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Form 10-Q AFC Gamma, Inc. For: Jun 30

August 9, 2022 8:29 AM EDT
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2022
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from __________ to __________
Commission File Number: 001-39995
AFC GAMMA, INC.
(Exact name of registrant as specified in its charter)
Maryland85-1807125
(State or other jurisdiction of incorporation or organization)(I.R.S. Employer Identification Number)
525 Okeechobee Blvd., Suite 1650, West Palm Beach, FL 33401
(Address of principal executive offices) (Zip Code)
(561) 510-2390
(Registrant’s telephone number, including area code)
N/A
(Former name, former address and former fiscal year, if changed since last report)

Securities registered pursuant to Section 12(b) of the Act:
Title of each classTrading Symbol(s)Name of each exchange on which registered
Common Stock, $0.01 par value per shareAFCGThe Nasdaq Stock Market LLC
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes No
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes No
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer
Accelerated filer
Non-accelerated filer
Smaller reporting company
Emerging growth company
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes No
Class
Outstanding at August 8, 2022
Common stock, $0.01 par value per share19,857,872


AFC GAMMA, INC.
TABLE OF CONTENTS
INDEX
4


PART I – FINANCIAL INFORMATION
Item 1. Financial Statements
AFC GAMMA, INC.
CONSOLIDATED BALANCE SHEETS
As of
June 30, 2022December 31, 2021
(unaudited)
Assets
Loans held for investment at fair value (cost of $93,940,582 and $74,913,157 at June 30, 2022 and December 31, 2021, respectively, net)
$95,199,132 $77,096,319 
Debt securities available for sale held at fair value (cost of $16,050,000 at December 31, 2021)
 15,881,250 
Loans held for investment at carrying value, net315,882,044 257,163,496 
Loan receivable at carrying value, net2,220,279 2,530,588 
Current expected credit loss reserve(5,018,072)(2,431,558)
Loans held for investment at carrying value and loan receivable at carrying value, net of current expected credit loss reserve313,084,251 257,262,526 
Cash and cash equivalents45,583,533 109,246,048 
Interest receivable4,797,315 4,412,938 
Prepaid expenses and other assets619,973 949,279 
Total assets$459,284,204 $464,848,360 
Liabilities
Interest reserve$5,186,615 $4,782,271 
Accrued interest958,333 991,840 
Due to affiliate6,140  
Dividends payable11,120,409 8,221,406 
Current expected credit loss reserve594,840 683,177 
Accrued management and incentive fees4,201,567 2,823,044 
Accrued direct administrative expenses1,205,793 1,324,457 
Accounts payable and other liabilities986,728 1,528,980 
Senior notes payable, net96,823,414 96,572,656 
Line of credit payable to affiliate, net 74,845,355 
Total liabilities121,083,839 191,773,186 
Commitments and contingencies (Note 10)
Shareholders’ equity
Preferred stock, par value $0.01 per share, 10,000 shares authorized at June 30, 2022 and December 31, 2021 and 125 shares issued and outstanding at June 30, 2022 and December 31, 2021
1 1 
Common stock, par value $0.01 per share, 50,000,000 and 25,000,000 shares authorized at June 30, 2022 and December 31, 2021, respectively, and 19,857,872 and 16,442,812 shares issued and outstanding at June 30, 2022 and December 31, 2021, respectively
197,933 163,866 
Additional paid-in-capital339,568,041 274,172,934 
Accumulated other comprehensive income (loss) (168,750)
Accumulated (deficit) earnings(1,565,610)(1,092,877)
Total shareholders’ equity338,200,365 273,075,174 
Total liabilities and shareholders’ equity$459,284,204 $464,848,360 
(See accompanying notes to the consolidated financial statements)
1

AFC GAMMA, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited)
Three months ended
June 30,
Six months ended
June 30,
 20222021 20222021
Revenue
Interest income$21,651,207 $8,748,519 $40,287,060 $13,433,524 
Interest expense(1,747,004) (3,447,119) 
Net interest income19,904,203 8,748,519 36,839,941 13,433,524 
Expenses
Management and incentive fees, net (less rebate of $488,050, $182,707, $875,543 and $420,450, respectively)
4,201,568 2,078,871 8,048,781 2,955,533 
General and administrative expenses1,177,437 706,865 2,321,881 1,169,383 
Stock-based compensation117,397 11,457 1,107,420 1,610,572 
Professional fees293,311 194,594 692,679 330,047 
Total expenses5,789,713 2,991,787 12,170,761 6,065,535 
Provision for current expected credit losses(1,593,048)(645,786)(2,498,177)(711,886)
Realized gains (losses) on sales of investments, net  450,000  
Change in unrealized (losses) gains on loans at fair value, net(1,005,454)(483,159)(924,611)(627,561)
Net income before income taxes11,515,988 4,627,787 21,696,392 6,028,542 
Income tax expense164,315  182,599  
Net income$11,351,673 $4,627,787 $21,513,793 $6,028,542 
Earnings per common share:
Basic earnings per common share (in dollars per share)$0.58 $0.34 $1.10 $0.58 
Diluted earnings per common share (in dollars per share)$0.57 $0.34 $1.10 $0.57 
Weighted average number of common shares outstanding:
Basic weighted average shares of common stock outstanding (in shares)19,715,749 13,457,536 19,518,964 10,318,542 
Diluted weighted average shares of common stock outstanding (in shares)19,811,594 13,775,246 19,614,809 10,636,252 
(See accompanying notes to the consolidated financial statements)
2

AFC GAMMA, INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(unaudited)

Three months ended
June 30,
Six months ended
June 30,
 2022202120222021
Net income$11,351,673 $4,627,787 $21,513,793 $6,028,542 
Other comprehensive income (loss):
Reversal of unrealized loss to recognized loss on debt securities available for sale held at fair value
  168,750  
Total other comprehensive income (loss)  168,750  
Total comprehensive income$11,351,673 $4,627,787 $21,682,543 $6,028,542 
(See accompanying notes to the consolidated financial statements)
3

AFC GAMMA, INC.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY
(unaudited)
Three months ended June 30, 2022
Preferred
Stock
Common StockAdditional
Paid-In-
Capital
Accumulated Other Comprehensive Income (Loss)Accumulated
Earnings
(Deficit)
Total
Shareholders’
Equity
SharesAmount
Balance at March 31, 2022$1 19,742,940 $196,784 $338,102,982 $ $(1,789,374)$336,510,393 
Issuance of common stock, net of offering costs— 114,932 1,149 1,347,662 — — 1,348,811 
Stock-based compensation— — — 117,397 — — 117,397 
Dividends declared on common shares ($0.56 per share)
— — — — — (11,120,409)(11,120,409)
Dividends declared on preferred shares ($60 per share)
— — — — — (7,500)(7,500)
Net income— — — — — 11,351,673 11,351,673 
Balance at June 30, 2022$1 19,857,872 $197,933 $339,568,041 $ $(1,565,610)$338,200,365 
Three months ended June 30, 2021
Preferred
Stock
Common StockAdditional
Paid-In-
Capital
Accumulated Other Comprehensive Income (Loss)Accumulated
Earnings
(Deficit)
Total
Shareholders’
Equity
SharesAmount
Balance at March 31, 2021$1 13,366,877 $133,669 $216,504,726 $ $(306,391)$216,332,005 
Issuance of common stock, net of offering costs— 2,750,000 27,500 52,544,886 — — 52,572,386 
Stock-based compensation— — — 11,457 — — 11,457 
Dividends declared on common shares ($0.38 per share)
— — — — — (5,079,413)(5,079,413)
Dividends declared on preferred shares ($60 per share)
— — — — — (7,500)(7,500)
Net income— — — — — 4,627,787 4,627,787 
Balance at June 30, 2021$1 16,116,877 $161,169 $269,061,069 $ $(765,517)$268,456,722 
(See accompanying notes to the consolidated financial statements)
4

AFC GAMMA, INC.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY
(unaudited)
Six months ended June 30, 2022
 Preferred
Stock
Common StockAdditional
Paid-In-
Capital
Accumulated Other Comprehensive Income (Loss)Accumulated
Earnings
(Deficit)
Total
Shareholders’
Equity
 SharesAmount
Balance at December 31, 2021$1 16,442,812 $163,866 $274,172,934 $(168,750)$(1,092,877)$273,075,174 
Issuance of common stock, net of offering costs— 3,406,764 34,067 64,287,687 — — 64,321,754 
Stock-based compensation— 8,296 — 1,107,420 — — 1,107,420 
Dividends declared on common shares ($1.11 per share)
— — — — — (21,979,026)(21,979,026)
Dividends declared on preferred shares ($60 per share)
— — — — — (7,500)(7,500)
Other comprehensive income (loss)— — — — 168,750 — 168,750 
Net income— — — — — 21,513,793 21,513,793 
Balance at June 30, 2022$1 19,857,872 $197,933 $339,568,041 $ $(1,565,610)$338,200,365 
Six months ended June 30, 2021
 Preferred
Stock
Common StockAdditional
Paid-In-
Capital
Accumulated Other Comprehensive Income (Loss)Accumulated
Earnings
(Deficit)
Total
Shareholders’
Equity
 SharesAmount
Balance at December 31, 2020$1 6,179,392 $61,794 $91,068,197 $ $517,720 $91,647,712 
Issuance of common stock, net of offering costs— 9,937,485 99,375 176,382,300 — — 176,481,675 
Stock-based compensation— — — 1,610,572 — — 1,610,572 
Dividends declared on common shares ($0.74 per share)
— — — — — (7,304,279)(7,304,279)
Dividends declared on preferred shares ($60 per share)
— — — — — (7,500)(7,500)
Net income— — — — — 6,028,542 6,028,542 
Balance at June 30, 2021$1 16,116,877 $161,169 $269,061,069 $ $(765,517)$268,456,722 
(See accompanying notes to the consolidated financial statements)
5

AFC GAMMA, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
Six months ended
June 30,
20222021
Operating activities: 
Net income$21,513,793 $6,028,542 
Adjustments to reconcile net income to net cash provided by (used in) operating activities:  
Provision for current expected credit losses2,498,177 711,886 
Realized (gains) losses on sale of investments, net(450,000) 
Change in unrealized losses (gains) on loans at fair value, net924,611 627,561 
Accretion of deferred loan original issue discount and other discounts(8,337,513)(2,275,032)
Amortization of deferred financing costs507,883  
Stock-based compensation1,107,420 1,610,572 
Payment-in-kind interest(3,475,182)(1,267,093)
Changes in operating assets and liabilities  
Interest receivable(384,377)(223,377)
Prepaid expenses and other assets226,826 (116,905)
Interest reserve404,344 (702,887)
Accrued interest(33,507) 
Accrued management and incentive fees, net1,378,523 1,856,744 
Accrued direct administrative expenses(118,664)(19,732)
Accounts payable and other liabilities(536,112)1,265,608 
Net cash provided by (used in) operating activities15,226,222 7,495,887 
Cash flows from investing activities:  
Issuance of and fundings on loans(103,799,812)(76,918,926)
Proceeds from sales of Assigned Rights 2,313,130 
Proceeds from sales of loans10,600,000  
Sale of available-for-sale debt securities15,900,000  
Principal repayment of loans28,176,844 12,921,065 
Net cash provided by (used in) investing activities(49,122,968)(61,684,731)
Cash flows from financing activities:  
Proceeds from sale of common stock65,971,445 180,277,500 
Payment of offering costs - equity offering(1,649,691)(3,795,825)
Dividends paid to common and preferred shareholders(19,087,523)(7,311,779)
Repayment on the line of credit(75,000,000) 
Net cash provided by (used in) financing activities(29,765,769)169,169,896 
Net (decrease) increase in cash and cash equivalents(63,662,515)114,981,052 
Cash and cash equivalents, beginning of period109,246,048 9,623,820 
Cash and cash equivalents, end of period$45,583,533 $124,604,872 
Supplemental disclosure of non-cash activity:  
Interest reserve withheld from funding of loans$ $4,925,000 
OID withheld from funding of loans$4,682,675 $8,075,730 
Change in other comprehensive income (loss) during the period$168,750 $ 
Dividends declared and not yet paid$11,120,409 $ 
Supplemental information:  
Interest paid during the period$2,972,743 $ 
Income taxes paid during the period$40,588 $ 
(See accompanying notes to the consolidated financial statements)
6

AFC GAMMA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
As of June 30, 2022
(unaudited)
1.    ORGANIZATION
AFC Gamma, Inc. (the “Company” or “AFCG”) is an institutional lender to the cannabis industry that was founded in July 2020 by a veteran team of investment professionals. The Company originates, structures, underwrites, and invests in senior secured loans and other types of loans and debt securities for 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 (the Company’s “Manager”), a Delaware limited liability company, pursuant to the terms of the Amended and Restated Management Agreement, dated March 10, 2022 (as amended, the “Management Agreement”). The Company’s wholly-owned subsidiary, AFCG TRS1, LLC (“TRS1”), a Delaware limited liability company, operates as a taxable real estate investment trust subsidiary (a “TRS”). TRS1 began operating in July 2021, and the financial statements of TRS1 have been consolidated within the Company’s consolidated financial statements beginning with the quarter ended September 30, 2021.
The Company operates as one operating segment and is primarily focused on financing senior secured loans and other types of loans to cannabis industry operators in states where medical and/or adult-use cannabis is legal. These loans are generally held for investment and are secured, directly or indirectly, by real estate, equipment, the value associated with licenses 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”), commencing with its taxable year ended December 31, 2020. 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.
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, 2021 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 generally accepted accounting principles in the United States (“GAAP”) and in conformity with the rules and regulations of the SEC applicable to interim financial information. These unaudited interim consolidated financial statements reflect all adjustments that, in the opinion of management, are considered necessary for a fair statement of the Company’s results of operations and financial condition as of and for the periods presented.
The current period’s results of operations will not necessarily be indicative of results that ultimately may be achieved for the year ending December 31, 2022.
Investment in Marketable Securities
Marketable debt securities in the Company’s portfolio are recorded at fair value and unrealized gains or losses are excluded from net income on the consolidated statement of operations and reported as a component of accumulated other comprehensive income within shareholders’ equity.

7

Use of Estimates in the Preparation of Financial Statements
The preparation of 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 (“CECL”).
Over the course of the coronavirus (“COVID-19”) pandemic, medical cannabis companies have been deemed “essential” by almost all states with legalized cannabis and stay-at-home orders. Consequently, the impact of the COVID-19 pandemic and the related regulatory and private sector response on our financial and operating results for the periods ended June 30, 2022 and 2021 was somewhat mitigated as all of our borrowers were permitted to continue to operate during this pandemic. Regardless, the full extent of the economic impact of the business disruptions caused by COVID-19 is uncertain. The outbreak of COVID-19 has severely impacted global economic activity and caused significant volatility and negative pressure in financial markets. The global impact of the outbreak has been rapidly evolving, and many countries, including the United States, have reacted by instituting quarantines, mandating business and school closures and restricting travel. As a result, the COVID-19 pandemic is negatively impacting almost every industry directly or indirectly, including the regulated cannabis industry. Although most of these measures have been lifted or scaled back, surges of COVID-19 in certain parts of the world, including the United States, have resulted and may in the future result in the re-imposition of certain restrictions and may lead to more restrictions to reduce the spread of COVID-19. The full effect that these disruptions may have on the operations and financial performance of the Company will depend on future developments, including possible impacts on the performance of the Company’s loans, general business activity, and ability to generate revenue, which cannot be determined.
Recent Accounting Pronouncements
In March 2020, the FASB issued ASU No. 2020-04, Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting, which provides optional expedients and exceptions for applying GAAP to contracts, hedging relationships, and other transactions affected by reference rate reform if certain criteria are met. The amendments apply only to contracts, hedging relationships, and other transactions that reference the London Interbank Offered Rate (“LIBOR”) or another reference rate expected to be discontinued because of reference rate reform. ASU No. 2020-04 is effective for all entities as of March 12, 2020 through December 31, 2022. The Company does not believe the adoption of this ASU will have a material impact on its consolidated financial statements.
In January 2021, the FASB issued ASU No. 2021-01, Reference Rate Reform (Topic 848): Scope, which clarifies that certain optional expedients and exceptions in Topic 848 for contract modifications and hedge accounting apply to derivatives that are affected by the discounting transition. ASU No. 2021-01 is effective immediately for all entities. An entity may elect to apply the amendments on a full retrospective basis as of any date from the beginning of an interim period that includes or is subsequent to March 12, 2020, or on a prospective basis to new modifications from any date within an interim period that includes or is subsequent to the date of the issuance of a final update, up to the date that financial statements are available to be issued. If an entity elects to apply any of the amendments for an eligible hedging relationship, any adjustments as a result of those elections must be reflected as of the date the entity applies the election. They do not apply to contract modifications made after December 31, 2022, new hedging relationships entered into after December 31, 2022, and existing hedging relationships evaluated for effectiveness in periods after December 31, 2022, except for hedging relationships existing as of December 31, 2022, that apply certain optional expedients in which the accounting effects are recorded through the end of the hedging relationship including periods after December 31, 2022. The Company is currently evaluating the impact, if any, of this ASU on its consolidated financial statements.
3.    LOANS HELD FOR INVESTMENT AT FAIR VALUE
As of June 30, 2022 and December 31, 2021, the Company’s portfolio included three loans held at fair value. The aggregate originated commitment under these loans was approximately $96.2 million and $75.9 million, respectively, and outstanding principal was approximately $96.4 million and $77.6 million, as of June 30, 2022 and December 31, 2021, respectively. For the six months ended June 30, 2022, the Company funded approximately $17.3 million of additional principal and had no repayments. As of June 30, 2022 and December 31, 2021, none of the Company’s loans held at fair value had floating interest rates.
8

The following tables summarize the Company’s loans held at fair value as of June 30, 2022 and December 31, 2021:
As of June 30, 2022
Fair Value (1)
Carrying Value (2)
Outstanding
Principal (2)
Weighted Average
Remaining Life
(Years) (3)
Senior term loans$95,199,132 $93,940,582 $96,382,983 1.7
Total loans held at fair value$95,199,132 $93,940,582 $96,382,983 1.7
As of December 31, 2021
Fair Value (1)
Carrying Value (2)
Outstanding
Principal (2)
Weighted Average
Remaining Life
(Years) (3)
Senior term loans$77,096,319 $74,913,157 $77,630,742 2.2
Total loans held at fair value$77,096,319 $74,913,157 $77,630,742 2.2
(1)Refer to Note 14 to the Company's unaudited consolidated financial statements.
(2)The difference between the Carrying Value and the Outstanding Principal amount of the loans consists of unaccreted original issue discount (“OID”) and loan origination costs.
(3)Weighted average remaining life is calculated based on the fair value of the loans as of June 30, 2022 and December 31, 2021.
The following table presents changes in loans held at fair value as of and for the six months ended June 30, 2022:
Principal Original Issue
Discount
Unrealized Gains (Losses)Fair Value
Total loans held at fair value at December 31, 2021$77,630,742 $(2,717,584)$2,183,161 $77,096,319 
Change in unrealized (losses) gains on loans at fair value, net  (924,611)(924,611)
New fundings17,285,000 (429,275) 16,855,725 
Accretion of original issue discount 704,458  704,458 
PIK interest1,467,241   1,467,241 
Total loans held at fair value at June 30, 2022$96,382,983 $(2,442,401)$1,258,550 $95,199,132 
A more detailed listing of the Company’s loans held at fair value portfolio based on information available as of June 30, 2022 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. AAZ, MI, MD, MAC, D$79,320,829 $78,314,293 $80,301,694 15.5 %
(6)
5/8/2024P/I
Public Co. ANVC3,009,582 3,069,437 3,069,437 14.0 %
(7)
1/26/2023I/O
Private Co. BMIC12,868,721 12,556,852 13,011,852 17.0 %
(8)
9/1/2023P/I
Total loans held at fair value$95,199,132 $93,940,582 $96,382,983   
(1)C = Cultivation Facilities, D = Dispensary/Retail Facilities.
(2)Refer to Note 14 to the Company’s unaudited consolidated financial statements.
9

(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 interest rate of 12.8% and payment-in-kind (“PIK”) interest rate of 2.7%.
(7)Base interest rate of 10% and PIK interest rate of 4%.
(8)Base interest rate of 13% and PIK interest rate of 4%.
4.    LOANS HELD FOR INVESTMENT AT CARRYING VALUE
As of June 30, 2022 and December 31, 2021, the Company’s portfolio included nine and twelve loans, respectively, held at carrying value. The aggregate originated commitment amount under these loans was approximately $383.0 million and $324.3 million, respectively, and outstanding principal was approximately $326.2 million and $270.8 million, as of June 30, 2022 and December 31, 2021, respectively. For the six months ended June 30, 2022, the Company funded approximately $116.2 million of outstanding principal. As of June 30, 2022 and December 31, 2021, approximately 38% and 48%, respectively, of the Company’s loans held at carrying value have floating interest rates. As of June 30, 2022, these floating benchmark rates include one-month LIBOR subject to a weighted average floor of 1.0% and quoted at 1.787%, one-month Secured Overnight Financing Rate (“SOFR”) subject to a weighted average floor of 1.0% and quoted at 1.686% and U.S. Prime Rate subjected to a weighted average floor of 4.0% quoted at 4.750%.
The following tables summarize the Company’s loans held at carrying value as of June 30, 2022 and December 31, 2021:
As of June 30, 2022
Outstanding
Principal (1)
Original
Issue
Discount
Carrying
Value (1)
Weighted
Average
Remaining Life
(Years) (2)
Senior term loans$326,181,229 $(10,299,185)$315,882,044 2.9
Total loans held at carrying value$326,181,229 $(10,299,185)$315,882,044 2.9
 As of December 31, 2021
 
Outstanding
Principal (1)
Original
Issue
Discount
Carrying
Value (1)
Weighted
Average
Remaining Life
(Years) (2)
    
Senior term loans$270,841,715 $(13,678,219)$257,163,496 3.4
Total loans held at carrying value$270,841,715 $(13,678,219)$257,163,496 3.4

(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, 2022 and December 31, 2021.

10

The following table presents changes in loans held at carrying value as of and for the six months ended June 30, 2022:
Principal Original Issue
Discount
Carrying Value
Total loans held at carrying value at December 31, 2021$270,841,715 $(13,678,219)$257,163,496 
New fundings116,200,972 (4,253,401)111,947,571 
Accretion of original issue discount 7,632,435 7,632,435 
Loan repayments(52,014,211) (52,014,211)
Sale of loans(10,000,000) (10,000,000)
PIK interest1,981,755  1,981,755 
Loan amortization payments(829,002) (829,002)
Total loans held at carrying value at June 30, 2022$326,181,229 $(10,299,185)$315,882,044 
A more detailed listing of the Company’s loans held at carrying value portfolio based on information available as of June 30, 2022 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)
Private Co. CPAC, D$24,534,371 $(658,414)$23,875,957 17.8 %
(5)
12/01/2025P/I
Sub. of Private Co. GNJC, D55,349,240 (2,089,607)53,259,633 14.9 %
(6)
05/01/2026P/I
Public Co. FAR, AZ, IL, FL, NV, OH, MA, MI, MD, NVC, D86,600,000 (1,184,533)85,415,467 8.6 %
(7)
05/30/2023I/O
Sub. of Private Co. HILC5,781,250 (66,732)5,714,518 15.0 %
(8)
05/11/2023I/O
Private Co. K MAC, D9,730,000 (965,656)8,764,344 13.7 %
(9)
05/03/2027P/I
Private Co. IMDC, D10,661,155 (189,629)10,471,526 16.3 %
(10)
08/01/2026P/I
Private Co. J MOC23,525,213 (623,185)22,902,028 17.8 %
(11)
09/01/2025P/I
Sub. of Public Co. HIA, IL, MI, NJ, PAC, D60,000,000 (2,057,143)57,942,857 9.8 %
(12)
01/01/2026I/O
Private Co. LMO, NJ, OHC, D50,000,000 (2,464,286)47,535,714 12.0 %
(13)
05/01/2026P/I
Total loans held at carrying value$326,181,229 $(10,299,185)$315,882,044 
(1)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 9.0% plus Prime (Prime floor of 4.0%) and PIK interest rate of 4.0%.
(6)Base weighted average interest rate of 11.5% plus LIBOR (LIBOR floor of 1.0%) and PIK interest rate of 1.8%.
(7)Base weighted average interest rate of 8.6%.
(8)Base interest rate of 15.0%.
(9)Base interest rate of 12.0% plus SOFR (SOFR floor of 1.0%)
(10)Base interest rate of 12.0% plus LIBOR (LIBOR floor of 1.0%) and PIK interest rate of 2.5%.
(11)Base interest rate of 12.0% plus LIBOR (LIBOR floor of 1.0%) and PIK interest rate of 4.0%.
(12)Base interest rate of 9.8%.
(13)Base interest rate of 12.0%.
11

5.    LOAN RECEIVABLE AT CARRYING VALUE
As of June 30, 2022 and December 31, 2021, the Company’s portfolio included one loan receivable at carrying value. The originated commitment under this loan was approximately $4.0 million and outstanding principal was approximately $2.2 million and $2.5 million as of June 30, 2022 and December 31, 2021, respectively. During the six months ended June 30, 2022, the Company received repayments of approximately $0.3 million of outstanding principal.
The following table presents changes in loans receivable as of and for the six months ended June 30, 2022:
Principal Original Issue
Discount
Carrying
Value
Total loan receivable at carrying value at December 31, 2021$2,533,266 $(2,678)$2,530,588 
Principal repayment of loans(337,114) (337,114)
Accretion of original issue discount 618 618 
PIK interest26,187  26,187 
Total loan receivable at carrying value at June 30, 2022$2,222,339 $(2,060)$2,220,279 
6.    CURRENT EXPECTED CREDIT LOSSES
The Company estimates its current expected credit losses (“CECL”) on both the outstanding balances and unfunded commitments on loans held for investment and requires consideration of a broader range of historical experience adjusted for current conditions and reasonable and supportable forecast information to inform credit loss estimates (the “CECL Reserve”) using a model that considers multiple datapoints and methodologies that may include the likelihood of default and expected loss given default for each individual loan, discounted cash flows (“DCF”), and other inputs which may include the risk rating of the loan, how recently the loan was originated compared to the measurement date, and expected prepayment if applicable. Calculation of the CECL Reserve requires loan specific data, which includes fixed charge coverage ratio, loan-to-value, property type and geographic location. Estimating the CECL Reserve also requires significant judgment with respect to various factors, including (i) the appropriate historical loan loss reference data, (ii) the expected timing of loan repayments, (iii) calibration of the likelihood of default to reflect the risk characteristics of the Company’s loan portfolio and (iv) the Company’s current and future view of the macroeconomic environment. The Company may consider loan-specific qualitative factors on certain loans to estimate its CECL Reserve, which may include (i) whether cash from the borrower’s operations is sufficient to cover the debt service requirements currently and into the future, (ii) the ability of the borrower to refinance the loan and (iii) the liquidation value of collateral. For loans where the Company has deemed the borrower/sponsor to be experiencing financial difficulty, the Company may elect to apply a practical expedient in which the fair value of the underlying collateral is compared to the amortized cost of the loan in determining a specific CECL allowance. In order to estimate the future expected loan losses relevant to the Company’s portfolio, the Company may consider historical market loan loss data provided by a third-party data service. The third party’s loan database includes historical loss data for commercial mortgage-backed securities, or CMBS which the Company believes is a reasonably comparable and available data set to its type of loans. The CECL Reserve takes into consideration the macroeconomic impact of the COVID-19 pandemic on commercial real estate properties and is not specific to any loan losses or impairments on the Company’s loans held for investment.
As of June 30, 2022 and December 31, 2021, the Company’s CECL Reserve for its loans held at carrying value and loan receivable at carrying value is approximately $5.6 million and $3.1 million, respectively, or 176 and 120 basis points, respectively, of the Company’s total loans held at carrying value and loans receivable at carrying value of approximately $318.1 million and $259.7 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 loans receivable at carrying value of approximately $5.0 million and $2.4 million, respectively, and a liability for unfunded commitments of approximately $0.6 million and $0.7 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.
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Activity related to the CECL Reserve for outstanding balances and unfunded commitments on the Company’s loans held at carrying value and loans receivable at carrying value as of and for the three and six months ended June 30, 2022 was as follows:
Outstanding (1)
Unfunded (2)
Total
Balance at March 31, 2022$3,390,676 $629,188 $4,019,864 
Provision for current expected credit losses1,627,396 (34,348)1,593,048 
Write-offs   
Recoveries   
Balance at June 30, 2022$5,018,072 $594,840 $5,612,912 
Outstanding (1)
Unfunded (2)
Total
Balance at December 31, 2021$2,431,558 $683,177 $3,114,735 
Provision for current expected credit losses2,586,514 (88,337)2,498,177 
Write-offs   
Recoveries   
Balance at June 30, 2022$5,018,072 $594,840 $5,612,912 
(1)As of June 30, 2022 and December 31, 2021, the CECL Reserve related to outstanding balances on loans at carrying value and loans receivable at carrying value is recorded within current expected credit loss reserve in the Company’s consolidated balance sheets.
(2)As of June 30, 2022 and December 31, 2021, 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. Risk factors 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. 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:
RatingDefinition
1Very Low Risk — Materially exceeds performance metrics included in original or current credit underwriting and business plan
2Low Risk — Collateral and business performance exceeds substantially all performance metrics included in original or current credit underwriting and business plan
3Medium Risk — Collateral and business performance meets, or is on track to meet underwriting expectations; business plan is met or can reasonably be achieved
4High 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
5Impaired/ 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
The risk ratings are primarily based on historical data as well as taking into account future economic conditions.
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As of June 30, 2022, the carrying value, excluding the CECL Reserve, of the Company’s loans held at carrying value and loans receivable at carrying value within each risk rating by year of origination is as follows:
Risk Rating:202220212020Total
1$ $ $ $ 
226,103,466 59,312,000  85,415,466 
356,300,058 116,917,010 26,096,236 199,313,304 
4 33,373,553  33,373,553 
5    
Total$82,403,524 $209,602,563 $26,096,236 $318,102,323 
7.    INTEREST RECEIVABLE
The following table summarizes the interest receivable by the Company as of June 30, 2022 and December 31, 2021:
As of
June 30, 2022
As of
December 31, 2021
Interest receivable$4,072,292 $3,562,566 
PIK receivable546,790 554,357 
Unused fees receivable178,233 296,015 
Total interest receivable$4,797,315 $4,412,938 
8.    INTEREST RESERVE
At June 30, 2022 and December 31, 2021, the Company had two and seven loans, respectively, that included a loan-funded interest reserve. For the three and six months ended June 30, 2022, approximately $1.4 million and $5.6 million, respectively, of aggregate interest income was earned and disbursed from the interest reserves.
The following table presents changes in the interest reserve as of and for the three and six months ended June 30, 2022 and 2021:
Three months ended
June 30,
Six months ended
June 30,
2022202120222021
Beginning reserves$607,163 $3,243,484 $4,782,271 $1,325,750 
New reserves6,000,000 2,925,000 6,000,000 4,925,000 
Reserves disbursed(1,420,548)(620,621)(5,595,656)(702,887)
Ending reserves$5,186,615 $5,547,863 $5,186,615 $5,547,863 
9.    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 (the “Revolving Credit Facility”). The Revolving Credit Facility has a maturity date of April 29, 2025.
The Revolving Credit Facility contains aggregate commitments of $60.0 million from two FDIC-insured banking institutions (which may be increased to up to $100.0 million in aggregate, subject to available borrowing base and additional commitments) which may be borrowed, repaid and redrawn, subject to a borrowing base based on eligible loan obligations held by the Company and subject to the satisfaction of other conditions provided under the Revolving Credit Facility. Interest is payable on the Revolving Credit Facility at the greater of (1) the applicable base rate plus 0.50% and (2)
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4.50%, as provided in the Revolving Credit Agreement, payable in cash in arrears. The Company incurred a one-time commitment fee expense of approximately $0.5 million, which is amortized over the life of the facility. Commencing on the six-month anniversary of the closing date, the Revolving Credit Facility has an unused line fee of 0.25% per annum, to be paid semi-annually in arrears, which will be included within interest expense in the Company’s consolidated statements of operations. For the three and six months ended June 30, 2022, the Company had not drawn on the Revolving Credit Facility or incurred any interest expense related to the Revolving Credit Facility.
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.
Termination of AFC Finance Revolving Credit Facility
In July 2020, the Company obtained a secured revolving credit line (the “AFCF Revolving Credit Facility”) from AFC Finance, LLC and Gamma Lending HoldCo LLC, each affiliates of the Company’s management, secured by the assets of the Company. The AFCF Revolving Credit Facility originally had a loan commitment of $40.0 million at an interest rate of 8% per annum, payable in cash in arrears. The maturity date of the AFCF Revolving Credit Facility was the earlier of (i) July 31, 2021 and (ii) the date of the closing of any credit facility where the proceeds are incurred to refund, refinance or replace the AFCF Revolving Credit Agreement, in accordance with terms of the credit agreement governing the AFCF Revolving Credit Facility (the “AFCF Revolving Credit Agreement”).
On May 7, 2021, the Company amended the AFCF Revolving Credit Agreement (the “First Amendment”). The First Amendment (i) increased the loan commitment from $40.0 million to $50.0 million, (ii) decreased the interest rate from 8% per annum to 6% per annum, (iii) removed Gamma Lending Holdco LLC as a lender and (iv) extended the maturity date from July 31, 2021 to the earlier of (A) December 31, 2021 or (B) the date of the closing of any refinancing credit facility.
On November 3, 2021, the Company entered into the Second Amendment to the AFCF Revolving Credit Agreement (the “Second Amendment”). Under the Second Amendment, payments to AFC Finance, LLC for interest, commitment fees and unused fees (net applicable taxes) were required to be paid directly or indirectly through AFC Finance, LLC to charitable organizations designated by AFC Finance, LLC. The Second Amendment also (i) increased the loan commitment from $50.0 million to $75.0 million (ii) decreased the interest rate from 6% per annum to 4.75% per annum; (iii) introduced a one-time commitment fee of 0.25%, to be paid in three equal quarterly installments, and an unused line fee of 0.25% per annum, to be paid quarterly in arrears; (iv) provided an optional buyout provision for the holders of the 2027 Senior Notes upon an event of default under the AFCF Revolving Credit Agreement; (v) extended the fixed element of the maturity date from December 31, 2021 to September 30, 2022. Pursuant to the Second Amendment, the Company incurred a one-time commitment fee expense of $187,500 in November 2021, payable in three quarterly installments that began in the first quarter of 2022, which is amortized over the life of the loan. As of June 30, 2022 and December 31, 2021, the outstanding loan balance under the AFCF Revolving Credit Facility was $0.0 million and $75.0 million, respectively. All borrowings that were previously outstanding as of December 31, 2021 were repaid in full on January 3, 2022. For the three and six months ended June 30, 2022, the Company incurred interest expense on the AFCF Revolving Credit Facility of $0 and $19,792, respectively. For the three and six months ended June 30, 2021, the Company did not incur any interest expense on the AFCF Revolving Credit Facility.
On April 29, 2022, upon the Company’s entry into the Revolving Credit Facility, the Company terminated the AFCF Revolving Credit Agreement. In connection with the termination, the Company paid the remaining amount of the commitment fee outstanding of approximately $0.1 million and accelerated the remaining deferred financing costs of approximately $0.1 million. There were no other payments, premiums or penalties required to be paid in connection with the termination.
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, beginning 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 intends to use 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
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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. Subsequent to the Company’s investment in the senior secured loan to Private Company I being transferred to TRS1 on April 1, 2022, TRS1 was added as a subsidiary guarantor under the Indenture. As of June 30, 2022, the 2027 Senior Notes are guaranteed by TRS1.
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.
The 2027 Senior Notes are due on May 1, 2027. Scheduled principal payments on the 2027 Senior Notes as of June 30, 2022 are as follows:
2027 Senior Notes
Year
2022 (remaining)$ 
2023 
2024 
2025 
2026 
Thereafter100,000,000 
Total principal$100,000,000 

The following table reflects a summary of interest expense incurred during the three and six months ended June 30, 2022. There was no interest expense incurred during the three and six months ended June 30, 2021.

Three months ended
June 30, 2022
2027 Senior NotesRevolving Credit FacilityAFCF Revolving Credit FacilityTotal Borrowings
Interest expense$1,437,499 $ $ $1,437,499 
Unused fee expense  14,583 14,583 
Amortization of deferred financing costs163,779 27,480 103,663 294,922 
Total interest expense$1,601,278 $27,480 $118,246 $1,747,004 

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Six months ended
June 30, 2022
2027 Senior NotesRevolving Credit FacilityAFCF Revolving Credit FacilityTotal Borrowings
Interest expense$2,859,027 $ $19,792 $2,878,819 
Unused fee expense  60,417 60,417 
Amortization of deferred financing costs325,758 27,480 154,645 507,883 
Total interest expense$3,184,785 $27,480 $234,854 $3,447,119 
10.    COMMITMENTS AND CONTINGENCIES
As of June 30, 2022 and December 31, 2021, the Company had the following commitments to fund various senior term loans, investment in debt securities, equipment loans and bridge loans:
As of
June 30, 2022
As of
December 31, 2021
Total original loan commitments$483,181,394 $419,198,125 
Less: drawn commitments(421,199,287)(363,659,505)
Total undrawn commitments$61,982,107 $55,538,620 
The Company from time to time may be a party to litigation in the normal course of business. As of June 30, 2022, the Company is not aware of any legal claims 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 of 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 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.
11.    SHAREHOLDERS’ EQUITY
Series A Preferred Stock
As of June 30, 2022 and December 31, 2021, the Company has authorized 10,000 preferred shares and issued 125 of the preferred shares designated as 12.0% Series A Cumulative Non-Voting Preferred Stock, par value $0.01 per share (the “Series A Preferred Stock”).
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 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
17

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, for a total of $125,000 for the 125 shares outstanding, 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.
Common Stock
The Board of Directors of the Company (the “Board”) approved a seven-for-one stock split of the Company’s common stock effective on January 25, 2021. All common shares, stock options, and per share information presented in the consolidated financial statements have been adjusted to reflect the stock split on a retroactive basis for all periods presented, including reclassifying an amount equal to the increase in par value of common stock from additional paid-in capital. There was no change in the par value of the Company’s common stock. Upon consummation of the Company’s IPO, any shareholder that held fractional shares received cash in lieu of such fractional shares based on the public offering price of the shares of the Company’s common stock at IPO. This resulted in the reduction of 15 shares issued and outstanding.
On March 23, 2021, the Company completed its IPO of 6,250,000 shares of its common stock at a price of $19.00 per share, raising approximately $118.8 million in gross proceeds. The underwriters also exercised their over-allotment option to purchase up to an additional 937,500 shares of the Company’s common stock at a price of $19.00 per share, which was completed on March 26, 2021, raising approximately $17.8 million in additional gross proceeds. The underwriting commissions of approximately $8.3 million and $1.2 million, respectively, are reflected as a reduction of additional paid-in capital on the consolidated statements of shareholders’ equity. The Company incurred approximately $3.1 million of expenses in connection with the IPO, which is reflected as a reduction in additional paid-in capital. The net proceeds to the Company totaled approximately $123.9 million.
On June 28, 2021, the Company completed an offering of 2,750,000 shares of its common stock at a price of $20.50 per share, raising approximately $56.4 million in gross proceeds. The underwriting commissions of approximately $3.1 million are reflected as a reduction of additional paid-in capital on the consolidated statements of shareholders’ equity. The Company incurred approximately $0.7 million of expenses in connection with the offering, which is reflected as a reduction in additional paid-in capital. The net proceeds to the Company totaled approximately $52.6 million.
On July 6, 2021, the underwriters partially exercised their over-allotment option to purchase 269,650 shares of the Company’s common stock at a price of $20.50 per share raising approximately $5.5 million in additional gross proceeds or approximately $5.2 million in net proceeds after underwriting commissions of approximately $0.3 million, which is reflected as a reduction of additional paid-in capital on the consolidated statements of shareholders’ equity.
On January 10, 2022, the Company completed an underwritten offering of 3,000,000 shares of our common stock, at a price to the public of $20.50 per share. The gross proceeds to the Company from the offering were $61.5 million, before deducting underwriting discounts and commissions, a structuring fee and offering expenses payable by the Company. In connection with the offering, the underwriters were granted an over-allotment option to purchase up to an additional 450,000 shares of the Company’s common stock. On January 14, 2022, the underwriters partially exercised the over-allotment option with respect to 291,832 shares of common stock, which was completed on January 19, 2022. The underwriting commissions of approximately $3.5 million are reflected as a reduction of additional paid-in capital in the first quarter of fiscal year 2022. The Company incurred approximately $1.0 million of expenses in connection with the offering. After giving effect to the partial exercise of the over-allotment option, the total number of shares sold by the Company in the public offering was 3,291,832 shares and total gross proceeds, before deducting underwriting discounts and commissions, a structuring fee and other offering expenses payable by the Company, were approximately $67.5 million. The net proceeds to the Company totaled approximately $63.0 million.
Pursuant to the Articles of Amendment, dated March 10, 2022, the Company increased the number of authorized shares of common stock to 50,000,000 shares at $0.01 par value per share.
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Shelf Registration Statement
On April 5, 2022, the Company filed a shelf registration statement on Form S-3 (File No. 333-264144) (the “Shelf Registration Statement”), which was declared effective on April 18, 2022. 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 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, 2022, the Company sold an aggregate of 114,932 shares of the Company’s common stock under the Sales Agreement at an average price of $18.08 per share. The sales generated net proceeds of approximately $1.3 million.
As of June 30, 2022, the shares of common stock sold under the ATM Program are the only offerings that have been initiated under the Shelf Registration Statement.
Equity Incentive Plan
The Company has established an equity 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, and currently intends to continue to grant stock options 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 and consultants and other service providers to the Company or any of its subsidiaries.
During the first quarter of 2022, the Company’s Board of Directors approved grants of restricted stock and stock options to the Company’s directors and officers, as well as employees of the Manager. In January 2022, the Company granted an aggregate of 8,296 shares of restricted stock and 742,000 stock options to certain of our officers and other eligible persons. The restricted stock granted under the 2020 Stock Incentive Plan vest over a four-year period with approximately 33% vesting on each of the second, third and fourth anniversaries of the vesting commencement date. The stock options granted under the 2020 Stock Incentive Plan have a strike price of $20.18 and contain vesting periods that vary from immediately vested to vesting over a four-year period. As of June 30, 2022, there were 2,380,687 shares of common stock granted under the 2020 Plan, underlying 2,316,106 options and 64,581 shares of restricted stock.
As of June 30, 2022, the maximum number of shares of the Company’s common stock that may be delivered pursuant to awards under the 2020 Plan (the “Share Limit”) equals 2,742,641 shares, which is an increase of 11,493 shares compared to March 31, 2022. This Share Limit increased in the second quarter of 2022 under the evergreen provision in the 2020 Plan in connection with the shares issued under the ATM Program during such time. Shares that are subject to or underlie awards that expire or for any reason are cancelled, terminated, forfeited, fail to vest, or for any other reason are not paid or delivered under the 2020 Plan will not be counted against the Share Limit and will again be available for subsequent awards under the 2020 Plan.
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The following table summarizes the (i) non-vested options granted, (ii) vested options granted and (iii) forfeited options granted for the Company’s directors and officers and employees of the Manager as of June 30, 2022 and December 31, 2021:
As of
June 30, 2022
As of
December 31, 2021
Non-vested325,114 183,114 
Vested2,049,518 1,449,518 
Forfeited(58,526)(28,396)
Balance2,316,106 1,604,236 
The Company uses the Black-Scholes option pricing model to value stock options in determining the stock-based compensation expense. Forfeitures are recognized as they occur. 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 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. Restricted stock grant expense is based on the Company’s stock price at the time of the grant and amortized over the vesting period. The stock-based compensation expense for the Company was $117,397 and $1,107,420 for the three and six months ended June 30, 2022, respectively, and $11,457 and $1,610,572 for the three and six months ended June 30, 2021, respectively.
The following table presents the assumptions used in the option pricing model of options granted under the 2020 Plan:
AssumptionsRange
Expected volatility
40% - 50%
Expected dividend yield
10% - 20%
Risk-free interest rate
0.5% - 2.0%
Expected forfeiture rate
0%
The following tables summarize stock option activity during the three and six months ended June 30, 2022 and 2021:
Three months ended
June 30, 2022
Weighted Average
Grant Date Fair
Value Per Option
Balance as of March 31, 20222,321,106 $1.21 
Granted  
Exercised  
Forfeited(5,000)1.43 
Balance as of June 30, 20222,316,106 $1.21 

Three months ended
June 30, 2021
Weighted Average
Grant Date Fair
Value Per Option
Balance as of March 31, 20211,616,098 $1.08 
Granted  
Exercised  
Forfeited(3,000)1.31 
Balance as of June 30, 20211,613,098 $1.08 

20

Six months ended
June 30, 2022
Weighted Average
Grant Date Fair
Value Per Option
Balance as of December 31, 20211,604,236 $1.08 
Granted742,000 1.46 
Exercised  
Forfeited(30,130)1.05 
Balance as of June 30, 20222,316,106 $1.21 
Six months ended
June 30, 2021
Weighted Average
Grant Date Fair
Value Per Option
Balance as of December 31, 2020926,898 $0.91 
Granted689,200 1.31 
Exercised  
Forfeited(3,000)1.31 
Balance as of June 30, 20211,613,098 $1.08 
The following table summarizes the (i) non-vested restricted stock granted, (ii) vested restricted stock granted and (iii) forfeited restricted stock granted for the Company’s directors and officers and employees of the Manager as of June 30, 2022 and December 31, 2021:
As of
June 30, 2022
As of
December 31, 2021
Non-vested64,581 56,285 
Vested  
Forfeited  
Balance64,581 56,285 
The fair value of the Company’s restricted stock awards is based on the Company’s stock price on the date of grant. The following tables summarize the restricted stock activity during the three and six months ended June 30, 2022 and 2021:
Three months ended
June 30, 2022
Balance as of March 31, 202264,581 
Granted 
Exercised 
Forfeited 
Balance as of June 30, 202264,581 
Three months ended
June 30, 2021
Balance as of March 31, 2021 
Granted 
Exercised 
Forfeited 
Balance as of June 30, 2021 
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Six months ended
June 30, 2022
Balance as of December 31, 202156,285 
Granted8,296 
Exercised 
Forfeited 
Balance as of June 30, 202264,581 
Six months ended
June 30, 2021
Balance as of December 31, 2020 
Granted 
Exercised 
Forfeited 
Balance as of June 30, 2021 

12.    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, 2022 and 2021:
Three months ended
June 30,
Six months ended
June 30,
2022202120222021
Net income attributable to common shareholders$11,351,673 $4,627,787 $21,513,793 $6,028,542 
Divided by:
Basic weighted average shares of common stock outstanding19,715,749 13,457,536 19,518,964 10,318,542 
Diluted weighted average shares of common stock outstanding19,811,594 13,775,246 19,614,809 10,636,252 
Basic weighted average earnings per common share$0.58 $0.34 $1.10 $0.58 
Diluted weighted average earnings per common share$0.57 $0.34 $1.10 $0.57 
13.    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 in the consolidated statements of operations included in these unaudited interim consolidated financial statements.
The income tax provision for the Company was $164,315 and $182,599 for the three and six months ended June 30, 2022, respectively. The Company did not incur any tax expense for the three and six months ended June 30, 2021.
For the three and six months ended June 30, 2022 and 2021, the Company incurred no expense for United States federal excise tax. Excise tax represents a 4% tax on the sum of a portion of the Company’s ordinary income and net capital gains not distributed during the period. 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.
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The Company does not have any unrecognized tax benefits and the Company does not expect that to change in the next 12 months.
14.    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. 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 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, 2022 and December 31, 2021:
Fair Value Measurement as of June 30, 2022
TotalLevel 1Level 2Level 3
Loans held at fair value$95,199,132 $ $ $95,199,132 
Total$95,199,132 $ $ $95,199,132 
 Fair Value Measurement as of December 31, 2021
 TotalLevel 1Level 2Level 3
Loans held at fair value$77,096,319 $ $ $77,096,319 
Total$77,096,319 $ $ $77,096,319 
The following table presents changes in loans that use Level 3 inputs as of and for the six months ended June 30, 2022:
 Six months ended
June 30, 2022
Total loans using Level 3 inputs at December 31, 2021$77,096,319 
Change in unrealized (losses) gains on loans at fair value, net(924,611)
Additional fundings17,285,000 
Original issue discount and other discounts, net of costs(429,275)
Accretion of original issue discount704,458 
PIK interest1,467,241 
Total loans using Level 3 inputs at June 30, 2022$95,199,132 
The change in unrealized depreciation included in the unaudited interim consolidated statement of operations attributable to loans held at fair value, categorized as Level 3, held at June 30, 2022 is $(924,611).
The following tables summarize the significant unobservable inputs the Company used to value the loans categorized within Level 3 as of June 30, 2022 and December 31, 2021. 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, 2022
Unobservable Input
Fair ValuePrimary Valuation
Techniques
InputEstimated Range
Weighted
Average
Senior term loans$95,199,132 Yield analysisMarket yield
17.26% - 22.90%
18.03 %
Total Investments$95,199,132 
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As of December 31, 2021
Unobservable Input
Fair ValuePrimary Valuation TechniquesInputEstimated RangeWeighted Average
Senior term loans$77,096,319 Yield analysisMarket yield
17.71% - 20.96%
18.22 %
Total Investments$77,096,319     
Changes in market yields 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.
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 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.
Investment in Marketable Securities
As of June 30, 2022, the Company’s portfolio did not include any debt securities. As of December 31, 2021, the Company’s portfolio included one investment in debt securities held at fair value of approximately $15.9 million. The Company sold the investment in debt securities in March of 2022, which was previously designated as available-for-sale as of December 31, 2021. For the six months ended June 30, 2022, the realized loss on the sale of debt securities was approximately $0.2 million.

The following table presents changes in debt securities held at fair value as of and for the six months ended June 30, 2022:

PrincipalOriginal Issue DiscountUnrealized Gains (Losses)Fair Value
Total debt securities held at fair value at December 31, 2021$15,000,000 $1,050,000 $(168,750)$15,881,250 
Realized (losses) gains on securities at fair value, net (150,000) (150,000)
Change in accumulated other comprehensive income  168,750 168,750 
Sale of securities(15,000,000)(900,000) (15,900,000)
Total debt securities held at fair value at June 30, 2022$ $ $ $ 
The following table presents fair value measurements of debt securities held at fair value as of June 30, 2022 and December 31, 2021:
Fair Value Measurement as of June 30, 2022
TotalLevel 1Level 2Level 3
Debt securities held at fair value$ $ $ $ 
Total$ $ $ $ 
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 Fair Value Measurement as of December 31, 2021
 TotalLevel 1Level 2Level 3
Debt securities held at fair value$15,881,250 $ $15,881,250 $ 
Total$15,881,250 $ $15,881,250 $ 
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 sheet, 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 balance sheet:
 As of June 30, 2022
 Carrying ValueFair Value
Financial assets  
Cash and cash equivalents$45,583,533 $45,583,533 
Loans held for investment at carrying value$315,882,044 $312,489,029 
Loan receivable at carrying value$2,220,279 $2,165,669 
Estimates of fair value for cash and cash equivalents are measured using observable, quoted market prices, or Level 1 inputs. The Company’s loans held for investment are measured using unobservable inputs, or Level 3 inputs. The Company’s investments in debt securities are measured using readily available quoted prices for similar assets, or Level 2 inputs.
15.    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 below), 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.
Prior to the IPO, the quarterly base management fee was equal to 0.4375% of the Company’s Equity, subject to certain adjustments, less 100% of the aggregate amount of any Outside Fees, including any agency fees relating to the Company’s loans, but excluding the Incentive Compensation 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 means the net income (loss) for such period, computed in accordance with GAAP, excluding (i) non-cash equity compensation expense, (ii) the Incentive Compensation, (iii) depreciation and amortization, (iv) any unrealized gains or losses or other non-cash items that are included in net income for the applicable reporting period, regardless of whether such items are included in other comprehensive income or loss, or in net income and (v) one-time events pursuant to changes in GAAP and certain non-cash charges, in each case after discussions between the Manager and the Company’s independent directors and approved by a majority of the independent directors.

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The Incentive Compensation for the three and six months ended June 30, 2022 was approximately $3.4 million and $6.4 million, respectively. The Incentive Compensation for the three and six months ended June 30, 2021 was approximately $1.4 million and $2.1 million, respectively.
The Company shall pay all of its costs and expenses and shall reimburse the Manager or its affiliates for expenses of the Manager and its affiliates paid or incurred on behalf of the Company, excepting only those expenses that are specifically the responsibility of the Manager pursuant to the Management Agreement. With respect to certain office expenses incurred by the Manager on behalf of the Company and other funds managed by the Manager or its affiliates, such as rent, the Manager determines each fund’s pro rata portion of such expenses based on the fair value of the fund’s assets under management, excluding cash and cash equivalents, as a percentage of the total assets under management by all such related funds.
The following table summarizes the related party costs incurred by the Company for the three and six months ended June 30, 2022 and 2021:
Three months ended
June 30,
Six months ended
June 30,
2022202120222021
Affiliate Costs
Management fees$1,294,594 $819,531 $2,550,461 $1,271,206 
Less outside fees earned(488,050)(182,707)(875,543)(420,450)
Base management fees806,544 636,824 1,674,918 850,756 
Incentive fees earned3,395,024 1,442,047 6,373,864 2,104,777 
General and administrative expenses reimbursable to Manager973,886 423,939 1,880,603 789,506 
Total$5,175,454 $2,502,810 $9,929,385 $3,745,039 
Amounts payable to the Company’s Manager as of June 30, 2022 and December 31, 2021 were $5,407,360 and $4,147,501, respectively.
Due to Affiliate
Amounts due to an affiliate of the Company as of June 30, 2022 and December 31, 2021 were $6,140 and $0, respectively.
Investments in Loans
From time to time, the Company may co-invest with other investment vehicles managed by the Company’s Manager or its affiliates 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. As of June 30, 2022, there were five co-invested loans held by the Company and an affiliate of the Company.
In March 2022, the Company entered into the fourth amendment of the Amended and Restated Credit Agreement with Public Company F to, among other things, increase the total loan commitments by $100.0 million, with approximately (i) $26.6 million of the new loan commitments allocated to us; (ii) $15.0 million of the new loan commitments allocated to Flower Loan Holdco LLC, an affiliated entity in which Leonard Tannenbaum, our Chief Executive Officer and Chairman, is the majority ultimate beneficial owner; and (iii) the remaining loan commitments allocated to third-party lenders by the third-party agent.
In connection with investments in loans, the Company may receive the option to assign the right (the “Assigned Right”) to acquire warrants and/or equity of the borrower. The Company may sell the Assigned Right, and the sale may be to an affiliate of the Company. During the three and six months ended June 30, 2022, the Company neither received nor sold any Assigned Right. For the three and six months ended June 30, 2021, the Company sold approximately $1.1 million and $2.3 million, respectively, of Assigned Rights to an affiliate which are accounted for as additional original issue discount and accreted over the life of the loans.
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Secured Revolving Credit Facility From Affiliate
In April 2022, the Company terminated the AFCF Revolving Credit Facility. Refer to Note 9 to the Company’s unaudited consolidated financial statements for more information.
16.    DIVIDENDS AND DISTRIBUTIONS
The following table summarizes the Company’s dividends declared during the six months ended June 30, 2022 and 2021:
Record DatePayment
Date
Common Share
Distribution
Amount
Taxable
Ordinary
Income
Return of
Capital
Section
199A
Dividends
Regular cash dividend3/15/20213/31/2021$0.36 $0.36 $ $0.36 
Regular cash dividend6/15/20216/30/2021$0.38 $0.38 $ $0.38 
2021 Period Subtotal$0.74 $0.74 $ $0.74 
Regular cash dividend3/31/20224/15/2022$0.55 $0.55 $ $0.55 
Regular cash dividend6/30/20227/15/2022$0.56 $0.56 $ $0.56 
2022 Period Subtotal$1.11 $1.11 $ $1.11 
17.    SUBSEQUENT EVENTS
The Company has evaluated subsequent events through the date the financial statements were available to be issued. There were no material subsequent events that required disclosure in these financial statements.

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CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS
This Quarterly Report on Form 10-Q, filed by AFC Gamma, 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. 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," 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) estimates relating to our ability to make distributions to our shareholders in the future.
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:
the ability of the Manager to locate suitable investments for us and to monitor and administer our investments;
changes in, and volatility of the general economy and its impact on the industries in which we invest;
the impact of a protracted decline in the liquidity of credit markets on our business;
increased competition;
fluctuations in interest rates negatively affecting our business and our portfolio companies;
ability to maintain and enforce our contractual arrangements and relationships with third parties;
lack of liquidity of investments in our portfolio, particularly those having no liquid trading market;
actual and potential conflicts of interest with the Manager, and/or their respective affiliates;
potential inability of our portfolio companies to achieve their objectives;
our ability to obtain and maintain financing arrangements;
our ability to maintain our exemption from registration under the Investment Company Act;
our ability to qualify for treatment as a REIT for U.S. federal income tax purposes and to comply with and conduct our business in accordance with such rules;
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;
the ability of our Manager to attract and/or retain highly talented professionals;
increase in the rates of default or decreased recovery rates on debt investments in our portfolio;
changes in interest rates and impacts of such changes on our results of operations, cash flows and the market value of our loans; and
interest rate mismatches between our debt investments and any leverage used to fund such investments.
Please see the section entitled “Risk Factors” located in our Annual Report on Form 10-K, filed with the SEC on March 10, 2022, 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
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of anticipated or unanticipated events, except to the extent we are legally required to disclose certain matters in SEC filings or otherwise.
Item 2.     Management’s Discussion and Analysis of Financial Condition and Results of Operations
The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our consolidated financial statements and the accompanying notes and other information included in this Quarterly Report on Form 10-Q (the “Form 10-Q”). This discussion and analysis contains forward-looking statements that involve risks and uncertainties which could cause our actual results to differ materially from those anticipated in these forward-looking statements, including, but not limited to, risks and uncertainties discussed under the heading “Cautionary Note Regarding Forward-Looking Statements,” in this Form 10-Q.
Business Overview
AFC Gamma, Inc. is an institutional lender to the cannabis industry that was founded in July 2020 by a veteran team of investment professionals. We originate, structure, underwrite, and invest in senior secured loans and other types of loans and debt securities for cannabis industry operators in states that have legalized medical and/or adult-use cannabis. As states continue to legalize cannabis for medical and adult-use, an increasing number of companies operating in the cannabis industry need financing. Due to the currently capital constrained cannabis market which does not typically have access to traditional bank financing, we believe we are well positioned to continue as a prudent financing source to cannabis industry operators given our stringent underwriting criteria, size and scale of operations and institutional infrastructure. Our objective is to provide attractive risk-adjusted returns over time through cash distributions and capital appreciation by providing loans to state law compliant cannabis companies. The loans we originate are primarily structured as senior loans secured by real estate, equipment, value associated with licenses and/or other assets of the loan parties to the extent permitted by applicable laws and the regulations governing such loan parties. Some of our borrowers have their equity securities listed for public trading on the Canadian Securities Exchange (“CSE”) in Canada and/or over-the-counter (“OTC”) in the United States. Our loans typically have up to a five-year maturity and contain amortization and/or cash flow sweeps. We commenced operations on July 31, 2020 and completed our initial public offering (“IPO”) in March 2021.
We are a Maryland corporation and externally managed by our Manager, AFC Management, LLC, a Delaware limited liability company, pursuant to the terms of the Amended and Restated Management Agreement, dated March 10, 2022, by and between AFC Gamma, Inc. and AFC Management, LLC (as amended, the “Management Agreement”).
We have elected to be taxed as a real estate investment trust (a “REIT”), commencing with our taxable year ended December 31, 2020. We generally will not be subject to U.S. federal income taxes on our taxable income to the extent that we annually distribute all or substantially all of our taxable income to shareholders and maintain our intended qualification as a REIT. We also intend to operate our business in a manner that will permit us to maintain our exemption from registration under the Investment Company Act.
Our wholly-owned subsidiary, AFCG TRS1, LLC (“TRS1”), operates as a taxable REIT subsidiary. TRS1 began operating in July 2021. Our investment in the equipment loan to Public Company A was transferred to TRS1 on July 31, 2021. On April 1, 2022, our investment in the senior secured loan to Private Company I was transferred to TRS1. These two loans constituted substantially all of the assets of TRS1 as of June 30, 2022. The financial statements of TRS1 have been consolidated within our consolidated financial statements.
We are an “emerging growth company,” as defined in the Jumpstart Our Business Startups Act (“JOBS Act”), and we are eligible to take advantage of certain exemptions from various reporting requirements that are applicable to other public companies that are not “emerging growth companies” including, but not limited to, not being required to comply with the auditor attestation requirements of Section 404 of the Sarbanes-Oxley Act, reduced disclosure obligations regarding executive compensation in our periodic reports and proxy statements, and exemptions from the requirements of holding a non-binding advisory vote on executive compensation and shareholder approval of any golden parachute payments not previously approved. In addition, Section 107 of the JOBS Act also 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. We have elected to take advantage of the extended transition period to comply with new or revised accounting standards and to adopt certain of the reduced disclosure requirements available to emerging growth companies. As a result of the accounting standards election, we 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 our financials to those of other public companies more difficult.
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We could remain an “emerging growth company” for up to five years from our initial public offering, or until the earliest of (i) the last day of the first fiscal year in which our annual gross revenues exceed $1.07 billion, (ii) the date that we become a “large accelerated filer” as defined in Rule 12b-2 under the Securities Exchange Act of 1934, as amended, which would occur if the market value of our common stock that is held by non-affiliates exceeds $700.0 million as of the last business day of our most recently completed second fiscal quarter, or (iii) the date on which we have issued more than $1.0 billion in non-convertible debt during the preceding three-year period.
Developments during the Second Quarter of 2022:
Updates to our Loan Portfolio during the Second Quarter of 2022
During the second quarter of 2022, we closed two loans with new commitments of approximately $107.8 million and funded approximately $82.1 million of principal amount of new and existing commitments, including approximately $32.0 million which was refinanced from existing borrowers.
On April 1, 2022, our investment in the senior secured loan to Private Company I was transferred to TRS1.
In April 2022, each of the credit facilities with Private Company D and Private Company F were terminated and repaid in full in connection with the Company’s new loan to Private Company L, an affiliate of Private Company D and Private Company F. The loans to Private Company D and Private Company F had original maturity dates of January 2026 and May 2026, respectively. The outstanding principal of Private Company D and Private Company F on the date of repayment was approximately $12.1 million and $12.9 million, respectively. In addition to the repayment of the outstanding principal amounts of the loans to Private Company D and Private Company F, the Company received approximately $0.2 million and $2.0 million related to exit fees and other fees upon repayment of the loans, respectively.
In April 2022, the credit facilitiy with Private Company K was terminated and repaid in full in connection with the Company’s refinancing and restructuring the loan under a new credit facility with Private Company K. Under the new credit facility with Private Company K, the Company increased its total loan commitment to approximately $24.8 million, from $19.8 million, and restructured the construction obligations of the borrowers, among other things. As restructured, the Private Company K loan accrues interest at a floating rate, with a floor of 13%, and matures in May 2027. Following the repayment of Private Company K loan, five of the Company’s loans have been repaid and/or refinanced prior to maturity since March 2021.
At-the-Market Offering Program
In April 2022, we filed our shelf registration statement on Form S-3 with the SEC, registering the offer and sale of up to $1.0 billion of securities (the “Shelf Registration Statement”). The Shelf Registration Statement enables us to issue shares of common stock, preferred stock, debt securities, warrants, rights, as well as units that include one or more of such securities. The Shelf Registration Statement also included a prospectus for an at-the-market offering program to sell up to an aggregate of $75.0 million of shares of our common stock (the “ATM Program”) that may be issued and sold from time to time under the Sales Agreement, dated April 5, 2022 (the “Sales Agreement”), with Jefferies LLC and JMP Securities LLC, as Sales Agents. Under the terms of the Sales Agreement, we have agreed to pay the Sales Agents a commission of up to 3.0% of the gross proceeds from each sale of common stock under the Sales Agreement.
During the three months ended June 30, 2022, we sold an aggregate of 114,932 shares of our common stock under the Sales Agreement at an average price of $18.08 per share. The sales generated net proceeds of approximately $1.3 million.
Revolving Credit Facility
On April 29, 2022, we entered into the Revolving Credit Facility. The Revolving Credit Facility contains aggregate commitments of $60.0 million from two FDIC-insured banking institutions, which may be increased to up to $100.0 million in aggregate (subject to available borrowing base and additional commitments), with a maturity date of April 29, 2025. Interest is payable on the Revolving Credit Facility at the greater of (1) the applicable base rate plus 0.50% and (2) 4.50%, as provided in the Revolving Credit Agreement, payable in cash in arrears. Upon our entry into the Revolving Credit Facility, we terminated the AFCF Revolving Credit Facility with AFC Finance, LLC, an affiliate of the Company’s management, which was secured by substantially all of the assets of the Company.
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Dividends Declared Per Share
In June 2022, we declared a regular cash dividend of $0.56 per share of our common stock, relating to the quarter ended June 30, 2022, which was paid on July 15, 2022 to shareholders of record as of June 30, 2022. The aggregate amount of the regular cash dividend payment was approximately $11.1 million.
For the six months ended June 30, 2022 and 2021, we paid the following cash dividends:
Date DeclaredPayable to Shareholders of Record at the Close of Business onDate PaidAmount per ShareAggregate Amount Paid
March 12, 2021March 15, 2021March 31, 2021$0.36$2.2 million
May 7, 2021June 15, 2021June 30, 20210.385.1 million
2021 Period Subtotal$0.74$7.3 million
March 10, 2022March 31, 2022April 15, 2022$0.55$10.9 million
June 15, 2022June 30, 2022July 15, 20220.5611.1 million
2022 Period Subtotal$1.11$22.0 million
Recent Developments
Subsequent to the end of the second quarter, we funded approximately $1.9 million of principal amount of existing commitments.
Based on current estimates and market conditions, we expect to target between $300.0 million and $500.0 million in originations with future new and existing borrowers for the fiscal year 2022 and expect between $100.0 million and $200.0 million in repayments by borrowers, in each case, for the fiscal year 2022. However, our goals and expectations are preliminary and may change. See the sections titled “Cautionary Note Regarding Forward-Looking Statements” in this Form 10-Q and Risk Factors” located in our Annual Report on Form 10-K, filed with the SEC on March 10, 2022.
Key Financial Measures and Indicators
As a commercial real estate finance company, we believe the key financial measures and indicators for our business are Distributable Earnings, book value per share and dividends declared per share.
Non-GAAP Metrics
Distributable Earnings
In addition to using certain financial metrics prepared in accordance with GAAP to evaluate our performance, we also use Distributable Earnings to evaluate our performance excluding the effects of certain transactions and GAAP adjustments we believe are not necessarily indicative of our current loan activity and operations. Distributable Earnings is a measure that is not prepared in accordance with GAAP. We use these non-GAAP financial measures both to explain our results to shareholders and the investment community and in the internal evaluation and management of our businesses. Our management believes that these non-GAAP financial measures and the information they provide are useful to investors since these measures permit investors and shareholders to assess the overall performance of our business using the same tools that our management uses to evaluate our past performance and prospects for future performance. The determination of Distributable Earnings is substantially similar to the determination of Core Earnings under our Management Agreement, provided that Core Earnings is a component of the calculation of any Incentive Compensation earned under the Management Agreement for the applicable time period, and thus Core Earnings is calculated without giving effect to Incentive Compensation expense, while the calculation of Distributable Earnings accounts for any Incentive Compensation earned for such time period.
We define Distributable Earnings as, for a specified period, the net income (loss) computed in accordance with GAAP, excluding (i) stock-based compensation expense, (ii) depreciation and amortization, (iii) any unrealized gains, losses or other non-cash items recorded in net income (loss) for the period, regardless of whether such items are included in other comprehensive income or loss, or in net income (loss); provided that Distributable Earnings does not exclude, in the case of investments with a deferred interest feature (such as OID, debt instruments with PIK interest and zero coupon securities), accrued income that we have not yet received in cash, (iv) provision for current expected credit losses, (v) TRS (income)
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loss and (vi) one-time events pursuant to changes in GAAP and certain non-cash charges, in each case after discussions between our Manager and our independent directors and after approval by a majority of such independent directors.
We believe providing Distributable Earnings on a supplemental basis to our net income as determined in accordance with GAAP is helpful to shareholders in assessing the overall performance of our business. As a REIT, we are required to distribute at least 90% of our annual REIT taxable income, subject to certain adjustments, and to pay tax at regular corporate rates to the extent that we annually distribute less than 100% of such taxable income. Given these requirements and our belief that dividends are generally one of the principal reasons that shareholders invest in our common stock, we generally intend to attempt to pay dividends to our shareholders in an amount at least equal to such REIT taxable income, if and to the extent authorized by our Board. Distributable Earnings is one of many factors considered by our Board in authorizing dividends and, while not a direct measure of net taxable income, over time, the measure can be considered a useful indicator of our dividends.
Distributable Earnings is a non-GAAP financial measure and should not be considered as a substitute for GAAP net income. We caution readers that our methodology for calculating Distributable Earnings may differ from the methodologies employed by other REITs to calculate the same or similar supplemental performance measures, and as a result, our reported Distributable Earnings may not be comparable to similar measures presented by other REITs.

The following table provides a reconciliation of GAAP net income to Distributable Earnings:
Three months ended
June 30,
Six months ended
June 30,
 2022202120222021
Net income$11,351,673 $4,627,787 $21,513,793 $6,028,542 
Adjustments to net income:
Stock-based compensation expense117,397 11,457 1,107,420 1,610,572 
Depreciation and amortization— — — — 
Unrealized (gains), losses or other non-cash items1,005,454 483,159 924,611 627,561 
Provision for current expected credit losses1,593,048 645,786 2,498,177 711,886 
TRS (income) loss(487,474)— (548,545)— 
One-time events pursuant to changes in GAAP and certain non-cash charges— — — — 
Distributable earnings$13,580,098 $5,768,189 $25,495,456 $8,978,561 
Basic weighted average shares of common stock outstanding (in shares)19,715,749 13,457,536 19,518,964 10,318,542 
Distributable earnings per basic weighted average share$0.69 $0.43 $1.31 $0.87 
Book Value Per Share
We believe that book value per share is helpful to shareholders in evaluating our growth as we scale our equity capital base and continue to invest in our target investments. The book value per share of our common stock as of June 30, 2022 and December 31, 2021 was approximately $17.03 and $16.61, respectively.
Factors Impacting our Operating Results
The results of our operations are affected by a number of factors and primarily depend on, among other things, the level of our net interest margin, the market value of our assets and the supply of, and demand for, commercial real estate debt and other financial assets in the marketplace. Our net interest margin, which includes the accretion and amortization of OID, is recognized based on the contractual rate and the outstanding principal balance of the loans we originate. Interest rates will vary according to the type of loan, conditions in the financial markets, creditworthiness of our borrowers, competition and other factors, some of which cannot be predicted with any certainty. Our operating results may also be impacted by credit losses in excess of initial anticipations or unanticipated credit events experienced by borrowers.
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Results of Operations for the three and six months ended June 30, 2022 and 2021
Our net income allocable to our common shareholders for the three and six months ended June 30, 2022 was approximately $11.4 million and $21.5 million or $0.58 and $1.10 per basic weighted average common share, respectively, compared to net income allocable to our common shareholders of approximately $4.6 million and $6.0 million or $0.34 and $0.58 per basic weighted average common share for the prior year periods.
Interest income increased approximately $12.9 million and $26.9 million for the three and six months ended June 30, 2022 as compared to the three and six months ended June 30, 2021, respectively. This increase was primarily due to an increase in principal outstanding of approximately $164.0 million at June 30, 2021 compared to $424.8 million at June 30, 2022.
Interest expense increased approximately $1.7 million and $3.4 million for the three and six months ended June 30, 2022 as compared to the three and six months ended June 30, 2021. This increase was due to interest expense incurred and amortization of deferred financing costs relating to our AFCF Revolving Credit Facility, which was terminated in April 2022, our Revolving Credit Facility that began in April 2022 and our 2027 Senior Notes that were issued in November 2021.
General and administrative expenses increased approximately $0.5 million and $1.2 million for the three and six months ended June 30, 2022 as compared to the three and six months ended June 30, 2021, respectively. This increase was primarily due to an increase in expenses relating to personnel, overhead, and occupancy costs as the Company continues to expand.
Management fees increased approximately $0.2 million and $0.8 million for the three and six months ended June 30, 2022 as compared to the three and six months ended June 30, 2021, respectively. This increase was primarily due to an increase in the Company’s Equity from approximately $268.5 million to $338.2 million. Incentive fees increased by approximately $2.0 million and $4.3 million for the three and six months ended June 30, 2022 as compared to the three and six months ended June 30, 2021, respectively. This increase was driven by the increase in Core Earnings as defined in the Management Agreement.
Provision for Current Expected Credit Losses
For the three and six months ended June 30, 2022, the increase to our provision for current expected credit loss was approximately $1.6 million and $2.5 million, respectively. The balance as of June 30, 2022 was approximately $5.6 million or 176 basis points of our total loans held at carrying value and loans receivable at carrying value balance of approximately $318.1 million and was bifurcated between (i) the current expected credit loss reserve (contra-asset) related to outstanding balances on loans held at carrying value and loans receivable at carrying value of approximately $5.0 million and (ii) a liability for unfunded commitments of approximately $0.6 million. For the six months ended June 30, 2021, the increase to our provision for current expected credit loss was approximately $0.7 million and the balance as of June 30, 2021 was approximately $1.2 million or 109 basis points of our total loans held at carrying value and loans receivable at carrying value balance of approximately $108.4 million and was bifurcated between (i) the current expected credit loss reserve (contra-asset) related to outstanding balances on loans held at carrying value and loans receivable at carrying value of approximately $0.7 million and (ii) a liability for unfunded commitments of approximately $0.5 million. The liability is based on the unfunded portion of loan commitments over the full contractual period over which we are exposed to credit risk through a current obligation to extend credit. Management considered the likelihood that funding will occur, and if funded, the expected credit loss on the funded portion. We continuously evaluate the credit quality of each loan by assessing the risk factors of each loan. The increase in the provision for current expected credit losses for the six months ended June 30, 2022 compared to the six months ended June 30, 2021 is primarily due to changes in macroeconomic factors, changes to the loan portfolio including new commitments and repayments, and changes in other data points we use in estimating the reserve.
Loan Portfolio
As of June 30, 2022 and December 31, 2021, our portfolio included three loans held at fair value. The aggregate originated commitment under these loans was approximately $96.2 million and $75.9 million as of June 30, 2022 and December 31, 2021, respectively, and outstanding principal was approximately $96.4 million and $77.6 million as of June 30, 2022 and December 31, 2021, respectively. For the six months ended June 30, 2022, we funded approximately $17.3 million of additional principal of loans held at fair value and we had no repayments of loans held at fair value. As of June 30, 2022 and December 31, 2021, none of our loans held at fair value had floating interest rates.
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The following tables summarize our loans held at fair value as of June 30, 2022 and December 31, 2021:
As of June 30, 2022
Fair Value (1)
Carrying Value (2)
Outstanding
Principal (2)
Weighted Average
Remaining Life
(Years) (3)
Senior term loans$95,199,132 $93,940,582 $96,382,983 1.7
Total loans held at fair value$95,199,132 $93,940,582 $96,382,983 1.7
As of December 31, 2021
Fair Value (1)
Carrying Value (2)
Outstanding
Principal (2)
Weighted Average
Remaining Life
(Years) (3)
Senior term loans$77,096,319 $74,913,157 $77,630,742 2.2
Total loans held at fair value$77,096,319 $74,913,157 $77,630,742 2.2
(1)Refer to Note 14 to our unaudited interim consolidated financial statements titled “Fair Value.”
(2)The difference between the carrying value and the outstanding principal amount of the loans consists of unaccreted OID and loan origination costs.
(3)Weighted average remaining life is calculated based on the fair value of the loans as of June 30, 2022 and December 31, 2021.
The following table presents changes in loans held at fair value as of and for the six months ended June 30, 2022:
Principal Original Issue
Discount
Unrealized Gains (Losses)Fair Value
Total loans held at fair value at December 31, 2021$77,630,742 $(2,717,584)$2,183,161 $77,096,319 
Change in unrealized (losses) gains on loans at fair value, net— — (924,611)(924,611)
New fundings17,285,000 (429,275)— 16,855,725 
Accretion of original issue discount— 704,458 — 704,458 
PIK interest1,467,241 — — 1,467,241 
Total loans held at fair value at June 30, 2022$96,382,983 $(2,442,401)$1,258,550 $95,199,132 
As of June 30, 2022 and December 31, 2021, our portfolio included zero and one investments in debt securities, respectively, held at fair value. We sold our investment in debt securities in the first quarter of 2022 for approximately $15.9 million, which was previously designated as available-for-sale as of December 31, 2021, recognizing a loss on the sale of marketable securities of approximately $0.2 million in the first quarter of 2022.
The following table summarizes our debt securities held at fair value as of December 31, 2021. We did not hold any investments in debt securities as of June 30, 2022.
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As of December 31, 2021
Fair Value (1)
Carrying Value (2)
Outstanding
Principal (2)
Weighted Average
Remaining Life
(Years) (3)
Debt securities$15,881,250 $16,050,000 $15,000,000 2.9
Total debt securities held at fair value$15,881,250 $16,050,000 $15,000,000 2.9
(1)The difference between the carrying value and the outstanding principal amount of the securities consists of unaccreted purchase premium and loan origination costs.
(2)Weighted average remaining life is calculated based on the fair value of the loans as of December 31, 2021.
The following table presents changes in debt securities held at fair value as of and for the six months ended June 30, 2022:
PrincipalOriginal Issue DiscountUnrealized Gains (Losses)Fair Value
Total debt securities held at fair value at December 31, 2021$15,000,000 $1,050,000 $(168,750)$15,881,250 
Realized (losses) gains on securities at fair value, net— (150,000)— (150,000)
Change in accumulated other comprehensive income— — 168,750 168,750 
Sale of securities(15,000,000)(900,000)— (15,900,000)
Total debt securities held at fair value at June 30, 2022$ $ $ $ 
As of June 30, 2022 and December 31, 2021, our portfolio included nine and twelve loans, respectively, held at carrying value. The aggregate originated commitment under these loans was approximately $383.0 million and $324.3 million, respectively, and outstanding principal was approximately $326.2 million and $270.8 million, respectively, as of June 30, 2022 and December 31, 2021. During the six months ended June 30, 2022, we funded approximately $116.2 million of additional principal. As of June 30, 2022 and December 31, 2021, approximately 38% and 48%, respectively, of our loans held at carrying value have floating interest rates. As of June 30, 2022, these floating benchmark rates include one-month LIBOR subject to a weighted average floor of 1.0% and quoted at 1.787%, one-month Secured Overnight Financing Rate (“SOFR”) subject to a weighted average floor of 1.0% and quoted at 1.686% and U.S. Prime Rate subjected to a weighted average floor of 4.0% quoted at 4.750%.
The following tables summarize our loans held at carrying value as of June 30, 2022 and December 31, 2021:
As of June 30, 2022
Outstanding
Principal (1)
Original
Issue
Discount
Carrying
Value (1)
Weighted
Average
Remaining Life
(Years) (2)
Senior term loans$326,181,229 $(10,299,185)$315,882,044 2.9
Total loans held at carrying value$326,181,229 $(10,299,185)$315,882,044 2.9
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As of December 31, 2021
Outstanding
Principal (1)
Original
Issue
Discount
Carrying
Value (1)
Weighted
Average
Remaining Life
(Years) (2)
   
Senior term loans$270,841,715 $(13,678,219)$257,163,496 3.4
Total loans held at carrying value$270,841,715 $(13,678,219)$257,163,496 3.4
(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 30,2022 and December 31, 2021.
The following table presents changes in loans held at carrying value as of and for the six months ended June 30, 2022:
Principal Original Issue
Discount
Carrying Value
Total loans held at carrying value at December 31, 2021$270,841,715 $(13,678,219)$257,163,496 
New fundings116,200,972 (4,253,401)111,947,571 
Accretion of original issue discount— 7,632,435 7,632,435 
Loan repayments(52,014,211)— (52,014,211)
Sale of loans(10,000,000)— (10,000,000)
PIK interest1,981,755 — 1,981,755 
Loan amortization payments(829,002)— (829,002)
Total loans held at carrying value at June 30, 2022$326,181,229 $(10,299,185)$315,882,044 
As of June 30, 2022 and December 31, 2021, our portfolio included one loan receivable at carrying value. The originated commitment under this loan was approximately $4.0 million and outstanding principal was approximately $2.2 million and $2.5 million as of June 30, 2022 and December 31, 2021, respectively. During the six months ended June 30, 2022, we received repayments of approximately $0.3 of outstanding principal.
The following table presents changes in loans receivable as of and for the six months ended June 30, 2022:
Principal Original Issue
Discount
Carrying
Value
Total loan receivable at carrying value at December 31, 2021$2,533,266 $(2,678)$2,530,588 
Principal repayment of loans(337,114)— (337,114)
Accretion of original issue discount— 618 618 
PIK interest26,187 — 26,187 
Total loan receivable at carrying value at June 30, 2022$2,222,339 $(2,060)$2,220,279 
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The below table summarizes our total loan portfolio as of June 30, 2022:
Loan Names
Original
Funding
Date(1)
Loan
Maturity
AFCG Loan,
net of
Syndication
% of
Total
AFCG
Principal
Balance as
of 6/30/2022
Cash
Interest
Rate
PIKFixed/
Floating
Amortization
During
Term
YTM
(2)(3)
Public Co. A - Real Estate Loan7/3/20191/26/2023$2,940,000 0.6 %$3,069,437 10.0 %4.0%FixedNo19 %
Public Co. A - Equipment Loans8/5/20193/3/20254,000,000 0.8 %2,222,339 12.0 %N/AFixedYes19 %
Private Co. A(4)
5/8/20205/8/202477,785,000 16.1 %80,301,694 12.8 %2.7%FixedYes22 %
Private Co. B9/10/20209/1/202315,500,000 3.2 %13,011,852 13.0 %4.0%FixedYes28 %
Private Co. C11/5/202012/1/202524,000,000 5.0 %24,534,371 13.8 %4.0%FloatingYes23 %
Sub of Private Co. G(5)
4/30/20215/1/202665,400,000 13.5 %55,349,240 13.2 %1.8%FloatingYes21 %
Sub of Private Co. H(6)
5/11/20215/11/20235,781,250 1.2 %5,781,250 15.0 %N/AFixedNo20 %
Public Co. F(5)
5/21/20215/30/202386,600,000 17.9 %86,600,000 8.6 %N/AFixedNo11 %
Private Co. I7/14/20218/1/202610,430,144 2.2 %10,661,155 13.8 %2.5%FloatingYes22 %
Private Co. K4/28/20225/3/202725,245,000 5.2 %9,730,000 13.7 %N/AFloatingYes18 %
Private Co. J8/30/20219/1/202523,000,000 4.8 %23,525,212 13.8 %4.0%FloatingYes22 %
Sub of Public Co. H12/16/20211/1/202660,000,000 12.4 %60,000,000 9.8 %N/AFixedNo14 %
Private Co. L4/20/20225/1/202682,500,000 17.1 %50,000,000 12.0 %N/AFixedYes16 %
SubTotal (7)
$483,181,394 100.0 %$424,786,550 11.6 %1.4%18 %
Wtd
Average
Information is as of June 30, 2022 unless otherwise specified. Borrower names have been kept confidential due to confidentiality agreement obligations.
(1)All loans originated prior to July 31, 2020 were purchased from an affiliated entity at fair value which approximated accreted and/or amortized cost plus accrued interest on July 31, 2020.
(2)Estimated YTM includes a variety of fees and features that affect the total yield, which may include, but is not limited to, OID, exit fees, prepayment fees, unused fees and contingent features. OID is recognized as a discount to the funded loan principal and is accreted to income over the term of the loan. Loans originated before July 31, 2020 were acquired by us, net of unaccreted OID, which we accrete to income over the remaining term of the loan. In some cases, additional OID is recognized from additional purchase discounts attributed to the fair value of equity positions that were separated from the loans prior to our acquisition of such loans.
The estimated YTM calculations require management to make estimates and assumptions, including, but not limited to, the timing and amounts of loan draws on delayed draw loans, the timing and collectability of exit fees, the probability and timing of prepayments and the probability of contingent features occurring. For example, certain credit agreements contain provisions pursuant to which certain PIK interest rates and fees earned by us under such credit agreements will decrease upon the satisfaction of certain specified criteria which we believe may improve the risk profile of the applicable borrower. To be conservative, we have not assumed any prepayment penalties or early payoffs in our estimated YTM calculation. Estimated YTM is based on current management estimates and assumptions, which may change. Actual results could differ from those estimates and assumptions.
(3)Estimated YTM for the loan with Private Company A is enhanced by purchase discounts attributed to the fair value of equity warrants that were separated from the loan prior to our acquisition of such loan. The purchase discounts accrete to income over the respective remaining terms of the applicable loan.
(4)PIK interest rate for Private Co. A represents a blended rate of differing PIK interest rates applicable to each of the three tranches to which we are a lender under the senior secured term loan credit facility with Private Company A (as may be amended, supplemented, amended and restated or otherwise modified from time to time, the ‘‘Private Company A Credit Facility’’).
(5)Cash interest and PIK interest rates for the Subsidiary of Private Company G and Public Co. F represents a blended rate of differing cash interest and PIK interest rates applicable to each of the three tranches with differing rates.
(6)Loan to Subsidiary of Private Company H does not reflect the borrower’s option to request up to two maturity extensions each for an additional six months from the then-existing loan maturity date. The first extension, which is available at the borrower’s sole option, is subject to a payment of a 2.0% fee. The second extension is subject to the approval of all lenders.
(7)The interest and PIK subtotal rates are weighted average rates.
Collateral Overview
Our loans are secured by various types of assets of our borrowers, including real property and certain personal property, including value associated with licenses, equipment, and other assets to the extent permitted by applicable laws and the regulations governing our borrowers. We do not have liens on cannabis inventory and are generally restricted from taking ownership of state licenses by current statutory prohibitions and exchange listing standards. The documents governing our loans also include a variety of provisions intended to provide remedies against the value associated with licenses. For
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example, some loan documents require a grant of a security interest in all property of the entities holding licenses to the extent not prohibited by applicable law or regulations (or requiring regulatory approval), equity pledges of entities holding licenses, receivership remedies and/or other remedies to secure the value associated with the borrowers’ licenses. Upon default of a loan, we may seek to sell the loan to a third party or have an affiliate or a third-party work with the borrower to have the borrower sell collateral securing the loan to a third party or institute a foreclosure proceeding to have such collateral sold, in each case, to generate funds towards the payoff of the loan. While we believe that the appraised value of any real estate assets or other collateral securing our loans may impact the amount of the recovery in each such scenario, the amount of any such recovery from the sale of such real estate or other collateral may be less than the appraised value of such collateral and the sale of such collateral may not be sufficient to pay off the remaining balance on the defaulted loan. Becoming the holder of a license through foreclosure or otherwise, the sale of a license or other realization of the value of licenses requires the approval of regulatory authorities. As of June 30, 2022, our portfolio of loans had a weighted average real estate collateral coverage of approximately 1.1 times our aggregate committed principal amount of such loans. Our real estate collateral coverage for each of our loans was measured at the time of underwriting and based on various sources of data available at such time. We calculate our weighted average real estate collateral coverage by estimating the underlying value of our real estate collateral based on various objective and subjective factors, including, without limitation, third party appraisals, total cost basis of the subject property and/or our own internal estimates.
We may pursue a sale of a defaulted loan if we believe that a sale would yield higher proceeds or that a sale could be accomplished more quickly than a foreclosure proceeding while yielding proceeds comparable to what would be expected from a foreclosure sale. To the extent that we determine that the proceeds are more likely to be maximized through instituting a foreclosure sale or through taking title to the underlying collateral, we will be subject to the rules and regulations under state law that govern foreclosure sales and Nasdaq listing standards that do not permit us to take title to real estate while it is involved in commercial sales of cannabis. In addition, the sale of the collateral securing our loans may be difficult and may be to a party outside of the cannabis industry. Therefore, any appraisal-based value of our real estate and other collateral may not equal the value of such collateral if it were to be sold to a third party in a foreclosure or similar proceeding. We may seek to sell a defaulted loan prior to commencing a foreclosure proceeding or during a foreclosure proceeding to a purchaser that is not required to comply with Nasdaq listing standards. We believe a third-party purchaser that is not subject to Nasdaq listing standards may be able to realize greater value from real estate and other collateral securing our loans. However, we can provide no assurances that a third party would buy such loans or that the sales price of such loans would be sufficient to recover the outstanding principal balance, accrued interest, and fees. We will not own real estate as long as it is used in the commercial sale of cannabis due to current statutory prohibitions and exchange listing standards, which may delay or limit our remedies in the event that any of our borrowers default under the terms of their loans with us.
Liquidity and Capital Resources
Liquidity is a measure of our ability to meet potential cash requirements, including ongoing commitments to repay borrowings, fund and maintain our assets and operations, make distributions to our shareholders and meet other general business needs. We use significant cash to purchase our target investments, repay principal and interest on our borrowings, make distributions to our shareholders and fund our operations. The sources of financing for our target investments are described below.
Our primary sources of cash generally consist of unused borrowing capacity under our Revolving Credit Facility, the net proceeds of future debt or equity offerings, including in connection with the ATM Program, payments of principal and interest we receive on our portfolio of assets and cash generated from our operating results.
Our net cash provided by operating activities for the six months ended June 30, 2022 of approximately $15.2 million was less than our dividend payments of $19.1 million made during the same period due to earned OID of $8.3 million and PIK repayments of $1.2 million related to repayments from Private Company D, Private Company F and Private Company E during such period. OID relates to cash withheld by the Company upon funding of its investments and is included under the ‘Supplemental disclosure of non-cash activity’ on the Consolidated Statements of Cash Flows.
Capital Markets
Our Shelf Registration Statement became effective on April 18, 2022, allowing us to sell, from time to time in one or more offerings, up to $1.0 billion of our securities, including common stock, preferred stock, debt securities, warrants and rights (including as part of a unit) to purchase shares of our common stock or preferred stock. The specifics of any future offerings, along with the use of proceeds of any securities offered, will be described in detail in a prospectus supplement, or other offering materials, at the time of any offering. We may also access liquidity through our ATM Program, which was
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established in April 2022 pursuant to which we may sell, from time to time, up to $75.0 million of our common stock. As of June 30, 2022, we sold an aggregate of 114,932 shares of the Company’s common stock under the Sales Agreement at an average price of $18.08 per share. The sales generated net proceeds of approximately $1.3 million.
We may seek to raise further equity capital and issue debt securities in order to fund our future investments in loans. As the cannabis industry continues to evolve and to the extent that additional states legalize cannabis, the demand for capital continues to increase as operators seek to enter and build out new markets. We expect the principal amount of the loans we originate to increase and that we will need to raise additional equity and/or debt funds to increase our liquidity in the near future.
As of June 30, 2022 and December 31, 2021, all of our cash was unrestricted and totaled approximately $45.6 million and $109.2 million, respectively.
As of June 30, 2022, we believe that our cash on hand, capacity available under our line of credit and cash flows from operations will be sufficient to satisfy the operating requirements of our business through at least the next twelve months.
Revolving Credit Facility
On April 29, 2022, we entered into a Revolving Credit Agreement by and among us, the other loan parties from time to time party thereto, the lenders party thereto, and the lead arranger, bookrunner and administrative agent party thereto, pursuant to which, we obtained a $60.0 million senior-secured revolving credit facility.
The Revolving Credit Facility contains aggregate commitments of $60.0 million from two FDIC-insured banking institutions, which may be increased to up to $100.0 million in aggregate (subject to available borrowing base and additional commitments), and contains a maturity date of April 29, 2025. Interest is payable on the Revolving Credit Facility at the greater of (1) the applicable base rate plus 0.50% and (2) 4.50%, as provided in the Revolving Credit Agreement, payable in cash in arrears. We incurred a one-time commitment fee expense of approximately $0.4 million, which is amortized over the life of the facility. Commencing on the six-month anniversary of the closing date, the Revolving Credit Facility has an unused line fee of 0.25% per annum, to be paid semi-annually in arrears, which will be included within interest expense in the Company’s consolidated statements of operations.
Our obligations under the Revolving Credit Facility are secured by certain assets of ours comprising of or relating to loan obligations designated for inclusion in the borrowing base. In addition, we are subject to various financial and other covenants, including: (1) liquidity of at least $5.0 million, (2) annual debt service coverage of at least 1.50 to 1.0 and (3) secured debt not to exceed 25% of total consolidated assets of us and our subsidiaries.
Termination of AFC Finance Credit Facility
On April 29, 2022, upon our entry into the Revolving Credit Facility, we terminated the AFCF Revolving Credit Facility with AFC Finance, LLC. In connection with the termination, we paid the outstanding amounts remaining in connection with the commitment fee of approximately $0.1 million and accelerated the remaining deferred financing costs of approximately $0.1 million. There were no other payments, premiums or penalties required to be paid in connection with the termination.
2027 Senior Notes
On November 3, 2021, we issued $100.0 million in the aggregate principal amount of 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, beginning on May 1, 2022. The net proceeds from the issuance of the 2027 Senior Notes were approximately $97.0 million, after deducting the initial purchasers’ discounts and commissions and estimated offering fees and expenses payable by us.
Under the Indenture, we are required to cause all of our existing and future subsidiaries to guarantee the 2027 Senior Notes, other than certain immaterial subsidiaries as set forth in the Indenture. Subsequent to the transfer of our investment in the senior secured loan to Private Company I to TRS1 on April 1, 2022, TRS1 was added as a subsidiary guarantor under the Indenture. As of June 30, 2022, the 2027 Senior Notes are guaranteed by TRS1.
Prior to February 1, 2027, we may redeem the 2027 Senior Notes at any time, in whole or from time to time in part, at a redemption price equal to the greater of 100% of the principal amount thereof or a make-whole premium set forth in the Indenture, plus accrued and unpaid interest, if any, to, but excluding, the redemption date. On or after February 1, 2027, we
39

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 our ability to (1) incur additional indebtedness unless the Annual Debt Service Charge (as defined in the Indenture) is no less than 1.5 to 1.0, (2) incur or maintain total debt in an aggregate principal amount greater than 60% of our consolidated Total Assets (as defined in the Indenture), (3) incur or maintain secured debt in an aggregate principal amount greater than 25% of our consolidated Total Assets (as defined in the Indenture); and (4) merge, consolidate or sell substantially all of our 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. We were in compliance with the terms of the Indenture as of the date of this quarterly report.
The table below sets forth the material terms of our outstanding senior notes as of the date of this quarterly report:
Senior NotesIssue
Date
Amount
Outstanding
Interest
Rate Coupon
Maturity
Date
Interest
Due Dates
Optional
Redemption Date
2027 Senior NotesNovember 3, 2021$100.0 million5.75%May 1, 2027May 1 and November 1February 1, 2027
Other Credit Facilities, Warehouse Facilities and Repurchase Agreements
In the future, we may also use other sources of financing to fund the origination or acquisition of our target investments, including other credit facilities and other secured and unsecured forms of borrowing. These financings may be collateralized or non-collateralized and may involve one or more lenders. We expect that these facilities will typically have maturities ranging from two to five years and may accrue interest at either fixed or floating rates.
Debt Service
As of June 30, 2022, we believe that our cash on hand, capacity available under our Revolving Credit Facility, and cash flows from operations will be sufficient to service our outstanding debt during the next twelve months.
Cash Flows
The following table sets forth changes in cash and cash equivalents for the three and six months ended June 30, 2022 and 2021:
Six months ended June 30,
20222021
Net income$21,513,793 $6,028,542 
Adjustments to reconcile net income to net cash (used in) provided by operating activities and changes in operating assets and liabilities(6,287,571)1,467,345 
Net cash provided by (used in) operating activities15,226,222 7,495,887 
Net cash (used in) provided by investing activities(49,122,968)(61,684,731)
Net cash (used in) provided by financing activities(29,765,769)169,169,896 
Change in cash and cash equivalents$(63,662,515)$114,981,052 
Net Cash Provided by (Used in) Operating Activities
Net cash provided by operating activities during the six months ended June 30, 2022 was approximately $15.2 million, compared to approximately $7.5 million for the same period in 2021. The increase from June 30, 2021 to June 30, 2022 was primarily due to an increase in net income of approximately $15.5 million, offset by an increase in accretion of OID of approximately $(6.1) million and increase in PIK interest of approximately $(2.2) million.
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Net Cash Provided by (Used in) Investing Activities
Net cash used in investing activities during the six months ended June 30, 2022 was approximately $49.1 million, compared to approximately $61.7 million for the same period in 2021. The change was caused primarily by loan issuance and fundings of approximately $103.8 million during the six months ended June 30, 2022, compared to approximately $76.9 million for the same period in 2021, offset by repayment of loans of approximately $28.2 million during the six months ended June 30, 2022, compared to $12.9 million during the six months ended June 30, 2021, and proceeds received from the sale of loans and marketable securities of approximately $26.5 million during the six months ended June 30, 2022, compared to $0 for the same period in 2021.
Net Cash Provided by (Used in) Financing Activities
Net cash used in financing activities during the six months ended June 30, 2022 was approximately $29.8 million, compared to net cash provided by financing activities of approximately $169.2 million for the same period in 2021. The change was caused primarily by the change in proceeds from the sale of common stock of approximately $66.0 million in the current period versus approximately $180.3 million in the prior year period as well as the repayments on the AFCF Revolving Credit Facility of approximately $75.0 million in the current period, versus $0 for the same period in 2021.
Contractual Obligations, Other Commitments, and Off-Balance Sheet Arrangements
Our contractual obligations as of June 30, 2022 are as follows:
As of June 30, 2022
Less than
1 year
1-3 years3-5 yearsMore than
5 years
Total
Unfunded commitments$61,982,107 $— $— $— $61,982,107 
Total$61,982,107 $ $ $ $61,982,107 

As of June 30, 2022, all unfunded commitments relate to our total loan commitments and were available for funding in less than one year.

We also had the following contractual obligations as of June 30, 2022 relating to the 2027 Senior Notes:

As of June 30, 2022
Less than
1 year
1-3 years3-5 yearsMore than
5 years
Total
Contractual obligations(1)
$6,229,167 $11,500,000 $111,020,833 $— $128,750,000 
Total$6,229,167 $11,500,000 $111,020,833 $ $128,750,000 
(1) Amounts include projected interest payments during the period based on interest rates in effect as of June 30, 2022.
We may enter into certain contracts that may contain a variety of indemnification obligations. The maximum potential future payment amounts we could be required to pay under these indemnification obligations may be unlimited.
Off-balance sheet commitments consist of unfunded commitments on delayed draw loans. Other than as set forth in this quarterly report on Form 10-Q, we do not have any relationships with unconsolidated entities or financial partnerships, such as entities often referred to as structured investment vehicles, special purpose entities or variable interest entities, established to facilitate off-balance sheet arrangements or other contractually narrow or limited purposes. Further, we have not guaranteed any obligations of unconsolidated entities or entered into any commitment or intend to provide additional funding to any such entities.
Leverage Policies
We currently do not intend to have leverage of more than one times equity. While we are required to maintain our leverage ratio in compliance with the 2027 Senior Notes Indenture, we expect to employ prudent amounts of leverage and, when appropriate, to use debt as a means of providing additional funds for the acquisition of loans, to refinance existing debt or for general corporate purposes. Leverage is primarily used to provide capital for forward commitments until additional equity is raised or additional medium- to long-term financing is arranged. This policy is subject to change by management and our Board.
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Dividends
We have elected to be taxed as a REIT for United States federal income tax purposes and, as such, intend to annually distribute to our shareholders at least 90% of our REIT taxable income, prior to the deduction for dividends paid and excluding our net capital gain. If we distribute less than 100% of our REIT taxable income in any tax year (taking into account any distributions made in a subsequent tax year under Sections 857(b)(9) or 858 of the Code), we will pay tax at regular corporate rates on that undistributed portion. Furthermore, if we distribute less than the sum of (i) 85% of our ordinary income for the calendar year, (ii) 95% of our capital gain net income for the calendar year and (iii) any undistributed shortfall from our prior calendar year (the “Required Distribution”) to our shareholders during any calendar year (including any distributions declared by the last day of the calendar year but paid in the subsequent year), then we are required to pay non-deductible excise tax equal to 4% of any shortfall between the Required Distribution and the amount that was actually distributed. Any of these taxes would decrease cash available for distribution to our shareholders. The 90% distribution requirement does not require the distribution of net capital gains. However, if we elect to retain any of our net capital gain for any tax year, we must notify our shareholders and pay tax at regular corporate rates on the retained net capital gain. The shareholders must include their proportionate share of the retained net capital gain in their taxable income for the tax year, and they are deemed to have paid the REIT’s tax on their proportionate share of the retained capital gain. Furthermore, such retained capital gain may be subject to the nondeductible 4% excise tax. If we determine that our estimated current year taxable income (including net capital gain) will be in excess of estimated dividend distributions (including capital gains dividends) for the current year from such income, we will accrue excise tax on a portion of the estimated excess taxable income as such taxable income is earned.
To the extent that our cash available for distribution is less than the amount required to be distributed under the REIT provisions of the Code, we may be required to fund distributions from working capital or through equity, equity-related or debt financings or, in certain circumstances, asset sales, as to which our ability to consummate transactions in a timely manner on favorable terms, or at all, cannot be assured, or we may make a portion of the Required Distribution in the form of a taxable stock distribution or distribution of debt securities.
Critical Accounting Policies and Estimates
As of June 30, 2022, there were no significant changes in or changes in the application of our critical accounting policies or estimates from those presented in our Annual Report on Form 10-K.
Item 3.    Quantitative and Qualitative Disclosures About Market Risk
We are exposed to market risks in the ordinary course of our business. These risks primarily relate to fluctuations in interest rates. Our loans are typically valued using a yield analysis, which is typically performed for non-credit impaired loans to borrowers. Changes in market yields may change the fair value of certain of our loans. Generally, an increase in market yields may result in a decrease in the fair value of certain of our loans; however, this is mitigated to the extent our loans bear interest at a floating rate. As of June 30, 2022, a decrease of 50 bps or increase of 50 bps of the market yield would have resulted in a change in unrealized gain (loss) of approximately $0.5 million and $(0.5) million, respectively. As of June 30, 2022, we had five floating-rate loans, representing approximately 29% of our portfolio based on aggregate outstanding principal balances. These floating benchmark rates include one-month LIBOR subject to a weighted average floor of 1.0% and quoted at 1.787%, one-month Secured Overnight Financing Rate (“SOFR”) subject to a weighted average floor of 1.0%, and quoted at 1.686% and U.S. Prime Rate subjected to a weighted average floor of 4.0% quoted at 4.750%. We estimate that a hypothetical 100 basis points increase in the floating benchmark rate would result in an increase in annual interest income of approximately $1.2 million and a hypothetical 100 basis points decrease in the floating benchmark rate would result in a decrease in annual interest income of approximately $(1.0) million.
Potential Impact of LIBOR Transition
As of June 30, 2022, five of our loans, representing approximately 29% of our portfolio based on aggregate outstanding principal balances, paid interest at a variable rate tied to either LIBOR, SOFR, or U.S. Prime Rate. If one of these floating benchmarks are no longer available, our applicable loan documents generally allow us to choose a new index based upon comparable information. However, if each of these benchmarks are no longer available, we may need to renegotiate some of our agreements to determine a replacement index or rate of interest. As such, the potential effect of any such event on our cost of capital and net investment income cannot yet be determined and any changes to benchmark interest rates could increase our financing costs, which could impact our results of operations, cash flows and the market value of our loans. In addition, the elimination of LIBOR and/or changes to another index could result in mismatches with the interest rate of loans that we are financing.
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Changes in Fair Value of Our Assets
We generally hold our target investments as long-term loans; however, we may occasionally classify some of our loans as held for sale. We may carry our loans at fair value or carrying value in our consolidated balance sheet. As of June 30, 2022 and December 31, 2021, three of our loans held for investment were carried at fair value within loans held at fair value in our consolidated balance sheets, with changes in fair value recorded through earnings.
We evaluate our loans on a quarterly basis and fair value is determined by our Board through its independent Audit and Valuation Committee. We use an independent third-party valuation firm to provide input in the valuation of all of our unquoted investments, which we consider along with other various subjective and objective factors in making our evaluations.
Our loans are typically valued using a yield analysis, which is typically performed for non-credit impaired loans to borrowers. 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, we consider the current contractual interest rate, the maturity and other terms of the loan relative to risk of the borrower 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 us are substantially illiquid with no active transaction market, we depend on primary market data, including newly funded loans, as well as secondary market data with respect to high-yield debt instruments and syndicated loans, as inputs in determining the appropriate market yield, as applicable. Changes in market yields may change the fair value of certain of our loans. Generally, an increase in market yields may result in a decrease in the fair value of certain of our loans; however, this is mitigated to the extent our loans bear interest at a floating rate.
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 our loans may fluctuate from period to period. Additionally, the fair value of our loans may differ significantly from the values that would have been used had a ready market existed for such loans and may differ materially from the values that we 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 we were required to liquidate our investment in a loan in a forced or liquidation sale, we could realize significantly less than the value at which we had recorded such loan investment.
Changes in Market Interest Rates and Effect on Net Interest Income
Interest rates are highly sensitive to many factors, including fiscal and monetary policies and domestic and international economic and political considerations, as well as other factors beyond our control. We are subject to interest rate risk in connection with our assets and our related financing obligations.
Our operating results depend in large part on differences between the income earned on our assets and our cost of borrowing. The cost of our borrowings generally will be based on prevailing market interest rates. During a period of rising interest rates, our borrowing costs generally will increase (a) while the yields earned on our leveraged fixed-rate loan assets will remain static, and (b) at a faster pace than the yields earned on our leveraged floating-rate loan assets, which could result in a decline in our net interest spread and net interest margin. The severity of any such decline would depend on our asset/liability composition at the time as well as the magnitude and duration of the interest rate increase. Further, an increase in short-term interest rates could also have a negative impact on the market value of our target investments. If any of these events happen, we could experience a decrease in net income or incur a net loss during these periods, which could adversely affect our liquidity and results of operations.
Interest Rate Cap Risk
Through our Manager, we originate both fixed and floating rate loans and going forward, we intend to have the majority of our loans by aggregate commitments accrue at floating rates. These are assets in which the loans may be subject to periodic and lifetime interest rate caps and floors, which limit the amount by which the asset’s interest yield may change during any given period. However, our borrowing costs pursuant to our financing agreements may not be subject to similar restrictions. Therefore, in a period of increasing interest rates, interest rate costs on our borrowings could increase without limitation by caps, while the interest-rate yields on our floating-rate assets would effectively be limited. In addition, floating-rate assets may be subject to periodic payment caps that result in some portion of the interest being deferred and added to the principal outstanding. This could result in our receipt of cash income from such assets in an amount that is less than the amount that we would need to pay the interest cost on our related borrowings. These factors could lower our net interest income or cause a net loss during periods of rising interest rates, which would harm our financial condition, cash flows and results of operations.
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Interest Rate Mismatch Risk
We may fund a portion of our origination of loans, or of loans that we may in the future acquire, with borrowings that are based on various benchmarks, while the interest rates on these assets may be fixed or indexed to LIBOR, SOFR, Prime Rate, or another index rate. Accordingly, any increase in an index rate will generally result in an increase in our borrowing costs that would not be matched by fixed-rate interest earnings and may not be matched by a corresponding increase in floating-rate interest earnings. Any such interest rate mismatch could adversely affect our profitability, which may negatively impact distributions to our shareholders.
Our analysis of risks is based on our Manager’s experience, estimates, models and assumptions. These analyses rely on models which utilize estimates of fair value and interest rate sensitivity. Actual economic conditions or implementation of decisions by our Manager and our management may produce results that differ significantly from the estimates and assumptions used in our models and the projected results.
Credit Risk
We are subject to varying degrees of credit risk in connection with our loans and interest receivable. Our Manager seeks to mitigate this risk by seeking to originate loans, and may in the future acquire loans, of higher quality at appropriate prices given anticipated and unanticipated losses, by employing a comprehensive review and selection process and by proactively monitoring originated and acquired loans. Nevertheless, unanticipated credit losses could occur that could adversely impact our operating results.
We expect to be subject to varying degrees of credit risk in connection with holding our portfolio of loans. We will have exposure to credit risk on our commercial real estate loans and other targeted types of loans. Our Manager will seek to manage credit risk by performing deep credit fundamental analysis of potential assets and through the use of non-recourse financing, when and where available and appropriate.
Credit risk will also be addressed through our Manager’s on-going review, and loans will be monitored for variance from expected prepayments, defaults, severities, losses and cash flow on a quarterly basis.
Other than the acquisition of our initial portfolio of loans and certain loan commitments relating to Private Company A, we, through our Manager, have originated substantially all of our loans and intend to continue to originate our loans, but we have previously and may in the future acquire loans from time to time. Our Investment Guidelines are not subject to any limits or proportions with respect to the mix of target investments that we make or that we may in the future acquire other than as necessary to maintain our exemption from registration under the Investment Company Act and our qualification as a REIT. Our investment decisions will depend on prevailing market conditions and may change over time in response to opportunities available in different interest rate, economic and credit environments. As a result, we cannot predict the percentage of our capital that will be invested in any individual target investment at any given time.
Our loan portfolio as of June 30, 2022 was concentrated with the top four borrowers representing approximately 64.1% of the aggregate outstanding principal balances and approximately 64.6% of the total loan commitments. Additionally, the industry is experiencing significant consolidation, which we expect to continue, among cannabis operations and certain of our borrowers may combine, increasing the concentration of our borrower portfolio with those consolidated operators. Our largest credit facility represented approximately 17.9% of our total loan commitments and approximately 20.4% of the aggregate outstanding principal balances of our portfolio as of June 30, 2022 and the borrower under this credit facility is Public Company F, a multi-state operator with real estate assets in several states, certain of which have been included as collateral in connection with the senior term loan. Our portion of the senior term loan provided to such borrower had an aggregate principal amount of $86.6 million outstanding as of June 30, 2022. This senior term loan accrues interest at a blended rate of 8.6% per annum, payable in cash, across the three tranches of the senior term loan facility. The Public Company F senior term loan is managed by a third-party agent, acting as sole lead arranger, administrative agent and collateral agent, which is an affiliate of one of the other lender parties.
In June 2016, the FASB issued Accounting Standards Update (“ASU”) No. 2016-13, which replaced the incurred loss impairment methodology pursuant to GAAP with a methodology that reflects current expected credit losses (“CECL”) on both the outstanding balances and unfunded commitments on loans held for investment and requires consideration of a broader range of historical experience adjusted for current conditions and reasonable and supportable forecast information to inform credit loss estimates (the “CECL Reserve”). We adopted ASU No. 2016-13 as of July 31, 2020, the date of our commencement of operations. Subsequent period increases and decreases to expected credit losses impact earnings and are recorded within provision for current expected credit losses in our consolidated statement of operations. The CECL Reserve related to outstanding balances on loans held for investment required under ASU No. 2016-13 is a valuation
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account that is deducted from the amortized cost basis of our loans held at carrying value and loans receivable at carrying value in our consolidated balance sheet. The CECL Reserve related to unfunded commitments on loans held at carrying value is recorded within accounts payable and other liabilities in our consolidated balance sheet. Refer to Note 6 to our unaudited interim consolidated financial statements titled “Current Expected Credit Losses” for more information on CECL.
We provide loans to companies operating in the cannabis industry which involves significant risks, including the risk of strict enforcement against our borrowers of the federal illegality of cannabis, our borrowers’ inability to renew or otherwise maintain their licenses or other requisite authorizations for their cannabis operations, and such loans lack of liquidity, and we could lose all or part of any of our loans.
Our ability to grow or maintain our business depends on state laws pertaining to the cannabis industry. New laws that are adverse to our 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 our ability to grow and could materially adversely affect our business.
Management’s plan to mitigate risks include monitoring the legal landscape as deemed appropriate. Also, should a loan default or otherwise be seized, we may be prohibited from owning cannabis assets and thus could not take possession of collateral, in which case we would look to sell the loan, which could result in us realizing a loss on the transaction.
Real Estate Risk
Commercial real estate loans are subject to volatility and may be affected adversely by a number of factors, including, but not limited to, national, regional and local economic conditions (which may be adversely affected by industry slowdowns and other factors); local real estate conditions; changes or continued weakness in specific industry segments; construction quality, age and design; demographic factors; and retroactive changes to building or similar codes. In addition, decreases in property values reduce the value of the collateral and the potential proceeds available to a borrower to repay the underlying loan or loans, as the case may be, which could also cause us to suffer losses.
Risk Management
To the extent consistent with maintaining our REIT qualification and our exemption from registration under the Investment Company Act, we seek to manage risk exposure by closely monitoring our portfolio and actively managing financing, interest rate, credit, prepayment and convexity (a measure of the sensitivity of the duration of a loan to changes in interest rates) risks associated with holding our portfolio. Generally, with the guidance and experience of our Manager:
we manage our portfolio through an interactive process with our Manager and service our self-originated loans through our Manager’s servicer;
we invest in a mix of floating- and fixed-rate loans to mitigate the interest rate risk associated with the financing of our portfolio;
we actively employ portfolio-wide and asset-specific risk measurement and management processes in our daily operations, including utilizing our Manager’s risk management tools such as software and services licensed or purchased from third-parties and proprietary analytical methods developed by our Manager; and
we seek to manage credit risk through our due diligence process prior to origination or acquisition and through the use of non-recourse financing, when and where available and appropriate. In addition, with respect to any particular target investment, prior to origination or acquisition our Manager’s investment team evaluates, among other things, relative valuation, comparable company analysis, supply and demand trends, shape-of-yield curves, delinquency and default rates, recovery of various sectors and vintage of collateral.
Item 4.     Controls and Procedures
Evaluation of Disclosure Controls and Procedures
The Company maintains disclosure controls and procedures (as that term is defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) that are designed to ensure that information required to be disclosed in the Company’s reports under the Exchange Act is recorded, processed, and summarized and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to the Company’s management, including its Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosures.
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Any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives.
An evaluation of the effectiveness of the design and operation of our disclosure controls and procedures as of the end of the period covered by this quarterly report on Form 10-Q was made under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer. Based upon this evaluation, our Chief Executive Officer and Chief Financial Officer have concluded that our disclosure controls and procedures (a) are effective to ensure that information required to be disclosed by us in reports filed or submitted under the Exchange Act is timely recorded, processed, summarized and reported and (b) include, without limitation, controls and procedures designed to ensure that information required to be disclosed by us in reports filed or submitted under the Exchange Act is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure.
Changes in Internal Control over Financial Reporting
There have been no changes in our internal control over financial reporting (as defined in Rules 13a‑15(f) and 15d‑15(f) under the Exchange Act) during the quarter ended June 30, 2022 that have materially affected, or that are reasonably likely to materially affect, our internal control over financial reporting.
PART II - OTHER INFORMATION
Item 1.     Legal Proceedings
From time to time, we may become involved in litigation or other legal proceedings relating to claims arising from the ordinary course of business. Furthermore, third parties may try to seek to impose liability on us in connection with our loans. As of June 30, 2022, we were not subject to any material legal proceedings.
Item 1A. Risk Factors
During the quarter ended June 30, 2022, there were no material changes to the Risk Factors disclosed in Item 1A - “Risk Factors” in the Company’s Annual Report on Form 10-K.
Item 2.     Unregistered Sales of Equity Securities and Use of Proceeds
Unregistered Sales of Equity Securities
There were no unregistered sales of equity securities during the six months ended June 30, 2022.
Repurchases of Common Stock
There were no issuer repurchases of common stock during the quarter ended June 30, 2022.
Item 3.     Defaults Upon Senior Securities
None.
Item 4.     Mine Safety Disclosures
Not applicable.
Item 5.     Other Information
None.
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Item 6.     Exhibits
Exhibit No.Description of Exhibits
Articles of Amendment and Restatement of AFC Gamma, Inc. (filed as Exhibit 3.2 to the Company’s Registration Statement on Form S-11 on January 22, 2021 and incorporated herein by reference).
Articles of Amendment, dated March 10, 2022 (filed as Exhibit 3.1A to the Company’s Annual Report on Form 10-K on March 10, 2022 and incorporated herein by reference).
Amended and Restated Bylaws of AFC Gamma, Inc. (filed as Exhibit 3.4 to the Company’s Registration Statement on Form S-11 on January 22, 2021 and incorporated herein by reference).
First Amendment to Amended and Restated Management Agreement, dated March 10, 2022 by and between AFC Gamma, Inc. and AFC Management, LLC (filed as Exhibit 10.1A to the Company’s Annual Report on Form 10-K on March 10, 2022 and incorporated herein by reference).
Loan and Security Agreement, dated April 29, 2022, by and among AFC Gamma, Inc., as Borrower, and the lenders that are party thereto (filed as Exhibit 10.7 to the Company’s Current Report on Form 8-K on May 2, 2022 and incorporated herein by reference).
Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
Certification of Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
Certification of Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
101.INS
Inline XBRL Instance Document - the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document.
101.SCHInline XBRL Taxonomy Extension Schema Document.
101.DEF
Inline XBRL Taxonomy Extension Definition Linkbase Document.
101.CAL
Inline XBRL Taxonomy Extension Calculation Linkbase Document.
101.LABInline XBRL Taxonomy Extension Label Linkbase Document.
101.PREInline XBRL Taxonomy Extension Presentation Linkbase Document.
104Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101)

* Filed herewith
** Furnished herewith
† The registrant has omitted portions of the referenced exhibit pursuant to Item 601(b) of Regulation S-K because such portions are both (i) not material and (ii) would likely cause competitive harm to the registrant if publicly disclosed.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, each registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
Date: August 9, 2022
AFC GAMMA, INC.
By:/s/ Leonard M. Tannenbaum
Leonard M. Tannenbaum
Chief Executive Officer and Chairman
(Principal Executive Officer)
By:/s/ Brett Kaufman
Brett Kaufman
Chief Financial Officer and Treasurer
(Principal Financial Officer and Principal Accounting Officer)
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Exhibit 31.1
CERTIFICATION OF PRINCIPAL EXECUTIVE OFFICER PURSUANT TO
SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
I, Leonard M Tannenbaum, certify that:
1.I have reviewed this quarterly report on Form 10-Q of AFC Gamma, Inc.;
2.Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3.Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4.The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have:
(a)Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
(b)Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
(c)Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
5.The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
(a)All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
(b)Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
Date: August 9, 2022
By:/s/ Leonard M. Tannenbaum
Leonard M. Tannenbaum
Chief Executive Officer, Chairman and Director
(Principal Executive Officer)


Exhibit 31.2
CERTIFICATION OF PRINCIPAL EXECUTIVE OFFICER PURSUANT TO
SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
I, Brett Kaufman, certify that:
1.I have reviewed this quarterly report on Form 10-Q of AFC Gamma, Inc.;
2.Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3.Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4.The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have:
(a)Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
(b)Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
(c)Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
5.The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
(a)All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
(b)Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
Date: August 9, 2022
By:/s/ Brett Kaufman
Brett Kaufman
Chief Financial Officer and Treasurer
(Principal Financial Officer and Principal Accounting Officer)


Exhibit 32.1
CERTIFICATIONS PURSUANT TO 18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO SECTION 906 OF
THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report on Form 10-Q of AFC Gamma, Inc. (the “Company”) for the period ending June 30, 2022, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), the undersigned, Leonard M Tannenbaum, Chief Executive Officer of the Company, hereby certifies, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 that:
1.The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
2.The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
Date: August 9, 2022
By:/s/ Leonard M. Tannenbaum
Leonard M. Tannenbaum
Chief Executive Officer, Chairman and Director
(Principal Executive Officer)
*A signed original of this written statement required by Section 906 has been provided to AFC Gamma, Inc. and will be retained by AFC Gamma, Inc. and furnished to the Securities and Exchange Commission or its staff upon request.


Exhibit 32.2
CERTIFICATIONS PURSUANT TO 18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO SECTION 906 OF
THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report on Form 10-Q of AFC Gamma, Inc. (the “Company”) for the period ending June 30, 2022, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), the undersigned, Brett Kaufman, Chief Financial Officer of the Company, hereby certifies, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 that:
1.The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
2.The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
Date: August 9, 2022
By:/s/ Brett Kaufman
Brett Kaufman
Chief Financial Officer and Treasurer
(Principal Financial Officer and Principal Accounting Officer)
*A signed original of this written statement required by Section 906 has been provided to AFC Gamma, Inc. and will be retained by AFC Gamma, Inc. and furnished to the Securities and Exchange Commission or its staff upon request.



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