PART II AND III 2 tm212806d1_partiiandiii.htm PART II AND III

 

FORM 1-A DISCLOSURE FORMAT

PART II 

OFFERING CIRCULAR

Groundfloor Finance Inc.

 

Twenty-Four Series of Limited Recourse Obligations 

Totaling $5,371,730

 

Dated: January 11, 2021

 

This Post-Qualification Offering Circular Amendment No. 74 (this “PQA”), made on the Form 1-A disclosure format, amends the offering circular of Groundfloor Finance Inc, 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 additional securities to be offered pursuant to the Offering Circular. This PQA relates to the offer and sale of up to an additional $5,371,730 in aggregate amount of Limited Recourse Obligations (the “LROs”) to be issued by Groundfloor Finance Inc. (the “Company,” “we,” “us,” or “our”). 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 LROs available for investment on our web-based investment platform www.groundfloor.com (the “Groundfloor Platform”). Our principal offices and mailing address are located at 600 Peachtree Street, Suite 810, Atlanta, GA 30308. The phone number for these offices is (404) 850-9225.

 

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. This PQA relates to the offer and sale of each separate series of LROs corresponding to the Projects for which we extend Loans, as described below (the “Offering”).

 

The LROs will be 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. See the sections titled “General Terms of the LROs,” “The LROs Covered by this Offering Circular,” and “Project 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.

 

We will commence the offering of each series of LROs promptly after the date this PQA is qualified by posting on the Groundfloor Platform a separate landing page corresponding to each particular Loan and Project (each, a “Project Summary”). The offering of each series of LROs covered by this PQA will remain open until the earlier of (1) 30 days, unless extended, or (2) the date the offering of a particular series of LROs is fully subscribed with irrevocable funding commitments (the “Offering Period”); however, we may extend the Offering Period for a particular series of LROs in our sole discretion (with notice to potential investors) up to a maximum of 45 days. We will notify investors who have previously committed funds to purchase such series of LROs of any such extension by email and will post a notice of the extension on the corresponding Project Summary on the Groundfloor Platform.

 

This Offering is being conducted on a “best-efforts” basis, which means that our officers will use their commercially reasonable best efforts in an attempt to sell the LROs. Such officers will not receive any commission or any other remuneration for these sales. In offering the LROs on our behalf, the officers will rely on the safe harbor from broker-dealer registration set out in Rule 3a4-1 under the Securities Exchange Act of 1934, as amended.

 

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.

 

   Offering price
to the public
   Underwriting
discounts and
commissions
   Proceeds to
issuer(1)(2)
   Proceeds to other
persons
 
Per Unit  $10.00    N/A   $10.00    N/A 
Total Minimum  $0.00    N/A   $0.00    N/A 
Total Maximum  $5,371,730    N/A   $5,371,730    N/A 

  

(1) We estimate all expenses for this Offering to be approximately $1,000, which will not be financed with the proceeds of the Offering.

(2) Assumes no promotions or discounts applied to any offerings covered by this PQA.

 

 

 

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.Form 1-SA, for Groundfloor Finance Inc., covering the periods ending July 30, 2020 and July 30, 2019.

 

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 LROs Covered by the Offering Circular and Use of Proceeds

 

The following disclosure is added on pages 109 and 110 of the Offering Circular under the table included under “The LROs Covered by this Offering Circular” and “Use of Proceeds,” respectively:

 

The table below lists the additional Projects covered by this PQA. Each series of LROs is denominated by the corresponding Project’s name.

 

Series of LROs/Project  Aggregate Purchase
Amount/Loan
Principal
 
3312 VERSAILLES AVE., MCKEESPORT, PA 15132  $78,540 
1306 GREENBRIER, GRIFFIN, GA 30223   79,780 
605 EDNA GRAVES WAY, CHERRYVILLE, NC 28021   86,670 
4057 BOOKER STREET, ORLANDO, FL 32811   102,340 
2799 RANGER DRIVE, NORTH CHARLESTON, SC 29405   102,380 
762 LEE ANDREWS AVENUE SE, ATLANTA, GA 30315   149,370 
4653 CALUMET CIRCLE NW, DULUTH, GA 30096   157,450 
4800 OLD OAK TREE COURT, ORLANDO, FL 32808   164,450 
2911 MOUNT HOLLY STREET, BALTIMORE, MD 21216   200,110 
795 DARLENE WAY, TUCKER, GA 30084   231,630 
961 HIGHTOWER TRAIL, OXFORD, GA 30054   236,570 
1771 DODSON DRIVE SOUTHWEST, ATLANTA, GA 30311   244,520 
8620 CANAL DRIVE #2, JONESBORO, GA 30236   249,140 
8620 CANAL DRIVE #3, JONESBORO, GA 30236   249,140 
8620 CANAL DRIVE #1, JONESBORO, GA 30236   249,150 
224 ORMOND STREET SW, UNIT A, ATLANTA, GA 30315   251,960 
224 ORMOND STREET SW, UNIT B, ATLANTA, GA 30315   251,960 
1423 LANVALE DRIVE SW, ATLANTA, GA 30310   256,860 
854 THURMOND ST NW, ATLANTA, GA 30314   262,580 
1302 EAST CARACAS STREET, TAMPA, FL 33603   297,390 
1304 EAST CARACAS STREET, TAMPA, FL 33603   297,340 
1536 MONTREAT AVENUE SW, ATLANTA, GA 30311   307,410 
314 FORTUNE STREET NE, UNIT A, ATLANTA, GA 30312   432,470 
314 FORTUNE STREET NE, UNIT B, ATLANTA, GA 30312   432,470 
Total  $2,450,060 

  

 

  

Project Summaries

 

Each Project Summary attached below is included in the Offering Circular following page PS-797.

 

 

 

PROJECT SUMMARIES FOR PQA NO. 74

  

New Microsoft Word Document_binder1_page_01.jpg  BORROWER Purpose Loan Position I Purchase IIFirst Lien TotalLoan Amount 11 $78.540 Repayment Terms Balloon payment - principaland interest returned on repayment/ due at maturity. DP DeveloP-ment/Consulting LLC Darrell Holloway-principal INVEST NOW Click here to view the LRO Agreement FINANCIAL OVERVIEW After Repair Value (ARV) (!) $105,000 $11,460 GRADE FACTORS The followingfactors determine in part how the loan was graded: (in descending order of importance) TotalProject Costs (!) $93,540 Loan To ARV Score (!) 10 Quality of Valuation Report 4 Skin-in-the-Game (!) 10 Location 8 Borrower Experience 5 Borrower Commitment (!) 1 0%----$15,000 Skin-in-the Game (!) First Lien Loan Cushion (!) VALUATION REPORTS As Compl ete (ARV) $105,000 Broker's Price Opinion Purchase Price (!) $90,000 Loan To ARV {!) 74.8% Borrower Provided Appraisal Purchase Date Loan To Total 12/22/2020 83.3% Project Cost (!) Borrower Provided Camps PROPERTY DESCRIPTION Ft........ "tii View larger map </! P<-YS1 tion Center 6i<na At BoydSt j !Founder's Hall 0 "' T !<? !(' Middle SchoolY \ \ Address: 3312 VERSAILLES AVE.,MCKEESPORT,PA 15132 The Borrower intends to use the loan proceeds to purchase and renovate the property. Upon compl etion,the , 3312 Versailles Avenue Borrower intends to sellthe property to repay the Groundfloor loan. Atchesonst Oinsmo1cSt o; o; o;McKeesport Area t:. f [ INVEST NOW :! "' PROPERTY PHOTOS Lampert's M Report a map error Click here to view the LRO Agreement MISCELLANEOUS PROJECT SPECIFIC RISK FACTORS • The Borrower was advanced the money it needed to purchase this property on December 22, 2020 by Groundfloor Finance Inc.("Groundfloor ·"we·, "us, or "our") or a wholly-owned subsidiary of Groundfloor.The Borrower is now in possession of the property. If this offering is fully subscribed,Groundfloor willcontinue to administer and service the loan as further described in the Offering Circular. • The renovation of the property may be extensive,and therefore subject to delays and other unexpected issues. • The renovation will require permitting,and permits may not be obtained on time or may be denied. • The Borrower has not compl eted or sold any projects in the past year.As such,the Borrower's average revenue,costs, and margins cannot be calculated. • Please consult the OfferingCircul ar for further discussion of general risk factors. CLOSING CONDITIONS • Loan is conditioned upon a clean title search and valid title insurance at the time of close. DEVElOPER FEES • GROUNDFLOOR generally charges borrowers between 2% and 6% of the principal amount of the loan for our services. • GROUNDFLOOR does not take a 'spread' on any part of the interest payments. • Developers may capitalize the cost of closing into the principal amount of their request.These closing costs typically range from $500 to $1500. • Unless otherwise limited by applicable l aw,GROUNDFLOOR will charge a penalty of 2% for any extension made to the borrower. See GROUNDFLOOR 'Fees and Expenses' in the OfferingCircular SEC FiliNG INFORMATION • The series of LROs corresponding to this Project are offered pursuant to Post Qualification Amendment No.74 to the Offering Circular dated December 29, 2017 (each,as amended and supplemented from time to time),including the documents incorporated by reference therein. You may access and review these documents on the Internal Filings Directory located on our Platform. BORROWER SUMMARY UNLESSNOTED WITHA * 'INFORMATIONBELOW IS SUPPLIED BY THE BORROWER AND ISNOT VERIFIED. BORROWERS REPRESENTAND WARRANT THAT INFORMATION SUPPLIED IS ACCURATE. OP OEVELOPMENT/CONSULTING LLCFINANCIAL DATA Reportingdate:12/31/20 DATE OF FORMATION * 12/09/2013 IPRINCIPAL PROJECTS I REVENUE Reportingperiod:2020 Darrell HollowayGROUNDFLOOR HISTORY * HISTORICAL AVERAGES Reportingperiod:three years ending 2020 FOCUS Single Family Loans Funded (!) Loans Repaid (!) Compl eted Projects PerYear (!) Average Project Revenue (!) Ll0------'11° On Time Repayment (!) II2 II $117K Average Project Average Total Time (!) Project Costs (!) IN/A L l 1 o_m_o_n_th_s_-'ll$80K

 

PS-797

 

New Microsoft Word Document_binder1_page_02.jpg  Purpose loan PositionTotal oan AmountRepayment Terms BORROWER Purchase & ,__ F_i_rs_t_L_ie_n ,ll$79, 780 ;..=B:..:al-'l-o' -"-o=-n"-p-"a-:.:..:ycm. :.::.._en_-t--p-rin_c_i_p_a_la_n_d_i_nte_r_e_s-t-, Vicinia Homes,LLC William Brunstad-principal Renovation _ . . returned on repayment/ due at maturity. INVEST NOW Click here to view the LRO Agreement FINANCIAL OVERVIEW After Value$120,000 TotalProject Costs <2)$88,760 GRADE FACTORS The followingfactors determine in part how the loan was graded: (in descending order of importance) loan To ARV Score <2) 10 Quality of ValuationReport4 Skin-in-the-Game <2)-10 location8 Borrower Experience 5 Borrower Commitment <2)1 0%----$8,980 Skin-in-the Game <2) First lien loan Cushion <2) VALUATION REPORTS As Compl ete (ARV) $120,000 Broker's Price Opinion Purchase Price <2) Purchase Date $52,000 12/18/2020 Loan To ARV (2} Loan To Total Project Cost <2) 66.5% 89.6% Borrower Provided Appraisal Borrower Provided Camps PROPERTY DESCRIPTION View larger map Address: 1306 GREENBRIER,GRIFFIN, GA 30223 of God Church Y-. ... The Borrower intends to use the l oan proceeds to purchase and renovate the property. Upon compl etion,the Borrower intends to sellthe property to repay the Groundfloor loan. Springv)ew Or St_QewoO<t l> 0 INVEST NOW Map data ®2021 Te.rms of Use Report a map error Click here to view the LRO Agreement MISCELLANEOUS PROJECT SPECIFIC RISK FACTORS o The Borrower was advanced the money it needed to purchase this property on December 18, 2020 by Groundfloor Finance Inc.("Ground floor, "we;'"us ·or "our") or a wholly-owned subsidiary of Groundfloor. The Borrower is now in possession of the property. If this offering is fully subscribed,Groundfloor willcontinue to administer and service the loan as further described in the Offering Circular. o The renovation of the property may be extensive,and therefore subject to delays and other unexpected issues. o The renovation will require permitting,and permits may not be obtained on time or may be denied. o Please consult the OfferingCircular for further discussion of general risk factors. CLOSING CONOITIONS o Loan is conditioned upon a clean title search and valid title insurance at the time of close. DEVELOPER FEES o GROUNDFLOOR generally charges borrowers between 2% and 6% of the principal amount of the l oan for our services. o GROUNDFLOOR does not take a 'spread' on any part of the interest payments. o Developers may capitalize the cost of closing into the principal amount of their request.These closing costs typically range from $500 to $1500. o Unless otherwise limited by applicable l aw,GROUNDFLOOR will charge a penalty of 2% for any extension made to the borrower. See GROUNDFLOOR 'Fees and Expenses' in the OfferingCircular SEC FILING INFORMATION o The seri es of LROs corresponding to this Project are offered pursuant to Post Qualification Amendment No.74 to the Offering Circular dated December 29,2017 (each,as amended and supplemented from time to time),including the documents incorporated by reference therein.You may access and review these documents on the Internal Filings Directory located on our Platform. BORROWER SUMMARY UNLESSNOTED WITHA *,INFORMATIONBELOW IS SUPPLIED BY THE BORROWER AND ISNOT VERIFIED. BORROWERS REPRESENTAND WARRANT THAT INFORMATION SUPPLIED IS ACCURATE. VICINIA HOMES,LLCFINANCIAL DATA Reportingdate:12/31/20 PROJECTS / REVENUE Reportingperiod:2020 DATE OF FORMATION * 08/25/2018 Value of Properties <2)Total Debt <2)Revenue <2) $1.4M $899.4K $215.2K Gross Margin% <2) 31.0% IPRINCIPALGROUNDFLOOR HISTORY * HISTORICAL AVERAGES William Brunstad Reportingperiod:three years ending 2020 FOCUS Single Family Loans Funded <2)Loans Repaid <2) Compl eted Projects PerYear <2) Average Project Revenue <2) 44 L.,l_ ----'11 On Time Repayment <2) II4 II$56.2K Average Project Average Total Time <2)Project Costs <2) 1100% '-l 3_m_o_n_th_s ,ll$37.3K

 

PS-798

 

New Microsoft Word Document_binder1_page_03.jpg  Purpose loan PositionTotal oan Amount Repayment Terms BORROWER New ,__ F_i_rs_t_L_ie_n ,ll$86, 670 ;..=B:..:al-'l-o' -"-o=-n"-p-"a-:.:..:ycm. :.::.._en_-t--p-rin_c_i_p_a_la_n_d_i_nte_r_e_s-t-, AllAbove Home Solutions, LLC Julie Maynor - principal Construction _ . . returned on repayment/ due at maturity. INVEST NOW Click here to view the LRO Agreement FINANCIAL OVERVIEW After Value$170,000 TotalProject Costs Q) $111,670 GRADE FACTORS The followingfactors determine in part how the loan was graded: (in descending order of importance) Loan To ARV Score Q) 10 Quality of ValuationReport 4 Skin-in-the-Game Q) 10 location 8 Borrower Experience 5 Borrower Commitment Q) 1 0% ----$25,000 Skin-in-the Game Q) First li en Loan Cushion Q) VALUATION REPORTS As Complete (ARV) $170,000 Broker's Price Opinion Purchase Price Q) Purchase Date $10,000 09/28/2020 Loan ToARV Q) Loan To Total Project Cost Q) 51.0% 77.0% Borrower Provided Appraisal Borrower Provided Camps PROPERTY DESCRIPTION ,s-View larger map 'i Caputo's Pi zza t'&!.liw w y Address: 605 EDNA GRAVES WAY,CHERRYVILLE,NC 28021 The Borrower intends to use the loan proceeds to complete a new construction.Upon completion,the Borrower intends to sellthe property to repay the Groundfloor loan. INVEST NOW Map data ®2021 Terms of Use Report a map error Click here to view the LRO Agreement PROPERTY PHOTOS • • --· MISCELLANEOUS PROJECT SPECIFIC RISK FACTORS • The Borrower was advanced the money it needs to begin construction of this property on December 21,2020 by Groundfloor Finance Inc.("Groundfloor "we; "us or "our") or a wholly-owned subsidiary of Groundfloor. The Borrower willhas begun construction of the property.If this offering is fully subscribed, Groundfloor will continue to administer and service the loan as further described in the OfferingCircular. • The construction of the property may be extensive,and therefore subject to delays and other unexpected issues. • The construction willrequire permitting, and permits may not be obtained on time or may be denied. • There is no existing structure on this property,or if there is,it will be demolished, and a new structure built in its place. • The event of default on one Groundfloor note secured by this property will trigger default on all Groundfloor notes secured by this property. All LRO holders investing in LROs corresponding to notes secured by this property share the same priority in any recovery and recovered proceeds will be distributed on a pro-rata basis. • Please consult the Offering Circular for further discussion of general risk factors. CLOSING CONDITIONS • Loan is conditioned upon a clean title search and valid title insurance at the time of close. DEVElOPER FEES • GROUNDFLOOR generally charges borrowers between 2% and 6% of the principal amount of the loan for our services. • GROUNDFLOOR does not take a 'spread' on any part of the interest payments. • Developers may capitalize the cost of closing into the principal amount of their request.These closing costs typically range from $500 to $1500. • Unless otherwise limited by applicable law,GROUNDFLOOR will charge a penalty of 2% for any extension made to the borrower. See GROUNDFLOOR 'Fees and Expenses' in the OfferingCircular SEC FiliNG INFORMATION • The series of LROs corresponding to this Project are offered pursuant to Post Qualification Amendment No.74 to the OfferingCircular dated December 29,2017 (each,as amended and supplemented from time to time),including the documents incorporated by reference therein. You may access and review these documents on the Internal Filings Directory located on our Platform. BORROWER SUMMARY UNLESSNOTED WITHA "' 'INFORMATIONBELOW IS SUPPLIED BY THE BORROWERAND ISNOT VERIFIED. BORROWERS REPRESENTAND WARRANT THAT INFORMATION SUPPLIED IS ACCURATE. ALL ABOVE HOME SOLUTIONS, LLC FINANCI AL DATA Reportingdate:12/31/20 DATE OF FORMATION * 07/18/2018 PROJECTS I REVENUE Reporting period:2020 Gross Margin% Q) 19.0% Revenue Q) $755K IPRINCIPALGROUNDFLOOR HISTORY * HISTORICAL AVERAGES Julie Maynor Reporting period:three years ending2020 FOCUS Fix &Fiip Loans Funded Q)Loans Repaid Q) Completed Projects PerYear Q) Average Project Revenue Q) L,l _0 ,II0 On Time Repayment Q) IN/A II2 II$251.7K Average Project Average Total Time Q)Project Costs Q) Ll7_m_o_n_th_s _--'ll$203.3K

 

PS-799

 

New Microsoft Word Document_binder1_page_04.jpg  BORROWERPurpose loan PositionTotal oan AmountRepayment Terms Halltek Investments REMF1 Purchase & .__ F_ir_st_u__e_n _JI I $ , 102 340 ;..:..:.::Bc.:::a1l'-o'-:::co:::c.n:..p:.:..a:.:..:y.c::=m-e-n_t _-pri_n_ci_p_al_a_n_d_in_te_r_est' LLC Matthew Hall-principal Renovation _ . . returned on repayment/ due at maturity. INVEST NOW Click here to view the LRO Agreement FINANCIAL OVERVIEW After Value$150,000 TotalCosts$120,440 GRADE FACTORS The followingfactors determine in part how the loan was graded: (in descending order of importance) loan To ARV Score (2) 10 Quality of ValuationReport 4 Skin-in-the-Game (2)-10 location8 Borrower Experience 5 Borrower Commitment {2)1 0% ----$18,100 Skin-in-the Game @ First li en loan Cushion @ VALUATION REPORTS As Complete (ARV) $150,000 Broker's Price Opinion Purchase Price ® Purchase Date $95,000 12/17/2020 loan To ARV (2) loan To Total Project Cost @ 68.2% 84.5% Borrower Provided Appraisal Borrower Provided Camps PROPERTY DESCRIPTION .... '--'''"' OIT... LVUII dlld "-lt\..1n::1 1 Q :Q View larger map hst ·I• Address: 4057 BOOKER STREET,ORLANDO,Fl32811 The Borrower intends to use the loan proceeds to purchase and renovate the property. Upon completion,the Borrower intends to sellthe property to repay the Groundfloor loan. JOHNSO INVEST NOW \I I I I A ,... MISCELLANEOUS PROJECT SPECIFIC RISK FACTORS • The Borrower was advanced the money it needed to purchase this property on December 17,2020 by Groundfloor Finance Inc.("Groundfloor ' "we';"us';or "our") or a wholly-owned subsidiary of Groundfloor. The Borrower is now in possession of the property. If this offering is fully subscribed,Groundfloor willcontinue to administer and service the loan as further described in the Offering Circular. • The renovation of the property may be extensive,and therefore subject to delays and other unexpected issues. • The renovation will require permitting,and permits may not be obtained on time or may be denied. • The Borrower has not completed or sold any projects in the past year.As such,the Borrower's average revenue,costs,and margins cannot be calculated. • Please consult the OfferingCircular for further discussion of general risk factors. CLOSING CONDITIONS • loan is conditioned upon a clean title search and valid title insurance at the time of close. DEVElOPER FEES • GROUNDFLOOR generally charges borrowers between 2% and 6% of the principal amount of the loan for our services. • GROUNDFLOOR does not take a 'spread' on any part of the interest payments. • Developers may capitalize the cost of closing into the principal amount of their request.These closing costs typically range from $500 to $1500. • Unless otherwise limited by applicable law,GROUNDFLOOR will charge a penalty of 2% for any extension made to the borrower. See GROUNDFLOOR 'Fees and Expenses' in the OfferingCircular SEC FiliNG INFORMATION • The series of LROs corresponding to this Project are offered pursuant to Post Qualification Amendment No. 74 to the OfferingCircular dated December 29,2017 (each,as amended and supplemented from time to time),including the documents incorporated by reference therein. You may access and review these documents on the Internal Filings Directory located on our Platform. BORROWER SUMMARY UNLESSNOTED WITHA * 'INFORMATIONBELOW IS SUPPLIED BY THE BORROWER AND ISNOT VERIFIED. BORROWERS REPRESENTAND WARRANT THAT INFORMATION SUPPLIED IS ACCURATE. HALLTEK INVESTMENTS REMF1 LLCFINANCI AL DATA Reportingdate:12/31/20 DATE OF FORMATION * 05/29/2020 IPRINCIPAL PROJECTS / REVENUE Reporting period:2020 Matthew Hall GROUNDFLOOR HISTORY * HISTORICAL AVERAGES Reporting period:three years ending 2020 FOCUS Single Family Loans Funded (2)Loans Repaid (2) Completed Projects PerYear (2) Average Project Revenue @ L,l _0 ,II0 On Time Repayment (2) IN/A II 1II $126K Average ProjectAverage Total Time (2)Project Costs (2) Ll12 mon_th_s_--'ll$126K

 

PS-800

 

New Microsoft Word Document_binder1_page_05.jpg  Purpose loan PositionTotal loan Amount Repayment Terms BORROWERPurchase & ,__ F_ir_s_t _Li_e_n _JI I $1o , 2 380 ;..=B:..::al1-'-o':..:.on::.c:_p.:..a:.:..:y.:..:cm:e._n_t pri_n_ci_p_al_a_n_d_i_nte_r_est--, Bannacheck LLC Tyrone Jones-principal Renovation _ . . returned on repayment/ due at maturity. INVEST NOW Click here to view the LRO Agreement FINANCIAL OVERVIEW TotalProject Costs Q) $122,230 $165,000 GRADE FACTORS The followingfactors determine in part how the loan was graded: (in descending order of importance) Loan To ARV Score Q) 10 Quality of Valuation Report 4 Skin-in-the-Game Q) 10 location 8 Borrower Experience 5 Borrower Commitment Q) 1 0%----$19,850 Skin-in-the Game Q) First lien oan Cushion Q) VALUATION REPORTS As Complete (ARV) $165,000 Broker's Price Opinion Purchase Price Q) Purchase Date $109,000 12/14/2020 LoanToARV Q) Loan To Total Project Cost Q) 62.0% 83.3% Borrower Provided Appraisal Borrower Provided Comps PROPERTY DESCRIPTION View larger map Address: 2799 RANGER DRIVE,NORTH CHARLESTON,SC 29405 The Borrower intends to use the loan proceeds to purchase and renovate the property. Upon completion,the Borrower intends to sellthe property to repay the Groundfloor loan. &Marvin's SeafoodNlagatas• TGo gle•9••Dt 1!.\#2 Gera T Tri es& INVEST NOW ! Map data ®2021... Telms of Use Report a map errorClick here to view the LRO Agreement MISCELLANEOUS PROJECT SPECIFIC RISK FACTORS • The Borrower was advanced the money it needed to purchase this property on December 14,2020 by Groundfloor Finance Inc.("Groundfloor;·"we, "us, or"our") or a wholly-owned subsidiary of Groundfloor.The Borrower is now in possession of the property. If this offering is fully subscribed,Groundfloor willcontinue to administer and service the loan as further described in the Offering Circular. • The renovation of the property may be extensive,and therefore subject to delays and other unexpected issues. • The renovation will require permitting,and permits may not be obtained on time or may be denied. • Please consult the OfferingCircular for further discussion of general risk factors. CLOSING CONDITIONS • Loan is conditioned upon a clean title search and valid title insurance at the time of close. DEVElOPER FEES • GROUNDFLOOR generally charges borrowers between 2% and 6% of the principal amount of the loan for our services. • GROUNDFLOOR does not take a 'spread' on any part of the interest payments. • Developers may capitalize the cost of closing into the principal amount of their request.These closing costs typically range from $500 to $1500. • Unless otherwise limited by applicable law,GROUNDFLOOR will charge a penalty of 2% for any extension made to the borrower. See GROUNDFLOOR 'Fees and Expenses' in the OfferingCircular SEC FiliNG INFORMATION • The series of LROs corresponding to this Project are offered pursuant to Post Qualification Amendment No.74 to the OfferingCircular dated December 29,2017 (each,as amended and supplemented from time to time),including the documents incorporated by reference therein. You may access and review these documents on the Internal Filings Directory located on our Platform. BORROWER SUMMARY UNLESSNOTED WITHA * 'INFORMATIONBELOW IS SUPPLIED BY THE BORROWER AND ISNOT VERIFIED. BORROWERS REPRESENTAND WARRANT THAT INFORMATION SUPPLIED IS ACCURATE. BANNACHECK LLC FINANCIAL DATA Reportingdate:12/31/20 PROJECTS I REVENUE Reporting period:2020 DATE OF FORMATION * 03/05/2020 Value of Properties Q) $535K Gross Margin% Q) 61.0% Revenue Q) $535K IPRINCIPALGROUNDFLOOR HISTORY * HISTORICAL AVERAGES Tyrone Jones Reportingperiod:three years ending 2020 FOCUS Single Family Loans Funded Q)Loans Repaid Q) Completed Projects PerYear Q) Average Project Revenue Q) Ll1-----'11° On Time Repayment Q) II2 II $125K Average Project Average Total Time Q) Project Costs Q) IN/A L l 12_m_o_n_th_s_-'ll$51.5K

 

PS-801

 

New Microsoft Word Document_binder1_page_06.jpg  Purpose loan PositionTotal loan Amount Repayment Terms BORROWER Purchase & ,__ F_ir_s_t _Li_e_n _JI I $14 , 9 370 ;..=B:..::al-'-'1o:..:.on::.c:_p.:..:a.:..:y.:..:cm:e._n_t pri_n_ci_p_al_a_n_d_i_nte_r_est--, Pegasus CaP-i tal GrouP-LLC Hans Michel - principal Renovation _ . . returned on repayment/ due at maturity. INVEST NOW Click here to view the LRO Agreement FINANCIAL OVERVIEW TotalCosts$153,370 $210,000 GRADE FACTORS The followingfactors determine in part how the loan was graded: (in descending order of importance) Loan To ARV Score CD 10 4 Skin-in-the-Game CD• 10 location 8 Borrower Experience 5 Borrower Commi tment CD 1 0% ----$4,000 Skin-in-the Game CD First lien Loan Cushion CD VALUATION REPORTS As Complete (ARV) $210,000 Broker's Price Opinion Purchase Price CD Purchase Date $98,000 12/22/2020 Loan To ARV CD Loan To Total Project Cost CD 71.1% 97.3% Borrower Provided Appraisal Borrower Provided Comps PROPERTY DESCRIPTION View larger map 9 " <. q, Address: 762LEE ANDREWS AVENUE SOUTHEAST,ATLANTA, GA 30315 Secure Trailer Lots ' •• "l:-The Borrower intends to use the loan proceeds to purchase and renovate the property. Upon completion,the p Yard A tlanta '"%.-.. NORWOOD Borrower intends to sellthe property to repay the Groundfloor loan. !tRdS£9 MANORINVEST NOW Ati'G'ba?euth Academy Q Map data ®2021 Terms of Use Report a map error Click here to view the LRO Agreement MISCELLANEOUS PROJECT SPECIFIC RISK FACTORS • The Borrower was advanced the money it needed to purchase this property on December 22, 2020 by Groundfloor Finance Inc.("Groundfloor;'"we;'"us;·or"our") or a wholly-owned subsidiary of Groundfloor.The Borrower is now in possession of the property. If this offering is fully subscribed,Groundfloor willcontinue to administer and service the loan as further described in the Offering Circular. • The renovation of the property may be extensive,and therefore subject to delays and other unexpected issues. • The renovation will require permitting,and permits may not be obtained on time or may be denied. • Please consult the Offering Circular for further discussion of general risk factors. CLOSING CONOITIONS • Loan is conditioned upon a clean title search and valid title insurance at the time of close. DEVELOPER FEES • GROUNDFLOOR generally charges borrowers between 2% and 6% of the principal amount of the loan for our services. • GROUNDFLOOR does not take a 'spread' on any part of the interest payments. • Developers may capitalize the cost of closing into the principal amount of their request.These closing costs typically range from $500 to $1500. • Unless otherwise limited by applicable law,GROUNDFLOOR will charge a penalty of 2% for any extension made to the borrower. See GROUNDFLOOR 'Fees and Expenses' in the OfferingCircular SEC FILING INFORMATION • The series of LROs corresponding to this Project are offered pursuant to Post Qualification Amendment No.74 to the OfferingCircular dated December 29,2017 (each,as amended and supplemented from time to time),including the documents incorporated by reference therein. You may access and review these documents on the Internal Filings Directory located on our Platform. BORROWER SUMMARY UNLESSNOTED WITHA * ,INFORMATIONBELOW IS SUPPLIED BY THE BORROWER AND ISNOT VERIFIED. BORROWERS REPRESENTAND WARRANT THAT INFORMATION SUPPLIED IS ACCURATE. PEGASUS CAPITAL GROUP LLC FINANCIAL DATA Reportingdate:12/31/20 PROJECTS I REVENUE Reporting period:2020 DATE OF FORMATION * 05/30/2017 Value of Properties CD $4SOK Gross Margin% CD 35.0% Revenue CD $795K IPRINCIPALGROUNDFLOOR HISTORY * HISTORICAL AVERAGES Hans Michel Reporting period:three years ending 2020 FOCUS Single Family Loans Funded CDLoans Repaid CD Completed Projects PerYear CD Average Project Revenue CD Ll2-----'11 ° On Time Repayment CD II2 II$254.7K Average Project Average Total Time CDProject Costs CD IN/A L l 18_m_o_n_th_s_-'ll$175.9K

 

PS-802

 

New Microsoft Word Document_binder1_page_07.jpg BORROWER Purpose loan PositionTotal oan AmountRepayment Terms A tl anta Rehab LLC Pu rchase & F_i_rs_t_L_ie_n JII $15 ,4 7 50 r-B-'a.:l.l..o_o_n pa_y_m_en-t --p-r-in_c_i_pal_a_n_d_i_n-et_r_e_s-t-, Lauren Summers-principal Renovation L . .returned on repayment/ due at maturity. INVEST NOW Click here to view the LRO Agreement FINANCIAL OVERVIEW After RepairValue (ARV) (!) $225,000 TotalCosts$187,300 I GRADE FACTORS ' The followingfactors determine in part how the loan was graded: (in descending order of importance) loan To ARV Score (!) 10 Quality of ValuationReport4 Skin-in-the-Game (!) -10 location8 Borrower Experience 5 Borrower Commitment (!) 1 0%----$29,850 Skin-in-the Game (!) First lien Loan Cushion (!) I VALUATION REPORTS As Complete (ARV) $225,000 Broker's Price Opinion Purchase Price (!) Purchase Oate $160,000 12/17/2020 Loan To ARV (2} Loan To Total Project Cost (!) 70.0% 83.6% Borrower Provided Appraisal Borrower Provided Comps PROPERTY DESCRIPTION View larger map . c ebWorks9 Address: 4653 CALUMET CIRCLE NORTHWEST,DULUTH,GA 30096 The Borrower intends to use the loan proceeds to purchase and renovate the property. Upon completion,the Borrower intends to sellthe property to repay the Groundfloor loan. INVEST NOW - Map data ®2021 Terms of Use Report a map error Click here to view the LRO Agreement ••••••• MISCELLANEOUS PROJECT SPECIFIC RISK FACTORS o The Borrower was advanced the money it needed to purchase this property on December 17,2020 by Groundfloor Finance Inc.("Groundfloor;'"we," "us;'or "our") or a wholly-owned subsidiary of Groundfloor. The Borrower is now in possession of the property. If this offering is fully subscribed,Groundfloor willcontinue to administer and service the loan as further described in the Offering Circular. o The renovation of the property may be extensive,and therefore subject to delays and other unexpected issues. o The renovation will require permitting,and permits may not be obtained on time or may be denied. o Please consult the OfferingCircular for further discussion of general risk factors. CLOSING CONDITIONS o Loan is conditioned upon a clean title search and valid title insurance at the time of close. DEVELOPER FEES o GROUNDFLOOR generally charges borrowers between 2% and 6% of the principal amount of the loan for our services. o GROUNDFLOOR does not take a 'spread' on any part of the interest payments. o Developers may capitalize the cost of closing into the principal amount of their request.These closing costs typically range from $500 to $1500. o Unless otherwise limited by applicable law,GROUNDFLOOR will charge a penalty of 2% for any extension made to the borrower. See GROUNDFLOOR 'Fees and Expenses' in the OfferingCircular SEC FILING INFORMATION o The series of LROs corresponding to this Project are offered pursuant to Post Qualification Amendment No.74 to the OfferingCircular dated December 29,2017 (each,as amended and supplemented from time to time),including the documents incorporated by reference therein.You may access and review these documents on the Internal Filings Directory located on our Platform. BORROWER SUMMARY UNLESSNOTED WITHA *,INFORMATIONBELOW IS SUPPLIED BY THE BORROWER AND ISNOT VERFI IED. BORROWERS REPRESENTAND WARRANT THAT INFORMATION SUPPLIED IS ACCURATE. ATLANTA REHAB LLC FINANCIAL DATA Reportingdate:12/31/20 DATE OF FORMATION * 09/25/2019 PROJECTS /REVENUE Reporting period:2020 Total Debt (!) Revenue (!) $158K Gross Margin% (!) 36.0% IPRINCIPALGROUNDFLOOR HISTORY * HISTORICAL AVERAGES Lauren Summers Reportingperiod:three years ending 2020 FOCUS Single Family Loans Funded (!) Loans Repaid (!) Completed Projects PerYear (!) Average Project Revenue (!) 00 Ll_ ----'II On Time Repayment (!) II 1II $158K Average Project Average Total Time (!) Project Costs (!) IN/A '-l 3_m_o_n_th_s ,ll$100.8K

 

PS-803

 

New Microsoft Word Document_binder1_page_08.jpg  Purpose loan PositionTotal oan Amount Repayment Terms Purchase & F_i_rs_t_L_ie_n JII $ 6 ,4 r--'Ba-..l:.l..o_o_n_pay_m_e_n_t-p_ -r inc_i_p_al_a_n_d_i_nte_r_e_s-t-, 1 4 50 BORROWER A & T EnterP-rises of Central Fl orida LLC Al exandria Gordon - principal Renovation L . . returned on repayment!due at maturity. INVEST NOW Click here to view the LRO Agreement FINANCIAL OVERVIEW After Repair Value (ARV) (!) $235,000 TotalProject Costs (!) $197,700 GRADE FACTORS The followingfactors determine in part how the loan was graded: (in descending order of importance) loan To ARV Score (!) 10 Quality of ValuationReport 4 Skin-in-the-Game (!) 10 location 8 Borrower Experience 5 Borrower Commitment (!)1 0% ----$33,250 Skin-in-the Game (!) First l ien oan Cushion (!) VALUATION REPORTS As Complete (ARV) $235,000 Broker's Price Opinion Purchase Price (!) Purchase Date $150,000 12/16/2020 loan ToARV (!) loan To Total Project Cost (!) 70.0% 82.6% Borrower Provided Appraisal Borrower Provided Comps PROPERTY DESCRIPTION View larger map ' c\efcooa f NitiUOt,IJI;)1 Burger King·· S< Address: 4800 OLD OAK TREE COURT,ORLANDO,FL 32808 The Borrower intends to use the l oan proceeds to purchase and renovate the property. Upon compl etion,the ocoeeRd - Borrower intends to sellthe property to repay the Groundfloor loan. Go gle BaltlatiiJ?d I T«S8 Rd INVEST NOW Map d-ata ®2021 Terms of Use Report a map errorClick here to vi ew the LRO Agreement MISCELLANEOUS PROJECT SPECIFIC RISK FACTORS • The Borrower was advanced the money it needed to purchase this property on December 16,2020 by Groundfloor Finance Inc.("Groundfloor;' "we;'"us';or "our") or a wholly-owned subsidiary of Groundfloor.The Borrower is now in possession of the property. If this offering is fully subscribed,Groundfloor willcontinue to administer and service the loan as further described in the Offering Circular. o The renovation of the property may be extensive,and therefore subject to delays and other unexpected issues. o The renovation will require permitting,and permits may not be obtained on time or may be denied. o Please consult the OfferingCircular for further discussion of general risk factors. CLOSING CONOITIONS o Loan is conditioned upon a clean title search and valid title insurance at the time of close. DEVElOPER FEES o GROUNDFLOOR generally charges borrowers between 2% and 6% of the principal amount of the l oan for our services. o GROUNDFLOOR does not take a 'spread' on any part of the interest payments. o Developers may capitalize the cost of closing into the principal amount of their request.These closing costs typically range from $500 to $1500. o Unless otherwise limited by applicable l aw,GROUNDFLOOR will charge a penalty of 2% for any extension made to the borrower. See GROUNDFLOOR 'Fees and Expenses' in the OfferingCircular SEC FiliNG INFORMATION • The seri es of LROs corresponding to this Project are offered pursuant to Post Qualification Amendment No.74 to the Offering Circular dated December 29,2017 (each,as amended and supplemented from time to time),including the documents incorporated by reference therein. You may access and review these documents on the Internal Filings Directory located on our Platform. BORROWER SUMMARY UNLESSNOTED WITHA * 'INFORMATIONBELOW IS SUPPLIED BY THE BORROWER AND ISNOT VERIFIED. BORROWERS REPRESENTAND WARRANT THAT INFORMATION SUPPLIED IS ACCURATE. A & T ENTERPRISES OF CENTR AL FLORIDA LLC DATE OF FORMATION * 08/03/2019 FINANCIAL DATA Reportingdate:12/31/20 PROJECTS / REVENUE Reportingperiod:2020 Total Debt (!) Revenue (!) $114K Gross Margin% (!) 42.11% IPRINCIPALGROUNDFLOOR HISTORY * HISTORICAL AVERAGES Alexandri a Gordon Reportingperiod:three years ending 2020 FOCUS Single Family Loans Funded (!) Loans Repaid (!) Compl eted Projects PerYear (!) Average Project Revenue (!) '-----1 1 II1 II$164.5K On Time Repayment (!) Average Project Average Total Time (!) Project Costs (!) IN/A '-l 12_m_o_n_th_s__,ll$98K

 

PS-804

 

New Microsoft Word Document_binder1_page_09.jpg Pu rchase & F_i_rs_t_L_ie_n JII $200, 110 r-B-'a"ll'-o_o_n pa_y_m_en-t --p--r in_c_i_pal_a_n_d_i_nte_r_e_s-t-, BORROWER BoarmanAcguisition 1LLC Olumide Aladetohun-principal Renovation L . .retu rned on repayment!due at matu rity. INVEST NOW Click here to view the LROAgreement FINANCIAL OVERVIEW After Repair Value (ARV) <:!)$325,000 TotalProject Costs <:!) $222,660 I GRADE FACTORS The followingfactors determine in part how the loan was graded: (in descending order of importance) Loan To ARV Score <:!) 10 - Skin-in-the-Game <:!)10 location8 Borrower Experience 5 Borrower Commitment <:!)1 $22,550 I VALUATION REPORTS 0% ----Skin-in-the Game <:!) First lien LoanCushion <:!) ' As Complete (ARV) $325,000 Broker's Price Opinion Purchase Price <:!) Purchase Date $90,000 12/10/2020 Loan ToARV <:!) Loan To Total Project Cost <:!) 61.6% 89.4% Borrower Provided Appraisal Borrower Provided Comps PROPERTY DESCRIPTION ..,. rUN.C I r"' Address: 2911MOUNT HOLLY STREET,BALTIMORE,MD 21216 The Borrower intends to use the loan proceeds to purchase and renovate the property. Upon completion,the Borrower intends to sellthe property to repay the Groundfloor loan. INVEST NOW Click here to view the LRO Agreement MISCELLANEOUS PROJECT SPECIFIC RISK FACTORS o The Borrower was advanced the money it needed to purchase this property on December 10, 2020 by Groundfloor Finance Inc.("Groundfloor;' "we;·"us;·or "our") or a wholly-owned subsidiary of Groundfloor. The Borrower is now in possession of the property. If this offering is fully subscribed,Groundfloor willcontinue to administer and service the loan as further described in the Offering Circular. o The renovation of the property may be extensive,and therefore subject to delays and other unexpected issues. o The renovation will require permitting,and permits may not be obtained on time or may be denied. o The Borrower has not completed or sold any projects in the past year.As such,the Borrower's average revenue,costs,and margins cannot be calculated. o Please consult the Offering Circular for further discussion of general risk factors. CLOSING CONDITIONS o Loan is conditioned upon a clean title search and valid title insurance at the time of close. DEVELOPER FEES o GROUNDFLOOR generally charges borrowers between 2% and 6% of the principal amount of the loan for our services. o GROUNDFLOOR does not take a 'spread' on any part of the interest payments. o Developers may capitalize the cost of closing into the principal amount of their request.These closing costs typically range from $500 to $1500. o Unless otherwise limited by applicable law,GROUNDFLOOR will charge a penalty of 2% for any extension made to the borrower. See GROUNDFLOOR 'Fees and Expenses' in the OfferingCircular SEC FILING INFORMATION o The series of LROs corresponding to this Project are offered pursuant to Post Qualification Amendment No.74 to the OfferingCircular dated December 29,2017 (each,as amended and supplemented from time to time),including the documents incorporated by reference therein. You may access and review these documents on the Internal Filings Directory located on our Platform. BORROWER SUMMARY UNLESSNOTED WITHA * 'INFORMATIONBELOW IS SUPPLIED BY THE BORROWER AND ISNOT VERIFIED. BORROWERS REPRESENTAND WARRANT THAT INFORMATION SUPPLIED IS ACCURATE. BOARMAN ACQUISITION 1 LLCFINANCI AL DATA Reportingdate:12/31/20 DATE OF FORMATION * 01/16/2019 IPRINCIPAL PROJECTS IREVENUE Reporting period:2020 Olumide AladetohunGROUNDFLOOR HISTORY * HISTORICAL AVERAGES Reporting period:three years ending2020 FOCUS Fix &Fiip Loans Funded <:!) Loans Repaid <:!) Completed Projects PerYear <:!) Average Project Revenue <:!) 00 Ll_ ----'II On Time Repayment <:!) II2 II$14.1K Average Project Average Total Time <:!>Project Costs <:!> IN/A L l 1 2 mon_th_s_--'ll$97.5K

 

PS-805

 

New Microsoft Word Document_binder1_page_10.jpg BORROWER Purchase & ,__ F_ir_s_t_Li_e_n $23 , _JI I ;..=B:..::al-'-'1o:..:.on::.c:_p.:..:a.:..:y.:..:cm:e._n_t pri_nc_i_p_al_a_n_d_i_nte_r_est--, Bubbling Creek Renovations LLC Kofi Coaxum-principal Renovation _ . . returned on repayment/ due at maturity. INVEST NOW Click here to view the LRO Agreement FINANCIAL OVERVIEW TotalCosts$273,130 $331,000 GRADE FACTORS The followingfactors determine in part how the loan was graded: (in descending order of importance) loan To ARV Score G) 10 Quality of Valuation Report4 Skin-in-the-Game G)-10 location8 Borrower Experience 5 Borrower Commitment G) 1 0%----$41,500 Skin-in-the Game G) First li en Loan Cushion G) VALUATION REPORTS As Compl ete (ARV) $331,000 Broker's Price Opinion Purchase Price G) Purchase Date $200,000 12/21/2020 Loan ToARV G) Loan To Total Project Cost G) 70.0% 84.4% Borrower Provided Appraisal Borrower Provided Comps PROPERTY DESCRIPTION r.:'\ View larger map -"1> .";:>.' .1 o.,,•••w..,' Preferred Roofing Supply Q North AUantaOrE Address: 4795 DARLENE WAY,TUCKER,GA 30084 The Borrower intends to use the loan proceeds to purchase and renovate the property. Upon compl etion,the Borrower intends to sellthe property to repay the Groundfloor loan. INVEST NOW Car-----·•--f!!o. gle Map data ®2021 Goog!e Terms of Use · Report a map errorClick here to view the LRO Agreement MISCELLANEOUS PROJECT SPECIFIC RISK FACTORS • The Borrower was advanced the money it needed to purchase this property on December 21,2020 by Groundfloor Finance Inc.("Groundfloor;·"we·, "us, or "our") or a wholly-owned subsidiary of Groundfloor.The Borrower is now in possession of the property. If this offering is fully subscribed,Groundfloor willcontinue to administer and service the loan as further described in the Offering Circular. • The renovation of the property may be extensive,and therefore subject to delays and other unexpected issues. • The renovation will require permitting,and permits may not be obtained on time or may be denied. • The Borrower has not compl eted or sold any projects in the past year.As such,the Borrower's average revenue,costs, and margins cannot be calculated. • Please consult the OfferingCircul ar for further discussion of general risk factors. CLOSING CONDITIONS • oan is conditioned upon a clean title search and valid title insurance at the time of close. DEVElOPER FEES • GROUNDFLOOR generally charges borrowers between 2% and 6% of the principal amount of the loan for our services. • GROUNDFLOOR does not take a 'spread' on any part of the interest payments. • Developers may capitalize the cost of closing into the principal amount of their request.These closing costs typically range from $500 to $1500. • Unless otherwise limited by applicable l aw,GROUNDFLOOR will charge a penalty of 2% for any extension made to the borrower. See GROUNDFLOOR 'Fees and Expenses' in the OfferingCircular SEC FiliNG INFORMATION • The seri es of LROs corresponding to this Project are offered pursuant to Post Qualification Amendment No.74 to the Offering Circular dated December 29,2017 (each,as amended and supplemented from time to time),including the documents incorporated by reference therein. You may access and review these documents on the Internal Filings Directory located on our Platform. BORROWER SUMMARY UNLESSNOTED WITHA * 'INFORMATIONBELOW IS SUPPLIED BY THE BORROWER AND ISNOT VERIFIED. BORROWERS REPRESENTAND WARRANT THAT INFORMATION SUPPLIED IS ACCURATE. BUBBLING CREEK RENOVATIONS LLCFINANCI AL DATA Reportingdate:12/31/20 DATE OF FORMATION * 07/20/2020 PROJECTS I REVENUE Reporting period:2020 IPRINCIPAL GROUNDFLOOR HISTORY * HISTORICAL AVERAGES KofiCoaxum Reportingperiod:three years ending 2020 FOCUS Single Family Loans Funded G) loans Repaid G) Compl eted Projects PerYear G) Average Project Revenue G> Ll0-----'11 ° On Time Repayment G> IN/A II2 II$361K Average Project Average Total --'II $280K Ll4_m_o_nt_hs_

 

PS-806

 

New Microsoft Word Document_binder1_page_11.jpg BORROWER Purpose Purchase & loan Position Total oan Amount Repayment Terms Balloon payment - principaland interest Win Win Real Estate Solutions, LLC ShariNiemann - principal Renovation '----F i_rs_t_L_ie_n _,ll $236,570 INVEST NOW returned on repayment/ due at maturity. Click here to view the LRO Agreement FINANCIAL OVERVIEW After Value TotalProject Costs Q) $247,300 $338,000 I GRADE FACTORS The followingfactors determine in part how the loan was graded: (in descending order of importance) loan To ARV Score Q) 10 Quality of ValuationReport 4 Skin-in-the-Game Q) II10 location 8 Borrower Experience 5 Borrower Commitment Q) 1 0%----$10,730 Skin-in-the Game Q) First li en loanCushion Q) VALUATION REPORTS As Complete (ARV) $338,000 Broker's Price Opinion Purchase Price Q) Purchase Date $175,000 12/21/2020 loan ToARV Q) loan To Total Project Cost Q) 70.0% 95.5% Borrower Provided Appraisal Borrower Provided Comps PROPERTY DESCRIPTION >ir ·· Vie' w larger map 'ower Trail Address: 961HIGHTOWER TRAIL,OXFORD,GA 30054 The Borrower intends to use the loan proceeds to purchase and renovate the property. Upon completion,the Borrower intends to sellthe property to repay the Groundfloor loan. INVEST NOW 'Hight Go -gle Map data ®2021 Terms of Use Report a map error Click here to view the LRO Agreement MISCELLANEOUS PROJECT SPECIFIC RISK FACTORS • The Borrower was advanced the money it needed to purchase this property on December 21,2D20 by Groundfloor Finance Inc.("Groundfloor;·"we';"us';or "our") or a wholly-owned subsidiary of Groundfloor.The Borrower is now in possession of the property. If this offering is fully subscribed,Groundfloor willcontinue to administer and service the loan as further described in the OfferingCircular. • The renovation of the property may be extensive,and therefore subject to delays and other unexpected issues. • The renovation will require permitting,and permits may not be obtained on time or may be denied. • Please consult the OfferingCircular for further discussion of general risk factors. CLOSING CONOITIONS • Loan is conditioned upon a clean title search and valid title insurance at the time of close. DEVElOPER FEES • GROUNDFLOOR generally charges borrowers between 2% and 6% of the principal amount of the loan for our services. • GROUNDFLOOR does not take a 'spread' on any part of the interest payments. • Developers may capitalize the cost of closing into the principal amount of their request.These closing costs typically range from $50D to $1500. • Unless otherwise limited by applicable law,GROUNDFLOOR will charge a penalty of 2% for any extension made to the borrower. See GROUNDFLOOR 'Fees and Expenses' in the OfferingCircular SEC FiliNG INFORMATION • The series of LROs corresponding to this Project are offered pursuant to Post Qualification Amendment No.74 to the OfferingCircular dated December 29,2017 (each,as amended and supplemented from time to time),including the documents incorporated by reference therein. You may access and review these documents on the Internal Filings Directory located on our Platform. BORROWER SUMMARY UNLESSNOTED WITHA *,INFORMATIONBELOW IS SUPPLIED BY THE BORROWER AND ISNOT VERIFIED. BORROWERS REPRESENTAND WARRANT THAT INFORMATION SUPPLIED IS ACCURATE. WIN WIN REAL ESTATE SOLUTIONS,LLCFINANCIAL DATA Reportingdate:12/31/20 DATE OF FORMATION * 04/05/2018 PROJECTS I REVENUE Reporting period:2020 Gross Margin% Q) 24.0% IPRINCIPALGROUNDFLOOR HISTORY * HISTORICAL AVERAGES Shari Niemann Reporting period:three years ending2020 FOCUS Single Family Loans Funded Q)Loans Repaid Q) Completed Projects PerYear Q) Average Project Revenue Q) L...l0 ,II0 On Time Repayment Q) IN/A II Average Project Average Total Time Q)Project Costs Q) Ll 4_m_o_n_ht_s _ JII$177.4K

 

PS-807

 

New Microsoft Word Document_binder1_page_12.jpg BORROWER Purpose Purchase & loan Position Total oan Amount Repayment Terms Balloon payment - principal and interest METRO HOME INNOVATI ONS, LLC Jaunta Stinnett-principal Renovation '---Fi_rs_t_L_i e_n _,ll $244,520 INVEST NOW returned on repayment/ due at maturity. Click here to view the LRO Agreement FINANCIAL OVERVIEW AfterValue TotalCosts$287,770 $350,000 I GRADE FACTORS The followingfactors determine in part how the loan was graded: (in descending order of importance) loan To ARV Score (2) 10 Quality of ValuationReport 4 Skin-in-the-Game (2)-10 location8 Borrower Experience 5 Borrower Commitment (2)1 0%----$43,250 Skin-in-the Game (2) First li en loanCushion (2) I VALUATION REPORTS As Complete (ARV) $350,000 Broker's Price Opinion Purchase Price (2) Purchase Date $155,000 12/14/2020 loan To ARV (2) loan To Total Project Cost (2) 69.9% 84.4% Borrower Provided Appraisal Borrower Provided Comps PROPERTY DESCRIPTION View larger map ' r ? Address: 1771DODSON DRIVE SOUTHWEST,ATLANTA, GA 30311 The Borrower intends to use the loan proceeds to purchase and renovate the property. Upon completion,the Borrower intends to sell the property to repay the Groundfloor loan. INVEST NOW \Go e,. -o Map data ®2021 Goog!e ' Terms of Use Report a map error Click here to view the LRO Agreement MISCELLANEOUS PROJECT SPECIFIC RISK FACTORS • The Borrower was advanced the money it needed to purchase this property on December 14, 2020 by Groundfloor Finance Inc.("Groundfloor;' "we;·"us;'or "our") or a wholly-owned subsidiary of Groundfloor. The Borrower is now in possession of the property. If this offering is fully subscribed,Groundfloor will continue to administer and service the loan as further described in the OfferingCircular. • The renovation of the property may be extensive,and therefore subject to delays and other unexpected issues. • The renovation will require permitting,and permits may not be obtained on time or may be denied. • Please consult the Offering Circular for further discussion of general risk factors. CLOSING CONOITIONS • Loan is conditioned upon a clean title search and valid title insurance at the time of close. DEVELOPER FEES • GROUNDFLOOR generally charges borrowers between 2% and 6% of the principal amount of the loan for our services. • GROUNDFLOOR does not take a 'spread' on any part of the interest payments. • Developers may capitalize the cost of closing into the principal amount of their request.These closing costs typically range from $500 to $1500. • Unless otherwise limited by applicable law,GROUNDFLOOR will charge a penalty of 2% for any extension made to the borrower. See GROUNDFLOOR 'Fees and Expenses' in the OfferingCircular SEC FILING INFORMATION • The series of LROs corresponding to this Project are offered pursuant to Post Qualification Amendment No. 74 to the OfferingCircular dated December 29,2017 (each,as amended and supplemented from time to time),including the documents incorporated by reference therein.You may access and review these documents on the Internal Filings Directory located on our Platform. BORROWER SUMMARY UNLESSNOTED WITHA *.INFORMATIONBELOW IS SUPPLIED BY THE BORROWER AND ISNOT VERIFIED. BORROWERS REPRESENTAND WARRANT THAT INFORMATION SUPPLIED IS ACCURATE. METRO HOME INNOVATIONS,LLCFINANCIAL DATA Reportingdate:12/31/20 DATE OF FORMATION * 08/20/2015 PROJECTS / REVENUE Reporting period:2020 Gross Margin% (2) 30.0% Revenue (2) $483K IPRINCIPAL GROUNDFLOOR HISTORY * HISTORICAL AVERAGES Jaunta Stinnett Reportingperiod:three years ending 2020 FOCUS Loans Funded (2)Loans Repaid (2) Completed Projects PerYear (2) Average Project Revenue (2) L.l _0 ,II0 On Time Repayment (2) IN/A II 1II $229.3K Average Project Average Total Time (2) Project Costs (2) Ll15 mon_th_s_--'ll$165.5K

 

PS-808

 

New Microsoft Word Document_binder1_page_13.jpg  FINANCIAL OVERVIEW TotalProject Costs Q) $924,900 $925,000 GRADE FACTORS The followingfactors determine in part how the loan was graded: (in descending order of importance) Loan To ARV Score Q) 10 Quality of Valuation Report 4 Skin-in-the-Game Q) 10 Location 8 Borrower Experience-5 Borrower Commitment Q) 1 0% ----Skin-in-the Game Q) First Lien Loan Cushion Q) VALUATION REPORTS As Complete (ARV) $925,000 Broker's Price Opinion Purchase Price Q) Purchase Date $920,000 12/15/2020 Loan ToARV Q) Loan To Total Project Cost Q) 80.8% 82.2% Borrower Provided Appraisal Borrower Provided Camps PROPERTY DESCRIPTION a1 View larger map :o,e 0 (3 c:V, t-' Address: 8620 CANAL DRIVE #2,JONESBORO,GA 30236 lliber 'C s Creek "' The Borrower intends to use the loan proceeds to purchase and renovate the property. Upon completion,the Borrower intends to sellthe property to repay the Groundfloor loan. INVEST NOW Go gle -----Map data ®2021 Terms of Use Report a map error Click here to view the LRO Agreement MISCELLANEOUS PROJECT SPECIFIC RISK FACTORS • The Borrower was advanced the money it needed to purchase this property on December 15, 2020 by Groundfloor Finance Inc.("Groundfloor;·"we';"us';or "our") or a wholly-owned subsidiary of Groundfloor.The Borrower is now in possession of the property. If this offering is fully subscribed,Groundfloor willcontinue to administer and service the loan as further described in the Offering Circular. • The renovation of the property may be extensive,and therefore subject to delays and other unexpected issues. • The renovation will require permitting,and permits may not be obtained on time or may be denied. • There will be multiple loans on this project,each representing subsequent draws. The loans will range from $240,000 to $260,000.The Financial Overview box represents the aggregate amount of all loans to be secured by this property,giving a complete financial picture of the project. • This loan represents the second draw for the construction project and is secured by an individual note. • The event of default on one Groundfloor note secured by this property will trigger default on all Groundfloor notes secured by this property. All LRO holders investing in LROs corresponding to notes secured by this property share the same priority in any recovery and recovered proceeds will be distributed on a pro-rata basis. • The Borrower has not completed or sold any projects in the past year.As such,the Borrower's average revenue,costs,and margins cannot be calculated. • The Principal has not yet completed or sold any projects.As such,the Principal's average revenue,costs,and margins cannot be calculated. • Please consult the OfferingCircular for further discussion of general risk factors. CLOSING CONDITIONS • Loan is conditioned upon a clean title search and valid title insurance at the time of close. DEVELOPER FEES • GROUNDFLOOR generally charges borrowers between 2% and 6% of the principal amount of the loan for our services. • GROUNDFLOOR does not take a 'spread' on any part of the interest payments. • Developers may capitalize the cost of closing into the principal amount of their request.These closing costs typically range from $500 to $1500. • Unless otherwise limited by applicable law,GROUNDFLOOR will charge a penalty of 2% for any extension made to the borrower. See GROUNDFLOOR 'Fees and Expenses' in the OfferingCircular SEC FILING INFORMATION • The series of LROs corresponding to this Project are offered pursuant to Post Qualification Amendment No.74 to the OfferingCircular dated December 29,2017 (each,as amended and supplemented from time to time),including the documents incorporated by reference therein. You may access and review these documents on the Internal Filings Directory located on our Platform. BORROWER SUMMARY UNLESSNOTEDWITHA *'INFORMATIONBELOW IS SUPPLIED BY THE BORROWERAND ISNOT VERIFIED. BORROWERS REPRESENTAND WARRANT THAT INFORMATION SUPPLIED IS ACCURATE. THE GURU OF ABS CORPORATION FINANCIAL DATA Reportingdate:12/31/20 DATE OF FORMATION * 03/04/2018 PROJECTS /REVENUE Reportingperiod:2020 Total Debt Q) Revenue Q) IPRINCIPAL GROUNDFLOOR HISTORY * HISTORICAL AVERAGES DaShaun Johnson Reportingperiod:three years ending2020 FOCUS 3-5 Year Refinance Loans Funded Q)Loans Repaid Q) Completed Projects PerYear Q) Average Project Revenue Q) '------1 o JII o IIN/AI '------1 J On Time Repayment Q) IN/A Average Project Average Total Time Q)Project Costs Q) IN_I_A I INM

 

PS-809

 

New Microsoft Word Document_binder1_page_14.jpg  FINANCIAL OVERVIEW TotalProject Costs Q) $924,900 $925,000 GRADE FACTORS The followingfactors determine in part how the loan was graded: (in descending order of importance) Loan To ARV Score Q) 10 Quality of Valuation Report 4 Skin-in-the-Game Q) 10 Location 8 Borrower Experience-5 Borrower Commitment Q) 1 0% ----Skin-in-the Game Q) First Lien Loan Cushion Q) VALUATION REPORTS As Complete (ARV) $925,000 Broker's Price Opinion Purchase Price Q) Purchase Date $920,000 12/15/2020 Loan ToARV Q) Loan To Total Project Cost Q) 80.8% 82.2% Borrower Provided Appraisal Borrower Provided Camps PROPERTY DESCRIPTION a1 View larger map :o,e 0 (3 c:V, t-' Address: 8620 CANAL DRIVE #3,JONESBORO,GA 30236 lliber 'C s Creek "' The Borrower intends to use the loan proceeds to purchase and renovate the property. Upon completion,the Borrower intends to sellthe property to repay the Groundfloor loan. INVEST NOW Go gle -----Map data ®2021 Terms of Use Report a map error Click here to view the LRO Agreement MISCELLANEOUS PROJECT SPECIFIC RISK FACTORS • The Borrower was advanced the money it needed to purchase this property on December 15, 2020 by Groundfloor Finance Inc.("Groundfloor;·"we';"us';or "our") or a wholly-owned subsidiary of Groundfloor.The Borrower is now in possession of the property. If this offering is fully subscribed,Groundfloor willcontinue to administer and service the loan as further described in the Offering Circular. • The renovation of the property may be extensive,and therefore subject to delays and other unexpected issues. • The renovation will require permitting,and permits may not be obtained on time or may be denied. • There will be multiple loans on this project,each representing subsequent draws. The loans will range from $240,000 to $260,000.The Financial Overview box represents the aggregate amount of all loans to be secured by this property,giving a complete financial picture of the project. • This loan represents the third draw for the construction project and is secured by an individual note. • The event of default on one Groundfloor note secured by this property will trigger default on all Groundfloor notes secured by this property. All LRO holders investing in LROs corresponding to notes secured by this property share the same priority in any recovery and recovered proceeds will be distributed on a pro-rata basis. • The Borrower has not completed or sold any projects in the past year.As such,the Borrower's average revenue,costs,and margins cannot be calculated. • The Principal has not yet completed or sold any projects.As such,the Principal's average revenue,costs,and margins cannot be calculated. • Please consult the OfferingCircular for further discussion of general risk factors. CLOSING CONDITIONS • Loan is conditioned upon a clean title search and valid title insurance at the time of close. DEVELOPER FEES • GROUNDFLOOR generally charges borrowers between 2% and 6% of the principal amount of the loan for our services. • GROUNDFLOOR does not take a 'spread' on any part of the interest payments. • Developers may capitalize the cost of closing into the principal amount of their request.These closing costs typically range from $500 to $1500. • Unless otherwise limited by applicable law,GROUNDFLOOR will charge a penalty of 2% for any extension made to the borrower. See GROUNDFLOOR 'Fees and Expenses' in the OfferingCircular SEC FILING INFORMATION • The series of LROs corresponding to this Project are offered pursuant to Post Qualification Amendment No.74 to the OfferingCircular dated December 29,2017 (each,as amended and supplemented from time to time),including the documents incorporated by reference therein. You may access and review these documents on the Internal Filings Directory located on our Platform. BORROWER SUMMARY UNLESSNOTEDWITHA *'INFORMATIONBELOW IS SUPPLIED BY THE BORROWERAND ISNOT VERIFIED. BORROWERS REPRESENTAND WARRANT THAT INFORMATION SUPPLIED IS ACCURATE. THE GURU OF ABS CORPORATION FINANCIAL DATA Reportingdate:12/31/20 DATE OF FORMATION * 03/04/2018 PROJECTS /REVENUE Reportingperiod:2020 Total Debt Q) Revenue Q) IPRINCIPAL GROUNDFLOOR HISTORY * HISTORICAL AVERAGES DaShaun Johnson Reportingperiod:three years ending2020 FOCUS 3-5 Year Refinance Loans Funded Q)Loans Repaid Q) Completed Projects PerYear Q) Average Project Revenue Q) '------1 o JII o IIN/AI '------1 J On Time Repayment Q) IN/A Average Project Average Total Time Q)Project Costs Q) IN_I_A I INM

 

PS-810

 

New Microsoft Word Document_binder1_page_15.jpg  FINANCIAL OVERVIEW TotalProject Costs Q) $924,900 $925,000 GRADE FACTORS The followingfactors determine in part how the loan was graded: (in descending order of importance) Loan To ARV Score Q) 10 Quality of Valuation Report 4 Skin-in-the-Game Q) 10 Location 8 Borrower Experience-5 Borrower Commitment Q) 1 0% ----Skin-in-the Game Q) First Lien Loan Cushion Q) VALUATION REPORTS As Complete (ARV) $925,000 Broker's Price Opinion Purchase Price Q) Purchase Date $920,000 12/15/2020 Loan ToARV Q) Loan To Total Project Cost Q) 80.8% 82.2% Borrower Provided Appraisal Borrower Provided Camps PROPERTY DESCRIPTION a1 View larger map :o,e 0 (3 c:V, t-' Address: 8620 CANAL DRIVE #1,JONESBORO,GA 30236 lliber 'C s Creek "' The Borrower intends to use the loan proceeds to purchase and renovate the property. Upon completion,the Borrower intends to sellthe property to repay the Groundfloor loan. INVEST NOW Go gle -----Map data ®2021 Terms of Use Report a map error Click here to view the LRO Agreement MISCELLANEOUS PROJECT SPECIFIC RISK FACTORS • The Borrower was advanced the money it needed to purchase this property on December 15, 2020 by Groundfloor Finance Inc.("Groundfloor;·"we';"us';or "our") or a wholly-owned subsidiary of Groundfloor.The Borrower is now in possession of the property. If this offering is fully subscribed,Groundfloor willcontinue to administer and service the loan as further described in the Offering Circular. • The renovation of the property may be extensive,and therefore subject to delays and other unexpected issues. • The renovation will require permitting,and permits may not be obtained on time or may be denied. • There will be multiple loans on this project,each representing subsequent draws. The loans will range from $240,000 to $260,000.The Financial Overview box represents the aggregate amount of all loans to be secured by this property,giving a complete financial picture of the project. • This loan represents the first draw for the construction project and is secured by an individual note. • The event of default on one Groundfloor note secured by this property will trigger default on all Groundfloor notes secured by this property. All LRO holders investing in LROs corresponding to notes secured by this property share the same priority in any recovery and recovered proceeds will be distributed on a pro-rata basis. • The Borrower has not completed or sold any projects in the past year.As such,the Borrower's average revenue,costs,and margins cannot be calculated. • The Principal has not yet completed or sold any projects.As such,the Principal's average revenue,costs,and margins cannot be calculated. • Please consult the OfferingCircular for further discussion of general risk factors. CLOSING CONDITIONS • Loan is conditioned upon a clean title search and valid title insurance at the time of close. DEVELOPER FEES • GROUNDFLOOR generally charges borrowers between 2% and 6% of the principal amount of the loan for our services. • GROUNDFLOOR does not take a 'spread' on any part of the interest payments. • Developers may capitalize the cost of closing into the principal amount of their request.These closing costs typically range from $500 to $1500. • Unless otherwise limited by applicable law,GROUNDFLOOR will charge a penalty of 2% for any extension made to the borrower. See GROUNDFLOOR 'Fees and Expenses' in the OfferingCircular SEC FILING INFORMATION • The series of LROs corresponding to this Project are offered pursuant to Post Qualification Amendment No.74 to the OfferingCircular dated December 29,2017 (each,as amended and supplemented from time to time),including the documents incorporated by reference therein. You may access and review these documents on the Internal Filings Directory located on our Platform. BORROWER SUMMARY UNLESSNOTEDWITHA *'INFORMATIONBELOW IS SUPPLIED BY THE BORROWERAND ISNOT VERIFIED. BORROWERS REPRESENTAND WARRANT THAT INFORMATION SUPPLIED IS ACCURATE. THE GURU OF ABS CORPORATION FINANCIAL DATA Reportingdate:12/31/20 DATE OF FORMATION * 03/04/2018 PROJECTS /REVENUE Reportingperiod:2020 Total Debt Q) Revenue Q) IPRINCIPAL GROUNDFLOOR HISTORY * HISTORICAL AVERAGES DaShaun Johnson Reportingperiod:three years ending2020 FOCUS 3-5 Year Refinance Loans Funded Q)Loans Repaid Q) Completed Projects PerYear Q) Average Project Revenue Q) '------1 o JII o IIN/AI '------1 J On Time Repayment Q) IN/A Average Project Average Total Time Q)Project Costs Q) IN_I_A I INM

 

PS-811

 

New Microsoft Word Document_binder1_page_16.jpg Rate Purpose loan ToARV Loan AmountInvestors Loan Position Total oan Amount Repayment Terms New F_i_rs_t_L_ie_n JII $25 , 1960 ,--:8a..:l-...ol_o_n_p_ay_m_en__t-p--r inc_i_p_al_a_n_d_i_nte_r_e_s-t-, BORROWER Construction L . . returned on repayment/ due at maturity. 4 Walls Under A Roof LLC Eric Shepherd-principalINVEST NOW Click here to view the LRO Agreement FINANCIAL OVERVIEW After RepairValue (ARV) CD$388,000 TotalProject Costs CD$280,060 GRADE FACTORS The following factors determine in part how the loan was graded: (in descendingorder of importance) Loan To ARV Score CD 10 - Skin-in-the-Game CD10 location8 Borrower Experience 5 Borrower Commi tment CD 1 0%----$28,100 Skin-in-the Game CD First li en Loan Cushion CD VALUATION REPORTS As Complete (ARV) $388,000 Broker's Price Opinion Purchase Price CD Purchase Date $149,999 10/28/2020 Loan To ARV CD Loan To Total Project Cost CD 64.9% 89.7% Borrower Provided Appraisal Borrower Provided Comps PROPERTY DESCRIPTION ; View larger map "0 ,. ;:: 'I! "![ !a DneSISW G..gle UttloStSW c :E Address: 224 ORMOND STREET SOUTHWEST,UNIT A,ATLANTA,GA 3D315 The Borrower intends to use the loan proceeds to complete a new construction.Upon completion,the Borrower intends to sellthe property to repay the Groundfloor loan. INVEST NOW (/} oC•... Map data ®2021 : Terms of:Use Report a map error Click here to view the LRO Agreement PROPERTY PHOTOS MISCELLANEOUS PROJECT SPECIFIC RISK FACTORS • The Borrower was advanced the money it needs to begin construction of this property on December 11,2020 by Groundfloor Finance Inc.("Groundfloor";we; "us or "our") or a wholly-owned subsidiary of Groundfloor. The Borrower willhas begun construction of the property.If this offering is fully subscribed, Groundfloor will continue to administer and service the loan as further described in the OfferingCircular. • The construction of the property may be extensive,and therefore subject to delays and other unexpected issues. • The construction willrequire permitting, and permits may not be obtained on time or may be denied. • There is no existing structure on this property,or if there is,it will be demolished,and a new structure built in its place. • This is a collateral loan secured by two properties,224 Ormond Street Southwest, Unit A. Atlanta,GA,30315 and 224 Ormond Street Southwest,Unit B,Atlanta, GA.30315.The ARV represents the combined value of allproperties. • The event of default on one Groundfloor note secured by this property will trigger default on all Groundfloor notes secured by this property. All LRO holders investingin LROs corresponding to notes secured by this property share the same priority in any recovery and recovered proceeds will be distributed on a pro-rata basis. • Please consult the Offering Circular for further discussion of general risk factors. CLOSING CONDITIONS • Loan is conditioned upon a clean title search and valid title insurance at the time of close. DEVELOPER FEES • GROUNDFLOOR generally charges borrowers between 2% and 6% of the principal amount of the loan for our services. • GROUNDFLOOR does not take a 'spread' on any part of the interest payments. • Developers may capitalize the cost of closing into the principal amount of their request.These closing costs typically range from $500 to $1500. • Unless otherwise limited by applicable law,GROUNDFLOOR will charge a penalty of 2% for any extension made to the borrower. See GROUNDFLOOR 'Fees and Expenses' in the OfferingCircular SEC FILING INFORMATION • The series of LROs corresponding to this Project are offered pursuant to Post Qualification Amendment No.74 to the OfferingCircular dated December 29,2017 (each,as amended and supplemented from time to time),including the documents incorporated by reference therein. You may access and review these documents on the Internal Filings Directory located on our Platform. BORROWER SUMMARY UNLESSNOTED WITHA *,INFORMATIONBELOW IS SUPPLIED BY THE BORROWERAND ISNOT VERIFIED. BORROWERS REPRESENTAND WARRANT THAT INFORMATION SUPPLIED IS ACCURATE. 4 WALLS UNDER A ROOF LLCFINANCI AL DATA Reportingdate:12/31/20 PROJECTS I REVENUE Reportingperiod:2020 DATE OF FORMATION * 01/24/2015 Gross Margin% CD 63.0% Revenue CD $411K IPRINCIPAL Eric Shepherd GROUNDFLOOR HISTORY * HISTORICAL AVERAGES Reportingperiod:three years ending 2020 FOCUS Single Family Loans Funded CDLoans Repaid CD Completed Projects PerYear CD Average Project Revenue CD Ll0------'11° On Time Repayment CD IN/A II3 II$216K Average Project Average Total --'II $175K Ll7_m_o_nt_hs_

 

PS-812

 

New Microsoft Word Document_binder1_page_17.jpg Rate Purpose loan ToARV loan AmountInvestors loan PositionTotal oan Amount Repayment Terms New F_i_rs_t_L_ie_n JII $25 , 1960 r--'Ba-"ll'-o_o_n_pa_y_m_en-t --p-r-in_c_i_p_al_a_n_d_i_n-et_r_e_s-t-, BORROWER 4 Walls Under A Roof Eric Shepherd - principal Construction L . .retu rned on repayme nt/ due at matu rity. INVEST NOW Click here to view the LRO Agreement FINANCIAL OVERVIEW After Repair Value (ARV) CD$388,000 TotalProject Costs CD$280,060 GRADE FACTORS The followingfactors determine in part how the loan was graded: (in descending order of importance) loan To ARV Score CD 10 - Skin-in-the-Game CD10 location8 Borrower Experience 5 Borrower Commitment CD 1 0% ----$28,100 Skin-in-the Game CD First li en oan Cushion CD VALUATION REPORTS As Complete (ARV) $388,000 Broker's Price Opinion Purchase Price CD Purchase Date $150,000 10/28/2020 Loan To ARV CD Loan To Total Project Cost CD 64.9% 89.7% Borrower Provided Appraisal Borrower Provided Comps PROPERTY DESCRIPTION ; View larger map I chool Address: 224 ORMOND STREET SOUTHWEST,UNIT B,ATLANTA, GA 3D315 The Borrower intends to use the loan proceeds to complete a new construction.Upon completion,the Borrower intends to sellthe property to repay the Groundfloor loan. ,. n 0 \C "i[ " (/) Oo.aneSI SW c Ggle,,,... INVEST NOW Map data ®2021 :Terms of-Use R e:port a map error Click here to view the LRO Agreement PROPERTY PHOTOS MISCELLANEOUS PROJECT SPECIFIC RISK FACTORS • The Borrower was advanced the money it needs to begin construction of this property on December 11,2020 by Groundfloor Finance Inc.("Groundfloor "we; "uso; r "our") or a wholly-owned subsidiary of Groundfloor. The Borrower willhas begun construction of the property.If this offering is fully subscribed, Groundfloor will continue to administer and service the loan as further described in the OfferingCircular. • The construction of the property may be extensive,and therefore subject to delays and other unexpected issues. • The construction willrequire permitting, and permits may not be obtained on time or may be denied. • There is no existing structure on this property,or if there is,it will be demolished,and a new structure built in its place. • This is a collateral loan secured by two properties,224 Ormond Street Southwest, Unit A,Atlanta,GA,30315 and 224 Ormond Street Southwest, Unit B,Atlanta, GA,30315.The ARV represents the combined value of allproperties. • The event of default on one Groundfloor note secured by this property will trigger default on all Groundfloor notes secured by this property. All LRO holders investing in LROs corresponding to notes secured by this property share the same priority in any recovery and recovered proceeds will be distributed on a pro-rata basis. • Please consult the OfferingCircular for further discussion of general risk factors. CLOSING CONOITIONS • Loan is conditioned upon a clean title search and valid title insurance at the time of close. DEVElOPER FEES • GROUNDFLOOR generally charges borrowers between 2% and 6% of the principal amount of the loan for our services. • GROUNDFLOOR does not take a 'spread' on any part of the interest payments. • Developers may capitalize the cost of closing into the principal amount of their request.These closing costs typically range from $500 to $1500. • Unless otherwise limited by applicable law,GROUNDFLOOR will charge a penalty of 2% for any extension made to the borrower. See GROUNDFLOOR 'Fees and Expenses' in the OfferingCircular SEC FiliNG INFORMATION • The series of LROs corresponding to this Project are offered pursuant to Post Qualification Amendment No.74 to the OfferingCircular dated December 29,2017 (each,as amended and supplemented from time to time),including the documents incorporated by reference therein. You may access and review these documents on the Internal Filings Directory located on our Platform. BORROWER SUMMARY UNLESSNOTED WITHA *,INFORMATIONBELOW IS SUPPLIED BY THE BORROWERAND ISNOT VERIFIED. BORROWERS REPRESENTAND WARRANT THAT INFORMATION SUPPLIED IS ACCURATE. 4 WALLS UNDER A ROOF FINANCIAL DATA Reportingdate:12/31/20 PROJECTS I REVENUE Reportingperiod:2020 DATE OF FORMATION * 10/11/2020 Gross Margin% CD 63.0% Revenue CD $411K IPRINCIPAL Eric ShepherdGROUNDFLOOR HISTORY * HISTORICAL AVERAGES Reportingperiod:three years ending2020 FOCUS Single Family Loans Funded CDLoans Repaid CD Completed Projects Per Year CD Average Project Revenue CD 0 On Time Repayment CD IN/A II3 II$216K Average Project Average Total Time CDProject Costs CD Ll ?_m_o_n_th_s _--'11$175K

 

PS-813

 

New Microsoft Word Document_binder1_page_18.jpg RateProjected Termloan ToARV loan AmountInvestors Purpose loan Position Total oan AmountRepayment Terms BORROWER Purchase & ,__ F_i_rs_t_L_ie_n ,ll $25 , 6 860 ,..B=:a...:.cl.l:o.:o. =.:n.:..p..:.:a.:y.:.:m.:.::.e._n_-t--p-r-in_c_i_p-a_a_n_d_i_n-et_r_e_s-t-, RaY-Home Solutions,LLC Kendrick Ray-principal Renovation _ . . returned on repayment/ due at maturity. INVEST NOW Click here to view the LRO Agreement FINANCIAL OVERVIEW After Value TotalProject Costs (!} $302,360 $390,000 I GRADE FACTORS The followingfactors determine in part how the loan was graded: (in descending order of importance) Loan To ARV Score (!) 10 Quality of ValuationReport4 Skin-in-the-Game (!} -10 location8 Borrower Experience 5 Borrower Commitment (!} 1 0% ----$45,500 Skin-in-the Game (!) First lien Loan Cushion (!} I VALUATION REPORTS As Complete (ARV) $390,000 Broker's Price Opinion Purchase Price (!} Purchase Date $182,990 12/15/2020 Loan ToARV (!} Loan To Total Project Cost (!} 65.9% 84.4% Borrower Provided Appraisal Borrower Provided Comps PROPERTY DESCRIPTION '". •.f'. > ---... o" M 0 UN T A IN U>dd st sw Bridges Ave SW Nrnont Or SW Lanvale Address: 1423 LANVALE DRIVE SOUTHWEST,ATLANTA, GA 30310 The Borrower intends to use the l oan proceeds to purchase and renovate the property. Upon compl etion,the 1423 Drive Southwest 'Lynfotd Dr SW Borrower intends to sellthe property to repay the Groundfloor loan. INVEST NOW sw AV!lll Ave SW Avon Av .; o {!?O <f e "'Mapdata ®2021 Terms of Use R eport a map errorClick here to view the LRO Agreement MISCELLANEOUS PROJECT SPECIFIC RISK FACTORS • The Borrower was advanced the money it needed to purchase this property on December 15, 2020 by Groundfloor Finance Inc.("Groundfloor ·"we;·"us;·or "our") or a wholly-owned subsidiary of Groundfloor. The Borrower is now in possession of the property. If this offering is fully subscribed,Groundfloor willcontinue to administer and service the loan as further described in the Offering Circular. • The renovation of the property may be extensive,and therefore subject to delays and other unexpected issues. • The renovation will require permitting,and permits may not be obtained on time or may be denied. • Please consult the Offering Circul ar for further discussion of general risk factors. CLOSING CONOITIONS • Loan is conditioned upon a clean title search and valid title insurance at the time of close. DEVELOPER FEES • GROUNDFLOOR generally charges borrowers between 2% and 6% of the principal amount of the l oan for our services. • GROUNDFLOOR does not take a 'spread' on any part of the interest payments. • Developers may capitalize the cost of closing into the principal amount of their request.These closing costs typically range from $500 to $1500. • Unless otherwise limited by applicable l aw,GROUNDFLOOR will charge a penalty of 2% for any extension made to the borrower. See GROUNDFLOOR 'Fees and Expenses' in the Offering Circular SEC FILING INFORMATION • The seri es of LROs corresponding to this Project are offered pursuant to Post Qualification Amendment No. 74 to the Offering Circular dated December 29,2017 (each,as amended and supplemented from time to time),including the documents incorporated by reference therein.You may access and review these documents on the Internal Filings Directory located on our Platform. BORROWER SUMMARY UNLESSNOTED WITHA *,INFORMATIONBELOW IS SUPPLIED BY THE BORROWER AND ISNOT VERIFIED. BORROWERS REPRESENTAND WARRANT THAT INFORMATION SUPPLIED IS ACCURATE. RAY HOME SOLUTIONS, LLCFINANCIAL DATA Reportingdate:12/31/20 DATE OF FORMATION * 03/15/2019 PROJECTS / REVENUE Reportingperiod:2020 Gross Margin% (!) 28.0% Revenue (!) $487K IPRINCIPAL Kendrick Ray GROUNDFLOOR HISTORY * HISTORICAL AVERAGES Reportingperiod:three years ending 2020 FOCUS Fix &Fiip Loans Funded (!) Loans Repaid (!) Compl eted Projects PerYear (!) Average Project Revenue (!) Ll _0 ,II0 On Time Repayment ® IN/A 1II $243.5K Average Project Average Total Time (!) Project Costs (!) II

 

PS-814

 

New Microsoft Word Document_binder1_page_19.jpg Rate Purpose loan ToARVloan AmountInvestors loan PositionTotalloan Amount Repayment Terms BORROWER New F_ir_s_t _Li_e_n _JII $26 , 2 580 , 8-:al.:....l_oo_n_p_a_y_m_e_n_t p_ri_n_ci_p_al_a_n_d_i_nte_r_est--, Castlin Homes LLC Kristi Castlin-principal Construction L . . returned on repayment!due at maturity. INVEST NOW Click here to view the LRO Agreement FINANCIAL OVERVIEW After RepairValue (ARV) (!) $405,000 Total· Costs$291,830 GRADE FACTORS The followingfactors determine in part how the loan was graded: (in descending order of importance) Loan To ARV Score (!) 10 - Skin-in-the-Game (!) 10 location 8 Borrower Experience 5 Borrower Commitment (!)1 $29,250 VALUATION REPORTS 0% Skin-in-the Game (!) First lien Loan Cushion (!) As Complete (ARV) $405,000 Broker's Price Opinion Purchase Price (!) Purchase Date $80,000 12/18/2020 Loan ToARV (!) Loan To Total Project Cost (!) 64.8% 89.6% Borrower Provided Appraisal Borrower Provided Comps PROPERTY DESCRIPTION pi View larger map :; ::: -g. !" r -"<' !! eerStN W I.V¥ ! Rodne ; Sr. -in Hi i VinE s,. St NW••• Address: 854 THURMONDST NW,ATLANTA, GA 30314 The Borrower intends to use the loan proceeds to complete a new construction.Upon completion,the Borrower intends to sellthe property to repay the Groundfloor loan. )SHIN GTON _.,-·PARK Go gle foondry VINE C IT Y INVEST NOW 0 IMap data ®2021 Goog!e 1 Terms of Use Report a map error Click here to view the LRO Agreement PROPERTY PHOTOS MISCELLANEOUS PROJECT SPECIFIC RISK FACTORS • The Borrower was advanced the money it needs to begin construction of this property on December 18,2020 by Groundfloor Finance Inc.("Groundfloor "we; "uso; r "our") or a wholly-owned subsidiary of Groundfloor. The Borrower willhas begun construction of the property.If this offering is fully subscribed, Groundfloor will continue to administer and service the loan as further described in the Offering Circular. o The construction of the property may be extensive,and therefore subject to delays and other unexpected issues. o The construction willrequire permitting, and permits may not be obtained on time or may be denied. o There is no existing structure on this property,or if there is,it will be demolished,and a new structure built in its place. o The event of default on one Groundfloor note secured by this property will trigger default on all Groundfloor notes secured by this property. All LRO holders investingin LROs corresponding to notes secured by this property share the same priority in any recovery and recovered proceeds will be distributed on a pro-rata basis. • The Borrower has not completed or sold any projects in the past year.As such,the Borrower's average revenue,costs,and margins cannot be calculated. • Please consult the OfferingCircular for further discussion of general risk factors. CLOSING CONOITIONS • Loan is conditioned upon a clean title search and valid title insurance at the time of close. DEVELOPER FEES • GROUNDFLOOR generally charges borrowers between 2% and 6% of the principal amount of the loan for our services. • GROUNDFLOOR does not take a 'spread' on any part of the interest payments. • Developers may capitalize the cost of closing into the principal amount of their request These closing costs typically range from $500 to $1500. • Unless otherwise limited by applicable law,GROUNDFLOOR will charge a penalty of 2% for any extension made to the borrower. See GROUNDFLOOR 'Fees and Expenses' in the OfferingCircular SEC FILING INFORMATION o The series of LROs corresponding to this Project are offered pursuant to Post Qualification Amendment No.74 to the Offering Circular dated December 29,2017 (each,as amended and supplemented from time to time),including the documents incorporated by reference therein. You may access and review these documents on the Internal Filings Directory located on our Platform. BORROWER SUMMARY UNLESSNOTED WITHA * 'INFORMATIONBELOW ISSUPPLIEDBY THE BORROWERAND ISNOT VERIFIED. BORROWERS REPRESENTAND WARRANT THAT INFORMATION SUPPLIED IS ACCURATE. CASTLIN HOMES LLC FINANCIAL DATA Reportingdate:12/31/20 DATE OF FORMATION * 01/15/2018 PROJECTS / REVENUE Reportingperiod:2020 Total Debt (!) Revenue (!) IPRINCIPALGROUNDFLOOR HISTORY * HISTORICAL AVERAGES KristiCastlin Reportingperiod:three years ending 2020 FOCUS Single Family Loans Funded (!) Loans Repaid (!) Completed Projects PerYear (!) Average Project Revenue (!) '-----1 o JII o On Time Repayment (!) II2 II$280K Average Project Average Total Time (!) Project Costs (!) IN/A '-l 4_m_o_nt_hs___,II$200K

 

PS-815

 

New Microsoft Word Document_binder1_page_20.jpg  BORROWER New ,__ F_ir_s_t_Li_e_n _,l I $29?, ;..=B:..::al-'-'o1c..:.o::.nc.:._p.:..:a.:..:y.:.=cm-e-n-t--p--ri_n_cip-a1 -a_n_d_i_nte_re_st--, 390 Construction _ . . returned on repayment/ due at maturity. INVEST NOW Click here to view the LROAgreement FINANCIAL OVERVIEW Total· Costs$362,390 $430,000 GRADE FACTORS The followingfactors determine in part how the loan was graded: (in descending order of importance) Loan To ARV Score <:!) 10 Quality of ValuationReport 4 Skin-in-the-Game <:!) 10 Location 8 Borrower Experience-5 Borrower Commitment <:!)1 0%----$65,000 Skin-in-the Game <:!) First Lien Loan Cushion <:!) VALUATION REPORTS As Complete (ARV) $430,000 Broker's Price Opinion Purchase Price <:!) Purchase Date $89,000 01/10/2020 Loan To ARV <:!) Loan To Total Project Cost <:!) 69.2% 81.4% Borrower Provided Appraisal Borrower Provided Comps PROPERTY DESCRIPTION EGiddens Ave -L-Koss ure Address: 1302 EAST CARACAS STREET,TAMPA, FL 33603 ;.;,-.z -< View larger map z Care Y E Sh.tiowlotwn Avo ::r ... """ ..t),ltdOWI<lWR Ave ' I z J <1rceorry St E Caracas St The Borrower intends to use the loan proceeds to complete a new construction.Upon completion,the Borrower intends to sellthe property to repay the Groundfloor loan. ENewOflean!I Ave Mart • S 0 U T H Egle EE!uoonst Mobii•Av• Middleton E Louisiana Ave INVEST NOW S E Map data ®2021 Terms of Use l Report a map error Click here to view the LRO Agreement ' I PROPERTY PHOTOS I Pa1nted compos1te tnm over Ip.t 4x4 struclllralposts Fin Floor 18" above grade I PROJECT SPECIFIC RISK FACTORS o The Borrower was advanced the money it needs to begin construction of this property on December 17, 2020 by Groundfloor Finance Inc.("Groundfloor "we; "us or "our") or a wholly-owned subsidiary of Groundfloor. The Borrower willhas begun construction of the property.If this offering is fully subscribed, Groundfloor will continue to administer and service the loan as further described in the Offering Circular. o The construction of the property may be extensive,and therefore subject to delays and other unexpected issues. o The construction willrequire permitting, and permits may not be obtained on time or may be denied. o There is no existing structure on this property, or if there is,it will be demolished, and a new structure built in its place. o The event of default on one Groundfloor note secured by this property will trigger default on all Groundfloor notes secured by this property. All LRO holders investing in LROs corresponding to notes secured by this property share the same priority in any recovery and recovered proceeds will be distributed on a pro-rata basis. o The Borrower has not completed or sold any projects in the past year.As such,the Borrower's average revenue,costs, and margins cannot be calculated. o The Principal has not yet completed or sold any projects.As such,the Principal's average revenue,costs,and margins cannot be calculated. o Please consult the OfferingCircular for further discussion of general risk factors. CLOSING CONOITIONS o Loan is conditioned upon a clean title search and valid title insurance at the time of close. DEVELOPER FEES o GROUNDFLOOR generally charges borrowers between 2% and 6% of the principal amount of the loan for our services. o GROUNDFLOOR does not take a 'spread' on any part of the interest payments. o Developers may capitalize the cost of closing into the principal amount of their request.These closing costs typically range from $500 to $1500. o Unless otherwise limited by applicable law,GROUNDFLOOR will charge a penalty of 2% for any extension made to the borrower. See GROUNDFLOOR 'Fees and Expenses' in the OfferingCircular SEC FILING INFORMATION o The series of LROs corresponding to this Project are offered pursuant to Post Qualification Amendment No.74 to the Offering Circular dated December 29, 2017 (each,as amended and supplemented from time to time),including the documents incorporated by reference therein. You may access and review these documents on the Internal Filings Directory located on our Platform. BORROWER SUMMARY UNLESSNOTEDWITHA * 'INFORMATIONBELOW ISSUPPLIEDBYTHE BORROWERAND ISNOT VERIFIED. BORROWERS REPRESENTAND WARRANT THAT INFORMATION SUPPLIED IS ACCURATE. ' LOB PROPERTY SOLUTIONS, LLCFINANCIAL DATA Reportingdate:12/31/20 DATE OF FORMATION * 06/15/2018 PROJECTS /REVENUE Reportingperiod:2020 IPRINCIPAL Gregory DavisGROUNDFLOOR HISTORY * HISTORICAL AVERAGES Reportingperiod:three years ending 2020 FOCUS New Construction Loans Funded <:!)Loans Repaid ® Completed Projects PerYear <:!) Average Project Revenue <:!) Ll0-----'11 ° IIN/AI L l -----' On Time Repayment ® IN/A Average Project Average Total Time ®Project Costs ® LIN_ A _,IIN/A

 

PS-816

 

New Microsoft Word Document_binder1_page_21.jpg BORROWER New ,__ F_ir_s_t_Li_e_n _JI I $ 29?, ;..=B:..::al-'-'o1:..:.o:::.:n..p:.:..a:::.y.:.:..c:m:e._n_t_-p-ri_n_ci_p_al_a_n_d_i_nte_r_est--, 390 Construction _ . . returned on repayment/ due at maturity. INVEST NOW Click here to view the LRO Agreement FINANCIAL OVERVIEW Total· Costs$362,390 $430,000 GRADE FACTORS The followingfactors determine in part how the loan was graded: (in descendingorder of importance) Loan To ARV Score CD 10 Quality of ValuationReport4 Skin-in-the-Game CD-10 Location8 Borrower Experience-5 Borrower Commitment CD1 0%----$65,000 Skin-in-the Game CD First Lien LoanCushion CD VALUATION REPORTS As Complete (ARV) $430,000 Broker's Price Opinion Purchase Price CD Purchase Date $89,000 01/10/2020 LoanToARV CD Loan To Total Project Cost CD 69.2% 81.4% Borrower Provided Appraisal Borrower Provided Comps PROPERTY DESCRIPTION E Glddcms Av e a1 View larger map , :a1 'Y ESh*wl< wn Ave E McBeuy St ' E Catacas St KOSS ure Address: 13D4 EAST CARACAS STREET,TAMPA, FL 336D3 The Borrower intends to use the loan proceeds to complete a new construction.Upon completion,the Borrower intends to sellthe property to repay the Groundfloor loan. ENewOtlellttS Ave j Eauoonst Mobil••'• M1'ddleton1' INVEST NOW v1art• S 0 U TH E.9l9leELou;•;anaAve S E I Map data ®2021 Terms of Use • Report a map error Click here to view the LRO Agreement ' PROPERTY PHOTOS MISCELLANEOUS PROJECT SPECIFIC RISK FACTORS o The Borrower was advanced the money it needs to begin construction of this property on December 17,2020 by Groundfloor Finance Inc.("Groundfloor "we; "uso; r "our") or a wholly-owned subsidiary of Groundfloor. The Borrower willhas begun construction of the property.If this offering is fully subscribed, Groundfloor will continue to administer and service the loan as further described in the OfferingCircular. • The construction of the property may be extensive,and therefore subject to delays and other unexpected issues. • The construction willrequire permitting, and permits may not be obtained on time or may be denied. • There is no existing structure on this property, or if there is,it will be demolished, and a new structure built in its place. • The event of default on one Groundfloor note secured by this property will trigger default on all Groundfloor notes secured by this property. All LRO holders investing in LROs corresponding to notes secured by this property share the same priority in any recovery and recovered proceeds will be distributed on a pro-rata basis. o The Borrower has not completed or sold any projects in the past year.As such,the Borrower's average revenue,costs, and margins cannot be calculated. o The Principal has not yet completed or sold any projects.As such, the Principal's average revenue,costs,and margins cannot be calculated. o Please consult the OfferingCircular for further discussion of general risk factors. CLOSING CONDITIONS o Loan is conditioned upon a clean title search and valid title insurance at the time of close. DEVElOPER FEES o GROUNDFLOOR generally charges borrowers between 2% and 6% of the principal amount of the loan for our services. o GROUNDFLOOR does not take a 'spread' on any part of the interest payments. o Developers may capitalize the cost of closing into the principal amount of their request.These closing costs typically range from $500 to $1500. o Unless otherwise limited by applicable law,GROUNDFLOOR will charge a penalty of 2% for any extension made to the borrower. See GROUNDFLOOR 'Fees and Expenses' in the OfferingCircular SEC FiliNG INFORMATION o The series of LROs corresponding to this Project are offered pursuant to Post Qualification Amendment No.74 to the OfferingCircular dated December 29,2017 (each,as amended and supplemented from time to time),including the documents incorporated by reference therein. You may access and review these documents on the Internal Filings Directory located on our Platform. BORROWER SUMMARY UNLESSNOTEDWITHA *'INFORMATIONBELOW IS SUPPLIED BY THE BORROWERAND ISNOT VERIFIED. BORROWERS REPRESENTAND WARRANT THAT INFORMATION SUPPLIED IS ACCURATE. LOB PROPERTY SOLUTIONS, LLC FINANCIAL DATA Reportingdate:12/31/20 DATE OF FORMATION * 06/15/2018 IPRINCIPALGROUNDFLOOR HISTORY * PROJECTS I REVENUE Reportingperiod:2020 HISTORICAL AVERAGES Gregory Davis Reportingperiod:threeyears ending 2020 FOCUS New Construction Loans Funded CDLoans Repaid CD Completed Projects PerYear CD Average Project Revenue CD Ll0-----'11 ° IIN/AI L l -----' On Time Repayment CD IN/A Average Project Average Total Time CDProject Costs CD '---IN A ----'11N/A

 

PS-817

 

New Microsoft Word Document_binder1_page_22.jpg  Purpose loan Position Total oan Amount Repayment Terms BORROWER Purchase & F_i_rs_t_L_ie_n JII $30 ,4 7 10 r-B-'a.:...ll_oo_n pa_y_m_en-t --p--r in_c_i_pa l_a_n_d_i_nte_r_e_s-t-, The ADART Investment GrouP-, LLC Renee White-principal Renovation L . .retu rned on re payment/ due at maturity. INVEST NOW Click here to view the LRO Agreement FINANCIAL OVERVIEW After Repair Value (ARV) (!) $410,000 TotalProject Costs (!) $325,910 I GRADE FACTORS ' The followingfactors determine in part how the loan was graded: (in descending order of importance) loan To ARV Score (!) 10 Quality of ValuationReport4 Skin-in-the-Game (!) II10 location 8 Borrower Experience 5 Borrower Commitment (!)1 0% ----$18,500 Skin-in-the Game (!) First lien Loan Cushion (!) VALUATION REPORTS As Compl ete (ARV) $410,000 Broker's Price Opinion Purchase Price (!) Purchase Date $215,000 12/22/2020 Loan ToARV (2} Loan To Total Project Cost (!) 75.0% 94.2% Borrower Provided Appraisal Borrower Provided Comps PROPERTY DESCRIPTION u,.................,...,orsw• < Address: 1536 MONTREAT AVENUE SOUTHWEST,ATLANTA,GA 30311 View larger map Richland Rd SW E ROAD ,i"' c; "' :".' 1536 Montreat The Borrower intends to use the loan proceeds to purchase and renovate the property. Upon completion,the <>Avenue Southwest :;: Borrower intends to sellthe property to repay the Groundfloor loan. ,..-'2"' <?',%. •,..,.•gBUSH <:jO,;gM 0 U N T A I '· INVEST NOW Click here to view the LRO Agreement MISCELLANEOUS PROJECT SPECFI IC RISK FACTORS • The Borrower was advanced the money it needed to purchase this property on December 22, 2020 by Groundfloor Finance Inc.("Groundfloor;'"we;'"us; or "our") or a wholly-owned subsidiary of Groundfloor.The Borrower is now in possession of the property. If this offering is fully subscribed,Groundfloor willcontinue to administer and service the loan as further described in the Offering Circular. • The renovation of the property may be extensive,and therefore subject to delays and other unexpected issues. • The renovation will require permitting,and permits may not be obtained on time or may be denied. • The Borrower has not completed or sold any projects in the past year.As such,the Borrower's average revenue,costs,and margins cannot be calculated. • Please consult the Offering Circul ar for further discussion of general risk factors. CLOSING CONOITIONS • Loan is conditioned upon a clean title search and valid title insurance at the time of close. DEVElOPER FEES • GROUNDFLOOR generally charges borrowers between 2% and 6% of the principal amount of the loan for our services. • GROUNDFLOOR does not take a 'spread' on any part of the interest payments. • Developers may capitalize the cost of closing into the principal amount of their request.These closing costs typically range from $500 to $1500. • Unless otherwise limited by applicable l aw,GROUNDFLOOR will charge a penalty of 2% for any extension made to the borrower. See GROUNDFLOOR 'Fees and Expenses' in the Offering Circular SEC FiliNG INFORMATION • The series of LROs corresponding to this Project are offered pursuant to Post Qualification Amendment No.74 to the Offering Circular dated December 29,2017 (each,as amended and supplemented from time to time),including the documents incorporated by reference therein. You may access and review these documents on the Internal Filings Directory located on our Platform. BORROWER SUMMARY UNLESSNOTED WITHA * 'INFORMATIONBELOW IS SUPPLIED BY THE BORROWERAND ISNOT VERIFIED. BORROWERS REPRESENTAND WARRANT THAT INFORMATION SUPPLIED IS ACCURATE. THE AOART INVESTMENT GROUP, LLCFINANCIAL DATA Reportingdate:12/31/20 DATE OF FORMATION * 08/18/2020 IPRINCIPAL PROJECTS / REVENUE Reportingperiod:2020 Renee WhiteGROUNDFLOOR HISTORY * HISTORICAL AVERAGES Reportingperiod:three years ending 2020 FOCUS Single Family Loans Funded (!) Loans Repaid (!) Compl eted Projects Per Year (!) Average Project Revenue (!) 00 Ll_ ----'II On Time Repayment (!) IN/A II3 II$297.2K Average Project Average Total Time (!) Project Costs (!) Ll5_m_o_n_th_s _--'ll$224.6K

 

PS-818

 

New Microsoft Word Document_binder1_page_23.jpg  Purpose loan PositionTotal oan Amount Repayment Terms New F_i_rs_t_L_ie_n JII $ 3 ,4 r--'Ba"-l'l-o_o_n pa_y_m_ent---p-r-ni_c_i_p_al_a_n_d_i_n-et_r_e_st , 4 2 70 Construction L . .returned on repayme nt/ due at maturity. INVEST NOW BORROWER Click here to view the LRO Agreement Ashantev. and Associates, LLC Christopher Ashantey principal FINANCIAL OVERVIEW After Repair Value (ARV) Q) $720,000 TotalProject Costs Q)$556,970 GRADE FACTORS ' (in descending order of importance) Loan To ARV Score Q) 10 Quality of Valuation Report 4 Skin·in-the-Game Q) 10 location 8 Borrower Experience 5 Borrower Commitment Q) 1 0% ----Skin-in-the Game Q) First li en loan Cushion Q) VALUATION REPORTS ' $720,000 Broker's Price Opinion Purchase Price Q) Purchase Date $175,000 12/17/2015 Loan ToARV Q') Loan To Total Project Cost Q) 60.1% 76.8% Borrower Provided Appraisal Borrower Provided Comps PROPERTY DESCRIPTION View larger map I E )LO FOURTH WARD - ·-r::;;; .......:., War ' :?J k / Address: 314FORTUNE STREET NORTHEAST,UNIT A,ATLANTA, GA 30312 The Borrower intends to use the loan proceeds to complete a new construction.Upon completion,the Borrower intends to sellthe property to repay the Groundfloor loan. EAve NE Highland Ave NE ,-: Street 1 ® o ge z;;/,_ INVEST NOW Map data ®2021 Goog!e Terms of Use Report a map error Click here to view the LRO Agreement MISCELLANEOUS PROJECT SPECIFIC RISK FACTORS o The Borrower was advanced the money it needs to begin construction ofthis property on December 11,2020 by Groundfloor Finance Inc.("Groundfloor "we; "us;'or "our") or a wholly-owned subsidiary of Groundfloor. The Borrower willhas begun construction of the property.If this offering is fully subscribed, Groundfloor will continue to administer and service the loan as further described in the OfferingCircular. o The construction of the property may be extensive,and therefore subject to delays and other unexpected issues. o The construction willrequire permitting, and permits may not be obtained on time or may be denied. o There is no existing structure on this property,or if there is,it will be demolished,and a new structure built in its place. o This is a collateral loan secured by two properties,314 Fortune Street Northeast, Unit A, Atlanta,GA,30312 and 314 Fortune Street Northeast,Unit B,Atlanta, GA,30312.The ARV represents the combined value of allproperties. o The event of default on one Groundfloor note secured by this property will trigger default on all Groundfloor notes secured by this property. All LRO holders investing in LROs corresponding to notes secured by this property share the same priority in any recovery and recovered proceeds will be distributed on a pro-rata basis. o The Borrower has not completed or sold any projects in the past year.As such,the Borrower's average revenue,costs, and margins cannot be calculated. o The Principal has not yet completed or sold any projects.As such,the Principal's average revenue,costs,and margins cannot be calculated. o Please consult the OfferingCircular for further discussion of general risk factors. CLOSING CONDITIONS o Loan is conditioned upon a clean title search and valid title insurance at the time of close. DEVELOPER FEES o GROUNDFLOOR generally charges borrowers between 2% and 6% of the principal amount of the loan for our services. o GROUNDFLOOR does not take a 'spread' on any part of the interest payments. o Developers may capitalize the cost of closing into the principal amount of their request.These closing costs typically range from $500 to $1500. o Unless otherwise limited by applicable law,GROUNDFLOOR will charge a penalty of 2% for any extension made to the borrower. See GROUNDFLOOR 'Fees and Expenses' in the OfferingCircular SEC FILING INFORMATION o The series of LROs corresponding to this Project are offered pursuant to Post Qualification Amendment No. 74 to the OfferingCircular dated December 29,2017 (each,as amended and supplemented from time to time),including the documents incorporated by reference therein.You may access and review these documents on the Internal Filings Directory located on our Platform. BORROWER SUMMARY UNLESSNOTEDWITHA * 'INFORMATIONBELOW IS SUPPLIED BY THE BORROWERAND ISNOT VERIFIED. BORROWERS REPRESENTAND WARRANT THAT INFORMATION SUPPLIED IS ACCURATE. ASHANTEY AND ASSOCIATES,LLC FINANCI A DATA Reportingdate:12/31/20 DATE OF FORMATION * 10/15/2020 IPRINCIPAL PROJECTS IREVENUE Reportingperiod:2020 Christopher Ashantey GROUNDFLOOR HISTORY * HISTORICAL AVERAGES Reportingperiod:three years ending 2020 FOCUS New Construction Loans Funded Q)Loans Repaid Q) Completed Projects PerYear Q) Average Project Revenue Q) L,l0 ,II0 On Time Repayment Q) IIN/AI L,l_ Average Project Average Total Time Q)Project Costs Q) IN/A L lN/A JIIN/A

 

PS-819

 

New Microsoft Word Document_binder1_page_24.jpg Purpose Loan PositionTotalLoan Amount Repayment Terms New F_i_rs_t_L_ie_n JII $43 ,4 r-B-'a"ll'-o_o_n pa_y_m_en-t --p--r i n_c_i_p_al_a_n_d_i_n-et_r_e_s-t-, 2 70 Construction L . .retu rned on re payment/ due at matu r ity. INVEST NOW BORROWER Click here to view the LRO Agreement Ashantev. and Associates, LLC Christopher Ashantey principal FINANCIAOl VERVIEW After Repair Value (ARV) ('D$720,000 TotalProject Costs (2)$556,970 GRADE FACTORS The followingfactors determine in part how the loan was graded: (in descending order of importance) Loan To ARV Score (2) 10 Quality of Valuation Report 4 Skin-in-the-Game ('D 10 Location 8 Borrower Experience 5 Borrower Commitment ('D1 0% ----Skin-in-the Game (2) First Lien Loan Cushion ('D VALUATION REPORTS As Complete (ARV) $720,000 Broker's Price Opinion Purchase Price ('D Purchase Date $175,000 12/17/2015 Loan ToARV ('D Loan To Total Project Cost (2) 60.1% 76.8% Borrower Provided Appraisal Borrower Provided Comps PROPERTY DESCRIPTION View larger map Historic Fourthb · Address: 314 FORTUNE STREET NORTHEAST,UNIT B,ATLANTA, GA 30312 WARD'.., I E :>LD FOURTH Ward Skatepark(F - .. The Borrower intends to use the loan proceeds to complete a new construction.Upon completion,the EAveNE, Highland Ave NE ,; Tsj )k y Borrower intends to sellthe property to repay the Groundfloor loan. INVEST NOW Jackson Street BridgeG 1;: ® ,.,."' o il e - .. Click here to view the LRO Agreement Map d-ata ®2021 Goog!e Terms of Use Report a map error MISCEllANEOUS PROJECT SPECFI IC RISK FACTORS o The Borrower was advanced the money it needs to begin construction ofthis property on December 11,2020 by Groundfloor Finance Inc.("Groundfloor "we; "us or "our") or a wholly-owned subsidiary of Groundfloor. The Borrower willhas begun construction of the property.If this offering is fully subscribed, Groundfloor will continue to administer and service the loan as further described in the OfferingCircular. o The construction of the property may be extensive,and therefore subject to delays and other unexpected issues. o The construction willrequire permitting, and permits may not be obtained on time or may be denied. o There is no existing structure on this property,or if there is,it will be demolished,and a new structure built in its place. o This is a collateral loan secured by two properties,314 Fortune Street Northeast,Unit A, Atlanta,GA,30312 and 314 Fortune Street Northeast,Unit B,Atlanta, GA,30312.The ARV represents the combined value of allproperties. o The event of default on one Groundfloor note secured by this property will trigger default on all Groundfloor notes secured by this property. All LRO holders investingin LROs corresponding to notes secured by this property share the same priority in any recovery and recovered proceeds will be distributed on a pro-rata basis. o The Borrower has not completed or sold any projects in the past year.As such,the Borrower's average revenue,costs,and margins cannot be calculated. o The Principal has not yet completed or sold any projects.As such,the Principal's average revenue,costs,and margins cannot be calculated. o Please consult the Offering Circular for further discussion of general risk factors. CLOSING CONDITIONS o Loan is conditioned upon a clean title search and valid title insurance at the time of close. DEVELOPER FEES o GROUNDFLOOR generally charges borrowers between 2% and 6% of the principal amount of the loan for our services. o GROUNDFLOOR does not take a 'spread' on any part of the interest payments. o Developers may capitalize the cost of closing into the principal amount of their request.These closing costs typically range from $500 to $1500. o Unless otherwise limited by applicable law,GROUNDFLOOR will charge a penalty of 2% for any extension made to the borrower. See GROUNDFLOOR 'Fees and Expenses' in the OfferingCircular SEC FILING INFORMATION o The series of LROs corresponding to this Project are offered pursuant to Post Qualification Amendment No. 74 to the OfferingCircular dated December 29,2017 (each,as amended and supplemented from time to time),including the documents incorporated by reference therein.You may access and review these documents on the Internal Filings Directory located on our Platform. BORROWER SUMMARY UNLESSNOTEDWITHA * 'INFORMATIONBELOW IS SUPPLIED BY THE BORROWERAND ISNOT VERIFIED. BORROWERS REPRESENTAND WARRANT THAT INFORMATION SUPPLIED IS ACCURATE. ASHANTEY AND ASSOCIATES,LLCFINANCI AL DATA Reportingdate:12/31/20 DATE OF FORMATION * 10/15/2020 IPRINCIPAL PROJECTS I REVENUE Reportingperiod:2020 Christopher AshanteyGROUNDFLOOR HISTORY * HISTORICAL AVERAGES Reportingperiod:three years ending 2020 FOCUS New Construction Loans Funded (2)Loans Repaid (2) Completed Projects PerYear (2) Average Project Revenue <'D ° Ll_ ----'11 On Time Repayment <'D IIN/AI Ll_ Average Project Average Total Time (2)Project Costs (2) IN/A L lN/A JIIN/A

 

PS-820

 

 

MANAGEMENT DISCUSSION AND ANALYSIS FOR GROUNDFLOOR FINANCE INC.

(UNaudited, For the period ending june 30, 2020 and june 30, 2019)

 

You should read the following discussion in conjunction with Groundfloor’s unaudited condensed consolidated financial statements and the related notes and the section entitled “Description of the Company’s Business” elsewhere in this Offering Circular. This discussion contains forward-looking statements that involve risks and uncertainties. Actual results and the timing of events may differ materially from those contained in these forward-looking statements due to a number of factors, including but not limited to those discussed in the section entitled “Risk Factors” and elsewhere in this Offering Circular.

 

Overview

 

Groundfloor Finance Inc. (“Groundfloor” or “Groundfloor Finance”) maintains and operates the Groundfloor Platform for use by us and Groundfloor subsidiaries to provide real estate development investment opportunities to the public. Groundfloor was originally organized as a North Carolina limited liability company under the name of Fomentum Labs LLC on January 28, 2014. Fomentum Labs LLC changed its name to Groundfloor LLC on April 26, 2014, and converted into a North Carolina corporation on July 26, 2014. In connection with this conversion, all equity interests in Groundfloor LLC were converted into shares of our common stock. Effective August 5, 2015, Groundfloor changed its domiciliary state to Georgia under the name Groundfloor Finance Inc. The unaudited condensed consolidated financial statements include Groundfloor’s wholly-owned subsidiaries, including Groundfloor GA (as defined below), which was created for the purpose of financing real estate properties in Georgia, Holdings, which was created for the purpose of facilitating our loan advance program by entering into the Revolver, and GRE 1, which sold and issued LROs through the Groundfloor Platform from May to July 2017.

 

 

 

Funding Loan Advances

 

To date, the Company has entered into the following financial arrangements designed to facilitate Loan advances.

 

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). In March 2020, in connection with the novel coronavirus pandemic and the related tightening of credit markets, GROUNDFLOOR’s creditor informed the Company that it would cease funding of draws on the Revolver for an undefined period of time and replace the lost financing by expanding on other existing sources of lending capital, most importantly the GROUNDFLOOR Notes program. In response, the Company developed a plan to repay the outstanding principal and accrued interest on the Revolver. The outstanding principal and accrued interest on the Revolver were repaid in full in June 2020 and no outstanding balance remains as of June 30, 2020. At the time of issuance of these condensed consolidated financial statements, the future of the Revolver credit arrangement remains unknown.

 

On January 11, 2017, Groundfloor entered into the ISB Note (as defined below) for a principal sum of $1.0 million, which was subsequently increased to $2.0 million, for the purpose of using the proceeds for our loan advance program, but may use the proceeds for other purposes in our sole discretion. The outstanding principal and accrued interest on the ISB Note were repaid in full in September 2019.

 

Starting in November 2018, Groundfloor entered into various GROUNDFLOOR Notes, secured promissory notes, with accredited investors. The GROUNDFLOOR Notes are used for the purpose of the Company to originate, buy, and service loans for the purpose of building, buying, or rehabilitating single family and multifamily structures, or buying land for commercial purposes. The principal outstanding as of June 30, 2020 was $16.3 million.

 

In November and December 2019, Groundfloor entered into various short-term, secured promissory notes with accredited investors. Proceeds from the notes are used by the Company for originating, buying, and servicing loans to developers for the purpose of building, buying, and rehabilitating single family and multifamily structures, or buying land for commercial purposes. The aggregate principal outstanding of these loans as of December 31, 2019, was $1.3 million; those loans were repaid in full at maturity during the six months ended June 30, 2020 and no balance remains outstanding as of June 30, 2020.

 

 

 

Financial Position and Operating History

 

In connection with their audit for the year ended December 31, 2019, our auditors expressed substantial doubt about our ability to continue as a going concern due to our losses and cash outflows from operations. To strengthen our financial position, Groundfloor have continued to raise additional funds through convertible debt and equity offerings.

 

Groundfloor has a limited operating history and have incurred a net loss since our inception. Our net loss was $1.3 million for the six months ended June 30, 2020. To date, Groundfloor has 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. Groundfloor has 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, Groundfloor expects 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.

 

The proceeds from the sale of LROs described in this Offering Circular will not be used to directly finance our operations. Groundfloor will use the proceeds from sales of LROs exclusively to originate the Loans that correspond to the corresponding series of LROs sold to investors. However, Groundfloor collects origination and servicing fees on Loans Groundfloor is able to make to Developers, which Groundfloor recognizes as revenue. The more Loans Groundfloor is able to fund through the proceeds of our offerings, the more fee revenue Groundfloor will make. With increased fee revenue, our financial condition will improve. However, Groundfloor does not anticipate this increased fee revenue to be able to fully support our operations through the next twelve months.

 

Groundfloor’s operating plan calls for a continuation of the current strategy of raising equity and, in limited circumstances, debt financing to finance its operations until Groundfloor reach profitability and become cash-flow positive, which Groundfloor does not expect to occur before 2020. Groundfloor’s operating plan calls for significant investments in website development, security, investor sourcing, loan processing and marketing, and for several rounds of equity financing before Groundfloor reaches profitability.

 

 

 

Groundfloor completed its Series A Financing in December 2015, through which Groundfloor raised an aggregate of approximately $5.0 million (including the cancellation of the 2015 Bridge Notes (as defined below). Groundfloor raised an aggregate of $2.1 million as of December 31, 2017 through Groundfloor’s 2017 Note Financing (as defined below). Groundfloor has raised approximately $4.2 million in a 2018 Common Stock Offering, $3.1 million in a 2019 Common Stock Offering, and $0.5 million in a 2020 Common Stock Offering, as well as $3.6 million through Groundfloor’s 2019 Note Offering, in order to fund operations. See “Liquidity and Capital Resources” below.

 

Results of Operations

 

Six Months Ended June 30, 2020 and 2019

 

   Six Months Ended June 30, 
   2020   2019 
Non-interest revenue:          
Origination fees  $1,552,929   $1,216,642 
Loan servicing revenue   845,695    752,162 
Total non-interest revenue   2,398,624    1,968,804 
Net interest income:          
Interest income   5,210,695    2,854,020 
Interest expense   (3,968,122)   (2,245,280)
Net interest income   1,242,573    608,740 
Net revenue   3,641,197    2,577,544 
Cost of revenue   (320,372)   (328,706)
Gross profit   3,320,372    2,248,838 
Operating expenses:          
General and administrative   1,465,993    940,396 
Sales and customer support   1,293,443    1,264,973 
Development   402,005    356,836 
Regulatory   172,352    189,068 
Marketing and promotions   443,067    591,799 
Total operating expenses   3,776,860    3,343,072 
Loss from operations   (456,035)   (1,094,234)
Interest expense   846,976    1,018,025 
Net loss  $(1,303,011)  $(2,112,259)

 

Net Revenue

 

Net revenue for the six months ended June 30, 2020 and 2019 was $3.6 million and $2.6 million, respectively. The Company facilitated the origination of 187 and 285 developer loans during the six months ended June 30, 2020 and 2019, respectively. Origination fees and loan servicing revenue were earned related to the origination of these developer loans. Origination fees are determined by the term and credit risk of the developer loan and range from 1.0% to 6.0%. The fees are deducted from the loan proceeds at the time of issuance. Loan servicing revenue re fees incurred in servicing the developer’s loan. Additionally, Groundfloor incurred net interest income during the loan advance period. The increase in net interest income is due to the increase in overall portfolio size as the Company originated 38% more loans than the previous period. Groundfloor expects operating revenue to increase as its loan application and processing volume increases.

 

Gross Profit

 

Gross profit for the six months ended June 30, 2020 and 2019 was $3.3 million and $2.2 million, respectively. The increase in gross profit was due to $1.1 million in additional net revenue, with no material change in cost of revenue. Cost of revenue consists primarily of payment processing and vendor costs associated with facilitating and servicing loans. Groundfloor expects gross profit to increase as its loan application and processing volume increases.

 

General and Administrative Expense

 

General and administrative expense for the six months ended June 30, 2020 and 2019 were $1.5 million and $0.9 million, respectively, an increase of $0.6 million or 67.0%. General and administrative expenses consists primarily of employee compensation cost, professional fees, consulting fees and rent expense.

 

 

 

Sales and Customer Support

 

Sales and customer support expense for the six months ended June 30, 2020 and 2019 were $1.3 million and $1.3 million, respectively. Sales and customer support expense consists primarily of employee compensation cost. Groundfloor expect sales and customer support expense will continue to increase due to the planned investment in developer acquisition and customer support required to support its growth.

 

Development Expense

 

Development expense for the six months ended June 30, 2020 and 2019 were $0.4 million and $0.4 million, respectively. Development expense consists primarily of employee compensation cost and the cost of subcontractors who work on the development and maintenance of our website and lending platform. Groundfloor expects development expense will continue to increase due to the planned investments in our website and lending platform required to support our technology infrastructure as Groundfloor grows.

 

Regulatory Expense

 

Regulatory expense for the six months ended June 30, 2020 and 2019 held consant at $0.2 million for both periods. Regulatory expense consists primarily of legal fees and compensation cost required to maintain SEC and other regulatory compliance. Groundfloor expects regulatory expense may increase due to the additional expense related to qualifying our offerings with the SEC, including our transition to Tier 2 under Regulation A, which will require complying with ongoing reporting requirements with the SEC and certain filing fees with applicable state regulatory authorities.

 

Marketing and Promotions Expense

 

Marketing and promotions expense for the six months ended June 30, 2020 and 2019 were $0.4 million and $0.6 million, respectively, a decrease of $0.2 million or 33.3%. Marketing and promotions expense consists primarily of consulting expense, compensation cost as well as promotional and advertising expense. The decrease was primarily due to a decrease in investor and borrower acquisition.

 

 

 

Interest Expense

 

Interest expense for the six months ended June 30, 2020 and 2019, excluding interest paid on limited recourse obligations and GROUNDFLOOR Notes, was $0.8 million and $1.0 million, respectively, a decrease of $0.2 million. The company incurred $0.5 million in interest expense warehousing loans on the Revolver. Cash paid for interest on the Revolver was $0.6 million in the six months ended June 30, 2020. Interest expense related to the 2019 Subordinated Convertible Notes (as defined below) of $0.3 million was recognized during the six months ended June 30, 2020. Interest expense related to the 2017 Subordinated Convertible Notes (as defined below) of $0.2 million was recognized during the six months ended June 30, 2019.

 

Net Loss

 

Net loss for the six months ended June 30, 2020 and 2019 was $1.3 million and $2.1 million, respectively, a net loss decrease of $0.8 million or 38.1%. Operating expense consist primarily of compensation cost, legal fees, consulting and subcontractor cost as well as advertising and promotional expense. Operating expense for the six months ended June 30, 2020 and 2019 was $3.8 million and $3.3 million, respectively, an increase of $0.5 million. Operating expenses increased as the Company increased headcount and compensation costs compared to the prior period.

 

Liquidity and Capital Resources

 

The unaudited condensed consolidated financial statements included in this Offering Circular have been prepared assuming that Groundfloor will continue as a going concern; however, the conditions discussed below raise substantial doubt about our ability to continue as a going concern. The unaudited condensed consolidated financial statements do not include any adjustments to reflect the possible future effects on the recoverability and classification of assets or the amounts and classifications of liabilities that may result should Groundfloor be unable to continue as a going concern.

 

Groundfloor incurred a net loss for the six months ended June 30, 2020 and 2019, and have an accumulated deficit as of June 30, 2020 of $22.8 million. Since our inception, Groundfloor have financed our operations through debt and equity financing from various sources. Groundfloor are dependent upon raising additional capital or seeking additional equity financing to fund our current operating plans for the foreseeable future. Failure to obtain sufficient equity financing and, ultimately, to achieve profitable operations and positive cash flows from operations could adversely affect our ability to achieve its business objectives and continue as a going concern. Further, there can be no assurance as to the availability or terms upon which the required financing and capital might be available.

 

 

 

   For the six
months ended
June 30,
2020
   For the six
months ended
June 30,
2019
 
Operating activities  $(1,840,077)  $(2,593,030)
Investing activities   (4,052,906)   (13,615,640)
Financing activities   5,024,612    17,186,827 
Net decrease in cash  $868,371   $978,157 

 

Net cash used in operating activities for the six months ended June 30, 2020 and 2019 was $1.8 million and $2.6 million, respectively. Net cash used in operating activities funded salaries, expense for contracted marketing, development and other professional service providers and expense related to sales and marketing initiatives.

 

Net cash used in investing activities for the six months ended June 30, 2020 and 2019 was $4.1 million and $13.6 million, respectively. Net cash used in investing activities primarily represents loan payments to developers offset by the repayment of loans to developers.

 

Net cash provided by financing activities for the six months ended June 30, 2020 and 2019 was $5.0 million and $17.2 million, respectively. Net cash provided by financing activities primarily represents proceeds from the issuance of Georgia Notes and LROs to investors through the Groundfloor Platform, proceeds from Common Stock Offerings and private placement, offset by repayments of Georgia Notes and LROs to investors.

 

 

 

Groundfloor issued and sold 91,259 shares Series Seed Preferred Stock at an initial closing on December 5, 2014 (the “Series Seed Initial Closing”), for total proceeds of $475 thousand, pursuant to the Series Seed Preferred Stock Purchase Agreement (the “Series Seed Purchase Agreement”), dated December 5, 2014 between us and the investors named therein (the “Series Seed Investors”). In addition, at the Series Seed Initial, the entire unpaid principal and interest outstanding under certain previously-issued convertible promissory notes converted into 276,391 additional shares of Series Seed Preferred Stock. Groundfloor issued and sold an aggregate of 201,146 additional shares of Series Seed Preferred Stock, for total proceeds of $1.1 million, at subsequent closings on April 1, 2015, May 12, 2015 and August 31, 2015 (collectively, the “Series Seed Subsequent Closings” and together, with the Series Seed Initial Closing, the “Series Seed Financing”). Pursuant to the Series Seed Purchase Agreement, the Company sold each share of Series Seed Preferred Stock for $5.205 per share. In connection with the Series Seed Financing, Groundfloor also entered into an Investors’ Rights Agreement with the Series Seed Investors and certain holders of our common stock, which was subsequently amended and restated in connection with the Series A Financing. The shares of Series Seed Preferred Stock were offered and sold pursuant to the federal exemption from registration set forth in Rule 506 of Regulation D under the Securities Act. The Series Seed Financing terminated following the final Series Seed Subsequent Closing and Groundfloor does not intend to sell any additional shares of Series Seed Preferred Stock.

 

During November 2015, Groundfloor entered into promissory notes with investors for total proceeds of $250 thousand (the “2015 Bridge Notes”). The notes incur interest at the rate of 12% per annum. The outstanding principal and all accrued but unpaid interest was due and payable on the earlier of May 5, 2016 or the closing of an equity financing with gross proceeds of at least $4.3 million. The 2015 Bridge Notes and all accrued but unpaid interest thereunder were cancelled as consideration for 37,561 shares of Series A Preferred Stock in connection with the Series A Initial Closing. The notes were offered and sold pursuant to the federal exemption from registration set forth in Rule 506 of Regulation D under the Securities Act. The 2015 Bridge Notes Financing terminated with the closing of the Series A Financing.

 

In addition, Groundfloor issued and sold 709,812 shares of Series A Preferred Stock at an initial closing on November 24, 2015 and subsequent closings through December 2015, for total gross proceeds of approximately $4.7 million, pursuant to the Series A Preferred Stock Purchase Agreement. Pursuant to the Series A Purchase Agreement, the Company sold each share of Series A Preferred Stock for $6.69 per share. The shares of Series A Preferred Stock were offered and sold pursuant to the federal exemption from registration set forth in Rule 506 of Regulation D under the Securities Act. The Series A Financing terminated in December 2015 and Groundfloor does not intend to sell any additional shares of Series A Preferred Stock.

 

On November 1, 2016, Holdings, the Company’s wholly-owned subsidiary, as borrower, entered into a revolving credit facility (the “Revolver”) with Revolver Capital. The credit agreement (the “Credit Agreement”) provides for revolving loans up to a maximum aggregate principal amount of $1.5 million (the “Revolving Credit Commitments”). The Revolver will be used for bridge funding of underlying loans pending qualification from the SEC. The term of the Revolver was extended in October 2017 and will mature on April 4, 2019.

 

On November 11, 2016, the Company entered into a First Amendment to the Credit Agreement, which amended the Credit Agreement to increase the Revolving Credit Commitments thereunder from $1.5 million to $2.5 million. On December 21, 2016, the Company entered into a Second Amendment to the Credit Agreement, which amended the Credit Agreement to increase the Revolving Credit Commitments thereunder from $2.5 million to $3.5 million. On April 7, 2017, the Company entered into a Third Amendment to the Credit Agreement, which increased the Revolving Credit Commitments thereunder from $3.5 million to $4.5 million. The other terms of the credit facility remain unchanged.

 

 

 

On April 4, 2018, the Credit Agreement dated as of November 2, 2016, as amended by the First Amendment as of November 14, 2016, the Second Amendment dated as of February 22, 2017 and the Third Amendment dated as of April 7, 2017, was assigned to ACM Alamosa DA LLC. The Company and the lender agreed to amend and restate the Original Credit Agreement in its entirety. The other terms of the credit facility remain unchanged.

 

On September 18, 2018, the Company increased the Revolving Credit Commitments thereunder from $4,500,000 to $5,500,000. In connection with the increase the Company paid a $10,000 commitment fee, which is capitalized and amortized over a twelve-month period. The other terms of the credit facility remain unchanged.

 

On August 8, 2019, the Company increased the Revolving Credit Commitments thereunder from $5,500,000 to $8,500,000. In connection with the increase the Company paid a $30,000 commitment fee, which is capitalized and amortized over a twelve-month period. The other terms of the credit facility remain unchanged.

 

On October 1, 2019, the Company increased the Revolving Credit Commitments thereunder from $8,500,000 to $10,500,000. In connection with the increase the Company paid a $20,000 commitment fee, which is capitalized and amortized over a twelve-month period. The other terms of the credit facility remain unchanged.

 

In March 2020, in connection with the novel coronavirus pandemic and the related tightening of credit markets, GROUNDFLOOR’s creditor informed the Company that it would cease funding of draws on the Revolver for an undefined period of time and replace the lost financing by expanding on other existing sources of lending capital, most importantly the GROUNDFLOOR Notes program. In response, the Company developed a plan to repay the outstanding principal and accrued interest on the Revolver. The outstanding principal and accrued interest on the Revolver were repaid in full in June 2020 and no outstanding balance remains as of June 30, 2020. At the time of issuance of these condensed consolidated financial statements, the future of the Revolver credit arrangement remains unknown.

 

On January 11, 2017, Groundfloor entered into the ISB Note in favor of ISB for a principal sum of $1.0 million. Groundfloor paid to ISB an origination fee of $10 thousand concurrently with the funding by ISB of the principal of the ISB Note. Groundfloor subsequently entered into an amendment to the ISB Note extending the repayment schedule in return for a $5 thousand amendment fee, a second amendment increasing the principal amount outstanding to $2.0 million for a $30 thousand amendment fee, a third amendment further extending the repayment schedule among other terms described below in return for a $10 thousand amendment fee, and a fourth amendment further extending the repayment schedule among other terms described below for a $10 thousand amendment fee.

 

 

 

The ISB Note incurs interest at the rate of 8% per annum from January 11, 2017 until September 30, 2017 and 14% per annum from October 1, 2017 until payment in full of the ISB Note, in each case calculated on the basis of a 360-day year for the actual number of days elapsed. The ISB Note must be repaid as follows: (i) $50,000, plus any accrued but unpaid interest thereon, commencing on April 30, 2019, and each month thereafter, (ii) $1,000,000, plus any accrued but unpaid interest thereon, is due and payable on September 30, 2019, and (iii) any remaining outstanding principal amount, plus any remaining accrued but unpaid interest, is due and payable on December 31, 2020. As of the date hereof, the principal sum was paid in full and the note is no longer outstanding.

 

The ISB Note includes certain financial covenants related to the Company’s quarterly financial results and operating capital. The ISB Note is subject to customary event of default provisions. Upon the occurrence of any event of default, the interest rate under the ISB Note shall increase by 7%. As collateral security for the ISB Note, Groundfloor granted to ISB a first priority security interest in all of its assets, subject to certain exceptions. Among other things, the security interest specifically excludes (i) any assets serving as collateral for the Company’s credit facility with Revolver Capital; (ii) any Loans for which a series of LROs has been issued, regardless of whether such Loans and corresponding series of LROs have been originated and issued by us or one of our subsidiaries; and (iii) the equity interest in any subsidiary formed by us for the sole purpose of issuing Loans and corresponding series of LROs.

 

In connection with the third amendment to the ISB Note, the Company agreed to issue to ISB a warrant for the purchase of shares of our common stock on the first day of each quarter commencing on October 1, 2017 until the ISB Note is repaid in full for the purchase of the following number of shares: (i) for each quarter until and including the first quarter of 2019, 4,000 shares of common stock; (ii) for the second quarter of 2019, 3,500 shares of common stock, (iii) for the third quarter of 2019, 2,300 shares of common stock; and (iv) for the fourth quarter of 2019, 1,100 shares of common stock.

 

On April 1, 2019, the 2017 Note was amended and restated for a fee of $10,000, to be deferred and amortized over the life of the 2017 Note. The stated interest rate under the amended and restated promissory note and security agreement (“Restated Note”) was increased to 14%. Under the terms of the Restated Note, $50,000 of the principal amount plus any accrued but unpaid interest thereon was due and payable commencing on April 30, 2019, and each month thereafter; $1.0 million of the principal amount plus any accrued but unpaid interest was due and payable on September 30, 2019; and any remaining outstanding principal and accrued interest was due and payable on December 31, 2020. The agreement states that the Company may prepay the 2017 Note without premium or penalty.

 

 

 

In 2019, the Company made five payments of principal and accrued interest as outlined in the Restated Note agreement. The Company then prepaid the outstanding principal on the Restated Note in full, with accrued interest, on September 24, 2019.

 

As of December 31, 2019, there was no remaining balance outstanding on the Company’s Consolidated Balance Sheets. Amortization of deferred financing costs related to the 2017 ISB Note was $25,000 for the year ended December 31, 2019. Amortization of the related debt discount was $223,000 for the year ended December 31, 2019.

 

From March 2017 to December 2017, Groundfloor issued subordinated convertible notes (the “Subordinated Convertible Notes”) to investors for total proceeds of $2.1 million (the “2017 Note Financing”). On October 27, 2017, the Company entered into amendments to the outstanding Subordinated Convertible Notes and related Subordinated Convertible Promissory Note Purchase Agreement raising the principal amount of Subordinated Convertible Notes that may be sold to $2.0 million, extending the maturity date, and allowing the Subordinated Convertible Notes, at the option of the holders, to convert outstanding principal and accrued but unpaid interest into shares of the Company’s common stock as described below. In November 2017, Groundfloor issued Subordinated Convertible Notes to investors for additional proceeds of $675 thousand. Furthermore, in December 2017, Groundfloor oversubscribed and issued Subordinated Convertible Notes to investors for additional proceeds of $550 thousand. The notes incur interest at the rate of 8% per annum. The outstanding principal and all accrued but unpaid interest is due and payable on the earlier of September 30, 2019 or the consummation of a sale of the Company by consolidation, merger, change of majority ownership, or sale or other disposition of all or substantially all of the assets of the Company (the “Maturity Date”). In the event of a closing of a preferred stock financing with gross proceeds of at least $8.0 million (“Qualified Preferred Financing”) prior to the Maturity Date, the outstanding principal and all accrued but unpaid interest would become automatically converted into shares of our preferred stock issued in the financing at a price per share equal to 75% of the price per share of the preferred stock financing. In the event of a closing of a common stock financing under Regulation A with gross proceeds of at least $3.0 million (“Qualified Common Financing”) prior to the Maturity Date, then each holder may elect, in its discretion, to convert the outstanding principal and all accrued but unpaid interest into shares of our common stock issued in the financing at a price per share equal to 90% of the price per share of the common stock financing. The indebtedness represented by the Subordinated Notes is subordinated in all respects to the principal of (and premium, if any), unpaid interest on and amounts reimbursable, fees, expenses, costs of enforcement, and other amounts due in connection with the Revolver and ISB Note.

 

 

 

On February 9, 2018, Groundfloor 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, Groundfloor is 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. Groundfloor is also offering a Bonus Share Program where Groundfloor may issue up to 30,000 additional bonus shares of our common stock pursuant to the terms of this Offering Circular. As of December 31, 2018, Groundfloor issued 437,917 shares of common stock in the 2018 Common Stock Offering for $4.2 million in proceeds.

 

On October 12, 2018, the Company entered into a common stock purchase agreement for private placement of 125,000 shares of the Company’s common stock for proceeds of $1.5 million.

 

In January 2019, the Company launched an offering of its common stock under Tier 2 of Regulation A pursuant to an offering statement on Form 1-A qualified by the SEC (the “2019 Common Stock Offering”). The Company offered up to 900,000 shares of common stock at $15.00 per share, with a minimum investment of $150, or 10 shares of common stock. According to the terms of the offering statement, the aggregate initial offering price of the common stock will not exceed $13,500,000 in any 12-month period, and there is no minimum offering amount. The Company may issue up to 30,000 additional bonus shares through an incentive program available to investors who had provided a previous indication of interest in investing in the Company.

 

The 2019 Common Stock Offering closed on a rolling basis from January 2019 to July 2019. As a result of the offering, the Company received gross proceeds of $3.1 million in exchange for the issuance of 214,535 shares of common stock, including 6,800 bonus shares issued through the incentive program described above.

 

In conjunction with the 2019 Common Stock Offering, certain holders of Restated Subordinated Convertible Notes converted their outstanding principal and accrued interest into common stock at a contractually agreed upon 10% discount to the offered price. In 2019, $60,000 in notes principal and accrued interest were converted into 4,440 shares of common stock.

 

From September 2019 to December 2019, the Company issued subordinated convertible notes (the “2019 Subordinated Convertible Notes”) to Investors for total proceeds of $3.6 million. The 2019 Subordinated Convertible Notes bear interest at the rate of 10% per annum. The outstanding principal and all accrued but unpaid interest is due and payable on the earlier of August 30, 2021, or the consummation of a sale of the Company by consolidation, merger, change of majority ownership, or sale or other disposition of all or substantially all of the assets of the Company (the “Maturity Date”). In the event of a closing of a preferred stock financing with gross proceeds of at least $8.0 million (“Qualified Preferred Financing”) prior to the Maturity Date, the outstanding principal and all accrued but unpaid interest may be converted into shares of preferred stock issued in the financing at a price per share equal to 90% of the offering price per share in the Qualified Preferred Financing. At any time after six months after the issuance of a 2019 Subordinated Convertible Note, the investor may convert all or a portion of the outstanding principal and accrued interest into shares of common stock at 90% of the per share price of common stock at the time of conversion, as reasonably determined by the Board. The indebtedness represented by the 2019 Subordinated Convertible Notes is subordinated in all respects to the principal of (and premium, if any), unpaid interest on and amounts reimbursable, fees, expenses, costs of enforcement, and other amounts due in connection with the Revolver.

 

 

 

Because of the contractual right of noteholders to convert their holdings to common stock at a discount to fair value, the Company determined that the 2019 Subordinated Convertible Notes contain a beneficial conversion feature. The Company recognized this beneficial conversion feature as a debt discount and component of additional paid-in capital at the in-the-money amount of $0.4 million at the time of issuance. The discount is being amortized to interest expense until the earlier of maturity or exercise of the conversion option.

 

Certain investors in 2019 Subordinated Convertible Notes purchased their shares through the issuance of advance agreements to the Company (“Advances”). The Advances accrue interest at a rate of 10% per annum and are payable to the Company within an initial term of 30 days, with an investor option to extend the term by 30 days, after which the Advances begin accruing interest at a rate of 14% per annum. The funds advanced to the investors are subject to recourse by the Company against the investors. The Advances, with principal sum of $0.3 million as of December 31, 2019, are recorded as a component of “Other current assets” in the Company’s Consolidated Balance Sheets. The Company collected the Advances of $0.3 million during the six month period June 30, 2020.

 

Principal of $3.6 million on the 2019 Subordinated Convertible Notes, net of an unamortized discount of $0.4 million, was outstanding as of June 30, 2020. Accrued interest on the 2019 Subordinated Convertible Notes, presented within “Accounts payable and accrued expenses” in the Company’s Consolidated Balance Sheets, was $0.2 million as of June 30, 2020.

 

On February 1, 2020, Groundfloor 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 “2020 Common Stock Offering”). As described in this Offering Circular, Groundfloor is offering up to 900,000 shares of our common stock at $17.50 per share, with a minimum investment of $175, or 10 shares of common stock. As of June 30, 2020, Groundfloor issued 30,745 shares of common stock in the 2020 Common Stock Offering for $2.6 million in proceeds.

 

 

 

In April 2020, the Company obtained an $829,100 loan under the Paycheck Protection Program (“PPP”). The Company plans to use the PPP Loan proceeds to cover payroll costs, rent and utilities in accordance with the relevant terms and conditions of the CARES Act.

 

Groundfloor has incurred losses since its inception, and Groundfloor expects it will continue to incur losses for the foreseeable future. Groundfloor requires cash to meet its operating expenses and for capital expenditures. To date, Groundfloor has funded its cash requirements with proceeds from its convertible note and preferred stock issuances. Groundfloor anticipate that it will continue to incur substantial net losses as it grows the Groundfloor Platform. Groundfloor does not have any committed external source of funds, except as described above. To the extent our capital resources are insufficient to meet its future capital requirements, Groundfloor will need to finance its cash needs through public or private equity offerings or debt financings. Additional equity or debt financing may not be available on acceptable terms, if at all. On October 30, 2017, Groundfloor filed an offering statement on Form 1-A with the SEC for a proposed offering of its common stock. On February 9, 2018, Groundfloor’s offering statement on Form 1-A was qualified to issue Groundfloor common stock.

 

Plan of Operation

 

Prior to September 2015, Groundfloor’s 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 Groundfloor’s 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, Groundfloor has not issued, and do not intend to issue in the future, any additional Georgia Notes. Since that time, Groundfloor has qualified two additional offering statements on Form 1-A in addition to an offering statement on Form 1-A qualified for GRE 1, its wholly-owned subsidiary, in each case under Tier 1 of Regulation A. In January 2018, Groundfloor’s 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 Groundfloor may offer and sell to $50 million, less any other securities sold by Groundfloor under Regulation A (including pursuant to this Offering Circular). Groundfloor has filed, and intends to continue to file, post-qualification amendments to the LRO Offering Circular on a regular basis to include additional series of LROs. Groundfloor expect to expand the number of states in which Groundfloor offers and sells LROs during the next 12 months. With this increased geographic footprint, Groundfloor expects 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.

 

 

 

 

As the volume of Groundfloor loans and corresponding offerings increase, Groundfloor plans to continue the current strategy of raising equity and, in limited circumstances, debt financing to finance our operations until Groundfloor reaches profitability and becomes cash-flow positive, which Groundfloor does not expect to occur before 2020. Future equity or debt offerings by Groundfloor will be necessary to fund the significant investments in website development, security, investor sourcing, loan processing and marketing necessary to reach profitability. Groundfloor expects to hire more staff to support its expected growth in operations and to invest heavily in marketing throughout the next year.

 

Off-Balance Sheet Arrangements

 

We do not engage in any off-balance sheet financing activities. We do not have any interest in entities referred to as variable interest entities, which include special purpose entities and other structured finance entities.

 

Material Trends, Events, and Uncertainties

 

Despite COVID-19, funding of draws on outstanding loans to developers has remained relatively steady in March through the end of June 30, 2020, as much of the Southeast United States, where our borrower projects are concentrated, did not require cessation of construction projects. To date, we have not had significant difficulty funding our operations through LRO offerings, other Regulation A offerings, and other financing sources. We continue to see adequate credit performance in our Loan portfolio, and see robust demand for Loans by commercial borrowers. Our retail investment channel continues to invest in LROs on our platform and we continue to sell a relatively small number of loans to institutional purchasers. Moreover, our technology platform has enabled the Company to deploy a work from home environment for its employees, such that work continues more or less normally.

 

As a result, the Company has not yet experienced material changes in the funding amounts provided to developers due to material trends, events and uncertainties, including COVID-19. However, if the economic impacts of COVID-19 are sustained through the end of 2020 and into the first quarter of 2021, our business may be materially impacted. As of the date of this Offering Circular, the extent to which the COVID-19 pandemic may materially impact the amounts of funding provided to developers and the Company’s financial condition, liquidity or results of operations is uncertain.

 

 

 

MANAGEMENT DISCUSSION AND ANALYSIS FOR GROUNDFLOOR FINANCE INC.

(audited, Year ending 2019 and 2018)

 

Summary Financial Information of Groundfloor Finance

 

The consolidated statements of operations data set forth below with respect to the fiscal years ended December 31, 2019 and December 31, 2018 are derived from, and are qualified by reference to, the consolidated financial statements included in this Offering Circular and should be read in conjunction with those financial statements and notes thereto.

 

   Year Ended
December 31,
2019
   Year Ended
December 31,
2018
 
Operating revenue:          
Origination fees  $2,748,150   $1,183,583 
Loan servicing revenue   1,964,284    988,203 
Total operating revenue   4,712,434    2,171,786 
Net interest income:          
Interest income   6,323,801    3,178,629 
Interest expense   (4,633,122)   (2,460,454)
Net interest income   1,690,679    718,175 
Net revenue   6,403,113    2,889,961 
Cost of revenue   (779,756)   (423,776)
Gross profit   5,623,357    2,466,185 
Operating expenses:          
General and administrative   2,514,202    1,736,515 
Sales and customer support   2,939,149    2,456,875 
Development   1,125,071    1,006,840 
Regulatory   208,874    193,538 
Marketing and promotions   1,515,558    2,169,567 
Total operating expenses   8,302,854    7,563,335 
Loss from operations   (2,679,497)   (5,097,150)
Interest expense   1,157,769    1,003,505 
Net loss  $(3,837,266)  $(6,100,655)

 

Funding Loan Advances

 

To date, the Company has entered into four financial arrangements designed to facilitate Loan advances.

 

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 December 31, 2019 the capacity is $10.5 million and the maturity date is November 2, 2020, and is extendable for another 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.

 

When Holdings is not able to draw sufficient funds from this credit facility fast enough, the Company may elect to provide Holdings with a short term, non-interest bearing, full recourse loan using its operational capital to fund advances.

 

 

 

On January 11, 2017, Groundfloor entered into the ISB Note (as defined below) for a principal sum of $1.0 million, which was subsequently increased to $2.0 million, for the purpose of using the proceeds for our loan advance program, but may use the proceeds for other purposes in our sole discretion. The outstanding principal and accrued interest on the ISB Note were repaid in full in September 2019.

 

Starting in November 2018 and continuing throughout 2019, Groundfloor entered into various GROUNDFLOOR Notes, secured promissory notes, with accredited investors. The GROUNDFLOOR Notes are used for the purpose of the Company to originate, buy, and service loans for the purpose of building, buying, or rehabilitating single family and multifamily structures, or buying land for commercial purposes. The principal outstanding as of December 31, 2019 was $6.8 million.

 

In November and December 2019, Groundfloor entered into various short-term, secured promissory notes with accredited investors. Proceeds from the notes are used by the Company for originating, buying, and servicing loans to developers for the purpose of building, buying, and rehabilitating single family and multifamily structures, or buying land for commercial purposes. The aggregate principal outstanding of these loans as of December 31, 2019, was $1.3 million.

 

Financial Position and Operating History

 

In connection with their audit for the years ended December 31, 2019 and December 31, 2018, our auditors raised substantial doubt about our ability to continue as a going concern due to our losses and cash outflows from operations. To strengthen our financial position, Groundfloor have continued to raise additional funds through convertible debt and equity offerings.

 

Groundfloor has a limited operating history and have incurred a net loss since our inception. Our net loss was $3.8 million for the year ended December 31, 2019. To date, Groundfloor has 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. Groundfloor has 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, Groundfloor expects 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.

 

The proceeds from the sale of LROs described in this Offering Circular will not be used to directly finance our operations. Groundfloor will use the proceeds from sales of LROs exclusively to originate the Loans that correspond to the corresponding series of LROs sold to investors. However, Groundfloor collects origination and servicing fees on Loans Groundfloor is able to make to Developers, which Groundfloor recognizes as revenue. The more Loans Groundfloor is able to fund through the proceeds of our offerings, the more fee revenue Groundfloor will make. With increased fee revenue, our financial condition will improve. However, Groundfloor does not anticipate this increased fee revenue to be able to fully support our operations through the next twelve months.

 

Groundfloor’s operating plan calls for a continuation of the current strategy of raising equity and, in limited circumstances, debt financing to finance its operations until Groundfloor reach profitability and become cash-flow positive, which Groundfloor does not expect to occur before 2020. Groundfloor’s operating plan calls for significant investments in website development, security, investor sourcing, loan processing and marketing, and for several rounds of equity financing before Groundfloor reaches profitability.

 

Groundfloor completed its Series A Financing in December 2015, through which Groundfloor raised an aggregate of approximately $5.0 million (including the cancellation of the 2015 Bridge Notes (as defined below). Groundfloor raised an aggregate of $2.1 million as of December 31, 2017 through Groundfloor’s 2017 Note Financing (as defined below). Groundfloor has raised approximately $4.2 million in a 2018 Common Stock Offering and $3.1 million in a 2019 Common Stock Offering, as well as $3.6 million through Groundfloor’s 2019 Note Offering, in order to fund operations. See “Liquidity and Capital Resources” below.

 

 

 

Results of Operations

 

Fiscal Year Ended December 31, 2019 and 2018

 

   For the year
ended
December 31,
2019
   For the year
ended
December 31,
2018
 
Non-interest revenue:          
Origination fees  $2,748,150   $1,183,583 
Loan servicing revenue   1,964,284    988,203 
Total operating revenue   4,712,434    2,171,786 
Net interest income:          
Interest income   6,323,801    3,178,629 
Interest expense   (4,633,122)   (2,460,454)
Net interest income   1,690,679    718,175 
Net revenue   6,403,113    2,889,961 
Cost of revenue   (779,756)   (423,776)
Gross profit   5,623,357    2,466,185 
Operating expenses:          
General and administrative   2,514,202    1,736,515 
Sales and customer support   2,939,149    2,456,875 
Development   1,125,071    1,006,840 
Regulatory   208,874    193,538 
Marketing and promotions   1,515,558    2,169,567 
Total operating expenses   8,302,854    7,563,335 
Loss from operations   (2,679,497)   (5,097,150)
Interest expense   1,157,769    1,003,505 
Net loss  $(3,837,266)  $(6,100,655)

 

Net Revenue

 

Net revenue for the years ended December 31, 2019 and 2018 was $6.4 million and $2.9 million, respectively. The Company facilitated the origination of 646 and 325 developer loans during the years ended December 31, 2019 and 2018, respectively. Origination fees and loan servicing revenue was earned through the origination of developer loans. Origination fees are determined by the term and credit risk of the developer loan and range from 1.0% to 6.0%. The fees are deducted from the loan proceeds at the time of issuance. Loan servicing revenue are fees incurred in servicing the developer loans. Additionally, Groundfloor incurred net interest income during the loan advance period. The increase in net interest income is due to the increase in overall portfolio size as the Company originated 99% more loans than the previous period. Groundfloor expects operating revenue to increase as its loan application and processing volume increases.

 

Gross Profit

 

Gross profit for the years ended December 31, 2019 and 2018 was $5.6 million and $2.5 million, respectively. The increase in gross profit was due to $3.5 million in additional net revenue, offset by an increase in cost of revenue of $0.3 million. Cost of revenue consists primarily of payment processing and vendor costs associated with facilitating and servicing loans. Groundfloor expects gross profit to increase as its loan application and processing volume increases.

 

General and Administrative Expense

 

General and administrative expense for the years ended December 31, 2019 and 2018 were $2.5 million and $1.7 million, respectively, an increase of $0.8 million or 41.3%. General and administrative expenses consists primarily of employee compensation cost, professional fees, consulting fees and rent expense. The increase was driven primarily by additional employees added in 2019, and secondarily by higher rent expense attributable to a full year in a new office space. Groundfloor expects general and administrative expense will continue to increase due to the planned investment in business infrastructure required to support its growth.

 

Sales and Customer Support

 

Sales and customer support expense for the years ended December 31, 2019 and 2018 were $2.9 million and $2.5 million, respectively, an increase of $0.4 million or 19.6%. Sales and customer support expense consists primarily of employee compensation cost. The increase was primarily due to an increase in compensation related to increased headcount during the year to build out the sales and origination functions to support current and future growth. Groundfloor expect sales and customer support expense will continue to increase due to the planned investment in developer acquisition and customer support required to support its growth.

 

 

 

Development Expense

 

Development expense for the years ended December 31, 2019 and 2018 were $1.2 million and $1.0 million, respectively, an increase of $0.2 million or 17.8%. Development expense consists primarily of employee compensation cost and the cost of subcontractors who work on the development and maintenance of our website and lending platform. The increase was primarily due to increases in compensation cost related to increased headcount. Groundfloor expects development expense will continue to increase due to the planned investments in our website and lending platform required to support our technology infrastructure as Groundfloor grows.

 

Regulatory Expense

 

Regulatory expense for the years ended December 31, 2019 and 2018 were $0.2 million, respectively. Regulatory expense consists primarily of legal fees and compensation cost required to maintain SEC and other regulatory compliance. Groundfloor did not pursue additional regulatory paths during the year-ended December 31, 2019 and 2018 and therefore fees remained consistent to the prior period. Groundfloor expects regulatory expense may increase due to the additional expense related to qualifying our offerings with the SEC, including our transition to Tier 2 under Regulation A, which will require complying with ongoing reporting requirements with the SEC and certain filing fees with applicable state regulatory authorities.

 

Marketing and Promotions Expense

 

Marketing and promotions expense for the years ended December 31, 2019 and 2018 were $1.5 million and $2.2 million, respectively, a decrease of $0.7 million or 30.1%. Marketing and promotions expense consists primarily of consulting expense, compensation cost as well as promotional and advertising expense. The decrease was primarily due to a decrease in investor and borrower acquisition, which drove a decrease of $0.4 million in advertising and promotions. Groundfloor expects that marketing and promotions expense will increase due to the planned investment in investor and developer acquisition activities required to support its growth.

 

Interest Expense

 

Interest expense for the year ended December 31, 2019 and 2018, excluding interest paid on limited recourse obligations and GROUNDFLOOR Notes, was $1.2 million and $1.0 million, respectively, an increase of $0.2 million. The company incurred $0.8 million in interest expense warehousing loans on the Revolver. Cash paid for interest on the Revolver was $0.8 million in the year ended December 31, 2019. Interest expense related to the 2017 Subordinated Convertible Notes and 2019 Subordinated Convertible Notes (as defined below) of $0.1 million was recognized during the year ended December 31, 2019. Interest expense related to the 2017 ISB Note of $0.2 million was recognized during the year end December 31, 2019. Cash paid for interest related to the 2017 ISB Note was $0.2 million for the year ended December 31, 2019. Interest expense related to various other short-term notes issued in late 2019 was less than $0.1 million during the year ended December 31, 2019, and is accrued in “Accounts payable and accrued expenses” as of December 31, 2019.

 

Net Loss

 

Net loss for the years ended December 31, 2019 and 2018 was $3.8 million and $6.1 million, respectively, a net loss decrease of $2.3 million or 37.1%. Gross profit increased $3.1 million or 124.0% in 2019 relative to 2018, while operating expenses increased only $0.7 million or 9.8% over the same period, reflecting that the Company’s investments in its workforce, brand, and technology in prior years have driven higher revenues and gross profit in the current year. Operating expenses for the years ended December 31, 2019 and 2018 were $8.3 million and $7.6 million, respectively. Operating expenses consist primarily of compensation cost, legal fees, consulting and subcontractor cost as well as advertising and promotional expense. The increase was primarily due to higher compensation cost as Groundfloor added more staff to support business growth, increased consulting expense related to marketing operations, increased professional service fees and increased software development expense.

 

Liquidity and Capital Resources

 

The consolidated financial statements included in this Offering Circular have been prepared assuming that Groundfloor will continue as a going concern; however, the conditions discussed below raise substantial doubt about our ability to continue as a going concern. The consolidated financial statements do not include any adjustments to reflect the possible future effects on the recoverability and classification of assets or the amounts and classifications of liabilities that may result should Groundfloor be unable to continue as a going concern.

 

Groundfloor incurred a net loss for the years ended December 31, 2019 and December 31, 2018, and have an accumulated deficit as of December 31, 2019 of $21.5 million. Since our inception, Groundfloor have financed our operations through debt and equity financing from various sources. Groundfloor are dependent upon raising additional capital or seeking additional equity financing to fund our current operating plans for the foreseeable future. Failure to obtain sufficient equity financing and, ultimately, to achieve profitable operations and positive cash flows from operations could adversely affect our ability to achieve its business objectives and continue as a going concern. Further, there can be no assurance as to the availability or terms upon which the required financing and capital might be available.

 

 

 

   For the year
ended
December 31,
2019
   For the year
Ended
December 31,
2018
 
Operating provided by (used in) activities  $769,848   $(5,130,539)
Investing used in activities   (40,097,871)   (18,671,601)
Financing provided by activities   39,957,827    23,517,362 
Net increase (decrease) in cash  $629,804   $(284,778)

 

Net cash provided by operating activities for the year ended December 31, 2019 was $0.8 million and net cash (used in) for the year ended December 31, 2018 was $5.1 million. Net cash provided by (used in) operating activities funded salaries, expense for contracted marketing, development and other professional service providers and expense related to sales and marketing initiatives.

 

Net cash used in investing activities for the years ended December 31, 2019 and 2018 was $40.1 million and $18.7 million, respectively. Net cash used in investing activities primarily represents loan payments to developers offset by the repayment of loans to developers.

 

Net cash provided by financing activities for the years ended December 31, 2019 and 2018 was $40.0 million and $23.5 million, respectively. Net cash provided by financing activities primarily represents proceeds from the issuance of Georgia Notes and LROs to investors through the Groundfloor Platform, proceeds from the 2019 Common Stock Offering and issuance of convertible notes, offset by repayments of Georgia Notes and LROs to investors.

 

Groundfloor issued and sold 91,259 shares Series Seed Preferred Stock at an initial closing on December 5, 2014 (the “Series Seed Initial Closing”), for total proceeds of $475 thousand, pursuant to the Series Seed Preferred Stock Purchase Agreement (the “Series Seed Purchase Agreement”), dated December 5, 2014 between us and the investors named therein (the “Series Seed Investors”). In addition, at the Series Seed Initial, the entire unpaid principal and interest outstanding under certain previously-issued convertible promissory notes converted into 276,391 additional shares of Series Seed Preferred Stock. Groundfloor issued and sold an aggregate of 201,146 additional shares of Series Seed Preferred Stock, for total proceeds of $1.1 million, at subsequent closings on April 1, 2015, May 12, 2015 and August 31, 2015 (collectively, the “Series Seed Subsequent Closings” and together, with the Series Seed Initial Closing, the “Series Seed Financing”). Pursuant to the Series Seed Purchase Agreement, the Company sold each share of Series Seed Preferred Stock for $5.205 per share. In connection with the Series Seed Financing, Groundfloor also entered into an Investors’ Rights Agreement with the Series Seed Investors and certain holders of our common stock, which was subsequently amended and restated in connection with the Series A Financing. The shares of Series Seed Preferred Stock were offered and sold pursuant to the federal exemption from registration set forth in Rule 506 of Regulation D under the Securities Act. The Series Seed Financing terminated following the final Series Seed Subsequent Closing and Groundfloor does not intend to sell any additional shares of Series Seed Preferred Stock.

 

During November 2015, Groundfloor entered into promissory notes with investors for total proceeds of $250 thousand (the “2015 Bridge Notes”). The notes incur interest at the rate of 12% per annum. The outstanding principal and all accrued but unpaid interest was due and payable on the earlier of May 5, 2016 or the closing of an equity financing with gross proceeds of at least $4.3 million. The 2015 Bridge Notes and all accrued but unpaid interest thereunder were cancelled as consideration for 37,561 shares of Series A Preferred Stock in connection with the Series A Initial Closing. The notes were offered and sold pursuant to the federal exemption from registration set forth in Rule 506 of Regulation D under the Securities Act. The 2015 Bridge Notes Financing terminated with the closing of the Series A Financing.

 

In addition, Groundfloor issued and sold 709,812 shares of Series A Preferred Stock at an initial closing on November 24, 2015 and subsequent closings through December 2015, for total gross proceeds of approximately $4.7 million, pursuant to the Series A Preferred Stock Purchase Agreement. Pursuant to the Series A Purchase Agreement, the Company sold each share of Series A Preferred Stock for $6.69 per share. The shares of Series A Preferred Stock were offered and sold pursuant to the federal exemption from registration set forth in Rule 506 of Regulation D under the Securities Act. The Series A Financing terminated in December 2015 and Groundfloor does not intend to sell any additional shares of Series A Preferred Stock.

 

On November 1, 2016, Holdings, the Company’s wholly-owned subsidiary, as borrower, entered into a revolving credit facility (the “Revolver”) with Revolver Capital. The credit agreement (the “Credit Agreement”) provides for revolving loans up to a maximum aggregate principal amount of $1.5 million (the “Revolving Credit Commitments”). The Revolver will be used for bridge funding of underlying loans pending approval from the SEC. The term of the Revolver was extended in October 2017 and will mature on April 4, 2019.

 

 

 

On November 11, 2016, the Company entered into a First Amendment to the Credit Agreement, which amended the Credit Agreement to increase the Revolving Credit Commitments thereunder from $1.5 million to $2.5 million. On December 21, 2016, the Company entered into a Second Amendment to the Credit Agreement, which amended the Credit Agreement to increase the Revolving Credit Commitments thereunder from $2.5 million to $3.5 million. On April 7, 2017, the Company entered into a Third Amendment to the Credit Agreement, which increased the Revolving Credit Commitments thereunder from $3.5 million to $4.5 million. The other terms of the credit facility remain unchanged.

 

On April 4, 2018, the Credit Agreement dated as of November 2, 2016, as amended by the First Amendment as of November 14, 2016, the Second Amendment dated as of February 22, 2017 and the Third Amendment dated as of April 7, 2017, was assigned to ACM Alamosa DA LLC. The Company and the lender agreed to amend and restate the Original Credit Agreement in its entirety. The other terms of the credit facility remain unchanged.

 

On September 18, 2018, the Company increased the Revolving Credit Commitments thereunder from $4,500,000 to $5,500,000. In connection with the increase the Company paid a $10,000 commitment fee, which is capitalized and amortized over a twelve-month period. The other terms of the credit facility remain unchanged.

 

On August 8, 2019, the Company increased the Revolving Credit Commitments thereunder from $5,500,000 to $8,500,000. In connection with the increase the Company paid a $30,000 commitment fee, which is capitalized and amortized over a twelve-month period. The other terms of the credit facility remain unchanged.

 

On October 1, 2019, the Company increased the Revolving Credit Commitments thereunder from $8,500,000 to $10,500,000. In connection with the increase the Company paid a $20,000 commitment fee, which is capitalized and amortized over a twelve-month period. The other terms of the credit facility remain unchanged.

 

As of December 31, 2019, the Company had $7,000 of available borrowings and $10.5 million outstanding under the Revolver as presented within revolving credit facility on the consolidated balance sheets. As of December 31, 2019 and 2018, the Company reflected $33,000 and $7,000, respectively, of deferred financing cost related to the Revolver as a reduction to the revolving credit facility on the consolidated balance sheets.

 

On January 11, 2017, Groundfloor entered into the ISB Note in favor of ISB for a principal sum of $1.0 million. Groundfloor paid to ISB an origination fee of $10 thousand concurrently with the funding by ISB of the principal of the ISB Note. Groundfloor subsequently entered into an amendment to the ISB Note extending the repayment schedule in return for a $5 thousand amendment fee, a second amendment increasing the principal amount outstanding to $2.0 million for a $30 thousand amendment fee, and a third amendment further extending the repayment schedule among other terms described below in return for a $10 thousand amendment fee.

 

The ISB Note incurs interest at the rate of 8% per annum from January 11, 2017 until September 30, 2017 and 14% per annum from October 1, 2017 until payment in full of the ISB Note, in each case calculated on the basis of a 360-day year for the actual number of days elapsed. The ISB Note must be repaid as follows: (i) $250,000, plus any accrued but unpaid interest thereon, was due and payable on June 30, 2017, (ii) $250,000, plus any accrued but unpaid interest thereon, is due and payable on March 31, 2019, (iii) $500,000, plus any accrued but unpaid interest thereon, is due and payable on June 30, 2019, (iv) $500,000, plus any accrued but unpaid interest thereon, is due and payable on September 30, 2019, and (v) any remaining outstanding principal amount, plus any remaining accrued but unpaid interest, is due and payable on December 31, 2019. As of the date hereof, the principal sum of $1.8 million remains outstanding.

 

The ISB Note includes certain financial covenants related to the Company’s quarterly financial results and operating capital. The ISB Note is subject to customary event of default provisions. Upon the occurrence of any event of default, the interest rate under the ISB Note shall increase by 7%. As collateral security for the ISB Note, Groundfloor granted to ISB a first priority security interest in all of its assets, subject to certain exceptions. Among other things, the security interest specifically excludes (i) any assets serving as collateral for the Company’s credit facility with Revolver Capital; (ii) any Loans for which a series of LROs has been issued, regardless of whether such Loans and corresponding series of LROs have been originated and issued by us or one of our subsidiaries; and (iii) the equity interest in any subsidiary formed by us for the sole purpose of issuing Loans and corresponding series of LROs.

 

In connection with the third amendment to the ISB Note, the Company agreed to issue to ISB a warrant for the purchase of shares of our common stock on the first day of each quarter commencing on October 1, 2017 until the ISB Note is repaid in full for the purchase of the following number of shares: (i) for each quarter until and including the first quarter of 2019, 4,000 shares of common stock; (ii) for the second quarter of 2019, 3,500 shares of common stock, (iii) for the third quarter of 2019, 2,300 shares of common stock; and (iv) for the fourth quarter of 2019, 1,100 shares of common stock.

 

 

 

 

On April 1, 2019, the 2017 Note was amended and restated for a fee of $10,000, to be deferred and amortized over the life of the 2017 Note. The stated interest rate under the amended and restated promissory note and security agreement (“Restated Note”) was increased to 14%. Under the terms of the Restated Note, $50,000 of the principal amount plus any accrued but unpaid interest thereon was due and payable commencing on April 30, 2019, and each month thereafter; $1.0 million of the principal amount plus any accrued but unpaid interest was due and payable on September 30, 2019; and any remaining outstanding principal and accrued interest was due and payable on December 31, 2020. The agreement states that the Company may prepay the 2017 Note without premium or penalty.

 

In 2019, the Company made five payments of principal and accrued interest as outlined in the Restated Note agreement. The Company then prepaid the outstanding principal on the Restated Note in full, with accrued interest, on September 24, 2019.

 

As of December 31, 2019, there was no remaining balance outstanding on the Company’s Consolidated Balance Sheets. Amortization of deferred financing costs related to the 2017 ISB Note was $25,000 for the year ended December 31, 2019. Amortization of the related debt discount was $223,000 for the year ended December 31, 2019.

 

From March 2017 to December 2017, Groundfloor issued subordinated convertible notes (the “Subordinated Convertible Notes”) to investors for total proceeds of $2.1 million (the “2017 Note Financing”). On October 27, 2017, the Company entered into amendments to the outstanding Subordinated Convertible Notes and related Subordinated Convertible Promissory Note Purchase Agreement raising the principal amount of Subordinated Convertible Notes that may be sold to $2.0 million, extending the maturity date, and allowing the Subordinated Convertible Notes, at the option of the holders, to convert outstanding principal and accrued but unpaid interest into shares of the Company’s common stock as described below. In November 2017, Groundfloor issued Subordinated Convertible Notes to investors for additional proceeds of $675 thousand. Furthermore, in December 2017, Groundfloor oversubscribed and issued Subordinated Convertible Notes to investors for additional proceeds of $550 thousand. The notes incur interest at the rate of 8% per annum. The outstanding principal and all accrued but unpaid interest is due and payable on the earlier of September 30, 2019 or the consummation of a sale of the Company by consolidation, merger, change of majority ownership, or sale or other disposition of all or substantially all of the assets of the Company (the “Maturity Date”). In the event of a closing of a preferred stock financing with gross proceeds of at least $8.0 million (“Qualified Preferred Financing”) prior to the Maturity Date, the outstanding principal and all accrued but unpaid interest would become automatically converted into shares of our preferred stock issued in the financing at a price per share equal to 75% of the price per share of the preferred stock financing. In the event of a closing of a common stock financing under Regulation A with gross proceeds of at least $3.0 million (“Qualified Common Financing”) prior to the Maturity Date, then each holder may elect, in its discretion, to convert the outstanding principal and all accrued but unpaid interest into shares of our common stock issued in the financing at a price per share equal to 90% of the price per share of the common stock financing. The indebtedness represented by the Subordinated Notes is subordinated in all respects to the principal of (and premium, if any), unpaid interest on and amounts reimbursable, fees, expenses, costs of enforcement, and other amounts due in connection with the Revolver and ISB Note.

 

On February 9, 2018, Groundfloor 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, Groundfloor is 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. Groundfloor is also offering a Bonus Share Program where Groundfloor may issue up to 30,000 additional bonus shares of our common stock pursuant to the terms of this Offering Circular. As of December 31, 2018, Groundfloor issued 437,917 shares of common stock in the 2018 Common Stock Offering for $4.2 million in proceeds.

 

On October 12, 2018, the Company entered into a common stock purchase agreement for private placement of 125,000 shares of the Company’s common stock for proceeds of $1.5 million.

 

In January 2019, the Company launched an offering of its common stock under Tier 2 of Regulation A pursuant to an offering statement on Form 1-A qualified by the SEC (the “2019 Common Stock Offering”). The Company offered up to 900,000 shares of common stock at $15.00 per share, with a minimum investment of $150, or 10 shares of common stock. According to the terms of the offering statement, the aggregate initial offering price of the common stock will not exceed $13,500,000 in any 12-month period, and there is no minimum offering amount. The Company may issue up to 30,000 additional bonus shares through an incentive program available to investors who had provided a previous indication of interest in investing in the Company.

 

The 2019 Common Stock Offering closed on a rolling basis from January 2019 to July 2019. As a result of the offering, the Company received gross proceeds of $3.1 million in exchange for the issuance of 214,535 shares of common stock, including 6,800 bonus shares issued through the incentive program described above.

 

 

 

In conjunction with the 2019 Common Stock Offering, certain holders of Restated Subordinated Convertible Notes converted their outstanding principal and accrued interest into common stock at a contractually agreed upon 10% discount to the offered price. In 2019, $60,000 in notes principal and accrued interest were converted into 4,440 shares of common stock.

 

From September 2019 to December 2019, the Company issued subordinated convertible notes (the “2019 Subordinated Convertible Notes”) to Investors for total proceeds of $3.6 million. The 2019 Subordinated Convertible Notes bear interest at the rate of 10% per annum. The outstanding principal and all accrued but unpaid interest is due and payable on the earlier of August 30, 2021, or the consummation of a sale of the Company by consolidation, merger, change of majority ownership, or sale or other disposition of all or substantially all of the assets of the Company (the “Maturity Date”). In the event of a closing of a preferred stock financing with gross proceeds of at least $8.0 million (“Qualified Preferred Financing”) prior to the Maturity Date, the outstanding principal and all accrued but unpaid interest may be converted into shares of preferred stock issued in the financing at a price per share equal to 90% of the offering price per share in the Qualified Preferred Financing. At any time after six months after the issuance of a 2019 Subordinated Convertible Note, the investor may convert all or a portion of the outstanding principal and accrued interest into shares of common stock at 90% of the per share price of common stock at the time of conversion, as reasonably determined by the Board. The indebtedness represented by the 2019 Subordinated Convertible Notes is subordinated in all respects to the principal of (and premium, if any), unpaid interest on and amounts reimbursable, fees, expenses, costs of enforcement, and other amounts due in connection with the Revolver.

 

Because of the contractual right of noteholders to convert their holdings to common stock at a discount to fair value, the Company determined that the 2019 Subordinated Convertible Notes contain a beneficial conversion feature. The Company recognized this beneficial conversion feature as a debt discount and component of additional paid-in capital at the in-the-money amount of $0.4 million at the time of issuance. The discount is being amortized to interest expense until the earlier of maturity or exercise of the conversion option.

 

Certain investors in 2019 Subordinated Convertible Notes purchased their shares through the issuance of advance agreements to the Company (“Advances”). The Advances accrue interest at a rate of 10% per annum and are payable to the Company within an initial term of 30 days, with an investor option to extend the term by 30 days, after which the Advances begin accruing interest at a rate of 14% per annum. The funds advanced to the investors are subject to recourse by the Company against the investors. The Advances, with principal sum of $0.3 million as of December 31, 2019, are recorded as a component of “Other current assets” in the Company’s Consolidated Balance Sheets.

 

Principal of $3.6 million on the 2019 Subordinated Convertible Notes, net of an unamortized discount of $0.4 million, was outstanding as of December 31, 2019. Accrued interest on the 2019 Subordinated Convertible Notes, presented within “Accounts payable and accrued expenses” in the Company’s Consolidated Balance Sheets, was $69,000 as of December 31, 2019.

 

Groundfloor has incurred losses since its inception, and Groundfloor expects it will continue to incur losses for the foreseeable future. Groundfloor requires cash to meet its operating expenses and for capital expenditures. To date, Groundfloor has funded its cash requirements with proceeds from its convertible note and preferred stock issuances. Groundfloor anticipate that it will continue to incur substantial net losses as it grows the Groundfloor Platform. Groundfloor does not have any committed external source of funds, except as described above. To the extent our capital resources are insufficient to meet its future capital requirements, Groundfloor will need to finance its cash needs through public or private equity offerings or debt financings. Additional equity or debt financing may not be available on acceptable terms, if at all.

 

Plan of Operation

 

Prior to September 2015, Groundfloor’s 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 Groundfloor’s 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, Groundfloor has not issued, and do not intend to issue in the future, any additional Georgia Notes. Since that time, Groundfloor has qualified two additional offering statements on Form 1-A in addition to an offering statement on Form 1-A qualified for GRE 1, its wholly-owned subsidiary, in each case under Tier 1 of Regulation A. In January 2018, Groundfloor’s 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 Groundfloor may offer and sell to $50 million, less any other securities sold by Groundfloor under Regulation A (including pursuant to this Offering Circular). Groundfloor has filed, and intends to continue to file, post-qualification amendments to the LRO Offering Circular on a regular basis to include additional series of LROs. Groundfloor expects to expand the number of states in which Groundfloor offers and sells LROs during the next 12 months. With this increased geographic footprint, Groundfloor expects 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.

 

 

 

As the volume of Groundfloor loans and corresponding offerings increase, Groundfloor plans to continue the current strategy of raising equity and, in limited circumstances, debt financing to finance our operations until Groundfloor reaches profitability and becomes cash flow positive, which Groundfloor does not expect to occur before 2020. Future equity or debt offerings by Groundfloor will be necessary to fund the significant investments in website development, security, investor sourcing, loan processing and marketing necessary to reach profitability. Groundfloor expects to hire more staff to support its expected growth in operations and to invest heavily in marketing throughout the next year.

 

Off-Balance Sheet Arrangements

 

We do not engage in any off-balance sheet financing activities. We do not have any interest in entities referred to as variable interest entities, which include special purpose entities and other structured finance entities.

 

Material Trends, Events, and Uncertainties

 

Despite COVID-19, funding of draws on outstanding loans to developers has remained relatively steady in March through the end of May 2020, as much of the Southeast United States, where our borrower projects are concentrated, did not require cessation of construction projects. To date, we have not had significant difficulty funding our operations through LRO offerings, other Regulation A offerings, and other financing sources. We continue to see adequate credit performance in our Loan portfolio, and see robust demand for Loans by commercial borrowers. Our retail investment channel continues to invest in LROs on our platform and we continue to sell a relatively small number of loans to institutional purchasers. Moreover, our technology platform has enabled the Company to deploy a work from home environment for its employees, such that work continues more or less normally.

 

As a result, the Company has not yet experienced material changes in the funding amounts provided to developers due to material trends, events and uncertainties, including COVID-19. However, if the economic impacts of COVID-19 are sustained through the summer of 2020 and into the fall of 2020, our business may be materially impacted. As of the date of this Offering Circular, the extent to which the COVID-19 pandemic may materially impact the amounts of funding provided to developers and the Company’s financial condition, liquidity or results of operations is uncertain.

 

 

 

*               *               *

 

Financial Statements

 

The following consolidated financial statements for the periods ended June 30, 2020, June 30, 2019, December 31, 2019 and December 31, 2018 and the notes thereto are added to the Offering Circular starting on page F-1:

 

 

 

 

GROUNDFLOOR FINANCE INC.

AND SUBSIDIARIES

 

Condensed Consolidated Financial Statements

 

June 30, 2020 and 2019 (Unaudited)

 

 

 

 

GROUNDFLOOR FINANCE INC. AND SUBSIDIARIES

 

Table of Contents

 

June 30, 2020 and 2019

 

Condensed Consolidated Financial Statements (unaudited)

 

Condensed Consolidated Balance Sheets (unaudited) F-1  
     
Condensed Consolidated Statements of Operations (unaudited) F-2  
     
Condensed Consolidated Statements of Stockholders’ Deficit (unaudited) F-3  
     
Condensed Consolidated Statements of Cash Flows (unaudited) F-4  
     
Notes to Condensed Consolidated Financial Statements (unaudited) F-5  

 

 

 

 

GROUNDFLOOR FINANCE INC. AND SUBSIDIARIES

 

Condensed Consolidated Balance Sheets

 

   June 30,   December 31, 
   2020   2019 
Assets          
Current assets:          
Cash  $830,825   $1,699,196 
Loans to developers, net   75,004,428    73,851,996 
Interest receivable on loans to developers   4,828,345    2,867,914 
Other current assets   2,155,884    937,645 
Total current assets   82,819,482    79,356,751 
Property, equipment, software, website, and intangible assets, net   942,854    971,607 
Other assets   -    42,603 
Total assets  $83,762,336   $80,370,961 
Liabilities and Stockholders’ Deficit          
Current liabilities:          
Accounts payable and accrued expenses  $2,348,246   $4,602,116 
Accrued interest on limited recourse obligations   4,264,856    2,251,926 
Limited recourse obligations, net   63,422,922    53,124,759 
Revolving credit facility   -    10,460,752 
Convertible notes, net of discount of $267,254 and $368,526   3,339,746    3,238,474 
Short-term notes payable   11,617,750    8,085,257 
Total current liabilities   84,993,590    81,763,284 
Long-term notes payable   829,100    - 
Other liabilities   128,835    136,819 
Total liabilities   85,951,525    81,900,103 
Commitments and contingencies (See Note 12)          
Stockholders’ equity:          
Common stock, no par, 5,000,000 shares authorized, 2,133,465 and 2,102,720 issued and outstanding   11,102,809    10,564,771 
Series A convertible preferred stock, no par, 747,385 shares designated, 747,373 shares issued and outstanding (liquidation preference of $4,999,925)   4,962,435    4,962,435 
Series seed convertible preferred stock, no par, 568,796 shares designated, issued and outstanding (liquidation preference of $2,960,583)   2,609,091    2,609,091 
Additional paid-in capital   1,907,821    1,802,895 
Accumulated deficit   (22,770,785)   (21,467,774)
Stock subscription receivable   (560)   (560)
Total stockholders’ deficit   (2,189,189)   (1,529,142)
Total liabilities and stockholders’ deficit  $83,762,336   $80,370,961 

 

See accompanying notes to Condensed Consolidated Financial Statements

 

F-1

 

 

GROUNDFLOOR FINANCE INC. AND SUBSIDIARIES

 

Condensed Consolidated Statements of Operations

 

   Six Months Ended June 30, 
   2020   2019 
Non-interest revenue:          
Origination fees  $1,552,929   $1,216,642 
Loan servicing revenue   845,695    752,162 
Total non-interest revenue   2,398,624    1,968,804 
Net interest income:          
Interest income   5,210,695    2,854,020 
Interest expense   (3,968,122)   (2,245,280)
Net interest income   1,242,573    608,740 
Net revenue   3,641,197    2,577,544 
Cost of revenue   (320,372)   (328,706)
Gross profit   3,320,372    2,248,838 
Operating expenses:          
General and administrative   1,465,993    940,396 
Sales and customer support   1,293,443    1,264,973 
Development   402,005    356,836 
Regulatory   172,352    189,068 
Marketing and promotions   443,067    591,799 
Total operating expenses   3,776,860    3,343,072 
Loss from operations   (456,035)   (1,094,234)
Interest expense   846,976    1,018,025 
Net loss  $(1,303,011)  $(2,112,259)

 

See accompanying notes to Condensed Consolidated Financial Statements

 

F-2

 

 

GROUNDFLOOR FINANCE INC. AND SUBSIDIARIES

 

Condensed Consolidated Statements of Stockholders’ Deficit

 

    Series A     Series Seed                                   Total  
    Convertible     Convertible                 Additional           Stock     Stockholders’  
    Preferred Stock     Preferred Stock     Common Stock     Paid-in     Accumulated     Subscription     (Deficit)  
    Shares     Amount     Shares     Amount     Shares     Amount     Capital     Deficit     Receivable     Equity  
Stockholders’ deficit as of December 31, 2018     747,373     $ 4,962,435       568,796     $ 2,609,091       1,732,585     $ 6,125,264     $ 1,083,572     $ (17,630,508 )   $ (560 )   $ (2,850,706 )
Shares issued in the 2019 Common Stock Offering, net of offering costs     -       -       -       -       214,535       3,073,307       -       -       -       3,073,307  
Shares issued upon conversion of convertible notes     -       -       -       -       147,663       1,348,821       -       -       -       1,348,821  
Exercise of stock options     -       -       -       -       7,937       17,379       -       -       -       17,379  
Share-based compensation expense and warrants     -       -       -       -       -       -       318,545       -       -       318,545  
Beneficial conversion feature on sale of convertible notes                                                     400,778                       400,778  
Net loss     -       -       -       -       -       -       -       (3,837,266 )     -       (3,837,266 )
Stockholders’ deficit as of December 31, 2019     747,373     $ 4,962,435       568,796     $ 2,609,091       2,102,720     $ 10,564,771     $ 1,802,895     $ (21,467,774 )   $ (560 )   $ (1,529,142 )
Shares issued in the 2020 Common Stock Offering, net of offering costs     -       -       -       -       30,745       538,038       -       -       -       538,038  
Share-based compensation expense and warrants     -       -       -       -       -       -       104,926       -       -       104,926  
Net loss     -       -       -       -       -       -       -       (1,303,011 )     -       (1,303,011 )
Stockholders’ deficit as of June 30, 2020     747,373     $ 4,962,435       568,796      $ 2,609,091       2,133,465      $ 11,102,809      $ 1,907,821     $ (22,770,785 )   $ (560 )   $ (2,189,189 )

 

See accompanying notes to Condensed Consolidated Financial Statements

 

F-3

 

 

GROUNDFLOOR FINANCE INC. AND SUBSIDIARIES

 

Condensed Consolidated Statements of Cash Flows (unaudited)

 

   Six Months Ended June 30, 
   2020   2019 
Cash flows from operating activities          
Net loss  $(1,303,011)  $(2,112,259)
Adjustments to reconcile net loss to net cash used in operating activities:          
Depreciation and amortization   271,273    254,269 
Share-based compensation   104,926    74,634 
Noncash interest expense   133,772    97,587 
Loss (gain) on sale of real estate owned   -    - 
Origination of loans held for sale   (1,060,410)   (6,478,955)
Proceeds from sales of loans held for sale   1,968,800    6,478,955 
Conversion of beneficial interests   -    198,723 
Changes in operating assets and liabilities:          
Other assets   (249,456)   36,634 
Interest receivable on loans to developers   (1,955,959)   (2,769,347)
Accounts payable and accrued expenses   (2,261,854)   565,740 
Accrued interest on limited recourse obligations   2,012,930    2,192,469 
Net cash used in operating activities   (1,840,077)   (2,593,030)
Cash flows from investing activities          
Loan payments to developers   (33,490,056)   (33,864,787)
Repayments of loans from developers   29,400,490    20,236,326 
Proceeds from sale of properties held for sale   279,180    301,067 
Purchases of computer equipment and furniture and fixtures   (36,626)   (11,757)
Payments of software and website development costs   (205,894)   (276,489)
Net cash used in investing activities   (4,052,906)   (13,615,640)
Cash flows from financing activities          
Proceeds from limited recourse obligations   58,508,193    33,802,754 
Repayments of limited recourse obligations   (47,889,960)   (20,236,326)
Payment of deferred financing costs   -    (10,000)
Borrowings from the revolving credit facility   3,069,028    24,309,980 
Repayments on the revolving credit facility   (13,562,280)   (24,522,291)
Proceeds from issuance of short-term notes payable   27,966,723    9,686,010 
Repayments of short-term notes payable   (24,434,230)   (6,410,250)
Proceeds from  Paycheck Protection Program loan   829,100    - 
Proceeds from Regulation A+ common stock offering, net of offering costs   538,038    3,213,844 
Exercise of stock options   -    3,740 
Repayments of shareholder loan   -    (100,000)
Net cash provided by financing activities   5,024,612    17,186,827 
Net increase (decrease) in cash   (868,371)   (978,157)
Cash as of beginning of the year   1,699,196    1,069,392 
Cash as of end of the year  $830,825   $2,047,549 
Supplemental cash flow disclosures:          
Cash paid for interest  $808,143   $659,602 

 

F-4

 

 

GROUNDFLOOR FINANCE INC. AND SUBSIDIARIES

 

Notes to Condensed Consolidated Financial Statements (unaudited)

 

NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

 

Description of Business

 

The terms "we," "our," “GROUNDFLOOR,” or the "Company" refer to Groundfloor Finance Inc. and its subsidiaries. The Company was originally organized as a North Carolina limited liability company under the name of Fomentum Labs LLC on January 28, 2013. Fomentum Labs LLC changed its name to Groundfloor LLC on April 26, 2013, and converted into a North Carolina corporation on July 26, 2013. In connection with this conversion, all equity interests in Groundfloor LLC were converted into shares of GROUNDFLOOR Inc.’s common stock. In August 2014, GROUNDFLOOR Inc. converted into a Georgia corporation and changed its name to Groundfloor Finance Inc. The accounting effects of these conversions were reflected retrospectively in the Condensed Consolidated Financial Statements. Groundfloor Holdings GA, LLC is the holder of the Revolver, as defined in Note 7. Groundfloor Properties GA LLC was created for the purpose of financing real estate in Georgia. Groundfloor Real Estate 1 LLC and Groundfloor Real Estate 2 LLC were created for the purpose of financing real estate in any state. Groundfloor Real Estate, LLC is currently inactive and management does not have plans to use this entity in the near future.

 

The Company has developed an online investment platform designed to crowdsource financing for real estate development projects (the “Projects”). With this online investment platform (the “Platform”), public investors (the “Investors”) are able to choose between multiple Projects, and real estate developers (the “Developers”) of the Projects are able to obtain financing. GROUNDFLOOR’s financing model replaces traditional sources of financing for Projects with the aggregation of capital from Investors using the internet.

 

Basis of Presentation and Liquidity

 

The Company’s Condensed Consolidated Financial Statements include Groundfloor Finance Inc. and its wholly owned subsidiaries, Groundfloor Properties GA LLC; Groundfloor Real Estate, LLC; Groundfloor Holdings GA, LLC; Groundfloor Real Estate 1 LLC; and Groundfloor Real Estate 2, LLC (collectively the “Company” or “GROUNDFLOOR”). Intercompany transactions and balances have been eliminated upon consolidation.

 

The Company’s Condensed Consolidated Financial Statements have been prepared on a going concern basis, which contemplates the realization of assets and settlement of liabilities and commitments in the normal course of business.

 

Operations since inception have consisted primarily of organizing the Company, developing the technology, and securing financing. The accompanying Condensed Consolidated Financial Statements have been prepared on a basis which assumes that the Company will continue as a going concern. The Company has incurred losses and cash outflows from operations since its inception. The ultimate success of the Company is dependent on management’s ability to develop and market its products and services at levels sufficient to generate operating revenues in excess of expenses.

 

Management evaluated the condition of the Company and has determined that until such sales levels can be achieved, management will need to secure additional capital to continue growing working capital and fund product development and operations.

 

Management intends to raise additional debt or equity financing to grow working capital and fund operations. Management believes the Company will obtain additional funding from current and new Investors in order to sustain operations. However, there are no assurances that the Company can be successful in obtaining the additional capital or that such financing will be on terms favorable or acceptable to the Company.

 

As of issuance date, the Company closed on approximately $1,300,000 in equity financing, see Note 12, “Subsequent Events.”

 

There is substantial doubt that the Company will continue as a going concern for at least 12 months following the date these Condensed Consolidated Financial Statements are issued, without additional financing based on the Company’s limited operating history and recurring operating losses.

 

F-5

 

 

GROUNDFLOOR FINANCE INC. AND SUBSIDIARIES

 

Notes to Condensed Consolidated Financial Statements (unaudited)

 

The Condensed Consolidated Financial Statements do not include any adjustments that might result from the outcome of the uncertainties described in the Condensed Consolidated Financial Statements. In addition, the Condensed Consolidated Financial Statements do not include any adjustments relating to the recoverability and classification of assets nor the amount and classification of liabilities that might result should the Company be unable to continue as a going concern.

 

Use of Estimates

 

The preparation of Condensed Consolidated Financial Statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the Condensed Consolidated Financial Statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

 

Whole Loan Sales

 

Under loan sale agreements, the Company sells all of its rights, title, and interest in certain loans. At the time of such sales, the Company may simultaneously enter into loan servicing agreements under which it acquires the right to service the loans. The Company calculates a gain or loss on a whole loan sale based on the net proceeds from the whole loan sale, less the carrying value of the loans sold. All unamortized origination fees incurred in the origination process are recognized directly to Consolidated Statements of Operations and recorded to “Origination fees”. For sold loans for which the Company retains servicing rights, the Company compares the expected contractual benefits of servicing to the expected costs of servicing to determine whether a servicing asset or servicing liability arises from the transaction. No servicing rights assets or liabilities have been identified for the period ended June 30, 2020 and December 31, 2019.

 

Share-Based Compensation

 

The Company recognizes as expense non-cash compensation for all stock-based awards for which vesting is considered probable. Such stock-based awards include stock options and warrants issued as compensation to employees and nonemployees. Non-cash compensation is measured at fair value on the grant date and expensed ratably over the vesting term. The fair value of each stock option and warrant is estimated using the Black-Scholes option pricing model.

 

Income Taxes

 

Deferred tax assets and liabilities are determined based on the temporary differences between the Condensed Consolidated Financial Statements carrying amounts and the tax basis of assets and liabilities using the enacted tax rates in effect in the years in which the differences are expected to reverse. In estimating future tax consequences, all expected future events are considered other than enactment of changes in the tax law or rates.

 

The Company may recognize the tax benefit from an uncertain tax position only if it is more likely than not that the tax position will be sustained on examination by the taxing authorities based on the technical merits of the position. The tax benefits recognized in the Condensed Consolidated Financial Statements from such a position should be measured based on the largest benefit that has a greater than 50% likelihood of being realized upon ultimate settlement.

 

The determination of recording or releasing income tax valuation allowance is made, in part, pursuant to an assessment performed by management regarding the likelihood that the Company will generate future taxable income against which benefits of its deferred tax assets may or may not be realized. This assessment requires management to exercise significant judgment and make estimates with respect to its ability to generate taxable income in future periods.

 

F-6

 

 

GROUNDFLOOR FINANCE INC. AND SUBSIDIARIES

 

Notes to Condensed Consolidated Financial Statements (unaudited)

 

NOTE 2: RECENT ACCOUNTING PRONOUNCEMENTS

 

The Company has evaluated the recent pronouncements issued since filing its annual audited Consolidated Financial Statements for the year-ended December 31, 2019 and believes that none of them will have a material effect on the Company’s Condensed Consolidated Financial Statements.

 

NOTE 3: LOANS TO DEVELOPERS, NET

 

The Company provides financing to borrowers for real estate-related loans. Real estate loans include loans for unoccupied single family or multifamily renovations and new constructions costing between $30,000 and $2,000,000 over six months to a year.

 

The following table presents the carrying amount of “Loans to developers, net” by letter grade and performance state as of June 30, 2020, and December 31, 2019, respectively:

 

   Current   Workout   Fundamental
Default
   Total 
Loan grades:                    
A  $3,493,460   $943,526   $791,606   $5,228,592 
B   11,376,401    5,217,437    2,177,164    18,771,002 
C   24,444,562    8,087,301    5,496,605    38,028,468 
D   11,185,578    1,212,908    2,172,146    14,570,632 
E   768,220    511,400    170,586    1,450,206 
F   -    -    -    - 
G   -    -    -    - 
Carrying amount as of June 30, 2020  $51,268,221   $15,972,572   $10,808,107   $78,048,900 

 

   Current   Workout   Fundamental
Default
   Total 
Loan grades:                    
A  $5,356,177   $115,256   $350,000   $5,821,433 
B   15,610,763    1,992,394    528,367    18,131,524 
C   33,204,844    2,147,561    3,879,901    39,232,306 
D   10,624,400    314,319    1,717,097    12,655,816 
E   640,916    -    90,000    730,916 
F   -    -    -    - 
G   -    -    -    - 
Carrying amount as of December 31, 2019  $65,437,100   $4,569,530   $6,565,365   $76,571,996 

 

Nonaccrual and Past Due Loans

 

A Loan is placed on nonaccrual status when, in management’s judgment, the collection of the interest income appears doubtful. Loans placed in nonaccrual status stop accruing interest and, if collectability of interest is sufficiently doubtful, “Interest receivable on loans to developers” that has been accrued and is subsequently determined to have doubtful collectability is charged to “Interest income” and the corresponding “Accrued interest on limited recourse obligations” that has been accrued and is subsequently determined to have doubtful collectability is charged to “Interest expense.” Interest income on Loans that are classified as nonaccrual is subsequently applied to principal until the Loans are returned to accrual status. Loans are returned to accrual status when all the principal and interest amounts contractually due are brought current and future payments are reasonably assured. As of June 30, 2020, the Company placed Loans of approximately $10,808,000 recorded to “Loans to developers, net” on nonaccrual status.

 

F-7

 

 

GROUNDFLOOR FINANCE INC. AND SUBSIDIARIES

 

Notes to Condensed Consolidated Financial Statements (unaudited)

 

The following table presents an analysis of past due Loans as of June 30, 2020 and December 31, 2019:

 

   Carrying
Amount
   Allowance
for
Loan Losses
   Loans to
Developers,
net
 
Aging schedule:               
Current  $51,129,132   $770,000   $50,359,132 
Less than 90 days past due   15,590,514    800,000    14,790,514 
More than 90 days past due   11,329,254    1,470,000    9,859,254 
Total as of June 30, 2020  $78,048,900   $3,040,000   $75,008,900 

 

   Carrying
Amount
   Allowance
for
Loan Losses
   Loans to
Developers,
net
 
Aging schedule:               
Current  $65,884,046   $730,000   $65,154,046 
Less than 90 days past due   5,792,759    240,000    5,552,759 
More than 90 days past due   4,895,191    1,750,000    3,145,996 
Total as of December 31, 2019  $76,571,996   $2,720,000   $73,851,996 

 

Impaired Loans

 

The following is a summary of information pertaining to impaired loans as of June 30, 2020:

 

   Balance 
Nonaccrual loans  $10,808,107 
Fundamental default not included above   - 
Total impaired loans   10,808,107 
      
Interest income recognized on impaired loans  $- 

 

The following table presents an analysis of information pertaining to impaired loans as of June 30, 2020:

 

    Balance  
Principal loan balance   $ 10,808,107  
         
Related allowance   $ 1,470,000  
Average recorded investment   $ 190,000  

 

The following is a summary of information pertaining to impaired loans as of December 31, 2019:

 

    Balance  
Nonaccrual loans   $ 6,565,365  
Fundamental default not included above     -  
Total impaired loans     6,565,365  
         
Interest income recognized on impaired loans   $ 173,000  

 

The following table presents an analysis of information pertaining to impaired loans as of December 31, 2019:

 

    Balance  
Principal loan balance   $ 6,565,365  
         
Related allowance   $ 2,020,000  
Average recorded investment   $ 205,000  

 

F-8

 

 

GROUNDFLOOR FINANCE INC. AND SUBSIDIARIES

 

Notes to Condensed Consolidated Financial Statements (unaudited)

 

Credit Quality Monitoring

 

The Company uses three performance states to better monitor the credit quality of outstanding loans. Outstanding loans are characterized as follows:

 

Current - This status indicates that no events of default have occurred, all payment obligations have been met or none are yet triggered.

 

Workout - This status indicates there has been one or more payment defaults on the Loan and the Company has negotiated a modification of the original terms that does not amount to a fundamental default.

 

Fundamental Default - This status indicates a Loan has defaulted and there is a chance the Company will not be able to collect 100% of the principal amount of the Loan by the extended payment date of the corresponding Georgia Notes or LROs.

 

The following table presents “Loans to developers, net” by performance state as of June 30, 2020 and December 31, 2019:

 

   Carrying
Amount
   Allowance
for Loan
Losses
   Loans to
Developers,
Net
 
Performance states:               
Current  $51,268,221   $690,000   $50,578,221 
Workout   15,972,572    880,000    15,092,572 
Fundamental default   10,808,107    1,470,000    9,338,107 
Total as of June 30, 2020  $78,048,900   $3,040,000   $75,004,428 

 

    Carrying
Amount
    Allowance
for Loan
Losses
    Loans to
Developers,
Net
 
Performance states:                        
Current   $ 65,437,101     $ 630,000     $ 64,807,101  
Workout     4,569,530       70,000       4,499,530  
Fundamental default     6,565,365       2,020,000       4,545,365  
Total as of December 31, 2019   $ 76,571,996     $ 2,720,000     $ 73,851,996  

 

F-9

 

 

GROUNDFLOOR FINANCE INC. AND SUBSIDIARIES

 

Notes to Condensed Consolidated Financial Statements (unaudited)

 

Allowance for Loan Losses

 

The following table details activity in the allowance for loan losses for the years ended June 30, 2020 and December 31, 2019:

 

   Balance 
Balance, December 31, 2019  $2,720,000 
Allowance for loan loss   320,000 
Loans charged off   - 
Outstanding as of June 30, 2020  $3,040,000 
Period-end amount allocated to:     
Loans evaluated individually for impairment  $1,470,000 
Loans evaluated collectively for impairment   940,000 
General population of loans, other than those specifically identified   630,000 
Balance, June 30, 2020  $3,040,000 
Loans:     
Loans evaluated individually for impairment  $10,808,107 
Loans evaluated collectively for impairment   16,691,686 
General population of loans, other than those specifically identified   50,549,107 
Balance, June 30, 2020  $78,048,900 

 

    Balance  
Balance, December 31, 2018   $ 500,000  
Allowance for loan loss     2,750,000  
Loans charged off     (530,000 )
Outstanding as of December 31, 2019   $ 2,720,000  
Period-end amount allocated to:        
Loans evaluated individually for impairment   $ 1,860,000  
Loans evaluated collectively for impairment     160,000  
General population of loans, other than those specifically identified     700,000  
Balance, December 31, 2019   $ 2,720,000  
Loans:        
Loans evaluated individually for impairment   $ 3,456,044  
Loans evaluated collectively for impairment     3,109,321  
General population of loans, other than those specifically identified     70,006,631  
Balance, December 31, 2019   $ 76,571,996  

 

F-10

 

 

GROUNDFLOOR FINANCE INC. AND SUBSIDIARIES

 

Notes to Condensed Consolidated Financial Statements (unaudited)

 

NOTE 4: OTHER CURRENT ASSETS

 

“Other current assets” at June 30, 2020 and December 31, 2019, consists of the following:

 

   June 30,   December 31, 
   2020   2019 
Due from related party (1)  $423,084   $417,381 
Advance agreements (2)   -    288,000 
Other real estate owned (3)   1,664,642    210,962 
Rent deposit, current portion   63,905    21,302 
Other   4,253    - 
Other current assets  $2,155,884   $937,645 

 

  (1) Loan and accrued interest receivable from a related party. Refer to Note 11 – Related Party Transactions.

  (2) Advance agreements for the purchase of 2019 Subordinated Convertible Notes. Refer to Note 7 – Debt.

  (3) During the six months ended June 30, 2020, the Company transferred approximately $1,607,000 from “Loans to developers, net” to “Other current assets”. Other real estate owned met the held for sale criteria and have been recorded at the lower of carrying amount or fair value less cost to sell. There was no impact to the Company’s Consolidated Statements of Operations from this transfer.

 

NOTE 5: PROPERTY, EQUIPMENT, SOFTWARE, WEBSITE AND INTANGIBLE ASSETS, NET

 

“Property, equipment, software, website development costs, and intangible assets, net” at June 30, 2020 and December 31, 2019, consists of the following:

 

   June 30,   December 31, 
   2020   2019 
Software and website development costs  $2,080,636   $1,874,742 
Less: accumulated amortization   (1,373,328)   (1,139,780)
Software and website development costs, net  $734,962   $734,962 

 

   June 30,   December 31, 
   2020   2019 
Computer equipment  $122,043   $118,476 
Leasehold improvements   46,405    22,367 
Furniture and fixtures   205,343    171,828 
Office equipment   22,367    46,405 
Property and equipment   396,158    359,077 
Less: accumulated depreciation and amortization   (182,113)   (144,932)
Property and equipment, net  $214,045   $214,145 

 

   June 30,   December 31, 
   2020   2019 
Domain names  $30,000   $30,000 
Less:  accumulated amortization   (8,500)   (7,500)
Intangible assets, net  $21,500   $22,500 

 

Depreciation and amortization expense on “Property, equipment, intangible assets, software, and website development costs, net” for the six months ended June 30, 2020 and 2019 was approximately $271,000 and $254,269, respectively. Amortization of software and website development costs is included as a component of “Development” and depreciation of property, equipment, and intangible assets is included as a component of “General and administrative” in the Consolidated Statements of Operations.

 

F-11

 

 

GROUNDFLOOR FINANCE INC. AND SUBSIDIARIES

 

Notes to Condensed Consolidated Financial Statements (unaudited)

 

NOTE 6: ACCOUNTS PAYABLE AND ACCRUED EXPENSES

 

“Accounts payable and accrued expenses” at June 30, 2020 and December 31, 2019, consists of the following:

 

   June 30,   December
31,
 
   2020   2019 
Funded loans-in-process (1)  $308,244   $2,097,512 
Deferred loan origination fees   757,588    1,441,471 
Trade accounts payable   433,250    509,443 
Accrued interest expense (2)   248,568    302,490 
Accrued employee compensation   358,483    87,949 
Other   37,113    163,251 
Accounts payable and accrued expenses  $2,143,246   $4,602,116 

 

  (1) Certain whole loans originated by the Company in 2019 and subsequently sold to institutional buyers were purchased at the contractual loan amount, which comprises both the principal amount disbursed to borrowers prior to the loan sale and any loan-in-process principal yet to be disbursed. “Funded loans in process” represents the obligation of the Company to disburse loan-in-process funds received from institutional buyers to borrowers for the underlying loans as draws are requested and approved.

  (2) “Accrued interest expense” includes interest related to corporate debt instruments other than Limited Recourse Obligations, including 2019 Subordinated Convertible Notes, the Revolver, GROUNDFLOOR Notes and other short-term notes payable as described in Note 7.

 

NOTE 7: DEBT

 

Revolving Credit Facility

 

On November 1, 2016, the Company’s wholly owned subsidiary, Groundfloor Holdings GA, LLC, as borrower, entered into a revolving credit facility (the “Revolver”) with Revolver Capital, LLC. The credit agreement initially provided for revolving loans up to a maximum aggregate principal amount of $1,500,000, proceeds to be used for bridge funding of underlying loans pending approval from the United States Securities and Exchange Commission. Subsequent amendments to the credit agreement in 2016 and 2017 increased the aggregate commitments under the credit facility to $4,500,000.

 

On April 4, 2018, the Credit Agreement dated as of November 1, 2016, as amended by the First Amendment as of November 11, 2016, the Second Amendment dated as of February 22, 2017 and the Third Amendment dated as of April 7, 2017, was assigned to ACM Alamosa DA LLC. The Company and the lender agreed to amend and restate the Original Credit Agreement in its entirety. The other terms of the credit facility remain unchanged.

 

On September 18, 2018, the Company increased the Revolving Credit Commitments thereunder from $4,500,000 to $5,500,000. In connection with the increase the Company paid a $10,000 commitment fee, which was capitalized and amortized over a twelve-month period. The other terms of the credit facility remain unchanged.

 

On August 8, 2019, the Company increased the Revolving Credit Commitments thereunder from $5,500,000 to $8,500,000. In connection with the increase the Company paid a $30,000 commitment fee, which is capitalized and amortized over a twelve-month period. The other terms of the credit facility remain unchanged.

 

On October 1, 2019, the Company increased the Revolving Credit Commitments thereunder from $8,500,000 to $10,500,000. In connection with the increase the Company paid a $20,000 commitment fee, which is capitalized and amortized over a twelve-month period. The other terms of the credit facility remain unchanged.

 

The Revolver maturity date is November 2, 2020. The Company has the option to request and the lender may, in its sole discretion, elect to extend the maturity date. The base contractual interest rate applicable throughout the six months ended June 30, 2020 and 2019, was the greater of 10.0 percent per annum and the weighted average underlying loan rate with respect to all underlying borrower loans funded under the Revolver. In the event that a loan funded using proceeds from the Revolver is not repaid in full on or before the repayment date for that loan, the contractual interest rate increases to the greater of 15.0 percent per annum or the underlying loan rate plus 3.0 percent.

 

F-12

 

 

GROUNDFLOOR FINANCE INC. AND SUBSIDIARIES

 

Notes to Condensed Consolidated Financial Statements (unaudited)

 

As of December 31, 2019, the Company had approximately $7,000 of available borrowings and $10,493,000 outstanding under the Revolver as presented within Revolving credit facility on the Consolidated Balance Sheets. As of December 31, 2019, the Company reflected approximately $33,000 of deferred financing costs related to the Revolver as a reduction to the Revolving credit facility in the Consolidated Balance Sheets. Accrued interest on the Revolver, presented within “Accounts payable and accrued expenses” in the Company’s Condensed Consolidated Balance Sheets, was approximately $112,000 at December 31, 2019.

 

In March 2020, in connection with the novel coronavirus pandemic and the related tightening of credit markets, GROUNDFLOOR’s creditor informed the Company that it would cease funding of draws on the Revolver for an undefined period of time and replace the lost financing by expanding on other existing sources of lending capital, most importantly the GROUNDFLOOR Notes program. In response, the Company developed a plan to repay the outstanding principal and accrued interest on the Revolver. The outstanding principal and accrued interest on the Revolver were repaid in full in June 2020 and no outstanding balance remains as of June 30, 2020. At the time of issuance of these condensed consolidated financial statements, the future of the Revolver credit arrangement remains unknown.

 

2017 Subordinated Convertible Notes

 

In 2017, the Company issued subordinated convertible notes (the “2017 Subordinated Convertible Notes”) to Investors for total proceeds of $2,025,000. The 2017 Subordinated Convertible Notes bore interest at the rate of 8% per annum. The outstanding principal and all accrued but unpaid interest were originally due and payable on the earlier of September 24, 2018; the note agreement was subsequently amended to extend the maturity date to the earlier of September 30, 2019, or the consummation of a sale of the Company by consolidation, merger, change of majority ownership, or sale or other disposition of all or substantially all of the assets of the Company.

 

In the event of a closing of a preferred stock financing with gross proceeds of at least $8,000,000 (“Qualified Preferred Financing”) prior to the Maturity Date, the outstanding principal and all accrued but unpaid interest may be converted into shares of preferred stock issued in the financing at a price per share equal to 75% of the price per share of the Qualified Preferred Financing. In the event of a closing of a common stock financing with gross proceeds of at least $3,000,000 (“Qualified Common Financing”) prior to the Maturity Date, the outstanding principal and all accrued but unpaid interest may be converted into shares of common stock issued in the financing at a price per share equal to 90% of the price per share of the Qualified Common Financing. The indebtedness represented by the Subordinated Convertible Notes is subordinated in all respects to the principal of (and premium, if any), unpaid interest on and amounts reimbursable, fees, expenses, costs of enforcement, and other amounts due in connection with the Revolver and the 2017 Note.

 

In 2018, a 2017 Subordinated Convertible Notes holder converted their shares upon closing the 2018 Common Stock Offering, which qualified as a Qualified Common Financing. The noteholder converted $250,000 in principal and approximately $27,600 in accrued interest at a 10% discount into 30,847 shares of common stock.

 

In 2019, additional holders of 2017 Subordinated Convertible Notes converted their holdings into common stock upon closing of financing transactions which qualified as Qualified Common Financing events. Noteholders converted $1,155,000 in principal and approximately $134,000 in accrued interest at a 10% discount to the offering price in the 2018 Common Stock Offering, which concluded in early 2019, into 143,223 shares of common stock. Noteholders also converted $50,000 in principal and approximately $10,000 in accrued interest at a 10% discount to the offering price in the 2019 Common Stock Offering into 4,440 shares of common stock.

 

The remaining outstanding 2017 Subordinated Convertible Notes matured on September 30, 2019. Certain noteholders received a cash payment at maturity for their aggregate invested principal of $450,000 and accrued interest of $76,000. Other noteholders with aggregate principal of $145,000 and accrued interest of approximately $11,000, elected, in lieu of a cash payment, to roll their holdings into newly issued 2019 Subordinated Convertible Notes in a non-cash transaction.

 

Outstanding principal on the Restated Convertible Notes was $0 as of June 30, 2020 and December 31, 2019.

 

F-13

 

 

GROUNDFLOOR FINANCE INC. AND SUBSIDIARIES

 

Notes to Condensed Consolidated Financial Statements (unaudited)

 

2019 Subordinated Convertible Notes

 

From September 2019 to December 2019, the Company issued subordinated convertible notes (the “2019 Subordinated Convertible Notes”) to Investors for total proceeds of $3,607,000. The 2019 Subordinated Convertible Notes bear interest at the rate of 10% per annum. The outstanding principal and all accrued but unpaid interest is due and payable on the earlier of August 30, 2021, or the consummation of a sale of the Company by consolidation, merger, change of majority ownership, or sale or other disposition of all or substantially all of the assets of the Company (the “Maturity Date”). In the event of a closing of a preferred stock financing with gross proceeds of at least $8,000,000 (“Qualified Preferred Financing”) prior to the Maturity Date, the outstanding principal and all accrued but unpaid interest may be converted into shares of preferred stock issued in the financing at a price per share equal to 90% of the offering price per share in the Qualified Preferred Financing. At any time after six months after the issuance of a 2019 Subordinated Convertible Note, the investor may convert all or a portion of the outstanding principal and accrued interest into shares of common stock at 90% of the per share price of common stock at the time of conversion, as reasonably determined by the Board. The indebtedness represented by the 2019 Subordinated Convertible Notes is subordinated in all respects to the principal of (and premium, if any), unpaid interest on and amounts reimbursable, fees, expenses, costs of enforcement, and other amounts due in connection with the Revolver.

 

Because of the contractual right of noteholders to convert their holdings to common stock at a discount to fair value, the Company determined that the 2019 Subordinated Convertible Notes contain a beneficial conversion feature. The Company recognized this beneficial conversion feature as a debt discount and component of additional paid-in capital at the in-the-money amount of approximately $401,000 at the time of issuance. The discount is being amortized to interest expense until the earlier of maturity or exercise of the conversion option. For the six months ended June 30, 2020, approximately $210,000 was amortized to interest expense in the Consolidated Statements of Operations.

 

Certain investors in 2019 Subordinated Convertible Notes purchased their shares through the issuance of advance agreements to the Company (“Advances”). The Advances accrue interest at a rate of 10% per annum and are payable to the Company within an initial term of 30 days, with an investor option to extend the term by 30 days, after which the Advances begin accruing interest at a rate of 14% per annum. The funds advanced to the investors are subject to recourse by the Company against the investors. The Advances, with principal sum of $288,000 as of December 31, 2019, are recorded as a component of “Other current assets” in the Company’s Consolidated Balance Sheets. The Advances were paid in full during the six months ended June 30, 2020.

 

Principal of $3,607,000 and $3,607,000 on the 2019 Subordinated Convertible Notes, net of an unamortized discount of approximately $369,000 and $267,000, was outstanding as of June 30, 2020 and December 31, 2019, respectively. Accrued interest on the 2019 Subordinated Convertible Notes, presented within “Accounts payable and accrued expenses” in the Company’s Consolidated Balance Sheets, was approximately $249,000 and $69,000 as of June 30, 2020 and December 31, 2019.

 

ISB Note Payable

 

On January 11, 2017, the Company entered into a promissory note and security agreement (the “2017 Note”) for a principal sum of $1,000,000. The contractual interest rate on the 2017 Note per the original agreement was 8.0% per annum until September 30, 2017, then 14.0% per annum thereafter until payment in full of the 2017 Note. The 2017 Note was subsequently amended in 2017 to increase the principal amount to $2,000,000 and specify the following repayment schedule: (i) $250,000, plus accrued but unpaid interest thereon, was due and payable on June 30, 2017; (ii) $250,000, plus any accrued but unpaid interest thereon, was due and payable on March 31, 2019; (iii) $500,000, plus any accrued but unpaid interest thereon, was due and payable on June 30, 2019; (iv) $500,000, plus any accrued but unpaid interest thereon, was due and payable on September 30, 2019; and (v) any remaining outstanding principal amount, plus any remaining accrued but unpaid interest, was due and payable on December 31, 2019.

 

F-14

 

 

GROUNDFLOOR FINANCE INC. AND SUBSIDIARIES

 

Notes to Condensed Consolidated Financial Statements (unaudited)

 

Additionally, in connection with a 2017 amendment to the 2017 Note, the Company agreed to issue warrants for the purchase of shares of the Company’s common stock on the first day of each quarter commencing on October 1, 2017, until the 2017 Note is repaid in full for the purchase of the following number of shares: (i) for each quarter until and including the first quarter of 2019, 4,000 shares of common stock; (ii) for the second quarter of 2019, 3,500 shares of common stock; (iii) for the third quarter of 2019, 2,300 shares of common stock; and (iv) for the fourth quarter of 2019, 1,100 shares of common stock. The exercise price of the warrants issued on the 2017 Note in connection with the third amendment to the 2017 Note is $2.40. Warrants issued in connection with the 2017 Note were measured at fair value and recorded at the time of issuance as a discount to the related debt instrument, then subsequently amortized to the Consolidated Statements of Operations through maturity of the 2017 Note. The Company recognized approximately $223,000 and $53,000, as a component of “General and administrative” expenses, related to amortization of warrants issued in connection with the 2017 Note for the years ended December 31, 2019 and 2018, respectively.

 

On April 1, 2019, the 2017 Note was amended and restated for a fee of $10,000, to be deferred and amortized over the life of the 2017 Note. The stated interest rate under the amended and restated promissory note and security agreement (“Restated Note”) was increased to 14%. Under the terms of the Restated Note, $50,000 of the principal amount plus any accrued but unpaid interest thereon was due and payable commencing on April 30, 2019, and each month thereafter; $1,000,000 of the principal amount plus any accrued but unpaid interest was due and payable on September 30, 2019; and any remaining outstanding principal and accrued interest was due and payable on December 31, 2020. The agreement stated that the Company may prepay the 2017 Note without premium or penalty.

 

In 2019, the Company made five payments of principal and accrued interest as outlined in the Restated Note agreement. The Company then prepaid the outstanding principal on the Restated Note in full, with accrued interest, on September 24, 2019. No principal or accrued interest thereon are therefore presented in the Company’s Condensed Consolidated Balance Sheets as of June 30, 2020 or December 31, 2019.

 

GROUNDFLOOR Notes

 

The Company entered into various secured promissory notes, (the “GROUNDFLOOR Notes”), with accredited Investors during the six months ended June 30, 2020 and year-ended December 31, 2019. The GROUNDFLOOR Notes are used for the purpose of the Company to originate, buy, and service loans for the purpose of building, buying, or rehabilitating single family and multifamily structures, or buying land, for commercial purposes. The GROUNDFLOOR Notes are issued and secured by the assets of Groundfloor Real Estate 1 LLC, a wholly owned subsidiary of Groundfloor Finance, Inc. As collateral security for GROUNDFLOOR Notes, the Company granted first priority security interest in all the loan assets of its wholly owned subsidiary, Groundfloor Real Estate 1 LLC, subject to certain exceptions.

 

During the six months ended June 30, 2020, there were 73 notes entered into with stated interest rates ranging from 3.0% to 8.0% and with terms ranging from 30 days to 12 months. The principal sum of $16,259,000 and $6,840,000 remained outstanding as of June 30, 2020 and December 31, 2019, respectively, and is presented in “Short-term notes payable” on the Company’s Consolidated Balance Sheets.

 

Accrued interest on the GROUNDFLOOR Notes, presented within “Accounts payable and accrued expenses” in the Company’s Consolidated Balance Sheets, was approximately $13,000 and $114,000 at June 30, 2020 and December 31, 2019, respectively.

 

Other Short-term Notes Payable

 

On November 8, 2019, the Company entered into a short-term note agreement with an investor for a principal sum of $500,000. The note bears simple interest at a stated rate of 6.0% per annum. The outstanding principal and accrued interest were due and payable on February 6, 2020, 90 days from the date of issuance. As part of the issuance, the investor also received 500 detachable warrants for the purchase of common stock. The Company has allocated the proceeds of the note issuance between the debt instrument and the detachable warrants based on their relative fair values. The amount allocated to the warrants was classified as a component of stockholders’ equity and recorded as a debt discount in the Consolidated Balance Sheets, which will be amortized to interest expense over the term of the note. As of December 31, 2019, the outstanding principal of $500,000, net of an unamortized discount of approximately $2,000, are presented in “Short-term notes payable” on the Company’s Consolidated Balance Sheets. Accrued interest on the note, approximately $5,000 as of December 31, 2019, is presented in “Accounts payable and accrued expenses” in the Consolidated Balance Sheets. This note and accrued interest thereon was repaid in full at maturity in February 2020.

 

F-15

 

 

 

GROUNDFLOOR FINANCE INC. AND SUBSIDIARIES

 

Notes to Condensed Consolidated Financial Statements (unaudited)

 

On December 19, 2019, the Company entered into a short-term note agreement with an investor for a principal sum of $500,000. The note bears simple interest at a stated rate of 13.5% per annum. The outstanding principal and accrued interest are due and payable on March 18, 2020, 90 days from the date of issuance. As of December 31, 2019, the outstanding principal of $500,000, net of an unamortized discount of approximately $1,000 related to debt issuance costs, are presented in “Short-term notes payable” on the Company’s Consolidated Balance Sheets. Accrued interest on the note, $2,000 as of December 31, 2019, is presented in “Accounts payable and accrued expenses” in the Consolidated Balance Sheets. This note and accrued interest thereon as repaid in full at maturity in March 2020.

 

On December 20, 2019, the Company entered into a short-term note agreement with an investor for a principal sum of $250,000. The note bears simple interest at a stated annual rate of 6.0% per annum. The outstanding principal and accrued interest are due and payable on March 19, 2020, 90 days from the date of issuance. As part of the issuance, the investor also received 250 detachable warrants for the purchase of common stock. The Company has allocated the proceeds of the note issuance between the debt instrument and the detachable warrants based on their relative fair values. The amount allocated to the warrants was classified as a component of stockholders’ equity and recorded as a debt discount in the Consolidated Balance Sheets, which will be amortized to interest expense over the term of the note. As of December 31, 2019, the outstanding principal of $250,000, net of an unamortized discount of approximately $2,000, are presented in “Short-term notes payable” on the Company’s Consolidated Balance Sheets. Accrued interest on the note, approximately $500 as of December 31, 2019, is presented in “Accounts payable and accrued expenses” in the Consolidated Balance Sheets. This note and accrued interest thereon as repaid in full at maturity in March 2020.

 

Paycheck Protection Program Loan

 

The Paycheck Protection Program (“PPP”), established by the Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”) and sponsored by the U.S. Small Business Administration (“SBA”), is providing small businesses – sole proprietors, independent contractors, and, with certain industry exceptions, businesses with fewer than 500 employees – the opportunity to apply for a loan of up to $10 million to cover up to eight weeks of payroll costs, including benefits. Funds may also be used to cover interest on mortgage obligations, leases, and utilities incurred or in place before February 15, 2020. Based on current SBA guidance, PPP loans will be forgiven as long as (i) loan proceeds are used for covered expenses, (ii) full-time employee headcount is maintained during the eight-week period covered by the PPP loan and (iii) compensation for employees who earned less than $100,000 on an annualized basis in 2019 is not reduced by more than 25% during the covered period.

 

In April 2020, the Company obtained an $829,100 loan under the PPP. The Company plans to use the PPP Loan proceeds to cover payroll costs, rent and utilities in accordance with the relevant terms and conditions of the CARES Act.

 

NOTE 8: STOCKHOLDERS’ Deficit

 

Capital Structure

 

Authorized Shares - As of December 31, 2019, the Company is authorized to issue 5,000,000 shares of no par value common stock and 1,316,181 shares of no par value preferred stock. The preferred stock has been designated as Series A Preferred Stock (the “Series A”), consisting of 747,385 shares, and Series Seed Preferred Stock (the “Series Seed”), consisting of 568,796 shares (collectively, “Preferred Stock”).

 

Common Stock Transactions

 

In January 2019, the Company launched an offering of its common stock under Tier 2 of Regulation A pursuant to an offering statement on Form 1-A qualified by the SEC (the “2019 Common Stock Offering”). The Company offered up to 900,000 shares of common stock at $15.00 per share, with a minimum investment of $150, or 10 shares of common stock. According to the terms of the offering statement, the aggregate initial offering price of the common stock will not exceed $13,500,000 in any 12-month period, and there is no minimum offering amount. The Company may issue up to 30,000 additional bonus shares through an incentive program available to investors who had provided a previous indication of interest in investing in the Company.

 

F-16

 

 

GROUNDFLOOR FINANCE INC. AND SUBSIDIARIES

 

Notes to Condensed Consolidated Financial Statements (unaudited)

 

The 2019 Common Stock Offering closed on a rolling basis from January 2019 to July 2019. As a result of the offering, the Company received gross proceeds of approximately $3,115,000 in exchange for the issuance of 214,535 shares of common stock, including 6,800 bonus shares issued through the incentive program described above. The proceeds are presented in the Consolidated Balance Sheets as a component of stockholders’ equity, net of direct offering costs of approximately $42,000 incurred.

 

In conjunction with the 2019 Common Stock Offering, certain holders of Restated Subordinated Convertible Notes converted their outstanding principal and accrued interest into common stock at a contractually agreed upon 10% discount to the offered price. In 2019, approximately $60,000 in notes principal and accrued interest were converted into 4,440 shares of common stock.

 

In February 2020, the Company launched an offering of its common stock under Tier 2 of Regulation A pursuant to an offering statement on Form 1-A qualified by the SEC (the “2020 Common Stock Offering”). The Company offered to existing common shareholders the opportunity to purchase additional shares of common stock at $17.50 per share, with a minimum investment of $175, or 10 shares of common stock.

 

The 2020 Common Stock Offering closed on a rolling basis from February 2020 to April 2020. As a result of the offering, the Company received gross proceeds of approximately $538,720 in exchange for the issuance of 30,784 shares of common stock. The proceeds are presented in the Consolidated Balance Sheets as a component of stockholders’ equity.

 

Preferred Stock Transactions

 

Series A

 

During 2015, the Company issued 709,812 shares of Series A to Investors for total proceeds of $4,748,705. In conjunction with the equity issuance, the Company converted all outstanding promissory notes payable and accrued interest totaling $251,295 into 37,561 shares of Series A.

 

Series Seed

 

During 2015 and 2014, the Company issued 201,146 and 91,259 shares, respectively, to Investors for total proceeds of $1,047,000 and $475,000. In conjunction with the equity issuance in 2014, the Company converted all outstanding convertible notes payable and accrued interest totaling $1,098,388 into 276,391 shares of Series Seed.

 

Voting - The holders of Preferred Stock are entitled to one vote for each share of common stock into which the preferred shares are convertible.

 

Liquidation - Upon any liquidation, dissolution, or winding up of the Company, the holders of Series A shall be entitled to be paid out of the assets of the Company available for distribution to its stockholders before any payment shall be made to the holders of common stock or Series Seed, an amount per share equal to the greater of: i) the Series A original issue price of $6.69 per share, plus any dividends declared but unpaid, and ii) such amount per share as would have been payable had all shares of Series A been converted into common stock immediately prior to such liquidation, dissolution, or winding up. If the available assets are insufficient to pay the holders of shares of Series A the full amount to which they shall be entitled, then all of the available assets shall be distributed to the holders of the Series A pro rata in accordance with their ownership thereof.

 

After payment in full of the Series A preference amount, the Series Seed stockholders are entitled to a liquidation preference equal to the greater of: i) the Series Seed original issue price of $5.205 per share, plus any dividends declared but unpaid, or ii) such amount per share as would have been payable had all shares of Series Seed been converted into common stock immediately prior to such liquidation, dissolution, or winding up. If the available assets are insufficient to pay the holders of shares of Series Seed the full amount to which they shall be entitled, then all of the available assets shall be distributed to the holders of the Series Seed pro rata in accordance with their ownership thereof. Any assets remaining after such preferential distribution shall be distributed to holders of the common stock.

 

F-17

 

 

GROUNDFLOOR FINANCE INC. AND SUBSIDIARIES

 

Notes to Condensed Consolidated Financial Statements (unaudited)

 

Conversion - Shares of Preferred Stock are convertible into shares of common stock at the option of the holder at any time. The number of common stock shares for Preferred Stock can be determined by dividing the original issue price by the then-effective conversion price.

 

Mandatory Conversion - All outstanding shares of Preferred Stock shall automatically be converted into shares of common stock upon the closing of the sales of shares of common stock to the public, with gross proceeds to the Company of at least $30,000,000. All outstanding shares of Series A shall automatically be converted into shares of common stock by the date and time, or the occurrence of an event, specified by vote or written consent of the holders of at least a majority of the then outstanding shares of Series A, voting as a single class. All outstanding shares of Series Seed shall automatically be converted into shares of common stock by the date and time, or the occurrence of an event, specified by vote or written consent of the holders of at least a majority of the then outstanding shares of Series Seed, voting as a single class.

 

Dividends - All dividends shall be declared pro rata on the common stock and Preferred Stock on a pari passu basis according to the numbers of common stock held by such holders on an as converted basis.

 

NOTE 9: stock options and warrants

 

Stock Options

 

In August 2013, the Company adopted the 2013 Stock Option Plan (the “Plan”). The Plan provides incentives to eligible employees, officers, and directors in the form of incentive stock options, non-qualified stock options, and restricted stock awards. The Company has reserved a total of Plan of 400,000 shares of common stock for issuance under the Plan. Of these shares, 52,784 shares are available for future stock option grants as of June 30, 2020.

 

During the six months ended June 30, 2020, the Company issued 7,200 stock options and no stock options were exercised.

 

As of June 30, 2020, there was approximately $459,600 of total unrecognized compensation cost related to stock option arrangements granted under the Plan. That cost is expected to be recognized over a weighted-average period of 2.9 years.

 

During the six months ended June 30, 2019, the Company issued 26,500 stock options and 2,000 stock options were exercised.

 

As of June 30, 2019, there was approximately $595,330 of total unrecognized compensation cost related to stock option arrangements granted under the Plan. That cost is expected to be recognized over a weighted-average period of 2.3 years.

 

The Company recorded $10,145 and $0 in non-employee and $104,925 and $74,634 in employee share-based compensation expense during the six months ended June 30, 2020 and 2019, respectively.

 

Warrants

 

The Company did not issue warrants during the six months ended June 30, 2020, for the purchase of common stock.

 

The Company issued 7,500 warrants during the six months ended June 30, 2019, for the purchase of common stock. The warrants are exercisable immediately at $2.40 with a contractual term of ten years. The warrants were issued in conjunction with the Note. The warrants were recorded for $101,615 as a debt discount to “Long-term notes payable” and corresponding increase in “Additional paid-in capital” and $88,235 was amortized to interest expense in the six months ended June 30, 2019.

 

F-18

 

 

GROUNDFLOOR FINANCE INC. AND SUBSIDIARIES

 

Notes to Condensed Consolidated Financial Statements (unaudited)

 

None of the warrants have been exercised as of June 30, 2020.

 

NOTE 10: INCOME TAXES

 

The Company has incurred net operating losses since inception and is forecasting additional losses through December 31, 2020. Therefore, no United States federal, state, or foreign income taxes are expected for 2020 and none have been recorded as of June 30, 2020.

 

Due to the Company’s history of losses since inception, there is not enough evidence at this time to support the conclusion that it will generate future income of a sufficient amount and nature to utilize the benefits of the Company’s net deferred tax assets. Accordingly, the Company fully reduced its net deferred tax assets by a valuation allowance, since it has been determined that it is more likely than not that all of the deferred tax assets will not be realized.

 

On December 22, 2017, the United States enacted new tax reform legislation which reduced the corporate tax rate to 21% effective for the tax year beginning January 1, 2018. Under Accounting Standards Codification 740, the effects of new tax legislation are recognized in the period which includes the enactment date. As a result, the deferred tax assets and liabilities existing on the enactment date must be revalued to reflect the rate at which these deferred balances will reverse. The corresponding adjustment would generally affect the income tax expense (benefit) shown on the Condensed Consolidated Statements of Operations. However, since the Company has a full valuation allowance applied against its deferred tax asset, there is no impact to the income tax expense for the six months ended June 30, 2020.

 

NOTE 11: RELATED PARTY TRANSACTIONS

 

Moma Walnut, LLC

 

In June 2019, the Company extended a fully collateralized loan to Moma Walnut, LLC, an entity that is owned and operated by a director of the Company. The loan has a principal amount of $400,000, bears interest at a stated rate of 5% per annum, and was initially due within 30 days. Terms were subsequently modified in August 2019 to increase the interest rate to 13% per annum and extend the maturity date to August 11, 2020. As of June 30, 2020 and December 31, 2019, the related party loan receivable and accrued interest thereon are presented in the Consolidated Balance Sheets as a component of “Other current assets” in the amount of $417,000 and $423,000, respectively.

 

NOTE 12: SUBSEQUENT EVENTS

 

In July 2020, the Company launched an offering of its Series B Preferred Stock at an offering price at $18.23 per share, with a minimum investment of $984, or 54 shares. At the time of issuance of these Condensed Consolidated Financial Statements, the Company has closed, on a rolling basis, approximately $1.3 million in new funds and continues to be open to new investment.

 

F-19

 

 

GROUNDFLOOR FINANCE INC.

AND SUBSIDIARIES

 

Audited Consolidated Financial Statements

 

December 31, 2019 and 2018

 

 

 

GROUNDFLOOR FINANCE INC. AND SUBSIDIARIES

 

Table of Contents

 

December 31, 2019 and 2018

 

Independent Auditors’ Report F-22
   
Consolidated Financial Statements  
   
Consolidated Balance Sheets F-23
   
Consolidated Statements of Operations F-24
   
Consolidated Statements of Stockholders’ Deficit F-25
   
Consolidated Statements of Cash Flows F-26
   
Notes to Consolidated Financial Statements F-27

 

 

 

 

 

Report of Independent Auditor

 

To the Board of Directors

Groundfloor Finance, Inc. and Subsidiaries

Atlanta, Georgia

 

We have audited the accompanying consolidated financial statements of Groundfloor Finance, Inc. and Subsidiaries (the “Company”), which comprise the consolidated balance sheet as of December 31, 2019, and the related consolidated statements of operations, stockholders’ deficit, and cash flows for the year then ended, and the related notes to the consolidated financial statements.

 

Management’s Responsibility for the Consolidated Financial Statements

Management is responsible for the preparation and fair presentation of these consolidated financial statements in accordance with accounting principles generally accepted in the United States of America; this includes the design, implementation, and maintenance of internal control relevant to the preparation and fair presentation of consolidated financial statements that are free from material misstatement, whether due to fraud or error.

 

Auditor’s Responsibility

Our responsibility is to express an opinion on these consolidated financial statements based on our audit. We conducted our audit in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free from material misstatement.

 

An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the consolidated financial statements. The procedures selected depend on the auditor’s judgment, including the assessment of the risks of material misstatement of the consolidated financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity’s preparation and fair presentation of the consolidated financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity’s internal control. Accordingly, we express no such opinion. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements.

 

We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.

 

Opinion

In our opinion the consolidated financial statements referred to above present fairly, in all material respects, the financial position of the Company as of December 31, 2019, and the results of its operations and its cash flows for the year then ended in accordance with accounting principles generally accepted in the United States of America.

 

Prior Period Consolidated Financial Statements

The consolidated financial statements of the Company as of December 31, 2018 and for the year then ended, were audited by other auditors whose report dated March 21, 2019, expressed an unmodified opinion on those statements.

 

Substantial Doubt about the Company’s Ability to Continue as a Going Concern

The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 1 to the consolidated financial statements, the Company has not earned any significant revenues since its inception which result in substantial doubt about the ability of the Company to continue as a going concern. Management’s evaluation of the events and conditions and management's plans in regard to that matter also are described in Note 1. The consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty. Our opinion is not modified with respect to that matter.

 

 

 

Atlanta, Georgia March 16, 2020

 

F-22

 

 

GROUNDFLOOR FINANCE INC. AND SUBSIDIARIES

 

Consolidated Balance Sheets

 

   December 31, 
   2019   2018 
Assets          
Current assets:          
Cash  $1,699,196   $1,069,392 
Loans to developers, net   73,851,996    38,761,717 
Interest receivable on loans to developers   2,867,914    1,821,073 
Other current assets   937,645    484,391 
Total current assets   79,356,751    42,136,573 
Property, equipment, software, website, and intangible assets, net   971,607    813,104 
Other assets   42,603    63,906 
Total assets  $80,370,961   $43,013,583 
Liabilities and Stockholders’ Deficit          
Current liabilities:          
Accounts payable and accrued expenses  $4,602,116   $2,493,158 
Accrued interest on limited recourse obligations   2,251,926    1,372,474 
Limited recourse obligations, net   53,124,759    31,719,205 
Revolving credit facility   10,460,752    5,493,605 
Convertible notes, net of discount of $368,526 and $0   3,238,474    1,800,000 
Short-term notes payable   8,085,257    2,925,082 
Total current liabilities   81,763,284    45,803,524 
Other liabilities   136,819    60,765 
Total liabilities   81,900,103    45,864,289 
Commitments and contingencies (See Note 12)          
Stockholders’ equity:          
Common stock, no par, 5,000,000 shares authorized, 2,102,720 and 1,732,585 issued and outstanding   10,564,771    6,125,264 
Series A convertible preferred stock, no par, 747,385 shares designated, 747,373 shares issued and outstanding (liquidation preference of $4,999,925)   4,962,435    4,962,435 
Series seed convertible preferred stock, no par, 568,796 shares designated, issued and outstanding (liquidation preference of $2,960,583)   2,609,091    2,609,091 
Additional paid-in capital   1,802,895    1,083,572 
Accumulated deficit   (21,467,774)   (17,630,508)
Stock subscription receivable   (560)   (560)
Total stockholders’ deficit   (1,529,142)   (2,850,706)
Total liabilities and stockholders’ deficit  $80,370,961   $43,013,583 

 

See accompanying notes to consolidated financial statements

 

F-23

 

 

GROUNDFLOOR FINANCE INC. AND SUBSIDIARIES

 

Consolidated Statements of Operations

 

    Year Ended December 31,  
    2019     2018  
Non-interest revenue:                
Origination fees   $ 2,748,150     $ 1,183,583  
Loan servicing revenue     1,964,284       988,203  
Total non-interest revenue     4,712,434       2,171,786  
Net interest income:                
Interest income     6,323,801       3,178,629  
Interest expense     (4,633,122 )     (2,460,454 )
Net interest income     1,690,679       718,175  
Net revenue     6,403,113       2,889,961  
Cost of revenue     (779,756 )     (423,776 )
Gross profit     5,623,357       2,466,185  
Operating expenses:                
General and administrative     2,514,202       1,736,515  
Sales and customer support     2,939,149       2,456,875  
Development     1,125,071       1,006,840  
Regulatory     208,874       193,538  
Marketing and promotions     1,515,558       2,169,567  
Total operating expenses     8,302,854       7,563,335  
Loss from operations     (2,679,497 )     (5,097,150 )
Interest expense     1,157,769       1,003,505  
Net loss   $ (3,837,266 )   $ (6,100,655 )

 

See accompanying notes to consolidated financial statements

 

F-24

 

 

GROUNDFLOOR FINANCE INC. AND SUBSIDIARIES

 

Consolidated Statements of Stockholders’ Deficit

 

   Series A   Series Seed                       Total 
   Convertible   Convertible       Additional       Stock   Stockholders’ 
   Preferred Stock   Preferred Stock   Common Stock   Paid-in   Accumulated   Subscription   (Deficit) 
   Shares   Amount   Shares   Amount   Shares   Amount   Capital   Deficit   Receivable   Equity 
Stockholders’ deficit as of December 31, 2017   747,373   $4,962,435    568,796   $2,609,091    1,136,406   $56,834   $677,929   $(11,529,853)  $(560)  $(3,224,124)
Shares issued in the 2018 Common Stock Offering, net of offering costs   -    -    -    -    468,764    4,562,634    -    -    -    4,562,634 
Shares issued in a private placement   -    -    -    -    125,000    1,500,000    -    -    -    1,500,000 
Exercise of stock options   -    -    -    -    2,415    5,796    -    -    -    5,796 
Share-based compensation expense and warrants   -    -    -    -    -    -    405,643    -    -    405,643 
Net loss   -    -    -    -    -    -    -    (6,100,655)   -    (6,100,655)
Stockholders’ deficit as of December 31, 2018   747,373   $4,962,435    568,796   $2,609,091    1,732,585   $6,125,264   $1,083,572   $(17,630,508)  $(560)  $(2,850,706)
Shares issued in the 2019 Common Stock Offering, net of offering costs   -    -    -    -    214,535    3,073,307    -    -    -    3,073,307 
Shares issued upon conversion of convertible notes   -    -    -    -    147,663    1,348,821    -    -    -    1,348,821 
Exercise of stock options   -    -    -    -    7,937    17,379    -    -    -    17,379 
Share-based compensation expense and warrants   -    -    -    -    -    -    318,545    -    -    318,545 
Beneficial conversion feature on sale of convertible notes                                 400,778              400,778 
Net loss   -    -    -    -    -    -    -    (3,837,266)   -    (3,837,266)
Stockholders’ deficit as of December 31, 2019   747,373   $4,962,435    568,796   $2,609,091    2,102,720   $10,564,771   $1,802,895   $(21,467,774)  $(560)  $(1,529,142)

 

See accompanying notes to consolidated financial statements

 

F-25

 

 

GROUNDFLOOR FINANCE INC. AND SUBSIDIARIES

 

Consolidated Statements of Cash Flows

 

   Year Ended December 31, 
   2019   2018 
Cash flows from operating activities          
Net loss  $(3,837,266)  $(6,100,655)
Adjustments to reconcile net loss to net cash used in operating activities:          
Depreciation and amortization   481,533    375,532 
Share-based compensation   401,930    281,143 
Noncash interest expense   85,089    73,388 
Loss (gain) on sale of real estate owned   -    7,963 
Origination of loans held for sale   (13,659,207)   (672,491)
Proceeds from sales of loans held for sale   15,320,281    672,491 
Conversion of beneficial interests   -    181,347 
Changes in operating assets and liabilities:          
Other assets   (133,042)   41,492 
Interest receivable on loans to developers   (1,085,699)   (3,161,729)
Accounts payable and accrued expenses   2,308,919    731,383 
Accrued interest on limited recourse obligations   887,310    2,439,597 
Net cash used in operating activities   769,848    (5,130,539)
Cash flows from investing activities          
Loan payments to developers   (87,710,983)   (45,914,339)
Repayments of loans from developers   46,214,398    26,131,470 
Proceeds from sale of properties held for sale   2,018,836    1,818,857 
Purchases of computer equipment and furniture and fixtures   (50,373)   (220,489)
Payments of software and website development costs   (569,749)   (487,100)
Net cash used in investing activities   (40,097,871)   (18,671,601)
Cash flows from financing activities          
Proceeds from limited recourse obligations   72,042,001    43,135,416 
Repayments of limited recourse obligations   (47,889,960)   (28,997,881)
Payment of deferred financing costs   (61,250)   (10,000)
Borrowings from the revolving credit facility   58,820,632    37,369,522 
Repayments on the revolving credit facility   (53,827,652)   (34,870,261)
Proceeds from issuance of short-term notes payable   24,070,230    1,801,200 
Repayments of short-term notes payable   (17,260,860)   (520,100)
Proceeds from issuance of convertible notes   3,174,000    - 
Repayments of convertible notes   (450,000)   - 
Repayment of 2017 Note   (1,750,000)   - 
Proceeds from Regulation A+ common stock offering, net of offering costs   3,073,307    4,103,670 
Proceeds from issuance of shares in a private placement   -    1,500,000 
Exercise of stock options   17,379    5,796 
Net cash provided by financing activities   39,957,827    23,517,362 
Net increase (decrease) in cash   629,804    (284,778)
Cash as of beginning of the year   1,069,392    1,354,170 
Cash as of end of the year  $1,699,196   $1,069,392 
Supplemental cash flow disclosures:          
Cash paid for interest  $1,218,759   $650,528 
Supplemental disclosure of noncash investing and financing activities:          
Loans to developers transferred to other real estate owned  $2,015,376   $2,071,840 
Write-down of loans to developers, net and limited recourse obligations, net   484,282    438,660 
Write-down of interest receivable on loans to developers and accrued interest on limited recourse obligations   224,106    195,240 
Conversion of convertible notes payable and accrued interest converted into common stock   1,348,821    277,617 
Reduction to allowance for loan to developers and limited recourse obligations   -    90,000 
Issued warrants in connection with notes payable   139,896    124,500 
Issued advance agreements for convertible notes payable   288,000    - 

 

See accompanying notes to consolidated financial statements

 

F-26

 

 

GROUNDFLOOR FiNANCE INC.

 

NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

 

Description of Business

 

The terms "we," "our," “GROUNDFLOOR,” or the "Company" refer to Groundfloor Finance Inc. and its subsidiaries. The Company was originally organized as a North Carolina limited liability company under the name of Fomentum Labs LLC on January 28, 2013. Fomentum Labs LLC changed its name to Groundfloor LLC on April 26, 2013, and converted into a North Carolina corporation on July 26, 2013. In connection with this conversion, all equity interests in Groundfloor LLC were converted into shares of GROUNDFLOOR Inc.’s common stock. In August 2014, GROUNDFLOOR Inc. converted into a Georgia corporation and changed its name to Groundfloor Finance Inc. The accounting effects of these conversions were reflected retrospectively in the Consolidated Financial Statements. Groundfloor Holdings GA, LLC is the holder of the Revolver, as defined in Note 7. Groundfloor Properties GA LLC was created for the purpose of financing real estate in Georgia. Groundfloor Real Estate 1 LLC and Groundfloor Real Estate 2 LLC were created for the purpose of financing real estate in any state. Groundfloor Real Estate, LLC is currently inactive and management does not have plans to use this entity in the near future.

 

The Company has developed an online investment platform designed to crowdsource financing for real estate development projects (the “Projects”). With this online investment platform (the “Platform”), public investors (the “Investors”) are able to choose between multiple Projects, and real estate developers (the “Developers”) of the Projects are able to obtain financing. GROUNDFLOOR’s financing model replaces traditional sources of financing for Projects with the aggregation of capital from Investors using the internet.

 

Basis of Presentation and Liquidity

 

The Company’s Consolidated Financial Statements include Groundfloor Finance Inc. and its wholly owned subsidiaries, Groundfloor Properties GA LLC; Groundfloor Real Estate, LLC; Groundfloor Holdings GA, LLC; Groundfloor Real Estate 1 LLC; and Groundfloor Real Estate 2, LLC (collectively the “Company” or “GROUNDFLOOR”). Intercompany transactions and balances have been eliminated upon consolidation.

 

The Company’s Consolidated Financial Statements have been prepared on a going concern basis, which contemplates the realization of assets and settlement of liabilities and commitments in the normal course of business.

 

Operations since inception have consisted primarily of organizing the Company, developing the technology, and securing financing. The accompanying Consolidated Financial Statements have been prepared on a basis which assumes that the Company will continue as a going concern. The Company has incurred losses and cash outflows from operations since its inception. The ultimate success of the Company is dependent on management’s ability to develop and market its products and services at levels sufficient to generate operating revenues in excess of expenses.

 

Management evaluated the condition of the Company and has determined that until such sales levels can be achieved, management will need to secure additional capital to continue growing working capital and fund product development and operations.

 

Management intends to raise additional debt or equity financing to grow working capital and fund operations. Management believes the Company will obtain additional funding from current and new Investors in order to sustain operations. However, there are no assurances that the Company can be successful in obtaining the additional capital or that such financing will be on terms favorable or acceptable to the Company.

 

As of the issuance date but subsequent to the date of these financial statements, the Company has commenced an equity offering through which it may raise up to $5.0 million in new financing. At the time of issuance, the Company has closed on approximately $0.3 million in new financing. See Note 13, “Subsequent Events.”

 

There is substantial doubt that the Company will continue as a going concern for at least 12 months following the date these Consolidated Financial Statements are issued, without additional financing based on the Company’s limited operating history and recurring operating losses.

 

The Consolidated Financial Statements do not include any adjustments that might result from the outcome of the uncertainties described in the Consolidated Financial Statements. In addition, the Consolidated Financial Statements do not include any adjustments relating to the recoverability and classification of assets nor the amount and classification of liabilities that might result should the Company be unable to continue as a going concern.

 

F-27

 

 

GROUNDFLOOR FiNANCE INC.

 

Use of Estimates

 

The preparation of Consolidated Financial Statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the Consolidated Financial Statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

 

Revenue Recognition

 

Revenue primarily results from fees earned on the loans to the Developers (the “Loans”). Fees include “Origination fees” and “Loan servicing revenue” which are paid by the Developers.

 

Effective for 2019, the Company adopted Accounting Standards Update (“ASU”) 2014-09, Revenue from Contracts with Customers (“Topic 606”). Topic 606 supersedes the revenue requirements in ASC Topic 605, Revenue Recognition. The Company has evaluated the impact of this accounting standard on its Consolidated Financial Statements and concluded that the Company’s contracts with customers continue to fall within the scope of existing guidance. Servicing fees, origination fees, net interest income, and gains and losses on sales of loans remain within the scope of ASC topic 310—Receivables or ASC topic 860—Transfers and Servicing. Consequently, there was no transition adjustment required on the accompanying financial statements for adopting Topic 606.

 

Origination Fees

 

“Origination fees” are paid by the Developers for the work performed to facilitate the Loans. The amount to be charged is a percentage based upon the terms of the Loan, including grade, rate, term, and other factors. Origination fees range from 1.0% to 5.0% of the principal amount of a Loan. The origination fee is paid when the Loan is issued to the Developer and deducted from the gross proceeds distributed. A Loan is considered issued when formal closing has occurred and funds have transferred to the Developer’s account, which occurs through an Electronic Funds Transfer (“EFT”).

 

The origination fees are recognized as revenue ratably over the term of the Loan, while direct costs to originate Loans are recorded as expenses as incurred.

 

Loan Servicing Revenue

 

Loan servicing revenue is recognized by the Company, upon recovery, for costs incurred in servicing the Developer’s Loan, including managing payments to and from Developers and payments to Investors. The Company records loan servicing revenue as a component of revenue when collected. Direct costs to service Loans are recorded as expenses as incurred.

 

Whole Loan Sales

 

Under loan sale agreements, the Company sells all of its rights, title, and interest in certain loans. At the time of such sales, the Company may simultaneously enter into loan servicing agreements under which it acquires the right to service the loans. The Company calculates a gain or loss on a whole loan sale based on the net proceeds from the whole loan sale, less the carrying value of the loans sold. All unamortized origination fees incurred in the origination process are recognized directly to Consolidated Statements of Operations and recorded to “Origination fees”. For sold loans for which the Company retains servicing rights, the Company compares the expected contractual benefits of servicing to the expected costs of servicing to determine whether a servicing asset or servicing liability arises from the transaction. No servicing rights assets or liabilities have been identified for the years ended December 31, 2019 and 2018.

 

Interest Income on Loans to Developers and Interest Expense on Limited Recourse Obligations

 

The Company recognizes “Interest income” on Loans and “Interest expense” on the corresponding Investor Georgia Notes (if issued by Groundfloor GA) or LROs (if issued by Groundfloor Finance Inc.) using the accrual method based on the stated interest rate to the extent the Company believes it to be collectable. For the purposes of these Consolidated Financial Statements, “Limited recourse obligations, net” refers to both Georgia Notes and LROs. Georgia Notes are securities that the Company has issued through its previously registered Georgia-exclusive securities offering, which has since been terminated. LROs are the Company’s currently registered securities. Both Georgia Notes and LROs represent similar obligations of the Company.

  

F-28

 

 

GROUNDFLOOR FiNANCE INC.

 

Cash and Cash Equivalents

 

The Company considers all highly liquid investments purchased with an original maturity of three months or less to be cash equivalents. The Company had no cash equivalents as of December 31, 2019 and 2018. From time to time, the Company could maintain cash deposits in excess of federally insured limits. The Company believes credit risk related to its cash and cash equivalents to be minimal.

 

Each investor’s escrow account receives Federal Deposit Insurance Corporation (“FDIC”) insurance coverage on cash balances subject to normal FDIC coverage rules. Investor funds, whether committed through a LRO or held in escrow, are not included as a part of the Company’s cash balance.

 

Loans to Developers and Limited Recourse Obligations

 

“Loans to developers, net” are originally recorded at outstanding principal, then subsequently increased as additional draws are disbursed to developers. “Limited recourse obligation, net” are originally recorded at the original principal amount committed by investors, net of funds not yet to be disbursed to developers on the underlying loans, then subsequently increased as those funds are disbursed to developers. Funds committed by investors in LROs but not yet disbursed to developers on the underlying Loans were approximately $8,218,000 and $5,381,000, as of December 31, 2019 and 2018, respectively. These funds are netted against gross balances of approximately $61,343,000 and $37,100,000 as of December 31, 2019 and 2018, respectively, on the accompanying Consolidated Balance Sheets.

 

The interest rate associated with a Loan is the same as the interest rate associated with the corresponding Georgia Notes or LROs.

 

The Company’s obligation to pay principal and interest on a Georgia Note or LRO is equal to the pro rata portion of the total principal and interest payments collected from the corresponding Loan. The Company obtains a lien against the property being financed and attempts reasonable collection efforts upon the default of a Loan. The Company is not responsible for repaying “Limited recourse obligations, net” associated with uncollectable “Loans to developers, net.” Amounts collected related to a defaulted Loan are returned to the Investors based on their pro rata portion of the corresponding Georgia Notes or LROs, if applicable, less collection costs incurred by the Company.

 

The Investors may remit funds through the Company’s online portal prior to the actual Loan being closed. These funds are held in an escrow account controlled by a major bank and are not recognized as an LRO until the Loan is closed and funds are transferred to the Developer, which occurs through an EFT transaction. Each Investor escrow account receives FDIC insurance coverage on cash balances subject to normal FDIC coverage rules.

 

The Loan and corresponding LROs are recorded on the Company’s Consolidated Balance Sheets to “Loans to developers, net” and “Limited recourse obligations, net”, respectively, once the Loan has closed and funds have been disbursed to borrowers. Loans are considered closed after the promissory note for that Loan has been signed and the security interest has been perfected.

 

Nonaccrual and Past Due Loans

 

Accrual of interest on “Loans to developers, net” and corresponding “Limited recourse obligations, net” is discontinued when, in management’s opinion, the collection of the interest income appears doubtful. “Interest income” and “Interest expense” on the “Loans to developers, net” and the corresponding “Limited recourse obligations, net” are discontinued and placed on nonaccrual status at the time the Loan is 90 days delinquent unless the Loan is well secured and in process of collection. A Loan may also be placed on nonaccrual status when, in management’s judgment, the collection of the interest income appears doubtful based on the status of the underlying development project, even if the Loan is not yet 90 days delinquent. Loans may be returned to accrual status when all the principal and interest amounts contractually due are brought current and future payments are reasonably assured.

 

The “Loans to developers, net” and corresponding “Limited recourse obligations, net” are charged off to the extent principal or interest is deemed uncollectible. All interest accrued but later charged off for “Loans to developers, net” and “Limited recourse obligations, net” is reversed against “Interest income” and the corresponding LROs recorded “Interest expense”.

 

Impaired Loans

 

Loans are considered impaired when, based on current information and events, it is probable the Company will be unable to collect all amounts due in accordance with the original contractual terms of the loan agreements. Impaired loans include Loans on nonaccrual status. When determining if the Company will be unable to collect all principal and interest payments due in accordance with the contractual terms of the loan agreement, the Company considers the borrower’s capacity to pay, which includes such factors as the borrower’s current financial position, an analysis of global cash flow sufficient to pay all debt obligations and an evaluation of secondary sources of repayment, such as collateral value and guarantor support. The Company individually assesses for impairment all nonaccrual Loans and all Loans in fundamental default. If a Loan is deemed impaired, a specific valuation allowance is allocated, if necessary, so that the Loan is reported net, at the present value of estimated future cash flows using the Loan’s existing rate or at the fair value of collateral if repayment is expected solely from the collateral. Interest payments on impaired loans are typically applied to principal unless collectability of the principal amount is reasonably assured, in which case interest is recognized on a cash basis.

  

F-29

 

 

GROUNDFLOOR FiNANCE INC.

 

Allowance for Uncollectable Loans and Undeliverable Limited Recourse Obligations

 

Payments to holders of Georgia Notes or LROs, as applicable, depend on the payments received on the corresponding Loans; a reduction or increase of the expected future payments on Loans will decrease or increase the reserve for the associated Georgia Notes or LROs. The Company recognizes a reserve for uncollectable Loans and corresponding reserve for undeliverable Georgia Notes or LROs in an amount equal to the estimated probable losses net of recoveries. The allowance is based on management’s estimates and analysis of historical bad debt experience, existing economic conditions, current loan aging schedules, and expected future write-offs, as well as an assessment of specific, identifiable Developer accounts considered at risk or uncollectible. Expected losses and actual charge-offs on Loans are offset to the extent that the Loans are financed by Georgia Notes or LROs, as applicable, that effectively absorb the related Loan losses.

 

“Loans to developers, net” are presented net of a reserve for doubtful accounts of approximately $2,720,000 and $500,000 as of December 31, 2019 and 2018, respectively. “Limited recourse obligations, net” are presented net of a reserve for doubtful accounts of approximately $2,720,000 and $500,000 as of December 31, 2019 and 2018, respectively.

 

Other Real Estate Owned

 

Foreclosed assets acquired through or in lieu of loan foreclosure are held for sale and are initially recorded at fair value less estimated selling costs. Any write-down to fair value at the time of transfer to foreclosed assets is charged to the allowance for loan losses. Subsequent to foreclosure, valuations are periodically performed by management and the assets are carried at the lower of carrying amount or fair value less cost to sell. Costs of improvements are capitalized up to the fair value of the property, whereas costs relating to holding foreclosed assets and subsequent adjustments to the value are charged to operations.

 

Software Development Costs

 

Software development costs primarily include internal and external labor expenses incurred to develop the software that powers the Company’s website. Certain costs incurred during the application development stage are capitalized based on specific activities tracked, while costs incurred during the preliminary project stage and post-implementation and operation stages are expensed as incurred. Capitalized software development costs are amortized over the estimated useful life of the related software. The Company recognized approximately $415,000 and $328,000 in expense related to amortization of software development costs for the years ended December 31, 2019 and 2018, respectively.

 

Property and Equipment

 

Property and equipment consists of computer equipment, furniture and fixtures, leasehold improvements, and office equipment. Property and equipment is stated at historical cost less accumulated depreciation. Depreciation is computed using the straight-line method over the estimated useful lives of the assets. Leasehold improvements are depreciated over the shorter of the life of the lease or the useful life of the improvements. Upon retirement or sale, the cost of assets disposed of and the related accumulated depreciation are removed from the accounts, and any resulting gain or loss is credited or charged to income. Repairs and maintenance costs are expensed as incurred.

 

Depreciation is computed using the following estimated useful lives:

 

Computer equipment  3 years 
Software and website development costs  3 years 
Office equipment  5 years 
Furniture and fixtures  5 years 
Leasehold improvements  5 years 

  

F-30

 

 

GROUNDFLOOR FiNANCE INC.

 

Impairment of Long-Lived Assets

 

Long-lived assets, such as computer equipment, office equipment, furniture and fixtures, intangible assets, and software and website development costs, are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of the asset to estimated undiscounted future cash flows expected to be generated by the asset. If the carrying amount of the asset exceeds its estimated future cash flows, an impairment charge is recognized for an amount by which the carrying amount of the asset exceeds the fair value of the asset.

 

Intangible Assets

 

Intangible assets consist of Company’s domain names. Intangible assets are being amortized over a 15-year period, their estimated useful lives, on a straight-line basis. The Company recognized approximately $2,000 in amortization expense during the years ended December 31, 2019 and 2018.

 

Equity Offering Costs

 

The Company accounts for offering costs in accordance with Accounting Standard Codification (“ASC”), ASC 340, Other Assets and Deferred Costs. Prior to the completion of an offering, offering costs will be capitalized as deferred offering costs on the balance sheet. The deferred offering costs will be charged to stockholders’ equity upon the completion of an offering or to expense if the offering is not completed.

 

For the year ended December 31, 2019, offering costs of approximately $41,000 incurred in connection with the 2019 Common Stock Offering have been deferred and charged against the gross proceeds of the offering in stockholders’ equity.

 

For the year ended December 31, 2018, offering costs of approximately $125,000 incurred in connection with the 2018 Common Stock Offering were deferred and charged against the gross proceeds of the offering in stockholders’ equity.

 

Deferred Revenue

 

Deferred revenue consists of origination fee payments received in advance of revenue recognized.

 

Advertising Costs

 

The cost of advertising is expensed as incurred and presented within “Marketing and promotions” expenses in the Consolidated Statements of Operations. The Company incurred approximately $274,000 and $700,000 in advertising costs during the years ended December 31, 2019 and 2018, respectively.

 

Rent Expense

 

The Company recognizes rent expense on a straight-line basis over the term of the lease. The difference between rent expense and rent paid is recorded as deferred rent in the Consolidated Balance Sheets. Rent expense is presented within “General and administrative” expenses in the Consolidated Statements of Operations. The Company incurred approximately $248,000 and $139,000 in rent expense for office facilities during the years ended December 31, 2019 and 2018, respectively.

 

Share-Based Compensation

 

The Company recognizes as expense non-cash compensation for all stock-based awards for which vesting is considered probable. Such stock-based awards include stock options and warrants issued as compensation to employees and nonemployees. Non-cash compensation is measured at fair value on the grant date and expensed ratably over the vesting term. The fair value of each stock option and warrant is estimated using the Black-Scholes option pricing model.

 

Income Taxes

 

Deferred tax assets and liabilities are determined based on the temporary differences between the Consolidated Financial Statements carrying amounts and the tax basis of assets and liabilities using the enacted tax rates in effect in the years in which the differences are expected to reverse. In estimating future tax consequences, all expected future events are considered other than enactment of changes in the tax law or rates.

 

The Company may recognize the tax benefit from an uncertain tax position only if it is more likely than not that the tax position will be sustained on examination by the taxing authorities based on the technical merits of the position. The tax benefits recognized in the Consolidated Financial Statements from such a position should be measured based on the largest benefit that has a greater than 50% likelihood of being realized upon ultimate settlement.

  

F-31

 

 

GROUNDFLOOR FiNANCE INC.

 

The determination of recording or releasing income tax valuation allowance is made, in part, pursuant to an assessment performed by management regarding the likelihood that the Company will generate future taxable income against which benefits of its deferred tax assets may or may not be realized. This assessment requires management to exercise significant judgment and make estimates with respect to its ability to generate taxable income in future periods.

 

NOTE 2: RECENT ACCOUNTING PRONOUNCEMENTS

 

In January 2016, the FASB issued ASU 2016-01, Financial Instruments – Overall (Subtopic: 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities (“ASU 2016-01”), which became effective for the Company on January 1, 2019. The amendment changes the accounting for equity investments, changes disclosure requirements related to instruments at amortized cost and fair value, and clarifies how entities should evaluate deferred tax assets for securities classified as available for sale. Affected entities should apply the amendments by means of a cumulative-effect adjustment to the balance sheet as of the beginning of the fiscal year of adoption. The guidance in these pronouncements related to equity investments and deferred tax assets for securities classified as available for sale did not have a material effect on the Company’s Consolidated Financial Statements. The guidance further eliminates a requirement to disclose the fair value of financial instruments measured at amortized cost for entities that are not public entities, and eliminates a requirement for public business entities to disclose the methods and significant assumptions used to estimate the fair value of financial instruments measured at amortized cost. The adoption of this standard did not have a material effect on the Company’s Consolidated Financial Statements.

 

In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842) (“ASU 2016-02”), which requires lessees to recognize most leases on the balance sheet as a lease liability and corresponding right-of-use asset. Further clarification of this guidance was subsequently provided by FASB through the issuance of ASU 2018-10, Codification Improvements to Topic 842, Leases (“ASU 2018-10”), in July 2018 and the issuance of ASU 2018-11, Leases (Topic 842): Targeted Improvements (“ASU 2018-11”), in July 2018. The guidance in these pronouncements will be effective for the Company for the year ending December 31, 2020. The Company is currently evaluating the effect of this guidance on the Company’s Consolidated Financial Statements.

 

In June 2016, the FASB issued ASU 2016-13, Financial InstrumentsCredit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments (“ASU 2016-13”). The FASB subsequently issued a number of pronouncements amending or clarifying ASU 2016-13, including the following: in November 2018, Accounting Standards Update 2018-19, Codification Improvements to Topic 326, Financial Instruments—Credit Losses (“ASU 2018-19”); in May 2019, Accounting Standards Update 2019-05, Financial Instruments—Credit Losses (Topic 326): Targeted Transition Relief (“ASU 2019-05”); in November 2019, Financial Instruments—Credit Losses (Topic 326), Derivatives and Hedging (Topic 815), and Leases (Topic 842): Effective Dates (“ASU 2019-10”); and in November 2019, Codification Improvements to Topic 326, Financial Instruments—Credit Losses (“ASU 2019-11”). ASU 2016-13 and the subsequent related pronouncements significantly change how entities will measure credit losses for most financial assets and certain other instruments that are not measured at fair value through net income. The standard will replace the current incurred loss approach with an expected loss model, referred to as the current expected credit loss (“CECL”) model. The new standard will apply to financial assets subject to credit losses and measured at amortized cost and certain off-balance-sheet credit exposures, which include, but are not limited to, loans, leases, held-to-maturity securities, loan commitments and financial guarantees. ASU 2016-13 simplifies the accounting for purchased credit-impaired debt securities and loans and expands the disclosure requirements regarding an entity’s assumptions, models, and methods for estimating the allowance for loan and lease losses. In addition, entities will need to disclose the amortized cost balance for each class of financial asset by credit quality indicator, disaggregated by the year of origination. For public business entities that meet the definition of an SEC filer, ASU 2016-13 is effective for interim and annual reporting periods beginning after December 15, 2019; for all other public business entities, the guidance is effective for fiscal years beginning after December 15, 2020; for all other entities (private companies, not-for-profit organizations, and employee benefit plans), the guidance is effective for fiscal years beginning after December 15, 2021, including interim periods within those fiscal years. Upon adoption, ASU 2016-13 provides for a modified retrospective transition by means of a cumulative-effect adjustment to equity as of the beginning of the period in which the guidance is effective. The Company is currently evaluating the impact this standard will have on the Company’s Consolidated Financial Statements.

 

In August 2016, the FASB issued ASU 2016-15, Statement of Cash Flows – Classification of Certain Cash Receipts and Cash Payments (“ASU 2016-15”) and in November 2016 issued ASU 2016-18, Statement of Cash Flows (Topic 230): Restricted Cash (“ASU 2016-18”). The ASUs will be effective January 1, 2019, and amend the existing accounting standards for the statement of cash flows. The amendments provide guidance on the following nine cash flow issues: debt prepayment or debt extinguishment costs; settlement of zero-coupon or other debt instruments with coupon interest rates that are insignificant in relation to the effective interest rate of the borrowing; contingent consideration payments made after a business combination; proceeds from the settlement of insurance claims; proceeds from the settlement of corporate-owned life insurance policies; distributions received from equity method investees; beneficial interests in securitization transactions; separately identifiable cash flows and application of the predominance principle; and restricted cash. The adoption of this guidance did not have a material effect on the Company’s Consolidated Financial Statements in the periods presented.

 

F-32

 

 

GROUNDFLOOR FiNANCE INC.

 

In June 2018, the FASB issued ASU 2018-07, Compensation-Stock Compensation (Topic 718): Improvements to Nonemployee Share-Based Payment Accounting (“ASU 2018-07”). Further clarification of this guidance was subsequently provided by FASB through the issuance of ASU 2019-08, Compensation—Stock Compensation (Topic 718) and Revenue from Contracts with Customers (Topic 606): Codification Improvements—Share-Based Consideration Payable to a Customer (“ASU 2019-08”) in November 2019. ASU 2018-07 expands the scope of Topic 718 to include share-based payment transactions for acquiring goods and services from nonemployees. The Company has adopted the guidance of ASU 2018-07 and subsequent related pronouncements by measuring the nonemployee share-based payments awards at the grant-date fair value of the equity instruments, in accordance with the guidance. The adoption of this guidance did not have a material effect on the Company’s Consolidated Financial Statements.

 

In December 2019, the FASB issued Accounting Standards Update 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes (“ASU 2019-12”). The amendments in this update simplify the accounting for income taxes by removing certain exceptions in Topic 740 and introducing other changes intended to clarify and improve existing guidance. For public business entities, the amendments are effective for fiscal years beginning after December 15, 2020; for all other entities, the amendments are effective for fiscal years beginning after December 15, 2021. The Company is currently evaluating the impact that the implementation of this standard will have on the Company’s Consolidated Financial Statements.

 

NOTE 3: LOANS TO DEVELOPERS, NET

 

The Company provides financing to borrowers for real estate-related loans. Real estate loans include loans for unoccupied single family or multifamily renovations and new constructions costing between $30,000 and $2,000,000 over six months to a year.

 

The following table presents the carrying amount of “Loans to developers, net” by letter grade and performance state as of December 31, 2019 and 2018, respectively:

 

   Current   Workout   Fundamental
Default
   Total 
Loan grades:                    
A  $5,356,177   $115,256   $350,000   $5,821,433 
B   15,610,763    1,992,394    528,367    18,131,524 
C   33,204,844    2,147,561    3,879,901    39,232,306 
D   10,624,400    314,319    1,717,097    12,655,816 
E   640,916    -    90,000    730,916 
F   -    -    -    - 
G   -    -    -    - 
Carrying amount as of December 31, 2019  $65,437,100   $4,569,530   $6,565,365   $76,571,996 

 

   Current   Workout   Fundamental
Default
   Total 
Loan grades:                    
A  $3,267,744   $293,473   $-   $3,561,217 
B   7,073,701    668,100    141,150    7,882,951 
C   17,009,297    2,465,820    517,791    19,992,908 
D   7,140,347    263,555    228,000    7,631,902 
E   192,739    -    -    192,739 
F   -    -    -    - 
G   -    -    -    - 
Carrying amount as of December 31, 2018  $34,683,828   $3,690,948   $886,941   $39,261,717 

 

Nonaccrual and Past Due Loans

 

A Loan is placed on nonaccrual status when, in management’s judgment, the collection of the interest income appears doubtful. Loans placed in nonaccrual status stop accruing interest and, if collectability of interest is sufficiently doubtful, “Interest receivable on loans to developers” that has been accrued and is subsequently determined to have doubtful collectability is charged to “Interest income” and the corresponding “Accrued interest on limited recourse obligations” that has been accrued and is subsequently determined to have doubtful collectability is charged to “Interest expense.” Interest income on Loans that are classified as nonaccrual is subsequently applied to principal until the Loans are returned to accrual status. Loans are returned to accrual status when all the principal and interest amounts contractually due are brought current and future payments are reasonably assured. As of December 31, 2019, the Company placed Loans of approximately $6,565,000 recorded to “Loans to developers, net” on nonaccrual status.

  

F-33

 

 

GROUNDFLOOR FiNANCE INC.

 

The following table presents an analysis of past due Loans as of December 31, 2019 and 2018:

 

    Carrying
Amount
    Allowance for
Loan Losses
    Loans to
Developers,
net
 
Aging schedule:                        
Current   $ 65,884,046     $ 730,000     $ 65,154,046  
Less than 90 days past due     5,792,759       240,000       5,552,759  
More than 90 days past due     4,895,191       1,750,000       3,145,996  
Total as of December 31, 2019   $ 76,571,996     $ 2,720,000     $ 73,851,996  

 

    Carrying
Amount
    Allowance for
Loan Losses
    Loans to
Developers,
net
 
Aging schedule:                        
Current   $ 35,112,798     $ 40,000     $ 35,072,798  
Less than 90 days past due     2,404,830       50,000       2,354,830  
More than 90 days past due     1,744,089       410,000       1,334,089  
Total as of December 31, 2018   $ 39,261,717     $ 500,000     $ 38,761,717  

 

Impaired Loans

 

The following is a summary of information pertaining to impaired loans as of December 31, 2019:

 

    Balance  
Nonaccrual loans   $ 6,565,365  
Fundamental default not included above     -  
Total impaired loans     6,565,365  
         
Interest income recognized on impaired loans   $ 173,000  

 

The following table presents an analysis of information pertaining to impaired loans as of December 31, 2019:

 

    Balance  
Principal loan balance    $ 6,565,365  
         
Related allowance   $ 2,020,000  
Average recorded investment   $ 205,000  

 

The following is a summary of information pertaining to impaired loans as of December 31, 2018:

 

    Balance  
Nonaccrual loans   $ 2,146,000  
Fundamental default not included above     887,000  
Total impaired loans     3,033,000  
         
Interest income recognized on impaired loans   $ 400,000  

 

F-34

 

 

GROUNDFLOOR FiNANCE INC.

 

The following table presents an analysis of information pertaining to impaired loans as of December 31, 2018:

 

    Balance  
Principal loan balance   $ 3,033,00  
         
Related allowance   $ 500,000  
Average recorded investment   $ 230,000  

 

Credit Quality Monitoring

 

The Company uses three performance states to better monitor the credit quality of outstanding loans. Outstanding loans are characterized as follows:

 

Current - This status indicates that no events of default have occurred, all payment obligations have been met or none are yet triggered.

 

Workout - This status indicates there has been one or more payment defaults on the Loan and the Company has negotiated a modification of the original terms that does not amount to a fundamental default.

 

Fundamental Default - This status indicates a Loan has defaulted and there is a chance the Company will not be able to collect 100% of the principal amount of the Loan by the extended payment date of the corresponding Georgia Notes or LROs.

 

The following table presents “Loans to developers, net” by performance state as of December 31, 2019 and 2018:

 

    Carrying
Amount
    Allowance for
Loan Losses
    Loans to
Developers,
Net
 
Performance states:                        
Current   $ 65,437,101     $ 630,000     $ 64,807,101  
Workout     4,569,530       70,000       4,499,530  
Fundamental default     6,565,365       2,020,000       4,545,365  
Total as of December 31, 2019   $ 76,571,996     $ 2,720,000     $ 73,851,996  

 

    Carrying
Amount
    Allowance for
Loan Losses
    Loans to
Developers,
Net
 
Performance states:                        
Current   $ 34,683,828     $ -     $ 34,683,828  
Workout     3,690,948       100,000       3,590,948  
Fundamental default     886,941       400,000       486,941  
Total as of December 31, 2018   $ 39,261,717     $ 500,000     $ 38,761,717  

 

F-35

 

 

GROUNDFLOOR FiNANCE INC.

 

Allowance for Loan Losses

 

The following table details activity in the allowance for loan losses for the years ended December 31, 2019 and 2018:

 

    Balance  
Balance, December 31, 2018   $ 500,000  
Allowance for loan loss     2,750,000  
Loans charged off     (530,000 )
Outstanding as of December 31, 2019   $ 2,720,000  
Period-end amount allocated to:        
Loans evaluated individually for impairment   $ 1,860,000  
Loans evaluated collectively for impairment     160,000  
General population of loans, other than those specifically identified     700,000  
Balance, December 31, 2018   $ 2,720,000  
Loans:        
Loans evaluated individually for impairment   $ 3,456,044  
Loans evaluated collectively for impairment     3,109,321  
General population of loans, other than those specifically identified     70,006,631  
Balance, December 31, 2019   $ 76,571,996  

 

    Balance  
Balance, December 31, 2017   $ 640,000  
Allowance for loan loss     240,000  
Loans charged off     (380,000 )
Outstanding as of December 31, 2018   $ 500,000  
Period-end amount allocated to:        
Loans evaluated individually for impairment     400,000  
Loans evaluated collectively for impairment     100,000  
General population of loans, other than those specifically identified     -  
Balance, December 31, 2018   $ 500,000  
Loans:        
Loans evaluated individually for impairment     887,000  
Loans evaluated collectively for impairment     2,146,000  
General population of loans, other than those specifically identified     36,228,717  
Balance, December 31, 2018   $ 39,261,717  

  

F-36

 

 

GROUNDFLOOR FiNANCE INC.

 

NOTE 4: OTHER CURRENT ASSETS

 

“Other current assets” at December 31, 2019 and 2018, consists of the following:

 

    2019     2018  
Due from related party (1)   $ 417,381     $ -  
Advance agreements (2)     288,000       -  
Other real estate owned (3)     210,962       418,379  
Rent deposit, current portion     21,302       21,300  
Unbilled servicing revenue     -       25,127  
Other     -       19,585  
Other current assets   $ 937,645     $ 484,391  

 

(1) Loan and accrued interest receivable from a related party. Refer to Note 11 – Related Party Transactions.

 

(2) Advance agreements for the purchase of 2019 Subordinated Convertible Notes. Refer to Note 7 – Debt.

 

(3) During the year ended December 31, 2019 the Company transferred $2,015,376 from “Loans to developers, net” to “Other current assets”. Other real estate owned met the held for sale criteria and have been recorded at the lower of carrying amount or fair value less cost to sell. There was no impact to the Company’s Consolidated Statements of Operations from this transfer. The Company recorded a decrease of approximately $439,000 to “Loans to developers, net” and an offsetting decrease to “Limited recourse obligations, net”.

 

NOTE 5: PROPERTY, EQUIPMENT, SOFTWARE, WEBSITE AND INTANGIBLE ASSETS, NET

 

“Property, equipment, software, website development costs, and intangible assets, net” at December 31, 2019 and 2018, consists of the following:

 

    2019     2018  
Software and website development costs   $ 1,874,742     $ 1,304,993  
Less: accumulated amortization     (1,139,780 )     (725,255 )
Software and website development costs, net   $ 734,962     $ 579,738  

 

    2019     2018  
Computer equipment   $ 118,476     $ 96,165  
Leasehold improvements     22,367       12,530  
Furniture and fixtures     171,828       134,548  
Office equipment     46,405       45,548  
Property and equipment     359,077       288,791  
Less: accumulated depreciation and amortization     (144,932 )     (79,925 )
Property and equipment, net   $ 214,145     $ 208,866  

 

    2019     2018  
Domain names   $ 30,000     $ 30,000  
Less:  accumulated amortization     (7,500 )     (5,500 )
Intangible assets, net   $ 22,500     $ 24,500  

 

Depreciation and amortization expense on “Property, equipment, intangible assets, software, and website development costs, net” for the years ended December 31, 2019 and 2018 was approximately $482,000 and $376,000, respectively. Amortization of software and website development costs is included as a component of “Development” and depreciation of property, equipment, and intangible assets is included as a component of “General and administrative” in the Consolidated Statements of Operations.

  

F-37

 

GROUNDFLOOR FiNANCE INC.

 

NOTE 6: ACCOUNTS PAYABLE AND ACCRUED EXPENSES

 

“Accounts payable and accrued expenses” at December 31, 2019 and 2018, consists of the following:

 

    2019     2018  
Funded loans-in-process (1)   $ 2,097,512     $ -