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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

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

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.

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

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 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.

ii

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.

1

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.

2

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

3

    

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.

4

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.

5

SACHEM CAPITAL CORP.

STATEMENTS OF CASH FLOW (Continued)

(unaudited)

Nine Months Ended

September 30, 

    

2022

    

2021

SUPPLEMENTAL DISCLOSURES OF CASH FLOWS INFORMATION

  

 

  

Interest paid

$

13,012,805

$

6,745,109

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.

6

Table of Contents

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.

7

Table of Contents

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.

8

Table of Contents

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.

9

Table of Contents

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.

10

Table of Contents

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,

September 30,

2022

2021

2022

2021

OCI from AFS securities:

    

  

    

  

    

  

    

  

Unrealized (losses) on AFS securities at beginning of period

$

(425,972)