Advanced Flower Capital Inc 10-Q for FY2021 Q1

Advanced Flower Capital Inc. (AFCG)

10-Q 2021-05-11 For: 2021-03-31

Added on April 07, 2026

About this 10-Q

Advanced Flower Capital Inc filed this 10-Q on May 11, 2021, covering the quarter ended March 31, 2021 (FY2021 Q1).

Headline figures

Quarter ended March 31, 2021, as reported in this filing, compared with the same period a year earlier where the filing states it.

Revenue: $4.69M
Net income: $1.4M
Diluted EPS: $0.19

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Part I.	Financial Information
Item 1.	Financial Statements	1
	Balance Sheets as of March 31, 2021 (unaudited) and December 31, 2020	1
	Statement of Operations for the three months ended March 31, 2021 (unaudited)	2
	Statement of Stockholders’ Equity for the three months ended March 31, 2021 (unaudited)	3
	Statement of Cash Flows for the three months ended March 31, 2021 (unaudited)	4
	Notes to Financial Statements (unaudited)	5
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	18
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	31
Item 4.	Controls and Procedures	34
Part II.	Other Information	35
Item 1.	Legal Proceedings	35
Item 1A.	Risk Factors	35
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	35
Item 3.	Defaults Upon Senior Securities	36
Item 4.	Mine Safety Disclosures	36
Item 5.	Other Information	36
Item 6.	Exhibits	36

	As Of
	March 31, 2021			December 31, 2020
	(unaudited)
Assets
Loans held for investment at fair value (cost of $48,833,111 and $46,994,711 at March 31, 2021 and December 31, 2020, respectively, net)	$	50,252,049		$	48,558,051

Loans held for investment at carrying value		39,152,936			31,837,031
Loan receivable at carrying value		3,240,855			3,348,263
Current expected credit loss reserve		(248,317	)		(404,860	)
Loans held for investment at carrying value and loan receivable at carrying value, net of current expected credit loss reserve		42,145,474			34,780,434

Cash and cash equivalents		126,793,972			9,623,820
Interest receivable		1,205,304			927,292
Prepaid expenses and other assets		1,109,038			72,095
Total assets	$	221,505,837		$	93,961,692

Liabilities
Interest reserve	$	3,243,484		$	1,325,750
Current expected credit loss reserve		283,180			60,537
Accrued management fees		876,662			222,127
Accrued direct administrative expenses		365,567			550,671
Accounts payable and other liabilities		404,939			154,895
Total liabilities		5,173,832			2,313,980
Commitments and contingencies (Note 10)
Stockholders' Equity
Preferred stock, par value $0.01 per share, 10,000 shares authorized at March 31, 2021 and December 31, 2020 and 125 shares issued and outstanding at March 31, 2021 and December 31, 2020		1			1
Common stock, par value $0.01 per share, 25,000,000 and 15,000,000 shares authorized at March 31, 2021 and December 31, 2020, respectively, and 13,366,877 and 6,179,392 shares issued and outstanding at March 31, 2021 and December 31, 2020, respectively		133,669			61,794
Additional paid-in-capital		216,504,726			91,068,197
Accumulated earnings (deficit)		(306,391	)		517,720
Total stockholders' equity		216,332,005			91,647,712

Total liabilities and stockholders' equity	$	221,505,837		$	93,961,692

	For the three months ended March 31, 2021
	(unaudited)
Revenue
Interest Income	$	4,685,005
Total revenue		4,685,005
Expenses
Management and incentive fees, net (less rebate of $237,743)		876,662
General and administrative expense		462,518
Stock-based compensation		1,599,115
Professional fees		135,453
Total expenses		3,073,748
Provision for current expected credit losses		(66,100	)
Change in unrealized gains / (losses) on loans at fair value, net		(144,402	)
Net income before income taxes		1,400,755
Income tax expense		-
Net income	$	1,400,755

Earnings per common share:
Basic earnings per common share (in dollars per share)	$	0.20
Diluted earnings per common share (in dollars per share)	$	0.19

Weighted average number of common shares outstanding:
Basic weighted average shares of common stock outstanding (in shares)		7,144,670
Diluted weighted average shares of common stock outstanding (in shares)		7,485,048

	Preferred Stock		Common Stock				Additional Paid- In-Capital		Accumulated Earnings (Deficit)			Total Stockholders' Equity
	Preferred Stock		Shares		Amount		Additional Paid- In-Capital		Accumulated Earnings (Deficit)			Total Stockholders' Equity
Balance at December 31, 2020	$	1		6,179,392	$	61,794	$	91,068,197	$	517,720		$	91,647,712
Issuance of common stock, net of offering cost		-		7,187,485		71,875		123,837,414		-			123,909,289
Stock-based compensation		-		-		-		1,599,115		-			1,599,115
Dividends declared and paid on common shares ($0.36 per share)		-		-		-		-		(2,224,866	)		(2,224,866	)
Net income		-		-		-		-		1,400,755			1,400,755
Balance at March 31, 2021 (unaudited)	$	1		13,366,877	$	133,669	$	216,504,726	$	(306,391	)	$	216,332,005

	For the three months ended March 31, 2021
Operating activities:	(unaudited)
Net income	$	1,400,755
Adjustments to reconcile net income / (loss) to net cash provided by / (used in) operating activities:
Provision for current expected credit losses		66,100
Change in unrealized gains / (losses) on loans at fair value, net		144,402
Accretion of deferred loan original issue discount and other discounts		(707,751	)
Stock-based compensation		1,599,115
PIK interest		(559,004	)
Changes in operating assets and liabilities:
Interest reserve		(82,266	)
Interest receivable		(278,012	)
Prepaid expenses and other assets		67,971
Accrued management fees, net		654,535
Accrued direct administrative expenses		(185,104	)
Accounts payable and other liabilities		250,044
Net cash provided by / (used in) operating activities		2,370,785

Cash flows from investing activities:
Issuance of and fundings on loans		(7,096,075	)
Proceeds from sales of Assigned Rights		103,302
Principal repayment of loans		107,717
Net cash provided by / (used in) investing activities		(6,885,056	)

Cash flows from financing activities:
Proceeds from sale of common stock		127,003,125
Payment of offering costs		(3,093,836	)
Dividends paid		(2,224,866	)
Net cash provided by / (used in) financing activities		121,684,423

Change in cash, cash equivalents and restricted cash		117,170,152
Cash, cash equivalents and restricted cash, beginning of period		9,623,820
Cash, cash equivalents and restricted cash, end of period	$	126,793,972

Supplemental disclosure of non-cash financing and investing activity:
Interest reserve withheld from funding of loan	$	2,000,000
Sale of Assigned Rights	$	1,104,914

Supplemental information:
Interest paid during the period	$	-
Income taxes paid during the period	$	-

	As of March 31, 2021
	Fair Value ⁽²⁾		Carrying Value ⁽¹⁾		Outstanding Principal ⁽¹⁾		Weighted Average Remaining Life (Years)⁽³⁾

Senior Term Loans	$	50,252,049	$	48,833,111	$	52,212,608		3.1
Total loans held at fair value	$	50,252,049	$	48,833,111	$	52,212,608		3.1

	As of December 31, 2020
	Fair Value ⁽²⁾		Carrying Value ⁽¹⁾		Outstanding Principal ⁽¹⁾		Weighted Average Remaining Life (Years)⁽³⁾

Senior Term Loans	$	48,558,051	$	46,994,711	$	50,831,235		3.3
Total loans held at fair value	$	48,558,051	$	46,994,711	$	50,831,235		3.3

	Principal		Original Issue Discount			Unrealized Gains / (Losses)			Fair Value

Total loans held at fair value at December 31, 2020	$	50,831,235	$	(3,836,524	)	$	1,563,340		$	48,558,051
Change in unrealized gains / (losses) on loans at fair value, net		-		-			(144,402	)		(144,402	)
New fundings		992,000		(142,982	)		-			849,018
Accretion of original issue discount		-		600,009			-			600,009
PIK Interest		389,373		-			-			389,373
Total loans held at fair value at March 31, 2021	$	52,212,608	$	(3,379,497	)	$	1,418,938		$	50,252,049

	Collateral Location	Collateral Type ⁽⁹⁾		Fair Value ⁽²⁾		Carrying Value ⁽¹⁾		Outstanding Principal ⁽¹⁾		Interest Rate				Maturity Date ⁽³⁾	Payment Terms ⁽⁴⁾

Private Co. A	AZ, MI, MD, MA		C , D	$	32,834,697	$	32,384,888	$	34,672,331		17.0	%	⁽⁵⁾	5/8/2024		P/I
Private Co. B	MI		C		2,495,922		2,290,381		2,548,159		17.0	%	⁽⁶⁾	9/1/2023		P/I
Public Co. A	NV		C		2,874,629		2,840,108		2,945,317		14.0	%	⁽⁷⁾	12/21/2021		I/O
Sub. Of Public Co. C	FL		C		12,046,801		11,317,734		12,046,801		18.0	%	⁽⁸⁾	2/18/2025		P/I
Total loans held at fair value				$	50,252,049	$	48,833,111	$	52,212,608

	Principal		Original Issue Discount			Carrying Value

Total loans held at carrying value at December 31, 2020	$	33,907,763	$	(2,070,732	)	$	31,837,031
New Fundings		8,863,455		(1,824,614	)		7,038,841
Accretion of original issue discount		-		107,432			107,432
PIK Interest		169,632					169,632
Total loans held at carrying value at March 31, 2021	$	42,940,850	$	(3,787,914	)	$	39,152,936

	Collateral Location	Collateral Type ⁽⁸⁾		Outstanding Principal ⁽¹⁾		Original Issue Discount			Carrying Value ⁽¹⁾		Interest Rate				Maturity Date ⁽²⁾	Payment Terms ⁽³⁾

Private Co. C	PA		C , D	$	13,895,465	$	(807,869	)	$	13,087,596		17.0	%	⁽⁴⁾	12/1/2025		P/I
Private Co. D	OH, AR		D		12,045,385		(983,237	)		11,062,148		15.0	%	⁽⁵⁾	1/1/2026		P/I
Sub. of Public Co. D	PA		C		10,000,000		(172,194	)		9,827,806		12.9	%	⁽⁶⁾	12/18/2024		I/O
Private Co. E	OH		C , D		7,000,000		(1,824,614	)		5,175,386		17.0	%	⁽⁷⁾	4/1/2026		P/I
Total loans held at carry value				$	42,940,850	$	(3,787,914	)	$	39,152,936

	Outstanding ⁽¹⁾			Unfunded ⁽²⁾		Total
Balance at December 31, 2020	$	404,860		$	60,537	$	465,397
Provision for current expected credit losses		(156,543	)		222,643		66,100
Write-offs		-			-		-
Recoveries		-			-		-
Balance at March 31, 2021	$	248,317		$	283,180	$	531,497

	Rating		Definition
	1		Very Low Risk
	2		Low Risk
	3		Medium Risk
	4		High Risk/ Potential for Loss
	5		Impaired/Loss Likely

Risk Rating:	2021		2020		Total
1	$	-	$	-	$	-
2		-		-		-
3		5,175,386		33,977,550		39,152,936
4		-		3,240,855		3,240,855
5		-		-		-
Total	$	5,175,386	$	37,218,405	$	42,393,791

	As of March 31, 2021		As of December 31, 2020

Interest receivable	$	954,349	$	675,795
PIK receivable		210,588		177,183
Unused fees		40,367		74,314
Total interest receivable	$	1,205,304	$	927,292

	Three months ended March 31, 2021
Initial reserves	$	1,325,750
New reserves		2,000,000
Reserves disbursed		(82,266	)
Total Interest reserve	$	3,243,484

	As of March 31, 2021			As of December 31, 2020

Total original loan commitments	$	130,684,459		$	107,292,176
Less: drawn commitments		(97,214,795	)		(87,467,057	)
Total undrawn commitments	$	33,469,664		$	19,825,119

	As of March 31, 2021			As of December 31, 2020
Non-vested		183,114			142,814
Vested		1,449,518			800,618
Forfeited		(16,534	)		(16,534	)
Balance		1,616,098			926,898

Assumptions	Range
Expected volatility		40% - 50	%
Expected dividend yield		10% - 20	%
Risk-free interest rate		0.5% - 1.5	%
Expected forfeiture rate		0	%

	Three months ended March 31, 2021		Weighted-Average Grant Date Fair Value Per Option
Balance as of December 31, 2020		926,898	$	0.91
Granted		689,200		1.31
Exercised		-		-
Forfeited		-		-
Balance as of March 31, 2021		1,616,098	$	1.08

	Three months ended March 31, 2021

Net income / (loss) attributable to common stockholders	$	1,400,755
Divided by:
Basic weighted average shares of common stock outstanding		7,144,670
Diluted weighted average shares of common stock outstanding		7,485,048
Basic weighted average earnings per common share	$	0.20
Diluted weighted average earnings per common share	$	0.19

	As of March 31, 2021
				Unobservable Input
	Fair Value		Primary Valuation Techniques	Input	Estimated Range			Weighted Average
Senior Term Loans	$	50,252,049	Yield analysis	Market Yield		17.07% - 20.61	%		20.33	%
Total Investments	$	50,252,049

	Fair Value Measurement Using as of March 31, 2021
	Total		Level 1		Level 2		Level 3
Loans held at fair value	$	50,252,049		-		-	$	50,252,049
Total	$	50,252,049		-		-	$	50,252,049

	Fair Value Measurement Using as of December 31, 2020
	Total		Level 1		Level 2		Level 3
Loans held at fair value	$	48,558,051		-		-	$	48,558,051
Total	$	48,558,051		-		-	$	48,558,051

	Three months ended March 31, 2021
Total loans using Level 3 inputs at December 31, 2020	$	48,558,051
Change in unrealized gains / (losses) on loans at fair value, net		(144,402	)
Additional funding		992,000
Original issue discount and other discounts, net of costs		(142,982	)
Accretion of original issue discount		600,009
PIK Interest		389,373
Total loans using Level 3 inputs at March 31, 2021	$	50,252,049

	As of March 31, 2021
	Carrying Value		Fair Value
Financial assets
Cash and cash equivalents	$	126,793,972	$	126,793,972
Loans held for investment at carrying value	$	39,152,936	$	41,661,386
Loan receivable at carrying value	$	3,240,855	$	3,066,014

	Three months ended March 31, 2021
Affiliate Payments
Management fees	$	451,675
Less other fees earned		(237,743	)
Incentive fees earned		662,730
General and administrative expenses reimbursable to Manager		365,567
Total	$	1,242,229

	Record Date	Payment Date	Common Share distribution amount		Taxable Ordinary Income		Return of Capital		Section 199A Dividends

Regular cash dividend	3/15/2021	3/31/2021	$	0.36	$	0.36	$	-	$	0.36
Total cash dividend			$	0.36	$	0.36	$	-	$	0.36

	As of December 31, 2020
	Outstanding Principal ⁽¹⁾		Original Issue Discount			Carrying Value ⁽¹⁾		Weighted Average Remaining Life (Years)⁽²⁾

Senior Term Loans	$	33,907,763	$	(2,070,732	)	$	31,837,031		4.7
Total loans held at carrying value	$	33,907,763	$	(2,070,732	)	$	31,837,031		4.7

Loan Names	Status	Original Funding Date⁽¹⁾	Loan Maturity	Total Loan Commitment		% of Total AFCG			Principal Balance as of 3/31/2021		Cash Interest Rate			Paid In Kind ("PIK")			Fixed/ Floating	Amortization During Term	YTM ⁽²⁾
Public Co. A - Real Estate Loan⁽³⁾	Funded:	7/3/2019	1/26/2023	$	2,940,000		2.3	%	$	2,945,479		12.0	%		2.0	%	Fixed	No		20	%
Public Co. A - Equipment Loan⁽³⁾	Funded:	8/5/2019	3/5/2024		4,000,000		3.1	%		3,244,459		12.0	%		N/A		Fixed	Yes		17	%
Sub. of Public Co. C⁽⁴⁾⁽⁵⁾	Funded:	2/12/2020	2/18/2025		15,000,000		11.7	%		12,046,801		16.8	%		3.0	%	Fixed	Yes		49.	%
Private Co. A	Funded:	5/8/2020	5/8/2024		34,000,000		26.5	%		34,672,331		13.0	%		4.0	%	Fixed	Yes		24	%
Private Co. B	Funded:	9/10/2020	9/1/2023		10,500,000		8.2	%		2,548,159		13.0	%		4.0	%	Fixed	Yes		26	%
Private Co. C	Funded:	11/5/2020	12/1/2025		22,000,000		17.1	%		13,895,465		13.0	%		4.0	%	Floating	Yes		22	%
Sub. of Public Co. D⁽⁶⁾	Funded:	12/18/2020	12/18/2024		10,000,000		7.8	%		10,000,000		12.9	%		N/A		Fixed	No		14	%
Private Co. D	Funded:	12/23/2020	1/1/2026		12,000,000		9.3	%		12,045,385		13.0	%		2.0	%	Fixed	Yes		20	%
Private Co. E	Funded:	3/30/2021	4/1/2026		21,000,000		14.0	%		7,000,000		13.0	%		4.0	%	Floating	Yes		23	%
			Subtotal	$	131,440,000		100.0	%	$	98,398,079		13.4	%		3.0	%				23	%
																				Wtd Average

Borrower	Status	Date	AFCG Commitment, net of Syndication		% of Total AFCG			Total Funded Debt Issuance		AFCG % of the Total Loan			Est. Real Estate Value ⁽¹⁾		Real Estate Collateral Coverage			Implied Real Estate Collateral for AFCG		AFCG Real Estate Collateral Coverage
Public Co. A - Real Estate Loan⁽²⁾	Funded	7/3/2019	$	2,940,000		2.3	%	$	30,000,000		9.8	%	$	72,000,000		2.40	x	$	7,056,000		2.40	x
Public Co. A - Equipment Loan	Funded	8/5/2019	$	4,000,000		3.1	%	$	20,000,000		20.0	%	$	0		0.00	x	$	0		0.00	x
Subsidiary of Public Co. C⁽³⁾	Funded	2/12/2020	$	15,000,000		11.7	%	$	15,000,000		100.0	%	$	30,723,143		2.05	x	$	30,723,143		2.05	x
Private Co. A⁽⁴⁾	Funded	5/8/2020	$	34,000,000		26.5	%	$	42,500,000		80.0	%	$	51,339,031		1.21	x	$	41,071,225		1.21	x
Private Co. B⁽⁵⁾	Funded	9/10/2020	$	10,500,000		8.2	%	$	10,500,000		100.0	%	$	19,536,098		1.86	x	$	19,536,098		1.86	x
Private Co. C⁽⁶⁾	Funded	11/5/2020	$	22,000,000		17.1	%	$	22,000,000		100.0	%	$	23,733,050		1.08	x	$	23,733,050		1.08	x
Subsidiary of Public Co. D⁽⁷⁾	Funded	12/18/2020	$	10,000,000		7.8	%	$	120,000,000		8.3	%	$	26,058,332		0.22	x	$	2,171,528		0.22	x
Private Co. D⁽⁸⁾	Funded	12/23/2020	$	12,000,000		9.3	%	$	12,000,000		100.0	%	$	7,538,589		0.63	x	$	7,538,589		0.63	x
Private Co. E⁽⁹⁾	Funded	3/30/2021	$	21,000,000		14.0	%	$	21,000,000		100.0	%	$	16,102,000		0.89	x	$	16,102,000		0.77	x
			$	131,440,000		100.0	%	$	293,000,000				$	247,030,242		0.85	x	$	147,931,632		1.13	x

	As of March 31, 2021
	Less than 1 year		1-3 years		3-5 years		More than 5 years		Total
Unfunded Commitments	$	33,469,664		-		-		-	$	33,469,664
Total	$	33,469,664		-		-		-	$	33,469,664

3.1	Articles of Amendment and Restatement of AFC Gamma, Inc. (incorporated by reference to Exhibit 3.2 to the Company’s Registration Statement on Form S-11, as amended (File No. 333-251762)).
3.2	Amended and Restated Bylaws of AFC Gamma, Inc. (incorporated by reference to Exhibit 3.4 to the Company’s Registration Statement on Form S-11, as amended (File No. 333-251762)).
10.1	Amended and Restated Management Agreement, dated January 14, 2021, by and between AFC Gamma, Inc. and AFC Management, LLC (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed on March 23, 2021).
10.2	Amendment dated May 7, 2021, to the Secured Revolving Credit Agreement, dated August 18, 2020, by and among AFC Gamma, Inc., as borrower, AFC Finance, LLC, as agent, and AFC Finance, LLC and Gamma Lending Holdco LLC, as lenders.
31.1	Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2	Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32.1	Certification of Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
32.2	Certification of Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
101.INS	XBRL Instance Document.
101.SCH	XBRL Taxonomy Extension Schema Document.
101.CAL	XBRL Taxonomy Extension Calculation Linkbase Document.
101.LAB	XBRL Taxonomy Extension Label Linkbase Document.
101.PRE	XBRL Taxonomy Extension Presentation Linkbase Document.
101.DEF	XBRL Taxonomy Extension Definition Linkbase Document.

Date: May 11, 2021
	AFC GAMMA, INC.

	By:	/s/ Leonard M Tannenbaum
		Leonard M Tannenbaum Chief Executive Officer, Chairman and Director (Principal Executive Officer)

	By:		/s/ Thomas Geoffroy
			Thomas Geoffroy Chief Financial Officer and Treasurer (Principal Financial Officer and Principal Accounting Officer)