10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 31, 2021

or

o TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from_______________________________________________to________________________________________________

Commission File Number: 000-1695962

KORTH DIRECT MORTGAGE INC.

(Exact name of registrant as specified in its charter)

Florida	27-0644172
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)

135 San Lorenzo Avenue, Suite 600, Coral Gables, FL 33146

(Address of principal executive offices)

(305) 668-8485

(Registrant’s telephone number, including area code)

(Former name, former address and formal fiscal year, if changed since last report)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.         xYes o No

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).

x Yes   o No

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and "emerging growth company" in Rule 12b-2 of the Exchange Act.

Large accelerated filer	o	Accelerated filer	o
Non-accelerated filer	o	Smaller Reporting company	x
		Emerging growth company	x

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. o

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act).                Yes o No x

APPLICABLE ONLY TO CORPORATE ISSUERS:

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.

Securities registered pursuant to Section 12(b) of the Act: None.

As of March 31, 2021 there were 5,000,000 shares of Common Stock of Korth Direct Mortgage Inc. outstanding.

1

TABLE OF CONTENTS

PART I – FINANCIAL INFORMATION

Item 1.	Consolidated Financial Statements	3
	Unaudited Consolidated Statements of Financial Condition	3
	Unaudited Consolidated Statements of Operations	4
	Unaudited Consolidated Statements of Cash Flows	5
	Unaudited Consolidated Statement of Changes in Stockholders’ Equity	6
	Notes to Unaudited Consolidated Financial Statements	7
Item 2.	Management’s Discussion and Analysis of Consolidated Financial Condition and Results of Consolidated Operations	18
Item 3.	Quantitative and Qualitative Disclosures about Market Risk	19
Item 4.	Controls and Procedures	19
PART II – OTHER INFORMATION
Item 1.	Legal Proceedings	20
Item 1A.	Risk Factors	20
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	20
Item 3.	Defaults Upon Senior Securities	20
Item 4.	Mine Safety Disclosures	20
Item 5.	Other Information	20
Item 6.	Exhibits	21
SIGNATURES		21

2

PART I—FINANCIAL INFORMATION

Item 1. Consolidated Financial Statements.

KORTH DIRECT MORTGAGE INC.

UNAUDITED CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION

	March 31, 2021		December 31, 2020
ASSETS
Cash and Cash Equivalents	$	1,638,276	$	2,037,177
Restricted Cash		11,957,044		6,605,288
Mortgages Owned		200,230,382		175,370,850
Mortgage Servicing Rights, at Fair Value		4,648,239		3,864,416
Portfolio Loans		2,123,895		2,042,414
Securities		426,280		329,152
ROU Leased Asset		957,650		1,031,126
Goodwill		110,000		110,000
Property & equipment, net of depreciation		276,674		186,703
Deposits		286,655		140,359
Prepaid Expenses		176,541		120,770
Accounts Receivable		45,691		19,577
TOTAL ASSETS	$	222,877,327	$	191,857,832
LIABILITIES AND  STOCKHOLDERS' EQUITY
LIABILITIES
Escrows Payable	$	8,107,083	$	6,462,394
Due to Investors		1,692,751		142,894
Due to clearinghouse brokers		13,759		240,942
Lease liability		999,602		1,037,538
Preferred Dividend Payable		12,500		12,500
Deferred Revenue, net		654,716		500,130
Deferred Tax Liability		846,848		641,111
Accrued Expenses		166,125		57,197
Contingent liability, net		724,103		773,405
PPP loan payable		161,600		161,600
Mortgage Secured Notes Payable		202,387,592		175,370,850
Accounts Payable		161,756		70,279
Total Liabilities		215,928,435		185,470,840
STOCKHOLDERS' EQUITY
Accumulated Earnings		1,921,100		1,365,653
Additional Paid-in Capital		5,027,092		5,020,639
Common Stock, $0.0001 par value, 60,000,000 shares authorized
5,000,000 shares issued and outstanding at March 31, 2021 and December 31, 2020		500		500
Series A Preferred Stock, $0.001 par value, 40,000,000 shares authorized,
200,000 shares issued and outstanding at March 31, 2021 and December 31, 2020		200		200
Total Stockholders' Equity		6,948,892		6,386,992
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY	$	222,877,327	$	191,857,832

See accompanying notes to the unaudited consolidated financial statements.

3

KORTH DIRECT MORTGAGE INC.

UNAUDITED CONSOLIDATED STATEMENTS OF OPERATIONS

FOR THE PERIOD FROM JANUARY 1 THROUGH MARCH 31

	For the Three Months Ended			For the Three Months Ended
	March 31, 2021			March 31, 2020
REVENUES
Origination Revenue, Net	$	158,173		$	86,787
Servicing Revenue		478,822			209,505
Processing Revenue		12,000			-
Underwriting Income		224,639			-
Trading Profits		606,709			-
Interest Income		47,910			52,345
Commissions		52,212			-
Late Fees		5,115			8,119
Total Revenues		1,585,580			356,756
COST OF REVENUES
Broker Underwriting Expense		69,003			41,272
Mortgage Broker Expense		126,341			47,647
Co-Manager Engagement Fee		867			877
Bank Transaction Fees		19,919			1,041
Appraisal Costs		2,509			421
Marketing		8,233			14,971
License and Registration		14,567			6,781
Insurance Review		-			1,000
Ratings		21,367			320
Technology Fees		56,799			9,968
Total Cost of Revenues		319,605			124,298
GROSS PROFIT		1,265,975			232,458
OPERATING EXPENSES
Office Supplies		20,267			3,994
Accounting		51,349			15,620
Salaries & Commissions		858,149			236,225
Payroll Taxes		58,341			15,285
Other Payroll Related Costs		15,962			(338	)
Professional & Legal		55,681			29,293
Rent Expense		86,160			-
Utilities		5,286			-
Travel & Entertainment		4,973			5,605
Tradeshow Expense		534			8,454
Business Insurance		22,122			6,112
Business Development		-			-
Depreciation		7,977			-
Stock Compensation		6,453			6,453
Total Expenses		1,193,254			326,703
Net Gain/(Loss) From Operations		72,721			(94,245	)
Other Income / (Expenses/Loss)
Unrealized Gain on Mortgages		783,823			284,445
Unrealized Loss on Mortgage Secured Notes		(886	)		(811	)
Interest Expense		(10,444	)		-
Interest income		9,888			-
Total Other Income		782,381			283,634
Net income before provision for income taxes		855,102			189,389
Provision for income taxes		224,655			49,849
Net Income		630,447			139,540
Series A Preferred Dividends		75,000			75,000
Net income attributable to common stockholder	$	555,447		$	64,540

See accompanying notes to the unaudited consolidated financial statements.

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KORTH DIRECT MORTGAGE INC.

UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS

	For the Three Months Ended			For the Three Months Ended
	March 31, 2021			March 31, 2020
CASH FLOWS FROM OPERATING ACTIVITIES
Net Income	$	630,447		$	139,540
Adjustments to Reconcile Net Income to
Net Cash (Used In)/Provided by Operating Activities:
Unrealized Gain on Mortgages Owned		(783,823	)		(284,445	)
Unrealized Loss on Mortgage Secured Notes		886			811
Stock compensation expense		6,453			6,453
Depreciation		7,977			-
Deferred rent expense from operating lease		35,540			-
Deferred income taxes		205,737			49,849
Changes in Operating Assets and Liabilities:
Restricted Cash		(5,351,756	)		(8,427,176	)
Mortgage Secured Notes Issued		27,016,742			13,290,661
Mortgage Secured Notes Purchased		(98,014	)		(100,521	)
Portfolio Loans		(81,481	)		543,866
Accounts Receivable		(26,114	)		62,581
Prepaid Expenses		(55,771	)		(30,372	)
Deposits		(146,296	)		-
Due to Parent		-			47,025
Deferred Revenue, net		154,586			(2,583	)
Escrow Payable		1,644,689			20,787
Due to Investors		1,549,857			6,388
Due to clearinghouse brokers		(227,183	)		-
Interest payable		(49,302	)		-
Accrued Expenses		108,928			(45,589	)
Accounts Payable		91,477			(7,272	)
New Mortgage Lending		(24,859,532	)		(4,890,661	)
Total Adjustments		(856,400	)		239,802
NET CASH (USED IN)/PROVIDED BY  OPERATING ACTIVITIES		(225,953	)		379,342
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of property and equipment		(97,948	)		-
NET CASH (USED IN) INVESTING ACTIVITIES		(97,948	)		-
CASH FLOWS FROM FINANCING ACTIVITIES
Payment of Series A preferred stock dividends		(75,000	)		(75,000	)
NET CASH (USED IN) FINANCING ACTIVITIES		(75,000	)		(75,000	)
NET (DECREASE)/INCREASE IN CASH AND CASH EQUIVALENTS		(398,901	)		304,342
CASH AND CASH EQUIVALENTS – Beginning of Period		2,037,177			2,378,716
CASH AND CASH EQUIVALENTS – End of Period	$	1,638,276		$	2,683,058
SUPPLEMENTAL DISCLOSURE OF CASH FLOWS INFORMATION
Cash paid during the period for interest	$	10,444		$	-

See accompanying notes to the unaudited consolidated financial statements.

5

KORTH DIRECT MORTGAGE INC.

UNAUDITED CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS’ EQUITY

	Series A Preferred Stock				Common Stock				Additional Paid		Accumulated
	Shares		Amount		Shares		Amount		in Capital		Earnings			Totals
Balance at January 1, 2021		200,000	$	200		5,000,000	$	500	$	5,020,639	$	1,365,653		$	6,386,992
Options issued to employees and directors		-		-		-		-		6,453		-			6,453
Series A preferred stock dividends declared		-		-		-		-		-		(75,000	)		(75,000	)
Net income		-		-		-		-		-		630,447			630,447
Balance at March 31, 2021		200,000	$	200		5,000,000	$	500	$	5,027,092	$	1,921,100		$	6,948,892

See accompanying notes to the unaudited consolidated financial statements.

6

KORTH DIRECT MORTGAGE INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1 - NATURE OF BUSINESS

Korth Direct Mortgage Inc. (the “Company”) is incorporated in the State of Florida. The Company was created to originate mortgages and fund those mortgages with notes secured by mortgage loans. On July 31, 2020, the Company acquired substantially all of the equity of J.W. Korth & Company Limited Partnership, a Michigan limited partnership (“J.W. Korth”), and its general partner, J.W. Korth, LLC, a Florida limited liability company. J.W. Korth is an SEC and FINRA registered securities broker dealer. The financials of J. W. Korth were integrated into the financials of the Company as of August 1, 2020.

Certain information and note disclosures normally included in the Company’s annual financial statements prepared in accordance with US generally accepted accounting principles (“GAAP”) have been condensed or omitted. These unaudited financial statements should be read in conjunction with the financial statements and notes thereto included in the Company’s 2020 Annual Report on Form 10-K filed with the Securities and Exchange Commission.

NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

PRINCIPLES OF CONSOLIDATION

The accompanying consolidated financial statements include the accounts of the Company and J.W. Korth, its wholly-owned subsidiary. Intercompany balances and transactions have been eliminated upon consolidation.

BASIS OF ACCOUNTING

The accompanying financial statements have been prepared on the accrual basis of accounting, in accordance with GAAP.

USE OF ESTIMATES

The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

CASH AND CASH EQUIVALENTS

For purposes of the statement of cash flows, the Company considers all highly liquid debt instruments purchased with a maturity of three months or less to be cash equivalents.

MORTGAGE VALUATION

Mortgages that are current are carried at the principal value owed by the borrower, as of the date of the financial statements, according to the amortization schedule for the loan. All mortgages owned as of the date of these financial statements are current. The net present value of the servicing revenue is recorded as mortgage servicing rights, at fair value on the Statements of Financial Condition, and is recognized on the Statement of Operations as an unrealized gain on mortgages.

MORTGAGE SECURED NOTES

The Company funds the mortgage loans (”CM Loans”) that it makes by issuing Mortgage Secured Notes (“MSNs”) in series, each of which is MSN series is secured by the e s mortgage or mortgages funded from proceeds of the MSN series. Our MSNs have been funded in multiple ways, including private placements, SEC registered offerings, and Rule 144A offerings. As of the date of these financial statements, the Company has funded CM Loans totaling $200,230,382 and issued MSNs secured by those loans in the amount of $202,387,592. The One CM Loan that was part of a single MSN series issuance closed after the quarter end, resulting in an excess value of MSNs compared to Mortgages Owned of approximately $2,157,210. The CM Loan was completed and funded on April 15, 2021.

PORTFOLIO LOANS

The Company recognizes loans made with its own capital, or those not securitized, under the caption “Portfolio Loans” on the balance sheet. As of March 31, 2021, the Company had issued Portfolio Loans in the amount of $2,123,895. These loans were funded by the Company, as well as affiliates.

7

GOODWILL

Financial Accounting Standards Board Accounting Standards Codification (“FASB ASC”) Section 350 requires an annual assessment of the recoverability of goodwill using a two-step process. The first step of the impairment test involves a comparison of the fair value of the reporting unit to its carrying value. If the carrying value is higher than the fair value or there is an indication that impairment may exist, a second step must be performed to compute the amount of the impairment. Management conducted its annual assessment of goodwill impairment and determined that there were no indicators of goodwill impairment and therefore did not record an impairment loss for the period ending March 31, 2021.

REVENUE RECOGNITION

The Company’s primary sources of revenue are origination fees, servicing fees, processing fees, underwriting income, trading profits, and interest income.

Origination Fees

Loan origination fees represent revenue earned from originating mortgage loans; net of any credits given to the borrower. Loan origination fees generally represent flat, per-loan fee amounts and are deferred and recognized as revenue over the life of the loan. The associated loan origination costs are also deferred and recognized as expense over the life of the loan. The deferred portion of the loan origination fees is netted against the deferred portion of the loan origination costs, which include mortgage broker expenses, and reported as a net deferred revenue liability on the Company’s Statement of Financial Condition.

Servicing Fees

Loan servicing fees represent revenue earned for servicing loans for various investors. Loan servicing fees are a percentage of the outstanding unpaid principal balance and represent the difference between the interest received from our CM Loans and the MSN interest payable. Servicing fees are recognized as revenue as the related mortgage payments are received; similarly, loan servicing expenses are charged to operations as incurred.

Processing Fees

Processing fees are collected from the borrower at the time the commitment letter is signed and cover a variety of expenses during the underwriting process. If the Company cancels the transaction, then unused fees are refunded. If the transaction is unable to proceed for any reason not the fault of the Company, then the Company keeps the full processing fee. Revenues from processing fees are recognized at closing or at the time a transaction is canceled.

Underwriting Income

Underwriting income represents revenue earned by J. W. Korth for underwriting and distribution of the Company’s securities. Revenues from underwriting income are recognized on the settlement date of the trades.

Trading Profits

Trading profits represent revenue generated through the trading of securities either for its own account or on behalf of J. W. Korth’s clients. Revenue from trading profits is recognized upon settlement of the securities transactions.

Interest Income

Interest Income is primarily derived from interest earned on Portfolio Loans and includes interest earned on cash and securities.

LEASES

In February 2016, the FASB issued ASU No. 2016-02, “Leases (Topic 842).” The standard requires organizations to recognize right-of-use (“ROU”) assets and lease liabilities on the balance sheet and disclose key information about leases that were historically classified as operating leases under previous generally accepted accounting principles. Leases will be classified as financing or operating, with classification affecting the pattern and classification of expense recognition in the income statement. The Company adopted the new lease standard on January 1, 2019, and has chosen to use that date as the effective date of initial application. Consequently, financial information will not be updated and the disclosures required under the new standard will not be provided for dates and periods before January 1, 2019. The new lease guidance provides a number of optional practical expedients in transition. The Company has elected the “package of practical expedient,” which permits it to not reassess under the new standard its prior conclusions about lease identification, lease classification, and initial direct costs. As part of the adoption of this standard, the Company recognized lease liabilities with a corresponding ROU leased asset of approximately the same amount based on the present value of the remaining lease payments pursuant to current leasing standards for existing operating leases. The adoption of this standard did not have a material impact on the Company’s consolidated financial statements.

8

STOCK-BASED COMPENSATION

The Company estimates the fair values of share-based payments on the date of grant using a Black-Scholes option pricing model. Compensation cost is recognized over the required service period, generally defined as the vesting period. For awards with graded vesting, compensation cost is recognized on a straight-line basis over the requisite service period for the entire award. The Company’s accounting policy is to recognize forfeitures as they occur.

The Black-Scholes option pricing model requires assumptions for the expected volatility of the share price of our common stock, the expected dividend yield, and a risk-free interest rate over the expected term of the stock-based award. The assumptions used in calculating the fair value of stock-based awards represent our best estimates, but these estimates involve inherent uncertainties and the application of management judgment. As a result, if factors change and we use different assumptions, our stock-based compensation expense could be materially different in the future.

Unrealized Gain on Mortgages Owned

The net present value of the servicing income is recognized at the time the mortgage is initiated. This value uses several inputs that are highly subjective including: discount rate, prepayment rate, the current interest rate environment, and default rate assumptions. Since the Company has a short operating history and a small number of loans outstanding, we have a limited basis to predict prepayment rates and default rates.

DUE TO CLEARINGHOUSE BROKERS

J.W. Korth, a wholly owned subsidiary of the Company, operates as an SEC and FINRA registered securities broker dealer. Securities transactions are traded through broker clearinghouses and, upon settlement, funds are transferred in and out of the Company’s bank accounts. Unsettled transactions create short-term payables and receivables due to and from the broker clearinghouses. As of March 31, 2021, the Company had a net amount due to clearinghouse brokers of $13,759.

DEPRECIATION

Depreciation is provided on a straight-line basis using estimated useful lives of three to seven years.

INCOME TAXES

On June 6, 2019, the Company converted from a Florida limited liability company into a Florida corporation. Effective with the conversion into a Florida corporation, income taxes are accounted for under the asset and liability method. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases and operating loss and tax credit carryforwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. A valuation allowance on deferred tax assets is established when management considers it is more likely than not that some portion or all of the deferred tax assets will not be realized.

Tax benefits from an uncertain tax position are only recognized if it is more likely than not that the tax position will be sustained on examination by the taxing authorities, based on the technical merits of the position. The tax benefits recognized in the financial statements from such a position are measured based on the largest benefit that has a greater than fifty percent likelihood of being realized upon ultimate resolution. Interest and penalties related to unrecognized tax benefits are recorded as incurred as a component of income tax expense

NOTE 3 – ACQUISITION OF RELATED PARTY AFFILIATE

On July 31, 2020, the Company acquired substantially all of the equity of J.W. Korth, a Michigan limited partnership, and its general partner, J.W. Korth, LLC, a Florida limited liability company. The Company’s acquisitions of J.W. Korth and J.W. Korth, LLC are together referred to as the “Acquisitions.”

The Company was founded by J.W. Korth with James W. Korth, its Chairman and Chief Executive Officer, and his daughter, Holly MacDonald-Korth, the Company’s President and Chief Financial Officer. Mr. Korth is the Managing Partner of J.W. Korth and Ms. MacDonald-Korth is J.W. Korth’s Managing Director and Chief Financial Officer. J.W. Korth is registered with the Securities and Exchange Commission as a broker-dealer and investment advisor, and with the Financial Industry Regulatory Authority (“FINRA”) as a broker-dealer. Together, prior to closing of the Acquisitions Mr. Korth and Ms. MacDonald-Korth together owned approximately 80% of J.W. Korth’s partnership interests and controlled the business and operations of J.W. Korth. J.W. Korth funded the organization and operation of the Company pursuant to a support agreement with the Company from inception until April 2019, at which time the Company became self-sustaining and J.W. Korth forgave a receivable owed to it by the Company. Until the closing of the Acquisitions, the Company was controlled by J.W. Korth, which owned all of its voting common stock.

9

The Company originates, funds and services loans which it makes to commercial borrowers. The loans are held by the Company as lender. The Company funds its loans directly in the capital markets through issuance of Mortgage Secured Notes (“MSNs” or “Notes”), which are sold through J.W. Korth as underwriter or placement agent through exemptions from registration available under Rule 144A, Regulation D, and other exemptions from registration. The Company and J.W. Korth determined that the Company could operate more efficiently if J.W. Korth became a wholly-owned subsidiary of the Company. J.W. Korth submitted its then-proposed sale to FINRA, as required by FINRA rules, and FINRA advised J.W. Korth that it could proceed with the closing.

Pursuant to the Purchase Agreement, as a condition of closing J.W. Korth agreed to distribute all of its 5,000,000 shares of common stock in the Company to its partners ratably in accordance with their partnership interests in J.W. Korth pursuant to exemptions from registration available under Section 4(a)(2) of the Securities Act of 1933, as amended, and Rule 506 promulgated under the Securities Act.

Prior to the closing, J. W. Korth LLC owned 73.6% of the Common Capital interest of J W Korth and at closing received 3,680,000 shares of the Company. Simultaneously J W Korth LLC distributed the Company shares it received from J.W. Korth to its members James Korth and Holly MacDonald-Korth according to their membership interests which were 80% and 20% respectively.

At closing, after the distribution to its members of the Company shares distributed to J W Korth LLC, the Company acquired all of the membership interests in JW Korth LLC from Mr. Korth and Ms. MacDonald-Korth for consideration of the payment to (i) the Preferred Capital Interest partners of J.W. Korth of accrued and unpaid 6% dividends through July 31, 2020, and (ii) James Korth of $150,000 in payment of the value of his JW Korth LLC’s Common Capital Interest account.

As post-closing commitments the Company agreed to (i) retain Mr. Korth as the managing partner of J.W. Korth, Ms. MacDonald-Korth as J.W. Korth’s chief financial officer, and all other employees of JW Korth who were employed at closing of the Transactions; (ii) operate J.W. Korth as an SEC registered broker-dealer and investment advisor; (iii) pay the JW Korth Preferred Capital Interest Partners quarterly dividends concurrently with its payment of the Company’s Series A Preferred Stock dividends at least annually; (iv) in such years as it pays Series A Preferred dividends, redeem 25% annually of the JW Korth Preferred Capital Interest partners through a capital contribution to JW Korth; and (v) make a discretionary redemption of all accounts of the limited partners of J.W. Korth under the J.W. Korth partnership agreement. Upon redemption of the limited partners’ accounts and the payment of the other consideration to described above to the JW Korth partners, KDM will own 100% of the voting interests in JW Korth.

The following table summarizes the consideration paid, or to be paid, for the Acquisitions:

	Consideration
Accrued & unpaid dividends to the Preferred Capital Interest partners	$	213,443
JW Korth LLC’s Common Capital Interest account		150,000
Contingent liability to redeem J.W. Korth Preferred Capital Interest Partners		696,253
Disposition of outstanding loan due from J.W. Korth Executive Officer		69,780
Total Consideration Paid	$	1,129,476

10

The following table summarizes the net book value of assets and liabilities acquired as of the closing date, July 31, 2020:

	Net Book Value
J.W. Korth Net Book Value	$	889,131
Less: Preferred Interest in J.W. Korth by Company prior to acquisition		(250,000	)
Adjusted Net Book Value acquired	$	639,131

Since the acquisition was between related parties, the transaction was recorded at net book value as of the closing date. The difference of $490,345 between the consideration paid and the net book value of the assets and liabilities acquired was recorded as an offset to equity, specifically to Additional Paid-in Capital. Disclosure of supplemental pro forma information for revenue and earnings related to the acquisition, assuming the acquisition was made at the beginning of the earliest period presented, has not been disclosed since the effects of the acquisition would not have been material to the results of operation for the periods presented.

NOTE 4 – CONTINGENT LIABILITY

As part of the acquisition of related party affiliate discussed above in Note 3, the Company agreed to pay (i) the Preferred Capital Interest partners of J.W. Korth accrued and unpaid dividends of 6% per annum through July 31, 2020; (ii) the JW Korth Preferred Capital Interest Partners quarterly dividends concurrently with its payment of the Company’s Series A Preferred Stock dividends at least annually; and (iii) in such years as it pays Series A Preferred dividends, redeem 25% annually of the JW Korth Preferred Capital Interest partners through a capital contribution to JW Korth.

The following table summarizes the unpaid Contingent Liability outstanding as of March 31, 2021:

Contingent liability to redeem J.W. Korth Preferred Capital Interest Partners		696,253
Accrued quarterly dividends recorded as interest expense through March 31, 2021		27,850
Contingent Liability, net	$	724,103

NOTE 5 - RESTRICTED CASH

The Company maintains multiple segregated accounts in trust for borrowers and investors. The value of these accounts is carried under the asset “Restricted Cash.”

The “In Trust for 1” account holds the monthly tax and insurance payments collected from borrowers and distributes payments annually, on behalf of borrowers, to the appropriate tax authority and insurance companies. This account corresponds to the Escrow Payable liability. As of March 31, 2021, this account has a balance of $8,002,446.

The “In Trust for 2” account receives payments from borrowers, distributes payments to investors, and pays the servicing fee to the Company. This account corresponds to the Due to Investors liability. As of March 31, 2021, this account has a balance of $3,849,961, which consists of borrower early payments and commitments and also a balance of $2,157,210 pending closing of one loan. This account corresponds to the Due to investors liability.

The Company also maintains multiple lockbox accounts that collect rental payments directly from tenants on the borrowers’ behalf. These accounts typically net out funds monthly. The lockbox account balances as of March 31, 2021were $104,637.

NOTE 6 - COMMITMENTS

Prior to the acquisition of J.W. Korth in July 2020, the Company relied entirely on J.W. Korth to provide office space, internet connectivity, phone service, and incidentals. In November 2020, the Company signed a lease for new office space in Miami, Florida, for a term of sixty-two months with the right to extend the term of the lease for two additional, successive periods of two years upon the same terms and conditions as the initial term. In December 2020, the Company entered into a Sublease Agreement to sublet a portion of the office space described above. The subtenant has agreed to cover the proportionate amount of the lease costs associated with the office space based on essentially the same terms as the lease described above, including the rights to extend for two successive two-year periods.

On January 13, 2021, J.W. Korth negotiated a five month early termination of its lease for its Miami office and will rely entirely on its parent for office space at the Coral Gables location. The J. W. Korth Michigan office has renegotiated a new lease beginning in April 2021.

11

The net present value of future lease payments pursuant to the operating lease agreements are included in the ROU Leased Asset and the Lease Liability accounts on the Consolidated Statement of Financial Condition. The ROU Leased Asset represents the right to use an underlying asset for the remaining lease term. The Lease Liability represents the obligation to make lease payments pursuant to the terms of the lease agreements.

Rental expense for the quarter ended March 31, 2021 was $86,160, which includes additional expenses for common area, direct operating expense, utilities, parking, and taxes.

As of March 31, 2021, the net present value of the future lease liabilities, using the weighted-average discount rate of 4.24%, which is commensurate with the Company’s secured borrowing rate, over the weighted-average remaining life of 4.8 years was $999,602.

The following is a schedule of the maturities of future lease payments over the remaining life of the operating leases, reconciled to the net present value of as of March 31, 2021:

	Future Lease Payments
2021	$	165,614
2022		221,635
2023		227,747
2024		234,043
2025		240,527
2026		20,089
Total Lease Payments		1,109,655
Less: Imputed Interest		(110,053	)
Present Value of  Lease Liabilities	$	999,602

PPP Loan

In April 2020, J. W. Korth, at that time the parent company of KDM, availed itself of a Paycheck Protection Program loan (“PPP Loan”) in the amount of $161,600, which was not forgiven as of March 31, 2021, so it appears on the Statement of Financial Condition. However, subsequent to the date of the financial statements and prior to the issuance of this report, we received notice that the loan was forgiven.

NOTE 7 - INDEMNIFICATIONS

The Company provides representations and warranties to counterparties in connection with a variety of commercial transactions and occasionally indemnifies them against potential losses caused by the breach of those representations and warranties. These indemnifications generally are standard contractual terms and are entered into in the normal course of business. The maximum potential amount of future payments that the Company could be required to make under these indemnifications cannot be estimated. However, the Company believes that it is unlikely it will have to make material payments under these arrangements and has not recorded any contingent liability in the financial statements for these indemnifications.

NOTE 8 - CUSTOMERS

As of March 31, 2021, the Company had thirty-eight customers. The Company defines customers as borrowers that have an active loan with the Company, or are in the midst of the underwriting process and have a commitment fee on deposit with the Company. We do not have any over concentration with a single borrower or location other than three large loans in the states of Ohio, Virginia, and California for a total of approximately 102,000,000.

NOTE 9 – RELATED PARTY TRANSACTIONS

As of December 31, 2020, the intercompany transactions and balances between the Company and J.W. Korth have been eliminated upon consolidation as a result of the acquisition.

In March 2020, the Company purchased an MSN in the amount of $100,000 included on the statement of financial condition as Securities.

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On April 1, 2020, the Company closed a first lien and corresponding MSN, along with a second lien loan of $500,000 on the same property. The funding for the second lien was provided by 110 Capital LLC, an entity controlled by a KDM director and employee. KDM services both notes.

On May 13, 2020, the Company executed a preferred partner subscription agreement with J.W. Korth in the amount of $250,000, which was eliminated upon consolidation as a result of the acquisition of J.W. Korth in July 2020 (see Note 4 above).

As of March 31, 2021, the Company paid underwriting fees of $69,003 to J.W. Korth in 2021.

On February 12, 2021, the Company closed a first lien and corresponding MSN, along with a second lien loan of $200,000 on the same property. The funding for the second lien was provided by 110 Capital LLC, an entity controlled by a KDM director and employee. KDM services both notes.

NOTE 10 – DEFERRED REVENUE, NET

Loan origination fees are deferred and recognized as revenue over the life of the respective loan. The associated loan origination costs are also deferred and recognized as expense over the life of the loan. The deferred portion of the loan origination fees is netted against the deferred portion of the loan origination costs and reported as a net deferred revenue liability on the Company’s Statement of Financial Condition.

The following is a summary of the loan originating fees and costs deferred and amortized for the three months ended March 31, 2021:

	Deferred			Deferred
	Origination			Origination			Deferred
	Fees			Costs			Revenue, net
Deferred Revenue at December 31, 2020	$	2,617,443		($	2,117,313	)	$	500,130
New loan deferrals		369,846			(177,480	)		192,366
Amortization of deferrals		(158,173	)		120,393			(37,780	)
Deferred Revenue at March 31, 2021	$	2,829,116		($	2,174,400	)	$	654,716

NOTE 11 – EMPLOYEE AND DIRECTOR STOCK OPTIONS

On June 28, 2019, the Company’s Board of Directors adopted the 2019 Stock Option Plan (the “Incentive Plan”). The Incentive Plan provides for the grant of both incentive and non-statutory stock options to key employees, directors or other persons having a service relationship with the Company for the purchase of up to an aggregate of 1,000,000 shares of the Company’s unissued, or reacquired, common stock, $0.001 par value. The Plan will be administered by the Board of Directors or a committee appointed by the Board.

In June 2019, the Company issued options to purchase 835,000 shares of the Company’s common stock at an exercise price of $1.00 per share. The weighted-average grant date fair values of options granted was $0.1855 per share. The fair values of the stock-based awards granted were calculated with the following weighted-average assumptions:

	2020
Risk-free interest rate:	1.76%
Expected term:	5.75 years
Expected dividend yield:	0%
Expected volatility:	35.01%

For the three months ended March 31, 2021, the Company recorded $6,453 of stock-based compensation expense. As of March 31, 2021, there was $32,270 in total unrecognized compensation expense related to non-vested employee stock options granted under the Incentive Plan, which is expected to be recognized over 1.25 years.

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Stock option activity for the three months ended March 31, 2021, is summarized as follows:

2019 Stock Option Plan:	Shares		Weighted Average Exercise Price		Weighted Remaining Contractual Life (Years)
Options outstanding at January 1, 2021		835,000	$	1.00		8.5
Granted		-
Exercised		-
Expired or forfeited		-
Options outstanding at March 31, 2021		835,000	$	1.00		8.3
Options exercisable at March 31, 2021		417,500	$	1.00		8.3
Options expected to vest at March 31, 2021		417,500	$	1.00		8.3

NOTE 12 – PREFERRED EQUITY

On September 27, 2019, the Company issued 200,000 shares of its Series A 6% Cumulative Perpetual Convertible Preferred Stock for net proceeds of $4,750,000. The Company paid $250,000 in expenses related to the preferred stock issuance to J. W. Korth as underwriter and distributor. Each share was sold for $25, and is convertible into common stock at a ratio of 5 shares of common stock for each share of Series A Preferred Stock.

NOTE 13 – FAIR VALUE

FASB ASC 820, Fair Value Measurements and Disclosures (“ASC 820”), defines fair value as the price that would be received upon sale of an asset or paid upon transfer of a liability in an orderly transaction between market participants at the measurement date and in the principal or most advantageous market for that asset or liability. The fair value should be calculated based on assumptions that market participants would use in pricing the asset or liability, not assumptions specific to the entity.

ASC 820 establishes a hierarchy of valuation techniques based on the observability of inputs utilized in measuring financial assets and liabilities at fair value. GAAP establishes market-based or observable inputs as the preferred source of values, followed by valuation models using management assumptions in the absence of market inputs. The three levels of the hierarchy are described below:

Level I—Inputs are unadjusted, quoted prices in active markets for identical assets or liabilities at the measurement date.

Level II—Inputs (other than quoted prices included in Level I) are either directly or indirectly observable for the asset or liability through correlation with market data at the measurement date and for the duration of the instrument’s anticipated life.

Level III—Inputs reflect management’s best estimate of what market participants would use in pricing the asset or liability at the measurement date. Consideration is given to the risk inherent in the valuation technique and the risk inherent in the inputs to the model.

ASC 820 requires the use of observable market data, when available, in making fair value measurements. When inputs used to measure fair value fall within different levels of the hierarchy, the level within which the fair value measurement is categorized is based on the lowest level input that is significant to the fair value measurements. Valuation techniques used need to maximize the use of observable inputs and minimize the use of unobservable inputs.

Valuation Process

Cash and cash equivalents: 

The carrying amounts of cash and short-term instruments approximate fair values and are classified as Level 1.

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Mortgages Owned and Mortgage Secured Notes Payable:

Mortgage loans for which the Company has the intention and ability to hold for the foreseeable future, or until maturity or payoff, are reported at their outstanding principal balances, net of any unearned income, premiums or discounts. If a decline in fair value below the carrying balance is other-than-temporary, an unrealized impairment loss is recorded and the loan is recorded at the lower fair value at each reporting period. To date, the Company has not recorded any impairment losses related to the mortgage loans.

Due to the fact that the Company issues notes secured directly by underlying loans, our assets and liabilities in this category have identical values and assets have offsetting balances.

Mortgage Servicing: 

The net present value of the servicing income is recognized at the time the mortgage is initiated as an unrealized gain. This value uses several inputs that are highly subjective including: discount rate, constant prepayment rate, the current interest rate environment, and default rate assumptions. Since the Company has limited operating history and a small amount of loans outstanding, we have a limited basis to predict prepayment rates and default rates, but have engaged a third party, MIAC Analytics, to assist us in our valuation of this asset. The amount is included on the Unaudited Statement of Financial Condition as “Mortgage Servicing Rights, at Fair Value.”

Mortgage Secured Notes Receivable:

From time to time the Company may buy-back mortgage secured notes previously issued to investors. These securities are available for sale, but may be held until maturity. These securities are recorded at fair value each quarter with the change in fair value recognized as an unrealized gain or loss each reporting period. The fair value estimate uses several inputs that are highly subjective including: discount rate, constant prepayment rate, the current interest rate environment, and default rate assumptions. Since the Company has limited operating history and a small amount of loans outstanding, we have a limited basis to predict prepayment rates and default rates, but have engaged a third party, MIAC Analytics, to assist us in our valuation of this asset.

Securities

J. W. Korth holds $225,000 of defaulted Banco Cruzeiro del Sur bonds which it reasonably believes it will receive par value for from the receiver handling the liquidation in Brazil. Local counsel has informed us that the bank has sufficient cash to pay off our bonds. We therefore carry them at par value.

KDM also holds a small amount of its own MSNs in an account which it may buy from time to time to provide liquidity to clients of J. W. Korth. These bonds are carried at the published statement values.

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Fair Value Disclosure

The following tables display the Company’s assets and liabilities measured at fair value on a recurring basis:

	March 31, 2021
	Total		Level I		Level II		Level III
Financial Assets
Mortgages Owned	$	200,230,382	$	-	$	200,230,382	$	-
Mortgage Servicing		4,648,239		-		-		4,648,239
Securities		426,280		-		-		426,280
Total Financial Assets	$	205,304,901	$	-	$	200,230,382	$	5,074,519
Financial Liabilities
Mortgage Secured Notes Payable	$	202,387,592	$	-	$	202,387,592	$	-
	December 31, 2020
Financial Assets
Mortgages Owned	$	175,370,850	$	-	$	175,370,850	$	-
Mortgage Servicing		3,864,416		-		-		3,864,416
Securities		329,152		-		46		329,106
Total Financial Assets	$	179,564,418	$	-	$	175,370,896	$	4,193,522
Financial Liabilities
Mortgage Secured Notes Payable	$	175,370,850	$	-	$	175,370,850	$	-

Fair Value Measurements

Changes in Fair Value Measurements for the three months ended March 31, 2021

The following table presents a reconciliation of changes in Level 3 assets and liabilities reported in the Statements of Financial Condition for the three months ended March 31, 2021:

Changes in assets:
Period ended March 31, 2021	Mortgage Servicing Value			Securities			Total Value
Beginning balance at January 1, 2021	$	3,864,416		$	329,106		$	4,193,522
Purchases		-			-			-
Trades		-			47,122			47,122
Sales		-			49,375			49,375
Issues		-			-			-
Settlements		-			-			-
Net realized gain/loss or Interest income		-			1,563			1,563
Unrealized Gain from newly issued mortgages		981,877			-			981,877
Fair Value adjustment		(198,054	)		(886	)		(198,940	)
Transfers into Level 3		-			-			-
Transfers out of Level 3		-			-			-
Ending balance at March 31, 2021	$	4,648,239		$	426,280		$	5,074,519

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The Company’s policy for recording transfers between levels of the fair value hierarchy is to recognize as of the financial statement date. For the three months ended March 31, 2021, there were no transfers between levels.

The Company has established valuation processes and policies for its Level 3 investments to ensure that the methods used are fair and consistent in accordance with ASC 820 – Fair Value Measurements and Disclosures. The Company’s valuation committee performs reviews of the Level 3 investments’ valuations, which include reviewing any significant price changes reported from the prior period. When a Level 3 investment has a significant price change, the valuation committee reviews relevant market data to substantiate the price change.

The following table presents quantitative information regarding the significant unobservable inputs the Company uses to determine the fair value of Level 3 investments held as of March 31, 2021:

Investment type	Fair Value		Valuation technique	Unobservable inputs	Values
Mortgage servicing	$	4,648,239	Net Present Value	Prepayment Discount		14.95	%
				Discount rate		15.00	%
Securities	$	426,280	Net Present Value

NOTE 14 – INCOME TAXES

The provision for income taxes was $224,655 for the three months ended March 31, 2021. The effective tax rate was 26.2% of the income before income taxes of $855,102, which differs from the federal statutory rate of 21% due to the effect of state income taxes and certain of the Company’s expenses that are not deductible for tax purposes.

The provision for income taxes was $49,849 for the three months ended March 31, 2020. The effective tax rate was 26.3% of the income before income taxes of $189,389, which differs from the federal statutory rate of 21% due to state income taxes and certain of the Company’s expenses that are not deductible for tax purposes.

NOTE 15 – PROPERTY AND EQUIPMENT

Property and Equipment are summarized as follows:

Equipment	$	151,165
Furniture and fixtures	$	174,282
	$	325,447
Accumulated depreciation	$	(48,773	)
Net Property Equipment	$	276,674

Depreciation expense for the period ending March 31, 2021 was $7,977.

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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

The following is a discussion of our historical consolidated financial condition and results of operations, and should be read in conjunction with (i) our historical consolidated financial statements and accompanying notes thereto included elsewhere in this Quarterly Report on Form 10-Q; (ii) our Annual Report on Form 10-K for the year ended December 31, 2020, filed with the Securities and Exchange Commission (the “SEC”) on March 30, 2021; and (iii) our management’s discussion and analysis of financial condition and results of operations included in our 2020 Form 10-K. This discussion includes forward-looking statements that are subject to risk and uncertainties. Actual results may differ substantially from the statements we make in this section due to a number of factors that are discussed in “Forward-Looking Statements” herein and “Part I – Item 1A. Risk Factors” of our Annual Report on Form 10-K for the year ended December 31, 2020.

Overview

Korth Direct Mortgage Inc. (“KDM,” the “Company,” “we,” or “us”) was organized in Florida on July 24, 2009, under the name HCMK Consulting LLC. We changed our name to Korth Direct Mortgage, LLC, on August 24, 2016.  On June 3, 2019, we converted from a limited liability company to a corporation, Korth Direct Mortgage Inc. Concurrently with our conversion into a corporation, James W. Korth was named Chief Executive Officer, Holly MacDonald-Korth was named President and Chief Financial Officer, and we appointed a board of directors.

Our principal executive offices are located at 135 San Lorenzo Avenue Suite 600, Coral Gables, Florida 33146, and our telephone number is (305) 668-8485. Our website address is www.korthdirect.com. We also operate under the trade name KDM Financial, and our principal subsidiary is J W Korth & Company, Limited Partnership (“J. W. Korth”).

KDM began its formal operations in October of 2016 when we engaged our Chief Lending Officer. We are a licensed in Florida as a Mortgage Lender Servicer. Our NMLS License Number is 1579547.

Prior to July 31, 2020, we were wholly owned by J.W. Korth, a FINRA and SEC registered broker-dealer founded in 1982. On July 31, 2020, we acquired substantially all of the equity of J.W. Korth.

We originate, fund and service loans which are made to commercial borrowers. The loans are held by KDM as the lender. We fund our loans directly in the capital markets through issuance of Mortgage Secured Notes (“MSNs” or “Notes”), which are sold through J.W. Korth as underwriter or placement agent through exemptions from registration available under Rule 144A, Regulation D, and other exemptions from registration. The Company and J.W. Korth determined that we could operate more efficiently if J.W. Korth became a wholly-owned subsidiary of the Company. J.W. Korth submitted its then-proposed sale to FINRA, as required by FINRA rules, and FINRA advised J.W. Korth that it could proceed with the closing, and we did so as noted on July 31, 2020.

Results of Operations for the three Months ended March 31, 2021

The Company generated revenues of $1,585,580 for the three months ended March 31, 2021, an increase of $1,228,824 compared with revenues of $356,756 for the three months ended March 31, 2020, a 444% increase. As of March 31, 2021, the Company owned mortgages of $200,230,382 compared with mortgages of $175,370,580 as of December 31, 2020 and $90,583,473 as of March 31, 2020, a 14% and 121% increase, respectively.

Gross profits increased by $1,033,517 to $1,265,975 during the three months ended March 31, 2021, compared with gross profits of $232,458 during the three months ended March 31, 2020. The increase in gross profits was primarily attributed to the increase in the amount of mortgages serviced during the three months ended March 31, 2021 with lower levels of mortgage related costs as a percentage of revenues, which generated higher gross margins.

Operating expenses were $1,193,254 during the three months ended March 31, 2021, which was an increase of $866,551 compared with operating expenses of $326,703 during the three months ended March 31, 2020. The increase in operating expenses was driven primarily by the increase of $664,980 in payroll related costs and $86,160 in rent, $535,360 of the year over year increase in payroll expense was due to acquisition of J. W. Korth which was acquired July 31, 2020.

Other income increased by $498,747 to $782,381 during the three months ended March 31, 2021, compared with other income of $283,634 during the three months ended March 31, 2020. The increase in other income was due to the unrealized gain of $783,823 on mortgage servicing rights.

During the three months ended March 31, 2021, the Company recorded $224,655 in deferred income tax expense compared with $49,849 of deferred income tax expense from March 31, 2020.

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Net income increased $490,907 to $630,447 for the three months ended March 31, 2021, compared with net income of $139,540 during the three months ended March 31, 2020. The increase in 2021 was primarily attributed to the increase in other income of $498,747, an increase from net loss to gain from operations of $166,966, partially offset by a decrease of $10,444 in income taxes generated during the three months ended March 30, 2021, compared with the three months ended March 31, 2020.

Financial Condition for the three Months Ended March 31, 2021

As of March 31, 2021, we had $1,638,276 in cash, forty-two loans totaling $202,387,592, consisting of $200,230,382 in mortgages and $2,123,895 in portfolio loans, and Mortgage Servicing Rights with a fair value of $4,648,239 on our balance sheet.

Liquidity and Capital Resources

The Company expects to raise additional preferred equity capital, as necessary for growth, in 2021 and succeeding years.

The Company is also looking to secure lines of credit and lender financing in forms that will comply with covenants of our trust indentures, but allow us the flexibility to continue to grow our business.

Status of KDM Loans

We post the annual reviews of each of our mortgage loans (“CM Loans”) on the korthdirect.com website along with any pertinent updates. All CM Loans are currently performing although one loan triggered its lockbox obligations in March 2020 and entered into a forbearance agreement. That loan is performing under the lockbox. We have not seen any impact of COVID-19 so far on our borrower’s ability to pay their mortgages.

Item 3. Quantitative and Qualitative Disclosures About Market Risk.

We have no instruments subject to market risk.

Item 4. Controls and Procedures.

We are responsible for establishing and maintaining adequate internal control over financial reporting as such item is defined by Securities Exchange Act Rule 13a - 15(f). Our internal controls are designed to provide reasonable assurance as to the reliability of our financial statements for external purposes in accordance with accounting principles generally accepted in the United States.

Internal control over financial reporting has inherent limitations and may not prevent or detect misstatements. Therefore, even those systems determined to be effective can provide only reasonable, not absolute, assurance with respect to financial statement preparation and presentation. Further, because of changes in conditions, the effectiveness of internal control over financial reporting may vary over time.

A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting such that there is a reasonable possibility that a material misstatement of the Company’s annual or interim financial statements will not be prevented or detected on a timely basis.

Under the supervision and with the participation of our Chief Executive Officer and Chief Financial Officer, we have evaluated the effectiveness of our internal control over financial reporting as of March 31, 2021, as required by Securities Exchange Act Rule 13a- 15(c). In making our assessment, we have utilized the criteria set forth by the 2013 Internal Control Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission. We concluded that based on our evaluation our internal control over financial reporting was effective as of March 31, 2021.

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PART II—OTHER INFORMATION

Item 1. Legal Proceedings.

The Company is not subject to any legal proceedings. The Company was a defendant in a suit regarding a mortgage brokerage fee dispute. The suit was dismissed with prejudice via summary judgement in favor of the Company on March 23, 2021.

The Company’s broker-dealer subsidiary is subject to an investigation of technical aspects of its financial advisory activities by the SEC regarding the reporting and treatment of certain trades and the disclosures made in the subsidiary’s financial advisory brochure. The inquiry involves rule interpretations by the subsidiary of the technical aspects of recording and reporting for purchases and sales of bonds and the relevance of certain disclosures in the brochure. The transactions in question do not involve KDM issued securities. The firm is fully cooperating with the SEC and believes at this time the outcome of the investigation is not expected to have a material adverse financial effect on KDM.

Item 1A. Risk Factors.

There have been no material changes to the risk factors disclosed in our Annual Report on Form 10-K for the fiscal year ended December 31, 2020. Please refer to the “Risks Factors” section in our Annual Report for a discussion of risks to which our business, financial condition, results of operations and cash flows are subject.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.

Not applicable.

Item 3. Defaults Upon Senior Securities.

None.

Item 4. Mine Safety Disclosures.

Not Applicable.

Item 5. Other Information.

None.

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Item 6. Exhibits.

Exhibit
Number	Description
1.1	Underwriting Agreement
3.1	Articles of Conversion from Korth Direct Mortgage LLC to Korth Direct Mortgage Inc. dated May 31, 2019
3.2	Articles of Incorporation of Korth Direct Mortgage Inc. dated May 31, 2019
3.3	Bylaws of Korth Direct Mortgage Inc. dated May 31, 2019
4.1	Trust Indenture and Security Agreement between Korth Direct Mortgage LLC, and Delaware Trust Company dated November 17, 2017
4.2	Trust Indenture and Security Agreement (Rule 144A Offerings) between Korth Direct Mortgage LLC, and Delaware Trust Company dated September 20, 2018
4.3	Trust Indenture and Security Agreement (Private Placements) between Korth Direct Mortgage Inc. and Delaware Trust Company dated September 30, 2020
25.	Statement of Eligibility of Trustee
31.1	Section 302 Certificate of Chief Executive Officer*
31.2	Section 302 Certificate of Chief Financial Officer *
32.1	Section 906 Certificate of Chief Executive Officer*
32.2	Section 906 Certificate of Chief Financial Officer*
101.	Interactive Data File

*Filed herewith.

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

	KORTH DIRECT MORTGAGE INC.
Dated:  May 18, 2021	By:	/s/ James W. Korth
		James W. Korth, Chief Executive Officer

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EX-31.1

Exhibit 31.1

CERTIFICATION OF CHIEF EXECUTIVE OFFICER

PURSUANT TO RULE 13a-14(a) OR 15d-14(a)

OF THE SECURITIES EXCHANGE ACT OF 1934,

AS ADOPTED PURSUANT TO SECTION 302 OF THE

SARBANES-OXLEY ACT OF 2002

I, James W. Korth, certify that:

1.       I have reviewed this Quarterly Report on Form 10-Q of Korth Direct Mortgage Inc. (the “Registrant”);

2.       Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3.       Based on my knowledge, the unaudited condensed consolidated financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the Registrant as of, and for, the periods presented in this report;

4.       The Registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the Registrant and have:

a.       Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the Registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b.       Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c.       Evaluated the effectiveness of the Registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation;

d.       Disclosed in this report any change in the Registrant’s internal control over financial reporting that occurred during the Registrant’s most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the Registrant’s internal control over financial reporting; and

5.       The Registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the Registrant’s auditors and the audit committee of Registrant’s board of directors (or persons performing the equivalent functions):

a.       All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the Registrant’s ability to record, process, summarize and report financial information; and

b.       Any fraud, whether or not material, that involves management or other employees who have a significant role in the Registrant’s internal control over financial reporting.

Dated: May 18, 2021	/s/ James W. Korth
	James W. Korth, Chief Executive Officer

EX-31.2

Exhibit 31.2

CERTIFICATION OF CHIEF FINANCIAL OFFICER

PURSUANT TO RULE 13a-14(a) OR 15d-14(a)

OF THE SECURITIES EXCHANGE ACT OF 1934,

AS ADOPTED PURSUANT TO SECTION 302 OF THE

SARBANES-OXLEY ACT OF 2002

I, Holly MacDonald-Korth, certify that:

1.       I have reviewed this Quarterly Report on Form 10-Q of Korth Direct Mortgage Inc. (the “Registrant”);

2.       Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3.       Based on my knowledge, the unaudited condensed consolidated financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the Registrant as of, and for, the periods presented in this report;

4.       The Registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the Registrant and have:

a.       Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the Registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b.       Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c.       Evaluated the effectiveness of the Registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation;

d.       Disclosed in this report any change in the Registrant’s internal control over financial reporting that occurred during the Registrant’s most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the Registrant’s internal control over financial reporting; and

5.       The Registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the Registrant’s auditors and the audit committee of Registrant’s board of directors (or persons performing the equivalent functions):

a.       All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the Registrant’s ability to record, process, summarize and report financial information; and

b.       Any fraud, whether or not material, that involves management or other employees who have a significant role in the Registrant’s internal control over financial reporting.

Dated: May 18, 2021	/s/ Holly MacDonald-Korth
	Holly MacDonald-Korth, President and Chief Financial Officer

EX-32.1

Exhibit 32.1

CERTIFICATION PURSUANT TO

18 U.S.C. SECTION 1350

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

I, James W. Korth, the Chief Executive Officer of Korth Direct Mortgage Inc., certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:

1.       This Quarterly Report on Form 10-Q of the Company for the quarter ended March 31, 2021 (the “Report”) fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934 (15 U.S.C. 78m or 78o(d)); and

2.       The information contained in this Form 10-Q fairly presents, in all material respects, the financial condition and results of operations of the Company.

Dated: May 18, 2021	/s/ James W. Korth
	James W. Korth, Chief Executive Officer

EX-32.2

Exhibit 32.2

CERTIFICATION PURSUANT TO

18 U.S.C. SECTION 1350

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

I, Holly MacDonald-Korth, the President and Chief Financial Officer of Korth Direct Mortgage Inc., certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:

1.       This Quarterly Report on Form 10-Q of the Company for the quarter ended March 31, 2021 (the “Report”) fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934 (15 U.S.C. 78m or 78o(d)); and

2.       The information contained in this Form 10-Q fairly presents, in all material respects, the financial condition and results of operations of the Company. 

Dated: May 18, 2021	/s/ Holly MacDonald-Korth
	Holly MacDonald-Korth, President and Chief Financial Officer

XML

Cover	3 Months Ended
	Mar. 31, 2021 shares
Cover [Abstract]
Entity Registrant Name	Korth Direct Mortgage Inc.
Entity Central Index Key	0001695963
Document Type	10-Q
Document Period End Date	Mar. 31, 2021
Amendment Flag	false
Current Fiscal Year End Date	--12-31
Entity File Number	000-1695962
Entity Incorporation, State or Country Code	FL
Entity Current Reporting Status	Yes
Entity Interactive Data Current	Yes
Entity Filer Category	Non-accelerated Filer
Entity Small Business	true
Entity Emerging Growth Company	true
Entity Ex Transition Period	false
Entity Shell Company	false
Entity Common Stock, Shares Outstanding	5,000,000
Document Fiscal Period Focus	Q1
Document Fiscal Year Focus	2021

XML

UNAUDITED CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION - USD ($)	Mar. 31, 2021	Dec. 31, 2020
ASSETS
Cash and Cash Equivalents	$ 1,638,276	$ 2,037,177
Restricted Cash	11,957,044	6,605,288
Mortgages Owned	200,230,382	175,370,850
Mortgage Servicing Rights, at Fair Value	4,648,239	3,864,416
Portfolio Loans	2,123,895	2,042,414
Securities	426,280	329,152
ROU Leased Asset	957,650	1,031,126
Goodwill	110,000	110,000
Property & equipment, net of depreciation	276,674	186,703
Deposits	286,655	140,359
Prepaid Expenses	176,541	120,770
Accounts Receivable	45,691	19,577
TOTAL ASSETS	222,877,327	191,857,832
LIABILITIES
Escrows Payable	8,107,083	6,462,394
Due to Investors	1,692,751	142,894
Due to clearinghouse brokers	13,759	240,942
Lease liability	999,602	1,037,538
Preferred Dividend Payable	12,500	12,500
Deferred Revenue, net	654,716	500,130
Deferred Tax Liability	846,848	641,111
Accrued Expenses	166,125	57,197
Contingent liability, net	724,103	773,405
PPP loan payable	161,600	161,600
Mortgage Secured Notes Payable	202,387,592	175,370,850
Accounts Payable	161,756	70,279
Total Liabilities	215,928,435	185,470,840
STOCKHOLDERS' EQUITY
Accumulated Earnings	1,921,100	1,365,653
Additional Paid-in Capital	5,027,092	5,020,639
Common Stock, $0.0001 par value, 60,000,000 shares authorized 5,000,000 shares issued and outstanding at March 31, 2021 and December 31, 2020	500	500
Series A Preferred Stock, $0.001 par value, 40,000,000 shares authorized, 200,000 shares issued and outstanding at March 31, 2021 and December 31, 2020	200	200
Total Stockholders' Equity	6,948,892	6,386,992
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY	$ 222,877,327	$ 191,857,832

XML

UNAUDITED CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION (Parenthetical) - $ / shares	Mar. 31, 2021	Dec. 31, 2020
Statement of Financial Position [Abstract]
Common stock, par value (in dollar per share)	$ 0.0001	$ 0.0001
Common stock, authorized	60,000,000	60,000,000
Common stock, issued	5,000,000	5,000,000
Common stock, outstanding	5,000,000	5,000,000
Series A Preferred Stock, par value (in dollar per share)	$ 0.001	$ 0.001
Series A Preferred Stock, authorized	40,000,000	40,000,000
Series A Preferred Stock, issued	200,000	200,000
Series A Preferred Stock, outstanding	200,000	200,000

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UNAUDITED CONSOLIDATED STATEMENTS OF OPERATIONS - USD ($)	3 Months Ended
	Mar. 31, 2021	Mar. 31, 2020
REVENUES
Total Revenues	$ 1,585,580	$ 356,756
COST OF REVENUES
Broker Underwriting Expense	69,003	41,272
Mortgage Broker Expense	126,341	47,647
Co-Manager Engagement Fee	867	877
Bank Transaction Fees	19,919	1,041
Appraisal Costs	2,509	421
Marketing	8,233	14,971
License and Registration	14,567	6,781
Insurance Review		1,000
Ratings	21,367	320
Technology Fees	56,799	9,968
Total Cost of Revenues	319,605	124,298
GROSS PROFIT	1,265,975	232,458
OPERATING EXPENSES
Office Supplies	20,267	3,994
Accounting	51,349	15,620
Salaries & Commissions	858,149	236,225
Payroll Taxes	58,341	15,285
Other Payroll Related Costs	15,962	(338)
Professional & Legal	55,681	29,293
Rent Expense	86,160
Utilities	5,286
Travel & Entertainment	4,973	5,605
Tradeshow Expense	534	8,454
Business Insurance	22,122	6,112
Business Development
Depreciation	7,977
Stock Compensation	6,453	6,453
Total Expenses	1,193,254	326,703
Net Gain/(Loss) From Operations	72,721	(94,245)
Other Income / (Expenses/Loss)
Unrealized Gain on Mortgages	783,823	284,445
Unrealized Loss on Mortgage Secured Notes	(886)	(811)
Interest Expense	(10,444)
Interest income	9,888
Total Other Income	782,381	283,634
Net income before provision for income taxes	855,102	189,389
Provision for income taxes	224,655	49,849
Net Income	630,447	139,540
Series A Preferred Dividends	75,000	75,000
Net income attributable to common stockholder	555,447	64,540
Origination Revenue [Member]
REVENUES
Total Revenues	158,173	86,787
Servicing Revenue [Member]
REVENUES
Total Revenues	478,822	209,505
Processing Revenue [Member]
REVENUES
Total Revenues	12,000
Underwriting Income [Member]
REVENUES
Total Revenues	224,639
Trading Profits [Member]
REVENUES
Total Revenues	606,709
Interest Income [Member]
REVENUES
Total Revenues	47,910	52,345
Commissions [Member]
REVENUES
Total Revenues	52,212
Late Fees [Member]
REVENUES
Total Revenues	$ 5,115	$ 8,119

XML

UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS - USD ($)	3 Months Ended
	Mar. 31, 2021	Mar. 31, 2020
CASH FLOWS FROM OPERATING ACTIVITIES
Net Income	$ 630,447	$ 139,540
Adjustments to Reconcile Net Income to Net Cash (Used In)/Provided by Operating Activities:
Unrealized Gain on Mortgages Owned	(783,823)	(284,445)
Unrealized Loss on Mortgage Secured Notes	886	811
Stock compensation expense	6,453	6,453
Depreciation	7,977
Deferred rent expense from operating lease	35,540
Deferred income taxes	205,737	49,849
Changes in Operating Assets and Liabilities:
Restricted Cash	(5,351,756)	(8,427,176)
Mortgage Secured Notes Issued	27,016,742	13,290,661
Mortgage Secured Notes Purchased	(98,014)	(100,521)
Portfolio Loans	(81,481)	543,866
Accounts Receivable	(26,114)	62,581
Prepaid Expenses	(55,771)	(30,372)
Deposits	(146,296)
Due to Parent		47,025
Deferred Revenue, net	154,586	(2,583)
Escrow Payable	1,644,689	20,787
Due to Investors	1,549,857	6,388
Due to clearinghouse brokers	(227,183)
Interest payable	(49,302)
Accrued Expenses	108,928	(45,589)
Accounts Payable	91,477	(7,272)
New Mortgage Lending	(24,859,532)	(4,890,661)
Total Adjustments	(856,400)	239,802
NET CASH (USED IN)/PROVIDED BY OPERATING ACTIVITIES	(225,953)	379,342
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of property and equipment	(97,948)
NET CASH (USED IN) INVESTING ACTIVITIES	(97,948)
CASH FLOWS FROM FINANCING ACTIVITIES
Payment of Series A preferred stock dividends	(75,000)	(75,000)
NET CASH (USED IN) FINANCING ACTIVITIES	(75,000)	(75,000)
NET (DECREASE)/INCREASE IN CASH AND CASH EQUIVALENTS	(398,901)	304,342
CASH AND CASH EQUIVALENTS - Beginning of Period	2,037,177	2,378,716
CASH AND CASH EQUIVALENTS - End of Period	1,638,276	2,683,058
SUPPLEMENTAL DISCLOSURE OF CASH FLOWS INFORMATION
Cash paid during the period for interest	$ 10,444

XML

UNAUDITED CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY - 3 months ended Mar. 31, 2021 - USD ($)	Series A Preferred Stock [Member]	Common Stock [Member]	Additional Paid-in Capital [Member]	Accumulated Earnings [Member]	Total
Balance at beginning at Dec. 31, 2020	$ 200	$ 500	$ 5,020,639	$ 1,365,653	$ 6,386,992
Balance at beginning (in shares) at Dec. 31, 2020	200,000	5,000,000			5,000,000
Increase (Decrease) in Stockholders' Equity [Roll Forward]
Options issued to employees and directors			6,453		$ 6,453
Series A preferred stock dividends declared				(75,000)	(75,000)
Net income				630,447	630,447
Balance, end at Mar. 31, 2021	$ 200	$ 500	$ 5,027,092	$ 1,921,100	$ 6,948,892
Balance, end (in shares) at Mar. 31, 2021	200,000	5,000,000

XML

NATURE OF BUSINESS

3 Months Ended

Mar. 31, 2021

Organization, Consolidation and Presentation of Financial Statements [Abstract]

NATURE OF BUSINESS

NOTE 1 - NATURE OF BUSINESS

Korth Direct Mortgage Inc. (the “Company”) is incorporated in the State of Florida. The Company was created to originate mortgages and fund those mortgages with notes secured by mortgage loans. On July 31, 2020, the Company acquired substantially all of the equity of J.W. Korth & Company Limited Partnership, a Michigan limited partnership (“J.W. Korth”), and its general partner, J.W. Korth, LLC, a Florida limited liability company. J.W. Korth is an SEC and FINRA registered securities broker dealer. The financials of J. W. Korth were integrated into the financials of the Company as of August 1, 2020.

Certain information and note disclosures normally included in the Company’s annual financial statements prepared in accordance with US generally accepted accounting principles (“GAAP”) have been condensed or omitted. These unaudited financial statements should be read in conjunction with the financial statements and notes thereto included in the Company’s 2020 Annual Report on Form 10-K filed with the Securities and Exchange Commission.

XML

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

3 Months Ended

Mar. 31, 2021

Accounting Policies [Abstract]

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

PRINCIPLES OF CONSOLIDATION

The accompanying consolidated financial statements include the accounts of the Company and J.W. Korth, its wholly-owned subsidiary. Intercompany balances and transactions have been eliminated upon consolidation.

BASIS OF ACCOUNTING

The accompanying financial statements have been prepared on the accrual basis of accounting, in accordance with GAAP.

USE OF ESTIMATES

The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

CASH AND CASH EQUIVALENTS

For purposes of the statement of cash flows, the Company considers all highly liquid debt instruments purchased with a maturity of three months or less to be cash equivalents.

MORTGAGE VALUATION

Mortgages that are current are carried at the principal value owed by the borrower, as of the date of the financial statements, according to the amortization schedule for the loan. All mortgages owned as of the date of these financial statements are current. The net present value of the servicing revenue is recorded as mortgage servicing rights, at fair value on the Statements of Financial Condition, and is recognized on the Statement of Operations as an unrealized gain on mortgages.

MORTGAGE SECURED NOTES

The Company funds the mortgage loans (”CM Loans”) that it makes by issuing Mortgage Secured Notes (“MSNs”) in series, each of which is MSN series is secured by the e s mortgage or mortgages funded from proceeds of the MSN series. Our MSNs have been funded in multiple ways, including private placements, SEC registered offerings, and Rule 144A offerings. As of the date of these financial statements, the Company has funded CM Loans totaling $200,230,382 and issued MSNs secured by those loans in the amount of $202,387,592. The One CM Loan that was part of a single MSN series issuance closed after the quarter end, resulting in an excess value of MSNs compared to Mortgages Owned of approximately $2,157,210. The CM Loan was completed and funded on April 15, 2021.

PORTFOLIO LOANS

The Company recognizes loans made with its own capital, or those not securitized, under the caption “Portfolio Loans” on the balance sheet. As of March 31, 2021, the Company had issued Portfolio Loans in the amount of $2,123,895. These loans were funded by the Company, as well as affiliates.

GOODWILL

Financial Accounting Standards Board Accounting Standards Codification (“FASB ASC”) Section 350 requires an annual assessment of the recoverability of goodwill using a two-step process. The first step of the impairment test involves a comparison of the fair value of the reporting unit to its carrying value. If the carrying value is higher than the fair value or there is an indication that impairment may exist, a second step must be performed to compute the amount of the impairment. Management conducted its annual assessment of goodwill impairment and determined that there were no indicators of goodwill impairment and therefore did not record an impairment loss for the period ending March 31, 2021.

REVENUE RECOGNITION

The Company’s primary sources of revenue are origination fees, servicing fees, processing fees, underwriting income, trading profits, and interest income.

Origination Fees

Loan origination fees represent revenue earned from originating mortgage loans; net of any credits given to the borrower. Loan origination fees generally represent flat, per-loan fee amounts and are deferred and recognized as revenue over the life of the loan. The associated loan origination costs are also deferred and recognized as expense over the life of the loan. The deferred portion of the loan origination fees is netted against the deferred portion of the loan origination costs, which include mortgage broker expenses, and reported as a net deferred revenue liability on the Company’s Statement of Financial Condition.

Servicing Fees

Loan servicing fees represent revenue earned for servicing loans for various investors. Loan servicing fees are a percentage of the outstanding unpaid principal balance and represent the difference between the interest received from our CM Loans and the MSN interest payable. Servicing fees are recognized as revenue as the related mortgage payments are received; similarly, loan servicing expenses are charged to operations as incurred.

Processing Fees

Processing fees are collected from the borrower at the time the commitment letter is signed and cover a variety of expenses during the underwriting process. If the Company cancels the transaction, then unused fees are refunded. If the transaction is unable to proceed for any reason not the fault of the Company, then the Company keeps the full processing fee. Revenues from processing fees are recognized at closing or at the time a transaction is canceled.

Underwriting Income

Underwriting income represents revenue earned by J. W. Korth for underwriting and distribution of the Company’s securities. Revenues from underwriting income are recognized on the settlement date of the trades.

Trading Profits

Trading profits represent revenue generated through the trading of securities either for its own account or on behalf of J. W. Korth’s clients. Revenue from trading profits is recognized upon settlement of the securities transactions.

Interest Income

Interest Income is primarily derived from interest earned on Portfolio Loans and includes interest earned on cash and securities.

LEASES

In February 2016, the FASB issued ASU No. 2016-02, “Leases (Topic 842).” The standard requires organizations to recognize right-of-use (“ROU”) assets and lease liabilities on the balance sheet and disclose key information about leases that were historically classified as operating leases under previous generally accepted accounting principles. Leases will be classified as financing or operating, with classification affecting the pattern and classification of expense recognition in the income statement. The Company adopted the new lease standard on January 1, 2019, and has chosen to use that date as the effective date of initial application. Consequently, financial information will not be updated and the disclosures required under the new standard will not be provided for dates and periods before January 1, 2019. The new lease guidance provides a number of optional practical expedients in transition. The Company has elected the “package of practical expedient,” which permits it to not reassess under the new standard its prior conclusions about lease identification, lease classification, and initial direct costs. As part of the adoption of this standard, the Company recognized lease liabilities with a corresponding ROU leased asset of approximately the same amount based on the present value of the remaining lease payments pursuant to current leasing standards for existing operating leases. The adoption of this standard did not have a material impact on the Company’s consolidated financial statements.

STOCK-BASED COMPENSATION

The Company estimates the fair values of share-based payments on the date of grant using a Black-Scholes option pricing model. Compensation cost is recognized over the required service period, generally defined as the vesting period. For awards with graded vesting, compensation cost is recognized on a straight-line basis over the requisite service period for the entire award. The Company’s accounting policy is to recognize forfeitures as they occur.

The Black-Scholes option pricing model requires assumptions for the expected volatility of the share price of our common stock, the expected dividend yield, and a risk-free interest rate over the expected term of the stock-based award. The assumptions used in calculating the fair value of stock-based awards represent our best estimates, but these estimates involve inherent uncertainties and the application of management judgment. As a result, if factors change and we use different assumptions, our stock-based compensation expense could be materially different in the future.

Unrealized Gain on Mortgages Owned

The net present value of the servicing income is recognized at the time the mortgage is initiated. This value uses several inputs that are highly subjective including: discount rate, prepayment rate, the current interest rate environment, and default rate assumptions. Since the Company has a short operating history and a small number of loans outstanding, we have a limited basis to predict prepayment rates and default rates.

DUE TO CLEARINGHOUSE BROKERS

J.W. Korth, a wholly owned subsidiary of the Company, operates as an SEC and FINRA registered securities broker dealer. Securities transactions are traded through broker clearinghouses and, upon settlement, funds are transferred in and out of the Company’s bank accounts. Unsettled transactions create short-term payables and receivables due to and from the broker clearinghouses. As of March 31, 2021, the Company had a net amount due to clearinghouse brokers of $13,759.

DEPRECIATION

Depreciation is provided on a straight-line basis using estimated useful lives of three to seven years.

INCOME TAXES

On June 6, 2019, the Company converted from a Florida limited liability company into a Florida corporation. Effective with the conversion into a Florida corporation, income taxes are accounted for under the asset and liability method. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases and operating loss and tax credit carryforwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. A valuation allowance on deferred tax assets is established when management considers it is more likely than not that some portion or all of the deferred tax assets will not be realized.

Tax benefits from an uncertain tax position are only recognized if it is more likely than not that the tax position will be sustained on examination by the taxing authorities, based on the technical merits of the position. The tax benefits recognized in the financial statements from such a position are measured based on the largest benefit that has a greater than fifty percent likelihood of being realized upon ultimate resolution. Interest and penalties related to unrecognized tax benefits are recorded as incurred as a component of income tax expense

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ACQUISITION OF RELATED PARTY AFFILIATE

3 Months Ended

Mar. 31, 2021

Business Combinations [Abstract]

ACQUISITION OF RELATED PARTY AFFILIATE

NOTE 3 – ACQUISITION OF RELATED PARTY AFFILIATE

On July 31, 2020, the Company acquired substantially all of the equity of J.W. Korth, a Michigan limited partnership, and its general partner, J.W. Korth, LLC, a Florida limited liability company. The Company’s acquisitions of J.W. Korth and J.W. Korth, LLC are together referred to as the “Acquisitions.”

The Company was founded by J.W. Korth with James W. Korth, its Chairman and Chief Executive Officer, and his daughter, Holly MacDonald-Korth, the Company’s President and Chief Financial Officer. Mr. Korth is the Managing Partner of J.W. Korth and Ms. MacDonald-Korth is J.W. Korth’s Managing Director and Chief Financial Officer. J.W. Korth is registered with the Securities and Exchange Commission as a broker-dealer and investment advisor, and with the Financial Industry Regulatory Authority (“FINRA”) as a broker-dealer. Together, prior to closing of the Acquisitions Mr. Korth and Ms. MacDonald-Korth together owned approximately 80% of J.W. Korth’s partnership interests and controlled the business and operations of J.W. Korth. J.W. Korth funded the organization and operation of the Company pursuant to a support agreement with the Company from inception until April 2019, at which time the Company became self-sustaining and J.W. Korth forgave a receivable owed to it by the Company. Until the closing of the Acquisitions, the Company was controlled by J.W. Korth, which owned all of its voting common stock.

The Company originates, funds and services loans which it makes to commercial borrowers. The loans are held by the Company as lender. The Company funds its loans directly in the capital markets through issuance of Mortgage Secured Notes (“MSNs” or “Notes”), which are sold through J.W. Korth as underwriter or placement agent through exemptions from registration available under Rule 144A, Regulation D, and other exemptions from registration. The Company and J.W. Korth determined that the Company could operate more efficiently if J.W. Korth became a wholly-owned subsidiary of the Company. J.W. Korth submitted its then-proposed sale to FINRA, as required by FINRA rules, and FINRA advised J.W. Korth that it could proceed with the closing.

Pursuant to the Purchase Agreement, as a condition of closing J.W. Korth agreed to distribute all of its 5,000,000 shares of common stock in the Company to its partners ratably in accordance with their partnership interests in J.W. Korth pursuant to exemptions from registration available under Section 4(a)(2) of the Securities Act of 1933, as amended, and Rule 506 promulgated under the Securities Act.

Prior to the closing, J. W. Korth LLC owned 73.6% of the Common Capital interest of J W Korth and at closing received 3,680,000 shares of the Company. Simultaneously J W Korth LLC distributed the Company shares it received from J.W. Korth to its members James Korth and Holly MacDonald-Korth according to their membership interests which were 80% and 20% respectively.

At closing, after the distribution to its members of the Company shares distributed to J W Korth LLC, the Company acquired all of the membership interests in JW Korth LLC from Mr. Korth and Ms. MacDonald-Korth for consideration of the payment to (i) the Preferred Capital Interest partners of J.W. Korth of accrued and unpaid 6% dividends through July 31, 2020, and (ii) James Korth of $150,000 in payment of the value of his JW Korth LLC’s Common Capital Interest account.

As post-closing commitments the Company agreed to (i) retain Mr. Korth as the managing partner of J.W. Korth, Ms. MacDonald-Korth as J.W. Korth’s chief financial officer, and all other employees of JW Korth who were employed at closing of the Transactions; (ii) operate J.W. Korth as an SEC registered broker-dealer and investment advisor; (iii) pay the JW Korth Preferred Capital Interest Partners quarterly dividends concurrently with its payment of the Company’s Series A Preferred Stock dividends at least annually; (iv) in such years as it pays Series A Preferred dividends, redeem 25% annually of the JW Korth Preferred Capital Interest partners through a capital contribution to JW Korth; and (v) make a discretionary redemption of all accounts of the limited partners of J.W. Korth under the J.W. Korth partnership agreement. Upon redemption of the limited partners’ accounts and the payment of the other consideration to described above to the JW Korth partners, KDM will own 100% of the voting interests in JW Korth.

The following table summarizes the consideration paid, or to be paid, for the Acquisitions:

	Consideration
Accrued & unpaid dividends to the Preferred Capital Interest partners	$	213,443
JW Korth LLC’s Common Capital Interest account		150,000
Contingent liability to redeem J.W. Korth Preferred Capital Interest Partners		696,253
Disposition of outstanding loan due from J.W. Korth Executive Officer		69,780
Total Consideration Paid	$	1,129,476

The following table summarizes the net book value of assets and liabilities acquired as of the closing date, July 31, 2020:

	Net Book Value
J.W. Korth Net Book Value	$	889,131
Less: Preferred Interest in J.W. Korth by Company prior to acquisition		(250,000	)
Adjusted Net Book Value acquired	$	639,131

Since the acquisition was between related parties, the transaction was recorded at net book value as of the closing date. The difference of $490,345 between the consideration paid and the net book value of the assets and liabilities acquired was recorded as an offset to equity, specifically to Additional Paid-in Capital. Disclosure of supplemental pro forma information for revenue and earnings related to the acquisition, assuming the acquisition was made at the beginning of the earliest period presented, has not been disclosed since the effects of the acquisition would not have been material to the results of operation for the periods presented.

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CONTINGENT LIABILITY

3 Months Ended

Mar. 31, 2021

Business Combinations [Abstract]

CONTINGENT LIABILITY

NOTE 4 – CONTINGENT LIABILITY

As part of the acquisition of related party affiliate discussed above in Note 3, the Company agreed to pay (i) the Preferred Capital Interest partners of J.W. Korth accrued and unpaid dividends of 6% per annum through July 31, 2020; (ii) the JW Korth Preferred Capital Interest Partners quarterly dividends concurrently with its payment of the Company’s Series A Preferred Stock dividends at least annually; and (iii) in such years as it pays Series A Preferred dividends, redeem 25% annually of the JW Korth Preferred Capital Interest partners through a capital contribution to JW Korth.

The following table summarizes the unpaid Contingent Liability outstanding as of March 31, 2021:

Contingent liability to redeem J.W. Korth Preferred Capital Interest Partners		696,253
Accrued quarterly dividends recorded as interest expense through March 31, 2021		27,850
Contingent Liability, net	$	724,103

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RESTRICTED CASH

3 Months Ended

Mar. 31, 2021

Restricted Cash [Abstract]

RESTRICTED CASH

NOTE 5 - RESTRICTED CASH

The Company maintains multiple segregated accounts in trust for borrowers and investors. The value of these accounts is carried under the asset “Restricted Cash.”

The “In Trust for 1” account holds the monthly tax and insurance payments collected from borrowers and distributes payments annually, on behalf of borrowers, to the appropriate tax authority and insurance companies. This account corresponds to the Escrow Payable liability. As of March 31, 2021, this account has a balance of $8,002,446.

The “In Trust for 2” account receives payments from borrowers, distributes payments to investors, and pays the servicing fee to the Company. This account corresponds to the Due to Investors liability. As of March 31, 2021, this account has a balance of $3,849,961, which consists of borrower early payments and commitments and also a balance of $2,157,210 pending closing of one loan. This account corresponds to the Due to investors liability.

The Company also maintains multiple lockbox accounts that collect rental payments directly from tenants on the borrowers’ behalf. These accounts typically net out funds monthly. The lockbox account balances as of March 31, 2021were $104,637.

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COMMITMENTS

3 Months Ended

Mar. 31, 2021

Commitments and Contingencies Disclosure [Abstract]

COMMITMENTS

NOTE 6 - COMMITMENTS

Prior to the acquisition of J.W. Korth in July 2020, the Company relied entirely on J.W. Korth to provide office space, internet connectivity, phone service, and incidentals. In November 2020, the Company signed a lease for new office space in Miami, Florida, for a term of sixty-two months with the right to extend the term of the lease for two additional, successive periods of two years upon the same terms and conditions as the initial term. In December 2020, the Company entered into a Sublease Agreement to sublet a portion of the office space described above. The subtenant has agreed to cover the proportionate amount of the lease costs associated with the office space based on essentially the same terms as the lease described above, including the rights to extend for two successive two-year periods.

On January 13, 2021, J.W. Korth negotiated a five month early termination of its lease for its Miami office and will rely entirely on its parent for office space at the Coral Gables location. The J. W. Korth Michigan office has renegotiated a new lease beginning in April 2021.

The net present value of future lease payments pursuant to the operating lease agreements are included in the ROU Leased Asset and the Lease Liability accounts on the Consolidated Statement of Financial Condition. The ROU Leased Asset represents the right to use an underlying asset for the remaining lease term. The Lease Liability represents the obligation to make lease payments pursuant to the terms of the lease agreements.

Rental expense for the quarter ended March 31, 2021 was $86,160, which includes additional expenses for common area, direct operating expense, utilities, parking, and taxes.

As of March 31, 2021, the net present value of the future lease liabilities, using the weighted-average discount rate of 4.24%, which is commensurate with the Company’s secured borrowing rate, over the weighted-average remaining life of 4.8 years was $999,602.

The following is a schedule of the maturities of future lease payments over the remaining life of the operating leases, reconciled to the net present value of as of March 31, 2021:

	Future Lease Payments
2021	$	165,614
2022		221,635
2023		227,747
2024		234,043
2025		240,527
2026		20,089
Total Lease Payments		1,109,655
Less: Imputed Interest		(110,053	)
Present Value of  Lease Liabilities	$	999,602

PPP Loan

In April 2020, J. W. Korth, at that time the parent company of KDM, availed itself of a Paycheck Protection Program loan (“PPP Loan”) in the amount of $161,600, which was not forgiven as of March 31, 2021, so it appears on the Statement of Financial Condition. However, subsequent to the date of the financial statements and prior to the issuance of this report, we received notice that the loan was forgiven.

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INDEMNIFICATIONS

3 Months Ended

Mar. 31, 2021

Indemnifications [Abstract]

INDEMNIFICATIONS

NOTE 7 - INDEMNIFICATIONS

The Company provides representations and warranties to counterparties in connection with a variety of commercial transactions and occasionally indemnifies them against potential losses caused by the breach of those representations and warranties. These indemnifications generally are standard contractual terms and are entered into in the normal course of business. The maximum potential amount of future payments that the Company could be required to make under these indemnifications cannot be estimated. However, the Company believes that it is unlikely it will have to make material payments under these arrangements and has not recorded any contingent liability in the financial statements for these indemnifications.

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CUSTOMERS

3 Months Ended

Mar. 31, 2021

Risks and Uncertainties [Abstract]

CUSTOMERS

NOTE 8 - CUSTOMERS

As of March 31, 2021, the Company had thirty-eight customers. The Company defines customers as borrowers that have an active loan with the Company, or are in the midst of the underwriting process and have a commitment fee on deposit with the Company. We do not have any over concentration with a single borrower or location other than three large loans in the states of Ohio, Virginia, and California for a total of approximately 102,000,000.

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RELATED PARTY TRANSACTIONS

3 Months Ended

Mar. 31, 2021

Related Party Transactions [Abstract]

RELATED PARTY TRANSACTIONS

NOTE 9 – RELATED PARTY TRANSACTIONS

As of December 31, 2020, the intercompany transactions and balances between the Company and J.W. Korth have been eliminated upon consolidation as a result of the acquisition.

In March 2020, the Company purchased an MSN in the amount of $100,000 included on the statement of financial condition as Securities.

On April 1, 2020, the Company closed a first lien and corresponding MSN, along with a second lien loan of $500,000 on the same property. The funding for the second lien was provided by 110 Capital LLC, an entity controlled by a KDM director and employee. KDM services both notes.

On May 13, 2020, the Company executed a preferred partner subscription agreement with J.W. Korth in the amount of $250,000, which was eliminated upon consolidation as a result of the acquisition of J.W. Korth in July 2020 (see Note 4 above).

As of March 31, 2021, the Company paid underwriting fees of $69,003 to J.W. Korth in 2021.

On February 12, 2021, the Company closed a first lien and corresponding MSN, along with a second lien loan of $200,000 on the same property. The funding for the second lien was provided by 110 Capital LLC, an entity controlled by a KDM director and employee. KDM services both notes.

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DEFERRED REVENUE, NET

3 Months Ended

Mar. 31, 2021

Deferred Revenue [Abstract]

DEFERRED REVENUE, NET

NOTE 10 – DEFERRED REVENUE, NET

Loan origination fees are deferred and recognized as revenue over the life of the respective loan. The associated loan origination costs are also deferred and recognized as expense over the life of the loan. The deferred portion of the loan origination fees is netted against the deferred portion of the loan origination costs and reported as a net deferred revenue liability on the Company’s Statement of Financial Condition.

The following is a summary of the loan originating fees and costs deferred and amortized for the three months ended March 31, 2021:

	Deferred			Deferred
	Origination			Origination			Deferred
	Fees			Costs			Revenue, net
Deferred Revenue at December 31, 2020	$	2,617,443		($	2,117,313	)	$	500,130
New loan deferrals		369,846			(177,480	)		192,366
Amortization of deferrals		(158,173	)		120,393			(37,780	)
Deferred Revenue at March 31, 2021	$	2,829,116		($	2,174,400	)	$	654,716

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EMPLOYEE AND DIRECTOR STOCK OPTIONS

3 Months Ended

Mar. 31, 2021

Share-based Payment Arrangement [Abstract]

EMPLOYEE AND DIRECTOR STOCK OPTIONS

NOTE 11 – EMPLOYEE AND DIRECTOR STOCK OPTIONS

On June 28, 2019, the Company’s Board of Directors adopted the 2019 Stock Option Plan (the “Incentive Plan”). The Incentive Plan provides for the grant of both incentive and non-statutory stock options to key employees, directors or other persons having a service relationship with the Company for the purchase of up to an aggregate of 1,000,000 shares of the Company’s unissued, or reacquired, common stock, $0.001 par value. The Plan will be administered by the Board of Directors or a committee appointed by the Board.

In June 2019, the Company issued options to purchase 835,000 shares of the Company’s common stock at an exercise price of $1.00 per share. The weighted-average grant date fair values of options granted was $0.1855 per share. The fair values of the stock-based awards granted were calculated with the following weighted-average assumptions:

	2020
Risk-free interest rate:	1.76%
Expected term:	5.75 years
Expected dividend yield:	0%
Expected volatility:	35.01%

For the three months ended March 31, 2021, the Company recorded $6,453 of stock-based compensation expense. As of March 31, 2021, there was $32,270 in total unrecognized compensation expense related to non-vested employee stock options granted under the Incentive Plan, which is expected to be recognized over 1.25 years.

Stock option activity for the three months ended March 31, 2021, is summarized as follows:

2019 Stock Option Plan:	Shares		Weighted Average Exercise Price		Weighted Remaining Contractual Life (Years)
Options outstanding at January 1, 2021		835,000	$	1.00		8.5
Granted		-
Exercised		-
Expired or forfeited		-
Options outstanding at March 31, 2021		835,000	$	1.00		8.3
Options exercisable at March 31, 2021		417,500	$	1.00		8.3
Options expected to vest at March 31, 2021		417,500	$	1.00		8.3

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PREFERRED EQUITY

3 Months Ended

Mar. 31, 2021

Equity [Abstract]

PREFERRED EQUITY

NOTE 12 – PREFERRED EQUITY

On September 27, 2019, the Company issued 200,000 shares of its Series A 6% Cumulative Perpetual Convertible Preferred Stock for net proceeds of $4,750,000. The Company paid $250,000 in expenses related to the preferred stock issuance to J. W. Korth as underwriter and distributor. Each share was sold for $25, and is convertible into common stock at a ratio of 5 shares of common stock for each share of Series A Preferred Stock.

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FAIR VALUE

3 Months Ended

Mar. 31, 2021

Fair Value Disclosures [Abstract]

FAIR VALUE

NOTE 13 – FAIR VALUE

FASB ASC 820, Fair Value Measurements and Disclosures (“ASC 820”), defines fair value as the price that would be received upon sale of an asset or paid upon transfer of a liability in an orderly transaction between market participants at the measurement date and in the principal or most advantageous market for that asset or liability. The fair value should be calculated based on assumptions that market participants would use in pricing the asset or liability, not assumptions specific to the entity.

ASC 820 establishes a hierarchy of valuation techniques based on the observability of inputs utilized in measuring financial assets and liabilities at fair value. GAAP establishes market-based or observable inputs as the preferred source of values, followed by valuation models using management assumptions in the absence of market inputs. The three levels of the hierarchy are described below:

Level I—Inputs are unadjusted, quoted prices in active markets for identical assets or liabilities at the measurement date.

Level II—Inputs (other than quoted prices included in Level I) are either directly or indirectly observable for the asset or liability through correlation with market data at the measurement date and for the duration of the instrument’s anticipated life.

Level III—Inputs reflect management’s best estimate of what market participants would use in pricing the asset or liability at the measurement date. Consideration is given to the risk inherent in the valuation technique and the risk inherent in the inputs to the model.

ASC 820 requires the use of observable market data, when available, in making fair value measurements. When inputs used to measure fair value fall within different levels of the hierarchy, the level within which the fair value measurement is categorized is based on the lowest level input that is significant to the fair value measurements. Valuation techniques used need to maximize the use of observable inputs and minimize the use of unobservable inputs.

Valuation Process

Cash and cash equivalents: 

The carrying amounts of cash and short-term instruments approximate fair values and are classified as Level 1.

Mortgages Owned and Mortgage Secured Notes Payable:

Mortgage loans for which the Company has the intention and ability to hold for the foreseeable future, or until maturity or payoff, are reported at their outstanding principal balances, net of any unearned income, premiums or discounts. If a decline in fair value below the carrying balance is other-than-temporary, an unrealized impairment loss is recorded and the loan is recorded at the lower fair value at each reporting period. To date, the Company has not recorded any impairment losses related to the mortgage loans.

Due to the fact that the Company issues notes secured directly by underlying loans, our assets and liabilities in this category have identical values and assets have offsetting balances.

Mortgage Servicing: 

The net present value of the servicing income is recognized at the time the mortgage is initiated as an unrealized gain. This value uses several inputs that are highly subjective including: discount rate, constant prepayment rate, the current interest rate environment, and default rate assumptions. Since the Company has limited operating history and a small amount of loans outstanding, we have a limited basis to predict prepayment rates and default rates, but have engaged a third party, MIAC Analytics, to assist us in our valuation of this asset. The amount is included on the Unaudited Statement of Financial Condition as “Mortgage Servicing Rights, at Fair Value.”

Mortgage Secured Notes Receivable:

From time to time the Company may buy-back mortgage secured notes previously issued to investors. These securities are available for sale, but may be held until maturity. These securities are recorded at fair value each quarter with the change in fair value recognized as an unrealized gain or loss each reporting period. The fair value estimate uses several inputs that are highly subjective including: discount rate, constant prepayment rate, the current interest rate environment, and default rate assumptions. Since the Company has limited operating history and a small amount of loans outstanding, we have a limited basis to predict prepayment rates and default rates, but have engaged a third party, MIAC Analytics, to assist us in our valuation of this asset.

Securities

J. W. Korth holds $225,000 of defaulted Banco Cruzeiro del Sur bonds which it reasonably believes it will receive par value for from the receiver handling the liquidation in Brazil. Local counsel has informed us that the bank has sufficient cash to pay off our bonds. We therefore carry them at par value.

KDM also holds a small amount of its own MSNs in an account which it may buy from time to time to provide liquidity to clients of J. W. Korth. These bonds are carried at the published statement values.

Fair Value Disclosure

The following tables display the Company’s assets and liabilities measured at fair value on a recurring basis:

	March 31, 2021
	Total		Level I		Level II		Level III
Financial Assets
Mortgages Owned	$	200,230,382	$	-	$	200,230,382	$	-
Mortgage Servicing		4,648,239		-		-		4,648,239
Securities		426,280		-		-		426,280
Total Financial Assets	$	205,304,901	$	-	$	200,230,382	$	5,074,519
Financial Liabilities
Mortgage Secured Notes Payable	$	202,387,592	$	-	$	202,387,592	$	-
	December 31, 2020
Financial Assets
Mortgages Owned	$	175,370,850	$	-	$	175,370,850	$	-
Mortgage Servicing		3,864,416		-		-		3,864,416
Securities		329,152		-		46		329,106
Total Financial Assets	$	179,564,418	$	-	$	175,370,896	$	4,193,522
Financial Liabilities
Mortgage Secured Notes Payable	$	175,370,850	$	-	$	175,370,850	$	-

Fair Value Measurements

Changes in Fair Value Measurements for the three months ended March 31, 2021

The following table presents a reconciliation of changes in Level 3 assets and liabilities reported in the Statements of Financial Condition for the three months ended March 31, 2021:

Changes in assets:
Period ended March 31, 2021	Mortgage Servicing Value			Securities			Total Value
Beginning balance at January 1, 2021	$	3,864,416		$	329,106		$	4,193,522
Purchases		-			-			-
Trades		-			47,122			47,122
Sales		-			49,375			49,375
Issues		-			-			-
Settlements		-			-			-
Net realized gain/loss or Interest income		-			1,563			1,563
Unrealized Gain from newly issued mortgages		981,877			-			981,877
Fair Value adjustment		(198,054	)		(886	)		(198,940	)
Transfers into Level 3		-			-			-
Transfers out of Level 3		-			-			-
Ending balance at March 31, 2021	$	4,648,239		$	426,280		$	5,074,519

The Company’s policy for recording transfers between levels of the fair value hierarchy is to recognize as of the financial statement date. For the three months ended March 31, 2021, there were no transfers between levels.

The Company has established valuation processes and policies for its Level 3 investments to ensure that the methods used are fair and consistent in accordance with ASC 820 – Fair Value Measurements and Disclosures. The Company’s valuation committee performs reviews of the Level 3 investments’ valuations, which include reviewing any significant price changes reported from the prior period. When a Level 3 investment has a significant price change, the valuation committee reviews relevant market data to substantiate the price change.

The following table presents quantitative information regarding the significant unobservable inputs the Company uses to determine the fair value of Level 3 investments held as of March 31, 2021:

Investment type	Fair Value		Valuation technique	Unobservable inputs	Values
Mortgage servicing	$	4,648,239	Net Present Value	Prepayment Discount		14.95	%
				Discount rate		15.00	%
Securities	$	426,280	Net Present Value

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INCOME TAXES

3 Months Ended

Mar. 31, 2021

Income Tax Disclosure [Abstract]

INCOME TAXES

NOTE 14 – INCOME TAXES

The provision for income taxes was $224,655 for the three months ended March 31, 2021. The effective tax rate was 26.2% of the income before income taxes of $855,102, which differs from the federal statutory rate of 21% due to the effect of state income taxes and certain of the Company’s expenses that are not deductible for tax purposes.

The provision for income taxes was $49,849 for the three months ended March 31, 2020. The effective tax rate was 26.3% of the income before income taxes of $189,389, which differs from the federal statutory rate of 21% due to state income taxes and certain of the Company’s expenses that are not deductible for tax purposes.

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PROPERTY AND EQUIPMENT

3 Months Ended

Mar. 31, 2021

Property, Plant and Equipment [Abstract]

PROPERTY AND EQUIPMENT

NOTE 15 – PROPERTY AND EQUIPMENT

Property and Equipment are summarized as follows:

Equipment	$	151,165
Furniture and fixtures	$	174,282
	$	325,447
Accumulated depreciation	$	(48,773	)
Net Property Equipment	$	276,674

Depreciation expense for the period ending March 31, 2021 was $7,977.

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SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Policies)

3 Months Ended

Mar. 31, 2021

Accounting Policies [Abstract]

PRINCIPLES OF CONSOLIDATION

PRINCIPLES OF CONSOLIDATION

The accompanying consolidated financial statements include the accounts of the Company and J.W. Korth, its wholly-owned subsidiary. Intercompany balances and transactions have been eliminated upon consolidation.

BASIS OF ACCOUNTING

BASIS OF ACCOUNTING

The accompanying financial statements have been prepared on the accrual basis of accounting, in accordance with GAAP.

USE OF ESTIMATES

USE OF ESTIMATES

The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

CASH AND CASH EQUIVALENTS

CASH AND CASH EQUIVALENTS

For purposes of the statement of cash flows, the Company considers all highly liquid debt instruments purchased with a maturity of three months or less to be cash equivalents.

MORTGAGE VALUATION

MORTGAGE VALUATION

Mortgages that are current are carried at the principal value owed by the borrower, as of the date of the financial statements, according to the amortization schedule for the loan. All mortgages owned as of the date of these financial statements are current. The net present value of the servicing revenue is recorded as mortgage servicing rights, at fair value on the Statements of Financial Condition, and is recognized on the Statement of Operations as an unrealized gain on mortgages.

MORTGAGE SECURED NOTES

MORTGAGE SECURED NOTES

The Company funds the mortgage loans (”CM Loans”) that it makes by issuing Mortgage Secured Notes (“MSNs”) in series, each of which is MSN series is secured by the e s mortgage or mortgages funded from proceeds of the MSN series. Our MSNs have been funded in multiple ways, including private placements, SEC registered offerings, and Rule 144A offerings. As of the date of these financial statements, the Company has funded CM Loans totaling $200,230,382 and issued MSNs secured by those loans in the amount of $202,387,592. The One CM Loan that was part of a single MSN series issuance closed after the quarter end, resulting in an excess value of MSNs compared to Mortgages Owned of approximately $2,157,210. The CM Loan was completed and funded on April 15, 2021.

PORTFOLIO LOANS

PORTFOLIO LOANS

The Company recognizes loans made with its own capital, or those not securitized, under the caption “Portfolio Loans” on the balance sheet. As of March 31, 2021, the Company had issued Portfolio Loans in the amount of $2,123,895. These loans were funded by the Company, as well as affiliates.

GOODWILL

GOODWILL

Financial Accounting Standards Board Accounting Standards Codification (“FASB ASC”) Section 350 requires an annual assessment of the recoverability of goodwill using a two-step process. The first step of the impairment test involves a comparison of the fair value of the reporting unit to its carrying value. If the carrying value is higher than the fair value or there is an indication that impairment may exist, a second step must be performed to compute the amount of the impairment. Management conducted its annual assessment of goodwill impairment and determined that there were no indicators of goodwill impairment and therefore did not record an impairment loss for the period ending March 31, 2021.

REVENUE RECOGNITION

REVENUE RECOGNITION

The Company’s primary sources of revenue are origination fees, servicing fees, processing fees, underwriting income, trading profits, and interest income.

Origination Fees

Loan origination fees represent revenue earned from originating mortgage loans; net of any credits given to the borrower. Loan origination fees generally represent flat, per-loan fee amounts and are deferred and recognized as revenue over the life of the loan. The associated loan origination costs are also deferred and recognized as expense over the life of the loan. The deferred portion of the loan origination fees is netted against the deferred portion of the loan origination costs, which include mortgage broker expenses, and reported as a net deferred revenue liability on the Company’s Statement of Financial Condition.

Servicing Fees

Loan servicing fees represent revenue earned for servicing loans for various investors. Loan servicing fees are a percentage of the outstanding unpaid principal balance and represent the difference between the interest received from our CM Loans and the MSN interest payable. Servicing fees are recognized as revenue as the related mortgage payments are received; similarly, loan servicing expenses are charged to operations as incurred.

Processing Fees

Processing fees are collected from the borrower at the time the commitment letter is signed and cover a variety of expenses during the underwriting process. If the Company cancels the transaction, then unused fees are refunded. If the transaction is unable to proceed for any reason not the fault of the Company, then the Company keeps the full processing fee. Revenues from processing fees are recognized at closing or at the time a transaction is canceled.

Underwriting Income

Underwriting income represents revenue earned by J. W. Korth for underwriting and distribution of the Company’s securities. Revenues from underwriting income are recognized on the settlement date of the trades.

Trading Profits

Trading profits represent revenue generated through the trading of securities either for its own account or on behalf of J. W. Korth’s clients. Revenue from trading profits is recognized upon settlement of the securities transactions.

Interest Income

Interest Income is primarily derived from interest earned on Portfolio Loans and includes interest earned on cash and securities.

LEASES

LEASES

In February 2016, the FASB issued ASU No. 2016-02, “Leases (Topic 842).” The standard requires organizations to recognize right-of-use (“ROU”) assets and lease liabilities on the balance sheet and disclose key information about leases that were historically classified as operating leases under previous generally accepted accounting principles. Leases will be classified as financing or operating, with classification affecting the pattern and classification of expense recognition in the income statement. The Company adopted the new lease standard on January 1, 2019, and has chosen to use that date as the effective date of initial application. Consequently, financial information will not be updated and the disclosures required under the new standard will not be provided for dates and periods before January 1, 2019. The new lease guidance provides a number of optional practical expedients in transition. The Company has elected the “package of practical expedient,” which permits it to not reassess under the new standard its prior conclusions about lease identification, lease classification, and initial direct costs. As part of the adoption of this standard, the Company recognized lease liabilities with a corresponding ROU leased asset of approximately the same amount based on the present value of the remaining lease payments pursuant to current leasing standards for existing operating leases. The adoption of this standard did not have a material impact on the Company’s consolidated financial statements.

STOCK-BASED COMPENSATION

STOCK-BASED COMPENSATION

The Company estimates the fair values of share-based payments on the date of grant using a Black-Scholes option pricing model. Compensation cost is recognized over the required service period, generally defined as the vesting period. For awards with graded vesting, compensation cost is recognized on a straight-line basis over the requisite service period for the entire award. The Company’s accounting policy is to recognize forfeitures as they occur.

The Black-Scholes option pricing model requires assumptions for the expected volatility of the share price of our common stock, the expected dividend yield, and a risk-free interest rate over the expected term of the stock-based award. The assumptions used in calculating the fair value of stock-based awards represent our best estimates, but these estimates involve inherent uncertainties and the application of management judgment. As a result, if factors change and we use different assumptions, our stock-based compensation expense could be materially different in the future.

UNREALIZED GAIN ON MORTGAGES OWNED

Unrealized Gain on Mortgages Owned

The net present value of the servicing income is recognized at the time the mortgage is initiated. This value uses several inputs that are highly subjective including: discount rate, prepayment rate, the current interest rate environment, and default rate assumptions. Since the Company has a short operating history and a small number of loans outstanding, we have a limited basis to predict prepayment rates and default rates.

DUE TO CLEARINGHOUSE BROKERS

DUE TO CLEARINGHOUSE BROKERS

J.W. Korth, a wholly owned subsidiary of the Company, operates as an SEC and FINRA registered securities broker dealer. Securities transactions are traded through broker clearinghouses and, upon settlement, funds are transferred in and out of the Company’s bank accounts. Unsettled transactions create short-term payables and receivables due to and from the broker clearinghouses. As of March 31, 2021, the Company had a net amount due to clearinghouse brokers of $13,759.

DEPRECIATION

DEPRECIATION

Depreciation is provided on a straight-line basis using estimated useful lives of three to seven years.

INCOME TAXES

INCOME TAXES

On June 6, 2019, the Company converted from a Florida limited liability company into a Florida corporation. Effective with the conversion into a Florida corporation, income taxes are accounted for under the asset and liability method. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases and operating loss and tax credit carryforwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. A valuation allowance on deferred tax assets is established when management considers it is more likely than not that some portion or all of the deferred tax assets will not be realized.

Tax benefits from an uncertain tax position are only recognized if it is more likely than not that the tax position will be sustained on examination by the taxing authorities, based on the technical merits of the position. The tax benefits recognized in the financial statements from such a position are measured based on the largest benefit that has a greater than fifty percent likelihood of being realized upon ultimate resolution. Interest and penalties related to unrecognized tax benefits are recorded as incurred as a component of income tax expense

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ACQUISITION OF RELATED PARTY AFFILIATE (Tables)

3 Months Ended

Mar. 31, 2021

Business Combinations [Abstract]

Schedule of consideration paid for the Acquisitions

The following table summarizes the consideration paid, or to be paid, for the Acquisitions:

	Consideration
Accrued & unpaid dividends to the Preferred Capital Interest partners	$	213,443
JW Korth LLC’s Common Capital Interest account		150,000
Contingent liability to redeem J.W. Korth Preferred Capital Interest Partners		696,253
Disposition of outstanding loan due from J.W. Korth Executive Officer		69,780
Total Consideration Paid	$	1,129,476

Schedule of net book value of assets and liabilities acquired as of the closing date

The following table summarizes the net book value of assets and liabilities acquired as of the closing date, July 31, 2020:

	Net Book Value
J.W. Korth Net Book Value	$	889,131
Less: Preferred Interest in J.W. Korth by Company prior to acquisition		(250,000	)
Adjusted Net Book Value acquired	$	639,131

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CONTINGENT LIABILITY (Tables)

3 Months Ended

Mar. 31, 2021

Business Combinations [Abstract]

Schedule of unpaid contingent liability outstanding

The following table summarizes the unpaid Contingent Liability outstanding as of March 31, 2021:

Contingent liability to redeem J.W. Korth Preferred Capital Interest Partners		696,253
Accrued quarterly dividends recorded as interest expense through March 31, 2021		27,850
Contingent Liability, net	$	724,103

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COMMITMENTS (Tables)

3 Months Ended

Mar. 31, 2021

Commitments and Contingencies Disclosure [Abstract]

Schedule of future minimum rental payments

The following is a schedule of the maturities of future lease payments over the remaining life of the operating leases, reconciled to the net present value of as of March 31, 2021:

	Future Lease Payments
2021	$	165,614
2022		221,635
2023		227,747
2024		234,043
2025		240,527
2026		20,089
Total Lease Payments		1,109,655
Less: Imputed Interest		(110,053	)
Present Value of  Lease Liabilities	$	999,602

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DEFERRED REVENUE, NET (Tables)

3 Months Ended

Mar. 31, 2021

Deferred Revenue [Abstract]

Schedule of loan originating fees and costs deferred and amortized

The following is a summary of the loan originating fees and costs deferred and amortized for the three months ended March 31, 2021:

	Deferred			Deferred
	Origination			Origination			Deferred
	Fees			Costs			Revenue, net
Deferred Revenue at December 31, 2020	$	2,617,443		($	2,117,313	)	$	500,130
New loan deferrals		369,846			(177,480	)		192,366
Amortization of deferrals		(158,173	)		120,393			(37,780	)
Deferred Revenue at March 31, 2021	$	2,829,116		($	2,174,400	)	$	654,716

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EMPLOYEE AND DIRECTOR STOCK OPTIONS (Tables)

3 Months Ended

Mar. 31, 2021

Share-based Payment Arrangement [Abstract]

Schedule of estimated fair value of stock options weighted-average assumptions

The fair values of the stock-based awards granted were calculated with the following weighted-average assumptions:

	2020
Risk-free interest rate:	1.76%
Expected term:	5.75 years
Expected dividend yield:	0%
Expected volatility:	35.01%

Schedule of stock option activity

Stock option activity for the three months ended March 31, 2021, is summarized as follows:

2019 Stock Option Plan:	Shares		Weighted Average Exercise Price		Weighted Remaining Contractual Life (Years)
Options outstanding at January 1, 2021		835,000	$	1.00		8.5
Granted		-
Exercised		-
Expired or forfeited		-
Options outstanding at March 31, 2021		835,000	$	1.00		8.3
Options exercisable at March 31, 2021		417,500	$	1.00		8.3
Options expected to vest at March 31, 2021		417,500	$	1.00		8.3

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FAIR VALUE (Tables)

3 Months Ended

Mar. 31, 2021

Fair Value Disclosures [Abstract]

Schedule of assets and liabilities measured at fair value

The following tables display the Company’s assets and liabilities measured at fair value on a recurring basis:

	March 31, 2021
	Total		Level I		Level II		Level III
Financial Assets
Mortgages Owned	$	200,230,382	$	-	$	200,230,382	$	-
Mortgage Servicing		4,648,239		-		-		4,648,239
Securities		426,280		-		-		426,280
Total Financial Assets	$	205,304,901	$	-	$	200,230,382	$	5,074,519
Financial Liabilities
Mortgage Secured Notes Payable	$	202,387,592	$	-	$	202,387,592	$	-
	December 31, 2020
Financial Assets
Mortgages Owned	$	175,370,850	$	-	$	175,370,850	$	-
Mortgage Servicing		3,864,416		-		-		3,864,416
Securities		329,152		-		46		329,106
Total Financial Assets	$	179,564,418	$	-	$	175,370,896	$	4,193,522
Financial Liabilities
Mortgage Secured Notes Payable	$	175,370,850	$	-	$	175,370,850	$	-

Schedule of fair value measurements

The following table presents a reconciliation of changes in Level 3 assets and liabilities reported in the Statements of Financial Condition for the three months ended March 31, 2021:

Changes in assets:
Period ended March 31, 2021	Mortgage Servicing Value			Securities			Total Value
Beginning balance at January 1, 2021	$	3,864,416		$	329,106		$	4,193,522
Purchases		-			-			-
Trades		-			47,122			47,122
Sales		-			49,375			49,375
Issues		-			-			-
Settlements		-			-			-
Net realized gain/loss or Interest income		-			1,563			1,563
Unrealized Gain from newly issued mortgages		981,877			-			981,877
Fair Value adjustment		(198,054	)		(886	)		(198,940	)
Transfers into Level 3		-			-			-
Transfers out of Level 3		-			-			-
Ending balance at March 31, 2021	$	4,648,239		$	426,280		$	5,074,519

Schedule of quantitative information

The following table presents quantitative information regarding the significant unobservable inputs the Company uses to determine the fair value of Level 3 investments held as of March 31, 2021:

Investment type	Fair Value		Valuation technique	Unobservable inputs	Values
Mortgage servicing	$	4,648,239	Net Present Value	Prepayment Discount		14.95	%
				Discount rate		15.00	%
Securities	$	426,280	Net Present Value

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PROPERTY AND EQUIPMENT (Tables)

3 Months Ended

Mar. 31, 2021

Property, Plant and Equipment [Abstract]

Schedule of property and equipment

Property and Equipment are summarized as follows:

Equipment	$	151,165
Furniture and fixtures	$	174,282
	$	325,447
Accumulated depreciation	$	(48,773	)
Net Property Equipment	$	276,674

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SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Details Narrative) - USD ($)	3 Months Ended
	Mar. 31, 2021	Dec. 31, 2020
Due to clearinghouse brokers	$ 13,759
Portfolio Loans	$ 2,123,895	$ 2,042,414
Minimum [Member]
Estimated useful lives	3 years
Maximum [Member]
Estimated useful lives	7 years
Actual Basis [Member]
Mortgage secured notes funded	$ 200,230,382
Mortgage second secured notes funded	202,387,592
Mortgages Owned	$ 2,157,210

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ACQUISITION OF RELATED PARTY AFFILIATE (Details)	3 Months Ended
	Mar. 31, 2021 USD ($)
Business Combinations [Abstract]
Accrued & unpaid dividends to the Preferred Capital Interest partners	$ 213,443
JW Korth LLC's Common Capital Interest account	150,000
Contingent liability to redeem J.W. Korth Preferred Capital Interest Partners	696,253
Disposition of outstanding loan due from J.W. Korth Executive Officer	69,780
Total Consideration Paid	$ 1,129,476

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ACQUISITION OF RELATED PARTY AFFILIATE (Details 1) - J.W. Korth and J.W. Korth, LLC [Member]	Jul. 31, 2020 USD ($)
J.W. Korth Net Book Value	$ 889,131
Less: Preferred Interest in J.W. Korth by Company prior to acquisition	(250,000)
Adjusted Net Book Value acquired	$ 639,131

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ACQUISITION OF RELATED PARTY AFFILIATE (Details Naarrative) - USD ($)	Jul. 31, 2020	Mar. 31, 2021	Dec. 31, 2020
Goodwill		$ 110,000	$ 110,000
J.W. Korth and J.W. Korth, LLC [Member]
Date of acquisition	Jul. 31, 2020
Goodwill	$ 490,345
J.W. Korth and J.W. Korth, LLC [Member] | Mr. Korth and Ms. MacDonald-Korth [Member]
Percentage of partnership interests	80.00%
J.W. Korth [Member]
Percentage of partnership interests	73.60%
Number of share received on closing	3,680,000
J.W. Korth [Member] | Purchase Agreement [Member]
Number of shares distribute to its partners	5,000,000
J.W. Korth [Member] | James Korth [Member]
Percentage of partnership interests	80.00%
J.W. Korth [Member] | Holly MacDonald-Korth [Member]
Percentage of partnership interests	20.00%
J.W. Korth LLC [Member]
Description of distribution after closing of business	The Company acquired all of the membership interests in JW Korth LLC from Mr. Korth and Ms. MacDonald-Korth for consideration of the payment to (i) the Preferred Capital Interest partners of J.W. Korth of accrued and unpaid 6% dividends through July 31, 2020, and (ii) James Korth of $150,000 in payment of the value of his JW Korth LLC’s Common Capital Interest account.
Description of post-closing commitments	(i) retain Mr. Korth as the managing partner of J.W. Korth, Ms. MacDonald-Korth as J.W. Korth’s chief financial officer, and all other employees of JW Korth who were employed at closing of the Transactions; (ii) operate J.W. Korth as an SEC registered broker-dealer and investment advisor; (iii) pay the JW Korth Preferred Capital Interest Partners quarterly dividends concurrently with its payment of the Company’s Series A Preferred Stock dividends at least annually; (iv) in such years as it pays Series A Preferred dividends, redeem 25% annually of the JW Korth Preferred Capital Interest partners through a capital contribution to JW Korth; and (v) make a discretionary redemption of all accounts of the limited partners of J.W. Korth under the J.W. Korth partnership agreement. Upon redemption of the limited partners’ accounts and the payment of the other consideration to described above to the JW Korth partners, KDM will own 100% of the voting interests in JW Korth.

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CONTINGENT LIABILITY (Details)	3 Months Ended
	Mar. 31, 2021 USD ($)
Business Combinations [Abstract]
Contingent liability to redeem J.W. Korth Preferred Capital Interest Partners	$ 696,253
Accrued quarterly dividends recorded as interest expense through March 31, 2021	27,850
Contingent Liability, net	$ 724,103

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CONTINGENT LIABILITY (Details Narrative) - Michigan Limited Partnership [Member]	3 Months Ended
	Mar. 31, 2021
Dividend rate	6.00%
Dividends payable, date to be paid	Jul. 31, 2020
Series A Preferred Stock [Member]
Dividend rate	25.00%

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RESTRICTED CASH (Details Narrative)	Mar. 31, 2021 USD ($)
Restricted cash corresponds to the escrow payable liability	$ 8,002,446
Escrow payable liability account	104,637
Actual Basis [Member]
Due to investors liability including commitment fees and accrued interest	3,849,961
Closing of one loan	$ 2,157,210

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COMMITMENTS (Details)	Mar. 31, 2021 USD ($)
Commitments and Contingencies Disclosure [Abstract]
2021	$ 165,614
2022	221,635
2023	227,747
2024	234,043
2025	240,527
2026	20,089
Total Lease Payments	1,109,655
Less: Imputed Interest	(110,053)
Present Value of Lease Liabilities	$ 999,602

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COMMITMENTS (Details Narrative) - USD ($)	3 Months Ended
	Mar. 31, 2021	Dec. 31, 2020	Apr. 30, 2020
Rent expense	$ 86,160
Weighted-average discount rate	4.24%
Weighted-average remaining life	4 years 9 months 18 days
Future lease liabilities	$ 999,602
PPP loan payable	$ 161,600	$ 161,600
J W Korth [Member]
PPP loan payable			$ 161,600

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CUSTOMERS (Details Narrative)	3 Months Ended
	Mar. 31, 2021 Customer
Risks and Uncertainties [Abstract]
Number of customer	38
Loans outstanding description	Single borrower or location other than three large loans in the states of Ohio, Virginia, and California for a total of approximately 102,000,000

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RELATED PARTY TRANSACTIONS (Details Narrative) - USD ($)			3 Months Ended
	Feb. 12, 2021	Apr. 01, 2020	Mar. 31, 2021	May 13, 2020
J W Korth [Member]
Due to Parent				$ 250,000
Underwriting fees			$ 69,003
Mortgage Secured Notes [Member]
Purchase of debt			$ 100,000
Description of corresponding	Along with a second lien loan of $200,000 on the same property. The funding for the second lien was provided by 110 Capital LLC, an entity controlled by a KDM director and employee. KDM services both notes	Along with a second lien loan of $500,000 on the same property. The funding for the second lien was provided by 110 Capital LLC, an entity controlled by a KDM director and employee. KDM services both notes.

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DEFERRED REVENUE, NET (Details) - USD ($)	3 Months Ended	12 Months Ended
	Mar. 31, 2021	Dec. 31, 2020
Deferred origination fees	$ 2,829,116	$ 2,617,443
Deferred origination costs	2,174,400	2,117,313
Deferred revenue, net	654,716	$ 500,130
New Loan Deferrals [Member]
Deferred origination fees	369,846
Deferred origination costs	(177,480)
Deferred revenue, net	192,366
Amortization Of Deferrals [Member]
Deferred origination fees	(158,173)
Deferred origination costs	120,393
Deferred revenue, net	$ (37,780)

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EMPLOYEE AND DIRECTOR STOCK OPTIONS (Details)	3 Months Ended
	Mar. 31, 2021
Share-based Payment Arrangement [Abstract]
Risk-free interest rate:	1.76%
Expected term:	5 years 9 months
Expected dividend yield:	0.00%
Expected volatility:	35.01%

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EMPLOYEE AND DIRECTOR STOCK OPTIONS (Details 1)	3 Months Ended
	Mar. 31, 2021 $ / shares shares
Shares
Balance, beginning	835,000
Granted
Exercised
Expired or forfeited
Balance, ending	835,000
Options exercisable, ending	417,500
Options expected to vest, ending	417,500
Weighted Average Exercise Price
Balance, beginning | $ / shares	$ 1.00
Balance, ending | $ / shares	1.00
Options exercisable, ending | $ / shares	1.00
Options expected to vest, ending | $ / shares	$ 1.00
Weighted Remaining Contractual Life (Years)
Balance, beginning	8 years 6 months
Balance, ending	8 years 3 months 18 days
Exercisable, ending	8 years 3 months 18 days
Options expected to vest, ending	8 years 3 months 18 days

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EMPLOYEE AND DIRECTOR STOCK OPTIONS (Details Narrative) - USD ($)		1 Months Ended	3 Months Ended
	Jun. 28, 2019	Jun. 30, 2019	Mar. 31, 2021	Mar. 31, 2020	Dec. 31, 2020
Number of shares purchase		835,000
Common stock, par value (in dollars per share)			$ 0.0001		$ 0.0001
Share price (in dollars per share)		$ 1.00
Weighted-average grant date fair values		$ 0.1855
Stock-based compensation expense			$ 6,453	$ 6,453
Non-vested employee stock options term			8 years 3 months 18 days
2019 Stock Option Plan (Incentive Plan) [Member]
Stock-based compensation expense			$ 6,453
Unrecognized compensation expense			$ 32,270
Non-vested employee stock options term			1 year 3 months
2019 Stock Option Plan (Incentive Plan) [Member] | Board of Directors [Member]
Number of shares purchase	1,000,000
Common stock, par value (in dollars per share)	$ 0.001

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PREFERRED EQUITY (Details Narrative) - USD ($)	1 Months Ended
	Sep. 27, 2019	Mar. 31, 2021	Dec. 31, 2020
Expenses related to the issuance		$ 176,541	$ 120,770
Series A 6% Cumulative Perpetual Convertible Preferred Stock [Member]
Value of share issued	$ 200,000
Expenses related to the issuance	4,750,000
Value of shares converted	$ 25
Conversion description	Convertible into common stock at a ratio of 5 shares of common stock for each share of Series A Preferred Stock.
Series A 6% Cumulative Perpetual Convertible Preferred Stock [Member] | J. W. Korth [Member]
Expenses related to the issuance	$ 250,000

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FAIR VALUE (Details) - USD ($)	Mar. 31, 2021	Dec. 31, 2020
Financial Assets
Securities	$ 426,280	$ 329,152
Fair Value, Measurements, Recurring [Member]
Financial Assets
Mortgages Owned	200,230,382	175,370,850
Mortgage Servicing	4,648,239	3,864,416
Securities	426,280	329,152
Total Financial Assets	205,304,901	179,564,418
Financial Liabilities
Mortgage Secured Notes Payable	202,387,592	175,370,850
Fair Value, Measurements, Recurring [Member] | Level I [Member]
Financial Assets
Mortgages Owned
Mortgage Servicing
Securities
Total Financial Assets
Financial Liabilities
Mortgage Secured Notes Payable
Fair Value, Measurements, Recurring [Member] | Level II [Member]
Financial Assets
Mortgages Owned	200,230,382	175,370,850
Mortgage Servicing
Securities		46
Total Financial Assets	200,230,382	175,370,896
Financial Liabilities
Mortgage Secured Notes Payable	202,387,592	175,370,850
Fair Value, Measurements, Recurring [Member] | Level III [Member]
Financial Assets
Mortgages Owned
Mortgage Servicing	4,648,239	3,864,416
Securities	426,280	329,106
Total Financial Assets	5,074,519	4,193,522
Financial Liabilities
Mortgage Secured Notes Payable

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FAIR VALUE (Details 1)	3 Months Ended
	Mar. 31, 2021 USD ($)
Beginning balance at January 1, 2020	$ 4,193,522
Purchases
Trades	47,122
Sales	49,375
Issues
Settlements
Net realized gain/loss or Interest income	1,563
Unrealized Gain from newly issued mortgages	981,877
Fair Value adjustment	(198,940)
Transfers into Level 3
Transfers out of Level 3
Ending balance at December 31, 2020	5,074,519
Mortgages Servicing Value [Member]
Beginning balance at January 1, 2020	3,864,416
Purchases
Trades
Sales
Issues
Settlements
Net realized gain/loss or Interest income
Unrealized Gain from newly issued mortgages	981,877
Fair Value adjustment	(198,054)
Transfers into Level 3
Transfers out of Level 3
Ending balance at December 31, 2020	4,648,239
Securities [Member]
Beginning balance at January 1, 2020	329,106
Purchases
Trades	47,122
Sales	49,375
Issues
Settlements
Net realized gain/loss or Interest income	1,563
Unrealized Gain from newly issued mortgages
Fair Value adjustment	(886)
Transfers into Level 3
Transfers out of Level 3
Ending balance at December 31, 2020	$ 426,280

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FAIR VALUE (Details 2) - Fair Value, Measurements, Recurring [Member]	3 Months Ended
	Mar. 31, 2021 USD ($)	Dec. 31, 2020 USD ($)
Fair Value	$ 4,648,239	$ 3,864,416
Unobservable input	Discount rate
Value	0.15
Mortgage Servicing [Member]
Fair Value	$ 4,648,239
Valuation technique	Net Present Value
Unobservable input	Prepayment Discount
Value	14.95
Securities [Member]
Fair Value	$ 426,280
Valuation technique	Net Present Value

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FAIR VALUE (Details Narrative)	Mar. 31, 2021 USD ($)
J W Korth [Member] | Securities [Member]
Defaulted bonds amount	$ 225,000

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INCOME TAXES (Details Narrative) - USD ($)	3 Months Ended
	Mar. 31, 2021	Mar. 31, 2020
Income Tax Disclosure [Abstract]
Provision for income taxes	$ 224,655	$ 49,849
Effective tax rate	26.20%	26.30%
Statutory corporate tax rate	21.00%	21.00%
income before income taxes	$ 855,102	$ 189,389

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PROPERTY AND EQUIPMENT (Details) - USD ($)	Mar. 31, 2021	Dec. 31, 2020
Total	$ 325,447
Accumulated depreciation	(48,773)
Net property equipment	276,674	$ 186,703
Equipment [Member]
Total	151,165
Furniture and Fixtures [Member]
Total	$ 174,282

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PROPERTY AND EQUIPMENT (Details Narrative)	3 Months Ended
	Mar. 31, 2021 USD ($)
Property, Plant and Equipment [Abstract]
Depreciation expense	$ 7,977