PART II AND III

PART II- OFFERING CIRCULAR

111 Crowdfunding, LLC

(the “Company” or “Company”)

Preliminary Prospectus dated_______________________________

An offering statement pursuant to Regulation A relating to these securities has been filed with the Securities and Exchange Commission. Information contained in this Preliminary Offering Circular is subject to completion or amendment. These securities may not be sold nor may offers to buy be accepted before the offering statement filed with the Commission is qualified. This Preliminary Offering Circular shall not constitute an offer to sell or the solicitation of an offer to buy nor may there be any sales of these securities in any state in which such offer, solicitation or sale would be unlawful before qualification under the laws of any such state. The Company may elect to satisfy its obligation to deliver a Final Offering Circular by sending you a notice within two business days after the completion of our sale that contains the URL where the Final Offering Circular or the offering statement in which such Final Offering Circular was filed may be obtained.

We are offering 50,000 of Class A Interests (“Class A Interests” or “Units”) at $1,000 per Unit through our Manager (the “Offering.”) Funds will be made immediately available to the Company once the Company raises a minimum of $100,000 (“Minimum Offering”) for the purposes of acquiring assets or working capital. The Manager will return funds to all subscribers within 72 hours of the end of the Offering Period if the Minimum Offering amount is not raised by the Company. In this circumstance, the Company intends on returning funds as they were received; for example, if a check was received, the Company will issue a check to the subscriber to return funds. If a wire was received the Company will issue a return wire to the subscriber. This Offering terminates in 365 days after commencement of this Offering. We have adopted a Limited Company repurchase program which we intend to enact after the offering closes that may enable you to sell your Class A Interests to us in limited circumstances. There are provisions for the return of funds except pursuant to our Withdrawal Policy which is discussed at “Withdrawal, Redemption Policy and Other Events of Dissociation” on page 60. Please note that no Withdrawal Requests will be honored while Preferred Returns payable to the Members as discussed herein are in arrears. Commissions may be paid for the sale of the Units offered by the Company, see “USE OF PROCEEDS” on page 31.

No public market currently exists for our Units. The Company will be managed by Diamond Sky Capital, LLC (the “Manager.”). The Company has set a minimum investment requirement of $10,000. The Manager intends on notifying and investor of acceptance of their Subscription Agreement by returning a signed copy to the investor within two business days of receipt of the Subscription Agreement and funds. If the Manager rejects the Subscription Agreement and funds have been tendered, the Manager will return any tendered funds within 24 hours of such rejection. We do not intend to place the funds into a segregated account and will hold them in our corporate account until the minimum amount of $100,000 is reached. Therefore, purchasers of our Units qualified hereunder may be unable to sell their securities, because there may not be a public market for our securities. Any purchaser of our securities should be in a financial position to bear the risks of losing their entire investment.

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We expect to use substantially all of the net proceeds from this offering to acquire: (i) real estate secured loans (fixed and variable interest rate), primarily bridge loans and other loans secured by real estate (“Mortgage Loans”). The Company has not identified any Mortgage Loans to acquire and thus, this is a blind pool offering where our Members will be unable to evaluate our assets prior to acquisition. (See “RISK FACTORS” on page 9.)

The Company is considered an “emerging growth company” under Section 101(a) of the Jumpstart Our Business Startups Act as it is an issuer that had total annual gross revenues of less than $1 billion during its most recently completed fiscal year.

Our independent auditors included an explanatory paragraph in the report on our 2016 financial statements related to our ability to continue as a going concern.

See the section entitled “RISK FACTORS” beginning on page 7 for a discussion of risks to consider before purchasing our Class A Interests.

INVESTMENT IN SMALL BUSINESSES INVOLVES A HIGH DEGREE OF RISK, AND INVESTORS SHOULD NOT INVEST ANY FUNDS IN THIS OFFERING UNLESS THEY CAN AFFORD TO LOSE THEIR ENTIRE INVESTMENT. SEE THE SECTION ENTITLED “RISK FACTORS.”

IN MAKING AN INVESTMENT DECISION INVESTORS MUST RELY ON THEIR OWN EXAMINATION OF THE ISSUER AND THE TERMS OF THE OFFERING, INCLUDING THE MERITS AND RISKS INVOLVED. THESE SECURITIES HAVE NOT BEEN RECOMMENDED OR APPROVED BY ANY FEDERAL OR STATE SECURITIES COMMISSION OR REGULATORY AUTHORITY. FURTHERMORE, THESE AUTHORITIES HAVE NOT PASSED UPON THE ACCURACY OR ADEQUACY OF THIS DOCUMENT. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.

THE U.S. SECURITIES AND EXCHANGE COMMISSION DOES NOT PASS UPON THE MERITS OF ANY SECURITIES OFFERED OR THE TERMS OF THE OFFERING, NOR DOES IT PASS UPON THE ACCURACY OR COMPLETENESS OF ANY OFFERING CIRCULAR OR SELLING LITERATURE. THESE SECURITIES ARE OFFERED UNDER AN EXEMPTION FROM REGISTRATION; HOWEVER, THE COMMISSION HAS NOT MADE AN INDEPENDENT DETERMINATION THAT THESE SECURITIES ARE EXEMPT FROM REGISTRATION.

GENERALLY, NO SALE MAY BE MADE TO YOU IN THIS OFFERING IF 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.

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TABLE OF CONTENTS

PROSPECTUS SUMMARY	4
EXEMPTIONS UNDER JUMPSTART OUR BUSINESS STARTUPS ACT	7
RISK FACTORS	8
DETERMINATION OF OFFERING PRICE	41
PLAN OF DISTRIBUTION	41
USE OF PROCEEDS	43
SELECTED FINANCIAL DATA	46
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION	47
INVESTMENT POLICIES OF COMPANY	50
DESCRIPTION OF BUSINESS	52
TAX TREATMENT OF COMPANY AND ITS SUBSIDIARIES	76
SUMMARY OF OPERATING AGREEMENT	78
LEGAL PROCEEDINGS	86
OFFERING PRICE FACTORS	86
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT	86
CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS	88
SELECTION, MANAGEMENT AND CUSTODY OF COMPANY’S INVESTMENTS	88
LIMITATIONS OF LIABILITY	88
INTERESTS OF NAMED EXPERTS AND COUNSEL	89
FINANCIAL STATEMENTS	90
BALANCE SHEET 3	F-3
NOTES TO THE FINANCIAL STATEMENTS	F-7
PART III - EXHIBITS	91

 

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PROSPECTUS SUMMARY

This summary contains basic information about the Fund and the Offering. Because it is a summary, it does not contain all the information that you should consider before investing. You should read the entire Prospectus carefully, including the risk factors and our financial statements and the related notes to those statements included in this prospectus. Except as otherwise required by the context, references in this prospectus to "we," "our," "us," “the Company,” and “111 Crowdfunding” refer to 111 Crowdfunding, LLC.

We were formed on June 5, 2015 and have not yet commenced operations.

We are not a blank check company and do not consider ourselves to be a blank check company as we:

¨ Have a specific business plan. We have provided a detailed plan for the next twelve (12) months throughout our Prospectus.

¨ Have no intention of entering into a reverse merger with any entity in an unrelated industry in the future.

Since our inception through December 31, 2016, we have not generated any revenues and have not incurred any expenses. We anticipate the commencement of generating revenues in the next twelve months. The capital raised in this offering has been budgeted to cover the costs associated with beginning to operate our company, marketing expense, and acquisition related costs. We intend on using the majority of the proceeds from this Offering for the acquisition of real estate related assets. However, closing and other acquisition related costs such as title insurance, professional, fees and taxes will likely require cash. We do not have the ability to quantify any of the expenses as they will all depend on size of deal, price, and place versus procuring new financing, due diligence performed (such as appraisal, environmental, property condition reports), legal and accounting, etc. There is no way to predict or otherwise detail expenses.

We intend on engaging in the following activities:

1. Primarily, acquire real estate secured loans (fixed and variable interest rate), primarily first mortgage loans, but also potentially including second mortgage loans, mezzanine loans, subordinated mortgage loans, subordinated loans secured by real estate, preferred equity real estate investments, bridge loans, real estate secured loans where a portion of the return is dependent upon performance based metrics, owner occupant secured loans and other loans secured by real estate (“Mortgage Loans”); This consists of acquiring loans that have been made to real estate entrepreneurs for the purposes of acquiring or refinancing investment properties. These loans are often provided as mezzanine or bridge financing, but not exclusively. We intend to provide asset-based loan capital through which a borrower receives funds secured by the value of a parcel of real estate. These loans are typically issued at higher interest rates than conventional commercial or residential property loans. We intend to use a loan purchase criteria based on loan-to-value, property location, borrower experience, and other feasibility factors discussed herein.

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2.	INVESTMENT POLICIES OF COMPANY on page 37, will determine whether the Manager will purchase a note on behalf of the Company.
3.	In the event that there is not enough supply or opportunity for us to purchase Mortgage Loans, we intend to purchase Real Estate Owned (REO) properties from banks and other institutions and other sources of wholesale-priced real estate (“REO”). REOs consist of portfolios of homes that have been foreclosed upon and packaged together to be re-sold by a bank or lending institution. Banks pool homes together as REO packages and make them available as-is for purchase as one unit. REO homes are often in disrepair, or have other problems, such as liens or back-taxes owing on them. We expect to acquire mostly single-family residences with our acquisition strategy, but may also end up acquiring condominiums, small multi-family units and small commercial properties.
4.	In the event there is not enough demand for Mortgage Loans or for REO’s, we intend to purchase notes secured by real estate that are not currently cash flow positive but have potential to be “cash flow positive” or “re-performing” through negotiations with the borrower. In order to determine when a property becomes “re-performing,” our Manager will review the total gross receipts from the borrower and subtract any and all expenses including servicing, custodial fees, legal expenses, taxes, and other reserve expenses.
5.	Invest in any opportunity our Manager sees fit within the confines of the market, marketplace and economy so long as those investments are real estate related and within the investment objectives of the Company.

In all cases, the debt on any given property must be such that it fits with the Investment Policies of the Company. We may leverage our equity capital on a 1.5 to 1 basis meaning that for every $1 of equity capital raised, we may borrow $1.50 to leverage our purchasing power.

The Company does not currently own any assets. Please see our “DESCRIPTION” on page 38. We believe we will need at least $4,000 to provide working capital and $6,000 for professional fees for the next 12 months (not including expenses related to this Offering.)

As of the date of this Offering, we have only one principal of our Manager. This principal does not have any specific number of working hours dedicated to the Company going forward. This principal, Hajime Kakuuchi, through our Manager, will be in charge of our day to day operations until such time we are able to hire other personnel. Initially, Mr. Kakuuchi intends to dedicate 20 hours to our business until such time that he is needed on a full time basis. Even if we sell all the securities offered, the majority of the proceeds of the offering will be spent for the purchase of mortgage loans and, to a lesser extent, operational costs. Investors should realize that following the qualification of this Offering, we will be required to raise capital to cover the costs associated with our plans of operation.

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Some of our Risk Factors include:
·	We are an emerging growth company with a limited operating history.
·	Subscribers will have limited control in our company with limited voting rights. The Managing Members will manage the day to day operations of the Company.
·	We may require additional financing, such as bank loans, outside of this offering in order for our operations to be successful.
·	We have not conducted any revenue-generating activities and as such have not generated any revenue since inception.
·	Our offering price is arbitrary and does not reflect the book value of our Class A Interests.
·	Investments in real estate and real estate related assets are speculative and we will be highly dependent on the performance of the real estate market.
·	Our independent auditors have noted there are risk factors associated with our ability to continue as a going Company in the independent auditors’ report to the financial statements included in the Offering.
·	The Company does not currently own any assets.

 

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EXEMPTIONS UNDER JUMPSTART OUR BUSINESS STARTUPS ACT

We are an emerging growth company. An emerging growth company is one that had total annual gross revenues of less than $1,000,000,000 (as such amount is indexed for inflation every 5 years by the Commission to reflect the change in the Consumer Price Index for All Urban Consumers published by the Bureau of Labor Statistics, setting the threshold to the nearest 1,000,000) during its most recently completed fiscal year. We would lose our emerging growth status if we were to exceed $1,000,000,000 in gross revenues. We are not sure this will ever take place.

Because we are an emerging growth company, we have the exemption from Section 404(b) of Sarbanes-Oxley Act of 2002 and Section 14A(a) and (b) of the Securities Exchange Act of 1934. Under Section 404(b), we are now exempt from the internal control assessment required by subsection (a) that requires each independent auditor that prepares or issues the audit report for the issuer shall attest to, and report on, the assessment made by the management of the issuer. We are also not required to receive a separate resolution regarding either executive compensation or for any golden parachutes for our executives so long as we continue to operate as an emerging growth company.

We hereby elect to use the extended transition period for complying with new or revised accounting standards under Section 102(b)(1).

We will lose our status as an emerging growth company in the following circumstances:

· The end of the fiscal year in which our annual revenues exceed $1 billion.

· The end of the fiscal year in which the fifth anniversary of our IPO occurred.

· The date on which we have, during the previous three-year period, issued more than $1 billion in non-convertible debt.

· The date on which we qualify as a large accelerated filer.

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RISK FACTORS

Investors in the Company should be particularly aware of the inherent risks associated with our business. As of the date of this filing our management is aware of the following material risks.

General Risks Related to Our Business

We are an emerging growth company organized in June 2015 and have recently commenced operations, which makes an evaluation of us extremely difficult. At this stage of our business operations, even with our good faith efforts, we may never become profitable or generate any significant amount of revenues, thus potential investors have a probability of losing some or all of their investment.

We were organized in June 2015, and have not started operations other than organizational functions as of the date of this document. As a result of no start-up operations we have; (i) generated no revenues, (ii) will accumulate deficits due to organizational and start-up activities, business plan development, and professional fees since we organized. In that we have not started operations, there is nothing at this time on which to base an assumption that our business operations will prove to be successful or that we will ever be able to operate profitably. Our future operating results will depend on many factors, including our ability to raise adequate working capital, availability of properties for purchase, the level of our competition and our ability to attract and maintain key management and employees.

We are significantly dependent on 111 Capital, Inc. (“Lender”). The loss of Lender or their services would have an adverse effect on our business, operations and prospects in that we may not be able to obtain new Lender services under the same financial arrangements, which could result in a loss of your investment.

Our business plan is significantly dependent upon the Lender. It would be difficult to replace the Lender at such an early stage of development of the Company. The loss of the Lender’s services would have an adverse effect on our business, operations and prospects, and could result in the loss of one's investment. There can be no assurance that we would be able to locate or replace the Lender, should their services be discontinued. In the event that we are unable to replace Lender, we would be required to cease pursuing our business plan, which could result in a loss of your investment

Our independent auditors have noted in their report there are risk factors associated with our ability to continue as a going concern.

The Company's ability to continue as a going concern is dependent upon its ability to generate future profitable operations and/or obtain the necessary financing to meet its obligations and repay its liabilities arising from normal business operations when they become due.

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You will not have the opportunity to evaluate our investments before we make them, which makes your investment more speculative.

You will be unable to evaluate the economic merit of our investments before we invest in them and will be entirely relying on the ability of Diamond Sky Capital, LLC, our Manager, to select our investments. Furthermore, our Manager will have broad discretion in implementing policies regarding tenant or mortgagor creditworthiness, and you will not have the opportunity to evaluate potential tenants, managers or borrowers. These factors increase the risk that your investment may not generate returns comparable to our competitors.

Our Manager will have complete control over the Company and will therefore make all decisions of which Members will have no control.

Diamond Sky Capital, LLC, our Manager, shall make certain decisions without input by the Members. Such decisions may pertain to employment decisions, including our Manager’s compensation arrangements, the appointment of other officers and managers, and whether to enter into material transactions with related parties.

An investment in the Units is highly illiquid. You may never be able to sell or otherwise dispose of your Units.

Since there is no public trading market for our Units, you may never be able to liquidate your investment or otherwise dispose of your Units. The Company does currently have a redemption program, but there is no guarantee that the Company will ever redeem or "buy back" your Units. Further, no one is allowed to redeem their Interests until six months after the Units were purchased and up until the third year of ownership, redemption is subject to a penalty. The Company will only redeem Units up to 10% of the value of the assets in any giving quarter.

Please note that no Withdrawal Requests will be honored while Preferred Returns payable to the Members as discussed herein are in arrears.

Risks Related to the Our Business in General

There are significant risk factors relating to our business generally.

Our business, operating results and financial condition could be adversely affected by any of the following specific risks. In addition to the risks described below, we may encounter risks that are not currently known to us or that we currently deem immaterial, which may also impair our business operations.

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The Company is a recently formed entity with a limited operating history and no assurance of success.

The Company is a recently formed entity and we have generated no revenues. Our future operating results will depend on many factors, including our ability to raise adequate working capital, demand for our loan products, the level of our competition and our ability to attract and maintain key management and employees. Our ability to continue as a going concern is dependent upon our ability to raise additional capital from the sale of Interests and, ultimately, the achievement of significant operating revenues. If we are unable to continue as a going concern, you may lose your investment. You should not invest in this offering unless you can afford to lose your entire investment.

We currently have not issued any commitments to make any Mortgage Loans or have no Properties under contract and those commitments or contracts we place may not be consummated.

We do not have any commitments outstanding to fund any Mortgage Loans. We do not have any Properties under contract.

We have no established investment criteria limiting the geographic concentration of our investments in Mortgage Loans.

Our Mortgage Loans may be concentrated in a limited number of geographic locations, and certain Mortgage Loans in which we invest may be secured by a single property or properties in a limited number of geographic locations. We plan to have our investment activities take place in the United States. Any weakness of economic conditions in the areas where we have a geographic concentration of mortgage loans may have a material adverse effect on our financial condition.

Our Mortgage Loans may carry the risks associated with significant geographical concentration. Therefore, it is likely that we will establish a plan in the future to limit our exposure to geographical concentration risk. If our loans are overly concentrated in certain geographic areas and become exposed to significant declines in general economic conditions in those areas, caused by inflation, overbuilding of commercial properties, recession, relocations of businesses outside the area, acts of terrorism, outbreak of hostilities or other international or domestic occurrences, unemployment, changes in securities markets or other factors could impact these local economic conditions. A deterioration of economic conditions in the geographic area in which our Mortgage Loans may be concentrated could have an adverse effect on our business, including limited the ability of tenants to pay rent, reducing the demand for new financings, limiting the ability of customers to pay financed amounts and reducing the value of our Properties and the value of the collateral securing our Mortgage Loans.

We need a substantial amount of liquidity to operate our business.

We may not be able to obtain sufficient funding for our future operations from internally generated cash flows and sales of debt, in addition to, possible funding from commercial banks, or other sources. We are a newly formed entity and our access to the capital markets and commercial bank financing may be impaired due to a lack of operating history and established earnings. As a consequence, our results of operations, financial condition and cash flows will be materially and adversely affected by our general and administrative expenses.

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We require a substantial amount of cash liquidity to operate our business. Among other things, we use such cash liquidity to:
·	Acquire Real Property Loans; satisfy working capital requirements and pay operating expenses;
·	pay taxes; and
·	pay interest expense.

We attempt to match the maturities of our funding obligations with the estimated holding periods of our investments. There can be no assurance that we will be successful in being able to fund our Mortgage Loans with match maturity funding.

We will have fewer funds available for investments and our profitability will be reduced if we pay distributions to Members from sources other than our cash flow from operations.

We may pay distributions to Members from any source, including offering proceeds, borrowings, or sales of assets. We have not placed a cap on the use of proceeds to fund distribution payments. We intend to pay distributions to Members from cash flow from our operations. Until the proceeds from this offering are fully invested and from time to time during the operational stage, however, we may not generate sufficient cash flow from operations to pay distributions. If we pay distributions from sources other than our cash flow from operations, we will have fewer funds available for investments, and our profitability may be reduced.

Payment of fees, distributions and expense reimbursements to the Manager and its affiliates will reduce cash available for investment and for distribution to our Members.

The Manager and its affiliates perform services for us in connection with the offer and sale of our Interests, the management and servicing of our investments, and administrative and other services. These fees, distributions and expense reimbursements are substantial and reduce the amount of cash available for investment and distribution to our Members. The Manager does not intend to reimburse itself salaries or benefits payable to officers, managers, or employees of the Manager. The Manager will only be reimbursed for expenses that it extends that are directly related to the Company.

Our Results of Operations May Be Impaired if we fail to comply with regulations.

Failure to materially comply with all laws and regulations applicable to us could materially and adversely affect our ability to operate our business. Our business is subject to numerous federal and state laws and regulations, which, among other things:

· require disclosures to our customers;

· define our rights to foreclose and sell real estate; and

· maintain safeguards designed to protect the security and confidentiality of customer information.

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We believe that we are in compliance in all material respects with all such laws and regulations, and such laws and regulations have had no material adverse effect on our ability to operate our business. However, we may be materially and adversely affected if we fail to comply with:

· applicable laws and regulations;

· changes in existing laws or regulations;

· changes in the interpretation of existing laws or regulations; or

· any additional laws or regulations that may be enacted in the future

Government intervention, legislation and regulations may limit our ability to implement certain strategies or manage certain risks.

The pervasive and fundamental economic disruptions that the global financial markets have and may continue to undergo have led to extensive and unprecedented governmental intervention. Such intervention has in certain cases been implemented on an emergency basis, suddenly and substantially eliminating market participants’ ability to continue to implement certain strategies or manage the risk of their outstanding positions. It is impossible to predict what, if any, additional interim or permanent governmental restrictions may be imposed on the markets and the effect of such restrictions on us and our results of operations. Significantly increased regulation of the financial markets could have a material impact on our operating results and financial condition.

The earnings and growth of the lending industry and ultimately of the Company are affected by the monetary and credit policies of governmental authorities, including the Board of Governors of the Federal Reserve System. An important function of the Federal Reserve System is to regulate the national supply of credit in order to control recessionary and inflationary pressures. Among the instruments of monetary policy used by the Federal Reserve System to implement these objectives are open market operations in U.S. Government securities, changes in the federal funds rate, changes in the discount rate of member bank borrowings, and changes in reserve requirements against member bank deposits. These means are used in varying combinations to influence overall growth of bank loans, investments and deposits and may also affect interest rates charged on loans or paid for deposits. The monetary policies of the Federal Reserve System have had a significant effect on the operating results of lending institutions in the past and are expected to continue to have such an effect in the future. In view of changing conditions in the national economy and in the money markets, as well as the effect of actions by monetary and fiscal authorities, no prediction can be made as to possible future changes in interest rates or loan demand or their effect on our business and earnings.

The Dodd-Frank Wall Street Reform and Consumer Protection Act (“Dodd-Frank Act”) mandates the most wide-ranging overhaul of financial industry regulation in decades. The Dodd-Frank Act was signed into law on July 21, 2010. The law provides a regulatory framework and requires that regulators, some of which are new regulatory bodies created by Dodd-Frank, draft, review and approve more than 200 implementing regulations and conduct numerous studies that are likely to lead to more regulations. At this time, it is difficult to predict the extent to which the Dodd-Frank Act will affect our business.

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Our Mortgage Loan investments may be subject to regulation by federal, state and local authorities and subject to various laws and judicial and administrative decisions. We may determine not to make or invest in Mortgage Loans in any jurisdiction in which we believe we have not complied in all material respects with applicable requirements. If we decide not to make or invest in Mortgage Loans in several jurisdictions, it could reduce the amount of income we would otherwise receive.

We believe that legislative, judicial and administrative changes will likely occur in the future and may take effect retroactively. Federal and state legislatures may consider bills with respect to the regulation of financial institutions changing the financial services industry. Compliance with these new laws and regulations may be costly and can affect our operating results. Compliance requires forms, processes, procedures, controls and the infrastructure to support these requirements. Compliance may create operational constraints and place limits on pricing. Laws in the financial services industry are designed primarily for the protection of consumers. It is possible that the U.S. Congress and/or state legislatures may adopt additional laws, including licensing laws, to govern lenders such as 111 Capital, Inc. our primary source of mortgage loan investments. Although we believe that we are currently in compliance with statutes and regulations applicable to our business, there can be no assurance that we will be able to maintain compliance with existing or future governmental regulations. A failure by us to qualify for any such license or to comply with such new requirements could subject us to additional regulatory scrutiny and/or an inability to continue our lending business. The failure to comply could result in significant statutory civil and criminal penalties, monetary damages, attorneys’ fees and costs, possible revocation of licenses and damage to reputation, brand and valued customer relationships.

Our results of operations may be impaired if we experience unfavorable litigation results.

We operate in a litigious society and currently are, and may in the future be, named as defendants in litigation. In some cases there will be no clear legal precedent, which increases the difficulty in predicting both the potential outcomes and costs of defending cases. We are subject to investigations, inquiries, litigation, and other actions by government bodies relating to our activities. The litigation and regulatory actions to which we are or may become subject involve or may involve potential compensatory or punitive damage claims, fines, sanctions or injunctive relief that, if granted, could require us to pay damages or make other expenditures in amounts that could have a material adverse effect on our financial position and our results of operations. We will record loss contingencies in our financial statements only for matters on which losses are probable and can be reasonably estimated. Our assessments of these matters involve significant judgments, and may change from time to time. Actual losses incurred by us in connection with judgments or settlements of these matters may be more than our associated reserves. Furthermore, defending lawsuits and responding to governmental inquiries or investigations, regardless of their merit, could be costly and divert management’s attention from the operation of our business.

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While we intend to vigorously defend ourselves against such proceedings, there is a chance that our results of operations, financial condition and cash flows could be materially and adversely affected by unfavorable outcomes.

Negative publicity associated with litigation, governmental investigations, regulatory actions, and other public statements could damage our reputation.

From time to time there are negative news stories about the lending industry. Such stories may follow the announcements of litigation or regulatory actions involving us or others in our industry. Negative publicity about our alleged or actual practices or about our industry generally could adversely affect our business operations and our ability to retain and attract employees.

Our results of operations may be impaired if we experience problems with our accounting or collection systems or third parties that provide these services.

We are dependent on our accounting systems, collection systems and third parties to provide these services to service our portfolio of Mortgage Loans. Such systems are vulnerable to damage or interruption from natural disasters, power loss, telecommunication failures, terrorist attacks, computer viruses and other events. A number of our systems are not redundant, and our disaster recovery planning is not sufficient for every eventuality. Our systems are also subject to break-ins, sabotage and intentional acts of vandalism by internal employees and contractors as well as third parties. Despite any precautions we may take, such problems could result in interruptions in our services, which could harm our reputation and financial condition. We do not carry business interruption insurance sufficient to compensate us for losses that may result from interruptions in our service as a result of system failures. Such systems problems could materially and adversely affect our results of operations, financial conditions and cash flows.

Our results of operations may be impaired if our Lender is unable to successfully compete with its competitors.

The real estate lending and investment business is highly competitive. Our Lender competes with a number of national, regional and local real estate lending and investment companies that include private real estate lenders and investors, commercial banks, credit unions, real estate investment trusts, insurance companies, private investment funds, hedge funds and specialty investment companies. Many of our Lender’s competitors and potential competitors possess substantially greater financial, marketing, technical, personnel and other resources than we do, including greater access to capital markets and to other funding sources which may be unavailable to us. In addition, the number of entities and the amount of funds competing for suitable investments may increase. Moreover, our future profitability will be directly related to the availability and cost of our capital relative to that of our competitors. There can be no assurance that we will be able to continue to compete successfully and, as a result, we may not be able to make or acquire Mortgage Loans at prices and with terms acceptable to us.

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We will compete with numerous other persons seeking to attract tenants to Property we may acquire through foreclosure or deed in lieu of foreclosure. These persons or entities may have greater experience and financial strength than us. There is no assurance that we will be able to attract tenants on favorable terms, if at all. For example, our competitors may be willing to offer space at rental rates below the Company’s rates, causing it to lose existing or potential tenants and pressuring it to reduce its rental rates to retain existing tenants or convince new tenants to lease space at its Properties.

Risks Associated With Mortgage Loans

Leases on our Properties or properties securing our Mortgage Loans may not be renewed on favorable terms.

The properties securing our Mortgage Loans could be negatively impacted by deteriorating economic conditions and weaker rental markets. Upon expiration or earlier termination of leases on these properties, the space may not be re-let or, if re-let, the terms of the renewal or re-letting (including the cost of required renovations or concessions to tenants) may be less favorable than past or current lease terms. In addition, poor economic conditions may reduce a tenants’ ability to make rent payments under their leases. Any of these situations may result in extended periods where there is a significant decline in revenues or no revenues generated by these properties. Additionally, if market rental rates are reduced, property-level cash flows would likely be negatively affected as existing leases renew at lower rates. Our operating cash flow could be adversely affected if the leases for these properties cannot be renewed for all or substantially all of the space at these properties, or if the rental rates upon such renewal or re-letting are significantly lower than expected.

Our investments may be illiquid and we may not be able to vary our portfolio in response to changes in economic and other conditions.

In the event we decide to sell some of our Mortgage Loans, we may not be able to sell our Mortgage Loans at a price we deem satisfactory, in our sole discretion, for several reason that would include, but not be limited to: if economic conditions deteriorate, interest rates increase, our Mortgage Loans are in default or if buyers of our Mortgage Loans believe that our Mortgage Loans are not adequately secured. A market to sell our Mortgage Loans does not exist and one is not expected to develop. As a result, our ability to vary our Mortgage Loan portfolio in response to changes in economic and other conditions may be limited.

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Real property is an illiquid investment. We may be unable to adjust our Property portfolio in response to changes in economic or other conditions. In addition, the real estate market is affected by many factors, such as general economic conditions, availability of financing, interest rates and other factors, including supply and demand, that are beyond our control. We cannot predict whether we will be able to sell any Property for the price or on the terms set by us, or whether any price or other terms offered by a prospective purchaser would be acceptable to us. We cannot predict the length of time needed to find a willing purchaser and to close the sale of a Property.

We may be required to expend funds to correct defects or to make improvements before a Property can be sold. We cannot assure you that we will have funds available to correct such defects or to make such improvements.

In acquiring a real property, we may agree to restrictions that prohibit the sale of that real property for a period of time or impose other restrictions, such as a limitation on the amount of debt that can be placed or repaid on that real property. Our real properties may also be subject to resale restrictions.

Our Mortgage Loans are subject to the risks typically associated with real estate.

Our Mortgage Loans are generally directly or indirectly secured by a lien on real property (or the equity interests in an entity that owns real property) that, upon the occurrence of a default on the Mortgage Loan, could result in our taking ownership of the property. The values of the properties may change after the dates of origination or acquisition of those Mortgage Loans. If the values of the underlying properties drop, our risk will increase because of the lower value of the security associated with such Mortgage Loans. In this manner, real estate values could impact the values of our Mortgage Loans.

We are subject to regulatory and public policy risks, which could affect the values of the properties that secure our Mortgage Loans.

Decisions of federal, state and local authorities may affect the values of properties that secure our Mortgage Loans. Examples of these decisions include, without limitation, zoning changes, revocation or denial of sanitation, utility and building permits, condemnations, relocations of public roadways, changes in municipal boundaries, changes in land use plans, modifications of parking or access requirements, and changes in permitted uses. Also, shifts in public policy reflected by courts, legislatures or other regulatory authorities may affect provisions of security documents and make realization upon the collateral more time-consuming and expensive. Any of these decisions or changes could cause us to recognize a loss on property securing a Mortgage Loan, which could adversely affect our financial condition and results of operations.

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Our Mortgage Loans could be subject to delinquency, foreclosure and loss, which could result in losses to us.

We specialize in lending money to higher risk projects, projects that require repositioning to obtain the value in the pro-forma or are to be built to realize value. Such loans entail a higher risk of non-performance, higher delinquencies and higher losses than real estate loans made on stabilized projects. While we believe that our pricing of our Mortgage Loans and the underwriting criteria and collection methods we employ enable us to control, to a degree, the higher risks inherent in lending to higher risk projects, no assurance can be given that such pricing, criteria and methods will afford adequate protection against such risks.

The ability of a borrower to repay a loan secured by an income producing property typically is dependent primarily upon the successful operation of such property rather than upon the existence of independent income or assets of the borrower. If the net operating income of the property is reduced, the borrower’s ability to repay the loan may be impaired. Net operating income of an income producing property can be affected many factors including, but not limited to:

· tenant mix,

· success of tenant businesses,

· property management decisions,

· property location and condition,

· competition from comparable types of properties,

· changes in laws that increase operating expenses,

· changes in laws that limit rents,

· needs to address environmental contamination of a property,

· occurrence of any uninsured casualty at the property,

· changes in national, regional or local economic conditions,

· changes in specific types of industry conditions,

· declines in regional or local real estate values,

· declines in regional or local rental or occupancy rates,

· increases in interest rates,

· increases in real estate taxes,

· increases in other operating expenses, and

· changes in governmental rules, regulations and fiscal policies, including:

o environmental legislation,

o natural disasters,

o terrorism,

o social unrest, and

o civil disturbances

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Other than interest earned on funds invested in bonds, bank certificates of deposit, money market accounts pending the use for loans and rents earned from tenants, all of our income will be generated from our Mortgage Investments. Thus, a material risk associated with our business is that persons to whom we loan money will fail to repay their Mortgage Loans or will fail to make timely payments to us. We currently do not have any Mortgage Loans placed. We consider numerous factors when deciding whether to call a loan, accept a deed in lieu of foreclosure, foreclose a property or allow a defaulting borrower to continue working through his or her problems while a loan is in default - primarily, the value of the collateral and the amount of the debt, and the plan of the defaulting borrower to repay the debt. In addition, we consider the costs and burdens that would be occasioned by calling the Mortgage Loan, such as bringing suit and/or foreclosing on collateral. There can be no guarantee that our policy of periodically working with defaulting borrowers rather than pursuing collection will not ultimately result in the need to pursue collection or make it less likely that we will not ultimately realize a loss with respect to these Mortgage Loans. It is impossible to predict whether one of our borrowers will default or what impact any one borrower’s default may have on our business.

Our remedies for collecting on a defaulted Mortgage Loan may be inadequate. Our ability to fully recover amounts due under a defaulted Mortgage Loan may be adversely affected by, among other things:

· the financial distress or failure of our borrowers;

· adverse changes in the value of the real estate or other property pledged to secure our Mortgage Loans;

· our purchase or origination of a fraudulent Mortgage Loan; misrepresentations made to us by a borrower, broker, bank or other lender from whom we acquire a Mortgage Loan;

· third-party disputes; and/or

· third-party claims with respect to security interests

These potential future losses may be significant, may vary from current estimates or historical results and could exceed the amount of our reserves from loan losses. We do not maintain insurance covering such losses. In addition, the amount of the provision for loan losses may be either greater or less than the actual future write-offs of the Mortgage Loans relating to that provision. Any of these events could have a material adverse effect on our business.

In the event of default under a Mortgage Loan secured by real estate held by us, it will bear a risk of loss of principal which could have a material adverse effect on us. The amount of loss would be measured by the deficiency between the value of the collateral and the unpaid principal and accrued interest of the Mortgage Loan, in addition to, the expenses relating to foreclosure.

Some of the Mortgage Loans we purchase may be substantially non-recourse. We will only have recourse to the underlying assets (including any escrowed funds and reserves) collateralizing Mortgage Loans made to borrowers without recourse to a guarantor, but recourse to the Borrower (an entity.) In the case of a limited recourse Mortgage Loan, we will realize a loss if the borrower defaults and the underlying asset collateralizing the Mortgage Loan is insufficient to satisfy the outstanding balance of the Mortgage Loan, in addition to, the expenses relating to foreclosure.

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Risk of loss is also present when we make recourse Mortgage Loans to borrowers. The value of the borrower’s assets may not be sufficient to repay the full amount of principal and interest due us following a default by the borrower. Further, the value of the borrower’s assets may not be sufficient to repay any deficiency remaining due us following a default by the borrower and the foreclosure or acceptance of a deed in lieu of foreclosure of the underlying asset securing the Mortgage Loan.

Foreclosure of a Mortgage Loan can be an expensive and lengthy process that could have a substantial negative effect on our anticipated return on the foreclosed Mortgage Loan secured by real estate. In the event of the bankruptcy of a borrower, the Mortgage Loan to such borrower secured by real estate will be deemed to be secured only to the extent of the value of the mortgaged real estate at the time of bankruptcy (as determined by the bankruptcy court), and the lien securing the Mortgage Loan will be subject to the avoidance powers of the bankruptcy trustee or debtor-in-possession to the extent the lien is unenforceable under state law.

Variable rate Mortgage Loans may entail greater risk of default than fixed rate Mortgage Loans.

Variable rate Mortgage Loans may contribute to higher delinquency rates. Borrowers with variable rate Mortgage Loans may be exposed to increased monthly payments if interest rates increase. This increase in the borrowers’ monthly payment will increase the risk of default and the possibility that we will be required to foreclose.

Larger Mortgage Loans Result in Less Diversity and May Increase Risk

As a general rule, we can decrease risk of loss from delinquent Mortgage Loans by investing in a greater total number of Mortgage Loans. Investing in fewer, larger Mortgage Loans generally decreases diversification of the portfolio, increases risk of loss and possible reduction of our profitability in the case of a delinquency of such a Mortgage Loan. However, since larger Mortgage Loans generally will be made on better projects with better borrowers, we may determine, from time to time, that a relatively larger Mortgage Loan is advisable for us, particularly, when smaller Mortgage Loans that are appropriate for investment by us are not available.

Our underwriting standards and procedures may be more lenient than those used by conventional lenders, which exposes us to a greater risk of loss than conventional lenders.

Our underwriting standards and procedures may be more lenient than conventional lenders in that we may not require our borrowers to meet the credit standards that conventional mortgage lenders impose, which may create additional risks to your investment. We may not require a very high credit report score, we may choose to ignore a borrower’s debt to income ratio and we may be more lenient regarding a borrower’s or guarantor’s past problems than other lending institutions. We approve Mortgage Loans more quickly than other lenders. Generally, we will not spend more than 30 days assessing the character and credit history of a borrower. Due to the nature of Mortgage Loan approvals, there is a risk that the credit inquiry we perform will not reveal all material facts pertaining to the borrower and the collateral securing the Mortgage Loan. Furthermore, when the needs of the borrower dictate, we may spend substantially less than 30 days to evaluate Mortgage Loan opportunities. These factors may increase the risk that our borrowers will default under their Mortgage Loans, which may impair our ability to meet our debt obligations. Furthermore, our assessment of the quality of the Mortgage Loans we purchase from a lender may be inaccurate. An incorrect analysis with respect to one or more of our Mortgage Loans could have a materially adverse impact on our profitability. Additionally, if our analysis is wrong with respect to a Mortgage Loan and we are forced to proceed against the collateral securing that Mortgage Loan, we may not recover the full amount outstanding under the Mortgage Loan. The foregoing factors could cause you to lose all or part of your investment.

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There are a number of factors which could adversely affect the value of such real property security, including, among other things, the following:

1.	The Company will primarily rely on affiliated third-party lenders such as 111 Capital, Inc. (NMLS #: 01890531) to conduct an assessment or appraisal of value to determine the fair market value of real property used to secure Mortgage Loans purchased by the Company. No assurance can be given that such appraisals will, in any or all cases, be accurate. Moreover, since an appraisal fixes the value of real property at a given point in time, subsequent events could adversely affect the value of real property used to secure a Mortgage Loan. Such subsequent events may include general or local economic conditions, neighborhood values, interest rates, new construction, changes in applicable zoning laws and other restrictions.
2.	If the borrower defaults, the Company may be forced to purchase the property at a foreclosure sale. If the Company cannot quickly sell such property, and the property does not produce any significant income, the Company’s profitability will be adversely affected.
3.	The laws of the state in which the property is located and the manner in which the Company’s security interest in the security is enforced may preclude the Company from recovering any deficiency from the borrower if the real property security proves insufficient to repay amounts owing to the Company.
4.	Company’s loans may be secured by junior deeds of trust, which are subject to greater risk than first Mortgage Loans.
5.	The recovery of sums advanced by the Company in making Mortgage Loans and protecting its security may also be delayed or impaired by the operation of the federal bankruptcy laws or by irregularities in the manner in which the Mortgage Loans was made. A foreclosure sale may be delayed by the filing by the borrower of a petition in bankruptcy, which automatically stays any actions to enforce the terms of the loan. The length of the delay and the costs associated therewith may have an adverse impact on the Company’s profitability. If a Mortgage Loan is secured by hypothecated notes, then a bankruptcy filing by one of the borrowers under the hypothecated notes can weaken the value of the Company’s security for its Mortgage Loans and/or delay or impair the borrower’s collections on or enforcement efforts with respect to such hypothecated notes, even if the borrower under the Mortgage Loan is not in bankruptcy.

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We will rely on information provided by others which may prove inaccurate, incomplete or intentionally false.

The success of our Real Property Investments will depend, among other things, on an accurate assessment of the creditworthiness of the borrower and the underlying value of the real property securing the Mortgage Loan, or the value of the hypothecated notes and the real property securing the hypothecated notes, or the accurate assessment of the value of the Property acquisition. While the Manager will make an investigation regarding the real property security and the borrower, it will rely to some extent on third parties such as credit agencies, appraisers, real estate brokers, title companies, environmental consultants and the borrower itself to provide the information upon which the Manager will base its decision to make a Mortgage Loan or Property acquisition. While the Manager will do its best efforts to verify the stated income of the borrower, the accuracy of financial statements, federal or state income tax returns, bank and savings account balances, retirement accounts balances or any records relating to past bankruptcy and legal proceedings, the accuracy of property or tenant financial statements, federal or state income tax returns, appraisals, surveys, title searches, environmental reports or other property due diligence reports, there is no guarantee that this information will be accurate. You may lose all or part of your investment in the Company Interest if Company, the Manager or you rely on false, misleading or unverified information supplied by a borrower or seller in a decision to close on the acquisition or origination of a Mortgage Investment.

We permit prepayment of Mortgage Loans.

Most of the loans purchased by the Company will not have a minimum interest fee. Prepayment of Mortgage Loans purchased by us may lower our profitability, especially during periods when interest rates are declining. We may not be able to reinvest the prepaid funds in new Mortgage Investments that provide us with a yield equivalent or greater than the interest rate we were earning on the Mortgage Loan that was prepaid to us.

Our use and estimate of the “as completed” value of a Property underlying a Mortgage Loan may increase the risk that we may not be able to fully collect the amounts due under that Mortgage Loan.

Traditional commercial lenders typically limit loan amounts to a percentage of the estimated market value of the property securing the loan at the time a loan is made. When we make a Mortgage Loan, the loan-to-value ratio is based on what we believe the value of the property will be once the project is developed in accordance with the borrower’s construction, renovation and development plan. We refer to this value as the “as completed” value, and our Mortgage Loans have a LTV of no more than 80% of the “as completed” value net of selling costs. In each case, the LTV is based both on external sources of information, such as third-party valuations of the constructed or renovated property, and on our subjective valuation of the property. Our beliefs are based on various factors that are unpredictable, such as the future real estate market, , and our review of comparable properties among other completed projects in the market area. Our estimate of the “as completed” value may prove to be inaccurate, such that the value of our collateral is less than what we anticipated. Moreover, a borrower may fail to develop, construct or renovate (or fully develop, construct or renovate) a property, which could also cause the value of our collateral to be less than what we anticipated. In such cases, if a borrower were to default under a Mortgage Loan and/or we were forced to foreclose on the property securing a Mortgage Loan, we may not recover the full amount owed to us and our allowance for loan losses may prove to be insufficient to absorb our actual losses. Accordingly, our use of the “as completed” to establish the loan-to-value ratio, as opposed to using the value of the undeveloped, unconstructed or un-renovated property, increases the risks associated with our lending business, which, if realized, could materially and adversely impact our financial condition and results of operations.

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Many of the loans we make will have a balloon payment feature, which presents additional risks to investors and could have a material and adverse impact on our financial condition.

A loan with a balloon payment feature contemplates a large payment of principal at the maturity of the loan, with small or no principal payments during the term of the loan. Loans with balloon payment features are riskier than loans with regular scheduled payments of principal because the borrower’s ability to repay the loan at maturity generally depends on its ability to refinance the loan or sell the underlying property at a price that equals or exceeds the amount due under the loan. A substantial period of time may elapse between the time the Mortgage Loan is made and the time the Mortgage Loan matures, and the borrower’s financial condition at those times may significantly change or the market for replacement loans or the sale of the property may significantly deteriorate. As a result, there can be no assurance that our borrowers will have sufficient resources to make balloon payments when due.

Some of our Mortgage Loans will not be secured by first mortgages. Our intention is to primarily invest in first mortgages. We may acquire higher risk loans including second, third and wraparound mortgages, loans secured by leasehold interests, participation loans, B-Notes, preferred equity real estate investments and subordinated notes.

We may invest in mezzanine loans that take the form of subordinated loans secured by second mortgages on the underlying real property or loans secured by a pledge of the ownership interests of the entity owning the real property. These types of investments involve a higher degree of risk than senior mortgage lending secured by income producing real property because the investment may become unsecured as a result of foreclosure by the senior lender. Our mezzanine loan will be satisfied only after the senior debt has been paid in full, in the event the borrower defaults or declares bankruptcy. And, we may not have full recourse to the assets of a pledged entity, or the assets of the pledged entity may not be sufficient to satisfy our mezzanine loan, in the event of borrower bankruptcy when the borrower has pledged its ownership interests as security. In addition, mezzanine loans generally have higher loan to value ratios than conventional loans secured by real estate, resulting in less equity margin to absorb a decrease in property value and increasing the risk of loss.

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Mortgage Loans secured by second, third and wraparound mortgages may be more risky than Mortgage Loans secured by first deeds of trust or first mortgages because they are in a subordinate position in the event of default. There could also be a requirement to cure liens of a senior loan holder and, if not done, we would lose our entire interest in the Mortgage Loan.

Mortgage Loans secured by a leasehold interest are riskier than Mortgage Loans secured by real property because the Mortgage Loan is subordinate to the lease between the property owner and the borrower, and our rights in the event the borrower defaults are limited to stepping into the position of the borrower under the lease, subject to its requirements of rents and other obligations during the period of the lease.

We may enter into agreements, including shared appreciation mortgages, with our borrowers providing for our participation in the equity or cash flow of from a secured property. If a borrower defaults and claims that this participation makes the Mortgage Loan comparable to equity in a joint venture, we may lose our secured position as lender in the property. Other creditors of the borrower might then wipe out or substantially reduce our investment. We could also be exposed to the risks associated with being an owner of real property. We are presently not involved in any such arrangements.

If a third party were to assert successfully that our Mortgage Loan was actually a joint venture with the borrower, there might be a risk that we could be liable as joint venture for the wrongful acts of the borrower toward the third party.

We may invest in B-Notes. A B-Note is a loan typically (i) secured by a first mortgage on a single large commercial property or group of related properties and (ii) subordinated to an A-Note secured by the same first mortgage on the same collateral. There may not be sufficient funds remaining for B-Note holders after payment to the A-Note holders if the borrower defaults. Since each transaction is privately negotiated, B-Notes can vary in their structural characteristics and risks, therefore, we cannot predict the terms of each B-Note investment. The rights of holders of B-Notes to control the process following a borrower default may be limited in certain investments. B-Notes may represent a higher risk of loss to us due to being subordinated to an A-Note and due to terms that may include a restriction of B-Note holders to exercise their remedies without the consent of other upon a default by the borrower.

We may invest in subordinated Mortgage Loans secured by real estate. A Mortgage Loan by us that is subordinated will only be satisfied after the senior debt is paid in full, in the event the borrower defaults on the Mortgage Loan made by us or on the debt senior to our Mortgage Loan, or if the borrower declares bankruptcy. We may suffer a loss of principal and interest if a borrower defaults on a subordinated Mortgage Loan and lacks sufficient assets to repay the Mortgage Loan. In the event a borrower declares bankruptcy, we may not have full recourse to the assets of the borrower, or the assets of the borrower may not be sufficient to satisfy the Mortgage Loan.

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We may invest in preferred equity issued by a borrower that owns real estate or operates a loan fund. An investment in preferred equity will only be satisfied after all the secured and unsecured debt is paid in full, in the event the borrower sells its real estate or becomes subject to a foreclosure; and after other creditor remedies, following a default or declares bankruptcy. We may suffer a loss of principal and interest if a borrower lacks sufficient assets to repay the preferred equity investment. In the event a borrower declares bankruptcy, we may not have full recourse to the assets of the borrower, or the assets of the borrower may not be sufficient to satisfy the Mortgage Loan.

Inter-creditor agreements may be entered into between senior and junior creditors both secured by the same property. An inter-creditor agreement with a senior creditor may limit our ability to amend its loan documents, assign its loan, accept prepayments, and exercise our remedies and control decisions made in bankruptcy proceedings relating to the borrower.

Subordinated Mortgage Loans may represent a higher risk of loss to us due to being subordinated to a senior lender and due to restrictive terms relating to inter-creditor agreements that may exist between senior and junior creditors.

Investments in construction and rehabilitation Mortgage Loans may be riskier than loans secured by operating properties.

Construction and rehabilitation Mortgage Loans may be riskier than Mortgage Loans secured by properties with an operating history, because:

· the application of the Mortgage Loan proceeds to the construction or rehabilitation project must be assured;

· borrower may experience cost overruns or may not be able to raise the funds necessary to complete construction diminishing the value of the collateral securing the Mortgage Loan;

· construction or rehabilitation may be delayed placing the borrower at risk that it loses a tenant scheduled to take possession of the property because the delay breaches the occupancy provisions of the lease;

· ; and

· The permanent financing or the sale of the property may be impaired by unfavorable market conditions at the completion of the project.

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Cost overruns and non-completion of the construction or renovation of the properties financed by us may materially diminish the value of the real estate securing our Mortgage Loan.

The renovation, refurbishment or expansion of a property by a borrower involves risks of cost overruns and non-completion. Costs of construction or improvements to construct or renovate a property may exceed original estimates, possibly making a project uneconomical. Other risks may include, but are not limited to, unexpected environmental, geological, or governmental risks during construction and leasing or sales risk following completion. If such construction or renovation is not completed in a timely manner, or if its costs are more than expected, the borrower may not be able to complete the project or may experience a prolonged impairment of net operating income and may not be able to pay interest and principal payments. Our mortgage recorded against an uncompleted construction project may also become subject to mechanics liens for unpaid labor and materials furnished to the project.

Cost overruns and non-completion, in addition to other construction and leasing risks, represent substantial risk to the Company when it lends for construction, renovation or expansion of a real property. These cost overruns and non-completion of a property can materially diminish the value of the real estate mortgaged to us.

Borrower’s financial status could weaken.

The Company will evaluate the creditworthiness of a borrower based on a review of financial information provided by the borrower, and by making other inquiries. However, this financial information and these inquiries will be given and made as of a particular point in time. The financial condition of the borrower could change subsequent to when this financial information and these inquiries are given and made.

Some of our borrowers will experience difficulty in obtaining permanent financing which may reduce our profits.

Many of our borrowers will rely on permanent financing from institutional lenders to repay the Mortgage Loans due us. Due to the volatility in the real estate market and the credit markets, our borrowers may experience difficulty obtaining permanent financing. In addition, a borrower who has failed, or fails in the future, to obtain permanent financing may default on the Mortgage Loans, which could lower our profitability.

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Delays in liquidating defaulted Real Property Investments could reduce our investment returns.

Commercial real estate loans are secured by residential or commercial property and are subject to risks of delinquency and foreclosure. The ability of a borrower to repay a Mortgage Loan secured by an income-producing property typically is dependent primarily upon the successful operation of such property rather than upon the existence of independent income or assets of the borrower. If the net operating income of the property is reduced, the borrower’s ability to repay the Mortgage Loan may be impaired. Net operating income of an income-producing property can be affected by, among other things: tenant mix, success of tenant businesses, property management decisions, property location and condition, competition from comparable types of properties, changes in laws that increase operating expenses or limit rents that may be charged, any need to address environmental contamination at the property, the occurrence of any uninsured casualty at the property, changes in national, regional or local economic conditions and/or specific industry segments, declines in regional or local real estate values, declines in regional or local rental or occupancy rates, increases in interest rates, real estate tax rates and other operating expenses, changes in governmental rules, regulations and fiscal policies (including environmental legislation), natural disasters, terrorism, social unrest and civil disturbances.

If there are defaults under our Real Property Investments, we may not be able to foreclose on or obtain a suitable remedy with respect to such investments. Specifically, if there are defaults under Mortgage Loans, we may not be able to repossess and sell the underlying properties quickly. The resulting time delay could reduce the value of our Real Property Investment. For example, an action to foreclose on a property securing a Mortgage Loan is regulated by state statutes and rules and is subject to many of the delays and expenses of lawsuits if the defendant raises defenses or counterclaims. Additionally, in the event of default by a mortgagor, these restrictions, among other things, may impede our ability to foreclose on or sell the mortgaged property or to obtain proceeds sufficient to repay all amounts due to us on the Mortgage Loan.

In the event of any default under a Mortgage Loan held directly by us, we will bear a risk of loss of principal to the extent of any deficiency between the value of the collateral and the principal and accrued interest of the Mortgage Loan, which could have a material adverse effect on our cash flow from operations. Foreclosure of a Mortgage Loan can be an expensive and lengthy process that could have a substantial negative effect on our anticipated return on the foreclosed Mortgage Loan. In the event of the bankruptcy of a Mortgage Loan borrower, the Mortgage Loan to such borrower will be deemed to be secured only to the extent of the value of the underlying collateral at the time of bankruptcy (as determined by the bankruptcy court), and the lien securing the Mortgage Loan will be subject to the avoidance powers of the bankruptcy trustee or debtor-in-possession to the extent the lien is unenforceable under state law.

The foreclosure process for a Mortgage Loan secured by a property we intend on acquiring may be lengthy, costly and we will be subject to all of the risks of owning the property on which we foreclose.

Our Mortgage Loan portfolio is and will be secured by real property. If a borrower defaults under a Mortgage Loan in our portfolio, we may have to foreclose on and take possession of the real estate collateral to protect our financial interest in the Mortgage Loan. Foreclosure of a Mortgage Loan can be an expensive and lengthy process that could have a substantial negative effect on our anticipated return on the foreclosed Mortgage Loan. If we are not able to repossess properties quickly, the resulting time delay could reduce the value of our Real Property Investment. In the event of the bankruptcy of a Mortgage Loan borrower, the Mortgage Loan to such borrower will be deemed to be secured only to the extent of the value of the property at the time of bankruptcy (as determined by the bankruptcy court), and the lien securing the Mortgage Loan will be subject to the avoidance powers of the bankruptcy trustee or debtor-in-possession to the extent the lien is unenforceable under state law.

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If we acquire Property by foreclosure following defaults under our mortgage loans, we will have the economic and liability risks inherent in the ownership of real property. Various factors could cause us to realize less than we anticipated or otherwise impose burdens on us that would reduce our profits. These factors include, without limitation, fluctuations in property values, occupancy rates, variations in rental schedules and operating expenses. In addition, owning and selling foreclosed Property may present additional considerations, including:

· to facilitate a sale of the Property on which we foreclose, it may be necessary for us to finance all or a portion of the purchase price for the buyer of the Property. In such cases, we will not receive the sale price immediately but will have to rely on the purchaser’s ability to repay the Mortgage Loan, which ability is subject to the same repayment risks that are applicable to any other borrower, as discussed elsewhere in this prospectus.

· There is a risk that hazardous or toxic substances could be found on Properties that we take back in foreclosure. If hazardous or toxic substances are found, we may be liable for remediation costs, as well as for personal injury and property damage. Environmental laws may require us to incur substantial expenses and may materially reduce the affected property’s value or limit our ability to use or sell the affected Property. Any environmental review we undertake before taking title under any foreclosure action on real property may not be sufficient to detect all potential environmental hazards. The remediation costs and any other financial liabilities associated with an environmental hazard could have a material adverse effect on our financial condition and results of operations.

· We may become liable to third persons in excess of the limits covered by insurance to the extent such person or person’s property is injured or damaged while on Property acquired by us through foreclosure.

· Controlling operating expenses such as insurance costs, costs of maintenance and taxes. We may earn less income and reduced cash flows on foreclosed Properties than could be earned and received on Mortgage Loans.

· We may acquire a Property with one or more co-owners where development or sale requires written agreement or consent by all; without timely agreement or consent, we could suffer a loss from being unable to develop or sell the Property. Maintaining occupancy of the Properties.

· Coping with general and local market conditions.

· Complying with changes in laws and regulations pertaining to taxes, use, zoning and environmental protection.

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We may have difficulty protecting our rights as a lender, which may impair our ability to continue making Mortgage Loans and could have a material adverse impact on our financial condition.

The rights of our borrowers and other lenders may limit our realization of the benefits of our Mortgage Loans. For example:

· Judicial foreclosure is subject to the delays of protracted litigation, and our collateral may deteriorate and/or decrease in value during any delay in foreclosing on it;

· A borrower’s right of redemption during foreclosure proceedings can deter the sale of our collateral and can require us to manage the Property for a period of time;

· The rights of senior or junior secured parties in the same property can create procedural hurdles for us when we foreclose on collateral;

· We may not be able to pursue deficiency judgments after we foreclose on collateral;

· Federal bankruptcy law can prevent us from pursuing any actions for an extended period of time, regardless of the progress in any of these suits or proceedings; and/or

· At or near the end of foreclosure proceedings, a borrower will sometimes file bankruptcy to further delay our efforts to take ownership of the real estate collateral.

Government action may reduce recoveries on defaulted Mortgage Loans.

Legislative or regulatory initiatives by federal, state or local legislative bodies or administrative agencies, if enacted or adopted, could delay foreclosure, provide new defenses to foreclosure or otherwise impair our ability to foreclose on Mortgage Loans in default. The nature or extent of the limitation on foreclosure that may be enacted cannot be predicted. Bankruptcy courts could, if this legislation is enacted, reduce the amount of the principal balance on a Mortgage Loan that is secured by a lien on the property, reduce the interest rate, extend the term to maturity or otherwise modify the terms of a bankrupt borrower’s Mortgage Loan.

Risks specific to real estate owned (REO) acquisitions

Inventory or available properties might not be sufficient to realize our investment goals.

We may not be successful in identifying suitable real estate properties or other assets that meet our acquisition criteria, or consummating acquisitions or investments on satisfactory terms. Failures in identifying or consummating acquisitions would impair the pursuit of our business plan. Members ultimately may not like the location, lease terms or other relevant economic and financial data of any real properties, other assets or other companies that we may acquire in the future. Moreover, our acquisition strategy could involve significant risks that could inhibit our growth and negatively impact our operating results, including the following: increases in asking prices by acquisition candidates to levels beyond our financial capability or to levels that would not result in the returns required by our acquisition criteria; diversion of management’s attention to expansion efforts; unanticipated costs and contingent or undisclosed liabilities associated with acquisitions; failure of acquired businesses to achieve expected results; and difficulties entering markets in which we have no or limited experience.

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The consideration paid for our target acquisition may exceed fair market value, which may harm our financial condition and operating results.

The consideration that we pay will be based upon numerous factors, and the target acquisition may be purchased in a negotiated transaction rather than through a competitive bidding process. We cannot assure anyone that the purchase price that we pay for a target acquisition or its appraised value will be a fair price, that we will be able to generate an acceptable return on such target acquisition, or that the location, lease terms or other relevant economic and financial data of any properties that we acquire will meet acceptable risk profiles. We may also be unable to lease vacant space or renegotiate existing leases at market rates, which would adversely affect our returns on a target acquisition. As a result, our investments in our target acquisition may fail to perform in accordance with our expectations, which may substantially harm our operating results and financial condition.

The failure of our properties to generate positive cash flow or to appreciate in value would most likely preclude our Members from realizing a preferred return on their Class A Interests.

There is no assurance that our real estate investments will appreci-ate in value or will ever be sold at a profit. The marketability and value of the properties will depend upon many factors beyond the control of our management. There is no assurance that there will be a ready market for the properties, since investments in real property are generally non-liquid. The real estate market is affected by many factors, such as general economic conditions, availability of financing, interest rates and other factors, including supply and demand, that are beyond our control. We cannot predict whether we will be able to sell any property for the price or on the terms set by it, or whether any price or other terms offered by a prospective purchaser would be acceptable to us. We also cannot predict the length of time needed to find a willing purchaser and to close the sale of a property. Moreover, we may be required to expend funds to correct defects or to make improvements before a property can be sold. We cannot assure any person that we will have funds available to correct those defects or to make those improvements. In acquiring a property, we may agree to lockout provisions that materially restrict us from selling that property for a period of time or impose other restrictions, such as a limitation on the amount of debt that can be placed or repaid on that property. These lockout provisions would restrict our ability to sell a property. These factors and any others that would impede our ability to respond to adverse changes in the performance of our properties could significantly harm our financial condition and operating results.

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Illiquidity of real estate investments could significantly impede our ability to respond to adverse changes in the performance of our properties and harm our financial condition.

Because real estate investments are relatively illiquid, our ability to promptly sell one or more properties or investments in our portfolio in response to changing economic, financial and investment conditions may be limited. In particular, these risks could arise from weakness in or even the lack of an established market for a property, changes in the financial condition or prospects of prospective purchasers, changes in national or international economic conditions, and changes in laws, regulations or fiscal policies of jurisdictions in which the property is located. We may be unable to realize our investment objectives by sale, other disposition or refinance at attractive prices within any given period of time or may otherwise be unable to complete any exit strategy. An exit event is not guaranteed and is subject to the Manager’s discretion.

We may utilize a Broker Price Opinion instead of an appraisal on properties prior to purchase.

In certain favorable market conditions, we may purchase properties in bulk transactions. In other words, purchasing multiple properties in one sale. In that instance, appraisals may be cost prohibitive, therefore we will not be obtaining appraisals on the properties we purchase. Instead, we may elect to conduct a Broker Price Opinion (“BPO”), where, based on a local broker’s opinion, we will determine the value of a property. The broker will compare the property to other properties in the area that are listed and sold, and will visit the property. However, unlike an appraisal, the broker may not fully inspect the property and may not even enter the property, but only view the property from the outside. Therefore, their opinion provided to us may not be as accurate as an appraisal. If a BPO is inaccurate, we may not realize the same profits, or any profits, had we conducted an appraisal.

Risks specific to non-performing notes

A non-performing note owned by the Company may become unsecured in certain cases when the Debtor files for bankruptcy.

In some cases wherein a Debtor files a Chapter 13 bankruptcy, if the market value of the property is demonstrated to be less than the payoff amount of the 1st Mortgage, the Company’s lien on that property can be “stripped” from the property, subject to successful completion of the debtors Bankruptcy Plan and obtaining a Discharge. Although the Company would still likely receive some debt repayment as an unsecured creditor, a substantial portion of the total debt owed would most likely be wiped out upon Discharge.

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In the event a Debtor files for Chapter 7 bankruptcy, and receives a Discharge, the Debtor will no longer be personally liable for the obligations of the note.

Upon discharge of Chapter 7 bankruptcy, a Debtor will no longer be held personally liable for the obligations of a note held by the Company, unless the Debtor reaffirms the debt while in bankruptcy. However, in any case, the Company will retain the right to foreclose on the collateral, as granted in the Security Instrument (Mortgage or Deed of Trust), in the event a mutually acceptable alternative cannot be worked out between the Company and the Debtor.

This offering is a blind pool offering, and therefore, Members will not have the opportunity to evaluate some of our investments before we make them, which makes investments more speculative.

We will seek to invest substantially all of the net offering proceeds from this Offering, after the payment of fees and expenses, in the purchase of mortgage loan assets. However, because, as of the date of this Offering, we have not identified the assets we expect to acquire and because our Members will be unable to evaluate the economic merit of assets before we invest in them, they will have to rely on the ability of our Manager and 111 Capital Inc. (NMLS #: 01890531), a directly affiliated lender, to select suitable and successful mortgage loan investment opportunities.

Should a tax deed sale occur on a property securing one of our notes, the lien securing the Company’s investment could be removed from the subject real estate.

In the event a tax deed sale occurs on the subject real estate, the Company’s interest in the subject real estate may be eliminated. The Company will mitigate this risk by monitoring delinquent tax deadlines and expending capital to resolve issues before they lead to a tax deed sale.

Our notes may be subject to eminent domain if they are in municipalities currently attempting to acquire notes via eminent domain.

In recent history, certain municipalities, such as Richmond, CA, have attempted to purchase notes via eminent domain in order to stop the foreclosure process for some homeowners. In the event that a municipality attempts to acquire one of our notes via eminent domain, our profits may be less than previously expected.

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Our servicer and we are subject to multiple regulations. If we or our servicers are unable to comply with the regulations, we may incur legal or unforeseen costs.

Our business will be subject to multiple laws including regulations applicable to note servicers. We are heavily regulated by laws governing lending practices at the federal, state and local levels. In addition, proposals for further regulation of the financial services industry are continually being introduced. Please review the section “Business Description - Regulations Applicable to Note Servicers” for information on the laws that our business and our servicers may be subject to. Failure for us or for our servicers to comply with these laws could lead to loss of the note, legal fees, and other unexpected costs which could adversely affect your investment. These laws and regulations to which we and our servicer are subject include those pertaining to:

· real estate settlement procedures;

· fair lending;

· compliance with federal and state disclosure requirements;

· debt collection;

· the establishment of maximum interest rates, finance charges and other charges;

· secured transactions and foreclosure proceedings; and

· privacy regulations providing for the use and safeguarding of non-public personal financial information of borrowers.

Risks Related to Financing

We might obtain lines of credit and other borrowings, which increases our risk of loss due to potential foreclosure.

We may obtain lines of credit and long-term financing up to a ratio of 1 capital to 1.5 debt that may be secured by our assets. As with any liability, there is a risk that we may be unable to repay our obligations from the cash flow of our assets. Therefore, when borrowing and securing such borrowing with our assets, we risk losing such assets in the event we are unable to repay such obligations or meet such demands.

We have broad authority to incur debt and high debt levels could hinder our ability to make distributions and decrease the value of our investors’ investments.

Our policies do not limit us from incurring debt until our total liabilities would be at 150% of the total equity capitalization of the Company. High debt levels would cause us to incur higher interest charges and higher debt service payments and may also be accompanied by restrictive covenants. These factors could limit the amount of cash we have available to distribute and could result in a decline in the value of our investors’ investments.

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Risks Related to Our Corporate Structure

We do not set aside funds in a sinking fund to pay distributions or redeem the Units, so you must rely on our revenues from operations and other sources of funding for distributions and withdrawal requests. These sources may not be sufficient to meet these obligations.

We do not contribute funds on a regular basis to a separate account, commonly known as a sinking fund, to pay distributions on or redeem the Units at the end of the applicable non-withdrawal period. Accordingly, you will have to rely on our cash from operations and other sources of liquidity, such as borrowed funds, mortgage note payoffs, and proceeds from future offerings of securities, for distributions payments and payments upon withdrawal. Our ability to generate revenues from operations in the future is subject to general economic, financial, competitive, legislative, statutory and other factors that are beyond our control. Moreover, we cannot assure you that we will have access to additional sources of liquidity if our cash from operations are not sufficient to fund distributions to you. Our need for such additional sources may come at undesirable times, such as during poor market or credit conditions when the costs of funds are high and/or other terms are not as favorable as they would be during good market or credit conditions. The cost of financing will directly impact our results of operations, and financing on less than favorable terms may hinder our ability to make a profit. Your right to receive distributions on your Units is junior to the right of our general creditors to receive payments from us. If we do not have sufficient funds to meet our anticipated future operating expenditures and debt repayment obligations as they become due, then you could lose all or part of your investment. We currently do not have any revenues.

You will have limited control over changes in our policies and operations, which increases the uncertainty and risks you face as a Member.

Our Manager determines our major policies, including our policies regarding financing, growth and debt capitalization. Our Manager may amend or revise these and other policies without a vote of the Members. Our Manager’s broad discretion in setting policies and our Members’ inability to exert control over those policies increases the uncertainty and risks you face as a Member. In addition, our Manager may change our investment objectives without seeking Member approval. Although our board has fiduciary duties to our Members and intends only to change our investment objectives when the board determines that a change is in the best interests of our Members, a change in our investment objectives could cause a decline in the value of your investment in our company.

Our ability to make distributions to our Members is subject to fluctuations in our financial performance, operating results and capital improvement requirements.

Currently, our strategy includes paying a preferred return to investors under this Offering that would result in a return of approximately eight percent (8%) annualized return on investment, of which there is no guarantee. The Preferred Return is payable after the expenses of the Company are paid as well as certain fees, such as the Asset Management fee, are paid to the Manager. In the event of downturns in our operating results, unanticipated capital improvements to our properties, or other factors, we may be unable to declare or pay distributions to our Members. The timing and amount of distributions are the sole discretion of our Manager who will consider, among other factors, our financial performance, any debt service obligations, any debt covenants, our taxable income and capital expenditure requirements. We cannot assure you that we will generate sufficient cash in order to fund distributions.

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Investors will not receive the benefit of the regulations provided to real estate investment trusts or investment companies.

We are not a real estate investment trust and enjoy a broader range of permissible activities. Under the Investment Company Act of 1940, an “investment company” is defined as an issuer which is or holds itself out as being engaged primarily, or proposes to engage primarily, in the business of investing, reinvesting, or trading in securities; is engaged or proposes to engage in the business of issuing face-amount certificates of the installment type, or has been engaged in such business and has any such certificate outstanding; or is engaged or proposes to engage in the business of investing, reinvesting, owning, holding, or trading in securities, and owns or proposes to acquire investment securities having a value exceeding 40 per centum of the value of such issuer’s total assets (exclusive of Government securities and cash items) on an unconsolidated basis.

We intend to operate in such manner as not to be classified as an "investment company" within the meaning of the Investment Company Act of 1940 as we intend on primarily holding real estate. The management and the investment practices and policies of ours are not supervised or regulated by any federal or state authority. As a result, investors will be exposed to certain risks that would not be present if we were subjected to a more restrictive regulatory situation.

If we are deemed to be an investment company, we may be required to institute burdensome compliance requirements and our activities may be restricted

If we are ever deemed to be an investment company under the Investment Company Act of 1940, we may be subject to certain restrictions including:

· restrictions on the nature of our investments; and

· restrictions on the issuance of securities.

In addition, we may have imposed upon us certain burdensome requirements, including:

· registration as an investment company;

· adoption of a specific form of corporate structure; and

· reporting, record keeping, voting, proxy, compliance policies and procedures and disclosure requirements and other rules and regulations.

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The exemption from the Investment Company Act of 1940 may restrict our operating flexibility. Failure to maintain this exemption may adversely affect our profitability.

We do not believe that at any time we will be deemed an “investment company” under the Investment Company Act of 1940 as we do not intend on trading or selling securities. Rather, we intend to hold and manage mortgage notes and/or real estate. However, if at any time we may be deemed an “investment company,” we believe we will be afforded an exemption under Section 3(c)(5)(C) of the Investment Company Act of 1940, as amended (referred to in this Offering as the “1940 Act”). Section 3(c)(5)(C) of the 1940 Act excludes from regulation as an “investment company” any entity that is primarily engaged in the business of purchasing or otherwise acquiring “mortgages and other liens on and interests in real estate”. To qualify for this exemption, we must ensure our asset composition meets certain criteria. Generally, 55% of our assets must consist of qualifying mortgages and other liens on and interests in real estate and the remaining 45% must consist of other qualifying real estate-type interests. Maintaining this exemption may adversely impact our ability to acquire or hold investments, to engage in future business activities that we believe could be profitable, or could require us to dispose of investments that we might prefer to retain. If we are required to register as an “investment company” under the 1940 Act, then the additional expenses and operational requirements associated with such registration may materially and adversely impact our financial condition and results of operations in future periods.

Insurance Risks

We may suffer losses that are not covered by insurance.

The geographic areas in which we invest in notes may be at risk for damage to property due to certain weather-related and environmental events, including such things as severe thunderstorms, hurricanes, flooding, tornadoes, snowstorm, sinkholes, and earthquakes. To the extent possible, the Manager may but is not required to attempt to acquire insurance against fire or environmental hazards. However, such insurance may not be available in all areas, nor are all hazards insurable as some may be deemed acts of God or be subject to other policy exclusions.

The Manager expects to take assignment of a lender’s title insurance policy and will require that owners of property securing its notes maintain hazard insurance naming the Company or the Company’s loan servicing company, which is primarily expected to be 111 Capital, Inc., as the beneficiary. All decisions relating to the type, quality and amount of insurance to be placed on property securing its notes will be made exclusively by the Manager. Certain types of losses that may impact the security for the note could be of a catastrophic nature (due to such things as ice storms, tornadoes, wind damage, hurricanes, earthquakes, landslides, sinkholes, and floods), some of which may be uninsurable, not fully insured or not economically insurable. This may result in insurance coverage that, in the event of a substantial loss, would not be sufficient to pay the full prevailing market value or prevailing replacement cost of the underlying property. Inflation, changes in building codes and ordinances, environmental considerations, and other factors also might make it unfeasible to use insurance proceeds to replace the underlying property once it has been damaged or destroyed. Under such circumstances, the insurance proceeds received might not be adequate to restore the property, leaving the Company without security for its notes.

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Furthermore, an insurance company may deny coverage for certain claims, and/or determine that the value of the claim is less than the cost to restore the property, and a lawsuit could have to be initiated to force them to provide coverage, resulting in further losses in income to the Company. Additionally, properties securing the notes may now contain or come to contain mold, which may not be covered by insurance and has been linked to health issues.

Further, when a borrower defaults on a Note, it is likely they will allow their hazard insurance to lapse. The Manager will attempt to obtain its own insurance policies on such properties, to the extent such lender’s policies are available, but it is possible that some of the properties securing the notes may be uninsured for a period of time or uninsurable. If damage occurred during a time when a property was uninsured, the Company may suffer a loss of its security for a loan.

Federal Income Tax Risks

The Internal Revenue Service may challenge our characterization of the material tax aspects of your investment in the Units.

An investment in Units involves material income tax risks which are discussed in detail in the section of this offering entitled “

TAX TREATMENT OF COMPANY AND ITS SUBSIDIARIES” starting on page 56. You are urged to consult with your own tax advisor with respect to the federal, state, local and foreign tax considerations of an investment in our Units. We may or may not seek any rulings from the Internal Revenue Service regarding any of the tax issues discussed herein. Accordingly, we cannot assure you that the tax conclusions discussed in this offering, if contested, would be sustained by the IRS or any court. In addition, our legal counsel is unable to form an opinion as to the probable outcome of the contest of certain material tax aspects of the transactions described in this offering, including whether we will be characterized as a “dealer” so that sales of our assets would give rise to ordinary income rather than capital gain and whether we are required to qualify as a tax shelter under the Internal Revenue Code. Our counsel also gives no opinion as to the tax considerations to you of tax issues that have an impact at the individual or Member level.

You may realize taxable income without cash distributions, and you may have to use funds from other sources to fund tax liabilities.

As a Member of the Company, you will be required to report your allocable share of our taxable income on your personal income tax return regardless of whether you have received any cash distributions from us. It is possible that your Units will be allocated taxable income in excess of your cash distributions. We cannot assure you that cash flow will be available for distribution in any year. As a result, you may have to use funds from other sources to pay your tax liability.

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You may not be able to benefit from any tax losses that are allocated to your Units.

Interests may be allocated their share of tax losses should any arise. Section 469 of the Internal Revenue Code limits the allowance of deductions for losses attributable to passive activities, which are defined generally as activities in which the taxpayer does not materially participate. Any tax losses allocated to investors will be characterized as passive losses, and, accordingly, the deductibility of such losses will be subject to these limitations. Losses from passive activities are generally deductible only to the extent of a taxpayer’s income or gains from passive activities and will not be allowed as an offset against other income, including salary or other compensation for personal services, active business income or “portfolio income”, which includes non-business income derived from dividends, interest, royalties, annuities and gains from the sale of property held for investment. Accordingly, you may receive no benefit from your share of tax losses unless you are concurrently being allocated passive income from other sources.

We may be audited which could subject you to additional tax, interest and penalties.

Our federal income tax returns may be audited by the Internal Revenue Service. Any audit of the Company could result in an audit of your tax return. The results of any such audit may require adjustments of items unrelated to your investment, in addition to adjustments to various Company items. In the event of any such audit or adjustments, you might incur attorneys’ fees, court costs and other expenses in contesting deficiencies asserted by the Internal Revenue Service. You may also be liable for interest on any underpayment and penalties from the date your tax was originally due. The tax treatment of all Company items will generally be determined at the Company level in a single proceeding rather than in separate proceedings with each Member, and our Manager is primarily responsible for contesting federal income tax adjustments proposed by the Internal Revenue Service. In such a contest, our Manger may choose to extend the statute of limitations as to all Members and, in certain circumstances, may bind the Members to a settlement with the Internal Revenue Service. Further, our Manager may cause us to elect to be treated as an electing large Company. If it does, we could take advantage of simplified flow-through reporting of Company items. Adjustments to Company items would continue to be determined at the Company level however, and any such adjustments would be accounted for in the year they take effect, rather than in the year to which such adjustments relate. Our Manager will have the discretion in such circumstances either to pass along any such adjustments to the Members or to bear such adjustments at the Company level.

State and local taxes and a requirement to withhold state taxes may apply, and if so, the amount of net cash from open payable to you would be reduced.

The state in which you reside may impose an income tax upon your share of our taxable income. Further, states in which we will own properties acquired through foreclosure may impose income taxes upon your share of our taxable income allocable to any Company property located in that state. Many states have implemented or are implementing programs to require companies to withhold and pay state income taxes owed by non-resident Members relating to income-producing properties located in their states, and we may be required to withhold state taxes from cash distributions otherwise payable to you. You may also be required to file income tax returns in some states and report your share of income attributable to ownership and operation by the Company of properties in those states. In the event we are required to withhold state taxes from your cash distributions, the amount of the net cash from operations otherwise payable to you would be reduced. In addition, such collection and filing requirements at the state level may result in increases in our administrative expenses that would have the effect of reducing cash available for distribution to you. You are urged to consult with your own tax advisors with respect to the impact of applicable state and local taxes and state tax withholding requirements on an investment in our Units.

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Legislative or regulatory action could adversely affect investors.

In recent years, numerous legislative, judicial and administrative changes have been made in the provisions of the federal income tax laws applicable to investments similar to an investment in our Units. Additional changes to the tax laws are likely to continue to occur, and we cannot assure you that any such changes will not adversely affect your taxation as a Member. Any such changes could have an adverse effect on an investment in our Units or on the market value or the resale potential of our properties. You are urged to consult with your own tax advisor with respect to the impact of recent legislation on your investment in Units and the status of legislative, regulatory or administrative developments and proposals and their potential effect on an investment in our Units.

Risks Related to Employee Benefit Plans and IRAs

We, and our investors that have employee benefit plans or IRAs, will be subject to risks relating specifically to our having employee benefit plans as Members, which risks are discussed below.

There are special considerations for pension or profit-sharing or 401(k) plans, health or welfare plans or individual retirement accounts whose assets are being invested in our Interests.

If you are investing the assets of a pension, profit sharing or 401(k) plan, health or welfare plan, or an IRA in us, you should consider:

· whether your investment is consistent with the applicable provisions of ERISA and the Internal Revenue Code, or any other applicable governing authority in the case of a government plan;

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· whether your investment is made in accordance with the documents and instruments governing your plan or IRA, including your plan’s investment policy;

· whether your investment satisfies the prudence and diversification requirements of Sections 404(a)(1)(B) and 404(a)(1)(C) of ERISA;

· whether your investment will impair the liquidity of the plan or IRA;

· whether your investment will produce unrelated business taxable income, as defined in Sections 511 through 514 of the Internal Revenue Code, to the plan; and

· your need to value the assets of the plan annually.

You also should consider whether your investment in us will cause some or all of our assets to be considered assets of an employee benefit plan or IRA. We do not believe that under ERISA or U.S. Department of Labor regulations currently in effect that our assets would be treated as “plan assets” for purposes of ERISA. However, if our assets were considered to be plan assets, transactions involving our assets would be subject to ERISA and/or Section 4975 of the Internal Revenue Code, and some of the transactions we have entered into with the Manager and its affiliates could be considered “prohibited transactions” under ERISA and/or the Internal Revenue Code. If such transactions were considered “prohibited transactions” the Manager and its affiliates could be subject to liabilities and excise taxes or penalties. In addition, the Manager and its affiliates could be deemed to be fiduciaries under ERISA, subject to other conditions, restrictions and prohibitions under Part 4 of Title I of ERISA, and those serving as fiduciaries of plans investing in us may be considered to have improperly delegated fiduciary duties to us. Additionally, other transactions with “parties-in-interest” or “disqualified persons” with respect to an investing plan might be prohibited under ERISA, the Internal Revenue Code and/or other governing authority in the case of a government plan. Therefore, we would be operating under a burdensome regulatory regime that could limit or restrict investments we can make and/or our management of our properties. Even if our assets are not considered to be plan assets, a prohibited transaction could occur if we or any of our affiliates is a fiduciary (within the meaning of ERISA) with respect to an employee benefit plan purchasing shares, and, therefore, in the event any such persons are fiduciaries (within the meaning of ERISA) of your plan or IRA, you should not purchase Interests unless an administrative or statutory exemption applies to your purchase.

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Investing with a SDIRA or other retirement account may subject an investor to Unrelated Business Taxable Income (UBTI)

Employee benefit plans and most organizations exempt from federal income taxes (“Exempt Organizations”), including IRAs and other similar retirement plans, are subject to tax to the extent that their unrelated business taxable income (“UBTI”) exceeds $1,000.00 during any tax year. To the extent that an Exempt Organization is allocated UBTI from the Company it would be subject to tax on such amounts exceeding $1,000 at the trust tax rates. UBTI generally means the gross income derived from any unrelated trade or business regularly carried on by the exempt organization, less the deductions directly connected with carrying on the trade or business. Certain types of income (and deductions directly connected with the income) are generally excluded when figuring UBTI, such as rents from real property and gains or losses from the sale, exchange, or other disposition of property. However, there are exceptions to the exclusion that will likely apply with respect to Company Investments. In this regard, it is likely that the Projects underlying the Company Investments will be acquired with funds from loans, which will be “acquisition indebtedness” and result in a portion of the net income therefrom, generally equal to the ratio of acquisition indebtedness to basis in property, being UBTI. The fact that UBTI will be generated and allocated to the Company (and ultimately the Members) may make an investment in the Company less desirable for an Exempt Organization. Exempt Organizations should consult their own tax counsel regarding the possible consequences of an investment in the Company.

For certain other tax-exempt entities - charitable remainder trusts and charitable remainder unitrusts (as defined in Section 664 of the Code) - the receipt of any UBTI may have extremely adverse tax consequences, in that it could result in all of its income from all sources for that year being taxable.

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DETERMINATION OF OFFERING PRICE

Our Offering Price is arbitrary with no relation to value of the company. This Offering is a self-underwritten offering, which means that it does not involve the participation of an underwriter to market, distribute or sell the Class A Interests offered under this offering.

If the maximum amount of Class A Interests are sold under this Offering, the purchasers under this Offering will own 100% of the Class A Interests outstanding.

If the minimum amount of Class A Interests are sold under this Offering, the purchasers under this Offering will own 100% of the Class A Interests outstanding.

The Manager believes that if the maximum amount of the Class A Interests are sold under this Offering, the price per Unit value will be $1,000 per Unit for a total of $50,000,000.

The Manager believes that if the minimum amount of the Class A Interests are sold under this Offering, the price per Unit value will be $1,000 per Unit for a total of $100,000.

PLAN OF DISTRIBUTION

This Offering shall remain open for one year following the Qualification Date of this Offering.

The Class A Interests (Units) are self-underwritten and are being offered and sold by The Company on a minimum/maximum basis. No compensation will be paid to any principal, the Manager, or any affiliated company or party with respect to the sale of the Class A Interests. This means that no compensation will be paid with respect to the sale of the Class A Interests to Hajime Kakuuchi or his companies. We are relying on Rule 3a4-1 of the Securities Exchange Act of 1934, Associated Persons of an Issuer Deemed not to be Brokers. The applicable portions of the rule state that associated persons (including companies) of an issuer shall not be deemed brokers if they a) perform substantial duties at the end of the offering for the issuer; b) are not broker dealers; and c) do not participate in selling securities more than once every 12 months, except for any of the following activities: i) preparing written communication, but no oral solicitation; or ii) responding to inquiries provided that the content is contained in the applicable offering circular; or iii) performing clerical work in effecting any transaction. Neither the Company, its Manager, nor any affiliates conduct any activities that fall outside of Rule 3a4-1 and are therefore not brokers nor are they dealers. All subscription funds which are accepted will be deposited directly into We do not intend to place the funds into a segregated account and will hold them in our corporate account until the minimum amount of $100,000 is reached. The purchase price for the Class A Interests is $1,000, with a minimum purchase of ten (10) Units. The Company will raise a minimum of $100,000 prior to funds being released to The Company. If the Company does not raise the Offering Amount within the Offering Period, all proceeds raised to that point will be promptly returned to subscribers of Class A Interests pro-rata, with interest, if any. The Manager will return funds to all subscribers within 72 hours of the end of the Offering Period if the Minimum Offering amount is not raised by the Company. In this circumstance, the Company intends on returning funds as they were received; for example, if a check was received, the Company will issue a check to the subscriber to return funds. If a wire was received the Company will issue a return wire to the subscriber. Subscription Agreements are irrevocable.

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The Company may utilize an unrelated third party broker dealer in addition to the Manager’s current network of investors of which they already have a pre-existing relationship to solicit investments. The Company, subject to Rule 255 of the 33 Act and corresponding state regulations, is permitted to generally solicit investors by using advertising mediums, such as print, radio, TV, and the Internet. We will offer the securities as permitted by Rule 251 (d)(1)(iii) whereby offers may be made after this Offering has been qualified, but any written offers must be accompanied with or preceded by the most recent offering circular filed with the Commission for the Offering. The Company plans to solicit investors using the Internet through a variety of existing internet advertising mechanisms, such as search based advertising, search engine optimization, and the Company website. The Company website has not yet been developed and may never be.

Please note that the Company will not communicate any information to prospective investors without providing access to the Offering. The Offering may be delivered through the website that is not yet developed, through email, or by hard paper copy.

However received or communicated, all of our communications will be Rule 256 compliant and not amount to a free writing prospectus. No sales will be made prior to this offering statement being declared qualified and a final Offering is available.

Prior to the acceptance of any investment dollars or Subscription Agreements, The Company will determine which state the prospective investor resides. Investments will be processed on a first come, first served basis, up to the Offering Amount of $50,000,000.

The Offering Period will commence upon the Offering Statement being declared qualified.

No sale will be made to a prospective investor if the aggregate purchase price payable is more than 10% of the greater of the prospective investor’s annual income or net worth. Different rules apply to accredited investors and non-natural persons.

Quarterly, the Manager will report to the Members and will supplement this Offering with material and/or fundamental changes to our operations.

In compliance with Rule 253(e) of Regulation A, the Manager shall revise this Offering Statement during the course of the Offering whenever information herein has become false or misleading in light of existing circumstances, material developments have occurred, or there has been a fundamental change in the information initially presented. Such updates will not only correct such misleading information but shall also provide update financial statements and shall be filed as an exhibit to the Offering Statement and be re-qualified under Rule 252.

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The Manager, in its sole discretion, has the right to decline a subscription to the Company. Additionally, the Manager may elect to terminate any subscription to the Company, at any time, for any reason, in its sole discretion. Such subscription termination shall be effective immediately upon written notification from the Manager to the Member and upon return the Member’s capital account. Written notification of subscription termination shall be provided by certified mail and considered received 5 days after postmark, or may be delivered by email and considered received by Member’s acknowledgement of receipt by return email. The Manager, within 72 hours of acknowledgement and confirmation of return location, shall return any subscription funds, in full, to the declined subscriber.

The Manager has the sole discretion to issue additional interests that are not a part of this Offering, with such designations, holding periods, and percentage investment returns as the Manager may deem to be prudent and equitable from time to time.

USE OF PROCEEDS

The net proceeds to us from the sale of up to 5,000,000 Class A Interests offered at an offering price of $1,000 per Unit will vary depending upon the total number of Class A Interests sold. Regardless of the number of Class A Interests sold, we expect to incur Offering expenses estimated at approximately $75,000 for legal, accounting, and other costs in connection with this offering. The table below shows the intended net proceeds from this offering, indicating scenarios where we sell various amounts of the Class A Interests. There is no guarantee that we will be successful at selling any of the securities being offered in this Offering. Accordingly, the actual amount of proceeds we will raise in this offering, if any, may differ.

The offering scenarios presented below are for illustrative purposes only and the actual amounts of proceeds, if any, may differ.

	Minimum			10%		25%		50%		75%		100%
Units Sold		100		5,000		12,500		25,000		37,500		50,000
Gross Proceeds	$	100,000	$	5,000,000	$	12,500,000	$	25,000,000	$	37,500,000	$	50,000,000
Offering Expenses1	$	60,000	$	60,000	$	60,000	$	60,000	$	60,000	$	60,000
Selling Commissions & Fees2	$	1,250	$	62,500	$	156,250	$	312,500	$	478,750	$	625,000
Net Proceeds	$	38,750	$	4,877,500	$	12,283,750	$	24,627,500	$	36,961,250	$	49,315,000
Note Purchases3	$	23,750	$	4,552,500	$	11,758,750	$	23,827,500	$	35,911,250	$	47,965,000
Related Acquisition Costs4	$	0	$	0	$	0	$	0	$	0	$	0
Working Capital5	$	5,000	$	300,000	$	500,000	$	750,000	$	1,000,000	$	1,250,000
Legal and Accounting6	$	10,000	$	25,000	$	25,000	$	50,000	$	50,000	$	100,000
Total Use of Proceeds	$	100,000	$	5,000,000	$	12,500,000	$	25,000,000	$	37,500,000	$	50,000,000

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_____________

(1) These costs assume the costs related with completing this Form 1-A as well as those costs related to the services of a transfer agent, listing fees, our interim financial statements, and our legal costs ($60,000). It is the intent of Manager to provide $50,000 of these offering expenses in exchange for Class B Interests in the Company. To date, the Manager has lent the Company the funds. Please see below for description of the lending activity by the Manager.

(2) The Company does not currently have an agreement for paying selling commissions or fees.

(3) We plan to purchase Mortgage Loans with the proceeds from this Offering. We will not incur closing or other costs in connection with these Mortgage Loan purchases. We will primarily be purchasing loans from 111 Capital, Inc. (“Lender”) directly affiliated with our Manager or other third party licensed lenders to which we have no relation. All of the costs involved with the Company’s Mortgage Loan purchases will be paid by the Lender pursuant to our servicing agreement with the Lender (attached to this Offering Circular as an exhibit.) It is anticipated that the Company will purchase mortgage loans from the Lender at par pricing. It is the intent of the Manager that no single loan purchase will exceed 15% of the assets of the Company and total loan exposure to a single sponsor will not exceed 20% once the fund has sold Membership Interests of over $5,000,000. As the Company grows these limits will be revised downward to a targeted range of 10% and 15%, respectively once the fund reaches Class A Interests of over $25,000,000 sold. The target diversity level is to have the average loan represent under 3.5% of the total assets of the Company once the fund reaches Class A Interests of over $25,000,000 sold. We may lend as much as 20%, or $10,000,000, of our assets to any particular borrower relationship or 15%, or $7,500,000 secured by any particular property if we are successful in raising 100% of its Offering amount or $50,000,000. We intend to hold our Mortgage Loans until maturity unless they become in default.

(4) We will not initially be acquiring real estate assets, only Mortgage Loan Assets. Therefore, we do not initially expect to incur any costs related to real estate acquisition. We believe underwriting and closing costs will be at approximately 5% of the value of real estate assets in the event market conditions are favorable for acquiring real estate assets and market conditions are not favorable for the Company to acquire Mortgage Loan Assets. The real estate asset acquisition costs could include travel to states in which we purchase real estate assets, research costs, closing costs, and other costs. Our ability to quantify any of the expenses is difficult as they will all depend on size of deal, price, due diligence performed (such as appraisal, environmental, property condition reports), legal and accounting, etc. We expect the related acquisition costs to be correlated with the Value of the real estate asset.

(5) Costs associated with our web development, marketing and working capital for the next 12 months. Once approximately 500 units are sold, this working capital account will primarily be used as liquidity for fund operations and Member preferred distributions.

(6) Costs for accounting and legal fees associated with being a public company for the next 12 months.

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The Use of Proceeds sets forth how we intend to use the funds under the various percentages of the related offering. All amounts listed are estimates.

The net proceeds will be used for ongoing legal and accounting professional fees (estimated to be between $10,000 and $100,000 depending on our money raise and mortgage note acquisitions for the next 12 months), working capital for the creation of a website, marketing, and general operating expenses. We determined estimates for ongoing professional fees based upon consultations with our accountants and lawyers, and operating expenses and due diligence costs based upon the Manager’s real estate industry experience.

As of December 31, 2016, the Manager has advanced $15,000 for legal fees in the form of a non-interest bearing, demand loan. As of June 30, 2017, the Manager loaned a total of $25,000. This loan is not in writing. This is the total amount that the Manager has advanced to the Company as of December 31, 2016. It is anticipated that the Manager will advance another $10,000 for legal fees, $2,500 in audit fees, and $10,000 in miscellaneous costs. Our Offering expenses are comprised of legal and accounting expenses, SEC and EDGAR filing fees, printing and transfer agent fees. Our Manager will continue to advance additional Offering expenses as they are required by the Company throughout the successful completion of the Company qualification process. Once 100 units are sold, the Manager will be reimbursed for all of the Offering expenses advanced by the Manager in excess of the amounts contributed towards purchase of Class B Interests. Based on the information above, the Manager will have contributed $50,000 toward the purchase of Class B Interests. The Manager will not receive any compensation for their efforts in selling our Class A Interests.

The Manager will pay the offering expenses regardless of the amount of Class A Interests we sell. The $50,000 advanced by the Manager for the legal expenses will be exchanged for Class B interests. The additional Offering expenses advanced by the Manager will be reimbursed once we sell at least 1,000 Class A Interests, we believe that we will have sufficient funds to continue our filing obligations as a reporting company for the next 12 months. We intend to use the proceeds of this offering in the manner and in order of priority set forth above. We do not intend to use the proceeds to acquire assets or finance the acquisition of other businesses. At present, no material changes are contemplated. Should there be any material changes in the projected use of proceeds in connection with this Offering, we will issue an amended Offering reflecting the new uses.

In all instances, after the qualification of this Form 1-A, the Company will need some amount of working capital to maintain its general existence and comply with its reporting obligations. In addition to changing allocations because of the amount of proceeds received, we may change the use of proceeds because of required changes in our business plan. Investors should understand that we have wide discretion over the use of proceeds. Therefore, management decisions may not be in line with the initial objectives of investors who will have little ability to influence these decisions.

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SELECTED FINANCIAL DATA

The following summary financial data should be read in conjunction with “MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION” and the Financial Statements and Notes thereto, included elsewhere in this Offering. The statement of operations and balance sheet data from inception through the period ended December 31, 2016 are derived from our audited financial statements.

	At June 30, 2017 (unaudited)			At Dec 30, 2016
TOTAL ASSETS	$	20,000		$	15,000
LIABILITIES AND MEMBERS’ EQUITY
LIABILITIES
Loan from Affiliate	$	25,000			-
TOTAL LIABILITIES	$	25,000			-
TOTAL MEMBERS’ EQUITY	$	(5,000	)		15,000
TOTAL LIABILITIES AND MEMBERS’ EQUITY	$	20,000		$	15,000

	Six Months Ended June 30, 2017 (unaudited)			Inception (June 2015) to December 31, 2016
Revenues	$	0		$	0
Expenses	$	(5,000	)	$	0
Net Income (Loss)	$	(5,000	)	$	(0	)

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MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION

The following discussion and analysis should be read in conjunction with our financial statements and the notes thereto contained elsewhere in this filing.

Critical Accounting Policies

Section 107 of the JOBS Act provides that an emerging growth company can take advantage of the extended transition period provided in Section 7(a)(2)(B) of the Securities Act for complying with new or revised accounting standards that have different effective dates for public and private companies. We have elected to take advantage of this extended transition period, and thus, our financial statements may not be comparable to those of other reporting companies. Accordingly, until the date we are no longer an “emerging growth company” or affirmatively opt out of the exemption, upon the issuance of a new or revised accounting standard that applies to our financial statements and has a different effective date for public and private companies, we will disclose the date on which adoption is required for non-emerging growth companies and the date on which we will adopt the recently issued accounting standard.

Cautionary Statement Regarding Forward-Looking Statements

With the exception of historical matters, the matters discussed herein are forward-looking statements that involve risks and uncertainties. Forward-looking statements include, but are not limited to, statements concerning anticipated trends in revenues and net income, projections concerning operations and available cash flow. Our actual results could differ materially from the results discussed in such forward-looking statements. The following discussion of our financial condition and results of operations should be read in conjunction with our financial statements and the related notes thereto appearing elsewhere herein.

Background Overview

111 Crowdfunding, LLC was formed in the State of Nevada in June of 2015. We have no plans to change our business activities or to combine with another business, and we are not aware of any events or circumstances that might cause our plans to change. The Manager of the Company do not have any plans or arrangements to enter into a change of control, business combination or similar transaction or to change management.

The Company’s overall strategy is to purchase performing notes secured by real property throughout the United States from Lender. The Company will immediately commence collection of mortgage payments from borrowers through the services of a licensed servicer, the Lender. It is the Company’s intent to primarily purchase performing notes. The Company will be owned by the Manager and Members which may include, but is not limited to: individuals, individual retirement accounts, banks and other financial institutions, endowments, and pension funds.

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The Company’s potential diverse pool of secured real estate investments will offer its Members the opportunity to earn a preferred annualized eight (8%) percent return depending upon the Capital Contribution made and the time it takes for the Member to execute the Subscription Agreement and invest funds (please see “Fees and Cash Distributions.”) The Manager, Diamond Sky Capital, LLC, will exclusively manage the Company. The Preferred Return is payable after the expenses of the Company are paid as well as certain fees, such as the Asset Management fee, are paid to the Manager. Thereafter, the Class B Members will receive any remaining Cash Flow as compensation, but only so long as the Class A Members have received their Preferred Returns and there are adequate reserves at the Manager’s discretion.

When we finish our Form 1-A Offering Statement in the winter or spring of 2018, and after we sell sufficient membership interests, we will then begin acquisition of performing notes from the Lender. We expect that we will be finished with the process of qualification by spring or summer of 2018 and commence our fundraising by summer or fall of 2018. Thereafter, we will begin acquisition of performing notes from Lender. Therefore, we hope that by summer or fall 2018 or sooner, we will have acquired our first performing note. If we raise the minimum amount of $100,000, we will incur expenses related with the operation of the Company and the continuing expenses related to being a reporting company under the requirements of Tier 2, Regulation A. To finish this Form 1-A, we believe we will need a minimum of $12,500. Thereafter, we believe we will need an additional $15,000 for ongoing working capital and professional fees. Our Manager is committed to advancing the balance of the Offering expenses required for the completion of this Form 1-A, however, unless we are able to raise a minimal amount through this Offering. This commitment is not in writing. When the Manager provides such capital, $50,000 of it will most likely be in the form of purchasing Class B Interests in the Company and the balance will be reimbursed once 100 units are sold.

Results of Operations

For the years ended December 31, 2016 and December 31, 2015 and the six months ended June 30, 2017

We have not generated any revenues. We generated no revenues for the year ended December 31, 2016 or for the period ended December 31, 2015. We do not have any current activities. We have generated expenses of $0 from inception (June, 2015) to December 31, 2015 and $0 in expenses for the year ended December 31, 2016. We generated $5,000 in selling, general and administrative expenses for the six months ended June 30, 2017. This has resulted in a loss of $0 from inception (June, 2015) to December 31, 2016 and a loss of ($5,000) for the six months ended June 30, 2017

Total expenses

From inception (June, 2015) to December 31, 2016, we have generated $0 expenses. For the six months ended June 30, 2017, we generated ($5,000) in expenses.

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Net loss

For the year ended December 31, 2016 and the period ended December 31, 2015, we have generated a net loss of $0. For the six months ended June 30, 2017, we generated a net loss of ($5,000) in expenses.

Assets

We currently have no assets other than $20,000 in capitalized start-up costs.

Liabilities

We currently have no liabilities.

Liquidity and Capital Resources

As of June 30, 2017 the Company had $20,000 in assets and total liabilities of $25,000. As of December 31, 2016, the Company had $15,000 in assets and total liabilities of $15,000. As of June 30, 2017 the Company had incurred total expenses of ($5,000) for selling, general, and administrative expenses. As of December 31, 2016, the Company has incurred total expenses since inception (June, 2015) of $0. The Company hopes to raise $50,000,000 in this Offering with a minimum of $100,000 in funds raised. If we are successful at raising the minimum amount of this Offering, we believe that such funds will be sufficient to fund our expenses over the next twelve months, which we currently estimate to be at a minimum of $12,500. Upon the qualification of the Form 1-A, the Company plans to pursue its investment strategy of performing note acquisition. There can be no assurance that additional capital will be available to the Company. If the Company is unable to raise additional capital, the Company’s investment objective of acquiring performing notes will be adversely affected. The Company currently has no agreements, arrangements or understandings with any person to obtain funds through bank loans, lines of credit or any other sources. Since the Company has no such arrangements or plans currently in effect, its inability to raise funds for the above purposes will have a severe negative impact on its ability to remain a viable company.

Related Party Transactions

Since our formation, we have raised $25,000 from our Manager. The Manager has advanced cash for Company startup expenses of which, $20,000 has already been utilized for legal costs and audit costs associated with our Form 1-A.

Going Concern Consideration

Our independent auditors included an explanatory paragraph in their report on the accompanying financial statements regarding concerns about our ability to continue as a going concern. Our financial statements contain additional note disclosures describing the circumstances that lead to this disclosure by our independent auditors.

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Off-Balance Sheet Arrangements

We anticipate utilizing the Lender for supply of performing mortgage notes and loan servicing. We do not have any off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that is material to investors.

Changes In And Disagreements With Accountants On Accounting And Financial Disclosure

None.

Employees

Currently, Hajime Kakuuchi is the principal of our Manager and devotes a minor portion of his working hours to our Company without a salary. For more information on our personnel, please see "SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT." Initially Mr. Kakuuchi will coordinate all of our business operations. The Manager managed by Mr. Kakuuchi has advanced the working capital to cover our initial start-up costs. We plan to use consultants, attorneys, accountants, and other personnel, as necessary and do not plan to engage any additional full-time employees in the near future. We believe the use of non-salaried personnel allows us to expend our capital resources as a variable cost as opposed to a fixed cost of operations. In other words, if we have insufficient revenues or cash available, we are in a better position to only utilize those services required to generate revenues as opposed to having salaried employees.

Our Manager is spending the time allocated to our business in handling the general business affairs of our Company such as accounting issues, including review of materials presented to our auditors, working with our counsel in preparation of filing our Form 1-A, developing our business plan and performing note acquisitions. Upon effectiveness and successful raise, the principals of the Manager will devote additional working hours to the Company.

INVESTMENT POLICIES OF COMPANY

In all types of investment, our policies may be changed by our Manager without a vote by Members.

We intend to purchase Mortgage Loans on commercial and residential real estate throughout the country on investment and non-owner occupied properties. We intend on purchasing notes that are secured with commercial and residential property. We intend to purchase these Mortgage Loans at no more than 80% of the after repaired value (ARV) of the assets upon which the lien(s) are secured.

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We intend to evaluate each performing note investment based upon information provided by the Lender:

1.	Review current information on the owner/borrower of the property.
2.	Review the Inspection Report and the rehab budget.
3.	Review the ARV Appraisal and determine that the loan amount is below 80% ARV.
4.	Review the Lender’s title insurance and the property hazard insurance.
5.	Review and execute the mortgage note purchase documents.

The After Repaired Value (“ARV”) is calculated by industry standard methods, appropriate for subject property, by professional independent licensed appraisers. ARV value calculation also includes the consideration and evaluation of data obtained from current, on-site building inspections. The building inspections are typically provided by local certified professional building inspectors.

The party responsible for the ARV, is an independent, 3rd party appraiser, licensed in subject state, and experienced in appraisal for the type and location of subject property.

Note: The ARV appraisal method used most commonly for fund note evaluations will be the "comparable sales method". The comparable sales method calculations are based on sales prices of multiple, recent comparable sales, from the immediate area. These comparable sales are when adjusted for differences and subsequently averaged to obtain an evaluation. In some instances, where the appraiser determines it is more appropriate, the "income evaluation approach", or the "replacement cost approach" may be used for calculation of the ARV.

Further, potential investors should be advised:

a)	We do not intend to issue senior securities at some time in the future.
b)	We may borrow money collateralized by our properties in an amount consistent with a 1 to 1.5 leverage ratio of assets to leverage.

c)	We have no intention of initiating personal loans to other persons.
d)	We have no intention of investing in the securities of other issuers for the purpose of exercising control.

e)	We have no intention to underwrite securities of other issuers.
f)	We will not engage in the purchase and sale (or turnover) of investments that are not real estate related at some time in the future.

g)	We may offer our securities in exchange for property or mortgage notes.
h)	We may acquire other securities of other funds so long as those funds are real estate related.

i) We intend to make annual or other reports to security holders including 1-Ks, 1-SAs, 1-Us, and exit reports on Form 1-Z as deemed necessary.

As market conditions change, our policies for both investments and borrowing will be evaluated and updated as necessary to safeguard Member equity. We will update our Members 1-Us within 30 business days, 1-SAs semi-annually, and other Member reports if there are any changes in our investment policy or our borrowing policies.

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POLICIES WITH RESPECT TO CERTAIN TRANSACTIONS

Our policy with respect to our Manager concerning certain transactions is as follows:

We do not intend on issuing senior securities. We have no interest, currently, in underwriting securities of others or purchasing securities or assets other than real property assets and securities. In the event that we foreclose on a property, we may encumber our properties that we acquire with financing consistent with a 1 to 1.5 ratio of assets to leverage.

Conflicts of Interest

The executive officer and sole director of the Manager is also an officer of 111 Capital, Inc. and other affiliated entities. As a result, this individual owes fiduciary duties to these other entities and their owners, which fiduciary duties may conflict with the duties that he owes to our stockholders and us. His loyalties to these other entities could result in actions or inactions that are detrimental to our business, which could harm the implementation of our investment objectives. Conflicts with our business and interests are most likely to arise from involvement in activities related to (1) allocation of new investments and management time and services between us and the other entities, (2) our purchase of First Mortgage Notes from affiliated entities, (3) the timing and terms of the investment in a First Mortgage Note, and (4) compensation to 111 Capital, Inc. If we do not successfully implement our investment objectives, we may be unable to generate cash needed to make distributions to you and to maintain or increase the value of our assets.

DESCRIPTION OF BUSINESS

We currently do not have any Notes. We do not lease or own any real property. We are currently developing our website. We do not pay rent for our corporate headquarters which is leased by the Lender because the amount of the space we use at such office is de minimis. We believe that this space will be sufficient.

OVERVIEW

111 Crowdfunding, LLC is an emerging growth company which was formed on June, 2015. It was originally named Continental Capital. It changed its name in April, 2016. We have commenced only limited operations, primarily focused on organizational matters in connection with this offering. We intend on generating revenues primarily from interest received on mortgage notes acquired. However, under certain favorable market conditions, we may generate revenues from direct ownership of real estate which could generate revenues in two ways: cash flow from lease of the properties, or resale profits.

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We have no plans to change our business activities or to combine with another business, and we are not aware of any events or circumstances that might cause our plans to change. Neither management of the Company, nor the majority Member of the Company, have any plans or arrangements to enter into a change of control, business combination or similar transaction or to change management.

The Company has been organized primarily to acquire performing 1st lien mortgage notes or trust deeds secured by real property from the Lender. The Lender will then service the acquired mortgage notes and the Company will receive monthly interest payments.

The Company plans to purchase notes from the Lender. However, the Company may also acquire notes from various sources including from banks, auctions, brokers, and in market places across the United States. We expect to purchase notes at a price below the after repaired value of the underlying property. After acquisition, in the cases where we acquire non-performing notes, we will work with the borrowers to get the lien re-performing. If successful, we may choose to hold the 1^st lien for its cash flow or re-sell it at a profit. In the event re-performance is not possible, we will foreclose and take possession of the underlying property.

We are offering the Class A Interests herein on a “minimum/maximum” basis. The Company will raise a minimum of $100,000 prior to using proceeds from this Offering to acquire notes. We expect to use the net proceeds from this Offering to pay for our operating costs as a qualified company, including on-going legal and accounting fees, and to finance costs associated with acquiring notes.

The Company may sell 1^st liens or properties on terms. It is the Company’s intent to continue to generate revenues from 1st liens and properties and, in some circumstances, after disposition by selling the properties with seller financing.

The Manager, in accordance with the summary here and the Operating Agreement of the Company, shall manage the following activities:

· Purchase performing notes that are secured by real estate.

· Work with borrowers of non-performing notes to get these liens re-performing.

· Foreclose on the underlying properties of notes that cannot re-perform.

· In the event the Company acquires properties through foreclosure, have an outside, 3rd party rehabilitate properties acquired by the Company.

· Have an outside, 3rd party rent and manage properties acquired by the Company.

· Have an outside, 3rd party sell properties within the term of the Company.

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The Manager shall use the Capital Contributions of the Members for the purchase of notes, working capital and expenses, including Organizational Expenses and Company Expenses. Subsequently, the Manager will focus its efforts on managing the assets acquired by the Company so as to provide a Preferred Return to the Members. (See “Distributions” and “Operating Agreement.”)

Overview

Our primary business is to invest in a diversified portfolio of Mortgage Loans that are primarily secured by a first deed of trust or mortgage. We will focus primarily on investments in mortgage loans secured by residential or commercial real estate located in the United States. We expect to use substantially all of the net proceeds from this offering to acquire real estate secured loans (fixed and variable interest rate), including bridge and mezzanine loans, first and second mortgage loans, subordinated mortgage loans, preferred equity real estate investments, real estate secured loans where a portion of the return is dependent upon performance-based metrics and other loans secured by real estate.

We believe that there is an opportunity to provide financing for the acquisition, construction or rehabilitation of commercial and residential properties for real estate developers. We also believe that there are opportunities to provide real estate financing to some borrowers who are not able to qualify for commercial bank financing due to the location of the property, its physical appearance, tenant mix, higher vacancy or the borrower’s lower credit score, personal leverage or lack of liquidity. We believe that there are opportunities to finance borrowers who need to close loans more quickly than the time required by commercial banks. And, we believe that there is an opportunity to acquire Mortgage Loans from distressed lenders at a discount to par.

We believe that there are opportunities to acquire commercial and residential properties that are in need of new management, rehabilitation or have unimproved land allowing for the construction of additional improvements.

We do not believe that at any time we will be deemed an “investment company” under the Investment Company Act of 1940 as we do not intend on trading or selling securities. Rather, we intend to hold and manage mortgage notes and/or real estate. However, if at any time we may be deemed an “investment company,” we believe we will be afforded an exemption under Section 3(c)(5)(C) of the Investment Company Act of 1940, as amended (referred to in this Offering as the “1940 Act”). Section 3(c)(5)(C) of the 1940 Act excludes from regulation as an “investment company” any entity that is primarily engaged in the business of purchasing or otherwise acquiring “mortgages and other liens on and interests in real estate”. To qualify for this exemption, we must ensure our asset composition meets certain criteria. Generally, 55% of our assets must consist of qualifying mortgages and other liens on and interests in real estate and the remaining 45% must consist of other qualifying real estate-type interests. We intend on meeting these required thresholds.

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We have not commenced any significant operations to carry out our business plan. We have only performed those tasks related to our organization and development of our business plan. Upon receiving funding, we plan to continue to carry out our business plan, as described in this Prospectus, of acquiring, renovating, managing, and disposing of Mortgage Loans with the objective of generating current income.

Prospective Members are invited to review any documents that the Manager possesses regarding the Company, the operations of the Company and any other matters regarding this Offering. All such materials are available at the office of the Company, at any reasonable hour, after reasonable prior notice to the Manager. The Manager will afford prospective Members the opportunity to ask questions of, and receive answers from, its representatives concerning the terms and conditions of the offering in addition to reviewing due diligence files on acquired assets and to obtain any additional information to the extent that the Manager or the Company possesses such information or can acquire it without unreasonable effort or expense.

Prospective Members should consider investment in the Company to be speculative, as it is not intended to be a complete investment program. The Company is designed only for sophisticated persons who are able to bear a complete loss of their capital investment in the Company.

Market Opportunity

The Company will acquire Mortgage Loans secured by real estate.

The Company will attempt to acquire Mortgage Loans made by owners of real estate that may be underserved by commercial banks and other institutional lenders. The Company will serve borrowers that need to close on the purchase of real estate more quickly that a commercial bank can accommodate. The Company will serve borrowers that seek more flexible loan structures or terms offered by commercial banks and other institutional lenders. The Company will also serve borrowers that are unable or unwilling to satisfy all of the credit standards of a commercial bank, but, have the capacity to deliver real estate mortgages of a sufficient value to meet our underwriting requirements.

Investment Objectives

Our primary investment objective is to generate current income. We anticipate generating current income from interest payments on its Mortgage Loans. Under certain market conditions, we may also generate income from other real estate related activities.

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The Company’s philosophy is to purchase Mortgage Loans that were based on the Borrower’s equity in the property and the skill and capacity of the people involved, their credit and a belief in the business plan for the real estate. Further, loans are sized to a basis or loan amount where the Company is indifferent if the loan performs as agreed, the plan “B” has to be implemented or we have to take over ownership in the event of default. In addition, no single loan purchase will exceed 15% of the assets of the Company and total loan exposure to a single sponsor will not exceed 20% once the fund has sold Membership Interests of over $5,000,000. As the Company grows these limits will be revised downward to a targeted range of 10% and 15%, respectively once the fund reaches Class A Interests of over $25,000,000 sold. The target diversity level is to have the average loan represent under 3.5% of the total assets of the Company once the fund reaches Class A Interests of over $25,000,000 sold. That level of diversity will limit downside risk for the pool if a loan should become non-performing.

Although some lenders believe that having an equal mix of residential and commercial real estate adds to diversity and the mix should be approximately balanced between the two, management has found through two major downturns, one led by housing and the other led by commercial, that within a short period of time both classes of real estate will tend to perform similarly. Therefore, there will be no specific target for the mix of commercial and residential.

Investment Strategy

Our investment strategy is to invest substantially all of the net proceeds from this offering in a diverse portfolio Mortgage Loans primarily located in the United States that are secured by a deed of trust or mortgage on investment and non-owner occupied real estate. We intend to originate or acquire real estate secured loans (fixed and variable rate), including first and second mortgage loans, subordinated mortgage loans, mezzanine loans, subordinated loans secured by real estate, preferred equity real estate investments, bridge loans, real estate secured loans where a portion of the return is dependent upon performance-based metrics and other loans secured by real estate. In addition, we may invest on a national basis for “Build to Suit” projects. Build to Suit projects are pre-leased to a credit worthy tenant or tenants and constructed specifically to the specifications of the tenant or tenants.

Lending Program - Overview

The Company will purchase Mortgage Loans from a related party, 111 Capital, Inc., which is a licensed lender, and other licensed lenders. The Mortgage Loans provide financing to owners of real estate that are underserved by commercial banks and other institutional lenders. 111 Capital Inc. served borrowers that need to close on the purchase of real estate more quickly than a commercial bank can accommodate. The Mortgage Loans that the Company purchases from a lender will serve borrowers that seek more flexible loan structures or terms offered by commercial banks and other institutional lenders. The Mortgage Loans will be appropriate for borrowers that are unable or unwilling to satisfy all of the credit standards of a commercial bank, but, have the capacity to deliver real estate mortgages of a sufficient value to meet our underwriting requirements.

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The Managers have extensive experience in evaluating and managing Mortgage Loans similar to the types of Mortgage Loans in which we intend to purchase from a lender. We intend to purchase Mortgage Loans satisfying the following criteria:

· Purpose shall include financing for non-owner occupied and investment real estate including standing commercial properties, income producing land and developed lots; and construction loans;

· Focus on small and mid-sized loans from $40,000 to $7.5 million;

· Maximize current income;

· Terms of 1 year to 30 years; and

· Loan amount shall not exceed 80% of the after repaired value of the underlying property.

We will primarily seek to acquire Mortgage Loans at fixed rates of interest. To a lesser extent, we will also consider opportunities to acquire variable interest rate Mortgage Loans, in addition to, fixed rates of interest.

We will make Mortgage Loans to real estate developers and investors that construct or renovate their properties.

We may seek opportunities to acquire commercial real estate loans from commercial banks, credit unions and private lenders. We will generally seek to acquire Mortgage Loans at face value; however, we may have to pay face value or perhaps a premium on face value when we believe it is in our best interest.

Our Mortgage Loans will not be secured by any agency of the United States government. We may not require a personal guaranty of full repayment by the principals of its borrowers. We will not have our Mortgage Loans insured.

We may lend as much as 20%, or $10,000,000, of our assets to any particular borrower relationship or 15%, or $7,500,000 secured by any particular property if we are successful in raising 100% of its Offering amount or $50,000,000. We intend to hold our Mortgage Loans until maturity unless they become in default.

Our policy of making or acquiring Mortgage Loans secured by real estate may be changed by us with the concurrence of the Investment Committee without a vote by the holders of our Interests. The Manager, in concurrence with the Investment Committee, is not limited on, and may change at any time, the principles and procedures they may employ in connection with making or acquiring Mortgage Loans.

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Lending Program - Pricing

Interest rates on the Mortgage Loans which we intend to purchase will range from approximately 8% to 14%, with a targeted average of 10% depending upon market conditions. While most of the loans we purchase will generally be at a fixed rate of interest, a loan with a floating interest rate may be purchased in the event we believe it is in the Fund’s best interest. The interest rate will be influenced by many factors, which may include the complexity of the business plan for the property, advance rate against value of the mortgaged property, amount of the Mortgage Loan and the credit and financial capacity of the borrower or principals. Modification fees, extension fees, default interest, a prepayment fee, late fees, an exit fee, a loan assumption fee, evaluation, processing, and a re-conveyance fee may also be charged to a borrower and shall be retained by the servicer, the Lender.

We will attempt to acquire mortgage loans at rates competitive with other private lenders making similar loans. Mortgage loans rates are subject to change based on various unpredictable factors including economic conditions and governmental financial policy, laws and regulations.

Lending Program - Underwriting Policies and Procedures

Our Lender has developed underwriting standards and procedures to control the risks relating to its lending. The procedures apply standards relating to approval limits, loan to cost ratios, loan to value ratios, debt service coverage or debt yield ratios, and the skill, experience, credit and financial capacity of the borrower or sponsor, as well as other matters relevant to the Mortgage Loans and their collateral. Our Lender will determine the skill and experience of borrowers and sponsors by conducting interviews, reviewing references, checking credit reports, doing background checks and reviewing financial information. Our Lender will determine the loan to value ratios based upon on its estimate of the “as completed” value of the property to be mortgaged to us, or the loan to value based on the current value of the property to be mortgaged. We will not acquire Mortgage Loans secured by residential owner or business owner occupied properties or Mortgage Loans where the funds will be used for personal, household or family purposes.

We will acquire Mortgage Loans secured by properties located anywhere in the United States that are secured by a deed of trust or mortgage. We will limit the Mortgage Loans we acquire to no more than 80% of the after repaired value of the property to be mortgaged us. Generally, the value of the property securing a Mortgage Loan of ours would have to decline by more than 20% before it would suffer a loss upon the sale of that property following foreclosure.

Among other forms of due diligence, we will determine the creditworthiness of the borrowers by considering credit scores. Credit scores range from the 400’s to the 800’s, with the lower the credit score, the lower the creditworthiness of the individual. The credit score is one of several factors which may be used in our evaluation to make a Mortgage Loan. The borrower, or the principal of the borrower if an entity, should have a credit score above 550. We may approve Mortgage Loans to borrowers with credit scores below 550 in the event we have sufficient understanding of the drivers of the low credit score, satisfaction that the principal or borrower acted in a forthright manner in the event(s) that are driving the low score and may require additional collateral or additional equity to mitigate the increased risk associated with the low credit score.

The Manager is not an appraiser. We will rely on the Lender which will utilize multiple independent third-party sources for the valuation of the properties that will serve as collateral for our Mortgage Loans, including the possible use of independent appraisals. Our Lender may consult multiple listing services to obtain comparable data and the opinion of local real estate brokers. No source of valuation is definitive.

We will require a title policy with regard to all properties mortgaged to us.

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Loan Types and General Guidelines:

The Company intends purchase the following non-owner occupied and investor loan product types:

· Bridge loans

· Rehab loans

· Perm loans

· Rehab to Perm loans

· Construction loans

· Master commitments, for multiple construction loans with conforming terms and provisions

· Secured lines of credit

· Joint Ventures, on a select basis

Loan terms will typically be one year (1 year) to five years (5 years) and will be limited to thirty years (30 years).

We intend to purchase Mortgage Loans on the following assets:

· Single-family residential (one to four units)

· Multi-family residential (five units or more)

· Retail

· Industrial

· Self-storage facilities

· Office

Loans will be underwritten according to guidelines specific to their collateral type, as described in more detail below. On an exception basis only, the Company may pu bridge loans secured by land, typically in the circumstance that the Company is interested in the construction financing to follow.

Borrower Requirements

The Company’s policy when considering the acquisition of a mortgage loan is to underwrite Borrower’s equity first. The Company will also consider the Borrower’s qualification. The principals involved in the transactions will be assessed based on their:

· Credit history and background, including any bankruptcies, foreclosures, chronic delinquencies or criminal records

· Experience and track records

· Financial resources, including liquidity, recurring cash flow and convertible assets

· Vested interest in the transaction

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Loan transactions are underwritten by the Lender with a thorough understanding of the loan’s purpose. The Company requires the identification of no fewer than two (2) sources of repayment.

Specific Guidelines for Single-family Residential Properties

This collateral may include single family housing tracts; SFR’s acquired and renovated by fix-and-flip operators; and one- or two-unit SFR developments. The Company does not favor financing higher-end homes that are valued in excess of $3 million.

The construction of tract housing, including small-lot subdivisions, may be financed by a Mortgage Loan that is purchase by the Company. In-fill locations are highly preferred. The Company may require that purchased Mortgage Loans are deployed in small phases, and that certain sales thresholds be met before additional phases commence construction.

Housing is always to be underwritten in a rental scenario, in order to ascertain a source of repayment alternate to that of sale.

The Company intends to give consideration of Mortgage Loans that consider the following parameters:

· Status of entitlements; expected timing to construction start; conditions to tract map approval.

· Whether the area supports new homes.

· Competing projects.

· Whether the location is desirable; proximity to retail uses, entertainment, parks and schools; absence of nuisances.

· Units’ layout, design, bedroom count, garages.

· Borrower’s expertise with home sales.

· Actual or pro forma sales consistent with or reasonably comparable to the market.

Fix-and-flip operations may be financed by the Lender using secured, revolving lines of credit. The Company may consider purchasing such loans. Underwriting guidelines for this financing are as follows:

· Advances are managed by our servicer, the Lender. Typically advances are made upon Borrower’s request and after an inspection is made by an independent third-party building inspector.

· Monthly interest is paid directly by Borrower from the cash flow of its operations.

· Typically, the loan advance on any single SFR property will be limited to $750,000. However, the Company reserves the right to approve a larger advance on a SFR property if market conditions warrant, the specific property is unique and additional credit risk is minimal.

· The Company will determine the amount of its advance on any particular SFR property based on (1) that property’s total budgeted cost and (2) its prospective market value upon completion of the improvements planned by the Borrower.

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Specific Guidelines for Multifamily Residential Properties

The Company intends to give consideration to the following parameters:

· Whether the area supports new or renovated apartments.

· Whether the location is desirable; proximity to retail uses, entertainment, parks and schools.

· Property’s design; should be attractive and functional; adequate parking; level of amenities.

· Units’ layout, design, bedroom count.

· Borrower’s expertise with property management.

· Actual or pro forma rents consistent with or reasonably comparable to the market.

Specific Guidelines for Retail Properties

The Company highly favors Mortgage Loans that are build-to-suit projects for credit retail tenants. Credit tenants are defined as those having investment ratings of BBB- or better (S&P) or Baa3 or better (Moody’s). Build-to-suit projects are most often single-tenant transactions. Other transactions involving retail properties may include, but are not limited to, neighborhood centers with strong anchors, such as grocery stores; retail centers shadow-anchored; and big box retailers.

The Company intends to give consideration to the following parameters:

· Whether the area supports new retail space.

· Whether location of retail property is appropriate; i.e. proximity to residential uses, traffic counts.

· Site layout, i.e. good access and visibility, adequate parking.

· Property’s design; should be attractive and functional.

· Borrower’s expertise with property management and tenant relations.

· Tenant mix. Owner-user limited to less than 50% of NRA.

· Shop space sizes: As a general rule, narrow and deep shop spaces (say, 30’ x 80’) are viewed negatively and not marketable. Wide and shallow shop spaces (say, 50’ x 40’) may not be economical. 50’ - 60’ depths are considered ideal.

· Tenants’ credit quality.

· Actual or pro forma rents consistent with or reasonably comparable to the market.

Leases must be carefully reviewed. The Company intends to pay specific attention to the conditions under which a tenant may terminate its lease, and the mitigants to that risk.

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Specific Guidelines for Industrial Properties

These properties include warehouse facilities, distribution facilities and flex space.

The Company intends to give consideration to the following parameters:

· Whether the area supports new or existing industrial space.

· Proximity of transportation channels: air, rail and highway.

· Size and divisibility. Warehouse and distribution facilities typically range from 5,000 sf - 300,000 sf and may be occupied by single or multiple tenants.

· Site ingress and egress; site must allow for efficient truck flow.

· Loading features: front- or rear-loading; dock-high, truck-well or grade-level loading.

· Internal circulation: must have adequate area to allow for trucks to maneuver (ideal depth is 130’).

· Borrower’s expertise with industrial property management.

· Actual or pro forma rents consistent with or reasonably comparable to the market.

Specific Guidelines for Self-Storage Facilities

The Company will consider loans on self-storage facilities on a select basis, and only for borrowers with substantial experience and expertise in this product type.

Additional considerations include:

· Whether the area supports new or existing self-storage units.

· Competing properties.

· Whether the location is desirable; proximity to apartments is most favored. Target market is generally within a 3-mile radius of the site.

· Accessibility and visibility of site.

· Unit sizes and mix. Typical units range in size from 25 sf to as large as 400 sf.

· Breakeven occupancy rate, which should be no more than 40% - 45%.

· Design: upper level units are less desirable, and should have lower pro forma rents than ground level units. Adequate number and size of elevators is critical. Air conditioned spaces preferred by tenants.

Specific Guidelines for Office Properties

The Company approaches office buildings with caution, preferring to take little or no leasing risk with this property type.

The Company intends to give consideration to the following parameters:

· Whether the area supports new or existing office space.

· Competing properties.

· Whether the location is desirable.

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· Accessibility and visibility of site.

· Size and layout of individual office spaces.

· Owner-user limited to less than 50% of NRA.

· Design: floor plates; load factors no greater than 10%; parking ratios.

· Borrower’s expertise with property management.

· Actual or pro forma rents consistent with or reasonably comparable to the market.

Specific Guidelines for Construction Loans

Construction loans will be structured to require Borrower equity, as detailed in the table below. This equity may consist of actual land acquisition costs; project costs incurred directly by the Borrower, as evidenced by paid invoices and as approved by the Company; and cash; or any combination thereof. Land appreciation, costs incurred that do not add to the value of the project as planned, and carry costs are not eligible as equity. Furthermore, it is important to the Company that the developer(s) personally have invested no less than a 5% share of the equity that the Company requires.

Additional risks must be assessed with this particular loan product. Generally, these risks include:

Budget Cost Overruns

1.	Construction contracts must be reviewed, and must be either “Guaranteed Maximum” or “Fixed Price.”
2.	Funding of developer overhead must be closely monitored, to ensure that disbursements do not out-pace the project’s construction progress.
3.	The loan must be structured with a proper Contingency Reserve that takes into account the Borrower’s experience with the product type being built, the complexity of the project and the Company’s experience with the Borrower.
4.	The loan must be structured with a proper Interest Reserve that takes into account potential construction, marketing and repayment delays.

Completion Risk

1.	Expertise, experience and financial strength of Borrower must be assessed.
2.	Review and approval of the General Contractor. If possible, the Company obtains financial reports and resumes on the General Contractor.

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Marketing Risk

1.	the Company may impose construction start limitations on phased SFR developments, in order to reduce the risk of standing inventory.
2.	The Company typically imposes pre-leasing requirements for income property developments.
3.	The Company typically imposes pre-sale requirements for for-sale commercial developments.

Repayment Risk

1.	Because the underwriting of a construction loan requires that certain assumptions be made about what market conditions will be once the project is completed, there is a risk of the Borrower’s ability to repay its construction loan in a timely manner. Underwriting should include a “buffer” or margin in the takeout loan’s anticipated borrowing rate, to better ensure the property’s qualification for takeout financing.
2.	Underwriting should also include stress-testing of pro forma rents and pro forma sales prices, to ascertain repayment of the Company’s loan even with a “reasonable” downturn in the economics.
3.	Pro formas should never be overly aggressive or incorporate unrealistic expectations; rather, pro formas should be based on reasonable comparisons to the current market.

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Underwriting Guidelines by Product Type

Property Type	Maximum LTV	Borrower Down Payment	Reserves Escrow	Property Insurance	Other Requirements
SFR	70% ARV (After repaired value)	10% TPC (Total Project Cost)	2 months Insurance, tax, HOA. 1 month Payment.	Vacant Dwelling or builder’s risk, whichever applies Flood insurance if applicable
MFR: New - < 3 yrs	75%	5%	65%	Minimum 3% over prevailing	Vacancy 5-10% Op Expenses
> 3 yrs - <10	75%	5%	65%	cap rate	28%-40% of EGI
Retail: Single Credit Tenant	75%	5%	65%	Minimum 3% over prevailing cap rate	Minimum 100% pre- leased or occupied.
Retail: neighborhood center	75%	5%	65%	Minimum 3% over prevailing cap rate	Minimum 50% pre-leased or occupied.
Industrial:					Minimum 50%
Warehouse, Distribution,	75%	5%	65%	N/A	pre-leased or
Flex Space	70%	5%	60%		pre-sold.
Self-storage	70%	5%	60%	Minimum 3% over Prevailing Cap rate
Office:
Class A	75%	5%	65%	Minimum 3% over	Minimum 75%
Class B	70%	5%	60%	Prevailing Cap rate	pre-leased.
Land	50%	N/A	50%	Minimum 3% over Prevailing Cap rate	Entitlements preferred. Interest in construction financing.

  

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All loan documents and insurance policies regarding Mortgage Loans acquired by the Company will name the Company or servicer, on behalf of the Company, as payee and beneficiary.

Company funds will not be disbursed for the acquisition of Mortgage Loans until:

1.

Satisfactory title insurance coverage has been obtained for all loans, with the title insurance policy naming the Company or the servicer for the benefit of the Company as the insured and providing title insurance in an amount equal to the principal amount of the Mortgage Loan. Note that title insurance insures only the validity and priority of the Company’s deed of trust or mortgage, and does not insure the Company against loss by reason of other causes, such as reduction in the value of the security property, over-appraisals, borrower’s defaults, etc.; and

2.

Satisfactory fire and casualty insurance has been obtained for all loans, naming the Company or the servicer for the benefit of the Company as loss payee in an amount at least equal to the value of the improvements on the security property or the principal amount outstanding of the Mortgage Loan. The Company does not intend to arrange for mortgage insurance, nor require the borrower to maintain liability insurance. Additionally, the Company may not require the borrower to carry fire and casualty insurance if the security property consists of unimproved land.

In those cases where the Company purchases of all or a portion of a Mortgage Loan from the Manager, an affiliate or a third party, the Company will obtain an endorsement to the original title insurance policy which will name the Company as the insured or co-insured, as appropriate. Additionally, the Company will make certain that the policy(ies) of fire and casualty insurance insuring the security property do provide that the Company is added as a mortgagee or an additional loss payee.

Advances may be made by the Manager and affiliates to finance a Mortgage Loan. We may enter into joint ventures with the Manager or its affiliates.

Borrowers generally will make interest payments in arrears and Will be collected each month via electronic funds transfer or ACH.

The servicer, on behalf of the Company, will negotiate with borrowers in default and may change the terms of the Mortgage Loan in default or enter into a forbearance agreement with the borrower to allow for continued payments. The Company may also accept a deed in lieu of foreclosure or begin foreclosure to achieve recovery of principal and interest due the Company.

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The Company intends to acquire Mortgage Loans primarily for the purpose of receiving monthly interest income. However it will also commonly resell such Mortgage Loans in the ordinary course of business. The Company may sell Mortgage Loans (or fractional interests therein) when the Company determines that it appears to be advantageous to the Company to do so, based upon then current economic conditions, current interest rates, the length of time that the Mortgage Loan has been held by the Company, and the investment objectives of the Company. The Company may also sell a Mortgage Loan in order to manage the maximum loan outstanding to a single borrower or to manage the maximum exposure to a single property.

Lending Program - Fund Control

The Company will use a form of fund control, either internally or externally, where the Company will evaluate the progress of construction and rehab projects prior to releasing certain funds to the borrower to help insure that funds are properly used and projects are on time.

In the event of Non-Performing Notes

In the event the Company acquires non-performing notes, it is the Company’s objective to work with the borrowers and renegotiate the terms of their mortgage to help return the loan to performing status. If they are unable or unwilling to renegotiate a fair payment schedule, the Company intends to offer the borrower an opportunity to sign over the deed without penalty, aka “cash for keys” program. In some cases, foreclosure may be determined to be the correct step to take. The decision to foreclose will depend on many factors including the law in the state in which the Company may need to take a foreclosure action.

Some steps the Company may take in order to bring the mortgage note back to performing status could include:

· Providing a lower interest rate;

· Re-amortizing the loan over a greater period of time than originally available to the borrower;

· Lowering the payments for some stated period of time; and/or

· Reducing the principal balance.

Since the Company is not a licensed lender, and does not plan to act as a lender, it is the Company’s intention to use the services of a 3^rd party servicer that is duly licensed and legally able to conduct business in the states in which a performing or non-performing note is in need of servicing. It is expected that the servicer will not be paid from the proceeds of this Offering, but rather from the proceeds of interest collections.

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Mortgages that are acquired by the Company will typically be held for one to three years, with the possibility of up to five years for income. The Company may decide to hold loans longer than five years if it appears to be in the best interest of the Company. This “seasoning” will increase the re-sale value.

Geographic Scope

The Company will not limit itself geographically. The Company will search for 1^st liens that it may purchase at a discount. The Company believes it can successfully identify such a potential target acquisition based upon the depth and the breadth of the industry experience, contacts and industry knowledge of the Company’s Manager. See “MANAGEMENT, AFFILIATES, AND COMPENSATION” for a discussion of the Manager’s real estate experience.

The Company believes that in certain market conditions it will be able to consider numerous notes. The Company anticipates that target acquisitions will be brought to its attention from a number of banks and other sources with whom the Company’s current management has business relationships. Moreover, potential acquisitions may be brought to the Company’s attention by sources as a result of being solicited by the Company through calls or mailings.

The Company does not have any specific note or pool of such liens under consideration and the Company has not (nor has anyone on its behalf) contacted any prospective target sources or had any discussions, formal or otherwise, with respect to such a transaction. In the future, the Company expects to be performing business due diligence on prospective note acquisitions; traveling to and from the underlying asset locations that represent prospective acquisitions; reviewing corporate, title, environmental, and financial documents and material agreements regarding prospective 1^st lien acquisitions; selecting 1^st liens to acquire; and striving to structure, negotiate and consummate acquisitions. The Company will have certain burdens and costs with respect to these activities and certain additional risks associated with the subsequent integration of additional assets or properties into the Company’s operations.

Acquisition Selection

The Company’s management will have broad discretion in identifying and selecting prospective target acquisitions. In evaluating a prospective target acquisition, the Company’s management will consider, among other factors, the following:

· Management’s understanding of conditions of the particular market;

· Management’s assessment of the attractiveness of the timing of the acquisition;

· Management’s assessment of the financial attractiveness of a particular acquisition target relative to other available targets, and its potential for upside appreciation and return on investment; and/or

· Macro-economic trends.

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The Company’s policy will be to acquire assets primarily for cash flow.

These criteria are not intended to be exhaustive, and the Manager may change this without any vote of the Members. Any evaluation relating to the merits of a particular acquisition will be based, to the extent relevant, on the above factors as well as other considerations believed relevant by the Company’s management in effecting an acquisition consistent with the Company’s business objectives.

To the extent the Company acquires financially poor assets, the Company may be affected by numerous risks inherent in the business and operations of such properties or assets. Although the Company’s management will endeavor to evaluate the risks inherent in a particular Note acquisition, the Company cannot assure anyone that the Company will properly ascertain or assess all significant risk factors.

The time and costs required to select and evaluate a target acquisition and to structure and complete the acquisition cannot presently be ascertained with any degree of certainty. Any costs incurred with respect to the identification and evaluation of a prospective target acquisition that is not ultimately completed will result in a loss to the Company and reduce the amount of capital available to otherwise complete other acquisitions.

The Company has not yet hired any 3^rd party property management firms, but it may do so in the future. Any such arrangement would be made upon commercially reasonable terms. Nevertheless, the Company itself may manage all or some of its future properties.

Borrowing Policy

We may borrow funds to supplement funds invested by Members. We will seek financing from a number of sources including the following:

· Commercial banks;

· Credit unions;

· Insurance companies;

· Labor unions; and

· Private lenders

Asset Management and Servicing

It is anticipated that all Company mortgage loan assets will be managed and serviced by the servicer. The Manager intends to employ the services of an independent fund administrator to manage the reports and payments made by the Company to its Members. The Manager has not entered into an agreement as of the date of this Offering.

Servicing Agreement

We intend on entering into a Note Servicing Agreement with a related entity, 111 Capital, Inc. (“Servicer”) for the purposes of servicing the notes we own. 111 Capital, Inc. is a licensed mortgage lender and therefore, is better able to service our loans and notes on our behalf.

In exchange for compensation of an annual fee of 3% of the loan amounts of the performing loans being service, the Servicer shall provide the following services:

1.    Verify that proper insurance remains on the underlying property of the note which is being serviced so long as the Company is a holder of the note. If no insurance exists, Servicer will find and procure and appropriate policy.

2.    Servicer will monitor and the Company of the condition of the underlying property as well as adverse circumstances (such as death, bankruptcy, transfer, or failure to perform by the borrower)

3.     Servicer will not accept any prepayment of mortgage principal except as required by law, or as authorized by law and permitted by the terms of the mortgage note(s) agreement

4.     The Company may sell a part of a note and the terms of the servicing agreement will remain in full force and effect.

5.     Servicer shall keep a complete, accurate, and separate account of and properly apply all sums collected by it from the Mortgagor on account of each such mortgage.

6.     Servicer will make deposit all monies collected on the behalf of the Company and due to them into a segregated bank account at a nationally recognized bank by the 8^th of the month.

7.     In the event any borrower fails to make a payment as required by the term of his/her mortgage note(s), Servicer will notify the Company of such fact within thirty (30) days after the same shall have become due and payable.

8.     In the event a mortgage goes into default, the Servicer will make diligent efforts to collect payment. The Servicer is authorized to and shall communicate with the borrower, find resolution, and repossess collateral.

The Note Servicing Agreement shall remain in effect until all mortgages under the agreement are liquidated. The Servicer may terminate the agreement with ninety (90) days’ written notice. The Note Servicing Agreement may be terminated by the Company with sixty (60) days’ notice so long as the Servicer receives a sum equal to five percent (5%) of the aggregate principal unpaid balance of all mortgages.

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Reserve Fund

A contingency reserve fund may be established and maintained for the purpose of covering cash needs of the Company. Reserve funds are not invested in Mortgage Loans but are invested in short-term investments which provide lower yields than Mortgage Loans.

Special Purpose Entities

When appropriate to insulate our general assets against liabilities arising from particular investments, to minimize the tax liability of the Company, or for other reasons, we may use special purpose entities to hold certain investments.

Identification of Mortgage Loans

Members will not have any right to vote or otherwise approve or disapprove any particular investment to be made by the Company nor will they be entitled to a return of funds even if they do not approve of the Mortgage Loans entered into by the Company.

Investment Process

Our investment process benefits from the experiences, resources and professionalism of our Manager and its affiliates. This process initially involves:

· Identifying appropriate investment opportunities

· Assessing the potential investment opportunities to ensure that they meet preliminary investment and underwriting guidelines

· Preliminary review of the potential investment opportunities to determine whether to incur costs associated with a more in-depth due diligence and underwriting review

Operations

We currently utilize the offices of the Lender. We incur no costs for internet, electricity, and phone service. We have no plans at this time to find any other property for our operations.

Technology

Our Manager may engage a third party servicing company to provide its loan servicing requirements including payment collection. Our accounting of operations, our Mortgage Loans and the Interests we have issued will be backed up and stored off-site.

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Market Area

Our lending and real estate ownership activities will be conducted in the United States.

Competition

We face significant competition in all areas of its business. These areas include attracting and/or retaining investor funds, loans, real estate and the services of the real estate, financial and securities professionals to represent us. We will also face competition should we act to acquire other real estate entities.

Our competition for investor funds comes from other uninsured products, such as mutual funds provided by insurance companies and brokerage firms, in addition to, insured money market accounts and certificates of deposit provided by commercial banks.

Our competition for Mortgage Loans comes from commercial banks and other private lenders. Commercial banks have been reluctant to make commercial real estate loans in many markets, however, if their credit standards are eased or if they lower their interest rates to borrowers, it is possible that we may have difficulty originating loans the meet their standards.

Our competition for attracting and retaining real estate, financial and securities professionals to represent the Company comes from the entire business community. Our competition for the services of these professionals could increase should the economy begin expanding increasing the demand for the services provided by these types of professionals.

Governmental Regulations

Certain Legal Aspects of Company Mortgage Loans

The Company’s Mortgage Loans will be secured by either a mortgage or a deed of trust or by hypothecated notes that are themselves secured by a mortgage or deed of trust. In some states, a mortgage is the form of security instrument used to secure a real property loan, while in other states a deed of trust is the form of security instrument used to secure a real property loan. A mortgage has two parties: a borrower called the “mortgagor” and the lender called the “mortgagee”. The mortgagor gives the mortgagee a lien on the property as security for the loan or, in some states, the mortgagor conveys legal title of the property to the mortgagee until the loan is repaid but retains equitable title and the right of possession to the property so long as the loan is not in default. A deed of trust has three parties: a borrower-grantor called the “trustor”, a third-party grantee called the “trustee”, and a lender-creditor called the “beneficiary.” The trustor grants the property, irrevocably until the debt is paid, “in trust, with power of sale” to the trustee to secure payment of the obligation. The trustee’s authority is governed by law, the express provisions of the deed of trust and the directions of the beneficiary.

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Foreclosure

The laws of the state in which the property is situated will determine the method in which the Company will enforce its rights under a mortgage or deed of trust or with respect to hypothecated notes. Depending on local laws, a lender may be able to enforce its mortgage or deed of trust by judicial foreclosure or by non-judicial foreclosure through the exercise of a power of sale. Local laws will also dictate, among other things, the amount of time and costs associated with a judicial or non-judicial foreclosure sale, whether or not a lender would be entitled to recover a deficiency judgment from the borrower, either concurrently with or following a judicial or non-judicial sale, whether there are limits as to the amount of this deficiency judgment, and whether the borrower would have the right to redeem the property following a judicial or non-judicial sale.

A judicial foreclosure is a public sale of the property conducted under an order of the court of the state in which the property is located, with the sale proceeds being applied to satisfy the underlying debt. A judicial foreclosure is subject to most of the delays and expenses of other lawsuits and can take up to several years to complete, depending on how busy the local courts are.

In contrast, a non-judicial foreclosure is a private sale of the property conducted directly by the mortgagee, in the case of a mortgage, or the trustee, in the case of a deed of trust, following the giving of appropriate notice and the expiration of appropriate cure periods. It is generally cheaper and quicker to conduct a non-judicial foreclosure than to conduct a judicial foreclosure.

A lender would typically undertake a judicial foreclosure when the lender seeks to obtain a deficiency judgment. In some states, a lender is not entitled to recover a deficiency judgment if the lender forecloses non-judicially. Some states also limit the amount of deficiency that can be recovered from a borrower following a judicial foreclosure sale to the difference between the amount of the debt owing to the lender and the higher of (i) the successful sales price bid at the foreclosure sale, or (ii) the fair market value of the property at the time of foreclosure. Moreover, some states provide that a borrower and/or junior lienholder has a right to redeem the property for a period of time following a judicial foreclosure sale by paying to the successful bidder an amount equal to the successful sales price bid at the foreclosure sale and the costs of the foreclosure sale. This right of redemption can depress the amount bid at a judicial foreclosure sale because the successful bidder would have to take the property subject to the borrower’s and/or the junior lienholder’s right of redemption.

If a lender elects to undertake a non-judicial foreclosure sale it would, in many states, forego the right to obtain a deficiency judgment. However, real property that is sold through a non-judicial foreclosure sale is, in many states, not subject to a right of redemption.

In summary, whether or not a lender would pursue a judicial or a non-judicial foreclosure, and the extent and nature of other remedies available to a lender against a borrower in connection with a real property secured loan, will depend on the laws of the state in which the real property is located. If a borrower were to default under a Mortgage Loan, the Lender, as the loan servicer, would evaluate the applicable laws and consider the enforcement practices typically undertaken by commercial lenders in the state in which the property is located before commencing enforcement actions.

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Other Mortgage Loan Enforcement Issues

Other matters, such as litigation instituted by a defaulting borrower or the operation of the federal bankruptcy laws, may have the effect of delaying enforcement of the lien of a defaulted Mortgage Loan and may in certain circumstances reduce the amount realizable from sale of a foreclosed property. Where a Mortgage Loan is secured by hypothecated notes, the bankruptcy of a borrower under a hypothecated note can impair the value of the hypothecated note as security.

In some instances, a Mortgage Loan may not only be secured by real property security but also guaranteed by a third party guarantor. Members should be aware that, depending on local laws, a guarantor may have defenses that would impair the ability of the lender to enforce its guaranty. For example, in some states if a loan obligation is modified without the guarantor’s consent, the guarantor may be exonerated from part or all of its obligations under the guaranty. Other states may require that a lender first exhaust all of its remedies against the borrower and real property security and only then can seek any resulting deficiency from the guarantor. A guarantor may, under some local laws, be able to waive some of these defenses in advance provided that the waivers are sufficiently explicit.

Special Considerations for Junior Encumbrances

In addition to the general considerations concerning trust deeds and mortgages discussed above, there are certain additional considerations applicable to second and third deeds of trust or mortgages (“junior encumbrance”). By its very nature, a junior encumbrance is less secure than more senior ones. Only the holder of a first trust deed or mortgage is permitted to bid in the amount of his credit at his foreclosure sale; junior lien-holders must bid cash at a first trust deed or mortgage foreclosure sale. Accordingly, a junior lien-holder would need to protect its security interest in the secured property by taking over all obligations of the trustor or mortgagor with respect to senior encumbrances and then keep such obligations current. As a long-term solution, a junior lien-holder would need to commence a foreclosure action and arrange either (a) to find a purchaser for the property at a purchase price which will recoup the junior lien-holder’s interest, or (b) to pay off the senior encumbrances and therefore assure that his/its encumbrance achieves first priority. Either of the alternatives described above will require the Company to make substantial cash expenditures to protect its interest.

The standard form of deed of trust or mortgage used by most institutional lenders, like the one that will be used by the Lender, confers on the beneficiary the right both to receive all proceeds collected under any hazard insurance policy and all awards made in connection with any condemnation proceedings, and to apply such proceeds and awards to any indebtedness secured by the deed of trust, in such order as the beneficiary may determine. Thus, in the event improvements on the property are damaged or destroyed by fire or other casualty, or in the event the property is taken by condemnation, the beneficiary under the underlying first deed of trust or mortgage will have the prior right to collect any insurance proceeds payable under a hazard insurance policy and any award of damages in connection with the condemnation, and to apply the same to the indebtedness secured by the first deed of trust or mortgage before any such proceeds are applied to repay the junior lien-holder’s loan.

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Laws Applicable to Note Servicers

We intend to employ the services of a third party servicer and this servicer will be subject to many laws. Their business is highly regulated. New regulations are constantly being discussed and enacted at both a federal and state level.

Some of the key federal and state laws affecting our business include:

Graham-Leach-Bliley Act. This act requires all businesses that have access to consumers’ personal identification information to implement a plan providing for security measures to protect that information. As part of this program, we provide applicants and borrowers with a copy of our privacy policy.

Recent or Pending Legislation and Regulatory Proposals. The recent credit crisis has led to an increased focus by federal, state and local legislators and regulatory authorities on entities engaged in the financial-services industry generally, principally banks, and on the mortgage industry specifically, principally with respect to residential lending to borrowers who intend to occupy the residence. A broad variety of legislative and regulatory proposals are continually being considered and such proposals cover mortgage loan products, loan terms and underwriting standards, risk management practices, foreclosure procedures and consumer protection, which could have a broader impact across the mortgage industry. These actions are intended to make it possible for qualified borrowers to obtain mortgage financing to purchase homes, refinance existing loans, avoid foreclosure on their homes, and to curb perceived lending abuses. It is too early to tell whether these legislative and regulatory initiatives, actions and proposals will achieve their intended effect or what impact they will have on our business and the mortgage industry generally.

Proposed Amendments to the U.S. Bankruptcy Code. Since 2008, proposed legislation has been introduced before the U.S. Congress for the purpose of amending Chapter 13 in order to permit bankruptcy judges to modify certain terms in certain mortgages in bankruptcy proceedings, a practice commonly known as cramdown. Presently, Chapter 13 does not permit bankruptcy judges to modify mortgages of bankrupt borrowers. While the breadth and scope of the terms of the proposed amendments to Chapter 13 differ greatly, some commentators have suggested that such legislation could have the effect of increasing mortgage borrowing costs and thereby reducing the demand for mortgages throughout the industry. It is too early to tell when or if any of the proposed amendments to Chapter 13 may be enacted as proposed and what impact any such enacted amendments to Chapter 13 could have on the mortgage industry. Some local and state governmental authorities have taken, and others are contemplating taking, regulatory action to require increased loss mitigation outreach for borrowers, including the imposition of waiting periods prior to the filing of notices of default and the completion of foreclosure sales and, in some cases, moratoriums on foreclosures altogether.

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Power of Attorney

By becoming a party to the Operating Agreement, each Member will appoint the Manager as his or her attorney-in-fact and empower and authorize the Manager to make, execute, acknowledge, publish and file on behalf of the Member in all necessary or appropriate places, such documents as may be necessary or appropriate to carry out the intent and purposes of the Operating Agreement.

Milestones

We hope to reach the following milestones in the next 12 months:

· Late fall 2018 - Complete our Form 1-A qualification statement.

· Winter 2018 - Begin fundraising.

· Winter 2018 - Reach minimum raise requirement of $100,000

· Spring 2018 - Purchase first performing note.

· Fall 2018 - Complete purchase of 20-30 performing notes for the year.

The acquisition of performing notes will depend highly on our funds, the availability of those funds, and the availability of assets that meet or investment criteria.

Competition

We face significant competition in all areas of its business. These areas include attracting and/or retaining investor funds, loans, real estate and the services of the real estate, financial and securities professionals to represent us. We will also face competition should we act to acquire other real estate entities.

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Our competition for investor funds comes from other uninsured products, such as mutual funds provided by insurance companies and brokerage firms, in addition to, insured money market accounts and certificates of deposit provided by commercial banks.

Our competition for Mortgage Loans comes from commercial banks and other private lenders. Commercial banks have been reluctant to make commercial real estate loans in many markets, however, if their credit standards are eased or if they lower their interest rates to borrowers, it is possible that we may have difficulty originating loans the meet their standards.

Our competition for attracting and retaining real estate, financial and securities professionals to represent the Company comes from the entire business community. Our competition for the services of these professionals could increase should the economy begin expanding increasing the demand for the services provided by these types of professionals.

The Principals of the Manager have significant experience in real estate and mortgage investment. See “SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.” The Company hopes this will distinguish us from the competition. Further, the Company believes that its business plan provides it with greater opportunities than other 1^st lien investing companies.

TAX TREATMENT OF COMPANY AND ITS SUBSIDIARIES

The following is a summary of certain relevant federal income tax considerations resulting from an investment in the Company, but does not purport to cover all of the potential tax considerations applicable to any specific purchaser. Prospective investors are urged to consult with and rely upon their own tax advisors for advice on these and other tax matters with specific reference to their own tax situation and potential changes in applicable law.

Taxation of Undistributed Fund Income (Individual Investors)

Under the laws pertaining to federal income taxation of limited Companys, no federal income tax is paid by the Company as an entity. Each individual Member reports on his federal income tax return his distributive share of Fund income, gains, losses, deductions and credits, whether or not any actual distribution is made to such Member during a taxable year. Each individual Member may deduct his distributive share of Fund losses, if any, to the extent of the tax basis of his Interests at the end of the Company year in which the losses occurred. The characterization of an item of profit or loss will usually be the same for the Member as it was for the Company. Since individual Members will be required to include Fund income in their personal income without regard to whether there are distributions of Fund income, such investors may become liable for federal and state income taxes on Fund income even though they have received no cash distributions from the Company with which to pay such taxes.

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Tax Returns

Annually, the Company will provide the Members sufficient information from the Company's informational tax return for such persons to prepare their individual federal, state and local tax returns. The Company's informational tax returns will be prepared by certified public accountants selected by the Manager.

Unrelated Business Taxable Income

Interests may be offered and sold to certain tax exempt entities (such as qualified pension or profit sharing plans) that otherwise meet the investor suitability standards described elsewhere in this Offering Circular. (See "Investor Suitability Standards.") Such tax exempt entities generally do not pay federal income taxes on their income unless they are engaged in a business which generates "unrelated business taxable income," as that term is defined by Section 512(a)(1) of the Code. Under the Code, tax exempt purchasers of Interests may be deemed to be engaged in an unrelated trade or business by reason of rental or capital gains income earned by the Company. Although rental and capital gains income (which will constitute the primary sources of Fund income) ordinarily do not constitute unrelated business taxable income, this exclusion does not apply to the extent interest income is derived from "debt-financed property." To increase Fund profits or increase Fund liquidity, the Manager may borrow funds in order to invest in properties. This "leveraging" of the Company's property portfolio will constitute an investment in "debt-financed property" will be unrelated business income taxable to ERISA plans. Unrelated business income is taxable only to the extent such income from all sources exceeds $1,000 per year. The resulting tax, known as “UBIT” or “Unrelated Business Income Tax”, is imposed based on the income tax brackets that apply to trusts. Such brackets are high, and can quickly approach 40% (before taking state & local income taxes into account) on fairly small amounts of income (i.e. - net income over $12,400). The remainder of a tax exempt investor's income will continue to be exempt from federal income taxes to the extent it complies with other applicable provisions of law, and the mere receipt of unrelated business income will not otherwise affect the qualification of an IRA or ERISA plan under the Code. The Manager does anticipate that the Company may earn income, based on its acquisition of leveraged rental properties, that would be treated as UBTI and therefore subject to UBIT.

The trustee of any trust that purchases Interests in the Company should consult with his tax advisors regarding the requirements for exemption from federal income taxation and the consequences of failing to meet such requirements, in addition to carefully considering his fiduciary responsibilities with respect to such matters as investment diversification and the prudence of particular investments.

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SUMMARY OF OPERATING AGREEMENT

The Operating Agreement, in the form attached hereto as Exhibit XX. is the governing instrument establishing the terms and conditions pursuant to which the Company will conduct business and the rights and obligations between and among the Members and the Manager, as well as other important terms and provisions relating to investment in the Company. A prospective Member is expected to read and fully understand the Operating Agreement in its entirety prior to making a decision to purchase Interests. The following is a brief and incomplete summary of the terms of the Operating Agreement and is qualified in its entirety by reference to the Operating Agreement.

Profits and Losses

Losses for any fiscal year shall be allocated among the Members in proportion to their positive Capital Account balances, until the balance of each Capital Account equals zero. Thereafter, all losses shall be allocated in accordance to each Member’s respective Percentage Interest in the Company. Profits will first be allocated pro rata to the Members in accordance with the amount of Losses previously allocated if such previous Losses were not offset by Profits.

Operating Cash Flow Distributions

Except as provided elsewhere in this Operating Agreement, Operating Cash Flow of the Company shall be distributed to the Members monthly, so long as the Manager determines it is available for distribution, in the following order:

First, to the Members, pro rata in accordance with their percentage interests in the Company (as defined in the Operating Agreement - “Percentage Interest”), until all Members have received a cumulative, non-compounded preferred return of 8% per annum on their Capital Contributions.

Second, one hundred percent (100%) of the remaining Operating Cash Flow available for distributions to the Class B Members.

Voting Rights of the Members

The Members will have no right to participate in the management of the Company and will have limited voting rights. Members shall have the right to vote only on the following matters:

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Removal for Cause: The Members, by an affirmative vote of more than 75% of the Investor Interests entitled to vote, shall have the right to remove the Manager at any time solely “for cause.” For purposes of this Operating Agreement, removal of the Manager “for cause” shall mean removal due to the:

(i) conviction or civil judgment for gross negligence or fraud of the Manager,

(ii) conviction or civil judgment for willful misconduct or willful breach of this Operating Agreement by the Manager, or

(iii) bankruptcy or insolvency of the Manager.

If the Manager or an Affiliate owns any Investor Interests, the Manager or the Affiliate, as the case may be, shall not participate in any vote to remove the Manager.

Vacancy of Manager: Any vacancy caused by the removal of any Manager shall be filled by the affirmative vote of the Members holding a majority of the Interests at a special meeting called for that purpose.

Dissolution of the Company: The Members holding 75% of the Interests can vote to dissolve the Company. However, the Company can be dissolved as a result of other actions that do not require the vote of the Members, as set forth in the Operating Agreement.

Change to Member Distribution Structure: Any proposed change to the Member distribution structure will require approval by Members holding a Majority of Interest of the Company. A non-response by a Member shall be deemed a vote that is consistent with the Manager’s recommendation with respect to any proposal.

Amendment of Operating Agreement: The Operating Agreement may be amended or modified from time to time only by a written instrument adopted by the Manager and executed and agreed to by the Members holding a majority of the interests; provided, however, that: (i) an amendment or modification reducing a Member’s allocations or share of distributions (other than to reflect changes otherwise provided by the Operating Agreement) is effective only with that Member’s consent; (ii) an amendment or modification reducing the required allocations or share of distributions or other measure for any consent or vote in the Operating Agreement is effective only with the consent or vote specified in the Operating Agreement prior to such amendment or modification; and (iii) an amendment that would modify the limited liability of a Member is effective only with that Member’s consent. The Operating Agreement may be amended by the Managers without the consent of the Members: (i) to correct any errors or omissions, to cure any ambiguity or to cure any provision that may be inconsistent with any other provision hereof or with any subscription document; or (ii) to delete, add or modify any provision required to be so deleted, added or modified by the staff of the Securities Exchange Commission or similar official, when the deletion, addition or modification is for the benefit or protection of any of the Manager and/or Members.

Tax Matters Member: F or the purposes of receiving notice from the Internal Revenue Service on behalf of the Company, keeping each Member informed of all administrative and judicial proceedings relating to tax matters at the Company level, and for all other relevant purposes concerning the Company’s tax matters, the Manager is hereby designated the “Tax Matters Member” of the Company with all of the rights, duties, powers and obligations provided for in Section 6221 of the Code.

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If the Manager shall fail or refuse to serve, the “tax matters Member” shall be a Member who is designated as such by the Members holding a majority of the Interests. There is no additional rights or returns for the tax matter Member other than those discussed under Section 6221 of the Code.

Restrictions on Removal of Manager and its Managers

The Manager may enter into joint venture relationships with various investment firms and venture funds to obtain co-investment equity on real estate acquisitions for the Company. These joint venture relationships typically contain clauses that restrict or prohibit the removal of key executives without the approval of the joint venture Member. An affirmative vote to remove the Manager or Managers for Cause by Members holding 75% of the Company Interests may conflict with co-investments, joint venture and participation management language required by said investment firms and venture funds.

Consent of Members

In any circumstances requiring the approval or consent of the Members as specified in the Operating Agreement, such approval or consent shall, except as expressly provided to the contrary in the Operating Agreement, be given or withheld in the sole and absolute discretion of the Members and conveyed in writing to the Manager not later than 20 days after such approval or consent was requested by the Manager. The Manager may require a response within a shorter time, but not less than 5 Business Days. A failure to respond in any such time period shall constitute a vote that is consistent with the Manager’s recommendation with respect to the proposal. If the Manager receives the necessary approval or consent of the Members to such action, the Manager shall be authorized and empowered to implement such action without further authorization by the Members.

Death, Disability, Incompetency or Bankruptcy of a Member

In the event of the death, disability, incapacity or adjudicated incompetency of a Member or if a Member becomes bankrupt, his, her or its rights as a Member to share in the Company’s distributions and allocations and to assign his, her or its interest or cause the substitution of a substituted Member will transfer to his, her or its personal representative, administrator, guardian. conservator, trustee in bankruptcy or other legal representative (“Successor”). In the event Interests are held in joint tenancy, such Interests will pass to the surviving joint tenant. The Successor will be liable for all the obligations as a Member and may become a substitute Member with respect to the Interests.

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Limits on Manager’s Liability; Indemnification

The Company does agree to protect, defend, indemnify and hold the Manager, its officers, directors, shareholders and authorized agents, and any Person serving at the request of the Company as a manager, managing member, employee or agent of any other entity (each a “Indemnified Party”), harmless from and against any liability, cost, loss, expense (including, without limitation, attorney’s fees) or damage (or collectively, "Losses") suffered by such Indemnified Party by reason of anything that they, or any of them, may do or refrain from doing hereafter for and on behalf of the Company or otherwise in their designated capacities, and in furtherance of the interests of the Company. Moreover, the Manager shall not be liable to the Company or the Members because any taxing authorities disallow or adjust any deductions or credits in the Company’s income tax returns.

The Manager shall indemnify and hold harmless the Company from contract or other liability, claims, damages, taxes or losses and related expenses including attorneys’ fees, to the extent that (i) such liability, claims, damages, taxes or losses and related expenses are not fully reimbursed by insurance and (ii) are incurred by reason of the Manager’s bad faith, fraud, misfeasance, misconduct, negligence or reckless disregard of its duties.

The Company shall pay or reimburse in advance of the final disposition of a proceeding any reasonable expenses incurred by any Indemnified Party who was, is or is threatened to be, made a named defendant or respondent in such a proceeding after the Company receives a written affirmation by such Indemnified Party of his or her good faith belief that he or she has met the standard of conduct necessary for indemnification as set forth herein, and a written undertaking by such Indemnified Party to repay the amount paid or reimbursed if it is ultimately determined that he has not met those requirements.

The termination of a proceeding by judgment, order, settlement, or conviction, or on a plea of nolo contendere or its equivalent is not of itself determinative that the Person did not meet the requirements set forth herein. A Person shall be deemed to have been found liable in respect of any claim, issue or matter only after the Person shall have been finally so adjudged by a court of competent jurisdiction and no opportunity for appeal then exists. The protection and indemnification provided by the Operating Agreement shall not be deemed exclusive of any other rights to which such Person may be entitled, under any agreement, insurance policy or vote of the Members, or otherwise.

Other Activities of Manager: Affiliates

The Manager need not devote its full time to the Company’s business, but shall devote such time as the Manager in its discretion, deems necessary to manage the Company’s affairs in an efficient manner. Subject to the other express provisions of the Operating Agreement, the Manager, at any time and from time to time may engage in and possess interests in other business ventures of any and every type and description, independently or with others, including ventures in competition with the Company, with no obligation to offer to the Company or any Member the right to participate therein, The Company may transact business with any Manager, Member, officer, agent or affiliate thereof provided the terms of those transactions are no less favorable than those the Company could obtain from unrelated third parties.

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Transfers of Interests

A Member may assign, his, her or its Interests only if only if certain conditions set forth in the Operating Agreement are satisfied. Except as otherwise consented to by the Manager, the assignee must meet all suitability standards and other requirements applicable to other original subscribers and must consent in writing to be bound by all the terms of the Operating Agreement. In addition, the Company must receive written evidence of the assignment in a form approved by the Manager and the Manager must have consented in writing to the assignment. The Manager may withhold this consent in its sole and absolute discretion. Prior to the Manager’s consenting to any assignment, the Member must pay all reasonable expenses, including accounting and attorneys’ fees, incurred by the Company in connection with the assignment, including, but not limited to payment of a transfer fee in the amount of $1,500.00 to the Company, which fee shall be non-refundable, regardless of whether the transfer is subsequently approved.

Withdrawal, Redemption Policy and Other Events of Dissociation

No Member may withdraw within the first 6 months a Member's admission to the Company. Thereafter, the Company will use its best efforts to honor requests for a return of capital subject to, among other things, the Company’s then available cash flow, financial condition, and approval by the Manager. The maximum aggregate amount of capital that the Company will return to the Members each calendar quarter is limited to 10% of the total outstanding capital of the Company as of December 31 of the prior year. Notwithstanding the foregoing, the Manager may, in its sole discretion, waive such withdrawal requirements if a Member is experiencing undue hardship.

Members may submit a written request for withdrawal as a Member of the Company and may receive a 97% return of capital provided that the following conditions have been met: (a) the Member has been a Member of the Company for a period of at least six (6) months; and (b) the Member provides the Company with a written request for a return of capital at least ninety (90) days prior to such withdrawal (“Withdrawal Request”).

Members may submit a request for withdrawal as a Member of the Company and may receive a 98% return of capital provided that the following conditions have been met: (a) the Member has been a Member of the Company for a period of at least twelve (12) months; and (b) the Member provides the Company with a Withdrawal Request at least ninety (90) days prior to such requested withdrawal.

Members may submit a request for withdrawal as a Member of the Company and may receive a 100% return of capital provided that the following conditions have been met: (a) the Member has been a Member of the Company for a period of at least twenty-four (24) months; and (b) the Member provides the Company with a Withdrawal Request at least ninety (90) days prior to such requested withdrawal.

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The Company will not establish a reserve from which to fund withdrawals of Members’ capital accounts and such withdrawals are subject to the availability of cash in any calendar quarter to make withdrawal distributions (“Cash Available for Withdrawals”) only after: (i) all current Company expenses have been paid (including compensation to the Manager, Manager and its affiliates as described in this Offering Circular); (ii) adequate reserves have been established for anticipated Company operating costs and other expenses and advances to protect and preserve the Company’s investments in Properties; and (iii) adequate provision has been made for the payment of all monthly cash distributions owing to Members. Please note that no Withdrawal Requests will be honored while Preferred Returns payable to the Members as discussed herein are in arrears.

If at any time the Company does not have sufficient Cash Available for Withdrawals to distribute the quarterly amounts due to all Members that have outstanding withdrawal requests, the Company is not required to liquidate any Properties for the purpose of liquidating the capital account of withdrawing Members. In such circumstances, the Company is merely required to distribute that portion of the Cash Available for Withdrawals remaining in such quarter to all withdrawing Members pro rata based upon the relative amounts being withdrawn as set forth in the Withdrawal Request.

Notwithstanding the foregoing, the Manager reserves the right to utilize all Cash Available for Withdrawals to liquidate the capital accounts of deceased Members or ERISA plan investors in whole or in part, before satisfying outstanding withdrawal requests from any other Members. The Manager also reserves the right, at any time, to liquidate the capital accounts of ERISA plan investors to the extent the Manager determines, in its sole discretion, that any such liquidation is necessary in order to remain exempt from the Department of Labor’s “plan asset” regulations. Additionally, the Manager has the discretion to limit aggregate withdrawals during any single calendar year to not more than 10% of the total Company capital accounts of all Members that were outstanding at the beginning of such calendar year.

The Manager, in its sole discretion, has the right to decline a subscription to the Company. Additionally, the Manager may elect to terminate any subscription to the Company, at any time, for any reason, in its sole discretion. Such subscription termination shall be effective immediately upon written notification from the Manager to the Member and upon return the Member’s capital account. Written notification of subscription termination shall be provided by certified mail and considered received 5 days after postmark, or may be delivered by email and considered received by Member’s acknowledgement of receipt by return email.

Exit Strategies

The Manager does not have an exit strategy currently as it intends to operate the Company in perpetuity. Members should view investing in the Company as a long term investment with the ability to withdraw only within the policies outlined above in “Withdrawal, Redemption Policy and Other Events of Dissociation.”

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Dissolution of the Company, Liquidation and Distribution of Assets

The Company shall be dissolved upon the first to occur of the following events: (i) the happening of any event that makes it unlawful, impossible or impractical to carry on the business of the Company, (ii) the vote of the Members holding an aggregate Percentage Interest of more than 75%, (iii) the Manager ceases to be a Manager of the Company and a Majority of Interest of the Members elect not to continue the business of the Company, or (iv) the Manager elects to dissolve the Company, in its sole discretion.

Power of Attorney

By becoming a party to the Operating Agreement, each Member will appoint the Manager as his or her attorney-in-fact and empower and authorize the Manager to make, execute, acknowledge, publish and file on behalf of the Member in all necessary or appropriate places, such documents as may be necessary or appropriate to carry out the intent and purposes of the Operating Agreement.

Accounting Records and Reports

Within ninety (90) days after the close of each fiscal year, the Manager shall cause to be prepared, at the expense of the Company, financial statements by the Company accountants, which shall be audited by an independent certified public accountant, as selected by the Manager in its sole discretion. Such financial statements shall include a balance sheet of the Company as of the last day of such fiscal year, an income or loss statement of the Company for such fiscal year, a statement of each Member’s Capital Account as of the last day of such fiscal year, and all other information customarily shown on financial statements. Further, the Manager, at the expense of the Company, shall cause to be prepared and distributed to the Members, all required federal and state Company tax returns, including information returns reflecting each Member’s distributive Share of tax items. As soon as practicable after the end of each semi-annual period, but in no event later than forty-five (45) days following the end of each such semi-annual period, the Manager shall prepare and email, mail or make available on its secure website to each Member (i) the Company’s financial statements as of the end of such fiscal quarter and for the portion of the fiscal year then ended, (ii) a statement of the assets of the Company, including the cost of all assets, and (iii) a report reviewing the Company’s activities and business strategies for such semi-annual period and an update of such Member’s Capital Account.

On an annual basis to be determined in the discretion of the Manager, the Manager shall provide the Members with a valuation of all Mortgage Loans and Properties held by the Company prepared either by an independent, third-party valuation firm to be hired at the sole discretion of the Manager or another methodology as deemed appropriate by the Manager.

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Access to Books and Records. During the Company’s normal business hours and with prior written notice of at least five (5) business days, Members and their designated representatives shall have access to all books and records of the Company. An alphabetical list of the names and addresses of all Members, together with the number of Interests held by each Member, shall be maintained as a part of the books and records of the Company. The Company shall make the list available upon the written request of any Member or such Member’s representative stating a legitimate business purpose relating to the Member’s Interest in the Company, including, without limitation, matters relating to the Members’ voting rights under federal proxy law, if any. A copy of the Member list shall be deposited in the mail, addressed to such requesting Member, within fifteen (15) business days following the Company’s receipt of such Member’s request. The Company may charge a reasonable fee for a copy of such list. Notwithstanding that above, the Manager will maintain the confidentiality of Members to the extent allowed under Nevada law.

The Manager may require the Member requesting the list to represent to the Company and the other Members that the list is not requested for any improper purposes and that such requesting Member will be bound to maintain the confidentiality of the Members’ contact information to the extent requested by the Members.

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LEGAL PROCEEDINGS

We may from time to time be involved in routine legal matters incidental to our business; however, at this point in time we are currently not involved in any litigation, nor are we aware of any threatened or impending litigation.

OFFERING PRICE FACTORS

Our offering price is arbitrary with no relation to value of the company. This offering is a self-underwritten offering, which means that it does not involve the participation of an underwriter to market, distribute or sell the shares offered under this offering.

If the maximum amount of Class A Interests are sold under this Offering, the purchasers under this Offering will own 100% of the Class A Interests outstanding.

If the minimum amount of Class A Interests are sold under this Offering, the purchasers under this Offering will own 100% of the Class A Interests outstanding.

The Manager believes that if the maximum amount of the Class A Interests the price per Unit value will be $1,000 per Unit for a total of $50,000,000.

The Manager believes that if the minimum amount of the Class A Interests the price per Unit value will be $1,000 per Unit for a total of $100,000.

SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

The following table sets forth information as of the date of this Offering.

Name of Beneficial Owner	Class B Interests			Percent Before Offering			Percent After Offering
Diamond Sky Capital, LLC(1)		100	%		100	%		100	%
TOTAL		100	%		100	%		100	%

___________

(1) Hajime Kakuuchi is the sole decision make and Manager of Diamond Sky Capital, LLC

“Beneficial ownership” means the sole or shared power to vote or to direct the voting of, a security, or the sole or shared investment power with respect to a security (i.e., the power to dispose of or to direct the disposition of, a security). In addition, for purposes of this table, a person is deemed, as of any date, to have “beneficial ownership” of any security that such person has the right to acquire within 60 days from the date of this Offering.

DIRECTOR, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS

The Company currently has no employees. Mr. Kakuuchi is the manager of our Manager and is acting as the sole executive officer of the Company. The Principals of the Manager of the Company are as follows:

Name	Age	Title
Hajime Kakuuchi	40	Diamond Sky Capital

 

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Duties, Responsibilities and Experience

The Company is managed by Diamond Sky Capital, LLC, a Nevada limited liability company. The Managing Member of Diamond Sky Capital is Hajime Kakuuchi. For the past 10 years, Mr. Kakuuchi has been CEO of 111 Capital, Inc. a California Corporation in Torrance, California. Since its inception, 111 Capital, Inc. has participated in social lending services and real estate investment services including renovation activities, brokerage activities, and registering under the National Mortgage Licensing System (NMLS.) Mr. Kakuuchi has been a licensed real estate salesperson in the state of California since 2003 under DRE #01890531. In 2005, Mr. Kakuuci become a licensed tax accountant and shortly thereafter, established 111 Capital, Inc. under the name “Across Pacific Investment.”

Mr. Kakuuchi is a native of Japan and holds a BE in Applied Chemistry from Waseda University in Tokyo, Japan and a M.S. in Physics and Chemistry from Chiba University in Chiba, Japan. In 2003, upon finishing his studies, Mr. Kakuuchi moved to the United States.

EXECUTIVE COMPENSATION

The following table sets forth the cash compensation of Manager:

Name and Principal Position	Year	Salary		Bonus		Option Awards		All Other Compensation(1)
Hajime Kakuuchi, Manager of Diamond Sky Capital, LLC, Manager	2016	$	0	$	0	$	0	100% of the  Manager Interest

For organizing the Company, business plan development, putting together this Offering, initial capitalization, and other related services, the Manager of our Company has been awarded 100% of the Class B Interests in our Company. The Manager shall have all the rights expressly provided in the Operating Agreement. The Manager alone shall have the sole and exclusive power and authority to manage all facets of the business of the Company. Further, the Class B Members (the Manager) have a right to 100% of the remaining Operating Cash Flow after the Members have received their promised Preferred Return of eight (8%) percent. The Class A Interests shall bear a Preferred Return (“Preferred Return”) of eight percent (8%) on invested capital as described in the Company’s Operating Agreement. The Preferred Return is payable after the expenses of the Company are paid as well as certain fees, such as the Asset Management fee, are paid to the Manager. The Manager is the sole holder of Class B Interests which are entitled any remaining Cash Flow (subject to reserves) only AFTER the Class A Members have received their promised Preferred Return. There is no guarantee that the Members will receive the Preferred Return. “Operating Cash Flow” means Cash Flow from operation of Company Assets, and does not include any Cash Flow from Capital Transactions. “Cash Flow” means the cash proceeds realized by the Company plus cash interest payments received with respect to such proceeds, decreased by the sum of: (i) the amount of such proceeds applied by the Company to pay debts and liabilities of the Company; and (ii) any reserve established by the Manager for anticipated cash disbursements that will have to be made before additional cash receipts from third parties will provide the funds thereof.

Employment Agreements

There are no current employment agreements or current intentions to enter into any employment agreements.

Future Compensation

The principals of our Manager have agreed to provide services to us without compensation until such time that we have sufficient earnings from our revenue. The Manager has received the Class B Interests in exchange for services.

87

CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS

The Company utilizes office space provided at no cost from our Lender. Office services are provided without charge by the Company’s Manager. Such costs are immaterial to the financial statements and, accordingly, have not been reflected.

We have issued 100% of the Class B Interests to our Manager. The Manager shall receive the following fees and compensation:

Phase of Operation	Basis for Fee	Amount of Fee
Asset Management Fee	Fees charged to the Company for management of its investments	1% of the total amount the Company invests. The total amount of fees that the Manager may receive cannot be determined at this time.
Company Management Fee	Fees charged to the Company for management of the Company	Profit sharing of 100% of the Operating Cash Flow that is available after the  Members have received their stated Preferred Return.
Loan Servicing Fee	Fees charged to the Company by an affiliated third party servicer (“Servicer”)	Servicer shall be compensated up to 3% annually of the loan amount of performing loans being serviced. Servicer’s compensation shall be paid on a monthly basis. Servicer shall only be compensated from payments received from Borrower.

Unpaid Management Fees will accrue as an account payable to the Manager. Manager may elect to pay accrued Management Fees to the Manager at any time, at the sole discretion of the Manager. “Operating Cash Flow” means Cash Flow from operation of Company Assets, and does not include any Cash Flow from Capital Transactions.

SELECTION, MANAGEMENT AND CUSTODY OF COMPANY’S INVESTMENTS

The Company will engage a 3^rd party servicer, the Lender to service our mortgage loans at a cost not to exceed 3% annually of the face value of the mortgages serviced. See Loan Servicing Agreement for more information. We may also hire property managers to manage real estate owned by the Company. Generally, property management costs will be a percentage of gross revenues not to exceed 10%.

LIMITATIONS OF LIABILITY

As permitted by Nevada law, our amended and restated Certificate of Organization and Operating Agreement contain provisions that limit or eliminate the personal liability of our Manager for breaches of duty to the LLC to the fullest extent permitted under Nevada law. Nevada law provides that management of a limited liability company will not be personally liable for monetary damages for breaches of their fiduciary duties as Manager, except liability for:

○	any breach of the Manager’s duty of loyalty to our Members;
○	any act or omission not in good faith, believed to be contrary to the interests of the Company or its Members, involving reckless disregard for the Manager’s duty, for acts that involve an unexcused pattern of inattention that amounts to an abdication of duty, or that involves intentional misconduct or knowing or culpable violation of law;
○	any unlawful payments related to distributions, Unit repurchases, redemptions, loans, guarantees or other distributions; or
○	any transaction from which the Manager derived an improper personal benefit.

88

These limitations do not affect the availability of equitable remedies, including injunctive relief or rescission. As permitted by Nevada law, our amended and restated Certificate of Organization and Operating Agreement also provide that:

○	we will indemnify our Manager, its officers, and employees to the fullest extent permitted by law;
○	we will indemnify our other employees and other agents to the same extent that we indemnify our Manager; and
○	we will advance expenses to our Manager, its officers, and employees in connection with a legal proceeding.

The indemnification provisions contained in our amended and restated Certificate of Organization and Operating Agreement are not exclusive.

INTERESTS OF NAMED EXPERTS AND COUNSEL

No expert or counsel named in this Offering as having prepared or certified any part of this Offering or having given an opinion upon the validity of the securities being registered or upon other legal matters in connection with the offering of the Class A Interests was employed on a contingency basis, or had, or is to receive, in connection with the Offering, a substantial interest, direct or indirect, in the registrant or any of its parents or subsidiaries. Nor was any such person connected with the registrant or any of its parents or subsidiaries as a promoter, managing or principal underwriter, voting trustee, director, officer, or employee.

The financial statements included in this Offering Circular have been audited by IndigoSpire CPA Group to the extent and for the period set forth in their report appearing elsewhere herein, and are included in reliance upon such report given upon the authority of said firm as experts in auditing and accounting.

Trowbridge Sidoti LLP is providing legal services relating to this Form 1-A.

89

FINANCIAL STATEMENTS

111 CROWDFUNDING, LLC

Table of Contents

Independent Auditor’s Report	F-1 - F-2
Balance Sheet as of June 30, 2017 (unaudited)	F-3
Income Statement for the six months ended June 30, 2017	F-4
Statement of Changes in Member’s Equity from inception (June 5, 2015) to June 30, 2017 (unaudited)	F-5
Statement of Cash Flows for the six months ended June 30, 2017 (unaudited)	F-6
Notes to Financial Statement (unaudited)	F-7
Balance Sheet as of December 31, 2016 and December 31, 2015	F-10
Income Statement for the years ended December 31, 2016 and 2015	F-11
Statement of Changes in Member’s Equity from inception (June 5, 2015) to December 31, 2016	F-12
Statement of Cash Flows for the years ended December 31, 2016 and 2015	F-13
Notes to Financial Statement	F-14

90

INDEPENDENT AUDITOR’S REPORT

April 25, 2017

To:	Board of Managers, 111 Crowdfunding LLC
	Attn: Hajime Kakuuchi
Re:	2015 & 2016 Financial Statement Audit
	111 Crowdfunding LLC 1810 E. Sahara Ave, #123 Las Vegas, NV 89104

We have audited the accompanying financial statements of 111 Crowdfunding LLC (a limited liability company organized in the State of Nevada) (the “Company”), which comprise the balance sheets as of December 31, 2016 and December 31, 2015, and the related statements of income, retained earnings, and cash flows for the years then ended, and the related notes to the financial statements.

Management’s Responsibility for the Financial Statements

Management is responsible for the preparation and fair presentation of these 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 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 financial statements based on our audit. We conducted our audit of the Company’s financial statements 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 financial statements are free from material misstatement.

An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditor’s judgment, including the assessment of the risks of material misstatement of the 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 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.

F-1

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 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 financial statements referred to above present fairly, in all material respects, the financial position of the Company as of December 31, 2016, and the results of its operations and its cash flows for the years then ended in accordance with accounting principles generally accepted in the United States of America.

Emphasis of Matter Regarding Going Concern

The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. As described in the Notes to the Financial Statements, the Company is a business that has not yet commenced its planned operations, has incurred costs, and has not generated any revenues while seeking to raise capital under Title IV of the JOBS Act. Considering these factors, there exist substantial doubt as to whether the Company can continue as a going concern. These financial statements do not include any adjustments that might result from the outcome of this uncertainty and we provide no opinion at this time about whether the Company will be successful in its plans to continue as a going concern.

Sincerely,

IndigoSpire CPA Group

IndigoSpire CPA Group, LLC

13918 East Mississippi Avenue

Suite 68845

Aurora, CO 80003

Firm License: CO.5000271

Nevada CPA Firm Registration: LLC-0434

F-2

111 Crowdfunding LLC

Balance Sheet

(unaudited)

As of June 30, 2017

	Jun. 30, 2017
ASSETS
Current Assets
Cash & Cash Equivalents		0
Deferred Issuance Costs		20,000
Total Current Assets		20,000
Non-current Assets
None
TOTAL ASSETS		20,000
LIABILITIES
Current Liabilities
Loan from Affiliate		25,000
Total Current Liabilities		25,000
Non-current Liabilities
None
TOTAL LIABILITIES		25,000
MEMBERSHIP EQUITY
Membership Interest		0
Retained Earnings, net of Distributions		(5,000	)
TOTAL MEMBERSHIP EQUITY		(5,000	)

F-3

111 Crowdfunding LLC

Income Statement

(unaudited)

For the six month period January 1, 2017 to June 30, 2017

	Jan. 1 to Jun. 30, 2017
Revenues, net of Allowances and Returns		0
Less: Cost of Revenues		0
Total Gross Profit		0
Selling, General and Administrative		5,000
Total Income from Operations		(5,000	)
Other Income and Expense		0
Total Income before Taxes		(5,000	)
Provision/(Benefit) for Income Taxes		0
NET INCOME		(5,000	)

F-4

111 Crowdfunding LLC

Statement of Changes in Members’ Equity

(unaudited)

For the six month period January 1, 2017 to June 30, 2017

	Class A Interests				Class B Interests				Additional Paid-		Accumulated Earnings/
	# of Shares		$ Amount		# of Shares		$ Amount		in Capital		(Deficit)			Total
Balance at January 1, 2017		0	$	0		0	$	0	$	0	$	0		$	0
Six months 2017 Net Income												(5,000	)		(5,000	)
Balance at December 31, 2016			$	0			$	0	$	0	$	(5,000	)	$	(5,000	)

F-5

111 Crowdfunding LLC

Statement of Cash Flows

(unaudited)

For the six month period January 1, 2017 to June 30, 2017

	Jan. 1 to Jun. 30, 2017
CASH FLOWS FROM OPERATIONS
Net Income		(5,000	)
Increase in Deferred Issuance Costs		(5,000	)
Other Adjustments to Net Income		0
TOTAL CASH FLOWS FROM OPERATIONS		(10,000	)
CASH FLOWS FROM INVESTING ACTIVITIES
None		0
TOTAL CASH FLOWS FROM INVESTING ACTIVITIES		0
CASH FLOWS FROM MEMBERS’ FINANCING ACTIVITIES
Proceeds from Loan from Affiliate		10,000
Members’ Distributions		0
CASH FLOWS FROM MEMBERS’ FINANCING ACTIVITIES		10,000
NET CHANGE IN CASH POSITION		0
Cash, beginning of year		0
Cash, end of year		0
Interest Paid		0
Taxes Paid		0

F-6

111 Crowdfunding LLC

Notes and Additional Disclosures to the Financial Statements

As of June 30, 2017

(unaudited)

Note 1 - Summary of Significant Accounting Policies and Corporate Structure

(a) Summary - 111 Crowdfunding LLC (the “Company”) is an early-stage investment limited liability company established by the manager to invest in real estate investments. The Company was formed under the name of Continental Funding LLC on November 19, 2015 and changed its name to 111 Crowdfunding LLC on February 17, 2017, subsequent to the reporting date of these financial statements. The Company is headquartered in Las Vegas, CA.

The Company has not yet begun operations as it is still progressing through the regulatory and capital raising stage. It has not yet made any investments and has not yet accepted any investor capital aside from a loan from an affiliate for expenses associated with the efforts of seeking regulatory and legal approvals.

The Company is seeking an exemption from securities registration under Title IV of the JOBS Act. If approved, the Company my issue securities up to $50 million in value.

(b) Methods of Accounting and Basis for Presentation - The Company prepares the financial statements in accordance with US generally accepted accounting principles which includes usage of the accrual method of accounting to match expenses with the period in which they are associated with revenue.

The accounting and reporting policies of the Company also conform to Article 8 of Regulation S-X of the regulations promulgated by the U.S. Securities and Exchange Commission.

The Company has elected to adopt early application of the Accounting Standards Update No. 2014-10, “Development Stage Entities (Topic 915): Elimination of Certain Financial Reporting Requirements.” The Company does not present or disclose certain items otherwise required under Topic 915.

(c) Estimates - The Company prepares the financial statements in accordance with US generally accepted accounting principles which requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues, expenses and costs as of the date of the financial statements. Actual results are reconciled with these estimates as they occur but they may differ from initial reporting.

(d) Comparative Financial Statements - Under US generally accepted accounting principles and applicable presentation standards, financial statements are presented in a comparative fashion with prior periods. Years presented herein comply with the disclosure requirements under Title IV of the JOBS Act.

(e) Revenue Recognition - The Company recognizes revenue and costs in accordance with US generally accepted accounting principles.

In May 2014, the Financial Accounting Statements Board (“FASB”) issued Accounting Standards Update No. 2014-09 which significantly updates the standards for revenue recognition for all entities, public, private and not-for- profit, that have contracts with customers to provide goods or services. For private entities, such as the Company, the effective date for implementation of these new standards is for annual periods beginning after December 15, 2018. No pro-forma or early adoption of these new revenue recognition standards has been implemented by the Company.

F-7

(f) Cash and Cash Equivalents - As of the reporting period, the Company had not yet established a bank account. The Company plans to continue its growth and will establish an FDIC bank account in the near future.

(g) Accounts or Investments Receivable - As of the reporting period, the Company does not have any account receivable or investor capital commitments receivable.

(h) Fair Value of Financial Instruments - The Company discloses fair value information about financial instruments based upon certain market assumptions and pertinent information available to management. As of the balance sheet date, there were no financial instruments outstanding.

(i) Deferred Offering Costs - The Company complies with the requirements of ASC 340-10. The Deferred Offering Costs of the Company consist solely of legal fees incurred in connection with the capital raising efforts of the Company. Under ASC 340-10, costs incurred are capitalized until the offering whereupon the offering costs are charged to members’ equity or expensed.

(j) Start-Up Costs - In accordance with ASC 720, costs related to start-up activities, including organizational costs, are expensed in the period incurred. The Company has incurred any Start-Up Costs as of the balance sheet dates. However, in conjunction with the Company’s capital raising efforts, the Company will continue to incur marketing, office and professional expenses.

(k) Income Taxes - The Company will be treated as a flow-through entity for federal and State income tax purposes under the Internal Revenue Code. As such, the Company must allocate items of income, loss, deduction and credit to its shareholders and is not, itself, liable for federal income taxes. The Company will record a provision for income taxes for certain state income tax liabilities, if appropriate.

At this time, no activity of the Company requires a provision for state income tax.

Note 2 - Loan from Affiliate

The Company has recorded a loan payable from an affiliate company of the manager for purposes of funding the Company for expenses associated with seeking the securities registration exemption described above. The manager or an affiliate of the Company paid these expenses on behalf of the Company. The Company is obligated to repay these amounts from investor funds raised or profits from investments as soon as prudent. The affiliate company has agreed not to charge the Company interest for these amounts.

Note 3 - Line of Credit and Other Liabilities

The Company has not borrowed from any creditor other than the Loan from Affiliate described above.

Note 4 - Related Party Transactions

The operating agreement of the Company governs the relationship between the Company, its members and the manager. The operating agreement specifically allows for certain related party transactions and cautions members that such transactions may or may not be negotiated at an arm’s length.

As of the reporting date, the only related party transactions entered into by the Company is that of the Loan from Affiliate, discussed in Note 2, above.

F-8

Note 5 - Going Concern

The Company’s ability to continue as a going concern in the next twelve months is dependent upon its ability to obtain capital financing from outside investors sufficient to execute upon the Company’s planned real estate development and investment activities. No assurance can be given that the Company will be able to successfully raise capital or continue as a going concern.

The financial statements do not include any adjustments relating to the recoverability and classification of recorded asset amounts or the amounts and classification of liabilities that might be necessary should the Company be unable to continue as a going concern.

Note 6 - Subsequent Events

The Company has evaluated subsequent events for recognition and disclosure through December 8, 2017 including adoption or implementation of any required accounting standard updates. No subsequent events require disclosure.

F-9

111 Crowdfunding LLC

Balance Sheet

As of December 31, 2016 and December 31, 2015

See Accountant's’ Audit Report and Notes to the Financial Statements

	2016		2015
ASSETS
Current Assets
Cash & Cash Equivalents		0		0
Deferred Issuance Costs		15,000		0
Total Current Assets		15,000		0
Non-current Assets
None
TOTAL ASSETS		0		0
LIABILITIES AND MEMBERS’ EQUITY
LIABILITIES
Current Liabilities
Loan from Affiliate		15,000		0
Total Current Liabilities		15,000		0
Non-current Liabilities
None
TOTAL LIABILITIES		15,000		0
MEMBERSHIP EQUITY
Membership Interest		0		0
Retained Earnings, net of Distributions		0		0
TOTAL MEMBERSHIP EQUITY		0		0

The accompanying Notes are an important and integral part of the financial statements

F-10

111 Crowdfunding LLC

Income Statement

For the years ending December 31, 2016 and December 31, 2015

See Accountant's’ Audit Report and Notes to the Financial Statements

	2016		2015
Revenues, net of Allowances and Returns		0		0
Less: Cost of Revenues		0		0
Total Gross Profit		0		0
Selling, General and Administrative		0		0
Total Income from Operations		0		0
Other Income and Expense		0		0
Total Income before Taxes		0		0
Provision/(Benefit) for Income Taxes		0		0
NET INCOME		0		0

The accompanying Notes are an important and integral part of the financial statements

F-11

111 Crowdfunding LLC

Statement of Changes in Members’ Equity

For the year ending December 31, 2016 and December 31, 2015

See Accountant's’ Audit Report and Notes to the Financial Statements

	Class A Interests				Class B Interests				Additional Paid-		Accumulated Earnings/
	# of Shares		$ Amount		# of Shares		$ Amount		in Capital		(Deficit)		Total
Balance at June 5, 2015 (inception)		0	$	0		0	$	0	$	0	$	0	$	0
2015 Net Income											$	0
Balance at December 31, 2015
2016 Net Income											$	0
Balance at December 31, 2016			$	0			$	0	$	0	$	0	$	0

The accompanying Notes are an important and integral part of the financial statements

F-12

111 Crowdfunding LLC

Statement of Cash Flows

As of December 31, 2016 and December 31, 2015

See Accountant's’ Audit Report and Notes to the Financial Statements

	2016			2015
CASH FLOWS FROM OPERATIONS
Net Income		0			0
Increase in Deferred Issuance Costs		(15,000	)		0
Other Adjustments to Net Income		0			0
TOTAL CASH FLOWS FROM OPERATIONS		(15,000	)		0
CASH FLOWS FROM INVESTING ACTIVITIES
None		0			0
TOTAL CASH FLOWS FROM INVESTING ACTIVITIES		0			0
CASH FLOWS FROM MEMBERS’ FINANCING ACTIVITIES
Proceeds from Loan from Affiliate		15,000			0
Members’ Distributions		0			0
CASH FLOWS FROM MEMBERS’ FINANCING ACTIVITIES		15,000			NONE
NET CHANGE IN CASH POSITION		0			0
Cash, beginning of year		0			0
Cash, end of year		0			0
Interest Paid		0			0
Taxes Paid		0			0

The accompanying Notes are an important and integral part of the financial statements

F-13

111 Crowdfunding LLC

Notes and Additional Disclosures to the Financial Statements

As of December 31, 2016 and December 31, 2015

Note 1 - Summary of Significant Accounting Policies and Corporate Structure

(a) Summary - 111 Crowdfunding LLC (the “Company”) is an early-stage investment limited liability company established by the manager to invest in real estate investments. The Company was formed under the name of Continental Funding LLC on November 19, 2015 and changed its name to 111 Crowdfunding LLC on February 17, 2017, subsequent to the reporting date of these financial statements. The Company is headquartered in Las Vegas, CA.

The Company has not yet begun operations as it is still progressing through the regulatory and capital raising stage. It has not yet made any investments and has not yet accepted any investor capital aside from a loan from an affiliate for expenses associated with the efforts of seeking regulatory and legal approvals.

The Company is seeking an exemption from securities registration under Title IV of the JOBS Act. If approved, the Company my issue securities up to $50 million in value.

(b) Methods of Accounting and Basis for Presentation - The Company prepares the financial statements in accordance with US generally accepted accounting principles which includes usage of the accrual method of accounting to match expenses with the period in which they are associated with revenue.

The accounting and reporting policies of the Company also conform to Article 8 of Regulation S-X of the regulations promulgated by the U.S. Securities and Exchange Commission.

The Company has elected to adopt early application of the Accounting Standards Update No. 2014-10, “Development Stage Entities (Topic 915): Elimination of Certain Financial Reporting Requirements.” The Company does not present or disclose certain items otherwise required under Topic 915.

(c) Estimates - The Company prepares the financial statements in accordance with US generally accepted accounting principles which requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues, expenses and costs as of the date of the financial statements. Actual results are reconciled with these estimates as they occur but they may differ from initial reporting.

(d) Comparative Financial Statements - Under US generally accepted accounting principles and applicable presentation standards, financial statements are presented in a comparative fashion with prior periods. Years presented herein comply with the disclosure requirements under Title IV of the JOBS Act.

(e) Revenue Recognition - The Company recognizes revenue and costs in accordance with US generally accepted accounting principles.

In May 2014, the Financial Accounting Statements Board (“FASB”) issued Accounting Standards Update No. 2014-09 which significantly updates the standards for revenue recognition for all entities, public, private and not-for- profit, that have contracts with customers to provide goods or services. For private entities, such as the Company, the effective date for implementation of these new standards is for annual periods beginning after December 15, 2018. No pro-forma or early adoption of these new revenue recognition standards has been implemented by the Company.

F-14

(f) Cash and Cash Equivalents - As of the reporting period, the Company had not yet established a bank account. The Company plans to continue its growth and will establish an FDIC bank account in the near future.

(g) Accounts or Investments Receivable - As of the reporting period, the Company does not have any account receivable or investor capital commitments receivable.

(h) Fair Value of Financial Instruments - The Company discloses fair value information about financial instruments based upon certain market assumptions and pertinent information available to management. As of the balance sheet date, there were no financial instruments outstanding.

(i) Deferred Offering Costs - The Company complies with the requirements of ASC 340-10. The Deferred Offering Costs of the Company consist solely of legal fees incurred in connection with the capital raising efforts of the Company. Under ASC 340-10, costs incurred are capitalized until the offering whereupon the offering costs are charged to members’ equity or expensed.

(j) Start-Up Costs - In accordance with ASC 720, costs related to start-up activities, including organizational costs, are expensed in the period incurred. The Company has incurred any Start-Up Costs as of the balance sheet dates. However, in conjunction with the Company’s capital raising efforts, the Company will continue to incur marketing, office and professional expenses.

(k) Income Taxes - The Company will be treated as a flow-through entity for federal and State income tax purposes under the Internal Revenue Code. As such, the Company must allocate items of income, loss, deduction and credit to its shareholders and is not, itself, liable for federal income taxes. The Company will record a provision for income taxes for certain state income tax liabilities, if appropriate.

At this time, no activity of the Company requires a provision for state income tax.

Note 2 - Loan from Affiliate

The Company has recorded a loan payable from an affiliate company of the manager for purposes of funding the Company for expenses associated with seeking the securities registration exemption described above. The manager or an affiliate of the Company paid these expenses on behalf of the Company. The Company is obligated to repay these amounts from investor funds raised or profits from investments as soon as prudent. The affiliate company has agreed not to charge the Company interest for these amounts.

Note 3 - Line of Credit and Other Liabilities

The Company has not borrowed from any creditor other than the Loan from Affiliate described above.

Note 4 - Related Party Transactions

The operating agreement of the Company governs the relationship between the Company, its members and the manager. The operating agreement specifically allows for certain related party transactions and cautions members that such transactions may or may not be negotiated at an arm’s length.

F-15

As of the reporting date, the only related party transactions entered into by the Company is that of the Loan from Affiliate, discussed in Note 2, above.

Note 5 - Going Concern

The Company’s ability to continue as a going concern in the next twelve months is dependent upon its ability to obtain capital financing from outside investors sufficient to execute upon the Company’s planned real estate development and investment activities. No assurance can be given that the Company will be able to successfully raise capital or continue as a going concern.

The financial statements do not include any adjustments relating to the recoverability and classification of recorded asset amounts or the amounts and classification of liabilities that might be necessary should the Company be unable to continue as a going concern.

Note 6 - Subsequent Events

The Company has evaluated subsequent events for recognition and disclosure through April 25, 2017 including adoption or implementation of any required accounting standard updates. No subsequent events require disclosure.

F-16

PART III - EXHIBITS

Item 1. Index to Exhibits

1.	Articles of Organization
2.	Operating Agreement
3.	Subscription Agreement
4.	Loan Servicing Agreement
5.	Consent
6.	Opinion re: Legality
7.	Tax Opinion

91

SIGNATURE

Pursuant to the requirements of Regulation A, the issuer certifies that it has reasonable grounds to believe that it meets all of the requirements for filing on Form 1-A and has duly caused this offering statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Torrance, CA on December 22, 2017

Manager 111 Crowdfunding, LLC
	/s/ Hajime Kakuuchi
	Hajime Kakuuchi, Manager of Diamond Sky Capital, LLC Manager
	Principal executive officer, principal financial officer, and principal accounting office

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

/s/ Hajime Kakuuchi

Hajime Kakuuchi, Manager of Diamond Sky Capital, LLC

Manager

Principal executive officer, principal financial officer, and principal accounting office

92

EX1A-2A CHARTER

EXHIBIT 2

 

1

 

2

 

3

 

4

 

5

 

6

EX1A-4 SUBS AGMT

EXHIBIT 4

SUBSCRIPTION AGREEMENT

SUBSCRIPTION AGREEMENT (the “Subscription Agreement”) made as of this day of , 2017, by and between 111 Crowdfunding, LLC a Nevada limited liability company (the “Issuer”), and the undersigned (the “Subscriber”).

WHEREAS, pursuant to an Offering Circular dated _____, 2017 (the “Offering Circular”), the Issuer is offering in a Regulation A offering (the “Offering”) to investors up to 50,000 Class A Preferred Interests (“Interests”) at a purchase price of $1,000.00 per Unit for a maximum aggregate purchase price of $50,000,000 (the “Maximum Offering”).

WHEREAS, the Subscriber desires to subscribe for the number and class of Interests set forth on the signature page hereof, on the terms and conditions hereinafter set forth.

NOW, THEREFORE, for and in consideration of the premises and the mutual covenants hereinafter set forth, the parties hereto do hereby agree as follows:

I. SUBSCRIPTION FOR AND REPRESENTATIONS AND COVENANTS OF SUBSCRIBER

1.1 Subject to the terms and conditions hereinafter set forth, the Subscriber hereby subscribes for and agrees to purchase from the Issuer the number of Interests set forth on the signature page hereof, at a price equal to $1,000.00 per Unit, and the Issuer agrees to sell such Interests to the Subscriber for said purchase price, subject to the Issuer’s right to sell to the Subscriber such lesser number of (or no) Interests as the Issuer may, in its sole discretion, deem necessary or desirable. The purchase price is payable by wire or by check payable to the Issuer.

1.2 The Subscriber has full power and authority to enter into and deliver this Subscription Agreement and to perform its/his/her obligations hereunder, and the execution, delivery and performance of this Subscription Agreement has been duly authorized, if applicable, and this Subscription Agreement constitutes a valid and legally binding obligation of the Subscriber.

1.3 The Subscriber acknowledges receipt of the Offering Circular, all supplements to the Offering Circular, and all other documents furnished in connection with this transaction by the Issuer (collectively, the “Offering Documents”).

1.4 The Subscriber recognizes that the purchase of the Interests involves a high degree of risk in that (i) an investment in the Issuer is highly speculative and only investors who can afford the loss of their entire investment should consider investing in the Issuer and the Interests; (ii) the Interests are being sold pursuant to an exemption under Regulation A issued by the Securities and Exchange Commission (“SEC”) under the Securities Act of 1933, as amended (the “Act”), but they are not registered under the Act or any state securities law; (iii) there is only a limited trading market for the Interests, and there is no assurance that a more active one will ever develop, and thus, the Subscriber may not be able to liquidate his, her or its investment; and (iv) an investor could suffer the loss of his, her or its entire investment.

1.5 The Subscriber is an “accredited investor,” as such term is defined in Rule 501 of Regulation D promulgated under the Act, and the Subscriber is able to bear the economic risk of an investment in the Interests OR the purchase price tendered by Subscriber does not exceed 10% of the greater of the Subscriber’s annual income or net worth.

1.6 The Subscriber is not relying on the Issuer or its affiliates or agents with respect to economic considerations involved in this investment. The Subscriber has relied on the advice of, or has consulted with, only his, her or its Advisors, if any. Each Advisor, if any, is capable of evaluating the merits and risks of an investment in the Interests as such are described in the Offering Circular, and each Advisor, if any, has disclosed to the Subscriber in writing (a copy of which is annexed to this Subscription Agreement) the specific details of any and all past, present or future relationships, actual or contemplated, between the Advisor and the Issuer.

 

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1.7 The Subscriber has prior investment experience (including investment in non-listed and non-registered securities), has (together with his, her or its Advisors, if any) such knowledge and experience in financial and business matters as to be capable of evaluating the merits and risks of the prospective investment in the Interests. The Subscriber’s overall commitment to investments, which are not readily marketable, is not disproportionate to the Subscriber’s net worth, and the Subscriber’s investment in the Interests will not cause such overall commitment to become excessive. The Subscriber, if an individual, has adequate means of providing for his or her current needs and personal and family contingencies and has no need for liquidity in his or her investment in the Interests. The Subscriber is financially able to bear the economic risk of this investment, including the ability to afford holding the Interests for an indefinite period or a complete loss of this investment. If other than an individual, the Subscriber also represents it has not been organized solely for the purpose of acquiring the Interests.

1.8 The Subscriber acknowledges that any estimates or forward-looking statements or projections included in the Offering Circular were prepared by the management of the Issuer in good faith, but that the attainment of any such projections, estimates or forward-looking statements cannot be guaranteed by the Issuer, its management or its affiliates and should not be relied upon.

1.9 The Subscriber acknowledges that the purchase of the Interests may involve tax consequences to the Subscriber and that the contents of the Offering Documents do not contain tax advice. The Subscriber acknowledges that the Subscriber must retain his, her or its own professional Advisors to evaluate the tax and other consequences to the Subscriber of an investment in the Interests. The Subscriber acknowledges that it is the responsibility of the Subscriber to determine the appropriateness and the merits of a corporate entity to own the Subscriber’s Interests and the corporate structure of such entity.

1.10 The Subscriber acknowledges that the Offering Circular and this Offering have not been reviewed by the SEC or any state securities commission, and that no federal or state agency has made any finding or determination regarding the fairness or merits of the Offering or confirmed the accuracy or determined the adequacy of the Offering Circular. Any representation to the contrary is a crime.

1.11 The Subscriber represents, warrants and agrees that the Interests are being purchased for his, her or its own beneficial account and not with a view toward distribution or resale to others. The Subscriber understands that the Issuer is under no obligation to register the Interests on his, her or its behalf or to assist them in complying with any exemption from registration under applicable state securities laws.

1.12 The Subscriber understands that the Interests have not been registered under the Act by reason of a claimed exemption under the provisions of the Act which depends, in part, upon his, her or its investment intention. The Subscriber realizes that, in the view of the SEC, a purchase with an intent to resell would represent a purchase with an intent inconsistent with his, her or its representation to the Issuer, and the SEC might regard such a sale or disposition as a deferred sale, for which such exemption is not available. The Subscriber does not have any such intentions.

1.13 The Subscriber agrees to indemnify and hold the Issuer, its directors, officers and controlling persons and their respective heirs, representatives, successors and assigns harmless against all liabilities, costs and expenses incurred by them as a result of any misrepresentation made by the Subscriber herein or as a result of any sale or distribution by the Subscriber in violation of the Act (including, without limitation, the rules promulgated thereunder), any state securities laws, or the Issuer’s Restated Certificate of Organization and/or Operating Agreement, as amended from time to time.

1.14 The Subscriber understands that the Issuer will review and rely on this Subscription Agreement without making any independent investigation; and it is agreed that the Issuer reserves the unrestricted right to reject or limit any subscription and to withdraw the Offering at any time.

 

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1.15 The Subscriber hereby represents that the address of the Subscriber furnished at the end of this Subscription Agreement is the Subscriber’s principal residence, if the Subscriber is an individual, or its principal business address, if it is a corporation or other entity.

1.16 The Subscriber acknowledges that if the Subscriber is a Registered Representative of a Financial Industry Regulatory Authority (“FINRA”) member firm, the Subscriber must give such firm the notice required by FINRA’s Conduct Rules, receipt of which must be acknowledged by such firm on the signature page hereof.

1.17 The Subscriber hereby acknowledges that neither the Issuer nor any persons associated with the Issuer who may provide assistance or advice in connection with the Offering are or are expected to be members or associated persons of members of FINRA or registered broker-dealers under any federal or state securities laws.

1.18 The Subscriber hereby represents that, except as expressly set forth in the Offering Documents, no representations or warranties have been made to the Subscriber by the Issuer or by any agent, sub-agent, officer, employee or affiliate of the Issuer and, in entering into this transaction, the Subscriber is not relying on any information other than that contained in the Offering Documents and the results of independent investigation by the Subscriber.

1.19 No oral or written representations have been made, or oral or written information furnished, to the Subscriber or his, her or its Advisors, if any, in connection with the offering of the Interests which are in any way inconsistent with the information contained in the Offering Documents.

1.20 All information provided by the Subscriber in the Investor Questionnaire attached to this Subscription Agreement is true and accurate in all respects, and the Subscriber acknowledges that the Issuer will be relying on such information to its possible detriment in deciding whether the Issuer can sell these securities to the Subscriber without giving rise to the loss of the exemption from registration under applicable securities laws.

1.21 The Subscriber is unaware of, is in no way relying on, and did not become aware of the offering of the Interests through or as a result of, any form of general solicitation or general advertising including, without limitation, any article, notice, advertisement or other communication published in any newspaper, magazine or similar media or broadcast over television or radio, or electronic mail over the Internet, in connection with the offering and sale of the Interests and is not subscribing for Interests and did not become aware of the offering of the Interests through or as a result of any seminar or meeting to which the Subscriber was invited by, or any solicitation of a subscription by, a person not previously known to the Subscriber in connection with investments in securities generally.

1.22 The Subscriber has taken no action which would give rise to any claim by any person for brokerage commissions, finders, fees or the like relating to this Subscription Agreement or the transactions contemplated hereby.

1.23 The Subscriber is not relying on the Issuer, or any of its employees, agents or sub-agents with respect to the legal, tax, economic and related considerations of an investment in the Interests, and the Subscriber has relied on the advice of, or has consulted with, only his, her or its own Advisors, if any.

1.24 (For ERISA plans only) The fiduciary of the ERISA plan (the “Plan”) represents that such fiduciary has been informed of and understands the Issuer’s business objectives, policies and strategies, and that the decision to invest “plan assets” (as such term is defined in ERISA) in the Issuer is consistent with the provisions of ERISA that require diversification of plan assets and impose other fiduciary responsibilities. The subscriber or Plan fiduciary (a) is responsible for the decision to invest in the Issuer; (b) is independent of the Issuer and any of its affiliates; (c) is qualified to make such investment decision; and (d) in making such decision, the subscriber or Plan fiduciary has not relied primarily on any advice or recommendation of the Issuer or any of its affiliates or its agents.

1.25 The foregoing representations, warranties and agreements shall survive the Closing.

 

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II. REPRESENTATIONS BY THE ISSUER

The Issuer represents and warrants to the Subscriber that as of the date of the closing of this Offering (the “Closing Date”):

2.1 The Issuer is a limited liability company duly organized, validly existing and in good standing under the laws of the State of Nevada, authorized to do business in the State of Nevada and has the corporate power to conduct the business which it conducts and proposes to conduct.

2.2 The execution, delivery and performance of this Subscription Agreement by the Issuer have been duly authorized by the Issuer and all other corporate action required to authorize and consummate the offer and sale of the Interests has been duly taken and approved. This Subscription Agreement is valid, binding and enforceable against the Issuer in accordance with its terms; except as enforcement may be limited by bankruptcy, insolvency, moratorium or similar laws or by legal or equitable principles relating to or limiting creditors’ rights generally, the availability of equity remedies, or public policy as to the enforcement of certain provisions, such as indemnification provisions.

2.3 The Interests have been duly and validly authorized and issued.

2.4 The Issuer knows of no pending or threatened legal or governmental proceedings to which the Issuer is a party which would materially adversely affect the business, financial condition or operations of the Issuer.

III. TERMS OF SUBSCRIPTION

3.1 Subject to Section 3.2 hereof, the subscription period will begin as of the date of the Offering Circular and will terminate at 11:59 PM Eastern Time, on the earlier of the date on which the Maximum Offering is sold or one (1) year from the commencement date or the date the Offering is terminated by the Issuer (the “Termination Date”).

3.2 The Subscriber has effected a wire transfer in the full amount of the purchase price for the Interests to the Issuer or has delivered a check in payment of the purchase price for the Interests.

3.3 The Subscriber hereby authorizes and directs the Issuer to deliver or cause the delivery of any certificates or other written instruments representing the Interests to be issued to such Subscriber pursuant to this Subscription Agreement to the address indicated on the signature page hereof.

3.4 If the Subscriber is not a United States person, such Subscriber shall immediately notify the Issuer, and the Subscriber hereby represents that the Subscriber is satisfied as to the full observance of the laws of its jurisdiction in connection with any invitation to subscribe for the Interests or any use of this Subscription Agreement, including (i) the legal requirements within its jurisdiction for the purchase of the Interests, (ii) any foreign exchange restrictions applicable to such purchase, (iii) any governmental or other consents that may need to be obtained, and (iv) the income tax and other tax consequences, if any, that may be relevant to the purchase, holding, redemption, sale or transfer of the Interests. Such Subscriber’s subscription and payment for, and continued beneficial ownership of, the Interests will not violate any applicable securities or other laws of the Subscriber’s jurisdiction.

IV. NOTICE TO SUBSCRIBERS

4.1 THE UNITS HAVE BEEN QUALIFIED UNDER REGULATION A OF THE SECURITIES ACT OF 1933. THE UNITS HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SEC, ANY STATE SECURITIES COMMISSION OR OTHER REGULATORY AUTHORITY, NOR HAVE ANY OF THE FOREGOING AUTHORITIES PASSED UPON OR ENDORSED THE MERITS OF THIS OFFERING OR THE ACCURACY OR ADEQUACY OF THE MEMORANDUM. ANY REPRESENTATION TO THE CONTRARY IS UNLAWFUL.

 

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4.2 FOR NON-U.S. RESIDENTS ONLY: NO ACTION HAS BEEN OR WILL BE TAKEN IN ANY JURISDICTION OUTSIDE THE UNITED STATES OF AMERICA THAT WOULD PERMIT AN OFFERING OF THESE SECURITIES, OR POSSESSION OR DISTRIBUTION OF OFFERING MATERIAL IN CONNECTION WITH THE ISSUE OF THESE SECURITIES, IN ANY COUNTRY OR JURISDICTION WHERE ACTION FOR THAT PURPOSE IS REQUIRED. IT IS THE RESPONSIBILITY OF ANY PERSON WISHING TO PURCHASE THESE SECURITIES TO SATISFY HIMSELF AS TO FULL OBSERVANCE OF THE LAWS OF ANY RELEVANT TERRITORY OUTSIDE THE UNTIED STATES OF AMERICA IN CONNECTION WITH ANY SUCH PURCHASE, INCLUDING OBTAINING ANY REQUIRED GOVERNMENTAL OR OTHER CONSENTS OR OBSERVING ANY OTHER APPLICABLE FORMALITIES.

V. MISCELLANEOUS

5.1 Any notice or other communication given hereunder shall be deemed sufficient if in writing and sent by reputable overnight courier, facsimile (with receipt of confirmation) or registered or certified mail, return receipt requested, addressed to the Issuer, at the address set forth in the first paragraph hereof, Attention: Managing Member, and to the Subscriber at the address or facsimile number indicated on the signature page hereof. Notices shall be deemed to have been given on the date when mailed or sent by facsimile transmission or overnight courier, except notices of change of address, which shall be deemed to have been given when received.

5.2 This Subscription Agreement shall not be changed, modified or amended except by a writing signed by the parties against whom such modification or amendment is to be charged, and this Subscription Agreement may not be discharged except by performance in accordance with its terms or by a writing signed by the party to be charged.

5.3 This Subscription Agreement shall be binding upon and inure to the benefit of the parties hereto and to their respective heirs, legal representatives, successors and assigns. This Subscription Agreement sets forth the entire agreement and understanding between the parties as to the subject matter hereof and merges and supersedes all prior discussions, agreements and understandings of any and every nature among them.

5.4 Notwithstanding the place where this Subscription Agreement may be executed by any of the parties hereto, the parties expressly agree that all the terms and provisions hereof shall be construed in accordance with and governed by the laws of the State of Nevada. The parties hereby agree that any dispute which may arise between them arising out of or in connection with this Subscription Agreement shall be adjudicated only before a Federal court located in Las Vegas, NV, and they hereby submit to the exclusive jurisdiction of the federal courts located in Las Vegas, NV with respect to any action or legal proceeding commenced by any party, and irrevocably waive any objection they now or hereafter may have respecting the venue of any such action or proceeding brought in such a court or respecting the fact that such court is an inconvenient forum, relating to or arising out of this Subscription Agreement or any acts or omissions relating to the sale of the securities hereunder, and consent to the service of process in any such action or legal proceeding by means of registered or certified mail, return receipt requested, in care of the address set forth below or such other address as the Subscriber shall furnish in writing to the other. The parties further agree that in the event of any dispute, action, suit or other proceeding arising out of or in connection with this Subscription Agreement, the Offering Circular or other matters related to this subscription brought by a Subscriber (or transferee), the Issuer (and each other defendant) shall recover all of such party’s attorneys’ fees and costs incurred in each and every action, suit or other proceeding, including any and all appeals or petitions therefrom. As used herein, attorney’s fees shall be deemed to mean the full and actual costs of any investigation and of legal services actually performed in connection with the matters involved, calculated on the basis of the usual fee charged by the attorneys performing such services.

5.5 This Subscription Agreement may be executed in counterparts. Upon the execution and delivery of this Subscription Agreement by the Subscriber, this Subscription Agreement shall become a binding obligation of the Subscriber with respect to the purchase of Interests as herein provided; subject, however, to the right hereby reserved by the Issuer to (i) enter into the same agreements with other subscribers, (ii) add and/or delete other persons as subscribers and (iii) reduce the amount of or reject any subscription.

5.6 The holding of any provision of this Subscription Agreement to be invalid or unenforceable by a court of competent jurisdiction shall not affect any other provision of this Subscription Agreement, which shall remain in full force and effect.

5.7 It is agreed that a waiver by either party of a breach of any provision of this Subscription Agreement shall not operate or be construed as a waiver of any subsequent breach by that same party.

5.8 The parties agree to execute and deliver all such further documents, agreements and instruments and take such other and further actions as may be necessary or appropriate to carry out the purposes and intent of this Subscription Agreement.

[Signature Pages Follow]

 

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IN WITNESS WHEREOF, the parties have executed this Subscription Agreement as of the day and year first written above.

__________________________________	X    $_____ for each Unit	= $_____.
Number of Interests subscribed for		Aggregate Purchase Price

Manner in which Title is to be held (Please Check One):

1.	______	Individual	7.	______	Trust/Estate/Pension or Profit Sharing Plan Date Opened:
2.	______	Joint Tenants with Right of Survivorship	8.	______	As a Custodian for
					Under the Uniform Gift to Minors Act of the State of
3.	______	Community Property	9.	______	Married with Separate Property
4.	______	Tenants in Common	10.	______	Keogh
5.	______	Corporation/Partnership/ Limited Liability Company	11.	______	Tenants by the Entirety
6.	______	IRA	12.	______	Foundation described in Section 501(c)(3) of the Internal Revenue Code of 1986, as amended.

IF MORE THAN ONE SUBSCRIBER, EACH SUBSCRIBER MUST SIGN

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EXECUTION BY NATURAL PERSONS

Exact Name in Which Title is to be Held
Name (Please Print)	Name of Additional Subscriber
Residence: Number and Street	Address of Additional Subscriber
City, State and Zip Code	City, State and Zip Code
Social Security Number	Social Security Number
Telephone Number	Telephone Number
Fax Number (if available)	Fax Number (if available)
E-Mail (if available)	E-Mail (if available)
(Signature)	(Signature of Additional Subscriber)

ACCEPTED this day of 2017, on behalf of 111 Crowdfunding, LLC

By:

Name:

Title:

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EXECUTION BY SUBSCRIBER WHICH IS AN ENTITY

(Corporation, Partnership, Trust, Etc.)

Name of Entity (Please Print)

Date of Incorporation or Organization: _________________________________________________________________

State of Principal Office: ____________________________________________________________________________

Federal Taxpayer Identification Number: ________________________________________________________________

________________________________________________

Office Address

_________________________________________________

City, State and Zip Code

_________________________________________________

Telephone Number

_________________________________________________

Fax Number (if available)

_________________________________________________

E-Mail (if available)

[seal]
	By:
Attest:	Name:
(If Entity is a Corporation)	Title:
* If Subscriber is a Registered Representative with a FINRA member firm, have the following acknowledgement signed by the appropriate party:
The undersigned FINRA member firm acknowledges receipt of the notice required by Rule 3050 of the FINRA Conduct Rules
	ACCEPTED this day of 2017, on behalf of 111 Crowdfunding, LLC
Name of FINRA Firm
By:	By:
Name:	Name:
Title:	Title:

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INVESTOR QUESTIONNAIRE

Instructions: Check all boxes below which correctly describe you.

¨ You are (i) a bank, as defined in Section 3(a)(2) of the Securities Act of 1933, as amended (the “Securities Act”), (ii) a savings and loan association or other institution, as defined in Section 3(a)(5)(A) of the Securities Act, whether acting in an individual or fiduciary capacity, (iii) a broker or dealer registered pursuant to Section 15 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), (iv) an insurance company as defined in Section 2(13) of the Securities Act, (v) an investment company registered under the Investment Company Act of 1940, as amended (the “Investment Company Act”), (vi) a business development company as defined in Section 2(a)(48) of the Investment Company Act, (vii) a Small Business Investment Company licensed by the U.S. Small Business Administration under Section 301 (c) or (d) of the Small Business Investment Act of 1958, as amended, (viii) a plan established and maintained by a state, its political subdivisions, or an agency or instrumentality of a state or its political subdivisions, for the benefit of its employees and you have total assets in excess of $5,000,000, or (ix) an employee benefit plan within the meaning of the Employee Retirement Income Security Act of 1974, as amended (“ERISA”) and (1) the decision that you shall subscribe for and purchase Interests (the “Interests”) of 111 Crowdfunding, LLC is made by a plan fiduciary, as defined in Section 3(21) of ERISA, which is either a bank, savings and loan association, insurance company, or registered investment adviser, (2) you have total assets in excess of $5,000,000 and the decision that you shall subscribe for and purchase the Interests is made solely by persons or entities that are accredited investors, as defined in Rule 501 of Regulation D promulgated under the Securities Act (“Regulation D”) or (3) you are a self-directed plan and the decision that you shall subscribe for and purchase the Interests is made solely by persons or entities that are accredited investors.

¨ You are a private business development company as defined in Section 202(a)(22) of the Investment Advisers Act of 1940, as amended.

¨ You are an organization described in Section 501(c)(3) of the Internal Revenue Code of 1986, as amended (the “Code”), a corporation, Massachusetts or similar business trust or a partnership, in each case not formed for the specific purpose of making an investment in the Interests and with total assets in excess of $5,000,000.

¨ You are a director or executive officer of 111 Crowdfunding, LLC

¨

You are a natural person whose individual net worth, or joint net worth with your spouse, exceeds $1,000,000 at the time of your subscription for and purchase of the Interests, excluding your primary residence as an asset and any indebtedness that is secured by your primary residence, up to the estimated fair market value of the primary residence at this time, as a liability (except that if the amount of the indebtedness secured by your primary residence at this time exceeds the amount of such indebtedness outstanding 60 days earlier, other than as a result of the purchase of the primary residence, the amount of the excess must be included as a

liability) and any indebtedness that is secured by your primary residence which is more than the estimated fair market value of your primary residence at this time must also be included as a liability.

¨ You are a natural person who had an individual income in excess of $200,000 in each of the two most recent years or joint income with your spouse in excess of $300,000 in each of the two most recent years, and who has a reasonable expectation of reaching the same income level in the current year.

¨ You are a trust, with total assets in excess of $5,000,000, not formed for the specific purpose of acquiring the Interests, whose subscription for and purchase of the Interests is directed by a sophisticated person as described in Rule 506(b)(2)(ii) of Regulation D.

¨ You are an entity in which all of the equity owners are persons or entities described in one of the preceding paragraphs.

¨ None of the above describes you. Your net worth is $_______________________________

Are you associated with a FINRA Member Firm? ¨ Yes   ¨ No

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Your initials (purchaser and co-purchaser, if applicable) are required for each item below:

______	______	I/We understand that this investment is not guaranteed.
______	______	I/We are aware that this investment is not liquid.
______	______	I/We are sophisticated in financial and business affairs and are able to evaluate the risks and merits of an investment in this offering.
______	______	I/We confirm that this investment is considered “high risk.” (This type of investment is considered high risk due to the inherent risks including lack of liquidity and lack of diversification. Success or failure of private placements such as this is dependent on the issuer of these securities and is outside the control of the investors. While potential loss is limited to the amount invested, such loss is possible.)

The Subscriber hereby represents and warrants that all of its answers to this Investor Questionnaire are true as of the date of its execution of the Subscription Agreement pursuant to which it purchased Interests of the Issuer.

Name of Purchaser [please print]	Name of Co-Purchaser [please print]
Signature of Purchaser (Entities please provide signature of Purchaser’s duly authorized signatory.)	Signature of Co-Purchaser
Name of Signatory (Entities only)
Title of Signatory (Entities only)

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EX1A-6 MAT CTRCT

EXHIBIT 6

Company Agreement

111 Crowdfunding, LLC

A Nevada Limited Liability Company

Amended June 1, 2017

Table of Contents

1.	Formation, Name, Purposes	1
1.1	Nevada Limited Liability Company	1
1.2	Name	1
1.3	Place of Business	2
1.4	Manager	2
1.5	Manager’s Compensation	2
1.6	Members	2
1.7	Nature of Members’ Interests	3
1.8	Intent to Be Treated as a Partnership	3
1.9	Nature of Business	3
1.10	Objectives	3
1.11	Term	4
1.12	Registered Agent	4
2.	Capitalization of the Company	4
2.1	Member Classes	4
2.2	Percentage Interests	5
2.3	Capital Calls; Default of Member	5
2.4	Time of Capital Contributions; Withdrawal Not Permitted	6
2.5	Capital Accounts	6
3.	Manager Advances and Member Loans	6
3.1	Manager Advances	6
3.2	Member Loans	7
3.3	Right and Priority of Repayment	7
3.4	Third Party Loans	7
4.	Cash Distributions to Members	7
4.1	Cash Distributions during Operations
4.2	Cash Distributions from Capital Transactions	9
4.3	Cash Distributions on Dissolution and Termination	9
5.	Manager’s Compensation	10
5.1	Expense Reimbursement	10
5.2	Fees Paid to Manager and/or Third Parties	10
6.	Rights and Duties of Manager	11
6.1	Management	11
6.2	Number of Managers, Tenure, and Qualifications	11
6.3	Authority of the Manager	12
6.4	Major Decisions; Restrictions on Authority of Manager	13
6.5	Employment of Affiliated or Unaffiliated Service Providers	14
6.6	Delegation of Duties	14
6.7	Consultation; Quarterly Reports	13
6.8	Manager’s Reliance on Information Provided by Others	14
6.9	Fiduciary Duties of Manager	15
6.10	Limited Liability of the Members and the Manager	16
6.11	Indemnification of the Manager and the Members	16
6.12	Liability Insurance	17
6.13	Manager Has No Exclusive Duty to Company	17

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7.	Rights and Obligations of Members	17
7.1	Limitation of Liability	17
7.2	Company Debt Liability	17
7.3	Members’ Obligation of Good Faith and Fair Dealing	18
7.4	Authority of the Members; Summary of Voting Rights	19
7.5	Participation	19
7.6	Deadlock
8.	Resignation or Removal of the Manager	19
8.1	Resignation	19
8.2	Removal Process; Notice to Perform	19
8.3	Reasons for Removal; Good Cause Defined	20
8.4	Removal Notice Requirements	20
8.5	Effect of Resignation or Removal on Manager’s Cash Distributions and Fees	21
8.6	Applicability of Internal Dispute Resolution Procedure	22
8.7	Vacancies	22
9.	Meetings of Members	22
9.1	Annual Meeting	22
9.2	Meetings	22
9.3	Place of Meetings	22
9.4	Notice of Meetings	23
9.5	Meeting of all Members	23
9.6	Record Date	23
9.7	Quorum	23
9.8	Manner of Acting	23
9.9	Proxies	23
9.10	Action by Members without a Meeting	24
9.11	Electronic Meetings	24
9.12	Waiver of Notice	24
10.	Fiscal Year, Books and Records, Bank Accounts, Tax Matters	24
10.1	Fiscal Year	24
10.2	Company Books and Records	25
10.3	Bank Accounts	25
10.4	Reports and Statements	26
10.5	Tax Matters	26
11.	Voluntary Transfer; Additional and Substitute Members	26
11.1	Voluntary Withdrawal, Resignation or Disassociation Prohibited	26
11.2	Admission of Additional Members	27
11.3	Transfer Prohibited Except as Expressly Authorized Herein	27
11.4	Conditions for Permissible Voluntary Transfer; Substitution	27
11.5	Voluntary Transfer; Right of First Refusal	28

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12.	Involuntary Transfer; Disassociation	29
12.	Involuntary Transfer; Disassociation	30
12.1	Disassociation for Cause	29
12.1	Disassociation for Cause	30
12.2	Disassociation by Operation of Law	30
12.2	Disassociation by Operation of Law	30
12.3	Effect of Disassociation	31
12.3	Effect of Disassociation	31
12.4	Sale and Valuation of a Disassociated Member’s Interest	31
12.4	Sale and Valuation of a Disassociated Member’s Interest	32
12.5	Closing	32
12.5	Closing	32
12.6	Payment for a Disassociated Member’s Interest	32
12.6	Payment for a Disassociated Member’s Interest	32
12.7	Transfer of Economic Interest; Rights of an Involuntary Transferee	33
12.7	Transfer of Economic Interest; Rights of an Involuntary Transferee	33
13.	Internal Dispute Resolution Procedure	33
13.	Internal Dispute Resolution Procedure	34
13.1	Notice of Disputes	34
13.1	Notice of Disputes	34
13.2	Negotiation of Disputes	34
13.2	Negotiation of Disputes	34
13.3	Mandatory Alternative Dispute Resolution	34
13.3	Mandatory Alternative Dispute Resolution	34
13.4	Mediation	35
13.4	Mediation	36
13.5	Arbitration	36
13.5	Arbitration	36
14.	Dissolution and Termination of the Company	37
14.	Dissolution and Termination of the Company	37
14.1	Dissolution	37
14.1	Dissolution	37
14.2	Termination of a Member Does Not Require Dissolution	37
14.2	Termination of a Member Does Not Require Dissolution	37
14.3	Procedure for Winding-Up	37
14.3	Procedure for Winding-Up	38

15.	Miscellaneous Provisions	38
15.	Miscellaneous Provisions	38
15.1	Notices	38
15.1	Notices	38
15.2	Amendments	39
15.2	Amendments	38
15.3	Binding Effect	39
15.3	Binding Effect	39
15.4	Construction	39
15.4	Construction	39
15.5	Time	39
15.5	Time	39
15.6	Headings	40
15.6	Headings	39
15.7	Agreement Is Controlling	40
15.7	Agreement Is Controlling	39
15.8	Severability	40
15.8	Severability	40
15.9	Incorporation by Reference	40
15.9	Incorporation by Reference	40
15.10	Additional Acts and Documents	40
15.10	Additional Acts and Documents	40
15.11	Nevada Law	40
15.11	Nevada Law	40
15.12	Counterpart Execution	41
15.12	Counterpart Execution	40
15.13	Merger	41
15.13	Merger	40

Appendix A: Member Signature and Contact Page	A-1
Appendix A: Member Signature and Contact Page	A-1
Appendix B: Table 1, Class A Members	B-1
Appendix B: Table 1, Class A Members	B-1
Appendix B: Table 2, Class B Members	B-2
Appendix B: Table 2, Class B Members	B-2
Appendix C: Capital Accounts and Allocations	C-1
Appendix C: Capital Accounts and Allocations	C-1
Appendix D: Definitions	D-1
Appendix D: Definitions	D-1

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1. Formation, Name, Purposes

This Company Agreement (Agreement) is made and entered into as of the date executed below by and among those Persons whose names and addresses are set forth in Appendix A hereto (the Members), being the Members of 111 Crowdfunding, LLC, a Nevada manager-managed limited liability company (the Company), and the Manager, each of whom represent and agree as follows:

1.1 Nevada Limited Liability Company

Each of the signatories to this Agreement shall be referenced herein as a “Member” and collectively, as the “Members” as defined in Appendix D hereof.

The Manager has formed a manager-managed Nevada limited liability company (the Company) by executing and delivering the Certificate of Formation to the Nevada Secretary of State in accordance with the 2010 Nevada Code, codified in Title 7, Chapter 86 of the Act as may be amended from time to time. The rights and liabilities of the Members shall be as provided in the Act except as may be modified in this Agreement.

The Members acknowledge that under the applicable provisions of the Act, the Company may be either “member-managed” or “manager-managed,” and that they have specifically, by their signatures hereof, elected to form a manager-managed Company. Accordingly, management of the affairs of the Company shall be vested in the Manager of the Company, as set forth in Article 6 hereof, subject to any provisions of this Agreement (e.g., Articles 7 or 8), or in the Act restricting, enlarging or modifying the rights and duties of the Manager or management procedures.

The Members shall immediately, and from time to time hereafter, execute all documents and do all filing, recording, and other acts as may be required to comply with the operation of the Company under the Act.

1.2 Name

The name of the Company is 111 Crowdfunding, LLC, a Nevada limited liability company.

REST OF PAGE INTENTIONALLY LEFT BLANK

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1.3 Place of Business

The name of the Company is 111 Crowdfunding, LLC, a Nevada limited liability company (the Company). The Company’s principal place of business is:

111 Crowdfunding, LLC

c/o Diamond Sky Capital, LLC

Hajime Kakuuchi

1810 E. Sahara Avenue, #123

Las Vegas, NV 89014-3735

(702) 425-9000

or such other place as the Manager shall determine.

1.4 Manager

The initial Manager of the Company is Diamond Sky Capital, LLC, A Nevada limited liability company (the Manager).

The address where all correspondence for the Manager should be sent is:

Diamond Sky Capital, LLC

Hajime Kakuuchi

1810 E. Sahara Avenue, #123

Las Vegas, NV 89014-3735

(702) 425-9000

1.5 Manager’s Compensation

The Manager or its members shall receive an allocation of Profits and Losses and a right to Distributions from the Company in accordance with Articles 4 and 5 hereof. Further, they shall be reimbursed for all out-of-pocket expenses incurred in connection with the organization of the Company.

1.6 Members

Each of the signatories to this Agreement shall be referenced herein as a “Member” and collectively, as the “Members” as defined in Appendix D hereof. The Members shall immediately, and from time to time hereafter, execute all documents and do all filing, recording, and other acts as may be required to comply with the operation of the Company under the Act.

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Every Member will be required to complete, execute and return an original Signature Page of this Agreement, the form of which is attached hereto as Appendix A. The Manager will maintain an updated list of all Members as shown on Appendix B to this Agreement.

1.7 Nature of Members’ Interests

The Interests of the Members in the Company shall be personal property for all purposes. Legal title to all Company Assets shall be held in the name of the Company. Neither any Member or a successor, representative, or assignee of such Member, shall have any right, title or interest in the Company’s Assets or the right to partition any real property owned by the Company. Interests may, but are not required to, be evidenced by a certificate of Membership Interest or Receipt and Acknowledgment issued by the Company, in such form as the Manager may determine.

1.8 Intent to Be Treated as a Partnership

It is the intent of the Manager and the Members that the Company shall always be operated in a manner consistent with its treatment as a partnership for federal income tax purposes. It is also the intent of the Members that the Company not be operated or treated as a partnership for purposes of section 303 of the Federal Bankruptcy Code. No Manager or Member shall take any action inconsistent with the express intent of the Members.

1.9 Nature of Business

This Offering involves making short-term loans (“Private Money Loan,” “Mortgage Loans,” or “Loans”) to real estate investors across the United States. A Hard Money Loan is a specific type of asset-based loan financing through which a borrower (“Borrower”) receives funds secured by the value of a parcel of real estate. Private Money Loan are typically issued at much higher interest rates than conventional commercial or residential property loans. 111 Crowdfunding intends to make Loans in throughout the United States, and use a lending criteria based on loan-to-value, property location, Borrower experience, and other feasibility factors discussed herein. Notwithstanding the foregoing, subject to unanimous approval of the Members, the Company may engage in any lawful business activity in which A Nevada limited liability company may engage, except that the Company shall not engage in the trust company business or the business of banking or insurance.

1.10 Objectives

By lending to Borrowers, the Manager intends to accomplish the following objectives for the Members:

· Lend Company capital to real estate entrepreneurs for the purposes of acquiring, renovating, operating, and eventually disposing of Properties.

· Provide Members with real estate investment opportunities.

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· Provide Members with limited liability.

· Provide Cash Distributions for the Members.

· Provide for self-liquidation of the investment.

· Allow the Class A Members minimal involvement in real estate management.

· Keep Members apprised of Company affairs.

1.11 Term

The Company commenced operations upon the filing of its Certificate of Formation and shall be perpetual unless sooner terminated under the provisions of Article 14 hereof.

1.12 Registered Agent

The Company’s initial office and initial registered agent are provided in its Certificate of Formation. The Manager may change the registered agent (or such agent’s address) from time to time by causing the filing of the new address and/or name of the new registered agent in accordance with the Act. However, the Company shall, at all times, maintain a registered agent in the State of Nevada who shall be authorized to accept service on behalf of the Company.

2. Capitalization of the Company

2.1 Member Classes

There are two (2) classes of Members, Class A and Class B. The Manager shall record the name and address of each of the Members in Appendix B to this Agreement. Member classes shall be allocated as provided below:

2.1.1 Class A Members

Investors who purchase Class A Units shall become Class A Members of the Company once admitted by the Manager.

The Capital Contributions of the Class A Members shall result in one hundred percent (100%) of the Capitalization of the Company, less the amount contributed by the Class B Members. Class A Members shall acquire ninety nine percent (99%) of the ownership Interests of the Company.

The minimum investment amount required of a Class A Investor is Ten Thousand Dollars ($10,000) or Ten (10) Units, however, the Manager reserves the right to accept less than the minimum investment amount from a single Class A Investor in order to achieve the maximum dollar amount of Interests to the Class A Investors, if less than the minimum investment amount required of each Class A Investor is needed to do so.

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2.1.2 Class B Members

The Manager (or its members and/or their Affiliates) will retain ownership of one percent (1%) of the Interests in the Company in exchange for services to the Company. The Class B Interests shall be subordinate to the Class A Interests. The issuance of Class B Interests is irrevocable even if DIAMOND SKY CAPITAL, LLC is removed or resigns as the Manager of the Company.

The Manager reserves the right to allow the Class B Members (or their members or Affiliates) to sell, grant, transfer, or convey a minority of the Class B Interests to others without permission of the Class A Members as long as doing so does not: a) dilute the Interests or percentage returns to the Class A Members, or b) allow any other Class B Member to exert management control over the Manager.

DIAMOND SKY CAPITAL, LLC, its Affiliates or members (and/or their affiliates) may purchase Class A Units at such value as may be established from time to time on transfer of a Class A Member’s Interest per Articles 11 or 12 of this Agreement), but they may be allowed to invest less than the minimum investment amount required of other Class A Members, at the Manager’s sole discretion.

2.2 Percentage Interests

The Manager shall list the number of Units purchased and/or the dollar amount of each Member’s Capital Contribution and Percentage Interests in Appendix B. Percentage Interests of the Members will be calculated in relation to the other Members in their Member class or in relation to the total Interests.

2.3 Capital Calls; Default of Member

Although the Manager intends to raise sufficient money from Investors in order to make Loans to Borrowers, it is possible that the Manager may make a capital call in order to raise Additional Capital Contributions with which to achieve the Company’s objectives and policies as outlined in the Memorandum.

2.3.1 Additional Capital Contributions.

No Member shall be required to make an Additional Capital Contribution.

2.3.2 Cash Capital Contributions.

If any portion (an “Unpaid Portion”) of any Member’s Commitment consists of an obligation of such Member to contribute cash or property to the Company in the future, which obligation has not yet been discharged, the other Members may require such Member to contribute cash in an amount equal to the product of such Member’s Percentage Interest multiplied by all monies that in the judgment of the other Members are necessary to enable the Company to operate its business and maintain its assets and to discharge its costs, expenses, obligations, and liabilities; provided, however, that under no circumstances, shall a Member be obligated under this Section to contribute cash in an amount, in excess of the agreed value (as stated in Company’s records) of such Member’s Unpaid portion. Nothing contained in this Section is or shall be deemed to be for the benefit of any Person other than Members and the Company, and no such Person shall under any circumstances have any right to compel any actions or payments by the Members.

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2.3.3 Failure to Contribute.

If a Member (“Delinquent Member”) does not contribute all or any portion of the Capital Contribution required pursuant to and at the time required by, such Member’s Commitment, the Company may sell additional interests in the Company to existing Members on a Right of First Refusal Basis at a rate of 1.5 times the value of the original investment. If the existing Members of the Company do not elect to participate in the purchase of additional interests, the Company may sell the interests to a third party at a rate of 1.5 times the value of the original investment. For example, if there is a Capital Call of $100,000 to which a Member is called to contribute 10%, and the Member fails to contribute, the dilution will actually count towards their Percentage Interest at a rate of 1.5 times the value and it will instead be attributed to the value of the purchasing Member or third party.

2.4 Time of Capital Contributions; Withdrawal Not Permitted

Member Capital Contributions shall be made in full on admission to the Company. No portion of the capital of the Company may be withdrawn until dissolution of the Company, except as otherwise expressly provided in this Agreement.

2.5 Capital Accounts

An individual Capital Account shall be maintained for each Member in accordance with Treasury Regulation section 1.704-1(b)(2)(iv) and as further described in the attached Appendix C. Calculation of Member Percentage Interests will be determined on close of the offering to new Investors, and shall be calculated as described in Article 2.2 hereof.

3. Manager Advances and Member Loans

If required to protect or preserve the Company’s assets, the Manager has the sole discretion to apply other available Company funds to pay any Company obligations. However, if sufficient Company funds are not available, the Manager or one or more Members may loan funds to the Company subject to the following provisions:

3.1 Manager Advances

The Manager may, but is not required to loan its own funds or defer reimbursement of its out-of-pocket expenses as an Advance. The Company shall reimburse the Manager for any such Advance from the date of the loan or deferral as soon as is practical together with the simple annualized interest at ten percent (10%). Interest on Manager Advances shall be an expense of the Company when paid and shall accrue from the date of inception for a Manager loan, or from the date reimbursement was due for any Advance related to a deferred reimbursement.

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3.2 Member Loans

Alternatively, the Manager may obtain a loan from one or more Members as and when necessary to continue the business of the Company, which shall earn ten percent (10%) per annum Interest from the date of inception.

3.3 Right and Priority of Repayment

Principal and interest payments for a Manager Advance or Member Loan will be paid as an expense of the Company as soon as sufficient Company funds are available, or held for longer in order to build up Company reserves, at the Manager’s sole discretion. A Manager or Member that makes a loan to the Company shall be deemed an unsecured creditor of the Company for the purpose of determining its right and priority of repayment of interest and principal of such Advance or Loan, and repayment of the Principal will be paid in the order the Advance or Loan was made.

3.4 Third Party Loans

In the event of a failed capital call, or the unavailability of a Manager Advance or Member Loan, the Manager may obtain a loan and/or credit from one or more third parties as it deems appropriate to further the business objectives of the Company. Such loan shall be made to the Company on such terms as the Manager deems reasonable and appropriate after taking into account the urgency and need for the funds.

4. Cash Distributions to Members

Cash Flow, if any, derived from operation of the Company will be evaluated on a quarterly basis, and disbursed in the order provided below until expended.

4.1.1 Preferred Return

Subject to the further terms of the Agreement, until the time each Class A Member’s initial capital contribution is returned in full in accordance with Section 4.2 below as a result of the sale of the Company’s real property or disposition of Loans, the Manager may, in the Manager’s sole and reasonable discretion, distribute to each Class A Member, on a quarterly basis, an amount of cash necessary to provide each Class A Member with a pre-tax non-cumulative annual return of eight percent (8%) (simple interest) on the outstanding amount of each such Class A Member’s initial capital contribution. Distributions will commence payments during the first quarter after the first anniversary date of the first Subscription Agreement accepted by the Company.

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4.1.2 Distributions to the Class B Members

After the time that the Class A Members have received said eight (8%) percent (simple interest) annual pre-tax return on their initial capital contributions, plus any accrued but unpaid preferred returns from prior calendar years, the Manager may, in the Manager’s sole and reasonable discretion, that together with their Preferred Return distribute one hundred percent (100%) of the remaining Operating Cash Flow, if any, to the Class B Members.  

4.1.3 Distributions after Return of Initial Capital Contributions.

Upon a sale or pay off a loan, cash distributions will be made as follows and in the following order to the extent there is available cash to distribute and so long as the Manager elects to NOT reinvest proceeds:

· In order to settle expenses and debts of the Company and, if deemed necessary by the Manager, in Manager’s sole and absolute discretion, to establish a reserve to fund post-closing contingencies and/or liabilities;

· To the Class A Members, in an amount equal to 100% of that portion of each Preferred Member's capital account allocated to the property involved in the sale, based upon the original principal balance of the loan (“Loan Cost Basis”);

· To the Class A Members, in accordance with their Percentage Interests, Class A Members have received total distributions resulting in eight percent (8%) per annum return on their aggregate Capital Contributions;

· To the Class B Members, in an amount equal to all remaining proceeds from the disposition of the loan.

4.1.4 No Return of Capital.

The payments made pursuant to Section 4.1.1, shall not be deemed a return of any portion of a Member’s initial capital contribution. However, the Manager may elect to use such proceeds to use as a return of capital to Class A Members instead of distributions so long as Member receive their promised returns. Such payments may be made if the Manager deems that such payments will present a tax advantage to Class A Members.

4.1.5 Reserves

Notwithstanding anything contained in the Agreement to the contrary, the Manager, in the Manager’s sole and absolute discretion, may use all or a portion of the Company’s Cash Flow to establish and fund a discretionary reserve(s) from time to time and in such amounts to be determined in the Manager’s sole and reasonable discretion taking into account such factors as anticipated current and future cash requirements of the Company. Said reserve(s) may be used to pay some or all of the distributions, whether accrued or current, specified in this Section.

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4.1.6 Cash Flow

Cash Flow, as defined, means, with respect to any period of the Company’s operation, the gross cash receipts of the Company, including funds released from reserves, reduced by the sum of the following: (a) all principal and interest payments and other sums paid on or with respect to any indebtedness of the Company, (b) all cash expenditures incurred incident to the operation of the Company’s business, including without limitation, any capital expenditure, (c) all amounts due the Manager, and (d) such cash reserves as the Manager shall from time to time designate or as may otherwise be required by the terms of the Agreement or loan documents entered into by the Company in order to establish for working capital, compensating balance requirements, contingencies, payments of Distributions or the funding of any other cash or capital requirements of the Company. “Operating Cash Flow” means Cash Flow from operation of Company Assets, and does not include any Cash Flow from Capital Transactions.

4.2 Cash Distributions from Capital Transactions

4.2.1 Return of Initial Capital Contributions.

So long as the Manager does not elect to reinvest Capital Contributions, upon the sale or other disposition (such as pay off) of the Company’s loans, the Manager shall distribute and return to the Class A Members the full amount, or such portion of, each Class A Member’s initial capital contribution as the Manager shall determine in the Manager’s sole and reasonable discretion taking into account such factors as anticipated current and future cash requirements of the Company. The Manager intends use proceeds from such dispositions to finance further lending activities in accordance with the objectives of the Company.

The Manager may, in the Manager’s sole and reasonable discretion, distribute to each Class A Member, on a quarterly basis, an amount of cash necessary to provide each Class A Member with a pre-tax non-cumulative annual return of eight percent (8%) (simple interest) on the outstanding amount of each such Class A Member’s initial capital contribution.

4.3 Cash Distributions on Dissolution and Termination

The Company shall be dissolved on the disposition of all Company Assets. Upon dissolution of the Company, all Assets of the Company (including any Distributable Cash) will be distributed as described below:

· First, to pay the creditors of the Company, including the Manager, a Member, or a third party who has loaned or advanced money to the Company or has deferred any reimbursements or Fees;

· Second, to establish Reserves against anticipated or unanticipated Company liabilities; and

· Third, to the Members as described in Article 4.2.

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5. Manager’s Compensation

5.1 Expense Reimbursement

In addition to the Cash Distributions described in Article 4, the Manager or their Affiliates who may have contributed funds toward organization of the Company will be reimbursed for their out-of-pocket expenses on production of receipts. The Manager will not be reimbursed for its own overhead expenses, but will be reimbursed for initial startup expenses for the Company including legal fees. Reimbursements may be paid as an expense of the Company prior to determining Distributable Cash.

Reimbursement may be deferred until sufficient cash is available, without forfeiting any right to collect, although the Manager may earn interest on deferred reimbursement of initial startup expenses. The maximum amount of reimbursements the Manager may receive cannot be determined at this time.

5.2 Fees Paid to Manager and/or Third Parties

The Manager and/or third parties may earn Fees for services they provide on behalf of the Company as further described below. All Fees will be paid as an expense of the Company prior to determining Distributable Cash (as described in Article 4 above).

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Phase of Operation	Basis for Fee	Amount of Fee
Asset Management Fee	Fees charged to the Company for management of its investments	1% of the total amount the Company invests. The total amount of fees that the Manager may receive cannot be determined at this time.
Company Management Fee	Fees charged to the Company for management of the Company	Profit sharing of 100% of the Operating Cash Flow that is available after the  Members have received their stated Preferred Return.

6. Rights and Duties of Manager

6.1 Management

The Manager shall manage all business and affairs of the Company. The Manager shall direct, manage, and control the Company to the best of its ability and shall have full and complete authority, power, and discretion to make any and all decisions and to do any and all things that the Manager shall deem to be reasonably required to accomplish the business and objectives of the Company.

6.2 Number of Managers, Tenure, and Qualifications

DIAMOND SKY CAPITAL, LLC shall be the initial Manager of the Company. The Manager shall hold office until a successor shall have been elected and qualified. Successor Manager(s) need not be a Member of the Company or residents of Nevada.

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6.3 Authority of the Manager

Except to the extent that such authority and rights have been reserved for the Members elsewhere in this Agreement, the Manager shall have the obligation and the exclusive right to manage the day-to-day activities of the Company including, but not limited to performance of the following activities. The Manager may:

· Capitalize the Company via the sale of Units or Interests in the Company as described in Article 2 hereof;

· Acquire by purchase, lease, or otherwise any real or personal property which may be necessary, convenient, or incidental to the accomplishment of the business of the Company;

· Borrow money and issuing of evidences of indebtedness necessary, convenient, or incidental to the accomplishment of the purposes of the Company and securing the same by mortgage, pledge, or other lien on the Property (if the Company, in fact, is forced to foreclose on a Property); including the right (but not the obligation) to personally and voluntarily guarantee such obligations;

· Open, maintain and close, as appropriate, all Company bank accounts and (subject to any limitations set forth herein) drawing checks and other instruments for the payment of funds associated with acquisition or maintenance of the Property (if the Company, in fact, is forced to foreclose on a Property);

· Make all decisions relating to the lending of the Company capital to Borrowers, management of Loans, foreclosing of Properties (if necessary), management of Properties (if necessary), and all portions thereof;

· Employ such agents, employees, general contractors, independent contractors and attorneys as may be reasonably necessary to carry out the purposes of this Agreement;

· Obtain, negotiate and execute all documents and/or contracts necessary or appropriate to accomplish any improvement of the Property (if the Company, in fact, is forced to foreclose on a Property) or any portions thereof;

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· Establish a reasonable Reserve fund for operation of the Company and potential future or contingent Company liabilities;

· Pay, collect, compromise, arbitrate or otherwise adjust any and all claims or demands of or against the Company to the extent that any settlement of a claim does not exceed available insurance proceeds;

· Work with the CPA firm in its preparation of Company budgets and financial reports, if necessary or appropriate to the Company’s operation, including but not limited to, all federal and state tax returns and reports and periodic financial statements;

· Execute and deliver bonds and/or conveyances in the name of the Company provided same are done in the ordinary course of the Company’s business;

· Engage in any kind of legal activity and perform and carry out contracts of any kind necessary or incidental to, or in connection with the operation of the Company; and

· Make an annual calculation of the Estimated Market Value of the Company and report it to the Members using any commercially acceptable method for doing so.

6.4 Major Decisions; Restrictions on Authority of Manager

The Manager shall not have the authority to, and hereby covenants and agrees that it shall not make or perform any of the following Major Decisions without first having obtained the affirmative vote of a Majority of Interests of all Members:

· Cause or permit the Company to engage in any activity that is not consistent with the purposes of the Company as set forth in Articles 1.9 and 1.10 hereof.

· File a lawsuit on behalf of the Company or confess a judgment against the Company in an amount in excess of insurance proceeds.

· Knowingly perform any act that would subject any Members to liability as a general partner in any jurisdiction.

· Cause the Company to voluntarily take any action that would cause a bankruptcy of the Company.

· Issue, create or authorize for issuance any equity securities (including Units, securities convertible into or exchangeable for any Units in other equity securities and equity securities issued in connection with any debt securities), with rights or preferences as to Distributions senior to the existing and outstanding Units, or reclassify any existing securities into equity securities with rights or preferences as to Distributions senior to the existing and outstanding Units, by means of amendment to this Agreement or by merger, consolidation, operation of law or otherwise, except as described in Article 2.3 pursuant to a defaulting Member.

· Change the tax status of the Company or take any action inconsistent with Article 1.8 hereof and Section 3.2 of Appendix C hereto.

· Alter the Percentage Interests applicable to the Units, other than as described in Article 2.2 hereof.

The Members shall have the authority to vote on the matters provided in this Article and specifically provided elsewhere in this Agreement (see Summary of voting rights in Article 7.4).

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6.5 Employment of Affiliated or Unaffiliated Service Providers

The Company may employ Affiliated or unaffiliated service providers, including, but not limited to real estate brokers, Property Managers, engineers, contractors, architects, title or escrow companies, attorneys, accountants, bookkeepers, property inspectors, etc., as necessary to facilitate the acquisition, management, and sale of the Property.

6.6 Delegation of Duties

The Manager shall have the right to perform or exercise any of its rights or duties under this Agreement through delegation to or contract with Affiliated or unaffiliated service providers, agents, or employees of the Manager, provided that all contracts with Affiliated Persons are on terms at least as favorable to the Company as could be obtained through arms-length negotiations with unrelated third parties; and further provided that the Manager shall remain primarily responsible for the active supervision of such delegated work.

6.7 Consultation; Quarterly Reports

The Manager agrees to use its best efforts at all times to keep the Members advised of material matters affecting the Company and to provide periodic reports to the Members, which may be oral or in written form at the Manager’s discretion. Further, the Manager will be available for questions during normal business hours.

6.8 Manager’s Reliance on Information Provided by Others

Unless the Manager has knowledge concerning the matter in question that makes reliance by the Manager unwarranted, the Manager is entitled to rely on information, opinions, reports, or statements, including but not limited to financial statements or other financial data, if prepared or presented by:

· One or more Members, Managers, employees, or contractors of the Company whom the Manager reasonably believes to be reliable and competent in the matter presented;

· Legal counsel, accountants, or other Persons as to matters the Manager reasonably believes are within the Person's professional or expert competence; or

· A committee of members or managers of which he or she is not a member if the Manager reasonably believes the committee merits confidence.

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6.9 Fiduciary Duties of Manager

The fiduciary duties the Manager owes to the Company and the other Members include only the duty of care, the duty of disclosure and the duty of loyalty, as set forth below. A Member has a right to expect that the Manager will do the following:

· Use its best efforts when acting on the Company’s behalf,

· Not act in any manner adverse or contrary to the Company or a Member’s interests,

· Not act on its own behalf in relation to its own interests unless doing so is in the best interests of the Company and is fair and reasonable under the circumstances, and

· Exercise all of the skill, care, and due diligence at its disposal.

In addition, the Manager is required to make truthful and complete disclosures so that the Members can make informed decisions. The Manager is forbidden to obtain an advantage at the expense of any of the Members, without prior disclosure to the Company and the Members.

6.9.1 Duty of Care and the ‘Business Judgment Rule

Just as officers and directors of corporations owe a duty to their shareholders, the Manager is required to perform its duties with the care, skill, diligence, and prudence of like Persons in like positions. The Manager will be required to make decisions employing the diligence, care, and skill an ordinary prudent Person would exercise in the management of their own affairs. The ‘business judgment rule’ should be the standard applied when determining what constitutes care, skill, diligence, and prudence of like Persons in like positions.

6.9.2 Duty of Disclosure

The Manager has an affirmative duty to disclose material facts to the Members. Information is considered material if there is a substantial likelihood that a reasonable Investor would consider it important in making an investment decision. The Manager must not make any untrue statements to the Members and must not omit disclosing any material facts to the Members.

The Manager has a further duty to disclose conflicts of interest that may exist between the interests of the Manager and its Affiliates and the interests of the Company or any of the individual Members.

6.9.3 Duty of Loyalty

The Manager has a duty to refrain from competing with the Company in the conduct of the Company’s business prior to the dissolution of the Company, except that the Members understand and acknowledge that the Manager has other interests in similar properties and companies that may compete for its time and resources, which shall not be considered a violation of this duty.

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6.10 Limited Liability of the Members and the Manager

No Person who is a Member, Manager, or officer of the Company shall be personally liable under any judgment of a court, or in any other manner, for any debt, obligation, or liability of the Company, whether that liability or obligation arises in contract, tort, or otherwise, solely by reason of being a Member, Manager, or officer of the Company, unless such Member, Manager or officer expressly agrees to be obligated personally for any or all of the debts, obligations, and liabilities of the Company (e.g., such as a loan guarantor, etc.).

6.11 Indemnification of the Manager and the Members

The Manager or a Member shall not be subject to any liability to the Company for the doing of any act or the failure to do any act authorized herein, provided it was performed in good faith to promote the best interests of the Company, including any liability, without limitation, of any Manager, Member, officer, employee, or agent of the Company, against judgments, settlements, penalties, fines, or expenses of any kind (including attorneys’ fees and costs) incurred as a result of acting in that capacity.

Nothing in this section shall be construed to affect the liability of a Member of the Company (1) to third parties for the Member's participation in tortious conduct, or (2) pursuant to the terms of a written guarantee or other contractual obligation entered into by the Member (such as a loan guarantee, etc.).

6.11.1 Indemnity of the Manager

The Manager (including its members, officers, employees, and agents) are specifically excluded from personal liability for any acts related to the Company, whether they relate to internal disputes with Members, external disputes with third parties or regulatory agencies, etc., except for cases where a finding is made by a court of law or arbitrator that the Manager engaged in:

· Intentional misconduct including, but not limited to, a knowing violation of the law; or

· For liabilities arising under violation of the Securities Act of 1933, any regulations promulgated thereto, or any state securities laws (as such indemnification is against public policy per the SEC).

Except for these exclusions, the Company shall indemnify and hold harmless the Manager from and against any and all loss, cost, liability, expense, damage or judgment of whatsoever nature to or from any Person or entity, including payment for the Manager’s defense (including reasonable attorney’s fees and costs) arising from or in any way connected with the conduct of the business of the Company. See also Article 13.3.4 regarding attorneys’ fees and costs related to internal disputes.

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Further, each Member shall indemnify and hold harmless the Manager, its officers, shareholders, directors, employees and agents from and against any and all loss, cost, liability, expense, damage or judgment of whatsoever nature to or from any Person or entity, including reasonable Attorney’s fees, arising from or in any way connected with any liability arising from that Member’s misrepresentation(s) that it met the Suitability Standards established by the Manager for Membership in the Company prior to its admission as a Member.

6.12 Liability Insurance

The Company may, at the Manager’s discretion, and as a Company expense, purchase and maintain insurance on behalf of the Company, the Manager, a Member, or employee(s) of the Company against any liability asserted against and incurred by the Company, the Manager, a Member, or employee in any capacity relating to or arising out of the Company’s, Member's, Manager's, or employee's status as such. Such insurance may be in the form of Directors and Officers Insurance, Key Man Insurance, Employer’s Liability Insurance, General Business Liability Insurance, and/or any other applicable insurance policy.

6.13 Manager Has No Exclusive Duty to Company

The Manager shall not be required to manage the Company as its sole and exclusive function and may have other business interests and may engage in other activities in addition to those relating to the Company. Neither the Company nor any Member shall have any right, by virtue of this Agreement, to share or participate in such investments or activities of the Manager or to the income or proceeds derived therefrom.

7. Rights and Obligations of Members

7.1 Limitation of Liability

Each Member’s liability shall be limited to the extent allowable by the Act and other applicable law. The debts, obligations and liabilities of the Company, whether arising from contract, tort or otherwise, shall be solely the debts obligations and liabilities of the Company. No Member or Manager shall be obligated personally for such debt, obligation, or liability of the Company, solely by reason of being a Member of the Company.

7.2 Company Debt Liability

A Member will not be personally liable for any debts or Losses of the Company beyond the Member’s respective Capital Contributions, except as otherwise required by law or any personal guarantees or financing requirements. Depending on lender requirements, some or all of the Members may be required to sign personal guarantees for financing of the Property and may be requested to provide financial documentation of their individual financial condition to the institutional lender. For instance, many institutional lenders require Investors owning more than twenty percent (20%) of the Interests to be underwritten during the loan approval process and to execute loan documents. Members’ Obligation of Good Faith and Fair Dealing

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Each Member (and the Manager) shall discharge their duties to the Company and exercise any rights consistently with the contractual obligation of good faith and fair dealing.

7.3 Authority of the Members; Summary of Voting Rights

Pursuant to this Agreement, the Manager has absolute powers to operate the business of the Company. The Members have authority to vote only on the specific decisions authorized in various provisions of this Agreement, and summarized below.

7.3.1 Votes Requiring Unanimous Approval of All Members

Unanimous consent of all Members is required for any of the following matters:

· To authorize an act that is not in the ordinary course of the business of the Company; and

· To amend the Certificate of Formation or make substantive amendments to this Agreement (per Article 15.2).

7.3.2 Votes Requiring Approval of 75% of the All Members’ Interests other than the Manager

Consent of the Members holding the seventy five percent (75%) of the Class A and Class B Interests (other than the Manager) must affirmatively vote to approve any of the following actions:

· To issue a Notice to Perform to the Manager (see Article 8.2); and

· To remove the Manager for Good Cause (see Article 8.3).

7.3.3 Votes Requiring Approval of a Majority of Interests of all Members

A vote of a Majority of Interests of all Members is required to:

· Approve any Major Decision (see Article 6.4);

· Fill a vacancy after the Manager has resigned or been removed (see Article 8.7);

· Admit an Additional Member to the Company from the sale of Additional Units (per Article 11.2 hereof);

· Appoint a new “tax matters member” (per Appendix C, Section 5);

· Exchange the Property for another under Internal Revenue Code Section 1031; and

· Any other matter that a Member or the Manager wishes to put to a vote of the Members.

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7.4 Participation

Except as otherwise set forth herein, the Members shall not participate in the day-to-day management of the business of the Company.

7.5 Deadlock

Unless otherwise expressly set forth herein, in the event the Members are unable to reach agreement on or make a decision with respect to any matter on which the Members are entitled to vote (as summarized in Article 7.4), the matter shall be subject to the Internal Dispute Resolution Procedure described in Article 13 hereof.

8. Resignation or Removal of the Manager

8.1 Resignation

The Manager of the Company may resign at any time by giving written notice to the Members. However, this may require approval of a lender if any loan was conditioned on the qualifications of the Manager. The resignation of the Manager shall take effect sixty (60) days after receipt of notice thereof or at such other time as shall be specified in such notice, or otherwise agreed between the Manager and Members. The acceptance of such resignation shall not be necessary to make it effective.

8.2 Removal Process; Notice to Perform

Prior to initiating a removal action per this Article for Good Cause, all Class A and Class B Members (other than the Manager) who collectively own seventy five percent (75%) or more of the Interests (the requisite Interests) shall issue a Notice to Perform to the Manager in accordance with the notice provision in Article 15.1 hereof. The Notice to Perform shall describe the matters of concern to the Members and shall give the Manager up to sixty (60) days to correct the matter of concern to the satisfaction of the voting Members. If the Manager fails to respond to the concerns or demands contained in such Notice to Perform then;

The Manager may be immediately removed, temporarily or permanently, for “Good Cause” determined by: a) a vote of the requisite Members described above, or (b) by an arbitrator or judge per Article 13.5.4. Note, however, that removal of the Manager may require approval of a lender or substitution of a loan guarantor if any loan was conditioned on the qualifications of the Manager.

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8.3 Reasons for Removal; Good Cause Defined

The previous Manager must serve until a new Manager is hired or elected. The Class A Members hereby agree that any right of removal shall be exercised only in good faith. “Good Cause” shall include only the following, as determined by a vote of the requisite Interests described in Article 8.2 above:

· Any of the acts described in Article 6.11 hereof;

· A breach of a Manager’s duties or authority hereunder;

· Willful or wanton misconduct;

· Fraud;

· Bad faith;

· Death or disability wherein the Manager (or any of the members of the Manager with authority to Manage the Company) dies or becomes physically, mentally, or legally incapacitated such that it can no longer effectively function as the Manager of the Company or the dissolution, liquidation or termination of any entity serving as the Manager and no other member, officer or director of the Manager is willing or able to effectively perform the Manager’s duties;

· Disappearance wherein the Manager (or each of the members of the Manager) fail to return phone calls and/or written correspondence (including email) for more than thirty days (30) without prior notice of an anticipated absence, or failure to provide the Members with new contact information;

· Issuance of a legal charging order and/or judgment by any judgment creditor against the Manager’s Interest in Cash Distributions or Fees from the Company;

· A finding by a court of law or arbitrator that the Manager committed any of the acts described in Article 6.11, for which the Manager is specifically not indemnified by the Company; or

· The Manager becomes subject to a "disqualifying event" at any time during operation of the Company.

8.4 Removal Notice Requirements

Notice of the Manager’s removal shall be provided in a Removal Notice, duly executed by the requisite Interests (per Article 8.2). The Removal Notice shall be sent via express or overnight delivery to the removed Manager’s record place of business. The Removal Notice shall designate the newly appointed manager who shall succeed the removed Manager, and/or a Member to whom the removed Manager must convey all documents and things necessary to continue management of the Company.

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Within fifteen (15) business days of such Removal Notice, or such reasonable extension as the removed Manager shall request (which shall in no case exceed thirty (30) calendar days), the removed Manager shall voluntarily surrender all documents, books, records, bank accounts, and things (Documents and Things) related to management of the Company to the newly appointed Manager or designated Member. If the removed Manager fails to voluntarily comply with this Article, the Company may seek reimbursement for any costs associated with obtaining such Documents and Things from the removed Manager or re-creating them, by deducting the costs, including attorney’s fees and other necessary costs of collection (on production of receipts therefore) or forensic reconstruction, from any Distributable Cash or Fees the removed Manager may otherwise be entitled to collect as described in Article 4.

8.4.1 Removal of an Affiliated Property Manager

If the Manager is removed for Good Cause, any Affiliate of the Manager then-acting as the Property Manager (if one exists) may be concurrently removed, if the Property Manager is also specified in the Notice to Perform and Notice of Removal provided by the Class A Members. Removal of any Affiliated Property Manager, if included, shall take effect concurrent with the effective date of removal of the Manager. If the Affiliated Property Manager is not specified in the Notice to Perform and Notice of Removal, or if the Property Manager is not Affiliated with the Manager, its removal, if desired, must be performed pursuant to the terms of any contract between the Property Manager and the Company.

8.5 Effect of Resignation or Removal on Manager’s Cash Distributions and Fees

In the event of removal or resignation of the initial Manager, Distributions and Fees due the Manager will be re-allocated between the former and new Manager as described below:

· Expense Reimbursements: Regardless of resignation or removal, the initial Manager will still be entitled to reimbursement for its costs related to startup and operation, and any interest due thereon, as described in Article 5.1, even if the amount due remains uncollected at the time of removal.

· Distributions or Membership Interests of Class B Members: The Class B Interests are irrevocable, and DIAMOND SKY CAPITAL, LLC’s Class B Interests will be unaffected by its resignation or removal as the initial Manager of the Company. See Articles 4 and 5.

A removed Manager shall be entitled to copies of all financial statements provided to the Members for so long as it has continued rights to Fees or Distributions. To the extent a member of the removed Manager or the Manager itself remains Member of the Company, it shall retain all rights of any other Member entitled to participate in Cash Distributions, telephone calls, voting, and/or correspondence between the replacement Manager and the Members.

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8.6 Applicability of Internal Dispute Resolution Procedure

Nothing in Article 13 (i.e., the Internal Dispute Resolution Procedure) shall prevent any Manager from being immediately removed pursuant to the procedures described in this Article. However, the removed Manager may request application of the Internal Dispute Resolution Procedure (as described in Article 13) to settle disputes related to possible reinstatement or a determination of the amount(s) of Distributable Cash or Fees to which the removed Manager may be entitled.

The removed Manager shall have only ninety (90) days from: (a) removal, or (b) from receipt of Fees/Distributable Cash from which deductions have been taken, to invoke the Internal Dispute Resolution Procedure described in Article 13 for resolution of any dispute related to such matters. The removed Manager’s failure to provide a written objection (per the provisions of Article 13) within ninety (90) days of the occurrence (a) or (b) above shall be deemed acceptance.

8.7 Vacancies

In the event the Manager has resigned or has been removed or has otherwise ceased to be Manager, the vacancy shall be filled on the affirmative vote of a Majority of Interests of all Members. A Manager elected to fill a vacancy shall be elected for the unexpired term of its predecessor and shall hold office until the expiration of such term and until the replacement Manager’s successor shall be elected and shall qualify or until his earlier death, resignation, removal, liquidation, dissolution or termination.

9. Meetings of Members

9.1 Annual Meeting

No Annual Meeting of the Members is required.

9.2 Meetings

A meeting of the Members may be called at any time and for any purpose whatsoever by the Manager or by any of the Members representing a Majority of Interests, following the procedures specified below.

When Members representing a Majority of Interests wish to call a Meeting, they shall notify the Manager, who shall promptly give notice of the Meeting to the other Members. In the event the Manager fails to give the notice within three (3) days of the receipt of the request, any Member or group of Members representing a Majority of Interests may provide notice to the other Members. For purposes of determining the requisite Interests, such notice shall provide the names of Members calling such vote.

9.3 Place of Meetings

The Manager may designate any place, either within or outside of the State of Nevada, as the place of meetings of the Members.

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9.4 Notice of Meetings

Except as provided in Article 9.5 below, written notice stating the place, day, and hour of the meeting and the purpose or purposes for which the meeting is called shall be given at least three (3) days and not more than ninety days before the date of the meeting. A vote taken at a meeting with less than three (3) days’ notice will only be valid if all of the Members provide unanimous written consent.

9.5 Meeting of all Members

If all of the Members meet at any time and place, either within or outside of the State of Nevada, and consent to the holding of a meeting at such time and place in writing, such meeting shall be valid without call or notice, and at such meeting, a lawful vote may be taken.

9.6 Record Date

For the purpose of determining: 1) Members entitled to notice of or to vote at any meeting of Members or any adjournment thereof; 2) Members entitled to receive payment of any Cash Distribution; or 3) to make a determination of Members for any other purpose; the date on which notice of the meeting is mailed or the date on which the resolution declaring such Distribution is adopted, as the case may be, shall be the record date for such determination of Members.

9.7 Quorum

Members representing a Majority of Interests, whether represented in person or by proxy, shall constitute a quorum at any duly noticed meeting of Members (per Article 9.4). In the absence of a quorum at any such meeting, a majority of the Members present may continue or adjourn (i.e., reschedule) the meeting for a new date to occur within thirty (30) days. A notice of the adjourned meeting shall be given to each Member of record entitled to vote.

9.8 Manner of Acting

An affirmative vote of the requisite Interests (see summary in Article 7.4) shall be considered an act of the Members on such matters as they are entitled to vote. Consent transmitted by electronic transmission by a Member or Person authorized to act for a Member shall be deemed to have been written and signed by the Member, regardless of whether they appeared at a meeting.

9.9 Proxies

At all meetings of Members, a Member may vote in person, by proxy executed in writing by the Member, or by a duly authorized attorney-in-fact. Such proxy shall be filed with the Manager of the Company before or at the time of the meeting. No proxy shall be valid after eleven (11) months from the date of its execution, unless otherwise provided in the proxies.

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9.10 Action by Members without a Meeting

Action required or permitted to be taken at a meeting of Members may only be taken without a meeting if the action is approved by written consent of the requisite Percentage Interests describing the action taken, signed by every Member entitled to vote, and delivered to the Manager of the Company for inclusion in the minutes or filing with the Company records.

Action taken under this Article shall become effective at such time as the requisite Percentage Interests of the Members entitled to vote have provided written consent (unless the consent specifies a different effective date), regardless of whether the Member participated in any meeting in which such matters were discussed. The record date for determining Members entitled to take action without a meeting shall be the date the first Member signs a written consent.

9.11 Electronic Meetings

Meetings of Members may be held by means of a conference telephone call so that all Persons participating in the meeting can hear each other. Participation in a meeting held by conference telephone call shall constitute presence of the Person at the meeting.

9.12 Waiver of Notice

When any notice is required to be given to any Member, a waiver thereof in writing signed by the Person entitled to such notice, whether before, at, or after the time stated therein, shall be equivalent to the giving of such notice.

10. Fiscal Year, Books and Records, Bank Accounts, Tax Matters

10.1 Fiscal Year

The Company, for accounting and income tax purposes, shall operate on a Fiscal Year ending December 31 of each year, and shall make such income tax elections and use such methods of depreciation as shall be determined by the Manager. The books and records of the Company will be kept on a tax basis in accordance with sound accounting practices to reflect all income and expenses of the Company.

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10.2 Company Books and Records

During the term of the Company and for seven (7) years thereafter, the Company shall keep at its principal place of business, the following:

·	A current list of the name and last known address of each Member and Manager;
·	Copies of records that would enable a Member to determine the relative voting rights, if any, of the Members;
·	A copy of the Certificate of Formation, together with any amendments thereto;
·	Copies of the Company's federal, state, and local income tax returns, if any, for the seven (7) most recent years;
·	A copy of this Company Agreement and any amendments that are in writing, together with any amendments thereto; and
·	Copies of financial statements, if any, of the Company for the seven (7) most recent years.
A Member may:
·	At the Member's own expense, inspect and copy any Company record upon reasonable request during ordinary business hours; and
·	Obtain from time to time upon reasonable demand:

· True and complete information regarding the state of the business and financial condition of the Company;

· Promptly after becoming available, a copy of the Company's federal, state, and local income tax returns, if any, for each year; and

· Other information regarding the affairs of the Company as is just and reasonable.

As stated above, a Member shall have the right, during ordinary business hours, to inspect and copy the Company documents listed above at the Member’s expense. But, the Member must give seven (7) days’ notice to the Manager of such Member’s intent to inspect and/or copy the documents, and may only inspect and copy such Company documents for a purpose reasonably related to the Member’s Interest in the Company as approved by the Manager. The Company may impose a reasonable charge, limited to the costs of labor and material, for copies of records furnished. The Company may elect, at its option, to provide the requested document electronically.

To the extent allowed by law, the Manager shall honor requests of Members to keep their contact information confidential.

10.3 Bank Accounts

All funds of the Company shall be held in a separate bank account(s) in the name of the Company as determined by the Manager.

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10.4 Reports and Statements

The Company shall endeavor, at its expense by March 1 of each year, to deliver to the Members the following unaudited financial statements, which obligation may be satisfied by delivery to the Members of:

· A copy of the Company’s federal tax return;

· A profit and loss statement for such period; and

· A balance sheet for the Company as of the end of such period.

The Manager shall, at the expense of the Company prepare, or cause to be prepared, for delivery to the Members prior to the due date thereof (excluding extensions), all federal and any required state and local income tax returns for the Company for each Fiscal Year of the Company.

10.5 Tax Matters

The Manager shall have the authority, subject to the provisions of this Agreement, to make any election provided under the Code or any provision of state or local tax law. Additional information on designation of a tax matters member is provided in Appendix C, attached hereto. Further, the Manager shall have the authority to direct and/or remit withholding amounts from a Non-U.S. Person’s Distributions, as necessary to comply with the Foreign Investor Real Property Tax Act of 1980 (FIRPTA) or other U.S. tax obligation of the Non-U.S. Person.

11. Voluntary Transfer; Additional and Substitute Members

This Article 11 pertains only to the Interests of the Class A Interests in the Company. The Manager has the sole and exclusive authority to grant, convey, sell, transfer, hypothecate, disassociate or otherwise dispose of all or a portion of its Class B Interests without input or vote of the Class A Members.

11.1 Voluntary Withdrawal, Resignation or Disassociation Prohibited

A Member may not withdraw, resign or voluntarily disassociate from the Company, unless such Member complies with the transfer provisions set forth in this Article. The provisions of this Article shall apply to all Voluntary Transfers of a Member’s Interests. Involuntary Transfers are addressed in Article 12.

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11.2 Admission of Additional Members

Once the Manager closes the offering period for the sale of new Interests, no additional Interests in the Company may be sold, or any Additional Members admitted, unless a) the admission of an Additional Member is approved by a Majority of Interests of all Members, or b) a Majority of Interests of all Members approve a capital call per as described in Article 2.3., in which case the Manager reserves the right to authorize the sale of additional Units to new or existing Members, and to admit new Members whose Class or Interests may be equal or senior to the Class A Interests as necessary to raise the needed capital.

11.3 Transfer Prohibited Except as Expressly Authorized Herein

No Member may voluntarily, involuntarily, or by operation of law assign, transfer, sell, pledge, hypothecate, or otherwise dispose of (collectively transfer) all or part of its Interest in the Company, except as is specifically permitted by this Agreement or authorized by the Manager. Any Voluntary Transfer made in violation of this Article shall be void and of no legal effect.

Further, in no event shall any Voluntary Transfer be made within one (1) year of the initial sale of the Interests proposed for transfer unless the Transferor provides a letter from an attorney, acceptable to the Manager, stating that in the opinion of such attorney, the proposed transfer is exempt from registration under the Securities Act and under all applicable state securities laws or is otherwise compliant with Rule 144 under the Securities Act of 1933. The Manager is legally obligated to refuse to honor any transfer made in violation of this provision.

11.4 Conditions for Permissible Voluntary Transfer; Substitution

A permitted transfer of any Member’s Interest shall only be granted as to the Member’s Economic Interest unless the Manager accepts a permitted transferee (Transferee) as a Substitute Member. A permitted Transferee shall become a Substitute Member only on satisfaction of all of the following conditions:

· Filing of a duly executed and acknowledged written instrument of assignment in a form approved by the Manager specifying the Member’s Percentage Interest being assigned and setting forth the intention of the assignor that the permitted assignee succeed to the assignor’s Economic Interest (or the portion thereof) and/or its Interest as a Member;

· Execution, acknowledgment and delivery by the assignor and assignee of any other instruments reasonably required by the Manager including an agreement of the permitted assignee to be bound by the provisions of this Agreement; and

· The Manager’s approval of the Transferee’s or assignee’s admission to the Company as a Substitute Member and concurrent and complete Disassociation of all of the Membership and Economic Interests of the Transferor.

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11.4.1 Transfer of a Member’s Interest to an Affiliate

Nothing in this section shall prevent a Member from transferring its entire Membership Interest (Economic and voting rights, etc.) or any portion thereof to an Affiliate (as defined in Appendix D). Approval of Substituted Membership of an Affiliate shall not be unreasonably withheld by action of the Manager on the delivery of all requested documents necessary to accomplish such a transfer. However, any subsequent conveyance or transfer of ownership interests within the Affiliate so that it no longer meets the definition of an Affiliate with respect to the original Member, shall make its membership in the Company subject to revocation or Disassociation (per Article 12) by the Manager. Unless the Affiliate requests and is approved by the Manager as a Substitute Member, an unauthorized Affiliate shall have only the Economic Interest of the former Member.

11.5 Voluntary Transfer; Right of First Refusal

11.5.1 Notice of Sale

In the event any Member (a Selling Member) wishes to sell its Interest, it must first present its offer to sell and proposed price (terms and conditions) in a Notice of Sale submitted in writing to the Manager. The Manager and/or the Members (Purchasing Members) shall have thirty (30) days to elect to purchase the entire Selling Member’s Interest, which shall be offered to each in the order of priority described below:

· First, the Manager (or members of the Manager) may elect to purchase the entire Interest on the same terms and conditions as contained in the Notice of Sale, but if they don’t; then

· Second, all or part of the Members may purchase the entire Selling Member’s Interest on the same terms and conditions as contained in the Notice of Sale; the Purchasing Members will be given priority to purchase in the same ratio as their existing Percentage Interest before allowing existing Members to purchase disproportionate amounts;

· Third, if the Members elect to purchase less than the entire Interest, the Manager (of the members of the Manager) may combine in any ratio to purchase the remaining Interest, providing the overall purchase is of the entire Selling Member’s Interest and on the same terms and conditions as contained in the Notice of Sale; and

· Fourth, in the event that the Members and/or the Manager (or its members) fail to respond within thirty (30) days of the Selling Member’s Notice of Sale, or if the Manager and/or the Members expressly elect not to purchase the entire Selling Member’s Interest, the Selling Member shall have the right to sell its Interest to the third party on the same terms and conditions contained in the original Notice of Sale.

· In the event the Selling Member receives or obtains a bona fide offer from a third party to purchase all or any portion of its Interest in the Company, which offer it desires to accept, then prior to accepting such offer, the Selling Member shall give written notice (the Notice of Sale) of such offer to the Manager. The Notice of Sale shall set forth the material terms of such offer, including without limitation the identity of the third party, and the purchase price and terms of payment.

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· If the terms are different than the original Notice of Sale offered to the Manager, the Selling Member must comply again with the terms of this Article (giving the Manager and Members the first right to purchase its Interest on the same terms and conditions offered by the third party) with respect to the existing offer and all subsequent third party offers.

· If the Manager approves the sale to the third party, it must be completed within three (3) months. If the sale to the third party is not consummated on the terms contained in the approved Notice of Sale within three (3) months following the date of the Notice of Sale, then the Member must seek a renewed approval from the Manager, who may require that the Member again comply with the first right of refusal provisions of this Article.

In any purchase by the Members or the Manager described above, the Manager will automatically adjust the Membership Interests of the Purchasing Members or the Manager to reflect the respective number and Class of Units or Interests transferred, and the Manager shall revise Appendix B (attached hereto), as appropriate to reflect such adjustment.

11.5.2 Costs of Conveyance for Voluntary Transfer

In the event that the Manager and/or the Members elect to purchase as provided this Article, the cost of such transaction, including without limitation, recording fees, escrow fees, if any, and other fees, (excluding attorneys’ fees which shall be the sole expense of the party who retained them) shall be divided 50/50 between the Selling Member and the Purchasing Members. The Purchasing Members shall each contribute their respective share of the transaction costs in proportion with their share of the purchased Interest. The Selling Member shall deliver all appropriate documents of transfer for approval by the Manager, at least three (3) days prior to the closing of such sale for its review and approval.

From and after the date of such closing, whether the sale is made to the Members, the Manager, or to the third party, the Selling Member shall have no further Interest in the Assets or income of the Company and, as a condition of the sale, the Person(s) or entities purchasing the Interests shall indemnify and hold harmless the Selling Member from and against any claim, demand, loss, liability, damage or expense, including without limitation, attorney’s fees arising from the subsequent operation of the Company.

11.5.3 Rights and Interests of Voluntary Transferee; Adjustment of Voting Rights

If a Member transfers its Interest to a third party Transferee pursuant to this Article, such Transferee shall only succeed to the Member’s Economic Interest unless and until it complies with the provisions of Article 11.4 and is approved by the Manager as a Substitute Member. Until such time, if ever, that the third party Transferee becomes a Substitute Member, the voting Interests of the Remaining Members (i.e., all Members other than the Selling Member) will be increased proportionate with their Percentage Interests in the Company as if they had purchased the Selling Member’s Interest.

The obligations, rights and Interests of the Selling, purchasing, and any Substitute Members shall inure to and be binding upon the heirs, successors and permitted assignees of such Members subject to the restrictions of this Article. A third party Transferee shall have no right of action against the Manager or the Company for not being accepted as a Substitute Member.

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12. Involuntary Transfer; Disassociation

12.1 Disassociation for Cause

A Member may be disassociated (i.e., expelled) from the Company a) pursuant to a judicial determination, or b) on application by the Manager, another Member of the same class, for Cause (defined in the bullets below); upon a written finding by the Manager or applicable judicial body that such Member:

· Engaged in wrongful conduct that adversely and materially affected the Company’s business;

· Willfully or persistently committed a material breach of this Agreement;

· Engaged in conduct relating to the Company’s business, which makes it not reasonably practicable to carry on the business with the Member; or

· Engaged in willful misconduct related to its Membership in the Company.

12.2 Disassociation by Operation of Law

Additionally, a Member may be disassociated by operation of law, affected solely by action of the Manager, upon the occurrence of any of the following triggering events:

· Upon Voluntary or Involuntary Transfer of all or part of a Member's Economic Interest;

· Dissolution, suspension, or failure to maintain the legal operating status of a corporation, partnership or limited liability company that is a Member of the Company; or

· In the case of a Member that is a legal entity, the Member's:

· Becoming a debtor in Bankruptcy;

· Executing an assignment of all or substantially all of its Economic Interest for the benefit of creditors;

· The appointment of a trustee, receiver, or liquidator of the Member or of all or substantially all of the Member's property including its Interest in the Company pursuant to an action related to the Member’s insolvency; or

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· In the case of a Member who is an individual:

· The Member's death;

· Becoming a debtor in Bankruptcy;

· The appointment of a guardian or conservator of the property of the Member; or

· A judicial determination of incapacity or other such determination indicating that the Member has become incapable of performing its duties under this Agreement;

· In the case of a Member that is a trust or trustee of a trust, distribution of the trust's entire rights to receive Distributions from the Company, but not merely by reason of the substitution of a successor trustee;

· In the case of a Member that is an estate or personal representative of an estate, distribution of the estate's entire rights to receive Distributions from the Company, but not merely the substitution of a successor personal representative; or

· Termination of the existence of a Member if the Member is not an individual, estate, or trust, other than a business trust.

12.3 Effect of Disassociation

Immediately on mailing of a notice of Disassociation sent by the Manager to a Member’s last known address, unless the reason for Disassociation can be and is cured within sixty (60) days, a Member will cease to be a Member of the Company and shall henceforth be known as a Disassociated Member. Any successor in Interest who succeeds to a Member’s Interest by operation of law (per Article 12.2) shall henceforth be known as an Involuntary Transferee.

Subsequently, the Disassociated Member’s right to vote or participate in management decisions (as summarized in Article 7.4) will be automatically terminated. A Disassociated Member (or its legal successor) will continue to receive only the Disassociated Member’s Economic Interest in the Company, unless the Disassociated Member/Involuntary Transferee elects to sell its Interest to the Manager or Members (Purchasing Members) or to a third party buyer (Voluntary Transferee) following the procedures described in Article 11.5; and/or a Voluntary or Involuntary Transferee seeks admission and is approved by the Manager as a Substitute Member (per Article 11.4).

Until such time, if ever, that the Manager approves the transfer of the entire Disassociated Member’s Membership Interest to the Purchasing Members or a Substitute Member, the voting interests of the Remaining Members will be proportionately increased as necessary to absorb the Disassociated Member’s voting Interests.

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If a Member objects to Disassociation, they will be bound to resolve the dispute in accordance with the Internal Dispute Resolution Procedure described in Article 13, unless the reason for the Disassociation can be resolved within sixty (60) days to the satisfaction of the Manager, in which case their full Membership Interest will be reinstated. If there is no Involuntary Transferee, and no third party buyer is found and the Manager or Remaining Members do not wish to purchase the Disassociated Member’s Interest, the Disassociated Member will only be entitled to receive its Economic Interest (no voting rights), indefinitely, until such time as the Company is dissolved.

12.4 Sale and Valuation of a Disassociated Member’s Interest

If no outside buyers can be found and the Disassociated Member still desires to sell its Interest, which the Remaining Members and/or Manager (Purchasing Members) wish to purchase, the buyout price for the Disassociated Member’s Interest may be determined using one of the following methods:

· Negotiated Price: First, if the Purchasing Members or legal representative of the Disassociated Member can agree on a negotiated price for the Interest, then that price will be used; if not,

· Estimated Market Value Within 12 Months: Second, the Manager may annually determine the Estimated Market Value of the Company and report it to the Members (per Article 6.3). An Estimated Market Value calculated by the Manager in any commercially accepted manner within the last twelve (12) months shall conclusively be used to determine the value of a Disassociated Member’s Interest. The purchase price of shall be the product of the Disassociated Member’s Percentage Interest in the Company and the Estimated Market Value of the Company.

12.5 Closing

Unless other terms have been agreed between the Disassociated and Purchasing Members, the following terms shall apply to closing of a Disassociated Member’s Interest. After determining value (per Article 11.5 or 12.4 above), the Purchasing Members shall give written notice fixing the time and date for the closing. The closing shall be conducted at the principal office of the Company or other agreed location on the date not less than thirty (30) days nor more than sixty (60) days after the date of such notice, or in the event of Bankruptcy, any request for an extension by any Bankruptcy Court having jurisdiction.

12.6 Payment for a Disassociated Member’s Interest

At closing, the Purchasing Members shall pay to the Disassociated Member by certified or bank check an amount equal to the determined value of the Disassociated Member’s Interest, or, if such value shall be determined to be zero or another amount pursuant to an agreement of the Members, shall deliver an executed copy of such agreement or a copy of such appraisal report(s), or a memorandum of the negotiated value (per Article 11.4 above) as applicable.

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Notwithstanding the foregoing, at the option of the Purchasing Members, the purchase price may be paid by the delivery of its promissory note in the principal amount of the purchase price, bearing interest at six percent (6%), repayable early without penalty, in eight (8) equal quarterly installments, or other agreement. Simultaneously therewith the Disassociated Member shall execute, acknowledge and deliver to the Purchasing Members such instruments of conveyance, assignment and releases as shall be necessary or reasonably desirable to convey all of the right, title and Interest of the Member and the Assets thereof.

Because of the unique and distinct nature of an Interest in the Company, it is agreed that the Purchasing Members’ damages would not be readily ascertainable if they elect to purchase the Disassociated Member’s Interest as aforesaid and the conveyance thereof were not consummated, and, therefore, in such case the Purchasing Members shall be entitled to the remedy of specific performance in addition to any other remedies that may be available to them in law or in equity.

12.7 Transfer of Economic Interest; Rights of an Involuntary Transferee

If the Purchasing Members do not elect to purchase the Interest of a Disassociated Member as provided in Articles 12.4 through 12.6, or if by operation of law the Economic Interest of the Disassociated Member transfers to an Involuntary Transferee, the Manager shall hereby be granted power of attorney by the Disassociated Member to execute such documents as may be necessary and requisite to evidence and cause the transfer only of the Disassociated Member’s Economic Interest to the Involuntary Transferee, as applicable and appropriate for the circumstances.

An Involuntary Transferee shall not be deemed a Member until such time if ever, that they seek admission and are approved as a Substitute Member(s). Until such time, they shall only succeed to the Economic Interest of the Disassociated Member, including the right to any Distributions and a return of the Disassociated Member’s Unreturned Capital Contributions, if applicable, which shall be distributed only if and when such Distributions or return of Capital Contributions shall become due per the terms of this Agreement. Any Distributions that may be due a Disassociated Member shall be held in trust and no Distributions shall be made to an Involuntary Transferee until it produces and executes such documentation as the Manager deems necessary to evidence the Transfer of the Disassociated Member’s Economic Interest, and to indemnify the Company and the Manager for any liability related to making Distributions directly to the holder of the Economic Interest.

Any further assignment of the Disassociated Member’s Economic or Membership Interest, or any request of an Involuntary Transferee to succeed to the Disassociated Member’s full Membership Interest (i.e., to become a Substituted Member in the Company), shall be subject to approval of the Manager.

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13. Internal Dispute Resolution Procedure

Because the nature of the Company is to generate Profits on behalf of its Members, it is imperative that one Member’s dispute with the Manager and/or other Members is not allowed to diminish the Profits available to other Members or resources necessary to operate the Company. Litigation could require diversion of Company Profits to pay attorney’s fees or could tie up Company funds necessary for operation of the Company, impacting the profitability of the investment for all Members. The only way to prevent such needless expense is to have a comprehensive Internal Dispute Resolution Procedure (Procedure) in place, to which each of the Members have specifically agreed in advance of membership in the Company. The Procedure described below requires an aggrieved party to take a series of steps designed to amicably resolve a dispute on terms that will preserve the interests of the Company and the other non-disputing Members, before invoking a costly remedy, such as arbitration.

In the event of a dispute, claim, question, or disagreement between the Members or between the Manager and one or more Members arising from or relating to this Agreement, the breach thereof, or any associated transaction, or to interpret or enforce any rights or duties under the Act (hereinafter Dispute), the Manager and Members hereby agree to resolve such Dispute by strictly adhering to the Procedure provided below. The following Procedure has been adapted for purposes of this Agreement from guidelines and rules published by the American Arbitration Association (AAA):

13.1 Notice of Disputes

Written notice of a Dispute must be sent to the Manager or Member by the aggrieved party as described in the notice requirements of Article 15.1 below.

13.2 Negotiation of Disputes

The parties hereto shall use their best efforts to settle any Dispute through negotiation before resorting to any other means of resolution. To this effect, they shall consult and negotiate with each other in good faith and, recognizing their mutual interests, attempt to reach a just and equitable solution satisfactory to all parties. If, within a period of sixty (60) days after written notice of such Dispute has been served by either party on the other, the parties have not reached a negotiated solution, then upon further notice by either party, the Dispute shall be submitted to mediation administered by the AAA in accordance with the provisions of its Commercial Mediation Rules. The onus is on the complaining party to initiate each next step in this Procedure as provided below.

13.3 Mandatory Alternative Dispute Resolution

On failure of negotiation provided above; mediation, and as a last resort, binding arbitration shall be used to ultimately settle the Dispute. The following provisions of this Article 13 shall apply to any subsequent mediation or arbitration.

Exception: On unanimous consent of all parties to a Dispute, the disputing party may initiate a small claims action or litigation in lieu of mandatory mediation and arbitration. The parties shall further unanimously determine jurisdiction and venue. In any small claims action or litigation, the local rules of court shall apply in lieu of the remaining provisions of this Article.

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13.3.1 Preliminary Relief

Any party to the Dispute may seek preliminary relief at any time after negotiation has failed, but prior to arbitration, in accordance with the Optional Rules for Emergency Measures of Protection of the AAA Commercial Arbitration Rules and Mediation Procedures. The AAA case manager may appoint an arbitrator who will hear only the preliminary relief issues without going through the arbitrator selection process described in Article 13.5.1.

13.3.2 Consolidation

Identical or sufficiently similar Disputes presented by more than one Member may, at the option of the Manager, be consolidated into a single Procedure.

13.3.3 Location of Mediation or Arbitration

Any mediation or arbitration shall be conducted in State of Nevada and each party to such mediation or arbitration must attend in person.

13.3.4 Attorney’s Fees and Costs

Each party shall bear its own costs and expenses (including their own attorney’s fees) and an equal share of the mediator or arbitrators’ fees and any administrative fees, regardless of the outcome; however, if the Manager is a party, its legal fees shall be paid by the Company (per the indemnification provision described in Article 6.11).

Exception: The Company may reimburse a Member for attorney’s fees and costs in any legal action against the Manager or the Company in which the Member is awarded such fees and costs as part of a legal action.

13.3.5 Maximum Award

The maximum amount a party may seek during mediation or be awarded by an arbitrator is the amount equal to the party’s Unreturned Capital Contributions and any Cash Distributions or interest to which the party may be entitled. An arbitrator will have no authority to award punitive or other damages.

13.3.6 AAA Commercial Mediation or Arbitration Rules

Any Dispute submitted for mediation or arbitration shall be subject to the AAA’s Commercial Mediation or Arbitration Rules. If there is a conflict between the Rules and this Article, the Article shall be controlling.

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13.4 Mediation

Any Dispute that cannot be settled through negotiation as described in Article 13.2, may proceed to mediation. The parties shall try in good faith to settle the Dispute by mediation, which each of the parties to the Dispute must attend in person, before resorting to arbitration. If, after no less than three (3) face-to-face mediation sessions, mediation proves unsuccessful at resolving the Dispute, the parties may then, and only then, resort to binding arbitration as described in Article 13.5.

13.4.1 Selection of Mediator

The complaining party shall submit a Request for Mediation to the AAA. The AAA will appoint a qualified mediator to serve on the case. The preferred mediator shall have specialized knowledge of securities law, unless the Dispute pertains to financial accounting issues, in which case the arbitrator shall be a CPA, or if no such person is available, shall be generally familiar with the subject matter involved in the Dispute. If the parties are unable to agree on the mediator within thirty (30) days of the Request for Mediation, the AAA case manager will make an appointment.

If the initial mediation(s) does not completely resolve the Dispute, any party may request a different mediator for subsequent mediation(s) by serving notice of the request to the other party(ies) for approval, and subject to qualification per the requirements stated above.

13.5 Arbitration

Any Dispute that remains unresolved after good faith negotiation and three (3) failed mediation sessions shall be settled by binding arbitration. Judgment on the award rendered by the arbitrator(s) shall be final and may be entered in any court having jurisdiction thereof.

13.5.1 Selection of Arbitrator

Prior to arbitration, the complaining party shall cause the appointment of an AAA case manager by filing of a claim with the AAA along with the appropriate filing fee, and serving it on the defending party. The AAA case manager shall provide each party with a list of proposed arbitrators who meet the qualifications described below, or if no such person is available, who are generally familiar with the subject matter involved in the Dispute. Each side will have 14 days to strike any unacceptable names, number the remaining names in order of preference, and return the list to the AAA. The case manager shall then invite persons to serve from the names remaining on the list, in the designated order of mutual preference. Should this selection procedure fail for any reason, the AAA case manager shall appoint an arbitrator as provided in the applicable AAA Commercial Arbitration Rules.

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13.5.2 Qualifications of Arbitrator

The selected or appointed arbitrator shall be selected from available candidates in Nevada and shall have specialized knowledge of securities law, unless the Dispute pertains to financial accounting issues, in which case the arbitrator shall be a CPA. Further, the selected arbitrator must agree to sign a certification stating that they have read all of the documents relevant to this Agreement in their entirety, including and any relevant Appendices or Exhibits, this entire Agreement, and the Subscription Booklet.

13.5.3 Limited Discovery

Discovery shall be limited to only those documents pertaining to this Agreement including this entire Agreement (and any relevant Appendices or Exhibits), the Subscription Booklet (and any relevant Appendices or Exhibits), any written correspondence between the parties, and any other documents specifically requested by the Arbitrator as necessary to facilitate his/her understanding of the Dispute. The parties may produce witnesses for live testimony at the arbitration hearing at their own expense. A list of all such witnesses and complete copies of any documents to be submitted to the arbitrator shall be served on the arbitrator and all other parties within forty-five (45) days of the arbitration hearing, at the submitting party’s expense.

13.5.4 Findings of Arbitrator

If, in any action against the Manager, the selected or appointed arbitrator, or judge (if applicable) makes a specific finding that the Manager has violated Securities laws, or has otherwise engaged in any of the actions described in Article 6.11 for which the Manager will not be indemnified, the Manager must bear the cost of its own legal defense. The Manager must reimburse the Company for any such costs previously paid by the Company. Until the Company has been fully reimbursed, the Manager will not be entitled to receive any Fees or Distributions it may otherwise be due.

14. Dissolution and Termination of the Company

14.1 Dissolution

The Company shall be dissolved upon the disposition of all Company Loans or Properties (which may be determined solely by action of the Manager). The Company will observe any mandatory provisions of the Act upon dissolution. On dissolution, Assets of the Company will be distributed as described in Article 4.3 hereof.

14.2 Termination of a Member Does Not Require Dissolution

The disassociation, withdrawal, death, insanity, incompetency, Bankruptcy, dissolution, or liquidation of any Member or the Manager will not require dissolution of the Company.

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14.3 Procedure for Winding-Up

Upon the dissolution and termination of the Company caused by other than the termination of the Company under section 708(b)(1)(B) of the Code, the Manager shall proceed to wind up the affairs of the Company. During such winding-up process, the Profits, Losses, and Distributions of the Distributable Cash shall continue to be shared by the Members in accordance with this Agreement.

Upon the dissolution and commencement of the winding up of the Company, the Manager shall cause Articles of Dissolution to be executed on behalf of the Company and filed with the State Corporation Commission of the State of Nevada, and the Manager shall execute, acknowledge and file any and all other instruments necessary or appropriate to reflect the dissolution of the Company.

15. Miscellaneous Provisions

15.1 Notices

All notices and demands which any Member is required or desires to give to another Member the Manager shall be given in writing by email with confirmation, facsimile, certified mail (return receipt requested with appropriate postage prepaid), or by personal delivery (with confirmation of service) to the address or facsimile transmission to the address set forth in Appendix A hereof for the respective Member, provided that if any Member gives notice of a change of name or address or facsimile number, notices to that Member shall thereafter be given pursuant to such notice.

All notices and demands so given shall be effective upon receipt by the Member to whom notice or a demand is being given except that any notice given by certified mail shall be deemed delivered three (3) days after mailing provided proof of delivery can be shown to:

111 Crowdfunding, LLC

c/o DIAMOND SKY CAPITAL, LLC

Hajime Kakuuchi

1810 E. Sahara Avenue, #123

Las Vegas, NV 89014-3735

(702) 425-9000

15.2 Amendments

The Certificate of Formation and this Agreement may only be substantively amended by the affirmative vote of all Members of the Company. However, notwithstanding anything to the contrary herein, the Manager may amend this Agreement in a manner not materially inconsistent with the principles of this Agreement, without the approval or vote of the Members, including without limitation:

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· To issue non-substantive amendments to this Agreement to correct minor technical errors;

· To cure any ambiguity or to correct or supplement any provision herein which may be inconsistent with any other provision herein, or to add any other provisions with respect to matters or questions arising under this Agreement which will not be materially inconsistent with the provisions of this Agreement;

· To appoint a different tax matters Member;

· To take such steps as the Manager deems advisable to preserve the tax status of the Company as an entity that is not taxable as a corporation for federal or state income tax purposes;

· To delete or add any provisions to this Agreement as requested by the Securities and Exchange Commission or by state securities officials which is deemed by such regulatory agency or official to be for the benefit or protection of the Members; or

· To make amendments similar to the foregoing so long as such action shall not materially and adversely affect the Members.

15.3 Binding Effect

Except as may be otherwise prohibited by this Agreement, every covenant, term and provision of this Agreement shall be binding upon and inure to the benefit of the Members and their respective heirs, legatees, legal representatives, successors, transferees, and assigns.

15.4 Construction

Every covenant, term, and provision of this Agreement shall be construed simply according to its fair meaning and not strictly for or against any Member or the Manager.

15.5 Time

Time is of the essence with respect to this Agreement.

15.6 Headings

Article and other headings contained in this Agreement are for reference purposes only and are not intended to describe, interpret, define, or limit the scope, extent, or intent of this Agreement or any provision hereof.

15.7 Agreement Is Controlling

In the event of a direct conflict between any provision of this Agreement and the Act, the Agreement shall control unless the conflicting provision of the Act is non-waivable, in which case the conflicting provision in the Agreement shall become subject to the severability provisions of Article 15.8 below.

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15.8 Severability

Every provision of this Agreement is intended to be severable. If any phrase, sentence, paragraph, or provision of this Agreement or its application thereof to any Person or circumstance is unenforceable, invalid, the affected phrase, sentence, paragraph, or provision shall be limited, construed, and applied in a manner that is valid and enforceable. If the conflict was with a non-waivable provision of the Act, phrase, sentence, paragraph, or provision shall be modified to conform to the Act. In any event, the remaining provisions of this Agreement shall be given their full effect without the invalid provision or application. If any term or provision hereof is illegal or invalid for any reason whatsoever, such legality or invalidity shall not affect the validity or legality of the remainder of this Agreement.

15.9 Incorporation by Reference

Every Appendix, schedule, and other Exhibit, that is attached to this Agreement or referred to herein, is hereby incorporated in this Agreement by reference.

15.10 Additional Acts and Documents

The Manager agrees to perform all further acts and execute, acknowledge, and deliver any documents that may be reasonably necessary, appropriate, or desirable to carry out the provisions of this Agreement.

15.11 Nevada Law

The laws of the State of Nevada shall govern the validity of this Agreement, the construction of its terms, and the interpretation of the rights and duties of the Members.

15.12 Counterpart Execution

This Agreement may be executed in any number of counterparts with the same effect as if all of the Members and the Manager had signed the same document. All the counterparts shall be construed together and shall constitute one agreement.

15.13 Merger

It is agreed that all prior understandings and agreements between the parties, written and oral, respecting this transaction are merged in this Agreement, which alone, fully and completely expresses such agreement, and that there are no other agreements except as specifically set forth in this Agreement.

REST OF PAGE INTENTIONALLY LEFT BLANK

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IN WITNESS WHEREOF, the parties hereto, whose names and contact information follows, have executed this Company Agreement of 111 Crowdfunding, LLC as of the dates provided below.

Dated: Amended June 1, 2017	By: 111 Crowdfunding, LLC,
	A Nevada limited liability company
	By: Its Manager, DIAMOND SKY CAPITAL, LLC,
	A Nevada limited liability company
		Hajime Kakuuchi
		Managing Member

ALL SUBSCRIBERS MUST COMPLETE THE FOLLOWING SIGNATURE PAGE (APPENDIX A) AND RETURN THE EXECUTED PAGES ALONG WITH THEIR COMPLETED SUBSCRIPTION BOOKLET TO THE MANAGER AT THE ADDRESS PROVIDED HEREIN.

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Appendix A: Member Signature and Contact Page

BY SIGNING THE SUBSCRIPTION AGREEMENT, HERETO ATTACHED, THE INVESTOR ACKNOWLEDGES THAT, THEY HAVE READ, UNDERSTAND, AND AGREE TO THE DISPUTE RESOLUTION PROCEDURE DESCRIBED IN ARTICLE 13 HEREOF; THEY HAVE SOUGHT ADVICE OF THEIR OWN COUNSEL TO THE EXTENT THEY DEEM NECESSARY; AND ARE GIVING UP THEIR RIGHT TO TRIAL BY JURY AND THEIR RIGHT TO CONDUCT PRETRIAL DISCOVERY.

BY SIGNING THE SUBSCRIPTION AGREEMENT, HERETO ATTACHED, THE INVESTOR HAS EXECUTED THIS COMPANY AGREEMENT ON THE DATE SET FORTH IN THE SUBSCRIPTION AGREEMENT.

THE SUBSCRIPTION AGREEMENT AND THIS OPERATING AGREEMENT ARE NOT DEEMED ENTER INTO UNTIL SUCH TIME THAT THE MANAGER COUNTERSIGNS SUCH SUBSCRIPTION AGREEMENT

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Appendix B: Table 1, Class A Members

Identification of Class A Members and Percentage Interests

(FOR INTERNAL USE ONLY)

Entity Name	Capital Contribution	Number of Class A Units Purchase	Ownership of Class A Interests			Ownership Percentage of Total Interests
TOTAL				100.00	%		99.000	%

*DUPLICATE THIS PAGE IF NECESSARY

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Appendix B: Table 2, Class B Members

Identification of Class B Members and Percentage Interest

(FOR INTERNAL USE ONLY)

Entity Name	Capital Contribution		Ownership of Class B Interests			Ownership Percentage of Total Interests
Diamond Sky Capital, LLC	$	0		100	%		1.00	%
TOTAL	$	0		100.00	%		1.00	%

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Appendix C: Capital Accounts and Allocations

1. Capital Accounts

An individual Capital Account shall be maintained for each Member in accordance with Treasury Regulation section 1.704-1(b)(2)(iv) and adjusted with the following provisions:

a.	A Member’s Capital Account shall be increased by that Member’s Capital Contributions and that Member’s share of Profits.
b.	A Member’s Capital Account shall be increased by the amount of any Company liabilities assumed by that Member subject to and in accordance with Regulation section 1.704-1(b)(2)(iv)(c).
c.	A Member’s Capital Account shall be decreased by (a) the amount of cash distributed to that Member and (b) the Gross Asset Value of the assets of the Company so distributed, net of liabilities secured by such distributed assets that the distribute Member is considered to assume or to be subject to under Code section 752.
d.	A Member’s Capital Account shall be reduced by the Member’s share of any expenditures of the Company described in Code section 705(a)(2)(B) or which are treated as Code section 705(a)(2)(B) expenditures under Treasury Regulation section 1.704-1(b)(2)(iv)(i) (including syndication expenses and Losses nondeductible under Code sections 267(a)(1) or 707(b)).
e.	If any Economic Interest (or portion thereof) is transferred, the transferee of such Economic Interest or portion shall succeed to the transferor’s Capital Account attributable to such Interest or portion.
f.	Each Member’s Capital Account shall be increased or decreased as necessary to reflect a revaluation of the assets in accordance with the requirements of Treasury Regulation section 1.704-1(b)(2)(iv)(f)-(g), including the special rules under Treasury Regulation section 1.701-1(b)(4), as applicable.
g.	In the event the Gross Asset Values of the Company Assets are adjusted pursuant to this Agreement, the Capital Accounts of all Members shall be adjusted simultaneously to reflect the aggregate net adjustment as if the Company had recognized gain or loss equal to the amount of such aggregate net adjustment and the resulting gain or loss had been allocated among the Members in accordance with this Agreement.
h.	The foregoing provisions and other provisions of this Agreement relating to the maintenance of Capital Accounts are intended to comply with the Code and applicable Treasury Regulations and shall be interpreted and applied in a manner consistent therewith. In the event the Manager shall determine, after consultation with competent legal counsel, that it is prudent to modify the manner in which the Capital Accounts or any debits or credits thereto are allocated or computed in order to comply with such applicable federal law, the Manager shall make such modification without the consent of any other Member, provided the Manager determines in good faith that such modification is not likely to have a material adverse effect on the amounts properly distributable to any Member and that such modification will not increase the liability of any Member to third parties.

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2. Division of Profits and Losses for Income Tax Purposes

Division of Profits and Losses after giving effect to the special allocations set forth in Sections 2.2 and 2.3 of this Appendix, Profits and Losses of the Company shall be allocated as follows:

2.1 Fiscal Year

After giving effect to the special allocations set forth in Sections 2.2 and 2.3, Profits and Losses of the Company shall be allocated as follows:

2.1.1 Net Profits

Net Profits (which is the excess of Profits over Losses) for each Fiscal Year of the Company shall be allocated as follows:

a.	First to reverse any Net Losses allocated to a Member solely as a result of the application of the limitation of Section 2.1.2(b) to another Member; thereafter
b.	To the Members, in proportion to the Distributions received by the Members under Section 3 for the Fiscal Year.

2.1.2 Net Losses

Net Losses (which is the excess of Losses over Profits) for each Fiscal Year of the Company shall be allocated:

a.

To and among the Members pro-rata according to their respective Percentage Interests; however;

b.

Net Losses allocated pursuant to Section 2.1.2(a) hereof shall not exceed the maximum amount of Losses that can be so allocated without causing any Member to have an adjusted Capital Account deficit at the end of any Fiscal Year. In the event some but not all of the Members would have adjusted Capital Account deficits as a consequence of an allocation of Net Losses pursuant to Section 2.1.2(a), the limitation set forth in this Section 2.1.2(b) shall be applied on a Member by Member basis so as to allocate the maximum permissible Net Losses to each Member under Treasury Regulation section 1.704-1(b)(2)(ii)(d).

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2.2 Special Allocations

2.2.1 Non-Recourse Deductions

Non-Recourse Deductions for any Fiscal Year shall be allocated to the Members in accordance with their Percentage Interests.

2.2.2 Member Non-Recourse Deductions

Member Nonrecourse Deductions for any Fiscal Year of the Company shall be allocated to the Members in the same proportion as Profits are allocated under Section 2.1.1, provided that any Member Nonrecourse Deductions for any Fiscal Year or other period shall be allocated to the Member who bears (or is deemed to bear) the economic risk of loss with respect to the Member Nonrecourse Debt to which such Member Nonrecourse Deductions are attributable in accordance with Treasury Regulation section 1.704-2(i)(2).

2.2.3 Minimum Gain Chargeback

Except as otherwise provided in section 1.704-2 of the Treasury Regulations, and notwithstanding any other provision of this Section, if there is a net decrease in Company Minimum Gain during any Fiscal Year, each Member shall be specially allocated items of Company Profits for such Fiscal Year (and, if necessary, subsequent Fiscal Years) in an amount equal to such Member's share of the net decrease in Company Minimum Gain, determined in accordance with Treasury Regulation section 1.704-2(g).

Allocations pursuant to the previous sentence shall be made in proportion to the respective amounts required to be allocated to each Member pursuant thereto. The items to be so allocated shall be determined in accordance with sections 1.704-2(f)(6), 1.704-2(j) (2), and other applicable provisions in section 1.704-2 of the Treasury Regulations. This Section is intended to comply with the minimum gain chargeback requirement in section 1.704-2(f) of the Treasury Regulations and shall be applied consistently therewith.

2.2.4 Member Minimum Gain Chargeback

Except as otherwise provided in Treasury Regulation section 1.704-2(i)(4) and notwithstanding any other provision of this Section, if there is a net decrease in Member Nonrecourse Debt Minimum Gain attributable to Member Nonrecourse Debt during any Company Fiscal Year, each Member who has a share of the Member Nonrecourse Debt Minimum Gain attributable to such Member Nonrecourse Debt (determined in accordance with Treasury Regulation section 1.704-2(i)(5)) shall be specially allocated items of Company income and gain for such year (and, if necessary, subsequent Fiscal Years) in an amount equal to such Member’s share of the net decrease in Member Nonrecourse Debt Minimum Gain attributable to such Member Nonrecourse Debt, determined in accordance with Treasury Regulation section 1.704-2(i)(4).

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Allocations pursuant to the previous sentence shall be made in proportion to the respective amounts required to be allocated to each Member pursuant thereto. The items to be so allocated shall be determined in accordance with Treasury Regulation sections 1.702-2(i)(4) and 1.704-2(j)(2). The provisions of this Section 2.2.4 are intended to comply with the minimum gain chargeback requirement in Treasury Regulation section 1.704-2(i)(4) and shall be interpreted in accordance therewith.

2.2.5 Qualified Income Offset

In the event any Member, in such capacity, unexpectedly receives any adjustments, allocations, or Distributions described in Treasury Regulation sections 1.704-1(b)(2)(ii)(d)(4) (regarding depletion deductions), 1.704-1(b)(2)(ii)(d)(5) (regarding certain mandatory allocations under the Treasury Regulations regarding family partnerships: the so called varying interest rules or certain in-kind Distributions), or 1.704-1(b)(2)(ii)(d)(6) (regarding certain Distributions, to the extent they exceed certain expected offsetting increases in a Member’s Capital Account), items of Company income and gain shall be specially allocated to such Members in an amount and a manner sufficient to eliminate, as quickly as possible, the deficit balances in the Member’s Capital Account created by such adjustments, allocations, or Distributions.

Any special allocations of items of income or gain pursuant to this Section shall be taken into account in computing subsequent allocations of Profits pursuant to this Section so that the net amount of any items so allocated and the Profits, Losses, or other items so allocated to each Member pursuant to this Section, shall to the extent possible, be equal to the net amount that would have been allocated to each such Member pursuant to this Section as if such unexpected adjustments, allocations, or Distributions had not occurred.

2.2.6 Special Allocation of Net Profit from Capital Transactions

After accounting for any allocations set forth in Sections 2.2 and 2.3, Net Profit (which is the excess of Profit over Losses) of the Company resulting from a Capital Transaction shall be allocated to the Members in proportion to the Distributions received (or to be received) from such Capital Transaction under Article 4.2 of this Agreement.

In any Fiscal Year of the Company, Net Losses resulting from a Capital Transaction shall be allocated to Members with positive Capital Accounts, in proportion to their positive Capital Account balances, until no Member has a positive Capital Account. For this purpose, Capital Accounts shall be reduced by the adjustments set forth in Treasury Regulation section 1.704-1(b)(2)(ii)(d)(4), (5), and (6).

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2.3 Other Allocations

2.3.1 Section 704(c) Allocations

In accordance with section 704(c) of the Code and the applicable Treasury Regulations issued thereunder, income, gain, loss, and deduction with respect to any property contributed to the capital of the Company shall, solely for tax purposes, be allocated among the Members so as to take account of any variation between the adjusted basis of such property to the Company for federal income tax purposes and its initial Gross Asset Value.

In the event Gross Asset Value of the Company’s assets are adjusted pursuant to this Agreement, subsequent allocations of income, gain, loss, and deduction with respect to such Asset shall take into account any variation between the adjusted basis of such Asset for federal income tax purposes and its Gross Asset Value in the same manner as under section 704(c) of the Code and the Treasury Regulations thereunder.

The Manager shall make any election or other decisions relating to such allocations in any manner that reasonably reflects the purpose of this Agreement. Allocations made pursuant to this Section are solely for purposes of federal, state, and local taxes and shall not affect or in any way be taken into account in computing any Member’s Capital Account or share of Profits, Losses, or other items, or Distributions pursuant to any provision of this Agreement.

2.3.2 Curative Allocations

The Manager shall make such other special allocations as are required in order to comply with any mandatory provision of the applicable Treasury Regulations or to reflect a Member’s Economic Interest in the Company determined with reference to such Member’s right to receive Distributions from the Company and such Member’s obligation to pay its expenses and liabilities.

2.3.3 Allocation of Tax Items

To the extent permitted by section 1.704-1(b)(4)(i) of the Treasury Regulations, all items of income, gain, loss and deduction for federal and state income tax purposes shall be allocated to the Members in accordance with the corresponding "book" items thereof; however, all items of income, gain, loss and deduction with respect to Assets with respect to which there is a difference between "book" value and adjusted tax basis shall be allocated in accordance with the principles of section 704(c) of the Code and section 1.704-1(b)(4)(i) of the Treasury Regulations, if applicable.

Where a disparity exists between the book value of an Asset and its adjusted tax basis, then solely for tax purposes (and not for purposes of computing Capital Accounts), income, gain, loss, deduction and credit with respect to such Asset shall be allocated among the Members to take such difference into account in accordance with section 704(c)(i)(A) of the Code and Treasury Regulation section 1.704-1(b)(4)(i). The allocations eliminating such disparities shall be made using any reasonable method permitted by the Code, as determined by the Manager.

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2.3.4 Acknowledgement

The Members are aware of the income tax consequences of the allocations made by this Section and hereby agree to be bound by the provisions of this Section in reporting their share of Company income and loss for income tax purposes.

3. Treatment of Distributions of Cash for Tax Purposes

3.1 Distributions of Cash

In the event that the Company generates Distributable Cash from Capital Transactions, the Company will make Cash Distributions to the Members as described in Article 4 of the Agreement.

3.2 In-Kind Distribution

Except as otherwise expressly provided herein, without the prior approval of the Manager, Assets of the Company, other than cash, shall not be distributed in-kind to the Members. If any Assets of the Company are distributed to the Members in-kind for purposes of this Agreement, such Assets shall be valued on the basis of the Gross Asset Value thereof (without taking into account section 7701(g) of the Code) on the date of Distribution; and any Member entitled to any Interest in such Assets shall receive such Interest as a tenant-in-common with the other Member(s) so entitled with an undivided Interest in such Assets in the amount and to the extent provided for in Articles 4 and 2.2 of the Agreement.

Upon such Distribution, the Capital Accounts of the Members shall be adjusted to reflect the amount of gain or loss that would have been allocated to the Members pursuant to the appropriate provision of this Agreement had the Company sold the Assets being distributed for their Gross Asset Value (taking into account section 7701(g) of the Code) immediately prior to their Distribution.

3.3 Company Election Regarding 1031 Exchange of its Property

The Company may elect (by a vote of a Majority of Interests), at the time of sale of the Property, to have the Company exchange the Property for another property, in compliance with the section 1031 of the Code, in which case recognition of the gain on the sale of the Property may be deferred.

If this action is approved but there are individual Members who do not want to participate in the exchange, they will have the option of and relinquishing their Membership Interests in the Company and taking a Cash Distribution at the time of the sale, as described in Article 4.2 of the Agreement.

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3.4 Prohibited Distribution; Duty to Return

A Distribution to any Member may not be made if it would cause the Company’s total liabilities to exceed the fair value of the Company’s total Assets. A Member receiving a Distribution in violation of this provision is required to return it, if the Member had knowledge of the violation.

4. Other Tax Matters

4.1 Company Tax Returns

The Manager shall use its best efforts to cause the Company’s tax return to be prepared prior to March 1 of each year.

4.2 Tax Treatment of Additional or Substituted Members

No Additional or Substituted Class A Members (described below) shall be entitled to any retroactive allocation of Losses, income, or expense deductions incurred by the Company.

The Manager may, at its option, at the time an Additional or Substituted Member is admitted, close the Company books (as though the Company’s tax year had ended) or make pro rata allocations of loss, income, and expense deductions to the Additional or Substituted Member for that portion of the Company’s tax year in which the Additional Member was admitted in accordance with the provisions of section 706(d) of the Code and the Treasury Regulations promulgated thereunder.

4.3 Allocation and Distributions between Transferor and Transferee

Upon the transfer of all or any part of a Class A Member’s Interest as hereinafter provided, Profits and Losses shall be allocated between the transferor and transferee on the basis of the computation method which in the reasonable discretion of the Manager is in the best interests of the Company, provided such method is in conformity with the methods prescribed by section 706 of the Code and Treasury Regulation section 1.704-1(c)(2)(ii). Distributions shall be made to the holder of record of the Class A Member’s Interest on the date of Distribution.

Any transferee of a Member Interest shall succeed to the Capital Account of the transferor Member to the extent it relates to the transferred Interest; provided, however, that if such transfer causes a termination of the Company pursuant to section 708(b)(1)(B) of the Code, the Capital Accounts of all Class A Members, including the transferee, shall be re-determined as of the date of such termination in accordance with Treasury Regulation section 1.704-1(b).

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5. Tax Matters Member

The Manager, so long as it is a Member, shall serve as the “tax matters member” for federal income tax purposes. In the event the Manager is no longer a Member in the Company, the tax matters member shall be the Majority Interest owner from amongst the Class B Members. If the Majority Class B Member is unable or unwilling to serve, the tax matters member shall be appointed from amongst the remaining Members by a Majority of Interests of the Class A Members.

The tax matters member is authorized and required to represent the Company in connection with all examinations of the Company’s affairs by tax authorities, including resulting administrative and judicial proceedings, and to expend Company funds for professional services and costs associated therewith. The tax matters member shall have the final decision making authority with respect to all federal income tax matters involving the Company. The Members agree to cooperate with the tax matters member and to do or refrain from doing any or all things reasonably required by the tax matters member to conduct such proceedings. Any reasonable direct out-of-pocket expense incurred by the tax matters member in carrying out its obligations hereunder shall be allocated to and charged to the Company as an expense of the Company for which the tax matters member shall be reimbursed.

6. Tax Matters Related to Foreign Investors

6.1.1 Non-U.S. Investors

The discussion below is applicable solely to Non-U.S. Persons investing directly with the Company.

The Company will be required to withhold U.S. Federal income tax at the rate of up to thirty percent (30%), or lower treaty rate, if applicable on a Non-U.S. Person’s distributive share of any U.S. source Distributions the Company realizes and certain limited types of U.S. source interest. Withholding generally is not currently required with respect to gain from the sale of portfolio securities. The Company will, however, be required to withhold on the amount of gain realized on the disposition of a “U.S. real property interest” included in a Non-U.S. Person’s Distribution at a rate of up to thirty-nine percent (39%). Each Non-U.S. Person that invests in this Offering will be required to file a U.S. Federal income tax return reporting such gain. The Gain realized on the sale of all or any portion of a Membership Interest will, to the extent such gain is attributable to U.S. real property interests, be subject to U.S. income tax.

The Company will be required to withhold U.S. Federal income tax at the highest rate applicable for any “effectively connected taxable income” (as that term is defined by the IRS) allocated to a Non-U.S. Person, and the amount withheld will be available as a credit against the tax shown on such Person’s return. The computation of income effectively connected with the Company may be different from the computation of the Non-U.S. Person’s effectively connected income (because, for example, when computing the Company’s effectively connected income, net operating Losses from prior years are not available to offset the Company’s current income), so in any given year the Company may be required to withhold tax with respect to its Non-U.S. Person-Investors in excess of their individual Federal income tax liability for the year.

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If a Non-U.S. Person invests through an entity, it may be subject to the thirty percent (30%) branch profits tax on its effectively connected income. The branch profits tax is a tax on the “dividend equivalent amount” of a non-U.S. corporation (which may apply in the case of a limited liability company), which is approximately equal to the amount of such Company’s earnings and profits attributable to effectively connected income that is not treated as reinvested in the U.S. The effect of the branch profits tax is to increase the maximum U.S. Federal income tax rate on effectively connected income from thirty-five percent (35%) to over fifty percent (50%). Some U.S. income tax treaties provide exemptions from, or reduced rates for, the branch profits tax for “qualified residents” of the treaty country. The branch profits tax may also apply if a Non-U.S. Person claims deductions against their effectively connected income from the Company for interest on indebtedness of its non-U.S. Member.

The Company is authorized to withhold and pay over any withholding taxes and treat such withholding as a payment to the Non-U.S. Person if the withholding was required. Such payment will be treated as a Distribution to the extent that the Non-U.S. Person is then entitled to receive a Distribution. To the extent that the aggregate of such payments to a Non-U.S. Person for any period exceeds the Distributions to which they are entitled for such period, the Company will notify the Non-U.S. Person as to the amount of such excess and the amount of such excess will be treated as a loan by the Company to the Non-U.S. Person. If a Non-U.S. Person owns a Membership Interest directly on the date of death, its estate could be further subject to U.S. estate tax with respect to such Interest.

6.1.2 Foreign Person Withholding

The Company shall comply with all reporting and withholding requirements imposed with respect to Non-U.S. Persons, as defined in the Code, and any Member that is a Non-U.S. Person shall be obligated to contribute to the Company any funds necessary to enable the Company (to the extent not available out of such Member’s share of Distributable Cash or Net Proceeds of Capital Transactions) to satisfy any such withholding obligations. In the event any Member shall fail to contribute to the Company any funds necessary to enable the Company to satisfy any withholding obligation, the Manager shall have the right to offset against any payments due and owing to such Member, or its Affiliates, the amounts necessary to satisfy such withholding obligation, or, in the event the Company shall be required to borrow funds to satisfy any withholding obligation by reason of a Member’s failure to contribute such funds to the Company, the Manager shall have the right to offset against said Member’s present and future Distributions, an amount equal to the amount so borrowed plus the greater of (i) the Company’s actual cost of borrowing such funds, or (ii) the amount borrowed, multiplied by fifteen percent (15%).

6.1.3 Non-U.S. Taxes

The Company may be subject to withholding and other taxes imposed by, and the Non-U.S. Person might be subject to, taxation and reporting requirements in non-U.S. jurisdictions. It is possible that tax conventions between such countries and the U.S. (or another jurisdiction in which a non-U.S. Member is a resident) might reduce or eliminate certain of such taxes. It is also possible that in some cases, if the Non-U.S. Person is a taxable Member, it might be entitled to claim U.S. tax credits or deductions with respect to such taxes, subject to certain limitations under applicable law. The Company will treat any such tax withheld from or otherwise payable with respect to income allocated to the Company as cash the Company received and will treat the Non-U.S. Person as receiving a payment equal to the portion of such tax that is attributable to it. Similar provisions would apply in the case of taxes the Company is required to withhold.

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Appendix D: Definitions

Defined terms are capitalized in this Agreement. The singular form of any term defined below shall include the plural form and the plural form shall include the singular. Whenever they appear capitalized in this Agreement, the following terms shall have the meanings set forth below unless the context clearly requires a different interpretation:

Act shall mean the 2010 Nevada Code, codified in Title 7, Chapter 86 of the Act as may be amended from time to time, unless a superseding Act governing limited liability companies is enacted by the state legislature and given retroactive effect or repeals this Act in such a manner that it can no longer be applied to interpret this Agreement, in which case Act shall automatically refer to the new Act, where applicable, to the extent such re-interpretation is not contrary to the express provisions of this Agreement.

Additional Capital Contribution shall mean any contribution to the capital of the Company in cash, property, or services by a Member made subsequent to the Member’s initial Capital Contribution.

Additional Member shall mean any Person that is admitted to the Company as a new or additional member, based on the affirmative vote of the Class A Members holding a majority of the Class A Percentage Interests, (except in the event of a failed capital call - see Article 2.3 and Article 11.2), after offering of Interests to new Members has been closed by the Manager.

Advance, Advances or Member Loans shall have meanings as provided in Article 3 hereof.

Affiliate or Affiliated shall mean any Person controlling or controlled by or under common control with the Manager or a Member wherein the Manager or Member retains greater than fifty percent (50%) control of the Affiliate if an entity.

Agreement or Company Agreement shall mean this written agreement, which shall govern the affairs of the Company and the conduct of its business consistent with the Act or the Certificate of Formation, including all amendments thereto. No other document or other agreement between the Members shall be treated as part or superseding this Agreement unless it has been signed by all of the Members. This Company Agreement will supersede any prior versions of the Company Agreement.

Article when capitalized and followed by a number refers the sections of this Company Agreement and its Appendices.

Asset or Company Asset shall mean any real or personal property owned by the Company.

Bankrupt or Bankruptcy means, with respect to any Person, being the subject of an order for relief under Title 11 of the United States Code, or any successor statute or other statute in any foreign jurisdiction having like import or effect.

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Borrower shall mean those entities to whom the Company lends Company capital to in order to achieve the objectives of the Company.

Capital Account shall mean the amount of the capital interest of a Member in the Company consisting of that Member’s original contribution, as (1) increased by any additional contributions and by that Member’s share of the Company Profits, and (2) decreased by any Distribution to that Member and by that Member’s share of the Company’s Losses.

Capital Contribution or Contribution shall mean any contribution to the capital of the Company in cash, property, or services by a Member whenever made.

Capital Transaction shall mean the sale or disposition of a Company Asset.

Certificate of Formation shall mean the document filed with the Nevada Secretary of State pursuant to the formation of the Company, and any amendments thereto or restatements thereof.

Class A Members shall mean those Members who have purchased Class A Units.

Class A Interests shall mean the Units purchased by the Class A Members. The Class A Interests shall comprise ninety nine percent (99%) of the total Interests sold.

Class A Percentage Interest shall be determined by calculating the ratio between each Class A Member’s Capital Account in relation to the total capitalization of the Company provided by the Class A Members.

Class A Units shall mean the Units purchased by the Class A Members.

Class B Interest shall mean the one percent (1%) of the total Interests in the Company, which shall be issued to DIAMOND SKY CAPITAL, LLC (or its members or their Affiliates) in exchange for services.

Class B Members shall initially mean DIAMOND SKY CAPITAL, LLC (or its Affiliates and/or members), but may include others to whom the Manager may grant or allow to purchase Class B Interests. Issuance of the Class B Units is irrevocable even if DIAMOND SKY CAPITAL, LLC is removed as the Manager of the Company.

Code shall mean the Internal Revenue Code of 1986, as amended from time to time.

Company shall refer to 111 Crowdfunding, LLC, A Nevada limited liability company.

Company Minimum Gain has the meaning set forth in sections 1.704-2(b)(2) and 1.704-2(d) of the Treasury Regulations.

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Defaulting Member shall mean a Member who fails to make any portion of its Capital Contribution, including any Additional Capital Contribution the Member has elected to make within the time period permitted hereunder.

Disassociation shall mean an action of the Manager to remove a Member’s right to participate in management (i.e., removal of its voting Interest) for cause (per Article 12.1) or by operation of law (per Article 12.2).

Disassociated Member shall mean a Member who has been involuntarily disassociated from the Company by one of the actions described in Article 12.1 or 12.2, or by Voluntary Transfer of its Membership Interest to a Voluntary Transferee as described in Articles 11.3 through 11.5.

Dispute, when capitalized, shall have the meaning set for in Article 13 hereof.

Distributable Cash means all cash of the Company derived from Company operations or Capital Transactions and miscellaneous sources (whether or not in the ordinary course of business) reduced by: (a) the amount necessary for the payment of all current installments of interest and/or principal due and owing with respect to third party debts and liabilities of the Company during such period, including but not limited to any real estate commissions, property management fees, marketing fees, utilities, closing costs, holding costs, construction costs, etc., incurred by or on behalf of the Company; (b) the repayment of Advances, plus interest thereon; and (c) such additional reasonable amounts as the Manager, in the exercise of sound business judgment, determines to be necessary or desirable as a “Reserve” for the operation of the business and future or contingent liabilities of the Company. Distributable Cash may be generated through either operations or Capital Transactions.

Distribution, Distributions or Cash Distributions shall mean the disbursement of cash or other property to the Manager or Members in accordance with the terms of this Agreement.

Economic Interest shall mean a Person’s right to share in the income, gains, losses, deductions, credit, or similar items of, and to receive Distributions from, the Company, but does not include any other rights of a Member, including, without limitation, the right to vote or to participate in management, except as provided in the Act, and any right to information concerning the business and affairs of the Company.

Estimated Market Value shall mean the estimated market value of the Company, which shall be determined annually by the Manager and reported to the Members.

Fee shall mean an amount earned by the Manager or an Affiliate as compensation for various aspects of operation of the Company, as described in Article 5.2 hereof.

Fiscal Year shall mean the Company’s fiscal year, which shall be the calendar year.

Good Cause shall have the meaning set forth in Article 8.3 hereof.

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Gross Asset Value shall mean the asset’s adjusted basis for federal income tax purposes, except as follows: the initial Gross Asset Value of any asset contributed by a Member to the Company shall be the gross Estimated Market Value of such asset as determined annually by the Manager. Gross Asset Value may be adjusted pursuant to Code sections 734 and 754 whenever it is determined by the Manager that such adjustment is appropriate and advantageous.

Interest or Membership Interest shall mean a Member’s rights in the Company including the Member’s Economic Interest, plus any additional right to vote or participate in management, and any right to information concerning the business and affairs of the Company provided by the Act and/or described in this Agreement.

Investor shall mean a Person who is contemplating the purchase of Class A Units.

Involuntary Transfer shall mean any transfer not specifically authorized under Article 11.

Involuntary Transferee shall mean a Member’s heirs, estate, or creditors that have taken by foreclosure, receivership, or inheritance and not as a result of a Voluntary Transfer.

Losses shall mean, for each Fiscal Year, the losses and deductions of the Company determined in accordance with accounting principles consistently applied from year to year under the cash method of accounting and as reported, separately or in the aggregate as appropriate, on the Company’s information tax return filed for federal income tax purposes plus any expenditures described in section 705(a)(2)(B) of the Code.

Loans shall mean a specific type of asset-based loan financing through which a borrower (“Borrower”) receives funds secured by the value of a parcel of real estate.

Major Decisions shall mean those decisions listed in Article 6.4 hereof.

Majority of Interests shall mean Members whose collective Percentage Interests represent more than fifty percent (50%) of the Interests, whether in the Company or in a particular Class, as specified in specific provisions of this Agreement. Where no class is specified, a Majority of Interests refers to Members having a majority of the total interests in the Company, regardless of class.

Manager shall initially refer to DIAMOND SKY CAPITAL, LLC, A Nevada limited liability company and each of its officers, shareholders, directors, employees and agents or any other Person or Persons, as well as any of its Affiliates that may become a Manager pursuant to this Agreement as further described in Article 1.4 of this Agreement or any other Manager who shall be qualified and elected per Article 8 of this Agreement.

Member means only a Person who: (1) has been admitted to the Company as a Member in accordance with the Certificate of Formation or this Agreement, or an assignee of an Interest in the Company who has become a Member; (2) who has not resigned, withdrawn, or been expelled as a Member or, if other than an individual, been dissolved. Member does not include a Person who succeeds to the Economic Interest of a Member, unless such Person is admitted as a new, Substitute or Additional Member, in accordance with the provisions for such admission as further described herein.

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Member Nonrecourse Debt has the meaning set forth in section 1.704-2(b)(4) of the Treasury Regulations.

Member Nonrecourse Debt Minimum Gain means an amount, with respect to each Member Nonrecourse Debt, equal to the Company Minimum Gain that would result if such Member Nonrecourse Debt were treated as a Nonrecourse Liability, determined in accordance with section 1.704-2(i)(3) of the Treasury Regulations.

Member Nonrecourse Deductions has the meaning set forth in Treasury Regulation section 1.704-2(i)(2). For any Fiscal Year of the Company, the amount of Member Nonrecourse Deductions with respect to a Member Nonrecourse Debt equals the net increase during that Fiscal Year in Member Nonrecourse Debt Minimum Gain attributable to such Member Nonrecourse Debt during that Fiscal Year, reduced (but not below zero) by the amount of any Distributions during such year to the Member bearing the economic risk of loss for such Member Nonrecourse Debt if such Distributions are both from the proceeds of such Member Nonrecourse Debt and are allocable to an increase in Member Nonrecourse Debt Minimum Gain attributable to such Member Nonrecourse Debt, all as determined according to the provisions of Treasury Regulation section 1.704-2(i)(2). In determining Member Nonrecourse Deductions, the ordering rules of Treasury Regulation section 1.704-2(j) shall be followed.

Nonrecourse Deductions has the meaning set forth in Treasury Regulation section 1.704-2(c). The amount of Nonrecourse Deductions for a Company Fiscal Year equals the net increase in the amount of Company Minimum Gain during that Fiscal Year, reduced (but not below zero) by the aggregate amount of any Distributions during that Fiscal Year of proceeds of a Nonrecourse Liability that are allocable to an increase in Company Minimum Gain.

Nonrecourse Liability has the meaning set forth in section 1.704-2(b)(3) of the Treasury Regulations.

Notice of Sale shall have the meaning set forth in Article 11.5.1, pertaining to a Voluntary Transfer of a Member’s Interest.

Notice to Perform shall have the meaning set forth in Article 8.2.

Organization Expenses shall mean legal, accounting, and other expenses incurred in connection with the formation of the Company.

Percentage Interest shall mean the ownership interest in the Company of a Member, which shall be the calculated by dividing the number of Units purchased by the Member by the total number of Units (Class A or B) issued. See Article 2.2 of this Agreement; see also definition of Class A Percentage Interests above and Appendix B, Tables 1 and 2, attached to this Agreement.

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Person means an individual, a partnership, a domestic or foreign limited liability company, a trust, an estate, an association, a corporation, or any other legal entity.

Preferred Return shall mean a pre-tax non-cumulative annual return of eight percent (8%) (simple interest) on the outstanding amount of each such Class A Member’s initial capital contribution.

Procedure, when capitalized, shall refer to the Internal Dispute Resolution Procedure described in Article 13 hereof.

Profits shall mean, for each Fiscal Year, the income and gains of the Company determined in accordance with accounting principles consistently applied from year to year under the cash method of accounting and as reported, separately or in the aggregate as appropriate, on the Company’s informational tax return filed for federal income tax purposes plus any income described in section 705(a)(1)(B) of the Code.

Property or Properties shall mean those real properties on which the Company lends that are secured by a deed of trust or mortgage.

Purchasing Member shall mean any current Member (or member of the Manager) contemplating the purchase of all or any portion of the rights of membership in the Company of a Member, including the Member’s Economic Interest and/or voting rights referenced in Articles 11 and 12.

Remaining Members shall have the meaning set forth in Articles 11.5.3 and 12.3 hereof.

Removal Notice shall have the meaning set forth in Article 8.4 hereof.

Section, when capitalized and followed by a number, refers the sections of the Appendices to this Company Agreement.

Selling Member shall mean any Member that sells, assigns, hypothecates, pledges, or otherwise transfers all or any portion of its rights of membership in the Company, including its Economic Interest and/or voting rights.

Substitute Member or Substituted Member shall mean any Person or entity admitted to the Company, after approval by the Manager, with all the rights of a Member pursuant to Article 11.4 of this Agreement and Section 4.3 of Appendix C to this Agreement.

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Transferee, when capitalized, shall have the meaning set forth in Article 11.4 hereof.

Treasury Regulations shall mean the Regulations issued by the United States Department of the Treasury under the Code.

Unit shall mean the incremental dollar amount established by the Manager for sale of Interests that Investors can purchase in order to become Members of the Company. Note: Units issued by the Company are “personal property” and not “real property” Interests, thus, may be ineligible for exchange under federal tax law or “1031 exchange” rules.

Unreturned Capital Contributions means all Capital Contributions made by a Class A Member less any returned capital.

Voluntary Transfer shall have the meaning set forth in Article 11.

Working Capital and Reserves, Reserve or Reserves shall mean, with respect to any fiscal period, funds set aside or amounts allocated during such period to Reserves that shall be maintained in amounts deemed sufficient by the Manager for working capital and to pay taxes, insurance, debt service, or other costs or expenses incidental to the ownership or operation of the Company’s business.

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EX1A-6 MAT CTRCT.1

EXHIBIT 6.1

111 Capital

NOTE SERVICING AGREEMENT

1. THE AGREEMENT: This Agreement (“Agreement”) is made on____/____/_______and shall be performed in the State of Nevada between 111 Capital, Inc., a California corporation and licensed mortgage lender (“Servicer” and “Lender”), and 111 Crowdfunding, LLC a Nevada limited liability company (“Investor”), for mutual consideration herein evidenced. This Agreement defines the terms on which Servicer shall service note(s) and mortgage(s) made to a borrower (“Mortgagor”). Note(s) serviced under this Agreement shall be indentified on an Addendum(s) that will be attached to and made part of this Agreement.

In construing this Agreement and Servicer’s obligations hereunder, the standard of care shall be the customary and ordinary care prevailing in the mortgage note servicing industry.

2. INVESTOR RATE: The rate of interest to Investor on mortgage note(s) serviced under this Agreement shall be identified in the Addendum(s) to this Agreement, specific to each note, and payable monthly as described elsewhere in this Agreement.

3. SERVICER REPRESENTATIONS AND WARRANTIES: Servicer, as originator of the mortgage note(s) being serviced under this Agreement, represents and warrants as to each such mortgage note(s) to be serviced under this Agreement that:

a)	The mortgage note(s) was duly executed by the Mortgagor, acknowledged and recorded, and is a valid lien on the property as evidenced by the security instrument;
b)	The full principal amount of the mortgage note(s) has been advanced to the Mortgagor, either by payment direct to him or by payment made on his request or approval; the unpaid principal balance is as stated; all costs, fees, and expenses incurred in making, closing, and recording the mortgage have been paid; and no part of the mortgaged property has been released from the lien of the mortgage;
c)	There is in force a paid-up title insurance policy on the mortgage issued by a major title company in an amount at least equal to the outstanding principal balance of the mortgage;
d)	There is in force for each mortgage note(s) a hazard insurance policy; and
e)	All mortgage note(s) documents submitted to Investor are genuine, and all other representations as to each such mortgage are true and correct and meet the requirements and specifications of all parts of this Agreement.

 

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4. PROPERTY INSURANCE: Servicer shall use due diligence to provide proof to Investor that the property value including improvements on the premises securing each mortgage note(s) are kept insured by hazard insurance policies issued by companies acceptable to Investor, in an amount at least equal to the outstanding principal of the mortgage or the full insurable value of the improvements, whichever is less, and of a type at least as protective as fire and extended coverage. In the event of lapse of an applicable hazard insurance policy, because of non-payment by the Mortgagor or otherwise, Servicer, upon becoming aware of such lapse, will use diligence to obtain a hazard insurance policy from an insurer of its choice in an amount at least equal to the outstanding principal of the mortgage or the full insurable value of the improvements, whichever is less. Servicer may advance insurance costs on behalf of Investor, at the option of Servicer. Servicer shall invoice Mortgagor for insurance costs advanced by Servicer. If Mortgagor fails to reimburse Servicer within 30 days of invoice, then Investor shall reimburse Servicer for insurance costs advanced, within 30 days, upon written invoice.

5. PROPERTY CONDITION NOTICES: Servicer will notify Investor if it becomes aware of any of the following circumstances in connection with a mortgage note(s) being serviced under this Agreement:

a.	The failure of any Mortgagor to perform any obligations under the mortgage note(s);
b.	The sale or transfer of any premises securing the mortgage note(s);
c.	The death, bankruptcy, insolvency, or disability of a Mortgagor, which might impair such Mortgagor’s ability to repay the mortgage note(s); and
d.	Any loss or damage to any premises securing the mortgage note(s), in which event, in addition to notifying Investor, Servicer will notify the applicable insurance companies and file a claim or coordinate with the Mortgagor to file a claim.

Notwithstanding anything to the contrary in this Agreement, no notice need be given to the Investor of any facts other than those of which Servicer shall have actual notice, and notice to the Investor under this section shall not be required to be made in writing.

6. INVESTOR’S WRITTEN CONSENT FOR MODIFICATIONS REQUIRED: Servicer will not accept any prepayment of mortgage principal except as required by law, or as authorized by law and permitted by the terms of the mortgage note(s) agreement; nor shall Servicer waive, modify, release, or consent to postponement by the Mortgagor of any term or provision of the mortgage note(s), without the written consent of Investor.

7. PARTIAL SALE OF MORTGAGE: In the event Investor sells all or any part of its interest in a mortgage note(s) subject to this Agreement to a third party or parties, including the sale of participating interests in such mortgage note(s), such third parties shall succeed to all of the rights of Investor hereunder for the portion purchased and this Agreement shall remain in full force and effect.

 

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8. SERVICER COMPENSATION: Compensation of Servicer shall be up to 3% annually of the loan amount of performing loans being serviced. Servicer’s compensation shall be paid on a monthly basis. Servicer shall only be compensated from payments received from Mortgagor. Servicer shall not be compensated for services during which payments by Mortgagor or assigns are not received. In addition to the Servicer’s compensation described above, any ancillary fees earned in connection with servicing, including, but not limited to, late fees, NSF fees, note modification fees, document provision fees, wire fees, fax fees and the like, shall be paid to Servicer.

9. RECORD KEEPING: Servicer shall keep a complete, accurate, and separate account of and properly apply all sums collected by it from the Mortgagor on account of each such mortgage. Servicer shall perform such other customary duties, furnish such other reports, and execute such other documents in connection with its duties hereunder as Investor from time to time reasonably may require.

10. PAYMENTS TO INVESTOR:

a.	Servicer shall deposit all funds received from Mortgagor in repayment of note(s) owned by Investor in a segregated trust or custodial demand deposit account in a state or national bank, the deposits of which are insured by the Federal Deposit Insurance Corporation, or other acceptable State or Federal agency. Servicer shall hold such account in a name that evidences the trust nature of the account. Servicer shall maintain detailed records to show the respective interests of each individual mortgage note(s) in the account.
b.	From the monthly mortgage payments collected and deposited by the 8th of a particular month, Servicer shall distribute that portion of the payment’s attributable interest, at the rate set forth in Section 2 above by the 10th of the same month, or on the next business day if the 10th is a holiday or a day the depository is closed. Servicer will make distributions. Principal collected from Mortgagors on any mortgage note(s) being serviced under this Agreement will be distributed to Investors within five (5) business days from its receipt by Servicer, unless there is a separate agreement between Servicer and Investor whereby such principal is to be retained for reinvestment, in which case that agreement shall control as to distribution or reinvestment of principal. Servicer shall keep accurate books and records pertaining to all payments received from Mortgagors, and the distribution of such payments.
c.	Payments shall be made to Investor as indicated on the Addendums specific to each note(s) being serviced under this Agreement.
e.	In the event any Mortgagor fails to make a payment as required by the term of his/her mortgage note(s), Servicer will notify Investor of such fact within thirty (30) days after the same shall have become due and payable. Such notice is not required to be provided in writing.

SERVICER DOES NOT GUARANTEE THE PAYMENT OF INTEREST, PRINCIPAL, OR EXPENSES THAT HAVE NOT BEEN RECEIVED FROM THE MORTGAGOR. NOTWITHSTANDING ANYTHING TO THE CONTRARY IN THIS AGREEMENT, SERVICER’S OBLIGATION TO MAKE DISTRIBUTIONS TO INVESTOR UNDER THIS AGREEMENT ONLY APPLIES TO THE EXTENT THE FUNDS HAVE BEEN RECEIVED FROM THE MORTGAGOR(S).

 

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11. NOTICES AND PAYMENTS: Notices and Payments under this agreement shall be directed to the addresses below. Either party may change their address for notices and payments by providing written notice to the other party.

Servicer:

111 Capital, Inc.

1820 W. Carson St. Ste#204

Torrance, CA, 90501

310-929-7502

Investor:

111 Crowdfunding, LLC

810 E. Sahara Ave, #123

Las Vegas, NV 89104

702-425-9000

12. TERMINATION OF AGREEMENT: Investor may, by notice to Servicer, terminate this Agreement as to mortgages being serviced if:

a.	Servicer becomes insolvent or bankrupt or is placed under conservatorship or receivership;
b.	Servicer assigns or attempts to assign its rights and obligations hereunder, without written consent of Investor, which consent shall not be unreasonably withheld;
c.	In any event and without cause, upon sixty (60) days written notice and payment to Servicer of a sum equal to five percent (5%) of the aggregate principal unpaid balance of all mortgages being serviced for Investor under this Agreement; or
d.	In the event Mortgagor becomes more than sixty (60) days late on a scheduled payment.

13. DEFINITION OF SERVICER: The term “Servicer” as used herein shall mean the firm responsible for doing the actual servicing of the note(s), and such term shall encompass any Subservicer appointed by Servicer to perform note servicing functions at the request of Servicer.

 

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14. NON-PERFORMING NOTE: During the term of this Agreement, Servicer shall proceed diligently to collect all payments under the terms of each mortgage as they become due. If Mortgagor fails to make a scheduled note payment, then for the purposes of this Agreement, the note(s) will be referred to as a non-performing note (“NPN”). In the event of an NPN, Servicer shall make diligent efforts to encourage the Mortgagor to pay past due amounts promptly. Servicer, at Servicer’s sole discretion, shall decide which NPN services shall be utilized in each individual case in an effort to achieve resolution. NPN services provided by Servicer may include the following:

a.	Mortgagor Communications: Servicer will utilize a combination of telephone calls, default letters, and demand letters to inform Mortgagor that payment is late and to review the payment terms of the mortgage. Servicer will also inquire about what difficulties or problems are causing the NPN. In addition, the Servicer will encourage the Mortgagor to make arrangements to bring the note current immediately and/or make a commitment to bring the note current at a specified time in the immediate future;
b.	NPN Resolution: Servicer shall proceed diligently to administrate an equitable resolution to the NPN on behalf of the Investor. Servicer will utilize a combination of meetings with Mortgagor, property inspections, Mortgagor and project financial analysis, payment plans, and/or identification of a Third Party partner or Assignee to provide capital to bring payments current and fund project to completion;
c.	Collateral Repossession: After the 60th day respectively that a payment becomes past due, and at the written request of Investor, Servicer shall proceed diligently to administrate collateral repossession for the Investor. Collateral repossession services by Servicer may include facilitating an assignment of beneficial interest to the Investor if property title is held in a Land Trust, and/or facilitate the identification and retention of legal counsel for the purposes of filing and completing a foreclosure action;
d.	Assignment to Second Mortgage Holder: This paragraph applies only if there is a 2nd mortgage Investor that has an agreement with the 1st mortgage Investor, allowing the 2nd mortgage Investor the option of assuming Mortgagor’s position in the property in the event of a default. Servicer, at the request of the 2nd mortgage Investor, shall facilitate assignment to the 2nd mortgage Investor according to the terms of the option agreement. The option agreement typically will require the 2nd mortgage Investor to bring the 1st mortgage Investor current, maintain payments, capitalize and manage the project to completion; and
e.	Collateral Liquidation: Upon successful collateral repossession for Investor, Servicer, at Investor’s request, shall facilitate the identification of a capital recovery service. The identified service company shall offer a complete management and liquidation service for Investor. Servicer may offer the services of directly-affiliated entity and/or identify an outside third party capital recovery service for Investor.

15. EXPENSES: If Mortgagor fails to make necessary payments to maintain and protect subject property, then Investor shall be responsible for all such expenses, including expenses incurred to repossess and/or liquidate subject property, if necessary. Investor, at Investor’s sole discretion, shall determine which expenses shall be incurred under this paragraph. Expenses in this section refer to outside party expenses. Upon advanced notice to Investor, Servicer may advance outside party expenses on behalf of Investor. Investor shall reimburse Servicer for all outside party expenses advanced within thirty (30) days of written invoice. Notices under this section are not required to be in writing.

 

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16. ENTIRE AGREEMENT: This document contains the entire agreement between the parties and cannot be modified in any respect except by an amendment in writing signed by both parties. This document is the entire agreement and incorporates all previous discussions and understandings about subject mortgage, property, and servicing agreement. The invalidity of any portion of this Agreement shall in no way affect the balance thereof.

17. TERM OF THE AGREEMENT: This Agreement shall remain in effect until:

a.	Investor’s interest in the mortgages being serviced under this Agreement is liquidated completely;
b.	The title to subject property or beneficial interest, if title to subject property is held in a land trust, is transferred from Mortgagor to Investor, other mortgage holder, or assigns;
c.	This Agreement is terminated in accordance with Section 12 above, as applicable; or
d.	Servicer terminates this Agreement for any reason and without cause, upon ninety (90) days written notice to Investor stating that it intends to terminate this agreement, or if it is ordered by any governmental agency with jurisdiction over its activities to cease servicing mortgage notes. Upon notice of termination, Investor may request the note(s) be transferred to another Servicer, of Investor’s selection, or assume servicing directly.

18. AGREEMENT: This Agreement shall apply to note(s) and mortgage(s) for the property address(s) indicated on the attached Addendum(s). The term of this Agreement shall be for the life of the note(s) and mortgage(s), or the extension thereof, indicated on attached Addendum(s), unless earlier terminated as provided elsewhere under the terms of this Agreement.

19. INTEREST REPORTING: Servicer agrees that interest paid on a mortgage note(s) by mortgagors will be reported to the Internal Revenue Service on Form 1099 (Interest Reporting Form). Servicer understands that failure to report interest paid may result in a $50.00 penalty to Servicer by the IRS.

20. FORCE MAJEURE: Any obligation of either party under this Agreement is expressly made subject to the condition that if circumstances beyond the reasonable control of such party make its performance impossible, or would raise materially the cost of performance, then the time of performance shall be extended until a date that is reasonably practicable for performance or until the end of the circumstance giving rise to the delay. This section shall be operative in the following circumstances, among other: acts of God, war, earthquake, terrorism, power outages, civil disturbances, labor shortages or strikes, imposition of martial law, and similar economic disruptions of the market.

IN WITNESS WHEREOF, each party has caused this instrument to be signed on its behalf by its duly authorized officials, as of the date set forth above.

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EX1A-11 CONSENT

EXHIBIT 11

CONSENT OF INDEPENDENT AUDITOR

We consent to the use in the Offering Circular constituting a part of this Offering Statement on Form 1-A, as it may be amended, of our Independent Auditor’s Report dated April 25, 2017 relating to the balance sheet of 111 Crowdfunding, LLC as of December 31, 2016 and December 31, 2015, and the related statements of operations, changes in partners’ capital, and cash flows for the periods from inception to December 31, 2016, and the related notes to the financial statements.

/s/ IndigoSpire CPA Group, LLC

Aurora, CO

December 6, 2017

www.indigospire.com

EX1A-12 OPN CNSL

EXHIBIT 12

111 Crowdfunding, LLC

c/o Diamond Sky Capital, LLC

Hajime Kakuuchi

1810 E. Sahara Avenue, #123

Las Vegas, NV 89014-3735

(702) 425-9000

August 23, 2017

Re: Qualification Statement for 111 Crowdfunding, LLC on Form 1-A

 

To whom it may concern:

I have been retained by 111 Crowdfunding, LLC (the "Company"), in connection with the Qualification Statement (the "Qualification Statement") on Form 1-A, relating to the offering of 50,000 Class A Interests to be sold. You have requested that I render my opinion as to whether or not the securities proposed to be issued on terms set forth in the Qualification Statement will be validly issued, fully paid, and non-assessable. The purchasers of the securities will have no obligation to make payments to the Company other than the price for the securities. Purchasers will not have any obligations to creditors of the Company due to the purchasers’ ownership of the Preferred Membership Interests.

In connection with the request, I have examined the following:

1.	Articles of Organization of the Company;
2.	Operating Agreement of the Company; and
3.	The Qualification Statement

I have examined such other corporate records and documents and have made such other examinations, as I have deemed relevant.

Based on the above examination, I am of the opinion that the securities of the Company to be issued pursuant to the Qualification Statement are validly authorized and will be validly issued, fully paid and non-assessable.

I hereby consent to the filing of this opinion as an exhibit and to the Qualification Statement and to the reference to our firm under “Experts” in the related Prospectus. In giving the foregoing consent, we do not hereby admit that we are in the category of persons whose consent is required under Section 7 of the Securities Act, or the rules and regulations of the Securities and Exchange Commission.

Sincerely,

/s/ Jillian Ivey Sidoti, Esq.

38730 Sky Canyon Drive, Ste A, Murrieta, CA 92563

EX1A-15 ADD EXHB

EXHIBIT 15

August 12, 2017

To:	Board of Managers, 111 Crowdfunding, LLC
Re:	Tax Opinion - Form 1-A Offering Statement

This opinion letter (the “Opinion”) is being furnished to you as the management of 111 Crowdfunding, LLC (the “Company”) pursuant to Item 608(b)(8) of Regulation S-K in connection with your submission of a Form 1-A offering registration statement under Title IV of the JOBS Act (“Offering Documents”) to the United States Securities and Exchange Commission. The Opinion complies with the requirements for written advice as outlined in Treasury Circular 203, § 10.37(a)(2) as outlined below.

We base the Opinion on reasonable factual and legal assumptions including assumptions as to future events. The assumptions are derived from your reasonable representations to us as well as the relevant legal documents pertinent to the Opinion (e.g. the Offering Documents, state filings, etc.). You should carefully review the Background and Relevant Facts section of this Opinion for accuracy and completeness as well as any request for a management representations letter. Any clarifications should be provided immediately as we reasonably rely on the truthfulness of your representations in the Opinion.

Disclaimer

The Opinion is limited to the matters discussed below and is valid only pertaining to matters of US federal taxation (unless otherwise noted) according to the statutes, regulation, case law and other guidance in effect as of the date of the Opinion. References to tax law are as contained in the Internal Revenue Code of 1986, as amended (the “Code” or “IRC”) and the regulations thereunder (“Treas. Reg.” or the “Regulations”).

The Opinion cannot, and specifically does not, provide for the specific tax treatment of any issue with respect to any individual or group of investors. Each investor’s tax situation can be different based on residency, entity form, applicable rates, mechanisms for taxation and other factors. Investors should seek their own competent advice.

Background and Relevant Facts

1. The Company is a duly formed limited liability company organized and registered in the state of Nevada. The Company was formed on November 19, 2015 as Continental Funding LLC. On February 17, 2017, the Company was renamed 111 Crowdfunding LLC with the state of Nevada. Despite the name change, the Company remained a limited liability company.

FS-2

2.	The Company will be managed exclusively by a manager (the “Manager”) and members will not participate in the management of the Company except in very limited circumstances (e.g. the removal of a manager, etc.).
3.	Interests in the Company are not sold on an established securities market nor will the interests of the Company be readily tradeable on a secondary securities market.
4.	The Company will earn more than 90 percent of its gross income in each taxable year in the form of interests, dividends, real property rents, gain from the sale or disposition of real or capital property or natural resource exploitation or as described in IRC § 7704(d) (“Qualifying Income”).
5.	The Company is not in bankruptcy nor is it a regulated investment company, a real estate investment trust or a real estate mortgage investment conduit for US federal income tax purposes.
6.	The Manager has not filed an Entity Classification Election, Form 8832, with respect to the Company.
7.	The Company is engaged in a bona fide, profit-seeking business in which managers will use members’ capital to allocate to investments that the Manager deems best.
8.	The avoidance or evasion of US federal income tax is not a significant purpose of the formation of the Company.
9.	The operations of the Company are not anticipated or expected to give rise to transactions determined by the Treasury Secretary to be “reportable” or “listed” transactions within the meaning of IRC § 6707A(c)(1) and (2).
10.	The Company will allocate items of taxable income, deductions, gains, losses and credits in accordance with the Company’s operating agreement affecting members’ capital accounts and giving the allocations to members and Manager substantial economic effect.
11.	The formation and operations of the Company have real economic substance within the meaning of IRC § 7701(o).

Issues Addressed

1.	What is the proper US federal income tax classification of the Company?
2.	What is the tax treatment to the Company of members’ securities subscriptions?
3.	How should income, deductions and credits be allocated to members?

Conclusions

1. The Company should be classified as a partnership for US federal income tax purposes.

FS-3

	However, if the interest of the Company become readily tradeable on a secondary market, then the Company could be treated as a publicly traded partnership (“PTP”). If, the Company becomes a PTP and less than 90 percent of its gross income is Qualifying Income, the Company should be treated as a taxable corporation.
	For the sake of completeness, the Company should not be classified as a tax shelter nor required to register as such. In 2004, the Code was amended to remove tax shelter registration requirements in favor of registration of material advisors in certain listed or reportable transactions. The Company should not be subject to that material advisor registration requirement.
2.	The proceeds from the issuance of membership interest in the Company in connection with the Offering Documents should not be treated as taxable income to the Company.
3.	Items of income, deductions and credits should be allocated to members in accordance with the operating agreement of the Company.
	Generally, these items would be taxable to the members rather than the Company and should be considered “passive” in nature with respect to the passive activity loss rules.
	Allocations of income to non-US taxpayers is subject to IRC § 1446, or IRC § 1445 in the case of gains allocated to non-US taxpayers from the sale of real property located in the US, and requires the Company to withhold and remit certain income taxes.

Discussion and Analysis

Classification of the Company

In the absence of another provision, the default treatment of an entity is governed by the subsections of Treas. Reg. § 301.7701-3. Under these regulations, a domestic, non-corporate entity with two or more members is treated as a partnership for US federal income tax purposes (Treas. Reg. § 301.7701-3(b)(1)(i)) by default. Domestic, non-corporate entities are eligible to make an entity classification election under Treas. Reg. § 301.7701-3(c) to be treated as a corporation.

The provisions above notwithstanding, IRC § 7704 provides that certain partnerships, even without making an entity classification election to be treated as a corporation, may be taxed as a corporation if they are a PTP where less than 90 percent of the income of the entity is Qualifying Income.

A partnership is a PTP if the interests in the partnership are traded on an established securities market or readily tradable on a secondary market (IRC § 7704(b)).

A PTP will be treated and taxed as a corporation if less than 90 percent of its gross income in any taxable year is Qualifying Income. IRC § 7704(d) provides that Qualifying Income consists of interest, dividends, real property rents, gain from the sale or disposition of real property, income or gains derived from the exploration of certain natural resources, gain from the sale or disposition of a capital asset.

- Analysis

FS-4

The Company is a limited liability company and not a corporate entity. The Company has or will have more than one owner. The Manager did not file an entity classification election. The Company is not a PTP. Therefore, the Company should be treated as a partnership for US federal income tax purposes.

If, through circumstances beyond its control, the Company’s interests become readily tradable on a secondary exchange or marketplace, the Company could become a PTP. If, as a PTP, the constitution of gross income of the Company falls below 90 percent Qualifying Income, then the Company will be treated and taxed as a corporation.

For entities created after October 22, 2004, the American Jobs Creation Act of 2004 removed the tax shelter registration requirements and replaced them with a registration mechanism for material advisors of reportable or listed transactions contained in IRC § 6662. As the Company is not engaged, nor planning to engage in, reportable or listed transactions, the provisions of IRC § 6662 are not expected to apply.

Treatment of Members’ Subscriptions

IRC § 721(a) provides that a partnership should not recognize gain or loss in the case of property (including cash subscriptions) contributed to a partnership in exchange for an interest in the partnership.

- Analysis

Members’ capital commitments are treated as property contributed to a partnership in exchange for an interest in the partnership. Therefore, under the terms of the Offering Documents, the Company should not recognize income on the receipt of members’ capital proceeds.

Allocation of Income to Members

IRC § 701 provides that partnerships are generally not subject to income tax on their own account. The mechanism for taxation is to pass all items of income, loss, deductions, credits, etc. to the members in their proportionate share, subject to important exceptions for property other than cash (IRC § 704) or allocations to non-US partners. IRC § 469 provides that the income or loss allocated from the partnership should be considered “passive” when derived from activities where the partner does not materially participate in the business.

To minimize abusive partnership allocations, the Code and Regulations provide that property contributed to a partnership with a different fair market value than tax basis requires adjustments to the allocations (IRC § 704(c)). As the Offering Documents prescribe the contribution of cash, a further discussion of special allocations is not necessary.

To provide for efficient tax collection from non-US partners, the Code requires partnership to collect and remit withholding taxes on certain amounts allocable to non-US partners that is effectively connected with the conduct of a US trade or business (IRC § 1445) or gains from the sale of real property interests located in the US (IRC § 1446). A further discussion of these non-US partner withholdings can be provided at the appropriate time.

- Analysis

FS-5

The Offering Documents provide extensive provisions on how items are to be allocated among the different classes of interests as well as in what percentage of those different classes. The allocations are reflected in capital accounts and have substantial economic effect. Therefore, the individual items of income, loss, deductions, credits, etc. should flow-through to the partners in their proportionate share.

Because members do not materially participate in the Company, their income or loss should generally be considered “passive” with respect to the passive activity loss rules.

Special allocation provisions should not be applicable to the Company as the partners will only be contributing cash in exchange for interests in the Company.

Withholding provisions for non-US partners can be discussed in more detail as they become applicable but further conclusions are outside the scope of the Opinion.

Please let us know if you have any questions or concerns regarding the above.

Best regards,

IndigoSpire Advisors

IndigoSpire Advisors, LLC

San Jose, CA