ITEM 1. BUSINESS

Business Overview

Mr. Amazing Loans Corporation (“Mr. Amazing Loans,” the “Company,” “we,” “us,” or “our”) is a fintech company that provides unsecured online consumer loans under the brand name “Mr. Amazing Loans” via our website and online application portal at www.mramazingloans.com. Fintech companies, such as Mr. Amazing Loans, apply technology to improve financial services. We started our business and opened our first office in Las Vegas, Nevada in 2010. We currently offer $5,000 and $10,000 unsecured consumer loans that mature in five years. We are currently licensed and/or hold certificates of authority and are originating direct consumer loans in 19 states – Alabama, Arizona, California, Florida, Georgia, Illinois, Kentucky, Louisiana, Maryland, Missouri, Nevada, New Jersey, New Mexico, Ohio, Oregon, Pennsylvania, Texas, Utah and Virginia. We provide loans to residents of these states through our online application portal, with all loans originated, processed and serviced out of our centralized Las Vegas head office, which eliminates the need for physical offices in all of these states.

Our strategy is to address the market needs of underbanked consumers that tend to be ignored by mainstream institutional credit providers such as banks and credit unions, and are charged excessive fees and interest by fringe lenders such as payday lenders. In the current global environment, we believe there is a substantial need and opportunity for the small personal loans we offer.

All of our personal loans are offered at prevailing statutory rates with fixed affordable repayments and no prepayment penalties. We conduct full underwriting on all applications including credit checks and review bank statements to ensure customers have capacity to repay their loans.

OneMain Tender Offer

On January 5, 2017, we launched a tender offer for shares of OneMain Holdings, Inc. (“OneMain”) common stock (the “OneMain Tender Offer”). In our tender offer materials relating to the OneMain Tender Offer, we indicated that we intended to use our OneMain stockholdings to become an activist investor, to pressure OneMain to transform its “brick and mortar” business model to our online-only distribution business model. The OneMain Tender Offer was undersubscribed, with stockholders representing approximately 0.1% of OneMain’s outstanding shares tendering their shares. On June 16, 2017, we closed the OneMain Tender Offer, with 151,994 OneMain shares of common stock acquired (valued at an aggregate of $3.6 million based on the closing price of shares of OneMain common stock of $23.38 on June 15, 2017) in exchange for 3,039,880 shares of our common stock.

On June 16, 2017, we sent a letter to OneMain’s Chief Executive Officer and board of directors with the following activist stockholder demands:

We indicated in our letter that we intended, in our role as an activist investor, to:

This was the only contact that we had with OneMain following expiration of the OneMain Tender Offer. On June 22, 2017, the fifth business day following termination of the OneMain Tender Offer, we sold 100% of our OneMain shares (an aggregate of 151,994 shares, which represented approximately 0.1% of OneMain’s outstanding shares) in exchange for approximately $3.4 million in cash due to lack of response from OneMain’s management, an undersubscribed tender offer and what management believed, based on the low level of tendering stockholders, to be a lack of OneMain stockholder support for the proposed business changes. Had management perceived greater OneMain stockholder support for the proposed business changes or OneMain management demonstrated a willingness to enter into discussions, we likely would have considered retaining its stake in OneMain for a longer period of time or indefinitely. Our sale of the tendered OneMain shares significantly increased our capital and net asset value and resulted in a substantial increase in lending in the third and fourth quarters ending December 31, 2017. Despite our desire to effect changes in OneMain’s management, we did not include a minimum tender condition in our offer because we determined that the acquisition of any OneMain shares under the OneMain Tender Offer could add stockholder value by increasing our capital and net asset value.

Following the sale of the OneMain shares acquired in the OneMain Tender Offer, we used the proceeds from the sale to fund increased new loan volumes and to pay Mr. Mathieson, our Chief Executive Officer and the sole member of our board of directors, amounts owed pursuant to the terms of his Professional Consulting Contract (as defined below). The current Professional Consulting Contract obligates us to pay Mr. Mathieson $1.2 million annually.

July 2017 Lending Club Tender Offer

On July 12, 2017, we filed with the Securities and Exchange Commission (“SEC”) a registration statement on Form S-4 (the “S-4 Registration Statement”) and a Schedule TO relating to our offer to exchange four shares of our common stock for each share of the common stock of LendingClub Corporation (“Lending Club”), par value $0.01 per share, up to an aggregate of 40,345,603 shares of Lending Club’s common stock, representing approximately 9.99% of the outstanding shares of Lending Club’s common stock as of April 28, 2017, validly tendered and not properly withdrawn in the offer (the “2017 Lending Club Tender Offer”). The 2017 Lending Club Tender Offer and the withdrawal rights were set to expire at 5:00 p.m., Eastern time, on August 10, 2017, unless extended.

Following the launch of the 2017 Lending Club Tender Offer, the price per share of our common stock, as quoted on the OTCQB, dropped significantly. On August 1, 2017, due to the drop in our stock price, we determined that the 2017 Lending Club Tender Offer no longer had a reasonable chance of success and accordingly, we determined that we would terminate the 2017 Lending Club Tender Offer and withdraw the S-4 Registration Statement. Any shares that were tendered by Lending Club stockholders were not accepted and were returned to the relevant stockholders. From time to time, we may consider a future tender offer where we identify either business or investment opportunities.

2016 Reverse and Forward Stock Splits

We have executed and initiated reverse stock splits that have resulted in a reduction in the number of Mr. Amazing Loans stockholders and certain stockholders were involuntarily cashed out. In April 2016 and October 2016, we effected reverse and forward stock splits. In each case, stockholders who would otherwise have received fractional shares received cash in exchange for our shares. These stockholders were involuntarily cashed out, and the splits were approved by Mr. Mathieson in his capacity as our sole director. The stockholders that were involuntarily cashed out were cashed out at a higher per share price than the then current per share price. Accordingly, the effects of changes in our stock price were positive for such stockholders, as they could choose to repurchase shares at a lower cost per share. As our largest stockholder, sole officer and director, Mr. Mathieson can exercise sole authority over any future reverse stock splits, including the existence of and terms of any reverse stock splits, that could result in stockholders being involuntarily cashed out. Our stockholders should be willing to entrust all aspects of our management to Mr. Mathieson.

Abandonment of 2017 Proposed Reverse/Forward Stock Split and Cash-Out

On June 21, 2017, we filed with the SEC a preliminary information statement on Schedule 14C (the “Preliminary Information Statement”). The Preliminary Information Statement, though not in definitive form, related to a vote by Mr. Mathieson, our sole director and holder of a majority of our voting power of the issued and outstanding capital stock to effect a reverse 1-for-1,000 stock split (the “Proposed Reverse Split”), followed immediately by a forward 1,000-for-1 stock split (the “Proposed Forward Split”) of our common stock. Our intention was that registered stockholders whose shares of our common stock were converted into less than one share in the Proposed Reverse Split would receive cash payments equal to the fair value of those fractional interests. The Proposed Reverse Split and Proposed Forward Split, together with the related cash payments to stockholders with less than 1,000 shares of our common stock prior to the Proposed Reverse Split are referred to herein as the “Proposed Reverse/Forward Split.”

The primary goal of the Proposed Reverse/Forward Split was cost savings from reducing administrative costs associated with stockholder accounts, and we believed that previously completed reverse/forward stock splits had achieved substantial administrative cost savings. Neither the Proposed Reverse/Forward Split nor any reverse/forward stock split previously completed by us were designed for the purposes of or in connection with a “going private” transaction. Mr. Mathieson, our sole director and controlling stockholder, approved the Proposed Reverse/Forward Split on June 14, 2017, which was the day before the expiration of the tender offer for shares of OneMain common stock. The sole director did not believe the decision to take corporate action to effect the split was a material change to the OneMain Tender Offer as it would have only potentially impacted up to eight of the OneMain stockholders who had accepted the offer who held less than 1,000 Mr. Amazing Loans shares if they still owned their shares on July 25, 2017. Even if they did still own their shares on July 25, 2017, they would have been provided notice from the Information Statement and could have purchased a small number of extra shares to avoid being repurchased if they did not want to sell or they could have sold on the market at a higher price in the days after the OneMain Tender Offer closed and the Information Statement was filed. The total amount of the repurchase would have been approximately $100,000, would have impacted almost exclusively non-OneMain tendering stockholders and represented a non-material amount of our total assets. The total amount of less than $8,000 for the eight affected OneMain tendering stockholders compared to the approximately $3.55 million worth of OneMain shares acquired in the OneMain Tender Offer was not material. The sole director believed that the cost savings from the Proposed Reverse/Forward Split, though not material, would have been a positive for the OneMain tendering stockholders if it had been effected.

On July 21, 2017, we announced that we would not effect the Proposed Reverse/Forward Split and instructed holders of our common stock to disregard the Preliminary Information Statement that was filed with the SEC in its entirety. Our determination to abandon the Proposed Reverse/Forward Split was based on our launch, on July 12, 2017, of the 2017 Lending Club Tender Offer subsequent to the filing of the Preliminary Information Statement with the SEC on June 21, 2017. We expected that a significant number of individual new stockholders could acquire less than 1,000 shares of our common stock in connection with the 2017 Lending Club Tender Offer which could have significantly increased the cost of completing the Proposed Reverse/Forward Split. For the avoidance of doubt, no reverse and/or forward split occurred on July 25, 2017 and no stockholders were cashed out on July 25, 2017.

Withdrawal of Going Private Transaction

On November 16, 2018, we filed a Schedule 13E-3 and a preliminary information statement on Schedule 14C in connection with our intention to go private. In particular, we intended to reduce the number of record holders of our common stock to fewer than 300, allowing us to terminate the registration of our common stock under Section 12(g) of the Exchange Act and to suspend our reporting obligations under Section 15(d) of the Exchange Act. After the suspension of our duty to file periodic reports and other information with the Securities and Exchange Commission (the “SEC”), the Company intended to cease filing reports and information with the SEC.

To accomplish the reduction in the number of record holders of our common stock, we intended to effect a 5,001-for-1 reverse stock split followed by a 1-for-5,001 forward stock split of our common stock. Upon completion of the reverse split, stockholders holding only fractional shares were expected to receive a payment equal to the fair value of each share of common stock and would have no further interest in our company.

However, Mr. Mathieson, our sole director, determined that the Company would no longer seek to engage in the going private transaction. Accordingly, on March 20, 2019, we filed an amendment to the Schedule 13E-3 in order to withdraw the Schedule 13E-3, and announced our intention to not proceed with the going private transaction.

Stock Repurchase Program

In January 2017, our sole director approved a stock repurchase program authorizing the open market repurchase of up to $2,000,000 of our common stock for the following reasons:

Purchases under the program were authorized through December 31, 2018. As at the close of business on December 31, 2018, 696,139 shares were repurchased under this program.

On April 1, 2019, 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, 2019. Management does not intend to repurchase a significant number of shares pursuant to the stock repurchase program.

Dividends

Historically, prior to 2017, we did not pay 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 sole director 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.

2018 Lending Club Tender Offer

On January 5, 2018, we launched an offer to exchange 13 shares of our common stock for each share of common stock of 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.

Control of Mr. Amazing Loans Rests with Mr. Mathieson

As our largest stockholder, sole officer and director, Mr. Mathieson will have the right to make all decisions with respect to our management. Mr. Mathieson can exercise sole authority over the direction of Mr. Amazing Loans, and any future reverse stock splits that could result in stockholders being involuntarily cashed out.

Investment Company Act of 1940

If we were deemed to be an investment company under the Investment Company Act of 1940, as amended (the “1940 Act”), applicable restrictions could make it impractical for us to continue our business as contemplated and could have a material adverse effect on our business. Under Sections 3(a)(1)(A) and (C) of the 1940 Act, an issuer of securities will generally fit the definition of an “investment company” for purposes of the 1940 Act if (i) it is, or holds itself out as being, engaged primarily, or proposes to engage primarily, in the business of investing, reinvesting or trading in securities or (ii) is engaged or proposes to engage in the business of issuing face-amount installment certificates or has any of this type of certificate outstanding. In addition, issuers who do not otherwise fit the definition of an investment company are sometimes deemed to be investment companies, under Section 3(a)(1)(C) of the 1940 Act, if the value of their investment securities exceeds 40% of their total assets.

Although an issuer may fall within the definition of an “investment company” under Section 3(a)(1)(C) of the 1940 Act, the issuer may qualify for an exemption from the definition. Rule 3a-1 under the 1940 Act provides an exemption from the definition of investment company if, on a consolidated basis with its wholly owned subsidiaries, nor more than 45% of its net income after taxes for the last four quarters is derived from securities other than government securities and securities of majority owned subsidiaries and companies primarily controlled by it. As of December 31, 2018 and 2017, we calculated both our percentage of investment security assets (securities other than government securities, employee companies and certain subsidiaries and affiliates) to total assets and our total percentage of investment income (income from investment securities) as compared to total income to be below the Rule 3a-1 45% thresholds.

We were able to maintain our compliance with the 1940 Act because we regularly monitor our status under the 1940 Act and conduct prudential analyses in accordance with the 1940 Act and the SEC’s interpretations thereof. We conduct such analyses on a consolidated basis with our wholly owned subsidiaries to determine whether the thresholds set out in Rule 3a-1 are exceeded. As a result, we do not believe that we should be regulated as an “investment company,” as such term is defined in the 1940 Act, and we intend to conduct our operations to maintain this status. However, if we were to be deemed an investment company, restrictions imposed by the 1940 Act, including limitations on our capital structure and our ability to transact with affiliates, could have a material adverse effect on our business.

Market

We operate in the consumer finance industry serving the growing population of consumers who have limited access to credit from banks, credit card companies and other lenders.

Installment lending to non-prime consumers is one of the most highly fragmented sectors of the consumer finance industry. We are a state-licensed Internet-based personal loan company serving in the consumer installment lending industry. Our online lending platform provides the distribution network to efficiently address this growing market of consumers without the significant costs and overhead associated with an extensive branch network. We believe we are well positioned to capitalize on the significant growth and expansion opportunity created by the continued shift of consumers to online services, such as online banking and in our case online personal loans.

We are currently licensed and/or hold certificates of authority to provide loans online to residents of Alabama, Arizona, California, Florida, Georgia, Illinois, Kentucky, Louisiana, Maryland, Missouri, Nevada, New Jersey, New Mexico, Ohio, Oregon, Pennsylvania, Texas, Utah and Virginia. The following is a breakdown of our cumulative loan origination amounts in each licensed state for our current active loan portfolio as at December 31, 2018:

Business Strategy

Our business strategy is to lower the cost of providing consumer loans by leveraging our online lending platform and distribution network to enable further loan book growth and portfolio diversification. Our strategy includes a number of key elements:

On December 22, 2017, we announced that we had formed a wholly owned subsidiary to explore the legalities and economic risks and benefits of entering into a joint venture with IEC to accept repayment of customer loans in the form of existing crypto/blockchain currencies, provide the crypto equivalent of $5,000 and $10,000 loans to customers, and also potentially create and issue an IEC cryptocurrency. The company did not begin operations and was in the development planning stages. On March 14, 2018, we announced that, after considering the potential risks and benefits, we will not pursue a cryptocurrency offering or any other cryptocurrency-related ventures at this time. We will continue to monitor the developing regulatory landscape surrounding this new technology and may consider cryptocurrency opportunities in the future. In addition, we will continue to explore the potential application of blockchain technology to our core consumer lending business.

Competitive Strengths

We believe our competitive strengths are:

Products

We currently provide $5,000 and $10,000 online consumer loans unsecured over a five-year term with rates ranging from 12.0% to 29.9% annual percentage rate. Our current loan portfolio also includes loans remaining from our previous product offerings which were $2,000 to $10,000 loans unsecured over a three to five-year term at 12.0% to 29.9%.

Our personal loan products are fully amortizing, fixed rate, unsecured installment loans and all loans are offered at prevailing statutory rates, with our standard loan product being a 29.9% interest rate and annual percentage rate, fully amortizing, five-year unsecured personal loan. The variations from this standard loan product in certain states is due to individual state requirements and to comply with our state lending licenses.

The following is a breakdown of loan terms and interest rates for each currently licensed state:

The following is an illustrative profile of our personal loans:

We commenced originating personal loans online in July 2013. Prior to that, we provided loans to customers via our office network, which comprised one office in each state as required by state licensing regulations. Our online loan origination platform now means that a qualifying customer can obtain a loan from us without having to come into an office location. We have maintained our full underwriting processes, identity verifications and fraud checks to ensure that online customers are verified to the same degree that customers were when they obtained a loan in an office. We expect our website and application portal, www.mramazingloans.com , to be a key driver of customer conversions and loan book growth.

The following graphs depict our monthly loan origination values from January 2013 through December 2018 and our yearly revenue for 2013 through 2018:

The following table sets forth the minimum, maximum and average credit score, income and age of our current borrowers as of December 31, 2018:

Customer Acquisition

Since launching online lending in July 2013, our marketing efforts have been focused on online customer acquisition. We saw increases in loan applications and inquiries as a result of search engine advertising and commenced banner advertising, remarketing and search engine optimization in 2014. We commenced online video advertising in 2015. We have also engaged numerous online lead generators who provide personal loan leads on a daily basis with a combination of cost per funded loan and cost per application expense. We are continuing to develop relationships with additional lead generation partners to drive further growth. We also supplement our online marketing efforts with traditional direct mail advertising.

Additional Information Regarding Our Loan Portfolio

This section provides additional quantitative information and qualitative discussion related to our loan portfolio and related credit metrics and trends including key loan and credit metrics.

Loans Receivable Roll-Forward

The table below documents the activity in the loan receivable accounts for the period indicated. Specifically, it shows a roll-forward of our loans receivable balance, detail of new loan originations, principal reductions from cash collections and loan charge-offs. The data encompasses changes during each quarter of 2018 and also changes during the full year 2018 compared to 2017.

New loan volume slowed in 2018 compared to 2017 due to Company capital constraints and reduced advertising. However, the increased level of principal reductions from cash collections and loan charge-offs resulted in a reduction in the loans receivable balance to $4,663,363 as at December 31, 2018 compared to $6,160,881 at December 31, 2017.

The table below documents the activity in the loan receivable accounts for the period indicated. Specifically, it shows a roll-forward of our loans receivable balance, detail of new loan originations, principal reductions from cash collections and loan charge-offs. The data encompasses changes during each quarter of 2017 and also changes during the full year 2017 compared to 2016.

New loan volume slowed in the first half of 2017 due to Company capital constraints and reduced advertising. New loan volume increased in the second half of 2017 due to increased available Company capital and increased advertising. However, the increased level of principal reductions from cash collections and once-off Virginia loan principal reductions due to legal settlements resulted in a reduction in the loans receivable balance to $6,160,881 as at December 31, 2017 compared to $7,587,349 at December 31, 2016.

Portfolio Yield

The following table shows, as of December 31, 2018, the aggregate loan principal outstanding and the average portfolio yield by state. In addition, to show indicative duration of the portfolio yield, the table shows the average loan amount, average current principal outstanding and the average years to maturity of the loans in each state.

(1) Maryland was added as a licensed state in October 2016.

(2) Ohio was added as a licensed state in December 2016.

We undertook an advertising strategy during 2018 that focused on refinancing customers in the states with an average yield of 29.9% only to maximize our portfolio yield while we were capital constrained. The advertising strategy resulted in an increase in the average portfolio yield in 2018 compared to 2017.

The following table shows, as of December 31, 2017, the aggregate loan principal outstanding and the average portfolio yield by state. In addition, to show indicative duration of the portfolio yield, the table shows the average loan amount, average current principal outstanding and the average years to maturity of the loans in each state.

(1) Maryland was added as a licensed state in October 2016.

(2) Ohio was added as a licensed state in December 2016.

We undertook an advertising strategy during the first half of 2017 that focused on refinancing customers in the states with an average yield of 29.9% only to maximize our portfolio yield while we were capital constrained. In the third and fourth quarters of 2017 we focused on providing new loans to customers in the states with an average yield of 29.9% to maximize our portfolio yield. The advertising strategy resulted in an increase in the average portfolio yield in 2017 compared to 2016.

Customer Acquisition Costs

Since launching online lending in 2013, our marketing efforts have been focused on online customer acquisition. We experienced increases in loan applications and inquiries as a result of search engine advertising and commenced banner advertising, remarketing and search engine optimization in 2014. We commenced online video advertising in 2015. We have also engaged numerous online lead generators who provide personal loan leads on a daily basis with a combination of cost per funded loan and cost per application expense. We are continuing to develop relationships with additional lead generation partners to drive further growth. We also supplement our online marketing efforts with traditional direct mail advertising.

The following table shows the level of advertising cost versus the level of loan volume in 2017 and 2018 as both a dollar amount and as a percentage of loan volume for the relevant year. The advertising cost represents both general advertising/brand awareness costs as well as direct fees paid to lead generators and direct mail costs. Although it potentially overstates the direct cost of customer acquisition in a particular year it provides a guide to the general cost and trends in customer acquisition costs. In addition, the customer cost of acquisition is upfront, whereas the revenue from the customer is typically realized 5 years later and for repeat customers, even later.

In 2018 there was a substantial reduction in advertising expenses as a percentage of new loans funded in the year due to a focus on refinancing existing customers rather than targeting new customers.

Gross Charge-off Ratio and Recovery Ratio

The credit quality of our loans is driven by our underwriting criteria, which takes into account income, money management, credit history, employment history and willingness and capacity to repay the proposed loan. The profitability of our loan portfolio is directly connected to net credit losses; therefore, we closely analyze credit performance. We also monitor recovery rates because of their contribution to the reduction in the severity of our charge-offs. Additionally, because delinquencies are an early indicator of future net credit losses, we analyze delinquency trends, adjusting for seasonality, to determine whether or not our loans are performing in line with our original estimates. Because loan volume and portfolio size determine the magnitude of the impact of each of the above factors on our earnings, we also closely monitor origination volume and annual percentage rate.

The table below sets forth information regarding the gross charge-off ratio and the recovery ratio in both dollar amounts and in terms of a ratio versus outstanding loans receivable balance. The data is presented for each quarter in 2017 and 2018, for each of the full years for 2017 and 2018.

We saw a decrease in charge-off ratio in 2018 versus 2017 as we saw a decreasing trend in customer hardship and less customers utilizing external debt management services. We significantly increased our level of loss recoveries in both dollar amount and percentage of loans receivable balance due to the appointment of an external debt collection agency in July 2018, combined with a larger pool of losses to recover funds from.

Delinquency Ratio

The tables below set forth, for the period indicated, information concerning the delinquency ratio measured in buckets of days delinquent in both dollar amounts and also as a percentage of total principal.

At December 31, 2018, we had 41 loans delinquent or in default (defined as 91+ days past due), representing 4.65% of the number of loans in our active portfolio. Loans become eligible for the lender to take legal action at 60 days past due. At December 31, 2018, our delinquency percentage rate for past due loans was 8.98% (31+ days) with an allowance for loan loss at 20.00%.

At December 31, 2017, we had 86 loans delinquent or in default (defined as 91+ days past due), representing 5.32% of the number of loans in our active portfolio. Loans become eligible for the lender to take legal action at 60 days past due. At December 31, 2017, our delinquency percentage rate for past due loans was 9.26% (31+ days) with an allowance for loan loss at 20.00%.

Allowance for Credit Losses Ratio

Management exercises its judgment, based on quantitative analyses, qualitative factors, such as recent delinquency and other credit trends, and experience in the consumer finance industry, when determining the amount of the allowance for loan receivable losses. We adjust the amounts for management’s estimate of the effects of events and conditions such as changes to underwriting criteria, portfolio seasoning, and current economic conditions, including levels of unemployment, and personal bankruptcies.

The allowance for credit losses ratio (reserve level) was steady at 20% for 2017 and 20% for 2018. The net loan balance decreased from $4,928,704 at December 31, 2017 to $3,174,574 at December 31, 2018. The net loan balance at the current reserve level of 20% is $3,174,574 at December 31, 2018.

There was no change in lending policies and procedures, including changes in underwriting standards and collection, charge-off, and recovery practices not considered elsewhere in estimating credit losses in the twelve months of 2018 compared to the year ended December 31, 2017 other than the appointment of an external debt collection agency in July 2018. There were no material changes in international, national, regional, and local economic and business conditions and developments in the twelve months of 2018 compared to the year ended December 31, 2017 that affected the collectability of the portfolio, including the condition of various market segments other than increased customer hardship. During 2018 there was no significant change in the nature of the loan portfolio and was a decrease in the average size of the loan portfolio. There were no changes in the experience, ability, and depth of lending management and other relevant staff in the twelve months ended December 31, 2018 other than the termination of the Chief Operating Officer in September 2018. There was a decrease in the volume and severity of past due loans and the volume of non-accrual loans due to a smaller loan portfolio for the twelve months ended December 31, 2018, as compared to the year ended December 31, 2017. No changes were made to the quality of our loan review system in the twelve months ended December 2018. There was no significant effect of other external factors such as competition and legal and regulatory requirements on the level of estimated credit losses in our loan portfolio in the twelve months ended December 31, 2018.

The following table shows, as of December 31, 2017, the aggregate principal amount of loans by maturity date.

All loans are written with a fixed 5-year term (closed end) with no exceptions, providing an affordable repayment either weekly or monthly. However, loans can be repaid early without any penalty. As the tables above show, the Company has a substantial long duration loan book with over 75% of current loans maturing in more than two years’ time and the majority mature in the 3 to 5 year range, which is expected to continue in the future.

Loan Underwriting

Applicants apply online providing income, employment and banking information in the pre-approval process. The pre-approval process utilizes a soft credit pull, electronic review of 60-90 day banking history and if the applicant successfully meets the minimum pre-approval criteria they are invited to proceed. Upon accepting the conditional pre-approval, the applicant authorizes a full credit report from Experian and verification of employment. Applicants are provided disclosures and privacy statements during this process.

Once the application has been transmitted, a full credit report is obtained and the automated preliminary underwriting is completed based on stated income and expense data obtained from the credit report. The automated preliminary underwriting includes, but is not limited to, credit score, number of credit inquiries, outstanding unpaid collections, length of credit history, length of employment, debt to income ratio and internet protocol, or “IP,” address to verify location of applicant.

The second step in the underwriting process for those applicants that are conditionally approved based on stated income, credit score, number of credit inquires, outstanding unpaid collections, length of credit history and length of employments, debt to income ratio, IP address, is to validate the actual income (current pay invoices and prior year W-2) and a review of the 60-90 day read-only statements from the applicant’s primary bank for satisfactory money management. During this process the pay invoices are reviewed for garnishments, hardship loans and other legal liens allowed on wages. Bank statements are transmitted electronically directly to underwriting to ensure the integrity of the information. This process allows the underwriter to review the money management of every applicant and to assess the ability to take on additional expense. It also provides the underwriter with additional debt not found on traditional credit reports such as payday loans, title loans and IRS payments that could affect the ability of the applicant to assume additional debt. If all conditions are met as it relates to money management, maximum debt to income, minimum length of employment, and satisfactory credit history the underwriter recommends final approval and request to draw documents.

The final step in the underwriting process is to present the completed file to the Chief Credit Officer for final approval and order to draw documents. The file is then reviewed for any exceptions to policy, compliance with the underwriting policies and to ensure the loan system is reflective of what has been presented by the underwriter. The applicant is then approved for a $5,000 or $10,000 loan based on income, ability to repay and credit strength. Rate and loan terms are fixed (fixed rate and fixed term can vary based on regulatory state maximums) as we do not utilize risk based variable pricing models eliminating the risk of discrimination and other compliance related issues.

The closing process is completed by contacting the applicant, communicating the lending decision and reviewing loan terms and conditions. Upon acceptance an identity check using Experian’s Precise Identity Screening is completed and if successful loan documents are emailed for electronic signature, and returned to us for final verifications, document review and funding.

Servicing

All of our loan servicing is handled in our centralized Las Vegas head office. All servicing and collection activity is conducted and documented using an industry standard loan service software system which handles and records all records and transactions of loan originations, loan servicing, collections and reporting. In addition we began using use a third party debt collection agency for 60 day+ delinquent loan accounts in July 2018.

Our primary third-party servicing arrangement is with CyberRidge, LLC, a company that licenses its consumer loan software to us. We use this software for our loan management system. We have a servicing agreement with CyberRidge, LLC which renews automatically unless either party notifies the other, at least 60 days prior to the end of the renewal term. We believe the risk of termination is low as we are a paying customer of CyberRidge, LLC and have maintained a positive working relationship since 2012. In the unlikely event that the agreement was terminated, we believe 60 days’ notice would be sufficient to find a suitable replacement with minimal disruption to our business.

At December 31, 2018 we also had 41 loans delinquent or in default (defined as 91+ days past due) representing 4.65% of the number of loans in our active portfolio. Loans become eligible for lender to take legal action at 60 days past due.

Cryptocurrency/Blockchain

On December 22, 2017, we announced that we had formed a wholly owned subsidiary to explore the legalities and economic risks and benefits of entering into a joint venture with IEC to accept repayment of customer loans in the form of existing crypto/blockchain currencies, provide the crypto equivalent of $5,000 and $10,000 loans to customers, and also potentially create and issue an IEC cryptocurrency. The company did not begin operations and was in the development planning stages. On March 14, 2018, we announced that, after considering the potential risks and benefits, we will not pursue a cryptocurrency offering or any other cryptocurrency-related ventures at this time. We will continue to monitor the developing regulatory landscape surrounding this new technology and may consider cryptocurrency opportunities in the future. In addition, we will continue to explore the potential application of blockchain technology to our core consumer lending business.

Regulation

Consumer loans in the United States are regulated at both the federal and state level. National oversight is provided by the Federal Trade Commission, which enforces the following credit laws that protect consumers’ rights to get, use and maintain credit:

In addition, the CFPB, a federal oversight body organized in connection with the Dodd-Frank Act has broad authority over our business. The CFPB is a new agency which commenced operations in 2011, and there continues to be uncertainty as to how the agency’s actions or the actions of any other new agency could impact our business or that of our issuing banks. The CFPB has the authority to write regulations under federal consumer financial protection laws, such as the Truth in Lending Act and the Equal Credit Opportunity Act, and to enforce those laws against and examine financial institutions for compliance. The CFPB is authorized to prevent “unfair, deceptive or abusive acts or practices” through its regulatory, supervisory and enforcement authority. To assist in its enforcement, the CFPB maintains an online complaint system that allows consumers to log complaints with respect to various consumer finance products, including the loan products we facilitate. This system could inform future CFPB decisions with respect to its regulatory, enforcement or examination focus.

We are subject to the CFPB’s jurisdiction, including its enforcement authority, as a servicer and acquirer of consumer credit. The CFPB may request reports concerning our organization, business conduct, markets and activities. The CFPB may also conduct on-site examinations of our business on a periodic basis if the CFPB were to determine, through its complaint system, that we were engaging in activities that pose risks to consumers.

There continues to be uncertainty as to how the CFPB’s strategies and priorities, including in both its examination and enforcement processes, will impact our businesses and our results of operations going forward. Actions by the CFPB could result in requirements to alter or cease offering affected loan products and services, making them less attractive and restricting our ability to offer them.

Consumer loans are also regulated at the state level, and the regulatory requirements vary between states. We are licensed in the following states:

State licensing statutes impose a variety of requirements and restrictions on us, including:

The statutes also subject us to the supervisory and examination authority of state regulators in certain cases.

We did not incur any costs in connection with the compliance with any federal, state, or local environmental laws.

Competition

We operate in a highly competitive environment. Several personal consumer loan companies operate in the United States. Our competitors include:

We believe we compete based on affordable repayment terms, favorable interest rates and low overhead due to on-line distribution. We believe that in the future we will face increased competition from these companies as we expand our operations. Most of the entities against which we compete, or may compete, are larger and have greater financial resources than us. No assurance can be given that increased competition will not have an adverse effect on our company.

Office Location

Our executive office, which also serves as our centralized operational headquarters and Nevada branch, is located at 3960 Howard Hughes Parkway, Suite 490, Las Vegas, Nevada 89169. This facility occupies a total of approximately 1,906 square feet under a lease that expires on September 30, 2020. Our annual rental cost for this facility is approximately $69,531, plus a proportionate share of operating expenses which are expected to be minimal as the space is 1.32% of the total building rentable space. We believe this facility is adequate for our current and near term future needs due to our online strategy and our ability to operate 7 days a week with unrestricted hours of operation from this location.

Employees

As of March 28, 2019, we had three full-time employees. None of our employees is represented by a union. We consider our relations with our employees to be good.

Corporate History

We were organized as a Florida corporation on January 21, 1999, under the name Interact Technologies, Inc. (“Interact”). Interact was formed for the purpose of acquiring certain medical technology. On February 18, 1999, we changed our name to Fairhaven Technologies, Inc. (“Fairhaven”). Fairhaven’s business plan continued to involve the acquisition of certain medical technology. By June 1999, Fairhaven abandoned its business plan and had no operations until December 2001. On December 14, 2001, we changed our name to Ideal Accents, Inc. Ideal Accents, Inc. was engaged primarily in the business of accessorizing cars and trucks at the new vehicle dealer level. Ideal Accents, Inc. ceased operations in 2005. IEC, our wholly owned subsidiary, commenced operations in 2010 and in February 2013, we changed our name to IEG Holdings Corporation. In April 2018, we changed our name to Mr. Amazing Loans Corporation.

In 2005, Mr. Mathieson, our Chief Executive Officer and sole director, founded IEG in Sydney, Australia. IEG launched the Amazing Loans business in Australia in 2005 and the Mr. Amazing Loans business in the United States via IEGC in 2010. From 2005 until 2012, Mr. Mathieson operated the Amazing Loans business through IEG in Australia. In 2012 following an extensive cost/benefit analysis, IEG’s management made a strategic decision to focus on its U.S. operations and cease its Australian operations. Management concluded that it should cease Australian operations due to the following:

Accordingly, IEG ceased doing business in Australia in 2012.

On January 28, 2013, IEGC entered into a stock exchange agreement (the “Stock Exchange Agreement”) among IEGC, its sole stockholder, IEG, and our company. Under the terms of the Stock Exchange Agreement, we agreed to acquire a 100% interest in IEGC for 272,447 shares of our common stock after giving effect to a 1-for-6 reverse stock split (also adjusted for the 1-for-100 reverse stock split that took effect June 17, 2015 and the net 1-for-10 reverse stock split that was effective on October 27, 2016). On February 14, 2013, we filed an amendment to our articles of incorporation, as amended, with the Secretary of State of Florida which had the effect of:

FINRA approved the amendment to our articles of incorporation, as amended, on March 11, 2013.

On March 13, 2013, we completed the acquisition of IEGC under the terms of the Stock Exchange Agreement and issued to IEG 272,447 shares of our common stock after giving effect to the Reverse Stock Split whereby we acquired a 100% interest in IEGC. The stock exchange agreement between IEGC, IEG and IEG Holdings resulted in a reverse acquisition with a public shell, with IEGC being the accounting acquirer. IEG Holdings issued 90 shares of its common stock to the stockholders of IEG (IEG transferred its ownership in IEGC to its stockholders, which is why the shares were issued to the ultimate stockholders of IEG rather than to IEG itself) for each share of IEGC, in exchange for 100% ownership interest in IEGC. We determined that IEGC was the accounting acquirer because of the following facts and circumstances:

After completing the Stock Exchange Agreement and terminating all Australian operations via the sale of the remaining loan book, IEG entered into voluntary liquidation on June 25, 2014. In August 2015, IEGC assigned all of its tangible and intangible assets to IEG Holdings and IEGC was dissolved.

On May 1, 2015, we filed articles of amendment to our amended and restated articles of incorporation, as amended, with the Secretary of State of Florida. The amendment was approved by FINRA, and became effective, on June 17, 2015. The articles of amendment effected (i) a 1-for-100 reverse stock split, and (ii) an increase in our authorized capital stock from 2,550,000,000 shares to 3,050,000,000 shares, of which 3,000,000,000 shares are common stock and 50,000,000 are preferred stock.

On September 10, 2015, we filed articles of amendment to our amended and restated articles of incorporation, as amended, with the Secretary of State of Florida. The articles of amendment had the effect, among other things, of adjusting the conversion ratio of the Series H preferred stock, from 1,333/100,000 (0.01333) to 2,666/100,000 (0.02666) shares of common stock for each Series H preferred share, to account for the Company’s offering to existing stockholders of the Company commenced August 3, 2015.

On December 1, 2015, we filed articles of amendment to our amended and restated articles of incorporation, as amended, with the Secretary of State of Florida. The articles of amendment had the effect, among other things, of adjusting the conversion ratio of the Series H preferred stock, from 2,666/100,000 (0.02666) to 5,332/100,000 (0.05332) shares of common stock for each Series H preferred share, to account for the Company’s offering to existing stockholders of the Company commenced December 1, 2015.

On January 8, 2016, we filed articles of amendment to our amended and restated articles of incorporation, as amended, with the Secretary of State of Florida. The articles of amendment had the effect, among other things, of adjusting the conversion ratio of the Series H preferred stock, from 5,332/100,000 (0.05332) to 0.1 shares of common stock for each Series H preferred share, to account for the Company’s offering to existing stockholders of the Company commenced January 8, 2016.

On March 22, 2016, we filed articles of amendment to our amended and restated articles of incorporation, as amended. The amendment had the effect, among other things, of adjusting the conversion ratio of the Series H preferred stock from 0.1 shares to 0.2 shares of common stock for each Series H preferred share, to account for our offering to existing stockholders commenced March 16, 2016.

Effective April 1, 2016, we amended our amended and restated articles of incorporation, as amended, in order to effect a 1-for-100 reverse stock split. No fractional shares were issued. Rather, we paid stockholders who would have received a fractional share an amount equal to the average closing price per share of our common stock on the OTCQB, averaged over the period of 30 consecutive calendar days ending on (and including) April 1, 2016. In April 2016, we purchased 1,793 shares of the common stock of IEG Holdings in exchange for an aggregate purchase price of $130,769, equivalent to $72.93 per share. As a result, there was a reduction in the number of record holders with 676 record holders of the Company receiving cash in exchange for their shares of IEG Holdings in connection with this forward stock split and reverse stock split transaction. In addition, after the reverse stock split was effected on April 1, 2016, we amended our amended and restated articles of incorporation, as amended, to effect (i) a 100-for-1 forward stock split, and (ii) a reduction in the number of authorized shares of common stock from 3 billion to 200 million.

On May 16, 2016, we filed articles of amendment to our amended and restated articles of incorporation, as amended, with the Secretary of State of Florida. The articles of amendment had the effect, among other things, of:

On October 12, 2016, we filed articles of amendment to our amended and restated articles of incorporation, as amended, with the Secretary of State of Florida. The articles of amendment had the effect of:

Effective October 27, 2016, we effected a reverse stock split of our outstanding shares of common stock, at the ratio of 1-for-1,000. No fractional shares were issued. Rather, we paid stockholders who would have received a fractional share an amount equal to the average closing price per share of our common stock on the OTCQX, averaged over the period of 30 consecutive calendar days preceding the reverse stock split. We purchased 11,391 shares of IEG Holdings common stock in exchange for an aggregate purchase price of $71,504 equivalent to $6.28 per share. As a result, there was a reduction in the number of record holders with 309 record holders of the Company receiving cash in exchange for their IEG Holdings shares in connection with this reverse stock split and forward stock split transaction. Immediately following the completion of the reverse stock split, we effected a forward stock split of our common stock on a 100-for-1 share basis and a reduction of the number of authorized shares of common stock from 200,000,000 to 40,000,000.

Effective December 5, 2016, we increased our number of authorized shares of common stock from 40,000,000 to 300,000,000.

On June 20, 2017, we filed articles of amendment (the “June 20 Amendment”) to our amended and restated articles of incorporation, as amended. The June 20 Amendment has the effect of revising the terms of the Series H preferred stock to:

In addition, on July 26, 2017, we filed articles of amended (the “July 26 Amendment”) to our articles that had the effect of further revising the terms of the Series H preferred stock to increase the conversion ratio of the Series H preferred stock from one share of our common stock per share of Series H preferred stock to four shares of our common stock per share of Series H preferred stock.

The Amendment was approved by the Company’s board of directors on June 19, 2017 and July 26, 2017, respectively.

On October 30, 2017, the Company completed a private placement of 934,589 shares of the Series H Preferred Stock to four non-U.S. persons. The Company received an aggregate purchase price of $934,589 for the sale of the shares of Series H Preferred Stock and intends to use the proceeds from that sale to expand its operations, including through increased advertising designed to increase the amount and number of loans entered into with customers and to fund operations of the Company. The issuance of shares of Series H Preferred Stock was exempt from the registration requirements of the Securities Act in reliance upon Regulation S promulgated pursuant to the Securities Act.

On December 15, 2017, the Company completed a private placement of 305,000 shares of Series H Preferred Stock to three non-U.S. persons. The Company received an aggregate purchase price of $305,000 for the sale of the shares of Series H Preferred Stock and intends to use the proceeds from that sale to expand its operations, including through increased advertising designed to increase the amount and number of loans entered into with customers and to fund operations of the Company. The issuance of shares of Series H Preferred Stock was exempt from the registration requirements of the Securities Act in reliance upon Regulation S promulgated pursuant to the Securities Act.

On December 28, 2017, the Company completed a private placement of 52,500 shares of Series H Preferred Stock to two non-U.S. persons. The Company received an aggregate purchase price of $52,500 for the sale of the shares of Series H Preferred Stock and intends to use the proceeds from that sale to expand its operations, including through increased advertising designed to increase the amount and number of loans entered into with customers and to fund operations of the Company. The issuance of shares of Series H Preferred Stock was exempt from the registration requirements of the Securities Act in reliance upon Regulation S promulgated pursuant to the Securities Act.

On December 31, 2017, the holders of an aggregate of 1,292,089 shares of Series H preferred stock, representing all of the outstanding Series H Preferred Shares, pursuant to the terms of the Series H Preferred Shares, converted their shares of Series H Preferred Shares, effective December 31, 2017. In accordance with the terms of the Series H Preferred Shares, upon the conversion of such Series H Preferred Shares, the Company issued to the converting holders of Series H Preferred Shares an aggregate of 5,168,356 shares of the Company’s common stock. As a result of the conversion, no Series H Preferred Shares are outstanding. In addition, as a result of the conversion and subsequent issuance of common stock, 17,463,449 shares of the Company’s common stock were issued and outstanding.