Advanced Flower Capital Inc. 10-Q

Item 1. Financial Statements AFC GAMMA, INC. CONSOLIDATED BALANCE SHEETS As of September 30, 2021 December 31, 2020 (unaudited) Assets Loans held for investment at fair value (cost of $ 73,934,116 and $ 46,994,711 at September 30, 2021 and December 31, 2020, respectively, net) $ 76,293,824 $ 48,558,051 Loans held for investment at carrying value 153,161,781 31,837,031 Loan receivable at carrying value 2,774,455 3,348,263 Current expected credit loss reserve ( 1,145,629 ) ( 404,860 ) Loans held for investment at carrying value and loan receivable at carrying value, net of current expected credit loss reserve 154,790,607 34,780,434 Cash and cash equivalents 69,974,391 9,623,820 Interest receivable 2,434,719 927,292 Prepaid expenses and other assets 391,235 72,095 Total assets $ 303,884,776 $ 93,961,692 Liabilities Interest reserve $ 8,254,295 $ 1,325,750 Due to affiliate 9,550,625 - Dividends payable 7,070,409 - Current expected credit loss reserve 692,266 60,537 Accrued management and incentive fees 2,542,935 222,127 Accrued direct administrative expenses 846,711 550,671 Accounts payable and other liabilities 520,591 154,895 Total liabilities 29,477,832 2,313,980 Commitments and contingencies (Note 10) Stockholders’ Equity Preferred stock, par value $ 0.01 per share, 10,000 shares authorized at September 30, 2021 and December 31, 2020 and 125 shares issued and outstanding at September 30, 2021 and December 31, 2020, respectively 1 1 Common stock, par value $ 0.01 per share, 25,000,000 and 15,000,000 shares authorized at September 30, 2021 and December 31, 2020, respectively, and 16,442,812 and 6,179,392 shares issued and outstanding at September 30, 2021 and December 31, 2020, respectively 163,866 61,794 Additional paid-in-capital 274,148,323 91,068,197 Accumulated earnings 94,754 517,720 Total stockholders’ equity 274,406,944 91,647,712 Total liabilities and stockholders’ equity $ 303,884,776 $ 93,961,692 (See accompanying notes to the consolidated financial statements) 1 Index AFC GAMMA, INC. CONSOLIDATED STATEMENTS OF OPERATIONS For the three months ended September 30, 2021 Period from July 31, 2020 to September 30, 2020 For the nine months ended September 30, 2021 Period from July 31, 2020 to September 30, 2020 (unaudited) (unaudited) Revenue Interest income $ 10,616,538 $ 1,594,769 $ 24,050,062 $ 1,594,769 Total revenue 10,616,538 1,594,769 24,050,062 1,594,769 Expenses Management and incentive fees, net (less rebate of $ 256,989 , $ 84,167 , $ 677,439 and $ 84,167 , respectively) 2,542,936 142,067 5,498,469 142,067 General and administrative expenses 858,663 204,262 2,028,046 204,262 Organizational expenses - 616,190 - 616,190 Stock-based compensation 51,429 - 1,662,001 - Professional fees 396,147 89,800 726,194 89,800 Total expenses 3,849,175 1,052,319 9,914,710 1,052,319 Provision for current expected credit losses ( 660,612 ) - ( 1,372,498 ) - Realized gains / (losses) on loans at fair value, net 400,000 - 400,000 - Change in unrealized gains / (losses) on loans at fair value, net 1,423,929 1,563,800 796,368 1,563,800 Net income before income taxes 7,930,680 2,106,250 13,959,222 2,106,250 Income tax expense - - - - Net income $ 7,930,680 $ 2,106,250 $ 13,959,222 $ 2,106,250 Earnings per common share: Basic earnings per common share (in dollars per share) $ 0.48 $ 0.39 $ 1.13 $ 0.39 Diluted earnings per common share (in dollars per share) $ 0.47 $ 0.39 $ 1.10 $ 0.39 Weighted average number of common shares outstanding: Basic weighted average shares of common stock outstanding (in shares) 16,402,984 5,376,411 12,368,977 5,376,411 Diluted weighted average shares of common stock outstanding (in shares) 16,776,648 5,376,411 12,742,641 5,376,411 (See accompanying notes to the consolidated financial statements) 2 Index AFC GAMMA, INC. CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (unaudited) Three months ended September 30, 2021 Preferred Common Stock Additional Paid-In Accumulated Earnings Total Stockholders’ Stock Shares Amount Capital (Deficit) Equity Balance at June 30, 2021 $ 1 16,116,877 $ 161,169 $ 269,061,069 $ ( 765,517 ) $ 268,456,722 Issuance of common stock, net of offering cost - 269,650 2,697 5,035,825 - 5,038,522 Stock-based compensation - 56,285 - 51,429 - 51,429 Dividends declared on common shares ($ 0.43 per share) - - - - ( 7,070,409 ) ( 7,070,409 ) Dividends declared on preferred shares ($ 60 per share) - - - - - - Net income - - - - 7,930,680 7,930,680 Balance at September 30 , 2021 $ 1 16,442,812 $ 163,866 $ 274,148,323 $ 94,754 $ 274,406,944 Period from July 31, 2020 (date of commencement of operations) to September 30, 2020 Preferred Common Stock Additional Paid-In Accumulated Earnings Total Stockholders’ Stock Shares Amount Capital (Deficit) Equity Balance at July 31, 2020 $ - - $ - $ - $ - $ - Issuance of common stock - 5,376,411 53,764 78,695,168 - 78,748,932 Net income - - - - 2,106,250 2,106,250 Balance at September 30 , 2020 $ - 5,376,411 $ 53,764 $ 78,695,168 $ 2,106,250 $ 80,855,182 (See accompanying notes to the consolidated financial statements) 3 Index AFC GAMMA, INC. CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (unaudited) Nine months ended September 30, 2021 Preferred Common Stock Additional Paid-In Accumulated Earnings Total Stockholders’ Stock Shares Amount Capital (Deficit) Equity Balance at December 31, 2020 $ 1 6,179,392 $ 61,794 $ 91,068,197 $ 517,720 $ 91,647,712 Issuance of common stock, net of offering cost - 10,263,420 102,072 181,418,125 - 181,520,197 Stock-based compensation - - - 1,662,001 - 1,662,001 Dividends declared on common shares ($ 1.17 per share) - - - - ( 14,374,688 ) ( 14,374,688 ) Dividends declared on preferred shares ($ 60 per share) - - - - ( 7,500 ) ( 7,500 ) Net income - - - - 13,959,222 13,959,222 Balance at September 30 , 2021 $ 1 16,442,812 $ 163,866 $ 274,148,323 $ 94,754 $ 274,406,944 Period from July 31, 2020 (date of commencement of operations) to September 30, 2020 Preferred Common Stock Additional Paid-In Accumulated Earnings Total Stockholders’ Stock Shares Amount Capital (Deficit) Equity Balance at July 31, 2020 $ - - $ - $ - $ - $ - Issuance of common stock - 5,376,411 53,764 78,695,168 - 78,748,932 Net income - - - - 2,106,250 2,106,250 Balance at September 30 , 2020 $ - 5,376,411 $ 53,764 $ 78,695,168 $ 2,106,250 $ 80,855,182 (See accompanying notes to the consolidated financial statements) 4 Index AFC GAMMA, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS For the nine months ended September 30, 2021 Period from July 31, 2020 to September 30, 2020 Operating activities: (unaudited) Net income $ 13,959,222 $ 2,106,250 Adjustments to reconcile net income to net cash provided by / (used in) operating activities: Provision for current expected credit losses 1,372,498 - Realized gain on sale of loans ( 400,000 ) - Change in unrealized (gains) / losses on loans at fair value, net ( 796,368 ) ( 1,563,800 ) Accretion of deferred loan original issue discount and other discounts ( 4,038,816 ) ( 173,110 ) Stock-based compensation 1,662,001 - PIK interest ( 2,787,847 ) ( 79,707 ) Changes in operating assets and liabilities Interest reserve ( 2,521,923 ) - Interest receivable ( 1,507,427 ) ( 783,673 ) Prepaid expenses and other assets ( 319,140 ) ( 25,029 ) Accrued management and incentive fees, net 2,320,808 142,067 Accrued direct administrative expenses 296,040 202,534 Accounts payable and other liabilities 366,696 118,040 Net cash provided by / (used in) operating activities 7,605,744 ( 56,428 ) Cash flows from investing activities: Issuance of and fundings on loans ( 156,345,116 ) ( 780,000 ) Proceeds from sales of Assigned Rights 2,313,130 - Proceeds from sales of loans 10,400,000 - Principal repayment of loans 22,168,395 137,340 Net cash used in investing activities ( 121,463,591 ) ( 642,660 ) Cash flows from financing activities: Proceeds from sale of common stock 185,501,295 31,946,092 Payment of offering costs ( 3,981,098 ) - Dividends paid ( 7,311,779 ) - Net cash provided by financing activities 174,208,418 31,946,092 Change in cash, cash equivalents and restricted cash 60,350,571 31,247,004 Cash, cash equivalents and restricted cash, beginning of period 9,623,820 - Cash, cash equivalents and restricted cash, end of period $ 69,974,391 $ 31,247,004 Supplemental disclosure of non-cash financing and investing activity Loans acquired for issuance of shares of common stock $ - $ 46,802,840 Interest reserve withheld from funding of loans $ 9,450,468 $ 1,400,000 OID withheld from funding of loans $ 12,391,624 $ 320,000 Loans funded from amounts due to affiliate $ 9,549,625 $ - Supplemental information: Interest paid during the period $ - $ - Income taxes paid during the period $ - $ - (See accompanying notes to the consolidated financial statements) 5 Index AFC GAMMA, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS As of September 30, 2021 (unaudited) 1. ORGANIZATION AFC Gamma, Inc. (the “Company” or “AFCG”) is a commercial real estate finance company primarily engaged in originating, structuring, and underwriting senior secured loans and other types of loans. The Company was formed and commenced operations on July 31, 2020. The Company is a Maryland corporation and completed its initial public offering (the “IPO”) in March 2021. The Company is externally managed by AFC Management, LLC (“AFC Management” or the Company’s “Manager”), a Delaware limited liability company, pursuant to the terms of a management agreement (as amended, the “Management Agreement”). The Company’s wholly owned subsidiary, AFCG TRS1, LLC (“TRS”), was formed under the laws of the State of Delaware on December 31, 2020, and operates as a taxable real estate investment trust (“REIT”) subsidiary. TRS began operating in July 2021, and the financial statements of TRS have been consolidated within the Company’s consolidated financial statements beginning with the quarter ended September 30, 2021. The Company operates as one operating segment and is primarily focused on financing senior secured loans and other types of loans for established cannabis industry operators in states where medical and/or adult use cannabis is legal. These loans are generally held for investment and are secured, directly or indirectly, by real estate, equipment, the value associated with licenses and/or other assets of borrowers depending on the applicable laws and regulations governing such borrowers. The Company has elected to be taxed as a REIT for United States federal income tax purposes under the Internal Revenue Code of 1986, as amended (the “Code”), commencing with its taxable year ended December 31, 2020. The Company generally will not be subject to United States federal income taxes on its REIT taxable income as long as it annually distributes all of its REIT taxable income prior to the deduction for dividends paid to stockholders and complies with various other requirements as a REIT. 2. SIGNIFICANT ACCOUNTING POLICIES The accompanying unaudited interim consolidated financial statements should be read in conjunction with the audited financial statements and the related management’s discussion and analysis of financial condition and results of operations included in the Company’s final prospectus relating to our follow-on public offering filed with the Securities and Exchange Commission (“SEC”) in accordance with Rule 424(b) of the Securities Act of 1933, as amended (the “Securities Act”) on June 24, 2021 (the “Final Prospectus”). Refer to Note 2 to the Company’s financial statements in the Final Prospectus for a description of the Company’s significant accounting policies. The Company has included disclosures below regarding basis of presentation and other accounting policies that (i) are required to be disclosed quarterly, (ii) have material changes or (iii) the Company views as critical as of the date of this report. Basis of Presentation The accompanying unaudited interim consolidated financial statements and related notes have been prepared on the accrual basis of accounting in conformity with United States generally accepted accounting principles (“GAAP”) and in conformity with the rules and regulations of the SEC applicable to interim financial information. These unaudited interim consolidated financial statements reflect all adjustments and reclassifications that, in the opinion of management, are considered necessary for a fair statement of the balance sheets, statements of operations, statements of stockholders’ equity, and statement of cash flows for the periods presented. The current period’s results of operations will not necessarily be indicative of results that ultimately may be achieved for the year ending December 31, 2021. Use of Estimates in the Preparation of Financial Statements The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect certain reported amounts and disclosures. Actual results could differ from those estimates. Significant estimates include the valuation of loans held for investment at fair value. 6 Index Over the course of the coronavirus (“COVID-19”) pandemic, medical cannabis companies have been deemed “essential” by almost all states with legalized cannabis and stay-at-home orders. Consequently, the impact of the COVID-19 pandemic and the related regulatory and private sector response on our financial and operating results for the period ended September 30, 2021 was somewhat mitigated as all of our borrowers were permitted to continue to operate during this pandemic. Regardless, the full extent of the economic impact of the business disruptions caused by COVID-19 is uncertain. The outbreak of COVID-19 has severely impacted global economic activity and caused significant volatility and negative pressure in financial markets. The global impact of the outbreak has been rapidly evolving, and many countries, including the United States, have reacted by instituting quarantines, mandating business and school closures and restricting travel. As a result, the COVID-19 pandemic is negatively impacting almost every industry directly or indirectly, including the regulated cannabis industry. Although most of these measures have been lifted or scaled back, surges of COVID-19 in certain parts of the world, including the United States, have resulted and may in the future result in the re-imposition of certain restrictions and may lead to more restrictions to reduce the spread of COVID-19. The full effect that these disruptions may have on the operations and financial performance of the Company will depend on future developments, including possible impacts on the performance of the Company’s loans, general business activity, and ability to generate revenue, which cannot be determined. Recent Accounting Pronouncements In March 2020, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Updated (“ASU”) No. 2020-04, Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting, which provides optional expedients and exceptions for applying GAAP to contracts, hedging relationships, and other transactions affected by reference rate reform if certain criteria are met. The amendments apply only to contracts, hedging relationships, and other transactions that reference the London Interbank Offered Rate (“LIBOR”) or another reference rate expected to be discontinued because of reference rate reform. ASU No. 2020-04 is effective for all entities as of March 12, 2020 through December 31, 2022. The Company is currently evaluating the impact of adopting this ASU on its financial statements. In January 2021, the FASB issued ASU No. 2021-01, Reference Rate Reform (Topic 848): Scope, which clarifies that certain optional expedients and exceptions in Topic 848 for contract modifications and hedge accounting apply to derivatives that are affected by the discounting transition. ASU No. 2021-01 is effective immediately for all entities. An entity may elect to apply the amendments on a full retrospective basis as of any date from the beginning of an interim period that includes or is subsequent to March 12, 2020, or on a prospective basis to new modifications from any date within an interim period that includes or is subsequent to the date of the issuance of a final update, up to the date that financial statements are available to be issued. If an entity elects to apply any of the amendments for an eligible hedging relationship, any adjustments as a result of those elections must be reflected as of the date the entity applies the election. The amendments do not apply to contract modifications made after December 31, 2022, new hedging relationships entered into after December 31, 2022, and existing hedging relationships evaluated for effectiveness in periods after December 31, 2022, except for hedging relationships existing as of December 31, 2022, that apply certain optional expedients in which the accounting effects are recorded through the end of the hedging relationship (including periods after December 31, 2022). The Company is currently evaluating the impact, if any, of this ASU on its financial statements. In October 2020, the FASB issued ASU No. 2020-08, Codification Improvements to Subtopic 310-20, Receivables-Nonrefundable Fees and Other Costs, which is an update to clarify that an entity should reevaluate whether a callable debt security is within the scope of 310-20-35-33 for each reporting period. ASU No. 2020-08 is effective for public business entities for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2020. Early application is not permitted. For all other entities, the amendments in ASU No. 2020-08 are effective for fiscal years beginning after December 15, 2021, and interim periods within fiscal years beginning after December 15, 2022. Early application is permitted for all other entities for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2020. All entities should apply the amendments in this update on a prospective basis as of the beginning of the period of adoption for existing or newly purchased callable debt securities. The Company adopted this new standard on January 1, 2021. The adoption of this standard did not have a material impact on the Company’s consolidated financial statements. 3. LOANS HELD FOR INVESTMENT AT FAIR VALUE As of September 30, 2021 and December 31, 2020, the Company’s portfolio included three and four loans held at fair value, respectively. The aggregate originated commitment under these loans was approximately $ 75.9 million and $ 59.9 million, respectively, and outstanding principal was approximately $ 77.0 million and $ 50.8 million, respectively, as of September 30, 2021 and December 31, 2020. For the nine months ended September 30, 2021, the Company funded approximately $ 37.7 million of outstanding principal and had repayments of approximately $ 13.1 million. As of September 30, 2021 and December 31, 2020, 0.0 % and approximately 6.0 %, respectively, of the Company’s loans held at fair value have floating interest rates. As of December 31, 2020, these floating rates were subject to LIBOR floors, with a weighted average floor of 2.5 %, calculated based on loans with LIBOR floors. References to LIBOR or “L” are to 30 -day LIBOR (unless otherwise specifically stated). 7 Index The following tables summarize the Company’s loans held at fair value as of September 30, 2021 and December 31, 2020: As of September 30, 2021 Fair Value (2) Carrying Value (1) Outstanding Principal (1) Weighted Average Remaining Life (Years) (3) Senior Term Loans $ 76,293,824 $ 73,934,116 $ 76,995,548 2.5 Total loans held at fair value $ 76,293,824 $ 73,934,116 $ 76,995,548 2.5 As of December 31, 2020 Fair Value (2) Carrying Value (1) Outstanding Principal (1) Weighted Average Remaining Life (Years) (3) Senior Term Loans $ 48,558,051 $ 46,994,711 $ 50,831,235 3.3 Total loans held at fair value $ 48,558,051 $ 46,994,711 $ 50,831,235 3.3 (1) The difference between the Carrying Value and the Outstanding Principal amount of the loans consists of unaccreted purchase discount, deferred loan fees and loan origination costs. (2) Refer to Note 14 to our unaudited consolidated financial statements. (3) Weighted average remaining life is calculated based on the fair value of the loans as of September 30, 2021 and December 31, 2020 . The following table presents changes in loans held at fair value as of and for the nine months ended September 30, 2021 : Principal Original Issue Discount Unrealized Gains/ (Losses) Fair Value Total loans held at fair value at December 31, 2020 $ 50,831,235 $ ( 3,836,524 ) $ 1,563,340 $ 48,558,051 Change in unrealized gains / (losses) on loans at fair value, net - - 796,368 796,368 New fundings 37,701,104 ( 1,130,623 ) - 36,570,481 Loan repayments ( 12,000,000 ) - - ( 12,000,000 ) Loan amortization payments ( 1,093,659 ) - - ( 1,093,659 ) Accretion of original issue discount - 1,905,715 - 1,905,715 PIK interest 1,556,868 - - 1,556,868 Total loans held at fair value at September 30, 2021 $ 76,995,548 $ ( 3,061,432 ) $ 2,359,708 $ 76,293,824 A more detailed listing of the Company’s loans held at fair value portfolio based on information available as of September 30, 2021 is as follows: Collateral Location Collateral Type (8) Fair Value (2) Carrying Value (1) Outstanding Principal (1) Interest Rate Maturity Date (3) Payment Terms (4) Private Co. A AZ, MI, MD, MA C , D $ 62,853,367 $ 60,857,429 $ 63,391,847 16.4 % (5) 5/8/2024 P/I Private Co. B MI C 10,535,737 10,171,757 10,663,701 17.0 % (6) 9/1/2023 P/I Public Co. A NV C 2,904,720 2,904,930 2,940,000 14.0 % (7) 1/26/2023 I/O Total loans held at fair value $ 76,293,824 $ 73,934,116 $ 76,995,548 (1) The difference between the Carrying Value and the Outstanding Principal amount of the loans consists of unaccreted original issue discount (“OID”) and loan origination costs. (2) Refer to Note 14 to our unaudited consolidated financial statements. (3) Certain loans are subject to contractual extension options and may be subject to performance based or other conditions as stipulated in the loan agreement. Actual maturities may differ from contractual maturities stated herein as certain borrowers may have the right to prepay with or without paying a prepayment penalty. The Company may also extend contractual maturities and amend other terms of the loans in connection with loan modifications. (4) I/O = interest-only, P/I = principal and interest. P/I loans may include interest-only periods for a portion of the loan term. (5) Base interest rate of 13 % and payment-in-kind (“PIK”) interest rate of 3.4 % . (6) Base interest rate of 13 % and PIK interest rate of 4 %. (7) Base interest rate of 12 % and PIK interest rate of 2 %. (8) C = Cultivation Facilities, D = Dispensaries. 8 Index 4. LOANS HELD FOR INVESTMENT AT CARRYING VALUE As of September 30, 2021 and December 31, 2020, the Company’s portfolio included 12 and three loans, respectively, held at carrying value. The aggregate originated commitment under these loans was approximately $ 217.0 million and $ 44.0 million, respectively, and outstanding principal was approximately $ 164.4 million and $ 33.9 million, respectively, as of September 30, 2021 and December 31, 2020. For the nine months ended September 30, 2021, the Company funded approximately $ 139.2 million of outstanding principal. As of September 30, 2021 and December 31, 2020, approximately 68 % and 35 %, respectively, of the Company’s loans held at carrying value have floating interest rates. These floating rates are subject to LIBOR floors, with a weighted average floor of 1.0 %, calculated based on loans with LIBOR floors. References to LIBOR or “L” are to 30 -day LIBOR (unless otherwise specifically stated). The following tables summarize the Company’s loans held at carrying value as of September 30, 2021 and December 31, 2020: As of September 30, 2021 Outstanding Principal (1) Original Issue Discount Carrying Value (1) Weighted Average Remaining Life (Years) (2) Senior Term Loans $ 164,361,340 $ ( 11,199,559 ) $ 153,161,781 4.0 Total loans held at carrying value $ 164,361,340 $ ( 11,199,559 ) $ 153,161,781 4.0 As of December 31, 2020 Outstanding Principal (1) Original Issue Discount Carrying Value (1) Weighted Average Remaining Life (Years) (2) Senior Term Loans $ 33,907,763 $ ( 2,070,732 ) $ 31,837,031 4.7 Total loans held at carrying value $ 33,907,763 $ ( 2,070,732 ) $ 31,837,031 4.7 (1) The difference between the Carrying Value and the Outstanding Principal amount of the loans consists of unaccreted original issue discount and loan origination costs. (2) Weighted average remaining life is calculated based on the carrying value of the loans as of September 30, 2021 and December 31, 2020. 9 Index The following table presents changes in loans held at carrying value as of and for the nine months ended September 30, 2021: Principal Original Issue Discount Carrying Value Total loans held at carrying value at December 31, 2020 $ 33,907,763 $ ( 2,070,732 ) $ 31,837,031 New fundings 139,222,598 ( 11,261,001 ) 127,961,597 Accretion of original issue discount - 2,132,174 2,132,174 Realized gain on sale of loans 400,000 - 400,000 Sale of loans ( 10,400,000 ) - ( 10,400,000 ) PIK interest 1,230,979 - 1,230,979 Total loans held at carrying value at September 30, 2021 $ 164,361,340 $ ( 11,199,559 ) $ 153,161,781 A more detailed listing of the Company’s loans held at carrying value portfolio based on information available as of September 30, 2021 is as follows: Collateral Location Collateral Type (4) Outstanding Principal (1) Original Issue Discount Carrying Value (1) Interest Rate Maturity Date (2) Payment Terms (3) Private Co. C PA C , D $ 19,333,872 $ ( 721,311 ) $ 18,612,561 17.0 % (5) 12/1/2025 P/I Sub. of Public Co. D PA C 10,000,000 ( 149,235 ) 9,850,765 12.9 % (6) 12/18/2024 I/O Private Co. D OH, AR D 12,169,041 ( 877,891 ) 11,291,150 15.0 % (7) 1/1/2026 P/I Private Co. E OH C , D 14,220,552 ( 2,782,310 ) 11,438,242 17.0 % (8) 4/1/2026 P/I Private Co. F MO C , D 9,799,658 ( 1,816,803 ) 7,982,855 17.0 % (9) 5/1/2026 P/I Public Co. E MI C 5,000,000 ( 307,143 ) 4,692,857 13.0 % (10) 4/29/2025 P/I Sub. of Private Co. G NJ C , D 42,945,657 ( 2,498,443 ) 40,447,214 14.3 % (11) 5/1/2026 P/I Public Co. F IL, FL, NV, OH, MA, MI, MD,AR, NV, AZ C , D 10,000,000 ( 160,000 ) 9,840,000 9.8 % (12) 5/30/2023 I/O Sub. of Private Co. H IL C 5,781,250 ( 126,790 ) 5,654,460 15.0 % (13) 5/11/2023 I/O Private Co. K MA C , D 7,000,000 ( 763,667 ) 6,236,333 13.0 % (14) 08/03/2026 P/I Private Co. I MD C , D 10,109,310 ( 225,184 ) 9,884,126 15.5 % (15) 8/1/2026 P/I Private Co. J MO C 18,002,000 ( 770,782 ) 17,231,218 15.0 % (16) 09/01/2025 P/I Total loans held at carrying value $ 164,361,340 $ ( 11,199,559 ) $ 153,161,781 (1) The difference between the Carrying Value and the Outstanding Principal amount of the loans consists of unaccreted purchase discount, deferred loan fees and loan origination costs. (2) Certain loans are subject to contractual extension options and may be subject to performance based or other conditions as stipulated in the loan agreement. Actual maturities may differ from contractual maturities stated herein as certain borrowers may have the right to prepay with or without paying a prepayment penalty. The Company may also extend contractual maturities and amend other terms of the loans in connection with loan modifications. (3) I/O = interest-only, P/I = principal and interest. P/I loans may include interest-only periods for a portion of the loan term . (4) C = Cultivation Facilities, D = Dispensaries. (5) Base interest rate of 12.0 % plus LIBOR (LIBOR floor of 1.0 %) and PIK interest rate of 4.0 %. (6) Base interest rate of 12.9 %. (7) Base interest rate of 13.0 % and PIK interest rate of 2.0 % . (8) Base interest rate of 12.0 % plus LIBOR (LIBOR floor of 1.0 %) and PIK interest rate of 4.0 %. (9) Base interest rate of 13.0 % and PIK interest rate of 4.0 %. (10) Base interest rate of 13.0 %. (11) Base interest rate of 11.5 % plus LIBOR (LIBOR floor of 1.0 %) and PIK interest rate of 1.8 %. (12) Base interest rate of 9.8 %. (13) Base interest rate of 15.0 %. (14) Base interest rate of 12.0 % plus LIBOR (LIBOR floor of 1.0 % ) (15) Base interest rate of 12.0 % plus LIBOR (LIBOR floor of 1.0 %) and PIK interest rate of 2.5 %. (16) Base interest rate of 12.0 % plus LIBOR (LIBOR floor of 1.0 %) and PIK interest rate of 2.0 %. 10 Index 5. LOAN RECEIVABLE AT CARRYING VALUE As of September 30, 2021 and December 31, 2020, the Company’s portfolio included one loan receivable at carrying value. The originated commitment under this loan was approximately $ 4.0 million and outstanding principal was approximately $ 2.8 million and $ 3.4 million as of September 30, 2021 and December 31, 2020, respectively. During the nine months ended September 30, 2021, the Company received repayments of approximately $ 0.6 million of outstanding principal. The following table presents changes in loans receivable as of and for the nine months ended September 30, 2021: Principal Original Issue Discount Carrying Value Total loans receivable at carrying value at December 31, 2020 $ 3,352,176 $ ( 3,913 ) $ 3,348,263 Principal repayment of loans ( 574,735 ) - ( 574,735 ) Accretion of original issue discount - 927 927 Total loans receivable at carrying value at September 30 , 2021 $ 2,777,441 $ ( 2,986 ) $ 2,774,455 6. CURRENT EXPECTED CREDIT LOSSES The Company estimates its current expected credit losses (“CECL”) on both the outstanding balances and unfunded commitments on loans held for investment and requires consideration of a broader range of historical experience adjusted for current conditions and reasonable and supportable forecast information to inform credit loss estimates (the “CECL Reserve”) using a model that considers multiple datapoints and methodologies that may include the likelihood of default and expected loss given default for each individual loan, discounted cash flows (“DCF”), and other inputs which may include the risk rating of the loan, how recently the loan was originated compared to the measurement date, and expected prepayment if applicable. Calculation of the CECL Reserve requires loan specific data, which includes fixed charge coverage ratio, loan-to-value, property type and geographic location. Estimating the CECL Reserve also requires significant judgment with respect to various factors, including (i) the appropriate historical loan loss reference data, (ii) the expected timing of loan repayments, (iii) calibration of the likelihood of default to reflect the risk characteristics of the Company’s loan portfolio and (iv) the Company’s current and future view of the macroeconomic environment. The Company may consider loan-specific qualitative factors on certain loans to estimate its CECL Reserve, which may include (i) whether cash from the borrower’s operations is sufficient to cover the debt service requirements currently and into the future, (ii) the ability of the borrower to refinance the loan and (iii) the liquidation value of collateral. For loans where we have deemed the borrower/sponsor to be experiencing financial difficulty, we may elect to apply a practical expedient in which the fair value of the underlying collateral is compared to the amortized cost of the loan in determining a specific CECL allowance. In order to estimate the future expected loan losses relevant to the Company’s portfolio, the Company may consider historical market loan loss data provided by a third-party data service. The third party’s loan database includes historical loss data for commercial mortgage-backed securities, or CMBS which the Company believes is a reasonably comparable and available data set to its type of loans. The Company utilized macroeconomic data that reflects a current recession; however, the short and long-term economic implications of the COVID-19 pandemic and its financial impact on the Company are highly uncertain. The CECL Reserve takes into consideration the macroeconomic impact of the COVID-19 pandemic on commercial real estate properties and is not specific to any loan losses or impairments on the Company’s loans held for investment. As of September 30, 2021 and December 31, 2020, the Company’s CECL Reserve for its loans held at carrying value and loans receivable at carrying value is $ 1,837,895 and $ 465,397 , respectively, or 118 and 132 basis points, respectively, of the Company’s total loans held at carrying value and loans receivable at carrying value of $ 155,936,236 and $ 35,185,294 , respectively, and is bifurcated between the current expected credit loss reserve (contra-asset) related to outstanding balances on loans held at carrying value and loans receivable at carrying value of $ 1,145,629 and $ 404,860 , respectively, and a liability for unfunded commitments of $ 692,266 and $ 60,537 , respectively. The liability was based on the unfunded portion of the loan commitment over the full contractual period over which the Company is exposed to credit risk through a current obligation to extend credit. Management considered the likelihood that funding will occur, and if funded, the expected credit loss on the funded portion. 11 Index Activity related to the CECL Reserve for outstanding balances and unfunded commitments on the Company’s loans held at carrying value and loans receivable at carrying value as of and for the three and nine months ended September 30, 2021 was as follows: Outstanding (1) Unfunded (2) Total Balance at June 30, 2021 $ 701,143 $ 476,140 $ 1,177,283 Provision for current expected credit losses 444,486 216,126 660,612 Write-offs - - - Recoveries - - - Balance at September 30, 2021 $ 1,145,629 $ 692,266 $ 1,837,895 Outstanding (1) Unfunded (2) Total Balance at December 31, 2020 $ 404,860 $ 60,537 $ 465,397 Provision for current expected credit losses 740,769 631,729 1,372,498 Write-offs - - - Recoveries - - - Balance at September 30, 2021 $ 1,145,629 $ 692,266 $ 1,837,895 (1) As of September 30, 2021 and December 31, 2020, the CECL Reserve related to outstanding balances on loans at carrying value and loans receivable at carrying value is recorded within current expected credit loss reserve in the Company’s consolidated balance sheets. (2) As of September 30, 2021 and December 31, 2020, the CECL Reserve related to unfunded commitments on loans held at carrying value is recorded within other liabilities in the Company’s consolidated balance sheets. The Company continuously evaluates the credit quality of each loan by assessing the risk factors of each loan and assigning a risk rating based on a variety of factors. Risk factors include property type, geographic and local market dynamics, physical condition, projected cash flow, loan structure and exit plan, loan-to-value ratio, fixed charge coverage ratio, project sponsorship, and other factors deemed necessary. Based on a 5-point scale, the Company’s loans are rated “1” through “5,” from less risk to greater risk, which ratings are defined as follows: Rating Definition 1 Very Low Risk 2 Low Risk 3 Medium Risk 4 High Risk/ Potential for Loss 5 Impaired/Loss Likely The risk ratings are primarily based on historical data as well as taking into account future economic conditions. As of September 30, 2021, the carrying value, excluding the CECL Reserve, of the Company’s loans held at carrying value and loans receivable at carrying value within each risk rating by year of origination is as follows: Risk Rating: 2021 2020 Total 1 $ - $ - $ - 2 14,532,857 - 14,532,857 3 88,990,322 42,528,931 131,519,253 4 9,884,126 - 9,884,126 5 - - - Total $ 113,407,305 $ 42,528,931 $ 155,936,236 12 Index 7. INTEREST RECEIVABLE The following table summarizes the interest receivable by the Company as of September 30, 2021 and December 31, 2020: As of September 30, 2021 As of December 31, 2020 Interest receivable $ 1,838,494 $ 675,795 PIK receivable 522,933 177,183 Unused fees receivable 73,292 74,314 Total interest receivable $ 2,434,719 $ 927,292 8. INTEREST RESERVE At September 30, 2021 and December 31, 2020, the Company had eight and one loans, respectively, that included a loan funded interest reserve. For the three and nine months ended September 30, 2021, approximately $ 1.8 million and $ 2.5 million, respectively, of interest income was earned and disbursed from the interest reserve. The following table presents changes in interest reserve as of and for the three and nine months ended September 30, 2021 and for the period from July 31, 2020 to September 30, 2020: For the three months ended September 30, 2021 Period from July 31, 2020 to September 30, 2020 For the nine months ended September 30, 2021 Period from July 31, 2020 to September 30, 2020 Beginning reserves $ 5,547,863 $ - $ 1,325,750 $ - New reserves 4,525,468 1,400,000 9,450,468 1,400,000 Reserves disbursed ( 1,819,036 ) - ( 2,521,923 ) - Ending reserves $ 8,254,295 $ 1,400,000 $ 8,254,295 $ 1,400,000 9. DEBT Revolving Credit Facility In July 2020, the Company obtained a secured revolving credit loan (the “Revolving Credit Facility”) from AFC Finance, LLC, an affiliate of the Company’s management. The Revolving Credit Facility had a loan commitment of $ 40,000,000 and had an interest rate of 8 % per annum, payable in cash in arrears. The Company did not incur any fees or cost related to the origination of the Revolving Credit Facility and the Revolving Credit Facility did not have any unused fees. The maturity date of the Revolving Credit Facility was the earlier of (i) July 31, 2021 and (ii) the date of the closing of any credit facility where the proceeds are incurred to refund, refinance or replace the Revolving Credit Agreement (as defined below) with an aggregate principal amount equal to or greater than $ 50.0 million (any such financing, a “Refinancing Credit Facility”) in accordance with terms of the credit agreement governing the Revolving Credit Facility (the “Revolving Credit Agreement”). The Revolving Credit Facility was secured by the assets of the Company. On May 7, 2021, the Company amended the Revolving Credit Agreement with AFC Finance, LLC (the “First Amendment”). The First Amendment increased the loan commitment from $ 40,000,000 to $ 50,000,000 , decreased the interest rate from 8 % per annum to 6 % per annum, removed Gamma Lending Holdco LLC as a lender and extended the maturity date from July 31, 2021 to the earlier of (i) December 31, 2021 or (ii) the date of the closing of any Refinancing Credit Facility. On November 3, 2021, the Company entered into the Second Amendment to the Revolving Credit Agreement with AFC Finance, LLC (the “Second Amendment”). Under the Second Amendment, payments to AFC Finance, LLC for interest, commitment fees and unused fees (net applicable taxes) are required to be paid directly or indirectly through AFC Finance, LLC to charitable organizations designated by AFC Finance, LLC. The Second Amendment (i) increased the loan commitment from $ 50,000,000 to $ 75,000,000 ; (ii) decreased the interest rate from 6 % per annum to 4.75 % per annum; (iii) introduced a one-time commitment fee of 0.25 %, to be paid in three equal quarterly installments, and an unused line fee of 0.25 % per annum, to be paid quarterly in arrears; (iv) provided an optional buyout provision for the holders of the Company’s 2027 Senior Notes (as defined above) upon an event of default under the Revolving Credit Agreement; (v) extended the fixed element of the maturity date from December 31, 2021 to September 30, 2022 and (vi) provided that a Refinancing Credit Facility (as defined below) may be any credit facility where the proceeds are incurred to refund, refinance or replace the Revolving Credit Agreement. Pursuant to the Second Amendment, the Company incurred a one-time commitment fee expense of $ 187,500 in November 2021, payable in three quarterly installments beginning in the first quarter of 2022, which will be amortized over the life of the loan. For the three and nine months ended September 30, 2021 and through November 3, 2021, the Company has no t drawn on the Revolving Credit Facility or incurred any interest expense related to the Revolving Credit Facility. 13 Index 2027 Senior Notes On November 3, 2021, the Company issued $ 100 million in aggregate principal amount of senior unsecured notes due in 2027 (the “2027 Senior Notes”). The 2027 Senior Notes accrue interest at a rate of 5.75 % per annum. Interest on the 2027 Senior Notes is due semi-annually on May 1 and November 1 of each year, beginning on May 1, 2022. The net proceeds from the Offering were approximately $ 97 million , after deducting the initial purchasers' discounts and commissions and estimated offering fees and expenses payable by the Company. The Company intends to use the proceeds from the issuance of the 2027 Senior Notes (i) to fund loans related to unfunded commitments to existing borrowers, (ii) to originate and participate in commercial loans to companies operating in the cannabis industry that are consistent with our investment strategy and (iii) for working capital and other general corporate purposes. The terms of the 2027 Senior Notes are governed by an indenture, dated November 3, 2021, among us, as issuer, and TMI Trust Company, as trustee (the "Indenture"). Under the Indenture governing the 2027 Senior Notes, we are required to cause all of our existing and future subsidiaries to guarantee the 2027 Senior Notes, other than certain immaterial subsidiaries as set forth in the Indenture. The 2027 Senior Notes are currently not guaranteed by any of our subsidiaries. The Indenture governing the 2027 Senior Notes contains customary terms and restrictions, subject to a number of exceptions and qualifications, including restrictions on the Company’s ability to (1) incur additional indebtedness unless the Annual Debt Service Charge (as defined in the Indenture) is no less than 1.5 to 1.0, (2) incur or maintain total debt in an aggregate principal amount greater than 60 % of the Company’s consolidated Total Assets (as defined in the Indenture), (3) incur or maintain secured debt in an aggregate principal amount greater than 25 % of the Company’s consolidated Total Assets (as defined in the Indenture); and (4) merge, consolidate or sell substantially all of the Company’s assets. On or after February 1, 2027, the Company may redeem the 2027 Senior Notes in whole or in part at a price equal to 100 % of the principal amount of the notes being redeemed, plus a make-whole premium and accrued and unpaid interest thereon to, but excluding, the applicable redemption date. 10. COMMITMENTS AND CONTINGENCIES As of September 30, 2021 and December 31, 2020, the Company had the following commitments to fund various senior term loans, equipment loans and bridge loans: As of September 30, 2021 As of December 31, 2020 Total original loan commitments $ 296,946,250 $ 107,292,176 Less: drawn commitments ( 243,038,584 ) ( 87,467,057 ) Total undrawn commitments $ 53,907,666 $ 19,825,119 The Company from time to time may be a party to litigation in the normal course of business. As of September 30, 2021, the Company is not aware of any legal claims that could materially impact its business, financial condition or results of operations. The Company provides loans to established companies operating in the cannabis industry which involves significant risks, including the risk of strict enforcement against the Company’s borrowers of the federal illegality of cannabis, the Company’s borrowers’ inability to renew or otherwise maintain their licenses or other requisite authorizations for their cannabis operations, and such loans lack of liquidity, and the Company could lose all or part of any of the Company’s loans. The Company’s ability to grow or maintain our business depends on state laws pertaining to the cannabis industry. New laws that are adverse to the Company’s borrowers may be enacted, and current favorable state or national laws or enforcement guidelines relating to cultivation, production and distribution of cannabis may be modified or eliminated in the future, which would impede the Company’s ability to grow and could materially adversely affect the Company’s business. Management’s plan to mitigate risks include monitoring the legal landscape as deemed appropriate. Also, should a loan default or otherwise be seized, the Company may be prohibited from owning cannabis assets and thus could not take possession of collateral, in which case the Company would look to sell the loan, which could result in the Company realizing a loss on the transaction. 11. STOCKHOLDERS’ EQUITY Series A Preferred Stock As of September 30, 2021 and December 31, 2020, the Company has authorized 10,000 preferred shares and issued 125 of the preferred shares designated as 12.0 % Series A Cumulative Non-Voting Preferred Stock, par value $ 0.01 per share (the “Series A Preferred Stock”). 14 Index The Series A Preferred Stock entitles the holders thereof to receive cumulative cash dividends at a rate per annum of 12.0 % of the liquidation preference of $ 1,000 per share plus all accumulated and unpaid dividends thereon. The Company generally may not declare or pay, or set apart for payment, any dividend or other distribution on any shares of the Company’s stock ranking junior to the Series A Preferred Stock as to dividends, including the Company’s common stock, or redeem, repurchase or otherwise make payments on any such shares, unless full, cumulative dividends on all outstanding shares of Series A Preferred Stock have been declared and paid or set apart for payment for all past dividend periods. The holders of the Series A Preferred Stock generally have no voting rights except in limited circumstances, including certain amendments to the Company’s charter and the authorization or issuance of equity securities senior to or on parity with the Series A Preferred Stock. The Series A Preferred Stock is not convertible into shares of any other class or series of our stock. The Series A Preferred Stock is senior to all other classes and series of shares of the Company’s stock as to dividend and redemption rights and rights upon the Company’s liquidation, dissolution and winding up. Upon written notice to each record holder of the Series A Preferred Stock as to the effective date of redemption, the Company may redeem the shares of the outstanding Series A Preferred Stock at the Company’s option, in whole or in part, at any time for cash at a redemption price equal to $ 1,000 per share, for a total of $ 125,000 for the 125 shares outstanding, plus all accrued and unpaid dividends thereon to and including the date fixed for redemption, plus a redemption premium of $ 50 per share if the shares are redeemed on or before December 31, 2021. Shares of the Series A Preferred Stock that are redeemed shall no longer be deemed outstanding shares of the Company and all rights of the holders of such shares will terminate. Common Stock The Board of Directors of the Company (the “Board”) approved a seven -for-one stock split of the Company’s common stock effective on January 25, 2021. All common shares, stock options, and per share information presented in the consolidated financial statements have been adjusted to reflect the stock split on a retroactive basis for all periods presented, including reclassifying an amount equal to the increase in par value of common stock from additional paid-in capital. There was no change in the par value of the Company’s common stock. Upon consummation of the Company’s IPO, any stockholder that held fractional shares received cash in lieu of such fractional shares based on the public offering price of the shares of the Company’s common stock at IPO. This resulted in the reduction of 15 shares issued and outstanding. On March 23, 2021, the Company completed its IPO of 6,250,000 shares of its common stock at a price of $ 19.00 per share, raising $ 118,750,000 in gross proceeds. The underwriters also exercised their over-allotment option to purchase up to an additional 937,500 shares of the Company’s common stock at a price of $ 19.00 per share, which was completed on March 26, 2021, raising $ 17,812,500 in additional gross proceeds. The underwriting commissions of $ 8,312,500 and $ 1,246,875 , respectively, are reflected as a reduction of additional paid-in capital on the consolidated statements of stockholders’ equity. The Company incurred approximately $ 3,093,836 of expenses in connection with the IPO, which is reflected as a reduction in additional paid-in capital. The net proceeds to the Company totaled approximately $ 123,909,289 . On June 28, 2021, the Company completed an offering of 2,750,000 shares of its common stock at a price of $ 20.50 per share, raising $ 56,375,000 in gross proceeds. The underwriting commissions of $ 3,100,625 are reflected as a reduction of additional paid-in capital on the consolidated statements of stockholders’ equity. The Company incurred approximately $ 701,989 of expenses in connection with the offering, which is reflected as a reduction in additional paid-in capital. The net proceeds to the Company totaled approximately $ 52,572,386 . On July 6, 2021, the underwriters partially exercised their over-allotment option to purchase 269,650 shares of the Company’s common stock at a price of $ 20.50 per share raising $ 5,527,825 in additional gross proceeds or $ 5,223,795 in net proceeds after underwriting commissions of $ 304,030 , which is reflected as a reduction of additional paid-in capital on the consolidated statements of stockholders’ equity. Equity Incentive Plan The Company has established an equity incentive compensation plan (the “Plan”). The Company’s Board authorized the adoption of the Plan (as amended, the “2020 Plan”) and approved stock option grants of 1,632,632 shares of common stock and 56,285 shares of restricted stock as of September 30, 2021. The Board or one or more committees appointed by the Board administers the 2020 Plan. The 2020 Plan authorizes stock options, stock appreciation rights, restricted stock, stock bonuses, stock units and other forms of awards granted or denominated in the Company’s common stock or units of common stock. The 2020 Plan retains flexibility to offer competitive incentives and to tailor benefits to specific needs and circumstances. Any award may be structured to be paid or settled in cash. The Company has, and currently intends to continue to grant stock options to participants in the 2020 Plan, but it may also grant any other type of award available under the 2020 Plan in the future. Persons eligible to receive awards under the 2020 Plan include officers or employees of the Company or any of its subsidiaries, directors of the Company, employees of the Manager and certain directors and consultants and other service providers to the Company or any of its subsidiaries. 15 Index As of September 30, 2021, the maximum number of shares of the Company common stock that may be delivered pursuant to awards under the 2020 Plan (the “Share Limit”) equals 2,401,965 shares, which is an increase of 26,965 shares compared to June 30, 2021 under the evergreen provision in the 2020 Plan in connection with the issuance of an additional 269,650 shares of common stock to the underwriters in connection with their partial exercise of an over-allotment option in July 2021. Shares that are subject to or underlie awards that expire or for any reason are cancelled or terminated, are forfeited, fail to vest, or for any other reason are not paid or delivered under the 2020 Plan will not be counted against the Share Limit and will again be available for subsequent awards under the 2020 Plan. Shares that are exchanged by a participant or withheld by the Company as full or partial payment in connection with any award granted under the 2020 Plan, as well as any shares exchanged by a participant or withheld by us to satisfy tax withholding obligations related to any award granted under the 2020 Plan, will not be counted against the Share Limit and will again be available for subsequent awards under the 2020 Plan. To the extent that an award is settled in cash or a form other than shares, the shares that would have been delivered had there been no such cash or other settlement will not be counted against the Share Limit and will again be available for subsequent awards under the 2020 Plan. The exercise price of any options granted under the 2020 Plan will be at net asset value or greater; provided, however, the exercise price will be at least equal to the market price of the underlying shares on the grant date. The options granted under the 2020 Plan have an ordinary term of up to 10 years. An option may either be an incentive stock option or a nonqualified stock option. Options generally may not be transferred to third parties for value and do not include dividend equivalent rights. The following table summarizes the (i) non-vested options granted, (ii) vested options granted and (iii) forfeited options granted for the Company’s directors and officers and employees of the Manager as of September 30, 2021 and December 31, 2020: As of September 30, 2021 As of December 31, 2020 Non-vested 183,114 142,814 Vested 1,449,518 800,618 Forfeited ( 28,396 ) ( 16,534 ) Balance 1,604,236 926,898 The following table summarizes the (i) non-vested restricted stock granted, (ii) vested restricted stock granted and (iii) forfeited restricted stock granted for the Company’s directors and officers and employees of the Manager as of September 30, 2021 and December 31, 2020: As of September 30, 2021 As of December 31, 2020 Non-vested 56,285 - Vested - - Forfeited - - Balance 56,285 - The Company uses the Black-Scholes option pricing model to value stock options in determining the share-based compensation expense. Forfeitures are recognized as they occur. The risk-free interest rate is based on the U.S. Treasury yield curve in effect at the date of grant. The expected dividend yield was based on the Company’s expected dividend yield at grant date. Expected volatility is based on the estimated average volatility of similar companies due to the lack of historical volatilities of the Company’s common stock. Restricted stock grant expense is based on the Company’s stock price at the time of the grant and amortized over the vesting period. The share-based compensation expense for the Company was approximately $ 51,429 and $ 1,662,001 for the three and nine months ended September 30, 2021, respectively, and no expense was booked during the period from July 31, 2020 to September 30, 2020. The following table presents the assumptions used in the option pricing model of options granted under the 2020 Plan: Assumptions Range Expected volatility 40 % - 50 % Expected dividend yield 10 % - 20 % Risk-free interest rate 0.5 % - 1.5 % Expected forfeiture rate 0 % 16 Index The following tables summarize stock option activity during the three and nine months ended September 30, 2021 and for the period from July 31, 2020 to September 30, 2020: Three months ended September 30, 2021 Weighted-Average Grant Date Fair Value Per Option Balance as of June 30, 2021 1,613,098 $ 1.08 Granted - - Exercised - - Forfeited ( 8,862 ) 0.90 Balance as of September 30 , 2021 1,604,236 $ 1.08 Period from July 31, 2020 to September 30, 2020 Weighted-Average Grant Date Fair Value Per Option Balance as of July 31, 2020 - $ - Granted 806,456 0.90 Exercised - - Forfeited - - Balance as of September 30 , 2020 806,456 $ 0.90 Nine months ended September 30, 2021 Weighted-Average Grant Date Fair Value Per Option Balance as of December 31, 2020 926,898 $ 0.91 Granted 689,200 1.31 Exercised - - Forfeited ( 11,862 ) 1.01 Balance as of September 30, 2021 1,604,236 $ 1.08 12. EARNINGS PER SHARE The following information sets forth the computations of basic weighted average earnings per common share for the three and nine months ended September 30, 2021 and for the period from July 31, 2020 to September 30, 2020: For the three months ended September 30, 2021 Period from July 31, 2020 to September 30, 2020 For the nine months ended September 30, 2021 Period from July 31, 2020 to September 30 , 2020 Net income attributable to common stockholders $ 7,930,680 $ 2,106,250 $ 13,959,222 $ 2,106,250 Divided by: Basic weighted average shares of common stock outstanding 16,402,984 5,376,411 12,368,977 5,376,411 Diluted weighted average shares of common stock outstanding 16,776,648 5,376,411 12,742,641 5,376,411 Basic weighted average earnings per common share $ 0.48 $ 0.39 $ 1.13 $ 0.39 Diluted weighted average earnings per common share $ 0.47 $ 0.39 $ 1.10 $ 0.39 13. INCOME TAX The income tax provision for the Company was $ 0 for the nine months ended September 30, 2021. For the three and nine months ended September 30, 2021, the Company incurred no expense for United States federal excise tax. Excise tax represents a 4 % tax on the sum of a portion of the Company’s ordinary income and net capital gains not distributed during the period. If it is determined that an excise tax liability exists for the current period, the Company will accrue excise tax on estimated excess taxable income as such taxable income is earned. The expense is calculated in accordance with applicable tax regulations. The Company does no t have any unrecognized tax benefits and the Company does not expect that to change in the next 12 months. 17 Index 14. FAIR VALUE The Company’s loans are typically valued using a yield analysis, which is typically performed for non-credit impaired loans to borrowers where the Company does not own a controlling equity position. To determine fair value using a yield analysis, a current price is imputed for the loan based upon an assessment of the expected market yield for a similarly structured loan with a similar level of risk. In the yield analysis, the Company considers the current contractual interest rate, the maturity and other terms of the loan relative to risk of the company and the specific loan. A key determinant of risk, among other things, is the leverage through the loan relative to the enterprise value of the borrower. As loans held by the Company are substantially illiquid with no active loan market, the Company depends on primary market data, including newly funded loans, as well as secondary market data with respect to high yield debt instruments and syndicated loans, as inputs in determining the appropriate market yield, as applicable. The following tables summarize the significant unobservable inputs the Company used to value the loans categorized within Level 3 as of September 30, 2021 and December 31, 2020. The tables are not intended to be all-inclusive, but instead capture the significant unobservable inputs relevant to the Company’s determination of fair values. As of September 30, 2021 Unobservable Input Fair Value Primary Valuation Techniques Input Estimated Range Weighted Average Senior Term Loans $ 76,293,824 Yield analysis Market Yield 17.62 % - 20.68 % 17.82 % Total Investments $ 76,293,824 As of December 31, 2020 Unobservable Input Fair Value Primary Valuation Techniques Input Estimated Range Weighted Average Senior Term Loans $ 48,558,051 Yield analysis Market Yield 15.79 % - 20.75 % 20.20 % Total Investments $ 48,558,051 Changes in market yields may change the fair value of certain of the Company’s loans. Generally, an increase in market yields may result in a decrease in the fair value of certain of the Company’s loans. Due to the inherent uncertainty of determining the fair value of loans that do not have a readily available market value, the fair value of the Company’s loans may fluctuate from period to period. Additionally, the fair value of the Company’s loans may differ significantly from the values that would have been used had a ready market existed for such loans and may differ materially from the values that the Company may ultimately realize. Further, such loans are generally subject to legal and other restrictions on resale or otherwise are less liquid than publicly traded securities. If the Company was required to liquidate a loan in a forced or liquidation sale, it could realize significantly less than the value at which the Company has recorded it. In addition, changes in the market environment and other events that may occur over the life of the loans may cause the gains or losses ultimately realized on these loans to be different than the unrealized gains or losses reflected in the valuations currently assigned. The following tables present fair value measurements of loans held at fair value as of September 30, 2021 and December 31, 2020: Fair Value Measurement Using as of September 30, 2021 Total Level 1 Level 2 Level 3 Loans held at fair value $ 76,293,824 $ - $ - $ 76,293,824 Total $ 76,293,824 $ - $ - $ 76,293,824 Fair Value Measurement Using as of December 31, 2020 Total Level 1 Level 2 Level 3 Loans held at fair value $ 48,558,051 $ - $ - $ 48,558,051 Total $ 48,558,051 $ - $ - $ 48,558,051 18 Index The following table presents changes in loans that use Level 3 inputs as of and for the nine months ended September 30, 2021: For the nine months ended September 30, 2021 Total loans using Level 3 inputs at December 31 , 2020 $ 48,558,051 Change in unrealized gains / (losses) on loans at fair value, net 796,368 Additional funding 37,701,104 Original issue discount and other discounts, net of costs ( 1,130,623 ) Loan repayments ( 12,000,000 ) Loan amortization payments ( 1,093,659 ) Accretion of original issue discount 1,905,715 PIK interest 1,556,868 Total loans using Level 3 inputs at September 30 , 2021 $ 76,293,824 Fair Value of Financial Instruments GAAP requires disclosure of fair value information about financial instruments, whether or not recognized at fair value in the balance sheet, for which it is practicable to estimate that value. The following table details the book value and fair value of the Company’s financial instruments not recognized at fair value in the balance sheet: As of September 30, 2021 Carrying Value Fair Value Financial assets Cash and cash equivalents $ 69,974,391 $ 69,974,391 Loans held for investment at carrying value $ 153,161,781 $ 158,771,796 Loan receivable at carrying value $ 2,774,455 $ 2,695,507 Estimates of fair value for cash and cash equivalents are measured using observable, quoted market prices, or Level 1 inputs. All other fair value significant estimates are measured using unobservable inputs, or Level 3 inputs. 15. RELATED PARTY TRANSACTIONS Management Agreement Pursuant to the Management Agreement, the Manager manages the loans and day-to-day operations of the Company, subject at all times to the further terms and conditions set forth in the Management Agreement and such further limitations or parameters as may be imposed from time to time by the Company’s Board. The Manager will receive base management fees (the “Base Management Fee”) that are calculated and payable quarterly in arrears, in an amount equal to 0.375 % of the Company’s Equity (as defined below), subject to certain adjustments, less 50 % of the aggregate amount of any other fees (“Outside Fees”), including any agency fees relating to our loans, but excluding the Incentive Compensation (as defined below) and any diligence fees paid to and earned by the Manager and paid by third parties in connection with the Manager’s due diligence of potential loans. Prior to the IPO, the quarterly base management fee was equal to 0.4375 % of the Company’s Equity, subject to certain adjustments, less 100 % of the aggregate amount of any Outside Fees, including any agency fees relating to our loans, but excluding the Incentive Compensation and any diligence fees paid to and earned by the Manager and paid by third parties in connection with the Manager’s due diligence of potential loans. 19 Index In addition to the Base Management Fee, the Manager is entitled to receive incentive compensation (the “Incentive Compensation” or “Incentive Fees”) under the Management Agreement. Under the Management Agreement, the Company will pay Incentive Fees to the Manager based upon the Company’s achievement of targeted levels of Core Earnings. “Core Earnings” is defined in the Management Agreement as, for a given period means the net income (loss) for such period, computed in accordance with GAAP, excluding (i) non-cash equity compensation expense, (ii) the Incentive Compensation, (iii) depreciation and amortization, (iv) any unrealized gains or losses or other non-cash items that are included in net income for the applicable reporting period, regardless of whether such items are included in other comprehensive income or loss, or in net income and (v) one-time events pursuant to changes in GAAP and certain non-cash charges, in each case after discussions between the Manager and the Company’s independent directors and approved by a majority of the independent directors. The Incentive Compensation for the three and nine months ended September 30, 2021 was approximately $ 1,769,207 and $ 3,873,984 , respectively. For the period from July 31, 2020 to September 30, 2020, the Manager agreed to waive the incentive compensation. The Company shall pay all of its costs and expenses and shall reimburse the Manager or its affiliates for expenses of the Manager and its affiliates paid or incurred on behalf of the Company, excepting only those expenses that are specifically the responsibility of the Manager pursuant to the Management Agreement. The following table summarizes the related party costs incurred by the Company for the three and nine months ended September 30, 2021 and for the period from July 31, 2020 to September 30, 2020: For the three months ended September 30, 2021 Period from July 31, 2020 to September 30, 2020 For the nine months ended September 30, 2021 Period from July 31, 2020 to September 30, 2020 Affiliate Costs Management fees $ 1,030,718 $ 226,234 $ 2,301,924 $ 226,234 Less Outside Fees earned ( 256,989 ) ( 84,167 ) ( 677,439 ) ( 84,167 ) Incentive fees earned 1,769,207 - 3,873,984 - General and administrative expenses reimbursable to Manager 625,711 165,434 1,415,217 165,434 Total $ 3,168,647 $ 307,501 $ 6,913,686 $ 307,501 Amounts payable to the Company’s Manager as of September 30, 2021 and December 31, 2020 were $ 3,389,646 and $ 728,298 , respectively. Due to Affiliate Amounts due to an affiliate of the Company as of September 30, 2021 and December 31, 2020 were $ 9,550,625 and $ 0 , respectively. The amount due to the affiliate, AFC Management, is related to the funding of the loan to Subsidiary of Private Co. G and was subsequently paid to AFC Management on October 1, 2021. Investments in Loans From time to time, the Company may co-invest with other investment vehicles managed by the Company’s Manager or its affiliates, including the Manager, and their portfolio companies, including by means of splitting loans, participating in loans or other means of syndicating loans. The Company is not obligated to provide, nor has it provided, any financial support to the other managed investment vehicles. As such, the Company’s risk is limited to the carrying value of its investment in any such loan. As of September 30, 2021, there were three co-invested loans held by the Company and an affiliate of the Company. In connection with investments in loans, the Company may receive the option to assign the right (the “Assigned Right”) to acquire warrants and/or equity of the borrower. The Company may sell the Assigned Right, and the sale may be to an affiliate of the Company. During the three months ended September 30, 2021, the Company neither received no r sold any Assigned Right. For the nine months ended September 30, 2021, t he Company sold approximately $ 2.3 million of Assigned Rights to an affiliate which are accounted for as additional original issue discount and accreted over the life of the loans. For the period from July 31, 2020 to September 30, 2020, the Company did not have any Assigned Rights which were assigned or sold. Secured Revolving Credit Facility From Affiliate The Company has the Revolving Credit Facility from AFC Finance, LLC, an affiliate of the Company. Refer to Note 9 to our unaudited consolidated financial statements for more information. 16. DIVIDENDS AND DISTRIBUTIONS The following table summarizes the Company’s dividends declared during the nine months ended September 30, 2021: Record Date Payment Date Common Share Distribution Amount Taxable Ordinary Income Return of Capital Section 199A Dividends Regular cash dividend 3/15/2021 3/31/2021 $ 0.36 $ 0.36 $ - $ 0.36 Regular cash dividend 6/15/2021 6/30/2021 $ 0.38 $ 0.38 $ - $ 0.38 Regular cash dividend 9/30/2021 10/15/2021 $ 0.43 $ 0.43 $ - $ 0.43 Total cash dividend $ 1.17 $ 1.17 $ - $ 1.17 20 Index 17. SUBSEQUENT EVENTS The Company has evaluated subsequent events through the date the financial statements were available to be issued. There were no material subsequent events, other than those described below, that required disclosure in these financial statements. Subsequent to the end of the third quarter, the Company closed one loan, had new commitments of $ 50.0 million, and funded approximately $ 52.3 million of principal. In October 2021, the Company sold its investment in the loan to Public Company E to a third party in a private transaction. The Company received approximately $ 5.1 million in net proceeds from the sale. In October 2021, the Company entered into an additional commitment for a $ 50 million senior term loan with Public Company F, as part of a $ 120 million third tranche under Public Company F’s senior secured credit facility and funded $ 50.0 million of principal less OID of $ 1.2 million for net funding of $ 48.8 million at closing. Following the expansion, the Company’s total loan commitments to Public Company F increased to an aggregate principal amount of $ 60 million, including $ 10 million of the second tranche funded in May 2021. On November 3, 2021, the Company issued the 2027 Senior Notes . The 2027 Senior Notes accrue interest at a rate of 5.75 % per annum. Interest on the 2027 Senior Notes is due semi-annually on May 1 and November 1 of each year, beginning on May 1, 2022. The net proceeds from the Offering were approximately $ 97 million, after deducting the initial purchasers' discounts and commissions and estimated offering fees and expenses payable by the Company. The Company intends to use the net proceeds from the issuance of the 2027 Senior Notes to (i) fund loans related to unfunded commitments to existing borrowers, (ii) to originate and participate in commercial loans to companies operating in the cannabis industry that are consistent with our investment strategy and (iii) for working capital and other general corporate purposes. The terms of the 2027 Senior Notes are governed by the Indenture. Under the Indenture governing the 2027 Senior Notes, we are required to cause all of our existing and future subsidiaries to guarantee the 2027 Senior Notes, other than certain immaterial subsidiaries as set forth in the Indenture. The 2027 Senior Notes are currently not guaranteed by any of our subsidiaries. The Indenture governing the 2027 Senior Notes contains customary terms and restrictions, subject to a number of exceptions and qualifications, including restrictions on the Company’s ability to (1) incur additional indebtedness unless the Annual Debt Service Charge (as defined in the Indenture) is no less than 1.5 to 1.0, (2) incur or maintain total debt in an aggregate principal amount greater than 60 % of the Company’s consolidated Total Assets (as defined in the Indenture), (3) incur or maintain secured debt in an aggregate principal amount greater than 25 % of the Company’s consolidated Total Assets (as defined in the Indenture); and (4) merge, consolidate or sell substantially all of the Company’s assets. On or after February 1, the Company may redeem the 2027 Senior Notes in whole or in part at a price equal to 100 % of the principal amount of the notes being redeemed, plus a make-whole premium and accrued and unpaid interest thereon to, but excluding, the applicable redemption date. On November 3, 2021, the Company entered into the Second Amendment to the Revolving Credit Agreement with AFC Finance, LLC. Under the Second Amendment, the terms of the Revolving Credit Facility were amended to, among other things: (i) decrease the interest rate to 4.75 % per annum; (ii) extend the maturity date to the earlier of September 30, 2022 and the closing date of any credit facility where the proceeds are incurred to refund, refinance or replace such Revolving Credit Agreement; (iii) add an unused fee of 0.25 % per annum on the undrawn amount of the revolving loan commitments; (iv) add a one-time commitment fee of 0.25 % of the total revolving loan commitments, payable in three quarterly installments, beginning in the first quarter of 2022; (v) increase the aggregate revolving credit commitments to $ 75.0 million; (vi) provided an optional buyout provision for the holders of the Company’s 2027 Senior Notes upon certain events of default under the Revolving Credit Agreement; and (vii) require all payments of interest, the commitment fee and unused fee to be paid, directly or indirectly, to a charitable organization to be designated by AFC Finance, LLC in its sole discretion, net of any taxes. See Note 9 to the Company’s consolidated financial statements in this quarterly report for more information. 21 Index