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Item 2. Management’s Discussion and Analysis

2025-08-14 compared with 2025-05-14 · 232 added, 155 removed, 280 unchanged (58% of the section changed)

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The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our consolidated financial statements and the accompanying notes and other information included in this Quarterly Report on Form 10-Q (the “Form 10-Q”).

This discussion and analysis contains forward-looking statements that involve risks and uncertainties which could cause our actual results to differ materially from those anticipated in these forward-looking statements, including, but not limited to, risks and uncertainties discussed under the heading “Cautionary Note Regarding Forward-Looking Statements,” in this Form 10-Q.

“Risk Factors” in our Quarterly Report on Form 10-Q for the quarter ended March 31, 2025.

Advanced Flower Capital Inc.

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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.

Our investment guidelines primarily relate to deploying capital in attractive lending opportunities to state law-compliant cannabis operators, typically secured by real estate, equipment, cash flows and license value.

Our investment guidelines primarily relate to deploying capital in attractive lending opportunities, typically secured by real estate, equipment, cash flows and license value, to (i) state law-compliant cannabis operators and ancillary cannabis companies and (ii) other public and privately held middle-market companies.

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

The loans we originate are primarily structured as senior loans typically secured by real estate, equipment, cash flows and the value associated with licenses (where applicable) and/or other assets of the loan parties to the extent permitted by applicable laws and the regulations governing such loan parties.

such loan parties.

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

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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.

At the August Meeting, the Board approved the Sixth Amendment, which expands our investment strategy.

Accordingly, under the Sixth Amendment, we expanded our investment strategy and intend to additionally originate, structure, underwrite, invest in and manage senior secured mortgage loans and other types of loans and debt securities to companies ancillary to the cannabis industry as well as companies outside of the cannabis industry.

Businesses ancillary to the cannabis industry may include, but are not limited to, brand developers, business services providers, and equipment and consumables providers.

We believe there are also attractive lending opportunities in companies ancillary to and outside of the cannabis industry that could generate attractive risk-adjusted returns.

The investment team has over 30 years of experience in direct lending outside of the cannabis industry across $10 billion of transactions.

By expanding the investment mandate, we expect to be able to diversify its exposure across industries and credit risk profiles while maintaining deal selectivity.

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

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However, no assurances can be given that our beliefs or expectations will be fulfilled, since qualification as a REIT depends on us continuing to satisfy numerous asset, income and distribution tests, which in turn depends, in part, on our operating results and ability to obtain financing.

We also intend to operate our business in a manner that will permit us to maintain our exemption from registration under the Investment Company Act of 1940.

We also intend to operate our business in a manner that will permit us to maintain our exemption from registration under the 1940 Act.

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

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

At the August Meeting, the Board, including a majority of the Independent Directors, unanimously approved, subject to the approval of our shareholders, a new Investment Advisory Agreement between us and the Manager.

If approved by our shareholders, the new Investment Advisory Agreement would enable us to operate as a BDC under the 1940 Act.

We believe that the Conversion would enable us to pursue a broader array of investment opportunities, as further discussed above.

The Company expects, in the coming days, to file a preliminary proxy statement with the SEC and, subsequently, to mail definitive proxy statements to its shareholders seeking their approval of (1) the new Investment Advisory Agreement and (2) in connection with its anticipated operation as a BDC, a reduction in the asset coverage ratio applicable to the us (enabling us to utilize a greater degree of leverage than would otherwise be permitted), all of which will be more fully described in the proxy statement.

In addition, in the coming months, the Board will consider other matters necessary to effect our conversion to a BDC.

There can be no assurance that the Board or our shareholders will approve the matters necessary for us to convert to a BDC.

We are pursuing the Conversion, which, subject to shareholder approval, will result in the Company ceasing to operate as a mortgage REIT and electing to be regulated as a BDC under the 1940 Act.

Following the Conversion, we would be able to invest in a much broader universe of assets, including both real estate- and non-real estate-related assets.

We have historically targeted lending to vertically integrated cannabis companies with significant real estate holdings.

Given the capital-intensive nature of the cannabis industry, combined with the high cost of capital, many operators do not own real estate, which significantly limits the universe of cannabis operators to which we can lend as a mortgage REIT.

The Conversion would allow us to invest in non-real estate covered vertically integrated operators.

In addition, following the Conversion, we intend to continue investing in businesses ancillary to the cannabis industry, as contemplated under the Sixth Amendment.

Ancillary cannabis businesses can have high growth potential, but often do not

own real property and have limited access to debt capital.

If completed, the transition to a BDC will enable us to significantly expand its investment universe by increasing its ability to lend to ancillary cannabis businesses as well as non-real estate covered vertically integrated operators.

On February 22, 2024, we announced a plan to separate into two independent, publicly traded companies.

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Unless otherwise noted, all amounts, percentages and discussion below reflect only the results of operations and financial condition from our continuing operations.

Developments During the First Quarter March 31, 2025:

Updates to Our Loan Portfolio During the First Quarter March 31, 2025

In January 2025, AFC Agent placed Private Company K in a consensual receivership to operate the collateral assets for the benefit of the Company, as a secured lender, and all other stakeholders.

In February 2025, we entered into a $15.0 million senior secured credit facility with Private Company U, which was fully funded at closing.

The loan was originated at a discount of 2.5% and matures March 1, 2028.

The loan bears interest at 14.0%.

In February 2025, AFC Agent, on behalf of the Company and the other lenders, initiated a mortgage foreclosure proceeding in connection with the forbearance agreement entered into by the Company and Subsidiary of Private Company G in March 2024 (the “2024 Subsidiary of Private Company G Forbearance Agreement”) over a cultivation facility owned by Subsidiary of Private Company G.

The Company also delivered a reservation of rights letter to Subsidiary of Private Company G concerning the occurrence of events of default and forbearance defaults under the credit agreement and the 2024 Subsidiary of Private Company G Forbearance Agreement, respectively, including unpermitted payments, the failure to maintain and preserve one of Subsidiary of Private Company G’s cannabis licenses and its cultivation facility and its failure to cooperate with us in the foreclosure proceeding.

We believe these defaults have had a material adverse impact on

Subsidiary of Private Company G’s ability to operate its business and make payments under the credit agreement.

AFC Agent is also therefore pursuing a payment guarantee from the parent company and the beneficial shareholders of Subsidiary of Private Company G that guaranteed the loan.

See below under “ Recent Developments—Subsidiary of Private Company G Updates”.

Developments During the Second Quarter June 30, 2025:

Updates to Our Loan Portfolio During the Second Quarter June 30, 2025

In April 2025, we received a voluntary prepayment from Private Company L of approximately $2.0 million, which was applied to our outstanding principal balance, recognizing $48.8 thousand in exit fees.

In April 2025, we entered into a $14.0 million senior secured credit facility with Subsidiaries of Private Company V.

The loan was originated at a discount of 3.0% and matures April 1, 2029.

The loan bears cash interest at 12.5% and 1.5% interest paid-in kind.

At closing, approximately $10.5 million was drawn and the remainder is available to be drawn within one year of closing.

In May 2025, we were fully repaid on our loan with Private Company T at par plus accrued interest.

The outstanding principal of the senior secured term loan on the date of repayment was approximately $7.7 million.

In May 2025, we were fully repaid on our loan with Subsidiary of Public Company M at par plus accrued interest.

The outstanding principal of our investment on the date of repayment was approximately $2.8 million.

In June 2025, we deemed our equipment loan receivable with Public Company A uncollectible and wrote off the remaining balance.

At the time of write-off, the equipment loan with Public Company A had an outstanding principal balance of approximately $1.8 million and amortized cost of approximately $1.8 million.

Prior to the write-off, the loan receivable had a CECL Reserve that was fully reserved for.

In the second quarter of 2025, we wrote off $1.8 million, which was equal to the carrying value of the loan receivable, excluding the CECL Reserve at the time the loan was written off.

In April 2025, we and AFC Agent (collectively, the “AFC Parties”) commenced separate legal actions against (i) two shareholders of the parent of Subsidiary of Private Company G in the United States District Court for the Southern District of New York asserting claims for violations of the Racketeer Influenced and Corrupt Organizations Act, breach of a shareholder guaranty, tortious interference with contract, fraud, aiding and abetting fraud, and conversion and (ii) the parent of Subsidiary of Private Company G in New York state court asserting a claim for breach of contract arising from its failure to satisfy its obligations under a guaranty agreement related to the Company’s credit facility with Subsidiary of Private Company G.

In June 2025, the AFC Parties filed an amended complaint against two shareholders of the parent of Subsidiary of Private Company G, asserting claims for breach of contract, tortious interference with contract, fraud, aiding and abetting fraud, and conversion.

In April 2025, two Subsidiary of Private Company G-affiliated cannabis companies (the “Plaintiffs”) that are borrowers the Company’s credit facility with Subsidiary of Private Company G filed a complaint in the United States District Court for the District of New Jersey alleging, among other things, breach of contract, breach of the implied covenant of good faith and fair dealing, and violations of the New York Uniform Commercial Code in connection with the Company’s termination of a forbearance agreement between the parties.

On May 9, 2025, the court granted Plaintiffs’ request for a preliminary injunction, enjoining the Company from seizing any of Plaintiffs’ assets or

cash or seeking any remedy for Subsidiary of Private Company G’s failure to (a) cooperate in the foreclosure proceeding on the Pennsylvania property;

(b) provide annual audited financial statements for fiscal years 2023 and 2024;

or (c) obtain a certificate of occupancy for the New Jersey facility by May 15, 2024.

The AFC parties have appealed the preliminary injunction ruling to the Third Circuit Court of Appeals and are seeking an expeditious resolution of the appeal.

Following the filing of the appeal, the Plaintiffs filed an amended complaint in the District Court, asserting an additional claim seeking declaratory relief regarding the loan balance.

The credit facility to Subsidiary of Private Company G matures on May 1, 2026.

Because each of these actions are in their early stages, no reasonable estimate of possible outcomes resulting from these legal actions can be made at this time.

At-the-Market Offering Program

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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, 2025, the Company did not sell any shares of the Company’s common stock under the Sales Agreement.

As of March 31, 2025, the Company’s remaining authorization under the Sales Agreement was approximately $47.4 million.

The ATM Program and related Sales Agreement expired in April 2025, in connection with the expiration of our Prior Shelf Registration Statement.

We do not currently have an ATM program, but may enter into a new ATM program and related sales agreement in the future pursuant to which sales may be made under the Shelf Registration Statement.

During the three and six months ended June 30, 2025, the Company did not sell any shares of the Company’s common stock under the Sales Agreement.

We do not currently have an ATM program, but we may enter into a new ATM program and related sales agreement in the future pursuant to which sales may be made under the Shelf Registration Statement.

Dividends Declared Per Share

For the three months ended March 31, 2025, we declared the following cash dividend:

For the six months ended June 30, 2025, we declared the following cash dividend:

Date Declared Payable to Shareholders of Record at the Close of Business on Payment Date Amount per Share Total Amount

March 11, 2025 March 31, 2025 April 15, 2025 $ 0.23 $ 5,197,082

June 13, 2025 June 30, 2025 July 15, 2025 0.15 3,389,267

2025 Period Subtotal

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Recent Developments

In April 2025, we entered into a $14.0 million senior secured credit facility with Subsidiaries of Private Company V.

The loan was originated at a discount of 3.0% and matures April 1, 2029.

The loan bears cash interest at 12.5% and 1.5% interest paid-in kind.

As of the date of this Quarterly Report on Form 10-Q, approximately $10.5 million was drawn and the remainder is available to be drawn within one year of closing.

Due to the timing of closing, the cash funding of approximately $10.1 million, net of OID, for our loan with Subsidiaries of Private Company V was held by the title agent and not yet complete as of March 31, 2025 and was recorded within prepaid expenses and other assets on these consolidated financial statements.

The loan with Subsidiaries of Private Company V closed subsequent to the first quarter 2025.

In May 2025, we were fully repaid on our loan with Private Company T at par plus accrued interest.

The outstanding principal of the senior secured term loan on the date of repayment was approximately $7.7 million.

On April 10, 2025, we and AFC Agent (collectively, “AFC Parties”) commenced an action in the United States District Court for the Southern District of New York captioned Advanced Flower Capital Inc.

Kanovitz et al., Case No.

1:25 cv-02996-PKC, against two Subsidiary of Private Company G shareholders (the “Guarantors”).

The complaint asserts claims for violations of the Racketeer Influenced and Corrupt Organizations Act, breach of a shareholder guaranty, tortious interference with contract, fraud, aiding and abetting fraud, and conversion.

The Company alleges that the Guarantors, as co-owners and managers of certain Subsidiary of Private Company G entities who are borrowers of the Company, engaged

in a pattern of fraudulent conduct, including misrepresentations, improper transfers of funds, and concealment of defaults and assets, in connection with loans provided by the Company to finance the operations of non-borrower Subsidiary of Private Company G entities for their personal benefit.

On April 17, 2025, two Subsidiary of Private Company G-affiliated cannabis companies that are borrowers under a September 30, 2021 credit agreement (the “Plaintiffs”), commenced an action in the United States District Court for the District of New Jersey captioned Hayden Gateway LLC, et al.

Advanced Flower Capital Inc., et al., Case No.

3:25-cv-02789-ZNQ-JBD, against the AFC Parties.

The complaint alleges, among other things, breach of contract, breach of the implied covenant of good faith and fair dealing, and violations of the New York Uniform Commercial Code in connection with the Company’s termination of a forbearance agreement between the parties.

Plaintiffs seek declaratory and injunctive relief, as well as compensatory and other damages, alleging that the Company wrongfully declared defaults, seized funds from Plaintiffs’ operating accounts, and sought to foreclose on certain collateral.

On May 9, 2025, this court granted Plaintiffs’ request for a preliminary injunction, enjoining the Company from seizing any of Plaintiffs’ assets or cash or seeking any remedy for Subsidiary of Private Company G’s failure to (a) cooperate in the foreclosure proceeding on the Pennsylvania property;

(b) provide annual audited financial statements for fiscal years 2023 and 2024;

The Court did not consider Subsidiary of Private Company G’s failure to maintain and preserve one of its subsidiary cannabis licenses or its unpermitted payments.

The credit facility to Subsidiary of Private Company G matures on May 1, 2026.

On April 28, 2025, AFC Agent commenced an action in the Supreme Court of the State of New York, County of New York, captioned AFC Agent LLC v.

JG HoldCo LLC, Index No.

652644/2025, against JG HoldCo LLC, the parent of Subsidiary of Private Company G.

The complaint asserts a claim for breach of contract arising from JG HoldCo LLC’s failure to satisfy its obligations under a guaranty agreement related to a credit agreement between the Company and certain subsidiaries of Subsidiary of Private Company G.

Because each of these actions are in their early stages, no reasonable estimate of possible outcomes resulting from these legal actions, if any, can be made at this time.

In July 2025, AFC Agent delivered a notice of default and acceleration to Private Company P based on certain payment defaults, including the failure to make its interest payment when due for July 1, 2025, and began charging additional default interest of 5.0%, in accordance with the terms of the credit facility with Private Company P.

The loan with Private Company P on nonaccrual status effective June 1, 2025.

AFC Agent, on behalf of the Company and its affiliates, is actively pursuing judicial and non-judicial remedies against Private Company P.

In August 2025, we entered into an agreement to purchase $10.0 million in outstanding principal amount of a senior secured term loan to Subsidiary of Public Company S, a publicly traded operator, at a 4.0% discount.

The term loan under the Subsidiary of Public Company S Credit Facility accrues interest at a fixed rate per annum of 12.5% and matures in August 2030.

Concurrently, our existing $10.0 million investment with Subsidiary of Public Company S was repaid at par plus accrued interest and we recognized an exit fee of approximately $0.2 million.

At the August Meeting, the Board approved the Sixth Amendment, which expands the Company’s investment strategy (as discussed above in “Note 1—Organization”).

In addition, the Board approved at the August Meeting a new Investment

Advisory Agreement, which will be submitted to shareholders for approval.

The proposal related to the new Investment Advisory Agreement relates to the Conversion (as discussed above in “Note 18—Subsequent Events”).

Key Financial Measures and Indicators

As a commercial real estate finance company, we believe the key financial measures and indicators for our business are Distributable Earnings, book value per share and dividends declared per share.

Book Value Per Share

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

The book value per share of our common stock as of June 30, 2025 and December 31, 2024 was approximately $8.18 and $9.02, respectively.

Non-GAAP Metrics

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We caution readers that our methodology for calculating Distributable Earnings may differ from the methodologies employed by other REITs to calculate the same or similar supplemental performance measures, and as a result, our reported Distributable Earnings may not be comparable to similar measures presented by other REITs.

The following table provides a reconciliation of GAAP net income to distributable earnings:

The following table provides a reconciliation of GAAP net income (loss) to distributable earnings:

Three months ended

Net income (loss) $ 4,067,685 $ (54,116)

June 30, Six months ended

2025 2024 2025 2024

Net (loss) income $ (13,164,651) $ 16,446,121 $ (9,096,966) $ 16,392,005

Adjustments to net income (loss):

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Unrealized losses (gains) or other non-cash items 1,055,970 1,420,001 1,741,448 5,033,694

(Reversal of) provision for current expected credit losses

Provision for (reversal of) current expected credit losses (1)(2)

14,074,320 (6,190,240) 13,374,896 (1,258,566)

TRS (income) loss, net of dividends (63,582) 931,233

TRS loss (income), net of dividends 934,187 (624,235) 870,605 306,998

One-time events pursuant to changes in GAAP and certain non-cash charges — — — —

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Distributable earnings per basic weighted average share $ 0.15 $ 0.56 $ 0.36 $ 1.05

Book Value Per Share

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

The book value per share of our common stock as of March 31, 2025 and December 31, 2024 was approximately $8.89 and $9.02, respectively.

(1) The provision for current expected credit losses above includes zero and zero for the three and six months ended June 30, 2025, respectively, and approximately $71.9 thousand and $71.9 thousand for the three and six months ended June 30, 2024, respectively, in connection with the Spin-Off, which is included in the net income from discontinued operations, net of tax financial statement line on the consolidated statements of operations.

(2) The provision for (reversal of) current expected credit losses is presented net of the current period write-off.

Refer to Note 6.

Factors Impacting our Operating Results

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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, 2025 and 2024

Our net income from continuing operations allocable to our common shareholders for the three months ended March 31, 2025, was approximately $4.1 million, or $0.18 per basic weighted average common share from continuing operations, compared to net loss from continuing operations allocable to our common shareholders of approximately $(1.6) million, or $(0.08) per basic weighted average common share from continuing operations for the three months ended March 31, 2024, respectively.

Interest income decreased approximately $(5.9) million, or (41.0)%, for the three months ended March 31, 2025 as compared to the three months ended March 31, 2024.

This decrease was driven by lower interest income of approximately $(1.8) million due to loans with Private Company A, Subsidiary of Private Company G, and Private Company K on nonaccrual status, a decrease in loan exits and prepayments compared to capital deployed period over period of approximately $(2.4) million, and a reduction in commitments with Private Company L resulting in lower interest income of $(1.2) million period over period, respectively.

Interest expense increased approximately $0.2 million, or 13.2%, for the three months ended March 31, 2025, as compared to the three months ended March 31, 2024, driven by an increase in borrowings on our Revolving Credit Facility resulting in additional interest expense of $0.1 million and an increase in unused fees of $0.1 million, respectively.

Management fees decreased approximately $(0.2) million, or (16.0)%, for the three months ended March 31, 2025, as compared to the three months ended March 31, 2024, driven by lower outside fees earned and offset by lower equity attributable to the Spin-Off of SUNS completed on July 9, 2024.

Results of Operations f or the three and six months ended June 30, 2025 and 2024

The following table summarizes our consolidated results of operations for the three and six months ended June 30, 2025 and 2024:

Three months ended

June 30, Six months ended

2025 2024 2025 2024

Interest income $ 8,061,509 $ 17,977,945 $ 16,519,757 $ 32,312,699

Interest expense (1,858,174) (1,573,275) (3,673,445) (3,176,438)

Net interest income 6,203,335 16,404,670 12,846,312 29,136,261

Management and incentive fees, net (less rebate of $260,742, $214,190, $389,322 and $588,993, respectively) 680,358 3,985,028 1,496,548 7,447,790

General and administrative expenses 845,750 1,032,785 1,580,707 2,084,638

Stock-based compensation 484,502 369,343 1,038,251 912,565

Professional fees 361,104 367,408 733,040 814,440

BDC conversion expenses 226,780 — 226,780 —

Total expenses 2,598,494 5,754,564 5,075,326 11,259,433

(Provision for) reversal of current expected credit losses (15,851,566) 6,262,094 (15,152,142) 1,330,420

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

Change in unrealized gains (losses) on loans at fair value, net (1,055,970) (1,420,001) (1,741,448) (5,033,694)

Net (loss) income from continuing operations before income taxes (13,302,695) 15,492,199 (9,122,604) 14,080,216

Income tax (benefit) expense (138,044) 285,975 (25,638) 444,335

Net (loss) income from continuing operations (13,164,651) 15,206,224 (9,096,966) 13,635,881

Net income (loss) from continuing operations .

Our net loss from continuing operations allocable to our common shareholders for the three and six months ended June 30, 2025, was approximately $(13.2) million and $(9.1) million, or $(0.60) and $(0.42) per basic weighted average common share from continuing operations, respectively, compared to net income from continuing operations allocable to our common shareholders of approximately $15.2 million and $13.6 million, or $0.74 and $0.66 per basic weighted average common share from continuing operations for the three and six months ended June 30, 2024, respectively.

Interest income.

Interest income decreased approximately $(9.9) million, or (55.2)%, for the three months ended June 30, 2025, as compared to the three months ended June 30, 2024.

The decrease was driven by three loan exits in the prior period, resulting in less interest income of $(8.8) million, which included nonrecurring prior period activity such as:

repayment of past due cash interest of approximately $2.3 million, acceleration of unaccreted OID upon exit of $1.9 million, default interest of approximately $0.6 million when the loan with Subsidiary of Public Company H was sold and repaid in cash in June 2024, $1.0 million exit fee recognized with the sale of Private Company B in June 2024 and $1.7 million exit fee recognized in May 2024 related to the repayment of our loan with Private Company C.

Loans on nonaccrual status had lower interest income of $(2.4) million period over period for the three months ended.

Interest income decreased $(15.8) million, or (48.9)%, for the six months ended June 30, 2025 as compared to the six months ended June 30, 2024.

This decrease was driven by fewer exits and related fees in the current period compared to the prior period.

During the six months ended June 30, 2024, four loans were exited, which included $(8.2) million nonrecurring prior period interest income relating to:

repayment of past due cash interest of approximately $2.3 million, acceleration of unaccreted OID upon exit of $1.9 million, default interest of approximately $0.6 million when the loan with Subsidiary of Public Company H was sold and repaid in cash in June 2024, $1.0 million exit fee recognized with the sale of Private Company B in June 2024, $1.7 million exit fee recognized in May 2024 related to the repayment of our loan with Private Company C, and repayment of past due interest in cash of $0.7 million when our loan with Private Company I was

repaid in March 2024.

Loans on nonaccrual status had lower interest income of $(4.2) million period over period for the six months ended.

Interest expense.

Interest expense increased approximately $0.3 million, or 18.1%, for the three months ended June 30, 2025, as compared to the three months ended June 30, 2024, driven by an increase in borrowings on our Revolving Credit Facility resulting in additional interest expense of $0.3 million.

Interest expense increased approximately $0.5 million, or 15.6%, for the six months ended June 30, 2025, as compared to the six months ended June 30, 2024, driven by an increase in borrowings on our Revolving Credit Facility resulting in additional interest expense of $0.4 million and an increase in unused fees of $0.1 million, respectively.

Management and incentive fees, net.

Management fees decreased approximately $(0.4) million, or (39.8)%, for the three months ended June 30, 2025, as compared to the three months ended June 30, 2024.

Management fees decreased approximately $(0.6) million, or (28.8)%, for the six months ended June 30, 2025, as compared to the six months ended June 30, 2024.

The decrease in both the three and six months ended period over period was driven by lower equity, attributable to the Spin-Off of SUNS completed on July 9, 2024.

In connection with the Spin-Off, we recognized a reduction to additional paid-in capital of approximately $115 million.

Incentive fees decreased approximately $(2.5) million, or (100.0)%, for the three months ended March 31, 2025, as compared to the three months ended March 31, 2024, driven by lower Core Earnings (as defined in the Management Agreement).

General and administrative expenses decreased approximately $(0.3) million, or (30.1)%, for the three months ended March 31, 2025, as compared to the three months ended March 31, 2024.

This decrease was primarily due to less expenses reimbursable to our Manager of approximately $(0.2) million.

Stock-based compensation remained relatively flat, increasing approximately $10.5 thousand, or 1.9%, for the three months ended March 31, 2025 as compared to the three months ended March 31, 2024.

Professional fees decreased approximately $(0.1) million, or (16.8)%, for the year ended March 31, 2025 as compared to the three months ended March 31, 2024.

We did not recognize a realized loss for the three months ended March 31, 2025, compared to $(0.1) million for the three months ended March 31, 2024, driven by the net change in realized losses relating to separate sales of our investment in Subsidiary of Public Company M in the prior period.

Incentive fees decreased approximately $(2.9) million and $(5.3) million, for the three and six months ended June 30, 2025, as compared to the three and six months ended June 30, 2024, respectively, driven by lower Core Earnings (as defined in the Management Agreement).

There was no incentive fee incurred during the three and six months ended June 30, 2025.

General and administrative expenses.

General and administrative expenses decreased approximately $(0.2) million, or (18.1)%, and decreased $(0.5) million, or (24.2)%, and for the three and six months ended June 30, 2025, as compared to the three and six months ended June 30, 2024, respectively.

The decrease in both the three and six months ended was primarily due to less reimbursable shared expenses allocated by our Manager of approximately $(0.2) million and $(0.4) million, respectively.

Stock-based compensation .

Stock-based compensation increased $0.1 million, or 31.2%, and $0.1 million, or 13.8%, for the three and six months ended June 30, 2025 as compared to the three and six months ended June 30, 2024, respectively.

Professional fees .

Professional fees decreased approximately $(6.3) thousand, or (1.7)%, and decreased $(0.1) million, or (10.0)%, for the three and six months ended June 30, 2025 as compared to the three and six months ended June 30, 2024, respectively.

BDC conversion expenses .

BDC conversion expenses are expensed as incurred and primarily include legal fees related to the creation and organization of our election to be regulated as a BDC.

The Conversion process began during the second quarter of 2025 and we incurred approximately $0.2 million and $0.2 million of conversion expenses during the three and six months ended June 30, 2025, respectively.

No such costs were incurred in the prior year.

Realized (losses) gains.

The decrease in realized losses recognized for the three and six months ended June 30, 2025, compared to the three and six months ended June 30, 2024, was driven by a realized loss recognized in the prior period due to separate sales of our investment in Subsidiary of Public Company M.

There were no realized losses recognized during the three and six months ended June 30, 2025, respectively.

Unrealized (losses) gains.

Investments in loans held at fair value are recorded on the trade date at cost, which reflects the amount of principal funded net of any original issue discounts.

An unrealized gain arises when the fair value of the loan portfolio exceeds its cost and an unrealized loss arises when the fair value of the loan portfolio is less than its cost.

The net change in unrealized gain (loss) of approximately $(0.7) million and $(3.6) million for the three months ended March 31, 2025 and 2024, respectively, was driven by the net change in the valuation of our loans, which was impacted by changes in market yields, revenue multiples, and recovery rates.

The net change in unrealized gain (loss) of approximately $0.4 million and $3.3 million for the three and six months ended June 30, 2025, compared to the three and six months ended June 30, 2024, respectively, was driven by the sale of our loan with Private Company B in the prior period 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.

Income tax (benefit) expense .

Income taxes decreased approximately $(0.4) million, or (148.3)%, and decreased $(0.5) million, or (105.8)%, for the three and six months ended June 30, 2025 as compared to the three and six months ended June 30, 2024, respectively.

The change was driven by an excise tax refund received in the current period of approximately $(0.1) million and lower federal and state taxes incurred driven by lower taxable income.

Provision for Current Expected Credit Losses

The provision for current expected credit losses decreased approximately $(5.6) million, or (114.2)%, for the three months ended March 31, 2025 as compared to the three months ended March 31, 2024 .

The balance as of March 31, 2025 was approximatel y $29.9 million , or 9.75%, of our total loans held at carrying value and loan receivable held at carrying value balance of approximately $306.4 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 $29.7 million and (ii) a liability for unfunded commitments of approximately $0.1 million .

The balance as of March 31, 2024 was approximately $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 provision for current expected credit losses increased approximately $22.1 million , or 353.1%, and $16.5 million, or 1238.9%, for the three and six months ended June 30, 2025 as compared to the three and six months ended June 30, 2024, respectively .

The balance as of June 30, 2025 was approximatel y $44.0 million , or 14.61%, of our total loans held at carrying value with a balance of approximately $300.9 million and was bifurcated between (i) the current expected credit loss reserve (contra-asset) related to outstanding balances on loans held at carrying value of approximately $43.8 million and (ii) a liability for unfunded commitments of approximately $0.1 million .

The balance as of June 30, 2024 was approximately $25.1 million, or 10.54%, of our total loans held at carrying value and loan receivable held at carrying value balance of approximately $238.0 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 $0.1 million.

June 30, 2024 CECL Reserve balances exclude the commercial real estate loan portfolio and related CECL Reserve of SUNS in connection with the Spin-Off.

The CRE CECL Reserve is included within discontinued operations for the prior periods presented.

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

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

Management considered the likelihood that funding will occur, and if funded, the expected credit loss on the funded portion when determining the amount to allocate to its CECL Reserve.

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, 2025 compared to the three months ended March 31, 2024 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, 2025 compared to the three and six months ended June 30, 2024 was due to changes in macroeconomic factors, changes to the loan portfolio including new commitments and repayments, borrower payment status, and changes in other data points we use in estimating the reserve.

Loan Portfolio

As of March 31, 2025 , our portfolio was comprised of 17 loans (such portfolio, our “Existing Portfolio”).

The aggregate originated commitment under these loans was approximately $375.0 million and outstanding principal was approximately $366.3 million as of March 31, 2025.

As of March 31, 2025, our portfolio had a weighted-average estimated YTM of approximately 18% and was secured by various types of assets of our borrowers, including real property and personal property, such as cash flows and the value associ ated with licenses (where applicable), equipment, and other assets to the extent permitted by applicable laws and the regulations governing our borrowers.

The table below summarizes our total loan portfolio as of March 31, 2025, unless otherwise specified.

As of June 30, 2025 , our portfolio was comprised of 15 loans (such portfolio, our “Existing Portfolio”).

The aggregate originated commitment under these loans was approximately $370.3 million and outstanding principal was approximately $359.6 million as of June 30, 2025.

As of June 30, 2025, our portfolio had a weighted-average estimated YTM of approximately 18% and was secured by various types of assets of our borrowers, including real property and personal property, such as cash flows and the value associ ated with licenses (where applicable), equipment, and other assets to the extent permitted by applicable laws and the regulations governing our borrowers.

As of June 30, 2025 , we had four loans on nonaccrual status, which included three loans held for investment with a carrying value of $104.2 million and carrying value net of CECL Reserve of $65.3 million, and one loan held at fair value with an outstanding principal balance of $51.2 million and fair value of $26.8 million.

The table below summarizes our total loan portfolio as of June 30, 2025, unless otherwise specified.

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

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Floating Amortization During Term YTM

A - Equipment Loans (4)

8/5/2019 3/31/2025 $ 4,000,000 1.1% $ 1,897,324 12.0% N/A Fixed Yes 7%

5/8/2020 5/8/2024 $ 42,520,761 11.5% $ 51,186,315 13.0% 2.5% Fixed No 17%

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L 4/20/2022 5/1/2026 32,757,254 8.7% 30,443,356 13.0% N/A Floating Yes 19%

Sub of Public Co.

M 8/26/2022 8/27/2025 2,797,527 0.7% 2,797,527 9.5% N/A Fixed No 23%

7/31/2023 7/31/2026 30,000,000 8.1% 26,599,497 9.0% N/A Fixed Yes 18%

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S 11/19/2024 8/12/2026 10,000,000 2.7% 10,000,000 9.5% N/A Fixed No 10%

T 12/18/2024 7/26/2027 8,945,972 2.4% 7,965,277 11.3% N/A Fixed Yes 12%

U 2/14/2025 3/1/2028 15,000,000 4.1% 15,000,000 14.0% N/A Fixed Yes 16%

Sub of Private Co.

V 4/1/2025 4/1/2029 14,000,000 3.8% 12,276,704 12.5% 1.5% Fixed Yes 17%

$ 370,325,856 100.0% $ 359,592,066 12.7% 0.6% 18%

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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, 2025 applied through maturity.

Estimated YTM is calculated using the interest rate as of June 30, 2025 applied through maturity.

Actual results could differ from those estimates and assumptions.

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

(4) Effective October 1, 2022, Public Company A equipment loan receivable was placed on nonaccrual status.

(4) 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”).

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

terms of the Private Company A Credit Facility.

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

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

(7) Effective June 1, 2025, the Company placed the borrower on nonaccrual status.

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

Loans Held for Investment at Fair Value

As of March 31, 2025 and December 31, 2024, our portfolio included one loan held at fair value.

The aggregate commitment under this loan was approximately $43.2 million and $44.4 million, respectively, and outstanding principal was approximately $51.9 million and $53.1 million as of March 31, 2025 and December 31, 2024, respectively.

For the three months ended March 31, 2025, we received approximately $1.3 million of principal repayments of loans held at fair value.

As of March 31, 2025 and December 31, 2024, our loan held at fair value did not have a floating interest rate.

The following tables summarize our loan held at fair value as of March 31, 2025 and December 31, 2024 :

As of March 31, 2025

As of June 30, 2025 and December 31, 2024, our portfolio included one loan held at fair value.

The aggregate commitment

under this loan was approximately $42.5 million and $44.4 million, respectively, and outstanding principal was approximately $51.2 million and $53.1 million as of June 30, 2025 and December 31, 2024, respectively.

For the six months ended June 30, 2025, we received approximately $1.9 million of principal repayments of loans held at fair value.

As of June 30, 2025 and December 31, 2024, our loan held at fair value did not have a floating interest rate.

The following tables summarize our loan held at fair value as of June 30, 2025 and December 31, 2024 :

As of June 30, 2025

Fair Value (1)

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(2) The difference between the carrying value and the outstanding principal amount of the loans consists of unaccreted OID and loan origination costs.

(3) As of March 31, 2025 and December 31, 2024 , the maturity date passed on the credit facility with Private Company A without repayment.

The following table presents changes in loans held at fair value as of and for the three months ended March 31, 2025:

(3) As of June 30, 2025 and December 31, 2024 , the maturity date passed on the credit facility with Private Company A without repayment.

The following table presents changes in loans held at fair value as of and for the six months ended June 30, 2025:

Principal Original Issue

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Loan repayments (1,922,134) — — (1,922,134)

Total loan held at fair value at March 31, 2025 $ 51,855,508 $ (2,867,431) $ (20,415,692) $ 28,572,385

Total loan held at fair value at June 30, 2025 $ 51,186,315 $ (2,867,431) $ (21,471,662) $ 26,847,222

Loans Held for Investment at Carrying Value

As of March 31, 2025 and December 31, 2024, our portfolio included fifteen and fourteen loans held at carrying value, respectively.

A s of March 31, 2025 and December 31, 2024, t he aggregate originated commitment under these loans was approximately $327.8 million and $312.8 million, resp ectively, and outstanding principal was approximately $312.5 million and $301.8 million, respectively.

During the three months ended March 31, 2025, we funded approximately $15.8 million of new loans and additional principal and had approximately $5.2 million of principal repayments of loans held at carrying value.

As of March 31, 2025 and December 31, 2024, approximately 49% and 52%, respectively, of our loans held at carrying value had floating interest rates.

As of March 31, 2025, t hese floating benchmark rates included one-month Secured Overnight Financing Rate (“SOFR”) quoted at 4.3% and subject to a weighted average floor of 3.8% based on outstanding principal.

The following tables summarize our loans held at carrying value as of March 31, 2025 and December 31, 2024 :

As of March 31, 2025

As of June 30, 2025 and December 31, 2024, our portfolio included 14 and 14 loans held at carrying value, respectively.

A s of June 30, 2025 and December 31, 2024, t he aggregate originated commitment under these loans was approximately $327.8 million and $312.8 million, resp ectively, and outstanding principal was approximately $308.4 million and $301.8 million, respectively.

During the six months ended June 30, 2025, we funded approximately $30.0 million of new loans and additional principal and had approximately $23.6 million of principal repayments of loans held at carrying value.

As of June 30, 2025 and December 31, 2024, approximately 49% and 52%, respectively, of our loans held at carrying value had

floating interest rates.

As of June 30, 2025, t hese floating benchmark rates included one-month Secured Overnight Financing Rate (“SOFR”) quoted at 4.3% and subject to a weighted average floor of 3.8% based on outstanding principal.

The following tables summarize our loans held at carrying value as of June 30, 2025 and December 31, 2024 :

As of June 30, 2025

Principal (1)

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(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, 2025 and December 31, 2024 .

The following table presents changes in loans held at carrying value as of and for the three months ended March 31, 2025:

(2) Weighted average remaining life is calculated based on the carrying value of the loans as of June 30, 2025 and December 31, 2024 .

The following table presents changes in loans held at carrying value as of and for the six months ended June 30, 2025:

Principal Original Issue

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Accretion of original issue discount — 1,828,874 1,828,874

Loan repayments (13,608,683) — (13,608,683)

PIK interest 266,550 — 266,550

Loan amortization payments (9,986,554) — (9,986,554)

Total loans held at carrying value at March 31, 2025 $ 312,500,259 $ (7,994,611) $ 304,505,648

Total loans held at carrying value at June 30, 2025 $ 308,405,751 $ (7,459,543) $ 300,946,208

Loan Receivable Held at Carrying Value

As of March 31, 2025 and December 31, 2024, 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 $1.9 million and $1.9 million as of March 31, 2025 and December 31, 2024, respectively.

The following table presents changes in loans receivable as of and for the three months ended March 31, 2025:

As of June 30, 2025 and December 31, 2024, our portfolio included zero and one loan receivable held at carrying value.

The originated commitment under this loan was $4.0 million and outstanding principal was approximately zero and $1.9 million as of June 30, 2025 and December 31, 2024, respectively.

During the six months ended June 30, 2025, we received $0.1 million of principal repayments of loan receivable held at carrying value.

Based on discussions with the collateral agent, we do not expect future proceeds and deemed the remaining balance on the loan with Public Company A to be uncollectible.

Prior to the write-off, the loan receivable had a CECL Reserve that was fully reserved for.

In the second quarter of 2025, we wrote off $1.8 million, which was equal to the carrying value of the loan receivable, excluding the CECL Reserve at the time the loan was written off.

The following table presents changes in loans receivable as of and for the six months ended June 30, 2025:

Principal Original Issue

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Loan repayments (118,392) — (118,392)

Total loan receivable held at carrying value at March 31, 2025 $ 1,897,324 $ (1,686) $ 1,895,638

Loan write-off (1,778,932) 1,686 (1,777,246)

Total loan receivable held at carrying value at June 30, 2025 $ — $ — $ —

Collateral Overview

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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, 2025, 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, 2025, our portfolio of assets held outside of TRS1 had a weighted average real estate collateral coverage of approximately 1.0 times our aggregate committed principal amount of such loans, with the real estate collateral coverage for each of our loans measured as of the time of closing for such loan and based on various sources of data available at such time.

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

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However, we can provide no assurances that a third party would buy such loans or that the sales price of such loans would be sufficient to recover the outstanding principal balance, accrued interest, and fees.

We will not own real estate as long as it is used in the commercial sale of cannabis due to current statutory prohibitions and exchange listing

standards, which may delay or limit our remedies in the event that any of our borrowers default under the terms of their loans with us.

We will not own real estate as long as it is used in the commercial sale of cannabis due to current statutory prohibitions and exchange listing standards, which may delay or limit our remedies in the event that any of our borrowers default under the terms of their loans with us.

Liquidity and Capital Resources

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Our primary sources of cash generally consist of unused borrowing capacity under the Revolving Credit Facility, the net proceeds of future debt or equity offerings, 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, 2025 of approximately $3.9 million was less than our dividends declared of $5.2 million made during the same period due to earned OID of $0.9 million.

Our net cash provided by operating activities for the six months ended June 30, 2025 of approximately $5.7 million was less than our dividends declared of $8.6 million made during the same period due to earned OID of $1.8 million.

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, 2025 and December 31, 2024, all of our cash was unrestricted and totaled approximately $3.3 million and $103.6 million, respectively.

As of March 31, 2025, we believe that our cash on hand, capacity available under the Revolving Credit Facility 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, 2025 and December 31, 2024, all of our cash was unrestricted and totaled approximately $3.4 million and $103.6 million, respectively.

As of June 30, 2025, we believe that our cash on hand, capacity available under the Revolving Credit Facility and cash flows from operations will be sufficient to satisfy the operating requirements of our business through at least the next twelve months.

Capital Markets

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The specifics of any future offerings, along with the use of proceeds of any securities offered, will be described in detail in a prospectus supplement, or other offering materials, at the time of any offering.

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

During the three months ended March 31, 2025, we did not sell any shares of our common stock under the Sales Agreement.

As of March 31, 2025, our remaining authorization under the Sales Agreement was approximately $47.4 million.

As of June 30, 2025, the ATM Program was no longer in effect.

The ATM Program and related Sales Agreement expired in April 2025, in connection with the expiration of our Prior Shelf Registration Statement.

We do not currently have an ATM program, but may enter into a new ATM program and related sales agreement in the future pursuant to which sales may be made under the Shelf Registration Statement.

During the three months ended June 30, 2025, we did not sell any shares of our common stock under the Sales Agreement.

We do not currently have an ATM program, but we may enter into a new ATM program and related sales agreement in the future pursuant to which sales may be made under the Shelf Registration Statement.

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

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Revolving Credit Facility

In connection with the Revolving Credit Agreement, w e incurred a one-time commitment fee expense of approximately $0.5 million, which was amortized over the life of the facility.

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

During the three months ended March 31, 2025, the Company incurred an unused line fee of approximately $56.3 thousand.

On April 29, 2022, we entered into the Revolving Credit Facility, which contained initial 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) 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 Agreement.

The Revolving Credit Facility’s initial maturity date of April 29, 2025 was extended to April 29, 2028 under Amendment Number Four to the Revolving Credit Agreement, as described further below.

In April 2025, we entered into Amendment Number Four to Loan and Security Agreement, by and among the Company, as borrower, the lenders party thereto, and the lead arranger, bookrunner and administrative agent party thereto.

Amendment, among other things, (i) extends the maturity date of the Agreement to April 29, 2028, (ii) increases the interest rate floor from 4.00% to 7.00%, (iii) permits certain restricted payments to be made upon the Company meeting certain terms and conditions, and (iv) expands the collateral secured under the Agreement from assets comprising of or relating to loan obligations designed for inclusion in the borrower base to substantially all of the Company’s and its subsidiaries’ assets.

The Amendment, among other things, (i) extends the maturity date of the Agreement to April 29, 2028, (ii) increases the interest rate floor from 4.00% to 7.00%, (iii) permits certain restricted payments to be made upon the Company meeting certain terms and conditions, and (iv) expands the collateral secured under the Agreement from assets comprising of or relating to loan obligations designed for inclusion in the borrower base to substantially all of the Company’s and its

subsidiaries’ assets.

In connection with the amendment, the Revolving Credit Facility has a lead commitment of $30.0 million from a FDIC-insured banking institution (which may be increased up to $100.0 million in aggregate, subject to available borrowing base and additional commitments) which may be borrowed, repaid and redrawn, subject to a borrowing base based on eligible loan obligations held by the Company and subject to the satisfaction of other conditions provided under the Revolving Credit Facility.

Interest is payable on the Revolving Credit Facility at the greater of (1) the applicable base rate plus 0.50% and (2) 7.00%, as provided in the Revolving Credit Agreement, payable in cash in arrears.

In connection with the Revolving Credit Agreement and related amendments, we incurred a one-time commitment fee of approximately $0.1 million, which will be included in prepaid expenses and other assets on our consolidated balance sheets and amortized over the life of the facility.

In June 2025, we entered into Amendment Number Five to the Loan and Security Agreement, by and among the Company, as borrower, the lenders party thereto, and the lead arranger, bookrunner and administrative agent party thereto.

The Amendment among other things increased the commitment from the lenders by $20.0 million, to a total aggregate commitment of $50.0 million.

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

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

To the best of our knowledge, as of March 31, 2025, 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, 2025, we were in compliance in all material respects with all covenants contained in our Revolving Credit Agreement.

AFCF Credit Facility

In December 2024, we entered into the AFCF Credit Facility, which provides for an unsecured revolving credit facility with a $40.0 million commitment, which may be borrowed, repaid and redrawn, subject to a draw fee and the other conditions provided in the AFCF Credit Agreement .

As of March 31, 2025, we had no borrowings outstanding and $40.0 million availability under our AFCF Credit Agreement.

In April 2025, in conjunction with the entry by the Company into Amendment Number Four to the Revolving Credit Facility, we terminated that certain AFCF Credit Agreement, dated December 17, 2024.

There were no outstanding borrowings under the AFCF Credit Agreement at the time of its termination.

At the time of termination, we had no borrowings outstanding and $40.0 million of availability under our AFCF Credit Agreement.

As of June 30, 2025, the AFCF Credit Facility was no longer in effect.

2027 Senior Notes

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The Indenture also requires us to offer to purchase all of the 2027 Senior Notes at a purchase price equal to 101% of the principal amount of the 2027 Senior Notes, plus accrued and unpaid interest if a “change of control triggering event” (as defined in the Indenture) occurs.

The Indenture governing the 2027 Senior Notes contains customary terms and restrictions, subject to a number of exceptions and qualifications, including restrictions on our ability to (1) incur additional indebtedness unless the Annual Debt Service Charge (as defined in the Indenture) is no less than 1.5 to 1.0, (2) incur or maintain total debt in an aggregate principal amount greater than 60% of our consolidated Total Assets (as defined in the Indenture), (3) incur or maintain secured debt in an aggregate principal amount greater than 25% of our consolidated Total Assets (as defined in the

and (4) merge, consolidate or sell substantially all of our assets.

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If any event of default occurs, any amount then outstanding under the Indenture may immediately become due and payable.

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

These events of default are subject to a number of important exceptions and

qualifications set forth in the Indenture.

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

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

As of March 31, 2025 , we believe that our cash on hand, capacity available under our Revolving Credit Facility and cash flows from operations will be sufficient to service our outstanding debt during the next twelve months.

Cash provided by (used in) operating, investing and financing activities of continuing operations for the three months ended March 31, 2025 and 2024 is as follows:

Three months ended

As of June 30, 2025 , we believe that our cash on hand, capacity available under our Revolving Credit Facility and cash flows from operations will be sufficient to service our outstanding debt during the next twelve months.

Cash provided by (used in) operating, investing and financing activities of continuing operations for the six months ended June 30, 2025 and 2024 is as follows:

Six months ended

Net cash provided by (used in) operating activities of continuing operations $ 5,681,365 $ 14,013,649

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Net Cash Provided by (Used in) Operating Activities of Continuing Operations

Net cash provided by operating activities of continuing operations during the three months ended March 31, 2025 was approximately $3.9 million, compared to approximately $5.5 million for the same period in 2024.

The decrease of approximately $(1.6) million period over period was primarily due to a decrease in the non-cash change in unrealized (gains) losses on loans held at fair value of approximately $(2.9) million, decrease in non-cash provision for current expected credit losses of approximately $(5.6) million, decrease in accrued management and incentive fees of approximately $(1.1) million, partially offset by an increase in net income from continuing operations of approximately $5.6 million, decrease in non-cash PIK interest of approximately $1.5 million and decrease in non-cash OID accretion of approximately $1.0 million, respectively.

Net cash provided by operating activities of continuing operations during the six months ended June 30, 2025 was approximately $5.7 million, compared to approximately $14.0 million for the same period in 2024.

The decrease of approximately $(8.3) million period over period was primarily due lower revenue and related incoming cash payments from borrowers due to loans on nonaccrual status and no sales of loans in the current year, partially offset by lower management and incentive paid to our Manager period over period.

Net Cash (Used in) Provided by Investing Activities of Continuing Operations

Net cash used in investing activities of continuing operations during the three months ended March 31, 2025 was approximately $(19.1) million, compared to approximately $(7.5) million for the same period in 2024.

The decrease in net cash used in investing activities of approximately $(11.6) million during the three months ended March 31, 2024 to March 31, 2025 was primarily due to a decrease on loan repayments of approximately $(19.6) million and an increase in cash fundings to title agent due to the timing of loan closings of $(10.1) million, offset by a decrease in issuance and fundings on loans of approximately $19.9 million.

Net cash used in investing activities of continuing operations during the six months ended June 30, 2025 was approximately $(3.5) million, compared to approximately $96.6 million for the same period in 2024.

The decrease in net cash used in investing activities of approximately $(100.2) million during the six months ended June 30, 2024 to June 30, 2025 was primarily due to a decrease on loan repayments of approximately $(14.2) million and a decrease in loan repayments from the prior period of $(96.1) million.

Net Cash (Used in) Provided by Financing Activities of Continuing Operations

Net cash used in financing activities of continuing operations during the three months ended March 31, 2025 was approximately $(85.1) million, compared to approximately $8.2 million for the same period in 2024.

The decrease of approximately $(93.3) million during the three months ended March 31, 2024 to March 31, 2025 was primarily due to a decrease in borrowings on the Revolving Credit Facility and the AFCF Credit Facility of $(33.5) million in the aggregate, offset by an increase in repayments on the Revolving Credit Facility and the AFCF Credit Facility of $(62.3) million in the aggregate.

Cash provided by (used in) operating, investing and financing activities of discontinued operations for the three months ended March 31, 2025 and 2024 is as follows:

Three months ended

Net cash used in financing activities of continuing operations during the six months ended June 30, 2025 was approximately $(102.3) million, compared to approximately $(27.1) million for the same period in 2024.

The decrease of approximately $(75.2) million during the six months ended June 30, 2024 to June 30, 2025 was primarily due to a decrease in borrowings on the Revolving Credit Facility and the AFCF Credit Facility of $(59.5) million in the aggregate and increase in repayments on the Revolving Credit Facility and the AFCF Credit Facility of $(23.1) million in the aggregate.

Cash provided by (used in) operating, investing and financing activities of discontinued operations for the six months ended June 30, 2025 and 2024 is as follows:

Six months ended

Net cash provided by (used in) operating activities of discontinued operations $ — $ 2,678,448

2 unchanged sentences

Net Cash Provided by (Used in) Operating Activities of Discontinued Operations

Net cash provided by operating activities of discontinued operations during the three months ended March 31, 2025 was zero, compared to approximately $0.9 million for the same period in 2024.

The decrease of approximately $(0.9) million during the three months ended March 31, 2024 to March 31, 2025 was primarily due to a decrease in net income from discontinued operations of $(1.5) million and changes in working capital of $0.6 million, respectively.

Net cash provided by operating activities of discontinued operations during the six months ended June 30, 2025 was zero, compared to approximately $2.7 million for the same period in 2024.

The decrease of approximately $(2.7) million during the six months ended June 30, 2024 to June 30, 2025 was primarily due to a decrease in net income from discontinued operations of $(2.8) million and changes in working capital of $0.1 million, respectively.

Net Cash Provided by (Used in) Investing Activities of Discontinued Operations

Net cash used in investing activities of discontinued operations during the three months ended March 31, 2025 was zero, compared to net cash provided by investing activities of $(46.4) million for the same period in 2024.

Net cash used in investing activities of discontinued operations during the six months ended June 30, 2025 was zero, compared to net cash provided by investing activities of $(37.6) million for the same period in 2024.

The increase of net cash used in investing activities of discontinued operations was primarily due to the issuance and fundings on loans of approximately $(50.8) million, offset by principal repayments of loans of $13.3 million, respectively.

Net Cash Provided by (Used in) Financing Activities of Discontinued Operations

There were no cash flows related to financing activities of discontinued operations during the three months ended March 31, 2025 and 2024.

There were no cash flows related to financing activities of discontinued operations during the six months ended June 30, 2025 and 2024.

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

Our contractual obligations as of March 31, 2025 are as follows:

As of March 31, 2025

Our contractual obligations as of June 30, 2025 are as follows:

As of June 30, 2025

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

2 unchanged sentences

Total $ 5,209,223 $ 4,927,492 $ — $ — $ 10,136,715

As of March 31, 2025 , all unfunded commitments were related to our total loan commitments and were available for funding in less than two years.

We also had the following contractual obligations as of March 31, 2025 relating to the 2027 Senior Notes:

As of March 31, 2025

As of June 30, 2025 , all unfunded commitments were related to our total loan commitments and were available for funding in less than two years.

We also had the following contractual obligations as of June 30, 2025 relating to the 2027 Senior Notes:

As of June 30, 2025

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

3 unchanged sentences

Total $ 5,175,000 $ 95,175,000 $ — $ — $ 100,350,000

(1) Amounts include projected interest payments during the period based on interest rates in effect as of March 31, 2025 .

(1) Amounts include projected interest payments during the period based on interest rates in effect as of June 30, 2025 .

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

1 unchanged sentence

Off-balance sheet commitments consist of unfunded commitments on delayed draw loans.

Other than as set forth in this Quarterly Report, we do not have any relationships with unconsolidated entities or financial partnerships, such as entities often referred to as structured investment vehicles, special purpose entities or variable interest entities, established to facilitate off-balance sheet arrangements or other contractually narrow or limited purposes.

facilitate off-balance sheet arrangements or other contractually narrow or limited purposes.

Further, we have not guaranteed any obligations of unconsolidated entities or entered into any commitment or intend to provide additional funding to any such entities.

15 unchanged sentences

Critical Accounting Policies and Estimates

As of March 31, 2025 , 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, 2025 , 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