NOTES
TO CONDENSED CONSOLIDATED UNAUDITED FINANCIAL STATEMENTS
JUNE
30, 2017
1.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
General
The
quarterly report on Form 10-Q for the quarter ended June 30, 2017 should be read in conjunction with the Company’s financial
statements for the year ended December 31, 2016, contained in the Company’s annual report on Form 10-K for the fiscal year
ended December 31, 2016 as filed with the Securities and Exchange Commission (the “SEC”) on March 8, 2017. As contemplated
by the SEC under Article 8 of Regulation S-X, the accompanying financial statements and footnotes have been condensed and therefore
do not contain all disclosures required by generally accepted accounting principles (“GAAP”). The interim financial
data are unaudited, however in the opinion of IEG Holdings Corporation (“we, “our”, “us”) the interim
data includes all adjustments, consisting of only normal recurring adjustments, necessary for a fair statement of results for
the interim periods. Results of interim periods are not necessarily indicative of those to be expected for the full year.
Nature
of Business
The
principal business activity of the Company is providing unsecured online consumer loans under the brand name “Mr. Amazing
Loans” via the Company’s website and online application portal at www.mramazingloans.com. The Company started its
business and opened its first office in Las Vegas, Nevada in 2010. The Company currently offers $5,000 and $10,000 unsecured consumer
loans that mature in five years. The Company is a direct lender with state licenses and/or certificates of authority in, and originating
direct consumer loans in, 20 states – Alabama, Arizona, California, Florida, Georgia, Illinois, Kentucky, Louisiana, Maryland,
Missouri, Nevada, New Jersey, New Mexico, Ohio, Oregon, Pennsylvania, Texas, Utah, Virginia and Wisconsin. The Company provides
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, which eliminates the need for physical offices in all of these states.
Basis
of Accounting
These
consolidated financial statements include the operations of IEG Holdings Corporation and its wholly-owned subsidiaries, Investment
Evolution Corporation (“IEC”) and IEC SPV, LLC (“IEC SPV” and collectively with IEG Holdings Corporation
and IEC, the “Company”). All inter-company transactions and balances have been eliminated in consolidation.
The
Company’s accounting and reporting policies are in accordance with U.S. GAAP and conform to general practices within the
consumer finance industry.
The
consolidated financial statements have been prepared in conformity with GAAP. The accompanying consolidated financial statements
do not include any adjustments to reflect any possible future effects on the recoverability and classification of assets or the
amounts and classification of liabilities.
Liquidity
The
principal conditions/events that raise substantial doubt about the company’s ability to meet its obligations are i) the
Company has reported recurring losses and ii) the Company has not yet generated positive net cash flows from operations. However,
the Company has reduced its core operating expenses. In addition, cash in bank significantly increased during the quarter, resulting
from substantial positive net cash flows from investing activities. Management has evaluated the result of their plans for the
next 12 months and as a result of the plans, the Company can meet all its obligations at least through August 2018. However, the
Company intends, over the next 12 months, to seek additional capital to expand operations.
Use
of Estimates
The
preparation of consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions
that affect the reported amounts and disclosures. Management uses its historical records and knowledge of its business in making
these estimates. Accordingly, actual results may differ from these estimates.
Cash
and Cash Equivalents
For
the purpose of the statement of cash flows, the Company considers cash equivalents to include short-term, highly liquid investments
with an original maturity of three months or less.
Loans
Receivable and Interest Income
The
Company offers its loans at or below the prevailing statutory rates. Loans are carried at the unpaid principal amount outstanding,
net of an allowance for credit losses.
IEG
HOLDINGS CORPORATION
NOTES
TO CONDENSED CONSOLIDATED UNAUDITED FINANCIAL STATEMENTS
JUNE
30, 2017
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 June 30, 2017, 74 loans, with a total balance of $335,563 were delinquent or in default.
Allowance
for Credit Losses
The
Company maintains an allowance for credit losses due to the fact that it is probable that a portion of the loans receivable will
not be collected. The allowance is estimated by management based on various factors, including specific circumstances of the individual
loans, management’s knowledge of the industry, and the experience and trends of other companies in the same industry.
Our
portfolio of loans receivable consists of a large number of relatively small, homogenous accounts. The allowance for credit losses
is determined using a systematic methodology, based on a combination of historical bad debt of comparable companies. Impaired
loans are considered separately and 100% charged off.
The
allowance for credit losses is primarily based upon models that analyze specific portfolio statistics and also reflect, management’s
judgment regarding overall accuracy. We take into account several factors, including the customer’s transaction history,
specifically the timeliness of customer payments, the remaining contractual term of the loan, and the outstanding balance of the
loan.
Impaired
Loans
The
Company assesses loans for impairment individually when a loan is 91 days past due. The Company defines impaired loans as bankrupt
accounts and accounts that are 184 days or more past due. In accordance with the Company’s charge-off policy, once a loan
is deemed uncollectible, 100% of the remaining balance is charged-off. Loans can also be charged off when deemed uncollectible
due to consumer specific circumstances.
The
Company does not accrue interest on impaired loans and any recoveries of impaired loans are recorded to the allowance for credit
losses. Changes in the allowance for credit losses are recorded as operating expenses in the accompanying statement of operations.
Property
and Equipment
Property
and equipment are stated at cost. Depreciation and amortization are being provided using the straight-line method over the estimated
useful lives of the assets as follows:
|
Classification
|
|
Life
|
|
Computer
equipment
|
|
5
years
|
|
Furniture
and fixtures
|
|
5-8
years
|
The
Company amortizes its leasehold improvements over the shorter of their economic lives, which are generally five years, or the
lease term that considers renewal periods that are reasonably assured. Expenses for repairs and maintenance are charged to expense
as incurred, while renewals and betterments are capitalized. When assets are retired or otherwise disposed of, the cost and accumulated
depreciation are removed from the accounts and any gain or loss is reflected in the consolidated statement of operations.
Operating
Lease
The
Company’s office lease for 6160 West Tropicana Avenue, Las Vegas, NV expires (and will not be renewed) on September 30,
2017.
Income
Taxes
We
account for income taxes using the liability method in accordance with the Financial Accounting Standards Board (“FASB”)
Accounting Standards Codification (“ASC”) 740 “Income Taxes”. To date, no current income tax liability
has been recorded due to our accumulated net losses. Deferred income tax assets and liabilities are recognized for temporary differences
between the financial statement carrying amounts of assets and liabilities and the amounts that are reported in the income tax
returns. Our net deferred income tax assets have been fully reserved by a valuation allowance due to the uncertainty of our ability
to realize future taxable income and to recover our net deferred income tax assets.
IEG
HOLDINGS CORPORATION
NOTES
TO CONDENSED CONSOLIDATED UNAUDITED FINANCIAL STATEMENTS
JUNE
30, 2017
Advertising
Costs
Advertising
costs are expensed as incurred. Advertising costs amounted to $3,460 and $221,309 for the six months ended June 30, 2017 and 2016,
respectively. Advertising costs amounted to $2,580 and $173,485 for the three months ended June 30, 2017 and 2016, respectively.
Earnings
and Loss per Share
The
Company computes net earnings (loss) per share in accordance with ASC 260-10 that establishes standards for computing and presenting
net earnings (loss) per shares. Basic earnings (loss) per share are computed by dividing net income (loss) attributed to common
shareholders by the weighted average number of common shares outstanding during the period. Diluted earnings per share is computed
similar to basic earnings per share except that the denominator is increased to include the number of additional common shares
that would have been outstanding if the potential common shares, if any, had been issued and if the additional common shares were
dilutive. Basic and diluted loss per share has been adjusted retroactively for the net 1-for-10 reverse split that occurred on
October 27, 2016.
Reclassifications
Certain
numbers from the prior period have been reclassified to conform to the current year presentation.
Fair
Value of Financial Instruments
The
Company has adopted guidance issued by the FASB that defines fair value, establishes a framework for measuring fair value in accordance
with existing 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 June 30, 2017 for assets and liabilities measured at fair value
on a recurring basis:
|
|
|
Level
I
|
|
|
Level
II
|
|
|
Level
III
|
|
|
Total
|
|
|
Cash
|
|
$
|
3,743,268
|
|
|
|
|
|
|
|
|
|
|
$
|
3,743,268
|
|
|
Loans receivable, net
|
|
$
|
|
|
|
|
|
|
|
|
5,055,063
|
|
|
$
|
5,055,063
|
|
The
following table summarizes fair value measurements by level at December 31, 2016 for assets and liabilities measured at fair value
on a recurring basis:
|
|
|
Level
I
|
|
|
Level
II
|
|
|
Level
III
|
|
|
Total
|
|
|
Cash
|
|
$
|
322,441
|
|
|
|
|
|
|
|
|
|
|
$
|
322,441
|
|
|
Loans receivable, net
|
|
$
|
|
|
|
|
|
|
|
|
6,374,908
|
|
|
$
|
6,374,908
|
|
Loans
receivable are carried net of the allowance for credit losses, which is estimated by applying historical loss rates of our portfolio
and of other companies’ portfolios in the same industry with recent default trends to the gross loans receivable balance.
The unobservable inputs used to calculate the fair value of these loans include historical loss rates, recent default trends and
estimated remaining loan terms. Therefore, the carrying value of the loans receivable approximates the fair value.
IEG
HOLDINGS CORPORATION
NOTES
TO CONDENSED CONSOLIDATED UNAUDITED FINANCIAL STATEMENTS
JUNE
30, 2017
Carrying
amounts reported in the consolidated balance sheets for other receivables, accounts payable, and accrued expenses approximate
fair value because of their immediate or short-term nature. The fair value of borrowings is not considered to be significantly
different than its carrying amount because the stated rates for such debt reflect current market rates and conditions.
Marketable
Securities
On
June 16, 2017, we closed our tender offer to purchase shares of common stock of OneMain Holdings, Inc. (“OneMain”),
with 151,994 OneMain shares of common stock acquired (the cost of which was valued at an aggregate of $3.55 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.
The security was classified as available-for-sale and had an unrealized loss of $153,514 prior to the sale. On June 22, 2017,
we sold 100% of the 151,994 shares of OneMain common stock for $3.4 million in cash. At June 30, 2017 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 $3,400,106 resulting in a loss on sale totaling $153,514
during the quarter ended June 30, 2017.
Other
Comprehensive Income
The
Company’s other comprehensive income consists of unrealized gains (losses) on securities classified as available for sale
that are recorded as an element of shareholder’s equity but are excluded from net income.
Recent
Accounting Pronouncements
Recently
Issued or Newly Adopted Accounting Standards
In
May 2014, FASB issued Accounting Standards Update (“ASU”) No. 2014-09,
Revenue from Contracts with Customers
.
The standard will eliminate the transaction and industry specific revenue recognition guidance under current U.S. GAAP and replace
it with a principle based approach for determining revenue recognition. ASU 2014-09 is effective for annual and interim periods
beginning after December 15, 2017. Early adoption is not permitted. The revenue recognition standard is required to be applied
retrospectively, including any combination of practical expedients as allowed in the standard. We are evaluating the impact, if
any, of the adoption of ASU 2014-09 to our financial statements and related disclosures. The Company has not yet selected a transition
method nor has it determined the effect of the standard on its ongoing financial reporting.
In
August 2014, the FASB issued ASU 2014-15,
Presentation of Financial Statements—Going Concern (Subtopic 205-40): Disclosure
of Uncertainties about an Entity’s Ability to Continue as a Going Concern
. ASU 2014-15 changes to the disclosure of
uncertainties about an entity’s ability to continue as a going concern. These changes require an entity’s management
to evaluate whether there are conditions or events, considered in the aggregate, that raise substantial doubt about the entity’s
ability to continue as a going concern within one year after the date that financial statements are issued. Substantial doubt
is defined as an indication that it is probable that an entity will be unable to meet its obligations as they become due within
one year after the date that financial statements are issued. If management has concluded that substantial doubt exists, then
the following disclosures should be made in the financial statements: (i) principal conditions or events that raised the substantial
doubt, (ii) management’s evaluation of the significance of those conditions or events in relation to the entity’s
ability to meet its obligations, (iii) management’s plans that alleviated the initial substantial doubt or, if substantial
doubt was not alleviated, management’s plans that are intended to at least mitigate the conditions or events that raise
substantial doubt, and (iv) if the latter in (iii) is disclosed, an explicit statement that there is substantial doubt about the
entity’s ability to continue as a going concern. These changes became effective for the Company for the 2016 annual period.
Our adoption of these changes have no material impact on the consolidated financial statements.
In
November 2015, the FASB issued ASU No. 2015-17,
Income Taxes
(Topic 740). The amendments in ASU 2015-17 change the requirements
for the classification of deferred taxes on the balance sheet. Currently, GAAP requires an entity to separate deferred income
tax liabilities and assets into current and noncurrent amounts in a classified statement of financial position. To simplify the
presentation of deferred income taxes, the amendments in this ASU require that deferred tax liabilities and assets be classified
as noncurrent in a classified statement of financial position. The pronouncement is effective for fiscal years and interim periods
within those fiscal years beginning after December 15, 2016. Adoption of these changes have no material impact on the consolidated
financial statements.
IEG
HOLDINGS CORPORATION
NOTES
TO CONDENSED CONSOLIDATED UNAUDITED FINANCIAL STATEMENTS
JUNE
30, 2017
In
January 2016, the FASB issued ASU 2016-01,
Financial Instruments – Overall
(Subtopic 825-10): Recognition and Measurement
of Financial Assets and Financial Liabilities. The update intends to enhance the reporting model for financial instruments to
provide users of financial statements with more decision-useful information and addresses certain aspects of the recognition,
measurement, presentation, and disclosure of financial instruments. The new standard affects all entities that hold financial
assets or owe financial liabilities. For public business entities, the amendments in this Update are effective for fiscal years
beginning after December 15, 2017, including interim periods within those fiscal years. Management is evaluating the impact of
the adoption of these changes will have on the consolidated financial statements.
In
February 2016, the FASB issued ASU 2016-02,
Leases (Topic 842),
which supersedes existing guidance on accounting for leases
in “Leases (Topic 840)” and generally requires all leases to be recognized in the consolidated balance sheet. ASU
2016-02 is effective for annual and interim reporting periods beginning after December 15, 2018; early adoption is permitted.
The provisions of ASU 2016-02 are to be applied using a modified retrospective approach. The Company is currently evaluating the
impact of the adoption of this standard on its consolidated financial statements.
In
April 2016, the FASB issued AS 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. The Company has not yet selected a transition method nor has it determined the effect of the standard
on its ongoing financial reporting.
2.
LOANS RECEIVABLE
Loans
receivable consisted of the following at June 30, 2017 and December 31, 2016:
|
|
|
June 30, 2017
|
|
|
December 31, 2016
|
|
|
Loans receivable
|
|
$
|
6,017,932
|
|
|
$
|
7,587,349
|
|
|
Allowance for credit losses
|
|
$
|
(962,869
|
)
|
|
$
|
(1,212,441
|
)
|
|
Loans receivable, net
|
|
$
|
5,055,063
|
|
|
$
|
6,374,908
|
|
A
reconciliation of the allowance for credit losses consist of the following at June 30, 2017 and December 31, 2016:
|
|
|
June 30, 2017
|
|
|
December 31, 2016
|
|
|
Beginning balance, January 1
|
|
$
|
1,212,441
|
|
|
$
|
985,375
|
|
|
Provision for credit losses
|
|
$
|
619,324
|
|
|
$
|
1,865,362
|
|
|
Loans charged off
|
|
$
|
(868,896
|
)
|
|
$
|
(1,638,296
|
)
|
|
Ending balance
|
|
$
|
962,869
|
|
|
$
|
1,212,441
|
|
|
Basis of assessment:
|
|
|
|
|
|
|
|
|
|
Individually
|
|
$
|
-
|
|
|
$
|
-
|
|
|
Collectively
|
|
$
|
962,869
|
|
|
$
|
1,212,441
|
|
The
following is an age analysis of past due receivables as of June 30, 2017 and December 31, 2016:
|
|
|
31-60 Days Past Due
|
|
|
61-90 Days Past Due
|
|
|
Greater than 90 Days
|
|
|
Total Past Due
|
|
|
Current
|
|
|
Total Financing Receivables
|
|
|
Recorded Investment > 90 Days and not Accruing
|
|
|
June 30, 2017
|
|
$
|
191,151
|
|
|
$
|
121,734
|
|
|
$
|
335,563
|
|
|
$
|
648,448
|
|
|
$
|
5,369,484
|
|
|
$
|
6,017,932
|
|
|
$
|
335,563
|
|
|
December 31, 2016
|
|
$
|
257,299
|
|
|
$
|
163,590
|
|
|
$
|
367,098
|
|
|
$
|
787,987
|
|
|
$
|
6,799,362
|
|
|
$
|
7,587,349
|
|
|
$
|
367,098
|
|
The
Company’s primary credit quality indicator is the customer’s Vantage credit score as determined by Experian on the
date of loan origination. The Company does not update the customer’s credit profile during the contractual term of the loan.
The
following is a summary of the loan receivable balance as of June 30, 2017 and December 31, 2016 by credit quality indicator:
|
Credit Score
|
|
June 30, 2017
|
|
|
December 31, 2016
|
|
|
550-575
|
|
$
|
15,142
|
|
|
$
|
16,264
|
|
|
576-600
|
|
$
|
128,985
|
|
|
$
|
183,701
|
|
|
601-650
|
|
$
|
2,641,735
|
|
|
$
|
3,332,371
|
|
|
651-700
|
|
$
|
2,284,804
|
|
|
$
|
2,946,944
|
|
|
701-750
|
|
$
|
738,730
|
|
|
$
|
874,408
|
|
|
751-800
|
|
$
|
151,864
|
|
|
$
|
166,811
|
|
|
801-850
|
|
$
|
42,081
|
|
|
$
|
46,368
|
|
|
851-900
|
|
$
|
14,591
|
|
|
$
|
20,482
|
|
|
|
|
$
|
6,017,932
|
|
|
$
|
7,587,349
|
|
IEG
HOLDINGS CORPORATION
NOTES
TO CONDENSED CONSOLIDATED UNAUDITED FINANCIAL STATEMENTS
JUNE
30, 2017
3.
PROPERTY AND EQUIPMENT
At
June 30, 2017 and December 31, 2016, property and equipment consists of the following:
|
|
|
June 30, 2017
|
|
|
December 31, 2016
|
|
|
Computer equipment
|
|
$
|
99,556
|
|
|
$
|
99,556
|
|
|
Furniture and fixtures
|
|
|
21,303
|
|
|
|
21,303
|
|
|
Leasehold improvements
|
|
|
7,112
|
|
|
|
7,112
|
|
|
|
|
$
|
127,971
|
|
|
$
|
127,971
|
|
|
Less accumulated depreciation and amortization
|
|
|
111,693
|
|
|
|
108,649
|
|
|
Total
|
|
$
|
16,278
|
|
|
$
|
19,322
|
|
Depreciation
of property and equipment amounted to $3,044 and $3,833 during the six months ended June 30, 2017 and 2016, respectively. Depreciation
of property and equipment amounted to $1,471 and $1,917 during the three months ended June 30, 2017 and 2016, respectively. Depreciation
costs are included in the accompanying statements of operations in operating expenses.
4.
SENIOR DEBT
On
August 21, 2015, we, through certain of our wholly owned subsidiaries, repaid the entire balance of principal and accrued interest
under the Loan and Security Agreement, as amended (the “Loan Agreement”), among BFG Investment Holdings, LLC (“BFG”),
and certain of our wholly owned subsidiaries. As a result, there is currently no outstanding balance under the Loan Agreement.
However, the Loan Agreement continues in effect and we are subject to a net profit interest under which we are required to pay
BFG 20% of the “Net Profit” of its subsidiary, IEC SPV, until 10 years from the date the loan is repaid in full (August
2015). Net Profit is defined as the gross revenue less (i) interest paid on the loan, (ii) payments on any other debt incurred
as a result of refinancing the loan through a third party, as provided in the Loan Agreement, (iii) any costs, fees or commissions
paid on the existing credit facility, and (iv) charge-offs to bad debt resulting from consumer loans and reduced by servicing
fee. The Net Profit arrangement can be terminated by us upon a payment of $3,000,000 to BFG. Net profit interest for the six months
ended June 30, 2017 and 2016 were $0 and $58,885, respectively. All loans receivable of the Company were pledged as collateral
at June 30, 2017 for the fulfillment of the Net Profit calculation.
5.
STOCKHOLDERS’ EQUITY
On
June 16, 2017, we closed our tender offer to purchase shares of common stock of OneMain Holdings, Inc. (“OneMain”),
with 151,994 OneMain shares of common stock acquired (valued at an aggregate of $3.55 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.
As
of June 30, 2017, the aggregate number of shares which the Company had the authority to issue is 350,000,000 shares, of which
300,000,000 shares are common stock, par value $0.001 per share, and 50,000,000 shares are preferred stock, par value $0.001 per
shares. At June 30, 2017, the Company had 12,754,066 shares of common stock issued and outstanding. The Board of Directors is
authorized at any time, and from time to time, to provide for the issuance of preferred stock in one or more series, and to determine
the designations, preferences, limitations and relative or other rights of the preferred stock or any series thereof.
Common
Stock Dividends
Historically,
we have not paid any cash dividends on our common stock. In May 2017, we announced the declaration of a cash dividend of $0.005
per common share for the first quarter of 2017. The dividend is payable on August 21, 2017 to stockholders of record at the close
of business on June 5, 2017. We expect to pay ongoing dividends. 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.
IEG
HOLDINGS CORPORATION
NOTES
TO CONDENSED CONSOLIDATED UNAUDITED FINANCIAL STATEMENTS
JUNE
30, 2017
Series
H Preferred Stock
During
the six months ended June 30, 2017 and year ended December 31, 2016, the Company issued 0 and 3,071,000 of Series H convertible
preferred stock, respectively, with a par value of $0.001 per share. At June 30, 2017, no 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
no shares are outstanding as of June 30, 2017. 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 IEG
Holdings 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 IEG Holdings, 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.
Conversion.
Holders of Series H preferred shares have the following rights with respect to the conversion of Series H preferred shares
into shares of our common stock:
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At
5:00 pm Eastern time on December 31, 2017, each and every share of Series H Preferred Stock issued and outstanding at such
time shall automatically and without further action of any holder thereof, convert into shares of the Corporation’s
Common Stock on the bases of one (1) share of Common Stock for each share of Series H Preferred Stock.
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Promptly
after December 31, 2017, the Corporation shall deliver to each prior holder of Series H Preferred Stock whose shares have
been converted into shares of Common Stock as set forth in Section 6(A), a certificate representing the number of the Corporation’s
shares of Common Stock into which such Series H Preferred Stock has been converted.
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In
the event that, prior to 5:00 p.m. on December 31, 2017, IEG Holdings completes any consolidation, merger, combination, statutory
share exchange or other transaction in which the shares of Common Stock are exchanged for or changed into other stock or securities,
money and/or any other property, then in any such case the Series H Preferred Stock shall at the same time be similarly exchanged
or changed into preferred shares of the surviving entity providing the holders of such preferred shares with (to the extent
possible) the same relative rights and preferences as the Series H Preferred Stock. For the avoidance of doubt, in the event
that any such consolidation, merger, combination, statutory share exchange or other transaction is completed after 5:00 p.m.
on December 31, 2017, the shares of Series H Preferred Stock shall have been converted into shares of Common Stock and as
such shall be exchanged for or changed into other stock or securities, money and/or any other property, as any other shares
of Common Stock.
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Voting.
Except as provided in the immediately following sentence, Series H Preferred Stock shall have no right to vote on any matter
to come before the shareholders of IEG Holdings. The affirmative vote at a meeting duly called for such purpose or the written
consent without a meeting, of the holders of not less than fifty percent (50%) of the then outstanding Series H Preferred Stock,
shall be required for any change to IEG Holdings’ Articles of Incorporation which would amend, alter, change or repeal any
of the powers, designations, preferences and rights of the Series H Preferred Stock.
Redemption
and Call Rights.
The Series H Preferred Stock have no redemption or call rights.
6.
CONCENTRATION OF CREDIT RISK
The
Company’s portfolio of finance receivables is with consumers living throughout Alabama, Arizona, California, Florida, Georgia,
Illinois, Kentucky, Louisiana, Maryland, Missouri, Nevada, New Jersey, New Mexico, Ohio, Oregon, Pennsylvania, Texas, Utah, Virginia
and Wisconsin and consequently, such consumers’ ability to honor their installment contracts may be affected by economic
conditions in these areas.
The
Company maintains cash at financial institutions which may, at times, exceed federally insured limits.
At
June 30, 2017, the Company had cash and cash equivalents exceeding insured limits by $3,241,560.
IEG
HOLDINGS CORPORATION
NOTES
TO CONDENSED CONSOLIDATED UNAUDITED FINANCIAL STATEMENTS
JUNE
30, 2017
7.
COMMITMENTS AND CONTINGENCIES
Operating
Leases
The
Company renewed its operating facility lease effective October 1, 2016 under a non-cancelable operating lease that expires on
30 September 2017. Monthly rental payments under this lease are $4,693 plus a proportionate share of operating expenses. The Company
previously had leases for operating facilities in Florida, Illinois and Arizona all of which terminated during 2016. Total rent
expense for the six months ended June 30, 2017 and 2016 was $28,889 and $107,465 respectively. Total rent expense for the three
months ended June 30, 2017 and 2016 was $18,032 and $52,778 respectively. The Company is responsible for certain operating expenses
in connection with these leases.
Legal
Matters
From
time to time, the Company may be involved in legal proceedings in the normal course of its business. The Company is not involved
in any material legal proceedings at the present time.
Professional
Consulting Contract
The
Company has a professional consulting contract with its Chief Executive Officer (“CEO”), according to which, the Company
paid $0 and health insurance for the six months ended June 30, 2017. The Company is obligated to pay its CEO $1 annually plus
health insurance, with a discretionary bonus to be determined by the Company’s Board on December 31, 2017. There was no
bonus approved or paid for the year ended December 31, 2016.
Regulatory
Requirements
State
statutes authorizing the Company’s products and services typically provide state agencies that regulate banks and financial
institutions with significant regulatory powers to administer and enforce the law. Under statutory authority, state regulators
have broad discretionary power and may impose new licensing requirements, interpret or enforce existing regulatory requirements
in different ways, or issue new administrative rules. In addition, when the staff of state regulatory bodies change, it is possible
that the interpretations of applicable laws and regulations may also change.
Net
Profit Interest
The
Company has a net profit interest agreement with its lender, under which the Company pays 20% of its subsidiary IEC SPV LLC’s
net profit to the lender (see note 4).
8.
RELATED PARTY TRANSACTIONS
Chief
Executive Officer
During
the six months ended June 30, 2017 and six months ended June 30, 2016 the Company incurred compensation expense to our Chief Executive
Officer under the Professional Consulting Contract of $0 and $500,000 respectively. During the six months ended June 30, 2017
the company accrued dividends payable in the amount of $34,500 for our Chief Executive Officer. Preferred dividends in the amount
of $29,917 were paid in cash to our Chief Executive Officer during the six months ended June 30, 2016. During the three months
ended June 30, 2017 and three months ended June 30, 2016 the Company incurred compensation expense to our Chief Executive Officer
under the Professional Consulting Contract of $0 and $250,000 respectively.
Chief
Operating Officer
During
the six months ended June 30, 2017 and six months ended June 30, 2016 the Company incurred compensation expense to our Chief Operating
Officer of $115,000. During the six months ended June 30, 2017 the company accrued dividends payable in the amount of $10 for
our Chief Operating Officer. During the three months ended June 30, 2017 and three months ended June 30, 2016 the Company incurred
compensation expense to our Chief Operating Officer of $61,923.
IEG
HOLDINGS CORPORATION
NOTES
TO CONDENSED CONSOLIDATED UNAUDITED FINANCIAL STATEMENTS
JUNE
30, 2017
Consulting
Fees
During
the six months ended June 30, 2017 and six months ended June 30, 2016, the Company incurred director fees totaling $0 and $17,500,
respectively, to Matthew Banks, a former director of the Company. During the three months ended June 30, 2017 and three months
ended June 30, 2016, the Company incurred director fees totaling $0 and $9,000, respectively, to Matthew Banks, a former director
of the Company.
During
the six months ended June 30, 2017 and six months ended June 30, 2016, the Company incurred director fees totaling $0 and $17,500,
respectively to R & H Nominees Pty Ltd, which is owned by Harold Hansen, a former director of the Company. During the three
months ended June 30, 2017 and three months ended June 30, 2016, the Company incurred director fees totaling $0 and $9,000, respectively
to R & H Nominees Pty Ltd, which is owned by Harold Hansen, a former director of the Company.
During
the six months ended June 30, 2017 and six months ended June 30, 2016, the Company incurred consulting fees totaling $0 and $87,204,
respectively, to Frank Wilkie and related parties. Frank Wilkie is a shareholder of IEG Holdings Corporation. During the three
months ended June 30, 2017 and three months ended June 30, 2016, the Company incurred consulting fees totaling $0 and $86,954,
respectively, to Frank Wilkie and related parties. Frank Wilkie is a shareholder of IEG Holdings Corporation.
During
the six months ended June 30, 2017 and six months ended June 30, 2016, the Company incurred consulting fees totaling $20,000 and
$0, respectively, to Clem Tacca and related parties. Clem Tacca is a shareholder of IEG Holdings Corporation. During the three
months ended June 30, 2017 and three months ended June 30, 2016, the Company incurred consulting fees totaling $20,000 and $0,
respectively, to Clem Tacca and related parties. Clem Tacca is a shareholder of IEG Holdings Corporation.
During
the six months ended June 30, 2017 and six months ended June 30, 2016, the Company incurred consulting fees totaling $30,000 and
$13,200, respectively, to Judith Willoughby and related parties. Judith Willoughby is a shareholder of IEG Holdings Corporation.
During the three months ended June 30, 2017 and three months ended June 30, 2016, the Company incurred consulting fees totaling
$30,000 and $13,200, respectively, to Judith Willoughby and related parties. Judith Willoughby is a shareholder of IEG Holdings
Corporation.
During
the six months ended June 30, 2017 and six months ended June 30, 2016, the Company incurred consulting fees totaling $0 and $68,886,
respectively, to Ascendant SC Pty Ltd. Ascendant SC Pty Ltd is a shareholder of IEG Holdings Corporation. During the three months
ended June 30, 2017 and three months ended June 30, 2016, the Company incurred consulting fees totaling $0 and $68,886, respectively,
to Ascendant SC Pty Ltd. $35,000 of the consulting fee incurred in 2016 were offset as consideration for Common Stock on May 2,
2016. Ascendant SC Pty Ltd is a shareholder of IEG Holdings Corporation.
During
the six months ended June 30, 2017 and six months ended June 30, 2016, the Company incurred consulting fees totaling $50,000 and
$0, respectively, to Worldwide Holdings LLC. Worldwide Holdings LLC is a shareholder of IEG Holdings Corporation. During the three
months ended June 30, 2017 and three months ended June 30, 2016, the Company incurred consulting fees totaling $50,000 and $0,
respectively, to Worldwide Holdings LLC. Worldwide Holdings LLC is a shareholder of IEG Holdings Corporation.
9.
SUBSEQUENT EVENTS
Declaration of Dividend
On August 1, 2017, our sole director declared
a cash dividend of $0.005 per common share for the second quarter of 2017. The dividend is payable on August 21, 2017 to stockholders
of record at the close of business on August 11, 2017.
Mathieson Consulting Contract
On
July 1, 2017, we and Mr. Mathieson agreed to terminate, effective July 1, 2017, the January 1, 2017 Consulting Contract. Also
on July 1, 2017, Investment Evolution Corporation, a wholly owned subsidiary of the Company (“IEC”), and Mr. Mathieson
entered into a professional consulting contract, effective July 1, 2017 (the “July 1, 2017 Consulting Contract”).
Pursuant to the terms of the July 1, 2017 Consulting Contract, Mr. Mathieson agreed to provide regulatory and management consulting
services as requested by the Company and/or IEC. The 2017 Consulting Contract has a term of 1.5 years and renews automatically
for one year periods unless notice of termination is provided 30 days prior to the automatic renewal date. In exchange for Mr.
Mathieson’s services, the Company agreed to pay Mr. Mathieson $1,200,000 annually and a discretionary bonus to be determined
by the Company’s board of directors.
LendingClub
Tender Offer
On
July 12, 2017, the Company filed a registration statement on Form S-4 (the “S-4 Registration Statement”) and a Schedule
TO relating to the Company’s offer to exchange four shares of the Company’s common stock for each share of 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 common stock, representing approximately 9.99% of Lending Club’s outstanding shares as of April 28, 2017,
validly tendered and not properly withdrawn in the offer (the “Lending Club Tender Offer”). The 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 Lending Club Tender Offer, the Company’s per share stock price, as quoted on the OTCQB, dropped significantly.
On August 1, 2017, due to the stock price drop, the Company determined that the Lending Club Tender Offer no longer had a reasonable
chance of success and accordingly, the Company determined that it would terminate the Lending Club Tender Offer and withdraw the
S-4 Registration Statement. Furthermore, the Company has no intention of launching the Lending Club Tender Offer or another tender
offer in the near future. Any shares that have been tendered by Lending Club stockholders have not yet been accepted and will
be returned to the relevant stockholders.
IEG
HOLDINGS CORPORATION
NOTES
TO CONDENSED CONSOLIDATED UNAUDITED FINANCIAL STATEMENTS
JUNE
30, 2017
Replacement
Las Vegas Office Lease
The
Company entered into a new lease on August 1, 2017 under a non-cancelable operating lease that begins October 1, 2017 and expires
September 30, 2020 for 3960 Howard Hughes Parkway, Las Vegas and will relocate from the current Las Vegas office in September
2017. Monthly rental payments under this lease are $5,794, and the Company will be responsible for its pro rata shares of operating
expenses and property taxes.
Abandonment
of Reverse-Forward Stock Split and Cash-Out
On
June 21, 2017, the Company filed with the Securities and Exchange Commission (the “Commission”) 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 the Company’s sole director and holder of a majority of the voting power of
the issued and outstanding capital stock of the Company to effect a reverse 1-for-1,000 stock split (the “Reverse Split”),
followed immediately by a forward 1,000-for-1 stock split (the “Forward Split”) of the Company’s common stock.
The Company’s intention was that registered shareholders whose shares of stock were converted into less than one share in
the Reverse Split would receive cash payments equal to the fair value of those fractional interests. The Reverse Split and Forward
Split, together with the related cash payments to shareholders with less than 1,000 shares of common stock prior to the Reverse
Split are referred to herein as the “Reverse/Forward Split.”
On
July 18, 2017, the Company determined that it will not effect the Reverse/Forward Split at this time. Furthermore, the Company
has no intention of effecting the Reverse/Forward Split or any other reverse and/or forward split in the near future. For avoidance
of doubt, no reverse and/or forward split occurred on July 25, 2017, as originally disclosed in the Preliminary Information Statement,
and no stockholders were cashed out on July 25, 2017. Stockholders should disregard the Preliminary Information Statement that
was filed with the Commission in its entirety.
The Company’s determination to abandon
the Reverse/Forward Split was based on the Company’s launch, on July 12, 2017, of the Lending Club Tender Offer. The Company
launched the Lending Club Tender Offer on July 12, 2017, subsequent to the filing of the Preliminary Information Statement with
the Commission on June 21, 2017. The primary goal of the Reverse/Forward Split was cost savings from reducing administrative costs
associated with reducing shareholder accounts. The Company expected that a significant number of new shareholders may have been
obtained in connection with the Lending Club Tender Offer, including those holding fewer than 1,000 shares. As a result, the Company
determined that any expected cost savings may no longer be sufficient to justify proceeding with the Reverse/Forward Split. Although
the Company determined, on August 1, 2017, that it would abandon the Lending Club Tender Offer, the Company does not intend to
effect the Reverse/Forward Split or any other reverse and/or forward split in the near future. The Company notes that previously
completed reverse/forward stock splits have achieved substantial administrative cost savings, and have not been designed for the
purpose of “going private”.
Amendment
of Series H Preferred Stock
On
July 26, 2017, we filed articles of amendment (the “Amendment”) to our amended and restated articles of incorporation,
as amended. The Amendment has the effect of revising the terms of the Series H preferred stock to increase the conversion ratio
of the Series H preferred stock from one share of Common Stock per share of Series H preferred stock to four shares of Common
Stock per share of Series H preferred stock. The Amendment was approved by our sole director on July 26, 2017.