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 September 30, 2017March 31, 2018

 

[  ]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

 

IEG HOLDINGS 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 and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted 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 and post 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[X]  ]
    
Non-accelerated filer[  ]Smaller reporting company[  ]X]
(Do (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 November 8, 2017,April 23, 2018, there were 12,335,29317,463,449 shares of the registrant’s common stock, par value $0.001 per share, outstanding.

 

 

 
 

 

IEG HOLDINGS CORPORATION

 

INDEX

 

 Page
  
PART I - FINANCIAL INFORMATION4
 
Item 1.Financial Statements4
  
Item 2.Management’s Discussion and Analysis of Financial Condition and Results of Operations1817
  
Item 3.Quantitative and Qualitative Disclosures About Market Risk2723
  
Item 4.Controls and Procedures2724
 
PART II - OTHER INFORMATION2824
 
Item 1.Legal Proceedings2824
  
Item 1A.Risk Factors2824
  
Item 2.Unregistered Sales of Equity Securities and Use of Proceeds2824
  
Item 3.Defaults Upon Senior Securities2824
  
Item 4.Mine Safety Disclosures2824
  
Item 5.Other Information2924
  
Item 6.Exhibits2925
  
Signatures3026

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 SEC filings, 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, 2016,2017, as filed with the Securities and Exchange Commission (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

 

IEG HOLDINGS CORPORATION

CONDENSED CONSOLIDATED BALANCE SHEETS

SEPTEMBER 30, 2017MARCH 31, 2018 AND DECEMBER 31, 20162017

 

 September 30, 2017 December 31, 2016 
 (Unaudited) (Audited)  March 31, 2018 December 31, 2017 
      (Unaudited) (Audited) 
ASSETS                
Cash and cash equivalents $1,850,317  $322,441  $360,907  $704,006 
Loans receivable, net, note 2  4,975,770   6,374,908   4,540,238   4,928,704 
Other receivables  70,657   84,851   53,572   75,364 
Prepaid expenses  30,126   12,955   6,187   18,238 
Property and equipment, net, note 3  14,827   19,322   11,952   13,376 
Security deposits  13,264   7,470   11,234   11,234 
                
TOTAL ASSETS $6,954,961  $6,821,947  $4,984,090  $5,750,922 
                
LIABILITIES AND STOCKHOLDERS’ EQUITY                
                
LIABILITIES                
Deposit on preferred stock to be issued $63,595  $- 
Accounts payable and accrued expenses  158,166   1,060  $327,806  $51,053 
                
TOTAL LIABILITIES $221,761  $1,060  $327,806  $51,053 
                
COMMITMENTS AND CONTINGENCIES, note 7                
                
STOCKHOLDERS’ EQUITY                
Preferred stock, $0.001 par value; 50,000,000 shares authorized,0 and 0 shares issued and outstanding at September 30, 2017 and December 31, 2016 respectively, note 5  -   - 

Common stock, $0.001 par value; 300,000,000 shares authorized,

12,335,293 and 9,714,186 shares issued and outstanding at

September 30, 2017 and December 31, 2016 respectively, note 5

  2,235,803   2,233,182 
Preferred stock, $0.001 par value; 50,000,000 shares authorized, 0 and 0 shares issued and outstanding at March 31, 2018 and December 31, 2017 respectively, note 5  -   - 
Common stock, $0.001 par value; 300,000,000 shares authorized, 17,463,449 and 17,463,449 shares issued and outstanding at March 31, 2018 and December 31, 2017 respectively, note 5  2,240,931   2,240,931 
Additional paid-in capital  32,860,217   29,698,025   34,074,976   34,074,976 
Accumulated deficit  (28,362,820)  (25,110,319)  (31,659,623)  (30,616,038)
                
TOTAL STOCKHOLDERS’ EQUITY  6,733,200   6,820,887   4,656,284   5,699,869 
                
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY $6,954,961  $6,821,947  $4,984,090  $5,750,922 

 

See notes to condensed consolidated unaudited Financial Statements

4 

IEG HOLDINGS CORPORATION

CONDENSED CONSOLIDATED UNAUDITED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME

FOR THE THREE MONTHS ENDED MARCH 31, 2018 AND NINE MONTHS ENDED SEPTEMBER 30, 2017 AND 2016

 

 Three Months Ended Nine Months Ended 
 September 30, 2017 September 30, 2016 September 30, 2017 September 30, 2016  March 31, 2018 March 31, 2017 
REVENUES                        
Interest revenue $386,565  $547,551  $1,238,280  $1,586,723  $381,548  $450,729 
Other revenue  20,805   10,000   50,414   41,156   12,794   16,654 
                        
TOTAL REVENUES  407,370   557,551   1,288,694   1,627,879   394,342   467,383 
                        
OPERATING EXPENSES                        
Salaries and compensation  419,144   397,795   658,347   1,207,124   412,099   120,278 
Other operating expenses  104,985   165,264   299,551   553,401   146,287   115,204 
Provision for credit losses  300,205   257,907   919,529   1,000,344   204,668   224,488 
Advertising  180,808   92,593   184,268   313,902   1,240   880 
Rent  23,826   47,373   52,715   154,838   17,988   10,857 
Public company and corporate finance expenses  449,321   577,632   1,644,856   1,588,411   654,089   498,191 
Depreciation and amortization  1,451   3,212   4,495   7,045   1,425   1,573 
                        
TOTAL OPERATING EXPENSES  1,479,740   1,541,776   3,763,761   4,825,065   1,437,796   971,471 
                        
LOSS FROM OPERATIONS  (1,072,370)  (984,225)  (2,475,067)  (3,197,186)  (1,043,454)  (504,088)
                        
OTHER INCOME (EXPENSE)                        
Loss on sale of marketable securities  -   -   (153,514)  -   (194)  - 
Legal settlements and related fees  (624,283)  -   (624,283)  - 
Miscellaneous income (expense)  74   (324)  363   11,426   63   149 
                        
TOTAL OTHER INCOME (EXPENSE)  (624,209)  (324)  (777,434)  11,426   (131)  149 
                        
NET LOSS $(1,696,579) $(984,549) $(3,252,501) $(3,185,760) $(1,043,585) $(503,939)
                        
Dividends on preferred shares  -   (1,875)  -   (33,235)  -   - 
                        
Net loss attributable to common stockholders  (1,696,579)  (986,424)  (3,252,501)  (3,218,995)  (1,043,585)  (503,939)
                        
CONDENSED STATEMENT OF COMPREHENSIVE INCOME (LOSS)                        
Unrealized loss on marketable securities  -   -   (153,514)  -   (194)  - 
Less: Reclassified adjustment for losses included in net loss  -   -   153,514   -   194   - 
Comprehensive loss attributable to common stockholders  (1,696,579)  (986,424)  (3,252,501)  (3,218,995)  (1,043,585)  (503,939)
                        
Net loss attributable to common stock per share, basic and diluted $(0.13) $(0.10) $(0.30) $(0.44) $(0.06) $(0.05)
                        
Weighted average number of common shares outstanding, basic and diluted  12,708,547   9,570,221   10,901,436   7,332,923   17,463,449   9,714,186 

 

See notes to condensed consolidated unaudited Financial Statements

5 

 

IEG HOLDINGS CORPORATION

CONDENSED CONSOLIDATED UNAUDITED STATEMENTS OF STOCKHOLDERS’ EQUITY

FOR THE PERIOD FROM JANUARY 1, 20162017 THROUGH SEPTEMBER 30, 2017MARCH 31, 2018

 

           Prepaid     Accumulated                Accumulated   
   Preferred Stock Preferred Stock Preferred Stock Additional Preferred     Other        Preferred Stock Additional   Other   
 Common Stock Series A Series G Series H Paid-in Share Subscription Accumulated Comprehensive    Common Stock Series H Paid-in Accumulated Comprehensive   
 Shares Amount Shares Amount Shares Amount Shares Amount Capital Redemption Receivable Deficit Income Total  Shares Amount Shares Amount Capital Deficit Income Total 
                             
Balance, January 1, 2016  2,887,428  $2,165,405   1,000,000  $1,000   160,000  $160   -  $-  $26,025,071  $(160,000) $-  $(20,381,450) $-  $7,650,186 
                                                        
Prepaid Preferred Share Redemption                  (160,000)  (160)          (159,840)  160,000               - 
                                                        
Issuance of shares at $50.00  370   4                           18,496                   18,500 
                                                        
Issuance of Preferred Shares  -   -   -   -           3,071,000   3,071   3,067,929       (2,825,000)  -       246,000 
                                                        
Conversion of Preferred Shares to Common Shares  6,400,000   64,000   (1,000,000)  (1,000)                  (63,000)  -       -       - 
                                                        
Issuance of shares at $10.00  386,718   3,867                           3,863,321                   3,867,188 
                                                        
Buyback of shares  (14,750)  (148)                          (208,952)                  (209,099)
                                                        
Issuance of shares for reverse split rounding  218   0                           -                   - 
                                                        
Issuance of shares for consulting fee offset  5,000   5                           12,495                   12,500 
                                                        
Conversion of Preferred Shares to Common Shares  49,200   49                   (246,000)  (246)  197                   - 
                                                        
Preferred Share Cancellation                          (2,825,000)  (2,825)  (2,822,175)      2,825,000           - 
                                                        
Preferred Dividends  -   -   -   -   -   -   -   -   (35,517)  -       -       (35,517)
                                                        
Net loss  -   -   -   -   -   -   -   -   -   -   -   (4,728,869)  -   (4,728,869)
                                                        
Balance, December 31, 2016  9,714,186  $2,233,182   -  $-   -  $-   -  $-  $29,698,025  $-  $-  $(25,110,319) $-  $6,820,887 
Balance, January 1, 2017  9,714,186  $2,233,182   -  $-  $29,698,025  $(25,110,319) $-  $6,820,887 
                                                                                        
Issuance of shares for OneMain tender offer  3,039,880   3,040                           3,550,580                   3,553,620   3,039,880   3,040           3,550,580           3,553,620 
                                                                                        
Unrealized loss on marketable securities                                                  (153,514)  (153,514)                          (153,514)  (153,514)
                                                                                        
Reclassified adjustment for loss on marketable securities to net loss                                                  153,514   153,514                           153,514   153,514 
                                                                                        
Buyback of shares  (418,773)  (419)                          (276,461)                  (276,880)  (458,973)  (459)          (286,945)          (287,404)
                                                                                        
Issuance of Preferred Shares  -   -   1,292,089   1,292   1,290,797           1,292,089 
                                
Conversion of Preferred Shares to Common Shares  5,168,356   5,168   (1,292,089)  (1,292)  (3,876)          - 
                                
Common Stock Dividends                                  (111,927)                  (111,927)                  (173,605)          (173,605)
                                                                                        
Net loss  -   -   -   -   -   -   -   -   -   -   -   (3,252,501)  -   (3,252,501)  -   -   -   -   -   (5,505,719)  -   (5,505,719)
                                                                                        
Balance, September 30, 2017  12,335,293  $2,235,803   -  $-   -  $-   -  $-  $32,860,217  $-  $-  $(28,362,820) $-  $6,733,200 
Balance, December 31, 2017  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 

 

See notes to condensed consolidated unaudited Financial Statements

6 

 

IEG HOLDINGS CORPORATION

CONDENSED CONSOLIDATED UNAUDITED STATEMENTS OF CASH FLOWS

FOR THE NINETHREE MONTHS ENDED SEPTEMBER 30,MARCH 31, 2018 AND 2017 AND 2016

 

 September 30, 2017 September 30, 2016  March 31, 2018 March 31, 2017 
CASH FLOWS FROM OPERATING ACTIVITIES:                
Net loss $(3,252,501) $(3,185,760) $(1,043,585) $(503,939)
Adjustments to reconcile net loss to net cash used in operating activities:                
Provision for credit losses  919,529   1,000,344   204,668   224,488 
Depreciation and amortization  4,495   7,045   1,425   1,573 
Loss on disposal of assets  -   571 
Loss on marketable securities sold  153,514   -   194   - 
Legal settlements and related fees  178,982   - 
Changes in assets - (increase) decrease:                
Other receivables  14,194   (65,063)  21,792   11,942 
Prepaid expenses  (17,171)  3,613   12,051   (7,374)
Deposits  (5,794)  28,369 
Changes in liabilities - increase (decrease):                
Accounts payable and accrued expenses  157,107   126,678   276,751   55,110 
Deferred rent  -   (11,522)
                
NET CASH USED IN OPERATING ACTIVITIES  (1,847,645)  (2,095,725)  (526,704)  (218,200)
                
CASH FLOWS FROM INVESTING ACTIVITIES:                
Sale of marketable securities  3,400,106   - 
Loans receivable originated  (1,140,000)  (2,695,000)  (290,000)  (140,000)
Loans receivable repaid  1,440,627   1,568,668   473,799   482,391 
Purchase of marketable securities  (2,092)  - 
Sale of marketable securities  1,898   - 
                
NET CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES  3,700,733   (1,126,332)
        
CASH FLOWS FROM FINANCING ACTIVITIES:        
Preferred dividends paid  -   (29,917)
Common stock dividends paid  (111,927)  - 
Payments for buyback of common stock  (276,880)  (130,769)
Deposits on preferred shares to be issued  63,595   - 
Proceeds from issuance of preferred stock  -   93,050 
Proceeds from issuance of common stock  -   3,728,686 
        
NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES  (325,212)  3,661,050 
NET CASH PROVIDED BY INVESTING ACTIVITIES  183,605   342,391 
                
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS  1,527,876   438,993   (343,099)  124,191 
                
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR  322,441   485,559   704,006   322,441 
                
CASH AND CASH EQUIVALENTS, END OF YEAR $1,850,317  $924,552  $360,907  $446,632 
                
Supplemental disclosures:                
Interest paid in cash $-  $-  $-  $- 
Income taxes paid in cash $-  $-  $-  $- 
Issuance of common stock for tender offer $3,553,620  $- 
Issuance of common stock in lieu of consulting fees $-  $157,000 

 

See notes to condensed consolidated unaudited Financial Statements

7 

 

IEG HOLDINGS CORPORATION

NOTES TO CONDENSED CONSOLIDATED UNAUDITED FINANCIAL STATEMENTS

SEPTEMBER 30, 2017MARCH 31, 2018

 

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

 

General

 

The quarterly report on Form 10-Q for the quarter ended September 30, 2017March 31, 2018 should be read in conjunction with the Company’s financial statements for the year ended December 31, 2016,2017, contained in the Company’s annual report on Form 10-K for the fiscal year ended December 31, 20162017 as filed with the Securities and Exchange Commission (the “SEC”) on March 8, 2017.29, 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. GAAPgenerally accepted accounting practices (“GAAP”) and conform to general practicesprinciples 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)

(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 has significantly increased during the nine months ended September 30, 2017, resulting from substantial positive net cash flows from investing activities specifically from the sale of shares of OneMain’s common stock acquired in connection with the OneMain tender offer. 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 NovemberApril 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 will requireintends, over the next 12 months, to seek additional capital in ordervia common shares, preference shares and/or debt financing to expand its operations. 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.

8 

IEG HOLDINGS CORPORATION

NOTES TO CONDENSED CONSOLIDATED UNAUDITED FINANCIAL STATEMENTS

SEPTEMBER 30, 2017

 

Loans Receivable and Interest Income

 

The Company offers its loans at or below the prevailing statutory rates. Loans are carried at the unpaid principal amount outstanding, net of an allowance for credit losses.

 

The Company calculates interest revenue using the interest yield method. Charges for late payments are credited to income when collected.

 

Accrual of interest income on loans receivable is suspended when no payment has been received on account for 91 days or more on a contractual basis, at which time a loan is considered delinquent. Payments received on nonaccrual financing loans are first applied to the unpaid accrued interest and then principal. Loans are returned to active status and accrual of interest income is resumed when all of the principal and interest amounts contractually due are brought current; at which time management believes future payments are reasonably assured. At September 30, 2017, 81March 31, 2018, 59 loans, with a total balance of $326,000$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 the allowance for credit losses.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.

9 

IEG HOLDINGS CORPORATION

NOTES TO CONDENSED CONSOLIDATED UNAUDITED FINANCIAL STATEMENTS

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.

 

Advertising Costs

 

Advertising costs are expensed as incurred. Advertising costs amounted to $184,268$1,240 and $313,902 for the nine months ended September 30, 2017 and 2016, respectively. Advertising costs amounted to $180,808 and $92,593$880 for the three months ended September 30,March 31, 2018 and 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 September 30,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 $1,850,317             $1,850,317 
Loans receivable, net $        4,975,770  $4,975,770 

  Level I  Level II  Level III  Total
Cash $704,006           $704,006
Loans receivable, net $       4,928,704 $4,928,704

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 

10 

IEG HOLDINGS CORPORATION

NOTES TO CONDENSED CONSOLIDATED UNAUDITED FINANCIAL STATEMENTS

SEPTEMBER 30, 2017

 

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. At September 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 $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 ninetwelve months ended September 30,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 $624,283$628,376 during the nine monthsyear ended September 30,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 September 30, 2017,March 31, 2018, there are $230,227$114,215 in outstanding loans that originated in Virginia, which mature between MayAugust 2019 and AprilFebruary 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. We are evaluatingIn April 2016, the impact, if any,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 to ourwhich 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 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.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 havehad no material impact on the consolidated financial statements.

11 

IEG HOLDINGS CORPORATION

NOTES TO CONDENSED CONSOLIDATED UNAUDITED FINANCIAL STATEMENTS

SEPTEMBER 30, 2017

 

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 havehad 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.

 

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 September 30, 2017March 31, 2018 and December 31, 2016:2017:

 

 September 30, 2017 December 31, 2016  March 31, 2018 December 31, 2017 
Loans receivable $5,923,536  $7,587,349  $5,675,298  $6,160,881 
Allowance for credit losses $(947,766) $(1,212,441) $(1,135,060) $(1,232,177)
Loans receivable, net $4,975,770  $6,374,908  $4,540,238  $4,928,704 

 

A reconciliation of the allowance for credit losses consist of the following at September 30, 2017March 31, 2018 and December 31, 2016:2017:

 

 September 30, 2017 December 31, 2016  March 31, 2018 December 31, 2017 
Beginning balance, January 1 $1,212,441  $985,375  $1,232,177  $1,212,441 
Provision for credit losses $919,529  $1,865,362  $204,668  $1,494,843 
Loans charged off $(1,184,204) $(1,638,296) $(301,785) $(1,475,107)
Ending balance $947,766  $1,212,441  $1,135,060  $1,232,177 
Basis of assessment:                
Individually $-  $-  $-  $- 
Collectively $947,766  $1,212,441  $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 September 30, 2017March 31, 2018 and December 31, 2016:2017:

 

12 

IEG HOLDINGS CORPORATION

NOTES TO CONDENSED CONSOLIDATED UNAUDITED FINANCIAL STATEMENTS

SEPTEMBER 30, 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 
September 30, 2017 $192,718  $109,195  $326,000  $627,913  $5,295,623  $5,923,536  $326,000 
December 31, 2016 $257,299  $163,590  $367,098  $787,987  $6,799,362  $7,587,349  $367,098 
  

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 September 30, 2017March 31, 2018 and December 31, 20162017 by credit quality indicator:

 

Credit Score September 30, 2017 December 31, 2016  March 31, 2018 December 31, 2017 
550-575 $13,528  $16,264  $7,873  $12,911 
576-600 $97,926  $183,701  $77,769  $86,883 
601-650 $2,665,973  $3,332,371  $2,681,626  $2,992,076 
651-700 $2,286,572  $2,946,944  $2,258,915  $2,326,006 
701-750 $651,491  $874,408  $490,642  $543,433 
751-800 $157,504  $166,811  $123,867  $152,042 
801-850 $36,797  $46,368  $

22,024

  $

34,607

 
851-900 $13,744  $20,482  $12,582  $12,923 
 $5,923,536  $7,587,349  $5,675,298  $6,160,881 

 

3. PROPERTY AND EQUIPMENT

 

At September 30, 2017March 31, 2018 and December 31, 2016,2017, property and equipment consistsconsisted of the following:

 

 September 30, 2017 December 31, 2016  March 31, 2018 December 31, 2017 
Computer equipment $99,556  $99,556  $99,556  $99,556 
Furniture and fixtures  21,303   21,303   21,303   21,303 
Leasehold improvements  7,112   7,112   

2,000

   

2,000

 
 $127,971  $127,971  $122,859  $122,859 
Less accumulated depreciation and amortization  113,144   108,649   110,907   109,483 
Total $14,827  $19,322  $11,952  $13,376 

 

Depreciation of property and equipment amounted to $4,495$1,425 and $7,045 during the nine months ended September 30, 2017 and 2016, respectively. Depreciation of property and equipment amounted to $1,451 and $3,212$1,573 during the three months ended September 30,March 31, 2018 and 2017, and 2016, 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 September 30, 2017March 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 ninethree months ended September 30,March 31, 2018 and 2017 and 2016 was calculated at $0 and $96,083,$18,577, respectively.

 

5. STOCKHOLDERS’ EQUITY

On June 16, 2017, we closed our tender offer to purchase shares of the common stock of OneMain, pursuant to which we acquired 151,994 shares of the common stock of OneMain (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.

13 

IEG HOLDINGS CORPORATION

NOTES TO CONDENSED CONSOLIDATED UNAUDITED FINANCIAL STATEMENTS

SEPTEMBER 30, 2017MARCH 31, 2018

 

5. STOCKHOLDERS’ EQUITY

As of September 30, 2017,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 September 30, 2017,March 31, 2018, the Company had 12,335,29317,463,449 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 ninethree months ended September 30,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 418,773458,973 shares under the stock repurchase program for an aggregate purchase price of $276,880$287,404 and cancelled the 418,773458,973 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. We expectIn 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 pay ongoing dividends.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 ninethree months ended September 30, 2017March 31, 2018 and year ended December 31, 2016,2017, the Company issued 0 and 3,071,0001,292,089 of Series H convertible preferred stock, respectively, with a par value of $0.001 per share. At September 30, 2017,March 31, 2018, no shares of Series H convertible preferred stock were outstanding. At September 30,On December 31, 2017, we held deposits on 63,595all Series H preferred shares to be issued of $63,595. These shares we subsequently issuedoutstanding on October 30, 2017.

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, par value $0.001 per share, of which no shares are outstanding as of September 30, 2017. There are no sinking fund provisions applicable to our Series H preferred stock.

Ranking.The Series H preferred stock rankspari 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 sharesissue converted into shares of our5,168,356 common stock:

●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 four (4) shares of Common Stock for each share of Series H Preferred Stock.
●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.

●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.

14 

IEG HOLDINGS CORPORATION

NOTES TO CONDENSED CONSOLIDATED UNAUDITED FINANCIAL STATEMENTS

SEPTEMBER 30, 2017

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.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 September 30, 2017,March 31, 2018, the Company had cash and cash equivalents exceeding insured limits by $1,129,171.$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. In addition to the 6160 West Tropicana Avenue, Las Vegas office lease that expired on September 30, 2017, the Company previously had leases for operating facilities in Florida, Illinois and Arizona all of which terminated during 2016. Total rent expense for the nine months ended September 30, 2017 and 2016 was $52,715 and $154,838 respectively. Total rent expense for the three months ended September 30,March 31, 2018 and 2017 was $17,988 and 2016 was $23,826 and $47,373$10,857 respectively. The Company

IEG HOLDINGS CORPORATION

NOTES TO CONDENSED CONSOLIDATED UNAUDITED FINANCIAL STATEMENTS

MARCH 31, 2018

Set forth below is responsible for certain operating expenses in connection with these leases.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 $624,283$628,376 during the nine monthsyear ended September 30,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 September 30, 2017,March 31, 2018, there are $230,227$114,215 in outstanding loans that originated in Virginia, which mature between MayAugust 2019 and AprilFebruary 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 ninethree months ended September 30,March 31, 2018 and $0 in cash and $0 in health insurance premiums and costs for the three months ended March 31, 2017.

On July 1, 2017,March 22, 2018, we and our Chief Executive Officer agreed to terminate, effective July 1, 2017, the consulting contract dated January 1, 2017 between our Chief Executive Officer and the Company pursuant to which the Company was required to pay Mr. Mathieson $1,000,000 annually in exchange for certain consulting services. Concurrently with the termination of that consulting contract, IEC and our Chief Executive Officer entered into a new professional consulting contract effective as ofwith Mr. Mathieson (the “2018 Consulting Contract”) and terminated the Professional Consulting Contract dated July 1, 2017 (the “Professional Consulting Contract”).between Mr. Mathieson and the Company. Pursuant to the terms of the Professional2018 Consulting Contract, our Chief Executive OfficerMr. Mathieson agreed to provide regulatory and management consulting services as requested by the CompanyIEG Holdings and/or IEC.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 Professionalterm of the 2018 Consulting Contract has a termbegins as of 1.5 years and renews automatically for successive one-year periodsJuly 1, 2018 continues indefinitely unless three months’ written notice of termination is provided 30 days prior to the automatic renewal date. by either party.

In exchange for theMr. Mathieson’s services, provided to the Company and/or IEC by our Chief Executive Officer, IECIEG Holdings agreed to pay himMr. 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 annuallypayable under Mr. Mathieson’s consulting contract currently in quarterly paymentseffect (the “2017 Consulting Contract”). Pursuant to the terms of $300,000 duethe 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 each quarteron July 1st, October 1st, January 1st and to provideApril 1st beginning on July 1, 2018. Unlike in prior years, IEG Holdings will not pay Mr. Mathieson’s health insurance benefits as well as a discretionary bonus to be determined by the Company’s Board of Directors, which consists solely ofpremiums or any bonuses. Mr. Mathieson. There was no bonus approved or paidMathieson will also receive reimbursement for all reasonable expenses incurred for the year ended December 31, 2016 orbenefit of IEC, including but not limited to travel expenses for the nine months ended September 30, 2017.

15 

IEG HOLDINGS CORPORATION

NOTES TO CONDENSED CONSOLIDATED UNAUDITED FINANCIAL STATEMENTS

SEPTEMBER 30, 2017him 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 ninethree months ended September 30, 2017March 31, 2018 and ninethree months ended September 30, 2016March 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 $750,000 respectively. During the nine months ended September 30, 2017 the company paid in cash common share dividends in the amount of $69,000 to our Chief Executive Officer and preferred share dividends in the amount of $29,917 were paid in cash to our Chief Executive Officer during the nine months ended September 30, 2016. During the three months ended September 30, 2017 and three months ended September 30, 2016 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 $250,000$0 respectively.

 

Chief Operating Officer

 

During the nine months ended September 30, 2017 and nine months ended September 30, 2016 the Company incurred compensation expense to our Chief Operating Officer of $172,500. During the nine months ended September 30, 2017 the company paid in cash common share dividends in the amount of $20 to our Chief Operating Officer. During the three months ended September 30, 2017March 31, 2018 and three months ended September 30, 2016March 31, 2017 the Company incurred compensation expense to our Chief Operating Officer of $57,500.

 

Consulting Fees

 

During the nine months ended September 30, 2017 and nine months ended September 30, 2016, the Company incurred director fees totaling $0 and $26,500, respectively, to Matthew Banks, a former director of the Company. During the three months ended September 30, 2017March 31, 2018 and three months ended September 30, 2016, the Company incurred director fees totaling $0 and $9,000, respectively, to Matthew Banks, a former director of the Company.

During the nine months ended September 30,March 31, 2017, and nine months ended September 30, 2016, the Company incurred director fees totaling $0 and $26,500, respectively to R & H Nominees Pty Ltd, which is owned by Harold Hansen, a former director of the Company. During the three months ended September 30, 2017 and three months ended September 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 nine months ended September 30, 2017 and nine months ended September 30, 2016, the Company incurred consulting fees totaling $0 and $120,404, respectively, to Frank Wilkie and related parties. Frank Wilkie is a shareholder of IEG Holdings Corporation. During the three months ended September 30, 2017 and three months ended September 30, 2016, the Company incurred consulting fees totaling $0 and $33,200, respectively, to Frank Wilkie and related parties. Frank Wilkie is a shareholder of IEG Holdings Corporation. As of September 30, 2017, the Company had a deposit on series H preferred stock in the amount of $63,595 from Frank Wilkie, which shares of preferred stock were issued on October 30, 2017.

16 

IEG HOLDINGS CORPORATION

NOTES TO CONDENSED CONSOLIDATED UNAUDITED FINANCIAL STATEMENTS

SEPTEMBER 30, 2017

During the nine months ended September 30, 2017 and nine months ended September 30, 2016, the Company incurred consulting fees totaling $50,000 and $40,000, respectively, to Clem Tacca and related parties. Clem Tacca is a shareholder of IEG Holdings Corporation. During the three months ended September 30, 2017 and three months ended September 30, 2016, the Company incurred consulting fees totaling $30,000 and $40,000,$0, respectively, to Clem TaccaSam Prasad and related parties. Clem Taccaentities. Sam Prasad is a shareholder of IEG Holdings Corporation.

During the nine months ended September 30, 2017 and nine months ended September 30, 2016, the Company incurred consulting fees totaling $30,000 and $50,700, respectively, to Judith Willoughby and related parties. Judith Willoughby is a shareholder of IEG Holdings Corporation. During the three months ended September 30, 2017 and three months ended September 30, 2016, the Company incurred consulting fees totaling $0 and $37,500, respectively, to Judith Willoughby and related parties. Judith Willoughby is a shareholder of IEG Holdings Corporation.

During the nine months ended September 30, 2017 and nine months ended September 30, 2016, the Company incurred consulting fees totaling $0 and $82,886, respectively, to Ascendant SC Pty Ltd. Ascendant SC Pty Ltd is a shareholder of IEG Holdings Corporation. During the three months ended September 30, 2017 and three months ended September 30, 2016, the Company incurred consulting fees totaling $0 and $14,000, 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 nine months ended September 30, 2017 and nine months ended September 30, 2016, the Company incurred consulting fees totaling $50,000 and $50,000, respectively, to Worldwide Holdings LLC. Worldwide Holdings LLC is a shareholder of IEG Holdings Corporation. During the three months ended September 30, 2017 and three months ended September 30, 2016, the Company incurred consulting fees totaling $0 and $50,000, respectively, to Worldwide Holdings LLC. Worldwide Holdings LLC is a shareholder of IEG Holdings Corporation.

During the nine months ended September 30, 2017 and nine months ended September 30, 2016, the Company incurred consulting fees totaling $0 and $193,024, respectively, to three related parties. During the three months ended September 30, 2017 and three months ended September 30, 2016, the Company incurred consulting fees totaling $0 and $86,585, respectively, to three related parties. $122,000 of the consulting fees incurred during the nine months ended September 30, 2016 were offset as consideration for common stock subscriptions. The related parties are shareholders of IEG Holdings Corporation.

 

9. SUBSEQUENT EVENTS

 

Issuance of Series H SharesNone.

On October 30, 2017, the Company issued 934,589 shares of Series H convertible preferred stock to a total of four investors, each of whom is a related party and resides in Australia, in consideration for receipt of $1.00 per share, representing an aggregate purchase price of $934,589. These securities were issued in reliance upon the exemptions provided by Regulation S promulgated pursuant to the Securities Act. The issuances involved offers and sales of securities outside the United States. The offers and sales were made in offshore transactions and no directed selling efforts were made by the issuer, a distributor, their affiliates or any persons acting on their behalf. No offering circular was used in connection with this issuance.

Declaration of Dividend

On October 30, 2017, our Board of Directors declared a cash dividend of $0.005 per common share for the third quarter of 2017. The dividend is payable on November 20, 2017 to stockholders of record at the close of business on November 11, 2017.

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 20 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 a 7-year7.5-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 IEG Holdings Corporation (“IEG Holdings”), collectively with its wholly-owned subsidiaries, Investment Evolution Corporation (“IEC”) and IEC SPV, LLC (“IEC SPV”) 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 2016 and to date in 2017, we completed private placements of our common stock and our preferred stock in exchange for which we received an aggregate of approximately $4.76$1.3 million, which we used to finance our operations and offer personal loans to our customers. We also received $3.4 million in connection with terminating our tender offer to purchase shares of the common stock of OneMain Holdings, Inc. (“OneMain”) in June 20162017 and selling the shares of OneMain we acquired as a result of that tender offer.

 

As of September 30, 2017at March 31, 2018 we had 1,5461,498 loans issued and outstanding to our customers, with an aggregate amount of $5,923,536.$5,675,298. The table below sets forth the payment status of the loans in our portfolio as of September 30, 2017.March 31, 2018.

 

Portfolio Ledger Stratification as at September 30, 2017March 31, 2018

 

 Current Unpaid
Principal Balance		 %  Current Unpaid Principal Balance % 
0 - 30 days $5,295,622   89.40% $5,205,895   91.73%
31 - 60 days  192,718   3.25%  143,829   2.53%
61 - 90 days  109,195   1.84%  88,416   1.56%
91 - 120 days  116,712   1.97%  75,048   1.32%
121 - 184 days  209,289   3.54%  162,110   2.86%
Total $5,923,536   100% $5,675,298   100%

 

At September 30, 2017,March 31, 2018, we had 8159 loans delinquent or in default (defined as 91+ days past due) representing 5.2%4.2% 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

 

2018 Lending Club Tender Offer

 

On July 12, 2017, the Company filed with the SEC a registration statement on Form S-4 (the “S-4 Registration Statement”) and a Schedule TO relating to the Company’sJanuary 5, 2018, we launched an offer to exchange four13 shares of the Company’sIEG Holdings’ common stock for each share of the common stock of LendingClubLending Club Corporation (“Lending Club”), par value $0.01 per share, up to an aggregate of 40,345,60320,701,999 shares of Lending Club’sClub common stock, representing approximately 9.99% of the outstanding shares4.99% of Lending Club’s common stockoutstanding shares as of April 28,October 31, 2017, validly tendered and not properly withdrawn in the offer (the “Lending“2018 Lending Club Tender Offer”). TheOn February 20, 2018, we terminated and withdrew the 2018 Lending Club Tender Offer anddue to a comment that we received from the withdrawal rights were set to expire at 5:00 p.m., Eastern time, on August 10, 2017, unless extended.

FollowingSEC raising a concern that the launch of the2018 Lending Club Tender Offer the price per share of the Company’s common stock, as quoted on the OTCQB, dropped significantly. On August 1, 2017, due to the drop in the Company’s stock price, 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.was improperly commenced. Any shares that were tendered by Lending Club shareholdersstockholders were not accepted by us and were promptly returned to the relevant shareholders. From time to time, the Company may consider a future tender offer where it identifies either business or investment opportunities.

18 

stockholders.

 

Abandonment of Reverse-Forward Stock Split and Cash-OutCorporate Name Change to Mr. Amazing Loans Corporation

 

On June 21, 2017, the Company filed with the SEC a preliminary information statement on Schedule 14C (the “Preliminary Information Statement”). The Preliminary Information Statement, though not in definitive form, related to a vote by 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 the Company’s common 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 the Company’s common stock prior to the Reverse Split are referred to herein as the “Reverse/Forward Split.”

The primary goal of the Reverse/Forward Split was cost savings from reducing administrative costs associated with shareholder accounts, and the Company believes that previously completed reverse/forward stock splits have achieved substantial administrative cost savings. Neither the Reverse/Forward Split nor any reverse/forward stock split previously completed by the Company were designed for the purposes of or in connection with a “going private” transaction.

On July 21, 2017, the Company announced that it would not effect the Reverse/Forward Split and instructed holders of the Company’s common stock to disregard the Preliminary Information Statement that was filed with the SEC 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 subsequent to the filing of the Preliminary Information Statement with the SEC on June 21, 2017. The Company expected that a significant number of individual new shareholders could acquire less than 1,000 shares of the Company’s common stock in connection with the Lending Club Tender Offer which could have significantly increased the cost of completing the Reverse/Forward Split. For the avoidance of doubt, no reverse and/or forward split occurred on July 25, 2017 and no shareholders were cashed out on July 25, 2017. The Company has no intention of effecting the Reverse/Forward Split or any other reverse and/or forward split in the near future.

Stock Repurchase Program

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,March 26, 2018, under the same terms. As of October 30, 2017, the Company had purchased an aggregate of 418,773 shares under the stock repurchase program for an aggregate purchase price of $276,880. The Company subsequently cancelled all 418,773 shares purchased in connection with the stock repurchase program.

OneMain Holdings, Inc. Tender Offer

On June 16, 2017, we closed our tender offer to purchase shares of the common stock of OneMain, pursuant to which we acquired 151,994 shares of the common stock of OneMain (valued at an aggregate of approximately $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 per share valuation of the Company’s common stock used as consideration in the OneMain tender offer was $1.169 per share at the closing date of the tender offer. On June 22, 2017, we sold 100% of the 151,994 shares of the common stock of OneMain, which we obtained in our tender offer, on the open market in exchange for $3.4 million in cash. We have begun to use and expect to continue to use the proceeds from the sale of those shares of the common stock of OneMain to fund increased new loan volumes in the second half of 2017 and to pay our Chief Executive Officer and the sole member of our Board of Directors amounts owed pursuant to the terms of the professional consulting contract, effective as of July 1, 2017, between IEC and our Chief Executive Officer.

Amendment of Series H Preferred Stock

On June 20, 2017, we filed articles of amendment (the “June 20 Amendment”“Amendment”) to our amended and restated articles of incorporation, as amended (the “Articles”) with the Florida Secretary of State. The June 20 Amendment has the effect of revising the terms ofchanging our Series H preferred stock, par value $0.001 per share (the “Series H Preferred Stock”) to:

(1)remove rights to receive dividends on our Series H Preferred Stock;
(2)increase the conversion ratio of our Series H Preferred Stock from 0.2 shares of our common stock per share of the Series H Preferred Stock to 1 share of our common stock per share of the Series H Preferred Stock;
(3)remove our right to redeem or call the Series H Preferred Stock;
(4)provide for automatic conversion of the Series H Preferred Stock into shares of our common stock on December 31, 2017; and
(5)remove the voting rights for the Series H Preferred Stock except with respect to changes to our Articles which would amend, alter, change or repeal any of the powers, designations, preferences and rights of holders of the Series H Preferred Stock.

19 

In addition, on July 26, 2017, we filed additional articles of amendment (the “July 26 Amendment”)corporate name from IEG Holdings Corporation to Mr. Amazing Loans Corporation, in order to align our Articles that had the effect of further revising the terms of the Series H Preferred Stock to increase the conversion ratio of the Series H Preferred Stock from one share ofconsumer brand (Mr. Amazing Loans) with our common stock per share of the Series H Preferred Stock to four shares of our common stock per share of the Series H Preferred Stock, which may dilute the value of our common stock.

corporate name. The June 20 Amendment and the July 26 Amendment werewas approved by our Board of Directors on June 19, 2017 and July 26, 2017, respectively.

Resale Registration Statement

On August 31, 2017, the SEC declared effective the resale registration statement (the “Resale Registration Statement”) filed by the Company on Form S-1 relating to the sale by certain selling stockholders of an aggregate of 9,089,220 shares of the Company’s common stock at a fixed price set by the Company of $3.00 per share. The shares of our common stock registered pursuant to the Resale Registration Statement represent approximately 71.3% of our outstanding shares of common stock as of August 14, 2017. All 6,900,000 shares of our common stock held by our Chief Executive Officer who is also the sole member of our Board of Directors and holds 55.9% of the issued and outstanding shares of our common stock, were registered for resale under the Resale Registration Statement. The actual value of shares of our common stock may be significantly less than the offering price of $3.00 per share. If the selling stockholders, includingMr. Mathieson, our Chief Executive Officer and sole director, selland by holders of a majority of the sharesvoting power of our common stock registered undervoting stock. The Amendment and the Resale Registration Statementcorporate name change will become effective on the open market,later of (a) the market price ofdate on which the Company’s common stock may decline significantly.Financial Industry Regulatory Authority approves the corporate name change, and (b) April 30, 2018.

 

ProfessionalMathieson 2018 Consulting Contract

 

On July 1, 2017,March 22, 2018, we and our Chief Executive Officer, Mr. Paul Mathieson who is also the sole member of our Board of Directors, agreed to terminate, effective July 1, 2017, the consulting contract dated January 1, 2017 between our Chief Executive Officer and the Company pursuant to which the Company was required to pay Mr. Mathieson $1,000,000 annually in exchange for certain consulting services. Concurrently with the termination of that consulting contract, IEC and Mr. Mathieson entered into a new professional consulting contract effective as of Julywith Mr. Mathieson (the “2018 Consulting Contract”) and terminated the Professional Consulting Contract dated January 1, 2017 (the “Professional Consulting Contract”).between Mr. Mathieson and the Company. Pursuant to the terms of the Professional2018 Consulting Contract, our Chief Executive OfficerMr. Mathieson agreed to provide regulatory and management consulting services as requested by the CompanyIEG Holdings and/or IEC.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 Professionalterm of the 2018 Consulting Contract has a termbegins as of 1.5 years and renews automatically for successive one-year periodsJuly 1, 2018 continues indefinitely unless three months’ written notice of termination is provided 30 days prior to the automatic renewal date. In exchange for the services provided to the Company and/or IEC by our Chief Executive Officer, 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.either party.

 

Series H Preferred Stock Offering

On October 30, 2017, the Company completed a private placement of 934,589 shares of the Series H Preferred Stock to four non-U.S. persons. The Company received an aggregate purchase price of $934,589 for the sale of the shares of Series H Preferred Stock and intends to use the proceeds from that sale to expand its operations, including through increased advertising designed to increase the amount and number of loans entered into with customers and to fund operations of the Company. The issuance of shares of Series H Preferred Stock was exempt from the registration requirements of the Securities Act of 1933, as amended (the “Securities Act”) in reliance upon Regulation S promulgated pursuant to the Securities Act.

20 

Results of Operations

 

The following table illustrates key results of operations for the three months ended September 30,March 31, 2018 and 2017, and 2016, respectively.

 

 Three Months Ended
September 30, 2017		 Three Months Ended
September 30, 2016		  Three Months Ended
March 31, 2018		  Three Months Ended
March 31, 2017		 
REVENUES                
Interest revenue $386,565  $547,551  $381,548  $450,729 
Other revenue  20,805   10,000   12,794   16,654 
TOTAL REVENUES  407,370   557,551   394,342   467,383 
OPERATING EXPENSES                
                
Salaries and compensation  419,144   397,795   412,099   120,278 
Other operating expenses  104,985   165,264   146,287   115,204 
Provision for credit losses  300,205   257,907   204,668   224,488 
Advertising  180,808   92,593   1,240   880 
Rent  23,826   47,373   17,988   10,857 
Public company and corporate finance expenses  449,321   577,632   654,089   498,191 
Depreciation and amortization  1,451   3,212   1,425   1,573 
TOTAL OPERATING EXPENSES  1,479,740   1,541,776   1,437,796   971,471 
LOSS FROM OPERATIONS  (1,072,370)  (984,225)  (1,043,454)  (504,088)
OTHER INCOME (EXPENSE)                
Legal settlements and related fees  (624,283)    
Loss on sale of marketable securities  (194)  - 
Miscellaneous income (expense)  74   (324)  63   149 
TOTAL OTHER INCOME (EXPENSE)  (624,283)  (324)  (131)  149 
NET LOSS $(1,696,579) $(984,549) $(1,043,585) $(503,939)

 

NineThree Months Ended September 30, 2017March 31, 2018 Compared to NineThree Months Ended September 30, 2016March 31, 2017

 

Interest Revenue

 

For the ninethree months ended September 30, 2017,March 31, 2018, interest revenue decreased to $1,238,280,$381,548, compared to $1,586,723$450,729 for the ninethree months ended September 30, 2016.March 31, 2017. 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 reduced advertising to new customers during the current periodthree months ending March 31, 2018 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 period. The Company has begun to increase advertising in the second half of 2017, but has not matched prior advertising spending for the ninethree months ended September 30, 2016.March 31, 2018.

 

Other Revenue

 

For the ninethree months ended September 30, 2017,March 31, 2018, other revenue increaseddecreased to $50,414,$12,794, compared to $41,156$16,654 for the ninethree months ended September 30, 2016.March 31, 2017. 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 increasedecrease was attributable to an increasea decrease in declined lead revenue due to increased advertising duringin the three months ended September 30, 2017.first quarter of 2018.

 

Salaries and Compensation Expenses

 

For the ninethree months ended September 30, 2017,March 31, 2018, salaries and compensation expenses decreasedincreased to $658,347,$412,099, compared to $1,207,124$120,278 for the ninethree months ended September 30, 2016.March 31, 2017. The decreaseincrease was primarily attributable to a $300,000 increase in the decrease incompensation paid to our Chief Executive Officer’s compensation forOfficer as compared to the period Januaryprior period. The additional $300,000 was paid to our Chief Executive Officer pursuant to the new July 1, 2017 to June 30, 2017. During the nine months ended September 30, 2017,Professional Consulting Agreement between the Company paidand the Chief Executive Officer $300,000 in total compensation as compared to $750,000 for the same period in 2016.Officer.

 

Other Operating Expenses

 

For the ninethree months ended September 30, 2017,March 31, 2018, other operating expenses decreasedincreased to $299,551,$146,287, compared to $553,401$115,204 for the ninethree months ended September 30, 2016.March 31, 2017. The decreaseincrease was attributable to the lower loan underwritingincreased collection costs and client service costs due to reduced new loan volume in the current period.business licensing fees.

 

Provision for Credit Losses

 

For the ninethree months ended September 30, 2017,March 31, 2018, the provision for credit losses expense decreased to $919,529,$204,668, compared to $1,000,344$224,488 for the ninethree months ended September 30, 2016.March 31, 2017. 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 in the current period.

 

Advertising

 

For the ninethree months ended September 30, 2017,March 31, 2018, advertising expenses decreased to $184,268, compared to $313,902 for the nine months ended September 30, 2016. The decrease was attributable to the reduction in customer acquisition costs incurred, including online advertising, direct mail, and lead generation costs in the current period, resulting from a decrease in cash available to fund new loans.

21 

Rent Expense

For the nine months ended September 30, 2017, rent expense decreased to $52,715, compared to $154,838 for the nine months ended September 30, 2016. The decrease was due to termination of our Florida, Illinois and Arizona leases in 2016.

Public Company and Corporate Finance Expenses

For the nine months ended September 30, 2017, public company and corporate finance expenses increased to $1,644,856,$1,240, compared to $1,588,411 for the nine months ended September 30, 2016. The increase was due to significant one-off costs incurred related to the OneMain tender offer and the Lending Club Tender Offer. The increase was partly offset by a decrease in investor/financing costs as a result of the fact that the Company did not engage in any capital raising transactions during the nine months ended September 30, 2017.

Depreciation and Amortization

For the nine months ended September 30, 2017, depreciation and amortization decreased to $4,495, compared to $7,045 for the nine months ended September 30, 2016. The minimal movement was in line with expectations.

Three Months Ended September 30, 2017 Compared to Three Months Ended September 30, 2016

Interest Revenue

For the three months ended September 30, 2017, interest revenue decreased to $386,565, compared to $547,551$880 for the three months ended September 30, 2016. 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 reduced advertising to new customers during the six months ending June 30, 2017 resulting from a decrease in cash available to fund new loans during that six month period and leading to lower loans receivable originated as compared to loans receivable repaid during the first half ofMarch 31, 2017. The Company has begun to increase advertising and increased loans receivable originated during the three months ended September 30, 2017.

Other Revenue

For the three months ended September 30, 2017, other revenue increased to $20,805, compared to $10,000 for the three months ended September 30, 2016. 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 an increase in declined lead revenue due to increased advertising in the third quarter of 2017.

Salaries and Compensation Expenses

For the three months ended September 30, 2017, salaries and compensation expenses increased to $419,144, compared to $397,795 for the three months ended September 30, 2016. The increase was primarily attributable to a $50,000 increase in the compensation paid to our Chief Executive Officer as compared to the prior period. The additional $50,000 was paid to our Chief Executive Officer pursuant to the new Professional Consulting Agreement between the Company and the Chief Executive Officer.

Other Operating Expenses

For the three months ended September 30, 2017, other operating expenses decreased to $104,985, compared to $165,264 for the three months ended September 30, 2016. The decrease was attributable to the cost cuts resulting in lower loan underwriting costs and client service costs.

Provision for Credit Losses

For the three months ended September 30, 2017, the provision for credit losses expense increased to $300,205, compared to $257,907 for the three months ended September 30, 2016. We carry a provision for credit losses which is estimated collectively based on our loan portfolio and general economic conditions. The increase in provision for credit losses from the prior year period was due to increased new loan volume versus the comparable period in 2016.

Advertising

For the three months ended September 30, 2017, advertising expenses increased to $180,808, compared to $92,593 for the three months ended September 30, 2016. Thesmall increase was attributable to the increase in customer acquisition costs incurred, including online advertising direct mail, and lead generation costs in the current period.

22 

 

Rent Expense

 

For the three months ended September 30, 2017,March 31, 2018, rent expense decreasedincreased to $23,826,$17,988, compared to $47,373$10,857 for the three months ended September 30, 2016.March 31, 2017. The decreaseincrease was due to termination ofthe increase in rent costs from our Florida, Illinois and Arizona leasesnew Las Vegas lease in 2016.2018.

 

Public Company and Corporate Finance Expenses

 

For the three months ended September 30, 2017,March 31, 2018, public company and corporate finance expenses decreasedincreased to $449,321,$654,089, compared to $577,632$498,191 for the three months ended September 30, 2016.March 31, 2017. The decreaseincrease was due to a decrease in investor/financingsignificant one-off costs incurred as a resultrelated to the 2018 Lending Club Tender Offer in excess of the fact thatone-off costs incurred related to the Company did not engage2017 OneMain Tender Offer. In addition, the company incurred more investor relations and travel costs in any capital raising transactions during the three months ended September 30,March 31, 2018 versus the three months ended March 31, 2017.

 

Depreciation and Amortization

 

For the three months ended September 30, 2017,March 31, 2018, depreciation and amortization marginally decreased to $1,451,$1,425, compared to $3,212$1,573 for the three months ended September 30, 2016.March 31, 2017. The minimal movement was in line with expectations.

Loss on Sale of Marketable Securities

For the three months ended March 31, 2018, loss on sale of marketable securities increased to $194, compared to $0 for the three months ended March 31, 2017. The increase was due to the loss on sale of 500 Lending Club shares acquired by an open market purchase in January 2018 and subsequently sold in March 2018.

 

Financial Position

 

Cash and Cash Equivalents

 

We had cash and cash equivalents of $1,850,317$360,907 as of September 30, 2017,March 31, 2018, compared to $322,441$704,006 as of December 31, 2016.2017. The increasedecrease resulted from lessmore net cash used in operating activities due to operational cost cuts and lower loans receivable originated during the nine months ended September 30, 2017 as compared to the same period in 2016 and higher net cash provided by investing activities due to the sale of common shares of OneMain received in connection with OneMain tender offer.significant Lending Club Tender offer costs.

 

Loans Receivable

 

We had net loan receivables of $4,975,770$4,540,238 as of September 30, 2017,March 31, 2018, as compared to $6,374,908$4,928,704 as of December 31, 2016.2017. 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 $70,657$53,572 as of September 30, 2017,March 31, 2018, as compared to $84,851$75,364 as of December 31, 2016.2017. Other receivables is comprised of outstanding invoices for declined lead revenue due from marketing partners and accrued interest receivable on our consumer loans at September 30, 2017.March 31, 2018. The decrease in other receivables is primarily due to the decrease in accrued interest receivable for the current period.

 

Property and Equipment

 

We had net property and equipment of $14,827$11,952 as of September 30, 2017March 31, 2018 as compared to $19,322$13,376 as of December 31, 2016.2017. 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 $158,166$327,086 as of September 30, 2017,March 31, 2018, compared to $1,060$51,053 as of December 31, 2016.2017. The increase was due to management’s decision to delay payment of a number of SeptemberMarch expenses in full in the current period which meant that accrual was required for those expenses.

 

Deposit on Preferred Stock

We had deposit on preferred stock of $63,595 as of September 30, 2017, compared to $0 as of September 30, 2016. These shares we subsequently issued on October 30, 2017 in connection with the private placements of shares of Series H Preferred Stock.

Financial Condition, Liquidity and Capital Resources

 

During the ninethree months ended September 30, 2017March 31, 2018 and the 12 months ended December 31, 2016,2017, 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 November 2018.April 2019. To expand operations significantly we will require capital infusions until operating results improve. We may not be able to obtain such capital in a timely manner and as a result may incur liquidity imbalances.

 

23 

Liquidity and Capital Resources

 

We used cash in operations of $1,847,645$526,704 during the ninethree months ended September 30, 2017,March 31, 2018, compared to $2,095,725$218,200 during the ninethree months ended September 30, 2016,March 31, 2017, and this decreaseincrease is primarily due to a reduction in core operational costs. The major operational cost cuts in the nine month period was the decreasean increase in our Chief Executive Officer’s total compensation by $300,000 for the ninethree months ended September 30, 2017.March 31, 2018. The Company also incurred $687,844$435,025 of costs during the ninethree months ended September 30, 2017March 31, 2018 in connection with the OneMain tender offer and the Company incurred $272,601 of costs during the nine months ended September 30, 2017 in connection with the LendingClub tender offer. In addition, during the nine months ended September 30, 2017 the Company incurred one-off legal settlements and related fees of $624,283, relating to an action by the State of Virginia under the Virginia consumer lending program and a separate action by an individual customer. Of this amount, $178,982 was a non-cash item in the form of reductions to outstanding loan principal.2018 Lending Club Tender Offer.

 

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 terminating our tender offer to purchase shares of the common stock of OneMain in June 20162017 and selling the shares of OneMain we acquired as a result of that tender offer. The Company intends to continue to finances its operations and the planned expansion of its business through placements of shares of the Company’s common stock and preferred stock.stock, and private credit facilities.

 

The Company received net cash from investing activities of $3,700,733$183,605 during the ninethree months ended September 30, 2017,March 31, 2018, compared to $1,126,332 used in$342,391 received from investing activities during the ninethree months ended September 30, 2016.March 31, 2017. The increasedecrease in cash provided by investing activities is primarily due to the sale of shares of common stock of OneMain acquiredincrease in loans originated in the OneMain tender offer.period in 2018 compared to 2017.

 

We used $325,212or received $0 of net cash in financing activities during the ninethree months ended September 30, 2017,March 31, 2018, compared to $3,661,050 provided by financing activities$0 during the same period in 2016. The decrease2017. There was attributable to the absence of anyno debt or equity capital raising proceeds compared to significant proceeds from a common stock capital raising receivedor dividends paid in the corresponding period in 2016.both periods.

 

At September 30, 2017,March 31, 2018, we had cash on hand of $1,850,317,$360,907, which when added to budgeted cash inflows from loans receivable repaid and budgeted cash inflows from revenues, is sufficient to meet our operating needs for the next 12 months.

 

The principal conditions 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.

 

However, the Company has reduced its core operating expenses. In addition, cash in bank has significantly increased during the nine months ended September 30, 2017, resulting from substantial positive net cash flows from investing activities specifically from the sale of shares of OneMain’s common stock acquired in connection with the OneMain tender offer. 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 NovemberApril 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 will requireintends, over the next 12 months, to seek additional capital in ordervia common shares, preference shares and/or debt financing to expand its operations.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.

 

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 September 30, 2017March 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 ninethree months ended September 30,March 31, 2018 and 2017 and 2016 was calculated at $0 and $96,083,$18,577, respectively.

 

24 

Dividend Policy

 

We intend to declare regular quarterly dividends to our common stockholders. The amount of future common stock dividends, if any, will be based upon a level deemed by the Company’s board of directors to be sustainable based on budgeted operating free cash flow. The amount, timing and frequency of dividends will be authorized by the Company’s board of directors and declared based on a variety of factors deemed relevant by our board of directors and no assurance can be given that our dividend policy will not change in the future.

 

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.

Off-Balance Sheet Arrangements

 

As of September 30, 2017,March 31, 2018, 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

 

TheThese consolidated financial statements contained in this quarterly report include the operations of IEG Holdings Corporation and its wholly-owned subsidiaries, IECInvestment Evolution Corporation (“IEC”) and IEC SPV.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 principles (“GAAP”)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.

 

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 September 30, 2017, 81March 31, 2018, 59 loans, with a total balance of $326,000,$237,158, were delinquent or in default.

 

25 

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 the allowance for credit losses.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. Basic and diluted loss per share has been adjusted retroactively for the net 1-for-10 reverse split that occurred on October 27, 2016.

 

Fair Value of Financial Instruments

 

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

 

Recently Issued or Newly Adopted Accounting Standards

In 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 evaluatingIn April 2016, the impact, if any,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 to ourwhich 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 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.statements.

26 

 

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 havehad no material impact on the consolidated financial statements.

 

In November 2015, the FASB issued ASU No. 2015-17,Income Taxes (Topic(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 havehad 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.

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.

 

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

 

Our management, under the supervision and with the participation of our Chief Executive Officer and Chief Financial Officer, has reviewed and evaluated the effectiveness of the Company’s disclosure controls and procedures as of September 30, 2017.March 31, 2018. Based on such review and evaluation, our Chief Executive Officer and Chief Financial Officer concluded that, as of September 30, 2017,March 31, 2018, 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 September 30, 2017March 31, 2018 that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

 

27 

PART II - OTHER INFORMATION

 

Item 1. Legal Proceedings

 

We settled a civil action with the Commonwealth of Virginia in October 2017 pursuant to which the Commonwealth of Virginia alleged that IEC violated the Virginia Consumer Protection Act in connection with loans made to customers in Virginia. Without admitting any wrongdoing, the Company agreed to provide refunds to certain Virginia-resident borrowers who had repaid loans in full with an annual interest rate of greater than 12% APR and to reform the interest rates and loan principal balances of Virginia-resident borrowers with outstanding loans issued by the Company that carried an interest rate of greater than 12% APR. As part of the settlement, the annual interest rate on all loans originated in Virginia have been reduced to 12% APR. The Company incurred $404,283 in connection with the settlement of this civil action, which included settlement payments, legal costs, customer interest refunds and $178,982 in the form of reductions to outstanding loan principal. As of September 30, 2017, the Company had $230,227 in outstanding loans that originated in Virginia, which mature between May 2019 and April 2022.

We are not a party to any other material litigation, nor, to the knowledge of management, is any litigation threatened against us that may materially affect us. From time to time we are involved in legal proceedings occurring in the ordinary course of business.

 

Item 1A. Risk Factors

 

We may need to raise additional capital that may not be available or may not be on favorable terms, which could harm our business.None.

Our growth will require that we generate additional capital either through retained earnings or the issuance of additional debt or equity securities. Additional capital may not be available on terms acceptable to us, if at all. Any equity financings could result in dilution to our shareholders or reduction in the earnings available to our common shareholders. In July 2017 we received approximately $3.4 million in cash in exchange for shares of the common stock of OneMain. We acquired those shares of OneMain’s common stock pursuant to a tender offer in exchange for shares of the Company’s common stock. The cash received in connection with the OneMain tender offer was a significant portion of the cash raised by the Company during the nine months ended September 30, 2017 and resulted in dilution of the Company’s then-existing shareholders. If we pursue another tender offer that results in the sale of shares of a target company that were acquired in exchange for shares of the Company’s common stock, our existing shareholders will be diluted and the share price of our common stock may be adversely affected. In addition, if adequate capital is not available or the terms of such capital are not attractive, we may have to curtail our growth and our business, and our business, prospects, financial condition and results of operations could be adversely affected.

 

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 September 30, 2017.March 31, 2018.

 

Period Total number of shares purchased1  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 
July 1 – July 31, 2017  0   N/A   0  $2,000,000 
August 1 – August 31, 2017  

329,363

  $0.65   329,363  $1,785,869 
September 1 – September 30, 2017  

89,410

  $0.70   89,410  $1,723,120 
Total  418,773  $0.66   418,773  $1,723,120 
Period Total number of shares purchased1  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, 2018  0   N/A   0  $1,712,596 
February 1 – February 28, 2018  0   N/A   0  $1,712,596 
March 1 – March 31, 2018  0   N/A   0  $1,712,596 
Total  0   N/A   0  $1,712,596 

 

1On 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 expires on December 31, 2018.

 

Item 3. Defaults Upon Senior Securities

 

None.

 

Item 4. Mine Safety Disclosures

 

Not applicable.

28 

 

Item 5. Other Information

 

None.

 

Item 6. Exhibits

 

Exhibit Number Description of Exhibit
   
3.1Articles of Amendment to the Amended and Restated Articles of Incorporation, as amended, of IEG Holdings Corporation dated July 26, 2017.
10.1 Professional Consulting Contract dated July 1, 2017March 22, 2018 by and between Investment Evolution Corporation and Paul Mathieson (incorporated by reference to the document previously filed as Exhibit 10.1 to the Company’s Current Report on Form 8-K filed with the SEC on July 3, 2017)March 27, 2018).
   
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


29 

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.

 

 IEG HOLDINGS CORPORATION
   
Date: November 9, 2017April 24, 2018By:/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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