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 September 30, 2021


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)
Maryland
 
85-1807125
(State or other jurisdiction of incorporation or organization)

(I.R.S. Employer Identification Number)
525 Okeechobee Blvd., Suite 1770, 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 class
Trading Symbol(s)
Name of each exchange on which registered
Common Stock, $0.01 par value per share
AFCG
The Nasdaq Stock Market LLC

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  ☒

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.
 
Class
Outstanding at November 4, 2021
Common stock, $0.01 par value
16,442,812



AFC GAMMA, INC.
 
TABLE OF CONTENTS
 
INDEX
 
Part I.
 
Item 1.
1
 
1
  2
  3
  5
  6
Item 2.
22
Item 3.
37
Item 4.
41
Part II.
41
Item 1.
41
Item 1A.
41
Item 2.
52
Item 3.
53
Item 4.
53
Item 5.
53
Item 6.
54

 
PART I – FINANCIAL INFORMATION
Item 1. Financial Statements
AFC GAMMA, INC.
CONSOLIDATED BALANCE SHEETS

   
As of
 
   
September 30, 2021
   
December 31, 2020
 
   
(unaudited)
       
Assets
           
Loans held for investment at fair value (cost of $73,934,116 and $46,994,711 at September 30, 2021 and December 31, 2020, respectively, net)
 
$
76,293,824
   
$
48,558,051
 
 
               
Loans held for investment at carrying value
   
153,161,781
     
31,837,031
 
Loan receivable at carrying value
   
2,774,455
     
3,348,263
 
Current expected credit loss reserve
   
(1,145,629
)
   
(404,860
)
Loans held for investment at carrying value and loan receivable at carrying value, net of current expected credit loss reserve
   
154,790,607
     
34,780,434
 
 
               
Cash and cash equivalents
   
69,974,391
     
9,623,820
 
Interest receivable
   
2,434,719
     
927,292
 
Prepaid expenses and other assets
   
391,235
     
72,095
 
Total assets
 
$
303,884,776
   
$
93,961,692
 
                 
Liabilities
               
Interest reserve
 
$
8,254,295
   
$
1,325,750
 
Due to affiliate
    9,550,625       -  
Dividends payable
    7,070,409       -  
Current expected credit loss reserve
   
692,266
     
60,537
 
Accrued management and incentive fees
   
2,542,935
     
222,127
 
Accrued direct administrative expenses
   
846,711
     
550,671
 
Accounts payable and other liabilities
   
520,591
     
154,895
 
Total liabilities
   
29,477,832
     
2,313,980
 
Commitments and contingencies (Note 10)
   
     
 
Stockholders’ Equity
               
Preferred stock, par value $0.01 per share, 10,000 shares authorized at September 30, 2021 and December 31, 2020 and 125 shares issued and outstanding at September 30, 2021 and December 31, 2020, respectively
   
1
     
1
 
Common stock, par value $0.01 per share, 25,000,000 and 15,000,000 shares authorized at September 30, 2021 and December 31, 2020, respectively, and 16,442,812 and 6,179,392 shares issued and outstanding at September 30, 2021 and December 31, 2020, respectively
   
163,866
     
61,794
 
Additional paid-in-capital
   
274,148,323
     
91,068,197
 
Accumulated earnings
   
94,754
   
517,720
 
Total stockholders’ equity
   
274,406,944
     
91,647,712
 
                 
Total liabilities and stockholders’ equity
 
$
303,884,776
   
$
93,961,692
 

(See accompanying notes to the consolidated financial statements)

AFC GAMMA, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS

   
For the three
months ended
September 30,
2021
   
Period from
July 31, 2020 to
September 30,
2020
   
For the nine
months ended
September 30,
2021
   
Period from
July 31, 2020 to
September 30,
2020
 
   
(unaudited)
         
(unaudited)
       
Revenue
                       
Interest income
 
$
10,616,538
   
$
1,594,769
   
$
24,050,062
   
$
1,594,769
 
Total revenue
   
10,616,538
     
1,594,769
     
24,050,062
     
1,594,769
 
Expenses
                               
Management and incentive fees, net (less rebate of $256,989, $84,167, $677,439 and $84,167, respectively)
   
2,542,936
     
142,067
     
5,498,469
     
142,067
 
General and administrative expenses
   
858,663
     
204,262
     
2,028,046
     
204,262
 
Organizational expenses
   
-
     
616,190
     
-
     
616,190
 
Stock-based compensation
   
51,429
     
-
     
1,662,001
     
-
 
Professional fees
   
396,147
     
89,800
     
726,194
     
89,800
 
Total expenses
   
3,849,175
     
1,052,319
     
9,914,710
     
1,052,319
 
Provision for current expected credit losses
   
(660,612
)
   
-
     
(1,372,498
)
   
-
 
Realized gains / (losses) on loans at fair value, net
   
400,000
     
-
     
400,000
     
-
 
Change in unrealized gains / (losses) on loans at fair value, net
   
1,423,929
     
1,563,800
     
796,368
     
1,563,800
 
Net income before income taxes
   
7,930,680
     
2,106,250
     
13,959,222
     
2,106,250
 
Income tax expense
   
-
     
-
     
-
     
-
 
Net income
 
$
7,930,680
   
$
2,106,250
   
$
13,959,222
   
$
2,106,250
 
                                 
Earnings per common share:
                               
Basic earnings per common share (in dollars per share)
 
$
0.48
   
$
0.39
   
$
1.13
   
$
0.39
 
Diluted earnings per common share (in dollars per share)
 
$
0.47
   
$
0.39
   
$
1.10
   
$
0.39
 
                                 
Weighted average number of common shares outstanding:
                               
Basic weighted average shares of common stock outstanding (in shares)
   
16,402,984
     
5,376,411
     
12,368,977
     
5,376,411
 
Diluted weighted average shares of common stock outstanding (in shares)
   
16,776,648
     
5,376,411
     
12,742,641
     
5,376,411
 

(See accompanying notes to the consolidated financial statements)

AFC GAMMA, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
(unaudited)

Three months ended September 30, 2021
 
   
Preferred
   
Common Stock
   
Additional
Paid-In
   
Accumulated
Earnings
   
Total
Stockholders’
 
    Stock     Shares     Amount    
Capital
    (Deficit)    
Equity
 
Balance at June 30, 2021
 
$
1
     
16,116,877
   
$
161,169
   
$
269,061,069
   
$
(765,517
)
 
$
268,456,722
 
Issuance of common stock, net of offering cost
   
-
     
269,650
     
2,697
     
5,035,825
     
-
     
5,038,522
 
Stock-based compensation
   
-
      56,285
     
-
     
51,429
     
-
     
51,429
 
Dividends declared on common shares ($0.43 per share)
   
-
     
-
     
-
     
-
     
(7,070,409
)
   
(7,070,409
)
Dividends declared on preferred shares ($60 per share)
   
-
     
-
     
-
     
-
     
-
   
-
Net income
   
-
     
-
     
-
     
-
     
7,930,680
     
7,930,680
 
Balance at September 30, 2021
 
$
1
     
16,442,812
   
$
163,866
   
$
274,148,323
   
$
94,754
 
$
274,406,944
 

Period from July 31, 2020 (date of commencement of operations) to September 30, 2020
 
   
Preferred
   
Common Stock
   
Additional
Paid-In
   
Accumulated
Earnings
   
Total
Stockholders’
 
    Stock    
Shares
    Amount     Capital     (Deficit)     Equity  
Balance at July 31, 2020
 
$
-
     
-
   
$
-
   
$
-
   
$
-
   
$
-
 
Issuance of common stock
   
-
     
5,376,411
     
53,764
     
78,695,168
     
-
     
78,748,932
 
Net income
   
-
     
-
     
-
     
-
     
2,106,250
     
2,106,250
 
Balance at September 30, 2020
 
$
-
     
5,376,411
   
$
53,764
   
$
78,695,168
   
$
2,106,250
   
$
80,855,182
 

(See accompanying notes to the consolidated financial statements)

AFC GAMMA, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
(unaudited)

Nine months ended September 30, 2021
 
   
Preferred
    Common Stock
   
Additional
Paid-In
   
Accumulated
Earnings
   
Total
Stockholders’
 
    Stock    
Shares
    Amount     Capital     (Deficit)     Equity  
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 cost
   
-
     
10,263,420
     
102,072
     
181,418,125
     
-
     
181,520,197
 
Stock-based compensation
   
-
     
-
     
-
     
1,662,001
     
-
     
1,662,001
 
Dividends declared on common shares ($1.17 per share)
   
-
     
-
     
-
     
-
     
(14,374,688
)
   
(14,374,688
)
Dividends declared on preferred shares ($60 per share)
   
-
     
-
     
-
     
-
     
(7,500
)
   
(7,500
)
Net income
   
-
     
-
     
-
     
-
     
13,959,222
     
13,959,222
 
Balance at September 30, 2021
 
$
1
     
16,442,812
   
$
163,866
   
$
274,148,323
   
$
94,754
   
$
274,406,944
 

Period from July 31, 2020 (date of commencement of operations) to September 30, 2020
 
   
Preferred
   
Common Stock
   
Additional
Paid-In
   
Accumulated
Earnings
   
Total
Stockholders’
 
    Stock    
Shares
    Amount     Capital     (Deficit)     Equity  
Balance at July 31, 2020
 
$
-
     
-
   
$
-
   
$
-
   
$
-
   
$
-
 
Issuance of common stock
   
-
     
5,376,411
     
53,764
     
78,695,168
     
-
     
78,748,932
 
Net income
   
-
     
-
     
-
     
-
     
2,106,250
     
2,106,250
 
Balance at September 30, 2020
 
$
-
     
5,376,411
   
$
53,764
   
$
78,695,168
   
$
2,106,250
   
$
80,855,182
 

(See accompanying notes to the consolidated financial statements)

AFC GAMMA, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS

   
For the nine
months ended
September 30, 2021
   
Period from
July 31, 2020 to
September 30, 2020
 
Operating activities:
 
(unaudited)
       
Net income
 
$
13,959,222
   
$
2,106,250
 
Adjustments to reconcile net income to net cash provided by / (used in) operating activities:
               
Provision for current expected credit losses
   
1,372,498
     
-
 
Realized gain on sale of loans
    (400,000 )     -  
Change in unrealized (gains) / losses on loans at fair value, net
   
(796,368
)
   
(1,563,800
)
Accretion of deferred loan original issue discount and other discounts
   
(4,038,816
)
   
(173,110
)
Stock-based compensation
   
1,662,001
     
-
 
PIK interest
   
(2,787,847
)
   
(79,707
)
Changes in operating assets and liabilities
               
Interest reserve
   
(2,521,923
)
   
-
 
Interest receivable
   
(1,507,427
)
   
(783,673
)
Prepaid expenses and other assets
   
(319,140
)
   
(25,029
)
Accrued management and incentive fees, net
   
2,320,808
     
142,067
 
Accrued direct administrative expenses
   
296,040
     
202,534
 
Accounts payable and other liabilities
   
366,696
     
118,040
 
Net cash provided by / (used in) operating activities
   
7,605,744
     
(56,428
)
                 
Cash flows from investing activities:
               
Issuance of and fundings on loans
   
(156,345,116
)
   
(780,000
)
Proceeds from sales of Assigned Rights
   
2,313,130
     
-
 
Proceeds from sales of loans
    10,400,000       -  
Principal repayment of loans
   
22,168,395
     
137,340
 
Net cash used in investing activities
   
(121,463,591
)
   
(642,660
)
                 
Cash flows from financing activities:
               
Proceeds from sale of common stock
   
185,501,295
     
31,946,092
 
Payment of offering costs
   
(3,981,098
)
   
-
 
Dividends paid
   
(7,311,779
)
   
-
 
Net cash provided by financing activities
   
174,208,418
     
31,946,092
 
                 
Change in cash, cash equivalents and restricted cash
   
60,350,571
     
31,247,004
 
Cash, cash equivalents and restricted cash, beginning of period
   
9,623,820
     
-
 
Cash, cash equivalents and restricted cash, end of period
 
$
69,974,391
   
$
31,247,004
 
                 
Supplemental disclosure of non-cash financing and investing activity
               
Loans acquired for issuance of shares of common stock
 
$
-
   
$
46,802,840
 
Interest reserve withheld from funding of loans
 
$
9,450,468
   
$
1,400,000
 
OID withheld from funding of loans
 
$
12,391,624
   
$
320,000
 
Loans funded from amounts due to affiliate
  $
9,549,625
    $
-
 
                 
Supplemental information:
               
Interest paid during the period
 
$
-
   
$
-
 
Income taxes paid during the period
 
$
-
   
$
-
 

(See accompanying notes to the consolidated financial statements)

AFC GAMMA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
As of September 30, 2021
(unaudited)
 
1.
ORGANIZATION
 
AFC Gamma, Inc. (the “Company” or “AFCG”) is a commercial real estate finance company primarily engaged in originating, structuring, and underwriting senior secured loans and other types of loans. The Company was formed and commenced operations on July 31, 2020.  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 (“AFC Management” or the Company’s “Manager”), a Delaware limited liability company, pursuant to the terms of a management agreement (as amended, the “Management Agreement”). The Company’s wholly owned subsidiary, AFCG TRS1, LLC (“TRS”), was formed under the laws of the State of Delaware on December 31, 2020, and operates as a taxable real estate investment trust (“REIT”) subsidiary. TRS began operating in July 2021, and the financial statements of TRS 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 for established 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 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 stockholders 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 financial statements and the related management’s discussion and analysis of financial condition and results of operations included in the Company’s final prospectus relating to our follow-on public offering filed with the Securities and Exchange Commission (“SEC”) in accordance with Rule 424(b) of the Securities Act of 1933, as amended (the “Securities Act”) on June 24, 2021 (the “Final Prospectus”).

Refer to Note 2 to the Company’s financial statements in the Final Prospectus 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 United States generally accepted accounting principles (“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 and reclassifications that, in the opinion of management, are considered necessary for a fair statement of the balance sheets, statements of operations, statements of stockholders’ equity, and statement of cash flows 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, 2021.

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.

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 period ended September 30, 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 Financial Accounting Standards Board (“FASB”) issued Accounting Standards Updated (“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 is currently evaluating the impact of adopting this ASU on its 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. The amendments 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 financial statements.
 
In October 2020, the FASB issued ASU No. 2020-08, Codification Improvements to Subtopic 310-20, Receivables-Nonrefundable Fees and Other Costs, which is an update to clarify that an entity should reevaluate whether a callable debt security is within the scope of 310-20-35-33 for each reporting period.  ASU No. 2020-08 is effective for public business entities for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2020.  Early application is not permitted.  For all other entities, the amendments in ASU No. 2020-08 are effective for fiscal years beginning after December 15, 2021, and interim periods within fiscal years beginning after December 15, 2022. Early application is permitted for all other entities for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2020. All entities should apply the amendments in this update on a prospective basis as of the beginning of the period of adoption for existing or newly purchased callable debt securities. The Company adopted this new standard on January 1, 2021.  The adoption of this standard did not have a material impact on the Company’s consolidated financial statements.

3.
LOANS HELD FOR INVESTMENT AT FAIR VALUE
 
As of September 30, 2021 and December 31, 2020, the Company’s portfolio included three and four loans held at fair value, respectively. The aggregate originated commitment under these loans was approximately $75.9 million and $59.9 million, respectively, and outstanding principal was approximately $77.0 million and $50.8 million, respectively, as of September 30, 2021 and December 31, 2020.  For the nine months ended September 30, 2021, the Company funded approximately $37.7 million of outstanding principal and had repayments of approximately $13.1 million. As of September 30, 2021 and December 31, 2020, 0.0% and approximately 6.0%, respectively, of the Company’s loans held at fair value have floating interest rates.  As of December 31, 2020, these floating rates were subject to LIBOR floors, with a weighted average floor of 2.5%, calculated based on loans with LIBOR floors. References to LIBOR or “L” are to 30-day LIBOR (unless otherwise specifically stated).
 
The following tables summarize the Company’s loans held at fair value as of September 30, 2021 and December 31, 2020:
 
   
As of September 30, 2021
 
   
Fair Value (2)
   
Carrying Value (1)
   
Outstanding
Principal (1)
   
Weighted Average
Remaining Life
(Years) (3)
 
                         
Senior Term Loans
 
$
76,293,824
   
$
73,934,116
   
$
76,995,548
     
2.5
 
Total loans held at fair value
 
$
76,293,824
   
$
73,934,116
   
$
76,995,548
     
2.5
 

   
As of December 31, 2020
 
   
Fair Value (2)
   
Carrying Value (1)
   
Outstanding
Principal (1)
   
Weighted Average
Remaining Life
(Years) (3)
 
                         
Senior Term Loans
 
$
48,558,051
   
$
46,994,711
   
$
50,831,235
     
3.3
 
Total loans held at fair value
 
$
48,558,051
   
$
46,994,711
   
$
50,831,235
     
3.3
 
 
(1)
The difference between the Carrying Value and the Outstanding Principal amount of the loans consists of unaccreted purchase discount, deferred loan fees and loan origination costs.
 
(2)
Refer to Note 14 to our unaudited consolidated financial statements.
 
(3)
Weighted average remaining life is calculated based on the fair value of the loans as of September 30, 2021 and December 31, 2020.
 
The following table presents changes in loans held at fair value as of and for the nine months ended September 30, 2021:
 
   
Principal
   
Original Issue
Discount
   
Unrealized Gains/
(Losses)
   
Fair Value
 
                         
Total loans held at fair value at December 31, 2020
 
$
50,831,235
   
$
(3,836,524
)
 
$
1,563,340
   
$
48,558,051
 
Change in unrealized gains / (losses) on loans at fair value, net
   
-
     
-
     
796,368
   
796,368
New fundings
   
37,701,104
     
(1,130,623
)
   
-
     
36,570,481
 
Loan repayments
    (12,000,000 )     -       -       (12,000,000 )
Loan amortization payments
    (1,093,659 )     -       -       (1,093,659 )
Accretion of original issue discount
   
-
     
1,905,715
     
-
     
1,905,715
 
PIK interest
   
1,556,868
     
-
     
-
     
1,556,868
 
Total loans held at fair value at September 30, 2021
 
$
76,995,548
   
$
(3,061,432
)
 
$
2,359,708
   
$
76,293,824
 

A more detailed listing of the Company’s loans held at fair value portfolio based on information available as of September 30, 2021 is as follows:
 

Collateral Location  
Collateral
Type (8)
   
Fair
Value (2)
   
Carrying
Value (1)
   
Outstanding
Principal (1)
   
Interest
Rate
     
Maturity Date (3)
 
Payment
Terms (4)
 
                                             
Private Co. A
 AZ, MI, MD, MA
   
C , D

 
$
62,853,367
   
$
60,857,429
   
$
63,391,847
     
16.4
%
(5) 
 
5/8/2024
   
P/I

Private Co. B
 MI
    C

   
10,535,737
     
10,171,757
     
10,663,701
     
17.0
%
(6) 
 
9/1/2023
    P/I

Public Co. A
 NV
    C

   
2,904,720
     
2,904,930
     
2,940,000
     
14.0
%
(7) 
 
1/26/2023
   
I/O

Total loans held at fair value
           
$
76,293,824
   
$
73,934,116
   
$
76,995,548
                       

(1)
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.
 
(2)
Refer to Note 14 to our unaudited consolidated financial statements.
 
(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 13% and payment-in-kind (“PIK”) interest rate of 3.4%.
 
(6)
Base interest rate of 13% and PIK interest rate of 4%.
 
(7)
Base interest rate of 12% and PIK interest rate of 2%.

(8)
C = Cultivation Facilities, D = Dispensaries.

4.
LOANS HELD FOR INVESTMENT AT CARRYING VALUE
 
As of September 30, 2021 and December 31, 2020, the Company’s portfolio included 12 and three loans, respectively, held at carrying value. The aggregate originated commitment under these loans was approximately $217.0 million and $44.0 million, respectively, and outstanding principal was approximately $164.4 million and $33.9 million, respectively, as of September 30, 2021 and December 31, 2020. For the nine months ended September 30, 2021, the Company funded approximately $139.2 million of outstanding principal. As of September 30, 2021 and December 31, 2020, approximately 68% and 35%, respectively, of the Company’s loans held at carrying value have floating interest rates. These floating rates are subject to LIBOR floors, with a weighted average floor of 1.0%, calculated based on loans with LIBOR floors. References to LIBOR or “L” are to 30-day LIBOR (unless otherwise specifically stated).
 
The following tables summarize the Company’s loans held at carrying value as of September 30, 2021 and December 31, 2020:
 
   
As of September 30, 2021
 
   
Outstanding
Principal (1)
   
Original
Issue
Discount
   
Carrying
Value (1)
   
Weighted
Average
Remaining Life
(Years) (2)
 
                         
Senior Term Loans
 
$
164,361,340
   
$
(11,199,559
)
 
$
153,161,781
      4.0
 
Total loans held at carrying value
 
$
164,361,340
   
$
(11,199,559
)
 
$
153,161,781
      4.0
 

   
As of December 31, 2020
 
   
Outstanding
Principal (1)
   
Original
Issue
Discount
   
Carrying
Value (1)
   
Weighted
Average
Remaining Life
(Years) (2)
 
                         
Senior Term Loans
 
$
33,907,763
   
$
(2,070,732
)
 
$
31,837,031
      4.7
 
Total loans held at carrying value
 
$
33,907,763
   
$
(2,070,732
)
 
$
31,837,031
      4.7
 

(1)
The difference between the Carrying Value and the Outstanding Principal amount of the loans consists of unaccreted original issue discount and loan origination costs.
 
(2)
Weighted average remaining life is calculated based on the carrying value of the loans as of September 30, 2021 and December 31, 2020.
 
The following table presents changes in loans held at carrying value as of and for the nine months ended September 30, 2021:
 
   
Principal
   
Original Issue
Discount
   
Carrying Value
 
                   
Total loans held at carrying value at December 31, 2020
 
$
33,907,763
   
$
(2,070,732
)
 
$
31,837,031
 
New fundings
    139,222,598
      (11,261,001 )     127,961,597
 
Accretion of original issue discount
   
-
      2,132,174
      2,132,174
 
Realized gain on sale of loans     400,000       -       400,000  
Sale of loans
    (10,400,000 )     -       (10,400,000 )
PIK interest     1,230,979       -       1,230,979  
Total loans held at carrying value at September 30, 2021
 
$
164,361,340
   
$
(11,199,559
)
 
$
153,161,781
 

A more detailed listing of the Company’s loans held at carrying value portfolio based on information available as of September 30, 2021 is as follows:
 
   Collateral Location  
 
Collateral
Type (4)
 
 
Outstanding
Principal (1)
   
 
Original
Issue
Discount
     Carrying
Value (1)
   
 
Interest
Rate
       
 Maturity
Date (2)
 
 
Payment
Terms (3)
                                           
Private Co. C
 PA
   
C , D
 
$
19,333,872
   
$
(721,311
)
 
$
18,612,561
     
17.0
%   (5) 
 
12/1/2025
   
P/I
Sub. of Public Co. D
 PA
     C    
10,000,000
      (149,235 )    
9,850,765
      12.9 %   (6)
 
12/18/2024
   
I/O
Private Co. D
 OH, AR      D     12,169,041       (877,891 )     11,291,150       15.0 %   (7)
  1/1/2026     P/I
Private Co. E
 OH
   
C , D
   
14,220,552
     
(2,782,310
)
   
11,438,242
     
17.0
%   (8)
 
4/1/2026
    P/I
Private Co. F
 MO     C , D     9,799,658
      (1,816,803 )     7,982,855
      17.0 %   (9) 
  5/1/2026
    P/I
Public Co. E  MI      C     5,000,000
      (307,143 )     4,692,857
      13.0 %   (10) 
  4/29/2025
    P/I
Sub. of Private Co. G
 NJ     C , D     42,945,657
      (2,498,443 )     40,447,214
      14.3 %   (11)
  5/1/2026
    P/I
Public Co. F
 IL, FL, NV,
OH, MA, MI,
MD,AR, NV,
AZ
    C , D     10,000,000
      (160,000 )     9,840,000
      9.8 %   (12) 
  5/30/2023
    I/O
Sub. of Private Co. H
 IL      C     5,781,250
      (126,790 )     5,654,460
      15.0 %   (13)
  5/11/2023
    I/O
Private Co. K
MA
    C , D
    7,000,000       (763,667 )     6,236,333       13.0
%   (14)
  08/03/2026
    P/I
Private Co. I
 MD     C , D     10,109,310
      (225,184 )     9,884,126
      15.5 %   (15)
  8/1/2026
    P/I
Private Co. J
 MO     C
    18,002,000       (770,782 )     17,231,218       15.0
%   (16)
  09/01/2025
    P/I
Total loans held at carrying value
          $ 164,361,340     $ (11,199,559 )  
$
153,161,781
                       

(1)
The difference between the Carrying Value and the Outstanding Principal amount of the loans consists of unaccreted purchase discount, deferred loan fees and loan origination costs.
 
(2)
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.
 
(3)
I/O = interest-only, P/I = principal and interest. P/I loans may include interest-only periods for a portion of the loan term.
 
(4)
C = Cultivation Facilities, D = Dispensaries.
 
(5)
Base interest rate of 12.0% plus LIBOR (LIBOR floor of 1.0%) and PIK interest rate of 4.0%.
 
(6)
Base interest rate of 12.9%.
 
(7)
Base interest rate of 13.0% and PIK interest rate of 2.0%.
 
(8)
Base interest rate of 12.0% plus LIBOR (LIBOR floor of 1.0%) and PIK interest rate of 4.0%.
 
(9)
Base interest rate of 13.0% and PIK interest rate of 4.0%.

(10)
Base interest rate of 13.0%.

(11)
Base interest rate of 11.5% plus LIBOR (LIBOR floor of 1.0%) and PIK interest rate of 1.8%.

(12)
Base interest rate of 9.8%.

(13)
Base interest rate of 15.0%.

(14)
Base interest rate of 12.0% plus LIBOR (LIBOR floor of 1.0%)

(15)
Base interest rate of 12.0% plus LIBOR (LIBOR floor of 1.0%) and PIK interest rate of 2.5%.

(16)
Base interest rate of 12.0% plus LIBOR (LIBOR floor of 1.0%) and PIK interest rate of 2.0%.

10

5.
LOAN RECEIVABLE AT CARRYING VALUE
 
As of September 30, 2021 and December 31, 2020, 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 $2.8 million and $3.4 million as of September 30, 2021 and December 31, 2020, respectively.  During the nine months ended September 30, 2021, the Company received repayments of approximately $0.6 million of outstanding principal.
 
The following table presents changes in loans receivable as of and for the nine months ended September 30, 2021:
 
   
Principal
   
Original Issue
Discount
   
Carrying
Value
 
                   
Total loans receivable at carrying value at December 31, 2020
 
$
3,352,176
   
$
(3,913
)
 
$
3,348,263
 
Principal repayment of loans
   
(574,735
)
   
-
     
(574,735
)
Accretion of original issue discount     -       927       927  
Total loans receivable at carrying value at September 30, 2021
 
$
2,777,441
   
$
(2,986
)
 
$
2,774,455
 

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 we have deemed the borrower/sponsor to be experiencing financial difficulty, we 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 Company utilized macroeconomic data that reflects a current recession; however, the short and long-term economic implications of the COVID-19 pandemic and its financial impact on the Company are highly uncertain. 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 September 30, 2021 and December 31, 2020, the Company’s CECL Reserve for its loans held at carrying value and loans receivable at carrying value is $1,837,895 and $465,397, respectively, or 118 and 132 basis points, respectively, of the Company’s total loans held at carrying value and loans receivable at carrying value of $155,936,236 and $35,185,294, 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 $1,145,629 and $404,860, respectively, and a liability for unfunded commitments of $692,266 and $60,537, 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.

11

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 nine months ended September 30, 2021 was as follows: