Advanced Flower Capital Inc 10-Q for FY2025 Q3
Advanced Flower Capital Inc. (AFCG)
10-Q
2025-11-12
For: 2025-09-30
View Original
Added on
April 07, 2026
About this 10-Q
Advanced Flower Capital Inc filed this 10-Q on November 12, 2025, covering the quarter ended September 30, 2025 (FY2025 Q3).
Headline figures
Quarter ended September 30, 2025, as reported in this filing, compared with the same period a year earlier where the filing states it.
- Revenue
- $6.53M
- down 26.5% from $8.88M a year earlier
- Net loss
- $12.49M
- compared with net income of $1.38M a year earlier
- Diluted EPS
- -$0.57
- compared with $0.06 a year earlier
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, 2025
| 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
(Exact name of registrant as specified in its charter)
| (State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification Number) | |||||||
(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 | ||||||
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 | ☐ | ☒ | 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 November 7, 2025 | ||||
| Common stock, $0.01 par value per share | |||||
ADVANCED FLOWER CAPITAL INC.
TABLE OF CONTENTS
INDEX
Item 2. | ||||||||
PART I – FINANCIAL INFORMATION
Item 1. Financial Statements
ADVANCED FLOWER CAPITAL INC.
CONSOLIDATED BALANCE SHEETS
| As of | |||||||||||
| September 30, 2025 | December 31, 2024 | ||||||||||
| (unaudited) | |||||||||||
| Assets | |||||||||||
Loans held for investment at fair value (cost of $ | $ | $ | |||||||||
| Loans held for investment at carrying value, net | |||||||||||
| Loan receivable held at carrying value, net | |||||||||||
| Current expected credit loss reserve | ( | ( | |||||||||
| Loans held for investment at carrying value and loan receivable held at carrying value, net of current expected credit loss reserve | |||||||||||
| Cash and cash equivalents | |||||||||||
| Interest receivable | |||||||||||
| Prepaid expenses and other assets | |||||||||||
| Total assets | $ | $ | |||||||||
| Liabilities | |||||||||||
| Accrued interest | $ | $ | |||||||||
| Due to affiliate | |||||||||||
| Dividends payable | |||||||||||
| Current expected credit loss reserve | |||||||||||
| Accrued management and incentive fees | |||||||||||
| Accrued direct administrative expenses | |||||||||||
| Accounts payable and other liabilities | |||||||||||
| Senior notes payable, net | |||||||||||
| Line of credit payable | |||||||||||
| Line of credit payable to affiliate | |||||||||||
| Total liabilities | |||||||||||
| Commitments and contingencies (Note 9) | |||||||||||
| Shareholders’ equity | |||||||||||
Preferred stock, par value $ | |||||||||||
Common stock, par value $ | |||||||||||
| Additional paid-in capital | |||||||||||
| Accumulated (deficit) earnings | ( | ( | |||||||||
| Total shareholders’ equity | |||||||||||
| Total liabilities and shareholders’ equity | $ | $ | |||||||||
See accompanying notes to the consolidated financial statements
1
ADVANCED FLOWER CAPITAL INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited)
| Three months ended September 30, | Nine months ended September 30, | ||||||||||||||||||||||
| 2025 | 2024 | 2025 | 2024 | ||||||||||||||||||||
| Revenue | |||||||||||||||||||||||
| Interest income | $ | $ | $ | $ | |||||||||||||||||||
| Interest expense | ( | ( | ( | ( | |||||||||||||||||||
| Net interest income | |||||||||||||||||||||||
| Expenses | |||||||||||||||||||||||
Management and incentive fees, net (less rebate of $ | |||||||||||||||||||||||
| General and administrative expenses | |||||||||||||||||||||||
| Stock-based compensation | |||||||||||||||||||||||
| Professional fees | |||||||||||||||||||||||
| BDC conversion expenses | |||||||||||||||||||||||
| Total expenses | |||||||||||||||||||||||
| (Provision for) reversal of current expected credit losses | ( | ( | ( | ||||||||||||||||||||
| Realized (losses) gains on investments, net | ( | ||||||||||||||||||||||
| Change in unrealized gains (losses) on loans at fair value, net | ( | ( | ( | ( | |||||||||||||||||||
| Net (loss) income from continuing operations before income taxes | ( | ( | |||||||||||||||||||||
| Income tax (benefit) expense | ( | ( | |||||||||||||||||||||
| Net (loss) income from continuing operations | ( | ( | |||||||||||||||||||||
| Net income from discontinued operations, net of tax | |||||||||||||||||||||||
| Net (loss) income | $ | ( | $ | $ | ( | $ | |||||||||||||||||
| Basic earnings per common share: | |||||||||||||||||||||||
| Continuing operations | $ | ( | $ | $ | ( | $ | |||||||||||||||||
| Discontinued operations | $ | $ | $ | $ | |||||||||||||||||||
| Total basic earnings per common share | $ | ( | $ | $ | ( | $ | |||||||||||||||||
| Diluted earnings per common share: | |||||||||||||||||||||||
| Continuing operations | $ | ( | $ | $ | ( | $ | |||||||||||||||||
| Discontinued operations | $ | $ | $ | $ | |||||||||||||||||||
| Total diluted earnings per common share | $ | ( | $ | $ | ( | $ | |||||||||||||||||
| Weighted average number of common shares outstanding: | |||||||||||||||||||||||
| Basic weighted average shares of common stock outstanding | |||||||||||||||||||||||
| Diluted weighted average shares of common stock outstanding | |||||||||||||||||||||||
See accompanying notes to the consolidated financial statements
2
ADVANCED FLOWER CAPITAL INC.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY
(unaudited)
| Three months ended September 30, 2025 | |||||||||||||||||||||||||||||||||||||||||
| Preferred Stock | Common Stock | Additional Paid-In Capital | Accumulated Earnings (Deficit) | Total Shareholders’ Equity | |||||||||||||||||||||||||||||||||||||
| Shares | Amount | ||||||||||||||||||||||||||||||||||||||||
| Balance at June 30, 2025 | $ | $ | $ | $ | ( | $ | |||||||||||||||||||||||||||||||||||
| Stock-based compensation, net of forfeitures | — | ( | ( | — | |||||||||||||||||||||||||||||||||||||
Dividends declared on common shares ($ | — | — | — | — | ( | ( | |||||||||||||||||||||||||||||||||||
| Net loss | — | — | — | — | ( | ( | |||||||||||||||||||||||||||||||||||
| Balance at September 30, 2025 | $ | $ | $ | $ | ( | $ | |||||||||||||||||||||||||||||||||||
| Three months ended September 30, 2024 | |||||||||||||||||||||||||||||||||||||||||
| Preferred Stock | Common Stock | Additional Paid-In Capital | Accumulated Earnings (Deficit) | Total Shareholders’ Equity | |||||||||||||||||||||||||||||||||||||
| Shares | Amount | ||||||||||||||||||||||||||||||||||||||||
| Balance at June 30, 2024 | $ | $ | $ | $ | ( | $ | |||||||||||||||||||||||||||||||||||
| Issuance of common stock, net of offering costs | — | — | |||||||||||||||||||||||||||||||||||||||
| Stock-based compensation | — | — | — | — | |||||||||||||||||||||||||||||||||||||
Dividends declared on common shares ($ | — | — | — | — | ( | ( | |||||||||||||||||||||||||||||||||||
| Distributions in connection with the Spin-Off | — | — | — | ( | — | ( | |||||||||||||||||||||||||||||||||||
| Net income | — | — | — | — | |||||||||||||||||||||||||||||||||||||
| Balance at September 30, 2024 | $ | $ | $ | $ | ( | $ | |||||||||||||||||||||||||||||||||||
See accompanying notes to the consolidated financial statements
3
ADVANCED FLOWER CAPITAL INC.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY
| Nine months ended September 30, 2025 | |||||||||||||||||||||||||||||||||||||||||
| Preferred Stock | Common Stock | Additional Paid-In- Capital | Accumulated Earnings (Deficit) | Total Shareholders’ Equity | |||||||||||||||||||||||||||||||||||||
| Shares | Amount | ||||||||||||||||||||||||||||||||||||||||
| Balance at December 31, 2024 | $ | $ | $ | $ | ( | $ | |||||||||||||||||||||||||||||||||||
| Stock-based compensation, net of forfeitures | — | — | |||||||||||||||||||||||||||||||||||||||
Dividends declared on common shares ($ | — | — | — | — | ( | ( | |||||||||||||||||||||||||||||||||||
| Net loss | — | — | — | — | ( | ( | |||||||||||||||||||||||||||||||||||
| Balance at September 30, 2025 | $ | $ | $ | $ | ( | $ | |||||||||||||||||||||||||||||||||||
| Nine months ended September 30, 2024 | |||||||||||||||||||||||||||||||||||||||||
| Preferred Stock | Common Stock | Additional Paid-In- Capital | Accumulated Earnings (Deficit) | Total Shareholders’ Equity | |||||||||||||||||||||||||||||||||||||
| Shares | Amount | ||||||||||||||||||||||||||||||||||||||||
| Balance at December 31, 2023 | $ | $ | $ | $ | ( | $ | |||||||||||||||||||||||||||||||||||
| Issuance of common stock, net of offering costs | — | — | |||||||||||||||||||||||||||||||||||||||
| Stock-based compensation | — | — | |||||||||||||||||||||||||||||||||||||||
Dividends declared on common shares ($ | — | — | — | — | ( | ( | |||||||||||||||||||||||||||||||||||
Dividends declared on preferred shares ($ | — | — | — | — | ( | ( | |||||||||||||||||||||||||||||||||||
| Redemption of preferred shares | ( | — | — | ( | — | ( | |||||||||||||||||||||||||||||||||||
| Distributions in connection with the Spin-Off | — | — | — | ( | — | ( | |||||||||||||||||||||||||||||||||||
| Net income | — | — | — | — | |||||||||||||||||||||||||||||||||||||
| Balance at September 30, 2024 | $ | $ | $ | $ | ( | $ | |||||||||||||||||||||||||||||||||||
See accompanying notes to the consolidated financial statements
4
ADVANCED FLOWER CAPITAL INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
| Nine months ended September 30, | |||||||||||
| 2025 | 2024 | ||||||||||
| Operating activities: | |||||||||||
| Net (loss) income | $ | ( | $ | ||||||||
| Net (income) from discontinued operations, net of tax | ( | ||||||||||
| Net (loss) income from continuing operations | ( | ||||||||||
| Adjustments to reconcile net income to net cash provided by (used in) operating activities: | |||||||||||
| Provision for (reversal of) current expected credit losses | ( | ||||||||||
| Realized losses (gains) on investments, net | |||||||||||
| Change in unrealized losses (gains) on loans at fair value, net | |||||||||||
| Accretion of deferred loan original issue discount and other discounts | ( | ( | |||||||||
| Amortization of deferred financing costs - revolving credit facility | |||||||||||
| Amortization of deferred financing costs - senior notes | |||||||||||
| Stock-based compensation | |||||||||||
| Payment-in-kind interest | ( | ( | |||||||||
| Changes in operating assets and liabilities: | |||||||||||
| Interest receivable | |||||||||||
| Prepaid expenses and other assets | ( | ||||||||||
| Accrued interest | |||||||||||
| Accrued management and incentive fees, net | ( | ( | |||||||||
| Accrued direct administrative expenses | ( | ( | |||||||||
| Accounts payable and other liabilities | ( | ||||||||||
| Net cash provided by (used in) operating activities of continuing operations | |||||||||||
| Net cash provided by (used in) operating activities of discontinued operations | |||||||||||
| Net cash provided by (used in) operating activities | |||||||||||
| Cash flows from investing activities: | |||||||||||
| Issuance of and fundings on loans | ( | ( | |||||||||
| Proceeds from sales of loans | |||||||||||
| Principal repayment of loans | |||||||||||
| Net cash provided by (used in) investing activities of continuing operations | |||||||||||
| Net cash (used in) provided by investing activities of discontinued operations | ( | ||||||||||
| Net cash provided by (used in) investing activities | |||||||||||
| Cash flows from financing activities: | |||||||||||
| Proceeds from sale of common stock | |||||||||||
| Payment of offering costs - equity offering | ( | ||||||||||
| Payment of financing costs | ( | ( | |||||||||
| Redemption of preferred shares | ( | ||||||||||
| Cash distribution in connection with the Spin-Off of SUNS | ( | ||||||||||
| Borrowings on revolving credit facilities | |||||||||||
| Repayments on revolving credit facilities | ( | ( | |||||||||
| Dividends paid to common and preferred shareholders | ( | ( | |||||||||
| Net cash (used in) provided by financing activities of continuing operations | ( | ( | |||||||||
| Net cash provided by (used in) financing activities of discontinued operations | |||||||||||
| Net cash (used in) provided by financing activities | ( | ( | |||||||||
5
| Net (decrease) increase in cash and cash equivalents | ( | ||||||||||
| Cash and cash equivalents, beginning of period | |||||||||||
| Cash and cash equivalents, end of period | $ | $ | |||||||||
| Supplemental disclosure of non-cash activity: | |||||||||||
| OID withheld from funding of loans | $ | $ | |||||||||
| Dividends declared and not yet paid | $ | $ | |||||||||
| Non-cash funding of new loan | $ | $ | |||||||||
| Non-cash net assets distribution in connection with the spin-off of SUNS | $ | $ | |||||||||
| Supplemental information: | |||||||||||
| Interest paid during the period | $ | $ | |||||||||
| Income taxes paid (net of refunds received) during the period | $ | $ | |||||||||
See accompanying notes to the consolidated financial statements
6
ADVANCED FLOWER CAPITAL INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
As of September 30, 2025
(unaudited)
1. ORGANIZATION
Advanced Flower Capital Inc. (the “Company” or “AFC”) is an institutional lender that was founded in July 2020 by a veteran team of investment professionals. The Company primarily originates, structures, underwrites, invests in and manages senior secured mortgage loans and other types of loans and debt securities, with a specialization in loans to cannabis industry operators in states that have legalized medical and/or adult-use cannabis.
The Company is a Maryland corporation and completed its initial public offering (the “IPO”) in March 2021. The Company is externally managed by AFC Management, LLC, a Delaware limited liability company (the “Manager”), pursuant to the terms of the Amended and Restated Management Agreement, dated January 14, 2021, between the parties (as amended from time to time, the “Management Agreement”). The Company’s wholly-owned subsidiary, AFCG TRS1, LLC, a Delaware limited liability company (“TRS1”), operates as a taxable real estate investment trust subsidiary (a “TRS”). TRS1 began operating in July 2021, and the financial statements of TRS1 are consolidated within the Company’s consolidated financial statements.
On July 9, 2024, the Company completed the spin-off (the “Spin-Off”) of the Company’s wholly-owned subsidiary, Sunrise Realty Trust, Inc. (“SUNS”), which held the Company’s commercial real estate (“CRE”) loan portfolio, into an independent, publicly traded REIT, SUNS. In connection with the Spin-Off, the operating results of the SUNS business through the date of the Spin-Off are reported in net income from discontinued operations, net of tax in the consolidated statements of operations for all periods presented. The related assets and liabilities are reported as assets and liabilities of discontinued operations on the consolidated balance sheets. Cash flows from the Company’s discontinued operations are presented as such in the consolidated statements of cash flows for all periods presented. Unless otherwise noted, all amounts and disclosures included in the notes to consolidated financial statements reflect only the Company’s continuing operations. For additional information, see Note 16, “Discontinued Operations.”
During the reporting period, the Company operated in one operating segment. The Company focused on senior secured loans to cannabis industry operators in states where medical and/or adult-use cannabis is legal. These loans are generally held for investment and are typically secured, directly or indirectly, by real estate, equipment, cash flows and the value associated with licenses (where applicable) and/or other assets of borrowers depending on the applicable laws and regulations governing such borrowers. The Company elected to be taxed as a real estate investment trust (“REIT”) for United States federal income tax purposes under the Internal Revenue Code of 1986, as amended (the “Code”). The Company generally will not be subject to United States federal income taxes on its REIT taxable income as long as it annually distributes all of its REIT taxable income prior to the deduction for dividends paid to shareholders and complies with various other requirements as a REIT.
At a meeting of the Board of Directors (the “Board”) on August 12, 2025 (the “August Meeting”), the Board approved the sixth amendment to the Company’s existing Management Agreement (the “Sixth Amendment”) to expand the Company’s investment strategy. Accordingly, under the Sixth Amendment, the Company expanded its investment strategy and intends to additionally originate, structure, underwrite, invest in and manage senior secured mortgage loans and other types of loans and debt securities to companies ancillary to the cannabis industry as well as companies outside of the cannabis industry. Businesses ancillary to the cannabis industry may include, but are not limited to, brand developers, business services providers, and equipment and consumables providers. The Company believes there are also attractive lending opportunities in companies ancillary to and outside of the cannabis industry that could generate attractive risk-adjusted returns. By expanding the investment mandate, the Company expects to be able to diversify its exposure across industries and credit risk profiles while maintaining deal selectivity. The Company may make investments in accordance with this expanded investment strategy to the extent consistent with maintaining its eligibility to continue to qualify as a REIT under the Code and maintain our exemption from registration under the Investment Company Act of 1940, as amended (“1940 Act”).
During the reporting period, the Company formed TCGDL LLC, a wholly-owned subsidiary of the Company, to facilitate direct lending transactions. As of the end of the reporting period, the subsidiary had no operations or balances. The Company anticipates that this subsidiary will be utilized in connection with direct lending activities that align with the Company’s long term strategic initiatives.
7
At the August Meeting, the Board also unanimously approved a series of matters intended to facilitate the conversion (the “Conversion”) of the Company from a REIT to a business development company (“BDC”). Among other things, the Board, including a majority of the directors who are not “interested persons” of the Company (as that term is defined under the 1940 Act) (the “Independent Directors”), approved a new, 1940 Act-compliant investment advisory agreement by and between the Company and the Manager, subject to the approval of the Company’s shareholders (the “Investment Advisory Agreement”).
On September 16, 2025, the Company filed a definitive proxy statement with the U.S. Securities and Exchange Commission (“SEC”) in connection with a special meeting of shareholders (the “Special Meeting”) held on November 6, 2025 for the purpose of seeking shareholder approval of certain proposals required to effect the Conversion, namely shareholder approvals of (i) the Investment Advisory Agreement between the Company and the Manager and (ii) the application of reduced asset coverage requirements pursuant to Section 61(a) of the 1940 Act (enabling the Company to utilize a greater degree of leverage than would otherwise be permitted) (the “Proposals”).
Subsequent to the end of the reporting period, on November 6, 2025, at the Special Meeting, the Company’s shareholders approved the Investment Advisory Agreement, which was necessary for the Company to be able to operate as a BDC under the 1940 Act. In the coming months, the Board will consider other matters required to effect the Conversion. There can be no assurance that the board will approve the matters required to effect the Conversion.
2. SIGNIFICANT ACCOUNTING POLICIES
The accompanying unaudited interim consolidated financial statements should be read in conjunction with the audited consolidated financial statements and results of operations included in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2024 filed with the SEC.
Refer to Note 2 to the Company’s Annual Report on Form 10-K for a description of the Company’s significant accounting policies. The Company has included disclosures below regarding basis of presentation and other accounting policies that (i) are required to be disclosed quarterly, (ii) have material changes or (iii) the Company views as critical as of the date of this report.
Basis of Presentation
The accompanying unaudited interim consolidated financial statements and related notes have been prepared on the accrual basis of accounting in conformity with accounting principles generally accepted in the United States of America (“GAAP”) and in conformity with the rules and regulations of the SEC applicable to interim financial information and include the accounts of the Company and its wholly-owned subsidiary. The unaudited interim consolidated financial statements reflect all adjustments that, in the opinion of management, are necessary for the fair presentation of the Company’s results of operations and financial condition as of and for the periods presented. All intercompany balances and transactions have been eliminated in consolidation.
The Company’s results of operations for the three and nine months ended September 30, 2025 are not necessarily indicative of the results that may ultimately be realized for the full fiscal year ending December 31, 2025.
BDC Conversion Expenses
Expenses associated with the Company’s election and subsequent conversion to be regulated as a BDC are expensed as incurred and include legal fees related to the proxy statement and special shareholder meeting in connection the BDC election, the entry into certain agreements relating to the BDC election and adoption of certain compliance policies and procedures relating to the BDC election. During the three and nine months ended September 30, 2025, the Company incurred approximately $0.6 million and $0.8 million in expenses related to the Conversion, respectively, which are recorded within BDC conversion expenses line item in the Company’s consolidated statements of operations.
Use of Estimates in the Preparation of Financial Statements
The preparation of consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect certain reported amounts and disclosures. Actual results could differ from those estimates. Significant estimates include the valuation of loans held for investment at fair value and current expected credit losses reserve (“CECL Reserve”).
8
Recent Accounting Pronouncements
The Company is an “emerging growth company,” as defined in the Jumpstart Our Business Startups Act (“JOBS Act”). Section 107 of the JOBS Act provides that an “emerging growth company” can take advantage of the extended transition period provided in Section 7(a)(2)(B) of the Securities Act for complying with new or revised accounting standards. In other words, an “emerging growth company” can delay the adoption of certain accounting standards until those standards would otherwise apply to private companies. The Company has elected to take advantage of this extended transition period. As a result, the Company will not be subject to the same implementation timing for new or revised accounting standards as other public companies that are not emerging growth companies, which may make comparison of the Company’s financials to those of other public companies more difficult.
In December 2023, the FASB issued ASU 2023-09—Income Taxes (Topic 740): Improvements to Income Tax Disclosures (“ASU 2023-09”). ASU 2023-09 improves the transparency of income tax disclosures related to rate reconciliation and income taxes. ASU 2023-09 is effective for annual periods beginning after December 15, 2024. For entities other than public business entities, the amendments are effective for annual periods beginning after December 15, 2025. Early adoption is permitted for annual financial statements that have not yet been issued or made available for issuance. The amendments should be applied prospectively, however, retrospective application is permitted. The adoption of ASU 2023-09 is not expected to have a material impact on the Company’s consolidated financial statements.
In November 2024, the FASB issued ASU 2024-03—Income Statement—Reporting Comprehensive Income—Expense Disaggregation Disclosures (Subtopic 220-40): Disaggregation of Income Statement Expenses (“ASU 2024-03”) and in January 2025, the FASB issued ASU 2025-01—Income Statement—Reporting Comprehensive Income—Expense Disaggregation Disclosures (Subtopic 220-40): Clarifying the Effective Date (“ASU 2025-01”), which requires additional disclosure of the nature of expenses included in the income statement as well as disclosures about specific types of expenses included in the expense captions presented in the income statement. ASU 2024-03, as clarified by ASU 2025-01, is effective for fiscal years beginning after December 15, 2026 and interim periods within fiscal years beginning after December 15, 2027, with early adoption permitted. The adoption of ASU 2024-03 is not expected to have a material impact on the Company’s consolidated financial statements.
3. LOANS HELD FOR INVESTMENT AT FAIR VALUE
As of September 30, 2025 and December 31, 2024, the Company’s portfolio included one 42.3 million and $44.4 million, respectively, and outstanding principal was approximately $51.0 million and $53.1 million as of September 30, 2025 and December 31, 2024, respectively. For the nine months ended September 30, 2025, the Company received approximately $2.1 million of principal repayments of loans held at fair value. As of September 30, 2025 and December 31, 2024, the Company’s loan held at fair value did not have a floating interest rate.
The following tables summarize the Company’s loans held at fair value as of September 30, 2025 and December 31, 2024:
| As of September 30, 2025 | |||||||||||||||||||||||
Fair Value(1) | Carrying Value(2) | Outstanding Principal(2) | Weighted Average Remaining Life (Years)(3) | ||||||||||||||||||||
| Senior term loan | $ | $ | $ | ||||||||||||||||||||
| Total loan held at fair value | $ | $ | $ | ||||||||||||||||||||
9
| As of December 31, 2024 | |||||||||||||||||||||||
Fair Value(1) | Carrying Value(2) | Outstanding Principal(2) | Weighted Average Remaining Life (Years)(3) | ||||||||||||||||||||
| Senior term loan | $ | $ | $ | ||||||||||||||||||||
| Total loan held at fair value | $ | $ | $ | ||||||||||||||||||||
(1)Refer to Note 13.
(2)The difference between the carrying value and the outstanding principal amount of the loans consists of unaccreted original issue discount (“OID”) and loan origination costs.
(3)As of September 30, 2025 and December 31, 2024, the maturity date passed on the credit facility with Private Company A without repayment.
The following table presents changes in loans held at fair value as of and for the nine months ended September 30, 2025:
| Principal | Original Issue Discount | Unrealized Gains (Losses) | Fair Value | ||||||||||||||||||||
| Total loan held at fair value at December 31, 2024 | $ | $ | ( | $ | ( | $ | |||||||||||||||||
| Change in unrealized gains (losses) on loans at fair value, net | — | — | ( | ( | |||||||||||||||||||
| Loan repayments | ( | — | — | ( | |||||||||||||||||||
| Total loan held at fair value at September 30, 2025 | $ | $ | ( | $ | ( | $ | |||||||||||||||||
As of September 30, 2025 and December 31, 2024, the Company had one 51.0 million and an unrealized loss of approximately $(31.2 ) million. During the three and nine months ended September 30, 2025, approximately $0.2 million and $2.1 million of payments were received and applied as a reduction to the amortized cost of the Private Company A loan, respectively.
A more detailed listing of the Company’s loan held at fair value portfolio based on information available as of September 30, 2025 is as follows:
| Collateral Location | Collateral Type (1) | Fair Value (2) | Carrying Value (3) | Outstanding Principal (3) | Interest Rate | Maturity Date (4) | Payment Terms (5) | ||||||||||||||||||||||||||||||||||||||||
| Private Co. A | AZ, MA, NM | C, D | $ | $ | $ | (6) | 5/8/2024 | I/O | |||||||||||||||||||||||||||||||||||||||
| Total loan held at fair value | $ | $ | $ | ||||||||||||||||||||||||||||||||||||||||||||
(1)C = Cultivation Facilities, D = Dispensary/Retail Facilities.
(2)Refer to Note 13.
(3)The difference between the carrying value and the outstanding principal amount of the loans consists of OID and loan origination costs.
(4)Certain loans are subject to contractual extension options and may be subject to performance based or other conditions as stipulated in the loan agreement. Actual maturities may differ from contractual maturities stated herein as certain borrowers may have the right to prepay with or without paying a prepayment penalty. The Company may also extend contractual maturities and amend other terms of the loans in connection with loan modifications.
(5)I/O = interest-only, P/I = principal and interest. P/I loans may include interest-only periods for a portion of the loan term.
(6)Base weighted average interest rate of 13.0 % and payment-in-kind (“PIK”) weighted average interest rate of 2.5 %. In October 2023, AFC Agent LLC (“AFC Agent”) delivered a notice of default to Private Company A based on certain financial and other covenant defaults and began charging additional default interest of 5.0 %, beginning as of July 1, 2023, in accordance with the terms of the Private Company A Credit Facility. Effective March 1, 2024, the Company placed the borrower on nonaccrual
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status. The maturity date passed on the credit facility to Private Company A without repayment. In November 2023, Private Company A was placed into receivership to maintain the borrower’s operations and maximize value for the benefit of its creditors. The court-appointed receiver is determining the amount of principal payments the borrower is able to repay on a monthly basis either from operations or from sale of collateral assets.
4. LOANS HELD FOR INVESTMENT AT CARRYING VALUE
As of September 30, 2025 and December 31, 2024, the Company’s portfolio included 13 and 14 loans held at carrying value, respectively. As of September 30, 2025 and December 31, 2024, the aggregate originated commitment under these loans was approximately $302.3 million and $312.8 million, respectively, and outstanding principal was approximately $281.8 million and $301.8 million, respectively. During the nine months ended September 30, 2025, the Company funded approximately $40.7 million of new loans and additional principal and had approximately $61.0 million of principal repayments of loans held at carrying value. As of September 30, 2025 and December 31, 2024, approximately 44 % and 52 %, respectively, of the Company’s loans held at carrying value had floating interest rates. As of September 30, 2025, these floating benchmark rates included one-month Secured Overnight Financing Rate (“SOFR”) quoted at 4.1 % and subject to a weighted average floor of 4.3 % based on outstanding principal.
The following tables summarize the Company’s loans held at carrying value as of September 30, 2025 and December 31, 2024:
| As of September 30, 2025 | |||||||||||||||||||||||
Outstanding Principal(1) | Original Issue Discount | Carrying Value(1) | Weighted Average Remaining Life (Years)(2) | ||||||||||||||||||||
| Senior term loans | $ | $ | ( | $ | |||||||||||||||||||
| Total loans held at carrying value | $ | $ | ( | $ | |||||||||||||||||||
| As of December 31, 2024 | |||||||||||||||||||||||
Outstanding Principal(1) | Original Issue Discount | Carrying Value(1) | Weighted Average Remaining Life (Years)(2) | ||||||||||||||||||||
| Senior term loans | $ | $ | ( | $ | |||||||||||||||||||
| Total loans held at carrying value | $ | $ | ( | $ | |||||||||||||||||||
(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 September 30, 2025 and December 31, 2024.
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The following table presents changes in loans held at carrying value as of and for the nine months ended September 30, 2025:
| Principal | Original Issue Discount | Carrying Value | |||||||||||||||
| Total loans held at carrying value at December 31, 2024 | $ | $ | ( | $ | |||||||||||||
| New fundings | ( | ||||||||||||||||
| Accretion of original issue discount | — | ||||||||||||||||
| Loan repayments | ( | — | ( | ||||||||||||||
| PIK interest | — | ||||||||||||||||
| Loan amortization payments | ( | — | ( | ||||||||||||||
| Total loans held at carrying value at September 30, 2025 | $ | $ | ( | $ | |||||||||||||
As of September 30, 2025 and December 31, 2024, the Company had three and two loans held at carrying value on nonaccrual status, respectively, with a total amortized cost of approximately $104.2 million and $89.3 million, respectively. During the three and nine months ended September 30, 2025, the Company recognized interest income of zero and $0.7 million on loans on nonaccrual status.
The Company placed the loan with Private Company P on nonaccrual status effective June 1, 2025. In July 2025, AFC Agent delivered a notice of default and acceleration to Private Company P based on certain payment defaults, including the failure to make its interest payment when due on July 1, 2025. As of September 30, 2025, the loan with Private Company P had an outstanding principal amount of approximately $15.6 million and amortized cost of $15.3 million. In November 2025, the Company and AFC Agent entered into a mutual release and settlement agreement with Private Company P and other related parties to resolve various claims and counterclaims among the parties relating to, among other things, the Company’s credit facility with Private Company P and the underlying loan collateral. See further discussion in “Note 18—Subsequent Events”.
The Company placed Subsidiary of Private Company G on nonaccrual status effective December 1, 2023. As of September 30, 2025, the loan with Subsidiary of Private Company G had an outstanding principal amount of approximately $78.9 million and an amortized cost of approximately $77.4 million, respectively. During the three and nine months ended September 30, 2025, the Company recognized interest income of zero and approximately $0.7 million related to this loan, which was received in cash. As full recovery of principal and accrued interest is doubtful, future cash receipts received in accordance with terms of the forbearance agreement are accounted for under the cost recovery method. During the three and nine months ended September 30, 2025, zero and approximately $0.3 million of contractual interest payments were received and applied as a reduction to this loan’s amortized cost, respectively.
The Company placed Private Company K on nonaccrual status effective December 1, 2023, with an outstanding principal amount of approximately $12.2 million and an amortized cost of approximately $11.5 million as of September 30, 2025. During the three and nine months ended September 30, 2025, the Company recognized no
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A more detailed listing of the Company’s loans held at carrying value portfolio based on information available as of September 30, 2025 is as follows:
| Collateral Location | Collateral Type (1) | Outstanding Principal (2) | Original Issue Discount | Carrying Value (2) | Interest Rate | Maturity Date (3) | Payment Terms (4) | ||||||||||||||||||||||||||||||||||||||||
| Sub. of Private Co. G | NJ, PA | C, D | $ | $ | ( | $ | % | (5) | 5/1/2026 | I/O | |||||||||||||||||||||||||||||||||||||
| Private Co. K | MA | C, D | ( | % | (6) | 5/3/2027 | P/I | ||||||||||||||||||||||||||||||||||||||||
| Private Co. L | OH | C, D | ( | % | (7) | 5/1/2026 | P/I | ||||||||||||||||||||||||||||||||||||||||
| Private Co. M | AZ | D | ( | % | (8) | 7/31/2026 | P/I | ||||||||||||||||||||||||||||||||||||||||
| Private Co. N - Real Estate | FL | C, D | ( | % | (9) | 4/1/2028 | P/I | ||||||||||||||||||||||||||||||||||||||||
| Private Co. N - Non-Real Estate | FL | C, D | ( | % | (10) | 4/1/2028 | P/I | ||||||||||||||||||||||||||||||||||||||||
| Private Co. O | AZ, MD, MO, NJ, NV, NY, OH, OR, Canada | C | ( | % | (11) | 6/1/2028 | P/I | ||||||||||||||||||||||||||||||||||||||||
| Private Co. P | MI | C, D | ( | % | (12) | 7/1/2027 | P/I | ||||||||||||||||||||||||||||||||||||||||
| Private Co. Q | GA | C, D | ( | % | (13) | 9/1/2028 | P/I | ||||||||||||||||||||||||||||||||||||||||
| Private Co. R | MD | C, D | ( | % | (14) | 11/1/2027 | P/I | ||||||||||||||||||||||||||||||||||||||||
| Private Co. U | GA, OH | C, D | ( | % | (15) | 3/1/2028 | P/I | ||||||||||||||||||||||||||||||||||||||||
| Sub of Private Co. V | MO, OH, UT | C, D | ( | % | (16) | 4/1/2029 | P/I | ||||||||||||||||||||||||||||||||||||||||
| Sub. of Public Co. S | FL, IL, MA, NY, OH, PA | C, D | ( | % | (17) | 8/13/2030 | I/O | ||||||||||||||||||||||||||||||||||||||||
| Total loans held at carrying value | $ | $ | ( | $ | |||||||||||||||||||||||||||||||||||||||||||
(1)For cannabis operators, C = Cultivation Facilities, D = Dispensary/Retail Facilities.
(2)The difference between the carrying value and the outstanding principal amount of the loans consists of unaccreted OID and loan origination costs.
(3)Certain loans are subject to contractual extension options and may be subject to performance based or other conditions as stipulated in the loan agreement. Actual maturities may differ from contractual maturities stated herein as certain borrowers may have the right to prepay with or without paying a prepayment penalty. The Company may also extend contractual maturities and amend other terms of the loans in connection with loan modifications.
(4)I/O = interest-only, P/I = principal and interest. P/I loans may include interest-only periods for a portion of the loan term.
(5)Base interest rate of 12.5 %. Effective December 1, 2023, the Company placed the borrower on nonaccrual status.
(6)Base interest rate of 12.0 % plus SOFR (SOFR floor of 1.0 %) and PIK interest rate of 2.0 %. Effective December 1, 2023, the Company placed the borrower on nonaccrual status.
(7)Base interest rate of 8.0 % plus SOFR (SOFR floor of 5.0 %).
(8)Base interest rate of 9.0 %.
(9)Base interest rate of 8.0 % plus SOFR (SOFR floor of 4.5 %).
(10)Base interest rate of 8.0 % plus SOFR (SOFR floor of 4.5 %).
(11)Base interest rate of 8.5 % plus SOFR (SOFR floor of 5.0 %).
(12)Base interest rate of 13.0 %. Effective June 1, 2025, the Company placed the borrower on nonaccrual status.
(13)Base interest rate of 8.75 % plus SOFR (SOFR floor of 5.0 %).
(14)Base interest rate of 7.5 % plus SOFR (SOFR floor of 4.5 %).
(15)Base interest rate of 14.0 %.
(16)Base interest rate of 12.5 % and PIK interest rate of 1.5 %.
(17)Base interest rate of 12.5 %.
5. LOAN RECEIVABLE HELD AT CARRYING VALUE
As of September 30, 2025 and December 31, 2024, the Company’s portfolio included zero and one loan receivable held at carrying value. The originated commitment under this loan was $4.0 zero and $1.9
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million as of September 30, 2025 and December 31, 2024, respectively. During the nine months ended September 30, 2025, the Company received $0.1 million of principal repayments of loan receivable held at carrying value.
The following table presents changes in loans receivable as of and for the nine months ended September 30, 2025:
| Principal | Original Issue Discount | Carrying Value | |||||||||||||||
| Total loan receivable held at carrying value at December 31, 2024 | $ | $ | ( | $ | |||||||||||||
| Loan repayments | ( | — | ( | ||||||||||||||
| Loan write-off | ( | ( | |||||||||||||||
| Total loan receivable held at carrying value at September 30, 2025 | $ | $ | $ | ||||||||||||||
Effective October 1, 2022, the Company placed Public Company A equipment loan receivable on nonaccrual status. During the three and nine months ended September 30, 2025, the Company recognized no 1.8 million and amortized cost of approximately $1.8 million. Based on discussions with the collateral agent, no other proceeds were expected and the Company deemed the remaining balance on the loan with Public Company A to be uncollectible. Prior to the write-off, the loan receivable had a CECL Reserve that was fully reserved for. During the second quarter of 2025, the Company wrote off $1.8 million, which was equal to the carrying value of the loan receivable, excluding the CECL Reserve at the time the loan was written off.
6. CURRENT EXPECTED CREDIT LOSSES
As of September 30, 2025 and December 31, 2024, the Company’s CECL Reserve for its loans held at carrying value and loan receivable held at carrying value was approximately $51.3 million and $30.6 million, respectively, or 18.69 % and 10.36 %, respectively, of the Company’s total loans held at carrying value and loan receivable held at carrying value of approximately $274.7 million and $295.2 million, respectively, and is bifurcated between the current expected credit loss reserve (contra-asset) related to outstanding balances on loans held at carrying value and loan receivable held at carrying value of approximately $51.2 million and $30.4 million, respectively, and a liability for unfunded commitments of approximately $0.2 million and $0.2 million, respectively. The liability was based on the unfunded portion of the loan commitment over the full contractual period over which the Company is exposed to credit risk through a current obligation to extend credit. Management considered the likelihood that funding will occur and, if funded, the expected credit loss on the funded portion when determining the amount to allocate to its CECL Reserve.
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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 loan receivable held at carrying value as of and for the three and nine months ended September 30, 2025 was as follows:
Outstanding (1) | Unfunded (2) | Total | |||||||||||||||
| Balance at June 30, 2025 | $ | $ | $ | ||||||||||||||
| Provision for (reversal of) current expected credit losses | |||||||||||||||||
| Write-offs | |||||||||||||||||
| Recoveries | |||||||||||||||||
| Balance at September 30, 2025 | $ | $ | $ | ||||||||||||||
Outstanding (1) | Unfunded (2) | Total | |||||||||||||||
| Balance at December 31, 2024 | $ | $ | $ | ||||||||||||||
| Provision for (reversal of) current expected credit losses | ( | ||||||||||||||||
| Write-offs | ( | ( | |||||||||||||||
| Recoveries | |||||||||||||||||
| Balance at September 30, 2025 | $ | $ | $ | ||||||||||||||
(1)As of September 30, 2025 and December 31, 2024, the CECL Reserve related to outstanding balances on loans held at carrying value and loan receivable held at carrying value is recorded within current expected credit loss reserve in the Company’s consolidated balance sheets.
(2)As of September 30, 2025 and December 31, 2024, the CECL Reserve related to unfunded commitments on loans held at carrying value is recorded within current expected credit loss reserve as a liability in the Company’s consolidated balance sheets.
The Company continuously evaluates the credit quality of each loan by assessing the risk factors of each loan and assigning a risk rating based on a variety of factors. Such factors may include property type, geographic and local market dynamics, physical condition, projected cash flow, loan structure and exit plan, loan-to-value ratio, fixed charge coverage ratio, project sponsorship, and other factors deemed necessary by the Company. Based on a 5-point scale, the Company’s loans are rated “1” through “5,” from less risk to greater risk, which ratings are defined as follows:
| Rating | Definition | ||||
| 1 | Very Low Risk — Materially exceeds performance metrics included in original or current credit underwriting and business plan | ||||
| 2 | Low Risk — Collateral and business performance exceeds substantially all performance metrics included in original or current credit underwriting and business plan | ||||
| 3 | Medium Risk — Collateral and business performance meets, or is on track to meet underwriting expectations; business plan is met or can reasonably be achieved | ||||
| 4 | High Risk/ Potential for Loss — Collateral performance falls short of underwriting, material differences from business plans, defaults may exist, or may soon exist absent material improvement. Risk of recovery of interest exists | ||||
| 5 | Impaired/ Loss Likely — Performance is significantly worse than underwriting with major variances from business plan observed. Loan covenants or financial milestones have been breached; exit from loan or refinancing is uncertain. Full recovery of principal is unlikely | ||||
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The risk ratings are primarily based on historical data as well as taking into account future economic conditions.
As of September 30, 2025, the carrying value, excluding the CECL Reserve, of the Company’s loans held at carrying value and loan receivable held at carrying value within each risk rating by year of origination is as follows:
| Risk Rating: | 2025 | 2024 | 2023 | 2022 | 2021 | 2020 | Total | ||||||||||||||||||||||||||||||||||
| 1 | $ | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||||||||||||||||
| 2 | |||||||||||||||||||||||||||||||||||||||||
| 3 | |||||||||||||||||||||||||||||||||||||||||
| 4 | |||||||||||||||||||||||||||||||||||||||||
| 5 | |||||||||||||||||||||||||||||||||||||||||
| Total | $ | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||||||||||||||||
| Gross write-offs | $ | $ | $ | $ | $ | $ | ( | $ | ( | ||||||||||||||||||||||||||||||||
During the nine months ended September 30, 2025, the Company deemed its equipment loan receivable with Public Company A uncollectible and wrote off the remaining balance. At the time of write-off, the equipment loan with Public Company A had an outstanding principal balance of approximately $1.8 million and amortized cost of approximately $1.8 million. Prior to the write-off, the loan receivable had a risk rating of “5” and was fully reserved for. In the second quarter of 2025, the Company wrote off $1.8 million, which was equal to the carrying value of the loan receivable, excluding the CECL Reserve at the time the loan was written off. Refer to Note 5 for more information.
7. INTEREST RECEIVABLE
The following table summarizes the interest receivable by the Company as of September 30, 2025 and December 31, 2024:
| As of September 30, 2025 | As of December 31, 2024 | ||||||||||
| Interest receivable | $ | $ | |||||||||
| PIK receivable | |||||||||||
| Unused fees receivable | |||||||||||
| Total interest receivable | $ | $ | |||||||||
8. DEBT
Revolving Credit Facility
On April 29, 2022, the Company entered into the Loan and Security Agreement (the “Revolving Credit Agreement”) by and among the Company, the other loan parties from time to time party thereto, the lenders party thereto, and the lead arranger, bookrunner and administrative agent party thereto, pursuant to which, the Company obtained a $60.0 million senior secured revolving credit facility (as amended from time to time, the “Revolving Credit Facility”). The Revolving Credit Facility’s initial maturity date of April 29, 2025 was extended to April 29, 2028 under Amendment Number Four to the Revolving Credit Agreement, as described further below.
The Revolving Credit Facility contains aggregate commitments of $60.0 million from two FDIC-insured banking institutions (which may be increased up to $100.0 million in aggregate, subject to available borrowing base and additional commitments) which may be borrowed, repaid and redrawn, subject to a borrowing base based on eligible loan obligations held by the Company and subject to the satisfaction of other conditions provided under the Revolving Credit Agreement. Interest is payable on the Revolving Credit Facility at the greater of (1) the applicable base rate plus 0.50 % and (2) 4.50 %, as provided in the Revolving Credit Agreement, payable in cash in arrears. In connection with entering the Revolving Credit Agreement, the Company incurred a one-time commitment fee expense of approximately $0.5 million, which was included in prepaid expenses and other assets on the Company’s consolidated balance sheets and amortized over the life of the facility. The Company is required to pay certain fees to the agent and the lenders under the Revolving Credit Agreement, including a $75.0 thousand agent fee payable to the agent and a 0.25 % per annum loan fee payable ratably to the lenders, in each case, payable on the closing date and on the annual anniversary thereafter. Commencing on the six-
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month anniversary of the closing date, the Revolving Credit Facility has an unused line fee of 0.25 % per annum, payable semi-annually in arrears, which is included within interest expense in the Company’s unaudited interim consolidated statements of operations. Based on the terms of the Revolving Credit Agreement, the unused line fee is waived if our average revolver usage exceeds the minimum amount required per the Revolving Credit Agreement. During the three and nine months ended September 30, 2025, the Company incurred an unused line fee of approximately $28.6 thousand and $103.1 thousand, respectively.
The obligations of the Company under the Revolving Credit Facility are secured by certain assets of the Company comprising of or relating to loan obligations designated for inclusion in the borrowing base. In addition, the Company is subject to various financial and other covenants, including: (1) liquidity of at least $5.0 million, (2) annual debt service coverage of at least 1.5 to 1.0 and (3) secured debt not to exceed 25 % of total consolidated assets of the Company and its subsidiaries. To the best of our knowledge, as of September 30, 2025, we were in compliance in all material respects with all covenants contained in our Revolving Credit Agreement.
In January 2025, the Company entered into Amendment Number Three to Loan and Security Agreement, by and among the Company, as borrower, the lenders party thereto, and the lead arranger, bookrunner and administrative agent party thereto, pursuant to which, among other things, the parties agreed to reduce the procedural requirements for obligor loan receivables to become eligible under the borrowing base.
In April 2025, the Company entered into Amendment Number Four to Loan and Security Agreement (“Amendment Number Four”), by and among the Company, as borrower, the lenders party thereto, and the lead arranger, bookrunner and administrative agent party thereto. Amendment Number Four, among other things, (i) extends the maturity date of the Revolving Credit Agreement to April 29, 2028, (ii) increases the interest rate floor from 4.00 % to 7.00 %, (iii) permits certain restricted payments to be made upon the Company meeting certain terms and conditions, and (iv) expands the collateral secured under the Revolving Credit Agreement from assets comprising of or relating to loan obligations designed for inclusion in the borrower base to substantially all of the Company’s and its subsidiaries’ assets. In connection with the amendment, the Revolving Credit Facility has a lead commitment of $30.0 million from a FDIC-insured banking institution (which may be increased up to $100.0 million in aggregate, subject to available borrowing base and additional commitments) which may be borrowed, repaid and redrawn, subject to a borrowing base based on eligible loan obligations held by the Company and subject to the satisfaction of other conditions provided under the Revolving Credit Facility.
In June 2025, the Company entered into Amendment Number Five to the Loan and Security Agreement (“Amendment Number Five”), by and among the Company, as borrower, the lenders party thereto, and the lead arranger, bookrunner and administrative party thereto. Amendment Number Five among other things increased the commitment from the lenders by $20.0 million to a total aggregate commitment of $50.0 million.
Interest is payable on the Revolving Credit Facility at the greater of (1) the applicable base rate plus 0.50 % and (2) 7.00 %, as provided in the Revolving Credit Agreement, as amended, payable in cash in arrears. In connection with the Revolving Credit Agreement and related amendments, the Company incurred certain closing costs of approximately $0.1 million, which were included in prepaid expenses and other assets on the Company’s consolidated balance sheets and amortized over the life of the Revolving Credit Facility.
As of September 30, 2025 and December 31, 2024, outstanding borrowings under the Revolving Credit Facility were $22.0 million and $60.0 million, respectively, and $28.0 million and zero were available for borrowing as of September 30, 2025 and December 31, 2024, respectively. As of September 30, 2025 and December 31, 2024, the interest rate on the Company’s borrowings under the Revolving Credit Facility was 7.75 % and 8.00 %, respectively.
AFCF Credit Facility
In December 2024, the Company entered into an unsecured revolving credit agreement (the “AFCF Credit Agreement”), by and among the Company, as borrower, the lenders party thereto from time to time, and AFC Finance, LLC, as agent and lender. AFC Finance, LLC is wholly owned by Leonard M. Tannenbaum, Chairman of the Company’s Board of Directors. The AFCF Credit Agreement provides for an unsecured revolving credit facility (the “AFCF Credit Facility”) with a $40.0 million commitment, which may be borrowed, repaid and redrawn, subject to a draw fee and the other conditions provided in the AFCF Credit Agreement. Interest is payable on the AFCF Credit Facility at a rate per annum equal to 8.00 %. The AFCF Credit Facility matures on the earlier of (i) December 31, 2025 and (ii) the date of the closing of any unsecured debt with principal of at least $40.0 million used to refinance the AFCF Credit Agreement.
In April 2025, in conjunction with the entry by the Company into Amendment Number Four to the Revolving Credit Agreement, the Company terminated that certain AFCF Credit Agreement, by and among the Company, as borrower, the
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lenders party thereto from time to time, and AFC Finance, LLC, as agent and lender. There were no outstanding borrowings under the AFCF Credit Agreement at the time of its termination.
As December 31, 2024, outstanding borrowings under the AFCF Credit Facility were $40.0 million and no amounts available for borrowing. As of September 30, 2025, the AFCF Credit Facility had been terminated and no
2027 Senior Notes
On November 3, 2021, the Company issued $100.0 million in aggregate principal amount of senior unsecured notes due in May 2027 (the “2027 Senior Notes”). The 2027 Senior Notes accrue interest at a rate of 5.75 % per annum. Interest on the 2027 Senior Notes is due semi-annually on May 1 and November 1 of each year, which began on May 1, 2022. The net proceeds from the offering were approximately $97.0 million, after deducting the initial purchasers’ discounts and commissions and estimated offering fees and expenses payable by the Company. The Company used the proceeds from the issuance of the 2027 Senior Notes (i) to fund loans related to unfunded commitments to existing borrowers, (ii) to originate and participate in commercial loans to companies operating in the cannabis industry that are consistent with the Company’s investment strategy and (iii) for working capital and other general corporate purposes. The terms of the 2027 Senior Notes are governed by an indenture, dated November 3, 2021, among us, as issuer, and TMI Trust Company, as trustee (the “Indenture”).
Under the Indenture, the Company is required to cause all of its existing and future subsidiaries to guarantee the 2027 Senior Notes, other than certain immaterial subsidiaries as set forth in the Indenture. TRS1 is currently a subsidiary guarantor under the Indenture.
Prior to February 1, 2027, the Company may redeem the 2027 Senior Notes in whole or in part, at a price equal to the greater of 100 % of the principal amount of the 2027 Senior Notes being redeemed or a make-whole premium set forth in the Indenture, plus accrued and unpaid interest thereon to, but excluding, the applicable redemption date. On or after February 1, 2027, we may redeem the 2027 Senior Notes in whole or in part at a price equal to 100 % of the principal amount of the 2027 Senior Notes being redeemed, plus accrued and unpaid interest, if any, to, but excluding, the applicable redemption date. The Indenture also requires us to offer to purchase all of the 2027 Senior Notes at a purchase price equal to 101 % of the principal amount of the 2027 Senior Notes, plus accrued and unpaid interest if a “change of control triggering event” (as defined in the Indenture) occurs.
The Indenture contains customary terms and restrictions, subject to a number of exceptions and qualifications, including restrictions on the Company’s ability to (1) incur additional indebtedness unless the Annual Debt Service Charge (as defined in the Indenture) is no less than 1.5 to 1.0, (2) incur or maintain total debt in an aggregate principal amount greater than 60 % of the Company’s consolidated Total Assets (as defined in the Indenture), (3) incur or maintain secured debt in an aggregate principal amount greater than 25 % of the Company’s consolidated Total Assets (as defined in the Indenture), and (4) merge, consolidate or sell substantially all of the Company’s assets. In addition, the Indenture also provides for customary events of default. If any event of default occurs, any amount then outstanding under the Indenture may immediately become due and payable. These events of default are subject to a number of important exceptions and qualifications set forth in the Indenture.
As of September 30, 2025 and December 31, 2024, the Company had $90.0
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The 2027 Senior Notes are due on May 1, 2027. Scheduled principal payments on the 2027 Senior Notes as of September 30, 2025 are as follows:
| 2027 Senior Notes | |||||
| Year | |||||
| 2025 (remaining) | $ | ||||
| 2026 | |||||
| 2027 | |||||
| 2028 | |||||
| 2029 | |||||
| Thereafter | |||||
| Total principal | |||||
| Deferred financing costs included in senior notes payable | ( | ||||
| Senior notes payable, net | $ | ||||
The following tables reflect a summary of interest expense incurred during the three and nine months ended September 30, 2025 and 2024:
| Three months ended September 30, 2025 | |||||||||||||||||||||||
| 2027 Senior Notes | Revolving Credit Facility | AFCF Credit Facility | Total | ||||||||||||||||||||
| Interest expense | $ | $ | $ | $ | |||||||||||||||||||
| Unused fee expense | |||||||||||||||||||||||
| Amortization of deferred financing costs | |||||||||||||||||||||||
| Total interest expense | $ | $ | $ | $ | |||||||||||||||||||
| Three months ended September 30, 2024 | |||||||||||||||||||||||
| 2027 Senior Notes | Revolving Credit Facility | AFCF Credit Facility | Total | ||||||||||||||||||||
| Interest expense | $ | $ | $ | $ | |||||||||||||||||||
| Unused fee expense | |||||||||||||||||||||||
| Amortization of deferred financing costs | |||||||||||||||||||||||
| Total interest expense | $ | $ | $ | $ | |||||||||||||||||||
| Nine months ended September 30, 2025 | |||||||||||||||||||||||
| 2027 Senior Notes | Revolving Credit Facility | AFCF Revolving Credit Facility | Total Borrowings | ||||||||||||||||||||
| Interest expense | $ | $ | $ | $ | |||||||||||||||||||
| Unused fee expense | |||||||||||||||||||||||
| Amortization of deferred financing costs | |||||||||||||||||||||||
| Total interest expense | $ | $ | $ | $ | |||||||||||||||||||
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| Nine months ended September 30, 2024 | |||||||||||||||||||||||
| 2027 Senior Notes | Revolving Credit Facility | AFCF Revolving Credit Facility | Total Borrowings | ||||||||||||||||||||
| Interest expense | $ | $ | $ | $ | |||||||||||||||||||
| Unused fee expense | |||||||||||||||||||||||
| Amortization of deferred financing costs | |||||||||||||||||||||||
| Total interest expense | $ | $ | $ | $ | |||||||||||||||||||
9. COMMITMENTS AND CONTINGENCIES
As of September 30, 2025 and December 31, 2024, the Company had the following commitments to fund various investments:
| As of September 30, 2025 | As of December 31, 2024 | |||||||||||||
| Total loan commitments | $ | $ | ||||||||||||
| Less: drawn commitments | ( | ( | ||||||||||||
| Total undrawn commitments | $ | $ | ||||||||||||
The Company from time to time may be a party to litigation or other legal proceedings relating to claims arising from the ordinary course of business. As of September 30, 2025, the Company was not subject to any material pending legal proceedings to which the Company is a party or any of the Company’s assets are subject that could materially impact its business, financial condition or results of operations.
The Company provides loans to companies operating in the cannabis industry which involves significant risks, including the risk of strict enforcement against the Company’s borrowers on the federal illegality of cannabis, the Company’s borrowers’ inability to renew or otherwise maintain their licenses or other requisite authorizations for their cannabis operations, and such loans lack of liquidity, and the Company could lose all or part of any of the Company’s loans.
The Company’s ability to grow or maintain its business with respect to the loans it makes to companies operating in the cannabis industry depends on state laws pertaining to the cannabis industry. New laws that are adverse to the Company’s borrowers may be enacted, and current favorable state or national laws or enforcement guidelines relating to cultivation, production and distribution of cannabis may be modified or eliminated in the future, which would impede the Company’s ability to grow and could materially adversely affect the Company’s business.
Management’s plan to mitigate risks include monitoring the legal landscape as deemed appropriate. Also, should a loan default or otherwise be seized, the Company may be prohibited from owning cannabis assets and thus could not take possession of collateral, in which case the Company would look to sell the loan, which could result in the Company realizing a loss on the transaction.
10. SHAREHOLDERS’ EQUITY
Series A Preferred Stock
As of September 30, 2025 and December 31, 2024, the Company authorized 10,000 125 of the preferred shares designated as 12.0 0.01 zero
The Series A Preferred Stock entitles the holders thereof to receive cumulative cash dividends at a rate per annum of 12.0 1,000
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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 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
In June 2024, the Company redeemed all 125 outstanding shares of its Series A Preferred Stock. The Series A Preferred Stock was redeemed at a price of $1,000 per share, plus all accrued and unpaid dividends thereon to and including the date fixed for redemption. There were no accrued and unpaid dividends at the time of redemption.
Common Stock
As of September 30, 2025 and December 31, 2024, the Company authorized 50,000,000 0.01 22,594,541 22,332,927
During the three and nine months ended September 30, 2025 and the year ended December 31, 2024, the Company did not
Shelf Registration Statement
On April 5, 2022, the Company filed a shelf registration statement on Form S-3 (File No. 333-264144) (the “Prior Shelf Registration Statement”), which was declared effective on April 18, 2022. Under the Prior Shelf Registration Statement, the Company was able, from time to time, issue and sell up to $1.0 billion of the Company’s common stock, preferred stock, debt securities, warrants and rights (including as part of a unit) to purchase shares of the Company’s common stock or preferred stock. The Prior Shelf Registration Statement expired on April 18, 2025.
On April 17, 2025, the Company filed a shelf registration statement on Form S-3 (File No. 333-286604) (the “Shelf Registration Statement”), which was declared effective on April 25, 2025. Under the Shelf Registration Statement, the Company may, from time to time, issue and sell up to $1.0 billion of the Company’s common stock, preferred stock, debt securities, warrants and rights (including as part of a unit) to purchase shares of the Company’s common stock or preferred stock.
At-the-Market Offering Program (“ATM Program”)
On April 5, 2022, the Company entered into an Open Market Sales Agreement (the “Sales Agreement”) with Jefferies LLC and Citizens JMP Securities LLC, as Sales Agents, under which the Company may, from time to time, offer and sell shares of common stock, having an aggregate offering price of up to $75.0 million. Under the terms of the Sales Agreement, the Company has agreed to pay the Sales Agents a commission of up to 3.0 % of the gross proceeds from each sale of common stock sold through the Sales Agents. Sales of common stock, if any, may be made in transactions that are deemed to be “at-the-market” offerings, as defined in Rule 415(a)(4) promulgated under the Securities Act of 1933, as amended (the “Securities Act”). During the three and nine months ended September 30, 2025, the Company did not sell any shares of the Company’s common stock under the Sales Agreement. At the time of termination, the Company’s remaining authorization under the Sales Agreement was approximately $47.4 million. As of September 30, 2025, the ATM Program was no longer in effect.
The ATM Program and related Sales Agreement expired in April 2025, in connection with the expiration of the Company’s Prior Shelf Registration Statement. The Company does not currently have an ATM program, but may enter into a new ATM program and related sales agreement in the future pursuant to which sales may be made under the Shelf Registration Statement.
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Stock Incentive Plan
The Company has established a stock incentive compensation plan (the “2020 Plan”). The 2020 Plan authorizes stock options, stock appreciation rights, restricted stock, stock bonuses, stock units and other forms of awards granted or denominated in the Company’s common stock or units of common stock. The 2020 Plan retains flexibility to offer competitive incentives and to tailor benefits to specific needs and circumstances. Any award may be structured to be paid or settled in cash. The Company has granted, and currently intends to continue to grant, stock options and restricted stock awards to participants in the 2020 Plan, but it may also grant any other type of award available under the 2020 Plan in the future. Persons eligible to receive awards under the 2020 Plan include officers or employees of the Company or any of its subsidiaries, directors of the Company, employees of the Manager and certain directors, consultants and other service providers to the Company or any of its subsidiaries.
During the nine months ended September 30, 2025, the Company’s Board of Directors approved grants of an aggregate of 271,497 shares of restricted stock to the Company’s directors and certain officers, as well as certain employees of the Manager and its affiliates. The restricted stock awards granted during the nine months ended September 30, 2025 under the 2020 Plan are subject to vesting periods that vary from immediately vested, one-year vesting and to vesting over a three-year period, with approximately 33
As of September 30, 2025, there were 951,518 shares of common stock granted under the 2020 Plan, underlying 240,594 options and 710,924 shares of restricted stock.
As of September 30, 2025, the maximum number of shares of the Company’s common stock that may be delivered pursuant to awards under the 2020 Plan (the “Share Limit”) equaled 3,609,722 shares, of which 2,658,204 shares remained available for future issuance under the 2020 Plan. The Share Limit is consistent with the Share Limit as of June 30, 2025. Shares that are subject to or underlie awards that expire or, for any reason, are cancelled, terminated, forfeited, fail to vest or are not paid or delivered under the 2020 Plan will not be counted against the Share Limit and will again be available for subsequent awards under the 2020 Plan.
Modification of Stock Options and Restricted Stock Outstanding at Spin-Off
Stock Options
On July 9, 2024, the Company completed the separation of its CRE portfolio through the Spin-Off of SUNS. As a result, the strike price for the outstanding stock options of the Company were adjusted to give effect to the Spin-Off. All adjustments were made with the intent to preserve the intrinsic value of each award immediately before and after the Spin-Off. The Company accounted for the modification as Type I modification (probable to probable). The number of awards remained constant, while the strike prices were modified to preserve the intrinsic value of each award. The modified stock option awards otherwise retained substantially the same terms and conditions, including term and vesting provisions. The fair value of such unvested stock option awards remained constant pre- and post-Spin-Off, resulting in no incremental compensation cost. The Company will recognize the remaining unrecognized compensation cost of the original stock option awards over the remaining vesting period.
The Company used the Black-Scholes option pricing model to value stock options in determining the stock-based compensation expense. The Company has elected to recognize forfeitures as they occur. Previously recognized compensation expense related to forfeitures are reversed in the period the nonvested awards are forfeited. The risk-free interest rate is based on the U.S. Treasury yield curve in effect at the date of grant. The expected dividend yield was based on the Company’s expected dividend yield at the grant date. Expected volatility is based on the estimated average volatility of similar companies due to the lack of historical volatilities of the Company’s common stock. The expected term for each award is based on the contractual term for all awards granted thus far under the 2020 Plan. Restricted stock grant expense is based on the Company’s stock price at the time of the grant and amortized over the vesting period.
The weighted-average exercise price of stock options have been retroactively adjusted to give effect to the Spin-Off for all periods presented.
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The following table presents the assumptions used in the Black-Scholes pricing model of options granted under the 2020 Plan during the three and nine months ended September 30, 2025 and 2024:
| Assumptions: | Range | ||||
Expected term | |||||
| Expected volatility | |||||
| Expected dividend yield | |||||
| Risk-free interest rate | |||||
| Expected forfeiture rate | |||||
The modification date fair value of the stock options was determined using the Binomial-Lattice Model with the following assumptions on July 9, 2024:
Assumptions: | Range | ||||
Expected term | |||||
| Expected volatility | |||||
| Expected dividend yield | |||||
| Risk-free interest rate | |||||
| Expected forfeiture rate | |||||
As additional Company history and information is available, the Company determined the use of the Binomial-Lattice Model to be appropriate compared to the closed-form Black-Scholes model. The risk-free interest rate is based on the continuously compounded rates from the U.S. Treasury yield curve in effect at the date of Spin-Off. The expected term is based on the remaining contractual term of each option’s life as of the date of Spin-Off. The expected dividend yield was based on the Company’s most recent quarterly dividend, annualized, divided by the three-month average stock price as of the Spin-Off date. Expected volatility is based on the remaining contractual term-matched historical volatility. In cases where the look back period exceeds the trading history of the Company’s Common Stock, the Company’s entire trading history was used.
Restricted Stock
Restricted stock awards originally granted under the 2020 Plan include awards granted to employees of the Manager that perform shared functions pre- and post-Spin-Off. In connection with the Spin-Off transaction and as a result of the related modification, approximately 33 % of the remaining unrecognized compensation cost of unvested restricted stock awards will be recognized over the remaining vesting period of the Company’s former wholly-owned subsidiary, SUNS. The Company will recognize the remaining 67 % of unrecognized compensation cost of unvested restricted stock awards over the remaining vesting period.
Stock Compensation
The following table summarizes the stock-based compensation expense incurred by the Company for the three and nine months ended September 30, 2025 and 2024:
| Three months ended September 30, | Nine months ended September 30, | ||||||||||||||||||||||
| 2025 | 2024 | 2025 | 2024 | ||||||||||||||||||||
| Stock-based compensation | $ | $ | $ | $ | |||||||||||||||||||
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Stock Options
The following table summarizes the (i) non-vested options granted, (ii) vested options granted, (iii) exercised and (iv) forfeited options granted for the Company’s directors and officers and employees of the Manager and its affiliates as of September 30, 2025 and December 31, 2024:
| As of September 30, 2025 | As of December 31, 2024 | ||||||||||
| Non-vested | |||||||||||
| Vested | |||||||||||
| Exercised | ( | ( | |||||||||
| Forfeited | ( | ( | |||||||||
| Balance | |||||||||||
The following tables summarize stock option activity as of and during the nine months ended September 30, 2025:
| Number of options | Weighted-average exercise price | Weighted-average remaining contractual term | Aggregate intrinsic value | ||||||||||||||||||||
| Outstanding as of December 31, 2024 | $ | ||||||||||||||||||||||
| Granted | |||||||||||||||||||||||
| Exercised | |||||||||||||||||||||||
| Forfeited | ( | ||||||||||||||||||||||
| Outstanding as of September 30, 2025 | $ | $ | |||||||||||||||||||||
| Exercisable as of September 30, 2025 | $ | $ | |||||||||||||||||||||
| Unvested as of September 30, 2025 | $ | $ | |||||||||||||||||||||
The Company did not No
As of September 30, 2025, there was approximately $3.3 thousand of total unrecognized compensation cost related to stock options, which is expected to be recognized over a weighted-average period of 0.28 years.
Restricted Stock
The following table summarizes restricted stock (i) granted, (ii) vested and (iii) forfeited for the Company’s directors and officers and employees of the Manager and its affiliates as of September 30, 2025 and December 31, 2024:
| As of September 30, 2025 | As of December 31, 2024 | ||||||||||
| Granted | |||||||||||
| Vested | ( | ( | |||||||||
| Forfeited | ( | ( | |||||||||
| Balance | |||||||||||
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The fair value of the Company’s restricted stock awards is based on the Company’s stock price on the date of grant. The following table summarizes the restricted stock activity as of and during the nine months ended September 30, 2025:
| Number of shares of restricted stock | Weighted-average grant date fair value | ||||||||||
| Balance as of December 31, 2024 | $ | ||||||||||
| Granted | |||||||||||
| Vested | ( | ||||||||||
| Forfeited | ( | ||||||||||
| Balance as of September 30, 2025 | $ | ||||||||||
There were no 11.2 thousand and $25.0 thousand, respectively.
During the nine months ended September 30, 2024, 209,397 shares of restricted stock were granted with a weighted-average grant date fair value of $11.70 per share. During the nine months ended September 30, 2024, 64,752 shares of restricted stock vested with a weighted-average grant date fair value of $14.50 per share. The total fair value of shares vested during the nine months ended September 30, 2025 and 2024, was approximately $1.1 million and $0.8 million, respectively.
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11. EARNINGS PER SHARE
The following information sets forth the computations of basic and diluted earnings per common share for the three and nine months ended September 30, 2025 and 2024:
| Three months ended September 30, | Nine months ended September 30, | ||||||||||||||||||||||
| 2025 | 2024 | 2025 | 2024 | ||||||||||||||||||||
| Net (loss) income from continuing operations | $ | ( | $ | $ | ( | $ | |||||||||||||||||
| Dividends paid on preferred stock | ( | ||||||||||||||||||||||
| Dividends paid on unvested restricted stock | ( | ( | ( | ( | |||||||||||||||||||
| Net income from continuing operations attributable to common shareholders | ( | ( | |||||||||||||||||||||
| Net income from discontinued operations | |||||||||||||||||||||||
| Net income attributable to common shareholders | ( | ( | |||||||||||||||||||||
| Divided by: | |||||||||||||||||||||||
| Basic weighted average shares of common stock outstanding | |||||||||||||||||||||||
| Weighted average unvested restricted stock and dilutive stock options | |||||||||||||||||||||||
| Diluted weighted average shares of common stock outstanding | |||||||||||||||||||||||
| Basic earnings per share | |||||||||||||||||||||||
| Continuing operations | $ | ( | $ | $ | ( | $ | |||||||||||||||||
| Discontinued operations | $ | $ | $ | $ | |||||||||||||||||||
| Total basic earnings per common share | $ | ( | $ | $ | ( | $ | |||||||||||||||||
| Diluted earnings per share | |||||||||||||||||||||||
| Continuing operations | $ | ( | $ | $ | ( | $ | |||||||||||||||||
| Discontinued operations | $ | $ | $ | $ | |||||||||||||||||||
| Total diluted earnings per common share | $ | ( | $ | $ | ( | $ | |||||||||||||||||
Diluted EPS was computed using the treasury stock method for stock options and restricted stock. Diluted earnings per common share excluded 1,717,543 and 2,104,898 weighted average shares of unvested restricted stock and stock options due to anti-dilutive effect for the three and nine months ended September 30, 2025, respectively, and 1,499,235 and 1,499,235 for the three and nine months ended September 30, 2024, respectively. For the three and nine months ended September 30, 2025, the potential dilutive shares due to unvested restricted stock and stock options were not included in the computation of diluted loss per share since to do so would decrease the loss per share from continuing operations.
12. INCOME TAX
A TRS is an entity taxed as a corporation that has not elected to be taxed as a REIT, in which a REIT directly or indirectly holds equity, and that has made a joint election with such REIT to be treated as a TRS. A TRS generally may engage in any business, including investing in assets and engaging in activities that could not be held or conducted directly by the Company without jeopardizing its qualification as a REIT. A TRS is subject to applicable United States federal, state and local income tax on its taxable income. In addition, as a REIT, the Company also may be subject to a 100% excise tax on certain transactions between it and its TRS that are not conducted on an arm’s-length basis. The income tax provision is included in the line item income tax expense, including excise tax.
The income tax (benefit) provision for the Company was approximately $(0.9 ) million and $(0.9 ) million for the three and nine months ended September 30, 2025, respectively, and $0.4 million and $0.8 million for the three and nine months ended September 30, 2024, respectively. The income tax expense for the three and nine months ended September 30, 2025 and 2024 primarily related to activities of the Company’s taxable REIT subsidiary.
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The income tax provision for the Company and TRS1 consisted of the following for the three and nine months ended September 30, 2025 and 2024:
| Three months ended September 30, | Nine months ended September 30, | ||||||||||||||||||||||
| 2025 | 2024 | 2025 | 2024 | ||||||||||||||||||||
| Current: | |||||||||||||||||||||||
| Federal | $ | $ | $ | $ | |||||||||||||||||||
| State | ( | ( | |||||||||||||||||||||
| Total current income tax (benefit) expense | ( | ||||||||||||||||||||||
| Total deferred income tax (benefit) expense | ( | ( | |||||||||||||||||||||
| Excise tax | ( | ( | ( | ||||||||||||||||||||
| Total income tax (benefit) expense, including excise tax | $ | ( | $ | $ | ( | $ | |||||||||||||||||
For the three and nine months ended September 30, 2025 and 2024, the Company did not 4 % tax on the sum of a portion of the Company’s ordinary income and net capital gains not distributed during the period. If it is determined that an excise tax liability exists for the current period, the Company will accrue excise tax on estimated excess taxable income as such taxable income is earned. The expense is calculated in accordance with applicable tax regulations.
The Company does not have any unrecognized tax benefits and the Company does not expect that to change in the next 12 months. As of September 30, 2025, tax years since 2022 remain subject to examination by taxing authorities.
The federal statutory rate was 21% for the three and nine months ended September 30, 2025 and 2024. The primary difference between the Company’s statutory rate and effective tax rate is largely determined by the amount of income subject to tax by the Company’s taxable REIT subsidiary. The Company expects that its future effective tax rate will be determined in a similar manner.
As of September 30, 2025 and December 31, 2024, the Company’s deferred tax assets were $1.6 million and $0.7 million, respectively, and are included in prepaid expenses and other assets in the Company’s consolidated balance sheets. The Company believes it is more likely than not that the deferred tax assets will be realized in the future. Realization of the deferred tax assets is dependent upon the Company’s generation of sufficient taxable income in future years in appropriate tax jurisdictions to benefit from the reversal of temporary differences. The amount of deferred tax assets considered realizable is subject to adjustment in future periods if estimates of future taxable income change.
The Company recorded deferred tax assets related to temporary differences on the fair value adjustments of the unrealized losses of loans held in the TRS and CECL allowance on loans held in the TRS. There were no
13. FAIR VALUE
Loans Held for Investment
The Company’s loans are typically valued using a yield analysis, which is typically performed for non-credit impaired loans to borrowers where the Company does not own a controlling equity position. Alternative valuation methodologies may be used as appropriate, and can include a market analysis, income analysis, or recovery analysis. To determine fair value using a yield analysis, a current price is imputed for the loan based upon an assessment of the expected market yield for a similarly structured loan with a similar level of risk. In the yield analysis, the Company considers the current contractual interest rate, the maturity and other terms of the loan relative to risk of the company and the specific loan. A key determinant of risk, among other things, is the leverage through the loan relative to the enterprise value of the borrower. As loans held by the Company are substantially illiquid with no active loan market, the Company depends on 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.
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The following tables present fair value measurements of loans held at fair value as of September 30, 2025 and December 31, 2024:
| Fair Value Measurement as of September 30, 2025 | |||||||||||||||||||||||
| Total | Level 1 | Level 2 | Level 3 | ||||||||||||||||||||
| Loans held at fair value | $ | $ | $ | $ | |||||||||||||||||||
| Total | $ | $ | $ | $ | |||||||||||||||||||
| Fair Value Measurement as of December 31, 2024 | |||||||||||||||||||||||
| Total | Level 1 | Level 2 | Level 3 | ||||||||||||||||||||
| Loans held at fair value | $ | $ | $ | $ | |||||||||||||||||||
| Total | $ | $ | $ | $ | |||||||||||||||||||
The following table presents changes in loans that use Level 3 inputs as of and for the nine months ended September 30, 2025:
| Nine months ended September 30, 2025 | |||||
| Total loans using Level 3 inputs at December 31, 2024 | $ | ||||
| Change in unrealized (losses) gains on loans at fair value, net | ( | ||||
| Loan repayments | ( | ||||
| Total loans using Level 3 inputs at September 30, 2025 | $ | ||||
The change in unrealized losses included in the unaudited interim consolidated statements of operations attributable to loans held at fair value, categorized as Level 3, held as of September 30, 2025 is $(11,453,875 ).
The following tables summarize the significant unobservable inputs the Company used to value the loans categorized within Level 3 as of September 30, 2025 and December 31, 2024. The tables are not intended to be all-inclusive, but instead capture the significant unobservable inputs relevant to the Company’s determination of fair values.
| As of September 30, 2025 | |||||||||||||||||||||||||||||
Unobservable Input | |||||||||||||||||||||||||||||
| Fair Value | Primary Valuation Techniques | Input | Estimated Range | Weighted Average | |||||||||||||||||||||||||
| $ | Recovery analysis | Recovery rate | |||||||||||||||||||||||||||
| Total investment | $ | ||||||||||||||||||||||||||||
| As of December 31, 2024 | |||||||||||||||||||||||||||||
Unobservable Input | |||||||||||||||||||||||||||||
| Fair Value | Primary Valuation Techniques | Input | Estimated Range | Weighted Average | |||||||||||||||||||||||||
| $ | Recovery analysis | Recovery rate | |||||||||||||||||||||||||||
| Total investment | $ | ||||||||||||||||||||||||||||
Changes in market yields, revenue multiples, and recovery rates may change the fair value of certain of the Company’s loans. Generally, an increase in market yields may result in a decrease in the fair value of certain of the Company’s loans, while a decrease in revenue multiples and recovery rates may result in a decrease in the fair value of certain of the Company’s loans.
Due to the inherent uncertainty of determining the fair value of loans that do not have a readily available market value, the fair value of the Company’s loans may fluctuate from period to period. Additionally, the fair value of the Company’s loans may differ significantly from the values that would have been used had a ready market existed for such loans and may 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
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liquidate a loan in a forced or liquidation sale, it could realize significantly less than the value at which the Company has recorded it.
In addition, changes in the market environment and other events that may occur over the life of the loans may cause the gains or losses ultimately realized on these loans to be different than the unrealized gains or losses reflected in the valuations currently assigned.
Fair Value of Financial Instruments
GAAP requires disclosure of fair value information about financial instruments, whether or not recognized at fair value in the balance sheets, for which it is practicable to estimate that value.
The following table details the carrying value and fair value of the Company’s financial instruments not recognized at fair value in the unaudited interim consolidated balance sheets as of September 30, 2025:
| As of September 30, 2025 | |||||||||||
| Carrying Value | Fair Value | ||||||||||
| Financial assets: | |||||||||||
| Cash and cash equivalents | $ | $ | |||||||||
| Loans held for investment at carrying value, net | $ | $ | |||||||||
| Financial liabilities: | |||||||||||
| Senior notes payable, net | $ | $ | |||||||||
Cash and cash equivalents have a carrying value which approximates their fair value due to the short-term nature of these instruments. The Company categorizes the fair value measurement of these assets as Level 1. The Company’s loans held for investment are measured using unobservable inputs, or Level 3 inputs. The fair value of the Company’s 2027 Senior Notes is estimated using observable inputs based on the last available bid price in the market at the end of the period, or Level 2 inputs.
14. RELATED PARTY TRANSACTIONS
Management Agreement
Pursuant to the Management Agreement, the Manager manages the loans and day-to-day operations of the Company, subject at all times to the further terms and conditions set forth in the Management Agreement and such further limitations or parameters as may be imposed from time to time by the Company’s Board.
The Manager receives base management fees (the “Base Management Fee”) that are calculated and payable quarterly in arrears, in an amount equal to 0.375 % of the Company’s Equity (as defined in the Management Agreement), subject to certain adjustments, less 50 % of the aggregate amount of any other fees (“Outside Fees”), including any agency fees relating to our loans, but excluding the Incentive Compensation (as defined below) and any diligence fees paid to and earned by the Manager and paid by third parties in connection with the Manager’s due diligence of potential loans.
In addition to the Base Management Fee, the Manager is entitled to receive incentive compensation (the “Incentive Compensation” or “Incentive Fees”) under the Management Agreement. Under the Management Agreement, the Company pays Incentive Fees to the Manager based upon the Company’s achievement of targeted levels of Core Earnings. “Core Earnings” is defined in the Management Agreement as, for a given period, the net income (loss) for such period, computed in accordance with GAAP, excluding (i) non-cash equity compensation expense, (ii) the Incentive Compensation, (iii) depreciation and amortization, (iv) any unrealized gains or losses or other non-cash items that are included in net income for the applicable reporting period, regardless of whether such items are included in other comprehensive income or loss, or in net income and (v) one-time events pursuant to changes in GAAP and certain non-cash charges, in each case after discussions between the Manager and the Company’s independent directors and approved by a majority of the independent directors.
There was no 0.3 million and $5.6 million, respectively.
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The Company is required to pay all of its costs and expenses and reimburse the Manager or its affiliates for expenses of the Manager and its affiliates paid or incurred on behalf of the Company, excepting only those expenses that are specifically the responsibility of the Manager pursuant to the Management Agreement. With respect to certain office expenses incurred by the Manager on behalf of the Company and other funds managed by the Manager or its affiliates, such as rent, the Manager determines each fund’s pro rata portion of such expenses in an amount equal to the proportional amount of time employees of the Manager spent providing services to the Company, as reasonably stipulated by time sheets.
The following table summarizes the related party costs incurred by the Company for the three and nine months ended September 30, 2025 and 2024:
| Three months ended September 30, | Nine months ended September 30, | ||||||||||||||||||||||
| 2025 | 2024 | 2025 | 2024 | ||||||||||||||||||||
| Affiliate Costs | |||||||||||||||||||||||
| Management fees | $ | $ | $ | $ | |||||||||||||||||||
| Less: outside fees earned | ( | ( | ( | ( | |||||||||||||||||||
| Base management fees | |||||||||||||||||||||||
| Incentive fees earned | |||||||||||||||||||||||
| General and administrative expenses reimbursable to Manager | |||||||||||||||||||||||
| Professional fees reimbursable to Manager | |||||||||||||||||||||||
| Total | $ | $ | $ | $ | |||||||||||||||||||
Amounts payable to the Manager as of September 30, 2025 and December 31, 2024 were approximately $1.4 million and $3.1 million, respectively.
The Manager is a wholly-owned subsidiary of Castleground Holdings LLC (the “Parent Manager”). The outstanding equity of the Parent Manager is beneficially owned by certain officers as of the date of this Quarterly Report on Form 10-Q: 72.4 % by Leonard Tannenbaum, Chairman of the Board, 9.7 % by Robyn Tannenbaum, President and Chief Investment Officer, 9.7 % by other Tannenbaum family members and trusts, 2.9 % by Bernard Berman, a member of the Company’s Investment Committee, 2.5 % by Daniel Neville, Chief Executive Officer, 1.5 % by Brandon Hetzel, Chief Financial Officer and Treasurer, and 1.0 % by Gabriel Katz, Chief Legal Officer and Secretary.
At the August Meeting, the Board unanimously approved a series of matters intended to facilitate the Conversion. Among other things, the Board, including the Independent Directors, approved the Investment Advisory Agreement, subject to approval by the Company’s shareholders.
Subsequent to the end of the reporting period, on November 6, 2025, at the Special Meeting, the Company’s shareholders approved the Investment Advisory Agreement, which was necessary for the Company to be able to operate as a BDC under the 1940 Act. In the coming months, the Board will consider other matters required to effect the Conversion. There can be no assurance that the Board will approve the additional matters required to effect the Conversion.
Investments in Loans
From time to time, the Company may co-invest with other investment vehicles managed by the Manager or its affiliates, including the Manager, and their portfolio companies, including by means of splitting loans, participating in loans or other means of syndicating loans. The Company is not obligated to provide, nor has it provided, any financial support to the other managed investment vehicles. As such, the Company’s risk is limited to the carrying value of its investment in any such loan. Additionally, the Manager or its affiliates, including AFC Agent, may from time to time serve as administrative and collateral agent to the lenders under the Company’s loans. As of September 30, 2025, there were two co-invested loans held by the Company and affiliates of the Company.
Unsecured Revolving Credit Facility with Affiliate
In December 2024, the Company entered the AFCF Credit Facility with AFC Finance LLC, an affiliate of the Company and Mr. and Mrs. Tannenbaum. The AFCF Credit Facility was terminated in April 2025. Refer to Note 8 for more information.
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15. DIVIDENDS AND DISTRIBUTIONS
The following table summarizes the Company’s dividends declared during the nine months ended September 30, 2025 and 2024:
| Declaration Date | Record Date | Payment Date | Per Common Share Distribution Amount | Total Distribution Amount | |||||||||||||||||||||||||||||||||||||||||||
| Regular cash dividend | 3/4/2024 | 3/31/2024 | 4/15/2024 | $ | $ | ||||||||||||||||||||||||||||||||||||||||||
| Regular cash dividend | 6/13/2024 | 6/24/2024 | 7/15/2024 | ||||||||||||||||||||||||||||||||||||||||||||
| Special cash dividend | 6/27/2024 | 7/8/2024 | 7/15/2024 | ||||||||||||||||||||||||||||||||||||||||||||
| Regular cash dividend | 9/13/2024 | 9/30/2024 | 10/15/2024 | ||||||||||||||||||||||||||||||||||||||||||||
2024 Period Subtotal | $ | $ | |||||||||||||||||||||||||||||||||||||||||||||
Regular cash dividend | 3/11/2025 | 3/31/2025 | 4/15/2025 | $ | $ | ||||||||||||||||||||||||||||||||||||||||||
Regular cash dividend | 6/13/2025 | 6/30/2025 | 7/15/2025 | ||||||||||||||||||||||||||||||||||||||||||||
Regular cash dividend | 9/15/2025 | 9/30/2025 | 10/15/2025 | ||||||||||||||||||||||||||||||||||||||||||||
2025 Period Subtotal | $ | $ | |||||||||||||||||||||||||||||||||||||||||||||
16. DISCONTINUED OPERATIONS
On July 9, 2024, the Company announced the completion of the previously announced separation and Spin-Off of the Company’s CRE portfolio into an independent, publicly-traded REIT, SUNS. The Spin-Off was effected by the distribution of all of the outstanding shares of SUNS common stock to the Company’s shareholders of record as of the close of business on July 8, 2024 (the “Record Date”). The Company’s shareholders of record as of the Record Date received one share of SUNS common stock for every three shares of the Company’s common stock held as of the Record Date. The Spin-Off was completed July 9, 2024 (the “Distribution Date”). On the Distribution Date, SUNS became an independent, publicly-traded company, trading on the Nasdaq Capital Market under the symbol “SUNS”. The Company retained no ownership interest in SUNS following the Spin-Off.
On the Distribution Date, the Company recognized a reduction to additional paid-in capital of approximately $114.8 million in connection with the Spin-Off related to the transfer of certain assets and liabilities associated with its CRE portfolio to SUNS. In connection with the Spin-Off, the Company entered into several agreements with SUNS that govern the relationship between the Company and SUNS following the spin-off, including the Separation and Distribution Agreement and the Tax Matters Agreement. These agreements provide for the allocation between the Company and SUNS of the assets, liabilities and obligations (including, among others, investments, property and tax-related assets and liabilities) of the Company and its subsidiaries attributable to periods prior to, at and after the Spin-Off.
The operating results of the SUNS business through the date of the Spin-Off are reported in net income from discontinued operations, net of tax in the consolidated statements of operations for all periods presented. The related assets and liabilities are reported as assets and liabilities of discontinued operations on the consolidated balance sheets. Cash flows from the Company’s discontinued operations are presented as such in the consolidated statements of cash flows for all periods presented.
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The following table summarizes the financial statement lines included in net income from discontinued operations, net of tax for the three and nine months ended September 30, 2025 and 2024:
| Three months ended September 30, | Nine months ended September 30, | |||||||||||||||||||||||||
| 2025 | 2024 | 2025 | 2024 | |||||||||||||||||||||||
| Interest income | $ | $ | $ | $ | ||||||||||||||||||||||
| Expenses | ||||||||||||||||||||||||||
| General and administrative expenses | ( | ( | ||||||||||||||||||||||||
| Professional fees | ( | |||||||||||||||||||||||||
| (Provision for) reversal of current expected credit losses | ( | |||||||||||||||||||||||||
| Net income from discontinued operations, net of tax | $ | $ | $ | $ | ||||||||||||||||||||||
During the three and nine months ended September 30, 2025 and 2024, Spin-Off costs incurred were zero and zero , respectively, and approximately $(15.6 ) thousand and $1.1 million, respectively. During the three months ended September 30, 2024, previous estimates for Spin-Off work performed were less than actuals, resulting in a credit to expense. Prior to the completion of the Spin-Off in the third quarter of 2024, Spin-Off costs were historically presented within professional fees in the consolidated statements of operations and are now included in the measurement and presentation of discontinued operations for all periods presented.
There were no assets or liabilities classified as discontinued operations as of September 30, 2025 or December 31, 2024.
17. REPORTABLE SEGMENTS
ASC 280, Segment Reporting, establishes standards for reporting financial and descriptive information about an enterprise’s reportable segments. The Company generates revenue from loans to state law compliant cannabis operators in the United States. These investments typically have maturities ranging from two to five years and may accrue interest at either fixed or floating rates. The accounting policies of the institutional lending segment are the same as those described in the summary of significant accounting policies.
The presentation of financial results as one reportable segment is consistent with the way the Company operates its business and is consistent with the manner in which the Company’s Chief Operating Decision Maker (“CODM”), the Company’s Chief Executive Officer, evaluates performance and makes resource and operating decisions for the business. The Company has no operations outside of the United States. The Company’s portfolio exhibits similar economic characteristics, similar yields and is operated using consistent business strategies. The Company operates as one operating segment and has one reportable operating segment for activities related to institutional lending.
The CODM assesses performance and evaluates the allocation of resources of the Company on a consolidated basis, based on the Company’s net income from continuing operations, which is reported on the Company’s consolidated statements of operations. The CODM is regularly provided with only the consolidated expenses, as noted on the consolidated statements of operations. Significant segment expenses are listed on the accompanying consolidated statements of operations. The measure of segment assets is reported on the consolidated balance sheets as total assets.
The CODM uses net income to evaluate income generated from segment assets and in deciding the amount of dividends to be distributed, as well as using net income as a basis for evaluating lender terms for loans with state law compliant operators.
During the three and nine months ended September 30, 2025, interest income earned on the Company’s portfolio was concentrated with five and five borrowers, respectively, each comprising more than 10% of consolidated interest income for an aggregate amount of $6.1 million, or 75 %, and $17.8 million, or 72 %, of consolidated interest income, respectively. During the three and nine months ended September 30, 2024, interest income earned on the Company’s portfolio was concentrated with six and three borrowers, respectively, each comprising more than 10% of consolidated interest income for an aggregate amount of $9.0 million, or 86 %, and $19.8 million, or 46 %, of consolidated interest income, respectively.
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18. SUBSEQUENT EVENTS
The Company has evaluated subsequent events through the date the consolidated financial statements were available to be issued. There were no material subsequent events, other than those described below, that required disclosure in these unaudited interim consolidated financial statements.
In October 2025, AFC Agent received approximately $5.4 million in total loan payments from Private Company A’s sale of its collateral assets, of which approximately $4.2 million was allocated to the Company relating to the Company’s pro rata portion of the Private Company A Credit Facility and was applied as a reduction to the amortized cost of the Private Company A loan. Following the payment, the Company’s outstanding principal balance under the Private Company A Credit Facility was approximately $46.8 million. AFC Agent continues to monitor the court-appointed receivership installed to maintain the borrower’s operations and maximize value for the benefit of its creditors.
Subsequent to the end of the reporting period, on November 6, 2025, the Company held the Special Meeting, at which shareholders approved the Proposals. In the coming months, the Board will consider other matters required to effect the Conversion. There can be no assurance that the board will approve the matters required to effect the Conversion.
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CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS
This Quarterly Report on Form 10-Q (this “Quarterly Report”), filed by Advanced Flower Capital Inc. (the “Company,” “we,” “us,” and “our”), and the information incorporated by reference in it, or made in other reports, filings with the SEC, press releases contain “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995, Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, and we intend such statements to be covered by the safe harbor provisions contained therein. Some of the statements contained in this Quarterly Report, other than statements of current or historical facts, are forward-looking statements and are based on our current intent, belief, expectations and views of future events. The forward-looking statements include, without limitation, any statement that may predict, forecast, indicate or imply future results or performance, and may contain the words “believe,” “anticipate,” “expect,” “estimate,” “project,” “could,” “would,” “will,” “can,” “continuing,” “may,” “aim,” “intend,” “ongoing,” “plan,” “predict,” “potential,” “should,” “seeks,” “likely to” or words or phrases of similar meaning. Specifically, this Quarterly Report includes forward-looking statements regarding (i) the conditions in the adult-use and medicinal cannabis markets and their impact on our business; (ii) our portfolio and strategies for the growth thereof; (iii) our working capital, liquidity and capital requirements; (iv) potential state and federal legislative and regulatory matters; (v) our expectations and estimates regarding certain tax, legal and accounting matters, including the impact on our financial statements and/or those of our borrowers; (vi) our expectations regarding our portfolio companies and their businesses, including demand, sales volume, profitability, and future growth; (vii) the amount, collectability and timing of cash flows, if any, from our loans; (viii) our expected ranges of originations and repayments; and (ix) 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:
•our business and investment strategy;
•the ability of our Manager to locate suitable loan opportunities for us and to monitor and actively manage our portfolio and implement our investment strategy;
•our expectations for origination targets and repayments;
•our ability to obtain our target mix of loan and collateral types with our expected ranges of yields;
•the allocation of loan opportunities to us by our Manager;
•our projected operating results;
•actions and initiatives of the U.S. or state governments and changes to government policies and the execution and impact of these actions, initiatives and policies, including the fact that cannabis remains illegal under federal law and certain state laws;
•the estimated growth in and evolving market dynamics of the cannabis market;
•changes in general economic conditions, in our industry and in the commercial finance and real estate markets;
•the demand for cannabis cultivation and processing facilities;
•shifts in public opinion and state regulation regarding cannabis;
•the state of the U.S. economy generally or in the specific geographic regions in which we operate, including as a result of the impact of natural disasters;
•the impact of a protracted decline in the liquidity of credit markets on our business;
•the amount, collectability and timing of our cash flows, if any, from our loans;
•our ability to obtain and maintain competitive financing arrangements;
•our ability to achieve expected leverage;
•changes in the value of our loans;
•losses that may arise due to the concentration of our portfolio in a limited number of loans and borrowers;
•our investment and underwriting process;
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•the rates of default or recovery rates on our loans;
•the degree to which our hedging strategies may or may not protect us from interest rate volatility;
•the availability of investment opportunities for us within our investment guidelines;
•changes in interest rates and impacts of such changes on our results of operations, cash flows and the market value of our loans;
•interest rate mismatches between our loans and our borrowings used to fund such loans;
•the departure of any of the executive officers or key personnel supporting and assisting us from our Manager or its affiliates;
•impact of and changes in governmental regulations, tax law and rates, accounting guidance, tariffs and similar matters;
•our ability to maintain our exemption from registration under the Investment Company Act of 1940 (the “1940 Act”);
•our ability to qualify and maintain our qualification as a real estate investment trust (a “REIT”) for U.S. federal income tax purposes;
•estimates relating to our ability to make distributions to our shareholders in the future;
•our understanding of our competition;
•market trends in our industry, interest rates, real estate values, the securities markets or the general economy; and
•uncertainties as to the impact of the Spin-Off on our business.
The above list of factors is not exhaustive or necessarily in order of importance.
Please see the section entitled “Risk Factors” located in our Annual Report on Form 10-K, filed with the SEC on March 13, 2025 and in our subsequently filed Quarterly Reports on Form 10-Q, for a further discussion of these and other risks and uncertainties which could affect our future results. These forward-looking statements apply only as of the date of this report and we undertake no obligation to update or revise any forward-looking statements to reflect events or circumstances after the date of such statements or to reflect the occurrence of anticipated or unanticipated events, except to the extent we are legally required to disclose certain matters in SEC filings or otherwise.
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, “Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2024 and Item 1A. “Risk Factors” in our subsequently filed Quarterly Reports on Form 10-Q.
Overview
Advanced Flower Capital Inc. is an institutional lender that was founded in July 2020 by a veteran team of investment professionals. We primarily originate, structure, underwrite, invest in and manage senior secured loans and other types of mortgage loans and debt securities, with a specialization in loans to cannabis industry operators in states that have legalized medical and/or adult-use cannabis. Our investment guidelines primarily relate to deploying capital in attractive lending opportunities, typically secured by real estate, equipment, cash flows and license value, to (i) state law-compliant cannabis operators and ancillary cannabis companies and (ii) other public and privately held middle-market companies.
Our objective is to provide attractive risk-adjusted returns over time through cash distributions and capital appreciation primarily by providing loans to state law compliant cannabis companies. The loans we originate are primarily structured as senior loans typically secured by real estate, equipment, cash flows and the value associated with licenses (where applicable) and/or other assets of the loan parties to the extent permitted by applicable laws and the regulations governing such loan parties. Some of our cannabis-related borrowers have their equity securities listed for public trading on the Canadian Securities Exchange (“CSE”) in Canada and/or over-the-counter (“OTC”) in the United States.
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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 current capital constrained cannabis market, which does not typically have access to traditional bank financing, we believe we continue to be well positioned to act as a prudent financing source to cannabis industry operators given our stringent underwriting criteria, size and scale of operations and institutional infrastructure.
We are a Maryland corporation and externally managed by AFC Management, LLC, a Delaware limited liability company (our “Manager”), pursuant to the terms of the Amended and Restated Management Agreement, dated January 14, 2021, by and between the Company and AFC Management, LLC (as amended from time to time, the “Management Agreement”). We commenced operations on July 31, 2020 and completed our initial public offering (“IPO”) in March 2021.
We have elected to be taxed as a REIT under Section 856 of the Internal Revenue Code of 1986, as amended (the “Code”), commencing with our taxable year ended December 31, 2020. We believe that we have qualified as a REIT and that our current and proposed method of operation will enable us to continue to qualify as a REIT. However, no assurances can be given that our beliefs or expectations will be fulfilled, since qualification as a REIT depends on us continuing to satisfy numerous asset, income and distribution tests, which in turn depends, in part, on our operating results and ability to obtain financing. We also intend to operate our business in a manner that will permit us to maintain our exemption from registration under the 1940 Act.
Our wholly-owned subsidiary, AFCG TRS1, LLC (“TRS1”), operates as a taxable REIT subsidiary (a “TRS”). TRS1 began operating in July 2021. The financial statements of TRS1 are consolidated within our consolidated financial statements.
At the August Meeting, the Board approved the Sixth Amendment, which expands our investment strategy. Accordingly, under the Sixth Amendment, we expanded our investment strategy and intend to additionally originate, structure, underwrite, invest in and manage senior secured mortgage loans and other types of loans and debt securities to companies ancillary to the cannabis industry as well as companies outside of the cannabis industry. Businesses ancillary to the cannabis industry may include, but are not limited to, brand developers, business services providers, and equipment and consumables providers. We believe there are also attractive lending opportunities in companies ancillary to and outside of the cannabis industry that could generate attractive risk-adjusted returns. By expanding the investment mandate, we expect to be able to diversify its exposure across industries and credit risk profiles while maintaining deal selectivity.
At the August Meeting, the Board also unanimously approved a series of matters intended to facilitate the conversion (the “Conversion”) of the Company from a REIT to a business development company (“BDC”). Among other things, the Board, including a majority of the directors who are not “interested persons” of the Company (as that term is defined under the 1940 Act) (the “Independent Directors”), approved a new, 1940 Act-compliant investment advisory agreement by and between the Company and the Manager, subject to the approval of the Company’s shareholders (the “Investment Advisory Agreement”).
On September 16, 2025, the Company filed a definitive proxy statement with the U.S. Securities and Exchange Commission (“SEC”) in connection with a special meeting of shareholders (the “Special Meeting”) held on November 6, 2025 for the purpose of seeking shareholder approval of certain proposals required to effect the Conversion, namely shareholder approvals of (i) the Investment Advisory Agreement between the Company and the Manager and (ii) the application of reduced asset coverage requirements pursuant to Section 61(a) of the 1940 Act (enabling the Company to utilize a greater degree of leverage than would otherwise be permitted) (the “Proposals”).
Subsequent to the end of the reporting period, on November 6, 2025, at the Special Meeting, the Company’s shareholders approved the Investment Advisory Agreement, which was necessary for the Company to be able to operate as a BDC under the 1940 Act. In the coming months, the Board will consider other matters required to effect the Conversion.
We are pursuing the Conversion, which, subject to Board approval, will result in the Company ceasing to operate as a mortgage REIT and electing to be regulated as a BDC under the 1940 Act. Following the Conversion, we would be able to invest in a much broader universe of assets, including both real estate and non-real estate related assets, as the BDC structure would provide access to a broader range of investment opportunities, including in private and public middle-market companies that may not have sufficient real property collateral coverage to satisfy the REIT regulatory requirements. This expanded mandate is expected to enhance portfolio diversification, increase investment flexibility, and support the pursuit of attractive risk-adjusted returns.
We have historically targeted lending to vertically integrated cannabis companies with significant real estate holdings. Given the capital-intensive nature of the cannabis industry, combined with the high cost of capital, many operators do not
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own real estate, which significantly limits the universe of cannabis operators to which we can lend as a mortgage REIT. The Conversion would allow us to invest in non-real estate covered vertically integrated operators subject to the requirements of the 1940 Act applicable to BDCs.
In addition, following the Conversion, we intend to continue investing in businesses ancillary to the cannabis industry, as contemplated under the Sixth Amendment. Ancillary cannabis businesses can have high growth potential, but often do not own real property and have limited access to debt capital. If completed, the Conversion will enable us to significantly expand our investment universe by increasing our ability to lend to ancillary cannabis businesses as well as non-real estate covered vertically integrated operators.
Spin-Off
On February 22, 2024, we announced a plan to separate into two independent, publicly traded companies. Prior to the Spin-Off, Sunrise Realty Trust, Inc. (“SUNS”) held our commercial real estate (“CRE”) portfolio as our wholly-owned subsidiary. On July 9, 2024, we completed the separation of our CRE portfolio through the spin-off of SUNS into an independent, publicly traded REIT (the “Spin-Off”) through a pro-rata distribution of all of the outstanding shares of SUNS common stock to our shareholders of record as of the close of business on July 8, 2024 (the “Record Date”). Our shareholders of record as of the Record Date received one share of SUNS common stock for every three shares of our common stock held as of the Record Date. We retained no ownership interest in SUNS following the Spin-Off. In connection with the Spin-Off, the operating results of the SUNS business through the date of the Spin-Off are reported in net income from discontinued operations, net of tax in the consolidated statements of operations for all periods presented. The related assets and liabilities are reported as assets and liabilities of discontinued operations on the consolidated balance sheets. Cash flows from the Company’s discontinued operations are presented as such in the consolidated statements of cash flows for all periods presented.
Unless otherwise noted, all amounts, percentages and discussion below reflect only the results of operations and financial condition from our continuing operations.
Developments During the Third Quarter Ended September 30, 2025:
Updates to Our Loan Portfolio During the Third Quarter Ended September 30, 2025
In July 2025, AFC Agent delivered a notice of default and acceleration to Private Company P based on certain payment defaults, including the failure to make its interest payment when due on July 1, 2025. We placed the loan with Private Company P on nonaccrual status effective June 1, 2025. In November 2025, the Company and AFC Agent entered into a mutual release and settlement agreement with Private Company P and other related parties to resolve various claims and counterclaims among the parties relating to, among other things, the Company’s credit facility with Private Company P and the underlying loan collateral. See further discussion in “Recent Developments”.
In August 2025, we entered into an agreement to purchase $10.0 million in outstanding principal amount of a senior secured term loan to Subsidiary of Public Company S, a publicly traded operator, at a 4.0% discount. The term loan under the Subsidiary of Public Company S Credit Facility accrues interest at a fixed rate per annum of 12.5% and matures in August 2030. Concurrently, our existing $10.0 million investment with Subsidiary of Public Company S was repaid at par plus accrued interest and we recognized an exit fee of approximately $0.2 million.
In August 2025, we were fully repaid on our loan with Private Company J at par plus accrued interest. The outstanding principal balance of the senior secured term loan on the date of repayment was approximately $23.2 million. We received exit fees of approximately $0.9 million upon repayment of the loan.
In September 2025, we entered into the third amendment to the credit agreement with Private Company O, which, among other things, increased the loan commitment by an additional $3.0 million under the terms of the existing credit agreement, extended the draw period and amortization start date until August 1, 2027 and increased the unused fee from 2.0% to 3.15%. All other material terms of the credit agreement remained substantially unchanged.
At-the-Market Offering Program
In April 2022, we filed a shelf registration statement on Form S-3 with the SEC, registering the offer and sale of up to $1.0 billion of securities (the “Prior Shelf Registration Statement”). The Prior Shelf Registration Statement enabled us to issue shares of common stock, preferred stock, debt securities, warrants, rights, as well as units that include one or more of such
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securities. On April 17, 2025, we filed a new shelf registration statement on Form S-3 (File No. 333-286604) (the “Shelf Registration Statement”) to replace the Prior Shelf Registration Statement, which was declared effective on April 25, 2025.
The Prior Shelf Registration Statement also included a prospectus for the ATM Program to sell up to an aggregate of $75.0 million of shares of our common stock 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 Citizens 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.
The ATM Program and related Sales Agreement expired in April 2025, in connection with the expiration of our Prior Shelf Registration Statement. During the three and nine months ended September 30, 2025, the Company did not sell any shares of the Company’s common stock under the Sales Agreement. We do not currently have an ATM program, but we may enter into a new ATM program and related sales agreement in the future pursuant to which sales may be made under the Shelf Registration Statement.
Dividends Declared Per Share
For the nine months ended September 30, 2025, we declared the following cash dividends:
| Date Declared | Payable to Shareholders of Record at the Close of Business on | Payment Date | Amount per Share | Total Amount | ||||||||||||||||||||||
| March 11, 2025 | March 31, 2025 | April 15, 2025 | $ | 0.23 | $ | 5,197,082 | ||||||||||||||||||||
| June 13, 2025 | June 30, 2025 | July 15, 2025 | 0.15 | 3,389,267 | ||||||||||||||||||||||
| September 15, 2025 | September 30, 2025 | October 15, 2025 | 0.15 | 3,389,181 | ||||||||||||||||||||||
2025 Period Subtotal | $ | 0.53 | $ | 11,975,530 | ||||||||||||||||||||||
Recent Developments
In October 2025, AFC Agent received approximately $5.4 million in total loan payments from Private Company A’s sale of its collateral assets, of which approximately $4.2 million was allocated to us relating to our pro rata portion of the Private Company A Credit Facility and was applied as a reduction to the amortized cost of the Private Company A loan. Following the payment, our outstanding principal balance under the Private Company A Credit Facility was approximately $46.8 million. AFC Agent continues to monitor the court-appointed receivership installed to maintain the borrower’s operations and maximize value for the benefit of its creditors.
Subsequent to the end of the reporting period, on November 6, 2025, the Company held the Special Meeting, at which shareholders approved the Proposals. In the coming months, the Board will consider other matters required to effect the Conversion. There can be no assurance that the Board will approve the matters required to effect the Conversion. In connection with these initiatives, we incurred approximately $0.6 million and $0.8 million of professional fees and related expenses during the three and nine months ended September 30, 2025, respectively, which are recorded within BDC conversion expenses line item in the Company’s consolidated statements of operations.
In November 2025, the Company and AFC Agent entered into a mutual release and settlement agreement with Private Company P and other related parties to resolve various claims and counterclaims among the parties relating to, among other things, the Company’s credit facility with Private Company P and the underlying loan collateral. In connection with the settlement and release, we will be paid a settlement in the amount of $13.3 million, less certain fees and expenses, with $6.0 million of the settlement payment to be financed by the Company via a new loan to Private Company T at a 10% interest rate. The new loan will be secured by a second priority lien on the borrower’s real property and a first priority lien on certain of the borrower’s equipment and other personal property. The new loan is to be repaid over a term of three years (subject to a one-year extension), with monthly cash payments of principal and interest. Closing of the settlement and the related loan is expected to occur in the fourth quarter of 2025. As of September 30, 2025, the Company’s net carrying value of its non-performing loan with Private Company P was approximately $11.2 million, which was net of a $4.1 million CECL Reserve.
In connection with the settlement and release, the Company expects to realize a taxable loss of approximately $4.1 million and write-off the CECL Reserve of $4.1 million once the closing of the transaction is completed. The Company currently expects that the realized tax loss will significantly impact the anticipated distributable earnings for the fourth quarter of 2025, and thus the Company does not anticipate paying a dividend for that quarter.
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Key Financial Measures and Indicators
As a commercial real estate finance company, we believe the key financial measures and indicators for our business are Distributable Earnings, book value per share and dividends declared per share.
Book Value Per Share
We believe that book value per share is helpful to shareholders in evaluating our growth as we scale our equity capital base and continue to invest in our target investments. The book value per share of our common stock as of September 30, 2025 and December 31, 2024 was approximately $7.49 and $9.02, respectively.
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 (reversal of) current expected credit losses, (v) TRS (income) loss, net of any dividends received from TRS 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.
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The following table provides a reconciliation of GAAP net income (loss) to distributable earnings:
| Three months ended September 30, | Nine months ended September 30, | ||||||||||||||||||||||
| 2025 | 2024 | 2025 | 2024 | ||||||||||||||||||||
| Net (loss) income | $ | (12,490,506) | $ | 1,383,734 | $ | (21,587,472) | $ | 17,775,739 | |||||||||||||||
| Adjustments to net income (loss): | |||||||||||||||||||||||
| Stock-based compensation expense | 487,436 | 218,643 | 1,525,687 | 1,131,208 | |||||||||||||||||||
| Depreciation and amortization | — | — | — | — | |||||||||||||||||||
| Unrealized losses (gains) or other non-cash items | 9,712,427 | 4,621,702 | 11,453,875 | 9,655,396 | |||||||||||||||||||
Provision for (reversal of) current expected credit losses(1)(2) | 7,372,778 | 181,370 | 20,747,674 | (1,077,196) | |||||||||||||||||||
| TRS (income) loss, net of dividends | (1,542,335) | 840,556 | (671,730) | 1,147,554 | |||||||||||||||||||
| One-time events pursuant to changes in GAAP and certain non-cash charges | — | — | — | — | |||||||||||||||||||
| Distributable earnings | $ | 3,539,800 | $ | 7,246,005 | $ | 11,468,034 | $ | 28,632,701 | |||||||||||||||
| Basic weighted average shares of common stock outstanding | 22,114,761 | 20,684,149 | 22,109,088 | 20,493,375 | |||||||||||||||||||
| Distributable earnings per basic weighted average share | $ | 0.16 | $ | 0.35 | $ | 0.52 | $ | 1.40 | |||||||||||||||
(1) In the prior period, the provision for current expected credit losses above included zero and approximately $71.9 thousand for the three and nine months ended September 30, 2024, respectively, in connection with the Spin-Off, which was included in the net income from discontinued operations, net of tax financial statement line on the consolidated statements of operations.
(2) The provision for (reversal of) current expected credit losses is presented net of any write-offs.
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 our borrowers.
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Results of Operations for the three and nine months ended September 30, 2025 and 2024
The following table summarizes our consolidated results of operations for the three and nine months ended September 30, 2025 and 2024:
| Three months ended September 30, | Nine months ended September 30, | ||||||||||||||||||||||
| 2025 | 2024 | 2025 | 2024 | ||||||||||||||||||||
| Revenue | |||||||||||||||||||||||
| Interest income | $ | 8,162,075 | $ | 10,455,021 | $ | 24,681,832 | $ | 42,767,720 | |||||||||||||||
| Interest expense | (1,631,127) | (1,572,705) | (5,304,572) | (4,749,143) | |||||||||||||||||||
| Net interest income | 6,530,948 | 8,882,316 | 19,377,260 | 38,018,577 | |||||||||||||||||||
| Expenses | |||||||||||||||||||||||
| Management and incentive fees, net (less rebate of $235,670, $180,552, $624,992 and $769,545, respectively) | 715,138 | 981,785 | 2,211,686 | 8,429,575 | |||||||||||||||||||
| General and administrative expenses | 674,342 | 857,304 | 2,255,049 | 2,941,942 | |||||||||||||||||||
| Stock-based compensation | 487,436 | 218,643 | 1,525,687 | 1,131,208 | |||||||||||||||||||
| Professional fees | 354,803 | 417,466 | 1,087,843 | 1,231,906 | |||||||||||||||||||
| BDC conversion expenses | 579,192 | — | 805,972 | — | |||||||||||||||||||
| Total expenses | 2,810,911 | 2,475,198 | 7,886,237 | 13,734,631 | |||||||||||||||||||
| (Provision for) reversal of current expected credit losses | (7,372,778) | (181,370) | (22,524,920) | 1,149,050 | |||||||||||||||||||
| Realized (losses) gains on investments, net | — | — | — | (93,338) | |||||||||||||||||||
| Change in unrealized gains (losses) on loans at fair value, net | (9,712,427) | (4,621,702) | (11,453,875) | (9,655,396) | |||||||||||||||||||
| Net (loss) income from continuing operations before income taxes | (13,365,168) | 1,604,046 | (22,487,772) | 15,684,262 | |||||||||||||||||||
| Income tax (benefit) expense | (874,662) | 386,256 | (900,300) | 830,591 | |||||||||||||||||||
| Net (loss) income from continuing operations | (12,490,506) | 1,217,790 | (21,587,472) | 14,853,671 | |||||||||||||||||||
Net income (loss) from continuing operations. Our net loss from continuing operations allocable to our common shareholders for the three and nine months ended September 30, 2025, was approximately $(12.5) million and $(21.6) million, or $(0.57) and $(0.99) per basic common share from continuing operations, respectively, compared to net income from continuing operations allocable to our common shareholders of approximately $1.2 million and $14.9 million, or $0.05 and $0.71 per basic common share from continuing operations for the three and nine months ended September 30, 2024, respectively.
Interest income. Interest income decreased approximately $(2.3) million, or (21.9)%, for the three months ended September 30, 2025, as compared to the three months ended September 30, 2024. The decrease was driven by lower interest income of approximately $(3.0) million due to loans with Private Company A, Private Company P, Subsidiary of Private Company G, and Private Company K on nonaccrual status.
Interest income decreased $(18.1) million, or (42.3)%, for the nine months ended September 30, 2025, as compared to the nine months ended September 30, 2024. The decrease in interest income was driven more loan exits and prepayments in the prior period, which resulted in ($3.7) million lower fee income, ($3.9) million lower OID income due to the acceleration of unaccreted OID, ($2.7) million lower interest income driven by less capital deployed and ($1.3) million lower PIK income during the nine months ended September 30, 2025, as compared to the nine months ended September 30, 2024, respectively. Loans on nonaccrual status resulted in ($6.6) million lower interest income period over period for the nine months ended.
Interest expense. Interest expense increased approximately $0.1 million, or 3.7%, for the three months ended September 30, 2025, as compared to the three months ended September 30, 2024, driven by an increase in time borrowings were outstanding on our Revolving Credit Facility resulting in additional interest expense of $0.1 million.
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Interest expense increased approximately $0.6 million, or 11.7%, for the nine months ended September 30, 2025, as compared to the nine months ended September 30, 2024, driven by an increase in time borrowings were outstanding on our Revolving Credit Facility resulting in additional interest expense of $0.5 million and an increase in unused fees of $0.1 million, respectively.
Management and incentive fees, net. Management fees decreased approximately $(13.5) thousand, or (1.9)%, for the three months ended September 30, 2025, as compared to the three months ended September 30, 2024. Management fees decreased approximately $(0.6) million, or (21.8)%, for the nine months ended September 30, 2025, as compared to the nine months ended September 30, 2024. The decrease in the nine months ended period over period was driven by lower equity, attributable to the Spin-Off of SUNS completed on July 9, 2024. In connection with the Spin-Off, we recognized a reduction to additional paid-in capital of approximately $115 million.
Incentive fees decreased approximately $(0.3) million and $(5.6) million, for the three and nine months ended September 30, 2025, as compared to the three and nine months ended September 30, 2024, respectively, driven by lower Core Earnings (as defined in the Management Agreement). There was no incentive fee incurred during the three and nine months ended September 30, 2025.
General and administrative expenses. General and administrative expenses decreased approximately $(0.2) million, or (21.3)%, and decreased $(0.7) million, or (23.3)%, and for the three and nine months ended September 30, 2025, as compared to the three and nine months ended September 30, 2024, respectively. The decrease in both the three and nine months ended was primarily due to less reimbursable shared expenses allocated by our Manager of approximately $(0.1) million and $(0.5) million, respectively.
Stock-based compensation. Stock-based compensation increased $0.3 million, or 122.9%, and $0.4 million, or 34.9%, for the three and nine months ended September 30, 2025 as compared to the three and nine months ended September 30, 2024, respectively.
Professional fees. Professional fees decreased approximately $(0.1) million, or (15.0)%, and decreased $(0.1) million, or (11.7)%, for the three and nine months ended September 30, 2025 as compared to the three and nine months ended September 30, 2024, respectively.
BDC conversion expenses. BDC conversion expenses are expensed as incurred and primarily include legal fees related to the creation and organization of our election to be regulated as a BDC. The Conversion process began during the second quarter of 2025 and we incurred approximately $0.6 million and $0.8 million of conversion expenses during the three and nine months ended September 30, 2025, respectively. No such costs were incurred in the prior year.
Realized (losses) gains. The decrease in realized losses recognized for the three and nine months ended September 30, 2025, compared to the three and nine months ended September 30, 2024, was driven by a realized loss recognized in the prior period due to separate sales of our investment in Subsidiary of Public Company M. There were no realized losses recognized during the three and nine months ended September 30, 2025, respectively.
Unrealized (losses) gains. Investments in loans held at fair value are recorded on the trade date at cost, which reflects the amount of principal funded net of any original issue discounts. An unrealized gain arises when the fair value of the loan portfolio exceeds its cost and an unrealized loss arises when the fair value of the loan portfolio is less than its cost. The net change in unrealized gain (loss) of approximately $(5.1) million and $(1.8) million for the three and nine months ended September 30, 2025, compared to the three and nine months ended September 30, 2024, respectively, was driven by the sale of our loan with Private Company B in the prior period with an unrealized loss that was recovered, as well as the net change in the valuation of the loans, which was impacted by changes in recovery rates.
Income tax (benefit) expense. Income taxes decreased approximately $(1.3) million, or (326.4)%, and decreased $(1.7) million, or (208.4)%, for the three and nine months ended September 30, 2025 as compared to the three and nine months ended September 30, 2024, respectively. The change was driven by lower taxable income resulting from the write-off recognized during the second quarter of 2025 associated with Public Company A equipment loan.
Provision for Current Expected Credit Losses
The provision for current expected credit losses increased approximately $7.2 million and $23.7 million for the three and nine months ended September 30, 2025 as compared to the three and nine months ended September 30, 2024, respectively. Our CECL Reserve as of September 30, 2025 was approximately $51.3 million, or 18.69%, of our total loans held at carrying value with a balance of approximately $274.7 million and was bifurcated between (i) the current expected credit
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loss reserve (contra-asset) related to outstanding balances on loans held at carrying value of approximately $51.2 million and (ii) a liability for unfunded commitments of approximately $0.2 million. The balance as of September 30, 2024 was approximately $25.3 million, or 10.70%, of our total loans held at carrying value and loan receivable held at carrying value balance of approximately $236.3 million and was bifurcated between (i) the current expected credit loss reserve (contra-asset) related to outstanding balances on loans held at carrying value and loan receivable held at carrying value of approximately $25.1 million and (ii) a liability for unfunded commitments of approximately $0.2 million. September 30, 2024 CECL Reserve balances exclude the commercial real estate loan portfolio and related CECL Reserve of SUNS in connection with the Spin-Off. The CRE CECL Reserve is included within discontinued operations for the prior periods presented. The liability is based on the unfunded portion of loan commitments over the full contractual period over which we are exposed to credit risk through a current obligation to extend credit. Management considered the likelihood that funding will occur, and if funded, the expected credit loss on the funded portion when determining the amount to allocate to its CECL Reserve. We continuously evaluate the credit quality of each loan by assessing the risk factors of each loan. The change in the provision for current expected credit losses for the three and nine months ended period over period was due to an increase in CECL Reserves for loans with a risk rating of “4” or “5” as a result of changes in macroeconomic factors, changes to the loan portfolio including new commitments and repayments, borrower payment status, and changes in other data points we use in estimating the reserve.
Loan Portfolio
As of September 30, 2025, our portfolio was comprised of 14 loans (such portfolio, our “Existing Portfolio”). The aggregate originated commitment under these loans was approximately $344.6 million and outstanding principal was approximately $332.8 million as of September 30, 2025.
As of September 30, 2025, we had four loans on nonaccrual status, which included three loans held for investment with a carrying value of $104.2 million and carrying value net of CECL Reserve of $59.9 million, and one loan held at fair value with an outstanding principal balance of $51.0 million and fair value of $16.9 million.
The table below summarizes our total loan portfolio as of September 30, 2025, unless otherwise specified. Borrower names have been kept confidential due to confidentiality agreement obligations.
| Loan Names | Original Funding Date(1) | Loan Maturity | AFC Loan, net of Syndication | % of Total AFC | Principal Balance as of 9/30/2025 | Cash Interest Rate | PIK | Fixed/ Floating | Amortization During Term | YTM (2) | ||||||||||||||||||||||
Private Co. A(3) | 5/8/2020 | 5/8/2024 | $ | 42,309,775 | 12.3% | $ | 50,975,329 | 13.0% | 2.5% | Fixed | No | —% | ||||||||||||||||||||
Sub of Private Co. G(4) | 4/30/2021 | 5/1/2026 | 73,164,277 | 21.2% | 78,880,165 | 12.5% | N/A | Fixed | No | —% | ||||||||||||||||||||||
Private Co. K(5) | 4/28/2022 | 5/3/2027 | 13,229,626 | 3.8% | 12,195,762 | 16.1% | 2.0% | Floating | Yes | —% | ||||||||||||||||||||||
| Private Co. L | 4/20/2022 | 5/1/2026 | 32,757,254 | 9.5% | 29,575,644 | 13.0% | N/A | Floating | Yes | 19% | ||||||||||||||||||||||
Private Co. M | 7/31/2023 | 7/31/2026 | 30,000,000 | 8.7% | 25,099,497 | 9.0% | N/A | Fixed | Yes | 18% | ||||||||||||||||||||||
| Private Co. N - Real Estate | 3/22/2024 | 4/1/2028 | 19,327,505 | 5.6% | 19,327,505 | 12.5% | N/A | Floating | Yes | 16% | ||||||||||||||||||||||
| Private Co. N - Non-Real Estate | 3/22/2024 | 4/1/2028 | 17,200,000 | 5.0% | 17,200,000 | 12.5% | N/A | Floating | Yes | 16% | ||||||||||||||||||||||
| Private Co. O | 5/20/2024 | 6/1/2028 | 10,500,000 | 3.0% | 5,358,890 | 13.5% | N/A | Floating | Yes | 19% | ||||||||||||||||||||||
Private Co. P(6) | 6/18/2024 | 7/1/2027 | 15,126,433 | 4.4% | 15,609,914 | 13.0% | N/A | Fixed | Yes | —% | ||||||||||||||||||||||
| Private Co. Q | 8/16/2024 | 9/1/2028 | 11,000,000 | 3.2% | 6,449,453 | 13.8% | N/A | Floating | Yes | 18% | ||||||||||||||||||||||
| Private Co. R | 10/4/2024 | 11/1/2027 | 41,000,000 | 11.9% | 34,828,192 | 12.0% | N/A | Floating | Yes | 15% | ||||||||||||||||||||||
| Private Co. U | 2/14/2025 | 3/1/2028 | 15,000,000 | 4.4% | 15,000,000 | 14.0% | N/A | Fixed | Yes | 16% | ||||||||||||||||||||||
| Sub of Private Co. V | 4/1/2025 | 4/1/2029 | 14,000,000 | 4.1% | 12,323,460 | 12.5% | 1.5% | Fixed | Yes | 17% | ||||||||||||||||||||||
| Sub. of Public Co. S | 8/13/2025 | 8/13/2030 | 10,000,000 | 2.9% | 10,000,000 | 12.5% | N/A | Fixed | No | 15% | ||||||||||||||||||||||
Subtotal(7) | $ | 344,614,870 | 100.0% | $ | 332,823,811 | 12.6% | 0.5% | |||||||||||||||||||||||||
(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)YTM excludes loans on nonaccrual status. 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
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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. Estimated YTM is calculated using the interest rate as of September 30, 2025 applied through maturity. Actual results could differ from those estimates and assumptions.
(3)Cash interest and PIK interest rates for Private Company A represent a blended rate of differing cash interest and PIK interest rates applicable to each of the tranches to which the Company is a lender under the senior secured term loan credit facility with Private Company A (as may be amended, restated, and supplemented or otherwise modified from time to time, the “Private Company A Credit Facility”). In October 2023, AFC Agent delivered a notice of default to Private Company A based on certain financial and other covenant defaults and began charging additional default interest of 5.0%, beginning as of July 1, 2023, in accordance with the terms of the Private Company A Credit Facility. Effective March 1, 2024, Private Company A was placed on nonaccrual status. The maturity date passed on the credit facility to Private Company A without repayment. In November 2023, Private Company A was placed into receivership to maintain the borrower’s operations and maximize value for the benefit of its creditors. The court-appointed receiver is determining the amount of principal payments the borrower is able to repay either from operations or from sale of collateral assets on a monthly basis.
(4)Effective December 1, 2023, the Company placed the borrower on nonaccrual status.
(5)Effective December 1, 2023, the Company placed the borrower on nonaccrual status.
(6)Effective June 1, 2025, the Company placed the borrower on nonaccrual status.
(7)The interest and PIK subtotal rates are weighted average rates.
Loans Held for Investment at Fair Value
As of September 30, 2025 and December 31, 2024, our portfolio included one loan held at fair value. The aggregate commitment under this loan was approximately $42.3 million and $44.4 million, respectively, and outstanding principal was approximately $51.0 million and $53.1 million as of September 30, 2025 and December 31, 2024, respectively. For the nine months ended September 30, 2025, we received approximately $2.1 million of principal repayments of loans held at fair value. As of September 30, 2025 and December 31, 2024, our loan held at fair value did not have a floating interest rate.
The following tables summarize our loan held at fair value as of September 30, 2025 and December 31, 2024:
| As of September 30, 2025 | |||||||||||||||||||||||
Fair Value(1) | Carrying Value(2) | Outstanding Principal(2) | Weighted Average Remaining Life (Years)(3) | ||||||||||||||||||||
| Senior term loan | $ | 16,923,809 | $ | 48,107,898 | $ | 50,975,329 | 0.0 | ||||||||||||||||
| Total loan held at fair value | $ | 16,923,809 | $ | 48,107,898 | $ | 50,975,329 | 0.0 | ||||||||||||||||
| As of December 31, 2024 | |||||||||||||||||||||||
Fair Value(1) | Carrying Value(2) | Outstanding Principal(2) | Weighted Average Remaining Life (Years)(3) | ||||||||||||||||||||
| Senior term loan | $ | 30,510,804 | $ | 50,241,018 | $ | 53,108,449 | 0.0 | ||||||||||||||||
| Total loan held at fair value | $ | 30,510,804 | $ | 50,241,018 | $ | 53,108,449 | 0.0 | ||||||||||||||||
(1)Refer to Note 13 to our 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)As of September 30, 2025 and December 31, 2024, the maturity date passed on the credit facility with Private Company A without repayment.
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The following table presents changes in loans held at fair value as of and for the nine months ended September 30, 2025:
| Principal | Original Issue Discount | Unrealized Gains (Losses) | Fair Value | ||||||||||||||||||||
| Total loan held at fair value at December 31, 2024 | $ | 53,108,449 | $ | (2,867,431) | $ | (19,730,214) | $ | 30,510,804 | |||||||||||||||
| Change in unrealized gains (losses) on loans at fair value, net | — | — | (11,453,875) | (11,453,875) | |||||||||||||||||||
| Loan repayments | (2,133,120) | — | — | (2,133,120) | |||||||||||||||||||
| Total loan held at fair value at September 30, 2025 | $ | 50,975,329 | $ | (2,867,431) | $ | (31,184,089) | $ | 16,923,809 | |||||||||||||||
Loans Held for Investment at Carrying Value
As of September 30, 2025 and December 31, 2024, our portfolio included 13 and 14 loans held at carrying value, respectively. As of September 30, 2025 and December 31, 2024, the aggregate originated commitment under these loans was approximately $302.3 million and $312.8 million, respectively, and outstanding principal was approximately $281.8 million and $301.8 million, respectively. During the nine months ended September 30, 2025, we funded approximately $40.7 million of new loans and additional principal and had approximately $61.0 million of principal repayments of loans held at carrying value. As of September 30, 2025 and December 31, 2024, approximately 44% and 52%, respectively, of our loans held at carrying value had floating interest rates. As of September 30, 2025, these floating benchmark rates included one-month Secured Overnight Financing Rate (“SOFR”) quoted at 4.1% and subject to a weighted average floor of 4.3% based on outstanding principal.
The following tables summarize our loans held at carrying value as of September 30, 2025 and December 31, 2024:
| As of September 30, 2025 | |||||||||||||||||||||||
Outstanding Principal(1) | Original Issue Discount | Carrying Value(1) | Weighted Average Remaining Life (Years)(2) | ||||||||||||||||||||
| Senior term loans | $ | 281,848,482 | $ | (7,122,813) | $ | 274,725,669 | 1.6 | ||||||||||||||||
| Total loans held at carrying value | $ | 281,848,482 | $ | (7,122,813) | $ | 274,725,669 | 1.6 | ||||||||||||||||
| As of December 31, 2024 | |||||||||||||||||||||||
Outstanding Principal(1) | Original Issue Discount | Carrying Value(1) | Weighted Average Remaining Life (Years)(2) | ||||||||||||||||||||
| Senior term loans | $ | 301,755,791 | $ | (8,493,417) | $ | 293,262,374 | 1.9 | ||||||||||||||||
| Total loans held at carrying value | $ | 301,755,791 | $ | (8,493,417) | $ | 293,262,374 | 1.9 | ||||||||||||||||
(1)The difference between the carrying value and the outstanding principal amount of the loans consists of unaccreted OID and loan origination costs.
(2)Weighted average remaining life is calculated based on the carrying value of the loans as of September 30, 2025 and December 31, 2024.
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The following table presents changes in loans held at carrying value as of and for the nine months ended September 30, 2025:
| Principal | Original Issue Discount | Carrying Value | |||||||||||||||
| Total loans held at carrying value at December 31, 2024 | $ | 301,755,791 | $ | (8,493,417) | $ | 293,262,374 | |||||||||||
| New fundings | 40,700,409 | (1,270,000) | 39,430,409 | ||||||||||||||
| Accretion of original issue discount | — | 2,640,604 | 2,640,604 | ||||||||||||||
| Loan repayments | (46,877,502) | — | (46,877,502) | ||||||||||||||
| PIK interest | 418,023 | — | 418,023 | ||||||||||||||
| Loan amortization payments | (14,148,239) | — | (14,148,239) | ||||||||||||||
| Total loans held at carrying value at September 30, 2025 | $ | 281,848,482 | $ | (7,122,813) | $ | 274,725,669 | |||||||||||
Loan Receivable Held at Carrying Value
As of September 30, 2025 and December 31, 2024, our portfolio included zero and one loan receivable held at carrying value. The originated commitment under this loan was $4.0 million and outstanding principal was approximately zero and $1.9 million as of September 30, 2025 and December 31, 2024, respectively. During the nine months ended September 30, 2025, we received $0.1 million of principal repayments of loan receivable held at carrying value. Based on discussions with the collateral agent, no further proceeds were expected and we deemed the remaining balance on the loan with Public Company A to be uncollectible. Prior to the write-off, the loan receivable had a CECL Reserve that was fully reserved for. During the second quarter of 2025, we wrote off $1.8 million, which was equal to the carrying value of the loan receivable, excluding the CECL Reserve at the time the loan was written off.
The following table presents changes in loans receivable as of and for the nine months ended September 30, 2025:
| Principal | Original Issue Discount | Carrying Value | |||||||||||||||
| Total loan receivable held at carrying value at December 31, 2024 | $ | 1,897,324 | $ | (1,686) | $ | 1,895,638 | |||||||||||
| Loan repayments | (118,392) | — | (118,392) | ||||||||||||||
| Loan write-off | (1,778,932) | 1,686 | (1,777,246) | ||||||||||||||
| Total loan receivable held at carrying value at September 30, 2025 | $ | — | $ | — | $ | — | |||||||||||
Collateral Overview
Our loans are typically secured by various types of assets of our borrowers, including real property and certain personal property, such as cash flows and the value associated with licenses (where applicable), equipment, and other assets to the extent permitted by applicable laws and the regulations governing our borrowers.
With respect to our loans to cannabis operators, 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 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
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realization of the value of licenses requires the approval of regulatory authorities. As of September 30, 2025, our portfolio of assets held outside of TRS1 had a weighted average real estate collateral coverage of approximately 1.0 times our aggregate committed principal amount of such loans, with the real estate collateral coverage for each of our loans measured as of the time of closing for such loan and based on various sources of data available at such time. We calculate our weighted average real estate collateral coverage by estimating the underlying value of our real estate collateral based on various objective and subjective factors, including, without limitation, third-party appraisals, total cost basis of the subject property and/or our own internal estimates.
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 even for loans to cannabis operators, the collateral securing our loans may be sold 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 with respect to loans to cannabis operators. 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 the Revolving Credit Facility, the net proceeds of future debt or equity offerings, payments of principal and interest we receive on our portfolio of assets and cash generated from our operating results.
Our net cash provided by operating activities for the nine months ended September 30, 2025 of approximately $11.8 million was less than our dividends declared of $12.0 million made during the same period due to earned OID of $2.6 million and PIK repayments of $2.7 million related to the repayment from Private Company J 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.
As of September 30, 2025 and December 31, 2024, all of our cash was unrestricted and totaled approximately $45.1 million and $103.6 million, respectively.
As of September 30, 2025, we believe that our cash on hand, capacity available under the Revolving Credit Facility and cash flows from operations will be sufficient to satisfy the operating requirements of our business through at least the next twelve months.
Capital Markets
Our current Shelf Registration Statement became effective on April 25, 2025, 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. As of September 30, 2025, the ATM Program was no longer in effect.
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The ATM Program and related Sales Agreement expired in April 2025, in connection with the expiration of our Prior Shelf Registration Statement. We do not currently have an ATM program, but we may enter into a new ATM program and related sales agreement in the future pursuant to which sales may be made under the Shelf Registration Statement.
We may seek to raise further equity capital and issue debt securities in order to fund our future investments in loans, as we expect our expanded investment focus to require additional capital.
Revolving Credit Facility
On April 29, 2022, we entered into the Revolving Credit Facility, which contained initial aggregate commitments of $60.0 million from two FDIC-insured banking institutions, (which may be increased to up to $100.0 million in aggregate, subject to available borrowing base and additional commitments) which may be borrowed, repaid and redrawn, subject to a borrowing base based on eligible loan obligations held by us and subject to the satisfaction of other conditions provided under the Revolving Credit Agreement. The Revolving Credit Facility’s initial maturity date of April 29, 2025 was extended to April 29, 2028 under Amendment Number Four to the Revolving Credit Agreement, as described further below.
In April 2025, we entered into Amendment Number Four to Loan and Security Agreement, by and among the Company, as borrower, the lenders party thereto, and the lead arranger, bookrunner and administrative agent party thereto. Amendment Number Four, among other things, (i) extends the maturity date of the Revolving Credit Agreement to April 29, 2028, (ii) increases the interest rate floor from 4.00% to 7.00%, (iii) permits certain restricted payments to be made upon the Company meeting certain terms and conditions, and (iv) expands the collateral secured under the Revolving Credit Agreement from assets comprising of or relating to loan obligations designed for inclusion in the borrower base to substantially all of the Company’s and its subsidiaries’ assets. In connection with the amendment, the Revolving Credit Facility has a lead commitment of $30.0 million from a FDIC-insured banking institution (which may be increased up to $100.0 million in aggregate, subject to available borrowing base and additional commitments) which may be borrowed, repaid and redrawn, subject to a borrowing base based on eligible loan obligations held by the Company and subject to the satisfaction of other conditions provided under the Revolving Credit Facility.
In June 2025, we entered into Amendment Number Five to the Loan and Security Agreement, by and among the Company, as borrower, the lenders party thereto, and the lead arranger, bookrunner and administrative agent party thereto. Amendment Number Five among other things increased the commitment from the lenders by $20.0 million, to a total aggregate commitment of $50.0 million.
Our obligations under the Revolving Credit Facility are secured by certain assets of ours comprising of or relating to loan obligations designated for inclusion in the borrowing base. 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. To the best of our knowledge, as of September 30, 2025, we were in compliance in all material respects with all covenants contained in our Revolving Credit Agreement.
AFCF Credit Facility
In December 2024, we entered into the AFCF Credit Facility, which provides for an unsecured revolving credit facility with a $40.0 million commitment, which may be borrowed, repaid and redrawn, subject to a draw fee and the other conditions provided in the AFCF Credit Agreement.
In April 2025, in conjunction with the entry by the Company into Amendment Number Four to the Revolving Credit Agreement, we terminated that certain AFCF Credit Agreement, dated December 17, 2024. At the time of termination, we had no borrowings outstanding and $40.0 million of availability under our AFCF Credit Facility. As of September 30, 2025, the AFCF Credit Facility was no longer in effect.
2027 Senior Notes
On November 3, 2021, we issued $100.0 million in 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, which began 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. We used the net 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
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operating in the cannabis industry that are consistent with our investment strategy and (iii) for working capital and other general corporate purposes. The terms of the 2027 Senior Notes are governed by the Indenture. Under the Indenture governing the 2027 Senior Notes, 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. TRS1 is currently a subsidiary guarantor under the Indenture.
Prior to February 1, 2027, we 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 governing the 2027 Senior Notes contains customary terms and restrictions, subject to a number of exceptions and qualifications, including restrictions on our ability to (1) incur additional indebtedness unless the Annual Debt Service Charge (as defined in the Indenture) is no less than 1.5 to 1.0, (2) incur or maintain total debt in an aggregate principal amount greater than 60% of our consolidated Total Assets (as defined in the Indenture), (3) incur or maintain secured debt in an aggregate principal amount greater than 25% of our consolidated Total Assets (as defined in the 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 Notes | Issue Date | Amount Outstanding | Interest Rate Coupon | Maturity Date | Interest Due Dates | Optional Redemption Date | ||||||||||||||||||||||||||||||||
| 2027 Senior Notes | November 3, 2021 | $90.0 million | 5.75% | May 1, 2027 | May 1 and November 1 | February 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 September 30, 2025, we believe that our cash on hand, capacity available under our Revolving Credit Facility and cash flows from operations will be sufficient to service our outstanding debt during the next twelve months.
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Cash Flows
Cash provided by (used in) operating, investing and financing activities of continuing operations for the nine months ended September 30, 2025 and 2024 is as follows:
| Nine months ended September 30, | |||||||||||
| 2025 | 2024 | ||||||||||
| Net cash provided by (used in) operating activities of continuing operations | $ | 11,796,234 | $ | 16,064,202 | |||||||
| Net cash provided by (used in) investing activities of continuing operations | $ | 23,846,844 | $ | 99,298,100 | |||||||
| Net cash (used in) provided by financing activities of continuing operations | $ | (94,133,149) | $ | (70,885,129) | |||||||
Net Cash Provided by (Used in) Operating Activities of Continuing Operations
Net cash provided by operating activities of continuing operations during the nine months ended September 30, 2025 was approximately $11.8 million, compared to approximately $16.1 million for the same period in 2024. The decrease of approximately $(4.3) million period over period was primarily due lower revenue and related incoming cash payments from borrowers due to loans on nonaccrual status and no sales of loans in the current year, partially offset by lower management and incentive paid to our Manager period over period.
Net Cash Provided by (Used in) Investing Activities of Continuing Operations
Net cash provided by investing activities of continuing operations during the nine months ended September 30, 2025 was approximately $23.8 million, compared to approximately $99.3 million for the same period in 2024. The decrease in net cash used in investing activities of approximately $(75.5) million during the nine months ended September 30, 2024 to September 30, 2025 was primarily due to a decrease in proceeds from the sale of loans in the prior period of $(96.1) million, partially offset by an increase on loan repayments of approximately $10.0 million and a decrease in loan fundings of approximately $10.6 million, respectively.
Net Cash (Used in) Provided by Financing Activities of Continuing Operations
Net cash used in financing activities of continuing operations during the nine months ended September 30, 2025 was approximately $(94.1) million, compared to approximately $(70.9) million for the same period in 2024. The decrease of approximately $(23.2) million during the nine months ended September 30, 2024 to September 30, 2025 was primarily due to a decrease in borrowings on the Revolving Credit Facility and the AFCF Credit Facility of $(114.4) million in the aggregate, partially offset by a decrease in repayments on the Revolving Credit Facility and the AFCF Credit Facility of $18.4 million in the aggregate and decrease in cash distributions in connection with the Spin-Off of SUNS of approximately $67.9 million, respectively.
Cash provided by (used in) operating, investing and financing activities of discontinued operations for the nine months ended September 30, 2025 and 2024 is as follows:
| Nine months ended September 30, | |||||||||||
| 2025 | 2024 | ||||||||||
| Net cash provided by (used in) operating activities of discontinued operations | $ | — | $ | 3,271,445 | |||||||
| Net cash (used in) provided by investing activities of discontinued operations | $ | — | $ | (47,211,339) | |||||||
| Net cash provided by (used in) financing activities of discontinued operations | $ | — | $ | — | |||||||
Net Cash Provided by (Used in) Operating Activities of Discontinued Operations
Net cash provided by operating activities of discontinued operations during the nine months ended September 30, 2025 was zero, compared to approximately $3.3 million for the same period in 2024. The decrease of approximately $(3.3) million during the nine months ended September 30, 2024 to September 30, 2025 was primarily due to a decrease in net income from discontinued operations of $(2.9) million and changes in working capital of $(0.3) million, respectively.
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Net Cash Provided by (Used in) Investing Activities of Discontinued Operations
Net cash used in investing activities of discontinued operations during the nine months ended September 30, 2025 was zero, compared to net cash provided by investing activities of $(47.2) million for the same period in 2024. The increase of net cash used in investing activities of discontinued operations was primarily due to the issuance and fundings on loans of approximately $(67.3) million, offset by principal repayments of loans of $15.1 million, respectively.
Net Cash Provided by (Used in) Financing Activities of Discontinued Operations
There were no cash flows related to financing activities of discontinued operations during the nine months ended September 30, 2025 and 2024.
Contractual Obligations, Other Commitments, and Off-Balance Sheet Arrangements
Our contractual obligations as of September 30, 2025 are as follows:
| As of September 30, 2025 | |||||||||||||||||||||||||||||
| Less than 1 year | 1-3 years | 3-5 years | More than 5 years | Total | |||||||||||||||||||||||||
| Unfunded commitments | $ | 6,227,088 | $ | 5,141,110 | $ | — | $ | — | $ | 11,368,198 | |||||||||||||||||||
| Total | $ | 6,227,088 | $ | 5,141,110 | $ | — | $ | — | $ | 11,368,198 | |||||||||||||||||||
As of September 30, 2025, all unfunded commitments were related to our total loan commitments and were available for funding in less than two years.
We also had the following contractual obligations as of September 30, 2025 relating to the 2027 Senior Notes:
| As of September 30, 2025 | |||||||||||||||||||||||||||||
| Less than 1 year | 1-3 years | 3-5 years | More than 5 years | Total | |||||||||||||||||||||||||
Contractual obligations(1) | $ | 5,175,000 | $ | 95,175,000 | $ | — | $ | — | $ | 100,350,000 | |||||||||||||||||||
| Total | $ | 5,175,000 | $ | 95,175,000 | $ | — | $ | — | $ | 100,350,000 | |||||||||||||||||||
(1) Amounts include projected interest payments during the period based on interest rates in effect as of September 30, 2025.
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, 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.
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
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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 September 30, 2025, there were no significant changes in or changes in the application of our critical accounting policies or estimates from those presented in our Annual Report on Form 10-K.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Risk Management
To the extent consistent with maintaining our REIT qualification and our exemption from registration under the 1940 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.
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 September 30, 2025 and December 31, 2024, one loan held for investment was carried at fair value within loans held at fair value in our consolidated balance sheets, respectively, 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
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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. Alternative valuation methodologies may be used as appropriate, and can include a market analysis, income analysis, or recovery analysis. To determine fair value using a yield analysis, a current price is imputed for the loan based upon an assessment of the expected market yield for a similarly structured loan with a similar level of risk. In the yield analysis, 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, recovery rates, and revenue multiples 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, while a decrease in revenue multiples and recovery rates 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.
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. Alternative valuation methodologies may be used as appropriate, and can include a market analysis, income analysis, or recovery analysis. Changes in market yields, revenue multiples, and recovery rates 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, while a decrease in revenue multiples and recovery rates 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 September 30, 2025, 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 $0.3 million and $(0.3) million, respectively. As of September 30, 2025, we had seven floating-rate loans, representing approximately 38% of our portfolio based on aggregate outstanding principal balances. These floating benchmark rates included one-month SOFR quoted at 4.1% and subject to a weighted average floor of 4.3% based on outstanding principal. 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 $0.6 million and a hypothetical 100 basis points decrease in the floating benchmark rate would result in a decrease in annual interest income of approximately $(0.1) million.
Interest Rate Cap Risk
Through our Manager, we originate both fixed and floating rate loans. 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
53
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.
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 SOFR, 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 ongoing 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 1940 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 September 30, 2025 was concentrated with the top three borrowers representing approximately 49.5% of the aggregate outstanding principal balances and approximately 45.4% of the total loan commitments. Additionally, the industry is experiencing significant consolidation, which we expect to increase, 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 23.7% of the aggregate outstanding principal balances of our portfolio and approximately 21.2% of our total loan commitments as of September 30, 2025. The borrower under this credit facility is a Subsidiary of Private Company G, 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. This senior term loan accrues interest at a fixed rate of 12.5%, a minimum portion of which is payable in cash pursuant to the excess cash flow sweep, and the remainder of which, if any, is paid in kind. We placed Subsidiary of Private Company G on nonaccrual status effective December 1, 2023 and previously during various periods in 2023. As of September 30, 2025, the loan with Subsidiary of Private
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Company G had an outstanding principal amount of approximately $78.9 million and an amortized cost of approximately $77.4 million, respectively. During the three and nine months ended September 30, 2025, we recognized interest income of zero and approximately $0.7 million related to this loan, which was received in cash. As full recovery of principal and accrued interest is doubtful, future cash receipts received in accordance with terms of the forbearance agreement are accounted for under the cost recovery method. During the three and nine months ended September 30, 2025, zero and $0.3 million of contractual interest payments were received and applied as a reduction to this loan’s amortized cost, respectively.
We primarily 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 core 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.
Item 4. Controls and Procedures
Evaluation of Disclosure Controls and Procedures
An evaluation of the effectiveness of the design and operation of our “disclosure controls and procedures” (as defined in Rule 13a-15(e) and 15(d)-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”)), 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 (“CEO”) and Chief Financial Officer (“CFO”). Based upon this evaluation, our CEO and CFO 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 recorded, processed, summarized and reported within the time periods specified by the SEC rules and forms 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 CEO and CFO, as appropriate to allow timely decisions regarding required disclosure.
Any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives. Because of these and other inherent limitations of control systems, even effective disclosure controls and procedures can only provide reasonable assurance of achieving their control objectives.
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 September 30, 2025 that have materially affected, or 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.
On September 9, 2025, a complaint was filed in the Superior Court of the State of California in Los Angeles County naming, among others, the Company, the Manager, and certain of their officers and/or directors as defendants. On September 19, 2025, an amended complaint was filed in the same action that revised certain allegations, but did not assert new causes of action or add or remove plaintiffs or defendants. The amended complaint was filed by the parent company and two subsidiaries of Private Company G. The Company has filed separate legal actions in New York against the
55
guarantors of the loan the Company made to the two subsidiaries (among other borrowers), and those two subsidiaries have filed an action against the Company (and others) in New Jersey. The complaint alleges that the Company conspired with a restructuring advisory firm to mismanage the borrowers’ operations and wrongfully seize their assets during a forbearance period that followed the borrowers’ material defaults under the credit facility. The complaint alleges claims for breach of fiduciary duty, conversion, intentional interference with contract, and unjust enrichment, and seeks substantial monetary damages. The Company, the Manager, and affiliated officers and/or directors (but not the restructuring advisory firm) are preparing a motion to quash the summonses on the grounds of lack of personal jurisdiction over them in California. The Company believes the claims are baseless and intends to vigorously defend this matter.
Item 1A. Risk Factors
There have been no material changes to the risk factors disclosed in Item 1A - “Risk Factors” in the Company’s Annual Report for the fiscal year ended December 31, 2024 and as disclosed in Item 1A. “Risk Factors” in subsequently filed Quarterly Reports on Form 10-Q.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
Recent Sales of Unregistered Securities
None.
Issuer Purchases of Equity Securities
None.
Item 3. Defaults Upon Senior Securities
None.
Item 4. Mine Safety Disclosures
Not applicable.
Item 5. Other Information
During the fiscal quarter ended September 30, 2025, none
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Item 6. Exhibits
| Exhibit No. | Description of Exhibits | ||||
Separation and Distribution Agreement, dated as of July 8, 2024, by and between Advanced Flower Capital Inc. (formerly known as AFC Gamma, Inc.) and Sunrise Realty Trust, Inc. (filed as Exhibit 2.1 to the Company’s Current Report on Form 8-K on July 8, 2024 and incorporated herein by reference). | |||||
Articles of Amendment and Restatement of Advanced Flower Capital Inc. (formerly known as 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). | |||||
| Articles of Amendment, dated October 22, 2024 (filed as Exhibit 3.1 to the Company’s Current Report on Form 8-K on October 22, 2024 and incorporated herein by reference). | |||||
Second Amended and Restated Bylaws of Advanced Flower Capital Inc. (formerly known as AFC Gamma, Inc.) (filed as Exhibit 3.2 to the Company’s Current Report on Form 8-K on October 22, 2024 and incorporated herein by reference). | |||||
Indenture, dated as of November 3, 2021, by and between Advanced Flower Capital Inc. (formerly known as AFC Gamma, Inc.) and TMI Trust Company, as trustee (filed as Exhibit 4.1 to the Company’s Current Report on Form 8-K on November 3, 2021 and incorporated herein by reference). | |||||
| Form of 5.750% Senior Notes due 2027 (included in Exhibit 4.2). | |||||
Sixth Amendment to Amended and Restated Management Agreement, dated August 13, 2025 by and between Advanced Flower Capital Inc. and AFC Management, LLC. | |||||
List of Subsidiaries of the Registrant | |||||
| 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.SCH | Inline XBRL Taxonomy Extension Schema Document. | ||||
| 101.DEF | Inline XBRL Taxonomy Extension Definition Linkbase Document. | ||||
| 101.CAL | Inline XBRL Taxonomy Extension Calculation Linkbase Document. | ||||
| 101.LAB | Inline XBRL Taxonomy Extension Label Linkbase Document. | ||||
| 101.PRE | Inline XBRL Taxonomy Extension Presentation Linkbase Document. | ||||
| 104 | Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101) | ||||
* Filed herewith
** Furnished herewith
57
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
Date: November 12, 2025 | ||||||||
| ADVANCED FLOWER CAPITAL INC. | ||||||||
| By: | /s/ Daniel Neville | |||||||
| Daniel Neville | ||||||||
Chief Executive Officer | ||||||||
| (Principal Executive Officer) | ||||||||
| By: | /s/ Brandon Hetzel | |||||||
| Brandon Hetzel | ||||||||
| Chief Financial Officer and Treasurer | ||||||||
| (Principal Financial Officer and Principal Accounting Officer) | ||||||||
58
Exhibit 21.1
List of Subsidiaries of the Registrant
AFCG TRS1, LLC
TCGDL LLC
Exhibit 31.1
CERTIFICATION OF PRINCIPAL EXECUTIVE OFFICER PURSUANT TO
SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
I, Daniel Neville, certify that:
1.I have reviewed this Quarterly report on Form 10-Q of Advanced Flower Capital 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)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) 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)Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
(c)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
(d)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: November 12, 2025 | ||||||||
| By: | /s/ Daniel Neville | |||||||
| Daniel Neville | ||||||||
| Chief Executive Officer | ||||||||
| (Principal Executive Officer) | ||||||||
Exhibit 31.2
CERTIFICATION OF PRINCIPAL EXECUTIVE OFFICER PURSUANT TO
SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
I, Brandon Hetzel, certify that:
1.I have reviewed this Quarterly report on Form 10-Q of Advanced Flower Capital 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)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) 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)Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
(c)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
(d)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: November 12, 2025 | ||||||||
| By: | /s/ Brandon Hetzel | |||||||
| Brandon Hetzel | ||||||||
| 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 Advanced Flower Capital Inc. (the “Company”) for the period ending September 30, 2025, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), the undersigned, Daniel Neville, 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: November 12, 2025 | ||||||||
| By: | /s/ Daniel Neville | |||||||
| Daniel Neville | ||||||||
| Chief Executive Officer | ||||||||
| (Principal Executive Officer) | ||||||||
*A signed original of this written statement required by Section 906 has been provided to Advanced Flower Capital Inc. and will be retained by Advanced Flower Capital 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 Advanced Flower Capital Inc. (the “Company”) for the period ending September 30, 2025, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), the undersigned, Brandon Hetzel, 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: November 12, 2025 | ||||||||
| By: | /s/ Brandon Hetzel | |||||||
| Brandon Hetzel | ||||||||
| 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 Advanced Flower Capital Inc. and will be retained by Advanced Flower Capital Inc. and furnished to the Securities and Exchange Commission or its staff upon request.