Cover
Cover | 9 Months Ended |
Sep. 30, 2020shares | |
Cover [Abstract] | |
Entity Registrant Name | Korth Direct Mortgage Inc. |
Entity Central Index Key | 0001695963 |
Document Type | 10-Q |
Document Period End Date | Sep. 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 | Q3 |
Document Fiscal Year Focus | 2020 |
UNAUDITED CONSOLIDATED STATEMEN
UNAUDITED CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION - USD ($) | Sep. 30, 2020 | Dec. 31, 2019 |
ASSETS | ||
Cash and Cash Equivalents | $ 2,750,917 | $ 2,378,716 |
Restricted Cash | 13,700,505 | 1,295,242 |
Deposits | 149,028 | |
Mortgages Owned | 125,448,182 | 85,692,812 |
Mortgage Servicing Rights, at Fair Value | 3,432,430 | 2,595,946 |
Portfolio Loans | 1,410,265 | 2,152,835 |
Accounts Receivable | 34,367 | 62,581 |
Securities | 327,848 | |
ROU Leased Asset | 145,333 | |
Goodwill | 110,000 | |
Property & Equipment, Net of Depreciation | 142,458 | |
Prepaid Expenses | 136,874 | 10,584 |
TOTAL ASSETS | 147,788,207 | 94,188,716 |
LIABILITIES | ||
Due to Parent | 12,151 | |
Escrows Payable | 6,195,406 | 1,174,747 |
Due to Investors | 259,288 | 120,496 |
Due to Clearinghouse Brokers | 192,725 | |
Lease liability | 145,333 | |
Preferred Dividend Payable | 12,500 | 12,500 |
Deferred Revenue, net | 375,658 | 289,569 |
Deferred Tax Liability | 535,088 | 380,236 |
Accrued Expenses | 133,703 | 66,945 |
Contingent liability, net | 762,962 | |
PPP loan payable | 161,600 | |
Mortgage Secured Notes Payable | 132,693,992 | 85,692,812 |
Accounts Payable | 155,608 | 14,234 |
Total Liabilities | 141,623,863 | 87,763,690 |
STOCKHOLDERS' EQUITY | ||
Accumulated Earnings | 1,149,458 | 939,154 |
Additional Paid-in Capital | 5,014,186 | 5,485,172 |
Common Stock, $0.0001 par value, 60,000,000 shares authorized 5,000,000 shares issued and outstanding at September 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 September 30, 2020 and December 31, 2019 | 200 | 200 |
Total Stockholders' Equity | 6,164,344 | 6,425,026 |
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY | $ 147,788,207 | $ 94,188,716 |
UNAUDITED CONSOLIDATED STATEM_2
UNAUDITED CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION (Parenthetical) - $ / shares | Sep. 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 CONSOLIDATED STATEM_3
UNAUDITED CONSOLIDATED STATEMENTS OF OPERATIONS - USD ($) | 9 Months Ended | |
Sep. 30, 2020 | Sep. 30, 2019 | |
REVENUES | ||
Total Revenues | $ 1,575,386 | $ 300,357 |
COST OF REVENUES | ||
Broker Underwriting Expense | 147,428 | 63,099 |
Mortgage Broker Expense | 181,904 | 36,751 |
Co-Manager Engagement Fee | 2,640 | 1,246 |
Bank Transaction Fees | 10,127 | 7,410 |
Appraisal Costs | 16,069 | 3,259 |
Marketing | 42,155 | 18,520 |
License and Registration | 31,943 | 7,351 |
Insurance Review | 1,000 | |
Ratings | 31,759 | 13,097 |
Technology Fees | 50,374 | 4,377 |
Total Cost of Revenues | 515,399 | 155,110 |
GROSS PROFIT | 1,059,987 | 145,247 |
OPERATING EXPENSES | ||
Office Supplies | 14,176 | 2,850 |
Accounting | 56,203 | 26,000 |
Salaries | 973,355 | 227,538 |
Payroll Taxes | 54,640 | 13,462 |
Other Payroll Related Costs | 27,591 | |
Professional & Legal | 95,996 | 52,344 |
Rent Expense | 17,311 | |
Utilities | 4,106 | |
Travel & Entertainment | 8,342 | 25,603 |
Tradeshow Expense | 9,199 | |
Business Insurance | 31,274 | |
Business Development | 2,768 | |
Depreciation | 600 | |
Stock Compensation | 19,359 | |
Total Expenses | 1,312,152 | 350,565 |
Net Loss From Operations | (252,165) | (205,318) |
Other Income / (Loss) | ||
Unrealized Gain on Mortgages | 836,484 | 1,232,433 |
Unrealized Loss on Mortgage Security Note | (839) | |
Interest Expense | (6,963) | |
Interest Income | 3,639 | |
Gain from Forgiveness of EIDL Advance | 10,000 | |
Gain from Write-Off Due to Parent | 548,802 | |
Total Other Income | 842,321 | 1,781,235 |
Net income before provision for income taxes | 590,156 | 1,575,917 |
Provision for income taxes | 154,852 | 169,052 |
Net Income | 435,304 | 1,406,865 |
Series A Preferred Dividends | 225,000 | 2,500 |
Net income attributable to common stockholder | 210,304 | 1,404,365 |
Origination Revenue [Member] | ||
REVENUES | ||
Total Revenues | 299,794 | 151,357 |
Servicing Revenue [Member] | ||
REVENUES | ||
Total Revenues | 784,955 | 119,791 |
Processing Revenue [Member] | ||
REVENUES | ||
Total Revenues | 38,919 | 9,420 |
Underwriting Income [Member] | ||
REVENUES | ||
Total Revenues | 85,685 | |
Trading Profits [Member] | ||
REVENUES | ||
Total Revenues | 223,987 | |
Interest Income [Member] | ||
REVENUES | ||
Total Revenues | 130,763 | 790 |
Commissions [Member] | ||
REVENUES | ||
Total Revenues | 2,849 | |
Late Fees [Member] | ||
REVENUES | ||
Total Revenues | $ 8,434 | $ 18,999 |
UNAUDITED CONSOLIDATED STATEM_4
UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS - USD ($) | 9 Months Ended | |
Sep. 30, 2020 | Sep. 30, 2019 | |
CASH FLOWS FROM OPERATING ACTIVITIES | ||
Net Income | $ 435,304 | $ 1,406,865 |
Adjustments to Reconcile Net Income to Net Cash Provided by/(Used in) Operating Activities: | ||
Unrealized Gain on Mortgages Owned | (836,484) | (1,232,433) |
Unrealized Loss on Mortgage Security Notes | 839 | |
Gain from Write-Off of Due to Parent | (548,802) | |
Gain from forgiveness of EIDL advance | (10,000) | |
Stock compensation expense | 19,359 | |
Depreciation | 600 | |
Deferred income taxes | 154,852 | 169,052 |
Changes in Operating Assets and Liabilities: | ||
Restricted Cash | (12,405,263) | (4,494,631) |
Mortgage Secured Notes Issued | 47,001,180 | 32,782,936 |
Mortgage Secured Notes Purchased | (101,717) | |
Portfolio Loans | 742,570 | (460,000) |
Accounts Receivable | 36,623 | (130,000) |
Prepaid Expenses | (75,820) | |
Deposits | (41,717) | |
Due to Parent | (45,247) | 139,175 |
Deferred Revenue, net | 86,089 | 159,829 |
Escrow Payable | 5,020,659 | 266,735 |
Due to Investors | 138,792 | 69,896 |
Due to clearinghouse brokers | 92,805 | |
Interest payable | 6,963 | |
Accrued Expenses | (40,965) | 30,409 |
Accounts Payable | 76,618 | |
Notes Payable | 460,000 | |
New Mortgage Lending | (39,755,370) | (28,624,937) |
Total Adjustments | 65,366 | (1,412,771) |
NET CASH PROVIDED BY/(USED IN) OPERATING ACTIVITIES | 500,670 | (5,906) |
CASH FLOWS FROM INVESTING ACTIVITIES | ||
Purchase of property and equipment | (132,610) | |
Acquisition of related party affiliate, net of cash acquired | 229,141 | |
NET CASH PROVIDED BY INVESTING ACTIVITIES | 96,531 | |
CASH FLOWS FROM FINANCING ACTIVITIES | ||
Net Proceeds from issuance of preferred stock | 4,750,000 | |
Payment of Series A preferred stock dividends | (225,000) | |
NET CASH (USED IN)/PROVIDED BY FINANCING ACTIVITIES | (225,000) | 4,750,000 |
NET INCREASE IN CASH AND CASH EQUIVALENTS | 372,201 | 4,744,094 |
CASH AND CASH EQUIVALENTS - Beginning of Period | 2,378,716 | 15,323 |
CASH AND CASH EQUIVALENTS - End of Period | $ 2,750,917 | $ 4,759,417 |
UNAUDITED CONSOLIDATED STATEM_5
UNAUDITED CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY - 9 months ended Sep. 30, 2020 - USD ($) | Series A Preferred Stock [Member] | Common Stock [Member] | Additional Paid in Capital [Member] | Accumulated Earnings [Member] | Total |
Balance at beginning at Dec. 31, 2019 | $ 200 | $ 500 | $ 5,485,172 | $ 939,154 | $ 6,425,026 |
Balance at beginning (in shares) at Dec. 31, 2019 | 200,000 | 5,000,000 | 5,000,000 | ||
Increase (Decrease) in Stockholders' Equity [Roll Forward] | |||||
Options issued to employees and directors | 19,359 | $ 19,359 | |||
Acquisition of related party affiliate (see Note 4) | (490,345) | (490,345) | |||
Series A preferred stock dividends declared | (225,000) | (225,000) | |||
Net income | 435,304 | 435,304 | |||
Balance, end at Sep. 30, 2020 | $ 200 | $ 500 | $ 5,014,186 | $ 1,149,458 | $ 6,164,344 |
Balance, end (in shares) at Sep. 30, 2020 | 200,000 | 5,000,000 |
NATURE OF BUSINESS
NATURE OF BUSINESS | 9 Months Ended |
Sep. 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 was created to originate mortgages and fund those mortgages with notes secured by mortgage loans. On July 31, 2020, the Company acquired substantially all of the equity of J.W. Korth & Company Limited Partnership, a Michigan limited partnership (“J.W. Korth”), and its general partner, J.W. Korth, LLC, a Florida limited liability company. J.W. Korth is an SEC and FINRA registered securities broker dealer. The financials of J. W. Korth were integrated into the financials of the Company as of August 1, 2020. Certain information and note disclosures normally included in the Company’s annual financial statements prepared in accordance with US generally accepted accounting principles (“GAAP”) have been condensed or omitted. These unaudited financial statements should be read in conjunction with the financial statements and notes thereto included in the Company’s 2019 Annual Report on Form 10-K filed with the Securities and Exchange Commission. |
SUMMARY OF SIGNIFICANT ACCOUNTI
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES | 9 Months Ended |
Sep. 30, 2020 | |
Accounting Policies [Abstract] | |
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES | NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES PRINCIPLES OF CONSOLIDATION The accompanying consolidated financial statements include the accounts of the Company and J.W. Korth, its wholly-owned subsidiary. Intercompany balances and transactions have been eliminated upon consolidation. BASIS OF ACCOUNTING The accompanying financial statements have been prepared on the accrual basis of accounting, in accordance with GAAP. USE OF ESTIMATES The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. CASH AND CASH EQUIVALENTS For purposes of the statement of cash flows, the Company considers all highly liquid debt instruments purchased with a maturity of three months or less to be cash equivalents. MORTGAGE VALUATION Mortgages that are current are carried at the principal value owed by the borrower, as of the date of the financial statements, according to the amortization schedule for the loan. All mortgages owned as of the date of these financial statements are current. The net present value of the servicing revenue is recorded as mortgage servicing rights, at fair value on the Statements of Financial Condition, and is recognized on the Statement of Operations as an unrealized gain on mortgages. MORTGAGE SECURED NOTES The Company funds the mortgage loans that it makes by issuing Mortgage Secured Notes (“MSNs”), which are secured by those same mortgages. The deals have been funded in multiple ways, including private placements, SEC registered deals, and 144A offerings. As of the date of these financial statements, the Company has funded loans totaling $125,448,182 and it issued MSNs secured by those loans, in the amount of $132,693,992. There were two loans that were part of a single MSN issuance, where the loans closed after the quarter end, leading to the excess value of MSNs compared to Mortgages Owned of approximately $7,300,000. The loans were completed and funded on October 1 and October 6, 2020. 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 September 30, 2020, the Company had issued Portfolio Loans in the amount of $1,410,265. These loans were funded by the Company, as well as affiliates. GOODWILL Financial Accounting Standards Board Accounting Standards Codification (“FASB ASC”) Section 350 requires an annual assessment of the recoverability of goodwill using a two-step process. The first step of the impairment test involves a comparison of the fair value of the reporting unit to its carrying value. If the carrying value is higher than the fair value or there is an indication that impairment may exist, a second step must be performed to compute the amount of the impairment. Management conducted its annual assessment of goodwill impairment and determined that there were no indicators of goodwill impairment and therefore did not record an impairment loss for the period ending September 30, 2020. REVENUE RECOGNITION The Company’s primary sources of revenue are generated from origination fees, servicing fees, processing fees, underwriting income, trading profits, and interest income. Origination Fees Loan origination fees represent revenue earned from originating mortgage loans; net of any credits given to the borrower. Loan origination fees generally represent flat, per-loan fee amounts and are deferred and recognized as revenue over the life of the loan. The associated loan origination costs are also deferred and recognized as expense over the life of the loan. The deferred portion of the loan origination fees is netted against the deferred portion of the loan origination costs, which include mortgage broker expenses, and reported as a net deferred revenue liability on the Company’s Statement of Financial Condition. Servicing Fees Loan servicing fees represent revenue earned for servicing loans for various investors. Loan servicing fees are a percentage of the outstanding unpaid principal balance and represent the difference between the 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. Underwriting Income Underwriting income represents revenue earned by J. W. Korth for underwriting and distribution of the Company’s securities. Revenues from underwriting income are recognized on settlement date of the trades. Trading Profits Trading profits represent revenue generated through the trading of securities either for its own account or on behalf of the J. W. Korth’s clients.. Revenue from trading profits are recognized upon settlement of the securities transactions. 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 Prior to the acquisition of J.W. Korth on July 31, 2020, items due to parent are operating expenses due to the parent company for salaries, credit cards, and other business expenses. Subsequent to the July 2020 acquisition, intercompany transactions have been eliminated upon consolidation. DEPRECIATION Depreciation is provided on a straight-line basis using estimated useful lives of three to seven years. INCOME TAXES On June 6, 2019, the Company converted from a Florida limited liability company into a Florida corporation. Effective with the conversion into a Florida corporation, income taxes are accounted for under the asset and liability method. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases and operating loss and tax credit carryforwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. A valuation allowance on deferred tax assets is established when management considers it is more likely than not that some portion or all of the deferred tax assets will not be realized. Tax benefits from an uncertain tax position are only recognized if it is more likely than not that the tax position will be sustained on examination by the taxing authorities, based on the technical merits of the position. The tax benefits recognized in the financial statements from such a position are measured based on the largest benefit that has a greater than fifty percent likelihood of being realized upon ultimate resolution. Interest and penalties related to unrecognized tax benefits are recorded as incurred as a component of income tax expense. |
CORRECTION OF PRIOR PERIOD ACCO
CORRECTION OF PRIOR PERIOD ACCOUNTING ERROR | 9 Months Ended |
Sep. 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 periods ended September 30, 2019, are summarized as follows: STATEMENT OF OPERATIONS For the Nine Months ended September 30, 2019: As Previously Prior Period Revised Amounts Revenues: Origination Revenues, net $ 969,275 $ (817,918 ) $ 151,357 Total Revenues 1,118,275 (817,918 ) 300,357 Cost of Revenues: Broker Underwriting Expense 457,275 (394,176 ) 63,099 Mortgage Broker Expense 231,720 (194,969 ) 36,751 Co-Manager Engagement Fee 7,113 (5,867 ) 1,246 Appraisal Costs 1,995 1,264 3,259 Ratings 40,000 (26,903 ) 13,097 Total Cost of Revenues 775,761 (620,651 ) 155,110 Gross Profit (Loss) 342,514 (197,267 ) 145,247 Operating Expenses: Professional and Legal 64,843 (12,499 ) 52,344 Total Operating Expenses 363,064 (12,499 ) 350,565 Net Loss from Operations (20,550 ) (184,768 ) (205,318 ) Total Other Income 1,781,235 - 1,781,235 Net Income before Provision for Income Taxes 1,760,685 (184,768 ) 1,575,917 Provision for Income Taxes (3,785 ) (165,267 ) (169,052 ) Net Income $ 1,756,900 $ (350,035 ) $ 1,406,865 |
ACQUISITION OF RELATED PARTY AF
ACQUISITION OF RELATED PARTY AFFILIATE | 9 Months Ended |
Sep. 30, 2020 | |
Business Combinations [Abstract] | |
ACQUISITION OF RELATED PARTY AFFILIATE | NOTE 4 – ACQUISITION OF RELATED PARTY AFFILIATE On July 31, 2020, the Company acquired substantially all of the equity of J.W. Korth, a Michigan limited partnership, and its general partner, J.W. Korth, LLC, a Florida limited liability company. The Company’s acquisitions of J.W. Korth and J.W. Korth, LLC are together referred to as the “Acquisitions.” The Company was founded by J.W. Korth with James W. Korth, its Chairman and Chief Executive Officer, and his daughter, Holly MacDonald-Korth, the Company’s President and Chief Financial Officer. Mr. Korth is the Managing Partner of J.W. Korth and Ms. MacDonald-Korth is J.W. Korth’s Managing Director and Chief Financial Officer. J.W. Korth is registered with the Securities and Exchange Commission as a broker-dealer and investment advisor, and with the Financial Industry Regulatory Authority (“FINRA”) as a broker-dealer. Together, prior to closing of the Acquisitions Mr. Korth and Ms. MacDonald-Korth together owned approximately 80% of J.W. Korth’s partnership interests and controlled the business and operations of J.W. Korth. J.W. Korth funded the organization and operation of the Company pursuant to a support agreement with the Company from inception until April 2019, at which time the Company became self-sustaining and J.W. Korth forgave a receivable owed to it by the Company. Until the closing of the Acquisitions, the Company was controlled by J.W. Korth, which owned all of its voting common stock. The Company originates, funds and services loans which it makes to commercial borrowers. The loans are held by the Company as lender. The Company funds its loans directly in the capital markets through issuance of Mortgage Secured Notes (“MSNs” or “Notes”), which are sold through J.W. Korth as underwriter through exemptions from registration available under Rule 144A, Regulation D, and other exemptions from registration. The Company and J.W. Korth determined that the Company could operate more efficiently if J.W. Korth became a wholly-owned subsidiary of the Company. J.W. Korth submitted its then-proposed sale to FINRA, as required by FINRA rules, and FINRA advised J.W. Korth that it could proceed with the closing. Pursuant to the Purchase Agreement, as a condition of closing J.W. Korth agreed to distribute all of its 5,000,000 shares of common stock in the Company to its partners ratably in accordance with their partnership interests in J.W. Korth pursuant to exemptions from registration available under Section 4(a)(2) of the Securities Act of 1933, as amended, and Rule 506 promulgated under the Securities Act. Prior to the closing, J. W. Korth LLC owned 73.6% of the Common Capital interest of J W Korth and at closing received 3,680,000 shares of the Company. Simultaneously J W Korth LLC distributed the Company shares it received from J.W. Korth to its members James Korth and Holly MacDonald-Korth according to their membership interests which were 80% and 20% respectively. At closing, after the distribution to its members of the Company shares distributed to J W Korth LLC, the Company acquired all of the membership interests in JW Korth LLC from Mr. Korth and Ms. MacDonald-Korth for consideration of the payment to (i) the Preferred Capital Interest partners of J.W. Korth of accrued and unpaid 6% dividends through July 31, 2020, and (ii) James Korth of $150,000 in payment of the value of his JW Korth LLC’s Common Capital Interest account. As post-closing commitments the Company agreed to (i) retain Mr. Korth as the managing partner of J.W. Korth, Ms. MacDonald-Korth as J.W. Korth’s chief financial officer, and all other employees of JW Korth who were employed at closing of the Transactions; (ii) operate J.W. Korth as an SEC registered broker-dealer and investment advisor; (iii) pay the JW Korth Preferred Capital Interest Partners quarterly dividends concurrently with its payment of the Company’s Series A Preferred Stock dividends at least annually; (iv) in such years as it pays Series A Preferred dividends, redeem 25% annually of the JW Korth Preferred Capital Interest partners through a capital contribution to JW Korth; and (v) make a discretionary redemption of all accounts of the limited partners of J.W. Korth under the J.W. Korth partnership agreement. Upon redemption of the limited partners’ accounts and the payment of the other consideration to described above to the JW Korth partners, KDM will own 100% of the voting interests in JW Korth. The following table summarizes the consideration paid, or to be paid, for the Acquisitions: Consideration Accrued & unpaid dividends to the Preferred Capital Interest partners $ 213,443 JW Korth LLC’s Common Capital Interest account 150,000 Contingent liability to redeem J.W. Korth Preferred Capital Interest Partners 696,253 Disposition of outstanding loan due from J.W. Korth Executive Officer 69,780 Total Consideration Paid $ 1,129,476 The following table summarizes the net book value of assets and liabilities acquired as of the closing date, July 31, 2020: Net Book Value J.W. Korth Net Book Value $ 889,131 Less: Preferred Interest in J.W. Korth by Company prior to acquisition (250,000 ) Adjusted Net Book Value acquired $ 639,131 Since the acquisition was between related parties, the transaction was recorded at net book value as of the closing date. The difference of $490,345 between the consideration paid and the net book value of the assets and liabilities acquired was recorded as an offset to equity, specifically to Additional Paid-in Capital. Disclosure of supplemental pro forma information for revenue and earnings related to the acquisition, assuming the acquisition was made at the beginning of the earliest period presented, has not been disclosed since the effects of the acquisition would not have been material to the results of operation for the periods presented. |
RESTRICTED CASH
RESTRICTED CASH | 9 Months Ended |
Sep. 30, 2020 | |
Restricted Cash [Abstract] | |
RESTRICTED CASH | NOTE 5 - RESTRICTED CASH The Company maintains multiple segregated accounts in trust for borrowers and investors. The value of these accounts is carried under the asset “Restricted Cash.” The “In Trust for 1” account holds the monthly tax and insurance payments collected from borrowers and distributes payments annually, on behalf of borrowers, to the appropriate tax authority and insurance companies. This account corresponds to the Escrow Payable liability. As of September 30, 2020, this account has a balance of $5,932,065. 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 September 30, 2020, this account has a balance of $7,505,098 (commitment fees/accrued interest), which includes a balance of $7,505,098 pending closing of two loans. 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 September 30, 2020, the accounts have a balance of $263,341. |
COMMITMENTS
COMMITMENTS | 9 Months Ended |
Sep. 30, 2020 | |
Commitments and Contingencies Disclosure [Abstract] | |
COMMITMENTS | NOTE 6 - COMMITMENTS Prior to the acquisition, the Company relied entirely on its parent, J.W. Korth, to provide office space, internet connectivity, phone service, and incidentals through mid-2019. The acquired Partnership leases office space in Miami, Florida and Lansing, Michigan under operating leases that expire at various times in 2021. The following is a schedule of future minimum rental payments required under the terms of the leases as September 30, 2020: 2020 24,883 2021 27,561 $ 52,444 Rental expense for the period ended September 30, 2020 is $17,311, which includes additional expenses for common area, direct operating expenses, utilities, parking and taxes. As of September 30, 2020, the present value using the discount rate of 4.24% of our lease is: 2020 12,013 2021 48,052 $ 60,065 The Company is currently negotiating a lease for new office space, which it expects to move into in the fourth quarter of 2020. |
INDEMNIFICATIONS
INDEMNIFICATIONS | 9 Months Ended |
Sep. 30, 2020 | |
Indemnifications | |
INDEMNIFICATIONS | NOTE 7 - INDEMNIFICATIONS The Company provides representations and warranties to counterparties in connection with a variety of commercial transactions and occasionally indemnifies them against potential losses caused by the breach of those representations and warranties. These indemnifications generally are standard contractual terms and are entered into in the normal course of business. The maximum potential amount of future payments that the Company could be required to make under these indemnifications cannot be estimated. However, the Company believes that it is unlikely it will have to make material payments under these arrangements and has not recorded any contingent liability in the financial statements for these indemnifications. |
CUSTOMERS
CUSTOMERS | 9 Months Ended |
Sep. 30, 2020 | |
Risks and Uncertainties [Abstract] | |
CUSTOMERS | NOTE 8 - CUSTOMERS As of September 30, 2020, the Company had twenty five 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 37% of our total loans outstanding with two loans adding up to $46.34 million. Currently, approximately 41% of the loans, by unpaid balance, are geographically concentrated in the state of Ohio. |
RELATED PARTY TRANSACTIONS
RELATED PARTY TRANSACTIONS | 9 Months Ended |
Sep. 30, 2020 | |
Related Party Transactions [Abstract] | |
RELATED PARTY TRANSACTIONS | NOTE 9 – RELATED PARTY TRANSACTIONS Prior to the acquisition of J.W. Korth in July 2020, the Due to Parent account was 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 nine months ended September 30, 2019. As of September 30, 2020, the intercompany transactions and balances between the Company and J.W. Korth have been eliminated upon consolidation as a result of the acquisition. On May 13, 2020, the Company executed a preferred partner subscription agreement with J. W. Korth in the amount of $250,000, which was eliminated upon consolidation as a result of the acquisition of J.W. Korth in July 2020 (see Note 4 above). Prior to the acquisition of J.W. Korth in July 2020, the Company paid underwriting fees of $158,138 in 2020. J. W. Korth has been the initial purchaser of all the mortgage secured notes for the nine months ended September 30, 2020. In March 2020, the Company purchased an MSN in the amount of $100,000 included on the statement of financial condition as Securities. On April 1, 2020, the Company closed a first lien and corresponding MSN, along with a second lien loan of $500,000 on the same property. The funding for the second lien was provided by 110 Capital LLC, an entity controlled by a KDM director and employee. KDM services both notes. |
DEFERRED REVENUE, NET
DEFERRED REVENUE, NET | 9 Months Ended |
Sep. 30, 2020 | |
Deferred Revenue [Abstract] | |
DEFERRED REVENUE, NET | NOTE 10 – DEFERRED REVENUE, NET Loan origination fees are deferred and recognized as revenue over the life of the respective loan. The associated loan origination costs are also deferred and recognized as expense over the life of the loan. The deferred portion of the loan origination fees is netted against the deferred portion of the loan origination costs and reported as a net deferred revenue liability on the Company’s Statement of Financial Condition. The following is a summary of the loan originating fees and costs deferred and amortized for the nine months ended September 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 643,072 (503,194 ) 139,878 Amortization of deferrals (299,794 ) 246,005 (53,789 ) Deferred Revenue at September 30, 2020 2,192,378 (1,816,720 ) 375,658 |
EMPLOYEE AND DIRECTOR STOCK OPT
EMPLOYEE AND DIRECTOR STOCK OPTIONS | 9 Months Ended |
Sep. 30, 2020 | |
Share-based Payment Arrangement [Abstract] | |
EMPLOYEE AND DIRECTOR STOCK OPTIONS | NOTE 11 – EMPLOYEE AND DIRECTOR STOCK OPTIONS On June 28, 2019, the Company’s Board of Directors adopted the 2019 Stock Option Plan (the “Incentive Plan”). The Incentive Plan provides for the grant of both incentive and non-statutory stock options to key employees, directors or other persons having a service relationship with the Company for the purchase of up to an aggregate of 1,000,000 shares of the Company’s unissued, or reacquired, common stock, $0.001 par value. The Plan will be administered by the Board of Directors or a committee appointed by the Board. In June 2019, the Company issued options to purchase 835,000 shares of the Company’s common stock at an exercise price of $1.00 per share. The weighted-average grant date fair values of options granted was $0.1855 per share. The fair values of the stock-based awards granted were calculated with the following weighted-average assumptions: 2019 Risk-free interest rate: 1.76% Expected term: 5.75 years Expected dividend yield: 0% Expected volatility: 35.01% For the nine months ended September 30, 2020, the Company recorded $19,359 of stock-based compensation expense. As of September 30, 2020, there was $45,178 in total unrecognized compensation expense related to non-vested employee stock options granted under the Incentive Plan, which is expected to be recognized over 1.75 years. Stock option activity for the nine months ended September 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 September 30, 2020 835,000 $ 1.00 9.0 Options exercisable at September 30, 2020 417,500 $ 1.00 9.0 Options expected to vest at September 30, 2020 417,500 $ 1.00 9.0 |
PREFERRED EQUITY
PREFERRED EQUITY | 9 Months Ended |
Sep. 30, 2020 | |
Equity [Abstract] | |
PREFERRED EQUITY | NOTE 12 – PREFERRED EQUITY On September 27, 2019, the Company issued 200,000 shares of its Series A 6% Cumulative Perpetual Convertible Preferred Stock for net proceeds of $4,750,000. The Company paid $250,000 in expenses related to the preferred stock issuance to J. W. Korth as underwriter and distributor. Each share was sold for $25, and is convertible into common stock at a ratio of 5 shares of common stock for each share of Series A Preferred Stock. |
FAIR VALUE
FAIR VALUE | 9 Months Ended |
Sep. 30, 2020 | |
Fair Value Disclosures [Abstract] | |
FAIR VALUE | NOTE 13 – 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: September 30, 2020 Total Level I Level II Level III Financial Assets Mortgages Owned $ 125,448,182 $ - $ 125,448,182 $ - Mortgage Servicing $ 3,432,430 $ - $ - $ 3,432,430 Securities 327,848 - - 327,848 Total Financial Assets $ 129,208,460 $ - $ 125,448,182 $ 3,760,278 Financial Liabilities Mortgage Secured Notes Payable $ 132,693,992 $ - $ 132,693,992 $ - 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 nine months ended September30, 2020 The following table presents a reconciliation of changes in Level 3 assets and liabilities reported in the Statements of Financial Condition for the nine months ended September 30, 2020: Changes in assets: Period ended September 30, 2020 Mortgage Servicing Value Securities Total Value Beginning balance at January 1, 2020 $ 2,595,946 $ - $ 2,595,946 Purchases - 100,000 100,000 Trades - 225,041 225,041 Sales - - - Issues - - - Settlements - - - Net realized gain/loss or Interest income - 3,646 3,646 Unrealized Gain from newly issued mortgages 1,168,632 - 1,168,632 Fair Value adjustment (332,148 ) (839 ) (332,987 ) Transfers into Level 3 - - - Transfers out of Level 3 - - - Ending balance at September 30, 2020 $ 3,432,430 $ 327,848 $ 3,760,278 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 nine months ended September 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 September 30, 2020: Investment type Fair Value Valuation technique Unobservable inputs Values Mortgage servicing $ 3,432,430 Net Present Value Prepayment Discount 15.55 % Discount rate 15.00 % Securities $ 327,848 Net Present Value |
INCOME TAXES
INCOME TAXES | 9 Months Ended |
Sep. 30, 2020 | |
Income Tax Disclosure [Abstract] | |
INCOME TAXES | NOTE 14 – INCOME TAXES The provision for income taxes was $154,852 for the nine months ended September 30, 2020. The effective tax rate was 26.2% of the income before income taxes of $590,156, which differs from the federal statutory rate of 21% due to the effect of state income taxes and certain of the Company’s expenses that are not deductible for tax purposes. The provision for income taxes was $169,052 for the nine months ended September 30, 2019. The effective tax rate was 10.7% of the income before income taxes of $1,575,917, which differs from the federal statutory rate of 21% due to the effect of income attributed to the LLC partnership prior to June 2019, state income taxes and certain of the Company’s expenses that are not deductible for tax purposes. |
PROPERTY AND EQUIPMENT
PROPERTY AND EQUIPMENT | 9 Months Ended |
Sep. 30, 2020 | |
Property, Plant and Equipment [Abstract] | |
PROPERTY AND EQUIPMENT | NOTE 15 – PROPERTY AND EQUIPMENT Property and Equipment are summarized as follows: Equipment $ 52,741 Furniture and fixures $ 158,017 $ 210,758 Accumulated depreciation $ (68,300 ) Net Property Equipment $ 142,458 Depreciation expense for the period ending September 30, 2020 was $600. For the new furniture and equipment bought for the Company post acquisition, in August and September 2020, no depreciation has been charged. |
DUE TO CLEARINGHOUSE BROKERS
DUE TO CLEARINGHOUSE BROKERS | 9 Months Ended |
Sep. 30, 2020 | |
Brokers and Dealers [Abstract] | |
DUE TO CLEARINGHOUSE BROKERS | NOTE 16 – DUE TO CLEARINGHOUSE BROKERS J.W. Korth, the Company’s wholly-owned subsidiary, operates as an SEC and FINRA registered securities broker dealer. The securities transactions are traded through broker clearinghouses and, upon settlement, funds are transferred in and out of the Company’s bank accounts. Unsettled transactions create short-term payables and receivables due to and from the broker clearinghouses. As of September 30, 2020, the Company had a net amount due to the clearinghouse brokers of $192,725. |
CONTINGENT LIABILITY
CONTINGENT LIABILITY | 9 Months Ended |
Sep. 30, 2020 | |
Business Combinations [Abstract] | |
CONTINGENT LIABILITY | The following table summarizes the consideration paid, or to be paid, for the Acquisitions: Consideration Accrued & unpaid dividends to the Preferred Capital Interest partners $ 213,443 JW Korth LLC’s Common Capital Interest account 150,000 Contingent liability to redeem J.W. Korth Preferred Capital Interest Partners 696,253 Disposition of outstanding loan due from J.W. Korth Executive Officer 69,780 Total Consideration Paid $ 1,129,476 |
SUMMARY OF SIGNIFICANT ACCOUN_2
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Policies) | 9 Months Ended |
Sep. 30, 2020 | |
Accounting Policies [Abstract] | |
PRINCIPLES OF CONSOLIDATION | PRINCIPLES OF CONSOLIDATION The accompanying consolidated financial statements include the accounts of the Company and J.W. Korth, its wholly-owned subsidiary. Intercompany balances and transactions have been eliminated upon consolidation. |
BASIS OF ACCOUNTING | BASIS OF ACCOUNTING The accompanying financial statements have been prepared on the accrual basis of accounting, in accordance with GAAP. |
USE OF ESTIMATES | USE OF ESTIMATES The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. |
CASH AND CASH EQUIVALENTS | CASH AND CASH EQUIVALENTS For purposes of the statement of cash flows, the Company considers all highly liquid debt instruments purchased with a maturity of three months or less to be cash equivalents. |
MORTGAGE VALUATION | MORTGAGE VALUATION Mortgages that are current are carried at the principal value owed by the borrower, as of the date of the financial statements, according to the amortization schedule for the loan. All mortgages owned as of the date of these financial statements are current. The net present value of the servicing revenue is recorded as mortgage servicing rights, at fair value on the Statements of Financial Condition, and is recognized on the Statement of Operations as an unrealized gain on mortgages. |
MORTGAGE SECURED NOTES | MORTGAGE SECURED NOTES The Company funds the mortgage loans that it makes by issuing Mortgage Secured Notes (“MSNs”), which are secured by those same mortgages. The deals have been funded in multiple ways, including private placements, SEC registered deals, and 144A offerings. As of the date of these financial statements, the Company has funded loans totaling $125,448,182 and it issued MSNs secured by those loans, in the amount of $132,693,992. There were two loans that were part of a single MSN issuance, where the loans closed after the quarter end, leading to the excess value of MSNs compared to Mortgages Owned of approximately $7,300,000. The loans were completed and funded on October 1 and October 6, 2020. |
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 September 30, 2020, the Company had issued Portfolio Loans in the amount of $1,410,265. These loans were funded by the Company, as well as affiliates. |
GOODWILL | GOODWILL Financial Accounting Standards Board Accounting Standards Codification (“FASB ASC”) Section 350 requires an annual assessment of the recoverability of goodwill using a two-step process. The first step of the impairment test involves a comparison of the fair value of the reporting unit to its carrying value. If the carrying value is higher than the fair value or there is an indication that impairment may exist, a second step must be performed to compute the amount of the impairment. Management conducted its annual assessment of goodwill impairment and determined that there were no indicators of goodwill impairment and therefore did not record an impairment loss for the period ending September 30, 2020. |
REVENUE RECOGNITION | REVENUE RECOGNITION The Company’s primary sources of revenue are generated from origination fees, servicing fees, processing fees, underwriting income, trading profits, and interest income. Origination Fees Loan origination fees represent revenue earned from originating mortgage loans; net of any credits given to the borrower. Loan origination fees generally represent flat, per-loan fee amounts and are deferred and recognized as revenue over the life of the loan. The associated loan origination costs are also deferred and recognized as expense over the life of the loan. The deferred portion of the loan origination fees is netted against the deferred portion of the loan origination costs, which include mortgage broker expenses, and reported as a net deferred revenue liability on the Company’s Statement of Financial Condition. Servicing Fees Loan servicing fees represent revenue earned for servicing loans for various investors. Loan servicing fees are a percentage of the outstanding unpaid principal balance and represent the difference between the 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. Underwriting Income Underwriting income represents revenue earned by J. W. Korth for underwriting and distribution of the Company’s securities. Revenues from underwriting income are recognized on settlement date of the trades. Trading Profits Trading profits represent revenue generated through the trading of securities either for its own account or on behalf of the J. W. Korth’s clients.. Revenue from trading profits are recognized upon settlement of the securities transactions. 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 Prior to the acquisition of J.W. Korth on July 31, 2020, items due to parent are operating expenses due to the parent company for salaries, credit cards, and other business expenses. Subsequent to the July 2020 acquisition, intercompany transactions have been eliminated upon consolidation. |
DEPRECIATION | DEPRECIATION Depreciation is provided on a straight-line basis using estimated useful lives of three to seven years. |
INCOME TAXES | INCOME TAXES On June 6, 2019, the Company converted from a Florida limited liability company into a Florida corporation. Effective with the conversion into a Florida corporation, income taxes are accounted for under the asset and liability method. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases and operating loss and tax credit carryforwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. A valuation allowance on deferred tax assets is established when management considers it is more likely than not that some portion or all of the deferred tax assets will not be realized. Tax benefits from an uncertain tax position are only recognized if it is more likely than not that the tax position will be sustained on examination by the taxing authorities, based on the technical merits of the position. The tax benefits recognized in the financial statements from such a position are measured based on the largest benefit that has a greater than fifty percent likelihood of being realized upon ultimate resolution. Interest and penalties related to unrecognized tax benefits are recorded as incurred as a component of income tax expense. |
CORRECTION OF PRIOR PERIOD AC_2
CORRECTION OF PRIOR PERIOD ACCOUNTING ERROR (Tables) | 9 Months Ended |
Sep. 30, 2020 | |
Correction Of Prior Period Accounting Error Abstract | |
Schedule of financial statements | The financial statement impacts of the accounting error on the interim periods ended September 30, 2019, are summarized as follows: STATEMENT OF OPERATIONS For the Nine Months ended September 30, 2019: As Previously Prior Period Revised Amounts Revenues: Origination Revenues, net $ 969,275 $ (817,918 ) $ 151,357 Total Revenues 1,118,275 (817,918 ) 300,357 Cost of Revenues: Broker Underwriting Expense 457,275 (394,176 ) 63,099 Mortgage Broker Expense 231,720 (194,969 ) 36,751 Co-Manager Engagement Fee 7,113 (5,867 ) 1,246 Appraisal Costs 1,995 1,264 3,259 Ratings 40,000 (26,903 ) 13,097 Total Cost of Revenues 775,761 (620,651 ) 155,110 Gross Profit (Loss) 342,514 (197,267 ) 145,247 Operating Expenses: Professional and Legal 64,843 (12,499 ) 52,344 Total Operating Expenses 363,064 (12,499 ) 350,565 Net Loss from Operations (20,550 ) (184,768 ) (205,318 ) Total Other Income 1,781,235 - 1,781,235 Net Income before Provision for Income Taxes 1,760,685 (184,768 ) 1,575,917 Provision for Income Taxes (3,785 ) (165,267 ) (169,052 ) Net Income $ 1,756,900 $ (350,035 ) $ 1,406,865 |
ACQUISITION OF RELATED PARTY _2
ACQUISITION OF RELATED PARTY AFFILIATE (Tables) | 9 Months Ended |
Sep. 30, 2020 | |
Business Combinations [Abstract] | |
Schedule of consideration paid for the Acquisitions | The following table summarizes the consideration paid, or to be paid, for the Acquisitions: Consideration Accrued & unpaid dividends to the Preferred Capital Interest partners $ 213,443 JW Korth LLC’s Common Capital Interest account 150,000 Contingent liability to redeem J.W. Korth Preferred Capital Interest Partners 696,253 Disposition of outstanding loan due from J.W. Korth Executive Officer 69,780 Total Consideration Paid $ 1,129,476 |
Schedule of net book value of assets and liabilities acquired as of the closing date | The following table summarizes the net book value of assets and liabilities acquired as of the closing date, July 31, 2020: Net Book Value J.W. Korth Net Book Value $ 889,131 Less: Preferred Interest in J.W. Korth by Company prior to acquisition (250,000 ) Adjusted Net Book Value acquired $ 639,131 |
COMMITMENTS (Tables)
COMMITMENTS (Tables) | 9 Months Ended |
Sep. 30, 2020 | |
Commitments and Contingencies Disclosure [Abstract] | |
Schedule of future minimum rental payments | The following is a schedule of future minimum rental payments required under the terms of the leases as September 30, 2020: 2020 24,883 2021 27,561 $ 52,444 |
Schedule of future minimum rental payments present value using the discount rate | As of September 30, 2020, the present value using the discount rate of 4.24% of our lease is: 2020 12,013 2021 48,052 $ 60,065 |
DEFERRED REVENUE, NET (Tables)
DEFERRED REVENUE, NET (Tables) | 9 Months Ended |
Sep. 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 nine months ended September 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 643,072 (503,194 ) 139,878 Amortization of deferrals (299,794 ) 246,005 (53,789 ) Deferred Revenue at September 30, 2020 2,192,378 (1,816,720 ) 375,658 |
EMPLOYEE AND DIRECTOR STOCK O_2
EMPLOYEE AND DIRECTOR STOCK OPTIONS (Tables) | 9 Months Ended |
Sep. 30, 2020 | |
Share-based Payment Arrangement [Abstract] | |
Schedule of estimated fair value of stock options weighted-average assumptions | The fair values of the stock-based awards granted were calculated with the following weighted-average assumptions: 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 nine months ended September 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 September 30, 2020 835,000 $ 1.00 9.0 Options exercisable at September 30, 2020 417,500 $ 1.00 9.0 Options expected to vest at September 30, 2020 417,500 $ 1.00 9.0 |
FAIR VALUE (Tables)
FAIR VALUE (Tables) | 9 Months Ended |
Sep. 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: September 30, 2020 Total Level I Level II Level III Financial Assets Mortgages Owned $ 125,448,182 $ - $ 125,448,182 $ - Mortgage Servicing $ 3,432,430 $ - $ - $ 3,432,430 Securities 327,848 - - 327,848 Total Financial Assets $ 129,208,460 $ - $ 125,448,182 $ 3,760,278 Financial Liabilities Mortgage Secured Notes Payable $ 132,693,992 $ - $ 132,693,992 $ - 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 nine months ended September 30, 2020: Changes in assets: Period ended September 30, 2020 Mortgage Servicing Value Securities Total Value Beginning balance at January 1, 2020 $ 2,595,946 $ - $ 2,595,946 Purchases - 100,000 100,000 Trades - 225,041 225,041 Sales - - - Issues - - - Settlements - - - Net realized gain/loss or Interest income - 3,646 3,646 Unrealized Gain from newly issued mortgages 1,168,632 - 1,168,632 Fair Value adjustment (332,148 ) (839 ) (332,987 ) Transfers into Level 3 - - - Transfers out of Level 3 - - - Ending balance at September 30, 2020 $ 3,432,430 $ 327,848 $ 3,760,278 |
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 September 30, 2020: Investment type Fair Value Valuation technique Unobservable inputs Values Mortgage servicing $ 3,432,430 Net Present Value Prepayment Discount 15.55 % Discount rate 15.00 % Securities $ 327,848 Net Present Value |
PROPERTY AND EQUIPMENT (Tables)
PROPERTY AND EQUIPMENT (Tables) | 9 Months Ended |
Sep. 30, 2020 | |
Property, Plant and Equipment [Abstract] | |
Schedule of property and equipment | Property and Equipment are summarized as follows: Equipment $ 52,741 Furniture and fixures $ 158,017 $ 210,758 Accumulated depreciation $ (68,300 ) Net Property Equipment $ 142,458 |
CONTINGENT LIABILITY (Tables)
CONTINGENT LIABILITY (Tables) | 9 Months Ended |
Sep. 30, 2020 | |
Business Combinations [Abstract] | |
Schedule of unpaid contingent liability outstanding | The following table summarizes the consideration paid, or to be paid, for the Acquisitions: Consideration Accrued & unpaid dividends to the Preferred Capital Interest partners $ 213,443 JW Korth LLC’s Common Capital Interest account 150,000 Contingent liability to redeem J.W. Korth Preferred Capital Interest Partners 696,253 Disposition of outstanding loan due from J.W. Korth Executive Officer 69,780 Total Consideration Paid $ 1,129,476 |
SUMMARY OF SIGNIFICANT ACCOUN_3
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Details Narrative) - USD ($) | 9 Months Ended | |
Sep. 30, 2020 | Dec. 31, 2019 | |
Portfolio Loans | $ 1,410,265 | $ 2,152,835 |
Minimum [Member] | ||
Estimated useful lives | 3 years | |
Maximum [Member] | ||
Estimated useful lives | 7 years | |
Actual Basis [Member] | ||
Mortgage secured notes funded | $ 125,448,182 | |
Mortgage second secured notes funded | 132,693,992 | |
Mortgage secured owned | $ 7,300,000 |
CORRECTION OF PRIOR PERIOD AC_3
CORRECTION OF PRIOR PERIOD ACCOUNTING ERROR (Details) - USD ($) | 9 Months Ended | |
Sep. 30, 2020 | Sep. 30, 2019 | |
Revenues: | ||
Total Revenues | $ 1,575,386 | $ 300,357 |
Cost of Revenues: | ||
Broker Underwriting Expense | 147,428 | 63,099 |
Mortgage Broker Expense | 181,904 | 36,751 |
Co-Manager Engagement Fee | 2,640 | 1,246 |
Appraisal Costs | 16,069 | 3,259 |
Ratings | 31,759 | 13,097 |
Total Cost of Revenues | 515,399 | 155,110 |
Gross Profit (Loss) | 1,059,987 | 145,247 |
Operating Expenses: | ||
Professional and Legal | 95,996 | 52,344 |
Total Operating Expenses | 1,312,152 | 350,565 |
Net Loss from Operations | (252,165) | (205,318) |
Total Other Income | 842,321 | 1,781,235 |
Net Income before Provision for Income Taxes | 1,575,917 | |
Provision for Income Taxes | 154,852 | 169,052 |
Net Income | 435,304 | 1,406,865 |
Origination Revenue [Member] | ||
Revenues: | ||
Total Revenues | $ 299,794 | 151,357 |
As Previously Reported [Member] | ||
Revenues: | ||
Total Revenues | 1,118,275 | |
Cost of Revenues: | ||
Broker Underwriting Expense | 457,275 | |
Mortgage Broker Expense | 231,720 | |
Co-Manager Engagement Fee | 7,113 | |
Appraisal Costs | 1,995 | |
Ratings | 40,000 | |
Total Cost of Revenues | 775,761 | |
Gross Profit (Loss) | 342,514 | |
Operating Expenses: | ||
Professional and Legal | 64,843 | |
Total Operating Expenses | 363,064 | |
Net Loss from Operations | (20,550) | |
Total Other Income | 1,781,235 | |
Net Income before Provision for Income Taxes | 1,760,685 | |
Provision for Income Taxes | (3,785) | |
Net Income | 1,756,900 | |
As Previously Reported [Member] | Origination Revenue [Member] | ||
Revenues: | ||
Total Revenues | 969,275 | |
Prior Period Impact [Member] | ||
Revenues: | ||
Total Revenues | (817,918) | |
Cost of Revenues: | ||
Broker Underwriting Expense | (394,176) | |
Mortgage Broker Expense | (194,969) | |
Co-Manager Engagement Fee | (5,867) | |
Appraisal Costs | 1,264 | |
Ratings | (26,903) | |
Total Cost of Revenues | (620,651) | |
Gross Profit (Loss) | (197,267) | |
Operating Expenses: | ||
Professional and Legal | (12,499) | |
Total Operating Expenses | (12,499) | |
Net Loss from Operations | (184,768) | |
Total Other Income | ||
Net Income before Provision for Income Taxes | (184,768) | |
Provision for Income Taxes | (165,267) | |
Net Income | (350,035) | |
Prior Period Impact [Member] | Origination Revenue [Member] | ||
Revenues: | ||
Total Revenues | $ (817,918) |
ACQUISITION OF RELATED PARTY _3
ACQUISITION OF RELATED PARTY AFFILIATE (Details) | 9 Months Ended |
Sep. 30, 2020USD ($) | |
Business Combinations [Abstract] | |
Accrued & unpaid dividends to the Preferred Capital Interest partners | $ 213,443 |
JW Korth LLC's Common Capital Interest account | 150,000 |
Contingent liability to redeem J.W. Korth Preferred Capital Interest Partners | 696,253 |
Disposition of outstanding loan due from J.W. Korth Executive Officer | 69,780 |
Total Consideration Paid | $ 1,129,476 |
ACQUISITION OF RELATED PARTY _4
ACQUISITION OF RELATED PARTY AFFILIATE (Details 1) - J.W. Korth and J.W. Korth, LLC [Member] | Jul. 31, 2020USD ($) |
J.W. Korth Net Book Value | $ 889,131 |
Less: Preferred Interest in J.W. Korth by Company prior to acquisition | (250,000) |
Adjusted Net Book Value acquired | $ 639,131 |
ACQUISITION OF RELATED PARTY _5
ACQUISITION OF RELATED PARTY AFFILIATE (Details Naarrative) - USD ($) | Jul. 31, 2020 | Sep. 30, 2020 |
Goodwill | $ 110,000 | |
J.W. Korth and J.W. Korth, LLC [Member] | ||
Date of acquisition | Jul. 31, 2020 | |
Goodwill | $ 490,345 | |
J.W. Korth and J.W. Korth, LLC [Member] | Mr. Korth and Ms. MacDonald-Korth [Member] | ||
Percentage of partnership interests | 80.00% | |
J.W. Korth [Member] | ||
Percentage of partnership interests | 73.60% | |
Number of share received on closing | 3,680,000 | |
J.W. Korth [Member] | Purchase Agreement [Member] | ||
Number of shares distribute to its partners | 5,000,000 | |
J.W. Korth [Member] | James Korth [Member] | ||
Percentage of partnership interests | 80.00% | |
J.W. Korth [Member] | Holly MacDonald-Korth [Member] | ||
Percentage of partnership interests | 20.00% | |
J.W. Korth LLC [Member] | ||
Description of distribution after closing of business | The Company acquired all of the membership interests in JW Korth LLC from Mr. Korth and Ms. MacDonald-Korth for consideration of the payment to (i) the Preferred Capital Interest partners of J.W. Korth of accrued and unpaid 6% dividends through July 31, 2020, and (ii) James Korth of $150,000 in payment of the value of his JW Korth LLC’s Common Capital Interest account. | |
Description of post-closing commitments | (i) retain Mr. Korth as the managing partner of J.W. Korth, Ms. MacDonald-Korth as J.W. Korth’s chief financial officer, and all other employees of JW Korth who were employed at closing of the Transactions; (ii) operate J.W. Korth as an SEC registered broker-dealer and investment advisor; (iii) pay the JW Korth Preferred Capital Interest Partners quarterly dividends concurrently with its payment of the Company’s Series A Preferred Stock dividends at least annually; (iv) in such years as it pays Series A Preferred dividends, redeem 25% annually of the JW Korth Preferred Capital Interest partners through a capital contribution to JW Korth; and (v) make a discretionary redemption of all accounts of the limited partners of J.W. Korth under the J.W. Korth partnership agreement. Upon redemption of the limited partners’ accounts and the payment of the other consideration to described above to the JW Korth partners, KDM will own 100% of the voting interests in JW Korth. |
RESTRICTED CASH (Details Narrat
RESTRICTED CASH (Details Narrative) | Sep. 30, 2020USD ($) |
Restricted cash corresponds to the Escrow Payable liability | $ 5,932,065 |
Due to Investors liability including commitment fees and accrued interest | 263,341 |
Actual Basis [Member] | |
Due to Investors liability including commitment fees and accrued interest | $ 7,505,098 |
COMMITMENTS (Details)
COMMITMENTS (Details) | Sep. 30, 2020USD ($) |
Commitments and Contingencies Disclosure [Abstract] | |
2020 | $ 24,883 |
2021 | 27,561 |
Total | $ 52,444 |
COMMITMENTS (Details 1)
COMMITMENTS (Details 1) | 9 Months Ended |
Sep. 30, 2020USD ($) | |
Commitments and Contingencies Disclosure [Abstract] | |
2020 | $ 12,013 |
2021 | 48,052 |
Total | $ 60,065 |
COMMITMENTS (Details Narrative)
COMMITMENTS (Details Narrative) | 9 Months Ended |
Sep. 30, 2020USD ($) | |
Commitments and Contingencies Disclosure [Abstract] | |
Rent expense | $ 17,311 |
Discount rate of lease | 4.24% |
CUSTOMERS (Details Narrative)
CUSTOMERS (Details Narrative) | 9 Months Ended |
Sep. 30, 2020Customer | |
Number of customer | 25 |
Loans outstanding description | One borrower accounts for 37% of our total loans outstanding with two loans adding up to $46.34 million. |
Ohio [Member] | |
Loans outstanding description | 41% of the loans, by unpaid balance, are geographically concentrated in the state of Ohio. |
RELATED PARTY TRANSACTIONS (Det
RELATED PARTY TRANSACTIONS (Details Narrative) - USD ($) | Apr. 01, 2020 | Sep. 30, 2020 | Sep. 30, 2019 | May 13, 2020 | Dec. 31, 2019 | Mar. 31, 2019 |
Due to Parent | $ 12,151 | |||||
J W Korth [Member] | ||||||
Due to Parent | $ 6,050 | $ 250,000 | $ 12,151 | |||
Underwriting fees | 158,138 | $ 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 $500,000 on the same property. The funding for the second lien was provided by 110 Capital LLC, an entity controlled by a KDM director and employee. KDM services both notes. |
DEFERRED REVENUE, NET (Details)
DEFERRED REVENUE, NET (Details) - USD ($) | 9 Months Ended | 12 Months Ended |
Sep. 30, 2020 | Dec. 31, 2019 | |
Deferred origination fees | $ 2,192,378 | $ 1,849,100 |
Deferred origination costs | (1,816,720) | (1,559,531) |
Deferred revenue, net | 375,658 | $ 289,569 |
New Loan Deferrals [Member] | ||
Deferred origination fees | 643,072 | |
Deferred origination costs | (503,194) | |
Deferred revenue, net | 139,878 | |
Amortization Of Deferrals [Member] | ||
Deferred origination fees | (299,794) | |
Deferred origination costs | 246,005 | |
Deferred revenue, net | $ (53,789) |
EMPLOYEE AND DIRECTOR STOCK O_3
EMPLOYEE AND DIRECTOR STOCK OPTIONS (Details) | 9 Months Ended |
Sep. 30, 2020 | |
Share-based Payment Arrangement [Abstract] | |
Risk-free interest rate: | 1.76% |
Expected term: | 5 years 9 months |
Expected dividend yield: | 0.00% |
Expected volatility: | 35.01% |
EMPLOYEE AND DIRECTOR STOCK O_4
EMPLOYEE AND DIRECTOR STOCK OPTIONS (Details 1) | 9 Months Ended |
Sep. 30, 2020$ / sharesshares | |
Shares | |
Balance, beginning | 835,000 |
Granted | |
Exercised | |
Expired or forfeited | |
Balance, ending | 835,000 |
Options exercisable, ending | 417,500 |
Options expected to vest, ending | 417,500 |
Weighted Average Exercise Price | |
Balance, beginning | $ / shares | $ 1 |
Granted | $ / shares | |
Exercised | $ / 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 | Sep. 30, 2020 | 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 | |||
Weighted-average grant date fair values | $ 0.1855 | |||
Stock-based compensation expense | $ 19,359 | |||
Non-vested employee stock options term | 9 years 6 months | |||
2019 Stock Option Plan (Incentive Plan) [Member] | ||||
Stock-based compensation expense | $ 19,359 | |||
Unrecognized compensation expense | $ 45,178 | |||
Non-vested employee stock options term | 1 year 9 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 | 9 Months Ended | ||
Sep. 27, 2019 | Sep. 30, 2019 | Sep. 30, 2020 | Dec. 31, 2019 | |
Proceeds from issuance of shares | $ 4,750,000 | |||
Expenses related to the issuance | $ 136,874 | $ 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 ($) | Sep. 30, 2020 | Dec. 31, 2019 |
Financial Assets | ||
Securities | $ 327,848 | |
Fair Value, Measurements, Recurring [Member] | ||
Financial Assets | ||
Mortgages Owned | 125,448,182 | $ 85,692,812 |
Mortgage Servicing | 2,595,946 | |
Securities | 327,848 | |
Total Financial Aseets | 129,208,460 | 88,288,758 |
Financial Liabilities | ||
Mortgage Secured Notes Payable | 132,693,992 | 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 | 125,448,182 | 85,692,812 |
Mortgage Servicing | ||
Securities | ||
Total Financial Aseets | 125,448,182 | 85,692,812 |
Financial Liabilities | ||
Mortgage Secured Notes Payable | 132,693,992 | 85,692,812 |
Fair Value, Measurements, Recurring [Member] | Fair Value, Inputs, Level 3 [Member] | ||
Financial Assets | ||
Mortgages Owned | ||
Mortgage Servicing | 3,432,430 | 2,595,946 |
Securities | 327,848 | |
Total Financial Aseets | 3,760,278 | 2,595,946 |
Financial Liabilities | ||
Mortgage Secured Notes Payable |
FAIR VALUE (Details 1)
FAIR VALUE (Details 1) | 9 Months Ended |
Sep. 30, 2020USD ($) | |
Beginning balance at January 1, 2020 | $ 2,595,946 |
Purchases | 100,000 |
Trades | 225,041 |
Sales | |
Issues | |
Settlements | |
Net realized gain/loss or Interest income | 3,646 |
Unrealized Gain from newly issued mortgages | 1,168,632 |
Fair Value adjustment | (332,987) |
Transfers into Level 3 | |
Transfers out of Level 3 | |
Ending balance at September 30, 2020 | 3,760,278 |
Mortgages Servicing Value [Member] | |
Beginning balance at January 1, 2020 | 2,595,946 |
Purchases | |
Trades | |
Sales | |
Issues | |
Settlements | |
Net realized gain/loss or Interest income | |
Unrealized Gain from newly issued mortgages | 1,168,632 |
Fair Value adjustment | (332,148) |
Transfers into Level 3 | |
Transfers out of Level 3 | |
Ending balance at September 30, 2020 | 3,432,430 |
Securities [Member] | |
Beginning balance at January 1, 2020 | |
Purchases | 100,000 |
Trades | |
Sales | |
Issues | |
Settlements | |
Net realized gain/loss or Interest income | 3,646 |
Unrealized Gain from newly issued mortgages | |
Fair Value adjustment | (839) |
Transfers into Level 3 | |
Transfers out of Level 3 | |
Ending balance at September 30, 2020 | $ 327,848 |
FAIR VALUE (Details 2)
FAIR VALUE (Details 2) - Fair Value, Measurements, Recurring [Member] | 9 Months Ended | |
Sep. 30, 2020USD ($) | Dec. 31, 2019USD ($) | |
Fair Value | $ 2,595,946 | |
Mortgage Servicing [Member] | ||
Fair Value | $ 3,432,430 | |
Valuation technique | Net Present Value | |
Unobservable input | Prepayment Discount | |
Value | 0.1555 | |
Securities [Member] | ||
Fair Value | $ 327,848 | |
Valuation technique | Net Present Value | |
Unobservable input | Net Present Value | |
Value | 0.15 |
INCOME TAXES (Details Narrative
INCOME TAXES (Details Narrative) - USD ($) | 9 Months Ended | |
Sep. 30, 2020 | Sep. 30, 2019 | |
Income Tax Disclosure [Abstract] | ||
Statutory corporate tax rate | 21.00% | |
Effective tax rate | 26.20% | |
Net income before provision for income taxes | $ 590,156 | $ 1,575,917 |
Provision for income taxe | $ 154,852 | $ 169,052 |
PROPERTY AND EQUIPMENT (Details
PROPERTY AND EQUIPMENT (Details) | Sep. 30, 2020USD ($) |
Property, Plant and Equipment [Line Items] | |
Gross Property Equipment | $ 210,758 |
Accumulated depreciation | (68,300) |
Net Property Equipment | 142,458 |
Equipment [Member] | |
Property, Plant and Equipment [Line Items] | |
Gross Property Equipment | 52,741 |
Furniture and Fixtures [Member] | |
Property, Plant and Equipment [Line Items] | |
Gross Property Equipment | $ 158,017 |
PROPERTY AND EQUIPMENT (Detai_2
PROPERTY AND EQUIPMENT (Details Narrative) | 9 Months Ended |
Sep. 30, 2020USD ($) | |
Property, Plant and Equipment [Abstract] | |
Depreciation expense | $ 600 |
DUE TO CLEARINGHOUSE BROKERS (D
DUE TO CLEARINGHOUSE BROKERS (Details Narrative) | Sep. 30, 2020USD ($) |
Brokers and Dealers [Abstract] | |
Due to clearinghouse brokers | $ 192,725 |
CONTINGENT LIABILITY (Details)
CONTINGENT LIABILITY (Details) | 9 Months Ended |
Sep. 30, 2020USD ($) | |
Restructuring Cost and Reserve [Line Items] | |
Accrued & unpaid dividends through July 31, 2020 | $ 59,746 |
Accrued quarterly dividends recorded as interest expense through September 30, 2020 | 6,963 |
Contingent Liability, net | 762,962 |
Michigan Limited Partnership [Member] | |
Restructuring Cost and Reserve [Line Items] | |
Contingent Liability, net | $ 696,253 |
CONTINGENT LIABILITY (Details N
CONTINGENT LIABILITY (Details Narrative) - Michigan Limited Partnership [Member] | 9 Months Ended |
Sep. 30, 2020 | |
Restructuring Cost and Reserve [Line Items] | |
Dividend rate | 6.00% |
Dividends payable, date to be paid | Jul. 31, 2020 |
Series A Preferred Stock [Member] | |
Restructuring Cost and Reserve [Line Items] | |
Dividend rate | 25.00% |