SUI Group Holdings Ltd. 10-K

ITEM 8 FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA Item Page Reports of Independent Registered Public Accounting Firm (PCAOB ID: 542 ) F-2 Balance Sheets — December 31, 2024 and December 31, 2023 F-4 Statements of Operations — Years ended December 31, 2024 and December 31, 2023 F-5 Statements of Shareholders’ Equity — Years ended December 31, 2024 and December 31, 2023 F-6 Statements of Cash Flows — Years ended December 31, 2024 and December 31, 2023 F-7 Investment Schedules — December 31, 2024 and December 31, 2023 F-8 Notes to Financial Statements F-10 F-1 Table of Contents REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM To the Board of Directors and Shareholders’ of Mill City Ventures III, Ltd. Opinion on the Financial Statements We have audited the accompanying balance sheets of Mill City Ventures III, Ltd. (the Company) as of December 31, 2024 and 2023, including the investment schedules and the related statements of operations, shareholders’ equity, and cash flows for each of the years in the two-year period ended December 31, 2024, and the related notes (collectively referred to as the financial statements). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2024 and 2023, and the results of its operations and its cash flows for each of the years in the two-year period ended December 31, 2024, in conformity with accounting principles generally accepted in the United States of America. Basis for Opinion These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits, we are required to obtain an understanding of internal control over financial reporting, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion. Emphasis of Matter – Investment Valuation As explained in Note 6 to the financial statements, the accompanying financial statements include investments valued at $13,006,231 and $17,284,676 as of December 31, 2024 and 2023, 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 of its portfolio companies and pertinent market and industry data. The investments are valued based on unobservable inputs as of December 31, 2024 and 2023. Because such valuations, and particularly valuations of private investments and private companies, are inherently uncertain, they may fluctuate significantly over short periods of time. These determinations of fair value could differ materially from the values that would have been utilized had a ready market for these investments existed. Critical Audit Matters The critical audit matters communicated below are matters arising from the current period audit of the financial statements that was communicated or required to be communicated to the audit committee and that: (1) relates to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgements. The communication of critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate. F-2 Table of Contents Valuation of investments which utilize significant unobservable inputs Description of the Matter At December 31, 2024, the balances of the Company’s investments, at fair value, categorized as Level 3 within the fair value hierarchy totaled $13,006,231. The fair values of these investments are determined by management using the valuation techniques and significant unobservable inputs described in Notes 5 and 6 to the financial statements. Auditing the fair value of the Company’s investments categorized as Level 3 within the fair value hierarchy was complex and involved a high degree of auditor subjectivity and judgement due to the estimation uncertainty resulting from the unobservable nature of the inputs used in the valuations and the limited number of comparable market transactions for the same or similar investments. How We Addressed the Matter in Our Audit We obtained an understanding and evaluated the design of controls over the Company’s valuation process, including management’s assessment of the significant inputs and estimates used in the fair value measurements. We performed the following procedures, among others, for the Company’s Level 3 investments: · We evaluated the valuation techniques used by the Company and considered the consistency in application of the valuation techniques to each subject investment and investment class. · We assigned senior, more experienced audit team members to perform audit procedures related to the valuation of investments. · We evaluated the reasonableness of the significant unobservable inputs by comparing the inputs used by the Company to third-party sources, if available, such as market indexes or other market data. · We considered the other information obtained during the audit that corroborated or contradicted the Company’s inputs or fair value measurements. · For investments sold during the year or subsequent to year-end, we compared the transaction price to the Company’s fair value estimate to assess the reasonableness of management’s fair value estimates. /s/ Boulay PLLP We have served as the Company’s auditor since 2019. Minneapolis, Minnesota March 7, 2025 F-3 Table of Contents Mill City Ventures III, Ltd. Balance Sheets December 31, 2024 December 31, 2023 ASSETS Investments, at fair value (cost: $ 13,717,089 and $ 18,577,481 , respectively) $ 13,453,561 $ 17,284,676 Cash 6,026,110 376,024 Note receivable, related party — 250,000 Prepaid expenses 31,848 165,301 Interest and dividend receivables 191,917 264,413 Right-of-use operating lease asset — 9,283 Deferred taxes 770,000 757,000 Total Assets $ 20,473,436 $ 19,106,697 LIABILITIES Accounts payable $ 41,105 $ 71,702 Accrued payroll liabilities 527,142 435,449 Operating lease liability — 9,283 Accrued income tax 147,200 — Total Liabilities 715,447 516,434 Commitments and Contingencies SHAREHOLDERS EQUITY (NET ASSETS) Common stock, par value $ 0.001 per share ( 111,111,111 authorized; 6,385,255 issued and outstanding) 6,385 6,385 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 ( 152,389 ) ( 1,052,183 ) Accumulated undistributed net realized gains on investment transactions 4,393,855 5,155,200 Net unrealized depreciation in value of investments ( 263,527 ) ( 1,292,804 ) Total Shareholders’ Equity (Net Assets) 19,757,989 18,590,263 Total Liabilities and Shareholders’ Equity $ 20,473,436 $ 19,106,697 Net Asset Value Per Common Share $ 3.09 $ 2.91 The accompanying notes are an integral part of these financial statements. F-4 Table of Contents Mill City Ventures III, Ltd. Statements of Operations Year Ended December 31, 2024 December 31, 2023 Investment Income Interest income $ 3,301,119 $ 3,298,635 Total Investment Income 3,301,119 3,298,635 Operating Expenses Professional fees 550,248 761,525 Payroll 933,157 1,848,393 Insurance 99,936 108,039 Occupancy 50,125 68,421 Director’s fees 300,000 772,968 Interest expense 320 78,000 Other general and administrative 42,089 81,287 Total Operating Expenses 1,975,875 3,718,633 Net Investment Gain (Loss) 1,325,244 ( 419,998 ) Realized and Unrealized Gain (Loss) on Investments Net realized loss on investments ( 761,345 ) ( 558,629 ) Net change in unrealized appreciation (depreciation) on investments 1,029,277 ( 641,433 ) Net Realized and Unrealized Gain (Loss) on Investments 267,932 ( 1,200,062 ) Net Increase (Decrease) in Net Assets Resulting from Operations Before Taxes 1,593,176 ( 1,620,060 ) Provision For (Benefit From) Income Taxes 425,450 ( 454,554 ) Net Increase (Decrease) in Net Assets Resulting from Operations $ 1,167,726 $ ( 1,165,506 ) Net Increase (Decrease) in Net Assets Resulting from Operations per share: Basic $ 0.18 $ ( 0.19 ) Diluted $ 0.18 $ ( 0.19 ) Weighted-average number of common shares outstanding - basic 6,385,255 6,249,913 Weighted-average number of common shares outstanding - diluted 6,492,275 6,249,913 The accompanying notes are an integral part of these financial statements. F-5 Table of Contents Mill City Ventures III, Ltd. Statements of Shareholders’ Equity For the years ended December 31, 2024 and 2023 Year Ended December 31, 2024 Common Shares Par Value Additional Paid In Capital Accumulated Deficit Accumulated Undistributed Net Investment Gain (Loss) Accumulated Undistributed Net Realized Gain (Loss) on Investment Transactions Net Unrealized Appreciation (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 — — — 899,794 — — 899,794 Undistributed net realized loss on investment transactions — — — — ( 761,345 ) — ( 761,345 ) Appreciation in value of investments — — — — — 1,029,277 1,029,277 Balance as of December 31, 2024 6,385,255 $ 6,385 $ 16,933,330 $ ( 1,159,665 ) $ ( 152,389 ) $ 4,393,855 $ ( 263,527 ) $ 19,757,989 Year Ended December 31, 2023 Common Shares Par Value Additional Paid In Capital Accumulated Deficit Accumulated Undistributed Net Investment Gain (Loss) Accumulated Undistributed Net Realized Gain (Loss) on Investment Transactions Net Unrealized Depreciation in Value of Investments Total Shareholders’ Equity Balance as of December 31, 2022 6,185,255 $ 6,185 $ 15,049,321 $ ( 1,159,665 ) $ ( 1,086,739 ) $ 5,713,829 $ ( 651,371 ) $ 17,871,560 Stock-based compensation — — 1,460,209 — — 1,460,209 Exercise of stock options 200,000 200 423,800 424,000 Undistributed net investment gain — — — 34,556 — — 34,556 Undistributed net realized loss on investment transactions — — — — ( 558,629 ) — ( 558,629 ) Depreciation in value of investments — — — — — ( 641,433 ) ( 641,433 ) 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 The accompanying notes are an integral part of these financial statements. F-6 Table of Contents Mill City Ventures III, Ltd. Statements of Cash Flows Year Ended December 31, 2024 December 31, 2023 Cash flows from operating activities: Net increase (decrease) in net assets resulting from operations $ 1,167,726 $ ( 1,165,506 ) Adjustments to reconcile net increase (decrease) in net assets resulting from operations to net cash used in operating activities: Net change in unrealized (appreciation) depreciation on investments ( 1,029,277 ) 641,433 Net realized loss on investments 761,345 558,629 Purchases of investments ( 5,665,526 ) ( 12,900,500 ) Proceeds from sales of investments 9,764,573 11,124,194 Stock-based compensation - 1,460,209 Deferred income taxes ( 13,000 ) ( 556,000 ) Changes in operating assets and liabilities: Prepaid expenses and other assets 142,736 60,254 Interest and dividends receivable 72,496 ( 13,534 ) Note receivable 250,000 Accounts payable and other liabilities 51,813 ( 276,642 ) Deferred interest income - ( 70,154 ) Accrued income taxes 147,200 - Net cash provided (used) in operating activities 5,650,086 ( 1,137,617 ) Cash flows from financing activities: Proceeds from stock option exercise - 424,000 Proceeds from line of credit - 2,750,000 Repayments on line of credit - ( 2,750,000 ) Net cash provided by financing activities - 424,000 Net increase (decrease) in cash 5,650,086 ( 713,617 ) Cash, beginning of period 376,024 1,089,641 Cash, end of period $ 6,026,110 $ 376,024 Supplemental disclosure of cash flow information: Cash paid for income taxes $ 159,750 $ - Cash paid for interest $ 320 $ 78,000 The accompanying notes are an integral part of these financial statements. F-7 Table of Contents Mill City Ventures III, Ltd. Investment Schedule As of December 31, 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 $ 9,985,925 50.54 % Consumer - 18% secured loans 500,000 504,308 2.55 % Real Estate - 15% secured loans Alatus Development Corp 2,000,000 2,016,636 10.21 % Real Estate - 24% secured loans Coventry Holdings LLC 500,000 499,362 2.53 % Total Short-Term Non-Banking Loans 13,000,000 13,006,231 65.83 % Common Stock Consumer 3,911 4,466 0.02 % Financial 553,178 442,864 2.24 % Information Technology 150,000 - 0.00 % Total Common Stock 707,089 447,330 2.26 % Other Equity Financial 10,000 - 0.00 % Total Investments $ 13,717,089 $ 13,453,561 68.09 % Total Cash and cash equivalents 6,026,110 6,026,110 30.50 % Total Investments and Cash $ 19,743,199 $ 19,479,671 98.59 % The accompanying notes are an integral part of these financial statements. F-8 Table of Contents Investment Schedule As of 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 % The accompanying notes are an integral part of these financial statements. F-9 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”) Topic 946 “Financial Services – Investment Companies”. 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 — SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Use of estimates: The preparation of financial statements in conformity with GAAP requires management and our independent board members to make estimates and assumptions that affect the reported amounts of assets and liabilities, and disclosures of contingent assets and liabilities, at the date of the financial statements, as well as the reported amounts of expenses during the reporting period. Actual results could differ from those estimates. For more information, see the “Valuation of portfolio investments” caption below, and “Note 6 – Fair Value of Financial Instruments” below. The Company presents its financial statements as an investment company following accounting and reporting guidance in ASC 946. Cash deposits: We maintain our cash balances in financial institutions and with regulated financial investment brokers. Cash on deposit in excess of FDIC and similar coverage is subject to the usual banking risk of funds in excess of those limits. Valuation of portfolio investments: We carry our investments in accordance with ASC Topic 820, Fair Value Measurements and Disclosures (“ASC 820”), issued by the Financial Accounting Standards Board (“FASB”), which defines fair value, establishes a framework for measuring fair value, and requires disclosures about fair value measurements. Fair value is generally based on quoted market prices provided by independent pricing services, broker or dealer quotations, or alternative price sources. In the absence of quoted market prices, broker or dealer quotations, or alternative price sources, investments are measured at fair value as determined by 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. 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. F-10 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 the Company. 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 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. F-11 Table of Contents 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 not be able to realize our deferred income tax assets, we would make an adjustment to the valuation allowance, which would reduce the provision for income taxes. We file income tax returns in the U.S. federal jurisdiction and various state jurisdictions. The Company does not believe there will be any material changes in its unrecognized tax positions over the next 12 months. Our evaluation was performed for the tax years ended December 31, 2021 through 2023, which are the tax years that remain subject to examination by the tax jurisdictions as of December 31, 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 in placed on non-accrual status. Allocation of net gains and losses: All income, gains, losses, deductions and credits for any investment are allocated in a manner proportionate to the shares owned. 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 Scholes 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. Recently adopted accounting pronouncements: In November 2023, the FASB issued ASU 2023-07: Improvements to Reportable Segment Disclosures. This ASU, which amends Topic 280: Segment Reporting, improves disclosure requirements for reportable segments and enhances disclosures for companies with single reportable segments. The Company has a single reportable segment based on the nature of its operations. The nature of business and the accounting policies of the segment are the same as described throughout Notes 1 and 2. The Company’s Chief Operating Decision Maker (“CODM”) is its executive team. The CODM assesses the reportable segment’s performance and allocates resources for the reportable segment based on the net income and total assets which are the same amounts in all material respects as those reported on the Statement of Operations and Balance Sheet. The Company adopted the standard on January 1, 2024. The adoption did not have a material impact on the Company’s financial statements. F-12 Table of Contents NOTE 3 — NET GAIN (LOSS) PER COMMON SHARE Basic net gain (loss) per common share is computed by dividing net increase (decrease) in net assets resulting from operations by the weighted-average number of 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, 2024 2023 Basic Diluted Basic Diluted Numerator: Net increase in net assets resulting from operations $ 1,167,726 $ 1,167,726 $ ( 1,165,506 ) $ ( 1,165,506 ) Denominator: Weighted-average number of common shares outstanding 6,385,255 6,492,275 6,249,913 6,249,913 Basic and diluted net gain (loss) per common share $ 0.18 $ 0.18 $ ( 0.19 ) $ ( 0.19 ) At December 31, 2024 and 2023, 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. At December 31, 2023, options issued under the plan for the purchase of 670,000 common shares remained outstanding. NOTE 4—SHAREHOLDERS’ EQUITY At December 31, 2024 and 2023, a total of 6,385,255 shares of common stock were issued and outstanding. In connection with a public offering on August 11, 2022, 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. During 2024, there were no shares issued related to the exercise of stock options or warrants. During 2023 there were 200,000 shares issued related to the exercise of stock options and no shares issued related to the exercise of warrants. NOTE 5 — INVESTMENTS The following table shows the composition of our investment portfolio by major class, at amortized cost and fair value, as of December 31, 2024 (together with the corresponding percentage of total portfolio investments): As of December 31, 2024 Investments at Amortized Cost Percentage of Amortized Cost Investments at Fair Value Percentage of Fair Value Short-term Non-banking Loans $ 13,000,000 94.8 % $ 13,006,231 96.7 % Common Stock 707,089 5.1 447,330 3.3 Other Equity 10,000 0.1 — — Total $ 13,717,089 100.0 % $ 13,453,561 100.0 % F-13 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 total portfolio 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 December 31, 2024: As of December 31, 2024 Investments at Fair Value Percentage of Fair Value Business Services $ 9,985,925 74.2 % Consumer 508,774 3.8 Financial 442,864 3.3 Information Technology — — Real Estate 2,515,998 18.7 Total $ 13,453,561 100.0 % 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 6 — FAIR VALUE OF FINANCIAL INSTRUMENTS Level 3 valuation information : Due to the inherent uncertainty in the valuation process, the estimate of the fair value of our investment portfolio as of December 31, 2024 and 2023 may differ materially from values that would have been used had a readily available market for the securities existed. F-14 Table of Contents The following table presents the fair value measurements of our portfolio investments by major class, as of December 31, 2024, according to the fair value hierarchy: As of December 31, 2024 Level 1 Level 2 Level 3 Total Short-term Non-banking Loans $ — $ — $ 13,006,231 $ 13,006,231 Common Stock 447,330 — — 447,330 Other Equity — — — — Total $ 447,330 $ — $ 13,006,231 $ 13,453,561 The following table presents the fair value measurements of our portfolio investments 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 Warrants — — — — 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 year ended December 31, 2024: For the year ended December 31, 2024 ST Non-banking Loans Preferred Stock Common Stock Other Equity Balance as of January 1, 2024 $ 16,961,766 $ 265,000 $ — $ 10,000 Net change in unrealized appreciation (depreciation) 401,966 785,000 ( 150,000 ) ( 10,000 ) Purchases and other adjustments to cost 4,623,437 — — — Sales and redemptions ( 8,720,000 ) — — — Realized loss ( 100,000 ) ( 900,000 ) — — Conversion from preferred to common stock — ( 150,000 ) 150,000 — Transfers between level 3 and level 1 ( 160,938 ) — — — Balance as of December 31, 2024 $ 13,006,231 $ — $ — $ — The net change in unrealized depreciation for the year ended December 31, 2024 attributable to Level 3 portfolio investments still held as of December 31, 2024 is $ 83,496 , 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, 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 appreciation (depreciation) ( 195,041 ) ( 935,000 ) 600,000 Purchases and other adjustments to cost 12,900,500 — — Sales and redemptions ( 11,029,625 ) — — Realized loss — — ( 600,000 ) Transfers between level 3 and level 1 — — ( 212,500 ) Balance as of December 31, 2023 $ 16,961,766 $ 265,000 $ 10,000 F-15 Table of Contents 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 is 1,126,877 , and is included in net change in unrealized depreciation on investments on the statement of operations. The following table lists our Level 3 investments held as of December 31, 2024 and the unobservable inputs used to determine their valuation: Security Type 12/31/24 FMV Valuation Technique Unobservable Inputs Range ST Non-banking Loans $ 13,006,231 discounted cash flow determining private company interest rate based on changes in market rates of instruments with comparable creditworthiness 15 - 24 % Other Equity — last secured funding known by company economic changes since last funding Common Stock — last funding secured by company economic changes since last funding $ 13,006,231 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: 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 There was one transfer between levels during 2023 due to an initial public offering of a previously privately held security. The shares of that security are now free trading. There were no transfers between levels during the years ended December 31, 2024. 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. NOTE 8 – STOCK-BASED COMPENSATION The Company’s 2022 Stock Incentive Plan (the “Plan”) authorized the issuance of incentives relating to 900,000 shares of common stock. As of December 31, 2024, incentives relating to the issuance of 870,000 shares have been issued under the Plan, leaving 30,000 shares available for issuance. The Plan was amended by the Board of Directors on August 14, 2023, and a registration statement on Form S-8 respecting the Plan was filed with the SEC on August 23, 2023. F-16 Table of Contents The following table summarizes the activity for all stock options outstanding for the years ended December 31, 2024 and 2023: 2024 2023 Shares Weighted Average Exercise Price Shares Weighted Average Exercise Price Options outstanding at beginning of year 670,000 $ 2.11 — $ — Granted — — 870,000 2.11 Exercised — — ( 200,000 ) 2.12 Forfeited — — — — Options outstanding at end of year 670,000 $ 2.11 670,000 $ 2.11 Options exercisable at December 31: 670,000 $ 2.11 670,000 $ 2.11 The following table summarizes additional information about stock options outstanding and exercisable at December 31, 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 7.92 $ 2.11 $ — 670,000 $ 2.11 $ — The Company recognized stock-based compensation expense for stock options of $ 1,460,209 for the year ended December 31, 2023. The Black-Scholes option-pricing model was used to estimate the fair value of equity-based awards with the following weighted-average assumptions for the year ended December 31, 2023: 2023 Risk-free interest rate 3.88 % Expected volatility 90.00 % Expected life (years) 5.0 Expected dividend yield — % The inputs for the Black-Scholes valuation model require management’s significant assumptions. The price per share of common stock is determined by using the closing market price on the Nasdaq Capital Market on the grant date. The risk-free interest rates are based on the rate for U.S. Treasury securities at the date of grant with maturity dates approximately equal to the expected life at the grant date. The expected life is based on the simplified method in accordance with the SEC Staff Accounting Bulletin Nos. 107 and 110. The expected volatility is estimated based on historical volatility information of peer companies that are publicly available in combination with the Company’s calculated volatility. NOTE 9 – 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 held a promissory note with two shareholders in the principal amount of $ 250,000 . The promissory note bore interest payable monthly at the rate of 10 % per annum. The note was secured by the debtors’ pledge to us of 277,778 shares of common stock. The note was paid in full including all accrued interest on September 26, 2024. · As disclosed in Note 7, a component of our now terminated loan agreement was with a director of our Company. F-17 Table of Contents NOTE 10 — RETIREMENT SAVINGS PLANS 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 $ 20,000 and $ 23,750 for the years ended 2024 and 2023, respectively. NOTE 11 — INCOME TAXES Presently, we are a “C-corporation” for tax purposes and have booked an income tax provision for the years ended December 31, 2024 and 2023. Income taxes for the year ended December 31, 2024, and 2023 are described below. December 31 2024 2023 Current taxes Federal $ 325,172 $ 83,402 State 113,278 18,044 Deferred taxes Federal ( 13,000 ) ( 556,000 ) State — — Provision for (benefit from) income taxes $ 425,450 $ ( 454,554 ) A reconciliation of income tax provisions at the U.S. statutory rate for fiscal year 2024 and 2023 is as follows: 2024 2023 Rate reconciliation: Tax expense at U.S. statutory rate $ 423,931 $ ( 431,776 ) Change in deferred tax rate ( 91 ) ( 1,866 ) Prior year over / under accrual 4,923 93,702 Provision-to-return reconciliation ( 1,417 ) ( 110,457 ) Other ( 1,896 ) ( 4,157 ) Income tax provision $ 425,450 $ ( 454,554 ) As of December 31, 2024 and 2023 we had a deferred tax asset of $ 770,000 and $ 757,000 , 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, 2024 and 2023 were as follows: December 31 2024 2023 Deferred tax components Unrealized (gain) loss on marketable securities $ 69,887 $ 343,886 Capital loss carryforward 345,256 — Depreciation 1,265 1,619 R&D and foreign credits 40,820 40,820 Stock options 274,803 275,632 Acquisition costs — 30,402 Accrued bonuses 39,780 66,500 Other ( 1,811 ) ( 1,859 ) Net deferred tax asset $ 770,000 $ 757,000 F-18 Table of Contents NOTE 12 — FINANCIAL HIGHLIGHTS The following is a schedule of financial highlights for the years ended December 31, 2024 through 2020: Year Ended December 31, 2024 2023 2022 2021 2020 Per Share Data (1) Net asset value at beginning of period $ 2.91 2.89 2.80 2.44 2.05 Net investment gain (loss) 0.21 ( 0.07 ) 0.13 0.27 0.11 Net realized and unrealized gain (loss) 0.04 ( 0.19 ) ( 0.11 ) 0.54 0.41 (Provision for) benefit from income taxes ( 0.07 ) 0.07 0.00 ( 0.23 ) ( 0.05 ) Issuance of common stock 0.00 0.07 0.00 0.00 0.00 Stock-based compensation 0.00 0.23 0.05 0.00 ( 0.02 ) Repurchase of common stock 0.00 0.00 0.00 0.00 0.05 Other changes in equity 0.00 ( 0.09 ) 0.02 0.00 0.00 Payment of common stock dividend 0.00 0.00 0.00 ( 0.22 ) ( 0.11 ) Net asset value at end of period $ 3.09 2.91 2.89 2.80 2.44 Ratio / Supplemental Data Per share market value of investments at end of period $ 2.11 2.75 2.70 2.95 1.40 Shares outstanding at end of period 6,385,255 6,385,255 6,185,255 4,795,739 4,793,739 Average weighted shares outstanding for the period 6,385,255 6,366,481 5,333,028 4,795,242 4,830,691 Net assets at end of period $ 19,757,989 18,590,263 17,871,560 13,414,049 11,640,887 Average net assets (2) $ 19,311,001 18,647,600 15,639,394 13,155,207 10,504,563 Total investment return 6.19 % ( 7.27 )% 1.43 % 24.07 % 23.08 % Portfolio turnover rate (3) 29.34 % 59.65 % 129.57 % 168.67 % 61.11 % Ratio of operating expenses to average net assets (3) ( 10.23 )% ( 19.94 )% ( 21.73 )% ( 10.30 )% ( 7.16 )% Ratio of net investment income (loss) to average net assets (3) 6.86 % ( 2.25 )% 5.12 % 9.89 % 5.35 % Ratio of realized gains (losses) to average net assets (3) ( 3.94 )% ( 3.00 )% 0.85 % 31.30 % 0.05 % (1) Per-share data was derived using the weighted-average number of shares outstanding for the period. (2) Based on the monthly average of net assets as of the beginning and end of each period presented. (3) Ratios are annualized. F-19 Table of Contents NOTE 13 — SUBSEQUENT EVENTS On January 22, 2025, we entered into an Amendment No. 5 to Fourth Short-Term Loan Agreement and Fourth Short-Term Promissory Note with Mustang Funding, LLC, deemed effective January 21, 2025. The amendment extends the maturity date of our loan to Mustang Funding to March 28, 2027, and increases the per annum rate of interest to 20 %. The amendment obligates Mustang Funding to continue paying monthly cash interest payments at the pre-amendment rate of 15% per annum, and to pay Mill City the additional 5% per annum interest upon maturity . Effective January 24, 2025, we entered into a Security Agreement with Mustang Funding, LLC pursuant to which Mustang Funding granted us a security interest in substantially all of Mustang Funding’s assets, subject to certain enumerated exceptions, as collateral security for our $ 10 million principal amount loan. Also effective January 24, 2025, we entered into an Amended and Restated Subordination and Intercreditor Agreement with Orion Pip, LLC, as administrative agent and collateral agent for senior lenders to Mustang Funding, LLC, and with Mustang Funding. The agreement contains customary and negotiated terms and conditions relating to the full subordination of our right to payment (subject to certain exceptions), exercise of rights and remedies, and our right to collateral pledged by Mustang Funding in our favor to secure the obligations of Mustang Funding under that certain Fourth Short-Term Loan Agreement and Fourth Short-Term Promissory Note in the original principal amount of $ 10 million, as amended. On February 1, 2025, we entered into new Executive Employment Agreements with each of Douglas M. Polinsky, our Chief Executive Officer, and Joseph A. Geraci II, our Chief Financial Officer. These new Executive Employment Agreements are substantially identical to the prior executive employment agreements with these executives that had expired on December 31, 2024, each containing the same two-year term and restrictive covenants, and were deemed to be effective as of January 1, 2025. The new Executive Employment Agreements increase the base salary of each executive to $ 220,000 per year. F-20 Table of Contents ITEM 9 CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None.