What changed in this filing

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Item 1. Financial Statements

2023-08-08 compared with 2023-05-10 · 274 added, 141 removed, 654 unchanged (39% of the section changed)

2 unchanged sentences

CONSOLIDATED BALANCE SHEETS

March 31, 2023 December 31, 2022

Loans held for investment at fair value (cost of $ 102,811,826 and $ 100,635,985 at March 31, 2023 and December 31, 2022, respectively, net)

June 30, 2023 December 31, 2022

Loans held for investment at fair value (cost of $ 99,291,215 and $ 100,635,985 at June 30, 2023 and December 31, 2022, respectively, net)

$ 95,940,672 $ 99,226,051

15 unchanged sentences

Accounts payable and other liabilities 1,284,153 836,642

Payable for securities purchased 7,995,934 —

Senior notes payable, net 87,714,130 97,131,777

3 unchanged sentences

Shareholders’ equity

Preferred stock, par value $ 0.01 per share, 10,000 shares authorized at March 31, 2023 and December 31, 2022 and 125 shares issued and outstanding at March 31, 2023 and December 31, 2022, respectively

Common stock, par value $ 0.01 per share, 50,000,000 shares authorized at March 31, 2023 and December 31, 2022 and 20,489,234 and 20,364,000 shares issued and outstanding at March 31, 2023 and December 31, 2022, respectively

Preferred stock, par value $ 0.01 per share, 10,000 shares authorized at June 30, 2023 and December 31, 2022 and 125 shares issued and outstanding at June 30, 2023 and December 31, 2022, respectively

Common stock, par value $ 0.01 per share, 50,000,000 shares authorized at June 30, 2023 and December 31, 2022 and 20,457,697 and 20,364,000 shares issued and outstanding at June 30, 2023 and December 31, 2022, respectively

204,577 203,640

7 unchanged sentences

Three months ended

June 30, Six months ended

2023 2022 2023 2022

Interest income $ 17,675,188 $ 21,651,207 $ 36,175,674 $ 40,287,060

24 unchanged sentences

Three months ended

June 30, Six months ended

2023 2022 2023 2022

Net income $ 12,135,333 $ 11,351,673 $ 22,160,607 $ 21,513,793

1 unchanged sentence

Reversal of unrealized loss to recognized loss on debt securities available for sale held at fair value

— — — 168,750

Total other comprehensive income (loss) — — — 168,750

3 unchanged sentences

CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY

Three months ended March 31, 2023

Three months ended June 30, 2023

Stock Common Stock Additional

3 unchanged sentences

Shares Amount

Balance at December 31, 2022 $ 1 20,364,000 $ 203,640 $ 348,817,914 $ — $ ( 9,962,186 ) $ 339,059,369

Balance at March 31, 2023 $ 1 20,489,234 $ 204,892 $ 349,085,320 $ — $ ( 11,410,883 ) $ 337,879,330

Stock-based compensation — ( 31,537 ) ( 315 ) 131,084 — — 130,769

1 unchanged sentence

— — — — — ( 9,819,695 ) ( 9,819,695 )

Dividends declared on preferred shares ($ 60 per share)

— — — — — ( 7,500 ) ( 7,500 )

Net income — — — — — 12,135,333 12,135,333

Balance at June 30, 2023 $ 1 20,457,697 $ 204,577 $ 349,216,404 $ — $ ( 9,102,745 ) $ 340,318,237

Three months ended June 30, 2022

Stock Common Stock Additional

Capital Accumulated Other Comprehensive Income (Loss) Accumulated

(Deficit) Total

Shareholders’

Shares Amount

Balance at March 31, 2022 $ 1 19,742,940 $ 196,784 $ 338,102,982 $ — $ ( 1,789,374 ) $ 336,510,393

Three months ended March 31, 2022

Issuance of common stock, net of offering costs — 114,932 1,149 1,347,662 — — 1,348,811

Stock-based compensation — — — 117,397 — — 117,397

Dividends declared on common shares ($ 0.56 per share)

— — — — — ( 11,120,409 ) ( 11,120,409 )

Dividends declared on preferred shares ($ 60 per share)

— — — — — ( 7,500 ) ( 7,500 )

Net income — — — — — 11,351,673 11,351,673

Balance at June 30, 2022 $ 1 19,857,872 $ 197,933 $ 339,568,041 $ — $ ( 1,565,610 ) $ 338,200,365

See accompanying notes to the consolidated financial statements

AFC GAMMA, INC.

CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY

Six months ended June 30, 2023

Stock Common Stock Additional

4 unchanged sentences

Balance at December 31, 2022 $ 1 20,364,000 $ 203,640 $ 348,817,914 $ — $ ( 9,962,186 ) $ 339,059,369

Stock-based compensation — 93,697 937 398,490 — — 399,427

Dividends declared on common shares ($ 1.04 per share)

— — — — — ( 21,293,666 ) ( 21,293,666 )

Dividends declared on preferred shares ($ 60 per share)

— — — — — ( 7,500 ) ( 7,500 )

Net income — — — — — 22,160,607 22,160,607

Balance at June 30, 2023 $ 1 20,457,697 $ 204,577 $ 349,216,404 $ — $ ( 9,102,745 ) $ 340,318,237

Six months ended June 30, 2022

Stock Common Stock Additional

Capital Accumulated Other Comprehensive Income (Loss) Accumulated

(Deficit) Total

Shareholders’

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 — 3,406,764 34,067 64,287,687 — — 64,321,754

2 unchanged sentences

— — — — — ( 21,979,026 ) ( 21,979,026 )

Dividends declared on preferred shares ($ 60 per share)

— — — — — ( 7,500 ) ( 7,500 )

Other comprehensive income (loss) — — — — 168,750 — 168,750

Net income — — — — — 21,513,793 21,513,793

Balance at March 31, 2022 $ 1 19,742,940 $ 196,784 $ 338,102,982 $ — $ ( 1,789,374 ) $ 336,510,393

Balance at June 30, 2022 $ 1 19,857,872 $ 197,933 $ 339,568,041 $ — $ ( 1,565,610 ) $ 338,200,365

See accompanying notes to the consolidated financial statements

1 unchanged sentence

CONSOLIDATED STATEMENTS OF CASH FLOWS

Three months ended

Six months ended

Operating activities:

22 unchanged sentences

Proceeds from sales of loans 21,312,827 10,600,000

Sale of available-for-sale debt securities — 15,900,000

Principal repayment of loans 18,509,287 28,176,844

3 unchanged sentences

Payment of offering costs - equity offering — ( 1,649,691 )

Dividends paid to common shareholders ( 11,403,840 ) ( 8,221,406 )

Payment of financing costs ( 225,000 ) —

Dividends paid to common and preferred shareholders ( 22,885,311 ) ( 19,087,523 )

Repayment of senior notes ( 7,737,500 ) —

7 unchanged sentences

OID withheld from funding of loans $ 2,610,000 $ 4,682,675

Receivable in connection with sale of loan $ — $ 10,600,000

Receivable in connection with sale of securities $ — $ 15,900,000

Change in other comprehensive income (loss) during the period $ — $ 168,750

Payable for securities purchased $ 7,995,934 $ —

Dividends declared and not yet paid $ 9,819,695 $ 11,120,409

5 unchanged sentences

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

As of March 31, 2023

As of June 30, 2023

AFC Gamma, Inc.

23 unchanged sentences

Recent Accounting Pronouncements

The Company considered the applicability and impact of all Accounting Standard Updates (“ASU”) issued by the Financial Accounting Standards Board (“FASB”).

Recently issued ASU’s were assessed and determined either to be not applicable or expected to have minimal impact on the Company’s unaudited interim consolidated financial statements.

LOANS HELD FOR INVESTMENT AT FAIR VALUE

As of March 31, 2023 and December 31, 2022, the Company’s portfolio included three loans held at fair value.

The aggregate originated commitment under these loans was approximately $ 104.3 million and $ 104.3 million, respectively, 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, the Company gross funded approximately $ 0.8 million of additional principal and had no principal repayments of loans held at fair value.

As of March 31, 2023 and December 31, 2022, 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 March 31, 2023 and December 31, 2022:

As of March 31, 2023

As of June 30, 2023 and December 31, 2022, the Company’s portfolio included three loans held at fair value.

The aggregate originated commitment under these loans was approximately $ 98.4 million and $ 104.3 million, respectively, and outstanding principal was approximately $ 100.3 million and $ 102.4 million as of June 30, 2023 and December 31, 2022, respectively.

For the six months ended June 30, 2023, the Company funded approximately $ 1.7 million of additional principal and had approximately $ 5.9 million of principal repayments of loans held at fair value.

As of June 30, 2023 and December 31, 2022, 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 June 30, 2023 and December 31, 2022:

As of June 30, 2023

Fair Value (1)

15 unchanged sentences

(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 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:

(3) Weighted average remaining life is calculated based on the fair value of the loans as of June 30, 2023 and December 31, 2022.

The following table presents changes in loans held at fair value as of and for the six months ended June 30, 2023:

Principal Original Issue

1 unchanged sentence

Total loans held at fair value at December 31, 2022 $ 102,376,546 $ ( 1,740,561 ) $ ( 1,409,934 ) $ 99,226,051

Change in unrealized (losses) gains on loans at fair value, net — — ( 1,477,691 ) ( 1,477,691 )

Change in unrealized gains (losses) on loans at fair value, net — — ( 1,940,609 ) ( 1,940,609 )

New fundings 1,705,873 — — 1,705,873

Accretion of original issue discount — 760,172 — 760,172

Loan repayments ( 5,897,934 ) — — ( 5,897,934 )

PIK interest 2,087,119 — — 2,087,119

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, the Company ha d one l oan 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.

A more detailed listing of the Company’s loans held at fair value portfolio based on information available as of March 31, 2023 is as follows:

Total loans held at fair value at June 30, 2023 $ 100,271,604 $ ( 980,389 ) $ ( 3,350,543 ) $ 95,940,672

As of June 30, 2023, the Company ha d one l oan 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.

A more detailed listing of the Company’s loans held at fair value portfolio based on information available as of June 30, 2023 is as follows:

Collateral Location Collateral

1 unchanged sentence

Rate Maturity Date (4)

A AZ, MI, MD, MA, NM C, D $ 83,552,001 $ 85,244,168 $ 86,421,309 16.1 % (6)

NV C — 1,213,416 1,213,416 15.0 % (7)

A AZ, MI, MA, NM C, D $ 78,414,898 $ 80,367,494 $ 81,274,550 15.7 % (6)

A NV C — 1,213,416 1,213,416 15.0 % (7)

9/30/2023 I/O

11 unchanged sentences

(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 interest rate of 4.0 %.

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

As of October 1, 2022, this loan was placed on non-accrual status.

(8) Base weighted average interest rate of 14.7 % and PIK interest rate of 4.0 %.

As amended, an additional 4.0 % PIK interest rate is applicable from January 15, 2023 through maturity on September 1, 2023.

LOANS HELD FOR INVESTMENT AT CARRYING VALUE

As of March 31, 2023 and December 31, 2022, the Company’s 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, the Company funded approximately $ 2.2 million of additional principal and sold $ 15.0 million of the Company’s investment in Subsidiary of Public Company M.

As of March 31, 2023 and December 31, 2022, approximately 77 % and 73 %, respectively, of the Company’s 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.

As of June 30, 2023 and December 31, 2022, the Company’s portfolio included eight and nine loans held at carrying value, respectively.

The aggregate originated commitment under these loans was approximately $ 306.3 million and $ 338.9 million, respectively, and outstanding principal was approximately $ 294.8 million and $ 296.6 million, respectively, as of June 30, 2023 and December 31, 2022.

During the six months ended June 30, 2023, the Company funded approximately $ 27.2 million of additional principal, had approximately $ 12.4 million of principal repayments of loans held at carrying value and sold $ 22.6 million in the aggregate of the Company’s investment in Subsidiary of Public Company M and Private Company I.

As of June 30, 2023 and December 31, 2022, approximately 75 % and 73 %, respectively, of the Company’s loans held at carrying value had floating interest rates.

As of June 30, 2023, t hese floating benchmark rates included one-month LIBOR subject to a weighted average floor of 1.0 % and quoted at 5.2 %, one-month Secured Overnight Financing Rate (“SOFR”) subject to a weighted average floor of 1.0 % and quoted at 5.1 % and U.S.

prime rate subject to a weighted average floor of 4.9 % and quoted at 8.3 %.

The following tables summarize the Company’s loans held at carrying value as of March 31, 2023 and December 31, 2022:

As of March 31, 2023

The following tables summarize the Company’s loans held at carrying value as of June 30, 2023 and December 31, 2022:

As of June 30, 2023

Principal (1)

10 unchanged sentences

(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 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:

(2) Weighted average remaining life is calculated based on the carrying value of the loans as of June 30, 2023 and December 31, 2022.

The following table presents changes in loans held at carrying value as of and for the six months ended June 30, 2023:

Principal Original Issue

7 unchanged sentences

Loan amortization payments ( 2,844,224 ) — ( 2,844,224 )

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

A more detailed listing of the Company’s loans held at carrying value portfolio based on information available as of March 31, 2023 is as follows:

Total loans held at carrying value at June 30, 2023 $ 294,766,125 $ ( 11,013,567 ) $ 283,752,558

As of June 30, 2023 , the Company had two loans held at carrying value on non-accrual status.

As of May 1, 2023, Private Company I was placed on non-accrual status with an outstanding principal amount of approximately $ 3.8 million with a related current expected credit loss reserve recorded of approximately $ 0.5 million .

As of June 1, 2023, Subsidiary of Private Company G was placed on non-accrual status with an outstanding principal amount of approximately $ 79.0 million with a related current expected credit loss reserve recorded of approximately $ 8.3 million .

A more detailed listing of the Company’s loans held at carrying value portfolio based on information available as of June 30, 2023 is as follows:

Collateral Location Collateral

5 unchanged sentences

of Private Co.

G NJ, PA C, D 75,131,829 ( 1,680,770 ) 73,451,059 18.3 % (6)

G MO, NJ, PA C, D 78,976,331 ( 1,589,918 ) 77,386,413 18.5 % (6)

05/01/2026 P/I

of Private Co.

H IL C 5,781,250 ( 6,673 ) 5,774,577 15.0 % (7)

05/11/2023 I/O

K MA C, D 13,066,813 ( 765,865 ) 12,300,948 19.1 % (7)

26 unchanged sentences

prime rate floor of 4.5 %).

As amended, 75.0 % of the monthly cash interest is paid in kind from December 1, 2022 to May 1, 2023.

(7) Base interest rate of 15.0 %.

As amended, 75.0 % of the monthly cash interest was paid in kind from December 1, 2022 to May 1, 2023.

As of June 1, 2023, this loan was placed on non-accrual status.

(7) Base interest rate of 12.0 % plus SOFR (SOFR floor of 1.0 %) and PIK interest rate of 2.0 %.

(8) Base interest rate of 12.0 % plus LIBOR (LIBOR floor of 1.0 %) and PIK interest rate of 4.5 %.

As amended, between 50.0 % and 60.0 % of the monthly cash interest is paid in kind from October 1, 2022 to April 1, 2023.

(10) Base interest rate of 12.0 % plus LIBOR (LIBOR floor of 1.0 %) and PIK interest rate of 4.0 %.

As amended, between 50.0 % and 60.0 % of the monthly cash interest was paid in kind from October 1, 2022 to April 1, 2023 and an additional 5.0 % default rate has been applied since May 8, 2023 and the agent on this credit facility has since initiated a foreclosure proceeding.

As of May 1, 2023, this loan was placed on non-accrual status.

(9) Base interest rate of 12.0 % plus SOFR (SOFR floor of 1.0 %) and PIK interest rate of 4.0 %.

Effective April 1, 2023, Private Company J transitioned from LIBOR to SOFR.

5 unchanged sentences

LOAN RECEIVABLE HELD AT CARRYING VALUE

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

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

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

As of June 30, 2023 and December 31, 2022, 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 $ 2.0 million and $ 2.2 million as of June 30, 2023 and December 31, 2022, respectively.

During the six months ended June 30, 2023, the Company had approximately $ 0.2 million of principal repayments of loan receivable held at carrying value.

The following table presents changes in loans receivable as of and for the six months ended June 30, 2023:

Principal Original Issue

1 unchanged sentence

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

Accretion of original issue discount — — —

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

As of March 31, 2023 , 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 .

Loan repayments ( 180,595 ) — ( 180,595 )

Total loan receivable held at carrying value at June 30, 2023 $ 2,041,744 $ ( 1,686 ) $ 2,040,058

As of June 30, 2023 , the Company had one loan receivable held at carrying value on non-accrual status with an outstanding principal amount of approximately $ 2.0 million with a related current expected credit loss reserve recorded of approximately $ 0.5 million .

CURRENT EXPECTED CREDIT LOSSES

6 unchanged sentences

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 March 31, 2023 and December 31, 2022, the Company’s CECL Reserve for its loans held at carrying value and loan receivable held at carrying value is approximately $ 15.0 million and $ 14.3 million, respectively, or 5.40 % and 4.97 %, respectively, of the Company’s total loans held at carrying value and loan receivable held at carrying value of approximately $ 277.4 million and $ 287.4 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 $ 14.4 million and $ 13.5 million, respectively, and a liability for unfunded commitments of approximately $ 0.6 million and $ 0.8 million, respectively.

As of June 30, 2023 and December 31, 2022, the Company’s CECL Reserve for its loans held at carrying value and loan receivable held at carrying value is approximately $ 13.4 million and $ 14.3 million, respectively, or 4.68 % and 4.97 %, respectively, of the Company’s total loans held at carrying value and loan receivable held at carrying value of approximately $ 285.8 million and $ 287.4 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 $ 13.1 million and $ 13.5 million, respectively, and a liability for unfunded commitments of approximately $ 0.3 million and $ 0.8 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 three months ended March 31, 2023 was as follows:

Outstanding (1)

Balance at March 31, 2023 $ 14,408,793 $ 585,838 $ 14,994,631

Provision for current expected credit losses ( 1,279,523 ) ( 326,664 ) ( 1,606,187 )

Write-offs — — —

Recoveries — — —

Balance at June 30, 2023 $ 13,129,270 $ 259,174 $ 13,388,444

Outstanding (1)

Balance at December 31, 2022 $ 13,538,077 $ 754,128 $ 14,292,205

2 unchanged sentences

Recoveries — — —

Balance at March 31, 2023 $ 14,408,793 $ 585,838 $ 14,994,631

(1) As of March 31, 2023 and December 31, 2022, the CECL Reserve related to outstanding balances on loans held at carrying value and loan receivable held at carrying value is recorded within current expected credit loss reserve in the Company’s consolidated balance sheets.

(2) As of March 31, 2023 and December 31, 2022, 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.

Balance at June 30, 2023 $ 13,129,270 $ 259,174 $ 13,388,444

(1) As of June 30, 2023 and December 31, 2022, the CECL Reserve related to outstanding balances on loans held at carrying value and loan receivable held at carrying value is recorded within current expected credit loss reserve in the Company’s consolidated balance sheets.

(2) As of June 30, 2023 and December 31, 2022, 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.

13 unchanged sentences

The risk ratings are primarily based on historical data as well as taking into account future economic conditions.

As of March 31, 2023, 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:

As of June 30, 2023, 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:

2022 2021 2020 Total

5 unchanged sentences

INTEREST RECEIVABLE

The following table summarizes the interest receivable by the Company as of March 31, 2023 and December 31, 2022:

March 31, 2023 As of

The following table summarizes the interest receivable by the Company as of June 30, 2023 and December 31, 2022:

June 30, 2023 As of

December 31, 2022

4 unchanged sentences

INTEREST RESERVE

At March 31, 2023 and December 31, 2022, the Company had one and three loans, respectively, that included a loan-funded interest reserve.

For the three months ended March 31, 2023 and 2022, approximately $ 3.2 million and $ 4.2 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 three months ended March 31, 2023 and 2022:

At June 30, 2023 and December 31, 2022, the Company had one and three loans, respectively, that included a loan-funded interest reserve.

For the three and six months ended June 30, 2023, approximately $ 0.6 million and $ 3.6 million, respectively, of aggregate interest income was earned and disbursed from the interest reserves.

For the three and six months ended June 30, 2022, approximately $ 1.4 million and $ 5.6 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 three and six months ended June 30, 2023 and 2022:

Three months ended

June 30, Six months ended

2023 2022 2023 2022

Beginning reserves $ 1,690,334 $ 607,163 $ 3,200,944 $ 4,782,271

7 unchanged sentences

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.

During the year ended December 31, 2022, t he 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 unaudited interim 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 unaudited interim consolidated statements of operations.

As of March 31, 2023 and December 31, 2022, the outstanding loan balance under the Revolving Credit Facility was $ 0.0 million and $ 60.0 million, respectively.

During the year ended December 31, 2022, t he Company incurred a one-time commitment fee expense of approximately $ 0.5 million, which was 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, payable semi-annually in arrears, which is included within interest expense in the Company’s unaudited interim consolidated statements of operations.

As of June 30, 2023 and December 31, 2022, the outstanding loan balance under the Revolving Credit Facility was $ 0.0 million and $ 60.0 million, respectively.

All borrowings that were previously outstanding as of December 31, 2022 were repaid in full on January 3, 2023.

24 unchanged sentences

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

As of June 30, 2023, the 2027 Senior Notes are guaranteed by TRS1.

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.

5 unchanged sentences

These events of default are subject to a number of important exceptions and qualifications set forth in the Indenture.

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

During the six months ended June 30, 2023, the Company repurchased $ 10.0 million in principal amount of the Company’s 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, the Company had $ 90.0 million in principal amount of the 2027 Senior Notes outstanding.

As of June 30, 2023 , the Company had $ 90.0 million in principal amount of the 2027 Senior Notes outstanding.

The 2027 Senior Notes are due on May 1, 2027.

Scheduled principal payments on the 2027 Senior Notes as of March 31, 2023 are as follows:

Scheduled principal payments on the 2027 Senior Notes as of June 30, 2023 are as follows:

2027 Senior Notes

2 unchanged sentences

Total principal $ 90,000,000

The following table reflects a summary of interest expense incurred during the three months ended March 31, 2023 and 2022.

The following tables reflect a summary of interest expense incurred during the three and six months ended June 30, 2023 and 2022:

Three months ended

March 31, 2023

June 30, 2023

2027 Senior Notes Revolving Credit Facility AFCF Revolving Credit Facility Total Borrowings

4 unchanged sentences

Three months ended

March 31, 2022

June 30, 2022

2027 Senior Notes Revolving Credit Facility AFCF Revolving Credit Facility Total Borrowings

3 unchanged sentences

Total interest expense $ 1,601,278 $ 27,480 $ 118,246 $ 1,747,004

Six months ended

June 30, 2023

2027 Senior Notes Revolving Credit Facility AFCF Revolving Credit Facility Total Borrowings

Interest expense $ 2,702,500 $ 26,667 $ — $ 2,729,167

Unused fee expense — 74,582 — 74,582

Amortization of deferred financing costs 323,734 116,452 — 440,186

Total interest expense $ 3,026,234 $ 217,701 $ — $ 3,243,935

Six months ended

June 30, 2022

2027 Senior Notes Revolving Credit Facility AFCF Revolving Credit Facility Total Borrowings

Interest expense $ 2,859,027 $ — $ 19,792 $ 2,878,819

Unused fee expense — — 60,417 60,417

Amortization of deferred financing costs 325,758 27,480 154,645 507,883

Total interest expense $ 3,184,785 $ 27,480 $ 234,854 $ 3,447,119

COMMITMENTS AND CONTINGENCIES

As of March 31, 2023 and December 31, 2022, the Company had the following commitments to fund various investments:

March 31, 2023 As of

As of June 30, 2023 and December 31, 2022, the Company had the following commitments to fund various investments:

June 30, 2023 As of

December 31, 2022

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The Company from time to time may be a party to litigation in the normal course of business.

As of March 31, 2023, the Company is not aware of any legal claims that could materially impact its business, financial condition or results of operations.

As of June 30, 2023, the Company is not aware of any legal claims that could materially impact its business, financial condition or results of operations.

On March 17, 2023, the Company appointed Brandon Hetzel to serve as its Chief Financial Officer and Treasurer in place of Brett Kaufman, effective as of such date, with Mr.

5 unchanged sentences

Kaufman executing and not revoking a release of claims in favor of the Company.

During the three months ended March 31, 2023, the Company recorded approximately $ 0.7 million in severance expense, recorded within general and administrative expenses within the unaudited interim consolidated statements of operations.

During the six months ended June 30, 2023, the Company recorded approximately $ 0.7 million in severance expense, recorded within general and administrative expenses within the unaudited interim consolidated statements 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.

5 unchanged sentences

Series A Preferred Stock

As of March 31, 2023 and December 31, 2022, 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”).

As of June 30, 2023 and December 31, 2022, 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”).

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.

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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 three months ended March 31, 2023, the Company did not sell any shares of the Company’s common stock under the Sales Agreement.

As of March 31, 2023 , the shares of common stock sold under the ATM Program are the only offerings that have been initiated under the Shelf Registration Statement.

During the three and six months ended June 30, 2023, the Company did not sell any shares of the Company’s common stock under the Sales Agreement.

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 June 30, 2023 , the shares of common stock sold under the ATM Program are the only offerings that have been initiated under the Shelf Registration Statement.

Share Repurchase Program

On June 13, 2023, the Company's Board of Directors authorized a share repurchase program providing for the repurchase of up to $ 20.0 million of the Company's outstanding common stock (the “Repurchase Program”).

The timing, price, and volume of repurchases will be based on the Company’s stock price, general market conditions, applicable legal requirements and other factors.

The repurchase of the Company’s common stock may be made from time to time in the open market, in privately negotiated transactions or otherwise in compliance with Rule 10b-18 and Rule 10b5-1 under the Securities Exchange Act of 1934.

The Company expects to finance any share repurchases under the Repurchase Program using cash on hand, capacity available under our line of credit and cash flows from operations.

The Repurchase Program may be discontinued, modified or suspended at any time.

During the three and six months ended June 30, 2023, the Company did no t repurchase any shares of its common stock pursuant to the Repurchase Program.

Stock Incentive Plan

10 unchanged sentences

During the first quarter of 2023, the Company’s Board of Directors approved grants of restricted stock to the Company’s directors and officers, as well as certain employees of the Manager.

In January 2023, the Company granted an aggregate of 125,234 shares of restricted stock to certain of our officers and other eligible persons.

In January 2023, the Company granted an aggregate of 125,234 shares of restricted stock to certain of our directors, officers and other eligible persons.

The restricted stock granted in January 2023 under the 2020 Plan contain vesting periods that vary from immediately vested to vesting over a three-year period, with approximately 33 % vesting on each of the first, second and third anniversaries of the vesting commencement date.

As of March 31, 2023, there were 2,469,849 shares of common stock granted under the 2020 Plan, underlying 2,281,272 options and 188,577 shares of restricted stock.

As of March 31, 2023, 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 consistent with the Share Limit at December 31, 2022.

On June 20, 2023, the Company granted 1,159 shares of restricted stock to James C.

Fagan in connection with his recent appointment to the Company’s Board of Directors, which will vest upon the one-year anniversary of the grant date.

As of June 30, 2023, there were 2,431,212 shares of common stock granted under the 2020 Plan, underlying 2,274,172 options and 157,040 shares of restricted stock.

As of June 30, 2023, 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 consistent with the Share Limit at March 31, 2023 .

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 March 31, 2023 and December 31, 2022:

March 31, 2023 As of

June 30, 2023 As of

December 31, 2022

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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 $ 0.3 million and $ 1.0 million for the three months ended March 31, 2023 and 2022, respectively.

The stock-based compensation expense for the Company was approximately $ 0.1 million and $ 0.4 million for the three and six months ended June 30, 2023, respectively, and approximately $ 0.1 million and $ 1.1 million for the three and six months ended June 30, 2022, respectively.

The following table presents the assumptions used in the option pricing model of options granted under the 2020 Plan:

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Expected forfeiture rate 0 %

The following tables summarize stock option activity during the three months ended March 31, 2023 and 2022:

The following tables summarize stock option activity during the three and six months ended June 30, 2023 and 2022:

Three months ended

March 31, 2023 Weighted-average

June 30, 2023 Weighted-average

grant date fair

value per option

Balance as of December 31, 2022 2,280,372 $ 1.21

Balance as of March 31, 2023 2,280,372 $ 1.21

Exercised — —

Forfeited ( 7,100 ) 1.35

Balance as of March 31, 2023 2,280,372 $ 1.21

Balance as of June 30, 2023 2,273,272 $ 1.21

Three months ended

March 31, 2022 Weighted-average

June 30, 2022 Weighted-average

grant date fair

value per option

Balance as of March 31, 2022 2,321,106 $ 1.21

Exercised — —

Forfeited ( 5,000 ) 1.43

Balance as of June 30, 2022 2,316,106 $ 1.21

Six months ended

June 30, 2023 Weighted-average

grant date fair

value per option

Balance as of December 31, 2022 2,280,372 $ 1.21

Exercised — —

Forfeited ( 7,100 ) 1.35

Balance as of June 30, 2023 2,273,272 $ 1.21

Six months ended

June 30, 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

1 unchanged sentence

Forfeited ( 30,130 ) 1.05

Balance as of March 31, 2022 2,321,106 $ 1.21

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 March 31, 2023 and December 31, 2022:

March 31, 2023 As of

Balance as of June 30, 2022 2,316,106 $ 1.21

The following table summarizes the restricted stock (i) granted, (ii) vested and (iii) forfeited for the Company’s directors and officers and employees of the Manager as of June 30, 2023 and December 31, 2022:

June 30, 2023 As of

December 31, 2022

Non-vested 189,815 64,581

Granted 190,974 64,581

Vested ( 19,558 ) —

2 unchanged sentences

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 three months ended March 31, 2023 and 2022:

The following tables summarize the restricted stock activity during the three and six months ended June 30, 2023 and 2022:

Three months ended

March 31, 2023 Weighted-average value at award date

Balance as of December 31, 2022 63,343 $ 20.40

June 30, 2023 Weighted-average value at award date

Balance as of March 31, 2023 185,366 $ 17.19

Granted 1,159 12.94

1 unchanged sentence

Forfeited ( 32,696 ) 20.39

Balance as of March 31, 2023 185,366 $ 17.19

Balance as of June 30, 2023 137,482 $ 16.06

Three months ended

March 31, 2022 Weighted-average value at award date

June 30, 2022 Weighted-average value at award date

Balance as of March 31, 2022 64,581 $ 20.40

Forfeited — —

Balance as of June 30, 2022 64,581 $ 20.40

Six months ended

June 30, 2023 Weighted-average value at award date

Balance as of December 31, 2022 63,343 $ 20.40

Granted 126,393 15.55

Vested ( 19,558 ) 19.60

Forfeited ( 32,696 ) 20.39

Balance as of March 31, 2022 64,581 $ 20.40

Balance as of June 30, 2023 137,482 $ 16.06

Six months ended

June 30, 2022 Weighted-average value at award date

Balance as of December 31, 2021 56,285 $ 20.43

Granted 8,296 20.18

Forfeited — —

Balance as of June 30, 2022 64,581 $ 20.40

EARNINGS PER SHARE

The following information sets forth the computations of basic and diluted weighted average earnings per common share for the three months ended March 31, 2023 and 2022:

The following information sets forth the computations of basic and diluted weighted average earnings per common share for the three and six months ended June 30, 2023 and 2022:

Three months ended

June 30, Six months ended

2023 2022 2023 2022

Net income attributable to common shareholders $ 12,135,333 $ 11,351,673 $ 22,160,607 $ 21,513,793

Dividends paid on preferred shares ( 7,500 ) ( 7,500 ) ( 7,500 ) ( 7,500 )

Dividends paid on unvested restricted stock ( 103,805 ) ( 35,520 ) ( 139,277 ) ( 63,662 )

5 unchanged sentences

Diluted weighted average earnings per common share $ 0.59 $ 0.57 $ 1.08 $ 1.09

Diluted weighted average earnings per common share excludes 2,280,372 and 742,000 stock options due to anti-dilutive effect for the three months ended March 31, 2023 and 2022, respectively .

Diluted weighted average earnings per common share excluded 2,417,817 and 2,369,907 weighted average unvested restricted stock and stock options due to anti-dilutive effect for the three and six months ended June 30, 2023, respectively, and 1,419,700 and 1,419,700 for the three and six months ended June 30, 2022, respectively .

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.

3 unchanged sentences

The income tax provision is included in the line item income tax expense, including excise tax in the consolidated statements of operations included in these unaudited interim consolidated financial statements.

The income tax provision for the Company was approximately $ 175.1 thousand and $ 18.3 thousand for the three months ended March 31, 2023 and 2022, respectively.

The income tax expense for the three months ended March 31, 2023 and 2022 primarily relates to activities of the Company’s taxable REIT subsidiary.

For the three months ended March 31, 2023 and 2022, the Company incurred no expense for United States federal excise tax.

The income tax provision for the Company was approximately $ 0.2 million and $ 0.3 million for the three and six months ended June 30, 2023, respectively.

The income tax provision for the Company was approximately $ 0.2 million and $ 0.2 million for the three and six months ended June 30, 2022, respectively.

The income tax expense for the three and six months ended June 30, 2023 and 2022 primarily relates to activities of the Company’s taxable REIT subsidiary.

For the three and six months ended June 30, 2023 and 2022, the Company incurred no expense for United States federal excise tax.

Excise tax represents a 4 % tax on the sum of a portion of the Company’s ordinary income and net capital gains not distributed during the period.

8 unchanged sentences

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 March 31, 2023 and December 31, 2022:

Fair Value Measurement as of March 31, 2023

The following tables present fair value measurements of loans held at fair value as of June 30, 2023 and December 31, 2022:

Fair Value Measurement as of June 30, 2023

Total Level 1 Level 2 Level 3

5 unchanged sentences

Total $ 99,226,051 $ — $ — $ 99,226,051

The following table presents changes in loans that use Level 3 inputs as of and for the three months ended March 31, 2023:

Three months ended

March 31, 2023

The following table presents changes in loans that use Level 3 inputs as of and for the six months ended June 30, 2023:

Six months ended

June 30, 2023

Total loans using Level 3 inputs at December 31, 2022 $ 99,226,051

1 unchanged sentence

Additional fundings 1,705,873

Loan repayments ( 5,897,934 )

Accretion of original issue discount 760,172

PIK interest 2,087,119

Total loans using Level 3 inputs at March 31, 2023 $ 99,924,201

The change in unrealized losses included in the unaudited interim consolidated statements of operations attributable to loans held at fair value, categorized as Level 3, held as of March 31, 2023 is $( 1,477,691 ).

The following tables summarize the significant unobservable inputs the Company used to value the loans categorized within Level 3 as of March 31, 2023 and December 31, 2022.

Total loans using Level 3 inputs at June 30, 2023 $ 95,940,672

The following tables summarize the significant unobservable inputs the Company used to value the loans categorized within Level 3 as of June 30, 2023 and December 31, 2022.

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 March 31, 2023

As of June 30, 2023

Unobservable Input

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Investment in Marketable Securities

As of March 31, 2023 and December 31, 2022 , the Company’s portfolio did not include any debt securities.

The Company sold the 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 June 30, 2023 and December 31, 2022 , the Company’s portfolio did not include any debt securities.

For the three and six months ended June 30, 2023, the Company had no sales of debt securities.

For the three and six months ended June 30, 2022, the realized loss on the sale of debt securities was approximately zero and $ 0.2 million, respectively.

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 unaudited interim consolidated balance sheet as of March 31, 2023 :

As of March 31, 2023

As of June 30, 2023

Carrying Value Fair Value

15 unchanged sentences

“Core Earnings” is defined in the Management Agreement as, for a given period means the net income (loss) for such period, computed in accordance with GAAP, excluding (i) non-cash equity compensation expense, (ii) the Incentive Compensation, (iii) depreciation and amortization, (iv) any unrealized gains or losses or other non-cash items that are included in net income for the applicable reporting period, regardless of whether such items are included in other comprehensive income or loss, or in net income and (v) one-time events pursuant to changes in GAAP and certain non-cash charges, in each case after discussions between the Manager and the Company’s independent directors and approved by a majority of the independent directors.

The Incentive Compensation for the three months ended March 31, 2023 and 2022 was approximately $ 2.8 million and $ 3.0 million, respectively.

The Incentive Compensation for the three and six months ended June 30, 2023 was approximately $ 2.4 million and $ 5.2 million, respectively.

The Incentive Compensation for the three and six months ended June 30, 2022 was approximately $ 3.4 million and $ 6.4 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 three months ended March 31, 2023 and 2022:

The following table summarizes the related party costs incurred by the Company for the three and six months ended June 30, 2023 and 2022:

Three months ended

June 30, Six months ended

2023 2022 2023 2022

Affiliate Costs

5 unchanged sentences

Total $ 4,210,695 $ 5,175,454 $ 9,000,941 $ 9,929,385

Amounts payable to the Company’s Manager as of March 31, 2023 and December 31, 2022 were approximately $ 4.8 million and $ 5.7 million, respectively.

Amounts payable to the Company’s Manager as of June 30, 2023 and December 31, 2022 were approximately $ 4.6 million and $ 5.7 million, respectively.

Due to Affiliate

Amounts due to an affiliate of the Company as of March 31, 2023 and December 31, 2022 were approximately $ 20.0 thousand and $ 18.1 thousand, respectively.

Amounts due to an affiliate of the Company as of June 30, 2023 and December 31, 2022 were approximately $ 19.4 thousand and $ 18.1 thousand, respectively.

Investments in Loans

2 unchanged sentences

As such, the Company’s risk is limited to the carrying value of its investment in any such loan.

As of March 31, 2023, there were four co-invested loans held by the Company and affiliates of the Company.

As of June 30, 2023, there were four co-invested loans held by the Company and affiliates of the Company.

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 (i) Chief Executive Officer and Chairman of the Board, (ii) President and (iii) Head of Real Estate and a Director, while 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 March 31, 2023.

AFCIF holds approximately one-third of the loan’s aggregate principal amount as of June 30, 2023.

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

In May 2023, Private Company I failed to pay its full principal and interest payments due May 1, 2023.

The agent on the credit facility, AFC Agent LLC (“AFC Agent”), promptly delivered a notice of an event of default based on this payment default and certain other defaults under the credit agreement , accelerated all obligations due thereunder and subsequently initiated a foreclosing procedure in the State of Maryland.

In June 2023, the Company sold two-thirds of the Private Company I credit facility at par plus accrued interest to a multi-state cannabis operator and has a put right on the remaining one-third immediately prior to the transfer of one of the borrower’s cannabis licenses.

Following the sale, the Company now holds approximately $ 3.5 million in commitments, which is fully funded.

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.

1 unchanged sentence

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 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 (“FLH”), an entity wholly-owned by the Company’s Chief Executive Officer and Chairman of the Board and President, 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 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;

1 unchanged sentence

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.

During the second quarter of 2023, AFC Agent received approximately $ 8.3 million in total loan principal prepayments from the borrower’s sale of its Maryland assets, of which approximately $ 5.9 million was allocated to the Company relating to its pro rata portion of the Private Company A credit facility and was applied to the outstanding principal balance.

Following the prepayment, the Company now holds approximately $ 79.0 million in commitments under the credit facility, which is fully funded.

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.

2 unchanged sentences

Following the expansion, the Company now holds $ 73.5 million in commitments, of which the Company has funded approximately $ 73.0 million in total principal amount.

Subsidiary of Private Company G failed to make its cash interest payment due July 1, 2023 in arrears for the month of June, and the Company placed the borrower on non-accrual as of June 1, 2023.

In connection therewith, the Company has initiated a consensual foreclosure proceeding with respect to certain of the borrower’s assets in Pennsylvania, with the expectation that the net cash proceeds of the public auction will be used to prepay a portion of the principal outstanding under the credit facility.

Subsidiary of Private Company G also intends to sell certain non-core, non-collateral assets to pay the overdue interest amount and generate additional capital for the expansion of its New Jersey operations.

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 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 the Company, of which $ 6.0 million of the reduced commitment was allocated to the Company and $ 9.0 million of additional principal was funded by the Company, (ii) strengthen the real estate coverage covenants and (iii) require certain conditions precedent be met prior to disbursing funds to construction projects.

Following the amendment, the Company now holds $ 84.0 million in commitments, which is fully funded.

Secured Revolving Credit Facility From Affiliate

2 unchanged sentences

DIVIDENDS AND DISTRIBUTIONS

The following table summarizes the Company’s dividends declared during the three months ended March 31, 2023 and 2022:

The following table summarizes the Company’s dividends declared during the six months ended June 30, 2023 and 2022:

Record Date Payment

5 unchanged sentences

Regular cash dividend 6/30/2022 7/15/2022 0.56 0.56 — 0.56

2022 Period Subtotal $ 1.11 $ 1.11 $ — $ 1.11

Regular cash dividend 3/31/2023 4/14/2023 $ 0.56 $ 0.56 $ — $ 0.56

Regular cash dividend 6/30/2023 7/14/2023 0.48 0.48 — 0.48

2023 Period Subtotal $ 1.04 $ 1.04 $ — $ 1.04

SUBSEQUENT EVENTS

The Company has evaluated subsequent events through the date the financial statements were available to be issued.

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 unaudited interim consolidated financial statements.

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 the Company’s Distributable Earnings for the near-term future and reduce the Company’s 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 the Company, of which $ 6.0 million of the reduced commitment was allocated to the Company and $ 9.0 million of additional principal was funded by the Company and (ii) strengthen the real estate coverage covenants.

Following the amendment, the Company now holds $ 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 the Company.

Subsidiary of Private Company G failed to make its cash interest payment due July 1, 2023 in arrears for the month of June, and the Company placed the borrower on non-accrual as of June 1, 2023.

In July 2023, Private Company A closed on the sale of certain of its real estate, cannabis licenses and other related assets located in Arizona for a total purchase price of $ 65.0 million, a portion of which is held in escrow subject to meeting certain post-closing conditions set forth under the purchase agreement, and $ 30.0 million of which was financed by a secured seller promissory note in favor of Private Company A.

The net cash proceeds of the sale were used to prepay a portion of the lender’s outstanding obligations under the credit facility with Private Company A, allocated pro-rata to each lender based on its commitments under the credit facility.

Subsequent to quarter end and thus far, AFC Agent has received approximately $ 37.6 million in total loan principal prepayments and $ 1.3 million in related exit fees, of which approximately $ 27.1 million in principal prepayments and $ 1.0 million in related exit fees were allocated to the Company based on the Company’s pro rata portion of the Private Company A credit facility and was applied to the outstanding principal balance.

Following the prepayment, the Company’s outstanding principal balance under the credit facility with Private Company A was approximately $ 54.6 million, which is fully funded.

In July 2023, TRS1 purchased a secured seller promissory note that was issued by Private Company M in favor of Private Company A as a portion of the total purchase price for certain of Private Company A and its subsidiaries’ assets and operations in Arizona.

The seller promissory note is for an amount equal to $ 30.0 million and is secured by four Arizona cannabis dispensary licenses as well as certain assets related thereto.

The seller note matures on July 31, 2026 and accrues interest at a rate of 9.0 % per annum until February 2026, and at a rate of 15.0 % per annum thereafter.

TRS1 purchased the seller note from Private Company A at a discount of approximately 16.0 % for a purchase price equal to approximately $ 25.2 million.

CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

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What changed 10-Q

Item 1. Financial Statements