{"url_path":"/sec/cik-0001695963/10-k/2026/item-15","section_key":"item-15","section_title":"Item 15 Exhibits and Financial Statement Schedules**","topic":"sec","document":{"doc_type":"10-K","doc_date":"2026-06-01","source_url":"https://www.sec.gov/Archives/edgar/data/1695963/0001214659-26-006969-index.html","accession_number":"0001214659-26-006969","cik":"0001695963","ticker":null,"issuer_name":"Korth Direct Mortgage Inc.","edgar_url":"https://www.sec.gov/Archives/edgar/data/1695963/0001214659-26-006969-index.html","primary_entity_key":"0001695963","primary_entity_name":"Korth Direct Mortgage Inc."},"word_count":13852,"has_tables":true,"body_markdown":"**Item 15. Exhibits and Financial Statement Schedules**\n\n \n\nThe following exhibits designated with a footnote\nreference are incorporated herein by reference to a prior registration statement or a periodic report filed by the Registrant pursuant\nto Section 13 or 15(d) of the Exchange Act:\n\n \n\n**Exhibit\nNumber**\n \n**Description**\n\n \n \n \n\n1.1\n \n[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.](https://www.sec.gov/Archives/edgar/data/1695963/000121465922009644/ex1_2.htm) (incorporated by reference to Exhibit 1.1 to the Registrant’s report on Form 8-K filed August 4, 2022)\n\n \n \n \n\n1.2\n \n[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.](https://www.sec.gov/Archives/edgar/data/1695963/000121465922009644/ex1_2.htm) (incorporated by reference to Exhibit 1.2 to the Registrant’s report on Form 8-K filed August 4, 2022)\n\n \n \n \n\n3.1\n \n[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)](http://www.sec.gov/Archives/edgar/data/1695963/000121465919004158/ex3_1.htm)\n\n \n \n \n\n3.2\n \n[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)](http://www.sec.gov/Archives/edgar/data/1695963/000121465919004158/ex3_2.htm)\n\n \n \n \n\n3.3\n \n[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](https://www.sec.gov/Archives/edgar/data/1695963/000121465921007128/ex3_1.htm) (incorporated by reference to Current Report on Form 8-K filed July 1, 2021)\n\n \n \n \n\n3.4\n \n[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](https://www.sec.gov/Archives/edgar/data/1695963/000121465921007128/ex3_2.htm) (incorporated by reference to Current Report on Form 8-K filed July 1, 2021)\n\n \n \n \n\n3.5\n \n[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](https://www.sec.gov/Archives/edgar/data/1695963/000121465921007128/ex3_3.htm) (incorporated by reference to Current Report on Form 8-K filed July 1, 2021)\n\n \n \n \n\n3.6\n \n[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](https://www.sec.gov/Archives/edgar/data/1695963/000121465921007128/ex3_4.htm) (incorporated by reference to Current Report on Form 8-K filed July 1, 2021)\n\n \n \n \n\n3.7\n \n[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)](http://www.sec.gov/Archives/edgar/data/1695963/000121465919004158/ex3_3.htm)\n\n \n \n \n\n4.1\n \n[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)](http://www.sec.gov/Archives/edgar/data/1695963/000121465917006816/ex4_1.htm)\n\n \n \n \n\n4.2\n \n[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)](http://www.sec.gov/Archives/edgar/data/1695963/000121465918007064/ex4_2.htm)\n\n \n \n \n\n4.3\n \n[Trust Indenture and Security Agreement Dated September 30, 2020, between Korth Direct Mortgage Inc. and Delaware Trust Company as Trustee](https://www.sec.gov/Archives/edgar/data/1695963/000121465920008449/ex4_3.htm) (incorporated by reference to Exhibit 4.3 to the Registrant’s report on Form 8-K filed October 6, 2020)\n\n \n \n \n\n4.4\n \n[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)](https://www.sec.gov/Archives/edgar/data/1695963/000121465922009644/ex4_4.htm)\n\n \n\n 28 \n\n [Table of Contents](#toc)\n\n \n\n10.1\n \n[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)](http://www.sec.gov/Archives/edgar/data/1695963/000121465919004369/ex10_1.htm)\n\n \n \n \n\n10.2 \n \n[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](https://www.sec.gov/Archives/edgar/data/1695963/000121465920006814/ex10_03.htm) (incorporated by reference to Current Report on Form 8-K filed August 6, 2020)\n\n \n \n \n\n10.3\n \n[First Amendment to Purchase Agreement](https://www.sec.gov/Archives/edgar/data/1695963/000121465921008603/ex10_3.htm) (incorporated by reference to Registrant’s Report on Form 10-Q filed August 16, 2021)\n\n \n \n \n\n31.1\n \n[Section 302 Certificate of Chief Executive Officer and Chief Financial Officer *](ex31_1.htm)\n\n \n \n \n\n32.1\n \n[Section 906 Certificate of Chief Executive Officer and Chief Financial Officer*](ex32_1.htm)\n\n \n \n \n\n101\n \nInteractive Data File\n\n \n \n \n\n104\n \nCover Page Interactive Data File (formatted as inline XBRL and contained in Exhibit 101)*\n\n \n\n*Filed herewith.\n\n \n\n 29 \n\n [Table of Contents](#toc)\n\n \n\n**SIGNATURES**\n\n \n\nPursuant to the requirements of Section 13 or\n15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned,\nthereunto duly authorized.\n\n \n\n \nKORTH DIRECT MORTGAGE, INC. \n \n\n \n \n \n \n\n \nBy:\n*/s/ Holly MacDonald-Korth*\n \n\n \n \nHolly MacDonald-Korth\n \n\n \n \n*Chief Executive Officer and Chief Financial Officer*\n \n\n \n\n \n\n \n\nPursuant to the requirements of the Securities\nExchange Act of 1934, the following persons on behalf of the registrant and in the capacities and on the dates indicated have signed this\nreport below.\n\n \n\nSignature\n \nTitle\n \nDate\n\n \n \n \n \n \n\n /s/ Holly MacDonald-Korth\n \nChief Executive Officer and Chief Financial Officer\n \nJune 1, 2026\n\nHolly MacDonald-Korth\n \n \n \n \n\n \n\n 30 \n\n [Table of Contents](#toc)\n\n \n\nKORTH DIRECT MORTGAGE INC.\n\n \n\nREPORT ON CONSOLIDATED FINANCIAL STATEMENTS\n\n \n\nYEARS ENDED DECEMBER 31, 2025 AND 2024\n\n \n\n F-1 \n\n [Table of Contents](#toc)\n\n \n\nKORTH DIRECT MORTGAGE INC.\n\n \n\n \n\n \n\nTABLE OF CONTENTS \n\nCONSOLIDATED FINANCIAL STATEMENTS \n\nYEARS ENDED DECEMBER 31, 2025 AND 2024\n\n \n\n \n\n \n\n \n PAGE(S)\n\n \n \n\n[REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM (PCAOB ID 213)](#auditreport1)\n\nF-3\n\n \n \n\n[REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM (PCAOB ID 52)](#auditreport2)\n\nF-4\n\n \n \n\n[ CONSOLIDATED FINANCIAL STATEMENTS](#csfc)\n \n\n \n \n\n[Consolidated Statements of Financial Condition](#csfc)\nF-5\n\n \n \n\n[Consolidated Statements of Operations](#sop)\nF-6\n\n \n \n\n[Consolidated Statements of Changes in Stockholders’ Equity](#se)\nF-7\n\n \n \n\n[Consolidated Statements of Cash Flows](#cf)\nF-8\n\n \n \n\n[Notes to Consolidated Financial Statements](#notes)\nF-9\n\n \n\n F-2 \n\n [Table of Contents](#toc)\n\n \n\n \n\n \n \n\n \n\nREPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING\nFIRM\n\n \n\nTo the Board of Directors and\n\nStockholders of Korth Direct Mortgage, Inc.\n\n \n\n \n\n**Opinion on the Financial Statements**\n\n \n\nWe have audited the accompanying consolidated statement\nof financial condition of Korth Direct Mortgage, Inc. (the “Company”) as of December 31, 2025, and the related consolidated\nstatements of operations, changes in stockholders’ equity and cash flows for the year then ended, and the related notes (collectively\nreferred to as the financial statements). In our opinion, the financial statements present fairly, in all material respects, the financial\nposition 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\nwith accounting principles generally accepted in the United States of America.\n\n \n\n**Basis for Opinion**\n\n \n\nThese financial statements are the responsibility\nof the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our\naudit. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (“PCAOB”)\nand are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable\nrules and regulations of the Securities and Exchange Commission and the PCAOB.\n\n \n\nWe conducted our audit in accordance with the standards\nof the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements\nare free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform,\nan audit of its internal control over financial reporting. As part of our audit, we are required to obtain an understanding of internal\ncontrol over financial reporting, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal\ncontrol over financial reporting. Accordingly, we express no such opinion.\n\n \n\nOur audit included performing procedures to assess\nthe risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond\nto those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements.\nOur audit also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating\nthe overall presentation of the financial statements. We believe that our audit provides a reasonable basis for our opinion.\n\n \n\n**Critical Audit Matters**\n\n \n\nCritical audit matters are matters arising from the\ncurrent period audit of the financial statements that were communicated or required to be communicated to the audit committee and that\n(1) relate to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective,\nor complex judgments. We determined that there were no critical audit matters.\n\n \n\n \n\n/s/ Carr, Riggs & Ingram, L.L.C.\n \n\n \n \n\nWe have served as the Company’s auditor since 2026.\n \n\n \n \n\nPalm Beach Gardens, FL\n \n\n \n \n\nJune 1, 2026\n \n\n \n\n F-3 \n\n [Table of Contents](#toc)\n\n \n\n \n\n \n\n \n\n \n\n \n\nREPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING\nFIRM\n\n \n\n \n\nTo the Board of Directors and\n\nStockholders of Korth Direct Mortgage, Inc.\n\n \n\n**Opinion on the Financial Statements**\n\n \n\nWe have audited the accompanying balance sheets of\nKorth Direct Mortgage, Inc. (the Company) as of December 31, 2024 and 2023, and the related statements of income, comprehensive income,\nstockholders’ equity, and cash flows for each of the years in the two-year period ended December 31, 2024, and the related notes\n(collectively referred to as the financial statements). In our opinion, the financial statements present fairly, in all material respects,\nthe financial position of the Company as of December 31, 2024 and 2023, and the results of its operations and its cash flows for each\nof the years in the two-year period ended December 31, 2024, in conformity with accounting principles generally accepted in the United\nStates of America.\n\n \n\n**Basis for Opinion**\n\n \n\nThese financial statements are the responsibility\nof the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our\naudits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are\nrequired to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and\nregulations of the Securities and Exchange Commission and the PCAOB.\n\n \n\nWe conducted our audits in accordance with the standards\nof the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements\nare free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform,\nan audit of its internal control over financial reporting. As part of our audits, we are required to obtain an understanding of internal\ncontrol over financial reporting, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal\ncontrol over financial reporting. Accordingly, we express no such opinion.\n\n \n\nOur audits included performing procedures to assess\nthe risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond\nto those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements.\nOur audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating\nthe overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.\n\n \n\n**Critical Audit Matters**\n\n \n\nCritical audit matters are matters arising from the\ncurrent period audit of the financial statements that were communicated or required to be communicated to the audit committee and that\n(1) relate to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective,\nor complex judgments. We determined that there were no critical audit matters.\n\n \n\n \n\n*/s/ * Berkowitz Pollack Brant, Advisors + CPAs\n\n \n\nWe have served as the Company’s auditor since 2021.\n\n \n\nWest Palm Beach, FL\n\n \n\nApril 1, 2025\n\n \n\n \n\n \n\n F-4 \n\n [Table of Contents](#toc2)\n\n \n\n**KORTH DIRECT MORTGAGE, INC.**\n\n**AND SUBSIDIARIES**\n\n**CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION**\n\n  \n    \n   \n\n  \nDecember 31, 2025  \nDecember 31, 2024 \n\nASSETS \n   \n  \n\nCash and Cash Equivalents \n$5,354,168  \n$2,898,659 \n\nRestricted Cash \n 4,913,585  \n 15,431,460 \n\nRestricted Investment \n -  \n 1,192,510 \n\nMortgages Owned \n 285,416,050  \n 451,974,989 \n\nMortgage Servicing Rights, at Fair Value \n 6,108,755  \n 9,260,225 \n\nPortfolio Loans \n 5,690,984  \n 5,161,709 \n\nLoans Held for Sale \n -  \n 520,215 \n\nSecurities \n 41,991  \n 41,991 \n\nRight-of-Use (\"ROU\") Leased Asset \n 560,599  \n 270,281 \n\nGoodwill \n 110,000  \n 110,000 \n\nProperty and equipment, net of depreciation \n 69,691,129  \n 31,922,404 \n\nOther Assets \n 2,966,752  \n 3,067,100 \n\nTOTAL ASSETS \n$380,854,013  \n$521,851,543 \n\n  \n    \n   \n\nLIABILITIES AND  STOCKHOLDERS' EQUITY \n    \n   \n\n  \n    \n   \n\nLIABILITIES \n    \n   \n\nEscrows Payable \n$4,138,619  \n$15,306,451 \n\nLease Liability \n 562,927  \n 294,412 \n\nDeferred Revenue, net \n 1,076,253  \n 1,958,967 \n\nDeferred Tax Liability, net \n 1,478,632  \n 1,378,721 \n\nLine of Credit Payable \n 3,000,000  \n - \n\nMortgage Secured Notes Payable \n 319,683,008  \n 450,264,519 \n\nWarehouse Line of Credit, net \n 17,383,887  \n 17,269,278 \n\nOther Liabilities and Payables \n 3,822,288  \n 4,613,539 \n\nTotal Liabilities \n 351,145,614  \n 491,085,887 \n\n  \n    \n   \n\nSTOCKHOLDERS' EQUITY \n    \n   \n\nAccumulated Deficit \n (5,669,795) \n (3,325,687)\n\nAdditional Paid-in Capital \n 29,685,818  \n 29,632,262 \n\nCommon Stock, $0.001 par value, 60,000,000 shares authorized\n5,000,000 shares issued and outstanding at December 31, 2025 and December 31, 2024 \n 5,000  \n 5,000 \n\nSeries A Preferred Stock, $0.001 par value, 460,000 shares authorized,\n460,000 shares issued and outstanding at December 31, 2025 and December 31, 2024 \n 460  \n 460 \n\nSeries B Preferred Stock, $0.001 par value, 20,000 shares authorized, 19,000\nissued and outstanding at December 31, 2025 and December 31, 2024 \n 19  \n 19 \n\nNon-Controlling Interest \n \n5,686,897\n  \n 4,453,602 \n\nTotal Stockholders' Equity \n 29,708,399  \n 30,765,656 \n\n  \n    \n   \n\nTOTAL LIABILITIES AND STOCKHOLDERS' EQUITY \n$380,854,013  \n$521,851,543 \n\n \n\nSee accompanying notes to the consolidated\nfinancial statements.\n\n \n\n F-5 \n\n [Table of Contents](#toc2)\n\n \n\n**KORTH DIRECT MORTGAGE, INC.**\n\n**AND SUBSIDIARIES**\n\n**CONSOLIDATED STATEMENTS OF OPERATIONS**\n\n  \n    \n   \n\n  \nFor Year Ended  \nFor Year Ended \n\n  \nDecember 31, 2025  \nDecember 31, 2024 \n\n  \n   \n  \n\nREVENUES \n    \n   \n\nOrigination Revenue, Net \n$2,918,424  \n$1,688,843 \n\nServicing Revenue \n 4,126,006  \n 5,040,383 \n\nUnderwriting Income \n 82,910  \n 99,063 \n\nLeasing Revenue \n 5,826,647  \n 2,998,688 \n\nInvestment Interest \n 3,213,459  \n - \n\nOther Revenue \n 1,068,076  \n 2,240,680 \n\nTotal Revenues \n 17,235,522  \n 12,067,657 \n\n  \n    \n   \n\nCOST OF REVENUES \n    \n   \n\nBroker Underwriting Expense \n 1,922,088  \n 1,610,590 \n\nAdministrative Expenses \n 2,093,190  \n 1,941,428 \n\nTotal Cost of Revenues \n 4,015,278  \n 3,552,018 \n\n  \n    \n   \n\nGROSS PROFIT \n 13,220,244  \n 8,515,639 \n\n  \n    \n   \n\nOPERATING EXPENSES \n    \n   \n\nOffice \n 3,059,613  \n 2,313,669 \n\nCompensation and Related Benefits \n 4,098,923  \n 4,511,675 \n\nProfessional and Legal \n 1,523,291  \n 1,176,156 \n\nAdvertising \n 44,944  \n 288,822 \n\nDepreciation \n 1,807,068  \n 1,242,793 \n\nTotal Expenses \n 10,533,839  \n 9,533,115 \n\n  \n    \n   \n\nIncome (Loss) From Operations \n 2,686,405  \n (1,017,476)\n\n  \n    \n   \n\nOther Expense \n    \n   \n\nUnrealized (Loss) Gain on Mortgages \n (3,151,470) \n 14,348 \n\nUnrealized (Loss) Gain on Mortgage Secured Notes \n (23,215) \n 39,501 \n\nUnrealized Gain on Investment \n 25,682  \n - \n\nUnrealized Gain on Securities \n 59,457  \n - \n\nInterest Expense \n (2,300,779) \n (1,802,786)\n\nNet Gains on Foreclosed Real Estate \n 3,199,104  \n 765,068 \n\nRealized Loss on Mortgage Secured Notes \n -  \n (434)\n\nRealized Loss on Loans Held for Sale \n (526) \n (141,647)\n\nChange in Fair Value of Mortgage Secured Notes \n 9,000,000  \n 12,660,000 \n\nLoss on Foreclosures \n (9,000,000) \n (12,660,000)\n\nTotal Other Expense \n (2,191,747) \n (1,125,950)\n\n  \n    \n   \n\nIncome (Loss) before provision for income taxes \n 494,658  \n (2,143,426)\n\n  \n    \n   \n\nProvision (Tax benefit) for income taxes \n 126,363  \n (633,698)\n\n  \n    \n   \n\nNet Income (Loss) before non-controlling interest \n 368,295  \n (1,509,728)\n\nLess: Net Income attributable to non-controlling interest \n 787,403  \n 184,179 \n\n  \n    \n   \n\nNet Loss \n (419,108) \n (1,693,907)\n\n  \n    \n   \n\nSeries A Preferred Dividends \n 690,000  \n 690,000 \n\n  \n    \n   \n\nSeries B Preferred Dividends \n 1,235,000  \n 1,235,000 \n\nNet loss attributable to common stockholders \n$(2,344,108) \n$(3,618,907)\n\n \n\nSee accompanying notes to the consolidated\nfinancial statements.\n\n \n\n F-6 \n\n [Table of Contents](#toc2)\n\n \n\n**KORTH DIRECT MORTGAGE, INC.**\n\n**AND SUBSIDIARIES**\n\n**CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’\nEQUITY**\n\n****\n\n  \n    \n    \n    \n    \n    \n    \n    \n    \n    \n   \n\n  \nSeries A Preferred Stock  \nSeries B Preferred Stock  \nCommon Stock  \nAdditional Paid  \nAccumulated  \nNon-Controlling  \n  \n\n  \nShares  \nAmount  \nShares  \nAmount  \nShares  \nAmount  \nin Capital  \nDeficit  \nInterest  \nTotals \n\n  \n   \n   \n   \n   \n   \n   \n   \n   \n   \n  \n\n  \n   \n   \n   \n   \n   \n   \n   \n   \n   \n  \n\nBalance at January 1, 2024 \n 460,000  \n$460  \n 19,000  \n$19  \n 5,000,000  \n$5,000  \n$29,578,706  \n$293,220  \n$191,153  \n$30,068,558 \n\n  \n    \n    \n    \n    \n    \n    \n    \n    \n    \n   \n\nShare-based compensation \n -  \n -  \n -  \n -  \n -  \n -  \n 53,556  \n -  \n -  \n 53,556 \n\nSeries A and Series B preferred stock dividends declared \n -  \n -  \n -  \n -  \n -  \n -  \n -  \n (1,925,000) \n -  \n (1,925,000)\n\nInvestment in fund \n -  \n -  \n -  \n -  \n -  \n -  \n -  \n -  \n 4,078,270  \n 4,078,270 \n\nNet (loss) income \n -  \n -  \n -  \n -  \n -  \n -  \n -  \n (1,693,907) \n 184,179  \n (1,509,728)\n\n  \n    \n    \n    \n    \n    \n    \n    \n    \n    \n   \n\nBalance at December 31, 2024 \n 460,000  \n$460  \n 19,000  \n 19  \n 5,000,000  \n$5,000  \n$29,632,262  \n$(3,325,687) \n$4,453,602  \n$30,765,656 \n\n  \n    \n    \n    \n    \n    \n    \n    \n    \n    \n   \n\nShare-based compensation \n -  \n -  \n -  \n -  \n -  \n -  \n 53,556  \n -  \n -  \n 53,556 \n\nSeries A and Series B preferred stock dividends declared \n -  \n -  \n -  \n -  \n -  \n -  \n -  \n (1,925,000) \n -  \n (1,925,000)\n\nInvestment in fund \n -  \n -  \n -  \n -  \n -  \n -  \n -  \n -  \n 445,892  \n 445,892 \n\nNet (loss) income \n -  \n -  \n -  \n -  \n -  \n -  \n -  \n (419,108) \n 787,403  \n 368,295 \n\n  \n    \n    \n    \n    \n    \n    \n    \n    \n    \n   \n\nBalance at December 31, 2025 \n 460,000  \n$460  \n 19,000  \n$19  \n 5,000,000  \n$5,000  \n$29,685,818  \n$(5,669,795) \n$5,686,897  \n$29,708,399 \n\n \n\nSee accompanying notes to the consolidated financial statements.\n\n \n\n F-7 \n\n [Table of Contents](#toc2)\n\n \n\n**KORTH DIRECT MORTGAGE, INC.**\n\n**AND SUBSIDIARIES**\n\n**CONSOLIDATED STATEMENTS OF CASH FLOWS**\n\n  \n    \n   \n\n  \nFor the Year Ended  \nFor the Year Ended \n\n  \nDecember 31, 2025  \nDecember 31, 2024 \n\nCASH FLOWS FROM OPERATING ACTIVITIES \n   \n  \n\nNet Income (Loss) \n$368,295  \n$(1,509,728)\n\nAdjustments to Reconcile Net Income (Loss) \n    \n   \n\nNet Cash Used In Operating Activities: \n    \n   \n\nUnrealized Loss (Gain) on Mortgages Owned \n 3,151,470  \n (14,348)\n\nUnrealized Loss (Gain) on Mortgage Secured Notes \n 23,215  \n (39,501)\n\nUnrealized (Gain) Loss on Securities \n (59,457) \n 82,510 \n\nUnrealized Gain on Investment \n (25,682) \n - \n\nNet Gains on Foreclosed Real Estate \n (3,199,104) \n (765,068)\n\nRealized Loss on Loans Held for Sale \n 526  \n 141,647 \n\nChange in Fair Value of Mortgage Secured Notes \n (9,000,000) \n (12,660,000)\n\nLoss on Foreclosures \n 9,000,000  \n 12,660,000 \n\nStock Compensation Expense \n 53,556  \n 53,556 \n\nDepreciation \n 1,807,068  \n 1,242,793 \n\nAmortization of loan costs \n 114,609  \n 785,083 \n\nDeferred rent expense from operating lease \n (21,803) \n (14,420)\n\nDeferred income taxes \n 99,911  \n (633,698)\n\nChanges in Operating Assets and Liabilities: \n    \n   \n\nMortgage Secured Notes Issued \n 3,900,000  \n (22,229,991)\n\nRestricted Investment \n 1,192,510  \n (1,192,510)\n\nLine of Credit Payable \n 3,000,000  \n - \n\nWarehouse Line of Credit \n -  \n 6,293,091 \n\nPortfolio Loans \n (2,696,471) \n 2,512,489 \n\nLoans Held For Sale \n 519,689  \n 5,413,065 \n\nOther Assets \n (461,777) \n (931,048)\n\nDeferred Revenue, net \n (882,714) \n 233,164 \n\nEscrow Payable \n (11,167,832) \n 422,237 \n\nContingent Liability \n -  \n (164,644)\n\nSecurities Sold Short \n -  \n (2,565,082)\n\nOther Liabilities and Payables \n (791,251) \n 2,582,877 \n\nNew Mortgage Lending \n (6,745,447) \n 4,849,419 \n\nMortgage Loans Matured/Paid Off \n (2,451,443) \n - \n\nTotal Adjustments \n (14,640,427) \n (3,938,378)\n\n  \n    \n   \n\nNET CASH USED IN OPERATING ACTIVITIES \n (14,272,132) \n (5,448,106)\n\n  \n    \n   \n\nCASH FLOWS FROM INVESTING ACTIVITIES \n    \n   \n\nPurchase of property and equipment \n (1,326,290) \n (76,853)\n\nDisposals of PP&E \n 9,015,164  \n - \n\nNET CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES \n 7,688,874  \n (76,853)\n\n  \n    \n   \n\nCASH FLOWS FROM FINANCING ACTIVITIES \n    \n   \n\nPayment of Series A/B preferred stock dividends \n (1,925,000) \n (1,925,000)\n\nInvestment in Fund \n 445,892  \n 4,078,270 \n\nNET CASH (USED IN) PROVIDED BY FINANCING ACTIVITIES \n (1,479,108) \n 2,153,270 \n\n  \n    \n   \n\nNET DECREASE IN CASH, CASH EQUIVALENTS AND RESTRICTED CASH \n (8,062,366) \n (3,371,689)\n\n  \n    \n   \n\nCASH, CASH EQUIVALENTS AND RESTRICTED CASH – Beginning of Year \n 18,330,119  \n 21,701,808 \n\n  \n    \n   \n\nCASH, CASH EQUIVALENTS AND RESTRICTED CASH – End of Year \n$10,267,753  \n$18,330,119 \n\n  \n    \n   \n\nSUPPLEMENTAL DISCLOSURE OF CASH FLOWS INFORMATION \n    \n   \n\nCash paid during the year for interest \n$2,186,170  \n$689,129 \n\nIncome taxes paid, net of refunds \n  \n \n\nFederal \n$-  \n$- \n\nState \n -  \n - \n\nNON-CASH INVESTING AND FINANCING ACTIVITIES \n    \n   \n\nAssets acquired through settlement in lieu of foreclosure \n$49,024,228  \n$15,765,068 \n\n \n\nSee accompanying notes to the consolidated\nfinancial statements.\n\n \n\n F-8 \n\n [Table of Contents](#toc2)\n\n \n\n**KORTH DIRECT MORTGAGE, INC**\n\n**AND SUBSIDIARIES**\n\n**NOTES TO AUDITED CONSOLIDATED FINANCIAL STATEMENTS**\n\n \n\n**NOTE 1 - NATURE OF BUSINESS**\n\n \n\nKorth Direct Mortgage, Inc. (the “Company”\nor “KDM”) is incorporated in the State of Florida. The Company was created to originate mortgages and fund those mortgages\nwith Notes secured by mortgage loans. J.W. Korth & Company Limited Partnership (“J.W. Korth”) is a wholly owned subsidiary\nof KDM.\n\n \n\nJ.W. Korth is a securities broker dealer registered with the Securities\nExchange Commission and the states of Michigan, Florida, and various other states and an Securities and Exchange Commissions (“SEC”)\nregistered investment adviser under the Investment Advisers Act of 1940. J.W. Korth is a licensed member of the Financial Industry Regulatory\nAuthority (FINRA), the Securities Investor Protection Corporation, as well as a Municipal Securities Rulemaking Board (MSRB) registrant.\n\n \n\nOn July 28, 2022, KDM created a new wholly owned\nsubsidiary, KDM Funding I LLC (“KDMF”), which is an additional issuer of Mortgage Secured Notes (“MSNs”). KDM\nis the servicer of KDMF’s loans, and all revenue and expenses are passed through to the Company and consolidated within these financial\nstatements. See the current report Form 8-K filed with the Commission on August 5, 2022, for more information concerning the business\nof KDMF.\n\n \n\nKDM a owns a controlling interest in KDM Seaton\nColyton Holdings LLC, and owns 100% of KDM Nagog Park LLC, KDM Beyer Drive Holding LLC, KDM Stafford LLC and KDM Cupples REO LLC, which\nare special purpose entities whose primary business purpose is to own and operate various commercial real estate properties. Currently,\nthese entities own properties in Stafford, VA, Los Angeles, CA, Acton, MA, St. Louis, MS, and Selam, TX. KDM’s operations with respect\nto these properties is detailed under the Asset Management section of Segment Reporting (“Note 19”).\n\n \n\nKDM Capital Partners LP (the “Fund”) was formed in June\n2024 as a limited partnership in the state of Delaware in which the Company holds a controlling financial interest The Fund’s primary\nbusiness purpose is to invest in mortgages that are originated and serviced by KDM and other real estate related investments. KDM Capital,\nLLC serves as the Fund’s General Partner and J.W. Korth serves as the Fund’s Investment Manager. The Fund is actively raising\ncapital.\n\n \n\nThe Fund qualifies as an investment company, as\ndefined in Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) Topic 946 Financial\nServices – Investment Companies, and, therefore, is applying the specialized accounting and reporting guidance pursuant to ASC Topic\n946.\n\n \n\nThe Company may create and operate other special purpose and pass-through\nentities typically organized as limited liability companies in order to own real estate and issue additional securities. These entities\nwill be consolidated into these consolidated financial statements, if and when created.\n\n \n\n **NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING\nPOLICIES**\n\n \n\n*PRINCIPLES OF CONSOLIDATION*\n\nThe accompanying condensed consolidated financial\nstatements include the accounts of the Company and the accounts of the Company’s wholly owned subsidiaries J.W. Korth, KDM MFB LLC,\nKDM Funding I LLC, KDM Nagog Park LLC, KDM Cupples REO LLC, KDM Beyer Drive Holdings LLC, KDM Capital Management LLC, KDM Capital Partners\nLP, KDM Capital LLC, KDM Asset Management LLC, and KDM Stafford LLC and KDM Seaton Colyton Holdings LLC, in which KDM owns a controlling\ninterest.\n\n \n\n*BASIS OF ACCOUNTING*\n\nThe accompanying condensed consolidated financial\nstatements have been prepared on the accrual basis of accounting, in accordance with Generally Accepted Accounting Principles (“GAAP”).\n\n \n\n*USE OF ESTIMATES*\n\nThe preparation of financial statements in conformity\nwith GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures\nof contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses\nduring the reporting period. Actual results could differ from those estimates.\n\n \n\n*CASH, CASH EQUIVALENTS AND RESTRICTED CASH*\n\nFor purposes of the statement of cash flows, the Company considers all\nhighly liquid debt instruments purchased with an original maturity of three months or less to be cash equivalents.\n\n \n\n F-9 \n\n [Table of Contents](#toc2)\n\n \n\nThe following table provides a reconciliation\nof cash and cash equivalents, and restricted cash to amounts shown in the consolidated statements of cash flows as of December 31, 2025\nand 2024:\n\nSchedule of cash and cash equivalents \n    \n   \n\n  \n2025  \n2024 \n\nCash and Cash Equivalents \n$5,354,168  \n$2,898,659 \n\nRestricted Cash \n 4,913,585  \n 15,431,460 \n\n  \n$10,267,753  \n$18,330,119 \n\n \n\nThe Company maintains cash and restricted cash\nbalances at financial institutions in excess of federally insured limits. The Company has not experienced any losses related to these\nbalances. The Federal Deposit Insurance Corporation insures eligible accounts up to $250,000 per depositor at each financial institution.\nThe Company holds cash and restricted cash at well-known banks and does not believe that it is exposed to any significant credit risk\non cash and cash equivalents.\n\n \n\n*MORTGAGE VALUATION*\n\nMortgages that are current are carried at the principal value owed by\nthe borrower, as of the date of the consolidtaed financial statements, according to the amortization schedule for the loans, amortized\ncost. All mortgages owned as of the date of these consolidated financial statements are current. The net present value of the servicing\nrevenue is recorded as mortgage servicing rights, at fair value on the Consolidated Statements of Financial Condition and the change in\nmortgage servicing rights from year to year is recognized on the Consolidated Statements of Operations as an unrealized gain/loss on mortgages.\n\n \n\n*MORTGAGES OWNED*\n\nThe Company has funded the majority of the mortgage loans that it has\nmade by issuing Mortgage Secured Notes (“MSNs”), which are secured by those same mortgages. As of December 31, 2025 and 2024,\nthe Company has outstanding loans totaling $285,416,050 and $451,974,989, respectively, and it issued MSNs secured by those loans, also\nin the amount of $319,683,008 and $450,264,519, respectively. The deals have been funded in multiple ways, including private placements,\nSEC registered deals, and 144A offerings. The Company also funds loans via participation, or a combination of MSN and participation; it\nalso funds a portion of certain loans using its own capital in addition to capital provided by the Fund.\n\n \n\n*PORTFOLIO LOANS*\n\nThe Company recognizes loans made with its own\ncapital, or those not securitized or participated out, under the caption “Portfolio Loans” on the balance sheet. As of December\n31, 2025 and 2024, the Company issued Portfolio Loans in the amount of $5,690,984 and $5,161,709, respectively. These loans were funded\nby the Company as well as its affiliates.\n\n \n\n*LOANS HELD FOR SALE*\n\nThe Company purchases small balance commercial loans classified as\nheld for sale which are carried at the lower of amortized cost basis or market value. We determine the fair value of mortgage loans held\nfor sale by using a discounted cash flow model.\n\n \n\n*GOODWILL*\n\nFinancial Accounting Standards Board Accounting Standards Codification\n(“ASC”) Topic 350 requires an annual assessment of the recoverability of goodwill using a two-step process. The first step\nof the impairment test involves a comparison of the fair value of the reporting unit to its carrying value. If the carrying value is higher\nthan the fair value or there is an indication that impairment may exist, a second step must be performed to compute the amount of the\nimpairment. Management conducted its annual assessment of goodwill impairment and determined that there were no indicators of goodwill\nimpairment and therefore did not record an impairment loss for the years ended December 31, 2025 and 2024.\n\n* *\n\n*REVENUE RECOGNITION*\n\nThe Company’s primary sources of revenue\nare generated from origination fees, servicing fees, underwriting income, and leasing revenue.\n\n \n\nOrigination Fees\n\nLoan origination fees represent revenue earned from originating mortgage\nloans, net of any credits given to the borrower. Loan origination fees generally represent flat, per-loan fee amounts and are deferred\nand recognized as revenue over the life of the loan. The associated loan origination costs are also deferred and recognized as expense\nover the life of the loan. The deferred portion of the loan origination fees is netted against the deferred portion of the loan origination\ncosts, which include mortgage broker expenses, and reported as a net deferred revenue liability on the Company’s Consolidated Statements\nof Financial Condition.\n\n \n\nServicing Fees\n\nLoan servicing fees represent revenue earned for\nservicing loans for various investors. Loan servicing fees are a percentage of the outstanding unpaid principal balance and represent\nthe difference between the Corresponding Mortgage Loan (“CM Loan”) interest received and the MSN interest payable. Servicing\nFees are recognized as revenue as the related mortgage payments are received; similarly, loan servicing expenses are charged to operations\nas incurred.\n\n \n\n F-10 \n\n [Table of Contents](#toc2)\n\n \n\nUnderwriting Income\n\nUnderwriting income represents revenue earned\nby J.W. Korth for underwriting and distribution of the Company’s securities. Revenues from underwriting income are recognized on\nsettlement date of the trades.\n\n \n\nLeasing Revenue\n\nLeasing revenue represents revenues generated at rental properties majority-owned\nand controlled by KDM through operating leases. Leasing revenues are generated through KDM Stafford and KDM Seaton Colyton Holdings LLC,\nin which the Company holds a controlling interest, and the Company’s wholly-owned subsidiaries, KDM Nagog Park KDM Beyer Drive Holdings\nLLC, and KDM Cupples REO. Leasing revenue generated from operating leases are recognized over the lease term on a straight-line basis.\nWe 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.\n\n \n\nInvestment Interest\n\nInvestment Interest represents the Fund's interest\nincome from its investments, including interest earned on loans and interest earned on cash balances. Interest income is recognized over\nthe term of the investment based on the principal amount outstanding and is recognized as earned.\n\n \n\n*LEASES*\n\nIn February 2016, the FASB issued Accounting Standards Update (“ASU”)\nNo. 2016-02, “Leases (Topic 842).” The standard requires organizations to recognize right-of-use (“ROU”) assets\nand lease liabilities on the balance sheet. The Company recognizes lease liabilities with a corresponding ROU leased asset of approximately\nthe same amount based on the present value of the remaining lease payments pursuant to current leasing standards for existing operating\nleases.\n\n \n\n*STOCK-BASED COMPENSATION*\n\nThe Company estimates the fair value of share-based\npayments on the date of grant using a Black-Scholes option pricing model. Compensation cost is recognized over the required service period,\ngenerally defined as the vesting period. For awards with graded vesting, compensation cost is recognized on a straight-line basis over\nthe requisite service period for the entire award. The Company’s accounting policy is to recognize forfeitures as they occur.\n\n \n\nThe Black-Scholes option pricing model requires\nassumptions for the expected volatility of the share price of our common stock, the expected dividend yield, and a risk-free interest\nrate over the expected term of the stock-based award.\n\n \n\nSince the Company’s common stock is not\npublicly traded, we do not have sufficient Company specific information regarding the volatility of our share price on which to base an\nestimate of expected volatility. As a result, we use the historical volatilities of similar entities within our industry as the expected\nvolatility of our share price.\n\n \n\nThe expected dividend yield is 0% as the Company\nhas not paid any dividends on its common stock and does not anticipate it will pay any dividends in the foreseeable future on its common\nstock.\n\n \n\nThe risk-free interest rate is based on the U.S.\nTreasury 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.\n\n \n\nSince the Company does not have sufficient historical\nexercise data to provide a reasonable basis upon which to estimate the expected term, the Company utilizes the simplified method to calculate\nthe expected term of stock-based awards based on the average of the vesting term and contractual term of the award.\n\n \n\nThe assumptions used in calculating the fair value\nof stock-based awards represent our best estimates, but these estimates involve inherent uncertainties and the application of management\njudgment. As a result, if factors change and we use different assumptions, our stock-based compensation expense could be materially different\nin the future.\n\n \n\n*Unrealized\nGain on Mortgages*\n\nThe net present value of the servicing income\nis recognized at the time the mortgage is initiated. The changes to the net present value which is determined by the determination of\nthe fair value of the assets are recognized through an adjustment to the unrealized gain/loss in each reporting period. This value uses\nseveral inputs that are highly subjective including: discount rate, prepayment rate, the current interest rate environment, and default\nrate assumptions. We use a third-party to calculate this value.\n\n* *\n\n*DUE TO CLEARINGHOUSE BROKERS*\n\nJ.W. Korth operates as an SEC and FINRA\nregistered securities broker dealer. The securities transactions are traded through broker clearinghouses and, upon settlement,\nfunds are transferred in and out of the Company’s bank accounts. Unsettled transactions create short-term payables and\nreceivables due to and from the broker clearinghouses. As of December 31, 2025 and December 31, 2024, the Company had a net amount\ndue to the clearinghouse brokers of $0.\n\n \n\n F-11 \n\n [Table of Contents](#toc2)\n\n \n\n*DEPRECIATION*\n\nDepreciation of property, plant and equipment is provided on a straight-line\nbasis using estimated useful lives of three to thirty-nine years.\n\n* *\n\n*INCOME TAXES*\n\nIncome taxes are accounted for under the asset\nand liability method. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between\nthe financial statement carrying amounts of existing assets and liabilities and their respective tax bases and operating loss and tax\ncredit carryforwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in\nthe years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities\nof a change in tax rates is recognized in income in the period that includes the enactment date. A valuation allowance on deferred tax\nassets is established when management considers it is more likely than not that some portion or all of the deferred tax assets will not\nbe realized.\n\n \n\nTax benefits from an uncertain tax position are only recognized if it\nis more likely than not that the tax position will be sustained on examination by the taxing authorities, based on the technical merits\nof the position. The tax benefits recognized in the financial statements from such a position are measured based on the largest benefit\nthat has a greater than fifty percent likelihood of being realized upon ultimate resolution. Interest and penalties related to unrecognized\ntax benefits are recorded as incurred as a component of income tax expense. The Company’s tax returns for the years ended December\n31, 2022 and after remain subject to examination by federal and state jurisdictions.\n\n \n\n*RECENT ACCOUNTING PRONOUNCEMENTS*\n\n*Improvements to Credit Loss Estimates*\n\nIn June 2016, the FASB issued ASU No. 2016-13 “Financial Instruments,\nMeasurement of Credit Losses on Financial Instruments.” This ASU updates the existing incurred loss model to a current expected\ncredit loss (“CECL”) model for financial assets and net investments in leases that are not accounted for at fair value through\nearnings. The amendments affect cash and cash equivalents, reverse repurchase agreements, certain loans, held-to-maturity debt securities,\ntrade receivables, net investments in leases, off-balance sheet credit exposures and any other financial assets not excluded from the\nscope.  There are also limited amendments to the impairment model for available-for-sale debt securities. ASU No. 2016-13 is effective\nfor annual reporting periods beginning after December 15, 2022 for public smaller reporting companies, including interim reporting periods\nwithin those fiscal years\n\n \n\n*Improvements to Reportable Segment Disclosures*\n\nIn November 2023, the FASB issued ASU No. 2023-07, which requires public\nentities to disclose significant segment expenses and other segment items on an annual and interim basis and to provide in interim periods\nall disclosures about a reportable segment’s profit or loss and assets that are currently required annually. Public entities with\na single reportable segment are required to provide the new disclosures and all the disclosures required under ASC 280, Segment Reporting.\nThe ASU does not change how a public entity identifies its operating segments, aggregates them or applies the quantitative thresholds\nto determine its reportable segments. The ASU is effective for fiscal years beginning after December 15, 2023, and for interim periods\nbeginning after December 15, 2024, with early adoption permitted. The guidance should be applied retrospectively to all periods presented\nin the financial statements, unless it is impracticable. The segment expense categories and amounts disclosed in the prior periods should\nbe based on the significant segment expense categories identified and disclosed in the period of adoption. The Company adopted this ASU\nin 2020, which did not have a material impact on the Company's financial condition, results of operations or financial statement disclosures.\n\n \n\n*Improvements to Income Tax Disclosures*\n\nIn December 2023, the FASB issued ASU No. 2023-09,\nwhich requires entities to provide additional information about federal, state and foreign income taxes and reconciling items in the rate\nreconciliation table, and to disclose further disaggregation of income taxes paid (net of refunds received) by federal (national), state\nand foreign taxes by jurisdiction. For public business entities, the ASU is effective for annual periods beginning after December 15,\n2024, with early adoption permitted. The guidance should be applied prospectively, but entities have the option to apply it retrospectively\nfor each period presented. The Company adopted this ASU on a prospective basis and determined it will not have a material impact on the\nCompany’s financial condition, results of operations or financial statement disclosures.\n\n \n\n **NOTE 3 – CONTINGENT LIABILITY**\n\n \n\nAs part of the acquisition of J. W. Korth in 2020,\nthe Company agreed to pay (i) the Preferred Capital Interest partners of J.W. Korth accrued and unpaid 6% dividends through July 31, 2020;\n(ii) the J.W. Korth Preferred Capital Interest Partners quarterly dividends concurrently with its payment of the Company’s Series\nA Preferred Stock dividends at least annually; and (iii) in such years as it pays Series A Preferred dividends, redeem 25% annually of\nthe J.W. Korth Preferred Capital Interest partners through a capital contribution to JW Korth. The contingent liability was paid off in\nJuly 2024.\n\n \n\n F-12 \n\n [Table of Contents](#toc2)\n\n \n\nThe following table summarizes the unpaid Contingent\nLiability outstanding as of December 31, 2025 and 2024:\n\nSchedule of unpaid contingent liability outstanding \n    \n   \n\n  \n2025  \n2024 \n\nContingent liability to redeem J.W. Korth Preferred Capital Interest Partners \n$0  \n$164,644 \n\nContingent liability payment \n 0  \n (164,644)\n\nAccrued and unpaid dividends recorded as interest expense \n 0  \n 0 \n\nContingent Liability, net \n$0  \n**$****0** \n\n** **\n\n**NOTE 4 – MORTGAGE SECURED NOTES PAYABLE**\n\n** **\n\nAs stated above in Note 2, the Company funds the\nmajority of mortgage loans that it makes by issuing Mortgage Secured Notes (“MSNs”), which are secured by those same mortgages.\nAs of December 31, 2025 and 2024, the Company has funded loans with current values totaling $285,416,050 and $451,974,989, respectively,\nand 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\nmultiple ways, including private placements, SEC registered deals, and 144A offerings.\n\n \n\nThe MSNs are typically five-year interest-only\nnotes 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\nat various dates from January 2026 to June 2037. The MSNs are payable to the extent that the Company receives payment from the borrower\nof the mortgage loans. Payments are received from the borrowers and passed through to the MSN noteholders. KDM has custodial responsibility\nfor the MSNs pursuant to the Trust Indenture for the Notes. There are no limitations in KDM’s liability as servicer of its MSNs.\n\n \n\nThe following table is a schedule of future maturities\nof the MSNs for each of the five years and thereafter subsequent to December 31, 2025:\n\nScheduled of principal payments \n   \n\nYears ending\nDecember 31 \nFuture\nMaturities of\nDebt \n\n  \n  \n\n2026 \n 138,340,990 \n\n2027 \n 45,560,356 \n\n2028 \n 20,635,488 \n\n2029 \n 37,517,328 \n\n2030 \n 46,945,755 \n\nThereafter \n 30,683,091 \n\nTotal \n$319,683,008 \n\n** **\n\n**NOTE 5 - RESTRICTED CASH AND INVESTMENTS**\n\n \n\nThe Company maintains multiple segregated accounts\nin trust for borrowers and investors. The value of these accounts is carried under the asset accounts, “Restricted Cash” and\n“Restricted Investment,” with respective offsets to the liability accounts, “Escrows Payable” and “Other\nLiabilities and Payables.”\n\n \n\nThe “In Trust for 1” account holds\nthe monthly tax and insurance payments collected from borrowers and distributes payments annually, on behalf of borrowers, to the appropriate\ntax 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.\nThis account is included as part of the Escrow Payable liability account.\n\n \n\nThe “In Trust for 2” account receives\npayments from borrowers and distributes payments to investors and pays the servicing fee to the Company. This account has a balance of\n$466,216 and $994,858 as of December 31, 2025 and 2024, respectively, which consists of borrower early payments and commitment fees. This\naccount is included as part of the Other Liabilities and Payables liability account.\n\n \n\nThe Company also maintains multiple lockbox accounts\nthat collect rental payments directly from tenants on the borrowers’ behalf. These accounts typically net out funds monthly. The\nlockbox account balances were $0 as of December 31, 2025 and 2024. This account is included as part of the Escrow Payable liability account.\n\n \n\n F-13 \n\n [Table of Contents](#toc2)\n\n \n\nThe Company maintains an account for payment of\nquarterly Preferred Series B dividends that has a balance of $308,750 as of December 31, 2025 and 2024.\n\n \n\nThe Company maintains an account restricted per the warehouse line\nagreement that has a balance of $0 as of December 31, 2025 and 2024. See “Note 15 – Lines of Credit.”\n\n \n\nThe Company maintains a cash management account\nthat 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\nof December 31, 2025 and December 31, 2024, respectively. This account is included as part of the Escrow Payable liability account.\n\n \n\nThe Company invests a portion of the restricted cash collected from\nborrowers 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\nas of December 31, 2025 and 2024, respectively. This account is included as part of the Escrow Payable liability account.\n\n \n\nThe Company invests a portion of restricted cash from borrowers in\na savings account with a balance of $250,000 as of December 31, 2025 and 2024.\n\n \n\nThe Company has opened two cash management accounts at J.W. Korth &\nCompany 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.\n\n \n\n**NOTE 6 –RENTAL PROPERTY**\n\n \n\nIn November 2022, through a Settlement in Lieu\nof Foreclosure Agreement, the Company obtained majority ownership and the controlling interest in rental property located in Stafford,\nVirginia. As part of the agreement, a $9.5 million mortgage held by the Company was assigned to a newly created special-purpose entity,\nKDM Stafford LLC, which is controlled by the Company. For the years ended December 31, 2025 and December 31, 2024, the Company recorded\nnet loss attributable to its interest of $41,908 and $53,698, respectively. In 2025, KDM Stafford LLC moved from being a majority owned\nentity 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\ninvestment in the special-purpose entity which is eliminated in consolidation.\n\n \n\nIn March 2024, through foreclosure and via a special-purpose\nentity named KDM Nagog Park LLC, a wholly owned subsidiary, KDM took possession of a 3 building office park in Acton, Massachusetts. Similarly,\nvia deed in lieu of foreclosure in April 2024, KDM took ownership of an office building in St. Louis, Missouri through a wholly owned\nsubsidiary named KDM Cupples REO LLC. The activity of the wholly owned subsidiaries, KDM Nagog Park LLC and KDM Cupples REO LLC, are included\nin the Company’s consolidated financial statements beginning in the second quarter of 2024.\n\n \n\nAfter acquiring the office building in April 2024, in May 2025, KDM\nCupples REO LLC defaulted on the ground lease of the property it owned in St. Louis, Missouri. After a meeting with the bondholders, where\nKDM informed all bondholders that capital would need to be raised to pay the taxes, insurance, and ground rent, in order to not default,\nwith additional funds in order to stabilize the property, the bondholders elected not to retain ownership of the property. The ground\nlessor 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\nasset from its balance sheet and canceled the related outstanding bonds. The transaction is reflected in the consolidated statements of\noperations as a loss on foreclosure and change in fair value of mortgage secured notes.\n\n \n\nIn March 2025 and April 2025, via deed in lieu\nof foreclosure, KDM acquired a mixed use property in Los Angeles, California, a majority-owned via a subsidiary named KDM Seaton Colyton\nHoldings, LLC; and an owner-occupied building in Selma, TX. As part of the deed in lieu transactions, the Company recognized a gain of\n$3,199,104 which was the difference between the fair value of the net assets acquired, the mortgage liability assumed, and the consideration\npaid on the transaction date. The following table summarizes the transactions:\n\nSchedule of fair value of net assets acquired \n   \n\nFair Value of Net Assets Acquired: \n  \n\nRestricted Cash \n$66,300 \n\nBuilding and land \n 46,600,000 \n\nMortgage liability assumed \n (41,300,000)\n\nNet Assets Acquired \n 5,366,300 \n\nLess: Investments in special-purpose entity \n (2,167,196)\n\nGain on Foreclosed Real Estate \n$3,199,104 \n\n \n\n F-14 \n\n [Table of Contents](#toc2)\n\n \n\nWe have 17 and 20 operating leases where we are the lessor\nresulting in $5,826,647\nand $2,998,688\nin leasing revenue for the years ended December 31, 2025 and 2024, respectively. We lease retail and office space. Future\nundiscounted lease income from operating leases where we are the lessor were as follows as of December 31, 2025:\n\nSchedule of future undiscounted lease income \n   \n\nSummary of 5 year future rents:\n\n  \n  \n\n2026 \n$3,381,681 \n\n2027 \n 3,041,271 \n\n2028 \n 2,666,915 \n\n2029 \n 2,441,659 \n\n2030 \n 2,455,995 \n\nThereafter \n 29,183,525 \n\n  \n$43,171,046 \n\n \n\nProperty is recorded at fair market value and depreciation is recognized\nover a 39-year period. For these properties, we recorded depreciation expense of $1,052,486 and $742,949 for the years ended December\n31, 2025 and 2024, respectively.\n\n** **\n\n**NOTE\n7 - COMMITMENTS AND CONTINGENCIES**\n\n \n\nThe Company maintains office space in Coral Gables,\nFlorida. 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\nfor two additional, successive periods of two years upon the same terms and conditions of the initial term. The Company exercised its\nfirst option for two additional years.\n\n \n\nFrom time to time, the Company may enter into\na Sublease Agreement to sublet a portion of the office space described above. The subtenant agrees to cover the proportionate amount of\nthe lease costs associated with the office space based on essentially the same terms as the lease described above, including the rights\nto extend for two successive two-year periods. For the years ended December 31, 2025 and 2024, the Company recognized $0 and $11,026,\nrespectively, of sublease rental revenue, which is recorded as an offset to the Company’s rental expense discussed below.\n\n \n\nThe J. W. Korth Michigan office has a lease which\nbegan in May 2021 for a term of sixty months.\n\n \n\nThe net present value of future lease payments\npursuant to the operating lease agreements are included in the ROU Leased Asset and the Lease Liability accounts on the Consolidated Statements\nof Financial Condition. The ROU Leased Asset represents the right to use an underlying asset for the remaining lease term. The Lease Liability\nrepresents the obligation to make lease payments pursuant to the terms of the lease agreements.\n\n \n\nNet rental expense for the year ended December\n31, 2025 was $315,061 compared to $307,314 for the year ended December 31, 2024, which includes additional expenses for common area, direct\noperating expense, utilities, parking, and taxes.\n\n \n\nAs of December 31, 2025, the net present value\nof the future lease liabilities, using the weighted-average discount rate of 4.24%, which is commensurate with the Company’s secured\nborrowing rate, over the weighted-average remaining life of 2.05 years was $562,927 compared to $294,412 for the year ended December 31,\n2024.\n\n \n\nThe following is a schedule of the maturities\nof future lease payments, net of future sublease revenue, over the remaining life of the operating leases, reconciled to the net present\nvalue of as of December 31, 2025:\n\nSchedule of the maturities\nof future lease payments \n   \n\n  \n **Future\nLease\nPayments** \n\n  \n   \n\n2026 \n$280,259 \n\n2027 \n 279,952 \n\n2028 \n 23,386 \n\nTotal Lease Payments \n 583,597 \n\nLess: Imputed Interest \n (20,670)\n\nPresent Value of Lease Liabilities \n$562,927 \n\n \n\nThe Company is subject to various legal proceedings,\nclaims, and regulatory matters. While the outcome of these matters cannot be predicted with certainty, the Company does not believe that\nany currently pending matters, individually or in the aggregate, will have a material adverse effect on its consolidated financial statements.\n\n \n\n F-15 \n\n [Table of Contents](#toc2)\n\n \n\n**NOTE 8 - INDEMNIFICATIONS**\n\n \n\nThe Company provides representations and warranties\nto counterparties in connection with a variety of commercial transactions and occasionally indemnifies them against potential losses caused\nby the breach of those representations and warranties. These indemnifications generally are standard contractual terms and are entered\ninto in the normal course of business. The maximum potential amount of future payments that the Company could be required to make under\nthese indemnifications cannot be estimated. However, the Company believes that it is unlikely it will have to make material payments under\nthese arrangements and has not recorded any contingent liability in the consolidated financial statements for these indemnifications.\n\n \n\n**NOTE 9 - CUSTOMERS**\n\n \n\nThe Company has forty and forty-four\ncustomers as of December 31, 2025 and 2024 respectively. The Company defines customers as borrowers that have an active loan with\nthe Company, or are in the midst of the underwriting process and have a commitment fee on deposit with the Company.\n\n \n\n **NOTE 10 – RELATED PARTY TRANSACTIONS**\n\n \n\nFrom time to time, the Company purchases MSNs and holds them in its\nbrokerage account. These MSNs are included on the Consolidated Statements of Financial Condition as Securities. As of December 31, 2025,\nthe balance was $533,042, which is eliminated in consolidation. From time to time second lien or balance sheet loans may be all or partially\nfunded by entities controlled by KDM directors or employees; such loans are serviced by KDM. In some circumstances where MSNs are in default,\nin the event a foreclosure becomes necessary, KDM may acquire properties as a deed in lieu of foreclosure. KDM may create special-purpose\nentities to take title to such properties, liquidate them to satisfy any debts due under an MSN, or keep such properties and repay the\nMSN from its own funds. The Company has created five special purpose entities to date, KDM Stafford LLC, KDM Nagog Park LLC, KDM Seaton\nColyton Holdings LLC, KDM Beyer Drive Holdings LLC, and KDM Cupples REO LLC in order to acquire properties via foreclosure and in deed\nof lieu of foreclosure, respectively. See Note 6.\n\n \n\n**NOTE 11 – DEFERRED REVENUE, NET**\n\n \n\nLoan origination fees are deferred and recognized\nas revenue over the life of the respective loan. The associated loan origination costs are also deferred and recognized as expense over\nthe life of the loan. The deferred portion of the loan origination fees is netted against the deferred portion of the loan origination\ncosts and reported as a net deferred revenue liability on the Company’s Consolidated Statements of Financial Condition.\n\n \n\nThe following is a summary of the loan originating\nfees and costs deferred and amortized for the years ended December 31, 2025 and 2024: \n\n Schedule of loan originating fees and costs deferred and amortized \n    \n    \n   \n\n  \n Deferred Origination\nFees  \n Deferred\nOrigination\nCosts  \n Deferred\nRevenue, Net \n\n  \n    \n    \n   \n\nDeferred Revenue at December 31, 2024 \n$4,672,221  \n$(2,713,254) \n$1,958,967 \n\n  \n    \n    \n   \n\nNew loan deferrals \n 632,562  \n (338,433) \n 294,129 \n\nAmortization of deferrals \n (2,899,905) \n 1,723,062  \n (1,176,843)\n\n  \n    \n    \n   \n\nDeferred Revenue at December 31, 2025 \n$2,404,878  \n$(1,328,625) \n$1,076,253 \n\n \n\n  \n Deferred Origination\nFees  \n Deferred\nOrigination\nCosts  \n Deferred\nRevenue, Net \n\n  \n    \n    \n   \n\nDeferred Revenue at December 31, 2023 \n$4,980,490  \n$(3,254,687) \n$1,725,803 \n\n  \n    \n    \n   \n\nNew loan deferrals \n 1,380,574  \n (501,122) \n 879,452 \n\nAmortization of deferrals \n (1,688,843) \n 1,042,555  \n (646,288)\n\n  \n    \n    \n   \n\nDeferred Revenue at December 31, 2024 \n$4,672,221  \n$(2,713,254) \n$1,958,967 \n\n \n\n F-16 \n\n [Table of Contents](#toc2)\n\n \n\n**NOTE 12 – EMPLOYEE AND DIRECTOR STOCK OPTIONS**\n\n \n\nOn June 28, 2019, the Company’s Board of\nDirectors adopted the 2019 Stock Option Plan (the “Incentive Plan”). The Incentive Plan provides for the grant of both incentive\nand non-statutory stock options to key employees, directors or other persons having a service relationship with the Company. Effective\nDecember 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\nunissued, or reacquired, common stock, $0.001 par value. The Plan is administered by the Board of Directors or a committee appointed by\nthe Board.\n\n \n\nDuring the years ended December 31, 2025 and 2024, no options to purchase\nshares of the Company’s common stock were offered. The Company calculates the fair value of stock-based awards using the Black-Sholes\nmodel, which considers weighted average assumptions of the risk-free interest rate, the expected term, the expected dividend yield and\nthe expected volatility.\n\n \n\nFor the years ended December 31, 2025 and 2024,\nthe Company recorded $53,556 of stock-based compensation expense. As of December 31, 2025 and 2024, there was $0 and $50,590, respectively\nin total unrecognized compensation expense related to non-vested employee stock options granted under the Incentive Plan, which is expected\nto be recognized over 0 years and 2.4 years, respectively.\n\n \n\nStock option activity for the years ended December 31, 2025 and 2024,\nis summarized as follows:\n\nSchedule of stock option activity \n    \n    \n   \n\n2019 Stock Option Plan: \nShares  \nWeighted\nAverage\nExercise\nPrice  \nWeighted\nRemaining\nContractual\nLife (Years) \n\nOptions outstanding at January 1, 2024 \n 1,095,000  \n$1.47  \n 6.64 \n\nGranted \n 0  \n$-  \n - \n\nExercised \n -  \n -  \n - \n\nExpired or forfeited \n 0  \n -  \n - \n\nOptions outstanding at December 31, 2024 \n 1,095,000  \n$1.47  \n 6.64 \n\nGranted \n -  \n -  \n - \n\nExercised \n -  \n -  \n - \n\nExpired or forfeited \n 30,000  \n 3.00  \n 6.72 \n\nOptions outstanding at December 31, 2025 \n 1,065,000  \n$1.43  \n 4.08 \n\n  \n    \n    \n   \n\nOptions exercisable at December 31, 2025 \n 1,065,000  \n$1.13  \n 7.3 \n\nOptions expected to vest at December 31, 2025 \n 0  \n$0  \n 0 \n\n \n\n**NOTE 13 – PREFERRED EQUITY**\n\n \n\nOn September 27, 2019, the Company issued 200,000\nshares of its Series A 6% Cumulative Perpetual Convertible Preferred Stock for net proceeds of $4,750,000. The Company paid $250,000 in\nexpenses related to the preferred stock issuance to J.W. Korth as underwriter and distributor. Each share was sold for $25 and is convertible\ninto 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,\nand March 23, 2023 the Company sold an additional 100,000, 480,000, and 160,000 shares, respectively of its Series A 6% Cumulative Perpetual\nConvertible Preferred Stock for net proceeds of $2,375,000, $11,856,480, and $3,896,000.\n\n \n\nOn August 12, 2022, the Company repurchased and\nretired 480,000 shares of its Series A 6% Cumulative Perpetual Convertible Preferred Stock at a price of $25.25 per share, for a total\nof $12,120,480. The Company paid $640,000 in interest expense.\n\n \n\nOn June 29, 2021, the Company issued 19,000 shares\nof its Series B 6.50% Cumulative Non-Voting Redeemable Secured Preferred Stock (the “Series B preferred stock”), with a liquidation\npreference of $1,000 per share, for net proceeds of $18,302,500. The Company paid $697,500 in expenses related to the preferred stock\nissuance to its financial advisor and placement agent.\n\n \n\nThe Series B preferred stock is non-convertible\nand will pay cumulative dividends, if and when declared by the Company’s Board of Directors, at a rate of 6.50% per annum. Dividends\ndeclared will be payable quarterly in arrears on the 15th day of January, April, July and October of each year. The Series B preferred\nstock ranks senior to KDM’s outstanding Series A 6% Cumulative Perpetual Convertible Preferred Stock, par value $0.001 per share,\nor Series A preferred stock, and all of KDM’s common stock, and will rank *pari passu* with, or senior to, all future issuances\nof preferred stock of KDM.\n\n \n\n F-17 \n\n [Table of Contents](#toc2)\n\n \n\nThe Company is required to use commercially reasonable\nefforts to maintain a nationally-recognized statistical ratings organization, or NRSRO, rating for so long as any shares of Series B preferred\nstock remain outstanding. If the Company fails to maintain an NRSRO rating for the Series B preferred stock of at least BBB (or the equivalent\nthereof), the dividend rate applicable to the Series B preferred stock will be increased by 25 basis points, and in the event the Company\nfails to maintain an NRSRO rating of at least BBB- (or the equivalent thereof), the dividend rate applicable to the Series B preferred\nstock will be increased by an additional 25 basis points.\n\n \n\nThe Series B preferred stock is redeemable at\nthe 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,\nplus accrued and unpaid dividends, if any. Subject to applicable law, the Company is required to redeem the Series B preferred stock,\nin each case at a redemption price equal to $1,000.00 per share, plus accrued and unpaid dividends, as follows:\n\n \n\n·10% of the originally-issued shares of Series\nB preferred stock on June 29, 2027;\n\n·10% of the originally-issued shares of Series\nB preferred stock on June 29, 2028;\n\n·10% of the originally-issued shares of Series\nB preferred stock on June 29, 2029;\n\n·20% of the originally-issued shares of Series\nB preferred stock on June 29, 2030; and\n\n·50% of the originally-issued shares of Series\nB preferred stock on June 29, 2031.\n\n \n\nThe Company’s obligations to redeem the\nSeries B preferred stock will be secured by a security interest on servicing fees, as specified in each mortgage secured note issued by\nthe Company, which is the difference between the interest payable pursuant to the mortgage secured note and the interest receivable pursuant\nto the related commercial real estate mortgage loan. The requisite holders of Series B preferred stock will be entitled to exercise rights\nand remedies pursuant to such security interest in the event that the Company does not pay the relevant mandatory redemption price (inclusive\nof any accrued and unpaid dividends) within thirty (30) days of the applicable redemption date, except with respect to the final redemption\ndate, which is not subject to a thirty (30)-day grace period.\n\n \n\nThe Company declared and paid dividends for the\nyears ended December 31, 2025 and 2024, as follows:\n\n Schedule of dividend paid \n    \n    \n   \n\n  \n Series A  \n Series B  \n Total Preferred\nStock Dividends \n\n  \n    \n    \n   \n\nAccrued Preferred Dividends, January 1, 2024 \n$12,500  \n$260,732  \n$273,232 \n\n  \n    \n    \n   \n\nDeclared Dividends \n 690,000  \n 1,235,000  \n 1,925,000 \n\nPaid Dividends \n (690,000) \n (1,235,000) \n (1,925,000)\n\n  \n    \n    \n   \n\nAccrued Preferred Dividends, December 31, 2024 \n 12,500  \n 260,732  \n 273,232 \n\n  \n    \n    \n   \n\nDeclared Dividends \n 690,000  \n 1,235,000  \n 1,925,000 \n\nPaid Dividends \n (690,000) \n (1,235,000) \n (1,925,000)\n\n  \n    \n    \n   \n\nAccrued Preferred Dividends, December 31, 2025 \n$12,500  \n$260,732  \n$273,232 \n\n \n\nThe accrued preferred dividends are included in the Other\nLiabilities on the Consolidated Statements of Financial Condition.\n\n \n\n**NOTE 14 – FAIR VALUE**\n\n \n\nFASB ASC 820, Fair Value Measurements and Disclosures (“ASC 820”),\ndefines 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\nbetween market participants at the measurement date and in the principal or most advantageous market for that asset or liability. The\nfair value should be calculated based on assumptions that market participants would use in pricing the asset or liability, not assumptions\nspecific to the entity.\n\n* *\n\nASC 820 establishes a hierarchy of valuation techniques\nbased on the observability of inputs utilized in measuring financial assets and liabilities at fair value. GAAP establishes market-based\nor observable inputs as the preferred source of values, followed by valuation models using management assumptions in the absence of market\ninputs. The three levels of the hierarchy are described below:\n\n \n\n*Level I*—Inputs are\nunadjusted, quoted prices in active markets for identical assets or liabilities at the measurement date.\n\n \n\n*Level II*—Inputs (other\nthan quoted prices included in Level I) are either directly or indirectly observable for the asset or liability through correlation\nwith market data at the measurement date and for the duration of the instrument’s anticipated life.\n\n \n\n*Level III*—Inputs reflect management’s\nbest estimate of what market participants would use in pricing the asset or liability at the measurement date. Consideration is given\nto the risk inherent in the valuation technique and the risk inherent in the inputs to the model.\n\n \n\n F-18 \n\n [Table of Contents](#toc2)\n\n \n\nASC 820 requires the use of observable market\ndata, when available, in making fair value measurements. When inputs used to measure fair value fall within different levels of the hierarchy,\nthe level within which the fair value measurement is categorized is based on the lowest level input that is significant to the fair value\nmeasurements. Valuation techniques used need to maximize the use of observable inputs and minimize the use of unobservable inputs.\n\n** **\n\n**Valuation Process**\n\n \n\nCash and cash equivalents: \n\nThe carrying amounts of cash and short-term instruments\napproximate fair values and are classified as Level 1.\n\n \n\nMortgages Owned and Mortgage Secured Notes\nPayable:\n\n \n\nMortgage loans for which the Company has the intention\nand ability to hold for the foreseeable future, or until maturity or payoff, are reported at their outstanding principal balances, net\nof any unearned income, premiums or discounts. If a decline in fair value below the carrying balance is other-than-temporary, an impairment\nloss 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\nforeclosure auction, KDM, via its subsidiary KDM Nagog Park LLC, took ownership of the office property securing KDM2021-N015. In April\n2024, via a deed in lieu of foreclosure, a wholly owned subsidiary of KDM named KDM Cupples REO LLC took title to the office property\nsecuring KDM2021-N022. Both loans went into default in late 2023 due to the departure of major tenants. During the twelve months ending\nDecember 31, 2024, it was determined that the value of these two mortgages were impaired and recorded on the\nConsolidated Statement of Operations in the amount of $12,660,000. The foreclosed properties in the amount of $15,000,000 are included\nin the property and equipment. The carrying value of the properties was determined by third party appraisals near the time of acquisition.\n\n \n\nIn 2025, KDM took over property in Los Angeles, California and Selma,\nTexas, and relinquished the property owned by KDM Cupples REO LLC. The Los Angeles property is owned by KDM Seaton-Colyton Holdings LLC\nand 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.\n\n \n\nMortgage Servicing\n\n \n\nThe net present value of the servicing income is recognized at the time\nthe mortgage is initiated as an unrealized gain, which is being recognized through net income at each reporting period. This value uses\nseveral inputs that are highly subjective including: discount rate, constant prepayment rate, the current interest rate environment, and\ndefault rate assumptions. Since the Company has a limited operating history and a small amount of loans outstanding, we have a limited\nbasis to predict prepayment rates and default rates, but have engaged a third party, MIAC Analytics, to assist us in our valuation of\nthis asset. The amount is included in the Consolidated Statements of Financial Condition as “Mortgage Servicing Rights, at Fair\nValue.”\n\n \n\nSecurities\n\n \n\nJ. W. Korth owns 225,000, $1 par of defaulted\nBanco Cruzeiro del Sur bonds. As of December 31, 2025, the value of these bonds was $41,991, which management believes to be the fair\nvalue expected to be received from the receiver handling the liquidation of the company in Brazil. Local counsel has informed us that\nthe bank has sufficient cash to pay off the fair value of our bonds.\n\n \n\nKDM also holds a small amount of its own MSNs in an account which it\nmay buy from time to time. These bonds are carried at the published reported broker statement values.\n\n** **\n\n****\n\n F-19 \n\n [Table of Contents](#toc2)\n\n** **\n\n**Fair Value Disclosure**\n\n** **\n\nThe following tables display the Company’s\nassets and liabilities measured at fair value on a recurring basis:\n\nSchedule of fair value, assets and liabilities measured on recurring basis \n    \n    \n    \n   \n\n  \nDecember 31, 2025 \n\n  \n   \n   \n   \n  \n\n  \nTotal  \nLevel I  \nLevel II  \nLevel III \n\nFinancial Assets \n    \n    \n    \n   \n\nMortgage Servicing \n 6,108,755  \n -  \n -  \n 6,108,755 \n\nNon-MSN Securities \n 41,991  \n -  \n -  \n 41,991 \n\nTotal Financial Assets \n$6,150,746  \n$-  \n$-  \n$6,150,746 \n\nFinancial Liabilities \n    \n    \n    \n   \n\nMortgage Secured Notes Payable \n$319,683,008  \n$-  \n$319,683,008  \n$- \n\nWarehouse Line of Credit \n 17,383,887  \n -  \n 17,383,887  \n - \n\nTotal Financial Liabilities \n$337,066,895  \n$-  \n$337,066,895  \n$- \n\n  \n    \n    \n    \n   \n\n  \n December 31, 2024 \n\nFinancial Assets \n    \n    \n    \n   \n\nMortgage Servicing \n 9,260,225  \n -  \n -  \n 9,260,225 \n\nNon-MSN Securities \n 41,991  \n -  \n -  \n 41,991 \n\nTotal Financial Assets \n$9,302,216  \n$-  \n$-  \n$9,302,216 \n\nFinancial Liabilities \n    \n    \n    \n   \n\nMortgage Secured Notes Payable \n$450,264,519  \n$-  \n$450,264,519  \n$- \n\nWarehouse Line of Credit \n 17,269,278  \n -  \n 17,269,278  \n - \n\nTotal Financial Liabilities \n$467,533,797  \n$-  \n$467,533,797  \n$- \n\n \n\n**Fair Value Measurements**\n\n \n\nChanges in Fair Value Measurements for the\nyear ended December 31, 2025\n\n \n\nThe Company has engaged MIAC Analytics to assist\nin the valuation of the mortgage servicing component of its business. The underlying assumptions in the valuation model may change year\nover year, which will be reflected in the determined fair value and the difference year over year will be reflected in the unrealized\ngain/loss adjustment.\n\n \n\nThe following table presents a reconciliation\nof changes in Level 3 assets and liabilities reported in the Audited Consolidated Statements of Financial Condition for the years ended\nDecember 31, 2025 and 2024. The large change in value is due to $117,263,000 in loans paying off in 2025.\n\nSchedule of statements of financial condition \n    \n    \n   \n\n**Changes in assets:** \n   \n   \n  \n\nYear ended December 31, 2025 \nMortgage\nServicing\nValue  \nNon-MSN\nSecurities  \nTotal Value \n\nBeginning balance at January 1, 2025 \n$9,260,225  \n$41,991  \n$9,302,216 \n\nSales or Payoffs \n (2,486,724) \n -  \n (2,486,724)\n\nUnrealized Gain from newly issued mortgages \n 199,628  \n -  \n 199,628 \n\nFair Value adjustment \n (864,374) \n -  \n (864,374)\n\nEnding balance at December 31, 2025 \n$6,108,755  \n$41,991  \n$6,150,746 \n\n \n\n \n\n**Changes in assets:** \n   \n   \n  \n\nYear ended December 31, 2024 \nMortgage\nServicing\nValue  \nNon-MSN\nSecurities  \nTotal Value \n\nBeginning balance at January 1, 2024 \n$9,245,877  \n$85,000  \n$9,330,877 \n\nSales or Payoffs \n -  \n (43,009) \n (43,009)\n\nUnrealized Gain from newly issued mortgages \n 384,231  \n -  \n 384,231 \n\nFair Value adjustment \n (369,883) \n -  \n (369,883)\n\nEnding balance at December 31, 2024 \n$9,260,225  \n$41,991  \n$9,302,216 \n\n \n\n F-20 \n\n [Table of Contents](#toc2)\n\n \n\nThe Company’s policy for recording transfers\nbetween levels of the fair value hierarchy is to recognize as of the financial statement date. For the years ended December 31, 2025 and\nDecember 31, 2024, there were no transfers between levels.\n\n** **\n\nThe Company has established valuation processes and policies for its\nLevel 3 investments to ensure that the methods used are fair and consistent in accordance with ASC 820. The Company’s valuation\ncommittee performs reviews of the Level 3 investments’ valuations, which include reviewing any significant price changes reported\nfrom the prior period. When a Level 3 investment has a significant price change, the valuation committee reviews relevant market data\nto substantiate the price change.\n\n \n\nThe following table presents quantitative information\nregarding the significant unobservable inputs the Company uses to determine the fair value of Level 3 investments held as of December\n31, 2025 and December 31, 2024:\n\nSchedule of quantitative information \n    \n  \n  \n   \n\n  \n   \n2025 \n  \n  \n\n  \n   \n  \n  \n  \n\nInvestment type \n Fair Value  \nValuation technique \nUnobservable inputs \n Values \n\n  \n    \n  \n  \n   \n\nMortgage servicing \n$6,108,755  \nNet Present Value \nPrepayment Discount \n 14.25%\n\n  \n    \n  \nDiscount rate \n 15.00%\n\nNon-MSN Securities \n$41,991  \nNet Present Value \n  \n   \n\n \n\n  \n   \n2024  \n  \n  \n\n  \n   \n   \n  \n  \n\nInvestment type \n Fair Value  \n Valuation technique  \nUnobservable inputs \n Values \n\n  \n    \n    \n  \n   \n\nMortgage servicing \n$9,260,225  \n Net Present Value  \nPrepayment Discount \n 9.94%\n\n  \n    \n    \nDiscount rate \n 15.00%\n\nNon-MSN Securities \n$41,991  \n Net Present Value  \n  \n   \n\n \n\n**NOTE 15 – LINES OF CREDIT**\n\n** **\n\nOn October 13, 2023, KDM MFB LLC, a Delaware limited liability company\n(the “KDM MFB”), a newly formed and wholly owned subsidiary of Korth Direct Mortgage Inc. (the “Company”) entered\ninto a $100,000,000 Master Repurchase and Securities Contract credit facility with Churchill MRA Funding I LLC (the “Agreement”).\nThe Company vis a vis KDM MFB, will use the credit facility provided by the Agreement (the “MFB Line”) to finance the Company’s\nexpansion of its lending operations in multi-family and multifamily bridge financing. As of December 31, 2025, the Company had a balance\nof $17,494,250 on the MFB Line. Total amortization expense of capitalized loan fees was $114,609 for the year ended December 31, 2025\ncompared to $134,135 for the year ended December 31, 2024, and recorded in interest expense.\n\n \n\nOn September 30, 2025, the Company entered into\na term loan agreement providing total borrowing capacity of $3,000,000. The loan carries a 36-month term and bears interest at a rate\nbased on the Secured Overnight Financing Rate (SOFR) index, fixed through an interest rate swap agreement executed concurrently with the\nloan. The borrowings are guaranteed by KDM, and are secured by the property located in Acton, MA. Proceeds from the loan are primarily\nused to fund tenant improvements and leasing costs to facilitate lease-up and occupancy. As of December 31, 2025, the principal balance\nwas $3,000,000.\n\n \n\n F-21 \n\n [Table of Contents](#toc2)\n\n \n\n**NOTE 16 – INCOME TAXES**\n\n \n\nThe Company adopted FASB Accounting Standards Update No. 2023-09, Income\nTaxes (Topic 740): Improvements to Income Tax Disclosures, effective for the fiscal year ended December 31, 2025, applied on a prospective\nbasis. This update requires enhanced disclosures related to the rate reconciliation and income taxes paid by jurisdiction, as reflected\nin the tables below.\n\n \n\nThe components of income tax expense for the year ended December 31, 2025\nare as follows:\n\nSchedule of income tax expense \n  \n\n  \n2025 \n\nCurrent: \n   \n\nFederal \n$20,712 \n\nState \n 5,740 \n\n  \n$26,452 \n\nDeferred: \n   \n\nFederal \n$78,231 \n\nState \n 21,680 \n\n  \n$99,911 \n\n  \n   \n\nTotal income tax expense \n$126,363 \n\n \n\nThe differences between income taxes expected at the U.S federal statutory\nincome tax rate of 21 percent and the reported income tax expense are summarized as follows:\n\nSchedule of income before taxes \n   \n  \n\n  \n2025  \n  \n\nU.S. federal stautory tax rate \n$84,901  \n 21.0%\n\nState and local income taxes, net of federal income tax effect* \n 21,663  \n 5.4%\n\nForeign tax effects \n -  \n 0.0%\n\nEffect of cross-border tax laws \n -  \n 0.0%\n\nTax credits \n -  \n 0.0%\n\nNontable or nondeductible items \n 13,005  \n 3.2%\n\nChange in UTBs \n -  \n 0.0%\n\nOther adjustments \n 6,794  \n 1.7%\n\nTotal income tax expense \n$126,363  \n 31.3%\n\n*In 2025, state taxes and local income taxes in Florida made up of the\nmajority (greater than 50 percent) of the tax effect in this category.\n\n \n\nThe Company made no income tax payments, net of refunds, during the year\nended December 31, 2025.\n\n \n\n F-22 \n\n [Table of Contents](#toc2)\n\n \n\nSignificant components of the Company's deferred tax assets and liabilities\nas of December 31, 2025 are as follows:\n\nSchedule of deferred tax assets and liabilities \n  \n\n  \n2025 \n\nDeferred tax assets: \n   \n\nDeferred revenue, net \n$272,776 \n\nDeferred rent from operating leases \n 2,215 \n\nDeferred capital loss \n 125,593 \n\nAccrued expenses not paid \n 142,341 \n\nFixed assets/depreciation \n 362,600 \n\nUnrealized gain on mortgage secured notes \n 19,930 \n\nNet operating loss carry-forwards \n 626,669 \n\nDeferred tax assets - current \n 1,552,124 \n\nLess: valuation allowance \n - \n\nDeferred tax assets \n$1,552,124 \n\n  \n   \n\nDeferred tax liabilities: \n   \n\nNet gains on foreclosed real estate \n$(1,629,083)\n\nUnrealized gain on accrued interest \n (9,278)\n\nUnrealized gain on mortgages \n (1,392,395)\n\nDeferred tax liability \n$(3,030,756)\n\n  \n   \n\nNet deferred liability \n$(1,478,632)\n\n \n\nAs previously disclosed for the year ended December 31, 2024, prior to\nthe adoption of ASU 2023-09, the income tax benefit is detailed as follows:\n\nSchedule of income tax expense benefit \n   \n\n  \n2024 \n\nDeferred income tax benefit: \n   \n\nFederal \n$(496,183)\n\nState \n (137,515)\n\nTotal deferred income tax benefit \n$(633,698)\n\nTotal income tax benefit \n$(633,698)\n\n \n\nAs previously disclosed for the year ended December 31, 2024, prior to\nthe adoption of ASU 2023-09, income tax benefit differs from the amounts that would result from applying the federal statutory rate of\n21% to the Company’s loss before taxes for the year ended December 31, 2024, is as follows:\n\nSchedule of income before taxes \n   \n  \n\n  \n**2024**  \n   \n\nComputed \"expected\" income tax benefit \n$(450,841) \n 21.0%\n\nState income taxes, net of federal benefit \n (108,637) \n 5.1%\n\nNon-deductible expenses \n 17,731  \n -0.8%\n\nOther, net \n (91,951) \n 4.3%\n\nTotal income tax benefit \n$(633,698) \n 29.6%\n\n \n\n F-23 \n\n [Table of Contents](#toc2)\n\n \n\nAs previously disclosed for the year ended December 31, 2024, prior to\nthe adoption of ASU 2023-09, temporary differences that give rise to the components of deferred tax assets and liabilities as of December\n31, 2024, are as follows:\n\nSchedule of deferred tax asset and liabilities \n   \n\n  \n2024 \n\nDeferred tax assets: \n   \n\nDeferred revenue, net \n$496,500 \n\nDeferred rent from operating leases \n 7,741 \n\nNet operating loss carry-forwards \n 935,185 \n\nDeferred tax assets - current \n 1,439,426 \n\nLess: valuation allowance \n - \n\nDeferred tax assets \n$1,439,426 \n\n  \n   \n\nDeferred tax liabilities: \n   \n\nDeferred capital loss \n 125,593 \n\nAccrued expenses not paid \n 85,388 \n\nFixed assets/depreciation \n (63,068)\n\nUnrealized gain on mortgage secured notes \n 14,046 \n\nRealized (gain) on foreclosure \n (805,610)\n\nUnrealized (gain) on accrued interest \n (3,887)\n\nUnrealized (gain) on mortgages \n (2,170,609)\n\nDeferred tax liability \n$(2,818,147)\n\n  \n   \n\nNet deferred tax liability \n$(1,378,721)\n\n \n\nAs of December 31, 2025, the Company had net\noperating loss carryforwards of approximately $2,472,555\nfor federal income tax purposes and $2,472,555\nfor state income tax purposes. Federal net operating losses generated after December 31, 2017 carry forward indefinitely but are subject\nto an 80% taxable income limitation in any given year. The deferred tax asset associated with net operating loss carryforwards was $626,669\nas of December 31, 2025.\n\n \n\n F-24 \n\n [Table of Contents](#toc2)\n\n \n\nAs of December 31, 2025 and December 31, 2024, management determined that\nthere should be no valuation allowance against the deferred tax assets of $1,552,124 and $1,439,426, respectively. In assessing the ability\nto realize a portion of the deferred tax assets, management considers whether it is more likely than not that some portion or all of the\ndeferred tax assets will not be realized. The ultimate realization of the deferred tax assets is dependent upon the generation of future\ntaxable income during the periods in which those temporary differences become deductible. Management considers the scheduled reversal\nof deferred tax liabilities and projected future taxable income in making the assessment.\n\n \n\nThe Company has not recognized any tax benefits\nfrom uncertain tax positions for any of the reporting periods presented. Although it is reasonably possible that certain unrecognized\ntax benefits may increase or decrease within the next twelve months due to tax examination changes, settlement activities, expirations\nof statute of limitations, or the impact on recognition and measurement considerations related to the results of published tax cases or\nother similar activities, the Company does not anticipate any significant changes to unrecognized tax benefits over the next 12 months.\nDuring the year ended December 31, 2025, no interest or penalties were required to be recognized relating to unrecognized tax benefits.\n\n \n\nThe Company files U.S. federal and state tax returns, of which the open\ntax period subject to examination by taxing authorities include the year ended December 31, 2022. The Company is not currently subject\nto any examinations by any state or federal taxation authority.\n\n \n\n**NOTE 17 – PROPERTY AND EQUIPMENT**\n\n** **\n\nProperty and Equipment are summarized as follows:\n\n**2025**\n\n Schedule of property, plant and equipment \n  \n\nLand & Building \n$71,860,620 \n\nEquipment \n 330,136 \n\nFurniture and fixtures \n 199,238 \n\n  \n 72,389,994 \n\n  \n   \n\nAccumulated depreciation \n (2,698,865)\n\n  \n   \n\nNet Property & Equipment \n$69,691,129 \n\n \n\n**2024**\n\n  \n  \n\nLand & Building \n$32,940,768 \n\nEquipment \n 327,436 \n\nFurniture and fixtures \n 194,046 \n\n  \n 33,462,250 \n\n  \n   \n\nAccumulated depreciation \n (1,539,846)\n\n  \n   \n\nNet Property & Equipment \n$31,922,404 \n\n \n\nDepreciation expense for the period ending December\n31, 2025 and December 31, 2024 was $1,807,068 and $1,242,793, respectively.\n\n \n\n**NOTE 18 – VARIABLE INTEREST ENTITIES**\n\n \n\nA VIE is an entity that has either a total equity\ninvestment that is insufficient to permit the entity to finance its activities without additional subordinated financial support or whose\nequity investors lack the characteristics of a controlling financial interest. A VIE is consolidated by its primary beneficiary, which\nis the entity that, through its variable interests, has both the power to direct the activities that significantly impact the VIE’s\neconomic performance and the obligations to absorb losses of the VIE that could potentially be significant to the VIE or the right to\nreceive benefits from the VIE that could potentially be significant to the VIE.\n\n \n\nKDM Capital Partners, LP (the “Fund”) is a new investment\npartnership over which the Company and its related parties have a controlling financial interest. The Company holds 10.84% of the equity\ninterest 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.\nThe Fund invests in loans originated by the Company and the holdings of the Fund are loan participations issued by the Company. The loan\nparticipations owned by the Fund are carried on the Company’s line of credit and are guaranteed by the Company.\n\n \n\n F-25 \n\n [Table of Contents](#toc2)\n\n \n\nThe Fund’s partnership agreement provides\nthe General Partner with complete decision-making responsibilities and grants the limited partners no substantive participating or kick-out\nrights. Additionally, the Company guarantees the debt used to finance the Fund’s loan investments. Accordingly, the Company determined\nthat the Fund is a VIE subject to consolidation under the guidance of FASB ASC 810.\n\n \n\nThe Company determined that it is the primary beneficiary of the VIE\nbecause as the holder of the controlling interest in the general partner, it has the power to direct the activities of the Fund that most\nsignificantly impact the Fund’s economic performance and, through the debt guarantee, has the obligation to absorb any expected\nlosses of the Fund. The controlling interest is presented as a separate component of stockholders' equity in the consolidated balance\nsheet, and net income or loss attributable to the noncontrolling interest is presented separately in the consolidated statement of operations.\nAccordingly, the Company consolidates the VIE into its consolidated financial statements, and the Fund holdings are eliminated in consolidation.\nThe loans are consolidated on the asset portion of the balance sheet in the Mortgages Owned caption and on the liability side in the Mortgage\nSecured Notes caption.\n\n \n\n**NOTE 19 – SEGMENT REPORTING**\n\n \n\nThe Company accounts for its segment information\nin accordance with the provisions of ASC 280-10, Segment Reporting. ASC 280-10 establishes annual and interim reporting standards for\noperating segments of a company. ASC 280-10 requires disclosures of selected segment-related financial information about products, major\ncustomers, and geographic areas based on the Company’s internal accounting methods. The Company has two business segments: *Lending\nand Servicing* and *Asset Management*. The chief operating decision maker (“CODM”), who is the Company’s Chief\nExecutive Officer, evaluates performance, makes operating decisions, and allocates resources based on the revenue and gross profit information\nfrom the different segments.\n\n \n\n*Lending and Servicing*\n\n \n\nThis is KDM’s core business segment and includes consolidation\nof the Fund and J.W. Korth. Our CODM profit and loss statements look at earnings before interest, taxes, depreciation, dividends, and\namortization (“EBITDDA”), as well as exclude the unrealized gain/loss from our book of MSRs. This is an operating view of\nthe business segment, so it excludes the cost of financing the business and the future cash flows from loan servicing. These numbers do\ninclude salaries for employees, including those who work across both business segments. Below are the consolidated profit and loss statements\nand assets:\n\nSchedule of business segments \n    \n   \n\n  \nYears Ended December 31, \n\n  \n2025  \n2024 \n\nREVENUES \n   \n  \n\nOrigination Revenue, Net \n$2,918,424  \n$1,688,843 \n\nServicing Revenue \n 4,126,006  \n 5,040,383 \n\nUnderwriting Income \n 82,910  \n 99,063 \n\nInvestment Interest \n 3,213,459  \n - \n\nOther Revenue \n 1,067,854  \n 2,240,680 \n\nTotal Revenues \n 11,408,653  \n 9,068,969 \n\n  \n    \n   \n\nCOST OF REVENUES \n    \n   \n\nBroker Expenses \n 1,922,088  \n 1,610,590 \n\nAdministrative Expenses \n 1,335,491  \n 1,149,845 \n\nTotal Cost of Revenues \n 3,257,579  \n 2,760,435 \n\n  \n    \n   \n\nGROSS PROFIT \n 8,151,074  \n 6,308,534 \n\n  \n    \n   \n\nOPERATING EXPENSES \n    \n   \n\nOffice \n 496,509  \n 495,716 \n\nCompensation and Related Benefits \n 3,965,035  \n 4,394,048 \n\nProfessional and Legal \n 917,155  \n 964,659 \n\nAdvertising \n 44,944  \n 287,353 \n\nTotal Operating Expenses \n 5,423,643  \n 6,141,776 \n\n  \n    \n   \n\nEBITDDA \n$2,727,431  \n$166,758 \n\n \n\n F-26 \n\n [Table of Contents](#toc2)\n\n \n\n  \n2025  \n2024 \n\nASSETS \n    \n   \n\nCash and Cash Equivalents \n$2,265,998  \n$1,974,155 \n\nRestricted Cash \n 4,913,585  \n 15,726,038 \n\nRestricted Investment \n -  \n 1,192,510 \n\nMortgages Owned \n 336,216,050  \n 461,474,989 \n\nMortgage Servicing Rights, at Fair Value \n 6,108,755  \n 9,260,225 \n\nPortfolio Loans \n 15,358,180  \n 12,661,709 \n\nLoans Held for Sale \n -  \n 520,215 \n\nSecurities \n 41,991  \n 41,991 \n\nROU Leased Asset \n 560,599  \n 270,281 \n\nGoodwill \n 110,000  \n 110,000 \n\nProperty and equipment, net of depreciation \n 121,038  \n 203,058 \n\nOther Assets \n 1,648,778  \n 16,632,923 \n\nTotal Assets \n$367,344,974  \n$520,068,094 \n\n \n\nBelow is the reconciliation of EBITDDA to loss before provision for\nincome taxes:\n\n* *\n\n  \n2025  \n2024 \n\n  \n   \n  \n\nEBITDDA \n$2,727,431  \n$166,758 \n\n  \n    \n   \n\nOther Expense \n    \n   \n\nUnrealized (Loss) Gain on Mortgages \n (3,151,470) \n 14,348 \n\nUnrealized (Loss) Gain on Mortgage Secured Notes \n (23,215) \n 39,501 \n\nInterest Expense \n (1,551,565) \n (1,229,293)\n\nUnrealized Gain on Securities \n 59,457  \n - \n\nUnrealized Gain on Investment \n 25,682  \n - \n\nNet Gains on Foreclosed Real Estate \n 3,199,104  \n 765,068 \n\nRealized Loss on Mortgage Secured Notes \n -  \n (434)\n\nRealized Loss on Loans Held for Sale \n (526) \n (141,647)\n\nChange in Fair Value of Mortgage Secured Notes \n 9,000,000  \n 12,660,000 \n\nLoss on Foreclosures \n (9,000,000) \n (12,660,000)\n\nTotal Other Expense \n (1,442,533) \n (552,457)\n\n  \n    \n   \n\nIncome (Loss) before provision (benefit) for income taxes \n$1,284,898  \n$(385,699)\n\n \n\n*Asset Management*\n\n* *\n\nWhile we view this business segment as necessary to support the Lending\nand Servicing segment, it also clearly has a very different set of metrics and we look at each property’s profit and loss statement\nindependently. The numbers we use to manage the properties are primarily driven by total occupancy, rent per square foot, and net operating\nincome. 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\nin the best interests of the MSN holders until we can maximize recovery by stabilizing or selling them. Below are the consolidated profit\nand loss statements and assets of the five properties KDM owns in Stafford, Virginia (specialty office), Acton, Massachusetts (office),\nSt. Louis, Missouri (office), Los Angeles, CA (mixed use), and Selma, TX (office).\n\n \n\nSee Note 17 for total property values.\n\n \n\n F-27 \n\n [Table of Contents](#toc2)\n\n \n\n  \n    \n   \n\n  \nYears Ended December 31, \n\n  \n2025  \n2024 \n\nREVENUES \n   \n  \n\nRental Income \n$5,826,870  \n$2,556,216 \n\nTotal Revenues \n 5,826,870  \n 2,556,216 \n\n  \n    \n   \n\nCOST OF REVENUES \n    \n   \n\nBank Transaction Fees \n 1,979  \n 967 \n\nAppraisal Costs \n -  \n 11,200 \n\nGround Rent \n 755,720  \n 779,416 \n\nTotal Cost of Revenues \n 757,699  \n 791,583 \n\n  \n    \n   \n\nGROSS PROFIT \n 5,069,171  \n 1,764,633 \n\n  \n    \n   \n\nOPERATING EXPENSES \n    \n   \n\nOffice \n 40,864  \n 37,035 \n\nCompensation and Related Benefits \n 133,888  \n 117,628 \n\nProperty Taxes \n 769,909  \n 243,567 \n\nProfessional and Legal \n 606,135  \n 211,497 \n\nUtilities \n 1,611,679  \n 1,477,600 \n\nTravel & Entertainment \n -  \n 1,469 \n\nBusiness Insurance \n 140,653  \n 59,750 \n\nDepreciation \n 1,717,155  \n - \n\nTotal Operating Expenses \n 5,020,283  \n 2,148,546 \n\n  \n    \n   \n\nNet Operating Income (Loss) \n 48,888  \n (383,913)\n\n  \n    \n   \n\nOTHER EXPENSES \n    \n   \n\nMortgage Interest \n 749,215  \n 573,493 \n\nTotal Other Expenses \n 749,215  \n 573,493 \n\n  \n    \n   \n\nNet Loss \n$(700,327) \n$(957,406)\n\n \n\n \n\n  \n2025  \n2024 \n\nASSETS \n    \n   \n\nCash and Cash Equivalents \n$3,088,170  \n$924,504 \n\nProperty and equipment, net of depreciation \n 69,570,091  \n 31,719,346 \n\nOther Assets \n 1,317,974  \n 1,649,071 \n\nTotal Assets \n$73,976,235  \n$34,292,921 \n\n \n\n F-28 \n\n [Table of Contents](#toc2)\n\n \n\nBelow is a reconciliation of Segment Operations to Consolidated Statements\nof Operations:\n\n****\n\n Schedule of segment operations \n   \n   \n   \n  \n\n  \n   \n2025  \n   \n  \n\n  \n   \n   \n   \n  \n\n  \nLending and Servicing  \nAsset Management  \nOther  \nTotal \n\nREVENUES \n    \n    \n    \n   \n\nOrigination Revenue, Net \n$2,918,424  \n$-  \n$-  \n$2,918,424 \n\nServicing Revenue \n 4,126,006  \n -  \n -  \n 4,126,006 \n\nUnderwriting Income \n 82,910  \n -  \n -  \n 82,910 \n\nInvestment Revenue \n 3,213,459  \n -  \n -  \n 3,213,459 \n\nRental Income \n -  \n 5,826,870  \n -  \n 5,826,870 \n\nOther Revenue \n 1,067,854  \n -  \n -  \n 1,067,854 \n\nTotal Revenues \n 11,408,653  \n 5,826,870  \n -  \n 17,235,523 \n\n  \n    \n    \n    \n   \n\nCOST OF REVENUES \n    \n    \n    \n   \n\nBroker Expenses \n 1,922,088  \n -  \n -  \n 1,922,088 \n\nBank Transaction Fees \n -  \n 1,979  \n -  \n 1,979 \n\nAppraisal Costs \n -  \n -  \n -  \n - \n\nGround Rent \n -  \n 755,720  \n -  \n 755,720 \n\nAdministrative Expenses \n 1,335,491  \n -  \n -  \n 1,335,491 \n\nTotal Cost of Revenues \n 3,257,579  \n 757,699  \n -  \n 4,015,278 \n\n  \n    \n    \n    \n   \n\nGROSS PROFIT \n 8,151,074  \n 5,069,171  \n -  \n 13,220,245 \n\n  \n    \n    \n    \n   \n\nOPERATING EXPENSES \n    \n    \n    \n   \n\nOffice \n 496,509  \n 40,864  \n -  \n 537,373 \n\nCompensation and Related Benefits \n 3,965,035  \n 133,888  \n -  \n 4,098,923 \n\nProfessional and Legal \n 917,155  \n 606,135  \n -  \n 1,523,290 \n\nProperty Taxes \n -  \n 769,909  \n -  \n 769,909 \n\nUtilities \n -  \n 1,611,679  \n -  \n 1,611,679 \n\nTravel and Entertainment \n -  \n -  \n -  \n - \n\nBusiness Insurance \n -  \n 140,653  \n -  \n 140,653 \n\nAdvertising \n 44,944  \n -  \n -  \n 44,944 \n\nDepreciation \n -  \n 1,717,155  \n 89,913  \n 1,807,068 \n\nTotal Operating Expenses \n 5,423,643  \n 5,020,283  \n 89,913  \n 10,533,839 \n\n  \n    \n    \n    \n   \n\nNet Operating Income \n 2,727,431  \n 48,888  \n (89,913) \n 2,686,406 \n\n  \n    \n    \n    \n   \n\nOther Expense \n    \n    \n    \n   \n\nUnrealized Loss on Mortgages \n (3,151,470) \n -  \n -  \n (3,151,470)\n\nUnrealized Loss on Mortgage Secured Notes \n (23,215) \n -  \n -  \n (23,215)\n\nInterest Expense \n (1,551,565) \n (749,215) \n -  \n (2,300,780)\n\nUnrealized Gain on Securities \n 59,457  \n -  \n -  \n 59,457 \n\nUnrealized Gain on Investment \n 25,682  \n -  \n -  \n 25,682 \n\nNet Gains on Foreclosed Real Estate \n 3,199,104  \n -  \n -  \n 3,199,104 \n\nRealized Loss on Loans Held for Sale \n (526) \n -  \n -  \n (526)\n\nChange in Fair Value of Mortgage Secured Notes \n 9,000,000  \n -  \n -  \n 9,000,000 \n\nLoss on Foreclosures \n (9,000,000) \n -  \n -  \n (9,000,000)\n\nTotal Other Expense \n (1,442,533) \n (749,215) \n -  \n (2,191,748)\n\n  \n    \n    \n    \n   \n\nIncome before provision for income taxes \n$1,284,898  \n$(700,327) \n$(89,913) \n$494,658 \n\n \n\n F-29 \n\n [Table of Contents](#toc2)\n\n \n\nBelow is a reconciliation of Segment Assets to Total Assets per the\nStatements of Financial Condition:\n\n  \n    \n    \n    \n   \n\n  \n   \n2025  \n   \n  \n\n  \n   \n   \n   \n  \n\n  \nLending and Servicing  \nAsset Management  \nOther  \nTotal \n\nASSETS \n    \n    \n    \n   \n\nCash and Cash Equivalents \n$2,265,998  \n$3,088,170  \n$-  \n$5,354,168 \n\nRestricted Cash \n 4,913,585  \n -  \n -  \n 4,913,585 \n\nMortgages Owned \n 336,216,050  \n -  \n (50,800,000) \n 285,416,050 \n\nMortgage Servicing Rights, at Fair Value \n 6,108,755  \n -  \n -  \n 6,108,755 \n\nPortfolio Loans \n 15,358,180  \n -  \n (9,667,196) \n 5,690,984 \n\nSecurities \n 41,991  \n -  \n -  \n 41,991 \n\nROU Leased Asset \n 560,599  \n -  \n -  \n 560,599 \n\nGoodwill \n 110,000  \n -  \n -  \n 110,000 \n\nProperty and equipment, net of depreciation \n 121,038  \n 69,570,091  \n -  \n 69,691,129 \n\nOther Assets \n 1,648,778  \n 1,317,974  \n -  \n 2,966,752 \n\nTotal Assets \n$367,344,974  \n$73,976,235  \n$(60,467,196) \n$380,854,013 \n\n \n\n**NOTE 20 – SUBSEQUENT EVENTS**\n\n \n\nThe Company has evaluated all events or transactions\nthat occurred after December 31, 2025 through the date that the financial statements were available to be issued. During this period,\nthere were no material subsequent events requiring disclosure, other than those noted below.\n\n \n\na.The Company approved a $308,750 cash payment of the quarterly Series B preferred stock dividend for the period of 10/15/2025 –\n1/14/2026 paid on 1/15/2026.\n\n \n\nb.The Company approved a $172,500 cash payment of the quarterly Series A preferred stock dividend for the period of 12/15/2025 –\n3/14/2026 paid on 3/14/2026.\n\n \n\nc.The Company approved a $308,750 cash payment of the quarterly Series B preferred stock dividend for the period of 1/15/2026 –\n4/14/2026 to be paid on 4/15/2026.\n\n \n\nd.The Company currently has 1 loan over 60 days late, 2 loans in the foreclosure category, 5 properties\nin its REO portfolio, and 1 property which was just taken by deed in lieu of foreclosure on March 20, 2026.\n\n \n\n \n\nF-30"}