III, LTD.

NOTES TO CONDENSED FINANCIAL STATEMENTS (UNAUDITED)

September 30, ~~2017~~

On a quarterly basis, our management provides members of our Valuation Committee 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; and (iii) quarter- or period-end statements from our custodial firms holding any of our portfolio investments. The committee then discusses these materials and, consistent with the policies and approaches outlined above, makes final determinations respecting the valuation of our portfolio investments.

~~We made no changes to our Valuation Policy and Procedures during the reporting period.~~2020

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 September 30, ~~2017~~2020 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 September 30, ~~2017,~~2020, according to the fair value hierarchy:

	As of September 30, 2017								As of September 30, 2020
	Level 1		Level 2		Level 3		Total		Level 1		Level 2		Level 3		Total
Senior Secured Loans	$	-	$	-	$	500,000	$	500,000
Short-term Non-banking Loans									$	—	$	—	$	5,539,000	$	5,539,000
Preferred Stock		-		120,112		2,320,226		2,440,338						300,000		300,000
Common Stock		2,613,967		800		-		2,614,767		32,223		2,016,000		—		2,048,223
Warrants		-		224,572		-		224,572		—		—		—		—
Other Equity		-		-		1,013,629		1,013,629		—		—		291,040		291,040
Total	$	2,613,967	$	345,484	$	3,833,855	$	6,793,306	$	32,223	$	2,016,000	$	6,130,040	$	8,178,263

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~~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
Senior Secured Loans	$	-	$	-	$	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 nine months ended September 30, ~~2017:~~2020:

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

	For the nine months ended September 30, 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 depreciation		—			—		—		—		(164,000	)
Purchases and other adjustments to cost		5,793,000			—		—		—		—
Sales and redemptions		(254,000	)		—		—		—		(79,160	)
Net realized gain (loss)		—			—		—		—		—
Balance as of June 30, 2020	$	5,539,000		$	300,000	$	—	$	—	$	291,040

The net change in unrealized depreciation for the nine months ended September 30, ~~2017~~2020 attributable to Level 3 portfolio investments still held atas of September 30, ~~2017~~2020 is ~~$541,678, and is included in net change in unrealized appreciation (depreciation) on investments on the statement of operations.~~$150,000.

~~- 13 -~~

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MILL CITY VENTURES III, LTD.

NOTES TO CONDENSED FINANCIAL STATEMENTS (UNAUDITED)

September 30, ~~2017~~2020

The following table lists our Level 3 investments held as of September 30, 2020 and the unobservable inputs used to determine their valuation:

Security Type	9/30/20 FMV		Valuation Technique	Unobservable Inputs	Range
ST Non-banking Loans	$	5,539,000	discounted cash flow	determining private company credit rating	14-52%
Other Equity		291,040	last secured funding known by company	economic changes since purchase	14-16%
		—	discounted cash flow illiquidity of company	cash flow based on oil market price per barrel economic changes since last funding	$20 - $40 per barrel
Preferred Stock		300,000	last funding secured by company	economic changes since last funding
	$	6,130,040

The following table presents a reconciliation of the beginning and ending fair value balances for our Level 3 portfolio investment assets for the ~~period~~year ended December 31, ~~2016:~~2019:

Senior 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 gain (388,000 ) - - - -
Balance as of December 31, 2016 $ 680,000 $ 3,047,011 $ - $ - $ 513,629

	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 ~~appreciation~~depreciation for the ~~period~~year ended December 31, ~~2016~~2019 attributable to Level 3 portfolio investments still held atas of December 31, ~~2016~~2019 was ~~$713,932,~~$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 3 investments held as of December 31, 2019 and the unobservable inputs used to determine their valuation:

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

NOTE 5 – RELATED-PARTY TRANSACTIONS

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

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. (SPR), a company in which we made investments in common stock in each of March and July 2013. The company disposed of their investment in SPR in 2019.

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.

~~- 14 -~~

- 16 -

MILL CITY VENTURES III, LTD.

NOTES TO CONDENSED FINANCIAL STATEMENTS (UNAUDITED)

September 30, ~~2017~~2020

On August 10, 2018, we entered into a loan transaction with a shareholder and her spouse who own approximately 1,500,000 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 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 Milliennium Trust Company.

NOTE 6 – ~~COMMITMENTS AND CONTINGENCIES~~

We have an agreement to lease approximately 1,917 square feet of commercial space, and two parking spots, for a period of 62 months. The 62-month lease term began October 1, 2013 and runs through November 30, 2018. The total base rent expense for the three and nine-month periods ended September 30, 2017 was $11,345 and $34,034, respectively. The table below sets forth the required annual minimum lease payments:

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

~~NOTE 7 –~~ 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~~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. Ultimately, we never elected to be a RIC. As of ~~income~~December 27, 2019, we are a C-Corporation for tax purposes. Income taxes as of September 30, 2020 are described below.

As of September 30, 2020 and ~~gains that~~December 31, 2019, we maintained a full valuation allowance against its net deferred tax assets of $384,059 and $446,000, respectively. Our determination of the realizable deferred tax assets requires the exercise of significant judgment, based in part on business plans and expectations about future outcomes. In the event the actual results differ from these estimates in future periods, we may need to adjust the valuation allowance, which could materially impact our financial position and results of operations. We will ~~distribute~~continue to assess the need for a valuation allowance in future periods. Because of the full valuation allowance, our effective tax rate is ~~determined in accordance with~~expected to be near 0% and therefore the income tax ~~regulations~~expense is not material for any period presented.

As of September 30, 2020, we had a federal NOL of approximately $298,065. The federal NOL may be carried forward to offset future taxable income, subject to applicable provisions of the Internal Revenue Code. Certain NOLs will expire in years 2036 and 2037. Due to tax reform enacted in 2017, NOLs created after 2017 carry forward indefinitely. The estimated federal NOL that does not expire included in the total above is $356,000. States may ~~differ~~vary in their treatment of post-2017 NOLs. We have state NOL carryforwards arising from ~~GAAP. Book~~both combined and ~~tax basis differences relating to shareholder dividends~~separate filings. The state NOL carryforwards may expire in 2036 and ~~distributions and other permanent book and tax differences are reclassified to paid-in capital.~~2037.

NOTE 87 – SHAREHOLDERS’ EQUITY

~~On September 25, 2017 we repurchased and retired 1,084,091 shares of common stock at a per-share price of $0.40.~~

At September 30, ~~2017,~~2020, we had ~~11,067,402~~10,696,735 shares of common stock issued and outstanding.

On May 6, 2020, we repurchased and retired 100,000 shares of common stock at a purchase price of $0.50.

On May 19, 2020, we repurchased and retired 270,667 shares of common stock at a purchase price of $0.40.

On February 15, 2019, we announced that our Board of Directors had approved a special cash dividend of $0.05 per common share. The dividend was paid on March 15, 2019 to stockholders of record as of the close of business on March 8, 2019.

NOTE 98 – PER-SHARE INFORMATION

Basic net ~~loss~~gain per common share is computed by dividing net ~~loss~~increase in net assets resulting from operations by the weighted-average number of common shares outstanding during the period. A reconciliation of the numerator and denominator used in the calculation of basic and diluted net gain (loss) per common share is set forth below:

For the Three Months Ended
September 30,
2017 2016
Numerator: Net increase in net asset value resulting from operations $ 86,673 $ 142,254
Denominator: Weighted-average number of common shares outstanding 12,092,575 12,151,493
Basic and diluted net gain per common share $ 0.01 $ 0.01

	For the Three Months Ended September 30,
	2020		2019
Numerator: Net Increase (Decrease) in Net Assets Resulting from Operations	$	583,344	$	(345,286	)
Denominator: Weighted-average number of common shares outstanding		10,696,735		11,067,402
Basic and diluted net gain (loss) per common share	$	0.05	$	(0.03	)

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

~~- 15 -~~

- 17 -

MILL CITY VENTURES III, LTD.

NOTES TO CONDENSED FINANCIAL STATEMENTS (UNAUDITED)

September 30, ~~2017~~2020

	For the Nine Months Ended September 30,
	2020		2019
Numerator: Net Increase (Decrease) in Net Assets Resulting from Operations	$	894,796	$	(482,116	)
Denominator: Weighted-average number of common shares outstanding		10,881,382		11,067,402
Basic and diluted net gain (loss) per common share	$	0.08	$	(0.04	)

We do not have any common stock equivalents outstanding during the periods presented.

NOTE 9 – OPERATING LEASES

On January 1, 2019, we adopted ASU No. 2016-2, Leases (Topic 842), and its amendments and elected the effective date transition method. 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, 2019 was 4.5% and the weighted average remaining lease term is 2 years.

Under ASC 840, rent expense for office facilities for the three and nine months ended September 30, 2020 was $16,562 and $49,693, respectively. Rent expense for office facilities for the three and nine months ended September 30, 2019 was $16,384 and $57,250, respectively.

The components of our operating lease were as follows for the three and nine months ended September 30, 2020:

	Three Months		Nine Months
	Ended		Ended
	September 30, 2020		September 30, 2020
Operating lease costs	$	4,779	$	14,337
Variable lease cost		4,351		13,059
Short-term lease cost		7,432		22,297
Total	$	16,562	$	49,693

Variable lease costs consist primarily of property taxes, insurance and common area or other maintenance costs for our leased facility.

2020	$	5,138
2021		21,162
2022		5,449
Total lease payments		31,749
Less: interest		(880	)
Present value of lease liabilities	$	30,869

- 18 -

MILL CITY VENTURES III, LTD.

NOTES TO CONDENSED FINANCIAL STATEMENTS (UNAUDITED)

September 30, 2020

NOTE 10 – FINANCIAL HIGHLIGHTS

The following is a schedule of financial highlights for the nine months ended September 30, ~~2017 and~~2020 through 2016:

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

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

	Nine Months Ended September 30,
	2020			2019			2018			2017			2016
Per Share Data ⁽¹⁾
Net asset value at beginning of period	$	0.91			1.02			0.87			0.77			0.72
Net investment income (loss)		0.02			(0.05	)		(0.04	)		(0.04	)		(0.01	)
Net realized and unrealized gains (losses)		0.06			0.01			0.15			0.06			(0.01	)
Repurchase of common stock		0.02			—			—			0.04			—
Payment of common stock dividend		—			(0.05	)		—			—			—
Net asset value at end of period	$	1.01			0.93			0.98			0.83			0.70

Ratio / Supplemental Data
Per share market value of investments at end of period	$	0.76			0.70			0.82			0.51			0.47
Shares outstanding at end of period		10,696,735			11,067,402			11,067,402			12,151,493			12,151,493
Average weighted shares outstanding for the period		10,881,382			11,067,402			11,067,402			12,151,493			12,151,493
Net assets at end of period	$	10,805,062			10,588,689			11,278,889			9,555,551			8,354,165
Average net assets ⁽²⁾	$	10,220,482			12,304,975			9,955,674			9,504,851			8,670,320
Total investment return		8.79	%		(8.82	)%		12.64	%		2.60	%		(2.78	)%
Portfolio turnover rate (3)		18.18	%		7.11	%		11.55	%		11.87	%		11.90	%
Ratio of operating expenses to average net assets ⁽³⁾		(6.49	)%		(7.70	)%		(6.98	)%		(7.38	)%		(3.30	)%
Ratio of net investment income (loss) to average net assets ⁽³⁾		3.35	%		(6.40	)%		(5.53	)%		(5.89	)%		(2.86	)%
Ratio of realized gains (losses) to average net assets ⁽³⁾		7.06	%		57.36	%		(12.79	)%		16.51	%		(12.02	)%

(1)

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

(2)

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

(3)

Ratios are annualized.

NOTE 11 – GENERAL UNCERTAINTY

On March 11, 2020, the World Health Organization declared the outbreak of the coronavirus (COVID-19) a pandemic. As a result, economic uncertainties and market volatility have arisen which are likely to negatively impact our investment valuations and net increase or decrease in net assets resulting from operations. Other financial impacts could occur though such potential impact is unknown at this time.

NOTE 1112 – SUBSEQUENT EVENTS

~~None.~~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, if any, are expected to begin two complete trading days after the filing with the SEC of the Company's quarterly report on Form 10-Q for the period ended September 30, 2020, and 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.

~~- 16 -~~

- 19 -

ITEM 2.

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

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

Overview

Portfolio and Investment Activity

Results of Operations

Financial Condition

Critical Accounting Estimates

Off-Balance Sheet Arrangements

Forward Looking Statements

OVERVIEW

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

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

~~We primarily focus on investing in or lending to privately held and small-cap publicly traded U.S.~~ companies and ~~making managerial assistance available~~individuals on both a secured and unsecured basis. The loans we provide typically have maturities that range from 9 to ~~such companies. These investments are typically structured as purchases~~12 months and may involve a pledge of ~~preferred~~collateral or, ~~common stock, investment contracts, or~~in the case of loans ~~evidenced by promissory notes that may be convertible into stock by their terms or that may be accompanied~~made to companies, personal guarantees by the ~~issuance to us~~principals of ~~warrants or similar rights to purchase stock.~~the borrower. Our ~~investments~~loans may be made for ~~purposes of~~real estate acquisitions, renovation and sale; other real estate projects; title loans; cash inventory needs; inventory financing, ~~acquisitions, recapitalizations, buyouts, organic growth~~or for other purposes. We intend to remain opportunistic, however, and ~~working capital.~~may engage in transactions that involve other rights (such as stock, warrants or other equity-linked investments) or that are structured differently or uniquely. Our ~~revenues relate to the gain we realize from the sale of securities we purchase, and to dividends and interest we derive from those securities. Our investment~~business objective is to generate ~~both current income~~revenues from the interest and fees we charge, and capital appreciation ~~that ultimately become gains.~~from any related investments we make.

Our principal sources of income are interest, dividends and ~~dividends we earn on our investments, and proceeds from the sale~~other fees associated with lending such as origination fees, closing fees or ~~redemption~~exit fees. We may also receive reimbursement of ~~our investments.~~legal costs associated with loan documentation. Our ~~statements~~statement of operations also reflect ~~gain from~~ increases and decreases in the carrying value of our asset and investments (i.e., unrealized ~~appreciation)~~appreciation and depreciation). Our principal expenses relate to operating expenses, the largest components of which are generally professional fees, payroll, occupancy, and insurance expenses. ~~Our statements of operations also reflect loss from decreases in the carrying value of our investments (i.e., unrealized depreciation).~~

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

Our MD&A should be read in conjunction with our Annual Report on Form 10-K for the ~~fiscal~~ year ended December 31, ~~2016,~~2019, as well as our reports on Forms 10-Q and 8-K and other publicly available information. All amounts herein are unaudited. In addition, the following discussion of our results of operations and financial condition should be read in the context of this overview.

~~- 17 -~~

PORTFOLIO AND INVESTMENT ACTIVITY

During the nine months ended September 30, ~~2017,~~2020, we made ~~$1,984,412 in purchases~~$7,655,802 of investments in portfolio companies and had ~~$2,821,876~~$1,858,011 of redemptions and repayments, resulting in net investments at amortized cost of ~~$6,904,057 for~~$7,200,566 at the end of the period.

During the nine months ended September 30, ~~2016,~~2019, we made ~~$2,049,581 in purchases~~$875,160 of investments in portfolio companies and had ~~$1,381,928~~$3,380,422 of redemptions and repayments, resulting in net investments at amortized cost of ~~$7,538,930 for~~$7,555,775 at the end of the period.

Our portfolio composition by major class, based on fair value at September 30, ~~2017,~~2020, was as follows:

	Investments at Fair Value		Percentage of Fair Value			Investments at Fair Value		Percentage of Fair Value
Senior Secured Loans	$	500,000		7.4	%
Short-term Non-banking Loans						$	5,539,000		67.7	%
Equity/Other		6,293,306		92.6			2,639,263		32.3
Total	$	6,793,306		100.0	%	$	8,178,263		100.0	%

- 20 -

RESULTS OF OPERATIONS

Our operating results for the three and nine months ended September 30, ~~2017~~2020 and September 30, ~~2016~~2019 were as follows:

	For the three months ended September 30,						For the nine months ended September 30,						For the three months ended September 30,					For the nine months ended September 30,
	2017			2016			2017			2016			2020		2019			2020		2019
Total investment income	$	52,354		$	113,232		$	125,427		$	279,283		$	287,034	$	43,007		$	755,469	$	125,375
Total expenses		(159,632	)		(152,396	)		(514,379	)		(442,210	)		180,946		189,706			500,248		668,993
Net investment loss	$	(107,278	)	$	(39,164	)	$	(388,952	)	$	(162,927	)
Net investment gain (loss)													$	106,088	$	(146,699	)	$	255,221	$	(543,618	)

Investment Income

We generate revenue primarily in the form of interest income and capital gains, if any, on the debt ~~securities~~investments we own. We may also generate revenue from dividends and capital gains on equity investments we make, if any, or on warrants or other equity interests that we may acquire. In some cases, the interest on our investments may accrue or be paid in the form of additional debt. The principal amount of the debt instruments, together with any accrued but unpaid interest thereon, will generally become due at the maturity date of those debt instruments. We may also generate revenue in the form of commitment, origination, structuring, diligence, or consulting fees. Any such fees will be recognized as earned.

For the three and nine months ended September 30, ~~2017,~~2020, our total investment income was ~~$52,354~~$287,034 and ~~$125,427, respectively,~~$755,469, For the three and nine months ended September 30, 2019, our total investment income was ~~attributable~~$43,007 and $125,375. The increase is due to the change in our business structure which now focuses on short-term non-bank lending. Our loan portfolio generates interest income, ~~from two eligible portfolio companies, Bravo Financial, LLC and DBR Enclave LLC, and dividend payments received~~with an average rate on ~~account~~the loans of investments in five eligible portfolio companies - OTC Markets Group Cl A, Simulations Plus, Inc., Tessco Technologies, Inc., Escalade Inc., and National American University Holdings, Inc., and dividends received on account of investments in three non-eligible portfolio companies.24%.

Professional Fees

For the three and nine months ended September 30, ~~2016, our total investment income was $113,232~~2020, we had $58,719 and $279,283, respectively, and was attributable to interest income from four eligible portfolio companies - Bravo Financial, LLC, Mix 1 Life, Inc., Creative Realities, Inc. and DBR Phase III US Investors, LLC - and dividend payments received on account of investments in five eligible portfolio companies - Educational Development Corp., OTC Markets Group Cl A, Tessco Technologies, Inc., National American University Holdings, Inc., and Simulations Plus, Inc .- and on account of investments in seven non-eligible portfolio companies.

~~Operating Expenses~~

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

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

~~- 18 -~~

~~For the three and nine months ended September 30, 2017, our~~$133,016 professional ~~fee~~fees expense, ~~was $39,175 and $165,725,~~ respectively. For the three and nine months ended September 30, ~~2016, our~~2019, we had $69,503 and $168,342 professional ~~fee~~fees expense, ~~was $47,632 and $133,116,~~ respectively. The ~~increase in 2017~~decrease is due to a refund received during the ~~payment~~first quarter of ~~legal fees in connection with our collection efforts on bad debt, specifically relating~~$59,957, which related to ~~the Mix 1 Life Notes.~~

~~For the three~~expenses incurred during 2018 and nine months ended September 30, 2017, our payroll expense was $51,562 and $160,349, respectively. For the three and nine months ended September 30, 2016, our payroll expense was $40,487 and $122,445, respectively. The increase in 2017 is due to the payment of the Officers’ health insurance benefits beginning in 2017.2019.

Net Realized Gain from Investments

For the three and nine months ended September 30, ~~2017,~~2020, we had ~~$338,241~~$665,187 and ~~$2,821,876,~~$1,858,011, respectively, of ~~principal repayments,~~sales of investments, resulting in ~~($404,457)~~$335,440 and ~~$343,613,~~$535,164, respectively, of realized ~~gains and losses.~~gains. For the three and nine months ended September 30, ~~2016,~~2019, we had ~~$350,549~~$3,495,125 and ~~$1,381,928,~~$6,875,547, respectively of ~~principal repayments,~~sales of investments, resulting in ~~$186,427~~$1,374,287 and ~~($346,854),~~$4,476,497 respectively, of realized ~~gain and losses.~~gains, due primarily to the acquisition of our holding in BiteSquad LLC by Waitr Holdings.

Net Change in Unrealized Appreciation (Depreciation) on Investments

For the three and nine months ended September 30, ~~2017,~~2020, our investments had ~~$598,408~~$141,816 and ~~$300,155~~$104,411 of unrealized appreciation, respectively. For the three and nine months ended September 30, ~~2016,~~2019, our investments had ~~($5,009)~~$1,572,874 and ~~$275,912~~$4,414,995, of unrealized ~~appreciation (depreciation),~~depreciation, respectively.

Changes in Net Assets from Operations

For the three and nine months ended September 30, ~~2017,~~2020, we recorded a net increase in net assets from operations of ~~$86,673~~$583,344 and ~~$254,816,~~$894,796, respectively. Based on the weighted-average number of shares of common stock outstanding for the three and nine months ended September 30, ~~2017,~~2020, our per-share net increase in net assets from operations was ~~$0.01~~$0.05 and ~~$0.02,~~$0.08, respectively. For the three and nine months ended September 30, ~~2016,~~2019, we recorded a net ~~increase (decrease)~~decrease in net assets from operations of ~~$142,254~~$345,286 and ~~($233,869),~~$482,116, respectively. Based on the weighted-average number of shares of common stock outstanding for the three and nine months ended September 30, ~~2016,~~2019, our per-share net ~~increase (decrease)~~decrease in net assets from operations was ~~$0.01~~$0.03 and ~~($0.02),~~$0.04, respectively.

Cash Flows for the Nine ~~Months~~months Ended September 30, ~~2017~~2020 and ~~2016~~2019

The level of cash flows used in or provided by operating activities is affected by the ~~timing~~purchases of ~~purchases,~~investments, redemptions and repayments of portfolio investments, among other factors. For the nine months ended September 30, ~~2017,~~2020, net cash used in operating activities was $5,788,000. Cash flows used in operating activities for the nine months ended September 30, 2020 were primarily related to purchases of investments of $7,655,802, offset mostly by redemptions and repayments of investments totaling $1,858,011 For the nine months ended September 30, 2019, net cash provided in operating activities was ~~$425,763.~~$5,431,218. Cash flows provided in operating activities for the nine months ended September 30, ~~2017~~2019 were primarily related to redemptions and repayments of ~~$2,821,876,~~investments of $6,845,428, offset mostly by purchases of investments totaling $1,984,412. For the nine months ended September 30, 2016, net cash used in operating activities was $906,046. Cash flows used in operating activities for the nine months ended September 30, 2016 were primarily related to redemptions and repayments of $1,381,928 offset mostly by purchases of investments totaling $2,049,581.$875,160.

The level of cash flows used in or provided by financing activities is affected by the issuance or retirement of common stock, among other factors. For the nine months ended September 30, 2017, net cash used in financing activities was $433,636. Cash flows used in financing activities for the nine months ended September 30, 2017 was related to the purchase and retirement of 1,084,091 shares of common stock during the third quarter. For the nine months ended September 30, 2016, there was no cash provided or used by financing activities.

- 21 -

FINANCIAL CONDITION

As of September 30, ~~2017,~~2020, we had cash of ~~$2,336,878,~~$2,120,389, a decrease of ~~$7,873~~$5,946,267 from December 31, ~~2016.~~2019. The primary use of our existing funds and any funds raised in the future is expected to be for our investments in portfolio companies, cash distributions to our shareholders or for other general corporate purposes, including paying for operating expenses or debt service to the extent we borrow or issue senior securities. Pending investment in portfolio companies, our investments may consist of cash, cash equivalents, U.S. government securities or high quality debt securities maturing in one year or less from the time of investment, which we refer to collectively as “temporary investments.” As of the date of this filing, we expect that substantially all of our temporary investments will be redeployed into portfolio company investments by December 31, 2017.investment.

~~- 19 -~~

To the extent our Board of Directors determines in the future, based on our financial condition and capital market conditions, that additional capital would allow us to take advantage of additional investment opportunities, we may seek to raise additional equity capital or to engage in ~~borrowing, subject to the limitations on borrowing applicable to BDCs.~~

~~RELATED-PARTY TRANSACTIONS~~

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

CRITICAL ACCOUNTING ESTIMATES

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

In preparing the financial statements, management will make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reporting periods. In preparing the financial statements, management also will utilize available information, including our past history, industry standards and the current economic environment, among other factors, in forming its estimates and judgments, giving due consideration to materiality. Actual results will almost certainly differ from these estimates. In addition, other companies may utilize different estimates, which may impact the comparability of our results of operations to those of companies in similar businesses. As our expected operating results occur, we will describe additional critical accounting policies in the notes to our financial statements. Our most critical accounting policies relate to the valuation of our portfolio investments, and revenue recognition. For more information, ~~see Note 2 “Significant Accounting Policies.”~~refer to our Annual Report on Form 10-K for the year ended December 31, 2019.

OFF-BALANCE-SHEET ARRANGEMENTS

During the nine months ended September 30, ~~2017,~~2020, we did not engage in any off-balance sheet arrangements as described in Item 303(a)(4) of Regulation S-K.

FORWARD-LOOKING STATEMENTS

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

our future operating results;

our business prospects and the prospects of our portfolio companies;

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

~~the~~ success of our investments;

our relationships with third parties;

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

the ability of our portfolio companies to achieve their objectives;

our expected financings and investments;

our regulatory structure and tax treatment;

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

the adequacy of our cash resources and working capital; and

the timing of cash flows, if any, from the operations of our portfolio companies.

~~- 20 -~~

- 22 -

The foregoing list is not exhaustive. For a more complete summary of the risks and uncertainties facing our company and its business and relating to our forward-looking statements, please refer to our Annual Report on Form 10-K filed on March ~~28, 2017~~30, 2020 (related to our year ended December 31, ~~2016)~~2019) and in particular the section thereof entitled “Risk Factors.” Because of the significant uncertainties inherent in forward-looking statements pertaining to our company, the inclusion of those statements should not be regarded as a representation or warranty by us or any other person that our objectives, plans, expectations or projections that are contained in this filing will be achieved in any specified time frame, if ever. We undertake no obligation to update any forward-looking statement to reflect events or circumstances occurring after the date of this filing. The forward-looking statements made in this report relate only to events as of the date on which the statements are made, and are excluded from the safe harbor protection provided by Section 21E of the Securities Exchange Act of 1934.

~~ITEM 4. CONTROLS AND PROCEDURES~~

ITEM 4.

CONTROLS AND PROCEDURES

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

As of September 30, ~~2017,~~2020, our Chief Executive Officer and Chief Financial Officer carried out an evaluation of the effectiveness of our disclosure controls and procedures as such term is defined in Rule 13a-15(e) under the Securities and Exchange Act of 1934. Based on that evaluation, our Chief Executive Officer and Chief Financial Officer concluded our disclosure controls and procedures are effective as of September 30, ~~2017.~~2020.

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

~~- 21 -~~

- 23 -

PART II. OTHER INFORMATION

~~ITEM 6. EXHIBITS~~

ITEM 6.

EXHIBITS

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

* Filed herewith

SIGNATURES

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

	MILL CITY VENTURES III, LTD.


Date: ~~November 14, 2017~~October 30, 2020	By:	/s/ Douglas M. Polinsky
		Douglas M. Polinsky
		Chief Executive Officer


Date: ~~November 14, 2017~~October 30, 2020	By:	/s/ Joseph A. Geraci, II
		Joseph A. Geraci, II
		Chief Financial Officer

~~- 22 -~~


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

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

	Large accelerated filer¨	Accelerated filer¨

	Non-accelerated filer¨	Smaller reporting companyx

		Emerging growth company¨

		Page No.
PART I.	FINANCIAL INFORMATION

Item 1.	Financial Statements (unaudited)

	Condensed Balance Sheets – September 30, ~~2017~~2020 and December 31, ~~2016~~2019	3

	Condensed Statements of Operations – Three and nine months ended September 30, ~~2017~~2020 and September 30, ~~2016~~2019	4

	Condensed Statements of ~~Changes in Net Assets~~Shareholders’ Equity – ~~Nine~~Three and nine months ended September 30, ~~2017~~2020 and September 30, ~~2016~~2019	5

	Condensed Statements of Cash Flows – Nine months ended September 30, ~~2017~~2020 and September 30, ~~2016~~	6

	~~Schedule of Investments – September 30, 2017 and December 31, 2016~~2019	7

	Condensed Schedule of Investments – September 30, 2020 and Schedule of Investments – December 31, 2019	8

	Condensed Notes to Financial Statements – September 30, ~~2017~~2020	910

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	1719

Item 4.	Controls and Procedures	2122

PART II.	OTHER INFORMATION

Item 6.	Exhibits	2223

SIGNATURES		2223

	September 30, 2017 (unaudited)			December 31, 2016 (audited)			September 30, 2020 (unaudited)			December 31, 2019
ASSETS
Investments at fair value:
Non-control/non-affiliate investments (cost of $6,904,057 and $7,397,908, respectively)	$	6,793,306		$	6,987,002
Investments, at fair value:							$	8,178,263		$	1,740,897
Non-control/non-affiliate investments (cost: $8,309,325 and $1,976,370 respectively)
Cash		2,336,878			2,344,751			2,120,389			8,066,656
Note receivable								250,000			250,000
Prepaid expenses		63,142			61,661			50,995			31,557
Interest and dividends receivable		28,137			4,853
Leasehold improvements, net		9,584			15,665
Receivable for sale of investments								127,679			—
Interest and dividend receivables								106,723			6,500
Right-of-use lease asset								27,794			40,823
Property and equipment, net		7,862			9,946			141			2,071
Total Assets	$	9,238,909		$	9,423,878		$	10,861,984		$	10,138,504

LIABILITIES
Current Liabilities:
Accounts payable	$	19,420		$	25,097		$	26,053		$	24,996
Deferred rent		10,901			11,373
Total Current Liabilities		30,321			36,470
Lease liability								30,869			44,975
Total Liabilities		30,321			36,470			56,922			69,971
Commitments and Contingencies (Note 4)
Commitments and Contingencies

SHAREHOLDERS’ EQUITY (NET ASSETS)
Common stock, par value $0.001 per share (250,000,000 authorized; 11,067,402 and 12,151,493 issued and outstanding)		11,067			12,151
SHAREHOLDERS EQUITY (NET ASSETS)
Common stock, par value $0.001 per share (250,000,000 authorized; 10,696,735 and 11,067,402 outstanding)								10,696			11,067
Additional paid-in capital		10,774,653			11,857,660			10,616,757			10,774,653
Accumulated deficit		(1,159,665	)		(1,159,665	)		(1,159,665	)		(1,159,665	)
Accumulated undistributed investment loss		(1,068,702	)		(1,330,205	)		(2,142,644	)		(2,397,865	)
Accumulated undistributed net realized gains on investment transactions		761,986			418,373			3,610,980			3,075,816
Net unrealized depreciation in value of investments		(110,751	)		(410,906	)		(131,062	)		(235,473	)
Total Shareholders’ Equity (net assets)		9,208,588			9,387,408

Total Liabilities and Shareholders’ Equity	$	9,238,909		$	9,423,878

Total Shareholders' Equity (net assets)								10,805,062			10,068,533
Total Liabilities and Shareholders' Equity							$	10,861,984		$	10,138,504
Net Asset Value Per Common Share	$	0.83		$	0.77		$	1.01		$	0.91

Three Months Ended September 30, 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 June 30, 2019		11,067,402	$	11,067	$	10,774,653	$	(1,159,665	)	$	(2,122,016	)	$	2,925,406	$	159,244		$	10,588,689
Net investment loss				—		—		—			(146,699	)		—		—			(146,699	)
Net realized gain on investment transactions				—		—		—			—			1,374,287		—			1,374,287
Depreciation in value of investments				—		—		—			—			—		(1,572,874	)		(1,572,874	)
Balance as of September 30, 2019		11,067,402	$	11,067	$	10,774,653	$	(1,159,665	)	$	(2,268,715	)	$	4,299,693	$	(1,413,630	)	$	10,243,403


(Mark One)
x	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

	For the quarterly period ended September 30, 2020
or
¨	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
	For the transition period from _______________________ to ___________________

	Three Months Ended						Nine Months Ended						Three Months Ended					Nine Months Ended
	September 30, 2017			September 30, 2016			September 30, 2017			September 30, 2016			September 30, 2020		September 30, 2019			September 30, 2020		September 30, 2019
Investment Income
Interest income	$	44,362		$	89,062		$	95,413		$	215,222		$	285,338	$	28,241		$	740,008	$	83,917
Dividend income		7,992			24,170			30,014			64,061			1,696		14,766			15,461		41,458
Total Investment Income		52,354			113,232			125,427			279,283			287,034		43,007			755,469		125,375

Operating Expenses
Professional fees		39,175			47,632			165,725			133,116			58,719		69,503			133,016		168,342
Payroll		51,562			40,487			160,349			122,445			58,191		56,768			174,768		283,359
Insurance		24,030			18,782			60,170			58,869			20,672		20,487			61,793		62,119
Occupancy		22,225			21,571			64,556			60,175			16,562		16,384			49,693		57,250
Directors’ fees		15,000			15,000			45,000			43,956
Director's fees														22,500		22,500			67,500		67,500
Depreciation and amortization		2,670			3,213			8,165			9,637			643		643			1,930		1,930
Other general and administrative		4,970			5,711			10,414			14,012			3,659		3,421			11,548		28,493
Total Operating Expenses		159,632			152,396			514,379			442,210			180,946		189,706			500,248		668,993
Net Investment Loss	$	(107,278	)	$	(39,164	)	$	(388,952	)	$	(162,927	)

Net Investment Gain (Loss)														106,088		(146,699	)		255,221		(543,618	)
Realized and Unrealized Gain (Loss) on Investments
Net realized gain (loss) on investments	$	(404,457	)	$	186,427		$	343,613		$	(346,854	)
Net realized gain on investments														335,440		1,374,287			535,164		4,476,497
Net change in unrealized appreciation (depreciation) on investments		598,408			(5,009	)		300,155			275,912			141,816		(1,572,874	)		104,411		(4,414,995	)
Net Realized and Unrealized Gain (Loss) on Investments		193,951			181,418			643,768			(70,942	)		477,256		(198,587	)		639,575		61,502
Net Increase (Decrease) in Net Assets Resulting from Operations	$	86,673		$	142,254		$	254,816		$	(233,869	)	$	583,344	$	(345,286	)	$	894,796	$	(482,116	)

Net Increase (Decrease) in Net Assets Resulting from Operations per share:
Basic and diluted	$	0.01		$	0.01		$	0.02		$	(0.02	)	$	0.05	$	(0.03	)	$	0.08	$	(0.04	)

Weighted-average number of common shares outstanding		12,092,575			12,151,493			12,131,638			12,151,493			10,696,735		11,067,402			10,881,382		11,067,402

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

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

Three Months Ended September 30, 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 Depreciation in value of Investments			Total Shareholders' Equity
Balance as of June 30, 2020		10,696,735	$	10,696	$	10,616,757	$	(1,159,665	)	$	(2,248,732	)	$	3,275,540	$	(272,878	)	$	10,221,718
Net investment gain				—		—		—			106,088			—		—			106,088
Net realized gain on investment transactions				—		—		—			—			335,440		—			335,440
Appreciation in value of investments				—		—		—			—			—		141,816			141,816
Balance as of September 30, 2020		10,696,735	$	10,696	$	10,616,757	$	(1,159,665	)	$	(2,142,644	)	$	3,610,980	$	(131,062	)	$	10,805,062

Nine Months Ended September 30, 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 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		(370,667	)		(371	)		(157,896	)		—			—								(158,267	)
Net investment gain					—			—			—			255,221			—		—			255,221
Net realized gain on investment transactions					—			—			—			—			535,164		—			535,164
Appreciation in value of investments					—			—			—			—			—		104,411			104,411
Balance as of September 30, 2020		10,696,735		$	10,696		$	10,616,757		$	(1,159,665	)	$	(2,142,644	)	$	3,610,980	$	(131,062	)	$	10,805,062

Nine Months Ended September 30, 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				—		—		—			(543,618	)		—			—			(543,618	)
Net realized gain on investment transactions				—		—		—			—			4,476,497			—			4,476,497
Depreciation in value of investments				—		—		—			—			—			(4,414,995	)		(4,414,995	)
Balance as of September 30, 2019		11,067,402	$	11,067	$	10,774,653	$	(1,159,665	)	$	(2,268,715	)	$	4,299,693		$	(1,413,630	)	$	10,243,403

Investment / Industry		Cost		Fair Value	Percentage of Net Assets
Short-Term Non-banking Loans
Consumer - 15% secured loans	$	400,000	$	400,000	3.71	%
Financial - 52% secured loans		500,000		500,000	4.64	%
Financial - 44% secured loans		1,400,000		1,400,000	12.99	%
Real Estate - 15% secured loans
Tailwinds, LLC		3,000,000		3,000,000	27.83	%
Other		239,000		239,000	2.22	%
Total Short-Term Non-Banking Loans		5,539,000		5,539,000	51.39	%

Common Stock
Consumer
Ammo, Inc. (1,000,000 restricted shares)		1,750,000		2,016,000	18.70	%
Business Services		28,606		32,223	0.30	%
Total Common Stock		1,778,606		2,048,223	19.00	%

Preferred Stock
Information Technology		150,000		300,000	2.78	%

Warrants
Advertising		—		—	0.00	%
Healthcare		679		—	0.00	%
Total Warrants		679		—	0.00	%

Other Equity
Leisure & Hospitality		291,040		291,040	2.70	%
Oil & Gas		550,000		—	0.00	%
Total Other Equity		841,040		291,040	2.70	%

Total Investments	$	8,309,325	$	8,178,263	75.87	%

Total Cash		2,120,389		2,120,389	19.67	%

Total Investments and Cash	$	10,429,714	$	10,298,652	95.54	%

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

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

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

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

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

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

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

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

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

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

	⁽²⁾At December 31, 2019, aggregate non-qualifying assets represented approximately 0.9% of our total assets.
	~~Interest is presented~~At December 31, 2019, the estimated net unrealized loss for federal tax purposes was $58,586, based on a ~~per annum basis.~~tax cost basis of $1,799,483.

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

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

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

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

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