UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549










FORM 10-Q










|(Mark One)
|----------
|x         
|          
|or        
| ̈         
|          



Commission File Number 814-00991










MILL CITY
VENTURES III, LTD.(Exact name of registrant as specified in its charter)










|Minnesota                                                      |  | 90-0316651                          
|-------------------------------------------------------------- |  | ------------------------------------
|(State or other jurisdiction of incorporation or organization) |  | (I.R.S. Employer Identification No.)
|                                                               |  |                                     
|1907 Wayzata Blvd, #205, Wayzata, Minnesota                    |  | 55391                               
|(Address of principal executive offices)                       |  | (Zip Code)                          



(952) 479-1923

(Registrant’s telephone number, including
area code)










N/A

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










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



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



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



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



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



Indicate by check mark whether the registrant
is a shell company (as defined in Rule 12b-2 of the Exchange Act).  ̈ Yes    xNo



As of July 31, 2020,
Mill City Ventures III, Ltd. had 10,696,735 shares of common stock, and no other classes of capital stock, outstanding.













- 1 -






MILL CITY VENTURES III, LTD.



Index to Form 10-Q

for the Quarter Ended June 30, 2020



|           |                                                                                                           | Page No.
|---------- | --------------------------------------------------------------------------------------------------------- | --------
|           |                                                                                                           |         
|PART I.    | FINANCIAL INFORMATION                                                                                     |         
|           |                                                                                                           |         
|Item 1.    | Financial Statements (unaudited)                                                                          |         
|           |                                                                                                           |         
|           | Condensed Balance Sheets – June 30, 2020 and December
31, 2019                                            | 2       
|           |                                                                                                           |         
|           | Condensed Statements of Operations – Three and
six months ended June 30, 2020 and June 30, 2019           | 3       
|           |                                                                                                           |         
|           | Condensed Statements of Shareholders’ Equity – Three and six months ended June 30,
2020 and June 30, 2019 | 4       
|           |                                                                                                           |         
|           | Condensed Statements of Cash Flows – Six months
ended June 30, 2020 and June 30, 2019                     | 6       
|           |                                                                                                           |         
|           | Condensed Schedule of Investments – June 30, 2020 and Schedule of Investments – December
31, 2019         | 7       
|           |                                                                                                           |         
|           | Condensed Notes to Financial Statements – June
30, 2020                                                   | 10      
|           |                                                                                                           |         
|Item 2.    | Management’s Discussion and Analysis of Financial Condition and Results of Operations                     | 19      
|           |                                                                                                           |         
|Item 4.    | Controls and Procedures                                                                                   | 22      
|           |                                                                                                           |         
|PART II.   | OTHER INFORMATION                                                                                         |         
|           |                                                                                                           |         
|Item 6.    | Exhibits                                                                                                  | 23      
|           |                                                                                                           |         
|SIGNATURES | 23                                                                                                       








- 2 -






PART I. FINANCIAL
INFORMATION



| | ITEM 1. | FINANCIAL STATEMENTS
| | ------- | --------------------



MILL CITY VENTURES III, LTD.

CONDENSED BALANCE SHEETS



|                                                                                                                 |  | June
    30, 2020 (unaudited) |            |   | December
    31, 2019 |  
|---------------------------------------------------------------------------------------------------------------- |  | ----------------------------- | ---------- | - | --------------------- | -
|ASSETS                                                                                                           |  |                               |            |   |                       |  
|Investments, at fair value:                                                                                      |  | $                             | 6,927,688  |   |                       | $
|Non-control/non-affiliate
    investments (cost: $7,200,566 and $1,976,370 respectively)                         |  |                               |            |   |                       |  
|Cash                                                                                                             |  |                               | 4,450,990  |   |                       |  
|Note receivable                                                                                                  |  |                               | 250,000    |   |                       |  
|Prepaid expenses                                                                                                 |  |                               | 72,197     |   |                       |  
|Receivable for sale of investments                                                                               |  |                               | 158,649    |   |                       |  
|Interest and dividend receivables                                                                                |  |                               | 69,144     |   |                       |  
|Right-of-use lease asset                                                                                         |  |                               | 32,190     |   |                       |  
|Property and equipment, net                                                                                      |  |                               | 784        |   |                       |  
|Total
    Assets                                                                                                 |  | $                             | 11,961,642 |   |                       | $
|                                                                                                                 |  |                               |            |   |                       |  
|LIABILITIES                                                                                                      |  |                               |            |   |                       |  
|Payable for purchase of investments                                                                              |  | $                             | 1,680,000  |   |                       | $
|Accounts payable                                                                                                 |  |                               | 24,300     |   |                       |  
|Lease liability                                                                                                  |  |                               | 35,624     |   |                       |  
|Total
    Liabilities                                                                                            |  |                               | 1,739,924  |   |                       |  
|Commitments and Contingencies                                                                                    |  |                               |            |   |                       |  
|                                                                                                                 |  |                               |            |   |                       |  
|SHAREHOLDERS EQUITY (NET
    ASSETS)                                                                             |  |                               |            |   |                       |  
|Common Stock, par value
    $0.001 per share (250,000,000 authorized;
    10,696,735 and 11,067,402 outstanding) |  |                               | 10,696     |   |                       |  
|Additional paid-in capital                                                                                       |  |                               | 10,616,757 |   |                       |  
|Accumulated deficit                                                                                              |  |                               | (1,159,665 | ) |                       |  
|Accumulated undistributed investment loss                                                                        |  |                               | (2,248,732 | ) |                       |  
|Accumulated undistributed net realized gains on investment
    transactions                                      |  |                               | 3,275,540  |   |                       |  
|Net unrealized depreciation in
    value of investments                                                          |  |                               | (272,878   | ) |                       |  
|Total
    Shareholders' Equity (net assets)                                                                      |  |                               | 10,221,718 |   |                       |  
|Total
    Liabilities and Shareholders' Equity                                                                   |  | $                             | 11,961,642 |   |                       | $
|Net Asset Value Per Common Share                                                                                 |  | $                             | 0.96       |   |                       | $



See accompanying Notes to Financial Statements








- 3 -




MILL CITY VENTURES III, LTD.

CONDENSED STATEMENTS OF OPERATIONS (UNAUDITED)



|                                                                                                       |  | Three
    Months Ended |            |  | Six Months
    Ended |  
|------------------------------------------------------------------------------------------------------ |  | ---------------------- | ---------- |  | -------------------- | -
|                                                                                                       |  | June 30,
    2020      |            |  | June 30,
    2019    |  
|Investment Income                                                                                      |  |                        |            |  |                      |  
|Interest income                                                                                        |  | $                      | 276,425    |  |                      | $
|Dividend income                                                                                        |  |                        | 7,031      |  |                      |  
|Total Investment Income                                                                                |  |                        | 283,456    |  |                      |  
|                                                                                                       |  |                        |            |  |                      |  
|Operating Expenses                                                                                     |  |                        |            |  |                      |  
|Professional fees                                                                                      |  |                        | 90,529     |  |                      |  
|Payroll                                                                                                |  |                        | 58,080     |  |                      |  
|Insurance                                                                                              |  |                        | 20,668     |  |                      |  
|Occupancy                                                                                              |  |                        | 16,569     |  |                      |  
|Director's fees                                                                                        |  |                        | 22,500     |  |                      |  
|Depreciation and amortization                                                                          |  |                        | 644        |  |                      |  
|Other general and administrative                                                                       |  |                        | 4,920      |  |                      |  
|Total Operating Expenses                                                                               |  |                        | 213,910    |  |                      |  
|Net Investment Gain (Loss)                                                                             |  | $                      | 69,546     |  |                      | $
|                                                                                                       |  |                        |            |  |                      |  
|Realized and Unrealized Gain (Loss)
    on Investments                                                 |  |                        |            |  |                      |  
|Net realized gain on investments                                                                       |  |                        | 175,222    |  |                      |  
|Net change in unrealized appreciation (depreciation)
    on investments                                |  |                        | 348,602    |  |                      |  
|Net Realized and Unrealized Gain (Loss)
    on Investments                                             |  |                        | 523,824    |  |                      |  
|Net Increase (Decrease) in Net Assets
    Resulting from Operations                                    |  | $                      | 593,370    |  |                      | $
|                                                                                                       |  |                        |            |  |                      |  
|Net
    Increase (Decrease) in Net Assets Resulting from  Operations per share: 
    Basic and diluted |  | $                      | 0.05       |  |                      | $
|                                                                                                       |  |                        |            |  |                      |  
|Weighted-average number of common shares outstanding –
    basic and diluted                           |  |                        | 10,882,039 |  |                      |  



See accompanying Notes to Financial Statements








- 4 -






MILL CITY VENTURES III, LTD.

CONDENSED STATEMENTS OF SHAREHOLDERS’ EQUITY (UNAUDITED)



|Three Months Ended
    June 30, 2020                       |  | Common
    Shares |            |   | Par
    Value |   |        | Additional
    Paid In Capital |  |   | Accumulated
    Deficit |   |  | Accumulated
    Undistributed Net Investment Loss |            |   | Accumulated
    Undistributed Net Realized Gain on Investments Transactions |   |            | Net
    Unrealized Appreciation (Depreciation) in value of Investments |  |   | Total
    Shareholders' Equity | 
|---------------------------------------------------------- |  | ----------------- | ---------- | - | ------------- | - | ------ | ------------------------------ |  | - | ----------------------- | - |  | ------------------------------------------------- | ---------- | - | --------------------------------------------------------------------------- | - | ---------- | ---------------------------------------------------------------------- |  | - | ------------------------------ | 
|Balance as of March 31, 2020                               |  |                   | 11,067,402 |   |               | $ | 11,067 |                                |  | $ | 10,774,653              |   |  | $                                                 | (1,159,665 | ) |                                                                             | $ | (2,318,278 | )                                                                      |  | $ | 3,100,318                      | 
|Repurchase of shares                                       |  |                   | (370,667   | ) |               |   | (371   | )                              |  |   | (157,896                | ) |  |                                                   | —          |   |                                                                             |   | —          |                                                                        |  |   |                                | 
|Undistributed net investment loss                          |  |                   |            |   |               |   | —      |                                |  |   | —                       |   |  |                                                   | —          |   |                                                                             |   | 69,546     |                                                                        |  |   | —                              | 
|Undistributed net realized gain on investment transactions |  |                   |            |   |               |   | —      |                                |  |   | —                       |   |  |                                                   | —          |   |                                                                             |   | —          |                                                                        |  |   | 175,222                        | 
|Appreciation in value of investments                       |  |                   |            |   |               |   | —      |                                |  |   | —                       |   |  |                                                   | —          |   |                                                                             |   | —          |                                                                        |  |   | —                              | 
|Balance as of June 30, 2020                                |  |                   | 10,696,735 |   |               | $ | 10,696 |                                |  | $ | 10,616,757              |   |  | $                                                 | (1,159,665 | ) |                                                                             | $ | (2,248,732 | )                                                                      |  | $ | 3,275,540                      | 



|Three Months Ended
    June 30, 2019                       |  | Common
    Shares |            |  | Par
    Value |   |        | Additional
    Paid In Capital |  |   | Accumulated
    Deficit |  |  | Accumulated
    Undistributed Net Investment Loss |            |   | Accumulated
    Undistributed Net Realized Gain on Investments Transactions |   |            | Net
    Unrealized Appreciation in value of Investments |  |   | Total
    Shareholders' Equity | 
|---------------------------------------------------------- |  | ----------------- | ---------- |  | ------------- | - | ------ | ------------------------------ |  | - | ----------------------- |  |  | ------------------------------------------------- | ---------- | - | --------------------------------------------------------------------------- | - | ---------- | ------------------------------------------------------- |  | - | ------------------------------ | 
|Balance as of March 31, 2019                               |  |                   | 11,067,402 |  |               | $ | 11,067 |                                |  | $ | 10,774,653              |  |  | $                                                 | (1,159,665 | ) |                                                                             | $ | (1,883,014 | )                                                       |  | $ | 2,894,042                      | 
|Undistributed net investment loss                          |  |                   |            |  |               |   | —      |                                |  |   | —                       |  |  |                                                   | —          |   |                                                                             |   | (239,002   | )                                                       |  |   | —                              | 
|Undistributed net realized loss on investment transactions |  |                   |            |  |               |   | —      |                                |  |   | —                       |  |  |                                                   | —          |   |                                                                             |   | —          |                                                         |  |   | 31,364                         | 
|Depreciation in value of investments                       |  |                   |            |  |               |   | —      |                                |  |   | —                       |  |  |                                                   | —          |   |                                                                             |   | —          |                                                         |  |   | —                              | 
|Balance as of June 30, 2019                                |  |                   | 11,067,402 |  |               | $ | 11,067 |                                |  | $ | 10,774,653              |  |  | $                                                 | (1,159,665 | ) |                                                                             | $ | (2,122,016 | )                                                       |  | $ | 2,925,406                      | 








- 5 -




|Six Months Ended June 30, 2020                             |  | Common Shares |            |   | Par Value |   |        | Additional Paid In Capital |  |   | Accumulated Deficit |   |  | Accumulated Undistributed Net Investment
    Loss |            |   | Accumulated Undistributed Net Realized
    Gain on Investments Transactions |   |            | Net Unrealized Appreciation in
    value of Investments |  |   | Total Shareholders' Equity | 
|---------------------------------------------------------- |  | ------------- | ---------- | - | --------- | - | ------ | -------------------------- |  | - | ------------------- | - |  | ------------------------------------------------- | ---------- | - | --------------------------------------------------------------------------- | - | ---------- | ------------------------------------------------------- |  | - | -------------------------- | 
|Balance as of December 31, 2019                            |  |               | 11,067,402 |   |           | $ | 11,067 |                            |  | $ | 10,774,653          |   |  | $                                                 | (1,159,665 | ) |                                                                             | $ | (2,397,865 | )                                                       |  | $ | 3,075,816                  | 
|Repurchase of shares                                       |  |               | (370,667   | ) |           |   | (371   | )                          |  |   | (157,896            | ) |  |                                                   | —          |   |                                                                             |   | —          |                                                         |  |   |                            | 
|Undistributed net investment loss                          |  |               |            |   |           |   | —      |                            |  |   | —                   |   |  |                                                   | —          |   |                                                                             |   | 149,133    |                                                         |  |   | —                          | 
|Undistributed net realized loss on investment transactions |  |               |            |   |           |   | —      |                            |  |   | —                   |   |  |                                                   | —          |   |                                                                             |   | —          |                                                         |  |   | 199,724                    | 
|Depreciation in value of investments                       |  |               |            |   |           |   | —      |                            |  |   | —                   |   |  |                                                   | —          |   |                                                                             |   | —          |                                                         |  |   | —                          | 
|Balance as of June 30, 2020                                |  |               | 10,696,735 |   |           | $ | 10,696 |                            |  | $ | 10,616,757          |   |  | $                                                 | (1,159,665 | ) |                                                                             | $ | (2,248,732 | )                                                       |  | $ | 3,275,540                  | 



|Six Months Ended June 30, 2019                             |  | Common Shares |            |  | Par Value |   |        | Additional Paid In Capital |  |   | Accumulated Deficit |  |  | Accumulated Undistributed Net Investment
    Loss |            |   | Accumulated Undistributed Net Realized
    Gain on Investments Transactions |   |            | Net Unrealized Appreciation in
    value of Investments |  |   | Total Shareholders' Equity |  
|---------------------------------------------------------- |  | ------------- | ---------- |  | --------- | - | ------ | -------------------------- |  | - | ------------------- |  |  | ------------------------------------------------- | ---------- | - | --------------------------------------------------------------------------- | - | ---------- | ------------------------------------------------------- |  | - | -------------------------- | -
|Balance as of December 31, 2018                            |  |               | 11,067,402 |  |           | $ | 11,067 |                            |  | $ | 10,774,653          |  |  | $                                                 | (1,159,665 | ) |                                                                             | $ | (1,725,097 | )                                                       |  | $ | 376,566                    |  
|Dividend distribution                                      |  |               |            |  |           |   | —      |                            |  |   | —                   |  |  |                                                   | —          |   |                                                                             |   | —          |                                                         |  |   | (553,370                   | )
|Undistributed net investment loss                          |  |               |            |  |           |   | —      |                            |  |   | —                   |  |  |                                                   | —          |   |                                                                             |   | (396,919   | )                                                       |  |   | —                          |  
|Undistributed net realized gain on investment transactions |  |               |            |  |           |   | —      |                            |  |   | —                   |  |  |                                                   | —          |   |                                                                             |   | —          |                                                         |  |   | 3,102,210                  |  
|Depreciation in value of investments                       |  |               |            |  |           |   | —      |                            |  |   | —                   |  |  |                                                   | —          |   |                                                                             |   | —          |                                                         |  |   | —                          |  
|Balance as of June 30, 2019                                |  |               | 11,067,402 |  |           | $ | 11,067 |                            |  | $ | 10,774,653          |  |  | $                                                 | (1,159,665 | ) |                                                                             | $ | (2,122,016 | )                                                       |  | $ | 2,925,406                  |  



See accompanying Notes to Financial Statements








- 6 -






MILL CITY VENTURES III, LTD.

CONDENSED STATEMENTS OF CASH FLOWS (UNAUDITED)



|                                                                                                                                                  |  | Six
    Months Ended |           
|------------------------------------------------------------------------------------------------------------------------------------------------- |  | -------------------- | ----------
|                                                                                                                                                  |  | June
    30, 2020    |           
|Cash flows from
    operating activities:                                                                                                         |  |                      |           
|Net
    increase (decrease) in net assets resulting from operations                                                                               |  | $                    | 311,452   
|                                                                                                                                                  |  |                      |           
|Adjustments to reconcile
    net increase (decrease) in net assets resulting from operations to net cash provided (used) in operating activities: |  |                      |           
|Net
    change in unrealized depreciation on investments                                                                                          |  |                      | 37,405    
|Net
    realized gain on investments                                                                                                              |  |                      | (199,724  
|Purchases of investments                                                                                                                          |  |                      | (6,217,296
|Proceeds
    from sales of investments                                                                                                            |  |                      | 1,192,824 
|Depreciation
    & amortization expense                                                                                                           |  |                      | 1,287     
|                                                                                                                                                  |  |                      |           
|Changes in operating
    assets and liabilities:                                                                                                  |  |                      |           
|Prepaid
    expenses and other assets                                                                                                             |  |                      | (32,007   
|Interest
    and dividends receivable                                                                                                             |  |                      | (62,644   
|Receivable
    for investment sales                                                                                                               |  |                      | (158,649  
|Payable
    for investment purchase                                                                                                               |  |                      | 1,680,000 
|Accounts
    payable and other liabilities                                                                                                        |  |                      | (10,047   
|Net
    cash provided (used) in operating activities                                                                                              |  |                      | (3,457,399
|                                                                                                                                                  |  |                      |           
|Cash flows from
    financing activities:                                                                                                         |  |                      |           
|                                                                                                                                                  |  |                      |           
|Payments
    for repurchase of common stock                                                                                                       |  |                      | (158,267  
|Payments
    for common stock dividend                                                                                                            |  |                      | —         
|Net
    cash used by financing activities                                                                                                         |  |                      | (158,267  
|Net
    increase (decrease) in cash                                                                                                               |  |                      | (3,615,666
|Cash,
    beginning of period                                                                                                                     |  |                      | 8,066,656 
|Cash,
    end of period                                                                                                                           |  | $                    | 4,450,990 



See accompanying Notes to Financial Statements








- 7 -




MILL CITY VENTURES III, LTD.

CONDENSED SCHEDULE OF INVESTMENTS

JUNE 30, 2020



|Investment / Industry                    |  | Cost |            |  | Fair Value |   |            | Percentage
    of
 Net Assets | 
|---------------------------------------- |  | ---- | ---------- |  | ---------- | - | ---------- | ----------------------------- | 
|Short-Term Non-banking Loans             |  |      |            |  |            |   |            |                               | 
|Consumer - 15% secured
    loans         |  | $    | 400,000    |  |            | $ | 400,000    |                               | 
|Financial - 52% secured loans            |  |      | 500,000    |  |            |   | 500,000    |                               | 
|Real Estate - 15% secured loans          |  |      |            |  |            |   |            |                               | 
|Tailwinds, LLC                           |  |      | 3,000,000  |  |            |   | 3,000,000  |                               | 
|Other                                    |  |      | 239,000    |  |            |   | 239,000    |                               | 
|Total Short-Term
    Non-Banking Loans   |  |      | 4,139,000  |  |            |   | 4,139,000  |                               | 
|                                         |  |      |            |  |            |   |            |                               | 
|Common Stock                             |  |      |            |  |            |   |            |                               | 
|Consumer                                 |  |      |            |  |            |   |            |                               | 
|Ammo, Inc. (1,000,000 restricted shares) |  |      | 1,750,000  |  |            |   | 1,750,000  |                               | 
|Publishing                               |  |      | 201,558    |  |            |   | 424,348    |                               | 
|Real Estate                              |  |      | 17,270     |  |            |   | 23,300     |                               | 
|Total Common
    Stock                   |  |      | 1,968,828  |  |            |   | 2,197,648  |                               | 
|                                         |  |      |            |  |            |   |            |                               | 
|Preferred Stock                          |  |      |            |  |            |   |            |                               | 
|Information Technology                   |  |      | 150,000    |  |            |   | 300,000    |                               | 
|                                         |  |      |            |  |            |   |            |                               | 
|Warrants                                 |  |      |            |  |            |   |            |                               | 
|Advertising                              |  |      | —          |  |            |   | —          |                               | 
|Healthcare                               |  |      | 679        |  |            |   | —          |                               | 
|Total Warrants                           |  |      | 679        |  |            |   | —          |                               | 
|                                         |  |      |            |  |            |   |            |                               | 
|Other Equity                             |  |      |            |  |            |   |            |                               | 
|Consumer                                 |  |      | 101,019    |  |            |   | —          |                               | 
|Leisure & Hospitality                    |  |      | 291,040    |  |            |   | 291,040    |                               | 
|Oil & Gas                                |  |      | 550,000    |  |            |   | —          |                               | 
|Total Other Equity                       |  |      | 942,059    |  |            |   | 291,040    |                               | 
|                                         |  |      |            |  |            |   |            |                               | 
|Total Investments                        |  | $    | 7,200,566  |  |            | $ | 6,927,688  |                               | 
|                                         |  |      |            |  |            |   |            |                               | 
|Total Cash                               |  |      | 4,450,990  |  |            |   | 4,450,990  |                               | 
|                                         |  |      |            |  |            |   |            |                               | 
|Total Investments
    and Cash           |  | $    | 11,651,556 |  |            | $ | 11,378,678 |                               | 



See accompanying Notes to the Financial Statements








- 8 -




MILL CITY VENTURES III, LTD.

SCHEDULE OF INVESTMENTS

DECEMBER 31, 2019



|Investments
    (1)                 |  | Investment
    Type (5)           |  | Interest
    Rate (2)(6) |  | Expiration
    Date (7) |  | Shares/Units |         |  | Cost |   |            | Fair
    Value |  |   | Percentage
    of Net Assets |  |  | Gross
    Unrealized Appreciation |       |   | Gross
    Unrealized Depreciation |   |         | Net
    Unrealized Appreciation (Depreciation) | 
|----------------------------------- |  | --------------------------------- |  | ------------------------ |  | ----------------------- |  | ------------ | ------- |  | ---- | - | ---------- | -------------- |  | - | ---------------------------- |  |  | --------------------------------- | ----- | - | --------------------------------- | - | ------- | ---------------------------------------------- | 
|Equity Investments                  |  |                                   |  |                          |  |                         |  |              |         |  |      |   |            |                |  |   |                              |  |  |                                   |       |   |                                   |   |         |                                                | 
|Advertising                         |  |                                   |  |                          |  |                         |  |              |         |  |      |   |            |                |  |   |                              |  |  |                                   |       |   |                                   |   |         |                                                | 
|Creative
    Realities, Inc.        |  | Warrants (8)                      |  | n/a                      |  | 12/28/2020              |  |              | 35,714  |  |      | $ | —          |                |  | $ | —                            |  |  |                                   | 0.00  | % |                                   | $ | —       |                                                | 
|                                    |  |                                   |  |                          |  |                         |  |              |         |  |      |   |            |                |  |   |                              |  |  |                                   |       |   |                                   |   |         |                                                | 
|Consumer                            |  |                                   |  |                          |  |                         |  |              |         |  |      |   |            |                |  |   |                              |  |  |                                   |       |   |                                   |   |         |                                                | 
|Tzfat
    Spirits of Israel, LLC    |  | LLC Membership Units (8)          |  | n/a                      |  | n/a                     |  |              | 55,000  |  |      |   | 101,019    |                |  |   | 15,000                       |  |  |                                   |       |   |                                   |   | —       |                                                | 
|                                    |  |                                   |  |                          |  |                         |  |              |         |  |      |   | 101,019    |                |  |   | 15,000                       |  |  |                                   | 0.15  | % |                                   |   | —       |                                                | 
|Financial                           |  |                                   |  |                          |  |                         |  |              |         |  |      |   |            |                |  |   |                              |  |  |                                   |       |   |                                   |   |         |                                                | 
|Manning
    & Napier, Inc.          |  | Common Stock                      |  | n/a                      |  | n/a                     |  |              | 86,700  |  |      |   | 188,969    |                |  |   | 150,858                      |  |  |                                   |       |   |                                   |   | —       |                                                | 
|                                    |  |                                   |  |                          |  |                         |  |              |         |  |      |   | 188,969    |                |  |   | 150,858                      |  |  |                                   | 1.50  | % |                                   |   | —       |                                                | 
|Healthcare                          |  |                                   |  |                          |  |                         |  |              |         |  |      |   |            |                |  |   |                              |  |  |                                   |       |   |                                   |   |         |                                                | 
|Reshape
    Life Sciences Inc.      |  | Warrants (8)                      |  | n/a                      |  | 8/16/2024               |  |              | 67,860  |  |      |   | 679        |                |  |   | —                            |  |  |                                   |       |   |                                   |   | —       |                                                | 
|                                    |  |                                   |  |                          |  |                         |  |              |         |  |      |   | 679        |                |  |   | —                            |  |  |                                   | 0.00  | % |                                   |   | —       |                                                | 
|Information
    Technology          |  |                                   |  |                          |  |                         |  |              |         |  |      |   |            |                |  |   |                              |  |  |                                   |       |   |                                   |   |         |                                                | 
|Kwikbit
    Inc. (fka MAX 4G)       |  | Preferred Stock (8)               |  | n/a                      |  | n/a                     |  |              | 300,000 |  |      |   | 150,000    |                |  |   | 300,000                      |  |  |                                   |       |   |                                   |   | 150,000 |                                                | 
|                                    |  |                                   |  |                          |  |                         |  |              |         |  |      |   | 150,000    |                |  |   | 300,000                      |  |  |                                   | 2.98  | % |                                   |   | 150,000 |                                                | 
|Leisure
    & Hospitality           |  |                                   |  |                          |  |                         |  |              |         |  |      |   |            |                |  |   |                              |  |  |                                   |       |   |                                   |   |         |                                                | 
|DBR
    Enclave US Investors, LLC   |  | LLC Units                         |  | n/a                      |  | n/a                     |  |              | 369,200 |  |      |   | 369,200    |                |  |   | 369,200                      |  |  |                                   |       |   |                                   |   | —       |                                                | 
|                                    |  |                                   |  |                          |  |                         |  |              |         |  |      |   | 369,200    |                |  |   | 369,200                      |  |  |                                   | 3.67  | % |                                   |   | —       |                                                | 
|Oil &
    Gas                       |  |                                   |  |                          |  |                         |  |              |         |  |      |   |            |                |  |   |                              |  |  |                                   |       |   |                                   |   |         |                                                | 
|Northern
    Capital Partners I, LP |  | Limited Partnership Units
    (8) |  | n/a                      |  | n/a                     |  |              | 550,000 |  |      |   | 550,000    |                |  |   | 150,000                      |  |  |                                   |       |   |                                   |   | —       |                                                | 
|                                    |  |                                   |  |                          |  |                         |  |              |         |  |      |   | 550,000    |                |  |   | 150,000                      |  |  |                                   | 1.49  | % |                                   |   | —       |                                                | 
|Publishing                          |  |                                   |  |                          |  |                         |  |              |         |  |      |   |            |                |  |   |                              |  |  |                                   |       |   |                                   |   |         |                                                | 
|Educational
    Development Corp.   |  | Common Stock                      |  | n/a                      |  | n/a                     |  |              | 122,304 |  |      |   | 616,503    |                |  |   | 755,839                      |  |  |                                   | 7.50  | % |                                   |   | 150,106 |                                                | 
|                                    |  |                                   |  |                          |  |                         |  |              |         |  |      |   |            |                |  |   |                              |  |  |                                   |       |   |                                   |   |         |                                                | 
|                                    |  |                                   |  |                          |  |                         |  |              |         |  |      |   |            |                |  |   |                              |  |  |                                   |       |   |                                   |   |         |                                                | 
|Total
    Equity Investments        |  |                                   |  |                          |  |                         |  |              |         |  |      |   | 1,976,370  |                |  |   | 1,740,897                    |  |  |                                   | 17.29 | % |                                   |   | 300,106 |                                                | 
|                                    |  |                                   |  |                          |  |                         |  |              |         |  |      |   |            |                |  |   |                              |  |  |                                   |       |   |                                   |   |         |                                                | 
|Total
    Cash                      |  |                                   |  |                          |  |                         |  |              |         |  |      |   | 8,066,656  |                |  |   | 8,066,656                    |  |  |                                   | 80.12 | % |                                   |   | —       |                                                | 
|Total
    Investments and Cash      |  |                                   |  |                          |  |                         |  |              |         |  |      | $ | 10,043,026 |                |  | $ | 9,807,553                    |  |  |                                   | 97.41 | % |                                   | $ | 300,106 |                                                | 








- 9 -




|(1) | All investments and all cash, restricted
    cash and cash equivalents are “qualifying assets” under Section 55(a) of the Investment Company Act of 1940 unless
    indicated to the contrary in the table or by footnote.
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(2) | Interest is presented on a per annum basis.                                                                                                                                                                               
|(5) | In the case of warrants, warrants provide for
    the right to purchase common equity of the issuer.                                                                                                                      
|(6) | In the case of preferred stock, this represents
    the right to annual cumulative dividends calculated on a per annum basis.                                                                                             
|(7) | In the case of warrants, purchase rights under
    the warrants will expire at the close of business on this date.                                                                                                        
|(8) | Investment is not an income-producing investment.                                                                                                                                                                         
|    | At December 31, 2019, aggregate non-qualifying
    assets represented approximately 0.9% of our total assets.                                                                                                             
|    | At December 31, 2019, the estimated net unrealized
    loss for federal tax purposes was $58,586, based on a tax cost basis of $1,799,483.                                                                                
|    | At December 31, 2019, the estimated aggregate
    gross unrealized gain for federal income tax purposes was $300,106 and the estimated aggregate gross unrealized loss for federal
    income tax purposes was $358,692   








- 10 -






MILL CITY VENTURES III, LTD.

NOTES TO CONDENSED FINANCIAL STATEMENTS
(UNAUDITED)

June 30, 2020



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



Because we operated as
a BDC or investment company from 2013 through December 27, 2019, the comparative financial statements for the periods during or
ending on December 31, 2019 in this report reflect our operations as a business development company, or “BDC,” under
the Investment Company Act of 1940 (the “1940 Act”). During that time, we were primarily focused on investing in or
lending to privately held and small capitalization publicly traded U.S. companies, and making managerial assistance available
to such companies. A majority of our investments by dollar amount were structured as purchases of preferred or common stock or
loans evidenced by promissory notes that may have been convertible into stock by their terms or that may have been accompanied
by the issuance to us of warrants or similar rights to purchase stock. Our investment objective was to generate income and capital
appreciation that ultimately became realized gains.



NOTE 2 – SIGNIFICANT ACCOUNTING
POLICIES



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



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



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



Cash deposits: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 were measured at fair value as
determined by the Valuation Committee of our Board of Directors based on, among other things, the input of our executive management,
the Audit Committee of our Board of Directors, and any independent third-party valuation experts that may have been engaged by
management to assist in the valuation of our portfolio investments, but in all cases consistent with our written valuation policies
and procedures.








- 11 -




MILL CITY VENTURES III, LTD.

NOTES TO CONDENSED FINANCIAL STATEMENTS
(UNAUDITED)

June 30, 2020



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



Income taxes: Due
to our change in business model, we now account for income taxes under the asset and liability method, which requires the recognition
of deferred tax assets and liabilities for the expected future tax consequences of events that have been included in the financial
statements.   Deferred tax assets and liabilities are recognized for the expected future tax consequences of temporary
differences between the financial statement carrying amount and tax basis of assets and liabilities using enacted tax rates in
effect for the year in which the differences are expected to reverse. The effect of a change in tax rates on deferred tax assets
and liabilities is recognized in income in the period that includes the enactment date.



We record net deferred tax assets to the
extent we believe these assets will more likely than not be realized. In making such determination, we considers all available
evidence, including future reversals of existing taxable temporary differences, projected future taxable income, tax planning
strategies and recent financial operations. In the event we were to determine we would be able to realize our deferred income
tax assets in the future in excess of their recorded amount, we would make an adjustment to the valuation allowance, which would
reduce the provision for income taxes.



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



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



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



Interest income, adjusted
for amortization of premiums and accretion of discounts, is recorded on an accrual basis. Discounts from and premiums to par value
on securities purchased are accreted or amortized, as applicable, into interest income over the life of the related security using
the effective-yield method. The amortized cost of investments represents the original cost, adjusted for the accretion of discounts
and amortization of premiums, if any. Loans are generally placed on non-accrual status when principal or interest payments are
past due 30 days or more, or when there is reasonable doubt that principal or interest will be collected in full. Loan origination
fees are recognized when loans are issued. Accrued and unpaid interest is generally reversed when a loan is placed on non-accrual
status. Interest payments received on non-accrual loans may be recognized as income or applied to principal depending upon management’s
judgment regarding collectability. Non-accrual loans are restored to accrual status when past-due principal and interest is paid
and, in management’s judgment, are likely to remain current. We may make exceptions to the policy described above if a loan
has sufficient collateral value and is in the process of collection.



Dividend income on preferred
equity securities is recorded as dividend income on an accrual basis to the extent that such amounts are payable by the portfolio
company and are expected to be collected. Dividend income on common equity securities is recorded on the record date for private
portfolio companies or on the ex-dividend date for publicly traded portfolio companies.



Certain investments may
have contractual payment-in-kind (“PIK”) interest or dividends. PIK represents accrued 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.








- 12 -




MILL CITY VENTURES III, LTD.

NOTES TO CONDENSED FINANCIAL STATEMENTS (UNAUDITED)

June 30, 2020



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.



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.



Recently adopted
accounting pronouncements:In August 2018, the FASB issued ASU No. 2018-13, Disclosure Framework – Changes to the
Disclosure Requirements for Fair Value Measurement. This ASU removes, modifies and adds certain disclosure requirements for fair
value measurements. Among other changes, entities will no longer be required to disclose the amount of and reasons for transfers
between Level 1 and Level 2 of the fair value hierarchy, the policy for timing of transfers between levels and the valuation processes
for Level 3 fair value measurements, but will be required to disclose the range and weighted average of significant observable
inputs used to develop Level 3 fair value measurements held at the end of the reporting period. The amendments in this ASU are
effective for all entities for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2019.
Early adoption is permitted upon issuance of the ASU. The adoption of the ASU effective January 1, 2020 did not have a material
impact on our financial statements.



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, 2020 (together with the corresponding
percentage of the fair value of our total portfolio of investments):



|                             |  | As
    of June 30, 2020               |          
|---------------------------- |  | ------------------------------------- | ---------
|                             |  | Investments
    at
    Amortized Cost |          
|Short-term Non-banking Loans |  | $                                     | 4,139,000
|Preferred Stock              |  |                                       | 150,000  
|Common Stock                 |  |                                       | 1,968,828
|Warrants                     |  |                                       | 679      
|Other Equity                 |  |                                       | 942,059  
|Total                        |  | $                                     | 7,200,566



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



|                |  | As
    of December 31, 2019       |          
|--------------- |  | --------------------------------- | ---------
|                |  | Investments
    at Amortized Cost |          
|Preferred Stock |  | $                                 | 150,000  
|Common Stock    |  |                                   | 805,472  
|Warrants        |  |                                   | 679      
|Other Equity    |  |                                   | 1,020,219
|Total           |  | $                                 | 1,976,370








- 13 -




MILL CITY VENTURES III, LTD.

NOTES TO CONDENSED FINANCIAL STATEMENTS (UNAUDITED)

June 30, 2020



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



|                       |  | As
    of June 30, 2020        |          
|---------------------- |  | ------------------------------ | ---------
|                       |  | Investments
    at  Fair Value |          
|Consumer               |  | $                              | 2,150,000
|Financial              |  |                                | 500,000  
|Information Technology |  |                                | 300,000  
|Leisure & Hospitality  |  |                                | 291,040  
|Oil & Gas              |  |                                | —        
|Publishing             |  |                                | 424,348  
|Real Estate            |  |                                | 3,262,300
|Total                  |  | $                              | 6,927,688



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



|                       |  | As
    of December 31, 2019    |          
|---------------------- |  | ------------------------------ | ---------
|                       |  | Investments
    at  Fair Value |          
|Consumer               |  | $                              | 15,000   
|Financial              |  |                                | 150,858  
|Information Technology |  |                                | 300,000  
|Leisure & Hospitality  |  |                                | 369,200  
|Oil & Gas              |  |                                | 150,000  
|Publishing             |  |                                | 755,839  
|Total                  |  | $                              | 1,740,897



We do not “control,” and we are not an “affiliate”
of (as each of those terms is defined in the 1940 Act), any of our portfolio companies as of June 30, 2020.



NOTE 4 – FAIR VALUE OF FINANCIAL INSTRUMENTS



General information: Accounting
guidance establishes a hierarchal disclosure framework that prioritizes and ranks the level of market price observability of inputs
used in measuring investments at fair value. Observable inputs must be used when available. Observable inputs are inputs that
market participants would use in valuing the asset or liability based on market data obtained from independent sources. Unobservable
inputs are inputs that reflect our assumptions about the factors market participants would use in valuing the asset or liability
based upon the best information available. Assets and liabilities measured at fair value are to be categorized into one of the
three hierarchy levels based on the relative observability of inputs used in the valuation. The three levels are defined as follows:



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



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



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



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 June
30, 2020 may differ materially from values that would have been used had a readily available market for the securities existed.








- 14 -




MILL CITY VENTURES III, LTD.

NOTES TO CONDENSED FINANCIAL STATEMENTS (UNAUDITED)

June 30, 2020



The following table presents the fair
value measurements of our portfolio investments by major class, as of June 30, 2020, according to the fair value hierarchy:



|                             |  | As
    of June 30, 2020 |        
|---------------------------- |  | ----------------------- | -------
|                             |  | Level
    1             |        
|Short-term Non-banking Loans |  | $                       | —      
|Preferred Stock              |  |                         |        
|Common Stock                 |  |                         | 447,648
|Warrants                     |  |                         | —      
|Other Equity                 |  |                         | —      
|Total                        |  | $                       | 447,648



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



|                |  | As
    of December 31, 2019 |        
|--------------- |  | --------------------------- | -------
|                |  | Level
    1                 |        
|Preferred Stock |  | $                           | —      
|Common Stock    |  |                             | 906,697
|Warrants        |  |                             | —      
|Other Equity    |  |                             | —      
|Total           |  | $                           | 906,697



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,
2020:



|                                        |  | For
    the six months ended June 30, 2020 |           |   |                     |  
|--------------------------------------- |  | ------------------------------------------ | --------- | - | ------------------- | -
|                                        |  | ST
    Non-banking
    Loans               |           |   | Preferred
    Stock |  
|Balance as of January 1, 2020           |  | $                                          | —         |   |                     | $
|Net change in unrealized depreciation   |  |                                            | —         |   |                     |  
|Purchases and other adjustments to cost |  |                                            | 4,393,000 |   |                     |  
|Sales and redemptions                   |  |                                            | (254,000  | ) |                     |  
|Net realized gain (loss)                |  |                                            | —         |   |                     |  
|Balance as of June 30, 2020             |  | $                                          | 4,139,000 |   |                     | $



The net change in unrealized depreciation
for the six months ended June 30, 2020 attributable to Level 3 portfolio investments still held as of June 30, 2020 is $165,000.



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



|Security
    Type        |   | 6/30/20
    FMV | Valuation
    Technique                             | Unobservable
    Inputs                                                                    | Range                   
|------------------------ | - | --------------- | --------------------------------------------------- | ------------------------------------------------------------------------------------------ | ------------------------
|ST
    Non-banking Loans | $ | 4,139,000       | discounted
    cash flow                            | market
    rate for similar debt                                                           | 14-16%                  
|Other
    Equity         |   | 291,040         | last
    secured funding known by company           | economic
    changes since purchase                                                        | 14-16%                  
|                         |   | —               | illiquidity
    of company                          | economic
    changes since last funding                                                    |                         
|                         |   | —               | discounted
    cash flow
    illiquidity of company | cash
    flow based on oil market price per barrel
    economic changes since last funding | $20
    - $40 per barrel
|Preferred
    Stock      |   | 300,000         | last
    funding secured by company                 | economic
    changes since last funding                                                    |                         
|                         | $ | 4,730,040       |                                                     |                                                                                            |                         








- 15 -




MILL CITY VENTURES III, LTD.

NOTES TO CONDENSED FINANCIAL STATEMENTS (UNAUDITED)

June 30, 2020



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



|                                                     |  | For
    the year ended December 31, 2019 |          
|---------------------------------------------------- |  | ---------------------------------------- | ---------
|                                                     |  | Preferred
    Stock                      |          
|Balance as of January 1, 2019                        |  | $                                        | 1,014,258
|Net change in unrealized appreciation (depreciation) |  |                                          | 12,478   
|Purchases and other adjustments to cost              |  |                                          | —        
|Sales and redemptions                                |  |                                          | (726,691 
|Net realized gain (loss)                             |  |                                          | (45      
|Balance as of December 31, 2019                      |  | $                                        | 300,000  



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



The following table lists our Level 3
investments held as of December 31, 2019 and the unobservable inputs used to determine their valuation:



|Security
    Type   |   | 12/31/19
    FMV | Valuation
    Technique                   | Unobservable
    Inputs                            | Range                   
|------------------- | - | ---------------- | ----------------------------------------- | -------------------------------------------------- | ------------------------
|Other
    Equity    | $ | 384,200          | last
    secured funding known by company | economic
    changes since last funding            |                         
|                    |   | 150,000          | discounted
    cash flow                  | cash
    flow based on oil market price per barrel | $35
    - $45 per barrel
|Preferred
    Stock |   | 300,000          | last
    funding secured by company       | economic
    changes since last funding            |                         
|                    | $ | 834,200          |                                           |                                                    |                         



NOTE 5 – RELATED-PARTY TRANSACTIONS



From time to time we may hold investments
in portfolio companies in which certain members of our management, our Board of Directors, or significant shareholders of ours,
are also directly or indirectly invested. Our Board of Directors has adopted a policy to require our disclosure of these instances
in our periodic filings with the SEC. Our related-party transactions requiring disclosure under this policy are:



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



| | · | On
                                         August 10, 2018, we entered into a loan transaction with a shareholder and her spouse
                                         who own approximately 1,500,000 shares of our common stock. In the transaction, we obtained
                                         a two-year promissory note in the principal amount of $250,000. The promissory note bears
                                         interest payable monthly at the rate of 10% per annum. The note is secured by the debtors
                                         pledge to us of 625,000 shares of our common stock. The pledged shares are held
                                         in physical custody for us by our custodial agent Milliennium Trust Company.
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------








- 16 -






MILL CITY VENTURES III, LTD.

NOTES TO CONDENSED FINANCIAL STATEMENTS (UNAUDITED)

June 30, 2020



NOTE 6 – INCOME TAXES



Prior to December 27, 2019, before we
withdrew our election to be treated as a BDC, we planned to be taxed as a regulated investment company (RIC). Compliance with
the requirements of the Internal Revenue Code applicable to RICs required us to distribute at least 90% of our investment company
taxable income to shareholders. Our intention was to distribute (or retain through a deemed distribution) all of our investment
company taxable income and net capital gain, therefore we have made no provision for income taxes prior to December 27, 2019.
Ultimately, we never elected to be a RIC. As of December 27, 2019 we are a C-Corporation for tax purposes. Income taxes as of
June 30, 2020 are described below.



As of June 30, 2020 and December
31, 2019, we maintained a full valuation allowance against its net deferred tax assets of $433,771 and $446,000, respectively.
Our determination of the realizable deferred tax assets requires the exercise of significant judgment, based in part on business
plans and expectations about future outcomes. In the event the actual results differ from these estimates in future periods, we
may need to adjust the valuation allowance, which could materially impact our financial position and results of operations. We
will continue to assess the need for a valuation allowance in future periods. Because of the full valuation allowance, our effective
tax rate is expected to be near 0% and therefore the income tax expense is not material for any period presented.



As of June 30, 2020, we had a federal
NOL of approximately$322,147. The federal NOL may be carried forward to offset future
taxable income, subject to applicable provisions of the Internal Revenue Code (the "Code"). Certain NOLs will expire
in years 2036 and 2037. Due to tax reform enacted in 2017, NOLs created after 2017 carry forward indefinitely. The estimated
federal NOL that does not expire included in the total above is $356,000. States may vary in their treatment of post 2017 NOLs.
We have state NOL carryforwards arising from both combined and separate filings. The state NOL carryforwards may expire in 2036
and 2037.



NOTE 7 – SHAREHOLDERS’ EQUITY



At June 30, 2020, we had 10,696,735 shares of common stock
issued and outstanding.



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

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

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



NOTE 8 – PER-SHARE INFORMATION



Basic net gain 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. 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, |           
|------------------------------------------------------------------------------- |  | --------------------------------------- | ----------
|                                                                                |  | 2020                                    |           
|Numerator:  Net Increase (Decrease) in Net Assets Resulting
    from Operations |  | $                                       | 593,370   
|Denominator:  Weighted-average number of common shares outstanding              |  |                                         | 10,882,039
|Basic and diluted net gain (loss) per common share                              |  | $                                       | 0.05      



|                                                                                |  | For
    the Six Months Ended June 30, |           
|------------------------------------------------------------------------------- |  | ------------------------------------- | ----------
|                                                                                |  | 2020                                  |           
|Numerator:  Net Increase (Decrease) in Net Assets Resulting
    from Operations |  | $                                     | 311,452   
|Denominator:  Weighted-average number of common shares outstanding              |  |                                       | 10,974,721
|Basic and diluted net gain (loss) per common share                              |  | $                                     | 0.03      



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








- 17 -




MILL CITY VENTURES III, LTD.

NOTES TO CONDENSED FINANCIAL STATEMENTS (UNAUDITED)

June 30, 2020



NOTE 9 – OPERATING LEASES



On January 1, 2019 we adopted ASU No.
2016-2, Leases (Topic 842), and its amendments and elected the effective date transition method. We are subject to two non-cancelable
operating leases for office space expiring March 31, 2022. These leases do not have significant lease escalations, holidays, concessions,
leasehold improvements, or other build-out clauses. Further, the leases do not contain contingent rent provisions. The leases
do not include options to renew.



Because our lease does not provide an
implicit rate, we use our incremental borrowing rate in determining the present value of the lease payments. The incremental borrowing
rate represents an estimate of the interest rate we would incur at lease commencement to borrow an amount equal to the lease payments
on a collateralized basis over the term of a lease. The weighted average discount rate as of December 31, 2019 was 4.5% and the
weighted average remaining lease term is 2 years.



Under ASC 840, rent expense for office
facilities for the three and six months ended June 30, 2020 was $16,569 and $33,131, respectively. Rent expense for office facilities
for the three and six months ended June 30, 2019 was $16,385 and $40,866, respectively.



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



|                      |  | Three-Months      |        |  | Six-Months        |  
|--------------------- |  | ----------------- | ------ |  | ----------------- | -
|                      |  | Ended             |        |  | Ended             |  
|                      |  | June 30,
    2020 |        |  | June 30,
    2020 |  
|Operating lease costs |  | $                 | 4,779  |  |                   | $
|Variable lease cost   |  |                   | 4,357  |  |                   |  
|Short-term lease cost |  |                   | 7,433  |  |                   |  
|Total                 |  | $                 | 16,569 |  |                   | $



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



|Long-term Lease Maturity Schedule  |  |   |       
|---------------------------------- |  | - | ------
|2020                               |  | $ | 10,275
|2021                               |  |   | 21,162
|2022                               |  |   | 5,449 
|Total lease payments               |  |   | 36,886
|Less: interest                     |  |   | (1,262
|Present value of lease liabilities |  | $ | 35,624








- 18 -




MILL CITY VENTURES III, LTD.

NOTES TO CONDENSED FINANCIAL STATEMENTS (UNAUDITED)

June 30, 2020



NOTE 10 – FINANCIAL HIGHLIGHTS



The following is a schedule of financial highlights for the
six months ended June 30, 2020 through 2016:



|                                                                |  | Six Months Ended |           
|--------------------------------------------------------------- |  | ---------------- | ----------
|                                                                |  | June 30, 2020    |           
|Per Share Data (1)                                              |  |                  |           
|Net asset value at beginning of period                          |  | $                | 0.91      
|Net investment income (loss)                                    |  |                  | 0.01      
|Net realized and unrealized gains (losses)                      |  |                  | 0.02      
|Repurchase of common stock                                      |  |                  | 0.02      
|Payment of common stock dividend                                |  |                  | —         
|Net asset value at end of period                                |  | $                | 0.96      
|                                                                |  |                  |           
|Ratio / Supplemental Data                                       |  |                  |           
|Per share market value of investments at end of period          |  | $                | 0.65      
|Shares outstanding at end of period                             |  |                  | 10,696,735
|Average weighted shares outstanding for the period              |  |                  | 10,974,721
|Net assets at end of period                                     |  | $                | 10,221,718
|Average net assets (2)                                          |  | $                | 10,025,622
|Total investment return                                         |  |                  | 3.30      
|Portfolio turnover rate (3)                                     |  |                  | 11.90     
|Ratio of operating expenses to average net assets (3)           |  |                  | (9.41     
|Ratio of net investment income (loss) to average net assets (3) |  |                  | 3.02      
|Ratio of realized gains (losses) to average net assets (3)      |  |                  | 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 11 – General Uncertainty

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








- 19 -






|ITEM 2. | MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
|------- | -------------------------------------------------------------------------------------



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



| | · | Overview                                                                  
| | - | --------------------------------------------------------------------------
| | · | Portfolio and
                                         Investment Activity
| | · | Results of
                                         Operations            
| | · | Financial Condition                                                       
| | · | Critical Accounting
                                         Estimates    
| | · | Off-Balance
                                         Sheet Arrangements   
| | · | Forward Looking
                                         Statements       



OVERVIEW



OVERVIEW



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



We provide non-bank lending and specialty
finance to companies and individuals on both a secured and unsecured basis. The loans we provide typically have maturities that
range from 9 to 12 months and may involve a pledge of collateral or, in the case of loans made to companies, personal guarantees
by the principals of the borrower. Our loans may be made for real estate acquisitions, renovation and sale; other real estate
projects; title loans; cash inventory needs; inventory financing, or for other purposes. We intend to remain opportunistic, however,
and may engage in transactions that involve other rights (such as stock, warrants or other equity-linked investments) or that
are structured differently or uniquely. Our business objective is to generate revenues from the interest and fees we charge, and
capital appreciation from any related investments we make.



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



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



PORTFOLIO AND INVESTMENT ACTIVITY



During the six months ended June 30, 2020,
we made $6,217,296 of investments in portfolio companies and had $1,192,824 of redemptions and repayments, resulting in net investments
at amortized cost of $7,200,566 at the end of the period.



During the six months ended June 30, 2019,
we made $875,160 of investments in portfolio companies and had $3,380,422 of redemptions and repayments, resulting in net investments
at amortized cost of $7,555,775 at the end of the period.



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



|                             |  | Investments
    at Fair Value |           |  | Percentage
    of Fair Value | 
|---------------------------- |  | ----------------------------- | --------- |  | ---------------------------- | 
|Short-term Non-banking Loans |  | $                             | 4,139,000 |  |                              | 
|Equity/Other                 |  |                               | 2,788,688 |  |                              | 
|Total                        |  | $                             | 6,927,688 |  |                              | 








- 20 -




RESULTS OF OPERATIONS



Our operating results for the three and
six months ended June 30, 2020 and June 30, 2020 were as follows:



|                           |  | For the three
    months ended
    June 30, |         |  | For the six
    months ended
    June 30, |  
|-------------------------- |  | ------------------------------------------- | ------- |  | ----------------------------------------- | -
|                           |  | 2020                                        |         |  | 2019                                      |  
|Total investment income    |  | $                                           | 283,456 |  |                                           | $
|Total expenses             |  |                                             | 213,910 |  |                                           |  
|Net investment gain (loss) |  | $                                           | 69,546  |  |                                           | $



Investment Income



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



For the three and six months ended June
30, 2020, our total investment income was $283,456 and $468,435, For the three and six months ended June 30, 2019, our total investment
income was $42,949 and $82,368. The increase is due to the change in our business structure which now focuses on short-term non-bank
lending. Our loan portfolio generates interest income, with an average rate on the loans of 15%.



Professional Fees



For the three and six months ended June
30, 2020, we had $90,529 and $74,297 professional fees expense, respectively. For the three and six months ended June 30, 2019,
we had $46,743 and $98,839 professional fees expense, respectively The decrease is due to a refund received during the first quarter
of $59,957 which related to expenses incurred during 2018 and 2019.



Net Realized Gain from Investments



For the three and six months ended June
30, 2020, we had $971,044 and $1,192,824, respectively, of sales of investments, resulting in $175,222 and $199,724, respectively,
of realized gains. For the three and six months ended June 30, 2019, we had $573,844 and $3,380,422, respectively, of sales of
investments, resulting in $31,364 and $3,102,210, respectively, of realized gains, due primarily to the acquisition of our holding
in BiteSquad LLC by Waitr Holdings.



Net Change in Unrealized Appreciation
(Depreciation) on Investments



For the three and six months ended June
30, 2020, our investments had $348,602 of unrealized appreciation and $37,405 of unrealized depreciation, respectively. For the
three and six months ended June 30, 2019, our investments had $1,093,861 and $2,842,121, of unrealized depreciation, respectively.



Changes in Net Assets from Operations



For the three and six months ended June
30, 2020, we recorded a net increase in net assets from operations of $593,370 and $311,452, respectively. Based on the weighted-average
number of shares of common stock outstanding for the three and six months ended June 30, 2020, our per-share net increase in net
assets from operations was $0.05 and $0.03, respectively. For the three and six months ended June 30, 2019, we recorded a net
decrease in net assets from operations of $1,301,499 and $136,830, respectively. Based on the weighted-average number of shares
of common stock outstanding for the three and six months ended June 30, 2019, our per-share net decrease in net assets from operations
was $0.12 and $0.01, respectively.



Cash Flows for the Six Months Ended
June 30, 2020 and 2019



The level of cash flows used in or provided
by operating activities is affected by the purchases of investments, redemptions and repayments of portfolio investments, among
other factors. For the six months ended June 30, 2020, net cash used in operating activities was $3,457,399. Cash flows used in
operating activities for the six months ended June 30, 2020 were primarily related to purchases of investments of $6,217,296,
offset mostly by redemptions and repayments of investments totaling $1,192,824. For the six months ended June 30, 2019, net cash
provided in operating activities was $1,982,411. Cash flows provided in operating activities for the six months ended June 30,
2019 were primarily related to redemptions and repayments of investments of $3,380,422, offset mostly by purchases of investments
totaling $875,160.








- 21 -




FINANCIAL CONDITION



As of June 30, 2020, we had cash of $4,450,990,
a decrease of $3,615,666 from December 31, 2019. The primary use of our existing funds and any funds raised in the future is expected
to be for our investments in portfolio companies, cash distributions to our shareholders or for other general corporate purposes,
including paying for operating expenses or debt service to the extent we borrow or issue senior securities. Pending investment
in portfolio companies, our investments may consist of cash, cash equivalents, U.S. government securities or high quality debt
securities maturing in one year or less from the time of investment, which we refer to collectively as “temporary investments.”



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



RELATED-PARTY TRANSACTIONS



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



CRITICAL ACCOUNTING ESTIMATES



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



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



OFF-BALANCE-SHEET ARRANGEMENTS



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



FORWARD-LOOKING STATEMENTS



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



| | · | our future
                                         operating results;
| | - | ----------------------------------------------------------------------








- 22 -




| | · | our business
                                         prospects and the prospects of our portfolio companies;
| | - | -------------------------------------------------------------------------------------------------------------

| | · | the success
                                         of our investments;
| | - | ------------------------------------------------------------------------

| | · | our relationships
                                         with third parties;
| | - | ------------------------------------------------------------------------------

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

| | · | the ability
                                         of our portfolio companies to achieve their objectives;
| | - | ------------------------------------------------------------------------------------------------------------

| | · | our expected
                                         financings and investments;
| | - | ---------------------------------------------------------------------------------

| | · | our regulatory
                                         structure and tax treatment;
| | - | ------------------------------------------------------------------------------------

| | · | the adequacy
                                         of our cash resources and working capital; and
| | - | ----------------------------------------------------------------------------------------------------

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



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



| | ITEM 4. | CONTROLS AND PROCEDURES
| | ------- | -----------------------



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



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



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








- 23 -




PART II. OTHER INFORMATION



|ITEM 6. | EXHIBITS
|------- | --------



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








* Filed herewith



SIGNATURES



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



|                    |     | MILL CITY VENTURES III, LTD.
|------------------- | --- | ----------------------------
|                    |    
|Date: July 31, 2020 | By: | /s/ Douglas M.
    Polinsky 
|                    |     | Douglas M. Polinsky         
|                    |     | Chief Executive Officer     
|                    |    
|Date: July 31, 2020 | By: | /s/ Joseph A. Geraci,
    II
|                    |     | Joseph A. Geraci, II        
|                    |     | Chief Financial Officer