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UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10-K

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

For the fiscal year ended December 31, 2025.

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

For the transition period from ________ to ________

Commission File Number: 000-1695962

KORTH DIRECT MORTGAGE INC.

(Exact name of registrant as specified in its charter)

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

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

(Address of principal executive offices)

(305) 668-8485

(Registrant’s telephone number, including area code)

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

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

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ¨ No x

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Exchange Act. Yes x No ¨

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

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes x No ¨

The Registrant voluntarily files Exchange Act Reports and has filed all Exchange Act reports for the preceding 12 months.

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

Large accelerated filer	¨	Accelerated filer	¨

Non-accelerated filer	¨	Smaller Reporting company	x
		Emerging growth company	x

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

Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report. Yes ¨ No x

If securities are registered pursuant to Section 12(b) of the Act, indicate by check mark whether the financial statements of the registrant included in the filing reflect the correction of an error to previously issued financial statements. ¨

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

State the aggregate market value of the voting and non-voting common equity held by non-affiliates computed by reference to the price at which the common equity was last sold, or the average bid and asked price of such common equity, as of the last business day of the registrant’s most recently completed second fiscal quarter.

There is no market for the common equity of Korth Direct Mortgage Inc. As of December 31, 2025, there were 5,000,000 common shares of KDM outstanding.

DOCUMENTS INCORPORATED BY REFERENCE

No documents are incorporated in this Form 10-K by reference.

KORTH DIRECT MORTGAGE, Inc.

TABLE OF CONTENTS

PART I

Item 1.	Business	4
Item 1A.	Risk Factors	9
Item 1B.	Unresolved Staff Comments	14
Item 1C.	Cybersecurity	14
Item 2.	Properties	15
Item 3.	Legal Proceedings	15
Item 4.	Mine Safety Disclosures	15

PART II

Item 5.	Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities	16
Item 6.	Selected Financial Data	16
Item 7.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	16
Item 7A.	Quantitative and Qualitative Disclosures About Market Risk	21
Item 8.	Consolidated Financial Statements	21
Item 9.	Changes in and Disagreements With Accountants on Accounting and Financial Disclosure	22
Item 9A.	Controls and Procedures	22
Item 9B.	Other Information	22

PART III

Item 10.	Directors, Executive Officers and Corporate Governance	23
Item 11.	Executive Compensation	24
Item 12.	Security Ownership of Certain Beneficial Ownership and Management and Related Stockholder Matters	26
Item 13.	Certain Relationships and Related Transactions, and Director Independence	27
Item 14.	Principal Accountant Fees and Services	27

PART IV

Item 15.	Exhibits and Financial Statement Schedules	28

Table of Contents

FORWARD-LOOKING STATEMENTS

Some of the information contained in this Report constitutes forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements may include current expectations of future events based on certain assumptions and statements that do not directly relate to any historical or current fact. When used in this Annual Report, in future filings by the Company with the Securities and Exchange Commission, in the Company’s press releases or other public or shareholder communications, on the Company’s website, or in oral statements made with the approval of an authorized executive officer, the words or phrases “will likely result,” “are expected to,” “will continue,” “is anticipated,” “estimate,” “project,” “plans,” “believes,” or similar expressions are intended to identify forward-looking statements. The Company’s forward-looking statements are based on management’s current expectations and assumptions regarding the Company’s business and performance, the economy, and other future conditions and forecasts of future events, circumstances and results. As with any projection statement or forecast, forward-looking statements are inherently susceptible to uncertainty and changes in circumstances and underlying assumptions. The Company’s actual results may vary materially from those expressed or implied in its forward-looking statements. Important factors that could cause the Company’s actual results to differ materially from those in its forward-looking statements include, among other things financial performance, results of operations, financial position, and the achievement of our strategic objectives; the status of borrowers; the ability of borrowers to repay CM Loans, as defined below; the plans of borrowers; expected rates of return and interest rates; mortgage default rates; property values; the commercial real estate market; competition from larger better capitalized competitors, the attractiveness of our CM Loans and Notes; our financial performance; the availability of a secondary market for our Notes; our ability to retain and hire competent employees and appropriately staff our operation; government regulation; regional and national economic conditions, substantial changes in levels of market interest rates; and other competitive and regulatory factors.

The Company does not undertake and specifically disclaims any obligation to update any forward-looking statements to reflect the occurrence of anticipated or unanticipated events or circumstances after the date of such statements.

PART I

Item 1. Business

Throughout this Report we use the terms “KDM,” “we,” “Company,” and “us” to refer to Korth Direct Mortgage Inc, and its subsidiaries.

Our principal executive offices are located at 135 San Lorenzo Avenue Suite 600, Coral Gables, Florida 33146, and our telephone number is (305) 668-8485. Our website address is korthdirect.com.

Korth Direct Mortgage Inc. began its formal operations in October of 2016 when we engaged our Chief Lending Officer. KDM is a licensed Mortgage Lender Servicer with the State of Florida. Our NMLS License Number is 1579547. KDM converted from a Florida limited liability company to a Florida corporation effective June 6, 2019. On July 31, 2020, KDM’s ownership was reorganized, and its former sole shareholder, J. W. Korth & Company Limited Partnership (“J. W. Korth”), a Michigan limited partnership which is a FINRA and SEC registered broker-dealer founded in 1982, became a wholly-owned subsidiary of the Company.

Overview

KDM originates and funds loans secured by commercial real estate (each a “CM Loan” and collectively the “CM Loans”). CM Loans are held by KDM or its wholly-owned subsidiary KDM Funding I, LLC, as lender. KDM is also the servicer of the CM Loans, though it may use a sub-servicer for some loans. KDM funds its CM Loans directly in the capital markets through issuance of Mortgage Secured Notes (“MSNs” or “Notes”), through direct participations, or other means (see “The KDM Process”). The MSNs are special obligations of KDM, payable to the extent that the underlying mortgage is paid by the borrower. MSNs are secured by KDM’s interest in the underlying CM Loan. CM Loans are secured obligations of the borrowers, which are generally a single-purpose entity formed or existing that owns the underlying property that is financed.

KDM’s primary business line is lending and servicing. KDM also has an additional business segment, asset management, in which we manage the properties that we have taken back from our borrowers due to non-performance. See “Segment Reporting” for more information on each segment.

Our loan origination team is comprised of employees and a network of brokers that have joined the KDM Broker Network to submit loans to us via our website and email. We have created software that integrates with our customer relationship management (“CRM”) software to optimize our digital marketing campaigns and streamline our origination program. We also engage in traditional email, internet, trade show, and telephone marketing as well as leveraging our broker network to source new deals.

Table of Contents

We have positioned ourselves in the lending market as a source for commercial real estate loans of higher quality borrowers and borrowers that may not qualify or may not want to go through the process for bank loans, but whose loans have strong property and mortgage-related metrics. We fill the gap between traditional lenders and hard money lenders, what we call Middle-Money^.TM. Property metrics depend on the type of CM Loan being offered and are described below.

KDM is currently focused on the market for multi-family value-add bridge loans and loans secured by mortgages on commercial tenanted properties, including multi-family housing, specialty offices, industrial, retail and warehouses, but may fund other types of commercial real estate.

KDM funds its loans in a variety of ways, including by securitizing them in the capital markets as MSNs. J. W. Korth may act as the initial purchaser of MSN Notes and distribute them to institutional investors. The proceeds from the closing of each MSN issuance are used to complete the funding of the CM Loan or CM Loans underlying each MSN or to repurchase the CM Loan from our warehouse line. KDM also sells loan participations, and senior and subordinated notes sometimes alongside an MSN, and sometimes separately. KDM may hold loans in part or in their entirety on its balance with and without financing (“Portfolio Loans”).

While KDM has funded the bulk of its loans via MSNs, KDM’s business has broadened beyond MSNs.; we have diversified our funding channels. In order to encompass all of the options, throughout this document when referring to KDM’s business as a whole, we will refer to CM Investments and CM Investors. These terms include our MSN program and its Noteholders, loan participations and the participants, senior note sales and their purchasers, funds and their investors, and separately managed accounts and their investors.

The KDM Process

When KDM identifies a property proposed for financing, it is screened by KDM’s origination underwriting team. If the proposed financing passes preliminary underwriting and meets criteria for one of KDM’s lending programs and/or the KDM Rating process, KDM will put out a term sheet to the prospective borrower. Once the term sheet is signed and deposit is received, KDM orders an appraisal and other third-party reports that it has determined are necessary to underwrite the file. Depending on the type of planned loan funding, KDM will begin its CM Investor sales process on a parallel path with underwriting. Once underwriting is complete, KDM closes the loan.

KDM may market the loan as an MSN, for participation, or close the loan on a warehouse line, distributing the interests in the loan to investors later.

If the loan is being funded by a simultaneous MSN issuance, the initial purchaser will execute orders and funds will transfer on the settlement date to one of KDM’s segregated accounts. KDM will then fund the CM Loan and issue the MSNs.

KDM receives monthly interest and principal payments from CM Loan borrowers. KDM collects its service fee from the interest portion of the payment and then disburses the remaining interest and principal via wire transfer, ACH, or to DTC for credit to CM Investors’ accounts at their respective DTC member or those brokerage firms corresponding with DTC members, or directly, as the case may be.

We make CM Loans to borrowers throughout the United States. As of the date of this Report we were not dependent on any single party for a material amount of our revenue.

Borrowers identify their intended use of CM Loan proceeds in their initial CM Loan request. In some cases, we do not verify or monitor a borrower’s actual use of funds following the funding of a CM Loan unless otherwise specified in the offering memorandum for the MSN.

The KDM Ratings System

In order to assist us with pricing and underwriting CM Loans, KDM has created an internal CM Loan rating system which we use for our MSN program.

The scoring matrix consists of seven factors, each weighted according to its relative importance in how we view the loans we choose to make. The seven factors are: loan to value, debt service coverage ratio, property type, property/improvement age, property demand/metropolitan statistical area, building condition, and sponsor experience. For bridge loans, we consider additional factors including: business plan, take-out lenders, development/lease up schedule, take-out loan sizing.

We grade each CM Loan on these factors when it is presented to us, which results in a numerical figure that we then translate to a traditional AAA-BBB scale with + and – gradation. We publish our KDM Rating along with each note term sheet and offering memorandum and update it annually in our annual reviews in the quarterly or annual report that corresponds with the anniversary of the CM Loan issuance.

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The KDM Loan Committee meets annually to review the KDM Ratings System. We review the performance, the factors, and how well those factors are weighted. The KDM Loan Rating Committee met on March 13, 2025 to review the KDM rating methodology, but made no changes to its current metrics. The methodology considers seven key criteria and is then subject to adjustment on a deal-by-deal basis. The seven criteria are: LTV (Loan to Value), DSCR (Debt Service Coverage Ratio), Property Type, Lease terms, Location, Building Condition and Sponsor Experience. We added additional criteria and weightings for multi-family bridge lending that include non-GSE geographic criteria, different occupancy categories, building class, and project type.

THE KDM UNDERWRITING PROCESS

KDM has several different loan programs, each of which has its own underwriting guidelines. Our account executives source loans from commercial mortgage brokers or directly from borrowers which fit our loan parameters.

Once we receive a full loan package, we pre-underwrite the loan to confirm that it roughly fits the target loan program. If it does, we provide either a soft-quote or a term sheet to the prospective borrower. If the estimated terms are accepted, then the term sheet is signed and a deposit is collected. The loan is then considered “under application” and we use the borrower’s deposit funds to order third party reports, including: appraisal, appraisal review, environmental assessment, property condition assessment, title, and any other report we deem necessary depending on the property location and business plan for the property. Simultaneously, KDM gathers all of the additional diligence and credit documentation and then prepares any capital raise pitch decks or other offering documents, depending on the planned disposition for the loan.

Once KDM receives the third party reports and completes all of its property and underwriting diligence, KDM prepares a commitment letter for the borrower. KDM will also have a third party underwrite the loan in certain circumstances. When the borrower executes the commitment letter, it pays KDM a commitment fee, which is credited at closing along with the application fee.

KDM may close and fund CMLs before securitization either with its own funds, or on its warehouse line, or simultaneously with securitization.

MSN Closing

KDM will schedule closing for the CML on or within a few days after the settlement date of the MSN. However, as with all loan closings, and particularly with multi-state, multi-property loans, at times there may be certain delays in closing. KDM does not expect closing delays to exceed a few business days, but in some instances the delay may be longer than anticipated. On the Settlement Date, funds, net of selling concession, will be wired by the Initial Purchaser or the underwriter, as the case may be, to KDM’s segregated account for loan funding. KDM will wire such funds to the closing agent for the CML as soon as good title to the property is received and KDM authorizes funding of the CML. Barring any delays in closing, this occurs on the Settlement Date, and KDM wires funds to the title company handling the transaction as soon as practicable after receipt.

Once funds are collected, the CML will be finalized with documents filed in the proper jurisdiction showing KDM as mortgagee. Documents will also be filed, pursuant to the Indenture, assuring the Trustee a first perfected interest in the CML. At the same time, KDM will create and execute a physical note for issuance to Cede & Company and delivery to DTC, or its agent. DTC will credit each participating dealer with the appropriate face amount of the note for further credit to each of its participating client accounts.

In the event that a CML was closed by a correspondent lender, such CML will be closed in the name of the correspondent lender and will be assigned to KDM at closing. Any other material aspects of the process remain the same.

Non-MSN Closing

Depending on the plans for the CML post-closing, KDM may close the loan on its warehouse line, with its own capital, with capital from participants, or table-fund via assignment or participation. The warehouse lender provides a percentage of the capital to close the loan, and KDM provides the balance, according to the terms of its warehouse repurchase agreement. KDM may also lend additional funds to CML Borrowers using its own capital. These loans are junior to any CML and KDM may elect to sell or assign the rights to receive payments under these loans to a third party, provided however that these notes shall remain in the name of KDM, and KDM shall continue providing the servicing of such notes until such time that the CMLs for the underlying property have been paid in full.

How KDM Prices CM Loans and CM Investments

Note maturities and yields to CM Investors must be competitive with other options they have for secured investments. Notes are not guaranteed by any federal agency, so they must be competitively priced when compared with other types of asset-secured debt, such as lower investment grade corporate bonds or other mortgage loans. Borrowers may have other options for acquiring new mortgage funding. KDM must be competitive with these options in order to acquire new CM Loans. The dynamic between these two marketplaces is a principal factor in the determination of the terms of KDM Notes and other CM Investments.

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How our Servicing Fee Applies

KDM services the underlying CM Loans and manages the distribution and payment of interest and principal on the corresponding CM Investments. For these services it charges an annual servicing fee (“Servicing Fee”) targeted at 1.00% for MSNs. The Company also has contractual servicing agreements with related parties and third parties that are significantly lower. The Servicing Fee could be lower or higher for a given CM Loan based on that CM Loan and the corresponding CM Investment’s terms, as disclosed in the offering material for each CM Investment. For some of its lending programs, KDM has a fixed contractual servicing rate. The Servicing Fee accrues to KDM and is paid by the borrower from the borrower’s CM Loan interest payments. For CM Investments where there is not an explicit servicing agreement, the Servicing Fee is the difference between the rate paid by the borrower and the rate paid to investors on the CM Investment. However, the Servicing Fee may sometimes be shared with other parties, and not accrue directly to KDM. The Servicing Fee is applied to every interest payment received on the underlying CM Loan. Therefore, if we receive 7.00% interest annually from the underlying CM Loan and the Servicing Fee is 1%, the Note payments will be 6.00% annually, barring any other expenses. For the year ended December 31, 2025, the average Servicing Fee collected was 1.031%. KDM may also derive Servicing Fees from loans that it sells to third parties. The rates received for servicing these loans are set by the purchaser and KDM.

CM Loan Servicing

KDM is responsible for servicing and asset management on all the loans it makes. This includes collecting payments from borrowers and delivering payments to investors and on its Notes. KDM also manages the tax and insurance escrow accounts of the borrowers and their annual tax and insurance payments. KDM also handles all loan requests, lease reviews and approvals, draw requests and annual reviews within its asset management department. KDM has a multi-disciplinary staff with extensive servicing and asset management experience and uses a suite of servicing software and homegrown reporting software to manage the ongoing servicing of our book of CM Loans. Currently KDM services 100% of its loans itself, though we may engage a third-party servicer in the future.

KDM makes advances of funds from time-to-time as it believes necessary. KDM may advance payments to CM Investors if it believes a borrower will return to current status promptly. KDM also may advance payments to local tax authorities, ground lessors, and insurance carriers as it believes necessary to protect the CM Loan or underlying collateral.

KDM has custodial responsibility for the CM Loans and pursuant to the Trust Indenture for the Notes. There are no limitations in KDM’s liability as servicer of its loans.

KDM retains a Servicing Fee for each CM Loan. See “How our Servicing Fee Applies,” above. KDM has relationships with other servicers and but is currently performing both primary and special servicing for its current book of loans.. Should a specific backup or special servicer be named for an offering, it will be specified in the offering documents for that CM Investment.

CM Loan payments are deposited or transmitted via ACH to the KDM In Trust For 2 Segregated Account. This segregated account collects payments from all CM Loans, except where otherwise specified in the offering documents, and is segregated from the KDM operating funds. This account is managed as an omnibus account and funds received are disbursed for their respective payment on the CM Investments. We also debit this account for our Servicing Fee as described above.

CM Loans may also retain an impound or escrow amount for taxes, ground rent, and insurance and a replacement reserve for roof repairs, tenant improvements, leasing commissions, debt service, or other items necessary to the proper functioning of the property. Such escrowed funds are currently in the KDM In Trust For 1 Segregated account. In most cases, KDM reserves the right as servicer to release any impounded amounts or reserved where permitted by the loan documents or when in its reasonable business judgement, such releases are warranted as they do not impair the borrower’s ability to repay the CM Loan.

In the event it becomes necessary to expend funds for the collection or protection of a CM Loan, or for the preservation or protection of a CM Loan property, including the institution of foreclosure proceedings, such expenses will initially be covered by KDM and recouped at disposition of the property or upon repayment by the Borrower should the CM Loan be brought into compliance. Ultimately, all costs and expenses will be funded (or reimbursed to us) from the proceeds of any foreclosure or settlement, including reimbursement to us of any expenses we have disbursed toward collection of a CM Loan. These expenses may reduce interest or principal payments on a Note. See “Risk Factors.”

On our website, www.korthdirect.com, we disclose borrowers’ payment performance on our CM Loans at least annually. We have made arrangements for collection procedures in the event of borrower default. When a CM Loan is past due and payment has not been received, we contact the borrower to request payment. After a grace period as permitted under the applicable CM Loan agreements, we may, in our discretion, assess a late payment fee. This fee may be charged only once per late payment. Amounts equal to any late payment fees we receive are paid to holders of the CM Investment if and only if a payment on the CM Investment is also late. We may waive a late payment fee when a borrower promises to return a delinquent CM Loan to current status and fulfills that promise. Each time a payment request is denied due to insufficient funds in the borrower’s account or for any other reason, we may assess an unsuccessful payment fee to the borrower in an amount of $35.00 per unsuccessful payment, or such lesser amount as may be provided by applicable law. We retain 100% of this unsuccessful payment fee to cover our costs incurred due to the denial of the payment.

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If the CM Loan becomes 31 days overdue (see “Certain Definitions,” below), we will identify the CM Loan as “Late (31-120),” and we may refer the CM Loan to a real estate attorney for foreclosure proceedings. However, we may pursue other remedies to bring the loan back to performance before foreclosure. In these cases, the interest rate on the CM Loan is increased to the highest legal rate in the state in which the property is located. The costs from a foreclosure and resale of a defaulted CM Loan and mortgaged property are applied against the proceeds payable to CM Investors. If funds remain after a property is resold and all expenses are paid, they will be distributed to CM Investors on a pro-rata basis.

Asset Management

KDM has an internal Asset Management department that handles delinquent and defaulted loans. In 2025, 4 loans entered or were in delinquent or defaulted status, one property in REO status was given back to the ground owner, and KDM took over 2 more loans via foreclosure and deed in lieu, which are now part of its REO portfolio, and 2 more loans are in foreclosure as of the date of these financial statements. All three loans are in process of foreclosure or negotiated default. To handle these issues, KDM uses a combination of inside and outside counsel, asset management, third parties, and servicing staff. As of the date of this report, KDM owns four total properties in its REO portfolio. Please see “Segment Reporting” for more information.

KDM works in the best interest of investors to maximize recovery value on all properties in asset management. Recovery timelines can vary from as short as 4 months to as long as several years. Properties may not have current cash flow that exceeds expenses and CM Investors may not receive cash flow for an extended period for loans that are in Asset Management.

Certain Definitions

We define delinquent accounts as accounts that are more than 31 days overdue with no immediate plan to repair the delinquency. Charge-offs are defined as the unpaid principal balance of a specific CM Loan minus the expected recovery based on current market conditions for the foreclosed property. Uncollectable accounts are defined as those CM Loans where no recovery is expected to be made. These definitions are regardless of any grace period, re-aging, restructure, or partial payments received. A CM Loan that is categorized as a delinquent account could be re-categorized as current if the borrower brought all payments up to date. Charge-offs would be adjusted for properties in foreclosure based on an annual review of the current market conditions for the geography of the property. Uncollectible accounts will be reviewed quarterly and could be reclassified as collectible if market conditions change for the property subject to the mortgage and foreclosure. See “Status of our CM Loans”.

Intellectual Property

We have intellectual property that is our brand, our process, our ratings system, our KDM Broker Network, our correspondent network, and our internal applications and systems. We have a trademark for the term “Middle-Money” and have filed trademark applications on our name and logo. We also have internal applications that we have developed that assist in managing our business.

Employees

As of the date of this Report, we employ twenty-four full-time people, and five contract people.

Facilities

We maintain offices at 135 San Lorenzo Avenue, Suite 600, Coral Gables, Florida 33146, and J.W. Korth & Company has an office in Lansing, Michigan.

Subsidiaries

As of the date of this report, KDM has several subsidiaries, many of which are special-purpose entities.

J. W. Korth, a FINRA and SEC registered broker-dealer founded in 1982 by James W. Korth. J. W. Korth was previously the parent company of KDM. The companies were reorganized as of July 31, 2020, when KDM, directly and indirectly, acquired all of the equity of J. W. Korth.

KDM Funding I, LLC is a wholly owned subsidiary of KDM formed for the purpose of issuing MSNs on CM Loans that are originated and serviced by KDM.

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KDM now owns all of the interest in KDM Stafford LLC, which is a special-purpose entity that owns a building we acquired in Virginia.

KDM holds a controlling interest in KDM Capital LLC, the general partner of KDM Capital Partners, LP.

KDM Asset Management, LLC is the owner of each of KDM’s Real Estate Owned (“REO”) limited liability companies.

KDM MFB LLC, a Delaware limited liability company, is a wholly owned subsidiary of KDM.

There are also a variety of entities created to own real estate received through foreclosure or deed in lieu of foreclosure, the fund manager, the manager of the real estate assets, and other various special purposes. If and when these become material they will be reported on as necessary.

All of these entities are consolidated into our financial statements.

Item 1A. Risk Factors

The following discussion of risk factors contains “forward-looking statements,” as discussed in the forward-looking statements Section of this Form 10-K Report. These risk factors may be important to understanding any statement in this Annual Report on Form 10-K or elsewhere. The following information should be read in conjunction with the Management’s Discussion and Analysis of Financial Condition and Results of Operations section and the Financial Statements and related notes of this Report on Form 10-K. Any of these factors, or others, many of which are beyond the Company’s control, could negatively affect the Company’s revenues, profitability or cash flow in the future. The risks and uncertainties described below are not the only ones we face but do represent those risks and uncertainties that we believe are material to our business, operating results, prospects and financial condition. Additional risks and uncertainties not presently known to us or that we currently deem immaterial may also harm our business.

Difficult conditions in the mortgage, residential and commercial real estate markets, or in the financial markets and the economy generally, including market volatility, and geopolitical tensions, may cause us to experience market losses related to our holdings. There is no assurance that these conditions now existing, will improve in the near future.

Our results of operations are materially affected by conditions in the mortgage market, the residential and commercial real estate markets, the financial markets and the economy generally. Difficult market conditions, as well as inflation, energy costs, geopolitical issues, health epidemics, unemployment and the availability and cost of credit, can contribute to increased volatility and diminished expectations for the economy and markets. The U.S. mortgage market has been severely affected by changes in the lending landscape and has experienced defaults, credit losses and significant liquidity concerns, and there is no assurance that these conditions have fully stabilized or that existing conditions will not worsen. Disruptions in mortgage markets negatively impact new demand for real estate. Further, disruptions in the broader financial markets, including the occurrence of unforeseen or catastrophic events such as the effects of COVID-19 or other widespread health emergencies, geopolitical tensions or terrorist attacks, could adversely affect our business and operations. Any such disruption could adversely impact our ability to raise capital, cause increases in borrower defaults and decreases in the value of our assets, cause continued interest rate volatility and movements that could make obtaining financing or refinancing our debt obligations more challenging or more expensive, and could lead to operational difficulties that could impair our ability to manage our business.

The market for real estate assets constituting commercial office space have experienced a significant downturn.

The market for commercial office real estate assets has seen a significant downturn due to changes in the workforce practices of many organizations. These changes have seen many office tenants abandoning traditional office footprints and/or downsizing their positions in the same in favor of remote or hybrid working environments. This practice has had a significant effect on the valuation of these assets and nationwide has caused an uptick in defaults by the owners of such assets on their debt service obligations as the revenue from these tenants has disappeared. Many property owners have struggled to relet some of these spaces causing outright maturity defaults, DSCR covenant violations and limited exit options for borrowers through a softer demand for such properties on the real estate market, and reduced leasing activity for vacant spaces. These changes have been exacerbated by continued high interest rates that make it difficult for borrowers to refinance existing debt at rates that generate sufficient DSCR coverage. The result of these factors have created situations where lenders have to foreclose on such loans and manage the assets until they can sell the collateral at a rate sufficient to cover the debt owed, or forcing lenders to extend the terms of the existing debt at interest rates that may not be current market rates. See the Inflation risk factor below.

KDM’s lending of additional subordinated funds to a Borrower may provide the Borrower needed funds to stabilize or complete needed renovations to subject properties but may also cause the property to be leveraged higher than would be acceptable under the current CM Loans underwriting guidelines.

KDM may lend a CM Loan Borrower additional funds through a subordinated real estate mortgage loan. KDM may elect to do so when it seems that the CM Loan Borrower needs such additional funds to complete or stabilize the subject property. This in turn may limit the ability of a CM Loan Borrower to refinance a loan and may over-leverage the subject property if the valuation of the property does not increase as expected, if market conditions change or of the CM Loan Borrower does not properly execute its business plan, which may increase the risk of a maturity or monetary default.

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Inflation in the U.S. is expected to continue at an elevated level in the near- to medium-term, which may have an adverse impact on the valuation of our loans and affect our borrowers’ ability to refinance.

Heightened competition for workers, supply chain issues, the relocation of foreign production and manufacturing businesses to the U.S., and rising energy and commodity prices have contributed to increasing wages and other economic inputs. Inflation can negatively impact the profitability of real estate assets with long-term leases that do not provide for short-term rent increases or that provide for rent increases with a lower annual percentage increase than inflation. Continued inflation, particularly at higher levels, may have an adverse impact on the valuation of the properties underlying the CM Loans as well as the sponsors’ ability to refinance.

CM Investors may lose some or all of their CM Investment.

The regular payment of a CM Investment depends entirely on payments to KDM of a borrower’s CM Loan. The Notes are special, limited obligations of KDM payable only from KDM’s receipts of CM Loan proceeds, net of KDM’s Servicing Fee and cost of collection. If a borrower defaults on the CM Loan, CM Investors in that CM Loan will be dependent on proceeds from the Assignment of Rents held by KDM and on the proceeds, if any, from foreclosure of the CM Loan mortgage for payments on the their Notes. The failure of a borrower to repay a CM Loan is not an event of default by KDM. Notes are suitable purchases only for investors of adequate financial means who, in the event of a default on the underlying CM Loan, may have to wait for a foreclosure and subsequent sale to recover some or all of the principal invested in their Note. In some cases the property may not be sold quickly and workouts may take years.

We rely on third-party appraisals to value the property securing the CM Loan, and information from the borrower on cash flow and profitability of the income property.

While we make every effort to engage responsible licensed third-party appraisers, we cannot be certain that the information and presentations they make are reliable. Appraisals are subject to mistakes that could affect the value of a property. Further, appraisers may make judgments of value based on cash flow presented by borrowers. If a borrower were to falsify its cash flow, it could affect the value shown in the appraisal. To verify cash flows, we receive bank statements from borrowers. Although we engage appraisal review firms, some errors may not be caught. KDM is not responsible for mistakes or fraudulent activities of borrowers or appraisers.

As we are highly dependent on information technology. System failures or security breaches could materially disrupt our business.

Our business is highly dependent on information technology and our ability to process, record and monitor many complex transactions and large amounts of data efficiently and accurately. In the ordinary course of our business, we store sensitive data, including our proprietary business information and that of our business partners, and non-public personally identifiable information of mortgage borrowers, on our networks. The secure maintenance and transmission of this information is critical to our operations. Computer malware, viruses, ransomware and phishing attacks remain widespread and are increasingly sophisticated. We are from time to time the target of attempted cyber threats. We continuously monitor and develop our information technology networks and infrastructure to prevent, detect, address and mitigate the risk of unauthorized access, misuse, computer viruses and other events that could have a security impact. Despite these security measures, our information technology and infrastructure may be vulnerable to attacks by hackers or breached due to employee or service provider error, malfeasance or other disruptions. Any such breach could compromise our networks and the information stored there could be accessed, publicly disclosed, lost or stolen. Any such access, disclosure or other loss of information could result in legal claims or proceedings, liability under laws that protect the privacy of personal information, regulatory penalties, disruption to our operations, or disruption to our trading activities or damage our reputation, which could have a material adverse effect on our financial results and negatively affect our ability to pay dividends to stockholders.

The resources required to protect our information technology and infrastructure, and to comply with the laws and regulations related to data and privacy protection, are continuously evolving. Even in circumstances where we are able to successfully protect such technology and infrastructure from attacks, we may incur significant expenses in connection with our responses to such attacks. Government and regulatory scrutiny of the measures taken by companies to protect against cybersecurity attacks has resulted in heightened cybersecurity requirements and additional regulatory oversight. Any of the foregoing issues may adversely impact our results of operations and financial condition.

If we believe it is in the best interest of CM Investors, we have the right to adjust the terms of a CM Loan. It is possible that due to natural disasters, local disruption of services, political unrest, changes in local laws, market competition or disruptions and other unforeseen events that affect the property pledged under a CM Loan or affect the borrower’s ability to make its CM Loan payments, it might be in the best interest of the CM Investors to provide a borrower with an accommodation regarding loan terms rather than be forced to foreclose on a loan. If we adjust a CM Loan, that may reduce interest payments, suspend interest payments, lengthen the time when principal may be received or change other terms of the CM Loan, any of which could reduce the expected benefits of the CM Loan to the CM Investors.

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KDM may also choose to extend a performing CM Loan for an additional term due to market conditions, or may modify a loan for a good borrower to extend their period while adjusting their rate to current market level, if we believe such modification will not be detrimental to Noteholders.

There may be a default on a CM Loan.

CM Loan default rates may be significantly affected by general economic conditions beyond our control and beyond the control of the individual borrower. Default on a CM Loan is subject to many factors, such as prevailing interest rates, the rate of unemployment, the level of consumer confidence, residential or commercial real estate values, the value of the U.S. dollar, energy prices, changes in consumer spending, the number of personal bankruptcies, disruptions in the credit markets, and other factors, none of which can be predicted with certainty.

Any costs or delays involved in the completion of a foreclosure or liquidation of the underlying property may further reduce proceeds from the property and may increase the loss.

It is possible that we may find it necessary or desirable to foreclose on certain CM Loans we acquire or originate, and the foreclosure process may be lengthy and expensive. Borrowers may resist mortgage foreclosure actions by asserting numerous claims, counterclaims and defenses against us including, without limitation, numerous lender liability claims and defenses, even when such assertions may have no basis in fact, in an effort to prolong the foreclosure action and force us into a modification of the loan or a favorable buy-out of the borrower’s position. In some states, foreclosure actions can sometimes take several years or more to litigate. At any time prior to or during the foreclosure proceedings, the borrower may file for bankruptcy, which would have the effect of staying the foreclosure actions and further delaying the foreclosure process. Foreclosure may create a negative public perception of the related mortgaged property, resulting in a decrease in its value. Even if we are successful in foreclosing on the loan, the liquidation proceeds upon sale of the underlying real estate may not be sufficient to recover our cost basis in the CM Loan, resulting in a loss to CM Investors. Furthermore, any costs or delays involved in the completion of a foreclosure of the CM Loan or a liquidation of the underlying property will further reduce the proceeds and thus increase the loss. Any such reductions could materially and adversely affect the return to the CM Investor.

Real estate properties acquired through foreclosure subject us to additional risks associated with owning real estate.

When a CM Loan defaults, KDM may, on behalf of CM Investors, acquire the property through foreclosure or a deed in lieu of foreclosure. Depending on the market environment at the time, we may need to own the properties for an extended period of time before sale. We have acquired real estate properties through foreclosure, which exposes us to additional risks, including, but not limited to, the following:

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facing difficulties in integrating these properties with our existing business operations;

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incurring costs to carry, and in some cases make repairs or improvements, which results in additional expenses and requires additional liquidity that could exceed our original estimates and impact our operating results;

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being unable to realize sufficient amounts from sales of the properties to avoid losses;

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being unable to sell properties, which are not liquid assets, in a timely manner, or at all, when we need to increase liquidity;

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maintaining occupancy of the properties;

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controlling operating expenses;

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coping with general and local market conditions;

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complying with changes in laws and regulations pertaining to taxes, use, zoning and environmental protection;

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possible liability for injury to persons and property;

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possible uninsured losses related to environmental events such as earthquakes, floods or mudslides; and

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possible liability for environmental remediation.

Information supplied by the borrower could be inaccurate or intentionally false.

While we perform due diligence on each borrower, including verifying property ownership, rent collections, property values, coverage ratios and other appropriate due diligence materials, a borrower could present us with false information which we may not discover during our due diligence process.

In many cases, we do not monitor our borrowers’ use of funds.

Unless specified otherwise, KDM does not monitor borrowers’ use of funds. It is possible the borrower may not use the funds for the purposes it has asserted, for example, to improve the property. Additionally, the borrower could potentially misuse the proceeds it receives from the loan in a way that negatively impacts their ability to make timely payments on the CM Loan, their credit, or the value of the underlying property.

CM Loan Guarantees May Not Be Collectable

Some CM Loans may have a personal guarantee. We may ask for guarantees from the owners, or the owners of the owner, if the owner is not an individual. Because we primarily focus our underwriting on the value of the mortgaged property, the loan to value ratio, and the debt service coverage ratio, we generally do not investigate the net worth of the borrowers, and therefore, the ultimate value of the guarantee on a CM Loan, if any. In the event a CM Loan goes into foreclosure and the money realized in the foreclosure does not pay off the entire principal owed on the CM Loan, investors should not count on the guarantee being collectible. Should such a situation arise, investors may not see repayment of the entire principal amount of their Notes.

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If payments on a CM Loan are not paid when due, CM Investors may not receive the full principal and interest payments that they expect to receive on Notes.

Payment to holders of Notes is completely dependent on payments received from corresponding CM Loans. If the borrower fails to make a required payment on a CM Loan within 30 days of a due date, we will pursue collection. If we refer a CM Loan to an attorney, we will monitor that CM Loan until either the CM Loan is paid or the property is foreclosed and resold and investors are paid. We may also pursue collection of a delinquent CM Loan directly. In the case of collection efforts, the cost of attorney’s fees will be charged against the CM Loan and will reduce the net payments on a Note.

The CM Loans underlying the Notes are typically payable on an interest-only basis until maturity, at which time the entire principal balance is due. Therefore, borrowers may have to refinance to pay off a balloon payment on the CM Loan.

If a borrower must refinance to pay off a CM Loan, such refinancing could be impossible due to market conditions or other factors. In such a case, the CM Loan would default. Such a default could reduce or eliminate principal payment of the Notes.

The borrower may prepay some or all of the principal amount of a CM Loan. A borrower may decide to prepay all, or a portion of, the remaining principal at any time subject to any prepayment penalties (if any) listed in the CM Loan. The amount of any prepayment penalty will depend on the type of loan product and the borrower. CM Investors will receive such prepayment net of our servicing fee. Interest will not accrue after the date on which the CM Loan is paid in full. If the borrower prepays a portion of the remaining unpaid principal balance on the CM Loan, we will reduce the outstanding principal amount and interest will cease to accrue on the prepaid portion. On an amortizing loan, we will require the borrower to pay the same amount on the CM Loan as the borrower paid prior to any partial repayment of principal. As a result of the combination of the reduced principal amount and the unchanged monthly payment, the effective term of the CM Loan will decrease. On an interest-only CM Loan, the monthly payment CM Investors receive will be reduced proportionally by the amount of principal repaid. If the borrower prepays the CM Loan in full or in part, CM Investors will in all probability not receive all the interest payments that they expected to receive on their Notes.

The current interest rate environment and/or market volatility may make it difficult for a CM Loan to refinance.

Sharp increases in prevailing interest rates may make it difficult or in some cases, not possible, for some CM Loan borrowers to refinance out of the CM Loan. Sharp increases in prevailing interest rates and or inflationary pressures may negatively impact the profitability of the collateral secured by the CM Loans, causing some assets to lose their ability to be cash flow positive or maintain the debt service covenants of lenders at the time they need to refinance. Similarly, market volatility reduces the amount of lenders in the marketplace when outcomes of the current environment are unpredictable. Accordingly, such changes may make it difficult, or in some cases, not possible for some CM Loan Borrowers to refinance a CM Loan at maturity, affecting the CM Loan Investors’ ability to realize a return of their principal and or interest payments.

Prevailing interest rates may change during the term of the CM Loan on which a Note is dependent.

If a CM Loan is prepaid, CM Investors may be unable to invest prepaid Note proceeds at a rate comparable to the interest payable on the Notes. Further, for our MSNs, if interest rates rise and there is a market for the Notes, and a Noteholder decides to sell a Note prior to maturity, the Noteholder may receive a discounted return on the Note.

Investor funds in a KDM segregated account do not earn interest.

Proceeds of the sale of the Notes are held in a non-interest bearing segregated account pending completion of the Note Offering. Further, we place borrower loan payments in a segregated account under our control and pay all loan payments collected from the prior payment date at least four business days prior to the payment date on the twenty-fifth day of each month, with an extension to the next business day if required. Funds held in segregated accounts do not earn interest. These segregated accounts are held at BankUnited, RBC, or Chase and are managed by KDM. There is no escrow agreement with the bank.

We may have to limit our business to avoid being deemed an investment company under the Investment Company Act.

In general, a company that is or holds itself out as being engaged primarily in the business of investing, reinvesting or trading in securities may be deemed to be an investment company under the Investment Company Act of 1940, as amended (“Investment Company Act”). The Investment Company Act contains substantive legal requirements that regulate the manner in which “investment companies” are permitted to conduct their business activities. We believe we are excluded from registration by Section 3(c)(5)(c) of the Investment Company Act and have conducted, and we intend to continue to conduct, our business in a manner that does not result in our Company being characterized as an investment company. This section of the Investment Company Act contains an exemption for companies that make mortgages and do not issue redeemable shares. To avoid being deemed an investment company, we may not be able to broaden our offerings, which could require us to forego attractive opportunities. If we are ever deemed to be an investment company under the Investment Company Act, we may be required to institute burdensome compliance requirements and our activities may be restricted, which could materially adversely affect our business, financial condition, and results of operations.

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Funds Received for all CM Loans are held on an omnibus basis in a Segregated Account.

We hold all funds received from CM Loans in a segregated account titled In-Trust For 2 at BankUnited bank. We then use our internal accounting system to determine which funds are applied to which Note investors. While our internal accounting system is backed up into separate record keeping systems managed by service providers, should our systems fail and the back-up systems fail for any reason, we may have difficulty determining which payments are to be applied to which Noteholder and your payments could be delayed until such a determination is made.

In the event of a KDM bankruptcy, general creditors of KDM may assert a claim that funds on deposit in the segregated account maintained by KDM for the benefit of CM Investors, and the separate segregated account maintained by KDM for real estate tax and insurance payments, are subject to the claims of general creditors. Principal and interest payments on CM Loans are deposited in a segregated bank account, and payments of real estate taxes and insurance on mortgaged properties are deposited in another segregated account, when and as received by KDM. Receipts deposited in those accounts are disbursed to CM Investors monthly and annually to property insurers and taxing authorities. KDM performs all accounting for these accounts, including sub-accounts for each CM Investment and property, and maintains all accounting records at its principal office. Under the Trust Indenture for the MSNs, the Trustee will have a first lien on the principal and interest account for the benefit of Noteholders. If the bankruptcy court were to determine that the funds in the account were subject to claims of creditors other than Noteholders or the Trustee acting on their behalf, the amount that Noteholders would receive from the account could be adversely affected. Further, amounts on deposit to pay real estate taxes and insurance could be reduced or entirely eliminated if paid to general creditors of KDM in the bankruptcy proceeding. The bankruptcy court could temporarily stay disbursements to CM Investors, taxing authorities and insurers even if the court were ultimately to determine that the funds in the account should be distributed to the CM Investors, the Trustee acting on their behalf, and, also, as appropriate, to taxing authorities and property insurers, resulting in delays to CM Investors in the receipt of payments on their Notes and penalties imposed by insurers and taxing authorities.

We rely on third-party banks to disburse CM Loan proceeds and process CM Loan payments, and we rely on third-party computer hardware and software. If we are unable to continue utilizing these services, our business and ability to service the CM Loans may be adversely affected.

We rely on a third-party bank to disburse CM Loan amounts. Additionally, because we are not a bank, we cannot belong to and directly access the ACH payment network, and we must rely on an FDIC-insured depository institution to process our transactions, including CM Loan payments and remittances to CM Investors. We also rely on computer hardware purchased and software licensed from third parties. This purchased or licensed hardware and software may not continue to be available on commercially reasonable terms, or at all. If we cannot continue to obtain such services from this institution or elsewhere, or if we cannot transition to another processor quickly, our ability to process payments will suffer and the ability to receive principal and interest payments on the Notes will be delayed or impaired.

Competition for our employees is strong, and we may not be able to attract and retain the highly skilled employees that we need to support our business.

The market for hiring highly skilled technical and financial personnel is competitive. We may not be able to hire and retain personnel at compensation levels consistent with our existing compensation and salary structure. Many of the companies with which we compete for experienced employees have greater resources than we have and may be able to offer more attractive terms of employment.

In addition, we invest significant time and expense in training our employees, which increases their value to competitors that may seek to recruit them. If we fail to retain our employees, we could incur significant expenses in hiring and training their replacements and the quality of our services and our ability to service the CM Loans could diminish, resulting in a material adverse effect on our business and our ability to service the Notes.

If we fail to retain our key personnel, we may not be able to achieve our anticipated level of growth and our business could suffer.

Our future depends, in part, on our ability to attract and retain key personnel. Our future also depends on the continued contributions of our executive officers and other key technical personnel, each of whom would be difficult to replace. The loss of the services of any of the executive officers or key personnel, and the process to replace any key personnel would involve significant time and expense and may significantly delay or prevent the achievement of our business objectives.

Purchasers of CM Investments will have no control over KDM and will not be able to influence KDM corporate matters.

Our CM Investments grant no equity interest in KDM to the purchaser nor grant the purchaser the ability to vote on or influence our management decisions, including forbearance or foreclosure.

Unforeseeable Adverse Events.

Events beyond our control may damage our ability to maintain adequate records, or perform our servicing obligations. If such events result in a system failure, CM Investors’ ability to receive principal and interest payments on CM Investments could be substantially harmed.

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If a catastrophic event resulted in an outage and physical data loss, our ability to perform our servicing obligations would be materially and adversely affected. Such events include, but are not limited to, fires, earthquakes, hurricanes, terrorist attacks, natural disasters, computer viruses and telecommunications failures. We store back-up records via cloud storage services via several different companies. If our electronic data storage and backup storage system are affected by such events, we cannot guarantee that CM Investors would be able to recoup their investment.

Federal and State regulatory bodies may create new rules and regulations that could adversely affect our business.

In the wake of the last financial crisis, banking and finance regulation continues to evolve, and increasing regulation by federal and state governments may become more likely. Our business could be negatively affected by the application of existing laws and regulations or the enactment of new laws applicable to lending, mortgages, mortgage servicing, or securities distribution. The cost to comply with such laws or regulations could be significant and would increase our operating expenses, and we may be unable to pass along those costs to our investors in the form of increased fees.

If we discover a material weakness in our internal control over financial reporting which we are unable to remedy, or otherwise fail to maintain effective internal control over financial reporting, our ability to report our financial results on a timely and accurate basis may be adversely affected.

Should we or our auditors discover a material weakness in our internal controls, our ability to report our financial results on a timely and accurate basis may be adversely affected.

New Government Regulation may limit our ability to make CM Loans

We do not believe that we are subject to Risk Retention under RR (17 CFR 246), as our entity type is not within scope of the rule according to 12 CFR 244.1(c). However, if we become subject to risk retention rules, we could be required to raise significant capital in order to continue doing business.

Our Proprietary Ratings System is untested and is based on broad assumptions for which we have little statistical basis

We created the KDM Ratings System internally and based it on very broad assumptions. It should be noted that our staff members have no experience in creating a ratings system. We are not affiliated with any commercial rating agency, nor do we have experience in creating ratings of debt or mortgage securities. The Rating System has a short track record and has not been tested against any known data set. The Rating System is still evolving as we add items and add property types. It is not intended to be and should not be relied upon as a predictable measure of performance of the underlying CM Loan at this time. We also have conflicts of interest with respect to our Ratings System. See “Conflicts of Interest Regarding Our Proprietary Ratings System.”

Risks Related to the Banking System and Financial Markets

KDM depends on the functioning of the U.S. banking system and bond markets to raise the capital needed to fund CM Loans which are the core of its business. Should the banking system or bond markets enter into a prolonged downturn or suffer a crisis of confidence, KDM’s ability to raise money to originate new CM Loans may be adversely impacted, causing it to reduce the number of loans it originates.

Item 1B. Unresolved Staff Comments

Not applicable.

Item 1C. Cybersecurity

Our business is highly dependent on information technology. In the ordinary course of our business, we store sensitive data, including our proprietary business information and that of our business partners, and non-public personally identifiable information of mortgage borrowers, on our networks. The secure maintenance, processing and transmission of this information is critical to our operations. Computer malware, viruses, ransomware and phishing attacks remain widespread and are increasingly sophisticated. We are frequently the target of attempted cyber threats, as are many other organizations within the financial servicing industry. We continuously monitor and develop our information technology networks and infrastructure to help prevent, detect, address and mitigate the risk of unauthorized access, misuse, computer viruses, and other events that could have a security impact. Despite these security measures, our information technology and infrastructure may be vulnerable to attacks by hackers or breached due to employee error, malfeasance or other disruptions. Any such breach could compromise our networks and the information stored there could be accessed, publicly disclosed, lost or stolen. Such access, disclosure or other loss of information could result in legal claims or proceedings, liability under laws that protect the privacy of personal information, regulatory penalties, disruption to our operations or trading activities or damage to our reputation, all of which could have a material adverse effect on our business, results of operations and financial condition. For additional information on these risks, see Item 1A, “Risk Factors”.

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We recognize the importance of protecting our information and our information technology systems, and assessing, identifying and managing cybersecurity-related risks have been integrated into our risk management processes. We focus on information technology and cybersecurity measures at both an enterprise-wide operational level and an individual employee level. We have in place various methods and levels of information technology and cybersecurity measures which are aimed at protecting our information and information technology systems to help secure long-term value for our stockholders and other stakeholders. By way of example, these measures include the following:

Industry-Standard Security Frameworks: We adhere to recognized security frameworks, including the National Institute of Standards and Technology (NIST), and employ controls such as antivirus and anti-malware protections, multi-factor authentication (MFA), complex password policies, patch management, email security solutions, and firewall protections.

Threat Detection and Risk Management: We leverage advanced security technologies, including endpoint detection and response (EDR), security information and event management (SIEM), and vulnerability management tools to proactively identify and mitigate risks.

Incident Response Protocols: We maintain a formal cybersecurity incident response plan that ensures a structured and comprehensive response to security incidents. This plan involves senior executives, external legal and forensic specialists, and includes an active incident response retainer with our third-party Security Operations Center (SOC).

Continuous Security Assessments: We conduct regular cybersecurity audits, third-party risk assessments, penetration tests, and targeted control evaluations to identify and remediate potential vulnerabilities. Our security program is continuously monitored and assessed by an external 24/7 Security Operations Center (SOC).

Disaster Recovery and Data Resiliency: We have robust backup and disaster recovery processes in place to ensure business continuity in the event of a security incident or system failure.

Employee Awareness and Training: We implement comprehensive cybersecurity and data privacy training programs to enhance employee awareness of cyber risks and reinforce secure operational practices.

As part of our commitment to information security and data protection, we have achieved SOC 2 Type II certification in 2025 and 2024. This certification, issued by an independent third-party auditor, verifies that our security controls meet the American Institute of Certified Public Accountants (AICPA) Trust Services Criteria for security, availability, processing integrity, confidentiality, and privacy. The SOC 2 Type II audit evaluates the effectiveness of our cybersecurity and IT controls over an extended period, further validating our commitment to safeguarding sensitive information and maintaining a secure operational environment.

Our executive team is responsible for overseeing matters relating to our information technology and cybersecurity risk exposures and the steps our Company takes to monitor and mitigate these risks. The executive team is briefed quarterly or as needed by senior management and the Chief Information Security Officer, or CISO, on cybersecurity matters, or more frequently as the circumstances require. Our Vice President of Technology, who serves as our CISO, oversees data privacy, information technology, and cybersecurity matters. Our CISO has extensive information technology and program management experience, has served in this role for the Company since 2022 and has supported the Company’s information security function since 2017.

To date, we believe that the risks from identified cybersecurity threats, have not materially affected and are not reasonably likely to materially affect us, including our business strategy, results of operations or financial condition.

Item 2. Properties

In November 2022, we acquired a majority interest in a property in Stafford, Virginia. The property is tenanted by third parties. KDM took possession of properties in Acton, Massachusetts and St. Louis, Missouri, both office properties, via foreclosure and deed in lieu, respectively, in 2024. In 2025, we took possession of property in Los Angeles, CA and Selma, TX via deed in lieu of foreclosure. We manage these properties under our Asset Management segment. Please see Segment Reporting (Note 19).

We lease office space in Coral Gables, Florida, and through our J. W. Korth subsidiary in Lansing, Michigan.

Item 3. Legal Proceedings

The Company is not subject to any material legal proceedings. The Company may at times be involved in legal proceedings, claims, and litigation arising in the ordinary course of business not specifically discussed herein. In the opinion of management, the final disposition of such matters will not have a material adverse effect on our consolidated financial position, cash flows or results of operations.

Item 4. Mine Safety Disclosures

Not applicable.

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PART II

Market Information

There is no market for the Company’s common equity.

Holders

As of December 31, 2025, the Company had issued and outstanding (i) 5,000,000 shares of its common stock, all which were issued to J.W. Korth, (ii) 460,000 shares of its Series A 6% Cumulative Perpetual Convertible Preferred Stock (the “Series A Preferred”), all of which were issued to Cede & Company, and (iii) 19,000 shares of its Series B 6.50% Cumulative Non-Voting Redeemable Secured Preferred Stock (“Series B Preferred”) issued to Cede & Company. The number of holders was determined from the records of our transfer agent and does not include beneficial owners of common or preferred stock whose shares are held in the names of Cede & Company, broker-dealers, or registered clearing agencies. The transfer agent of our common stock and preferred stock is Continental Transfer and Trust Company, One State Street, New York, New York 10004.

Dividends

The Company has not paid, and has no plans to pay dividends on its common stock. Holders of the Series A Preferred are entitled to receive, when, as, and if declared by the Board of Directors, cash dividends at a rate of 6.00% per annum based on the Series A Preferred liquidation preference of $25.00 per share. Holders of the Company’s 460,000 issued shares of Series A Preferred were paid a dividend totaling $1.50 per share over four quarterly payments for the year ended December 31, 2025.

Holders of the Series B Preferred are entitled to receive, when, as, and if declared by the Board of Directors, cash dividends at a rate of 6.50% per annum based on the Series B liquidation preference of $1,000.00 per share. These holders received dividends of $65.00 per share for the year ended December 31, 2025.

Securities Authorized for Issuance Under Equity Compensation Plans.

For information regarding securities authorized for issuance under our 2019 Stock Plan, please refer to the disclosure included below under the caption “Item 11. Executive Compensation—Equity Compensation Plan Information.”

Sales of Unregistered Securities

On June 29, 2021, KDM issued and sold 19,000 shares of its Series B Preferred to “qualified institutional buyers,” as defined in Rule 144A under the Securities Act of 1933, as amended (the “Securities Act”), under exemptions from registration provided by Section 4(a)(2) of the Securities Act and Securities Act Rule 144A,

On September 15, 2021, June 28, 2022, and March 23,2023, KDM issued and sold 100,000, 480,000, and 160,000 shares, respectively of its Series A Preferred to qualified institutional buyers under exemptions from registration provided by Section 4(a)(2) of the Securities Act and Securities Act Rule 144A,

Item 6. [Reserved]

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations

You should read the following discussion in conjunction with our historical financial statements, which are included elsewhere in this Form 10-K. Management’s Discussion and Analysis of Financial Condition and Results of Operations contains statements that are forward-looking. These statements are based on current expectations and assumptions, which are subject to risk, uncertainties and other factors, including, but not limited to, those described in the subsection titled “Risk Factors,” located in Part I, Item 1A, of this Form 10-K.

Overview

KDM was organized as a Florida limited liability company on July 24, 2009, under the name HCMK Consulting, LLC. We changed our name to J. W. Korth & Company, LLC, in November 2010, and then to Korth Direct Mortgage, LLC, on August 24, 2016. KDM converted into a Florida corporation, Korth Direct Mortgage Inc., on June 6, 2019. Our principal executive offices are located at 135 San Lorenzo Avenue Suite 600, Coral Gables, Florida 33146, and our telephone number is (305) 668-8485. Our website address is www.korthdirect.com. We also operate under the trade name KDM Financial, as well as via our subsidiary, J. W. Korth & Company Limited Partnership, a Michigan limited partnership.

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Korth Direct Mortgage began its formal operations in October of 2016 when we engaged our Chief Lending Officer. KDM is a licensed Mortgage Lender Servicer with the State of Florida. Our NMLS License Number is 1579547.

We were wholly owned by J. W. Korth until July 31, 2020, when we acquired all of the equity of J.W. Korth, making it a subsidiary.

We originate, fund, and service loans which are made to commercial borrowers. The loans are held by KDM as the lender. We fund our loans in a variety of ways, including selling loan participations, via a warehouse line, and directly in the capital markets through issuance of Mortgage Secured Notes (“MSNs” or “Notes”), which are sold through J.W. Korth as initial purchaser through exemptions from registration available under Rule 144A, Regulation D, and other exemptions from registration. We also own and operate commercial property acquired via foreclosure or deed in lieu of foreclosure. We may also issue second lien loans using KDM’s own assets, in which case these loans will be junior to the CM Loans where they are secured by the same property, or issue first mortgages with our own funds, which may or may not use additional financing.

KDM also operates its business through a variety of subsidiaries. KDM MFB LLC, a Delaware limited liability company was formed to issue multi-family bridge loans, and KDM Funding I LLC, a Florida limited liability company was formed to issue additional MSNs. These companies are wholly owned by KDM. Our REO portfolio is held in the name of KDM Asset Management LLC, a wholly owned subsidiary of KDM, and each property is held in a special purpose entity owned by KDM Asset Management, LLC.

Results of Operations for Year Ended December 31, 2025

The Company generated revenues of $17,235,522 for the year ended December 31, 2025, an increase of $5,167,865 or 43% compared with revenues of $12,067,657 for the year ended December 31, 2024, due to large increases in Origination and Leasing Revenue of revenues from our Asset Management segment. As of December 31, 2025, the Company owned mortgages of $285,416,050 compared with mortgages of $451,974,989 as of December 31, 2024, a decrease of 36.85%.

Similarly, gross profits increased by $4,704,605, or 55% to $13,220,244 during the year ended December 31, 2025, compared with gross profits of $8,515,639 during the year ended December 31, 2024.

Operating expenses were $10,533,839 during the year ended December 31, 2025, an increase of $1,000,724 compared with operating expenses of $9,533,115 during the year ended December 31, 2024. The increase in operating expenses was primarily the result of an increase of $745,944 in office expenses and an increase of $564,275 in depreciation related to the properties in our REO Portfolio.

The Unrealized (Loss)Gain on Mortgages caption is the net present value of our mortgage servicing rights. The balance sheet caption Mortgage Servicing Rights (“MSRs”) takes our expected future servicing revenues from our entire book of loans and discounts it to present value. Due to approximately $125 million loans being paid off in 2025, Servicing Revenue fell year over year by $914,377, or a decline of 18.10%.

For the year ended December 31, 2025, the Company recorded an income tax provision of $126,363 compared with an income tax benefit of $633,698 for the year ended December 31, 2024.

The Company pared Net Loss from $3,618,907 for the year ended December 31, 2024 to $2,344,108 net loss for the year ended December 31, 2025. Our Net Loss was 49% lower than the prior year, primarily due to a 73% increase in Origination Revenue at $2.918 million and a 94.3% increase in Leasing Revenue due to additional properties added to our REO Properties. See Segment Reporting for more information on our Asset Management segment. Our Operating Profit improved by 364% to $2,686,405 from ($1,017,406).

Although the benchmark interest rates dropped 75 bps in 2025, the commercial real estate landscape continued to present challenges. While growing additional relationships to fund lending for our primary segment of Lending and Servicing, we also made significant progress in our Asset Management division bringing one property back to performing and negotiating additional tenants and possible sale contract on another. With the MSN market stalled for 2025, KDM was unable to add significantly to its servicing portfolio which has resulted in a net decline of approximately $125 million of loans serviced. Additionally new loans closed were at traditional servicing rates, rather than at net interest margin rates, resulting in less unrealized gain added to the balance sheet. We are hopeful that the MSN market investors will return for 2026, as this is a critical piece of our business model as well as the net margin from those loans is the security interest underlying our preferred stock payments. KDM continues to explore additional avenues in its business and expects 2026 to present new opportunities for the Company and its investors.

Financial Condition for the year ended December 31, 2025

As of December 31, 2025, we had $5,354,168 in cash, $5,732,975 in portfolio loans and securities, as well as $285,416,050 of loans securitized or participated out to investors. Total KDM originations stood at $672,267,797 as of December 31, 2025. As of December 31, 2025, our property and equipment net of depreciation is valued at $69,691,129. The Company also has invested approximately $1,084,050 in KDM Capital Partners, LP, which makes bridge loans on multifamily properties.

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The fair value of our Mortgage Servicing Rights fell by 34%, falling proportionally to the MSN loans that have paid off and not been replaced. Our MSRs are the net present value of the future servicing income we receive from loans made to date. This value is highly subjective and includes such variables as constant prepayment rate (CPR), discount rate, and market pricing data. Please see the explanation of this change in value above in “Results of Operations.” The current value was provided by a third-party consulting firm and uses 15.0% for the discount rate and includes a 14.25% CPR, along with other assumptions customary to the industry.

Total assets declined by 27% to $380,854,013 at December 31, 2025 due to $166,558,939 book value of loans paying off or otherwise being disposed. This includes $50,800,000 moved out of the mortgage book and into REO at fair value upon acquisition through foreclosure or deed in lieu of foreclosure.

Capital and Liquidity Needs

With the decline in the MSN market, and KDM just beginning to ramp business with some new lending partners at lower net profit to the Company than the MSN program, KDM’s balance sheet and ongoing monthly revenue from servicing has declined significantly. We are optimistic that in 2026 the MSN market will recover and we will add additional assets to our MSRs and recurring revenue streams.

In the Asset management segment of the business, KDM may need to access financing in order to improve or reposition properties it owns. Including, in particular, a development project on its LA Arts District property to convert it to multi-family.

KDM continues to work to raise capital for its nascent fund, KDM Capital Partners, LP (the “Fund”), currently targeting high net worth investors, RIAs, and family offices. The Company is actively looking to repackage some of its existing loans into an alternative structure or may otherwise access the capital markets or private credit markets as we deem necessary for our business in forms that will allow us the flexibility to grow our business again.

Status of our CM Loans

As of year-end 2025, KDM had 4 loans in payment default and outstanding, for a total of $8,156,973, of which $4,656,977 is KDM’s portfolio capital. Two of these loans are fully funded by KDM and two are partially funded by investors. We believe the outstanding balances on these loans represent an approximate 72% loan to value, and that we are reasonably secured versus stabilized value of the properties, but they will take time to resolve the foreclosure actions.

In total, KDM has had payment defaults on 11 loans out of the 118 loans we have originated on 167 properties, representing a default rate of 9.3% of loans, or 6.6% of properties lent on. Of these, 64% were office defaults, 3 of the 11 were sold at or near par, with investors experiencing only minor losses. However, one office did not have sufficient cash flow to pay its ground lease once it was acquired and investors were unwilling to put in additional capital due to the distressed capital structure, and that loan was a total loss. Of the remaining seven defaults, as of year end 2025, three are in our REO portfolio, and four are in various stages of the foreclosure process.

Of the approximately $673,567,197 in loans originated by the Company, $322,769,453 of principal has been returned to investors, representing approximately 48% of total funds invested. Additionally, the Company has paid out a total of $114,103,957 in MSN interest to investors since inception, representing a 16.9% interest return based on the total amount of loans originated. In aggregate, the Company has returned $463,874,410 to investors through its Mortgage Secured Note program.

CM Loans may from time to time be in a state of technical default. Such defaults arise out of a breach of one or more covenants or obligations of the loan, other than those for the repayment of principal or interest. KDM as the Servicer may elect to trigger default conditions where it feels that the underlying loan agreements provide for such default and that the triggering of default remedies is in the best interest of protecting the value of the underlying collateral and the repayment of the loan. Where KDM believes that a technical default would create a material risk to the CM Investors, KDM will provide notice to the CM Investors of the default and its risks.

Real Estate

In November 2022, KDM acquired a majority interest in a specialty office building in Stafford, Virginia after the borrower defaulted on its second lien mortgage. The first lien mortgage is in KDM2021-N011 and the property continues to cash flow the first lien. KDM is planning a specialty buildout of the third floor for a new tenant and may continue to operate the property or sell it to investors.

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In the beginning of 2024, KDM acquired two properties on behalf of are MSN Noteholders in Acton, MA and St. Louis, MS via foreclosure and deed in lieu of foreclosure, respectively. The properties were currently securitized in KDM2021-N015 and KDM2021-N022, respectively. Both properties had high vacancy at the point of acquisition and the Company is working to stabilize the properties prior to sale in order to maximize recovery for the MSN Noteholders.

After taking the office building in April 2024, in May 2025, KDM Cupples REO LLC defaulted on the ground lease of the property it owned in St. Louis, Missouri. After a meeting with the bondholders, where KDM informed all bondholders that capital would need to be raised to pay the taxes, insurance, and ground rent, in order to not default, with additional funds in order to stabilize the property, the bondholders chose to let the property go. The ground lessor terminated the ground lease and KDM Cupples REO LLC no longer owns the leasehold estate. On June 23, 2025, KDM removed the $9,000,000 asset from its balance sheet and canceled the related outstanding bonds. The transaction is reflected in the consolidated statements of operations as a loss on foreclosures and change in fair value of mortgage secured notes.

We have future expected rents from the above properties of approximately $43,171,046, approximately $14M of which is expected before 2030, and the remaining $29.1M from 2031 and beyond.

Map of Current Loans

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Loan Information as of March 31, 2025

Number	# of Buildings	Ticker	Property	Property Type	EJ Rating	Issue Date	Maturity Date	Status	Original Balance		Original Appraisal		Original LTV		Appraisal Date	Current Balance
1	2	KDM2017-N001	Pinellas Park, FL	Multi-family	A+	4/20/2017	5/1/2027	Paid-in-Full	$	1,059,000	$	1,920,000	55.16	%	03/2017	$	-
2	3	KDM2017-N002	Miami, FL	Multi-family	A	12/21/2017	12/21/2020	Paid-in-Full	$	950,000	$	1,605,000	59.19	%	03/2018	$	-
3	1	KDM2018-N001	Miami, FL	Warehouse	A-	10/11/2018	3/13/2023	Paid-in-Full	$	1,850,000	$	2,775,000	66.7	%	02/2018	$	-
4	1	KDM2018-N002	St Petersburg, FL	Multi-family	NR	2/14/2018	2/14/2021	Paid-in-Full	$	341,250	$	570,000	59.9	%	12/2017	$	-
5	1	KDM2018-N003	Perrysburg, OH	Warehouse	A+	4/27/2018	5/25/2023	Paid-in-Full	$	6,300,000	$	10,500,000	60.0	%	1/18/2018	$	-
6	1	KDM2018-N005	Northwood, Ohio	Warehouse	A+	9/25/2018	9/25/2023	Paid-in-Full	$	2,700,000	$	4,155,000	64.98	%	06/2018	$	-
7	1	KDM2018-N007	Vicksburg, MS	Multi-family	A	1/15/2019	1/15/2024	Paid-in-Full	$	4,850,000	$	8,100,000	59.9	%	12/2018	$	-
8	3	KDM2019-N001	Hammonton, NJ	Office	A-	3/22/2019	3/22/2022	Paid-in-Full	$	9,690,000	$	14,250,000	68.00	%	02/2019	$	-
9	2	KDM2019-N002	Birmingham & Center Point, AL	Multi-family	A-	5/3/2019	5/3/2024	Paid-in-Full	$	4,400,000	$	6,875,000	64.0	%	04/2019	$	-
10	2	KDM2019-N003	Springs Global SC and PA	Industrial	BBB+	7/31/2019	8/25/2024	Paid-in-Full	$	9,700,000	$	14,220,000	68.2	%	06/2019	$	-
11	3	KDM2019-N004	Masco Springs - OH, OK, GA	Industrial	A-	10/10/2019	11/25/2029	Performing	$	37,000,000	$	56,960,000	65.0	%	09/2019	$	31,449,588
12	2	KDM2019-N005	Capitol Heights, MD	Industrial	A-	9/30/2019	10/25/2024	Paid-In-Full	$	4,200,000	$	9,360,000	44.87	%	09/2019	$	-
13	2	KDM2019-N008	Cleveland, Ohio	Retail	A-	12/18/2019	12/18/2024	Paid-in-Full	$	3,300,000	$	9,850,000	33.5	%	11/2019	$	-
14	1	KDM2020-N001	Woodbridge, VA	Industrial	A-	2/27/2020	3/25/2025	Performing	$	5,000,000	$	9,240,000	54.11	%	11/2019	$	5,000,000
15	8	KDM2020-N002	Cleveland, OH	Office	A-	3/31/2020	5/25/2025	Paid-in-Full	$	8,500,000	$	23,000,000	37.0	%	10/2019	$	-
16	1	KDM2020-N003	Carrollton, GA	Data Center	A-	4/23/2020	4/23/2025	Paid-In-Full	$	4,000,000	$	7,100,000	56.34	%	03/2020	$	-
17	1	KDM2020-N007	Stuart, FL	Office	A-	7/27/2020	8/25/2025	Paid-in-Full	$	1,650,000	$	2,600,000	63.5	%	03/2020	$	-
18	1	KDM2020-N006	Water's Edge, Trenton, NJ	Skilled Nursing Facility	A+	7/31/2020	8/25/2025	Paid-In-Full	$	9,500,000	$	19,500,000	48.72	%	05/2020	$	-
19	1	KDM2020-N009	La Grange, IL	Industrial	A-	9/17/2020	10/25/2025	Paid-in-Full	$	2,308,000	$	3,550,000	65.0	%	07/2020	$	-
20	1	KDM2020-N008	Loves Park, IL	Industrial	A-	9/25/2020	10/25/2023	Paid-in-Full	$	7,765,000	$	13,170,000	58.96	%	09/2020	$	-
21	3	KDM2020-N010	Multifamily in AL, NY, FL	Multi-family	A-	9/30/2020	10/25/2025	Performing	$	8,684,000	$	13,660,000	63.6	%	08/2020	$	1,099,395
22	1	KDM2020-N012	Hampton, VA	Office	A	10/30/2020	11/25/2025	Performing	$	44,000,000	$	74,900,000	58.74	%	10/2020	$	44,000,000
23	2	KDM2020-N011	Stamford, CT	Office	A-	1/8/2021	2/25/2026	Performing	$	12,000,000	$	19,100,000	62.8	%	08/2020	$	12,000,000
24	3	KDM2021-N001	NJ, CA, TX	Mixed-use	A-	2/12/2021	3/25/2026	Performing	$	9,062,000	$	14,910,000	60.78	%	11/20,12/20, and 01/21	$	9,062,000
25	1	KDM2021-N002	Bellingham, WA	Office	BBB+	3/18/2021	4/25/2026	Performing	$	7,240,000	$	12,090,000	59.9	%	01/2021	$	7,240,000
26	1	KDM2021-N004	Ronkonkoma, NY	Warehouse	BBB/BBB+	3/31/2021	4/25/2026	Performing	$	2,179,000	$	3,800,000	57.3	%	01/2021	$	2,179,000
27	1	KDM2021-N005	Los Angeles, CA	Industrial	A-/ WD	4/23/2021	5/25/2024	REO	$	35,100,000	$	61,200,000	57.4	%	03/2021	$	35,100,000
28	1	KDM2021-N006	FL and SC	Office	A-/A	4/30/2021	5/25/2026	Performing	$	4,380,000	$	8,080,000	54.2	%	03/2021	$	1,980,000
29	1	KDM2021-N007	Cheyenne, WY	Industrial	A-	5/21/2021	6/25/2026	Paid -In-Full	$	7,100,000	$	12,200,000	58.2	%	04/2021	$	-
30	2	KDM2021-N008	Covina, CA & Las Cruces, NM	Retail	A-/A	6/25/2021	6/25/2024	Paid-in-Full	$	10,400,000	$	16,000,000	65.0	%	04/2021	$	-
31	1	KDM2021-N011	Stafford, VA	Office	A-/A	5/28/2021	6/25/2026	REO	$	9,500,000	$	15,000,000	63.3	%	04/2021	$	9,500,000
32	1	KDM2021-N013	East Orange, NJ	Education Center	A-	7/22/2021	8/25/2026	Performing	$	5,253,000	$	9,550,000	55.0	%	04/2021	$	5,253,000
33	2	KDM2021-N014	Mount Prospect, IL	Retail	A	7/23/2021	8/25/2025	Paid -In-Full	$	5,850,000	$	9,306,765	62.9	%	04/2021	$	-
34	3	KDM2021-N015	Acton, MA	Office	A-/ WD	8/25/2021	9/25/2026	REO	$	9,660,000	$	18,700,000	51.7	%	06/2021	$	9,660,000
35	3	KDM2021-N018	Columbus, Toledo, Alliance & Mansfield, OH	Skilled Nursing Facility	A	10/29/2021	11/25/2026	Paid -In-Full	$	23,000,000	$	35,400,000	65.0	%	09/2021	$	-
36	4	KDM2021-N020	Washington, PA & Goreville & Marion, IL	Funeral Homes & Office	A-	11/10/2021	12/25/2026	Paid off 89.90%	$	4,750,000	$	8,791,000	54.0	%	09/2021	$	-
37	1	KDM2021-N021	Kentucky	Office	A-	11/19/2021	12/25/2026	Performing	$	8,500,000	$	17,300,000	49.1	%	10/2021	$	8,500,000
38	1	KDM2021-N022	St. Louis, Missouri	Office	BBB+	12/8/2021	1/25/2027	Charge-Off	$	18,000,000	$	24,450,000	73.6	%	11/2021	$	-
39	1	KDM2022-N001	Allentown, PA	Office	A-	1/31/2022	2/25/2025	Performing	$	24,000,000	$	34,600,000	69.4	%	12/2021	$	24,120,000
40	2	KDM2022-N002	North Carolina & Virginia	Retail	A-	2/3/2022	2/25/2025	Performing	$	5,500,000	$	9,160,000	60.0	%	11/2021	$	5,500,000
41	4	KDM2022-N003	Ohio	Skilled Nursing Facility	A-	2/14/2022	3/25/2027	Paid -In-Full	$	16,500,000	$	33,100,000	49.8	%	12/2021	$	-
42	1	KDM2022-N006	Honolulu, HI	Special Use	A-	4/8/2022	5/25/2027	Performing	$	33,000,000	$	52,000,000	63.5	%	01/2022	$	24,306,660
43	4	KDM2022-N007	California and Texas	Retail	A-	6/22/2022	7/25/2027	Performing	$	11,720,000	$	18,610,000	63.0	%	12/2021	$	6,201,217
44	1	KDM2022-N009	Benton, Washington	Office	A+	8/12/2022	8/25/2027	Performing	$	44,880,000	$	78,300,000	57.3	%	07/2022	$	39,262,886
45	1	KDM2022-N010	Washington D.C.	Office	BBB+	8/18/2022	9/25/2027	Performing	$	3,850,000	$	8,200,000	47.0	%	04/2022	$	3,850,000
46	1	KDM2022-N011	Selma, Texas	Warehouse	A-/WD	6/28/2022	6/28/2027	REO	$	6,200,000	$	10,000,000	62.0	%	05/2022	$	6,200,000
47	1	KDM2022-N014	Coral Gables, Florida	Office	A-	12/9/2022	12/9/2027	Paid-in-Full	$	11,500,000	$	18,500,000	62.2	%	11/2022	$	-
48	1	KDM2023-N001	Long Beach, CA	Retail	A/A-/BBB	3/23/2023	4/25/2028	Paid-in-Full	$	55,000,000	$	86,900,000	63.3	%	01/2023	$	-
49	1	KDM2023-N002	Homewood, AL	Office	A-	7/11/2023	7/11/2028	Performing	$	11,500,000	$	19,600,000	58.7	%	05/2023	$	11,500,000
50	2	KDM2023-N003	Murray, Kentucky & Kingsport, Tennesseee	Multisecuritization	A-	7/28/2023	8/25/2028	Performing	$	6,200,000	$	10,700,000	50.5	%	05/2023	$	5,400,000
51	1	KDM2023-N006	Worcester, MA	Retail	BBB+	11/29/2023	12/25/2028	Performing	$	4,500,000	$	8,750,000	51.4	%	07/2023	$	4,500,000
52	1	KDM2023-N008	Ft Myers, FL	SFR	NR	12/20/2023	12/20/2025	Default	$	750,000	$	1,140,000	65.8	%	11/2023	$	750,000
53	2	KDM2024-N001	Pembroke Pines, FL	Medical Office	NR	3/5/2024	3/5/2034	Performing	$	1,333,368	$	1,400,000	95.2	%	11/2023	$	724,389
54	1	KDM2024-N002	Miami, FL	Industrial	NR	3/7/2024	3/7/2034	Performing	$	3,550,000	$	6,500,000	54.6	%	11/2023	$	3,506,194
55	2	KDM2024-N003	San Diego, CA	Mixed-use	NR	5/3/2024	6/1/2034	Performing	$	4,300,000	$	7,050,000	61.0	%	11/2023	$	4,252,599
56	2	KDM2019-N005	Capitol Heights, MD	Industrial	A-	12/5/2024	10/10/2029	Performing	$	5,250,000	$	9,000,000	58.3	%	11/2024	$	5,250,000
57	1	KDM2025-N001	San Diego, CA	Multi-Family	NR	1/17/2025	2/25/2027	Performing	$	2,900,000	$	19,900,000	62.8	%	06/2024	$	2,900,000
MFB 1	1	KDM2024-N004	Clute, TX	Multi-family	NR	6/28/2024	7/1/2026	Performing	$	9,440,000	$	13,500,000	69.9	%	04/2024	$	9,440,000
MFB 2	1	KDM2024-N005	Atlanta, GA	Multi-family	NR	6/7/2024	7/1/2026	Default	$	3,400,000	$	4,250,000	80.0	%	04/2024	$	3,400,000
MFB 3	1	KDM2024-N007	San Diego, CA	Multi-family	NR	8/14/2024	9/1/2026	Performing	$	12,500,000	$	19,900,000	62.8	%	06/2024	$	12,500,000

									$	627,494,618	$	1,064,797,765	61	%		$	355,586,927

* Ratings are the original and current ratings received from Egan-Jones Ratings Agency

** NR means the loan has not been rated and was either sold as a participation or an unrated bond.

*** Non-sequential loan numbers are due to some loans having been issued a file number, but the transaction was not closed, or is waiting to be closed

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Sales, Marketing and Customer Service

Our marketing efforts are designed to attract borrowers and brokers to solicit us for lending opportunities. Our origination team primarily does this through the substantial network of commercial mortgage brokers we have assembled, as well as through correspondent and wholesale relationships. We employ primarily email correspondence to mortgage brokers, banks, real estate agents, and commercial property owners to encourage them to present CM Loans to us for possible funding through the issuance of corresponding Notes. We attend trade shows, subscribe to lead generation databases, and loan and property platforms to find loans. We contact other financial institutions, directly and through brokers, that may own commercial mortgages, and may attempt to purchase mortgages for KDM.

Fraud detection

We consider fraud detection to be of utmost importance to the successful operation of our business. We employ a combination of proprietary technologies and commercially available licensed technologies and solutions to prevent and detect fraud. We use services from third-party vendors for user identification and Office of Foreign Assets Control (“OFAC”) compliance.

Notwithstanding KDM’s due diligence examination of the information provided to KDM by a borrower, there can be no assurance that the information provided to us, and on which we rely, is true, accurate, and complete.

Competition

The market for mortgage lending is competitive and rapidly evolving. We believe the following are the principal competitive factors in the lending market:

pricing and fees;

experience, including borrower full funding rates and investor returns;

branding; and

ease of use.

We face competition from major banking institutions, non-bank lenders, local banks, other private credit groups, as well as smaller private lenders.

Our success depends on further developing our network of transaction referral sources and broadening our distribution of our CM Investments.

We may also face future competition from new companies entering our market. If one or more of our competitors were to merge or partner with another of our competitors or a new market entrant, the change in competitive landscape could adversely affect our ability to compete effectively.

Item 7A. Quantitative and Qualitative Disclosures about Market Risk

Not required.

Item 8. Consolidated Financial Statements

The following is an index to the Consolidated Financial Statements of the Company being filed herewith commencing at page F-1 below:

Reports of Independent Registered Public Accounting Firms (PCAOB ID 213)		F-3

Reports of Independent Registered Public Accounting Firms (PCAOB ID 52)		F-4

Consolidated Statements of Financial Condition as of December 31, 2025 and 2024		F-5

Consolidated Statements of Operations for the years ended December 31, 2025 and 2024		F-6

Consolidated Statements of Changes in Stockholders’ Equity for the years ended December 31, 2025 and 2024		F-7

Consolidated Statements of Cash Flows for the years ended December 31, 2025 and 2024		F-8

Notes to the Consolidated Financial Statements		F-9

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Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure

The Company changed its independent registered public accounting firm during the year ended December 2025. There were no disagreements with either the former or current accountants during the years ended December 2025 and 2024, or any subsequent interim period.

Item 9A. Controls and Procedures

Evaluation of Disclosure Controls and Procedures

Disclosure controls and procedures are controls and other procedures that are designed to ensure that information required to be disclosed in our reports filed or submitted under the Securities Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the Securities and Exchange Commission’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed in our reports filed under the Exchange Act is accumulated and communicated to management, including our Chief Executive Officer and Chief Financial Officer, to allow timely decisions regarding required disclosure.

We carried out an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Securities Exchange Act Rules 13a-15(e) and 15d-15(e)) as of December 31, 2025. Based upon that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were effective as of December 31, 2025.

Management’s Report on Internal Control Over Financial Reporting

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

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

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

Under the supervision and with the participation of our Chief Executive Officer, we have evaluated the effectiveness of our internal control over financial reporting as of December 31, 2025, as required by Securities Exchange Act Rule 13a-15(c). In making our assessment, we have utilized the criteria set forth by the 2013 Internal Control Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission. We concluded that based on our evaluation, our internal control over financial reporting was effective as of December 31, 2025.

Changes in internal control over financial reporting

There have been no changes in our internal control over financial reporting that occurred during the fourth quarter ended December 31, 2025, or subsequent to the date the Company completed its evaluation, that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

Item 9B. Other Information

None

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PART III

Item 10. Directors, Executive Officers and Corporate Governance

As of the date of this Report, the Executive Officers and Directors of the Company were:

Name	Age	Office
James W. Korth	75	Chairman of the Board
Holly C. MacDonald-Korth	50	Chief Executive Officer, President, Chief Financial Officer and Director
Pamela J. Hipp	57	Director of Securities Marketing and Director
Daniel Llorente	46	Chief Lending Officer and Director
Jonathan L. Shepard	82	Secretary and Director

James W. Korth is the Chairman of the Board of Directors and was the Chief Executive Officer of KDM from 2016 until June 2023. He is also the Managing Partner of J W Korth & Company, LP, which he started in 1982. Mr. Korth has spent his business career as an investment banker in all manner of debt securities, including brokered CDs, and Certificates of Accrual on Treasury Securities (“CATS”), and has advised the US Treasury Department in the creation of the STRIPS program, and corporate General Term Notes, a Medium Term Note program emulated across the industry. Mr. Korth also manages several securities portfolios for clients of J W Korth & Company and holds his Series 4, 7, 24, 53, 66, and 79 licenses. He received his Master of Science from Michigan State University. Mr. Korth was made Chairman of the Board in June 2019.

Holly MacDonald-Korth is the Chief Executive Officer of KDM since June 2023, has been the President since 2019, and the Chief Financial Officer of KDM since 2016. Since 2006, she has been the Managing Director and Chief Financial Officer of J W Korth & Company, where she oversees all operations, finance, and business development for the firm. Prior to joining J W Korth, Ms. MacDonald-Korth was Senior Vice President at Overstock.com and a financial systems analyst at the Board of Governors of the Federal Reserve. Ms. MacDonald-Korth is the daughter of James W. Korth. She received a Bachelor of Business Administration with Honors in Finance from University of Miami. She holds her Series 7, 24, 27, and 66 licenses.

Daniel Llorente is the Chief Lending Officer of KDM since 2016. Mr. Llorente has over fourteen years of commercial and residential real estate financing experience at a variety of mortgage banks. Prior to joining KDM, Mr. Llorente was a Mortgage Loan Originator at Lakeview Loan Servicing. In 2013 and 2014 he served as an Associate Portfolio Manager at Bayview Loan Servicing. From 2012 -2013 he served as Assistant Vice President and Portfolio Manager at Intercredit Bank. From 2009 to 2012 he was Senior Loan Analyst at LNR Property LLC. Prior to that time he held positions at Regions Bank, Silver Hill Financial, and Lincoln Road Funding. All positions were in Miami, Florida and related to real estate financing. He is an ABA Certified Credit Analyst. Mr. Llorente graduated from Florida State University with a degree in finance and received an MBA from Nova Southeastern University.

Pamela J. Hipp is Managing Director of Fixed Income and Investor Relations and a Director. Ms. Hipp works for J. W. Korth & Company as Managing Director of Trading. She joined J. W. Korth in 2007 after its purchase of Cambridge Group Investments as regional trader and was promoted to Managing Director of Trading in 2010. Ms. Hipp has been in the securities industry for 23 years, first working at Citistreet Equities serving major corporations retirement account management; she then moved on to Cambridge Group in 2000. A Registered Representative and General Principal, Pam holds FINRA Series 7, 24, 63, 66, and 79 registrations and received her Bachelor of Science degree from Michigan State University. Pam is also a Partner of J. W. Korth and member of its Investment Committee, which guides recommendations and proprietary investment decisions.

Jonathan Shepard has been KDM’s Secretary and a Director since 2016. Mr. Shepard also served as outside general counsel to KDM from 2016 to 2021 and continues to act as outside counsel to the Company. He has practiced in New York City, Philadelphia, and Boca Raton, Florida, in law firms, corporations, and the United States Environmental Protection Agency. He was a partner in Siegel, Lipman, and Shepard, LLP, in Boca Raton from 1994 until December 2017, and in October 2017 formed Shepard PLLC, where he now practices in Boca Raton. He is a graduate of Princeton University and Yale Law School.

Board Committees

We do not have any Board committees. We anticipate that as we grow our business, we may establish formal committees, which may include an audit committee, a compensation committee, and a governance and nominating Committee.

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Code of Ethics

We adopted a Code of Conduct and Ethics that applies to all officers, directors, and employees of our Company on February 27, 2019. Any person may, without charge, request a copy of our Code of Ethics by writing [email protected]. Our code of ethics is also available on our website at http://www.korthdirect.com.

Item 11. Executive Compensation

Summary Compensation Table

The following table provides summary information regarding compensation earned by the named executive officer during the fiscal years ended December 31, 2025 and 2024.

							Option		All Other
Name			Salary		Bonus		Awards		Compensation		Total
and Principal Position	Year		($)		($)		(1)		($)		($)
Holly MacDonald Korth, Chief Executive Officer, President and Chief Financial Officer		2025	$	614,400	$	0		0	$	0	$	614,400
		2024	$	614,400	$			0	$	0	$	614,400
James W Korth, Chairman		2025	$	400,000	$	0		0	$	0	$	400,000
		2024	$	400,000	$	0		0	$	0	$	400,000

For the years ended December 31, 2025 and 2024, our Chief Lending Officer, Daniel Llorente, received compensation of $192,000.

The Company does not have a compensation or other committee of its directors.

Equity Compensation Plan Information

The Korth Direct Mortgage Inc. 2019 Stock Option Plan (the “Stock 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. Effective December 8^th, 2022 for the purchase of up to an aggregate of 3,000,000 shares of the Company’s common stock, $0.001 par value. The Stock Plan is administered by the Board of Directors or a committee appointed by the Board.

The purpose of the Stock Plan is to attract, retain and motivate employees, officers, directors, consultants, agents, advisors and independent contractors of the Company by providing them the opportunity to acquire a proprietary interest in the Company and to link their interests and efforts to the long-term interests of the Company’s shareholders.

The following table presents details of the Company’s equity compensation plan as of December 31, 2025:

	Number of securities to be issued upon exercise of outstanding options		Weighted-average exercise price of outstanding options		Number of securities remaining available for future issuance under equity compensation plans (excluding securities reflected in column (a))
	(a)		(b)		(c)
Equity compensation plans approved by security holders⁽¹⁾		1,065,000	$	1.15		1,935,00
Equity compensation plans not approved by security holders		–		–		–
Total		1,065,000	$	1.15		1,935,000

⁽¹⁾Consists of the Company’s Stock Plan.

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Description of the Stock Plan

The Stock Plan is administered by the Board of Directors of the Company. The maximum number of shares of common stock available for issuance under the Stock Plan is 3,000,000.

The Stock Plan permits awards of incentive stock options, nonqualified stock options, and restricted stock. The Stock Plan provides that the exercise price of any option will not be less than the fair market value of the common stock on the date of grant or, for a 10% shareholder, 110% of fair market value.

Eligibility

An award under the Stock Plan can be made to any employee, consultant, or director of the Company, as selected by the Board of Directors.

Shares Covered by the Stock Plan

The Stock Plan permits the granting of awards covering an aggregate of 1,065,000 shares of Company common stock. The shares of Company common stock may be either authorized but unissued shares or treasury shares.

Any shares that are reserved for options or performance shares that lapse, expire, terminate or are cancelled, or if shares of Company common stock are issued under the plan and are thereafter reacquired by the Company, the shares subject to such awards and the reacquired shares may be available for subsequent awards under the Stock Plan.

Stock Options and Rights

Options granted under the Stock Plan may be either non-qualified stock options or incentive stock options qualifying for special tax treatment under Section 422 of the Internal Revenue Code. The exercise price of any stock option may not be less than the fair market value of the shares of common stock on the date of grant and 110% of fair market value for 10% shareholders. The exercise price is payable in cash, shares of common stock previously owned by the optionee or a combination of cash and shares of common stock previously owned by the optionee, or by a recourse or non-recourse note executed by the nominee (subject to Sarbanes-Oxley prohibitions on officer loans). Both non-qualified stock options and incentive stock options will generally expire on the tenth anniversary of the date of the grant, unless otherwise specified.

Restricted Stock Plan

Under the Stock Plan, the Board of Directors may grant shares of restricted stock on terms and conditions, including performance criteria, repurchase and forfeiture, as determined by the Board. Upon satisfaction of the terms and conditions of the award, shares of restricted stock become transferable.

Amendment and Termination of the Stock Plan

The Board may, at any time, amend the Stock Plan or any portion of the plan, provided that to the extent required by law or a stock exchange rule, shareholder approval is required for any amendment to the plan. By its terms, the Stock Plan terminates ten years after its effective date.

Director Compensation

No directors receive compensation for their work as a director. However, directors received common stock options for their services as employees or consultants to the Company. See Item 12 “Security Ownership of Certain Beneficial Ownership and Management and Related Stockholder Matters”.

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Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters

The following table sets forth security ownership information pertaining to persons who are officers, directors, or known by us to beneficially own more than 5% of the common stock, which is the sole class of voting stock in the Company, and of all of the directors and executive officers of the Company as a group, as of December 31, 2025.

Except as otherwise indicated, each person and each group shown in the table has sole voting and investment power with respect to the shares of common stock indicated. For purposes of the table below, in accordance with Rule 13d-3 under the Securities Exchange Act of 1934, as amended, a person is deemed to be the beneficial owner, of any shares of our common stock over which he or she has or shares, directly or indirectly, voting or investment power or of which he or she has the right to acquire beneficial ownership at any time within 60 days. As used in this prospectus, “voting power” is the power to vote or direct the voting of shares and “investment power” includes the power to dispose or direct the disposition of shares. Common stock beneficially owned and percentage ownership was based on 5,000,000 shares outstanding on December 31, 2025, plus 1,065,000 shares deemed outstanding pursuant to Rule 13d-3, for a total of 6,065,000 shares outstanding. Unless otherwise indicated, the address of each beneficial owner is c/o Korth Direct Mortgage Inc., 135 San Lorenzo Ave, Coral Gables, FL 33146.

Name and Address	Number of Shares	Percent

5% Beneficial Owners

Directors and Executive Officers

James W. Korth Chairman of the Board Director	2,029,287	33.5%

Holly MacDonald-Korth	2,338,233	38.6%
Chief Executive Officer, President, Chief Financial Officer, Director

Pamela Hipp, Director ⁽¹⁾	501,587	8.3%

Daniel Llorente, Director⁽¹⁾	325,000	5.4%

Jonathan Shepard, Secretary and Director⁽¹⁾	55,000	0.9%

All directors and executive officers as a group (5 persons)⁽¹⁾	5,249,107	86.7%

⁽¹⁾

Includes pursuant to Rule 13d-3 common stock options exercisable within 60 days of the date of this Report, as follows: Mr. Korth, 50,000 shares; Ms MacDonald-Korth, 50,000 shares; Ms Hipp, 150,000 shares; Mr. Llorente, 325,000 shares; Mr. Shepard, 55,000 shares. See Item 11, “Executive Compensation-Equity Compensation Plan Information.”

The Company does not have a class of equity securities registered under Section 12 of the Securities Exchange Act of 1934

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The principal shareholders of the Company are Holly MacDonald-Korth (39%) and James Korth (34%). Mr. Korth is Chairman and a Director of the Company, and together with his daughter, Holly MacDonald-Korth, the CEO, President, Chief Financial Officer, and a Director of the Company, they both control 73% of the Company voting stock. In June 2023, Ms. MacDonald-Korth purchased 1,100,000 shares of Company stock from her father, making her the largest shareholder.

KDM earns money by making and servicing loans, J. W. Korth, a wholly owned subsidiary of KDM, is a broker-dealer that makes money by selling securities, including securities issued by KDM.

Some members of the KDM loan origination team are also registered brokers with J.W. Korth. Such employees may be paid for both origination and sales of a loan and a Note, respectively. We mitigate these conflicts of interest with compliance oversight and review of such transactions and compensation.

We believe we may have certain conflicts arising from our rating system. The same people doing our ratings may also benefit from the sales of Notes and making new CM Loans. Further, J.W. Korth is owned by KDM, and distributes our Notes and may make a market in them. Ratings will be reviewed periodically and changed as necessary for each CM Loan and the corresponding Notes. If a secondary market were to develop, secondary market prices for our Notes may move up or down if the rating is changed. However, no such market currently exists.

We may change any of our procedures regarding managing our conflicts of interest at any time. We also may amend our rating procedure at any time.

Indemnification Agreement

Our Bylaws provide that we will indemnify our members, managers and officers to the fullest extent permitted by Florida law.

Item 14. Principal Accountant Fees and Services

Carr, Riggs & Ingram, L.L.C (CRI) was engaged as the Company’s independent registered public accounting firm for the year ended December 31, 2025. Berkowitz Pollack and Brant was engaged as the Company’s independent registered public accounting firm for the year ended December 2024.

Auditor Fees

The following table sets forth fees billed, or expected to be billed, to the Company by the Company’s independent auditors for the years ended December 31, 2025 and 2024 for (i) services rendered for the audit of the Company’s annual financial statements and the review of the Company’s quarterly financial statements; (ii) services rendered that are reasonably related to the performance of the audit or review of the Company’s financial statements that are not reported as Audit Fees; (iii) services rendered in connection with tax preparation, compliance, advice and assistance; and (iv) all other services:

	2025		2024
Audit fees	$	240,798	$	205,261
Audit related fees		-		-
Total Fees	$	240,798	$	205,261

For 2025, the audit fees listed include J. W. Korth’s audit expense of $25,000 as well as KDM’s audit expense of $215,798.

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PART IV.

Item 15. Exhibits and Financial Statement Schedules

The following exhibits designated with a footnote reference are incorporated herein by reference to a prior registration statement or a periodic report filed by the Registrant pursuant to Section 13 or 15(d) of the Exchange Act:

Exhibit Number		Description

1.1		Purchase Agreement for Multiple Series of Mortgage Secured Notes between J.W. Korth & Company Limited Partnership as the initial purchaser, and Korth Direct Mortgage Inc. dated July 29, 2022. (incorporated by reference to Exhibit 1.1 to the Registrant’s report on Form 8-K filed August 4, 2022)

1.2		Purchase Agreement for Multiple Series of Mortgage Secured Notes between J.W. Korth & Company Limited Partnership as the initial purchaser, and KDM Funding I LLC dated July 29, 2022. (incorporated by reference to Exhibit 1.2 to the Registrant’s report on Form 8-K filed August 4, 2022)

3.1		Articles of Conversion, dated May 31, 2019 (incorporated by reference to Exhibit to 3.1 to the Registrant’s Report on Form 8-K filed June 28, 2019)

3.2		Articles of Incorporation of Korth Direct Mortgage Inc., dated May 31, 2019 (incorporated by reference to Exhibit to 3.2 to the Registrant’s Report on Form 8-K filed June 28, 2019)

3.3		Amendment to Articles of Incorporation of Korth Direct Mortgage Inc. and Certificate of Designation of Series A 6% Cumulative Perpetual Convertible Preferred Stock, as filed with the Florida Secretary of State on September 20, 2019 (incorporated by reference to Current Report on Form 8-K filed July 1, 2021)

3.4		Amendment to Articles of Incorporation of Korth Direct Mortgage Inc. and Amended Certificate of Designation of Series A 6% Cumulative Perpetual Convertible Preferred Stock, as filed with the Florida Secretary of State on March 20, 2020 (incorporated by reference to Current Report on Form 8-K filed July 1, 2021)

3.5		Amendment to Articles of Incorporation of Korth Direct Mortgage Inc. and Amendment to Amended Certificate of Designation of Series A 6% Cumulative Perpetual Convertible Preferred Stock, as filed with the Florida Secretary of State on June 25, 2021 (incorporated by reference to Current Report on Form 8-K filed July 1, 2021)

3.6		Articles of Amendment to Articles of Incorporation of Korth Direct Mortgage Inc. and Certificate of Designation of Series B 6.50% Cumulative Non-Voting Redeemable Secured Preferred Stock, as filed with the Florida Secretary of State on June 25, 2021 (incorporated by reference to Current Report on Form 8-K filed July 1, 2021)

3.7		Bylaws of Korth Direct Mortgage Inc., dated May 31, 2019 (incorporated by reference to Exhibit to 3.1 to the Registrant’s Report on Form 8-K filed June 28, 2019)

4.1		Trust Indenture and Security Agreement between Korth Direct Mortgage LLC, and Delaware trust Company dated November 17, 2017 (incorporated by reference to Exhibit 3.4 to registrant’s Registration Statement on Form S-1/A filed November 20, 2017)

4.2		Trust Indenture and Security Agreement (Rule 144A Offerings) between Korth Direct Mortgage LLC, and Delaware Trust Company dated September 20, 2018 (incorporated by reference to Registrant’s Report on Form 10-Q filed November 13, 2018)

4.3		Trust Indenture and Security Agreement Dated September 30, 2020, between Korth Direct Mortgage Inc. and Delaware Trust Company as Trustee (incorporated by reference to Exhibit 4.3 to the Registrant’s report on Form 8-K filed October 6, 2020)

4.4		Trust Indenture and Security Agreement (144A Private Placements) Among KDM Funding I LLC., Delaware Trust Company, and Korth Direct Mortgage Inc. (incorporated by reference to Exhibit 4.3 to the Registrant’s report on Form 8-K filed August 4, 2022)

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10.1		Korth Direct Mortgage Inc. 2019 Stock Option Plan (incorporated by reference to Exhibit 10.1 to the Registrant’s report on Form 8-K filed June 29, 2019)

10.2		Purchase Agreement dated July 31, 2020, among Korth Direct Mortgage Inc., a Florida corporation; J.W. Korth & Company Limited Partnership, a Michigan limited partnership; and JW Korth LLC, a Florida limited liability company (incorporated by reference to Current Report on Form 8-K filed August 6, 2020)

10.3		First Amendment to Purchase Agreement (incorporated by reference to Registrant’s Report on Form 10-Q filed August 16, 2021)

31.1		Section 302 Certificate of Chief Executive Officer and Chief Financial Officer *

32.1		Section 906 Certificate of Chief Executive Officer and Chief Financial Officer*

101		Interactive Data File

104		Cover Page Interactive Data File (formatted as inline XBRL and contained in Exhibit 101)*

*Filed herewith.

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SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

	KORTH DIRECT MORTGAGE, INC.

	By:	/s/ Holly MacDonald-Korth
		Holly MacDonald-Korth
		Chief Executive Officer and Chief Financial Officer

Pursuant to the requirements of the Securities Exchange Act of 1934, the following persons on behalf of the registrant and in the capacities and on the dates indicated have signed this report below.

Signature	Title	Date

/s/ Holly MacDonald-Korth	Chief Executive Officer and Chief Financial Officer	June 1, 2026
Holly MacDonald-Korth

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KORTH DIRECT MORTGAGE INC.

REPORT ON CONSOLIDATED FINANCIAL STATEMENTS

YEARS ENDED DECEMBER 31, 2025 AND 2024

F-1

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KORTH DIRECT MORTGAGE INC.

TABLE OF CONTENTS

CONSOLIDATED FINANCIAL STATEMENTS

YEARS ENDED DECEMBER 31, 2025 AND 2024

	PAGE(S)

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM (PCAOB ID 213)	F-3

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM (PCAOB ID 52)	F-4

CONSOLIDATED FINANCIAL STATEMENTS

Consolidated Statements of Financial Condition	F-5

Consolidated Statements of Operations	F-6

Consolidated Statements of Changes in Stockholders’ Equity	F-7

Consolidated Statements of Cash Flows	F-8

Notes to Consolidated Financial Statements	F-9

F-2

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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and
Stockholders of Korth Direct Mortgage, Inc.

Opinion on the Financial Statements

We have audited the accompanying consolidated statement of financial condition of Korth Direct Mortgage, Inc. (the “Company”) as of December 31, 2025, and the related consolidated statements of operations, changes in stockholders’ equity and cash flows for the year then ended, and the related notes (collectively referred to as the financial statements). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2025, and the results of its operations and its cash flows for the year then ended, in conformity with accounting principles generally accepted in the United States of America.

Basis for Opinion

These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audit. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (“PCAOB”) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audit, we are required to obtain an understanding of internal control over financial reporting, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.

Our audit included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audit also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audit provides a reasonable basis for our opinion.

Critical Audit Matters

Critical audit matters are matters arising from the current period audit of the financial statements that were communicated or required to be communicated to the audit committee and that (1) relate to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. We determined that there were no critical audit matters.

/s/ Carr, Riggs & Ingram, L.L.C.

We have served as the Company’s auditor since 2026.

Palm Beach Gardens, FL

June 1, 2026

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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and
Stockholders of Korth Direct Mortgage, Inc.

Opinion on the Financial Statements

We have audited the accompanying balance sheets of Korth Direct Mortgage, Inc. (the Company) as of December 31, 2024 and 2023, and the related statements of income, comprehensive income, stockholders’ equity, and cash flows for each of the years in the two-year period ended December 31, 2024, and the related notes (collectively referred to as the financial statements). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2024 and 2023, and the results of its operations and its cash flows for each of the years in the two-year period ended December 31, 2024, in conformity with accounting principles generally accepted in the United States of America.

Basis for Opinion

These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits, we are required to obtain an understanding of internal control over financial reporting, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.

Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.

Critical Audit Matters

/s/ Berkowitz Pollack Brant, Advisors + CPAs

We have served as the Company’s auditor since 2021.

West Palm Beach, FL

April 1, 2025

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KORTH DIRECT MORTGAGE, INC.

AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION


	December 31, 2025			December 31, 2024
ASSETS
Cash and Cash Equivalents	$	5,354,168		$	2,898,659
Restricted Cash		4,913,585			15,431,460
Restricted Investment		-			1,192,510
Mortgages Owned		285,416,050			451,974,989
Mortgage Servicing Rights, at Fair Value		6,108,755			9,260,225
Portfolio Loans		5,690,984			5,161,709
Loans Held for Sale		-			520,215
Securities		41,991			41,991
Right-of-Use ("ROU") Leased Asset		560,599			270,281
Goodwill		110,000			110,000
Property and equipment, net of depreciation		69,691,129			31,922,404
Other Assets		2,966,752			3,067,100
TOTAL ASSETS	$	380,854,013		$	521,851,543

LIABILITIES AND STOCKHOLDERS' EQUITY

LIABILITIES
Escrows Payable	$	4,138,619		$	15,306,451
Lease Liability		562,927			294,412
Deferred Revenue, net		1,076,253			1,958,967
Deferred Tax Liability, net		1,478,632			1,378,721
Line of Credit Payable		3,000,000			-
Mortgage Secured Notes Payable		319,683,008			450,264,519
Warehouse Line of Credit, net		17,383,887			17,269,278
Other Liabilities and Payables		3,822,288			4,613,539
Total Liabilities		351,145,614			491,085,887

STOCKHOLDERS' EQUITY
Accumulated Deficit		(5,669,795	)		(3,325,687	)
Additional Paid-in Capital		29,685,818			29,632,262
Common Stock, $0.001 par value, 60,000,000 shares authorized 5,000,000 shares issued and outstanding at December 31, 2025 and December 31, 2024		5,000			5,000
Series A Preferred Stock, $0.001 par value, 460,000 shares authorized, 460,000 shares issued and outstanding at December 31, 2025 and December 31, 2024		460			460
Series B Preferred Stock, $0.001 par value, 20,000 shares authorized, 19,000 issued and outstanding at December 31, 2025 and December 31, 2024		19			19
Non-Controlling Interest		5,686,897			4,453,602
Total Stockholders' Equity		29,708,399			30,765,656

TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY	$	380,854,013		$	521,851,543

See accompanying notes to the consolidated financial statements.

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KORTH DIRECT MORTGAGE, INC.

AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS


	For Year Ended			For Year Ended
	December 31, 2025			December 31, 2024

REVENUES
Origination Revenue, Net	$	2,918,424		$	1,688,843
Servicing Revenue		4,126,006			5,040,383
Underwriting Income		82,910			99,063
Leasing Revenue		5,826,647			2,998,688
Investment Interest		3,213,459			-
Other Revenue		1,068,076			2,240,680
Total Revenues		17,235,522			12,067,657

COST OF REVENUES
Broker Underwriting Expense		1,922,088			1,610,590
Administrative Expenses		2,093,190			1,941,428
Total Cost of Revenues		4,015,278			3,552,018

GROSS PROFIT		13,220,244			8,515,639

OPERATING EXPENSES
Office		3,059,613			2,313,669
Compensation and Related Benefits		4,098,923			4,511,675
Professional and Legal		1,523,291			1,176,156
Advertising		44,944			288,822
Depreciation		1,807,068			1,242,793
Total Expenses		10,533,839			9,533,115

Income (Loss) From Operations		2,686,405			(1,017,476	)

Other Expense
Unrealized (Loss) Gain on Mortgages		(3,151,470	)		14,348
Unrealized (Loss) Gain on Mortgage Secured Notes		(23,215	)		39,501
Unrealized Gain on Investment		25,682			-
Unrealized Gain on Securities		59,457			-
Interest Expense		(2,300,779	)		(1,802,786	)
Net Gains on Foreclosed Real Estate		3,199,104			765,068
Realized Loss on Mortgage Secured Notes		-			(434	)
Realized Loss on Loans Held for Sale		(526	)		(141,647	)
Change in Fair Value of Mortgage Secured Notes		9,000,000			12,660,000
Loss on Foreclosures		(9,000,000	)		(12,660,000	)
Total Other Expense		(2,191,747	)		(1,125,950	)

Income (Loss) before provision for income taxes		494,658			(2,143,426	)

Provision (Tax benefit) for income taxes		126,363			(633,698	)

Net Income (Loss) before non-controlling interest		368,295			(1,509,728	)
Less: Net Income attributable to non-controlling interest		787,403			184,179

Net Loss		(419,108	)		(1,693,907	)

Series A Preferred Dividends		690,000			690,000

Series B Preferred Dividends		1,235,000			1,235,000
Net loss attributable to common stockholders	$	(2,344,108	)	$	(3,618,907	)

See accompanying notes to the consolidated financial statements.

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KORTH DIRECT MORTGAGE, INC.

AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY


	Series A Preferred Stock				Series B Preferred Stock				Common Stock				Additional Paid		Accumulated			Non-Controlling
	Shares		Amount		Shares		Amount		Shares		Amount		in Capital		Deficit			Interest		Totals


Balance at January 1, 2024		460,000	$	460		19,000	$	19		5,000,000	$	5,000	$	29,578,706	$	293,220		$	191,153	$	30,068,558

Share-based compensation		-		-		-		-		-		-		53,556		-			-		53,556
Series A and Series B preferred stock dividends declared		-		-		-		-		-		-		-		(1,925,000	)		-		(1,925,000	)
Investment in fund		-		-		-		-		-		-		-		-			4,078,270		4,078,270
Net (loss) income		-		-		-		-		-		-		-		(1,693,907	)		184,179		(1,509,728	)

Balance at December 31, 2024		460,000	$	460		19,000		19		5,000,000	$	5,000	$	29,632,262	$	(3,325,687	)	$	4,453,602	$	30,765,656

Share-based compensation		-		-		-		-		-		-		53,556		-			-		53,556
Series A and Series B preferred stock dividends declared		-		-		-		-		-		-		-		(1,925,000	)		-		(1,925,000	)
Investment in fund		-		-		-		-		-		-		-		-			445,892		445,892
Net (loss) income		-		-		-		-		-		-		-		(419,108	)		787,403		368,295

Balance at December 31, 2025		460,000	$	460		19,000	$	19		5,000,000	$	5,000	$	29,685,818	$	(5,669,795	)	$	5,686,897	$	29,708,399

See accompanying notes to the consolidated financial statements.

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KORTH DIRECT MORTGAGE, INC.

AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS


	For the Year Ended			For the Year Ended
	December 31, 2025			December 31, 2024
CASH FLOWS FROM OPERATING ACTIVITIES
Net Income (Loss)	$	368,295		$	(1,509,728	)
Adjustments to Reconcile Net Income (Loss)
Net Cash Used In Operating Activities:
Unrealized Loss (Gain) on Mortgages Owned		3,151,470			(14,348	)
Unrealized Loss (Gain) on Mortgage Secured Notes		23,215			(39,501	)
Unrealized (Gain) Loss on Securities		(59,457	)		82,510
Unrealized Gain on Investment		(25,682	)		-
Net Gains on Foreclosed Real Estate		(3,199,104	)		(765,068	)
Realized Loss on Loans Held for Sale		526			141,647
Change in Fair Value of Mortgage Secured Notes		(9,000,000	)		(12,660,000	)
Loss on Foreclosures		9,000,000			12,660,000
Stock Compensation Expense		53,556			53,556
Depreciation		1,807,068			1,242,793
Amortization of loan costs		114,609			785,083
Deferred rent expense from operating lease		(21,803	)		(14,420	)
Deferred income taxes		99,911			(633,698	)
Changes in Operating Assets and Liabilities:
Mortgage Secured Notes Issued		3,900,000			(22,229,991	)
Restricted Investment		1,192,510			(1,192,510	)
Line of Credit Payable		3,000,000			-
Warehouse Line of Credit		-			6,293,091
Portfolio Loans		(2,696,471	)		2,512,489
Loans Held For Sale		519,689			5,413,065
Other Assets		(461,777	)		(931,048	)
Deferred Revenue, net		(882,714	)		233,164
Escrow Payable		(11,167,832	)		422,237
Contingent Liability		-			(164,644	)
Securities Sold Short		-			(2,565,082	)
Other Liabilities and Payables		(791,251	)		2,582,877
New Mortgage Lending		(6,745,447	)		4,849,419
Mortgage Loans Matured/Paid Off		(2,451,443	)		-
Total Adjustments		(14,640,427	)		(3,938,378	)

NET CASH USED IN OPERATING ACTIVITIES		(14,272,132	)		(5,448,106	)

CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of property and equipment		(1,326,290	)		(76,853	)
Disposals of PP&E		9,015,164			-
NET CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES		7,688,874			(76,853	)

CASH FLOWS FROM FINANCING ACTIVITIES
Payment of Series A/B preferred stock dividends		(1,925,000	)		(1,925,000	)
Investment in Fund		445,892			4,078,270
NET CASH (USED IN) PROVIDED BY FINANCING ACTIVITIES		(1,479,108	)		2,153,270

NET DECREASE IN CASH, CASH EQUIVALENTS AND RESTRICTED CASH		(8,062,366	)		(3,371,689	)

CASH, CASH EQUIVALENTS AND RESTRICTED CASH – Beginning of Year		18,330,119			21,701,808

CASH, CASH EQUIVALENTS AND RESTRICTED CASH – End of Year	$	10,267,753		$	18,330,119

SUPPLEMENTAL DISCLOSURE OF CASH FLOWS INFORMATION
Cash paid during the year for interest	$	2,186,170		$	689,129
Income taxes paid, net of refunds
Federal	$	-		$	-
State		-			-
NON-CASH INVESTING AND FINANCING ACTIVITIES
Assets acquired through settlement in lieu of foreclosure	$	49,024,228		$	15,765,068

See accompanying notes to the consolidated financial statements.

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KORTH DIRECT MORTGAGE, INC

AND SUBSIDIARIES

NOTES TO AUDITED CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1 - NATURE OF BUSINESS

Korth Direct Mortgage, Inc. (the “Company” or “KDM”) is incorporated in the State of Florida. The Company was created to originate mortgages and fund those mortgages with Notes secured by mortgage loans. J.W. Korth & Company Limited Partnership (“J.W. Korth”) is a wholly owned subsidiary of KDM.

J.W. Korth is a securities broker dealer registered with the Securities Exchange Commission and the states of Michigan, Florida, and various other states and an Securities and Exchange Commissions (“SEC”) registered investment adviser under the Investment Advisers Act of 1940. J.W. Korth is a licensed member of the Financial Industry Regulatory Authority (FINRA), the Securities Investor Protection Corporation, as well as a Municipal Securities Rulemaking Board (MSRB) registrant.

On July 28, 2022, KDM created a new wholly owned subsidiary, KDM Funding I LLC (“KDMF”), which is an additional issuer of Mortgage Secured Notes (“MSNs”). KDM is the servicer of KDMF’s loans, and all revenue and expenses are passed through to the Company and consolidated within these financial statements. See the current report Form 8-K filed with the Commission on August 5, 2022, for more information concerning the business of KDMF.

KDM a owns a controlling interest in KDM Seaton Colyton Holdings LLC, and owns 100% of KDM Nagog Park LLC, KDM Beyer Drive Holding LLC, KDM Stafford LLC and KDM Cupples REO LLC, which are special purpose entities whose primary business purpose is to own and operate various commercial real estate properties. Currently, these entities own properties in Stafford, VA, Los Angeles, CA, Acton, MA, St. Louis, MS, and Selam, TX. KDM’s operations with respect to these properties is detailed under the Asset Management section of Segment Reporting (“Note 19”).

KDM Capital Partners LP (the “Fund”) was formed in June 2024 as a limited partnership in the state of Delaware in which the Company holds a controlling financial interest The Fund’s primary business purpose is to invest in mortgages that are originated and serviced by KDM and other real estate related investments. KDM Capital, LLC serves as the Fund’s General Partner and J.W. Korth serves as the Fund’s Investment Manager. The Fund is actively raising capital.

The Fund qualifies as an investment company, as defined in Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) Topic 946 Financial Services – Investment Companies, and, therefore, is applying the specialized accounting and reporting guidance pursuant to ASC Topic 946.

The Company may create and operate other special purpose and pass-through entities typically organized as limited liability companies in order to own real estate and issue additional securities. These entities will be consolidated into these consolidated financial statements, if and when created.

NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

PRINCIPLES OF CONSOLIDATION

The accompanying condensed consolidated financial statements include the accounts of the Company and the accounts of the Company’s wholly owned subsidiaries J.W. Korth, KDM MFB LLC, KDM Funding I LLC, KDM Nagog Park LLC, KDM Cupples REO LLC, KDM Beyer Drive Holdings LLC, KDM Capital Management LLC, KDM Capital Partners LP, KDM Capital LLC, KDM Asset Management LLC, and KDM Stafford LLC and KDM Seaton Colyton Holdings LLC, in which KDM owns a controlling interest.

BASIS OF ACCOUNTING

The accompanying condensed consolidated financial statements have been prepared on the accrual basis of accounting, in accordance with Generally Accepted Accounting Principles (“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 consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

CASH, CASH EQUIVALENTS AND RESTRICTED CASH

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

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The following table provides a reconciliation of cash and cash equivalents, and restricted cash to amounts shown in the consolidated statements of cash flows as of December 31, 2025 and 2024:

Schedule of cash and cash equivalents
	2025		2024
Cash and Cash Equivalents	$	5,354,168	$	2,898,659
Restricted Cash		4,913,585		15,431,460
	$	10,267,753	$	18,330,119

The Company maintains cash and restricted cash balances at financial institutions in excess of federally insured limits. The Company has not experienced any losses related to these balances. The Federal Deposit Insurance Corporation insures eligible accounts up to $250,000 per depositor at each financial institution. The Company holds cash and restricted cash at well-known banks and does not believe that it is exposed to any significant credit risk on cash and cash equivalents.

MORTGAGE VALUATION

Mortgages that are current are carried at the principal value owed by the borrower, as of the date of the consolidtaed financial statements, according to the amortization schedule for the loans, amortized cost. All mortgages owned as of the date of these consolidated financial statements are current. The net present value of the servicing revenue is recorded as mortgage servicing rights, at fair value on the Consolidated Statements of Financial Condition and the change in mortgage servicing rights from year to year is recognized on the Consolidated Statements of Operations as an unrealized gain/loss on mortgages.

MORTGAGES OWNED

The Company has funded the majority of the mortgage loans that it has made by issuing Mortgage Secured Notes (“MSNs”), which are secured by those same mortgages. As of December 31, 2025 and 2024, the Company has outstanding loans totaling $285,416,050 and $451,974,989, respectively, and it issued MSNs secured by those loans, also in the amount of $319,683,008 and $450,264,519, respectively. The deals have been funded in multiple ways, including private placements, SEC registered deals, and 144A offerings. The Company also funds loans via participation, or a combination of MSN and participation; it also funds a portion of certain loans using its own capital in addition to capital provided by the Fund.

PORTFOLIO LOANS

The Company recognizes loans made with its own capital, or those not securitized or participated out, under the caption “Portfolio Loans” on the balance sheet. As of December 31, 2025 and 2024, the Company issued Portfolio Loans in the amount of $5,690,984 and $5,161,709, respectively. These loans were funded by the Company as well as its affiliates.

LOANS HELD FOR SALE

The Company purchases small balance commercial loans classified as held for sale which are carried at the lower of amortized cost basis or market value. We determine the fair value of mortgage loans held for sale by using a discounted cash flow model.

GOODWILL

Financial Accounting Standards Board Accounting Standards Codification (“ASC”) Topic 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 years ended December 31, 2025 and 2024.

REVENUE RECOGNITION

The Company’s primary sources of revenue are generated from origination fees, servicing fees, underwriting income, and leasing revenue.

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 Consolidated Statements of Financial Condition.

Servicing Fees

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

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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.

Leasing Revenue

Leasing revenue represents revenues generated at rental properties majority-owned and controlled by KDM through operating leases. Leasing revenues are generated through KDM Stafford and KDM Seaton Colyton Holdings LLC, in which the Company holds a controlling interest, and the Company’s wholly-owned subsidiaries, KDM Nagog Park KDM Beyer Drive Holdings LLC, and KDM Cupples REO. Leasing revenue generated from operating leases are recognized over the lease term on a straight-line basis. We recorded rental revenue of $5,826,647 for the year ended December 31, 2025 and $2,998,688 for the year ended December 31, 2024.

Investment Interest

Investment Interest represents the Fund's interest income from its investments, including interest earned on loans and interest earned on cash balances. Interest income is recognized over the term of the investment based on the principal amount outstanding and is recognized as earned.

LEASES

In February 2016, the FASB issued Accounting Standards Update (“ASU”) No. 2016-02, “Leases (Topic 842).” The standard requires organizations to recognize right-of-use (“ROU”) assets and lease liabilities on the balance sheet. The Company recognizes lease liabilities with a corresponding ROU leased asset of approximately the same amount based on the present value of the remaining lease payments pursuant to current leasing standards for existing operating leases.

STOCK-BASED COMPENSATION

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

The Black-Scholes option pricing model requires assumptions for the expected volatility of the share price of our common stock, the expected dividend yield, and a risk-free interest rate over the expected term of the stock-based award.

Since the Company’s common stock is not publicly traded, we do not have sufficient Company specific information regarding the volatility of our share price on which to base an estimate of expected volatility. As a result, we use the historical volatilities of similar entities within our industry as the expected volatility of our share price.

The expected dividend yield is 0% as the Company has not paid any dividends on its common stock and does not anticipate it will pay any dividends in the foreseeable future on its common stock.

The risk-free interest rate is based on the U.S. Treasury yield curve in effect at the time of the grant date with a remaining term equal to the expected term of the stock-based award.

Since the Company does not have sufficient historical exercise data to provide a reasonable basis upon which to estimate the expected term, the Company utilizes the simplified method to calculate the expected term of stock-based awards based on the average of the vesting term and contractual term of the award.

The assumptions used in calculating the fair value of stock-based awards represent our best estimates, but these estimates involve inherent uncertainties and the application of management judgment. As a result, if factors change and we use different assumptions, our stock-based compensation expense could be materially different in the future.

Unrealized Gain on Mortgages

The net present value of the servicing income is recognized at the time the mortgage is initiated. The changes to the net present value which is determined by the determination of the fair value of the assets are recognized through an adjustment to the unrealized gain/loss in each reporting period. This value uses several inputs that are highly subjective including: discount rate, prepayment rate, the current interest rate environment, and default rate assumptions. We use a third-party to calculate this value.

DUE TO CLEARINGHOUSE BROKERS

J.W. Korth 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 December 31, 2025 and December 31, 2024, the Company had a net amount due to the clearinghouse brokers of $0.

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DEPRECIATION

Depreciation of property, plant and equipment is provided on a straight-line basis using estimated useful lives of three to thirty-nine years.

INCOME TAXES

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. The Company’s tax returns for the years ended December 31, 2022 and after remain subject to examination by federal and state jurisdictions.

RECENT ACCOUNTING PRONOUNCEMENTS

Improvements to Credit Loss Estimates

In June 2016, the FASB issued ASU No. 2016-13 “Financial Instruments, Measurement of Credit Losses on Financial Instruments.” This ASU updates the existing incurred loss model to a current expected credit loss (“CECL”) model for financial assets and net investments in leases that are not accounted for at fair value through earnings. The amendments affect cash and cash equivalents, reverse repurchase agreements, certain loans, held-to-maturity debt securities, trade receivables, net investments in leases, off-balance sheet credit exposures and any other financial assets not excluded from the scope. There are also limited amendments to the impairment model for available-for-sale debt securities. ASU No. 2016-13 is effective for annual reporting periods beginning after December 15, 2022 for public smaller reporting companies, including interim reporting periods within those fiscal years

Improvements to Reportable Segment Disclosures

In November 2023, the FASB issued ASU No. 2023-07, which requires public entities to disclose significant segment expenses and other segment items on an annual and interim basis and to provide in interim periods all disclosures about a reportable segment’s profit or loss and assets that are currently required annually. Public entities with a single reportable segment are required to provide the new disclosures and all the disclosures required under ASC 280, Segment Reporting. The ASU does not change how a public entity identifies its operating segments, aggregates them or applies the quantitative thresholds to determine its reportable segments. The ASU is effective for fiscal years beginning after December 15, 2023, and for interim periods beginning after December 15, 2024, with early adoption permitted. The guidance should be applied retrospectively to all periods presented in the financial statements, unless it is impracticable. The segment expense categories and amounts disclosed in the prior periods should be based on the significant segment expense categories identified and disclosed in the period of adoption. The Company adopted this ASU in 2020, which did not have a material impact on the Company's financial condition, results of operations or financial statement disclosures.

Improvements to Income Tax Disclosures

In December 2023, the FASB issued ASU No. 2023-09, which requires entities to provide additional information about federal, state and foreign income taxes and reconciling items in the rate reconciliation table, and to disclose further disaggregation of income taxes paid (net of refunds received) by federal (national), state and foreign taxes by jurisdiction. For public business entities, the ASU is effective for annual periods beginning after December 15, 2024, with early adoption permitted. The guidance should be applied prospectively, but entities have the option to apply it retrospectively for each period presented. The Company adopted this ASU on a prospective basis and determined it will not have a material impact on the Company’s financial condition, results of operations or financial statement disclosures.

NOTE 3 – CONTINGENT LIABILITY

As part of the acquisition of J. W. Korth in 2020, the Company agreed to pay (i) the Preferred Capital Interest partners of J.W. Korth accrued and unpaid 6% dividends through July 31, 2020; (ii) the J.W. Korth Preferred Capital Interest Partners quarterly dividends concurrently with its payment of the Company’s Series A Preferred Stock dividends at least annually; and (iii) in such years as it pays Series A Preferred dividends, redeem 25% annually of the J.W. Korth Preferred Capital Interest partners through a capital contribution to JW Korth. The contingent liability was paid off in July 2024.

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The following table summarizes the unpaid Contingent Liability outstanding as of December 31, 2025 and 2024:


	2025		2024
Contingent liability to redeem J.W. Korth Preferred Capital Interest Partners	$	0	$	164,644
Contingent liability payment		0		(164,644	)
Accrued and unpaid dividends recorded as interest expense		0		0
Contingent Liability, net	$	0	$	0

NOTE 4 – MORTGAGE SECURED NOTES PAYABLE

As stated above in Note 2, the Company funds the majority of mortgage loans that it makes by issuing Mortgage Secured Notes (“MSNs”), which are secured by those same mortgages. As of December 31, 2025 and 2024, the Company has funded loans with current values totaling $285,416,050 and $451,974,989, respectively, and it issued MSNs secured by those loans in the amount of $319,683,008 and $450,264,519, respectively. The deals have been funded in multiple ways, including private placements, SEC registered deals, and 144A offerings.

The MSNs are typically five-year interest-only notes with the principal balance due at maturity, but terms can vary. Interest rates on the MSNs range from 4.25% to 9.94% and mature at various dates from January 2026 to June 2037. The MSNs are payable to the extent that the Company receives payment from the borrower of the mortgage loans. Payments are received from the borrowers and passed through to the MSN noteholders. KDM has custodial responsibility for the MSNs pursuant to the Trust Indenture for the Notes. There are no limitations in KDM’s liability as servicer of its MSNs.

The following table is a schedule of future maturities of the MSNs for each of the five years and thereafter subsequent to December 31, 2025:

Scheduled of principal payments
Years ending December 31	Future Maturities of Debt

2026		138,340,990
2027		45,560,356
2028		20,635,488
2029		37,517,328
2030		46,945,755
Thereafter		30,683,091
Total	$	319,683,008

NOTE 5 - RESTRICTED CASH AND INVESTMENTS

The Company maintains multiple segregated accounts in trust for borrowers and investors. The value of these accounts is carried under the asset accounts, “Restricted Cash” and “Restricted Investment,” with respective offsets to the liability accounts, “Escrows Payable” and “Other Liabilities and Payables.”

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 has a balance of $1,375,700 and $5,585,017 as of December 31, 2025 and 2024, respectively. This account is included as part of the Escrow Payable liability account.

The “In Trust for 2” account receives payments from borrowers and distributes payments to investors and pays the servicing fee to the Company. This account has a balance of $466,216 and $994,858 as of December 31, 2025 and 2024, respectively, which consists of borrower early payments and commitment fees. This account is included as part of the Other Liabilities and Payables liability account.

The Company also maintains multiple lockbox accounts that collect rental payments directly from tenants on the borrowers’ behalf. These accounts typically net out funds monthly. The lockbox account balances were $0 as of December 31, 2025 and 2024. This account is included as part of the Escrow Payable liability account.

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The Company maintains an account for payment of quarterly Preferred Series B dividends that has a balance of $308,750 as of December 31, 2025 and 2024.

The Company maintains an account restricted per the warehouse line agreement that has a balance of $0 as of December 31, 2025 and 2024. See “Note 15 – Lines of Credit.”

The Company maintains a cash management account that holds a portion of the restricted cash, which is swept on a regular basis. The account had a balance of $100,000 and $2,322,094 as of December 31, 2025 and December 31, 2024, respectively. This account is included as part of the Escrow Payable liability account.

The Company invests a portion of the restricted cash collected from borrowers in U.S. Treasury Bills with maturities of six to twelve months. The Restricted Investment account had a balance of $0 and $1,192,510 as of December 31, 2025 and 2024, respectively. This account is included as part of the Escrow Payable liability account.

The Company invests a portion of restricted cash from borrowers in a savings account with a balance of $250,000 as of December 31, 2025 and 2024.

The Company has opened two cash management accounts at J.W. Korth & Company that will hold a portion of restricted cash. The balances as of December 31, 2025 and 2024, were $2,412,918 and $2,750,982, respectively.

NOTE 6 –RENTAL PROPERTY

In November 2022, through a Settlement in Lieu of Foreclosure Agreement, the Company obtained majority ownership and the controlling interest in rental property located in Stafford, Virginia. As part of the agreement, a $9.5 million mortgage held by the Company was assigned to a newly created special-purpose entity, KDM Stafford LLC, which is controlled by the Company. For the years ended December 31, 2025 and December 31, 2024, the Company recorded net loss attributable to its interest of $41,908 and $53,698, respectively. In 2025, KDM Stafford LLC moved from being a majority owned entity to a wholly owned entity. In addition, a portfolio loan held by the Company in the amount of $7.5 million was classified as an investment in the special-purpose entity which is eliminated in consolidation.

In March 2024, through foreclosure and via a special-purpose entity named KDM Nagog Park LLC, a wholly owned subsidiary, KDM took possession of a 3 building office park in Acton, Massachusetts. Similarly, via deed in lieu of foreclosure in April 2024, KDM took ownership of an office building in St. Louis, Missouri through a wholly owned subsidiary named KDM Cupples REO LLC. The activity of the wholly owned subsidiaries, KDM Nagog Park LLC and KDM Cupples REO LLC, are included in the Company’s consolidated financial statements beginning in the second quarter of 2024.

After acquiring the office building in April 2024, in May 2025, KDM Cupples REO LLC defaulted on the ground lease of the property it owned in St. Louis, Missouri. After a meeting with the bondholders, where KDM informed all bondholders that capital would need to be raised to pay the taxes, insurance, and ground rent, in order to not default, with additional funds in order to stabilize the property, the bondholders elected not to retain ownership of the property. The ground lessor terminated the ground lease and KDM Cupples REO LLC no longer owns the leasehold estate. On June 23, 2025, KDM removed the $9,000,000 asset from its balance sheet and canceled the related outstanding bonds. The transaction is reflected in the consolidated statements of operations as a loss on foreclosure and change in fair value of mortgage secured notes.

In March 2025 and April 2025, via deed in lieu of foreclosure, KDM acquired a mixed use property in Los Angeles, California, a majority-owned via a subsidiary named KDM Seaton Colyton Holdings, LLC; and an owner-occupied building in Selma, TX. As part of the deed in lieu transactions, the Company recognized a gain of $3,199,104 which was the difference between the fair value of the net assets acquired, the mortgage liability assumed, and the consideration paid on the transaction date. The following table summarizes the transactions:


Fair Value of Net Assets Acquired:
Restricted Cash	$	66,300
Building and land		46,600,000
Mortgage liability assumed		(41,300,000	)
Net Assets Acquired		5,366,300
Less: Investments in special-purpose entity		(2,167,196	)
Gain on Foreclosed Real Estate	$	3,199,104

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We have 17 and 20 operating leases where we are the lessor resulting in $5,826,647 and $2,998,688 in leasing revenue for the years ended December 31, 2025 and 2024, respectively. We lease retail and office space. Future undiscounted lease income from operating leases where we are the lessor were as follows as of December 31, 2025:


Summary of 5 year future rents:

2026	$	3,381,681
2027		3,041,271
2028		2,666,915
2029		2,441,659
2030		2,455,995
Thereafter		29,183,525
	$	43,171,046

Property is recorded at fair market value and depreciation is recognized over a 39-year period. For these properties, we recorded depreciation expense of $1,052,486 and $742,949 for the years ended December 31, 2025 and 2024, respectively.

NOTE 7 - COMMITMENTS AND CONTINGENCIES

The Company maintains office space in Coral Gables, Florida. The Company entered into a lease in November 2020 for a term of sixty-two months with the right to extend the term of the lease for two additional, successive periods of two years upon the same terms and conditions of the initial term. The Company exercised its first option for two additional years.

From time to time, the Company may enter into a Sublease Agreement to sublet a portion of the office space described above. The subtenant agrees to cover the proportionate amount of the lease costs associated with the office space based on essentially the same terms as the lease described above, including the rights to extend for two successive two-year periods. For the years ended December 31, 2025 and 2024, the Company recognized $0 and $11,026, respectively, of sublease rental revenue, which is recorded as an offset to the Company’s rental expense discussed below.

The J. W. Korth Michigan office has a lease which began in May 2021 for a term of sixty months.

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

Net rental expense for the year ended December 31, 2025 was $315,061 compared to $307,314 for the year ended December 31, 2024, which includes additional expenses for common area, direct operating expense, utilities, parking, and taxes.

As of December 31, 2025, the net present value of the future lease liabilities, using the weighted-average discount rate of 4.24%, which is commensurate with the Company’s secured borrowing rate, over the weighted-average remaining life of 2.05 years was $562,927 compared to $294,412 for the year ended December 31, 2024.

The following is a schedule of the maturities of future lease payments, net of future sublease revenue, over the remaining life of the operating leases, reconciled to the net present value of as of December 31, 2025:


		Future Lease Payments

2026	$	280,259
2027		279,952
2028		23,386
Total Lease Payments		583,597
Less: Imputed Interest		(20,670	)
Present Value of Lease Liabilities	$	562,927

The Company is subject to various legal proceedings, claims, and regulatory matters. While the outcome of these matters cannot be predicted with certainty, the Company does not believe that any currently pending matters, individually or in the aggregate, will have a material adverse effect on its consolidated financial statements.

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NOTE 8 - 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 consolidated financial statements for these indemnifications.

NOTE 9 - CUSTOMERS

The Company has forty and forty-four customers as of December 31, 2025 and 2024 respectively. 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.

NOTE 10 – RELATED PARTY TRANSACTIONS

From time to time, the Company purchases MSNs and holds them in its brokerage account. These MSNs are included on the Consolidated Statements of Financial Condition as Securities. As of December 31, 2025, the balance was $533,042, which is eliminated in consolidation. From time to time second lien or balance sheet loans may be all or partially funded by entities controlled by KDM directors or employees; such loans are serviced by KDM. In some circumstances where MSNs are in default, in the event a foreclosure becomes necessary, KDM may acquire properties as a deed in lieu of foreclosure. KDM may create special-purpose entities to take title to such properties, liquidate them to satisfy any debts due under an MSN, or keep such properties and repay the MSN from its own funds. The Company has created five special purpose entities to date, KDM Stafford LLC, KDM Nagog Park LLC, KDM Seaton Colyton Holdings LLC, KDM Beyer Drive Holdings LLC, and KDM Cupples REO LLC in order to acquire properties via foreclosure and in deed of lieu of foreclosure, respectively. See Note 6.

NOTE 11 – 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 Consolidated Statements of Financial Condition.

The following is a summary of the loan originating fees and costs deferred and amortized for the years ended December 31, 2025 and 2024:


		Deferred Origination Fees			Deferred Origination Costs			Deferred Revenue, Net

Deferred Revenue at December 31, 2024	$	4,672,221		$	(2,713,254	)	$	1,958,967

New loan deferrals		632,562			(338,433	)		294,129
Amortization of deferrals		(2,899,905	)		1,723,062			(1,176,843	)

Deferred Revenue at December 31, 2025	$	2,404,878		$	(1,328,625	)	$	1,076,253

		Deferred Origination Fees			Deferred Origination Costs			Deferred Revenue, Net

Deferred Revenue at December 31, 2023	$	4,980,490		$	(3,254,687	)	$	1,725,803

New loan deferrals		1,380,574			(501,122	)		879,452
Amortization of deferrals		(1,688,843	)		1,042,555			(646,288	)

Deferred Revenue at December 31, 2024	$	4,672,221		$	(2,713,254	)	$	1,958,967

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NOTE 12 – 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. Effective December 8, 2022, the Incentive Plan was amended to authorize the purchase of up to an aggregate of 3,000,000 shares of the Company’s unissued, or reacquired, common stock, $0.001 par value. The Plan is administered by the Board of Directors or a committee appointed by the Board.

During the years ended December 31, 2025 and 2024, no options to purchase shares of the Company’s common stock were offered. The Company calculates the fair value of stock-based awards using the Black-Sholes model, which considers weighted average assumptions of the risk-free interest rate, the expected term, the expected dividend yield and the expected volatility.

For the years ended December 31, 2025 and 2024, the Company recorded $53,556 of stock-based compensation expense. As of December 31, 2025 and 2024, there was $0 and $50,590, respectively in total unrecognized compensation expense related to non-vested employee stock options granted under the Incentive Plan, which is expected to be recognized over 0 years and 2.4 years, respectively.

Stock option activity for the years ended December 31, 2025 and 2024, is summarized as follows:

Schedule of stock option activity
2019 Stock Option Plan:	Shares		Weighted Average Exercise Price		Weighted Remaining Contractual Life (Years)
Options outstanding at January 1, 2024		1,095,000	$	1.47		6.64
Granted		0	$	-		-
Exercised		-		-		-
Expired or forfeited		0		-		-
Options outstanding at December 31, 2024		1,095,000	$	1.47		6.64
Granted		-		-		-
Exercised		-		-		-
Expired or forfeited		30,000		3.00		6.72
Options outstanding at December 31, 2025		1,065,000	$	1.43		4.08

Options exercisable at December 31, 2025		1,065,000	$	1.13		7.3
Options expected to vest at December 31, 2025		0	$	0		0

NOTE 13 – 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. On September 15, 2021, June 28, 2022, and March 23, 2023 the Company sold an additional 100,000, 480,000, and 160,000 shares, respectively of its Series A 6% Cumulative Perpetual Convertible Preferred Stock for net proceeds of $2,375,000, $11,856,480, and $3,896,000.

On August 12, 2022, the Company repurchased and retired 480,000 shares of its Series A 6% Cumulative Perpetual Convertible Preferred Stock at a price of $25.25 per share, for a total of $12,120,480. The Company paid $640,000 in interest expense.

On June 29, 2021, the Company issued 19,000 shares of its Series B 6.50% Cumulative Non-Voting Redeemable Secured Preferred Stock (the “Series B preferred stock”), with a liquidation preference of $1,000 per share, for net proceeds of $18,302,500. The Company paid $697,500 in expenses related to the preferred stock issuance to its financial advisor and placement agent.

The Series B preferred stock is non-convertible and will pay cumulative dividends, if and when declared by the Company’s Board of Directors, at a rate of 6.50% per annum. Dividends declared will be payable quarterly in arrears on the 15th day of January, April, July and October of each year. The Series B preferred stock ranks senior to KDM’s outstanding Series A 6% Cumulative Perpetual Convertible Preferred Stock, par value $0.001 per share, or Series A preferred stock, and all of KDM’s common stock, and will rank pari passu with, or senior to, all future issuances of preferred stock of KDM.

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The Company is required to use commercially reasonable efforts to maintain a nationally-recognized statistical ratings organization, or NRSRO, rating for so long as any shares of Series B preferred stock remain outstanding. If the Company fails to maintain an NRSRO rating for the Series B preferred stock of at least BBB (or the equivalent thereof), the dividend rate applicable to the Series B preferred stock will be increased by 25 basis points, and in the event the Company fails to maintain an NRSRO rating of at least BBB- (or the equivalent thereof), the dividend rate applicable to the Series B preferred stock will be increased by an additional 25 basis points.

The Series B preferred stock is redeemable at the Company’s option, in whole or in part, on or after June 29, 2026, at a redemption price per share equal to $1,000.00 per share, plus accrued and unpaid dividends, if any. Subject to applicable law, the Company is required to redeem the Series B preferred stock, in each case at a redemption price equal to $1,000.00 per share, plus accrued and unpaid dividends, as follows:

10% of the originally-issued shares of Series B preferred stock on June 29, 2027;

10% of the originally-issued shares of Series B preferred stock on June 29, 2028;

10% of the originally-issued shares of Series B preferred stock on June 29, 2029;

20% of the originally-issued shares of Series B preferred stock on June 29, 2030; and

50% of the originally-issued shares of Series B preferred stock on June 29, 2031.

The Company’s obligations to redeem the Series B preferred stock will be secured by a security interest on servicing fees, as specified in each mortgage secured note issued by the Company, which is the difference between the interest payable pursuant to the mortgage secured note and the interest receivable pursuant to the related commercial real estate mortgage loan. The requisite holders of Series B preferred stock will be entitled to exercise rights and remedies pursuant to such security interest in the event that the Company does not pay the relevant mandatory redemption price (inclusive of any accrued and unpaid dividends) within thirty (30) days of the applicable redemption date, except with respect to the final redemption date, which is not subject to a thirty (30)-day grace period.

The Company declared and paid dividends for the years ended December 31, 2025 and 2024, as follows:

Schedule of dividend paid
		Series A			Series B			Total Preferred Stock Dividends

Accrued Preferred Dividends, January 1, 2024	$	12,500		$	260,732		$	273,232

Declared Dividends		690,000			1,235,000			1,925,000
Paid Dividends		(690,000	)		(1,235,000	)		(1,925,000	)

Accrued Preferred Dividends, December 31, 2024		12,500			260,732			273,232

Declared Dividends		690,000			1,235,000			1,925,000
Paid Dividends		(690,000	)		(1,235,000	)		(1,925,000	)

Accrued Preferred Dividends, December 31, 2025	$	12,500		$	260,732		$	273,232

The accrued preferred dividends are included in the Other Liabilities on the Consolidated Statements of Financial Condition.

NOTE 14 – FAIR VALUE

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

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

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

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

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

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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 impairment loss is recorded and the loan is recorded at the lower fair value at each reporting period. On March 5, 2024, through a full bid in the foreclosure auction, KDM, via its subsidiary KDM Nagog Park LLC, took ownership of the office property securing KDM2021-N015. In April 2024, via a deed in lieu of foreclosure, a wholly owned subsidiary of KDM named KDM Cupples REO LLC took title to the office property securing KDM2021-N022. Both loans went into default in late 2023 due to the departure of major tenants. During the twelve months ending December 31, 2024, it was determined that the value of these two mortgages were impaired and recorded on the Consolidated Statement of Operations in the amount of $12,660,000. The foreclosed properties in the amount of $15,000,000 are included in the property and equipment. The carrying value of the properties was determined by third party appraisals near the time of acquisition.

In 2025, KDM took over property in Los Angeles, California and Selma, Texas, and relinquished the property owned by KDM Cupples REO LLC. The Los Angeles property is owned by KDM Seaton-Colyton Holdings LLC and the Texas property is owned by KDM Beyer Drive Holdings LLC. The net effect on properties owned of these three transactions is $37,600,000.

Mortgage Servicing

The net present value of the servicing income is recognized at the time the mortgage is initiated as an unrealized gain, which is being recognized through net income at each reporting period. 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 a 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 in the Consolidated Statements of Financial Condition as “Mortgage Servicing Rights, at Fair Value.”

Securities

J. W. Korth owns 225,000, $1 par of defaulted Banco Cruzeiro del Sur bonds. As of December 31, 2025, the value of these bonds was $41,991, which management believes to be the fair value expected to be received from the receiver handling the liquidation of the company in Brazil. Local counsel has informed us that the bank has sufficient cash to pay off the fair value of our bonds.

KDM also holds a small amount of its own MSNs in an account which it may buy from time to time. These bonds are carried at the published reported broker statement values.

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Fair Value Disclosure

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


	December 31, 2025

	Total		Level I		Level II		Level III
Financial Assets
Mortgage Servicing		6,108,755		-		-		6,108,755
Non-MSN Securities		41,991		-		-		41,991
Total Financial Assets	$	6,150,746	$	-	$	-	$	6,150,746
Financial Liabilities
Mortgage Secured Notes Payable	$	319,683,008	$	-	$	319,683,008	$	-
Warehouse Line of Credit		17,383,887		-		17,383,887		-
Total Financial Liabilities	$	337,066,895	$	-	$	337,066,895	$	-

		December 31, 2024
Financial Assets
Mortgage Servicing		9,260,225		-		-		9,260,225
Non-MSN Securities		41,991		-		-		41,991
Total Financial Assets	$	9,302,216	$	-	$	-	$	9,302,216
Financial Liabilities
Mortgage Secured Notes Payable	$	450,264,519	$	-	$	450,264,519	$	-
Warehouse Line of Credit		17,269,278		-		17,269,278		-
Total Financial Liabilities	$	467,533,797	$	-	$	467,533,797	$	-

Fair Value Measurements

Changes in Fair Value Measurements for the year ended December 31, 2025

The Company has engaged MIAC Analytics to assist in the valuation of the mortgage servicing component of its business. The underlying assumptions in the valuation model may change year over year, which will be reflected in the determined fair value and the difference year over year will be reflected in the unrealized gain/loss adjustment.

The following table presents a reconciliation of changes in Level 3 assets and liabilities reported in the Audited Consolidated Statements of Financial Condition for the years ended December 31, 2025 and 2024. The large change in value is due to $117,263,000 in loans paying off in 2025.


*Changes in assets:*
Year ended December 31, 2025	Mortgage Servicing Value			Non-MSN Securities		Total Value
Beginning balance at January 1, 2025	$	9,260,225		$	41,991	$	9,302,216
Sales or Payoffs		(2,486,724	)		-		(2,486,724	)
Unrealized Gain from newly issued mortgages		199,628			-		199,628
Fair Value adjustment		(864,374	)		-		(864,374	)
Ending balance at December 31, 2025	$	6,108,755		$	41,991	$	6,150,746

*Changes in assets:*
Year ended December 31, 2024	Mortgage Servicing Value			Non-MSN Securities			Total Value
Beginning balance at January 1, 2024	$	9,245,877		$	85,000		$	9,330,877
Sales or Payoffs		-			(43,009	)		(43,009	)
Unrealized Gain from newly issued mortgages		384,231			-			384,231
Fair Value adjustment		(369,883	)		-			(369,883	)
Ending balance at December 31, 2024	$	9,260,225		$	41,991		$	9,302,216

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The Company’s policy for recording transfers between levels of the fair value hierarchy is to recognize as of the financial statement date. For the years ended December 31, 2025 and December 31, 2024, 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. The Company’s valuation committee performs reviews of the Level 3 investments’ valuations, which include reviewing any significant price changes reported from the prior period. When a Level 3 investment has a significant price change, the valuation committee reviews relevant market data to substantiate the price change.

The following table presents quantitative information regarding the significant unobservable inputs the Company uses to determine the fair value of Level 3 investments held as of December 31, 2025 and December 31, 2024:

Schedule of quantitative information
			2025

Investment type		Fair Value	Valuation technique	Unobservable inputs	Values

Mortgage servicing	$	6,108,755	Net Present Value	Prepayment Discount	14.25	%
				Discount rate	15.00	%
Non-MSN Securities	$	41,991	Net Present Value

			2024

Investment type		Fair Value		Valuation technique	Unobservable inputs	Values

Mortgage servicing	$	9,260,225		Net Present Value	Prepayment Discount	9.94	%
					Discount rate	15.00	%
Non-MSN Securities	$	41,991		Net Present Value

NOTE 15 – LINES OF CREDIT

On October 13, 2023, KDM MFB LLC, a Delaware limited liability company (the “KDM MFB”), a newly formed and wholly owned subsidiary of Korth Direct Mortgage Inc. (the “Company”) entered into a $100,000,000 Master Repurchase and Securities Contract credit facility with Churchill MRA Funding I LLC (the “Agreement”). The Company vis a vis KDM MFB, will use the credit facility provided by the Agreement (the “MFB Line”) to finance the Company’s expansion of its lending operations in multi-family and multifamily bridge financing. As of December 31, 2025, the Company had a balance of $17,494,250 on the MFB Line. Total amortization expense of capitalized loan fees was $114,609 for the year ended December 31, 2025 compared to $134,135 for the year ended December 31, 2024, and recorded in interest expense.

On September 30, 2025, the Company entered into a term loan agreement providing total borrowing capacity of $3,000,000. The loan carries a 36-month term and bears interest at a rate based on the Secured Overnight Financing Rate (SOFR) index, fixed through an interest rate swap agreement executed concurrently with the loan. The borrowings are guaranteed by KDM, and are secured by the property located in Acton, MA. Proceeds from the loan are primarily used to fund tenant improvements and leasing costs to facilitate lease-up and occupancy. As of December 31, 2025, the principal balance was $3,000,000.

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NOTE 16 – INCOME TAXES

The Company adopted FASB Accounting Standards Update No. 2023-09, Income Taxes (Topic 740): Improvements to Income Tax Disclosures, effective for the fiscal year ended December 31, 2025, applied on a prospective basis. This update requires enhanced disclosures related to the rate reconciliation and income taxes paid by jurisdiction, as reflected in the tables below.

The components of income tax expense for the year ended December 31, 2025 are as follows:

Schedule of income tax expense
	2025
Current:
Federal	$	20,712
State		5,740
	$	26,452
Deferred:
Federal	$	78,231
State		21,680
	$	99,911

Total income tax expense	$	126,363

The differences between income taxes expected at the U.S federal statutory income tax rate of 21 percent and the reported income tax expense are summarized as follows:

Schedule of income before taxes
	2025
U.S. federal stautory tax rate	$	84,901	21.0	%
State and local income taxes, net of federal income tax effect*		21,663	5.4	%
Foreign tax effects		-	0.0	%
Effect of cross-border tax laws		-	0.0	%
Tax credits		-	0.0	%
Nontable or nondeductible items		13,005	3.2	%
Change in UTBs		-	0.0	%
Other adjustments		6,794	1.7	%
Total income tax expense	$	126,363	31.3	%
*In 2025, state taxes and local income taxes in Florida made up of the majority (greater than 50 percent) of the tax effect in this category.

The Company made no income tax payments, net of refunds, during the year ended December 31, 2025.

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Significant components of the Company's deferred tax assets and liabilities as of December 31, 2025 are as follows:


	2025
Deferred tax assets:
Deferred revenue, net	$	272,776
Deferred rent from operating leases		2,215
Deferred capital loss		125,593
Accrued expenses not paid		142,341
Fixed assets/depreciation		362,600
Unrealized gain on mortgage secured notes		19,930
Net operating loss carry-forwards		626,669
Deferred tax assets - current		1,552,124
Less: valuation allowance		-
Deferred tax assets	$	1,552,124

Deferred tax liabilities:
Net gains on foreclosed real estate	$	(1,629,083	)
Unrealized gain on accrued interest		(9,278	)
Unrealized gain on mortgages		(1,392,395	)
Deferred tax liability	$	(3,030,756	)

Net deferred liability	$	(1,478,632	)

As previously disclosed for the year ended December 31, 2024, prior to the adoption of ASU 2023-09, the income tax benefit is detailed as follows:

Schedule of income tax expense benefit
	2024
Deferred income tax benefit:
Federal	$	(496,183	)
State		(137,515	)
Total deferred income tax benefit	$	(633,698	)
Total income tax benefit	$	(633,698	)

As previously disclosed for the year ended December 31, 2024, prior to the adoption of ASU 2023-09, income tax benefit differs from the amounts that would result from applying the federal statutory rate of 21% to the Company’s loss before taxes for the year ended December 31, 2024, is as follows:

Schedule of income before taxes
	2024
Computed "expected" income tax benefit	$	(450,841	)	21.0	%
State income taxes, net of federal benefit		(108,637	)	5.1	%
Non-deductible expenses		17,731		-0.8	%
Other, net		(91,951	)	4.3	%
Total income tax benefit	$	(633,698	)	29.6	%

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As previously disclosed for the year ended December 31, 2024, prior to the adoption of ASU 2023-09, temporary differences that give rise to the components of deferred tax assets and liabilities as of December 31, 2024, are as follows:

Schedule of deferred tax asset and liabilities
	2024
Deferred tax assets:
Deferred revenue, net	$	496,500
Deferred rent from operating leases		7,741
Net operating loss carry-forwards		935,185
Deferred tax assets - current		1,439,426
Less: valuation allowance		-
Deferred tax assets	$	1,439,426

Deferred tax liabilities:
Deferred capital loss		125,593
Accrued expenses not paid		85,388
Fixed assets/depreciation		(63,068	)
Unrealized gain on mortgage secured notes		14,046
Realized (gain) on foreclosure		(805,610	)
Unrealized (gain) on accrued interest		(3,887	)
Unrealized (gain) on mortgages		(2,170,609	)
Deferred tax liability	$	(2,818,147	)

Net deferred tax liability	$	(1,378,721	)

As of December 31, 2025, the Company had net operating loss carryforwards of approximately $2,472,555 for federal income tax purposes and $2,472,555 for state income tax purposes. Federal net operating losses generated after December 31, 2017 carry forward indefinitely but are subject to an 80% taxable income limitation in any given year. The deferred tax asset associated with net operating loss carryforwards was $626,669 as of December 31, 2025.

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As of December 31, 2025 and December 31, 2024, management determined that there should be no valuation allowance against the deferred tax assets of $1,552,124 and $1,439,426, respectively. In assessing the ability to realize a portion of the deferred tax assets, management considers whether it is more likely than not that some portion or all of the deferred tax assets will not be realized. The ultimate realization of the deferred tax assets is dependent upon the generation of future taxable income during the periods in which those temporary differences become deductible. Management considers the scheduled reversal of deferred tax liabilities and projected future taxable income in making the assessment.

The Company has not recognized any tax benefits from uncertain tax positions for any of the reporting periods presented. Although it is reasonably possible that certain unrecognized tax benefits may increase or decrease within the next twelve months due to tax examination changes, settlement activities, expirations of statute of limitations, or the impact on recognition and measurement considerations related to the results of published tax cases or other similar activities, the Company does not anticipate any significant changes to unrecognized tax benefits over the next 12 months. During the year ended December 31, 2025, no interest or penalties were required to be recognized relating to unrecognized tax benefits.

The Company files U.S. federal and state tax returns, of which the open tax period subject to examination by taxing authorities include the year ended December 31, 2022. The Company is not currently subject to any examinations by any state or federal taxation authority.

NOTE 17 – PROPERTY AND EQUIPMENT

Property and Equipment are summarized as follows:

2025


Land & Building	$	71,860,620
Equipment		330,136
Furniture and fixtures		199,238
		72,389,994

Accumulated depreciation		(2,698,865	)

Net Property & Equipment	$	69,691,129

2024


Land & Building	$	32,940,768
Equipment		327,436
Furniture and fixtures		194,046
		33,462,250

Accumulated depreciation		(1,539,846	)

Net Property & Equipment	$	31,922,404

Depreciation expense for the period ending December 31, 2025 and December 31, 2024 was $1,807,068 and $1,242,793, respectively.

NOTE 18 – VARIABLE INTEREST ENTITIES

A VIE is an entity that has either a total equity investment that is insufficient to permit the entity to finance its activities without additional subordinated financial support or whose equity investors lack the characteristics of a controlling financial interest. A VIE is consolidated by its primary beneficiary, which is the entity that, through its variable interests, has both the power to direct the activities that significantly impact the VIE’s economic performance and the obligations to absorb losses of the VIE that could potentially be significant to the VIE or the right to receive benefits from the VIE that could potentially be significant to the VIE.

KDM Capital Partners, LP (the “Fund”) is a new investment partnership over which the Company and its related parties have a controlling financial interest. The Company holds 10.84% of the equity interest in the partnership and its CEO holds a 42.49% interest. The General Partner of the Fund is a wholly owned subsidiary of the Company. The Fund invests in loans originated by the Company and the holdings of the Fund are loan participations issued by the Company. The loan participations owned by the Fund are carried on the Company’s line of credit and are guaranteed by the Company.

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The Fund’s partnership agreement provides the General Partner with complete decision-making responsibilities and grants the limited partners no substantive participating or kick-out rights. Additionally, the Company guarantees the debt used to finance the Fund’s loan investments. Accordingly, the Company determined that the Fund is a VIE subject to consolidation under the guidance of FASB ASC 810.

The Company determined that it is the primary beneficiary of the VIE because as the holder of the controlling interest in the general partner, it has the power to direct the activities of the Fund that most significantly impact the Fund’s economic performance and, through the debt guarantee, has the obligation to absorb any expected losses of the Fund. The controlling interest is presented as a separate component of stockholders' equity in the consolidated balance sheet, and net income or loss attributable to the noncontrolling interest is presented separately in the consolidated statement of operations. Accordingly, the Company consolidates the VIE into its consolidated financial statements, and the Fund holdings are eliminated in consolidation. The loans are consolidated on the asset portion of the balance sheet in the Mortgages Owned caption and on the liability side in the Mortgage Secured Notes caption.

NOTE 19 – SEGMENT REPORTING

The Company accounts for its segment information in accordance with the provisions of ASC 280-10, Segment Reporting. ASC 280-10 establishes annual and interim reporting standards for operating segments of a company. ASC 280-10 requires disclosures of selected segment-related financial information about products, major customers, and geographic areas based on the Company’s internal accounting methods. The Company has two business segments: Lending and Servicing and Asset Management. The chief operating decision maker (“CODM”), who is the Company’s Chief Executive Officer, evaluates performance, makes operating decisions, and allocates resources based on the revenue and gross profit information from the different segments.

Lending and Servicing

This is KDM’s core business segment and includes consolidation of the Fund and J.W. Korth. Our CODM profit and loss statements look at earnings before interest, taxes, depreciation, dividends, and amortization (“EBITDDA”), as well as exclude the unrealized gain/loss from our book of MSRs. This is an operating view of the business segment, so it excludes the cost of financing the business and the future cash flows from loan servicing. These numbers do include salaries for employees, including those who work across both business segments. Below are the consolidated profit and loss statements and assets:

Schedule of business segments
	Years Ended December 31,
	2025		2024
REVENUES
Origination Revenue, Net	$	2,918,424	$	1,688,843
Servicing Revenue		4,126,006		5,040,383
Underwriting Income		82,910		99,063
Investment Interest		3,213,459		-
Other Revenue		1,067,854		2,240,680
Total Revenues		11,408,653		9,068,969

COST OF REVENUES
Broker Expenses		1,922,088		1,610,590
Administrative Expenses		1,335,491		1,149,845
Total Cost of Revenues		3,257,579		2,760,435

GROSS PROFIT		8,151,074		6,308,534

OPERATING EXPENSES
Office		496,509		495,716
Compensation and Related Benefits		3,965,035		4,394,048
Professional and Legal		917,155		964,659
Advertising		44,944		287,353
Total Operating Expenses		5,423,643		6,141,776

EBITDDA	$	2,727,431	$	166,758

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	2025		2024
ASSETS
Cash and Cash Equivalents	$	2,265,998	$	1,974,155
Restricted Cash		4,913,585		15,726,038
Restricted Investment		-		1,192,510
Mortgages Owned		336,216,050		461,474,989
Mortgage Servicing Rights, at Fair Value		6,108,755		9,260,225
Portfolio Loans		15,358,180		12,661,709
Loans Held for Sale		-		520,215
Securities		41,991		41,991
ROU Leased Asset		560,599		270,281
Goodwill		110,000		110,000
Property and equipment, net of depreciation		121,038		203,058
Other Assets		1,648,778		16,632,923
Total Assets	$	367,344,974	$	520,068,094

Below is the reconciliation of EBITDDA to loss before provision for income taxes:

	2025			2024

EBITDDA	$	2,727,431		$	166,758

Other Expense
Unrealized (Loss) Gain on Mortgages		(3,151,470	)		14,348
Unrealized (Loss) Gain on Mortgage Secured Notes		(23,215	)		39,501
Interest Expense		(1,551,565	)		(1,229,293	)
Unrealized Gain on Securities		59,457			-
Unrealized Gain on Investment		25,682			-
Net Gains on Foreclosed Real Estate		3,199,104			765,068
Realized Loss on Mortgage Secured Notes		-			(434	)
Realized Loss on Loans Held for Sale		(526	)		(141,647	)
Change in Fair Value of Mortgage Secured Notes		9,000,000			12,660,000
Loss on Foreclosures		(9,000,000	)		(12,660,000	)
Total Other Expense		(1,442,533	)		(552,457	)

Income (Loss) before provision (benefit) for income taxes	$	1,284,898		$	(385,699	)

Asset Management

While we view this business segment as necessary to support the Lending and Servicing segment, it also clearly has a very different set of metrics and we look at each property’s profit and loss statement independently. The numbers we use to manage the properties are primarily driven by total occupancy, rent per square foot, and net operating income. Four out of the five properties owned as of December 31, 2025 we owned on behalf of our MSN holders, and we are managing them in the best interests of the MSN holders until we can maximize recovery by stabilizing or selling them. Below are the consolidated profit and loss statements and assets of the five properties KDM owns in Stafford, Virginia (specialty office), Acton, Massachusetts (office), St. Louis, Missouri (office), Los Angeles, CA (mixed use), and Selma, TX (office).

See Note 17 for total property values.

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	Years Ended December 31,
	2025			2024
REVENUES
Rental Income	$	5,826,870		$	2,556,216
Total Revenues		5,826,870			2,556,216

COST OF REVENUES
Bank Transaction Fees		1,979			967
Appraisal Costs		-			11,200
Ground Rent		755,720			779,416
Total Cost of Revenues		757,699			791,583

GROSS PROFIT		5,069,171			1,764,633

OPERATING EXPENSES
Office		40,864			37,035
Compensation and Related Benefits		133,888			117,628
Property Taxes		769,909			243,567
Professional and Legal		606,135			211,497
Utilities		1,611,679			1,477,600
Travel & Entertainment		-			1,469
Business Insurance		140,653			59,750
Depreciation		1,717,155			-
Total Operating Expenses		5,020,283			2,148,546

Net Operating Income (Loss)		48,888			(383,913	)

OTHER EXPENSES
Mortgage Interest		749,215			573,493
Total Other Expenses		749,215			573,493

Net Loss	$	(700,327	)	$	(957,406	)

	2025		2024
ASSETS
Cash and Cash Equivalents	$	3,088,170	$	924,504
Property and equipment, net of depreciation		69,570,091		31,719,346
Other Assets		1,317,974		1,649,071
Total Assets	$	73,976,235	$	34,292,921

F-28

Table of Contents

Below is a reconciliation of Segment Operations to Consolidated Statements of Operations:

Schedule of segment operations
				2025

	Lending and Servicing			Asset Management			Other			Total
REVENUES
Origination Revenue, Net	$	2,918,424		$	-		$	-		$	2,918,424
Servicing Revenue		4,126,006			-			-			4,126,006
Underwriting Income		82,910			-			-			82,910
Investment Revenue		3,213,459			-			-			3,213,459
Rental Income		-			5,826,870			-			5,826,870
Other Revenue		1,067,854			-			-			1,067,854
Total Revenues		11,408,653			5,826,870			-			17,235,523

COST OF REVENUES
Broker Expenses		1,922,088			-			-			1,922,088
Bank Transaction Fees		-			1,979			-			1,979
Appraisal Costs		-			-			-			-
Ground Rent		-			755,720			-			755,720
Administrative Expenses		1,335,491			-			-			1,335,491
Total Cost of Revenues		3,257,579			757,699			-			4,015,278

GROSS PROFIT		8,151,074			5,069,171			-			13,220,245

OPERATING EXPENSES
Office		496,509			40,864			-			537,373
Compensation and Related Benefits		3,965,035			133,888			-			4,098,923
Professional and Legal		917,155			606,135			-			1,523,290
Property Taxes		-			769,909			-			769,909
Utilities		-			1,611,679			-			1,611,679
Travel and Entertainment		-			-			-			-
Business Insurance		-			140,653			-			140,653
Advertising		44,944			-			-			44,944
Depreciation		-			1,717,155			89,913			1,807,068
Total Operating Expenses		5,423,643			5,020,283			89,913			10,533,839

Net Operating Income		2,727,431			48,888			(89,913	)		2,686,406

Other Expense
Unrealized Loss on Mortgages		(3,151,470	)		-			-			(3,151,470	)
Unrealized Loss on Mortgage Secured Notes		(23,215	)		-			-			(23,215	)
Interest Expense		(1,551,565	)		(749,215	)		-			(2,300,780	)
Unrealized Gain on Securities		59,457			-			-			59,457
Unrealized Gain on Investment		25,682			-			-			25,682
Net Gains on Foreclosed Real Estate		3,199,104			-			-			3,199,104
Realized Loss on Loans Held for Sale		(526	)		-			-			(526	)
Change in Fair Value of Mortgage Secured Notes		9,000,000			-			-			9,000,000
Loss on Foreclosures		(9,000,000	)		-			-			(9,000,000	)
Total Other Expense		(1,442,533	)		(749,215	)		-			(2,191,748	)

Income before provision for income taxes	$	1,284,898		$	(700,327	)	$	(89,913	)	$	494,658

F-29

Table of Contents

Below is a reconciliation of Segment Assets to Total Assets per the Statements of Financial Condition:


			2025

	Lending and Servicing		Asset Management		Other			Total
ASSETS
Cash and Cash Equivalents	$	2,265,998	$	3,088,170	$	-		$	5,354,168
Restricted Cash		4,913,585		-		-			4,913,585
Mortgages Owned		336,216,050		-		(50,800,000	)		285,416,050
Mortgage Servicing Rights, at Fair Value		6,108,755		-		-			6,108,755
Portfolio Loans		15,358,180		-		(9,667,196	)		5,690,984
Securities		41,991		-		-			41,991
ROU Leased Asset		560,599		-		-			560,599
Goodwill		110,000		-		-			110,000
Property and equipment, net of depreciation		121,038		69,570,091		-			69,691,129
Other Assets		1,648,778		1,317,974		-			2,966,752
Total Assets	$	367,344,974	$	73,976,235	$	(60,467,196	)	$	380,854,013

NOTE 20 – SUBSEQUENT EVENTS

The Company has evaluated all events or transactions that occurred after December 31, 2025 through the date that the financial statements were available to be issued. During this period, there were no material subsequent events requiring disclosure, other than those noted below.

The Company approved a $308,750 cash payment of the quarterly Series B preferred stock dividend for the period of 10/15/2025 – 1/14/2026 paid on 1/15/2026.

The Company approved a $172,500 cash payment of the quarterly Series A preferred stock dividend for the period of 12/15/2025 – 3/14/2026 paid on 3/14/2026.

The Company approved a $308,750 cash payment of the quarterly Series B preferred stock dividend for the period of 1/15/2026 – 4/14/2026 to be paid on 4/15/2026.

The Company currently has 1 loan over 60 days late, 2 loans in the foreclosure category, 5 properties in its REO portfolio, and 1 property which was just taken by deed in lieu of foreclosure on March 20, 2026.

F-30

Korth Direct Mortgage Inc. 10-K