What changed in this filing

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Item 2. Management’s Discussion and Analysis

2024-05-09 compared with 2023-11-08 · 229 added, 221 removed, 236 unchanged (66% of the section changed)

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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.

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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.

Federal Reserve Board (the “Federal Reserve”) began to increase interest rates in the first quarter of 2022 and continued to do so through the third quarter of 2023 in an effort 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.

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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 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”), commencing with our taxable year ended December 31, 2020.

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 also intend to operate our business in a manner that will permit us to maintain our exemption from registration under the Investment Company Act of 1940 as amended (the “Investment Company Act”).

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

TRS1 began operating in July 2021.

Our wholly-owned subsidiary, Sunrise Realty Trust, Inc.

(“SUNS”) (f/k/a CRE South LLC), was formed on August 28, 2023 and converted from a Delaware limited liability company to a Maryland corporation in February 2024.

The financial statements of TRS1 and SUNS are consolidated within our 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.

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

Developments during the Third Quarter of 2023:

Updates to our Loan Portfolio during the Third Quarter of 2023

In August 2023, AFC Agent received approximately $37.6 million in total loan principal prepayments and $1.3 million in related exit fees from Private Company A’s sale of certain collateral assets, of which approximately $27.1 million in principal prepayments and $1.0 million in related exit fees were allocated to us relating to our pro rata portion of the Private Company A Credit Facility and was applied to the outstanding principal balance.

In July 2023, TRS1 purchased a secured seller promissory note from Private Company A (the “seller 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 note is for an amount equal to $30.0 million and is secured by substantially all the assets of Private Company M.

The seller note is also guaranteed by the parent company of Private Company M.

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.

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 from June 1, 2023 to August 31, 2023.

We entered into a forbearance agreement with Subsidiary of Private Company G in September 2023, pursuant to which we agreed to forbear from exercising certain remedies as a result of certain defaults under the credit agreement.

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.

The outstanding principal balance of the loan to Subsidiary of Private Company G 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.

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.

We have been in discussion 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.

In August 2023, we entered into an amendment with Private Company K, which among other things, (i) amended the minimum cash balance financial covenant, (ii) delayed the start date for amortization payments and (iii) the total loan commitment under the credit facility with Private Company K was reduced from approximately $14.5 million to $13.2 million, which is fully funded.

In September 2023, we entered into an amendment with Private Company L, which, among other things, amended the interest rate to a base interest rate of 8.4% per annum plus SOFR, with a SOFR floor of 5.0%.

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.

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 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.

On February 22, 2024, we announced that our Board unanimously approved a plan to spin-off (the “Spin-Off”) our wholly-owned subsidiary, SUNS, which holds our commercial real estate (“CRE”) portfolio into an independent, publicly traded REIT.

The separation and the resulting Spin-Off is expected to be implemented in two steps.

First, we expect to contribute, and SUNS expects to accept and assume, all of the assets, liabilities and business related to our CRE lending business not related to our business of structuring, underwriting, origination and investing in loans to and debt securities of cannabis industry operators, as currently conducted by SUNS, including the operations, properties, services and activities of such business (the “Contribution”), to the extent such assets, liabilities and business are not already held at SUNS.

Then, we plan to distribute all of the outstanding shares of SUNS common stock (“SUNS Common Stock”) on the distribution date to our stockholders as of the record date on a pro rata basis.

We and SUNS expect that $115 million of assets in the aggregate, in a combination of loans and cash, will either be contributed to SUNS in the Contribution or be held by SUNS immediately following the Contribution.

Following the distribution, we and SUNS expect the SUNS Common Stock to be listed on the Nasdaq Capital Market.

SUNS has filed a registration statement on Form 10, which is not effective, with the Securities and Exchange Commission which provides additional details about the Spin-Off.

This quarterly report shall not constitute an offer to sell or the solicitation of an offer to buy any securities, nor shall there be any sale of these securities in any state or jurisdiction in which such offer, solicitation or sale would be unlawful prior to registration or qualification under the securities laws of any such state or jurisdiction.

During the three months ended March 31, 2024, we incurred approximately $0.5 million related to spin-off costs recorded within professional fees in the unaudited interim consolidated statements of operations.

Pursuant to the amendment to our Management Agreement entered into in February 2024, upon the completion of the Spin-Off, we plan to focus on our investments in first and second lien loans, typically secured by mortgages and other security interests, to cannabis operators in states that have legalized medical and/or adult use cannabis.

Pursuant to such amendment, upon the completion of the Spin-Off, the investment guidelines will be amended such that loans and investments made in respect of (x) first lien or second lien loans secured by mortgages or mezzanine loans to commercial real estate owners, operators and related businesses and (y) the ownership of non-cannabis related commercial real estate assets, were removed and are no longer permitted by the investment guidelines.

While SUNS will be an independent publicly-traded company, operating the Spin-Off Business separately from AFC Gamma, various individuals will serve as executive officers and directors of both companies.

For example, Leonard Tannenbaum, our Chief Investment Officer and Executive Chairman of the Board, is expected to be the Executive Chairman, Brandon Hetzel, our Chief Financial Officer and Treasurer, is expected to be the Chief Financial Officer and Treasurer and Robyn Tannenbaum, our President, is expected to be the President of both entities immediately following the completion of the Spin-Off.

Additionally, Alexander Frank, one of our directors, is expected to serve on the board of directors of both companies immediately following the completion of the Spin-Off.

Developments During the First Quarter March 31, 2024:

Updates to Our Loan Portfolio During the First Quarter March 31, 2024

In January 2024, the Company and an affiliate purchased an aggregate of approximately $56.4 million in loan commitments in a secured mezzanine loan facility, CRE Private Company A, of which approximately $28.2 million has been funded by us and another approximately $28.2 million has been funded by an affiliate.

The Company and the affiliate are each 50.0% syndicate lenders in the secured mezzanine loan facility.

Approximately $16.9 million was established as reserves, for the payment of interest and other costs and expenses, which is fully funded and held by the Agent on the loan.

The lenders have a right to convert the mezzanine loan to a first priority mortgage loan after the repayment of the existing senior loan and subject to certain other terms and conditions.

The secured mezzanine loan bears interest at an annual rate of Secured Overnight Financing Rate (“SOFR”) plus a 15.31% spread, subject to a SOFR floor of 2.42%.

At the end of February 2024, the Company and the affiliate entered into an amendment to the secured mezzanine loan, which among other things, (1) extended the maturity date to May 31, 2024 and (2) amended the SOFR floor from 2.42% to 4.00%.

Pursuant to the amendment, the Company and the affiliate received an extension fee of approximately $0.1 million each, respectively.

In January 2024, the Company and an affiliate entered into a secured mezzanine loan facility with CRE Private Company B consisting of an aggregate of approximately $56.4 million in loan commitments, of which approximately $20.7 million of principal was funded by us as a result of our participation interest in the loan and another approximately $20.7 million of principal was funded by the affiliate.

The secured mezzanine loan commitments were issued by us and the affiliate at a discount of 1.0% for a net funding amount of approximately $20.4 million each.

The $56.4 million of total commitments includes $15.0 million of unfunded commitments which was established to be drawn to pay interest on the secured mezzanine loan, of which we are responsible for $7.5 million.

The $15.0 million of unfunded commitments are anticipated to be drawn over the life of the loan.

The Company and the affiliate are each 50.0% syndicate lenders in the secured mezzanine loan facility.

The secured mezzanine loan bears interest at an annual fixed rate of 13.00% and matures in May 2027, which the borrower may extend, at its option and subject to meeting certain terms and conditions, to May 2028.

The mezzanine loan facility is secured by a security interest in all of the equity interests held by the borrower in its wholly-owned subsidiary.

In January 2024, we entered into a partial release and amendment with Private Company L to, among other things, (i) permit the sale and release of certain collateral located in Missouri, subject to the terms and conditions contained therein and (ii) amend certain of the draw and prepayment requirements.

In January 2024, we received approximately $11.4 million prepayment from Private Company L’s sale of certain collateral assets and $0.3 million prepayment premium.

In January 2024, we delivered a reservation of rights letter to Private Company K with respect to the occurrence of certain events of default, including the failure to make principal and interest payments when due and deliver monthly statements as required under the credit agreement with Private Company K.

In March 2024, we entered into a forbearance agreement with Private Company K, pursuant to which we agreed to forbear from exercising certain remedies as a result of the certain defaults under the credit agreement.

In exchange for such forbearance, Private Company K agreed to, among others, (i) additional reporting requirements and (ii) contribute additional cash equity in an aggregate amount of up to $5.5 million in increments on or before August 31, 2024 or obtain a combination of additional equity and debt financing in an aggregate amount of up to $8.5 million in increments on or before August 31, 2024, certain of the proceeds of which shall be applied to the outstanding obligations under the credit agreement.

The existing credit agreement was amended by the forbearance agreement entered into with Private Company K to require (a) 20% of the interest payable for December 2023 and January 2024 to be payable in cash in arrears and 80% paid in kind, (b) 35% of the interest payable for February 2024 to be payable in cash in arrears and 65% to be paid in kind, (c) 50% of the interest payable for March 2024, April 2024 and May 2024 to be payable in cash in arrears and 50% to be paid in kind, (d) interest for the remainder of the months during the term of the forbearance agreement to be payable in cash in arrears and (e) payments of principal during the term of the forbearance to be deferred during the term of the forbearance agreement.

We placed Private Company K on nonaccrual status effective December 1, 2023 and will recognize income related to loan activity only upon receipt of cash.

During the three months ended March 31, 2024, we recognized approximately $0.1 million of interest income related to this loan.

As of March 31, 2024, our outstanding principal balance was approximately $13.4 million , which is fully funded.

On February 22, 2024, we announced that our Board unanimously approved a plan to spin-off our commercial real estate portfolio into an independent, publicly traded REIT, named Sunrise Realty Trust, Inc.

See “ —Spin-off ” above.

During the three months ended March 31, 2024, AFC Agent received approximately $4.7 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 $4.0 million in principal prepayments and $0.1 million in related exit fees were allocated to us relating to our pro rata portion of the Private Company A Credit Facility and was applied to the outstanding principal balance.

Effective March 1, 2024, we placed Private Company A on nonaccrual status.

As of March 31, 2024, our outstanding principal balance under the Private Company A Credit Facility was approximately $49.7 million, which is fully funded .

AFC Agent continues to monitor the court-appointed receivership installed to maintain the borrower’s operations and maximize value for the benefit of its creditors.

In March 2024, we entered into a forbearance agreement with Subsidiary of Private Company G, pursuant to which we agreed to forbear from exercising certain remedies as a result of certain events of default under the credit agreement and under the forbearance agreement entered into with Subsidiary of Private Company G in September 2023.

In exchange for such forbearance, Subsidiary of Private Company G agreed to, among other things, (i) contribute additional cash equity in an aggregate amount of not less than $3.0 million before April 30, 2024, (ii) sell certain assets, the proceeds of which will be applied to pay down outstanding obligations under the credit agreement, (iii) enter into a management services agreement with a third party with respect to Subsidiary of Private Company G’s operations in Pennsylvania, (iv) enter into a consulting or similar agreement with a third party with respect to Subsidiary of Private Company G’s operations in New Jersey, and (v) deliver additional reporting requirements.

In addition, the existing credit agreement was amended by the forbearance agreement entered into with Subsidiary of Private Company G to, for the remaining life of the loan (so long as Subsidiary of Private Company G complies with its obligations under the forbearance agreement), (a) remove the financial covenants, (b) revise the existing cash flow sweep such that 75% of excess cash flow is paid toward current interest, accrued interest, lender expenses and principal, (c) change the interest rate on the loans to 12.5% per annum, a minimum portion of which is payable in cash pursuant to the excess cash flow sweep, and the remainder of which, if any, is paid in kind, and (d) remove required amortization payments.

We placed Subsidiary of Private Company G on nonaccrual effective December 1, 2023 and will recognize income related to loan activity only upon receipt of cash.

During the three months ended March 31, 2024, we recognized approximately $0.7 million of interest income related to this loan.

As of March 31, 2024, our outstanding principal balance was approximately $79.2 million , which is fully funded.

In March 2024, TRS1 sold $6.0 million of our investment in Subsidiary of Public Company M, which was purchased at a blended weighted-average discount of 91.3% and sold for 94.3% of face value, resulting in a realized loss of approximately $(0.1) million.

In March 2024, we were repaid on all outstanding principal under the loan to Private Company I, which was previously placed on nonaccrual status, effective May 1, 2023.

In addition to the repayment of the outstanding principal amount of approximately $3.8 million, we also received and recognized past due cash interest of approximately $0.7 million during the three months ended March 31, 2024 .

In March 2024, we entered into two senior secured credit facilities with Private Company N totaling $34.0 million, which were fully funded at closing.

The loans are bifurcated between Private Company N Real Estate and Private Company N Non-Real Estate with commitments of $16.8 million and $17.2 million, respectively, and were originated at a discount of 4.0%, for a net funded amount of approximately $16.1 million and $16.5 million, respectively.

The loans each bear interest at an annual rate of SOFR plus 8.0%, subject to a SOFR floor of 4.5%, and mature on April 1, 2028.

At-the-Market Offering Program

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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.

The Shelf Registration Statement also included a prospectus for the ATM Program to sell up to an aggregate of $75.0 million of shares of our common stock 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 nine months ended September 30, 2023, we did not sell any shares of our common stock under the Sales Agreement.

During the three months ended March 31, 2024, we did not sell any shares of our common stock under the Sales Agreement.

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”).

On June 13, 2023, our Board authorized 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 nine months ended September 30, 2023, we did not repurchase any shares of our common stock pursuant to the Repurchase Program.

The Repurchase Program is authorized until December 31, 2025 and may be discontinued, modified or suspended at any time.

During the three months ended March 31, 2024, we did not repurchase any shares of our common stock pursuant to the Repurchase Program.

Dividends Declared Per Share

In September 2023, we declared a regular cash dividend of $0.48 per share of our common stock, relating to the quarter ended September 30, 2023 , which was paid on October 13, 2023 to shareholders of record as of September 30, 2023 .

The aggregate amount of the regular cash dividend payment was approximately $9.8 million.

For the nine months ended September 30, 2023 and 2022, we paid the following cash dividends:

For the three months ended March 31, 2024 and 2023, 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 2, 2023 March 31, 2023 April 14, 2023 $ 0.56 $11.5 million

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

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

2022 Period Subtotal $1.67 $33.4 million

2023 Period Subtotal

$ 0.56 $11.5 million

March 4, 2024 March 31, 2024 April 15, 2024 $ 0.48 $ 9.9 million

June 15, 2023 June 30, 2023 July 14, 2023 0.48 9.8 million

September 15, 2023 September 30, 2023 October 13, 2023 0.48 9.8 million

2023 Period Subtotal $1.52 $31.1 million

2024 Period Subtotal

$ 0.48 $ 9.9 million

Recent Developments

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 us relating to 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 Private Company A Credit Facility was approximately $53.2 million.

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.

We have 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.

In October 2023, the Board appointed Daniel Neville as the Chief Executive Officer of the Company and a member of its Investment Committee, effective as of November 13, 2023.

Neville succeeds Leonard Tannenbaum, who will transition from his role as Chairman of the Board and Chief Executive Officer to Executive Chairman and Chief Investment Officer as of the effective date.

In April 2024, we received approximately $8.1 million prepayment from Private Company L’s sale of certain collateral assets and $0.2 million prepayment premium.

In April 2024, the co-agents under the credit facility with Subsidiary of Public Company H delivered a reservation of rights letter to the borrower citing certain defaults, including a breach of the minimum cash covenants as of March 31, 2024.

The borrower has since failed to make the interest payment for the month ending April 30, 2024 that was due May 1, 2024, and which was subject to a five business day grace period.

The lenders are evaluating the best course of action to protect their interests and pursue their rights and remedies under the credit facility.

Key Financial Measures and Indicators

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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.

The following table provides a reconciliation of GAAP net income to Distributable Earnings:

The following table provides a reconciliation of GAAP net (loss) income to Distributable Earnings:

Three months ended

September 30, Nine months ended

September 30,

2023 2022 2023 2022

Net income $ 7,979,875 $ 11,480,519 $ 30,140,482 $ 32,994,312

Adjustments to net income:

Net (loss) income $ (54,116) $ 10,025,274

Adjustments to net (loss) income:

Stock-based compensation expense 543,222 280,578

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

The book value per share of our common stock as of September 30, 2023 and December 31, 2022 was approximately $16.56 and $16.65, respectively.

The book value per share of our common stock as of March 31, 2024 and December 31, 2023 was approximately $15.03 and $15.64, respectively.

Factors Impacting our Operating Results

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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 nine months ended September 30, 2023 and 2022

Our net income allocable to our common shareholders for the three and nine months ended September 30, 2023, was approximately $8.0 million and $30.1 million or $0.39 and $1.47 per basic weighted average common share, respectively, compared to net income allocable to our common shareholders of approximately $11.5 million and $33.0 million or $0.57 and $1.67 per basic weighted average common share for the three and nine months ended September 30, 2022.

Interest income decreased approximately $(3.0) million, or (15.1)%, for the three months ended September 30, 2023 as compared to the three months ended September 30, 2022.

This decrease was driven by lower fee income recognized of approximately ($2.1) million, lower unused fees of approximately ($0.4) million driven by less unfunded commitments, and lower interest income of approximately ($1.0) million driven by two months of non-accrual in the third quarter of 2023 for Subsidiary of Private Company G interest income, partially offset by an increase in OID income of approximately $0.6 million during the three months ended September 30, 2023, as compared to the three months ended September 30, 2022, respectively.

Interest income decreased approximately $(7.1) million, or (11.8)%, for the nine months ended September 30, 2023 as compared to the nine months ended September 30, 2022.

This decrease was driven by lower fee income recognized of approximately ($6.3) million, lower unused fees of approximately ($1.1) million driven by less unfunded commitments, and lower OID income of approximately ($5.3) million due to acceleration of unaccreted OID of prior year loan repayments, partially offset by an increase in interest income of approximately $5.5 million driven by additional principal deployed as well as an increase in variable interest rates during the nine months ended September 30, 2023, as compared to the nine months ended September 30, 2022, respectively.

Interest expense decreased approximately $(0.1) million, or (6.8)%, for the three months ended September 30, 2023, as compared to the three months ended September 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 September 30, 2023, as compared to $100.0 million principal outstanding for the three months ended September 30, 2022.

Interest expense decreased approximately $(0.3) million, or (6.2)%, for the nine months ended September 30, 2023, as compared to the nine months ended September 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 $(7.5) million, or (7.5)%, for the nine months ended September 30, 2023, as compared to the nine months ended September 30, 2022.

This relates to the repurchase of $10.0 million of our 2027 Senior Notes during the nine months ended September 30, 2023.

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

Results of Operations f or the three months ended March 31, 2024 and 2023

Our net (loss) allocable to our common shareholders for the three months ended March 31, 2024, was approximately $(0.1) million, or $(0.01) per basic weighted average common share, compared to net income allocable to our common shareholders of approximately $10.0 million, or $0.49 per basic weighted average common share for the three months ended March 31, 2023.

Interest income decreased approximately $(2.1) million, or (11.6)%, for the three months ended March 31, 2024 as compared to the three months ended March 31, 2023.

This decrease was driven by lower interest income of approximately ($3.2) million driven by Subsidiary of Private Company G on nonaccrual status in the first quarter of 2024, lower unused fees of approximately ($0.2) million driven by less unfunded commitments, partially offset by higher fee income recognized of approximately $0.5 million and higher OID income of approximately $0.7 million due to acceleration of unaccreted OID on loan repayments during the three months ended March 31, 2024, as compared to the three months ended March 31, 2023, respectively.

Interest expense decreased approximately $(0.1) million, or (3.9)%, for the three months ended March 31, 2024, as compared to the three months ended March 31, 2023.

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 $(7.6) million, or (7.7)%, for the three months ended March 31, 2024, as compared to the three months ended March 31, 2023.

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

No repurchases took place during the same period in 2024.

Management fees increased approximately $0.1 million, or 6.3%, for the three months ended September 30, 2023, as compared to the three months ended September 30, 2022.

Incentive fees decreased approximately $(0.3) million, or (10.4)%, for the three months ended September 30, 2023, as compared to the three months ended September 30, 2022, driven by lower Core Earnings (as defined in the Management Agreement).

Management fees increased approximately $0.2 million, or 6.8%, for the nine months ended September 30, 2023, as compared to the nine months ended September 30, 2022.

Incentive fees decreased approximately $(1.5) million, or (15.6)%, for the nine months ended September 30, 2023, as compared to the nine months ended September 30, 2022, driven by lower Core Earnings (as defined in the Management Agreement).

General and administrative expenses decreased approximately $(0.1) million, or (6.1)%, for the three months ended September 30, 2023, as compared to the three months ended September 30, 2022.

General and administrative expenses increased approximately $0.7 million, or 20.6%, for the nine months ended September 30, 2023, as compared to the nine months ended September 30, 2022.

This increase was primarily due to severance expense incurred during the nine months ended September 30, 2023 attributable to the departure of our former Chief Financial Officer of approximately $0.7 million.

Stock-based compensation increased approximately $0.2 million, or 157.8%, for the three months ended September 30, 2023 as compared to the three months ended September 30, 2022.

This was driven by the acceleration of restricted stock owned by our former Head of Real Estate and a former Director , who resigned during the three months ended September 30, 2023.

Stock-based compensation decreased approximately $(0.5) million, or (42.3)%, for the nine months ended September 30, 2023 as compared to the nine months ended September 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 decreased approximately $(29.3) thousand, or (9.0)%, for the three months ended September 30, 2023 as compared to the three months ended September 30, 2022.

Professional fees increased approximately $0.1 million, or 11.6%, for the nine months ended September 30, 2023 as compared to the nine months ended September 30, 2022.

The net change in realized gains (losses) on investments for the three and nine months ended September 30, 2023 as compared to the three and nine months ended September 30, 2022 was $(1.2) million and approximately $(1.7) million, respectively.

Management fees increased approximately $0.1 million, or 11.8%, for the three months ended March 31, 2024, as compared to the three months ended March 31, 2023.

Incentive fees decreased approximately $(0.3) million, or (12.1)%, for the three months ended March 31, 2024, as compared to the three months ended March 31, 2023, driven by lower Core Earnings (as defined in the Management Agreement).

General and administrative expenses decreased approximately $(1.0) million, or (47.5)%, for the three months ended March 31, 2024, as compared to the three months ended March 31, 2023.

This decrease was primarily due to severance expense incurred during the three months ended March 31, 2023 attributable to the departure of our former Chief Financial Officer of approximately $0.7 million.

No severance expense was incurred during the three months ended March 31, 2024.

Stock-based compensation increased approximately $0.3 million, or 93.6%, for the three months ended March 31, 2024 as compared to the three months ended March 31, 2023.

This was driven by additional equity awards granted in January 2024.

Professional fees increased approximately $0.5 million, or 127.3%, for the three months ended March 31, 2024 as compared to the three months ended March 31, 2023.

This was driven by approximately $0.5 million of spin-off costs incurred during the three months ended March 31, 2024.

No spin-off costs were incurred during the three months ended March 31, 2023.

The net change in realized gains (losses) on investments for the three months ended March 31, 2024 as compared to the three months ended March 31, 2023 was approximately $(0.1) million, driven by the change in realized losses relating to separate sales of our investment in Subsidiary of Public Company M during the three months ended March 31, 2024, as compared to the three months ended March 31, 2023.

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 gain (loss) of approximately $0.8 million and $(0.6) million for the three months ended September 30, 2023 and 2022, respectively, and $(1.2) million and $(1.6) million for the nine months ended September 30, 2023 and 2022, respectively, was mainly driven by the net change in the valuation of the loans, which was impacted by changes in market yields and revenue multiples.

The gain (loss) on extinguishment of debt was zero and approximately $2.0 million for the three and nine months ended September 30, 2023 as a result of the repurchase of $10.0 million of our 2027 Senior Notes during the period.

The net change in unrealized gain (loss) of approximately $(3.6) million and $(1.5) million for the three months ended March 31, 2024 and 2023, respectively, was mainly driven by the net change in the valuation of the loans, which was impacted by changes in market yields, revenue multiples, and recovery rates.

The gain (loss) on extinguishment of debt was zero and approximately $2.0 million for the three months ended March 31, 2024 and 2023, respectively, as a result of the repurchase of $10.0 million of our 2027 Senior Notes during the three months ended March 31, 2023.

No repurchases took place during the same period in 2024.

Provision for Current Expected Credit Losses

The provision for current expected credit losses increased approximately $0.5 million, or 94.4%, for the three months ended September 30, 2023 as compared to the three months ended September 30, 2022 .

The provision for current expected credit losses decreased approximately $(2.9) million, or (95.1)%, for the nine months ended September 30, 2023 as compared to the nine months ended September 30, 2022 .

The balance as of September 30, 2023 was approximatel y $14.4 million , or 4.66%, of our total loans held at carrying value and loan receivable held at carrying value balance of approximately $310.1 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 $14.3 million and (ii) a liability for unfunded commitments of approximately $0.2 million .

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

The provision for current expected credit losses increased approximately $4.2 million, or 602.1%, for the three months ended March 31, 2024 as compared to the three months ended March 31, 2023 .

The balance as of March 31, 2024 was approximatel y $31.4 million , or 8.71%, of our total loans held at carrying value and loan receivable held at carrying value balance of approximately $359.9 million and was bifurcated between (i) the current expected credit loss reserve (contra-asset) related to outstanding balances on loans held at carrying value and loan receivable held at carrying value of approximately $31.3 million and (ii) a liability for unfunded commitments of approximately $9.1 thousand .

The balance as of March 31, 2023 was approximately $15.0 million, or 5.40%, of our total loans held at carrying value and loan receivable held at carrying value balance of approximately $277.4 million and was bifurcated between (i) the current expected credit loss reserve (contra-asset) related to outstanding balances on loans held at carrying value and loan receivable held at carrying value of approximately $14.4 million and (ii) a liability for unfunded commitments of approximately $0.6 million.

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

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

The change in the provision for current expected credit losses for the three and nine months ended September 30, 2023 compared to the three and nine months ended September 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.

The change in the provision for current expected credit losses for the three months ended March 31, 2024 compared to the three months ended March 31, 2023 was due to changes in macroeconomic factors, changes to the loan portfolio including new commitments and repayments, borrower payment status, and changes in other data points we use in estimating the reserve.

Loan Portfolio

As of September 30, 2023 and December 31, 2022, our 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, we 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 our loans held at fair value had floating interest rates.

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

As of September 30, 2023

The below table summarizes our total loan portfolio as of March 31, 2024, unless otherwise specified.

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

Loan Names Original Funding Date (1)

Loan Maturity AFCG Loan, net of Syndication % of Total AFCG Principal Balance as of 3/31/2024 Cash Interest Rate PIK Fixed/

Floating Amortization During Term YTM

A - Equipment Loans (4)

8/5/2019 3/31/2025 $ 4,000,000 0.8% $ 2,041,744 12.0% N/A Fixed Yes 9%

5/8/2020 5/8/2024 77,785,000 15.5% 49,729,397 13.0% 2.7% Fixed No 26%

9/10/2020 9/1/2023 16,402,988 3.3% 18,895,891 14.7% 4.0% Fixed No 29%

C 11/5/2020 12/1/2025 24,000,000 4.8% 3,656,235 17.5% 2.0% Floating Yes 26%

Sub of Private Co.

4/30/2021 5/1/2026 73,500,000 14.7% 79,215,888 12.5% N/A Fixed No 20%

J 8/30/2021 9/1/2025 23,000,000 4.6% 21,228,511 17.3% 2.0% Floating Yes 25%

4/28/2022 5/3/2027 13,229,626 2.6% 13,445,762 17.3% 2.0% Floating Yes 26%

L 4/20/2022 5/1/2026 51,640,777 10.3% 44,332,375 13.7% N/A Floating Yes 19%

Sub of Public Co.

H 12/16/2021 1/1/2026 84,000,000 16.8% 84,000,000 14.3% N/A Floating No 19%

Sub of Public Co.

M 8/26/2022 8/27/2025 12,822,000 2.6% 12,822,000 9.5% N/A Fixed No 19%

7/31/2023 7/31/2026 30,000,000 6.0% 31,158,023 9.0% N/A Fixed Yes 18%

N - Real Estate 3/22/2024 4/1/2028 16,800,000 3.4% 16,800,000 13.3% N/A Floating Yes 16%

N - Non-Real Estate 3/22/2024 4/1/2028 17,200,000 3.4% 17,200,000 13.3% N/A Floating Yes 16%

CRE Private Co.

A 1/4/2024 5/31/2024 28,224,559 5.6% 25,779,522 20.6% N/A Floating No 25%

CRE Private Co.

B 1/31/2024 5/12/2027 28,188,776 5.6% 20,916,510 13.0% N/A Fixed No 14%

Subtotal (10)

$ 500,793,726 100.0% $ 441,221,858 13.7% 0.6% 20%

(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 March 31, 2024 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, Public Company A equipment loan receivable was placed on nonaccrual 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”).

Effective March 1, 2024, Private Company A was placed on nonaccrual status.

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

B are weighted average rates.

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

(7) Effective March 2024, pursuant to the forbearance agreement with Subsidiary of Private Company G, Subsidiary of Private Company G transitioned from a floating interest rate tied to U.S.

prime rate to a fixed interest rate.

Effective December 1, 2023, the Company placed the borrower on nonaccrual status.

(8) As amended by the forbearance agreement entered into in March 2024, between 20.0% and 80.0% of the monthly cash interest will be paid in kind from December 1, 2023 to June 1, 2024.

As of December 1, 2023, the Company placed the borrower on nonaccrual status.

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

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

Loans Held for Investment at Fair Value

As of March 31, 2024 and December 31, 2023, our portfolio included two loans held at fair value.

The aggregate originated commitment under these loans was approximately $94.2 million and $94.2 million, respectively, and outstanding principal was approximately $68.6 million and $71.9 million as of March 31, 2024 and December 31, 2023 , respectively.

For the three months ended March 31, 2024, we received approximately $4.0 million of principal repayments of loans held at fair value.

As of March 31, 2024 and December 31, 2023 , none of our loans held at fair value had floating interest rates.

The following tables summarize our loans held at fair value as of March 31, 2024 and December 31, 2023 :

As of March 31, 2024

Fair Value (1)

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

(3) Weighted average remaining life is calculated based on the fair value of the loans as of September 30, 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:

(3) Weighted average remaining life is calculated based on the fair value of the loans as of March 31, 2024 and December 31, 2023.

(4) As of March 31, 2024 and December 31, 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 three months ended March 31, 2024:

Principal Original Issue

1 unchanged sentence

Total loans held at fair value at December 31, 2023 $ 71,883,402 $ (239,399) $ (9,923,298) $ 61,720,705

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 — — (3,613,693) (3,613,693)

New fundings 1,881,840 — — 1,881,840

Accretion of original issue discount — 128,384 — 128,384

1 unchanged sentence

PIK interest 745,831 — — 745,831

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 we recorded a realized loss of approximately $(1.2) million.

As of September 30, 2023 and December 31, 2022 , our portfolio did not include any debt securities.

For the three and nine months ended September 30, 2023, we 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.

As of September 30, 2023 and December 31, 2022, our 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 , we 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 our 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.

Total loans held at fair value at March 31, 2024 $ 68,625,288 $ (111,015) $ (13,536,991) $ 54,977,282

Loans Held for Investment at Carrying Value

As of March 31, 2024 and December 31, 2023, our portfolio included twelve and nine loans held at carrying value, respectively.

The aggregate originated commitment under these loans was approximately $402.6 million and $333.1 million, respectively, and outstanding principal was approximately $370.6 million and $314.4 million, respectively, as of March 31, 2024 and December 31, 2023 .

During the three months ended March 31, 2024 , we funded approximately $85.8 million of new loans and additional principal, had approximately $24.5 million of principal repayments of loans held at carrying value and sold $6.0 million of our investment in Subsidiary of Public Company M.

As of March 31, 2024 and December 31, 2023, approximately 61% and 84%, respectively, of our loans held at carrying value had floating interest rates.

As of March 31, 2024, t hese floating benchmark rates included one-month Secured Overnight Financing Rate (“SOFR”) subject to a weighted average floor of 3.7% and quoted at 5.3% and U.S.

prime rate subject to a weighted average floor of 5.4% and quoted at 8.5%.

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

As of September 30, 2023

The following tables summarize our loans held at carrying value as of March 31, 2024 and December 31, 2023:

As of March 31, 2024

Principal (1)

2 unchanged sentences

Senior term loans $ 323,858,794 $ (12,434,565) $ 311,424,229 2.2

Subordinate debt 46,696,032 (267,794) 46,428,238 1.5

Total loans held at carrying value $ 370,554,826 $ (12,702,359) $ 357,852,467 2.1

6 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 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:

(2) Weighted average remaining life is calculated based on the carrying value of the loans as of March 31, 2024 and December 31, 2023.

The following table presents changes in loans held at carrying value as of and for the three months ended March 31, 2024:

Principal Original Issue

7 unchanged sentences

Loan amortization payments (1,218,953) — (1,218,953)

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

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

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

Total loans held at carrying value at March 31, 2024 $ 370,554,826 $ (12,702,359) $ 357,852,467

Loan Receivable Held at Carrying Value

As of March 31, 2024 and December 31, 2023, 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 as of March 31, 2024 and December 31, 2023, respectively.

The following table presents changes in loans receivable as of and for the three months ended March 31, 2024:

Principal Original Issue

2 unchanged sentences

Loan repayments — — —

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

The below table summarizes our total loan portfolio as of September 30, 2023:

Loan Names Original Funding Date (1)

Loan Maturity AFCG Loan, net of Syndication % of Total AFCG Principal Balance as of 9/30/2023 Cash Interest Rate PIK Fixed/

Floating Amortization During Term YTM

A - Equipment Loans (4)

8/5/2019 3/31/2025 $ 4,000,000 0.9% $ 2,041,744 12.0% N/A Fixed Yes 9%

5/8/2020 5/8/2024 77,785,000 18.0% 54,682,215 13.0% 2.7% Fixed Yes 25%

9/10/2020 9/1/2023 16,402,988 3.8% 18,323,715 14.7% 4.0% Fixed Yes 31%

C 11/5/2020 12/1/2025 24,000,000 5.5% 15,023,186 17.5% 2.0% Floating Yes 26%

Sub of Private Co.

4/30/2021 5/1/2026 73,500,000 17.0% 80,625,124 18.8% N/A Floating Yes 24%

7/14/2021 8/1/2026 3,500,298 0.8% 3,767,454 17.3% 4.5% Floating Yes 18%

J 8/30/2021 9/1/2025 23,000,000 5.3% 22,121,889 17.3% 4.0% Floating Yes 26%

K 4/28/2022 5/3/2027 13,229,626 3.1% 13,378,015 17.3% 2.0% Floating Yes 27%

L 4/20/2022 5/1/2026 63,000,000 14.5% 53,000,000 13.7% N/A Floating Yes 18%

Sub of Public Co.

H 12/16/2021 1/1/2026 84,000,000 19.4% 84,000,000 14.3% N/A Floating No 19%

Sub of Public Co.

M 8/26/2022 8/27/2025 20,822,000 4.8% 20,822,000 9.5% N/A Fixed No 18%

7/31/2023 7/31/2026 30,000,000 6.9% 30,000,000 N/A 9.0% Fixed Yes 18%

Subtotal (10)

$ 433,239,912 100.0% $ 397,785,342 14.0% 1.6% 19%

Information is as of September 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.

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 September 30, 2023 applied through maturity.

Actual results could differ from those estimates and assumptions.

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

(4) As of October 1, 2022, Public Company A equipment loan receivable was placed on non-accrual status.

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

B are weighted average rates.

(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.

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.

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, and the credit facility was restored to 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) Quarterly cash interest is paid in kind from closing to February 1, 2024 and then payable in cash thereafter.

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

Total loan receivable held at carrying value at March 31, 2024 $ 2,041,744 $ (1,686) $ 2,040,058

Collateral Overview

6 unchanged sentences

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

As of September 30, 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.

As of March 31, 2024, our portfolio of assets held outside of TRS1 had a weighted average real estate collateral coverage of approximately 1.0 times our aggregate committed principal amount of such loans, with the real estate collateral coverage for each of our loans measured as of the time of closing for such loan and based on various sources of data available at such time.

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

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

Our net cash provided by operating activities for the nine months ended September 30, 2023 of approximately $15.0 million was less than our dividend payments of $32.7 million made during the same period due to earned OID of $4.4 million, gain on extinguishment of debt of $2.0 million, the net change in interest reserve of $4.1 million and PIK repayments of $1.5 million related to the repayment from Private Company I and Private Company A during such period.

Our net cash provided by operating activities for the three months ended March 31, 2024 of approximately $6.4 million was less than our dividend payments of $9.8 million made during the same period due to earned OID of $1.9 million and PIK repayments of $0.5 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.

As of September 30, 2023 and December 31, 2022, all of our cash was unrestricted and totaled approximately $73.2 million and $140.4 million, respectively.

As of September 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.

As of March 31, 2024 and December 31, 2023, all of our cash was unrestricted and totaled approximately $82.3 million and $121.6 million, respectively.

As of March 31, 2024, 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.

Capital Markets

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

During the three and nine months ended September 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 .

During the three months ended March 31, 2024 and year ended December 31, 2023 , we did not sell any shares of our common stock under the Sales Agreement.

On June 13, 2023, our Board authorized 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.

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 months ended March 31, 2024 and year ended December 31, 2023 , the Company did not repurchase any shares of its common stock pursuant to the Repurchase Program.

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

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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 September 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.

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

As of March 31, 2024, we had $60.0 million of borrowings outstanding and zero 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.

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

Upon entering into the Revolving Credit Agreement, w e incurred a one-time commitment fee expense of approximately $0.5 million, which is amortized over the life of the facility.

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

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

To the best of our knowledge, as of September 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.

To the best of our knowledge, as of March 31, 2024, we were in compliance in all material respects with all covenants contained in our Revolving Credit Agreement.

2027 Senior Notes

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

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

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

TRS1 and SUNS are currently subsidiary guarantors under the Indenture.

Following the completion of the Spin-Off, SUNS will no longer be a guarantor under the Indenture.

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.

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

During the nine months ended September 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 September 30, 2023, we had $90.0 million in principal amount of the 2027 Senior Notes outstanding.

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

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

As of September 30, 2023 , we believe that our cash on hand, capacity available under our Revolving Credit Facility, and cash flows from operations will be sufficient to service our outstanding debt during the next twelve months.

The following table sets forth changes in cash and cash equivalents for the nine months ended September 30, 2023 and 2022:

September 30,

Net income $ 30,140,482 $ 32,994,312

As of March 31, 2024 , we believe that our cash on hand, capacity available under our Revolving Credit Facility, and cash flows from operations will be sufficient to service our outstanding debt during the next twelve months.

The following table sets forth changes in cash and cash equivalents for the three months ended March 31, 2024 and 2023:

Net (loss) income $ (54,116) $ 10,025,274

Adjustments to reconcile net income to net cash (used in) provided by operating activities and changes in operating assets and liabilities 6,426,664 (5,642,647)

Net cash provided by (used in) operating activities 6,372,548 4,382,627

Net cash provided by (used in) investing activities 18,508,853 (68,520,844)

Net cash (used in) provided by financing activities (100,667,506) (31,861,647)

Net cash (used in) provided by investing activities (53,880,866) 14,991,616

Net cash provided by (used in) financing activities 8,180,305 (79,141,340)

Change in cash and cash equivalents $ (39,328,013) $ (59,767,097)

Net Cash Provided by (Used in) Operating Activities

Net cash provided by operating activities during the nine months ended September 30, 2023 was approximately $15.0 million, compared to approximately $27.5 million for the same period in 2022.

The decrease of approximately $(12.5) million during the nine months ended September 30, 2022 to September 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 $(4.4) million, decrease in the change in provision for current expected credit losses of approximately $(2.9) million, decrease in interest reserve of approximately $(5.0) million, increase in accrued management and incentive fees of approximately $(1.3) million, offset by a decrease in accretion of OID of approximately $5.3 million, respectively.

Net cash provided by operating activities during the three months ended March 31, 2024 was approximately $6.4 million, compared to approximately $4.4 million for the same period in 2023.

The increase of approximately $2.0 million during the three months ended March 31, 2023 to March 31, 2024 was primarily due to a decrease in net income of approximately $(10.1) million, decrease in interest receivable of approximately $(2.0) million, offset by a decrease in gain (loss) on extinguishment of debt of approximately $2.0 million, an increase in the change in unrealized (gains) losses on loans held at fair value of approximately $2.1 million, decrease in PIK interest of approximately $2.9 million, increase in the provision for current expected credit losses of approximately $4.2 million and increase in interest reserve of approximately $3.0 million, respectively.

Net Cash Provided by (Used in) Investing Activities

Net cash provided by investing activities during the nine months ended September 30, 2023 was approximately $18.5 million, compared to net cash used in investing activities of approximately $(68.5) million for the same period in 2022.

The increase of net cash provided by investing activities of approximately $87.0 million during the nine months ended September 30, 2022 to September 30, 2023 was primarily due to a decrease in issuance and fundings on loans of approximately $75.5 million, an increase in proceeds from the sale of loans of approximately $10.7 million, an increase in principal repayments of loans of approximately $17.7 million, offset by a decrease in the sale of available-for-sale debt securities of $(15.9) million, respectively.

Net cash used in investing activities during the three months ended March 31, 2024 was approximately $(53.9) million, compared to net cash provided by investing activities of approximately $15.0 million for the same period in 2023.

The decrease of net cash used in investing activities of approximately $(68.9) million during the three months ended March 31, 2023 to March 31, 2024 was primarily due to a increase in issuance and fundings on loans of approximately $(82.7) million, a decrease in proceeds from the sale of loans of approximately $(11.9) million, offset by an increase in principal repayments of loans of approximately $25.7 million, respectively.

Net Cash Provided by (Used in) Financing Activities

Net cash used in financing activities during the nine months ended September 30, 2023 was approximately $(100.7) million, compared to approximately $(31.9) million for the same period in 2022.

The decrease of approximately $(68.8) million during the nine months ended September 30, 2022 to September 30, 2023 was primarily due to a decrease in proceeds from the sale of common stock of approximately $(75.1) million, repayments on the 2027 Senior Notes of approximately $(7.7) million, lower repayments on the Revolving Credit Facility of approximately $(6.0) million, offset by an increase in borrowings on the revolving credit facility of $21.0 million, respectively.

Net cash provided by financing activities during the three months ended March 31, 2024 was approximately $8.2 million, compared to approximately $(79.1) million for the same period in 2023.

The increase of approximately $87.3 million during the three months ended March 31, 2023 to March 31, 2024 was primarily due to an increase in borrowings on the Revolving Credit Facility of $60.0 million, decrease in repayments on the Revolving Credit Facility of approximately $18.0 million and decrease in repayments on the 2027 Senior Notes of approximately $7.7 million, respectively.

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

Our contractual obligations as of September 30, 2023 are as follows:

As of September 30, 2023

Our contractual obligations as of March 31, 2024 are as follows:

As of March 31, 2024

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

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Total $ 7,308,402 $ — $ 7,272,266 $ — $ 14,580,668

As of September 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 September 30, 2023 relating to the 2027 Senior Notes:

As of September 30, 2023

As of March 31, 2024 , all unfunded commitments related to our total loan commitments and were available for funding in less than four years.

We also had the following contractual obligations as of March 31, 2024 relating to the 2027 Senior Notes:

As of March 31, 2024

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

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Total $ 5,175,000 $ 10,350,000 $ 92,587,500 $ — $ 108,112,500

(1) Amounts include projected interest payments during the period based on interest rates in effect as of September 30, 2023 .

(1) Amounts include projected interest payments during the period based on interest rates in effect as of March 31, 2024 .

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

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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.

Other than as set forth in this Quarterly Report, 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.

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Critical Accounting Policies and Estimates

As of September 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.

As of March 31, 2024 , there were no significant changes in or changes in the application of our critical accounting policies or estimates from those presented in our Annual Report on Form 10-K.

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

What changed 10-Q

Item 2. Management’s Discussion and Analysis