What changed in this filing

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Item 1. Financial Statements

2023-11-08 compared with 2023-08-08 · 233 added, 204 removed, 724 unchanged (38% of the section changed)

2 unchanged sentences

CONSOLIDATED BALANCE SHEETS

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)

September 30, 2023 December 31, 2022

Loans held for investment at fair value (cost of $ 72,573,622 and $ 100,635,985 at September 30, 2023 and December 31, 2022, respectively, net)

$ 70,010,878 $ 99,226,051

5 unchanged sentences

Interest receivable 4,584,002 5,257,475

Due from affiliate 1,000,000 —

Prepaid expenses and other assets 526,236 460,844

8 unchanged sentences

Accounts payable and other liabilities 821,570 836,642

Payable for securities purchased 7,995,934 —

Senior notes payable, net 87,864,345 97,131,777

3 unchanged sentences

Shareholders’ equity

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

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

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

204,577 203,640

7 unchanged sentences

Three months ended

June 30, Six months ended

September 30, Nine months ended

September 30,

2023 2022 2023 2022

9 unchanged sentences

Provision for current expected credit losses ( 1,053,398 ) ( 541,958 ) ( 149,637 ) ( 3,040,135 )

Realized (losses) gains on sales of investments, net — — ( 26,384 ) 450,000

Realized gains (losses) on investments, net ( 1,213,416 ) — ( 1,239,800 ) 450,000

Gain (loss) on extinguishment of debt — — 1,986,381 —

Change in unrealized (losses) gains on loans at fair value, net ( 462,918 ) ( 1,005,454 ) ( 1,940,609 ) ( 924,611 )

Change in unrealized gains (losses) on loans at fair value, net 787,799 ( 637,279 ) ( 1,152,810 ) ( 1,561,890 )

Net income before income taxes 8,643,095 11,647,683 31,146,441 33,344,075

11 unchanged sentences

Three months ended

June 30, Six months ended

September 30, Nine months ended

September 30,

2023 2022 2023 2022

8 unchanged sentences

CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY

Three months ended June 30, 2023

Three months ended September 30, 2023

Stock Common Stock Additional

3 unchanged sentences

Shares Amount

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

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

Stock-based compensation — — — 294,014 — — 294,014

1 unchanged sentence

— — — — — ( 9,819,695 ) ( 9,819,695 )

Dividends declared on preferred shares ($ 60 per share)

— — — — — ( 7,500 ) ( 7,500 )

Net income — — — — — 7,979,875 7,979,875

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

Balance at September 30, 2023 $ 1 20,457,697 $ 204,577 $ 349,510,418 $ — $ ( 10,942,565 ) $ 338,772,431

Three months ended September 30, 2022

Stock Common Stock Additional

3 unchanged sentences

Shares Amount

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

Issuance of common stock, net of offering costs — 506,466 5,065 9,018,824 — — 9,023,889

2 unchanged sentences

— — — — — ( 11,403,840 ) ( 11,403,840 )

Dividends declared on preferred shares ($ 60 per share)

— — — — — ( 7,500 ) ( 7,500 )

Net income — — — — — 11,480,519 11,480,519

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

Balance at September 30, 2022 $ 1 20,364,000 $ 203,640 $ 348,700,927 $ — $ ( 1,488,931 ) $ 347,415,637

See accompanying notes to the consolidated financial statements

1 unchanged sentence

CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY

Six months ended June 30, 2023

Nine months ended September 30, 2023

Stock Common Stock Additional

10 unchanged sentences

Net income — — — — — 30,140,482 30,140,482

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

Balance at September 30, 2023 $ 1 20,457,697 $ 204,577 $ 349,510,418 $ — $ ( 10,942,565 ) $ 338,772,431

Nine months ended September 30, 2022

Stock Common Stock Additional

12 unchanged sentences

Net income — — — — — 32,994,312 32,994,312

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

Balance at September 30, 2022 $ 1 20,364,000 $ 203,640 $ 348,700,927 $ — $ ( 1,488,931 ) $ 347,415,637

See accompanying notes to the consolidated financial statements

1 unchanged sentence

CONSOLIDATED STATEMENTS OF CASH FLOWS

Six months ended

Nine months ended

September 30,

Operating activities:

2 unchanged sentences

Provision for current expected credit losses 149,637 3,040,135

Realized losses (gains) on sale of investments, net 26,384 ( 450,000 )

Realized (gains) losses on investments, net 1,239,800 ( 450,000 )

(Gain) loss on extinguishment of debt ( 1,986,381 ) —

Change in unrealized losses (gains) on loans at fair value, net 1,940,609 924,611

Change in unrealized (gains) losses on loans at fair value, net 1,152,810 1,561,890

Accretion of deferred loan original issue discount and other discounts ( 4,435,186 ) ( 9,710,278 )

16 unchanged sentences

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

Due from affiliate ( 1,000,000 ) —

Principal repayment of loans 49,953,251 32,227,904

4 unchanged sentences

Payment of financing costs ( 225,000 ) —

Borrowings on revolving credit facility 21,000,000 —

Dividends paid to common and preferred shareholders ( 32,705,006 ) ( 30,207,932 )

9 unchanged sentences

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 $ 11,403,840

5 unchanged sentences

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

As of June 30, 2023

As of September 30, 2023

AFC Gamma, Inc.

14 unchanged sentences

Basis of Presentation

The accompanying unaudited interim consolidated financial statements and related notes have been prepared on the accrual basis of accounting in conformity with accounting principles generally accepted in the United States of America (“GAAP”) and in conformity with the rules and regulations of the SEC applicable to interim financial information and include the accounts of the Company, and its wholly-owned subsidiary.

The unaudited interim consolidated financial statements reflect all adjustments that, in the opinion of management, are necessary for the fair presentation of the Company’s results of operations and financial condition as of and for the periods presented.

6 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.

In October 2023, the Financial Accounting Standards Board (“FASB”) issued ASU 2023 - 06, Disclosure Improvements:

Codification Amendments in Response to the SEC’s Disclosure Update and Simplification Initiative, to clarify or improve disclosure and presentation requirements of a variety of topics, which will allow users to more easily compare entities subject to the SEC’s existing disclosures with those entities that were not previously subject to the requirements, and align the requirements in the FASB accounting standard codification with the SEC’s regulations.

The Company is currently evaluating the provisions of the amendments and the impact on the Company’s future consolidated financial statements.

LOANS HELD FOR INVESTMENT AT FAIR VALUE

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

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

The aggregate originated commitment under these loans was approximately $ 94.2 million and $ 104.3 million, respectively, and outstanding principal was approximately $ 73.0 million and $ 102.4 million as of September 30, 2023 and December 31, 2022, respectively.

For the nine months ended September 30, 2023, the Company funded approximately $ 1.9 million of additional principal and had approximately $ 33.0 million of principal repayments of loans held at fair value.

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

As of September 30, 2023

Fair Value (1)

3 unchanged sentences

Remaining Life

(Years) (3)(4)

Senior term loans $ 70,010,878 $ 72,573,622 $ 73,005,930 0.6

10 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 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:

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

(4) As of September 30, 2023, the weighted average remaining life only reflects the remaining life of the Private Company A Credit Facility.

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

Realized gains (losses) on loans at fair value, net ( 1,213,416 ) — — ( 1,213,416 )

Change in unrealized gains (losses) on loans at fair value, net — — ( 1,152,810 ) ( 1,152,810 )

3 unchanged sentences

PIK interest 2,993,521 — — 2,993,521

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:

Total loans held at fair value at September 30, 2023 $ 73,005,930 $ ( 432,308 ) $ ( 2,562,744 ) $ 70,010,878

In September 2023, the credit facility with Public Company A matured without repayment.

The agent on the credit facility has placed the borrower in default, and the Company has recorded a realized loss 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 September 30, 2023 is as follows:

Collateral Location Collateral

2 unchanged sentences

A AZ, MI, MA, NM C, D $ 52,722,454 $ 54,249,907 $ 54,682,215 15.7 % (6)

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

9/30/2023 I/O

B MI C, D 17,288,424 18,323,715 18,323,715 18.7 % (7)

9 unchanged sentences

(6) Base weighted average interest rate of 13.0 % and payment-in-kind (“PIK”) weighted average interest rate of 2.7 %.

(7) Base interest rate of 7.5 % and PIK interest rate of 7.5 %.

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.

In October 2023, AFC Agent delivered a notice of default to Private Company A based on certain financial and other covenant defaults and began charging additional default interest of 5.0 %, beginning as of July 1, 2023, in accordance with the terms of the Private Company A Credit Facility.

(7) The maturity date passed on the credit facility to Private Company B without repayment.

The agent on the credit facility sent the borrower a notice of default and placed the borrower in receivership to maintain the borrower’s operations that were disrupted as a result of a management dispute.

The Company has been in discussions with the borrower regarding refinancing the credit facility and with the receiver regarding a potential sale of the business in order to repay the loan.

Until the loan is repaid, the borrower is obligated to pay interest at a base weighted average interest rate of 14.7 % and PIK interest rate of 4.0 %, plus a default interest rate of 4.0 %.

As amended by the forbearance and modification agreement entered into with Private Company B in February 2023, the 4.0 % default interest rate is applicable from January 15, 2023 and is paid in kind.

Outstanding principal balance also includes a protective advance of approximately $ 0.2 million made in September 2023 to cover certain expenses and was repaid in November 2023.

Interest on the protective advance is calculated at the same rate as standard monthly cash interest and PIK interest, plus default interest.

LOANS HELD FOR INVESTMENT AT CARRYING VALUE

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.

As of September 30, 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 $ 335.1 million and $ 338.9 million, respectively, and outstanding principal was approximately $ 322.7 million and $ 296.6 million, respectively, as of September 30, 2023 and December 31, 2022.

During the nine months ended September 30, 2023, the Company funded approximately $ 59.1 million of new loans and additional principal, had approximately $ 16.7 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 September 30, 2023 and December 31, 2022, approximately 84 % and 73 %, respectively, of the Company’s loans held at carrying value had floating interest rates.

As of September 30, 2023, t hese floating benchmark rates included one-month Secured Overnight Financing Rate (“SOFR”) subject to a weighted average floor of 3.3 % and quoted at 5.3 % and U.S.

prime rate subject to a weighted average floor of 4.9 % and quoted at 8.5 %.

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

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

As of September 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 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:

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

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

Principal Original Issue

7 unchanged sentences

Loan amortization payments ( 4,063,178 ) — ( 4,063,178 )

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:

Total loans held at carrying value at September 30, 2023 $ 322,737,668 $ ( 14,726,592 ) $ 308,011,076

As of September 30, 2023 , the Company had one loan 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.

Subsidiary of Private Company G was placed on non-accrual status from June 1, 2023 to August 31, 2023.

In September 2023, a forbearance agreement was entered into with Subsidiary of Private Company G.

In exchange for such forbearance, Subsidiary of Private Company G agreed to, among other things, sell certain assets, including certain collateral, the proceeds of which will be applied to the outstanding obligations under the credit agreement with Private Company G, to provide certain additional collateral, and to contribute additional cash equity to be held in escrow by AFC Agent.

As amended by the forbearance agreement entered into with Subsidiary of Private Company G, the borrower was required to pay interest of $ 0.8 million pro rata to the lender group for the month of September and must pay $ 1.0 million pro rata to the lender group for each of the months of October, November, and December.

Subsidiary of Private Company G paid September and October interest in accordance with the terms of the forbearance agreement, which was due October 1, 2023 and November 1, 2023, respectively, and the credit facility was restored to accrual status.

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

Collateral Location Collateral

6 unchanged sentences

G MO, NJ, PA C, D 80,625,124 ( 1,544,492 ) 79,080,632 18.8 % (6)

05/01/2026 P/I

K MA C, D 13,378,015 ( 715,917 ) 12,662,098 19.3 % (7)

05/03/2027 P/I

I MD C, D 3,767,454 ( 50,036 ) 3,717,418 21.8 % (8)

08/01/2026 P/I

J MO C, D 22,121,889 ( 377,191 ) 21,744,698 21.3 % (9)

09/01/2025 P/I

of Public Co.

H CT, IA, IL, ME, MI, NJ, PA C, D 84,000,000 ( 2,747,942 ) 81,252,058 14.3 % (10)

01/01/2026 I/O

L MO, OH C, D 53,000,000 ( 1,965,871 ) 51,034,129 13.7 % (11)

05/01/2026 P/I

of Public Co.

1 unchanged sentence

8/27/2025 I/O

M AZ D 30,000,000 ( 4,522,448 ) 25,477,552 9.0 % (13)

7/31/2026 P/I

Total loans held at carrying value $ 322,737,668 $ ( 14,726,592 ) $ 308,011,076

13 unchanged sentences

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.

Subsidiary of Private Company G was placed on non-accrual status from June 1, 2023 to August 31, 2023.

In September 2023, a forbearance agreement was entered into with Subsidiary of Private Company G.

Outstanding principal balance also includes a protective advance of approximately $ 1.6 million made in September 2023 to cover certain construction expenses and was repaid in October 2023.

Interest on the protective advance is calculated at the same rate as standard monthly cash interest, plus an additional 5.0 % default interest rate.

(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 %.

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

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.

Effective July 2023, the floating interest rate under the credit agreement for Private Company I transitioned from LIBOR to SOFR.

(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.

(10) Base interest rate of 5.8 % plus U.S.

1 unchanged sentence

prime rate floor of 5.5 %).

(11) Base interest rate of 8.4 % plus SOFR (SOFR floor of 5.0 %).

Effective September 2023, Private Company L transitioned from a fixed interest rate to a floating interest rate tied to SOFR.

(12) Base interest rate of 9.5 %.

(13) Base interest rate of 9.0 %.

Quarterly cash interest is paid in kind from closing to February 1, 2024 and then payable in cash thereafter.

LOAN RECEIVABLE HELD AT CARRYING VALUE

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:

As of September 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 September 30, 2023 and December 31, 2022, respectively.

During the nine months ended September 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 nine months ended September 30, 2023:

Principal Original Issue

2 unchanged sentences

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 .

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

As of September 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.

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 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.

As of September 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 $ 14.4 million and $ 14.3 million, respectively, or 4.66 % and 4.97 %, respectively, of the Company’s total loans held at carrying value and loan receivable held at carrying value of approximately $ 310.1 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 $ 14.3 million and $ 13.5 million, respectively, and a liability for unfunded commitments of approximately $ 0.2 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 and six months ended June 30, 2023 was as follows:

Outstanding (1)

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

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

Provision for current expected credit losses 1,145,727 ( 92,329 ) 1,053,398

1 unchanged sentence

Recoveries — — —

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

Balance at September 30, 2023 $ 14,274,997 $ 166,845 $ 14,441,842

Outstanding (1)

3 unchanged sentences

Recoveries — — —

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.

Balance at September 30, 2023 $ 14,274,997 $ 166,845 $ 14,441,842

(1) As of September 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 September 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 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:

As of September 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:

2023 2022 2021 2020 Total

5 unchanged sentences

INTEREST RECEIVABLE

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

June 30, 2023 As of

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

September 30, 2023 As of

December 31, 2022

4 unchanged sentences

INTEREST RESERVE

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:

At September 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 nine months ended September 30, 2023, approximately $ 0.6 million and $ 4.2 million, respectively, of aggregate interest income was earned and disbursed from the interest reserves.

For the three and nine months ended September 30, 2022, approximately $ 3.0 million and $ 8.6 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 nine months ended September 30, 2023 and 2022:

Three months ended

June 30, Six months ended

September 30, Nine months ended

September 30,

2023 2022 2023 2022

10 unchanged sentences

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.

Based on the terms of the Revolving Credit Agreement, the Company’s estimated average cash balance will exceed the minimum balance required to waive the unused line fee and as such, the Company did not incur an unused line fee for the three months ended September 30, 2023.

As of September 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.

During the third quarter of 2023, the Company drew $ 21.0 million under the Revolving Credit Facility, which was repaid prior to the end of the third quarter of 2023.

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

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

As of September 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 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.

During the nine months ended September 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.

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

As of September 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 June 30, 2023 are as follows:

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

2027 Senior Notes

2 unchanged sentences

Total principal $ 90,000,000

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

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

Three months ended

June 30, 2023

September 30, 2023

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

4 unchanged sentences

Three months ended

June 30, 2022

September 30, 2022

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

3 unchanged sentences

Total interest expense $ 1,603,958 $ 40,130 $ — $ 1,644,088

Six months ended

June 30, 2023

Nine months ended

September 30, 2023

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

3 unchanged sentences

Total interest expense $ 4,478,948 $ 297,915 $ — $ 4,776,863

Six months ended

June 30, 2022

Nine months ended

September 30, 2022

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

4 unchanged sentences

COMMITMENTS AND CONTINGENCIES

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

June 30, 2023 As of

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

September 30, 2023 As of

December 31, 2022

3 unchanged sentences

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

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.

As of September 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 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.

During the nine months ended September 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 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”).

As of September 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.

22 unchanged sentences

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 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 three and nine months ended September 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.

As of September 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

4 unchanged sentences

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.

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

Stock Incentive Plan

14 unchanged sentences

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 .

As of September 30, 2023, there were 2,326,892 shares of common stock granted under the 2020 Plan, underlying 2,169,852 options and 157,040 shares of restricted stock.

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

June 30, 2023 As of

September 30, 2023 As of

December 31, 2022

12 unchanged sentences

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 $ 0.1 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 stock-based compensation expense for the Company was approximately $ 0.3 million and $ 0.7 million for the three and nine months ended September 30, 2023, respectively, and approximately $ 0.1 million and $ 1.2 million for the three and nine months ended September 30, 2022, respectively.

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

4 unchanged sentences

Expected forfeiture rate 0 %

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

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

Three months ended

June 30, 2023 Weighted-average

September 30, 2023 Weighted-average

grant date fair

value per option

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

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

Exercised — —

Forfeited ( 104,320 ) 1.23

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

Balance as of September 30, 2023 2,168,952 $ 1.20

Three months ended

June 30, 2022 Weighted-average

September 30, 2022 Weighted-average

grant date fair

value per option

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

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

Exercised ( 5,511 ) 0.90

Forfeited ( 24,023 ) 1.20

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

Six months ended

June 30, 2023 Weighted-average

Balance as of September 30, 2022 2,286,572 $ 1.21

Nine months ended

September 30, 2023 Weighted-average

grant date fair

3 unchanged sentences

Forfeited ( 111,420 ) 1.23

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

Six months ended

June 30, 2022 Weighted-average

Balance as of September 30, 2023 2,168,952 $ 1.20

Nine months ended

September 30, 2022 Weighted-average

grant date fair

4 unchanged sentences

Forfeited ( 54,153 ) 1.12

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

Balance as of September 30, 2022 2,286,572 $ 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 September 30, 2023 and December 31, 2022:

September 30, 2023 As of

December 31, 2022

4 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 and six months ended June 30, 2023 and 2022:

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

Three months ended

June 30, 2023 Weighted-average value at award date

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

Granted 1,159 12.94

September 30, 2023 Weighted-average value at award date

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

Vested ( 18,470 ) 16.24

Forfeited — —

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

Balance as of September 30, 2023 119,012 $ 16.03

Three months ended

June 30, 2022 Weighted-average value at award date

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

Forfeited — —

September 30, 2022 Weighted-average value at award date

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

Six months ended

June 30, 2023 Weighted-average value at award date

Forfeited ( 1,238 ) 20.18

Balance as of September 30, 2022 63,343 $ 20.40

Nine months ended

September 30, 2023 Weighted-average value at award date

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

2 unchanged sentences

Forfeited ( 32,696 ) 20.39

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 September 30, 2023 119,012 $ 16.03

Nine months ended

September 30, 2022 Weighted-average value at award date

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

1 unchanged sentence

Forfeited ( 1,238 ) 20.18

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

Balance as of September 30, 2022 63,343 $ 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 and six months ended June 30, 2023 and 2022:

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

Three months ended

June 30, Six months ended

September 30, Nine months ended

September 30,

2023 2022 2023 2022

4 unchanged sentences

Basic weighted average shares of common stock outstanding 20,324,125 20,019,760 20,315,162 19,687,730

Weighted average unvested restricted stock and stock options 5,516 95,845 71,118 95,845

Weighted average unvested restricted stock and dilutive stock options 18,755 92,273 75,223 92,273

Diluted weighted average shares of common stock outstanding 20,342,880 20,112,033 20,390,385 19,780,003

1 unchanged sentence

Diluted weighted average earnings per common share $ 0.39 $ 0.57 $ 1.47 $ 1.66

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 .

Diluted EPS was computed using the treasury stock method for stock options and restricted stock.

Diluted weighted average earnings per common share excluded 2,288,419 and 2,247,328 weighted average unvested restricted stock and stock options due to anti-dilutive effect for the three and nine months ended September 30, 2023, respectively, and 1,406,700 and 1,406,700 for the three and nine months ended September 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 $ 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.

The income tax provision for the Company was approximately $ 0.7 million and $ 1.0 million for the three and nine months ended September 30, 2023, respectively.

The income tax provision for the Company was approximately $ 0.2 million and $ 0.3 million for the three and nine months ended September 30, 2022, respectively.

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

For the three and nine months ended September 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 June 30, 2023 and December 31, 2022:

Fair Value Measurement as of June 30, 2023

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

Fair Value Measurement as of September 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 six months ended June 30, 2023:

Six months ended

June 30, 2023

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

Nine months ended

September 30, 2023

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

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

Realized gains (losses) on loans at fair value, net ( 1,213,416 )

Change in unrealized gains (losses) on loans at fair value, net ( 1,152,810 )

Additional fundings 1,881,840

2 unchanged sentences

PIK interest 2,993,521

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

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 June 30, 2023 is $( 1,940,609 ).

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.

Total loans using Level 3 inputs at September 30, 2023 $ 70,010,878

The following tables summarize the significant unobservable inputs the Company used to value the loans categorized within Level 3 as of September 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 June 30, 2023

As of September 30, 2023

Unobservable Input

1 unchanged sentence

Senior term loans $ 52,722,454 Yield analysis Market yield 32.61 % - 39.06 %

Senior term loans 17,288,424 Market approach Revenue multiple 0.60 x - 0.80 x

Total investments $ 70,010,878

4 unchanged sentences

Total investments $ 99,226,051

Changes in market yields may change the fair value of certain of the Company’s loans.

Generally, an increase in market yields may result in a decrease in the fair value of certain of the Company’s loans.

Changes in market yields and revenue multiples may change the fair value of certain of the Company’s loans.

Generally, an increase in market yields may result in a decrease in the fair value of certain of the Company’s loans, while a decrease in revenue multiples may result in a decrease in the fair value of certain of the Company’s loans.

Due to the inherent uncertainty of determining the fair value of loans that do not have a readily available market value, the fair value of the Company’s loans may fluctuate from period to period.

4 unchanged sentences

Investment in Marketable Securities

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.

As of September 30, 2023 and December 31, 2022 , the Company’s portfolio did not include any debt securities.

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

For the three and nine months ended September 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 June 30, 2023 :

As of June 30, 2023

As of September 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 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 Incentive Compensation for the three and nine months ended September 30, 2023 was approximately $ 2.6 million and $ 7.9 million, respectively.

The Incentive Compensation for the three and nine months ended September 30, 2022 was approximately $ 2.9 million and $ 9.3 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 and six months ended June 30, 2023 and 2022:

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

Three months ended

June 30, Six months ended

September 30, Nine months ended

September 30,

2023 2022 2023 2022

6 unchanged sentences

Total $ 4,392,852 $ 4,734,978 $ 13,393,793 $ 14,664,362

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 June 30, 2023 and December 31, 2022 were approximately $ 19.4 thousand and $ 18.1 thousand, respectively.

Amounts payable to the Company’s Manager as of September 30, 2023 and December 31, 2022 were approximately $ 4.9 million and $ 5.7 million, respectively.

Due to/from Affiliate

Amounts due to an affiliate of the Company as of September 30, 2023 and December 31, 2022 were approximately $ 19.7 thousand and $ 18.1 thousand, respectively.

Amounts due from an affiliate of the Company as of September 30, 2023 and December 31, 2022 were $ 1.0 million and zero , respectively.

The amount due from the affiliate, AFC Agent LLC (“AFC Agent”), was contributed to AFC Agent in anticipation of a funding and was subsequently repaid to the Company in October 2023.

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

As of September 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 June 30, 2023.

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) former Head of Real Estate and a former Director, while each such owner also maintained a beneficial ownership of the Company’s Manager at the time of the investment.

AFCIF holds approximately one-third of the loan’s aggregate principal amount as of September 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.

The agent on the credit facility, 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.

Following the sale, the Company’s outstanding principal balance under the credit facility with Private Company I was approximately $ 3.8 million , 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.

4 unchanged sentences

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.

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;

In March 2023, the Company entered into a fifth amendment to the Private Company A Credit Facility to, among other things and subject to certain terms and conditions, (i) increase the interest rate of certain tranches such that the facility has a uniform interest rate of 13.0 % across certain tranches;

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

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

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.

During the nine months ended September 30, 2023 , AFC Agent received approximately $ 48.2 million in total loan principal prepayments and $ 1.4 million in related exit fees from the borrower’s sale of its collateral assets, of which approximately $ 34.7 million in principal prepayments and $ 1.1 million in related exit fees were 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’s outstanding principal balance under the Private Company A Credit Facility was approximately $ 54.7 million, which is fully funded.

Refer to Note 17 to the Company’s unaudited interim consolidated financial statements for more information on Private Company A prepayments that occurred subsequent to September 30, 2023.

In November 2023, Private Company A was placed into receivership to maintain the borrower’s operations and maximize value for the benefit of its creditors.

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.

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In August 2022, the Company committed an additional $ 8.1 million under credit agreement with Subsidiary of Private Company G.

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

Following the expansion, the Company now holds $ 73.5 million in commitments.

The Company’s outstanding principal balance under the credit facility with Subsidiary of Private Company G was approximately $ 80.6 million, which is fully funded.

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.

The Company entered into a forbearance agreement with Subsidiary of Private Company G in September 2023, which carves out the consensual foreclosure proceeding described above, pursuant to which the Company agreed to forbear from exercising certain remedies as a result of certain defaults under the credit agreement.

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.

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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.

Following the amendment, the Company now holds $ 84.0 million in commitments.

The Company’s outstanding principal balance under the credit facility with Subsidiary of Public Company H was $ 84.0 million, which is fully funded.

In September 2023, Mr.

Bernard Berman, a member of the Company’s investment committee, purchased a 3.0 % membership interest in certain income of the Manager.

Secured Revolving Credit Facility From Affiliate

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DIVIDENDS AND DISTRIBUTIONS

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

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

Record Date Payment

Date Common Share

Amount Taxable

Income Return of

Capital Section

Amount Aggregate Amount Paid

Regular cash dividend 3/31/2022 4/15/2022 $ 0.55 $ 10,858,617

Regular cash dividend 6/30/2022 7/15/2022 0.56 11,120,408

Regular cash dividend 9/30/2022 10/14/2022 0.56 11,403,840

2022 Period Subtotal $ 1.67 $ 33,382,865

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Regular cash dividend 6/30/2023 7/14/2023 0.48 9,819,695

Regular cash dividend 9/30/2023 10/13/2023 0.48 9,819,695

2023 Period Subtotal $ 1.52 $ 31,113,361

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There were no material subsequent events, other than those described below, that required disclosure in these unaudited interim consolidated financial statements.

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.

In October 2023, AFC Agent received approximately $ 2.3 million in total loan principal prepayments and $ 0.1 million in related exit fees from Private Company A’s sale of its collateral assets, of which approximately $ 1.7 million in principal prepayments and $ 0.1 million in related exit fees were allocated to the Company relating to 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 Private Company A Credit Facility was approximately $ 53.2 million.

In October 2023, AFC Agent delivered a notice of default to Private Company A based on certain financial and other covenant defaults and began charging additional default interest 5.0 %, beginning as of July 1, 2023, in accordance with the terms of the Private Company A Credit Facility.

In November 2023, Private Company A was placed into receivership to maintain the borrower’s operations and maximize value for the benefit of its creditors.

In October 2023, Private Company B was placed into receivership following the maturity date of the credit facility, which has not been repaid.

The Company has been in discussions with the borrower regarding refinancing the credit facility and with the receiver regarding a potential sale of the business in order to repay the loan.

CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

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

What changed 10-Q

Item 1. Financial Statements