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Item 8. Financial Statements and Supplementary Data

2023-04-17 compared with 2022-03-14 · 165 added, 174 removed, 414 unchanged (45% of the section changed)

ITEM 8 FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

Reports of Independent Registered Public Accounting Firm (PCAOB ID is 542 )

Reports of Independent Registered Public Accounting Firm (PCAOB ID:

Balance Sheets — December 31, 2022 and December 31, 2021

2 unchanged sentences

Statements of Cash Flows — Years ended December 31, 2022 and December 31, 2021

Investment Schedules — December 31, 2022 and December 31, 2021

Notes to Financial Statements

21 unchanged sentences

Emphasis of Matter – Investment Valuation

As explained in Note 7 to the financial statements, the accompanying financial statements include investments valued at $13,662,500 and $3,367,897 for 2021 and 2020, respectively, whose fair values have been estimated by the valuation committee and management in absence of readily determinable fair values.

As explained in Note 7 to the financial statements, the accompanying financial statements include investments valued at $16,708,432 and $13,662,500 for 2022 and 2021, respectively, whose fair values have been estimated by management in 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.

19 unchanged sentences

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 also consulted with our valuation department to ascertain that the Company’s valuation method was widely accepted.

We involved senior, more experienced audit team members to perform audit procedures.

4 unchanged sentences

Minneapolis, Minnesota

March 14, 2022

April 17, 2023

Mill City Ventures III, Ltd.

Balance Sheets

December 31, 2021

December 31, 2020

Investments, at fair value:

1 unchanged sentence

$ 17,359,804 and $ 13,933,057 respectively)

Note receivable

Note receivable, related party

Prepaid expenses

Receivable for sale of investments

Interest and dividend receivables

Right-of-use lease asset

Right-of-use operating lease asset

Deferred taxes

Accounts payable

1 unchanged sentence

Payable for purchase of investments

Lease liability

Accrued income tax expense

Operating lease liability

Deferred interest income

Accrued income tax

Deferred taxes

10 unchanged sentences

( 1,877,667 )

( 2,124,419 )

Accumulated undistributed net realized gains on investment transactions

Net unrealized appreciation in value of investments

Net unrealized appreciation (depreciation) in value of investments

Total Shareholders' Equity (Net Assets)

6 unchanged sentences

Interest income

Dividend income

Total Investment Income

2 unchanged sentences

Director's fees

Depreciation and amortization

Interest expense

Other general and administrative

3 unchanged sentences

Net realized gain on investments

Net change in unrealized appreciation (depreciation) on investments

Net change in unrealized depreciation on investments

( 1,533,703 )

10 unchanged sentences

For the years ended December 31, 2022 and 2021

Undistributed

Net Realized Gain

Net Investment

on Investments

Shareholders'

Year Ended December 31, 2022

Common Shares

Additional Paid In Capital

Accumulated Deficit

Accumulated Undistributed Net Investment Loss

Accumulated Undistributed Net Realized Gain on Investments Transactions

Net Unrealized Appreciation (Depreciation) in value of Investments

Total Shareholders' Equity

Balance as of December 31, 2021

1 unchanged sentence

$ ( 1,877,667 )

Common shares issued in public offering net of underwriting costs and warrants

Warramts issued to underwriter

Common shares issued in reverse stock split rounding

Common shares issued in stock-based compensation

Common shares issued in consideration for expense payment

Dividend declared

( 1,079,041 )

Undistributed net investment gain

1 unchanged sentence

Depreciation in value of investments

( 1,533,703 )

Balance as of December 31, 2022

1 unchanged sentence

$ ( 615,960 )

Undistributed

Net Unrealized

Undistributed

Net Realized Gain

Net Investment

on Investments

Shareholders'

$ ( 651,371 )

Year Ended December 31, 2021

of Investments

Common Shares

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, 2020

1 unchanged sentence

$ ( 2,124,419 )

Repurchase of shares

Stock based compensation

Dividends declared

Dividend Declared

( 1,079,041 )

Common shares issued in consideration for expense payment

Undistributed net investment gain

Undistributed net realized gain on investment transactions

Appreciation in value of investments

Balance as of December 31, 2020

Depreciation in value of investments

( 1,533,703 )

3 unchanged sentences

Statements of Cash Flows

December 31, 2021

December 31, 2020

Cash flows from operating activities:

Net increase in net assets resulting from operations

Adjustments to reconcile net increase in net assets resulting from operations to net cash used in operating activities:

Net change in unrealized (appreciation) depreciation on investments

( 1,934,794 )

Adjustments to reconcile net increase in net assets resulting

from operations to net cash used in operating activities:

Net change in unrealized depreciation on investments

Net realized gain on investments

4 unchanged sentences

Proceeds from sales of investments

Stock-based compensation

Depreciation & amortization expense

Income taxes payable

Deferred income taxes

Common shares issued as consideration for expense payment

Stock-based compensation to employees and vendors

Changes in operating assets and liabilities:

2 unchanged sentences

Receivable for investment sales

Accounts payable and other liabilities

Payable for investment purchase

( 1,900,000 )

Accounts payable and other liabilities

Deferred interest income

Accrued income taxes

( 1,269,000 )

Net cash used in operating activities

2 unchanged sentences

Cash flows from financing activities:

Payments for repurchase of common stock

Proceeds from public offering, net of underwriting discounts and offering costs

Proceeds from line of credit

Repayments on line of credit

( 9,793,800 )

Payments for common stock dividend

( 1,618,337 )

Net cash used by financing activities

Net cash provided (used) by financing activities

( 1,618,337 )

1 unchanged sentence

( 3,504,431 )

( 2,626,077 )

Cash, beginning of period

2 unchanged sentences

Cash paid for income taxes

Cash paid for interest

Non-cash financing activities:

Common shares issued as consideration for investment

Dividend declared to common stock shareholders

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

3 unchanged sentences

Investment / Industry

Percentage of Net Assets

Short-Term Non-banking Loans

Business Services - 18% secured loans

Liberated Syndication Inc.

Business Services - 15% secured loans

Mustang Litigation Funding

Consumer - 15% secured loans

AirDog Supplies, Inc.

Intelligent Mapping, LLC

Financial - 33% secured loans

Benton Financial, LLC

Financial - 12% secured loans

Litigation Financing - 23% secured loans

The Cross Law Firm, LLC

Information Technology - 15% convertible note

Real Estate - 15% secured loans

Tailwinds, LLC

Real Estate - 12% secured loans

Alatus Development, LLC

Alatus Development Corp

Total Short-Term Non-Banking Loans

Financial Services

Preferred Stock

1 unchanged sentence

Information Technology

Total Other Equity

Total Preferred Stock

Total Other Equity

2 unchanged sentences

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

Mill City Ventures III, Ltd.

Investment Schedule

1 unchanged sentence

Investment / Industry

Percentage of Net Assets

Short-Term Non-banking Loans

Consumer - 15% secured loans

AirDog Supplies, Inc.

Financial - 52% secured loans

Financial - 12% secured loans

Litigation Financing - 23% secured loans

The Cross Law Firm, LLC

Real Estate - 15% secured loans

Tailwinds, LLC

Real Estate - 12% secured loans

Alatus Development, LLC

Total Short-Term Non-Banking Loans

Financial Services

Preferred Stock

Wisdom Gaming, Inc

Information Technology

Leisure & Hospitality

Total Preferred Stock

Total Other Equity

Total Investments

6 unchanged sentences

Until December 13, 2012, we were a development-stage company that focused on promoting and placing a proprietary poker game online and into casinos and entertainment facilities nationwide.

In 2013, we elected to become a business development company (“BDC”) under the 1940 Act .

We operated as a 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.

In 2013, we elected to become a business development company (“BDC”) under the Investment Company Act of 1940 (the “1940 Act”).

We operated as a BDC until we withdrew our BDC election at the end of December 2019.

Since that time, we have remained a public reporting company filing periodic reports with the SEC.

We engage in the business of providing short-term specialty finance solutions, typically in the form of short-term loans, primarily to small businesses, both private and public, and high-net-worth individuals.

To avoid regulation under the 1940 Act, we generally seek to structure our investments so they do not constitute “securities” for purposes of federal securities laws, and we monitor our investments as a whole to ensure that no more than 40 % of our total assets consist of “investment securities” as defined under the 1940 Act.

NOTE 2 — SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

4 unchanged sentences

The Company presents its financial statements as an investment company following accounting and reporting guidance in ASC 946.

The presentation of certain items in the financial statements for the year ended December 31, 2021, has been changed to conform to the classifications used in 2022.

These reclassifications had no effect on shareholders’ equity or net increase in net assets as previously recorded.

Cash deposits:

4 unchanged sentences

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 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.

In the absence of quoted market prices, broker or dealer quotations, or alternative price sources, investments are measured at fair value as determined by the 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.

13 unchanged sentences

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.

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.

In the case of traded debt securities the prices for which are not readily available, we may value those securities using a discounted cash flows approach, at their weighted-average yield to maturity.

The estimated fair value of our Level 3 investment assets is determined on a quarterly basis by our Board of Directors.

In general, we value our Level 3 equity investments at cost unless circumstances warrant a different approach.

Examples of these circumstances includes a situation in which a portfolio company has engaged in a subsequent financing of more than a de minimis size involving sophisticated investors (in which case we may use the price involved in that financing as a determinative input absent other known factors), or when a portfolio company is engaged in the process of a transaction that we determine is reasonably likely to occur (in which case we may use the price involved in the pending transaction as a determinative input absent other known factors).

Other facts and circumstances that may serve as an input supporting a change in the valuation of our Level 3 equity investments include (i) a third-party valuation conducted by an independent and qualified professional, (ii) changes in the performance of long-term financial prospects of the portfolio company, (iii) a subsequent financing that changes the distribution rights associated with the equity security we hold, or (iv) sale transactions involving comparable companies, but only if further supported by a third-party valuation conducted by an independent and qualified professional.

When valuing preferred equity investments, we generally view intrinsic value as a key input.

1 unchanged sentence

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.

When valuing warrants, our valuation policy and procedures indicate that value will generally be the difference between the closing price of the underlying equity security and the exercise price, after applying an appropriate discount for restriction, if applicable, in situations where the underlying security is marketable.

If the underlying security is not marketable, then intrinsic value will be considered consistent with the principles described above.

Generally, “out-of-the-money” warrants will be valued at cost or zero.

For non-traded (Level 3) debt 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 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;

(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 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.

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

For level 3 non-banking loans with a maturity in excess of 60 days, fair value is determined based on the initial purchase price and adjusted as necessary to reflect any changes in the financial strength of the creditor and changes in interest rates in the high-yield credit markets.

On a quarterly basis, our management provides members of our Board of Directors with recommendations, if any, to change any existing valuations of our portfolio investments or hierarchy levels for purposes of determining the fair value of such investments based upon the foregoing.

In such a case, the Board of Directors would then discuss these materials and, consistent with the policies and approaches outlined above, makes final determinations respecting the valuation and hierarchy levels of our portfolio investments.

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

1 unchanged sentence

We account for income taxes under the asset and liability method, which requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of events that have been included in the financial statements.

Deferred tax assets and liabilities are recognized for the expected future tax consequences of temporary differences between the financial statement carrying amounts and

tax basis of assets and liabilities using enacted tax rates in effect for the tax year in which the differences are expected to reverse.

Deferred tax assets and liabilities are recognized for the expected future tax consequences of temporary differences between the financial statement carrying amounts and tax basis of assets and liabilities using enacted tax rates in effect for the tax 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 for the period that includes the enactment date.

30 unchanged sentences

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 weightedaverage number of vested common shares outstanding during the period.

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 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,

For the Year Ended

Net increase in net assets resulting from operations

1 unchanged sentence

Basic and diluted net gain per common share

At December 31, 2021 and 2020, the Company did not have any options or warrants outstanding or any other dilutive common equivalent shares.

At December 31, 2022 and 2021, the Company did not have any options or warrants outstanding or any other dilutive common equivalent shares other than conditional option grants (for an aggregate of 870,000 shares of common stock) that were, at December 31, 2022, unexercisable and subject to voiding in the absence of shareholder approval of the related 2022 Stock Incentive Plan.

The Company’s shareholders subsequently approved the plan on January 20, 2023 at a special meeting of shareholders called for that purpose.

NOTE 4 — LEASES

We are subject to two non-cancelable operating leases for office space expiring March 31, 2022.

We are subject to two non-cancelable operating leases for office space expiring April 2, 2023.

These leases do not have significant lease escalations, holidays, concessions, leasehold improvements, or other build-out clauses.

3 unchanged sentences

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, 2021 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, 2021 and December 31, 2020 was $ 66,459 and $ 66,307 , respectively.

The components of our operating leases were as follows for the three and twelve months ended December 31, 2021:

The weighted-average discount rate as of December 31, 2022 and December 31, 2021 was 4.5 % and the weighted-average remaining lease term is one year.

Rent expense for office facilities for the year ended December 31, 2022 and 2021 was $ 73,146 and $ 66,459 , respectively.

The components of our operating leases were as follows for the years ended December 31:

Operating lease costs

9 unchanged sentences

Total lease payments

Present value discount

Present value of lease liabilities

Supplemental cash flow information related to leases for the years ended December 31:

Operating cash outflow from operating leases

NOTE 5—SHAREHOLDERS’ EQUITY

1 unchanged sentence

At December 31, 2021 a total of 4,795,739 shares of common stock were issued and outstanding.

On August 9, 2022, the Company effected a stock combination (reverse stock split) of its common shares on a 1-for-2.25 basis such that every 2.25 shares of common stock issued and outstanding on that date were combined into one share of common stock.

Any fractional share resulting from the reverse stock split was rounded up to the nearest whole share.

The reverse stock split was approved by the Company's Board of Directors in accordance with Minnesota law and resulted in a proportionate reduction in the number of authorized shares of capital stock available for issuance under the Company's articles of incorporation.

This reduction was affected pursuant to the filing of articles of amendment with the Minnesota Secretary of State indicating that the Company, on a post-reverse-split basis, is authorized to issue up to 111,111,111 shares of capital stock.

On August 11, 2022, the Company completed its public offer and sale of 1,250,000 common shares pursuant to a registration statement filed with the SEC and declared effective on August 9, 2022.

Shares were sold by the Company at $ 4.00 per share, resulting in gross proceeds of $ 5,000,000 .

As part of the registered public offering, the Company granted the underwriters a 45-day option to purchase up to 187,500 additional common shares at the offering price, less underwriting discounts which option was not exercised.

In connection with the offering, the Company issued the underwriter a five-year warrant to purchase up to 75,000 common shares at the per-share price of $ 5.00 .

Net proceeds to the Company after the payment of underwriting discounts, underwriting expenses, and the Company's own offering-related expenses were approximately $ 4,041,000 .

In connection with the public offering, the Company issued a five-year warrant to the underwriter.

The warrant allows the underwriter to purchase up to 75,000 common shares at $ 5.00 per share.

This warrant is exercisable after 180 days, and expires on August 8, 2027.

This warrant is equity-classified and the fair value was $ 201,173 on the offering date.

During 2022, there were 1,389,516 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

1 unchanged sentence

As of December 31, 2022

Investments at

Percentage of

Investments at Amortized Cost

Percentage of Amortized Cost

Investments at

Percentage of

Amortized Cost

Short-term Non-banking Loans

2 unchanged sentences

As of December 31, 2021

Investments at

Percentage of

Investments at Amortized Cost

Percentage of Amortized Cost

Investments at

Percentage of

Amortized Cost

Short-term Non-banking Loans

4 unchanged sentences

Percentage of

Business Services

Information Technology

4 unchanged sentences

Information Technology

Leisure & Hospitality

NOTE 7 — FAIR VALUE OF FINANCIAL INSTRUMENTS

11 unchanged sentences

For the year ended December 31, 2022

ST Non-banking Loans

Preferred Stock

Balance as of January 1, 2022

Net change in unrealized appreciation

Net change in unrealized depreciation

Purchases and other adjustments to cost

1 unchanged sentence

( 19,711,833 )

Net realized loss

Balance as of December 31, 2022

The net change in unrealized appreciation for the year ended December 31, 2021 attributable to Level 3 portfolio investments still held as of December 31, 2021 is $ 0 , and is included in net change in unrealized appreciation (depreciation) on investments on the statement of operations.

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

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, 2021:

For the year ended December 31, 2021

ST Non-banking

ST Non-banking Loans

Preferred Stock

Balance as of January 1, 2021

3 unchanged sentences

( 15,904,333 )

Net realized loss

Balance as of December 31, 2021

6 unchanged sentences

discounted cash flow

determining private company interest rate based on credit

determining private company interest rate based on changes in market rates of instruments with comparable creditworthiness

last secured funding known by company

economic changes since last funding

Preferred Stock

7 unchanged sentences

discounted cash flow

determining private company interest rate based on credit

determining private company credit rating

last secured funding known by company

economic changes since purchase

economic changes since last funding

Preferred Stock

2 unchanged sentences

There were no transfers between levels during the years ended December 31, 2022 and 2021.

NOTE 8 – RELATED-PARTY TRANSACTIONS

We maintain a conflicts of interest and related-party transactions policy.

Nevertheless, from 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.

In this regard, during the period covered by this report we entered into the following related-party transactions:

● On August 10, 2018, we entered into a loan transaction with Elizabeth Zbikowski who, along with her husband Scott Zbikowski, owned and continues to own approximately 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 such that the note presently matures in August 2022.

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 Millennium Trust Company, as our custodial agent.

● On January 3, 2022, we entered into a Loan and Security Agreement (the "Loan Agreement") with Eastman Investment, Inc., a Nevada corporation, and Lyle A.

NOTE 8 – LINE OF CREDIT

On January 3, 2022, we entered into a Loan and Security Agreement (the “Loan Agreement”) with Eastman Investment, Inc., a Nevada corporation, and Lyle A.

Berman, as trustee of the Lyle A.

Berman Revocable Trust (collectively, the "Lenders").

Berman Revocable Trust (collectively, the “Lenders”).

Berman is a director of our Company.

3 unchanged sentences

Berman is obligated to furnish only one-half of the aggregate $ 5 million available under the Loan Agreement.

The Loan Agreement has a five-year term ending on January 3, 2027, at which time all amounts owing under

the Loan Agreement will become due and payable;

The Loan Agreement has a five-year term ending on January 3, 2027, at which time all amounts owing under the Loan Agreement will become due and payable;

subject, however, to each Lender’s right, including Mr.

2 unchanged sentences

Berman, terminates its lending obligations, the Loan Agreement requires that we repay such Lender, prior to the five-year maturity date, with the proceeds derived from specified investments.

● The Loan Agreement provides for us to pay a quarterly unused commitment fee equal to one-quarter of one percent of the amount of credit available but unused under the Loan Agreement, and requires us to pay such fee in the form of shares of our common stock based on our net asset value per share on the last day of the applicable fiscal quarter.

During the period January 3 to June 30, 2022, the Loan Agreement provided for us to pay a quarterly unused commitment fee equal to one-quarter of one percent of the amount of credit available but unused under the Loan Agreement, and requires us to pay such fee in the form of shares of our common stock based on our net asset value per share on the last day of the applicable fiscal quarter.

The Loan Agreement grants the Lenders piggyback registration rights subject to customary terms, conditions and exceptions.

Beginning July 1, 2022, we became obligated under the Loan Agreement to pay the quarterly unused commitment fee in cash.

At December 31, 2022, the balance outstanding on the line was $ 0 .

NOTE 9 – RELATED-PARTY TRANSACTIONS

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

In this regard, during the period covered by this report we entered into, or remained a party to, the following related-party transactions:

On August 10, 2018, we entered into a loan transaction with Elizabeth Zbikowski who, along with her husband Scott Zbikowski, owned and continues to own approximately 534,445 shares of our common stock.

In the transaction, we obtained a two-year promissory note in the principal amount of $ 250,000 , which was subsequently amended such that the note presently matures on August 30, 2023.

The promissory note bears interest payable monthly at the rate of 10 % per annum.

The note is secured by the debtors’ pledge to us of 277,778 shares of our common stock.

The pledged shares are held in physical custody for us by Millennium Trust Company, as our custodial agent.

On January 3, 2022, we entered into a Loan and Security Agreement (the “Loan Agreement”) with Eastman Investment, Inc., a Nevada corporation, and Lyle A.

Berman, as trustee of the Lyle A.

Berman Revocable Trust (collectively, the “Lenders”).

Berman is a director of our Company.

Under the Loan Agreement, the Lenders made available to us a $ 5 million revolving line of credit for us to use in the ordinary course of our short-term specialty finance business.

See note 8 above for further details.

NOTE 10 — 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 $ 11,250 and $ 10,550 to the plans for the years ended 2021 and 2020, respectively.

Our three full-time employees 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 a maximum of 5% of eligible earnings in addition to our option to make discretionary contributions to the plan.

We made aggregate contributions to the plan totaling $ 14,063 and $ 11,250 for the years ended 2022 and 2021, respectively.

NOTE 11 — INCOME TAXES

Presently, we are a “C-corporation” for tax purposes and have booked an income tax provision for the year ended December 31, 2021.

Presently, we are a “C-corporation” for tax purposes and have booked an income tax provision for the years ended December 31, 2022 and 2021.

Income taxes as of December 31, 2022, and 2021 are described below.

December 31, 2021

Current taxes

Deferred taxes

Provision for (benefit from) income taxes

Provision for income taxes

A reconciliation of income tax provisions at the U.S.

1 unchanged sentence

Rate reconciliation:

Tax expense at U.S.statutory rate

Change in valuation allowance

Tax expense at U.S.

statutory rate

Change in deferred tax rate

Provision-to-return reconciliation

Income tax provision

The Company had Federal net operating loss carryforwards of approximately $ 350,000 at December 31, 2020.

We expect the Federal net operating loss to be completely used and offset taxable income by December 31, 2021.

The federal NOL may be carried forward to offset future taxable income, subject to applicable provisions of the Internal Revenue Code.

Certain federal NOLs will expire in years 2036 and 2037 if not used.

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 $ 350,000 .

The Company had Minnesota net operating loss carryforwards of approximately $ 1,330,000 at December 31, 2020.

We expect the state net operating loss to be completely used and offset taxable income by December 31, 2021.

States may vary in their treatment of post-2017 NOLs.

We lost some state NOL carryforwards when we filed final 2019 tax returns in several states.

The remaining state NOL carryforwards may expire in 2036 and 2037 if not used.

As of December 31, 2022 and 2021 we had a deferred tax asset of $ 201,000 and a deferred tax liability of $ 45,000 , respectively.

Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes.

Significant components of our deferred tax assets and liabilities as of December 31, 2022 and 2021 were as follows:

December 31, 2021

Deferred tax components

Unrealized (gain) loss on marketable securities

Net operating loss carryforwards

R&D and foreign credits

Lease liability

Net deferred tax asset (liability)

5 unchanged sentences

Net investment gain (loss)

Net realized and unrealized gains (losses)

Net realized and unrealized gains

Provision for income taxes

1 unchanged sentence

Repurchase of common stock

Other changes in equity

Payment of common stock dividend

10 unchanged sentences

Ratio of net investment income (loss) to average net assets (3)

Ratio of realized gains (losses) to average net assets (3)

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

2 unchanged sentences

NOTE 13 — SUBSEQUENT EVENTS

On January 3, 2022, we entered into a Loan and Security Agreement (the “Loan Agreement”) with Eastman Investment, Inc., a Nevada corporation, and Lyle A.

Berman, as trustee of the Lyle A.

Berman Revocable Trust (collectively, the “Lenders”).

director of our company.

Under the Loan Agreement, the Lenders made available to us a $ 5 million revolving line of credit for us to use in the ordinary course of our short-term specialty finance business.

Amounts drawn under the Loan Agreement will accrue interest at the per annum rate of 8 %, and all our obligations under the Loan Agreement are secured by a grant of a collateral security interest in substantially all of our assets.

Each Lender is obligated to furnish only one -half of the aggregate $ 5 million available under the Loan Agreement.

The Loan Agreement has a five-year term ending on January 3, 2027, at which time all amounts owing under the Loan Agreement will become due and payable;

subject, however, to each Lender’s right to terminate the Loan Agreement, solely with respect to such Lender’s obligation to provide further credit, at any time after January 3, 2023.

In the event that a Lender terminates its lending obligations, the Loan Agreement requires that we repay such Lender, prior to the five-year maturity date, with the proceeds derived from specified investments.

The Loan Agreement provides for us to pay a quarterly unused commitment fee equal to one-quarter of one percent of the amount of credit available but unused under the Loan Agreement, and requires us to pay such fee in the form of shares of our common stock based on our net asset value per share on the last day of the applicable fiscal quarter.

The Loan Agreement grants the Lenders piggyback registration rights subject to customary terms, conditions and exceptions.

The Loan Agreement contains other provisions, such as representations, warranties, terms and conditions, that are customary for revolving credit facilities.

Promissory notes, evidencing amounts owing under the Loan Agreement and conforming to the terms and conditions of the Loan Agreement, were also executed by us and delivered to the Lenders as contemplated under the Loan Agreement.

On January 12, 2022, we entered into a $ 2,500,000 revolving credit and security loan investment bearing interest at 15 %.

On January 12, 2022, we advanced $ 1,250,000 under this loan, and an additional $ 960,000 on January 26, 2022.

On January 26, 2022, we invested $ 1,125,000 in a 120-day promissory note bearing interest at 33.33 %.

On February 11, 2022, we filed a registration statement on Form S-1 seeking to register an offering of five-year common stock warrants we intend to distribute to our shareholders as a dividend, and up to 2,697,603 shares of our common stock purchasable upon the exercise of the warrants.

The warrants are contemplated to be exercisable at a price of $ 4.00 per share of common stock.

We intend to apply to have the warrants listed for trading on the OTC Markets.

The offering is subject to the effectiveness of the S-1 registration statement.

Accordingly, no record date has been established for the associated dividend contemplated as part of the offering.

The warrants will not be issued until the registration statement is declared effective, and the warrants will not be exercisable unless such registration statement remains effective.

If the offering is consummated, we expect to use net proceeds from the offering for general corporate purposes, including but not limited to extending specialty finance solutions and credit to borrowers and repaying credit facility borrowings.

On March 7, 2022, the company funded a $ 3.4 million short-term loan, the proceeds of which will be used to acquire real estate located in Glendale, Arizona, where 139 townhouse units are expected to be developed by the borrower.

The short-term loan accrues interest at the per annum rate of 48 %, and the loan is due on May 30, 2022.

On January 26, 2022, we made a loan in the principal amount of $ 2,500,000 and obtained a 180-day promissory note bearing interest at 18 % per annum.

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

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 8. Financial Statements and Supplementary Data