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 March 31, 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)
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

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  ☒

The approximate aggregate market value of the voting common stock held by non-affiliates of the registrant, as of June 30, 2021, based upon the last sale price reported on the Nasdaq Stock Market (the “Nasdaq”) was $248,018,374.
 
Class
Outstanding at May 9, 2022
Common stock, $0.01 par value
19,742,940



AFC GAMMA, INC.
 
TABLE OF CONTENTS
 
INDEX

Part I.
Financial Information
 
Item 1.
1
 
1
  2
  3
   4
  5
  6
Item 2.
26
Item 3.
39
Item 4.
42
Part II.
43
Item 1.
43
Item 1A.
43
Item 2.
43
Item 3.
43
Item 4.
43
Item 5.
44
Item 6.
45

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

   
As of
 
   
March 31, 2022
   
December 31, 2021
 
   
(unaudited)
       
Assets
           
Loans held for investment at fair value (cost of $92,808,827 and $74,913,157 at March 31, 2022 and December 31, 2021, respectively, net)
 
$
95,072,832
   
$
77,096,319
 
Debt securities available for sale held at fair value (cost of $0 and $16,050,000 at March 31, 2022 and December 31, 2021, respectively)
    -
      15,881,250  
                 
Loans held for investment at carrying value, net
   
265,151,482
     
257,163,496
 
Loan receivable at carrying value, net
   
2,279,324
     
2,530,588
 
Current expected credit loss reserve
   
(3,390,676
)
   
(2,431,558
)
Loans held for investment at carrying value and loan receivable at carrying value, net of current expected credit loss reserve
   
264,040,130
     
257,262,526
 
 
               
Cash and cash equivalents
   
63,615,179
     
109,246,048
 
Receivable for loans and securities sold
    26,500,000
      -
 
Interest receivable
   
4,235,265
     
4,412,938
 
Prepaid expenses and other assets
   
604,177
     
949,279
 
Total assets
 
$
454,067,583
   
$
464,848,360
 
                 
Liabilities
               
Interest reserve
 
$
607,163
   
$
4,782,271
 
Accrued interest
    2,409,723       991,840  
Due to affiliate
    23,122       -  
Dividends payable
    10,858,617       8,221,406  
Current expected credit loss reserve
   
629,188
     
683,177
 
Accrued management and incentive fees
   
3,847,213
     
2,823,044
 
Accrued direct administrative expenses
   
906,717
     
1,324,457
 
Accounts payable and other liabilities
   
1,615,812
     
1,528,980
 
Senior notes payable, net
    96,659,635       96,572,656  
Line of credit payable to affiliate, net
    -       74,845,355  
Total liabilities
   
117,557,190
     
191,773,186
 
Commitments and contingencies (Note 10)
   
     
 
Stockholders’ Equity
               
Preferred stock, par value $0.01 per share, 10,000 shares authorized at March 31, 2022 and December 31, 2021 and 125 shares issued and outstanding at March 31, 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 March 31, 2022 and December 31, 2021, respectively, and 19,742,940 and 16,442,812 shares issued and outstanding at March 31, 2022 and December 31, 2021, respectively
   
196,784
     
163,866
 
Additional paid-in-capital
   
338,102,982
     
274,172,934
 
Accumulated other comprehensive income (loss)
    -       (168,750 )
Accumulated (deficit) earnings
   
(1,789,374
)
   
(1,092,877
)
Total stockholders’ equity
   
336,510,393
     
273,075,174
 
                 
Total liabilities and stockholders’ equity
 
$
454,067,583
   
$
464,848,360
 

(See accompanying notes to the consolidated financial statements)

1

AFC GAMMA, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited)
    Three months ended
March 31,
 
   
2022
    2021
 
Revenue
           
Interest income
 
$
18,635,853
    $ 4,685,005  
Interest expense
    (1,700,115 )     -  
Net interest income
   
16,935,738
      4,685,005  
Expenses
               
Management and incentive fees, net (less rebate of $387,493 and $237,743, respectively)
   
3,847,213
      876,662  
General and administrative expenses
   
1,144,444
      462,518  
Stock-based compensation
   
990,023
      1,599,115  
Professional fees
   
399,368
      135,453  
Total expenses
   
6,381,048
      3,073,748  
Provision for current expected credit losses
   
(905,129
)
    (66,100 )
Realized gains (losses) on sales of investments, net
    450,000       -  
Change in unrealized gains (losses) on loans at fair value, net
   
80,843
      (144,402 )
Net income before income taxes
   
10,180,404
      1,400,755  
Income tax expense
   
18,284
      -  
Net income
 
$
10,162,120
    $ 1,400,755  
                 
Earnings per common share:
               
Basic earnings per common share (in dollars per share)
 
$
0.53
    $ 0.20  
Diluted earnings per common share (in dollars per share)
 
$
0.52
    $ 0.19  
                 
Weighted average number of common shares outstanding:
               
Basic weighted average shares of common stock outstanding (in shares)
   
19,319,993
      7,144,670  
Diluted weighted average shares of common stock outstanding (in shares)
   
19,591,472
      7,485,048  

(See accompanying notes to the consolidated financial statements)
 
2

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

   
Three months ended
March 31,
 
   
2022
   
2021
 
Net income
 
$
10,162,120
   
$
1,400,755
 
                 
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
 
$
10,330,870
   
$
1,400,755
 

(See accompanying notes to the consolidated financial statements)
3

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

    Three months ended March 31, 2022
 
  Preferred    
Common Stock
   
Additional
Paid-In
    Accumulated Other Comprehensive      
Accumulated
Earnings
     
Total
Stockholders’
 
    
Stock
   
Shares
   
Amount
   
Capital
   
Income (Loss)
   
(Deficit)
   
Equity
 
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 cost
   
-
     
3,291,832
     
32,918
     
62,940,025
      -      
-
     
62,972,943
 
Stock-based compensation
   
-
     
8,296
     
-
     
990,023
      -      
-
     
990,023
 
Dividends declared on common shares ($0.55 per share)
   
-
     
-
     
-
     
-
      -      
(10,858,617
)
   
(10,858,617
)
Other comprehensive income (loss)
    -       -       -       -
      168,750       -       168,750  
Net income
   
-
     
-
     
-
     
-
      -      
10,162,120
     
10,162,120
 
Balance at March 31, 2022
 
$
1
     
19,742,940
   
$
196,784
   
$
338,102,982
    $ -     $
(1,789,374
)
 
$
336,510,393
 

    Three months ended March 31, 2021  

  Preferred    
Common Stock
     
Additional
Paid-In
   
Accumulated
Other Comprehensive
     
Accumulated
Earnings
     
Total
Stockholders’
 
    
Stock
   
Shares
   
Amount
   
Capital
   
Income (Loss)
   
(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
   
-
     
7,187,485
     
71,875
      123,837,414       -      
-
     
123,909,289
 
Stock-based compensation
   
-
     
-
     
-
      1,599,115       -      
 -
     
1,599,115
 
Dividends declared on common shares ($0.36 per share)
   
-
     
-
     
-
      -       -      
(2,224,866
)
   
(2,224,866
)
Net income
   
-
     
-
     
-
      -       -      
1,400,755
     
1,400,755
 
Balance at March 31, 2021
 
$
1
     
13,366,877
   
$
133,669
   
$
216,504,726
    $ -     $
(306,391
)
 
$
216,332,005
 

(See accompanying notes to the consolidated financial statements)
 
4

AFC GAMMA, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)

   
Three months ended
March 31,
 
    2022     2021  
Operating activities:
 

       
Net income
 
$
10,162,120
   
$
1,400,755
 
Adjustments to reconcile net income to net cash provided by (used in) operating activities:
               
Provision for current expected credit losses
   
905,129
     
66,100
 
Realized (gains) losses on sales of investments, net
    (450,000 )     -  
Change in unrealized (gains) losses on loans at fair value, net
   
(80,843
)
   
144,402
 
Accretion of deferred loan original issue discount and other discounts
   
(3,965,878
)
   
(707,751
)
Amortization of deferred financing costs - revolving credit facility
    50,982       -  
Amortization of offering costs - senior notes
    161,979       -  
Stock-based compensation
   
990,023
     
1,599,115
 
Payment-in-kind interest
   
(1,618,761
)
   
(559,004
)
Changes in operating assets and liabilities
               
Interest reserve
   
(4,175,108
)
   
(82,266
)
Interest receivable
   
177,673
     
(278,012
)
Prepaid expenses and other assets
   
373,765
     
67,971
 
Accrued interest
    1,417,883
      -
 
Accrued management and incentive fees, net
   
1,024,169
     
654,535
 
Accrued direct administrative expenses
   
(417,740
)
   
(185,104
)
Accounts payable and other liabilities
   
109,954
     
250,044
 
Net cash provided by (used in) operating activities
   
4,665,347
     
2,370,785
 
                 
Cash flows from investing activities:
               
Issuance of and fundings on loans
   
(50,463,213
)
   
(7,096,075
)
Proceeds from sales of Assigned Rights
   
-
     
103,302
 
Principal repayment of loans
   
20,415,460
     
107,717
 
Net cash provided by (used in) investing activities
   
(30,047,753
)
   
(6,885,056
)
                 
Cash flows from financing activities:
               
Proceeds from sale of common stock
   
63,939,722
     
127,003,125
 
Payment of offering costs - equity offering
   
(966,779
)
   
(3,093,836
)
Dividends paid to common stockholders
    (8,221,406 )    
(2,224,866
)
Repayments on the line of credit
    (75,000,000 )     -
 
Net cash provided by (used in) financing activities
   
(20,248,463
)
   
121,684,423
 
                 
Net increase (decrease) in cash and cash equivalents
   
(45,630,869
)
   
117,170,152
 
Cash and cash equivalents, beginning of period
   
109,246,048
     
9,623,820
 
Cash and cash equivalents, end of period
 
$
63,615,179
   
$
126,793,972
 
                 
Supplemental disclosure of non-cash activity:
               
Interest reserve withheld from funding of loans
 
$
-
   
$
2,000,000
 
OID withheld from funding of loans
 
$
1,067,675
   
$
1,967,596
 
Sale of Assigned Rights
  $ -     $ 1,104,914  
Change in other comprehensive income (loss) during the period
  $ 168,750     $ -  
Dividends declared and not yet paid
  $ 10,858,617     $ -  
Receivable in connection with sale of loan
  $ 10,600,000     $ -  
Receivable in connection with sale of securities
  $ 15,900,000     $ -  
Supplemental information:
               
Interest paid during the period
 
$
69,271
   
$
-
 
Income taxes paid during the period
 
$
-
   
$
-
 

(See accompanying notes to the consolidated financial statements)

5

AFC GAMMA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
As of March 31, 2022
(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 (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 (“TRS1”), 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 (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 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 Annual Report on Form 10-K for the fiscal year ended December 31, 2021 filed with the Securities and Exchange Commission (“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 are recorded at fair value and unrealized holding gains or losses are excluded from net income on the consolidated income statement and reported as a component of accumulated other comprehensive income within stockholders’ equity.

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.

6

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 March 31, 2022 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 March 31, 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 $95.6 million and $77.6 million, as of March 31, 2022 and December 31, 2021, respectively. For the three months ended March 31, 2022, the Company funded approximately $17.3 million of additional principal and had no repayments. As of March 31, 2022 and December 31, 2021, none of the Company’s loans held at fair value had floating interest rates.
 
The following tables summarize the Company’s loans held at fair value as of March 31, 2022 and December 31, 2021:
 
   
As of March 31, 2022
 
   
Fair Value (1)
   
Carrying Value (2)
   
Outstanding
Principal (2)
   
Weighted Average
Remaining Life
(Years) (3)
 
                         
Senior term loans
 
$
95,072,832
   
$
92,808,827
   
$
95,618,815
     
2.0
 
Total loans held at fair value
 
$
95,072,832
   
$
92,808,827
   
$
95,618,815
     
2.0
 

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 March 31, 2022 and December 31, 2021.
 
The following table presents changes in loans held at fair value as of and for the three months ended March 31, 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 gains (losses) on loans at fair value, net
   
-
     
-
     
80,843
   
80,843
New fundings
   
17,285,000
     
(429,275
)
   
-
     
16,855,725
 
Accretion of original issue discount
   
-
     
336,872
     
-
     
336,872
 
PIK interest
   
703,073
     
-
     
-
     
703,073
 
Total loans held at fair value at March 31, 2022
 
$
95,618,815
   
$
(2,809,987
)
 
$
2,264,004
   
$
95,072,832
 

A more detailed listing of the Company’s loans held at fair value portfolio based on information available as of March 31, 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. A
 AZ, MI, MD, MA
   
C, D

 
$
79,312,373
   
$
77,486,750
   
$
79,744,238
     
15.5
%
(6) 
 
5/8/2024
   
P/I

Public Co. A NV     C
      2,970,654
      2,994,612
      2,994,612
      14.0
%
(7)   1/26/2023
    I/O
 
Private Co. B
 MI
    C

   
12,789,805
     
12,327,465
     
12,879,965
     
17.0
%
(8) 
 
9/1/2023
    P/I

Total loans held at fair value
           
$
95,072,832
   
$
92,808,827
   
$
95,618,815
                       

(1)
C = Cultivation Facilities, D = Dispensaries.
 
(2)
Refer to Note 14 to the Company’s unaudited consolidated financial statements.
 
(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 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%.

8

4.
LOANS HELD FOR INVESTMENT AT CARRYING VALUE
 
As of March 31, 2022 and December 31, 2021, the Company’s portfolio included ten and twelve loans, respectively, held at carrying value. The aggregate originated commitment under these loans was approximately $319.9 million and $324.3 million, respectively, and outstanding principal was approximately $275.8 million and $270.8 million, respectively, as of March 31, 2022 and December 31, 2021. For the three months ended March 31, 2022, the Company funded approximately $34.2 million of additional principal. As of March 31, 2022 and December 31, 2021, approximately 42% and 48%, 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 March 31, 2022 and December 31, 2021:
 
   
As of March 31, 2022
 
   
Outstanding
Principal (1)
   
Original
Issue
Discount
   
Carrying
Value (1)
   
Weighted
Average
Remaining Life
(Years) (2)
 
                         
Senior term loans
 
$
275,839,406
   
$
(10,687,924
)
 
$
265,151,482
      2.9
 
Total loans held at carrying value
 
$
275,839,406
   
$
(10,687,924
)
 
$
265,151,482
      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 March 31, 2022 and December 31, 2021.
 
The following table presents changes in loans held at carrying value as of and for the three months ended March 31, 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 fundings
    34,245,888
      (638,400 )     33,607,488
 
Accretion of original issue discount
   
-
      3,628,695
      3,628,695
 
Loan repayments
    (20,010,726 )     -
      (20,010,726 )
Sale of loans
    (10,000,000 )     -       (10,000,000 )
PIK interest     915,688       -       915,688  
Loan amortization payments
    (153,159 )     -
      (153,159 )
Total loans held at carrying value at March 31, 2022
 
$
275,839,406
   
$
(10,687,924
)
 
$
265,151,482
 

As of March 31, 2022, the Company had a receivable related to the sale of the Subsidiary of Public Company D that was sold during the three months ended March 31, 2022 in the amount of $10.6 million, which is recorded within receivable for loans and securities sold in the Company’s consolidated balance sheets.

9

A more detailed listing of the Company’s loans held at carrying value portfolio based on information available as of March 31, 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. C
 PA
   
C, D

 
$
24,910,301
   
$
(706,591
)
 
$
24,203,710
     
17.0
% (5)   
12/1/2025
   
P/I

Private Co. D
 OH, AR     D
    12,138,516       (772,544 )     11,365,972       15.0 % (6)    1/1/2026     P/I
Private Co. F
 MO     C, D
    12,811,265
      (1,618,606 )     11,192,659
      17.0 % (7)    5/1/2026
    P/I
Sub. of Private Co. G
 NJ     C, D
    50,398,475
      (2,225,885 )     48,172,590
      14.3 % (8)    5/1/2026
    P/I
Public Co. F
 IL, FL, NV,
OH, MA, MI,
MD,AR, NV,
AZ
    C, D
    86,600,000
      (1,514,933 )     85,085,067
      8.6 % (9)    5/30/2023
    I/O
Sub. of Private Co. H
 IL     C

    5,781,250
      (86,751 )     5,694,499
      15.0 % (10)    5/11/2023
    I/O
Private Co. K
MA
    C, D
    7,000,000       (684,667 )     6,315,333       13.0 % (11)    8/3/2026
    P/I
Private Co. I
 MD     C, D
    10,490,498
      (201,481 )     10,289,017
      15.5 % (12)    8/1/2026
    P/I
Private Co. J
 MO     C

    23,209,101       (672,384 )     22,536,717       15.0 % (13)    9/1/2025
    P/I
Sub. of Public Co. H
 IA, IL, MI, NJ, PA     C, D
    42,500,000
      (2,204,082 )     40,295,918
      9.8 % (14)    1/1/2026
    I/O
Total loans held at carrying value

          $ 275,839,406     $ (10,687,924 )  
$
265,151,482
                       

(1)
C = Cultivation Facilities, D = Dispensaries.
 
(2)
The difference between the Carrying Value and the Outstanding Principal amount of the loans consists of unaccreted OID and loan origination costs.
 
(3)
Certain loans are subject to contractual extension options and may be subject to performance based or other conditions as stipulated in the loan agreement. Actual maturities may differ from contractual maturities stated herein as certain borrowers may have the right to prepay with or without paying a prepayment penalty. The Company may also extend contractual maturities and amend other terms of the loans in connection with loan modifications.
 
(4)
I/O = interest-only, P/I = principal and interest. P/I loans may include interest-only periods for a portion of the loan term.
 
(5)
Base interest rate of 12.0% plus LIBOR (LIBOR floor of 1.0%) and PIK interest rate of 4.0%.
 
(6)
Base interest rate of 13.0% and PIK interest rate of 2.0%.
 
(7)
Base interest rate of 13.0% and PIK interest rate of 4.0%.
 
(8)
Base interest rate of 11.5% plus LIBOR (LIBOR floor of 1.0%) and PIK interest rate of 1.8%.
 
(9)
Base interest rate of 8.6%.

(10)
Base interest rate of 15.0%.

(11)
Base interest rate of 12.0% plus LIBOR (LIBOR floor of 1.0%).

(12)
Base interest rate of 12.0% plus LIBOR (LIBOR floor of 1.0%) and PIK interest rate of 2.5%.

(13)
Base interest rate of 12.0% plus LIBOR (LIBOR floor of 1.0%) and PIK interest rate of 2.0%.

(14)
Base interest rate of 9.8%.

5.
LOAN RECEIVABLE AT CARRYING VALUE
 
As of March 31, 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 $2.3 million and $2.5 million as of March 31, 2022 and December 31, 2021, respectively.  During the three months ended March 31, 2022, the Company received repayments of approximately $0.3 million of outstanding principal.
 
10

The following table presents changes in loans receivable as of and for the three months ended March 31, 2022:
 
   
Principal
   
Original Issue
Discount
   
Carrying
Value
 
                   
Total loans receivable at carrying value at December 31, 2021
 
$
2,533,266
   
$
(2,678
)
 
$
2,530,588
 
Principal repayment of loans
   
(251,574
)
   
-
     
(251,574
)
Accretion of original issue discount     -       310       310  
Total loans receivable at carrying value at March 31, 2022
 
$
2,281,692
   
$
(2,368
)
 
$
2,279,324
 

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 March 31, 2022 and December 31, 2021, the Company’s CECL Reserve for its loans held at carrying value and loans receivable at carrying value is approximately $4.0 million and $3.1 million, respectively, or 150 and 120 basis points, respectively, of the Company’s total loans held at carrying value and loans receivable at carrying value of approximately $267.4 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 $3.4 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.

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 months ended March 31, 2022 was as follows:

   
Outstanding (1)
   
Unfunded (2)
   
Total
 
Balance at December 31, 2021
 
$
2,431,558
   
$
683,177
   
$
3,114,735
 
Provision for current expected credit losses
   
959,118
     
(53,989
)
   
905,129
 
Write-offs
   
-
     
-
     
-
 
Recoveries
   
-
     
-
     
-
 
Balance at March 31, 2022
 
$
3,390,676
   
$
629,188
   
$
4,019,864
 

(1)
As of March 31, 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 March 31, 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.

11

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:
 
Rating
 
Definition
 
1
 
Very Low Risk — Materially exceeds performance metrics included in original or current credit underwriting and business plan
 
2
 
Low Risk — Collateral and business performance exceeds substantially all performance metrics included in original or current credit underwriting and business plan
 
3
 
Medium Risk — Collateral and business performance meets, or is on track to meet underwriting expectations; business plan is met or can reasonably be achieved
 
4
 
High Risk/ Potential for Loss — Collateral performance falls short of underwriting, material differences from business plans, defaults may exist, or may soon exist absent material improvement. Risk of recovery of interest exists
 
5
 
Impaired/Loss Likely — Performance is significantly worse than underwriting with major variances from business plan observed. Loan covenants or financial milestones have been breached; exit from loan or refinancing is uncertain. Full recovery of principal is unlikely
 
The risk ratings are primarily based on historical data as well as taking into account future economic conditions.

As of March 31, 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:
2022
 
2021
   2020  
Total
 
1
$
-
 
$
-
  $ -  
$
-
 
2
 
25,997,066
   
59,088,000
    -    
85,085,066
 
3
 
-
   
134,207,717
    37,849,005    
172,056,722
 
4
 
-
   
10,289,018
    -    
10,289,018
 
5
 
-
   
-
    -    
-
 
Total
$
25,997,066
 
$
203,584,735
  $ 37,849,005  
$
267,430,806
 

7.
INTEREST RECEIVABLE
 
The following table summarizes the interest receivable by the Company as of March 31, 2022 and December 31, 2021:
 
   
As of
March 31, 2022
   
As of
December 31, 2021
 
             
Interest receivable
 
$
3,128,116
   
$
3,562,566
 
PIK receivable
   
541,834
     
554,357
 
Unused fees receivable
   
565,315
     
296,015
 
Total interest receivable
 
$
4,235,265
   
$
4,412,938


8.
INTEREST RESERVE
 
At March 31, 2022 and December 31, 2021, the Company had four and seven loans, respectively, that included a loan funded interest reserve.  For the three months ended March 31, 2022, approximately $4.2 million of interest income was earned and disbursed from the interest reserve.
 
12

The following table presents changes in interest reserve as of and for the three months ended March 31, 2022:

   
Three months ended
March 31, 2022
 
Beginning reserves
 
$
4,782,271
 
New reserves
   
-
 
Reserves disbursed
   
(4,175,108
)
Ending reserves
 
$
607,163
 

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 th