What changed in this filing

/stocks — the workspaceLOADING

Item 2. Management’s Discussion and Analysis

2021-05-14 compared with 2020-11-06 · 194 added, 171 removed, 87 unchanged (81% of the section changed)

4 unchanged sentences

Company Overview

We are a Connecticut-based real estate finance company that specializes in originating, underwriting, funding, servicing and managing a portfolio of short-term ( i.e.

three years or less) loans secured by first mortgage liens on real property.

From our inception, in December 2010, through our initial public offering in February 2017 (the “IPO”), we operated as a limited liability company.

The primary purpose of the IPO was to raise equity capital to fund mortgage loans and expand our mortgage loan portfolio and to diversify our ownership so that we could qualify, for federal income tax purposes, as a real estate investment trust, or REIT.

We believe that, since consummation of the IPO, we meet 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.

We are a Connecticut-based real estate finance company that specializes in originating, underwriting, funding, servicing and managing a portfolio of short-term ( i.e., three years or less) loans secured by first mortgage liens on real property.

From our inception, in December 2010, through our initial public offering, in February 2017, we operated as a limited liability company.

On February 9, 2017, we completed our initial public offering (the “IPO”), the primary purpose of which was to raise equity capital to fund mortgage loans and expand our mortgage loan portfolio and to diversify our ownership so that we could qualify, for federal income tax purposes, as a real estate investment trust, or REIT.

We believe that, since consummation of the IPO, we met all the requirements to qualify as a REIT for federal income tax purposes and elected to be taxed as a REIT beginning with our 2017 tax year.

As a REIT, we are entitled to claim deductions for distributions of taxable income to our shareholders thereby eliminating any corporate tax on such taxable income.

2 unchanged sentences

As a REIT, we may also be subject to federal excise taxes and state taxes.

Review of the first Nine Months of 2020 and Outlook for Balance of Year

We began 2020 with approximately $35 million of liquid assets and within the first seven weeks of the year, we used about $15 million of that war chest to fund new mortgages.

Then COVID-19 hit and we quickly realized that things were about to change drastically.

Once the State of Connecticut went into lockdown mode, we were forced to scale-back our operations.

As a finance company, we were permitted to remain open but, given “social distancing” and other measures designed to protect our employees and curtail the spread of the virus, we rotated employees in and out of the office and, for those with remote log-in capability, had them work from home.

Remote work is inherently not as efficient because our underwriting process is collaborative, but we adjusted well to this "new way of working."

Furthermore, face-to-face customer contact was curtailed significantly, placing greater emphasis on phone calls, emails and video conferencing.

In addition, the filing and preparation of loan documents with the various recording offices were and may continue to be delayed and currently there remains limited access to the Connecticut court system to process foreclosures and evictions.

In summary, the consequences of COVID- 19 have and may continue to include one or more of the following:

● an increase in the amount of time necessary to review loan applications, structure loans, and fund loans;

Review of First Quarter and Outlook for Balance of Year

Compared to the first quarter of 2020, revenue increased 32.5%, net income decreased 2.5%, and earnings per share remained unchanged.

The revenue increase was directly related to the growth in our lending activities.

The decrease in net income was generally due to a 70.2% increase in total operating costs and expenses.

Interest and amortization of deferred financing costs accounted for 90% of the increase in total operating costs and expenses, which, in turn reflects a 96.9% increase in notes payable ($114.5 million at March 31, 2021 and $58.2 million at March 31, 2020.

However, cash and cash equivalents and investment securities at March 31, 2021 were $54.7 million compared to $17.9 million at March 31, 2020.

In addition, we had $30.5 million in loan repayments (compared to $55 million for all of 2020) versus $31.7 million of new funding.

Both the loan repayments and new funding amounts were the highest for any quarter since our IPO.

As a result, our mortgage loan portfolio only increased $1 million from December 31, 2020.

In other words, the velocity of loan repayments and reinvesting those proceeds did not allow us to put our working capital to work efficiently.

Our biggest challenge for the remainder of the year is to put our working capital to work and reduce our interest expense.

Our primary business objective remains constant:

to grow our loan portfolio while protecting and preserving capital in a manner that provides for attractive risk-adjusted returns to our shareholders over the long term principally through dividends.

We intend to achieve this objective by accelerating profitable growth and driving operational excellence.

To accelerate profitable growth, we will continue to focus on selectively originating, managing, and servicing a portfolio of first mortgage real estate loans designed to generate attractive risk-adjusted returns across a variety of market conditions and economic cycles.

We are also targeting larger-value commercial loans with strong, experienced sponsors.

To drive operational excellence, we have embarked on a broad change management initiative to review, assess, and upgrade – or transform if necessary – our existing operational processes, from workflows and employee roles/responsibilities to decision trees and data collection forms.

We believe that our ability to react quickly to the needs of borrowers, our flexibility in terms of structuring loans to meet the needs of borrowers, our intimate knowledge of the Connecticut real estate market, which is our largest market, our expertise in ‘‘hard money’’ lending and our focus on newly originated first mortgage loans, should enable us to achieve our primary objective.

Nevertheless, we remain flexible to take advantage of other real estate opportunities that may arise from time to time, whether they relate to the mortgage market or to direct or indirect investments in real estate.

Our strategy to achieve this objective also includes the following:

● capitalize on opportunities created by the long-term structural changes in the real estate lending market and the continuing lack of liquidity in the commercial and investment real estate markets;

● take advantage of the prevailing economic environment and current economic, political and social trends that may impact real estate lending, as well as the outlook for real estate in general and particular asset classes;

● remain flexible to capitalize on changing sets of investment opportunities that may be present in the various points of an economic cycle;

● operate to qualify as a REIT and for an exemption from registration under the Investment Company Act of 1940, as amended, or the Investment Company Act.

In terms of our outlook for 2021, the biggest challenge remains the unknown impact of COVID-19 and future actions that may be taken to contain the spread of COVID-19.

Keeping our workforce healthy and safe is our number one priority and we are following the updated guidelines and recommendations issued by the State of Connecticut on March 19, 2021.

We continue to encourage employees to stay home when sick and encourage working from home when possible.

In the event of a positive COVID-19 case, Sachem employees inform management and follow state testing and contact tracing protocols.

At Sachem, we have not been immune to the virus striking our employees and their family members.

Fortunately, none of these occurrences has been life-threatening in any way.

However, to mitigate the risk of office closure and to ensure business continuity, our employees are equipped so they can seamlessly work remotely, away from the Sachem corporate office.

This remote work set-up has proven to be effective since, at times during the pandemic, employees had to self-isolate based on their own health condition or that of an immediate family member.

While loan processing and funding may have been marginally delayed, there was no impact to the service levels we provided our borrowers.

In the event we are forced to close our physical office, there would be some impact.

For example, the underwriting process would continue to function but would take longer to complete without immediate access to background and credit profiles.

Loan committee meetings would continue to be held virtually (as they are under normal conditions) but the loan approval process may incur delay or not be as thorough and efficient as in the past.

In addition, we may not be able to meet with borrowers or potential borrowers, including physical property inspections, which could adversely impact our ability to service our loans, monitor compliance and originate new loans.

Finally, the filing of loan documents with the various recording offices may be delayed.

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

● increase the amount of time necessary to review loan applications, structure loans and fund loans;

● adversely impact the ability of borrowers to remain current on their obligations;

● reduce the rate of prepayments;

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

● inhibit the ability of borrowers to sell their properties so they can repay their obligation to us;

● delay the completion of renovation projects in-process;

● inhibit the ability of borrowers to sell their properties to repay their obligation to us;

● delay foreclosure or other judicial proceedings necessary to enforce our rights.

Currently, of our 480 mortgage loans receivable, eighteen were restructured pursuant to the forbearance program we adopted in response to the COVID-19 pandemic.

These eighteen mortgage loans have an aggregate outstanding principal balance of $5.1 million and the total amount of interest deferred on these eighteen mortgage loans is $146,000.

As is the case with most industries and businesses impacted by COVID-19, we are limited in terms of the tools that are available to us to blunt the impact of COVID-19.

We will continue to do all that is possible to keep our operations going, maintain

contact with all our borrowers and applicants, and take whatever actions are necessary and appropriate to enforce our rights.

However, we cannot assure you that our business, operations, and financial condition will not be adversely impacted by COVID-19.

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

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

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

● loans greater than $1 million required the approval of one of our independent directors;

● required an interest reserve with respect to loans exceeding a specified amount.

In addition, in response to the COVID-19 pandemic, in the second quarter of 2020 we instituted a forbearance program to help borrowers who were adversely impacted by the pandemic.

Under this program, approximately $200,000 of interest on twenty-three loans, having an aggregate principal amount of $6.5 million at June 30, 2020, was deferred.

As conditions improved, effective July 1, 2020, we relaxed some of these measures by increasing our loan-to-value ratio back to 70% while still maintaining a cautionary perspective.

Demand for our products in the third quarter of 2020 was robust.

We believe this demand was driven by several factors, all of which are related to COVID-19.

● First, was the improvement in the overall economy, particularly the northeast corridor.

This improvement reflected the reduction in the transmission rate of the virus and the slow-down in the number of virus-related deaths.

As a result, various restrictions that had been imposed by states were eased.

● Second, the competitive landscape for us remains favorable.

Notwithstanding the improvements in the economy, banks and other traditional lenders have not eased-up on their lending requirements and many non-traditional lenders remain undercapitalized.

In a way, this validated our decision prior to the second quarter of the year to focus on preservation of capital rather than short-term growth.

● Third, the residential real estate market in Connecticut, our primary market, has stabilized and is quite strong.

Like many other communities surrounding New York, Connecticut, particularly the southern counties, have benefitted from the migration of New York City residents to the suburbs.

We believe this contributed to the increase in the number of loan pay-offs that we experienced in the third quarter.

● Fourth, in the third quarter we initiated a growth strategy focused on Florida.

At June 30, 2020, we had less than $1 million of Florida loans in our portfolio.

At September 30, 2020, our portfolio included $9.7 million aggregate principal amount of loans in Florida.

Outlook for Balance of 2020

Our outlook for the rest of the year remains optimistic, but we do recognize that challenges remain.

We are aware that many public health experts are predicting a "second wave"

of the COVID-19 pandemic and, in fact, almost every state is now experiencing an increasing number of infections and an increasing number of deaths related to COVID-19.

Accordingly, many public health professionals and politicians are urging states to reimpose some of the earlier restrictions.

If there is a second outbreak of the virus in Connecticut and the state mandates further business closures, we may be compelled to take measures to preserve our cash flow, including reducing operating expenses and dividend payments until the consequences of the outbreak subside.

In addition, there may be other adverse consequences to our business, operations, and financial condition from the spread of COVID-19 that we have not considered.

As is the case with most industries and businesses impacted by COVID-19, we are limited in terms of the tools that are available to us to blunt the impact of COVID-19.

We will continue to do all that is possible to keep our operations going, maintain

contact with all our borrowers and applicants, and take whatever actions we believe are necessary and appropriate to enforce our rights.

However, we cannot assure you that our business, operations, and financial condition will not be adversely impacted by COVID-19.

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

Increased competition.

In the past, our primary competitors were other non-bank real estate finance companies (like us) as well as banks and other financial institutions.

In the past, our primary competitors were other non-bank real estate finance companies (similar to Sachem Capital Corp.) and banks and other financial institutions.

Our principal competitive advantages included our size and our ability to address the needs of borrowers in terms of timing and structuring loan transactions.

2 unchanged sentences

They are well-funded and aggressive in terms of pricing.

Currently, we have seen a decrease in competition as a result of COVID-19.

Borrower expectations.

1 unchanged sentence

As borrowers have more choices, they are demanding better terms.

As of September 30, 2020, the average yield on our portfolio was down slightly to 12.28% from 12.66% for the same period in 2019.

For the quarter ended March 31, 2021, the yield on our portfolio was 11.73% compared to 12.16% for the quarter ended March 31, 2020.

We expect further rate compression in 2021.

Property values.

In some parts of the U.S., the rate of increasing property values has slowed and, in some cases, has even reversed.

In other parts of the United States - southern Connecticut for example - we've seen increased property values as borrowers flee highly concentrated geographies such as New York City.

Although our default and foreclosure rate has been relatively consistent over the last three years, as property values decline the risk of foreclosure increases.

Our response to this development has been to adhere to our strict loan-to-value ratio, limit the term of our loans to not more than one year whenever possible, and aggressively enforce our rights when loans go into default.

We have adjusted our business and growth strategy to address changes in the marketplace and our growth to date.

Specifically, we are looking to expand our geographic footprint beyond Connecticut to Florida and Texas.

We are also looking at funding larger loans than we have in the past and we are looking to fund developers and builders with longer and stronger operating histories than those we have funded in the past.

We continue to look for opportunities in new markets that meet our core underwriting and loan criteria.

In addition, we believe the migration to higher quality transactions will offset any rate compression and help us maintain a low foreclosure rate.

Property value fluctuations.

We remain aware of property value market cycles and utilize a dashboard of indicators to track property value trends.

If we see a decline in property values, our response to this development would be to adhere to our strict loan-to-value ratio, limit the term of our loans to not more than one year, and aggressively enforce our rights when loans go into default.

We intend to be well-capitalized and well-positioned to be opportunistic through negative cycles as we did in the first quarter of 2020.

By judiciously relying on our dashboard of leading indicators and continuing to make decisions in a sound and proper manner, we see no reason to expect any negative outcome regarding our business operations and growth.

Some of our indicators within our dashboard are interest rate changes impacting mortgage rates, days-on-market, pending sales, NAHB’s Housing Market Index, and the Senior Loan Officer Opinion Survey, among others.

Increased operating expenses.

We expect operating expenses to be higher in 2021 than they were in 2020.

Specifically, we expect an increase in interest expense due to a higher level of indebtedness.

In 2020, we sold approximately $56.1 million of unsecured unsubordinated five-year notes having an interest rate of 7.75%.

The full impact of the interest will be felt for the first time in 2021.

In addition, we expect our compensation expense to increase as we hired new personnel and increased salaries on account of our growth.

Despite the challenges we faced in 2020, the changing dynamics of the real estate finance marketplace and the impact of COVID-19, we continue to believe in the viability of our business model.

Our goal is, and has always been, to continue to grow our mortgage loan portfolio and increase our loan profitability, while at the same time maintain or improve on our existing underwriting and loan criteria.

Specifically, we believe that the following factors will, in fact, help us deal with the uncertainties expected in 2021.

As of March 31, 2021, we had cash and cash equivalents and investment securities balance of approximately $54.7 million, which we will use to increase our mortgage loan portfolio.

From January through March 31, 2021, we funded $31.7 million of mortgage loans including loan modifications and construction draws.

Our largest expense item is interest and amortization of deferred financing costs, which has increased significantly as we have increased our indebtedness.

At March 31, 2021, our capital structure was 63.0% debt and 37.0% equity.

The weighted average interest rate on our $114.5 million of outstanding unsecured unsubordinated five-year notes is 7.36% per annum.

On the other hand, the notes provide us with operational flexibility.

Other than interest, they do not have any significant costs and expenses, such as legal fees, collateral maintenance fees, unused facility fees, processing fees and the additional personnel costs relating to reporting and compliance.

Second, they only have one financial covenant – an asset coverage ratio of 150%.

There are no limitations in terms of the size of the mortgage loans we choose to fund, the markets in which we choose to operate and the nature of the collateral.

Finally, the notes are unsecured.

However, we may obtain a senior credit facility should such a facility be available at terms that are advantageous to our strategy.

We have made the necessary adjustments to our operations to replace our former co-chief executive officer by hiring new employees and re-assigning existing employees to new tasks.

We now have a robust executive team that includes our chief executive and chief financial officer, a chief operating officer and a chief investment officer.

In addition, we have added junior executives as well in accounting and administration.

Although these new hires will result in increased compensation, they were and will continue to be necessary to accommodate our growth and to maintain our ability to continue to service our borrowers and manage our business without sacrificing quality.

We have adjusted and refined our business strategy to address changes in the marketplace and our growth to-date.

Specifically, we continue to strengthen our geographic footprint beyond Connecticut with particular emphasis on Florida and Texas.

We are funding larger loans than we have in the past that are secured by what we believe are higher-quality properties that are being developed by borrowers that we deem to be more stable and successful.

In 2020, we funded loans secured by properties in Arizona, Texas, South Carolina, Florida, Colorado and California.

We continue to look for opportunities in new markets that meet our basic underwriting and loan criteria.

In addition, we believe the migration to these types of loans will offset any rate compression and help us maintain a low foreclosure rate.

Operational and Financial Overview

3 unchanged sentences

Interest is always payable monthly in arrears.

Generally, our underwriting criteria mandated a loan-to-value ratio of no less than 70% – i.e., the amount of the loan could not exceed 70% of the market value of the property securing the loan.

For the second quarter of 2020, we revised that policy so that the amount of the loan could not exceed 50% of the market value of the property securing the loan – i.e., a 50% loan-to-value ratio.

As of July 2020, the 50% loan-to-value ratio on new loan fundings has reverted back to our general policy of 70%.

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.

1 unchanged sentence

Finally, we have adopted a policy that limits the maximum amount of any loan we fund to a single borrower or a group of affiliated borrowers to 10% of the aggregate amount of our loan portfolio, taking into consideration the loan under consideration.

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.

At September 30, 2020 and 2019, the yield on our mortgage loan portfolio was 12.28% and 12.66%, respectively.

For this purpose, yield takes into account interest payments, origination fees and other fees and charges collected from borrowers related to originating, managing or servicing our mortgage loan portfolio.

We expect interest rate compression to continue to be a factor in 2020 due to increased competition and borrower demands.

Our revenue consists primarily of interest earned on our loan portfolio.

As our capital structure has tilted towards more debt over the past 21 months, debt service has become a significant factor in determining our net income.

Our capital structure at March 31, 2021 was approximately 63.0% debt vs.

37.0% equity.

Most of our debt, approximately $114.5 million, is unsecured unsubordinated 5-year notes.

The weighted average interest rate on these notes is 7.36%.

In addition, we had a balance of approximately $28.2 million at March 31, 2021 under our margin loan account with Wells Fargo.

The outstanding balance on this loan bears interest at a rate equal to 1.75% below the prime rate.

The interest rate on this loan as of March 31, 2021 was 1.5%.

In addition, our net income for three months ended March 31, 2021 has been adversely impacted by a reduction in the yield on our mortgage loan portfolio as well as $30.5 million of loan payoffs during the period compared to $55 million for all of 2020.

In the first quarter of 2021, we realized faster payoff of investment “fix and flip” loans with these projects coming to fruition quicker due to a stronger real estate market and, we believe, our sound underwriting and analysis of each project.

According to Realtor.com, nationwide for April 2021, year-over-year, “days on market,” a common real estate market indicator, fell 31%, active listings fell 53% and median list prices increased 17%.

For the Connecticut market over the same period, days on market decreased between 43.1% - 51.5% and median list prices increased 1.7% - 18.3%, depending on the county.

Our strategy continues to be to adhere to our current underwriting guidelines, which we believe will allow us to continue to grow our loan portfolio while protecting and preserving capital in a manner that provides attracted risk-adjusted returns to our shareholders.

For the three months ended March 31, 2021 and 2020, the yield on our mortgage loan portfolio was 11.73% and 12.16%, respectively.

For this purpose, yield only takes into account the stated interest rate on the mortgage note adjusted to the default rate, if applicable.

We believe the interest rate compression will continue to be a factor in 2021 as we implement our new strategy focusing on larger loans, secured by higher quality properties being developed by more seasoned developers with a history of successful development projects.

On the other hand, since the interest rate on our outstanding indebtedness is fixed, we have reduced the risk on interest rate compression if and when interest rates begin to increase.

That will enable us to continue to focus on growth and building market share rather than short-term profits and cash flow.

In addition, we seek to mitigate some of the risk associated with rising rates by limiting the term of new loans to one year.

At September 30, 2020, approximately 78.1% of the mortgage loans in our portfolio had a term of one year or less.

We seek to mitigate some of the risk associated with rising rates by limiting the term of new loans to one year.

At March 31, 2021, approximately 82.7% of the mortgage loans in our portfolio had a term of one year or less.

If, at the end of the term, the loan is not in default and meets our other underwriting criteria, we will consider an extension or renewal of the loan at our then prevailing interest rate.

3 unchanged sentences

As such, we may not be aware that a default occurred.

At September 30, 2020, nine mortgage loans were the subject of tax enforcement or collection proceedings.

The aggregate amount due on these loans, including principal and unpaid accrued interest, was approximately $1.3 million, representing approximately 1.0% of our aggregate mortgage loan portfolio.

In the case of each of these loans, we believe the value of the collateral exceeds the aggregate amount due.

At March 31, 2021, five of our mortgage loans were the subject of enforcement or collection proceedings.

The aggregate amount due on these loans, including principal, unpaid accrued interest and borrower charges, was approximately $496,000, representing approximately 0.3% of our aggregate mortgage loan portfolio.

In the case of each of these loans, we have determined the value of the collateral exceeds the aggregate amount due.

To date, the aggregate amount of realized losses on our loan portfolio have been de minimis.

Financing Strategy Overview

To continue to grow our business, we must increase the size of our loan portfolio, which requires that we raise additional capital either by selling shares of our capital stock or by incurring additional indebtedness.

To continue to grow our business, we must increase the size of our loan portfolio, which requires that we use our existing working capital to fund new loans and 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.

4 unchanged sentences

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 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.

To grow the business and satisfy the requirement to pay out 90% of net profits, we have increased our indebtedness to approximately 50.4% of our total capital at September 30, 2020 and we expect that percentage to increase.

We intend to use leverage for the sole purpose of financing our portfolio and not for speculating on changes in interest rates.

At September 30, 2020, our capital structure was 49.6% equity and 50.4% debt.

Our total indebtedness at September 30, 2020 was approximately $85.6 million, which included a mortgage loan of approximately $800,000, a credit line loan of approximately $12.1 million and three series of unsecured, unsubordinated five-year notes having an aggregate original principal amount of approximately $72.5 million (collectively, the “Notes”).

Notes having an aggregate principal amount of approximately $23.7 million bear interest at the rate of 7.125% per annum and have a maturity date of June 30, 2024 (the “June Notes”).

Notes having an aggregate principal amount of $34.5 million bear interest at the rate of 6.875% per annum and have a maturity date of December 30, 2024 (the “December Notes”).

Notes having an aggregate original principal amount of approximately $14.4 million bear interest at the rate of 7.75% per annum and have a maturity date of September 30, 2025 (the “September Notes”).

In addition, in October 2020, we sold an additional $14,000,000 aggregate principal amount of our September 2025 Notes, which notes are a further issuance of, rank equally in right of payment with and form a single series for all purposes under the Indenture governing such notes, including, without limitation, waivers, amendments, consents, redemptions and other offers to purchase and voting, with the previously issued September 2025 Notes.

The Notes are unsecured, unsubordinated obligations and rank equally in right of payment with all our existing and future senior unsecured and unsubordinated indebtedness but are effectively subordinated in right of payment to all our existing and future secured indebtedness (including indebtedness that is initially unsecured but to which we subsequently grant a security interest).

Interest on the Notes is payable quarterly in arrears on March 30, June 30, September 30 and December 30 of each year the Notes are outstanding.

The Notes are subject to (i) “Defeasance,” which means that, by depositing with a trustee an amount of cash and/or government securities sufficient to pay all principal and interest, if any, on such Notes when due and satisfying any additional conditions required under the Indenture (defined below), we will be deemed to have been discharged from our obligations under the Notes and (ii) an “Asset Coverage Ratio” requirement pursuant to which we may not pay any dividends or make distributions in excess of 90% of our taxable income, incur any indebtedness or purchase any shares of our capital stock unless we have an “Asset Coverage Ratio” of at least 150% after giving effect to the payment of such dividend, the making of such distribution or the incurrence of such indebtedness.

“Asset Coverage Ratio” means the ratio (expressed as a percentage) of the value of the Company’s total assets bears to the aggregate amount of its indebtedness.

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

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 March 31, 2021, debt proceeds represented approximately 63.0% of our total capital.

To grow the business and satisfy the requirement to pay out 90% of net profits, during the last two years we increased our level of debt from 41.7% to 63.0% of our total capital.

We intend to maintain a modest amount of leverage for the sole purpose of financing our portfolio and not for speculating on changes in interest rates.

Our total outstanding indebtedness at March 31, 2021 was approximately $142.7 million, which included a credit line loan of approximately $28.2 million and three series of unsecured, unsubordinated five-year notes having an aggregate original principal amount of approximately $114.5 million (collectively, the “Notes”).

The Notes include notes having an aggregate principal amount of approximately $23.7 million bearing interest at the rate of 7.125% per annum and have a maturity date of June 30, 2024 (the “June 2024 Notes”);

notes having an aggregate principal amount of $34.5 million bearing interest at the rate of 6.875% per annum and have a maturity date of December 30, 2024 (the “December 2024 Notes”);

and notes having an aggregate original principal amount of approximately $56.4 million, bearing interest at the rate of 7.75% per annum and have a maturity date of September 30, 2025 (the “2025 Notes”).

All three series of Notes are unsecured, unsubordinated obligations and rank equally in right of payment with all our existing and future senior unsecured and unsubordinated indebtedness but are effectively subordinated in right of payment to all our existing and future secured indebtedness (including indebtedness that is initially unsecured but to which we subsequently grant a security interest).

Interest on all three series of Notes is payable quarterly in arrears on March 30, June 30, September 30 and December 30 of each year the Notes are outstanding.

During the quarter we paid off a $795,000 mortgage loan that was secured by our office building.

Each series of Notes was issued pursuant to the Indenture, dated June 21, 2019, and a supplement thereto, which provides for the form and terms, including default provisions and cures, applicable to each series.

All three series of Notes are subject to (i) “Defeasance,” which means that, by depositing with a trustee an amount of cash and/or government securities sufficient to pay all principal and interest, if any, on such notes when due and satisfying any additional conditions required under the Indenture, we will be deemed to have been discharged from our obligations under such notes and (ii) an “Asset Coverage Ratio” requirement pursuant to which we may not pay any dividends or make distributions in excess of 90% of our taxable income, incur any indebtedness or purchase any shares of our capital stock unless we have an “Asset Coverage Ratio” of at least 150% after giving effect to the payment of such dividend, the making of such distribution or the incurrence of such indebtedness.

“Asset Coverage Ratio” means the ratio (expressed as a percentage) of the value of our total assets relative to the aggregate amount of its indebtedness.

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

On and after any redemption date, interest will cease to accrue on the redeemed notes.

The December Notes, June Notes and September Notes are listed on the NYSE American LLC with a trading symbol “SACC”, “SCCB”, and “SCCC”, respectively.

We have entered into an Indenture, dated June 21, 2019, with U.S.

Bank National Association, as trustee (the “Trustee”), as well as supplements thereto, which provides for the form and terms of the Notes and the issuance of the Notes.

The Indenture also contains events of default and cure provisions.

In addition, in the third quarter of 2020, we borrowed $12.1 million from Wells Fargo against our investment account, which had a balance of approximately $27.7 million at September 30, 2020.

All three series of Notes trade on the NYSE American.

The June 2024 Notes trade under the symbol “SCCB”, the December 2024 Notes trade under the symbol “SACC” and the 2025 Notes trade under the symbol “SCCC”.

We have a margin loan account with Wells Fargo, which is secured by our portfolio of short-term securities and has a balance of approximately $28.2 million at March 31, 2021.

The outstanding balance on this loan bears interest at a rate equal to 1.75% below the prime rate.

The current rate for the loan is 1.75%.

The interest rate at March 31, 2021 is 1.5%.

REIT Qualification

3 unchanged sentences

We cannot assure you that we will be able to maintain REIT status.

Our qualification as a REIT depends on our ability to meet on a continuing basis, through actual investment and operating results, various complex requirements under the Code, relating to, among other things, the sources of our gross income, the composition and values of our assets, our compliance with the distributions requirements applicable to REITs and the diversity of ownership of our outstanding common shares.

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, 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.

We cannot assure you that we will be able to maintain our qualification as a REIT.

6 unchanged sentences

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.

We are an “emerging growth company”, as defined in the JOBS Act, and, for as long as we continue to be an emerging growth company, we may choose to take advantage of exemptions from various reporting requirements not applicable to other public companies but applicable to emerging growth companies, including, but not limited to, not being required to have our independent registered public accounting firm audit our internal control over financial reporting under Section 404 of the Sarbanes-Oxley Act, reduced disclosure obligations regarding executive compensation in our periodic reports and proxy statements and exemptions from the requirements of holding a nonbinding advisory vote on executive compensation and shareholder approval of any golden parachute payments not previously approved.

As an emerging growth company, we can also delay adopting new or revised accounting standards until those standards apply to private companies.

2 unchanged sentences

We will cease to be an emerging growth company upon the earliest of:

(i) the end of our 2022 fiscal year;

(i) the end of the 2022 fiscal year;

(ii) the first fiscal year after our annual gross revenue are $1.07 billion or more;

3 unchanged sentences

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 may 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.

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.

As a result, our financial statements may not be comparable to those of other public reporting companies that either are not emerging growth companies or that are emerging growth companies but have opted not to avail themselves of the reduced disclosure requirements for emerging growth companies and investors may deem our securities a less attractive investment relative to those other companies, which could adversely affect our stock price.

Results of Operations

Three months ended September 30, 2020 compared to three months ended September 30, 2019

Total revenue

Total revenue for the three months ended September 30, 2020 was approximately $4.3 million compared to approximately $3.4 million for the three months ended September 30, 2019, an increase of approximately $900,000, or 26.4%.

The increase in revenue represents an increase in lending operations.

However, as noted above, the restrictions we adopted in response to the COVID-19 pandemic in March 2020, precluded us from increasing our mortgage loan portfolio in the second quarter of 2020.

See "Review of First Nine Months of 2020 and Outlook for Balance of Year".

For the 2020 period, interest income was approximately $3.5 million and net origination fees were approximately $393,000.

In comparison, for the three months ended September 30, 2019, interest income was approximately $2.4 million and net origination fees were approximately $497,000.

In addition, we recorded an increase in interest on investments of approximately $4,000 during the 2020 period.

These increases in revenue were partially offset by decreases in late fees, approximately $7,000, in processing fees, approximately $7,000, and a $22,000 loss from the sale of investments.

Operating costs and expenses

Total operating costs and expenses for three months ended September 30, 2020 were approximately $2.1 million compared to $1.3 million for the three months ended September 30, 2019, an increase of approximately $800,000, or 61.5%.

Compared to the 2019 period, in the 2020 period interest expense and amortization of deferred financing costs increased approximately $724,000 due to the increase in our overall indebtedness -- $85.5 million at September 30, 2020 compared to $24.5 million at September 30, 2019.

As discussed above, in light of COVID-19, we instituted various restrictions to our lending operations, the result of which was that we did not generate interest income to offset the additional interest expense.

See "Review of First Nine Months of 2020 and Outlook for Balance of Year".

Professional fees, including fees for computer and technology services, director fees, legal fees and audit fees, increased approximately $53,000.

General and administrative expenses increased approximately $14,000 due to increased operations, while compensation expense increased approximately $20,000.

Comprehensive income (loss)

For the quarter ended September 30, 2020, we reported an unrealized loss on investment securities of approximately $73,000 reflecting the decrease in the market value of such securities since June 30, 2020.

There was no comparable item in the third quarter of 2019.

Net income for the three months ended September 30, 2020 was approximately $2.055 million, or $0.10 per share, compared to $2.139 million, or $0.10 per share for the three months ended September 30, 2019, despite the increase in weighted average number of shares outstanding -- 22,117,301 for the 2020 period compared to 21,336,870 for the 2019 period.

Nine months ended September 30, 2020 compared to nine months ended September 30, 2019

Three months ended March 31, 2021 compared to three months ended March 31, 2020

Total revenue

Total revenue for the nine months ended September 30, 2020 was approximately $12.9 million compared to approximately $9.8 million for the nine months ended September 30, 2019, an increase of approximately $3.1 million, or 32%.

The increase in revenue represents an increase in lending operations.

As discussed above, in light of COVID-19, in March 2020 we instituted various restrictions to our lending operations, which continued through the quarter ended June 30, 2020.

Revenue growth for the nine months ended September 30, 2020 is directly related to our expansion plans, which contributed to the overall growth in our mortgage loan portfolio.

For the 2020 period, interest income was approximately $9.6 million and net origination fees were approximately $1.55 million.

In comparison, for the nine months ended September 30, 2019, interest income was approximately $7.5 million and net origination fees were approximately $1.2 million.

The balance of the increase in revenues was attributable to an increase in interest on investments and the gain from sale of investments of approximately $550,000 in the aggregate and an increase in other income of approximately $282,000.

These increases were offset by decreases in late fee income, approximately $158,000, net rental income, approximately $32,500 and net gain on sale of real estate, approximately $20,000.

Total revenue for the three months ended March 31, 2021 was approximately $5.7 million compared to approximately $4.3 million for the three months ended March 31, 2020, an increase of approximately $1.4 million, or 32.5%.

The increase in revenue is primarily attributable to an increase in our lending operations.

For the 2021 period, interest income was approximately $4.5 million compared to approximately $2.9 million for the 2020 period, representing an increase of approximately $1.6 million or 56.2%.

Origination fees were basically unchanged with approximately $517,000 for the 2021 period compared to approximately $511,000 for the 2020 period.

Investment income and gains and losses on sale of investment securities were approximately $113,000 for the 2021 period compared to approximately $544,000 for the 2020 period, a decrease of approximately $431,000 or 79%.

Other income was approximately $457,000 for the 2021 period compared to approximately $284,000 for the 2020 period, an increase of approximately $173,000 or 60.7%.

Operating costs and expenses

Total operating costs and expenses for nine months ended September 30, 2020 were approximately $6.3 million compared to $4.5 million for the nine months ended September 30, 2019, an increase of approximately $1.8 million, or 40%.

The increase in operating costs and expenses is primarily attributable to the increase in our lending operations.

Compared to the 2019 period, in the 2020 period interest expense and amortization of deferred financing costs increased approximately $1.95 million due to the increase in our overall indebtedness -- approximately $85.6 million at September 30, 2020 compared to approximately $24.5 million at September 30, 2019.

See “Review of First Nine Months of 2020 and Outlook for Balance of Year”.

Professional fees increased approximately $142,000, while compensation expense decreased approximately $105,000, reflecting a reduction is property maintenance personnel.

The 2019 period included expenses incurred in connection with the termination of our line of credit of approximately $780,000 and no such costs occurred in the 2020 period.

In addition, we recorded an impairment loss of $495,000 during the September 2020 period on our real estate owned.

Comprehensive income

For the nine months ended September 30, 2020, we reported an unrealized gain on investment securities of approximately $13,000 reflecting the increase in the market value of such securities since December 31, 2019.

There was no comparable item during the nine months ended September 30, 2019.

Net income for the nine months ended September 30, 2020 was approximately $6.7 million, or $0.30 per share, compared to approximately $5.3 million, or $0.30 per share for the nine months ended September 30, 2019, despite the increase in weighted average number of shares outstanding -- 22,117,301 for the 2020 period compared to 17,662,480 for the 2019 period.

Total operating costs and expenses for three months ended March 31, 2021 were approximately $3.5 million compared to approximately $2.1 million for the three months ended March 31, 2020, an increase of approximately 70.2%.

The increase in operating costs and expenses is primarily attributable to the increase in our unsecured bond debt while growing our lending operations and for the reasons discussed hereinabove.

In the 2021 period, interest and amortization of deferred financing costs was approximately $2.5 million compared to approximately $1.1 million in the same 2020 period, an increase of $1.4 million or 114.3%.

The balance of the increase in operating expenses was attributable to (i) professional fees, which increased approximately $100,000, (ii) compensation, fees and taxes which increased approximately $248,000, and (iii) general and administrative expenses which increased approximately $19,000, offset in part by a reduction in impairment loss of $225,000.

In November 2019 one of our co-chief executive officers and our director of marketing resigned, which reduced our compensation expense in the first quarter of 2020.

In the second half of 2020, we hired a chief operating officer and junior executives in accounting and administration, which resulted in increased compensation in the first quarter of 2021.

Net income for the three months ended March 31, 2021 was approximately $2.2 million, or $0.10 per share, compared to $2.2 million, or $0.10 per share for the three months ended March 31, 2020.

Liquidity and Capital Resources

At September 30, 2020, cash and investments totaled approximately $33.1 million compared to $34.8 million at December 31, 2019.

Overall, total assets increased by approximately $28.4 million and total liabilities increased approximately $27.1 million compared to year-end.

In addition, shareholders’ equity increased by approximately $1.3 million compared to year-end due to a corresponding increase in retained earnings.

In addition, at September 30, 2020, we had approximately $13.3 million of future funding commitments under existing loans.

Net cash provided by operating activities for the nine months ended September 30, 2020 was approximately $7.4 million compared to approximately $7.3 million for the 2019 period.

For the 2020 period net cash from operations consisted primarily of net income of $6.6 million, an impairment loss of $495,000, depreciation and amortization of deferred financing cost of $404,000, an increase in advances from borrowers of $566,000, and in accounts payable and accrued expenses of $360,000, offset by increases in interest and fees receivable of $180,000, due from borrowers of $273,000, deposits on equipment if $101,000 and the realized gain on investments of approximately $415,000.

For the 2019 period net cash provided by operating activities consisted primarily of net income of approximately $5.3 million, non-cash costs associated with the termination of our revolving credit facility with Webster Business Credit Corporation of approximately $439,000, amortization of deferred financing costs and depreciation expense of approximately $204,000, a decrease in due from borrowers of approximately $2.1 million and an increase in advances from borrowers of approximately $181,000, offset by an increase in interest and fees receivable of approximately $454,000, and decreases in due to note purchaser of approximately $177,000 and accounts payable and accrued expenses of approximately $160,000..

Net cash used for investing activities for the nine months ended September 30, 2020 was approximately $41.4 million compared to approximately $14.5 million for the comparable 2019 period.

For the 2020 period, net cash used for investing activities consisted primarily of principal disbursements for mortgages receivable of approximately $68.0 million, the purchase of investments of $37.2 million and the acquisition of and improvements to real estate owned of $1.6 million, offset by proceeds from the sale of investments of approximately $25.9 million, proceeds from the sale of real estate owned of $1.8 million and mortgage loan pay-offs of approximately $37.9 million.

For the 2019 period, net cash used for investing activities consisted primarily of principal disbursements for mortgages receivable of approximately $42.2 million, acquisitions and improvements of real estate owned of approximately $443,000 and purchases of property and equipment of $197,000, offset by mortgage loan pay-offs of approximately $27.9 million and proceeds from sale of real estate owned of approximately $362,000.

Net cash provided by financing activities for the nine months ended September 30, 2020 was approximately $20.5 million compared to approximately $18.1 million of cash provided by financing activities for the comparable 2019 period.

Net cash provided by financing activities for the 2020 period consists of proceeds from the Wells Fargo line of credit of $14.1 million, gross proceeds from the sale of our fixed rate notes of approximately $14.4 million and proceeds from other loans of approximately $258,000 offset by dividends paid of approximately $5.3 million, the repayment of our credit line in the amount of $2.0 million , financing costs incurred of approximately $862,000 and principal payments on our notes and mortgage payable of approximately $28,000.

Net cash provided by financing activities for the 2019 period consists primarily of proceeds from the Webster revolving credit facility of approximately $42.7 million, approximately $30.7 of net proceeds from the sale of common shares, approximately $23.7 million of proceeds from the sale of notes, approximately $1.0 million of proceeds from the sale of mortgage notes to shareholder and approximately $800,000 of gross proceeds from the new Bankwell mortgage loan, offset by repayments of approximately $69.9 million on our credit facility, approximately $7.0 million of dividends paid, approximately $2.2 million repayment of mortgage notes, financing costs of approximately $1.3 million and approximately $298,000 repayment of the old Bankwell mortgage loan.

At March 31, 2021, cash and cash equivalents and investment securities totaled approximately $54.7 million compared to $56.7 million at December 31, 2020.

This decrease was reflected by a corresponding increase in mortgages receivable of $1.2 million.

Total assets at March 31, 2021 were approximately $228.4 million compared to approximately $226.7 million at December 31, 2020, an increase of approximately $1.8 million, or less than 1 %.

The increase was due primarily to the increase of our mortgage loan portfolio of approximately $1.2 million, an increase in investment in partnership of approximately $1.8 million, an increase in due from borrowers of approximately $499,000, an increase in other receivables of approximately $346,000, an increase in prepaid expenses and deposits of approximately $200,000 and an increase in interest and fees receivable of approximately $63,000, offset in part by a decrease in cash and cash equivalents and investment securities of approximately $2.1 million, a decrease in real estate owned of approximately $237,000 and a decrease in deferred financing costs of approximately $73,000.

Total liabilities at March 31, 2021 were approximately $143.8 million compared to approximately $145.8 million at December 31, 2020, a decrease of approximately $2.0 million, or approximately 1.3%.

This decrease is principally due to a decrease in dividends payable of $2.7 million and the mortgage payable of $768,000, offset by increases in advances from borrowers of $873,000, increases in accounts payable and accrued expenses of $164,000 and deferred revenue of approximately $85,000.

Total shareholders’ equity at March 31, 2021 was approximately $84.6 million compared to approximately $81.0 million at December 31, 2020, an increase of approximately $3.7 million.

This increase was due primarily to net proceeds of $1.5 million from the sale of stock and our net income of approximately $2.2 million.

Net cash provided by operating activities for the three months ended March 31, 2021 was approximately $2.8 million compared to approximately $1.7 million for same 2020 period.

For the 2021 period net cash provided by operating activities consisted primarily of net income of $2.2 million, amortization of deferred financing costs and original issue of $244,000, a loss on the sale of investment securities of $129,000, and increases in accounts payable and accrued expenses of $164,000, deferred revenue of $85,000 and advances from borrowers of $873,000, offset by an increase in interest and fees receivable of $63,000, other receivables of $346,000, due from borrowers of $499,000 and prepaid expenses of $102,000.

For the 2020 period net cash from operating activities consisted primarily of net income of $2.2 million, an impairment loss of $250,000, depreciation and amortization of deferred financing cost of $133,000, decreases in other receivables of $25,000 and deposits of $37,000 and increases in deferred revenue of $75,000 and advances from borrowers of $385,000, offset by the realized gain on investment securities of $446,000, increases in interest and fees receivable of $200,000 and due from borrowers of $778,000.

Net cash used for investing activities for the three months ended March 31, 2021 was approximately $2.1 million compared to approximately $16.2 million for the comparable 2020 period.

For the 2021 period, net cash used for investing activities consisted primarily of principal disbursements for mortgages receivable of approximately $31.7 million, purchase of an interest in investment partnership of $1.8 million, purchase of investment securities of $22.8, acquisitions of and improvements to real estate owned of $160,000, purchase of property and equipment of $36,000 and costs in connections with investment activities of $98,000, offset by principal collections on mortgages receivable of $30.5 million and proceeds from the sale of investment securities of $23.6 million and proceeds from the sale of real estate owned of $371,000.

For the 2020 period, net cash used for investing activities consisted primarily of principal disbursements for mortgages receivable of approximately $28.7 million, purchase of investment securities of approximately $17.4 million and acquisitions and improvements of real estate owned of approximately $377,000, offset by mortgage loan pay-offs of approximately $11.8 million, proceeds from the sale of investments securities of $17.4 million and proceeds from sale of real estate owned of approximately $1.1 million.

Net cash used for financing activities for the three months ended March 31, 2021 was approximately $1.8 million compared to approximately $2.7 million of cash used for the comparable 2020 period.

Net cash used for financing activities for the 2021 period consists principally of dividends paid of $2.7 million and repayment of mortgage payable of $768,000, offset by proceeds from the sale of common shares of $1.5 million and proceeds from our line of credit of $105,000.

Net cash used for financing activities for the 2020 period consists principally of dividends paid of approximately $2.7 million and financing costs incurred of approximately $58,000.

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 interest payments on notes payable, employee compensation, sales and marketing expenses and dividends.

Based on this analysis, we believe that our current cash and investment balances, and our anticipated cash flows from operations will be sufficient to fund the operations for the next 12 months.

Based on this analysis, we believe that our current cash balances, and our anticipated cash flows from operations will be sufficient to fund the operations for the next 12 months.

Our long-term cash needs will include principal payments on outstanding indebtedness and funding of new mortgage loans.

Funding for long-term cash needs will come from the proceeds from the sale of debt and/or equity securities, cash on hand, investments and operating cash flows.

Funding for long-term cash needs will come from unused net proceeds from financing activities, operating cash flows and proceeds from sales of real estate owned.

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

Subsequent Events

In October 2020, we sold an additional $14,000,000 aggregate principal amount of the September 2025 Notes, which notes are a further issuance of, rank equally in right of payment with and form a single series for all purposes under the Indenture governing such notes, including, without limitation, waivers, amendments, consents, redemptions and other offers to purchase and voting, with the previously issued September 2025 Notes.

In connection with the offering of such notes, we granted the underwriters an option to purchase up to an additional $2.1 million aggregate principal amount of September 2025 Notes.

The option expires November 20, 20120.

On November 4, 2020, we paid a dividend of $0.12 per share, or $2,654,076 in the aggregate, to shareholders of record as of October 26, 2020.

On April 9, 2021, we entered into an At Market Issuance Sales Agreement (the “Sales Agreement”) with the Ladenburg Thalmann & Co.

and Janney Montgomery Scott LLC, as distribution agents (collectively, the “Agents”), to sell up to $46,636,250 of our common shares from time to time, through an “at-the-market” equity offering program.

The offer and sale of the shares will be made pursuant to a prospectus supplement, dated April 9, 2021 (the “Prospectus Supplement”), to our Registration Statement on Form S-3 (File No.

333-236097) (the “Registration Statement”) declared effective by the Securities and Exchange Commission (the “SEC”) on February 5, 2020.

During the period from April 1, 2021 to May 4, 2021, we sold an aggregate of an additional 2,045,336 of our common shares and realized aggregate net proceeds of approximately $10,535,405, some of which were sold under the Sales Agreement and some which were sold under a similar agreement with the Agents that was signed in October 2019.

In April 2021, our Compensation Committee (the “Committee”) approved the following 2021 compensation packages for our Chief Executive Officer, John L.

Villano, and Chief Operating Officer, Peter J.

With respect to Mr.

● A base salary of $500,000 (compared to $360,000 in 2020);

● A “targeted” annual bonus of $250,000, the exact amount to be determined by the Committee in its sole discretion, and payable on or before March 31, 2022;

● A time-based equity award of $500,000 payable in restricted common shares;

● A one-time cash bonus of $250,000, of which $125,000 is immediately payable and $62,500 is payable on each of July 1 and October 1, 2021, subject to Mr.

Villano’s continued employment by the Company.

With respect to Mr.

● A base salary of $250,000 (same as 2020);

● A cash bonus of $25,000, payable immediately in one lump sum;

● A time-based equity award of $25,000 payable in restricted common shares.

We issued (i) 89,928 restricted common shares to Mr.

Villano based on the closing price of $5.56 per common share on April 8, 2021 (the grant date) and (ii) 4,753 restricted common shares to Mr.

Cuozzo based on the closing price of $5.26 per common share on April 12, 2021 (the grant date).

The shares were issued pursuant to our 2016 Equity Compensation Plan and are subject to restrictions on transfer and forfeiture of any unvested shares in the event of a voluntary resignation as our employee without “Good Reason” or of a termination of employment with us for “Cause,” as such terms are defined in their respective employment agreements.

The restrictions on transfer and the forfeiture provisions will lapse with respect to one-third of the shares on each of January 1, 2022, 2023 and 2024.

Each of Messrs.

Villano and Cuozzo has the right to vote and receive dividends with respect to all the shares granted to him.

On April 30, 2021, we sold a property classified as real estate held for sale at March 31, 2021, receiving $280,449 in net proceeds.

No loss will be recognized on this sale.

Off-Balance Sheet Arrangements

1 unchanged sentence

Contractual Obligations

As of September 30, 2020, our contractual obligations include unfunded amounts of any outstanding construction loans and unfunded commitments for loans as well as contractual obligations consisting of operating leases for equipment and software licenses.

As of March 31, 2021, 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.

Operating lease obligation

Unfunded portions of outstanding construction loans

Unfunded loan commitments

5 unchanged sentences

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 2. Management’s Discussion and Analysis