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Table of Contents

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 June 30, 2021

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,” “non-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

7.75% Series A Cumulative Redeemable Preferred Stock, Liquidation Preference $25.00 per share

SACHPRA

NYSE American LLC

As of August 13, 2021, the Issuer had a total of 28,315,930 common shares, $0.001 par value per share, outstanding.

Table of Contents

SACHEM CAPITAL CORP.

TABLE OF CONTENTS

Part I

FINANCIAL INFORMATION

Page Number

Item 1.

Financial Statements (unaudited)

Balance Sheets as of June 30, 2021 and December 31, 2020

1

Statements of Comprehensive Income for the Three and Six Month Periods Ended June 30, 2021 and 2020

2

Statements of Changes in Shareholders’ Equity for the Three and Six Month Periods Ended June 30, 2021 and 2020

3

Statements of Cash Flows for the Six Month Periods Ended June 30, 2021 and 2020

5

Notes to Financial Statements (unaudited)

6

Item 2.

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

16

Item 3.

Quantitative and Qualitative Disclosures about Market Risk

26

Item 4.

Controls and Procedures

26

Part II

OTHER INFORMATION

Item 6.

Exhibits

27

SIGNATURES

29

EXHIBITS

i

Table of Contents

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

Table of Contents

PART I.        FINANCIAL INFORMATION

Item 1.    FINANCIAL STATEMENTS

SACHEM CAPITAL CORP.

BALANCE SHEETS

June 30, 2021

December 31, 2020

    

(Unaudited)

    

(Audited)

Assets

 

  

 

  

Assets:

 

  

 

  

Cash and cash equivalents

$

62,225,813

$

19,408,028

Investment securities

44,502,267

37,293,703

Investment in partnership

1,843,398

Mortgages receivable

 

172,793,975

 

155,616,300

Interest and fees receivable

 

2,017,996

 

1,820,067

Other receivables

 

131,175

 

67,307

Due from borrowers

 

2,306,346

 

2,025,663

Prepaid expenses

 

153,732

 

71,313

Property and equipment, net

 

2,168,988

 

1,433,388

Real estate owned

 

7,892,845

 

8,861,609

Other deposits

192,646

Deferred financing costs

 

88,212

 

72,806

Total assets

$

296,317,393

$

226,670,184

Liabilities and Shareholders' Equity

 

  

 

  

Liabilities:

 

  

 

  

Notes payable (net of deferred financing costs of $4,383,186 and $4,866,058)

$

110,143,564

$

109,640,692

Mortgage payable

 

 

767,508

Line of credit

34,276,418

28,055,648

Accrued dividends payable

2,654,977

Accounts payable and accrued expenses

 

315,708

 

372,662

Other loans

257,845

Security deposits held

 

13,416

 

13,416

Advances from borrowers

 

2,987,231

 

1,830,539

Deferred revenue

 

2,230,435

 

2,099,331

Notes payable

42,918

54,682

Accrued interest

 

18,299

 

3,344

Total liabilities

150,027,989

145,750,644

Commitments and Contingencies

 

  

 

  

Shareholders’ equity:

 

  

 

  

Preferred shares - $.001 par value; 5,000,000 shares authorized; 1,700,000 shares of Series A Preferred Stock issued and outstanding

 

1,700

 

Common stock - $.001 par value; 100,000,000 shares authorized; 26,733,213 and 22,124,801 issued and outstanding

 

26,733

 

22,125

Paid-in capital

 

147,362,456

 

83,814,376

Accumulated other comprehensive loss

(137,802)

(25,992)

Accumulated deficit

 

(963,683)

 

(2,890,969)

Total shareholders' equity

 

146,289,404

 

80,919,540

Total liabilities and shareholders' equity

$

296,317,393

$

226,670,184

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

1

Table of Contents

SACHEM CAPITAL CORP.

STATEMENTS OF COMPREHENSIVE INCOME

(unaudited)

Three Months Ended

Six Months Ended

June 30, 

June 30, 

2021

    

2020

2021

    

2020

    

Revenue:

  

 

  

  

 

  

 

Interest income from loans

$

4,682,295

$

3,265,677

$

9,213,528

$

6,167,083

Investment income

180,120

33,162

422,811

130,678

Income from partnership investment

36,868

54,241

Gain (loss) on sale of investment securities

85,471

(8,925)

(43,968)

437,159

Origination fees

 

831,893

 

647,499

 

1,349,321

 

1,158,555

Late and other fees

 

61,970

 

21,099

 

97,899

 

35,880

Processing fees

 

43,410

 

39,665

 

79,385

 

86,123

Rental income (loss), net

 

(9,398)

 

29,456

 

(5,214)

 

40,184

Debt forgiveness

257,845

257,845

Other income

 

543,421

 

283,009

 

1,000,230

 

567,283

Total revenue

 

6,713,895

 

4,310,642

 

12,426,078

 

8,622,945

Operating costs and expenses:

 

  

 

  

 

  

 

  

Interest and amortization of deferred financing costs

 

2,505,234

 

1,152,302

 

4,969,989

 

2,302,255

Professional fees

251,170

110,104

482,928

242,413

Compensation, fees and taxes

812,143

388,075

1,404,230

732,569

Exchange fees

 

12,465

 

 

24,795

 

7,272

Other expenses and taxes

23,506

6,534

45,314

35,238

Depreciation

 

21,263

 

14,688

 

40,865

 

30,971

General and administrative expenses

248,308

127,460

407,916

267,674

Loss on sale of real estate

14,962

17,096

4,460

Impairment loss

294,000

245,000

319,000

495,000

Total operating costs and expenses

4,183,051

2,044,163

7,712,133

4,117,852

Net income

 

2,530,844

 

2,266,479

 

4,713,945

 

4,505,093

Other comprehensive (loss) gain

Unrealized (loss) gain on investment securities

(104,316)

221,449

(111,810)

86,067

Comprehensive income

$

2,426,528

$

2,487,928

$

4,602,135

$

4,591,160

Basic and diluted net income per common share outstanding:

 

  

 

  

 

  

 

  

Basic

$

0.10

$

0.10

$

0.20

$

0.20

Diluted

$

0.10

$

0.10

$

0.20

$

0.20

Weighted average number of common shares outstanding:

 

  

 

  

 

  

 

  

Basic

 

24,851,010

 

22,117,301

 

23,503,679

 

22,117,301

Diluted

 

24,857,897

 

22,117,301

 

23,507,685

 

22,117,301

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

2

Table of Contents

SACHEM CAPITAL CORP.

STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY

(unaudited)

FOR THE THREE MONTHS ENDED JUNE 30, 2021

Accumulated

Additional 

Other

Preferred Stock

Common Stock

Paid in

Comprehensive

Accumulated

    

Shares

    

Amount

    

Shares

    

Amount

    

Capital

    

Loss

    

Deficit

    

Totals

Beginning balance, April 1, 2021

 

$

 

22,428,208

$

22,428

$

85,360,645

$

(33,486)

$

(707,868)

$

84,641,719

Issuance of Series A Preferred Stock, net of expenses

 

1,700,000

1,700

 

40,611,426

40,613,126

Issuance of common shares, net of expenses

4,210,324

4,211

21,332,173

21,336,384

Stock based compensation

94,681

94

58,212

58,306

Unrealized loss on marketable securities

(104,316)

(104,316)

Dividends paid

(2,786,659)

(2,786,659)

Net income for the period ended June 30, 2021

2,530,844

2,530,844

Balance, June 30, 2021

 

1,700,000

$

1,700

 

26,733,213

$

26,733

$

147,362,456

$

(137,802)

$

(963,683)

$

146,289,404

FOR THE THREE MONTHS ENDED JUNE 30, 2020

Accumulated

Additional

Other

Preferred Stock

Common Stock

Paid in

Comprehensive

(Accumulated

    

Shares

    

Amount

    

Shares

    

Amount

    

Capital

    

(Loss) Income

    

Deficit) Retained Earnings

    

Totals

Beginning balance, April 1, 2020

 

$

 

22,117,301

$

22,117

$

83,802,062

$

(186,260)

$

(1,682,191)

$

81,955,728

Stock based compensation

4,107

4,107

Unrealized loss on marketable securities

221,449

221,449

Net income for the period ended June 30, 2020

2,266,479

2,266,479

Balance, June 30, 2020

 

$

 

22,117,301

$

22,117

$

83,806,169

$

35,189

$

584,288

$

84,447,763

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

3

Table of Contents

FOR THE SIX MONTHS ENDED JUNE 30, 2021

Accumulated

Additional

Other

 

Preferred Stock

 

Common Stock

 

Paid in

 

Comprehensive

 

Accumulated

    

Shares

    

Amount

    

Shares

    

Amount

    

Capital

    

Loss

    

Deficit

    

Totals

Beginning balance, January 1, 2021

 

$

22,124,801

$

22,125

$

83,814,376

$

(25,992)

$

(2,890,969)

$

80,919,540

Issuance of Series A Preferred Stock, net of expenses

1,700,000

1,700

40,611,426

40,613,126

Issuance of common shares, net of expenses

4,513,731

4,514

22,874,335

22,878,849

Stock based compensation

 

94,681

 

94

62,319

 

62,413

Unrealized loss on marketable securities

 

(111,810)

 

(111,810)

Dividends paid

(2,786,659)

(2,786,659)

Net income for the period ended June 30, 2021

 

4,713,945

 

4,713,945

Balance, June 30, 2021

 

1,700,000

$

1,700

26,733,213

$

26,733

$

147,362,456

$

(137,802)

$

(963,683)

$

146,289,404

FOR THE SIX MONTHS ENDED JUNE 30, 2020

Accumulated

Additional

Other

Preferred Stock

Common Stock

Paid in

Comprehensive

(Accumulated

    

Shares

    

Amount

    

Shares

    

Amount

    

Capital

    

(Loss) Income

    

Deficit) Retained Earnings

    

Totals

Beginning balance, January 1, 2020

 

$

22,117,301

$

22,117

$

83,856,308

$

(50,878)

$

(1,266,729)

$

82,560,818

Issuance of common shares, net of expenses

 

 

 

 

(58,353)

 

(58,353)

Stock based compensation

8,214

8,214

Unrealized loss on marketable securities

86,067

86,067

Dividends paid

 

(2,654,076)

 

(2,654,076)

Net income for the period ended June 30, 2020

 

4,505,093

 

4,505,093

Balance, June 30, 2020

 

$

22,117,301

$

22,117

$

83,806,169

$

35,189

$

584,288

$

84,447,763

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

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SACHEM CAPITAL CORP.

STATEMENTS OF CASH FLOW

(unaudited)

Six Months Ended

June 30, 

2021

    

2020

CASH FLOWS FROM OPERATING ACTIVITIES

  

 

  

Net income

$

4,713,945

$

4,505,093

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

 

 

  

Amortization of deferred financing costs and bond discount

 

502,872

 

235,913

Write-off of deferred financing costs

72,806

Depreciation expense

 

40,865

 

30,971

Stock based compensation

 

62,319

 

8,214

Impairment loss

319,000

495,000

Loss on sale of real estate

 

17,096

 

4,460

Loss (gain) on sale of marketable securities

43,968

(437,159)

Debt forgiveness

(257,845)

Changes in operating assets and liabilities:

 

 

  

(Increase) decrease in:

 

 

Interest and fees receivable

 

(197,929)

 

(186,094)

Other receivables

 

(63,868)

 

25,000

Due from borrowers

 

(280,683)

 

(597,776)

Prepaid expenses

 

(82,419)

 

(48,441)

Deposits on property and equipment

71,680

(Decrease) increase in:

 

Accrued interest

 

14,955

 

(144)

Accounts payable and accrued expenses

 

(56,954)

 

51,836

Deferred revenue

 

131,104

 

(346,855)

Advances from borrowers

 

1,156,692

 

163,933

Total adjustments

 

1,421,979

 

(529,462)

NET CASH PROVIDED BY OPERATING ACTIVITIES

 

6,135,924

 

3,975,631

CASH FLOWS FROM INVESTING ACTIVITIES

 

  

 

  

Purchase of investment securities

(85,471,393)

(17,428,603)

Proceeds from the sale of investment securities

78,107,144

17,940,198

Purchase of interest in investment partnership

(1,843,398)

Proceeds from sale of real estate owned

919,014

1,762,775

Acquisitions of and improvements to real estate owned

 

(286,346)

 

(1,027,533)

Purchase of property and equipment

 

(776,465)

 

(62,567)

Security deposits held

 

 

5,616

Principal disbursements for mortgages receivable

 

(75,190,172)

 

(42,303,747)

Principal collections on mortgages receivable

 

58,012,498

 

25,417,062

Costs in connection with investment activities

(192,646)

NET CASH USED FOR INVESTING ACTIVITIES

 

(26,721,764)

 

(15,696,799)

CASH FLOWS FROM FINANCING ACTIVITIES

 

  

 

  

Proceeds from line of credit

 

6,220,770

 

Repayment of mortgage payable

 

(767,508)

 

(8,181)

Principal payments on notes payable

(11,764)

(10,031)

Dividends paid

 

(5,441,636)

 

(2,654,076)

Financings costs incurred

(88,212)

(58,353)

Proceeds from other loans

257,845

Proceeds from issuance of common shares, net of expenses

22,878,849

Proceeds from issuance of Series A Preferred Stock, net of expenses

40,613,126

NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES

 

63,403,625

 

(2,472,796)

NET INCREASE(DECREASE) IN CASH AND CASH EQUIVALENTS

 

42,817,785

 

(14,193,964)

CASH AND CASH EQUIVALENTS- BEGINNING OF YEAR

 

19,408,028

 

18,841,937

CASH AND CASH EQUIVALENTS - END OF PERIOD

$

62,225,813

$

4,647,973

SUPPLEMENTAL DISCLOSURES OF CASH FLOWS INFORMATION

Interest paid

$

4,479,800

$

2,066,341

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

5

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SACHEM CAPITAL CORP.

NOTES TO FINANCIAL STATEMENTS

JUNE 30, 2021

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, non-banking 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.

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. The accompanying unaudited financial statements should be read in conjunction with the Company’s audited financial statements for the year ended December 31, 2020 and the notes thereto included in the Company’s Annual Report on Form 10-K. 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 will base the use of estimates on (a) various assumptions that consider its experience, (b) the Company’s projections regarding 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 combined 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 and 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.

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SACHEM CAPITAL CORP.

NOTES TO FINANCIAL STATEMENTS

JUNE 30, 2021

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 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.

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 public offerings 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. Interest income not accrued at June 30, 2021 and collected prior to the issuance of these financial statements is included in June 30, 2021 income.

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

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SACHEM CAPITAL CORP.

NOTES TO FINANCIAL STATEMENTS

JUNE 30, 2021

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. The Company recognizes interest and penalties, if any, related to unrecognized tax benefits 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 June 30, 2021.

Earnings Per Share

Basic and diluted earnings per share are calculated in accordance with 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

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

3. Fair Value Measurement

The asset or liability’s fair value measurement level within the fair value hierarchy 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 June 30, 2021:

    

Level 1

    

Level 2

    

Level 3

    

Total

Stocks and ETFs

$

3,145,774

$

$

$

3,145,774

Fixed and Preferred Securities

41,314,792

41,314,792

Mutual Funds

41,701

 

 

41,701

Total Investments

$

44,502,267

$

44,502,267

Real Estate Owned

 

  

 

  

$

7,892,845

$

7,892,845

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SACHEM CAPITAL CORP.

NOTES TO FINANCIAL STATEMENTS

JUNE 30, 2021

Following is a description of the methodologies used for assets measured at fair value:

Stocks and ETFs: Valued at the closing price reported in the active market in which the individual securities are traded.

Fixed and Preferred Securities: Valued at the closing price reported in the active market on which such securities are traded.

Mutual funds: Valued at the daily closing price reported by the fund. Mutual funds held by the Company are open-end mutual funds that are registered with the U.S. Securities and Exchange Commission (SEC). These funds are required to publish their daily net asset values and to transact at that price. The mutual funds held by the Company are deemed to be actively traded.

Real estate owned: The Company estimates fair values of real estate owned using market information such as recent sales contracts, appraisals, recent sales offers, assessed values or discounted cash value models.

4.    Mortgages Receivable

Mortgages Receivable

The Company offers short-term secured, non-bank loans to real estate owners and investors (also known as “hard money” loans) to fund their acquisition, renovation, development, rehabilitation or improvement of properties located primarily in Connecticut. The loans are secured by first mortgage liens on one or more properties owned by the borrower or related parties. In addition, each loan is personally guaranteed by the borrower or its principals, which guarantees may be collaterally secured as well. The loans are for a term of one to three years. The loans are initially recorded and carried thereafter, in the financial statements, at cost. Most of the loans provide for monthly payments of interest only (in arrears) during the term of the loan and a “balloon” payment of the principal on the maturity date.

For the six-month periods ended June 30, 2021 and 2020, the aggregate amounts of loans funded by the Company were $75,190,172 and $42,303,747, respectively, offset by principal repayments of $58,012,498 and $25,417,062, respectively.

At June 30, 2021, the Company’s portfolio included loans with outstanding principal balances up to approximately $9.8 million, with stated interest rates ranging from 5.0% to 13.0% and a default interest rate for non-payment of 18%.

At June 30, 2021, no single borrower had loans outstanding representing more than 10% of the total balance of the loans outstanding.

The Company will extend the term of a loan if, at the time of the extension, the loan and the borrower satisfy the Company’s underwriting requirements at the time of the extension. The Company treats a loan extension as a new loan.

Credit Risk

Credit risk profile based on loan activity as of June 30, 2021 and December 31,