SACH US Equity☆

Item 7. Management’s Discussion and Analysis of Financial condition and Results of Operations

The following discussion of our financial condition and results of operations should be read in conjunction with the financial statements and the notes to those statements included elsewhere in this annual report. Certain statements in this discussion and elsewhere in this Report constitute forward-looking statements, within the meaning of section 21E of the Exchange Act, that involve risks and uncertainties. The actual results may differ materially from those anticipated in these forward-looking statements.

Company Overview

We are a Connecticut-based real estate finance company that specializes in originating, underwriting, funding, servicing and managing a portfolio of short-term (i.e., three years or less) loans secured by first mortgage liens on real property. From our inception, in December 2010, through our initial public offering, in February 2017, we operated as a limited liability company. On February 9, 2017, we completed our initial public offering (the “IPO”), the primary purpose of which was to raise equity capital to fund mortgage loans and expand our mortgage loan portfolio and to diversify our ownership so that we could qualify, for federal income tax purposes, as a real estate investment trust, or REIT.

We believe that, since consummation of the IPO, we met all the requirements to qualify as a REIT for federal income tax purposes and elected to be taxed as a REIT beginning with our 2017 tax year. As a REIT, we are entitled to claim deductions for distributions of taxable income to our shareholders thereby eliminating any corporate tax on such taxable income. Any taxable income not distributed to shareholders is subject to tax at the regular corporate tax rates and may also be subject to a 4% excise tax to the extent it exceeds 10% of our total taxable income. To maintain our qualification as a REIT, we are required to distribute each year at least 90% of our taxable income. As a REIT, we may also be subject to federal excise taxes and state taxes.

2020 Year in Review; Outlook for 2021

We began 2020 with approximately $35 million of liquid assets which we planned to use to fund new mortgage loans. Then, the COVID-19 virus began to spread throughout the United States and we realized that drastic changes to our operations would need to be made. Once the State of Connecticut declared a state of emergency, we were forced to scale-back our operations. As a finance company, we were permitted to remain open but, given “social distancing” and other measures designed to protect our employees and curtail the spread of the virus, we rotated employees through the office and, for those with remote log-in capability, had them work from home. Face-to-face customer contact was curtailed significantly, placing greater emphasis on phone calls, emails and video conferencing. In addition, the filing and preparation of loan documents with the various recording offices were and may continue to be delayed and currently there is only limited access to the Connecticut court system to process foreclosures and evictions. In summary, the consequences of the COVID-19 virus have and may continue to include one or more of the following:

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● reduce the rate of prepayments;

● delay the completion of renovation projects that are in process;

In light of the impact of the COVID-19 pandemic on general economic conditions and the capital markets, we took various steps to reduce our risks, including the following changes to our underwriting guidelines as of April 1, 2020 applicable to new loans:

● limited new loan activity to the amount of cash generated by loan payoffs;

● reduced the loan-to-value ratio on new loans from 70% to 50%;

In addition, in response to the COVID-19 pandemic, in the second quarter of 2020 we instituted a forbearance program to help borrowers who were adversely impacted by the pandemic. Under this program, approximately $200,000 of interest on 23 loans, having an aggregate principal amount of $6.5 million was deferred. As of December 31, 2020, all these loans have moved off forbearance and were current with respect to their interest payment obligations and no other loans were added to the forbearance program.

The policies and guidelines that we adopted to address the impact of the COVID-19 pandemic were designed to allow us to preserve our liquidity because at the time the actual impact and consequences of the pandemic were unknown. In that regard, they were successful. On the other hand, they did have an adverse impact on our growth. Our mortgage loan portfolio at June 30, 2020 was virtually identical to our mortgage loan portfolio at March 31, 2020 and our earnings per share for the second quarter was $0.10 as it was for the first quarter.

Effective July 1, 2020, we relaxed some of these measures by increasing our loan-to-value ratio back to 70% while still maintaining a cautionary perspective. Demand for our products in the third quarter of 2020 was robust. We believe this demand was driven by several factors, all of which are related to COVID-19.

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In terms of our outlook for 2021, we see certain fundamental changes that may affect our business. The biggest challenge at this time remains the impact of COVID-19 or actions taken to contain the spread of COVID-19. One example of this was the November 6, 2020, rollback of the State of Connecticut re-opening plan from Phase 3 to Phase 2.1, a modified version of the State’s Phase 2. This illustrates that movement on the COVID-19 front may be in both a progressive or regressive manner.

Keeping our workforce healthy and safe is our number one priority. We have not been immune to the virus striking our employees and their family members. Fortunately, none of these occurrences has been life-threatening in any way. However, to mitigate the risk of office closure and to ensure business continuity, our employees are equipped so they can seamlessly work remotely, away from the Sachem corporate office. This remote work set-up has proven to be effective since, at times during the pandemic, employees had to self-isolate based on their own health condition or that of an immediate family member. While loan processing and funding may have been marginally delayed, there was no impact to the service levels we provided our borrowers.

In the event we are forced to close our physical office, there would be some impact. For example, the underwriting process would continue to function but would take longer to complete without immediate access to background and credit profiles. Loan committee meetings would continue to be held virtually (as they are under normal conditions) but the loan approval process may incur delay or not be as thorough and efficient as in the past. In addition, we may not be able to meet with borrowers or potential borrowers, including physical property inspections, which could adversely impact our ability to service our loans, monitor compliance and originate new loans. Finally, the filing of loan documents with the various recording offices may be delayed.

In summary, the consequences may include one or more of the following:

● reduce the rate of prepayments;

● delay the completion of renovation projects in-process;

As is the case with most industries and businesses impacted by COVID-19, we are limited in terms of the tools that are available to us to blunt the impact of COVID-19. Our number one priority is the health and safety of our employees. We will do all that is possible, to keep our operations going, maintain contact with all our borrowers and applicants and, where necessary and appropriate, take any and all legal action required to enforce our rights. However, we cannot assure you that our business, operations and financial condition will not be adversely impacted by COVID-19.

Other factors that we believe will impact our business in 2021 include the following:

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(iii)Declining property values. The rate of increasing property values has slowed and, in some cases, has even reversed. Although our default and foreclosure rate has been relative consistent over the last three years, as property values decline the risk of foreclosure increases. Our response to this development has been to adhere to our strict loan-to-value ratio, limit the term of our loans to not more than one year and aggressively enforce our rights when loans go into default.

Despite the challenges we faced in 2020 and the changing dynamics of the real estate finance marketplace and the impact of COVID-19, we continue to believe in the viability of our business model. Our goal is, and has always been, to continue to grow our mortgage loan portfolio and increase our loan profitability, while at the same time maintain or improve on our existing underwriting and loan criteria. Specifically, we believe that the following changes wrought in 2020 will, in fact, help us deal with the uncertainties expected in 2021.

Operational and Financial Overview

Our loans typically have a maximum initial term of one to three years and bear interest at a fixed rate of 5% to 13% per year and a default rate of 18% per year. We usually receive origination fees, or “points,” ranging from 2% to 5% of the original principal amount of the loan as well as other fees relating to underwriting, funding and managing the loan, such as inspection fees. Since we treat an extension or renewal of an existing loan as a new loan, we also receive additional “points” and other loan-related fees in connection with those transactions. Interest is always payable monthly in arrears. As a matter of policy, we do not make any loans if the loan-to value ratio exceeds 70%. During the second quarter of 2020, we revised that policy that the amount of the loan may not exceed 50% of the market value of the property securing the loan — i.e., a 50% loan-to-value ratio. As of July 2020, the 50% loan-to-value ratio on new loans reverted back to our general policy of 70%. In the case of construction loans, the loan-to-value ratio is based on the post-construction value of the property. We rely on readily available market data, including appraisals when available or timely, tax assessment rolls, recent sales transactions and brokers to evaluate the value of the collateral. Finally, we have adopted a policy that limits the maximum amount of any loan we fund to a single borrower or a group of affiliated borrowers to 10% of the aggregate amount of our loan portfolio, taking into consideration the loan under consideration.

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Our revenue consists primarily of interest earned on our loan portfolio. As our capital structure has tilted towards more debt over the past 18 months, debt service has become a significant factor in determining our net income. Our capital structure at December 31, 2020 was approximately 64.3% debt vs. 35.7% equity. Most of our debt, approximately $114.5 million, is unsecured unsubordinated 5-year notes. The weighted average interest rate on these notes is 7.36%. In addition, we had a balance of approximately $28.1 million at December 31, 2020 under our margin loan account with Wells Fargo. The outstanding balance on this loan bears interest at a rate equal to 1.75% below the prime rate. The interest rate on this loan as of January 31, 2021 was 1.5%.

In addition, our net income for 2020 has been adversely impacted by a reduction in the yield on our mortgage loan portfolio. For the years ended December 31, 2020 and 2019, the yield on our mortgage loan portfolio was 11.79% and 12.41%, respectively. For this purpose, yield only takes into account the stated interest rate on the mortgage note adjusted to the default rate, if applicable. We believe the interest rate compression will continue to be a factor in 2021 as we implement our new strategy focusing on larger loans, secured by higher quality properties being developed by more seasoned developers with a history of successful development projects. On the other hand, since the interest rate on our outstanding indebtedness is fixed, we have reduced the risk on interest rate compression if and when interest rates begin to increase. That will enable us to continue to focus on growth and building market share rather than short-term profits and cash flow.

We seek to mitigate some of the risk associated with rising rates by limiting the term of new loans to one year. At December 31, 2020, approximately 81.4% of the mortgage loans in our portfolio had a term of one year or less. If, at the end of the term, the loan is not in default and meets our other underwriting criteria, we will consider an extension or renewal of the loan at our then prevailing interest rate. If interest rates have decreased and we renew a loan at a lower rate, the “spread” between our borrowing costs and the yield on our portfolio will be squeezed and would adversely impact our net income. We cannot assure you that we will be able to increase our rates at any time in the future and we cannot assure you that we can continue to increase our market share.

As a real estate finance company, we deal with a variety of default situations, including breaches of covenants, such as the obligation of the borrower to maintain adequate liability insurance on the mortgaged property, to pay the taxes on the property and to make timely payments to us. As such, we may not be aware that a default occurred. At December 31, 2020, five of our mortgage loans were the subject of enforcement or collection proceedings. The aggregate amount due on these loans, including principal, unpaid accrued interest and borrower charges, was approximately $307,000, representing approximately 0.2% of our aggregate mortgage loan portfolio. In the case of each of these loans, we have determined the value of the collateral exceeds the aggregate amount due. To date, the aggregate amount of realized losses on our loan portfolio have been de minimis.

Financing Strategy Overview

To continue to grow our business, we must increase the size of our loan portfolio, which requires that we raise additional capital either by selling shares of our capital stock or by incurring additional indebtedness. We do not have a policy limiting the amount of indebtedness that we may incur. Thus, our operating income in the future will depend on how much debt we incur and the spread between our cost of funds and the yield on our loan portfolio. Rising interest rates could have an adverse impact on our business if we cannot increase the rates on our loans to offset the increase in our cost of funds and to satisfy investor demand for yield. In addition, rapidly rising interest rates could have an unsettling effect on real estate values, which could compromise some of our collateral.

We do not have any formal policy limiting the amount of indebtedness we may incur. Depending on various factors we may, in the future, decide to take on additional debt to expand our mortgage loan origination activities to increase the potential returns to our shareholders. Although we have no pre-set guidelines in terms of leverage ratio, the amount of leverage we will deploy will depend on our assessment of a variety of factors, which may include the liquidity of the real estate market in which most of our collateral is located, employment rates, general economic conditions, the cost of funds relative to the yield curve, the potential for losses and extension risk in our portfolio, the gap between the duration of our assets and liabilities, our opinion regarding the creditworthiness of our borrowers, the value of the collateral underlying our portfolio, and our outlook for interest rates and property values. At December 31, 2020, debt proceeds represented approximately 64.3% of our total capital. To grow the business and satisfy the requirement to pay out 90% of net profits, from 2019 to 2020 we increased our level of debt from 41.7% to 64.3% of our total capital. We intend to maintain a modest amount of leverage for the sole purpose of financing our portfolio and not for speculating on changes in interest rates.

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Our total outstanding indebtedness at December 31, 2020 was approximately $143.6 million, which included a mortgage loan of approximately $800,000, a credit line loan of approximately $28.1 million and three series of unsecured, unsubordinated five-year notes having an aggregate original principal amount of approximately $114.5 million. The mortgage loan was repaid in full in the first quarter of 2021. Notes having an aggregate principal amount of approximately $23.7 million bearing interest at the rate of 7.125% per annum and have a maturity date of June 30, 2024 (the “June 2024 Notes”). Notes having an aggregate principal amount of $34.5 million bearing interest at the rate of 6.875% per annum and have a maturity date of December 30, 2024 (the “December 2024 Notes”). Notes having an aggregate original principal amount of approximately $56.4 million, bearing interest at the rate of 7.75% per annum and have a maturity date of September 30, 2025 (the “September 2025 Notes”). All three series of existing notes are unsecured, unsubordinated obligations and rank equally in right of payment with all our existing and future senior unsecured and unsubordinated indebtedness but are effectively subordinated in right of payment to all our existing and future secured indebtedness (including indebtedness that is initially unsecured but to which we subsequently grant a security interest). Interest on all three series of existing notes is payable quarterly in arrears on March 30, June 30, September 30 and December 30 of each year the notes are outstanding.

Each series of notes was issued pursuant to the Indenture, dated June 21, 2019, and a supplement thereto, which provides for the form and terms, including default provisions and cures, applicable to each series. All three series of existing notes are subject to (i) “Defeasance,” which means that, by depositing with a trustee an amount of cash and/or government securities sufficient to pay all principal and interest, if any, on such notes when due and satisfying any additional conditions required under the Indenture, we will be deemed to have been discharged from our obligations under such notes and (ii) an “Asset Coverage Ratio” requirement pursuant to which we may not pay any dividends or make distributions in excess of 90% of our taxable income, incur any indebtedness or purchase any shares of our capital stock unless we have an “Asset Coverage Ratio” of at least 150% after giving effect to the payment of such dividend, the making of such distribution or the incurrence of such indebtedness. “Asset Coverage Ratio” means the ratio (expressed as a percentage) of the value of our total assets relative to the aggregate amount of its indebtedness.

We may, at our option, at any time and from time to time, on or after June 30, 2021, in the case of the June 2024 Notes, November 7, 2021, in the case of the December 2024 Notes, and September 4, 2022, in the case of the 2025 Notes, redeem such notes, in whole or in part, at a redemption price equal to 100% of the outstanding principal amount thereof plus accrued and unpaid interest to, but excluding, the date fixed for redemption. On and after any redemption date, interest will cease to accrue on the redeemed notes.

All three series of existing notes trade on the NYSE American. The June 2024 Notes trade under the symbol “SCCB”, the December 2024 Notes trade under the symbol “SACC” and the 2025 Notes trade under the symbol “SCCC”.

During 2020 we borrowed $30.1 million from Wells Fargo against our short-term securities, which had a balance of approximately $28.1 million at December 31, 2020. The outstanding balance on this loan bears interest at a rate equal to 1.75% below the prime rate. The interest rate at December 31, 2020 is 1.5%.

REIT Qualification

We believe that we have qualified as a REIT since the consummation of the IPO and that it is in the best interests of our shareholders that we operate as a REIT. We made the election to be taxed as a REIT beginning with our 2017 tax year. As a REIT, we are required to distribute at least 90% of our taxable income to our shareholders on an annual basis. We cannot assure you that we will be able to maintain REIT status.

Our qualification as a REIT depends on our ability to meet on a continuing basis, through actual investment and operating results, various complex requirements under the Code, relating to, among other things, the sources of our gross income, the composition and values of our assets, our compliance with the distribution requirements applicable to REITs and the diversity of ownership of our outstanding common shares. We cannot assure you that we will be able to maintain our qualification as a REIT.

So long as we qualify as a REIT, we, generally, will not be subject to U.S. federal income tax on our taxable income that we distribute currently to our shareholders. If we fail to qualify as a REIT in any taxable year and do not qualify for certain statutory relief provisions, we will be subject to U.S. federal income tax at regular corporate income tax rates and may be precluded from electing to be treated as a REIT for four taxable years following the year during which we lose our REIT qualification. Even if we qualify for taxation as a REIT, we may be subject to certain U.S. federal, state and local taxes on our income.

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Emerging Growth Company Status

We are an “emerging growth company”, as defined in the JOBS Act, and, for as long as we continue to be an emerging growth company, we may choose to take advantage of exemptions from various reporting requirements not applicable to other public companies but applicable to emerging growth companies, including, but not limited to, not being required to have our independent registered public accounting firm audit our internal control over financial reporting under Section 404 of the Sarbanes-Oxley Act, reduced disclosure obligations regarding executive compensation in our periodic reports and proxy statements and exemptions from the requirements of holding a nonbinding advisory vote on executive compensation and shareholder approval of any golden parachute payments not previously approved. As an emerging growth company, we can also delay adopting new or revised accounting standards until those standards apply to private companies. We intend to avail ourselves of these options. Once adopted, we must continue to report on that basis until we no longer qualify as an emerging growth company.

We will cease to be an emerging growth company upon the earliest of: (i) the end of the 2022 fiscal year; (ii) the first fiscal year after our annual gross revenue are $1.07 billion or more; (iii) the date on which we have, during the previous three-year period, issued more than $1.0 billion in non-convertible debt securities; or (iv) the end of any fiscal year in which the market value of our common shares held by non-affiliates exceeded $700 million as of the end of the second quarter of that fiscal year. We cannot predict if investors will find our common shares less attractive if we choose to rely on these exemptions. If, as a result of our decision to reduce future disclosure, investors find our common shares less attractive, there may be a less active trading market for our common shares and the price of our common shares may be more volatile.

Critical Accounting Policies and Use of Estimates

The preparation of financial statements in conformity with U.S. GAAP in the United States of America 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. We base our use of estimates on (a) a preset number of assumptions that consider past experience, (b) future projections and (c) general financial market conditions. Actual amounts could differ from those estimates.

Interest income from commercial loans is recognized, as earned, over the loan period and origination fee revenue on commercial loans is amortized over the term of the respective note.

As an “emerging growth company,” we intend to avail ourselves of the reduced disclosure requirements and extended transition periods for adopting new or revised accounting standards that would otherwise apply to us as a public reporting company. Once adopted, we must continue to report on that basis until we no longer qualify as an emerging growth company. As a result, our financial statements may not be comparable to those of other public reporting companies that either are not emerging growth companies or that are emerging growth companies but have opted not to avail themselves of the reduced disclosure requirements for emerging growth companies and investors may deem our securities a less attractive investment relative to those other companies, which could adversely affect our stock price.

Results of Operations

Years ended December 31, 2020 and 2019

Total revenue

Total revenue for the year ended December 31, 2020 was approximately $18.6 million compared to approximately $12.7 million for the year ended December 31, 2019, an increase of approximately $5.9 million, or 46.5%. The increase in revenue represented an increase in lending operations. For 2020, interest income was approximately $13.8 million, origination fees were approximately $1.9 million, other income was approximately $1.25 million, gain on sale of investment securities was approximately $900,000, investment income was approximately $400,000, processing fees were approximately $168,000, late and other fees were approximately $85,000 and net rental income was approximately $85,000. Other income in 2020 included income from borrower charges of $291,000, lender, modification, and extension fees were $672,000, in-house legal fees were $223,000 and other income was $60,000.

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In comparison, in 2019, interest income was approximately $9.8 million, origination fees were approximately $1.5 million, other income was approximately $827,000, late and other fees were approximately $265,000, processing fees were approximately $167,000, investment income was approximately $81,000, net rental income was approximately $69,000 and gain on sale of investment securities was $0.

Operating costs and expenses

Total operating costs and expenses for the year ended December 31, 2020 were approximately $9.6 million compared to approximately $6.5 million for 2019, an increase of approximately $3.1 million, or 47.7%. The increase in operating costs and expenses was primarily attributable to an increase in our indebtedness and a general increase in lending activities and our expansion into the Florida and Texas markets. Interest and amortization of deferred financing costs in 2020 were approximately $5.5 million compared to approximately $2.9 million in 2019, an increase of approximately 89%. The balance of the increase in operating expenses was attributable to (i) impairment loss, which increased approximately $378,000; (ii) compensation (including stock-based compensation), fees and taxes, which increased approximately $265,000; (iii) professional fees, which increased approximately $86,000; (iv) general and administrative expenses, which increased approximately $84,000; (v) other expenses, which increased approximately $67,000; and (vi) exchange fees, which increased approximately $5,000. These increases were offset by decreases in (i) expenses in connection with the termination of our old Webster credit facility of approximately $340,000; (ii) net loss on sale of real estate of approximately $28,000; and (iii) depreciation expense, which decreased approximately $1,700.

Net income and net income per share

Net income for 2020 was approximately $9.0 million compared to approximately $6.2 million for 2019, an increase of approximately $2.8 million or 45%. Our net income per weighted average common share outstanding for 2020 was $0.41 compared to $0.32 for 2019.

Liquidity and Capital Resources

Total assets at December 31, 2020 were approximately $226.7 million compared to approximately $141.2 million at December 31, 2019, an increase of approximately $85.5 million, or 61%. The increase was due primarily to the growth in our mortgage loan portfolio, which increased approximately $61.3 million, an approximately $21.9 million increase in cash and short-term marketable securities, an approximately $1.2 million increase in due from borrowers, an approximately $600,000 increase in real estate owned, an approximately $375,000 increase in receivables, an approximately $87,000 increase in property and equipment, an approximately $56,000 increase in deferred financing costs and an approximately $47,000 increase in prepaid expenses. The increase in real estate owned is due, in part, to the fact that we capitalized past due real estate taxes that we paid, costs to repair and maintain property, legal costs to secure title and finally costs to prepare the property for sale.

Total liabilities at December 31, 2020 were approximately $145.8 million compared to approximately $58.7 million at December 31, 2019, an increase of approximately $87.1 million, or approximately 148%. This increase is principally due to an overall increase in our total indebtedness, which at December 31, 2020, was approximately $138.7 million compared to approximately $56.3 million at December 31, 2019 (in each case, net of deferred financing costs), an increase of $82.5 million. The balance of the increase was attributable to an increase in advances from borrowers of approximately $980,000, an increase in deferred revenue of approximately $894,000, an increase in accounts payable and accrued expenses of approximately $123,000 and accrued dividends payable of approximately $2.7 million which were paid in January 2021.

Total shareholders’ equity at December 31, 2020 was approximately $81.0 million compared to approximately $82.6 million at December 31, 2019, a decrease of approximately $1.6 million. This decrease was due primarily to the difference between our net income of approximately $9.0 million and the aggregate of dividends paid and dividends declared of $10.6 million.

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Net cash provided by operating activities in 2020 was approximately $ 9.6 million compared to approximately $8.1 million in 2019. For 2020, net cash from operating activities was primarily the result of net income of approximately $9.0 million, amortization of deferred financing costs of approximately $602,000, an impairment loss of $795,000, decreases in other receivables of approximately $74,000 and deposits on property and equipment of approximately $72,000, increases in deferred revenue of approximately $894,000, advances from borrowers of approximately $982,000 and accounts payable and accrued expenses of approximately $122,000, offset by a gain on sale of marketable securities of approximately $903,000, and increases in interest and fees receivable of approximately $505,000, and amounts due from borrowers of approximately $1.5 million. For 2019, net cash from operating activities was primarily the result of net income of approximately $6.2 million, the write-off and amortization of deferred financing costs of approximately $723,000, impairment loss of approximately $417,000, a decrease in the amounts due from borrowers of approximately $385,000 and increases in deferred revenue of approximately $147,000 and advances from borrowers of approximately $531,000, all of which were offset by an increase in interest and fees receivable of approximately $154,000 and a decrease in accrued interest of approximately $173,000.

Net cash used for investing activities for 2020 year was approximately $82.8 million compared to approximately $37.8 million in net cash used for 2019. For 2020, the major contributors to net cash used for investing activities were the purchase of investments of approximately $97.6 million, acquisitions of and improvements to real estate owned of approximately $1.8 million and principal disbursements on mortgages receivable of approximately $117.2 million. These amounts were offset by proceeds from the sales of investments of approximately $77.1 million, proceeds from the sale of real estate owned of approximately $1.8 million, and principal collections on mortgages receivable of approximately $55.0 million. For 2019, the major contributors to net cash used for investing activities were purchase of marketable securities of approximately $16.0 million, principal disbursements for mortgages receivable of approximately $64.7 million and acquisitions and improvements to real estate of approximately $1.3 million. These amounts were offset by principal collections on mortgages receivable of approximately $43.3 million and proceeds from sale of real estate of approximately $1.1 million. Marketable securities were purchased with the net proceeds from our various securities offerings pending their use to originate new mortgage loans.

Net cash provided by financing activities for 2020 year was approximately $73.8 million compared to approximately $48.4 million for 2019. Net cash provided by financing activities for the 2020 consisted primarily of proceeds from the Wells Fargo line of credit of approximately $30.1 million, gross proceeds from the sale of our fixed rate notes of approximately $56.1 million (after taking into account the original issuance discount) and proceeds from other loans of approximately $258,000 offset by dividends paid of approximately $7.96 million, the repayment of our credit line in the amount of $2.0 million , financing costs incurred of approximately $2.52 million and principal payments on our notes and mortgage payable of approximately $37,000. Net cash provided by financing activities for 2019 consisted primarily of proceeds from our equity offerings of approximately $30.5 million and from our sale of our unsecured, unsubordinated notes of approximately $58.2 million offset by deferred financing costs of $2.9 million, proceeds from our credit facility of approximately $42.7 million offset by repayments under that facility of approximately $69.9 million, dividends paid of approximately $9.7 million and net repayments of $1.2 million on notes due to shareholder.

We project anticipated cash requirements for our operating needs as well as cash flows generated from operating activities available to meet these needs. Our short-term cash requirements primarily include funding of loans, dividend payments, interest payments on our indebtedness and payments for usual and customary operating and administrative expenses, such as employee compensation and sales and marketing expenses. Based on this analysis, we believe that our current cash balances, and our anticipated cash flows from operations will be sufficient to fund the operations for the next 12 months.

Our long-term cash needs will include principal payments on outstanding indebtedness and funding of new mortgage loans. Funding for long-term cash needs will come from unused net proceeds from financing activities, operating cash flows and proceeds from sales of real estate owned.

From and after the effective date of our REIT election, we intend to pay regular quarterly distributions to holders of our common shares in an amount not less than 90% of our REIT taxable income (determined before the deduction for dividends paid and excluding any net capital gains).

Subsequent Events

On January 8, 2021, we paid a dividend of $0.12 per share, or $2,654,976 in the aggregate, to shareholders of record as of December 31, 2020.

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On January 15, 2021, we sold a property classified as real estate held for sale at December 31, 2020 receiving $360,424 in net proceeds. We recognized an impairment loss of $42,067 as of December 31, 2020 in connection with this property.

On February 19, 2021, we paid off the Bankwell mortgage securing our corporate office in Branford Connecticut.

In March 2021, we sold an aggregate of 234,051 common shares under an at-the-market offering facility realizing gross proceeds of approximately $1.2 million, all of which are due to settle by March 31, 2021.

Off-Balance Sheet Arrangements

We are not a party to any off-balance sheet transactions, arrangements or other relationships with unconsolidated entities or other persons that are likely to affect liquidity or the availability of our requirements for capital resources.

Contractual Obligations

As of December 31, 2020, our contractual obligations include unfunded amounts of any outstanding construction loans and unfunded commitments for loans as well as contractual obligations consisting of operating leases for equipment and software licenses.

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​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​

​ ​ ​ ​ ​ Less than ​ 1 – 3 ​ 3 – 5 ​ More than

​ Total 1 year years years 5 years

Unfunded loan commitments ​ — ​ — ​ — ​ — ​ —

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Recent Accounting Pronouncements

See ‘‘Note 2 — Significant Accounting Policies’’ to the financial statements for explanation of recent accounting pronouncements impacting us.

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Item 7A. Quantitative and Qualitative Disclosures about Market Risk

We are a “smaller reporting company” as defined by Regulation S-K and, as such, are not required to provide the information required by this item.

Item 8. Financial Statements and Supplementary Data

The financial statements required by this Item are set forth beginning on page F-1.

Item 9. Change in and Disagreements with Accountants on Accounting and Financial Disclosure

None.

Item 9A. Controls and Procedures

Evaluation of Disclosure Controls and Procedures

Our management, with the participation of John L. Villano, our chief executive and chief financial officer, evaluated the effectiveness of our disclosure controls and procedures (as defined in Rule 13a-15(e) and 15d-15(e) under the Exchange Act) as of December 31, 2020 (the “Evaluation Date”). Based upon that evaluation, Mr. Villano concluded that, as of the Evaluation Date, our disclosure controls and procedures are effective to ensure that information required to be disclosed by us in the reports that we file or submit under the Exchange Act (i) are recorded, processed, summarized and reported, within the time periods specified in the SEC’s rules and forms and (ii) are accumulated and communicated to our management, including our chief executive and chief financial officer, as appropriate to allow timely decisions regarding required disclosure.

Management’s Annual Report on Internal Control Over Financial Reporting

Management is responsible for establishing and maintaining adequate internal control over financial reporting and for the assessment of the effectiveness of internal control over financial reporting. As defined by the SEC, internal control over financial reporting is defined in Rule 13a-15(f) or 15d-15(f) promulgated under the Exchange Act as a process designed by, or under the supervision of John L. Villano, our principal executive and principal financial officer, and effected by the board of directors, management and other personnel, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. Our internal control over financial reporting is supported by written policies and procedures that: (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of our assets; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles and that our receipts and expenditures are being made only in accordance with authorizations of our management and directors; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of our assets that could have a material effect on the financial statements.

Our internal control system was designed to provide reasonable assurances to our management and the board of directors regarding the preparation and fair presentation of published financial statements. All internal control systems, no matter how well designed, have inherent limitations which may not prevent or detect misstatements. Therefore, even those systems determined to be effective can provide only reasonable assurance with respect to financial statement preparation and presentation. Projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

Management conducted an evaluation of the effectiveness of our internal control over financial reporting as of December 31, 2020. In making this assessment, management used the framework set forth in the report entitled Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission, or COSO (the “COSO Framework”). The COSO Framework summarizes each of the components of a company’s internal control system, including (i) the control environment, (ii) risk assessment, (iii) control activities, (iv) information and communication, and (v) monitoring. Based on this evaluation, management concluded that our internal control over financial reporting was effective as of December 31, 2020.

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This Report does not include an attestation report of our independent registered public accounting firm regarding internal control over financial reporting. Management’s report was not subject to attestation by our independent registered public accounting firm pursuant to rules of the SEC that permit us to provide only management’s report in this Report.

Changes in Internal Control Over Financial Reporting

There was no change in our internal control over financial reporting (as defined in Rules 13a-15(f) or 15d-15(f) under the Exchange Act) identified in connection with the evaluation required by Rules 13a-15(d) or 15d-15(d) that occurred during the fiscal quarter ended December 31, 2020 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

Item 9B. Other Information

None.

PART III

Item 10. Directors, Executive Officers and Corporate Governance.

Our directors are elected annually by our shareholders and serve for one-year terms until his/her successor is elected and qualified or until such director’s earlier death, resignation or removal. The executive officers and key personnel are appointed by and serve at the pleasure of the board of directors.

Our executive officers and directors, and their respective ages as of March 25, 2021, are as follows:

​ ​

Name Age Position

Peter J. Cuozzo ​ 60 ​ Executive Vice President and Chief Operating Officer

Leslie Bernhard(1, 2) ​ 77 ​ Director

Arthur L. Goldberg(1, 3) ​ 82 ​ Director

Brian A. Prinz(1, 4) ​ 68 ​ Director

(2) Chair of the Compensation Committee.

(3) Chair of the Audit Committee.

(4) Chair of the Nominating and Corporate Governance Committee.

Set forth below is a brief description of the background and business experience of our executive officers and directors:

John L. Villano, is Chairman of the Board, Chief Executive Officer, President, Chief Financial Officer and Treasurer. Mr. Villano is one of our founders. At the time of our IPO, he became our Chairman, co-Chief Executive Officer, Chief Financial Officer and Secretary. In November 2019, upon the resignation of his brother, Jeffrey C. Villano, he was appointed Chairman, Chief Executive Officer, President, Chief Financial Officer and Treasurer. Mr. Villano is a certified public accountant and was engaged in the private practice of accounting and auditing for almost 30 years. He became a full-time employee and a director as of February 8, 2017. His responsibilities include overseeing all aspects of our business operations, including loan origination and servicing, investor relations, brand development and business development. He is also responsible for all our accounting and financial matters. Mr. Villano holds a bachelor’s degree in Accounting from the University of Rhode Island in 1982. We believe that Mr. Villano’s experience in managing our business for the last seven years and his professional background as a certified public accountant make him an important part of our management team and make him a worthy candidate to serve on the board of directors.

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Peter J. Cuozzo, is Executive Vice President and Chief Operating Officer since July 2020. He is an experienced business executive and professional educator with nearly 40 years diverse background as a corporate officer, senior HR leader, CEO advisor, chief learning and talent officer, organization development partner, executive coach, and entrepreneur. From 2007 to June 30, 2020, Dr. Cuozzo was a managing partner of Cuozzo Enterprises LLC, a management consulting firm specializing in organizational effectiveness, executive and leadership development, talent management, and employee engagement. From 2017 to 2020, he was also serving as a vice president of TBC Corporation, one of North America’s largest marketers of automotive replacement tires. From 2013 to 2017, he was a managing partner of Americana Memories LLC, a buyer and seller of vintage memorabilia and collectibles for both the wholesale and retail marketplace. Prior to that, from 2011 to 2013, he was a managing partner of Sachem Capital Partners LLC, our predecessor. Dr. Cuozzo earned both a doctorate and masters in adult and workplace education from Columbia University’s Teachers College (USA). He also holds an MBA from the University of Bridgeport (USA) and a Bachelor of Arts degree from the University of Notre Dame (USA).

Leslie Bernhard became a member of the board of directors as of February 9, 2017. She has served as the non-executive chairman of the board of directors of Milestone Scientific Inc. (NYSE American: MLSS), a developer and manufacturer of medical and dental devices, since October 2009, and an independent director of Milestone since May 2003. She also served as interim chief executive officer of Milestone from October 2017 to December 2017. From 2007 through September 2018, Ms. Bernhard has also served as an independent director of Universal Power Group, Inc., a global supplier of power solutions (“UPG”), and since September 2018 she has been serving as a consultant to UPG. In 1986 she co-founded AdStar, Inc., an electronic ad intake service to the newspaper industry, and served as its president, chief executive officer and executive director until 2012. Ms. Bernhard holds a BS Degree in Education from St. John’s University. We believe that Ms. Bernhard’s experience as an entrepreneur and her service as a director of other public corporations will enable her to make an important contribution to the board of directors.

Arthur L. Goldberg became a member of the board of directors as of February 9, 2017. He has been a private accounting and business consultant since April 2012. From March 2011 through June 2015, he served as a director of Sport Haley Holdings, Inc., a manufacturer and distributor of sportswear and furniture. From January 2008 through March 2013, he served as a member of the board of directors of directors of SED International Holdings, Inc. (OTC: SEDN), a distributor of consumer electronics. From January 2008 through March 2012, he served as the chief financial officer of Clear Skies Solar, Inc., an installer of solar panels. Mr. Goldberg has held senior executive positions, including chief financial officer and chief operating officer, and served as a director of several public companies. From January 2008 through June 2008, he served as the chief financial officer of Milestone Scientific, Inc. (NYSE American: MLSS), a developer and manufacturer of medical and dental devices. From June 1999 through April 2005, Mr. Goldberg was a partner with Tatum CFO Partners, LLP which provided interim CFO staffing services for public and private companies. Mr. Goldberg is an attorney and a certified public accountant and holds a B.B.A. degree from the City College of New York, an M.B.A. from the University of Chicago and J.D. and LLM degrees from the New York University School of Law. Mr. Goldberg was selected as a director because of his experience as the senior executive, operations and financial officer of several public companies and because of his background in law and accounting. We believe that his background and experience will provide the board of directors with a perspective on corporate finance matters. Given his financial experience, the board of directors has also determined that Mr. Goldberg qualifies as the Audit Committee financial expert, pursuant to Item 407(d)(5) of Regulation S-K promulgated by the SEC.

Brian A. Prinz became a member of the board of directors as of February 9, 2017. Since 1976, Mr. Prinz has been employed by Current, Inc., a leading manufacturer of laminated products including sheeting, tubes, rods, spacers and standoffs, as well as electrical grade laminates, a variety of carbon fiber products and other industrial products, which are used in various industries including construction, recreation, energy exploration and defense. Since 2011, Mr. Prinz has served as president and chief financial officer. Mr. Prinz graduated from Bryant College with a B.A. in 1976. We believe that his background and experience make him well qualified to serve as a member of the board of directors.

Director Independence and Committees of the Board of Directors

The members of the Board of directors are John L. Villano, Leslie Bernhard, Arthur Goldberg and Brian Prinz. The board of directors has determined, in accordance with the NYSE American LLC Company Guide, that: (i) Ms. Bernhard and Messrs. Goldberg and Prinz are independent and represent a majority of the directors; and (ii) Ms. Bernhard and Messrs. Goldberg and Prinz, as the members of the Audit Committee, the Nominating and Corporate Governance and Compensation Committee, are independent for such purposes. In determining director independence, the board of directors applies the independence standards set by NYSE American. In applying these standards, the board of directors considers all transactions with the independent directors and the impact of such transactions, if any, on any of the independent directors’ ability to continue to serve on the board of directors.

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We have three standing committees: an Audit Committee, a Compensation Committee and a Nominating and Corporate Governance Committee. Each committee is made up entirely of independent directors as defined under the NYSE American LLC Company Guide. Mr. Goldberg is the chairman of the Audit Committee and qualifies as the “audit committee financial expert” pursuant to Item 407(d)(5) of Regulation S-K; Ms. Bernhard is the chairman of the Compensation Committee; and Mr. Prinz is the chairman of the Nominating and Corporate Governance Committee. As members of the committees, independent directors meet without the presence of non-independent directors in executive session.

Audit Committee. The Audit Committee oversees our accounting and financial reporting processes, internal systems of accounting and financial controls, relationships with auditors and audits of financial statements. Specifically, the Audit Committee’s responsibilities include the following:

● selecting, hiring and terminating our independent auditors;

● preparing the report that the SEC requires in our annual proxy statement.

Compensation Committee. The Compensation Committee assists the board of directors in determining the compensation of our officers and directors. The Compensation Committee is comprised entirely of directors who satisfy the standards of independence applicable to compensation committee members established under 162(m) of the Code and Section 16(b) of the Exchange Act. Specific responsibilities include the following:

● approving the compensation and benefits of our executive officers;

Nominating and Corporate Governance Committee. The Corporate Governance and Nominating Committee assists the board of directors by identifying and recommending individuals qualified to become members of the board of directors. Specific responsibilities include the following:

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Section 16(a) Beneficial Ownership Reporting Compliance

Section 16(a) of the Exchange Act requires our officers and directors, and persons who own more than 10% of a registered class of our equity securities to file reports of ownership and changes in ownership with the SEC. Officers, directors and greater than ten percent (10%) shareholders are required by SEC regulations to furnish us with copies of all Section 16(a) forms they file.

To the best of our knowledge, based solely on review of the copies of such forms furnished to us, or written representations that no other forms were required, we believe that all Section 16(a) filing requirements applicable to its officers, directors and greater than 10% shareholders were complied with during the year ended December 31, 2020 except as set forth below.

Delinquent Section 16(a) Reports

During the year ended December 31, 2020, Brian Prinz, a director, was late in the filing of one Statements of Changes in Beneficial Ownership on Form 4.

Code of Ethics

We have adopted a code of ethics that applies to our directors, principal executive officer, principal financial officer and other persons performing similar functions. The Code of Ethics is posted on our web site at www.sachemcapitalcorp.com. We will also provide a copy of the Code of Ethics to any person without charge, upon written request addressed to John L. Villano at our principal executive office, located at 698 Main Street, Branford, CT 06405.

Item 11. Executive Compensation.

The following Summary Compensation Table sets forth all compensation earned by or paid to, in all capacities, during the years ended December 31, 2020 and 2019 (i) all individuals serving as our principal executive officer during the last completed fiscal year; (ii) our two most highly compensated executive officers other than our principal executive officer who were serving as executive officers at the end of the last completed fiscal year; and (iii) up to two additional individuals for whom disclosure would have been provided pursuant to paragraph (ii) but for the fact that the individual was not serving as an executive officer of our company at the end of the last completed fiscal year (the ‘‘Named Executives’’):

​

Summary Compensation Table

​

​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​

Name and Principal Position Year Salary Bonus Total

​ ​ ​ ​ ($) ($) ($)

John L. Villano ​ ​

Officer, President, Chief Financial Officer, ​ ​ ​ ​ ​ ​ ​ ​

Peter J. Cuozzo* ​ ​

Executive Vice President and Chief Operating ​ ​ ​ ​ ​ ​ ​ ​

*Effective as of July 1, 2020, Mr. Cuozzo was hired as our executive vice president and chief operating officer.

Employment Agreements — John L. Villano

In August 2016, in anticipation of our initial public offering, we entered into an employment agreement with John L. Villano. The material terms of Mr. Villano’s employment agreement are as follows.

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Termination and Change of Control Arrangement

Mr. Villano’s employment agreement provides that we may terminate his employment at any time with or without cause. It also provides that his employment will terminate upon his death or disability. If we terminate his employment for cause, we are only liable for his base salary and benefits through the date of termination. In addition, he will not forfeit any rights to payments, options or benefits that have vested or have been earned or to which he is entitled as of the date of termination. If we terminate his employment without cause or the agreement terminates due to Mr. Villano’s death or disability or if Mr. Villano terminates his employment for “Good Reason” (as defined in the employment agreement), he is also entitled to receive: (i) a lump sum payment equal to 48 times his monthly salary on the date of termination; (ii) any deferred compensation or accrued vacation pay; (iii) continuation for a 12-month period after termination of health and welfare and long-term disability benefits; and (iv) a pro rata share of any incentive compensation and any other compensation or benefits to which he would have been entitled had he not been wrongfully terminated.

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Good Reason includes a “change in control” with respect to us. A “change in control” means (1) if we merge into another corporation and, as a result of such merger, our shareholders immediately prior to such merger own less than 50% of the surviving corporation; (2) we sell, lease or otherwise dispose of all or substantially all of our assets; (3) the acquisition of beneficial ownership, directly or indirectly, of our common shares or any other securities having voting rights that we may issue in the future, rights to acquire our voting securities (including, without limitation, securities that are convertible into voting securities and rights, options warrants and other agreements or arrangements to acquire such voting securities) by any person, corporation or other entity or group thereof acting jointly, in such amount or amounts as would permit such person, corporation or other entity or group thereof acting jointly to elect a majority of the members of the board of directors, as then constituted; or (4) the acquisition of beneficial ownership, directly or indirectly, of voting securities and rights to acquire voting securities having voting power equal to 40% or more of the combined voting power of our then outstanding voting securities by any person, corporation or other entity or group thereof acting jointly unless such acquisition is expressly approved by resolution of the board of directors passed upon affirmative vote of not less than a majority of the board of directors and adopted at a meeting of the board of directors held not later than the date of the next regularly scheduled or special meeting held following the date we obtain actual knowledge of such acquisition (which approval may be limited in purpose and effect solely to affecting the rights of the executive under his employment agreement). Notwithstanding the preceding sentence, any transaction that involves a mere change in identity form or place of organization within the meaning of Section 368(a)(1)(F) of the Code, or a transaction of similar effect, will not constitute a “change in control.”

Employment Agreement — Peter J. Cuozzo

On July 7, 2020, we entered into an employment agreement with Peter J. Cuozzo, our executive vice president and chief operating officer, effective as of July 1, 2020. The material terms of the employment agreement are as follows.

● His base compensation is $250,000 per year.

● He was paid a signing bonus of $25,000.

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Outstanding Equity Awards at December 31, 2020

None.

Compensation of Directors

Our non-employee director compensation plan, as amended and effective on October 1, 2019 (the “Director Plan”), provides as follows:

The Named Executives, who are also directors, do not receive additional compensation in connection with their positions as members of the board of directors.

The following table provides compensation information for the year ended December 31, 2020 for each of our non-employee directors.

​

​ ​ ​ ​ ​ ​ ​ ​ ​ ​

​ ​ Fees Earned or Paid ​ ​ ​ ​ ​ ​

​ in Cash Stock Awards Total

Name ​ ($) ​ ($)(1) ​ ($)

​

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Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Shareholder Matters

The following table, together with the accompanying footnotes, sets forth information, as of March 25, 2021, regarding stock ownership of all persons known by us to own beneficially more than 5% of our outstanding common shares, Named Executives, all directors, and all directors and officers of Sachem Capital as a group:

​

​ ​ ​ ​ ​ ​

​ Number of Common ​

​ ​ Shares Beneficially ​ Percentage of ​

Name of Beneficial Owner(1) Owned(2) Class(3) ​

Executive Officers and Directors ​ ​ ​ ​ ​

Leslie Bernhard 4,889 * ​

Arthur L. Goldberg 17,628 * ​

Peter J. Cuozzo ​ 18,594 ​ * ​

All officers and directors as a group (5 persons) 1,648,744 7.45 %

Greater than 5% Shareholders ​ ​ ​ ​ ​

*Less than 1%.

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Equity Compensation Plan Information

On October 27, 2016, we adopted the 2016 Equity Compensation Plan (the “Plan), the purpose of which is to align the interests of our officers, other employees, advisors and consultants or any subsidiary, if any, with those of our shareholders and to afford an incentive to such officers, employees, consultants and advisors to continue as such, to increase their efforts on our behalf and to promote the success of our business. The basis of participation in the Plan is upon discretionary grants of awards by the board of directors. The Plan is administered by the Compensation Committee. The maximum number of common shares reserved for the grant of awards under the Plan is 1,500,000, subject to adjustment as provided in Section 5 of the Plan. Approximately fifteen individuals are eligible to participate in the Plan including, our two executive officers, ten other employees and three independent directors.

​

​ ​ ​ ​ ​ ​ ​

​ ​ ​ Number of securities

​ ​ ​ ​ ​ ​ remaining available for

​ ​ Number of securities ​ Weighted-average ​ future issuance under

​ ​ to be issued upon ​ exercise price of ​ equity compensation

​ ​ exercise of ​ outstanding ​ plans (excluding

​ ​ outstanding options, ​ options, warrants ​ securities reflected in

Plan category warrants and rights and rights column (a)

​ (a) (b) (c)

​

During the fiscal year ended December 31, 2020, we granted an aggregate of 7,500 restricted common shares under the Plan.

Types and Terms of Awards

Awards under the Plan may take the form of stock options (either incentive stock options or non- qualified stock options) or restricted shares. Subject to restrictions that are set forth in the Plan, the Compensation Committee will have complete and absolute authority to set the terms, conditions and provisions of each award, including the size of the award, the exercise or base price, the vesting and exercisability schedule (including provisions regarding acceleration of vesting and exercisability) and termination and forfeiture provisions.

The Compensation Committee is subject to the following specific restrictions regarding the types and terms of awards:

No stock option can be “repriced” without the consent of the shareholders and of the option holder if the effect would be to reduce the exercise price per share.

Amendment and Termination of the Plan

The Plan expires on the tenth anniversary of the date of its adoption by the board of directors. Prior to the expiration date, the board of directors may at any time, and from time to time, suspend or terminate the Plan in whole or in part or amend it from time to time; provided, however, that unless otherwise determined by the board of directors, an amendment that requires shareholder approval in order for the Plan to continue to comply with Section 162(m) or any other law, regulation or stock exchange requirement shall not be effective unless approved by the requisite vote of shareholders. Notwithstanding the foregoing, no amendment to or termination of the Plan shall affect adversely any of the rights of any grantee under any outstanding award granted under the Plan without such grantee’s consent.

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Exercise Price of an Option Granted Under the Plan

The exercise price of an option granted under the Plan may be no less than the fair market value of a common share on the date of grant, unless, with respect to nonqualified stock options that are not intended as incentive stock options within the meaning of Section 422 of the Code from time to time, otherwise determined by the Compensation Committee. However, incentive stock options granted to a ten percent shareholder must be priced at no less than 110% of the fair market value of our common shares on the date of grant and their term may not exceed five years. All options granted under the Plan are for a term of no longer than ten years unless otherwise determined by the Compensation Committee. The Compensation Committee also determines the exercise schedule of each option grant.

Federal Income Tax Consequences

The following is a summary of the effect of federal income taxation upon the recipients and us with respect to the shares under the Plan and does not purport to be complete.

Non-qualified Stock Options. The grant of non-qualified stock options will have no immediate tax consequences to us or the grantee. The exercise of a non-qualified stock option will require a grantee to include in his gross income the amount by which the fair market value of the acquired shares on the exercise date (or the date on which any substantial risk of forfeiture lapses) exceeds the option price. Upon a subsequent sale or taxable exchange of the shares acquired upon exercise of a non-qualified stock option, a grantee will recognize long or short-term capital gain or loss equal to the difference between the amount realized on the sale and the tax basis of such shares. We will be entitled (provided applicable withholding requirements are met) to a deduction for Federal income tax purposes at the same time and in the same amount as the grantee is in receipt of income in connection with the exercise of a non-qualified stock option.

Incentive Stock Options. The grant of an incentive stock option will have no immediate tax consequences to us or our employee. If the employee exercises an incentive stock option and does not dispose of the acquired shares within two years after the grant of the incentive stock option nor within one year after the date of the transfer of such shares to him (a “disqualifying disposition”), he will realize no compensation income and any gain or loss that he realizes on a subsequent disposition of such shares will be treated as a long-term capital gain or loss. For purposes of calculating the employee’s alternative minimum taxable income, however, the option will be taxed as if it were a non-qualified stock option.

Restricted Shares. Generally, unless the participant elects, pursuant to Section 83(b) of the Code to recognize income in the taxable year in which restricted shares have been awarded, the participant is required to recognize income for federal income tax purposes in the first taxable year during which the participant’s rights over the restricted shares are transferable or are not subject to a substantial risk of forfeiture, whichever occurs earlier. At such time, we will be entitled (provided applicable withholding requirements are met) to a deduction for Federal income tax purposes except to the extent that such participant’s total compensation for the taxable year exceeds $1.0 million, in which case such deduction may be limited by Section 162(m) of the Code unless any such grant of restricted shares is made pursuant to a performance-based benchmark established by the Compensation Committee.

As of December 31, 2020, there were no options granted under the Plan.

Item 13. Certain Relationships and Related Transactions and Director Independence.

In March 2019 we relocated our principal offices to 698 Main Street, Branford, Connecticut upon the completion of renovations. Prior to March 2019, our principal offices were located at 23 Laurel Street, Branford, Connecticut, a property owned by Union News of New Haven, Inc. Jeffrey C. Villano is the chief executive officer of Union News and owns 20% of its outstanding stock. The other 80% is owned by his and John L. Villano’s mother, Shirley Villano. The rent payable to Union News was $1,500 per month.

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During 2019 one loan to JJV, LLC (“JJV”), the managing member of Sachem Capital Partners, LLC, the entity through which we conducted our business prior to our IPO, in the amount of $298,222 was refinanced by the borrower and the other loan was assigned from JJV to us in the amount of $581,235. The principal balance of the loans to JJV at December 31, 2020 and 2019 were $-0-, respectively. Interest paid to us by JJV for years ended December 31, 2020 and 2019 was approximately $-0- and $44,000, respectively. These loans were made in connection with JJV’s purchase of real property from third parties who, for various reasons, did not meet our loan criteria. We believe that the terms of these loans are no less beneficial to us than they would have been if we made the loans to unrelated third parties and are all properly documented.

We have adopted a policy that prohibits any transaction between us and a related party unless the terms of that transaction are no less favorable to us than if we had entered into the same transaction with an unrelated party and the transaction is approved by our Audit Committee or other independent committee of the board of directors, in the case where it is inappropriate for our Audit Committee to review such a transaction due to a conflict of interest.

Item 14. Principal Accounting Fees and Services

The aggregate fees billed by Hoberman & Lesser, CPA’s, LLP, our principal accounting firm, for the fiscal years ended December 31, 2020 and 2019, are set forth below.

​

​ ​ ​ ​ ​ ​ ​

Audit related fees ​ — ​ —

Tax fees ​ — ​ —

All other fees ​ — ​ —

· In 2020, the audit fees include fees for professional services rendered for (i) the review of our quarterly financial statements, (ii) in connection with our shelf registration statement (File No. 333-236097) on Form S-3 under the Securities Act of 1933, as amended which was declared effective by the SEC on February 5, 2020, (iii) the review of three separate prospectus supplements to our shelf registration statement on Form S-3, described below, and (iv) other services that are normally provided in connection with statutory and regulatory filings.

​

· In 2019, the audit fees include fees for professional services rendered for (i) the review of our quarterly financial statements, (ii) the review of four separate prospectus supplements to our shelf registration statement on Form S-3, described below, and (iii) other services that are normally provided in connection with statutory and regulatory filings.

​

Audit Committee Pre-Approval Policies and Procedures

The Audit Committee charter provides that the Audit Committee will pre-approve audit services and non- audit services to be provided by the independent auditors before the accountant is engaged to render these services. The Audit Committee may consult with management in the decision-making process but may not delegate this authority to management. The Audit Committee may delegate its authority to preapprove services to one or more committee members, provided that the designees present the pre-approvals to the full committee at the next committee meeting. All audit and non-audit services performed by the independent accountants must be pre-approved by the Audit Committee to assure that such services do not impair the auditors’ independence from us.

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PART IV

Item 15. Exhibits and Financial Statement Schedules

(a) 1. Financial Statements — See Index to Financial Statements on page F-1.

​ 2. Financial Statement Schedules — See (c) below.

​ 3. Exhibits — See (b) below.

​ ​ ​

​

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ExhibitNo. Description

2.1 ​ Form of Amended and Restated Exchange Agreement(1)

3.1 ​ Certificate of Incorporation(1)

3.1(a) ​ Certificate of Amendment to Certificate of Incorporation(1)

3.2 ​ Amended and Restated Bylaws, effective as of November 25, 2019(3)

4.10 ​ Form of 7.75% Notes due 2025 (included as Exhibit A to Exhibit 4.9 above)

10.2 ​ Sachem Capital Corp. 2016 Equity Compensation Plan(1)

21.1 ​ List of Subsidiaries(12)

23.1 ​ Consent of Hoberman & Lesser CPA’s, LLP, dated March 30, 2021*

101.INS ​ XBRL Instance Document *

101.SCH ​ XBRL Taxonomy Extension Schema Document *

101.CAL ​ XBRL Taxonomy Extension Calculation Linkbase Document *

101.DEF ​ XBRL Taxonomy Extension Definition Linkbase Document *

101.LAB ​ XBRL Taxonomy Extension Label Linkbase Document *

101. PRE ​ XBRL Taxonomy Extension Presentation Linkbase Document *

* Filed herewith.

*** Furnished, not filed, in accordance with item 601(32)(ii) of Regulation S-K.

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(c) No financial statement schedules are included because the information is either provided in the financial statements or is not required under the related instructions or is inapplicable and such schedules therefore have been omitted.

Item 16. Form 10-K Summary

None.

​

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SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this Report to be signed on its behalf by the undersigned, thereunto duly authorized.

​ SACHEM CAPITAL CORP.

​ By: /s/ John L. Villano

​ ​ John L. Villano, CPA

​ ​ Chief Executive Officer

​ ​ (Principal Executive Officer)

​ ​ ​

​

In accordance with the Exchange Act, this Report has been signed below by the following persons on behalf of the Registrant and in the capacities indicated on March 30, 2021:

Signature Title

​ ​ ​

/s/ John L. Villano ​ Chairman, Chief Executive Officer, President Chief

John L. Villano, CPA ​ Financial Officer and Director (Principal Executive

​ ​ Officer & Principal Financial Officer)

​ ​ ​

/s/ Leslie Bernhard ​ Director

Leslie Bernhard ​ ​

​ ​ ​

/s/ Arthur L. Goldberg ​ Director

Arthur L. Goldberg ​ ​

​ ​ ​

/s/ Brian A. Prinz ​ Director

Brian A. Prinz ​ ​

​

​

​

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INDEX TO FINANCIAL STATEMENTS

FOR THE YEARS ENDED DECEMBER 31, 2020 AND 2019

Reports of Independent Registered Public Accounting Firms F-2

Financial Statements: ​

Balance Sheets F-3

Statements of Operations F-4

Statements of Changes in Shareholders’ Equity F-5

Statements of Cash Flows F-6

Notes to Financial Statements F-8

​

​

​

F-1

Table of Contents

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and Shareholders

Sachem Capital Corp.

Opinion on the Financial Statements

We have audited the accompanying balance sheets of Sachem Capital Corp. (the “Company”) as of December 31, 2020 and 2019, and the related statements of comprehensive income, changes in shareholders’ equity, and cash flows for each of the years in the two-year period ended December 31, 2020, and the related notes (collectively referred to as the financial statements). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2020 and 2019, and the results of its operations and its cash flows for each of the years in the two-year period ended December 31, 2020, in conformity with accounting principles generally accepted in the United States of America.

Basis of Opinion

These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits, we are required to obtain an understanding of internal control over financial reporting, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.

Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.

We have served as the Company’s auditor since 2015.

​ /s/ Hoberman & Lesser CPA’s, LLP

​ Hoberman & Lesser CPA’s, LLP

​ ​

New York, New York ​

​

​

​

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Table of Contents

SACHEM CAPITAL CORP

BALANCE SHEETS

​

​ ​ ​ ​ ​ ​ ​

​ ​ December 31,

Assets ​ ​ ​

Assets: ​ ​ ​

Deposits on property and equipment ​ — ​ 71,680

​ ​ ​ ​ ​ ​ ​

Liabilities and Shareholders' Equity ​ ​

Liabilities: ​ ​

Accrued dividends payable ​ ​ 2,654,977 ​ ​ —

​ ​ ​ ​ ​ ​ ​

Commitments and Contingencies ​ ​

​ ​ ​ ​ ​ ​ ​

Shareholders’ equity: ​ ​

Accumulated other comprehensive loss ​ ​ (25,992) ​ ​ (50,878)

​

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

​

F-3

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SACHEM CAPITAL CORP.

STATEMENTS OF OPERATIONS

​

​ ​ ​ ​ ​ ​ ​

​ ​ Year Ended

​ ​ December 31,

Revenue: ​ ​

Gain on sale of marketable securities ​ ​ 903,257 ​ ​ —

​ ​ ​ ​ ​ ​ ​

Operating costs and expenses: ​ ​

Interest and amortization of deferred financing costs ​ 5,547,406 ​ 2,938,237

Expense in connection with termination of credit facility ​ ​ — ​ ​ 340,195

Net loss on sale of real estate ​ ​ 7,218 ​ ​ 34,919

​ ​ ​ ​ ​ ​ ​

Other comprehensive income (loss) ​ ​ ​ ​ ​ ​

Unrealized gain (loss) on investment securities ​ ​ 24,886 ​ ​ (50,878)

Basic and diluted net income per common share outstanding: ​ ​ ​ ​ ​ ​

Weighted average number of common shares outstanding: ​ ​

​

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

​

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Table of Contents

SACHEM CAPITAL CORP.

STATEMENT OF CHANGES IN SHAREHOLDERS’/MEMBERS’ EQUITY

FOR THE YEARS ENDED DECEMBER 31, 2020 AND 2019

​

​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​

​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Accumulated ​ ​ ​ ​ ​

​ ​ ​ ​ ​ ​ ​ ​ Additional ​ Other ​ ​ ​ ​ ​

​ ​ Common ​ ​ ​ ​ Paid in ​ ​ Comprehensive ​ Accumulated ​ ​ ​

​ Shares Amount Capital Loss Deficit Totals

Offerings costs - ATM ​ ​ — ​ ​ — ​ ​ (58,353) ​ ​ — ​ ​ — ​ ​ (58,353)

​

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

​

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Table of Contents

SACHEM CAPITAL CORP.

STATEMENTS OF CASH FLOW

​

​ ​ ​ ​ ​ ​ ​

​ ​ Years Ended

​ ​ December 31,

CASH FLOWS FROM OPERATING ACTIVITIES ​ ​

Abandonment of office furniture ​ ​ — ​ ​ 12,000

Gain on sale of marketable securities ​ ​ (903,257) ​ ​ —

Changes in operating assets and liabilities: ​ ​ ​

(Increase) decrease in: ​ ​ ​ ​

Escrow deposits ​ ​ — ​ ​ 12,817

Deposits on property and equipment ​ 71,680 ​ (59,680)

(Decrease) increase in: ​ ​ ​ ​ ​ ​

Accounts payable and accrued expenses ​ 122,098 ​ (66,535)

​ ​ ​ ​ ​ ​ ​

CASH FLOWS FROM INVESTING ACTIVITIES ​ ​

Proceeds from the sale of investments ​ ​ 77,139,664 ​ ​ —

Security deposits held ​ 5,616 ​ —

​ ​ ​ ​ ​ ​ ​

CASH FLOWS FROM FINANCING ACTIVITIES ​ ​

Proceeds from notes sold to shareholder ​ ​ — ​ ​ 1,017,000

Repayment of notes sold to shareholder ​ ​ — ​ ​ (2,217,000)

Principal payments on mortgage payable ​ (16,573) ​ —

Principal payments on notes payable ​ ​ (20,751) ​ ​ —

Proceeds from other loans ​ ​ 257,845 ​ ​ —

Proceeds from mortgage payable ​ ​ — ​ ​ 795,000

Prepayment of mortgage payable ​ ​ — ​ ​ (301,903)

Proceeds from notes payable, net ​ ​ — ​ ​ 75,434

Proceeds from issuance of common stock ​ ​ — ​ ​ 30,544,945

Proceeds from exercise of warrants ​ ​ — ​ ​ 82,035

​

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

​

F-6

Table of Contents

SACHEM CAPITAL CORP.

STATEMENTS OF CASH FLOW (Continued)

​

​ ​ ​ ​ ​ ​ ​

​ ​ Years Ended

​ ​ December 31,

SUPPLEMENTAL DISCLOSURES OF CASH FLOWS INFORMATION ​ ​

Taxes paid ​ $ — ​ $ —

​ ​ ​ ​ ​ ​ ​

SUPPLEMENTAL INFORMATION-NON-CASH ​ ​

Original Issue Discount ​ $ 280,000 ​ $ —

Dividends declared and payable ​ $ 2,654,976 ​ $ —

​

SUPPLEMENTAL DISCLOSURES OF NONCASH INVESTING AND FINANCING ACTIVITIES

Real estate acquired in connection with the foreclosure of certain mortgages, inclusive of interest and and other fees receivable, during the year ended December 31, 2019 amounted to $5,406,477.

During the year ended December 31, 2019, mortgages receivable, affiliate in the amount of $879,457 were reduced to $0 as the underlying loans were transferred to the Company and are included in mortgages receivable.

Real estate acquired in connection with the foreclosure of certain mortgages, inclusive of interest and and other fees receivable, during the year ended December 31, 2020 amounted to $1,553,103.

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

​

​

​

​

​

F-7

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SACHEM CAPITAL CORP.

NOTES TO FINANCIAL STATEMENTS

DECEMBER 31, 2020

1. The Company

Sachem Capital Corp. (the “Company”), a New York corporation, specializes in originating, underwriting, funding, servicing and managing a portfolio of first mortgage loans. The Company offers short term (i.e., one to three years), secured, 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

Use of Estimates

The preparation of financial statements in conformity with generally accepted accounting principles in the United States of America 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

We consider 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. We maintain our 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. We believe that the risk is not 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.

F-8

Table of Contents

SACHEM CAPITAL CORP.

NOTES TO FINANCIAL STATEMENTS

DECEMBER 31, 2020

Fair Value Measurements

The framework for measuring fair value provides a fair value hierarchy that prioritizes inputs to valuation techniques used to measure fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1) and the lowest priority to unobservable inputs (Level 3). The three levels of the fair value hierarchy under 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;

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

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

Property and Equipment

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

Impairment of Long-Lived Assets

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

Deferred Financing Costs

Costs incurred in connection with the Company’s revolving credit facilities, described in Note 8—Line of Credit and Mortgage Payable, were amortized over the term of the applicable facility using the straight-line method. Unamortized deferred financing costs relating to the Company’s $35 million credit facility were expensed when the facility was terminated on June 25, 2019 and the entire balance due was paid in full.

Costs incurred by the Company in connection with the public offering of its unsecured, unsubordinated notes, described in Note 10–Notes Payable, are being amortized over the term of the respective Notes.

F-9

Table of Contents

SACHEM CAPITAL CORP.

NOTES TO FINANCIAL STATEMENTS

DECEMBER 31, 2020

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 December 31, 2020 and collected prior to the issuance of this report is included in 2020 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.

Income Taxes

The Company believes it qualifies as a 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, 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.

The Company has adopted the provisions of Financial Accounting Standards Board (“FASB”) ASC Topic 740-10 “Accounting for Uncertainty in Income Taxes.” The standard 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 December 31, 2020 and 2019.

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

In May 2019, the FASB issued ASU 2019-05, “Financial Instruments— Credit Losses (Topic 326): Targeted Transition Relief," which requires that entities use a new forward looking "expected loss" model that, generally, will result in the earlier recognition of an allowance for credit losses. This ASU also allows entities to irrevocably elect the fair value option for certain financial assets previously measured at amortized cost upon adoption of ASU 2016-13, “Measurement of Credit Losses on Financial Instruments.” However, after beginning to implement the various key provisions of this ASU, and recognizing the complexities and challenges required, we determined to take advantage of our status as an emerging growth company, which allows us to defer the adoption of this ASU until our year ended December 31, 2023.

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SACHEM CAPITAL CORP.

NOTES TO FINANCIAL STATEMENTS

DECEMBER 31, 2020

For smaller reporting companies, such as the Company, ASU 2016-13 is effective for fiscal years beginning after December 15, 2022. As indicated in previous filings, the Company had intended to adopt ASU 2016-13 as of January 1, 2020. However, given the complexity of ASU 2016-13 and upon becoming aware that smaller reporting companies were not required to implement ASU 2-16-13 yet, the Company has decided to defer its implementation ASU 2016-13.

In December 2019, the FASB issued ASU 2019-12, “Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes.” This ASU modifies ASC 740 to remove certain exceptions and adds guidance to reduce complexity in certain areas. For companies that file with the Securities and Exchange Commission, the standard is effective for fiscal years beginning after December 15, 2020, and interim periods within those fiscal years. Early adoption is permitted but requires simultaneous adoption of all provisions of the new standard. The Company believes that the adoption of this guidance will not have a material impact on its financial statements.

In March 2020, the FASB issued ASU 2020-04, "Reference Rate Reform: Facilitation of the Effects of Reference Rate Reform on Financial Reporting." This ASU provides optional expedients and exceptions for applying U.S. GAAP to contract modifications and hedging relationships, subject to meeting certain criteria, that reference LIBOR or another rate that is expected to be discontinued. In January 2021, the FASB issued ASU 2021-01, "Reference Rate Reform (Topic 848): Scope." ASU 2021-01 amends ASU 2020-04 and focuses on refining accounting relief for modifications made to certain derivatives and hedging contracts, such as interest rate swaps. The Company believes that neither the adoption of ASU 2020-04 nor the adoption of ASU 2021-01 will have a material impact on its financial statements as it currently does not have any indebtedness tied to LIBOR or any other rate expected to be discontinued.

In August 2018, the FASB issued ASU 2018-13, “Fair Value Measurement (Topic 820).” ASU 2018-13 amends certain disclosure requirements regarding the fair value hierarchy of investments in accordance with GAAP, particularly the significant unobservable inputs used to value investments within Level 3 of the fair value hierarchy. The Company adopted this guidance effective on January 1, 2020. The Company's adoption of this guidance did not have a material impact on its financial statements.

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

​

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 December 31, 2020:

​

​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​

​ Level 1 Level 2 Level 3 Total

Certificates of Deposit ​ ​ — ​ ​ — ​ ​ — ​ ​ —

​

F-11

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SACHEM CAPITAL CORP.

NOTES TO FINANCIAL STATEMENTS

DECEMBER 31, 2020

The following table sets forth by Level, within the fair value hierarchy, the Company’s assets at fair value as of December 31, 2019:

​

​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​

​ ​ Level 1 Level 2 Level 3 Total

​

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

Certificates of deposit: Included in cash and cash equivalents and are valued at amortized cost, which approximates 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.

​

4. Mortgages Receivable

The Company offers secured, non-banking 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 generally 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 years ended December 31, 2020 and 2019, the aggregate amounts of loans funded by the Company were $117,230,923 and $64,742,552, respectively, offset by principal repayments of $54,961,570 and $43,347,362, respectively.

As of December 31, 2020, the Company’s mortgage loan portfolio includes loans ranging in size from $2,600 to $10,780,000 with stated interest rates ranging from 5.0% to 13.0% and a default interest rate for non-payment of 18%.

At December 31, 2020 and 2019, no single borrower had loans outstanding representing more than 10% of the total balance of the loans outstanding.

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

F-12

Table of Contents

SACHEM CAPITAL CORP.

NOTES TO FINANCIAL STATEMENTS

DECEMBER 31, 2020

Credit Risk

Credit risk profile based on loan activity as of December 31, 2020 and 2019:

​

​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​

​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Total

​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Outstanding

​ Residential Commercial Land Mixed Use Mortgages

​

As of December 31, 2020, the following is the maturities of mortgages receivable for the years ending December 31:

​

​ ​ ​ ​

​

At December 31, 2020, of the 495 mortgage loans in the Company’s portfolio, sixteen were the subject of foreclosure proceedings. The aggregate outstanding principal balance of these and the accrued but unpaid interest and borrower charges as of December 31, 2020 was approximately $3.1 million. In the case of each of these loans, the Company believes the value of the collateral exceeds the outstanding balance on the loan.