Cover
Cover | 6 Months Ended |
Jun. 30, 2020shares | |
Cover [Abstract] | |
Entity Registrant Name | Korth Direct Mortgage Inc. |
Entity Central Index Key | 0001695963 |
Document Type | 10-Q |
Document Period End Date | Jun. 30, 2020 |
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 | Q2 |
Document Fiscal Year Focus | 2020 |
UNAUDITED STATEMENTS OF FINANCI
UNAUDITED STATEMENTS OF FINANCIAL CONDITION - USD ($) | Jun. 30, 2020 | Dec. 31, 2019 |
ASSETS | ||
Cash and Cash Equivalents | $ 2,210,656 | $ 2,378,716 |
Restricted Cash | 1,827,996 | 1,295,242 |
Preferred Interest in Affiliate | 250,000 | |
Mortgages Owned | 102,972,421 | 85,692,812 |
Mortgage Servicing Rights, at Fair Value | 2,854,747 | 2,595,946 |
Portfolio Loans | 1,561,476 | 2,152,835 |
Accounts Receivable | 5,400 | 62,581 |
Securities | 100,793 | |
Prepaid Expenses | 78,896 | 10,584 |
TOTAL ASSETS | 111,862,385 | 94,188,716 |
LIABILITIES | ||
Due to Parent | 6,050 | 12,151 |
Escrows Payable | 1,645,365 | 1,174,747 |
Due to Investors | 182,631 | 120,496 |
Preferred Dividend Payable | 12,500 | 12,500 |
Deferred Revenue, net | 314,204 | 289,569 |
Deferred Tax Liability | 393,104 | 380,236 |
Accrued Expenses | 5,150 | 66,945 |
Mortgage Secured Notes Payable | 102,972,421 | 85,692,812 |
Accounts Payable | 19,115 | 14,234 |
Total Liabilities | 105,550,540 | 87,763,690 |
STOCKHOLDERS' EQUITY | ||
Accumulated Earnings | 813,067 | 939,154 |
Additional Paid-in Capital | 5,498,078 | 5,485,172 |
Common Stock, $0.0001 par value, 60,000,000 shares authorized 5,000,000 shares issued and outstanding at June 30, 2020 and December 31, 2019 | 500 | 500 |
Series A Preferred Stock, $0.001 par value, 40,000,000 shares authorized, 200,000 shares issued and outstanding at June 30, 2020 and December 31, 2019 | 200 | 200 |
Total Stockholders' Equity | 6,311,845 | 6,425,026 |
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY | $ 111,862,385 | $ 94,188,716 |
UNAUDITED STATEMENTS OF FINAN_2
UNAUDITED STATEMENTS OF FINANCIAL CONDITION (Parenthetical) - $ / shares | Jun. 30, 2020 | Dec. 31, 2019 |
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 |
UNAUDITED STATEMENTS OF OPERATI
UNAUDITED STATEMENTS OF OPERATIONS - USD ($) | 6 Months Ended | |
Jun. 30, 2020 | Jun. 30, 2019 | |
REVENUES | ||
Interest Income | $ 94,721 | $ 423 |
Total Revenues | 756,581 | 145,458 |
COST OF REVENUES | ||
Broker Underwriting Expense | 90,838 | 34,233 |
Mortgage Broker Expense | 111,399 | 18,524 |
Co-Manager Engagement Fee | 1,754 | 649 |
Bank Fees | 1,261 | 5,074 |
Appraisal Costs | 5,593 | 2,833 |
Marketing | 32,379 | 11,949 |
License and Registration | 14,027 | 5,854 |
Insurance Review | 1,000 | |
Ratings | 20,592 | 24,781 |
Technology Fees | 17,551 | 2,155 |
Total Cost of Revenues | 296,394 | 106,052 |
GROSS PROFIT | 460,187 | 39,406 |
OPERATING EXPENSES | ||
Office Supplies | 5,599 | 1,294 |
Accounting | 31,940 | 16,750 |
Salaries | 491,575 | 144,537 |
Payroll Taxes | 30,864 | 9,939 |
Heath Insurance | 8,280 | |
Professional & Legal | 69,236 | 13,401 |
Travel & Entertainment | 6,094 | 16,335 |
Tradeshow Expense | 9,199 | |
Business Insurance | 15,223 | |
Business Development | 2,370 | |
Stock Compensation | 12,906 | |
Total Expenses | 680,916 | 204,626 |
Net Loss From Operations | (220,729) | (165,220) |
Other Income / (Loss) | ||
Unrealized Gain on Mortgages | 258,801 | 598,361 |
Unrealized Loss on Mortgage Security Note | (1,291) | |
Gain from Write-Off Due to Parent | 548,802 | |
Total Other Income | 257,510 | 1,147,163 |
Net income before provision for income taxes | 36,781 | 981,943 |
Provision for income taxes | (12,868) | |
Net Income | 23,913 | 981,943 |
Series A Preferred Dividends | 150,000 | |
Net income attributable to common stockholder | (126,087) | 981,943 |
Origination Revenue [Member] | ||
REVENUES | ||
Total Revenues | 188,200 | 87,988 |
Servicing Revenue [Member] | ||
REVENUES | ||
Total Revenues | 465,261 | 46,462 |
Processing Revenue [Member] | ||
REVENUES | ||
Total Revenues | 1,500 | |
Late Fees [Member] | ||
REVENUES | ||
Total Revenues | $ 8,399 | $ 9,085 |
UNAUDITED STATEMENTS OF CASH FL
UNAUDITED STATEMENTS OF CASH FLOWS - USD ($) | 6 Months Ended | |
Jun. 30, 2020 | Jun. 30, 2019 | |
CASH FLOWS FROM OPERATING ACTIVITIES | ||
Net Income | $ 23,913 | $ 981,943 |
Adjustments to Reconcile Net Income to Net Cash Used in Operating Activities: | ||
Unrealized Gain on Mortgages Owned | (258,801) | (598,361) |
Unrealized Loss on Mortgage Security Notes | 1,291 | |
Gain from Write-Off of Due to Parent | (548,802) | |
Stock compensation expense | 12,906 | |
Deferred income taxes | 12,868 | |
Changes in Operating Assets and Liabilities: | ||
Restricted Cash | (532,754) | 228,834 |
Mortgage Secured Notes Issued | 17,279,609 | 18,930,027 |
Mortgage Secured Notes Purchased | (102,084) | |
Portfolio Loans | 591,359 | |
Accounts Receivable | 57,181 | |
Prepaid Expenses | (68,312) | |
Preferred Interest in Affiliate | (250,000) | |
Due to Parent | (6,101) | 73,192 |
Deferred Revenue, net | 24,635 | 107,009 |
Escrow Payable | 470,618 | (220,285) |
Due to Investors | 62,135 | (8,548) |
Accrued Expenses | (61,795) | 13,750 |
Accounts Payable | 4,881 | |
New Mortgage Lending | (17,279,609) | (18,930,027) |
Total Adjustments | (41,973) | (953,211) |
NET CASH (USED IN) OPERATING ACTIVITIES | (18,060) | 28,732 |
CASH FLOWS FROM FINANCING ACTIVITIES | ||
Payment of Series A preferred stock dividends | (150,000) | |
NET CASH USED IN FINANCING ACTIVITIES | (150,000) | |
NET (DECREASE)/INCREASE IN CASH AND CASH EQUIVALENTS | (168,060) | 28,732 |
CASH AND CASH EQUIVALENTS - Beginning of Period | 2,378,716 | 15,323 |
CASH AND CASH EQUIVALENTS - End of Period | $ 2,210,656 | $ 44,055 |
UNAUDITED STATEMENT OF CHANGES
UNAUDITED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY (Unaudited) - 6 months ended Jun. 30, 2020 - USD ($) | Common Stock [Member] | Additional Paid-in Capital [Member] | Accumulated Earnings [Member] | Series A Preferred Stock [Member] | Total |
Balance at beginning at Dec. 31, 2019 | $ 500 | $ 5,485,172 | $ 939,154 | $ 200 | $ 6,425,026 |
Balance at beginning (in shares) at Dec. 31, 2019 | 5,000,000 | 200,000 | 5,000,000 | ||
Increase (Decrease) in Stockholders' Equity [Roll Forward] | |||||
Options issued to employees and directors | 12,906 | $ 12,906 | |||
Options issued to employees and directors (in shares) | |||||
Series A preferred stock dividends declared | (150,000) | (150,000) | |||
Net income | 23,913 | 23,913 | |||
Balance, end at Jun. 30, 2020 | $ 500 | $ 5,498,078 | $ 813,067 | $ 200 | $ 6,311,845 |
Balance, end (in shares) at Jun. 30, 2020 | 5,000,000 | 200,000 |
NATURE OF BUSINESS
NATURE OF BUSINESS | 6 Months Ended |
Jun. 30, 2020 | |
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 Limited Partnership (“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 | 6 Months Ended |
Jun. 30, 2020 | |
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 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 that it makes by issuing Mortgage Secured Notes (“MSNs”), which are secured by those same mortgages. As of the date of these financial statements, the Company has funded loans totaling $102,972,421 and it issued MSNs secured by those loans, in the amount of $102,972,421. 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 June 30, 2020, the Company had issued Portfolio Loans in the amount of $1,561,476. These loans were funded by the Company, as well as affiliates. REVENUE RECOGNITION The Company has four primary sources of revenue: origination fees, servicing fees, processing fees, 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 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. 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. 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. DUE TO PARENT AND PAYABLES Items due to parent are operating expenses due to the parent company for salaries, credit cards, and other business expenses. Amounts are reconciled and paid off monthly and balances in this account are due to timing. 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. |
CORRECTION OF PRIOR PERIOD ACCO
CORRECTION OF PRIOR PERIOD ACCOUNTING ERROR | 6 Months Ended |
Jun. 30, 2020 | |
Correction Of Prior Period Accounting Error Abstract | |
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 the interim period ended June 30, 2019, are summarized as follows: STATEMENT OF OPERATIONS For the Six Months ended June 30, 2019: As Previously Reported Prior Period Impact Revised Amounts Revenues: Origination Revenues, net $ 642,775 $ (554,787 ) $ 87,988 Total Revenues 700,245 (554,787 ) 145,458 Cost of Revenues: Broker Underwriting Expense 269,775 (235,542 ) 34,233 Mortgage Broker Expense 203,025 (184,501 ) 18,524 Co-Manager Engagement Fee 7,113 (6,464 ) 649 Appraisal Costs 1,995 838 2,833 Ratings 40,000 (15,219 ) 24,781 Total Cost of Revenues 546,940 (440,888 ) 106,052 Gross Profit (Loss) 153,305 (113,899 ) 39,406 Operating Expenses: Professional and Legal 20,291 (6,890 ) 13,401 Total Operating Expenses 211,516 (6,890 ) 204,626 Net Loss from Operations (58,211 ) (107,009 ) (165,220 ) Total Other Income 1,147,163 - 1,147,163 Net Income $ 1,088,952 $ (107,009 ) $ 981.943 |
RESTRICTED CASH
RESTRICTED CASH | 6 Months Ended |
Jun. 30, 2020 | |
Restricted Cash [Abstract] | |
RESTRICTED CASH | NOTE 4 - 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 June 30, 2020, this account has a balance of $1,493,409. 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 June 30, 2020, this account has a balance of $182,631 (commitment fees/accrued interest). We also maintain 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 June 30, 2020, the accounts have a balance of $151,956. |
COMMITMENTS
COMMITMENTS | 6 Months Ended |
Jun. 30, 2020 | |
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 | 6 Months Ended |
Jun. 30, 2020 | |
Indemnifications | |
INDEMNIFICATIONS | NOTE 6 - INDEMNIFICATIONS |
CUSTOMERS
CUSTOMERS | 6 Months Ended |
Jun. 30, 2020 | |
Risks and Uncertainties [Abstract] | |
CUSTOMERS | NOTE 7 - CUSTOMERS As of June 30, 2020, the Company had fourteen 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 45% of our total loans outstanding with two loans adding up to $46.45 million. Currently, 51% of the loans, by unpaid balance, are geographically concentrated in the state of Ohio. |
RELATED PARTY TRANSACTIONS
RELATED PARTY TRANSACTIONS | 6 Months Ended |
Jun. 30, 2020 | |
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 largely supported by its parent company, J. W. Korth, from inception through late 2019. 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 six months ended June 30, 2019. The Company owed J.W. Korth $6,050 and $12,151 as of June 30, 2020, and December 31, 2019, respectively. On May 13, 2020, the Company executed a preferred partner subscription agreement with J. W. Korth & Company, which is reflected under the caption “Preferred Interest in Affiliate” of the Unaudited Statement of Financial Condition. The Company paid underwriting fees of $90,838 and $34,233 to J. W. Korth & Company for the six months ended June 30, 2020 and 2019, respectively. J. W. Korth has been the initial purchaser of all the mortgage security notes for the six months ended June 30, 2020. The Company also purchased an MSN in the amount of $100,000 shown 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 employee. KDM services both notes. |
DEFERRED REVENUE, NET
DEFERRED REVENUE, NET | 6 Months Ended |
Jun. 30, 2020 | |
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 six months ended June 30, 2020: Deferred Origination Fees Deferred Origination Costs Deferred Deferred Revenue at December 31, 2019 $ 1,849,100 $ (1,559,531 ) $ 289,569 New loan deferrals 356,000 (298,562 ) 57,438 Amortization of deferrals (188,200 ) 155,397 (32,803 ) Deferred Revenue at June 30, 2020 2,016,900 (1,702,696 ) 314,204 |
EMPLOYEE AND DIRECTOR STOCK OPT
EMPLOYEE AND DIRECTOR STOCK OPTIONS | 6 Months Ended |
Jun. 30, 2020 | |
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. 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: 2019 and Q2 2020 Risk-free interest rate: 1.76% Expected term: 5.75 years Expected dividend yield: 0% Expected volatility: 35.01% For the six months ended June 30, 2020, the Company recorded $12,906 of stock-based compensation expense. As of June 30, 2020, there was $51,632 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 years. Stock option activity for the six months ended June 30, 2020, is summarized as follows: 2019 Stock Option Plan: Shares Weighted Weighted Options outstanding at January 1, 2020 835,000 $ 1.00 9.5 Granted - Exercised - Expired or forfeited - Options outstanding at June 30, 2020 835,000 $ 1.00 9.0 Options exercisable at June 30, 2020 417,500 $ 1.00 9.0 Options expected to vest at June 30, 2020 417,500 $ 1.00 9.0 |
PREFERRED EQUITY
PREFERRED EQUITY | 6 Months Ended |
Jun. 30, 2020 | |
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 | 6 Months Ended |
Jun. 30, 2020 | |
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: 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. Fair Value Disclosure The following tables display the Company’s assets and liabilities measured at fair value on a recurring basis: June 30, 2020 Total Level I Level II Level III Financial Assets Mortgages Owned $ 102,972,421 $ - $ 102,972,421 $ - Mortgage Servicing $ 2,854,747 $ - $ - $ 2,854,747 Securities 100,793 - - 100,793 Total Financial Assets $ 105,927,961 $ - $ 102,972,421 $ 2,955,540 Financial Liabilities Mortgage Secured Notes Payable $ 102,972,421 $ - $ 102,972,421 $ - December 31, 2019 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 $ - Fair Value Measurements Changes in Fair Value Measurements for the three months ended June 30, 2020 The following table presents a reconciliation of changes in Level 3 assets and liabilities reported in the Statements of Financial Condition for the six months ended June 30, 2020: Changes in assets: Period ended June 30, 2020 Mortgage Securities Total Value Beginning balance at January 1, 2020 $ 2,595,946 $ - $ 2,595,946 Purchases - 100,000 100,000 Sales - - - Issues - - - Settlements - - - Net realized gain/loss or Interest income - 2,084 2,084 Unrealized Gain from newly issued mortgages 543,524 - 543,524 Fair Value adjustment (284,723 ) (1,291 ) (286,014 ) Transfers into Level 3 - - - Transfers out of Level 3 - - - Ending balance at June 30, 2020 $ 2,854,747 $ 100,793 $ 2,955,540 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 six months ended June 30, 2020, 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 June 30, 2020: Investment type Fair Value Valuation technique Unobservable inputs Values Mortgage servicing $ 2,854,747 Net Present Value Prepayment Discount 15.29 % Discount rate 15.00 % Securities $ 100,793 Net Present Value |
INCOME TAXES
INCOME TAXES | 6 Months Ended |
Jun. 30, 2020 | |
Income Tax Disclosure [Abstract] | |
INCOME TAXES | NOTE 13 – INCOME TAXES The provision for income taxes was $12,868 for the six months ended June 30, 2020. The effective tax rate was approximately 35% of the income before income taxes of $36,781, 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. |
SUMMARY OF SIGNIFICANT ACCOUN_2
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Policies) | 6 Months Ended |
Jun. 30, 2020 | |
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 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 that it makes by issuing Mortgage Secured Notes (“MSNs”), which are secured by those same mortgages. As of the date of these financial statements, the Company has funded loans totaling $102,972,421 and it issued MSNs secured by those loans, in the amount of $102,972,421. 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 June 30, 2020, the Company had issued Portfolio Loans in the amount of $1,561,476. These loans were funded by the Company, as well as affiliates. |
REVENUE RECOGNITION | REVENUE RECOGNITION The Company has four primary sources of revenue: origination fees, servicing fees, processing fees, 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 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. 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. |
ESTIMATES | 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. |
DUE TO PARENT AND PAYABLES | DUE TO PARENT AND PAYABLES Items due to parent are operating expenses due to the parent company for salaries, credit cards, and other business expenses. Amounts are reconciled and paid off monthly and balances in this account are due to timing. |
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. |
CORRECTION OF PRIOR PERIOD AC_2
CORRECTION OF PRIOR PERIOD ACCOUNTING ERROR (Tables) | 6 Months Ended |
Jun. 30, 2020 | |
Correction Of Prior Period Accounting Error Abstract | |
Schedule of financial statements | The financial statement impacts of the accounting error on the interim period ended June 30, 2019, are summarized as follows: STATEMENT OF OPERATIONS For the Six Months ended June 30, 2019: As Previously Reported Prior Period Impact Revised Amounts Revenues: Origination Revenues, net $ 642,775 $ (554,787 ) $ 87,988 Total Revenues 700,245 (554,787 ) 145,458 Cost of Revenues: Broker Underwriting Expense 269,775 (235,542 ) 34,233 Mortgage Broker Expense 203,025 (184,501 ) 18,524 Co-Manager Engagement Fee 7,113 (6,464 ) 649 Appraisal Costs 1,995 838 2,833 Ratings 40,000 (15,219 ) 24,781 Total Cost of Revenues 546,940 (440,888 ) 106,052 Gross Profit (Loss) 153,305 (113,899 ) 39,406 Operating Expenses: Professional and Legal 20,291 (6,890 ) 13,401 Total Operating Expenses 211,516 (6,890 ) 204,626 Net Loss from Operations (58,211 ) (107,009 ) (165,220 ) Total Other Income 1,147,163 - 1,147,163 Net Income $ 1,088,952 $ (107,009 ) $ 981.943 |
DEFERRED REVENUE, NET (Tables)
DEFERRED REVENUE, NET (Tables) | 6 Months Ended |
Jun. 30, 2020 | |
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 six months ended June 30, 2020: Deferred Origination Fees Deferred Origination Costs Deferred Deferred Revenue at December 31, 2019 $ 1,849,100 $ (1,559,531 ) $ 289,569 New loan deferrals 356,000 (298,562 ) 57,438 Amortization of deferrals (188,200 ) 155,397 (32,803 ) Deferred Revenue at June 30, 2020 2,016,900 (1,702,696 ) 314,204 |
EMPLOYEE AND DIRECTOR STOCK O_2
EMPLOYEE AND DIRECTOR STOCK OPTIONS (Tables) | 6 Months Ended |
Jun. 30, 2020 | |
Mortgage Servicing | |
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: 2019 and Q2 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 six months ended June 30, 2020, is summarized as follows: 2019 Stock Option Plan: Shares Weighted Weighted Options outstanding at January 1, 2020 835,000 $ 1.00 9.5 Granted - Exercised - Expired or forfeited - Options outstanding at June 30, 2020 835,000 $ 1.00 9.0 Options exercisable at June 30, 2020 417,500 $ 1.00 9.0 Options expected to vest at June 30, 2020 417,500 $ 1.00 9.0 |
FAIR VALUE (Tables)
FAIR VALUE (Tables) | 6 Months Ended |
Jun. 30, 2020 | |
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: June 30, 2020 Total Level I Level II Level III Financial Assets Mortgages Owned $ 102,972,421 $ - $ 102,972,421 $ - Mortgage Servicing $ 2,854,747 $ - $ - $ 2,854,747 Securities 100,793 - - 100,793 Total Financial Assets $ 105,927,961 $ - $ 102,972,421 $ 2,955,540 Financial Liabilities Mortgage Secured Notes Payable $ 102,972,421 $ - $ 102,972,421 $ - December 31, 2019 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 $ - |
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 six months ended June 30, 2020: Changes in assets: Period ended June 30, 2020 Mortgage Securities Total Value Beginning balance at January 1, 2020 $ 2,595,946 $ - $ 2,595,946 Purchases - 100,000 100,000 Sales - - - Issues - - - Settlements - - - Net realized gain/loss or Interest income - 2,084 2,084 Unrealized Gain from newly issued mortgages 543,524 - 543,524 Fair Value adjustment (284,723 ) (1,291 ) (286,014 ) Transfers into Level 3 - - - Transfers out of Level 3 - - - Ending balance at June 30, 2020 $ 2,854,747 $ 100,793 $ 2,955,540 |
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 June 30, 2020: Investment type Fair Value Valuation technique Unobservable inputs Values Mortgage servicing $ 2,854,747 Net Present Value Prepayment Discount 15.29 % Discount rate 15.00 % Securities $ 100,793 Net Present Value |
NATURE OF BUSINESS (Details Nar
NATURE OF BUSINESS (Details Narrative) | 6 Months Ended |
Jun. 30, 2020USD ($) | |
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 ($) | Jun. 30, 2020 | Dec. 31, 2019 |
Portfolio Loans | $ 1,561,476 | $ 2,152,835 |
Actual Basis [Member] | ||
Mortgage secured notes funded | 102,972,421 | |
Mortgage second secured notes funded | $ 102,972,421 |
CORRECTION OF PRIOR PERIOD AC_3
CORRECTION OF PRIOR PERIOD ACCOUNTING ERROR (Details) - USD ($) | 6 Months Ended | |
Jun. 30, 2020 | Jun. 30, 2019 | |
Revenues: | ||
Total Revenues | $ 756,581 | $ 145,458 |
Cost of Revenues: | ||
Broker Underwriting Expense | 90,838 | 34,233 |
Mortgage Broker Expense | 111,399 | 18,524 |
Co-Manager Engagement Fee | 1,754 | 649 |
Appraisal Costs | 5,593 | 2,833 |
Ratings | 20,592 | 24,781 |
Total Cost of Revenues | 296,394 | 106,052 |
Gross Profit (Loss) | 460,187 | 39,406 |
Operating Expenses: | ||
Professional and Legal | 69,236 | 13,401 |
Total Operating Expenses | 680,916 | 204,626 |
Net Loss from Operations | (220,729) | (165,220) |
Total Other Income | 257,510 | 1,147,163 |
Net Income | 23,913 | 981,943 |
Origination Revenue [Member] | ||
Revenues: | ||
Total Revenues | 188,200 | $ 87,988 |
As Previously Reported [Member] | ||
Revenues: | ||
Total Revenues | 700,245 | |
Cost of Revenues: | ||
Broker Underwriting Expense | 269,775 | |
Mortgage Broker Expense | 203,025 | |
Co-Manager Engagement Fee | 7,113 | |
Appraisal Costs | 1,995 | |
Ratings | 40,000 | |
Total Cost of Revenues | 546,940 | |
Gross Profit (Loss) | 153,305 | |
Operating Expenses: | ||
Professional and Legal | 20,291 | |
Total Operating Expenses | 211,516 | |
Net Loss from Operations | (58,211) | |
Total Other Income | 1,147,163 | |
Net Income | 1,088,952 | |
As Previously Reported [Member] | Origination Revenue [Member] | ||
Revenues: | ||
Total Revenues | 642,775 | |
Prior Period Impact [Member] | ||
Revenues: | ||
Total Revenues | (554,787) | |
Cost of Revenues: | ||
Broker Underwriting Expense | (235,542) | |
Mortgage Broker Expense | (184,501) | |
Co-Manager Engagement Fee | (6,464) | |
Appraisal Costs | 838 | |
Ratings | (15,219) | |
Total Cost of Revenues | (440,888) | |
Gross Profit (Loss) | (113,899) | |
Operating Expenses: | ||
Professional and Legal | (6,890) | |
Total Operating Expenses | (6,890) | |
Net Loss from Operations | (107,009) | |
Total Other Income | ||
Net Income | (107,009) | |
Prior Period Impact [Member] | Origination Revenue [Member] | ||
Revenues: | ||
Total Revenues | $ (554,787) |
RESTRICTED CASH (Details Narrat
RESTRICTED CASH (Details Narrative) - USD ($) | Jun. 30, 2020 | Dec. 31, 2019 |
Escrow Payable | $ 1,645,365 | $ 1,174,747 |
Due to Investors liability including commitment fees and accrued interest | 151,956 | |
Actual Basis [Member] | ||
Due to Investors liability including commitment fees and accrued interest | $ 182,631 |
CUSTOMERS (Details Narrative)
CUSTOMERS (Details Narrative) | 6 Months Ended |
Jun. 30, 2020Customer | |
Number of customer | 14 |
Loans outstanding description | One borrower accounts for 45% of our total loans outstanding with two loans adding up to $46.45 million. |
Ohio [Member] | |
Loans outstanding description | 51% of the loans, by unpaid balance, are geographically concentrated in the state of Ohio. |
RELATED PARTY TRANSACTIONS (Det
RELATED PARTY TRANSACTIONS (Details Narrative) - USD ($) | Apr. 01, 2020 | Jun. 30, 2020 | Jun. 30, 2019 | Dec. 31, 2019 | Mar. 31, 2019 |
Due to Parent | $ 6,050 | $ 12,151 | |||
J W Korth [Member] | |||||
Due to Parent | 6,050 | $ 12,151 | |||
Underwriting fees | 90,838 | $ 34,233 | |||
J W Korth [Member] | Private Placement [Member] | |||||
Due to Parent | $ 548,802 | ||||
Mortgage Secured Notes [Member] | |||||
Purchase of debt | $ 100,000 | ||||
Description of corresponding | Along with a second lien loan of $500,000 on the same property. The funding for the second lien was provided by 110 Capital LLC, an entity controlled by a KDM employee. KDM services both notes. |
DEFERRED REVENUE, NET (Details)
DEFERRED REVENUE, NET (Details) - USD ($) | 6 Months Ended | 12 Months Ended |
Jun. 30, 2020 | Dec. 31, 2019 | |
Deferred origination fees | $ 2,016,900 | $ 1,849,100 |
Deferred origination costs | (1,702,696) | (1,559,531) |
Deferred revenue, net | 314,204 | $ 289,569 |
New Loan Deferrals [Member] | ||
Deferred origination fees | 356,000 | |
Deferred origination costs | (298,562) | |
Deferred revenue, net | 57,438 | |
Amortization Of Deferrals [Member] | ||
Deferred origination fees | (188,200) | |
Deferred origination costs | 155,397 | |
Deferred revenue, net | $ (32,803) |
EMPLOYEE AND DIRECTOR STOCK O_3
EMPLOYEE AND DIRECTOR STOCK OPTIONS (Details) | 6 Months Ended |
Jun. 30, 2020 | |
Mortgage Servicing | |
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) | 6 Months Ended |
Jun. 30, 2020$ / sharesshares | |
Shares | |
Balance, beginning | 835,000 |
Granted | |
Exercised | |
Balance, ending | 835,000 |
Options exercisable, ending | 417,500 |
Options expected to vest, ending | 417,500 |
Weighted Average Exercise Price | |
Balance, beginning | $ / shares | $ 1 |
Granted | $ / shares | |
Balance, ending | $ / shares | 1 |
Options exercisable, ending | $ / shares | 1 |
Options expected to vest, ending | $ / shares | $ 1 |
Weighted Remaining Contractual Life (Years) | |
Balance, ending | 9 years 6 months |
Exercisable, ending | 9 years |
Options expected to vest, ending | 9 years |
EMPLOYEE AND DIRECTOR STOCK O_5
EMPLOYEE AND DIRECTOR STOCK OPTIONS (Details Narrative) - USD ($) | Jun. 28, 2019 | Jun. 30, 2019 | Jun. 30, 2020 | Jun. 30, 2019 | Dec. 31, 2019 |
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 | $ 1 | |||
Weighted-average grant date fair values | $ 0.1855 | ||||
Stock-based compensation expense | $ 12,906 | ||||
Non-vested employee stock options term | 9 years 6 months | ||||
2019 Stock Option Plan (Incentive Plan) [Member] | |||||
Stock-based compensation expense | $ 12,906 | ||||
Unrecognized compensation expense | $ 51,632 | ||||
Non-vested employee stock options term | 2 years | ||||
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 | ||
Sep. 27, 2019 | Jun. 30, 2020 | Dec. 31, 2019 | |
Expenses related to the issuance | $ 78,896 | $ 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) - USD ($) | Jun. 30, 2020 | Dec. 31, 2019 |
Financial Assets | ||
Securities | $ 100,793 | |
Fair Value, Measurements, Recurring [Member] | ||
Financial Assets | ||
Mortgages Owned | 102,972,421 | 85,692,812 |
Mortgage Servicing | 2,854,747 | 2,595,946 |
Securities | 100,793 | |
Total Financial Aseets | 105,927,961 | 88,288,758 |
Financial Liabilities | ||
Mortgage Secured Notes Payable | 102,972,421 | 85,692,812 |
Fair Value, Measurements, Recurring [Member] | Fair Value, Inputs, Level 1 [Member] | ||
Financial Assets | ||
Mortgages Owned | ||
Mortgage Servicing | ||
Securities | ||
Total Financial Aseets | ||
Financial Liabilities | ||
Mortgage Secured Notes Payable | ||
Fair Value, Measurements, Recurring [Member] | Fair Value, Inputs, Level 2 [Member] | ||
Financial Assets | ||
Mortgages Owned | 102,972,421 | 85,692,812 |
Mortgage Servicing | ||
Securities | ||
Total Financial Aseets | 102,972,421 | 85,692,812 |
Financial Liabilities | ||
Mortgage Secured Notes Payable | 102,972,421 | 85,692,812 |
Fair Value, Measurements, Recurring [Member] | Fair Value, Inputs, Level 3 [Member] | ||
Financial Assets | ||
Mortgages Owned | ||
Mortgage Servicing | 2,854,747 | 2,595,946 |
Securities | 100,793 | |
Total Financial Aseets | 2,955,540 | 2,595,946 |
Financial Liabilities | ||
Mortgage Secured Notes Payable |
FAIR VALUE (Details 1)
FAIR VALUE (Details 1) | 6 Months Ended |
Jun. 30, 2020USD ($) | |
Beginning balance at January 1, 2020 | $ 2,595,946 |
Purchases | 100,000 |
Sales | |
Issues | |
Settlements | |
Net realized gain/loss or Interest income | 2,084 |
Unrealized Gain from newly issued mortgages | 543,524 |
Fair Value adjustment | (286,014) |
Transfers into Level 3 | |
Transfers out of Level 3 | |
Ending balance at June 30, 2020 | 2,955,540 |
Mortgages Servicing Value [Member] | |
Beginning balance at January 1, 2020 | 2,595,946 |
Purchases | |
Sales | |
Issues | |
Settlements | |
Net realized gain/loss or Interest income | |
Unrealized Gain from newly issued mortgages | 543,524 |
Fair Value adjustment | (284,723) |
Transfers into Level 3 | |
Transfers out of Level 3 | |
Ending balance at June 30, 2020 | 2,854,747 |
Securities [Member] | |
Beginning balance at January 1, 2020 | |
Purchases | 100,000 |
Sales | |
Issues | |
Settlements | |
Net realized gain/loss or Interest income | 2,084 |
Unrealized Gain from newly issued mortgages | |
Fair Value adjustment | (1,291) |
Transfers into Level 3 | |
Transfers out of Level 3 | |
Ending balance at June 30, 2020 | $ 100,793 |
FAIR VALUE (Details 2)
FAIR VALUE (Details 2) - Fair Value, Measurements, Recurring [Member] | 6 Months Ended | |
Jun. 30, 2020USD ($) | Dec. 31, 2019USD ($) | |
Fair Value | $ 100,793 | |
Fair Value | $ 2,854,747 | $ 2,595,946 |
Valuation technique | Net Present Value | |
Unobservable input | Discount rate | |
Value | 0.15 | |
Prepayment Discount [Member] | ||
Value | 0.1529 | |
Valuation technique | Net Present Value |
INCOME TAXES (Details Narrative
INCOME TAXES (Details Narrative) - USD ($) | 6 Months Ended | |
Jun. 30, 2020 | Jun. 30, 2019 | |
Income Tax Disclosure [Abstract] | ||
Statutory corporate tax rate | 21.00% | |
Effective tax rate | 35.00% | |
Net income before provision for income taxes | $ 36,781 | $ 981,943 |
Provision for income taxe | $ 12,868 |