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 statements and the notes 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, our business operated as a Connecticut limited liability company under the name Sachem Capital Partners, LLC (“SCP”). On February 9, 2017, 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, which raised $13 million of gross 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, upon consummation of the IPO, we met all the requirements to qualify as a REIT for federal income tax purposes and elected to be taxed as a REIT beginning with our 2017 tax year. As a REIT, we are entitled to claim deductions for distributions of taxable income to our shareholders thereby eliminating any corporate tax on such taxable income. Any taxable income not distributed to shareholders is subject to tax at the regular corporate tax rates and may also be subject to a 4% excise tax to the extent it exceeds 10% of our total taxable income. To maintain our qualification as a REIT, we are required to distribute each year at least 90% of our taxable income. As a REIT, we may also be subject to federal excise taxes and state taxes.

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, in part, on the amount of indebtedness incurred and the spread between our cost of funds and the yield on our loan portfolio. Furthermore, 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.

Historically, we have relied upon both equity capital and debt to grow our business. At December 31, 2018, we had approximately $52.8 million of shareholders’ equity and approximately $27.5 million of indebtedness, of which approximately $27.2 million was the outstanding balance on our $35 million credit facility. Since that date, we have restructured our balance sheet by raising additional equity capital and replacing our existing secured, variable interest rate, senior revolving credit facility with unsecured, unsubordinated fixed rate five-year term notes. At September 30, 2019, shareholders’ equity was approximately $84.3 million, and our indebtedness was approximately $23.2 million. In connection with the termination of the Webster Facility (as defined below), we incurred termination costs and expenses of approximately $780,000, including a write-off of unamortized deferred financing costs of approximately $440,000, or approximately $0.04 per share based on the weighted number of Common Shares outstanding at June 30, 2019. While the costs of this restructuring had an adverse impact on our operational performance for the nine months ended September 30, 2019, a majority of the costs were non-cash (i.e., deferred financing costs) and non-recurring. Even though net income for the nine months ended September 2019 was adversely impacted by these financing transactions, net cash provided by operations in the first nine months of 2019 increased approximately 94.2% compared to the first nine months of 2018. In addition, we believe, our restructured balance sheet will have a positive impact on our operations over the balance of the year by reducing our operating expenses and providing us with greater operational flexibility.

Specifically, since January 1, 2019, we:

As a result of these transactions, we strengthened our balance sheet, eliminated the fees and expenses relating to the Webster Facility, which were significant, eliminated the risk associated with variable rate instruments and relieved ourselves from onerous loan covenants, which we felt limited our operational and financing flexibility. We believe these benefits outweigh the higher interest rate we are paying on the Notes relative to the rate we were paying on the Webster Facility.

Because most of the net proceeds from these financing transactions were used to repay existing indebtedness, we were not able to significantly increase our mortgage loan portfolio or revenues in the third quarter of 2019. However, at September 30, 2019 we had $11.0 million of available cash, which we intend to use to fund new mortgage loans in the fourth quarter of 2019. In addition, on October 31, 2019 we sold $30.0 million aggregate principal amount of unsecured unsubordinated 6.875% notes due December 30, 2024 (the “November 2019 Notes.”) The net proceeds from the sale of these notes were approximately $28.6 million. We may sell up to an additional $4.5 million aggregate principal amount of these notes if the underwriters exercise their over-allotment option in full. The over-allotment option expires November 30, 2019. Third, we can sell up to an additional $7.0 million of Common Shares through our existing at-the-market offering facility. (The facility was reduced to $11.5 million from $30 million in order to accommodate the sale of the November 2019 Notes.) Finally, given our improved balance sheet, we may obtain a new credit facility in the future if we believe the terms are reasonable. Thus, we believe we are well-capitalized for the next 12-18 months and plan to use these funds to increase our mortgage loan portfolio.

Operational and Financial Overview

At September 30, 2019, (i) our loan portfolio included 432 mortgage loans, with individual principal loan amounts ranging from approximately $8,000 to approximately $2.9 million and an aggregate loan amount of approximately $89.0 million, (ii) the average original principal amount of the mortgage loans in the portfolio was approximately $206,000 and the median mortgage loan amount was $137,731 and (iii) approximately 77% of the mortgage loans had a principal amount of $250,000 or less. In comparison, at September 30, 2018, (i) our loan portfolio included 395 mortgage loans, with individual principal loan amounts ranging from $6,000 to $2.0 million and an aggregate loan amount of approximately $77.8 million, (ii) the average original principal amount of the mortgage loans in the portfolio was $197,000 and the median mortgage loan amount was $136,000 and (iii) approximately 79.5% of the mortgage loans had a principal amount of $250,000 or less. At September 30, 2019 and 2018, unfunded commitments for future advances totaled approximately $7.3 million and $6.8 million, respectively.

For the three months ended September 30, 2019, revenues and net income were approximately $3.4 million and $2.1 million, respectively. For the three months ended September 30, 2018, revenues and net income were approximately $3.1 million and $2.0 million, respectively. For the nine months ended September 30, 2019, revenues and net income were approximately $9.8 million and $5.3 million, respectively. For the nine months ended September 30, 2018, revenues and net income were approximately $8.8 million and $6.1 million, respectively.

Our operating expenses have increased significantly primarily due to the growth in our operations.

The mortgage loans that we originate typically have a maximum initial term of one to three years and bear interest at a fixed rate of 5% to 13% per year and a default rate of 18% per year. For the three and nine month periods ended September 30, 2019, the yield on our mortgage loan portfolio was 12.66% and 12.58%, respectively.

We usually receive origination fees, or “points,” ranging from 2% to 5% of the original principal amount of the loan as well as other fees relating to underwriting, funding and managing the loan, such as inspection fees. Since we treat an extension or renewal of an existing loan as a new loan, we also receive additional “points” and other loan-related fees in connection with those transactions. Interest is always payable monthly in arrears. As a matter of policy, we do not make any loans if the loan-to value ratio exceeds 70%. However, in the case of loans secured by property undergoing construction or renovation and that have future funding obligations, the loan-to-value ratio is based on the estimated post-construction or post-renovation value of the property. Accordingly, during the construction or renovation period the loan amount could exceed the actual value of the property. Generally, we rely on readily available market data, including tax assessment rolls, recent sales transactions, brokers and, in some cases, third-party appraisals 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 78% vs.22% of our total capitalization at September 30, 2019). At September 30, 2019, the annual yield on our loan portfolio was 12.66% 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.

In addition, we seek to mitigate some of the risk associated with rising rates by generally limiting the term of new loans to one 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 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 inception through September 30, 2019, we have made approximately 1,100 mortgage loans having an aggregate original principal amount of approximately $217 million.

At September 30, 2019, of the 432 mortgage loans in our portfolio, sixteen have been referred to legal counsel for collection and are the subject of foreclosure proceedings. The aggregate outstanding principal balance of these sixteen mortgage loans and the accrued but unpaid interest as of September 30, 2019 was approximately $7.9 million, representing approximately 8.87% of our aggregate mortgage loan portfolio. In the case of each of these sixteen mortgage loans, we believe the value of the collateral exceeds the sum of the outstanding principal balance of the loan, the accrued but unpaid interest on the loan and any unpaid property taxes due with respect to the collateral.

At September 30, 2019, real estate owned included sixteen properties having an aggregate book value of approximately $5.3 million. At December 31, 2018, real estate owned included eleven properties having an aggregate book $2.9 million.

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. These factors coincided with the overall growth in the U.S. economy. In the second quarter of 2019, we curtailed our lending operations due to a shortage of working capital and our desire to repay in full our credit facility with Webster Bank, which adversely impacted our revenues and net income for the second and third quarters of 2019. In addition, beginning in the second half of 2018 and continuing through the third quarter of 2019, 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, 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. Those two factors, together with our liquidity, lead us to believe that we are well-positioned to address the changes and new trends in the real estate lending market.

REIT Qualification

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

Our qualification as a REIT depends on our ability to meet on a continuing basis, through actual investment and operating results, various complex requirements under the 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. 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, there may be a less active trading market for our Common Shares and the price of our Common Shares may be more volatile.

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.

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 preset number of assumptions that consider (a) past experience, (b) future projections and (c) general financial market conditions. Actual amounts could differ materially 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.

Results of operations

Three months ended September 30, 2019 and 2018

Total revenue

Total revenue for the three months ended September 30, 2019 was approximately $3.4 million compared to approximately $3.1 million for the three months ended September 30, 2018, an increase of approximately 10.7%. The increase in revenue reflects the increase in our lending operations. Compared to the 2018 period, for the 2019 period, interest income was higher by approximately $171,000, origination fees higher by approximately $114,000 and other income higher by approximately $150,000. These increases were offset by reductions of approximately $107,000 in gain on sale of real estate and approximately $42,000 in late fee income.

Operating costs and expenses

Total operating costs and expenses for three months ended September 30, 2019 were approximately $1.3 million compared to $1.1 million for the three months ended September 30, 2018 period, an increase of approximately 21.6%. The increase in operating costs and expenses is primarily attributable to increases in interest and amortization of deferred financing costs of approximately $44,000, professional fees of approximately $51,000 and compensation, fees and taxes of approximately $132,000, offset by stock-based compensation of approximately $25,000 and general and administrative expenses of approximately $11,000.

Net Income

Net income for the three months ended September 30, 2019 was approximately $2.1 million, or $0.10 per share, compared to $2.0 million, or $0.13 per share for the three months ended September 30, 2018. The decrease in earnings per share is due to the increase in the weighted average number of shares outstanding

Nine months ended September 30, 2019 and 2018

Total revenue

Total revenue for the nine months ended September 30, 2019 was approximately $9.8 million compared to approximately $8.8 million for the nine months ended September 30, 2018, an increase of approximately $980,000, or 11.1%. The increase in revenue resulted from an increase in lending operations. For the 2019 period, interest income was approximately $7.5 million, net origination fees were approximately $1.2 million and other income approximately $650,000. In comparison, for the nine months ended September 30, 2018, interest income was approximately $6.6 million, net origination fees were approximately $1.1 million and other income was approximately $675,000. Finally, late and other fee income increased by approximately $61,000. These increases were offset, in part, by a reduction in gain on the sale of real estate of approximately $100,000.

Operating costs and expenses

Total operating costs and expenses for nine months ended September 30, 2019 were approximately $4.5 million compared to $2.7 million for the nine months ended September 30, 2018 period, an increase of approximately 70.0%. The increase in operating costs and expenses is partially attributable to $780,000 of expense incurred in connection with the termination of the Webster Credit Facility. In addition to that expense being a non-recurring charge, $439,446 represents a write-off of unamortized deferred financing costs, a non-cash item. The second biggest contributor to the increase in operating costs and expenses was interest and amortization of deferred financing costs, which increased approximately $512,000 reflecting the increase in our mortgage loan portfolio, an increase in the interest rate on the Webster Facility and the slightly higher cost of capital on our unsecured notes. Another contributor to the overall increase in operating costs and expenses was a $423,000 increase in compensation expense (including stock-based compensation). This increase reflects the increase in base salary paid to our co-chief executive officers, which was effective as of July 1, 2018, as well as compensation to our controller, who was hired in August 2018, and our in-house legal counsel, who was hired in November 2018. Finally, general and administrative expenses increased approximately $86,000.

Net Income

Net income for the nine months ended September 30, 2019 was approximately $5.3 million, or $0.30 per share. In comparison, net income for the nine months ended September 30, 2018 was $6.1 million, or $0.40 per share. The decrease in net income was due to the increase in total operating expenses and most of that increase was attributable to the expense in connection with the termination of the Webster Credit Facility, which was incurred in the second quarter. We estimate the impact of that expense was to reduce earnings per share by approximately $0.04. In addition, earnings per share was negatively impacted by the increase in the weighted average number of shares outstanding

Liquidity and Capital Resources

At September 30, 2019, we had approximately $11.0 million in cash, none of which is restricted, compared to cash of approximately $158,900 (including restricted cash) at December 31, 2018.

Net cash provided by operating activities for the nine months ended September 30, 2019 was approximately $7.3 million compared to approximately $3.8 million for the same 2018 period, an increase of approximately $3.5 million or 94.2%. For the 2019 period, the total adjustments to net income were approximately positive $2.1 million reflecting a (i) $440,000 adjustment for non-cash costs associated with the termination of the Webster Facility and (ii) $2.1 million decrease in due from borrowers, offset by a (i) $450,000 increase in interest and fees receivable, (ii) $177,000 decrease in due to note purchaser and (iii) $160,000 decrease in accrued expenses. In comparison, for the 2018 period, the total adjustments to net income were approximately negative $2.37 million, reflecting a (i) $723,000 decrease in the amount due to the note purchaser, (ii) $296,000 decrease in accrued expenses, (iii) $309,000 increase in due from borrowers, (iv) $917,000 increase in interest and fees receivable, (v) $151,000 increase in other receivables and (vi) $120,000 gain on sale of real estate, offset by (i) $90,000 in amortization of deferred financing cost, (ii) $20,000 in depreciation expense, (iii) $29,250 in stock-based compensation, (iv) $111,000 decrease in escrow deposits, (v) $117,000 increase in accrued interest and (vi) $44,000 increase in deferred revenue.

Net cash used for investing activities for the nine months ended September 30, 2019 was approximately $14.5 million compared to approximately $16.1 million for the comparable 2018 period. This decrease is primarily due to a $7.0 million increase in principal collections on mortgages receivable, offset by a (i) $4.9 million increase in principal disbursements for mortgages receivable, (ii) $340,000 increase in costs to acquire and improve real estate owned and (iii) $310,000 decrease in proceeds from the sale of real estate.

Net cash provided by financing activities for the nine months ended September 30, 2019 was approximately $18.1 million compared to approximately $11.9 million for the comparable 2018 period. Net cash provided by financing activities for the 2019 period consists primarily of approximately (i) $42.7 million of proceeds from the Webster Facility, (ii) $19.8 million of net proceeds from the sale of Common Shares, (iii) $10.7 million of net proceeds from the sale of Common Shares, (iv) $82,000 in gross proceeds from the exercise of warrants, (v) $22.4 million of net proceeds from the sale of the June 2019 Notes, (vi) $1.0 million of proceeds from the sale of mortgage notes and (vii) $800,000 of gross proceeds from the New Bankwell Mortgage Loan, offset by approximately (i) $69.9 million of repayments on the Webster Facility, (ii) $7.0 million of dividends paid, (iii) $298,000 repayment of the Old Bankwell Mortgage Loan and (iv) 2.2 million of repayment of notes due to shareholder. For the 2018 period, net cash from financing activities consisted primarily of approximately $61.0 million of proceeds from our credit facilities offset by approximately (i) $43.7 million of repayments on our credit facilities, (ii) $4.9 million of dividends paid and (iii) $567,000 of financing costs (most of which related to the Webster Facility.)

2019 Financing Transactions

In the first nine months of 2019, we consummated the following financing transactions:

Refinancing of Bankwell Mortgage

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”). Monthly payments of interest and principal on the New Bankwell Mortgage Loan, $4,710, are payable in arrears starting May 1, 2019, 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. 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.

At-the-Market Offerings

Over the first nine months of 2019, we sold an aggregate of 4,340,456 Common Shares through our at-the-market offering facilities. Gross proceeds from these sales were $20,465,203 and the net proceeds were $19,836,610.

June 2019 Note Offering

In June and July 2019 we sold, in a registered public offering, $23,663,000 aggregate principal amount of our 7.125% unsecured, unsubordinated notes due June 30, 2024 (the “June 2019 Notes”). The net proceeds from the sale of the June 2019 Notes were approximately $22.3 million. The June 2019 Notes were issued in denomination of $25.00 each and are listed on the NYSE American and trade under the symbol “SCCB.” Interest accrues on the June 2019 Notes commencing on June 25, 2019. Accrued interest is payable quarterly, in cash, in arrears, on each March 30, June 30, September 30 and December 30 that they are outstanding, commencing September 30, 2019. So long as the June 2019 Notes are outstanding, we are prohibited from making distributions in excess of 90% of our taxable income, incurring any additional indebtedness or purchasing any shares of our capital stock unless we have an “Asset Coverage Ratio” of at least 150% after giving effect to the payment of such dividend, the incurrence of such indebtedness or the application of the net proceeds, as the case may be. We may redeem the June 2019 Notes, in whole or in part, without premium or penalty, at any time on or after June 30, 2021 upon at least 30 days prior written notice to the holders of the June 2019 Notes. The redemption price will be equal to the outstanding principal amount of the June 2019 Notes redeemed plus the accrued but unpaid interest thereon up to, but not including, the date of redemption.

In July and August 2019, we sold an aggregate of 2,300,000 Common Shares at $5.00 per share pursuant to an underwritten public offering, including 300,000 shares from the exercise of the over-allotment option by the underwriter of the offering, Aegis Capital Corp. The offering was made pursuant to a Prospectus Supplement filed under the Company’s S-3 Registration Statement, dated November 9, 2018. The net proceeds to us from the offering were approximately $10.9 million, after deducting underwriting discounts and commission but before deducting other transaction costs.

On July 16, 2019, we received gross proceeds of $82,035 from the exercise of 16,407 warrants having an exercise price of $5.00 per share.

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, and our anticipated cash flows from operations will be sufficient to fund the operations for the next 12 months.

Our long-term cash needs include funding of new mortgage loans, payment of operating expenses, interest payments on our outstanding notes and dividend payments to our shareholders. Funding for long-term cash needs will come from our cash on hand, operating cash flows and financing transactions, whether sales of equity securities, debt securities or a new revolving credit facility.

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).

On July 11, 2019, we declared a dividend of $0.12 per common share, which was paid on July 29, 2019 to shareholders of record on July 22, 2019. The total amount of the dividend payment was $2,348,452.

On July 26, 2019, we repaid an amount owed to a shareholder in connection with the repurchase of certain mortgage loans. The total payment was $2,231,777, including principal of $2,217,000 and accrued interest of $14,777.

Subsequent Events

On October 3, 2019, we declared a dividend of $0.12 per common share, which was paid on October 22, 2019 to shareholders of record on October 14, 2019. The total amount of the dividend payment was $2,654,076.

From October 1 through November 13, 2019, we sold 14,317 Common Shares through our at-the-market offering facility and realized gross proceeds of $68,006 from such sales. Approximately $7.0 million remains available to us for future sales under the facility. (The facility was reduced to $11.5 million from $30 million in order to accommodate the sale of the November 2019 Notes.)

In November 2019 we sold, in a registered public offering, $30.0 aggregate principal amount of our 6.875% unsecured, unsubordinated notes due December 30, 2024 (the “November 2019 Notes”). The net proceeds from the sale of the November 2019 Notes were approximately $28.6 million. The November 2019 Notes were issued in denomination of $25.00 each and are listed on the NYSE American and trade under the symbol “SACC.” Interest accrues on the November 2019 Notes commencing on November 7, 2019. Accrued interest is payable quarterly, in cash, in arrears, on each March 30, June 30, September 30 and December 30 that they are outstanding, commencing December 30, 2019. So long as the November 2019 Notes are outstanding, we are prohibited from making distributions in excess of 90% of our taxable income, incurring any additional indebtedness or purchasing any shares of our capital stock unless we have an “Asset Coverage Ratio” of at least 150% after giving effect to the payment of such dividend, the incurrence of such indebtedness or the application of the net proceeds, as the case may be. We may redeem the November 2019 Notes, in whole or in part, without premium or penalty, at any time on or after November 7, 2021 upon at least 30 days prior written notice to the holders of the November 2019 Notes. The redemption price will be equal to the outstanding principal amount of the November 2019 Notes redeemed plus the accrued but unpaid interest thereon up to, but not including, the date of redemption.

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.

Recent Accounting Pronouncements

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