What changed in this filing

/stocks — the workspaceLOADING

Item 2. Management’s Discussion and Analysis

2024-08-07 compared with 2024-05-09 · 205 added, 175 removed, 290 unchanged (57% of the section changed)

3 unchanged sentences

AFC Gamma, Inc.

is an institutional lender to the commercial real estate sector that was founded in July 2020 by a veteran team of investment professionals.

We primarily originate, structure, underwrite, invest in and manage senior secured loans and other types of commercial real estate loans and debt securities, with a specialization in loans to cannabis industry operators in states that have legalized medical and/or adult-use cannabis.

We have recently expanded our investment guidelines to deploy capital in attractive lending opportunities secured by commercial real estate.

Our expanded investment guidelines now include (i) first and second lien loans secured by mortgages to commercial real estate owners, operators and related businesses that are not related to the cannabis industry, (ii) the ownership of non-cannabis related real property assets, and (iii) mortgage-backed securities, in addition to our prior sole focus on first lien loans secured by mortgages to cannabis operators in states that have legalized medical and/or adult use cannabis.

We expect the underwriting and investment process for these investments under our expanded guidelines to be substantially similar to the process we deploy for our loans to cannabis operators.

is an institutional lender that was founded in July 2020 by a veteran team of investment professionals.

We primarily originate, structure, underwrite, invest in and manage senior secured loans and other types of mortgage loans and debt securities, with a specialization in loans to cannabis industry operators in states that have legalized medical and/or adult-use cannabis.

Prior to the Spin-Off our investment guidelines were to deploy capital in attractive lending opportunities secured by commercial real estate, including (i) first and second lien loans secured by mortgages to commercial real estate owners, operators and related businesses that are not related to the cannabis industry, (ii) the ownership of non-cannabis related real property assets, and (iii) mortgage-backed securities, in addition to our prior sole focus on first lien loans secured by mortgages to cannabis operators in states that have legalized medical and/or adult use cannabis.

Following the Spin-Off, our investment guidelines primarily relate to deploying capital in attractive lending opportunities to state law-compliant cannabis operated, typically secured by real estate, cash flows and license value.

Our objective is to provide attractive risk-adjusted returns over time through cash distributions and capital appreciation primarily by providing loans to real estate developers and state law compliant cannabis companies.

1 unchanged sentence

Some of our cannabis-related borrowers have their equity securities listed for public trading on the Canadian Securities Exchange (“CSE”) in Canada and/or over-the-counter (“OTC”) in the United States.

We have expanded our investment guidelines to invest in attractive commercial real estate financing opportunities emerging from the current interest rate environment.

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.

We previously expanded our investment guidelines to invest in attractive commercial real estate financing opportunities emerging from the current interest rate environment.

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 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 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.

Separately, as states continue to legalize cannabis for medical and adult-use, an increasing number of companies operating in the cannabis industry need financing.

Due to the current capital constrained cannabis market, which does not typically have access to traditional bank financing, we believe we continue to be well positioned to act as a prudent financing source to cannabis industry operators given our stringent underwriting criteria, size and scale of operations and institutional infrastructure.

We are a Maryland corporation and externally managed by AFC Management, LLC, a Delaware limited liability company (our “Manager”), pursuant to the terms of the Amended and Restated Management Agreement, dated January 14, 2021, by and between AFC Gamma, Inc.

and AFC Management, LLC (as amended from time to time, the “Management Agreement”).

We commenced operations on July 31, 2020 and completed our initial public offering (“IPO”) in March 2021.

5 unchanged sentences

TRS1 began operating in July 2021.

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

Our wholly-owned subsidiary prior to the Spin-Off, 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.

6 unchanged sentences

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.

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.

On February 22, 2024, we announced a plan to separate into two independent, publicly traded companies - one focused on providing institutional loans to state law compliant cannabis operators in the U.S., the other an institutional commercial real estate lender focused on the Southern United States.

On July 9, 2024, we completed the separation of our CRE portfolio through the Spin-Off.

The Spin-Off was effected by the transfer of our CRE portfolio, from the Company to SUNS and the distribution of all of the outstanding shares of SUNS common stock to our shareholders of record as of the close of business on the Record Date.

On the Distribution Date, our shareholders of record as of the Record Date received one share of SUNS common stock for every three shares of AFCG common stock held as of the Record Date.

Shareholders received cash in lieu of fractional shares of SUNS common stock.

We 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 our consolidated financial statements as discontinued operations.

Prior to the Spin-Off, we contributed approximately $115 million to SUNS in connection with the Spin-Off, comprised of the SUNS’ loan portfolio and cash.

In connection with the Spin-Off, we entered into several agreements with SUNS that govern the relationship between AFCG 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.

Pursuant to the amendment to our Management Agreement entered into in February 2024, following 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, following the completion of the Spin-Off, the investment guidelines were 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.

Effective as of the completion of the Spin-Off, Jodi Hanson Bond and James Fagan resigned from the Company’s Board of Directors and joined the Board of Directors of SUNS.

Additionally, Alexander Frank was appointed as a director of SUNS and will remain a director of AFCG.

In addition, effective July 1, 2024, Leonard Tannenbaum was appointed Executive Chairman of SUNS (and will remain Executive Chairman and Chief Investment Officer of the Company), Brandon Hetzel was appointed Chief Financial Officer and Treasurer of SUNS (and will remain the Chief Financial Officer of the Company), Robyn Tannenbaum was appointed President of SUNS (and will remain the President of the Company).

During the three and six months ended June 30, 2024, we incurred approximately $0.6 million and $1.1 million in expenses related to spin-off costs, which are recorded within professional fees in the unaudited interim consolidated statements of operations.

Developments During the Second Quarter June 30, 2024:

Updates to Our Loan Portfolio During the Second Quarter June 30, 2024

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

In May 2024, the Company and an affiliate of SUNS entered into an amendment to the existing secured mezzanine loan with CRE Private Company A and purchased approximately $2.5 million of the senior loan, of which approximately $1.3 million has been funded by us and another $1.3 million has been funded by an affiliate of SUNS.

The senior loan bears interest at an annual rate of SOFR plus a 3.48% spread, subject to a SOFR floor of 4.00%, and matures on November 30, 2024.

The amendment to the secured mezzanine loan, among other things, (1) extended the maturity date to November 30, 2024 and (2) replenished the interest reserves held by the administrative agent on the loan in an amount of approximately $9.6 million, for the payment of interest and other costs and expenses.

In May 2024, we entered into the first amendment to the credit agreement with Private Company N - Real Estate, which increased the commitment size approximately $0.7 million and is fully funded under the same terms of the existing credit agreement.

In May 2024, Private Company C repaid its loan in full.

The loan had an original maturity date of December 1, 2025 and the outstanding principal of Private Company C on the date of repayment was approximately $3.5 million.

We received exit fees of approximately $1.7 million.

In May 2024, we entered into a $7.5 million senior secured credit facility with Private Company O.

The loan bears interest at SOFR plus an 8.5% spread, subject to a SOFR floor of 5.0%, and matures June 1, 2028.

At closing, approximately $2.7 million was drawn and the remaining is available to be drawn one year from closing.

The use of proceeds may be used to pay for transaction costs and expenses, general working capital and other general corporate purposes, to fund acquisitions and to fund capital expenditures in accordance with the budget.

The loan is secured by substantially all assets of Private Company O.

As part of the equity requirements under the forbearance agreement with Private Company K, we received a cash payment of approximately $1.5 million in June 2024, which was applied to the outstanding interest and principal under the credit agreement with Private Company K.

In June 2024, we sold our loan with Private Company B at par plus accrued interest.

The outstanding principal of the Private Company B credit facility on the date of the sale was approximately $19.3 million.

In previous quarters, we noted that the Private Company B credit facility was in receivership and matured in September 2023.

In addition to the repayment of the outstanding principal amount of $19.3 million, we also received an exit fee of approximately $1.0 million.

Concurrently with the sale of the loan to Private Company B, we entered into an approximately $15.1 million senior secured credit facility with Private Company P.

The proceeds of the loan will be used to acquire Private Company B’s assets out of receivership.

The loan bears interest at a fixed rate of 13.0%.

The credit agreement has a maturity date of three years, provided that in the event Private Company P has not purchased the assets of Private Company B out of receivership within one year from closing, subject to a 120 day extension on the terms therein, our loan to Private Company P becomes due and payable.

The loan is secured by substantially all assets of Private Company P (and will include the assets of Private Company B when acquired).

In June 2024, we sold the Subsidiary of Public Company H credit facility at par plus accrued interest to a third-party.

The outstanding principal on the date of the sale was $84.0 million.

During the first quarter of fiscal year 2024, we noted that the borrower failed to make its April interest payment.

In addition to the repayment of the outstanding principal amount of $84.0 million, we also received and recognized past due cash interest of approximately $2.3 million and default interest of approximately $0.6 million during the three months ended June 30, 2024 .

During the three months ended June 30, 2024, we incurred approximately $0.6 million in expenses related to spin-off costs, which are recorded within professional fees in the unaudited interim consolidated statements of operations.

In connection with the Spin-Off, we declared a one-time dividend of $0.15 per share of AFCG Common Stock on June 27, 2024, payable on July 15, 2024 to shareholders of record as of July 8, 2024.

The aggregate amount of the one-time dividend payment was approximately $3.1 million .

At-the-Market Offering Program

1 unchanged sentence

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

During the three and six months ended June 30, 2024, we did not sell any shares of our common stock under the Sales Agreement.

Share Repurchase Program

4 unchanged sentences

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.

During the three and six months ended June 30, 2024, we did not repurchase any shares of our common stock pursuant to the Repurchase Program.

Dividends Declared Per Share

For the three months ended March 31, 2024 and 2023, we paid the following cash dividends:

For the six months ended June 30, 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, 2023 June 30, 2023 July 14, 2023 0.48 9.8 million

2023 Period Subtotal

1 unchanged sentence

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

June 13, 2024 June 24, 2024 July 15, 2024 0.48 9.9 million

June 27, 2024 July 8, 2024 July 15, 2024 0.15 3.1 million

2024 Period Subtotal

$ 1.11 $ 22.9 million

In connection with the Separation and Distribution, we declared a one-time dividend of $0.15 per share of AFCG Common Stock, payable on July 15, 2024 to shareholders of record as of July 8, 2024.

The aggregate amount of the one-time dividend payment was approximately $3.1 million .

Recent Developments

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.

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

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

Following the prepayment, the outstanding principal balance on our 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.

We 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, we 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, Sunrise Realty Trust, Inc.

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

The Spin-Off was effected by the transfer of our CRE portfolio, from us to SUNS and the distribution of all of the outstanding shares of SUNS common stock to our shareholders of record as of the close of business on July 8, 2024.

Our shareholders of record as of the Record Date received one share of SUNS common stock for every three shares of our common stock held as of the Record Date.

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

Prior to the Spin-Off, we contributed approximately $115 million to SUNS in connection with the Spin-Off, comprised of the SUNS’ loan portfolio and cash.

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

Key Financial Measures and Indicators

8 unchanged sentences

We define Distributable Earnings as, for a specified period, the net income (loss) computed in accordance with GAAP, excluding (i) stock-based compensation expense, (ii) depreciation and amortization, (iii) any unrealized gains, losses or other non-cash items recorded in net income (loss) for the period, regardless of whether such items are included in other comprehensive income or loss, or in net income (loss);

provided that Distributable Earnings does not exclude, in the case of investments with a deferred interest feature (such as OID, debt instruments with PIK interest and zero coupon securities), accrued income that we have not yet received in cash, (iv) increase (decrease) in provision for current expected credit losses, (v) TRS (income) loss, net of any dividends received from TRS and (vi) one-time events pursuant to changes in GAAP and certain non-cash charges, in each case after discussions between our Manager and our independent directors and after approval by a majority of such independent directors.

provided that Distributable Earnings does not exclude, in the case of investments with a deferred interest feature (such as OID, debt instruments with PIK interest and zero coupon securities), accrued income that we have not yet received in cash, (iv) (decrease) increase in provision for current expected credit losses, (v) TRS (income) loss, net of any dividends received from TRS and (vi) one-time events pursuant to changes in GAAP and certain non-cash charges, in each case after discussions between our Manager and our independent directors and after approval by a majority of such independent directors.

We believe providing Distributable Earnings on a supplemental basis to our net income as determined in accordance with GAAP is helpful to shareholders in assessing the overall performance of our business.

4 unchanged sentences

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 (loss) income to Distributable Earnings:

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

Three months ended

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

Adjustments to net (loss) income:

June 30, Six months ended

2024 2023 2024 2023

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

Adjustments to net income:

Stock-based compensation expense 369,343 130,769 912,565 411,347

1 unchanged sentence

Unrealized (gains) losses, or other non-cash items 1,420,001 462,918 5,033,694 1,940,609

Increase (decrease) in 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)

TRS (income) loss, net of dividends (624,235) (1,250,400) 306,998 (2,116,604)

5 unchanged sentences

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 March 31, 2024 and December 31, 2023 was approximately $15.03 and $15.64, respectively.

The book value per share of our common stock as of June 30, 2024 and December 31, 2023 was approximately $15.21 and $15.64, respectively.

Factors Impacting our Operating Results

3 unchanged sentences

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.

Results of Operations f or the three and six months ended June 30, 2024 and 2023

Our net income allocable to our common shareholders for the three and six months ended June 30, 2024, was approximately $16.4 million and $16.4 million, or $0.80 and $0.79 per basic weighted average common share, respectively, compared to net income allocable to our common shareholders of approximately $12.1 million and $22.2 million, or $0.59 and $1.08 per basic weighted average common share for the three and six months ended June 30, 2023, respectively.

Interest income increased approximately $2.3 million, or 12.9%, for the three months ended June 30, 2024 as compared to the three months ended June 30, 2023.

This increase was driven by lower interest income of approximately ($4.3) million driven by Subsidiary of Private Company G and Private Company A on nonaccrual status for the second quarter of fiscal year 2024, offset by higher interest income of approximately $0.9 million driven by additional principal deployed as well as an increase in variable interest rates, higher fee income of approximately $3.2 million driven by three loan exits during the second quarter of fiscal year 2024 of Subsidiary of Public Company H, Private Company C and Private Company B, and higher OID income of approximately $2.5 million due to the acceleration of unaccreted OID of current year loan exits during the three months ended June 30, 2024, as compared to the three months ended June 30, 2023, respectively.

Interest income increased approximately $0.1 million, or 0.4%, for the six months ended June 30, 2024 as compared to the six months ended June 30, 2023.

This increase was driven by lower interest income of approximately ($9.5) million driven by Subsidiary of Private Company G and Private Company A placed on nonaccrual status during fiscal year 2024, offset by higher interest income of approximately $2.7 million driven by additional principal deployed as well as an increase in variable interest rates, higher fee income of approximately $3.5 million driven by three loan exits during the second quarter of fiscal year 2024 of Subsidiary of Public Company H, Private Company C and Private Company B, and higher OID income of approximately $3.4 million due to the acceleration of unaccreted OID of current year loan exits during the six months ended June 30, 2024, as compared to the six months ended June 30, 2023, respectively.

Interest expense remained consistent, decreasing approximately $(2.5) thousand, or (0.2)%, for the three months ended June 30, 2024, as compared to the three months ended June 30, 2023.

Interest expense decreased approximately $(0.1) million, or (2.1)%, for the six months ended June 30, 2024, as compared to the six months ended June 30, 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 $(3.8) million, or (4.0)%, for the six months ended June 30, 2024, as compared to the six months ended June 30, 2023.

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

No repurchases took place during the same period in 2024.

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.

Management fees increased approximately $0.2 million, or 22.3%, for the three months ended June 30, 2024, as compared to the three months ended June 30, 2023 driven by lower outside fees earned.

Incentive fees increased approximately $0.5 million, or 19.5%, for the three months ended June 30, 2024, as compared to the three months ended June 30, 2023, driven by higher Core Earnings (as defined in the Management Agreement).

Management fees increased approximately $0.3 million, or 17.2%, for the six months ended June 30, 2024, as compared to the six months ended June 30, 2023 driven by lower outside fees earned.

Incentive fees increased approximately $0.1 million, or 2.3%, for the six months ended June 30, 2024, as compared to the six months ended June 30, 2023, driven by higher Core Earnings (as defined in the Management Agreement).

General and administrative expenses decreased approximately $(22.1) thousand, or (2.1)%, for the three months ended June 30, 2024, as compared to the three months ended June 30, 2023.

General and administrative expenses decreased approximately $(1.0) million, or (31.7)%, for the six months ended June 30, 2024, as compared to the six months ended June 30, 2023.

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

No severance expense was incurred during the six months ended June 30, 2024.

Stock-based compensation increased approximately $0.2 million, or 182.4%, for the three months ended June 30, 2024 as compared to the three months ended June 30, 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.

Stock-based compensation increased approximately $0.5 million, or 121.8%, for the six months ended June 30, 2024 as compared to the six months ended June 30, 2023.

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

Professional fees increased approximately $0.6 million, or 141.7%, for the three months ended June 30, 2024 as compared to the three months ended June 30, 2023.

This was driven by approximately $0.6 million of spin-off costs incurred during the three months ended June 30, 2024.

No spin-off costs were incurred during the three months ended June 30, 2023.

Professional fees increased approximately $1.1 million, or 134.5%, for the six months ended June 30, 2024 as compared to the six months ended June 30, 2023.

This was driven by approximately $1.1 million of spin-off costs incurred during the three months ended June 30, 2024.

No spin-off costs were incurred during the six months ended June 30, 2023.

The net change in realized gains (losses) on investments was zero for the three months ended June 30, 2024 as compared to the three months ended June 30, 2023.

The net change in realized gains (losses) on investments was $(0.1) million for the six months ended June 30, 2024 as compared to the six months ended June 30, 2023, driven by the change in realized losses relating to separate sales of our investment in Subsidiary of Public Company M during such periods.

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 $(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.

The net change in unrealized gain (loss) of approximately $(1.4) million and $(0.5) million for the three months ended June 30, 2024 and 2023, respectively, and $(5.0) million and $(1.9) million for the six months ended June 30, 2024 and 2023, respectively, was mainly driven by the sale of our loan with Private Company B with an unrealized loss that was recovered, as well as 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 for both the three months ended June 30, 2024 and the three months ended June 30, 2023.

Gain (loss) on extinguishment of debt decreased approximately $(2.0) million for the six months ended June 30, 2024 as compared to the six months ended June 30, 2023.

This decrease was driven by the repurchase of $10.0 million of our 2027 Senior Notes during the six months ended June 30, 2023.

No repurchases took place during the same period in 2024.

Provision for Current Expected Credit Losses

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 provision for current expected credit losses decreased approximately $(4.6) million, or 285.4%, for the three months ended June 30, 2024 as compared to the three months ended June 30, 2023 .

The provision for current expected credit losses decreased approximately $(0.4) million, or 39.3%, for the six months ended June 30, 2024 as compared to the six months ended June 30, 2023 .

The balance as of June 30, 2024 was approximatel y $25.2 million , or 9.13%, of our total loans held at carrying value and loan receivable held at carrying value balance of approximately $275.6 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 $25.0 million and (ii) a liability for unfunded commitments of approximately $0.2 million .

The balance as of June 30, 2023 was approximately $13.4 million, or 4.68%, of our total loans held at carrying value and loan receivable held at carrying value balance of approximately $285.8 million and was bifurcated between (i) the current expected credit loss reserve (contra-asset) related to outstanding balances on loans held at carrying value and loan receivable held at carrying value of approximately $13.1 million and (ii) a liability for unfunded commitments of approximately $0.3 million.

The 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.

1 unchanged sentence

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 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.

The change in the provision for current expected credit losses for the three and six months ended June 30, 2024 compared to the three and six months ended June 30, 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

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

The below table summarizes our total loan portfolio as of June 30, 2024, unless otherwise specified.

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

5 unchanged sentences

5/8/2020 5/8/2024 77,785,000 19.8% 49,729,397 13.0% 2.8% Fixed No 25%

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 unchanged sentences

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 3.3% 12,822,000 9.5% N/A Fixed No 19%

2 unchanged sentences

N - Non-Real Estate 3/22/2024 4/1/2028 17,200,000 4.4% 17,200,000 13.3% N/A Floating Yes 16%

O 5/20/2024 6/1/2028 7,500,000 1.9% 2,728,647 13.8% N/A Floating Yes 18%

P 6/18/2024 7/1/2027 15,126,433 3.8% 15,126,433 13.0% N/A Fixed 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%

1/4/2024 11/30/2024 29,474,559 7.5% 16,209,825 20.0% N/A Floating No 24%

CRE Private Co.

11 unchanged sentences

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.

Estimated YTM is calculated using the interest rate as of June 30, 2024 applied through maturity.

Actual results could differ from those estimates and assumptions.

1 unchanged sentence

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.

(4) Effective 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”).

1 unchanged sentence

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.

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.

(6) 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.

1 unchanged sentence

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.

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

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

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

(9) 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.

(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

As of June 30, 2024 and December 31, 2023, our 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, we 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 our loans held at fair value had floating interest rates.

The following tables summarize our 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

8 unchanged sentences

(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 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

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

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 March 31, 2024 and December 31, 2023:

As of March 31, 2024

As of June 30, 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 $311.1 million and $333.1 million, respectively, 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 , we 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 our 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 our 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 our 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

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

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:

As of June 30, 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 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

Total loan receivable held at carrying value at June 30, 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 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.

As of June 30, 2024, our portfolio of assets held outside of TRS1 had a weighted average real estate collateral coverage of approximately 1.1 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.

12 unchanged sentences

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 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.

Our net cash provided by operating activities for the six months ended June 30, 2024 of approximately $16.7 million was less than our dividend payments of $19.7 million made during the same period due to earned OID of $5.3 million and PIK repayments of $5.5 million related to the exits from Private Company I, Private Company C and Private Company B 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 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.

As of June 30, 2024 and December 31, 2023, all of our cash was unrestricted and totaled approximately $170.3 million and $121.6 million, respectively.

As of June 30, 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

2 unchanged sentences

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 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.

During the three and six months ended June 30, 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.

3 unchanged sentences

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.

During the three and six months ended June 30, 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.

4 unchanged sentences

Revolving Credit Facility

On April 29, 2022, we entered into a Revolving Credit Agreement by and among us, the other loan parties from time to time party thereto, the lenders party thereto, and the lead arranger, bookrunner and administrative agent party thereto, pursuant to which, we obtained a $60.0 million senior secured revolving credit facility.

As of 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.

On April 29, 2022, we entered into the Revolving Credit Facility.

As of June 30, 2024, we had $35.0 million of borrowings outstanding and $25.0 million 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.

2 unchanged sentences

Commencing on the six-month anniversary of the closing date, the Revolving Credit Facility has an unused line fee of 0.25% per annum, payable semi-annually in arrears, which is included within interest expense in our unaudited interim 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 March 31, 2024.

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.

1 unchanged sentence

(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 March 31, 2024, we were in compliance in all material respects with all covenants contained in our Revolving Credit Agreement.

To the best of our knowledge, as of June 30, 2024, we were in compliance in all material respects with all covenants contained in our Revolving Credit Agreement.

2027 Senior Notes

29 unchanged sentences

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 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)

As of June 30, 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 six months ended June 30, 2024 and 2023:

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

Adjustments to reconcile net income to net cash provided by (used in) operating activities and changes in operating assets and liabilities 300,092 (12,632,145)

Net cash provided by (used in) operating activities 16,692,097 9,528,462

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)

Net cash provided by (used in) investing activities 59,076,900 23,025,910

Net cash (used in) provided by financing activities (27,097,400) (90,847,811)

Change in cash and cash equivalents $ 48,671,597 $ (58,293,439)

Net Cash Provided by (Used in) Operating Activities

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 operating activities during the six months ended June 30, 2024 was approximately $16.7 million, compared to approximately $9.5 million for the same period in 2023.

The increase of approximately $7.2 million during the six months ended June 30, 2023 to June 30, 2024 was primarily due to an increase in the change in unrealized (gains) losses on loans held at fair value of approximately $3.1 million, decrease in PIK interest of approximately $5.8 million, decrease in gain (loss) on extinguishment of debt of approximately $2.0 million, increase in interest reserve of approximately $3.6 million, increase in accrued management and incentive fees of approximately $1.1 million, partially offset by a decrease in net income of approximately $(5.8) million and increase in OID accretion of approximately $(2.8) million, respectively.

Net Cash Provided by (Used in) Investing Activities

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 used in investing activities during the six months ended June 30, 2024 was approximately $59.1 million, compared to net cash provided by investing activities of approximately $23.0 million for the same period in 2023.

The decrease of net cash used in investing activities of approximately $36.1 million during the six months ended June 30, 2023 to June 30, 2024 was primarily due to an increase in issuance and fundings on loans of approximately $(73.3) million, offset by an increase in proceeds from the sale of loans of approximately $74.7 million and an increase in principal repayments of loans of approximately $34.6 million, respectively.

Net Cash Provided by (Used in) Financing Activities

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.

Net cash provided by financing activities during the six months ended June 30, 2024 was approximately $(27.1) million, compared to approximately $(90.8) million for the same period in 2023.

The increase of approximately $63.8 million during the six months ended June 30, 2023 to June 30, 2024 was primarily due to an increase in borrowings on the Revolving Credit Facility of $95.0 million, a decrease in repayments on the 2027 Senior Notes of approximately $7.7 million, offset by an increase in repayments on the Revolving Credit Facility of approximately $(42.0) million, respectively.

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

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

As of March 31, 2024

Our contractual obligations as of June 30, 2024 are as follows:

As of June 30, 2024

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

2 unchanged sentences

Total $ 11,239,804 $ 6,558,724 $ — $ — $ 17,798,528

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

As of June 30, 2024 , all unfunded commitments were related to our total loan commitments and were available for funding in less than three years.

We also had the following contractual obligations as of June 30, 2024 relating to the 2027 Senior Notes:

As of June 30, 2024

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

3 unchanged sentences

Total $ 5,175,000 $ 100,350,000 $ — $ — $ 105,525,000

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

(1) Amounts include projected interest payments during the period based on interest rates in effect as of June 30, 2024 .

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

19 unchanged sentences

Critical Accounting Policies and Estimates

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.

As of June 30, 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