Form 1-A ERC Communities 1, Inc.

  
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      ERC Communities 1, Inc.
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      2738 FALKENBURG RD. S.
      RIVERVIEW
      FL
      33578
      813-621-5000
      Jamie Ostrow
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PRELIMINARY OFFERING CIRCULAR DATED MAY 23, 2022

 

ERC COMMUNITIES 1, INC.

 

 

2738 FALKENBURG ROAD SOUTH 

RIVERVIEW, FL 33578 

(813) 621-5000

 

Up to 2,000,000 shares of Preferred Stock and 

up to 2,000,000 shares of Class A Common Stock into which the Preferred Stock may convert*

 

Minimum investment 60 shares of Preferred Stock ($750)

 

SEE “SECURITIES BEING OFFERED” AT PAGE 42

 

		Price to Public				Broker-Dealer discount and commissions (1)				Proceeds to issuer (2)				Proceeds to other persons
Price Per share		$	12.50			$	0.125			$	12.375			$	0
Total Maximum		$	25,000,000			$	250,000			$	24,750,000			$	0

 

*The Preferred Stock is convertible into Class A Common Stock either at the discretion of the investor or automatically upon effectiveness of registration of the securities in an initial public offering. The total number of shares of the Class A Common Stock into which the Preferred may be converted will be determined by dividing the original issue price per share by the conversion price per share. See “Securities Being Offered” at Page 42 for additional details.

 

(1)

The company has engaged Dalmore Group, LLC, member FINRA/SIPC (“Dalmore”), to perform administrative and technology related functions in connection with this offering, but not for underwriting or placement agent services. This includes the 1% commission, but it does not include the one-time set-up fees payable by the company to Dalmore of $29,250. See “Plan of Distribution” for details.

 

(2)

The company expects that, not including state filing fees, the minimum amount of expenses of the offering that we will pay will be approximately $80,000 regardless of the number of shares that are sold in this offering. In the event that the maximum offering amount is sold, the total offering expenses will be approximately $250,000.

 

 

This offering will terminate at the earlier of the date at which the maximum offering amount has been sold or the date at which the offering is earlier terminated by the company at its sole discretion. Unless terminated, at least every 12 months after the Offering Statement has been qualified by the United States Securities and Exchange Commission (the “SEC”), the company will file a post-qualification amendment to include the company’s recent financial statements. The Company may undertake one or more closings on a rolling basis. After each closing, funds tendered by investors will be available to the Company.

 

No Escrow Agent has been retained as part of this Offering.

 

After each closing, funds tendered by investors will be held in a segregated account owned by the company, but with viewing privileges assigned to our broker-dealer, Dalmore, and will remain in that account until cleared. For details, see “Process of Subscribing.” As there is no minimum offering, provided that an investor purchases shares in the amount of the minimum investment, $750 (60 shares), upon the clearance of any subscription to this Offering Circular and receipt of funds, the company may immediately deposit those funds into the bank account of the company and may use the proceeds in accordance with the Use of Proceeds.

 

Subscriptions are irrevocable and the purchase price is non-refundable as expressly stated in this Offering Circular. All proceeds received by the company from subscribers for this Offering will be available for use by the company upon acceptance of subscriptions and receipt of funds for the Securities by the company.

 

Each holder of ERC 1’s Class A preferred stock (“Class A Preferred Stock”) is entitled to one vote for each share on all matters submitted to a vote of the stockholders. Holders of Class A Preferred Stock will vote together with the holders of Common Stock as a single class on all matters (including the election of directors) submitted to vote or for the consent of the stockholders of ERC 1. Holders of the Common Stock will continue to hold a majority of the voting power of all of the company’s equity stock at the conclusion of this offering and therefore control the board.

 

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

 

This offering is inherently risky. See “Risk Factors” on page 10.

 

Sales of these securities will commence on [__________], 2022.

 

The company is following the “Offering Circular” format of disclosure under Regulation A.

 

In the event that we become a reporting company under the Securities Exchange Act of 1934, we intend to take advantage of the provisions that relate to “Emerging Growth Companies” under the JOBS Act of 2012. See “Implications of Being an Emerging Growth Company.”

 

 

TABLE OF CONTENTS

 

Summary	4
Risk Factors	10
Dilution	19
Plan of Distribution	22
Use of Proceeds to Issuer	25
The Company’s Business	26
The Company’s Property	33
Conflicts of Interest	34
Management’s Discussion and Analysis of Financial Condition and Results of Operations	35
Directors, Executive Officers and Significant Employees	37
Compensation of Directors and Officers	39
Security Ownership of Management and Certain Securityholders	40
Interest of Management and Others in Certain Transactions	41
Securities Being Offered	42
Financial Statements	F-1

 

In this Offering Circular, (the “Offering Circular”) the term “ERC Communities,” “ERC Communities 1,” “ERC 1,” “we,” “us” “our” or “the company” refers to ERC Communities 1, Inc., (f/k/a “ERC Homebuilders 1, Inc.) a Delaware corporation and its subsidiaries ERC Zephyrhills, LLC (“ERC Zephyrhills”) and ERC Wesley Chapel, LLC (“Wesley Chapel”).

 

THIS OFFERING CIRCULAR MAY CONTAIN FORWARD-LOOKING STATEMENTS AND INFORMATION RELATING TO, AMONG OTHER THINGS, THE COMPANY, ITS BUSINESS PLAN AND STRATEGY, AND ITS INDUSTRY. THESE FORWARD-LOOKING STATEMENTS ARE BASED ON THE BELIEFS OF, ASSUMPTIONS MADE BY, AND INFORMATION CURRENTLY AVAILABLE TO THE COMPANY’S MANAGEMENT. WHEN USED IN THE OFFERING MATERIALS, THE WORDS “ESTIMATE,” “PROJECT,” “BELIEVE,” “ANTICIPATE,” “INTEND,” “EXPECT” AND SIMILAR EXPRESSIONS ARE INTENDED TO IDENTIFY FORWARD-LOOKING STATEMENTS, WHICH CONSTITUTE FORWARD LOOKING STATEMENTS. THESE STATEMENTS REFLECT MANAGEMENT’S CURRENT VIEWS WITH RESPECT TO FUTURE EVENTS AND ARE SUBJECT TO RISKS AND UNCERTAINTIES THAT COULD CAUSE THE COMPANY’S ACTUAL RESULTS TO DIFFER MATERIALLY FROM THOSE CONTAINED IN THE FORWARD-LOOKING STATEMENTS. INVESTORS ARE CAUTIONED NOT TO PLACE UNDUE RELIANCE ON THESE FORWARD-LOOKING STATEMENTS, WHICH SPEAK ONLY AS OF THE DATE ON WHICH THEY ARE MADE. THE COMPANY DOES NOT UNDERTAKE ANY OBLIGATION TO REVISE OR UPDATE THESE FORWARD-LOOKING STATEMENTS TO REFLECT EVENTS OR CIRCUMSTANCES AFTER SUCH DATE OR TO REFLECT THE OCCURRENCE OF UNANTICIPATED EVENTS.

 

 

SUMMARY

 

Overview

 

ERC Communities 1, Inc., a Delaware corporation (“ERC 1”) aims to develop manufactured home rental communities (“MHR”) in Florida and then expand to other state specific locations in the United States. These communities are also often referred to as “Built for Rent” communities.

 

ERC 1 was incorporated in Delaware on October 24, 2018, as ERC Home Builders South Florida, Inc. On February 19, 2019, the company changed its name to ERC Homebuilders 1, Inc., and then subsequently changed its name to ERC Communities 1, Inc. on December 3, 2020. ERC 1 is a subsidiary of ERC Communities, Inc., (“ERC Parent”). ERC Communities 1 is currently the only operating subsidiary of ERC Parent

 

As of May 23, 2022, ERC 1 has one wholly owned subsidiary, ERC Zephyrhills, LLC (“ERC Zephyrhills”), a Florida limited liability. ERC Zephyrhills owns a 60-unit development site in Zephyrhills, Florida (“ERC Zephyrhills 1”), and intends to acquire an additional 60-unit site adjacent to the existing site (“ERC Zephyrhills 2”). The company is not currently profitable.

 

Below are approximate statistics related to each property that the company has acquired and/or intends to acquire as of May 23, 2022.

 

STATISTICS	ERC ZEPHYRHILLS 1	ERC ZEPHYRHILLS 2
PROPERTY INFORMATION
Purchase Price	$750,000	$600,000
Development Costs	Approximately $11,150,000	Approximately $11,350,000
Funding	ERC Zephyrhills has secured: ·     $4,200,000 in construction financing ·     $3,900,000 of manufactured home financing, and ·     is pursuing approximately $3,050,000 of joint venture equity to be combined with share sales from this offering.
Status	The company has not yet broken ground on this project.	The company believes that this purchase will close before the end of the second quarter of 2022.
Address	39575 North Avenue, Zephyrhills, FL 33542	Adjoining land next to 39575 North Avenue, Zephyrhills, FL 33542
Intended Number of Units on the Property	60	60
Total Property Acreage	9.34 acres	9.77 acres
Approximate square foot of each manufactured home	1,375 square feet	1,375 square feet
Number of Bedrooms	3	3
Number of Bathrooms	2	2
Backyard	Yes	Yes
Parking Slab	Yes	Yes
Community Amenities	Picnic areas	Picnic areas

 

 

*The company reserves the right to change the above estimated statistics if management believes it is in the best interest of the company.

 

The Offering

 

Securities offered		Up to 2,000,000 shares of Class A Preferred Stock and up to 2,000,000 shares of Class A Common Stock into which they may convert.
Class A Stock Common outstanding before the offering		0 shares of Class A Common Stock.
Class A Preferred Stock outstanding before the offering		64,318 shares of Class A Preferred Stock.
Class A Preferred Stock outstanding after the offering		2,064,318 shares of Class A Preferred Stock
Share Price		$12.50 per share
Minimum Investment		$750 (60 shares)

 

Terms of the Preferred Stock

 

Holders of the Class A Preferred Stock are entitled to the following:

 

·

Dividend distribution:

 

o

Accrual of dividends:

 

§

Investors in this offering will begin to accrue an annual 10% dividend after the issuance of their Class A Preferred Stock.

 

§

Payment of dividends:

 

·

Payments will be made monthly providing legally available funds are available.

 

·

Declared dividends

 

o

In the event the company declares a dividend distribution to the Common Stockholders, holders of Class A Preferred Stock will receive dividend distribution. Dividends will be distributed to holders on a pro-rata on an as converted basis.

 

·

Voting:

 

o

Holders of the Class A Preferred Stock are entitled to one vote for each share on all matters submitted to a vote of the shareholders.

 

o

Holders of Class A Preferred Stock at all times will vote together with the holders of Common Stock as a single class on all matters (including the election of directors) submitted to vote or for the consent of the stockholders of ERC 1.

 

o

Holders of Class B Common Stock (currently held exclusively ERC Parent) are entitled to five votes per share (see, “Risk Factors – The officers of ERC 1 control the company and the company does not currently have any independent directors”) and thus will control the board.

 

·

Liquidation preference:

 

o

In the event of a liquidation, investors will be entitled to receive the greater of the amount of their total investment in the shares of Class A Preferred Stock and any accrued and unpaid dividends or their pro rata percentage of the proceeds calculated based on the number of shares owned by each investor on an “as converted to Common Stock” basis.

 

 

·

Conversion:

 

o

Holders of the Class A Preferred Stock may convert their shares of Class A Preferred Stock into Class A Common Stock in their sole discretion.

 

o

In the event of an initial public offering, as defined in the Amended and Restated Certificate of Incorporation, conversion of the Class A Preferred Stock is mandatory.

 

o

Anti-dilution protection is provided to holders of the Class A Preferred Stock using the weighted average method. See, “Securities Being Offered – Class A Preferred Stock – Anti-Dilution Rights”; Section 5 of the Amended and Restated Certificate of Incorporation, filed as an exhibit to this Offering Statement of which this Offering Circular forms a part.

 

Implications of Being an Emerging Growth Company

 

We are not subject to the ongoing reporting requirements of the Securities Exchange Act of 1934, as amended (the “Exchange Act”) because we are not registering our securities under the Exchange Act.  Rather, we will be subject to the more limited reporting requirements under Regulation A, including the obligation to electronically file:

 

●

annual reports (including disclosure relating to our business operations for the preceding two fiscal years, or, if in existence for less than two years, since inception, related party transactions, beneficial ownership of the issuer’s securities, executive officers and directors and certain executive compensation information, management’s discussion and analysis (“MD&A”) of the issuer’s liquidity, capital resources, and results of operations, and two years of audited financial statements),

 

●

semiannual reports (including disclosure primarily relating to the issuer’s interim financial statements and MD&A) and

 

●

current reports for certain material events.

 

In addition, at any time after completing reporting for the fiscal year in which our offering statement was qualified, if the securities of each class to which this offering statement relates are held of record by fewer than 300 persons and offers or sales are not ongoing, we may immediately suspend our ongoing reporting obligations under Regulation A.

 

If and when we become subject to the ongoing reporting requirements of the Exchange Act, as an issuer with less than $1.07 billion in total annual gross revenues during our last fiscal year, we will qualify as an “emerging growth company” under the Jumpstart Our Business Startups Act of 2012 (the “JOBS Act”) and this status will be significant. An emerging growth company may take advantage of certain reduced reporting requirements and is relieved of certain other significant requirements that are otherwise generally applicable to public companies. In particular, as an emerging growth company we:

 

●

will not be required to obtain an auditor attestation on our internal controls over financial reporting pursuant to the Sarbanes-Oxley Act of 2002;

 

●

will not be required to provide a detailed narrative disclosure discussing our compensation principles, objectives and elements and analyzing how those elements fit with our principles and objectives (commonly referred to as “compensation discussion and analysis”);

 

●

will not be required to obtain a non-binding advisory vote from our shareholders on executive compensation or golden parachute arrangements (commonly referred to as the “say-on-pay,” “say-on-frequency” and “say-on-golden-parachute” votes);

 

●

will be exempt from certain executive compensation disclosure provisions requiring a pay-for-performance graph and CEO pay ratio disclosure;

 

 

●

may present only two years of audited financial statements and only two years of related Management’s Discussion and Analysis of Financial Condition and Results of Operations, or MD&A; and

 

●

will be eligible to claim longer phase-in periods for the adoption of new or revised financial accounting standards.

 

We intend to take advantage of all of these reduced reporting requirements and exemptions, including the longer phase-in periods for the adoption of new or revised financial accounting standards under Section 107 of the JOBS Act. Our election to use the phase-in periods may make it difficult to compare our financial statements to those of non-emerging growth companies and other emerging growth companies that have opted out of the phase-in periods under Section 107 of the JOBS Act.

 

Under the JOBS Act, we may take advantage of the above-described reduced reporting requirements and exemptions for up to five years after our initial sale of common equity pursuant to a registration statement declared effective under the Securities Act of 1933, as amended, or such earlier time that we no longer meet the definition of an emerging growth company. Note that this offering, while a public offering, is not a sale of common equity pursuant to a registration statement, since the offering is conducted pursuant to an exemption from the registration requirements. In this regard, the JOBS Act provides that we would cease to be an “emerging growth company” if we have more than $1.07 billion in annual revenues, have more than $700 million in market value of our common stock held by non-affiliates, or issue more than $1 billion in principal amount of non-convertible debt over a three-year period.

 

Certain of these reduced reporting requirements and exemptions are also available to us due to the fact that we may also qualify, once listed, as a “smaller reporting company” under the Commission’s rules. For instance, smaller reporting companies are not required to obtain an auditor attestation on their assessment of internal control over financial reporting; are not required to provide a compensation discussion and analysis; are not required to provide a pay-for-performance graph or CEO pay ratio disclosure; and may present only two years of audited financial statements and related MD&A disclosure.

 

 

Summary Risk Factors

 

Our business expects to be subject to a number of risks and uncertainties, including those highlighted in the section titled “Risk Factors” immediately following this summary. These risks include, but are not limited to, the following:

 

●

This is a relatively new company.

 

●

The company’s auditor has issued a “going concern” opinion.

 

●

The company has minimal operating capital, no significant assets and no revenue from operations.

 

●

The success of ERC 1’s business is dependent on purchasing large and specific parcels of land at favorable prices.

 

●

The company plans to raise significantly more capital and future fundraising rounds could result in dilution.

 

●

Your investment is directly affected by general economic and regulatory factors that impact real estate investments.

 

●

General economic conditions and the concentration of our properties in Florida may affect our ability to sell the properties and/or to generate sufficient revenue.

 

●

Success in the real estate industry can be highly unpredictable and there is no guarantee the company’s business model will be successful in the market.

 

●

The company may not secure pre-commitments for developments prior to breaking ground.

 

●

If we successfully develop our manufactured homes and Build-For-Rent communities but are not able to sell them in a timely manner, we may need to operate the and manage the properties as owners, which would add additional operational expenses and may result in significant losses.

 

●

Geographic concentration of our portfolio may make us particularly susceptible to adverse economic developments in the real estate markets of those areas.

 

●

Our operating results may be negatively affected by potential development and construction delays and the resulting increase in costs and risks.

 

●

Potential development and construction delays and increases in the prices of building materials due to tariffs or other reasons and resultant increased costs and risks may hinder our operating results and decrease our net income.

 

●

Terrorist attacks and other acts of violence or war may affect the markets in which we operate, our operations and our profitability.

 

●

The costs of complying with environmental laws and other governmental laws and regulations may adversely affect us.

 

●

ERC 1 operates in a highly competitive market.

 

●

Customer complaints or litigation on behalf of our customers or employees may adversely affect our business, results of operations or financial condition.

 

●

The company’s insurance coverage may not be adequate to cover all possible losses that it could suffer and its insurance costs may increase.

 

●

The company has concentrated its investments single-family homes to be built in smaller groupings, which are subject to numerous risks, including the risk that the values of their investments may decline if there is a prolonged downturn in real estate values.

 

 

●

The illiquidity of real estate may make it difficult for the company to dispose of one or more of our properties or negatively affect its ability to profitably sell such properties and access liquidity.

 

●

The company’s development and construction of properties depends on its ability to obtain favorable mortgage financing and, in some cases, guarantees.

 

●

ERC 1 depends on a small management team and may need to hire more people to be successful.

 

●

Key Man Risk.

 

●

The company will require a chief operating officer, who has not yet been hired.

 

●

Global economic, political and market conditions and economic uncertainty caused by the ongoing coronavirus (COVID-19) pandemic may adversely affect our business, results of operations and financial condition.

 

●

The ongoing COVID-19 pandemic and measures intended to prevent its spread could have a material adverse effect on our business, results of operations, cash flows and financial condition.

 

●

The payment of accrued dividends is paid out of the company’s reserved funds for the foreseeable future.

 

●

If we pay distributions from sources other than cash flow from operations, we will have less capital available for investments and your overall return is likely to be reduced.

 

●

Distributions will be only made if permitted under Delaware law, which is subject to change, and in the sole discretion of the board of directors.

 

●

The tax treatment of dividends may vary and distributions to shareholders may be taxed as capital gains.

 

●

The company is responsible for certain administrative burdens relating to taxation.

 

●

The Offering price has been arbitrarily set by the company.

 

●

There is no minimum amount set as a condition to closing this offering.

 

●

The officers of ERC 1 control the company and the company does not currently have any independent directors.

 

●

There are conflicts of interest between the company, its management and their affiliates.

 

●

The interests of ERC 1, ERC Parent and the company’s other affiliates may conflict with your interests.

 

●

Loans issued by ERC Parent to ERC 1 may not be made at arm’s length. ERC Parent may make various loans to ERC 1. These transactions may not be at arm’s length and therefore there is no way to assure third parties that ERC Parent and ERC 1 will be acting in their own self-interest and not subject to pressure or duress from the other party.

 

●

ERC Parent and ERC 1 may share some services.

 

●

If our manager, ERC Parent, were to file for bankruptcy or otherwise liquidate our results and operations could be negatively affected.

 

 

●

The exclusive forum provisions in subscription agreement and the company’s Certificate of Incorporation may have the effect of limiting an investor’s ability to bring legal action against the company and could limit an investor’s ability to obtain a favorable judicial forum for disputes.

 

●

Investors in this offering may not be entitled to a jury trial with respect to claims arising under the subscription agreement and claims where the forum selection provision is applicable, which could result in less favorable outcomes to the plaintiff(s) in any such action.

 

RISK FACTORS

 

The SEC requires the company to identify risks that are specific to its business and its financial condition. The company is still subject to all the same risks that all companies in its business, and all companies in the economy, are exposed to. These include risks relating to economic downturns, political and economic events and technological developments (such as hacking and the ability to prevent hacking). Additionally, early-stage companies are inherently riskier than more developed companies. You should consider general risks as well as specific risks when deciding whether to invest.

 

Risks relating to our business

 

This is a relatively new company. The company was incorporated in October 2018. It is a startup company that has not yet built the manufactured homes or Build-For-Rent communities. There is no history upon which an evaluation of its past performance and future prospects can be made. Statistically, most startup companies fail.

 

The company’s auditor has issued a “going concern” opinion. ERC 1’s auditor has issued a “going concern” opinion on its financial statements, which means the company may not be able to succeed as a business without additional financing. ERC 1 was incorporated in October 2018. Since inception, the company has relied on advances from affiliates to fund its operations. As of December 31, 2021, the company had little working capital and will likely incur losses prior to generating positive working capital. These matters raise substantial concern about the company’s ability to continue as a going concern

 

The company has minimal operating capital, no significant assets and no revenue from operations. The company currently has minimal operating capital and for the foreseeable future will be dependent upon its ability to finance its planned operations from the sale of securities or other financing alternatives. There can be no assurance that it will be able to successfully raise operating capital in this or other offerings of securities, or to raise enough funds to fully construct and market single-family homes as described in this offering plan. The failure to successfully raise operating capital could result in its inability to execute its business plan and potentially lead to bankruptcy, which would have a material adverse effect on the company and its investors.

 

The success of ERC 1’s business is dependent on purchasing large and specific parcels of land at favorable prices. ERC 1 is a capital-intensive operation and requires the purchase of large and specific parcels of land appropriate for the construction of manufactured homes and Build-For-Rent communities. As of the date of this Offering Circular the company has purchased one parcel of land for the first Florida development. The company does not know whether it will be able to obtain additional parcels of land on purchase terms that are favorable. Finally, if this offering does not raise enough capital to begin construction, the company will need to procure external financing for the purchase of the land and/or construction of the properties.

 

The company plans to raise significantly more capital and future fundraising rounds could result in dilution. ERC 1 will need to raise additional funds to finance its operations or fund its business plan. Even if the company manages to raise subsequent financing or borrowing rounds, the terms of those borrowing rounds might be more favorable to new investors or creditors than to existing investors such as you. New equity investors or lenders could have greater rights to our financial resources (such as liens over our assets) compared to existing shareholders. Additional financings could also dilute your ownership stake, potentially drastically. See “Dilution” and the “Management’s Discussion and Analysis of Financial Condition and Results of Operations– Plan of Operation” for more information.

 

 

 

Risks Related to investments in real estate

 

Your investment is directly affected by general economic and regulatory factors that impact real estate investments. Because we will primarily develop residential real estate, we are impacted by general economic and regulatory factors impacting real estate investments. These factors are generally outside of our control. Among the factors that could impact our real estate assets and the value of your investment are:

 

●

local conditions such as an oversupply of space or reduced demand for real estate assets of the type that we own or seek to acquire;

●

inability to find investors interested in our residential developments;

●

inability to purchase land on favorable terms;

●

federal, state or local regulations and controls affecting rents, zoning, prices of goods, fuel and

●

energy consumption, water and environmental restrictions;

●

inflation and other increases in operating costs, including insurance premiums, utilities and real estate taxes;

●

adverse changes in the laws and regulations applicable to us;

●

the relative illiquidity of real estate investments;

●

changing market demographics;

●

an inability to acquire and finance properties on favorable terms;

●

acts of God, such as earthquakes, floods or other uninsured losses; and

●

changes or increases in interest rates and availability of permanent mortgage funds.

 

In addition, periods of economic slowdown or recession, or declining demand for real estate, or the public perception that any of these events may occur, could result in a general decline in rents or increased defaults under existing leases. Further, our investments may not generate revenues sufficient to meet operating expenses.

 

General economic conditions and the concentration of our properties in Florida may affect our ability to sell the properties and/or to generate sufficient revenue.

 

The market and economic conditions in our current markets may significantly affect manufactured housing occupancy or rental rates. Occupancy and rental rates, in turn, may significantly affect either our ability to sell our properties and/or our revenues for any properties that we do not sell. In such case, if our communities do not generate revenues sufficient to meet our operating expenses, including debt service and capital expenditures, current cash flow and ability to pay or refinance our debt obligations could be adversely affected. As a result of the current geographic concentration of our properties in Florida, as specifically Zephyrhills, Florida, we are exposed to the risks of downturns in the local economy or other local real estate market conditions that could adversely affect occupancy rates, rental rates, and property values in these markets.

 

Success in the real estate industry can be highly unpredictable and there is no guarantee the company’s business model will be successful in the market. The company’s success will depend on whether it can successfully build and market manufactured homes and build for rent communities. The company is exposed to a lack of interest for the kind of properties we build by wholesalers as well as its inability to predict whether consumers would be interested in renting the properties. Consumer tastes, trends and preferences frequently change and are notoriously difficult to predict. If the company fails to anticipate future real estate investor and consumer preferences its business and financial performance will likely suffer. The real estate industry is fiercely competitive. The company may not be able to develop and sell properties in a profitable way.

 

The company may not secure pre-commitments for developments prior to breaking ground. The company has not yet signed any pre-sale agreements with any institutional investors. While we plan to enter into such agreements prior to completion of our developments, there is no guarantee that we will be able to do so. If we cannot sign any agreements prior to breaking ground or at some time prior to the construction and completion of our developments, we may incur additional costs related to sales and marketing and may be delayed in completing our developments or be subject to additional management expenses.

 

 

If we successfully develop our manufactured homes and Build-For-Rent communities but are not able to sell them in a timely manner, we may need to operate the and manage the properties as owners, which would add additional operational expenses and may result in significant losses. The company’s success will also depend on whether it can successfully resell it properties either prior to completion of construction or in a timely manner thereafter. There is no guarantee that we will be able to sell our properties in a timely manner or ever. If we are unable to sell the completed properties, we will need to dedicate significant resources to managing and leasing our properties, which would pose an added financial and management burden on the company.

 

Geographic concentration of our portfolio may make us particularly susceptible to adverse economic developments in the real estate markets of those areas. In the event that we have a concentration of properties in a particular geographic area, our operating results and ability to make distributions are likely to be impacted by economic changes affecting the real estate markets in that area. A shareholder’s investment will be subject to greater risk to the extent that we lack a geographically diversified portfolio of properties.

 

Our operating results may be negatively affected by potential development and construction delays and the resulting increase in costs and risks. Developing real estate properties subjects us to uncertainties such as the ability to achieve desired zoning for development, environmental concerns of governmental entities or community groups, ability to control construction costs or to build in conformity with plans, specifications and timetables. Delays in completing construction also could give tenants the right to terminate preconstruction leases for spaces at a newly developed project and any potential investors we pre-sold our developments to may pull out of such agreements. We may incur additional risks when we make periodic progress payments or advance other costs to third parties prior to completing construction. These and other factors can increase the costs of a project or cause us to lose our investment. In addition, we will be subject to normal lease-up risks relating to newly constructed projects. Furthermore, we must rely upon projections of rental income and expenses and estimates of fair market value upon completing construction when agreeing upon a price to be charged for the property. If our projections are inaccurate, we may not be able to sell a property on favorable terms.

 

Potential development and construction delays and increases in the prices of building materials due to tariffs or other reasons and resultant increased costs and risks may hinder our operating results and decrease our net income. Uncertainties associated with the development and construction of real property, including those related to re-zoning land for development, environmental concerns of governmental entities and/or community groups and our builders’ ability to build in conformity with plans, specifications, budgeted costs and timetables. If a builder fails to perform, we may resort to legal action to rescind the construction contract or to compel performance. A builder’s performance may also be affected or delayed by conditions beyond the builder’s control including availability of raw materials and related expenses. Delays in completing construction could also give tenants the right to terminate preconstruction leases. We may incur additional risks when we make periodic progress payments or other advances to builders before they complete construction. These and other factors including price increases in raw materials can result in increased costs of a project or loss of our investment.

 

Terrorist attacks and other acts of violence or war may affect the markets in which we operate, our operations and our profitability. We may acquire real estate assets located in areas that are susceptible to attack. These attacks may directly impact the value of our assets through damage, destruction, loss or increased security costs. Although we may obtain terrorism insurance, we may not be able to obtain sufficient coverage to fund any losses we may incur. Risks associated with potential acts of terrorism could sharply increase the premiums we pay for coverage against property and casualty claims. Further, certain losses resulting from these types of events are uninsurable or not insurable at reasonable costs.

 

More generally, any terrorist attack, other act of violence or war, including armed conflicts, could result in increased volatility in, or damage to, the United States and worldwide financial markets and economy. Any terrorist incident may contribute to increased economic volatility and could adversely affect our tenants’ ability to pay rent on their leases or our ability to borrow money or issue capital stock at acceptable prices.

 

The costs of complying with environmental laws and other governmental laws and regulations may adversely affect us. All real property and the operations conducted on real property are subject to federal, state and local laws and regulations relating to environmental protection and human health and safety. These laws and regulations generally govern wastewater discharges, air emissions, the operation and removal of underground and above-ground storage tanks, the use, storage, treatment, transportation and disposal of solid and hazardous materials, and the remediation of contamination associated with disposals. Some of these laws and regulations may impose joint and several liability on tenants, owners or operators for the costs of investigating or remediating contaminated properties, regardless of fault or whether the original disposal was legal. In addition, the presence of these substances, or the failure to properly remediate these substances, may adversely affect our ability to sell or rent the property or to use the property as collateral for future borrowing.

 

Some of these laws and regulations have been amended to require compliance with new or more stringent standards as of future dates. Compliance with new or more stringent laws or regulations or stricter interpretation of existing laws may require us to spend material amounts of money. Future laws, ordinances or regulations may impose material environmental liability. Further, the condition of our properties may be affected by tenants, the condition of the land, operations in the vicinity of the properties, such as the presence of underground or above-ground storage tanks, or the activities of unrelated third parties. We also are required to comply with various local, state and federal fire, health, life-safety and similar regulations.

 

 

ERC 1 operates in a highly competitive market. ERC 1 plans to operate in a highly competitive market and faces intense competition. Builders like Toll Brothers and Taylor Morrison are now entering the Build-For-Rent market. Big developers like Lennar and others are likely to pursue this market in time. Many of the company’s current and potential competitors have greater resources, longer histories, more customers, and greater brand recognition. Competitors may secure better terms from vendors, adopt more aggressive pricing and devote more resources to technology, infrastructure, fulfillment, and marketing. Further, ERC 1 properties will compete on a local and regional level developers that are active in the company’s initial markets that include NexMetro, AHV Communities, BB Living, Christopher Todd Communities and Camillo Homes. The number and variety of competitors in this business will vary based on the location and setting and is also subject to fluctuating economic factors.

 

Customer complaints or litigation on behalf of our customers or employees may adversely affect our business, results of operations or financial condition. The company’s business may be adversely affected by legal or governmental proceedings brought by or on behalf of their customers or employees. Regardless of whether any claims against the company are valid or whether they are liable, claims may be expensive to defend and may divert time and money away from operations and hurt our financial performance. A judgment significantly in excess of their insurance coverage or not covered by insurance could have a material adverse effect on the company’s business, results of operations or financial condition. Also, adverse publicity resulting from these allegations may materially affect the company.

 

The company’s insurance coverage may not be adequate to cover all possible losses that it could suffer and its insurance costs may increase. The company has not yet acquired insurance. It may not be able to acquire insurance policies that cover all types of losses and liabilities. Additionally, once the company acquires insurance, there can be no assurance that its insurance will be sufficient to cover the full extent of all of its losses or liabilities for which it is insured. Further, insurance policies expire annually, and the company cannot guarantee that it will be able to renew insurance policies on favorable terms, or at all. In addition, if it sustains significant losses or makes significant insurance claims, then its ability to obtain future insurance coverage at commercially reasonable rates could be materially adversely affected. If the company’s insurance coverage is not adequate, or it becomes subject to damages that cannot by law be insured against, such as punitive damages or certain intentional misconduct by their employees, this could adversely affect the company’s financial condition or results of operations.

 

The company has concentrated its investments single-family homes to be built in smaller groupings, which are subject to numerous risks, including the risk that the values of their investments may decline if there is a prolonged downturn in real estate values. The company’s operations will consist entirely of large amounts of real estate holdings. Accordingly, the company is subject to the risks associated with holding real estate investments. Changes in the preferences and interests of potential purchasers of properties developed by the company and fluctuations in the value of real estate in the areas where the company has purchased real estate may negatively affect the company’s business.

 

The company’s real estate holdings will be subject to risks typically associated with investments in real estate. The investment returns available from equity investments in real estate depend in large part on the amount of income earned, expenses incurred, and capital appreciation generated by the related properties. In addition, a variety of other factors affect income from properties and real estate values, including governmental regulations, real estate, insurance, zoning, tax and eminent domain laws, interest rate levels and the availability of financing. For example, new or existing real estate zoning or tax laws can make it more expensive and time-consuming to expand, modify or renovate older properties. Under eminent domain laws, governments can take real property. Sometimes this taking is for less compensation than the owner believes the property is worth. Any of these factors could have an adverse impact on our business, financial condition or results of operations.

 

 

The illiquidity of real estate may make it difficult for the company to dispose of one or more of our properties or negatively affect its ability to profitably sell such properties and access liquidity. The company’s business is to sell its real estate assets. Because real estate holdings generally, are relatively illiquid, the company may not be able to dispose of one or more real estate assets on a timely basis. In some circumstances, sales may result in investment losses which could adversely affect the company’s financial condition. The illiquidity of its real estate assets could mean that it is forced to hold on to real estate for longer than planned or indefinitely. Failure to dispose of a real estate asset in a timely fashion, or at all, could adversely affect the company’s business, financial condition and results of operations.

 

The company’s development and construction of properties depends on its ability to obtain favorable mortgage financing and, in some cases, guarantees. The company intends to secure mortgage financing to fund up to 70% of its first Florida developments and plans to use debt financing to develop and construct subsequent properties. There is no guarantee that the company will be able to obtain financing on favorable terms. In the event that the company is unable to obtain such financing it may limit the company’s ability to effectuate its plans and will increase the costs and expenses of the company, thereby negatively impacting its financial prospects. The company intends to have sufficient equity on its own to procure mortgage financing and, to the extent that is not possible, the company will rely on guarantees from other entities and individuals, which may include ERC Parent. The company has not made any arrangements for any such guarantees and there can be no assurance that such guarantees would be available on acceptable terms, or at all.

 

ERC 1 depends on a small management team and may need to hire more people to be successful. The success of ERC 1 will greatly depend on the skills, connections and experiences of the executives, Gerald Ellenburg, Ryan Koenig and David Morris. ERC 1 has not entered into employment agreements with the executives. There is no guarantee that the executives will agree to terms and execute employment agreements that are favorable to the company. Should any of them discontinue working for ERC 1, there is no assurance that the company will continue. Further, there is no assurance that the company will be able to identify, hire and retain the right people for the various key positions.

 

Key Man Risk. The company’s founders and key men are serial entrepreneurs. It is likely that some, if not all of the founders and key men, may exit the business within the next three years. In the event one or more of our founders and/or key men exit the business the company may experience following:

 

·

financial loss;

·

a disruption to the organization's future projects;

·

damage to the brand; and

·

potentially supporting a competitor.

 

The company will require a chief operating officer, who has not yet been hired. Once ERC 1 has 750 units under management, ERC Parent will perform an executive search for the chief operating officer of ERC 1. There is no way to be certain that the COO of ERC 1, once appointed, will be able to execute the same vision as ERC Parent itself.

 

Global economic, political and market conditions and economic uncertainty caused by the ongoing coronavirus (COVID-19) pandemic may adversely affect our business, results of operations and financial condition. The current worldwide financial market situation, various social and political tensions in the United States and around the world, and the public health crisis caused by the novel coronavirus (COVID-19), may continue to contribute to increased market volatility, may have long-term effects on the United States and worldwide financial markets, and may cause further economic uncertainties or deterioration in the United States and worldwide. Economic uncertainty can have a negative impact on our business through changing spreads, structures and purchase multiples, as well as the overall supply of investment capital. Since 2010, several European Union, or EU, countries, including Greece, Ireland, Italy, Spain, and Portugal, have faced budget issues, some of which may have negative long-term effects for the economies of those countries and other EU countries. Additionally, the precise details and the resulting impact of the United Kingdom’s vote to leave the EU, commonly referred to as “Brexit”, are impossible to ascertain at this point. The effect on the United Kingdom’s economy will likely depend on the nature of trade relations with the EU following its exit, a matter to be negotiated. The decision may cause increased volatility and have a significant adverse impact on world financial markets, other international trade agreements, and the United Kingdom and European economies, as well as the broader global economy for some time. Further, there is continued concern about national-level support for the Euro and the accompanying coordination of fiscal and wage policy among European Economic and Monetary Union member countries. In addition, the fiscal policy of foreign nations, such as China, may have a severe impact on the worldwide and United States financial markets.  Finally, public health crises, pandemics and epidemics, such as those caused by new strains of viruses such as H5N1 (avian flu), severe acute respiratory syndrome (SARS) and, most recently, the novel coronavirus (COVID-19), are expected to increase as international travel continues to rise and could adversely impact our business by interrupting business, supply chains and transactional activities, disrupting travel, and negatively impacting local, national or global economies.  We do not know how long the financial markets will continue to be affected by these events and cannot predict the effects of these or similar events in the future on the United States economy and securities markets or on our investments. As a result of these factors, there can be no assurance that we will be able to successfully monitor developments and manage our investments in a manner consistent with achieving our investment objectives.

 

 

The ongoing COVID-19 pandemic and measures intended to prevent its spread could have a material adverse effect on our business, results of operations, cash flows and financial condition. The COVID-19 pandemic has caused, and is likely to continue to cause, severe economic, market and other disruptions worldwide. We cannot assure you that conditions in the bank lending, capital and other financial markets will not continue to deteriorate as a result of the pandemic, or that our access to capital and other sources of funding will not become constrained, which could adversely affect the availability and terms of future borrowings, renewals or refinancings. In addition, the deterioration of global economic conditions as a result of the pandemic may once we have rental inventory ultimately decrease occupancy levels and pricing, cause one or more of our tenants to be unable to meet their rent obligations to us in full, or at all, or to otherwise seek modifications of such obligations.  In addition, governmental authorities may enact laws that will prevent us from taking action against tenants who do not pay rent.

 

The extent of the COVID-19 pandemic’s effect on our operational and financial performance will depend on future developments, including the duration, spread and intensity of the outbreak, all of which are uncertain and difficult to predict. Due to the speed with which the situation is developing, we are not able at this time to estimate the effect of these factors on our business, but the adverse impact on our business, results of operations, financial condition and cash flows could be material.

 

Risks relating to this offering and our shares

 

The payment of accrued dividends is paid out of the company’s reserved funds for the foreseeable future. As soon as the company receives proceeds from this offering and it is legally permissible, the company intends to pay dividends to investors. The dividend will initially be paid to investors out of the company’s reserved funds or advances from ERC Parent, as opposed to its revenues. Payment of the dividends and the establishment of the reserve fund will reduce the capital the company has to develop and begin marketing its properties. Most, if not all, of the reserved funds in the dividend reserve account will be the proceeds from this offering. (See “Use of Proceeds”). It is not certain when, if at all, the company will be able to make dividends payments to investors out of the company’s revenues.

 

If we pay distributions from sources other than cash flow from operations, we will have less capital available for investments and your overall return is likely to be reduced. Although our distribution policy is to use our cash flow from operations to make distributions to shareholders, our operating agreement permits us to pay distributions from any source, including offering proceeds, borrowings, or sales of assets. We have not placed a cap on the use of proceeds to fund distributions. Until the proceeds from this offering are fully invested and from time to time during the operational stage, we may not generate sufficient cash flow from operations to fund distributions. If we pay distributions from sources other than our cash flow from operations, we will have less capital available to make investments, and your overall return is likely be reduced.

 

Distributions will be only made if permitted under Delaware law, which is subject to change, and in the sole discretion of the board of directors. Pursuant to section 170 of the Delaware General Corporation Law (“Delaware Law”), dividends may be paid out of “surplus” even in the absence of profits.  Under section 154, “surplus” may be defined by the board of directors, in their sole discretion, but generally may not be less than the par value of the shares issued. Accordingly, most of the proceeds of this offering may be considered surplus. However, Delaware Law is subject to change, and the company cannot guarantee that dividend payments will always be permitted under Delaware Law.

 

 

The tax treatment of dividends may vary and distributions to shareholders may be taxed as capital gains. The distributions made pursuant to the Class A Preferred Stock dividend provisions will be taxable as dividends to shareholders only to the extent of current and accumulated earnings and profits.  To the extent the company does not have current and accumulated earnings and profits, the distributions will be treated as a non-taxable return of capital to the extent of the shareholder’s adjusted basis. If distributions still exceed the amount of adjusted basis, such excess would be considered as capital gains income to the shareholder, who will generally be subject to federal (and possibly State) income tax on such gains at a rate that depends upon the shareholder’s holding period with respect to the shares in question, among other factors. Since the tax treatment of any distributions may vary according to the financial performance of the company, as well as the particular circumstances of the investor, investors should consult their own tax advisers, and should further not assume that the distributions will be subject to the same tax treatment from year to year.

 

The company is responsible for certain administrative burdens relating to taxation. Federal law required that the company report annually all distributions to shareholders on a Form 1099-DIV.  The company is responsible for ensuring that the extent to which such distributions constitute a distribution of earnings and profits is correctly identified on form 1099-DIV. This reporting requirement adds to the administrative burdens of the company.

 

The Offering price has been arbitrarily set by the company. ERC 1 has set the price of its Class A Preferred Stock at $12.50 per share. Valuations for companies at ERC 1 stage are purely speculative. The company’s valuation has not been validated by any independent third party and may fall precipitously. It is a question of whether you, the investor, are willing to pay this price for a percentage ownership of a start-up company. You should not invest if you disagree with this valuation.

 

There is no minimum amount set as a condition to closing this offering. Because this is a “best efforts” offering with no minimum, the company will have access to any funds tendered. This might mean that any investment made could be the only investment in this offering, leaving the company without adequate capital to pursue its business plan or even to cover the expenses of this offering.

 

The officers of ERC 1 control the company and the company does not currently have any independent directors. ERC Parent is currently the company’s controlling shareholder. Moreover, the company’s executive officers and directors, through their ownership in ERC Parent, are currently ERC 1 controlling shareholders. As holders of the Class B Common Stock which gives ERC Parent 5 votes per share, as opposed to 1 vote per share for holders of Class A Common Stock and Class A Preferred Stock, ERC Parent will continue to hold a majority of the voting power of all the company’s equity stock and therefore control the board at the conclusion of this offering. Even if ERC Parent were to own as little as 16.7% of the equity securities of the company, ERC Parent would still control a majority of the voting stock. This could lead to unintentional subjectivity in matters of corporate governance, especially in matters of compensation and related party transactions. The company does not benefit from the advantages of having independent directors, including bringing an outside perspective on strategy and control, adding new skills and knowledge that may not be available within ERC 1, and having extra checks and balances to prevent fraud and produce reliable financial reports.

 

There is no current market for ERC 1’s shares. There is no formal marketplace for the resale of our securities. Shares of the company’s Class A Preferred Stock may eventually be traded to the extent any demand and/or trading platform(s) exists. However, there is no guarantee there will be demand for the shares, or a trading platform that allows you to sell them. The company does not have plans to apply for or otherwise seek trading or quotation of its Class A Preferred Stock on an over-the-counter market. It is also hard to predict if the company will ever be acquired by a bigger company. Investors should assume that they may not be able to liquidate their investment or pledge their shares as collateral for some time.

 

 

Risks related to certain conflicts of interest

 

There are conflicts of interest between the company, its management and their affiliates. ERC Parent is the parent company of ERC 1 and currently holds all of the issued Common Stock of ERC 1. ERC Parent is also affiliated with GolfSuites, Inc. (“GolfSuites”) and many if not all of the executives are the same for ERC Parent, GolfSuites, and GolfSuites’s subsidiaries. Therefore, it is likely that conflicts of interest will arise between the affiliates. Conflicts of interest could include, but are not limited to the following:

 

·

use of time,

·

use of human capital, and

·

competition regarding the acquisition of properties and other assets.

 

The interests of ERC 1, ERC Parent and the company’s other affiliates may conflict with your interests.  The company’s Amended and Restated Certificate of Incorporation, bylaws and Delaware law provide company management with broad powers and authority that could result in one or more conflicts of interest between your interests and those of the officers and directors of ERC 1, ERC Parent, and the company’s other affiliates. This risk is increased by the affiliated entities being controlled by ERC Parent who currently owns all of the company’s Common Stock and all our officers and directors currently have an interest in ERC Parent, through ownership, as an officer or director in ERC Parent contractually or any combination thereof. Potential conflicts of interest include, but are not limited to, the following:

 

●

ERC Parent and the company’s other affiliates will not be required to disgorge any profits or fees or other compensation they may receive from any other business they own separate from the company, and you will not be entitled to receive or share in any of the profits, return, fees or compensation from any other business owned and operated by the management and their affiliates for their own benefit.

●

The company may engage ERC Parent, or other companies affiliated with ERC 1 to perform services, and determination for the terms of those services will not be conducted at arms’ length negotiations; and

●

The company’s officers and directors are not required to devote all of their time and efforts to the affairs of the company.

 

Loans issued by ERC Parent to ERC 1 may not be made at arm’s length. ERC Parent may make various loans to ERC 1. These transactions may not be at arm’s length and therefore there is no way to assure third parties that ERC Parent and ERC 1 will be acting in their own self-interest and not subject to pressure or duress from the other party.

 

ERC Parent and ERC 1 may share some services. ERC Parent and ERC 1 share certain service providers. Further in the future they may share services where they will need to allocate expenses. Internal transactions incorporating products and services, fee sharing, cost allocations, and financing activities can create inefficiency, financial exposures and reporting risk. These arrangements could result in potential actual or perceived conflicts of interest.

 

If our manager, ERC Parent, were to file for bankruptcy or otherwise liquidate our results and operations could be negatively affected. ERC 1 relies on its parent, ERC Homebuilders, Inc. for certain management services. While the company intends to continue its operations if and when ERC Parent were to file for bankruptcy or otherwise liquidate, there is no guarantee that we would be able to do so. If ERC Parent were to enter bankruptcy proceedings or to otherwise liquidate, we would be required to find other ways to meet the needs of our operations and business. Obtaining such alternative services, if available at all, could result in delays in the disbursement of distributions or the filing of reports or could require us to pay significant fees to another company that we engage to perform services for us.

 

The subscription agreement has a forum selection provision that requires disputes be resolved in state or federal courts in the State of Delaware, regardless of convenience or cost to you, the investor.  In order to invest in this offering, investors agree to resolve disputes arising under the subscription agreement other than those arising under the federal securities laws in state or federal courts located in the State of Delaware, for the purpose of any suit, action or other proceeding arising out of or based upon the agreement.   You will not be deemed to have waived the company’s compliance with the federal securities laws and the rules and regulations thereunder. This forum selection provision may limit your ability to obtain a favorable judicial forum for disputes with us.   Although we believe the provision benefits us by providing increased consistency in the application of Delaware law in the types of lawsuits to which it applies and in limiting our litigation costs, to the extent it is enforceable, the forum selection provision may limit investors’ ability to bring claims in judicial forums that they find favorable to such disputes, may increase investors’ costs of bringing suit and may discourage lawsuits with respect to such claims. Alternatively, if a court were to find the provision inapplicable to, or unenforceable in an action, we may incur additional costs associated with resolving such matters in other jurisdictions, which could adversely affect our business, financial condition or results of operations.

 

 

The exclusive forum provision in the company’s Certificate of Incorporation may have the effect of limiting an investor’s ability to bring legal action against the company and could limit an investor’s ability to obtain a favorable judicial forum for disputes. Article VII of the company’s Certificate of Incorporation contain exclusive forum provisions for certain lawsuits, see “Securities Being Offered – All Classes of Stock – Forum Selection Provisions.” Further, Section 6 of the subscription agreement for this offering includes exclusive forum provisions for certain lawsuits pursuant to the subscription agreement; see “Securities Being Offered – All Classes of Stock – Forum Selection Provisions.” The forum for these lawsuits will be the Court of Chancery in the State of Delaware. None of the forum selections provisions will be applicable to lawsuits arising from the federal securities laws. These provisions may have the effect of limiting the ability of investors to bring a legal claim against us due to geographic limitations. There is also the possibility that the exclusive forum provisions may discourage stockholder lawsuits, or limit stockholders’ ability to bring a claim in a judicial forum that it finds favorable for disputes with the company and its officers and directors. Alternatively, if a court were to find this exclusive forum provision inapplicable to, or unenforceable in respect of, one or more of the specified types of actions or proceedings, the company may incur additional costs associated with resolving such matters in other jurisdictions, which could adversely affect its business and financial condition.

 

Investors in this offering may not be entitled to a jury trial with respect to claims arising under the subscription agreement and claims where the forum selection provision is applicable, which could result in less favorable outcomes to the plaintiff(s) in any such action. Investors in this offering will be bound by the subscription agreement, which includes a provision under which investors waive the right to a jury trial of any claim they may have against the company arising out of or relating to the subscription agreement, including any claim under the federal securities laws. Further, the forum selection provisions in the Certificate of Incorporation and the subscription agreement provide that for certain lawsuits the Court of Chancery in Delaware will be the exclusive forum. The Court of Chancery in Delaware is a non-jury trial court and therefore those claims will not be adjudicated by a jury. See “Securities Being Offered – All Classes of Stock – Jury Trial Waiver” and “Securities Being Offered – All Classes of Stock – Forum Selection Provisions.”

 

If the company opposed a jury trial demand based on the waiver, a court would determine whether the waiver was enforceable based on the facts and circumstances of that case in accordance with the applicable state and federal law. To the company’s knowledge, the enforceability of a contractual pre-dispute jury trial waiver in connection with claims arising under the federal securities laws has not been finally adjudicated by a federal court. However, the company believes that a contractual pre-dispute jury trial waiver provision is generally enforceable, including under the laws of the State of Delaware, which governs the subscription agreement, in the Court of Chancery in the State of Delaware. In determining whether to enforce a contractual pre-dispute jury trial waiver provision, courts will generally consider whether the visibility of the jury trial waiver provision within the agreement is sufficiently prominent such that a party knowingly, intelligently and voluntarily waived the right to a jury trial. The company believes that this is the case with respect to the subscription agreement. Investors should consult legal counsel regarding the jury waiver provision before entering into the subscription agreement.

 

If an investor brings a claim against the company in connection with matters arising under the subscription agreement, including claims under federal securities laws, an investor may not be entitled to a jury trial with respect to those claims, which may have the effect of limiting and discouraging lawsuits against the company. If a lawsuit is brought against the company under the subscription agreement, it may be heard only by a judge or justice of the applicable trial court, which would be conducted according to different civil procedures and may result in different outcomes than a trial by jury would have had, including results that could be less favorable to the plaintiff(s) in such an action.

 

Nevertheless, if this jury trial waiver provision is not permitted by applicable law, an action could proceed under the terms of the subscription agreement with a jury trial. No condition, stipulation or provision of the subscription agreement serves as a waiver by any holder of common shares or by us of compliance with any substantive provision of the federal securities laws and the rules and regulations promulgated under those laws.

 

 

In addition, when the shares are transferred, the transferee is required to agree to all the same conditions, obligations and restrictions applicable to the shares or to the transferor with regard to ownership of the shares, that were in effect immediately prior to the transfer of the shares of Preferred Stock, including but not limited to the subscription agreement.

 

DILUTION

 

Dilution means a reduction in value, control or earnings of the shares the investor owns.

 

Immediate dilution

 

An early-stage company typically sells its shares (or grants options over its shares) to its founders and early employees at a very low cash cost, because they are, in effect, putting their “sweat equity” into the company. When the company seeks cash investments from outside investors, like you, the new investors typically pay a much larger sum for their shares than the founders or earlier investors, which means that the cash value of your stake is diluted because all the shares are worth the same amount, and you paid more than earlier investors for your shares.

 

The following table compares the price that new investors are paying for their shares with the effective cash price paid by existing shareholders, giving effect to full conversion of all outstanding convertible notes and assuming that the shares are sold at $12.50 per share. The schedule presents shares and pricing as issued and reflects all transactions since inception, which gives investors a better picture of what they will pay for their investment compared to the company’s insiders than just including such transactions for the last 12 months, which is what the SEC requires.

 

The following table presents the approximate effective cash price paid for all shares and potential shares issuable by the company as of December 31, 2021.

 

		Date Issued				Issued Shares				Potential Shares				Total Issued and Potential Shares				Effective Cash Price per Share and Issuance or Potential Conversion
Common Stock
Class B Common Stock			2018				16,000,000				0				16,000,000			$	0.00001
Preferred Stock
Class A Preferred Stock			2021				64,318								64,318			$	6.06
Total Common Share Equivalents							16,064,318				0				16,064,318			$	0.02
Investors in this offering, assuming $25,000,000 raised			2022								2,000,000				2,000,000			$	12.50
Total After Inclusion of this Offering							16,064,318				2,000,000				18, 064,318			$	12.50

 

The following table illustrates the dilution that new investors will experience upon investment in the company relative to existing holders of its securities. Because this calculation is based on the net tangible assets of the company, the company is calculating based on its net tangible book value of ($782,230) as of December 31, 2021, as included in its audited financial statements.

 

 

The offering costs assumed in the following table includes up to $250,000 in commissions as well as $127,000 for marketing, technology, legal, accounting, and Edgarization fees incurred for this offering.

 

The table presents four scenarios for the convenience of the reader: a $6,225,000 raise, a $12,500,000 raise from this offering, a $18,725,000 raise from this offering, and a fully subscribed $25,000,000 raise from this offering (the maximum offering).

 

Capital Raised		$	6,250,000			$	12,500,000			$	18,750,000			$	25,000,000
Price per share		$	12.5000			$	12.5000			$	12.5000			$	12.5000
Shares issued			500,000				1,000,000				1,500,000				2,000,000
Capital raised		$	6,250,000			$	12,500,000			$	18,750,000			$	25,000,000
Less: Offering costs			(625,000	)			(1,250,000	)			(1,875,000	)			(2,500,000	)
Net offering proceeds to Company		$	5,625,000			$	11,250,000			$	16,875,000			$	22,500,000
Net tangible book value pre-financing (1)			(782,230	)			(782,230	)			(782,230	)			(782,230	)
Net tangible book value after offering		$	4,842,770			$	10,467,770			$	16,092,770			$	21,717,770
Share issued and outstanding pre-financing (2)			16,064,318				16,064,318				16,064,318				16,064,318
Shares issued in financing from Company			500,000				1,000,000				1,500,000				2,000,000
Post financing shares issued and outstanding			16,564,318				17,064,318				17,564,318				18,064,318
Per share amounts:
Net tangible book value after offering		$	0.2924			$	0.6134			$	0.9162			$	1.2022
Net tangible book value per share prior to offering			(0.0487	)			(0.0487	)			(0.0487	)			(0.0487	)
Increase (decrease) per share attributable to new investors		$	0.3411			$	0.6622			$	0.9649			$	1.2509
Dilution per share to new investors		$	12.2076			$	11.8866			$	11.5838			$	11.2978

 

(1)

Net tangible book value is calculated as follows:

 

Total stockholders' equity at December 31, 2021		$	(782,230	)
Less: intangible assets			--
Equals tangible book value pre-financing		$	(782,230	)

 

(2)

Includes 16,000,000 shares of Class B Common Stock and 64,318 shares of Class A Preferred Stock.

 

Future dilution

 

Another important way of looking at dilution is the dilution that happens due to future actions by the company. The investor’s stake in a company could be diluted due to the company issuing additional shares. In other words, when the company issues more shares, the percentage of the company that you own will go down, even though the value of the company may go up. You will own a smaller piece of a larger company. This increase in number of shares outstanding could result from a stock offering (such as an initial public offering, another crowdfunding round, a venture capital round, angel investment), employees exercising stock options, or by conversion of certain instruments (e.g. convertible bonds, preferred shares or warrants) into stock.

 

 

 

If the company decides to issue more shares, an investor could experience value dilution, with each share being worth less than before, and control dilution, with the total percentage an investor owns being less than before. There may also be earnings dilution, with a reduction in the amount earned per share (though this typically occurs only if the company offers dividends, and most early-stage companies are unlikely to offer dividends, preferring to invest any earnings into the company).

 

The type of dilution that hurts early-stage investors most often occurs when the company sells more shares in a “down round,” meaning at a lower valuation than in earlier offerings. An example of how this might occur is as follows (numbers are for illustrative purposes only):

 

	●	In June 2021 Jane invests $20,000 for shares that represent 2% of a company valued at $1 million.
	●	In December, the company is doing very well and sells $5 million in shares to venture capitalists on a valuation (before the new investment) of $10 million. Jane now owns only 1.3% of the company but her stake is worth $200,000.
	●	In June 2022, the company has run into serious problems and in order to stay afloat it raises $1 million at a valuation of only $2 million (the “down round”). Jane now owns only 0.89% of the company and her stake is worth only $26,660.

 

This type of dilution might also happen upon conversion of convertible notes into shares. Typically, the terms of convertible notes issued by early-stage companies provide that in the event of another round of financing, the holders of the convertible notes get to convert their notes into equity at a “discount” to the price paid by the new investors, i.e., they get more shares than the new investors would for the same price. Additionally, convertible notes may have a “price cap” on the conversion price, which effectively acts as a share price ceiling. Either way, the holders of the convertible notes get more shares for their money than new investors. In the event that the financing is a “down round” the holders of the convertible notes will dilute existing equity holders, and even more than the new investors do, because they get more shares for their money. Investors should pay careful attention to number of convertible notes that the company has issued (and may issue in the future, and the terms of those notes.

 

If you are making an investment expecting to own a certain percentage of the company or expecting each share to hold a certain amount of value, it’s important to realize how the value of those shares can decrease by actions taken by the company. Dilution can make drastic changes to the value of each share, ownership percentage, voting control, and earnings per share.

 

 

PLAN OF DISTRIBUTION

 

Plan of Distribution

 

ERC 1 is offering a maximum of 2,000,000 shares of Preferred Stock on a “best efforts” basis.

 

The cash price per share of Preferred Stock is $12.50.

 

The Company intends to market its Common Stock in this Offering both through online and offline means. Online marketing may take the form of soliciting potential investors through various channels of online and electronic media whereby the Offering Circular may be delivered contemporaneously and posting “testing the waters” materials or the Offering Circular on an online investment platform. We will use our website, www. www.invest.golfsuites.com, blogs, and other social media to provide notification of the Offering.

 

We may undertake one or more closings on an ongoing basis. After each closing, funds tendered by investors will be held in a segregated account owned by the Company, but with viewing privileges assigned to our broker-dealer, Dalmore Group, LLC, and will remain in that account until cleared (AML/KYC). For details, see “Process of Subscribing.” After the initial closing of this offering, we expect to hold closings on at least a monthly basis.

 

There is no minimum number of shares that needs to be sold in order for funds to be released to the Company and for this Offering to close, which may mean that the Company does not receive sufficient funds to cover the cost of this Offering. All subscribers will be instructed by the Company or its agents to transfer funds by wire or ACH, check, debit or credit card directly to the bank account established for this Offering.

 

This Offering will terminate at the earlier of the date at which the maximum offering amount has been sold or the date at which the Offering is earlier terminated by the Company at its sole discretion (which we refer to as the “Termination Date”).

 

The Company has engaged Dalmore Group, LLC (“Dalmore”) a broker-dealer registered with the Commission and a member of FINRA, to perform the following administrative and compliance related functions in connection with this Offering, but not for underwriting or placement agent services:

 

	●	Review investor information, including KYC (“Know Your Customer”) data, AML (“Anti Money Laundering”) and other compliance background checks, and provide a recommendation to the Company whether to accept investor as a customer.
	●	Review each investor’s subscription agreement to confirm such investor’s participation in the offering and provide a determination to the Company whether to accept the use of the subscription agreement for the investor’s participation.
	●	Contact and/or notify the Company, if needed, to gather additional information or clarification on an investor.
	●	Not provide any investment advice nor any investment recommendations to any investor.
	●	Keep investor details and data confidential and not disclose to any third-party except as required by regulators or pursuant to the terms of the agreement (e.g. as needed for AML and background checks).
	●	Responsibility for all FINRA 5110 filings and updates.
	●	Review of written communications for compliance with applicable rules. Coordinate with third party providers to ensure adequate review and compliance. It is ultimately the responsibility of the Company as to whether to accept the recommendations of Dalmore with respect to compliance with written communications.
	●	Provide, or coordinate the provision by a third party, of an “invest now” payment processing mechanism, including connection to a qualified escrow agent.

 

 

As compensation for the services listed above, the Company has agreed to pay Dalmore a commission equal to 1% of the amount raised in the Offering to support the Offering on all newly invested funds after the issuance of a No Objection Letter by FINRA. In addition, the Company has paid Dalmore a $5,000 one-time advance expense allowance to cover reasonable out-of-pocket accountable expenses actually anticipated to be incurred by Dalmore in connection with this Offering. Dalmore will refund any amount related to this expense allowance to the extent it is not used, incurred or provided to the Company. The Company has also agreed to pay Dalmore a one-time consulting fee of $20,000 to provide ongoing general consulting services relating to this Offering such as coordination with third party vendors and general guidance with respect to the Offering, which will be due and payable within 30 days after this Offering is qualified by the Commission and the receipt of a No Objection Letter from FINRA.  Assuming the Offering is fully-subscribed, the Company estimates that total fees due to pay Dalmore, including the one-time advance expense allowance fee of $5,000 and consulting fee of $20,000, would be $275,000.

 

Process of Subscribing

 

After the Offering Statement has been qualified by the Commission, the Company will accept tenders of funds to purchase shares. The Company may close on investments on a “rolling” basis (so not all investors will receive their shares on the same date). Investors may subscribe by tendering funds by check, wire transfer, credit or debit card or ACH transfer. Investor funds will be processed through Stripe, Inc. Funds will be held in a segregated operating account owned by the Company. Dalmore will have view access to the account for purposes of verifying activity. Funds will remain in the segregated account until the subscription agreement has been cleared and countersigned by the Company. Funds then be released to the Company will be net funds (investment less payment for processing fees and a holdback equivalent to 5% for 90 days).

 

Investors will be required to complete a subscription agreement in order to invest. The subscription agreement includes a representation by the investor to the effect that, if the investor is not an “accredited investor” as defined under securities law, the investor is investing an amount that does not exceed the greater of 10% of their annual income or 10% of their net worth (excluding the investor’s principal residence).

 

Any potential investor will have ample time to review the subscription agreement, along with their counsel, prior to making any final investment decision. Dalmore will review all subscription agreements completed by the investor. After Dalmore has completed its review of a subscription agreement for an investment in the Company, the funds may be released by the escrow agent.

 

If the subscription agreement is not complete or there is other missing or incomplete information, the funds will not be released until the investor provides all required information. In the case of a debit card payment, provided the payment is approved, Dalmore will have up to three days to ensure all the documentation is complete. Dalmore will generally review all subscription agreements on the same day, but not later than the day after the submission of the subscription agreement.

 

All funds tendered (by check, wire, credit or debit card, or electronic funds transfer via ACH to the specified account or deliver evidence of cancellation of debt) by investors will be deposited into an escrow account at the Escrow Agent for the benefit of the Company. All funds received by wire transfer will be made available immediately while funds transferred by ACH will be restricted for a minimum of three days to clear the banking system prior to deposit into segregated operating account owned by the Company.

 

The Company maintains the right to accept or reject subscriptions in whole or in part, for any reason or for no reason, including, but not limited to, in the event that an investor fails to provide all necessary information, even after further requests from the Company, in the event an investor fails to provide requested follow up information to complete background checks or fails background checks, and in the event the Company receives oversubscriptions in excess of the maximum offering amount.

 

In the interest of allowing interested investors as much time as possible to complete the paperwork associated with a subscription, the Company has not set a maximum period of time to decide whether to accept or reject a subscription. If a subscription is rejected, funds will not be accepted by wire transfer or ACH, and payments made by debit card or check will be returned to subscribers within 30 days of such rejection without deduction or interest. Upon acceptance of a subscription, the Company will send a confirmation of such acceptance to the subscriber.

 

 

Dalmore has not investigated the desirability or advisability of investment in the Common Stock, nor approved, endorsed or passed upon the merits of purchasing the Common Stock. Dalmore is not participating as an underwriter and under no circumstance will it recommend the Company’s securities or provide investment advice to any prospective investor or make any securities recommendations to investors. Dalmore is not distributing any offering circulars or making any oral representations concerning this Offering Circular or this Offering. Based upon Dalmore’s anticipated limited role in this Offering, it has not and will not conduct extensive due diligence of this Offering and no investor should rely on the involvement of Dalmore in this offering as any basis for a belief that it has done extensive due diligence. Dalmore does not expressly or impliedly affirm the completeness or accuracy of the Offering Statement and/or Offering Circular presented to investors by the Company. All inquiries regarding this offering should be made directly to the Company.

 

Upon confirmation that an investor’s funds have cleared, the Company will instruct the transfer agent to issue shares to the investor. The transfer agent will notify an investor when shares are ready to be issued and the Transfer Agent has set up an account for the investor.

 

Transfer Agent

 

Computershare, a registered transfer agent with the SEC, serves our transfer agent.

 

No Escrow

 

The proceeds of this Offering will not be placed into an escrow account. We will offer our Common Stock on a best-efforts basis. As there is no minimum offering amount, upon the clearance of any subscription to this Offering Circular, the Company shall immediately deposit said proceeds into the bank account of the Company and may dispose of the proceeds in accordance with the Use of Proceeds.

 

 

USE OF PROCEEDS TO ISSUER

 

The following discussion addresses the use of proceeds from this offering. The company currently estimates that, at a per share price of $12.50, the net proceeds from the sale of the 2,000,000 shares of Preferred Stock will likely be $22,500,000 after deducting the estimated offering expenses of approximately $2,500,000.

 

The following table breaks down the use of proceeds into different categories under various funding scenarios:

 

Gross Proceeds		$	6,250,000			$	12,500,000			$	18,750,000			$	25,000,000
Estimated offering expenses (1)			625,000				1,250,000				1,875,000			$	2,500,000
Construction, development and acquisition of manufactured home rental communities in the United States			4,250,000				9,250,000				14,250,000			$	19,250,000
Marketing			625,000				1,250,000				1,875,000			$	2.500,000
Operational expenses			250,000				250,000				250,000			$	250,000
Working Capital (2)			500,000				500,000				500,000			$	500,000
Total Use of Proceeds			6,250,000				12,500,000				18,750,000			$	25,000,000

 

	(1)	Estimated offering expenses include legal, accounting, printing, advertising, broker-dealer fees and commissions, technology, marketing and state notice fees and other expenses of this offering.
	(2)	Approximately 25% of gross proceeds are allocated to working capital subject to a maximum working capital amount of $750,000. The above estimates for overhead improvements and working capital are subject to change based upon the timing and amounts of gross proceeds and development timetables.

 

Dividends and profit-sharing dividends

 

Investors in this offering will begin to accrue a monthly dividend payment that pays 10% per annum after the issuance of their Preferred Stock. When the funds are legally available for distributions the company intends to pay these dividends. The dividends will compound annually.

 

In the event the company declares a dividend distribution to the holders of Common Stock, all holders of Preferred Stock will receive their pro rata share.

 

There is no guarantee regarding the tax treatment of the 10% dividends. Please see “Securities Being Offered – Tax Treatment.”

 

The company reserves the right to change the above use of proceeds if management believes it is in the best interest of the company.

 

 

THE COMPANY’S BUSINESS

 

Overview

 

ERC 1 is an early-stage real estate development company devoted to the development and operation of manufactured home rental communities (“MHR”) in Florida and then expanding to other state specific locations in the United States. These communities are also often referred to as “Built for Rent” communities. The company intends to: (i) purchase the land for the manufactured home communities, (ii) manage the zoning, (iii) manage the entitlement, (iv) manage all horizontal construction*, (v) design the communities (vi) purchase the manufactured homes, (vii) install the manufactured homes, (viii) sell the communities and or (ix) manage or hire third parties to manage the leasing and day to day operations of the communities.

 

* Horizontal Construction includes the following (some of which may not be applicable to the communities the company intends to build: which includes irrigation, drainage, water supply, flood control, harbor, railroad, highway, tunnel, airport or airway, sewer, sewage disposal plant or water treatment facility and any ancillary vertical components thereof, bridge, inland waterway, pipeline for the transmission of petroleum or any other liquid or gaseous substance, pier, and work incidental thereto. The term does not include vertical construction, the construction of any terminal or other building of an airport or airway, or the construction of any other building.

 

The manufactured home communities will consist of approximately 60 to 200 or more manufactured homes. The homes will be approximately 1,375 square feet, three bedrooms, and two bathrooms. The company believes that these homes will rent for approximately 30% less monthly as compared to the monthly rental of a conventionally built home.

 

In July 2020, the company formed a wholly owned limited liability company, ERC Zephyrhills, LLC, a Florida limited liability company (“ERC Zephyrhills”). In August 2020, ERC Zephyrhills acquired land in Zephyrhills, Florida located at 39575 North Avenue, Zephyrhills, FL 33542 (the “ERC Zephyrhills 1”). Purchase statistics and potential plans for the property include the following:

 

●

Purchase Price

 

o

The cost of the land was $750,000, and was paid through $500,000 of mortgage financing and $250,000 of funds provided by ERC Communities, Inc. and select shareholders of ERC Communities, Inc.

 

●

Development Costs

 

o

The company believes that the total development will cost approximately $11,150,000.

 

●

Funding

 

o

ERC Zephyrhills has secured $4,200,000 in construction financing, $3,900,000 of manufactured home financing, and is pursuing approximately $3,050,000 of joint venture equity to be combined with share sale from a new Reg A offering for this development.

 

●

Status

 

o

The company has not yet broken ground on this project.

 

 

Business Process

 

The company intends its business process to proceed in the following manner:

 

 

 

Property Acquisition: Sourcing and Financing

 

The company intends to source properties for manufactured rental home communities from land developers, banks, homeowners, trusts and estates. The company has engaged various regional and national real estate brokerages to source its current and potential sites. The executive team has worked with various real estate brokerages since 2011.

 

When sourcing properties, the company looks to the following location characteristics:

 

●

Population growth of the surrounding area.

●

Increase in a specific area for rental demand.

●

Severe shortages of affordable rental housing.

●

Market acceptance of manufactured rental homes.

●

Single-family homes sale supply.

●

Properties located just outside core urban areas where higher and better uses of land are more likely, resulting in lower land costs and faster entitlement processes.

 

Currently, the company is reviewing potential properties in the following target markets located in Florida:

 

●

Tampa Metro: Tampa, Brandon, Riverview, Seffner, Plant City, Zephyrhills, Wesley Chapel, Pasco County, Ellenton and Bradenton.

●

Central Highway 4: Lakeland and Orlando metro area.

 

 

●

Sarasota Metro: East Sarasota, Port Charlotte, North Port, Punta Gorda, Venice and Englewood.

●

South Gulf Coast: Ft. Myers, Cape Coral.

●

Jacksonville Metro.

 

The ability to purchase any additional properties will be dependent on the company securing funds, and though the company is reviewing these areas there is no guarantee even with funds, future properties will be located there.

 

To date, the company has financed the purchase of the land for the manufactured rental home communities with a combination of the items listed below:

 

●

The proceeds from the company’s 2019 Regulation A offering.

●

Funds advanced to ERC Communities 1 by ERC Parent.

●

Mortgage financing provided by banks, private equity funds, lending-REITs and/or other financial institutions.

●

The company intends to continue this strategy in the foreseeable future.

  

Determination of Whether a Manufactured Rental Home Community is Viable

 

Upon purchase of the property, ERC 1 determines whether the applicable permits and zoning are able to be acquired for the community. In the event due diligence proves that permits and the like are unlikely to be obtained, the company will make the decision to sell the property. If on, the other hand, the company believes that permits, zoning, etc. will be acquired in a timely manner (between 6 months to 1 year) the company will work to procure the applicable permits.

 

Development Process

 

Once the company has acquired the land and determined that the property is eligible for permits the design work will commence. This will result in submissions to governmental authorities for building permits. Once permits are obtained construction will commence. At this time, the company will clear the land and begin building the infrastructure. The infrastructure build will typically include: (i) utilities, (ii) roads, (iii) community common areas such as picnic areas, and (iv) pouring of the manufactured home foundations.

 

The company assumes the following regarding costs and timing for a 60-unit manufactured home community:

 

●

Approximately $10,000,000 per community.

●

Timing: 12 months from breaking ground.

 

Manufactured Homes – Purchase

 

Manufactured homes will be built by independent third-party contractors. The company will oversee independent general contractors for much of its construction (either on site or using modular units that are built off-site), all of whom will perform under fixed-price contracts. When appropriate, the company will take delivery of manufactured homes. The company has not yet entered into any agreements with third-party providers to build the manufactured homes.

 

The manufactured homes will have an average square footage of 1,375 and will likely have a similar footprint of three bedrooms and two bathrooms. The manufactured homes may also include features such as:

 

●

Hard-surfaced floors.

●

Senior grade insulation.

●

Full FEMA- code storm protection.

●

Optional features may include track lighting, recessed lighting and crown- molding

 

 

Operation of the Manufactured Rental Home Communities

 

ERC 1 will either (a) hire a third-party operating company to lease and manage the manufactured rental home communities or (b) manage the leasing and operations of each community in-house.

 

The company believes that they will achieve 100% occupancy of its developments that are 100 units or smaller within 12 months of rental access to tenants.

 

The company believes that its manufactured rental homes will attract lessors with the following demographics:

 

●

Mid-level employees working at local and regional firms.

●

Not all have college degrees, e.g.: FedEx / UPS drivers, IT workers, mid-level medical workers, retail managers, warehouse managers.

●

We believe the average age is 35 – 45, with household income averaging $125,000,

●

Married with 1-2 children and seeking to live in a single-family residence.

 

Sale of Manufactured Rental Home Communities

 

Pursuant to certain circumstances such as real estate market trends and additional project development opportunities, the company may determine that it is in the best interest of the company to sell a manufactured rental home community. When this determination is made, the company believes that the following strategies may be applicable:

 

●

Utilize SVN/SFRhub.com as one of the initial channels for sales to hedge funds, private equity firms and national rental operators.

●

Direct sales to national rental operators.

 

Zephyrhills Property 1

 

The Zephyrhills Property 1 was acquired by the company in August 2020. It is located at 39575 North Avenue, Zephyrhills, FL 33542.

 

This new 60-lot single-family manufactured home rental community will be located at the intersection of North Avenue and Six Star Drive in N. Zephyrhills, Florida. The location straddles Pasco and Hillsborough counties, roughly 30-45 minutes outside of the core business districts of downtown Tampa and Westshore. The company believes that there is strong projected growth of 2,220 renter households in this market through 2025.

 

In reliance on a market study dated May 27, 2021, performed by Hunter Housing Economics, and paid for by ERC Parent, the company estimates rental rates for the Zephyrhills Property 1 manufactured homes to be $1,500 per month or $1.08 per square foot. In this instance the company believes that this rate is 21% below new competitive site-built homes which average $1,900 per month and are located in the Zephyrhills primary market area (“PMA”).

 

Hunter Housing Economics and the company determined the PMA. The PMA is designated as the area from where the targeted tenants may come and in which they will search for housing. The area was designed to exclude the core of Tampa, as such an urban area is not reflective of the suburban nature of a Zephyrhills Property 1 renter. It includes areas that are higher and lower in income. US Highway 301 is a central spine for this submarket, and I-75 is an important artery as well. Protected environmental areas create a hard border on the eastern edge.

 

The PMA straddles Pasco and Hillsborough counties, roughly 30-45 minutes outside of the core business districts of downtown Tampa and Westshore. Historically, this area was considered a bedroom community for Tampa. However, in recent years economic development activity and accelerated growth has brought more healthcare, manufacturing, retail, and entertainment venues into Pasco county. Zephyrhills is an affordable rural community, accessed by US301.

 

Areas just south of I-4 and along US301 are similar in character, demographics, and work- commute times. These submarkets are expected to provide potential renters for Zephyrhills Property 1. Dade City and Plant City are important nodes in this PMA.

 

 

The company believes that population growth is robust in this area, particularly among those looking to rent a home. The area directly around the subject property is rural in character, and this is in line with the company’s strategy. The company intends to bring affordable detached housing to the market, and to target renters who prioritize space and a detached home over the aesthetics of the surrounding area.

 

Below is a map depicting the primary market area.

 

 

 

The single family manufactured homes on the Zephyrhills Property 1will likely have the following attributes:

 

Approximate square foot of each manufactured home	1,375 square feet
Number of Bedrooms	3
Number of Bathrooms	2
Backyard	Yes
Parking concrete slab	Yes
Access to Community Amenities	Yes
Hard-surfaced floors	Yes
Senior grade insulation	Yes
Full FEMA- code storm protection	Yes
Optional features may include track lighting, recessed lighting, and crown- molding.	Yes

 

Market

 

The global manufactured housing market size was valued at $27,188 million in 2019 and is projected to reach $38,848 million by 2027. Manufactured housing is a revolutionary solution for the problem of affordable and quality accommodation globally. According to Manufactured Housing Institute (“MHI”) based in U.S., cost of construction per square foot is considerably less for manufactured housing units as compared to site build traditional homes.

 

 

 

Further, there is scant competition in the manufactured home rental space, as traditional manufactured home communities sell their homes to homeowners. The company, on the other hand, intends to rent the homes to tenants. Rents for similarly sized conventionally built homes can be $1,000 per month greater.

 

Several manufactured home communities have homes that are rented to tenants for prices consistent with what the company plans to charge, but for homes that are 30 years + old. All of the homes that the company intends to build will be brand new. In in-migration states such as Florida and others in the Southeast, rental demand is very strong, driving up considerably the rental cost of conventionally built homes, causing demand for more affordable rental housing. We believe the manufactured home fills this gap.

 

The 2008 financial crisis launched one of the largest distressed-buying opportunities in American history. By 2013, major institutional investors were buying homes through poorly disguised subsidiaries. Tens of thousands of homes built for homeowner sale were instead going into rental pools of regional and national rental operators.

 

As these large pools of undervalued homes began to disappear toward the end of the recession, institutional investors began searching around the country for new home product. Today, they have not abandoned their existing home acquisitions; however, they are showing acute interest in amassing large inventories of homes that carry with them the trait – “everything is new.” Build-For-Rents with new finishes and the latest appliances are in high demand, as are replacement properties for renters seeking to trade up.

 

The company believes that institutional investors prefer these new Build-For-Rents with standard builder warranty attributes that insulate them from significant operating expenses. With “new” homes, the rental operators can easily predict property taxes and property insurance as their primary, if not sole costs of operation.

 

Cultural and Generational Shifts in Housing

 

In addition to the post-recession impact on the Build-For-Rent market, there is an ongoing cultural/demographic shift impacting the affordable single-family residential sector in the US. There has been strong mid-level employment growth in Florida that has expanded the population and increased demand for rental properties in the company’s initial market.

 

More American families are renting homes now than ever before. This is a reversal from the Baby-Boomer generation that was dedicated to home ownership as a fundamental part of the “American Dream” between WWII and the end of the century. Baby-Boomers saw homes in the ‘70’s, ‘80’s and ‘90’s rapidly multiply in value. Those growth rates no longer exist in most US regions. Interestingly, many Baby-Boomers are also seeking rentals now.

 

Millennials in many cases don’t have the financial means to purchase a home. They also generally favor renting or leasing items instead of owning them as they are more focused on experiences than material goods. Furthermore, their joint family standard deduction on their annual tax returns of $24,000 competes with the itemized interest and property tax deductions for homes $400,000 or less in price. The lack of opportunity for capital appreciation and the loss of some of the tax deduction benefits are tipping the balance in the rent vs. buy equation.

 

Traditional garden apartments and townhomes have gotten expensive with rents approaching the $1,750 to $2,000 range in most growing metropolitan service areas. The company believes that renters are increasingly interested in detached living in homes and can achieve that with little or no increase in monthly rental cost.

 

As demographics have changed, cultural shifts have occurred and new tax laws have been implemented, the company believes that there has been a rush into rental housing. In turn, this has stoked acute demand among institutional investors for Build-For-Rent’s and created large opportunities for the company’s offerings.

 

Market Segment Size and Growth

 

Single Family Rental homes are the company’s target market:

 

·	3.9 million new rental units are forecast for 2016-2020, of which 1.5 million are expected to be homes.
·	9.2% increase in home rental units from 2016-20.
·	Total target market is 17.2 million home rental units.

 

 

Much of this growth is being fueled by the under-supply of rental housing inventory. Purchases of Build-For-Rent homes, to satisfy this demand, are being driven by large scale orders and requests for proposals from institutional investors. The company estimates that hundreds of billions of dollars are currently being invested in the single-family rental sector over the next five years.

 

Competition

 

There are numerous developers, private equity funds, and other home builders competing with the company in the development of manufactured home rental communities. Those competitors include, but are not limited to the following:

 

	·	Toll Brothers
	·	Taylor Morrison
	·	NexMetro
	·	AHV Communities
	·	BB Living
	·	Christopher Todd Communities
	·	Camillo Homes.

 

Further, we believe large developers like Lennar are likely to pursue this Build-For-Rent market in the near future. The company may differentiate itself from these other Build-For-Rent developers in a number of ways including the following:

 

•

Adding Eco Living options:

 

o

Environmentally friendly alternatives that can potentially lower renters’ costs and/or allow landlords to increase rents.

 

o

Features may include low e-impact windows, ISO insulation, venting, etc. These additions can be achieved for as low as $5-8 per square foot and make the home more appealing.

 

•

Employ highly qualified land/entitlement/zoning executives to aggressively pursue and manage the bidding process. The company believes the bidding process will be the most competitive aspect with regards to the process of acquiring and developing manufactured rental home communities.

 

Management Services from ERC Parent

 

ERC Communities 1 has entered into a revised management services agreement with ERC Parent effective as of August 5, 2019 (the “Management Services Agreement”). Under that agreement, ERC Parent will provide management services to ERC Communities 1. ERC Communities 1 will pay ERC Parent a monthly management fee of 3.0% of “assets under development”. “Assets under development” is calculated as the total amount of development assets in process, which would include the total costs of land, development and entitlement costs, all construction costs, and contractor fees. The monthly fee for each quarter will be determined by the amount of assets under development determined for the most recently completed quarter. ERC Parent may suspend or defer the management fee in its discretion if such management fee would cause the company financial hardship or negative cash flow.

 

The initial term of the agreement is for ten years. Upon expiration of the agreement, it will automatically renew for another two years. Either party can terminate the agreement provided 120 days written notice has been given to the other party. The agreement may also be terminated upon certain events of default, including material breaches of the agreement and also if one party files for bankruptcy or otherwise liquidates. In the event ERC Parent were to file for bankruptcy or otherwise liquidate, the company would have to seek another provider of management services or make arrangements for such services to be provided in-house, including the hiring of additional personnel.

 

 

The management team members of ERC Parent who will provide services to ERC Communities 1 currently are Gerald Ellenburg, and Ryan Koenig. The management team of the company consists of Gerald Ellenburg, and Ryan Koenig. See “Interest of Management and Others in Certain Transactions — Relationship with ERC Parent.”

 

While the company intends to have sufficient equity to procure mortgages on its own, in some cases it may have to rely on guarantees from other entities, including ERC Parent. There are currently no arrangements for such guarantees from any party, and the Management Services Agreement does not commit ERC Parent to make any such guarantees if the company has insufficient equity.

 

Employees

 

The company currently has no employees. Currently, three employees at ERC Parent dedicate all of their time to the company and two employees at ERC Parent spend half of their time working on matters related to ERC Communities 1. ERC Parent pays the employees.

 

Pursuant to the Management Services Agreement, ERC Parent intends to oversee the development and construction of our first projects. During the initial year of development and as the development nears completion, the ERC Parent executives will commence hiring the full-time direct staff that ERC 1 will then employ.

 

Regulation

 

It is likely that various licenses and permits will be required to operate our business, such as construction permits, county resale tax certificate, “Doing Business As” certificate and elevator and fire department certificates. As of May 23, 2022, the applicable permits for the ERC Zephyrhills 1 have not yet been acquired.

 

Litigation

 

We are not aware of any pending or threatened legal actions that we believe would have a material impact on our business.

 

THE COMPANY’S PROPERTY

 

In August 2020, a subsidiary of the company, ERC Zephyrhills, acquired land in Zephyrhills, Florida for the development of a 60 unit manufactured home rental community located at 39575 North Avenue, Zephyrhills, FL 33542.

 

On August 5, 2021, the company entered into a purchase agreement to purchase 9.77 acres next to the land it owns in Zephyrhills, FL, for $600,000. The company believes that this purchase will close before the end of the second quarter of 2022.

 

 

CONFLICTS OF INTEREST

 

We are subject to various conflicts of interest arising out of our relationship with ERC Parent. We discuss these conflicts below.

 

General

 

ERC Parent is the parent company of ERC Communities 1 and currently holds all of the issued Common Stock of ERC Communities 1. ERC Parent is also affiliated with GolfSuites, and GolfSuites subsidiaries, many if not all of the executives are the same for ERC Parent, ERC 1, GolfSuites, and GolfSuites subsidiaries.

 

The owners and executives of the company have legal obligations with respect to ERC Parent, GolfSuites, and GolfSuites subsidiaries that are similar to their obligations to us. In the future, these persons and other affiliates of these companies may organize/acquire for their own account real estate-related or debt-related investment programs. While ERC Parent and the company is not in direct competition with GolfSuites and GolfSuites subsidiaries since GolfSuites and its subsidiaries are focusing on developing commercial properties and ERC 1 is focusing on residential developments, there is a chance that certain of GolfSuites acquisitions could have been suitable for us.

 

Allocation of Our Affiliates’ Time

 

ERC Communities 1 currently relies on ERC Parent’s executive officers and other professionals who act on behalf of ERC Parent, for the day-to-day operation of our business. As the business matures, our intent is for our company to develop its own management team to take over the day-to-day operations of business.

 

Until that occurs and as a result of the executives competing responsibilities, their obligations to other investors and the fact that they will continue to engage in other business activities on behalf of themselves and others, they will face conflicts of interest in allocating their time to ERC Communities 1 and other entities and other business activities in which they are involved. However, the company believes that the executive officers and investment professionals have sufficient depth to fully discharge their responsibilities to the company and the other entities for which they work, see “The Company’s Business – Management Services from ERC Parent.”

 

Receipt of Fees and Other Compensation by ERC Parent and its Affiliates

 

ERC Parent and its affiliates will receive substantial fees from the company, which fees will not be negotiated at arm’s length. These fees could influence ERC Parent’s advice to the company as well as the judgment of the affiliated executives of ERC Parent and ERC Communities 1 (which are one in the same). For additional information see “The Company’s Business – Management Services from ERC Parent” for conflicts relating to the payment structure between ERC Parent and ERC Communities 1.

 

 

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

 

You should read the following discussion and analysis of our financial condition and results of our operations together with our consolidated financial statements and related notes appearing at the end of this Offering Circular. This discussion contains forward-looking statements reflecting our current expectations that involve risks and uncertainties. Actual results and the timing of events may differ materially from those contained in these forward-looking statements due to several factors, including those discussed elsewhere in this Offering Circular.

 

Overview

 

ERC Communities 1, Inc. is an early-stage company devoted to the development of residential real estate in the Florida area of the United States. The company incorporated in 2018 in the state of Delaware.

 

In July 2020 the company formed a limited liability company – ERC Zephyrhills, LLC (“ERC Zephyrhills”), a Florida limited liability company – which finalized an acquisition of land in Zephyrhills, Florida (a Tampa suburb) for the development of a 60-unit manufactured home rental community. The cost of the land was $750,000 and was paid through $500,000 of mortgage financing and $250,000 of funds provided by ERC Communities, Inc. and select shareholders of ERC Communities, Inc. Plans are underway for an approximate $10.2 million Zephyrhills development.

 

On January 27, 2021, the Company formalized the formation of ERC Wesley Chapel, LLC (“Wesley Chapel”), a Florida limited liability company. Wesley Chapel acquired land with a cost of $548,500 for the development of a 40-unit manufactured home development. The land was secured by a mortgage of $355,000. In December 2021, the plans for Wesley Chapel were terminated, the land was sold, and the mortgage was paid off.

 

The company anticipates that its revenues will come from the following activities:

 

·

Sale of manufactured home rental communities.

 

·

Rental of manufactured homes.

 

The company will collect revenue upon sale of a property and recognize the revenue when the sale is made. Operating expenses currently consist of advertising and marketing expenses and general administrative expenses.

 

Results of Operations

 

For the period ended December 31, 2021 (“Fiscal 2021”) the company had revenues in the amount of $660,000 compared to $0 for the period ended December 31, 2020 (“Fiscal 2020”). The Fiscal 2021 revenues were solely attributable to the sale of the land previously expected to be developed by Wesley Chapel.

 

The company’s cost of revenues increased to $654,349 in Fiscal 2021 from $0 in Fiscal 2020 due cost of the Wesley Chapel property. The company’s gross profit was $5,651 and $0 in Fiscal 2021 and Fiscal 2020, respectively.

 

Total operating expenses for the year ended December 31, 2021, increased to $53,702 from $7,346 for the year ended December 31, 2020, an increase of $46,356 (700%). Professional fees related to the annual audit, accounting, and legal accounted for approximately $52,000 of the Fiscal 2021 operating expenses.

 

Other income (expense) includes Reg A share sale costs and interest expense. The company spent $51,966 in Fiscal 2021 in other expenses. These expenses were incurred due to the Reg A share sale costs. In Fiscal 2020, the company incurred $406,377 related to the Reg A share sale costs.

 

As a result of the foregoing, the company generated a net loss for Fiscal 2021 in the amount of $100,047 compared to a net loss for Fiscal 2020 in the amount of $413,723.

 

 

Liquidity and Capital Resources

 

As of December 31, 2021, the company’s cash and cash equivalents was $2,506.

 

Currently, the company is not generating a profit. Accordingly, since inception ERC 1 has relied upon the cash advances from its current shareholder, ERC Parent, and management; mortgages on the properties; as well as funds raised from its Regulation A offering.   The company plans to continue to try to raise additional capital through additional offerings. Absent additional capital, the company may be forced to significantly reduce expenses and could become insolvent.

 

Indebtedness

 

·

Since inception the company has relied upon the cash advances from its current shareholder, ERC Parent, and management. As of December 31, 2021, those advances totaled $1,004,499 as of December 31, 2021. The balance of these covered costs is recorded as a liability of the company. The company has formalized some of these borrowings but expects to repay all of these amounts whether a formal promissory note exists or not. As these agreements are between related parties, there is no guarantee that these rates or costs are commensurate with an arm’s length arrangement. The company plans to continue to try to raise additional capital through additional offerings and mortgage financing. Absent additional capital, the company may be forced to significantly reduce expenses and could become insolvent.

 

·

Since inception the company has relied upon the cash advances from shareholders of ERC Parent. As of December 31, 2021, those advances totaled $328,000. The balance of these covered costs is recorded as a liability of the company. The company has formalized some of these borrowings but expects to repay all of these amounts whether a formal promissory note exists or not. As these agreements are between related parties, there is no guarantee that these rates or costs are commensurate with an arm’s length arrangement. The company plans to continue to try to raise additional capital through additional offerings and mortgage financing. Absent additional capital, the company may be forced to significantly reduce expenses and could become insolvent.

 

·

The property in Zephyrhills, Florida was mortgaged with Sierra Five Investments, LLC at a one-year mortgage at an interest rate of 12% (the “Zephyrhills Note”).  The outstanding principal of this mortgage as of June 30, 2021, was $500,000. The mortgage is guaranteed by the Chairman of ERC Parent. The note matures in September 2021.  On March 28, 2022, the mortgage was extended until June 30, 2022.

 

Trends

 

Due to the COVID-19 pandemic, the company revised some of its business plans. The company is now using of modular homes in its development plans, to both increase the volume of units that the company will be able to development as well as to lower the costs of eventual rents. If the company raises funds in this offering the company will be begin operations, including commencing the development of Zephryhills Property 1, see “Plan of Operations” below.

 

The company believes that COVID-19 has sharpened renters’ desire and demand for separate living.

 

Going Concern

 

The company’s independent auditor, Artesian CPA, LLC audited the company’s consolidated financial statements as of December 31, 2021, assuming that the company will continue as a going concern.

 

Plan of Operation

 

The company intends to execute the following over the course of the next 12 months:

 

•

Zephyrhills Property #1

 

o

Commence development of the community by Q3 2022.

 

•

Zephyrhills Property #2

 

o

Close on the sale of the property by the end of Q2 2022.

 

o

Commence development of the community by Q1 2023

 

•

Acquire 2 additional properties to be developed into manufactured home communities by the end of Q1 2023.

 

 

DIRECTORS, EXECUTIVE OFFICERS AND SIGNIFICANT EMPLOYEES

 

The table below sets forth the directors of the company as of December 31, 2021.

 

Name		Position		Employer		Age				Term of Office (If indefinite give date of appointment)
Gerald Ellenburg		Director, Chairman and CEO		ERC Communities, Inc.			73			November 8, 2018
Ryan Koenig		Director, President and COO		ERC Communities, Inc.			44			November 8, 2018

 

The table below sets forth the officers and directors of ERC Parent as of December 31, 2021.

 

Name		Position		Employer		Age				Term of Office (If indefinite give date of appointment)
Gerald Ellenburg		Director Chairman Chief Executive Officer		ERC Communities, Inc.			73			November 8, 2018
Ryan Koenig		Director Chief Development Officer		ERC Communities, Inc.			44			November 8, 2018
David A. Morris III		Consulting CFO		ERC Communities, Inc.			62			November 8, 2018

 

Gerald Ellenburg

 

Gerald Ellenburg (“Jerry”) is the Chairman and Chief Executive Officer of ERC Parent since August 2016. Jerry also serves as the Chairman and Chief Executive Officer of GolfSuites Golf, Inc. since October 2018. Jerry has a total of 35 years of experience in the following areas:

 

·

real estate ownership,

 

·

management and the financing of multi-family properties and

 

·

management of over $750 million in debt and equity financings.

 

This includes Jerry’s work with Ryan Koenig at ERC Homes, LLC. They worked together at ERC Homes, LLC from 2011 until the present time. ERC Homes is a home renovation and new-construction development company that developed approximately 175 homes during this time-period. The primary activity of ERC Homes was the acquisition and renovation of bank-foreclosed single-family residences.

 

Jerry graduated from the University of California, Berkeley in 1971, and is a California-licensed CPA (inactive).

 

Ryan Koenig

 

Ryan Koenig is the President and Chief Operating Officer of ERC Communities, Inc., a position he has held since December 2018. From March 2011 until the present, he has been the Chief Development Officer at eResidential and Commercial LLC (ERC Homes), where he worked with Jerry Ellenburg. Ryan has over 20 years of experience in real estate development and construction with the following companies: Wood Partners Camden Properties, Turner Construction and Zaremba Development. Ryan has overseen approximately $500 million in completed construction projects.

 

 

David A. Morris III

 

David Morris is the Consulting Chief Financial Officer at ERC Communities, Inc. since March 2011 until present. David was also the Consulting Chief Financial Officer of GolfSuites since August 2016. David has over 30 years of experience in finance and financial forensics. During his tenure at ERC Parent, David will oversee the following:

 

·

tax planning,

 

·

compliance,

 

·

accounting,

 

·

audit,

 

·

forecasts and

 

·

investment analysis.

 

David’s’ career has included the Vice-Presidency of Finance at Belz Enterprises, a large real estate development and management company from. David graduated from the University of Wisconsin, La Crosse, in 1980 and is a Tennessee-licensed CPA.

 

 

COMPENSATION OF DIRECTORS AND EXECUTIVE OFFICERS

 

Executive officers of ERC Parent also serves as our executive officers and directors. Each of these individuals receives compensation for their services, including services performed for us from ERC Parent. As executive officers of ERC Parent, these individuals serve to manage our day-to-day affairs. Although we indirectly bear some of the costs of the compensation paid to these individuals, through fees and reimbursements we pay ERC Parent, we do not pay any compensation directly to these individuals. See “Interest of Management and Others in Certain Transactions – Management Services Agreement” below for further details.

 

In the future, if the company hires its own employees, it may have to pay its officers, directors, and other employees, which will impact the company’s financial condition and results of operations, as discussed in “Management’s Discussion and Analysis of Financial Condition and Results of Operations.” The company may choose to establish an equity compensation plan for its management and other employees in the future. Further, as the company grows, the company intends to add additional executives, including but not limited to, a General Manager and other vice presidents for operations, finance and administration.

 

 

 

SECURITY OWNERSHIP OF MANAGEMENT AND CERTAIN SECURITYHOLDERS

 

The following table sets out, as of December 31, 2021, ERC Communities 1 voting securities that are owned by our executive officers, directors and other persons holding more than 10% of the company’s voting securities.

 

Title of class

Name and address of beneficial owner

Amount and nature of beneficial ownership

Amount and nature of beneficial ownership acquirable

Percent of class

Class B Common Stock

ERC Home Builders, Inc. 2738 Falkenburg Road South, Riverview, FL 33578

16,000,000

N/A

100

%

 

There are currently no outstanding shares of our Class A Common Stock and 64,318 outstanding shares of Class A Preferred Stock, where no person owners more than 10%.

 

The following table sets out, as of December 31, 2021, ERC Parent’s voting securities that are owned by our executive officers, directors and other persons holding more than 10% of ERC Parent’s voting securities.

 

Title of class		Name and address of beneficial owner		Amount and nature of beneficial ownership				Amount and nature of beneficial ownership acquirable		Percent of class
Class B Common Stock		Gerald Ellenburg			63,800,000			N/A			32	%
		Ryan Koenig			39,300,000			N/A			20	%
		Michael J. Reiner & Associates, LP			19,630,000			N/A			10	%

 

(1)	The address for all the executive officers, directors, and beneficial owners is c/o ERC Communities, Inc. 2738 Falkenburg Road South, Riverview, FL 33578.

 

 

INTEREST OF MANAGEMENT AND OTHERS IN CERTAIN TRANSACTIONS

 

Relationship with ERC Parent

 

The company has received working capital to cover expenses and costs while preparing for the securities offering from ERC Parent in the amount of $1,004,499 as of December 31, 2021. The balance of these covered costs is recorded as a liability of the company. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations– Liquidity and Capital Resources – Indebtedness.”

 

The company has issued 16,000,000 shares of Class B Common Stock to ERC Parent, at par, in exchange for $160.

 

The company has received working capital to cover expenses and costs while preparing for the securities offering from shareholders of ERC Parent in the amount of $328,000 as of December 31, 2021. The balance of these covered costs is recorded as a liability of the company. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations– Liquidity and Capital Resources – Indebtedness.”

 

Management Services Agreement

 

The company has entered into a Management Services Agreement with ERC Parent. Pursuant to this agreement, ERC Parent provides services to ERC Communities 1 including:

 

×

Supervision the operations of ERC Communities 1, and

 

×

Management of all necessary negotiations relating to the business, personnel, etc.

 

In return for the aforementioned services ERC Communities 1 has agreed to pay ERC Parent a monthly management fee of 3.0% of the assets under development. The initial term of the agreement is for ten years. See “The Company’s Business – Management Services from ERC Parent”.

 

Some of the parties involved with the operation and management of the company, including two of our three directors, Gerald Ellenburg and Ryan Koenig, are also officers and directors in ERC Parent. These persons have legal obligations with respect to ERC Parent that are similar to their obligations to us.

 

Relationship with GolfSuites, Inc.

 

Some of the parties involved with the operation and management of the company, including Gerald Ellenburg, David Morris, and Ryan Koenig, have other relationships that may create disincentives to act in the best interest of the company and its investors. These parties are also involved with GolfSuites in similar capacities. While the company will not be competing for the same real estate interests as GolfSuites, there is no guarantee that these conflicts may inhibit or interfere with the sound and profitable operation of the company.

 

 

SECURITIES BEING OFFERED

 

ERC 1 is offering Class A Preferred Stock in this offering. The Class A Preferred Stock may be converted into the Common Stock of the company at the discretion of each investor, or automatically upon the occurrence of certain events, like an initial public offering. As such, the company is qualifying up to 2,000,000 shares of Class A Preferred Stock and up to 2,000,000 shares of Class A Common Stock under this Offering Statement, of which this Offering Circular is part. As of May 23, 2022, the Company has 64,318 shares of Class A Preferred Stock outstanding.

 

ERC 1’s authorized capital stock consists of 150,000,000 shares of Common Stock (the “Common Stock”), at $0.00001 par value, of which 134,000,000 shares are Class A Common Stock (“Class A Common Stock”) and 16,000,000 shares are Class B Common Stock (“Class B Common Stock”) and 50,000,000 shares of Preferred Stock, at $0.00001 par value, of which 8,333,333 shares are Class A Preferred Stock (“Class A Preferred Stock”). Class A Common Stock has the same rights and powers of, ranks equally to, shares ratably with and is identical in all respects, and as to all matters to Class B Common Stock; except that each holder of Class B Common Stock is entitled to 5 votes per share of Class B Common Stock whereas each holder of Class A Common Stock is entitled to only 1 vote per share of Class A Common Stock. The company may issue fractions of shares. The following is a summary of the rights of ERC 1’s capital stock as provided in its Amended and Restated Certificate of Incorporation, as amended and Bylaws, which have been filed as exhibits to the Offering Statement of which this Offering Circular is a part.

 

For a complete description of ERC 1’s capital stock, you should refer to its Amended and Restated Certificate of Incorporation, as amended and Bylaws, and applicable provisions of the Delaware General Corporation Law.

 

Class A Common Stock

 

Voting Rights.

 

Each holder of ERC 1’s Class A Common Stock is entitled to one vote for each share on all matters submitted to a vote of the shareholders. Holders of Class A Common Stock at all times shall vote together with the holders of Class B Common Stock and Class A Preferred Stock as a single class on all matters (including the election of directors) submitted to vote or for the consent of the stockholders of ERC 1.

 

Class B Common Stock

 

Voting Rights.

 

Each holder of ERC 1’s Class B Common Stock is entitled to five votes for each share on all matters submitted to a vote of the shareholders. Holders of Class B Common Stock at all times shall vote together with the holders of Class A Common Stock and Class A Preferred Stock as a single class on all matters (including the election of directors) submitted to vote or for the consent of the stockholders of ERC 1.

 

Conversion Rights.

 

Each share of Class B Common Stock is convertible into one share of Class A Common Stock at the option of the holder at any time upon written notice to ERC 1.

 

All Classes of Common Stock

 

Dividends.

 

Subject to preferences that may be applicable to any then outstanding class of capital stock having prior rights to dividends (including the company’s Class A Preferred Stock), shareholders of ERC 1’s Class A Common Stock and Class B Common Stock are entitled to receive dividends, if any, as may be declared from time to time by the board of directors out of legally-available funds. Any dividends in excess of dividends payable to holders of the Class A Preferred Stock, will be paid ratably among the holders of Class A Common Stock, Class B Common Stock and Class A Preferred Stock on an as-converted basis. ERC 1 has never declared nor paid cash dividends on any of its capital stock and currently does not anticipate paying any cash dividends after this offering or in the foreseeable future on its Common Stock.

 

 

Liquidation Rights.

 

In the event of ERC 1’s liquidation, dissolution or winding up, holders of ERC 1’s Class A and Class B Common Stock will be entitled to share ratably in the net assets legally available for distribution to stockholders after the payment of all of ERC 1’s debts and other liabilities and the satisfaction of any liquidation preference granted to holders of Class A Preferred Stock; however if the amount of that the holders of Class A Preferred Stock would receive based on the pro rata percentage of the proceeds calculated based on the number of shares owned by each investor on an “as converted to Common Stock” basis is greater than the then applicable liquidation preference available to Class A Preferred Stock, the holders of Class A Preferred Stock, Class A Common Stock and Class B Common Stock will receive that amount.

 

Other Rights.

 

Holders of ERC 1’s Class A and Class B Common Stock have no preemptive, subscription or other rights, and there are no redemption or sinking fund provisions applicable to ERC 1’s Class A or Class B Common Stock.

 

Class A Preferred Stock

 

Voting Rights.

 

Each holder of ERC 1 Class A Preferred Stock is entitled to one vote for each share on all matters submitted to a vote of the shareholders. Holders of Class A Preferred Stock at all times shall vote together with holders of the Common Stock as a single class on all matters (including the election of directors) submitted to vote or for the consent of the stockholders of ERC 1.

 

Dividends.

 

Each share of Class A Preferred Stock is entitled to cumulative dividends which shall accrue, whether or not declared by the Board and whether or not there are funds legally available for the payment of dividends, on a daily basis in arrears at the rate of 10% per annum on the sum of the invested amount sum plus all unpaid accrued and accumulated dividends thereon. The dividends will be paid monthly

 

In the event the company declares a dividend distribution to the Common Stockholders, all Class A Preferred Stockholders will receive their pro rata share.

 

Liquidation preference.

 

In the event of a liquidation, investors will be entitled to receive the greater of their total investment amount in the shares of Class A Preferred Stock and any accrued and unpaid dividends or their pro rata percentage of the proceeds calculated based on the number of shares owned by each investor on an “as converted to Common Stock” basis.

 

Conversion.

 

The Class A Preferred Stock is convertible into the Class A Common Stock of the company as provided by Section 5 of the Amended and Restated Certificate of Incorporation. Each share of Class A Preferred Stock shall be convertible, at the option of the holder thereof, at any time after the date of issuance of such share into that number of fully-paid, nonassessable shares of Class A Common Stock determined by dividing the Conversion Price (defined therein), as adjusted for any accrued and unpaid dividends, by the original purchase price. The Conversion Price is the original purchase price, adjusted from time to time as described below under “Anti-Dilution Rights”.

 

 

Holders of the Class A Preferred Stock, may convert their shares of Preferred Stock into Common Stock in their sole discretion. In the event of a Qualified Public Offering, as defined in the Amendment to the Certificate of Incorporation conversion of the Class A Preferred Stock is mandatory.

 

Anti-Dilution Rights

 

Holders of Class A Preferred Stock have the benefit of anti-dilution protective provisions that will be applied to adjust the number of shares of Class A Common Stock issuable upon conversion of the shares of the Class A Preferred Stock. If equity securities are subsequently issued by the company at a price per share less than the conversion price of the Class A Preferred Stock then in effect, the conversion price of the Class A Preferred Stock will be adjusted using a broad-based, weighted-average adjustment formula as set out in the Amended and Restated Certificate of Incorporation.

 

These terms generally provide that if the company issues certain additional shares of Common Stock (as detailed in the Amended and Restated Certificate of Incorporation) without consideration or for a consideration per share less than the Conversion Price, in effect on the date of and immediately prior to such issue, then, the Conversion Price will be reduced. The new Conversion Price will be the amount equal to the quotient obtained by dividing the (i) the sum of (A) the number of shares of Common Stock deemed outstanding prior to such issuance (as determined on an as-converted basis) times the Conversion Price then in effect with (B) the consideration, if any, from that issuances by (ii) the sum of (A) the number of shares of Common Stock deemed outstanding prior to such issuance (a determined on an as-converted basis) plus the number of such additional shares of Common Stock so issued.

 

Other Rights.

 

Holders of ERC 1 Class A Preferred Stock have no preemptive, subscription or other rights, and there is no redemption or sinking fund provisions applicable to its’ Class A Preferred Stock.

 

All Classes of Stock

 

Forum Selection Provisions.

 

Section VII of our Amended and Restated Certificate of Incorporation contain exclusive forum provisions. With a few exceptions, the Court of Chancery in the State of Delaware will be the sole and exclusive forum for any holder of ERC 1’s Class A and Class B Common Stock (including a beneficial owner) to bring (i) any derivative action or proceeding brought on the company’s behalf, (ii) any action asserting a claim of breach of fiduciary duty owed by any director, officer or other employee, (iii) any action asserting a claim against the company, its directors, officers or employees arising pursuant to any provision of the Delaware General Corporation Law or the Corporation’s certificate of incorporation or bylaws or (iv) any action asserting a claim against the company, its directors, officers or employees governed by the internal affairs doctrine.  These sections shall not apply to actions arising under the federal securities laws.

 

Section 6 of our subscription agreement (which appears as an exhibit to the offering statement of which this offering circular forms a part) provides that the Court of Chancery in the State of Delaware is the exclusive forum for all actions or proceedings relating to the subscription agreement. However, this exclusive forum provision does not apply to actions arising under the federal securities laws.

 

Jury Trial Waiver

 

The Court of Chancery in the State of Delaware is a non-jury trial court. The parties in any lawsuits where the forum selection provisions are applicable will not be entitled to a jury.

 

Moreover, holders of Shares of Class A Preferred Stock as well as holders of Class A Common Stock converted from Class A Preferred Stock will be bound by the subscription agreement, which provides that subscribers waive the right to a jury trial of any claim they may have against us arising out of or relating to the subscription agreement, including any claim under federal securities laws. If we opposed a jury trial demand based on the waiver, a court would determine whether the waiver was enforceable given the facts and circumstances of that case in accordance with applicable case law.

 

 

Tax Treatment of Dividends

 

The 10% dividends will likely be treated as a corporate distribution on equity. Corporate distributions on equity are not deductible to the corporation but are generally taxable to the shareholder, subject to various exceptions and limitations. The distributions made pursuant to the Preferred Stock dividend provisions will be taxable as dividends to shareholders only to the extent of current and accumulated earnings and profits.  To the extent the company does not have current and accumulated earnings and profits, the distributions will be treated as a non-taxable return of capital to the extent of the shareholder’s adjusted basis. If distributions still exceed the amount of adjusted basis, such excess would be considered as capital gains income to the shareholder, who will generally be subject to federal (and possibly state) income tax on such gains at a rate that depends upon the shareholder’s holding period with respect to the shares in question, among other factors. Since the tax treatment of any distributions may vary according to the financial performance of the company, as well as the particular circumstances of the investor, investors should consult their own tax advisers, and should further not assume that the distributions will be subject to the same tax treatment from year to year.

 

These amounts will be reported to shareholders on Form 1099-DIV each year as part of their investment reporting package.

 

 

ONGOING REPORTING AND SUPPLEMENTS TO THIS OFFERING CIRCULAR

 

The company will be required to make annual and semi-annual filings with the SEC. The company will make annual filings on Form 1-K, which will be due by the end of April each year and will include audited financial statements for the previous fiscal year. The company will make semi-annual filings on Form 1-SA, which will be due by September 28 each year, which will include unaudited financial statements for the six months to June 30. The company will also file a Form 1-U to announce important events such as the loss of a senior officer, a change in auditors or certain types of capital-raising. The company will be required to keep making these reports unless we file a Form 1-Z to exit the reporting system, which it will only be able to do if it has less than 300 shareholders of record and have filed at least one Form 1-K.

 

At least every 12 months, we will file a post-qualification amendment to the Offering Statement of which this Offering Circular forms a part, to include the company’s recent financial statements.

 

The company may supplement the information in this Offering Circular by filing a Supplement with the SEC.

 

All these filings will be available on the SEC’s EDGAR filing system. You should read all the available information before investing.

 

 

FINANCIAL STATEMENTS

 

ERC Communities 1, Inc.

and Subsidiaries

Consolidated Financial Statements

As of, and for the Years Ended December 31, 2021 and 2020

 

 

 

 

INDEPENDENT AUDITOR’S REPORT

 

April 1, 2022

 

To:      Board of Directors, ERC Communities 1, Inc.

 

Re:      2021 Consolidated Financial Statement audit

 

We have audited the accompanying consolidated financial statements of ERC Communities 1, Inc. and subsidiaries (the “Company”), which comprise the balance sheet as of December 31, 2021, and 2020, and the related statements of loss and comprehensive loss, changes in shareholders’ equity, and cash flows for the calendar year periods ended 2021 and 2020, and the related notes to such consolidated 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.

 

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 consolidated financial statements referred to above present fairly, in all material respects, the financial position of the Company as of December 31, 2021 and 2020, and the results of its operations, shareholder equity and its cash flows for the calendar years ended 2021 and in accordance with accounting principles generally accepted in the United States of America.

 

 

Going Concern

The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in the notes to the financial statements, the Company has stated that substantial doubt exists about the Company's ability to continue as a going concern. Management's evaluation of the events and conditions and management's plans regarding these matters are also described in the Notes to the financial statements. The financial statements do not include any adjustments that might result from the outcome of this uncertainty. Our opinion is not modified with respect to this matter.

 

Sincerely,

 

IndigoSpire CPA Group

 

IndigoSpire CPA Group, LLC

Aurora, Colorado

 

April 1, 2022

 

 

ERC Communities 1, Inc.

and Subsidiaries 

Consolidated Financial Statements

 

As of, and for the Years Ended December 31, 2021 and 2020  

 

 

 

 

ERC Communities 1, Inc. and Subsidiaries

Consolidated Financial Statements

As of, and for the Years Ended December 31, 2021 and 2020

Table of Contents

 

Consolidated Balance Sheets	F-6
Consolidated Statement of Operations	F-7
Consolidated Statement of Changes in Shareholders' Equity	F-8
Consolidated Statement of Changes in Cash Flows	F-9
Notes and Additional Disclosures to the Consolidated Financial Statements	F-12
Consolidating Statements	F-18

 

 

ERC Communities 1, Inc. and Subsidiaries

Consolidated Balance Sheets

As of December 31, 2021 and 2020

See accompanying Independent Auditor's report

 

		2021				2020
ASSETS
Current assets
Cash and cash equivalents		$	2,506			$	4,682
Property, plant and equipment
Land			1,018,768				830,515
Construction-in-progress			3,995				-
Total property, pland and equipment			1,022,763				830,515
Other assets			25,000				16,000
TOTAL ASSETS		$	1,050,269			$	851,197
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities
Current liabilities
Notes payable, current portion		$	500,000			$	500,000
Non-current Liabilities
Notes payable, long-term portion			-				-
Advances from shareholders of ERC Communities, Inc. (parent company)			328,000				328,000
Advances from ERC Communities, Inc. (parent company)			1,004,499				672,394
Total non-current liabilities			1,332,499				1,000,394
TOTAL LIABILITIES			1,832,499				1,500,394
Shareholders' equity
Common stock, Class A: 134,000,000 shares authorized, $0.00001 par, 0 shares issued and outstanding			-				-
Common stock, Class B: 16,000,000 shares authorized, $0.00001 par, 16,000,000 shares issued and outstanding			160				160
Preferred stock, Class A: 8,333,333 shares authorized, 64,318 shares issued and outstanding			384,266				384,266
Preferred stock, other: 41,666,667 shares authorized, no shares issued and outstanding			-				-
Retained deficit, net of distributions			(1,166,656	)			(1,033,623	)
TOTAL STOCKHOLDERS' EQUITY			(782,230	)			(649,197	)
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY		$	1,050,269			$	851,197

 

The accompanying notes are an integral part of these financial statements.

 

 

ERC Communities 1, Inc. and Subsidiaries
Consolidated Statement of Operations
For the Years Ended December 31, 2021 and 2020
See accompanying Independent Auditor's report

		2021				2020
Revenues		$	660,000			$	-
Cost of revenues			654,349				-
Gross profit			5,651				-
Operating expenses
Advertising and marketing			-				-
Salaries
Operational			-				-
Corporate			-				-
Property lease and affiliated costs			-				-
Equipment and repairs			-				-
Utilities and telephone			-				-
Insurance			-				-
Professional fees			52,000				6,609
Property and local taxes			1,038				-
Other selling, general and administrative			664				737
Total operating expenses			53,702				7,346
Operating loss			(48,051	)			(7,346	)
Other expenses
Reg A share sale costs			51,996				406,377
Interest expense			-				-
Total other expenses			51,996				406,377
Net loss		$	(100,047	)		$	(413,723	)
Basic loss per common share		$	(0.00625	)		$	(0.02586	)
Diluted loss per common share		$	(0.00623	)		$	(0.02581	)

 

The accompanying notes are an integral part of these financial statements. 

 

 

ERC Communities 1, Inc. and Subsidiaries
Consolidated Statement of Stockholders' Equity (Deficit)
For the Years Ended December 31, 2021 and 2020
See accompanying Independent Auditor's report

																																		Retained
		Class A								Class B								Class A								Other								Earnings,				Total
		Common Stock								Common Stock								Preferred Stock								Preferred Stock								Net of				Stockholders'
		Shares				Value				Shares				Value				Shares				Value				Shares				Value				Distributions				Equity (Deficit)
Balance as of December 31, 2019			-			$	-				16,000,000			$	160				-			$	-				-			$	-			$	(612,497	)		$	(612,337	)
Share issuance			-				-				-				-				64,318				384,266				-				-				-				384,266
Net loss			-				-				-				-				-				-				-				-				(413,723	)			(413,723	)
Dividends			-				-				-				-				-				-				-				-				(7,403	)			(7,403	)
Balance as of December 31, 2020			-				-				16,000,000				160				64,318				384,266				-				-				(1,033,623	)			(649,197	)
Share issuance			-				-				-				-				-				-				-				-				-				-
Net loss			-				-				-				-				-				-				-				-				(100,047	)			(100,047	)
Dividends			-				-				-				-				-				-				-				-				(32,986	)			(32,986	)
Balance as of December 31, 2021			-			$	-				16,000,000			$	160				64,318			$	384,266				-			$	-			$	(1,166,656	)		$	(782,230	)

 

The accompanying notes are an integral part of these financial statements.

 

 

 

ERC Communities 1, Inc. and Subsidiaries

Consolidated Statement of Cash Flows

For the Years Ended December 31, 2021 and 2020

See accompanying Independent Auditor's report

 

		2021				2020
Cash Flows from Operating Activities
Net loss		$	(100,047	)		$	(413,723	)
Adjustments to reconcile net loss to net cash
provided by (used in) operating activities:
Changes in operating assets and liabilities
Other assets			(9,000	)			(16,000	)
Reg A share sale costs			51,996				406,377
Net cash used in operating activities			(57,051	)			(23,346	)
Cash Flows from Investing Activities
Property, plant and equipment acquisitions			(192,248	)			(830,515	)
Cash Flows from Financing Activities
Proceeds from notes payable			-				500,000
Advances from shareholders of ERC Communities, Inc. (parent company)			-				-
Advances from ERC Communities, Inc. (parent company)			332,105				387,990
Issuance of preferred stock			-				384,266
Dividends			(32,986	)			(7,403	)
Reg A share sale costs			(51,996	)			(406,377	)
Net cash provided by financing activities			247,123				858,476
Net Change In Cash and Cash Equivalents			(2,176	)			4,615
Cash and Cash Equivalents, Beginning of Period			4,682				67
Cash and Cash Equivalents, End of Period		$	2,506			$	4,682

 

The accompanying notes are an integral part of these financial statements. 

 

 

ERC Communities 1, Inc. and Subsidiaries

Consolidating Balance Sheets

As of December 31, 2021 and 2020

 

		ERC				ERC				ERC
		Communities				Zephyrhills,				Wesley												Consolidated
		1, Inc.				LLC				Chapel, LLC				Combined				Eliminations				2021				2020
ASSETS
Current assets
Cash and cash equivalents		$	2,506			$	-			$	-			$	2,506			$	-			$	2,506			$	4,682
Property, plant and equipment
Land			-				1,018,768				-				1,018,768				-				1,018,768				830,515
Construction-in-progress			-				3,995				-				3,995				-				3,995				-
Total property, pland and equipment			-				1,022,763				-				1,022,763				-				1,022,763				830,515
Other assets
Other assets			25,000				-				-				25,000				-				25,000				16,000
Intercompany advances			523,132				-				-				523,132				(523,132	)			-				-
Total other assets			548,132				-				-				548,132				(523,132	)			25,000				16,000
TOTAL ASSETS		$	550,638			$	1,022,763			$	-			$	1,573,401			$	(523,132	)		$	1,050,269			$	851,197
LIABILITIES AND EQUITY
Liabilities
Current liabilities
Notes payable, current portion		$	-			$	500,000			$	-			$	500,000			$	-			$	500,000			$	500,000
Non-current Liabilities
Notes payable, long-term portion			-				-				-				-				-				-				-
Advances from shareholders of ERC Communities, Inc. (parent company)			328,000				-				-				328,000				-				328,000				328,000
Advances from ERC Communities, Inc. (parent company)			1,004,499												1,004,499								1,004,499				672,394
Intercompany advances			-				523,132				-				523,132				(523,132	)			-				-
Total non-current liabilities			1,332,499				523,132				-				1,855,631				(523,132	)			1,332,499				1,000,394
TOTAL LIABILITIES			1,332,499				1,023,132				-				2,355,631				(523,132	)			1,832,499				1,500,394
Equity
Member equity			-				(369	)			-				(369	)			369				-				-
Common stock, Class A			-				-				-				-				-				-				-
Common stock, Class B			160				-				-				160				-				160				160
Preferred stock, Class A			384,266				-				-				384,266				-				384,266				384,266
Preferred stock, other			-				-				-				-				-				-				-
Retained earnings			(1,166,287	)			-				-				(1,166,287	)			(369	)			(1,166,656	)			(1,033,623	)
TOTAL EQUITY			(781,861	)			(369	)			-				(782,230	)			-				(782,230	)			(649,197	)
TOTAL LIABILITIES AND EQUITY		$	550,638			$	1,022,763			$	-			$	1,573,401			$	(523,132	)		$	1,050,269			$	851,197

 

The accompanying notes are an integral part of these financial statements. 

 

 

ERC Communities 1, Inc. and Subsidiaries

Consolidating Statement of Operations

For the Years Ended December 31, 2021 and 2020

 

		ERC				ERC
		Communities				Zephyrhills,				ERC Wesley												Consolidated
		1, Inc.				LLC				Chapel, LLC				Combined				Eliminations				2021				2020
Revenues		$	-			$	-			$	660,000			$	660,000			$	-			$	660,000			$	-
Cost of revenues			-				-				654,349				654,349				-				654,349				-
Gross profit			-				-				5,651				5,651				-				5,651				-
Operating expenses
Advertising and marketing			-				-				-				-				-				-				-
Salaries
Operational			-				-				-				-				-				-				-
Corporate			-				-				-				-				-				-				-
Property lease and affiliated costs			-				-				-				-				-				-				-
Equipment and repairs			-				-				-				-				-				-				-
Utilities and telephone			-				-				-				-				-				-				-
Insurance			-				-				-				-				-				-				-
Professional fees			52,000				-				-				52,000				-				52,000				6,609
Property and local taxes			1,038				-				-				1,038				-				1,038				-
Other selling, general and administrative			295				369				-				664				-				664				737
Total operating expenses			53,333				369				-				53,702				-				53,702				7,346
Operating income (loss)			(53,333	)			(369	)			5,651				(48,051	)			-				(48,051	)			(7,346	)
Other expenses
Reg A share sale costs			46,345				-				5,651				51,996				-				51,996				406,377
Interest expense			-				-				-				-				-				-				-
Total other expenses			46,345				-				5,651				51,996				-				51,996				406,377
Net loss		$	(99,678	)		$	(369	)		$	-			$	(100,047	)		$	-			$	(100,047	)		$	(413,723	)

 

The accompanying notes are an integral part of these financial statements.

 

 

 

ERC Communities 1, Inc.

Notes to Financial Statements

As of December 31, 2021 and 2020

See accompanying Independent Auditor’s report

 

NOTE 1 - NATURE OF OPERATIONS

 

ERC Communities 1, Inc. (which may be referred to as the “Company,” “we,” “us,” or “our”) is an early-stage company devoted to the development of residential real estate in the Florida area of the United States.

 

The Company incorporated in 2018 in the state of Delaware.

 

In July 2020 the Company formed a limited liability company – ERC Zephyrhills, LLC (“Zephyrhills”), a Florida limited liability company – which finalized an acquisition of land in Zephyrhills, Florida (a Tampa suburb) for the development of a 60-unit manufactured home rental community. The cost of the land was $750,000, and was paid through $500,000 of mortgage financing and $250,000 of funds provided by ERC Communities, Inc. and select shareholders of ERC Communities, Inc. Plans are underway for an approximate $10.2 million Zephyrhills development, and two additional developments in the same geographic area.

 

On January 27, 2021, the Company formalized the formation of ERC Wesley Chapel, LLC (“Wesley Chapel”), a Florida limited liability company. Wesley Chapel acquired land with a cost of $548,500 for the development of a 40-unit manufactured home development. The land was secured by a mortgage of $355,000. In December 2021, the plans for Wesley Chapel were terminated, the land was sold, and the mortgage was paid off.

 

Since inception, the Company has relied on advances from affiliates to fund its operations. As of December 31, 2021, the Company had little working capital and will likely incur losses prior to generating positive working capital. These matters raise substantial concern about the Company’s ability to continue as a going concern (see Note below). During the next 12 months, the Company intends to fund its operations with funding from a securities offering campaign (see Note below) and funds from revenue producing activities, if and when such operations and offerings can be realized. If the Company cannot secure additional short-term capital, it may cease operations. These financial statements and related notes thereto do not include any adjustments that might result from these uncertainties.

 

NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

 

Basis of Presentation

The accounting and reporting policies of the Company conform to accounting principles generally accepted in the United States of America ("GAAP"). The Company has adopted December 31 as the year end for reporting purposes.

 

 

Use of Estimates

The preparation of the financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the amounts reported in the financial statements and the footnotes thereto. Actual results could differ from those estimates. It is reasonably possible that changes in estimates will occur in the near term.

 

Risks and Uncertainties

The Company has a limited operating history. The Company's business and operations are sensitive to general business and economic conditions in the United States. A host of factors beyond the Company's control could cause fluctuations in these conditions. Adverse conditions may include: recession, economic downturn, local competition or changes in consumer taste. These adverse conditions could affect the Company's financial condition and the results of its operations. As of December 31, 2021, the Company is operating as a going concern.

 

Cash and Cash Equivalents

The Company considers short-term, highly liquid investments with original maturities of three months or less, at the time of purchase, to be cash equivalents. Cash consists of currency held in the Company’s checking account. As of December 31, 2021 and 2020 the Company had Cash and Cash Equivalents of $2,506 and $4,682, respectively.

 

Receivables and Credit Policy

Trade receivables from customers are uncollateralized customer obligations due under normal trade terms. Trade receivables are stated at the amount billed to the customer. Payments of trade receivables are allocated to the specific invoices identified on the customer’s remittance advice or, if unspecified, are applied to the earliest unpaid invoice. The Company, by policy, routinely assesses the financial strength of its customers. As a result, the Company believes that its accounts receivable credit risk exposure is limited and it has not experienced significant write-downs in its accounts receivable balances. As of December 31, 2021 and 2020, the Company did not have any outstanding accounts receivable.

 

Property and Equipment

Property and equipment are recorded at cost. Expenditures for renewals and improvements that significantly add to the productive capacity or extend the useful life of an asset are capitalized. Expenditures for maintenance and repairs are expensed as incurred. When equipment is retired or sold, the cost and related accumulated depreciation are eliminated from the balance sheet accounts and the resultant gain or loss is reflected in income.

 

Depreciation is provided using the straight-line method, based on useful lives of the assets. As of December 31, 2021 and 2020, the Company had no depreciable assets. Therefore, no depreciation expense is reported in the financial statements.

 

The Company reviews the carrying value of property and equipment for impairment whenever events and circumstances indicate that the carrying value of an asset may not be recoverable from the estimated future cash flows expected to result from its use and eventual disposition. In cases where undiscounted expected future cash flows are less than the carrying value, an impairment loss is recognized equal to an amount by which the carrying value exceeds the fair value of assets. The factors considered by management in performing this assessment include current operating results, trends and prospects, the manner in which the property is used, and the effects of obsolescence, demand, competition, and other economic factors. As of December 31, 2021 and 2020, the Company’s only property is land held for development, including capitalized carrying costs, and as of December 31, 2021, a minimal amount of Construction-In-Progress.

 

 

Income Taxes

Income taxes are provided for the tax effects of transactions reporting in the financial statements and consist of taxes currently due plus deferred taxes related primarily to differences between the basis of receivables, inventory, property and equipment, intangible assets, cryptocurrency valuation and accrued expenses for financial and income tax reporting. The deferred tax assets and liabilities represent the future tax return consequences of those differences, which will either be taxable or deductible when the assets and liabilities are recovered or settled. Deferred tax assets are reduced by a valuation allowance when, in the opinion of management, it is more likely than not that some portion or all the deferred tax assets will not be realized.

 

The Company is taxed as a C Corporation for federal and state income tax purposes. Due to its startup position, no tax benefits have been recorded to reflect net operating loss carry forwards. When the Company becomes profitable, the tax loss benefit will be recorded.

 

The Company evaluates its tax positions that have been taken or are expected to be taken on income tax returns to determine if an accrual is necessary for uncertain tax positions. As of December 31, 2021 and 2020, no accruals were needed for uncertain tax positions.

 

The Company is current with its foreign, US federal and state income tax filing obligations and is not currently under examination from any taxing authority.

 

Revenue Recognition

In 2019, the Company adopted ASC 606, Revenue from Contracts with Customers, as of inception. There was no transition adjustment recorded upon the adoption of ASC 606. Under ASC 606, revenue is recognized when a customer obtains control of promised goods or services, in an amount that reflects the consideration which the entity expects to receive in exchange for those goods or services.

 

To determine revenue recognition for arrangements that an entity determines are within the scope of ASC 606, the Company performs the following steps: (i) identify the contract(s) with a customer, (ii) identify the performance obligations in the contract, (iii) determine the transaction price, (iv) allocate the transaction price to the performance obligations in the contract and (v) recognize revenue when (or as) the entity satisfies a performance obligation. At contract inception, once the contract is determined to be within the scope of ASC 606, the Company assesses the goods or services promised within each contract and determines those that are performance obligations and assesses whether each promised good or service is distinct. The Company then recognizes as revenue the amount of the transaction price that is allocated to the respective performance obligation when (or as) the performance obligation is satisfied.

 

In December 2021 $660,000 of revenue was recognized from the sale of the land previously expected to be developed as Wesley Chapel.

 

Advertising Expenses

The Company expenses advertising costs as they are incurred.

 

Organizational Costs

In accordance with GAAP, organizational costs, including accounting fees, legal fees, and costs of incorporation, are expensed as incurred.

 

 

Earnings per Share

Earnings per share amounts are calculated based on the weighted-average number of shares of common stock outstanding in each year. The basic loss per share is based only on the weighted-average of common shares outstanding. The diluted loss per share is based on the weighted-average of common shares outstanding plus Class A preferred shares, which are convertible to one share of common stock.

 

Concentration of Credit Risk

The Company maintains its cash with a major financial institution located in the United States of America, which it believes to be credit worthy. The Federal Deposit Insurance Corporation insures balances up to $250,000. At times, the Company may maintain balances in excess of the federally insured limits.

 

Recent Accounting Pronouncements

In February 2016, FASB issued ASU No. 2016-02, Leases, that require organizations that lease assets, referred to as "lessees", to recognize on the balance sheet the assets and liabilities for the rights and obligations created by those leases with lease terms of more than 12 months. ASU 2016-02 will also require disclosures to help investors and other financial statement users better understand the amount, timing, and uncertainty of cash flows arising from leases and will include qualitative and quantitative requirements. The new standard for nonpublic entities became effective for fiscal years beginning after December 15, 2019, and interim periods within fiscal years beginning after December 15, 2020. The Company implemented ASU No. 2016-02 for lease accounting for 2020.

 

The FASB issues ASUs to amend the authoritative literature in ASC. There have been a number of ASUs to date, including those above, that amend the original text of ASC. Management believes that those issued to date either (i) provide supplemental guidance, (ii) are technical corrections, (iii) are not applicable to us or (iv) are not expected to have a significant impact our balance sheet.

 

NOTE 3 – INCOME TAX PROVISION

 

As described above, the Company was recently formed and has only incurred costs of its start-up operations and capital raising. As such, no material tax provision yet exists.

 

 

NOTE 4 – COMMITMENTS AND CONTINGENCIES

 

Legal Matters

The Company is not currently involved with and does not know of any pending or threatening litigation against the Company or founders.

 

NOTE 5 – EQUITY

 

The Company has issued 16,000,000 shares of Class B Common Stock to its parent company, at par, in exchange for $160.  The Company has authorized 134,000,000 shares of Class A common stock and 50,000,000 shares of preferred stock, of which 8,333,333 shares are designated as Class A preferred stock which is convertible into Class A common stock.  None of the Class A common stock has been issued. As of December 31, 2021 and 2020, 64,318 shares of Class A preferred stock have been issued.  The company is offering to sell up to 8,333,333 shares of Class A preferred stock as part of a Regulation A offering (discussed more below).

 

Class A common stockholders are entitled to a single vote per share and have equal dividend and liquidation preferences as Class B common stockholders. Class B common stockholders have five votes per share and shares of Class B common stock can be converted into shares of Class A common stock at the option of the holder. Class A preferred stockholders are entitled to a single vote per share and to an 8 percent annual dividend, which will accrue if funds are not legally available to distribute, in addition to a liquidation preference. Shares of Class A preferred stock can be converted into shares of Class A common stock at the option of the holder and shares will be automatically converted in the event of a qualified public offering, as defined in the Amended and Restated Certificate of Incorporation.

 

NOTE 6 – NOTES PAYABLE

 

Notes payable at December 31, 2021 and 2020 consists of the following debt instruments.

 

		2021				2020
Zephyrhills - Note payable secured by a mortgage on land with an interest rate of 12%. Interest only payments are due monthly. The note matures June 30, 2022.		$	500,000			$	500,000

 

Interest on the Zephyrhills mortgage has been capitalized as development costs and is included in Land on the balance sheet.

 

 

NOTE 7 – RELATED PARY TRANSACTIONS

 

The Company has received working capital, to cover expenses and costs while preparing for the securities offering, from ERC Communities, Inc. (the Company’s parent company) and various of its shareholders totaling $332,105 and $387,990 for the years ended December 31, 2021 and 2020, respectively. The balance of these advances is recorded as a liability of the Company. The Company has formalized some of these borrowings, but expects to repay all of these amounts whether a formal promissory note exists or not. As these are agreements between related parties, there is no guarantee that these rates or costs are commensurate with an arm’s-length arrangement.

 

NOTE 8 – GOING CONCERN

 

These financial statements are prepared on a going concern basis. The Company began operation in 2018 and has limited operating history. The Company’s ability to continue is dependent upon management’s plan to raise additional funds and achieve and sustain profitable operations. The financial statements do not include any adjustments that might be necessary if the Company is not able to continue as a going concern.

 

NOTE 9 – SUBSEQUENT EVENTS

 

Management’s Evaluation

Management has evaluated subsequent events through the date these financial statements were issued.  Based on this evaluation, no material subsequent events were identified which would require adjustment or disclosure in the financial statements of December 31, 2021.

 

 

PART III

EXHIBITS

 

The documents listed in the Exhibit Index of this report are incorporated by reference, in each case as indicated below.

 

1.1	Dalmore Agreement
2.1	Amendment to the Amended and Restated Certificate of Incorporation (1)
2.2	Amended and Restated Certificate of Incorporation (1)
2.3	Certificate of Amendment to the Amended and Restated Certificate of Incorporation, dated October 4, 2021(2)
2.4	Certificate of Designations of Class B Preferred Stock and Series A Participating Equity, dated October 4, 2021(2)
2.5	Certificate of Amendment to the Amended and Restated Certificate of Incorporation dated March 3, 2022(2)
2.6	Bylaws (1)
4.1	Subscription Agreement
6.1	Management Services Agreement between ERC Homebuilders 1, Inc. and ERC Homebuilders, Inc. effective as of August 5, 2019(1)
6.2	Promissory Note with ERC Homebuilders, Inc. dated November 10, 2018, reimbursement due on or before December 31, 2019, with annual interest of 3% (1)
6.3	Agreement of Sale and Purchase dated August 5, 2021(2)
11.1	Auditors Consent
12.1	CrowdCheck Opinion

 

(1)

Filed as an exhibit to the ERC Communities 1, Inc. Regulation A Offering Statement on Form 1-A (Commission File No. 024-10987)

(2)

Filed as an exhibit to the ERC Communities 1, Inc. Form 1-K (Commission File No. 24R-00278)

 

 

SIGNATURE

 

Pursuant to the requirements of Regulation A, the issuer has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized, in Riverview, State of Florida, on May 23, 2022.

 

ERC Communities 1, Inc.
/s/ Gerald Ellenburg
By Gerald Ellenburg
CEO of ERC Communities 1, Inc.

 

Pursuant to the requirements of Regulation A, this report has been signed below by the following persons on behalf of the issuer and in the capacities and on the dates indicated.

 

s/ Gerald Ellenburg

Gerald Ellenburg, Chief Executive Officer, Chief Financial Officer, Chief Accounting Officer and Director

 

Date: May 23, 2022

 

 

Exhibit 1.1

 

 

Broker-Dealer Agreement

 

This agreement (together with exhibits and schedules, the “Agreement”) is entered into by and between ERC Communities 1, Inc (“Client”), a Delaware Corporation, and Dalmore Group, LLC., a New York Limited Liability Company (“Dalmore”). Client and Dalmore agree to be bound by the terms of this Agreement, effective as of April 15, 2022 (the “Effective Date”):

 

WHEREAS, Dalmore is a registered broker-dealer providing services in the equity and debt securities market, including offerings conducted via exemptions from registration with the Securities Exchange Commission (“SEC”);

 

WHEREAS, Client is offering securities directly to the public in an offering exempt from registration under Regulation A (the “Offering”); and

 

WHEREAS, Client recognizes the benefit of having Dalmore as a broker dealer of record and service provider for investors who participate in the Offering (collectively, the “Investors”).

 

NOW, THEREFORE, in consideration of the mutual promises and covenants contained herein and for good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the Parties agree as follows:

 

1.	Appointment, Term, and Termination.

 

a.

Services. Client hereby engages Dalmore to perform the services listed on Exhibit A attached hereto and made a part hereof, in connection with the Offering (the “Services”). Unless otherwise agreed to in writing by the parties, the services to be performed by Dalmore are limited to those Services.

 

b.

Term. The Agreement will commence on the Effective Date and will remain in effect for a period of twelve (12) months and will renew automatically for successive renewal terms of twelve (12) months each unless any party provides notice to the other party of non-renewal at least sixty (60) days prior to the expiration of the current term. If Client defaults in performing the obligations under this Agreement, the Agreement may be terminated (i) upon thirty (30) days written notice if Client fails to perform or observe any material term, covenant or condition to be performed or observed by it under this Agreement and such failure continues to be unremedied, (ii) upon written notice, if any material representation or warranty made by Client proves to be incorrect at any time in any material respect, or (iii) upon thirty (30) days’ written notice if Client or Dalmore commences a voluntary proceeding seeking liquidation, reorganization or other relief, or is adjudged bankrupt or insolvent or has entered against it a final and unappealable order for relief, under any bankruptcy, insolvency or other similar law, or either party executes and delivers a general assignment for the benefit of its creditors.

 

 

 

 

2.	Compensation. As compensation for the Services, Client shall pay to Dalmore the following fees:

 

a.

a fee equal to one percent (1%) on the aggregate amount raised by the Client (the “Offering Fee”). The Offering Fee shall only be payable after the Financial Industry Regulatory Authority (“FINRA”) department of Corporate Finance issues a no objection letter (the “No Objection Letter”) for the Offering. Client authorizes Dalmore to deduct the Offering Fee directly from the Client’s third-party escrow or payment account.

 

b.

a one-time expense fee of five thousand ($5,000) for out-of-pocket expenses incurred by Dalmore (the “Expense Fee”). The Expense Fee is due and payable upon execution of this Agreement. The Expense Fee shall cover expenses anticipated to be incurred by the firm such as FINRA filings and any other expenses incurred by Dalmore in connection with the Offering. Notwithstanding the foregoing, Dalmore will refund to the Client any portion of the Expense Fee that remains unused.

 

c.

A one-time consulting fee of twenty thousand ($20,000) (the “Consulting Fee”) which is due and payable within five (5) days of receipt of the No Objection Letter. In the event the Consulting Fee is not paid by the first closing, Client authorizes Dalmore to deduct the Consulting Fee directly from the Client’s third-party escrow or payment account upon the first closing.

 

3.	Regulatory Compliance

 

a.

Client and all its third-party providers shall at all times (i) maintain all required registrations and licenses, including foreign qualification, if necessary; and (iii) pay all related fees and expenses (including all fees associated with FINRA filings), in each case that are necessary or appropriate to perform their respective obligations under this Agreement.

 

FINRA Corporate Filing Fee for this $25,000,000, best efforts offering will be $4,250 and will be a pass-through fee payable to Dalmore, from the Client, who will then forward it to FINRA as payment for the filing. This fee is due and payable prior to any submission by Dalmore to FINRA.

 

b.

Client and Dalmore will each be responsible for supervising the activities and training of their respective sales employees, as well as all of their other respective employees in the performance of functions specifically allocated to them pursuant to the terms of this Agreement.

 

 

 

 

c.

Client and Dalmore agree to promptly notify the other concerning any material communications from or with any Governmental Authority or Self Regulatory Organization with respect to this Agreement or the performance of its obligations unless such notification is expressly prohibited by the applicable Governmental Authority.

 

4.             Role of Dalmore. Client acknowledges and agrees that Dalmore’s sole responsibilities in connection with an Offering are set forth on Exhibit A, and that Dalmore is strictly acting in an administrative and compliance capacity as the broker dealer of record, and is not being engaged by the Client to act as an underwriter or placement agent in connection with the Offering. Dalmore will use commercially reasonable efforts to perform the Services. Dalmore (i) makes no representations with respect to the quality of any investment opportunity; (ii) does not guarantee the performance of any Investor; (iii) is not soliciting or approaching investors in connection with the Offering, (iv) is not an investment adviser, does not provide investment advice and does not recommend securities transactions, (v) in performing the Services is not making any recommendation as to the appropriateness, suitability, legality, validity or profitability of the Offering, and (vi) does not take any responsibility for any documentation created and used in connection with the Offering.

 

5.             Indemnification. Client shall indemnify and hold Dalmore, its affiliates and their representatives and agents harmless from, any and all actual or direct losses, liabilities, judgments, arbitration awards, settlements, damages and costs (collectively, “Losses”), resulting from or arising out of any third party suits, actions, claims, demands or similar proceedings (collectively, “Proceedings”) to the extent they are based upon (i) a breach of this Agreement by Client, (ii) the wrongful acts or omissions of Client, or (iii) the Offering.

 

6.             Confidentiality. For purposes of this Agreement, the term “Confidential Information” means all confidential and proprietary information of a party, including but not limited to (i) financial information, (ii) business and marketing plans, (iii) the names of employees and owners, (iv) the names and other personally-identifiable information of users of the third-party provided online fundraising platform, (v) security codes, and (vi) all documentation provided by Client or Investor, but shall not include (i) information already known or independently developed by the recipient without the use of any confidential and proprietary information, or (ii) information known to the public through no wrongful act of the recipient. During the term of this Agreement and at all times thereafter, neither party shall disclose Confidential Information of the other party or use such Confidential Information for any purpose without the prior written consent of such other party. Without limiting the preceding sentence, each party shall use at least the same degree of care in safeguarding the other party’s Confidential Information as it uses to safeguard its own Confidential Information. Notwithstanding the foregoing, a party may disclose Confidential Information (i) if required to do by order of a court of competent jurisdiction, provided that such party shall notify the other party in writing promptly upon receipt of knowledge of such order so that such other party may attempt to prevent such disclosure or seek a protective order; or (ii) to any applicable governmental authority as required by applicable law. Nothing contained herein shall be construed to prohibit the SEC, FINRA, or other government official or entities from obtaining, reviewing, and auditing any information, records, or data. Client acknowledges that regulatory record-keeping requirements, as well as securities industry best practices, require Dalmore to maintain copies of practically all data, including communications and materials, regardless of any termination of this Agreement.

 

 

 

 

7.            Notices. Any notices required by this Agreement shall be in writing and shall be addressed, and delivered or mailed postage prepaid, or faxed or emailed to the other parties hereto at such addresses as such other parties may designate from time to time for the receipt of such notices. Until further notice, the address of each party to this Agreement for this purpose shall be the following:

 

If to the Client:

 

ERC Communities 1, Inc. 

2738 Falkenburg Road S.

Riverview, FL 33578 

Attn: Jerry Ellenburg, President & Director

Tel: (813) 621-5000 

Email: [email protected]

 

If to Dalmore: 

 

Dalmore Group, LLC 

525 Green Place

Woodmere, NY 11598

Attn: Etan Butler, Chairman

Tel: 917-319-3000 

Email: [email protected]

 

8.	Miscellaneous.

 

a.            ANY DISPUTE OR CONTROVERSY BETWEEN THE CLIENT AND PROVIDER RELATING TO OR ARISING OUT OF THIS AGREEMENT WILL BE SETTLED BY ARBITRATION BEFORE AND UNDER THE RULES OF THE ARBITRATION COMMITIEE OF FINRA.

 

b.            This Agreement is non-exclusive and shall not be construed to prevent either party from engaging in any other business activities.

 

 

 

 

c.            This Agreement will be binding upon all successors, assigns or transferees of Client. No assignment of this Agreement by either party will be valid unless the other party consents to such an assignment in writing. Either party may freely assign this Agreement to any person or entity that acquires all or substantially all of its business or assets. Any assignment by the either party to any subsidiary that it may create or to a company affiliated with or controlled directly or indirectly by it will be deemed valid and enforceable in the absence of any consent from the other party.

 

d.            Neither party will, without prior written approval of the other party, reference such other party in any advertisement, website, newspaper, publication, periodical or any other communication, and shall keep the contents of this Agreement confidential in accordance with the provisions set forth herein.

 

e.            THE CONSTRUCTION AND EFFECT OF EVERY PROVISION OF THIS AGREEMENT, THE RIGHTS OF THE PARTIES UNDER THIS AGREEMENT AND ANY QUESTIONS ARISING OUT OF THE AGREEMENT, WILL BE SUBJECT TO THE LAWS OF THE STATE OF NEW YORK, WITHOUT REGARD TO CONFLICT OF LAW PRINCIPLES TO THE EXTENT SUCH APPLICATION WOULD CAUSE THE LAWS OF A DIFFERENT STATE TO APPLY. The language used in this Agreement shall be deemed to be the language chosen by the parties to express their mutual intent, and no rule of strict construction will be applied against any party

 

f.             If any provision or condition of this Agreement is held to be invalid or unenforceable by any court, or regulatory or self-regulatory agency or body, the validity of the remaining provisions and conditions will not be affected and this Agreement will be carried out as if any such invalid or unenforceable provision or condition were not included in the Agreement.

 

g.            This Agreement sets forth the entire agreement between the parties with respect to the subject matter hereof and supersedes any prior agreement relating to the subject matter herein. The Agreement may not be modified or amended except by written agreement.

 

h.            This Agreement may be executed in multiple counterparts and by facsimile or electronic means, each of which shall be deemed an original but all of which together shall constitute one and the same agreement.

 

[SIGNATURES APPEAR ON FOLLOWING PAGE(S)]

 

 

 

 

IN WITNESS WHEREOF, the parties have executed this Agreement as of the date first written above.

 

	CLIENT: ERC Communities 1, Inc.
	By	/s/ Jerry Ellenburg	Apr 15 2022
	Name:	Jerry Ellenburg
	Its:	President & Director

 

	Dalmore Group, LLC:
	By	/s/ Etan Butler	Apr 15 2022
	Name:	Etan Butler
	Its:	Chairman

 

 

 

 

Exhibit A

 

Services:

 

i.

Review Investor information, including KYC (Know Your Customer) data, AML (Anti-Money Laundering), OFAC compliance background checks (it being understood that KYC and AML processes may be provided by a qualified third party);

 

ii.

Review each Investor’s subscription agreement to confirm such Investor’s participation in the Offering, and provide confirmation of completion of such subscription documents to Client;

 

iii.

Contact and/or notify the issuer, if needed, to gather additional information or clarification on an Investor;

 

iv.

Keep Investor information and data confidential and not disclose to any third-party except as required by regulatory agencies or in our performance under this Agreement (e.g. as needed for AML and background checks);

 

v.

Coordinate with third party providers to ensure adequate review and compliance;

 

vi.

Provide, or coordinate the provision by a third party, of an “invest now” payment processing mechanism, including connection to a qualified escrow agent.

 

 

Exhibit 4.1

 

SUBSCRIPTION AGREEMENT

 

THIS INVESTMENT INVOLVES A HIGH DEGREE OF RISK. THIS INVESTMENT IS SUITABLE ONLY FOR PERSONS WHO CAN BEAR THE ECONOMIC RISK FOR AN INDEFINITE PERIOD OF TIME AND WHO CAN AFFORD TO LOSE THEIR ENTIRE INVESTMENT. FURTHERMORE, INVESTORS MUST UNDERSTAND THAT SUCH INVESTMENT IS ILLIQUID AND IS EXPECTED TO CONTINUE TO BE ILLIQUID FOR AN INDEFINITE PERIOD OF TIME. NO PUBLIC MARKET EXISTS FOR THE SECURITIES, AND NO PUBLIC MARKET IS EXPECTED TO DEVELOP FOLLOWING THIS OFFERING.

 

THE SECURITIES OFFERED HEREBY HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE “SECURITIES ACT”), OR ANY STATE SECURITIES OR BLUE SKY LAWS AND ARE BEING OFFERED AND SOLD IN RELIANCE ON EXEMPTIONS FROM THE REGISTRATION REQUIREMENTS OF THE ACT AND STATE SECURITIES OR BLUE SKY LAWS. ALTHOUGH AN OFFERING STATEMENT HAS BEEN FILED WITH THE SECURITIES AND EXCHANGE COMMISSION (THE “SEC”), THAT OFFERING STATEMENT DOES NOT INCLUDE THE SAME INFORMATION THAT WOULD BE INCLUDED IN A REGISTRATION STATEMENT UNDER THE SECURITIES ACT. THE SECURITIES 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 THE MERITS OF THIS OFFERING OR THE ADEQUACY OR ACCURACY OF THE SUBSCRIPTION AGREEMENT OR ANY OTHER MATERIALS OR INFORMATION MADE AVAILABLE TO SUBSCRIBER IN CONNECTION WITH THIS OFFERING OVER THE WEB-BASED PLATFORM MAINTAINED BY NOVATION SOLUTIONS INC. (A/K/A DEALMAKER) (THE “PLATFORM”) OR THROUGH DALMORE GROUP, LLC (THE “BROKER”). ANY REPRESENTATION TO THE CONTRARY IS UNLAWFUL.

 

INVESTORS WHO ARE NOT “ACCREDITED INVESTORS” (AS THAT TERM IS DEFINED IN SECTION 501 OF REGULATION D PROMULGATED UNDER THE ACT) ARE SUBJECT TO LIMITATIONS ON THE AMOUNT THEY MAY INVEST, AS SET OUT IN SECTION 4. THE COMPANY IS RELYING ON THE REPRESENTATIONS AND WARRANTIES SET FORTH BY EACH SUBSCRIBER IN THIS SUBSCRIPTION AGREEMENT AND THE OTHER INFORMATION PROVIDED BY SUBSCRIBER IN CONNECTION WITH THIS OFFERING TO DETERMINE THE APPLICABILITY TO THIS OFFERING OF EXEMPTIONS FROM THE REGISTRATION REQUIREMENTS OF THE ACT.

 

THE OFFERING MATERIALS MAY CONTAIN FORWARD-LOOKING STATEMENTS AND INFORMATION RELATING TO, AMONG OTHER THINGS, THE COMPANY, ITS BUSINESS PLAN AND STRATEGY, AND ITS INDUSTRY. THESE FORWARD-LOOKING STATEMENTS ARE BASED ON THE BELIEFS OF, ASSUMPTIONS MADE BY, AND INFORMATION CURRENTLY AVAILABLE TO THE COMPANY’S MANAGEMENT. WHEN USED IN THE OFFERING MATERIALS, THE WORDS “ESTIMATE,” “PROJECT,” “BELIEVE,” “ANTICIPATE,” “INTEND,” “EXPECT” AND SIMILAR EXPRESSIONS ARE INTENDED TO IDENTIFY FORWARD-LOOKING STATEMENTS, WHICH CONSTITUTE FORWARD LOOKING STATEMENTS. THESE STATEMENTS REFLECT MANAGEMENT’S CURRENT VIEWS WITH RESPECT TO FUTURE EVENTS AND ARE SUBJECT TO RISKS AND UNCERTAINTIES THAT COULD CAUSE THE COMPANY’S ACTUAL RESULTS TO DIFFER MATERIALLY FROM THOSE CONTAINED IN THE FORWARD-LOOKING STATEMENTS. INVESTORS ARE CAUTIONED NOT TO PLACE UNDUE RELIANCE ON THESE FORWARD-LOOKING STATEMENTS, WHICH SPEAK ONLY AS OF THE DATE ON WHICH THEY ARE MADE. THE COMPANY DOES NOT UNDERTAKE ANY OBLIGATION TO REVISE OR UPDATE THESE FORWARD-LOOKING STATEMENTS TO REFLECT EVENTS OR CIRCUMSTANCES AFTER SUCH DATE OR TO REFLECT THE OCCURRENCE OF UNANTICIPATED EVENTS.

 

THE COMPANY MAY NOT BE OFFERING THE SECURITIES IN EVERY STATE. THE OFFERING MATERIALS DO NOT CONSTITUTE AN OFFER OR SOLICITATION IN ANY STATE OR JURISDICTION IN WHICH THE SECURITIES ARE NOT BEING OFFERED.

 

 

THE COMPANY RESERVES THE RIGHT IN ITS SOLE DISCRETION AND FOR ANY REASON WHATSOEVER TO MODIFY, AMEND AND/OR WITHDRAW ALL OR A PORTION OF THE OFFERING AND/OR ACCEPT OR REJECT IN WHOLE OR IN PART ANY PROSPECTIVE INVESTMENT IN THE SECURITIES OR TO ALLOT TO ANY PROSPECTIVE INVESTOR LESS THAN THE AMOUNT OF SECURITIES SUCH INVESTOR DESIRES TO PURCHASE. EXCEPT AS OTHERWISE INDICATED, THE OFFERING MATERIALS SPEAK AS OF THEIR DATE. NEITHER THE DELIVERY NOR THE PURCHASE OF THE SECURITIES SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF THE COMPANY SINCE THAT DATE.

 

 

TO:	ERC Communities 1, Inc. 2738 Falkenburg Road South Riverview, Florida 33578

 

Ladies and Gentlemen:

 

1. Subscription.

 

 

(a)The undersigned (“Subscriber”) hereby irrevocably subscribes for and agrees to purchase 2,000,000 shares of Class A Preferred Stock (“Preferred Stock”) and up to 2,000,000 shares of Class A Common Stock into which the Preferred Stock may convert (the “Securities”), of ERC Communities 1, Inc., a Delaware Corporation, (the “Company”), at a purchase price of $12.50 per share (the “Per Security Price”), upon the terms and conditions set forth herein. The minimum subscription is $750. The Preferred Stock being subscribed for under this Subscription Agreement and the Class A Common Stock (“Common Stock”) issuable upon conversion of the Preferred Stock are also referred to as the “Securities.” The rights and preferences of the Preferred Stock are as set forth in the Amended and Restated Certificate of Incorporation, as amended included as Exhibits to the Offering Statement of the Company filed with the SEC (the “Offering Statement”).

  

(b) Subscriber understands that the Securities are being offered pursuant to an offering circular dated [DATE], 2022 (the “Offering Circular”) filed with the SEC as part of the Offering Statement. By executing this Subscription Agreement, Subscriber acknowledges that Subscriber has received this Subscription Agreement, copies of the Offering Circular and Offering Statement including exhibits thereto and any other information required by the Subscriber to make an investment decision.

 

(c) The Subscriber’s subscription may be accepted or rejected in whole or in part, at any time prior to an applicable Closing Date (as hereinafter defined), by the Company at its sole discretion. In addition, the Company, at its sole discretion, may allocate to Subscriber only a portion of the number of Securities Subscriber has subscribed for. The Company will notify Subscriber whether this subscription is accepted (whether in whole or in part) or rejected. If Subscriber’s subscription is rejected, Subscriber’s payment (or portion thereof if partially rejected) will be returned to Subscriber without interest and all of Subscriber’s obligations hereunder shall terminate.

 

(d) The aggregate number of Securities sold shall not exceed 2,000,000 shares of Preferred Stock (the “Maximum Offering”). There is no minimum required offering amount and the Company may accept subscriptions until the termination of the Offering in accordance with its terms (the “Termination Date”). The Company may elect at any time to close all or any portion of this offering, on various dates at or prior to the Termination Date (each a “Closing Date”).

 

(e) In the event of rejection of this subscription in its entirety, or in the event the sale of the Securities is not consummated for any reason, this Subscription Agreement shall have no force or effect, except for Section 5 hereof, which shall remain in force and effect.

 

(f) The terms of this Subscription Agreement shall be binding upon Subscriber and its transferees, heirs, successors and assigns (collectively, “Transferees”); provided that for any such transfer to be deemed effective, the Transferee shall have executed and delivered to the Company in advance an instrument in a form acceptable to the Company in its sole discretion, pursuant to which the proposed Transferee shall acknowledge, agree, and be bound by the representations and warranties of Subscriber and the terms of this Subscription Agreement.

 

 

2. Purchase Procedure.

 

Payment. The purchase price for the Securities shall be paid simultaneously with the execution and delivery to the Company of the signature page of this Subscription Agreement. Subscriber shall deliver a signed copy of this Subscription Agreement, along with payment for the aggregate purchase price of the Securities, by check, wire transfer, credit or debit card or ACH transfer and held in a segregated operating account owned by the Company. Funds will remain in the segregated account until the Subscription Agreement has been cleared and countersigned by the Company. To the extent that the funds are not ultimately received by the Company or are subsequently withdrawn by the Subscriber, whether due to an ACH chargeback or otherwise, this Subscription Agreement will be considered terminated, and the Subscriber shall not be entitled to any Securities subscribed for.

  

3. Representations and Warranties of the Company.

 

The Company represents and warrants to Subscriber that the following representations and warranties are true and complete in all material respects as of the date of each Closing Date, except as otherwise indicated. For purposes of this Subscription Agreement, an individual shall be deemed to have “knowledge” of a particular fact or other matter if such individual is actually aware of such fact. The Company will be deemed to have “knowledge” of a particular fact or other matter if one of the Company’s current officers has, or at any time had, actual knowledge of such fact or other matter.

 

(a) Organization and standing. The Company is a corporation duly formed, validly existing and in good standing under the laws of the State of Delaware. The Company has all requisite power and authority to own and operate its properties and assets, to execute and deliver this Subscription Agreement, and any other agreements or instruments required hereunder. The Company is duly qualified and is authorized to do business and is in good standing as a foreign corporation in all jurisdictions in which the nature of its activities and of its properties (both owned and leased) makes such qualification necessary, except for those jurisdictions in which failure to do so would not have a material adverse effect on the Company or its business.

 

(b) Issuance of the Securities. The issuance, sale and delivery of the Securities in accordance with this Subscription Agreement has been duly authorized by all necessary corporate action on the part of the Company. The Securities, when so issued, sold and delivered against payment therefor in accordance with the provisions of this Subscription Agreement, will be duly and validly issued, fully paid and non-assessable.

 

(c) Authority for Agreement. The execution and delivery by the Company of this Subscription Agreement and the consummation of the transactions contemplated hereby (including the issuance, sale and delivery of the Securities) are within the Company’s powers and have been duly authorized by all necessary corporate action on the part of the Company. Upon full execution hereof, this Subscription Agreement shall constitute a valid and binding agreement of the Company, enforceable against the Company in accordance with its terms, except (i) as limited by applicable bankruptcy, insolvency, reorganization, moratorium, and other laws of general application affecting enforcement of creditors’ rights generally, (ii) as limited by laws relating to the availability of specific performance, injunctive relief, or other equitable remedies and (iii) with respect to provisions relating to indemnification and contribution, as limited by considerations of public policy and by federal or state securities laws.

 

(d) No filings. Assuming the accuracy of the Subscriber’s representations and warranties set forth in Section 4 hereof, no order, license, consent, authorization or approval of, or exemption by, or action by or in respect of, or notice to, or filing or registration with, any governmental body, agency or official is required by or with respect to the Company in connection with the execution, delivery and performance by the Company of this Subscription Agreement except (i) for such filings as may be required under Regulation A or under any applicable state securities laws, (ii) for such other filings and approvals as have been made or obtained, or (iii) where the failure to obtain any such order, license, consent, authorization, approval or exemption or give any such notice or make any filing or registration would not have a material adverse effect on the ability of the Company to perform its obligations hereunder.

 

(e) Capitalization. The authorized and outstanding securities of the Company immediately prior to the initial investment in the Securities is as set forth under “Securities Being Offered” in the Offering Circular. Except as set forth in the Offering Circular, there are no outstanding options, warrants, rights (including conversion or preemptive rights and rights of first refusal), or agreements of any kind (oral or written) for the purchase or acquisition from the Company of any of its securities.

 

 

(f) Financial statements. Complete copies of the Company’s financial statements consisting of the balance sheets of the Company as at December 31, 2021 and 2020 and the related statements of income, stockholders’ equity and cash flows for the fiscal years then ended (the “Audited Financial Statements”) have been made available to the Subscriber and appear in the Offering Circular. The Audited Financial Statements are based on the books and records of the Company and fairly present in all material respects the financial condition of the Company as of the respective dates they were prepared and the results of the operations and cash flows of the Company for the periods indicated. IndigoSpire CPA Group, LLC, which has audited the Audited Financial Statements, is an independent accounting firm within the rules and regulations adopted by the SEC.

 

(g) Proceeds. The Company shall use the proceeds from the issuance and sale of the Securities as set forth in “Use of Proceeds to Issuer” in the Offering Circular.

 

(h) Litigation. Except as set forth in the Offering Circular, there is no pending action, suit, proceeding, arbitration, mediation, complaint, claim, charge or investigation before any court, arbitrator, mediator or governmental body, or to the Company’s knowledge, currently threatened in writing (a) against the Company or (b) against any consultant, officer, manager, director or key employee of the Company arising out of his or her consulting, employment or board relationship with the Company or that could otherwise materially impact the Company.

  

4. Representations and Warranties of Subscriber. By executing this Subscription Agreement, Subscriber (and, if Subscriber is purchasing the Securities subscribed for hereby in a fiduciary capacity, the person or persons for whom Subscriber is so purchasing) represents and warrants, which representations and warranties are true and complete in all material respects as of such Subscriber’s respective Closing Date(s).

 

(a) Requisite Power and Authority. Such Subscriber has all necessary power and authority under all applicable provisions of law to execute and deliver this Subscription Agreement, and other agreements required hereunder and to carry out their provisions. All action on Subscriber’s part required for the lawful execution and delivery of this Subscription Agreement and other agreements required hereunder have been or will be effectively taken prior to the Closing Date. Upon their execution and delivery, this Subscription Agreement and other agreements required hereunder will be valid and binding obligations of Subscriber, enforceable in accordance with their terms, except (a) as limited by applicable bankruptcy, insolvency, reorganization, moratorium or other laws of general application affecting enforcement of creditors’ rights and (b) as limited by general principles of equity that restrict the availability of equitable remedies.

 

(b) Investment Representations. Subscriber understands that the Securities have not been registered under the Securities Act. Subscriber also understands that the Securities are being offered and sold pursuant to an exemption from registration contained in the Securities Act based in part upon Subscriber’s representations contained in this Subscription Agreement.

 

(c) Illiquidity and Continued Economic Risk. Subscriber acknowledges and agrees that there is no ready public market for the Securities and that there is no guarantee that a market for their resale will ever exist. Subscriber must bear the economic risk of this investment indefinitely and the Company has no obligation to list the Securities on any market or take any steps (including registration under the Securities Act or the Securities Exchange Act of 1934, as amended (the “Exchange Act”)) with respect to facilitating trading or resale of the Securities. Subscriber acknowledges that Subscriber is able to bear the economic risk of losing Subscriber’s entire investment in the Securities. Subscriber also understands that an investment in the Company involves significant risks and has taken full cognizance of and understands all of the risk factors relating to the purchase of Securities.

 

(d) Accredited Investor Status or Investment Limits. Subscriber represents that either:

 

(i) Subscriber is an “accredited investor” within the meaning of Rule 501 of Regulation D under the Securities Act. Subscriber represents and warrants that the information set forth in response to question (c) on the signature page hereto concerning Subscriber is true and correct; or

 

(ii) The purchase price set out in paragraph (b) of the signature page to this Subscription Agreement, together with any other amounts previously used to purchase Securities in this offering, does not exceed 10% of the greater of the Subscriber’s annual income or net worth.

 

Subscriber represents that to the extent it has any questions with respect to its status as an accredited investor, or the application of the investment limits, it has sought professional advice.

 

 

(e) Stockholder information. Within five days after receipt of a request from the Company, the Subscriber hereby agrees to provide such information with respect to its status as a stockholder (or potential stockholder) and to execute and deliver such documents as may reasonably be necessary to comply with any and all laws and regulations to which the Company is or may become subject. Subscriber further agrees that in the event it transfers any Securities, it will require the transferee of such Securities to agree to provide such information to the Company as a condition of such transfer.

 

(f) Company Information. Subscriber has had such opportunity as it deems necessary (which opportunity may have presented through online chat or commentary functions) to discuss the Company’s business, management and financial affairs with managers, officers and management of the Company and has had the opportunity to review the Company’s operations and facilities. Subscriber has also had the opportunity to ask questions of and receive answers from the Company and its management regarding the terms and conditions of this investment. Subscriber acknowledges that except as set forth herein, no representations or warranties have been made to Subscriber, or to Subscriber’s advisors or representative, by the Company or others with respect to the business or prospects of the Company or its financial condition.

 

(g) Valuation. The Subscriber acknowledges that the price of the Securities was set by the Company on the basis of the Company’s internal valuation and no warranties are made as to value. The Subscriber further acknowledges that future offerings of Securities may be made at lower valuations, with the result that the Subscriber’s investment will bear a lower valuation.

 

(h) Domicile. Subscriber maintains Subscriber’s domicile (and is not a transient or temporary resident) at the address shown on the signature page.

 

(i) No Brokerage Fees. There are no claims for brokerage commission, finders’ fees or similar compensation in connection with the transactions contemplated by this Subscription Agreement or related documents based on any arrangement or agreement binding upon Subscriber.

 

(j) Foreign Investors. If Subscriber is not a United States person (as defined by Section 7701(a)(30) of the Internal Revenue Code of 1986, as amended), Subscriber hereby represents that it has satisfied itself as to the full observance of the laws of its jurisdiction in connection with any invitation to subscribe for the Securities or any use of this Subscription Agreement, including (i) the legal requirements within its jurisdiction for the purchase of the Securities, (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 Securities. Subscriber’s subscription and payment for and continued beneficial ownership of the Securities will not violate any applicable securities or other laws of the Subscriber’s jurisdiction.

 

5. Survival of Representations and Indemnity. The representations, warranties and covenants made by the Subscriber shall survive the Termination Date. The Subscriber agrees to indemnify and hold harmless the Company and their respective officers, directors and affiliates, and each other person, if any, who controls the Company within the meaning of Section 15 of the Securities Act against any and all loss, liability, claim, damage and expense whatsoever (including, but not limited to, any and all reasonable attorneys’ fees, including attorneys’ fees on appeal) and expenses reasonably incurred in investigating, preparing or defending against any false representation or warranty or breach of failure by the Subscriber to comply with any covenant or agreement made by the Subscriber herein or in any other document furnished by the Subscriber to any of the foregoing in connection with this transaction.

 

6. Governing Law; Jurisdiction. This Subscription Agreement shall be governed and construed in accordance with the laws of the State of Delaware without regard to conflicts of law principles.

 

 

EACH OF THE SUBSCRIBER AND THE COMPANY CONSENTS TO THE JURISDICTION OF ANY STATE OR FEDERAL COURT OF COMPETENT JURISDICTION LOCATED WITHIN DELAWARE AND NO OTHER PLACE AND IRREVOCABLY AGREES THAT ALL ACTIONS OR PROCEEDINGS RELATING TO THIS SUBSCRIPTION AGREEMENT NOT ARISING UNDER THE FEDERAL SECURITIES LAWS MAY BE LITIGATED IN SUCH COURTS.

 

EACH OF SUBSCRIBER AND THE COMPANY ACCEPTS FOR ITSELF AND HIMSELF AND IN CONNECTION WITH ITS AND HIS RESPECTIVE PROPERTIES, GENERALLY AND UNCONDITIONALLY, THE EXCLUSIVE JURISDICTION OF THE AFORESAID COURTS AND WAIVES ANY DEFENSE OF FORUM NON CONVENIENS, AND IRREVOCABLY AGREES TO BE BOUND BY ANY JUDGMENT RENDERED THEREBY IN CONNECTION WITH THIS SUBSCRIPTION AGREEMENT NOT ARISING UNDER THE FEDERAL SECURITIES LAWS. EACH OF SUBSCRIBER AND THE COMPANY FURTHER IRREVOCABLY CONSENTS TO THE SERVICE OF PROCESS OUT OF ANY OF THE AFOREMENTIONED COURTS IN THE MANNER AND IN THE ADDRESS SPECIFIED IN SECTION 7 AND THE SIGNATURE PAGE OF THIS SUBSCRIPTION AGREEMENT.

 

EACH OF THE PARTIES HERETO HEREBY IRREVOCABLY WAIVES ALL RIGHT TO TRIAL BY JURY IN ANY ACTION, PROCEEDING OR COUNTERCLAIM (WHETHER BASED IN CONTRACT, TORT BUT NOT INCLUDING CLAIMS UNDER THE FEDERAL SECURITIES LAWS) ARISING OUT OF OR RELATING TO THIS SUBSCRIPTION AGREEMENT OR THE ACTIONS OF EITHER PARTY IN THE NEGOTIATION, ADMINISTRATION, PERFORMANCE AND ENFORCEMENT THEREOF. EACH OF THE PARTIES HERETO ALSO WAIVES ANY BOND OR SURETY OR SECURITY UPON SUCH BOND WHICH MIGHT, BUT FOR THIS WAIVER, BE REQUIRED OF SUCH PARTY. THIS WAIVER IS IRREVOCABLE, MEANING THAT IT MAY NOT BE MODIFIED EITHER ORALLY OR IN WRITING, AND THIS WAIVER SHALL APPLY TO ANY SUBSEQUENT AMENDMENTS, RENEWALS, SUPPLEMENTS OR MODIFICATIONS TO THIS SUBSCRIPTION AGREEMENT. IN THE EVENT OF LITIGATION, THIS SUBSCRIPTION AGREEMENT MAY BE FILED AS A WRITTEN CONSENT TO A TRIAL BY THE COURT. BY AGREEING TO THIS WAIVER, THE SUBSCRIBER IS NOT DEEMED TO WAIVE THE COMPANY’S COMPLIANCE WITH THE FEDERAL SECURITIES LAWS AND THE RULES AND REGULATIONS PROMULGATED THEREUNDER.

 

7. Notices. Notice, requests, demands and other communications relating to this Subscription Agreement and the transactions contemplated herein shall be in writing and shall be deemed to have been duly given if and when (a) delivered personally, on the date of such delivery; or (b) mailed by registered or certified mail, postage prepaid, return receipt requested, in the third day after the posting thereof; or (c) emailed, telecopied or cabled, on the date of such delivery to the address of the respective parties as follows:

 

If to the Company, to:   ERC Communities 1, Inc. 2738 Falkenburg Road South Riverview, Florida 33578

with a required copy (that shall not constitute notice) to:   [_____________] [_____________] [_____________]

 

If to a Subscriber, to Subscriber’s address as provided with the execution of this Subscription Agreement or to such other address as may be specified by written notice from time to time by the party entitled to receive such notice. Any notices, requests, demands or other communications by telecopy or cable shall be confirmed by letter given in accordance with (a) or (b) above.

 

The Subscriber hereby agrees that the Company may deliver all notices, financial statements, valuations, reports, reviews, analyses or other materials, and any and all other documents, information and communications concerning the affairs of the Company and its investments, including, without limitation, information about the investment, required or permitted to be provided to the Subscriber under the Offering Circular or hereunder by means e-mail or by posting on an electronic message board or by other means of electronic communication. The Subscriber hereby consents to receive electronically all documents, communications, notices, contracts, and agreements arising from or relating in any way to your or our rights, obligations or services hereunder or pursuant to your ownership of the Securities.

 

 

8. Miscellaneous.

 

(a) All pronouns and any variations thereof shall be deemed to refer to the masculine, feminine, neuter, singular or plural, as the identity of the person or persons or entity or entities may require.

 

(b) This Subscription Agreement is not transferable or assignable by Subscriber.

 

(c) The representations, warranties and agreements contained herein shall be deemed to be made by and be binding upon Subscriber and its heirs, executors, administrators and successors and shall inure to the benefit of the Company and its successors and assigns.

 

(d) None of the provisions of this Subscription Agreement may be waived, changed or terminated orally or otherwise, except as specifically set forth herein or except by a writing signed by the Company and Subscriber.

 

(e) In the event any part of this Subscription Agreement is found to be void or unenforceable, the remaining provisions are intended to be separable and binding with the same effect as if the void or unenforceable part were never the subject of agreement.

 

(f) The invalidity, illegality or unenforceability of one or more of the provisions of this Subscription Agreement in any jurisdiction shall not affect the validity, legality or enforceability of the remainder of this Subscription Agreement in such jurisdiction or the validity, legality or enforceability of this Subscription Agreement, including any such provision, in any other jurisdiction, it being intended that all rights and obligations of the parties hereunder shall be enforceable to the fullest extent permitted by law.

 

(g) This Subscription Agreement supersedes all prior discussions and agreements between the parties with respect to the subject matter hereof and contains the sole and entire agreement between the parties hereto with respect to the subject matter hereof.

 

(h) The terms and provisions of this Subscription Agreement are intended solely for the benefit of each party hereto and their respective successors and assigns, and it is not the intention of the parties to confer, and no provision hereof shall confer, third-party beneficiary rights upon any other person.

 

(i) The headings used in this Subscription Agreement have been inserted for convenience of reference only and do not define or limit the provisions hereof.

 

(j) This Subscription Agreement may be executed in any number of counterparts, including by electronic transmission, each of which will be deemed an original, but all of which together will constitute one and the same instrument.

 

(k) If any recapitalization or other transaction affecting the stock of the Company is effected, then any new, substituted or additional securities or other property which is distributed with respect to the Securities shall be immediately subject to this Subscription Agreement, to the same extent that the Securities, immediately prior thereto, shall have been covered by this Subscription Agreement.

 

(l) No failure or delay by any party in exercising any right, power or privilege under this Subscription Agreement shall operate as a waiver thereof nor shall any single or partial exercise thereof preclude any other or further exercise thereof or the exercise of any other right, power or privilege. The rights and remedies herein provided shall be cumulative and not exclusive of any rights or remedies provided by law.

 

[SIGNATURE PAGE FOLLOWS]

 

 

ERC COMMUNITIES 1, INC.

SUBSCRIPTION AGREEMENT SIGNATURE PAGE

 

The undersigned, desiring to purchase Preferred Stock of ERC Communities 1, Inc., by executing this signature page, hereby executes, adopts and agrees to all terms, conditions and representations of the Subscription Agreement.

 

(a) The number of shares of Preferred Stock the undersigned hereby irrevocably subscribes for is:
		(print number of Securities)
(b) The aggregate purchase price (based on a purchase price of $12.50 per Security) for the Preferred Stock the undersigned hereby irrevocably subscribes for is:		$
		(print aggregate purchase price)
(c) The Securities being subscribed for will be owned by, and should be recorded on the Company’s books as held in the name of:
(print name of owner or joint owners)

 

		If the Securities are to be purchased in joint names, both Subscribers must sign:
Signature		Signature
Name (Please Print)		Name (Please Print)
Email address		Email address
Address
Telephone Number		Telephone Number
Social Security Number/EIN		Social Security Number
Date		Date

 

* * * * *

 

This Subscription is accepted	ERC COMMUNITIES 1, INC.
on _____________, 202X
	By:
		Name:
		Title:

 

 

APPENDIX A

An accredited investor, as defined in Rule 501(a) of the Securities Act of 1933, as amended, includes the following categories of investor:

 

(1) Any bank as defined in section 3(a)(2) of the Act, or any savings and loan association or other institution as defined in section 3(a)(5)(A) of the Act whether acting in its individual or fiduciary capacity; any broker or dealer registered pursuant to section 15 of the Securities Exchange Act of 1934; any investment adviser registered pursuant to section 203 of the Investment Advisers Act of 1940 or registered pursuant to the laws of a state; any investment adviser relying on the exemption from registering with the Commission under section 203(l) or (m) of the Investment Advisers Act of 1940; any insurance company as defined in section 2(a)(13) of the Act; any investment company registered under the Investment Company Act of 1940 or a business development company as defined in section 2(a)(48) of that Act; any 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; any Rural Business Investment Company as defined in section 384A of the Consolidated Farm and Rural Development Act; any plan established and maintained by a state, its political subdivisions, or any agency or instrumentality of a state or its political subdivisions, for the benefit of its employees, if such plan has total assets in excess of $5,000,000; any employee benefit plan within the meaning of the Employee Retirement Income Security Act of 1974 if the investment decision is made by a plan fiduciary, as defined in section 3(21) of such act, which is either a bank, savings and loan association, insurance company, or registered investment adviser, or if the employee benefit plan has total assets in excess of $5,000,000 or, if a self-directed plan, with investment decisions made solely by persons that are accredited investors;

 

(2) Any private business development company as defined in section 202(a)(22) of the Investment Advisers Act of 1940;

 

(3) Any organization described in section 501(c)(3) of the Internal Revenue Code, corporation, Massachusetts or similar business trust, or partnership, or limited liability company, not formed for the specific purpose of acquiring the securities offered, with total assets in excess of $5,000,000;

 

(4) Any director, executive officer, or general partner of the issuer of the securities being offered or sold, or any director, executive officer, or general partner of a general partner of that issuer;

 

(5) Any natural person whose individual net worth, or joint net worth with that person's spouse or spousal equivalent, exceeds $1,000,000.

 

(i) Except as provided in paragraph (5)(ii) of this section, for purposes of calculating net worth under this paragraph (5):

 

(A) The person's primary residence shall not be included as an asset;

 

(B) Indebtedness that is secured by the person's primary residence, up to the estimated fair market value of the primary residence at the time of the sale of securities, shall not be included as a liability (except that if the amount of such indebtedness outstanding at the time of sale of securities exceeds the amount outstanding 60 days before such time, other than as a result of the acquisition of the primary residence, the amount of such excess shall be included as a liability); and

 

(C) Indebtedness that is secured by the person's primary residence in excess of the estimated fair market value of the primary residence at the time of the sale of securities shall be included as a liability;

 

 

(ii) Paragraph (5)(i) of this section will not apply to any calculation of a person's net worth made in connection with a purchase of securities in accordance with a right to purchase such securities, provided that:

 

(A) Such right was held by the person on July 20, 2010;

 

(B) The person qualified as an accredited investor on the basis of net worth at the time the person acquired such right; and

 

(C) The person held securities of the same issuer, other than such right, on July 20, 2010.

 

(6) Any natural person who had an individual income in excess of $200,000 in each of the two most recent years or joint income with that person's spouse or spousal equivalent in excess of $300,000 in each of those years and has a reasonable expectation of reaching the same income level in the current year;

 

(7) Any trust, with total assets in excess of $5,000,000, not formed for the specific purpose of acquiring the securities offered, whose purchase is directed by a sophisticated person as described in §230.506(b)(2)(ii);

 

(8) Any entity in which all of the equity owners are accredited investors;

 

(9) Any entity, of a type of not listed in paragraphs (1), (2), (3), (7), or (8), not formed for the specific purpose of acquiring the securities offered, owning investments in excess of $5,000,000;

 

(10) Any natural person holding in good standing one or more professional certifications or designations or credentials from an accredited educational institution that the Commission has designated as qualifying an individual for accredited investor status;

 

(11) Any natural person who is a “knowledgeable employee,” as defined in rule 3c-5(a)(4) under the Investment Company Act of 1940 (17 CFR 270.3c-5(a)(4)), of the issuer of the securities being offered or sold where the issuer would be an investment company, as defined in section 3 of such act, but for the exclusion provided by either section 3(c)(1) or section 3(c)(7) of such act;

 

(12) Any “family office,” as defined in rule 202(a)(11)(G)-1 under the Investment Advisers Act of 1940 (17 CFR 275.202(a)(11)(G)-1):

 

(i) With assets under management in excess of $5,000,000,

(ii) That is not formed for the specific purpose of acquiring the securities offered, and

(iii) Whose prospective investment is directed by a person who has such knowledge and experience in financial and business matters that such family office is capable of evaluating the merits and risks of the prospective investment; and

 

(13) Any “family client,” as defined in rule 202(a)(11)(G)-1 under the Investment Advisers Act of 1940 (17 CFR 275.202(a)(11)(G)-1)), of a family office meeting the requirements in paragraph (12) of this section and whose prospective investment in the issuer is directed by such family office pursuant to paragraph (12)(iii).

 

 

Exhibit 11.1

 

CONSENT OF INDEPENDENT PUBLIC
ACCOUNTING FIRM

 

May 23, 2022

 

Board of Directors

ERC COMMUNITIES 1, INC.

 

We hereby consent to the inclusion in the Offering Circular or other documents filed under Regulation A tier 2 on Form 1-A of our reports dated March 1, 2022, with respect to the balance sheets of ERC COMMUNITIES 1, INC. as of December 31, 2021 and 2020 and the related statements of operations, changes in shareholders’ equity and cash flows for the fiscal years ended December 31, 2021 and 2020, and the related notes to the financial statements.

 

/s/ IndigoSpire CPA Group

 

IndigoSpire CPA Group, LLC

Aurora, Colorado

 

May 23, 2022

 

 

Exhibit 12.1

 

 

May 23, 2022

 

Board of Directors

ERC Communities 1, Inc.

2738 Falkenburg Road South

Riverview, FL 33578

 

To the Board of Directors:

 

We are acting as counsel to ERC Communities 1, Inc. (the “Company”) with respect to the preparation and filing of an offering statement on Form 1-A. The offering statement, and pre-qualification amendments, cover the contemplated sale of up to 2,000,000 shares of the Company’s Preferred Stock and up to 2,000,000 shares of Class A Common Stock into which the preferred stock may convert to investors based upon an investor’s investment level.

 

In connection with the opinion contained herein, we have examined the offering statement, as well as pre-qualification amendments, the second certificate of amendment to the amended and restated certificate of incorporation and the bylaws, the resolutions of the Company’s board of directors and stockholders, as well as all other documents necessary to render an opinion. In our examination, we have assumed the legal capacity of all natural persons, the genuineness of all signatures, the authenticity of all documents submitted to us as originals, the conformity to original documents of all documents submitted to us as certified or photostatic copies and the authenticity of the originals of such copies.

 

Based upon the foregoing, we are of the opinion that the shares of Preferred Stock and the shares of Common Stock into which the Preferred Stock converts, being sold pursuant to the offering statement are duly authorized and will be, when issued in the manner described in the offering statement, legally and validly issued, fully paid and non-assessable.

 

No opinion is being rendered hereby with respect to the truth and accuracy, or completeness of the offering statement or any portion thereof.

 

We further consent to the use of this opinion as an exhibit to the offering statement.

 

Yours truly,

 

/s/ CrowdCheck Law LLP

 

CrowdCheck Law LLP

 

 JO/KM