This filing supplements the offering circular of Groundfloor Finance Inc., dated February 9, 2018, as qualified on February 9, 2018, and as may be amended and supplemented from time to time (the “Offering Circular”), to add, update and/or replace information contained in the Offering Circular. Unless otherwise defined below, capitalized terms used herein shall have the same meanings as set forth in the Offering Circular. See “Incorporation by Reference of Offering Circular” below.
Groundfloor Finance Inc., a Georgia corporation, (the “Company” or “we”) is an online marketplace that provides real estate investment opportunities to the public. The proceeds of this offering will be used primarily to fund loans but also for general corporate purposes, including the cost of this offering.
The Company will offer and sell on a continuous basis, the Groundfloor Finance Inc. Common Stock (the “Groundfloor Common Stock”) described in the Offering Circular. The Offering Circular describes some of the general terms that may apply to the Groundfloor Common Stock and the general manner in which they may be offered and follows the Form 1-A disclosure format.
We are offering up to 500,000 shares of our Common Stock at $10 per share, with a minimum investment of $100, or 10 shares of Groundfloor Common Stock. We may issue up to 30,000 additional bonus shares of the Groundfloor Common Stock pursuant to the terms of the Groundfloor Bonus Share Program. We will not receive any compensation for any bonus shares issued and such bonus shares have an implied value of $10 per share. We expect to offer Common Stock in this offering until it raises the maximum amount being offered. Through this offering, we intend to offer and sell our Common Stock to accredited investors and non-accredited investors.
For more information on the Groundfloor Common Stock being offered, please see the sections entitled “Securities Being Offered” and “Plan of Distribution” beginning on pages 59 and 62 of the Offering Circular, respectively. The aggregate initial offering price of the Groundfloor Common Stock will not exceed $5,000,000 in any 12-month period, and there is no minimum offering amount. We will not execute sales of any securities under Regulation A that aggregate more than $50,000,000 in any twelve month period.
We intend to offer the Groundfloor Common Stock on a continuous basis directly through the Groundfloor website located at www.groundfloor.us. At the present time, we do not anticipate using any underwriters to offer our securities. This offering is being conducted on a “best-efforts” basis, which means the Company and its officers will use its commercially reasonable best efforts to offer to sell the Groundfloor Common Stock. Such officers will not receive any commission or any other remuneration for any sales of the Groundfloor Common Stock, and will rely on the broker-dealer safe harbor registration set out in Rule 3a4-1 under the Securities Exchange Act of 1934, as amended.
Neither this supplement or the Offering Circular constitutes an offer to sell or the solicitation of an offer to buy, nor shall there be any sales of the Groundfloor Common Stock in any states where such offer or solicitation would be unlawful, prior to registration or qualification under the laws of any such state. Groundfloor Common Stock is subject to a Common Stock Voting Agreement. See the section titled “Securities Being Offered” in the Offering Circular.
The Offering Circular, including this supplement, is part of an offering statement (File No. 024-10758) that we filed with the Securities and Exchange Commission (the “Commission”). We hereby incorporate by reference into this supplement all of the information contained in Part II of the Offering Circular as well as Offering Circular Amendment No. 1. Please note that any statement that we make in this supplement (or have made in the Offering Circular) will be modified or superseded by any inconsistent statement made by us in a subsequent offering circular supplement or post-qualification amendment.
You should read the following discussion and analysis of our financial condition and results of operations together with our unaudited condensed consolidated financial statements and the related notes and other financial information included elsewhere in this prospectus. Some of the information contained in this discussion and analysis, including information with respect to our plans and strategy for our business, includes forward-looking statements that involve risks and uncertainties. You should review the “Risk Factors” section of this prospectus for a discussion of important factors that could cause actual results to differ materially from the results described in or implied by the forward-looking statements contained in the following discussion and analysis.
The tables below reflect information about the historical workout treatment of Loans covered by the LRO program (by letter grade) as of June 30, 2018. Collection procedures for Loans in default typically involve the pursuit of one or more remedies. For example, a loan may be extended for up to six months before determining it to be in fundamental default. The table below reflects the most extreme collection status of each particular Loan (i.e., the Loan that had been placed into fundamental default at the reporting date would not also be reflected as having been extended). See the discussion above for a more detailed discussion of the characterization of Loans subject to workout.
Prior to September 2015, only Groundfloor Properties GA, LLC (“Groundfloor GA”), a wholly-owned subsidiary of the Company, had issued non-recourse, limited recourse notes, referred to herein as Georgia Notes, through the Groundfloor Platform. The Georgia Notes were offered and sold pursuant to the federal and state exemptions from registration set forth in Section 3(a)(11) of the Securities Act and the Invest Georgia Exemption, Rule 590-4-2-.08, respectively. Groundfloor GA has not issued any additional Georgia Notes since commencing the LRO program and does not intend to issue any additional Georgia Notes in the future. While similar in structure to the LRO program, the Georgia Notes program (as summarized below) operated under a different legal structure and documentation establishing rights and obligations distinct from those under the LRO Program currently offered by the Company. As a result, comparisons to the LRO program may not be meaningful, and prospective investors should not rely upon the past results of the Georgia Notes and corresponding real estate development projects as indications of the future performance of the LRO Program or any Project related to a particular series of LROs thereunder.
In November 2016, the Company entered into the Revolver credit facility to fund Loan advances (as defined below). The terms of the credit facility are as follows: Interest accrues at the greater of 10.0% per annum or the weighted average annual interest rate of the Loans then held by Holdings which have been originated with proceeds from the credit facility. The revolving credit facility was originally limited to $1.5 million with an option to increase the limit to $15.0 million (under certain circumstances). As of March 15, 2018, the capacity is $4.5 million and the maturity date is October 31, 2018 and is extendable for an additional year. The Company has given a corporate guaranty to Revolver Capital, now ACM Alamosa DA LLC, as additional support for the credit facility. ACM Alamosa DA LLC will also have a lien on the general assets of Holdings—which is made up exclusively of Loans that Holdings has originated. However, only Holdings, and its successors and assigns, are identified as a secured party in any documentation used to secure the advanced Loans. At no point will Holdings hold (or provide ACM Alamosa DA LLC a securities interest in) any Loan for which LROs have been issued.
We have a limited operating history and have incurred a net loss since our inception. Our net loss was $2.8 million for the six months ended June 30, 2018. To date, we have earned limited revenues from origination and servicing fees charged to borrowers in connection with the loans made by the Company and its wholly-owned subsidiaries GRE 1 and Groundfloor GA corresponding to the LROs and Georgia Notes. We have funded our operations primarily with proceeds from our convertible debt and preferred stock issuances, which are described below under “Liquidity and Capital Resources.” Over time, we expect that the number of borrowers and lenders, and the volume of loans originated through the Groundfloor Platform, will increase and generate increased revenue from borrower origination and servicing fees.
On February 9, 2018, we launched an offering of our common stock under Tier 2 of Regulation A pursuant to an offering statement on Form 1-A qualified by the SEC (the “2018 Common Stock Offering”). As described in this Offering Circular, we are offering up to 500,000 shares of our common stock at $10 per share, with a minimum investment of $100, or 10 shares of common stock. The aggregate initial offering price of our common stock will not exceed $5,000,000 in any 12-month period, and there is no minimum offering amount. We are also offering a Bonus Share Program where we may issue up to 30,000 additional bonus shares of our common stock pursuant to the terms of this Offering Circular. As of July 31, 2018, we have issued 437,189 shares of common stock in the 2018 Common Stock Offering for $4,221,390 in proceeds.
Prior to September 2015, our operations were limited to issuing Georgia Notes solely in Georgia to Georgia residents pursuant to an intrastate crowdfunding exemption from registration under the Securities Act and qualification under Georgia law. On September 7, 2015, the SEC qualified our first offering statement on Form 1-A covering seven separate series of LROs corresponding to the same number of Projects in eight states and the District of Columbia. Subsequently, we have not issued, and do not intend to issue in the future, any additional Georgia Notes. Since that time, we have qualified two additional offering statements on Form 1-A in addition to an offering statement on Form 1-A qualified for GRE 1, our wholly-owned subsidiary, in each case under Tier 1 of Regulation A. GRE 1 does not presently intend to qualify any additional series of LROs under its offering statement. In January 2018, our offering statement relating to the offer and sale of limited recourse obligations (the “LRO Offering Circular”) was qualified by the SEC under Tier 2 of Regulation A, raising the annual aggregate amount of LROs which the Company may offer and sell to $50 million, less any other securities sold by the Company under Regulation A (including pursuant to this Offering Circular). We have filed, and intend to continue to file, post-qualification amendments to the LRO Offering Circular on a regular basis to include additional series of LROs. We expect to expand the number of states in which we offer and sell LROs during the next 12 months. With this increased geographic footprint, we expect that the number of borrowers and corresponding investors, and the volume of loans originated through the Groundfloor Platform, will increase and generate increased revenue from borrower origination and servicing fees.