*Net Basic and diluted net income per common share outstanding and weighted average number of common shares outstanding are calculated for the period beginning February 9, 2017 (i.e.,the effective date of the company’s initial public offering) and ending September 30, 2017.

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

SACHEM CAPITAL CORP.

STATEMENT OF CHANGES IN SHAREHOLDERS’/MEMBERS’ EQUITY

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

SACHEM CAPITAL CORP.

STATEMENTS OF CASH FLOW

(unaudited)

SACHEM CAPITAL CORP.

STATEMENTS OF CASH FLOW (Continued)

(unaudited)

SUPPLEMENTAL DISCLOSURES OF NONCASH INVESTING AND FINANCING ACTIVITIES

During the nine months ended September 30, 2018, the Company purchased a mortgage receivable from a third party at a discount in the amount of $21,433.

Real estate acquired in connection with the foreclosure of certain mortgages, inclusive of interest and other fees receivable, during the nine months ended September 30, 2018 amounted to $2,369,196.

The reversal of previously accrued capitalized costs during the nine months ended September 30, 2018, amounted to $6,212.

During the nine months ended September 30, 2017, the Company issued notes payable in the amount of $169,338 for the acquisition of mortgages receivable.

On February 8, 2017, Sachem Capital Partners, LLC transferred all its assets and liabilities to the Company in exchange for 6,283,237 shares of the Company's common shares.Company’s Common stock.

As of September 30, 2016, the Company is obligated for the repayment of certain expenses paid by the managing member on behalf of the Company for certain borrowers in the amount of $85,972.

During the nine months ended September 30, 2016, $496,950 of mortgages receivable and $35,510 of accrued interest receivable and late fees receivable were converted to real estate owned

During the nine months ended September 30, 2016, certain real estate held for sale in the amount of $107,498 was converted to mortgages receivable.

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

SACHEM CAPITAL CORP.

NOTES TO FINANCIAL STATEMENTS

SEPTEMBER 30, 20172018

Sachem Capital Corp. (the “Company”) was formed under the name HML Capital CorpCorp. in January 2016 under the State of New York Business Corporation Law. On February 8, 2017, the Company completed an exchange transaction (the “Exchange”) with Sachem Capital Partners, LLC (“SCP”), a Connecticut limited liability company located in Branford, Connecticut, which commenced operations on December 8, 2010, pursuant to which2010. In the Exchange, SCP transferred all its assets to the Company and, in exchange therefor,for 6,283,237 of the Company’s common shares and the assumption by the Company issued 6,283,237 of its common shares to SCP and assumed all of SCP’s liabilities. Prior to the consummation of the Exchange, the Company was not engaged in any business or investment activities and had only nominal assets and no liabilities. Also, prior to the Exchange, SCP was managed by JJV, LLC (the “Manager”), a Connecticut limited liability company, which was jointly owned by Jeffrey C. Villano and John L. Villano, the founders of SCP and the co-chief executive officers of the Company.

On February 9, 2017, the Company’s registration statement on Form S-11 was declared effective by the U.S. Securities and Exchange Commission.Commission (“SEC”). Pursuant to such registration statement, the Company issued and sold 2,600,000 common shares at a price of $5.00 per share, or $13 million of gross proceeds (the “IPO”). The net proceeds, after payment of underwriting discounts and commissions and transaction fees, were approximately $11.1 million. The IPO was consummated on February 15, 2017. Prior

Following the consummation of the IPO, the Company believes it meets all the qualifications to be taxed as a Real Estate Investment Trust (“REIT”) for federal income tax purposes. Since then, the Exchange, SCP was managed by JJV, LLC (“JJV”),Company has been conducting its operations as if it is a Connecticut limited liability companyREIT and related party.made the election to be taxed as a REIT on its federal corporate income tax return for its 2017 tax year, which ended December 31, 2017. See Note 2 — “Significant Accounting Policies — Income Taxes” below.

In addition, on October 27, 2017, the Company issued and sold 3,750,000 common shares in an underwritten follow-on public offering at an offering price of $4.00 per share. On November 3, 2017, the Company issued and sold an additional 562,500 common shares upon exercise of the underwriters’ over-allotment option. The gross proceeds from the offering were $17.25 million and the net proceeds, after deducting underwriting discounts and commissions and other offering expenses, from the sale of the common shares were approximately $15.3 million.

The Company specializes in originating, underwriting, funding, servicing and managing a portfolio of first mortgage loans. The Company offers short term (i.e.(i.e. three years or less) secured, non-banking loans (sometimes referred to as “hard money” loans) to real estate 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 real estate collateral. Each loan is also personally guaranteed by the principal(s)principal, or principals, of the borrower, which guaranty may be collaterally secured by a pledge of the guarantor’s, or guarantors, interest in 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.

TheExcept where otherwise noted, the accompanying statements of operations changes in shareholders’/members’ equity and cash flows forinclude the three and nine-month periods ended September 30, 2016 and September 30,results of operations of SCP from January 1, 2017 untilthrough February 8, 2017, the consummation ofdate the Exchange are those of SCP.was consummated.

SACHEM CAPITAL CORP.

NOTES TO FINANCIAL STATEMENTS

SEPTEMBER 30, 2018

Unaudited Financial Statements

The accompanying unaudited financial statements of the Company have been prepared in accordance with U.S. generally accepted accounting principles (‘‘GAAP’’in the United States of America (“GAAP”) for interim financial information. Accordingly, they do not include all the information and footnotes required by GAAP for complete financial statements. However, in the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. Results of operations for the interim periods are not necessarily indicative of the operating results to be attained in the entire fiscal year.

Use of Estimates

The preparation of financial statements in conformity with generally accepted accounting principles in the United States of AmericaGAAP 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 past 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.

SACHEM CAPITAL CORP.
NOTES TO FINANCIAL STATEMENTS
SEPTEMBER 30, 2017

Concentrations of Credit Risk

Financial instruments that potentially subject the Company to concentrations of credit risk consist primarily of cash and mortgage loans. The Company maintains its cash with one major financial institution. Accounts at the financial institution are insured by the Federal Deposit Insurance Corporation up to $250,000.

Credit risks associated with the Company’s mortgage loan portfolio and related interest receivable are described in Note 3 entitled— “Mortgages Receivable.”

Income Taxes

Subsequent toAs a result of the Exchange and the IPO, the Company believes that it qualifies and operates as a Real Estate Investment Trust (REIT) for federal income tax purposes and intends to makemade the election to be taxed as a REIT when it filesfiled its 2017 federal income tax return. As a REIT, the Company is required to distribute at least 90% of its taxable income to its shareholders on an annual basis. The Company’s qualification as a REIT depends on its ability to meet on a continuing basis, through actual investment and operating results, various complex requirements under the Internal Revenue Code of 1986, as amended, relating to, among other things, the sources of its income, the composition and values of its assets, its compliance with the distributions requirements applicable to REITs and the diversity of ownership of its outstanding common shares. So long as it qualifies as a REIT, the Company, generally, will not be subject to U.S. federal income tax on its taxable income distributed to its shareholders. However, if it fails to qualify as a REIT in any taxable year and does not qualify for certain statutory relief provisions, it will be subject to U.S. federal income tax at regular corporate rates and may also be subject to various penalties and may be precluded from re-electing REIT status for the four taxable years following the year during in which it lost its REIT qualification.

The Company has adopted the provisions of FASB ASC Topic 740-10 “Accounting for Uncertainty in Income Taxes”. The standard, which prescribes a recognition threshold and measurement attribute for financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return and disclosure required. Under this standard, anAn 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 ofaccompany September 30, 2017.2018 Financial Statements.

SACHEM CAPITAL CORP.

NOTES TO FINANCIAL STATEMENTS

SEPTEMBER 30, 2018

LandProperty and BuildingEquipment

LandProperty and equipment principally consists of property held for rental or for sale and acquired either by purchase or through foreclosure or by deed in lieu of foreclosure. It also includes land and a building acquired in December 2016, to housewhich, after it is renovated, will become the Company’s office facilitiesprimary business location, and is stated at cost. The building will be 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.

Revenue Recognition

The Company recognizes revenues in accordance with ASC 605, which provides guidance on the recognition, presentation and disclosure of revenue in financial statements. ASC 605 outlines the basic criteria that must be met to recognize revenue and provides guidance for disclosure related to revenue recognition policies. In general, the Company recognizes revenue when (i) persuasive evidence of an arrangement exists, (ii) delivery of the product has occurred or services have been rendered, (iii) the sales price charged is fixed or determinable, and (iv) collectability is reasonably assured.

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.

Origination fee revenue is recognized ratably over the contractual life of the loan in accordance with ASC 310.

SACHEM CAPITAL CORP.
NOTES TO FINANCIAL STATEMENTS
SEPTEMBER 30, 2017

Deferred Financing Costs

Costs incurred in connection with the Company’s line of credit, as discussed in Note 6 below, are amortized over the term of the line of credit, using the straight-line method.

Fair Value of Financial Instruments

For the line of credit, mortgage payable and interest-bearing mortgages receivable held by the Company, the carrying amount approximates fair value due to the relative short-term nature of such instruments.

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.

Prior to the Exchange, the Company’s business was conducted by SCP, a limited liability company. Accordingly, earnings per share for the nine months ended September 30, 2017 does not include the net income per share for the period prior to the Exchange, and there are no earnings per share for the three- and nine-month periods ended September 30. 2016.Exchange.

Recent Accounting Pronouncements

In November 2016,May 2014, the FASB issued ASU 2016-18, “Statement of Cash Flows (Topic 230): Restricted Cash - a consensus of the FASB Emerging Issues Task Force.” The 2014-09, Revenue from Contracts with Customers (“ASU requires that restricted cash and restricted cash equivalents be included as components of total cash and cash equivalents as presented on the statement of cash flows. For public companies that file with the SEC, the standard2014-09”), which is effective for financial statements issued for fiscal years, beginning after December 15, 2017, and interim periods within those fiscal years. The adoptionyears, beginning on or after December 15, 2017. This ASU outlines a new, single comprehensive model for entities to use in accounting for revenue arising from contracts with customers and supersedes most current revenue recognition guidance, including industry specific guidance. Several ASUs expanding and clarifying the initial guidance issued in ASU 2014-09 have been released since May 2014. Exclusions from the scope of this guidance isinclude revenues resulting from loans, investment securities (available-for-sale and trading), investments in unconsolidated entities and leases. The Company adopted the ASU effective January 1, 2018. The Company evaluated the applicability of this guidance, considering the scope exceptions, and concluded that the adoption does not expectedaffect its financial statements, primarily due to have a material impact on the Company’s consolidated financial statements.new guidance not applying to revenue resulting from loans and lease contracts.

In May 2017, the FASB issued ASU 2017-09, “Compensation - Stock Compensation (Topic 718): Scope of Modification Accounting.” The ASU provides guidance on the types of changes to the terms or conditions of share-based payment awards to which an entity would be required to apply modification accounting under ASC 718. Under the new guidance, modification accounting is required only if the fair value, the vesting conditions, or the classification of the award changes as a result of the change in terms or conditions. For all entities, the standard is effective for financial statements issued for fiscal years beginning after December 15, 2017, and interim periods within those fiscal years. Early adoption is permitted, including adoption in any interim period. The adoption of this guidance isdid not expected to have a material impact on the Company’s consolidated financial statements.

SACHEM CAPITAL CORP.

NOTES TO FINANCIAL STATEMENTS

SEPTEMBER 30, 2018

In August 2017, the FASB issued ASU 2017-12, “Derivatives and Hedging (Topic 815): Targeted Improvements to Accounting for Hedging Activities.” The ASU expands the activities that qualify for hedge accounting and simplifies the rules for reporting hedging transactions. For public companies that file with the SEC, the standard is effective for financial statements issued for fiscal years beginning after December 15, 2018, and interim periods within those fiscal years. Early adoption is permitted. The adoption of this guidance is not expected to have a material impact on the Company’s financial statements.

In February 2018, the FASB issued ASU 2018-02, “Income Statement — Reporting Comprehensive Income (Topic 220): Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income.” The ASU amends ASC 220, “Income Statement — Reporting Comprehensive Income,” to allow a reclassification from accumulated other comprehensive income to retained earnings for stranded tax effects resulting from the Tax Cuts and Jobs Act. In addition, under the ASU, an entity will be required to provide certain disclosures regarding stranded tax effects. For all entities, the ASU is effective for financial statements issued for fiscal years beginning after December 15, 2018, and interim periods within those fiscal years. Early adoption is permitted. The adoption of this guidance is not expected to have a material impact on the Company’s financial statements.

In June 2018, the FASB issued ASU 2018-07, “Compensation—Stock Compensation (Topic 718): Improvements to Nonemployee Share-Based Payment Accounting.” This ASU supersedes ASC 505-50, “Equity Based Payment to Non-Employees,” (“ASC 505-50”) and expands the scope of ASC 718, “Compensation – Stock Compensation,” to include all share-based payment arrangements related to the acquisition of goods and services from both nonemployees and employees. For public companies that file with the SEC, the standard is effective for financial statements issued for fiscal years beginning after December 15, 2018, and interim periods within those fiscal years. Early adoption is permitted, but no earlier than an entity’s adoption date of ASC 606, “Revenue from Contracts with Customers.” The adoption of this guidance is not expected to have a material impact on the Company’s financial statements.

In August 2018, the FASB issued ASU 2018-13, “Fair Value Measurement (Topic 820): Disclosure Framework—Changes to the Disclosure Requirements for Fair Value Measurement.” This ASU eliminates, adds and modifies certain disclosure requirements for fair value measurements as part of its disclosure framework project. The standard is effective for all entities for financial statements issued for fiscal years beginning after December 15, 2019, and interim periods within those fiscal years. Early adoption is permitted. The adoption of this guidance is not expected to have a material impact on the Company’s financial statements

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

SACHEM CAPITAL CORP.
NOTES TO FINANCIAL STATEMENTS
SEPTEMBER 30, 2017

Mortgages Receivable

The Company offers secured non-banking loans to real estate investors (also known as hard money loans) to fund their acquisition and construction of properties located mainly in Connecticut. The loans are principally secured by first mortgages on real estate and, generally, are also personally guaranteed by the borrower or its principals. 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 nine monthsnine-month periods ended September 30, 20172018 and 2016,2017, the aggregate amounts of loans funded by the Company were $33,792,878$37,278,346 and $14,849,831,$33,792,878, respectively offset by principal repayments of $14,637,831$22,743,996 and $10,921,370,$14,849,831 respectively.

For the quarter endedAt September 30, 2017,2018, the CompanyCompany’s portfolio included closed loans ranging in size from $10,000$6,000 to $1,200,000$2,019,000 with stated interest rates ranging from 11%5.0% to 12%12.5% and a default interest rate for non-payment of 18%.

At September 30, 2017,2018, no single borrower had loans outstanding representing more than 10% of the total balance of the loans outstanding.

The Company generally grants loans for a term of one to three years. In some cases, the Company has agreed to extend the term of the loans. A loan that is extended is treated as a new loan. However, prior to granting an extension, the loan underwriting process is repeated.

SACHEM CAPITAL CORP.

NOTES TO FINANCIAL STATEMENTS

SEPTEMBER 30, 2018

Credit Risk

Credit risk profile based on loan activity as of September 30, 2018 and December 31, 2017:

The following is the maturities of mortgages receivable as of September 30, 2017:2018:

At September 30, 2018, of the 395 mortgage loans in the Company’s portfolio, ten (10) were designated by the Company as “non-performing” because the borrower is more than 90 days in arrears on its interest payment obligations or because the borrower has failed to make timely payments of real estate taxes or insurance premiums. The aggregate outstanding principal balance of these non-performing loans and the accrued but unpaid interest as of September 30, 2018 was approximately $5.2 million. At September 30, 2018, all non-performing loans have been referred to counsel to commence foreclosure proceedings or to negotiate settlement terms. In the case of each non-performing loan, based on the assessed values of the properties and other independent data, the Company has determined the value of the collateral exceeds the outstanding balance on the loan.

Property purchased for rental or acquired through foreclosure are included on the balance sheet as real estate owned.

As of September 30, 2017,2018, real estate owned totaled $1,224,969 with$3,145,532, consisting of $887,606 of real estate held for rental and $2,257,926 of real estate held for sale. There is no valuation allowance all of which is held for rental.

SACHEM CAPITAL CORP.
NOTES TO FINANCIAL STATEMENTS
SEPTEMBER 30, 2017on the real estate owned.

AsOn April 16, 2018, The Company’s Board of Directors approved the adoption of the Sachem Capital Corp. 401(k) Profit Sharing Plan (the “401(k) Plan)”. All employees, who meet the participation criteria, are eligible to participate in the 401(k) Plan. Under the terms of the 401(k) Plan, the Company is obligated to contribute 3% of a participant’s compensation to the 401(k) Plan on behalf of an employee-participant. For the three and nine months ended September 30, 2017, escrow deposits consist of funds due to2018, the Company from closed construction mortgages. Closing counsel returns these funds to the Company post-closing, then these funds are held by the Company401(k) Plan expense was $532 and available to the borrower when specific progress goals during the construction process are met.$6,448, respectively.

Line of Credit

On December 18, 2014, SCP entered intoestablished a two-year$5 million revolving Lineline of credit (the “Bankwell Credit AgreementLine”) with Bankwell Bank (the “Bank”) pursuant to, which was secured by all its assets, including its mortgage loan portfolio. Over the Bank agreed to advance up to $5 million (the “Bankwell Credit Line”) against assignments of mortgages and other collateral requiring monthly payments of interest only. On December 30, 2015,ensuing three years, the Bankwell Credit Line was amended to increase available borrowings to $7,000,000. On March 15, 2016,extended, increased and restructured several times. At the time of the Exchange, the Bankwell Credit Line was amended again$15 million and the interest rate on the outstanding balance was equal to increase available borrowings to $15,000,000.the greater of (i) the prime rate plus 3% and (ii) 6.25%. In connection with the Exchange, the Company assumed all of SCP’s obligations to Bankwell and entered into a new agreement with Bankwell, the material terms of which are substantially identical to the terms of the agreement between the SCP and Bankwell. On June 30, 2017, the Bankwell Credit Line was amended for the last time. Among other things, the amendment (i) increased the borrowing limit to increase available borrowings to $20,000,000. The$20 million, (ii) provided that interest rate on the Bankwell Credit Line is variableoutstanding balance would be calculated at 4.5% in excessthe greater of (x) 5.5% and (y) the London Interbank Offeredthree-month LIBOR Rate (LIBOR), but in no event less than 5.50%, per annum, onplus 4.50%; and (iii) extended the money in use. As of September 30, 2017, the interest rate on the Bankwell Credit line was 5.83%. The Bankwell Credit Line expires onmaturity date to June 30, 2019, at which time the entire unpaid principal balance and any accrued and unpaid interest shall become due. The Company has the option to extend the term of the loan for the sole purpose of repaying the principal balance over a thirty-six month period in equal monthly installments. The Bankwell Credit Line is secured by substantially all Company assets and is subject to borrowing base limitations and financial covenants including, maintaining a minimum fixed charge coverage ratio and maintaining minimum tangible net worth. In addition, among other things, provisions of the agreement prohibit Company merger, consolidation or disposal of assets or declaring and paying dividends in certain circumstances.2019. Finally, JJV and each of the Company’s co-chief Executive Officers have,executive officers had, jointly and severally, guaranteed the Company’s obligations under the Bankwell Credit Line up to a maximum of $1,000,000 each.

SACHEM CAPITAL CORP.

NOTES TO FINANCIAL STATEMENTS

SEPTEMBER 30, 2018

Effective May 11, 2018, the Company entered into a Credit and Security Agreement with Webster Business Credit Corporation (“WBCC”), Bankwell Bank and Berkshire Bank (collectively, the “Lenders”) regarding a new $35 million revolving credit facility (the “Webster Facility”) to replace the Bankwell Credit Line. The co-chief Executive OfficersWebster Facility is secured by a first priority lien on all the Company’s assets, including its mortgage loan portfolio. Interest on the outstanding amount accrues at a rate equal to the 30-day LIBOR rate plus 4.00% per annum. All amounts outstanding under the Webster Facility, including principal, accrued interest and other fees and charges, are also requireddue and payable May 11, 2022. Pursuant to maintain certain capital balances,the terms of the Webster Facility, the maximum amount the Company may borrow is 75% of the aggregate principal amount of its “Eligible Mortgage Loans,” as defined. As of the Closing Date, the aggregate principal amount of the Company’s Eligible Mortgage Loans was approximately $43.2 million. The Credit and Security Agreement between the Company and the Company is prohibited from ownership changesLenders contains provisions regarding defaults and events of default, representations and warranties and affirmative, negative and financial covenants that would reduce their interests.are typical of transactions of this sort.

AsAt the closing with respect to the Webster Facility, the Company made an initial draw-down of $20.2 million, of which $18.6 million was used to repay the balance due to Bankwell, $1.4 million was used for working capital and the balance was used to pay transaction costs and other fees and expenses relating to obtaining and closing the Webster Facility. No fee was paid with respect to the termination of the Bankwell Credit Line. At the time of the closing of the Webster Facility, the interest rate on the Bankwell Credit Line was 6.79% and the interest rate on the Webster Facility was 6.09%.

At September 30, 2017,2018, the outstanding amount under the Bankwell Credit LineWebster Facility was $15,921,186.approximately $27.3 million and the interest rate on the outstanding balance was 6.26%.

Mortgage Payable

The Company also has a mortgage payable to Bankwell Bank, collateralized by land and a building purchased by the Company to be used as its primary business location. The property is currently being renovatedin the early stages of renovation and the Company expects to move its operations to the new location in the secondfirst quarter of 2018.2019. The original principal amount of the mortgage loan iswas $310,000 and bears interest at the rate of 4.52%. Interest and principal are payable in monthly installments of $1,975 commencing in February 2017. The entire outstanding principal balance of the mortgage loan and all accrued and unpaid interest thereon is due and payable in January 2022.

Principal payments on the mortgage payable are due as follows:

Other income consists of the following:

SACHEM CAPITAL CORP.

NOTES TO FINANCIAL STATEMENTS

SEPTEMBER 30, 20172018

Loan Brokerage Commissions/Origination Fees Paid to JJV

Loan origination fees consist of points, generally 2%-5% of the original loan principal. Pursuant to the Company’sSCP’s operating agreement, and prior to the Exchange JJV was entitled to 75% of loan origination fees. For the nine months ended September 30, 2017, and 2016, loan origination fees paid to JJV were $52,902, and $384,258, respectively, and forall of which were incurred prior to the three months ended September 30, 2017 and 2016,Exchange. After the Exchange, JJV is no longer entitled to origination fees paid to JJV were $-0- and $140,106, respectively.fee payments. These payments are amortized over the life of the loan for financial statement purposes and recognized as a reduction of origination fee income. After the Exchange, JJV is no longer entitled to origination fee payments.

Original maturities of deferred revenue are as follows as of:

In instances in which mortgages are repaid before their maturity date, the balance of any unamortized deferred revenue is recognized in full.

Loan Servicing Fees

JJV administered the servicing of SCP’s loan portfolio prior to the Company’s loan portfolio.Exchange. At JJV’s discretion, the loan servicing fee ranged from one-twelfth (1/12^th) of one-half percent (0.5%) to one percent (1.0%) of the Company’s loan portfolio, payable monthly and calculated based on total loans as of the first day of each calendar month. The percentage charged by JJV was 1.0% for the September 30, 2017 period up to the date of the Exchange and 1.0% for the September 30, 2016 period. After the Exchange, JJV is no longer entitled to loan servicing fees.

For the nine monthsnine-month period ended September 30, 2017, and 2016, loan servicing fees paid to JJV were $32,778, and $218,790 respectively.all of which were incurred prior to the Exchange.

Unfunded Commitments

At September 30, 2017,2018, the Company is committed to an additional $3,095,917$6,823,587 in construction loans that can be drawn by the borrowerborrowers when certain conditions are met.

Other

In the normal course of its business, the Company is named as a party-defendant in foreclosure proceedings because of its position as the first mortgage lien holder. Generally, these foreclosure proceedings are brought by municipalities for it is a mortgagee having interests in real properties that are being foreclosed upon, primarily resulting from unpaid property taxes. The Company actively monitors these actions and, in all cases, believes there remainsis sufficient value in the subject property to assure that no loan impairment exists.

The Company currently leases office space, on a month-to-month basis, in a building owned by Union News of New Haven, Inc., an entity that is controlled and 20%-owned by Jeffrey Villano, the Company’s co-CEO. Rent and other facility related charges paid by the Company to Union News for the three monthsnine- and three-month periods ended September 30, 20172018 were $13,500 and $4,500, respectively, and for the period beginning February 8, 2017 and ending September 30, 2017 were $3,000 and $10,500, respectively. Prior to the Exchange and the IPO, SCP reimbursed JJV, the Managing Member of SCP, for amounts paid by JJV to Union News. For the three and nine-month periodsthree-month period ended September 30, 2016, these amounts2017 were $900$10,500 and $3,700,$3,000, respectively. Amounts for the 2017 periods only reflect payments made after the Exchange. The Company expects to move its operations to a new location, owned by the Company, in the secondfirst quarter of 2018. (See Note 6.)2019.

Prior to the Exchange, SCP reimbursed the Manager for rent and other expenses paid by the Manager on its behalf. For the period beginning January 1, 2017 and ending February 8, 2017, such amount totaled $35,847. In addition to rent, these amounts include other payments made by the Manager on SCP’s behalf including insurance premiums and real estate taxes in instances where SCP was notified that the borrower is in default, costs of any actions(i.e., foreclosures) commenced by SCP to enforce its rights or collect amounts due from borrowers who were in default of their obligations to SCP as well as other costs that the Manager deemed appropriate to protect SCP’s interests. For the period beginning January 1, 2017 and ending February 8, 2017, the Manager paid salaries and payroll taxes on behalf of the Company totaling $12,223. Unreimbursed costs advanced by the Manager on behalf of SCP as of September 30, 2017 were $4,905 and are included in other receivables on the Company’s balance sheet.

SACHEM CAPITAL CORP.

NOTES TO FINANCIAL STATEMENTS

SEPTEMBER 30, 20172018

Prior toDuring the Exchange, fromperiod beginning January 1, 2017 and ending February 8, 2017, SCP paid the Manager $52,902 representing origination fees on loans funded by SCP during the period.

From time to time, JJV acquiredthe Manager would acquire certain troubled assets from third parties who were not existing CompanySCP borrowers. JJV borrowedIn such instances, the Manager would borrow money from the CompanySCP to finance these arrangements.acquisitions. As part of the Exchange, the Company acquired the notes evidencing these loans from SCP. The principal balance of the loans to the Manager at September 30, 2018 was $969,457. The real estate purchased is held by JJVthe Manager in trust for the Company. The Company accounts for these arrangements as separate loans to JJV.the Manager. The income earned on these loans is equivalent to the income earned on similar loans in the portfolio. All underwriting guidelines are adhered to. The mortgage documents allow JJVthe Manager to sell the properties in case of default with proceeds in excess of loan principal and accrued expense being returned to the borrower. DuringManager. Since the nine monthsIPO, the Company has not made any loans to the Manager. Interest income earned on loans to the Manager totaled $85,388 and $26,384 for the nine- and three-month periods ended September 30, 2017,2018, respectively, and $103,223 and $31,320 for the Company did not enter into any new loan agreements with JJV. The principal balance of the loans to JJV at September 30, 2017 were $1,104,022.

During the nine months ended September 30, 2017nine- and 2016, JJV was paid $52,902 and $384,258, respectively, related to origination fees. (See Note 7.)

During the three and nine-monththree-month periods ended September 30, 2017, and 2016, JJVrespectively. 2017 amounts include interest paid $31,320 and $41,145, and $103,223 and $127,158, respectively, of interest on borrowings fromto SCP prior to the Company.Exchange.

PriorIn the ordinary course of business, the Company may originate, fund, manage and service loans to shareholders (members in the case of loans funded prior to the dateExchange). The underwriting process on these loans is consistent with Company policy. The terms of such loans, including the Exchange, JJV frequently paid for costs on behalf of the Company. These costs include insurance and real estate taxes where the Company has been notified that the borrower is in default, costs of any actions (i.e., foreclosures) commenced by the Company to enforce its rights or collect amounts due from borrowers who have defaulted on their obligations to the Company as well as other related costs that the Company deems appropriate to protects its interests. Salaries and payroll taxes paid for by JJV on behalf of the Company are included in otherinterest rate, income, origination fees and taxes. Forother closing costs are the nine monthssame as those applicable to loans made to unrelated third parties in the portfolio. As of September 30, 2018, loans to former partners and now shareholders totaled $3,708,742. Interest income earned on these loans totaled $226,005 and $107,590 for the nine- and three-month periods ended September 30, 2018, respectively, and $168,766 and $84,823 for the nine- and three-month periods ended September 30, 2017, and 2016, JJV chargedrespectively.

During the year ended December 31, 2017, the Company $9,035originated then sold notes to a shareholder in the amount of $2,750,000. Notes totaling $2,000,000 were repurchased by the Company and -0-, respectively,are classified as mortgages receivable at December 31, 2017. Prior to December 31, 2017, $723,478 was paid to the Company for certain payroll and related costs. Unreimbursed costs advanced and unpaid by JJV on behalfthe benefit of the Companynoteholder. This amount is reflected on the Company’s balance sheet as of“Due to note purchaser” at December 31, 2017 and was paid to the noteholder in January 2018.

At both September 30, 2018 and December 31, 2017, were $16,958total amounts owed by the Manager to the Company was $22,977 and are included in due to shareholdersis reflected as other receivables on the Company’s balance sheet.

On February 9, 2017, the Company purchased computer hardware, software and furniture and fixtures totaling $92,806 from JJV at cost.JJV.

For the nine months periods ended September 30, 2018 and 2017, the Company paid $56,250 and $50,200, respectively, to the wife of one of its co-chief executive officers for accounting and financial reporting services provided to the Company.

Subsequent to September 30, 2017, the Company commenced foreclosure proceeding with respect to two loans made to two separate borrowers, having an aggregate unpaid principal balance of $238,000 and accrued but unpaid interest of $4,440. The loans are secured by first mortgage liens on properties owned by the borrowers. The Company halted an ongoing foreclosure proceeding when the borrower entered into a settlement agreement with the Company. This agreement provided additional collateral to the Company in exchange for time to repay the obligations. The Company has obtained real property assessments and broker opinions of value for these properties. Based on these values, the Company has not recorded an impairment loss for these properties.

On October 19, 2017, the Company declared a dividend of $.105 per share to be paid on November 17, 2017 to shareholders of record on November 7, 2017. The total amount of the dividend payment is estimated to be approximately $1,560,000.

From October 27 through November 3, 3017, the Company sold an aggregate of 4,312,500 of its common shares (including 562,500 covered by an over-allotment option) in a follow-on underwritten public offering at a public offering price of $4.00 per share, or $17,250,000 in the aggregate. The net proceeds from the offering, after deducting underwriting discounts and after reimbursing the underwriters for their expenses related to the offering, were approximately $15.8 million. The net proceeds will be used primarily to increase the Company’s loan portfolio and for working capital and general corporate purposes.

Management has evaluated subsequent events through November 9, 2017November12, 2018 the date on which the accompanying financial statements were available to be issued. Basedcompleted. Except as otherwise set forth in this Note 10, based on themanagement’s evaluation, no adjustments were required in the accompanying financial statements.

On October 1, 2018, the Company sold a property classified as real estate held for sale at September 30, 2018 receiving $178,475 not including interest impounded by the Company of $4,761. The Company believes the value of the remaining collateral exceeds the outstanding balance of $8,000 on the loan.

On October 31, 2018, the Company sold a property classified as real estate held for sale at September 30, 2018 receiving $408,255 in net proceeds from the sale. The note agreement contains additional collateral to satisfy the borrowers remaining balance of approximately $90,000.

On October 31, 2018, the Company sold a mortgage note receivable at a gain of $28,175 including a $12,500 note premium plus unpaid default interest of $15,675.

SACHEM CAPITAL CORP.

NOTES TO FINANCIAL STATEMENTS

SEPTEMBER 30, 2018

On November 6, 2018, the Company paid a dividend of $0.12 per share, or $1,852,430 in the aggregate, to its shareholders.

On October 19, 2018, the Company filed a Registration Statement on Form S-3 (the “Shelf”) with the SEC registering the sale of common shares, preferred shares, warrants, debt securities and/or units of any combination thereof of the Company (collectively, the “Securities”) having an aggregate offering price of up to $100 million, subject to the limitations impose by the Securities Act of 1933, as amended and applicable to the Company. The Shelf includes a prospectus supplement covering an “at-the-market” offering of up to $16 million of the Company’s common shares (the “ATM Offering”). The Shelf was declared effective by the SEC on November 9, 2018. The Company entered into an At Market Issuance Sales Agreement, dated November 9, 2018, with B. Riley FBR, Inc. (“B. Riley”), pursuant to which B. Riley will act as sales agent for the ATM Offering.  The Company will pay B. Riley commissions, discounts or other forms of compensation of up to 7% on sale of common shares in the ATM Offering.

Item 2.     MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion of the financial condition and results of operations should be read in conjunction with the financial statementsFinancial Statements and the notesNotes to those statements included elsewhere in this 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.

IntroductionCompany Overview

Sachem Capital Corp. was formed as HML Capital Corp. in January 2016 under the New York Business Corporation Law. On February 8, 2017, we consummated an exchange transaction (the “Exchange”) withacquired all the assets of Sachem Capital Partners, LLC (“SCP”) pursuant(SCP), a Connecticut limited liability company, through which our business was conducted prior to which SCP transferred all of its assets to usour initial public offering, in exchange for 6,283,237 of our common shares and our assumption of all of SCP’s liabilities, including SCP’s obligations tounder the Bankwell Bank (“Bankwell”). On February 9, 2017, we issued and sold 2,600,000 common shares pursuant to an effective S-11 registration statementCredit Facility (the “IPO”“Exchange”). Prior to the consummation of the Exchange, we were not engaged in any business or investment activities and had only nominal assets and no liabilities.

On February 9, 2017, immediately after completing the Exchange, we completed our initial public offering in which we sold 2.6 million common shares at $5.00 per share, or $13 million of gross proceeds (the “IPO”). The net proceeds from the IPO were approximately $11.1 million. The primary purpose of the IPO was to raise additional equity capital to fund mortgage loans and expand our mortgage loan portfolio. The IPO was also intended 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, uponfollowing the consummation of the IPO, we have met all the requirements to qualify as a REIT for federal income tax purposes and intend to electelected to be taxed as a REIT beginning with our 2017 tax year or as soon as practicable thereafter.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% exciseexercise 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.

BusinessOperational and StrategicFinancial Overview

We are a Connecticut-based real estate finance company specializing in originating, underwriting, funding, servicingSince December 2010, when we commenced operations as SCP, through September 30, 2018, our most recent quarter end, we have made an aggregate of 832 loans, which includes renewals and managing a portfolioextensions of short-term loans (i.e., one to three years) secured by first mortgage liens on real property located primarily in Connecticut. Each loan is also personally guaranteed by the principal(s) of the borrower, which guaranty is usually collaterally secured by a pledge of the guarantor’s interest in the borrower. Our typical borrower is a small real estate investor who will use the proceeds to fund its acquisition, renovation, rehabilitation, development and/or improvement of residential or commercial properties located primarily in Connecticut held for investment or sale. The property may or may not be income producing. We do not lend to owner-occupants. Our loans are referred to in the real estate finance industry as “hard moneyexisting loans.”

Our primary objective is to grow At September 30, 2018, (i) our loan portfolio while protectingincluded 395 mortgage loans, with individual principal loan amounts ranging from $6,000 to $2.0 million and preserving capitalan aggregate loan amount of approximately $77.8 million, (ii) the average original principal amount of the mortgage loans in a manner that provides for attractive risk-adjusted returns to our shareholders over the long term principally through dividends. We intend to achieve this objective by continuing to focus on selectively originating, managingportfolio was $197,000 and servicing a portfoliothe median mortgage loan amount was $136,000 and (iii) approximately 79.5% of firstthe mortgage real estate loans and to carefully manage our loan portfolio in a manner designed to generate attractive risk-adjusted returns across a variety of market conditions and economic cycles. We believe that the demand for commercial real estate loans that havehad a principal amount of less than $500,000,$250,000 or less. In comparison, at September 30, 2017, (i) our loan portfolio included 311 loans, with individual principal loan amounts ranging from $10,000 to $1.2 million and an aggregate loan amount of approximately $52.7 million, (ii) the average original principal amount of the loans in Connecticutthe portfolio was $169,000 and neighboring states isthe median loan amount was $116,500 and (iii) approximately 81.0% of the loans had a principal amount of $250,000 or less. At September 30, 2018 and 2017, unfunded commitments for future advances under construction loans totaled approximately $6.8 million and $3.1 million, respectively.

Similarly, our revenues and net income have been growing. For the nine months ended September 30, 2018, revenues and net income were approximately $8.8 million and $6.1 million, respectively. For the first nine months of 2017, revenues and net income were approximately $4.7 million and $3.2 million, respectively. We cannot assure you, our shareholders, that we will be able to sustain these growth rates.

Our operating expenses have increased significantly due to multiple factors including our conversion from a limited liability company to a regular C corporation, operating as a REIT, our status as a publicly-held reporting company and growth in our operations. As a corporation, we incur various costs and expenses that we did not have as a limited liability company, such as director fees, directors’ and officers’ insurance and we incur significant and growing and that traditional lenders, including bankscompensation and other employee-related costs for services rendered by our senior executive officers. Moreover, because of various laws, rules and regulations that prohibit or severely limit our ability to enter into agreements with related parties, certain operating expenses, have increased as well. Finally, we anticipate increases in professional fees, filing fees, printing and mailing costs, exchange listing fees, transfer agent fees and other miscellaneous costs related to our compliance with various laws, rules and regulations applicable to REITs and a publicly-held reporting company. For example, we are required to, among other things, file annual, quarterly and current reports with respect to our business and operating results. Also, as a public reporting company, we must establish and maintain effective disclosure and financial institutions that usually serve this market are unablecontrols. As a result, we may need to satisfy this demand. This demand/supply imbalance has created an opportunity for “hard money” real estate lenders like us to selectively originate high-quality first mortgage loans on attractive termshire additional accounting and these conditions should persist for several years. Accordingly, we intend to continue to focus primarily on the Connecticut markets as well as other markets in the New England regionfinance personnel with appropriate public company experience and in New York.technical accounting knowledge, which will also increase our operating expenses.

Our loans typically have a maximum initial term of one to three years and bear interest at a fixed rate of 9%5.0% to 12%12.5% per year and a default rate for non-payment of 18%. In addition, we 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. 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 65%70%. In the case of construction loans, the loan-to-value ratio is based on the post-construction value of the property. Under the terms of the Bankwell Credit LineWebster Facility (described below), mortgage loans exceeding $325,000$250,000 require a third-party to complete an independent appraisal of the collateral. Failure to obtain such an appraisal would render the loan ineligible for financing underinclusion in the credit facility.borrowing base. In the case of smaller loans, we rely on readily available market data, including tax assessment rolls, recent sales transactions and brokers to evaluate the strength 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 after taking into account the loan under consideration.

Our revenue consists primarily of interest earned on our loan portfolio and our net income is basically the spread between the interest we earn and our cost of funds. Our capital structure is more heavily weighted to equity rather than debt (71.1%(approximately 66% vs. 28.9%34% of our total capitalization at September 30, 2017) and2018). At September 30, 2018, the interest rate on the Bankwell Credit Line is currently 5.83% (as of September 30, 2017). As of September 30, 2017,Webster Facility was 6.26% per annum and the annual yield on our loan portfolio was 12.13%12.48% per annum. The yield has been increasing steadilyremained steady over the past few years as older loans with lower interest rates come due and are either being repaid or refinanced at highersimilar rates. The yield reflected above does not include other amounts collected from borrowers such as origination fees, default rates of interest and late payment fees. We expect our borrowing costs to continue to increase in 2017 and 2018 as the Federal Reserve Bank continues to raise interest rates in accordance with its current monetary policy.continue to increase. To date, we have not raised rates on our loans to match the recent increases in our borrowing rate. After considering the prosbenefits and consrisks of increasing our rates, and considering our relatively low level of debt following our IPO,and cost of funds, we believe the better strategy for now is to focus on building market share rather than short-term profits and cash flow, although this strategy could adversely impact our profits and cash flow in the short-term.

In addition, we seek to mitigate some of the risk associated with rising rates by limiting the term of new loans to one year, whenever possible. 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. However, if interest rates continue to increase, we may find it necessary to change our strategy and try to increase the rates on our mortgage loans as well. If we are successful, this may undermine our strategy to increase market share. If we are not successful, 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 investorsyou that we will be able to increase our rates at any time in the future. However, to mitigate some of the risks associated with rate increases, many of our new loans have a term of one year rather than three.

We have built our business on a foundation of intimate knowledge of the Connecticut real estate market, our ability to respond quickly to customer needsfuture and demands and a disciplined underwriting and due diligence culturewe cannot assure you that focuses primarily on the value of the underlying collateral and that is designed to protect and preserve capital. We believe that our flexibility in terms of meeting the needs of borrowers without compromising our standards on credit risk, our expertise, our intimate knowledge of the real estate market in Connecticut and the surrounding states and our focus on newly originated first mortgage loans has defined our success until now and should enable us towe can continue to achieveincrease our objectives.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. As a result, we are unable to quantify the number of loans that may have, at one time or another, been in default. Since our inception in December 2010 (when SCP commenced operations) through September 30, 2017, we foreclosed on two properties and acquired nine other properties by “deed in lieu of foreclosure” —i.e., the borrower, in default of its obligations under the terms of the loan, transferred title to the mortgaged property to us. Three properties were each sold for a gain, five properties were each sold at a loss, two were sold for less than their respective carrying values but the borrowers’ obligations are guaranteed by a third party and we intend to assert our rights under the guaranty, one is currently held for investment and one is held for rental.

Our principal executive officers are experienced in hard money lending under various economic and market conditions. Our co-chief executive officers, Jeffrey C. Villano and John L. Villano CPA, spend a significant portion of their time on business development as well as on underwriting, structuring and servicing each loan in our portfolio.

A principal source of new transactions has been repeat business from existing and former customers and their referral of new business. We also receive leads for new business from banks, brokers, attorneys and web-based advertising. We rely on our own employees, independent legal counsel, and other independent professionals to verify title and ownership, to file liens and to consummate the transactions.

Operational and Financial Overview

Since December 2010, when SCP commenced operations, through September 30, 2018, our most recent quarter end, we have made approximately 592 loans, including renewals and extensions of existing loans. At September 30, 2017, (i) our loan portfolio included 311 loans, with individual principal loan amounts ranging from $10,000 to $1.2 million and an aggregate loan amount of approximately $52.7 million, (ii) the average original principal amount of the loans in the portfolio was $169,000 and the median loan amount was $116,500 and (iii) approximately 81% of the loans had a principal amount of $250,000 or less. In comparison, at September 30, 2016, (i) our loan portfolio included 202 loans, with individual principal loan amounts ranging from $25,000 to $1.1 million and an aggregate loan amount of approximately $30.6 million, (ii) the average original principal amount of the loans in the portfolio was $151,277, the median loan amount was $113,700 and (iii) approximately 86% of the loans had a principal amount of $250,000 or less. At September 30, 2017 and 2016, unfunded commitments for future advances under construction loans totaled $3.1 million and $1.07 million, respectively.

From our inception in December 2010 through September 30, 2017, we had eight832 mortgage loans having an aggregate original principal amount of approximately $1.5 million, that$155.8 million. Until 2015, we characterized as “non-performing”. In each of those cases, we acquirednever had a situation where a borrower was unable to service a loan during its term or unable to repay the property securing the loan, either through foreclosure or by deed-in-lieu of foreclosure. The eight properties have been soldentire outstanding balance, interest and principal, in connection with those sales, we recognized aggregate net losses of approximately $93,000.full at maturity.

At September 30, 2017, revenues2018, of the 395 mortgage loans in our portfolio, 10 were designated by us as “non-performing,” typically because the borrower is more than 90 days in arrears on its interest payment obligations or because the borrower has failed to make timely payments of real estate taxes or insurance premiums. The aggregate outstanding principal balance of these non-performing loans and net income were approximately $4.7 million and $3.2 million, respectively. In comparison, for the nine months endedaccrued but unpaid interest as of September 30, 2016, revenues and net income were2018 was approximately $3.0$5.2 million, and $2.2 million, respectively.

representing approximately 6.7% of our aggregate mortgage loan portfolio. The non-performing loans have all been referred to counsel to commence foreclosure proceedings or to negotiate settlement terms. In the case of each non-performing loan, we have determined the value of the collateral exceeds the outstanding balance on the loan.

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. However, under the terms of the BankwellWebster Facility, unless otherwise explicitly permitted by the Credit Line,and Security Agreement, we may not incur any additional indebtedness exceeding $100,000without Webster’s consent. The most significant exception to this covenant is one that permits us to separately finance the mortgage loans in the aggregate without Bankwell’s consent.our portfolio that secure “commercial” properties. 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 September 30, 2017,2018, debt proceeds represented approximately 29%34% of our total capital. However, to grow the business and satisfy the requirement to pay out 90% of net profits, we expect to increase our level of debt over time to approximately 50% of our total capital. We intend to use leverage for the sole purpose of financing our portfolio and not for speculating on changes in interest rates.

We raised $13 million of equity capital inconsummated our IPO which was consummated in February 2017, in which we soldoffering and selling 2,600,000 common shares at a price of $5.00 per share. The net proceeds, after payment of underwriting discounts and commissions and transaction fees were approximately $11.1 million. Wemillion, which we initially used a portion of the net proceeds immediately to pay down the entire outstanding balance on the Bankwell Credit Line then outstanding.

From October 27 throughFacility. In November 3, 3017,2017, we raisedcompleted a second public offering in which we sold an additional $17.25 million (gross)aggregate of equity capital from the sale of an additional 4,312,500 common shares (including 562,500 covered by an over-allotment option) in a follow-on underwritten public offering at a public offering price of $4.00 per share. After deducting underwriting discounts and after reimbursing the underwriters for their expenses related to the offering, the netThe gross proceeds from the follow-on publicNovember offering were approximately $15.8 million. The net proceeds from our IPO were used,$17.25 million and the net proceeds from our follow-on public offering will bewere approximately $15.3 million, which were also used primarily to increase our loan portfolio and for working capital and general corporate purposes.reduce the outstanding balance on the Bankwell Credit Facility.

The Bankwell Credit Line isFacility was a $20.0$20 million revolving credit facility that we useused to fund the loans we originate. Borrowings under the Bankwell Credit Line bear interest at a rate equal to the greater of (i) a variable rate equal to the sum the LIBOR as in effect from time to time plus 4.50% or (ii) 5.5% per annum. As of September 30, 2017, the rate on the Bankwell Credit Line is 5.83% per annum.originated. The Bankwell Credit Line expires and the outstanding indebtedness thereunder will become due and payable in full on June 30, 2019. Assuming we are not then in default under the terms of the Bankwell Credit Line, we have the option to repay the outstanding balance, together with all accrued interest thereon in 36 equal monthly installments beginning July 30, 2019. The Bankwell Credit Line isFacility was secured by assignment of mortgages and other collateral and isa first priority lien on all our assets, including our mortgage loan portfolio. It was also jointly and severally guaranteed by JJV, Jeffrey C. Villano and John L. Villano, CPA, our co-chief executive officers. The liability of each guarantor iswas capped at $1 million.

On May 11, 2018 (the “Closing Date”), we entered into a Credit and Security Agreement with Webster Business Credit Corporation (“WBCC”), Bankwell Bank and Berkshire Bank (collectively, the “Lenders”) under which the Lenders agreed to provide us with a $35 million revolving credit facility (the “Webster Facility”) to replace the Bankwell Credit Facility, which has now been repaid in full and terminated. The Webster Facility is secured by a first priority lien on substantially all our assets, including our mortgage loan portfolio. Amounts outstanding under the Webster Facility bear interest at a floating rate equal to the 30-day LIBOR rate plus 4.00% per annum and will be due and payable on May 11, 2022.

Pursuant to the terms of the agreement governing the Webster Facility, we may draw up to 75% the aggregate principal amount of our “Eligible Mortgage Loans,” which are defined as mortgage loans secured by a first mortgage lien on real property as to which (a) certain representations and warranties are correct, (b) the loan-to-value ratio is not greater than seventy percent (70%), (c) the principal amount of such mortgage loan does not exceed $1.5 million ($4 million in the case of related borrowers), (d) (i) with respect to mortgage loans made prior to the Closing Date, the mortgage note has a stated maturity that does not exceed thirty-six (36) months and does not provide for, or have, any extension beyond thirty-six (36) months from the original due date of such mortgage note (ii) with respect to Mortgage Loans made on or after the Closing Date, the mortgage note has a stated maturity that does not exceed twenty-four (24) months and does not provide for, or have, any extension beyond twenty-four (24) months from the original due date of such mortgage note and (e) the mortgage file has been delivered to WBCC, the Agent for the Lenders and (f) that were approved by Agent in its “permitted discretion” for inclusion as collateral. Mortgage loans secured by non-residential properties are excluded. At the Closing Date, our Eligible Mortgage Loans totaled approximately $43.2 million.

Under the terms of the Credit and Security Agreement, we, either directly or through a loan subsidiary, may enter into a separate loan transaction with one or more third party financial institution(s), which is secured by a lien on the mortgage loans in our portfolio that are secured by “commercial” properties. As of September 30, 2017, we estimate that2018, mortgage loans havingsecured by commercial properties had an aggregate principal amount of approximately $38.8 million, representing approximately 73.6%$19.3 million.

Events of default under the terms of the new credit facility include: (i) failure to timely pay amounts due; (ii) breach of covenants and other agreements; (iii) material misrepresentations; (iv) bankruptcy or insolvency; (v) failure to deliver reports on time; (vi) change in control or change in management and (vii) material adverse changes to our business.

In connection with the new credit facility we made various representations and warranties, which are typical of transactions of this type including those relating to our authority to enter into the transaction, our organization and qualification, the filing of tax returns and the payment of taxes, the completeness and accuracy of our mortgages receivable, satisfied allfinancial statements, our compliance with laws, rules and regulations relating to our employees, the workplace and the environment, our solvency, our indebtedness and liabilities; our intellectual property; the status of our material agreements, that we are not in default of any material agreements, that we have no labor disputes and our status as a REIT.

We also agreed to various affirmative and negative and financial covenants typical of transactions of this type. The financial covenants include maintaining (i) a minimum tangible net worth of not less than $52 million, (ii) a fixed charge coverage ratio of not less than 1.25:1 and (iii) a senior funded debt to tangible net worth ratio of not more than 2:1. We are in compliance with each of these covenants.

We are also obligated to provide the lenders with various reports and schedules including unaudited quarterly and audited annual financial statements, an annual budget and a borrowing base certificate. If we fail to provide these reports on a timely basis, we are subject to late fees of $150/day/report.

Finally, in addition to interest, we are responsible for the following additional fees: (i) unused line fee of 0.375% per annum, payable quarterly, (ii) the Agent’s fee of 0.25% per annum computed on the actual outstanding balances, payable monthly, (iii) a collateral evaluation fee of $2,500 per month; and (iv) a computer access fee of $150 per month. Other periodic charges include audit fees of $950/day/person, 2-4 times per year.

REIT Qualification

We believe that since the consummation of the eligibility requirements set forthIPO, we have qualified as a REIT and that it is in the Bankwell Credit Line.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 of September 30, 2017, the total amount outstanding under the Bankwell Credit Line was approximately $15.9 million

Dividend Policy

To maintain our qualification as a REIT, we are required to distribute at least 90% of our taxable income each year to our shareholders. On October 19, 2017, our board of directors declared a quarterly dividend of $0.105 per common share for the third quarter of 2017. This dividendshareholders on an annual basis. We cannot assure you that we will be payable on November 17, 2017 to common shareholders of record at the close of business on November 7, 2017. Taking into account this most recent dividend, since our IPO, we have distributed $0.26 per share to our shareholder, representing 100% of our Net Income through September 30, 2017

Corporate Reorganization and REIT Qualification

Since the IPO, our operating expenses have increased significantly due to various factors including our conversion from a limited liability company to a regular C corporation, operatingqualify as a REIT our statusor that, even if we do qualify initially, we will be able to maintain REIT status.

Our qualification as a publicly-held reporting company and growth in our operations. As a corporation, we incur various costs and expenses that we did not have as a limited liability company, such as director fees, directors’ and officers’ insurance and state and local franchise taxes and we will incur significant compensation and other employee-related costs for services rendered by our senior executive officers. Moreover, because of various laws, rules and regulations that prohibit or severely limitREIT depends on our ability to enter into agreements with related parties, certainmeet on a continuing basis, through actual investment and operating expenses, suchresults, various complex requirements under the Internal Revenue Code of 1986, as rent, will increase as well. Finally, we have experienced increases in professional fees, filing fees, printingamended (the “Code”), relating to, among other things, the sources of our gross income, the composition and mailing costs, exchange listing fees, transfer agent fees and other miscellaneous costs related tovalues of our assets, our compliance with various laws, rules and regulationsthe distributions requirements applicable to REITs and the diversity of ownership of our outstanding common shares. Given that our senior executive officers, Jeffrey C. Villano and John L. Villano, own a publicly-held reporting company. Also,significant portion of our outstanding capital shares, we cannot assure you that we will be able to maintain that qualification.

So long as we qualify as a public reporting company,REIT, we, must establishgenerally, 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 maintain effective disclosuredo not qualify for certain statutory relief provisions, we will be subject to U.S. federal income tax at regular corporate income tax rates and financial controls. Asmay be precluded from electing to be treated as a result,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 needbe subject to hire additional accountingcertain U.S. federal, state and finance personnel with appropriate public company experience and technical accounting knowledge, which will also increaselocal taxes on our operating expenses.income.

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 applicable to other public companies but not 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 such time as 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 following the fifth anniversary of the IPO;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 because of our decision to take advantage of the exemptions provided by the JOBS Act regarding disclosure, 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 generally accepted accounting principlesU.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.

We recognize revenues in accordance with ASC 605, which provides guidance on the recognition, presentation and disclosure of revenue in financial statements. ASC 605 outlines the basic criteria that must be met to recognize revenue and provides guidance for disclosure related to revenue recognition policies. In general, we recognize revenue when (i) persuasive evidence of an arrangement exists, (ii) delivery of the product has occurred or services have been rendered, (iii) the sales price charged is fixed or determinable and (iv) collectability is reasonably assured. Accordingly, interestInterest 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 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 these provisions of the JOBS Act 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

We were formed in January 2016 and, prior to the consummation of the Exchange, had not engaged in any business activity. TheExcept as otherwise stated, the results of operations discussed below for the threethree- and nine-month periods ended September 30, 2016 and2017, include those of SCP for the portion of the nine months ended September 30, 2017, untilperiod prior to the consummation of the Exchange are thoseon February 8, 2017. Given the significant changes to our operations in the first quarter of SCP.2017, comparisons of operating results in 2018 and 2017 may not be appropriate.

Three months ended September 30, 20172018 compared to three months ended September 30, 20162017

Total revenue

Total revenue for the three months ended September 30, 20172018 was approximately $1.9$3.05 million compared to approximately $1.0$1.9 million for the three months ended September 30, 2016,2017, an increase of $900,000,approximately $1.1 million, or 90.8%57%. The increase in revenue represents an increase in lending operations. For the 20172018 period, interest income was approximately $1.57$2.3 million, and net origination fees were approximately $197,000.$383,000, other income was approximately $175,000 and gains on the sale of real estate were approximately $120,000. In comparison, for the three months ended September 30, 2016,2017, interest income was approximately $952,000 and$1.6 million, net origination fees were approximately $43,000.$197,000, other income was approximately $80,000 and gains from the sale of real estate were approximately $16,000.

Operating costs and expenses

Total operating costs and expenses for three months ended September 30, 2018 were approximately $1.09 million compared to approximately $621,000 for the three months ended September 30, 2017 period, an increase of approximately 75%. The increase in operating costs and expenses is primarily attributable to the increase in our lending operations. Interest expense and amortization of deferred financing costs for the three months ended September 30, 2018 were approximately $494,000 compared to approximately $303,000 for the corresponding 2017 period, an increase of approximately 63%, reflecting the increase in the amount of our outstanding indebtedness and cost of funds. Compensation and related costs for the three months ended September 30, 2018 was approximately $374,000 compared to approximately $196,000 for the corresponding 2017 period. The increase was due primarily to the increase in the base annual compensation payable to our co-chief executive officers, salary increases payable to our other employees and stock based compensation expense relating to common shares issued to our independent directors. For the three months ended September 30, 2018, we recorded increases in professional fees (approximately $54,000 in 2018 compared to approximately $47,000 for the corresponding 2017 period) and general and administrative expenses (approximately $142,000 in the 2018 period compared to approximately $35,000 for the corresponding 2017 period). Depreciation for the three months ended September 30, 2018 was approximately $7,000 compared to approximately $9,000 for the corresponding 2017 period.

Net Income

Net income for the three months ended September 30, 2018 was approximately $ 1.96 million, or $0.13 per share, compared to approximately $1.32 million, or $0.12 per share for the three months ended September 30, 2017.

Nine months ended September 30, 2018 compared to nine months ended September 30, 2017

Total revenue

Total revenue for the nine months ended September 30, 2018 was approximately $8.8 million compared to approximately $4.7 million for the nine months ended September 30, 2017, an increase of $4.1 million, or 86%. The increase in revenue represents an increase in lending operations. For the 2018 period, interest income was approximately $6.6 million, net origination fees were approximately $1.07 million and other income was approximately $675,000. In comparison, for the nine months ended September 30, 2017, interest income was approximately $3.8 million, net origination fees were approximately $464,000 and other income was approximately $206,000. Prior to the completion of ourthe IPO, 75% of gross origination fees were paid to JJV, LLC (“JJV”), SCP’s managing member. Accordingly, for the 2016 period,from January 1, 2017 through February 8, 2017, net origination fee income is net of the amounts payable to JJV and other adjustments. From and after February 9, 2017, JJV is no longer entitled to any payments from us (other than dividends paid to it in its capacity as a shareholder of Sachem Capital Corp.)

Operating costs and expenses

Total operating costs and expenses for three months ended September 30, 2017 were approximately $621,000 compared to approximately $341,000 for the three months ended September 30, 2016 period, an increase of approximately 82%. The increase in operating costs and expenses is primarily attributable to the following: (i) an increase in compensation and taxes of approximately $189,000; (ii) an increase in professional fees of approximately $27,000; (iii) an increase in general and administrative expenses of approximately $35,000; and (iv) an increase in interest expense and amortization of deferred financing costs of approximately $164,000. These increases are primarily due to the increase in our lending activity, and the costs incurred as a result of our conversion from a privately-held limited liability company to a publicly-held corporation, although year-to-year comparisons may not be meaningful in light of the changes to our corporate structure and our operation as a REIT.

Net Income

Net income for the three months ended September 30, 2017 was approximately $1.32 million, or $0.12 per share (basic and diluted) compared to $675,000 for the three months ended September 30, 2016. Since we operated as a limited liability company prior to the IPO, we do not report net income per share data for 2016 periods.

Nine months ended September 30, 2017 compared to nine months ended September 30, 2016

Total revenue

Total revenue for the nine months ended September 30, 2017 was approximately $4.75 million compared to approximately $2.99 million for the nine months ended September 30, 2016, an increase of $1.76 million or 59%. The increase in revenue represents an increase in lending operations. For the 2017 period, interest income was approximately $3.8 million and net origination fees were approximately $464,000. In comparison, for the nine months ended September 30, 2016, interest income was approximately $2.7 million and net origination fees were approximately $139,000. Prior to the completion of the IPO, 75% of gross origination fees were paid to JJV, LLC, SCP’s managing member. Accordingly, for the 2016 period and, roughly, the first six weeks of the 2017 period, net origination fee income is net of the amounts payable to JJV and other adjustments. From and after February 9, 2017, JJV is no longer entitled to any payments from us (other than dividends paid to it in its capacity as a shareholder of Sachem Capital Corp.)

Operating costs and expenses

Total operating costs and expenses for nine months ended September 30, 20172018 were approximately $1.57$2.7 million compared to approximately $763,000$1.6 million for the nine months ended September 30, 2016 period,2017, an increase of approximately 106%70.0%. The increase in operating costs and expenses is primarily attributable to the following: (i) an increase in compensation and taxesour lending operations as well as a change in our status from a limited liability company to a publicly-held REIT subject to the reporting requirements of approximately $438,000; (ii) an increase in professional fees of approximately $135,000; (iii) an increase in general and administrative expenses of approximately $213,000; and (iv) an increase in interestthe Exchange Act. Interest expense and amortization of deferred financing costs for the nine months ended September 30, 2018 were approximately $1.1 million compared to approximately $589,000 for the corresponding 2017 period, an increase of approximately $229,000. These86.0%, reflecting the increase in the amount of our outstanding indebtedness. Compensation and related costs for the nine months ended September 30, 2018 was approximately $915,000 compared to approximately $466,000 for the corresponding 2017 period. However, this was offset, in part, by a decrease in compensation to manager to $0 in 2018 compared to approximately $36,000 in the corresponding 2017 period. For the nine months ended September 30, 2018, professional fees were approximately $213,000 compared to approximately $179,000 for the corresponding 2017 period. General and administrative expenses were approximately $315,000 in the 2018 period compared to approximately $213,000 for the corresponding 2017 period, an increase of 48.0%. The foregoing increases arewere primarily due to the increasechange in our lending activity, our initial public offering, and our conversionstatus from a privately-held limited liability companyprivate to a publicly-held corporation, although year-to-year comparisons may not be meaningful in lightpublic company subject to the reporting obligations of the changesExchange Act. Depreciation for the nine months ended September 30, 2018 was approximately $20,000 compared to approximately $22,000 for the corresponding 2017 period. In addition, for the nine months ended September 30, 2018, we incurred a $19,000 excise tax compared to $0 for the same period in 2017, because we failed to distribute 85% of our corporate structure, our IPO and our operation2017 taxable income in 2017 as a REIT.is required of REITs.

Net Income

Net income for the nine months ended September 30, 20172018 was approximately $3.17$6.1 million, or $0.40 per share, compared to $2.23approximately $3.2 million, or $0.26 per share for the nine months ended September 30, 2016. Net income per share for the period beginning February 9, 2017 (the effective date of the IPO) and ending September 30, 2017 was $0.26.2017. Since we were operatingoperated as a limited liability company prior to the IPO, the net income per share data for the nine months ended September 30, 2017 does not include the net income per share for the period prior to the IPO.

Liquidity and Capital Resources

Net cash provided by operating activities for the nine monthsnine-month period ended September 30, 20172018 was approximately $2.8$3.8 million compared to approximately $2.42$2.8 million for the nine months ended September 30, 2016. Netcorresponding 2017 period, an increase of approximately $1.0 million. For the 2018 period, the increase in net cash provided by operating activities in the 2017 period is primarily attributable to approximately $3,170,000, $581,000, and $155,000,an increase in net income deferred revenueof approximately $3.0 million, a decrease in the escrow deposit of approximately $111,000, and an increase in due to member of approximately $656,000, offset by increases in interest and fees receivable of approximately $762,000 and other receivables of approximately $165,000 and decreases in due to note purchaser of approximately $723,000, accrued expenses of approximately $178,000, advances from borrowers respectively, offset by an increase of approximately $279,000 in amounts due from borrowers$398,000, and a decrease in deferred revenue of approximately $656,000 in the amount due to member.$536,000.

Net cash used forin investing activities for the nine monthsnine-month period ended September 30, 20172018 was approximately $19.0$16.1 million compared to approximately $3.49$19.0 million for same 2016the comparable 2017 period. ProceedsThe decrease in cash used in investing activities for the 2018 period is primarily due to increased collections on mortgages receivable of approximately $6.1 million, a decrease in acquisitions of and improvements to real estate owned of approximately $319,000, and an increase in proceeds from the sale of real estate owned of approximately $142,000, offset by increases in the 2017 period was approximately $530,000, compared to approximately $546,000 for the 2016 period. The 2017 period also included approximately $424,000issuance of cash used to acquire and improve properties that we acquired compared to approximately $563,000 in the same 2016 period. Finally, in the 2017 period, principal disbursements for mortgages receivable wereof approximately $33.8$3.5 million and principal collections were approximately $14.8 million. In the 2016 period, the corresponding amounts were approximately $14.3 millionpurchase of property and approximately $10.9 million, respectively. We believe that the increase in the 2017 periodequipment of approximately $3.9 million in principal collections on mortgages receivable, resulting from an increased rate of prepayments of outstanding loans, is primarily attributable to increasing lending activity by traditional lenders, such as banks, which could be an indicator of improving economic conditions in general. If this trend continues it may signal increased competition for our business.$199,000.

Net cash provided by financing activities for the nine monthsnine-month period ended September 30, 20172018 was approximately $15.7$11.9 million compared to approximately $2.5$15.7 million for the nine monthsnine-month period ended September 30, 2016. Prior to2017. Net cash provided by financing activities for the 2018 period primarily consists of combined net proceeds from the Bankwell and Webster Credit Facilities of approximately $17.4 million offset by dividends paid of approximately $4.9 million and financing costs incurred of approximately $567,000, while net cash provided by financing activities in the 2017 period consists primarily of net proceeds from the IPO cash flows from financing activities basically reflects the difference between proceeds from borrowings under the Bankwell Credit Lineof approximately $11.5 million and member contributions on the one hand,of approximately $653,000 and repayments of the amounts outstandingnet proceeds on the Bankwell Credit LineFacility of approximately $7.8 million offset by dividends paid of approximately $1.72 million and members distributions to members, on the other hand. From and after the IPO there will no longer be contributions from or distributions from members. On the other hand, we intend to pay quarterly dividends to maintain our status as a REIT and we may, from time to time raise capital by selling securities. For the 2017 period, the most significant element of cash flow from financing activities was the $13 million of gross proceeds from the IPO. Other factors included approximately $25.3 million of proceeds from the Bankwell Credit Line, approximately $17.5 million of payments to Bankwell, approximately $654,000 of member contributions and approximately $2.5 million of distributions to members. In addition, we incurred approximately $87,000 of financing costs and approximately$1.5 million of costs related to the IPO. For the same 2016 period, the principal elements were (i) approximately $5.4 million of proceeds from Bankwell, (ii) $2.9 million of payments to Bankwell, (iii) approximately $3.75 million of member contributions and (iv) approximately $3.5 million in distributions to members.$2.46 million.

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 and payments for usual and customary operating and administrative expenses, such as employee compensation, rent, sales, and marketing expenses and dividends. Based on this analysis, we believe that our current cash balances, the amount available to us under the Bankwell Credit LineWebster Facility 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 our cash on hand, operating cash flows, and unused capacity of the Bankwell Credit Lineour revolving credit facility or any replacement thereof. In addition, to maintain

From and after the effective date of our status as a 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

Subsequent toOn October 1, 2018, we sold a property classified as real estate held for sale at September 30, 2017, we commenced foreclosure proceeding with respect to two loans made to two separate borrowers, having an aggregate unpaid principal2018 receiving $178,475 not including interest impounded by us of $4,761. We believe the value of the remaining collateral exceeds the outstanding balance of $238,000 and accrued but$8,000 on the loan.

On October 31, 2018, we sold a property classified as real estate held for sale at September 30, 2018 receiving $408,255 in net proceeds from the sale. The note agreement contains additional collateral to satisfy the borrowers remaining balance of approximately $90,000.

On October 31, 2018, we sold a mortgage note receivable at a gain of $28,175 including a $12,500 note premium plus unpaid default interest of $4,440. The loans are secured by first mortgage liens on properties owned by$15,675.

On November 6, 2018, we paid a dividend of $0.12 per share, or $1,852,430 in the borrowers. We halted an ongoing foreclosure proceeding when the borrower entered into a settlement agreement with us, which provided us with additional collateral in exchange for us extending the borrower additional timeaggregate, to repay the obligations. We have obtained real property assessments and broker opinions of value for these properties. Based on these values, we have not recorded an impairment loss for these properties.our shareholders.

On October 19, 2017,2018, we declaredfiled a dividend of $.105 per share to be paidRegistration Statement on November 17, 2017 to shareholders of record on November 7, 2017. The total amount ofForm S-3 (the “Shelf”) with the dividend payment is estimated to be approximately $1,560,000.

As described above and in Note 9 to the financial statements included in this Report, from October 27 through November 3, 3017, we raised an additional $17.25 million (gross) of equity capital fromSEC registering the sale of an additional 4,312,500our common shares, (including 562,500 covered bypreferred shares, warrants, debt securities and/or units of any combination thereof (collectively, the “Securities”) having an over-allotment option) in a follow-on underwritten public offering at a publicaggregate offering price of $4.00 per share.up to $100 million, subject to the limitations impose by the Securities Act of 1933, as amended and applicable to us. The Shelf includes a prospectus supplement covering an “at-the-market” offering of up to $16 million of our common shares (the “ATM Offering”). The Shelf was declared effective by the SEC on November 9, 2018. We entered into an At Market Issuance Sales Agreement, dated November 9, 2018, with B. Riley FBR, Inc. (“B. Riley”), pursuant to which B. Riley will act as sales agent for the ATM Offering.  We will pay B. Riley commissions, discounts or other forms of compensation of up to 7% on the sale of our common shares in the ATM Offering.

Off-Balance Sheet Arrangements

We haveare not entered intoa 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 September 30, 2017,2018, our contractual obligations include unfunded amounts of any outstanding construction loans and unfunded commitments for loans as well as contractual obligations consistconsisting of operating leases for equipmentequipment.

As of the date of the Exchange, SCP owed $910,211 to JJV of which $64,794 represented borrower charges advanced by JJV and software licenses.$845,417 represented expenses paid by JJV for and on behalf of SCP for professional and other costs associated with the IPO, services rendered to SCP in connection with originating, underwriting, closing and servicing loans on our behalf and other miscellaneous items. The entire amount due to JJV was paid by SCP from its cash on hand on February 9, 2017. From and after the IPO, JJV is no longer entitled to any management or other fees for services rendered to SCP or to us unless specifically authorized by our board of directors, which majority must also include a majority of the “independent” directors.

Recent Accounting Pronouncements

See “NoteNote 2  - Summary of Significant—  “Significant Accounting Policies” to the financial statementsaccompanying Financial Statements for explanation of recent accounting pronouncements impacting us.

Item 3.   QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

As a smaller reporting company, we are not required to provide the information required by this Item.

Item 4.   CONTROLS AND PROCEDURES

Our management, with the participation of our co-chief executive officer and chief financial officer, evaluated the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) as of September 30, 20172018 (the “Evaluation Date”). Based upon that evaluation, the chief executive officer and the chief financial officer 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 its chief executive officer and chief financial officer, as appropriate to allow timely decisions regarding required disclosure.

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 September 30, 20172018 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

PART II. OTHER INFORMATION

Item 6.   EXHIBITS

* Filed herewith.

** Compensation plan or arrangement for current or former executive officers and directors.

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

SIGNATURES

Pursuant to the requirements 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.