Advanced Flower Capital Inc. 10-K

Item 9A. Controls and Procedures Evaluation of Disclosure Controls and Procedures The Company maintains disclosure controls and procedures (as that term is defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) that are designed to ensure that information required to be disclosed in the Company’s reports under the Exchange Act is recorded, processed, and summarized and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to the Company’s management, including its Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosures. Any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives. An evaluation of the effectiveness of the design and operation of our disclosure controls and procedures as of the end of the period covered by this Annual Report on Form 10-K was made under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer. Based upon this evaluation, our Chief Executive Officer and Chief Financial Officer have concluded that our disclosure controls and procedures (a) are effective to ensure that information required to be disclosed by us in reports filed or submitted under the Exchange Act is timely recorded, processed, summarized and reported and (b) include, without limitation, controls and procedures designed to ensure that information required to be disclosed by us in reports filed or submitted under the Exchange Act 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. 105 Table of Contents Management’s Annual Report on Internal Control over Financial Reporting Our management is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Exchange Act Rule 13a‐15(f). Our internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with accounting principles generally accepted in the United States of America. Our internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of our assets; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with accounting principles generally accepted in the United States of America, and that receipts and expenditures are being made only in accordance with authorizations of management and our directors; and (iii) provide reasonable assurance regarding prevention or timely detection of the unauthorized acquisition, use or disposition of assets that could have a material effect on the financial statements. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. Management has assessed the effectiveness of our internal control over financial reporting as of December 31, 2022, using the framework specified in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). Based on such assessment, management has concluded that our internal control over financial reporting was effective as of December 31, 2022. This Annual Report does not include an attestation report of our independent registered public accounting firm regarding control over financial reporting. Management’s report was not subject to attestation by our independent registered public accounting firm pursuant to Section 989G of the Dodd-Frank Wall Street and Consumer Protection Act, which exempts non-accelerated filers from the auditor attestation requirement of section 404 (b) of the Sarbanes-Oxley Act. Effectiveness of Internal Control It should be noted that any system of controls, however well designed and operated, can provide only reasonable, and not absolute, assurance that the objectives of the system will be met. In addition, the design of any control system is based in part upon certain assumptions about the likelihood of future events. Because of these and other inherent limitations of control systems, there is only the reasonable assurance that our controls will succeed in achieving their goals under all potential future conditions. Changes in Internal Control over Financial Reporting There have been no changes to our internal control over financial reporting (as defined in Rule 13a-15(f) and 15d-15(f) under the Exchange Act) that occurred during the year ended December 31, 2022, that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting. Item 9B. Other Information On March 6, 2023, we entered into an amendment to our Management Agreement between us and our Manager (the “Management Agreement Amendment”). Our Manager is a wholly-owned subsidiary of the Parent Manager, which is an entity that is over 70%, 10% and 5% beneficially owned by Mr. Tannenbaum, Mrs. Tannenbaum, our President, and Mr. Kalikow, our Head of Real Estate and one of our directors, respectively. Pursuant to the Management Agreement Amendment, the Management Agreement was amended to update the investment guidelines to allow for investments in second lien loans secured by mortgages to businesses that are not related to the cannabis industry. In addition, the definition of the Investment Committee was amended to allow independent contractors to serve on the Investment Committee and to allow for a majority vote for any action taken by the Investment Committee at any time that the Investment Committee is comprised of at least four members. A copy of the Management Agreement Amendment is filed as Exhibit 10.1C to this Form 10-K and incorporated herein by reference. Item 9C. Disclosure Regarding Foreign Jurisdictions that Prevent Inspections Not applicable. PART III 106 Table of Contents Item 10. Directors, Executive Officers and Corporate Governance Except as set forth below, the other information required by this item will be contained in the Company’s definitive Proxy Statement for its 2023 Annual Shareholder Meeting, to be filed with the SEC within 120 days after December 31, 2022, and is incorporated herein by reference. Code of Business Conduct and Ethics We have adopted a Code of Business Conduct and Ethics for our directors, officers (including our principal executive officer, principal financial officer and principal accounting officer) and employees. A current copy of the code is posted under “Corporate Governance” on our website at https://investors.afcgamma.com/ . To the extent required by rules adopted by the Securities and Exchange Commission and Nasdaq, we intend to promptly disclose future amendments to certain provisions of the Code of Business Conduct and Ethics, or waivers of such provisions granted to executive officers and directors on our website at https://investors.afcgamma.com/ . Item 11. Executive Compensation The information required by this item is incorporated by reference to the Company’s definitive proxy statement for its 2023 Annual Shareholder Meeting, to be filed with the SEC within 120 days after December 31, 2022 and is incorporated herein by reference. Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters The information required by this item is incorporated by reference to the Company’s definitive proxy statement for its 2023 Annual Shareholder Meeting, to be filed with the SEC within 120 days after December 31, 2022 and is incorporated herein by reference. Item 13. Certain Relationships and Related Party Transactions, and Director Independence The information required by this item is incorporated by reference to the Company’s definitive proxy statement for its 2023 Annual Shareholder Meeting, to be filed with the SEC within 120 days after December 31, 2022 and is incorporated herein by reference. Item 14. Principal Accountant Fees and Services The information required by this item is incorporated by reference to the Company’s definitive proxy statement for its 2023 Annual Shareholder Meeting, to be filed with the SEC within 120 days after December 31, 2022 and is incorporated herein by reference. PART IV Item 15. Exhibits and Financial Statement Schedules (1) Financial Statements—See the Index to Consolidated Financial Statements, together with the report thereon of CohnReznick LLP dated March 7, 2023, beginning on Page F-1. (2) Financial Statement Schedules—None. We have omitted financial statement schedules because they are not required or are not applicable, or the required information is shown in the consolidated financial statements or notes to the consolidated financial statements. (3) Exhibits. Exhibit No. Description of Exhibits 3.1 Articles of Amendment and Restatement of AFC Gamma, Inc. (filed as Exhibit 3.2 to the Company’s Registration Statement on Form S-11 on January 22, 2021 and incorporated herein by reference). 3.1A Articles of Amendment, dated March 10, 2022 (filed as Exhibit 3.1A to the Company’s Annual Report on Form 10-K on March 10, 2022 and incorporated herein by reference). 3.4 Amended and Restated Bylaws of AFC Gamma, Inc. (filed as Exhibit 3.4 to the Company’s Registration Statement on Form S-11 on January 22, 2021 and incorporated herein by reference). 107 Table of Contents 4.1 Description of Capital Stock (filed as Exhibit 4.1 to the Company’s Annual Report on Form 10-K on March 10, 2022 and incorporated herein by reference). 4.2 Indenture, dated as of November 3, 2021, between the Company and TMI Trust Company, as trustee (filed as Exhibit 4.1 to the Company’s Current Report on Form 8-K on November 3, 2021 and incorporated herein by reference). 4.3 Form of 5.750% Senior Notes due 2027 (included in Exhibit 4.2). 10.1 Amended and Restated Management Agreement, dated January 14, 2021 by and between AFC Gamma, Inc. and AFC Management, LLC (filed as Exhibit 10.1 to the Company's Current Report on Form 8-K on March 23, 2021 and incorporated herein by reference). 10.1A First Amendment to Amended and Restated Management Agreement, dated March 10, 2022 by and between AFC Gamma, Inc. and AFC Management, LLC (filed as Exhibit 10.1A to the Company’s Annual Report on Form 10-K on March 10, 2022 and incorporated herein by reference).. 10.1B Second Amendment to Amended and Restated Management Agreement, dated November 7, 2022 by and between AFC Gamma, Inc. and AFC Management, LLC (filed as Exhibit 10.1B to the Company’s Quarterly Report on Form 10-Q on November 8, 2022 and incorporated herein by reference). 10.1C* Third Amendment to Amended and Restated Management Agreement, dated March 6, 2023 by and between AFC Gamma, Inc. and AFC Management, LLC. 10.2 Form of Indemnification Agreement between the Registrant and each of its directors and officers (filed as Exhibit 10.2 to the Company’s Registration Statement on Form S-11 on January 22, 2021 and incorporated herein by reference). 10.3 Form of Indemnification Agreement between Registrant and each of the Investment Committee members (filed as Exhibit 10.3 to the Company’s Registration Statement on Form S-11 on January 22, 2021 and incorporated herein by reference). 10.4 Form of Registration Rights Agreement, by and among AFC Gamma, Inc. and the holders thereto (filed as Exhibit 10.4 to the Company’s Registration Statement on Form S-11 on December 28, 2020 and incorporated herein by reference). 10.5§ 2020 Stock Incentive Plan (filed as Exhibit 10.5 to the Company’s Registration Statement on Form S-11 on January 22, 2021 and incorporated herein by reference). 10.6 Secured Revolving Credit Agreement, dated August 18, 2020, by and among AFC Gamma, Inc., as borrower, AFC Finance, LLC, as agent, and AFC Finance, LLC and Gamma Lending Holdco LLC, as lenders (filed as Exhibit 10.6 to the Company’s Registration Statement on Form S-11 on December 28, 2020 and incorporated herein by reference). 10.6A Amendment to Revolving Credit Agreement, dated as of May 7, 2021, by and among AFC Gamma, Inc., as borrower, AFC Finance, LLC, as agent, and AFC Finance, LLC and Gamma Lending Holdco LLC, as lenders (filed as Exhibit 10.2 to the Company’s Quarterly Report on Form 10-Q on May 11, 2021 and incorporated herein by reference). 10.6B Second Amendment to Revolving Credit Agreement, dated as of November 3, 2021, by and among AFC Gamma, Inc., as borrower, and AFC Finance, LLC, as and lender (filed as Exhibit 10.1 to the Company’s Current Report on Form 8-K on November 3, 2021 and incorporated herein by reference). 10.7† Loan and Security Agreement, dated April 29, 2022, by and among AFC Gamma, Inc., as Borrower, and the lenders that are party thereto (filed as Exhibit 10.7 to the Company’s Current Report on Form 8-K on May 2, 2022 and incorporated herein by reference). 10.10§ Employment Agreement, dated as of August 2, 2021, between AFC Management, LLC and Brett Kaufman (filed as Exhibit 10.1 to the Company’s Current Report on Form 8-K on August 5, 2021 and incorporated herein by reference). 21.1 List of Subsidiaries of the Registrant (filed as Exhibit 21.1 to the Company’s Annual Report on Form 10-K on March 10, 2022 and incorporated herein by reference). 23.1* Consent of CohnReznick LLP, independent registered public accounting firm. 31.1* Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. 31.2* Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. 32.1** Certification of Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. 32.2** Certification of Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. 101.INS Inline XBRL Instance Document - the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document. 101.SCH Inline XBRL Taxonomy Extension Schema Document. 101.DEF Inline XBRL Taxonomy Extension Definition Linkbase Document. 101.CAL Inline XBRL Taxonomy Extension Calculation Linkbase Document. 108 Table of Contents 101.LAB Inline XBRL Taxonomy Extension Label Linkbase Document. 101.PRE Inline XBRL Taxonomy Extension Presentation Linkbase Document. 104 Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101). § Management contract or compensatory plan or arrangement * Filed herewith ** Furnished herewith † The registrant has omitted portions of the referenced exhibit pursuant to Item 601(b) of Regulation S-K because such portions are both (i) not material and (ii) would likely cause competitive harm to the registrant if publicly disclosed. Item 16. Form 10-K Summary None. 109 Table of Contents INDEX TO CONSOLIDATED FINANCIAL STATEMENTS Report of Independent Registered Public Accounting Firm CohnReznick LLP (PCAOB ID 596 ), Baltimore, Maryland F- 2 Consolidated Balance Sheets as of December 31, 202 2 and 202 1 F- 3 Consolidated Statements of Operations for the year s ended December 31, 202 2 and 2021 F- 4 Consolidated Statement s of Comprehensive Income for the year s ended December 31, 202 2 and 2021 F- 5 Consolidated Statements of S hare holders’ Equity for the year s ended December 31, 202 2 and 2021 F- 6 Consolidated Statements of Cash Flows for the year s ended December 31, 202 2 and 2021 F- 7 Notes to Consolidated Financial Statements F- 8 F-1 Table of Contents REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM Board of Directors and Shareholders AFC Gamma, Inc. Opinion on the Financial Statements We have audited the accompanying consolidated balance sheets of AFC Gamma, Inc. and Subsidiary as of December 31, 2022 and 2021, and the related consolidated statements of operations, comprehensive income, shareholders’ equity, and cash flows for the years then ended, and the related notes (collectively referred to as the “consolidated financial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of AFC Gamma, Inc. and Subsidiary as of December 31, 2022 and 2021, and the results of their operations and their cash flows for the years then ended, in conformity with accounting principles generally accepted in the United States of America. Basis for Opinion These consolidated financial statements are the responsibility of the entity’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (“PCAOB”) and are required to be independent with respect to AFC Gamma, Inc. in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud. AFC Gamma, Inc. is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the entity’s internal control over financial reporting. Accordingly, we express no such opinion. Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audits provide a reasonable basis for our opinion. Emphasis of Matter As further described in Note 10, AFC Gamma, Inc. is subject to significant risks and uncertainties due to originating, structuring, underwriting and managing senior secured loans and other types of loans for established cannabis industry operators. /s/ CohnReznick LLP We have served as AFC Gamma Inc.’s auditor since 2020. Baltimore, Maryland March 7, 2023 F-2 Table of Contents AFC GAMMA, INC. CONSOLIDATED BALANCE SHEETS As of December 31, 2022 2021 Assets Loans held for investment at fair value (cost of $ 100,635,985 and $ 74,913,157 at December 31, 2022 and 2021, respectively, net) $ 99,226,051 $ 77,096,319 Debt securities available for sale held at fair value (cost of $ 16,050,000 at December 31, 2021) — 15,881,250 Loans held for investment at carrying value, net 285,177,112 257,163,496 Loan receivable held at carrying value, net 2,220,653 2,530,588 Current expected credit loss reserve ( 13,538,077 ) ( 2,431,558 ) Loans held for investment at carrying value and loan receivable at carrying value, net of current expected credit loss reserve 273,859,688 257,262,526 Cash and cash equivalents 140,372,841 109,246,048 Interest receivable 5,257,475 4,412,938 Prepaid expenses and other assets 460,844 949,279 Total assets $ 519,176,899 $ 464,848,360 Liabilities Interest reserve $ 3,200,944 $ 4,782,271 Accrued interest 1,036,667 991,840 Due to affiliate 18,146 — Dividends payable 11,403,840 8,221,406 Current expected credit loss reserve 754,128 683,177 Accrued management and incentive fees 3,891,734 2,823,044 Accrued direct administrative expenses 1,843,652 1,324,457 Accounts payable and other liabilities 836,642 1,528,980 Senior notes payable, net 97,131,777 96,572,656 Line of credit payable, net 60,000,000 74,845,355 Total liabilities 180,117,530 191,773,186 Commitments and contingencies (Note 10) Shareholders' equity Preferred stock, par value $ 0.01 per share, 10,000 shares authorized at December 31, 2022 and 2021 and 125 shares issued and outstanding at December 31, 2022 and 2021, respectively 1 1 Common stock, par value $ 0.01 per share, 50,000,000 and 25,000,000 shares authorized at December 31, 2022 and 2021, respectively, and 20,364,000 and 16,442,812 shares issued and outstanding at December 31, 2022 and 2021, respectively 203,640 163,866 Additional paid-in-capital 348,817,914 274,172,934 Accumulated other comprehensive income (loss) — ( 168,750 ) Accumulated (deficit) earnings ( 9,962,186 ) ( 1,092,877 ) Total shareholders' equity 339,059,369 273,075,174 Total liabilities and shareholders' equity $ 519,176,899 $ 464,848,360 See accompanying notes to the consolidated financial statements F-3 Table of Contents AFC GAMMA, INC. CONSOLIDATED STATEMENTS OF OPERATIONS Year ended December 31, 2022 2021 Revenue Interest income $ 81,498,717 $ 38,140,487 Interest expense ( 6,814,075 ) ( 1,126,846 ) Net interest income 74,684,642 37,013,641 Expenses Management and incentive fees, net (less rebate of $ 1,785,916 and $ 1,029,315 , respectively) 15,765,250 8,321,512 General and administrative expenses 4,699,676 3,212,785 Stock-based compensation 1,338,469 1,745,872 Professional fees 1,601,961 1,118,291 Total expenses 23,405,356 14,398,460 Provision for current expected credit losses ( 11,177,470 ) ( 2,649,338 ) Realized gains (losses) on sales of investments, net 450,000 450,000 Change in unrealized (losses) gains on loans at fair value, net ( 3,593,095 ) 619,821 Net income before income taxes 36,958,721 21,035,664 Income tax expense 1,026,324 35,167 Net income $ 35,932,397 $ 21,000,497 Earnings per common share: Basic earnings per common share (in dollars per share) $ 1.80 $ 1.57 Diluted earnings per common share (in dollars per share) $ 1.79 $ 1.52 Weighted average number of common shares outstanding: Basic weighted average shares of common stock outstanding (in shares) 19,842,222 13,373,778 Diluted weighted average shares of common stock outstanding (in shares) 19,957,737 13,808,845 See accompanying notes to the consolidated financial statements F-4 Table of Contents AFC GAMMA, INC. CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME Year ended December 31, 2022 2021 Net income $ 35,932,397 $ 21,000,497 Other comprehensive income (loss): Reversal of unrealized loss to recognized loss on debt securities available for sale held at fair value 168,750 — Unrealized (losses) gains on debt securities available for sale held at fair value — ( 168,750 ) Total other comprehensive income (loss) 168,750 ( 168,750 ) Total comprehensive income $ 36,101,147 $ 20,831,747 See accompanying notes to the consolidated financial statements F-5 Table of Contents AFC GAMMA, INC. CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY Year ended December 31, 2022 Preferred Stock Common Stock Additional Paid-In- Capital Accumulated Other Comprehensive Income (Loss) Accumulated Earnings (Deficit) Total Shareholders’ Equity Shares Amount Balance at December 31, 2021 $ 1 16,442,812 $ 163,866 $ 274,172,934 $ ( 168,750 ) $ ( 1,092,877 ) $ 273,075,174 Issuance of common stock, net of offering costs — 3,913,230 39,694 73,306,511 — — 73,346,205 Stock-based compensation — 7,958 80 1,338,469 — — 1,338,549 Dividends declared on common shares ($ 2.23 per share) — — — — — ( 44,786,706 ) ( 44,786,706 ) Dividends declared on preferred shares ($ 120 per share) — — — — — ( 15,000 ) ( 15,000 ) Other comprehensive income (loss) — — — — 168,750 — 168,750 Net income — — — — — 35,932,397 35,932,397 Balance at December 31, 2022 $ 1 20,364,000 $ 203,640 $ 348,817,914 $ — $ ( 9,962,186 ) $ 339,059,369 Year ended December 31, 2021 Preferred Stock Common Stock Additional Paid-In- Capital Accumulated Other Comprehensive Income (Loss) Accumulated Earnings (Deficit) Total Shareholders’ Equity Shares Amount 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 — 10,207,135 102,072 181,358,865 — — 181,460,937 Stock-based compensation — 56,285 — 1,745,872 — — 1,745,872 Dividends declared on common shares ($ 1.67 per share) — — — — — ( 22,596,094 ) ( 22,596,094 ) Dividends declared on preferred shares ($ 120 per share) — — — — — ( 15,000 ) ( 15,000 ) Other comprehensive income (loss) — — — — ( 168,750 ) — ( 168,750 ) Net income — — — — — 21,000,497 21,000,497 Balance at December 31, 2021 $ 1 16,442,812 $ 163,866 $ 274,172,934 $ ( 168,750 ) $ ( 1,092,877 ) $ 273,075,174 See accompanying notes to the consolidated financial statements F-6 Table of Contents AFC GAMMA, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS Year ended December 31, 2022 2021 Operating activities: Net income $ 35,932,397 $ 21,000,497 Adjustments to reconcile net income to net cash provided by (used in) operating activities: Provision for current expected credit losses 11,177,470 2,649,338 Realized (gains) losses on sale of investments, net ( 450,000 ) ( 450,000 ) Change in unrealized losses (gains) on loans at fair value, net 3,593,095 ( 619,821 ) Accretion of deferred loan original issue discount and other discounts ( 11,763,696 ) ( 5,584,311 ) Amortization of deferred financing costs - revolving credit facility 262,386 32,855 Amortization of deferred financing costs - senior notes 659,120 102,151 Stock-based compensation 1,338,469 1,745,872 PIK interest ( 8,369,127 ) ( 4,534,370 ) Changes in operating assets and liabilities Interest receivable ( 844,537 ) ( 3,485,646 ) Prepaid expenses and other assets 859,203 ( 877,184 ) Interest reserve ( 2,031,327 ) ( 5,993,947 ) Accrued interest 44,827 991,840 Accrued management and incentive fees, net 1,068,690 2,600,917 Accrued direct administrative expenses 519,195 773,786 Accounts payable and other liabilities ( 674,192 ) 1,186,585 Net cash provided by (used in) operating activities 31,321,973 9,538,562 Cash flows from investing activities: Issuance of and fundings on loans ( 162,885,750 ) ( 272,583,787 ) Proceeds from sales of Assigned Rights — 2,313,130 Principal repayment of loans 120,042,065 22,412,569 Proceeds from sales of loans 10,600,000 15,450,000 Sale of available-for-sale debt securities 15,900,000 — Purchase of available-for-sale debt securities — ( 16,050,000 ) Net cash provided by (used in) investing activities ( 16,343,685 ) ( 248,458,088 ) Cash flows from financing activities: Proceeds from sale of common stock 75,057,650 185,501,294 Payment of offering costs - equity offering ( 1,711,365 ) ( 4,040,357 ) Payment of financing costs ( 578,508 ) ( 3,529,495 ) Issuance of senior notes — 100,000,000 Borrowings on the revolving credit facilities 60,000,000 75,000,000 Dividends paid to common and preferred shareholders ( 41,619,272 ) ( 14,389,688 ) Repayment on revolving credit facility ( 75,000,000 ) — Net cash provided by (used in) financing activities 16,148,505 338,541,754 Net increase (decrease) in cash and cash equivalents 31,126,793 99,622,228 Cash and cash equivalents, beginning of period 109,246,048 9,623,820 Cash and cash equivalents, end of period $ 140,372,841 $ 109,246,048 Supplemental disclosure of non-cash activity Interest reserve withheld from funding of loans $ 450,000 $ 9,450,468 OID withheld from funding of loans $ 7,764,875 $ 15,021,624 Change in other comprehensive income (loss) during the period $ 168,750 $ ( 168,750 ) Dividends declared and not yet paid $ 11,403,840 $ 8,221,406 Supplemental information: Interest paid during the period $ 5,847,743 $ — Income taxes paid during the period $ 952,524 $ 35,167 See accompanying notes to the consolidated financial statements F-7 Table of Contents AFC GAMMA, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS As of December 31, 2022 1. ORGANIZATION AFC Gamma, Inc. (the “Company” or “AFCG”) is an institutional lender to the commercial real estate sector that was founded in July 2020 by a veteran team of investment professionals. The Company primarily originates, structures, underwrites, invests in and manages senior secured commercial real estate loans and other types of loans and debt securities, with a specialization in loans to cannabis industry operators in states that have legalized medical and/or adult use cannabis. 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, a Delaware limited liability company (the Company’s “Manager”), pursuant to the terms of the Amended and Restated Management Agreement, dated January 14, 2021, between the parties (as amended from time to time, the “Management Agreement”). The Company’s wholly-owned subsidiary, AFCG TRS1, LLC, a Delaware limited liability company (“TRS1”), operates as a taxable real estate investment trust subsidiary (a “TRS”). TRS1 began operating in July 2021, and the financial statements of TRS1 have been consolidated within the Company’s consolidated financial statements beginning with the quarter ended September 30, 2021. The Company operates in one operating segment and is primarily focused on financing senior secured loans and other types of loans primarily to (i) senior secured loans to cannabis industry operators in states where medical and/or adult-use cannabis is legal and (ii) secured loans to commercial real estate owners, operators and related businesses. These loans are generally held for investment and are secured, directly or indirectly, by real estate, equipment, the value associated with licenses (where applicable) 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 real estate investment trust (“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 shareholders and complies with various other requirements as a REIT. 2. SIGNIFICANT ACCOUNTING POLICIES Basis of Presentation The accompanying consolidated financial statements have been prepared on the accrual basis of accounting in conformity with accounting principles generally accepted in the United States of America (“GAAP”) and include the accounts of the Company, and its wholly-owned subsidiary. The consolidated financial statements reflect all adjustments that, in the opinion of management, are necessary for the fair presentation of the Company’s results of operations and financial condition as of and for the periods presented. All intercompany balances and transactions have been eliminated in consolidation. Cash, Cash Equivalents and Restricted Cash Cash and cash equivalents include funds on deposit with financial institutions, including demand deposits with financial institutions. Cash and short-term investments with an original maturity of three months or less when acquired are considered cash and cash equivalents for the purpose of the consolidated balance sheets and consolidated statements of cash flows. Restricted cash includes deposits required under certain secured funding agreements. As of the balance sheet date, the Company did not have any restricted cash. F-8 Table of Contents Concentration of Credit Risks Financial instruments that potentially subject the Company to concentrations of credit risk consist primarily of cash and cash equivalents, loans and interest receivable. The Company places its cash and cash equivalents with financial institutions, and, at times, cash held exceeds the Federal Deposit Insurance Corporation insured limit. The Company and the Company’s Manager seek to manage this credit risk by monitoring the financial institutions and their ability to continue in business for the foreseeable future. The Company has exposure to credit risk on its loans and interest receivable. The Company and the Company’s Manager seek to manage credit risk by performing due diligence prior to origination or acquisition and through the use of non-recourse financing, when and where available and appropriate. Investments in Loans The Company originates commercial real estate (“CRE”) debt and related instruments generally to be held for investment. The Company accretes or amortizes any discounts or premiums on loans held for investment over the life of the related loan held for investment utilizing the effective interest method. Loans are generally collateralized by real estate, equipment, value associated with licenses (where applicable) and/or other assets of borrowers. The extent of any credit deterioration associated with the performance and/or value of the underlying collateral property and the financial and operating capability of the borrower could impact the expected amounts received. The Company monitors performance of its portfolio of loans held for investment under the following methodology: (1) borrower review, which analyzes the borrower’s ability to execute on its original business plan, reviews its financial condition, assesses pending litigation and considers its general level of responsiveness and cooperation; (2) economic review, which considers underlying collateral (i.e., leasing performance, unit sales and cash flow of the collateral and its ability to cover debt service, as well as the residual loan balance at maturity); (3) property review, which considers current environmental risks, changes in insurance costs or coverage, current site visibility, capital expenditures and market perception; and (4) market review, which analyzes the collateral from a supply and demand perspective of similar property types, as well as from a capital markets perspective. 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. Accrued and unpaid interest is generally reversed against interest income in the period the 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 the borrower’s ability to make pending principal and interest payments. Non-accrual loans are restored to accrual status when past due principal and interest are paid and, in management’s judgment, are likely to remain current. The Company may make exceptions to placing a loan on non-accrual status if the loan has sufficient collateral value and is in the process of collection. The Company may make modifications to loans, including loans that are in default. Loan terms that may be modified include interest rates, required prepayments, maturity dates, covenants, principal amounts and other loan terms. The terms and conditions of each modification vary based on individual circumstances and will be determined on a case-by-case basis. The Company’s Manager monitors and evaluates each of the Company’s loans held for investment and has maintained regular communications with borrowers. Loans Held at Fair Value Investments in loans at fair value are carried at fair value in the Company’s consolidated balance sheets, with changes in fair value recorded through earnings. Refer to Note 14 for more information on the valuations of the investments. Although the Company generally holds its target loans as long-term investments, the Company may occasionally classify some of its loans as held for sale. Loans held for sale are carried at fair value, with changes in fair value recorded through earnings. Loan transactions are recorded on the trade date at cost, net of any original issue discounts. Realized gains or losses are measured by the difference between the net proceeds from the repayment or sale and the amortized and/or accreted cost basis of the investment using the specific identification method without regard to unrealized gains or losses previously recognized, and include loans charged off during the period, net of recoveries. F-9 Table of Contents An unrealized gain arises when the value of the loan portfolio exceeds its cost and an unrealized loss arises when the value of the loan portfolio is less than its cost. The change in unrealized gains or losses primarily reflect the change in loan values, including the reversal of previously recorded unrealized gains or losses when gains or losses are realized. Loans Held at Carrying Value Investments in loans held at carrying value are carried at cost, net of unamortized loan original issue discount and origination costs and other original issue discounts (the “carrying value”) in the Company’s consolidated balance sheets. The Company follows Accounting Standards Codification (“ASC”) 842 for certain loans which are considered financial assets not eligible to elect the fair value option due to the structure of the loans. These loans are carried at cost, net of unamortized loan original issue discount and origination costs and other original issue discounts (the “carrying value”) in the Company’s consolidated balance sheets. Investment in Marketable Securities Investment in marketable securities of $ 0.0 million and $ 15.9 million at December 31, 2022 and 2021, respectively, consists of debt securities that are designated as available-for-sale. Marketable debt securities are recorded at fair value and unrealized holding gains or losses are excluded from net income on the consolidated income statement and reported as a component of accumulated other comprehensive income (loss) within shareholders’ equity. Fair Value Measurements The Company follows ASC 825-10, Recognition and Measurement of Financial Assets and Financial Liabilities (“ASC 825-10”), which provides companies the option to report selected financial assets and liabilities at fair value. ASC 825-10 also establishes presentation and disclosure requirements designed to facilitate comparisons between companies that choose different measurement attributes for similar types of assets and liabilities and to more easily understand the effect of the company’s choice to use fair value on its earnings. ASC 825-10 also requires entities to display the fair value of the selected assets and liabilities on the face of the balance sheet. The Company has elected the ASC 825-10 option to report selected financial assets and liabilities at fair value. The Company also follows ASC 820-10, Fair Value Measurements Overall (“ASC 820-10”), which expands the application of fair value accounting. ASC 820-10 defines fair value, establishes a framework for measuring fair value in accordance with GAAP and expands disclosure of fair value measurements. ASC 820-10 determines fair value to be the price that would be received for an investment in a current sale, which assumes an orderly transaction between market participants on the measurement date. ASC 820-10 requires the Company to assume that the transaction is sold in its principal market to market participants or, in the absence of a principal market, the most advantageous market, which may be a hypothetical market. Market participants are defined as buyers and sellers in the principal or most advantageous market that are independent, knowledgeable, and willing and able to transact. In accordance with ASC 820-10, the Company has considered its principal market as the market in which the Company exits its loans with the greatest volume and level of activity. ASC 820-10 specifies a hierarchy of valuation techniques based on whether the inputs to those valuation techniques are observable or unobservable. In accordance with ASC 820-10, these inputs are summarized in the three broad levels listed below: • Level 1—Valuations based on quoted prices in active markets for identical assets or liabilities that the Company has the ability to access. • Level 2—Valuations based on quoted prices in markets that are not active or for which all significant inputs are observable, either directly or indirectly. • Level 3—Valuations based on inputs that are unobservable and significant to the overall fair value measurement. If inputs used to measure fair value fall into different levels of the fair value hierarchy, a loan’s level is based on the lowest level of input that is significant to the fair value measurement. The Company’s assessment of the significance of a particular input to the fair value measurement in its entirety requires judgment and considers factors specific to the loan. This includes loans that are valued using “bid” and “ask” prices obtained from independent third-party pricing services or directly from brokers. F-10 Table of Contents Financial instruments with readily available quoted prices generally will have a higher degree of market price observability and a lesser degree of judgment inherent in measuring fair value. As such, the Company obtains and analyzes readily available market quotations provided by pricing vendors and brokers for all of the Company’s loans for which quotations are available. In determining the fair value of a particular loan, pricing vendors and brokers use observable market information, including both binding and non-binding indicative quotations. GAAP requires disclosure of fair value information about financial and nonfinancial assets and liabilities, whether or not recognized in the financial statements, for which it is practical to estimate the value. In cases where quoted market prices are not available, fair values are based upon the application of discount rates to estimated future cash flows using market yields, or other valuation methodologies. Any changes to the valuation methodology will be reviewed by the Company’s management to ensure the changes are appropriate. The methods used may produce a fair value calculation that is not indicative of net realizable value or reflective of future fair values. Furthermore, while the Company anticipates that the valuation methods are appropriate and consistent with other market participants, the use of different methodologies, or assumptions, to determine the fair value of certain financial and nonfinancial assets and liabilities could result in a different estimate of fair value at the reporting date. The Company uses inputs that are current as of the measurement date, which may fall within periods of market dislocation, during which price transparency may be reduced. Current Expected Credit Losses In June 2016, the FASB issued Accounting Standards Update (“ASU”) No. 2016-13, Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments. The standard replaced the incurred loss impairment methodology pursuant to GAAP with a methodology that reflects 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 derive credit loss estimates (the “CECL Reserve”). ASU No. 2016-13 was adopted by the Company on July 31, 2020, commencement of operations. Subsequent period increases and decreases to expected credit losses impact earnings and are recorded within the provision for current expected credit losses in the Company’s consolidated statements of operations. The CECL Reserve related to outstanding balances on loans held for investment required under ASU No. 2016-13 is a valuation account that is deducted from the amortized cost basis of the Company’s loans held at carrying value and loans receivable at carrying value in the Company’s consolidated balance sheets. The CECL Reserve related to unfunded commitments on loans held at carrying value is recorded within the current expected credit loss reserve financial statement line in the Company’s balance sheet. See Note 6 included in these consolidated financial statements for CECL related disclosures. Stock-Based Compensation The Company accounts for stock-based compensation issued to employees and the Board of Directors pursuant to the Amended and Restated Stock Incentive Plan (the “Stock Incentive Plan”) under the fair value method. This method measures compensation cost at the date of grant based on the value of the award and recognizes the cost over the service period, which is usually the vesting period. The fair value of equity-based compensation awards is based on the estimated fair value of the Company’s common stock, as determined by management using a valuation model and approved by the Board of Directors. Fair values of award grants also recognize any ongoing restrictions on the sale of securities. Debt Issuance Costs Debt issuance costs related to the Company’s indebtedness are capitalized and amortized over the term of the respective debt instrument utilizing the effective interest method. Unamortized debt issuance costs are expensed when the associated debt is repaid prior to maturity. Amortization of debt issuance costs is included within interest expense in the Company’s consolidated statements of operations. The unamortized balance for the senior notes is recorded within senior notes payable in these consolidated financial statements. The unamortized balance for the revolving credit facility is recorded as within prepaid expenses and other assets on these consolidated financial statements. See Note 9 included in these consolidated financial statements for further consideration. F-11 Table of Contents Payment-in-Kind Interest The Company has loans in its portfolio that contain payment-in-kind (“PIK”) provisions. The PIK interest computed at the contractual rate specified in each applicable agreement is accrued and added to the principal balance of the loan monthly in arrears and recorded as interest income. The PIK income added to the principal balance is generally collected upon repayment of the outstanding principal. To maintain the Company’s status as a REIT, this non-cash source of income is included in taxable income and will increase the dividend paid to shareholders for the year earned, even though the Company has not yet collected the cash. Revenue Recognition Interest income from loans is accrued based on the outstanding principal amount and the contractual terms of each loan. For loans, origination fees, direct loan origination costs, and other discounts (in aggregate the “Original Issue Discount” or “OID”) are also recognized in interest income from loans over the initial loan term as a yield adjustment using the effective interest method. Management places loans on non-accrual status when principal or interest payments are past due 30 days or more or when full recovery of interest and principal is doubtful. Accrued and unpaid interest is generally reversed against interest income in the period the loan is placed on non-accrual status. Interest payments received on non-accrual loans are generally recognized on a cash basis and may be recognized as income or applied to principal depending upon management’s judgment regarding the borrower’s ability to make pending principal and interest payments. Non-accrual loans are restored to accrual status when past due principal and interest are paid and, in management’s judgment, are likely to remain current. The Company may make exceptions to placing a loan on non-accrual status if the loan has sufficient collateral value and is in the process of collection. Delayed draw loans earn interest or unused fees on the undrawn portion of the loan, which is recognized as interest income in the period earned. Other fees, including prepayment fees and exit fees, are recognized as interest income when received. Interest reserves The Company utilizes interest reserves on certain loans to fund the interest payments. Such reserves are established at the time of loan origination. The interest reserve represents a deposit received from the borrower for future loan interest payments. It is recorded as a liability as it represents unearned interest revenue. The interest reserve is relieved when the interest on the loan is earned and interest income is recorded in the period when the interest is earned in accordance with the credit agreement. The interest payment is deducted from the interest reserve deposit balance when the interest payment is due. The decision to establish a loan-funded interest reserve is made during the underwriting process and considers the feasibility of the project, the creditworthiness and expertise of the borrower, and the debt coverage provided by the real estate and other pledged collateral. It is the Company’s policy to recognize income for this interest component as long as the borrower is progressing as originally projected and if there has been no deterioration in the financial standing of the borrower or the underlying project. The Company’s standard policies for interest income recognition are applied to all loans, including those with interest reserves. Income Taxes The Company is a Maryland corporation and has elected to be taxed as a REIT under the Code, commencing with its taxable year ended December 31, 2020. The Company believes that its proposed method of operation will enable it to qualify as a REIT. However, no assurances can be given that the Company’s beliefs or expectations will be fulfilled, since qualification as a REIT depends on the Company satisfying numerous asset, income and distribution tests which depend, in part, on the Company’s operating results. F-12 Table of Contents To qualify as a REIT, the Company must meet a number of organizational and operational requirements. Those qualification tests involve the percentage of income that the Company earns from specified sources, the percentage of the Company’s assets that fall within specified categories, the diversity of the ownership of the Company’s shares, and the percentage of the Company’s taxable income that the Company distributes. The Company is required to distribute annually to its shareholders at least 90% of the Company’s REIT taxable income prior to the deduction for dividends paid. To the extent that the Company distributes less than 100% of its REIT taxable income in any tax year (taking into account any distributions made in a subsequent tax year under Sections 857(b)(9) or 858 of the Code), the Company will pay tax at regular corporate rates on that undistributed portion. Furthermore, the Company will be subject to a 4% nondeductible excise tax on any amount by which distributions the Company pays with respect to any calendar year (including any distributions declared by the last day of the calendar year but paid in the subsequent year) are less than the sum of (1) 85% of our ordinary income, (2) 95% of our capital gain net income and (3) 100% of our undistributed income from prior years. The annual expense is calculated in accordance with applicable tax regulations. Excise tax expense is included in the financial statement line item income tax expense. The Company’s wholly-owned subsidiary, TRS1, operates as a TRS and began operating in July 2021. A TRS is an entity taxed as a corporation that has not elected to be taxed as a REIT, in which a REIT directly or indirectly holds equity, and that has made a joint election with such REIT to be treated as a TRS. A TRS generally may engage in any business, including investing in assets and engaging in activities that could not be held or conducted directly by the Company without jeopardizing its qualification as a REIT. A TRS is subject to applicable United States federal, state and local income tax on its taxable income. In addition, as a REIT, the Company also may be subject to a 100% excise tax on certain transactions between it and its TRS that are not conducted on an arm’s-length basis. The income tax provision is included in the line item income tax expense, including excise tax in the consolidated statements of operations included in this Annual Report on Form 10-K. FASB ASC Topic 740, Income Taxes (“ASC 740”), prescribes a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. ASC 740 also provides guidance on derecognition, classification, interest and penalties, accounting in interim periods, disclosure and transition. The Company has analyzed its various federal and state filing positions and believes that its income tax filing positions and deductions are well documented and supported as of December 31, 2022. Based on the Company’s evaluation, there is no reserve for any uncertain income tax positions. Accrued interest and penalties, if any, are included within other liabilities in the consolidated balance sheets. Earnings per Share The Company calculates basic earnings (loss) per share by dividing net income (loss) allocable to common shareholders for the period by the weighted average shares of common stock outstanding for that period after consideration of the earnings (loss) allocated to the Company’s restricted stock, which are participating securities as defined in GAAP. Diluted earnings (loss) per share takes into effect any dilutive instruments, such as stock options, restricted stock, restricted stock units (“RSUs”) and convertible debt, except when doing so would be anti-dilutive. As of December 31, 2022, there were dilutive instruments relating to stock options and restricted shares. See Note 11 included in these consolidated financial statements for the earnings per share calculations. Use of Estimates in the Preparation of Financial Statements The preparation of consolidated 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 and current expected credit losses. F-13 Table of Contents Recent Accounting Pronouncements In March 2020, the FASB issued 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. 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. They 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 has evaluated the impact of this ASU and has determined that adoption of this ASU did not have a material effect on the Company’s consolidated financial statements. 3. LOANS HELD FOR INVESTMENT AT FAIR VALUE As of December 31, 2022 and 2021, the Company’s portfolio included three loans held at fair value. The aggregate originated commitment under these loans was approximately $ 104.3 million and $ 75.9 million, respectively, and outstanding principal was approximately $ 102.4 million and $ 77.6 million, as of December 31, 2022 and 2021, respectively. For the year ended December 31, 2022, the Company gross funded approximately $ 26.6 million of additional principal and had approximately $ 6.5 million of principal repayments of loans held at fair value. As of December 31, 2022 and 2021, none of the Company’s loans held at fair value had floating interest rates. The following tables summarize the Company’s loans held at fair value as of December 31, 2022 and 2021: As of December 31, 2022 Fair Value (1) Carrying Value (2) Outstanding Principal (2) Weighted Average Remaining Life (Years) (3) Senior term loans $ 99,226,051 $ 100,635,985 $ 102,376,546 1.2 Total loans held at fair value $ 99,226,051 $ 100,635,985 $ 102,376,546 1.2 As of December 31, 2021 Fair Value (1) Carrying Value (2) Outstanding Principal (2) Weighted Average Remaining Life (Years) (3) Senior term loans $ 77,096,319 $ 74,913,157 $ 77,630,742 2.2 Total loans held at fair value $ 77,096,319 $ 74,913,157 $ 77,630,742 2.2 (1) Refer to Note 14 to the Company's consolidated financial statements. (2) 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. (3) Weighted average remaining life is calculated based on the fair value of the loans as of December 31, 2022 and 2021 . F-14 Table of Contents The following table presents changes in loans held at fair value as of and for the year ended December 31, 2022: Principal Original Issue Discount Unrealized Gains (Losses) Fair Value Total loans held at fair value at December 31, 2021 $ 77,630,742 $ ( 2,717,584 ) $ 2,183,161 $ 77,096,319 Change in unrealized (losses) gains on loans at fair value, net — — ( 3,593,095 ) ( 3,593,095 ) New fundings 26,605,796 ( 479,275 ) — 26,126,521 Loan repayments ( 5,397,191 ) — — ( 5,397,191 ) Loan amortization payments ( 1,089,776 ) — — ( 1,089,776 ) Accretion of original issue discount — 1,456,298 — 1,456,298 PIK interest 4,626,975 — — 4,626,975 Total loans held at fair value at December 31, 2022 $ 102,376,546 $ ( 1,740,561 ) $ ( 1,409,934 ) $ 99,226,051 The following table presents changes in loans held at fair value as of and for the year ended December 31, 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 — — 619,821 619,821 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 — 2,249,563 — 2,249,563 PIK interest 2,192,062 — — 2,192,062 Total loans held at fair value at December 31, 2021 $ 77,630,742 $ ( 2,717,584 ) $ 2,183,161 $ 77,096,319 As of December 31, 2022, the Company had one loan held at fair value on non-accrual status with an outstanding principal amount of approximately $ 1.2 million with a related unrealized loss recorded of approximately $( 1.2 ) million. As of December 31, 2021, all loans held at fair value were current and performing. A more detailed listing of the Company’s loans held at fair value portfolio based on information available as of December 31, 2022 is as follows: Collateral Location Collateral Type (1) Fair Value (2) Carrying Value (3) Outstanding Principal (3) Interest Rate Maturity Date (4) Payment Terms (5) Private Co. A AZ, MI, MD, MA, NM C, D $ 83,836,293 $ 84,217,657 $ 85,664,884 15.9 % (6) 5/8/2024 P/I Public Co. A (9) NV C — 1,213,416 1,213,416 15.0 % (7) 9/30/2023 I/O Private Co. B MI C, D 15,389,758 15,204,912 15,498,246 18.7 % (8) 9/1/2023 P/I Total loans held at fair value $ 99,226,051 $ 100,635,985 $ 102,376,546 (1) C = Cultivation Facilities, D = Dispensary/Retail Facilities. (2) Refer to Note 14 in these annual consolidated financial statements. (3) The difference between the carrying value and the outstanding principal amount of the loans consists of OID and loan origination costs. F-15 Table of Contents (4) 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. (5) I/O = interest-only, P/I = principal and interest. P/I loans may include interest-only periods for a portion of the loan term. (6) Base weighted average interest rate of 12.4 % and payment-in-kind (“PIK”) weighted average interest rate of 3.5 %. (7) Base interest rate of 7.5 % and PIK interest rate of 7.5 %. (8) Base weighted average interest rate of 14.7 % and PIK weighted average interest rate of 4.0 %. (9) As of October 1, 2022, this loan was placed on non-accrual status. 4. LOANS HELD FOR INVESTMENT AT CARRYING VALUE As of December 31, 2022 and 2021, the Company’s portfolio included nine and twelve loans, respectively, held at carrying value. The aggregate originated commitment under these loans was approximately $ 338.9 million and $ 324.3 million, respectively, and outstanding principal was approximately $ 296.6 million and $ 270.8 million, as of December 31, 2022 and 2021, respectively. For the year ended December 31, 2022, the Company funded approximately $ 173.7 million of additional principal and we had repayments of approximately $ 151.7 million of principal repayments. As of December 31, 2022 and 2021, approximately 73 % and 48 %, respectively, of the Company’s loans held at carrying value had floating interest rates. As of December 31, 2022, these floating benchmark rates include one-month LIBOR subject to a weighted average floor of 1.0 % and quoted at 4.392%, one-month Secured Overnight Financing Rate (“SOFR”), subject to a weighted average floor of 1.0 % and quoted at 4.358% and U.S. prime rate subject to a weighted average floor of 4.9 % quoted at 7.500%. The following tables summarize the Company’s loans held at carrying value as of December 31, 2022 and 2021: As of December 31, 2022 Outstanding Principal (1) Original Issue Discount Carrying Value (1) Weighted Average Remaining Life (Years) (2) Senior term loans $ 296,584,529 $ ( 11,407,417 ) $ 285,177,112 3.1 Total loans held at carrying value $ 296,584,529 $ ( 11,407,417 ) $ 285,177,112 3.1 As of December 31, 2021 Outstanding Principal (1) Original Issue Discount Carrying Value (1) Weighted Average Remaining Life (Years) (2) Senior term loans $ 270,841,715 $ ( 13,678,219 ) $ 257,163,496 3.4 Total loans held at carrying value $ 270,841,715 $ ( 13,678,219 ) $ 257,163,496 3.4 F-16 Table of Contents (1) The difference between the carrying value and the outstanding principal amount of the loans consists of unaccreted OID and loan origination costs. (2) Weighted average remaining life is calculated based on the carrying value of the loans as of December 31, 2022 and 2021. The following table presents changes in loans held at carrying value as of and for the year ended December 31, 2022: Principal Original Issue Discount Carrying Value Total loans held at carrying value at December 31, 2021 $ 270,841,715 $ ( 13,678,219 ) $ 257,163,496 New fundings 173,685,505 ( 8,035,600 ) 165,649,905 Accretion of original issue discount — 10,306,402 10,306,402 Loan repayments ( 138,807,472 ) — ( 138,807,472 ) Sale of loans ( 10,000,000 ) — ( 10,000,000 ) PIK interest 3,715,966 — 3,715,966 Loan amortization payments ( 2,851,185 ) — ( 2,851,185 ) Total loans held at carrying value at December 31, 2022 $ 296,584,529 $ ( 11,407,417 ) $ 285,177,112 The following table presents changes in loans held at carrying value as of and for the year ended December 31, 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 249,591,644 ( 14,941,001 ) 234,650,643 Accretion of original issue discount — 3,333,514 3,333,514 Realized gain on sale of loans 450,000 — 450,000 Sale of loans ( 15,450,000 ) — ( 15,450,000 ) PIK interest 2,342,308 — 2,342,308 Total loans held at carrying value at December 31, 2021 $ 270,841,715 $ ( 13,678,219 ) $ 257,163,496 A more detailed listing of the Company’s loans held at carrying value portfolio based on information available as of December 31, 2022 is as follows: Collateral Location Collateral Type (1) Outstanding Principal (2) Original Issue Discount Carrying Value (2) Interest Rate Maturity Date (3) Payment Terms (4) Private Co. C PA C, D $ 23,583,502 $ ( 562,061 ) $ 23,021,441 20.0 % (5) 12/1/2025 P/I Sub of Private Co. G NJ, PA C, D 72,346,562 ( 1,817,050 ) 70,529,512 17.8 % (6) 5/1/2026 P/I Sub of Private Co. H IL C 5,781,250 ( 26,693 ) 5,754,557 15.0 % (7) 5/11/2023 I/O Private Co. K MA C, D 10,765,379 ( 865,760 ) 9,899,619 16.4 % (8) 5/3/2027 P/I Private Co. I MD C, D 10,930,892 ( 165,925 ) 10,764,967 20.9 % (9) 8/1/2026 P/I Private Co. J MO C, D 23,409,452 ( 524,788 ) 22,884,664 20.4 % (10) 9/1/2025 P/I Sub. of Public Co. H CT, IA, IL, ME, MI, NJ, PA C, D 75,000,000 ( 3,326,423 ) 71,673,577 13.3 % (11) 1/1/2026 I/O Private Co. L MO, OH C, D 50,945,492 ( 2,142,857 ) 48,802,635 12.0 % (12) 5/1/2026 P/I Sub. of Public Co. M IL, MI, MA, NJ, OH, PA C, D 23,822,000 ( 1,975,860 ) 21,846,140 9.5 % (13) 8/27/2025 I/O Total loans held at carrying value $ 296,584,529 $ ( 11,407,417 ) $ 285,177,112 F-17 Table of Contents (1) C = Cultivation Facilities, D = Dispensary/Retail Facilities. (2) The difference between the carrying value and the outstanding principal amount of the loans consists of unaccreted OID and loan origination costs. (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 9.0 % plus U.S. prime rate (U.S. prime rate floor of 4.0 %) and PIK interest rate of 4.0 %. (6) Base interest rate of 10.25 % plus U.S. prime rate (U.S. prime rate floor of 4.5 %). As amended, 75.0 % of the monthly cash interest is PIK’d from December 1, 2022 until April 1, 2023. (7) Base interest rate of 15.0 %. (8) Base interest rate of 12.0 % plus SOFR (SOFR floor of 1.0 %). (9) Base interest rate of 12.0 % plus LIBOR (LIBOR floor of 1.0 %) and PIK interest rate of 4.5 %. As amended, 50.0 % of the monthly cash interest is PIK’d from October 1, 2022 until January 1, 2023. (10) Base interest rate of 12.0 % plus LIBOR (LIBOR floor of 1.0 %) and PIK interest rate of 4.0 %. (11) Base interest rate of 5.8 % plus U.S. prime rate (U.S. prime rate floor of 5.5 %). (12) Base interest rate of 12.0 %. (13) Base interest rate of 9.5 % . 5. LOAN RECEIVABLE HELD AT CARRYING VALUE As of December 31, 2022 and 2021, the Company’s portfolio included one loan receivable held at carrying value. The originated commitment under this loan was $ 4.0 million and outstanding principal was approximately $ 2.2 million and $ 2.5 million as of December 31, 2022 and 2021, respectively. During the year ended December 31, 2022, the Company received repayments of approximately $ 0.3 million of outstanding principal. The following table presents changes in loans receivable as of and for the year ended December 31, 2022: Principal Original Issue Discount Carrying Value Total loan receivable held at carrying value at December 31, 2021 $ 2,533,266 $ ( 2,678 ) $ 2,530,588 Principal repayment of loans ( 337,114 ) — ( 337,114 ) Accretion of original issue discount — 992 992 PIK interest 26,187 — 26,187 Total loan receivable held at carrying value at December 31, 2022 $ 2,222,339 $ ( 1,686 ) $ 2,220,653 The following table presents changes in loans receivable as of and for the year ended December 31, 2021: Principal Original Issue Discount Carrying Value Total loan receivable held at carrying value at December 31, 2020 $ 3,352,176 $ ( 3,913 ) $ 3,348,263 Principal repayment of loans ( 818,910 ) — ( 818,910 ) Accretion of original issue discount — 1,235 1,235 Total loan receivable held at carrying value at December 31, 2021 $ 2,533,266 $ ( 2,678 ) $ 2,530,588 As of December 31, 2022, the Company had one loan receivable held at carrying value on non-accrual status with an outstanding principal amount of approximately $ 2.2 million with a related current expected credit loss reserve recorded of approximately $ 1.1 million . As of December 31, 2021, the Company’s loan receivable held at carrying value was current and performing. F-18 Table of Contents 6. CURRENT EXPECTED CREDIT LOSSES The Company estimates its provision for 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 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 may include 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 but not limited to (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 the Company has deemed the borrower/sponsor to be experiencing financial difficulty, the Company 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 (“CMBS”), which the Company believes is a reasonably comparable and available data set to its type of loans. As of December 31, 2022 and 2021, the Company’s CECL Reserve for its loans held at carrying value and loan receivable held at carrying value is approximately $ 14.3 million and $ 3.1 million, respectively, or 4.97 % and 1.20 % respectively, of the Company’s total loans held at carrying value and loan receivable held at carrying value of approximately $ 287.4 million and $ 259.7 million, respectively, and is bifurcated between the current expected credit loss reserve (contra-asset) related to outstanding balances on loans held at carrying value and loan receivable held at carrying value of approximately $ 13.5 million and $ 2.4 million, respectively, and a liability for unfunded commitments of approximately $ 0.8 million and $ 0.7 million, 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. Activity related to the CECL Reserve for outstanding balances and unfunded commitments on the Company’s loans held at carrying value and loan receivable held at carrying value as of and for the years ended December 31, 2022 and 2021 was as follows: Outstanding (1) Unfunded (2) Total Balance at December 31, 2021 $ 2,431,558 $ 683,177 $ 3,114,735 Provision for current expected credit losses 11,106,519 70,951 11,177,470 Write-offs — — — Recoveries — — — Balance at December 31, 2022 $ 13,538,077 $ 754,128 $ 14,292,205 F-19 Table of Contents Outstanding (1) Unfunded (2) Total Balance at December 31, 2020 $ 404,860 $ 60,537 $ 465,397 Provision for current expected credit losses 2,026,698 622,640 2,649,338 Write-offs — — — Recoveries — — — Balance at December 31, 2021 $ 2,431,558 $ 683,177 $ 3,114,735 (1) As of December 31, 2022 and 2021, the CECL Reserve related to outstanding balances on loans held at carrying value and loan receivable held at carrying value are recorded within current expected credit loss reserve in the Company’s consolidated balance sheets. (2) As of December 31, 2022 and 2021, the CECL Reserve related to unfunded commitments on loans held at carrying value is recorded within current expected credit loss reserve as a liability 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 — Materially exceeds performance metrics included in original or current credit underwriting and business plan. 2 Low Risk — Collateral and business performance exceeds substantially all performance metrics included in original or current credit underwriting and business plan. 3 Medium Risk — Collateral and business performance meets, or is on track to meet, underwriting expectations; business plan is met or can reasonably be achieved. 4 High Risk/Potential for Loss — Collateral performance falls short of underwriting, material differences from business plans, defaults may exist, or may soon exist absent material improvement. Risk of recovery of interest exists. 5 Impaired/Loss Likely — Performance is significantly worse than underwriting with major variances from business plan observed. Loan covenants or financial milestones have been breached; exit from loan or refinancing is uncertain. Full recovery of principal is unlikely. The risk ratings are primarily based on historical data as well as taking into account future economic conditions. As of December 31, 2022, the carrying value, excluding the CECL Reserve, of the Company’s loans held at carrying value and loan receivable held at carrying value within each risk rating by year of origination is as follows: Risk Rating: 2022 2021 2020 Total 1 $ — $ — $ — $ — 2 — — — — 3 80,548,393 77,428,134 23,021,441 180,997,968 4 — 104,179,144 — 104,179,144 5 — — 2,220,653 2,220,653 Total $ 80,548,393 $ 181,607,278 $ 25,242,094 $ 287,397,765 F-20 Table of Contents 7. INTEREST RECEIVABLE The following table summarizes the interest receivable by the Company as of December 31, 2022 and 2021: As of December 31, 2022 2021 Interest receivable $ 3,722,134 $ 3,562,566 PIK receivable 1,409,678 554,357 Unused fees receivable 125,663 296,015 Total interest receivable $ 5,257,475 $ 4,412,938 8. INTEREST RESERVE At December 31, 2022 and 2021, the Company had three and seven loans, respectively, that included a loan-funded interest reserve. For the years ended December 31, 2022 and 2021, approximately $ 14.2 million $ 6.0 million, respectively, of aggregate interest income was earned and disbursed from the interest reserves. The following table presents changes in interest reserve as of and for the years ended December 31, 2022 and 2021: As of December 31, 2022 2021 Beginning reserves $ 4,782,271 $ 1,325,750 New reserves 12,648,888 9,450,468 Reserves disbursed ( 14,230,215 ) ( 5,993,947 ) Ending reserves $ 3,200,944 $ 4,782,271 9. DEBT Revolving Credit Facility On April 29, 2022, the Company entered into the Loan and Security Agreement (the “Revolving Credit Agreement”) by and among the Company, the other loan parties from time to time party thereto, the lenders party thereto, and the lead arranger, bookrunner and administrative agent party thereto, pursuant to which, the Company obtained a $ 60.0 million senior secured revolving credit facility (the “Revolving Credit Facility”). The Revolving Credit Facility has a maturity date of April 29, 2025. The Revolving Credit Facility contains aggregate commitments of $ 60.0 million from two FDIC-insured banking institutions (which may be increased to up to $ 100.0 million in aggregate, subject to available borrowing base and additional commitments) which may be borrowed, repaid and redrawn, subject to a borrowing base based on eligible loan obligations held by the Company and subject to the satisfaction of other conditions provided under the Revolving Credit Facility. Interest is payable on the Revolving Credit Facility at the greater of (1) the applicable base rate plus 0.50 % and (2) 4.50 %, as provided in the Revolving Credit Agreement, payable in cash in arrears. The Company incurred a one-time commitment fee expense of approximately $ 0.5 million, which is included in prepaid expenses and other assets on the Company’s consolidated balance sheets and amortized over the life of the facility. Commencing on the six-month anniversary of the closing date, the Revolving Credit Facility has an unused line fee of 0.25 % per annum, to be paid semi-annually in arrears, which is included within interest expense in the Company’s consolidated statements of operations. On December 28, 2022, the Company drew on the full amount of the Revolving Credit Facility, resulting in $ 60.0 million outstanding and $ 0.0 million available for borrowing and incurred interest expense of approximately $ 0.1 million for the year ended December 31, 2022. All outstanding borrowings were subsequently repaid in full on January 3, 2023. The Company amortized approximately $ 0.1 million of deferred financing costs for the year ended December 31, 2022, respectively. F-21 Table of Contents The obligations of the Company under the Revolving Credit Facility are secured by certain assets of the Company comprising of or relating to loan obligations designated for inclusion in the borrowing base. In addition, the Company is subject to various financial and other covenants, including: (1) liquidity of at least $ 5.0 million, (2) annual debt service coverage of at least 1.5 to 1.0 and (3) secured debt not to exceed 25 % of total consolidated assets of the Company and its subsidiaries. Termination of AFC Finance Revolving Credit Facility In July 2020, the Company obtained a secured revolving credit line (the “AFCF Revolving Credit Facility”) from AFC Finance, LLC and Gamma Lending HoldCo LLC, each affiliates of the Company’s management, secured by the assets of the Company. The AFCF Revolving Credit Facility originally had a loan commitment of $ 40.0 million at an interest rate of 8 % per annum, payable in cash in arrears. The maturity date of the AFCF 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 AFCF Revolving Credit Agreement, in accordance with terms of the credit agreement governing the AFCF Revolving Credit Facility (the “AFCF Revolving Credit Agreement”). On May 7, 2021, the Company amended the AFCF Revolving Credit Agreement (the “First Amendment”). The First Amendment (i) increased the loan commitment from $ 40.0 million to $ 50.0 million, (ii) decreased the interest rate from 8 % per annum to 6 % per annum, (iii) removed Gamma Lending Holdco LLC as a lender and (iv) extended the maturity date from July 31, 2021 to the earlier of (A) December 31, 2021 or (B) the date of the closing of any refinancing credit facility. On November 3, 2021, the Company entered into the Second Amendment to the AFCF Revolving Credit Agreement (the “Second Amendment”). Under the Second Amendment, payments to AFC Finance, LLC for interest, commitment fees and unused fees (net applicable taxes) were required to be paid directly or indirectly through AFC Finance, LLC to charitable organizations designated by AFC Finance, LLC. The Second Amendment also (i) increased the loan commitment from $ 50.0 million to $ 75.0 million; (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 2027 Senior Notes upon an event of default under the AFCF Revolving Credit Agreement and (v) extended the fixed element of the maturity date from December 31, 2021 to September 30, 2022. 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 that began in the first quarter of 2022, which was amortized over the life of the loan. On April 29, 2022, upon the Company’s entry into the Revolving Credit Facility, the Company terminated the AFCF Revolving Credit Agreement. In connection with the termination, the Company paid the remaining amount of the commitment fee outstanding of approximately $ 0.1 million and accelerated the remaining deferred financing costs of approximately $ 0.1 million in the second quarter of 2022. There were no other payments, premiums or penalties required to be paid in connection with the termination. As of December 31, 2021, the outstanding loan balance under the AFCF Revolving Credit Facility was $ 75.0 million. All outstanding borrowings were subsequently repaid in full on January 3, 2022. For the years ended December 31, 2022 and 2021, the Company incurred interest expense of $ 19,792 and $ 19,792 , respectively, on the AFCF Revolving Credit Facility. 2027 Senior Notes On November 3, 2021, the Company issued $ 100.0 million in aggregate principal amount of senior unsecured notes due in May 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 $ 97.0 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 the Company's 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, the Company is required to cause all of its existing and future subsidiaries to guarantee the 2027 Senior Notes, other than certain immaterial subsidiaries as set forth in the Indenture. Subsequent to the Company’s investment in the senior secured loan to Private Company I being transferred to TRS1 on April 1, 2022, TRS1 was added as a subsidiary guarantor under the Indenture. As of December 31, 2022, the 2027 Senior Notes are guaranteed by TRS1. F-22 Table of Contents Prior to February 1, 2027, the Company may redeem the 2027 Senior Notes in whole or in part at a price equal to the greater of 100 % of the principal amount of the 2027 Senior Notes being redeemed or a make-whole premium set forth in the Indenture, plus accrued and unpaid interest thereon to, but excluding, the applicable redemption date. On or after February 1, 2027, we may redeem the 2027 Senior Notes in whole or in part at a price equal to 100 % of the principal amount of the 2027 Senior Notes being redeemed, plus accrued and unpaid interest, if any, to, but excluding, the applicable redemption date. The Indenture also requires us to offer to purchase all of the 2027 Senior Notes at a purchase price equal to 101 % of the principal amount of the 2027 Senior Notes, plus accrued and unpaid interest if a ‘‘change of control triggering event’’ (as defined in the Indenture) occurs. The Indenture 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. In addition, the Indenture also provides for customary events of default. If any event of default occurs, any amount then outstanding under the Indenture may immediately become due and payable. These events of default are subject to a number of important exceptions and qualifications set forth in the Indenture. The 2027 Senior Notes are due on May 1, 2027. Scheduled principal payments on the 2027 Senior Notes as of December 31, 2022 are as follows: Senior Unsecured Notes Year ending December 31, 2023 $ — 2024 — 2025 — 2026 — 2027 100,000,000 Thereafter — Total principal $ 100,000,000 The following table reflects a summary of interest expense incurred during the years ended December 31, 2022 and 2021. Year ended December 31, 2022 2027 Senior Notes Revolving Credit Facility AFCF Revolving Credit Facility Total Borrowings Interest expense $ 5,734,027 $ 53,333 $ 19,792 $ 5,807,152 Unused fee expense — 25,000 60,417 85,417 Amortization of deferred financing costs 659,120 107,741 154,645 921,506 Total interest expense $ 6,393,147 $ 186,074 $ 234,854 $ 6,814,075 F-23 Table of Contents Year ended December 31, 2021 Senior Unsecured Notes Revolving Credit Facility AFCF Revolving Credit Facility Total Borrowings Interest expense $ 942,361 $ — $ 19,792 $ 962,153 Unused fee expense — — 29,687 29,687 Amortization of deferred financing costs 102,151 — 32,855 135,006 Total interest expense $ 1,044,512 $ — $ 82,334 $ 1,126,846 10. COMMITMENTS AND CONTINGENCIES As of December 31, 2022 and 2021, the Company had the following commitments to fund various investments: As of December 31, 2022 2021 Total original loan commitments $ 447,101,864 $ 419,198,125 Less: drawn commitments ( 401,476,418 ) ( 363,659,505 ) Total undrawn commitments $ 45,625,446 $ 55,538,620 The Company from time to time may be a party to litigation in the normal course of business. As of December 31, 2022, the Company is not aware of any legal claims that could materially impact its business, financial condition or results of operations. The Company primarily provides loans to companies operating in the cannabis industry which involves significant risks, including the risk of strict enforcement against the Company’s borrowers on 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 its business with respect to the loans it makes to companies operating in the cannabis industry 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. SHAREHOLDERS’ EQUITY Series A Preferred Stock As of December 31, 2022 and 2021, 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”). F-24 Table of Contents 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 up to and including the date fixed for redemption. 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 shareholder 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 approximately $ 118.8 million 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 approximately $ 17.8 million in additional gross proceeds. The underwriting commissions of approximately $ 8.3 million and $ 1.2 million, respectively, are reflected as a reduction of additional paid-in capital on the consolidated statements of shareholders’ equity. The Company incurred approximately $ 3.1 million 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 $ 123.9 million. 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 approximately $ 56.4 million in gross proceeds. The underwriting commissions of approximately $ 3.1 million are reflected as a reduction of additional paid-in capital on the consolidated statements of shareholders’ equity. The Company incurred approximately $ 0.7 million 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 $ 52.6 million. 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 approximately $ 5.5 million in additional gross proceeds or approximately $ 5.2 million in net proceeds after underwriting commissions of approximately $ 0.3 million, which is reflected as a reduction of additional paid-in capital on the consolidated statements of shareholders’ equity. F-25 Table of Contents On January 10, 2022, the Company completed an underwritten offering of 3,000,000 shares of our common stock, at a price to the public of $ 20.50 per share. The gross proceeds to the Company from the offering were $ 61.5 million, before deducting underwriting discounts and commissions, a structuring fee and offering expenses payable by the Company. In connection with the offering, the underwriters were granted an over-allotment option to purchase up to an additional 450,000 shares of the Company’s common stock. On January 14, 2022, the underwriters partially exercised the over-allotment option with respect to 291,832 shares of common stock, which was completed on January 19, 2022. The underwriting commissions of approximately $ 3.5 million are reflected as a reduction of additional paid-in capital in the first quarter of fiscal year 2022. The Company incurred approximately $ 1.0 million of expenses in connection with the offering. After giving effect to the partial exercise of the over-allotment option, the total number of shares sold by the Company in the public offering was 3,291,832 shares and total gross proceeds, before deducting underwriting discounts and commissions, a structuring fee and other offering expenses payable by the Company, were approximately $ 67.5 million. The net proceeds to the Company totaled approximately $ 63.0 million . Pursuant to the Articles of Amendment, dated March 10, 2022, the Company increased the number of authorized shares of common stock to 50,000,000 shares at $ 0.01 par value per share. Shelf Registration Statement On April 5, 2022, the Company filed a shelf registration statement on Form S-3 (File No. 333-264144) (the “Shelf Registration Statement”), which was declared effective on April 18, 2022. Under the Shelf Registration Statement, the Company may, from time to time, issue and sell up to $ 1.0 billion of the Company’s common stock, preferred stock, debt securities, warrants and rights (including as part of a unit) to purchase shares of the Company’s common stock or preferred stock. At-the-Market Offering Program (“ATM Program”) On April 5, 2022, the Company entered into an Open Market Sales Agreement (the “Sales Agreement”) with Jefferies LLC and JMP Securities LLC, as Sales Agents, under which the Company may, from time to time, offer and sell shares of common stock, having an aggregate offering price of up to $ 75.0 million. Under the terms of the Sales Agreement, the Company has agreed to pay the Sales Agents a commission of up to 3.0 % of the gross proceeds from each sale of common stock sold through the Sales Agents. Sales of common stock, if any, may be made in transactions that are deemed to be “at-the-market” offerings, as defined in Rule 415(a)(4) promulgated under the Securities Act of 1933, as amended (the “Securities Act”). During the year ended December 31, 2022 , the Company sold an aggregate of 621,398 shares of the Company’s common stock under the Sales Agreement at an average price of $ 18.30 per share generating net proceeds of approximately $ 10.4 million . As of December 31, 2022, the shares of common stock sold under the ATM Program are the only offerings that have been initiated under the Shelf Registration Statement. Stock Incentive Plan The Company has established a stock incentive compensation plan (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. During the first quarter of 2022, the Company’s Board approved grants of restricted stock and stock options to the Company’s directors and officers, as well as employees of the Manager. In January 2022, the Company granted an aggregate of 8,296 shares of restricted stock and 742,000 stock options to certain of our officers and other eligible persons. The restricted stock granted in January 2022 under the 2020 Plan vests over a four-year period with approximately 33 % vesting on each of the second, third and fourth anniversaries of the vesting commencement date. The stock options granted in January 2022 under the 2020 Plan have a strike price of $ 20.18 and contain vesting periods that vary from immediately vested to vesting over a four-year period. As of December 31, 2022 , there were 2,344,615 shares of common stock granted under the 2020 Plan, underlying 2,281,272 options and 63,343 shares of restricted stock. F-26 Table of Contents As of December 31, 2022, the maximum number of shares of the Company's common stock that may be delivered pursuant to awards under the 2020 Plan (the “Share Limit”) equals 2,793,288 shares, which is an increase of 391,323 shares compared to December 31, 2021. This Share Limit increased during the year under the evergreen provision in the 2020 Plan in connection with the shares issued under the ATM Program during such time. Shares that are subject to or underlie awards that expire or for any reason are cancelled, terminated, 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. The following table summarizes the (i) non-vested options granted, (ii) vested options granted (iii) exercised and (iv) forfeited options granted for the Company’s directors and officers and employees of the Manager as of December 31, 2022 and 2021: As of December 31, 2022 2021 Non-vested 293,420 183,114 Vested 2,081,212 1,449,518 Exercised ( 5,511 ) — Forfeited ( 88,749 ) ( 28,396 ) Balance 2,280,372 1,604,236 F-27 Table of Contents The Company uses the Black-Scholes option pricing model to value stock options in determining the share-based compensation expense. The Company has elected to recognize forfeitures as they occur. Previously recognized compensation expense related to forfeitures are reversed in the period awards are forfeited. 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 the 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 stock-based compensation expense for the Company was approximately $ 1.3 million and $ 1.7 million for the years ended December 31, 2022 and 2021, respectively. 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 % - 2.0 % Expected forfeiture rate 0 % The following tables summarize stock option activity during the years ended December 31, 2022 and 2021: Year ended December 31, 2022 Weighted-average grant date fair value per option Balance as of December 31, 2021 1,604,236 $ 1.08 Granted 742,000 1.46 Exercised ( 5,511 ) 0.90 Forfeited ( 60,353 ) 1.15 Balance as of December 31, 2022 2,280,372 $ 1.21 Year ended December 31, 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 December 31, 2021 1,604,236 $ 1.08 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 December 31, 2022 and 2021: As of December 31, 2022 2021 Non-vested 64,581 56,285 Vested — — Forfeited ( 1,238 ) — Balance 63,343 56,285 F-28 Table of Contents The fair value of the Company’s restricted stock awards is based on the Company’s stock price on the date of grant. The following tables summarize the restricted stock activity during the years ended December 31, 2022 and 2021: Year ended December 31, 2022 Weighted-average value at award date Balance as of December 31, 2021 56,285 $ 20.43 Granted 8,296 20.18 Vested — — Forfeited ( 1,238 ) 20.18 Balance as of December 31, 2022 63,343 $ 20.40 Year ended December 31, 2021 Weighted-average value at award date Balance as of December 31, 2020 — $ — Granted 56,285 20.43 Vested — — Forfeited — — Balance as of December 31, 2021 56,285 $ 20.43 12. EARNINGS PER SHARE The following information sets forth the computations of basic weighted average earnings per common share for the years ended December 31, 2022 and 2021: Year ended December 31, 2022 2021 Net income attributable to common shareholders $ 35,932,397 $ 21,000,497 Dividends paid on preferred shares ( 15,000 ) ( 15,000 ) Dividends paid on unvested restricted stock ( 135,299 ) ( 24,203 ) Net income attributable to common shareholders 35,782,098 20,961,294 Divided by: Basic weighted average shares of common stock outstanding 19,842,222 13,373,778 Weighted average unvested restricted stock and stock options 115,515 435,067 Diluted weighted average shares of common stock outstanding 19,957,737 13,808,845 Basic weighted average earnings per common share $ 1.80 $ 1.57 Diluted weighted average earnings per common share $ 1.79 $ 1.52 Diluted weighted average earnings per common share excludes 1,401,200 stock options due to anti-dilutive effect. 13. INCOME TAX A TRS is an entity taxed as a corporation that has not elected to be taxed as a REIT, in which a REIT directly or indirectly holds equity, and that has made a joint election with such REIT to be treated as a TRS. A TRS generally may engage in any business, including investing in assets and engaging in activities that could not be held or conducted directly by the Company without jeopardizing its qualification as a REIT. A TRS is subject to applicable United States federal, state and local income tax on its taxable income. In addition, as a REIT, the Company also may be subject to a 100% excise tax on certain transactions between it and its TRS that are not conducted on an arm’s-length basis. The income tax provision is included in the line item income tax expense, including excise tax in the consolidated statements of operations included in this Annual Report on Form 10-K. F-29 Table of Contents The income tax provision for the Company was approximately $ 1.0 million and $ 0.0 million for the years ended December 31, 2022 and 2021, respectively. The income tax expense for the years ended December 31, 2022 and 2021 primarily relates to activities of the Company's taxable REIT subsidiary. For the years ended December 31, 2022 and 2021, the Company incurred approximately $ 73.0 thousand 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 not have any unrecognized tax benefits and the Company does not expect that to change in the next 12 months. 14. FAIR VALUE Loans Held for Investment 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 present fair value measurements of loans held at fair value as of December 31, 2022 and 2021: Fair Value Measurement as of December 31, 2022 Total Level 1 Level 2 Level 3 Loans held at fair value $ 99,226,051 $ — $ — $ 99,226,051 Total $ 99,226,051 $ — $ — $ 99,226,051 Fair Value Measurement as of December 31, 2021 Total Level 1 Level 2 Level 3 Loans held at fair value $ 77,096,319 $ — $ — $ 77,096,319 Total $ 77,096,319 $ — $ — $ 77,096,319 The following table presents changes in loans that use Level 3 inputs as of and for the year ended December 31, 2022: Year ended December 31, 2022 Total loans using Level 3 inputs at December 31, 2021 $ 77,096,319 Change in unrealized (losses) gains on loans at fair value, net ( 3,593,095 ) Additional fundings 26,605,796 Original issue discount and other discounts, net of costs ( 479,275 ) Loan repayments ( 5,397,191 ) Loan amortization payments ( 1,089,776 ) Accretion of original issue discount 1,456,298 PIK interest 4,626,975 Total loans using Level 3 inputs at December 31, 2022 $ 99,226,051 The change in unrealized losses included in the consolidated statements of operations attributable to loans held at fair value, categorized as Level 3, held at December 31, 2022 is $( 3,593,095 ). F-30 Table of Contents The following tables summarize the significant unobservable inputs the Company used to value the loans categorized within Level 3 as of December 31, 2022 and 2021. 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 December 31, 2022 Unobservable Input Fair Value Primary Valuation Techniques Input Estimated Range Weighted Average Senior term loans $ 99,226,051 Yield analysis Market yield 19.99 % - 31.72 % 21.81 % Total investments $ 99,226,051 As of December 31, 2021 Unobservable Input Fair Value Primary Valuation Techniques Input Estimated Range Weighted Average Senior term loans $ 77,096,319 Yield analysis Market yield 17.71 % - 20.96 % 18.22 % Total investments $ 77,096,319 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. Investment in Marketable Securities As of December 31, 2022, the Company’s portfolio did not include any debt securities. As of December 31, 2021, the Company's portfolio included one investment in debt securities held at fair value of approximately $ 15.9 million. The Company sold the investment in debt securities in March 2022, which was previously designated as available-for-sale as of December 31, 2021. For the year ended December 31, 2021, the realized loss on the sale of debt securities was approximately $ 0.2 million. The following table presents changes in debt securities held at fair value as of and for the year ended December 31, 2022: Principal Premium Unrealized Gains (Losses) Fair Value Total debt securities held at fair value at December 31, 2021 $ 15,000,000 $ 1,050,000 $ ( 168,750 ) $ 15,881,250 Realized (losses) gains on securities at fair value, net — ( 150,000 ) — ( 150,000 ) Change in accumulated other comprehensive income (loss) — — 168,750 168,750 Sale of securities ( 15,000,000 ) ( 900,000 ) — ( 15,900,000 ) Total debt securities held at fair value at December 31, 2022 $ — $ — $ — $ — F-31 Table of Contents The following table presents fair value measurements of debt securities held at fair value as of December 31, 2022 and 2021. Fair Value Measurement as of December 31, 2022 Total Level 1 Level 2 Level 3 Debt securities held at fair value $ — $ — $ — $ — Total $ — $ — $ — $ — Fair Value Measurement as of December 31, 2021 Total Level 1 Level 2 Level 3 Debt securities held at fair value $ 15,881,250 $ — $ 15,881,250 $ — Total $ 15,881,250 $ — $ 15,881,250 $ — 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 consolidated balance sheets as of December 31, 2022: As of December 31, 2022 Carrying Value Fair Value Financial assets Cash and cash equivalents $ 140,372,841 $ 140,372,841 Loans held for investment at carrying value $ 285,177,112 $ 281,561,475 Loan receivable at carrying value $ 2,220,653 $ 1,200,063 Financial liabilities: Senior unsecured notes, net $ 97,131,777 $ 77,258,333 Estimates of fair value for cash and cash equivalents are measured using observable, quoted market prices, or Level 1 inputs. The Company’s loans held for investment are measured using unobservable inputs, or Level 3 inputs. The Company’s investment in debt securities are measured using readily available quoted prices for similar assets, or Level 2 inputs. The fair value of the Company’s unsecured senior notes is estimated by discounting expected cash flows using readily available quoted prices for similar debt, or Level 2 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 receives 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 the Company's 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. F-32 Table of Contents 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 pays 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 years ended December 31, 2022 and 2021 was approximately $ 12.3 million and $ 6.0 million, respectively. 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. With respect to certain office expenses incurred by the Manager on behalf of the Company and other funds managed by the Manager or its affiliates, such as rent, the Manager determines each fund’s pro rata portion of such expenses based on the fair value of the fund’s assets under management, excluding cash and cash equivalents, as a percentage of the total assets under management by all such related funds. The following table summarizes the related party costs incurred by the Company for the years ended December 31, 2022 and 2021: Year ended December 31, 2022 2021 Affiliate Costs Management fees $ 5,213,535 $ 3,340,123 Less: outside fees earned ( 1,785,916 ) ( 1,029,315 ) Base management fees 3,427,619 2,310,808 Incentive fees earned 12,337,631 6,010,704 General and administrative expenses reimbursable to Manager 3,976,312 2,319,074 Total $ 19,741,562 $ 10,640,586 Amounts payable to the Company’s Manager as of December 31, 2022 and 2021 were approximately $ 5.7 million and $ 4.1 million, respectively. Due to Affiliate Amounts due to an affiliate of the Company as of December 31, 2022 and 2021 were $ 18,146 and $ 0 , respectively. 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 December 31, 2022, there were four co-invested loans held by the Company and affiliates of the Company. F-33 Table of Contents In July 2021, the senior secured loan facility with Private Company I consisting of an aggregate of $ 15.5 million in loan commitments was syndicated by the Company’s Manager between the Company and A BDC Warehouse, LLC (“ABW”), an entity wholly-owned by the Company’s Chief Executive Officer and Chairman of the Board and President. ABW’s commitment in the loan facility was ultimately transferred to AFC Institutional Fund LLC (“AFCIF”), an entity beneficially owned in part, by the Company’s Chief Executive Officer and Chairman of the Board, its President and its Director and Head of Real Estate, with each such owner also maintains a beneficial ownership of the Company’s Manager. AFCIF holds approximately one-third of the loan’s aggregate principal amount as of December 31, 2022. On April 1, 2022, our investment in the senior secured loan to Private Company I was transferred to TRS1. In September 2021, the Company entered into the September Commitment Assignment with our Manager, pursuant to which our Manager assigned to us its commitment to make loans to Private Company A in a principal amount of up to $ 20.0 million, which was funded in September 2021. The loans were purchased at accreted cost plus accrued PIK interest. We did not pay any fees or premium to our Manager for the Company’s acquisition of the Company’s Manager’s loan commitments under the Credit Agreement with Private Company A pursuant to the September Commitment Assignment. In December 2021, the Company entered into the second amendment to the Private Company A Credit Facility to, among other things, increase the total loan commitments by $ 20.0 million in an additional tranche, with $ 2.5 million allocated to Flower Loan Holdco, LLC, an entity wholly-owned by the Company’s Chief Executive Officer and Chairman of the Board and President (“FLH”), and the remaining new commitment allocated to third-party lenders. In February 2022, the Company entered into the third amendment to the Private Company A Credit Facility to, among other things, increase the total loan commitments by $ 16.3 million in an additional tranche, with approximately $ 15.3 million allocated to the Company and approximately $ 1.0 million allocated to a third party lender. In November 2022, the Company entered into a fourth amendment to the Private Company A Credit Facility to, among other things, increase the total loan commitments by $ 10.0 million in an additional tranche, with approximately $ 7.1 million allocated to the Company, $ 1.4 million allocated to FLH and the remaining $ 1.5 million allocated to third party lenders. Following the expansions, the Company now holds approximately $ 84.9 million in commitments. In September 2021, the Company entered into the second amended and restated credit agreement with Subsidiary of Private Company G to, among other things, increase the total loan commitments by $ 53.4 million in three tranches, with approximately $ 10.0 million allocated to ABW and the remaining $ 43.4 million allocated to the Company. ABW’s commitment was ultimately transferred to AFCIF. In August 2022, the Company committed an additional $ 8.1 million under credit agreement with Subsidiary of Private Company G. Following the expansion, the Company now holds $ 73.5 million in commitments, of which the Company has funded approximately $ 71.1 million in total principal amount. In December 2021, the Company entered into a credit agreement with Subsidiary of Public Company H, which provides Subsidiary of Public Company H with a $ 100.0 million senior secured credit facility, of which, we committed $ 60.0 million, a predecessor-in-interest to AFCIF committed $ 10.0 million, and third-party lenders committed $ 30.0 million of the aggregate principal amount. In October 2022, the credit agreement with Subsidiary of Public Company H was amended to, among other things, increase the total loan commitment by $ 50.0 million, of which $ 30.0 million of the new loan commitment was allocated pro rata to the Company, $ 5.0 million was allocated to AFCIF and the remaining $ 15.0 million was allocated to a third-party lender. 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. For the year ended December 31, 2022, the Company neither received nor sold any Assigned Right. During the year ended December 31, 2021, the 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. Secured Revolving Credit Facility From Affiliate In April 2022, the Company terminated the AFCF Revolving Credit Facility . Refer to Note 9 to our consolidated financial statements for more information. F-34 Table of Contents 16. DIVIDENDS AND DISTRIBUTIONS The following table summarizes the Company’s dividends declared during the years ended December 31, 2022 and 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 Regular cash dividend 12/31/2021 1/14/2022 0.50 0.50 — 0.50 2021 Total cash dividend $ 1.67 $ 1.67 $ — $ 1.67 Regular cash dividend 3/31/2022 4/15/2022 0.55 0.55 — 0.55 Regular cash dividend 6/30/2022 7/15/2022 0.56 0.56 — 0.56 Regular cash dividend 9/30/2022 10/14/2022 0.56 0.56 — 0.56 Regular cash dividend 12/31/2022 1/13/2023 0.56 0.56 — 0.56 2022 Total cash dividend $ 2.23 $ 2.23 $ — $ 2.23 17. SUBSEQUENT EVENTS The Company has evaluated subsequent events through the date the consolidated financial statements were available to be issued. There were no material subsequent events, other than those described below, that required disclosure in these consolidated financial statements. On December 28, 2022, the Company drew $ 60.0 million on our Revolving Credit Facility. All outstanding borrowings were subsequently repaid in full on January 3, 2023. In January 2023, TRS1 agreed with Private Company I, subject to certain terms and conditions (including payment of full cash interest, rather than partial PIK interest, which was previously agreed to), to defer an upcoming principal payment. In March 2023, TRS1 agreed, subject to certain terms and conditions, to defer an upcoming principal payment and permit a portion of an upcoming cash interest payment to instead be paid in kind. In February 2023, the Company entered into an amendment with Private Company K, which reduced its total loan commitment under the credit facility with Private Company K from approximately $ 25.2 million to $ 14.5 million . Among other things, the amendment increased the PIK rate from 0.0 % to 2.0 %, removed the unused fee going forward on the remaining undrawn commitment, and established a $ 1.5 million interest reserve. In February 2023, the Company and TRS1 sold $ 15.0 million of our investment in Subsidiary of Public Company M purchased at a blended weighted-average discount of 90.9 % and sold for 91.4 % of face value. The sale proceeds approximated the carrying value at the time of sale. In March 2023, the Company entered into a forbearance and modification agreement with Private Company B, pursuant to which we agreed to, subject to additional 4.0 % capitalized PIK interest and certain other terms and conditions, forbear from exercising our rights and remedies with respect to specified defaults under the applicable Private Company B loan documents until the earlier of (i) March 31, 2023, (ii) certain refinancing or cash equity contribution events, and (iii) any new event of default thereunder. In connection with such forbearance and modification agreement, the Company also agreed to, subject to certain terms and conditions, waive compliance with certain covenants for one fiscal quarter and defer specified principal payments. In March 2023, we declared a regular cash dividend of $ 0.56 per share of our common stock, relating to the first quarter of 2023, which will be paid on April 14, 2023 to shareholders of record as of March 31, 2023. The estimated aggregate amount of the regular cash dividend payment is approximately $ 11.5 million. F-35 Table of Contents SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, each registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. Date: March 7, 2023 AFC GAMMA, INC. By: /s/ Leonard M. Tannenbaum Leonard M. Tannenbaum Chief Executive Officer and Chairman (Principal Executive Officer) By: /s/ Brett Kaufman Brett Kaufman Chief Financial Officer and Treasurer (Principal Financial Officer and Principal Accounting Officer) By: /s/ Jonathan Kalikow Jonathan Kalikow Director and Head of Real Estate By: /s/ Jodi Hanson Bond Jodi Hanson Bond Director By: /s/ Alexander Frank Alexander Frank Director By: /s/ Thomas Harrison Thomas Harrison Director By: /s/ Robert Levy Robert Levy Director By: /s/ Marnie Sudnow Marnie Sudnow Director 105