As filed with the Securities and Exchange Commission on August 14, 2017

 

Registration Statement No. 333-215239

 

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

 

FORM S-1/A

(Amendment No. 3 )

 

REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933

 

IEG Holdings Corporation

(Exact name of registrant as specified in its charter)

 

Florida   6141   65-0888146

(State or other jurisdiction of

incorporation or organization)

 

(Primary Standard Industrial

Classification Code Number)

 

(I.R.S. Employer

Identification No.)

 

6160 West Tropicana Ave, Suite E-13

Las Vegas, NV 89103

(702) 227-5626

(Address, including zip code, and telephone number, including area code, of registrant’s principal executive offices)

 

Paul Mathieson

Chief Executive Officer

6160 West Tropicana Ave, Suite E-13

Las Vegas, NV 89103

(702) 227-5626

(Name, address and telephone number of agent for service)

 

With copies to:

Laura Anthony, Esq.

Legal & Compliance, LLC

330 Clematis Street, Suite 217

West Palm Beach, FL 33401

Phone: (800) 341-2684

 

Approximate date of proposed sale to public: As soon as practicable after this registration statement becomes effective.

 

If any of the securities being registered on the Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, check the following box: [X]

 

If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, please check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering: [  ]

 

If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, please check the following box and list the Securities Act registration statement number of the earlier registration statement for the same offering: [  ]

 

If this Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier registration statement for the same offering: [  ]

 

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

 

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

 

CALCULATION OF REGISTRATION FEE

 

 

Title of Each Class of
Securities to Be Registered
  Amount to Be
Registered (1)
    Proposed
Maximum
Offering Price
per Share
    Proposed
Maximum
Aggregate
Offering Price
(2)
    Amount of
Registration
Fee (3)
 
                                 
Shares of common stock     9,089,220      3.00       27,267,660      3,160.32   

 

  (1) Represents shares offered by the selling stockholders.
     
  (2)

Estimated solely for the purpose of calculating the registration fee pursuant to Rule 457 under the Securities Act of 1933.

     
  (3)

The registration fee has been calculated in accordance with Rule 457(a), and $3,160.32 of the registration fee was paid previously. 

 

The registrant hereby amends this registration statement on such date or dates as may be necessary to delay its effective date until the registrant shall file a further amendment which specifically states that this registration statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933 or until the registration statement shall become effective on such date as the Commission, acting pursuant to Section 8(a) may determine.

 

 

 

   
 

 

EXPLANATORY NOTE

 

Pursuant to Rule 429 of the Securities Act of 1933, as amended, this registration statement also serves as Post-Effective Amendment No. 4 to the registrant’s registration statement on Form S-1 (No. 333-205729, declared effective on August 27, 2015) (the “2015 Form S-1”). The registrant hereby amends the 2015 Form S-1 to deregister all of the shares of common stock covered by the 2015 Form S-1 that were originally registered.

 

   
 

 

The information in this prospectus is not complete and may be changed. The selling stockholders may not sell these securities until the registration statement filed with the Securities and Exchange Commission is effective. This prospectus is not an offer to sell these securities and is not soliciting an offer to buy these securities in any state where the offer or sale is not permitted.

 

PRELIMINARY PROSPECTUS

SUBJECT TO COMPLETION, AUGUST 14 , 2017

 

 

IEG HOLDINGS CORPORATION

 

9,089,220 Shares

 

IEG Holdings Corporation

 

Common Stock

 

This prospectus relates to the resale of up to 9,089,220 shares of our common stock by the selling stockholders named in this prospectus. This prospectus may be used by the selling stockholders named herein to resell, from time to time, those shares of our common stock included herein. For information about the selling stockholders see “Selling Stockholders” on page 44. Our common stock is presently quoted on the OTCQB tier of the OTC Markets Group, Inc. under the trading symbol “IEGH”. On August 10, 2017, the last sale price of our common stock as reported by the OTC Markets was $0.6999 per share.

 

We will not receive any of the proceeds from the sale of the shares of common stock by the selling stockholders. The selling stockholders will sell their shares at a fixed price of $3.00 per share for the duration of this offering. See “Determination of Offering Price” and “Plan of Distribution.”

 

The selling stockholders, and any participating broker-dealers, are deemed to be “underwriters” within the meaning of the Securities Act of 1933, as amended (the “Securities Act”), and any commissions or discounts given to any such broker-dealer may be regarded as underwriting commissions or discounts under the Securities Act. The selling stockholders have informed us that they do not have any agreement or understanding, directly or indirectly, with any person to distribute their common stock. We will be responsible for all fees and expenses incurred in connection with the preparation and filing of the registration statement of which this prospectus is a part; provided, however, that we will not be required to pay any underwriters’ discounts or commissions relating to the securities covered by the registration statement.

 

We are an “emerging growth company” as defined in the Securities and Exchange Commission (“SEC”) rules and we will be subject to reduced public reporting requirements. See “Emerging Growth Company Status.”

 

Persons effecting transactions in the shares should confirm the registration of these securities under the securities laws of the states in which transactions occur or the existence of applicable exemptions from such registration.

 

THE SHARES BEING OFFERED ARE SPECULATIVE AND INVOLVE A HIGH DEGREE OF RISK. THEY SHOULD BE CONSIDERED ONLY BY PERSONS WHO CAN AFFORD THE LOSS OF THEIR ENTIRE INVESTMENT. SEE “RISK FACTORS” BEGINNING ON PAGE 4 OF THIS PROSPECTUS FOR A DISCUSSION OF INFORMATION THAT SHOULD BE CONSIDERED IN CONNECTION WITH AN INVESTMENT IN OUR SECURITIES.

 

NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR PASSED UPON THE ADEQUACY OR ACCURACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.

 

You should rely only on the information contained in this prospectus. We have not, and the selling stockholders have not, authorized anyone to provide you with different information from that contained in this prospectus or in any free writing prospectus that we may authorize. The information contained in this prospectus is accurate only as of the date of this prospectus, regardless of the time of delivery of this prospectus or of any sale of our common stock. This prospectus does not constitute an offer to sell, or a solicitation of an offer to buy the securities in any circumstances under which the offer or solicitation is unlawful. Neither the delivery of this prospectus nor any distribution of securities in accordance with this prospectus shall, under any circumstances, imply that there has been no change in our affairs since the date of this prospectus.

 

The date of this prospectus is ____________________, 2017.

 

   
  

 

TABLE OF CONTENTS

 

CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS ii
INDUSTRY AND MARKET DATA ii
PROSPECTUS SUMMARY 1
SUMMARY HISTORICAL FINANCIAL DATA 3
RISK FACTORS 5
USE OF PROCEEDS 15

DETERMINATION OF OFFERING PRICE

15 
PLAN OF DISTRIBUTION 15
DIVIDEND POLICY 16
MARKET PRICE FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS 17
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS 17
DESCRIPTION OF BUSINESS 28
Quantitative and qualitative disclosures about market risk 41
MANAGEMENT 41
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS 45
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT 47
DESCRIPTION OF CAPITAL STOCK 48
SELLING STOCKHOLDERS 50
LEGAL MATTERS 88
EXPERTS 88
DISCLOSURE OF COMMISSION’S POSITION ON INDEMNIFICATION FOR SECURITIES ACT LIABILITIES 89
WHERE YOU CAN FIND ADDITIONAL INFORMATION 89
INDEX TO FINANCIAL STATEMENTS F-1

 

No dealer, salesperson or other individual has been authorized to give any information or to make any representation other than those contained in this prospectus in connection with the offer made by this prospectus and, if given or made, such information or representations must not be relied upon as having been authorized by us or the selling stockholders. This prospectus does not constitute an offer to sell or a solicitation of an offer to buy any securities in any jurisdiction in which such an offer or solicitation is not authorized or in which the person making such offer or solicitation is not qualified to do so, or to any person to whom it is unlawful to make such offer or solicitation. Neither the delivery of this prospectus nor any sale made hereunder shall, under any circumstances, create any implication that there has been no change in our affairs or that information contained herein is correct as of any time subsequent to the date hereof.

 

For investors outside the United States: We have not and the selling stockholders have not done anything that would permit this offering or possession or distribution of this prospectus in any jurisdiction where action for that purpose is required, other than in the United States. Persons outside the United States who come into possession of this prospectus must inform themselves, and observe any restrictions relating to, the offering of the shares of our common stock and the distribution of this prospectus outside the United States.

 

  i 
  

 

CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS

 

This prospectus and the documents incorporated by reference in this prospectus includes “forward-looking statements” within the meaning of the federal securities laws that involve risks and uncertainties. Forward-looking statements include statements we make concerning our plans, objectives, goals, strategies, future events, future revenues or performance, capital expenditures, financing needs and other information that is not historical information. Some forward-looking statements appear under the headings “Prospectus Summary,” “Risk Factors,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and “Business.” When used in this prospectus, the words “estimates,” “expects,” “anticipates,” “projects,” “forecasts,” “plans,” “intends,” “believes,” “foresees,” “seeks,” “likely,” “may,” “might,” “will,” “should,” “goal,” “target” or “intends” and variations of these words or similar expressions (or the negative versions of any such words) are intended to identify forward-looking statements. All forward-looking statements are based upon information available to us on the date of this prospectus.

 

We have based these forward-looking statements on our current expectations and projections about future events. However, these forward-looking statements are subject to risks, uncertainties and other factors, many of which are outside of our control, that could cause actual results to differ materially from the results discussed in the forward-looking statements, including, among other things, the matters discussed in this prospectus in the sections captioned “Prospectus Summary,” “Risk Factors,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and “Business.” Some of the factors that we believe could affect our results include:

 

limitations on our ability to continue operations and implement our business plan;
   
our history of operating losses;
   
the timing of and our ability to obtain financing on acceptable terms;
   
the effects of changing economic conditions;
   
the loss of members of the management team or other key personnel;
   
competition from larger, more established companies with greater economic resources than we have;
   
costs and other effects of legal and administrative proceedings, settlements, investigations and claims, which may not be covered by insurance;
   
costs and damages relating to pending and future litigation;
   
the impact of additional legal and regulatory interpretations and rulemaking and our success in taking action to mitigate such impacts;
   
control by our principal equity holders; and
   
the other factors set forth herein, including those set forth under “Risk Factors.”

 

There are likely other factors that could cause our actual results to differ materially from the results referred to in the forward-looking statements. All forward-looking statements attributable to us in this prospectus apply only as of the date of this prospectus and are expressly qualified in their entirety by the cautionary statements included in this prospectus. We undertake no obligation to publicly update or revise forward-looking statements to reflect events or circumstances after the date made or to reflect the occurrence of unanticipated events, except as required by law. All later written and oral forward-looking statements attributable to us or a person acting on our behalf are expressly qualified in their entirety by the applicable cautionary statements. You are advised to consult any further disclosures we make on related subjects in the reports we file with the SEC pursuant to Sections 13(a), 13(c), 14, or 15(d) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”).

 

We caution you not to place undue reliance on our forward-looking statements. You should carefully read this entire prospectus and the documents incorporated by reference into this prospectus, particularly the section entitled “Risk Factors.”

 

INDUSTRY AND MARKET DATA

 

We are responsible for the disclosure in this prospectus. However, this prospectus includes industry data that we obtained from internal surveys, market research, publicly available information and industry publications. The market research, publicly available information and industry publications that we use generally state that the information contained therein has been obtained from sources believed to be reliable. The information therein represents the most recently available data from the relevant sources and publications and we believe remains reliable. We did not fund and are not otherwise affiliated with any of the sources cited in this prospectus. Forward-looking information obtained from these sources is subject to the same qualifications and additional uncertainties regarding the other forward-looking statements in this prospectus.

 

  ii 
  

 

PROSPECTUS SUMMARY

 

This summary highlights material information concerning our business and this offering. This summary does not contain all of the information that you should consider before making your investment decision. You should carefully read the entire prospectus and the information incorporated by reference into this prospectus, including the information presented under the section entitled “Risk Factors” and the financial data and related Notes, before making an investment decision. This summary contains forward-looking statements that involve risks and uncertainties. Our actual results may differ significantly from future results contemplated in the forward-looking statements as a result of factors such as those set forth in “Risk Factors” and “Cautionary Statement Regarding Forward-Looking Statements.” All historical information in this prospectus has been adjusted to reflect (i) the 1-for-6 reverse stock split of our outstanding common stock that was effective February 22, 2013, (ii) the 1-for-100 reverse stock split of our outstanding common stock that was effective June 17, 2015 and (iii) the net 1-for-10 reverse stock split of our outstanding common stock that was effective October 27, 2016.

 

In this prospectus, unless the context indicates otherwise, “IEG Holdings,” the “Company,” “we,” “our,” “ours” or “us” refer to IEG Holdings Corporation, a Florida corporation, and its subsidiaries.

 

Our Company

 

We provide unsecured online consumer loans under the brand name “Mr. Amazing Loans” via our website and online application portal at www.mramazingloans.com. We started our business and opened our first office in Las Vegas, Nevada in 2010. We currently offer $5,000 and $10,000 unsecured consumer loans that mature in five years. We are currently licensed and originating direct consumer loans in 20 states – Alabama, Arizona, California, Florida, Georgia, Illinois, Kentucky, Louisiana, Maryland, Missouri, Nevada, New Jersey, New Mexico, Ohio, Oregon, Pennsylvania, Texas, Utah, Virginia and Wisconsin. We provide loans to residents of these states through our online application portal, with all loans originated, processed and serviced out of our centralized Las Vegas head office, which eliminates the need for physical offices in all of these states.

 

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

 

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

 

For the years ended December 31, 2016 and 2015, we generated interest income of $2.09 million and $1.79 million, respectively, and had net losses of $4.73 million and $5.70 million, respectively. For the six months ended June 30, 2017 and 2016, we generated interest income of $0.85 million and $1.04 million, respectively, and had net losses of $1.56 million and $2.20 million, respectively. 

 

We were organized as a Florida corporation on January 21, 1999, originally under the name Interact Technologies, Inc. In February 2013, we changed our name to IEG Holdings Corporation. We have two wholly-owned subsidiaries, Investment Evolution Corporation (“IEC”), our U.S. operating entity that holds all of our state licenses, leases, employee contracts and other operating and administrative assets, and IEC SPV, LLC (“IEC SPV”), a bankruptcy remote special purpose entity that holds our U.S. loan receivables.

 

Our principal office is located at 6160 West Tropicana Avenue, Suite E-13, Las Vegas, Nevada 89103 and our phone number is (702) 227-5626. Our corporate website address is www.investmentevolution.com. Information contained on, or accessible through, our website is not a part of, and is not incorporated by reference into, this document.

 

  1 
  

 

Recent Developments

 

LendingClub Corporation Tender Offer

 

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

 

Following the launch of the Lending Club Tender Offer, the Company’s per share stock price, as quoted on the OTCQB, dropped significantly. On August 1, 2017, due to the stock price drop, the Company determined that the Lending Club Tender Offer no longer had a reasonable chance of success and accordingly, the Company determined that it would terminate the Lending Club Tender Offer and withdraw the S-4 Registration Statement. Furthermore, the Company has no intention of launching the Lending Club Tender Offer or another tender offer in the near future. Any shares that have been tendered by Lending Club stockholders have not yet been accepted and will be returned to the relevant stockholders.

 

Abandonment of Reverse-Forward Stock Split and Cash-Out

 

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

 

On July 18, 2017, the Company determined that it will not effect the Reverse/Forward Split at this time. Furthermore, the Company has no intention of effecting the Reverse/Forward Split or any other reverse and/or forward split in the near future. For avoidance of doubt, no reverse and/or forward split occurred on July 25, 2017, as originally disclosed in the Preliminary Information Statement, and no stockholders were cashed out on July 25, 2017. Stockholders should disregard the Preliminary Information Statement that was filed with the Commission in its entirety.

 

The Company’s determination to abandon the Reverse/Forward Split was based on the Company’s launch, on July 12, 2017, of the Lending Club Tender Offer. The Company launched the Lending Club Tender Offer on July 12, 2017, subsequent to the filing of the Preliminary Information Statement with the Commission on June 21, 2017. The primary goal of the Reverse/Forward Split was cost savings from reducing administrative costs associated with reducing shareholder accounts. The Company expected that a significant number of new shareholders may have been obtained in connection with the Lending Club Tender Offer, including those holding fewer than 1,000 shares. As a result, the Company determined that any expected cost savings may no longer be sufficient to justify proceeding with the Reverse/Forward Split. Although the Company determined, on August 1, 2017, that it would abandon the Lending Club Tender Offer, the Company does not intend to effect the Reverse/Forward Split or any other reverse and/or forward split in the near future. The Company notes that previously completed reverse/forward stock splits have achieved substantial administrative cost savings, and have not been designed for the purpose of “going private”.

 

Stock Repurchase Program

 

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

 

  The stock repurchase program permits the Company to purchase shares of its common stock from time to time at prices that are below what the Board believes to be the true value of the shares.
     
  The Company’s common stock is trading at close to record low prices.
     
  The stock repurchase program reflects the commitment of our Board of Directors to enhance stockholder value and its confidence in our long-term growth prospects.
     
  The Board believes the stock repurchase program is a strategic investment and an appropriate use of corporate funds.
     
  Any repurchases will only be effected to the extent that they do not impair the Company’s capital or the Company’s ability to pay its debts.
     
  The Company has available liquidity from existing customer loan repayments to be able to both reinvest in new customer loans and also to strategically invest back into our company via stock repurchases.
     
  The stock repurchase program will assist in improving stock liquidity and ensuring a more orderly and less volatile market for a relatively small outlay of cash.
     
  No purchases are required and the $2,000,000 cap on the stock repurchase program is relatively low.

 

Purchases under the program are authorized through December 31, 2017. Through August 10, an aggregate of 170,998 shares have been repurchased under this program for an aggregate purchase price of $100,861.60.

 

Declaration of Dividend

 

On August 1, 2017, our sole director declared a cash dividend of $0.005 per common share for the second quarter of 2017. The dividend is payable on August 21, 2017 to stockholders of record at the close of business on August 11, 2017. 

 

Notes Offering Terminated

 

In December 2016, we launched a private offering of up to $10 million aggregate principal amount of our 12% senior unsecured notes due December 31, 2026 (the “Notes”), on a self-underwritten basis. The Notes offering was terminated in May 2017. No Notes were sold in the offering.

 

OneMain Holdings, Inc. Tender Offer Closed

 

On June 16, 2017, we closed our tender offer to purchase shares of common stock of OneMain Holdings, Inc. (“OneMain”), with 151,994 OneMain shares of common stock acquired (valued at an aggregate of $3.55 million based on the closing price of shares of OneMain common stock of $23.38 on June 15, 2017) in exchange for 3,039,880 shares of our common stock. The per share valuation of IEG Holdings shares used in connection with the OneMain tender offer was $1.169 per IEG Holdings common share as at the close date of the tender offer. On June 22, 2017, we sold 100% of the 151,994 shares of OneMain common stock which we obtained in our tender offer for $3.4 million in cash. The current planned use of the proceeds from the sale of OneMain shares is to fund increased new loan volumes in Q3 and a further use is to fund the payables to Mr. Mathieson pursuant to the terms of the consulting agreement entered into on July 1, 2017.

 

Amendment of Series H Preferred Stock

 

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

 

  (1) remove rights to receive dividends on our Series H preferred stock;
     
  (2) increase the conversion ratio of the Series H preferred stock from 0.2 shares of Common Stock per share of Series H preferred stock to 1 share of Common Stock per share of Series H preferred stock;
     
  (3) remove our right to redeem or call our Series H preferred stock;
     
  (4) provide for automatic conversion of Series H preferred stock into shares of our Common Stock on December 31, 2017; and
     
  (5) remove the voting rights for Series H preferred stock.

 

The Amendment was approved by our board of directors on June 19, 2017.

 

In addition, on July 26, 2017, we filed articles of amendment to our Articles that had the effect of revising the terms of the Series H preferred stock to increase the conversion ratio of the Series H preferred stock from one share of common stock per share of Series H preferred stock to four shares of common stock per share of Series H preferred stock. The Articles amendment was approved by our sole director on July 26, 2017.

 

Emerging Growth Company Status

 

We are an “emerging growth company” as defined in Section 2(a)(19) of the Securities Act, as modified by the Jumpstart Our Business Startups Act of 2012 (the “JOBS Act”). As such, we are eligible to take advantage of certain exemptions from various reporting requirements that are applicable to other public companies that are not “emerging growth companies” including, but not limited to, not being required to comply with the auditor attestation requirements of Section 404 of the Sarbanes-Oxley Act of 2002 (the “Sarbanes-Oxley Act”), reduced disclosure obligations regarding executive compensation in our periodic reports and proxy statements, and exemptions from the requirements of holding a non-binding advisory vote on executive compensation and stockholder approval of any golden parachute payments not previously approved. We elected to take advantage of all of these exemptions.

 

  2 
  

 

In addition, Section 107 of the JOBS Act also provides that an “emerging growth company” can take advantage of the extended transition period provided in Section 7(a)(2)(B) of the Securities Act for complying with new or revised accounting standards, and delay compliance with new or revised accounting standards until those standards are applicable to private companies. We have elected to take advantage of the benefits of this extended transition period.

 

We will be an emerging growth company until the last day of the first fiscal year following the fifth anniversary of our first common equity offering, although we will lose that status earlier if our annual revenues exceed $1.0 billion, if we issue more than $1.0 billion in non-convertible debt in any three-year period or if we become a “large accelerated filer” as defined in Rule 12b-2 under the Exchange Act.

 

The Offering

 

Issuer   IEG Holdings Corporation
     
Common stock offered by the selling stockholders  

9,089,220 shares

     
Common stock outstanding  

12,754,066 shares

     
Offering price per share  

$3.00 (for the duration of this offering). See “Determination of Offering Price” and “Plan of Distribution.”

     
Use of proceeds   We will not receive any proceeds from the sale of common stock by the selling stockholders in this offering. See “Use of Proceeds” and “Selling Stockholders.”
     
Risk factors   See “Risk Factors” beginning on page 4 of this prospectus for a discussion of some of the factors you should carefully consider before deciding to invest in our common stock.
     
OTC trading symbol   IEGH

 

Risk Factors

 

Before you invest in the offering, you should be aware that there are risks associated with your investment, including the risks described in the section entitled “Risk Factors” beginning on page 4 of this prospectus and the risks set forth in our annual report on Form 10-K for our fiscal year ended December 31, 2016. You should carefully read and consider the risk factors contained in our annual report on Form 10-K and in this prospectus, together with all of the other information included in this prospectus, before you decide to purchase our securities.

 

SUMMARY HISTORICAL FINANCIAL DATA

 

The following table presents our summary historical financial data for the periods indicated. The summary historical financial data for the years ended December 31, 2016 and 2015 and the balance sheet data as of December 31, 2016 and 2015 are derived from the audited financial statements. The summary historical financial data for the six months ended June 30, 2017 and 2016 and the balance sheet data as of June 30 , 2017 and 2016 are derived from our unaudited financial statements. 

 

Historical results are included for illustrative and informational purposes only and are not necessarily indicative of results we expect in future periods, and results of interim periods are not necessarily indicative of results for the entire year. You should read the following summary financial data in conjunction with “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and our financial statements and related Notes appearing elsewhere in this prospectus.

 

  3 
  

 

   

Year Ended

December 31,

   

Six Months Ended

June 30,

 
    2016     2015     2017     2016  
                (Unaudited)  
Statement of Operations Data                                
Total revenues   $ 2,135,046     $ 1,835,165     $ 881,324       1,070,328  
Total operating expenses     6,876,194       7,012,609       2,284,021       3,283,289  
Loss from operations     (4,741,147 )     (5,177,444 )     (1,402,697 )     (2,212,961 )
Total other income (expense)     12,278       (520,754 )     (153,225 )     11,750  
Net loss   $ (4,728,869 )   $ (5,698,198 )   $ (1,555,922 )     (2,201,211 )
Net loss per share, basic and diluted   $ (0.60 )   $ (2.52 )   $ (0.16 )     (0.36 )

 

Balance Sheet Data (at period end)   December 31, 2016     December 31, 2015     June 30, 2017  
Cash and cash equivalents   $ 322,441     $ 485,559     $ 3,743,268  
Working capital (1)     1,709,310       1,581,100       4,948,849  
Total assets     6,821,947       7,758,149       8,885,016  
Total liabilities     1,060       107,963       115,002  
Stockholders’ equity     6,820,887       7,650,186       8,770,014  

 

(1) Working capital represents total current assets less total current liabilities.

 

  4 
  

 

RISK FACTORS

 

Investment in our securities involves a number of substantial risks. You should not invest in our securities unless you are able to bear the complete loss of your investment. In addition to the risks and investment considerations discussed elsewhere in this prospectus, the following factors should be carefully considered by anyone purchasing the securities offered through this prospectus. The risks and uncertainties described below are not the only ones we face. Additional risks and uncertainties not presently known to us or that we currently deem immaterial also may impair our business operations. If any of the following risks actually occur, our business could be harmed. In such case, the trading price of our common stock could decline and investors could lose all or a part of their investment.

 

Risks Related to Our Business and Industry

 

Our limited operating history and our failure since inception to achieve an operating profit makes our future prospects and financial performance unpredictable.

 

We commenced operations in 2010 and as a result, we have a limited operating history upon which a potential investor can evaluate our prospects and the potential value of an investment in our company. In addition, we have not made an operating profit since our incorporation. We remain subject to the risks inherently associated with new business enterprises in general and, more specifically, the risks of a new financial institution and, in particular, a new Internet-based financial institution. Our prospects are subject to the risks and uncertainties frequently encountered by companies in their early stages of development, including the risk that we will not be able to implement our business strategy. If we are unable to implement our business strategy and grow our business, our business will be materially adversely affected.

 

We may not be able to implement our plans for growth successfully, which could adversely affect our future operations.

 

Since January 2015, the amount we have loaned to borrowers (our loan book) has increased by 159% from $5,549,023 to $14,699,023 as of July 31, 2017. We expect to continue to grow our loan book and number of customers at an accelerated rate in the future. Our future success will depend in part on our continued ability to manage our growth. We may not be able to achieve our growth plans, or sustain our historical growth rates or grow at all. Various factors, such as economic conditions, regulatory and legislative considerations and competition, may also impede our ability to expand our market presence. If we are unable to grow as planned, our business and prospects could be adversely affected.

 

Our inability to manage our growth could harm our business.

 

We anticipate that our loan book and customer base will continue to grow significantly over time. To manage the expected growth of our operations and personnel, we will be required to, among other things:

 

  improve existing and implement new transaction processing, operational and financial systems, procedures and controls;
     
  maintain effective credit scoring and underwriting guidelines; and
     
  increase our employee base and train and manage this growing employee base.

 

If we are unable to manage growth effectively, our business, prospects, financial condition and results of operations could be adversely affected.

 

We may need to raise additional capital that may not be available, which could harm our business.

 

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 stockholders or reduction in the earnings available to our common stockholders. 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.

 

  5 
  

 

As an online consumer loan company whose principal means of delivering personal loans is the Internet, we are subject to risks particular to that method of delivery.

 

We are predominantly an online consumer loan company and there are a number of unique factors that Internet-based loan companies face. These include concerns for the security of personal information, the absence of personal relationships between lenders and customers, the absence of loyalty to a conventional hometown branch, customers’ difficulty in understanding and assessing the substance and financial strength of an online loan company, a lack of confidence in the likelihood of success and permanence of online loan companies and many individuals’ unwillingness to trust their personal details and financial future to a relatively new technological medium such as the Internet. As a result, some potential customers may be unwilling to establish a relationship with us.

 

Conventional “brick and mortar” consumer loan companies, in growing numbers, are offering the option of Internet-based lending to their existing and prospective customers. The public may perceive conventional established loan companies as being safer, more responsive, more comfortable to deal with and more accountable as providers of their lending needs. We may not be able to offer Internet-based lending that has sufficient advantages over the Internet-based lending services and other characteristics of conventional “brick and mortar” consumer loan companies to enable us to compete successfully.

 

We may not be able to make technological improvements as quickly as some of our competitors, which could harm our ability to compete with our competitors and adversely affect our results of operations, financial condition and liquidity.

 

Both the Internet and the financial services industry are undergoing rapid technological changes, with frequent introductions of new technology-driven products and services. In addition to improving the ability to serve customers, the effective use of technology increases efficiency and enables financial institutions to reduce costs. Our future success will depend in part upon our ability to address the needs of our customers by using technology to provide products and services that will satisfy customer demands, as well as to create additional efficiencies in our operations. We may not be able to effectively implement new technology-driven products and services or be successful in marketing these products and services to our customers. If we are unable, for technical, legal, financial or other reasons, to adapt in a timely manner to changing market conditions, customer requirements or emerging industry standards, our business, prospects, financial condition and results of operations could be adversely affected.

 

A significant disruption in our computer systems or a cyber security breach could adversely affect our operations.

 

We rely extensively on our computer systems to manage our loan origination and other processes. Our systems are subject to damage or interruption from power outages, computer and telecommunications failures, computer viruses, cyber security breaches, vandalism, severe weather conditions, catastrophic events and human error, and our disaster recovery planning cannot account for all eventualities. If our systems are damaged, fail to function properly or otherwise become unavailable, we may incur substantial costs to repair or replace them, and may experience loss of critical data and interruptions or delays in our ability to perform critical functions, which could adversely affect our business and results of operations. Any compromise of our security could also result in a violation of applicable privacy and other laws, significant legal and financial exposure, damage to our reputation, loss or misuse of the information and a loss of confidence in our security measures, which could harm our business.

 

Our ability to protect the confidential information of our borrowers and investors may be adversely affected by cyber-attacks, computer viruses, physical or electronic break-ins or similar disruptions.

 

We process certain sensitive data from our borrowers and investors. While we have taken steps to protect confidential information that we receive or have access to, our security measures could be breached. Any accidental or willful security breaches or other unauthorized access to our systems could cause confidential borrower and investor information to be stolen and used for criminal purposes. Security breaches or unauthorized access to confidential information could also expose us to liability related to the loss of the information, time-consuming and expensive litigation and negative publicity. If security measures are breached because of third-party action, employee error, malfeasance or otherwise, or if design flaws in our software are exposed and exploited, our relationships with borrowers and investors could be severely damaged, and we could incur significant liability.

 

Because techniques used to sabotage or obtain unauthorized access to systems change frequently and generally are not recognized until they are launched against a target, we may be unable to anticipate these techniques or to implement adequate preventative measures. In addition, federal regulators and many federal and state laws and regulations require companies to notify individuals of data security breaches involving their personal data. These mandatory disclosures regarding a security breach are costly to implement and often lead to widespread negative publicity, which may cause borrowers and investors to lose confidence in the effectiveness of our data security measures. Any security breach, whether actual or perceived, would harm our reputation, we could lose borrowers and investors and our business and operations could be adversely affected.

 

Any significant disruption in service on our platform or in our computer systems, including events beyond our control, could prevent us from processing or posting payments on loans, reduce the attractiveness of our marketplace and result in a loss of borrowers or investors.

 

  6 
  

 

In the event of a system outage and physical data loss, our ability to perform our servicing obligations, process applications or make loans available would be materially and adversely affected. The satisfactory performance, reliability and availability of our technology are critical to our operations, customer service, reputation and our ability to attract new and retain existing borrowers and investors.

 

Any interruptions or delays in our service, whether as a result of third-party error, our error, natural disasters or security breaches, whether accidental or willful, could harm our relationships with our borrowers and investors and our reputation. Additionally, in the event of damage or interruption, our insurance policies may not adequately compensate us for any losses that we may incur. Our disaster recovery plan has not been tested under actual disaster conditions, and we may not have sufficient capacity to recover all data and services in the event of an outage. These factors could prevent us from processing or posting payments on the loans, damage our brand and reputation, divert our employees’ attention, reduce our revenue, subject us to liability and cause borrowers and investors to abandon our marketplace, any of which could adversely affect our business, financial condition and results of operations.

 

We contract with third parties to provide services related to our online web lending and marketing, as well as systems that automate the servicing of our loan portfolios. See “—We depend on third-party service providers for our core operations including online lending and loan servicing and interruptions in or terminations of their services could materially impair the quality of our services.” While there are material cybersecurity risks associated with these services, we require that our vendors provide industry-leading encryption, strong access control policies, Statement on Standards for Attestation Engagements (SSAE) 16 audited data centers, systematic methods for testing risks and uncovering vulnerabilities, and industry compliance audits to ensure data and assets are protected. To date, we have not experienced any cyber incidents that were material, either individually or in the aggregate.

 

Our unsecured loans generally have delinquency and default rates higher than prime and secured loans, which could result in higher loan losses.

 

We are in the business of originating unsecured personal loans. As of June 30, 2017, approximately 2.57% of our customers are subprime borrowers, which we define as borrowers having credit scores below 600 on the credit risk scale developed by VantageScore Solutions, LLC. Unsecured personal loans and subprime loans generally have higher delinquency and default rates than secured loans and prime loans. Subprime borrowers are associated with lower collection rates and are subject to higher loss rates than prime borrowers. Subprime borrowers have historically been, and may in the future become, more likely to be affected, or more severely affected, by adverse macroeconomic conditions, particularly unemployment. If our borrowers default under an unsecured loan, we will bear a risk of loss of principal, which could adversely affect our cash flow from operations. Delinquency interrupts the flow of projected interest income from a loan, and default can ultimately lead to a loss. We attempt to manage these risks with risk-based loan pricing and appropriate management policies. However, we cannot assure you that such management policies will prevent delinquencies or defaults and, if such policies and methods are insufficient to control our delinquency and default risks and do not result in appropriate loan pricing, our business, financial condition, liquidity and results of operations could be harmed. If aspects of our business, including the quality of our borrowers, are significantly affected by economic changes or any other conditions in the future, we cannot be certain that our policies and procedures for underwriting, processing and servicing loans will adequately adapt to such changes. If we fail to adapt to changing economic conditions or other factors, or if such changes affect our borrowers’ capacity to repay their loans, our results of operations, financial condition and liquidity could be materially adversely affected. At June 30, 2017, we had 151 loans considered past due at 31+ days past due, representing 10.78% of the number of loans in our active portfolio. At June 30, 2017, we had 74 loans delinquent or in default (defined as 91+ days past due) representing 5.58% of the number of loans in our active portfolio. Loans become eligible for a lender to take legal action at 60 days past due.

 

If our estimates of loan receivable losses are not adequate to absorb actual losses, our provision for loan receivable losses would increase, which would adversely affect our results of operations.

 

We maintain an allowance for loans receivable losses. To estimate the appropriate level of allowance for loan receivable losses, we consider known and relevant internal and external factors that affect loan receivable collectability, including the total amount of loan receivables outstanding, historical loan receivable charge-offs, our current collection patterns, and economic trends. If customer behavior changes as a result of economic conditions and if we are unable to predict how the unemployment rate, housing foreclosures, and general economic uncertainty may affect our allowance for loan receivable losses, our provision may be inadequate. Our allowance for loan receivable losses is an estimate, and if actual loan receivable losses are materially greater than our allowance for loan receivable losses, our financial position, liquidity, and results of operations could be adversely affected.

 

Our risk management efforts may not be effective which could result in unforeseen losses.

 

We could incur substantial losses and our business operations could be disrupted if we are unable to effectively identify, manage, monitor, and mitigate financial risks, such as credit risk, interest rate risk, prepayment risk, liquidity risk, and other market-related risks, as well as operational risks related to our business, assets and liabilities. Our risk management policies, procedures, and techniques, including our scoring methodology, may not be sufficient to identify all of the risks we are exposed to, mitigate the risks we have identified or identify additional risks to which we may become subject in the future.

 

  7 
  

 

We face strong competition for customers and may not succeed in implementing our business strategy.

 

Our business strategy depends on our ability to remain competitive. There is strong competition for customers from personal loan companies and other types of consumer lenders, including those that use the Internet as a medium for lending or as an advertising platform. Our competitors include:

 

  large, publicly-traded, state-licensed personal loan companies such as OneMain;
     
 

peer-to-peer lending companies such as LendingClub and Prosper Marketplace Inc.;

     
  online personal loan companies such as Avant;
     
  “brick and mortar” personal loan companies, including those that have implemented websites to facilitate online lending; and
     
  payday lenders, tribal lenders and other online consumer loan companies.

 

Some of these competitors have been in business for a long time and have name recognition and an established customer base. Most of our competitors are larger and have greater financial and personnel resources. In order to compete profitably, we may need to reduce the rates we offer on loans, which may adversely affect our business, prospects, financial condition and results of operations. To remain competitive, we believe we must successfully implement our business strategy. Our success depends on, among other things:

 

  having a large and increasing number of customers who use our loans for financing needs;
     
  our ability to attract, hire and retain key personnel as our business grows;
     
  our ability to secure additional capital as needed;
     
  our ability to offer products and services with fewer employees than competitors;
     
  the satisfaction of our customers with our customer service;
     
  ease of use of our websites; and
     
  our ability to provide a secure and stable technology platform for providing personal loans that provides us with reliable and effective operational, financial and information systems.

 

If we are unable to implement our business strategy, our business, prospects, financial condition and results of operations could be adversely affected.

 

We depend on third-party service providers for our core operations including online lending and loan servicing, and interruptions in or terminations of their services could materially impair the quality of our services.

 

We rely substantially upon third-party service providers for our core operations, including online web lending and marketing and vendors that provide systems that automate the servicing of our loan portfolios which allow us to increase the efficiency and accuracy of our operations. These systems include tracking and accounting of our loan portfolio as well as customer relationship management, collections, funds disbursement, security and reporting. This reliance may mean that we will not be able to resolve operational problems internally or on a timely basis, which could lead to customer dissatisfaction or long-term disruption of our operations. If these service arrangements are terminated for any reason without an immediately available substitute arrangement, our operations may be severely interrupted or delayed. If such interruption or delay were to continue for a substantial period of time, our business, prospects, financial condition and results of operations could be adversely affected.

 

If we lose the services of any of our key management personnel, our business could suffer.

 

Our future success significantly depends on the continued service and performance of our Chief Executive Officer, Paul Mathieson and our Chief Operating Officer, Carla Cholewinski. Competition for these employees is intense and we may not be able to attract and retain key personnel. We do not maintain any “key man” or other related insurance. The loss of the service of our Chief Executive Officer or our Chief Operating Officer, or the inability to attract additional qualified personnel as needed, could materially harm our business.

 

  8 
  

 

We have incurred, and will continue to incur, increased costs as a result of being a public reporting company.

 

In April 2015, we became a public reporting company. As a public reporting company, we incur significant legal, accounting and other expenses that we did not incur as a non-reporting company, including costs associated with our SEC reporting requirements. We expect that the additional reporting and other obligations imposed on us under the Exchange Act, will increase our legal and financial compliance costs and the costs of our related legal, accounting and administrative activities significantly. Management estimates that compliance with the Exchange Act reporting requirements as a reporting company will cost in excess of $200,000 annually. Given our current financial resources, these additional compliance costs could have a material adverse impact on our financial position and ability to achieve profitable results. These increased costs will require us to divert money that we could otherwise use to expand our business and achieve our strategic objectives.

 

We operate in a highly competitive market, and we cannot ensure that the competitive pressures we face will not have a material adverse effect on our results of operations, financial condition and liquidity.

 

The consumer finance industry is highly competitive. Our success depends, in large part, on our ability to originate consumer loan receivables. We compete with other consumer finance companies as well as other types of financial institutions that offer similar products and services in originating loan receivables. Some of these competitors may have greater financial, technical and marketing resources than we possess. Some competitors may also have a lower cost of funds and access to funding sources that may not be available to us. While banks and credit card companies have decreased their lending to non-prime customers in recent years, there is no assurance that such lenders will not resume those lending activities. Further, because of increased regulatory pressure on payday lenders, many of those lenders are starting to make more traditional installment consumer loans in order to reduce regulatory scrutiny of their practices, which could increase competition in markets in which we operate.

 

Negative publicity could adversely affect our business and operating results.

 

Negative publicity about our industry or our company, including the quality and reliability of our marketplace, effectiveness of the credit decisioning and scoring models used in the marketplace, changes to our marketplace, our ability to effectively manage and resolve borrower and investor complaints, privacy and security practices, litigation, regulatory activity and the experience of borrowers and investors with our marketplace or services, even if inaccurate, could adversely affect our reputation and the confidence in, and the use of, our marketplace, which could harm our business and operating results. Harm to our reputation can arise from many sources, including employee misconduct, misconduct by our partners, outsourced service providers or other counterparties, failure by us or our partners to meet minimum standards of service and quality, inadequate protection of borrower and investor information and compliance failures and claims.

 

Our business is subject to extensive regulation in the jurisdictions in which we conduct our business.

 

Our operations are subject to regulation, supervision and licensing under various federal, state and local statutes, ordinances and regulations. In most states in which we operate, a consumer credit regulatory agency regulates and enforces laws relating to consumer lenders such as us. These rules and regulations generally provide for licensing as a consumer lender, limitations on the amount, duration and charges, including interest rates, for various categories of loans, requirements as to the form and content of finance contracts and other documentation, and restrictions on collection practices and creditors’ rights. In certain states, we are subject to periodic examination by state regulatory authorities. Some states in which we operate do not require special licensing or provide extensive regulation of our business.

 

We are also subject to extensive federal regulation, including the Truth in Lending Act, the Equal Credit Opportunity Act and the Fair Credit Reporting Act. These laws require us to provide certain disclosures to prospective borrowers and protect against discriminatory lending and leasing practices and unfair credit practices. The principal disclosures required under the Truth in Lending Act include the terms of repayment, the total finance charge and the annual percentage rate charged on each contract or loan. The Equal Credit Opportunity Act prohibits creditors from discriminating against credit applicants on the basis of race, color, religion, national origin, sex, age or marital status. According to Regulation B promulgated under the Equal Credit Opportunity Act, creditors are required to make certain disclosures regarding consumer rights and advise consumers whose credit applications are not approved of the reasons for the rejection. In addition, the credit scoring system used by us must comply with the requirements for such a system as set forth in the Equal Credit Opportunity Act and Regulation B. The Fair Credit Reporting Act requires us to provide certain information to consumers whose credit applications are not approved on the basis of a report obtained from a consumer reporting agency and to respond to consumers who inquire regarding any adverse reporting submitted by us to the consumer reporting agencies. Additionally, we are subject to the Gramm-Leach-Bliley Act, which requires us to maintain the privacy of certain consumer data in our possession and to periodically communicate with consumers on privacy matters. We are also subject to the Servicemembers Civil Relief Act, which requires us, in most circumstances, to reduce the interest rate charged to customers who have subsequently joined, enlisted, been inducted or called to active military duty.

 

  9 
  

 

A material failure to comply with applicable laws and regulations could result in regulatory actions, lawsuits and damage to our reputation, which could have a material adverse effect on our results of operations, financial condition and liquidity.

 

The Consumer Financial Protection Bureau (the “CFPB”) is a new federal agency formed pursuant to the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 (the “Dodd-Frank Act”), and there continues to be uncertainty as to how the agency’s actions or the actions of any other new agency could impact our business.

 

The CFPB, constituted pursuant to the Dodd-Frank Act, which commenced operations in 2011, has broad authority over the business in which we engage. This includes authority to write regulations under federal consumer financial protection laws, such as the Truth in Lending Act and the Equal Credit Opportunity Act, and to enforce those laws against and examine financial institutions for compliance. The CFPB is authorized to prevent “unfair, deceptive or abusive acts or practices” through its regulatory, supervisory and enforcement authority. To assist in its enforcement, the CFPB maintains an online complaint system that allows consumers to log complaints with respect to various consumer finance products, including the loan products we facilitate. This system could inform future CFPB decisions with respect to its regulatory, enforcement or examination focus.

 

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

 

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

 

Actions by the CFPB or other regulators against us or our competitors that discourage the use of the marketplace model or suggest to consumers the desirability of other loan products or services could result in reputational harm and a loss of borrowers or investors. Our compliance costs and litigation exposure could increase materially if the CFPB or other regulators enact new regulations, change regulations that were previously adopted, modify, through supervision or enforcement, past regulatory guidance, or interpret existing regulations in a manner different or stricter than have been previously interpreted.

 

If our involvement in a December 11, 2014 article published in the Examiner or any other publicity regarding our company or the Offering during the waiting period, including our December 2, 2014 press release, were held to be in violation of federal or state securities laws, we could incur monetary damages, fines or other damages that could have a material adverse effect on our financial condition and prospects.

 

On December 11, 2014, information about our company was published in an article by the Examiner. Our Chief Executive Officer, Mr. Mathieson, did not participate in an interview with the author of the Examiner article. Rather, the author included certain quotations from Mr. Mathieson that were contained in prior press releases by us and summarized statements previously made by Mr. Mathieson that were contained in a prior article published by the Opportunist Magazine. Prior to its publication, the author of the December 11th article provided Mr. Mathieson a copy of the article.

 

In addition, we issued a press release on December 2, 2014 in which we referenced, among other things, our intention to file a registration statement on Form S-1 and to list our securities on NASDAQ. The December 2nd press release presented certain statements about our company in isolation and did not disclose many of the related risks and uncertainties described in this prospectus.

 

If it were determined that the December 11th article, the December 2nd press release or any of our other publicity-related activities constituted a violation of Section 5 of the Securities Act, the SEC and relevant state regulators could impose monetary fines or other sanctions as provided under relevant federal and state securities laws. Such regulators could also require us to make a rescission offer, which is an offer to repurchase securities offered in the relevant offering. This could also give rise to a private right of action to seek a rescission remedy under Section 12(a)(2) of the Securities Act.

 

We are unable to quantify the extent of any monetary damages that we might incur if monetary fines were imposed, rescission were required or one or more other claims were successful. As of the date of this prospectus, we are not aware of any pending or threatened claims alleging violations of any federal or state securities laws. However, there can be no assurance that any such claim will not be asserted in the future or that the claimant in any such action will not prevail. The possibility that such claims may be asserted in the future will continue until the expiration of the applicable federal and state statutes of limitations, which generally vary from one to three years from the date of sale. If the payment of damages or fines is significant, it could have a material adverse effect on our cash flows, financial condition or prospects.

 

  10 
  

 

We are required to pay a prior lender interest on our net profit until 2025, which may have a material adverse effect on our results of operations.

 

We previously had a credit facility with BFG Investment Holdings, LLC (“BFG”). Effective July 15, 2015, BFG converted the credit facility from a revolving facility to a term loan. On August 21, 2015, we, through certain of our wholly owned subsidiaries, paid all principal and accrued interest under the Loan and Security Agreement, as amended (the “Loan Agreement”), among BFG and certain of our wholly owned subsidiaries. As a result, there is currently no outstanding balance under the Loan Agreement. However, the Loan Agreement continues in effect and we are subject to a net profit interest under which we are required to pay BFG 20% of the “Net Profit” of our subsidiary, IEC SPV, until 10 years from the date the loan is repaid in full. Net Profit is defined as the gross revenue less (i) interest paid on the loan, (ii) payments on any other debt incurred as a result of refinancing the loan through a third party, as provided in the Loan Agreement, (iii) any costs, fees or commissions paid on the existing credit facility, and (iv) charge-offs to bad debt resulting from consumer loans. The Net Profit arrangement can be terminated by us upon a payment of $3,000,000 to BFG. For the years ended December 31, 2016 and 2015, we paid BFG Net Profit interest of $57,094 and $107,340, respectively, and our net income for such years was reduced by those respective amounts. In the future, if we fail to terminate the Net Profit arrangement and are required to pay BFG 20% of our Net Profit, it could have a material adverse effect on our results of operations

 

Risks Relating to Our Common Stock

 

Trading on the OTC Markets is volatile and sporadic, which could depress the market price of our common stock and make it difficult for our security holders to resell their common stock.

 

Our common stock is quoted on the OTCQB tier of the OTC Markets. Trading in securities quoted on the OTC Markets is often thin and characterized by wide fluctuations in trading prices, due to many factors, some of which may have little to do with our operations or business prospects. This volatility could depress the market price of our common stock for reasons unrelated to operating performance. Moreover, the OTC Markets is not a stock exchange, and trading of securities on the OTC Markets is often more sporadic than the trading of securities listed on a stock exchange like NASDAQ or the New York Stock Exchange. These factors may result in investors having difficulty reselling any shares of our common stock.

 

Our common stock price is likely to be highly volatile because of several factors, including a limited public float.

 

The market price of our common stock has been volatile in the past. For example, as of August 10, 2017, our common stock has had a 52-week high sale price of $15.80 and a low sale price of $0.14. The market price of our common stock is likely to be highly volatile in the future, as well. You may not be able to resell shares of our common stock following periods of volatility because of the market’s adverse reaction to volatility.

 

Other factors that could cause such volatility may include, among other things:

 

  actual or anticipated fluctuations in our operating results;
     
  the absence of securities analysts covering us and distributing research and recommendations about us;
     
  we may have a low trading volume for a number of reasons, including that a large portion of our stock is closely held;
     
  overall stock market fluctuations;
     
  announcements concerning our business or those of our competitors;
     
  actual or perceived limitations on our ability to raise capital when we require it, and to raise such capital on favorable terms;
     
  conditions or trends in the industry;
     
  litigation;
     
  changes in market valuations of other similar companies;
     
  future sales of common stock;
     
  departure of key personnel or failure to hire key personnel; and
     
  general market conditions.

 

Any of these factors could have a significant and adverse impact on the market price of our common stock. In addition, the stock market in general has at times experienced extreme volatility and rapid decline that has often been unrelated or disproportionate to the operating performance of particular companies. These broad market fluctuations may adversely affect the trading price of our common stock, regardless of our actual operating performance.

 

The offering price of the shares offered by the selling stockholders has been arbitrarily determined and such price should not be used by an investor as an indicator of the fair market value of the shares.

 

The offering price for the shares offered hereby by the selling stockholders has been arbitrarily determined and does not necessarily bear any direct relationship to the assets, operations, book or other established criteria of value of our company. Accordingly, the actual value of shares of our common stock may be significantly less than the offering price of $3.00 per share. The value of shares purchased at the fixed offering price of $3.00 per share may decline in value or have significantly less value when you attempt to sell such shares.

 

  11 
  

 

Because Mr. Mathieson, our Chief Executive Officer and sole director, will make all management decisions, you should only invest in IEG Holdings shares if you are comfortable entrusting Mr. Mathieson to make all decisions.

 

As sole officer and director, Mr. Mathieson will have the right to make all decisions with respect to our management. Investors will not have an opportunity to evaluate the specific projects that will be financed with future operating income. Our stockholders should be willing to entrust all aspects of our management to Mr. Mathieson.

 

We face corporate governance risks and negative investor perceptions because we have only one officer and director and have not adopted a written policy for the review, approval or ratification of transactions with related parties or conflicted parties.

 

Mr. Mathieson is our sole officer and director. As such, he has significant control over our business direction. Additionally, because he is our sole director, there are no other board members available to second and/or approve related party transactions involving Mr. Mathieson, including the compensation Mr. Mathieson may be paid and any consulting or other agreements we may enter into with Mr. Mathieson. Additionally, there is no segregation of duties between officers because Mr. Mathieson is our sole officer, and as such, he is solely responsible for the oversight of our accounting functions. Because no other directors are approving related party transactions involving Mr. Mathieson and no other officers are approving our financial statements, investors may question the fairness of related party transactions or the accuracy of financial statements. The price of our common stock may be adversely affected and/or devalued compared to similarly sized companies with multiple officers and directors due to the investing public’s perception of limitations facing our Company due to the fact that we only have one officer and director.

 

Although Mr. Mathieson intends to enter into any related party transactions on an arms’ length basis, we do not have a written policy for the review, approval or ratification of transactions with related parties or conflicted parties. As our sole officer and director, Mr. Mathieson makes decisions such as the approval of related party transactions, Mr. Mathieson’s compensation, and oversight of the accounting function. Mr. Mathieson exercises full control over all matters that typically require board approval. Accordingly, Mr. Mathieson’s actions are not subject to the review and approval of a board of directors and, as such, the Company may be at risk for a conflict of interest arising between Mr. Mathieson’s duties in his role as Chief Executive Officer and his own personal financial and business interests in other business ventures distinct and separate from the interests of the Company. His personal interests may not coincide with the interests of the stockholders and, in the absence of the effective segregation of such duties, there is a risk of a conflict of interest.

 

Our common stock is currently, has been in the past, and may be in the future, a “penny stock” under SEC rules. It may be more difficult to resell securities classified as “penny stock.”

 

Our common stock is a “penny stock” under applicable SEC rules (generally defined as non-exchange traded stock with a per-share price below $5.00). Unless we obtain a per-share price above $5.00, these rules impose additional sales practice requirements on broker-dealers that recommend the purchase or sale of penny stocks to persons other than those who qualify as “established customers” or “accredited investors.” For example, broker-dealers must determine the appropriateness for non-qualifying persons of investments in penny stocks. Broker-dealers must also provide, prior to a transaction in a penny stock not otherwise exempt from the rules, a standardized risk disclosure document that provides information about penny stocks and the risks in the penny stock market. The broker-dealer also must provide the customer with current bid and offer quotations for the penny stock, disclose the compensation of the broker-dealer and its salesperson in the transaction, furnish monthly account statements showing the market value of each penny stock held in the customer’s account, provide a special written determination that the penny stock is a suitable investment for the purchaser, and receive the purchaser’s written agreement to the transaction.

 

Legal remedies available to an investor in “penny stocks” may include the following:

 

  If a “penny stock” is sold to the investor in violation of the requirements listed above, or other federal or states securities laws, the investor may be able to cancel the purchase and receive a refund of the investment.
     
  If a “penny stock” is sold to the investor in a fraudulent manner, the investor may be able to sue the persons and firms that committed the fraud for damages.

 

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However, investors who have signed arbitration agreements may have to pursue their claims through arbitration.

 

These requirements may have the effect of reducing the level of trading activity, if any, in the secondary market for a security that becomes subject to the penny stock rules. The additional burdens imposed upon broker-dealers by such requirements may discourage broker-dealers from effecting transactions in our securities, which could severely limit the market price and liquidity of our securities. These requirements may restrict the ability of broker-dealers to sell our common stock and may affect your ability to resell our common stock.

 

Many brokerage firms will discourage or refrain from recommending investments in penny stocks. Most institutional investors will not invest in penny stocks. In addition, many individual investors will not invest in penny stocks due, among other reasons, to the increased financial risk generally associated with these investments.

 

For these reasons, penny stocks may have a limited market and, consequently, limited liquidity. We can give no assurance that our common stock will not remain classified as a “penny stock” in the future.

 

If we fail to maintain effective internal control over financial reporting, the price of our securities may be adversely affected.

 

Our internal control over financial reporting may have weaknesses and conditions that could require correction or remediation, the disclosure of which may have an adverse impact on the price of our common stock. We are required to establish and maintain appropriate internal control over financial reporting. Failure to establish those controls, or any failure of those controls once established, could adversely affect our public disclosures regarding our business, prospects, financial condition or results of operations. In addition, management’s assessment of internal control over financial reporting may identify weaknesses and conditions that need to be addressed in our internal control over financial reporting or other matters that may raise concerns for investors. Any actual or perceived weaknesses and conditions that need to be addressed in our internal control over financial reporting or disclosure of management’s assessment of our internal control over financial reporting may have an adverse impact on the price of our common stock.

 

We are required to comply with certain provisions of Section 404 of the Sarbanes-Oxley Act and if we fail to continue to comply, our business could be harmed and the price of our securities could decline.

 

Rules adopted by the SEC pursuant to Section 404 of the Sarbanes-Oxley Act require an annual assessment of internal control over financial reporting, and for certain issuers (but not us) an attestation of this assessment by the issuer’s independent registered public accounting firm. The standards that must be met for management to assess the internal control over financial reporting as effective are evolving and complex, and require significant documentation, testing, and possible remediation to meet the detailed standards. We expect to incur significant expenses and to devote resources to Section 404 compliance on an ongoing basis. It is difficult for us to predict how long it will take or costly it will be to complete the assessment of the effectiveness of our internal control over financial reporting for each year and to remediate any deficiencies in our internal control over financial reporting. As a result, we may not be able to complete the assessment and remediation process on a timely basis. In the event that our Chief Executive Officer or Chief Financial Officer determines that our internal control over financial reporting is not effective as defined under Section 404, we cannot predict how regulators will react or how the market prices of our securities will be affected; however, we believe that there is a risk that investor confidence and the market value of our securities may be negatively affected.

 

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Our Chief Executive Officer has voting control, which will limit your ability to influence the outcome of important transactions, including a change in control.

 

As of August 10 , 2017, Mr. Mathieson beneficially owned 6,900,000 shares of our common stock, which represents 54.1% of our outstanding common stock. As a result, Mr. Mathieson controls a majority of our voting power and therefore is able to control all matters submitted to our stockholders for approval. Mr. Mathieson may have interests that differ from yours and may vote in a way with which you disagree and which may be adverse to your interests. This concentrated voting power may have the effect of delaying, preventing or deterring a change in control of our company, could deprive our stockholders of an opportunity to receive a premium for their capital stock as part of a sale of our company and might ultimately affect the market price of our common stock.

 

As a board member, Mr. Mathieson owes a fiduciary duty to our stockholders and must act in good faith and in a manner he reasonably believes to be in the best interests of our stockholders. As a stockholder, Mr. Mathieson is entitled to vote his shares in his own interest, which may not always be in the interests of our stockholders generally.

 

Shares eligible for future sale may adversely affect the market.

 

From time to time, certain of our stockholders may be eligible to sell all or some of their shares of common stock by means of ordinary brokerage transactions in the open market pursuant to Rule 144 promulgated under the Securities Act, subject to certain limitations. In general, pursuant to Rule 144, non-affiliate stockholders may sell freely after six months, subject only to the current public information requirement. Affiliates may sell after six months, subject to the Rule 144 volume, manner of sale (for equity securities), current public information, and notice requirements. Of the approximately 12,754,066 shares of our common stock outstanding as of August 10, 2017, approximately 5,852,066 shares are tradable without restriction. Given the limited trading of our common stock, resale of even a small number of shares of our common stock pursuant to Rule 144 or an effective registration statement may adversely affect the market price of our common stock.

 

Provisions of our amended and restated articles of incorporation and amended and restated bylaws may delay or prevent a takeover which may not be in the best interests of our stockholders.

 

Provisions of our amended and restated articles of incorporation, as amended, and our amended and restated bylaws may be deemed to have anti-takeover effects, which include when and by whom special meetings of our stockholders may be called, and may delay, defer or prevent a takeover attempt. In addition, certain provisions of the Florida Business Corporations Act also may be deemed to have certain anti-takeover effects which include that control of shares acquired in excess of certain specified thresholds will not possess any voting rights unless these voting rights are approved by a majority of a corporation’s disinterested stockholders. Further, our amended and restated articles of incorporation, as amended, authorize the issuance of up to 50,000,000 shares of preferred stock with such rights and preferences as may be determined from time to time by our board of directors in their sole discretion. Our board of directors may, without stockholder approval, issue series of preferred stock with dividends, liquidation, conversion, voting or other rights that could adversely affect the voting power or other rights of the holders of our common stock.

 

As an “emerging growth company” under the JOBS Act, we are permitted to rely on exemptions from certain disclosure requirements.

 

We qualify as an “emerging growth company” under the JOBS Act. As a result, we are permitted to, and intend to, rely on exemptions from certain disclosure requirements. For so long as we are an emerging growth company, we will not be required to:

 

  have an auditor report on our internal control over financial reporting pursuant to Section 404(b) of the Sarbanes-Oxley Act;
     
  comply with any requirement that may be adopted by the Public Company Accounting Oversight Board regarding mandatory audit firm rotation or a supplement to the auditor’s report providing additional information about the audit and the consolidated financial statements (i.e., an auditor discussion and analysis);

 

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  submit certain executive compensation matters to stockholder advisory votes, such as “say-on-pay” and “say-on-frequency”; and
     
  disclose certain executive compensation related items such as the correlation between executive compensation and performance and comparisons of the chief executive officer’s compensation to median employee compensation.

 

In addition, Section 102 of the JOBS Act also provides that an emerging growth company can take advantage of the extended transition period provided in Section 7(a)(2)(B) of the Securities Act for complying with new or revised accounting standards. In other words, an emerging growth company can delay the adoption of certain accounting standards until those standards would otherwise apply to private companies. We have elected to take advantage of the benefits of this extended transition period. Our consolidated financial statements may therefore not be comparable to those of companies that comply with such new or revised accounting standards.

 

We will remain an “emerging growth company” for up to five years, or until the earliest of (i) the last day of the first fiscal year in which our total annual gross revenues exceed $1 billion, (ii) the date that we become a “large accelerated filer” as defined in Rule 12b-2 under the Exchange Act, which would occur if the market value of our ordinary shares that is held by non-affiliates exceeds $700 million as of the last business day of our most recently completed second fiscal quarter or (iii) the date on which we have issued more than $1 billion in non-convertible debt during the preceding three year period.

 

Until such time, however, we cannot predict if investors will find our common stock less attractive because we may rely on these exemptions. If some investors find our common stock less attractive as a result, there may be a less active trading market for our common stock and the price of our securities may be more volatile.

 

USE OF PROCEEDS

 

We will not receive any proceeds from the sale of common stock by the selling stockholders in this offering. See “Selling Stockholders.”

 

DETERMINATION OF OFFERING PRICE

 

The shares being offered by the selling stockholders will be sold at a fixed price of $3.00 for the duration of this offering. The offering price of the shares bears no relation to book value, assets, earnings, or any other objective criteria of value. It has been arbitrarily determined by the selling stockholders.

 

PLAN OF DISTRIBUTION

 

This prospectus relates to 9,089,220 shares of our common stock offered by the selling stockholders. The selling stockholders and any of their respective pledges, donees, assignees and other successors-in-interest may, from time to time, sell any or all of their shares of common stock on any stock exchange, market or trading facility on which the shares are traded or in private transactions.

 

These shares shall be sold at a fixed price of $3.00 for the duration of this offering. The offering price of the shares bears no relation to book value, assets, earnings, or any other objective criteria of value. It has been arbitrarily determined by the selling stockholders. The selling stockholders may use any one or more of the following methods when selling shares:

 

  ordinary brokerage transactions and transactions in which the broker-dealer solicits purchasers;
     
  block trades in which the broker-dealer will attempt to sell the shares as agent, but may position and resell a portion of the block as principal to facilitate the transaction;
     
  purchases by a broker-dealer as principal and resale by the broker-dealer for its account;
     
  an exchange distribution in accordance with the rules of the applicable exchange;
     
  privately negotiated transactions;
     
  short sales;
     
  broker-dealers may agree with the selling stockholders to sell a specified number of such shares at a stipulated price per share;
     
  through the writing of options on the shares;
     
  a combination of any such methods of sale; and
     
  any other method permitted pursuant to applicable law.

 

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The selling stockholders or any of their respective pledgees, donees, transferees or other successors-in-interest, may also sell the shares directly to market makers acting as principals and/or broker-dealers acting as agents for themselves or their customers. Such broker-dealers may receive compensation in the form of discounts, concessions or commissions from the selling stockholders and/or the purchasers of shares for whom such broker-dealers may act as agents or to whom they sell as principal or both, which compensation as to a particular broker-dealer might be in excess of customary commissions. Before any such agent, or broker-dealer sells any of the shares that are the subject of this prospectus, a post-effective amendment to the registration statement of which this prospectus forms a part will be filed to name anyone receiving compensation for selling the shares before any sales take place. Market makers and block purchasers purchasing the shares will do so for their own account and at their own risk. It is possible that a selling stockholder will attempt to sell shares of common stock in block transactions to market makers or other purchasers at a fixed price which may be below or above the then market price. The selling stockholders and any brokers, dealers or agents, upon effecting the sale of any of the shares offered in this prospectus, are “underwriters” as that term is defined under the Securities Act, or the Exchange Act or the rules and regulations under such acts. In such event, any commissions received by such broker-dealers or agents and any profit on the resale of the shares purchased by them may be deemed to be underwriting commissions or discounts under the Securities Act.

 

Discounts, concessions, commissions and similar selling expenses, if any, attributable to the sale of shares will be borne by the respective selling stockholder. A selling stockholder may agree to indemnify any agent, dealer or broker-dealer that participates in transactions involving sales of the shares if liabilities are imposed on that person under the Securities Act.

 

The selling stockholders may from time to time pledge or grant a security interest in some or all of the shares of common stock owned by them and, if a selling stockholder defaults in the performance of its secured obligations, the pledgee or secured parties may offer and sell the shares of common stock from time to time under this prospectus after we have filed an amendment to this prospectus under Rule 424(b)(3) or any other applicable provision of the Securities Act amending the list of selling stockholders to include the pledgee, transferee or other successors-in-interest as selling stockholders under this prospectus.

 

The selling stockholders also may transfer their shares of common stock in other circumstances, in which case the transferees, pledgees or other successors-in-interest will be the selling beneficial owners for purposes of this prospectus and may sell the shares of common stock from time to time under this prospectus after we have filed an amendment to this prospectus under Rule 424(b)(3) or other applicable provision of the Securities Act amending the list of selling stockholders to include the pledgee, transferee or other successors-in-interest as selling stockholders under this prospectus.

 

We are required to pay all fees and expenses incident to the registration of the shares of common stock. We have agreed to indemnify the selling stockholders against certain losses, claims, damages and liabilities, including liabilities under the Securities Act.

 

The selling stockholders acquired the securities offered hereby in the ordinary course of business and have advised us that they have not entered into any agreements, understandings or arrangements with any underwriters or broker-dealers regarding the sale of their shares of common stock, nor is there an underwriter or coordinating broker acting in connection with a proposed sale of shares of common stock by any selling stockholder. If we are notified by any selling stockholder that any material arrangement has been entered into with a broker-dealer for the sale of shares of common stock, if required, we will file a supplement to this prospectus.

 

If a selling stockholder uses this prospectus for any sale of the shares of common stock, it will be subject to the prospectus delivery requirements of the Securities Act.

 

The anti-manipulation rules of Regulation M under the Securities Exchange Act may apply to sales of our common stock and activities of the selling stockholders.

 

DIVIDEND POLICY

 

Historically, we have not paid any cash dividends on our common stock. In May 2017, we announced the declaration of a cash dividend of $0.005 per common share for the first quarter of 2017. The dividend is payable on August 21, 2017 to stockholders of record at the close of business on June 5, 2017. In addition, 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 is payable on August 21, 2017 to stockholders of record at the close of business on August 11, 2017. We expect to pay ongoing quarterly dividends. Payment of future dividends on our common stock, if any, will be at the discretion of our board of directors and will depend on, among other things, our results of operations, cash requirements and surplus, financial condition, contractual restrictions and other factors that our board of directors may deem relevant. We may determine to retain future earnings, if any, for reinvestment in the development and expansion of our business.

 

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MARKET PRICE FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

 

Market Information

 

Our common stock is currently quoted on the OTCQB tier of the OTC Markets under the symbol “IEGH.” The OTC Market is a network of security dealers who buy and sell stock. The dealers are connected by a computer network that provides information on current “bids” and “asks”, as well as volume information.

 

The following table sets forth the range of high and low closing bid quotations for our common stock for each of the periods indicated as reported by the OTC Markets. These quotations reflect inter-dealer prices, without retail mark-up, mark-down or commission and may not necessarily represent actual transactions. As of June 17, 2015, we effected a 1-for-100 reverse stock split of our outstanding shares. We also completed a 1-for-100 reverse stock split and a 100-for-1 forward stock split, both effective March 28, 2016, and a net 1-for-10 reverse stock split effective October 27, 2016. All prices in the following table reflect post- split prices.

 

   High   Low 
2014          
Quarter Ended March 31, 2014  $100.00   $100.00 
Quarter Ended June 30, 2014   120.00    100.00 
Quarter Ended September 30, 2014   450.00    100.00 
Quarter Ended December 31, 2014   1,000.00    100.00 
           
2015          
Quarter Ended March 31, 2015  $510.00   $387.50 
Quarter Ended June 30, 2015   550.00    250.00 
Quarter Ended September 30, 2015   275.00    80.00 
Quarter Ended December 31, 2015   100.00    74.90 
           
2016          
Quarter Ended March 31, 2016  $99.00   $49.50 
Quarter Ended June 30, 2016   65.00    17.50 
Quarter Ended September 30, 2016   24.00    16.60 
Quarter Ended December 31, 2016   7.50    2.01 
           
2017          
Quarter Ended March 31, 2017   $ 7.50   $ 1.05 
Quarter Ended June 30, 2017     4.19       0.75  

 

On August 10, 2017, the closing price for our common stock on the OTCQB was $0.6999 per share.

 

Our shares are thinly traded on the OTC Markets and therefore, we do not believe the prices represent a reliable indication of the fair market value of these shares. We sold shares of common stock in private placements during 2014 at prices ranging from $5.00 per share to $20.00 per share, during 2015 at prices ranging from $10.00 per share to $50.00 per share, and in 2016 at prices ranging from $10.00 to $50.00 per share.

 

Holders of Common Stock

 

As of August 10, 2017, there were approximately 659   record holders of our common stock. The number of record holders does not include beneficial owners of common stock whose shares are held in the names of banks, brokers, nominees or other fiduciaries.

 

We have no securities authorized for issuance under equity compensation plans.

 

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION

AND RESULTS OF OPERATIONS

 

The following discussion of our financial condition and results of operations should be read in conjunction with the consolidated financial statements and the Notes to those financial statements that are included elsewhere in this prospectus. Our discussion includes forward-looking statements based upon current expectations that involve risks and uncertainties, such as our plans, objectives, expectations and intentions. Actual results and the timing of events could differ materially from those anticipated in these forward-looking statements as a result of a number of factors, including those set forth under the Risk Factors, Cautionary Statement Regarding Forward-Looking Statements and Business sections in this prospectus. We use words such as “anticipate,” “estimate,” “plan,” “project,” “continuing,” “ongoing,” “expect,” “believe,” “intend,” “may,” “will,” “should,” “could,” and similar expressions to identify forward-looking statements.

 

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Overview

 

We are a consumer finance company providing responsible online personal loan products to customers in 20 states via our website and online application portal. We provide unsecured loans to individuals. Our $5,000 and $10,000 online personal loans range from 19.9% to 29.9% APR and all are unsecured over a five-year term. We have a 6.5-year track record of origination, underwriting and servicing of personal loans to underbanked consumers. We leverage our experience and knowledge in the consumer finance industry to achieve a meaningful return on our investment in the loan portfolio. We may 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”.

 

We have the ability to finance our businesses from a diversified source of capital and funding, including financings in the capital markets. During 2016, we demonstrated the ability to attract capital markets funding for our core personal loans by completing private placements of common stock and preferred stock.

 

We operate in one business segment: Consumer Loans.

 

Recent Developments

 

LendingClub Corporation Tender Offer

 

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

 

Following the launch of the Lending Club Tender Offer, the Company’s per share stock price, as quoted on the OTCQB, dropped significantly. On August 1, 2017, due to the stock price drop, the Company determined that the Lending Club Tender Offer no longer had a reasonable chance of success and accordingly, the Company determined that it would terminate the Lending Club Tender Offer and withdraw the S-4 Registration Statement. Furthermore, the Company has no intention of launching the Lending Club Tender Offer or another tender offer in the near future. Any shares that have been tendered by Lending Club stockholders have not yet been accepted and will be returned to the relevant stockholders.

 

Abandonment of Reverse-Forward Stock Split and Cash-Out

 

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

 

On July 18, 2017, the Company determined that it will not effect the Reverse/Forward Split at this time. Furthermore, the Company has no intention of effecting the Reverse/Forward Split or any other reverse and/or forward split in the near future. For avoidance of doubt, no reverse and/or forward split occurred on July 25, 2017, as originally disclosed in the Preliminary Information Statement, and no stockholders were cashed out on July 25, 2017. Stockholders should disregard the Preliminary Information Statement that was filed with the Commission in its entirety.

 

The Company’s determination to abandon the Reverse/Forward Split was based on the Company’s launch, on July 12, 2017, of the Lending Club Tender Offer. The Company launched the Lending Club Tender Offer on July 12, 2017, subsequent to the filing of the Preliminary Information Statement with the Commission on June 21, 2017. The primary goal of the Reverse/Forward Split was cost savings from reducing administrative costs associated with reducing shareholder accounts. The Company expected that a significant number of new shareholders may have been obtained in connection with the Lending Club Tender Offer, including those holding fewer than 1,000 shares. As a result, the Company determined that any expected cost savings may no longer be sufficient to justify proceeding with the Reverse/Forward Split. Although the Company determined, on August 1, 2017, that it would abandon the Lending Club Tender Offer, the Company does not intend to effect the Reverse/Forward Split or any other reverse and/or forward split in the near future. The Company notes that previously completed reverse/forward stock splits have achieved substantial administrative cost savings, and have not been designed for the purpose of “going private”.

 

Stock Repurchase Program

 

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

 

  The stock repurchase program permits the Company to purchase shares of its common stock from time to time at prices that are below what the Board believes to be the true value of the shares.
     
  The Company’s common stock is trading at close to record low prices.

 

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  The stock repurchase program reflects the commitment of our Board of Directors to enhance stockholder value and its confidence in our long-term growth prospects.
     
  The Board believes the stock repurchase program is a strategic investment and an appropriate use of corporate funds.
     
  Any repurchases will only be effected to the extent that they do not impair the Company’s capital or the Company’s ability to pay its debts.
     
  The Company has available liquidity from existing customer loan repayments to be able to both reinvest in new customer loans and also to strategically invest back into our company via stock repurchases.
     
  The stock repurchase program will assist in improving stock liquidity and ensuring a more orderly and less volatile market for a relatively small outlay of cash.
     
  No purchases are required and the $2,000,000 cap on the stock repurchase program is relatively low.

 

Purchases under the program are authorized through December 31, 2017. Through August 10, 2017, an aggregate of 170,998 shares have been repurchased under this program for an aggregate purchase price of $100,861.60.

 

Declaration of Dividend

 

On August 1, 2017, our sole director declared a cash dividend of $0.005 per common share for the second quarter of 2017. The dividend is payable on August 21, 2017 to stockholders of record at the close of business on August 11, 2017. 

 

Notes Offering Terminated

 

In December 2016, we launched a private offering of up to $10 million aggregate principal amount of our 12% senior unsecured notes due December 31, 2026 (the “Notes”), on a self-underwritten basis. The Notes offering was terminated in May 2017. No Notes were sold in the offering.

 

OneMain Holdings, Inc. Tender Offer Closed

 

On June 16, 2017, we closed our tender offer to purchase shares of common stock of OneMain Holdings, Inc. (“OneMain”), with 151,994 OneMain shares of common stock acquired (valued at an aggregate of $3.55 million based on the closing price of shares of OneMain common stock of $23.38 on June 15, 2017) in exchange for 3,039,880 shares of our common stock. The per share valuation of IEG Holdings shares used in connection with the OneMain tender offer was $1.169 per IEG Holdings common share as at the close date of the tender offer. On June 22, 2017, we sold 100% of the 151,994 shares of OneMain common stock which we obtained in our tender offer for $3.4 million in cash. The current planned use of the proceeds from the sale of OneMain shares is to fund increased new loan volumes in Q3 and a further use is to fund the payables to Mr. Mathieson pursuant to the terms of the consulting agreement entered into on July 1, 2017.

 

Amendment of Series H Preferred Stock

 

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

 

  (1) remove rights to receive dividends on our Series H preferred stock;
     
  (2) increase the conversion ratio of the Series H preferred stock from 0.2 shares of Common Stock per share of Series H preferred stock to 1 share of Common Stock per share of Series H preferred stock;
     
  (3) remove our right to redeem or call our Series H preferred stock;
     
  (4) provide for automatic conversion of Series H preferred stock into shares of our Common Stock on December 31, 2017; and
     
  (5) remove the voting rights for Series H preferred stock.

 

The Amendment was approved by our board of directors on June 19, 2017.

 

In addition, on July 26, 2017, we filed articles of amendment to our Articles that had the effect of revising the terms of the Series H preferred stock to increase the conversion ratio of the Series H preferred stock from one share of common stock per share of Series H preferred stock to four shares of common stock per share of Series H preferred stock. The Articles amendment was approved by our sole director on July 26, 2017.

 

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Six Months Ended June 30, 2017 Compared to Six Months Ended June 30, 2016

 

Interest Revenue

 

For the six months ended June 30, 2017, interest revenue decreased to $851,715, compared to $1,039,172 for the six months ended June 30, 2016. This decrease was due to the decreased average interest-earning loan book size of consumer receivables during the period.

 

Other Revenue

 

For the six months ended June 30, 2017, other revenue decreased slightly to $29,609, compared to $31,156 for the six months ended June 30, 2016. Other revenue consisted of declined lead revenue and loss recovery. The slight decrease was attributable to a slight decrease in declined lead revenue.

 

Salaries and Compensation Expenses

 

For the six months ended June 30, 2017, salaries and compensation expenses decreased to $239,203, compared to $809,329 for the six months ended June 30, 2016. The decrease was primarily attributable to the decrease in the CEO’s annual base salary to $1 effective January 1, 2017.

 

Other Operating Expenses

 

For the six months ended June 30, 2017, other operating expenses decreased to $194,566, compared to $388,137 for the six months ended June 30, 2016. The decrease was attributable to the lower underwriting costs and client service costs due to reduced new loan volume in the current period.

 

Provision for Credit Losses

 

For the six months ended June 30, 2017, the provision for credit losses expense decreased to $619,324, compared to $742,437 for the six months ended June 30, 2016. 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 decrease in our loan portfolio as of June 30, 2017.

 

Advertising

 

For the six months ended June 30, 2017, advertising expenses decreased to $3,460, compared to $221,309 for the six months ended June 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.

 

Rent Expense

 

For the six months ended June 30, 2017, rent expense decreased to $28,889, compared to $107,465 for the six months ended June 30, 2016. The decrease was due to termination of Florida, Illinois and Arizona leases in 2016.

 

Public Company and Corporate Finance Expenses

 

For the six months ended June 30, 2017, public company and corporate finance expenses increased to $1,195,535, compared to $1,010,779 for the six months ended June 30, 2016. The increase was due to the significant one-off costs incurred related to the OneMain tender offer net of the decrease in investor/financing costs incurred resulting from no capital raises in the six months ended June 30, 2017.

 

Depreciation and Amortization

 

For the six months ended June 30, 2017, depreciation and amortization marginally decreased to $3,044, compared to $3,833 for the six months ended June 30, 2016. The minimal movement was in line with expectations.

 

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

 

Interest Revenue

 

For the three months ended June 30, 2017, interest revenue decreased to $400,986, compared to $526,380 for the three months ended June 30, 2016. This decrease was due to the decreased average interest-earning loan book size of consumer receivables during the period.

 

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Other Revenue

 

For the three months ended June 30, 2017, other revenue decreased to $12,955, compared to $18,976 for the three months ended June 30, 2016. Other revenue consisted of declined lead revenue and loss recovery. The decrease was attributable to a decrease in declined lead revenue.

 

Salaries and Compensation Expenses

 

For the three months ended June 30, 2017, salaries and compensation expenses decreased to $118,925, compared to $406,323 for the three months ended June 30, 2016. The decrease was primarily attributable to the decrease in the CEO’s annual base salary to $1 effective January 1, 2017.

 

Other Operating Expenses

 

For the three months ended June 30, 2017, other operating expenses decreased to $79,362, compared to $206,610 for the three months ended June 30, 2016. The decrease was attributable to the lower underwriting costs and client service costs due to reduced new loan volume in the current period.

 

Provision for Credit Losses

 

For the three months ended June 30, 2017, the provision for credit losses expense increased to $394,836, compared to $354,918 for the three months ended June 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 higher loan write-offs versus the comparable period.

 

Advertising

 

For the three months ended June 30, 2017, advertising expenses decreased to $2,580, compared to $173,485 for the three months ended June 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.

 

Rent Expense

 

For the three months ended June 30, 2017, rent expense decreased to $18,032, compared to $52,778 for the three months ended June 30, 2016. The decrease was due to termination of Florida, Illinois and Arizona leases in 2016.

 

Public Company and Corporate Finance Expenses

 

For the three months ended June 30, 2017, public company and corporate finance expenses increased to $697,344, compared to $600,530 for the three months ended June 30, 2016. The increase was due to the significant one-off costs incurred related to the OneMain tender offer net of the decrease in investor/financing costs incurred resulting from no capital raises in the three months ended June 30, 2017.

 

Depreciation and Amortization

 

For the three months ended June 30, 2017, depreciation and amortization marginally decreased to $1,471, compared to $1,917 for the three months ended June 30, 2016. The minimal movement was in line with expectations.

 

Financial Position

 

Cash and Cash Equivalents

 

We had cash and cash equivalents of $3,743,268 as of June 30, 2017, compared to $322,441 as of December 31, 2016. The increase was due to less net cash used in operating activities due to operational cost cuts and higher net cash provided by investing activities due to the sale of OneMain marketable securities and less loans receivable originated.

 

Loans Receivable

 

We had net loan receivables of $5,055,063 as of June 30, 2017, as compared to $6,374,908 as of December 31, 2016. The decrease was due to lower loan originations in the current period versus repayment of loan principal by customers.

 

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Other Receivables

 

We had other receivables of $60,480 as of June 30, 2017, as compared to $84,851 as of December 31, 2016. Other receivables was comprised of outstanding invoices for declined lead revenue due from marketing partners and accrued interest receivable on our consumer loans at June 30, 2017. 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 $16,278 as of June 30, 2017 as compared to $19,322 as of December 31, 2016. 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 $66,431 as of June 30, 2017, compared to $1,060 as of December 31, 2016. The increase was due to management’s decision to delay payment of a number of June expenses in full in the current period so accrual was required for those expenses.

 

For the year ended December 31, 2016 compared to December 31, 2015

 

    Year Ended
December 31, 2016
    Year Ended
December 31, 2015
 
REVENUES                
Interest revenue   $ 2,086,976     $ 1,789,701  
Other revenue     48,070       45,464  
TOTAL REVENUES     2,135,046       1,835,165  
OPERATING EXPENSES                
                 
Salaries and compensation     1,592,990       2,126,243  
Other operating expenses     1,561,045       1,399,157  
Consulting     1,154,465       1,013,690  
Provision for credit losses     1,865,362       1,134,518  
Advertising     373,350       950,905  
Rent     178,678       244,621  
Travel, meals and entertainment     141,686       129,351  
Depreciation and amortization     8,618       14,124  
TOTAL OPERATING EXPENSES     6,876,194       7,012,609  
LOSS FROM OPERATIONS     (4,741,147 )     (5,177,444 )
OTHER INCOME (EXPENSE)                
Interest expense     -       (527,921 )
Miscellaneous income (expense)     12,278       7,167  
TOTAL OTHER INCOME (EXPENSE)     12,278       (520,754 )
NET LOSS   $ (4,728,869 )   $ (5,698,198 )

 

Interest Revenue

 

For the year ended December 31, 2016, interest revenue increased to $2,086,976, compared to $1,789,701 for the year ended December 31, 2015. This increase was due to the increased average interest-earning loan book size of consumer receivables during the period.

 

Other Revenue

 

For the year ended December 31, 2016, other revenue increased to $48,070, compared to $45,464 for the year ended December 31, 2015. Other revenue consisted of decline lead revenue, late/dishonor fees, loss recovery and stock application/processing fees. The increase was attributable to an increase in loss recovery.

 

Salaries and Compensation Expenses

 

For the year ended December 31, 2016, salaries and compensation expenses decreased to $1,592,990, compared to $2,126,243 for the year ended December 31, 2015. The decrease was primarily attributable to the cessation of employment for our VP Corporate Finance and zero bonus payments to our CEO in 2016.

 

Other Operating Expenses

 

For the year ended December 31, 2016, other operating expenses increased to $1,561,045, compared to $1,399,157 for the year ended December 31, 2015. The increase was attributable to the higher legal, accounting and SEC fees associated with our multiple SEC filings in the period.

 

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Consulting Fees

 

For the year ended December 31, 2016, consulting fees increased to $1,154,465, compared to $1,013,690 for the year ended December 31, 2015. The increase was attributable to the increase in independent research and investor relations consulting costs in the period.

 

Provision for Credit Losses

 

For the year ended December 31, 2016, the provision for credit losses expense increased to $1,865,362, compared to $1,134,518 for the year ended December 31, 2015. 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 year ended December 31, 2015 was due to the increase in loans charged off during the first and last quarters of 2016.

 

Advertising

 

For the year ended December 31, 2016, advertising expenses decreased to $373,350, compared to $950,905 for the year ended December 31, 2015. This decrease is attributable to the reduction in customer acquisition costs incurred, including online advertising, direct mail, and lead generation costs.

 

Rent Expense

 

For the year ended December 31, 2016, rent expense decreased to $178,678, compared to $244,621 for the year ended December 31, 2015. The decrease was due to reduced relocation costs and termination of Florida, Illinois and Arizona leases.

 

Travel, Meals and Entertainment

 

For the year ended December 31, 2016, travel, meals and entertainment expenses increased to $141,686, compared to $129,351 for the year ended December 31, 2015. Travel, meals and entertainment expenses include corporate travel for meetings and investor presentations, as well as other investor related expenses. The increase was due to the significant increase in investor roadshows conducted by the CEO in the period compared to the previous period.

 

Depreciation and Amortization

 

For the year ended December 31, 2016, depreciation and amortization decreased to $8,618, compared to $14,124 for the year ended December 31, 2015. The minimal movement was in line with expectations.

 

Interest Expense

 

For the year ended December 31, 2016, interest expense decreased to $0, compared to $527,921 for the year ended December 31, 2015. The decrease was due to the full repayment of the BFG senior debt facility in 2015.

 

Financial Position

 

Cash and Cash Equivalents

 

We had cash and cash equivalents of $322,441 as of December 31, 2016, compared to $485,559 as of December 31, 2015. The decrease was due to reduced equity capital raised in the period.

 

Loans Receivable

 

We had net loan receivables of $6,374,908 as of December 31, 2016, as compared to $7,124,702 as of December 31, 2015. The decrease was due to lower loan originations, higher loan receivables repaid and higher loan charge offs.

 

Other Receivables

 

We had other receivables of $84,851 as of December 31, 2016, as compared to $76,262 as of December 31, 2015. Other receivables comprised outstanding invoices for decline lead revenue due from marketing partners and accrued interest receivable on our consumer loans at December 31, 2016. The increase is primarily due to an increase in accrued interest receivable.

 

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Property and Equipment

 

We had net property and equipment of $19,322 as of December 31, 2016, as compared to $28,511 as of December 31, 2015. The decrease was a direct result of recording depreciation expense for the period plus a loss of $571 on disposal of assets.

 

Security Deposits

 

We had security deposits of $7,470 as of December 31, 2016, as compared to $35,839 as of December 31, 2015. The decrease was due to primarily due to refund of security deposits upon termination of Florida, Illinois and Arizona leases.

 

Accounts Payable and Accrued Expenses

 

We had accounts payable and accrued expenses of $1,060 as of December 31, 2016, compared to $96,441 as of December 31, 2015. The decrease was due to management’s decision to pay a number of December expenses in full in the current period so accrual was not required for those expenses.

 

Deferred Rent

 

We had deferred rent of $0 as of December 31, 2016, compared to $11,522 as of December 31, 2015. The decrease was due to removal of all deferred rent via termination of Florida, Illinois and Arizona leases and 12 month renewal of Nevada lease.

 

Financial Condition, Liquidity and Capital Resources

 

During the six months ended June 30 , 2017 and the twelve months ended December 31, 2016, we incurred operating expenses in excess of net revenue. However, anticipated cash flow from our existing loan receivable repayments plus net revenue are expected to exceed budgeted cash operating expenses for the next 12 months. To expand operations 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. 

 

Liquidity and Capital Resources

 

Six Months Ended June 30, 2017 Compared to Six Months Ended June 30, 2016 

  

We used cash in operations of $679,799 during the six months ended June 30, 2017, compared to $1,293,403 during the six months ended June 30, 2016, and this decrease is due to a substantial reduction in net losses due to significant operational cost cuts. The major operational cost cut in the six month period was the decrease in the CEO’s annual base salary to $1 effective January 1, 2017. The Company incurred $682,934 of costs during the six months ended June 30, 2017 in connection with the OneMain tender offer and the Company incurred $12,494 of costs during the six months ended June 30, 2017 in connection with the LendingClub tender offer .

 

We were provided with net cash from investing activities of $4,100,626 during the six months ended June 30, 2017, compared to $1,319,112 used in investing activities during the six months ended June 30, 2016. The increase in cash provided by investing activities is primarily due to a decrease in loans receivable originated and the sale of all OneMain shares acquired in the OneMain tender offer.

 

We were provided $0 of net cash from financing activities during the six months ended June 30, 2017, compared to $2,301,036 during the same period in 2016. The decrease was attributable to the absence of any debt or equity capital raising proceeds compared to significant proceeds from a common stock capital raising received in the corresponding period in 2016.

 

At June 30, 2017, we had cash on hand of $3,743,268, 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/events that raise substantial doubt about the company’s ability to meet its obligations are i) the Company has reported recurring losses and ii) the Company has not yet generated positive net cash flows from operations. However, the Company has reduced its core operating expenses. In addition, cash in bank significantly increased during the quarter, resulting from substantial positive net cash flows from investing activities. Management has evaluated the result of their plans for the next 12 months and as a result of the plans, the Company can meet all its obligations at least through August 2018. However, the Company intends, over the next 12 months, to seek additional capital to expand operations.

 

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 among BFG and certain of our wholly owned subsidiaries. As a result, there is currently no outstanding balance under the Loan Agreement. However, the Loan Agreement continues in effect and we are subject to a net profit interest under which we are required to pay BFG 20% of the “Net Profit” of its subsidiary, IEC SPV, until 10 years from the date the loan is repaid in full (August 2015). Net Profit is defined as the gross revenue less (i) interest paid on the loan, (ii) payments on any other debt incurred as a result of refinancing the loan through a third party, as provided in the Loan Agreement, (iii) any costs, fees or commissions paid on the existing credit facility, and (iv) charge-offs to bad debt resulting from consumer loans and reduced by servicing fee. The Net Profit arrangement can be terminated by us upon a payment of $3,000,000 to BFG. Net profit interest for the six months ended June 30, 2017 and 2016 were $0 and $58,885, respectively. All loans receivable of the Company were pledged as collateral at June 30, 2017 for the fulfillment of the Net Profit calculation.

 

Year Ended December 31, 2016 Compared to Year Ended December 31, 2015

 

We used cash in operations of $2,777,621 during the year ended December 31, 2016, compared to $3,959,568 during the year ended December 31, 2015, and this decrease is in line with expectations due to the growth of our revenue. We used net cash from investing activities of $1,115,567 during the year ended December 31, 2016, compared to $4,057,025 during the year ended December 31, 2015. The decrease in cash used in investing activities is primarily due to an increase in loans receivable repaid and a decrease in loans receivable originated.

 

We were provided $3,730,070 of net cash from financing activities during the year ended December 31, 2016, compared to $8,068,440 during the year ended December 31, 2015. The funds were attributable to proceeds from preferred stock and common stock received and was a decrease from the corresponding period in 2015.

 

At December 31, 2016, we had cash on hand of $322,441, 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.

 

On April 13, 2015, the Company secured a $200,000 working capital loan to expand from Dr. L. Prasad, an investor in the Company. On June 24, 2015, the Company repaid $230,000 which comprised $200,000 principal and a $30,000 facility fee which was recorded as interest expense.

 

On April 13, 2015, the Company secured a $100,000 working capital loan to expand from Domenic Tacca, an investor in the Company. On June 24, 2015, the Company repaid $115,000 which comprised $100,000 principal and a $15,000 facility fee which was recorded as interest expense.

 

On April 13, 2015, the Company secured a $100,000 working capital loan to expand from CT Super, an investor in the Company. On June 24, 2015, the Company repaid $115,000 which comprised $100,000 principal and a $15,000 facility fee which was recorded as interest expense.

 

The principal conditions/events that raise substantial doubt of the company’s ability to meet its obligations are i) the Company has reported recurring losses and ii) the Company has not yet generated positive net cash flows from operations. However, the Company has increased its revenue resulting from an increased average loan balance in 2016 as compared to 2015, and 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 through March 2018, which has alleviated the substantial doubt. Management’s plans include a continued reduction of advertising costs to continue reducing 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. In addition, significant core operating costs have been cut from the Company starting in 2016 including reducing the number of employees from 12 to 6 due to increased automation of loan origination processes and reducing the number of office leases from 4 to 1 as old leases expired. In addition, the CEO’s annual base consulting fee has been reduced to $1 per annum from January 1, 2017. Should the Company need, 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 March 2018. However, the Company intends, over the next 12 months, to seek additional capital via unsecured notes and/or preference shares to expand operations and the Company. Subsequent to year-end, the Board of Directors approved a stock repurchase program. Management has no intention to repurchase shares unless additional capital has been secured.

 

On August 21, 2015, we, through certain of our wholly owned subsidiaries, paid an aggregate of $1,676,954, representing all principal and accrued interest under the Loan and Security Agreement, as amended (the “Loan Agreement”), among BFG and certain of our wholly owned subsidiaries. As a result, there is currently no outstanding balance under the Loan Agreement. However, the Loan Agreement continues in effect and we are subject to a net profit interest under which we are required to pay BFG 20% of the “Net Profit” of its subsidiary, IEC SPV, LLC, until 10 years from the date the loan is repaid in full (August 2015). Net Profit is defined as the gross revenue less (i) interest paid on the loan, (ii) payments on any other debt incurred as a result of refinancing the loan through a third party, as provided in the Loan Agreement, (iii) any costs, fees or commissions paid on the existing credit facility, and (iv) charge-offs to bad debt resulting from consumer loans and reduced by servicing fee. The Net Profit arrangement can be terminated by us upon a payment of $3,000,000 to BFG. Net profit interest for the year ended December 31, 2016 and 2015 were $57,094 and $107,340, respectively. All loans receivable of the Company were pledged as collateral at December 31, 2016 for the fulfillment of the Net Profit calculation. As of December 31, 2016, $57,094 has been paid.

  

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Off-Balance Sheet Arrangements

 

As of June 30, 2017 and December 31, 2016, we did not have any off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that are material to investors. The term “off-balance sheet arrangement” generally means any transaction, agreement or other contractual arrangement to which an entity unconsolidated with us is a party, under which we have any obligation arising under a guarantee contract, derivative instrument or variable interest or a retained or contingent interest in assets transferred to such entity or similar arrangement that serves as credit, liquidity or market risk support for such assets.

 

Basis of Accounting

 

These consolidated financial statements include the operations of IEG Holdings and its wholly-owned subsidiaries, IEC and IEC SPV. All inter-company transactions and balances have been eliminated in consolidation.

 

The Company’s accounting and reporting policies are in accordance with U.S. generally accepted accounting principles (“GAAP”) and conform to general practices within the consumer finance industry.

 

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

 

The principal conditions/events that raise substantial doubt about the Company’s ability to meet its obligations are i) the Company has reported recurring losses and ii) the Company has not yet generated positive net cash flows from operations. However, the Company has reduced its core operating expenses. In addition, cash in bank significantly increased during the quarter, resulting from substantial positive net cash flows from investing activities. Management has evaluated the result of their plans for the next 12 months and as a result of the plans, the Company can meet all its obligations at least through August 2018. However, the Company intends, over the next 12 months, to seek additional capital to expand operations.

 

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 June 30, 2017, 74 loans, with a total balance of $335,563 were delinquent or in default. At December 31, 2016, 83 loans with a total balance of $367,098 were delinquent or in default.

 

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Allowance for Credit Losses

 

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

 

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

 

The allowance for credit losses is primarily based upon models that analyze specific portfolio statistics and also reflect, management’s judgment regarding overall accuracy. We take into account several factors, including the customer’s transaction history, specifically the timeliness of customer payments, the remaining contractual term of the loan, and the outstanding balance of the loan.

 

Impaired Loans

 

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

 

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

 

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 evaluating the impact, if any, of the adoption of ASU 2014-09 to our financial statements and related disclosures. The Company has not yet selected a transition method nor has it determined the effect of the standard on its ongoing financial reporting.

 

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In August 2014, the FASB issued ASU 2014-15, Presentation of Financial Statements—Going Concern (Subtopic 205-40): Disclosure of Uncertainties about an Entity’s Ability to Continue as a Going Concern. ASU 2014-15 changes to the disclosure of uncertainties about an entity’s ability to continue as a going concern. These changes require an entity’s management to evaluate whether there are conditions or events, considered in the aggregate, that raise substantial doubt about the entity’s ability to continue as a going concern within one year after the date that financial statements are issued. Substantial doubt is defined as an indication that it is probable that an entity will be unable to meet its obligations as they become due within one year after the date that financial statements are issued. If management has concluded that substantial doubt exists, then the following disclosures should be made in the financial statements: (i) principal conditions or events that raised the substantial doubt, (ii) management’s evaluation of the significance of those conditions or events in relation to the entity’s ability to meet its obligations, (iii) management’s plans that alleviated the initial substantial doubt or, if substantial doubt was not alleviated, management’s plans that are intended to at least mitigate the conditions or events that raise substantial doubt, and (iv) if the latter in (iii) is disclosed, an explicit statement that there is substantial doubt about the entity’s ability to continue as a going concern. These changes became effective for the Company for the 2016 annual period. Our adoption of these changes have no material impact on the consolidated financial statements.

 

In November 2015, the FASB issued ASU No. 2015-17, Income Taxes (Topic 740). The amendments in ASU 2015-17 change the requirements for the classification of deferred taxes on the balance sheet. Currently, GAAP requires an entity to separate deferred income tax liabilities and assets into current and noncurrent amounts in a classified statement of financial position. To simplify the presentation of deferred income taxes, the amendments in this ASU require that deferred tax liabilities and assets be classified as noncurrent in a classified statement of financial position. The pronouncement is effective for fiscal years and interim periods within those fiscal years beginning after December 15, 2016. Adoption of these changes have no material impact on the consolidated financial statements.

 

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.

 

  27 
  

 

DESCRIPTION OF BUSINESS

 

Business Overview

 

We provide unsecured online consumer loans under the brand name “Mr. Amazing Loans” via our website and online application portal at www.mramazingloans.com. We started our business and opened our first office in Las Vegas, Nevada in 2010. We currently offer $5,000 and $10,000 unsecured consumer loans that mature in five years. We are currently licensed and originating direct consumer loans in 20 states – Alabama, Arizona, California, Florida, Georgia, Illinois, Kentucky, Louisiana, Maryland, Missouri, Nevada, New Jersey, New Mexico, Ohio, Oregon, Pennsylvania, Texas, Utah, Virginia and Wisconsin. We provide loans to residents of these states through our online application portal, with all loans originated, processed and serviced out of our centralized Las Vegas head office, which eliminates the need for physical offices in all of these states.

 

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

 

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

 

We have a history of reporting recurring losses and have not generated positive net cash flows from operations. For the years ended December 31, 2016 and 2015, we generated revenue of $2,135,046 and $1,835,165, respectively, and had net losses of $4,728,869 and $5,698,198, respectively. For the six months ended June 30, 2017 and 2016, we generated revenue of $881,324 and $1,070,328, respectively, and had net losses of $1,555,922 and $2,201,211, respectively. 

 

We were organized as a Florida corporation on January 21, 1999, originally under the name Interact Technologies, Inc. In February 2013, we changed our name to IEG Holdings Corporation. We have two wholly-owned subsidiaries, IEC, our U.S. operating entity that holds all of our state licenses, leases, employee contracts and other operating and administrative assets, and IEC SPV, a bankruptcy remote special purpose entity that holds our U.S. loan receivables.

 

Market

 

We operate in the consumer finance industry serving the large and growing population of consumers who have limited access to credit from banks, credit card companies and other lenders. According to the Federal Deposit Insurance Corporation, 7.7% (1 in 13) of households in the United States were unbanked in 2013. This proportion represented nearly 9.6 million households. According to the Center for Financial Services December 2015 report, the rapid rise of short term credit, which grew 37% from 2012 to 2014, while single payment credit grew only 0.1% over the same period, is starkly apparent. With anticipated regulatory changes likely to alter the feasibility of offering loans due in one lump sum, many companies are investing more heavily in installment-based credit products, while new players are seeking to upend the economics of small-dollar loans through online channels and alternative underwriting. The strong marketing and new account approval rates of subprime credit cards have also provided consumers with increased access to funds available on a short-term basis. Together, these shifts in the consumer lending industry suggest that total revenue for short term credit products, sized at $29 billion in 2014, will soon outpace that of single payment credit products, sized at $38 billion for the same year. In fact, short term credit products already generate nearly twice as much annual revenue as single payment credit products.

 

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

 

We are currently licensed and providing loans online to residents of Alabama, Arizona, California, Florida, Georgia, Illinois, Kentucky, Louisiana, Maryland, Missouri, Nevada, New Jersey, New Mexico, Ohio, Oregon, Pennsylvania, Texas, Utah, Virginia and Wisconsin, with plans to continue to expand across the United States by acquiring additional state lending licenses. The following is a breakdown of our cumulative loan origination amounts in each licensed state for our current active loan portfolio as at June 30, 2017:

 

State  

Origination

Volume ($)

   

Current

Principal ($)

    Number of
Loans
 
Alabama     125,000       84,490       18  
Arizona     822,000       307,787       87  
California     1,025,000       658,980       145  
Florida     2,290,000       812,024       232  
Georgia     1,433,023       627,832       152  
Illinois     1,796,000       774,418       188  
Kentucky     15,000       13,783       3  
Louisiana     15,000       8,409       2  
Maryland (1)     0       0       0  
Missouri     413,000       187,392       48  
Nevada     1,738,000       515,616       141  
New Jersey     1,682,000       692,129       167  
New Mexico     45,000       21,792       4  
Ohio (2)     0       0       0  
Oregon     300,000       135,843       33  
Pennsylvania     815,000       445,384       101  
Texas     740,000       218,054       71  
Utah     75,000       38,349       9  
Virginia     1,055,000       475,649       114  
Wisconsin (3)     0       0       0  

 

  (1) Maryland was added as a licensed state in October 2016.
  (2) Ohio was added as a licensed state in December 2016.
  (3) Wisconsin was added as a licensed state in June 2017.

 

Business Strategy

 

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

 

  State-Licensed Model: Our state-licensed business model is a key element of our business strategy. We are currently licensed in Alabama, Arizona, California, Florida, Georgia, Illinois, Kentucky, Louisiana, Maryland, Missouri, Nevada, New Jersey, New Mexico, Ohio, Oregon, Pennsylvania, Texas, Utah, Virginia and Wisconsin, and plan to continue expanding across the United States by acquiring additional state lending licenses.
     
  Online Distribution: We launched online lending in March 2013 and commenced online advertising in July 2013. Upon fulfillment of state regulatory requirements, we received approval from regulators in Alabama, Arizona, California, Florida, Georgia, Illinois, Kentucky, Louisiana, Maryland, Missouri, Nevada, New Jersey, New Mexico, Ohio, Oregon, Pennsylvania, Texas, Utah, Virginia and Wisconsin to operate solely online in these states. This allows us to fully service all 20 states from our centralized Las Vegas headquarters, which we believe is a key competitive advantage over brick and mortar lenders.
     
  Cost-Effective Customer Acquisition: Our customer acquisition costs have been reduced since we launched online lending and marketing.
     
  ●  Continue to Grow Loan Book: Total cumulative loan originations as of June 30 , 2017 have increased 159% to $14,699,023 since our January 1, 2015 total of $5,549,023. This growth in lending is attributable to launching online lending and joint venturing with a number of new marketing partners, however, such past growth is not necessarily indicative or predictive of our future results of operation. 
     
  ●  Strategic Acquisitions: We have reviewed, and continue to review, opportunities to expand our business through acquisition or merger in the consumer finance sector. We are pursuing opportunities that provide synergies with our existing business and specifically target potential acquisitions that are significantly accretive to net asset value and/or provide significant revenue growth opportunities via a minority or majority shareholding. 

 

Competitive Strengths

 

We believe our competitive strengths are:

 

  Large Market and Scope for Growth: Large personal and payday loan market in the United States presents opportunity for significant growth and expansion.
     
  Regulation: We are materially compliant with state lending licenses in Alabama, Arizona, California, Florida, Georgia, Illinois, Kentucky, Louisiana, Maryland, Missouri, Nevada, New Jersey, New Mexico, Ohio, Oregon, Pennsylvania, Texas, Utah, Virginia and Wisconsin, and are well positioned for current and future regulatory changes due to ongoing compliance and conservative business model.

 

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  Customer Proposition: Our unsecured $5,000 and $10,000 installment loans are all offered over five years and feature affordable weekly repayments. Rates range from 19.9% - 29.9% APR which make us a low cost alternative to payday loans which have an average APR of over 400%.
     
 

Online Distribution: Special approval has been granted by the Alabama, Arizona, California, Florida, Georgia, Illinois, Kentucky, Louisiana, Maryland, Missouri, Nevada, New Jersey, New Mexico, Ohio, Oregon, Pennsylvania, Texas, Utah, Virginia and Wisconsin regulators to operate our business without a physical office location in each state. As a result, we have closed offices in Arizona, Illinois and Florida and moved to full online loan distribution, enabling us to offer loans to residents in all 20 of our licensed states from our Las Vegas headquarters.

     
 

Customer Acquisition: We launched online advertising in July 2013 with positive results from search engine cost per click advertising and online lead generation. In addition, we engaged a number of new marketing partners in 2014, 2015 and 2016, including online lead generators and direct mail. All of these avenues provide opportunities for strong growth at low customer acquisition costs.

     
  Barriers to Entry: We believe that state licensure acts as a barrier to entry into our segment of the consumer loan market. We are strongly positioned with approval to operate under 20 state licenses from one centralized head office.

 

Products

 

We currently provide $5,000 and $10,000 online consumer loans unsecured over a five-year term with rates ranging from 19.9% to 29.9% annual percentage rate. Our current loan portfolio also includes loans remaining from our previous product offerings which were $2,000 to $10,000 loans unsecured over a three- to five-year term at 18.0% to 29.9%.

 

Our personal loan products are fully amortizing, fixed rate, unsecured installment loans and all loans are offered at prevailing statutory rates, with our standard loan product being a 29.9% interest rate and annual percentage rate, fully amortizing, five-year unsecured personal loan. The variations from this standard loan product in certain states is due to individual state requirements and to comply with our state lending licenses; for example, Florida requires a blended rate which caps the maximum rate on a $5,000 loan at 24%.

 

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

 

State   IEG Holdings’
APR for
$5,000
Loans
    Maximum
Permitted
Rate for
$5,000 Loans
    IEG Holdings’
APR for
$10,000
Loans
    Maximum
Permitted
Rate for
$10,000 Loans
 
Alabama     29.90 %     36.00 %(1)     29.90 %     36.00 %(1)
Arizona     24.90 %     24.90 %     23.90 %     23.90 %
California     29.90 %     36.00 %     29.90 %     36.00 %
Florida     23.90 %     24.00 %     19.90 %     21.00 %
Georgia     29.90 %     30.00 %     29.90 %     30.00 %
Illinois     29.90 %     36.00 %     29.90 %     36.00 %
Kentucky     29.90 %     30.00 %     29.90 %     30.00 %
Louisiana     28.90 %     28.90 %     25.50 %     25.50 %
Maryland     24.00 %     24.00 %     24.00 %     24.00 %
Missouri     29.90 %     30.00 %     29.90 %     29.90 %
Nevada     29.90 %     36.00 %(1)     29.90 %     36.00 %(1)
New Jersey     29.90 %     30.00 %     29.90 %     30.00 %
New Mexico     29.90 %     36.00 %(1)     29.90 %     36.00 %(1)
Ohio     25.00 %     25.00 %     (2)     (2)
Oregon     29.90 %     36.00 %     29.90 %     36.00 %
Pennsylvania     29.90 %     30.00 %     29.90 %     30.00 %
Texas     28.86 %     28.86 %     25.84 %     25.84 %
Utah     29.90 %     36.00 %(1)     29.90 %     36.00 %(1)
Virginia     29.90 %     30.00 %     29.90 %     30.00 %
Wisconsin     29.90 %     36.00 %     29.90 %     36.00 %

 

  (1) There is no rate limit in this jurisdiction. However, in order to comply with the Servicemembers Civil Relief Act, the maximum APR is 36.0%.
     
  (2) We do not offer $10,000 loans in Ohio.

 

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The following is an illustrative profile of our personal loans:

 

  Loan Product - $5,000 and $10,000 loans
    - 5 years
    - 28.9% average APR
    - Fixed rate, fully amortizing
    - No hidden or additional fees
    - No prepayment penalties

 

  Loan Purpose Loans available for any purpose. Common uses include:

 

    - Debt consolidation
    - Medical expenses
    - Home improvements
    - Auto repairs
    - Major purchase
    - Discretionary spending
       
  Average Borrower Demographic - 600 - 750 credit score
    -

$40,000 - $100,000 income

    - 25 - 60 years old

 

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

 

The following graphs depict our monthly loan origination values from January 2013 through July 2017 and our yearly revenue for 2013 through 2016:

 

 

The following table sets forth the minimum, maximum and average credit score, income and age of our current borrowers as of June 30, 2017:

 

Average Borrower Demographic of Current Loan Portfolio as at June 30 , 2017

 

Demographic   Minimum     Maximum     Average  
Credit Score     559       886       661  
Income   $ 24,372       273,396       63,562  
Age     23       83       46  

 

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Customer Acquisition

 

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

 

Additional Information Regarding Our Loan Portfolio

 

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

 

Loans Receivable Roll-Forward

 

The table below documents the activity in the loan receivable accounts for the period indicated. Specifically, it shows a roll-forward of our loans receivable balance, detail of new loan originations, principal reductions from cash collections and loan charge-offs. The data encompasses changes during the quarter ended March 31, 2017 compared to December 31, 2016 .

 

   New Loans    Principal
Reductions
   Loan
Charge-Offs
   Quarter-end
Balance
 
Q1 2017 Activity                    
Balance 12-31-16 $7,587,349  $140,000   $482,391   $330,637   $6,914,321 

 

New loan volume slowed in the quarter ended March 31, 2017 due to Company capital constraints and reduced advertising. The level of principal reductions from cash collections, combined with reduced new 2017 first quarter loan volumes (compared to 2016) and loan charge-offs, resulted in a reduction in the loans receivable balance to $6,914,321 as at March 31, 2017 compared to $7,587,349 at December 31, 2016.

 

The table below documents the activity in the loan receivable accounts for the period indicated. Specifically, it shows a roll-forward of our loans receivable balance, detail of new loan originations, principal reductions from cash collections and loan charge-offs. The data encompasses changes during the quarter ended June 30, 2017 compared to March 31, 2017.

 

    New Loans     Principal Reductions   Loan Charge-Offs     Quarter-end Balance
Q2 2017 Activity                      
Balance 3-31-17 $6,914,321   $ 145,000     $ 503,130   $ 538,259     $6,017,932

 

New loan volume was steady in the quarter ended June 30, 2017 due to Company capital constraints and reduced advertising. The level of principal reductions from cash collections, combined with steady new 2017 second quarter loan volumes and increased loan charge-offs, resulted in a reduction in the loans receivable balance to $6,017,932 as at June 30, 2017 compared to $6,914,321 at March 31, 2017.

 

The table below documents the activity in the loan receivable accounts for the periods indicated. Specifically, it shows a roll-forward of our loans receivable balance, detail of new loan originations, principal reductions from cash collections and loan charge-offs. The data encompasses changes during each quarter of 2016 and also changes during the full year 2016 compared to 2015.

 

    New Loans     Principal
Reductions
    Loan
Charge-Offs
    Quarter-end
Balance
 
Q1 2016 Activity                                
Balance 12-31-15                                
$8,110,077   $ 535,000     $ 541,082     $ 441,956     $ 7,662,039  
Q2 2016 Activity                                
Balance 3-31-16                                
$7,662,039   $ 1,785,000     $ 459,806     $ 220,725     $ 8,766,508  
Q3 2016 Activity                                
Balance 6-30-16                                
$8,766,508   $ 375,000     $ 567,779     $ 320,239     $ 8,253,490  
Q4 2016 Activity                                
Balance 9-30-16                                
$8,253,490   $ 425,000     $ 435,766     $ 655,375     $ 7,587,349  
                                 
2016 Activity Summary                                
Bal 12-31-15                                
$8,110,077   $ 3,120,000     $ 2,004,433     $ 1,638,295     $ 7,587,349  

 

New loan volume slowed in the second half of 2016 due to Company capital constraints and reduced advertising. The level of principal reductions from cash collections, combined with reduced new 2016 loan volumes (compared to 2015) and an increase in loan charge-offs, resulted in a reduction in the loans receivable balance to $7,587,349 as at December 31, 2016 compared to $8,110,077 at December 31, 2015.

 

The table below documents the activity in the loan receivable accounts for the periods indicated. Specifically, it shows a roll-forward of our loans receivable balance, detail of new loan originations, principal reductions from cash collections and loan charge-offs. The data encompasses changes during each quarter of 2015 and also changes during the full year 2015 compared to 2014.  

 

    New Loans     Principal
Reductions
    Loan
Charge-Offs
    Quarter-end
Balance
 
Q1 2015 Activity                                
Balance 12-31-14                                
$4,913,279   $ 859,586     $ 273,040     $ 91,223     $ 5,408,602  

 

Q2 2015 Activity

                               
Balance 3-31-15                                
$5,408,602   $ 2,670,296     $ 311,146     $ 161,601     $ 7,606,151  

 

Q3 2015 Activity

                               
Balance 6-30-15                                
$7,606,151   $ 741,969     $ 450,143     $ 202,793     $ 7,695,184  

 

Q4 2015 Activity

                               
Balance 9-30-15                                
$7,695,184   $ 1,110,000     $ 404,617     $ 290,490     $ 8,110,077  
                                 
2015 Activity Summary                                
Bal 12-31-14                                
$4,913,279   $ 5,381,851     $ 1,438,946     $ 746,107     $ 8,110,077  

 

New loan volume increased during 2015 due to increased Company capital raising and increased advertising. The level of principal reductions from cash collections, combined with increased new 2015 loan volumes (compared to 2014) and loan charge-offs, resulted in substantial growth in loans receivable balance to $8,110,077 at December 31, 2015 compared to $4,913,279 at December 31, 2014.

 

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Portfolio Yield

 

The following table shows, as of June 30, 2017, the aggregate loan principal outstanding and the average portfolio yield by state. In addition, to show indicative duration of the portfolio yield, the table shows the average loan amount, average current principal outstanding and the average years to maturity of the loans in each state.

 

State   Total
Current
Principal ($)
    Average
Yield (%)
    Average
Loan Amount
($)
    Average
Current
Principal ($)
    Average
Years to Maturity
 
                               
Alabama     84,490       29.90       5,278       4,694       3.9  
Arizona     307,787       24.70       5,379       3,538       2.5  
California     658,980       29.90       5,241       4,545       3.7  
Florida     812,024       23.42       5,209       3,500       2.7  
Georgia     627,832       29.90       5,375       4,130       3.0  
Illinois     774,418       29.90       5,314       4,119       3.1  
Kentucky     13,783       29.90       5,000       4,594       4.0  
Louisiana     8,409       28.90       5,000       4,205       3.4  
Missouri     187,392       29.90       5,021       3,904       3.1  
Maryland (1)     0                                  
Nevada     515,616       29.86       5,007       3,631       3.9  
New Jersey     692,129       29.90       5,431       4,144       3.0  
New Mexico     21,792       29.90       6,250       5,448       3.6  
Ohio (2)     0                                  
Oregon     135,843       29.90       5,000       4,116       3.4  
Pennsylvania     445,384       29.90       5,347       4,410       3.4  
Texas     218,054       18.00       4,706       3,004       2.9  
Utah     38,349       29.90       5,000       4,261       3.5  
Virginia     475,649       29.89       5,473       4,172       3.0  
Wisconsin (3)     0                                  

 

  (1) Maryland was added as a licensed state in October 2016.
  (2) Ohio was added as a licensed state in December 2016.
  (3) Wisconsin was added as a licensed state in June 2017.

 

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

 

The following table shows, as of December 31, 2016, the aggregate loan principal outstanding and the average portfolio yield by state. In addition, to show indicative duration of the portfolio yield, the table shows the average loan amount, average current principal outstanding and the average years to maturity of the loans in each state.

 

State   Total
Current
Principal ($)
    Average
Yield (%)
    Average
Loan Amount
($)
    Average
Current
Principal ($)
    Average
Years to
Maturity
 
                               
Alabama     89,203       29.90       5,278       4,956       4.3  
Arizona     370,766       24.90       5,152       3,745       2.8  
California     779,210       29.90       5,215       4,780       4.2  
Florida     1,073,758       23.93       5,162       3,863       3.1  
Georgia     800,394       29.90       5,379       4,522       3.6  
Illinois     936,025       29.90       5,260       4,415       3.6  
Kentucky     14,426       29.90       5,000       4,809       4.5  
Louisiana     12,839       28.90       5,000       4,280       4.0  
Maryland (1)     0                                  
Missouri     254,103       29.90       5,068       4,307       3.6  
Nevada     663,594       29.90       4,932       3,770       3.2  
New Jersey     843,708       29.90       5,240       4,305       3.4  
New Mexico     27,056       29.90       5,000       4,509       3.9  
Ohio (2)     0                                  
Oregon     163,429       29.90       5,000       4,417       3.9  
Pennsylvania     562,074       29.90       5,427       4,804       3.9  
Texas     347,538       17.80       4,820       3,764       3.4  
Utah     49,829       29.90       5,000       4,530       4.0  
Virginia     599,398       29.89       5,339       4,375       3.5  
Wisconsin (3)     0                                   

 

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

 

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

 

(3)      Wisconsin was added as a licensed state in June 2017.

 

We undertook an advertising strategy during 2016 that focused on seeking new customers in the states with an average yield of 29.9% only to maximize our portfolio yield while we were capital constrained. The advertising strategy resulted in an increase in the average portfolio yield in 2016 compared to 2015.

 

The following table shows, as of December 31, 2015, the aggregate loan principal outstanding and the average portfolio yield by state. In addition, to show indicative duration of the portfolio yield, the table shows the average loan amount, average current principal outstanding and the average years to maturity of the loans in each state.

 

State   Total
Current
Principal ($)
    Average
Yield (%)
    Average
Loan Amount
($)
    Average
Current
Principal ($)
    Average
Years to
Maturity
 
                               
Alabama     34,664       29.90       5,000       4,952       4.9  
Arizona     499,489       24.73       5,025       4,233       3.5  
California     364,130       29.90       5,000       4,921       4.8  
Florida     1,456,854       23.38       4,994       4,362       3.9  
Georgia     821,007       29.90       5,162       4,746       4.2  
Illinois     881,292       29.90       5,078       4,590       4.0  
Louisiana     9,895       28.90       5,000       4,947       4.9  
Missouri     238,474       29.90       5,200       4,769       4.2  
Nevada     794,213       29.90       4,881       4,115       3.7  
New Jersey     982,578       29.90       5,368       4,817       4.1  
New Mexico     19,459       29.90       5,000       4,865       4.7  
Oregon     176,190       29.90       5,000       4,762       4.5  
Pennsylvania     489,623       29.90       5,365       5,100       4.5  
Texas     669,710       17.86       5,591       5,273       4.4  
Utah     38,624       29.90       5,000       4,828       4.6  
Virginia     633,874       29.89       5,336       4,839       4.1  

 

The average portfolio yield increased in 2015 compared to 2014 due to increased lending in newly licensed, higher yielding (29.9%) states.

 

 32 
   

 

Customer Acquisition Costs

 

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

 

The following table shows the level of advertising cost versus the level of loan volume in 2015, 2016 and the first and second quarters of 2017 as both a dollar amount and as a percentage of loan volume for the relevant year. The advertising cost represents both general advertising/brand awareness costs as well as direct fees paid to lead generators and direct mail costs. Although it potentially overstates the direct cost of customer acquisition in a particular year it provides a guide to the general cost and trends in customer acquisition costs. In addition, the customer cost of acquisition is upfront, whereas the revenue from the customer is typically realized 5 years later and for repeat customers, even later.

 

Origination Year   Loan Volume     Advertising Cost     Cost of Acquisition  
2015   $ 5,381,851     $ 950,905       18.0 %
2016   $ 3,120,000     $ 373,350       12.0 %
                         
First Quarter of 2017   $ 140,000     $ 880       0.6 %
Second Quarter of 2017     $ 145,000     $ 3,460       2.4 %

 

Due to the more efficient use of our advertising budget combined with more refined lead sources, there was a significant drop in the cost of customer acquisition from 18.0% for 2015 to 12.0% for 2016. Advertising expenses as a percentage of new loans funded continued to decline for the first two quarters of 2017 to 0.6% and 2.4%, compared to the 12% cost for 2016. The sharp fall in the cost of customer acquisition for the first half of 2017 was predominantly due to a focus on refinancing existing customers rather than seeking new customers.

 

Gross Charge-off Ratio and Recovery Ratio

 

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

 

The table below sets forth information regarding the gross charge-off ratio and the recovery ratio in both dollar amounts and in terms of a ratio versus outstanding loans receivable balance. The data is presented for each quarter in 2015 and 2016, for each of the full years for 2015 and 2016, and for the first and second quarters of 2017.

 

    Loans
Receivable
    Average
Balance
($)
    Charge-Offs
($)
    Ratio (%)     Average
Balance
($)
    Charge-Offs
($)
    Ratio (%)     Recovery
($)
    Recovery
(%)
 
Date   Balance ($)     Quarterly     Quarterly     Quarterly     Annual     Annual     Annual     Annual     Annual  
12-31-14     4,913,279                                                                  
3-31-15     5,408,602       5,160,940       91,223       1.77                                          
6-30-15     7,606,151       6,507,377       161,601       2.48                                          
9-30-15     7,695,184       7,650,668       202,793       2.65                                          
12-31-15     8,110,077       7,902,631       290,490       3.68       6,511,678       746,107       11.46       2,822       0.38  
3-31-16     7,662,039       7,886,058       441,956       5.60                                          
6-30-16     8,766,508       8,214,273       220,725       2.69                                          
9-30-16     8,253,490       8,509,999       320,239       3.76                                          
12-31-16     7,587,349       7,920,419       655,375       8.27       7,848,713       1,638,295       20.87       27,149       1.66  
03-31-17     6,914,321       7,250,835       330,637       4.56       -       -       -       -       -  
06-30-17     6,017,932       6,466,127       538,259       8.32       -       -       -       -       -  

 

We saw a significant increase in charge-offs in 2016 versus 2015 as we saw an increasing trend in customer hardship and more customers utilizing external debt management services. While our charge-off policy has not changed, we did deploy more internal resources to identify the probability of losses given the current economy, the customers’ ability to repay, responsiveness to work out plans and collection reports. Through this more concerted internal approach, 2016’s charge-offs increased as a percentage of the portfolio, compared to the results of 2015. We significantly increased our level of loss recoveries in both dollar amount and percentage of loans receivable balance due to more internal resources being allocated to the task, combined with a larger pool of losses to recover funds from. The level of charge-offs decreased in the first quarter of 2017 compared to the first quarter of 2016, as we focused on refinancing existing customers with a solid track record of repayment rather than seeking new customers and also increased our focus on internal collections. The level of charge-offs increased in the second quarter of 2017 compared to the second quarter of 2016 as we saw an increasing trend in customer hardship and more customers utilizing external debt management services

 

Delinquency Ratio

 

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

 

Delinquency Summary                                            
Total Principal 2017  1-30 Days Principal   1-30 Days Percentage   31-60 Days Principal   31-60
Days Percentage
   61-90 Days Principal   61-90
Days Percentage
   91-120 Days Principal   91-120 Days Percentage   Over 120 Days Principal   Over 120 Days Percentage   Delinquent Principal   Delinquent  Percentage 
                                                 
$6,017,932   $ 464,758       7.65     $ 191,151       3.18     $ 121,734       2.02     $ 70,575       1.17     $ 264,988       4.41     $ 648,448       10.78  
(1516 Loans)     (118 Loans)               (45 Loans)               (32 Loans)               (14 Loans)               (60 Loans)               (151 Loans)          

 

At June 30, 2017 , we had 74 loans delinquent or in default (defined as 91+ days past due), representing 5.58% of the number of loans in our active portfolio. Loans become eligible for the lender to take legal action at 60 days past due. At June 30 , 2017, our delinquency percentage rate for past due loans was 10.78% (31+ days) with an allowance for loan loss at 16.00 %. There was an increase in the delinquency ratio from December 31, 2016 to June 30, 2017 due to an increasing trend in customer hardship, combined with a fall in loans receivables principal outstanding.

 

Delinquency Summary                                                                  
Total Principal
2016
  1-30 Days Principal     1-30 Days Percentage     31-60 Days Principal     31-60 Days Percentage     61-90 Days Principal     61-90 Days Percentage     91-120 Days Principal     91-120 Days Percentage     Over 120 Days Principal     Over 120 Days Percentage     Delinquent Principal     Delinquent Percentage  
                                                                         
$7,587,349   $ 669,570       8.83     $ 257,299       3.39  </