Document and Entity Information
Document and Entity Information - USD ($) | 12 Months Ended | |
Dec. 31, 2019 | May 14, 2020 | |
Cover [Abstract] | ||
Entity Registrant Name | Korth Direct Mortgage Inc. | |
Entity Central Index Key | 0001695963 | |
Document Type | 10-K | |
Document Period End Date | Dec. 31, 2019 | |
Amendment Flag | false | |
Current Fiscal Year End Date | --12-31 | |
Entity File Number | 000-1695962 | |
Entity Incorporation, State or Country Code | FL | |
Entity Reporting Status Current | Yes | |
Entity Interactive Data Current | Yes | |
Entity well-known seasoned issuer | No | |
Entity Voluntary Filers | No | |
Entity Shell Company | false | |
Entity Small Business | true | |
Entity Filer Category | Non-accelerated Filer | |
Entity Public Float | $ 0 | |
Entity Emerging Growth Company | true | |
Entity Ex Transition Period | false | |
Entity Common Stock, Shares Outstanding | 5,000,000 | |
Document Fiscal Period Focus | FY | |
Document Fiscal Year Focus | 2019 |
AUDITED STATEMENTS OF FINANCIAL
AUDITED STATEMENTS OF FINANCIAL CONDITION - USD ($) | Dec. 31, 2019 | Dec. 31, 2018 |
ASSETS | ||
Cash and Cash Equivalents | $ 2,378,716 | $ 15,323 |
Restricted Cash | 1,295,242 | 161,454 |
Mortgages Owned | 85,692,812 | 13,173,466 |
Mortgage Servicing Rights, at Fair Value | 2,595,946 | 215,459 |
Portfolio Loans | 2,152,835 | |
Accounts Receivable | 62,581 | |
Prepaid Expenses | 10,584 | 10,584 |
TOTAL ASSETS | 94,188,716 | 13,576,286 |
LIABILITIES | ||
Due to Parent | 12,151 | 494,122 |
Escrow Payable | 1,174,747 | 125,045 |
Due to Investors | 120,496 | 36,409 |
Preferred Dividend Payable | 12,500 | |
Deferred Revenue, net | 289,569 | 6,503 |
Deferred Tax Liability | 380,236 | |
Accrued Expenses | 66,945 | 15,000 |
Mortgage Secured Notes Payable | 85,692,812 | 13,173,466 |
Accounts Payable | 14,234 | |
Total Liabilities | 87,763,690 | 13,850,545 |
STOCKHOLDERS' EQUITY / MEMBERS' DEFICIT | ||
Accumulated Earnings (Deficit) | 939,154 | (277,781) |
Additonal Paid-in Capital | 5,485,172 | 3,522 |
Common Stock, $0.0001 par value, 60,000,000 shares authorized 5,000,000 shares issued and outstanding at Dece,ber 31, 2019 | 500 | |
Series A Preferred Stock, $0.001 par value, 40,000,000 shares authorized,200,000 shares issued and outstanding at December 31, 2019 authorized on an adjusted basis | 200 | |
Total Stockholders' Equity / Members' Deficit | 6,425,026 | (274,259) |
TOTAL LIABILITIES AND STOCKHOLDER'S EQUITY (DEFICIT) | $ 94,188,716 | $ 13,576,286 |
AUDITED STATEMENTS OF FINANCI_2
AUDITED STATEMENTS OF FINANCIAL CONDITION (Parenthetical) - $ / shares | Dec. 31, 2019 | Dec. 31, 2018 |
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 |
Adjusted Basis [Member] | ||
Series A Preferred Stock, par value (in dollar per share) | $ 0.01 | $ 0.01 |
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 |
AUDITED STATEMENTS OF OPERATION
AUDITED STATEMENTS OF OPERATIONS - USD ($) | 12 Months Ended | |
Dec. 31, 2019 | Dec. 31, 2018 | |
REVENUES | ||
Interest Income | $ 18,183 | $ 435 |
Total Revenues | 590,123 | 307,797 |
COST OF REVENUES | ||
Broker Underwriting Expense | 101,301 | 19,530 |
Mortgage Broker Expense | 77,714 | |
Co-Manager Engagement Fee | 2,108 | |
Bank Fees | 9,656 | 3,351 |
Appraisal Costs | 9,535 | 5,317 |
Marketing | 38,478 | 41,913 |
License and Registration | 12,707 | 16,268 |
Ratings | 33,092 | 8,151 |
Technology Fees | 8,561 | 8,713 |
Total Cost of Revenues | 293,152 | 103,243 |
GROSS PROFIT | 296,971 | 204,554 |
OPERATING EXPENSES | ||
Office Supplies | 5,750 | 2,592 |
Accounting | 38,975 | 40,730 |
Salaries | 598,466 | 160,881 |
Payroll Taxes | 30,166 | 10,153 |
Professional & Legal | 108,376 | 157,890 |
SEC Filing Expense | 989 | |
Travel & Entertainment | 34,738 | 2,789 |
Business Development | 2,768 | 599 |
Stock Compensation | 90,356 | |
Total Expenses | 909,595 | 376,623 |
Net Loss From Operations | (612,624) | (172,069) |
Other Income | ||
Unrealized Gain on Mortgages | 2,380,487 | 215,459 |
Gain from Write-Off of Due to Parent | 548,802 | |
Total Other Income | 2,929,289 | 215,459 |
Net income before provision for income taxes | 2,316,665 | 43,390 |
Provision for income taxe | 380,236 | |
Net income | 1,936,429 | 43,390 |
Series A Preferred Dividends | 77,500 | |
Net income attributable to common stockholders | 1,858,929 | 43,390 |
Origination Revenue [Member] | ||
REVENUES | ||
Total Revenues | 233,125 | 30,926 |
Servicing Revenue [Member] | ||
REVENUES | ||
Total Revenues | 296,884 | 273,230 |
Processing Revenue [Member] | ||
REVENUES | ||
Total Revenues | 21,915 | 1,500 |
Late Fees [Member] | ||
REVENUES | ||
Total Revenues | $ 20,016 | $ 1,706 |
STATEMENTS OF CHANGES IN STOCKH
STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY / MEMBERS' (DEFICIT) - USD ($) | Series A Preferred Stock [Member] | Common Stock [Member] | Additional Paid-in Capital [Member] | Accumulated Earnings/ (Deficit) [Member] | Total |
Balance at the beginning at Dec. 31, 2017 | $ 3,522 | $ (321,171) | $ (317,649) | ||
Balance at the beginning (in shares) at Dec. 31, 2017 | |||||
Increase Decrease In Stockholders Equity [Roll Forward] | |||||
Net income | 43,390 | 43,390 | |||
Balance at the end at Dec. 31, 2018 | 3,522 | (277,781) | (274,259) | ||
Balance at the end (in shares) at Dec. 31, 2018 | |||||
Increase Decrease In Stockholders Equity [Roll Forward] | |||||
Issuance of common stock upon transition from LLC to C-Corp | $ 500 | 641,494 | (641,994) | ||
Issuance of common stock upon transition from LLC to C-Corp (in shares) | 5,000,000 | ||||
Options issued to employees and directors | 90,356 | 90,356 | |||
Issuance of Series A Preferred Stock | $ 200 | 4,749,800 | 4,750,000 | ||
Issuance of Series A Preferred Stock (in shares) | 200,000 | ||||
Series A preferred stock dividends declared | (77,500) | (77,500) | |||
Net income | 1,936,429 | 1,936,429 | |||
Balance at the end at Dec. 31, 2019 | $ 200 | $ 500 | $ 5,485,172 | $ 939,154 | $ 6,425,026 |
Balance at the end (in shares) at Dec. 31, 2019 | 200,000 | 5,000,000 |
AUDITED STATEMENTS OF CASH FLOW
AUDITED STATEMENTS OF CASH FLOWS - USD ($) | 12 Months Ended | |
Dec. 31, 2019 | Dec. 31, 2018 | |
CASH FLOWS FROM OPERATING ACTIVITIES | ||
Net Income | $ 1,936,429 | $ 43,390 |
Adjustments to Reconcile Net Income to Net Cash Provided by/(Used In) Operating Activities: | ||
Unrealized Gain on Mortgages Owned | (2,380,487) | (215,459) |
Gain from Write-Off of Due to Parent | (548,802) | |
Stock compensation expense | 90,356 | |
Deferred income taxes | 380,236 | |
Changes in Operating Assets and Liabilities: | ||
Restricted Cash | (1,133,788) | (105,967) |
Mortgage Secured Notes Issued | 72,519,346 | 11,174,334 |
Portfolio Loans | (2,152,835) | |
Accounts Receivable | (62,581) | |
Prepaid Expenses | 748 | |
Due to Parent | 66,831 | 159,798 |
Deferred Revenue, net | 283,066 | 7,002 |
Escrow Payable | 1,049,702 | 78,466 |
Due to Investors | 84,087 | 27,501 |
Accrued Expenses | 51,944 | |
Notes Payable | 14,234 | |
New Mortgage Lending | (72,519,346) | (11,174,334) |
Total Adjustments | (4,258,036) | (47,911) |
NET CASH USED IN OPERATING ACTIVITIES | (2,321,607) | (4,521) |
CASH FLOWS FROM FINANCING ACTIVITIES | ||
Proceeds from issuance of preferred stock | 4,750,000 | |
Payment of Series A preferred stock dividends | (65,000) | |
NET CASH FLOWS PROVIDED BY FINANCING ACTIVITIES | 4,685,000 | |
NET INCREASE/(DECREASE) IN CASH AND CASH EQUIVALENTS | 2,363,393 | (4,521) |
CASH AND CASH EQUIVALENTS - Beginning of Year | 15,323 | 19,844 |
CASH AND CASH EQUIVALENTS - End of Year | $ 2,378,716 | $ 15,323 |
NATURE OF BUSINESS
NATURE OF BUSINESS | 12 Months Ended |
Dec. 31, 2019 | |
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 is a wholly owned subsidiary of J. W. Korth & Company, L.P. (“J. W. Korth”), an SEC and FINRA registered broker dealer. The Company was created to originate mortgages and fund those mortgages with Notes secured by mortgage loans. The Company and J. W. Korth & Company executed a support agreement that provides financial, managerial, and office support to the Company until it is fully operational. Pursuant to this agreement, for any moneys owed by the Company to J. W Korth, J. W. Korth may not seek reimbursement from the Company until the Company shall maintain a liquid net worth of at least $1,000,000 for a minimum period of 90 days. 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 audited financial statements should be read in conjunction with the financial statements and notes thereto included in the Company’s 2019 Annual Report on Form 10-K filed with the Securities and Exchange Commission. |
SUMMARY OF SIGNIFICANT ACCOUNTI
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES | 12 Months Ended |
Dec. 31, 2019 | |
Accounting Policies [Abstract] | |
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES | NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES PRINCIPLES OF CONSOLIDATION The accompanying financial statements are solely for the Company. The financial statements of the parent company, J. W. Korth, have these accounts consolidated within them. 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 Audited Statements of Financial Condition, and is recognized on the Audited Statement of Operations as an unrealized gain on mortgages. MORTGAGE SECURED NOTES The Company funds the mortgage loans that it makes by issuing Mortgage Secured Notes (“MSNs”), which are secured by those same mortgages. As of December 31, 2019, the Company has funded loans totaling $85,692,812, and it issued MSNs secured by those loans, also in the amount of $85,692,812. The deals have been funded in multiple ways, including private placements, SEC registered deals, and 144A offerings. 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 December 31, 2019, the Company had issued Portfolio Loans in the amount of $2,152,835. These loans were funded by the Company, as well as affiliates. REVENUE RECOGNITION The Company has three primary sources of revenue: origination fees, servicing fees, and processing fees. 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 Corresponding Mortgage Loan (“CM Loan”) interest received 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. Interest Income Revenue that falls under this caption is primarily derived from interest earned on Portfolio Loans. Interest earned on cash and securities also falls under this caption. 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. Since the Company’s common stock is not publicly traded, we do not have sufficient company specific information regarding the volatility of our share price on which to base an estimate of expected volatility. As a result, we use the historical volatilities of similar entities within our industry as the expected volatility of our share price. The expected dividend yield is 0% as the Company has not paid any dividends on its common stock and does not anticipate it will pay any dividends in the foreseeable future on its common stock. The risk-free interest rate is based on the U.S. Treasury yield curve in effect at the time of the grant date with a remaining term equal to the expected term of the stock-based award. Since the Company does not have sufficient historical exercise data to provide a reasonable basis upon which to estimate the expected term, the Company utilizes the simplified method to calculate the expected term of stock-based awards based on the average of the vesting term and contractual term of the 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 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 limited operating history and a small amount of loans outstanding, we have a limited basis to predict prepayment rates and default rates. DUE TO PARENT AND PAYABLES Items due to parent are operating expenses due to the parent company, J. W. Korth, pursuant to the support agreement. As of December 31, 2019, the Company owed J. W. Korth $12,151 for intercompany expenses. On May 2, 2019, and as of March 31, 2019, J. W. Korth forgave its receivable of $548,802 that was on the Company’s balance sheet as Due to Parent in order to assist the Company in strengthening its balance sheet and Stockholder’s Equity. INCOME TAXES Until June 6, 2019, the Company was a limited liability company and was treated as a partnership for federal and state income tax. Accordingly, no provision for federal income taxes was required since the members report their proportionate share of company taxable income or loss on their respective income tax returns. Such income or losses are proportionately allocated to the members based upon their ownership interests. On June 6, 2019, the Company converted 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. |
CORRECTION OF PRIOR PERIOD ACCO
CORRECTION OF PRIOR PERIOD ACCOUNTING ERROR | 12 Months Ended |
Dec. 31, 2019 | |
Correction Of Prior Period Accounting Error | |
CORRECTION OF PRIOR PERIOD ACCOUNTING ERROR | NOTE 3 - CORRECTION OF PRIOR PERIOD ACCOUNTING ERROR During the preparation of the Company’s 2019 financial statements, the Company identified an accounting error related to the recognition of revenue and expenses associated with loan origination fees and the corresponding loan origination costs. In prior periods, the loan origination fees and the corresponding loan origination costs were recognized as revenue and expense at the time the loans were funded. However, the proper accounting, according to generally accepted accounting principles, is to defer these revenues and expenses at the time of funding and recognize the revenue and expenses over the life of the respective loans. The Company assessed the materiality of the accounting error and determined that the prior period financial statements were not materially misstated as a result of the accounting error. Accordingly, the Company has elected to correct the error in the current year comparative financial statements by adjusting the prior period information presented and disclosing the impact on the prior period’s financial statements within the footnotes of the current period financial statements. The financial statement impacts of the accounting error on fiscal year 2018 are summarized as follows: STATEMENT OF FINANCIAL POSITON As of December 31, 2018: As Previously Prior Period Revised Amounts Total Assets $ 13,576,286 $ - $ 13,576,286 Liabilities: Deferred Revenue, net - 6,503 6,503 Total Liabilities 13,844,042 6,503 13,850,545 Members’ Deficit: Accumulated deficit (271,278 ) (6,503 ) (277,781 ) Total Members’ Deficit (267,756 ) (6,503 ) (274,259 ) Total Liabilities and Members’ Deficit $ 13,576,286 $ - $ 13,576,286 STATEMENT OF OPERATIONS For the Year ended December 31, 2018: As Previously Prior Period Revised Amounts Revenues: Origination Revenues, net $ 174,866 $ (143,940 ) $ 30,926 Total Revenues 451,737 (143,940 ) 307,797 Cost of Revenues: Broker Underwriting Expense 116,988 (97,458 ) 19,530 Appraisal Costs 5,555 (238 ) 5,317 Ratings 40,000 (31,849 ) 8,151 Total Cost of Revenues 232,788 (129,545 ) 103,243 Gross Profit 218,949 (14,395 ) 204,554 Operating Expenses: Professional and Legal 165,283 (7,393 ) 157,890 Total Operating Expenses 384,016 (7,393 ) 376,623 Net Loss from Operations (165,067 ) (7,002 ) (172,069 ) Total Other Income 215,459 - 215,459 Net Income $ 50,392 $ (7,002 ) $ 43,390 |
RESTRICTED CASH
RESTRICTED CASH | 12 Months Ended |
Dec. 31, 2019 | |
Restricted Cash [Abstract] | |
RESTRICTED CASH | NOTE 4 - RESTRICTED CASH The Company maintains two 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 December 31, 2019, this account has a liability of $1,129,429. The “In Trust for 2” account receives payments from borrowers and distributes payments to investors, and pays the servicing fee to the Company. This account corresponds to the Due to Investors liability. As of December 31, 2019, this account has a balance of $120,495 which consists of borrower early payments and commitment fees. |
COMMITMENTS
COMMITMENTS | 12 Months Ended |
Dec. 31, 2019 | |
Commitments and Contingencies Disclosure [Abstract] | |
COMMITMENTS | NOTE 5 - COMMITMENTS The Company relies entirely on its parent, J. W. Korth, to provide office space, internet connectivity, phone service, and incidentals through mid-2019. The Company is currently negotiating a lease for new office space, which it expects to move into in the third quarter of 2020. |
INDEMNIFICATIONS
INDEMNIFICATIONS | 12 Months Ended |
Dec. 31, 2019 | |
Indemnifications | |
INDEMNIFICATIONS | NOTE 6 - 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. |
CUSTOMERS
CUSTOMERS | 12 Months Ended |
Dec. 31, 2019 | |
Risks and Uncertainties [Abstract] | |
CUSTOMERS | NOTE 7 - CUSTOMERS As of December 31, 2019, the Company has eleven 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. Further, we have a concentration of customers where one borrower accounts for 43% of our total loans outstanding with a $37 million loan. |
RELATED PARTY TRANSACTIONS
RELATED PARTY TRANSACTIONS | 12 Months Ended |
Dec. 31, 2019 | |
Related Party Transactions [Abstract] | |
RELATED PARTY TRANSACTIONS | NOTE 8 – RELATED PARTY TRANSACTIONS The Due to Parent account is used to account for bills and expenses paid by J. W. Korth on behalf of the Company. The Company was previously largely supported by its parent company, J. W. Korth. The Company owed J. W. Korth $548,802 on March 30, 2019; however, this debt was forgiven as of March 31, 2019 pursuant to an agreement dated May 1, 2019, between J. W. Korth and the Company. The cancellation of this liability resulted in a one-time gain, which is included on the Unaudited Statements of Operations for the nine months ended September 30, 2019. The Company owed J.W. Korth $12,151 and $494,122 as of December 31, 2019 and December 31, 2018, respectively. Pursuant to the Support Agreement between the Company and J. W. Korth, J. W. Korth may not seek reimbursement from the Company until the Company shall maintain a liquid net worth of at least $1,000,000 for a minimum of 90 days. The Company paid underwriting fees of $71,353 and $101,160 to J. W. Korth & Company for the years ended December 31, 2019 and December 31, 2018, respectively. J. W. Korth has been the initial purchaser of all the mortgage security notes for the year ended December 31, 2019. |
DEFERRED REVENUE, NET
DEFERRED REVENUE, NET | 12 Months Ended |
Dec. 31, 2019 | |
Deferred Revenue [Abstract] | |
DEFERRED REVENUE, NET | NOTE 9 – 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 years ended December 31, 2019 and 2018: Deferred Deferred Deferred Deferred Revenue at January 1, 2018 $ 38,510 $ (39,009 ) $ (499 ) New loan deferrals 173,366 (168,789 ) 4,577 Amortization of deferrals (29,426 ) 31,851 2,425 Deferred Revenue at December 31, 2018 182,450 (175,947 ) 6,503 New loan deferrals 1,882,825 (1,568,707 ) 314,118 Amortization of deferrals (216,175 ) 185,123 (31,052 ) Deferred Revenue at December 31, 2019 $ 1,849,100 $ (1,559,531 ) $ 289,569 |
EMPLOYEE AND DIRECTOR STOCK OPT
EMPLOYEE AND DIRECTOR STOCK OPTIONS | 12 Months Ended |
Dec. 31, 2019 | |
Mortgage Servicing | |
EMPLOYEE AND DIRECTOR STOCK OPTIONS | NOTE 10 – 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. During the year ended December 31, 2019, the Company issued options to purchase 835,000 shares of the Company’s common stock at an exercise price or $1.00 per share. The weighted-average grant date fair values of options granted during the fiscal year 2019 was $0.1855 per share. The fair values of the stock-based awards granted during the year ended December 31, 2019, were calculated with the following weighted-average assumptions: 2019 Risk-free interest rate: 1.76% Expected term: 5.75 years Expected dividend yield: 0% Expected volatility: 35.01% For the year ended December 31, 2019, the Company recorded $90,356 of stock-based compensation expense. As of December 31, 2019, there was $64,540 in total unrecognized compensation expense related to non-vested employee stock options granted under the Incentive Plan, which is expected to be recognized over 2.5 years. Stock option activity for the year ended December 31, 2019, is summarized as follows: 2019 Stock Option Plan: Shares Weighted Weighted Options outstanding at January 1, 2019 - Granted 835,000 $ 1.00 Exercised - Expired or forfeited - Options outstanding at December 31, 2019 835,000 $ 1.00 9.5 Options exercisable at December 31, 2019 417,500 $ 1.00 9.5 Options expected to vest at December 31, 2019 417,500 $ 1.00 9.5 |
PREFERRED EQUITY
PREFERRED EQUITY | 12 Months Ended |
Dec. 31, 2019 | |
Equity [Abstract] | |
PREFERRED EQUITY | NOTE 11 – 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. |
FAIR VALUE
FAIR VALUE | 12 Months Ended |
Dec. 31, 2019 | |
Fair Value Disclosures [Abstract] | |
FAIR VALUE | NOTE 12 – FAIR VALUE FASB ASC 820, Fair Value Measurements and Disclosures 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 Level II Level III 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: 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.” Fair Value Disclosure The following tables display the Company’s assets and liabilities measured at fair value on a recurring basis: December 31, 2019 Total Level I Level II Level III Financial Assets Mortgages Owned $ 85,692,812 $ - $ 85,692,812 $ - Mortgage Servicing 2,595,946 - - 2,595,946 Total Financial Assets $ 88,288,758 $ - $ 85,692,812 $ 2,595,946 Financial Liabilities Mortgage Secured Notes Payable $ 85,692,812 $ - $ 85,692,812 $ - December 31, 2018 Financial Assets Mortgages Owned $ 13,173,466 $ - $ 13,173,466 $ - Mortgage Servicing 215,459 - - 215,459 Total Financial Assets $ 13,388,925 $ - $ 13,173,466 $ 215,459 Financial Liabilities Mortgage Secured Notes Payable $ 13,173,466 $ - $ 13,173,466 $ - Fair Value Measurements Changes in Fair Value Measurements for the year ended December 31, 2019 The Company has engaged MIAC Analytics to assist in the valuation of the mortgage servicing component of its business. This leads to significant changes in underlying assumptions within the valuation model, which are detailed below. The following table presents a reconciliation of changes in Level 3 assets and liabilities reported in the Audited Statements of Financial Condition for the year ended December 31, 2019: Changes in assets: Year ended December 31, 2019 Mortgage Beginning balance at January 1, 2019 $ 215,459 Purchases - Sales of Mortgage Servicing Rights - Issues - Settlements - Net realized gain/loss - Unrealized Gain from newly issued mortgages 2,358,767 Fair Value adjustment 21,720 Transfers into Level 3 - Transfers out of Level 3 - Ending balance at December 31, 2019 $ 2,595,946 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 year ended December 31, 2019, 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 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 December 31, 2019: Investment type Fair Value Valuation technique Unobservable inputs Values Mortgage servicing $ 2,595,946 Net Present Value Prepayment Discount 11.52% Discount rate 15.00% |
INCOME TAXES
INCOME TAXES | 12 Months Ended |
Dec. 31, 2019 | |
Income Tax Disclosure [Abstract] | |
INCOME TAXES | NOTE 13 – INCOME TAXES Income tax expense for the year ended December 31, 2019, is as follows: 2019 Current income tax expense: Federal $ — State — Total current income tax expense $ — Deferred income tax expense: Federal $ 297,723 State 82,513 Total deferred income tax expense $ 380,236 Total income tax expense $ 380,236 Income tax expense differs from the amounts that would result from applying the federal statutory rate of 21% to the Company’s income before taxes for the year ended December 31, 2019, as follows: 2019 Computed “expected” income tax expense $ 486,500 Income to attributed to LLC (pre-June 2019) (191,048 ) State income taxes, net of federal benefit 65,185 Non-deductible expenses 19,599 Total income tax expense $ 380,236 Temporary differences that give rise to the components of deferred tax assets and liabilities as of December 31, 2019, are as follows: 2019 Deferred tax assets: Deferred revenue, net $ 73,391 Net operating loss carry-forwards 48,447 Deferred tax assets — current 121,838 Less: Valuation allowance — Net deferred tax assets $ 121,838 Deferred tax liability Unrealized gain on mortgage (502,074 ) Deferred tax liability $ (502,074 ) Net deferred tax asset (liability) $ (380,236 ) As of December 31, 2019, the Company had net operating losses of approximately $191,151 for federal and state income tax purposes that can be carried forward indefinitely until the loss is fully recovered, but limited to 80% of taxable income in any one tax period. As of December 31, 2019, management determined that no valuation allowance against the net deferred tax assets of $121,838. In assessing the ability to realize a portion of the deferred tax assets, management considers whether it is more likely than not that some portion or all of the deferred tax assets will not be realized. The ultimate realization of the deferred tax assets is dependent upon the generation of future taxable income during the periods in which those temporary differences become deductible. Management considers the scheduled reversal of deferred tax liabilities and projected future taxable income in making the assessment. The Company has not recognized any tax benefits from uncertain tax positions for any of the reporting periods presented. Although it is reasonably possible that certain unrecognized tax benefits may increase or decrease within the next twelve months due to tax examination changes, settlement activities, expirations of statute of limitations, or the impact on recognition and measurement considerations related to the results of published tax cases or other similar activities, the Company does not anticipated any significant changes to unrecognized tax benefits over the next 12 months. During the year ended December 31, 2019, no interest or penalties were required to be recognized relating to unrecognized tax benefits. |
SUBSEQUENT EVENTS
SUBSEQUENT EVENTS | 12 Months Ended |
Dec. 31, 2019 | |
Subsequent Events [Abstract] | |
SUBSEQUENT EVENTS | NOTE 14 – SUBSEQUENT EVENTS The Company has evaluated all events or transactions that occurred after December 31, 2019 through the date of these financial statements, which is the date that the financial statements were available to be issued. During this period, there were no material subsequent events requiring disclosure, other than those noted below. From January 1, 2020 through May 14, 2020, the Company made additional investments of approximately $17,500,000 in mortgages. KDM has one loan that is in technical default, the loan was put on lockbox and the borrower has entered a forbearance agreement. We expect the loan to continue to perform under the lockbox. |
SUMMARY OF SIGNIFICANT ACCOUN_2
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Policies) | 12 Months Ended |
Dec. 31, 2019 | |
Accounting Policies [Abstract] | |
PRINCIPLES OF CONSOLIDATION | PRINCIPLES OF CONSOLIDATION The accompanying financial statements are solely for the Company. The financial statements of the parent company, J. W. Korth, have these accounts consolidated within them. |
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 Audited Statements of Financial Condition, and is recognized on the Audited Statement of Operations as an unrealized gain on mortgages. |
MORTGAGE SECURED NOTES | MORTGAGE SECURED NOTES The Company funds the mortgage loans that it makes by issuing Mortgage Secured Notes (“MSNs”), which are secured by those same mortgages. As of December 31, 2019, the Company has funded loans totaling $85,692,812, and it issued MSNs secured by those loans, also in the amount of $85,692,812. The deals have been funded in multiple ways, including private placements, SEC registered deals, and 144A offerings. |
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 December 31, 2019, the Company had issued Portfolio Loans in the amount of $2,152,835. These loans were funded by the Company, as well as affiliates. |
REVENUE RECOGNITION | REVENUE RECOGNITION The Company has three primary sources of revenue: origination fees, servicing fees, and processing fees. 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 Corresponding Mortgage Loan (“CM Loan”) interest received 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. Interest Income Revenue that falls under this caption is primarily derived from interest earned on Portfolio Loans. Interest earned on cash and securities also falls under this caption. |
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. Since the Company’s common stock is not publicly traded, we do not have sufficient company specific information regarding the volatility of our share price on which to base an estimate of expected volatility. As a result, we use the historical volatilities of similar entities within our industry as the expected volatility of our share price. The expected dividend yield is 0% as the Company has not paid any dividends on its common stock and does not anticipate it will pay any dividends in the foreseeable future on its common stock. The risk-free interest rate is based on the U.S. Treasury yield curve in effect at the time of the grant date with a remaining term equal to the expected term of the stock-based award. Since the Company does not have sufficient historical exercise data to provide a reasonable basis upon which to estimate the expected term, the Company utilizes the simplified method to calculate the expected term of stock-based awards based on the average of the vesting term and contractual term of the 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 | Unrealized Gain on Mortgages 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 limited operating history and a small amount of loans outstanding, we have a limited basis to predict prepayment rates and default rates. |
DUE TO PARENT AND PAYABLES | DUE TO PARENT AND PAYABLES Items due to parent are operating expenses due to the parent company, J. W. Korth, pursuant to the support agreement. As of December 31, 2019, the Company owed J. W. Korth $12,151 for intercompany expenses. On May 2, 2019, and as of March 31, 2019, J. W. Korth forgave its receivable of $548,802 that was on the Company’s balance sheet as Due to Parent in order to assist the Company in strengthening its balance sheet and Stockholder’s Equity. |
INCOME TAXES | INCOME TAXES Until June 6, 2019, the Company was a limited liability company and was treated as a partnership for federal and state income tax. Accordingly, no provision for federal income taxes was required since the members report their proportionate share of company taxable income or loss on their respective income tax returns. Such income or losses are proportionately allocated to the members based upon their ownership interests. On June 6, 2019, the Company converted 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. |
CORRECTION OF PRIOR PERIOD AC_2
CORRECTION OF PRIOR PERIOD ACCOUNTING ERROR (Tables) | 12 Months Ended |
Dec. 31, 2019 | |
Correction Of Prior Period Accounting Error | |
Schedule of financial statements | The financial statement impacts of the accounting error on fiscal year 2018 are summarized as follows: STATEMENT OF FINANCIAL POSITON As of December 31, 2018: As Previously Prior Period Revised Amounts Total Assets $ 13,576,286 $ - $ 13,576,286 Liabilities: Deferred Revenue, net - 6,503 6,503 Total Liabilities 13,844,042 6,503 13,850,545 Members’ Deficit: Accumulated deficit (271,278 ) (6,503 ) (277,781 ) Total Members’ Deficit (267,756 ) (6,503 ) (274,259 ) Total Liabilities and Members’ Deficit $ 13,576,286 $ - $ 13,576,286 STATEMENT OF OPERATIONS For the Year ended December 31, 2018: As Previously Prior Period Revised Amounts Revenues: Origination Revenues, net $ 174,866 $ (143,940 ) $ 30,926 Total Revenues 451,737 (143,940 ) 307,797 Cost of Revenues: Broker Underwriting Expense 116,988 (97,458 ) 19,530 Appraisal Costs 5,555 (238 ) 5,317 Ratings 40,000 (31,849 ) 8,151 Total Cost of Revenues 232,788 (129,545 ) 103,243 Gross Profit 218,949 (14,395 ) 204,554 Operating Expenses: Professional and Legal 165,283 (7,393 ) 157,890 Total Operating Expenses 384,016 (7,393 ) 376,623 Net Loss from Operations (165,067 ) (7,002 ) (172,069 ) Total Other Income 215,459 - 215,459 Net Income $ 50,392 $ (7,002 ) $ 43,390 |
DEFERRED REVENUE, NET (Tables)
DEFERRED REVENUE, NET (Tables) | 12 Months Ended |
Dec. 31, 2019 | |
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 years ended December 31, 2019 and 2018: Deferred Deferred Deferred Deferred Revenue at January 1, 2018 $ 38,510 $ (39,009 ) $ (499 ) New loan deferrals 173,366 (168,789 ) 4,577 Amortization of deferrals (29,426 ) 31,851 2,425 Deferred Revenue at December 31, 2018 182,450 (175,947 ) 6,503 New loan deferrals 1,882,825 (1,568,707 ) 314,118 Amortization of deferrals (216,175 ) 185,123 (31,052 ) Deferred Revenue at December 31, 2019 $ 1,849,100 $ (1,559,531 ) $ 289,569 |
EMPLOYEE AND DIRECTOR STOCK O_2
EMPLOYEE AND DIRECTOR STOCK OPTIONS (Tables) | 12 Months Ended |
Dec. 31, 2019 | |
Mortgage Servicing | |
Schedule of estimated fair value of stock options weighted-average assumptions | The fair values of the stock-based awards granted during the year ended December 31, 2019, were calculated with the following weighted-average assumptions: 2019 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 year ended December 31, 2019, is summarized as follows: 2019 Stock Option Plan: Shares Weighted Weighted Options outstanding at January 1, 2019 - Granted 835,000 $ 1.00 Exercised - Expired or forfeited - Options outstanding at December 31, 2019 835,000 $ 1.00 9.5 Options exercisable at December 31, 2019 417,500 $ 1.00 9.5 Options expected to vest at December 31, 2019 417,500 $ 1.00 9.5 |
FAIR VALUE (Tables)
FAIR VALUE (Tables) | 12 Months Ended |
Dec. 31, 2019 | |
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: December 31, 2019 Total Level I Level II Level III Financial Assets Mortgages Owned $ 85,692,812 $ - $ 85,692,812 $ - Mortgage Servicing 2,595,946 - - 2,595,946 Total Financial Assets $ 88,288,758 $ - $ 85,692,812 $ 2,595,946 Financial Liabilities Mortgage Secured Notes Payable $ 85,692,812 $ - $ 85,692,812 $ - December 31, 2018 Financial Assets Mortgages Owned $ 13,173,466 $ - $ 13,173,466 $ - Mortgage Servicing 215,459 - - 215,459 Total Financial Assets $ 13,388,925 $ - $ 13,173,466 $ 215,459 Financial Liabilities Mortgage Secured Notes Payable $ 13,173,466 $ - $ 13,173,466 $ - |
Schedule of fair value measurements | The following table presents a reconciliation of changes in Level 3 assets and liabilities reported in the Audited Statements of Financial Condition for the year ended December 31, 2019: Changes in assets: Year ended December 31, 2019 Mortgage Beginning balance at January 1, 2019 $ 215,459 Purchases - Sales of Mortgage Servicing Rights - Issues - Settlements - Net realized gain/loss - Unrealized Gain from newly issued mortgages 2,358,767 Fair Value adjustment 21,720 Transfers into Level 3 - Transfers out of Level 3 - Ending balance at December 31, 2019 $ 2,595,946 |
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 December 31, 2019: Investment type Fair Value Valuation technique Unobservable inputs Values Mortgage servicing $ 2,595,946 Net Present Value Prepayment Discount 11.52% Discount rate 15.00% |
INCOME TAXES (Tables)
INCOME TAXES (Tables) | 12 Months Ended |
Dec. 31, 2019 | |
Income Tax Disclosure [Abstract] | |
Schedule of income tax expense | Income tax expense for the year ended December 31, 2019, is as follows: 2019 Current income tax expense: Federal $ — State — Total current income tax expense $ — Deferred income tax expense: Federal $ 297,723 State 82,513 Total deferred income tax expense $ 380,236 Total income tax expense $ 380,236 |
Schedule of income before taxes | Income tax expense differs from the amounts that would result from applying the federal statutory rate of 21% to the Company’s income before taxes for the year ended December 31, 2019, as follows: 2019 Computed “expected” income tax expense $ 486,500 Income to attributed to LLC (pre-June 2019) (191,048 ) State income taxes, net of federal benefit 65,185 Non-deductible expenses 19,599 Total income tax expense $ 380,236 |
Schedule of deferred tax assets and liabilities | Temporary differences that give rise to the components of deferred tax assets and liabilities as of December 31, 2019, are as follows: 2019 Deferred tax assets: Deferred revenue, net $ 73,391 Net operating loss carry-forwards 48,447 Deferred tax assets — current 121,838 Less: Valuation allowance — Net deferred tax assets $ 121,838 Deferred tax liability Unrealized gain on mortgage (502,074 ) Deferred tax liability $ (502,074 ) Net deferred tax asset (liability) $ (380,236 ) |
NATURE OF BUSINESS (Details Nar
NATURE OF BUSINESS (Details Narrative) | 12 Months Ended |
Dec. 31, 2019USD ($) | |
Minimum period liquid net worth | 90 days |
Actual Basis [Member] | |
Liquid net worth | $ 1,000,000 |
SUMMARY OF SIGNIFICANT ACCOUN_3
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Details Narrative) - USD ($) | 12 Months Ended | |||
Dec. 31, 2019 | May 02, 2019 | Mar. 31, 2019 | Dec. 31, 2018 | |
Due to Parent | $ 12,151 | $ 494,122 | ||
Income tax rate | 21.00% | |||
Portfolio Loans | $ 2,152,835 | |||
J W Korth [Member] | ||||
Due to Parent | 12,151 | $ 548,802 | $ 548,802 | $ 494,122 |
Actual Basis [Member] | ||||
Mortgage secured notes funded | 85,692,812 | |||
Mortgage second secured notes funded | $ 85,692,812 |
CORRECTION OF PRIOR PERIOD AC_3
CORRECTION OF PRIOR PERIOD ACCOUNTING ERROR (Details) - USD ($) | Dec. 31, 2019 | Dec. 31, 2018 |
Total Assets | $ 94,188,716 | $ 13,576,286 |
Liabilities: | ||
Deferred Revenue, net | 289,569 | 6,503 |
Total Liabilities | 87,763,690 | 13,850,545 |
Members' Deficit: | ||
Accumulated deficit | 939,154 | (277,781) |
Total Members' Deficit | 6,425,026 | (274,259) |
Total Liabilities and Members' Deficit | $ 94,188,716 | 13,576,286 |
As Previously Reported [Member] | ||
Total Assets | 13,576,286 | |
Liabilities: | ||
Total Liabilities | 13,844,042 | |
Members' Deficit: | ||
Accumulated deficit | (271,278) | |
Total Members' Deficit | (267,756) | |
Total Liabilities and Members' Deficit | 13,576,286 | |
Prior Period Impact [Member] | ||
Liabilities: | ||
Deferred Revenue, net | 6,503 | |
Total Liabilities | 6,503 | |
Members' Deficit: | ||
Accumulated deficit | (6,503) | |
Total Members' Deficit | $ (6,503) |
CORRECTION OF PRIOR PERIOD AC_4
CORRECTION OF PRIOR PERIOD ACCOUNTING ERROR (Details 1) - USD ($) | 12 Months Ended | |
Dec. 31, 2019 | Dec. 31, 2018 | |
Revenues: | ||
Total Revenues | $ 590,123 | $ 307,797 |
Cost of Revenues: | ||
Broker Underwriting Expense | 101,301 | 19,530 |
Appraisal Costs | 9,535 | 5,317 |
Ratings | 33,092 | 8,151 |
Total Cost of Revenues | 293,152 | 103,243 |
Gross Profit | 296,971 | 204,554 |
Operating Expenses: | ||
Professional and Legal | 108,376 | 157,890 |
Total Operating Expenses | 909,595 | 376,623 |
Net Loss from Operations | (612,624) | (172,069) |
Total Other Income | 2,929,289 | 215,459 |
Net Income | 1,936,429 | 43,390 |
Origination Revenue [Member] | ||
Revenues: | ||
Total Revenues | $ 233,125 | 30,926 |
As Previously Reported [Member] | ||
Revenues: | ||
Total Revenues | 451,737 | |
Cost of Revenues: | ||
Broker Underwriting Expense | 116,988 | |
Appraisal Costs | 5,555 | |
Ratings | 40,000 | |
Total Cost of Revenues | 232,788 | |
Gross Profit | 218,949 | |
Operating Expenses: | ||
Professional and Legal | 165,283 | |
Total Operating Expenses | 384,016 | |
Net Loss from Operations | (165,067) | |
Total Other Income | 215,459 | |
Net Income | 50,392 | |
As Previously Reported [Member] | Origination Revenue [Member] | ||
Revenues: | ||
Total Revenues | 174,866 | |
Prior Period Impact [Member] | ||
Revenues: | ||
Total Revenues | (143,940) | |
Cost of Revenues: | ||
Broker Underwriting Expense | (97,458) | |
Appraisal Costs | (238) | |
Ratings | (31,849) | |
Total Cost of Revenues | (129,545) | |
Gross Profit | (14,395) | |
Operating Expenses: | ||
Professional and Legal | (7,393) | |
Total Operating Expenses | (7,393) | |
Net Loss from Operations | (7,002) | |
Net Income | (7,002) | |
Prior Period Impact [Member] | Origination Revenue [Member] | ||
Revenues: | ||
Total Revenues | $ (143,940) |
RESTRICTED CASH (Details Narrat
RESTRICTED CASH (Details Narrative) - USD ($) | Dec. 31, 2019 | Dec. 31, 2018 |
Escrow Payable | $ 1,174,747 | $ 125,045 |
Actual Basis [Member] | ||
Due to Investors liability including commitment fees and accrued interest | $ 120,495 |
CUSTOMERS (Details Narrative)
CUSTOMERS (Details Narrative) | 12 Months Ended |
Dec. 31, 2019Customer | |
Risks and Uncertainties [Abstract] | |
Number of customer | 11 |
Loans outstanding description | One borrower accounts for 43% of our total loans outstanding with a $37 million loan. |
RELATED PARTY TRANSACTIONS (Det
RELATED PARTY TRANSACTIONS (Details Narrative) - USD ($) | 12 Months Ended | |||
Dec. 31, 2019 | Dec. 31, 2018 | May 02, 2019 | Mar. 31, 2019 | |
Due to Parent | $ 12,151 | $ 494,122 | ||
Minimum period liquid net worth | 90 days | |||
Actual Basis [Member] | ||||
Liquid net worth | $ 1,000,000 | |||
J W Korth [Member] | ||||
Due to Parent | 12,151 | 494,122 | $ 548,802 | $ 548,802 |
Underwriting fees | 71,353 | $ 101,160 | ||
J W Korth [Member] | Private Placement [Member] | ||||
Due to Parent | $ 548,802 |
DEFERRED REVENUE, NET (Details)
DEFERRED REVENUE, NET (Details) - USD ($) | 12 Months Ended | ||
Dec. 31, 2019 | Dec. 31, 2018 | Dec. 31, 2017 | |
Deferred origination fees | $ 1,849,100 | $ 182,450 | $ 38,510 |
Deferred origination costs | (1,559,531) | (175,947) | (39,009) |
Deferred revenue, net | 289,569 | 6,503 | $ (499) |
New Loan Deferrals [Member] | |||
Deferred origination fees | 1,882,825 | 173,366 | |
Deferred origination costs | (1,568,707) | (168,789) | |
Deferred revenue, net | 314,118 | 4,577 | |
Amortization Of Deferrals [Member] | |||
Deferred origination fees | (216,175) | (29,426) | |
Deferred origination costs | 185,123 | 31,851 | |
Deferred revenue, net | $ (31,052) | $ 2,425 |
EMPLOYEE AND DIRECTOR STOCK O_3
EMPLOYEE AND DIRECTOR STOCK OPTIONS (Details) | 12 Months Ended |
Dec. 31, 2019 | |
Unobservable input | |
Risk-free interest rate: | 1.76% |
Expected term: | 5 years 9 months |
Expected dividend yield: | 0.00% |
Expected volatility: | 35.01% |
EMPLOYEE AND DIRECTOR STOCK O_4
EMPLOYEE AND DIRECTOR STOCK OPTIONS (Details 1) | 12 Months Ended |
Dec. 31, 2019$ / sharesshares | |
Shares | |
Balance, beginning | |
Granted | 835,000 |
Exercised | |
Expired/Forfeited | |
Balance, ending | 835,000 |
Options exercisable, ending | 417,500 |
Options expected to vest, ending | 417,500 |
Weighted Average Exercise Price | |
Granted | $ / shares | $ 1 |
Balance, ending | $ / shares | 1 |
Options exercisable, ending | $ / shares | 1 |
Options expected to vest, ending | $ / shares | $ 1 |
Balance, ending | 9 years 6 months |
Exercisable, ending | 9 years 6 months |
Options expected to vest, ending | 9 years 6 months |
EMPLOYEE AND DIRECTOR STOCK O_5
EMPLOYEE AND DIRECTOR STOCK OPTIONS (Details Narrative) - USD ($) | Jun. 28, 2019 | Dec. 31, 2019 | Dec. 31, 2018 |
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 | ||
Weighted-average grant date fair values | $ 0.1855 | ||
Stock-based compensation expense | $ 90,356 | ||
Non-vested employee stock options term | 9 years 6 months | ||
2019 Stock Option Plan (Incentive Plan) [Member] | |||
Stock-based compensation expense | $ 90,356 | ||
Unrecognized compensation expense | $ 64,540 | ||
Non-vested employee stock options term | 2 years 6 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 |
PREFERRED EQUITY (Details Narra
PREFERRED EQUITY (Details Narrative) - USD ($) | 1 Months Ended | 12 Months Ended | |
Sep. 27, 2019 | Dec. 31, 2019 | Dec. 31, 2018 | |
Value of share issued | $ 4,750,000 | ||
Proceeds from issuance of shares | 4,750,000 | ||
Expenses related to the issuance | $ 10,584 | $ 10,584 | |
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 |
FAIR VALUE (Details)
FAIR VALUE (Details) - Fair Value, Measurements, Recurring [Member] - USD ($) | Dec. 31, 2019 | Dec. 31, 2018 |
Financial Assets | ||
Mortgages Owned | $ 85,692,812 | $ 13,173,466 |
Mortgage Servicing | 2,595,946 | 215,459 |
Total Financial Aseets | 88,288,758 | 13,388,925 |
Financial Liabilities | ||
Mortgage Secured Notes Payable | 85,692,812 | 13,173,466 |
Fair Value, Inputs, Level 1 [Member] | ||
Financial Assets | ||
Mortgages Owned | ||
Mortgage Servicing | ||
Total Financial Aseets | ||
Financial Liabilities | ||
Mortgage Secured Notes Payable | ||
Fair Value, Inputs, Level 2 [Member] | ||
Financial Assets | ||
Mortgages Owned | 85,692,812 | 13,173,466 |
Mortgage Servicing | ||
Total Financial Aseets | 85,692,812 | 13,173,466 |
Financial Liabilities | ||
Mortgage Secured Notes Payable | 85,692,812 | 13,173,466 |
Fair Value, Inputs, Level 3 [Member] | ||
Financial Assets | ||
Mortgages Owned | ||
Mortgage Servicing | 2,595,946 | 215,459 |
Total Financial Aseets | 2,595,946 | 215,459 |
Financial Liabilities | ||
Mortgage Secured Notes Payable |
FAIR VALUE (Details 1)
FAIR VALUE (Details 1) | 12 Months Ended |
Dec. 31, 2019USD ($) | |
Fair Value Disclosures [Abstract] | |
Beginning balance at January 1, 2019 | $ 215,459 |
Purchases | |
Sales of Mortgage Servicing Rights | |
Issues | |
Settlements | |
Net realized gain/loss | |
Unrealized Gain from newly issued mortgages | 2,358,767 |
Fair Value adjustment | 21,720 |
Transfers into Level 3 | |
Transfers out of Level 3 | |
Ending balance at December 31, 2019 | $ 2,595,946 |
FAIR VALUE (Details 2)
FAIR VALUE (Details 2) - Fair Value, Measurements, Recurring [Member] | 12 Months Ended | |
Dec. 31, 2019USD ($) | Dec. 31, 2018USD ($) | |
Fair Value | $ 2,595,946 | $ 215,459 |
Valuation technique | Net Present Value | |
Unobservable input | Discount rate | |
Value | 0.15 | |
Prepayment Discount [Member] | ||
Value | 0.1152 |
INCOME TAXES (Details)
INCOME TAXES (Details) - USD ($) | 12 Months Ended | |
Dec. 31, 2019 | Dec. 31, 2018 | |
Current income tax expense: | ||
Federal | ||
State | ||
Total current income tax expense | ||
Deferred income tax expense: | ||
Federal | 297,723 | |
State | 82,513 | |
Total deferred income tax expense | 380,236 | |
Total income tax expense | $ 380,236 |
INCOME TAXES (Details 1)
INCOME TAXES (Details 1) - USD ($) | 12 Months Ended | |
Dec. 31, 2019 | Dec. 31, 2018 | |
Income Tax Disclosure [Abstract] | ||
Computed "expected" income tax expense | $ 486,500 | |
Income to attributed to LLC (pre-June 2019) | (191,048) | |
State income taxes, net of federal benefit | 65,185 | |
Non-deductible expenses | 19,599 | |
Total income tax expense | $ 380,236 |
INCOME TAXES (Details 2)
INCOME TAXES (Details 2) | Dec. 31, 2019USD ($) |
Deferred tax assets: | |
Deferred revenue, net | $ 73,391 |
Net operating loss carry-forwards | 48,447 |
Deferred tax assets - current | 121,838 |
Less: Valuation allowance | |
Net deferred tax assets | 121,838 |
Deferred tax liability | |
Unrealized gain on mortgage | (502,074) |
Deferred tax liability | (502,074) |
Net deferred tax asset (liability) | $ (380,236) |
INCOME TAXES (Details Narrative
INCOME TAXES (Details Narrative) | 12 Months Ended |
Dec. 31, 2019USD ($) | |
Income Taxes | |
Statutory corporate tax rate | 21.00% |
Net operating losses | $ 191,151 |
Net deferred tax assets | $ 121,838 |
SUBSEQUENT EVENTS (Details Narr
SUBSEQUENT EVENTS (Details Narrative) - USD ($) | May 14, 2020 | Dec. 31, 2019 | Dec. 31, 2018 |
Investments for mortgages | $ 85,692,812 | $ 13,173,466 | |
Mortgages [Member] | Subsequent Event [Member] | |||
Investments for mortgages | $ 17,500,000 |