UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

 

FORM 10-Q

 

(Mark One)

 

[X]	QUARTERLY REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the quarterly period ended March 31, 2018

 

[  ]	TRANSITION REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the transition period from _____________ to _____________

 

Commission File Number: 000-55463

 

IEG HOLDINGS CORPORATION

(Exact Name of Registrant as Specified in Its Charter)

 

Florida		90-1069184
(State or Other Jurisdiction of Incorporation or Organization)		(I.R.S. Employer Identification No.)

 

3960 Howard Hughes Parkway, Suite 490, Las Vegas, NV		89169
(Address of Principal Executive Office)		(Zip Code)

 

(702) 227-5626

(Registrant’s Telephone Number, Including Area Code)

 

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No [  ]

 

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes [X] No [  ]

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer	[  ]	Accelerated filer	[  ]
Non-accelerated filer	[  ]	Smaller reporting company	[X]
(Do not check if a smaller reporting company)
Emerging growth company	[X]

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. [  ]

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes [  ] No [X]

 

As of April 23, 2018, there were 17,463,449 shares of the registrant’s common stock, par value $0.001 per share, outstanding.

 

 

 

IEG HOLDINGS CORPORATION

 

INDEX

 

		Page
PART I - FINANCIAL INFORMATION		4
Item 1.	Financial Statements	4
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	17
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	23
Item 4.	Controls and Procedures	24
PART II - OTHER INFORMATION		24
Item 1.	Legal Proceedings	24
Item 1A.	Risk Factors	24
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	24
Item 3.	Defaults Upon Senior Securities	24
Item 4.	Mine Safety Disclosures	24
Item 5.	Other Information	24
Item 6.	Exhibits	25
Signatures		26

 

 

FORWARD-LOOKING STATEMENTS

 

Except for any historical information contained herein, the matters discussed in this quarterly report on Form 10-Q contain certain “forward-looking statements’’ within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, the Exchange Act. This includes statements regarding our future financial position, economic performance, results of operations, business strategy, budgets, projected costs, plans and objectives of management for future operations, including the information referred to under “Management’s Discussion and Analysis of Financial Condition and Results of Operations.”

 

These forward-looking statements generally can be identified by the use of forward-looking terminology, such as “may,’’ “will,’’ “expect,’’ “intend,’’ “estimate,’’ “anticipate,’’ “believe,’’ “continue’’ or similar terminology, although not all forward-looking statements contain these words. These forward-looking statements are not historical facts, and are based on current expectations, estimates and projections about our industry, management’s beliefs and certain assumptions made by management, many of which, by their nature, are inherently uncertain and beyond our control. Accordingly, you are cautioned that any such forward-looking statements are not guarantees of future performance and are subject to certain risks, uncertainties and assumptions that are difficult to predict. Although we believe that the expectations reflected in such forward-looking statements are reasonable as of the date made, expectations may prove to have been materially different from the results expressed or implied by such forward-looking statements. We undertake no obligation to and, unless otherwise required by law, we expressly disclaim any obligation to update or alter any forward-looking statements, whether as a result of new information, future events or otherwise.

 

When considering these forward-looking statements, you should keep in mind the cautionary statements in this quarterly report on Form 10-Q in our other SEC filings, including the more detailed discussion of these factors and other factors that could affect our results included in the “Risk Factors” section in our annual report on Form 10-K for the fiscal year ended December 31, 2017, as filed with the Securities and Exchange Commission (the “SEC”), as the same may be updated from time to time in documents that we file with the SEC. As a result of these factors, we cannot assure you that the forward-looking statements in this quarterly report on Form 10-Q will prove to be accurate. Furthermore, if our forward-looking statements prove to be inaccurate, the inaccuracy may prove to be material. In light of the significant uncertainties in these forward-looking statements, you should not regard these statements as a representation or warranty by us or any other person that we will achieve our objectives and plans in any specified time-frame, or at all.

 

 

PART I - FINANCIAL INFORMATION

 

Item 1. Financial Statements

 

IEG HOLDINGS CORPORATION

CONDENSED CONSOLIDATED BALANCE SHEETS

MARCH 31, 2018 AND DECEMBER 31, 2017

 

		March 31, 2018				December 31, 2017
		(Unaudited)				(Audited)
ASSETS
Cash and cash equivalents		$	360,907			$	704,006
Loans receivable, net, note 2			4,540,238				4,928,704
Other receivables			53,572				75,364
Prepaid expenses			6,187				18,238
Property and equipment, net, note 3			11,952				13,376
Security deposits			11,234				11,234
TOTAL ASSETS		$	4,984,090			$	5,750,922
LIABILITIES AND STOCKHOLDERS’ EQUITY
LIABILITIES
Accounts payable and accrued expenses		$	327,806			$	51,053
TOTAL LIABILITIES		$	327,806			$	51,053
COMMITMENTS AND CONTINGENCIES, note 7
STOCKHOLDERS’ EQUITY
Preferred stock, $0.001 par value; 50,000,000 shares authorized, 0 and 0 shares issued and outstanding at March 31, 2018 and December 31, 2017 respectively, note 5			-				-
Common stock, $0.001 par value; 300,000,000 shares authorized, 17,463,449 and 17,463,449 shares issued and outstanding at March 31, 2018 and December 31, 2017 respectively, note 5			2,240,931				2,240,931
Additional paid-in capital			34,074,976				34,074,976
Accumulated deficit			(31,659,623	)			(30,616,038	)
TOTAL STOCKHOLDERS’ EQUITY			4,656,284				5,699,869
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY		$	4,984,090			$	5,750,922

 

See notes to condensed consolidated unaudited Financial Statements

 

 

IEG HOLDINGS CORPORATION

CONDENSED CONSOLIDATED UNAUDITED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME

FOR THE THREE MONTHS ENDED MARCH 31, 2018 AND 2017

 

		March 31, 2018				March 31, 2017
REVENUES
Interest revenue		$	381,548			$	450,729
Other revenue			12,794				16,654
TOTAL REVENUES			394,342				467,383
OPERATING EXPENSES
Salaries and compensation			412,099				120,278
Other operating expenses			146,287				115,204
Provision for credit losses			204,668				224,488
Advertising			1,240				880
Rent			17,988				10,857
Public company and corporate finance expenses			654,089				498,191
Depreciation and amortization			1,425				1,573
TOTAL OPERATING EXPENSES			1,437,796				971,471
LOSS FROM OPERATIONS			(1,043,454	)			(504,088	)
OTHER INCOME (EXPENSE)
Loss on sale of marketable securities			(194	)			-
Miscellaneous income (expense)			63				149
TOTAL OTHER INCOME (EXPENSE)			(131	)			149
NET LOSS		$	(1,043,585	)		$	(503,939	)
Dividends on preferred shares			-				-
Net loss attributable to common stockholders			(1,043,585	)			(503,939	)
CONDENSED STATEMENT OF COMPREHENSIVE INCOME (LOSS)
Unrealized loss on marketable securities			(194	)			-
Less: Reclassified adjustment for losses included in net loss			194				-
Comprehensive loss attributable to common stockholders			(1,043,585	)			(503,939	)
Net loss attributable to common stock per share, basic and diluted		$	(0.06	)		$	(0.05	)
Weighted average number of common shares outstanding, basic and diluted			17,463,449				9,714,186

 

See notes to condensed consolidated unaudited Financial Statements

 

 

IEG HOLDINGS CORPORATION

CONDENSED CONSOLIDATED UNAUDITED STATEMENTS OF STOCKHOLDERS’ EQUITY

FOR THE PERIOD FROM JANUARY 1, 2017 THROUGH MARCH 31, 2018

 

																										Accumulated
										Preferred Stock								Additional								Other
		Common Stock								Series H								Paid-in				Accumulated				Comprehensive
		Shares				Amount				Shares				Amount				Capital				Deficit				Income				Total
Balance, January 1, 2017			9,714,186			$	2,233,182				-			$	-			$	29,698,025			$	(25,110,319	)		$	-			$	6,820,887
Issuance of shares for OneMain tender offer			3,039,880				3,040												3,550,580												3,553,620
Unrealized loss on marketable securities																											(153,514	)			(153,514	)
Reclassified adjustment for loss on marketable securities to net loss																											153,514				153,514
Buyback of shares			(458,973	)			(459	)											(286,945	)											(287,404	)
Issuance of Preferred Shares			-				-				1,292,089				1,292				1,290,797												1,292,089
Conversion of Preferred Shares to Common Shares			5,168,356				5,168				(1,292,089	)			(1,292	)			(3,876	)											-
Common Stock Dividends																			(173,605	)											(173,605	)
Net loss			-				-				-				-				-				(5,505,719	)			-				(5,505,719	)
Balance, December 31, 2017			17,463,449			$	2,240,931				-			$	-			$	34,074,976			$	(30,616,038	)		$	-			$	5,699,869
Unrealized loss on marketable securities																											(194	)			(194	)
Reclassified adjustment for loss on marketable securities to net loss																											194				194
Net loss			-				-				-				-				-				(1,043,585	)			-				(1,043,585	)
Balance, March 31, 2018			17,463,449			$	2,240,931				-			$	-			$	34,074,976			$	(31,659,623	)		$	-			$	4,656,284

 

See notes to condensed consolidated unaudited Financial Statements

 

 

IEG HOLDINGS CORPORATION

CONDENSED CONSOLIDATED UNAUDITED STATEMENTS OF CASH FLOWS

FOR THE THREE MONTHS ENDED MARCH 31, 2018 AND 2017

 

		March 31, 2018				March 31, 2017
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss		$	(1,043,585	)		$	(503,939	)
Adjustments to reconcile net loss to net cash used in operating activities:
Provision for credit losses			204,668				224,488
Depreciation and amortization			1,425				1,573
Loss on marketable securities sold			194				-
Changes in assets - (increase) decrease:
Other receivables			21,792				11,942
Prepaid expenses			12,051				(7,374	)
Changes in liabilities - increase (decrease):
Accounts payable and accrued expenses			276,751				55,110
NET CASH USED IN OPERATING ACTIVITIES			(526,704	)			(218,200	)
CASH FLOWS FROM INVESTING ACTIVITIES:
Loans receivable originated			(290,000	)			(140,000	)
Loans receivable repaid			473,799				482,391
Purchase of marketable securities			(2,092	)			-
Sale of marketable securities			1,898				-
NET CASH PROVIDED BY INVESTING ACTIVITIES			183,605				342,391
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS			(343,099	)			124,191
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR			704,006				322,441
CASH AND CASH EQUIVALENTS, END OF YEAR		$	360,907			$	446,632
Supplemental disclosures:
Interest paid in cash		$	-			$	-
Income taxes paid in cash		$	-			$	-

 

See notes to condensed consolidated unaudited Financial Statements

 

 

IEG HOLDINGS CORPORATION

NOTES TO CONDENSED CONSOLIDATED UNAUDITED FINANCIAL STATEMENTS 

MARCH 31, 2018

 

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

 

General

 

The quarterly report on Form 10-Q for the quarter ended March 31, 2018 should be read in conjunction with the Company’s financial statements for the year ended December 31, 2017, contained in the Company’s annual report on Form 10-K for the fiscal year ended December 31, 2017 as filed with the Securities and Exchange Commission (the “SEC”) on March 29, 2018. As contemplated by the SEC under Article 8 of Regulation S-X, the accompanying financial statements and footnotes have been condensed and therefore do not contain all disclosures required by generally accepted accounting principles (“GAAP”). The interim financial data are unaudited, however in the opinion of IEG Holdings Corporation (“we, “our”, “us”) the interim data includes all adjustments, consisting of only normal recurring adjustments, necessary for a fair statement of results for the interim periods. Results of interim periods are not necessarily indicative of those to be expected for the full year.

 

Nature of Business

 

The principal business activity of the Company is providing unsecured online consumer loans under the brand name “Mr. Amazing Loans” via the Company’s website and online application portal at www.mramazingloans.com. The Company started its business and opened its first office in Las Vegas, Nevada in 2010. The Company currently offers $5,000 and $10,000 unsecured consumer loans that mature, unless prepaid, five years from the date they are issued. The Company is a direct lender with state licenses and/or certificates of authority in 20 states – Alabama, Arizona, California, Florida, Georgia, Illinois, Kentucky, Louisiana, Maryland, Missouri, Nevada, New Jersey, New Mexico, Ohio, Oregon, Pennsylvania, Texas, Utah, Virginia and Wisconsin. The Company originates direct consumer loans to residents of these states through its online application portal, with all loans originated, processed and serviced out of its centralized Las Vegas head office.

 

Basis of Accounting

 

These consolidated financial statements include the operations of IEG Holdings Corporation and its wholly-owned subsidiaries, Investment Evolution Corporation (“IEC”) and IEC SPV, LLC (“IEC SPV” and collectively with IEG Holdings Corporation and IEC, the “Company”). All inter-company transactions and balances have been eliminated in consolidation.

 

The Company’s accounting and reporting policies are in accordance with U.S. generally accepted accounting practices (“GAAP”) and conform to general principles within the consumer finance industry.

 

The consolidated financial statements have been prepared in conformity with GAAP. The accompanying consolidated financial statements do not include any adjustments to reflect any possible future effects on the recoverability and classification of assets or the amounts and classification of liabilities.

 

Liquidity

 

The principal conditions and events that raise substantial doubt about the Company’s ability to meet its obligations as they come due are:

 

(i) the Company has reported recurring losses and

(ii) the Company has not yet generated positive net cash flows from operations.

 

Management has evaluated the result of their plans for the next 12 months and as a result of the plans, the Company can meet all its obligations at least through April 2019. Management’s plans include a reduction of advertising costs to reduce loan originations and related loan processing costs. There is also a significant reduction in consulting and professional fees due to minimized efforts and strategy for raising capital over the next 12 months and a significant reduction in tender offer costs due to no planned future tender offers in 2018. In addition, significant core operating costs have been cut from the Company starting in 2016 including reducing the number of employees from 12 to 5 due to increased automation of loan origination processes and reducing the number of office leases from 4 to 1 as old leases expired. The Company has also entered into a new 2018 consulting agreement with the CEO that significantly reduces the CEO annual consulting expense by more than 50 percent beginning July 1, 2018. Management will continue to reduce loan originations and now plans to utilize the cash flow from loan repayments for working capital needs. This will provide sufficient cash flow through at least April 2019. However, the Company intends, over the next 12 months, to seek additional capital via common shares, preference shares and/or debt financing to expand operations and the Company. The Board of Directors approved a stock repurchase program in 2016 that expires end of 2018. However, management has no intention to repurchase a significant number of shares unless additional capital has been secured.

 

 

IEG HOLDINGS CORPORATION

NOTES TO CONDENSED CONSOLIDATED UNAUDITED FINANCIAL STATEMENTS 

MARCH 31, 2018

 

Use of Estimates

 

The preparation of consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts and disclosures. Management uses its historical records and knowledge of its business in making these estimates. Accordingly, actual results may differ from these estimates.

 

Cash and Cash Equivalents

 

For the purpose of the statement of cash flows, the Company considers cash equivalents to include short-term, highly liquid investments with an original maturity of three months or less.

 

Loans Receivable and Interest Income

 

The Company offers its loans at or below the prevailing statutory rates. Loans are carried at the unpaid principal amount outstanding, net of an allowance for credit losses.

 

The Company calculates interest revenue using the interest yield method. Charges for late payments are credited to income when collected.

 

Accrual of interest income on loans receivable is suspended when no payment has been received on account for 91 days or more on a contractual basis, at which time a loan is considered delinquent. Payments received on nonaccrual financing loans are first applied to the unpaid accrued interest and then principal. Loans are returned to active status and accrual of interest income is resumed when all of the principal and interest amounts contractually due are brought current; at which time management believes future payments are reasonably assured. At March 31, 2018, 59 loans, with a total balance of $237,158 were delinquent or in default.

 

Allowance for Credit Losses

 

The Company maintains an allowance for credit losses due to the fact that it is probable that a portion of the loans receivable will not be collected. The allowance is estimated by management based on various factors, including specific circumstances of the individual loans, management’s knowledge of the industry, and the experience and trends of other companies in the same industry.

 

Our portfolio of loans receivable consists of a large number of relatively small, homogenous accounts. The allowance for credit losses is determined using a systematic methodology, based on a combination of historical bad debt of comparable companies. Impaired loans are considered separately and 100% charged off.

 

The allowance for credit losses is primarily based upon models that analyze specific portfolio statistics and also reflect, management’s judgment regarding overall accuracy. We take into account several relevant internal and external factors that affect loan receivable collectability, including the customer’s transaction history, specifically the timeliness of customer payments, the remaining contractual term of the loan, the outstanding balance of the loan, historical loan receivable charge-offs, our current collection patterns and economic trends.

 

Impaired Loans

 

The Company assesses loans for impairment individually when a loan is 91 days past due. The Company defines impaired loans as bankrupt accounts and accounts that are 184 days or more past due. In accordance with the Company’s charge-off policy, once a loan is deemed uncollectible, 100% of the remaining balance is charged-off. Loans can also be charged off when deemed uncollectible due to consumer specific circumstances.

 

The Company does not accrue interest on impaired loans and any recoveries of impaired loans are recorded to other revenue. Changes in the allowance for credit losses are recorded as operating expenses in the accompanying statement of operations.

 

Property and Equipment

 

Property and equipment are stated at cost. Depreciation and amortization are being provided using the straight-line method over the estimated useful lives of the assets as follows:

 

Classification		Life
Computer equipment		5 years
Furniture and fixtures		5-8 years

 

 

IEG HOLDINGS CORPORATION

NOTES TO CONDENSED CONSOLIDATED UNAUDITED FINANCIAL STATEMENTS

MARCH 31, 2018

 

The Company amortizes its leasehold improvements over the shorter of their economic lives, which are generally five years, or the lease term that considers renewal periods that are reasonably assured. Expenses for repairs and maintenance are charged to expense as incurred, while renewals and betterments are capitalized. When assets are retired or otherwise disposed of, the cost and accumulated depreciation are removed from the accounts and any gain or loss is reflected in the consolidated statement of operations.

 

Operating Lease

 

The Company’s office lease for 3960 Howard Hughes Parkway, Suite 490, Las Vegas, NV 89169 expires (unless renewed) on September 30, 2020.

 

Income Taxes

 

We account for income taxes using the liability method in accordance with the Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) 740 “Income Taxes”. To date, no current income tax liability has been recorded due to our accumulated net losses. Deferred income tax assets and liabilities are recognized for temporary differences between the financial statement carrying amounts of assets and liabilities and the amounts that are reported in the income tax returns. Our net deferred income tax assets have been fully reserved by a valuation allowance due to the uncertainty of our ability to realize future taxable income and to recover our net deferred income tax assets.

 

Advertising Costs

 

Advertising costs are expensed as incurred. Advertising costs amounted to $1,240 and $880 for the three months ended March 31, 2018 and 2017, respectively.

 

Earnings and Loss per Share

 

The Company computes net earnings (loss) per share in accordance with ASC 260-10 that establishes standards for computing and presenting net earnings (loss) per shares. Basic earnings (loss) per share are computed by dividing net income (loss) attributed to common shareholders by the weighted average number of common shares outstanding during the period. Diluted earnings per share is computed similar to basic earnings per share except that the denominator is increased to include the number of additional common shares that would have been outstanding if the potential common shares, if any, had been issued and if the additional common shares were dilutive.

 

Fair Value of Financial Instruments

 

The Company has adopted guidance issued by the FASB that defines fair value, establishes a framework for measuring fair value in accordance with existing GAAP, and expands disclosures about fair value measurements. Assets and liabilities recorded at fair value in the consolidated balance sheets are categorized based upon the level of judgment associated with the inputs used to measure their fair value. The categories are as follows:

 

	●	Level I – Inputs are unadjusted, quoted prices for identical assets or liabilities in active markets at the measurement date.
	●	Level II – Inputs, other than quoted prices included in Level I that are observable for the asset or liability through corroboration with market data at the measurement date.
	●	Level III – Unobservable inputs that reflect management’s best estimate of what market participants would use in pricing the asset or liability at the measurement date.

 

The following table summarizes fair value measurements by level at March 31, 2018 for assets and liabilities measured at fair value on a recurring basis:

 

		Level I				Level II				Level III				Total
Cash		$	360,907											$	360,907
Loans receivable, net		$									4,540,238			$	4,540,238

 

 

IEG HOLDINGS CORPORATION

NOTES TO CONDENSED CONSOLIDATED UNAUDITED FINANCIAL STATEMENTS 

MARCH 31, 2018

 

The following table summarizes fair value measurements by level at December 31, 2017 for assets and liabilities measured at fair value on a recurring basis:

 

		Level I				Level II				Level III				Total
Cash		$	704,006										$	704,006
Loans receivable, net		$									4,928,704		$	4,928,704

 

Loans receivable are carried net of the allowance for credit losses, which is estimated by applying historical loss rates of our portfolio and of other companies’ portfolios in the same industry with recent default trends to the gross loans receivable balance. The unobservable inputs used to calculate the fair value of these loans include historical loss rates, recent default trends and estimated remaining loan terms. Therefore, the carrying value of the loans receivable approximates the fair value.

 

Carrying amounts reported in the consolidated balance sheets for other receivables, accounts payable, and accrued expenses approximate fair value because of their immediate or short-term nature. The fair value of borrowings is not considered to be significantly different than its carrying amount because the stated rates for such debt reflect current market rates and conditions.

 

Marketable Securities

 

On January 2, 2018 we purchased 500 shares of the common stock of Lending Club Corporation (“Lending Club”) for $2,092. The security was classified as available-for-sale and had an unrealized loss of $194 prior to the sale. On March 19, 2018 we sold 500 shares of Lending Club’s common stock for $1,898. At March 31, 2018 the marketable securities balance was $0.

 

On June 16, 2017, we closed our tender offer to purchase shares of the common stock of OneMain Holdings, Inc. (“OneMain”), pursuant to which we acquired 151,994 shares of the common stock of OneMain (the cost of which was valued at an aggregate of $3.55 million based on the closing price of the shares of OneMain’s common stock of $23.38 on June 15, 2017) in exchange for 3,039,880 shares of the Company’s common stock. The security was classified as available-for-sale and had an unrealized loss of $153,514 prior to the sale. On June 22, 2017, we sold 100% of the 151,994 shares of OneMain’s common stock in exchange for $3.4 million in cash.

 

Loss on Sale of Marketable Securities

 

The Company sold securities classified as available for sale for net proceeds of $1,898 resulting in a loss on sale totaling $194 during the three months ended March 31, 2018. The Company sold securities classified as available for sale for net proceeds of $3,400,106 resulting in a loss on sale totaling $153,514 during the twelve months ended December 31, 2017.

 

Legal Settlement and Related Fees

 

From time to time, the Company may be involved in legal proceedings in the normal course of its business. The Company incurred one-off legal settlements and related fees of $628,376 during the year ended December 31, 2017. Of this amount, $178,982 was in the form of reductions to outstanding loan principal. These settlements related to an action by the State of Virginia under the Virginia consumer lending program and a separate action by an individual customer. In addition, as part of the settlements, the annual interest rate on all loans originated in Virginia have been reduced to 12% APR. As of March 31, 2018, there are $114,215 in outstanding loans that originated in Virginia, which mature between August 2019 and February 2022. The Company is not involved in any material legal proceedings at the present time.

 

Other Comprehensive Income

 

The Company’s other comprehensive income consists of unrealized gains (losses) on securities classified as available for sale that are recorded as an element of shareholder’s equity but are excluded from net income.

 

Recent Accounting Pronouncements

 

Recently Issued or Newly Adopted Accounting Standards

 

In May 2014, FASB issued Accounting Standards Update (“ASU”) No. 2014-09, Revenue from Contracts with Customers. The standard will eliminate the transaction and industry specific revenue recognition guidance under current U.S. GAAP and replace it with a principle based approach for determining revenue recognition. ASU 2014-09 is effective for annual and interim periods beginning after December 15, 2017. Early adoption is not permitted. The revenue recognition standard is required to be applied retrospectively, including any combination of practical expedients as allowed in the standard. In April 2016, the FASB issued ASU 2016-10, Revenue from Contracts with Customers (Topic 606), which amends certain aspects of the Board’s new revenue standard, ASU 2014-09, Revenue from Contracts with Customers. The standard should be adopted concurrently with adoption of ASU 2014-09 which is effective for annual and interim periods beginning after December 15, 2017. Early adoption is permitted. As we adopted these standards effective January 1, 2018, adoption of these changes have no impact on the consolidated financial statements.

 

 

IEG HOLDINGS CORPORATION

NOTES TO CONDENSED CONSOLIDATED UNAUDITED FINANCIAL STATEMENTS 

MARCH 31, 2018

 

In August 2014, the FASB issued ASU 2014-15, Presentation of Financial Statements—Going Concern (Subtopic 205-40): Disclosure of Uncertainties about an Entity’s Ability to Continue as a Going Concern. ASU 2014-15 changes to the disclosure of uncertainties about an entity’s ability to continue as a going concern. These changes require an entity’s management to evaluate whether there are conditions or events, considered in the aggregate, that raise substantial doubt about the entity’s ability to continue as a going concern within one year after the date that financial statements are issued. Substantial doubt is defined as an indication that it is probable that an entity will be unable to meet its obligations as they become due within one year after the date that financial statements are issued. If management has concluded that substantial doubt exists, then the following disclosures should be made in the financial statements: (i) principal conditions or events that raised the substantial doubt, (ii) management’s evaluation of the significance of those conditions or events in relation to the entity’s ability to meet its obligations, (iii) management’s plans that alleviated the initial substantial doubt or, if substantial doubt was not alleviated, management’s plans that are intended to at least mitigate the conditions or events that raise substantial doubt, and (iv) if the latter in (iii) is disclosed, an explicit statement that there is substantial doubt about the entity’s ability to continue as a going concern. These changes became effective for the Company for the 2016 annual period. Our adoption of these changes had no material impact on the consolidated financial statements.

 

In November 2015, the FASB issued ASU No. 2015-17, Income Taxes (Topic 740). The amendments in ASU 2015-17 change the requirements for the classification of deferred taxes on the balance sheet. Currently, GAAP requires an entity to separate deferred income tax liabilities and assets into current and noncurrent amounts in a classified statement of financial position. To simplify the presentation of deferred income taxes, the amendments in this ASU require that deferred tax liabilities and assets be classified as noncurrent in a classified statement of financial position. The pronouncement became effective for the 2017 fiscal year. Adoption of these changes had no material impact on the consolidated financial statements.

 

In January 2016, the FASB issued ASU 2016-01, Financial Instruments – Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities. The update intends to enhance the reporting model for financial instruments to provide users of financial statements with more decision-useful information and addresses certain aspects of the recognition, measurement, presentation, and disclosure of financial instruments. The new standard affects all entities that hold financial assets or owe financial liabilities. For public business entities, the amendments in this update are effective for fiscal years beginning after December 15, 2017, including interim periods within those fiscal years. Management is evaluating the impact of the adoption of these changes will have on the consolidated financial statements.

 

In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842), which supersedes existing guidance on accounting for leases in “Leases (Topic 840)” and generally requires all leases to be recognized in the consolidated balance sheet. ASU 2016-02 is effective for annual and interim reporting periods beginning after December 15, 2018; early adoption is permitted. The provisions of ASU 2016-02 are to be applied using a modified retrospective approach. The Company is currently evaluating the impact of the adoption of this standard on its consolidated financial statements.

 

2. LOANS RECEIVABLE

 

Loans receivable consisted of the following at March 31, 2018 and December 31, 2017:

 

		March 31, 2018				December 31, 2017
Loans receivable		$	5,675,298			$	6,160,881
Allowance for credit losses		$	(1,135,060	)		$	(1,232,177	)
Loans receivable, net		$	4,540,238			$	4,928,704

 

A reconciliation of the allowance for credit losses consist of the following at March 31, 2018 and December 31, 2017:

 

		March 31, 2018				December 31, 2017
Beginning balance, January 1		$	1,232,177			$	1,212,441
Provision for credit losses		$	204,668			$	1,494,843
Loans charged off		$	(301,785	)		$	(1,475,107	)
Ending balance		$	1,135,060			$	1,232,177
Basis of assessment:
Individually		$	-			$	-
Collectively		$	1,135,060			$	1,232,177

 

 

IEG HOLDINGS CORPORATION

NOTES TO CONDENSED CONSOLIDATED UNAUDITED FINANCIAL STATEMENTS

MARCH 31, 2018

 

The following is an age analysis of past due receivables as of March 31, 2018 and December 31, 2017:

 

		31-60 Days Past Due				61-90 Days Past Due				Greater than 90 Days				Total Past Due				Current				Total Financing Receivables				Recorded Investment > 90 Days and not Accruing
March 31, 2018		$	143,829			$	88,416			$	237,158			$	469,403			$	5,205,895			$	5,675,298			$	237,158
December 31, 2017		$	157,988			$	84,640			$	327,705			$	570,334			$	5,590,547			$	6,160,881			$	327,705

 

The Company’s primary credit quality indicator is the customer’s Vantage model 1.0 credit score as determined by Experian on the date of loan origination. The Company does not update the customer’s credit profile during the contractual term of the loan.

 

The following is a summary of the loan receivable balance as of March 31, 2018 and December 31, 2017 by credit quality indicator:

 

Credit Score		March 31, 2018				December 31, 2017
550-575		$	7,873			$	12,911
576-600		$	77,769			$	86,883
601-650		$	2,681,626			$	2,992,076
651-700		$	2,258,915			$	2,326,006
701-750		$	490,642			$	543,433
751-800		$	123,867			$	152,042
801-850		$	22,024			$	34,607
851-900		$	12,582			$	12,923
		$	5,675,298			$	6,160,881

 

3. PROPERTY AND EQUIPMENT

 

At March 31, 2018 and December 31, 2017, property and equipment consisted of the following:

 

		March 31, 2018				December 31, 2017
Computer equipment		$	99,556			$	99,556
Furniture and fixtures			21,303				21,303
Leasehold improvements			2,000				2,000
		$	122,859			$	122,859
Less accumulated depreciation and amortization			110,907				109,483
Total		$	11,952			$	13,376

 

Depreciation of property and equipment amounted to $1,425 and $1,573 during the three months ended March 31, 2018 and 2017, respectively. Depreciation costs are included in the accompanying statements of operations in operating expenses.

 

4. SENIOR DEBT

 

We previously had a credit facility in the form of a line of credit with BFG Investment Holdings, LLC (“BFG”) in the amount of $10,000,000 pursuant to a Loan and Security Agreement, as amended (the “Loan Agreement”), among BFG and certain of our wholly-owned subsidiaries. In connection with the Loan Agreement, IEC SPV and certain of our other wholly-owned subsidiaries entered into a profit sharing agreement with BFG pursuant to which IEC SPV is required to pay BFG 20% of its net profit (“Net Profit”) for a period beginning on June 11, 2012 and ending 10 years from the date the Loan Agreement is repaid in full. Net Profit is defined in the profit sharing agreement as gross revenue less (i) interest paid on the loan, (ii) payments on any other debt incurred as a result of refinancing the loan through a third party, as provided in the Loan Agreement, (iii) any costs, fees or commissions paid on account of the loan (including loan servicing fees of 0.5% on eligible consumer loans receivable), and (iv) charge-offs to bad debt resulting from consumer loans. All of IEC SPV’s loans receivable as of March 31, 2018 were pledged as collateral for fulfillment of the Net Profit interest due.

 

Effective as of July 15, 2015, BFG converted the credit facility from a revolving facility to a term loan and on August 21, 2015, we, through certain of our wholly-owned subsidiaries, repaid the entire balance of principal and accrued interest under the Loan Agreement. There is currently no outstanding balance under the Loan Agreement, but IEC SPV will be required to pay 20% of its Net Profit to BFG until August 21, 2025 (10 years from August 21, 2015) or until we pay BFG $3,000,000 to terminate the profit sharing agreement. Net Profit for the three months ended March 31, 2018 and 2017 was calculated at $0 and $18,577, respectively.

 

 

IEG HOLDINGS CORPORATION

NOTES TO CONDENSED CONSOLIDATED UNAUDITED FINANCIAL STATEMENTS

MARCH 31, 2018

 

5. STOCKHOLDERS’ EQUITY

 

As of March 31, 2018, the aggregate number of shares which the Company had the authority to issue is 350,000,000 shares, of which 300,000,000 shares are common stock, par value $0.001 per share, and 50,000,000 shares are preferred stock, par value $0.001 per shares. At March 31, 2018, the Company had 17,463,449 shares of common stock issued and outstanding. The Company’s Board of Directors is authorized at any time, and from time to time, to provide for the issuance of preferred stock in one or more series, and to determine the designations, preferences, limitations and relative or other rights of the preferred stock or any series thereof.

 

In January 2017, the Company’s Board of Directors approved a stock repurchase program pursuant to which the Company may purchase on the open market and at prevailing prices outstanding shares of the Company’s common stock with an aggregate value of up to $2,000,000. During the three months ended March 31, 2018, the Company did not purchase any shares under the stock repurchase program. During the year ended December 31, 2017, the Company purchased an aggregate of 458,973 shares under the stock repurchase program for an aggregate purchase price of $287,404 and cancelled the 458,973 shares. On October 30, 2017, our Board of Directors authorized the extension of the stock repurchase program from December 31, 2017 to December 31, 2018 under the same terms.

 

Common Stock Dividends

 

Historically, prior to 2017, we have not paid any cash dividends on our common stock. In May 2017, we announced the declaration of a cash dividend of $0.005 per common share for the first quarter of 2017. The dividend was paid on August 21, 2017 to stockholders of record at the close of business on June 5, 2017. In August 2017, we announced the declaration of a cash dividend of $0.005 per common share for the second quarter of 2017. The dividend was paid on August 21, 2017 to stockholders of record at the close of business on August 11, 2017. In October 2017, our Board of Directors declared a cash dividend of $0.005 per common share for the third quarter of 2017 payable on November 20, 2017 to stockholders of record at the close of business on November 11, 2017. Future dividends, if any, will be determined and paid annually instead of quarterly going forward in November each year as the administrative and transfer agent costs and banking currency conversion fees for our predominately international shareholders results in quarterly dividend costs being prohibitive. Payment of future dividends on our common stock, if any, will be at the discretion of our board of directors and will depend on, among other things, our results of operations, cash requirements and surplus, financial condition, contractual restrictions and other factors that our board of directors may deem relevant. We may determine to retain future earnings, if any, for reinvestment in the development and expansion of our business.

 

Series H Preferred Stock

 

During the three months ended March 31, 2018 and year ended December 31, 2017, the Company issued 0 and 1,292,089 of Series H convertible preferred stock, respectively, with a par value of $0.001 per share. At March 31, 2018, no shares of Series H convertible preferred stock were outstanding. On December 31, 2017, all Series H preferred shares outstanding on issue converted into 5,168,356 common shares.

 

6. CONCENTRATION OF CREDIT RISK

 

The Company’s portfolio of finance receivables is with consumers living throughout Alabama, Arizona, California, Florida, Georgia, Illinois, Kentucky, Louisiana, Maryland, Missouri, Nevada, New Jersey, New Mexico, Ohio, Oregon, Pennsylvania, Texas, Utah, Virginia and Wisconsin and consequently, such consumers’ ability to honor their installment contracts may be affected by economic conditions in these areas.

 

The Company maintains cash at financial institutions which may, at times, exceed federally insured limits.

 

At March 31, 2018, the Company had cash and cash equivalents exceeding insured limits by $149,444.

 

7. COMMITMENTS AND CONTINGENCIES

 

Operating Leases

 

The Company entered into a new non-cancelable operating lease on August 1, 2017, with a term commencing on September 19, 2017 and expiring on September 30, 2020, for an office property located at 3960 Howard Hughes Parkway, Las Vegas. The Company relocated its principal offices from the property located at 6160 West Tropicana Avenue, Las Vegas office in September 2017. Monthly rental payments under the new operating lease are $5,794, and the Company is responsible for its pro rata shares of operating expenses and property taxes. Total rent expense for the three months ended March 31, 2018 and 2017 was $17,988 and $10,857 respectively.

 

 

IEG HOLDINGS CORPORATION

NOTES TO CONDENSED CONSOLIDATED UNAUDITED FINANCIAL STATEMENTS

MARCH 31, 2018

 

Set forth below is information regarding the Company’s future minimum rental payment as of March 31, 2018. Such payments relate to the Company’s Las Vegas, NV lease.

 

	12 Months Ending		12 Months Ending				12 Months Ending
	March 31, 2019		March 31, 2020				March 31, 2021				Thereafter				Total
$	69,528		$	69,528			$	34,764			$	-			$	173,820

 

Legal Matters

 

From time to time, the Company may be involved in legal proceedings in the normal course of its business. The Company incurred one-off legal settlements and related fees of $628,376 during the year ended December 31, 2017. Of this amount, $178,982 was in the form of reductions to outstanding loan principal. These settlements related to an action by the State of Virginia under the Virginia consumer lending program and a separate action by an individual customer. In addition, as part of the settlements, the annual interest rate on all loans originated in Virginia have been reduced to 12% APR. As of March 31, 2018, there are $114,215 in outstanding loans that originated in Virginia, which mature between August 2019 and February 2022. The Company is not involved in any material legal proceedings at the present time.

 

Professional Consulting Contract

 

The Company has a professional consulting contract with Mr. Mathieson, the Company’s Chief Executive Officer (our “Chief Executive Officer”) and the sole member of the Board of Directors, according to which the Company paid the Chief Executive Officer $300,000 in cash and $0 in health insurance premiums and costs for the three months ended March 31, 2018 and $0 in cash and $0 in health insurance premiums and costs for the three months ended March 31, 2017.

 

On March 22, 2018, we entered into a new professional consulting contract with Mr. Mathieson (the “2018 Consulting Contract”) and terminated the Professional Consulting Contract dated July 1, 2017 between Mr. Mathieson and the Company. Pursuant to the terms of the 2018 Consulting Contract, Mr. Mathieson agreed to provide regulatory and management consulting services as requested by IEG Holdings and/or IEC, including the hiring and compensation of IEC personnel, interaction with third party service providers and vendors and, as requested by IEG Holdings, other activities that are designed to assist IEC in conducting business. The term of the 2018 Consulting Contract begins as of July 1, 2018 continues indefinitely unless three months’ written notice of termination is provided by either party.

 

In exchange for Mr. Mathieson’s services, IEG Holdings agreed to pay Mr. Mathieson an annual base salary of $600,000, which represents a 50% reduction in Mr. Mathieson’s annual salary, as compared to his current annual salary of $1,200,000 payable under Mr. Mathieson’s consulting contract currently in effect (the “2017 Consulting Contract”). Pursuant to the terms of the 2018 Consulting Contract, no bonus is to be paid to Mr. Mathieson by IEG Holdings. Pursuant to the terms of the 2018 Consulting Contract, fees are to be paid quarterly in advance on July 1st, October 1st, January 1st and April 1st beginning on July 1, 2018. Unlike in prior years, IEG Holdings will not pay Mr. Mathieson’s health insurance premiums or any bonuses. Mr. Mathieson will also receive reimbursement for all reasonable expenses incurred for the benefit of IEC, including but not limited to travel expenses for him and his entourage, hotel expenses, communication, security and entertainment expenses.

 

Regulatory Requirements

 

State statutes authorizing the Company’s products and services typically provide state agencies that regulate banks and financial institutions with significant regulatory powers to administer and enforce the law. Under statutory authority, state regulators have broad discretionary power and may impose new licensing requirements, interpret or enforce existing regulatory requirements in different ways, or issue new administrative rules. In addition, when the staff of state regulatory bodies change, it is possible that the interpretations of applicable laws and regulations may also change.

 

 

IEG HOLDINGS CORPORATION

NOTES TO CONDENSED CONSOLIDATED UNAUDITED FINANCIAL STATEMENTS

MARCH 31, 2018

 

Net Profit Interest

 

The Company has a net profit interest agreement with a third party lender, under which the Company pays 20% of its subsidiary IEC SPV LLC’s net profit to the lender (see note 4).

 

8. RELATED PARTY TRANSACTIONS

 

Chief Executive Officer

 

During the three months ended March 31, 2018 and three months ended March 31, 2017 the Company incurred compensation expense to our Chief Executive Officer under the Professional Consulting Contract and previously-terminated consulting contracts between the Company and the Chief Executive Officer of $300,000 and $0 respectively.

 

Chief Operating Officer

 

During the three months ended March 31, 2018 and three months ended March 31, 2017 the Company incurred compensation expense to our Chief Operating Officer of $57,500.

 

Consulting Fees

 

During the three months ended March 31, 2018 and three months ended March 31, 2017, the Company incurred consulting fees totaling $30,000 and $0, respectively, to Sam Prasad and related entities. Sam Prasad is a shareholder of IEG Holdings Corporation.

 

9. SUBSEQUENT EVENTS

 

None.

 

 

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

 

Overview

 

We are a consumer finance company providing responsible online personal loan products under the brand name “Mr. Amazing Loans” to customers in 20 states via our website and online application portal. We provide unsecured personal consumer loans to individuals in amounts of $5,000 and $10,000. Each of our online personal loans carries a fixed APR in the range of 12.0% to 29.9%, is unsecured, and has a non-revolving term of five-years. We originate, process and service all of our personal loans centrally from our Las Vegas head office and have a 7.5-year track record of origination, underwriting and servicing personal loans to underbanked consumers. Our customers are primarily non-prime consumers who we believe have limited access to credit from banks and credit card companies. We leverage our experience and knowledge in the consumer finance industry to generate revenue from the interest earned on our portfolio of personal loans.

 

In this quarterly report on Form 10-Q, we refer to IEG Holdings Corporation (“IEG Holdings”), collectively with its wholly-owned subsidiaries, Investment Evolution Corporation (“IEC”) and IEC SPV, LLC (“IEC SPV”) as the “Company”). References to “we” and “our” mean the Company, including its wholly-owned subsidiaries, and its predecessors, collectively, unless the context otherwise requires or where otherwise indicated.

 

We have a history of reporting recurring losses and have not generated positive net cash flows from operations. During 2017, we completed private placements of our preferred stock in exchange for which we received an aggregate of approximately $1.3 million, which we used to finance our operations and offer personal loans to our customers. We also received $3.4 million in connection with our tender offer to purchase shares of the common stock of OneMain Holdings, Inc. (“OneMain”) in June 2017 and selling the shares of OneMain we acquired as a result of that tender offer.

 

As at March 31, 2018 we had 1,498 loans issued and outstanding to our customers, with an aggregate amount of $5,675,298. The table below sets forth the payment status of the loans in our portfolio as of March 31, 2018.

 

Portfolio Ledger Stratification as at March 31, 2018

 

		Current Unpaid Principal Balance				%
0 - 30 days		$	5,205,895				91.73	%
31 - 60 days			143,829				2.53	%
61 - 90 days			88,416				1.56	%
91 - 120 days			75,048				1.32	%
121 - 184 days			162,110				2.86	%
Total		$	5,675,298				100	%

 

At March 31, 2018, we had 59 loans delinquent or in default (defined as 91+ days past due) representing 4.2% of the number of loans in our active portfolio. Loans typically become eligible for the lender to take legal action at 60 days past due.

 

We operate in the consumer loans business segment.

 

Recent Developments

 

2018 Lending Club Tender Offer

 

On January 5, 2018, we launched an offer to exchange 13 shares of IEG Holdings’ common stock for each share of common stock of Lending Club Corporation (“Lending Club”), up to an aggregate of 20,701,999 shares of Lending Club common stock, representing approximately 4.99% of Lending Club’s outstanding shares as of October 31, 2017, validly tendered and not properly withdrawn in the offer (the “2018 Lending Club Tender Offer”). On February 20, 2018, we terminated and withdrew the 2018 Lending Club Tender Offer due to a comment that we received from the SEC raising a concern that the 2018 Lending Club Tender Offer was improperly commenced. Any shares that were tendered by Lending Club stockholders were not accepted by us and were promptly returned to the relevant stockholders.

 

Corporate Name Change to Mr. Amazing Loans Corporation

 

On March 26, 2018, we filed articles of amendment (the “Amendment”) to our amended and restated articles of incorporation, as amended (the “Articles”) with the Florida Secretary of State. The Amendment has the effect of changing our corporate name from IEG Holdings Corporation to Mr. Amazing Loans Corporation, in order to align our consumer brand (Mr. Amazing Loans) with our corporate name. The Amendment was approved by Mr. Mathieson, our Chief Executive Officer and sole director, and by holders of a majority of the voting power of our voting stock. The Amendment and the corporate name change will become effective on the later of (a) the date on which the Financial Industry Regulatory Authority approves the corporate name change, and (b) April 30, 2018.

 

 

Mathieson 2018 Consulting Contract

 

On March 22, 2018, we entered into a new professional consulting contract with Mr. Mathieson (the “2018 Consulting Contract”) and terminated the Professional Consulting Contract dated January 1, 2017 between Mr. Mathieson and the Company. Pursuant to the terms of the 2018 Consulting Contract, Mr. Mathieson agreed to provide regulatory and management consulting services as requested by IEG Holdings and/or IEC, including the hiring and compensation of IEC personnel, interaction with third party service providers and vendors and, as requested by IEG Holdings, other activities that are designed to assist IEC in conducting business. The term of the 2018 Consulting Contract begins as of July 1, 2018 continues indefinitely unless three months’ written notice of termination is provided by either party.

 

Results of Operations

 

The following table illustrates key results of operations for the three months ended March 31, 2018 and 2017, respectively.

 

		Three Months Ended March 31, 2018				Three Months Ended March 31, 2017
REVENUES
Interest revenue		$	381,548			$	450,729
Other revenue			12,794				16,654
TOTAL REVENUES			394,342				467,383
OPERATING EXPENSES
Salaries and compensation			412,099				120,278
Other operating expenses			146,287				115,204
Provision for credit losses			204,668				224,488
Advertising			1,240				880
Rent			17,988				10,857
Public company and corporate finance expenses			654,089				498,191
Depreciation and amortization			1,425				1,573
TOTAL OPERATING EXPENSES			1,437,796				971,471
LOSS FROM OPERATIONS			(1,043,454	)			(504,088	)
OTHER INCOME (EXPENSE)
Loss on sale of marketable securities			(194	)			-
Miscellaneous income (expense)			63				149
TOTAL OTHER INCOME (EXPENSE)			(131	)			149
NET LOSS		$	(1,043,585	)		$	(503,939	)

 

Three Months Ended March 31, 2018 Compared to Three Months Ended March 31, 2017

 

Interest Revenue

 

For the three months ended March 31, 2018, interest revenue decreased to $381,548, compared to $450,729 for the three months ended March 31, 2017. This decrease was due to the decreased average interest-earning loan book size of consumer receivables during the period. This decreased loan book size is primarily due to reduced advertising to new customers during the three months ending March 31, 2018 resulting from a decrease in cash available to fund new loans during that three month period and leading to lower loans receivable originated as compared to loans receivable repaid during the three months ended March 31, 2018.

 

Other Revenue

 

For the three months ended March 31, 2018, other revenue decreased to $12,794, compared to $16,654 for the three months ended March 31, 2017. Other revenue consisted of declined lead revenue, consisting of revenue from the sale of leads regarding potential customers whose loan applications did not meet our lending standards, and loan loss recovery. The decrease was attributable to a decrease in declined lead revenue in the first quarter of 2018.

 

Salaries and Compensation Expenses

 

For the three months ended March 31, 2018, salaries and compensation expenses increased to $412,099, compared to $120,278 for the three months ended March 31, 2017. The increase was primarily attributable to a $300,000 increase in the compensation paid to our Chief Executive Officer as compared to the prior period. The additional $300,000 was paid to our Chief Executive Officer pursuant to the new July 1, 2017 Professional Consulting Agreement between the Company and the Chief Executive Officer.

 

 

Other Operating Expenses

 

For the three months ended March 31, 2018, other operating expenses increased to $146,287, compared to $115,204 for the three months ended March 31, 2017. The increase was attributable to increased collection costs and business licensing fees.

 

Provision for Credit Losses

 

For the three months ended March 31, 2018, the provision for credit losses expense decreased to $204,668, compared to $224,488 for the three months ended March 31, 2017. We carry a provision for credit losses which is estimated collectively based on our loan portfolio and general economic conditions. The decrease in provision for credit losses from the prior year period was due to the smaller loan portfolio in the current period.

 

Advertising

 

For the three months ended March 31, 2018, advertising expenses increased to $1,240, compared to $880 for the three months ended March 31, 2017. The small increase was attributable to the increase in customer acquisition costs incurred, including online advertising and lead generation costs in the current period.

 

Rent Expense

 

For the three months ended March 31, 2018, rent expense increased to $17,988, compared to $10,857 for the three months ended March 31, 2017. The increase was due to the increase in rent costs from our new Las Vegas lease in 2018.

 

Public Company and Corporate Finance Expenses

 

For the three months ended March 31, 2018, public company and corporate finance expenses increased to $654,089, compared to $498,191 for the three months ended March 31, 2017. The increase was due to significant one-off costs incurred related to the 2018 Lending Club Tender Offer in excess of the one-off costs incurred related to the 2017 OneMain Tender Offer. In addition, the company incurred more investor relations and travel costs in the three months ended March 31, 2018 versus the three months ended March 31, 2017.

 

Depreciation and Amortization

 

For the three months ended March 31, 2018, depreciation and amortization marginally decreased to $1,425, compared to $1,573 for the three months ended March 31, 2017. The minimal movement was in line with expectations.

 

Loss on Sale of Marketable Securities

 

For the three months ended March 31, 2018, loss on sale of marketable securities increased to $194, compared to $0 for the three months ended March 31, 2017. The increase was due to the loss on sale of 500 Lending Club shares acquired by an open market purchase in January 2018 and subsequently sold in March 2018.

 

Financial Position

 

Cash and Cash Equivalents

 

We had cash and cash equivalents of $360,907 as of March 31, 2018, compared to $704,006 as of December 31, 2017. The decrease resulted from more net cash used in operating activities due to the significant Lending Club Tender offer costs.

 

Loans Receivable

 

We had net loan receivables of $4,540,238 as of March 31, 2018, as compared to $4,928,704 as of December 31, 2017. The decrease was due to lower loan originations in the current period versus repayment and write-off of loan principal by customers. Net loan receivables are calculated by reducing our outstanding loans receivable balance by an allowance for credit losses.

 

Other Receivables

 

We had other receivables of $53,572 as of March 31, 2018, as compared to $75,364 as of December 31, 2017. Other receivables is comprised of outstanding invoices for declined lead revenue due from marketing partners and accrued interest receivable on our consumer loans at March 31, 2018. The decrease in other receivables is primarily due to the decrease in accrued interest receivable for the current period.

 

 

Property and Equipment

 

We had net property and equipment of $11,952 as of March 31, 2018 as compared to $13,376 as of December 31, 2017. The minimal movement was in line with expectations and a direct result of recording depreciation expense for the current period.

 

Accounts Payable and Accrued Expenses

 

We had accounts payable and accrued expenses of $327,086 as of March 31, 2018, compared to $51,053 as of December 31, 2017. The increase was due to management’s decision to delay payment of a number of March expenses in full in the current period which meant that accrual was required for those expenses.

 

Financial Condition, Liquidity and Capital Resources

 

During the three months ended March 31, 2018 and the 12 months ended December 31, 2017, we incurred operating expenses in excess of net revenue. However, anticipated cash flow from our existing loan receivable repayments plus net revenue, combined with current cash on hand, is expected to meet the needs of our budgeted cash operating expenses through April 2019. To expand operations significantly we will require capital infusions until operating results improve. We may not be able to obtain such capital in a timely manner and as a result may incur liquidity imbalances.

 

Liquidity and Capital Resources

 

We used cash in operations of $526,704 during the three months ended March 31, 2018, compared to $218,200 during the three months ended March 31, 2017, and this increase is primarily due to an increase in our Chief Executive Officer’s total compensation by $300,000 for the three months ended March 31, 2018. The Company also incurred $435,025 of costs during the three months ended March 31, 2018 in connection with the 2018 Lending Club Tender Offer.

 

The Company has historically financed its operations and loans made to its customers through placements of shares of the Company’s common stock and preferred stock, private credit facilities, and working capital loans. We also received $3.4 million in connection with terminating our tender offer to purchase shares of the common stock of OneMain in June 2017 and selling the shares of OneMain we acquired as a result of that tender offer. The Company intends to continue to finances its operations and the planned expansion of its business through placements of shares of the Company’s common stock and preferred stock, and private credit facilities.

 

The Company received net cash from investing activities of $183,605 during the three months ended March 31, 2018, compared to $342,391 received from investing activities during the three months ended March 31, 2017. The decrease in cash provided by investing activities is primarily due to the increase in loans originated in the period in 2018 compared to 2017.

 

We used or received $0 of net cash in financing activities during the three months ended March 31, 2018, compared to $0 during the same period in 2017. There was no debt or equity capital raising proceeds or dividends paid in both periods.

 

At March 31, 2018, we had cash on hand of $360,907, which when added to budgeted cash inflows from loans receivable repaid and budgeted cash inflows from revenues, is sufficient to meet our operating needs for the next 12 months.

 

The principal conditions and events that raise substantial doubt about the Company’s ability to meet its obligations as they come due are:

 

(i) the Company has reported recurring losses and

(ii) the Company has not yet generated positive net cash flows from operations.

 

Management has evaluated the result of their plans for the next 12 months and as a result of the plans, the Company can meet all its obligations at least through April 2019. Management’s plans include a reduction of advertising costs to reduce loan originations and related loan processing costs. There is also a significant reduction in consulting and professional fees due to minimized efforts and strategy for raising capital over the next 12 months and a significant reduction in tender offer costs due to no planned future tender offers in 2018. In addition, significant core operating costs have been cut from the Company starting in 2016 including reducing the number of employees from 12 to 5 due to increased automation of loan origination processes and reducing the number of office leases from 4 to 1 as old leases expired. The Company has also entered into a new 2018 consulting agreement with the CEO that significantly reduces the CEO annual consulting expense by more than 50 percent beginning July 1, 2018. Management will continue to reduce loan originations and now plans to utilize the cash flow from loan repayments for working capital needs. This will provide sufficient cash flow through at least April 2019. However, the Company intends, over the next 12 months, to seek additional capital via common shares, preference shares and/or debt financing to expand operations and the Company. The Board of Directors approved a stock repurchase program in 2016 that expires end of 2018. However, management has no intention to repurchase a significant number of shares unless additional capital has been secured.

 

 

We previously had a credit facility in the form of a line of credit with BFG Investment Holdings, LLC (“BFG”) in the amount of $10,000,000 pursuant to a Loan and Security Agreement, as amended (the “Loan Agreement”), among BFG and certain of our wholly-owned subsidiaries. In connection with the Loan Agreement, IEC SPV and certain of our other wholly-owned subsidiaries entered into a profit sharing agreement with BFG pursuant to which IEC SPV is required to pay BFG 20% of its net profit (“Net Profit”) for a period beginning on June 11, 2012 and ending 10 years from the date the Loan Agreement is repaid in full. Net Profit is defined in the profit sharing agreement as gross revenue less (i) interest paid on the loan, (ii) payments on any other debt incurred as a result of refinancing the loan through a third party, as provided in the Loan Agreement, (iii) any costs, fees or commissions paid on account of the loan (including loan servicing fees of 0.5% on eligible consumer loans receivable), and (iv) charge-offs to bad debt resulting from consumer loans. All of IEC SPV’s loans receivable as of March 31, 2018 were pledged as collateral for fulfillment of the Net Profit interest due.

 

Effective as of July 15, 2015, BFG converted the credit facility from a revolving facility to a term loan and on August 21, 2015, we, through certain of our wholly-owned subsidiaries, repaid the entire balance of principal and accrued interest under the Loan Agreement. There is currently no outstanding balance under the Loan Agreement, but IEC SPV will be required to pay 20% of its Net Profit to BFG until August 21, 2025 (10 years from August 21, 2015) or until we pay BFG $3,000,000 to terminate the profit sharing agreement. Net Profit for the three months ended March 31, 2018 and 2017 was calculated at $0 and $18,577, respectively.

 

Dividend Policy

 

The amount of future common stock dividends, if any, will be based upon a level deemed by the Company’s board of directors to be sustainable based on budgeted operating free cash flow. The amount, timing and frequency of dividends will be authorized by the Company’s board of directors and declared based on a variety of factors deemed relevant by our board of directors and no assurance can be given that our dividend policy will not change in the future.

 

Off-Balance Sheet Arrangements

 

As of March 31, 2018, we did not have any off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that are material to investors. The term “off-balance sheet arrangement” generally means any transaction, agreement or other contractual arrangement to which an entity unconsolidated with us is a party, under which we have any obligation arising under a guarantee contract, derivative instrument or variable interest or a retained or contingent interest in assets transferred to such entity or similar arrangement that serves as credit, liquidity or market risk support for such assets.

 

Basis of Accounting

 

These consolidated financial statements include the operations of IEG Holdings Corporation and its wholly-owned subsidiaries, Investment Evolution Corporation (“IEC”) and IEC SPV, LLC (“IEC SPV” and collectively with IEG Holdings Corporation and IEC, the “Company”). All inter-company transactions and balances have been eliminated in consolidation.

 

The Company’s accounting and reporting policies are in accordance with U.S. GAAP and conform to general practices within the consumer finance industry.

 

The consolidated financial statements have been prepared in conformity with GAAP. The accompanying consolidated financial statements do not include any adjustments to reflect any possible future effects on the recoverability and classification of assets or the amounts and classification of liabilities.

 

Critical Accounting Policies

 

We have identified the following policies below as critical to our business and results of operations. Our reported results are impacted by the application of the following accounting policies, certain of which require management to make subjective or complex judgments. These judgments involve making estimates about the effect of matters that are inherently uncertain and may significantly impact quarterly or annual results of operations. For all of these policies, management cautions that future events rarely develop exactly as expected, and the best estimates routinely require adjustment. Specific risks associated with these critical accounting policies are described in the following paragraphs.

 

 

Use of Estimates

 

The preparation of consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts and disclosures. Management uses its historical records and knowledge of its business in making these estimates. Accordingly, actual results may differ from these estimates.

 

Loans Receivable and Interest Income

 

The Company offers its loans at or below the prevailing statutory rates. Loans are carried at the unpaid principal amount outstanding, net of an allowance for credit losses.

 

The Company calculates interest revenue using the interest yield method. Charges for late payments are credited to income when collected.

 

Accrual of interest income on loans receivable is suspended when no payment has been received on account for 91 days or more on a contractual basis, at which time a loan is considered delinquent. Payments received on nonaccrual financing loans are first applied to the unpaid accrued interest and then principal. Loans are returned to active status and accrual of interest income is resumed when all of the principal and interest amounts contractually due are brought current; at which time management believes future payments are reasonably assured. At March 31, 2018, 59 loans, with a total balance of $237,158, were delinquent or in default.

 

Allowance for Credit Losses

 

The Company maintains an allowance for credit losses due to the fact that it is probable that a portion of the loans receivable will not be collected. The allowance is estimated by management based on various factors, including specific circumstances of the individual loans, management’s knowledge of the industry, and the experience and trends of other companies in the same industry.

 

Our portfolio of loans receivable consists of a large number of relatively small, homogenous accounts. The allowance for credit losses is determined using a systematic methodology, based on a combination of historical bad debt of comparable companies. Impaired loans are considered separately and 100% charged off.

 

The allowance for credit losses is primarily based upon models that analyze specific portfolio statistics and also reflect management’s judgment regarding overall accuracy. We take into account several relevant internal and external factors that affect loan receivable collectivity, including the customer’s transaction history, specifically the timeliness of customer payments, the remaining contractual term of the loan, the outstanding balance of the loan, historical loan receivable charge-offs, our current collection patterns, and economic trends.

 

Impaired Loans

 

The Company assesses loans for impairment individually when a loan is 91 days past due. The Company defines impaired loans as bankrupt accounts and accounts that are 184 days or more past due. In accordance with the Company’s charge-off policy, once a loan is deemed uncollectible, 100% of the remaining balance is charged-off. Loans can also be charged off when deemed uncollectible due to consumer specific circumstances.

 

The Company does not accrue interest on impaired loans and any recoveries of impaired loans are recorded to other revenue. Changes in the allowance for credit losses are recorded as operating expenses in the accompanying statement of operations.

 

Income Taxes

 

We account for income taxes using the liability method in accordance with the Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) 740 “Income Taxes”. To date, no current income tax liability has been recorded due to our accumulated net losses. Deferred income tax assets and liabilities are recognized for temporary differences between the financial statement carrying amounts of assets and liabilities and the amounts that are reported in the income tax returns. Our net deferred income tax assets have been fully reserved by a valuation allowance due to the uncertainty of our ability to realize future taxable income and to recover our net deferred income tax assets.

 

Earnings and Loss per Share

 

The Company computes net earnings (loss) per share in accordance with ASC 260-10 that establishes standards for computing and presenting net earnings (loss) per shares. Basic earnings (loss) per share are computed by dividing net income (loss) attributed to common shareholders by the weighted average number of common shares outstanding during the period. Diluted earnings per share is computed similar to basic earnings per share except that the denominator is increased to include the number of additional common shares that would have been outstanding if the potential common shares, if any, had been issued and if the additional common shares were dilutive.

 

 

Fair Value of Financial Instruments

 

Carrying amounts reported in the consolidated balance sheets for other receivables, accounts payable, and accrued expenses approximate fair value because of their immediate or short-term nature. The fair value of borrowings is not considered to be significantly different than its carrying amount because the stated rates for such debt reflect current market rates and conditions. Loans receivable are carried net of the allowance for credit losses and approximate their fair value.

 

Recently Issued or Newly Adopted Accounting Standards

In May 2014, FASB issued Accounting Standards Update (“ASU”) No. 2014-09, Revenue from Contracts with Customers. The standard will eliminate the transaction and industry specific revenue recognition guidance under current U.S. GAAP and replace it with a principle based approach for determining revenue recognition. ASU 2014-09 is effective for annual and interim periods beginning after December 15, 2017. Early adoption is not permitted. The revenue recognition standard is required to be applied retrospectively, including any combination of practical expedients as allowed in the standard. In April 2016, the FASB issued ASU 2016-10, Revenue from Contracts with Customers (Topic 606), which amends certain aspects of the Board’s new revenue standard, ASU 2014-09, Revenue from Contracts with Customers. The standard should be adopted concurrently with adoption of ASU 2014-09 which is effective for annual and interim periods beginning after December 15, 2017. Early adoption is permitted. As we adopted these standards effective January 1, 2018, adoption of these changes have no impact on the consolidated financial statements.

 

In August 2014, the FASB issued ASU 2014-15, Presentation of Financial Statements—Going Concern (Subtopic 205-40): Disclosure of Uncertainties about an Entity’s Ability to Continue as a Going Concern. ASU 2014-15 changes to the disclosure of uncertainties about an entity’s ability to continue as a going concern. These changes require an entity’s management to evaluate whether there are conditions or events, considered in the aggregate, that raise substantial doubt about the entity’s ability to continue as a going concern within one year after the date that financial statements are issued. Substantial doubt is defined as an indication that it is probable that an entity will be unable to meet its obligations as they become due within one year after the date that financial statements are issued. If management has concluded that substantial doubt exists, then the following disclosures should be made in the financial statements: (i) principal conditions or events that raised the substantial doubt, (ii) management’s evaluation of the significance of those conditions or events in relation to the entity’s ability to meet its obligations, (iii) management’s plans that alleviated the initial substantial doubt or, if substantial doubt was not alleviated, management’s plans that are intended to at least mitigate the conditions or events that raise substantial doubt, and (iv) if the latter in (iii) is disclosed, an explicit statement that there is substantial doubt about the entity’s ability to continue as a going concern. These changes became effective for the Company for the 2016 annual period. Our adoption of these changes had no material impact on the consolidated financial statements.

 

In November 2015, the FASB issued ASU No. 2015-17, Income Taxes (Topic 740). The amendments in ASU 2015-17 change the requirements for the classification of deferred taxes on the balance sheet. Currently, GAAP requires an entity to separate deferred income tax liabilities and assets into current and noncurrent amounts in a classified statement of financial position. To simplify the presentation of deferred income taxes, the amendments in this ASU require that deferred tax liabilities and assets be classified as noncurrent in a classified statement of financial position. The pronouncement became effective for the 2017 fiscal year. Adoption of these changes had no material impact on the consolidated financial statements.

 

In January 2016, the FASB issued ASU 2016-01, Financial Instruments – Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities. The update intends to enhance the reporting model for financial instruments to provide users of financial statements with more decision-useful information and addresses certain aspects of the recognition, measurement, presentation, and disclosure of financial instruments. The new standard affects all entities that hold financial assets or owe financial liabilities. For public business entities, the amendments in this update are effective for fiscal years beginning after December 15, 2017, including interim periods within those fiscal years. Management is evaluating the impact of the adoption of these changes will have on the consolidated financial statements.

 

In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842), which supersedes existing guidance on accounting for leases in “Leases (Topic 840)” and generally requires all leases to be recognized in the consolidated balance sheet. ASU 2016-02 is effective for annual and interim reporting periods beginning after December 15, 2018; early adoption is permitted. The provisions of ASU 2016-02 are to be applied using a modified retrospective approach. The Company is currently evaluating the impact of the adoption of this standard on its consolidated financial statements.

 

Item 3. Quantitative and Qualitative Disclosures about Market Risk

 

We do not have any financial instruments that are exposed to significant market risk. We maintain our cash and cash equivalents in bank deposits and short-term, highly liquid money market investments. A hypothetical 100-basis point increase or decrease in market interest rates would not have a material impact on the fair value of our cash equivalents securities, or our earnings on such cash equivalents.

 

 

Item 4. Controls and Procedures

 

Evaluation of Disclosure Controls and Procedures

 

Our management, under the supervision and with the participation of our Chief Executive Officer and Chief Financial Officer, has reviewed and evaluated the effectiveness of the Company’s disclosure controls and procedures as of March 31, 2018. Based on such review and evaluation, our Chief Executive Officer and Chief Financial Officer concluded that, as of March 31, 2018, the disclosure controls and procedures were effective to ensure that information required to be disclosed by the Company in the reports that it files or submits under the Exchange Act, (a) is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms and (b) is accumulated and communicated to the Company’s management, including its principal executive and principal financial officers, as appropriate to allow timely decisions regarding required disclosure.

 

Changes in Internal Control over Financial Reporting

 

There were no changes in the Company’s internal control over financial reporting identified in connection with the evaluation required by paragraph (d) of Rule 13a-15 or 15d-15 of the Exchange Act that occurred during the fiscal quarter ended March 31, 2018 that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

 

PART II - OTHER INFORMATION

 

Item 1. Legal Proceedings

 

We are not a party to any material litigation, nor, to the knowledge of management, is any litigation threatened against us that may materially affect us.

 

Item 1A. Risk Factors

 

None.

 

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

 

The following table summarizes the information relating to our purchase of shares of our common stock in the three months ended March 31, 2018.

 

Period		Total number of shares purchased1				Average price paid per share				Total number of shares purchased as part of publicly announced plans or programs				Approximate dollar value of shares that may yet be purchased under the plans or programs
January 1 – January 31, 2018			0				N/A				0			$	1,712,596
February 1 – February 28, 2018			0				N/A				0			$	1,712,596
March 1 – March 31, 2018			0				N/A				0			$	1,712,596
Total			0				N/A				0			$	1,712,596

 

¹ On January 9, 2017, the Company announced that its Board of Directors approved a stock repurchase program authorizing the open market repurchase of up to $2,000,000 of its common stock. This share repurchase program expires on December 31, 2018.

 

Item 3. Defaults Upon Senior Securities

 

None.

 

Item 4. Mine Safety Disclosures

 

Not applicable.

 

Item 5. Other Information

 

None.

 

 

Item 6. Exhibits

 

Exhibit Number		Description of Exhibit
10.1		Professional Consulting Contract dated March 22, 2018 by and between Investment Evolution Corporation and Paul Mathieson (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed with the SEC on March 27, 2018).
31.1		Certification of the Chief Executive Officer and Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32.1		Certification of the Chief Executive Officer and Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
101.INS		XBRL Instance
101.SCH		XBRL Taxonomy Extension Schema
101.CAL		XBRL Taxonomy Extension Calculation
101.DEF		XBRL Taxonomy Extension Definition
101.LAB		XBRL Taxonomy Extension Labels
101.PRE		XBRL Taxonomy Extension Presentation

 

 

SIGNATURES

 

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

 

	IEG HOLDINGS CORPORATION
Date: April 24, 2018	By:	/s/ Paul Mathieson
		Paul Mathieson
		President, Chief Executive Officer and Chief Financial Officer (principal executive officer, principal financial officer and principal accounting officer)