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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 September 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 November 3, 2021, the Issuer had a total of 29,443,218 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 September 30, 2021 and December 31, 2020

1

Statements of Comprehensive Income for the Three-Month and Nine-Month Periods Ended September 30, 2021 and 2020

2

Statements of Changes in Shareholders’ Equity for the Three-Month and Nine-Month Periods Ended September 30, 2021 and 2020

3

Statements of Cash Flows for the Nine-Month Periods Ended September 30, 2021 and 2020

5

Notes to Financial Statements (unaudited)

7

Item 2.

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

17

Item 3.

Quantitative and Qualitative Disclosures about Market Risk

28

Item 4.

Controls and Procedures

29

Part II

OTHER INFORMATION

Item 1A.

Risk Factors

30

Item 6.

Exhibits

31

SIGNATURES

33

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

September 30, 2021

December 31, 2020

    

(Unaudited)

    

(Audited)

Assets

 

  

 

  

Assets:

 

  

 

  

Cash and cash equivalents

$

19,242,316

$

19,408,028

Investment securities

56,080,725

37,293,703

Investment in partnership

1,804,217

Mortgages receivable

 

219,963,291

 

155,616,300

Interest and fees receivable

 

2,705,447

 

1,820,067

Other receivables

 

428,391

 

67,307

Due from borrowers

 

3,431,015

 

2,025,663

Prepaid expenses

 

85,813

 

71,313

Property and equipment, net

 

2,189,887

 

1,433,388

Real estate owned

 

6,774,522

 

8,861,609

Other deposits

291,191

Deferred financing costs, net

 

354,936

 

72,806

Total assets

$

313,351,751

$

226,670,184

Liabilities and Shareholders’ Equity

 

  

 

  

Liabilities:

 

  

 

  

Notes payable (net of deferred financing costs of $4,132,355 and $4,866,058)

$

110,394,395

$

109,640,692

Mortgage payable

 

 

767,508

Line of credit

30,056,159

28,055,648

Accrued dividends payable

2,654,977

Accounts payable and accrued expenses

 

192,670

 

372,662

Other loans

257,845

Security deposits held

 

2,000

 

13,416

Advances from borrowers

 

10,031,656

 

1,830,539

Deferred revenue

 

3,879,291

 

2,099,331

Notes payable

37,498

54,682

Accrued interest

 

 

3,344

Total liabilities

154,593,669

145,750,644

Commitments and Contingencies

 

  

 

  

Shareholders’ equity:

 

  

 

  

Preferred shares - $.001 par value; 5,000,000 shares authorized; 1,903,000 shares of Series A Preferred Stock issued and outstanding

 

1,903

 

Common stock - $.001 par value; 100,000,000 shares authorized; 28,315,930 and 22,124,801 issued and outstanding

 

28,316

 

22,125

Paid-in capital

 

160,279,468

 

83,814,376

Accumulated other comprehensive loss

(637,990)

(25,992)

Accumulated deficit

 

(913,615)

 

(2,890,969)

Total shareholders’ equity

 

158,758,082

 

80,919,540

Total liabilities and shareholders’ equity

$

313,351,751

$

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

Nine Months Ended

September 30, 

September 30, 

    

2021

    

2020

    

2021

    

2020

Revenue:

  

 

  

  

 

  

Interest income from loans

$

6,094,165

$

3,473,304

$

15,307,692

$

9,640,387

Investment income

275,745

32,483

698,556

163,161

Income from partnership investment

35,983

90,225

Gain (loss) on sale of investment securities

256,418

(21,858)

212,449

415,301

Origination fees

 

999,287

 

393,097

 

2,348,608

 

1,551,652

Late and other fees

 

202,572

 

10,955

 

300,471

 

46,835

Processing fees

 

50,230

 

37,445

 

129,615

 

123,568

Rental income (loss), net

 

28,320

 

9,593

 

23,105

 

49,777

Debt Forgiveness

257,845

Other income

 

579,656

 

336,789

 

1,579,885

 

904,071

Total revenue

 

8,522,376

 

4,271,808

 

20,948,451

 

12,894,752

Operating costs and expenses:

 

  

 

  

 

  

 

  

Interest and amortization of deferred financing costs

 

2,589,847

 

1,262,278

 

7,541,536

 

3,564,533

Professional fees

183,503

158,206

666,431

400,868

Compensation, fees and taxes

771,373

500,165

2,175,603

1,232,733

Exchange fees

 

12,603

 

22,713

 

37,397

 

29,986

Other expenses and taxes

104,583

26,247

149,898

61,484

Depreciation

 

20,421

 

15,348

 

61,286

 

46,318

General and administrative expenses

294,981

145,251

702,897

412,677

Loss on sale of real estate

94,450

2,816

111,545

7,276

Impairment loss

150,000

469,000

495,000

Total operating costs and expenses

4,221,761

2,133,024

11,915,593

6,250,875

Net income

 

4,300,615

 

2,138,784

 

9,032,858

 

6,643,877

Preferred stock dividend

(913,791)

(932,089)

Net income attributable to common shareholders

3,386,824

2,138,784

8,100,769

6,643,877

Other comprehensive (loss) gain

Unrealized (loss) gain on investment securities

(500,188)

(72,785)

(611,998)

13,282

Comprehensive income

$

2,886,636

$

2,065,999

$

7,488,771

$

6,657,159

Basic and diluted net income per common share outstanding:

 

  

 

  

 

  

 

  

Basic

$

0.12

$

0.10

$

0.32

$

0.30

Diluted

$

0.12

$

0.10

$

0.32

$

0.30

Weighted average number of common shares outstanding:

 

  

 

  

 

  

 

  

Basic

 

27,973,249

 

22,117,301

 

24,968,885

 

22,117,301

Diluted

 

27,977,095

 

22,117,301

 

24,972,837

 

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 SEPTEMBER 30, 2021

Accumulated

Additional 

Other

Preferred Stock

Common Stock

Paid in

Comprehensive

Accumulated

    

Shares

    

Amount

    

Shares

    

Amount

    

Capital

    

Loss

    

Deficit

    

Totals

Beginning balance, July 1, 2021

 

1,700,000

$

1,700

 

26,733,213

$

26,733

$

147,362,456

(137,802)

(963,683)

$

146,289,404

Issuance of Preferred Stock, net of expenses

 

203,000

203

 

4,849,297

4,849,500

Issuance of Common Stock, net of expenses

1,582,717

1,583

8,003,496

8,005,079

Stock based compensation

64,219

64,219

Unrealized loss on marketable securities

(500,188)

(500,188)

Dividends paid on Common Stock

(3,336,756)

(3,336,756)

Dividends paid on Preferred Stock

(913,791)

(913,791)

Net income for the period ended September 30, 2021

4,300,615

4,300,615

Balance, September 30, 2021

 

1,903,000

$

1,903

 

28,315,930

$

28,316

$

160,279,468

$

(637,990)

$

(913,615)

$

158,758,082

FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2020

Accumulated

Additional

Other

Preferred Stock

Common Stock

Paid in

Comprehensive

Accumulated

    

Shares

    

Amount

    

Shares

    

Amount

    

Capital

    

Loss

    

Deficit

    

Totals

Beginning 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 for the period ended September 30, 2020

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

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

3

Table of Contents

FOR THE NINE MONTHS ENDED SEPTEMBER 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 Preferred Stock, net of expenses

1,903,000

1,903

45,460,723

45,462,626

Issuance of Common Stock, net of expenses

6,096,448

6,097

30,877,831

30,883,928

Stock based compensation

 

94,681

 

94

126,538

 

126,632

Unrealized loss on marketable securities

 

(611,998)

 

(611,998)

Dividends paid on Common Stock

(6,123,415)

(6,123,415)

Dividends paid on Preferred Stock

(932,089)

(932,089)

Net income for the period ended September 30, 2021

 

9,032,858

 

9,032,858

Balance, September 30, 2021

 

1,903,000

$

1,903

28,315,930

$

28,316

$

160,279,468

$

(637,990)

$

(913,615)

$

158,758,082

FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2020

Accumulated

Additional

Other

Preferred Stock

Common Stock

Paid in

Comprehensive

Accumulated

    

Shares

    

Amount

    

Shares

    

Amount

    

Capital

    

Loss

    

Deficit

    

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 Stock, net of expenses

 

 

 

 

(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 for the period ended September 30, 2020

 

6,643,877

 

6,643,877

Balance, September 30, 2020

 

$

22,117,301

$

22,117

$

83,810,276

$

(37,596)

$

68,996

$

83,863,793

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

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SACHEM CAPITAL CORP.

STATEMENTS OF CASH FLOW

(unaudited)

Nine Months Ended

September 30, 

    

2021

    

2020

CASH FLOWS FROM OPERATING ACTIVITIES

  

 

  

Net income

$

9,032,858

$

6,643,877

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

 

 

  

Amortization of deferred financing costs and bond discount

 

839,418

 

357,497

Write-off of deferred financing costs

72,806

Depreciation expense

 

61,286

 

46,318

Stock based compensation

 

126,538

 

12,321

Impairment loss

469,000

495,000

Loss on sale of real estate

 

111,545

 

7,276

Gain on sale of marketable securities

(212,449)

(415,301)

Debt Forgiveness

(257,845)

Changes in operating assets and liabilities:

 

 

  

(Increase) decrease in:

 

 

Interest and fees receivable

 

(885,380)

 

(180,335)

Other receivables

 

(361,084)

 

54,090

Due from borrowers

 

(1,405,352)

 

(273,202)

Prepaid expenses

 

(14,500)

 

(82,082)

Deposits on property and equipment

(100,530)

(Decrease) increase in:

 

Accrued interest

 

(3,344)

 

77,256

Accounts payable and accrued expenses

 

(179,992)

 

272,574

Deferred revenue

 

1,779,960

 

(91,019)

Advances from borrowers

 

8,201,117

 

565,706

Total adjustments

 

8,341,724

 

745,569

NET CASH PROVIDED BY OPERATING ACTIVITIES

 

17,374,582

 

7,389,446

CASH FLOWS FROM INVESTING ACTIVITIES

 

  

 

  

Purchase of investment securities

(160,896,229)

(37,216,177)

Proceeds from the sale of investment securities

141,709,658

25,905,769

Purchase of interest in investment partnership, net

(1,804,217)

Proceeds from sale of real estate owned

1,839,977

1,816,522

Acquisitions of and improvements to real estate owned

 

(333,435)

 

(1,584,300)

Purchase of property and equipment

 

(817,785)

 

(118,364)

Security deposits held

 

(11,416)

 

5,616

Principal disbursements for mortgages receivable

 

(154,810,007)

 

(68,029,798)

Principal collections on mortgages receivable

 

90,463,016

 

37,859,270

Costs in connection with investment activities

(281,191)

NET CASH USED FOR INVESTING ACTIVITIES

 

(84,941,629)

 

(41,361,462)

CASH FLOWS FROM FINANCING ACTIVITIES

 

  

 

  

Net proceeds from line of credit

 

2,000,511

 

12,080,569

Repayment of mortgage payable

 

(767,508)

 

(12,296)

Principal payments on notes payable

(17,184)

(15,303)

Dividends paid on Common Stock

 

(8,778,392)

 

(5,308,152)

Dividends paid on Preferred Stock

 

(932,089)

 

Financings costs incurred

 

(450,651)

 

(108,353)

Proceeds from other loans

257,845

Proceeds from issuance of common shares, net of expenses

30,884,022

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

45,462,626

Gross proceeds from issuance of fixed rate notes

14,363,750

Financings costs incurred in connection with fixed rate notes

(743,908)

NET CASH PROVIDED BY FINANCING ACTIVITIES

 

67,401,335

 

20,514,152

NET DECREASE IN CASH AND CASH EQUIVALENTS

 

(165,712)

 

(13,457,864)

CASH AND CASH EQUIVALENTS- BEGINNING OF YEAR

 

19,408,028

 

18,841,937

CASH AND CASH EQUIVALENTS - END OF PERIOD

$

19,242,316

$

5,384,073

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

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SACHEM CAPITAL CORP.

STATEMENTS OF CASH FLOW (Continued)

(unaudited)

Nine Months Ended

September 30, 

    

2021

    

2020

SUPPLEMENTAL DISCLOSURES OF CASH FLOWS INFORMATION

  

 

  

Interest paid

$

6,745,109

$

2,093,080

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, 2020 amounted to $170,383.

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

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SACHEM CAPITAL CORP.

NOTES TO FINANCIAL STATEMENTS

SEPTEMBER 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 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.

Consolidations

The consolidated financial statements of the Company include the accounts of all subsidiaries in which the Company has control over significant operating, financial and investing decisions of the entity. All intercompany accounts and transactions have been eliminated.

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

SEPTEMBER 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 Financial Accounting Standards Board (“FASB”) Accounting Standard Codification (“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