SUI Group Holdings Ltd. 10-Q

ITEM 1. FINANCIAL STATEMENTS MILL CITY VENTURES III, LTD. CONDENSED BALANCE SHEETS June 30, 2024 (unaudited) December 31, 2023 ASSETS Investments, at fair value: $ 12,929,985 $ 17,284,676 Non-control/non-affiliate investments (cost: $ 14,460,679 and $ 18,577,481 respectively) Cash and cash equivalents 5,424,611 376,024 Note receivable 250,000 250,000 Prepaid expenses 103,762 165,301 Interest and dividend receivables 177,792 264,413 Right-of-use operating lease asset — 9,283 Deferred taxes 772,000 757,000 Total Assets $ 19,658,150 $ 19,106,697 LIABILITIES Accounts payable $ 87,644 $ 71,702 Accrued payroll liabilities 7,604 435,449 Operating lease liability — 9,283 Accrued income tax 177,600 — Total Liabilities 272,848 516,434 SHAREHOLDERS EQUITY (NET ASSETS) Common stock, par value $ 0.001 per share ( 111,111,111 authorized; 6,385 6,385 6,385,255 outstanding) Additional paid-in capital 15,473,121 15,473,121 Additional paid-in capital - stock options 1,460,209 1,460,209 Accumulated deficit ( 1,159,665 ) ( 1,159,665 ) Accumulated undistributed investment loss ( 390,494 ) ( 1,052,183 ) Accumulated undistributed net realized gains on investment transactions 5,526,440 5,155,200 Net unrealized depreciation in value of investments ( 1,530,694 ) ( 1,292,804 ) Total Shareholders' Equity (Net Assets) 19,385,302 18,590,263 Total Liabilities and Shareholders' Equity $ 19,658,150 $ 19,106,697 Net Asset Value Per Common Share $ 3.04 $ 2.91 See accompanying Notes to Financial Statements 3 Table of Contents MILL CITY VENTURES III, LTD. CONDENSED STATEMENTS OF OPERATIONS (UNAUDITED) Three Months Ended Six Months Ended June 30, 2024 June 30, 2023 June 30, 2024 June 30, 2023 Investment Income Interest income $ 888,629 $ 907,502 $ 1,721,296 $ 1,771,530 Total Investment Income 888,629 907,502 1,721,296 1,771,530 Operating Expenses Professional fees 174,098 287,325 312,469 417,176 Payroll 145,859 147,161 296,925 1,277,600 Insurance 24,602 26,522 51,492 53,522 Occupancy 9,545 21,072 20,222 40,115 Director's fees 30,000 30,000 60,000 562,968 Interest expense — 43,333 320 78,000 Other general and administrative 13,955 14,632 17,718 32,481 Total Operating Expenses 398,059 570,045 759,146 2,461,862 Net Investment Gain (Loss) $ 490,570 $ 337,457 $ 962,150 $ ( 690,332 ) Realized and Unrealized Gain (Loss) on Investments Net realized gain (loss) on investments 346,745 41,371 371,240 ( 558,629 ) Net change in unrealized appreciation (depreciation) on investments ( 289,641 ) ( 21,107 ) ( 237,890 ) 627,316 Net Realized and Unrealized Gain on Investments 57,104 20,264 133,350 68,687 Net Increase (Decrease) in Net Assets Resulting from Operations Before Taxes $ 547,674 $ 357,721 $ 1,095,500 $ ( 621,645 ) Provision for Income Taxes 134,738 287,000 300,461 25,678 Net Increase (Decrease) in Net Assets Resulting from Operations $ 412,936 $ 70,721 $ 795,039 $ ( 647,323 ) Net Increase (Decrease) in Net Assets Resulting from Operations per share: Basic $ 0.06 $ 0.01 $ 0.12 $ ( 0.10 ) Diluted $ 0.06 $ 0.01 $ 0.12 $ ( 0.10 ) See accompanying Notes to Financial Statements 4 Table of Contents MILL CITY VENTURES III, LTD. CONDENSED STATEMENTS OF SHAREHOLDERS’ EQUITY (UNAUDITED) Three Months Ended June 30, 2024 Common Shares Par Value Additional Paid In Capital Accumulated Deficit Accumulated Undistributed Net Investment Gain (Loss) Accumulated Undistributed Net Realized Gain on Investments Transactions Net Unrealized Depreciation in value of Investments Total Shareholders' Equity Balance as of March 31, 2024 6,385,255 $ 6,385 $ 16,933,330 $ ( 1,159,665 ) $ ( 746,326 ) $ 5,179,695 $ ( 1,241,053 ) $ 18,972,366 Undistributed net investment gain — — — 355,832 — — 355,832 Undistributed net realized gain on investment transactions — — — — 346,745 — 346,745 Depreciation in value of investments — — — — — ( 289,641 ) ( 289,641 ) Balance as of June 30, 2024 6,385,255 $ 6,385 $ 16,933,330 $ ( 1,159,665 ) $ ( 390,494 ) $ 5,526,440 $ ( 1,530,694 ) $ 19,385,302 Three Months Ended June 30, 2023 Common Shares Par Value Additional Paid In Capital Accumulated Deficit Accumulated Undistributed Net Investment Gain (Loss) Accumulated Undistributed Net Realized Gain on Investments Transactions Net Unrealized Depreciation in value of Investments Total Shareholders' Equity Balance as of March 31, 2023 6,185,255 $ 12,215 $ 16,503,500 $ ( 1,159,665 ) $ ( 1,853,206 ) $ 5,113,829 $ ( 2,948 ) $ 18,613,725 Undistributed net investment gain — — — 50,457 — — 50,457 Undistributed net realized gain on investment transactions — — — — 41,371 — 41,371 Depreciation in value of investments — — — — — ( 21,107 ) ( 21,107 ) Balance as of June 30, 2023 6,185,255 $ 12,215 $ 16,503,500 $ ( 1,159,665 ) $ ( 1,802,749 ) $ 5,155,200 $ ( 24,055 ) $ 18,684,446 Six Months Ended June 30, 2024 Common Shares Par Value Additional Paid In Capital Accumulated Deficit Accumulated Undistributed Net Investment Gain (Loss) Accumulated Undistributed Net Realized Gain on Investments Transactions Net Unrealized Depreciation in value of Investments Total Shareholders' Equity Balance as of December 31, 2023 6,385,255 $ 6,385 $ 16,933,330 $ ( 1,159,665 ) $ ( 1,052,183 ) $ 5,155,200 $ ( 1,292,804 ) $ 18,590,263 Undistributed net investment gain — — — 661,689 — — 661,689 Undistributed net realized gain on investment transactions — — — — 371,240 — 371,240 Depreciation in value of investments — — — — — ( 237,890 ) ( 237,890 ) Balance as of June 30, 2024 6,385,255 $ 6,385 $ 16,933,330 $ ( 1,159,665 ) $ ( 390,494 ) $ 5,526,440 $ ( 1,530,694 ) $ 19,385,302 Six Months Ended June 30, 2023 Common Shares Par Value Additional Paid In Capital Accumulated Deficit Accumulated Undistributed Net Investment Loss Accumulated Undistributed Net Realized Gain (Loss) on Investments Transactions Net Unrealized Appreciation (Depreciation) in value of Investments Total Shareholders' Equity Balance as of December 31, 2022 6,185,255 $ 12,215 $ 15,043,291 $ ( 1,159,665 ) $ ( 1,086,739 ) $ 5,713,829 $ ( 651,371 ) $ 17,871,560 Issuance of stock options — 1,460,209 — — 1,460,209 Net investment loss, net of tax benefit of $139,300 — — — ( 716,010 ) — — ( 716,010 ) Undistributed net realized loss on investment transactions — — — — ( 558,629 ) — ( 558,629 ) Appreciation in value of investments — — — — — 627,316 627,316 Balance as of June 30, 2023 6,185,255 $ 12,215 $ 16,503,500 $ ( 1,159,665 ) $ ( 1,802,749 ) $ 5,155,200 $ ( 24,055 ) $ 18,684,446 See accompanying Notes to Financial Statements 5 Table of Contents MILL CITY VENTURES III, LTD. CONDENSED STATEMENTS OF CASH FLOWS (UNAUDITED) Six Months Ended June 30, 2024 June 30, 2023 Cash flows from operating activities: Net increase (decrease) in net assets resulting from operations $ 795,039 $ ( 647,323 ) Adjustments to reconcile net increase (decrease) in net assets resulting from operations to net cash provided by operating activities: Net change in unrealized (appreciation) depreciation on investments 237,890 ( 627,316 ) Net realized (gain) loss on investments ( 371,240 ) 558,629 Purchases of investments ( 973,438 ) ( 8,900,500 ) Proceeds from sales of investments 5,461,479 9,149,194 Issuance of stock options — 1,460,209 Deferred income taxes ( 15,000 ) ( 227,000 ) Changes in operating assets and liabilities: Prepaid expenses and other assets 70,822 70,516 Interest and dividends receivable 86,621 ( 58,420 ) Accounts payable and other liabilities ( 243,586 ) ( 710,228 ) Deferred interest income — ( 55,875 ) Net cash provided by operating activities 5,048,587 11,886 Cash flows from financing activities: Proceeds from line of credit — 2,750,000 Repayments on line of credit — ( 2,750,000 ) Net cash provided by financing activities — — Net increase in cash and cash equivalents 5,048,587 11,886 Cash and cash equivalents, beginning of period 376,024 1,089,641 Cash and cash equivalents, end of period $ 5,424,611 $ 1,101,527 Supplemental disclosure of cash flow information: Cash paid for income taxes $ 1,438 $ — See accompanying Notes to Financial Statements 6 Table of Contents MILL CITY VENTURES III, LTD. CONDENSED SCHEDULE OF INVESTMENTS (UNAUDITED) JUNE 30, 2024 Investment / Industry Cost Fair Value Percentage of Net Assets Short-Term Non-banking Loans Business Services - 15% secured loans Mustang Litigation Funding $ 10,000,000 $ 10,024,533 51.71 % Consumer - 15% secured loans Bankers American Capital Corp 900,000 903,493 4.66 % Financial - 12% secured loans 500,000 - 0.00 % Real Estate - 12% secured loans Alatus Development Corp 2,000,000 2,001,959 10.33 % Total Short-Term Non-Banking Loans 13,400,000 12,929,985 66.70 % Preferred Stock Consumer Wisdom Gaming, Inc 900,000 - 0.00 % Information Technology 150,000 - 0.00 % Total Preferred Stock 1,050,000 - 0.00 % Warrants Healthcare 679 — 0.00 % Other Equity Financial 10,000 - 0.00 % Total Investments $ 14,460,679 $ 12,929,985 66.70 % Total Cash and cash equivalents 5,424,611 5,424,611 27.98 % Total Investments and Cash $ 19,885,290 $ 18,354,596 94.68 % See accompanying Notes to the Financial Statements 7 Table of Contents MILL CITY VENTURES III, LTD. SCHEDULE OF INVESTMENTS DECEMBER 31, 2023 Investment / Industry Cost Fair Value Percentage of Net Assets Short-Term Non-banking Loans Business Services - 15% secured loans Mustang Litigation Funding $ 10,000,000 $ 10,069,354 54.16 % Consumer - 23% secured loans Intelligent Mapping, LLC 2,900,000 2,906,464 15.63 % Financial - 12% secured loans 500,000 - 0.00 % Information Technology - 15% convertible note 212,500 213,501 1.15 % Real Estate - 18% secured loans 745,000 760,119 4.09 % Tailwind, LLC 1,000,000 1,001,954 5.39 % Real Estate - 12% secured loans Alatus Development Corp 2,000,000 2,010,374 10.81 % Total Short-Term Non-Banking Loans 17,357,500 16,961,766 91.23 % Preferred Stock Consumer Wisdom Gaming, Inc 900,000 265,000 1.43 % Information Technology 150,000 - 0.00 % Total Preferred Stock 1,050,000 265,000 1.43 % Common Stock Consumer 159,302 47,910 0.26 % Warrants Healthcare 679 — 0.00 % Other Equity Financial 10,000 10,000 0.05 % Total Investments $ 18,577,481 $ 17,284,676 92.97 % Total Cash 376,024 376,024 2.02 % Total Investments and Cash $ 18,953,505 $ 17,660,700 94.99 % See accompanying Notes to the Financial Statements 8 Table of Contents NOTE 1 – ORGANIZATION In this report, we generally refer to Mill City Ventures III, Ltd. in the first person “we.” On occasion, we refer to our company in the third person as “Mill City Ventures” or the “Company.” The Company follows accounting and reporting guidance in Accounting Standards (“ASC”) 946. We were incorporated in Minnesota in January 2006. Until December 13, 2012, we were a development-stage company that focused on promoting and placing a proprietary poker game online and into casinos and entertainment facilities nationwide. In 2013, we elected to become a business development company (“BDC”) under the Investment Company Act of 1940 (the “1940 Act”). We operated as a BDC until we withdrew our BDC election at the end of December 2019. Since that time, we have remained a public reporting company filing periodic reports with the SEC. We engage in the business of providing short-term specialty finance solutions, typically in the form of short-term loans, primarily to small businesses, both private and public, and high-net-worth individuals. To avoid regulation under the 1940 Act, we generally seek to structure our investments so they do not constitute “securities” for purposes of federal securities laws, and we monitor our investments as a whole to ensure that no more than 40 % of our total assets consist of “investment securities” as defined under the 1940 Act. NOTE 2 – SIGNIFICANT ACCOUNTING POLICIES Use of estimates: The preparation of financial statements in conformity with GAAP requires management and our independent board members to make estimates and assumptions that affect the reported amounts of assets and liabilities, and disclosures of contingent assets and liabilities, at the date of the financial statements, as well as the reported amounts of expenses during the reporting period. Actual results could differ from those estimates. For more information, see the “Valuation of portfolio investments” caption below, and “Note 4 – Fair Value of Financial Instruments” below. The Company presents its financial statements as an investment company following accounting and reporting guidance in ASC 946. Cash and cash equivalents : Cash represents cash on hand and demand deposits held at financial institutions. Cash equivalents include short-term, highly liquid investments of sufficient credit quality that are readily convertible to known amounts of cash and have original maturities of three months or less. Cash equivalents are carried at cost, plus accrued interest, which approximates fair value. Cash equivalents are held to meet short-term liquidity requirements, rather than for investment purposes. Cash and cash equivalents are held at major financial institutions and are subject to credit risk to the extent those balances exceed applicable Federal Deposit Insurance Corporation (FDIC) or Securities Investor Protection Corporation (SIPC) limitations. Valuation of portfolio investments: We carry our investments in accordance with ASC Topic 820, Fair Value Measurements and Disclosures (“ASC 820”), issued by the Financial Accounting Standards Board (“FASB”), which defines fair value, establishes a framework for measuring fair value, and requires disclosures about fair value measurements. Fair value is generally based on quoted market prices provided by independent pricing services, broker or dealer quotations, or alternative price sources. In the absence of quoted market prices, broker or dealer quotations, or alternative price sources, investments are measured at fair value as determined by our Board of Directors, based on, among other things, the input of our executive management, the Audit Committee of our Board of Directors, and any independent third-party valuation experts that may be engaged by management to assist in the valuation of our portfolio investments, but in all cases consistent with our written valuation policies and procedures. Due to the inherent uncertainties of valuation, certain estimated fair values may differ significantly from the values that would have been realized had a ready market for these investments existed, and these differences could be material. In addition, such investments are generally less liquid than publicly traded securities. If we were required to liquidate a portfolio investment in a forced or liquidation sale, we could realize significantly less than the value at which we have recorded it. Accounting guidance establishes a hierarchal disclosure framework that prioritizes and ranks the level of market price observability of inputs used in measuring investments at fair value. Observable inputs must be used when available. Observable inputs are inputs that market participants would use in valuing the asset or liability based on market data obtained from independent sources. Unobservable inputs are inputs that reflect our assumptions about the factors market participants would use in valuing the asset or liability based upon the best information available. Assets and liabilities measured at fair value are to be categorized into one of the three hierarchy levels based on the relative observability of inputs used in the valuation. The three levels are defined as follows: • Level 1: Observable inputs based on quoted prices (unadjusted) in active markets for identical assets or liabilities. • Level 2: Observable inputs based on quoted prices for similar assets and liabilities in active markets, or quoted prices for identical assets and liabilities in inactive markets. • Level 3: Unobservable inputs that reflect an entity’s own assumptions about what inputs a market participant would use in pricing the asset or liability based on the best information available in the circumstances. 9 Table of Contents Our valuation policy and procedures : Under our valuation policies and procedures, we evaluate the source of inputs, including any markets in which our investments are trading, and then apply the resulting information in determining fair value. For our Level 1 investment assets, our valuation policy generally requires us to use a market approach, considering the last quoted closing price of a security we own that is listed on a securities exchange, and in a case where a security we own is listed on an over-the-counter market, to average the last quoted bid and ask price on the most active market on which the security is quoted. In the case of traded debt securities the prices for which are not readily available, we may value those securities using a discounted cash flows approach, at their weighted-average yield to maturity. The estimated fair value of our Level 3 investment assets is determined on a quarterly basis by our Board of Directors. In general, we value our Level 3 equity investments at cost unless circumstances warrant a different approach. Examples of these circumstances includes a situation in which a portfolio company has engaged in a subsequent financing of more than a de minimis size involving sophisticated investors (in which case we may use the price involved in that financing as a determinative input absent other known factors), or when a portfolio company is engaged in the process of a transaction that we determine is reasonably likely to occur (in which case we may use the price involved in the pending transaction as a determinative input absent other known factors). Other facts and circumstances that may serve as an input supporting a change in the valuation of our Level 3 equity investments include (i) a third-party valuation conducted by an independent and qualified professional, (ii) changes in the performance of long-term financial prospects of the portfolio company, (iii) a subsequent financing that changes the distribution rights associated with the equity security we hold, or (iv) sale transactions involving comparable companies, but only if further supported by a third-party valuation conducted by an independent and qualified professional. When valuing preferred equity investments, we generally view intrinsic value as a key input. Intrinsic value means the value of any conversion feature (if the preferred investment is convertible) or the value of any liquidation or other preference. Discounts to intrinsic value may be applied in cases where the issuer’s financial condition is impaired or, in cases where intrinsic value relating to a conversion is determined to be a key input, to account for resale restrictions applicable to the securities issuable upon conversion. When valuing warrants, our valuation policy and procedures indicate that value will generally be the difference between the closing price of the underlying equity security and the exercise price, after applying an appropriate discount for restriction, if applicable, in situations where the underlying security is marketable. If the underlying security is not marketable, then intrinsic value will be considered consistent with the principles described above. Generally, “out-of-the-money” warrants will be valued at cost or zero. For non-traded (Level 3) debt instruments with a residual maturity less than or equal to 60 days, we will generally value such instruments based on a discounted cash flows approach, considering the straight-line amortized face value of the debt unless justification for impairment exists. For level 3 non-banking loans with a maturity in excess of 60 days, fair value is determined based on the initial purchase price and adjusted as necessary to reflect any changes in the financial strength of the creditor and changes in interest rates in the high-yield credit markets. On a quarterly basis, our management provides members of our Board of Directors with recommendations, if any, to change any existing valuations of our portfolio investments or hierarchy levels for purposes of determining the fair value of such investments based upon the foregoing. In such a case, the Board of Directors would then discuss these materials and, consistent with the policies and approaches outlined above, makes final determinations respecting the valuation and hierarchy levels of our portfolio investments. We made no changes to our valuation policy and procedures during the reporting period. Income taxes: We account for income taxes under the asset and liability method, which requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of events that have been included in the financial statements. Deferred tax assets and liabilities are recognized for the expected future tax consequences of temporary differences between the financial statement carrying amount and tax basis of assets and liabilities using enacted tax rates in effect for the year in which the differences are expected to reverse. The effect of a change in tax rates on deferred tax assets and liabilities is recognized in income in the period that includes the enactment date. We record net deferred tax assets to the extent we believe these assets will more likely than not be realized. In making such determination, we consider all available evidence, including future reversals of existing taxable temporary differences, projected future taxable income, tax planning strategies and recent financial operations. In the event we were to determine we would be able to realize our deferred income tax assets in the future in excess of their recorded amount, we would make an adjustment to the valuation allowance, which would reduce the provision for income taxes. 10 Table of Contents We file income tax returns in the U.S. Federal jurisdiction and various state jurisdictions. We do not believe there will be any material changes in our unrecognized tax positions over the next 12 months. Our evaluation was performed for the tax years ended December 31, 2020 through 2023, which are the tax years that remain subject to examination by major tax jurisdictions as of June 30, 2024. Revenue recognition : Realized gains or losses on the sale of investments are calculated using the specific investment method. Interest income, adjusted for amortization of premiums and accretion of discounts, is recorded on an accrual basis. Discounts from and premiums to par value on securities purchased are accreted or amortized, as applicable, into interest income over the life of the related security using the effective-yield method. The amortized cost of investments represents the original cost, adjusted for the accretion of discounts and amortization of premiums, if any. Loans are generally placed on non-accrual status when principal or interest payments are past due 30 days or more, or when there is reasonable doubt that principal or interest will be collected in full. Loan origination fees are recognized when loans are issued. Accrued and unpaid interest is generally reversed when a loan is placed on non-accrual status. Interest payments received on non-accrual loans may be recognized as income or applied to principal depending upon management’s judgment regarding collectability. Non-accrual loans are restored to accrual status when past-due principal and interest is paid and, in management’s judgment, are likely to remain current. We may make exceptions to the policy described above if a loan has sufficient collateral value and is in the process of collection. Dividend income on preferred equity securities is recorded as dividend income on an accrual basis to the extent that such amounts are payable by the portfolio company and are expected to be collected. Dividend income on common equity securities is recorded on the record date for private portfolio companies or on the ex-dividend date for publicly traded portfolio companies. Certain investments may have contractual payment-in-kind (“PIK”) interest or dividends. PIK represents accrued interest or accumulated dividends that are added to the loan principal or stated value of the investment on the respective interest- or dividend-payment dates rather than being paid in cash, and generally becomes due at maturity or upon being repurchased by the issuer. PIK interest or dividends is recorded as interest or dividend income, as applicable. If at any point we believe that PIK interest or dividends is not expected be realized, the PIK-generating investment will be placed on non-accrual status. Accrued PIK interest or dividends are generally reversed through interest or dividend income, respectively, when an investment is placed on non-accrual status. Allocation of net gains and losses: All income, gains, losses, deductions and credits for any investment are allocated in a manner proportionate to the shares owned. Stock-based compensation: The Company’s stock-based compensation consists of stock options issued to certain employees and directors of the Company. The Company recognizes compensation expense based on an estimated grant date fair value using the Black Sholes option-pricing method. If the factors change and different assumptions are used, the Company’s stock-based compensation expense could be materially different in the future. The Company recognizes stock-based compensation expense for these options on a straight-line basis over the requisite service period. The Company has elected to account for forfeitures as they occur. Management and service fees: We do not incur expenses related to management and service fees. Our executive management team manages our investments as part of their employment responsibilities. NOTE 3 – INVESTMENTS The following table shows the composition of our investment portfolio by major class, at amortized cost and fair value, as of June 30, 2024 (together with the corresponding percentage of the fair value of our total portfolio of investments): As of June 30, 2024 Investments at Amortized Cost Percentage of Amortized Cost Investments at Fair Value Percentage of Fair Value Short-term Non-banking Loans $ 13,400,000 92.7 % $ 12,929,985 100 .0 % Preferred Stock 1,050,000 7.2 — — Warrants 679 — — — Other Equity 10,000 0.1 — — Total $ 14,460,679 100 .0 % $ 12,929,985 100 .0 % 11 Table of Contents The following table shows the composition of our investment portfolio by major class, at amortized cost and fair value, as of December 31, 2023 (together with the corresponding percentage of the fair value of our total investments): As of December 31, 2023 Investments at Amortized Cost Percentage of Amortized Cost Investments at Fair Value Percentage of Fair Value Short-term Non-banking Loans $ 17,357,500 93.4 % $ 16,961,766 98.1 % Preferred Stock 1,050,000 5.6 265,000 1.5 Common Stock 159,302 0.9 47,910 0.3 Warrants 679 — — — Other Equity 10,000 0.1 10,000 0.1 Total $ 18,577,481 100 .0 % $ 17,284,676 100 .0 % The following table shows the composition of our investment portfolio by industry grouping, based on fair value as of June 30, 2024: As of June 30, 2024 Investments at Fair Value Percentage of Fair Value Business Services $ 10,024,533 77.5 % Consumer 903,493 7.0 Real Estate 2,001,959 15.5 Total $ 12,929,985 100 .0 % The following table shows the composition of our investment portfolio by industry grouping, based on fair value as of December 31, 2023: As of December 31, 2023 Investments at Fair Value Percentage of Fair Value Business Services $ 10,069,354 58.3 % Consumer 3,219,374 18.6 Financial 10,000 0.1 Information Technology 213,501 1.2 Real Estate 3,772,447 21.8 Total $ 17,284,676 100 .0 % NOTE 4 – FAIR VALUE OF FINANCIAL INSTRUMENTS Level 3 valuation information : Due to the inherent uncertainty in the valuation process, the estimate of the fair value of our investments portfolio as of June 30, 2024 may differ materially from values that would have been used had a readily available market for the investments existed. The following table presents the fair value measurements of our portfolio investments by major class, as of June 30, 2024, according to the fair value hierarchy: As of June 30, 2024 Level 1 Level 2 Level 3 Total Short-term Non-banking Loans $ — $ — $ 12,929,985 $ 12,929,985 Total $ — $ — $ 12,929,985 $ 12,929,985 12 Table of Contents The following table presents the fair value measurements of our investment portfolio by major class, as of December 31, 2023, according to the fair value hierarchy: As of December 31, 2023 Level 1 Level 2 Level 3 Total Short-term Non-banking Loans $ — $ — $ 16,961,766 $ 16,961,766 Preferred Stock — — 265,000 265,000 Common Stock 47,910 — — 47,910 Other Equity — — 10,000 10,000 Total $ 47,910 $ — $ 17,236,766 $ 17,284,676 The following table presents a reconciliation of the beginning and ending fair value balances for our Level 3 portfolio investment assets for the six months ended June 30, 2024: For the six months ended June 30, 2024 ST Non-banking Loans Preferred Stock Other Equity Balance as of January 1, 2024 $ 16,961,766 $ 265,000 $ 10,000 Net change in unrealized appreciation ( 74,281 ) ( 265,000 ) ( 10,000 ) Purchases and other adjustments to cost 973,438 — — Sales and redemptions ( 4,770,000 ) — Transfers out of level 3 ( 160,938 ) — — Balance as of June 30, 2024 $ 12,929,985 $ — $ — The net change in unrealized depreciation for the six months ended June 30, 2024 attributable to Level 3 portfolio investments still held as of June 30, 2024 is $ 324,743 . The following table lists our Level 3 investments held as of June 30, 2024 and the unobservable inputs used to determine their valuation: Security Type 6/30/24 FMV Valuation Technique Unobservable Inputs Range ST Non-banking Loans $ 12,929,985 discounted cash flow determining private company interest rate based on changes in market rates of instruments with comparable creditworthiness 12 - 15 % $ 12,929,985 The following table presents a reconciliation of the beginning and ending fair value balances for our Level 3 portfolio investment assets for the year ended December 31, 2023: For the year ended December 31, 2023 ST Non-banking Loans Preferred Stock Other Equity Balance as of January 1, 2023 $ 15,285,932 $ 1,200,000 $ 222,500 Net change in unrealized depreciation ( 195,041 ) ( 935,000 ) 600,000 Purchases and other adjustments to cost 12,900,500 — — Realized gain (loss) — — ( 600,000 ) Transfers between level 3 and level 1 ( 11,029,625 ) — ( 212,500 ) Balance as of December 31, 2023 $ 16,961,766 $ 265,000 $ 10,000 The net change in unrealized depreciation for the year ended December 31, 2023 attributable to Level 3 portfolio investments still held as of December 31, 2023 was $ 1,180,734 . 13 Table of Contents The following table lists our Level 3 investments held as of December 31, 2023 and the unobservable inputs used to determine their valuation: Security Type 12/31/23 FMV Valuation Technique Unobservable Inputs Range ST Non-banking Loans $ 16,961,766 discounted cash flow determining private company interest rate based on changes in market rates of instruments with comparable creditworthiness 12 - 23 % Other Equity 10,000 last secured funding known by company Preferred Stock 265,000 last funding secured by company economic changes since last funding $ 17,236,766 NOTE 5 – RELATED-PARTY TRANSACTIONS We maintain a conflicts of interest and related-party transactions policy requiring (i) certain disclosures be made to our Board of Directors in relation to situations where officers, directors, significant shareholders, or any of their affiliates may enter into transactions with us, and (ii) certain disclosures appear in the reports we prepare and file with the SEC. In this regard, during the period covered by this report we entered into, or remained a party to, the following related-party transactions: ● We hold a promissory note with two shareholders in the principal amount of $ 250,000 , through January 1, 2025. The promissory note bears interest payable monthly at the rate of 10 % per annum. The note is secured by the debtors’ pledge to us of 277,778 shares of common stock. The pledged shares are held in physical custody for us by our custodial agent. ● As disclosed in Note 7, a component of our now terminated loan agreement is with a director of our Company. NOTE 6 – INCOME TAXES We are a C-Corporation for tax purposes and have booked an income tax provision for the periods described below. Our tax provision or benefit from income taxes for interim periods is determined using an estimate of our annual effective tax rate. As of June 30, 2024 and December 31, 2023, we have a deferred tax asset of $ 772,000 and $ 757,000 , respectively. As of June 30, 2024, our net deferred tax asset consists of foreign tax credit carryforwards, unrealized investment gain/loss, non-qualified stock option expenses, acquisition costs, depreciable assets, and right of use assets. Our determination of the realizable deferred tax assets and liabilities requires the exercise of significant judgment, based in part on business plans and expectations about future outcomes. As of June 30, 2024 and December 31, 2023 we had accrued income taxes of $ 177,600 and prepaid income taxes $ 131,500 , respectively. We recorded an increase of income taxes of $ 300,000 ( 26 percent effective tax rate) and $ 25,700 ( 26 percent effective tax rate) during the six months ended June 30, 2024 and June 30, 2023, respectively. NOTE 7 – LINE OF CREDIT The Company had a Loan and Security Agreement (the “Loan Agreement”) with a third party and director (collectively, the Lenders). Under the Loan Agreement, the Lenders made available to us a $ 5 million revolving line of credit for us to use in the ordinary course of our short-term specialty finance business, of which our director was required to fund one half of the amount. Amounts drawn under the Loan Agreement accrue interest at the per annum rate of 8 %, through January 3, 2027, subject to early termination provisions at the Lender’s right at any time after January 3, 2023. Our obligations under the Loan Agreement were secured by a grant of a collateral security interest in substantially all of our assets. At December 31, 2023, the balance outstanding on the line was $ 0 . In January 2024, we terminated the Loan Agreement. Any applicable fees related to early termination of the Agreement were waived. 14 Table of Contents NOTE 8 – STOCK-BASED COMPENSATION The Company’s 2022 Stock Incentive Plan authorized the issuance of incentives relating to 900,000 shares of common stock. As of June 30, 2024, incentives relating to the issuance of 870,000 shares have been issued under the Plan, leaving 30,000 shares available for issuance. The following table summarizes the activity for all stock options outstanding for the six months ended June 30, 2024: Shares Weighted Average Exercise Price Options outstanding at beginning of year 670,000 $ 2.11 Granted — — Exercised — — Forfeited — — Balance at June 30, 2024 670,000 $ 2.11 Options exercisable at June 30: 670,000 $ 2.11 The following table summarizes additional information about stock options outstanding and exercisable at June 30, 2024: Options Outstanding Options Exercisable Options Outstanding Weighted Average Remaining Contractual Life Weighted Average Exercise Price Aggregate Intrinsic Value Options Exercisable Weighted Average Exercise Price Aggregate Intrinsic Value 670,000 8.42 $ 2.11 $ 586,000 670,000 $ 2.11 $ 586,000 The Company recognized stock-based compensation expense for stock options of $ 0 and $ 1,460,209 for the six months ended June 30, 2024 and 2023, respectively. NOTE 9 – SHAREHOLDERS’ EQUITY At June 30, 2024, we had 6,385,255 shares of common stock issued and outstanding. In connection with the 2022 public offering, the Company issued a five-year warrant to the underwriter. The warrant allows the underwriter to purchase up to 75,000 common shares at $5.00 per share. This warrant is exercisable after 180 days, and expires on August 8, 2027 . This warrant is equity-classified and the fair value was $ 201,173 on the offering date. 15 Table of Contents NOTE 10 – PER-SHARE INFORMATION Basic net gain (loss) per common share is computed by dividing net increase in net assets resulting from operations by the weighted-average number of common shares outstanding during the period. Diluted net gain (loss) per common share is computed by dividing net increase in net assets resulting from operations by the weighted-average number of dilutive common shares outstanding during the period calculated using the Treasury Stock method. The Treasury Stock method assumes that the proceeds received upon exercise of stock options are used to repurchase stock at the average market price during the period, thereby increasing the number of shares to be added in computing diluted earnings per share. A reconciliation of the numerator and denominator used in the calculation of basic and diluted net gain (loss) per common share is set forth below: For the Three Months Ended June 30, 2024 2023 Basic Diluted Basic Diluted Numerator: Net increase in net assets resulting from operations $ 412,936 $ 412,936 $ 70,721 $ 70,721 Denominator: Weighted-average number of common shares outstanding 6,385,255 6,501,823 6,185,255 6,185,255 Basic and diluted net gain (loss) per common share $ 0.06 $ 0.06 $ 0.01 $ 0.01 For the Six Months Ended June 30, 2024 2023 Basic Diluted Basic Diluted Numerator: Net increase (decrease) in net assets resulting from operations $ 795,039 $ 795,039 $ ( 647,323 ) $ ( 647,323 ) Denominator: Weighted-average number of common shares outstanding 6,385,255 6,501,823 6,185,255 6,185,255 Basic and diluted net gain (loss) per common share $ 0.12 $ 0.12 $ ( 0.10 ) $ ( 0.10 ) NOTE 11 – FINANCIAL HIGHLIGHTS The following is a schedule of financial highlights for the six months ended June 30, 2024 through 2020: Six Months Ended June 30, 2024 2023 2022 2021 2020 Per Share Data (1) Net asset value at beginning of period $ 2.91 2.89 1.24 1.08 0.91 Net investment income (loss) 0.15 ( 0.11 ) 0.11 0.04 0.01 Net realized and unrealized gains (losses) 0.02 0.01 0.01 0.28 0.02 Provision for income taxes ( 0.04 ) ( 0.01 ) ( 0.04 ) ( 0.09 ) 0.00 Issuance of stock options 0.00 0.24 0.01 0.00 0.00 Repurchase of common stock 0.00 0.00 0.00 0.00 0.02 Net asset value at end of period $ 3.04 3.02 1.33 1.31 0.96 Ratio / Supplemental Data Per share market value of investments at end of period $ 2.02 2.67 1.41 1.22 0.65 Shares outstanding at end of period 6,385,255 6,185,255 4,824,628 4,795,739 4,754,104 Average weighted shares outstanding for the period 6,385,255 6,185,255 4,808,508 4,794,744 4,877,654 Net assets at end of period $ 19,385,302 — 14,426,607 14,188,588 10,221,718 Average net assets (2) $ 18,982,643 18,389,910 13,888,938 13,073,718 10,025,622 Total investment return (loss) 4.47 % ( 3.81 )% 6.45 % 21.30 % 3.30 % Portfolio turnover rate (3) 5.13 % 48.40 % 65.55 % 75.65 % 11.90 % Ratio of operating expenses to average net assets (3) ( 7.90 )% ( 25.16 )% ( 14.63 )% ( 11.72 )% ( 9.41 )% Ratio of net investment income (loss) to average net assets (3) 10.46 % ( 7.43 )% 18.01 % 6.88 % 3.02 % Ratio of realized gains (losses) to average net assets (3) 3.98 % ( 6.03 )% 1.94 % 61.92 % 4.06 % (1) Per-share data was derived using the ending number of shares outstanding for the period. (2) Based on the monthly average of net assets as of the beginning and end of each period presented. (3) Ratios are annualized. NOTE 12 – Subsequent Events In July 2024, the Company purchased, for $ 1.15 million, a 50 % participation interest from Great North Capital Corp. ("Great North") in a secured loan that Great North had made to an unaffiliated borrower named Coventry Holdings of Minnesota, LLC, involved in the development, construction and operation of senior-living communities. Great North is a Minnesota corporation that is wholly owned by our Chief Executive Officer, Douglas Polinsky. The transaction was approved by the full Board of Directors of the Company, with Mr. Polinsky abstaining, after disclosure by Mr. Polinsky of his relationship and interest in the transaction. On August 13, 2024, the company entered into a mediated settlement agreement with Innovative Computer Professionals, Inc., pursuant to which the company agreed to accept $ 400,000 in full satisfaction of an outstanding debt principal, accrued but unpaid interest and related collection costs. The company had earlier written off the full amount of this investment position. The settlement agreement included a confession of judgment from the debtor, in the full amount of $ 809,181 , if the debtor fails to pay the settlement payment on or before August 23, 2024. 16 Table of Contents