Quarterly Report (10-q)

SACH-A

Sachem Capital Actualités

Sachem Capital 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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, 2022

☐ 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
6.00% Notes due 2026	SCCD	NYSE American LLC
6.00% Notes due 2027	SCCE	NYSE American LLC
7.125% Notes due 2027	SCCF	NYSE American LLC
8.00% Notes due 2027	SCCG	NYSE American LLC
7.75% Series A Cumulative Redeemable Preferred Stock, Liquidation Preference $25.00 per share	SACHPRA	NYSE American LLC

As of November 8, 2022, the Issuer had a total of 40,795,709 common shares, $0.001 par value per share, outstanding.

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SACHEM CAPITAL CORP.

TABLE OF CONTENTS

Part I	FINANCIAL INFORMATION
		Page Number
Item 1.	Financial Statements (unaudited)
	Balance Sheets as of September 30, 2022 and December 31, 2021	1
	Statements of Comprehensive Income for the Three-Month and Nine-Month Periods Ended September 30, 2022 and 2021	2
	Statements of Changes in Shareholders’ Equity for the Three-Month and Nine-Month Periods Ended September 30, 2022 and 2021	3
	Statements of Cash Flows for the Nine-Month Periods Ended September 30, 2022 and 2021	5
	Notes to Financial Statements (unaudited)	7
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	22
Item 3.	Quantitative and Qualitative Disclosures about Market Risk	33
Item 4.	Controls and Procedures	33

Part II	OTHER INFORMATION

Item 1A.	Risk Factors	34
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	34
Item 6.	Exhibits	35
SIGNATURES		38
EXHIBITS

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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 numerous risks, uncertainties and assumptions, some of which are described in our 2021 Annual Report on Form 10-K and in our quarterly reports on Form 10-Q for the first and second quarters of 2022, all of which are filed with the U.S. Securities and Exchange Commission. 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.

Table of Contents

PART I. FINANCIAL INFORMATION

Item 1. FINANCIAL STATEMENTS

SACHEM CAPITAL CORP.

BALANCE SHEETS


	September 30, 2022		December 31, 2021
	(unaudited)		(audited)
Assets
Assets:
Cash and cash equivalents	$	35,464,257	$	41,938,897
Investment securities		34,351,374		60,633,661
Mortgages receivable		448,524,665		292,301,209
Interest and fees receivable		5,746,907		3,693,645
Due from borrowers		5,055,146		3,671,016
Real estate owned		5,615,940		6,559,010
Investments in partnerships		22,542,941		6,055,838
Property and equipment, net		3,397,812		2,172,185
Other assets		1,122,342		936,290
Total assets	$	561,821,384	$	417,961,751

Liabilities and Shareholders’ Equity
Liabilities:
Notes payable (net of deferred financing costs of $8,844,137 and $5,747,387)	$	279,557,613	$	160,529,363
Repurchase facility		43,100,146		19,087,189
Mortgage payable		750,000		750,000
Line of credit		3,542,853		33,178,031
Accrued dividends payable		—		3,927,600
Accounts payable and accrued liabilities		1,162,170		697,403
Advances from borrowers		9,936,828		15,066,114
Deferred revenue		4,471,800		4,643,490
Total liabilities		342,521,410		237,879,190

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		1,903
Common shares - $.001 par value; 200,000,000 shares authorized; 40,080,672 and 32,730,004 issued and outstanding		40,081		32,730
Paid-in capital		222,520,783		185,516,394
Accumulated other comprehensive loss		(557,541)		(476,016)
Accumulated deficit		(2,705,252)		(4,992,450)
Total shareholders’ equity		219,299,974		180,082,561
Total liabilities and shareholders’ equity	$	561,821,384	$	417,961,751

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

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SACHEM CAPITAL CORP.

STATEMENTS OF COMPREHENSIVE INCOME

(unaudited)


	Three Months Ended				Nine Months Ended
	September 30,				September 30,
	2022		2021		2022		2021
Revenue:
Interest income from loans	$	11,545,748	$	6,094,165	$	30,490,694	$	15,307,692
Investment gains, net		238,225		532,163		586,166		911,005
Income from partnership investments		523,067		35,983		1,112,560		90,225
Origination and modification fees, net		1,669,034		1,268,624		5,759,650		2,788,498
Fee and other income		641,749		591,441		2,048,921		1,851,031
Unrealized losses on investment securities		(1,076,836)		—		(3,607,498)		—
Total revenue		13,540,987		8,522,376		36,390,493		20,948,451

Operating costs and expenses:
Interest and amortization of deferred financing costs		5,974,975		2,589,847		15,083,228		7,541,536
Compensation, fees and taxes		1,509,518		771,373		3,691,421		2,175,603
Other expenses		90,899		137,607		320,231		248,581
General and administrative expenses		715,994		478,484		1,993,812		1,369,328
Loss (Gain) on sale of real estate		962		94,450		(121,381)		111,545
Impairment loss		195,000		150,000		790,500		469,000
Total operating costs and expenses		8,487,348		4,221,761		21,757,811		11,915,593
Net income		5,053,639		4,300,615		14,632,682		9,032,858
Preferred stock dividend		(921,766)		(913,791)		(2,765,297)		(932,089)
Net income attributable to common shareholders		4,131,873		3,386,824		11,867,385		8,100,769

Other comprehensive loss
Unrealized gain (loss) on investment securities		(131,569)		(500,188)		(81,525)		(611,998)
Comprehensive income	$	4,000,304	$	2,886,636	$	11,785,860	$	7,488,771
Basic and diluted net income per common share outstanding:
Basic	$	0.11	$	0.12	$	0.32	$	0.32
Diluted	$	0.11	$	0.12	$	0.32	$	0.32
Weighted average number of common shares outstanding:
Basic		38,829,610		27,973,249		36,723,305		24,968,885
Diluted		38,829,852		27,977,095		36,729,184		24,972,837

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

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SACHEM CAPITAL CORP.

STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY

(unaudited)


	FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2022
									Accumulated
							Additional		Other
	Preferred Stock			Common Stock			Paid in		Comprehensive		Accumulated
	Shares	Amount		Shares	Amount		Capital		Loss		Deficit		Totals
Balance, July 1, 2022	1,903,000	$	1,903	36,755,786	$	36,756	$	206,973,510	$	(425,972)	$	(1,583,202)	$	205,002,995

Issuance of common shares, net of expenses	—		—	3,309,886		3,310		15,420,273		—		—		15,423,583

Stock based compensation	—		—	15,000		15		127,000		—		—		127,015

Unrealized loss on marketable securities	—		—	—		—		—		(131,569)		—		(131,569)

Dividends paid on Series A Preferred Stock	—		—	—		—		—		—		(921,766)		(921,766)

Dividends paid on common shares	—		—	—		—		—		—		(5,253,923)		(5,253,923)

Net income for the period ended September 30, 2022	—		—	—		—		—		—		5,053,639		5,053,639
Balance, September 30, 2022	1,903,000	$	1,903	40,080,672	$	40,081	$	222,520,783	$	(557,541)	$	(2,705,252)	$	219,299,974


	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 Series A Preferred Stock, net of expenses	203,000		203	—		—		4,849,297		—		—		4,849,500

Issuance of common shares, 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 common shares	—		—	—		—		—		—		(3,336,756)		(3,336,756)

Dividends paid on Series A 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

Table of Contents


	FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2022
									Accumulated
							Additional		Other
	Preferred Stock			Common Stock			Paid in		Comprehensive		Accumulated
	Shares	Amount		Shares	Amount		Capital		Loss		Deficit		Totals
Balance, January 1, 2022	1,903,000	$	1,903	32,730,004	$	32,730	$	185,516,394	$	(476,016)	$	(4,992,450)	$	180,082,561

Issuance of common shares, net of expenses	—		—	7,177,043		7,177		36,647,242		—		—		36,654,419

Exercise of warrants	—		—	19,658		20		(20)		—		—		—

Stock based compensation	—		—	153,967		154		357,167		—		—		357,321

Unrealized loss on marketable securities	—		—	—		—		—		(81,525)		—		(81,525)

Dividends paid on Series A Preferred Stock	—		—	—		—		—		—		(2,765,297)		(2,765,297)

Dividends paid on common shares	—		—	—		—		—		—		(9,580,187)		(9,580,187)

Net income for the period ended September 30, 2022	—		—	—		—		—		—		14,632,682		14,632,682
Balance, September 30, 2022	1,903,000	$	1,903	40,080,672	$	40,081	$	222,520,783	$	(557,541)	$	(2,705,252)	$	219,299,974


	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 Series A Preferred Stock, net of expenses	1,903,000		1,903	—		—		45,460,723		—		—		45,462,626

Issuance of common shares, 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 shares	—		—	—		—		—		—		(6,123,415)		(6,123,415)

Dividends paid on Series A 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

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,
	2022		2021
CASH FLOWS FROM OPERATING ACTIVITIES
Net income	$	14,632,682	$	9,032,858
Adjustments to reconcile net income to net
cash provided by operating activities:
Amortization of deferred financing costs and bond discount		1,664,822		839,418
Write-off of deferred financing costs		—		72,806
Depreciation expense		66,533		61,286
Stock based compensation		357,321		126,632
Impairment loss		790,500		469,000
(Gain) Loss on sale of real estate		(121,381)		111,545
Unrealized loss on investment securities		3,607,498		(212,449)
Loss on sale of investment securities		148,565		—
Debt Forgiveness		—		(257,845)
Changes in operating assets and liabilities:
(Increase) decrease in:
Interest and fees receivable		(2,154,704)		(885,380)
Other assets - other receivables		(418,176)		(361,084)
Due from borrowers		(1,505,785)		(1,405,352)
Other assets - prepaid expenses		153,842		(14,500)
(Decrease) increase in:
Accounts payable and accrued liabilities - accrued interest		431,110		(3,344)
Accounts payable and accrued liabilities - accounts payable and accrued expenses		53,818		(179,992)
Deferred revenue		(171,690)		1,779,960
Advances from borrowers		(5,129,286)		8,201,117
Total adjustments		(2,227,013)		8,341,818

NET CASH PROVIDED BY OPERATING ACTIVITIES		12,405,669		17,374,676

CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of investment securities		(39,715,900)		(160,896,229)
Proceeds from the sale of investment securities		62,160,599		141,709,658
Purchase of interests in investment partnerships, net		(16,487,103)		(1,804,217)
Proceeds from sale of real estate owned		1,571,467		1,839,977
Acquisitions of and improvements to real estate owned, net		(101,168)		(333,435)
Purchase of property and equipment		(1,292,160)		(817,785)
Security deposits held		—		(11,416)
Principal disbursements for mortgages receivable		(252,370,675)		(154,810,007)
Principal collections on mortgages receivable		95,173,969		90,463,016
Other assets - costs in connection with SPAC offering		(166,360)		(281,191)
NET CASH USED FOR INVESTING ACTIVITIES		(151,227,331)		(84,941,629)

CASH FLOWS FROM FINANCING ACTIVITIES
Net proceeds from (repayment of) line of credit		(29,635,178)		2,000,511
Net proceeds from repurchase facility		24,012,957		—
Repayment of mortgage payable		—		(767,508)
Accounts payable and accrued liabilities - principal payments on other notes		(20,161)		(17,184)
Dividends paid on common shares		(13,507,787)		(8,778,392)
Dividends paid on Series A Preferred Stock		(2,765,297)		(932,089)
Financings costs incurred		—		(450,651)
Proceeds from issuance of common shares, net of expenses		36,654,419		30,883,928
Proceeds from issuance of Series A Preferred Stock, net of expenses		—		45,462,626
Gross proceeds from issuance of fixed rate notes		122,125,000		—
Financings costs incurred in connection with fixed rate notes		(4,516,931)		—
NET CASH PROVIDED BY FINANCING ACTIVITIES		132,347,022		67,401,241

NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS		(6,474,640)		(165,712)

CASH AND CASH EQUIVALENTS- BEGINNING OF YEAR		41,938,897		19,408,028

CASH AND CASH EQUIVALENTS - END OF PERIOD	$	35,464,257	$	19,242,316

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

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SACHEM CAPITAL CORP.

STATEMENTS OF CASH FLOW (Continued)

(unaudited)

Real estate acquired in connection with the foreclosure of certain mortgages, inclusive of interest and other fees receivable, during the period ended September 30, 2022 amounted to $1,091,348.

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

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SACHEM CAPITAL CORP.

NOTES TO FINANCIAL STATEMENTS

SEPTEMBER 30, 2022

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-bank 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, New York and Florida. 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, a pledge of the ownership interests in the borrower by the principals thereof, and/or 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 evaluated on each transaction. In addition, the Company may make opportunistic real estate purchases apart from its lending activities or enter into other transactions with third parties involving real estate financing transactions.

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, 2021 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 bases its 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 materially 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 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, 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.

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SACHEM CAPITAL CORP.

NOTES TO FINANCIAL STATEMENTS

SEPTEMBER 30, 2022

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 Standards 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 to 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.

Land and building acquired in 2021 to serve as the Company’s future corporate headquarters is stated at cost. The building is not currently being depreciated as it is undergoing renovations.

Real Estate Owned

Real estate owned by the Company is stated at cost and is tested for impairment quarterly.

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.

Impairment of Long-Lived Assets

The Company 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 undiscounted cash flows are 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.

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SACHEM CAPITAL CORP.

NOTES TO FINANCIAL STATEMENTS

SEPTEMBER 30, 2022

Deferred Financing Costs

Costs incurred in connection with the Company’s revolving credit facilities, described in Note 7-Line of Credit, Mortgage Payable and Churchill Facility are, amortized over the term of the applicable facility using the straight-line method.

Costs incurred by the Company in connection with the public offering of its unsecured, unsubordinated notes, described in Note 9 - 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, generally, does not accrue interest income on mortgages receivable that are more than 90 days past due or interest charged at default rates. However, interest income not accrued at September 30, 2022 but collected prior to the issuance of this report is included in income for the period ended September 30, 2022.

Origination and modification fee revenue, generally 1% – 3% of either the original loan principal or the modified loan balance, is collected at loan funding and is recognized ratably over the contractual life of the loan in accordance with ASC 310.

Income Taxes

The Company believes it qualifies as a real estate investment trust (“REIT”) for federal income tax purposes and operates accordingly. It made the election to be taxed as a REIT on its 2017 Federal income tax return. 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 (the “Code”), 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 capital stock. 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.

FASB ASC Topic 740-10 “Accounting for Uncertainty in Income Taxes” 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 September 30, 2022 and 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.

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SACHEM CAPITAL CORP.

NOTES TO FINANCIAL STATEMENTS

SEPTEMBER 30, 2022

Investment Transactions and Related Income.

Investment transactions are accounted for on a trade-date basis. Dividends are recorded on the ex-dividend date and interest is recognized on the accrual basis. Investment securities are marked-to-market. Unrealized gains and losses on investment securities with a stated maturity date are included in other comprehensive income (loss). All other unrealized gains and losses on investment securities are included in net income (loss).

Recent Accounting Pronouncements

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

Reclassifications

Certain amounts included in the September 30, 2021 and December 31, 2021 financial statements have been reclassified to conform to the September 30, 2022 presentation.

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, 2022:


	Level 1		Level 2		Level 3		Total
Stocks and ETFs	$	9,135,577		—		—	$	9,135,577
Mutual funds		25,215,797		—		—		25,215,797
Total liquid investments	$	34,351,374		—		—	$	34,351,374
Real estate owned		—		—	$	5,615,940	$	5,615,940

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.

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. 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, assessed values or discounted cash value models.

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SACHEM CAPITAL CORP.

NOTES TO FINANCIAL STATEMENTS

SEPTEMBER 30, 2022

Impact of Fair Value of AFS Securities on OCI

The following table presents the impact of the Company's Available-For-Sale (AFS) securities on its Other Comprehensive Income (OCI) for the three and nine months ended September 30, 2022 and 2021:

Three Months Ended

Nine months Ended

September 30,

2022

2021

2022

2021

OCI from AFS securities:

Unrealized (losses) on AFS securities at beginning of period

(425,972)

Nine Months Ended

September 30,

SUPPLEMENTAL DISCLOSURES OF CASH FLOWS INFORMATION

Interest paid