What changed in this filing

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Item 2. Management’s Discussion and Analysis

2023-05-10 compared with 2022-11-08 · 167 added, 187 removed, 243 unchanged (59% of the section changed)

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AFC Gamma, Inc.

is primarily an institutional lender to the cannabis industry that was founded in July 2020 by a veteran team of investment professionals.

We primarily originate, structure, underwrite, and invest in senior secured loans and other types of loans and debt securities for cannabis industry operators in states that have legalized medical and/or adult-use cannabis.

As states continue to legalize cannabis for medical and adult-use, an increasing number of companies operating in the cannabis industry need financing.

Due to the currently capital constrained cannabis market, which does not typically have access to traditional bank financing, we believe we are well positioned to continue as a prudent financing source to cannabis industry operators given our stringent underwriting criteria, size and scale of operations and institutional infrastructure.

Our objective is to provide attractive risk-adjusted returns over time through cash distributions and capital appreciation by providing loans to state law compliant cannabis companies.

The loans we originate are primarily structured as senior loans secured by real estate, equipment, value associated with licenses and/or other assets of the loan parties to the extent permitted by applicable laws and the regulations governing such loan parties.

Some of our borrowers have their equity securities listed for public trading on the Canadian Securities Exchange (“CSE”) in Canada and/or over-the-counter (“OTC”) in the United States.

Our loans typically have up to a five-year maturity and contain amortization and/or cash flow sweeps.

We have also recently expanded our investment strategy to include (i) first lien loans secured by mortgages to businesses that are not related to the cannabis industry, (ii) the ownership of non-cannabis related real property assets, and (iii) mortgage-backed securities.

We expect our underwriting and investment process for these types of investments to be substantially similar to the process we deploy for our loans to cannabis operators.

We are a Maryland corporation and externally managed by our Manager, AFC Management, LLC, a Delaware limited liability company, pursuant to the terms of the Amended and Restated Management Agreement, dated January 14, 2021, by and between AFC Gamma, Inc.

is an institutional lender to the commercial real estate sector that was founded in July 2020 by a veteran team of investment professionals.

We primarily originate, structure, underwrite, invest in and manage senior secured loans and other types of commercial real estate loans and debt securities, with a specialization in loans to cannabis industry operators in states that have legalized medical and/or adult-use cannabis.

We have recently expanded our investment guidelines to deploy capital in attractive lending opportunities secured by commercial real estate.

Our expanded investment guidelines now include (i) first and second lien loans secured by mortgages to commercial real estate owners, operators and related businesses that are not related to the cannabis industry, (ii) the ownership of non-cannabis related real property assets, and (iii) mortgage-backed securities, in addition to our prior sole focus on first lien loans secured by mortgages to cannabis operators in states that have legalized medical and/or adult use cannabis.

We expect the underwriting and investment process for these investments under our expanded guidelines to be substantially similar to the process we deploy for our loans to cannabis operators.

Our objective is to provide attractive risk-adjusted returns over time through cash distributions and capital appreciation primarily by providing loans to real estate developers and state law compliant cannabis companies.

The loans we originate are primarily structured as senior loans secured by real estate, equipment, value associated with licenses (where applicable) and/or other assets of the loan parties to the extent permitted by applicable laws and the regulations governing such loan parties.

Some of our cannabis-related borrowers have their equity securities listed for public trading on the Canadian Securities Exchange (“CSE”) in Canada and/or over-the-counter (“OTC”) in the United States.

We have expanded our investment guidelines to invest in attractive commercial real estate financing opportunities emerging from the current interest rate environment.

As the Federal Reserve began to increase interest rates in 2022 to curb rising inflation, we believe the higher interest rates and associated pressures have created an opportunity in real estate lending, where there is currently less capital available in the marketplace to finance real estate projects.

As a result of these market dynamics, we have identified a number of opportunities to provide acquisition and construction financing for real estate owners, operators and related businesses at attractive rates and secured by valuable real estate collateral.

Separately, as states continue to legalize cannabis for medical and adult-use, an increasing number of companies operating in the cannabis industry need financing.

Due to the current capital constrained cannabis market, which does not typically have access to traditional bank financing, we believe we continue to be well positioned to act as a prudent financing source to cannabis industry operators given our stringent underwriting criteria, size and scale of operations and institutional infrastructure.

We are a Maryland corporation and externally managed by AFC Management, LLC, a Delaware limited liability company (our “Manager”), pursuant to the terms of the Amended and Restated Management Agreement, dated January 14, 2021, by and between AFC Gamma, Inc.

and AFC Management, LLC (as amended from time to time, the “Management Agreement”).

We commenced operations on July 31, 2020 and completed our initial public offering (“IPO”) in March 2021.

We have elected to be taxed as a real estate investment trust (a “REIT”), commencing with our taxable year ended December 31, 2020.

We generally will not be subject to U.S.

federal income taxes on our taxable income to the extent that we annually distribute all or substantially all of our taxable income to shareholders and maintain our intended qualification as a REIT.

We have elected to be taxed as a real estate investment trust (a “REIT”) under Section 856 of the Internal Revenue Code of 1986, as amended (the “Code”).

We believe that we have qualified as a REIT and that our current and proposed method of operation will enable us to continue to qualify as a REIT.

However, no assurances can be given that our beliefs or expectations will be fulfilled, since qualification as a REIT depends on us continuing to satisfy numerous asset, income and distribution tests, which in turn depends, in part, on our operating results and ability to obtain financing.

We also intend to operate our business in a manner that will permit us to maintain our exemption from registration under the Investment Company Act.

Our wholly-owned subsidiary, AFCG TRS1, LLC (“TRS1”), operates as a taxable REIT subsidiary.

TRS1 began operating in July 2021.

Our investment in the equipment loan to Public Company A was transferred to TRS1 on July 31, 2021.

On April 1, 2022, our investment in the senior secured loan to Private Company I was transferred to TRS1.

On July 1, 2022, our investment in the senior secured loan to Private Company J was transferred to TRS1.

These three loans constituted substantially all of the assets of TRS1 as of September 30, 2022.

The financial statements of TRS1 have been consolidated within our consolidated financial statements.

TRS1 began operating in July 2021 and the financial statements of TRS1 have been consolidated within our unaudited interim consolidated financial statements.

We are an “emerging growth company,” as defined in the Jumpstart Our Business Startups Act (“JOBS Act”), and we are eligible to take advantage of certain exemptions from various reporting requirements that are applicable to other public companies that are not “emerging growth companies” including, but not limited to, not being required to comply with the auditor attestation requirements of Section 404 of the Sarbanes-Oxley Act, reduced disclosure obligations regarding executive compensation in our periodic reports and proxy statements, and exemptions from the requirements of holding a non-binding advisory vote on executive compensation and shareholder approval of any golden parachute payments not previously approved.

In addition, Section 107 of the JOBS Act also provides that an “emerging growth company” can take

advantage of the extended transition period provided in Section 7(a)(2)(B) of the Securities Act for complying with new or revised accounting standards.

In addition, Section 107 of the JOBS Act also provides that an “emerging growth company” can take advantage of the extended transition period provided in Section 7(a)(2)(B) of the Securities Act for complying with new or revised accounting standards.

In other words, an “emerging growth company” can delay the adoption of certain accounting standards until those standards would otherwise apply to private companies.

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We could remain an “emerging growth company” for up to five years from our initial public offering, or until the earliest of (i) the last day of the first fiscal year in which our annual gross revenues exceed $1.235 billion, (ii) the date that we become a “large accelerated filer” as defined in Rule 12b-2 under the Securities Exchange Act of 1934, as amended, which would occur if the market value of our common stock that is held by non-affiliates exceeds $700.0 million as of the last business day of our most recently completed second fiscal quarter, or (iii) the date on which we have issued more than $1.0 billion in non-convertible debt during the preceding three-year period.

Developments during the Third Quarter of 2022:

Updates to our Loan Portfolio during the Third Quarter of 2022

During the third quarter of 2022, we purchased one investment with new commitments of approximately $10.0 million, increased commitments to current borrowers of approximately $9.0 million and funded approximately $24.8 million of principal amount of new and existing commitments.

In August 2022, we purchased $10.0 million in outstanding principal amount of 9.5% senior secured notes issued at an 8.75% discount by the Subsidiary of Public Company M, an operator publicly listed in the United States.

In August 2022, we committed an additional $8.1 million under Credit Facility with the Subsidiary of Private Company G.

Following the expansion, we now hold $73.5 million in commitments, of which we have funded approximately $66.8 million in total principal amount.

As part of the expansion, the interest rate increased from a blended weighted-average rate across three tranches of 13.7% to Prime plus 10.3%, subject to a floor of 4.5%, per annum and the PIK interest decreased from a blended weighted-average rate across three tranches of 1.8% to 0.0% per annum.

Developments during the First Quarter of 2023:

During the three months ended March 2023, we repurchased $10.0 million in principal amount of our 2027 Senior Notes at 77.4% of par value, plus accrued interest.

This resulted in a gain on extinguishment of debt of approximately $2.0 million, recorded within the unaudited interim consolidated statements of operations.

Following this transaction, as of March 31, 2023, we had $90.0 million in principal amount of the 2027 Senior Notes outstanding.

Updates to our Loan Portfolio during the First Quarter of 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, we sold $15.0 million of our investment in Subsidiary of Public Company M, which was 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, we ente red 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) April 30, 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, the credit facility with Private Company A was amended to, among other things and subject to certain terms and conditions, (i) increase the interest rate of certain tranches such that the facility has a uniform interest rate of 13.0% across certain tranches;

(ii) reprioritize the allocation of principal and interest payments to first be applied to a specific tranche under the facility;

and (iii) establish the requirement for a blocked account to hold the cash proceeds from the sale of certain assets and distribute such proceeds to the lenders.

At-the-Market Offering Program

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Under the terms of the Sales Agreement, we have agreed to pay the Sales Agents a commission of up to 3.0% of the gross proceeds from each sale of common stock under the Sales Agreement.

During the three and nine months ended September 30, 2022, we sold an aggregate of 506,466 and 621,398 shares of our common stock under the Sales Agreement at an average price of $18.35 and $18.30 per share, respectively.

The sales generated net proceeds of approximately $9.0 million and $10.4 million for the three and nine months ended September 30, 2022, respectively.

During the three months ended March 31, 2023, we did not sell any shares of our common stock under the Sales Agreement.

Dividends Declared Per Share

In September 2022, we declared a regular cash dividend of $0.56 per share of our common stock, relating to the quarter ended September 30, 2022, which was paid on October 14, 2022 to shareholders of record as of September 30, 2022.

In March 2023, we declared a regular cash dividend of $0.56 per share of our common stock, relating to the quarter ended March 31, 2023, which was paid on April 14, 2023 to shareholders of record as of March 31, 2023.

The aggregate amount of the regular cash dividend payment was approximately $11.5 million .

For the nine months ended September 30, 2022 and 2021, we paid the following cash dividends:

For the three months ended March 31, 2023 and 2022, we paid the following cash dividends:

Date Declared Payable to Shareholders of Record at the Close of Business on Date Paid Amount per Share Aggregate Amount Paid

March 12, 2021 March 15, 2021 March 31, 2021 $0.36 $2.2 million

May 7, 2021 June 15, 2021 June 30, 2021 0.38 5.1 million

September 15, 2021 September 30, 2021 October 15, 2021 0.43 7.1 million

March 10, 2022 March 31, 2022 April 15, 2022 $0.55 $10.9 million

2022 Period Subtotal $0.55 $10.9 million

March 2, 2023 March 31, 2023 April 14, 2023 $0.56 $11.5 million

June 15, 2022 June 30, 2022 July 15, 2022 0.56 11.1 million

September 15, 2022 September 30, 2022 October 14, 2022 0.56 11.4 million

2023 Period Subtotal $0.56 $11.5 million

Recent Developments

Subsequent to th e end of the third quarter, we increased commitments to to one borrower in the amount of $30.0 million, were repaid $86.6 million in full by Public Company F, reduced its commitment to one borrower by $19.5 million, and funded approximately $9.2 million of principal amount of new and existing commitments.

In October 2022, the Credit Agreement with the 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 to us and $7.8 million was funded by us.

As part of the expansion, the interest rate increased from a fixed rate of 9.8% to U.S.

Prime plus 5.8%, subject to a Prime floor of 5.5%.

In October 2022, Public Company F repaid its loan in full.

The loan was comprised of three tranches with original maturity dates of May 30, 2023, April 28, 2023 and August 28, 2023.

The aggregate amount of outstanding principal on the date of repayment was $86.6 million.

We received a prepayment premium and make-whole premium of approximately $0.1 million and $0.6 million, respectively.

Following the repayment of Public Company F, six of our loans have repaid prior to maturity since the Company’s IPO in March 2021.

In November 2022, the Company and Private Company L agreed to reduce the total loan commitment under the credit facility from $82.5 million to $63.0 million.

In April 2023, the credit facility with Subsidiary of Private Company G was amended to, among other things and subject to certain other terms and conditions, (i) amend certain cash equity capital contribution requirements, (ii) add additional real property to the collateral, (iii) extend the draw period, (iv) permit 75% of accrued cash interest due and owing to instead be paid in kind until and including the payment due May 1, 2023, subject to a monthly fee, and (v) modify the excess cash flow sweep.

Due to challenges raising equity capital in this current market environment, Subsidiary of Private Company G intends to sell certain collateral assets to pay down outstanding principal and non-core, non-collateral assets to generate additional capital for its operations.

If the borrower is unable to return to full cash payment of interest in connection with the payment due June 1, 2023, it would have an adverse impact on our Distributable Earnings for the near-term future and reduce our ability to pay dividends during such period.

In April 2023, the credit agreement with Subsidiary of Public Company H was amended to, among other things, (i) reduce the total loan commitment by $10.0 million ratably amongst the lenders, including us, of which $6.0 million of the reduced commitment was allocated to us and $9.0 million of additional principal was funded by us and (ii) strengthen the real estate coverage covenants.

Following the amendment, we now hold $84.0 million in commitments, which is fully funded.

Private Company I failed to pay its full principal and interest payments due May 1, 2023, and AFC Agent LLC (“AFC Agent”) has delivered a notice of an event of default based on this payment default and certain other defaults under the credit agreement.

The lenders have not opted to accelerate the obligations under the credit agreement at this time, however they have required that the borrower commence a process to sell certain assets to repay its obligations under the credit facility.

In May 2023, AFC Agent received $5.1 million in total loan principal repayments from Private Company A, relating to the sale of certain non-core assets, of which approximately $3.6 million was allocated to us.

Key Financial Measures and Indicators

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The determination of Distributable Earnings is substantially similar to the determination of Core Earnings under our Management Agreement, provided that Core Earnings is a component of the calculation of any Incentive Compensation earned under the Management Agreement for the applicable time period, and thus Core Earnings is calculated without giving effect to Incentive Compensation expense, while the calculation of Distributable Earnings accounts for any Incentive Compensation earned for such time period.

We define Distributable Earnings as, for a specified period, the net income (loss) computed in accordance with GAAP, excluding (i) stock-based compensation expense, (ii) depreciation and amortization, (iii) any unrealized gains, losses or other non-cash items recorded in net income (loss) for the period, regardless of whether such items are included in other

comprehensive income or loss, or in net income (loss);

provided that Distributable Earnings does not exclude, in the case of investments with a deferred interest feature (such as OID, debt instruments with PIK interest and zero coupon securities), accrued income that we have not yet received in cash, (iv) provision for current expected credit losses, (v) TRS (income) loss and (vi) one-time events pursuant to changes in GAAP and certain non-cash charges, in each case after discussions between our Manager and our independent directors and after approval by a majority of such independent directors.

provided that Distributable Earnings does not exclude, in the case of investments with a deferred interest feature (such as OID, debt instruments with PIK interest and zero coupon securities), accrued income that we have not yet received in cash, (iv) provision for current expected credit losses, (v) TRS (income) loss, net of any dividends received from TRS and (vi) one-time events pursuant to changes in GAAP and certain non-cash charges, in each case after discussions between our Manager and our independent directors and after approval by a majority of such independent directors.

We believe providing Distributable Earnings on a supplemental basis to our net income as determined in accordance with GAAP is helpful to shareholders in assessing the overall performance of our business.

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Three months ended

September 30, Nine months ended

September 30,

2022 2021 2022 2021

Net income $ 10,025,274 $ 10,162,120

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Provision for current expected credit losses 702,426 905,129

TRS (income) loss (1,019,424) (62,320) (1,567,970) (62,320)

TRS (income) loss, net of dividends (866,204) (61,071)

One-time events pursuant to changes in GAAP and certain non-cash charges — —

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We believe that book value per share is helpful to shareholders in evaluating our growth as we scale our equity capital base and continue to invest in our target investments.

The book value per share of our common stock as of September 30, 2022 and December 31, 2021 was approximately $17.06 and $16.61, respectively.

The book value per share of our common stock as of March 31, 2023 and December 31, 2022 was approximately $16.49 and $16.65, respectively.

Factors Impacting our Operating Results

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Our operating results may also be impacted by credit losses in excess of initial anticipations or unanticipated credit events experienced by borrowers.

Results of Operations f or the three and nine months ended September 30, 2022 and 2021

Our net income allocable to our common shareholders for the three and nine months ended September 30, 2022 was approximately $11.5 million and $33.0 million or $0.57 and $1.68 per basic weighted average common share, respectively, compared to net income allocable to our common shareholders of approximately $7.9 million and $14.0 million or $0.48 and $1.13 per basic weighted average common share, respectively, for the prior year periods.

Interest income increased approximately $9.2 million and $36.0 million for the three and nine months ended September 30, 2022 as compared to the three and nine months ended September 30, 2021, respectively.

This increase was primarily due to an increase in the average principal outstanding of approximately $231.9 million and $246.4 million for the three and nine months September 30, 2022 as compared to the three and nine months ended September 30, 2021, respectively.

Interest expense increased approximately $1.6 million and $5.1 million for the three and nine months ended September 30, 2022 as compared to the three and nine months ended September 30, 2021.

This increase was due to interest expense incurred and amortization of deferred financing costs relating to our 2027 Senior Notes that were issued in November 2021, our AFCF Revolving Credit Facility, which was terminated in April 2022, and our Revolving Credit Facility that began in April 2022.

For the three months ended September 30, 2022, total interest expense for the 2027 Senior Notes, Revolving Credit Facility and AFCF Revolving Credit Facility was approximately $1.6 million, $0.0 million and $0.0 million, respectively.

For the nine months ended September 30, 2022, total interest expense for the 2027 Senior Notes, Revolving Credit Facility and AFCF Revolving Credit Facility was approximately $4.8 million, $0.1 million and $0.2 million, respectively.

No interest expense was incurred for either the three and nine months ended September 30, 2021.

General and administrative expenses increased approximately $0.2 million and $1.3 million for the three and nine months ended September 30, 2022 as compared to the three and nine months ended September 30, 2021, respectively.

This increase was primarily due to an increase in expenses relating to personnel, overhead, and occupancy costs as the Company continues to expand.

Management fees increased approximately $0.1 million and $0.9 million for the three and nine months ended September 30, 2022 as compared to the three and nine months ended September 30, 2021, respectively.

This increase was primarily due to an increase in the Company’s Equity from approximately $274.4 million to $347.4 million.

Incentive fees increased by approximately $1.2 million and $5.4 million for the three and nine months ended September 30, 2022 as compared to the three and nine months ended September 30, 2021, respectively.

This increase was driven by the increase in Core Earnings as defined in the Management Agreement.

Results of Operations f or the three months ended March 31, 2023 and 2022

Our net income allocable to our common shareholders for the three months ended March 31, 2023, was approximately $10.0 million or $0.49 per basic weighted average common share compared to net income allocable to our common shareholders of $10.2 million or $0.53 per basic weighted average common share for the three months ended March 31, 2022.

Interest income decreased approximately $(0.1) million, or (0.7)%, for the three months ended March 31, 2023 as compared to the three months ended March 31, 2022.

While the average amount of principal outstanding increased approximately $26.1 million, or 7.1%, for the three months ended March 31, 2023, as compared to the three months ended March 31, 2022, resulting in an increase in interest income of approximately $1.6 million, this was offset by lower fee income recognized in the three months ended March 31, 2023, as compared to the three months ended March 31, 2022, of approximately $(1.8) million in fee income, mainly related to the repayment of Private Company E in February 2022, receiving a prepayment premium of approximately $1.3 million upon repayment of the loan.

We did not have any repayments or similar fees during the three months ended March 31, 2023.

Interest expense decreased approximately $(32.0) thousand, or (1.9)%, for the three months ended March 31, 2023, as compared to the three months ended March 31, 2022.

This decrease was primarily due to a weighted average decrease in the 2027 Senior Notes outstanding of $(2.4) million, or (2.4)%, for the three months ended March 31, 2023, as compared to the three months ended March 31, 2022.

This relates to the repurchase of $10.0 million of our 2027 Senior Notes during the three months ended March 31, 2023.

No repurchases took place during the same period in 2022.

General and administrative expenses increased approximately $0.9 million, or 75.3%, for the three months ended March 31, 2023, as compared to the three months ended March 31, 2022.

This increase was primarily due to severance expense incurred attributable to the departure of our former chief financial officer of approximately $0.7 million.

Management fees increased approximately $0.7 thousand, or 0.1%, for the three months ended March 31, 2023, as compared to the three months ended March 31, 2022.

Incentive fees decreased by approximately $(143.7) thousand, or (4.8)%, for the three months ended March 31, 2023, as compared to the three months ended March 31, 2022, which was driven by the decrease in Core Earnings (as defined in the Management Agreement).

Stock-based compensation decreased approximately $(0.7) million, or (71.7)%, for the three months ended March 31, 2023 as compared to the three months ended March 31, 2022.

This was primarily due to the majority of equity awards granted in January 2022 that vested immediately, as compared to the majority of equity awards granted in January 2023 with a three-year vesting period.

Investments in loans held at fair value are recorded on the trade date at cost, which reflects the amount of principal funded net of any original issue discounts.

An unrealized gain arises when the fair value of the loan portfolio exceeds its cost and an unrealized loss arises when the fair value of the loan portfolio is less than its cost.

The net change in unrealized (loss) gain of approximately $(1.5) million and $0.1 million for the three months ended March 31, 2023 and 2022, respectively, was mainly driven by the net change in the valuation of the loans.

The gain (loss) on extinguishment of debt was approximately $2.0 million for the three months ended March 31, 2023 as a result of the repurchase of $10.0 million of our 2027 Senior Notes during the period.

No repurchases took place during the same period in 2022.

Provision for Current Expected Credit Losses

For the three and nine months ended September 30, 2022, the increase to our provision for current expected credit loss was approximately $0.5 million and $3.0 million, respectively.

The balance as of September 30, 2022 was approximatel y $6.2 million, or 1.80%, of our total loans held at carrying value and loans receivable at carrying value balance of approximately $341.4 million and was bifurcated between (i) the current expected credit loss reserve (contra-asset) related to outstanding balances on loans held at carrying value and loans receivable at carrying value of approximately $5.5 million and (ii) a liability for unfunded commitments of approximately $0.7 million.

For the nine months ended September 30, 2021, the increase to our provision for current expected credit loss was approximately $1.4 million and the balance as of September 30, 2021 was approximately $1.8 million, or 1.18%, of our total loans held at carrying value and loans receivable at carrying value balance of approximately $155.9 million and was bifurcated between (i) the current expected credit loss reserve (contra-asset) related to outstanding balances on loans held at carrying value and loans receivable at carrying value of approximately $1.1 million and (ii) a liability for unfunded commitments of approximately $0.7 million.

The provision for current expected credit losses decreased approximately $(0.2) million, or (22.4)%, for the three months ended March 31, 2023 as compared to the three months ended March 31, 2022 .

The balance as of March 31, 2023 was approximatel y $15.0 million , or 5.40%, of our total loans held at carrying value and loan receivable held at carrying value balance of approximately $277.4 million and was bifurcated between (i) 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 $14.4 million and (ii) a liability for unfunded commitments of approximately $0.6 million .

The balance as of March 31, 2022 was approximately $4.0 million, or 1.50%, of our total loans held at carrying value and loan receivable held at carrying value balance of approximately $267.4 million and was bifurcated between (i) 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 $3.4 million and (ii) a liability for unfunded commitments of approximately $0.6 million.

The liability is based on the unfunded portion of loan commitments over the full contractual period over which we are exposed to credit risk through a current obligation to extend credit.

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We continuously evaluate the credit quality of each loan by assessing the risk factors of each loan.

The increase in the provision for current expected credit losses for the nine months ended September 30, 2022 compared to the nine months ended September 30, 2021 is primarily due to changes in macroeconomic factors, changes to the loan portfolio including new commitments and repayments, and changes in other data points we use in estimating the reserve.

The decrease in the provision for current expected credit losses for the three months ended March 31, 2023 compared to the three months ended March 31, 2022 was due to changes in macroeconomic factors, changes to the loan portfolio including new commitments and repayments, and changes in other data points we use in estimating the reserve.

Loan Portfolio

As of September 30, 2022 and December 31, 2021, our portfolio included three loans held at fair value.

The aggregate originated commitment under these loans was approximately $97.1 million and $75.9 million as of September 30, 2022 and December 31, 2021, respectively, and outstanding principal was approximately $95.6 million and $77.6 million as of

September 30, 2022 and December 31, 2021, respectively.

For the nine months ended September 30, 2022, we funded approximately $18.7 million of additional principal of loans held at fair value and we had approximately $3.0 million of principal repayments of loans held at fair value.

As of September 30, 2022 and December 31, 2021, none of our loans held at fair value had floating interest rates.

The following tables summarize our loans held at fair value as of September 30, 2022 and December 31, 2021:

As of September 30, 2022

As of March 31, 2023 and December 31, 2022, our portfolio included three loans held at fair value.

The aggregate originated commitment under these loans was approximately $104.3 million and outstanding principal was approximately $104.2 million and $102.4 million as of March 31, 2023 and December 31, 2022, respectively.

For the three months ended March 31, 2023, we gross funded approximately $0.8 million of additional principal and we had no principal repayments of loans held at fair value.

As of March 31, 2023 and December 31, 2022, none of our loans held at fair value had floating interest rates.

The following tables summarize our loans held at fair value as of March 31, 2023 and December 31, 2022:

As of March 31, 2023

Fair Value (1)

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(2) The difference between the Carrying Value and the Outstanding Principal amount of the loans consists of unaccreted OID and loan origination costs.

(3) Weighted average remaining life is calculated based on the fair value of the loans as of September 30, 2022 and December 31, 2021.

The following table presents changes in loans held at fair value as of and for the nine months ended September 30, 2022:

(3) Weighted average remaining life is calculated based on the fair value of the loans as of March 31, 2023 and December 31, 2022.

The following table presents changes in loans held at fair value as of and for the three months ended March 31, 2023:

Principal Original Issue

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New fundings 802,884 — — 802,884

Loan repayments (1,960,000) — — (1,960,000)

Loan amortization payments (1,089,776) — — (1,089,776)

Accretion of original issue discount — 380,086 — 380,086

PIK interest 992,871 — — 992,871

Total loans held at fair value at September 30, 2022 $ 95,575,523 $ (2,120,648) $ 621,271 $ 94,076,146

As of September 30, 2022 and December 31, 2021, our portfolio included zero and one investments in debt securities, respectively, held at fair value.

We sold our investment in debt securities in the first quarter of 2022 for approximately $15.9 million, which was previously designated as available-for-sale as of December 31, 2021, recognizing a loss on the sale of marketable securities of approximately $0.2 million in the first quarter of 2022.

The following table summarizes our debt securities held at fair value as of December 31, 2021.

We did not hold any investments in debt securities as of September 30, 2022.

As of December 31, 2021

Fair Value Carrying Value (1)

Principal (1)

Weighted Average

Remaining Life

Debt securities $ 15,881,250 $ 16,050,000 $ 15,000,000 2.9

Total debt securities held at fair value $ 15,881,250 $ 16,050,000 $ 15,000,000 2.9

(1) The difference between the carrying value and the outstanding principal amount of the securities consists of unaccreted purchase premium and loan origination costs.

(2) Weighted average remaining life is calculated based on the fair value of the loans as of December 31, 2021.

The following table presents changes in debt securities held at fair value as of and for the nine months ended September 30, 2022:

Principal Original Issue Discount 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 — — 168,750 168,750

Sale of securities (15,000,000) (900,000) — (15,900,000)

Total debt securities held at fair value at September 30, 2022 $ — $ — $ — $ —

As of September 30, 2022 and December 31, 2021, our portfolio included ten and twelve loans, respectively, held at carrying value.

The aggregate originated commitment under these loans was approximately $401.1 million and $324.3 million, respectively, and outstanding principal was approximately $349.3 million and $270.8 million, respectively, as of September 30, 2022 and December 31, 2021.

During the nine months ended September 30, 2022, we funded approximately $139.6 million of additional principal.

As of September 30, 2022 and December 31, 2021, approximately 39% and 48%, respectively, of our loans held at carrying value have floating interest rates.

As of September 30, 2022, t hese floating benchmark rates include one-month LIBOR subject to a weighted average floor of 1.0% and quoted at 3.143%, one-month Secured Overnight Financing Rate (“SOFR”) subject to a weighted average floor of 1.0% and quoted at 3.042% and U.S.

Prime Rate subject to a weighted average floor of 4.4% quoted at 6.250%.

The following tables summarize our loans held at carrying value as of September 30, 2022 and December 31, 2021:

As of September 30, 2022

Total loans held at fair value at March 31, 2023 $ 104,172,301 $ (1,360,475) $ (2,887,625) $ 99,924,201

As of March 31, 2023 and December 31, 2022 , our portfolio did not include any debt securities.

We sold our investment in debt securities in March of 2022, which was previously designated as available-for-sale as of December 31, 2021.

For the three months ended March 31, 2022, the realized loss on the sale of debt securities was approximately $0.2 million.

As of March 31, 2023 and December 31, 2022, our portfolio included nine loans held at carrying value.

The aggregate originated commitment under these loans was approximately $313.1 million and $338.9 million, respectively, and outstanding principal was approximately $284.5 million and $296.6 million, respectively, as of March 31, 2023 and December 31, 2022 .

During the three months ended March 31, 2023 , we funded approximately $2.2 million of additional principal and sold $15.0 million of our investment in Subsidiary of Public Company M.

As of March 31, 2023 and December 31, 2022, approximately 77% and 73%, respectively, of our loans held at carrying value had floating interest rates.

As of March 31, 2023, t hese floating benchmark rates included one-month LIBOR subject to a weighted average floor of 1.0% and quoted at 4.9%, one-month Secured Overnight Financing Rate (“SOFR”) subject to a weighted average floor of 1.0% and quoted at 4.8% and U.S.

prime rate subject to a weighted average floor of 4.9% and quoted at 8.0%.

The following tables summarize our loans held at carrying value as of March 31, 2023 and December 31, 2022:

As of March 31, 2023

Principal (1)

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(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 September 30,2022 and December 31, 2021.

The following table presents changes in loans held at carrying value as of and for the nine months ended September 30, 2022:

(2) Weighted average remaining life is calculated based on the carrying value of the loans as of March 31, 2023 and December 31, 2022.

The following table presents changes in loans held at carrying value as of and for the three months ended March 31, 2023:

Principal Original Issue

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Loan amortization payments (1,823,325) — (1,823,325)

Total loans held at carrying value at September 30, 2022 $ 349,337,390 $ (10,173,360) $ 339,164,030

As of September 30, 2022 and December 31, 2021, our portfolio included one loan receivable 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 September 30, 2022 and December 31, 2021, respectively.

During the nine months ended September 30, 2022, we received repayments of approximately $0.3 million of outstanding principal.

The following table presents changes in loans receivable as of and for the nine months ended September 30, 2022:

Total loans held at carrying value at March 31, 2023 $ 284,494,385 $ (9,283,190) $ 275,211,195

As of March 31, 2023 and December 31, 2022, our 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 $2.2 million as of March 31, 2023 and December 31, 2022, respectively.

During the three months ended March 31, 2023, we had no principal repayments .

The following table presents changes in loans receivable as of and for the three months ended March 31, 2023:

Principal Original Issue

Discount Carrying

Total loan receivable at carrying value at December 31, 2021 $ 2,533,266 $ (2,678) $ 2,530,588

Principal repayment of loans (337,114) — (337,114)

Total loan receivable held at carrying value at December 31, 2022 $ 2,222,339 $ (1,686) $ 2,220,653

Accretion of original issue discount — — —

PIK interest 26,187 — 26,187

Total loan receivable at carrying value at September 30, 2022 $ 2,222,339 $ (1,873) $ 2,220,466

The below table summarizes our total loan portfolio as of September 30, 2022:

Loan Names Original

Maturity AFCG Loan,

Syndication % of

AFCG Principal

of 9/30/2022 Cash

Rate PIK Fixed/

Floating Amortization

Total loan receivable held at carrying value at March 31, 2023 $ 2,222,339 $ (1,686) $ 2,220,653

The below table summarizes our total loan portfolio as of March 31, 2023:

Loan Names Original Funding Date (1)

Loan Maturity AFCG Loan, net of Syndication % of Total AFCG Principal Balance as of 3/31/2023 Cash Interest Rate PIK Fixed/

Floating Amortization During Term YTM

A - Real Estate Loan (4)

7/3/2019 9/30/2023 $ 2,940,000 0.7% $ 1,213,416 7.5% 7.5% Fixed No 21%

A - Equipment Loans 8/5/2019 3/31/2025 4,000,000 0.8 % 2,222,339 12.0 % N/A Fixed Yes 18 %

A - Equipment Loans (4)

8/5/2019 3/31/2025 4,000,000 0.9% 2,222,339 12.0% N/A Fixed Yes 18%

5/8/2020 5/8/2024 84,908,680 20.2% 86,421,309 12.6% 3.5% Fixed Yes 25%

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5/11/2021 5/11/2023 5,781,250 1.4% 5,781,250 15.0% N/A Fixed No 20%

5/21/2021 5/30/2023 86,600,000 17.2 % 86,600,000 8.6 % N/A Fixed No 12 %

I 7/14/2021 8/1/2026 10,430,144 2.1 % 10,550,781 15.1 % 2.5% Floating Yes 22 %

K 4/28/2022 5/3/2027 25,245,000 5.0 % 10,765,379 15.0 % N/A Floating Yes 18 %

J 8/30/2021 9/1/2025 23,000,000 4.6 % 23,568,458 15.1 % 4.0% Floating Yes 22 %

Sub of Public Co.

H 12/16/2021 1/1/2026 60,000,000 11.9 % 60,000,000 9.8 % N/A Fixed No 14 %

7/14/2021 8/1/2026 10,501,945 2.5% 11,195,707 16.9% 4.5% Floating Yes 24%

8/30/2021 9/1/2025 23,000,000 5.5% 22,651,213 16.9% 4.0% Floating Yes 25%

K 4/28/2022 5/3/2027 14,500,379 3.4% 13,000,255 16.8% 2.0% Floating Yes 26%

L 4/20/2022 5/1/2026 63,000,000 15.0% 50,945,492 12.0% N/A Fixed Yes 16%

Sub of Public Co.

H 12/16/2021 1/1/2026 90,000,000 21.4% 75,000,000 13.8% N/A Floating No 18%

Sub of Public Co.

M 8/26/2022 8/27/2025 8,822,000 2.1% 8,822,000 9.5% N/A Fixed No 14%

Subtotal (11)

$ 421,357,243 100.0% $ 390,889,025 14.6% 1.5% 21%

Information is as of September 30, 2022 unless otherwise specified.

Information is as of March 31, 2023 unless otherwise specified.

Borrower names have been kept confidential due to confidentiality agreement obligations.

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Estimated YTM is based on current management estimates and assumptions, which may change.

Estimated YTM is calculated using the interest rate as of September 30, 2022 applied through maturity.

Estimated YTM is calculated using the interest rate as of March 31, 2023 applied through maturity.

Actual results could differ from those estimates and assumptions.

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The purchase discounts accrete to income over the respective remaining terms of the applicable loan.

(4) As amended, cash interest is deferred from July 1, 2022 until November 1, 2022.

(5) PIK interest rate for Private Co.

A represents a blended rate of differing PIK interest rates applicable to each of the three tranches to which we are a lender under the senior secured term loan credit facility with Private Company A (as may be amended, supplemented, amended and restated or otherwise modified from time to time, the ‘‘Private Company A Credit Facility’’).

(4) As of October 1, 2022, these loans were placed on non-accrual status.

(5) Cash interest and PIK interest rates for Private Company A represent a blended rate of differing cash interest and PIK interest rates applicable to each of the tranches to which the Company is a lender under the senior secured term loan credit facility with Private Company A (as may be amended, restated, and supplemented or otherwise modified from time to time, the ‘‘Private Company A Credit Facility’’).

(6) Cash interest and PIK interest rates for Private Co.

B are weighted average rates.

As amended, an additional 4.0% PIK interest rate is applicable from January 15, 2023 to April 30, 2023.

(7) As amended, 75.0% of Subsidiary of Private Company G’s monthly cash interest is paid in kind from December 1, 2022 to May 1, 2023.

(8) Loan to Subsidiary of Private Company H does not reflect the borrower’s option to request up to two maturity extensions each for an additional six months from the then-existing loan maturity date.

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The second extension is subject to the approval of all lenders.

(8) Cash interest and PIK interest rates for Public Co.

F represents a blended rate of differing cash interest and PIK interest rates applicable to each of the three tranches with differing rates.

(9) As amended, between 50.0% and 60.0% of Private Company I’s monthly cash interest is paid in kind from October 1, 2022 to April 1, 2023.

(10) Effective April 1, 2023, Private Company J switched from LIBOR to SOFR.

(11) The interest and PIK subtotal rates are weighted average rates.

Collateral Overview

Our loans are secured by various types of assets of our borrowers, including real property and certain personal property, including value associated with licenses, equipment, and other assets to the extent permitted by applicable laws and the regulations governing our borrowers.

We do not have liens on cannabis inventory and are generally restricted from taking ownership of state licenses by current statutory prohibitions and exchange listing standards.

Our loans are secured by various types of assets of our borrowers, including real property and certain personal property, such as the value associated with licenses (where applicable), equipment, and other assets to the extent permitted by applicable laws and the regulations governing our borrowers.

With respect to our loans to cannabis operators, we do not have liens on cannabis inventory and are generally restricted from taking ownership of state licenses by current statutory prohibitions and exchange listing standards.

The documents governing our loans also include a variety of provisions intended to provide remedies against the value associated with licenses.

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Becoming the holder of a license through foreclosure or otherwise, the sale of a license or other realization of the value of licenses requires the approval of regulatory authorities.

As of September 30, 2022, our portfolio of loans had a weighted average real estate collateral coverage of approximately 1.0 times our aggregate committed principal amount of such loans.

Our real estate collateral coverage for each of our loans was measured at the time of underwriting and based on various sources of data available at such time.

As of March 31, 2023, our portfolio of assets held outside of TRS1 had a weighted average real estate collateral coverage of approximately 1.1 times our aggregate committed principal amount of such loans, with the real estate collateral coverage for each of our loans measured as of the time of closing for such loan and based on various sources of data available at such time.

We calculate our weighted average real estate collateral coverage by estimating the underlying value of our real estate collateral based on various objective and subjective factors, including, without limitation, third-party appraisals, total cost basis of the subject property and/or our own internal estimates.

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To the extent that we determine that the proceeds are more likely to be maximized through instituting a foreclosure sale or through taking title to the underlying collateral, we will be subject to the rules and regulations under state law that govern foreclosure sales and Nasdaq listing standards that do not permit us to take title to real estate while it is involved in commercial sales of cannabis.

In addition, the sale of the collateral securing our loans may be difficult and may be to a party outside of the cannabis industry.

In addition, the sale of the collateral securing our loans may be difficult and even for loans to cannabis operators, the collateral securing our loans may be sold to a party outside of the cannabis industry.

Therefore, any appraisal-based value of our real estate and other collateral may not equal the value of such collateral if it were to be sold to a third party in a foreclosure or similar proceeding.

We may seek to sell a defaulted loan prior to commencing a foreclosure proceeding or during a foreclosure proceeding to a purchaser that is not required to comply with Nasdaq listing standards.

We believe a third-party purchaser that is not subject to Nasdaq listing standards may be able to realize greater value from real estate and other collateral securing our loans.

We believe a third-party purchaser that is not subject to Nasdaq listing standards may be able to realize greater value from real estate and other collateral securing our loans with respect to loans to cannabis operators.

However, we can provide no assurances that a third party would buy such loans or that the sales price of such loans would be sufficient to recover the outstanding principal balance, accrued interest, and fees.

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Our primary sources of cash generally consist of unused borrowing capacity under our Revolving Credit Facility, the net proceeds of future debt or equity offerings, including in connection with the ATM Program, payments of principal and interest we receive on our portfolio of assets and cash generated from our operating results.

Our net cash provided by operating activities for the nine months ended September 30, 2022 of approximately $27.5 million was less than our dividend payments of $30.2 million made during the same period due to earned OID of $9.7 million and PIK repayments of $1.2 million related to repayments from Private Company D, Private Company F and Private Company E during such period.

Our net cash provided by operating activities for the three months ended March 31, 2023 of approximately $4.4 million was less than our dividend payments of $11.4 million made during the same period due to earned OID of $1.2 million, gain on extinguishment of debt of $2.0 million, and the net change in interest reserve of $3.0 million.

OID relates to cash withheld by the Company upon funding of its investments and is included under the ‘Supplemental disclosure of non-cash activity’ on the Consolidated Statements of Cash Flows.

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We may also access liquidity through our ATM Program, which was established in April 2022, pursuant to which we may sell, from time to time, up to $75.0 million of our common stock.

As of September 30, 2022, we 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.

The sales generated net proceeds of approximately $10.4 million.

During the three months ended March 31, 2023, we did not sell any shares of our common stock under the Sales Agreement.

We may seek to raise further equity capital and issue debt securities in order to fund our future investments in loans.

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We expect the principal amount of the loans we originate for cannabis operators to increase.

We also expect that our expanded investment focus to require additional capital.

We also expect our expanded investment focus to require additional capital.

As a result, we expect we will need to raise additional equity and/or debt funds to increase our liquidity in the near future.

As of September 30, 2022 and December 31, 2021, all of our cash was unrestricted and totaled approximately $36.3 million and $109.2 million, respectively.

As of September 30, 2022, we believe that our cash on hand, capacity available under our line of credit and cash flows from operations will be sufficient to satisfy the operating requirements of our business through at least the next twelve months.

As of March 31, 2023 and December 31, 2022, all of our cash was unrestricted and totaled approximately $80.6 million and $140.4 million, respectively.

As of March 31, 2023, we believe that our cash on hand, capacity available under our line of credit and cash flows from operations will be sufficient to satisfy the operating requirements of our business through at least the next twelve months.

Revolving Credit Facility

On April 29, 2022, we entered into a Revolving Credit Agreement by and among us, 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, we obtained a $60.0 million senior secured revolving credit facility.

As of March 31, 2023, we had $0.0 million of borrowings outstanding and $60.0 million of availability under our Revolving Credit Agreement, which may be borrowed, repaid and redrawn, subject to a borrowing base based on eligible loan obligations held by us and subject to the satisfaction of other conditions provided under the Revolving Credit Facility.

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), and contains a maturity date of April 29, 2025.

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.

We incurred a one-time commitment fee expense of approximately $0.5 million, which is 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 will be included within interest expense in the Company’s consolidated statements of operations.

During the year ended December 31, 2022, w e incurred a one-time commitment fee expense of approximately $0.5 million, which is 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 our consolidated statements of operations.

Our obligations under the Revolving Credit Facility are secured by certain assets of ours comprising of or relating to loan obligations designated for inclusion in the borrowing base.

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(1) liquidity of at least $5.0 million, (2) annual debt service coverage of at least 1.50 to 1.0 and (3) secured debt not to exceed 25% of total consolidated assets of us and our subsidiaries.

Termination of AFC Finance Credit Facility

To the best of our knowledge, as of March 31, 2023, we were in compliance in all material respects with all covenants contained in our Revolving Credit Agreement.

Termination of AFC Finance Revolving Credit Facility

On April 29, 2022, upon our entry into the Revolving Credit Facility, we terminated the AFCF Revolving Credit Facility with AFC Finance, LLC.

In connection with the termination, we paid the outstanding amounts remaining in connection with the commitment fee of approximately $0.1 million and accelerated the remaining deferred financing costs of approximately $0.1 million in the second quarter of 2022.

In connection with the termination, we 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.

2027 Senior Notes

On November 3, 2021, we issued $100.0 million in the aggregate principal amount of the 2027 Senior Notes.

On November 3, 2021, we issued $100.0 million in aggregate principal amount of 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.

Interest on the 2027 Senior Notes is due semi-annually on May 1 and November 1 of each year, which began on May 1, 2022.

The net proceeds from the issuance of the 2027 Senior Notes were approximately $97.0 million, after deducting the initial purchasers’ discounts and commissions and estimated offering fees and expenses payable by us.

Under the Indenture, we are required to cause all of our existing and future subsidiaries to guarantee the 2027 Senior Notes, other than certain immaterial subsidiaries as set forth in the Indenture.

We used the net proceeds from the issuance of the 2027 Senior Notes (i) to fund loans related to unfunded commitments to existing borrowers, (ii) to originate and participate in commercial loans to companies operating in the cannabis industry that are consistent with our investment strategy and (iii) for working capital and other general corporate purposes.

The terms of the 2027 Senior Notes are governed by the Indenture.

Under the Indenture governing the 2027 Senior Notes, we are required to cause all of our existing and future subsidiaries to guarantee the 2027 Senior Notes, other than certain immaterial subsidiaries as set forth in the Indenture.

Subsequent to the transfer of our investment in the senior secured loan to Private Company I to TRS1 on April 1, 2022, TRS1 was added as a subsidiary guarantor under the Indenture.

As of September 30, 2022, the 2027 Senior Notes are guaranteed by TRS1.

Prior to February 1, 2027, we may redeem the 2027 Senior Notes at any time, in whole or from time to time in part, at a redemption price equal to the greater of 100% of the principal amount thereof or a make-whole premium set forth in the Indenture, plus accrued and unpaid interest, if any, to, but excluding, the redemption date.

As of March 31, 2023 , the 2027 Senior Notes are guaranteed by TRS1.

Prior to February 1, 2027, we 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 our 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 our consolidated Total Assets (as defined in the Indenture), (3) incur or maintain secured debt in an aggregate principal amount greater than 25% of our consolidated Total Assets (as defined in the Indenture);

The Indenture governing the 2027 Senior Notes contains customary terms and restrictions, subject to a number of exceptions and qualifications, including restrictions on our 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 our consolidated Total Assets (as defined in the Indenture), (3) incur or maintain secured debt in an aggregate principal amount greater than 25% of our consolidated Total Assets (as defined in the Indenture);

and (4) merge, consolidate or sell substantially all of our assets.

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We were in compliance with the terms of the Indenture as of the date of this quarterly report.

During the three months ended March 2023, we repurchased $10.0 million in principal amount of our 2027 Senior Notes at 77.4% of par value, plus accrued interest.

This resulted in a gain on extinguishment of debt of approximately $2.0 million, recorded within the unaudited interim consolidated statements of operations.

Following this transaction, as of March 31, 2023, we had $90.0 million in principal amount of the 2027 Senior Notes outstanding.

The table below sets forth the material terms of our outstanding senior notes as of the date of this quarterly report:

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We expect that these facilities will typically have maturities ranging from two to five years and may accrue interest at either fixed or floating rates.

As of September 30, 2022 , we believe that our cash on hand, capacity available under our Revolving Credit Facility, and cash flows from operations will be sufficient to service our outstanding debt during the next twelve months.

The following table sets forth changes in cash and cash equivalents for the nine months ended September 30, 2022 and 2021:

September 30,

As of March 31, 2023 , we believe that our cash on hand, capacity available under our Revolving Credit Facility, and cash flows from operations will be sufficient to service our outstanding debt during the next twelve months.

The following table sets forth changes in cash and cash equivalents for the three months ended March 31, 2023 and 2022:

Net income $ 10,025,274 $ 10,162,120

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Net cash provided by (used in) operating activities 4,382,627 4,665,347

Net cash (used in) provided by investing activities (68,520,844) (121,463,591)

Net cash provided by (used in) investing activities 14,991,616 (30,047,753)

Net cash (used in) provided by financing activities (79,141,340) (20,248,463)

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Net Cash Provided by (Used in) Operating Activities

Net cash provided by operating activities during the nine months ended September 30, 2022 was approximately $27.5 million, compared to approximately $7.6 million for the same period in 2021 .

The increase from September 30, 2021 to September 30, 2022 was primarily due to an increase in net income of approximately $19.0 million, offset by an increase in accretion of OID of approximately $(5.7) million, increase in PIK interest of approximately $(2.3) million, increase in provision for current expected credit losses of approximately $1.7 million, increase in unrealized losses (gains) on loans held at fair value of approximately $2.4 million and an increase in interest reserve of approximately $3.4 million.

Net cash provided by operating activities during the three months ended March 31, 2023 was approximately $4.4 million, compared to approximately $4.7 million for the same period in 2022.

The decrease of approximately $(0.3) million during the three months ended March 31, 2022 to March 31, 2023 was primarily due to an increase in the gain on extinguishment of debt of approximately $(2.0) million, increase in PIK interest of approximately $(2.9) million, offset by a decrease in accretion of OID of approximately $2.7 million and increase in unrealized losses on loans held at fair value of approximately $1.6 million, respectively.

Net Cash Provided by (Used in) Investing Activities

Net cash used in investing activities during the nine months ended September 30, 2022 was approximately $68.5 million, compared to approximately $121.5 million for the same period in 2021 .

The change was caused primarily by loan issuance and fundings of approximately $127.2 million during the nine months ended September 30, 2022 , compared to approximately $156.3 million for the same period in 2021 , offset by repayment of loans of approximately $32.2 million during the nine months ended September 30, 2022 , compared to $22.2 million during the nine months ended September 30, 2021, proceeds received from the sale of loans and marketable securities of $26.5 million during the nine months ended September 30, 2022 , compared to $10.4 million for the same period in 2021 and proceeds received from the sale of Assigned Rights of $0.0 million during the nine months ended September 30, 2022, compared to $2.3 million for the same period in 2021.

Net cash provided by investing activities during the three months ended March 31, 2023 was approximately $15.0 million, compared to net cash used in investing activities of approximately $(30.0) million for the same period in 2022.

The increase of net cash provided by investing activities of approximately $45.0 million during the three months ended March 31, 2022 to March 31, 2023 was primarily due to a decrease in issuance and fundings on loans of approximately $48.9 million, an increase in proceeds from the sale of loans of approximately $13.7 million, offset by a decrease in principal repayments of loans of approximately $(17.6) million, respectively.

Net Cash Provided by (Used in) Financing Activities

Net cash used in financing activities during the nine months ended September 30, 2022 was approximately $31.9 million, compared to net cash provided by financing activities of approximately $174.2 million for the same period in 2021 .

The change was caused primarily by the change in proceeds from the sale of common stock of approximately $75.1 million in the current period versus approximately $185.5 million in the prior year period, repayments on the AFCF Revolving Credit Facility of $75.0 million in the current period versus $0.0 million for the same period in 2021 and dividends paid of approximately $30.2 million in the current period versus $7.3 million for the same period in 2021.

Net cash used in financing activities during the three months ended March 31, 2023 was approximately $(79.1) million, compared to approximately $(20.2) million for the same period in 2022.

The decrease of approximately $(58.9) million during the three months ended March 31, 2022 to March 31, 2023 was primarily due to a decrease in proceeds from the sale of common stock of approximately $(63.9) million, repayments on the 2027 Senior Notes of approximately $(7.7) million, offset by a lower repayment on the Revolving Credit Facility of approximately $15.0 million, respectively.

Contractual Obligations, Other Commitments, and Off-Balance Sheet Arrangements

Our contractual obligations as of September 30, 2022 are as follows:

As of September 30, 2022

Our contractual obligations as of March 31, 2023 are as follows:

As of March 31, 2023

1 year 1-3 years 3-5 years More than

2 unchanged sentences

Total $ 19,802,986 $ 12,054,508 $ — $ — $ 31,857,494

As of September 30, 2022 , all unfunded commitments relate to our total loan commitments and were available for funding in less than two years.

We also had the following contractual obligations as of September 30, 2022 relating to the 2027 Senior Notes:

As of September 30, 2022

As of March 31, 2023 , all unfunded commitments relate to our total loan commitments and were available for funding in less than two years.

We also had the following contractual obligations as of March 31, 2023 relating to the 2027 Senior Notes:

As of March 31, 2023

1 year 1-3 years 3-5 years More than

3 unchanged sentences

Total $ 5,175,000 $ 10,350,000 $ 97,762,500 $ — $ 113,287,500

(1) Amounts include projected interest payments during the period based on interest rates in effect as of September 30, 2022 .

(1) Amounts include projected interest payments during the period based on interest rates in effect as of March 31, 2023 .

We may enter into certain contracts that may contain a variety of indemnification obligations.

19 unchanged sentences

Critical Accounting Policies and Estimates

As of September 30, 2022 , there were no significant changes in or changes in the application of our critical accounting policies or estimates from those presented in our Annual Report on Form 10-K.

As of March 31, 2023 , there were no significant changes in or changes in the application of our critical accounting policies or estimates from those presented in our Annual Report on Form 10-K.

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 2. Management’s Discussion and Analysis