PART II AND III 2 tv498981_partiiandiii.htm PART II AND III

 

PART II

OFFERING CIRCULAR

 Groundfloor Finance Inc.

 

Dated: July 23, 2018

 

This Post-Qualification Offering Circular Amendment No. 20 (this “PQA”) amends the offering circular of Groundfloor Finance Inc. (the “Company,” “we,” “us,” or “our”), dated December 29, 2017, as qualified on January 4, 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.

 

We make Limited Recourse Obligations (the “LROs”) available for investment on our web-based investment platform www.groundfloor.com (the “Groundfloor Platform”). Our principal offices are located at 75 Fifth Street, NW, Suite 2170, Atlanta, GA 30308. The phone number for these offices is (404) 850-9225. Our mailing address is PO Box 79346, Atlanta, GA 30357. 

 

We will issue the LROs in distinct series, each corresponding to a real estate development project (each, a “Project”) financed by a commercial loan from us (each, a “Loan”). The borrower for each Project is a legal entity (the “Borrower”) that owns the underlying property and has been organized by one or more individuals (each, a “Principal”) that own and operate the Borrower.

 

The LROs are unsecured special, limited obligations of the Company. The LROs are not listed on any national securities exchange or on the over-the-counter inter-dealer quotation system. There is no market for the LROs. Our obligation to make payments on a LRO is limited to an amount equal to each holder’s pro rata share of amount of payments, if any, actually received on the corresponding Loan, net of certain fees and expenses retained by us. Summaries” of the Offering Circular, as amended hereby, for the specific terms of the LROs covered by this PQA.

 

We do not guarantee payment of the LROs in the amount or on the time frame expected. The LROs are not obligations of the Borrowers or their Principals, and we do not guarantee payment on the corresponding Loans. We have the authority to modify the terms of the corresponding Loans which could, in certain circumstances, reduce (or eliminate) the expected return on your investment. See the “General Terms of the LROs—Administration, Service, Collection, and Enforcement of Loan Documents” section on page 106 of the Offering Circular.

 

The LROs are speculative securities. Investment in the LROs involves significant risk, and you may be required to hold your investment for an indefinite period of time. You should purchase these securities only if you can afford a complete loss of your investment. See the “Risk Factors” section on page 12 of the Offering Circular.

 

Generally, no sale may be made to you in this offering to the extent that the aggregate purchase price you pay is more than 10% of the greater of your annual income or net worth. Different rules apply to accredited investors and non-natural persons. Before making any representation that your investment does not exceed applicable thresholds, we encourage you to review Rule 251(d)(2)(i)(c) of Regulation A. For general information on investing, we encourage you to refer to www.investor.gov.

     

THE UNITED STATES SECURITIES AND EXCHANGE COMMISSION DOES NOT PASS UPON THE MERITS OF OR GIVE ITS APPROVAL TO ANY SECURITIES OFFERED OR THE TERMS OF THE OFFERING, NOR DOES IT PASS UPON THE ACCURACY OR COMPLETENESS OF ANY OFFERING CIRCULAR OR OTHER SOLICITATION MATERIALS. THESE SECURITIES ARE OFFERED PURSUANT TO AN EXEMPTION FROM REGISTRATION WITH THE COMMISSION; HOWEVER, THE COMMISSION HAS NOT MADE AN INDEPENDENT DETERMINATION THAT THE SECURITIES OFFERED HEREUNDER ARE EXEMPT FROM REGISTRATION.

 

 

 

 

Incorporation by Reference of Offering Circular

 

The Offering Circular, including this PQA, is part of an offering statement (File No. 024-10753) that we filed with the Securities and Exchange Commission. We hereby incorporate by reference into this PQA all of the information contained in the following:

 

1.Part II of the Offering Circular, including the form of LRO Agreement beginning on page LRO-1 thereof to the extent not otherwise modified or replaced by offering circular supplement and/or post-qualification amendment.
2.Post-Qualification Amendment No. 6 to the Offering Circular.

 

Note that any statement that we make in this PQA (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.

 

The Offering Circular is amended as follows:

 

Credit Risk and Valuation Assessment – the Grading Algorithm

 

The following information updates and replaces the tables on page 53 of the Offering Circular:

 

We use our proprietary Grading Algorithm to assign one of seven letter grades, from A to G, to each Project. The letter grade generally reflects the overall risk of the Loan. In general:

 

  A     B     C     D     E     F     G  
  5.5%     7.0%     8.5%     10%     13%     14.5%     17%  

  

Each letter grade corresponds to the minimum fixed interest rate we will offer to a Borrower, subject to applicable law, with respect to a particular Project and the corresponding Loan. At this time, the standard annual fixed interest minimum rates for each letter grade are as follows:

 

A   5.0%
B   6.0%
C   8.0%
D   9.0%
E   12.0%
F   14.0%
G   15.0%

 

 

 

 

Experience

 

The following information updates and replaces the information in the last paragraph of page 56 and continuing on to the first three paragraphs of page 57 of the Offering Circular:

 

Experience – Lower-risk Borrowers will have significant experience in real estate development (in terms of the number of projects developed) and will have successfully completed projects of a similar type and scope.

  

Experience is rated on a five-point scale, based on the Borrower’s total number of completed projects. A Borrower is only credited for successfully completed projects. The Projects we give credit for must also be similar in type and scope to the Project being financed by the Company. For example, a Borrower who has only completed cosmetic renovations in the past will not be given experience credit if the project being underwritten is new construction.

  

Recognizing that some individuals move into real estate development after being involved long-term in other relevant industry activities in the real estate industry, credit is assigned for the following activities: (i) licensed real estate brokers will be credited with one successfully completed project for every three properties sold and (ii) general contractors and trades will be credited with one completed project for every two or more successfully completed projects of the type and scope under consideration.

 

This assessment is based on information that is self-reported by the Borrower, and therefore has not been independently verified. The higher the score, the more points added towards the Project’s raw score. The scores for experience are assigned as set forth in the table below, with the higher scores yielding more points added towards the Project’s raw score:

 

Number of Successfully Completed Projects   Score 
> 4   5
3   4
2   3
1   2
0   1

 

 

 

 

PART III — EXHIBITS

 

Exhibit Index

 

            Incorporated by Reference
Exhibit
Number
 

Exhibit Description

(hyperlink)

 

Filed

Herewith

  Form   File No.   Exhibit

 

 

Filing Date
                         
2.1   Groundfloor Finance Inc. Second Amended and Restated Articles of Incorporation       1-A/A   024-10496   2.1   November 25, 2015
                         
2.2   Groundfloor Finance Inc. Bylaws       1-A/A   024-10440   2.2   July 1, 2015
                         
3.1   Amended and Restated Investors’ Rights Agreement       1-A/A   024-10496   3.1   November 25, 2015
                         
3.2   Form of Investor Agreement       1-A/A   024-10753   3.2   November 30, 2017
                         
3.3   Preferred Stock Voting Agreement       1-A/A   024-10753   3.3   November 30, 2017
                         
4.1   Standard Form of LRO Agreement (incorporated by reference from the Offering Circular)       1-A/A   024-10496   N/A   December 8, 2015
                         
6.1   Executive Employment Agreement with Brian Dally dated November 19, 2014       1-A/A   024-10440   6.1   July 1, 2015
                         
6.2   Executive Employment Agreement with Nikhil Bhargava dated November 19, 2014       1-A/A   024-10440   6.2   July 1, 2015
                         
6.3   2013 Stock Option Plan       1-A/A   024-10440   6.6   July 1, 2015
                         
6.4   Option Award Agreement for Michael Olander Jr.       1-A/A   024-10440   6.8   July 1, 2015
                         
6.5   Option Award Agreement for Richard Tuley        1-A    024-10488    6.11    October 7, 2015
                         
6.6   Option Award Agreement for Bruce Boehm        1-A   024-10488     6.12    October 7, 2015
                         
6.7   Series Seed Preferred Stock Purchase Agreement       1-A/A   024-10440   3.1   July 1, 2015
                         
6.8   Series A Preferred Stock Purchase Agreement       1-A/A   024-10496   6.18   November 25, 2015
                         
6.9   Right of First Refusal and Co-Sale Agreement       1-A/A   024-10496   6.19   November 25, 2015
                         
6.10   Promissory Note and Security Agreement, as amended       1-A POS   024-10496   6.10   October 18, 2017
                         
6.11   Form of Loan Agreement       1-A/A   024-10440   6.14   July 1, 2015

 

 

 

 

6.12   Form of Promissory Note       1-A/A   024-10440   6.15   July 1, 2015
                         
6.13   Loan Purchase Agreement with Harvest Residential Loan Acquisition, LLC       1-A/A   024-10758   6.11   January 22, 2018
                         
6.14   Servicing Agreement with Harvest Residential Loan Acquisition, LLC       1-A/A   024-10758   6.12   January 22, 2018
                         
11.1   Consent of Hughes Pitman & Gupton, LLP       1-A/A   024-10753   11.1   January 2, 2018

 

 

 

 

SIGNATURES

 

Pursuant to the requirements of Regulation A, the issuer certifies that it has reasonable grounds to believe that it meets all of the requirements for filing on Form 1-A and has duly caused this offering statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Atlanta, State of Georgia, on July 23, 2018.

 

  GROUNDFLOOR FINANCE INC.
     
  By: /s/ Nick Bhargava
  Name: Nick Bhargava
  Title: Executive Vice President, Secretary and Acting Chief Financial Officer

 

This offering statement has been signed by the following persons in the capacities and on the dates indicated.

 

Signature   Title   Date
         
*  

President, Chief Executive Officer and Director (Principal Executive Officer)

  July 23, 2018
Brian Dally      
         
/s/ Nick Bhargava  

Executive Vice President, Secretary, Acting Chief Financial Officer and Director (Principal Financial and Accounting Officer)

  July 23, 2018
Nick Bhargava      
         
*   Director   July 23, 2018
Sergei Kouzmine        
         
*   Director   July 23, 2018
Bruce Boehm        
         
*   Director   July 23, 2018
Michael Olander Jr.        
         
*   Director   July 23, 2018
Richard Tuley Jr.        

 

*By: /s/ Nick Bhargava  
Nick Bhargava  
Attorney-in-fact