Item
1. Financial Statements
IEG
HOLDINGS CORPORATION
CONDENSED
CONSOLIDATED BALANCE SHEETS
MARCH
31, 2017 AND DECEMBER 31, 2016
|
|
March 31, 2017
|
|
|
December 31, 2016
|
|
|
|
(Unaudited)
|
|
|
(Audited)
|
|
|
|
|
|
|
|
|
ASSETS
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
446,632
|
|
|
$
|
322,441
|
|
Loans receivable, net, note 2
|
|
|
5,808,029
|
|
|
|
6,374,908
|
|
Other receivables
|
|
|
72,909
|
|
|
|
84,851
|
|
Prepaid expenses
|
|
|
20,329
|
|
|
|
12,955
|
|
Property and equipment, net, note 3
|
|
|
17,749
|
|
|
|
19,322
|
|
Security deposits
|
|
|
7,470
|
|
|
|
7,470
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
TOTAL ASSETS
|
|
$
|
6,373,118
|
|
|
$
|
6,821,947
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND STOCKHOLDERS' EQUITY
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES
|
|
|
|
|
|
|
|
|
Accounts payable and accrued expenses
|
|
$
|
56,169
|
|
|
$
|
1,060
|
|
|
|
|
|
|
|
|
|
|
TOTAL LIABILITIES
|
|
$
|
56,169
|
|
|
$
|
1,060
|
|
|
|
|
|
|
|
|
|
|
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, 2017 and December 31, 2016 respectively, note 5
|
|
|
|
|
|
|
|
|
Common stock, $0.001 par value; 300,000,000 shares authorized, 9,714,186 and 9,714,186 shares issued and outstanding at March 31, 2017 and December 31, 2016 respectively, note 5
|
|
|
2,233,182
|
|
|
|
2,233,182
|
|
Additional paid-in capital
|
|
|
29,698,025
|
|
|
|
29,698,025
|
|
Accumulated deficit
|
|
|
(25,614,258
|
)
|
|
|
(25,110,319
|
)
|
|
|
|
|
|
|
|
|
|
TOTAL STOCKHOLDERS' EQUITY
|
|
|
6,316,949
|
|
|
|
6,820,887
|
|
|
|
|
|
|
|
|
|
|
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY
|
|
$
|
6,373,118
|
|
|
$
|
6,821,947
|
|
See
notes to condensed consolidated unaudited Financial Statements
IEG
HOLDINGS CORPORATION
CONDENSED
CONSOLIDATED UNAUDITED STATEMENTS OF OPERATIONS
FOR
THE THREE MONTHS ENDED MARCH 31, 2017 AND 2016
|
|
March 31, 2017
|
|
|
March 31, 2016
|
|
REVENUES
|
|
|
|
|
|
|
|
|
Interest revenue
|
|
$
|
450,729
|
|
|
$
|
512,792
|
|
Other revenue
|
|
|
16,654
|
|
|
|
12,180
|
|
|
|
|
|
|
|
|
|
|
TOTAL REVENUES
|
|
|
467,383
|
|
|
|
524,972
|
|
|
|
|
|
|
|
|
|
|
OPERATING EXPENSES
|
|
|
|
|
|
|
|
|
Salaries and compensation
|
|
|
120,278
|
|
|
|
403,006
|
|
Other operating expenses
|
|
|
115,204
|
|
|
|
181,857
|
|
Provision for credit losses
|
|
|
224,488
|
|
|
|
387,519
|
|
Advertising
|
|
|
880
|
|
|
|
47,824
|
|
Rent
|
|
|
10,857
|
|
|
|
54,687
|
|
Public company and corporate finance expenses
|
|
|
498,191
|
|
|
|
409,919
|
|
Depreciation and amortization
|
|
|
1,573
|
|
|
|
1,916
|
|
|
|
|
|
|
|
|
|
|
TOTAL OPERATING EXPENSES
|
|
|
971,471
|
|
|
|
1,486,728
|
|
|
|
|
|
|
|
|
|
|
LOSS FROM OPERATIONS
|
|
|
(504,088
|
)
|
|
|
(961,756
|
)
|
|
|
|
|
|
|
|
|
|
OTHER INCOME (EXPENSE)
|
|
|
|
|
|
|
|
|
Miscellaneous income (expense)
|
|
|
149
|
|
|
|
5,077
|
|
|
|
|
|
|
|
|
|
|
TOTAL OTHER INCOME (EXPENSE)
|
|
|
149
|
|
|
|
5,077
|
|
|
|
|
|
|
|
|
|
|
NET LOSS
|
|
$
|
(503,939
|
)
|
|
$
|
(956,679
|
)
|
|
|
|
|
|
|
|
|
|
Dividends on preferred shares
|
|
|
-
|
|
|
|
(29,939
|
)
|
|
|
|
|
|
|
|
|
|
Net loss attributable to common stockholders
|
|
|
(503,939
|
)
|
|
|
(986,618
|
)
|
|
|
|
|
|
|
|
|
|
Net loss attributable to common stock per share, basic and diluted
|
|
$
|
(0.05
|
)
|
|
$
|
(0.33
|
)
|
|
|
|
|
|
|
|
|
|
Weighted average number of common shares outstanding, basic and diluted
|
|
|
9,714,186
|
|
|
|
2,958,044
|
|
See
notes to condensed consolidated unaudited Financial Statements
IEG
HOLDINGS CORPORATION
CONDENSED
CONSOLIDATED UNAUDITED STATEMENTS OF STOCKHOLDERS' EQUITY
FOR
THE PERIOD FROM JANUARY 1, 2016 THROUGH MARCH 31, 2017
|
|
|
|
|
|
|
|
Preferred Stock
|
|
|
Preferred Stock
|
|
|
Preferred Stock
|
|
|
Additional
|
|
|
Prepaid Preferred
|
|
|
|
|
|
|
|
|
|
|
|
|
Common Stock
|
|
|
Series A
|
|
|
Series G
|
|
|
Series H
|
|
|
Paid-in
|
|
|
Share
|
|
|
Subscription
|
|
|
Accumulated
|
|
|
|
|
|
|
Shares
|
|
|
Amount
|
|
|
Shares
|
|
|
Amount
|
|
|
Shares
|
|
|
Amount
|
|
|
Shares
|
|
|
Amount
|
|
|
Capital
|
|
|
Redemption
|
|
|
Receivable
|
|
|
Deficit
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, January 1, 2016
|
|
|
2,887,428
|
|
|
$
|
2,165,405
|
|
|
|
1,000,000
|
|
|
$
|
1,000
|
|
|
|
160,000
|
|
|
$
|
160
|
|
|
|
-
|
|
|
$
|
-
|
|
|
$
|
26,025,071
|
|
|
$
|
(160,000
|
)
|
|
$
|
-
|
|
|
$
|
(20,381,450
|
)
|
|
$
|
7,650,186
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Prepaid Preferred Share Redemption
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(160,000
|
)
|
|
|
(160
|
)
|
|
|
|
|
|
|
|
|
|
|
(159,840
|
)
|
|
|
160,000
|
|
|
|
|
|
|
|
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance of shares at $50.00
|
|
|
370
|
|
|
|
4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
18,496
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
18,500
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance of Preferred Shares
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
3,071,000
|
|
|
|
3,071
|
|
|
|
3,067,929
|
|
|
|
|
|
|
|
(2,825,000
|
)
|
|
|
-
|
|
|
|
246,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Conversion of Preferred Shares to Common Shares
|
|
|
6,400,000
|
|
|
|
64,000
|
|
|
|
(1,000,000
|
)
|
|
|
(1,000
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(63,000
|
)
|
|
|
-
|
|
|
|
|
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance of shares at $10.00
|
|
|
386,718
|
|
|
|
3,867
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,863,321
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,867,188
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Buyback of shares
|
|
|
(14,750
|
)
|
|
|
(148
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(208,952
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(209,099
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance of shares for reverse split rounding
|
|
|
218
|
|
|
|
0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance of shares for consulting fee offset
|
|
|
5,000
|
|
|
|
5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
12,495
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
12,500
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Conversion of Preferred Shares to Common Shares
|
|
|
49,200
|
|
|
|
49
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(246,000
|
)
|
|
|
(246
|
)
|
|
|
197
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Preferred Share Cancellation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(2,825,000
|
)
|
|
|
(2,825
|
)
|
|
|
(2,822,175
|
)
|
|
|
|
|
|
|
2,825,000
|
|
|
|
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Preferred Dividends
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(35,517
|
)
|
|
|
-
|
|
|
|
|
|
|
|
-
|
|
|
|
(35,517
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(4,728,869
|
)
|
|
|
(4,728,869
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, December 31, 2016
|
|
|
9,714,186
|
|
|
$
|
2,233,182
|
|
|
|
-
|
|
|
$
|
-
|
|
|
|
-
|
|
|
$
|
-
|
|
|
|
-
|
|
|
$
|
-
|
|
|
$
|
29,698,025
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
(25,110,319
|
)
|
|
$
|
6,820,887
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(503,939
|
)
|
|
|
(503,939
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, March 31, 2017
|
|
|
9,714,186
|
|
|
$
|
2,233,182
|
|
|
|
-
|
|
|
$
|
-
|
|
|
|
-
|
|
|
$
|
-
|
|
|
|
-
|
|
|
$
|
-
|
|
|
$
|
29,698,025
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
(25,614,258
|
)
|
|
$
|
6,316,949
|
|
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, 2017
AND 2016
|
|
March 31, 2017
|
|
|
March 31, 2016
|
|
CASH FLOWS FROM OPERATING ACTIVITIES:
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(503,939
|
)
|
|
$
|
(956,679
|
)
|
Adjustments to reconcile net loss to net cash used in operating activities: Provision for credit losses
|
|
|
224,488
|
|
|
|
387,519
|
|
Depreciation and amortization
|
|
|
1,573
|
|
|
|
1,916
|
|
Changes in assets - (increase) decrease:
|
|
|
|
|
|
|
|
|
Other receivables
|
|
|
11,942
|
|
|
|
16,281
|
|
Prepaid expenses
|
|
|
(7,374
|
)
|
|
|
(19,601
|
)
|
Deposits
|
|
|
-
|
|
|
|
-
|
|
Changes in liabilities - increase (decrease):
|
|
|
|
|
|
|
|
|
Accounts payable and accrued expenses
|
|
|
55,110
|
|
|
|
(23,840
|
)
|
Deferred rent
|
|
|
-
|
|
|
|
(4,119
|
)
|
|
|
|
|
|
|
|
|
|
NET CASH USED IN OPERATING ACTIVITIES
|
|
|
(218,200
|
)
|
|
|
(598,523
|
)
|
|
|
|
|
|
|
|
|
|
CASH FLOWS FROM INVESTING ACTIVITIES:
|
|
|
|
|
|
|
|
|
Loans receivable originated
|
|
|
(140,000
|
)
|
|
|
(535,000
|
)
|
Loans receivable repaid
|
|
|
482,391
|
|
|
|
541,083
|
|
|
|
|
|
|
|
|
|
|
NET CASH PROVIDED BY INVESTING ACTIVITIES
|
|
|
342,391
|
|
|
|
6,083
|
|
|
|
|
|
|
|
|
|
|
CASH FLOWS FROM FINANCING ACTIVITIES:
|
|
|
|
|
|
|
|
|
Preferred dividends paid
|
|
|
-
|
|
|
|
(29,917
|
)
|
Deposit on common shares to be issued
|
|
|
-
|
|
|
|
1,241,429
|
|
Proceeds from issuance of preferred stock
|
|
|
-
|
|
|
|
20,755
|
|
Proceeds from issuance of common stock
|
|
|
-
|
|
|
|
18,500
|
|
|
|
|
|
|
|
|
|
|
NET CASH PROVIDED BY FINANCING ACTIVITIES
|
|
|
-
|
|
|
|
1,250,767
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NET INCREASE IN CASH AND CASH EQUIVALENTS
|
|
|
124,191
|
|
|
|
658,327
|
|
|
|
|
|
|
|
|
|
|
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR
|
|
|
322,441
|
|
|
|
485,559
|
|
|
|
|
|
|
|
|
|
|
CASH AND CASH EQUIVALENTS, END OF YEAR
|
|
$
|
446,632
|
|
|
$
|
1,143,886
|
|
|
|
|
|
|
|
|
|
|
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, 2017
1.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
General
The
quarterly report on Form 10-Q for the quarter ended March 31, 2017 should be read in conjunction with the Company’s financial
statements for the year ended December 31, 2016, contained in the Company’s annual report on Form 10-K for the fiscal year
ended December 31, 2016 as filed with the Securities and Exchange Commission (the “SEC”) on March 8, 2017. 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. 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 $5,000 and $10,000 consumer loans over a five-year term through
its subsidiaries Investment Evolution Corporation and IEC SPV, LLC. The loans are offered under the consumer brand “Mr.
Amazing Loans”. The Company is headquartered in Las Vegas, Nevada and originates consumer loans in the states of Alabama,
Arizona, California, Florida, Georgia, Illinois, Kentucky, Louisiana, Maryland, Missouri, Nevada, New Jersey, New Mexico, Ohio,
Oregon, Pennsylvania, Texas, Utah, and Virginia via its online platform and distribution network. The Company is a licensed direct
lender with state licenses and/or certificates of authority to lend in these 19 states and offers all loans within the prevailing
statutory rates.
Basis
of Accounting
These
consolidated financial statements include the operations of IEG Holdings Corporation and its wholly-owned subsidiaries, Investment
Evolution Corporation and IEC SPV, LLC (collectively, 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 principles and conform
to general practices within the consumer finance industry.
The
consolidated financial statements have been prepared in conformity with accounting principles generally accepted in the United
States of America. 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/events that raise substantial doubt about the company’s ability to meet its obligations are i) the
Company has reported recurring losses and ii) the Company has not yet generated positive net cash flows from operations. However,
the Company has significantly reduced its core operating expenses. In addition, cash in bank increased during the quarter,
resulting from substantial positive net cash flows from investing activities. 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 May 2018. However,
the Company intends, over the next 12 months, to seek additional capital to expand operations. Management has no intentions to
repurchase a significant number of shares under the approved stock repurchase program unless additional capital has been secured.
Use
of Estimates
The
preparation of consolidated financial statements in conformity with accounting principles generally accepted in the United States
of America requires management to make estimates and assumptions that affect the reported amounts 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.
IEG
HOLDINGS CORPORATION
NOTES
TO CONDENSED CONSOLIDATED UNAUDITED FINANCIAL STATEMENTS
MARCH
31, 2017
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, 2017, 103 loans with a total balance of $454,452 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 factors, including the customer’s transaction history,
specifically the timeliness of customer payments, the remaining contractual term of the loan, and the outstanding balance of the
loan.
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 the allowance for credit
losses. 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
|
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 in Las Vegas expires (unless renewed) on September 30, 2017.
IEG
HOLDINGS CORPORATION
NOTES
TO CONDENSED CONSOLIDATED UNAUDITED FINANCIAL STATEMENTS
MARCH
31, 2017
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 $880 and $47,824 for the three months ended March 31, 2017 and 2016,
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. Basic and diluted loss per share has been adjusted retroactively for the net 1-for-10 reverse split that occurred on
October 27, 2016.
Reclassifications
Certain
numbers from the prior period have been reclassified to conform to the current year presentation.
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 generally accepted accounting principles, 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, 2017 for assets and liabilities measured at fair value
on a recurring basis:
|
|
Level I
|
|
|
Level II
|
|
|
Level III
|
|
|
Total
|
|
Cash
|
|
$
|
446,632
|
|
|
|
|
|
|
|
|
|
|
$
|
446,632
|
|
Loans receivable, net
|
|
$
|
|
|
|
|
|
|
|
|
5,808,029
|
|
|
$
|
5,808,029
|
|
The
following table summarizes fair value measurements by level at December 31, 2016 for assets and liabilities measured at fair value
on a recurring basis:
|
|
Level I
|
|
|
Level II
|
|
|
Level III
|
|
|
Total
|
|
Cash
|
|
$
|
322,441
|
|
|
|
|
|
|
|
|
|
|
$
|
322,441
|
|
Loans receivable, net
|
|
$
|
|
|
|
|
|
|
|
|
6,374,908
|
|
|
|
6,374,908
|
|
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.
IEG
HOLDINGS CORPORATION
NOTES
TO CONDENSED CONSOLIDATED UNAUDITED FINANCIAL STATEMENTS
MARCH
31, 2017
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.
Recent
Accounting Pronouncements
Recently
Issued or Newly Adopted Accounting Standards
In
August 2014, the FASB issued FASB ASU2014-15,
Presentation of Financial Statements—Going Concern (Subtopic 205-40): Disclosure
of Uncertainties about an Entity’s Ability to Continue as a Going Concern
. FASB 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 have 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 is effective for fiscal years and interim periods
within those fiscal years beginning after December 15, 2016. Adoption of these changes have 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.
2.
LOANS RECEIVABLE
Loans
receivable consisted of the following at March 31, 2017 and December 31, 2016:
|
|
March 31, 2017
|
|
|
December 31, 2016
|
|
Loans receivable
|
|
$
|
6,914,321
|
|
|
$
|
7,587,349
|
|
Allowance for credit losses
|
|
$
|
(1,106,292
|
)
|
|
$
|
(1,212,441
|
)
|
Loans receivable, net
|
|
$
|
5,808,029
|
|
|
$
|
6,374,908
|
|
A
reconciliation of the allowance for credit losses consist of the following at March 31, 2017 and December 31, 2016:
|
|
March 31, 2017
|
|
|
December 31, 2016
|
|
Beginning balance, January 1
|
|
$
|
1,212,441
|
|
|
$
|
985,375
|
|
Provision for credit losses
|
|
$
|
224,488
|
|
|
$
|
1,865,362
|
|
Loans charged off
|
|
$
|
(330,637
|
)
|
|
$
|
(1,638,296
|
)
|
Ending balance
|
|
$
|
1,106,292
|
|
|
$
|
1,212,441
|
|
Basis of assessment:
|
|
|
|
|
|
|
|
|
Individually
|
|
$
|
-
|
|
|
$
|
-
|
|
Collectively
|
|
$
|
1,106,292
|
|
|
$
|
1,212,441
|
|
IEG
HOLDINGS CORPORATION
NOTES
TO CONDENSED CONSOLIDATED UNAUDITED FINANCIAL STATEMENTS
MARCH
31, 2017
The
following is an age analysis of past due receivables as of March 31, 2017 and December 31, 2016:
|
|
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, 2017
|
|
$
|
226,613
|
|
|
$
|
203,299
|
|
|
$
|
454,452
|
|
|
$
|
884,364
|
|
|
$
|
6,029,957
|
|
|
$
|
6,914,321
|
|
|
$
|
454,452
|
|
December 31, 2016
|
|
$
|
257,299
|
|
|
$
|
163,590
|
|
|
$
|
367,098
|
|
|
$
|
787,987
|
|
|
$
|
6,799,362
|
|
|
$
|
7,587,349
|
|
|
$
|
367,098
|
|
The
Company’s primary credit quality indicator is the customer’s Vantage 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, 2017 and December 31, 2016 by credit quality indicator:
Credit Score
|
|
March 31, 2017
|
|
|
December 31, 2016
|
|
550-575
|
|
$
|
15,723
|
|
|
$
|
16,264
|
|
576-600
|
|
$
|
162,252
|
|
|
$
|
183,701
|
|
601-650
|
|
$
|
3,056,346
|
|
|
$
|
3,332,371
|
|
651-700
|
|
$
|
2,650,663
|
|
|
$
|
2,946,944
|
|
701-750
|
|
$
|
808,437
|
|
|
$
|
874,408
|
|
751-800
|
|
$
|
156,590
|
|
|
$
|
166,811
|
|
801-850
|
|
$
|
48,924
|
|
|
$
|
46,368
|
|
851-900
|
|
$
|
15,386
|
|
|
$
|
20,482
|
|
|
|
$
|
6,914,321
|
|
|
$
|
7,587,349
|
|
3.
PROPERTY AND EQUIPMENT
At
March 31, 2017 and December 31, 2016, property and equipment consists of the following:
|
|
March 31, 2017
|
|
|
December 31, 2016
|
|
Computer equipment
|
|
$
|
99,556
|
|
|
$
|
99,556
|
|
Furniture and fixtures
|
|
|
21,303
|
|
|
|
21,303
|
|
Leasehold improvements
|
|
|
7,112
|
|
|
|
7,112
|
|
|
|
$
|
127,971
|
|
|
$
|
127,971
|
|
Less accumulated depreciation and amortization
|
|
|
110,222
|
|
|
|
108,649
|
|
Total
|
|
$
|
17,749
|
|
|
$
|
19,322
|
|
Depreciation
of property and equipment amounted to $1,573 and $1,916 during the three months ended March 31, 2017 and 2016, respectively. Depreciation
costs are included in the accompanying statements of operations in operating expenses.
4.
SENIOR DEBT
On
August 21, 2015, we, through certain of our wholly owned subsidiaries, repaid the entire balance of principal and accrued interest
under the Loan and Security Agreement, as amended (the “Loan Agreement”), among BFG and certain of our wholly owned
subsidiaries. As a result, there is currently no outstanding balance under the Loan Agreement. However, the Loan Agreement continues
in effect and we are subject to a net profit interest under which we are required to pay BFG 20% of the “Net Profit”
of its subsidiary, IEC SPV, LLC, until 10 years from the date the loan is repaid in full (August 2015). Net Profit is defined
as the 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 the existing credit
facility, and (iv) charge-offs to bad debt resulting from consumer loans and reduced by servicing fee. The Net Profit arrangement
can be terminated by us upon a payment of $3,000,000 to BFG. Net profit interest for the three months ended March 31, 2017 and
2016 were $18,577 and $7,988, respectively. All loans receivable of the Company were pledged as collateral at March 31, 2017 for
the fulfillment of the Net Profit calculation.
IEG
HOLDINGS CORPORATION
NOTES
TO CONDENSED CONSOLIDATED UNAUDITED FINANCIAL STATEMENTS
MARCH
31, 2017
5.
STOCKHOLDERS’ EQUITY
As
of March 31, 2017, 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, 2017, the Company had 9,714,186 shares of common stock issued and outstanding. The 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.
Series
H Preferred Stock
During
the three months ended March 31, 2017 and year ended December 31, 2016, the Company issued 0 and 3,071,000 of Series H convertible
preferred stock, respectively, with a par value of $0.001 per share. At March 31, 2017, no shares of Series H convertible preferred
stock were outstanding.
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, and
Virginia 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, 2017, the Company had cash and cash equivalents exceeding insured limits by $196,115.
7.
COMMITMENTS AND CONTINGENCIES
Operating
Leases
The
Company renewed its operating facility lease effective October 1, 2016 under a non-cancelable operating lease that expires on
30 September 2017. Monthly rental payments under this lease are $4,693 plus a proportionate share of operating expenses. The Company
previously had leases for operating facilities in Florida, Illinois and Arizona all of which terminated during 2016. Total rent
expense for the three months ended March 31, 2017 and 2016 was $16,817 and $54,687 respectively. The Company is responsible for
certain operating expenses in connection with these leases.
Legal
Matters
From
time to time, the Company may be involved in legal proceedings in the normal course of its business. The Company is not involved
in any legal proceedings at the present time.
Professional
Consulting Contract
The
Company has a professional consulting contract with its Chief Executive Officer (“CEO”), according to which, the Company
paid $0 and health insurance for the three months ended March 31, 2017. The Company is obligated to pay its CEO $1 annually plus
health insurance, with a discretionary bonus to be determined by the Company’s Board on December 31, 2017. There was no
bonus approved or paid for the year ended December 31, 2016.
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.
Net
Profit Interest
The
Company has a net profit interest agreement with its lender, under which the Company pays 20% of its subsidiary IEC SPV LLC’s
net profit to the lender (see note 4).
IEG
HOLDINGS CORPORATION
NOTES
TO CONDENSED CONSOLIDATED UNAUDITED FINANCIAL STATEMENTS
MARCH
31, 2017
8.
RELATED PARTY TRANSACTIONS
Chief
Executive Officer
During
the three months ended March 31, 2017 and three months ended March 31, 2016 the Company incurred compensation expense to our Chief
Executive Officer under the Professional Consulting Contract of $0 and $250,000 respectively. Preferred dividends in the amount
of $29,917 were paid in cash to our Chief Executive Officer during the three months ended March 31, 2016.
Chief
Operating Officer
During
the three months ended March 31, 2017 and three months ended March 31, 2016 the Company incurred compensation expense to our Chief
Operating Officer of $53,077 and $53,077 respectively.
Consulting
Fees
During
the three months ended March 31, 2017 and three months ended March 31, 2016, the Company incurred director fees totaling $0 and
$8,500, respectively, to Matthew Banks, a former director of the Company.
During
the three months ended March 31, 2017 and three months ended March 31, 2016, the Company incurred director fees totaling $0 and
$8,500, respectively to R & H Nominees Pty Ltd, which is owned by Harold Hansen, a former director of the Company.
During
the three months ended March 31, 2017 and three months ended March 31, 2016, the Company incurred consulting fees totaling $0
and $250, respectively, to Frank Wilkie and related parties. Frank Wilkie is a shareholder of IEG Holdings Corporation.
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 to customers in 19 states via our website and
online application portal. We provide unsecured loans to individuals. Our $5,000 and $10,000 online personal loans range from
19.9% to 29.9% APR and all are unsecured over a five-year term. We have a 6.5-year track record of origination, underwriting and
servicing of personal loans to underbanked consumers. We leverage our experience and knowledge in the consumer finance industry
to achieve a meaningful return on our investment in the loan portfolio. We plan to expand our state coverage in 2017 by obtaining
state lending licenses in an additional six states, increasing our coverage to 25 states.
We
have the ability to finance our businesses from a diversified source of capital and funding, including financings in the capital
markets. During 2016, we demonstrated the ability to attract capital markets funding for our core personal loans by completing
private placements of common stock and preferred stock.
We
operate in one business segment: Consumer Loans.
Recent
Developments
On
January 5, 2017, we commenced a tender offer to purchase up to all outstanding shares of common stock of OneMain Holdings
Inc., a NYSE-listed company (“OneMain”);
provided, however,
that we were willing to accept any number of
shares of OneMain common stock, even if such shares, in the aggregate, constitute less than a majority of OneMain’s
outstanding common stock. The OneMain tender offer was scheduled to expire at 12:00 a.m., Eastern time, on February 6, 2017,
unless extended. On February 7, 2017, we extended the OneMain tender offer such that it was to expire at 5:00 p.m., Eastern
time, on March 27, 2017, unless extended or earlier terminated. On March 27, 2017, we extended the OneMain tender offer such
that it will expire at 5:00 p.m., Eastern time, on Friday, May 5, 2017. In addition, we revised the offer such that we are
offering to exchange 20 shares of our common stock for each share of OneMain’s common stock, up to an aggregate of
6,747,723 shares of OneMain common stock, representing approximately 4.99% of OneMain’s outstanding shares as of March
31, 2017, validly tendered and not properly withdrawn in the offer. Complete terms and conditions of the OneMain tender
offer are set forth in the Tender Offer Statement on Schedule TO and in the registration statement on Form S-4, each of which
we originally filed with the SEC on January 5, 2017, and each of which as may be amended. This description and other
information in this quarterly report on Form 10-Q regarding the OneMain tender offer is included in this quarterly report on
Form 10-Q solely for informational purposes. Nothing in this quarterly report on Form 10-Q should be construed as an offer to
sell, nor the solicitation of an offer to buy, any shares in connection with the OneMain tender offer.
In
January 2017, our Board of Directors approved a stock repurchase program authorizing the open market repurchase of up to $2,000,000
of our common stock for the following reasons:
|
●
|
The
stock repurchase program permits the Company to purchase shares of its common stock from time to time at prices that are below
what the Board believes to be the true value of the shares.
|
|
|
|
|
●
|
The
Company’s common stock is trading at close to record low prices.
|
|
|
|
|
●
|
The
stock repurchase program reflects the commitment of our Board of Directors to enhance stockholder value and its confidence
in our long-term growth prospects.
|
|
|
|
|
●
|
The
Board believes the stock repurchase program is a strategic investment and an appropriate use of corporate funds.
|
|
|
|
|
●
|
Any
repurchases will only be effected to the extent that they do not impair the Company’s capital or the Company’s
ability to pay its debts.
|
|
|
|
|
●
|
The
Company has available liquidity from existing customer loan repayments to be able to both reinvest in new customer loans and
also to strategically invest back into our company via stock repurchases.
|
|
|
|
|
●
|
The
stock repurchase program will assist in improving stock liquidity and ensuring a more orderly and less volatile market for
a relatively small outlay of cash.
|
|
|
|
|
●
|
No
purchases are required and the $2,000,000 cap on the stock repurchase program is relatively low.
|
|
|
|
|
●
|
Management
has no intention to repurchase a significant number of shares unless additional capital has been secured.
|
Purchases
under the program are authorized through December 31, 2017. No shares will be repurchased under the program until the OneMain
tender offer has closed or has been terminated.
In
December 2016, we launched a private offering of up to $10 million aggregate principal amount of our 12% senior unsecured
notes due December 31, 2026 (the “Notes”), on a self-underwritten basis.
The Notes offering was
terminated in May 2017. No Notes were sold in the offering.
Three
Months Ended March 31, 2017 Compared to Three Months Ended March 31, 2016
Interest
Revenue
For
the three months ended March 31, 2017, interest revenue decreased to $450,729, compared to $512,792 for the three months ended
March 31, 2016. This decrease was due to the decreased average interest-earning loan book size of consumer receivables during
the period.
Other
Revenue
For
the three months ended March 31, 2017, other revenue increased to $16,654, compared to $12,180 for the three months ended March
31, 2016. Other revenue consisted of declined lead revenue and loss recovery. The increase was attributable to an increase in
loss recovery.
Salaries
and Compensation Expenses
For
the three months ended March 31, 2017, salaries and compensation expenses decreased to $120,278, compared to $403,006 for the
three months ended March 31, 2016. The decrease was primarily attributable to the decrease in the CEO’s annual base salary
to $1 effective January 1, 2017.
Other
Operating Expenses
For
the three months ended March 31, 2017, other operating expenses decreased to $115,204, compared to $181,857 for the three months
ended March 31, 2016. The decrease was attributable to the lower underwriting costs and client service costs due to reduced new
loan volume in the current period.
Provision
for Credit Losses
For
the three months ended March 31, 2017, the provision for credit losses expense decreased to $224,488, compared to $387,519 for
the three months ended March 31, 2016. 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
decrease in our loan portfolio as of March 31, 2017.
Advertising
For
the three months ended March 31, 2017, advertising expenses decreased to $880, compared to $47,824 for the three months ended
March 31, 2016. The decrease was attributable to the reduction in customer acquisition costs incurred, including online advertising,
direct mail, and lead generation costs in the current period.
Rent
Expense
For
the three months ended March 31, 2017, rent expense decreased to $16,817, compared to $54,687 for the three months ended March
31, 2016. The decrease was due to termination of Florida, Illinois and Arizona leases in 2016.
Public
Company and Corporate Finance Expenses
For
the three months ended March 31, 2017, public company and corporate finance expenses increased to $498,191, compared to $409,919
for the three months ended March 31, 2016. The increase was due to the significant one-off costs incurred related to the OneMain
tender offer net of the decrease in investor/financing costs incurred resulting from no capital raises in Q1 2017 in the three
months ended March 31, 2017.
Depreciation
and Amortization
For
the three months ended March 31, 2017, depreciation and amortization marginally decreased to $1,573, compared to $1,916 for the
three months ended March 31, 2016. The minimal movement was in line with expectations.
Financial
Position
Cash
and Cash Equivalents
We
had cash and cash equivalents of $446,632 as of March 31, 2017, compared to $322,441 as of December 31, 2016. The increase was
due to less net cash used in operating activities due to operational cost cuts and higher net cash provided by investing activities
due to less loans receivable originated.
Loans
Receivable
We
had net loan receivables of $5,808,029 as of March 31, 2017, as compared to $6,374,908 as of December 31, 2016. The decrease was
due to lower loan originations in the current period versus repayment of loan principal by customers.
Other
Receivables
We
had other receivables of $72,909 as of March 31, 2017, as compared to $84,851 as of December 31, 2016. Other receivables was comprised
of outstanding invoices for declined lead revenue due from marketing partners and accrued interest receivable on our consumer
loans at March 31, 2017. 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 $17,749 as of March 31, 2017 as compared to $19,322 as of December 31, 2016. 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 $56,169 as of March 31, 2017, compared to $1,060 as of December 31, 2016. The increase
was due to management’s decision to delay payment of a number of March expenses in full in the current period so accrual
was required for those expenses.
Financial
Condition, Liquidity and Capital Resources
During
the three months ended March 31, 2017 and the twelve months ended December 31, 2016, we incurred operating expenses in excess
of net revenue. However, anticipated cash flow from our existing loan receivable repayments plus net revenue are expected to exceed
budgeted cash operating expenses for the next 12 months. To expand operations 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 $218,200 during the three months ended March 31, 2017, compared to $598,523 during the three months
ended March 31, 2016, and this decrease is due to a substantial reduction in net losses due to significant operational cost cuts.
The Company incurred $370,289 of costs during the three months ended March 31, 2017 in connection with the OneMain tender offer.
We
were provided with net cash from investing activities of $342,391 during the three months ended March 31, 2017, compared to $6,083
during the three months ended March 31, 2016. The increase in cash provided by investing activities is primarily due to a decrease
in loans receivable originated.
We
were provided $0 of net cash from financing activities during the three months ended March 31, 2017, compared to $1,250,767 during
the same period in 2016. The decrease was attributable to the absence of any debt or equity capital raising proceeds compared
to significant deposits for a common stock capital raising received in the corresponding period in 2016.
At
March 31, 2017, we had cash on hand of $446,632, 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/events that raise substantial doubt about the company’s ability to meet its obligations are i) the
Company has reported recurring losses and ii) the Company has not yet generated positive net cash flows from operations. However,
the Company has significantly reduced its core operating expenses. In addition, cash in bank increased during the quarter,
resulting from substantial positive net cash flows from investing activities. 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 May 2018. However,
the Company intends, over the next 12 months, to seek additional capital to expand operations. Management has no intentions to
repurchase a significant number of shares under the approved stock repurchase program unless additional capital has been secured.
On
August 21, 2015, we, through certain of our wholly owned subsidiaries, repaid the entire balance of principal and accrued interest
under the Loan and Security Agreement, as amended (the “Loan Agreement”), among BFG and certain of our wholly owned
subsidiaries. As a result, there is currently no outstanding balance under the Loan Agreement. However, the Loan Agreement continues
in effect and we are subject to a net profit interest under which we are required to pay BFG 20% of the “Net Profit”
of its subsidiary, IEC SPV, LLC, until 10 years from the date the loan is repaid in full (August 2015). Net Profit is defined
as the 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 the existing credit
facility, and (iv) charge-offs to bad debt resulting from consumer loans and reduced by servicing fee. The Net Profit arrangement
can be terminated by us upon a payment of $3,000,000 to BFG. Net profit interest for the three months ended March 31, 2017 and
2016 were $18,577 and $7,988, respectively. All loans receivable of the Company were pledged as collateral at March 31, 2017 for
the fulfillment of the Net Profit calculation.
Off-Balance
Sheet Arrangements
As
of March 31, 2017, 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 and IEC SPV, LLC (collectively, 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 principles and conform
to general practices within the consumer finance industry.
The
consolidated financial statements have been prepared in conformity with accounting principles generally accepted in the United
States of America. 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.
The
principal conditions/events that raise substantial doubt about the company’s ability to meet its obligations are i) the
Company has reported recurring losses and ii) the Company has not yet generated positive net cash flows from operations. However,
the Company has significantly reduced its core operating expenses. In addition, cash in bank increased during the quarter,
resulting from substantial positive net cash flows from investing activities. 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 May 2018. However,
the Company intends, over the next 12 months, to seek additional capital to expand operations. Management has no intentions to
repurchase a significant number of shares under the approved stock repurchase program unless additional capital has been secured.
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 accounting principles generally accepted in the United States
of America 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, 2017, 103 loans with a total balance of $454,452 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 factors, including the customer’s transaction history,
specifically the timeliness of customer payments, the remaining contractual term of the loan, and the outstanding balance of the
loan.
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 the allowance for credit
losses. 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. Basic and diluted loss per share has been adjusted retroactively for the net 1-for-10 reverse split that occurred on
October 27, 2016.
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
August 2014, the FASB issued FASB ASU2014-15,
Presentation of Financial Statements—Going Concern (Subtopic 205-40): Disclosure
of Uncertainties about an Entity’s Ability to Continue as a Going Concern
. FASB 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 have 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 is effective for fiscal years and interim periods
within those fiscal years beginning after December 15, 2016. Adoption of these changes have 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.