What changed in this filing

/stocks — the workspaceLOADING

Item 1. Financial Statements

2024-08-07 compared with 2024-05-09 · 290 added, 181 removed, 605 unchanged (44% of the section changed)

2 unchanged sentences

CONSOLIDATED BALANCE SHEETS

March 31, 2024 December 31, 2023

Loans held for investment at fair value (cost of $ 68,514,273 and $ 71,644,003 at March 31, 2024 and December 31, 2023, respectively, net)

June 30, 2024 December 31, 2023

Loans held for investment at fair value (cost of $ 49,618,382 and $ 71,644,003 at June 30, 2024 and December 31, 2023, respectively, net)

$ 34,661,390 $ 61,720,705

20 unchanged sentences

Shareholders’ equity

Preferred stock, par value $ 0.01 per share, 10,000 shares authorized at March 31, 2024 and December 31, 2023 and 125 shares issued and outstanding at March 31, 2024 and December 31, 2023, respectively

Common stock, par value $ 0.01 per share, 50,000,000 shares authorized at March 31, 2024 and December 31, 2023 and 20,667,094 and 20,457,697 shares issued and outstanding at March 31, 2024 and December 31, 2023, respectively

Preferred stock, par value $ 0.01 per share, 10,000 shares authorized at June 30, 2024 and December 31, 2023 and 0 and 125 shares issued and outstanding at June 30, 2024 and December 31, 2023, respectively

Common stock, par value $ 0.01 per share, 50,000,000 shares authorized at June 30, 2024 and December 31, 2023 and 20,667,094 and 20,457,697 shares issued and outstanding at June 30, 2024 and December 31, 2023, respectively

206,671 204,577

7 unchanged sentences

Three months ended

June 30, Six months ended

2024 2023 2024 2023

Interest income $ 19,957,521 $ 17,675,188 $ 36,318,581 $ 36,175,674

7 unchanged sentences

Total expenses 6,422,389 4,939,712 12,437,337 11,351,542

Provision for current expected credit losses ( 4,931,674 ) ( 702,426 )

Decrease (increase) in provision for current expected credit losses 6,190,240 1,606,187 1,258,566 903,761

Realized gains (losses) on investments, net — — ( 93,338 ) ( 26,384 )

3 unchanged sentences

Income tax expense 285,975 167,637 444,335 342,739

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

Net income $ 16,446,121 $ 12,135,333 $ 16,392,005 $ 22,160,607

Earnings per common share:

Basic (loss) earnings per common share (in dollars per share) $ ( 0.01 ) $ 0.49

Diluted (loss) earnings per common share (in dollars per share) $ ( 0.01 ) $ 0.49

Basic earnings per common share (in dollars per share) $ 0.80 $ 0.59 $ 0.79 $ 1.08

Diluted earnings per common share (in dollars per share) $ 0.80 $ 0.59 $ 0.79 $ 1.08

Weighted average number of common shares outstanding:

4 unchanged sentences

CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY

Three months ended March 31, 2024

Three months ended June 30, 2024

Stock Common Stock Additional

3 unchanged sentences

Shares Amount

Balance at December 31, 2023 $ 1 20,457,697 $ 204,577 $ 349,805,890 $ ( 29,958,243 ) $ 320,052,225

Balance at March 31, 2024 $ 1 20,667,094 $ 206,671 $ 350,347,018 $ ( 39,932,564 ) $ 310,621,126

Stock-based compensation — — — 369,343 — 369,343

1 unchanged sentence

— — — — ( 13,020,269 ) ( 13,020,269 )

Net (loss) — — — — ( 54,116 ) ( 54,116 )

Dividends declared on preferred shares ($ 60 per share)

— — — — ( 7,500 ) ( 7,500 )

Redemption of preferred shares ( 1 ) — — ( 124,999 ) — ( 125,000 )

Net income — — — — 16,446,121 16,446,121

Balance at June 30, 2024 $ — 20,667,094 $ 206,671 $ 350,591,362 $ ( 36,514,212 ) $ 314,283,821

Three months ended June 30, 2023

Stock Common Stock Additional

Capital Accumulated

(Deficit) Total

Shareholders’

Shares Amount

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

Three months ended March 31, 2023

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

Dividends declared on common shares ($ 0.48 per share)

— — — — ( 9,819,695 ) ( 9,819,695 )

Dividends declared on preferred shares ($ 60 per share)

— — — — ( 7,500 ) ( 7,500 )

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

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

See accompanying notes to the consolidated financial statements

AFC GAMMA, INC.

CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY

Six months ended June 30, 2024

Stock Common Stock Additional

7 unchanged sentences

— — — — ( 22,940,474 ) ( 22,940,474 )

Dividends declared on preferred shares ($ 60 per share)

— — — — ( 7,500 ) ( 7,500 )

Redemption of preferred shares ( 1 ) — — ( 124,999 ) — ( 125,000 )

Net income — — — — 16,392,005 16,392,005

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

Balance at June 30, 2024 $ — 20,667,094 $ 206,671 $ 350,591,362 $ ( 36,514,212 ) $ 314,283,821

Six months ended June 30, 2023

Stock Common Stock Additional

Capital Accumulated

(Deficit) Total

Shareholders’

Shares Amount

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

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

Dividends declared on common shares ($ 1.04 per share)

— — — — ( 21,293,666 ) ( 21,293,666 )

Dividends declared on preferred shares ($ 60 per share)

— — — — ( 7,500 ) ( 7,500 )

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

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

See accompanying notes to the consolidated financial statements

1 unchanged sentence

CONSOLIDATED STATEMENTS OF CASH FLOWS

Three months ended

Six months ended

Operating activities:

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

Adjustments to reconcile net (loss) income to net cash provided by (used in) operating activities:

Provision for current expected credit losses 4,931,674 702,426

Net income $ 16,392,005 $ 22,160,607

Adjustments to reconcile net income to net cash provided by (used in) operating activities:

(Decrease) increase in provision for current expected credit losses ( 1,258,566 ) ( 903,761 )

Realized (gains) losses on investments, net 93,338 26,384

22 unchanged sentences

Cash flows from financing activities:

Payment of financing costs ( 225,000 ) ( 225,000 )

Redemption of preferred shares ( 125,000 ) —

Borrowings on revolving credit facility 95,000,000 —

8 unchanged sentences

Interest reserve withheld from funding of loans $ — $ 1,500,000

Non-cash funding of new loan $ 14,672,640 $ —

OID withheld from funding of loans $ 2,423,357 $ 2,610,000

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

Dividends declared and not yet paid $ 13,020,269 $ 9,819,695

5 unchanged sentences

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

As of March 31, 2024

As of June 30, 2024

AFC Gamma, Inc.

(the “Company” or “AFCG”) is an institutional lender to the commercial real estate sector that was founded in July 2020 by a veteran team of investment professionals.

The Company primarily originates, structures, underwrites, invests in and manages senior secured commercial real estate loans and other types of loans and debt securities, with a specialization in loans to cannabis industry operators in states that have legalized medical and/or adult-use cannabis.

(the “Company” or “AFCG”) is an institutional lender that was founded in July 2020 by a veteran team of investment professionals.

The Company primarily originates, structures, underwrites, invests in and manages senior secured mortgage loans and other types of loans and debt securities, with a specialization in loans to cannabis industry operators in states that have legalized medical and/or adult-use cannabis.

The Company is a Maryland corporation and completed its initial public offering (the “IPO”) in March 2021.

1 unchanged sentence

The Company’s wholly-owned subsidiary, AFCG TRS1, LLC, a Delaware limited liability company (“TRS1”), operates as a taxable real estate investment trust subsidiary (a “TRS”).

TRS1 began operating in July 2021, and the financial statements of TRS1 are consolidated within the Company’s consolidated financial statements.

The Company’s 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 SUNS are consolidated within the Company’s consolidated financial statements.

The Company operates in one operating segment and is primarily focused on financing senior secured loans and other types of loans primarily to (i) senior secured loans to cannabis industry operators in states where medical and/or adult-use cannabis is legal and (ii) secured loans to commercial real estate owners, operators and related businesses.

TRS1 began operat ing in July 2021, and the financial statements of TRS1 are consolidated within the Company’s consolidated financial statements.

Sunrise Realty Trust, Inc.

(“SUNS”) (f/k/a CRE South LLC), the Company’s wholly-owned subsidiary as of June 30, 2024 , 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 SUNS are consolidated within the Company’s consolidated financial statements in this Quarterly Report on Form 10-Q.

On February 22, 2024, the Company announced that the Board unanimously approved a plan to spin-off (the “Spin-Off”) the Company’s wholly-owned subsidiary, SUNS, which held the Company’s commercial real estate (“CRE”) loan portfolio, into an independent, publicly traded REIT, Sunrise Realty Trust, Inc.

The Spin-Off was effected by the transfer of the Company’s CRE portfolio, from the Company to SUNS and the distribution of all of the outstanding shares of SUNS common stock to the Company’s shareholders of record as of the close of business on July 8, 2024 (the “Record Date”).

The Company’s shareholders of record as of the Record Date received one share of SUNS common stock for every three shares of the Company’s common stock held as of the Record Date.

The Spin-Off was completed July 9, 2024 (the “Distribution Date”).

On the Distribution Date, SUNS became an independent, publicly-traded company, trading on the Nasdaq Capital Market under the symbol “SUNS”.

The Company retained no ownership interest in SUNS following the Spin-Off.

Beginning in the third quarter of fiscal year 2024, the historical financial results of the SUNS business for periods prior to the Distribution Date will be reflected in the Company’s consolidated financial statements as discontinued operations.

In connection with the Spin-Off, the Company entered into several agreements with SUNS that govern the relationship between the Company and SUNS following the Spin-Off, including the Separation and Distribution Agreement and the Tax Matters Agreement.

These agreements provide for the allocation between the Company and SUNS of the assets, liabilities and obligations (including, among others, investments, property and tax-related assets and liabilities) of the Company and its subsidiaries attributable to periods prior to, at and after the Spin-Off.

Following the completion of the Spin-Off, the Company amended its investment guidelines such that the Company’s investments will primarily be 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.

The Company operates in one operating segment.

Prior to the Spin-Off, the Company was primarily focused on financing senior secured loans and other types of loans to (i) senior secured loans to cannabis industry operators in states where medical and/or adult-use cannabis is legal and (ii) secured loans to commercial real estate owners, operators and related businesses.

Following the Spin-Off, the Company is solely focused on senior secured loans to cannabis industry operators in states where medical and/or adult-use cannabis is legal.

These loans are generally held for investment and are secured, directly or indirectly, by real estate, equipment, the value associated with licenses (where applicable) and/or other assets of borrowers depending on the applicable laws and regulations governing such borrowers.

30 unchanged sentences

LOANS HELD FOR INVESTMENT AT FAIR VALUE

As of March 31, 2024 and December 31, 2023, the Company’s 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, the Company 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 the Company’s loans held at fair value had floating interest rates.

The following tables summarize the Company’s loans held at fair value as of March 31, 2024 and December 31, 2023:

As of March 31, 2024

As of June 30, 2024 and December 31, 2023, the Company’s portfolio included one and two loans held at fair value, respectively.

The aggregate originated commitment under these loans was approximately $ 77.8 million and $ 94.2 million, respectively, and outstanding principal was approximately $ 49.7 million and $ 71.9 million as of June 30, 2024 and December 31, 2023, respectively.

For the six months ended June 30, 2024, the Company received approximately $ 4.0 million of principal repayments of loans held at fair value and sold $ 19.3 million of the Company’s investment in Private Company B.

As of June 30, 2024 and December 31, 2023, 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, 2024 and December 31, 2023:

As of June 30, 2024

Fair Value (1)

3 unchanged sentences

Remaining Life

(Years) (3)(4)

Senior term loans $ 54,977,282 $ 68,514,273 $ 68,625,288 0.1

Total loans held at fair value $ 54,977,282 $ 68,514,273 $ 68,625,288 0.1

Senior term loan $ 34,661,390 $ 49,618,382 $ 49,729,397 0.0

Total loan held at fair value $ 34,661,390 $ 49,618,382 $ 49,729,397 0.0

As of December 31, 2023

4 unchanged sentences

Remaining Life

(Years) (3)(4)

Senior term loans $ 61,720,705 $ 71,644,003 $ 71,883,402 0.4

2 unchanged sentences

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

(3) Weighted average remaining life is calculated based on the fair value of the loans as of March 31, 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:

(3) As of June 30, 2024, the maturity date passed on the credit facility with Private Company A without repayment.

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

As of 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 six months ended June 30, 2024:

Principal Original Issue

4 unchanged sentences

Loan repayments ( 4,003,945 ) — — ( 4,003,945 )

Sale of loans ( 19,284,846 ) — — ( 19,284,846 )

PIK interest 1,134,786 — — 1,134,786

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

As of March 31, 2024 , the Company ha d one l oan held at fair value on nonaccrual status.

As of March 1, 2024, the Company placed Private Company A on nonaccrual status with an outstanding principal amount of approximately $ 49.7 million and an unrealized loss of approximately $( 10.2 ) million.

A more detailed listing of the Company’s loans held at fair value portfolio based on information available as of March 31, 2024 is as follows:

Total loans held at fair value at June 30, 2024 $ 49,729,397 $ ( 111,015 ) $ ( 14,956,992 ) $ 34,661,390

As of June 30, 2024 , the Company ha d one l oan held at fair value on nonaccrual status.

Effective March 1, 2024, the Company placed Private Company A on nonaccrual status with an outstanding principal amount of approximately $ 49.7 million and an unrealized loss of approximately $( 15.0 ) million as of June 30, 2024 .

A more detailed listing of the Company’s loan held at fair value portfolio based on information available as of June 30, 2024 is as follows:

Collateral Location Collateral

2 unchanged sentences

A AZ, GA, MA, NM C, D $ 34,661,390 $ 49,618,382 $ 49,729,397 15.8 % (6)

B MI C, D 15,541,870 18,895,892 18,895,891 18.7 % (7)

Total loans held at fair value $ 54,977,282 $ 68,514,273 $ 68,625,288

Total loan held at fair value $ 34,661,390 $ 49,618,382 $ 49,729,397

(1) C = Cultivation Facilities, D = Dispensary/Retail Facilities.

9 unchanged sentences

Effective March 1, 2024, the Company placed the borrower on nonaccrual status.

(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.

The maturity date passed on the credit facility to Private Company A without repayment.

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.

The court-appointed receiver is determining the amount of principal payments the borrower is able to repay either from operations or from sale of collateral assets on a monthly basis.

LOANS HELD FOR INVESTMENT AT CARRYING VALUE

As of March 31, 2024 and December 31, 2023, t he Company’s 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, resp ectively, 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, the Company 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 the Company’s investment in Subsidiary of Public Company M.

As of March 31, 2024 and December 31, 2023, approximately 61 % and 84 %, respectively, of the Company’s 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 the Company’s loans held at carrying value as of March 31, 2024 and December 31, 2023:

As of March 31, 2024

As of June 30, 2024 and December 31, 2023, t he Company’s portfolio included twelve and nine loans held at carrying value, respectively.

The aggregate originated commitment under these loans was approximately $ 311.1 million and $ 333.1 million, resp ectively, and outstanding principal was approximately $ 283.7 million and $ 314.4 million, respectively, as of June 30, 2024 and December 31, 2023.

During the six months ended June 30, 2024, the Company funded approximately $ 107.2 million of new loans and additional principal, had approximately $ 49.1 million of principal repayments of loans held at carrying value and sold $ 90.0 million in the aggregate of the Company’s investments in Subsidiary of Public Company H and Subsidiary of Public Company M.

As of June 30, 2024 and December 31, 2023, approximately 44 % and 84 %, respectively, of the Company’s loans held at carrying value had floating interest rates.

As of June 30, 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 %.

The following tables summarize the Company’s loans held at carrying value as of June 30, 2024 and December 31, 2023:

As of June 30, 2024

Principal (1)

2 unchanged sentences

Senior term loans (3)

$ 262,048,014 $ ( 9,851,079 ) $ 252,196,935 2.1

Subordinate debt 21,630,051 ( 246,652 ) 21,383,399 2.9

7 unchanged sentences

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

(2) Weighted average remaining life is calculated based on the carrying value of the loans as of March 31, 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:

(2) Weighted average remaining life is calculated based on the carrying value of each respective group of loans as of June 30, 2024 and December 31, 2023.

(3) Senior term loans include senior loans that also have a contiguous subordinate loan because as a whole, the expected credit quality of the subordinate loan is more similar to that of a senior loan.

The following table presents changes in loans held at carrying value as of and for the six months ended June 30, 2024:

Principal Original Issue

7 unchanged sentences

Loan amortization payments ( 2,219,434 ) — ( 2,219,434 )

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

As of March 31, 2024 , the Company had two loans held at carrying value on nonaccrual status.

Total loans held at carrying value at June 30, 2024 $ 283,678,065 $ ( 10,097,731 ) $ 273,580,334

As of June 30, 2024 , the Company had two loans held at carrying value on nonaccrual status.

The Company placed Subsidiary of Private Company G on nonaccrual status effective December 1, 2023, with an outstanding principal amount of approximately $ 79.2 million and an amortized cost of approximately $ 77.8 million.

1 unchanged sentence

The Company will recognize income related to loan activity only upon receipt of cash.

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

During the six months ended June 30, 2024, the Company recognized interest income of approximately $ 2.8 million related to this loan which was received in cash.

The Company placed Private Company K on nonaccrual status effective December 1, 2023, with an outstanding principal amount of approximately $ 12.2 million and an amortized cost of approximately $ 11.5 million.

The Company will recognize income related to loan activity only upon receipt of cash.

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

In March 2024, the Company was repaid on all remaining 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, the Company also received and recognized past due cash interest of approximately $ 0.7 million during the three months ended March 31, 2024 .

A more detailed listing of the Company’s loans held at carrying value portfolio based on information available as of March 31, 2024 is as follows:

During the six months ended June 30, 2024, the Company received a $ 1.3 million payment applied to the outstanding principal balance and recognized interest income of approximately $ 0.5 million related to this loan received in cash.

A more detailed listing of the Company’s loans held at carrying value portfolio based on information available as of June 30, 2024 is as follows:

Collateral Location Collateral

2 unchanged sentences

Rate Maturity

C PA C, D $ 3,656,235 $ ( 52,181 ) $ 3,604,054 19.5 % (5)

12/1/2025 P/I

of Private Co.

2 unchanged sentences

J MO C, D 20,543,967 ( 229,595 ) 20,314,372 19.3 % (7)

of Public Co.

H CT, IA, IL, ME, MI, NJ, NY, OH, PA C, D 84,000,000 ( 2,137,289 ) 81,862,711 14.3 % (9)

L MO, OH C, D 44,332,375 ( 1,233,008 ) 43,099,367 13.7 % (10)

L OH C, D 37,114,073 ( 866,681 ) 36,247,392 13.7 % (8)

of Public Co.

5 unchanged sentences

N - Non-Real Estate FL C, D 17,200,000 ( 645,000 ) 16,555,000 13.3 % (12)

O AZ, MD, MO, NJ, NV, NY, OH, OR, Canada C 2,728,647 ( 293,750 ) 2,434,897 13.8 % (13)

P MI C, D 15,126,433 ( 453,793 ) 14,672,640 13.0 % (14)

CRE Private Co.

2 unchanged sentences

CRE Private Co.

B FL Multifamily 20,916,510 ( 267,794 ) 20,648,716 13.0 % (16)

B FL Residential 21,630,051 ( 246,652 ) 21,383,399 13.0 % (16)

5/12/2027 I/O

7 unchanged sentences

P/I loans may include interest-only periods for a portion of the loan term.

(5) Base interest rate of 9.0 % plus U.S.

prime rate (U.S.

prime rate floor of 4.0 %) and PIK interest rate of 2.0 %.

(5) Base interest rate of 12.5 %.

3 unchanged sentences

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

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.

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

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

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

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

prime rate (U.S.

prime rate floor of 5.5 %).

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

6 unchanged sentences

(14) Base interest rate of 13.0 %.

(15) Base weighted average interest rate of 14.7 % plus SOFR (SOFR floor of 4.0 %).

Cash interest rate for CRE Private Company A represents a blended rate of differing cash interest rates applicable to each of the senior and subordinate loans to which the Company is a lender under the credit agreements.

The subordinate loan component bears interest at a base interest rate of 15.31 % plus SOFR (SOFR floor of 4.0 %) and the senior loan component bears interest at a base interest rate of 3.48 % plus SOFR (SOFR floor of 4.0 %).

(16) Base interest rate of 13.0 %.

LOAN RECEIVABLE HELD AT CARRYING VALUE

As of March 31, 2024 and December 31, 2023, 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 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:

As of June 30, 2024 and December 31, 2023, 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 as of June 30, 2024 and December 31, 2023, respectively.

The following table presents changes in loans receivable as of and for the six months ended June 30, 2024:

Principal Original Issue

2 unchanged sentences

Loan repayments — — —

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

As of March 31, 2024 , the Company had one loan receivable held at carrying value on nonaccrual status with an outstanding principal amount of approximately $ 2.0 million and amortized cost of approximately $ 2.0 million.

Total loan receivable held at carrying value at June 30, 2024 $ 2,041,744 $ ( 1,686 ) $ 2,040,058

As of June 30, 2024 , the Company had one loan receivable held at carrying value on nonaccrual status with an outstanding principal amount of approximately $ 2.0 million and amortized cost of approximately $ 2.0 million.

CURRENT EXPECTED CREDIT LOSSES

The Company estimates its current expected credit losses (“CECL”) on both the outstanding balances and unfunded commitments on loans held for investment and requires consideration of a broader range of historical experience adjusted for current conditions and reasonable and supportable forecast information to inform the “CECL Reserve” using a model that considers multiple datapoints and methodologies that may include discounted cash flows (“DCF”) and other inputs which may include the risk rating of the loan, how recently the loan was originated compared to the measurement date and expected prepayment, if applicable.

Calculation of the CECL Reserve requires loan specific data, which may include fixed charge coverage ratio, loan-to-value, property type and geographic location.

Calculation of the CECL Reserve requires loan specific data, which may include the fixed charge coverage ratio, loan-to-value ratio, property type and geographic location.

Estimating the CECL Reserve also requires significant judgment with respect to various factors, including but not limited to the expected timing of loan repayments and the Company’s current and future view of the macroeconomic environment.

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For loans where the Company has deemed the borrower/sponsor to be experiencing financial difficulty, the Company may elect to apply a practical expedient in which the fair value of the underlying collateral is compared to the amortized cost of the loan in determining a specific CECL allowance.

As of March 31, 2024 and December 31, 2023, the Company’s CECL Reserve for its loans held at carrying value and loan receivable held at carrying value is approximately $ 31.4 million and $ 26.4 million, respectively, or 8.71 % and 8.71 %, respectively, of the Company’s total loans held at carrying value and loan receivable held at carrying value of approximately $ 359.9 million and $ 303.3 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 $ 31.3 million and $ 26.3 million, respectively, and a liability for unfunded commitments of approximately $ 9.1 thousand and $ 115.5 thousand, respectively.

As of June 30, 2024 and December 31, 2023, the Company’s CECL Reserve for its loans held at carrying value and loan receivable held at carrying value is approximately $ 25.2 million and $ 26.4 million, respectively, or 9.13 % and 8.71 %, respectively, of the Company’s total loans held at carrying value and loan receivable held at carrying value of approximately $ 275.6 million and $ 303.3 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 $ 25.0 million and $ 26.3 million, respectively, and a liability for unfunded commitments of approximately $ 0.2 million and $ 0.1 million, respectively.

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

Management considered the likelihood that funding will occur, and if funded, the expected credit loss on the funded portion.

Activity related to the CECL Reserve for outstanding balances and unfunded commitments on the Company’s loans held at carrying value and loan receivable held at carrying value as of and for the three months ended March 31, 2024 was as follows:

Outstanding (1)

Balance at March 31, 2024 $ 31,347,462 $ 9,135 $ 31,356,597

(Decrease) increase in provision for current expected credit losses ( 6,338,438 ) 148,198 ( 6,190,240 )

Write-offs — — —

Recoveries — — —

Balance at June 30, 2024 $ 25,009,024 $ 157,333 $ 25,166,357

Outstanding (1)

Balance at December 31, 2023 $ 26,309,450 $ 115,473 $ 26,424,923

Provision for current expected credit losses 5,038,012 ( 106,338 ) 4,931,674

(Decrease) increase in provision for current expected credit losses ( 1,300,426 ) 41,860 ( 1,258,566 )

Write-offs — — —

Recoveries — — —

Balance at March 31, 2024 $ 31,347,462 $ 9,135 $ 31,356,597

(1) As of March 31, 2024 and December 31, 2023, the CECL Reserve related to outstanding balances on loans held at carrying value and loan receivable held at carrying value is recorded within current expected credit loss reserve in the Company’s consolidated balance sheets.

(2) As of March 31, 2024 and December 31, 2023, the CECL Reserve related to unfunded commitments on loans held at carrying value is recorded within current expected credit loss reserve as a liability in the Company’s consolidated balance sheets.

Balance at June 30, 2024 $ 25,009,024 $ 157,333 $ 25,166,357

(1) As of June 30, 2024 and December 31, 2023, 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, 2024 and December 31, 2023, 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.

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

As of March 31, 2024, the carrying value, excluding the CECL Reserve, of the Company’s loans held at carrying value and loan receivable held at carrying value within each risk rating by year of origination is as follows:

As of June 30, 2024, 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:

2024 2023 2022 2021 2020 Total

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INTEREST RECEIVABLE

The following table summarizes the interest receivable by the Company as of March 31, 2024 and December 31, 2023:

March 31, 2024 As of

The following table summarizes the interest receivable by the Company as of June 30, 2024 and December 31, 2023:

June 30, 2024 As of

December 31, 2023

4 unchanged sentences

INTEREST RESERVE

At March 31, 2024 and December 31, 2023, the Company had zero loans that included a loan-funded interest reserve.

For the three months ended March 31, 2024 and 2023, approximately zero and $ 3.2 million , respectively, of aggregate interest income was earned and disbursed from the interest reserves.

The following table presents changes in interest reserve as of and for the three months ended March 31, 2024 and 2023:

At June 30, 2024 and December 31, 2023, the Company had no loans that included a loan-funded interest reserve.

For the three and six months ended June 30, 2024, zero of aggregate interest income was earned and disbursed from the interest reserves.

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.

The following table presents changes in interest reserve as of and for the three and six months ended June 30, 2024 and 2023:

Three months ended

June 30, Six months ended

2024 2023 2024 2023

Beginning reserves $ — $ 1,690,334 $ — $ 3,200,944

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Revolving Credit Facility

On April 29, 2022, the Company entered into the Loan and Security Agreement (the “Revolving Credit Agreement”) by and among the Company, 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, the Company obtained a $ 60.0 million senior secured revolving credit facility (the “Revolving Credit Facility”).

The Revolving Credit Facility has a maturity date of April 29, 2025.

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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.

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 March 31, 2024.

As of March 31, 2024 and December 31, 2023, outstanding borrowings under the Revolving Credit Facility was $ 60.0 million and $ 42.0 million, respectively, and zero and $ 18.0 million was available for borrowing as of March 31, 2024 and December 31, 2023, respectively.

As of June 30, 2024 and December 31, 2023, outstanding borrowings under the Revolving Credit Facility were $ 35.0 million and $ 42.0 million, respectively, and $ 25.0 million and $ 18.0 million was available for borrowing as of June 30, 2024 and December 31, 2023, respectively.

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.

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

During the three months ended March 31, 2023 , the Company repurchased $ 10.0 million in principal amount of the Company’s 2027 Senior Notes at 77.4 % of par value, plus accrued interest.

During the six months ended June 30, 2023 , the Company repurchased $ 10.0 million in principal amount of the Company’s 2027 Senior Notes at 77.4 % of par value, plus accrued interest.

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

No repurchases took place during the three months ended March 31, 2024.

As of March 31, 2024 , the Company had $ 90.0 million in principal amount of the 2027 Senior Notes outstanding.

No repurchases took place during the six months ended June 30, 2024.

As of June 30, 2024 , the Company had $ 90.0 million in principal amount of the 2027 Senior Notes outstanding.

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

Scheduled principal payments on the 2027 Senior Notes as of March 31, 2024 are as follows:

Scheduled principal payments on the 2027 Senior Notes as of June 30, 2024 are as follows:

2027 Senior Notes

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Total due senior notes, net $ 88,311,721

The following tables reflect a summary of interest expense incurred during the three months ended March 31, 2024 and 2023:

The following tables reflect a summary of interest expense incurred during the three and six months ended June 30, 2024 and 2023:

Three months ended

March 31, 2024

June 30, 2024

2027 Senior Notes Revolving Credit Facility Total Borrowings

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Three months ended

March 31, 2023

June 30, 2023

2027 Senior Notes Revolving Credit Facility Total Borrowings

3 unchanged sentences

Total interest expense $ 1,459,832 $ 115,943 $ 1,575,775

Six months ended

June 30, 2024

2027 Senior Notes Revolving Credit Facility Total Borrowings

Interest expense $ 2,587,500 $ 82,387 $ 2,669,887

Unused fee expense — — —

Amortization of deferred financing costs 314,664 191,887 506,551

Total interest expense $ 2,902,164 $ 274,274 $ 3,176,438

Six months ended

June 30, 2023

2027 Senior Notes Revolving Credit Facility Total Borrowings

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

Unused fee expense — 74,582 74,582

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

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

COMMITMENTS AND CONTINGENCIES

As of March 31, 2024 and December 31, 2023, the Company had the following commitments to fund various investments:

March 31, 2024 As of

As of June 30, 2024 and December 31, 2023, the Company had the following commitments to fund various investments:

June 30, 2024 As of

December 31, 2023

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

As of March 31, 2024, the Company is not aware of any legal claims that could materially impact its business, financial condition or results of operations.

As of June 30, 2024, 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.

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

During the three months ended March 31, 2024 and 2023 , the Company recorded approximately zero and $ 0.7 million in severance expense within general and administrative expenses within the unaudited interim consolidated statements of operations, respectively.

During the six months ended June 30, 2024 and 2023 , the Company recorded zero and approximately $ 0.7 million in severance expense within general and administrative expenses within the unaudited interim consolidated statements of operations, respectively.

The Company primarily provides loans to companies operating in the cannabis industry which involves significant risks, including the risk of strict enforcement against the Company’s borrowers on the federal illegality of cannabis, the Company’s borrowers’ inability to renew or otherwise maintain their licenses or other requisite authorizations for their cannabis operations, and such loans lack of liquidity, and the Company could lose all or part of any of the Company’s loans.

5 unchanged sentences

Series A Preferred Stock

As of March 31, 2024 and December 31, 2023, the Company has authorized 10,000 preferred shares and issued 125 of the preferred shares designated as 12.0 % Series A Cumulative Non-Voting Preferred Stock, par value $ 0.01 per share (the “Series A Preferred Stock”).

As of June 30, 2024 and December 31, 2023, the Company has authorized 10,000 preferred shares designated as 12.0 % Series A Cumulative Non-Voting Preferred Stock, par value $ 0.01 per share (the “Series A Preferred Stock”).

As of June 30, 2024 and December 31, 2023, there were zero and 125 shares of Series A Preferred Stock issued and outstanding, respectively.

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.

5 unchanged sentences

Shares of the Series A Preferred Stock that are redeemed shall no longer be deemed outstanding shares of the Company and all rights of the holders of such shares will terminate.

During the three months ended March 31, 2024 and year ended December 31, 2023 , the Company did not issue any shares of its common stock, other than awards granted under the Stock Incentive Plan.

On June 30, 2024, the Company redeemed all 125 outstanding shares of its Series A Preferred Stock.

The Series A Preferred Stock was redeemed at a price of $ 1,000 per share, plus all accrued and unpaid dividends thereon to and including the date fixed for redemption.

As the shares were redeemed on June 30, 2024, there were no accrued and unpaid dividends.

During the three and six months ended June 30, 2024 and year ended December 31, 2023 , the Company did not issue any shares of its common stock, other than restricted stock awards granted under the Stock Incentive Plan.

Shelf Registration Statement

3 unchanged sentences

At-the-Market Offering Program (“ATM Program”)

On April 5, 2022, the Company entered into an Open Market Sales Agreement (the “Sales Agreement”) with Jefferies LLC and JMP Securities LLC, as Sales Agents, under which the Company may, from time to time, offer and sell shares of common stock, having an aggregate offering price of up to $ 75.0 million.

On April 5, 2022, the Company entered into an Open Market Sales Agreement (the “Sales Agreement”) with Jefferies LLC and Citizens JMP Securities LLC, as Sales Agents, under which the Company may, from time to time, offer and sell shares of common stock, having an aggregate offering price of up to $ 75.0 million.

Under the terms of the Sales Agreement, the Company has agreed to pay the Sales Agents a commission of up to 3.0 % of the gross proceeds from each sale of common stock sold through the Sales Agents.

Sales of common stock, if any, may be made in transactions that are deemed to be “at-the-market” offerings, as defined in Rule 415(a)(4) promulgated under the Securities Act of 1933, as amended (the “Securities Act”).

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

As of March 31, 2024 , the shares of common stock sold under the ATM Program are the only offerings that have been initiated under the Shelf Registration Statement.

During the three and six months ended June 30, 2024 and year ended December 31, 2023 , the Company did not sell any shares of the Company’s common stock under the Sales Agreement.

As of June 30, 2024 , 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

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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 no t repurchase any shares of its common stock pursuant to the Repurchase Program.

During the three and six months ended June 30, 2024 and year ended December 31, 2023 , the Company did no t repurchase any shares of its common stock pursuant to the Repurchase Program.

Stock Incentive Plan

5 unchanged sentences

Persons eligible to receive awards under the 2020 Plan include officers or employees of the Company or any of its subsidiaries, directors of the Company, employees of the Manager and certain directors and consultants and other service providers to the Company or any of its subsidiaries.

During the first quarter of 2024, the Company’s Board of Directors approved grants of restricted stock to the Company’s directors and officers, as well as employees of the Manager.

In January 2024, the Company granted an aggregate of 209,397 shares of restricted stock to certain of our directors, officers and other eligible persons.

In January 2024, the Company’s Board of Directors approved grants of restricted stock to the Company’s directors and officers, as well as employees of the Manager, and the Company granted an aggregate of 209,397 shares of restricted stock to certain of our directors, officers and other eligible persons.

The restricted stock granted in January 2024 under the 2020 Plan contain vesting periods that vary from immediately vested to vesting over a three-year period, with approximately 33 % vesting on each of the first, second and third anniversaries of the vesting commencement date.

As of March 31, 2024, there were 2,536,289 shares of common stock granted under the 2020 Plan, underlying 2,169,852 options and 366,437 shares of restricted stock.

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

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

As of June 30, 2024, there were 2,536,289 shares of common stock granted under the 2020 Plan, underlying 2,169,852 options and 366,437 shares of restricted stock.

In January 2023, the Company’s Board of Directors approved grants of restricted stock to the Company’s directors and officers, as well as certain employees of the Manager, and the Company granted an aggregate of 125,234 shares of restricted stock to certain of our directors, officers and other eligible persons.

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

As of March 31, 2024, 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 3,202,442 shares, which is an increase of 409,154 shares compared to December 31, 2023.

The Share Limit increased pursuant to the Minimum Annual Increase provision in the 2020 Plan.

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

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

As of June 30, 2024, 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 3,202,442 shares, which is consistent with the Share Limit as of March 31, 2024.

Shares that are subject to or underlie awards that expire or for any reason are cancelled, terminated, forfeited, fail to vest, or for any other reason are not paid or delivered under the 2020 Plan will not be counted against the Share Limit and will again be available for subsequent awards under the 2020 Plan.

The following table summarizes the (i) non-vested options granted, (ii) vested options granted, (iii) exercised and (iv) forfeited options granted for the Company’s directors and officers and employees of the Manager as of March 31, 2024 and December 31, 2023:

March 31, 2024 As of

In connection with the Spin-Off, certain of the outstanding stock options of the Company, as well as the strike price for the stock options, will be adjusted.

All adjustments are made with the intent to preserve the intrinsic value of each award immediately before and after the Spin-Off.

June 30, 2024 As of

December 31, 2023

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Restricted stock grant expense is based on the Company’s stock price at the time of the grant and amortized over the vesting period.

The stock-based compensation expense for the Company was approximately $ 0.5 million and $ 0.3 million for the three months ended March 31, 2024 and 2023 , respectively.

The stock-based compensation expense for the Company was approximately $ 0.4 million and $ 0.9 million for the three and six months ended June 30, 2024, respectively, and approximately $ 0.1 million and $ 0.4 million for the three and six months ended June 30, 2023, 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 as of and during the three months ended March 31, 2024:

The following tables summarize stock option activity as of and during the six months ended June 30, 2024:

Number of options Weighted-average

3 unchanged sentences

Forfeited — —

Outstanding as of March 31, 2024 2,168,952 $ 17.74 4.02 years $ —

Exercisable as of March 31, 2024 2,123,596 $ 17.72 4.01 years $ —

T he Company did not grant any options d uring the three months ended March 31, 2024 and 2023 .

No options were exercised during the three months ended March 31, 2024 and 2023 .

The following table summarizes the non-vested restricted stock (i) granted, (ii) vested and (iii) forfeited for the Company’s directors and officers and employees of the Manager as of March 31, 2024 and December 31, 2023:

March 31, 2024 As of

Outstanding as of June 30, 2024 2,168,952 $ 17.74 3.77 years $ —

Exercisable as of June 30, 2024 2,123,596 $ 17.72 3.76 years $ —

T he Company did not grant any options d uring the six months ended June 30, 2024 and 2023 .

No options were exercised during the six months ended June 30, 2024 and 2023 .

June 30, 2024 As of

December 31, 2023

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 as of and during the three months ended March 31, 2024:

The following tables summarize the restricted stock activity as of and during the six months ended June 30, 2024:

Number of shares of restricted stock Weighted-average

4 unchanged sentences

Forfeited — —

Balance as of March 31, 2024 267,230 $ 13.00

The total fair value of shares vested during the three months ended March 31, 2024 was approximately $ 0.7 million.

During the three months ended March 31, 2023, 3,211 shares of restricted stock vested with a weighted-average grant date fair value of $ 15.57 .

The total fair value of shares vested during the three months ended March 31, 2023 was approximately $ 50.0 thousand.

As of March 31, 2024 , there was approximately $ 3.1 million of total unrecognized compensation cost related to non-vested restricted stock and stock option awards.

Balance as of June 30, 2024 266,071 $ 13.00

The total fair value of shares vested during the three months ended June 30, 2024 was approximately $ 14.5 thousand.

There were no shares of restricted stock granted during the three months ended June 30, 2024 .

During the three months ended June 30, 2023, 1,159 shares of restricted stock were granted with a weighted-average grant date fair value of $ 12.94 .

During the three months ended June 30, 2023, 16,347 shares of restricted stock vested with a weighted-average grant date fair value of $ 20.39 .

The total fair value of shares vested during the three months ended June 30, 2023 was approximately $ 194.9 thousand.

The total fair value of shares vested during the six months ended June 30, 2024 was approximately $ 738.6 thousand.

During the six months ended June 30, 2023, 126,393 shares of restricted stock were granted with a weighted-average grant date fair value of $ 15.55 .

During the six months ended June 30, 2023, 19,558 shares of restricted stock vested with a weighted-average grant date fair value of $ 19.60 .

The total fair value of shares vested during the six months ended June 30, 2023 was approximately $ 244.9 thousand.

As of June 30, 2024 , there was approximately $ 2.8 million of total unrecognized compensation cost related to non-vested restricted stock and stock option awards.

That cost is expected to be recognized over a weighted-average period of 2.14 years.

EARNINGS PER SHARE

The following information sets forth the computations of basic and diluted weighted average (loss) earnings per common share for the three months ended March 31, 2024 and 2023:

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, 2024 and 2023:

Three months ended

Net (loss) income attributable to common shareholders $ ( 54,116 ) $ 10,025,274

June 30, Six months ended

2024 2023 2024 2023

Net income attributable to common shareholders $ 16,446,121 $ 12,135,333 $ 16,392,005 $ 22,160,607

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

Dividends paid on unvested restricted stock ( 128,270 ) ( 103,805 ) ( 185,396 ) ( 139,277 )

Net (loss) income attributable to common shareholders

Net income attributable to common shareholders

16,310,351 12,024,028 16,199,109 22,013,830

2 unchanged sentences

Diluted weighted average shares of common stock outstanding 20,437,799 20,322,857 20,418,897 20,381,724

Basic weighted average (loss) earnings per common share $ ( 0.01 ) $ 0.49

Diluted weighted average (loss) earnings per common share $ ( 0.01 ) $ 0.49

Basic weighted average earnings per common share $ 0.80 $ 0.59 $ 0.79 $ 1.08

Diluted weighted average earnings per common share $ 0.80 $ 0.59 $ 0.79 $ 1.08

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

Diluted weighted average (loss) earnings per common share excluded 2,240,089 and 2,280,372 weighted average unvested restricted stock and stock options due to anti-dilutive effect for the three months ended March 31, 2024 and 2023, respectively .

Diluted weighted average earnings per common share excluded 2,206,907 and 2,206,907 weighted average unvested restricted stock and stock options due to anti-dilutive effect for the three and six months ended June 30, 2024, respectively, and 2,417,817 and 2,369,907 for the three and six months ended June 30, 2023, 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.

The income tax provision for the Company was approximately $ 0.2 million and $ 0.2 million for the three months ended March 31, 2024 and 2023, respectively.

The income tax expense for the three months ended March 31, 2024 and 2023 primarily related to activities of the Company’s taxable REIT subsidiary.

The income tax provision for the Company and TRS1 consisted of the following for the three months ended March 31, 2024 and 2023:

The income tax provision for the Company was approximately $ 0.3 million and $ 0.4 million for the three and six months ended June 30, 2024, respectively.

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 expense for the three and six months ended June 30, 2024 and 2023 primarily related to activities of the Company’s taxable REIT subsidiary.

The income tax provision for the Company and TRS1 consisted of the following for the three and six months ended June 30, 2024 and 2023:

Three months ended

June 30, Six months ended

2024 2023 2024 2023

$ 285,975 $ 167,637 $ 444,335 $ 342,469

Deferred — — — —

Excise tax — — — 270

Total income tax expense, including excise tax $ 285,975 $ 167,637 $ 444,335 $ 342,739

(1) During the three months ended March 31, 2024, the Company incurred federal taxes of approximately $ 105.3 thousand and state and local taxes of approximately $ 53.1 thousand.

During the three months ended March 31, 2023, the Company incurred federal taxes of approximately $ 131.5 thousand and state and local taxes of approximately $ 43.3 thousand.

For the three months ended March 31, 2024 and 2023, the Company incurred no expense for United States federal excise tax.

(1) During the three and six months ended June 30, 2024, the Company incurred federal taxes of approximately $ 183.0 thousand and $ 288.3 thousand and state and local taxes of approximately $ 103.0 thousand and $ 156.0 thousand, respectively.

During the three and six months ended June 30, 2023, the Company incurred federal taxes of approximately $ 131.5 thousand and $ 263.0 thousand and state and local taxes of approximately $ 36.1 thousand and $ 79.5 thousand, respectively.

For the three and six months ended June 30, 2024 and 2023, 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.

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As loans held by the Company are substantially illiquid with no active loan market, the Company depends on primary market data, including newly funded loans, as well as secondary market data with respect to high-yield debt instruments and syndicated loans, as inputs in determining the appropriate market yield, as applicable.

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

Fair Value Measurement as of March 31, 2024

The following tables present fair value measurements of loans held at fair value as of June 30, 2024 and December 31, 2023:

Fair Value Measurement as of June 30, 2024

Total Level 1 Level 2 Level 3

5 unchanged sentences

Total $ 61,720,705 $ — $ — $ 61,720,705

The following table presents changes in loans that use Level 3 inputs as of and for the three months ended March 31, 2024:

Three months ended

March 31, 2024

The following table presents changes in loans that use Level 3 inputs as of and for the six months ended June 30, 2024:

Six months ended

June 30, 2024

Total loans using Level 3 inputs at December 31, 2023 $ 61,720,705

1 unchanged sentence

Loan repayments ( 4,003,945 )

Sale of loans ( 19,284,846 )

Accretion of original issue discount 128,384

PIK interest 1,134,786

Total loans using Level 3 inputs at March 31, 2024 $ 54,977,282

The change in unrealized losses included in the unaudited interim consolidated statements of operations attributable to loans held at fair value, categorized as Level 3, held as of March 31, 2024 is $( 3,613,693 ).

The following tables summarize the significant unobservable inputs the Company used to value the loans categorized within Level 3 as of March 31, 2024 and December 31, 2023.

Total loans using Level 3 inputs at June 30, 2024 $ 34,661,390

The following tables summarize the significant unobservable inputs the Company used to value the loans categorized within Level 3 as of June 30, 2024 and December 31, 2023.

The tables are not intended to be all-inclusive, but instead capture the significant unobservable inputs relevant to the Company’s determination of fair values.

As of March 31, 2024

As of June 30, 2024

Unobservable Input

Fair Value Primary Valuation Techniques Input Estimated Range Weighted Average

Senior term loans $ 39,435,412 Recovery analysis Recovery rate 75.50 % - 83.10 %

Senior term loans 15,541,870 Market approach Revenue multiple 0.75 x - 1.00 x

Total investments $ 54,977,282

Senior term loan $ 34,661,390 Recovery analysis Recovery rate 66.50 % - 72.90 %

Total investment $ 34,661,390

As of December 31, 2023

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GAAP requires disclosure of fair value information about financial instruments, whether or not recognized at fair value in the balance sheets, 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 sheets as of March 31, 2024 :

As of March 31, 2024

As of June 30, 2024

Carrying Value Fair Value

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The Company’s loans held for investment are measured using unobservable inputs, or Level 3 inputs.

The fair value of the Company’s 2027 Senior Notes is estimated by discounting expected cash flows using readily available quoted prices for similar debt, or Level 2 inputs.

The fair value of the Company’s 2027 Senior Notes is estimated using observable inputs based on the last available bid price in the market at the end of the period, or Level 2 inputs.

RELATED PARTY TRANSACTIONS

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

The Incentive Compensation for the three months ended March 31, 2024 and 2023 , was approximately $ 2.5 million and $ 2.8 million, respectively.

The Incentive Compensation for the three and six months ended June 30, 2024 was approximately $ 2.9 million and $ 5.3 million, respectively.

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

The 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 in an amount equal to the proportional amount of time employees of the Manager spent providing services to the Company, as reasonably stipulated by time sheets.

The following table summarizes the related party costs incurred by the Company for the three months ended March 31, 2024 and 2023 :

The following table summarizes the related party costs incurred by the Company for the three and six months ended June 30, 2024 and 2023:

Three months ended

June 30, Six months ended

2024 2023 2024 2023

Affiliate Costs

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Total $ 4,734,972 $ 4,210,695 $ 8,980,053 $ 9,000,941

Amounts payable to the Manager as of March 31, 2024 and December 31, 2023 were approximately $ 4.4 million and $ 5.0 million, respectively.

Amounts payable to the Company’s Manager as of June 30, 2024 and December 31, 2023 were approximately $ 4.9 million and $ 5.0 million, respectively.

The Manager is a wholly-owned subsidiary of Castleground Holdings LLC (f/k/a Advanced Flower Capital Management, LLC) (the “Parent Manager”).

Leonard Tannenbaum, Executive Chairman of the Board and Chief Investment Officer, owns 75.0 % of the outstanding equity of the Parent Manager.

Similarly, Robyn Tannenbaum, President, Bernard Berman, a member of the Company’s Investment Committee, and Daniel Neville, Chief Executive Officer, currently own 10.0 % , 3.0 % and 1.6 % , respectively, of the Parent Manager.

Similarly, Robyn Tannenbaum, President, Bernard Berman, a member of the Company’s Investment Committee, and Daniel Neville, Chief Executive Officer, currently own approximately 10.0 % , 3.0 % and 1.6 % , respectively, of the Parent Manager.

Due to Affiliate

Amounts due to an affiliate of the Company as of March 31, 2024 and December 31, 2023 were approximately $ 19.8 thousand and $ 16.4 thousand, respectively.

Amounts due to an affiliate of the Company as of June 30, 2024 and December 31, 2023 were approximately $ 24.5 thousand and $ 16.4 thousand, respectively.

Investments in Loans

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Additionally, our Manager or its affiliates, including AFC Agent LLC (“AFC Agent”), may from time to time serve as administrative agent to the lenders under our co-investments.

As of March 31, 2024, there were five co-invested loans held by the Company and affiliates of the Company.

As of June 30, 2024, there were four co-invested loans held by the Company and affiliates of the Company.

DIVIDENDS AND DISTRIBUTIONS

The following table summarizes the Company’s dividends declared during the three months ended March 31, 2024 and 2023:

The following table summarizes the Company’s dividends declared during the six months ended June 30, 2024 and 2023:

Record Date Payment

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Regular cash dividend 3/31/2023 4/14/2023 $ 0.56 $ 11,473,971

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

2023 Period Subtotal

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Regular cash dividend 3/31/2024 4/15/2024 $ 0.48 $ 9,920,205

Regular cash dividend 6/24/2024 7/15/2024 0.48 9,920,205

Special cash dividend 7/8/2024 7/15/2024 0.15 3,100,064

2024 Period Subtotal

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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.

In April 2024, the Company 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.

In July 2024, the Company received a prepayment on its investment in Subsidiary of Public Company M.

The Company received approximately $ 10.0 million in principal prepayments and $ 0.2 million prepayment premium.

Following the prepayment, the outstanding principal balance on the Company’s investment in Subsidiary of Public Company M is approximately $ 2.8 million.

In July 2024, pre-Spin-Off, SUNS and an affiliate of SUNS entered into a senior secured credit facility with CRE Private Company C for a total aggregate commitment amount of approximately $ 35.2 million for the refinance of an active adult multi-family rental development in southwest Austin, Texas.

SUNS committed a total of approximately $ 14.1 million, and an affiliate of SUNS committed the remaining approximately $ 21.1 million.

The senior loan commitments were issued by SUNS and an affiliate at a discount of 1.0 %.

At closing, the Company funded approximately $ 11.4 million and an affiliate of SUNS funded approximately $ 17.0 million.

The loan bears interest at a rate of SOFR plus 4.25 %, with a rate index floor of 4.75 %.

The loan with CRE Private Company C has a maturity date of three years , which may be extended, at the borrower’s option, by two separate twelve-month extensions subject to the satisfaction of certain conditions on each extension in exchange for an extension fee of 0.50 % of the total loan amount.

The loan with CRE Private Company C is secured by a deed of trust on the property and any deposit and reserve accounts established by the terms of the credit facility.

The proceeds of the loans will be used to, among other things, fund the completion of construction and other reserves, refinance existing debt and pay transaction costs.

Following completion of the Spin-Off, the loan with CRE Private Company C is part of the Spin-Off CRE portfolio held by SUNS.

On July 9, 2024, SUNS became an independent, publicly-traded company, trading on the Nasdaq Capital Market under the symbol “SUNS”.

The Spin-Off was effected by the distribution of all of the outstanding shares of SUNS common stock to the Company’s shareholders of record as of the close of business on the Record Date.

The Company’s shareholders of record as of the Record Date received one share of SUNS common stock for every three shares of the Company’s common stock held as of the Record Date.

The Company retained no ownership interest in SUNS following the Spin-Off.

Prior to the Spin-Off, SUNS held approximately $ 115 million comprised of the SUNS’ CRE loan portfolio and cash.

In connection with the Spin-Off, the Company entered into several agreements with SUNS that govern the relationship between the Company and SUNS following the spin-off, including the Separation and Distribution Agreement and the Tax Matters Agreement.

CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

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• market trends in our industry, interest rates, real estate values, the securities markets or the general economy;

• our ability to complete the Spin-Off (as defined below) in a timely manner or at all;

• we may not achieve some or all of the expected benefits of the Spin-Off (as defined below).

• we may not achieve some or all of the expected benefits of the Spin-Off.

Please see the section entitled “ Risk Factors ” located in our Annual Report on Form 10-K, filed with the SEC on March 7, 2024, for a further discussion of these and other risks and uncertainties which could affect our future results.

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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