Korth Direct Mortgage Swings to Profit on Surging Revenue, Foreclosure Gains

TL;DR

**KDM is back in the black with massive revenue growth and cash on hand, making it a strong buy for growth-oriented investors.**

AI Summary

Korth Direct Mortgage Inc. (KDM) reported a significant turnaround for the six months ended June 30, 2025, achieving a net income of $4,066,358, a substantial improvement from a net loss of $1,458,429 in the prior-year period. Total revenues surged by 70.8%, reaching $8,854,882 compared to $5,183,564 in the first half of 2024. This growth was primarily driven by a 92.5% increase in origination revenue, net, to $1,578,779, and a remarkable 119.2% rise in leasing revenue to $3,181,453. Investment interest also contributed significantly, generating $1,564,298, up from zero in the previous year, largely due to the newly formed KDM Capital Partners LP. Despite a decrease in mortgage servicing rights from $9,260,225 to $8,287,578, the company's total assets remained robust at $514,920,313. A key factor in the net income improvement was a realized gain on foreclosure of $5,557,032, offsetting a $9,000,000 change in fair value of mortgage secured notes and a corresponding $9,000,000 loss on foreclosures. The company also saw a substantial increase in cash and cash equivalents, and restricted cash, from $18,330,119 at the beginning of the period to $57,972,578 by June 30, 2025.

Why It Matters

KDM's impressive swing to profitability and substantial revenue growth, particularly in leasing and origination, signals strong operational execution and diversification beyond traditional mortgage servicing. For investors, the significant increase in cash and cash equivalents to $57,972,578 indicates improved liquidity and financial health, potentially making the company a more attractive investment. The formation of KDM Capital Partners LP and its contribution of $1,564,298 in investment interest highlights a strategic move into fund management, broadening its competitive landscape against other real estate and mortgage investment firms. This expansion could offer new growth avenues and stabilize earnings, benefiting employees through potential expansion and customers through diversified financial products.

Risk Assessment

Risk Level: medium — While KDM reported a net income of $4,066,358, the company still carries an accumulated deficit of $(303,027) as of June 30, 2025. Furthermore, the significant $9,000,000 'Loss on Foreclosures' and 'Change in Fair Value of Mortgage Secured Notes' indicate volatility in its core mortgage and real estate assets, suggesting exposure to market fluctuations and potential credit risks.

Analyst Insight

Investors should consider KDM's strong revenue growth and positive net income as a sign of operational improvement and potential for future profitability. However, they should closely monitor the company's management of its accumulated deficit and the volatility in its mortgage-secured notes and foreclosure activities, as these represent ongoing risks. A deeper dive into the quality of its mortgage portfolio and the long-term sustainability of its leasing revenue is warranted.

Financial Highlights

debt To Equity

13.97

revenue

$8.85M

operating Margin

20.2%

total Assets

$514.92M

total Debt

$418.97M

net Income

$4.07M

eps

$0.60

gross Margin

72.7%

cash Position

$57.97M

revenue Growth

+70.8%

Revenue Breakdown

Key Numbers

• $4.07M — Net Income (Swung from a $1.46M loss in H1 2024 to a $4.07M profit in H1 2025, a significant turnaround.)
• $8.85M — Total Revenues (Increased by 70.8% from $5.18M in H1 2024 to $8.85M in H1 2025, driven by origination and leasing.)
• $3.18M — Leasing Revenue (Grew by 119.2% from $1.45M in H1 2024, indicating strong performance in real estate operations.)
• $1.58M — Origination Revenue, Net (Increased by 92.5% from $820,154 in H1 2024, showing robust mortgage origination activity.)
• $57.97M — Cash, Cash Equivalents and Restricted Cash (Increased by $39.64M from $18.33M at the beginning of the period, reflecting strong cash generation.)
• $5.56M — Realized Gain on Foreclosure (A significant gain contributing to profitability, up from $1.05M in H1 2024.)
• $9.00M — Loss on Foreclosures (Offset by a corresponding change in fair value of mortgage secured notes, indicating active portfolio management.)
• $514.92M — Total Assets (Slightly decreased from $521.85M at December 31, 2024, but remains substantial.)
• $(303,027) — Accumulated Deficit (Reduced significantly from $(3,325,687) at December 31, 2024, nearing positive equity.)
• 5,000,000 — Common Stock Shares Outstanding (Remained constant, indicating no dilution from new common stock issuance.)

Key Players & Entities

• Korth Direct Mortgage Inc. (company) — registrant
• J.W. Korth & Company Limited Partnership (company) — wholly owned subsidiary
• KDM Funding I LLC (company) — wholly owned subsidiary and issuer of Mortgage Secured Notes
• KDM Capital Partners LP (company) — limited partnership and investment fund
• Securities and Exchange Commission (regulator) — regulates J.W. Korth
• $4,066,358 (dollar_amount) — Net Income for the six months ended June 30, 2025
• $8,854,882 (dollar_amount) — Total Revenues for the six months ended June 30, 2025
• $3,181,453 (dollar_amount) — Leasing Revenue for the six months ended June 30, 2025
• $5,557,032 (dollar_amount) — Realized Gain on Foreclosure for the six months ended June 30, 2025
• $57,972,578 (dollar_amount) — Cash, Cash Equivalents and Restricted Cash at June 30, 2025

FAQ

Risk Factors

• Fair Value Fluctuations of Mortgage Notes [high — financial]: The company experienced a $9,000,000 change in fair value of mortgage secured notes, which, along with a $9,000,000 loss on foreclosures, significantly impacted results. Active portfolio management is crucial to mitigate these risks.
• Foreclosure Activity and Realized Gains/Losses [high — operational]: A realized gain on foreclosure of $5,557,032 contributed significantly to net income, but this was offset by a $9,000,000 loss on foreclosures. The volume and outcome of foreclosure activities present a notable risk.
• Dependence on Mortgage Origination and Servicing [medium — financial]: While origination revenue increased by 92.5% and leasing revenue by 119.2%, the company's performance is tied to the mortgage market. Fluctuations in interest rates and housing demand can impact origination volumes and profitability.
• Mortgage Servicing Rights Valuation [medium — financial]: Mortgage Servicing Rights (MSRs) decreased from $9,260,225 to $8,287,578. Changes in interest rates and prepayment speeds can affect the fair value of MSRs, impacting the company's balance sheet.
• Regulatory Compliance for Broker-Dealer and Investment Adviser [medium — regulatory]: J.W. Korth, a subsidiary, is registered with the SEC and FINRA. Compliance with securities regulations is critical and any violations could lead to fines or sanctions.
• Leverage through Mortgage Secured Notes [medium — financial]: The company utilizes significant leverage through Mortgage Secured Notes Payable, totaling $401,639,333. Changes in market conditions or credit quality could impact the cost and availability of this funding.
• Growth of New Investment Vehicles [low — operational]: The formation and growth of KDM Capital Partners LP introduces new investment strategies and potential risks associated with managing a fund and its underlying assets.

Industry Context

The mortgage industry is highly sensitive to interest rate movements and economic conditions. Korth Direct Mortgage Inc. operates within this environment, facing competition from traditional lenders and non-bank originators. The increasing role of specialized investment vehicles like KDM Capital Partners LP reflects a trend towards diversified funding and investment strategies within the sector.

Regulatory Implications

As a mortgage originator and servicer, KDM is subject to various federal and state regulations, including those from the CFPB. Its subsidiary, J.W. Korth, operates as a broker-dealer and investment adviser, requiring strict adherence to SEC and FINRA rules. Non-compliance can lead to significant penalties and reputational damage.

What Investors Should Do

1. Monitor the impact of fair value adjustments on Mortgage Secured Notes.
2. Analyze the sustainability of the leasing revenue growth.
3. Evaluate the performance and risk profile of KDM Capital Partners LP.
4. Assess the reduction in Accumulated Deficit.

Key Dates

• 2024-06-30: Formation of KDM Capital Partners LP — Initiated a new investment strategy and revenue stream, contributing $1,564,298 in investment interest income for H1 2025.
• 2025-06-30: End of Six-Month Period — Reported significant net income of $4,066,358, a turnaround from a loss in the prior year, driven by revenue growth and a large realized gain on foreclosure.

Glossary

Mortgage Servicing Rights (MSRs)

The right to service a pool of mortgage loans, which includes collecting principal and interest payments, managing escrow accounts, and handling delinquencies. MSRs are an intangible asset that can be bought and sold. (KDM holds MSRs, and their valuation decreased from $9.26M to $8.29M, impacting the company's asset base.)

Mortgage Secured Notes (MSNs)

Debt instruments issued by the company (or its subsidiaries like KDMF) that are secured by pools of mortgage loans. These are a primary source of funding for the company's operations. (MSNs represent a significant liability ($401.6M) and are subject to fair value changes, impacting the company's financial results.)

Realized Gain on Foreclosure

Profit recognized when a property is foreclosed upon and subsequently sold for more than the outstanding loan balance and associated costs. (A substantial $5.56M realized gain on foreclosure was a key driver of the company's profitability in H1 2025.)

Loss on Foreclosures

The financial loss incurred when a foreclosed property is sold for less than the outstanding loan balance and associated costs. (The company recorded a $9,000,000 loss on foreclosures, which was a significant expense item.)

Change in Fair Value of Mortgage Secured Notes

The adjustment to the carrying value of Mortgage Secured Notes to reflect their current market value. This can result in gains or losses. (A $9,000,000 negative change in fair value of MSNs significantly impacted the company's other income/expense.)

KDM Capital Partners LP

A limited partnership formed in June 2024, primarily investing in mortgages originated and serviced by KDM and other real estate investments. (This new entity generated $1.56M in investment interest income, highlighting a new strategic initiative.)

Non-Controlling Interest

The portion of equity in a subsidiary that is not attributable to the parent company. It represents the ownership interest of outside shareholders. (The company has a non-controlling interest of $5.04M, which impacts the net income attributable to KDM's common stockholders.)

Year-Over-Year Comparison

Korth Direct Mortgage Inc. has demonstrated a remarkable turnaround in the first half of 2025 compared to the same period in 2024. Total revenues surged by 70.8% to $8.85M, driven by strong growth in origination and leasing revenues. Net income swung from a loss of $1.46M to a profit of $4.07M. While Mortgage Servicing Rights saw a slight decrease, the company's cash position significantly improved, and its accumulated deficit was substantially reduced, indicating a much stronger financial footing.

Filing Documents

• kdm81125010q.htm (10-Q) — 949KB
• ex31_1.htm (EX-31.1) — 9KB
• ex32_1.htm (EX-32.1) — 4KB
• 0001214659-25-012201.txt ( ) — 6205KB
• cik0001695963-20250630.xsd (EX-101.SCH) — 57KB
• cik0001695963-20250630_cal.xml (EX-101.CAL) — 68KB
• cik0001695963-20250630_def.xml (EX-101.DEF) — 226KB
• cik0001695963-20250630_lab.xml (EX-101.LAB) — 352KB
• cik0001695963-20250630_pre.xml (EX-101.PRE) — 324KB
• kdm81125010q_htm.xml (XML) — 1087KB

– FINANCIAL INFORMATION

PART I – FINANCIAL INFORMATION Item 1. Consolidated Financial Statements 4 Unaudited Consolidated Statements of Financial Condition 4 Unaudited Consolidated Statements of Operations 5 Unaudited Consolidated Statements of Changes in Stockholders' Equity 6 Unaudited Consolidated Statements of Cash Flows 7 Notes to Unaudited Consolidated Financial Statements 8 Item 2.

Management's Discussion and Analysis of Consolidated Financial Condition and Results of Consolidated Operations

Management's Discussion and Analysis of Consolidated Financial Condition and Results of Consolidated Operations 26 Item 3.

Quantitative and Qualitative Disclosures about Market Risk

Quantitative and Qualitative Disclosures about Market Risk 28 Item 4.

Controls and Procedures

Controls and Procedures 28

– OTHER INFORMATION

PART II – OTHER INFORMATION Item 1.

Legal Proceedings

Legal Proceedings 28 Item 1A.

Risk Factors

Risk Factors 28 Item 2. Unregistered Sales of Equity Securities and Use of Proceeds 28 Item 3. Defaults Upon Senior Securities 28 Item 4. Mine Safety Disclosures 28 Item 5. Other Information 28 Item 6. Exhibits 29

SIGNATURES

SIGNATURES 31 3 Table of Contents

—FINANCIAL INFORMATION

PART I—FINANCIAL INFORMATION

Consolidated Financial Statements

Item 1. Consolidated Financial Statements . KORTH DIRECT MORTGAGE INC. UNAUDITED CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION June 30, 2025 December 31, 2024 (Unaudited) ASSETS Cash and Cash Equivalents $ 4,412,051 $ 2,898,659 Restricted Cash 53,560,527 15,431,460 Restricted Investment - 1,192,510 Mortgages Owned 369,855,725 451,974,989 Mortgage Servicing Rights, at Fair Value 8,287,578 9,260,225 Portfolio Loans 3,171,255 5,161,709 Loans Held for Sale 203,086 520,215 Securities 41,991 41,991 ROU Leased Asset 683,122 270,281 Goodwill 110,000 110,000 Property and equipment, net of depreciation 69,215,848 31,922,404 Other Assets 5,379,130 3,067,100 TOTAL ASSETS $ 514,920,313 $ 521,851,543 LIABILITIES AND STOCKHOLDERS' EQUITY LIABILITIES Escrows Payable $ 9,837,902 $ 15,306,451 Lease Liability 696,774 294,412 Deferred Revenue, net 1,638,264 1,958,967 Deferred Tax Liability, net 2,716,885 1,378,721 Mortgage Secured Notes Payable 401,639,333 450,264,519 Warehouse Line of Credit, net 17,326,583 17,269,278 Other Liabilities and Payables 46,660,437 4,613,539 Total Liabilities 480,516,178 491,085,887 STOCKHOLDERS' EQUITY Accumulated Deficit ( 303,027 ) ( 3,325,687 ) Additional Paid-in Capital 29,659,040 29,632,262 Common Stock, $ 0.001 par value, 60,000,000 shares authorized 5,000,000 shares issued and outstanding at June 30, 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 June 30, 2025 and December 31, 2024, respectively 460 460 Series B Preferred Stock, $ 0.001 par value, 20,000 shares authorized, 19,000 shares issued and outstanding at June 30, 2025 and December 31, 2024 19 19 Non-Controlling Interest 5,042,643 4,453,602 Total Stockholders' Equity 34,404,135 30,765,656 TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 514,920,313 $ 521,851

financial statements

financial statements. 4 Table of Contents KORTH DIRECT MORTGAGE INC. UNAUDITED CONSOLIDATED STATEMENTS OF OPERATIONS FOR THE PERIOD FROM JANUARY 1 THROUGH JUNE 30 For the Six Months Ended For the Six Months Ended June 30, 2025 June 30, 2024 REVENUES Origination Revenue, Net $ 1,578,779 $ 820,154 Servicing Revenue 2,263,827 2,499,354 Underwriting Income 12,750 40,000 Leasing Revenue 3,181,453 1,451,188 Investment Interest 1,564,298 - Other Revenue 253,775 372,868 Total Revenues 8,854,882 5,183,564 COST OF REVENUES Broker Underwriting Expense 1,289,684 768,292 Administrative Expenses 1,131,931 729,422 Total Cost of Revenues 2,421,615 1,497,714 GROSS PROFIT 6,433,267 3,685,850 OPERATING EXPENSES Office 1,307,189 847,392 Compensation and Related Benefits 1,898,099 2,306,493 Professional & Legal 458,575 843,775 Advertising 62,940 113,506 Depreciation 916,098 571,042 Total Expenses 4,642,901 4,682,208 Income/(Loss) From Operations 1,790,366 ( 996,358 ) Other Income/(Expense) Unrealized Loss on Mortgages ( 972,647 ) ( 1,137,243 ) Unrealized Loss on Mortgage Secured Notes ( 29,541 ) ( 888 ) Interest Income 13,895 - Interest Expense ( 1,033,443 ) ( 709,778 ) Unrealized Gain on Investment 1,496 - Realized Gain on Foreclosure 5,557,032 1,045,062 Realized Loss on Mortgage Secured Notes - ( 434 ) Realized Loss on Loans Held for Sale ( 4,417 ) ( 141,647 ) Realized Gain on Securities 58,666 - Employee Retention Credit 45,000 - 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 Income/(Expense) 3,636,041 ( 944,928 ) Income/(Loss) before provision for income taxes 5,426,407 ( 1,941,286 ) Provision/(Tax Benefit) for income taxes 1,360,049 ( 482,857 ) Net Income/(Loss) 4,066,358 ( 1,458,429 ) Less: Net Income/(Loss) attributable to non-controlling i

financial statements

financial statements. 5 Table of Contents KORTH DIRECT MORTGAGE INC. UNAUDITED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY FOR SIX MONTHS ENDED JUNE 30, 2025 AND 2024 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 - - - - - - 26,778 - - 26,778 Series A & Series B preferred stock dividends declared - - - - - - - ( 962,500 ) - ( 962,500 ) Net Loss - - - - - - - ( 1,433,700 ) ( 24,729 ) ( 1,458,429 ) Balance at June 30, 2024 460,000 $ 460 19,000 $ 19 5,000,000 $ 5,000 $ 29,605,484 $ ( 2,102,980 ) $ 166,424 $ 27,674,407 Balance at January 1, 2025 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 - - - - - - 26,778 - - 26,778 Series A & Series B preferred stock dividends declared - - - - - - - ( 962,500 ) - ( 962,500 ) Contributions to Fund - - - - - - - - 507,843 507,843 Net Income - - - - - - - 3,985,160 81,198 4,066,358 Balance at June 30, 2025 460,000 $ 460 19,000 $ 19 5,000,000 $ 5,000 $ 29,659,040 $ ( 303,027 ) $ 5,042,643 $ 34,404,135 See accompanying notes to the unaudited consolidated

financial statements

financial statements. 6 Table of Contents KORTH DIRECT MORTGAGE INC. UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS For the Six Months Ended For the Six Months Ended June 30, 2025 June 30, 2024 CASH FLOWS FROM OPERATING ACTIVITIES Net Income/(Loss) $ 4,066,358 $ ( 1,458,429 ) Adjustments to Reconcile Net Income/(Loss) to: Net Cash Provided by/(Used in) Operating Activities: Unrealized Loss on Mortgages Owned 972,647 1,137,243 Unrealized Loss on Mortgage Secured Notes 29,541 888 Unrealized Gain on Investment ( 1,496 ) - Unrealized Gain on Securities - 27,832 Realized Gain on Foreclosure ( 5,557,032 ) ( 1,045,062 ) Realized Loss on LHS 4,417 141,647 Gain on cancellation of debt ( 9,000,000 ) ( 12,660,000 ) Loss on Foreclosures 9,000,000 12,660,000 Stock Compensation Expense 26,778 26,778 Depreciation 916,098 571,042 Amortization of loan costs 57,305 720,136 Deferred rent expense from operating lease ( 10,479 ) ( 6,801 ) Deferred income taxes 1,338,164 ( 482,857 ) Changes in Operating Assets and Liabilities: Mortgage Secured Notes Issued - ( 4,945,633 ) Restricted Investment 1,192,510 ( 1,158,247 ) Warehouse LOC - ( 1,650,520 ) Portfolio Loans ( 176,742 ) 2,526,393 Loans Held For Sale, at Fair Value 312,712 5,409,022 Other Assets ( 456,672 ) ( 360,267 ) Deferred Revenue, net ( 320,703 ) ( 125,455 ) Escrow Payable ( 5,468,549 ) ( 476,196 ) Securities Sold Short - ( 2,565,082 ) Other Liabilities and Payables 42,046,899 955,842 New Mortgage Lending ( 2,871,447 ) 81,716 Mortgage Loans Matured/Paid Off ( 4,932,979 ) - Total Adjustments 27,100,972 ( 1,217,581 ) NET CASH PROVIDED BY/(USED IN) OPERATING ACTIVITIES 31,167,330 ( 2,676,010 ) CASH FLOWS FROM INVESTING ACTIVITIES Purchase of property and equipment ( 85,378 ) ( 32,549 ) Disposals of property and equipment 9,015,164 - NET CASH PROVIDED BY/(USED) IN INVESTING ACTIVITIES 8,

financial statements

financial statements. 7 Table of Contents KORTH DIRECT MORTGAGE INC. NOTES TO UNAUDITED 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 (the "Commission") and the states of Michigan, Florida, and various other 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. Although KDMF's deal history is broken out by KDM and KDMF as issuers in KDM's annual reports on Form 10-K as well as its securities memoranda there are no stand-alone financial statements prepared for KDMF. KDM also owns a controlling interest in KDM Stafford LLC and KDM Seaton Colyton Holdings LLC, owns 100% of KDM Nagog Park LLC, KDM Beyer Drive Holding 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, and Selma, TX. KDM Capital Partners LP (the "Fund") was formed in June 2024 as a limited partnership in the state of Delaware. The Fund's primary business purpose

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