Add Home 1A

1.      Risk associated with the correctness of forecasts

Risk: The ADD HOME team might make incorrect forecasts. 

Consequence: Incorrect targets could lead to a lower valuation in the event of a possible exit because the business plan could not be executed as planned. In that case, there could be lower or even non-existent returns. In the worst case, there could even be a liquidation and bankruptcy of the company, with partial or complete loss of the invested capital.

Note: ADD HOME achieved (total) operating income of 4.025M euros in 2022 which is an increase of +/-6% compared to 2021. The preliminary figures for 2023 predict an increase in (total) operating income of +/-9% with an EBITDA of +/- 549k euros.

2.      Risk associated with the need for new financing

Risk: Given the stage of development that project owner is in, it is likely that there will be a need for new financing. 

Consequence: On the one hand, there is the risk that the company will not find investors, which would lead to the dissolution or bankruptcy of the company, causing the investor to lose part or all of his investment. On the other hand, there is the possibility that the company will find new investors, which will lead to dilution, which will be even greater if there is a lower valuation than the one currently used.

Note: Investors will have the opportunity to re-invest in new rounds, at the then applicable investment conditions.

3.      Risk associated with intellectual property

Risk: ADD HOME has a unique method of connecting different containers. The ‘unique method’ is difficult to patent.

Consequence: There is no intellectual property protection in case a competitor would copy this method. Should a competitor copy this method, this could influence the valuation in the event of a possible exit because the business plan could not be executed as planned, due to higher competition. In that case, there could be lower or even non-existent returns. In the worst case, there could even be a liquidation and bankruptcy of the company, with partial or complete loss of the invested capital.

Note: This unique method of connecting different containers was developed together with VLAIO.

1.      Risk associated with inflation

Risk: ADD HOME gives its clients fixed price quotes. There is a risk that the prices of raw materials will increase between the time when the client signs the quotation and the time when the raw materials (such as frames, glass, etc.) are purchased by ADD HOME from its suppliers.

Consequence: This could lead to a lower valuation in case of a possible exit because the business plan could not be executed as planned. In that case, there could be lower or even non-existent returns. In the worst case, there could even be a liquidation and bankruptcy of the company, with partial or complete loss of the invested capital.

Note: ADD HOME's terms and conditions state that ADD HOME may change the raw materials used in its products upon written approval from the client.

2.      Risk associated with interest rates

Risk: The purchasing power/budget of ADD HOME's clients depends on mortgage loan interest rates which are mainly determined by CB rates. Higher interest rates on mortgage loans negatively affect ADD HOME's overall ‘average sales’ per customer.

Consequence: This could lead to a lower valuation in case of a possible exit because the business plan could not be executed as planned. In that case, there could be lower or even non-existent returns. In the worst case, there could even be a liquidation and bankruptcy of the company, with partial or complete loss of the invested capital.

Note: ADD HOME offers a wide range of products of different sizes. So when the purchasing power/budget of ADD HOME's customers is negatively affected, other/cheaper products may be offered.

3.      Risk associated with the regulatory and political framework

Risk: Homes sold by ADD HOME must be built in compliance with building standards, energy standards, etc. Therefore, applicable and annually changing standards must be kept in mind.

Consequence: More stringent standards than those applied by ADD HOME may necessitate a change in ADD HOME's projections and business plan. This could lead to a lower valuation in case of a possible exit because the business plan could not be executed as planned. In that case, there could be lower or even non-existent returns. In the worst case, there could even be a liquidation and bankruptcy of the company, with partial or complete loss of the invested capital.

Note: Currently, in mid-2024, ADD HOME is applying the most stringent standards that will be mandatory in 2030.

Risk: The risk of insolvency means that the company does not have sufficient funds to meet its payment deadlines (cessation of payments). 

Consequence: If the company does not find alternative financing (shocked credit), it may go bankrupt. The insolvency or bankruptcy of ADD HOME may lead to lower or non-existent returns and in the worst case to a partial or total loss of the invested capital. 

1.      Risk associated with the lack of guarantees

Risk: Neither the shares of ADD HOME nor the Participatory Notes of the ADD HOME 1A compartment of Spreds Finance provide guarantees of a return or repayment of the invested capital. 

2.      Risk associated with the lack of a fixed return

Risk: Participatory Notes do not offer a fixed return. The return of the Participatory Notes depends solely on the performance of the Underlying Asset, namely the shares of ADD HOME. 

Consequence for both risks: If the project owner's predictions do not come true (within the predetermined timing), there is a risk of lower or non-existent returns and, in the worst case, partial or complete loss of the invested capital. 

Note for both risks: Investors in Participatory Notes bear the same economic risk as if they were investing directly as shareholders of ADD HOME.

Risk: Although each Spreds Finance compartment is ‘bankruptcy remote’ (meaning that no other creditor can claim a right on or against this compartment) in relation to the others and in relation to the ‘general’ liabilities of Spreds Finance itself, as a result of (i) the terms and conditions of the Notes, (ii) the articles of association of Spreds Finance and (iii)  Article 4 of the Law of 18 December 2016 on crowdfunding; there is a subsidiary risk of  insolvency of Spreds Finance. 

Consequence: Should such insolvency occur, Noteholders may be exposed to the risk of a significant delay in the recovery of their investment.

Note: The probability of this risk occurring is extremely low given the structure and organization of Spreds Finance, in particular the compartmentalization mechanism and the "bankruptcy-remoteness" described above. Each participation taken or loan granted to a project owner is recorded in a separate compartment and is appropriately accounted for in the accounts, taking into account the fact that the accounts are kept by compartment. As a result of (i) the conditions attached to the issue of Participatory Notes, (ii) the articles of association of Spreds Finance and (iii) article 10 of the law regulating the recognition and delimitation of crowdfunding and containing various provisions relating to finance and notwithstanding articles 7 and 8 of the Mortgage Law of 16 December 1851, the assets of a particular compartment serve exclusively to guarantee the rights of investors with respect to this compartment.

1.      Risk associated with the absence of an organized exchange market for Participatory Notes

Risk: Neither the project owner nor Spreds Finance organizes an exchange market for Participatory Notes. It is thus up to the investor himself to find a buyer for his Participating Notes. Given the absence of an exchange market for Participatory Notes, there is no way to adequately establish a comparative pricing methodology for Participatory Notes.

Consequence: A holder of Participatory Notes may not be able to find a buyer for the Participatory Notes it wishes to sell (at the price at which it wishes to sell).

Note: The intention is not to sell the Participatory Notes but to sell the Underlying Asset, often on the occasion of the sale of the Underlying Company itself.

2.      Risk associated with the vote by the general meeting of holders of Participatory Notes to sell

Risk: Any decision by Spreds Finance to sell shares of ADD HOME is subject to the approval of the holders of Participatory Notes representing at least 75% of the outstanding Participatory Notes, unless Spreds Finance is required to sell them under a contractual or statutory provision. 

Consequence: Investors thus bear the risk that the general meeting of the holders of Participatory Notes may refuse to approve the sale of the participation, in which case all investors are bound by this decision and thus must wait to obtain redemption of the Participatory Notes.

3.      Risk associated with an investment in a young company

Risk: Investing in shares of young companies entails the risk that a buyer for the shares will not be found, or not at a fair price yielding a market return, or that a buyer will not be found within a reasonable period of time. 

Consequence: If no buyer is found for the holding, redemption of the Participatory Notes is not possible.

Note: Spreds Finance will make every effort within its powers to obtain the best possible price.

1.      Risk associated with the absence of analysis by Spreds Finance

Risk: Spreds Finance has not conducted an analysis of the proposed project or of the financial situation of the Underlying Company.

Consequence: Any investor considering subscribing to Participatory Notes should make its own analysis of ADD HOME's solvency, activity, financial situation and prospects.

Note: Any decision to invest in Participatory Notes should be based on a comprehensive analysis of the project and of this sheet of essential investment information. Spreds Finance's model does not provide for the presentation of analyzed projects to investors but allows investors to invest based on the information made available to them, after making their own analyses.

2.      Risk associated with the contractual limit on return on investment

Risk This investment is subject to a purchase and sell option. Therefore, in the event of exercise of one of the 2 options, the return that investors will obtain is now already set.

Consequence: If ADD HOME does very well (financially) and performs above expectations, the return that investors can get on this investment may be lower than what they could have gotten if there was no purchase and sell option attached to their investment and the ADD HOME 1A compartment of Spreds Finance could have negotiated a sale price with an interested party on an ad hoc basis. 

Note: If ADD HOME does not perform as well as expected, the option to sell provides capital protection with a minimum annual return of 7%, which investors would not be able to enjoy in the absence of the option to sell.

3.      Risk associated with potential litigation

Risk ADD HOME plans to file a claim against one of its contractors who did not perform a service properly.

Consequence: ADD HOME will seek damages of €100,000 to €150,000. The resources required to obtain the necessary legal support during this claim could be higher than expected. This could result in fewer resources being available than anticipated in the business plan, which could lead to a lower valuation in case of a possible exit because the business plan could not be executed as planned. In that case, there could be lower or even non-existent returns. In the worst case, there could even be a liquidation and bankruptcy of the company, with partial or complete loss of the invested capital.

Note: ADD HOME is not a defending party in this but would be the claimant. As a result, it can decide at any time to settle or drop the claim which would stop the legal fees.

To the best of the project owner's knowledge, there are no other material risks associated with its activities.