Advanced Flower Capital Inc. 10-Q

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our consolidated financial statements and the accompanying notes and other information included in this Quarterly Report on Form 10-Q (the “Form 10-Q”). This discussion and analysis contains forward-looking statements that involve risks and uncertainties which could cause our actual results to differ materially from those anticipated in these forward-looking statements, including, but not limited to, risks and uncertainties discussed under the heading “Cautionary Note Regarding Forward-Looking Statements,” in this Form 10-Q. Business Overview 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. 32 Index 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”) 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 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 other words, an “emerging growth company” can delay the adoption of certain accounting standards until those standards would otherwise apply to private companies. We have elected to take advantage of the extended transition period to comply with new or revised accounting standards and to adopt certain of the reduced disclosure requirements available to emerging growth companies. As a result of the accounting standards election, we will not be subject to the same implementation timing for new or revised accounting standards as other public companies that are not emerging growth companies which may make comparison of our financials to those of other public companies more difficult. 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. 33 Index Developments during the Second Quarter of 2023: Updates to our Loan Portfolio during the Second Quarter of 2023 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 under the loan and certain non-core, non-collateral assets to generate additional capital for its operations. Subsidiary of Private Company G failed to make its cash interest payment due July 1, 2023 in arrears for the month of June, and we placed the borrower on non-accrual as of June 1, 2023. In connection therewith, we have 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 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, (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, we now hold $84.0 million in commitments, which is fully funded. 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, we sold two-thirds of the Private Company I credit facility at par plus accrued interest to a multi-state cannabis operator and have a put right on the remaining one-third immediately prior to the transfer of one of the borrower’s cannabis licenses. Following the sale, we now hold approximately $3.5 million in commitments, which is fully funded. During the second quarter of 2023, AFC Agent received approximately $8.3 million in total loan principal prepayments from Private Company A’s sale of its Maryland assets, of which approximately $5.9 million was allocated to us relating to our portion of the Private Company A credit facility and was applied to the outstanding principal balance. In June 2023, Subsidiary of Private Company H repaid its loan in full. The outstanding principal of Subsidiary of Private Company H on the date of repayment was approximately $5.8 million . We received exit fees of approximately $0.2 million . In June 2023, TRS1 purchased $12.0 million in outstanding principal amount of Subsidiary of Public Company M, issued at a blended weighted-average discount of 19.3%, from a third party lender and the third party lender assigned all rights, title and interest to the Company. The term loans under the Subsidiary of Public Company M Credit Facility accrue interest at a fixed rate per annum of 9.5%. At-the-Market Offering Program In April 2022, we filed our shelf registration statement on Form S-3 with the SEC, registering the offer and sale of up to $1.0 billion of securities (the “Shelf Registration Statement”). The Shelf Registration Statement enables us to issue shares of common stock, preferred stock, debt securities, warrants, rights, as well as units that include one or more of such securities. The Shelf Registration Statement also included a prospectus for an at-the-market offering program to sell up to an aggregate of $75.0 million of shares of our common stock (the “ATM Program”) that may be issued and sold from time to time under the Sales Agreement, dated April 5, 2022 (the “Sales Agreement”), with Jefferies LLC and JMP Securities LLC, as Sales Agents. 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 six months ended June 30, 2023, we did not sell any shares of our common stock under the Sales Agreement. 34 Index Share Repurchase Program On June 13, 2023, our Board of Directors authorized a share repurchase program providing for the repurchase of up to $20.0 million of our outstanding common stock (the “Repurchase Program”). The timing, price, and volume of repurchases will be based on our stock price, general market conditions, applicable legal requirements and other factors. The repurchase of our 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. We expect 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, we did not repurchase any shares of our common stock pursuant to the Repurchase Program. Dividends Declared Per Share In June 2023, we declared a regular cash dividend of $0.48 per share of our common stock, relating to the quarter ended June 30, 2023 , which was paid on July 14, 2023 to shareholders of record as of June 30, 2023 . The aggregate amount of the regular cash dividend payment was approximately $9.8 million . For the six months ended June 30, 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 10, 2022 March 31, 2022 April 15, 2022 $0.55 $10.9 million June 15, 2022 June 30, 2022 July 15, 2022 0.56 11.1 million 2022 Period Subtotal $1.11 $22.0 million March 2, 2023 March 31, 2023 April 14, 2023 $0.56 $11.5 million June 15, 2023 June 30, 2023 July 14, 2023 0.48 9.8 million 2023 Period Subtotal $1.04 $21.3 million Recent Developments 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 us based on our pro rata portion of the Private Company A credit facility and was applied to the outstanding principal balance. Following the prepayment, our 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. Key Financial Measures and Indicators As a commercial real estate finance company, we believe the key financial measures and indicators for our business are Distributable Earnings, book value per share and dividends declared per share. 35 Index Non-GAAP Metrics Distributable Earnings In addition to using certain financial metrics prepared in accordance with GAAP to evaluate our performance, we also use Distributable Earnings to evaluate our performance excluding the effects of certain transactions and GAAP adjustments we believe are not necessarily indicative of our current loan activity and operations. Distributable Earnings is a measure that is not prepared in accordance with GAAP. We use these non-GAAP financial measures both to explain our results to shareholders and the investment community and in the internal evaluation and management of our businesses. Our management believes that these non-GAAP financial measures and the information they provide are useful to investors since these measures permit investors and shareholders to assess the overall performance of our business using the same tools that our management uses to evaluate our past performance and prospects for future performance. 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) (decrease) increase in 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. As a REIT, we are required to distribute at least 90% of our annual REIT taxable income, subject to certain adjustments, and to pay tax at regular corporate rates to the extent that we annually distribute less than 100% of such taxable income. Given these requirements and our belief that dividends are generally one of the principal reasons that shareholders invest in our common stock, we generally intend to attempt to pay dividends to our shareholders in an amount at least equal to such REIT taxable income, if and to the extent authorized by our Board. Distributable Earnings is one of many factors considered by our Board in authorizing dividends and, while not a direct measure of net taxable income, over time, the measure can be considered a useful indicator of our dividends. Distributable Earnings is a non-GAAP financial measure and should not be considered as a substitute for GAAP net income. We caution readers that our methodology for calculating Distributable Earnings may differ from the methodologies employed by other REITs to calculate the same or similar supplemental performance measures, and as a result, our reported Distributable Earnings may not be comparable to similar measures presented by other REITs. 36 Index The following table provides a reconciliation of GAAP net income to Distributable Earnings: Three months ended June 30, Six months ended June 30, 2023 2022 2023 2022 Net income $ 12,135,333 $ 11,351,673 $ 22,160,607 $ 21,513,793 Adjustments to net income: Stock-based compensation expense 130,769 117,397 411,347 1,107,420 Depreciation and amortization — — — — Unrealized losses, (gains) or other non-cash items 462,918 1,005,454 1,940,609 924,611 (Decrease) increase in provision for current expected credit losses (1,606,187) 1,593,048 (903,761) 2,498,177 TRS (income) loss, net of dividends (1,250,400) (487,474) (2,116,604) (548,545) One-time events pursuant to changes in GAAP and certain non-cash charges — — — — Distributable earnings $ 9,872,433 $ 13,580,098 $ 21,492,198 $ 25,495,456 Basic weighted average shares of common stock outstanding (in shares) 20,317,341 19,715,749 20,310,606 19,518,964 Distributable earnings per basic weighted average share $ 0.49 $ 0.69 $ 1.06 $ 1.31 Book Value Per Share 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 June 30, 2023 and December 31, 2022 was approximately $16.64 and $16.65, respectively. Factors Impacting our Operating Results The results of our operations are affected by a number of factors and primarily depend on, among other things, the level of our net interest margin, the market value of our assets and the supply of, and demand for, commercial real estate debt and other financial assets in the marketplace. Our net interest margin, which includes the accretion and amortization of OID, is recognized based on the contractual rate and the outstanding principal balance of the loans we originate. Interest rates will vary according to the type of loan, conditions in the financial markets, creditworthiness of our borrowers, competition and other factors, some of which cannot be predicted with any certainty. 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 six months ended June 30, 2023 and 2022 Our net income allocable to our common shareholders for the three and six months ended June 30, 2023, was approximately $12.1 million and $22.2 million or $0.59 and $1.08 per basic weighted average common share, respectively, compared to net income allocable to our common shareholders of approximately $11.4 million and $21.5 million or $0.57 and $1.10 per basic weighted average common share for the three and six months ended June 30, 2022. Interest income decreased approximately $(4.0) million, or (18.4)%, for the three months ended June 30, 2023 as compared to the three months ended June 30, 2022. This decrease was driven by lower fee income recognized of approximately ($2.4) million, lower unused fees of approximately ($0.4) million driven by less unfunded commitments, and lower OID income of approximately ($3.1) million due to acceleration of unaccreted OID of prior year loan repayments, partially offset by an increase in interest income of approximately $1.9 million driven by additional principal deployed as well as an increase in variable interest rates during the three months ended June 30, 2023, as compared to the three months ended June 30, 2022, respectively. 37 Index Interest income decreased approximately $(4.1) million, or (10.2)%, for the six months ended June 30, 2023 as compared to the six months ended June 30, 2022. This decrease was driven by lower fee income recognized of approximately ($4.2) million, lower unused fees of approximately ($0.7) million driven by less unfunded commitments, and lower OID income of approximately ($5.8) million due to acceleration of unaccreted OID of prior year loan repayments, partially offset by an increase in interest income of approximately $6.6 million driven by additional principal deployed as well as an increase in variable interest rates during the six months ended June 30, 2023, as compared to the six months ended June 30, 2022, respectively. Interest expense decreased approximately $(0.2) million, or (9.8)%, for the three months ended June 30, 2023, as compared to the three months ended June 30, 2022. The decrease was primarily due to lower interest incurred on the 2027 Senior Notes due to $90.0 million principal outstanding for the three months ended June 30, 2023, as compared to $100.0 million principal outstanding for the three months ended June 30, 2022. Interest expense decreased approximately $(0.2) million, or (5.9)%, for the six months ended June 30, 2023, as compared to the six months ended June 30, 2022. The decrease was primarily due to lower interest incurred on the 2027 Senior Notes due to a weighted average decrease in the 2027 Senior Notes principal outstanding of approximately $(6.2) million, or (6.2)%, for the six months ended June 30, 2023, as compared to the six months ended June 30, 2022. This relates to the repurchase of $10.0 million of our 2027 Senior Notes during the six months ended June 30, 2023. No repurchases took place during the same period in 2022. Management fees increased approximately $0.1 million, or 14.5%, for the three months ended June 30, 2023, as compared to the three months ended June 30, 2022. Incentive fees decreased approximately $(1.0) million, or (29.6)%, for the three months ended June 30, 2023, as compared to the three months ended June 30, 2022, driven by lower Core Earnings (as defined in the Management Agreement). Management fees increased approximately $0.1 million, or 7.0%, for the six months ended June 30, 2023, as compared to the six months ended June 30, 2022. Incentive fees decreased approximately $(1.1) million, or (18.0)%, for the six months ended June 30, 2023, as compared to the six months ended June 30, 2022, driven by lower Core Earnings (as defined in the Management Agreement). General and administrative expenses decreased approximately $(0.1) million, or (8.6)%, for the three months ended June 30, 2023, as compared to the three months ended June 30, 2022. General and administrative expenses increased approximately $0.8 million, or 32.7%, for the six months ended June 30, 2023, as compared to the six months ended June 30, 2022. This increase was primarily due to severance expense incurred during the six months ended June 30, 2023 attributable to the departure of our former chief financial officer of approximately $0.7 million. Stock-based compensation was in line with the prior period, increasing approximately $13.4 thousand, or 11.4%, for the three months ended June 30, 2023 as compared to the three months ended June 30, 2022. Stock-based compensation decreased approximately $(0.7) million, or (62.9)%, for the six months ended June 30, 2023 as compared to the six months ended June 30, 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. Professional fees increased approximately $0.1 million, or 43.0%, for the three months ended June 30, 2023 as compared to the three months ended June 30, 2022. Professional fees increased approximately $0.1 million, or 21.3%, for the six months ended June 30, 2023 as compared to the six months ended June 30, 2022. The net change in realized (losses) gains on sales of investments for the three and six months ended June 30, 2023 as compared to the three and six months ended June 30, 2022 was zero and approximately $(0.5) million, respectively. 38 Index 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 $(0.5) million and $(1.0) million for the three months ended June 30, 2023 and 2022, respectively, and $(1.9) million and $(0.9) million for the six months ended June 30, 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 zero and approximately $2.0 million for the three and six months ended June 30, 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 The provision for current expected credit losses decreased approximately $(3.2) million, or (200.8)%, for the three months ended June 30, 2023 as compared to the three months ended June 30, 2022 . The provision for current expected credit losses decreased approximately $(3.4) million, or (136.2)%, for the six months ended June 30, 2023 as compared to the six months ended June 30, 2022 . The balance as of June 30, 2023 was approximatel y $13.4 million , or 4.68%, of our total loans held at carrying value and loan receivable held at carrying value balance of approximately $285.8 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 $13.1 million and (ii) a liability for unfunded commitments of approximately $0.3 million . The balance as of June 30, 2022 was approximately $5.6 million, or 1.76%, of our total loans held at carrying value and loan receivable held at carrying value balance of approximately $318.1 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 $5.0 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. Management considered the likelihood that funding will occur, and if funded, the expected credit loss on the funded portion. We continuously evaluate the credit quality of each loan by assessing the risk factors of each loan. The decrease in the provision for current expected credit losses for the three and six months ended June 30, 2023 compared to the three and six months ended June 30, 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 June 30, 2023 and December 31, 2022, our 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, we 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 our loans held at fair value had floating interest rates. The following tables summarize our loans held at fair value as of June 30, 2023 and December 31, 2022: As of June 30, 2023 Fair Value (1) Carrying Value (2) Outstanding Principal (2) Weighted Average Remaining Life (Years) (3) Senior term loans $ 95,940,672 $ 99,291,215 $ 100,271,604 0.7 Total loans held at fair value $ 95,940,672 $ 99,291,215 $ 100,271,604 0.7 39 Index As of December 31, 2022 Fair Value (1) Carrying Value (2) Outstanding Principal (2) Weighted Average Remaining Life (Years) (3) Senior term loans $ 99,226,051 $ 100,635,985 $ 102,376,546 1.2 Total loans held at fair value $ 99,226,051 $ 100,635,985 $ 102,376,546 1.2 (1) Refer to Note 14 to our unaudited interim consolidated financial statements titled “Fair Value” . (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 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 Discount Unrealized Gains (Losses) Fair Value 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 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 June 30, 2023 $ 100,271,604 $ (980,389) $ (3,350,543) $ 95,940,672 As of June 30, 2023 and December 31, 2022 , our portfolio did not include any debt securities. For the three and six months ended June 30, 2023, we 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. As of June 30, 2023 and December 31, 2022, our 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 , we 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 our 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%. 40 Index The following tables summarize our loans held at carrying value as of June 30, 2023 and December 31, 2022: As of June 30, 2023 Outstanding Principal (1) Original Issue Discount Carrying Value (1) Weighted Average Remaining Life (Years) (2) Senior term loans $ 294,766,125 $ (11,013,567) $ 283,752,558 2.7 Total loans held at carrying value $ 294,766,125 $ (11,013,567) $ 283,752,558 2.7 As of December 31, 2022 Outstanding Principal (1) Original Issue Discount Carrying Value (1) Weighted Average Remaining Life (Years) (2) Senior term loans $ 296,584,529 $ (11,407,417) $ 285,177,112 3.1 Total loans held at carrying value $ 296,584,529 $ (11,407,417) $ 285,177,112 3.1 (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 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 Discount Carrying Value Total loans held at carrying value at December 31, 2022 $ 296,584,529 $ (11,407,417) $ 285,177,112 New fundings 27,196,265 (2,610,000) 24,586,265 Accretion of original issue discount — 1,736,483 1,736,483 Loan repayments (9,586,534) — (9,586,534) Sale of loans (22,606,578) 1,267,367 (21,339,211) PIK interest 6,022,667 — 6,022,667 Loan amortization payments (2,844,224) — (2,844,224) Total loans held at carrying value at June 30, 2023 $ 294,766,125 $ (11,013,567) $ 283,752,558 As of June 30, 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 $2.0 million and $2.2 million as of June 30, 2023 and December 31, 2022, respectively. During the six months ended June 30, 2023, we had approximately $0.2 million of principal repayments of loan receivable held at carrying value. 41 Index The following table presents changes in loans receivable as of and for the six months ended June 30, 2023: Principal Original Issue Discount Carrying Value Total loan receivable held at carrying value at December 31, 2022 $ 2,222,339 $ (1,686) $ 2,220,653 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 The below table summarizes our total loan portfolio as of June 30, 2023: Loan Names Original Funding Date (1) Loan Maturity AFCG Loan, net of Syndication % of Total AFCG Principal Balance as of 6/30/2023 Cash Interest Rate PIK Fixed/ Floating Amortization During Term YTM (2)(3) Public Co. 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 6% Public Co. A - Equipment Loans (4) 8/5/2019 3/31/2025 4,000,000 1.0% 2,041,744 12.0% N/A Fixed Yes 9% Private Co. A (5) 5/8/2020 5/8/2024 79,010,747 19.3% 81,274,550 12.9% 2.8% Fixed Yes 25% Private Co. B (6) 9/10/2020 9/1/2023 16,402,988 4.0% 17,783,638 14.7% 4.0% Fixed Yes 31% Private Co. C 11/5/2020 12/1/2025 24,000,000 5.9% 18,646,082 17.3% 2.0% Floating Yes 25% Sub of Private Co. G (7) 4/30/2021 5/1/2026 73,500,000 18.0% 78,976,331 18.5% N/A Floating Yes 26% Private Co. I (8) 7/14/2021 8/1/2026 3,500,298 0.9% 3,767,454 17.2% 4.5% Floating Yes 28% Private Co. J 8/30/2021 9/1/2025 23,000,000 5.6% 22,487,445 17.1% 4.0% Floating Yes 26% Private Co. K 4/28/2022 5/3/2027 14,500,379 3.5% 13,066,813 17.1% 2.0% Floating Yes 27% Private Co. L 4/20/2022 5/1/2026 63,000,000 15.4% 53,000,000 12.0% N/A Fixed Yes 16% Sub of Public Co. H 12/16/2021 1/1/2026 84,000,000 20.6% 84,000,000 14.0% N/A Floating No 19% Sub of Public Co. M 8/26/2022 8/27/2025 20,822,000 5.1% 20,822,000 9.5% N/A Fixed No 17% Subtotal (9) $ 408,676,412 100.0% $ 397,079,473 14.6% 1.2% 21% Wtd Average Information is as of June 30, 2023 unless otherwise specified. Borrower names have been kept confidential due to confidentiality agreement obligations. (1) All loans originated prior to July 31, 2020 were purchased from an affiliated entity at fair value which approximated accreted and/or amortized cost plus accrued interest on July 31, 2020. (2) Estimated YTM includes a variety of fees and features that affect the total yield, which may include, but is not limited to, OID, exit fees, prepayment fees, unused fees and contingent features. OID is recognized as a discount to the funded loan principal and is accreted to income over the term of the loan. Loans originated before July 31, 2020 were acquired by us, net of unaccreted OID, which we accrete to income over the remaining term of the loan. In some cases, additional OID is recognized from additional purchase discounts attributed to the fair value of equity positions that were separated from the loans prior to our acquisition of such loans. The estimated YTM calculations require management to make estimates and assumptions, including, but not limited to, the timing and amounts of loan draws on delayed draw loans, the timing and collectability of exit fees, the probability and timing of prepayments and the probability of contingent features occurring. For example, certain credit agreements contain provisions pursuant to which certain PIK interest rates and fees earned by us under such credit agreements will decrease upon the satisfaction of certain specified criteria which we believe may improve the risk profile of the applicable borrower. To be conservative, we have not assumed any prepayment penalties or early payoffs in our estimated YTM calculation. Estimated YTM is based on current management estimates and assumptions, which may change. Estimated YTM is calculated using the interest rate as of June 30, 2023 applied through maturity. Actual results could differ from those estimates and assumptions. (3) Estimated YTM for the loan with Private Company A is enhanced by purchase discounts attributed to the fair value of equity warrants that were separated from the loan prior to our acquisition of such loan. The purchase discounts accrete to income over the respective remaining terms of the applicable loan. (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’’). 42 Index (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 through maturity on September 1, 2023. (7) As amended, 75.0% of Subsidiary of Private Company G’s 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. (8) As amended, 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) 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, 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. For example, some loan documents require a grant of a security interest in all property of the entities holding licenses to the extent not prohibited by applicable law or regulations (or requiring regulatory approval), equity pledges of entities holding licenses, receivership remedies and/or other remedies to secure the value associated with the borrowers’ licenses. Upon default of a loan, we may seek to sell the loan to a third party or have an affiliate or a third party work with the borrower to have the borrower sell collateral securing the loan to a third party or institute a foreclosure proceeding to have such collateral sold, in each case, to generate funds towards the payoff of the loan. While we believe that the appraised value of any real estate assets or other collateral securing our loans may impact the amount of the recovery in each such scenario, the amount of any such recovery from the sale of such real estate or other collateral may be less than the appraised value of such collateral and the sale of such collateral may not be sufficient to pay off the remaining balance on the defaulted loan. 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 June 30, 2023, our portfolio of assets held outside of TRS1 had a weighted average real estate collateral coverage of approximately 1.2 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. We may pursue a sale of a defaulted loan if we believe that a sale would yield higher proceeds or that a sale could be accomplished more quickly than a foreclosure proceeding while yielding proceeds comparable to what would be expected from a foreclosure sale. 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 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 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. We will not own real estate as long as it is used in the commercial sale of cannabis due to current statutory prohibitions and exchange listing standards, which may delay or limit our remedies in the event that any of our borrowers default under the terms of their loans with us. 43 Index Liquidity and Capital Resources Liquidity is a measure of our ability to meet potential cash requirements, including ongoing commitments to repay borrowings, fund and maintain our assets and operations, make distributions to our shareholders and meet other general business needs. We use significant cash to purchase our target investments, repay principal and interest on our borrowings, make distributions to our shareholders and fund our operations. The sources of financing for our target investments are described below. 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 six months ended June 30, 2023 of approximately $9.5 million was less than our dividend payments of $22.9 million made during the same period due to earned OID of $2.5 million, gain on extinguishment of debt of $2.0 million, the net change in interest reserve of $3.6 million and PIK repayments of $1.0 million related to the repayment from Private Company I during such period. 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. Capital Markets Our Shelf Registration Statement became effective on April 18, 2022, allowing us to sell, from time to time in one or more offerings, up to $1.0 billion of our securities, including common stock, preferred stock, debt securities, warrants and rights (including as part of a unit) to purchase shares of our common stock or preferred stock. The specifics of any future offerings, along with the use of proceeds of any securities offered, will be described in detail in a prospectus supplement, or other offering materials, at the time of any offering. 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. During the three and six months ended June 30, 2023, we did not sell any shares of our common stock under the Sales Agreement. During the year ended December 31, 2022 , we sold an aggregate of 621,398 shares of our common stock under the Sales Agreement at an average price of $18.30 per share generating net proceeds of approximately $10.4 million . We may seek to raise further equity capital and issue debt securities in order to fund our future investments in loans. As the cannabis industry continues to evolve and to the extent that additional states legalize cannabis, the demand for capital continues to increase as operators seek to enter and build out new markets. We expect the principal amount of the loans we originate for cannabis operators to increase. 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 June 30, 2023 and December 31, 2022, all of our cash was unrestricted and totaled approximately $82.1 million and $140.4 million, respectively. As of June 30, 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 June 30, 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. 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, payable semi-annually in arrears, which is included within interest expense in our consolidated statements of operations. 44 Index 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. In addition, we are subject to various financial and other covenants, including: (1) liquidity of at least $5.0 million, (2) annual debt service coverage of at least 1.50 to 1.0 and (3) secured debt not to exceed 25% of total consolidated assets of us and our subsidiaries. To the best of our knowledge, as of June 30, 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 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 that were required to be paid in connection with the termination. 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, 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. 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 June 30, 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 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. In addition, the Indenture also provides for customary events of default. If any event of default occurs, any amount then outstanding under the Indenture may immediately become due and payable. These events of default are subject to a number of important exceptions and qualifications set forth in the Indenture. We were in compliance with the terms of the Indenture as of the date of this quarterly report. During the six months ended June 30, 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 June 30, 2023, we had $90.0 million in principal amount of the 2027 Senior Notes outstanding. 45 Index The table below sets forth the material terms of our outstanding senior notes as of the date of this quarterly report: Senior Notes Issue Date Amount Outstanding Interest Rate Coupon Maturity Date Interest Due Dates Optional Redemption Date 2027 Senior Notes November 3, 2021 $90.0 million 5.75% May 1, 2027 May 1 and November 1 February 1, 2027 Other Credit Facilities, Warehouse Facilities and Repurchase Agreements In the future, we may also use other sources of financing to fund the origination or acquisition of our target investments, including other credit facilities and other secured and unsecured forms of borrowing. These financings may be collateralized or non-collateralized and may involve one or more lenders. 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. Debt Service As of June 30, 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. Cash Flows The following table sets forth changes in cash and cash equivalents for the six months ended June 30, 2023 and 2022: June 30, 2023 2022 Net income $ 22,160,607 $ 21,513,793 Adjustments to reconcile net income to net cash (used in) provided by operating activities and changes in operating assets and liabilities (12,632,145) (6,287,571) Net cash provided by (used in) operating activities 9,528,462 15,226,222 Net cash provided by (used in) investing activities 23,025,910 (49,122,968) Net cash (used in) provided by financing activities (90,847,811) (29,765,769) Change in cash and cash equivalents $ (58,293,439) $ (63,662,515) Net Cash Provided by (Used in) Operating Activities Net cash provided by operating activities during the six months ended June 30, 2023 was approximately $9.5 million, compared to approximately $15.2 million for the same period in 2022. The decrease of approximately $(5.7) million during the six months ended June 30, 2022 to June 30, 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 $(4.6) million, decrease in provision for current expected credit losses of approximately $(3.4) million, increase in interest reserve of approximately $(4.0) million, offset by a decrease in accretion of OID of approximately $5.8 million and an increase in interest receivable of approximately $3.0 million, respectively. Net Cash Provided by (Used in) Investing Activities Net cash provided by investing activities during the six months ended June 30, 2023 was approximately $23.0 million, compared to net cash used in investing activities of approximately $(49.1) million for the same period in 2022. The increase of net cash provided by investing activities of approximately $72.1 million during the six months ended June 30, 2022 to June 30, 2023 was primarily due to a decrease in issuance and fundings on loans of approximately $87.0 million, an increase in proceeds from the sale of loans of approximately $10.7 million, offset by a decrease in principal repayments of loans of approximately $(9.7) million and decrease in the sale of available-for-sale debt securities of $(15.9) million, respectively. 46 Index Net Cash Provided by (Used in) Financing Activities Net cash used in financing activities during the six months ended June 30, 2023 was approximately $(90.8) million, compared to approximately $(29.8) million for the same period in 2022. The decrease of approximately $(61.1) million during the six months ended June 30, 2022 to June 30, 2023 was primarily due to a decrease in proceeds from the sale of common stock of approximately $(66.0) 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 June 30, 2023 are as follows: As of June 30, 2023 Less than 1 year 1-3 years 3-5 years More than 5 years Total Unfunded commitments $ 11,978,687 $ — $ — $ — $ 11,978,687 Total $ 11,978,687 $ — $ — $ — $ 11,978,687 As of June 30, 2023 , all unfunded commitments relate to our total loan commitments and were available for funding in less than one year. We also had the following contractual obligations as of June 30, 2023 relating to the 2027 Senior Notes: As of June 30, 2023 Less than 1 year 1-3 years 3-5 years More than 5 years Total Contractual obligations (1) $ 5,175,000 $ 10,350,000 $ 95,175,000 $ — $ 110,700,000 Total $ 5,175,000 $ 10,350,000 $ 95,175,000 $ — $ 110,700,000 (1) Amounts include projected interest payments during the period based on interest rates in effect as of June 30, 2023 . We may enter into certain contracts that may contain a variety of indemnification obligations. The maximum potential future payment amounts we could be required to pay under these indemnification obligations may be unlimited. Off-balance sheet commitments consist of unfunded commitments on delayed draw loans. Other than as set forth in this quarterly report on Form 10-Q, we do not have any relationships with unconsolidated entities or financial partnerships, such as entities often referred to as structured investment vehicles, special purpose entities or variable interest entities, established to facilitate off-balance sheet arrangements or other contractually narrow or limited purposes. Further, we have not guaranteed any obligations of unconsolidated entities or entered into any commitment or intend to provide additional funding to any such entities. Leverage Policies We currently do not intend to have leverage of more than one times equity. While we are required to maintain our leverage ratio in compliance with the 2027 Senior Notes Indenture, we expect to employ prudent amounts of leverage and, when appropriate, to use debt as a means of providing additional funds for the acquisition of loans, to refinance existing debt or for general corporate purposes. Leverage is primarily used to provide capital for forward commitments until additional equity is raised or additional medium- to long-term financing is arranged. This policy is subject to change by management and our Board. 47 Index Dividends We have elected to be taxed as a REIT for United States federal income tax purposes and, as such, intend to annually distribute to our shareholders at least 90% of our REIT taxable income, prior to the deduction for dividends paid and excluding our net capital gain. If we distribute less than 100% of our REIT taxable income in any tax year (taking into account any distributions made in a subsequent tax year under Sections 857(b)(9) or 858 of the Code), we will pay tax at regular corporate rates on that undistributed portion. Furthermore, if we distribute less than the sum of (i) 85% of our ordinary income for the calendar year, (ii) 95% of our capital gain net income for the calendar year and (iii) any undistributed shortfall from our prior calendar year (the “Required Distribution”) to our shareholders during any calendar year (including any distributions declared by the last day of the calendar year but paid in the subsequent year), then we are required to pay non-deductible excise tax equal to 4% of any shortfall between the Required Distribution and the amount that was actually distributed. Any of these taxes would decrease cash available for distribution to our shareholders. The 90% distribution requirement does not require the distribution of net capital gains. However, if we elect to retain any of our net capital gain for any tax year, we must notify our shareholders and pay tax at regular corporate rates on the retained net capital gain. The shareholders must include their proportionate share of the retained net capital gain in their taxable income for the tax year, and they are deemed to have paid the REIT’s tax on their proportionate share of the retained capital gain. Furthermore, such retained capital gain may be subject to the nondeductible 4% excise tax. If we determine that our estimated current year taxable income (including net capital gain) will be in excess of estimated dividend distributions (including capital gains dividends) for the current year from such income, we will accrue excise tax on a portion of the estimated excess taxable income as such taxable income is earned. To the extent that our cash available for distribution is less than the amount required to be distributed under the REIT provisions of the Code, we may be required to fund distributions from working capital or through equity, equity-related or debt financings or, in certain circumstances, asset sales, as to which our ability to consummate transactions in a timely manner on favorable terms, or at all, cannot be assured, or we may make a portion of the Required Distribution in the form of a taxable stock distribution or distribution of debt securities. Critical Accounting Policies and Estimates As of June 30, 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.