☒ |
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
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☐ |
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
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Maryland
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85-1807125
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(State or other jurisdiction of incorporation or organization)
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(I.R.S. Employer Identification Number)
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Title of each class
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Trading Symbol(s)
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Name of each exchange on which registered
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Common Stock, $0.01 par value per share
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AFCG
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Large accelerated filer ☐
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Accelerated filer ☐
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Non-accelerated filer ☒
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Smaller reporting company ☒
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Emerging growth company ☒
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Class
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Outstanding at March 7, 2022
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Common stock, $0.01 par value
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19,742,940
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Page
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PART I
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Item 1.
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3 | |
Item 1A.
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18 | |
Item 1B.
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60 | |
Item 2.
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60 | |
Item 3.
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61 | |
Item 4.
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61 |
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PART II
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Item 5.
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61 | |
Item 6.
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62 | |
Item 7.
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62 |
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Item 7A.
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83 | |
Item 8.
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86 | |
Item 9.
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86 |
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Item 9A.
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86 |
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Item 9B.
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87 | |
PART III
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Item 10.
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87 | |
Item 11.
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87 | |
Item 12.
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87 | |
Item 13.
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87 | |
Item 14.
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87 | |
PART IV
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Item 15.
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87 | |
Item 16
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89 | |
90 |
● |
our business and investment strategy;
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the impact of COVID-19 on our business and the global economy;
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the ability of our Manager to locate suitable loan opportunities for us, monitor and actively manage our portfolio and implement our investment strategy;
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our expected ranges of originations and repayments;
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the allocation of loan opportunities to us by our Manager;
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our projected operating results;
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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;
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the estimated growth in and evolving market dynamics of the cannabis market;
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the demand for cannabis cultivation and processing facilities;
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shifts in public opinion regarding cannabis;
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the state of the U.S. economy generally or in specific geographic regions;
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economic trends and economic recoveries;
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the amount, collectability and timing of our cash flows, if any, from our loans;
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our ability to obtain and maintain financing arrangements;
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our expected leverage;
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changes in the value of our loans;
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our expected portfolio of loans;
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our expected investment and underwriting process;
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the rates of default or recovery rates on our loans;
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the degree to which our hedging strategies may or may not protect us from interest rate volatility;
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changes in interest rates and impacts of such changes on our results of operations, cash flows and the market value of our loans;
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interest rate mismatches between our loans and our borrowings used to fund such loans;
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the departure of any of the executive officers or key personnel supporting and assisting us from our Manager or its affiliates;
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impact of and changes in governmental regulations, tax law and rates, accounting guidance and similar matters;
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our ability to maintain our exemption from registration under the Investment Company Act;
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our ability to qualify and maintain our qualification as a REIT for U.S. federal income tax purposes;
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estimates relating to our ability to make distributions to our stockholders in the future;
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our understanding of our competition; and
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market trends in our industry, interest rates, real estate values, the securities markets or the general economy.
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Item 1. |
Business
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• |
In July 2021, the senior secured loan facility with Private Company I consisting of an aggregate of approximately $15.6 million in loan commitments was
syndicated by our Manager between us and A BDC Warehouse, LLC (“ABW”), an entity wholly-owned by Mr. and Mrs. Tannenbaum. ABW subsequently transferred its commitment to AFC BDC Warehouse LLC (“ABDCW”), an entity beneficially owned, in
part, by Leonard M. Tannenbaum, one of our directors and our Chief Executive Officer, Robyn Tannenbaum, our Managing Director, Head of Origination and Investor Relations, other members of the Tannenbaum family, Brett Kaufman, our Chief
Financial Officer, and Jonathan Kalikow, one of our directors and our Head of Real Estate, and is one of our and our Manager’s affiliates, with ABDCW holding approximately one-third of the loan’s aggregate principal amount as of December
31, 2021.
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• |
In September 2021, we entered into the September Commitment Assignment with our Manager, pursuant to which our Manager assigned
to us its commitment to make loans to Private Company A in a principal amount of up to $20.0 million, which was funded in September 2021. The loans were purchased at
accreted cost plus accrued PIK interest. We did not pay any fees or premium to our Manager for our acquisition of our Manager’s loan commitments
under the Credit Agreement with Private Company A pursuant to the September Commitment Assignment.
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• |
In September 2021, we entered into the A&R Sub. Of Private Co. G Credit Agreement to, among other things, increase the total loan commitments by $53.4 million in three tranches, with
approximately $10.0 million allocated to ABW and the remaining $43.4 million allocated to us. ABW subsequently transferred its commitment to ABDCW.
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• |
In December 2021, we entered into the Sub. Of Public Company H Credit Agreement, which provides the Sub. Of Public Company H with a
$100.0 million senior secured credit facility, of which, we committed $60.0 million, ABDCW committed $10.0 million, and third-party lenders committed $30.0 million of the aggregate principal amount.
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• |
In March 2022, we entered into the fourth amendment of the Amended and Restated Credit Agreement with Public Company F to, among other things, increase the total loan commitments by $100
million, with approximately (i) $26.6 million of the new loan commitments allocated to us; (ii) $15.0 million of the new loan commitments allocated to Flower Loan Holdco, LLC (“FLH”); and (iii) the remaining loan commitments allocated to
third-party lenders by the third-party agent.
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• |
AFC Agent, an entity wholly-owned by Mr. Tannenbaum, our Chief Executive Officer and Chairman of our Board, and Mrs. Tannenbaum, our Managing Director, Head of Origination and Investor
Relations, serves as the administrative agent to all respective lenders under the majority of our credit facilities. We do not pay any consideration to AFC Agent for its services as administrative agent under such credit facilities.
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Type
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Description
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Payment
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Base Management Fees
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An amount equal to 0.375% of our Equity (as defined below), determined as of the last day of each quarter. The Base Management
Fees are reduced by the Base Management Fee Rebate. Under no circumstances will the Base Management Fee be less than zero. Our Equity, for purposes of calculating the Base Management Fees, could be greater than or less than the amount of
stockholders’ equity shown on our financial statements. The Base Management Fees are payable independent of the performance of our portfolio.
For additional information, see “—Base
Management Fees.”
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Quarterly in arrears in cash.
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Base Management Fee Rebate
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An amount equal to 50% of the aggregate amount of any other fees earned and paid to our Manager during the applicable quarter
resulting from the investment advisory services and general management services rendered by our Manager to us under our Management Agreement, including any agency fees relating to our loans, but excluding the Incentive Compensation and any
diligence fees paid to and earned by our Manager and paid by third parties in connection with our Manager’s due diligence of potential loans.
For additional information, see “—Base
Management Fees.”
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Reduces the Base Management Fees on a quarterly basis.
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Incentive Compensation
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An amount with respect to each fiscal quarter (or portion thereof that our Management Agreement is in effect) based upon our
achievement of targeted levels of Core Earnings. No Incentive Compensation is payable with respect to any fiscal quarter unless our Core Earnings for such quarter exceed the amount equal to the product of (i) 2% and (ii) Adjusted Capital (as
defined below) as of the last day of the immediately preceding fiscal quarter (such amount, the “Hurdle Amount”). The Incentive Compensation for any fiscal quarter will otherwise be calculated as the sum of (i) the product of (A) 50% and (B)
the amount of our Core Earnings for such quarter, if any, that exceeds the Hurdle Amount, but is less than or equal to 166-2/3% of the Hurdle Amount and (ii) the product of (A) 20% and (B) the amount of our Core Earnings for such quarter, if
any, that exceeds 166-2/3% of the Hurdle Amount. Such compensation is subject to Clawback Obligations (as defined below), if any.
For additional information, see “—Incentive
Compensation” and “—Incentive Compensation—Incentive Compensation Clawback.”
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Quarterly in arrears in cash.
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Expense Reimbursement
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We pay all of our costs and expenses and reimburse our Manager or its affiliates for expenses of our Manager and its
affiliates paid or incurred on our behalf, excepting only those expenses that are specifically the responsibility of our Manager pursuant to our Management Agreement. Pursuant to our Management Agreement, we reimburse our Manager or its
affiliates, as applicable, for our fair and equitable allocable share of the compensation, including annual base salary, bonus, any related withholding taxes and employee benefits, paid to (i) subject to review by the Compensation
Committee of our Board, our Manager’s personnel serving as our Chief Executive Officer (except when the Chief Executive Officer serves as a member of the Investment Committee prior to the consummation of an internalization transaction of
our Manager by us), General Counsel, Chief Compliance Officer, Chief Financial Officer, Chief Marketing Officer, Managing Director and any of our other officers, based on the percentage of his or her time spent devoted to our affairs and
(ii) other corporate finance, tax, accounting, internal audit, legal, risk management, operations, compliance and other non-investment personnel of the Manager and its affiliates who spend all or a portion of their time managing our
affairs, with the allocable share of the compensation of such personnel described in this clause (ii) being as reasonably determined by our Manager to appropriately reflect the amount of time spent devoted by such personnel to our
affairs. The service by any personnel of our Manager and its affiliates as a member of the Investment Committee will not, by itself, be dispositive in the determination as to whether such personnel is deemed “investment personnel” of our
Manager and its affiliates for purposes of expense reimbursement. Prior to the consummation of our IPO, we were not obligated to reimburse our Manager or its affiliates, as applicable, for any compensation paid to Mr. Tannenbaum,
Mr. Kalikow or Mrs. Tannenbaum. For the 2021 fiscal year, our Manager did not seek reimbursement for our allocable share of Mr. Kalikow’s compensation, but did seek reimbursement for our allocable share of Mrs. Tannenbaum’s compensation.
For additional information, see “—Expense
Reimbursement.”
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Monthly in cash.
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Termination Fee
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Equal to three times the sum of (i) the annual Base Management Fee and (ii) the annual Incentive Compensation, in each case,
earned by our Manager during the 12-month period immediately preceding the most recently completed fiscal quarter prior to the date of termination. Such fee shall be payable upon termination of our Management Agreement in the event that
(i) we decline to renew our Management Agreement, without cause, upon 180 days prior written notice and the affirmative vote of at least two-thirds of our independent directors that there has been unsatisfactory performance by our Manager
that is materially detrimental to us taken as a whole, or (ii) our Management Agreement is terminated by our Manager (effective upon 60 days’ prior written notice) based upon our default in the performance or observance of any material
term, condition or covenant contained in our Management Agreement and such default continuing for a period of 30 days after written notice thereof specifying such default and requesting that the same be remedied in such 30-day period.
For additional information, see “—Termination
Fee.”
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Upon specified termination in cash.
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Year ended
December 31, 2021(1)
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Period from
July 31, 2020 to
December 31, 2020(1)
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|||||||
Management fees earned
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$
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3,340,123
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$
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623,361
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||||
Less outside fees earned(2)
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(1,029,315
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)
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(259,167
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)
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Base management fees, net
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2,310,808
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364,194
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Incentive fees earned(3)
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6,010,704
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—
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General and administrative expenses reimbursable to Manager
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2,319,074
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671,605
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Total
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$
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10,640,586
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$
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1,035,799
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(1)
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For the period from July 31, 2020 (date of commencement of operations) to December 31, 2020, the
calculation of our Manager’s compensation does not reflect the amendment and restatement to our Management Agreement, which occurred upon consummation of the IPO. For the year ended December 31, 2021, the calculation of our Manager’s
compensation (i) does not reflect the amendment and restatement to our Management Agreement for the portion of such period occurring prior to the consummation of the IPO and (ii) reflects the amendment and restatement of our
Management Agreement for the portion of such period occurring after the consummation of the IPO such that (A) the Base Management Fees (x) shall be in an amount equal to 0.375% of our Equity, determined as of the last day of each
quarter, and (y) will be reduced by only 50% of the aggregate amount of any applicable Outside Fees counted toward the Base Management Fee Rebate; and (B) the Hurdle Amount used in calculating the Incentive Compensation will equal the
product of (x) 2% and (y) Adjusted Capital as of the last day of the immediately preceding fiscal quarter.
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(2)
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For the period from July 31, 2020 (date of commencement of operations) to December 31, 2020, our Base
Management Fee was reduced by a Base Management Fee Rebate equal to 100% of the aggregate amount of any other fees earned and paid to our Manager during the applicable period resulting from the investment advisory services and general
management services rendered by it to us under our Management Agreement, including any syndication, structuring, diligence, monitoring or agency fees relating to our loans, but excluding the Incentive Compensation. Following our IPO,
pursuant to our Management Agreement, the Base Management Fee Rebate now only equals 50% of the aggregate any Outside Fees, including any agency fees relating to our loans, but excluding the Incentive Compensation and any diligence
fees paid to and earned by our Manager and paid by third parties in connection with our Manager’s due diligence of potential loans. Syndication fees include any advisory fees paid by a borrower to our Manager up front to arrange and
distribute a loan to a syndicate group of lenders. Structuring fees are fees owed by a borrower to our Manager as consideration, in part, for our Manager’s assistance to such borrower in structuring the loan transaction. Monitoring
fees include any fees a borrower may pay our Manager for ongoing management and advisory services after the closing of a loan. Agency fees include any fees earned, typically annually, by our Manager for its performance as the
administrative agent on behalf of the lenders of a loan and for acting as an intermediary between the borrower of such loan and its lenders. Administrative agent duties typically involve, among other things, maintaining the loan
register, calculating principal amortization, fees and interest, sending payment notices, facilitating borrowings, collecting payments from the borrower, preparing remittance advice, and collecting compliance materials from the
borrower. If our Manager were to receive syndication fees, structuring fees, monitoring fees and/or agency fees with respect to a loan that we originate or acquire, then only the portion of those fees attributable to our portion of
such loan would be included in the Base Management Fee Rebate calculation. Diligence fees include any fees paid by a borrower to our Manager for performing investment due diligence on such borrower and are separate from any reimburse
obligations owed by such borrower to our Manager for third-party expenses associated with its due diligence process (which may from time to time include allocated portions of costs and miscellaneous expenses such as travel, lodging,
meals, meetings, dues and subscriptions, supplies and equipment, sundry, and other miscellaneous incidental expenses incurred in connection with its due diligence process). If our Manager were to receive diligence fees separate from a
borrower’s third-party expense reimbursement obligations, such diligence fees would not be included in the Base Management Fee Rebate under our Management Agreement, as amended and restated upon the consummation of our IPO. For the
period from July 31, 2020 (date of commencement of operations) to December 31, 2020, the Base Management Fee Rebate consisted solely of agency fees charged to our borrowers and paid to our Manager for its role as agent to the lenders
under the applicable credit agreements. For the year ended December 31, 2021, the Base Management Fee Rebate primarily consisted of agency fees. We expect that the Base Management Fee Rebate will continue to consist primarily of
agency fees for the foreseeable future.
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(3)
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Our Manager agreed to waive the Incentive Compensation for the period from July 31, 2020 (date of commencement of
operations) through December 31, 2020, which would have been approximately $479,166
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⯀
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“Adjusted Capital” means the sum of (i) cumulative gross proceeds generated from issuances of the shares of our capital
stock (including any distribution reinvestment plan), less (ii) distributions to our investors that represent a return of capital and amounts paid for share repurchases pursuant to any share repurchase program.
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⯀
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“Core Earnings” means, for a given period, the net income (loss) for such period, computed in accordance with GAAP,
excluding (i) non-cash equity compensation expense, (ii) 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 as determined
after discussions between our Manager and our independent directors and approval by a majority of our independent directors. For the avoidance of doubt, Core Earnings shall not exclude under clause (iv) above, 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.
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⯀
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Adjusted Capital as of the last day of the immediately preceding fiscal quarter of $100.0 million; and
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⯀
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Core Earnings before the Incentive Compensation for the specified quarter representing a quarterly yield of 20.9% on
Adjusted Capital as of the last day of the immediately preceding fiscal quarter.
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Illustrative
Amount
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Calculation
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1.
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What are the Core Earnings?
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$
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5,225,000
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Assumed to be a 5.2% quarterly or 20.9% per annum return on Adjusted Capital as of the last day of the immediately preceding
fiscal quarter ($100.0 million).
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2.
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What is the Hurdle Amount?
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$
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2,000,000
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The hurdle rate (2.0% quarterly or 8.0% per annum) multiplied by Adjusted Capital as of the last day of the immediately
preceding fiscal quarter ($100.0 million).
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3.
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What is the Catch-Up Amount?
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$
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666,667
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The catch-up incentive rate (50.0%) multiplied by the amount that Core Earnings ($5.2 million) exceeds the Hurdle Amount
($2 million), but is less than or equal to 166-2/3% of the Hurdle Amount (approximately $3.3 million).
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4.
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What is the Excess Earnings Amount?
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$
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378,333
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The excess earnings incentive rate (20%) multiplied by the amount of Core Earnings ($5.2 million) that exceeds 166-2/3% of
the Hurdle Amount (approximately $3.3 million).
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5.
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What is the Incentive Compensation?
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$
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1,045,000
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The sum of the Catch-Up Amount (approximately $666,667) and the Excess Earnings Amount (approximately $378,333).
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● |
Targeting loans for origination and/or investment that typically have the following characteristics:
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— |
principal balance greater than $10.0 million;
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— |
real estate collateral coverage of at least one times the principal balance;
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— |
secured by commercial real estate properties, including cannabis cultivation facilities, processing facilities, and dispensaries; and
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— |
well-capitalized sponsors with substantial experience in particular relevant sectors and geographic markets.
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● |
Diversifying our financing sources with increased access to equity and debt capital, which may provide us with a lower overall cost of funding and the ability to hold larger loan sizes, among other things.
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Origination
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Underwriting
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Investment Committee
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Legal Documentation and
Post-Closing
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•
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Direct origination platform works to create enhanced yields and allows us to put in greater controls for loans in which our Manager originates and structures
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•
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Disciplined underwriting process leads to a highly selective approach
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•
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Focused on managing credit risk through comprehensive investment review process
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•
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Investment team works alongside external counsel to negotiate credit agreements and collateral liens
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•
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Platform drives increased deal flow, which provides for improved loan selectivity
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•
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Potential loans are screened based on four key criteria: company profile, state dynamics, regulatory matters and real estate asset considerations
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•
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The Investment Committee must approve each loan before commitment papers are issued
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•
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Emphasis is placed on financial covenants and limitations on actions that may be adverse to lenders
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•
•
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Allows for specific portfolio construction and a focus on higher quality companies
As of December 31, 2021, we had 89 active loans in our pipeline at
various stages in the diligence process, and we had passed on 343 of 451 sourced loan opportunities due to, among other reasons, lack of collateral, lack of cash flow, stage of company, no previous experience and state dynamics
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•
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Other tools that we frequently use to verify data include, but are not limited to: appraisals, quality of earnings, environmental reports, site visits, anti-money laundering compliance, comparable company analyses and background checks
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•
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Members of the Investment Committee currently include: Leonard M. Tannenbaum, Jonathan Kalikow, Bernard D. Berman and Robyn Tannenbaum.
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•
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Portfolio is proactively managed to monitor ongoing performance, in some instances, through seats on borrowers’ boards of directors or board observer rights
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Item 1A. |
Risk Factors
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● |
We were recently formed and have limited operating history, and may not be able to successfully operate our business, integrate new assets and/or manage our growth or to generate sufficient revenue to make or
sustain distributions to our stockholders.
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● |
Competition for the capital that we provide may reduce the return of our loans, which could adversely affect our operating results and financial condition.
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● |
Our growth and success depends on our external manager, its key personnel and investment professionals, and it’s ability to make loans on favorable terms that satisfy our investment strategy and otherwise
generate attractive risk-adjusted returns; thus, we may experience losses if our external manager overestimates projected yields or incorrectly prices the risks of our loans or if there are any adverse changes in our relationship with our
Manager.
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● |
Lending to companies operating in the cannabis industry which involves significant risks, including the risk of strict enforcement of federal cannabis laws against our borrowers, our borrowers’ inability to
renew or otherwise maintain their licenses or other requisite authorizations for their cannabis operations, and lack of liquidity for such loans.
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● |
Our ability to grow or maintain our business depends in part 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 our business under our current business plan and could
materially adversely affect our business.
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● |
As a debt investor, we are often not in a position to exert influence on borrowers, and the stockholders and management of such companies may make decisions that could decrease the value of loans made to such
borrower.
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● |
Our growth depends on external sources of capital, which may not be available on favorable terms or at all.
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● |
Interest rate fluctuations could increase our financing costs, which could lead to a significant decrease in our results of operations, cash flows and the market value of our loans.
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● |
Maintenance of our exemption from registration under the Investment Company Act of 1940 as amended (the “Investment Company Act”) may impose significant limits on our operation, and failure to maintain our
exempt status under the Investment Company Act could have an adverse effect on our financial results.
|
● |
Failure to qualify as a REIT for U.S. federal income tax purposes would cause us to be taxed as a regular corporation, which would substantially reduce funds available for distributions to our stockholders.
|
● |
We may incur significant debt, and our governing documents and current credit facility contain no limit on the amount of debt we may incur.
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● |
We may in the future pay distributions from sources other than our cash flow from operations, including borrowings, offering proceeds or the sale of assets, which means we will have less funds available for
investments or less income-producing assets and your overall return may be reduced.
|
● |
the development and growth of applicable state cannabis markets (for example, the increase in additional dispensaries in certain states have diluted the value of the pre-existing dispensaries);
|
● |
the responsibility of complying with multiple and likely conflicting state and federal laws, including with respect to retail sale, distribution, cultivation and manufacturing of cannabis, licensing, banking,
and insurance;
|
● |
unexpected changes in regulatory requirements and other laws, in particular licensing requirements;
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● |
difficulties and costs of managing operations in certain locations;
|
● |
potentially adverse tax consequences;
|
● |
the impact of national, regional or state specific business cycles and economic instability; and
|
● |
access to capital may be more restricted, or unavailable on favorable terms or at all in certain locations.
|
● |
these companies may have limited financial resources and may be unable to meet their obligations, which may be accompanied by a deterioration in the value of any collateral securing our loan and a reduction in
the likelihood of us realizing a return on our loan;
|
● |
they typically have shorter operating histories, narrower product lines and smaller market shares than larger and more established businesses, which tend to render them more vulnerable to competitors’ actions
and market conditions (including conditions in the cannabis industry), as well as general economic downturns;
|
● |
they typically depend on the management talents and efforts of a small group of persons; therefore, the death, disability, resignation or termination of one or more of these persons could have a material
adverse effect on such borrower and, in turn, on us;
|
● |
there are a limited number of management teams in the cannabis industry that have U.S. public company experience. As a result, the management team of a borrower may not be familiar with U.S. securities laws and
may have to expend time and resources becoming familiar with such laws;
|
● |
there is generally less public information about these companies. Unless publicly traded, these companies and their financial information are generally not subject to the regulations that govern public
companies, and we may be unable to uncover all material information about these companies, which may prevent us from making a fully informed lending decision and cause us to lose money on our loans;
|
● |
they generally have less predictable operating results and may require substantial additional capital to support their operations, finance expansion or maintain their competitive position;
|
● |
there is generally less market forecast information about the cannabis industry, making it difficult for our borrowers to forecast demand. If the market does not develop as a borrower expects, it could have a
material adverse effect on its business;
|
● |
we, our executive officers and directors and our Manager may, in the ordinary course of business, be named as defendants in
litigation arising from our loans to such borrowers and may, as a result, incur significant costs and expenses in connection with such litigation and/or related
indemnification obligations;
|
● |
changes in laws and regulations, as well as their interpretations, may have a disproportionate adverse effect on their business, financial structure or prospects compared to those of larger and more established
companies; and
|
● |
they may have difficulty accessing capital from other providers on favorable terms or at all.
|
● |
a complete or partial closure of, or other operational issues at, one or more of our borrowers’ locations resulting from government or such company’s actions;
|
● |
the temporary inability of consumers and patients to purchase our borrowers’ cannabis products due to a number of factors, including, but not limited to, illness, dispensary closures or limitations on
operations, quarantine, financial hardship, and “stay at home” orders;
|
● |
difficulty accessing equity and debt capital on attractive terms, or at all, and a severe disruption and instability in the global financial markets or deteriorations in credit and financing conditions may
affect our access to capital necessary to fund business operations and our borrowers’ ability to fund their business operations and meet their obligations to us;
|
● |
workforce disruptions for our borrowers, as a result of infections, quarantines, “stay at home” orders or other factors, could result in a material reduction in our borrowers’ cannabis cultivation,
manufacturing, distribution and/or sales capacity;
|
● |
because of the federal regulatory uncertainty relating to the regulated cannabis industry, our borrowers have not been, and in the future likely will not be eligible, for financial relief available to other
businesses;
|
● |
restrictions on public events for the regulated cannabis industry limit the opportunity for our borrowers to market and sell their products and promote their brands;
|
● |
delays in construction at the properties of our borrowers may adversely impact their ability to commence operations and generate revenues from projects;
|
● |
a general decline in business activity in the regulated cannabis industry would adversely affect our ability to grow our portfolio of loans to cannabis companies; and
|
● |
the potential negative impact on the health of our personnel, particularly if a significant number of them are impacted, would result in a deterioration in our ability to ensure business continuity during a
disruption.
|
● |
The manufacturer, distribution, sale, or possession of cannabis that is not in compliance with the CSA is illegal under U.S. federal law. Strict enforcement of U.S. federal laws regarding cannabis would likely
result in our borrowers’ inability to execute a business plan in the cannabis industry;
|
● |
Laws and regulations affecting the regulated cannabis industry are varied, broad in scope and subject to evolving interpretations, and may restrict the use of the properties our borrowers acquire or require
certain additional regulatory approvals, which could materially adversely affect our loans to such borrowers;
|
● |
Our borrowers may have difficulty borrowing from or otherwise accessing the service of banks, which may inhibit our ability to open bank accounts or otherwise utilize traditional banking services;
|
● |
Our borrowers may have a difficult time obtaining financing in connection with our investment strategy;
|
● |
There may be no material aspect of our borrowers’ businesses that is protected by patents, copyrights, trademarks or trade names, and they may face strong competition from larger companies, including those that
may offer similar products and services to our borrowers;
|
● |
U.S. federal courts may refuse to recognize the enforceability of contracts pertaining to any business operations that are deemed illegal under U.S. federal law, including cannabis companies operating legally
under state law;
|
● |
Our borrowers may have a difficult time obtaining the various insurance policies that are needed to operate such businesses, which may expose us and our borrowers to additional risks and financial liabilities;
|
● |
Our borrowers are subject to unfavorable U.S. tax treatment under Section 280E of the Code;
|
● |
Our borrowers may be foreclosed from using bankruptcy courts;
|
● |
Assets collateralizing loans to cannabis businesses may be forfeited to the U.S. federal government in connection with government enforcement actions under U.S. federal law;
|
● |
U.S. Food and Drug Administration (the “FDA”)regulation of cannabis and the possible registration of facilities where cannabis is grown could negatively affect the cannabis industry, which could directly affect
our financial condition and the financial condition of our borrowers;
|
● |
The cannabis industry may face significant opposition from other industries that perceive cannabis products and services as competitive with their own, including but not limited to the pharmaceutical industry,
adult beverage industry and tobacco industry, all of which have powerful lobbying and financial resources; and
|
● |
Consumer complaints and negative publicity regarding cannabis-related products and services could lead to political pressure on states to implement new laws and regulations that are adverse to the cannabis
industry, to not modify existing, restrictive laws and regulations, or to reverse current favorable laws and regulations relating to cannabis.
|
● |
general economic or market conditions;
|
● |
the market’s view of the quality of our assets;
|
● |
the market’s perception of our growth potential;
|
● |
the current regulatory environment with respect to our business; and
|
● |
our current and potential future earnings and cash distributions.
|
● |
our cash flow from operations may be insufficient to make required payments of principal of and interest on the debt we incur or we may fail to comply with all of the other covenants contained in such debt,
which is likely to result in (i) acceleration of such debt (and any other debt containing a cross-default or cross-acceleration provision) that we may be unable to repay from internal funds or to refinance on favorable terms, or at all, (ii)
our inability to borrow unused amounts under our financing arrangements, even if we are current in payments on borrowings under those arrangements, and/or (iii) the loss of some or all of our assets to foreclosure or sale;
|
● |
we may be unable to borrow additional funds as needed or on favorable terms, or at all;
|
● |
to the extent we borrow debt that bears interest at variable rates, increases in interest rates could materially increase our interest expense;
|
● |
our default under any loan with cross-default provisions could result in a default on other indebtedness;
|
● |
incurring debt may increase our vulnerability to adverse economic and industry conditions with no assurance that loan yields will increase with higher financing costs;
|
● |
we may be required to dedicate a substantial portion of our cash flow from operations to payments on the debt we may incur, thereby reducing funds available for operations, future business opportunities,
stockholder distributions, including distributions currently contemplated or necessary to satisfy the requirements for REIT qualification, or other purposes; and
|
● |
we are not able to refinance debt that matures prior to the loan it was used to finance on favorable terms, or at all.
|
● |
limiting our ability to satisfy our financial obligations,;
|
● |
limiting our ability to obtain additional financing to fund our working capital needs, acquisitions, capital expenditures or other debt service requirements or for other purposes;
|
● |
limiting our ability to use operating cash flow in other areas of our business because we must dedicate a substantial portion of these funds to service debt;
|
● |
limiting our ability to compete with other companies who are not as highly leveraged, as we may be less capable of responding to adverse economic and industry conditions;
|
● |
restricting us from making strategic acquisitions, developing properties or exploiting business opportunities;
|
● |
restricting the way in which we conduct our business because of financial and operating covenants;
|
● |
covenants in the agreements governing our and our subsidiaries’ existing and future indebtedness;
|
● |
exposing us to potential events of default (if not cured or waived) under financial and operating covenants contained in our or our subsidiaries’ debt instruments that could have a material adverse effect on
our business, financial condition and operating results;
|
● |
increasing our vulnerability to a downturn in general economic conditions; and
|
● |
limiting our ability to react to changing market conditions in our industry and in our borrowers’ industries.
|
● |
our financial condition and market conditions at the time; and
|
● |
restrictions in the agreements governing our indebtedness.
|
● |
authorize our Board, without your approval, to cause us to issue additional shares of our common stock or to raise capital through the creation and issuance of our preferred stock, debt securities convertible
into common stock, options, warrants and other rights, on terms and for consideration as our Board in its sole discretion may determine;
|
● |
authorize “blank check” preferred stock, which could be issued by our Board without stockholder approval, subject to certain specified limitations, and may contain voting, liquidation, dividend and other rights
senior to our common stock;
|
● |
establish a classified Board such that not all members of the Board are elected at each annual meeting of stockholders, which may delay the ability of our stockholders to change the membership of a majority of
our Board;
|
● |
specify that only our Board, the chairman of our Board, our chief executive officer or president or, upon the written request of stockholders entitled to cast not less than a majority of the votes entitled to
be cast, our secretary can call special meetings of our stockholders;
|
● |
establish advance notice procedures for stockholder proposals to be brought before an annual meeting of our stockholders, including proposed nominations of individuals for election to our Board;
|
● |
provide that a majority of directors then in office, even though less than a quorum, may fill any vacancy on our Board, whether resulting from an increase in the number of directors or otherwise;
|
● |
specify that no stockholder is permitted to cumulate votes at any election of directors;
|
● |
provide our Board the exclusive power to adopt, alter or repeal any provision of our Bylaws and to make new Bylaws; and
|
● |
require supermajority votes of the holders of our common stock to amend specified provisions of our Charter.
|
● |
80% of the votes entitled to be cast by holders of the then-outstanding shares of voting stock of such corporation; and
|
● |
two-thirds of the votes entitled to be cast by holders of voting stock of such corporation, other than shares held by the interested stockholder with whom or with whose affiliate the business combination is to
be effected, or held by an affiliate or associate of the interested stockholder.
|
● |
we would not be allowed a deduction for distributions paid to stockholders in computing our taxable income and would be subject to U.S. federal income tax at regular corporate rates;
|
● |
we could be subject to increased state and local taxes; and
|
● |
unless we are entitled to relief under statutory provisions, we would not be able to re-elect to be taxed as a REIT for four taxable years following the year in which we were disqualified.
|
|
■
|
our actual or projected operating results, financial condition, cash flows and liquidity or changes in business strategy or
prospects;
|
|
■
|
changes in governmental policies, regulations or laws;
|
|
■
|
loss of a major funding source or inability to obtain new favorable funding sources in the future;
|
|
■
|
equity issuances by us, or share resales by our stockholders, or the perception that such issuances or resales may occur;
|
|
■
|
actual, anticipated or perceived accounting or internal control problems;
|
|
■
|
publication of research reports about us, the real estate industry or the cannabis industry;
|
|
■
|
our value of the properties securing our loans;
|
|
■
|
changes in market valuations of similar companies;
|
|
■
|
adverse market reaction to any increased indebtedness we may incur in the future;
|
|
■
|
additions to or departures of the executive officers or key personnel supporting or assisting us from our Manager or its
affiliates, including our Manager’s investment professionals;
|
|
■
|
speculation in the press or investment community about us or other similar companies;
|
|
■
|
our failure to meet, or the lowering of, our earnings estimates or those of any securities analysts;
|
|
■
|
increases in market interest rates, which may lead investors to demand a higher distribution yield for our common stock (if
we have begun to make distributions to our stockholders) and which could cause the cost of our interest expenses on our debt to increase;
|
|
■
|
failure to qualify or maintain our qualification as a REIT or exemption from the Investment Company Act;
|
|
■
|
price and volume fluctuations in the stock market generally; and
|
|
■
|
general market and economic conditions, including the state of the credit and capital markets.
|
Item 1B. |
Unresolved Staff Comments
|
Item 2. |
Properties
|
Item 3. |
Legal Proceedings
|
Item 4. |
Mine Safety Disclosures
|
Item 5. |
Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
|
Item 6. |
Reserved
|
Item 7. |
Management’s Discussion and Analysis of Financial Condition and Results of Operation
|
● |
organizational and offering expenses;
|
● |
quarterly valuation expenses;
|
● |
fees payable to third parties relating to, or associated with, making loans and valuing loans (including third-party valuation firms);
|
● |
fees and expenses associated with investor relations and marketing efforts (including attendance at investment conferences and similar events);
|
● |
federal and state registration fees;
|
● |
any exchange listing fees;
|
● |
federal, state and local taxes;
|
● |
independent directors’ fees and expenses;
|
● |
brokerage commissions;
|
● |
costs of proxy statements, stockholders’ reports and notices; and
|
● |
costs of preparing government filings, including periodic and current reports with the SEC.
|
Borrower
|
Status
|
Original Funding Date(1)
|
Maturity Date
|
AFCG Commitment, net of Syndication
|
% of Total AFCG
|
Principal Balance as of 12/31/2021
|
Cash Interest Rate
|
Paid In Kind (“PIK”)(7)
|
Fixed/ Floating
|
Amortization During Term
|
YTM (2)(3)
|
||||||||||||||
Public Co. A - Real Estate Loan
|
Funded
|
7/3/2019
|
1/26/2023
|
$
|
2,940,000
|
0.7%
|
|
$
|
2,940,000
|
12.0%
|
|
2.0%
|
|
Fixed
|
No
|
19%
|
|
||||||||
Public Co. A - Equipment Loan
|
Funded
|
8/5/2019
|
3/5/2024
|
4,000,000
|
1.0%
|
|
2,533,266
|
12.0%
|
|
N/A
|
Fixed
|
Yes
|
19%
|
|
|||||||||||
Private Co. A
|
Funded
|
5/8/2020
|
5/8/2024
|
62,500,000
|
14.9%
|
|
63,918,855
|
13.0%
|
|
3.4%
|
|
Fixed
|
Yes
|
22%
|
|
||||||||||
Private Co. B
|
Funded
|
9/10/2020
|
9/1/2023
|
10,500,000
|
2.5%
|
|
10,771,887
|
13.0%
|
|
4.0%
|
|
Fixed
|
Yes
|
26%
|
|
||||||||||
Private Co. C
|
Funded
|
11/5/2020
|
12/1/2025
|
24,000,000
|
5.7%
|
|
21,676,513
|
13.0%
|
|
4.0%
|
|
Floating
|
Yes
|
22%
|
|
||||||||||
Sub. of Public Co. D(4)
|
Funded
|
12/18/2020
|
12/18/2024
|
10,000,000
|
2.4%
|
|
10,000,000
|
12.9%
|
|
N/A
|
Fixed
|
No
|
14%
|
|
|||||||||||
Private Co. D
|
Funded
|
12/23/2020
|
1/1/2026
|
12,000,000
|
2.8%
|
|
12,230,666
|
13.0%
|
|
2.0%
|
|
Fixed
|
Yes
|
20%
|
|
||||||||||
Private Co. E(8)
|
Funded
|
3/30/2021
|
4/1/2026
|
21,000,000
|
5.0%
|
|
19,871,580
|
13.0%
|
|
4.0%
|
|
Floating
|
Yes
|
26%
|
|
||||||||||
Private Co. F
|
Funded
|
4/27/2021
|
5/1/2026
|
13,000,000
|
3.1%
|
|
11,545,235
|
13.0%
|
|
4.0%
|
|
Fixed
|
Yes
|
29%
|
|
||||||||||
Sub of Private Co. G(5)
|
Funded
|
4/30/2021
|
5/1/2026
|
65,400,000
|
15.6%
|
|
46,717,825
|
12.5%
|
|
1.8%
|
|
Floating
|
Yes
|
20%
|
|
||||||||||
Sub of Private Co. H(6)
|
Funded
|
5/11/2021
|
5/11/2023
|
5,781,250
|
1.4%
|
|
5,781,250
|
15.0%
|
|
N/A
|
Fixed
|
No
|
20%
|
|
|||||||||||
Public Co. F
|
Funded
|
5/21/2021
|
5/30/2023
|
60,000,000
|
14.3%
|
|
60,000,000
|
8.7%
|
|
N/A
|
Fixed
|
No
|
11%
|
|
|||||||||||
Private Co. I
|
Funded
|
7/14/2021
|
8/1/2026
|
10,326,875
|
2.5%
|
10,425,205
|
13.0%
|
|
2.5%
|
|
Floating
|
Yes
|
18%
|
|
|||||||||||
Private Co. K
|
Funded
|
8/20/2021
|
8/3/2026
|
19,750,000
|
4.7%
|
|
7,000,000
|
13.0%
|
|
N/A
|
Floating
|
Yes
|
18%
|
|
|||||||||||
Private Co. J
|
Funded
|
8/30/2021
|
9/1/2025
|
23,000,000
|
5.5%
|
|
23,093,441
|
13.0%
|
|
2.0%
|
|
Floating
|
Yes
|
20%
|
|
||||||||||
Public Co. G(9)
|
Funded
|
11/12/2021
|
12/10/2024
|
15,000,000
|
3.6%
|
|
15,000,000
|
12.5%
|
|
N/A
|
Fixed
|
No
|
10%
|
|
|||||||||||
Sub of Public Co. H
|
Funded
|
12/16/2021
|
1/1/2026
|
60,000,000
|
14.3%
|
|
42,500,000
|
9.8%
|
|
N/A
|
Fixed
|
No
|
14%
|
|
|||||||||||
SubTotal |
$
|
419,198,125
|
100.0%
|
|
$
|
366,005,723
|
11.8%
|
|
1.8%
|
|
19%
|
|
|||||||||||||
Wtd Average
|
As of December 31, 2021
|
||||||||||||||||
Fair
Value(2)
|
Carrying
Value(1)
|
Outstanding
Principal(1)
|
Weighted
Average
Remaining
Life (Years)(3)
|
|||||||||||||
Senior Term Loan
|
$
|
77,096,319
|
$
|
74,913,157
|
$
|
77,630,742
|
2.2
|
|||||||||
Total loans held at fair value
|
$
|
77,096,319
|
$
|
74,913,157
|
$
|
77,630,742
|
2.2
|
(1) |
The difference between the carrying value and the outstanding principal amount of the loans consists of unaccreted OID, PIK and loan origination costs.
|
(2) |
Refer to Note 14 to our annual consolidated financial statements titled “Fair Value.”
|
(3) |
Weighted average remaining life is calculated based on the fair value of the loans as of December 31, 2021.
|
As of December 31, 2020
|
||||||||||||||||
Fair
Value(2)
|
Carrying
Value(1)
|
Outstanding
Principal(1)
|
Weighted
Average
Remaining
Life (Years)(3)
|
|||||||||||||
Senior Term Loan
|
$
|
48,558,051
|
$
|
46,994,711
|
$
|
50,831,235
|
3.3
|
|||||||||
Total loans held at fair value
|
$
|
48,558,051
|
$
|
46,994,711
|
$
|
50,831,235
|
3.3
|
(1) |
The difference between the carrying value and the outstanding principal amount of the loans consists of unaccreted OID, PIK and loan origination costs.
|
(2) |
Refer to Note 14 to our annual consolidated financial statements titled “Fair Value.”
|
(3) |
Weighted average remaining life is calculated based on the fair value of the loans as of December 31, 2020.
|
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
|
—
|
—
|
619,821
|
619,821
|
||||||||||||
New fundings
|
37,701,104
|
(1,130,623
|
)
|
—
|
36,570,481
|
|||||||||||
Loan repayments
|
(12,000,000
|
)
|
—
|
—
|
(12,000,000
|
)
|
||||||||||
Loan amortization payments
|
(1,093,659
|
)
|
—
|
—
|
(1,093,659
|
)
|
||||||||||
Accretion of original issue discount
|
—
|
2,249,563
|
—
|
2,249,563
|
||||||||||||
PIK interest
|
2,192,062
|
—
|
—
|
2,192,062
|
||||||||||||
Total loans held at fair value at December 31, 2021
|
$
|
77,630,742
|
$
|
(2,717,584
|
)
|
$
|
2,183,161
|
$
|
77,096,319
|
Principal
|
Original
Issue
Discount
|
Fair
Value
|
||||||||||
Loans acquired at July 31, 2020
|
$
|
46,080,605
|
$
|
(2,974,054
|
)
|
$
|
43,106,551
|
|||||
Realized gains (losses) on loans at fair value, net
|
345,000
|
—
|
345,000
|
|||||||||
Change in unrealized gains (losses) on loans at fair value, net
|
—
|
—
|
1,563,340
|
|||||||||
New fundings
|
16,360,000
|
(1,595,199
|
)
|
14,764,801
|
||||||||
Loan repayments
|
(5,000,000
|
)
|
—
|
(5,000,000
|
)
|
|||||||
Sale of loans
|
(7,345,000
|
)
|
—
|
(7,345,000
|
)
|
|||||||
Accretion of original issue discount
|
—
|
732,729
|
732,729
|
|||||||||
PIK interest
|
390,630
|
—
|
390,630
|
|||||||||
Total loans held at fair value at December 31, 2020
|
$
|
50,831,235
|
$
|
(3,836,524
|
)
|
$
|
48,558,051
|
As of December 31, 2021
|
||||||||||||||||
Outstanding
Principal(1)
|
Original
Issue
Discount
|
Carrying
Value(1)
|
Weighted
Average
Remaining
Life (Years)(2)
|
|||||||||||||
Senior Term Loans
|
$
|
270,841,715
|
$
|
(13,678,219
|
)
|
$
|
257,163,496
|
3.4
|
||||||||
Total loans held at carrying value
|
$
|
270,841,715
|
$
|
(13,678,219
|
)
|
$
|
257,163,496
|
3.4
|
(1) |
The difference between the Carrying Value and the Outstanding Principal amount of the loans consists of unaccreted OID, PIK and loan origination costs.
|
(2) |
Weighted average remaining life is calculated based on the carrying value of the loans as of December 31, 2021.
|
As of December 31, 2020
|
||||||||||||||||
Outstanding
Principal(1)
|
Original
Issue
Discount
|
Carrying
Value(1)
|
Weighted
Average
Remaining
Life (Years)(2)
|
|||||||||||||
Senior Term Loans
|
$
|
33,907,763
|
$
|
(2,070,732
|
)
|
$
|
31,837,031
|
4.7
|
||||||||
Total loans held at carrying value
|
$
|
33,907,763
|
$
|
(2,070,732
|
)
|
$
|
31,837,031
|
4.7
|
(1) |
The difference between the Carrying Value and the Outstanding Principal amount of the loans consists of unaccreted OID, PIK and loan origination costs.
|
(2) |
Weighted average remaining life is calculated based on the carrying value of the loans as of December 31, 2020.
|
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
|
249,591,644
|
(14,941,001
|
)
|
234,650,643
|
||||||||
Accretion of original issue discount
|
—
|
3,333,514
|
3,333,514
|
|||||||||
Realized gain on sale of loans
|
450,000
|
—
|
450,000
|
|||||||||
Sale of loans
|
(15,450,000
|
)
|
—
|
(15,450,000
|
)
|
|||||||
PIK interest
|
2,342,308
|
—
|
2,342,308
|
|||||||||
Total loans held at carrying value at December 31, 2021
|
$
|
270,841,715
|
$
|
(13,678,219
|
)
|
$
|
257,163,496
|
Principal
|
Original
Issue
Discount
|
Carrying
Value
|
||||||||||
Loans at July 31, 2020
|
$
|
—
|
$
|
—
|
$
|
—
|
||||||
New fundings
|
33,875,985
|
(2,120,969
|
)
|
31,755,016
|
||||||||
Accretion of original issue discount
|
—
|
50,237
|
50,237
|
|||||||||
PIK interest
|
31,778
|
—
|
31,778
|
|||||||||
Total loans held at carrying value at December 31, 2020
|
$
|
33,907,763
|
$
|
(2,070,732
|
)
|
$
|
31,837,031
|
Principal
|
Original
Issue
Discount
|
Carrying
Value
|
||||||||||
Total loans receivable at carrying value at December 31, 2020
|
$
|
3,352,176
|
$
|
(3,913
|
)
|
$
|
3,348,263
|
|||||
Principal repayment of loans
|
(818,910
|
)
|
—
|
(818,910
|
)
|
|||||||
Accretion of original issue discount
|
—
|
1,235
|
1,235
|
|||||||||
Total loans receivable at carrying value at December 31, 2021
|
$
|
2,533,266
|
$
|
(2,678
|
)
|
$
|
2,530,588
|
Principal
|
Original
Issue
Discount
|
Carrying
Value
|
||||||||||
Loan receivable acquired at July 31, 2020
|
$
|
3,700,718
|
$
|
(4,428
|
)
|
$
|
3,696,290
|
|||||
Principal repayment of loans
|
(348,542
|
)
|
—
|
(348,542
|
)
|
|||||||
Accretion of original issue discount
|
—
|
515
|
515
|
|||||||||
Total loans receivable at carrying value at December 31, 2020
|
$
|
3,352,176
|
$
|
(3,913
|
)
|
$
|
3,348,263
|
For the
year ended
December 31, 2021
|
Period from
July 31,2020 to
December 31, 2020
|
|||||||
Net Income
|
$
|
21,000,497
|
$
|
4,313,632
|
||||
Adjustments to net income
|
||||||||
Non-cash equity compensation expense
|
1,745,872
|
—
|
||||||
Depreciation and amortization
|
—
|
—
|
||||||
Unrealized (gain), losses or other non-cash items
|
(619,821
|
)
|
(1,563,340
|
)
|
||||
Provision for current expected credit losses
|
2,649,338
|
465,397
|
||||||
TRS (income) loss
|
(93,969
|
)
|
—
|
|||||
One-time events pursuant to changes in GAAP and certain non-cash charges
|
—
|
—
|
||||||
Distributable Earnings
|
$
|
24,681,917
|
$
|
3,215,689
|
||||
Adjustments to Distributable Earnings
|
||||||||
Organizational expense
|
—
|
616,190
|
||||||
Adjusted Distributable Earnings
|
$
|
24,681,917
|
$
|
3,831,879
|
||||
Basic weighted average shares of common stock outstanding (in shares)
|
13,373,778
|
5,694,475
|
||||||
Adjusted Distributable Earnings per Basic Weighted Average Share
|
$
|
1.85
|
$
|
0.67
|
Senior Notes
|
Issue
Date
|
Amount
Outstanding
|
Interest Rate
Coupon
|
Maturity
Date
|
Interest
Due Dates
|
Par
Call Date
|
||||||
2027 Senior Notes
|
November 3, 2021
|
$100.0 million
|
5.750%
|
May 1, 2027
|
May 1 and November 1
|
February 1, 2027
|
Year ended
December 31, 2021
|
Period ended
December 31, 2020
|
|||||||
Net Income
|
$
|
21,000,497
|
$
|
4,313,632
|
||||
Adjustments to reconcile net income to net cash provided by (used in) operating activities and changes in operating assets and liabilities
|
(11,461,935
|
)
|
(2,794,776
|
)
|
||||
Net cash provided by (used in) operating activities
|
9,538,562
|
1,518,856
|
||||||
Net cash provided by (used in) investing activities
|
(248,458,088
|
)
|
(32,426,275
|
)
|
||||
Net cash provided by (used in) financing activities
|
338,541,754
|
40,531,239
|
||||||
Change in cash and cash
equivalents
|
$
|
99,622,228
|
$
|
9,623,820
|
Less than
1 year
|
1-3 years
|
3-5 years
|
More than
5 years
|
Total
|
||||||||||||||||
Unfunded commitments
|
$
|
55,538,620
|
—
|
—
|
—
|
$
|
55,538,620
|
|||||||||||||
Total
|
$
|
55,538,620
|
—
|
—
|
—
|
$
|
55,538,620
|
Less than
1 year
|
1-3 years
|
3-5 years
|
More than
5 years
|
Total
|
||||||||||||||||
Contractual obligations
|
$
|
5,718,056
|
$
|
11,500,000
|
$
|
11,500,000
|
$
|
102,875,000
|
$
|
131,593,056
|
||||||||||
Total
|
$
|
5,718,056
|
$
|
11,500,000
|
$
|
11,500,000
|
$
|
102,875,000
|
$
|
131,593,056
|
● |
Level 1—Valuations based on quoted prices in active markets for identical assets or liabilities that we have the ability to access.
|
● |
Level 2—Valuations based on quoted prices in markets that are not active or for which all significant inputs are observable, either directly or indirectly.
|
● |
Level 3—Valuations based on inputs that are unobservable and significant to the overall fair value measurement.
|
Item 7A. |
Quantitative and Qualitative Disclosures About Market Risk
|
● |
we manage our portfolio through an interactive process with our Manager and service our self-originated loans through our Manager’s servicer;
|
● |
we invest in a mix of floating- and fixed-rate loans to mitigate the interest rate risk associated with the financing of our portfolio;
|
● |
we actively employ portfolio-wide and asset-specific risk measurement and management processes in our daily operations, including utilizing our Manager’s risk management tools such as software and services
licensed or purchased from third-parties and proprietary analytical methods developed by our Manager; and
|
● |
we seek to manage credit risk through our due diligence process prior to origination or acquisition and through the use of non-recourse financing, when and where available and appropriate. In addition, with
respect to any particular target investment, prior to origination or acquisition our Manager’s investment team evaluates, among other things, relative valuation, comparable company analysis, supply and demand trends, shape-of-yield curves,
delinquency and default rates, recovery of various sectors and vintage of collateral.
|
Item 8. |
Consolidated Financial Statements and Supplementary Data
|
Item 9. |
Changes In and Disagreements With Accountants on Accounting and Financial Disclosure
|
Item 9A. |
Controls and Procedures
|
Item 9B. |
Other Information
|
Item 10. |
Directors, Executive Officers and Corporate Governance
|
Item 11. |
Executive Compensation
|
Item 12. |
Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
|
Item 13. |
Certain Relationships and Related Party Transactions, and Director Independence
|
Item 14. |
Principal Accountant Fees and Services
|
Item 15. |
Exhibits and Financial Statement Schedules
|
Exhibit No.
|
|
Document
|
|
Articles of Amendment and Restatement of AFC Gamma, Inc. (filed as Exhibit 3.2 to the Company’s Registration Statement on Form S-11 on January 22, 2021 and incorporated herein by reference).
|
|
|
Articles of Amendment, dated March 10, 2022.
|
|
|
Amended and Restated Bylaws of AFC Gamma, Inc. (filed as Exhibit 3.4 to the Company’s Registration Statement on Form S-11 on January 22, 2021 and incorporated herein by reference).
|
|
|
Description of Capital Stock.
|
|
|
Indenture, dated as of November 3, 2021, between the Company 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).
|
|
|
Amended and Restated Management Agreement, dated January 14, 2021 by and between AFC Gamma, Inc. and AFC Management, LLC (filed as Exhibit 10.1 to the Company's Current Report on Form 8-K on March 23, 2021 and
incorporated herein by reference).
|
|
First Amendment to Amended and Restated Management Agreement, dated March 10, 2022 by and between AFC Gamma, Inc. and AFC Management,
LLC.
|
||
|
Form of Indemnification Agreement between the Registrant and each of its directors and officers (filed as Exhibit 10.2 to the Company’s Registration Statement on Form S-11 on January 22, 2021 and incorporated
herein by reference).
|
|
|
Form of Indemnification Agreement between Registrant and each of the Investment Committee members (filed as Exhibit 10.3 to the Company’s Registration Statement on Form S-11 on January 22, 2021 and incorporated
herein by reference).
|
|
|
Form of Registration Rights Agreement, by and among AFC Gamma, Inc. and the holders thereto (filed as Exhibit 10.4 to the Company’s Registration Statement on Form S-11 on December 28, 2020 and incorporated
herein by reference).
|
|
|
2020 Stock Incentive Plan (filed as Exhibit 10.5 to the Company’s Registration Statement on Form S-11 on January 22, 2021 and incorporated herein by reference).
|
|
|
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 (filed as Exhibit
10.6 to the Company’s Registration Statement on Form S-11 on December 28, 2020 and incorporated herein by reference).
|
|
|
Amendment to Revolving Credit Agreement, dated as of May 7, 2021, by and among AFC Gamma, Inc., as borrower, AFC Finance, LLC, as agent, and AFC Finance, LLC and Gamma Lending Holdco LLC, as lenders (filed as
Exhibit 10.2 to the Company’s Quarterly Report on Form 10-Q on May 11, 2021 and incorporated herein by reference).
|
|
|
Second Amendment to Revolving Credit Agreement, dated as of November 3, 2021, by and among AFC Gamma, Inc., as borrower, and AFC Finance, LLC, as and lender (filed as Exhibit 10.1 to the Company’s Current
Report on Form 8-K on November 3, 2021 and incorporated herein by reference).
|
|
|
Employment Agreement, dated as of August 2, 2021,
between AFC Management, LLC and Brett Kaufman (filed as Exhibit 10.1 to the Company’s Current Report on Form 8-K on August 5, 2021 and incorporated herein by reference).
|
|
List of Subsidiaries of the Registrant.
|
|
|
Consent of CohnReznick LLP, independent registered public accounting firm.
|
|
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). |
§
|
Management contract or compensatory plan or arrangement
|
*
|
Furnished herewith
|
†
|
The registrant has omitted portions of the referenced exhibit pursuant to Item 601(b) of Regulation S-K because such portions are
both (i) not material and (ii) would likely cause competitive harm to the registrant if publicly disclosed.
|
**
|
Filed herewith
|
Item 16. |
Form 10-K Summary
|
Report of Independent Registered Public Accounting Firm
CohnReznick LLP
(PCAOB ID
), Chicago, Illinois |
F-2
|
Consolidated Balance Sheets as of December 31, 2021 and 2020
|
F-3
|
Consolidated Statements of Operations for the year ended December 31, 2021, and from July 31, 2020 (commencement of operations) to December 31, 2020
|
F-4
|
Consolidated Statement of Comprehensive Income for the year ended December 31, 2021, and from July 31, 2020 (commencement of operations) to December 31, 2020 | F-5 |
Consolidated Statements of Stockholders’ Equity for the year ended December 31, 2021, and from July 31, 2020 (commencement of operations) to December 31, 2020
|
F-6
|
Consolidated Statements of Cash Flows for the year ended December 31, 2021, and from July 31, 2020 (commencement of operations) to December 31, 2020
|
F-7
|
Notes to Consolidated Financial Statements
|
F-8
|
As of December 31,
|
||||||||
2021
|
2020
|
|||||||
Assets:
|
||||||||
Loans held for investment at fair value (cost of $74,913,157
and $46,994,711 at December 31, 2021 and 2020, respectively, net)
|
$
|
77,096,319
|
$
|
48,558,051
|
||||
Debt securities available for sale held at fair value (cost of $16,050,000
and $0 at December 31, 2021 and 2020, respectively)
|
15,881,250 | — | ||||||
Loans held for investment at carrying value, net
|
257,163,496
|
31,837,031
|
||||||
Loan receivable at carrying value, net
|
2,530,588
|
3,348,263
|
||||||
Current expected credit loss reserve
|
(2,431,558
|
)
|
(404,860
|
)
|
||||
Loans held for investment at carrying value and loan receivable at carrying value, net of current expected credit loss reserve
|
257,262,526
|
34,780,434
|
||||||
Cash and cash equivalents
|
109,246,048
|
9,623,820
|
||||||
Interest receivable
|
4,412,938
|
927,292
|
||||||
Prepaid expenses and other assets
|
949,279
|
72,095
|
||||||
Total assets
|
$
|
464,848,360
|
$
|
93,961,692
|
||||
Liabilities and Stockholders’ Equity:
|
||||||||
Interest reserve
|
$
|
4,782,271
|
$
|
1,325,750
|
||||
Accrued interest
|
991,840 |
— |
||||||
Dividends payable
|
8,221,406
|
—
|
||||||
Current expected credit loss reserve
|
683,177
|
60,537
|
||||||
Accrued management and incentive fees
|
2,823,044
|
222,127
|
||||||
Accrued direct administrative expenses
|
1,324,457
|
550,671
|
||||||
Accounts payable and other liabilities
|
1,528,980
|
154,895
|
||||||
Senior notes payable, net |
96,572,656 | — | ||||||
Line of credit payable to affiliate, net |
74,845,355 | — | ||||||
Total liabilities
|
191,773,186
|
2,313,980
|
||||||
Commitments and contingencies (Note 10)
|
||||||||
Stockholders’ Equity
|
||||||||
Preferred stock, par value $0.01 per share, 10,000 shares authorized at December 31, 2021
and 2020 and 125
shares issued and outstanding at December 31, 2021 and 2020, respectively
|
1
|
1
|
||||||
Common stock, par value $0.01 per share, 25,000,000 and 15,000,000
shares authorized at December 31, 2021 and 2020, respectively, and 16,442,812 and 6,179,392 shares issued and outstanding at December 31, 2021 and 2020, respectively
|
163,866
|
61,794
|
||||||
Additional paid-in-capital
|
274,172,934
|
91,068,197
|
||||||
Accumulated other comprehensive (loss) income |
(168,750 | ) | — | |||||
Accumulated (deficit) earnings
|
(1,092,877
|
)
|
517,720
|
|||||
Total stockholders’ equity
|
273,075,174
|
91,647,712
|
||||||
Total liabilities and stockholders’ equity
|
$
|
464,848,360
|
$
|
93,961,692
|
For the
year ended
|
Period from
July 31, 2020 to
|
|||||||
December 31, 2021
|
December 31, 2020
|
|||||||
Revenue
|
||||||||
Interest income
|
$
|
38,140,487
|
$
|
5,250,108
|
||||
Interest expense |
1,126,846 | — | ||||||
Net interest income
|
37,013,641
|
5,250,108
|
||||||
Expenses
|
||||||||
Management and incentive fees, net (less rebate of $1,029,315
and $259,167, respectively)
|
8,321,512
|
364,194
|
||||||
General and administrative expenses
|
3,212,785
|
785,016
|
||||||
Organizational expenses
|
— |
616,190
|
||||||
Stock-based compensation
|
1,745,872
|
—
|
||||||
Professional fees
|
1,118,291
|
614,019
|
||||||
Total expenses
|
14,398,460
|
2,379,419
|
||||||
Provision for current expected credit losses
|
(2,649,338
|
)
|
(465,397
|
)
|
||||
Realized gains (losses) on loans at fair value, net
|
450,000
|
345,000
|
||||||
Change in unrealized gains (losses) on loans at fair value, net
|
619,821
|
1,563,340
|
||||||
Net income before income taxes
|
21,035,664
|
4,313,632
|
||||||
Income tax expense
|
35,167
|
—
|
||||||
Net income
|
$
|
21,000,497
|
$
|
4,313,632
|
||||
Earnings per common share:
|
||||||||
Basic earnings per common share (in dollars per share)
|
$
|
1.57
|
$
|
0.76
|
||||
Diluted earnings per common share (in dollars per share)
|
$
|
1.52
|
$
|
0.76
|
||||
Weighted average number of common shares outstanding:
|
||||||||
Basic weighted average shares of common stock outstanding (in shares)
|
13,373,778
|
5,694,475
|
||||||
Diluted weighted average shares of common stock outstanding (in shares)
|
13,808,845
|
5,694,475
|
|
For the year ended
|
For the period from
July 31, 2020 to
|
||||||
|
December 31, 2021
|
December 31, 2020
|
||||||
Net income
|
$
|
21,000,497
|
$
|
4,313,632
|
||||
|
||||||||
Other comprehensive (loss) income:
|
||||||||
Unrealized (losses) gains on debt securities available for sale held at fair value
|
(168,750
|
)
|
—
|
|||||
Total other comprehensive (loss) income
|
|
(168,750
|
)
|
|
—
|
|||
Total comprehensive income
|
$
|
20,831,747
|
$
|
4,313,632
|
Year ended December 31, 2021
|
||||||||||||||||||||||||||||
Preferred
|
Common Stock
|
Additional
Paid-In-
|
Accumulated
Other
Comprehensive
|
Accumulated
|
Total
Stockholders’
|
|||||||||||||||||||||||
Stock
|
Shares
|
Amount
|
Capital
|
Income (Loss) |
Earnings (Deficit)
|
Equity
|
||||||||||||||||||||||
Balance at December 31, 2020
|
$
|
1
|
6,179,392
|
$
|
61,794
|
$
|
91,068,197
|
$ | — |
$
|
517,720
|
$
|
91,647,712
|
|||||||||||||||
Issuance of common stock, net of offering cost
|
—
|
10,207,135
|
102,072
|
181,358,865
|
— |
—
|
181,460,937
|
|||||||||||||||||||||
Stock-based compensation
|
—
|
56,285
|
—
|
1,745,872
|
— |
—
|
1,745,872
|
|||||||||||||||||||||
Dividends declared on common shares ($1.67 per share)
|
—
|
—
|
—
|
—
|
— |
(22,596,094
|
)
|
(22,596,094
|
)
|
|||||||||||||||||||
Dividends declared on preferred shares ($120 per
share)
|
—
|
—
|
—
|
—
|
— |
(15,000
|
)
|
(15,000
|
)
|
|||||||||||||||||||
Other comprehensive income (loss) |
— | — | — | — | (168,750 | ) | — | (168,750 | ) | |||||||||||||||||||
Net income
|
—
|
—
|
—
|
—
|
— |
21,000,497
|
21,000,497
|
|||||||||||||||||||||
Balance at December 31, 2021
|
$
|
1
|
16,442,812
|
$
|
163,866
|
$
|
274,172,934
|
$ | (168,750 | ) |
$
|
(1,092,877
|
)
|
$
|
273,075,174
|
Period from July 31, 2020 (date of commencement of operations) to December 31, 2020
|
||||||||||||||||||||||||
Preferred
|
Common Stock
|
Additional
Paid-In-
|
Accumulated
|
Total
Stockholders’
|
||||||||||||||||||||
Stock
|
Shares
|
Amount
|
Capital
|
Earnings (Deficit)
|
Equity | |||||||||||||||||||
Balance at July 31, 2020
|
$
|
—
|
—
|
$
|
—
|
$
|
—
|
$
|
—
|
$
|
—
|
|||||||||||||
Issuance of common stock, net of offering cost
|
—
|
6,179,392
|
61,794
|
90,967,139
|
—
|
91,028,933
|
||||||||||||||||||
Issuance of preferred stock, net of offering cost
|
1
|
—
|
—
|
101,058
|
—
|
101,059
|
||||||||||||||||||
Dividends declared and paid on common shares ($0.61
per share)
|
—
|
—
|
—
|
—
|
(3,795,912
|
)
|
(3,795,912
|
)
|
||||||||||||||||
Net income
|
—
|
—
|
—
|
—
|
4,313,632
|
4,313,632
|
||||||||||||||||||
Balance at December 31, 2020
|
$
|
1
|
6,179,392
|
$
|
61,794
|
$
|
91,068,197
|
$
|
517,720
|
$
|
91,647,712
|
For the
year ended
|
Period from
July 31, 2020 to
|
|||||||
December 31, 2021
|
December 31, 2020
|
|||||||
Operating activities:
|
||||||||
Net income
|
$
|
21,000,497
|
$
|
4,313,632
|
||||
Adjustments to reconcile net income to net cash provided by (used in) operating activities:
|
||||||||
Provision for current expected credit losses
|
2,649,338
|
465,397
|
||||||
Realized gain on sale of loans, net
|
(450,000
|
)
|
(345,000
|
)
|
||||
Change in unrealized (gains) losses on loans carried at fair value, net
|
(619,821
|
)
|
(1,563,340
|
)
|
||||
Accretion of deferred loan original issue discount and other discounts |
(5,584,311 | ) | (783,481 | ) | ||||
Amortization of deferred financing costs - revolving credit facility |
32,855 | — | ||||||
Amortization of offering costs - senior notes |
102,151 | — | ||||||
Stock-based compensation
|
1,745,872
|
—
|
||||||
PIK interest
|
(4,534,370
|
)
|
(422,408
|
)
|
||||
Changes in operating assets and liabilities
|
||||||||
Interest reserve
|
(5,993,947
|
)
|
(74,250
|
)
|
||||
Interest receivable
|
(3,485,646
|
)
|
(927,292
|
)
|
||||
Prepaid expenses and other assets
|
(877,184
|
)
|
(72,095
|
)
|
||||
Accrued interest |
991,840 | — | ||||||
Accrued management and incentive fees, net
|
2,600,917
|
222,127
|
||||||
Accrued direct administrative expenses
|
773,786
|
550,671
|
||||||
Accounts payable and other liabilities
|
1,186,585
|
154,895
|
||||||
Net cash provided by (used in) operating activities
|
9,538,562
|
1,518,856
|
||||||
Cash flows from investing activities:
|
||||||||
Issuance of and fundings on loans
|
(272,583,787
|
)
|
(46,769,285
|
)
|
||||
Proceeds from sales of Assigned Rights
|
2,313,130
|
1,649,468
|
||||||
Principal repayment of loans
|
22,412,569
|
5,348,542
|
||||||
Proceeds from sales of loans
|
15,450,000
|
7,345,000
|
||||||
Purchase of available-for-sale debt securities |
(16,050,000 | ) | — | |||||
Net cash provided by (used in) investing activities
|
(248,458,088
|
)
|
(32,426,275
|
)
|
||||
Cash flows from financing activities:
|
||||||||
Proceeds from sale of common stock
|
185,501,294
|
44,226,092
|
||||||
Payment of offering costs - equity offering | (4,040,357 | ) | — | |||||
Payment of financing costs - senior notes | (3,529,495 | ) | — | |||||
Issuance of senior notes |
100,000,000 | — | ||||||
Borrowings on the revolving credit facility |
75,000,000 | — | ||||||
Dividends paid to common and preferred stockholders
|
(14,389,688
|
)
|
(3,694,853
|
)
|
||||
Net cash provided by (used in) financing activities
|
338,541,754
|
40,531,239
|
||||||
Net increase (decrease) in cash and cash equivalents
|
99,622,228
|
9,623,820
|
||||||
Cash and cash equivalents, beginning of period
|
9,623,820
|
—
|
||||||
Cash and cash equivalents, end of period
|
$
|
109,246,048
|
$
|
9,623,820
|
||||
Supplemental disclosure of non-cash activity
|
||||||||
Loans acquired for issuance of shares of common stock
|
$
|
—
|
$
|
46,802,841
|
||||
Interest reserve withheld from funding of loans
|
$
|
9,450,468
|
$
|
1,400,000
|
||||
OID withheld from funding of loans
|
$
|
15,021,624
|
$
|
320,000
|
||||
Change in other comprehensive income (loss) during the period |
$ | (168,750 | ) | $ | — | |||
Dividends declared and not yet paid | $ | 8,221,406 | $ | — | ||||
Supplemental information:
|
||||||||
Interest paid during the period
|
$
|
—
|
$
|
—
|
||||
Income taxes paid during the period
|
$
|
35,167
|
$
|
—
|
1. |
ORGANIZATION
|
2. |
SIGNIFICANT ACCOUNTING POLICIES
|
● |
Level 1—Valuations based on quoted prices in active markets for identical assets or liabilities that the Company has the ability to access.
|
● |
Level 2—Valuations based on quoted prices in markets that are not active or for which all significant inputs are observable, either directly or indirectly.
|
● |
Level 3—Valuations based on inputs that are unobservable and significant to the overall fair value measurement.
|
3. |
LOANS HELD FOR INVESTMENT AT FAIR VALUE
|
As of December 31, 2021
|
||||||||||||||||
Fair Value (2)
|
Carrying Value (1)
|
Outstanding
Principal (1)
|
Weighted Average
Remaining Life
(Years) (3)
|
|||||||||||||
Senior Term Loans
|
$
|
77,096,319
|
$
|
74,913,157
|
$
|
77,630,742
|
2.2
|
|||||||||
Total loans held at fair value
|
$
|
77,096,319
|
$
|
74,913,157
|
$
|
77,630,742
|
2.2
|
As of December 31, 2020
|
||||||||||||||||
Fair Value (2)
|
Carrying Value (1)
|
Outstanding
Principal (1)
|
Weighted Average
Remaining Life
(Years) (3)
|
|||||||||||||
Senior Term Loans
|
$
|
48,558,051
|
$
|
46,994,711
|
$
|
50,831,235
|
3.3
|
|||||||||
Total loans held at fair value
|
$
|
48,558,051
|
$
|
46,994,711
|
$
|
50,831,235
|
3.3
|
(1) |
The difference between the Carrying Value and the Outstanding Principal
amount of the loans consists of OID, PIK and loan origination costs.
|
(2) |
Refer to Note 14 in these annual consolidated financial statements.
|
(3) |
Weighted average remaining life is calculated based on the fair value of
the loans as of December 31, 2021 and December 31, 2020.
|
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
|
—
|
—
|
619,821
|
619,821
|
||||||||||||
New fundings
|
37,701,104
|
(1,130,623
|
)
|
—
|
36,570,481
|
|||||||||||
Loan repayments
|
(12,000,000
|
)
|
—
|
—
|
(12,000,000
|
)
|
||||||||||
Loan amortization payments
|
(1,093,659
|
)
|
—
|
—
|
(1,093,659
|
)
|
||||||||||
Accretion of original issue discount
|
—
|
2,249,563
|
—
|
2,249,563
|
||||||||||||
PIK interest
|
2,192,062
|
—
|
—
|
2,192,062
|
||||||||||||
Total loans held at fair value at December 31, 2021
|
$
|
77,630,742
|
$
|
(2,717,584
|
)
|
$
|
2,183,161
|
$
|
77,096,319
|
|
Principal
|
Original Issue
Discount
|
Fair
Value
|
|||||||||
Loans acquired at July 31, 2020
|
$
|
46,080,605
|
$
|
(2,974,054
|
)
|
$
|
43,106,551
|
|||||
Realized gains (losses) on loans at fair value, net
|
345,000
|
—
|
345,000
|
|||||||||
Change in unrealized gains (losses) on loans at fair value, net
|
—
|
—
|
1,563,340
|
|||||||||
New fundings
|
16,360,000
|
(1,595,199
|
)
|
14,764,801
|
||||||||
Loan repayments
|
(5,000,000
|
)
|
—
|
(5,000,000
|
)
|
|||||||
Sale of loans
|
(7,345,000
|
)
|
—
|
(7,345,000
|
)
|
|||||||
Accretion of original issue discount
|
—
|
732,729
|
732,729
|
|||||||||
PIK interest
|
390,630
|
—
|
390,630
|
|||||||||
Total loans held at fair value at
December 31, 2020
|
$
|
50,831,235
|
$
|
(3,836,524
|
)
|
$
|
48,558,051
|
Collateral
Location
|
Collateral
Type (8)
|
Fair
Value (2)
|
Carrying
Value (1)
|
Outstanding
Principal (1)
|
Interest
Rate
|
Maturity
Date (3)
|
Payment
Terms (4)
|
||||||||||||||||||||
Private Co. A
|
AZ, MI,
MD, MA
|
C ,D
|
|
$
|
63,523,503
|
$
|
61,629,048
|
$
|
63,918,855
|
16.4
|
%
|
(5)
|
5/8/2024
|
P/I
|
|||||||||||||
Public Co. A
|
NV
|
C |
2,919,420
|
2,940,000
|
2,940,000
|
14.0
|
%
|
(6)
|
1/26/2023
|
I/O
|
|||||||||||||||||
Private Co. B
|
MI
|
C |
10,653,396
|
10,344,109
|
10,771,887
|
17.0
|
%
|
(7)
|
9/1/2023
|
P/I
|
|||||||||||||||||
Total loans held at fair value
|
$
|
77,096,319
|
$
|
74,913,157
|
$
|
77,630,742
|
(1) |
The difference between the Carrying Value and the Outstanding Principal
amount of the loans consists of OID, PIK and loan origination costs.
|
(2) |
Refer to Note 14 in these annual consolidated financial statements.
|
(3) |
Certain loans are subject to contractual extension options and may be
subject to performance based or other conditions as stipulated in the loan agreement. Actual maturities may differ from contractual maturities stated herein as certain borrowers may have the right to prepay with or without paying a
prepayment penalty. The Company may also extend contractual maturities and amend other terms of the loans in connection with loan modifications.
|
(4) |
I/O = interest-only, P/I = principal and interest. P/I loans may include
interest-only periods for a portion of the loan term.
|
(5) |
Base interest rate of 13% and payment-in-kind (“PIK”) interest rate of 3.4%.
|
(6) |
Base interest rate of 12% and PIK interest rate of 2%.
|
(7) |
Base interest rate of 13% and PIK interest rate of 4%.
|
(8) |
C = Cultivation Facilities, D = Dispensaries.
|
4. |
LOANS HELD FOR INVESTMENT AT CARRYING VALUE
|
As of December 31, 2021
|
||||||||||||||||
Outstanding
Principal (1)
|
Original
Issue
Discount
|
Carrying
Value (1)
|
Weighted
Average
Remaining Life
(Years) (2)
|
|||||||||||||
Senior Term Loans
|
$
|
270,841,715
|
$
|
(13,678,219
|
)
|
$
|
257,163,496
|
3.4
|
||||||||
Total loans held at carrying value
|
$
|
270,841,715
|
$
|
(13,678,219
|
)
|
$
|
257,163,496
|
3.4
|
As of December 31, 2020
|
||||||||||||||||
Outstanding
Principal (1)
|
Original
Issue
Discount
|
Carrying
Value (1)
|
Weighted
Average
Remaining Life
(Years) (2)
|
|||||||||||||
Senior Term Loans
|
$
|
33,907,763
|
$
|
(2,070,732
|
)
|
$
|
31,837,031
|
4.7
|
||||||||
Total loans held at carrying value
|
$
|
33,907,763
|
$
|
(2,070,732
|
)
|
$
|
31,837,031
|
4.7
|
(1) |
The difference between the Carrying Value and the Outstanding
Principal amount of the loans consists of unaccreted OID, PIK and loan origination costs.
|
(2) |
Weighted average remaining life is calculated based on the carrying
value of the loans as of December 31, 2021 and December 31, 2020.
|
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
|
249,591,644
|
(14,941,001
|
)
|
234,650,643
|
||||||||
Accretion of original issue discount
|
—
|
3,333,514
|
3,333,514
|
|||||||||
Realized gain on sale of loans
|
450,000
|
—
|
450,000
|
|||||||||
Sale of loans
|
(15,450,000
|
)
|
—
|
(15,450,000
|
)
|
|||||||
PIK interest
|
2,342,308
|
—
|
2,342,308
|
|||||||||
Total loans held at carrying value at December 31, 2021
|
$
|
270,841,715
|
$
|
(13,678,219
|
)
|
$
|
257,163,496
|
|
Principal
|
Original
Issue
Discount
|
Carrying
Value
|
|||||||||
Loans at July 31, 2020
|
$
|
—
|
$
|
—
|
$
|
—
|
||||||
New fundings
|
33,875,985
|
(2,120,969
|
)
|
31,755,016
|
||||||||
Accretion of original issue discount
|
—
|
50,237
|
50,237
|
|||||||||
PIK interest
|
31,778
|
—
|
31,778
|
|||||||||
Total loans held at carrying value
at December 31, 2020
|
$
|
33,907,763
|
$
|
(2,070,732
|
)
|
$
|
31,837,031
|
(1) |
The difference between the Carrying Value and the Outstanding
Principal amount of the loans consists of unaccreted OID, PIK and loan origination costs.
|
(2) |
Certain loans are subject to contractual extension options and may be
subject to performance based or other conditions as stipulated in the loan agreement. Actual maturities may differ from contractual maturities stated herein as certain borrowers may have the right to prepay with or without paying a
prepayment penalty. The Company may also extend contractual maturities and amend other terms of the loans in connection with loan modifications.
|
(3) |
I/O = interest-only, P/I = principal and interest. P/I loans may
include interest-only periods for a portion of the loan term.
|
(4) |
C = Cultivation Facilities, D = Dispensaries.
|
(5) |
Base interest rate of 12.0% plus LIBOR (LIBOR floor of 1.0%) and PIK
interest rate of 4.0%.
|
(6) |
Base interest rate of 12.9%.
|
(7) |
Base interest rate of 13.0% and PIK interest rate of 2.0%.
|
(8) |
Base interest rate of 12.0% plus LIBOR (LIBOR floor of 1.0%) and PIK
interest rate of 4.0%.
|
(9) |
Base interest rate of 13.0% and PIK interest rate of 4.0%.
|
(10) |
Base interest rate of 11.5% plus LIBOR (LIBOR floor of 1.0%) and PIK
interest rate of 1.8%.
|
(11) |
Base interest rate of 8.7%.
|
(12) |
Base interest rate of 15.0%.
|
(13) |
Base interest rate of 12.0% plus LIBOR (LIBOR floor of 1.0%)
|
(14) |
Base interest rate of 12.0% plus LIBOR (LIBOR floor of 1.0%) and PIK
interest rate of 2.5%.
|
(15)
|
Base interest rate of 12.0% plus LIBOR (LIBOR floor of 1.0%) and PIK interest rate of 2.0%. |
(16)
|
Base
interest rate of 9.8%.
|
5. |
LOAN RECEIVABLE AT CARRYING VALUE
|
Principal
|
Original
Issue
Discount
|
Carrying
Value
|
||||||||||
Total loans receivable at carrying value at December 31, 2020
|
$
|
3,352,176
|
$
|
(3,913
|
)
|
$
|
3,348,263
|
|||||
Principal repayment of loans
|
(818,910
|
)
|
—
|
(818,910
|
)
|
|||||||
Accretion of original issue discount
|
—
|
1,235
|
1,235
|
|||||||||
Total loans receivable at carrying value at December 31, 2021
|
$
|
2,533,266
|
$
|
(2,678
|
)
|
$
|
2,530,588
|
6. |
CURRENT EXPECTED CREDIT LOSSES
|
Outstanding (1)
|
Unfunded (2)
|
Total
|
||||||||||
Balance at December 31, 2020
|
$
|
404,860
|
$
|
60,537
|
$
|
465,397
|
||||||
Provision for current expected credit losses
|
2,026,698
|
622,640
|
2,649,338
|
|||||||||
Write-offs
|
—
|
—
|
—
|
|||||||||
Recoveries
|
—
|
—
|
—
|
|||||||||
Balance at December 31, 2021
|
$
|
2,431,558
|
$
|
683,177
|
$
|
3,114,735
|
(1) |
As of December 31, 2021 and December 31,
2020, the CECL Reserve related to outstanding balances on loans at carrying value and loans receivable at carrying value is recorded within current expected credit loss reserve in the Company’s consolidated balance sheets.
|
(2) |
As of December 31, 2021 and December 31,
2020, 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.
|
|
Outstanding (1)
|
Unfunded (2)
|
Total
|
|||||||||
Balance at July 31, 2020
|
$
|
—
|
$
|
—
|
$
|
—
|
||||||
Provision for current expected credit losses
|
404,860
|
60,537
|
465,397
|
|||||||||
Write-offs
|
—
|
—
|
—
|
|||||||||
Recoveries
|
—
|
—
|
—
|
|||||||||
Balance at December 31, 2020
|
$
|
404,860
|
$
|
60,537
|
$
|
465,397
|
(1) | As of December 31, 2020, the CECL Reserve related to outstanding balances on loans at carrying value and loans receivable at carrying value is recorded within current expected credit loss reserve in the Company’s consolidated balance sheets. |
(2) | As of December 31, 2020, the CECL Reserve related to unfunded commitments on loans held at carrying value is recorded within other liabilities in the Company’s consolidated balance sheets. |
|
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
|
Risk Rating:
|
2021
|
2020
|
Total
|
||||||
1
|
$
|
—
|
$
|
—
|
$
|
—
|
|||
2
|
58,864,000
|
—
|
58,864,000
|
||||||
3
|
145,898,184
|
44,720,028
|
190,618,212
|
||||||
4
|
10,211,872
|
—
|
10,211,872
|
||||||
5
|
—
|
—
|
—
|
||||||
Total
|
$
|
214,974,056
|
$
|
44,720,028
|
$
|
259,694,084
|
7. |
INTEREST RECEIVABLE
|
As of
December 31, 2021
|
As of
December 31, 2020
|
|||||||
Interest receivable
|
$
|
3,562,566
|
$
|
675,795
|
||||
PIK receivable
|
554,357
|
177,183
|
||||||
Unused fees receivable
|
296,015
|
74,314
|
||||||
Total interest receivable
|
$
|
4,412,938
|
$
|
927,292
|
8. |
INTEREST RESERVE
|
For the
year ended
December 31, 2021
|
Period from
July 31, 2020 to
December 31, 2020
|
|||||||
Beginning reserves
|
$
|
1,325,750
|
$
|
—
|
||||
New reserves
|
9,450,468
|
1,400,000
|
||||||
Reserves disbursed
|
(5,993,947
|
)
|
(74,250
|
)
|
||||
Ending reserves
|
$
|
4,782,271
|
$
|
1,325,750
|
9. |
DEBT
|
Senior
Unsecured Notes
|
||||
Year ending December 31,
|
||||
2022
|
$
|
—
|
||
2023
|
—
|
|||
2024
|
—
|
|||
2025
|
—
|
|||
2026
|
—
|
|||
Thereafter
|
100,000,000
|
|||
Total principal
|
$ |
100,000,000
|
As of December 31, 2021
|
||||||||||||
|
Senior
Unsecured Notes
|
Line of
Credit
|
Total
Borrowings
|
|||||||||
|
||||||||||||
Interest expense
|
$
|
942,361
|
$
|
19,792
|
$
|
962,153
|
||||||
Unused fee expense
|
—
|
29,687
|
29,687
|
|||||||||
Amortization of deferred financing costs
|
102,151
|
32,855
|
135,006
|
|||||||||
Total interest expense
|
$ |
1,044,512
|
$ |
82,334
|
$ |
1,126,846
|
10. |
COMMITMENTS AND CONTINGENCIES
|
As of
December 31, 2021
|
As of
December 31, 2020
|
|||||||
Total original loan commitments
|
$
|
419,198,125
|
$
|
107,292,176
|
||||
Less: drawn commitments
|
(363,659,505
|
)
|
(87,467,057
|
)
|
||||
Total undrawn commitments
|
$
|
55,538,620
|
$
|
19,825,119
|
11. |
STOCKHOLDERS’ EQUITY
|
As of
December 31, 2021
|
As of
December 31, 2020
|
|||||||
Non-vested
|
183,114
|
142,814
|
||||||
Vested
|
1,449,518
|
800,618
|
||||||
Forfeited
|
(28,396
|
)
|
(16,534
|
)
|
||||
Balance
|
1,604,236
|
926,898
|
As of
December 31, 2021
|
As of
December 31, 2020
|
|||||||
Non-vested
|
56,285
|
—
|
||||||
Vested
|
—
|
—
|
||||||
Forfeited
|
—
|
—
|
||||||
Balance
|
56,285
|
—
|
Assumptions
|
Range
|
|||
Expected volatility
|
40% - 50%
|
|
||
Expected dividend yield
|
10% - 20%
|
|
||
Risk-free interest rate
|
0.5% - 1.5%
|
|
||
Expected forfeiture rate
|
0%
|
|
Year ended
December 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
|
(11,862
|
)
|
1.01
|
|||||
Balance as of December 31, 2021
|
1,604,236
|
$
|
1.08
|
Period ended
December 31, 2020
|
Weighted-
Average
Grant Date Fair
Value Per Option
|
|||||||
Balance as of July 31, 2020
|
—
|
$
|
—
|
|||||
Granted
|
943,432
|
0.91
|
||||||
Exercised
|
—
|
—
|
||||||
Forfeited
|
(16,534
|
)
|
0.90
|
|||||
Balance as of December 31, 2020
|
926,898
|
$
|
0.91
|
12. |
EARNINGS PER SHARE
|
Year ended
December 31, 2021
|
Period from
July 31, 2020 to
December 31, 2020
|
|||||||
Net income (loss) attributable to common stockholders
|
$
|
21,000,497
|
$
|
4,313,632
|
||||
Divided by:
|
||||||||
Basic weighted average shares of common stock outstanding
|
13,373,778
|
5,694,475
|
||||||
Diluted weighted average shares of common stock outstanding
|
13,808,845
|
5,694,475
|
||||||
Basic weighted average earnings per common share
|
$
|
1.57
|
$
|
0.76
|
||||
Diluted weighted average earnings per common share
|
$
|
1.52
|
$
|
0.76
|
|
13. |
INCOME TAX
|
14. |
FAIR VALUE
|
Fair Value Measurement Using as of December 31, 2021
|
||||||||||||||||
Total
|
Level 1
|
Level 2
|
Level 3
|
|||||||||||||
Loans held at fair value
|
$
|
77,096,319
|
$
|
—
|
$
|
—
|
$
|
77,096,319
|
||||||||
Total
|
$
|
77,096,319
|
$
|
—
|
$
|
—
|
$
|
77,096,319
|
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
|
For the
year ended
December 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
|
619,821
|
|||
Additional funding
|
37,701,104
|
|||
Original issue discount and other discounts, net of costs
|
(1,130,623
|
)
|
||
Loan repayments
|
(12,000,000
|
)
|
||
Loan amortization payments
|
(1,093,659
|
)
|
||
Accretion of original issue discount
|
2,249,563
|
|||
PIK interest
|
2,192,062
|
|||
Total loans using Level 3 inputs at December 31, 2021
|
$
|
77,096,319
|
As of December 31, 2021
|
||||||||||||||
Unobservable Input
|
||||||||||||||
Fair Value
|
Primary Valuation
Techniques
|
Input
|
Estimated Range
|
Weighted
Average
|
||||||||||
Senior Term Loans
|
$
|
77,096,319
|
Yield analysis
|
Market Yield
|
17.71% - 20.96
|
%
|
18.22%
|
|
||||||
Total Investments
|
$
|
77,096,319
|
As of December 31, 2020
|
||||||||||||||
Unobservable Input
|
||||||||||||||
Fair Value
|
Primary Valuation
Techniques
|
Input
|
Estimated Range
|
Weighted
Average
|
||||||||||
Senior Term Loans
|
$
|
48,558,051
|
Yield analysis
|
Market Yield
|
15.79% - 20.75
|
%
|
20.20%
|
|
||||||
Total Investments
|
$
|
48,558,051
|
As of December 31, 2021
|
||||||||||||||||
Fair Value
|
Carrying Value (1)
|
Outstanding
Principal (1)
|
Weighted Average
Remaining Life
(Years) (2)
|
|||||||||||||
Debt securities
|
$
|
15,881,250
|
$
|
16,050,000
|
$
|
15,000,000
|
2.9
|
|||||||||
Total debt securities held at fair value
|
$
|
15,881,250
|
$
|
16,050,000
|
$
|
15,000,000
|
2.9
|
(1) | The difference between the Carrying Value and the Outstanding Principal amount of the loans consists of unaccreted purchase premium and loan origination costs. |
(2) | Weighted average remaining life is calculated based on the fair value of the loans as of December 31, 2021. |
Principal
|
Original
Issue
Discount
|
Unrealized
Gains
(Losses)
|
Fair Value
|
|||||||||||||
Total debt securities held at fair value at December 31, 2020
|
$
|
—
|
$
|
—
|
$
|
—
|
$
|
—
|
||||||||
Change in unrealized gains / (losses) on securities at fair value, net
|
—
|
—
|
(168,750
|
)
|
(168,750
|
)
|
||||||||||
New fundings
|
15,000,000
|
1,050,000
|
—
|
16,050,000
|
||||||||||||
Loan repayments
|
—
|
—
|
—
|
—
|
||||||||||||
Total debt securities held at fair value at December 31, 2021
|
$
|
15,000,000
|
$
|
1,050,000
|
$
|
(168,750
|
)
|
$
|
15,881,250
|
Fair Value Measurement Using as of December 31, 2021
|
||||||||||||||||
Total
|
Level 1
|
Level 2
|
Level 3
|
|||||||||||||
Debt securities held at fair value
|
$
|
15,881,250
|
$
|
—
|
$
|
15,881,250
|
$
|
—
|
||||||||
Total
|
$
|
15,881,250
|
$
|
—
|
$
|
15,881,250
|
$
|
—
|
As of December 31, 2021
|
||||||||
Carrying
Value
|
Fair
Value
|
|||||||
Financial assets
|
||||||||
Cash and cash equivalents
|
$
|
109,246,048
|
$
|
109,246,048
|
||||
Loans held for investment at carrying value
|
$
|
257,163,496
|
$
|
260,930,143
|
||||
Loan receivable at carrying value
|
$
|
2,530,588
|
$
|
2,475,001
|
15. |
RELATED PARTY TRANSACTIONS
|
Year ended
December 31, 2021
|
Period from
July 31, 2020 to
December 31, 2020
|
|||||||
Affiliate Costs
|
||||||||
Management fees earned
|
$
|
3,340,123
|
$
|
623,361
|
||||
Less outside fees earned
|
(1,029,315
|
)
|
(259,167
|
)
|
||||
Base management fees, net
|
2,310,808
|
364,194
|
||||||
Incentive fees earned
|
6,010,704
|
—
|
||||||
General and administrative expenses reimbursable to Manager
|
2,319,074
|
671,605
|
||||||
Total
|
$
|
10,640,586
|
$
|
1,035,799
|
16. |
DIVIDENDS AND DISTRIBUTIONS
|
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
|
||||||||||
Regular cash dividend
|
6/15/2021
|
6/30/2021
|
|
0.38
|
|
0.38
|
|
—
|
|
0.38
|
||||||||||
Regular cash dividend
|
9/30/2021
|
10/15/2021
|
|
0.43
|
|
0.43
|
|
—
|
|
0.43
|
||||||||||
Regular cash dividend
|
12/31/2021
|
1/14/2022
|
0.50
|
0.50
|
—
|
0.50
|
||||||||||||||
Total cash dividend
|
$
|
1.67
|
$
|
1.67
|
$
|
—
|
$
|
1.67
|
17. |
SUBSEQUENT EVENTS
|
Date: March 10, 2022
|
||
AFC GAMMA, INC.
|
||
By:
|
/s/ Leonard M. Tannenbaum
|
|
Leonard M. Tannenbaum
|
||
Chief Executive Officer, Chairman and Director
|
||
(Principal Executive Officer)
|
By:
|
/s/ Brett Kaufman
|
|
Brett Kaufman
|
||
Chief Financial Officer and Treasurer
|
||
(Principal Financial Officer and Principal Accounting Officer)
|
||
By:
|
/s/ Jonathan Kalikow
|
|
Jonathan Kalikow
|
||
Director and Head of Real Estate
|
||
By:
|
/s/ Jodi Hanson Bond
|
|
Jodi Hanson Bond
|
||
Director
|
||
By:
|
/s/ Alexander Frank
|
|
Alexander Frank
|
||
Director
|
||
By:
|
/s/ Thomas Harrison
|
|
Thomas Harrison
|
||
Director
|
||
By:
|
/s/ Robert Levy
|
|
Robert Levy
|
||
Director
|
||
By:
|
/s/ Marnie Sudnow
|
|
Marnie Sudnow
|
||
Director
|
||
By:
|
/s/ Tomer Tzur
|
|
Tomer Tzur
|
||
Director
|
ATTEST:
|
AFC GAMMA, INC.
|
|
By:
|
/s/ Brett Kaufman |
By:
|
/s/ Leonard M. Tannenbaum
|
Brett Kaufman
|
Leonard M. Tannenbaum
|
|||
Chief Financial Officer and Treasurer
|
Chief Executive Officer
|
■ |
the holders of our common stock shall have the exclusive right to vote for the election of directors and on all other matters requiring stockholder
action, each share entitling the holder thereof to cast one vote on each matter submitted to a vote of stockholders;
|
■ |
dividends or other distributions may be declared and paid or set apart for payment upon our common stock out of any assets or our funds legally
available for the payment of distributions, but only when, as, and if, authorized by our Board; and
|
■ |
upon our voluntary or involuntary liquidation, dissolution or winding up, our net assets legally available for distribution shall, after the payment of
or adequate provision for all known debts and liabilities and any preferential rights of the holders of any then-outstanding shares of our preferred stock, be distributed pro rata to the holders of our common stock.
|
■ |
(i) No person, other than a Qualified Institutional Investor or an Excepted Holder, shall Beneficially Own or Constructively Own shares of our capital
stock in excess of the “Aggregate Stock Ownership Limit,” which is defined as 4.9% in value or number of shares, whichever is more restrictive, of the aggregate outstanding shares of our capital stock, (ii) no Qualified Institutional
Investor, other than an Excepted Holder, shall Beneficially Own or Constructively Own shares of our capital stock in excess of the “Qualified Institutional Investor Aggregate Stock Ownership Limit” which is defined as 9.8% in value or number
of shares, whichever is more restrictive, of the aggregate outstanding shares of our capital stock and (iii) no Excepted Holder shall Beneficially Own or Constructively Own shares of our capital stock in excess of the Excepted Holder Limit
for such Excepted Holder.
|
■ |
No person shall Beneficially Own or Constructively Own shares of our capital stock to the extent that such Beneficial Ownership or Constructive
Ownership of our capital stock would result in us (i) being Closely Held (as defined below) (without regard to whether the ownership interest is held during the last half of a taxable year), or (ii) otherwise failing to qualify as a REIT
(including, but not limited to, Beneficial Ownership or Constructive Ownership that would result in us owning (actually or Constructively) an interest in a tenant that is described in Section 856(d)(2)(B) of the Code if the income derived by
us from such tenant would cause us to fail to satisfy any of the gross income requirements of Section 856(c) of the Code).
|
■ |
Any transfer of shares of our capital stock that, if effective, would result in our capital stock being beneficially owned by less than 100 persons
(determined under the principles of Section 856(a)(5) of the Code) shall be void ab initio, and the intended transferee shall acquire no rights in such shares of our capital stock.
|
■ |
Any transfer of shares of our capital stock that, if effective, would cause our assets to be deemed “plan assets” within the meaning of Department of
Labor regulation 20 C.F.R. 2510.3-101 for purposes of the Employee Retirement Income Security Act of 1974, as amended, or Section 4975 of the Code shall be void ab initio, and the intended transferee shall acquire no rights in such shares of
our capital stock.
|
■ |
then that number of shares of our capital stock the Beneficial Ownership or Constructive Ownership of which otherwise would cause such person to
violate the ownership limitations (rounded up to the next whole share) shall be automatically transferred to a trust for the benefit of a charitable beneficiary, as described in the Charter, effective as of the close of business on the
business day prior to the date of such transfer, and such person shall acquire no rights in such shares; or
|
■ |
if the transfer to the trust described in the preceding clause would not be effective for any reason to prevent violation of the Aggregate Stock
Ownership Limit, the Qualified Institutional Investor Aggregate Stock Ownership Limit or the Excepted Holder Limit, as applicable, our being Closely Held or our otherwise failing to qualify as a REIT, then the transfer of that number of
shares of our capital stock that otherwise would cause any person to violate such provisions of the Charter, shall be void ab initio, and the intended transferee shall acquire no rights in such shares of our capital stock.
|
■ |
to the extent that, upon a transfer of shares of our capital stock pursuant to the Charter, a violation of any provision of the Charter would
nonetheless be continuing (for example, where the ownership of shares of our capital stock by a single trust would violate the 100 stockholder requirement applicable to REITs), then shares of our capital stock shall be transferred to that
number of trusts, each having a distinct trustee and a charitable beneficiary or charitable beneficiaries that are distinct from those of each other trust, such that there is no violation of any provisions of the Charter.
|
■ |
one-tenth or more but less than one-third;
|
■ |
one-third or more but less than a majority; or
|
■ |
a majority or more of all voting power.
|
■ |
a classified board of directors;
|
■ |
a two-thirds vote requirement for removing a director;
|
■ |
a requirement that the number of directors be fixed only by vote of the board of directors;
|
■ |
a requirement that a vacancy on the board of directors be filled only by a vote of the remaining directors in office and for the remainder of the full
term of the class of directors in which the vacancy occurred and until a successor is elected and qualifies; and
|
■ |
a majority requirement for the calling of a stockholder-requested special meeting of stockholders.
|
■ |
the act or omission of the director or officer was material to the matter giving rise to the proceeding and (a) was committed in bad faith or (b) was
the result of active and deliberate dishonesty;
|
■ |
the director or officer actually received an improper personal benefit in money, property or services; or
|
■ |
in the case of any criminal proceeding, the director or officer had reasonable cause to believe that the act or omission was unlawful.
|
■ |
a written affirmation by the director or officer of his or her good faith belief that he or she has met the standard of conduct necessary for
indemnification by us; and
|
■ |
a written undertaking by or on behalf of the director or officer to repay the amount paid or reimbursed by us if it is ultimately determined that the
director or officer did not meet the standard of conduct.
|
■ |
any present or former director or officer who is made or threatened to be made a party to, or witness in, a proceeding by reason of his or her service
in that capacity; or
|
■ |
any individual who, while a director or officer of our Company and at our request, serves or has served as a director, officer, partner, member,
manager or trustee of another corporation, REIT, partnership, limited liability company, joint venture, trust, employee benefit plan or any other enterprise and who is made or threatened to be made a party to, or witness in, the proceeding by
reason of his or her service in that capacity.
|
1. |
All capitalized terms not defined in this Amendment shall have the meanings assigned to them in the Management Agreement.
|
2. |
Effective on the Effective Date, Section 6(c) of the Management Agreement is amended and restated in its entirety to read as follows:
|
3. |
Effective on the Effective Date, Section 6(d) of the Management Agreement is amended and restated in its entirety to read as follows:
|
4. |
Effective on the Effective Date, Section 6(f) of the Management Agreement is amended and restated in its entirety to read as follows:
|
5. |
Effective on the Effective Date, the Investment Guidelines, as set forth on Exhibit A to the Management Agreement, is hereby amended (a) to delete the red or green stricken text (indicated textually in the same manner as the following
examples:
|
6. |
Except as expressly modified by this Amendment, the Management Agreement shall continue to be and remain in full force and effect in accordance with its terms. Any future reference to the Management Agreement shall be deemed to be a
reference to the Management Agreement as modified by this Amendment.
|
7. |
The provisions of Section 16 of the Management Agreement are incorporated herein by reference mutatis mutandis with the same force and effect as if expressly written herein.
|
8. |
This Amendment may be executed by the parties to this Amendment on any number of separate counterparts (including by facsimile), and all of said counterparts taken together shall be deemed to constitute one and the same instrument.
|
AFC GAMMA, INC.
|
|
By:
|
/s/ Brett Kaufman |
Name: Brett Kaufman
|
|
Title: Chief Financial Officer and Treasurer
|
|
AFC MANAGEMENT, LLC
|
|
By:
|
/s/ Leonard M. Tannenbaum |
Name: Leonard M. Tannenbaum
|
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Title: Manager
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1. |
I have reviewed this annual report on Form 10-K of AFC Gamma, Inc.;
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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;
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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;
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4. |
The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the
registrant and have:
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(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;
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(b) |
Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end
of the period covered by this report based on such evaluation; and
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(c) |
Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in
the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
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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):
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(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
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(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.
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Date: March 10, 2022
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By:
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/s/ Leonard M. Tannenbaum
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Leonard M. Tannenbaum
Chief Executive Officer, Chairman and Director
(Principal Executive Officer)
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1. |
I have reviewed this this annual report on Form 10-K of AFC Gamma, Inc.;
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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;
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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;
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4. |
The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the
registrant and have:
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(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;
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(b) |
Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end
of the period covered by this report based on such evaluation; and
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(c) |
Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in
the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
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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):
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(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
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(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.
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Date: March 10, 2022
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By:
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/s/ Brett Kaufman
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Brett Kaufman
Chief Financial Officer and Treasurer
(Principal Financial Officer and Principal Accounting Officer)
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1. |
The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
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2. |
The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
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Date: March 10, 2022
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By:
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/s/ Leonard M. Tannenbaum
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Leonard M. Tannenbaum
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Chief Executive Officer, Chairman and Director | ||
(Principal Executive Officer) |
* |
A signed original of this written statement required by Section 906 has been provided to AFC Gamma, Inc. and will be retained by AFC Gamma, Inc. and furnished to the Securities and Exchange Commission or its
staff upon request.
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1. |
The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
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2. |
The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
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Date: March 10, 2022
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By:
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/s/ Brett Kaufman
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Brett Kaufman
Chief Financial Officer and Treasurer
(Principal Financial Officer and Principal Accounting Officer)
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* |
A signed original of this written statement required by Section 906 has been provided to AFC Gamma, Inc. and will be retained by AFC Gamma, Inc. and furnished to the Securities and Exchange Commission or its
staff upon request.
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