Advanced Flower Capital Inc. 10-Q

Item 1. Financial Statements ADVANCED FLOWER CAPITAL INC. CONSOLIDATED BALANCE SHEETS As of June 30, 2025 December 31, 2024 (unaudited) Assets Loans held for investment at fair value (cost of $ 48,318,884 and $ 50,241,018 at June 30, 2025 and December 31, 2024, respectively, net) $ 26,847,222 $ 30,510,804 Loans held for investment at carrying value, net 300,946,208 293,262,374 Loan receivable held at carrying value, net — 1,895,638 Current expected credit loss reserve ( 43,834,149 ) ( 30,419,677 ) Loans held for investment at carrying value and loan receivable held at carrying value, net of current expected credit loss reserve 257,112,059 264,738,335 Cash and cash equivalents 3,410,065 103,610,460 Interest receivable 1,577,587 1,982,897 Prepaid expenses and other assets 1,643,022 1,214,817 Total assets $ 290,589,955 $ 402,057,313 Liabilities Accrued interest $ 941,212 $ 894,611 Due to affiliate — 6,754 Dividends payable 3,389,267 7,369,866 Current expected credit loss reserve 127,126 166,702 Accrued management and incentive fees 680,358 1,932,246 Accrued direct administrative expenses 677,045 1,197,518 Accounts payable and other liabilities 736,193 501,328 Senior notes payable, net 88,907,680 88,612,150 Line of credit payable 10,400,000 60,000,000 Line of credit payable to affiliate — 40,000,000 Total liabilities 105,858,881 200,681,175 Commitments and contingencies (Note 9) Shareholders’ equity Preferred stock, par value $ 0.01 per share, 10,000 shares authorized at June 30, 2025 and December 31, 2024 and 0 shares issued and outstanding at June 30, 2025 and December 31, 2024, respectively — — Common stock, par value $ 0.01 per share, 50,000,000 shares authorized at June 30, 2025 and December 31, 2024 and 22,595,111 and 22,332,927 shares issued and outstanding at June 30, 2025 and December 31, 2024, respectively 225,951 223,329 Additional paid-in capital 252,901,392 251,865,763 Accumulated (deficit) earnings ( 68,396,269 ) ( 50,712,954 ) Total shareholders’ equity 184,731,074 201,376,138 Total liabilities and shareholders’ equity $ 290,589,955 $ 402,057,313 See accompanying notes to the consolidated financial statements 1 Index ADVANCED FLOWER CAPITAL INC. CONSOLIDATED STATEMENTS OF OPERATIONS (unaudited) Three months ended June 30, Six months ended June 30, 2025 2024 2025 2024 Revenue 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 Expenses 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 from discontinued operations, net of tax — 1,239,897 — 2,756,124 Net (loss) income $ ( 13,164,651 ) $ 16,446,121 $ ( 9,096,966 ) $ 16,392,005 Basic earnings per common share: Continuing operations $ ( 0.60 ) $ 0.74 $ ( 0.42 ) $ 0.66 Discontinued operations $ — $ 0.06 $ — $ 0.13 Total basic earnings per common share $ ( 0.60 ) $ 0.80 $ ( 0.42 ) $ 0.79 Diluted earnings per common share: Continuing operations $ ( 0.60 ) $ 0.74 $ ( 0.42 ) $ 0.66 Discontinued operations $ — $ 0.06 $ — $ 0.13 Total diluted earnings per common share $ ( 0.60 ) $ 0.80 $ ( 0.42 ) $ 0.79 Weighted average number of common shares outstanding: Basic weighted average shares of common stock outstanding 22,114,341 20,400,004 22,106,205 20,396,940 Diluted weighted average shares of common stock outstanding 22,116,886 20,437,799 22,112,769 20,418,897 See accompanying notes to the consolidated financial statements 2 Index ADVANCED FLOWER CAPITAL INC. CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY (unaudited) Three months ended June 30, 2025 Preferred Stock Common Stock Additional Paid-In Capital Accumulated Earnings (Deficit) Total Shareholders’ Equity Shares Amount Balance at March 31, 2025 $ — 22,596,007 $ 225,960 $ 252,416,881 $ ( 51,842,351 ) $ 200,800,490 Stock-based compensation, net of forfeitures — ( 896 ) ( 9 ) 484,511 — 484,502 Dividends declared on common shares ($ 0.15 per share) — — — — ( 3,389,267 ) ( 3,389,267 ) Net loss — — — — ( 13,164,651 ) ( 13,164,651 ) Balance at June 30, 2025 $ — 22,595,111 $ 225,951 $ 252,901,392 $ ( 68,396,269 ) $ 184,731,074 Three months ended June 30, 2024 Preferred Stock Common Stock Additional Paid-In Capital Accumulated Earnings (Deficit) Total Shareholders’ Equity Shares Amount Balance at March 31, 2024 $ 1 20,667,094 $ 206,671 $ 350,347,018 $ ( 39,932,564 ) $ 310,621,126 Stock-based compensation — — — 369,343 — 369,343 Dividends declared on common shares ($ 0.63 per share) — — — — ( 13,020,269 ) ( 13,020,269 ) Dividends declared on preferred shares ($ 60 per share) — — — — ( 7,500 ) ( 7,500 ) Redemption of preferred shares ( 1 ) — — ( 124,999 ) — ( 125,000 ) Net income — — — — 16,446,121 16,446,121 Balance at June 30, 2024 $ — 20,667,094 $ 206,671 $ 350,591,362 $ ( 36,514,212 ) $ 314,283,821 See accompanying notes to the consolidated financial statements 3 Index ADVANCED FLOWER CAPITAL INC. CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY Six months ended June 30, 2025 Preferred Stock Common Stock Additional Paid-In- Capital Accumulated Earnings (Deficit) Total Shareholders’ Equity Shares Amount Balance at December 31, 2024 $ — 22,332,927 $ 223,329 $ 251,865,763 $ ( 50,712,954 ) $ 201,376,138 Stock-based compensation, net of forfeitures — 262,184 2,622 1,035,629 — 1,038,251 Dividends declared on common shares ($ 0.38 per share) — — — — ( 8,586,349 ) ( 8,586,349 ) Net loss — — — — ( 9,096,966 ) ( 9,096,966 ) Balance at June 30, 2025 $ — 22,595,111 $ 225,951 $ 252,901,392 $ ( 68,396,269 ) $ 184,731,074 Six months ended June 30, 2024 Preferred Stock Common Stock Additional Paid-In- Capital Accumulated Earnings (Deficit) Total Shareholders’ Equity Shares Amount Balance at December 31, 2023 $ 1 20,457,697 $ 204,577 $ 349,805,890 $ ( 29,958,243 ) $ 320,052,225 Stock-based compensation — 209,397 2,094 910,471 — 912,565 Dividends declared on common shares ($ 1.11 per share) — — — — ( 22,940,474 ) ( 22,940,474 ) Dividends declared on preferred shares ($ 60 per share) — — — — ( 7,500 ) ( 7,500 ) Redemption of preferred shares ( 1 ) — — ( 124,999 ) — ( 125,000 ) Net income — — — — 16,392,005 16,392,005 Balance at June 30, 2024 $ — 20,667,094 $ 206,671 $ 350,591,362 $ ( 36,514,212 ) $ 314,283,821 See accompanying notes to the consolidated financial statements 4 Index ADVANCED FLOWER CAPITAL INC. CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited) Six months ended June 30, 2025 2024 Operating activities: Net (loss) income $ ( 9,096,966 ) $ 16,392,005 Net (income) from discontinued operations, net of tax — ( 2,756,124 ) Net (loss) income from continuing operations ( 9,096,966 ) 13,635,881 Adjustments to reconcile net income to net cash provided by (used in) operating activities: Provision for (reversal of) current expected credit losses 15,152,142 ( 1,330,420 ) Realized losses (gains) on investments, net — 93,338 Change in unrealized losses (gains) on loans at fair value, net 1,741,448 5,033,694 Accretion of deferred loan original issue discount and other discounts ( 1,828,874 ) ( 5,278,643 ) Amortization of deferred financing costs - revolving credit facility 169,393 191,887 Amortization of deferred financing costs - senior notes 313,030 314,664 Stock-based compensation 1,038,251 912,565 Payment-in-kind interest ( 266,550 ) ( 2,351,851 ) Changes in operating assets and liabilities: Accounts receivable — 55 Interest receivable 405,310 2,576,974 Prepaid expenses and other assets ( 448,170 ) 105,903 Accrued interest 46,601 ( 5,250 ) Accrued management and incentive fees, net ( 1,251,888 ) 513,302 Accrued direct administrative expenses ( 520,473 ) ( 601,946 ) Accounts payable and other liabilities 228,111 203,496 Net cash provided by (used in) operating activities of continuing operations 5,681,365 14,013,649 Net cash provided by (used in) operating activities of discontinued operations — 2,678,448 Net cash provided by (used in) operating activities 5,681,365 16,692,097 Cash flows from investing activities: Issuance of and fundings on loans ( 29,183,647 ) ( 39,264,440 ) Proceeds from sales of loans — 96,061,029 Principal repayment of loans 25,635,763 39,838,299 Net cash (used in) provided by investing activities of continuing operations ( 3,547,884 ) 96,634,888 Net cash (used in) provided by investing activities of discontinued operations — ( 37,557,988 ) Net cash (used in) provided by investing activities ( 3,547,884 ) 59,076,900 Cash flows from financing activities: Payment of financing costs ( 166,928 ) ( 225,000 ) Redemption of preferred shares — ( 125,000 ) Borrowings on revolving credit facilities 35,500,000 95,000,000 Repayments on revolving credit facilities ( 125,100,000 ) ( 102,000,000 ) Dividends paid to common and preferred shareholders ( 12,566,948 ) ( 19,747,400 ) Net cash (used in) provided by financing activities of continuing operations ( 102,333,876 ) ( 27,097,400 ) Net cash provided by (used in) financing activities of discontinued operations — — Net cash (used in) provided by financing activities ( 102,333,876 ) ( 27,097,400 ) Net (decrease) increase in cash and cash equivalents ( 100,200,395 ) 48,671,597 Cash and cash equivalents, beginning of period 103,610,460 121,626,453 Cash and cash equivalents, end of period $ 3,410,065 $ 170,298,050 5 Index Supplemental disclosure of non-cash activity: OID withheld from funding of loans $ 795,000 $ 2,141,469 Dividends declared and not yet paid $ 3,389,267 $ 13,020,269 Non-cash funding of new loan $ — $ 14,672,640 Supplemental information: Interest paid during the period $ 3,144,421 $ 2,675,138 Income taxes paid (net of refunds received) during the period $ 185,668 $ 567,070 See accompanying notes to the consolidated financial statements 6 Index ADVANCED FLOWER CAPITAL INC. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS As of June 30, 2025 (unaudited) 1. ORGANIZATION Advanced Flower Capital Inc. (the “Company” or “AFC”) is an institutional lender that was founded in July 2020 by a veteran team of investment profe ssionals. The Company primarily originates, structures, underwrites, invests in and manages senior secured mortgage loans and other types of loans and debt securities, with a specialization in loans to cannabis industry operators in states that have legalized medical and/or adult-use cannabis. The Company is a Maryland corporation and completed its initial public offering (the “IPO”) in March 2021. The Company is externally managed by AFC Management, LLC, a Delaware limited liability company (the “Manager”), pursuant to the terms of the Amended and Restated Management Agreement, dated January 14, 2021, between the parties (as amended from time to time, the “Management Agreement”). The Company’s wholly-owned subsidiary, AFCG TRS1, LLC, a Delaware limited liability company (“TRS1”), operates as a taxable real estate investment trust subsidiary (a “TRS”). TRS1 began operating in July 2021, and the financial statements of TRS1 are consolidated within the Company’s consolidated financial statements. On July 9, 2024, the Company completed the spin-off (the “Spin-Off”) of the Company’s wholly-owned subsidiary, Sunrise Realty Trust, Inc. (“SUNS”), which held the Company’s commercial real estate (“CRE”) loan portfolio, into an independent, publicly traded REIT, SUNS. In connection with the Spin-Off, the operating results of the SUNS business through the date of the Spin-Off are reported in net income from discontinued operations, net of tax in the consolidated statements of operations for all periods presented. The related assets and liabilities are reported as assets and liabilities of discontinued operations on the consolidated balance sheets. Cash flows from the Company’s discontinued operations are presented as such in the consolidated statements of cash flows for all periods presented. Unless otherwise noted, all amounts and disclosures included in the notes to consolidated financial statements reflect only the Company’s continuing operations. For additional information, see Note 16, “Discontinued Operations.” During the reporting period, the Company operated in one operating segment. The Company focused on senior secured loans to cannabis industry operators in states where medical and/or adult-use cannabis is legal. These loans are generally held for investment and are typically secured, directly or indirectly, by real estate, equipment, cash flows and the value associated with licenses (where applicable) and/or other assets of borrowers depending on the applicable laws and regulations governing such borrowers. The Company has elected to be taxed as a real estate investment trust (“REIT”) for United States federal income tax purposes under the Internal Revenue Code of 1986, as amended (the “Code”). The Company generally will not be subject to United States federal income taxes on its REIT taxable income as long as it annually distributes all of its REIT taxable income prior to the deduction for dividends paid to shareholders and complies with various other requirements as a REIT. At a meeting of the Board of Directors (the “Board”) on August 12, 2025 (the “August Meeting”), the Board approved the sixth amendment to the Company’s existing Management Agreement (the “Sixth Amendment”) to expand the Company’s investment strategy. Accordingly, under the Sixth Amendment, the Company expanded its investment strategy and intends 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. The Company believes 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, the Company expects to be able to diversify its exposure across industries and credit risk profiles while maintaining deal selectivity. The Company may make investments in accordance with this expanded investment strategy to the extent consistent with maintaining its eligibility to continue to qualify as a REIT under the Code and maintain our exemption from registration under the Investment Company Act of 1940, as amended (“1940 Act”). At a meeting held on August 12, 2025, the Board, including a majority of the directors who are not “interested persons” of the Company (as that term is defined under the Investment Company Act of 1940), unanimously approved, subject to the approval of the Company’s shareholders, a new Investment Advisory Agreement between the Company and the Manager. 7 Index If approved by the shareholders, the new Investment Advisory Agreement would enable the Company to operate as a BDC under the 1940 Act, as discussed further below in “Note 18—Subsequent Events”. 2. SIGNIFICANT ACCOUNTING POLICIES The accompanying unaudited interim consolidated financial statements should be read in conjunction with the audited consolidated financial statements and results of operations included in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2024 filed with the SEC. Refer to Note 2 to the Company’s Annual Report on Form 10-K for a description of the Company’s significant accounting policies. The Company has included disclosures below regarding basis of presentation and other accounting policies that (i) are required to be disclosed quarterly, (ii) have material changes or (iii) the Company views as critical as of the date of this report. Basis of Presentation The accompanying unaudited interim consolidated financial statements and related notes have been prepared on the accrual basis of accounting in conformity with accounting principles generally accepted in the United States of America (“GAAP”) and in conformity with the rules and regulations of the SEC applicable to interim financial information and include the accounts of the Company and its wholly-owned subsidiary. The unaudited interim consolidated financial statements reflect all adjustments that, in the opinion of management, are necessary for the fair presentation of the Company’s results of operations and financial condition as of and for the periods presented. All intercompany balances and transactions have been eliminated in consolidation. The Company’s results of operations for the three and six months ended June 30, 2025 are not necessarily indicative of the results that may ultimately be realized for the full fiscal year ending December 31, 2025. BDC Conversion Expenses Expenses associated with the Company’s election and subsequent conversion to be regulated as a business development company (“BDC”) under the 1940 Act are expensed as incurred and include legal fees related to the proxy statement and special shareholder meeting in connection the BDC election, the entry into certain agreements relating to the BDC election and adoption of certain compliance policies and procedures relating to the BDC election. Use of Estimates in the Preparation of Financial Statements The preparation of consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect certain reported amounts and disclosures. Actual results could differ from those estimates. Significant estimates include the valuation of loans held for investment at fair value and current expected credit losses reserve (“CECL Reserve”). Recent Accounting Pronouncements The Company is an “emerging growth company,” as defined in the Jumpstart Our Business Startups Act (“JOBS Act”). Section 107 of the JOBS Act provides that an “emerging growth company” can take advantage of the extended transition period provided in Section 7(a)(2)(B) of the Securities Act for complying with new or revised accounting standards. In other words, an “emerging growth company” can delay the adoption of certain accounting standards until those standards would otherwise apply to private companies. The Company has elected to take advantage of this extended transition period. As a result, the Company will not be subject to the same implementation timing for new or revised accounting standards as other public companies that are not emerging growth companies, which may make comparison of the Company’s financials to those of other public companies more difficult. In December 2023, the FASB issued ASU 2023-09—Income Taxes (Topic 740): Improvements to Income Tax Disclosures (“ASU 2023-09”). ASU 2023-09 improves the transparency of income tax disclosures related to rate reconciliation and income taxes. ASU 2023-09 is effective for annual periods beginning after December 15, 2024. For entities other than public business entities, the amendments are effective for annual periods beginning after December 15, 2025. Early adoption is permitted for annual financial statements that have not yet been issued or made available for issuance. The amendments should be applied prospectively, however, retrospective application is permitted. The adoption of ASU 2023-09 is not expected to have a material impact on the Company’s consolidated financial statements. 8 Index In November 2024, the FASB issued ASU 2024-03—Income Statement—Reporting Comprehensive Income—Expense Disaggregation Disclosures (Subtopic 220-40): Disaggregation of Income Statement Expenses (“ASU 2024-03”) and in January 2025, the FASB issued ASU 2025-01—Income Statement—Reporting Comprehensive Income—Expense Disaggregation Disclosures (Subtopic 220-40): Clarifying the Effective Date (“ASU 2025-01”), which requires additional disclosure of the nature of expenses included in the income statement as well as disclosures about specific types of expenses included in the expense captions presented in the income statement. ASU 2024-03, as clarified by ASU 2025-01, is effective for fiscal years beginning after December 15, 2026 and interim periods within fiscal years beginning after December 15, 2027, with early adoption permitted. The adoption of ASU 2024-03 is not expected to have a material impact on the Company’s consolidated financial statements. 3. LOANS HELD FOR INVESTMENT AT FAIR VALUE As of June 30, 2025 and December 31, 2024, the Company’s 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, the Company received approximately $ 1.9 million of principal repayments of loans held at fair value. As of June 30, 2025 and December 31, 2024, the Company’s loan held at fair value did not have a floating interest rate. The following tables summarize the Company’s loans held at fair value as of June 30, 2025 and December 31, 2024: As of June 30, 2025 Fair Value (1) Carrying Value (2) Outstanding Principal (2) Weighted Average Remaining Life (Years) (3) Senior term loan $ 26,847,222 $ 48,318,884 $ 51,186,315 0.0 Total loan held at fair value $ 26,847,222 $ 48,318,884 $ 51,186,315 0.0 As of December 31, 2024 Fair Value (1) Carrying Value (2) Outstanding Principal (2) Weighted Average Remaining Life (Years) (3) Senior term loan $ 30,510,804 $ 50,241,018 $ 53,108,449 0.0 Total loan held at fair value $ 30,510,804 $ 50,241,018 $ 53,108,449 0.0 (1) Refer to Note 13. (2) The difference between the carrying value and the outstanding principal amount of the loans consists of unaccreted original issue discount (“OID”) and loan origination costs. (3) As of June 30, 2025 and December 31, 2024, the maturity date passed on the credit facility with Private Company A without repayment. 9 Index 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 Discount Unrealized Gains (Losses) Fair Value Total loan held at fair value at December 31, 2024 $ 53,108,449 $ ( 2,867,431 ) $ ( 19,730,214 ) $ 30,510,804 Change in unrealized gains (losses) on loans at fair value, net — — ( 1,741,448 ) ( 1,741,448 ) Loan repayments ( 1,922,134 ) — — ( 1,922,134 ) Total loan held at fair value at June 30, 2025 $ 51,186,315 $ ( 2,867,431 ) $ ( 21,471,662 ) $ 26,847,222 As of June 30, 2025 and December 31, 2024 , the Company ha d one l oan held at fair value on nonaccrual status. Effective March 1, 2024, the Company placed Private Company A on nonaccrual status. As of June 30, 2025 , the loan with Private Company A had an outstanding principal balance of approximately $ 51.2 million and an unrealized loss of approximately $( 21.5 ) million. During the three and six months ended June 30, 2025, approximately $ 0.7 million and $ 1.9 million of payments were received and applied as a reduction to the amortized cost of the Private Company A loan. A more detailed listing of the Company’s loan held at fair value portfolio based on information available as of June 30, 2025 is as follows: Collateral Location Collateral Type (1) Fair Value (2) Carrying Value (3) Outstanding Principal (3) Interest Rate Maturity Date (4) Payment Terms (5) Private Co. A AZ, MA, NM C, D $ 26,847,222 $ 48,318,884 $ 51,186,315 15.5 % (6) 5/8/2024 I/O Total loan held at fair value $ 26,847,222 $ 48,318,884 $ 51,186,315 (1) C = Cultivation Facilities, D = Dispensary/Retail Facilities. (2) Refer to Note 13. (3) The difference between the carrying value and the outstanding principal amount of the loans consists of OID and loan origination costs. (4) Certain loans are subject to contractual extension options and may be subject to performance based or other conditions as stipulated in the loan agreement. Actual maturities may differ from contractual maturities stated herein as certain borrowers may have the right to prepay with or without paying a prepayment penalty. The Company may also extend contractual maturities and amend other terms of the loans in connection with loan modifications. (5) I/O = interest-only, P/I = principal and interest. P/I loans may include interest-only periods for a portion of the loan term. (6) Base weighted average interest rate of 13.0 % and payment-in-kind (“PIK”) weighted average interest rate of 2.5 %. In October 2023, AFC Agent LLC (“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, the Company placed the borrower on nonaccrual status. 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 on a monthly basis either from operations or from sale of collateral assets. 4. LOANS HELD FOR INVESTMENT AT CARRYING VALUE As of June 30, 2025 and December 31, 2024, t he Company’s 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, the Company 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 the Company’s 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. 10 Index The following tables summarize the Company’s loans held at carrying value as of June 30, 2025 and December 31, 2024: As of June 30, 2025 Outstanding Principal (1) Original Issue Discount Carrying Value (1) Weighted Average Remaining Life (Years) (2) Senior term loans $ 308,405,751 $ ( 7,459,543 ) $ 300,946,208 1.6 Total loans held at carrying value $ 308,405,751 $ ( 7,459,543 ) $ 300,946,208 1.6 As of December 31, 2024 Outstanding Principal (1) Original Issue Discount Carrying Value (1) Weighted Average Remaining Life (Years) (2) Senior term loans $ 301,755,791 $ ( 8,493,417 ) $ 293,262,374 1.9 Total loans held at carrying value $ 301,755,791 $ ( 8,493,417 ) $ 293,262,374 1.9 (1) The difference between the carrying value and the outstanding principal amount of the loans consists of unaccreted OID and loan origination costs. (2) Weighted average remaining life is calculated based on the carrying value of the loans as of June 30, 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 Discount Carrying Value Total loans held at carrying value at December 31, 2024 $ 301,755,791 $ ( 8,493,417 ) $ 293,262,374 New fundings 29,978,647 ( 795,000 ) 29,183,647 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 June 30, 2025 $ 308,405,751 $ ( 7,459,543 ) $ 300,946,208 As of June 30, 2025 and December 31, 2024 , the Company had three and two loans held at carrying value on nonaccrual status, respectively, with a total amortized cost of approximately $ 104.2 million and $ 89.3 million, respectively. During the three and six months ended June 30, 2025, the Company recognized interest income of zero and $ 0.7 million on loans on nonaccrual status. Subsequent to June 30, 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 Company placed the loan with Private Company P on nonaccrual status effective June 1, 2025. As of June 30, 2025, the loan with Private Company P had an outstanding principal amount of approximately $ 15.6 million and amortized cost of $ 15.3 million. AFC Agent, on behalf of the Company and its affiliates, is actively pursuing judicial and non-judicial remedies against Private Company P. The Company placed Subsidiary of Private Company G on nonaccrual status effective December 1, 2023. As of June 30, 2025, the loan with Subsidiary of Private Company G had an outstanding principal amount of approximately $ 78.9 million 11 Index and an amortized cost of approximately $ 77.4 million, respectively. During the three and six months ended June 30, 2025, the Company recognized interest income of zero an d approximately $ 0.7 million related to this loan, which was received in cash. As full recovery of principal and accrued interest is doubtful, future cash receipts received in accordance with terms of the forbearance agreement are accounted for under the cost recovery method. During the three and six months ended June 30, 2025, approximately $ 0.3 million and $ 0.3 million of contractual interest payments were received and applied as a reduction to this loan’s amortized cost, respectively. The Company placed Private Company K on nonaccrual status effective December 1, 2023, with an outstanding principal amount of approximately $ 12.2 million and an amortized cost of approximately $ 11.5 million as of June 30, 2025 . During the three and six months ended June 30, 2025, the Company recognized no interest income related to this loan. A more detailed listing of the Company’s loans held at carrying value portfolio based on information available as of June 30, 2025 is as follows: Collateral Location Collateral Type (1) Outstanding Principal (2) Original Issue Discount Carrying Value (2) Interest Rate Maturity Date (3) Payment Terms (4) Sub. of Private Co. G NJ, PA C, D $ 78,880,165 $ ( 1,444,847 ) $ 77,435,318 12.5 % (5) 5/1/2026 I/O Private Co. K MA C, D 12,195,762 ( 682,619 ) 11,513,143 18.3 % (6) 5/3/2027 P/I Private Co. J MO C, D 23,359,234 ( 32,799 ) 23,326,435 18.3 % (7) 9/1/2025 P/I Private Co. L OH C, D 30,443,356 ( 343,736 ) 30,099,620 13.0 % (8) 5/1/2026 P/I Private Co. M AZ D 26,599,497 ( 1,729,171 ) 24,870,326 9.0 % (9) 7/31/2026 P/I Private Co. N - Real Estate FL C, D 19,327,505 ( 536,500 ) 18,791,005 12.5 % (10) 4/1/2028 P/I Private Co. N - Non-Real Estate FL C, D 17,200,000 ( 473,000 ) 16,727,000 12.5 % (11) 4/1/2028 P/I Private Co. O AZ, MD, MO, NJ, NV, NY, OH, OR, Canada C 5,014,073 ( 218,750 ) 4,795,323 13.5 % (12) 6/1/2028 P/I Private Co. P MI C, D 15,609,914 ( 311,172 ) 15,298,742 13.0 % (13) 7/1/2027 P/I Private Co. Q GA C, D 6,072,508 ( 348,333 ) 5,724,175 13.8 % (14) 9/1/2028 P/I Private Co. R MD C, D 36,427,033 ( 620,542 ) 35,806,491 12.0 % (15) 11/1/2027 P/I Sub. of Public Co. S FL, IL, MA, NY, OH, PA C, D 10,000,000 — 10,000,000 9.5 % (16) 8/12/2026 I/O Private Co. U GA, OH C, D 15,000,000 ( 324,324 ) 14,675,676 14.0 % (17) 3/1/2028 P/I Sub of Private Co. V MO, OH, UT C, D 12,276,704 ( 393,750 ) 11,882,954 14.0 % (18) 4/1/2029 P/I Total loans held at carrying value $ 308,405,751 $ ( 7,459,543 ) $ 300,946,208 (1) For cannabis operators, C = Cultivation Facilities, D = Dispensary/Retail Facilities. (2) The difference between the carrying value and the outstanding principal amount of the loans consists of unaccreted OID and loan origination costs. (3) Certain loans are subject to contractual extension options and may be subject to performance based or other conditions as stipulated in the loan agreement. Actual maturities may differ from contractual maturities stated herein as certain borrowers may have the right to prepay with or without paying a prepayment penalty. The Company may also extend contractual maturities and amend other terms of the loans in connection with loan modifications. (4) I/O = interest-only, P/I = principal and interest. P/I loans may include interest-only periods for a portion of the loan term. (5) Base interest rate of 12.5 %. Effective December 1, 2023, the Company placed the borrower on nonaccrual status. (6) Base interest rate of 12.0 % plus SOFR (SOFR floor of 1.0 %) and PIK interest rate of 2.0 %. Effective December 1, 2023, the Company placed the borrower on nonaccrual status. (7) Base interest rate of 12.0 % plus SOFR (SOFR floor of 1.0 %) and PIK interest rate of 2.0 %. (8) Base interest rate of 8.0 % plus SOFR (SOFR floor of 5.0 %). (9) Base interest rate of 9.0 %. (10) Base interest rate of 8.0 % plus SOFR (SOFR floor of 4.5 %). (11) Base interest rate of 8.0 % plus SOFR (SOFR floor of 4.5 %). 12 Index (12) Base interest rate of 8.5 % plus SOFR (SOFR floor of 5.0 %). (13) Base interest rate of 13.0 %. Effective June 1, 2025, the Company placed the borrower on nonaccrual status. (14) Base interest rate of 8.75 % plus SOFR (SOFR floor of 5.0 %). (15) Base interest rate of 7.5 % plus SOFR (SOFR floor of 4.5 %). (16) Base interest rate of 9.5 %. (17) Base interest rate of 14.0 %. (18) Base interest rate of 12.5 % and PIK interest rate of 1.5 %. 5. LOAN RECEIVABLE HELD AT CARRYING VALUE As of June 30, 2025 and December 31, 2024, the Company’s 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 zero and $ 1.9 million as of June 30, 2025 and December 31, 2024, respectively. During the six months ended June 30, 2025, the Company received $ 0.1 million of principal repayments of loan receivable held at carrying value. The following table presents changes in loans receivable as of and for the six months ended June 30, 2025: Principal Original Issue Discount Carrying Value Total loan receivable held at carrying value at December 31, 2024 $ 1,897,324 $ ( 1,686 ) $ 1,895,638 Loan repayments ( 118,392 ) — ( 118,392 ) Loan write-off ( 1,778,932 ) 1,686 ( 1,777,246 ) Total loan receivable held at carrying value at June 30, 2025 $ — $ — $ — Effective October 1, 2022, the Company placed Public Company A equipment loan receivable on nonaccrual status. During the three and six months ended June 30, 2025, the Company recognized no interest income related to this loan. Payments received were accounted for under the cost recovery method and applied as a reduction to the amortized cost of the Public Company A equipment loan. Prior to the write-off, in June 2025, 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. Based on discussions with the collateral agent, the Company does 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, the Company 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. 6. CURRENT EXPECTED CREDIT LOSSES As of June 30, 2025 and December 31, 2024, the Company’s CECL Reserve for its loans held at carrying value and loan receivable held at carrying value was approximately $ 44.0 million and $ 30.6 million, respectively, or 14.61 % and 10.36 %, respectively, of the Company’s total loans held at carrying value and loan receivable held at carrying value of approximately $ 300.9 million and $ 295.2 million, respectively, and is bifurcated between the current expected credit loss reserve (contra-asset) related to outstanding balances on loans held at carrying value and loan receivable held at carrying value of approximately $ 43.8 million and $ 30.4 million, respectively, and a liability for unfunded commitments of approximately $ 0.1 million and $ 0.2 million, respectively. The liability was based on the unfunded portion of the loan commitment over the full contractual period over which the Company is exposed to credit risk through a current obligation to extend credit. Management considered the likelihood that funding will occur and, if funded, the expected credit loss on the funded portion when determining the amount to allocate to its CECL Reserve. 13 Index Activity related to the CECL Reserve for outstanding balances and unfunded commitments on the Company’s loans held at carrying value and loan receivable held at carrying value as of and for the three and six months ended June 30, 2025 was as follows: Outstanding (1) Unfunded (2) Total Balance at March 31, 2025 $ 29,744,212 $ 142,743 $ 29,886,955 Provision for (reversal of) current expected credit losses 15,867,183 ( 15,617 ) 15,851,566 Write-offs ( 1,777,246 ) — ( 1,777,246 ) Recoveries — — — Balance at June 30, 2025 $ 43,834,149 $ 127,126 $ 43,961,275 Outstanding (1) Unfunded (2) Total Balance at December 31, 2024 $ 30,419,677 $ 166,702 $ 30,586,379 Provision for (reversal of) current expected credit losses 15,191,718 ( 39,576 ) 15,152,142 Write-offs ( 1,777,246 ) — ( 1,777,246 ) Recoveries — — — Balance at June 30, 2025 $ 43,834,149 $ 127,126 $ 43,961,275 (1) As of June 30, 2025 and December 31, 2024, the CECL Reserve related to outstanding balances on loans held at carrying value and loan receivable held at carrying value is recorded within current expected credit loss reserve in the Company’s consolidated balance sheets. (2) As of June 30, 2025 and December 31, 2024, the CECL Reserve related to unfunded commitments on loans held at carrying value is recorded within current expected credit loss reserve as a liability in the Company’s consolidated balance sheets. The Company continuously evaluates the credit quality of each loan by assessing the risk factors of each loan and assigning a risk rating based on a variety of factors. Such factors may include property type, geographic and local market dynamics, physical condition, projected cash flow, loan structure and exit plan, loan-to-value ratio, fixed charge coverage ratio, project sponsorship, and other factors deemed necessary by the Company. Based on a 5-point scale, the Company’s loans are rated “1” through “5,” from less risk to greater risk, which ratings are defined as follows: Rating Definition 1 Very Low Risk — Materially exceeds performance metrics included in original or current credit underwriting and business plan 2 Low Risk — Collateral and business performance exceeds substantially all performance metrics included in original or current credit underwriting and business plan 3 Medium Risk — Collateral and business performance meets, or is on track to meet underwriting expectations; business plan is met or can reasonably be achieved 4 High Risk/ Potential for Loss — Collateral performance falls short of underwriting, material differences from business plans, defaults may exist, or may soon exist absent material improvement. Risk of recovery of interest exists 5 Impaired/ Loss Likely — Performance is significantly worse than underwriting with major variances from business plan observed. Loan covenants or financial milestones have been breached; exit from loan or refinancing is uncertain. Full recovery of principal is unlikely 14 Index The risk ratings are primarily based on historical data as well as taking into account future economic conditions. As of June 30, 2025, the carrying value, excluding the CECL Reserve, of the Company’s loans held at carrying value and loan receivable held at carrying value within each risk rating by year of origination is as follows: Risk Rating: 2025 2024 2023 2022 2021 2020 Total 1 $ — $ — $ — $ — $ — $ — $ — 2 — — — — — — — 3 26,558,630 91,843,994 24,870,326 30,099,620 23,326,435 — 196,699,005 4 — 15,298,742 — — — — 15,298,742 5 — — — 11,513,143 77,435,318 — 88,948,461 Total $ 26,558,630 $ 107,142,736 $ 24,870,326 $ 41,612,763 $ 100,761,753 $ — $ 300,946,208 Gross write-offs $ — $ — $ — $ — $ — $ ( 1,777,246 ) $ ( 1,777,246 ) During the three months ended June 30, 2025, the Company deemed its 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 risk rating of “5” and was fully reserved for. In the second quarter of 2025, the Company 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. Refer to Note 5 for more information. 7. INTEREST RECEIVABLE The following table summarizes the interest receivable by the Company as of June 30, 2025 and December 31, 2024: As of June 30, 2025 As of December 31, 2024 Interest receivable $ 1,517,030 $ 1,923,914 PIK receivable 53,913 40,000 Unused fees receivable 6,644 18,983 Total interest receivable $ 1,577,587 $ 1,982,897 8. DEBT Revolving Credit Facility On April 29, 2022, the Company entered into the Loan and Security Agreement (the “Revolving Credit Agreement”) by and among the Company, the other loan parties from time to time party thereto, the lenders party thereto, and the lead arranger, bookrunner and administrative agent party thereto, pursuant to which, the Company obtained a $ 60.0 million senior secured revolving credit facility (as amended from time to time, the “Revolving Credit Facility”). 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. The Revolving Credit Facility contains aggregate commitments of $ 60.0 million from two FDIC-insured banking institutions (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 Agreement. Interest is payable on the Revolving Credit Facility at the greater of (1) the applicable base rate plus 0.50 % and (2) 4.50 %, as provided in the Revolving Credit Agreement, payable in cash in arrears. In connection with entering the Revolving Credit Agreement, the Company incurred a one-time commitment fee expense of approximately $ 0.5 million, which was included in prepaid expenses and other assets on the Company’s consolidated balance sheets and amortized over the life of the facility. The Company is required to pay certain fees to the agent and the lenders under the Revolving Credit Agreement, including a $ 75.0 thousand agent fee payable to the agent and a 0.25 % per annum loan fee payable ratably to the lenders, in each case, payable on the closing date and on the annual anniversary thereafter. Commencing on the six- 15 Index month anniversary of the closing date, the Revolving Credit Facility has an unused line fee of 0.25 % per annum, payable semi-annually in arrears, which is included within interest expense in the Company’s unaudited interim consolidated statements of operations. Based on the terms of the Revolving Credit Agreement, the unused line fee is waived if our average revolver usage exceeds the minimum amount required per the Revolving Credit Agreement. During the three and six months ended June 30, 2025, the Company incurred an unused line fee of approximately $ 18.3 thousand and $ 74.5 thousand, respectively. The obligations of the Company under the Revolving Credit Facility are secured by certain assets of the Company comprising of or relating to loan obligations designated for inclusion in the borrowing base. In addition, the Company is subject to various financial and other covenants, including: (1) liquidity of at least $ 5.0 million, (2) annual debt service coverage of at least 1.5 to 1.0 and (3) secured debt not to exceed 25 % of total consolidated assets of the Company and its subsidiaries. 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. In January 2025, the Company entered into Amendment Number Three 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, pursuant to which, among other things, the parties agreed to reduce the procedural requirements for obligor loan receivables to become eligible under the borrowing base. In April 2025, the Company entered into Amendment Number Four to Loan and Security Agreement (“Amendment Number Four”), 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, (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. In June 2025, the Company 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 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. 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, the Company incurred certain closing costs of approximately $ 35.9 thousand, which were included in prepaid expenses and other assets on the Company’s consolidated balance sheets and amortized over the life of the Revolving Credit Facility. As of June 30, 2025 and December 31, 2024, outstanding borrowings under the Revolving Credit Facility were $ 10.4 million and $ 60.0 million, respectively, and $ 39.6 million and zero were available for borrowing as of June 30, 2025 and December 31, 2024, respectively. As of June 30, 2025 and December 31, 2024, the interest rate on the Company’s borrowings under the Revolving Credit Facility was 8.00 %, respectively. AFCF Credit Facility In December 2024, the Company entered into an unsecured revolving credit agreement (the “AFCF Credit Agreement”), by and among the Company, as borrower, the lenders party thereto from time to time, and AFC Finance, LLC, as agent and lender. AFC Finance, LLC is wholly owned by Leonard M. Tannenbaum, Chairman of the Company’s Board of Directors. The AFCF Credit Agreement provides for an unsecured revolving credit facility (the “AFCF 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. Interest is payable on the AFCF Credit Facility at a rate per annum equal to 8.00 %. The AFCF Credit Facility matures on the earlier of (i) December 31, 2025 and (ii) the date of the closing of any unsecured debt with principal of at least $ 40.0 million used to refinance the AFCF Credit Agreement. In April 2025, in conjunction with the entry by the Company into Amendment Number Four to the Revolving Credit Facility, the Company terminated that certain AFCF Credit Agreement, by and among the Company, as borrower, the 16 Index lenders party thereto from time to time, and AFC Finance, LLC, as agent and lender. There were no outstanding borrowings under the AFCF Credit Agreement at the time of its termination. As December 31, 2024, outstanding borrowings under the AFCF Credit Facility were $ 40.0 million and no amounts available for borrowing. As of June 30, 2025, the AFCF Credit Facility had been terminated and no amounts were outstanding or available for borrowing thereunder. 2027 Senior Notes On November 3, 2021, the Company issued $ 100.0 million in aggregate principal amount of senior unsecured notes due in May 2027 (the “2027 Senior Notes”). The 2027 Senior Notes accrue interest at a rate of 5.75 % per annum. Interest on the 2027 Senior Notes is due semi-annually on May 1 and November 1 of each year, which began on May 1, 2022. The net proceeds from the offering were approximately $ 97.0 million, after deducting the initial purchasers’ discounts and commissions and estimated offering fees and expenses payable by the Company. The Company used the proceeds from the issuance of the 2027 Senior Notes (i) to fund loans related to unfunded commitments to existing borrowers, (ii) to originate and participate in commercial loans to companies operating in the cannabis industry that are consistent with the Company’s investment strategy and (iii) for working capital and other general corporate purposes. The terms of the 2027 Senior Notes are governed by an indenture, dated November 3, 2021, among us, as issuer, and TMI Trust Company, as trustee (the “Indenture”). Under the Indenture, the Company is required to cause all of its existing and future subsidiaries to guarantee the 2027 Senior Notes, other than certain immaterial subsidiaries as set forth in the Indenture. TRS1 is currently a subsidiary guarantor under the Indenture. Prior to February 1, 2027, the Company may redeem the 2027 Senior Notes in whole or in part, at a price equal to the greater of 100 % of the principal amount of the 2027 Senior Notes being redeemed or a make-whole premium set forth in the Indenture, plus accrued and unpaid interest thereon to, but excluding, the applicable redemption date. On or after February 1, 2027, we may redeem the 2027 Senior Notes in whole or in part at a price equal to 100 % of the principal amount of the 2027 Senior Notes being redeemed, plus accrued and unpaid interest, if any, to, but excluding, the applicable redemption date. 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 contains customary terms and restrictions, subject to a number of exceptions and qualifications, including restrictions on the Company’s 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 the Company’s consolidated Total Assets (as defined in the Indenture), (3) incur or maintain secured debt in an aggregate principal amount greater than 25 % of the Company’s consolidated Total Assets (as defined in the Indenture), and (4) merge, consolidate or sell substantially all of the Company’s assets. In addition, the Indenture also provides for customary events of default. 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. As of June 30, 2025 and December 31, 2024, the Company had $ 90.0 million in principal amount of the 2027 Senior Notes outstanding. 17 Index The 2027 Senior Notes are due on May 1, 2027. Scheduled principal payments on the 2027 Senior Notes as of June 30, 2025 are as follows: 2027 Senior Notes Year 2025 (remaining) $ — 2026 — 2027 90,000,000 2028 — 2029 — Thereafter — Total principal 90,000,000 Deferred financing costs included in senior notes payable ( 1,092,320 ) Senior notes payable, net $ 88,907,680 The following tables reflect a summary of interest expense incurred during the three and six months ended June 30, 2025 and 2024: Three months ended June 30, 2025 2027 Senior Notes Revolving Credit Facility AFCF Credit Facility Total Interest expense $ 1,293,750 $ 328,789 $ — $ 1,622,539 Unused fee expense — 18,252 — 18,252 Amortization of deferred financing costs 157,331 60,052 — 217,383 Total interest expense $ 1,451,081 $ 407,093 $ — $ 1,858,174 Three months ended June 30, 2024 2027 Senior Notes Revolving Credit Facility AFCF Credit Facility Total Interest expense $ 1,293,750 $ 26,250 $ — $ 1,320,000 Unused fee expense — — — — Amortization of deferred financing costs 157,332 95,943 — 253,275 Total interest expense $ 1,451,082 $ 122,193 $ — $ 1,573,275 Six months ended June 30, 2025 2027 Senior Notes Revolving Credit Facility AFCF Revolving Credit Facility Total Borrowings Interest expense $ 2,587,500 $ 520,122 $ 8,889 $ 3,116,511 Unused fee expense — 74,511 — 74,511 Amortization of deferred financing costs 313,030 169,393 — 482,423 Total interest expense $ 2,900,530 $ 764,026 $ 8,889 $ 3,673,445 18 Index Six months ended June 30, 2024 2027 Senior Notes Revolving Credit Facility AFCF Revolving Credit Facility Total Borrowings Interest expense $ 2,587,500 $ 82,387 $ — $ 2,669,887 Unused fee expense — — — — Amortization of deferred financing costs 314,664 191,887 — 506,551 Total interest expense $ 2,902,164 $ 274,274 $ — $ 3,176,438 9. COMMITMENTS AND CONTINGENCIES As of June 30, 2025 and December 31, 2024, the Company had the following commitments to fund various investments: As of June 30, 2025 As of December 31, 2024 Total loan commitments $ 370,325,856 $ 361,278,431 Less: drawn commitments ( 360,189,141 ) ( 350,943,832 ) Total undrawn commitments $ 10,136,715 $ 10,334,599 The Company from time to time may be a party to litigation or other legal proceedings relating to claims arising from the ordinary course of business. As of June 30, 2025, the Company was not subject to any material pending legal proceedings to which the Company is a party or any of the Company’s assets are subject that could materially impact its business, financial condition or results of operations. The Company provides loans to companies operating in the cannabis industry which involves significant risks, including the risk of strict enforcement against the Company’s borrowers on the federal illegality of cannabis, the Company’s borrowers’ inability to renew or otherwise maintain their licenses or other requisite authorizations for their cannabis operations, and such loans lack of liquidity, and the Company could lose all or part of any of the Company’s loans. The Company’s ability to grow or maintain its business with respect to the loans it makes to companies operating in the cannabis industry depends on state laws pertaining to the cannabis industry. New laws that are adverse to the Company’s borrowers may be enacted, and current favorable state or national laws or enforcement guidelines relating to cultivation, production and distribution of cannabis may be modified or eliminated in the future, which would impede the Company’s ability to grow and could materially adversely affect the Company’s business. Management’s plan to mitigate risks include monitoring the legal landscape as deemed appropriate. Also, should a loan default or otherwise be seized, the Company may be prohibited from owning cannabis assets and thus could not take possession of collateral, in which case the Company would look to sell the loan, which could result in the Company realizing a loss on the transaction. 10. SHAREHOLDERS’ EQUITY Series A Preferred Stock As of June 30, 2025 and December 31, 2024, the Company authorized 10,000 preferred shares and previously issued 125 of the preferred shares designated as 12.0 % Series A Cumulative Non-Voting Preferred Stock, par value $ 0.01 per share (the “Series A Preferred Stock”). As of June 30, 2025 and December 31, 2024, there were zero shares of Series A Preferred Stock issued and outstanding, respectively. The Series A Preferred Stock entitles the holders thereof to receive cumulative cash dividends at a rate per annum of 12.0 % of the liquidation preference of $ 1,000 per share plus all accumulated and unpaid dividends thereon. The Company generally may not declare or pay, or set apart for payment, any dividend or other distribution on any shares of the Company’s stock ranking junior to the Series A Preferred Stock as to dividends, including the Company’s common stock, or redeem, repurchase or otherwise make payments on any such shares, unless full, cumulative dividends on all outstanding 19 Index shares of Series A Preferred Stock have been declared and paid or set apart for payment for all past dividend periods. The holders of the Series A Preferred Stock generally have no voting rights except in limited circumstances, including certain amendments to the Company’s charter and the authorization or issuance of equity securities senior to or on parity with the Series A Preferred Stock. The Series A Preferred Stock is not convertible into shares of any other class or series of our stock. The Series A Preferred Stock is senior to all other classes and series of shares of the Company’s stock as to dividend and redemption rights and rights upon the Company’s liquidation, dissolution and winding up. Upon written notice to each record holder of the Series A Preferred Stock as to the effective date of redemption, the Company may redeem the shares of the outstanding Series A Preferred Stock at the Company’s option, in whole or in part, at any time for cash at a redemption price equal to $ 1,000 per share, plus all accrued and unpaid dividends thereon up to and including the date fixed for redemption. Shares of the Series A Preferred Stock that are redeemed shall no longer be deemed outstanding shares of the Company and all rights of the holders of such shares will terminate. In June 2024, the Company redeemed all 125 outstanding shares of its Series A Preferred Stock. The Series A Preferred Stock was redeemed at a price of $ 1,000 per share, plus all accrued and unpaid dividends thereon to and including the date fixed for redemption. There were no accrued and unpaid dividends at the time of redemption. Common Stock As of June 30, 2025 and December 31, 2024, the Company authorized 50,000,000 shares of common stock at $ 0.01 par value per share, pursuant to the Articles of Amendment, dated March 10, 2022 (“Common Stock”). As of June 30, 2025 and December 31, 2024, 22,595,111 and 22,332,927 shares of Common Stock were issued and outstanding, respectively. During the three and six months ended June 30, 2025 and the year ended December 31, 2024 , the Company did not issue any shares of its common stock, other than shares of common stock sold under the ATM Program (hereinafter defined) and restricted stock awards granted under the 2020 Plan. Shelf Registration Statement On April 5, 2022, the Company filed a shelf registration statement on Form S-3 (File No. 333-264144) (the “Prior Shelf Registration Statement”), which was declared effective on April 18, 2022. Under the Prior Shelf Registration Statement, the Company was able, from time to time, issue and sell up to $ 1.0 billion of the Company’s common stock, preferred stock, debt securities, warrants and rights (including as part of a unit) to purchase shares of the Company’s common stock or preferred stock. The Prior Shelf Registration Statement expired on April 18, 2025. On April 17, 2025, the Company filed a shelf registration statement on Form S-3 (File No. 333-286604) (the “Shelf Registration Statement”), which was declared effective on April 25, 2025. Under the Shelf Registration Statement, the Company may, from time to time, issue and sell up to $ 1.0 billion of the Company’s common stock, preferred stock, debt securities, warrants and rights (including as part of a unit) to purchase shares of the Company’s common stock or preferred stock. At-the-Market Offering Program (“ATM Program”) On April 5, 2022, the Company entered into an Open Market Sales Agreement (the “Sales Agreement”) with Jefferies LLC and Citizens JMP Securities LLC, as Sales Agents, under which the Company may, from time to time, offer and sell shares of common stock, having an aggregate offering price of up to $ 75.0 million. Under the terms of the Sales Agreement, the Company has agreed to pay the Sales Agents a commission of up to 3.0 % of the gross proceeds from each sale of common stock sold through the Sales Agents. Sales of common stock, if any, may be made in transactions that are deemed to be “at-the-market” offerings, as defined in Rule 415(a)(4) promulgated under the Securities Act of 1933, as amended (the “Securities Act”). During the three and six months ended June 30, 2025, the Company did not sell any shares of the Company’s common stock under the Sales Agreement. At the time of termination, the Company’s 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 the Company’s Prior Shelf Registration Statement. The Company does 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. 20 Index Stock Incentive Plan The Company has established a stock incentive compensation plan (the “2020 Plan”). The 2020 Plan authorizes stock options, stock appreciation rights, restricted stock, stock bonuses, stock units and other forms of awards granted or denominated in the Company’s common stock or units of common stock. The 2020 Plan retains flexibility to offer competitive incentives and to tailor benefits to specific needs and circumstances. Any award may be structured to be paid or settled in cash. The Company has granted, and currently intends to continue to grant, stock options and restricted stock awards to participants in the 2020 Plan, but it may also grant any other type of award available under the 2020 Plan in the future. Persons eligible to receive awards under the 2020 Plan include officers or employees of the Company or any of its subsidiaries, directors of the Company, employees of the Manager and certain directors, consultants and other service providers to the Company or any of its subsidiaries. During the six months ended June 30, 2025, the Company’s Board of Directors approved grants of an aggregate of 271,497 shares of restricted stock to the Company’s directors and certain officers, as well as certain employees of the Manager and its affiliates. The restricted stock awards granted during the six months ended June 30, 2025 under the 2020 Plan are subject to vesting periods that vary from immediately vested, one-year vesting and to vesting over a three-year period, with approximately 33 % vesting on each of the first, second and third anniversaries of the vesting commencement date. As of June 30, 2025, there were 2,860,379 shares of common stock granted under the 2020 Plan, underlying 2,148,885 options and 711,494 shares of restricted stock. As of June 30, 2025, the maximum number of shares of the Company’s common stock that may be delivered pursuant to awards under the 2020 Plan (the “Share Limit”) equaled 3,609,722 shares, of which 749,343 shares remained available for future issuance under the 2020 Plan. The Share Limit is consistent with the Share Limit as of March 31, 2025. Shares that are subject to or underlie awards that expire or, for any reason, are cancelled, terminated, forfeited, fail to vest or are not paid or delivered under the 2020 Plan will not be counted against the Share Limit and will again be available for subsequent awards under the 2020 Plan. Modification of Stock Options and Restricted Stock Outstanding at Spin-Off Stock Options On July 9, 2024, the Company completed the separation of its CRE portfolio through the Spin-Off of SUNS. As a result, the strike price for the outstanding stock options of the Company were adjusted to give effect to the Spin-Off. All adjustments were made with the intent to preserve the intrinsic value of each award immediately before and after the Spin-Off. The Company accounted for the modification as Type I modification (probable to probable). The number of awards remained constant, while the strike prices were modified to preserve the intrinsic value of each award. The modified stock option awards otherwise retained substantially the same terms and conditions, including term and vesting provisions. The fair value of such unvested stock option awards remained constant pre- and post-Spin-Off, resulting in no incremental compensation cost. The Company will recognize the remaining unrecognized compensation cost of the original stock option awards over the remaining vesting period. The Company used the Black-Scholes option pricing model to value stock options in determining the stock-based compensation expense. The Company has elected to recognize forfeitures as they occur. Previously recognized compensation expense related to forfeitures are reversed in the period the nonvested awards are forfeited. The risk-free interest rate is based on the U.S. Treasury yield curve in effect at the date of grant. The expected dividend yield was based on the Company’s expected dividend yield at the grant date. Expected volatility is based on the estimated average volatility of similar companies due to the lack of historical volatilities of the Company’s common stock. The expected term for each award is based on the contractual term for all awards granted thus far under the 2020 Plan. Restricted stock grant expense is based on the Company’s stock price at the time of the grant and amortized over the vesting period. The weighted-average exercise price of stock options have been retroactively adjusted to give effect to the Spin-Off for all periods presented. 21 Index The following table presents the assumptions used in the Black-Scholes pricing model of options granted under the 2020 Plan during the three and six months ended June 30, 2025 and 2024: Assumptions: Range Expected term 7.0 years Expected volatility 40 % - 50 % Expected dividend yield 10 % - 20 % Risk-free interest rate 0.5 % - 2.0 % Expected forfeiture rate 0 % The modification date fair value of the stock options was determined using the Binomial-Lattice Model with the following assumptions on July 9, 2024: Assumptions: Range Expected term 3.1 - 4.5 years Expected volatility 31.24 % - 32.41 % Expected dividend yield 15.65 % Risk-free interest rate 4.16 % - 4.25 % Expected forfeiture rate 0 % As additional Company history and information is available, the Company determined the use of the Binomial-Lattice Model to be appropriate compared to the closed-form Black-Scholes model. The risk-free interest rate is based on the continuously compounded rates from the U.S. Treasury yield curve in effect at the date of Spin-Off. The expected term is based on the remaining contractual term of each option’s life as of the date of Spin-Off. The expected dividend yield was based on the Company’s most recent quarterly dividend, annualized, divided by the three-month average stock price as of the Spin-Off date. Expected volatility is based on the remaining contractual term-matched historical volatility. In cases where the look back period exceeds the trading history of the Company’s Common Stock, the Company’s entire trading history was used. Restricted Stock Restricted stock awards originally granted under the 2020 Plan include awards granted to employees of the Manager that perform shared fun ctions pre- and post-Spin-Off. In co nnection with the Spin-Off transaction and as a result of the related modification, approximately 33 % of the remaining unrecognized compensation cost of unvested restricted stock awards will be recognized over the remaining vesting period of the Company’s former wholly-owned subsidiary, SUNS. The Company will recognize the remaining 67 % of unrecognized compensation cost of unvested restricted stock awards over the remaining vesting period. Stock Compensation The following table summarize s the stock-based compensation expense incurred by the Company for the three and six months ended June 30, 2025 and 2024: Three months ended June 30, Six months ended June 30, 2025 2024 2025 2024 Stock-based compensation $ 484,502 $ 369,343 $ 1,038,251 $ 912,565 22 Index Stock Options The following table summarizes the (i) non-vested options granted, (ii) vested options granted, (iii) exercised and (iv) forfeited options granted for the Company’s directors and officers and employees of the Manager and its affiliates as of June 30, 2025 and December 31, 2024: As of June 30, 2025 As of December 31, 2024 Non-vested 129,862 149,133 Vested 2,244,770 2,225,499 Exercised ( 5,511 ) ( 5,511 ) Forfeited ( 221,136 ) ( 200,669 ) Balance 2,147,985 2,168,452 The following tables summarize stock option activity as of and during the six months ended June 30, 2025: Number of options Weighted-average exercise price Weighted-average remaining contractual term Aggregate intrinsic value Outstanding as of December 31, 2024 2,168,452 $ 11.46 Granted — — Exercised — — Forfeited ( 20,467 ) 11.65 Outstanding as of June 30, 2025 2,147,985 $ 11.46 2.77 years $ — Exercisable as of June 30, 2025 2,137,314 $ 11.45 2.76 years $ — Unvested as of June 30, 2025 10,671 $ 12.99 3.53 years $ — T he Company did not grant any options d uring the six months ended June 30, 2025 and 2024 . No options were exercised during the six months ended June 30, 2025 and 2024 . As of June 30, 2025 , there was approximately $ 6.2 thousand of total unrecognized compensation cost related to stock options, which is expected to be recognized over a weighted-average period of 0.53 years. Restricted Stock The following table summarizes restricted stock (i) granted, (ii) vested and (iii) forfeited for the Company’s directors and officers and employees of the Manager and its affiliates as of June 30, 2025 and December 31, 2024: As of June 30, 2025 As of December 31, 2024 Granted 754,741 483,244 Vested ( 230,724 ) ( 102,780 ) Forfeited ( 43,247 ) ( 33,934 ) Balance 480,770 346,530 23 Index The fair value of the Company’s restricted stock awards is based on the Company’s stock price on the date of grant. The following table summarizes the restricted stock activity as of and during the six months ended June 30, 2025: Number of shares of restricted stock Weighted-average grant date fair value Balance as of December 31, 2024 346,530 $ 8.72 Granted 271,497 8.37 Vested ( 127,944 ) 8.68 Forfeited ( 9,313 ) 8.80 Balance as of June 30, 2025 480,770 $ 8.53 There were no shares of restricted stock granted during the three months ended June 30, 2025 and 2024. The total fair value of shares vested during the three months ended June 30, 2025 and 2024, was zero and $ 14.5 thousand, respectively. During the three months ended June 30, 2024, 1,159 shares of restricted stock vested with a weighted-average grant date fair value of $ 12.94 per share. During the six months ended June 30, 2024, 209,397 shares of restricted stock were granted with a weighted-average grant date fair value of $ 11.70 per share. During the six months ended June 30, 2024, 62,338 shares of restricted stock vested with a weighted-average grant date fair value of $ 14.50 per share. The total fair value of shares vested during the six months ended June 30, 2025 and 2024, was approximately $ 1.1 million and $ 0.7 million, respectively. As of June 30, 2025 , there was approximately $ 3.3 million of total unrecognized compensation cost related to non-vested restricted stock. That cost is expected to be recognized over a weighted-average period of 2.16 years. 24 Index 11. EARNINGS PER SHARE The following information sets forth the computations of basic and diluted weighted average earnings per common share for the three and six months ended June 30, 2025 and 2024: Three months ended June 30, Six months ended June 30, 2025 2024 2025 2024 Net (loss) income from continuing operations $ ( 13,164,651 ) $ 15,206,224 $ ( 9,096,966 ) $ 13,635,881 Dividends paid on preferred stock — ( 7,500 ) — ( 7,500 ) Dividends paid on unvested restricted stock ( 110,783 ) ( 128,270 ) ( 225,138 ) ( 185,396 ) Net income from continuing operations attributable to common shareholders ( 13,275,434 ) 15,070,454 ( 9,322,104 ) 13,442,985 Net income from discontinued operations — 1,239,897 — 2,756,124 Net income attributable to common shareholders ( 13,275,434 ) 16,310,351 ( 9,322,104 ) 16,199,109 Divided by: Basic weighted average shares of common stock outstanding 22,114,341 20,400,004 22,106,205 20,396,940 Weighted average unvested restricted stock and dilutive stock options 2,545 37,795 6,564 21,957 Diluted weighted average shares of common stock outstanding 22,116,886 20,437,799 22,112,769 20,418,897 Basic earnings per share Continuing operations $ ( 0.60 ) $ 0.74 $ ( 0.42 ) $ 0.66 Discontinued operations $ — $ 0.06 $ — $ 0.13 Total basic weighted average earnings per common share $ ( 0.60 ) $ 0.80 $ ( 0.42 ) $ 0.79 Diluted earnings per share Continuing operations $ ( 0.60 ) $ 0.74 $ ( 0.42 ) $ 0.66 Discontinued operations $ — $ 0.06 $ — $ 0.13 Total diluted weighted average earnings per common share $ ( 0.60 ) $ 0.80 $ ( 0.42 ) $ 0.79 Diluted EPS was computed using the treasury stock method for stock options and restricted stock. Diluted weighted average earnings per common share excluded 2,571,834 and 2,480,235 weighted average shares of unvested restricted stock and stock options due to anti-dilutive effect for the three and six months ended June 30, 2025, respectively, and 2,206,907 and 2,206,907 for the three and six months ended June 30, 2024, respectively . For the three and six months ended June 30, 2025 , the potential dilutive shares due to unvested restricted stock and stock options were not included in the computation of diluted loss per share since to do so would decrease the loss per share from continuing operations. 12. INCOME TAX A TRS is an entity taxed as a corporation that has not elected to be taxed as a REIT, in which a REIT directly or indirectly holds equity, and that has made a joint election with such REIT to be treated as a TRS. A TRS generally may engage in any business, including investing in assets and engaging in activities that could not be held or conducted directly by the Company without jeopardizing its qualification as a REIT. A TRS is subject to applicable United States federal, state and local income tax on its taxable income. In addition, as a REIT, the Company also may be subject to a 100% excise tax on certain transactions between it and its TRS that are not conducted on an arm’s-length basis. The income tax provision is included in the line item income tax expense, including excise tax. The income tax (benefit) provision for the Company was approximately $( 0.1 ) million and $( 25.6 ) thousand for the three and six months ended June 30, 2025, respectively, and $ 0.3 million and $ 0.4 million for the three and six months ended 25 Index June 30, 2024 , respectively. The income tax expense for the three and six months ended June 30, 2025 and 2024 primarily related to activities of the Company’s taxable REIT subsidiary. The income tax provision for the Company and TRS1 consisted of the following for the three and six months ended June 30, 2025 and 2024: Three months ended June 30, Six months ended June 30, 2025 2024 2025 2024 Current: Federal $ ( 27,302 ) $ 183,000 $ 72,698 $ 288,300 State ( 42,950 ) 102,975 22,031 156,035 Total current income tax (benefit) expense ( 70,252 ) 285,975 94,729 444,335 Total deferred income tax expense (benefit) 43,873 — ( 8,702 ) — Excise tax ( 111,665 ) — ( 111,665 ) — Total income tax (benefit) expense, including excise tax $ ( 138,044 ) $ 285,975 $ ( 25,638 ) $ 444,335 For the three and six months ended June 30, 2025 and 2024, the Company did not incur United States federal excise tax expense, respectively. During the six months ended June 30, 2025, the Company received a partial refund of previously paid excise tax relating to the 2023 tax year, which was received in the second quarter of 2025. Excise tax represents a 4 % tax on the sum of a portion of the Company’s ordinary income and net capital gains not distributed during the period. If it is determined that an excise tax liability exists for the current period, the Company will accrue excise tax on estimated excess taxable income as such taxable income is earned. The expense is calculated in accordance with applicable tax regulations. The Company does not have any unrecognized tax benefits and the Company does not expect that to change in the next 12 months. As of June 30, 2025, tax years since 2021 remain subject to examination by taxing authorities. The federal statutory rate was 21% for the three and six months ended June 30, 2025 and 2024. The primary difference between the Company’s statutory rate and effective tax rate is largely determined by the amount of income subject to tax by the Company’s taxable REIT subsidiary . The Company expects that its future effective tax rate will be determined in a similar manner. As of June 30, 2025 and December 31, 2024, the Company’s deferred tax assets were $ 0.7 million and $ 0.7 million, respectively, and are included in prepaid expenses and other assets in the Company’s consolidated balance sheets. The Company believes it is more likely than not that the deferred tax assets will be realized in the future. Realization of the deferred tax assets is dependent upon the Company’s generation of sufficient taxable income in future years in appropriate tax jurisdictions to benefit from the reversal of temporary differences. The amount of deferred tax assets considered realizable is subject to adjustment in future periods if estimates of future taxable income change. The Company recorded deferred tax assets related to temporary differences on the fair value adjustments of the unrealized losses of loans held in the TRS and CECL allowance on loans held in the TRS. There were no valuation allowances for deferred tax assets during the three and six months ended June 30, 2025 and 2024. 13. FAIR VALUE Loans Held for Investment The Company’s loans are typically valued using a yield analysis, which is typically performed for non-credit impaired loans to borrowers where the Company does not own a controlling equity position. Alternative valuation methodologies may be used as appropriate, and can include a market analysis, income analysis, or recovery analysis. To determine fair value using a yield analysis, a current price is imputed for the loan based upon an assessment of the expected market yield for a similarly structured loan with a similar level of risk. In the yield analysis, the Company considers the current contractual interest rate, the maturity and other terms of the loan relative to risk of the company and the specific loan. A key determinant of risk, among other things, is the leverage through the loan relative to the enterprise value of the borrower. As loans held by the Company are substantially illiquid with no active loan market, the Company depends on 26 Index primary market data, including newly funded loans, as well as secondary market data with respect to high-yield debt instruments and syndicated loans, as inputs in determining the appropriate market yield, as applicable. The following tables present fair value measurements of loans held at fair value as of June 30, 2025 and December 31, 2024: Fair Value Measurement as of June 30, 2025 Total Level 1 Level 2 Level 3 Loans held at fair value $ 26,847,222 $ — $ — $ 26,847,222 Total $ 26,847,222 $ — $ — $ 26,847,222 Fair Value Measurement as of December 31, 2024 Total Level 1 Level 2 Level 3 Loans held at fair value $ 30,510,804 $ — $ — $ 30,510,804 Total $ 30,510,804 $ — $ — $ 30,510,804 The following table presents changes in loans that use Level 3 inputs as of and for the six months ended June 30, 2025: Six months ended June 30, 2025 Total loans using Level 3 inputs at December 31, 2024 $ 30,510,804 Change in unrealized (losses) gains on loans at fair value, net ( 1,741,448 ) Loan repayments ( 1,922,134 ) Total loans using Level 3 inputs at June 30, 2025 $ 26,847,222 The change in unrealized losses included in the unaudited interim consolidated statements of operations attributable to loans held at fair value, categorized as Level 3, held as of June 30, 2025 is $( 1,741,448 ). The following tables summarize the significant unobservable inputs the Company used to value the loans categorized within Level 3 as of June 30, 2025 and December 31, 2024. The tables are not intended to be all-inclusive, but instead capture the significant unobservable inputs relevant to the Company’s determination of fair values. As of June 30, 2025 Unobservable Input Fair Value Primary Valuation Techniques Input Estimated Range Weighted Average Senior term loan $ 26,847,222 Recovery analysis Recovery rate 49.80 % - 55.10 % 52.45 % Total investment $ 26,847,222 As of December 31, 2024 Unobservable Input Fair Value Primary Valuation Techniques Input Estimated Range Weighted Average Senior term loan $ 30,510,804 Recovery analysis Recovery rate 54.90 % - 60.00 % 57.45 % Total investment $ 30,510,804 Changes in market yields, revenue multiples, and recovery rates may change the fair value of certain of the Company’s loans. Generally, an increase in market yields may result in a decrease in the fair value of certain of the Company’s loans, while a decrease in revenue multiples and recovery rates may result in a decrease in the fair value of certain of the Company’s loans. Due to the inherent uncertainty of determining the fair value of loans that do not have a readily available market value, the fair value of the Company’s loans may fluctuate from period to period. Additionally, the fair value of the Company’s loans may differ significantly from the values that would have been used had a ready market existed for such loans and may 27 Index differ materially from the values that the Company may ultimately realize. Further, such loans are generally subject to legal and other restrictions on resale or otherwise are less liquid than publicly traded securities. If the Company was required to liquidate a loan in a forced or liquidation sale, it could realize significantly less than the value at which the Company has recorded it. In addition, changes in the market environment and other events that may occur over the life of the loans may cause the gains or losses ultimately realized on these loans to be different than the unrealized gains or losses reflected in the valuations currently assigned. Fair Value of Financial Instruments GAAP requires disclosure of fair value information about financial instruments, whether or not recognized at fair value in the balance sheets, for which it is practicable to estimate that value. The following table details the book value and fair value of the Company’s financial instruments not recognized at fair value in the unaudited interim consolidated balance sheets as of June 30, 2025 : As of June 30, 2025 Carrying Value Fair Value Financial assets: Cash and cash equivalents $ 3,410,065 $ 3,410,065 Loans held for investment at carrying value $ 300,946,208 $ 256,542,083 Financial liabilities: Senior notes payable, net $ 88,907,680 $ 86,040,000 Cash and cash equivalents have a carrying value which approximates their fair value due to the short-term nature of these instruments. The Company categorizes the fair value measurement of these assets as Level 1. The Company’s loans held for investment are measured using unobservable inputs, or Level 3 inputs. The fair value of the Company’s 2027 Senior Notes is estimated using observable inputs based on the last available bid price in the market at the end of the period, or Level 2 inputs. 14. RELATED PARTY TRANSACTIONS Management Agreement Pursuant to the Management Agreement, the Manager manages the loans and day-to-day operations of the Company, subject at all times to the further terms and conditions set forth in the Management Agreement and such further limitations or parameters as may be imposed from time to time by the Company’s Board. The Manager receives base management fees (the “Base Management Fee”) that are calculated and payable quarterly in arrears, in an amount equal to 0.375 % of the Company’s Equity (as defined in the Management Agreement), subject to certain adjustments, less 50 % of the aggregate amount of any other fees (“Outside Fees”), including any agency fees relating to our loans, but excluding the Incentive Compensation (as defined below) and any diligence fees paid to and earned by the Manager and paid by third parties in connection with the Manager’s due diligence of potential loans. In addition to the Base Management Fee, the Manager is entitled to receive incentive compensation (the “Incentive Compensation” or “Incentive Fees”) under the Management Agreement. Under the Management Agreement, the Company pays Incentive Fees to the Manager based upon the Company’s achievement of targeted levels of Core Earnings. “Core Earnings” is defined in the Management Agreement as, for a given period, the net income (loss) for such period, computed in accordance with GAAP, excluding (i) non-cash equity compensation expense, (ii) the Incentive Compensation, (iii) depreciation and amortization, (iv) any unrealized gains or losses or other non-cash items that are included in net income for the applicable reporting period, regardless of whether such items are included in other comprehensive income or loss, or in net income and (v) one-time events pursuant to changes in GAAP and certain non-cash charges, in each case after discussions between the Manager and the Company’s independent directors and approved by a majority of the independent directors. 28 Index The Incentive Compensation for the three and six months ended June 30, 2025 was zero and zero , respectively. The Incentive Compensation for the three and six months ended June 30, 2024 was approximately $ 2.9 million and $ 5.3 million, respectively. The Company is required to pay all of its costs and expenses and reimburse the Manager or its affiliates for expenses of the Manager and its affiliates paid or incurred on behalf of the Company, excepting only those expenses that are specifically the responsibility of the Manager pursuant to the Management Agreement. With respect to certain office expenses incurred by the Manager on behalf of the Company and other funds managed by the Manager or its affiliates, such as rent, the Manager determines each fund’s pro rata portion of such expenses in an amount equal to the proportional amount of time employees of the Manager spent providing services to the Company, as reasonably stipulated by time sheets. The following table summarizes the related party costs incurred by the Company for the three and six months ended June 30, 2025 and 2024 : Three months ended June 30, Six months ended June 30, 2025 2024 2025 2024 Affiliate Costs Management fees $ 941,100 $ 1,343,971 $ 1,885,870 $ 2,690,109 Less: outside fees earned ( 260,742 ) ( 214,190 ) ( 389,322 ) ( 588,993 ) Base management fees 680,358 1,129,781 1,496,548 2,101,116 Incentive fees earned — 2,855,247 — 5,346,674 General and administrative expenses reimbursable to Manager 565,349 740,619 1,127,845 1,515,983 Professional fees reimbursable to Manager 12,094 9,325 18,132 16,280 Total $ 1,257,801 $ 4,734,972 $ 2,642,525 $ 8,980,053 Amounts payable to the Manager as of June 30, 2025 and December 31, 2024 were approximately $ 1.4 million and $ 3.1 million, respectively. The Manager is a wholly-owned subsidiary of Castleground Holdings LLC (the “Parent Manager”). The outstanding equity of the Parent Manager is beneficially owned by certain officers as of the date of this Quarterly Report on Form 10-Q: 72.4 % by Leonard Tannenbaum, Chairman of the Board, 9.7 % by Robyn Tannenbaum, President and Chief Investment Officer, 9.7 % by other Tannenbaum family members and trusts, 2.9 % by Bernard Berman, a member of the Company’s Investment Committee, 2.5 % by Daniel Neville, Chief Executive Officer, 1.5 % by Brandon Hetzel, Chief Financial Officer and Treasurer, and 1.0 % by Gabriel Katz, Chief Legal Officer and Secretary, respectively. At the August Meeting, the Board, including a majority of the directors who are not “interested persons” (“Independent Directors”) of the Company (as that term is defined under the 1940 Act)), unanimously approved, subject to the approval of the Company’s shareholders, a new Investment Advisory Agreement between the Company and the Manager. If approved by the shareholders, the new Investment Advisory Agreement would enable the Company to operate as a BDC under the 1940 Act, as discussed further below in “Note 18—Subsequent Events”. Investments in Loans From time to time, the Company may co-invest with other investment vehicles managed by the Manager or its affiliates, including the Manager, and their portfolio companies, including by means of splitting loans, participating in loans or other means of syndicating loans. The Company is not obligated to provide, nor has it provided, any financial support to the other managed investment vehicles. As such, the Company’s risk is limited to the carrying value of its investment in any such loan. Additionally, the Manager or its affiliates, including AFC Agent, may from time to time serve as administrative and collateral agent to the lenders under the Company’s loans. As of June 30, 2025, there were two co-invested loans held by the Company and affiliates of the Company. 29 Index Unsecured Revolving Credit Facility with Affiliate In December 2024, the Company entered the AFCF Credit Facility with AFC Finance LLC, an affiliate of the Company and Mr. and Mrs. Tannenbaum. The AFCF Credit Facility was terminated in April 2025. Refer to Note 8 for more information. 15. DIVIDENDS AND DISTRIBUTIONS The following table summarizes the Company’s dividends declared during the six months ended June 30, 2025 and 2024: Declaration Date Record Date Payment Date Per Common Share Distribution Amount Total Distribution Amount Regular cash dividend 3/4/2024 3/31/2024 4/15/2024 $ 0.48 $ 9,920,205 Regular cash dividend 6/13/2024 6/24/2024 7/15/2024 0.48 9,920,205 Special cash dividend 6/27/2024 7/8/2024 7/15/2024 0.15 3,100,064 2024 Period Subtotal $ 1.11 $ 22,940,474 Regular cash dividend 3/11/2025 3/31/2025 4/15/2025 $ 0.23 $ 5,197,082 Regular cash dividend 6/13/2025 6/30/2025 7/15/2025 0.15 3,389,267 2025 Period Subtotal $ 0.38 $ 8,586,349 16. DISCONTINUED OPERATIONS On July 9, 2024, the Company announced the completion of the previously announced separation and Spin-Off of the Company’s CRE portfolio into an independent, publicly-traded REIT, SUNS. The Spin-Off was effected by the distribution of all of the outstanding shares of SUNS common stock to the Company’s shareholders of record as of the close of business on July 8, 2024 (the “Record Date”). The Company’s shareholders of record as of the Record Date received one share of SUNS common stock for every three shares of the Company’s common stock held as of the Record Date. The Spin-Off was completed July 9, 2024 (the “Distribution Date”). On the Distribution Date, SUNS became an independent, publicly-traded company, trading on the Nasdaq Capital Market under the symbol “SUNS”. The Company retained no ownership interest in SUNS following the Spin-Off. On the Distribution Date, the Company recognized a reduction to additional paid-in capital of approximately $ 114.8 million in connection with the Spin-Off related to the transfer of certain assets and liabilities associated with its CRE portfolio to SUNS. In connection with the Spin-Off, the Company entered into several agreements with SUNS that govern the relationship between the Company and SUNS following the spin-off, including the Separation and Distribution Agreement and the Tax Matters Agreement. These agreements provide for the allocation between the Company and SUNS of the assets, liabilities and obligations (including, among others, investments, property and tax-related assets and liabilities) of the Company and its subsidiaries attributable to periods prior to, at and after the Spin-Off. The operating results of the SUNS business through the date of the Spin-Off are reported in net income from discontinued operations, net of tax in the consolidated statements of operations for all periods presented. The related assets and liabilities are reported as assets and liabilities of discontinued operations on the consolidated balance sheets. Cash flows from the Company’s discontinued operations are presented as such in the consolidated statements of cash flows for all periods presented. 30 Index The following table summarizes the financial statement lines included in net income from discontinued operations, net of tax for the three and six months ended June 30, 2025 and 2024: Three months ended June 30, Six months ended June 30, 2025 2024 2025 2024 Interest income $ — $ 1,979,576 $ — $ 4,005,882 Expenses General and administrative expenses — ( 21,025 ) — ( 21,568 ) Professional fees — ( 646,800 ) — ( 1,156,336 ) (Provision for) reversal of current expected credit losses — ( 71,854 ) — ( 71,854 ) Net income from discontinued operations, net of tax $ — $ 1,239,897 $ — $ 2,756,124 During the three and six months ended June 30, 2025 and 2024, Spin-Off costs incurred were zero and zero , respectively, and approximately $ 0.6 million and $ 1.1 million, respectively. Prior to the completion of the Spin-Off in the third quarter of 2024, Spin-Off costs were historically presented within professional fees in the consolidated statements of operations and are now included in the measurement and presentation of discontinued operations for all periods presented. There were no assets or liabilities classified as discontinued operations as of June 30, 2025 or December 31, 2024. 17. REPORTABLE SEGMENTS ASC 280, Segment Reporting, establishes standards for reporting financial and descriptive information about an enterprise’s reportable segments. The Company generates revenue from loans to state law compliant cannabis operators in the United States. These investments typically have maturities ranging from two to five years and may accrue interest at either fixed or floating rates. The accounting policies of the institutional lending segment are the same as those described in the summary of significant accounting policies. The presentation of financial results as one reportable segment is consistent with the way the Company operates its business and is consistent with the manner in which the Company’s Chief Operating Decision Maker (“CODM”), the Company’s Chief Executive Officer, evaluates performance and makes resource and operating decisions for the business. The Company has no operations outside of the United States. The Company’s portfolio exhibits similar economic characteristics, similar yields and is operated using consistent business strategies. The Company operates as one operating segment and has one reportable operating segment for activities related to institutional lending. The CODM assesses performance and evaluates the allocation of resources of the Company on a consolidated basis, based on the Company’s net income from continuing operations, which is reported on the Company’s consolidated statements of operations. The CODM is regularly provided with only the consolidated expenses, as noted on the consolidated statements of operations. Significant segment expenses are listed on the accompanying consolidated statements of operations. The measure of segment assets is reported on the consolidated balance sheets as total assets. The CODM uses net income to evaluate income generated from segment assets and in deciding the amount of dividends to be distributed, as well as using net income as a basis for evaluating lender terms for loans with state law compliant operators. During the three and six months ended June 30, 2025, interest income earned on the Company’s portfolio was concentrated with five and five borrowers, respectively, each comprising more than 10% of consolidated interest income for an aggregate amount of $ 5.8 million, or 72 %, and $ 11.7 million, or 71 %, of consolidated interest income, respectively. During the three and six months ended June 30, 2024, interest income earned on the Company’s portfolio was concentrated with five and two borrowers, respectively, each comprising more than 10% of consolidated interest income for an aggregate amount of $ 12.9 million, or 72 %, and $ 13.0 million, or 40 %, of consolidated interest income, respectively. 18. SUBSEQUENT EVENTS The Company has evaluated subsequent events through the date the consolidated financial statements were available to be issued. There were no material subsequent events, other than those described below, that required disclosure in these unaudited interim consolidated financial statements. 31 Index 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 Company placed 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, the Company 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, the Company’s existing $ 10.0 million investment with Subsidiary of Public Company S was repaid at par plus accrued interest and the Company recognized an exit fee of approximately $ 0.2 million. At the August Meeting, the Board, including a majority of the Independent Directors, unanimously approved, subject to the approval of the Company’s shareholders, a new Investment Advisory Agreement between the Company and the Manager. If approved by the shareholders, the new Investment Advisory Agreement would enable the Company to operate as a BDC under the 1940 Act. The Company believes that converting from a mortgage REIT to a BDC (the “Conversion”) would enable the Company to pursue a broader array of investment opportunities, as further discussed below. The Company expects, in the coming days, to file a preliminary proxy statement with the U.S. Securities and Exchange Commission (“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 Company (enabling the Company 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 the Company’s conversion to a BDC. There can be no assurance that the Board or the Company’s shareholders will approve the matters necessary for the Company to convert to a BDC. BDC conversion expenses incurred were approximately $ 0.2 million and $ 0.2 million for the three and six months ended June 30, 2025, respectively. The Company currently operates as a mortgage REIT and has historically focused on lending to cannabis operators. In order to qualify as a mortgage REIT for income tax purposes and avoid being subject to registration under the 1940 Act, the Company currently must focus its investments in certain types of real estate-related assets, including loans collateralized by real property, which limits the universe of qualifying assets. The Company is 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, to enable it to invest in a much broader universe of assets, including both real estate- and non-real estate-related assets. Following the Conversion, the Company expects that it would seek to qualify to be treated as a regulated investment company for federal income tax purposes. The Company has 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 the Company can lend as a mortgage REIT. The Conversion would allow the Company to invest in non-real estate covered vertically integrated operators. In addition, following the Conversion, the Company intends 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 the Company 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. 32 Index CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS This Quarterly Report on Form 10-Q (this “Quarterly Report”), filed by Advanced Flower Capital Inc. (the “Company,” “we,” “us,” and “our”), and the information incorporated by reference in it, or made in other reports, filings with the SEC, press releases contain “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995, Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, and we intend such statements to be covered by the safe harbor provisions contained therein. Some of the statements contained in this Quarterly Report, other than statements of current or historical facts, are forward-looking statements and are based on our current intent, belief, expectations and views of future events. The forward-looking statements include, without limitation, any statement that may predict, forecast, indicate or imply future results or performance, and may contain the words “believe,” “anticipate,” “expect,” “estimate,” “project,” “could,” “would,” “will,” “can,” “continuing,” “may,” “aim,” “intend,” “ongoing,” “plan,” “predict,” “potential,” “should,” “seeks,” “likely to” or words or phrases of similar meaning. Specifically, this Quarterly Report includes forward-looking statements regarding (i) the conditions in the adult-use and medicinal cannabis markets and their impact on our business; (ii) our portfolio and strategies for the growth thereof; (iii) our working capital, liquidity and capital requirements; (iv) potential state and federal legislative and regulatory matters; (v) our expectations and estimates regarding certain tax, legal and accounting matters, including the impact on our financial statements and/or those of our borrowers; (vi) our expectations regarding our portfolio companies and their businesses, including demand, sales volume, profitability, and future growth; (vii) the amount, collectability and timing of cash flows, if any, from our loans; (viii) our expected ranges of originations and repayments; and (ix) estim ates relating to our ability to make distributions to our shareholders in the f uture. These forward-looking statements reflect management’s current views about future events, and are subject to risks, uncertainties and assumptions. Our actual results may differ materially from the future results and events expressed or implied by the forward-looking statements. The most important factors that could prevent us from achieving our goals, and cause the assumptions underlying forward-looking statements and the actual results to differ materially from those expressed in or implied by those forward-looking statements include, but are not limited to, the following: • our business and investment strategy; • the ability of our Manager to locate suitable loan opportunities for us and to monitor and actively manage our portfolio and implement our investment strategy; • our expectations for origination targets and repayments; • our ability to obtain our target mix of loan and collateral types with our expected ranges of yields; • the allocation of loan opportunities to us by our Manager; • our projected operating results; • actions and initiatives of the U.S. or state governments and changes to government policies and the execution and impact of these actions, initiatives and policies, including the fact that cannabis remains illegal under federal law and certain state laws; • the estimated growth in and evolving market dynamics of the cannabis market; • changes in general economic conditions, in our industry and in the commercial finance and real estate markets; • the demand for cannabis cultivation and processing facilities; • shifts in public opinion and state regulation regarding cannabis; • the state of the U.S. economy generally or in the specific geographic regions in which we operate, including as a result of the impact of natural disasters; • the impact of a protracted decline in the liquidity of credit markets on our business; • the amount, collectability and timing of our cash flows, if any, from our loans; • our ability to obtain and maintain competitive financing arrangements; • our ability to achieve expected leverage; • changes in the value of our loans; • losses that may arise due to the concentration of our portfolio in a limited number of loans and borrowers; • our investment and underwriting process; 33 Index • the rates of default or recovery rates on our loans; • the degree to which our hedging strategies may or may not protect us from interest rate volatility; • the availability of investment opportunities for us within our investment guidelines; • changes in interest rates and impacts of such changes on our results of operations, cash flows and the market value of our loans; • interest rate mismatches between our loans and our borrowings used to fund such loans; • the departure of any of the executive officers or key personnel supporting and assisting us from our Manager or its affiliates; • impact of and changes in governmental regulations, tax law and rates, accounting guidance, tariffs and similar matters; • our ability to maintain our exemption from registration under the Investment Company Act of 1940 (the “Investment Company Act”); • our ability to qualify and maintain our qualification as a real estate investment trust (a “REIT”) for U.S. federal income tax purposes; • estimates relating to our ability to make distributions to our shareholders in the future; • our understanding of our competition; • market trends in our industry, interest rates, real estate values, the securities markets or the general economy; and • uncertainties as to the impact of the Spin-Off on our business. The above list of factors is not exhaustive or necessarily in order of importance. Please see the section entitled “ Risk Factors ” located in our Annual Report on Form 10-K, filed with the SEC on March 13, 2025 and subsequently filed Quarterly Reports on Form 10-Q, for a further discussion of these and other risks and uncertainties which could affect our future results. These forward-looking statements apply only as of the date of this report and we undertake no obligation to update or revise any forward-looking statements to reflect events or circumstances after the date of such statements or to reflect the occurrence of anticipated or unanticipated events, except to the extent we are legally required to disclose certain matters in SEC filings or otherwise.