UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

 

FORM 10-Q

 

(Mark One)

 

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

 

For the quarterly period ended March 31, 2019

 

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

 

For the transition period from _____________ to _____________

 

Commission File Number: 000-55463

 

MR. AMAZING LOANS CORPORATION

(Exact Name of Registrant as Specified in Its Charter)

 

Florida   90-1069184

(State or Other Jurisdiction of

Incorporation or Organization)

 

(I.R.S. Employer

Identification No.)

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

 

(702) 227-5626

(Registrant’s Telephone Number, Including Area Code)

 

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

 

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

 

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

 

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

 

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

 

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

 

As of April 16, 2019, there were 17,226,283 shares of the registrant’s common stock, par value $0.001 per share, outstanding.

 

 

 

   
 

 

MR. AMAZING LOANS CORPORATION

 

INDEX

 

  Page
   
PART I - FINANCIAL INFORMATION  
   
Item 1. Financial Statements 4  
     
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations 18  
     
Item 3. Quantitative and Qualitative Disclosures About Market Risk 23  
     
Item 4. Controls and Procedures 23  
   
PART II - OTHER INFORMATION  
   
Item 1. Legal Proceedings 24  
     
Item 1A. Risk Factors 24 
     
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds 24  
     
Item 3. Defaults Upon Senior Securities 24 
     
Item 4. Mine Safety Disclosures 24 
     
Item 5. Other Information 24 
     
Item 6. Exhibits 24 
     
Signatures 25  

 

  2  
 

 

FORWARD-LOOKING STATEMENTS

 

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

 

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

 

When considering these forward-looking statements, you should keep in mind the cautionary statements in this quarterly report on Form 10-Q in our other filings with the Securities and Exchange Commission (the “SEC”), including the more detailed discussion of these factors and other factors that could affect our results included in the “Risk Factors” section in our annual report on Form 10-K for the fiscal year ended December 31, 2018, as filed with the SEC, as the same may be updated from time to time in documents that we file with the SEC. As a result of these factors, we cannot assure you that the forward-looking statements in this quarterly report on Form 10-Q will prove to be accurate. Furthermore, if our forward-looking statements prove to be inaccurate, the inaccuracy may prove to be material. In light of the significant uncertainties in these forward-looking statements, you should not regard these statements as a representation or warranty by us or any other person that we will achieve our objectives and plans in any specified time-frame, or at all.

 

  3  
 

 

PART I - FINANCIAL INFORMATION

 

Item 1. Financial Statements

 

MR. AMAZING LOANS CORPORATION

CONDENSED CONSOLIDATED BALANCE SHEETS

MARCH 31, 2019 AND DECEMBER 31, 2018

 

    March 31, 2019     December 31, 2018  
    (Unaudited)     (Audited)  
             
ASSETS                
Cash and cash equivalents   $ 341,374     $ 365,934  
Loans receivable, net, note 2     2,740,808       3,174,574  
Other receivables     54,039       67,994  
Prepaid expenses     7,323       15,252  
Property and equipment, net, note 3     6,621       7,854  
Security deposits     11,234       11,234  
                 
TOTAL ASSETS   $ 3,161,399     $ 3,642,842  
                 
LIABILITIES AND STOCKHOLDERS’ EQUITY                
                 
LIABILITIES                
Accounts payable and accrued expenses   $ 101,126     $ 2,387  
                 
TOTAL LIABILITIES   $ 101,126     $ 2,387  
                 
COMMITMENTS AND CONTINGENCIES, note 7                
                 
STOCKHOLDERS’ EQUITY                
               
Preferred stock, $0.001 par value; 50,000,000 shares authorized, 360,000 and 360,000 shares issued and outstanding at March 31, 2019 and December 31, 2018, respectively, note 5     360       360  
Common stock, $0.001 par value; 300,000,000 shares authorized, 17,226,283 and 17,226,283 shares issued and outstanding at March 31, 2019 and December 31, 2018, respectively, note 5     2,240,694       2,240,694  
Additional paid-in capital     34,378,814       34,378,814  
Accumulated deficit     (33,559,595 )     (32,979,413 )
                 
TOTAL STOCKHOLDERS’ EQUITY     3,060,273       3,640,455  
                 
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY   $ 3,161,399     $ 3,642,842  

 

See notes to condensed consolidated unaudited Financial Statements

 

  4  
 

 

MR. AMAZING LOANS CORPORATION

CONDENSED CONSOLIDATED UNAUDITED STATEMENTS OF OPERATIONS AND
COMPREHENSIVE INCOME

FOR THE THREE MONTHS ENDED MARCH 31, 2019 AND 2018

 

    March 31, 2019     March 31, 2018  
REVENUES            
Interest revenue   $ 226,207     $ 381,548  
Other revenue     26,413       12,794  
                 
TOTAL REVENUES     252,620       394,342  
                 
OPERATING EXPENSES                
Salaries and compensation     338,517       412,099  
Other operating expenses     110,685       146,287  
Provision for credit losses     112,330       204,668  
Advertising     900       1,240  
Rent     17,566       17,988  
Public company and corporate finance expenses     251,571       654,089  
Depreciation and amortization     1,233       1,425  
                 
TOTAL OPERATING EXPENSES     832,802       1,437,796  
                 
LOSS FROM OPERATIONS     (580,182 )     (1,043,454 )
                 
OTHER INCOME (EXPENSE)                
Loss on sale of marketable securities     -       (194 )
Miscellaneous income     -       63  
                 
TOTAL OTHER INCOME (EXPENSE)     -       (131 )
                 
NET LOSS   $ (580,182 )   $ (1,043,585 )
                 
Net loss attributable to common stockholders     (580,182 )     (1,043,585 )
                 
CONDENSED STATEMENT OF COMPREHENSIVE INCOME (LOSS)                
Unrealized loss on marketable securities     -       (194 )
Less: Reclassified adjustment for losses included in net loss     -       194  
Comprehensive loss attributable to common stockholders     (580,182 )     (1,043,585 )
                 
Net loss attributable to common stock per share, basic and diluted   $ (0.03 )   $ (0.06 )
                 
Weighted average number of common shares outstanding, basic and diluted     17,226,283       17,463,449  

 

See notes to condensed consolidated unaudited Financial Statements

 

  5  
 

 

MR. AMAZING LOANS CORPORATION

CONDENSED CONSOLIDATED UNAUDITED STATEMENT OF STOCKHOLDERS’ EQUITY

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

 

                                        Accumulated        
                Series H     Additional           Other        
    Common Stock     Preferred Stock     Paid-in     Accumulated     Comprehensive        
    Shares     Amount     Shares     Amount     Capital     Deficit     Income     Total  
                                                 
Balance, January 1, 2018     17,463,449     $ 2,240,931       -     $ -     $ 34,074,976     $ (30,616,038 )   $ -     $ 5,699,869  
                                                                 
Unrealized loss on marketable securities                                                     (194 )     (194 )
                                                                 
Reclassified adjustment for loss on marketable securities to net loss                                                     194       194  
                                                                 
Net loss     -       -       -       -       -       (1,043,585 )     -       (1,043,585 )
                                                                 
Balance, March 31, 2018     17,463,449     $ 2,240,931       -     $ -     $ 34,074,976     $ (31,659,623 )   $ -     $ 4,656,284  

 

MR. AMAZING LOANS CORPORATION

CONDENSED CONSOLIDATED UNAUDITED STATEMENT OF STOCKHOLDERS’ EQUITY

FOR THE PERIOD FROM JANUARY 1, 2019 THROUGH MARCH 31, 2019

 

                                        Accumulated        
                Series H     Additional           Other        
    Common Stock     Preferred Stock     Paid-in     Accumulated     Comprehensive        
    Shares     Amount     Shares     Amount     Capital     Deficit     Income     Total  
                                                                 
Balance, January 1, 2019     17,226,283     $ 2,240,694       360,000     $ 360     $ 34,378,814     $ (32,979,413 )   $ -     $ 3,640,455  
                                                                 
Net loss     -       -       -       -       -       (580,182 )     -       (580,182 )
                                                                 
Balance, March 31, 2019     17,226,283     $ 2,240,694       360,000     $ 360     $ 34,378,814     $ (33,559,595 )   $ -     $ 3,060,273  

 

See notes to condensed consolidated unaudited Financial Statements

 

  6  
 

 

MR. AMAZING LOANS CORPORATION

CONDENSED CONSOLIDATED UNAUDITED STATEMENTS OF CASH FLOWS

FOR THE THREE MONTHS ENDED MARCH 31, 2019 AND 2018

 

    March 31, 2019     March 31, 2018  
CASH FLOWS FROM OPERATING ACTIVITIES:                
Net loss   $ (580,182 )   $ (1,043,585 )
Adjustments to reconcile net loss to net cash used in operating activities:                
Provision for credit losses     112,330       204,668  
Depreciation and amortization     1,233       1,425  
Loss on marketable securities sold     -       194  
Changes in assets - (increase) decrease:                
Other receivables     13,955       21,792  
Prepaid expenses     7,929       12,051  
Changes in liabilities - increase (decrease):                
Accounts payable and accrued expenses     98,739       276,751  
Loans receivable originated     (75,000 )     (290,000 )
Loans receivable repaid     396,436       473,799  
                 
NET CASH USED IN OPERATING ACTIVITIES     (24,560 )     (342,905 )
                 
CASH FLOWS FROM INVESTING ACTIVITIES:                
Purchase of marketable securities     -       (2,092 )
Sale of marketable securities     -       1,898  
                 
NET CASH USED IN INVESTING ACTIVITIES     -       (194 )
                 
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS     (24,560 )     (343,099 )
                 
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR     365,934       704,006  
                 
CASH AND CASH EQUIVALENTS, END OF YEAR   $ 341,374     $ 360,907  
                 
Supplemental disclosures:                
Interest paid in cash   $ -     $ -  
Income taxes paid in cash   $ -     $ -  

 

See notes to condensed consolidated unaudited Financial Statements

 

  7  
 

 

MR. AMAZING LOANS CORPORATION

NOTES TO CONDENSED CONSOLIDATED UNAUDITED FINANCIAL STATEMENTS

MARCH 31, 2019

 

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

 

General

 

The quarterly report on Form 10-Q for the quarter ended March 31, 2019 should be read in conjunction with the financial statements for the year ended December 31, 2018 for Mr. Amazing Loans Corporation (the “Company,” “we,” “our,” or “us”), contained in the Company’s annual report on Form 10-K for the fiscal year ended December 31, 2018 as filed with the Securities and Exchange Commission (the “SEC”) on April 1, 2019. 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 U.S. generally accepted accounting principles (“GAAP”). The interim financial data are unaudited, however, in the Company’s opinion, the interim data includes all adjustments, consisting of only normal recurring adjustments, necessary for a fair statement of results for the interim periods. Results of interim periods are not necessarily indicative of those to be expected for the full year.

 

Nature of Business

 

The principal business activity of the Company is providing unsecured online consumer loans under the brand name “Mr. Amazing Loans” via the Company’s website and online application portal at www.mramazingloans.com. The Company started its business and opened its first office in Las Vegas, Nevada in 2010. The Company currently offers $5,000 and $10,000 unsecured consumer loans that mature, unless prepaid, five years from the date they are issued. The Company is a direct lender with state licenses and/or certificates of authority in 19 states – Alabama, Arizona, California, Florida, Georgia, Illinois, Kentucky, Louisiana, Maryland, Missouri, Nevada, New Jersey, New Mexico, Ohio, Oregon, Pennsylvania, Texas, Utah and Virginia. The Company originates direct consumer loans to residents of these states through its online application portal, with all loans originated, processed and serviced out of its centralized Las Vegas head office. In addition, on March 19, 2018 the Company formed a wholly-owned subsidiary, MRAL Blockchain, LLC (“MRAL Blockchain”), to explore the potential application of blockchain technology to our core consumer lending business.

 

Basis of Accounting

 

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

 

The Company’s accounting and reporting policies are in accordance with generally accepted accounting principles of the United States (“GAAP”) and conform to industry standards within the consumer finance industry.

 

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

 

Liquidity

 

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

 

  (i) the Company has reported recurring losses, and
  (ii) the Company has not yet generated positive net cash flows from operations.

 

Management has evaluated their plans for the next 12 months and as a result of the plans, the Company believes that it can meet all its obligations at least through April 2020. Management has been utilizing the cash flow from loan repayments for working capital needs and plans to continue to do so, until funding under our new loan facility from a related party is received. See Note 5 for details. This will provide sufficient cash flow through at least April 2020. 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.

 

  8  
 

 

MR. AMAZING LOANS CORPORATION

NOTES TO CONDENSED CONSOLIDATED UNAUDITED FINANCIAL STATEMENTS

MARCH 31, 2019

 

Use of Estimates

 

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

 

Cash and Cash Equivalents

 

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

 

Loans Receivable and Interest Income

 

The Company offers its loans at or below the prevailing state interest rate limits 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, 2019, 40 loans, with a total balance of $179,973, were delinquent or in default.

 

Allowance for Credit Losses

 

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

 

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

 

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

 

Impaired Loans

 

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

 

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

 

Property and Equipment

 

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

 

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

 

  9  
 

 

MR. AMAZING LOANS CORPORATION

NOTES TO CONDENSED CONSOLIDATED UNAUDITED FINANCIAL STATEMENTS

MARCH 31, 2019

 

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

 

Operating Lease

 

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

 

Income Taxes

 

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

 

Earnings and Loss per Share

 

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

 

Fair Value of Financial Instruments

 

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

 

● Level I – Inputs are unadjusted, quoted prices for identical assets or liabilities in active markets at the measurement date.

 

● Level II – Inputs, other than quoted prices included in Level I that are observable for the asset or liability through corroboration with market data at the measurement date.

 

● Level III – Unobservable inputs that reflect management’s best estimate of what market participants would use in pricing the asset or liability at the measurement date.

 

The following table summarizes fair value measurements by level at March 31, 2019 for assets and liabilities measured at fair value on a recurring basis:

 

    Level I     Level II     Level III     Total  
Cash   $ 341,374       -       -     $ 341,374  
Loans receivable, net   $ -       -       2,740,808     $ 2,740,808  

 

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

 

    Level I     Level II     Level III     Total  
Cash   $ 365,934       -       -     $ 365,934  
Loans receivable, net   $ -       -       3,174,574     $ 3,174,574  

 

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.

 

  10  
 

 

MR. AMAZING LOANS CORPORATION

NOTES TO CONDENSED CONSOLIDATED UNAUDITED FINANCIAL STATEMENTS

MARCH 31, 2019

 

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

 

Marketable Securities

 

On January 2, 2018, we purchased 500 shares of the common stock of Lending Club Corporation (“Lending Club”) for $2,092. The security was classified as available-for-sale and had an unrealized loss of $194 prior to the sale. On March 19, 2018, we sold 500 shares of Lending Club’s common stock for $1,898. At March 31, 2019 the marketable securities balance was $0.

 

Loss on Sale of Marketable Securities

 

The Company sold securities classified as available for sale for net proceeds of $1,898 resulting in a loss on sale totaling $194 during the year ended December 31, 2018.

 

Legal Settlement and Related Fees

 

From time to time, the Company may be involved in legal proceedings in the normal course of its business. The Company is not involved in any material legal proceedings at the present time.

 

Other Comprehensive Income

 

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

 

Recent Accounting Pronouncements

 

Recently Issued or Newly Adopted Accounting Standards

 

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

 

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

 

In January 2016, the FASB issued ASU 2016-01, Financial Instruments – Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities. The update intends to enhance the reporting model for financial instruments to provide users of financial statements with more decision-useful information and addresses certain aspects of the recognition, measurement, presentation, and disclosure of financial instruments. The new standard affects all entities that hold financial assets or owe financial liabilities. For public business entities, the amendments in this update are effective for fiscal years beginning after December 15, 2017, including interim periods within those fiscal years. Adoption of these changes had no material impact on the consolidated financial statements.

 

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MR. AMAZING LOANS CORPORATION

NOTES TO CONDENSED CONSOLIDATED UNAUDITED FINANCIAL STATEMENTS

MARCH 31, 2019

 

In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842), which supersedes existing guidance on accounting for leases in “Leases (Topic 840)” and generally requires all leases to be recognized in the consolidated balance sheet. ASU 2016-02 is effective for annual and interim reporting periods beginning after December 15, 2018; early adoption is permitted. The provisions of ASU 2016-02 are to be applied using a modified retrospective approach. Adoption of these changes had no material impact on the consolidated financial statements.

 

In July 2018, the FASB issued ASU No. 2018-10, Codification Improvements to Topic 842, Leases . The amendments in this Update affect the amendments in Update 2016-02, which are not yet effective, but for which early adoption upon issuance is permitted. For entities that early adopted Topic 842, the amendments are effective upon issuance of this Update, and the transition requirements are the same as those in Topic 842. For entities that have not adopted Topic 842, the effective date and transition requirements will be the same as the effective date and transition requirements in Topic 842. Adoption of these changes had no material impact on the consolidated financial statements.

 

2. LOANS RECEIVABLE

 

Loans receivable consisted of the following at March 31, 2019 and December 31, 2018:

 

    March 31, 2019     December 31, 2018  
Loans receivable   $ 3,426,010     $ 3,968,217  
Allowance for credit losses   $ (685,202 )   $ (793,643 )
Loans receivable, net   $ 2,740,808     $ 3,174,574  

 

A reconciliation of the allowance for credit losses consist of the following at March 31, 2019 and December 31, 2018:

 

    March 31, 2019     December 31, 2018  
Beginning balance, January 1   $ 793,643     $ 1,232,177  
Provision for credit losses   $ 112,330     $ 556,759  
Loans charged off   $ (220,771 )   $ (995,293 )
Ending balance   $ 685,202     $ 793,643  
Basis of assessment:                
Collectively   $ 685,202     $ 793,643  

 

The following is an age analysis of past due receivables as of March 31, 2019 and December 31, 2018:

 

    31-60 Days Past Due     61-90 Days Past Due     Greater than 90 Days     Total Past Due     Current     Total Financing Receivables  
March 31, 2019   $ 100,239     $ 91,666     $ 179,973     $ 371,878     $ 3,054,132     $ 3,426,010  
December 31, 2018   $ 91,953     $ 80,235     $ 184,288     $ 356,476     $ 3,611,741     $ 3,968,217  

 

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

 

The following is a breakdown of our cumulative loan origination amounts in each licensed state for our current active loan portfolio as at March 31, 2019:

 

State   Origination
Volume ($) 		    Current
Principal ($) 		    Number of
Loans 		 
Alabama     80,000       56,650       15  
Arizona     278,000       110,292       46  
California     980,000       749,351       166  
Florida     693,000       275,598       126  
Georgia     562,004       256,367       103  
Illinois     761,000       427,814       141  
Kentucky     65,000       52,676       11  
Louisiana     35,000       31,695       5  
Maryland     15,000       12,296       3  
Missouri     251,000       165,710       41  
Nevada     631,000       391,486       111  
New Jersey     687,000       347,296       123  
New Mexico     30,000       21,781       5  
Ohio     0       0       0  
Oregon     145,000       91,465       27  
Pennsylvania     505,000       244,347       90  
Texas     350,000       146,071       55  
Utah     35,000       22,905       6  
Virginia     105,000       22,031       18  

 

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MR. AMAZING LOANS CORPORATION

NOTES TO CONDENSED CONSOLIDATED UNAUDITED FINANCIAL STATEMENTS

MARCH 31, 2019

 

The following is a summary of the loan receivable balance as of March 31, 2019 and December 31, 2018 by credit quality indicator:

 

Credit Score   March 31, 2019     December 31, 2018  
550-575   $ 1,563     $ 1,808  
576-600   $ 36,618     $ 48,816  
601-650   $ 1,666,269     $ 1,930,447  
651-700   $ 1,305,854     $ 1,508,453  
701-750   $ 290,294     $ 330,448  
751-800   $ 88,990     $ 101,695  
801-850   $ 25,709     $ 35,382  
851-900   $ 10,713     $ 11,167  
    $ 3,426,010     $ 3,968,216  

 

3. PROPERTY AND EQUIPMENT

 

At March 31, 2019 and December 31, 2018, property and equipment consisted of the following:

 

    March 31, 2019     December 31, 2018  
Computer equipment   $ 99,556     $ 99,556  
Furniture and fixtures     21,303       21,303  
Leasehold improvements     2,000       2,000  
    $ 122,859     $ 122,859  
Less accumulated depreciation and amortization     116,238       115,005  
Total   $ 6,621     $ 7,854  

 

Depreciation of property and equipment amounted to $1,233 and $1,425 during the three months ended March 31, 2019 and 2018, respectively. Depreciation costs are included in the accompanying statements of operations in operating expenses.

 

4. SENIOR DEBT

 

We previously had a credit facility in the form of a line of credit with BFG Investment Holdings, LLC (“BFG”) in the amount of $10,000,000 pursuant to a Loan and Security Agreement, as amended (the “BFG Loan Agreement”), among BFG and certain of our wholly-owned subsidiaries. In connection with the BFG Loan Agreement, IEC SPV and certain of our other wholly-owned subsidiaries entered into a profit-sharing agreement with BFG pursuant to which IEC SPV is required to pay BFG 20% of its net profit (“Net Profit”) for a period beginning on June 11, 2012 and ending 10 years from the date the BFG Loan Agreement is repaid in full. Net Profit is defined in the profit sharing agreement as gross revenue less (i) interest paid on the loan, (ii) payments on any other debt incurred as a result of refinancing the loan through a third party, as provided in the BFG Loan Agreement, (iii) any costs, fees or commissions paid on account of the loan (including loan servicing fees of 0.5% on eligible consumer loans receivable), and (iv) charge-offs to bad debt resulting from consumer loans. All of IEC SPV’s loans receivable as of March 31, 2019 were pledged as collateral for fulfillment of the Net Profit interest due.

 

Effective as of July 15, 2015, BFG converted the credit facility from a revolving facility to a term loan and on August 21, 2015, we, through certain of our wholly-owned subsidiaries, repaid the entire balance of principal and accrued interest under the BFG Loan Agreement. There is currently no outstanding balance under the BFG Loan Agreement, but IEC SPV will be required to pay 20% of its Net Profit to BFG until August 21, 2025 (10 years from August 21, 2015) or until we pay BFG $3,000,000 to terminate the profit-sharing agreement. Net Profit for the three months ended March 31, 2019 and 2018 was calculated at $0 and $0, respectively.

 

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MR. AMAZING LOANS CORPORATION

NOTES TO CONDENSED CONSOLIDATED UNAUDITED FINANCIAL STATEMENTS

MARCH 31, 2019

 

On June 8, 2018, MRAL Blockchain, a wholly owned subsidiary of the Company, entered into a Loan Agreement (the “IEC Ltd. Loan Agreement”) with Investment Evolution Coin Ltd. (“IEC Ltd.”). Mr. Mathieson, the Company’s President, Chief Executive Officer, Chief Financial Officer and sole director, and a significant stockholder of the Company, is IEC Ltd.’s majority stockholder, Chief Executive Officer and sole director. IEC Ltd. is wholly owned by certain Company stockholders, including Mr. Mathieson. Pursuant to the IEC Ltd. Loan Agreement, IEC Ltd. agreed to loan to MRAL Blockchain up to $20,000,000, subject to certain conditions. Any amounts borrowed under the IEC Ltd. Loan Agreement are subject to a 12% per annum interest rate, and must be repaid by June 7, 2023. The outstanding balance of the loan facility at March 31, 2019 is $0.

 

5. STOCKHOLDERS’ EQUITY

 

As of March 31, 2019, 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, 2019, the Company had 17,226,283 shares of common stock and 360,000 shares of Series H preferred stock issued and outstanding. The Company’s Board of Directors is authorized at any time, and from time to time, to provide for the issuance of preferred stock in one or more series, and to determine the designations, preferences, limitations and relative or other rights of the preferred stock or any series thereof.

 

In January 2017, the Company’s Board of Directors approved a stock repurchase program pursuant to which the Company may purchase on the open market and at prevailing prices outstanding shares of the Company’s common stock with an aggregate value of up to $2,000,000. On October 30, 2017, our Board of Directors authorized the extension of the stock repurchase program from December 31, 2017 to December 31, 2018 under the same terms. During the year ended December 31, 2018, the Company purchased an aggregate of 237,166 shares under the stock repurchase program for an aggregate purchase price of $56,038 and cancelled the 237,166 shares. During the year ended December 31, 2017, the Company purchased an aggregate of 458,973 shares under the stock repurchase program for an aggregate purchase price of $287,404 and cancelled the 458,973 shares. On 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. During the three months ended March 31, 2019, the Company did not purchase any shares under the stock repurchase program. Management does not intend to repurchase a significant number of shares pursuant to the stock repurchase program.

 

Series H Preferred Stock

 

During the three months ended March 31, 2019 and year ended December 31, 2018, the Company issued 0 and 360,000 of Series H convertible preferred stock, respectively, with a par value of $0.001 per share. At March 31, 2019, 360,000 shares of Series H convertible preferred stock were outstanding.

 

Description of Series H Preferred Stock

 

Our amended and restated articles of incorporation, as amended, authorize 10,000,000 shares of Series H preferred stock, of which 360,000 shares are outstanding as of March 31, 2019. There are no sinking fund provisions applicable to our Series H preferred stock.

 

Ranking. The Series H preferred stock ranks pari passu with any other series of preferred stock subsequently designated by the Company and not designated as senior securities or subordinate to the Series H preferred stock.

 

Liquidation Preference. In the event of a liquidation or winding up of the Company, a holder of Series H preferred stock will be entitled to receive $1.00 per share of Series H preferred stock.

 

Dividends. The Series H Preferred Stock is not entitled to receive dividends.

 

Voting. The holders of the Series H preferred stock have 50 votes per share of Series H preferred stock held. The holders of Series H preferred stock vote together with the holders of the outstanding shares of all other capital stock of the Company, and not as a separate class, series or voting group.

 

Redemption and Call Rights. The Series H preferred stock have no redemption or call rights.

 

Conversion. Holders of Series H preferred stock have the following rights with respect to the conversion of Series H preferred stock into shares of the Company’s common stock:

 

● At any time after June 6, 2018, and upon notice provided by the holder to the Company, a holder shall have the right to convert, at face value per share, all or any portion of their Series H preferred stock into shares of the Company’s common stock on the basis of 50 shares of common stock for each share of Series H preferred stock so converted (the “Conversion Ratio”).

 

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MR. AMAZING LOANS CORPORATION

NOTES TO CONDENSED CONSOLIDATED UNAUDITED FINANCIAL STATEMENTS

MARCH 31, 2019

 

● If at any time after the date of issuance of the Series H preferred stock, in the event the Company shall (i) make or issue a dividend or other distribution payable in common stock (other than with respect to the Series H preferred stock); (ii) subdivide outstanding shares of common stock into a larger number of shares; or (iii) combine outstanding shares of common stock into a smaller number of shares, the Conversion Ratio shall be adjusted appropriately by the Company’s Board of Directors.

 

● If the common stock issuable upon the conversion of the Series H preferred stock shall be changed into the same or different number of shares of any class or classes of stock, whether by capital reorganization, reclassification or otherwise (other than a subdivision or combination of shares or stock dividend provided for elsewhere in the certificate of designations), then in each such event, the holder of each share of Series H preferred stock shall have the right thereafter to convert such share into the kind and amount of shares of stock and other securities and property receivable upon such capital reorganization, reclassification or other change by holders of the number of shares of common stock into which such shares of Series H preferred stock might have been converted immediately prior to such capital reorganization, reclassification or other change.

 

● In each case of an adjustment or readjustment of the conversion ratio, the Company, at its expense, will seek to furnish each holder of Series H preferred stock with a certificate, showing such adjustment or readjustment, and stating in detail the facts upon which such adjustment or readjustment is based.

 

● Promptly after the Company’s receipt of a conversion notice, and upon surrender of the Series H preferred stock certificate for cancellation, the Company shall deliver to the holder a certificate representing the number of the Company’s shares of common stock into which such Series H preferred stock is converted. No fractional shares shall be issued, and, in lieu of any such fractional securities, each holder of Series H preferred stock who will otherwise be entitled to a fraction of a share upon surrender shall receive the next highest whole share.

 

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, 2019, the Company had cash and cash equivalents exceeding insured limits by $91,374.

 

7. COMMITMENTS AND CONTINGENCIES

 

Operating Leases

 

The Company entered into a new non-cancelable operating lease on August 1, 2017, with a term commencing on September 19, 2017 and expiring on September 30, 2020, for an office property located at 3960 Howard Hughes Parkway, Las Vegas. The Company relocated its principal offices from the property located at 6160 West Tropicana Avenue, Las Vegas office in September 2017. Monthly rental payments under the new operating lease are $5,794, and the Company is responsible for its pro rata shares of operating expenses and property taxes. Total rent expense for the three months ended March 31, 2019 and 2018 was $17,566 and $17,988 respectively.

 

Set forth below is information regarding the Company’s future minimum rental payment as of March 31, 2019. Such payments relate to the Company’s Las Vegas, NV lease.

 

12 Months Ending     12 Months Ending              
March 31, 2020     March 31, 2021     Thereafter     Total  
$ 69,528     $ 37,764     $ -     $ 104,292  

 

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 material legal proceedings at the present time.

 

  15  
 

 

MR. AMAZING LOANS CORPORATION

NOTES TO CONDENSED CONSOLIDATED UNAUDITED FINANCIAL STATEMENTS

MARCH 31, 2019

 

Professional Consulting Contract

 

On July 1, 2017, the Company and Mr. Mathieson, the Company’s President, Chief Executive Officer, Chief Financial Officer and sole member of our Board of Directors, and a significant stockholder of the Company, agreed to terminate, effective July 1, 2017, the consulting contract dated January 1, 2017 between Mr. Mathieson and the Company (the “January 2017 Consulting Contract”) pursuant to which the Company was required to pay Mr. Mathieson $1 annually in exchange for certain consulting services. Concurrently with the termination of the January 2017 Consulting Contract, IEC and Mr. Mathieson entered into a new professional consulting contract, effective as of July 1, 2017 (the “July 2017 Consulting Contract”). Pursuant to the terms of the 2017 Consulting Contract, Mr. Mathieson agreed to provide regulatory and management consulting services as requested by the Company and/or IEC. The July 2017 Consulting Contract had a term of 1.5 years and renewed automatically for successive one-year periods unless notice of termination was provided 30 days prior to the automatic renewal date. In exchange for the services provided to the Company and/or IEC by Mr. Mathieson, IEC agreed to pay him $1,200,000 annually in quarterly payments of $300,000 due in advance each quarter and to provide health insurance benefits as well as a discretionary bonus to be determined by the Company’s Board of Directors, which consists solely of Mr. Mathieson.

 

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

 

Pursuant to the terms of the 2018 Consulting Contract, in exchange for Mr. Mathieson’s services, the Company agreed to pay Mr. Mathieson an annual base salary of $600,000. Pursuant to the terms of the 2018 Consulting Contract, no bonus is to be paid to Mr. Mathieson by the Company. Pursuant to the terms of the 2018 Consulting Contract, fees are to be paid quarterly in advance on July 1st, October 1st, January 1st and April 1st beginning on July 1, 2018. Unlike in prior years, the Company will not pay Mr. Mathieson’s health insurance premiums or any bonuses. Mr. Mathieson will also receive reimbursement for all reasonable expenses incurred for the benefit of IEC, including but not limited to travel expenses for him and his entourage, hotel expenses, communication, security and entertainment expenses.

 

On November 27, 2018, IEC entered into a professional consulting contract with Mr. Mathieson (the “November 2018 Consulting Contract”) and terminated the 2018 Consulting Contract. Pursuant to the terms of the November 2018 Consulting Contract, Mr. Mathieson agreed to provide regulatory and management consulting services as requested by Mr. Amazing Loans and/or IEC, including the hiring and compensation of IEC personnel, interaction with third party service providers and vendors and, as requested by Mr. Amazing Loans, other activities that are designed to assist IEC in conducting business. The term of the November 2018 Consulting Contract begins as of October 1, 2018 and continues indefinitely unless 12 months’ written notice of termination is provided by either party.

 

In exchange for Mr. Mathieson’s services, Mr. Amazing Loans agreed to pay Mr. Mathieson an annual base salary of $1,200,000, to be paid quarterly in advance. Pursuant to the terms of the November 2018 Consulting Contract, no bonus is to be paid to Mr. Mathieson by Mr. Amazing Loans. Mr. Mathieson will also receive reimbursement for all reasonable expenses incurred for the benefit of IEC, including but not limited to travel expenses for him and his entourage, hotel expenses, communication, security and entertainment expenses.

 

Regulatory Requirements

 

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

 

Net Profit Interest

 

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

 

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MR. AMAZING LOANS CORPORATION

NOTES TO CONDENSED CONSOLIDATED UNAUDITED FINANCIAL STATEMENTS

MARCH 31, 2019

 

8. RELATED PARTY TRANSACTIONS

 

Chief Executive Officer

 

During the three months ended March 31, 2019 and three months ended March 31, 2018, the Company incurred compensation expense to Mr. Mathieson, the Company’s President, Chief Executive Officer, Chief Financial Officer and sole director, and a significant stockholder of the Company under professional consulting contracts of $300,000 and $300,000 respectively.

 

Chief Operating Officer

 

During the three months ended March 31, 2019 and three months ended March 31, 2018, the Company incurred compensation expense to our previously employed Chief Operating Officer of $0 and $57,500, respectively.

 

9. SUBSEQUENT EVENTS

 

None.

 

  17  
 

 

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

 

Overview

 

We are a consumer finance company providing responsible online personal loan products under the brand name “Mr. Amazing Loans” to customers in 19 states via our website and online application portal. We provide unsecured personal consumer loans to individuals in amounts of $5,000 and $10,000. Each of our online personal loans carries a fixed APR in the range of 12.0% to 29.9%, is unsecured, and has a non-revolving term of five-years. We originate, process and service all of our personal loans centrally from our Las Vegas head office and have an 8.5-year track record of origination, underwriting and servicing personal loans to underbanked consumers. Our customers are primarily non-prime consumers who we believe have limited access to credit from banks and credit card companies. We leverage our experience and knowledge in the consumer finance industry to generate revenue from the interest earned on our portfolio of personal loans.

 

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

 

We have a history of reporting recurring losses and have not generated positive net cash flows from operations. During 2018 and we completed a private placement of our preferred stock in exchange for which we received an aggregate of $360,000, which we used to finance our operations and offer personal loans to our customers.

 

As at March 31, 2019, we had 1,133 loans issued and outstanding to our customers, with an aggregate amount of $3,426,010. The table below sets forth the payment status of the loans in our portfolio as of March 31, 2019.

 

Portfolio Ledger Stratification as at March 31, 2019

 

    Current Unpaid Principal Balance     %  
0 - 30 days   $ 3,054,132       89.2 %
31 - 60 days     100,239       2.9 %
61 - 90 days     91,666       2.7 %
91 - 120 days     52,853       1.5 %
121 - 184 days     127,120       3.7 %
Total   $ 3,426,010       100.0 %

 

At March 31, 2019, we had 40 loans delinquent or in default (defined as 91+ days past due) representing 3.8% of the number of loans in our active portfolio. Loans typically become eligible for the lender to take legal action at 60 days past due.

 

We operate in the consumer loans business segment.

 

Recent Developments

 

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.

 

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Results of Operations

 

Three Months Ended March 31, 2019 Compared to Three Months Ended March 31, 2018

 

Interest Revenue

 

For the three months ended March 31, 2019, interest revenue decreased to $226,207, compared to $381,548 for the three months ended March 31, 2018. This decrease was due to the decreased average interest-earning loan book size of consumer receivables during the period. This decreased loan book size is primarily due to minimal advertising to new customers during the three months ended March 31, 2019 resulting from a decrease in cash available to fund new loans during that three-month period and leading to lower loans receivable originated as compared to loans receivable repaid during the three months ended March 31, 2019.

 

Other Revenue

 

For the three months ended March 31, 2019, other revenue increased to $26,413, compared to $12,794 for the three months ended March 31, 2018. Other revenue consisted of declined lead revenue, consisting of revenue from the sale of leads regarding potential customers whose loan applications did not meet our lending standards, and loan loss recovery. The increase was attributable to a significant increase in loan loss recovery revenue in the 2019 quarter.

 

Salaries and Compensation Expenses

 

For the three months ended March 31, 2019, salaries and compensation expenses decreased to $338,517, compared to $412,099 for the three months ended March 31, 2018. The decrease was primarily attributable to the termination of our Chief Operating Officer in September 2018.

 

Other Operating Expenses

 

For the three months ended March 31, 2019, other operating expenses decreased to $110,685, compared to $146,287 for the three months ended March 31, 2018. The decrease was primarily due to lower insurance costs in the period.

 

Provision for Credit Losses

 

For the three months ended March 31, 2019, the provision for credit losses expense decreased to $112,330, compared to $204,668 for the three months ended March 31, 2018. We carry a provision for credit losses which is estimated collectively based on our loan portfolio and general economic conditions. The decrease in provision for credit losses from the prior year period was due to the smaller loan portfolio and lower loan chargeoffs in the current period.

 

Advertising

 

For the three months ended March 31, 2019, advertising expenses decreased to $900, compared to $1,240 for the three months ended March 31, 2018. The decrease was attributable to the decrease in customer acquisition costs incurred in the current period.

 

Rent Expense

 

For the three months ended March 31, 2019, rent expense decreased to $17,566, compared to $17,988 for the three months ended March 31, 2018. The decrease was due to the decrease in rent costs from our new Las Vegas lease in the corresponding period.

 

Public Company and Corporate Finance Expenses

 

For the three months ended March 31, 2019 public company and corporate finance expenses decreased to $251,571, compared to $654,089 for the three months ended March 31, 2018. The decrease was due to the one-off costs incurred related to the terminated tender offer for Lending Club shares launched by the Company in 2018 not being incurred in 2019.

 

Depreciation and Amortization

 

For the three months ended March 31, 2019, depreciation and amortization marginally decreased to $1,233, compared to $1,425 for the three months ended March 31, 2018. The minimal movement was in line with expectations.

 

Financial Position

 

Cash and Cash Equivalents

 

We had cash and cash equivalents of $341,374 as of March 31, 2019, compared to $365,934 as of December 31, 2018. The small decrease resulted from operating expenses being slightly higher than net cash proceeds from loans receivable repaid versus loan receivable originated.

 

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Loans Receivable

 

We had net loan receivables of $2,740,808 as of March 31, 2019, as compared to $3,174,574 as of December 31, 2018. The decrease was due to lower loan originations in the current period versus repayment and write-off of loan principal by customers. Net loan receivables are calculated by reducing our outstanding loans receivable balance by an allowance for credit losses.

 

Other Receivables

 

We had other receivables of $54,039 as of March 31, 2019, as compared to $67,994 as of December 31, 2018. Other receivables is comprised of outstanding invoices for declined lead revenue due from marketing partners and accrued interest receivable on our consumer loans at March 31, 2019. The minimal movement was in line with expectations.

 

Property and Equipment

 

We had net property and equipment of $6,621 as of March 31, 2019 as compared to $7,854 as of December 31, 2018. 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 $101,126 as of March 31, 2019, compared to $2,387 as of December 31, 2018. The increase was mainly due to a large accrual for the 2018 annual audit being unpaid as at March 31.

 

Financial Condition, Liquidity and Capital Resources

 

During the three months ended March 31, 2019 and the 12 months ended December 31, 2018, we incurred operating expenses in excess of net revenue. However, anticipated cash flow from our existing loan receivable repayments plus net revenue, combined with current cash on hand, is expected to meet the needs of our budgeted cash operating expenses through April 2020. To expand operations significantly we will be required to draw down from our loan facility with IEC Ltd., a related party, until operating results improve.

 

Liquidity and Capital Resources

 

We used cash in operations of $24,560 during the three months ended March 31, 2019, compared to $342,905 during the three months ended March 31, 2018. This decrease is primarily due to no tender offer costs in 2019 compared to 2018.

 

The Company has historically financed its operations and loans made to its customers through placements of shares of the Company’s common stock and preferred stock, private credit facilities, and working capital loans. We also received $3.4 million in connection with our tender offer to purchase shares of the common stock of OneMain in June 2017 and the subsequent sale of the OneMain shares we acquired as a result of that tender offer. The Company intends to finance its operations and the planned expansion of its business through draw downs on its new $20 million loan facility with IEC, Ltd., a related party.

 

The Company received net cash from investing activities of $0 during the three months ended March 31, 2019, compared to $194 used in investing activities during the three months ended March 31, 2018.

 

At March 31, 2019, we had cash on hand of $341,374, which we believe is sufficient to meet our operating needs for the next 12 months, when added to budgeted cash inflows from loans receivable repaid and budgeted cash inflows from revenues.

 

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

 

(i) the Company has reported recurring losses, and

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

 

Management has evaluated their plans for the next 12 months and as a result of the plans, the Company believes that it can meet all its obligations at least through April 2020. Management has been utilizing the cash flow from loan repayments for working capital needs and plans to continue to do so, until funding under our new loan facility from a related party is received. See Note 5 for details. This will provide sufficient cash flow through at least April 2020. 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.

 

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We previously had a credit facility in the form of a line of credit with BFG Investment Holdings, LLC (“BFG”) in the amount of $10,000,000 pursuant to a Loan and Security Agreement, as amended (the “BFG Loan Agreement”), among BFG and certain of our wholly owned subsidiaries. In connection with the BFG Loan Agreement, IEC SPV and certain of our other wholly owned subsidiaries entered into a profit-sharing agreement with BFG pursuant to which IEC SPV is required to pay BFG 20% of its net profit (“Net Profit”) for a period beginning on June 11, 2012 and ending 10 years from the date the BFG Loan Agreement is repaid in full. Net Profit is defined in the profit sharing agreement as gross revenue less (i) interest paid on the loan, (ii) payments on any other debt incurred as a result of refinancing the loan through a third party, as provided in the BFG Loan Agreement, (iii) any costs, fees or commissions paid on account of the loan (including loan servicing fees of 0.5% on eligible consumer loans receivable), and (iv) charge-offs to bad debt resulting from consumer loans. All of IEC SPV’s loans receivable as of March 31, 2019, were pledged as collateral for fulfillment of the Net Profit interest due.

 

Effective as of July 15, 2015, BFG converted the credit facility from a revolving facility to a term loan and on August 21, 2015, we, through certain of our wholly owned subsidiaries, repaid the entire balance of principal and accrued interest under the BFG Loan Agreement. There is currently no outstanding balance under the BFG Loan Agreement, but IEC SPV will be required to pay 20% of its Net Profit to BFG until August 21, 2025 (10 years from August 21, 2015) or until we pay BFG $3,000,000 to terminate the profit-sharing agreement. Net Profit for the three months ended March 31, 2019 and 2018 was calculated at $0 and $0, respectively.

 

On June 8, 2018, MRAL Blockchain entered into the IEC Ltd. Loan Agreement with IEC Ltd. Mr. Mathieson, the Company’s President, Chief Executive Officer, Chief Financial Officer and sole director, is IEC Ltd.’s majority stockholder, Chief Executive Officer and sole director. IEC Ltd. is wholly owned by certain Company stockholders, including Mr. Mathieson. Pursuant to the IEC Ltd. Loan Agreement, IEC Ltd. agreed to loan to MRAL Blockchain up to $20,000,000, subject to certain conditions. Any amounts borrowed under the IEC Ltd. Loan Agreement are subject to a 12% per annum interest rate, and must be repaid by June 7, 2023. The current outstanding balance of the loan facility is $0.

 

Off-Balance Sheet Arrangements

 

As of March 31, 2019, 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 Mr. Amazing Loans Corporation and its wholly owned subsidiaries, IEC, IEC SPV and MRAL Blockchain. 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 (“GAAP”) and conform to general practices within the consumer finance industry.

 

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

 

Critical Accounting Policies

 

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

 

Use of Estimates

 

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

 

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Loans Receivable and Interest Income

 

The Company offers its loans at or below the prevailing state interest rate limits. 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, 2019, 40 loans, with a total balance of $179,973, were delinquent or in default.

 

Allowance for Credit Losses

 

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

 

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

 

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

 

Impaired Loans

 

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

 

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

 

Income Taxes

 

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

 

Earnings and Loss per Share

 

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

 

Fair Value of Financial Instruments

 

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

 

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Recently Issued or Newly Adopted Accounting Standards

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

 

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

 

In January 2016, the FASB issued ASU 2016-01, Financial Instruments – Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities. The update intends to enhance the reporting model for financial instruments to provide users of financial statements with more decision-useful information and addresses certain aspects of the recognition, measurement, presentation, and disclosure of financial instruments. The new standard affects all entities that hold financial assets or owe financial liabilities. For public business entities, the amendments in this update are effective for fiscal years beginning after December 15, 2017, including interim periods within those fiscal years. Adoption of these changes had no material impact on the consolidated financial statements.

 

In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842), which supersedes existing guidance on accounting for leases in “Leases (Topic 840)” and generally requires all leases to be recognized in the consolidated balance sheet. ASU 2016-02 is effective for annual and interim reporting periods beginning after December 15, 2018; early adoption is permitted. The provisions of ASU 2016-02 are to be applied using a modified retrospective approach. Adoption of these changes had no material impact on the consolidated financial statements.

 

In July 2018, the FASB issued ASU No. 2018-10, Codification Improvements to Topic 842, Leases . The amendments in this Update affect the amendments in Update 2016-02, which are not yet effective, but for which early adoption upon issuance is permitted. For entities that early adopted Topic 842, the amendments are effective upon issuance of this Update, and the transition requirements are the same as those in Topic 842. For entities that have not adopted Topic 842, the effective date and transition requirements will be the same as the effective date and transition requirements in Topic 842. Adoption of these changes had no material impact on the consolidated financial statements.

 

Item 3. Quantitative and Qualitative Disclosures about Market Risk

 

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

 

Item 4. Controls and Procedures

 

Evaluation of Disclosure Controls and Procedures

 

Mr. Mathieson, our Chief Executive Officer and Chief Financial Officer has reviewed and evaluated the effectiveness of the Company’s disclosure controls and procedures as of March 31, 2019. Based on such review and evaluation, Mr. Mathieson concluded that, as of March 31, 2019, the disclosure controls and procedures were effective to ensure that information required to be disclosed by the Company in the reports that it files or submits under the Exchange Act, (a) is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms and (b) is accumulated and communicated to the Company’s management, including its principal executive and principal financial officers, as appropriate to allow timely decisions regarding required disclosure.

 

Changes in Internal Control over Financial Reporting

 

There were no changes in the Company’s internal control over financial reporting identified in connection with the evaluation required by paragraph (d) of Rule 13a-15 or 15d-15 of the Exchange Act that occurred during the fiscal quarter ended March 31, 2019 that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

 

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PART II - OTHER INFORMATION

 

Item 1. Legal Proceedings

 

There are no material pending legal proceedings (or material proceedings known to be contemplated), other than ordinary routine litigation incidental to the business, to which the Company or any of its subsidiaries is a party or of which any of their property is the subject.

 

Item 1A. Risk Factors

 

None.

 

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

 

The following table summarizes the information relating to our purchase of shares of our common stock in the three months ended March 31, 2019.

 

Period   Total number of shares purchased 1     Average price paid per share     Total number of shares purchased as part of publicly announced plans or programs     Approximate dollar value of shares that may yet be purchased under the plans or programs  
January 1 – January 31, 2019     —       N/A       —     $ 0  
February – February 28, 2019     —       N/A       —     $ 0  
March 1 – March 31, 2019     —       N/A       —     $ 0  
Total     —       N/A       —     $ 2,000,000 (1)

 

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

 

Item 3. Defaults Upon Senior Securities

 

None.

 

Item 4. Mine Safety Disclosures

 

Not applicable.

 

Item 5. Other Information

 

None.

 

Item 6. Exhibits

 

Exhibit
Number 		  Description of Exhibit
     
31.1   Certification of the Chief Executive Officer and Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
     
32.1   Certification of the Chief Executive Officer and Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
     
101.INS   XBRL Instance
     
101.SCH   XBRL Taxonomy Extension Schema
     
101.CAL   XBRL Taxonomy Extension Calculation
     
101.DEF   XBRL Taxonomy Extension Definition
     
101.LAB   XBRL Taxonomy Extension Labels
     
101.PRE   XBRL Taxonomy Extension Presentation

 

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SIGNATURES

 

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

 

  MR. AMAZING LOANS CORPORATION
     
Date: April 17, 2019 By: /s/ Paul Mathieson
    Paul Mathieson
    President, Chief Executive Officer and Chief Financial Officer (principal executive officer, principal financial officer and principal accounting officer)

 

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