NOTES
TO CONDENSED CONSOLIDATED UNAUDITED FINANCIAL STATEMENTS
MARCH
31, 2018
1.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
General
The
quarterly report on Form 10-Q for the quarter ended March 31, 2018 should be read in conjunction with the Company’s financial
statements for the year ended December 31, 2017, contained in the Company’s annual report on Form 10-K for the fiscal year
ended December 31, 2017 as filed with the Securities and Exchange Commission (the “SEC”) on March 29, 2018. As contemplated
by the SEC under Article 8 of Regulation S-X, the accompanying financial statements and footnotes have been condensed and therefore
do not contain all disclosures required by generally accepted accounting principles (“GAAP”). The interim financial
data are unaudited, however in the opinion of IEG Holdings Corporation (“we, “our”, “us”) the interim
data includes all adjustments, consisting of only normal recurring adjustments, necessary for a fair statement of results for
the interim periods. Results of interim periods are not necessarily indicative of those to be expected for the full year.
Nature
of Business
The
principal business activity of the Company is providing unsecured online consumer loans under the brand name “Mr. Amazing
Loans” via the Company’s website and online application portal at www.mramazingloans.com. The Company started its
business and opened its first office in Las Vegas, Nevada in 2010. The Company currently offers $5,000 and $10,000 unsecured consumer
loans that mature, unless prepaid, five years from the date they are issued. The Company is a direct lender with state licenses
and/or certificates of authority in 20 states – Alabama, Arizona, California, Florida, Georgia, Illinois, Kentucky, Louisiana,
Maryland, Missouri, Nevada, New Jersey, New Mexico, Ohio, Oregon, Pennsylvania, Texas, Utah, Virginia and Wisconsin. The Company
originates direct consumer loans to residents of these states through its online application portal, with all loans originated,
processed and serviced out of its centralized Las Vegas head office.
Basis
of Accounting
These
consolidated financial statements include the operations of IEG Holdings Corporation and its wholly-owned subsidiaries, Investment
Evolution Corporation (“IEC”) and IEC SPV, LLC (“IEC SPV” and collectively with IEG Holdings Corporation
and IEC, the “Company”). All inter-company transactions and balances have been eliminated in consolidation.
The
Company’s accounting and reporting policies are in accordance with U.S. generally accepted accounting practices (“GAAP”)
and conform to general principles within the consumer finance industry.
The
consolidated financial statements have been prepared in conformity with GAAP. The accompanying consolidated financial statements
do not include any adjustments to reflect any possible future effects on the recoverability and classification of assets or the
amounts and classification of liabilities.
Liquidity
The
principal conditions and events that raise substantial doubt about the Company’s ability to meet its obligations as they
come due are:
(i)
the Company has reported recurring losses and
(ii)
the Company has not yet generated positive net cash flows from operations.
Management
has evaluated the result of their plans for the next 12 months and as a result of the plans, the Company can meet all its obligations
at least through April 2019. Management’s plans include a reduction of advertising costs to reduce loan originations and
related loan processing costs. There is also a significant reduction in consulting and professional fees due to minimized efforts
and strategy for raising capital over the next 12 months and a significant reduction in tender offer costs due to no planned future
tender offers in 2018. In addition, significant core operating costs have been cut from the Company starting in 2016 including
reducing the number of employees from 12 to 5 due to increased automation of loan origination processes and reducing the number
of office leases from 4 to 1 as old leases expired. The Company has also entered into a new 2018 consulting agreement with the
CEO that significantly reduces the CEO annual consulting expense by more than 50 percent beginning July 1, 2018. Management will
continue to reduce loan originations and now plans to utilize the cash flow from loan repayments for working capital needs. This
will provide sufficient cash flow through at least April 2019. However, the Company intends, over the next 12 months, to seek
additional capital via common shares, preference shares and/or debt financing to expand operations and the Company. The Board
of Directors approved a stock repurchase program in 2016 that expires end of 2018. However, management has no intention to repurchase
a significant number of shares unless additional capital has been secured.
IEG
HOLDINGS CORPORATION
NOTES
TO CONDENSED CONSOLIDATED UNAUDITED FINANCIAL STATEMENTS
MARCH
31, 2018
Use
of Estimates
The
preparation of consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions
that affect the reported amounts and disclosures. Management uses its historical records and knowledge of its business in making
these estimates. Accordingly, actual results may differ from these estimates.
Cash
and Cash Equivalents
For
the purpose of the statement of cash flows, the Company considers cash equivalents to include short-term, highly liquid investments
with an original maturity of three months or less.
Loans
Receivable and Interest Income
The
Company offers its loans at or below the prevailing statutory rates. Loans are carried at the unpaid principal amount outstanding,
net of an allowance for credit losses.
The
Company calculates interest revenue using the interest yield method. Charges for late payments are credited to income when collected.
Accrual
of interest income on loans receivable is suspended when no payment has been received on account for 91 days or more on a contractual
basis, at which time a loan is considered delinquent. Payments received on nonaccrual financing loans are first applied to the
unpaid accrued interest and then principal. Loans are returned to active status and accrual of interest income is resumed when
all of the principal and interest amounts contractually due are brought current; at which time management believes future payments
are reasonably assured. At March 31, 2018, 59 loans, with a total balance of $237,158 were delinquent or in default.
Allowance
for Credit Losses
The
Company maintains an allowance for credit losses due to the fact that it is probable that a portion of the loans receivable will
not be collected. The allowance is estimated by management based on various factors, including specific circumstances of the individual
loans, management’s knowledge of the industry, and the experience and trends of other companies in the same industry.
Our
portfolio of loans receivable consists of a large number of relatively small, homogenous accounts. The allowance for credit losses
is determined using a systematic methodology, based on a combination of historical bad debt of comparable companies. Impaired
loans are considered separately and 100% charged off.
The
allowance for credit losses is primarily based upon models that analyze specific portfolio statistics and also reflect, management’s
judgment regarding overall accuracy. We take into account several relevant internal and external factors that affect loan receivable
collectability, including the customer’s transaction history, specifically the timeliness of customer payments, the remaining
contractual term of the loan, the outstanding balance of the loan, historical loan receivable charge-offs, our current collection
patterns and economic trends.
Impaired
Loans
The
Company assesses loans for impairment individually when a loan is 91 days past due. The Company defines impaired loans as bankrupt
accounts and accounts that are 184 days or more past due. In accordance with the Company’s charge-off policy, once a loan
is deemed uncollectible, 100% of the remaining balance is charged-off. Loans can also be charged off when deemed uncollectible
due to consumer specific circumstances.
The
Company does not accrue interest on impaired loans and any recoveries of impaired loans are recorded to other revenue. Changes
in the allowance for credit losses are recorded as operating expenses in the accompanying statement of operations.
Property
and Equipment
Property
and equipment are stated at cost. Depreciation and amortization are being provided using the straight-line method over the estimated
useful lives of the assets as follows:
Classification
|
|
Life
|
Computer
equipment
|
|
5
years
|
Furniture
and fixtures
|
|
5-8
years
|
IEG
HOLDINGS CORPORATION
NOTES
TO CONDENSED CONSOLIDATED UNAUDITED FINANCIAL STATEMENTS
MARCH
31, 2018
The
Company amortizes its leasehold improvements over the shorter of their economic lives, which are generally five years, or the
lease term that considers renewal periods that are reasonably assured. Expenses for repairs and maintenance are charged to expense
as incurred, while renewals and betterments are capitalized. When assets are retired or otherwise disposed of, the cost and accumulated
depreciation are removed from the accounts and any gain or loss is reflected in the consolidated statement of operations.
Operating
Lease
The
Company’s office lease for 3960 Howard Hughes Parkway, Suite 490, Las Vegas, NV 89169 expires (unless renewed) on September
30, 2020.
Income
Taxes
We
account for income taxes using the liability method in accordance with the Financial Accounting Standards Board (“FASB”)
Accounting Standards Codification (“ASC”) 740 “Income Taxes”. To date, no current income tax liability
has been recorded due to our accumulated net losses. Deferred income tax assets and liabilities are recognized for temporary differences
between the financial statement carrying amounts of assets and liabilities and the amounts that are reported in the income tax
returns. Our net deferred income tax assets have been fully reserved by a valuation allowance due to the uncertainty of our ability
to realize future taxable income and to recover our net deferred income tax assets.
Advertising
Costs
Advertising
costs are expensed as incurred. Advertising costs amounted to $1,240 and $880 for the three months ended March 31, 2018 and 2017,
respectively.
Earnings
and Loss per Share
The
Company computes net earnings (loss) per share in accordance with ASC 260-10 that establishes standards for computing and presenting
net earnings (loss) per shares. Basic earnings (loss) per share are computed by dividing net income (loss) attributed to common
shareholders by the weighted average number of common shares outstanding during the period. Diluted earnings per share is computed
similar to basic earnings per share except that the denominator is increased to include the number of additional common shares
that would have been outstanding if the potential common shares, if any, had been issued and if the additional common shares were
dilutive.
Fair
Value of Financial Instruments
The
Company has adopted guidance issued by the FASB that defines fair value, establishes a framework for measuring fair value in accordance
with existing GAAP, and expands disclosures about fair value measurements. Assets and liabilities recorded at fair value in the
consolidated balance sheets are categorized based upon the level of judgment associated with the inputs used to measure their
fair value. The categories are as follows:
|
●
|
Level
I – Inputs are unadjusted, quoted prices for identical assets or liabilities in active markets at the measurement date.
|
|
|
|
|
●
|
Level
II – Inputs, other than quoted prices included in Level I that are observable for the asset or liability through corroboration
with market data at the measurement date.
|
|
|
|
|
●
|
Level
III – Unobservable inputs that reflect management’s best estimate of what market participants would use in pricing
the asset or liability at the measurement date.
|
The
following table summarizes fair value measurements by level at March 31, 2018 for assets and liabilities measured at fair value
on a recurring basis:
|
|
Level
I
|
|
|
Level
II
|
|
|
Level
III
|
|
|
Total
|
|
Cash
|
|
$
|
360,907
|
|
|
|
|
|
|
|
|
|
|
$
|
360,907
|
|
Loans
receivable, net
|
|
$
|
|
|
|
|
|
|
|
|
4,540,238
|
|
|
$
|
4,540,238
|
|
IEG
HOLDINGS CORPORATION
NOTES
TO CONDENSED CONSOLIDATED UNAUDITED FINANCIAL STATEMENTS
MARCH
31, 2018
The
following table summarizes fair value measurements by level at December 31, 2017 for assets and liabilities measured at fair value
on a recurring basis:
|
|
Level
I
|
|
|
Level
II
|
|
|
Level
III
|
|
|
Total
|
Cash
|
|
$
|
704,006
|
|
|
|
|
|
|
|
|
|
$
|
704,006
|
Loans
receivable, net
|
|
$
|
|
|
|
|
|
|
|
|
4,928,704
|
|
$
|
4,928,704
|
Loans
receivable are carried net of the allowance for credit losses, which is estimated by applying historical loss rates of our portfolio
and of other companies’ portfolios in the same industry with recent default trends to the gross loans receivable balance.
The unobservable inputs used to calculate the fair value of these loans include historical loss rates, recent default trends and
estimated remaining loan terms. Therefore, the carrying value of the loans receivable approximates the fair value.
Carrying
amounts reported in the consolidated balance sheets for other receivables, accounts payable, and accrued expenses approximate
fair value because of their immediate or short-term nature. The fair value of borrowings is not considered to be significantly
different than its carrying amount because the stated rates for such debt reflect current market rates and conditions.
Marketable
Securities
On
January 2, 2018 we purchased 500 shares of the common stock of Lending Club Corporation (“Lending Club”) for $2,092.
The security was classified as available-for-sale and had an unrealized loss of $194 prior to the sale. On March 19, 2018 we sold
500 shares of Lending Club’s common stock for $1,898. At March 31, 2018 the marketable securities balance was $0.
On
June 16, 2017, we closed our tender offer to purchase shares of the common stock of OneMain Holdings, Inc. (“OneMain”),
pursuant to which we acquired 151,994 shares of the common stock of OneMain (the cost of which was valued at an aggregate of $3.55
million based on the closing price of the shares of OneMain’s common stock of $23.38 on June 15, 2017) in exchange for 3,039,880
shares of the Company’s common stock. The security was classified as available-for-sale and had an unrealized loss of $153,514
prior to the sale. On June 22, 2017, we sold 100% of the 151,994 shares of OneMain’s common stock in exchange for $3.4 million
in cash.
Loss
on Sale of Marketable Securities
The
Company sold securities classified as available for sale for net proceeds of $1,898 resulting in a loss on sale totaling $194
during the three months ended March 31, 2018. The Company sold securities classified as available for sale for net proceeds of
$3,400,106 resulting in a loss on sale totaling $153,514 during the twelve months ended December 31, 2017.
Legal
Settlement and Related Fees
From
time to time, the Company may be involved in legal proceedings in the normal course of its business. The Company incurred one-off
legal settlements and related fees of $628,376 during the year ended December 31, 2017. Of this amount, $178,982 was in the form
of reductions to outstanding loan principal. These settlements related to an action by the State of Virginia under the Virginia
consumer lending program and a separate action by an individual customer. In addition, as part of the settlements, the annual
interest rate on all loans originated in Virginia have been reduced to 12% APR. As of March 31, 2018, there are $114,215 in outstanding
loans that originated in Virginia, which mature between August 2019 and February 2022. The Company is not involved in any material
legal proceedings at the present time.
Other
Comprehensive Income
The
Company’s other comprehensive income consists of unrealized gains (losses) on securities classified as available for sale
that are recorded as an element of shareholder’s equity but are excluded from net income.
Recent
Accounting Pronouncements
Recently
Issued or Newly Adopted Accounting Standards
In
May 2014, FASB issued Accounting Standards Update (“ASU”) No. 2014-09,
Revenue from Contracts with Customers
.
The standard will eliminate the transaction and industry specific revenue recognition guidance under current U.S. GAAP and replace
it with a principle based approach for determining revenue recognition. ASU 2014-09 is effective for annual and interim periods
beginning after December 15, 2017. Early adoption is not permitted. The revenue recognition standard is required to be applied
retrospectively, including any combination of practical expedients as allowed in the standard. In April 2016, the FASB issued
ASU 2016-10,
Revenue from Contracts with Customers (Topic 606)
, which amends certain aspects of the Board’s new revenue
standard, ASU 2014-09, Revenue from Contracts with Customers. The standard should be adopted concurrently with adoption of ASU
2014-09 which is effective for annual and interim periods beginning after December 15, 2017. Early adoption is permitted. As we
adopted these standards effective January 1, 2018, adoption of these changes have no impact on the consolidated financial statements.
IEG
HOLDINGS CORPORATION
NOTES
TO CONDENSED CONSOLIDATED UNAUDITED FINANCIAL STATEMENTS
MARCH
31, 2018
In
August 2014, the FASB issued ASU 2014-15,
Presentation of Financial Statements—Going Concern (Subtopic 205-40): Disclosure
of Uncertainties about an Entity’s Ability to Continue as a Going Concern
. ASU 2014-15 changes to the disclosure of
uncertainties about an entity’s ability to continue as a going concern. These changes require an entity’s management
to evaluate whether there are conditions or events, considered in the aggregate, that raise substantial doubt about the entity’s
ability to continue as a going concern within one year after the date that financial statements are issued. Substantial doubt
is defined as an indication that it is probable that an entity will be unable to meet its obligations as they become due within
one year after the date that financial statements are issued. If management has concluded that substantial doubt exists, then
the following disclosures should be made in the financial statements: (i) principal conditions or events that raised the substantial
doubt, (ii) management’s evaluation of the significance of those conditions or events in relation to the entity’s
ability to meet its obligations, (iii) management’s plans that alleviated the initial substantial doubt or, if substantial
doubt was not alleviated, management’s plans that are intended to at least mitigate the conditions or events that raise
substantial doubt, and (iv) if the latter in (iii) is disclosed, an explicit statement that there is substantial doubt about the
entity’s ability to continue as a going concern. These changes became effective for the Company for the 2016 annual period.
Our adoption of these changes had no material impact on the consolidated financial statements.
In
November 2015, the FASB issued ASU No. 2015-17,
Income Taxes
(Topic 740). The amendments in ASU 2015-17 change the requirements
for the classification of deferred taxes on the balance sheet. Currently, GAAP requires an entity to separate deferred income
tax liabilities and assets into current and noncurrent amounts in a classified statement of financial position. To simplify the
presentation of deferred income taxes, the amendments in this ASU require that deferred tax liabilities and assets be classified
as noncurrent in a classified statement of financial position. The pronouncement became effective for the 2017 fiscal year. Adoption
of these changes had no material impact on the consolidated financial statements.
In
January 2016, the FASB issued ASU 2016-01,
Financial Instruments – Overall
(Subtopic 825-10): Recognition and Measurement
of Financial Assets and Financial Liabilities. The update intends to enhance the reporting model for financial instruments to
provide users of financial statements with more decision-useful information and addresses certain aspects of the recognition,
measurement, presentation, and disclosure of financial instruments. The new standard affects all entities that hold financial
assets or owe financial liabilities. For public business entities, the amendments in this update are effective for fiscal years
beginning after December 15, 2017, including interim periods within those fiscal years. Management is evaluating the impact of
the adoption of these changes will have on the consolidated financial statements.
In
February 2016, the FASB issued ASU 2016-02,
Leases (Topic 842),
which supersedes existing guidance on accounting for leases
in “Leases (Topic 840)” and generally requires all leases to be recognized in the consolidated balance sheet. ASU
2016-02 is effective for annual and interim reporting periods beginning after December 15, 2018; early adoption is permitted.
The provisions of ASU 2016-02 are to be applied using a modified retrospective approach. The Company is currently evaluating the
impact of the adoption of this standard on its consolidated financial statements.
2.
LOANS RECEIVABLE
Loans
receivable consisted of the following at March 31, 2018 and December 31, 2017:
|
|
March
31, 2018
|
|
|
December
31, 2017
|
|
Loans
receivable
|
|
$
|
5,675,298
|
|
|
$
|
6,160,881
|
|
Allowance
for credit losses
|
|
$
|
(1,135,060
|
)
|
|
$
|
(1,232,177
|
)
|
Loans
receivable, net
|
|
$
|
4,540,238
|
|
|
$
|
4,928,704
|
|
A
reconciliation of the allowance for credit losses consist of the following at March 31, 2018 and December 31, 2017:
|
|
March
31, 2018
|
|
|
December
31, 2017
|
|
Beginning
balance, January 1
|
|
$
|
1,232,177
|
|
|
$
|
1,212,441
|
|
Provision
for credit losses
|
|
$
|
204,668
|
|
|
$
|
1,494,843
|
|
Loans
charged off
|
|
$
|
(301,785
|
)
|
|
$
|
(1,475,107
|
)
|
Ending
balance
|
|
$
|
1,135,060
|
|
|
$
|
1,232,177
|
|
Basis of assessment:
|
|
|
|
|
|
|
|
|
Individually
|
|
$
|
-
|
|
|
$
|
-
|
|
Collectively
|
|
$
|
1,135,060
|
|
|
$
|
1,232,177
|
|
IEG
HOLDINGS CORPORATION
NOTES
TO CONDENSED CONSOLIDATED UNAUDITED FINANCIAL STATEMENTS
MARCH
31, 2018
The
following is an age analysis of past due receivables as of March 31, 2018 and December 31, 2017:
|
|
31-60
Days Past Due
|
|
|
61-90
Days Past Due
|
|
|
Greater
than
90
Days
|
|
|
Total
Past Due
|
|
|
Current
|
|
|
Total
Financing Receivables
|
|
|
Recorded
Investment > 90 Days and not Accruing
|
|
March
31, 2018
|
|
$
|
143,829
|
|
|
$
|
88,416
|
|
|
$
|
237,158
|
|
|
$
|
469,403
|
|
|
$
|
5,205,895
|
|
|
$
|
5,675,298
|
|
|
$
|
237,158
|
|
December 31,
2017
|
|
$
|
157,988
|
|
|
$
|
84,640
|
|
|
$
|
327,705
|
|
|
$
|
570,334
|
|
|
$
|
5,590,547
|
|
|
$
|
6,160,881
|
|
|
$
|
327,705
|
|
The
Company’s primary credit quality indicator is the customer’s Vantage model 1.0 credit score as determined by Experian
on the date of loan origination. The Company does not update the customer’s credit profile during the contractual term of
the loan.
The
following is a summary of the loan receivable balance as of March 31, 2018 and December 31, 2017 by credit quality indicator:
Credit
Score
|
|
March
31, 2018
|
|
|
December
31, 2017
|
|
550-575
|
|
$
|
7,873
|
|
|
$
|
12,911
|
|
576-600
|
|
$
|
77,769
|
|
|
$
|
86,883
|
|
601-650
|
|
$
|
2,681,626
|
|
|
$
|
2,992,076
|
|
651-700
|
|
$
|
2,258,915
|
|
|
$
|
2,326,006
|
|
701-750
|
|
$
|
490,642
|
|
|
$
|
543,433
|
|
751-800
|
|
$
|
123,867
|
|
|
$
|
152,042
|
|
801-850
|
|
$
|
22,024
|
|
|
$
|
34,607
|
|
851-900
|
|
$
|
12,582
|
|
|
$
|
12,923
|
|
|
|
$
|
5,675,298
|
|
|
$
|
6,160,881
|
|
3.
PROPERTY AND EQUIPMENT
At
March 31, 2018 and December 31, 2017, property and equipment consisted of the following:
|
|
March
31, 2018
|
|
|
December
31, 2017
|
|
Computer
equipment
|
|
$
|
99,556
|
|
|
$
|
99,556
|
|
Furniture
and fixtures
|
|
|
21,303
|
|
|
|
21,303
|
|
Leasehold
improvements
|
|
|
2,000
|
|
|
|
2,000
|
|
|
|
$
|
122,859
|
|
|
$
|
122,859
|
|
Less
accumulated depreciation and amortization
|
|
|
110,907
|
|
|
|
109,483
|
|
Total
|
|
$
|
11,952
|
|
|
$
|
13,376
|
|
Depreciation
of property and equipment amounted to $1,425 and $1,573 during the three months ended March 31, 2018 and 2017, respectively. Depreciation
costs are included in the accompanying statements of operations in operating expenses.
4.
SENIOR DEBT
We
previously had a credit facility in the form of a line of credit with BFG Investment Holdings, LLC (“BFG”) in the
amount of $10,000,000 pursuant to a Loan and Security Agreement, as amended (the “Loan Agreement”), among BFG and
certain of our wholly-owned subsidiaries. In connection with the Loan Agreement, IEC SPV and certain of our other wholly-owned
subsidiaries entered into a profit sharing agreement with BFG pursuant to which IEC SPV is required to pay BFG 20% of its net
profit (“Net Profit”) for a period beginning on June 11, 2012 and ending 10 years from the date the Loan Agreement
is repaid in full. Net Profit is defined in the profit sharing agreement as gross revenue less (i) interest paid on the loan,
(ii) payments on any other debt incurred as a result of refinancing the loan through a third party, as provided in the Loan Agreement,
(iii) any costs, fees or commissions paid on account of the loan (including loan servicing fees of 0.5% on eligible consumer loans
receivable), and (iv) charge-offs to bad debt resulting from consumer loans. All of IEC SPV’s loans receivable as of March
31, 2018 were pledged as collateral for fulfillment of the Net Profit interest due.
Effective
as of July 15, 2015, BFG converted the credit facility from a revolving facility to a term loan and on August 21, 2015, we, through
certain of our wholly-owned subsidiaries, repaid the entire balance of principal and accrued interest under the Loan Agreement.
There is currently no outstanding balance under the Loan Agreement, but IEC SPV will be required to pay 20% of its Net Profit
to BFG until August 21, 2025 (10 years from August 21, 2015) or until we pay BFG $3,000,000 to terminate the profit sharing agreement.
Net Profit for the three months ended March 31, 2018 and 2017 was calculated at $0 and $18,577, respectively.
IEG
HOLDINGS CORPORATION
NOTES
TO CONDENSED CONSOLIDATED UNAUDITED FINANCIAL STATEMENTS
MARCH
31, 2018
5.
STOCKHOLDERS’ EQUITY
As
of March 31, 2018, the aggregate number of shares which the Company had the authority to issue is 350,000,000 shares, of which
300,000,000 shares are common stock, par value $0.001 per share, and 50,000,000 shares are preferred stock, par value $0.001 per
shares. At March 31, 2018, the Company had 17,463,449 shares of common stock issued and outstanding. The Company’s Board
of Directors is authorized at any time, and from time to time, to provide for the issuance of preferred stock in one or more series,
and to determine the designations, preferences, limitations and relative or other rights of the preferred stock or any series
thereof.
In
January 2017, the Company’s Board of Directors approved a stock repurchase program pursuant to which the Company may purchase
on the open market and at prevailing prices outstanding shares of the Company’s common stock with an aggregate value of
up to $2,000,000. During the three months ended March 31, 2018, the Company did not purchase any shares under the stock repurchase
program. During the year ended December 31, 2017, the Company purchased an aggregate of 458,973 shares under the stock repurchase
program for an aggregate purchase price of $287,404 and cancelled the 458,973 shares. On October 30, 2017, our Board of Directors
authorized the extension of the stock repurchase program from December 31, 2017 to December 31, 2018 under the same terms.
Common
Stock Dividends
Historically,
prior to 2017, we have not paid any cash dividends on our common stock. In May 2017, we announced the declaration of a cash dividend
of $0.005 per common share for the first quarter of 2017. The dividend was paid on August 21, 2017 to stockholders of record at
the close of business on June 5, 2017. In August 2017, we announced the declaration of a cash dividend of $0.005 per common share
for the second quarter of 2017. The dividend was paid on August 21, 2017 to stockholders of record at the close of business on
August 11, 2017. In October 2017, our Board of Directors declared a cash dividend of $0.005 per common share for the third quarter
of 2017 payable on November 20, 2017 to stockholders of record at the close of business on November 11, 2017. Future dividends,
if any, will be determined and paid annually instead of quarterly going forward in November each year as the administrative and
transfer agent costs and banking currency conversion fees for our predominately international shareholders results in quarterly
dividend costs being prohibitive. Payment of future dividends on our common stock, if any, will be at the discretion of our board
of directors and will depend on, among other things, our results of operations, cash requirements and surplus, financial condition,
contractual restrictions and other factors that our board of directors may deem relevant. We may determine to retain future earnings,
if any, for reinvestment in the development and expansion of our business.
Series
H Preferred Stock
During
the three months ended March 31, 2018 and year ended December 31, 2017, the Company issued 0 and 1,292,089 of Series H convertible
preferred stock, respectively, with a par value of $0.001 per share. At March 31, 2018, no shares of Series H convertible preferred
stock were outstanding. On December 31, 2017, all Series H preferred shares outstanding on issue converted into 5,168,356 common
shares.
6.
CONCENTRATION OF CREDIT RISK
The
Company’s portfolio of finance receivables is with consumers living throughout Alabama, Arizona, California, Florida, Georgia,
Illinois, Kentucky, Louisiana, Maryland, Missouri, Nevada, New Jersey, New Mexico, Ohio, Oregon, Pennsylvania, Texas, Utah, Virginia
and Wisconsin and consequently, such consumers’ ability to honor their installment contracts may be affected by economic
conditions in these areas.
The
Company maintains cash at financial institutions which may, at times, exceed federally insured limits.
At
March 31, 2018, the Company had cash and cash equivalents exceeding insured limits by $149,444.
7.
COMMITMENTS AND CONTINGENCIES
Operating
Leases
The
Company entered into a new non-cancelable operating lease on August 1, 2017, with a term commencing on September 19, 2017 and
expiring on September 30, 2020, for an office property located at 3960 Howard Hughes Parkway, Las Vegas. The Company relocated
its principal offices from the property located at 6160 West Tropicana Avenue, Las Vegas office in September 2017. Monthly rental
payments under the new operating lease are $5,794, and the Company is responsible for its pro rata shares of operating expenses
and property taxes. Total rent expense for the three months ended March 31, 2018 and 2017 was $17,988 and $10,857 respectively.
IEG
HOLDINGS CORPORATION
NOTES
TO CONDENSED CONSOLIDATED UNAUDITED FINANCIAL STATEMENTS
MARCH
31, 2018
Set
forth below is information regarding the Company’s future minimum rental payment as of March 31, 2018. Such payments relate
to the Company’s Las Vegas, NV lease.
|
12
Months Ending
|
|
12
Months Ending
|
|
|
12
Months Ending
|
|
|
|
|
|
|
|
|
March
31, 2019
|
|
March
31, 2020
|
|
|
March
31, 2021
|
|
|
Thereafter
|
|
|
Total
|
|
$
|
69,528
|
|
$
|
69,528
|
|
|
$
|
34,764
|
|
|
$
|
-
|
|
|
$
|
173,820
|
|
Legal
Matters
From
time to time, the Company may be involved in legal proceedings in the normal course of its business. The Company incurred one-off
legal settlements and related fees of $628,376 during the year ended December 31, 2017. Of this amount, $178,982 was in the form
of reductions to outstanding loan principal. These settlements related to an action by the State of Virginia under the Virginia
consumer lending program and a separate action by an individual customer. In addition, as part of the settlements, the annual
interest rate on all loans originated in Virginia have been reduced to 12% APR. As of March 31, 2018, there are $114,215 in outstanding
loans that originated in Virginia, which mature between August 2019 and February 2022. The Company is not involved in any material
legal proceedings at the present time.
Professional
Consulting Contract
The
Company has a professional consulting contract with Mr. Mathieson, the Company’s Chief Executive Officer (our “Chief
Executive Officer”) and the sole member of the Board of Directors, according to which the Company paid the Chief Executive
Officer $300,000 in cash and $0 in health insurance premiums and costs for the three months ended March 31, 2018 and $0 in cash
and $0 in health insurance premiums and costs for the three months ended March 31, 2017.
On
March 22, 2018, we entered into a new professional consulting contract with Mr. Mathieson (the “2018 Consulting Contract”)
and terminated the Professional Consulting Contract dated July 1, 2017 between Mr. Mathieson and the Company. Pursuant to the
terms of the 2018 Consulting Contract, Mr. Mathieson agreed to provide regulatory and management consulting services as requested
by IEG Holdings and/or IEC, including the hiring and compensation of IEC personnel, interaction with third party service providers
and vendors and, as requested by IEG Holdings, other activities that are designed to assist IEC in conducting business. The term
of the 2018 Consulting Contract begins as of July 1, 2018 continues indefinitely unless three months’ written notice of
termination is provided by either party.
In
exchange for Mr. Mathieson’s services, IEG Holdings agreed to pay Mr. Mathieson an annual base salary of $600,000, which
represents a 50% reduction in Mr. Mathieson’s annual salary, as compared to his current annual salary of $1,200,000 payable
under Mr. Mathieson’s consulting contract currently in effect (the “2017 Consulting Contract”). Pursuant to
the terms of the 2018 Consulting Contract, no bonus is to be paid to Mr. Mathieson by IEG Holdings. Pursuant to the terms of the
2018 Consulting Contract, fees are to be paid quarterly in advance on July 1st, October 1st, January 1st and April 1st beginning
on July 1, 2018. Unlike in prior years, IEG Holdings will not pay Mr. Mathieson’s health insurance premiums or any bonuses.
Mr. Mathieson will also receive reimbursement for all reasonable expenses incurred for the benefit of IEC, including but not limited
to travel expenses for him and his entourage, hotel expenses, communication, security and entertainment expenses.
Regulatory
Requirements
State
statutes authorizing the Company’s products and services typically provide state agencies that regulate banks and financial
institutions with significant regulatory powers to administer and enforce the law. Under statutory authority, state regulators
have broad discretionary power and may impose new licensing requirements, interpret or enforce existing regulatory requirements
in different ways, or issue new administrative rules. In addition, when the staff of state regulatory bodies change, it is possible
that the interpretations of applicable laws and regulations may also change.
IEG
HOLDINGS CORPORATION
NOTES
TO CONDENSED CONSOLIDATED UNAUDITED FINANCIAL STATEMENTS
MARCH
31, 2018
Net
Profit Interest
The
Company has a net profit interest agreement with a third party lender, under which the Company pays 20% of its subsidiary IEC
SPV LLC’s net profit to the lender (see note 4).
8.
RELATED PARTY TRANSACTIONS
Chief
Executive Officer
During
the three months ended March 31, 2018 and three months ended March 31, 2017 the Company incurred compensation expense to our Chief
Executive Officer under the Professional Consulting Contract and previously-terminated consulting contracts between the Company
and the Chief Executive Officer of $300,000 and $0 respectively.
Chief
Operating Officer
During
the three months ended March 31, 2018 and three months ended March 31, 2017 the Company incurred compensation expense to our Chief
Operating Officer of $57,500.
Consulting
Fees
During
the three months ended March 31, 2018 and three months ended March 31, 2017, the Company incurred consulting fees totaling $30,000
and $0, respectively, to Sam Prasad and related entities. Sam Prasad is a shareholder of IEG Holdings Corporation.
9.
SUBSEQUENT EVENTS
None.