0001104659-20-122493.txt : 20201106 0001104659-20-122493.hdr.sgml : 20201106 20201106160613 ACCESSION NUMBER: 0001104659-20-122493 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 59 CONFORMED PERIOD OF REPORT: 20200930 FILED AS OF DATE: 20201106 DATE AS OF CHANGE: 20201106 FILER: COMPANY DATA: COMPANY CONFORMED NAME: Sachem Capital Corp. CENTRAL INDEX KEY: 0001682220 STANDARD INDUSTRIAL CLASSIFICATION: REAL ESTATE INVESTMENT TRUSTS [6798] IRS NUMBER: 813467779 STATE OF INCORPORATION: NY FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-37997 FILM NUMBER: 201294430 BUSINESS ADDRESS: STREET 1: 698 MAIN STREET CITY: BRANFORD STATE: CT ZIP: 06405 BUSINESS PHONE: 2034334736 MAIL ADDRESS: STREET 1: 698 MAIN STREET CITY: BRANFORD STATE: CT ZIP: 06405 10-Q 1 sach-20200930x10q.htm FORM 10-Q
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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2020

or

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from ________________________________________ to _________________________________________

Commission File Number: 001-37997

SACHEM CAPITAL CORP.

(Exact name of registrant as specified in its charter)

New York

81-3467779

(State or other jurisdiction of incorporation or organization)

(I.R.S. Employer Identification No.)

698 Main Street, Branford, CT 06405

(Address of principal executive offices)

(203) 433-4736

(Registrant’s telephone number, including area code)

(Former name, former address and former fiscal year, if changed since last report)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

     Yes     No

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). 

 Yes         No

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer 

Accelerated filer 

Non-accelerated filer 

Smaller reporting company 

Emerging growth company 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.    

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). 

     Yes         No

Securities registered pursuant to Section 12(b) of the Act:

Title of each class

 

Ticker symbol(s)

 

Name of each exchange on which registered

Common Shares, par value $.001 per share

 

SACH

 

NYSE American LLC

7.125% Notes due 2024

SCCB

NYSE American LLC

6.875% Notes due 2024

SACC

NYSE American LLC

7.75% Notes due 2025

SCCC

NYSE American LLC

As of November 5, 2020, the Issuer had a total of 22,124,801 common shares, $0.001 par value per share, outstanding.

SACHEM CAPITAL CORP.

TABLE OF CONTENTS

Part I

FINANCIAL INFORMATION

Page Number

Item 1.

Financial Statements (unaudited)

Balance Sheets as of September 30, 2020 and December 31, 2019

1

Statements of Comprehensive Income for the Three-Month and Nine-Month Periods Ended September 30, 2020 and 2019

2

Statements of Changes in Shareholders’ Equity for the Three-Month and Nine-Month Periods Ended September 30, 2020 and 2019

3

Statements of Cash Flows for the Nine-Month Periods Ended September 30, 2020 and 2019

5

Notes to Financial Statements (unaudited)

7

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

15

Item 3.

Quantitative and Qualitative Disclosures about Market Risk

23

Item 4.

Controls and Procedures

23

Part II

OTHER INFORMATION

Item 1A.

Risk Factors.

24

Item 6.

Exhibits

25

SIGNATURES

27

EXHIBITS

i

CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS

This quarterly report on Form 10-Q includes forward-looking statements. All statements other than statements of historical facts contained in this report, including statements regarding our future results of operations and financial position, strategy and plans, and our expectations for future operations, are forward-looking statements. The words “anticipate,” “estimate,” “expect,” “project,” “plan,” “seek,” “intend,” “believe,” “may,” “might,” “will,” “should,” “could,” “likely,” “continue,” “design,” and the negative of such terms and other words and terms of similar expressions are intended to identify forward-looking statements.

We have based these forward-looking statements largely on our current expectations and projections about future events and trends that we believe may affect our financial condition, results of operations, strategy, short-term and long-term business operations and objectives and financial needs. These forward-looking statements are subject to a number of risks, uncertainties and assumptions. In light of these risks, uncertainties and assumptions, the forward-looking events and circumstances discussed in this report may not occur and actual results could differ materially and adversely from those anticipated or implied in the forward-looking statements.

You should not rely upon forward-looking statements as predictions of future events. Although we believe that the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee future results, level of activity, performance or achievements. In addition, neither we nor any other person assumes responsibility for the accuracy and completeness of any of these forward-looking statements. We disclaim any duty to update any of these forward-looking statements after the date of this report to confirm these statements in relationship to actual results or revised expectations.

All forward-looking statements attributable to us are expressly qualified in their entirety by these cautionary statements as well as others made in this report. You should evaluate all forward-looking statements made by us in the context of these risks and uncertainties.

Unless the context otherwise requires, all references in this quarterly report on Form 10-Q to “Sachem Capital,” “we,” “us” and “our” refer to Sachem Capital Corp., a New York corporation.

ii

PART I.        FINANCIAL INFORMATION

Item 1.    FINANCIAL STATEMENTS

SACHEM CAPITAL CORP.

BALANCE SHEETS

September 30, 2020

December 31, 2019

    

(Unaudited)

    

(Audited)

Assets

 

  

 

  

Assets:

 

  

 

  

Cash and cash equivalents

$

5,384,073

$

18,841,937

Investments

27,688,794

15,949,802

Mortgages receivable

 

124,131,879

 

94,348,689

Interest and fees receivable

 

1,551,333

 

1,370,998

Other receivables

 

87,307

 

141,397

Due from borrowers

 

1,501,470

 

840,930

Prepaid expenses

 

106,816

 

24,734

Property and equipment, net

 

1,418,442

 

1,346,396

Deposits on property and equipment

 

172,210

 

71,680

Real estate owned

 

7,523,584

 

8,258,082

Deferred financing costs

 

66,086

 

16,600

Total assets

$

169,631,994

$

141,211,245

Liabilities and Shareholders' Equity

 

  

 

  

Liabilities:

 

  

 

  

Notes payable (net of deferred financing costs of $3,074,115 and $2,687,190)

$

69,452,636

$

55,475,810

Mortgage payable

 

771,785

 

784,081

Line of credit

12,080,569

Accounts payable and accrued expenses

 

522,453

 

249,879

Other loans

257,845

Security deposits held

 

13,416

 

7,800

Advances from borrowers

 

1,413,974

 

848,268

Deferred revenue

 

1,114,721

 

1,205,740

Notes payable

60,130

75,433

Accrued interest

 

80,672

 

3,416

Total liabilities

 

85,768,201

 

58,650,427

Commitments and Contingencies

 

  

 

  

Shareholders’ equity:

 

  

 

  

Preferred shares - $.001 par value; 5,000,000 shares authorized; no shares issued

 

 

Common stock - $.001 par value; 100,000,000 shares authorized; 22,117,301 issued and outstanding

 

22,117

 

22,117

Paid-in capital

 

83,810,276

 

83,856,308

Accumulated other comprehensive loss

(37,596)

(50,878)

Retained earnings (accumulated deficit)

 

68,996

 

(1,266,729)

Total shareholders' equity

 

83,863,793

 

82,560,818

Total liabilities and shareholders' equity

$

169,631,994

$

141,211,245

The accompanying notes are an integral part of these financial statements.

1

SACHEM CAPITAL CORP.

STATEMENTS OF COMPREHENSIVE INCOME

(unaudited)

Three Months Ended

Nine Months

September 30, 

Ended September 30, 

2020

    

2019

2020

    

2019

Revenue:

  

 

  

  

 

  

 

Interest income from loans

$

3,473,304

$

2,442,750

$

9,640,387

$

7,509,155

Interest income on investments

32,483

28,148

163,161

28,148

Gain/(loss)on sale of investment securities

(21,858)

415,301

Origination fees, net

 

393,097

 

497,237

 

1,551,652

 

1,202,777

Late and other fees

 

10,955

 

18,149

 

46,835

 

205,182

Processing fees

 

37,445

 

44,870

 

123,568

 

121,470

Rental income, net

 

9,593

 

9,446

 

49,777

 

82,350

Other income

 

336,789

 

325,523

 

904,071

 

622,054

Net gain on sale of real estate

 

 

12,927

 

 

20,076

Total revenue

 

4,271,808

 

3,379,050

 

12,894,752

 

9,791,212

Operating costs and expenses:

 

  

 

  

 

  

 

  

Interest and amortization of deferred financing costs

 

1,262,278

 

537,878

 

3,564,533

 

1,611,332

Compensation, fees and taxes

496,058

476,404

1,220,412

1,325,822

Stock based compensation

4,107

4,107

12,321

12,327

Professional fees

158,206

105,053

400,868

259,275

Other expenses and taxes

26,247

39,355

61,484

70,683

Exchange fees

22,713

11,343

29,986

32,850

Expense in connection with termination of LOC

779,641

Impairment

495,000

Net loss on sale of real estate

2,816

7,276

Depreciation

 

15,348

 

18,618

 

46,318

 

44,286

General and administrative expenses

 

145,251

 

131,206

 

412,677

 

400,561

Total operating costs and expenses

 

2,133,024

 

1,323,964

 

6,250,875

 

4,536,777

Net income

2,138,784

2,055,086

6,643,877

5,254,435

Other comprehensive income (loss)

Unrealized gain (loss) on investment securities

(72,785)

13,282

Comprehensive income

$

2,065,999

$

2,055,086

$

6,657,159

$

5,254,435

Basic and diluted net income per common share outstanding:

 

  

 

  

 

  

 

  

Basic

$

0.10

$

0.10

$

0.30

$

0.30

Diluted

$

0.10

$

0.10

$

0.30

$

0.30

Weighted average number of common shares outstanding:

 

  

 

  

 

  

 

  

Basic

 

22,117,301

 

21,336,870

 

22,117,301

 

17,662,480

Diluted

 

22,117,301

 

21,336,870

 

22,117,301

 

17,622,480

The accompanying notes are an integral part of these financial statements.

2

SACHEM CAPITAL CORP.

STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY

(unaudited)

    

FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2020

    

  

Accumulated

(Accumulated

Additional

Other

Deficit)

 

Common

 

Paid in

 

Comprehensive

 

Retained

    

Shares

    

Amount

    

Capital

    

Income/(Loss)

    

Earnings

    

Totals

Balance, July 1, 2020

 

22,117,301

$

22,117

$

83,806,169

$

35,189

$

584,288

$

84,447,763

Stock based compensation

 

4,107

 

4,107

Unrealized loss on marketable securities

 

(72,785)

 

(72,785)

Dividends paid

(2,654,076)

(2,654,076)

Net income

 

2,138,784

 

2,138,784

Balance, September 30, 2020

 

22,117,301

$

22,117

$

83,810,276

$

(37,596)

$

68,996

$

83,863,793

    

FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2019

    

  

Accumulated

(Accumulated

Additional

Other

Deficit)

Common

Paid in

Comprehensive

Retained

    

Shares

    

Amount

    

Capital

    

Income/(Loss)

    

Earnings

    

Totals

Balance, July 1, 2019

 

18,905,586

$

18,906

$

68,658,030

$

$

739,137

$

69,416,073

Sales of stock through ATM

 

866,332

 

866

 

4,375,320

 

4,376,186

Sale of common stock

2,300,000

2,300

10,668,202

10,670,502

Exercise of warrants

16,407

16

82,019

82,035

Stock based compensation

 

4,103

 

4,103

Dividends

 

(2,348,452)

 

(2,348,452)

Net income

 

2,055,086

 

2,055,086

Balance, September 30, 2019

 

22,088,325

$

22,088

$

83,787,674

$

$

445,771

$

84,255,533

The accompanying notes are an integral part of these financial statements.

3

FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2020

Accumulated

(Accumulated

Additional 

Other

Deficit)

Common

Paid in

Comprehensive

Retained

    

Shares

    

Amount

    

Capital

    

Income/(Loss)

    

Earnings

    

Totals

Balance, January 1, 2020

 

22,117,301

$

22,117

$

83,856,308

$

(50,878)

$

(1,280,011)

$

82,547,536

Offering costs-ATM

 

(58,353)

(58,353)

Stock based compensation

12,321

12,321

Unrealized gain on marketable securities

13,282

13,282

Dividends paid

(5,308,152)

(5,308,152)

Net income

6,657,159

6,657,159

Balance, September 30, 2020

 

22,117,301

$

22,117

$

83,810,276

$

(37,596)

$

68,996

$

83,863,793

FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2019

Accumulated

(Accumulated 

Additional

Other

Deficit) 

Common

Paid in

Comprehensive

Retained 

    

Shares

    

Amount

    

Capital

    

Income/(Loss)

    

Earnings

    

Totals

Balance, January 1, 2019

 

15,438,621

$

15,439

$

53,192,859

$

$

(405,483)

$

52,802,815

Sales of stock through ATM

 

4,333,297

 

4,333

19,832,267

 

 

 

19,836,600

Sale of common stock

2,300,000

2,300

10,668,202

10,670,502

Exercise of warrants

16,407

16

82,019

82,035

Stock based compensation

12,327

12,327

Dividends

(4,403,181)

(4,403,181)

Net income

5,254,435

5,254,435

Balance, September 30, 2019

 

22,088,325

$

22,088

$

83,787,674

$

$

445,771

$

84,255,533

The accompanying notes are an integral part of these financial statements.

4

SACHEM CAPITAL CORP.

STATEMENTS OF CASH FLOW

(unaudited)

Nine Months

Ended September 30, 

2020

    

2019

    

CASH FLOWS FROM OPERATING ACTIVITIES

  

 

  

 

Net income

$

6,643,877

$

5,254,435

Adjustments to reconcile net income to net cash provided by operating activities:

 

 

  

Amortization of deferred financing costs

357,497

159,872

Depreciation expense

 

46,318

 

44,286

Stock based compensation

 

12,321

 

12,327

Impairment loss

495,000

Loss (gain) on sale of real estate

 

7,276

 

(20,076)

Abandonment of office furniture

12,000

Costs in connection with termination of line of credit

439,446

Realized gain on investments

(415,301)

Changes in operating assets and liabilities:

 

 

  

(Increase) decrease in:

 

 

Escrow deposits

 

 

12,813

Interest and fees receivable

 

(180,335)

 

(454,487)

Other receivables

 

54,090

 

(67,237)

Due from borrowers

 

(273,202)

 

2,122,939

Prepaid expenses

 

(82,082)

 

(22,305)

Deposits on property and equipment

(100,530)

(37,881)

(Decrease) increase in:

 

Due to note purchaser

 

 

(176,619)

Accrued interest

 

77,256

 

3,323

Accounts payable and accrued expenses

 

272,574

 

(159,512)

Deferred revenue

 

(91,019)

 

9,261

Advances from borrowers

 

565,706

 

180,889

Total adjustments

 

745,569

 

2,059,039

NET CASH PROVIDED BY OPERATING ACTIVITIES

 

7,389,446

 

7,313,474

CASH FLOWS FROM INVESTING ACTIVITIES

 

  

 

  

Purchase of investments

(37,216,177)

Proceeds from the sale of investments

25,905,769

Proceeds from sale of real estate owned

 

1,816,522

 

362,136

Acquisitions of and improvements to real estate owned

 

(1,584,300)

 

(443,217)

Purchase of property and equipment

 

(118,364)

 

(196,603)

Security deposits held

 

5,616

 

Principal disbursements for mortgages receivable

 

(68,029,798)

 

(42,163,704)

Principal collections on mortgages receivable

 

37,859,270

 

27,917,331

NET CASH USED FOR INVESTING ACTIVITIES

 

(41,361,462)

 

(14,524,057)

CASH FLOWS FROM FINANCING ACTIVITIES

 

  

 

  

Proceeds from line of credit

 

14,080,569

 

42,720,829

Repayment of line of credit

 

(2,000,000)

 

(69,939,952)

Proceeds from notes sold to shareholder

1,017,000

Repayment of notes sold to shareholder

(2,217,000)

Principal payments on mortgage payable

 

(12,296)

 

Principal payments on notes payable

(15,303)

Dividends paid

 

(5,308,152)

 

(7,027,746)

Financing costs incurred

 

(108,353)

 

(6,836)

Proceeds from other loans

257,845

Proceeds from mortgage payable

795,000

Repayment of mortgage payable

(297,837)

Proceeds from notes payable, net

68,634

Proceeds from issuance of common stock

30,736,148

Costs associated with the issuance of common stock

(147,002)

Gross proceeds from issuance of fixed rate notes

14,363,750

23,663,000

Financing costs incurred in connection with fixed rate notes

(743,908)

(1,307,571)

NET CASH PROVIDED BY FINANCING ACTIVITIES

 

20,514,152

 

18,056,667

NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS

 

(13,457,864)

 

10,846,084

CASH AND CASH EQUIVALENTS- BEGINNING OF YEAR

 

18,841,937

 

158,859

CASH AND CASH EQUIVALENTS - END OF PERIOD

$

5,384,073

$

11,004,943

The accompanying notes are an integral part of these financial statements.

5

SACHEM CAPITAL CORP.

STATEMENTS OF CASH FLOW (Continued)

(unaudited)

Nine Months Ended

September 30,

    

2020

    

2019

SUPPLEMENTAL DISCLOSURES OF CASH FLOWS INFORMATION

 

  

 

  

Taxes paid

$

$

Interest paid

$

2,093,080

$

472,329

SUPPLEMENTAL INFORMATION-NON-CASH

 

  

 

  

Dividends declared and payable

$

$

SUPPLEMENTAL DISCLOSURES OF NONCASH INVESTING AND FINANCING ACTIVITIES

Real estate acquired in connection with the foreclosure of certain mortgages, inclusive of interest and other fees receivable, during the period ended September 30, 2019 amounted to $2,265,927.

During the nine months ended September 30, 2019, the Company purchased equipment for $13,005 subject to a capital lease.

During the nine months ended September 30, 2019, Mortgages receivable, affiliate in the amount of $879,457 were reduced to $0 as the underlying loans were transferred to the Company and are included in Mortgages receivable.

Real estate acquired in connection with the foreclosure of certain mortgages, inclusive of interest and other fees receivable, during the period ended September 30, 2020 amounted to $170,383.

The accompanying notes are an integral part of these financial statements.

6

Table of Contents

SACHEM CAPITAL CORP.

NOTES TO FINANCIAL STATEMENTS

SEPTEMBER 30, 2020

1.    The Company

Sachem Capital Corp. (the “Company”), a New York corporation, specializes in originating, underwriting, funding, servicing and managing a portfolio of first mortgage loans. The Company offers short term (i.e., one to three years), secured, loans (sometimes referred to as “hard money” loans) to real estate owners and investors to fund their acquisition, renovation, development, rehabilitation or improvement of properties located primarily in Connecticut. The properties securing the Company’s loans are generally classified as residential or commercial real estate and, typically, are held for resale or investment. Each loan is secured by a first mortgage lien on real estate and may also be secured with additional collateral, such as other real estate owned by the borrower or its principals or a pledge of the ownership interests in the borrower by the principals thereof, as well as personal guarantees by the principals of the borrower. The Company does not lend to owner occupants. The Company’s primary underwriting criteria is a conservative loan to value ratio. In addition, the Company may make opportunistic real estate purchases apart from its lending activities. The Company believes it qualifies and has operated as a real estate investment trust since 2017.

2.    Significant Accounting Policies

Unaudited Financial Statements

The accompanying unaudited financial statements of the Company have been prepared in accordance with generally accepted accounting principles in the United States of America (“GAAP”) for interim financial information. Accordingly, they do not include all the information and footnotes required by GAAP for complete financial statements. However, in the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. Results of operations for the interim periods are not necessarily indicative of the operating results to be attained in the entire fiscal year.

Use of Estimates

The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Management’s estimates are based on (a) assumptions that consider the Company’s past experience, (b) projections regarding the Company’s future operations and (c) general financial market and local and general economic conditions. Actual amounts could differ from those estimates.

Cash and Cash Equivalents

The Company considers all demand deposits, cashier’s checks, money market accounts and certificates of deposit with an original maturity of three months or less to be cash equivalents. The Company maintains its cash and cash equivalents at various financial institutions. The account balances typically exceed the Federal Deposit Insurance Corporation insurance coverage, and, as a result, there is a concentration of credit risk related to amounts on deposit. The Company does not believe that the risk is significant.

Allowance for Loan Loss

The Company reviews each loan on a quarterly basis and evaluates the borrower’s ability to pay the monthly interest, the borrower’s likelihood of executing the original exit strategy, as well as the loan-to-value (LTV) ratio. Based on the analysis, management determines if any provisions for impairment of loans should be made and whether any loan loss reserves are required.

7

Table of Contents

SACHEM CAPITAL CORP.

NOTES TO FINANCIAL STATEMENTS

SEPTEMBER 30, 2020

Fair Value Measurements

The framework for measuring fair value provides a fair value hierarchy that prioritizes inputs to valuation techniques used to measure fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1) and the lowest priority to unobservable inputs (Level 3). The three levels of the fair value hierarchy under Financial Accounting Standards Board Accounting Standards Codification (“FASB ASC”) 820 are described as follows:

Level 1Inputs to the valuation methodology are unadjusted quoted prices for identical assets or liabilities in active markets that the Company can access.

Level 2Inputs to the valuation methodology include:

quoted prices for similar assets or liabilities in active markets;
quoted prices for identical or similar assets or liabilities in inactive markets;
inputs other than quoted prices that are observable for the asset or liability; and
inputs that are derived principally from or corroborated by observable market data by correlation or other means.

If the asset or liability has a specified (i.e., contractual) term, the Level 2 input must be observable for substantially the full term of the asset or liability.

Level 3Inputs to the valuation methodology are unobservable and significant to the fair value measurement.

Property and Equipment

Land and building acquired in December 2016 to serve as the Company’s office facilities is stated at cost. The building is being depreciated using the straight-line method over its estimated useful life of 40 years. Expenditures for repairs and maintenance are charged to expense as incurred. The Company relocated its entire operations to this property in March 2019.

Impairment of long-lived assets

The Company continually monitors events or changes in circumstances that could indicate carrying amounts of long-lived assets may not be recoverable. When such events or changes in circumstances occur, the Company assesses the recoverability of long-lived assets by determining whether the carrying value of such assets will be recovered through undiscounted expected future cash flows. If the total of the undiscounted cash flows is less than the carrying amount of these assets, the Company recognizes an impairment loss based on the excess of the carrying amount over the fair market value of the assets.

Deferred Financing Costs

Costs incurred by the Company in connection with the public offering of its unsecured, unsubordinated notes, described in Note 6 - Notes Payable -- are being amortized over the term of the respective Notes.

Revenue Recognition

Interest income from the Company's loan portfolio is earned, over the loan period and is calculated using the simple interest method on principal amounts outstanding. Generally, the Company's loans provide for interest to be paid monthly in arrears. The Company does not accrue interest income on mortgages receivable that are more than 90 days past due.

Origination fee revenue, generally 2%- 5% of the original loan principal amount, is collected at loan funding and in connection with the extension of loans, and is recognized ratably over the contractual life of the loan in accordance with ASC 310.

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Table of Contents

SACHEM CAPITAL CORP.

NOTES TO FINANCIAL STATEMENTS

SEPTEMBER 30, 2020

Income Taxes

The Company believes it qualifies as a Real Estate Investment Trust (REIT) for federal income tax purposes and made the election to be taxed as a REIT when it filed its 2017 federal income tax return. As a REIT, the Company is required to distribute at least 90% of its taxable income to its shareholders on an annual basis. The Company’s qualification as a REIT depends on its ability to meet on a continuing basis, through actual investment and operating results, various complex requirements under the Internal Revenue Code of 1986, as amended, relating to, among other things, the sources of its income, the composition and values of its assets, its compliance with the distribution requirements applicable to REITs and the diversity of ownership of its outstanding common shares. So long as it qualifies as a REIT, the Company, generally, will not be subject to U.S. federal income tax on its taxable income distributed to its shareholders. However, if it fails to qualify as a REIT in any taxable year and does not qualify for certain statutory relief provisions, it will be subject to U.S. federal income tax at regular corporate rates and may also be subject to various penalties and may be precluded from re-electing REIT status for the four taxable years following the year during in which it lost its REIT qualification.

The Company follows the provisions of FASB ASC Topic 740-10 “Accounting for Uncertainty in Income Taxes”, which prescribes a recognition threshold and measurement attribute for financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return and disclosure required. Under this standard, an entity may only recognize or continue to recognize tax positions that meet a “more likely than not” threshold. Should the Company become liable for interest and penalties related to unrecognized tax benefits, such amounts would be included in interest expense. The Company has determined that there are no uncertain tax positions requiring accrual or disclosure in the accompanying financial statements as of September 30, 2020.

Earnings Per Share

Basic and diluted earnings per share are calculated in accordance with FASB ASC 260 “Earnings Per Share”. Under ASC 260, basic earnings per share is computed by dividing income available to common shareholders by the weighted-average number of common shares outstanding for the period. The computation of diluted earnings per share is similar to basic earnings per share, except that the denominator is increased to include the potential dilution from the exercise of stock options and warrants for common shares using the treasury stock method. The numerator in calculating both basic and diluted earnings per common share for each period is the reported net income.

Recent Accounting Pronouncements

In May 2019, the FASB issued Accounting Standards Update (“ASU”) 2019-05, “Financial Instruments—Credit Losses (Topic 326): Targeted Transition Relief," which requires that entities use a new forward looking "expected loss" model that generally will result in the earlier recognition of an allowance for credit losses. This ASU allows entities to irrevocably elect the fair value option for certain financial assets previously measured at amortized cost upon adoption of ASU 2016-13, “Measurement of Credit Losses on Financial Instruments.” The Company adopted both ASU 2016-13 and ASU 2019-05 effective January 1, 2020. The adoption of this guidance did not have a material impact on the Company’s financial statements.

Management does not believe that any other recently issued, but not yet effective, accounting standards if currently adopted would have a material effect on the Company’s financial statements.

Reclassifications

Certain 2019 account balances have been reclassified to conform with the current year’s presentation.

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Table of Contents

SACHEM CAPITAL CORP.

NOTES TO FINANCIAL STATEMENTS

SEPTEMBER 30, 2020

3. Fair Value Measurement

The fair value measurement level within the fair value hierarchy of an asset or liability is based on the lowest level of any input that is significant to the fair market value measurement. Valuation techniques used need to maximize the use of observable inputs and minimize the use of unobservable inputs.

The following table sets forth by Level, within the fair value hierarchy, the Company’s assets at fair value as of September 30, 2020:

    

Level 1

    

Level 2

    

Level 3

    

Total

Stocks and ETFs

$

1,332,540

$

1,332,540

Fixed and Preferred Securities

$

2,862,830

$

2,862,830

Mutual Funds

$

23,493,424

 

 

$

23,493,424

Total Investments

$

27,688,794

$

27,688,794

Real Estate Owned

 

  

 

  

$