SACHEM CAPITAL CORP.
NOTES TO FINANCIAL STATEMENTS
MARCH 31, 2019

The following isare the maturities of mortgages receivable as of June 30, 2018:March 31:

At June 30, 2018,March 31, 2019, of the 385413 mortgage loans in the Company’s portfolio, eight (8)11 were treated by the Company 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 the accrued but unpaid interest as of June 30,March 31, 2019 was approximately $ 4.1 million. The Company does not accrue interest on non-performing loans that are more than 90 days past due. At March 31, 2018, of the 366 mortgage loans in the Company’s portfolio, 13 were treated by the Company as “non-performing. The aggregate outstanding principal balance of these non-performing loans and the accrued but unpaid interest as of March 31, 2018 was approximately $2.56$3.5 million. At June 30,each of March 31, 2019 and 2018, all non-performing loans have beenwere 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 believes 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 June 30,March 31, 2019, and December 31, 2018, real estate owned totaled $2,724,819, consisting$4,912,263 and $2,943,438, respectively, with no valuation allowance. As of $1,235,409March 31, 2019, real estate owned included $948,226 of real estate held for rental and $1,489,410$3,964,037 of real estate held for sale. There is no valuation allowance on theAs of December 31, 2018, real estate owned.owned included $887,918 of real estate held for rental and $2,055,520 of real estate held for sale.

On April 16, 2018, TheRestricted cash mainly represents collections received, pending check clearance, from the Company’s Board of Directors approvedcommercial loans and is primarily dedicated to the adoptionreduction of the Sachem Capital Corp. 401(k) Profit Sharing Plan (the “401(k) Plan)”Webster Facility (See Note 6 below). 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.

SACHEM CAPITAL CORP.

NOTES TO FINANCIAL STATEMENTS

JUNE 30, 2018

Line of Credit

On December 18, 2014, SCP establishedthe Company entered into a two-year revolving Line of Credit Agreement with Bankwell Bank (“Bankwell”), pursuant to which Bankwell agreed to advance up to $5 million revolving line of credit (the “Bankwell Credit Line”) with Bankwell Bank (the “Bank”), which was secured by all its assets, including its mortgage loan portfolio. Over the ensuing three years,against assignments of mortgages and other collateral. On December 30, 2015, the Bankwell Credit Line was extended, increasedamended to increase available borrowings to $7,000,000 and restructured several times. Aton March 15, 2016, the time of the Exchange, the Bankwell Credit Line was $15 million and theamended again to increase available borrowings to $15,000,000. The interest rate on the amount actually outstanding balance was calculated at a variable rate equal to the greater of (i) the prime rate plus 3% and (ii), but in no event less than 6.25%. In connection with the Exchange, the Company entered into a new agreement with Bankwell., per annum. On June 30, 2017, the Bankwell Credit Line was amended foragain amended. The amendments included the last time. Among other things,following: (i) an increase in the amendment (i) increased the borrowing limitamount available to $20 million,$20,000,000, (ii) provided that interest on the outstanding balance would be calculated at the greater of (x) 5.5% and (y) the three-month LIBOR Rate plus 4.50%; and (iii) extended the maturity date of the Credit Line was extended to June 30, 2019. Finally,

SACHEM CAPITAL CORP.
NOTES TO FINANCIAL STATEMENTS
MARCH 31, 2019

The Bankwell Credit Line was secured by substantially all Company assets. In addition, JJV, LLC (“JJV”), the manager of SCP prior to the Exchange, and each of the Company’s co-chief 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.

At May 11, 2018, the outstanding amount under the Bankwell Credit Line was $18,512,470 immediately prior to payoff.

Effective May 11, 2018 (the “Closing Date”), 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 Webster Facility is secured by a first priority lien on all the Company’s assets, including its mortgage loan portfolio. Interest on the outstanding amountsbalance 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 due and payable May 11, 2022. Pursuant to 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 Lenders contains provisions regarding defaults and events of default, representations and warranties and affirmative, negative and financial covenants that are typical of transactions of this sort.

At 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 June 30,December 31, 2018, the Company was not in compliance with the “tangible net worth” covenant required pursuant to the Credit and Security Agreement, and on March 29, 2019 the Lenders waived compliance with that covenant.

At March 31, 2019, the outstanding amount under the Webster Facility was approximately $22.1$30.4 million and the interest rate on the outstanding balance was 6.09%accruing at the rate of 6.49%.

The amortization costs for the three months ended March 31, 2019 and 2018 were $47,076 and $14,558, respectively.

Mortgage Payable 

Mortgage Payable

TheEffective on March 29, 2019, the Company also has arefinanced the $310,000 principal mortgage payable toloan it obtained from Bankwell Bank collateralized by land andin February 2017 with a building purchased by the Company to be used as its primary business location. The property isnew mortgage loan from Bankwell Bank in the early stages of renovation and the Company expects to move its operations to the new location in the first quarter of 2019. The original principal amount of the mortgage loan is $310,000 and bears$795,000 bearing interest at the rate of 4.52%5.06% per annum and maturing on March 31, 2029 (the “New Bankwell Mortgage Loan”). InterestBeginning in May 2019, principal and principalinterest on the New Bankwell Mortgage Loan are payable, in arrears, in monthly installments of $1,975 commencing in February 2017.$4,710. The entire outstanding principal balance of the mortgage loanNew Bankwell Mortgage Loan and all accrued and unpaid interest thereon is due and payable in January 2022.

SACHEM CAPITAL CORP.

NOTES TO FINANCIAL STATEMENTS

JUNE 30, 2018March 2029. The New Bankwell Mortgage Loan is secured by a first mortgage lien on the property owned by the Company, which, beginning in the first quarter of 2019, serves as the Company’s principal place of business.

Principal payments on the mortgage payable are due as follows:

SACHEM CAPITAL CORP.
NOTES TO FINANCIAL STATEMENTS
MARCH 31, 2019

OtherAt March 31, 2019 and 2018, other income consists of the following:

Loan Brokerage Commissions/Origination Fees Paid to JJV

Loan origination fees consist of points, generally 2%-5% of the original loan principal. Pursuant to SCP’s operating agreement, prior to the Exchange JJV was entitled to 75% of loan origination fees. For the six months ended June 30, 2017, loan origination fees paid to JJV were $79,341, all of which were incurred prior to the Exchange. After the Exchange, JJV is no longer entitled to origination 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.purposes.

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 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 loan portfolio, payable monthly and calculated based on total loans as of the first day of each calendar month. After the Exchange, JJV is no longer entitled to loan servicing fees.

For the six-month period ended June 30, 2017, loan servicing fees paid to JJV were $32,778, all of which were incurred prior to the Exchange.

SACHEM CAPITAL CORP.
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 2018

Unfunded Commitments

At June 30, 2018,March 31, 2019, the Company is committed to an additional $6,204,722$5,632,837 in construction loans that can be drawn by the borrowersborrower when certain conditions are met.

Other

In the normal course of its business, the Company is named as a party-defendant because 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 isremains sufficient value in the subject property to assure that no loan impairment exists.

SACHEM CAPITAL CORP.
NOTES TO FINANCIAL STATEMENTS
MARCH 31, 2019

TheUntil March 11, 2019, the Company currently leasesleased 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 each of the six- and three-month periods ended June 30,March 31, 2019 and 2018 were $9,000 and $4,500, respectively, and for the six- and three-month periods ended June 30, 2017 were $6,000 and $1,500, respectively. Amounts for the 2017 periods only reflect payments made after the Exchange.was $4,500. The Company expectshas moved to move its operationsnew office in March 2019 so no further rental payments are payable to a new location, owned by the Company, in the first quarter of 2019.JJV.

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 June 30, 2017 were $4,905 and are included in other receivables on the Company’s balance sheet.

During the period 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, the ManagerJJV would acquire certain troubled assets from third parties who were not existing SCP borrowers. In such instances, the ManagerJJV would borrow money from SCP to finance these acquisitions. As part of the Exchange, the Company acquired the notes evidencing these loans from SCP. The principal balance of the loans to the ManagerJJV at June 30, 2018March 31, 2019 was $969,457. The real estate purchased is held by the Manager in trust for the Company.$869,627. The Company accounts for these arrangements as separate loans to the Manager.JJV. 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 the ManagerJJV to sell the properties in case of default with proceeds in excess of loan principal and accrued expense being returned to the Manager.JJV. Since the IPO,Exchange, the Company has not made anyno longer loans money to JJV. During the three months ended March 31, 2019 and 2018, JJV paid $26,252 and $32,847, respectively, of interest to the Manager. Interest income earned on loans to the Manager totaled $59,005 and $26,050 for the six- and three-month periods ended June 30, 2018, respectively, and $61,741 and $31,320 for the six- and three-month periods ended June 30, 2017, respectively. 2017 amounts include interest paid to SCP prior to the Exchange.Company.

In 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 Exchange). The underwriting process on these loans is consistent with Company policy. The terms of such loans, including the interest rate, income, origination fees and other closing costs are the same as those applicable to loans made to unrelated third parties in the portfolio. As of June 30, 2018,March 31, 2019, loans to former partners and now shareholders totaled $3,778,629.$4,327,297. Interest income earned on these loans totaled $146,779 and $56,756 for the six- and three-month periods ended June 30, 2018, respectively, and $39,544 and $19,821 for the six- and three-month periods ended June 30, 2017, respectively.

SACHEM CAPITAL CORP.

NOTES TO FINANCIAL STATEMENTS

JUNE 30, 2018$121,535.

During the year ended December 31, 2017, the Company originated thenIn 2018 we sold two notes, having an aggregate original principal amount of $1,717,000, to a shareholder at par. In the first quarter we sold a third note, having an aggregate original principal amount of $500,000, to the same shareholder at par. All three notes are secured by commercial properties. We continued to service the notes on behalf of the purchaser. In December 2018, we reacquired one of the notes, having an original principal amount of $1,200,000, and in the first quarter of 2019 we reacquired the other two notes, having an aggregate principal amount, of $2,750,000. Notes totaling $2,000,000 were repurchased by$1,017,000. The balance owed to the Company and are classified as mortgages receivablepurchaser for the notes, $1,200,000 at December 31, 2017. Prior2018 and $2,217,000 at March 31, 2019, is characterized as due to December 31, 2017, $723,478 was paid to the Companyshareholder on our balance sheets for the benefit of the noteholder. This amount is reflected on the Company’s balance sheet as “Due to note purchaser” at December 31, 2017 and was paid to the noteholder in January 2018.relevant periods.

At both June 30, 2018March 31, 2019 and December 31, 2017,2018, total amounts owed by the ManagerJJV to the Company was $22,794 and $22,977, respectively, and is reflected as other receivables on the Company’s balance sheet.

On February 9, 2017, the Company purchased computer hardware, softwareFor each three month period ended March 31, 2019 and furniture and fixtures totaling $92,806 from JJV.

For the six months periods ended June 30, 2018, and 2017, the Company paid $37,500 and $12,700, respectively, to the wife of one of its co-chiefour executive officers was paid $18,750 for accounting and financial reporting services provided to the Company.

Management has evaluated subsequent events through August 13, 2018On October 27, 2016, the dateCompany adopted the 2016 Equity Compensation Plan (the “Plan), the purpose of which is to align the interests of the Company’s officers, other employees, advisors and consultants or any subsidiary, if any, with those of the Company’s shareholders and to afford an incentive to such officers, employees, consultants and advisors to continue as such, to increase their efforts on which the accompanying financial statements were completed. Except as otherwise set forth in this Note 11, based on management’s evaluation, no adjustments were requiredCompany’s behalf and to promote the success of the Company’s business. The basis of participation in the accompanying financial statements.

In July 2018, the Compensation CommitteePlan is upon discretionary grants of awards by the Company’s Board of Directors,Directors. The Plan is administered by the membersCompensation Committee. The maximum number of which areCommon Shares reserved for the three independent membersgrant of awards under the Plan is 1,500,000, subject to adjustment as provided in Section 5 of the BoardPlan. The number of Directors approved an increase insecurities remaining available for future issuance by the annual basePlan is 1,477,116.

Stock based compensation payable to each of the Company’s two senior executive officers retroactive to April 1, 2018. As of that date, the annual base compensation of each senior executive officer is $360,000. Accordingly, an additional $50,000 was accrued as compensation expense for the three-monthsperiod ended June 30, 2018.March 31, 2019 was $4,107.

In addition, the Compensation Committee also adopted a new compensation plan for the independent members of the Company’s Board of Directors effective as of July 1, 2018. The elements of such compensation plan are as follows:SACHEM CAPITAL CORP.
NOTES TO FINANCIAL STATEMENTS
MARCH 31, 2019

SACHEM CAPITAL CORP.

NOTES TO FINANCIAL STATEMENTS

JUNE 30, 2018

On July 2,November 9, 2018, the Company entered into an agreementAt the Market Issuance Sales Agreement (the “Sales Agreement”) with B. Riley FBR, Inc., (the “Sales Agent”) to sell a property classified as real estate owned and held for rental. The selling price is $382,000 andcommon shares, par value $0.001 per share, of the Company (the “ATM Shares”), having an aggregate offering price of up to $16 million, from time to time, through an “at-the-market” equity offering program (the “ATM Offering”). The ATM Offering is requiredcovered by a prospectus supplement to make certain repairs prior to sale.the Company’s Shelf Registration Statement on Form S-3 (SEC File No. 333-227906) declared effective by the SEC on November 9, 2018. The carrying costsales of the property is approximately $241,500, not including the costs of repairsATM Shares may be made in negotiated transactions or other transactions that are deemed to be made by“at-the-market offerings” as defined in Rule 415 under the Company.Securities Act of 1933. The Company expectshas no obligation to sell any of the ATM Shares under the Sales Agreement, and may at any time suspend sales of the ATM Shares.

The Sales Agent is entitled to compensation at a profit oncommission rate up to 7% of the gross proceeds from the sale of ATM Shares pursuant to the property.Sales Agreement. The Sales Agreement contains representations and warranties and covenants that are customary for transactions of this type. In addition, the Company has agreed to indemnify the Sales Agent against certain liabilities on customary terms, subject to limitations on such arrangements imposed by applicable law and regulation.

A total of 511,635 ATM Shares were sold in the ATM Offering during the three month period ended March 31, 2019, providing the Company net proceeds of approximately $2,227,716.

On August 2, 2018,April 1, 2019, the Company entered into an agreement to sell a property classified as real estate owned and held for sale. The selling price is $224,000 and the carrying cost of the property is approximately $223,000. The Company expects to recover its investment in the property.

On August 6, 2018, the Company entered into an agreement to sell a property classified as real estate owned. The selling price is $211,000 net buyer credits and the carrying cost of the property is approximately $182,000. The Company expects a profit on the sale of the property.

On July 27, 2018, the Company paiddeclared a dividend of $0.11$.12 per common share or $1,698,060which was paid on April 18, 2019 to shareholders of record on April 11, 2019. The total amount of the dividend payment was $2,054,727.

From April 1st through May 7, 2019, the Company sold 2,970,280 of its common shares in the aggregate,to its shareholders.

ATM Offering which raised approximately $13.4 million in net proceeds.

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.

Company Overview

Sachem Capital Corp. was formed as HML Capital Corp. in January 2016 under the New York Business Corporation Law. On December 15, 2016, we changed our name to Sachem Capital Corp. Prior to February 8, 2017, we acquired all the assets of Sachem Capital Partners, LLC (SCP),our business operated as a Connecticut limited liability company through which our business was conducted prior to our 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 under the Bankwell Credit Facility (the “Exchange”name Sachem Capital Partners, LLC (“SCP”). 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 (the “IPO”) in which we issued and sold 2.6 million of our common shares, $.001 par value per share (“Common Shares”), at $5.00 per share, orwhich raised $13 million of gross proceeds (the “IPO”).proceeds. 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, following theupon 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. 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% exercise 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.

Operational and Financial Overview

Since December 2010, when we commenced operations as SCP, through June 30, 2018,At March 31, 2019, (i) our most recent quarter end, we have madeloan portfolio included 413 mortgage loans, with individual principal loan amounts ranging from approximately $8,000 to approximately $2.1 million and an aggregate loan amount of 787approximately $81.7 million, (ii) the average original principal amount of the mortgage loans which includes renewalsin the portfolio was $198,000 and extensionsthe median mortgage loan amount was $139,000 and (iii) approximately 78.0% of existing loans. At June 30,the mortgage loans had a principal amount of $250,000 or less. In comparison, at March 31, 2018, (i) our loan portfolio included 385 mortgage366 loans, with individual principal loan amounts ranging from $15,000 to $2.0 million and an aggregate loan amount of approximately $72.4 million, (ii) the average original principal amount of the mortgage loans in the portfolio was $188,000 and the median mortgage loan amount was $127,000 and (iii) approximately 51% of the mortgage loans had a principal amount of $250,000 or less. In comparison, at June 30, 2017, (i) our loan portfolio included 280 loans, with individual principal loan amounts ranging from $10,000 to $1.2 million and an aggregate loan amount of approximately $47.8$69.6 million, (ii) the average original principal amount of the loans in the portfolio was $170,740$190,000 and the median loan amount was $120,000$125,000 and (iii) approximately 82.0% of the loans had a principal amount of $250,000 or less. At June 30,March 31, 2019 and 2018, and 2017, unfunded commitments for future advances under construction loans totaled approximately $6.4$5.6 million and $3.3$3.8 million, respectively.

Similarly, our revenues and net income have been growing. For the sixthree months ended June 30,March 31, 2019, revenues and net income were approximately $3.3 million and $2.1 million, respectively. For same period in 2018, revenues and net income were approximately $5.76$2.7 million and $4.18, respectively. For the first six months of 2017, revenues and net income were approximately $2.82 million and $1.85$2.0 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 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 limit our ability to enter into agreements with related parties, certainour operating expenses have increased as well. Finally, we anticipate increases inCompensation expense, 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.company have all increased. 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 controls. As a result, we may need to hirehave hired additional accounting and finance personnel with appropriate public company experience and technical accounting knowledge, which will also increase our operating expenses.knowledge.

Our loans typically have a maximum initial term of one to three years and bear interest at a fixed rate of 5.0% to 12.5%13.00% per year and a default rate for non-payment of 18% per year. We usually receive origination fees, or “points,” ranging from 2% to 5% of the original principal amount of the loan as well as other fees relating to underwriting, funding and managing the loan.loan, such as inspection fees. Since we treat an extension or renewal of an existing loan as a new loan, we also receive additional “points” and other loan-related fees in connection with those transactions. Interest is always payable monthly in arrears. As a matter of policy, we do not make any loans if the loan-to value ratio exceeds 70%. 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 Webster Facility (described below), mortgage loans exceeding $250,000 require a third-party to complete an appraisal of the collateral. Failure to obtain such an appraisal would render the loan ineligible for inclusion in the 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 the spread between the interest we earn and our cost of funds. Our capital structure is more heavily weighted to equity rather than debt (approximately 71%65% vs. 29%35% of our total capitalization at June 30, 2018.)March 31, 2019). At June 30, 2018,March 31, 2019, the interest rate on the Webster Facility was 6.09%6.49% per annum and the annual yield on our loan portfolio was 12.30%12.74% per annum. The yield has remained steady over the past few years as older loans come due and are either repaid or refinanced at similar 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 20182019 as interest rates 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 benefits and risks of increasing our rates, considering our relatively low level of debt and cost of funds, we believe the better strategy 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.year. 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 you that we will be able to increase our rates at any time in the future and we cannot assure you that we can continue to increase our market share.

As a real estate finance company, we deal with a variety of default situations, including breaches of covenants, such as the obligation of the borrower to maintain adequate liability insurance on the mortgaged property, to pay the taxes on the property and to make timely payments to us. As such, we may not be aware that a default occurred. As a result, we are unable to quantify the number of loans that may have, at one time or another, been in default. Since December 2010, when SCP commenced operations, through June 30, 2018, our most recent quarter end,March 31, 2019, we have made an aggregate of 787960 mortgage loans having an aggregate original principal amount of $144.6approximately $178.0 million. Until 2015, we never had a situation where a borrower was unable to service a loan during its term or unable to repay the entire outstanding balance, interest and principal, in full at maturity.

At June 30, 2018,March 31, 2019, of the 385413 mortgage loans in our portfolio, eight are11 were designated by us as “non-performing”,“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 the accrued but unpaid interest as of June 30, 2018March 31, 2019 was approximately $2.56$4.1 million, representing approximately 3.5%5.0% 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 believehave determined the value of the collateral exceeds the outstanding balance on the loan.

The key factors contributing to our growth to date have been our ability to access working capital and the strong demand for our products and services, which was driven principally by a robust Connecticut real estate market. As detailed below, in 2017 we raised $30 million in equity capital in two public offerings. In addition, during 2017 and 2018, we refinanced our working capital credit facility on three occasions increasing the size of the facility from $5 million to $35 million. These factors coincided with the overall growth in the U.S. economy. Nevertheless, in the fourth quarter of 2018, we had to curtail our lending operations due to a shortage of working capital. This had an adverse impact on our revenues and net income for the fourth quarter. We addressed this issue in the first quarter of 2019 by selling common shares in the ATM Offering (described below). In addition, we are also in the early stages of exploring alternative financing arrangements that would provide us with additional working capital. Other than with respect to the ATM Offering, we have not entered into any definitive agreements for a financing transaction and we cannot assure you that that we will be able to consummate a financing transaction in the foreseeable future. In addition, beginning in the second half of 2018, we started noticing subtle changes in the business environment. For example, traditional lending institutions, such as banks, appeared to be tightening their credit requirements. Normally, that would be a positive development for our business. However, at the same time, we noticed that property values in Connecticut were either stagnant or declining and the length of time between initial listing and sale was expanding. It is unclear whether these developments are merely temporary phenomena or represent long-term trends. In the meantime, the demand for our products and services continues to be robust. We believe that our best strategy to deal with adverse changes in the marketplace is to adhere to our basic underwriting guidelines.

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 Webster Facility, unless otherwise explicitly permitted by the Credit and Security Agreement, we may not incur any additional indebtedness without Webster’sWebster Business Credit Corporation’s (“WBCC”) consent. The most significant exception to this covenant is one that permits us to separately finance the mortgage loans in 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 June 30, 2018,March 31, 2019, debt proceeds represented approximately 29%35.3% 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 consummated our IPO in February 2017, offering 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, which we initially used to pay down the entire outstanding balance on the Bankwell Credit Facility. In November 2017 we completed a second public offering in which we sold an aggregate of 4,312,500 common shares at a public offering price of $4.00 per share. The gross proceeds from the November offering were $17.25 million and the net proceeds were approximately $16.0 million, which were also used to reduce the outstanding balance on the Bankwell Credit Facility.

The Bankwell Credit Facility washad a $20 million revolving credit facility with Bankwell Bank (the “Bankwell Credit Facility”) that we used to fund the loans we originated. The Bankwell Credit Facility was secured by a 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 was 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”),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 beenwas 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. At March 31, 2019, the outstanding balance on the Webster Facility was accruing interest at the rate of 6.49% per annum.

Pursuant to the terms of the agreement governing the Webster Facility, we may draw up to 75% of 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 whichthat meet the following criteria: (a) certain representations and warranties are correct,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 and (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 andnote; (e) the mortgage file has been delivered to WBCC, the Agent for the LendersLenders; and (f) that werehave been 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 the June 30, 2018,March 31, 2019, mortgage loans secured by commercial loansproperties including property secured by land, had an aggregate principal amount of approximately $18.6$22.9 million.

Events of default under the terms of the new credit facilityWebster 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 facilityWebster 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 financial 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.

WeThe Credit and Security Agreement also agreed toincludes 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 areAt March 31, 2019, we were in compliance with eachall of these covenants.the financial covenants contained in the Credit and Security Agreement. We cannot assure you that we will continue to remain in compliance with all of the financial covenants contained in the Credit and Security Agreement. If we fail to comply with any of the covenants in the Credit and Security Agreement, the Lenders could issue a notice of default and, among other things, declare the entire outstanding balance of the Webster Facility immediately due and payable, which would have a material adverse effect on our business, operations and financial condition.

We are also obligated to provide the lendersLenders 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%0.50% 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.

On October 19, 2018, we filed a Registration Statement on Form S-3 (SEC File No. 333-227906) (the “Shelf”) with the SEC registering the sale of our Common Shares, preferred shares, warrants, debt securities and/or units of any combination thereof (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 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. In the first quarter of 2019, we sold an aggregate of 511,635 Common Shares in the ATM Offering and realized approximately $2.2 million in net proceeds.

REIT Qualification

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

Our qualification as a REIT depends on our ability to meet on a continuing basis, through actual investment and operating results, various complex requirements under the Internal Revenue Code of 1986, as amended (the “Code”), relating to, among other things, the sources of our gross income, the composition and values of our assets, our compliance with the distributions requirements applicable to REITs and the diversity of ownership of our outstanding common shares.Common Shares. Given that our senior executive officers, Jeffrey C. Villano and John L. Villano, own a 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 REIT, we, generally, will not be subject to U.S. federal income tax on our taxable income that we distribute currently to our shareholders. If we fail to qualify as a REIT in any taxable year and do not qualify for certain statutory relief provisions, we will be subject to U.S. federal income tax at regular corporate income tax rates and may be precluded from electing to be treated as a REIT for four taxable years following the year during which we lose our REIT qualification. Even if we qualify for taxation as a REIT, we may be subject to certain U.S. federal, state and local taxes on our income.

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 those standards apply to private companies. We intend to avail ourselves of these options. Once adopted, we must continue to report on that basis until we no longer qualify as an emerging growth company.

We will cease to be an emerging growth company upon the earliest of: (i) the end of the 2022 fiscal year; (ii) the first fiscal year after our annual gross revenue are $1.07 billion or more; (iii) the date on which we have, during the previous three-year period, issued more than $1.0 billion in non-convertible debt securities; or (iv) the end of any fiscal year in which the market value of our common shares held by non-affiliates exceeded $700 million as of the end of the second quarter of that fiscal year. We cannot predict if investors will find our common shares less attractive if we choose to rely on these exemptions. If, as a result of our decision to reduce future disclosure, investors find our common shares less attractive, 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 U.S. GAAP in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. We base our use of estimates on (a)a preset number of assumptions that consider past experience, (b) future projections and (c) general financial market conditions. Actual amounts could differ from those estimates.

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

As an “emerging growth company,” we intend to avail ourselves of the reduced disclosure requirements and extended transition periods for adopting new or revised accounting standards that would otherwise apply to us as a public reporting company. Once adopted, we must continue to report on that basis until we no longer qualify as an emerging growth company. As a result, our financial statements may not be comparable to those of other public reporting companies that either are not emerging growth companies or that are emerging growth companies but have opted not to avail themselves of 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. Except as otherwise stated, the results of operations discussed below for the three- and six-month periods ended June 30, 2017, include those of SCP for the portion of the period prior to the consummation of the Exchange on February 8, 2017. Given the significant changes to our operations in the first quarter of 2017, comparisons of operating results in 2018 and 2017 may not be appropriate.

Three months ended June 30, 2018March 31, 2019 compared to three months ended June 30, 2017March 31, 2018

Total revenue

Total revenue for the three months ended June 30, 2018March 31, 2019 was approximately $3.04$3.3 million compared to approximately $1.56$2.7 million for the three months ended June 30, 2017,March 31, 2018, an increase of $1.48 million,approximately $600,000, or 94.9%23.2%. The increase in revenue represents an increase in lending operations. For the 20182019 period, interest income was approximately $2.38$2.8 million and net origination fees were approximately $340,000 and other income was approximately $205,000.$365,000. In comparison, for the three months ended June 30, 2017,March 31, 2018, interest income was approximately $1.22$2.0 million and net origination fees were approximately $170,000 and other income was approximately $79,000.$349,000.

Operating costs and expenses

Total operating costs and expenses for three months ended June 30, 2018March 31, 2019 were approximately $832,000$1.3 million compared to approximately $603,000$744,000 for the three months ended June 30, 2017March 31, 2018 period, an increase of approximately 37.9%75%. The increase in operating costs and expenses is primarily attributable to the increase in our lending operations. InterestCompared to the 2018 period, in the 2019 period interest expense and amortization of deferred financing costs forincreased approximately $398,000 due to the three months ended June 30, 2018 were approximately $382,000 compared to approximately $171,000 for the corresponding 2017 period, an increase of approximately 123.4%, reflecting the increaseincreases in the interest rate, amortization cost and the outstanding amount of our outstanding indebtednessunder the Webster Facility, compensation, fees and a decrease in our cost of funds. Compensation and related costs for the three months ended June 30, 2018 wastaxes increased approximately $300,000 compared to approximately $165,000 for the corresponding 2017 period. The increase was$139,000 primarily due primarily to the increase in the base annualpersonnel and management compensation, payable to our co-chief executive officers as well as salary increases payable to our other employees. For the three months ended June 30, 2018, we experienced decreases in professional fees (approximately $42,000 in 2018 compared to approximately $48,000 for the corresponding period) and general and administrative expenses (approximately $81,000 in the 2018 period compared toincreased approximately $132,000 for the corresponding 2017 period). Depreciation for the three months ended June 30, 2018 was approximately $5,800 compared to $7,700 for the corresponding 2017 period.$67,000.

Net Income

Net income for the three months ended June 30, 2018March 31, 2019 was approximately $2.21$2.1 million, or $0.14$0.13 per share, compared to approximately $957,000,$2.0 million, or $0.09$0.13 per share for the three months ended June 30, 2017.

Six months ended June 30, 2018 compared to six months ended June 30, 2017

Total revenue

Total revenue for the six months ended June 30, 2018 was approximately $5.76 million compared to approximately $2.82 million for the six months ended June 30, 2017, an increase of $2.94 million, or 104.2%. The increase in revenue represents an increase in lending operations. For the 2018 period, interest income was approximately $4.34 million, net origination fees were approximately $689,000 and other income was approximately $500,000. In comparison, for the six months ended June 30, 2017, interest income was approximately $2.26 million, net origination fees were approximately $267,000 and other income was approximately $126,000. Prior to the completion of the IPO, 75% of gross origination fees were paid to JJV, LLC, SCP’s managing member. Accordingly, 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 six months ended June 30, 2018 were $1.58 million compared to approximately $969,000 for the six months ended June 30, 2017, an increase of approximately 62.6%. The increase in operating costs and expenses is primarily attributable to the increase in our lending operations as well as a change in our status from a limited liability company to a publicly-held real estate investment trust (REIT) subject to the reporting requirements of the Exchange Act. Interest expense and amortization of deferred financing costs for the six months ended June 30, 2018 were approximately $605,000 compared to approximately $287,000 for the corresponding 2017 period, an increase of approximately 110.8%, reflecting the increase in the amount of our outstanding indebtedness. Compensation and related costs for the six months ended June 30, 2018 was approximately $545,000 compared to approximately $271,000 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 six months ended June 30, 2018, professional fees were approximately $158,000 compared to approximately $132,000 for the corresponding 2017 period. General and administrative expenses remained consistent with approximately $163,000 in the 2018 period compared to approximately $177,000 for the corresponding 2017 period. The foregoing increases were primarily due to the change in our status from a private to a public company subject to the reporting obligations of the Exchange Act. Depreciation for the six months ended June 30, 2018 was approximately $13,500 compared to approximately $13,000 for the corresponding 2017 period. In addition, for the six months ended June 30, 2018, we incurred a $19,000 excise tax, because we failed to distribute 85% of our 2017 taxable income in 2017 as is required of REITs.

Net Income

Net income for the six months ended June 30, 2018 was approximately $4.18 million, or $0.27 per share, compared to approximately $1.85 million, or $0.14 per share for the six months ended June 30, 2017. Since we operated as a limited liability company prior to the IPO, the net income per share data for the six months ended June 30, 2017 does not include the net income per share for the period prior to the IPO.March 31, 2018.

Liquidity and Capital Resources

At March 31, 2019, we had restricted cash of approximately $1.07 million compared to cash of approximately $158,900 (including restricted cash) at December 31, 2018.

Net cash provided by operating activities for the six-month periodthree months ended June 30, 2018March 31, 2019 was approximately $2.93$1.2 million compared to approximately $1.66$1.3 million for same 2018 period. This decrease, approximately $100,000, is due principally to the corresponding 2017 period, an increaseincreases in interest and fees receivable of approximately $1.27 million. For the 2018 period the increase in net cash provided by operating activities is primarily attributable to an increase in net income of approximately $2.33 million, and decreases in the escrow deposit of approximately $100,000,$515,000, other receivables of approximately $172,000, and$232,000, due to membersfrom borrowers of approximately $656,000, offset by an increase in interest and fees receivables$92,000, prepaid expenses of approximately $482,000 and$43,000, decreases in deferred revenue of approximately $295,000,$91,000 and advances from borrowers of approximately $144,000, offset by increases in net income of approximately $84,000, amortization of deferred financing costs of approximately $33,000, escrow deposits of approximately $77,000, due to note purchaser of approximately $723,000, accrued interest of approximately $60,000, and accrued expenses of approximately $312,000 and advances from borrowers of approximately $300,000.$44,000.

Net cash used infor investing activities for the six-month periodthree months ended June 30, 2018March 31, 2019 was approximately $10.14$4.7 million compared to approximately $14.45$4.3 million for the comparable 2017same 2018 period. The decreaseincrease in net cash used infor investing activities forin the March 2019 period compared to the March 2018 period is primarily due to increasedincreases of approximately $352,000, $140,000 and $2.5 million in acquisitions of and improvements to real estate owned, purchase of property and equipment and principal disbursements for mortgages receivable, respectively, offset by increases of approximately $125,000 and $2.4 million in proceeds from sale of real estate owned and principal collections on mortgages receivable, of approximately $9.80 million and proceeds from the sale of a mortgage receivable of $1.20 million, offset by an increase in the issuance of mortgages receivable of approximately $7.03 million.respectively.

Net cash provided by financing activities for the six-month periodthree months ended June 30, 2018March 31, 2019 was approximately $8.48$4.5 million compared to approximately $13.10$2.6 million for the six-month period ended June 30, 2017.same 2018 period. Net cash provided by financing activities for the 20182019 period consists primarily consists of combined net proceeds from the Bankwell Credit Facility and the Webster Facility of approximately $12.30$19.7 million, the New Bankwell Bank Mortgage Loan (described below) of $795,000 and the ATM Offering of approximately $2.2 million offset by repayments under the Webster Facility of approximately $16.6 million, repayment of the outstanding principal under the Old Bankwell Bank Mortgage Loan (described below) of approximately $291,000 and dividends paid of approximately $3.24$2.6 million while net cash provided by financing activities in the 20172018 period consists primarily of netapproximately $13.3 million of proceeds from the IPO of approximately $11.51 million and member contributions of approximately $653,000Bankwell Credit Facility offset by net payments onrepayments under the Bankwell Credit Facility of approximately $4.04$9.0 million and members distributionsdividends paid of approximately $2.46$1.6 million.

On April 1, 2019, effective as of March 29, 2019, we refinanced the $310,000 mortgage loan obtained from Bankwell Bank in February 2017 (the “Old Bankwell Mortgage Loan”) with a new 10-year mortgage loan from Bankwell Bank in the principal amount of $795,000 bearing interest at the rate of 5.06% per annum and maturing on March 31, 2029 (the “New Bankwell Mortgage Loan”). Beginning on May 1, 2019, principal and interest on the New Bankwell Mortgage Loan are payable, in arrears, in monthly installments of $4,710.15, calculated based on a 25-year amortization rate. Interest on the Old Bankwell Mortgage Loan accrued at the rate of 4.52% per annum and the monthly installment payments were $1,975.00. The entire outstanding principal balance of the New Bankwell Mortgage Loan and all accrued and unpaid interest thereon is due and payable on March 31, 2029. The New Bankwell Mortgage Loan, among other things, is secured by a first mortgage lien on the real property owned by us, which currently serves as our principal place of business, located at 698 Main Street, Branford Connecticut.

In connection with the New Bankwell Mortgage Loan, John L. Villano and Jeffrey C. Villano, our Co-Chief Executive Officers, jointly and severally, during the term of the loan, indemnified Bankwell Bank from and against any and all actual claims, demands, liabilities, losses, damages, judgments, penalties, reasonable out-of-pocket costs and expenses arising out of or attributable to the New Bankwell Mortgage Loan.

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, marketing expenses and dividends. Based on this analysis, we believe that our current cash balances, the amount available to us under our new credit facility, described below,the Webster 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 our revolving credit facility or any replacement thereof.

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

Subsequent Events

On April 1, 2019, we declared a dividend of $.12 per Common Share which was paid on April 18, 2019 to shareholders of record on April 11, 2019. The total amount of the dividend payment was $2,054,727.

From April 1st through May 7, 2019, we sold 2,970,280 Common Shares in the ATM Offering which raised approximately $13.4 million in net proceeds.

Off-Balance Sheet Arrangements

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

Contractual Obligations

As of June 30, 2018,March 31, 2019, our contractual obligations include unfunded amounts of any outstanding construction loans and unfunded commitments for loans as well as contractual obligations consisting of operating leases for equipment and software licenses.