NOTES
TO CONDENSED CONSOLIDATED UNAUDITED FINANCIAL STATEMENTS
SEPTEMBER
30, 2018
1.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
General
The
quarterly report on Form 10-Q for the quarter ended September 30, 2018 should be read in conjunction with the financial statements
for the year ended December 31, 2017 for Mr. Amazing Loans Corporation (the “Company,” “we,” “our,”
or “us”), contained in the Company’s annual report on Form 10-K for the fiscal year ended December 31, 2017
as filed with the Securities and Exchange Commission (the “SEC”) on March 29, 2018. As contemplated by the SEC under
Article 8 of Regulation S-X, the accompanying financial statements and footnotes have been condensed and therefore do not contain
all disclosures required by U.S. generally accepted accounting principles (“GAAP”). The interim financial data are
unaudited, however, in the Company’s opinion, the interim data includes all adjustments, consisting of only normal recurring
adjustments, necessary for a fair statement of results for the interim periods. Results of interim periods are not necessarily
indicative of those to be expected for the full year.
Nature
of Business
The
principal business activity of the Company is providing unsecured online consumer loans under the brand name “Mr. Amazing
Loans” via the Company’s website and online application portal at www.mramazingloans.com. The Company started its
business and opened its first office in Las Vegas, Nevada in 2010. The Company currently offers $5,000 and $10,000 unsecured consumer
loans that mature, unless prepaid, five years from the date they are issued. The Company is a direct lender with state licenses
and/or certificates of authority in 20 states – Alabama, Arizona, California, Florida, Georgia, Illinois, Kentucky, Louisiana,
Maryland, Missouri, Nevada, New Jersey, New Mexico, Ohio, Oregon, Pennsylvania, Texas, Utah, Virginia and Wisconsin. The Company
originates direct consumer loans to residents of these states through its online application portal, with all loans originated,
processed and serviced out of its centralized Las Vegas head office. In addition, on March 19, 2018 the Company formed a wholly-owned
subsidiary, MRAL Blockchain, LLC (“MRAL Blockchain”), to explore the potential application of blockchain technology
to our core consumer lending business.
Basis
of Accounting
These
consolidated financial statements include the operations of Mr. Amazing Loans Corporation and its wholly-owned subsidiaries, Investment
Evolution Corporation (“IEC”) and IEC SPV, LLC (“IEC SPV”) and MRAL Blockchain and collectively with Mr.
Amazing Loans Corporation, IEC, IEC SPV and MRAL Blockchain, the “Company”. All inter-company transactions and balances
have been eliminated in consolidation.
The
Company’s accounting and reporting policies are in accordance with GAAP and conform to general principles within the consumer
finance industry.
The
consolidated financial statements have been prepared in conformity with GAAP. The accompanying consolidated financial statements
do not include any adjustments to reflect any possible future effects on the recoverability and classification of assets or the
amounts and classification of liabilities.
Liquidity
The
principal conditions and events that raise substantial doubt about the Company’s ability to meet its obligations as they
come due are:
(i)
the Company has reported recurring losses, and
(ii)
the Company has not yet generated positive net cash flows from operations.
Management
has evaluated their plans for the next 12 months and as a result of the plans, the Company believes that it can
meet all its obligations at least through November 2019. Management’s plans include a significant reduction in consulting
and professional fees due to limited new capital raising costs expected over the next 12 months and a significant reduction in
tender offer costs due to no planned future tender offers in 2018 or 2019. In addition, significant core operating costs have
been cut from the Company starting in 2016 including reducing the number of employees from 12 to 4 due to increased automation
of loan origination processes and reducing the number of office leases from 4 to 1 as old leases expired. The Company also entered
into the 2018 Consulting Contract with Mr. Mathieson, which significantly reduces the Chief Executive Officer consulting expense
by more than 50% percent, compared to the Chief Executive Officer consulting expense for the first half of 2018, beginning July
1, 2018. Management has been utilizing the cash flow from loan repayments for working capital needs and plans to continue to do
so, until funding under our new loan facility from a related party is received. See Note 5 for details. This will provide sufficient
cash flow through at least November 2019. The Board of Directors approved a stock repurchase program in 2017 that expires December
31, 2018. However, management does not intend to repurchase a significant number of shares under the stock repurchase program.
MR.
AMAZING LOANS CORPORATION
NOTES
TO CONDENSED CONSOLIDATED UNAUDITED FINANCIAL STATEMENTS
SEPTEMBER
30, 2018
Use
of Estimates
The
preparation of consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions
that affect the reported amounts and disclosures. Management uses its historical records and knowledge of its business in making
these estimates. Accordingly, actual results may differ from these estimates.
Cash
and Cash Equivalents
For
the purpose of the statement of cash flows, the Company considers cash equivalents to include short-term, highly liquid investments
with an original maturity of three months or less.
Loans
Receivable and Interest Income
The
Company offers its loans at or below the prevailing statutory rates. Loans are carried at the unpaid principal amount outstanding,
net of an allowance for credit losses.
The
Company calculates interest revenue using the interest yield method. Charges for late payments are credited to income when collected.
Accrual
of interest income on loans receivable is suspended when no payment has been received on account for 91 days or more on a contractual
basis, at which time a loan is considered delinquent. Payments received on nonaccrual financing loans are first applied to the
unpaid accrued interest and then principal. Loans are returned to active status and accrual of interest income is resumed when
all of the principal and interest amounts contractually due are brought current; at which time management believes future payments
are reasonably assured. At September 30, 2018, 64 loans, with a total balance of $267,741, were delinquent or in default.
Allowance
for Credit Losses
The
Company maintains an allowance for credit losses due to the fact that it is probable that a portion of the loans receivable will
not be collected. The allowance is estimated by management based on various factors, including specific circumstances of the individual
loans, management’s knowledge of the industry, and the experience and trends of other companies in the same industry.
Our
portfolio of loans receivable consists of a large number of relatively small, homogenous accounts. The allowance for credit losses
is determined using a systematic methodology, based on a combination of historical bad debt of comparable companies. Impaired
loans are considered separately and 100% charged off.
The
allowance for credit losses is primarily based upon models that analyze specific portfolio statistics and also reflect, management’s
judgment regarding overall accuracy. We take into account several relevant internal and external factors that affect loan receivable
collectability, including the customer’s transaction history, specifically the timeliness of customer payments, the remaining
contractual term of the loan, the outstanding balance of the loan, historical loan receivable charge-offs, our current collection
patterns and economic trends.
Impaired
Loans
The
Company assesses loans for impairment individually when a loan is 91 days past due. The Company defines impaired loans as bankrupt
accounts and accounts that are 184 days or more past due. In accordance with the Company’s charge-off policy, once a loan
is deemed uncollectible, 100% of the remaining balance is charged-off. Loans can also be charged off when deemed uncollectible
due to consumer specific circumstances.
The
Company does not accrue interest on impaired loans and any recoveries of impaired loans are recorded to other revenue. Changes
in the allowance for credit losses are recorded as operating expenses in the accompanying statement of operations.
MR.
AMAZING LOANS CORPORATION
NOTES
TO CONDENSED CONSOLIDATED UNAUDITED FINANCIAL STATEMENTS
SEPTEMBER
30, 2018
Property
and Equipment
Property
and equipment are stated at cost. Depreciation and amortization are being provided using the straight-line method over the estimated
useful lives of the assets as follows:
Classification
|
|
Life
|
Computer equipment
|
|
5 years
|
Furniture and fixtures
|
|
5-8 years
|
The
Company amortizes its leasehold improvements over the shorter of their economic lives, which are generally five years, or the
lease term that considers renewal periods that are reasonably assured. Expenses for repairs and maintenance are charged to expense
as incurred, while renewals and betterments are capitalized. When assets are retired or otherwise disposed of, the cost and accumulated
depreciation are removed from the accounts and any gain or loss is reflected in the consolidated statement of operations.
Operating
Lease
The
Company’s office lease for 3960 Howard Hughes Parkway, Suite 490, Las Vegas, NV 89169 expires (unless renewed) on September
30, 2020.
Income
Taxes
We
account for income taxes using the liability method in accordance with the Financial Accounting Standards Board (“FASB”)
Accounting Standards Codification (“ASC”) 740 “Income Taxes”. To date, no current income tax liability
has been recorded due to our accumulated net losses. Deferred income tax assets and liabilities are recognized for temporary differences
between the financial statement carrying amounts of assets and liabilities and the amounts that are reported in the income tax
returns. Our net deferred income tax assets have been fully reserved by a valuation allowance due to the uncertainty of our ability
to realize future taxable income and to recover our net deferred income tax assets.
Earnings
and Loss per Share
The
Company computes net earnings (loss) per share in accordance with ASC 260-10 that establishes standards for computing and presenting
net earnings (loss) per shares. Basic earnings (loss) per share are computed by dividing net income (loss) attributed to common
shareholders by the weighted average number of common shares outstanding during the period. Diluted earnings per share is computed
similar to basic earnings per share except that the denominator is increased to include the number of additional common shares
that would have been outstanding if the potential common shares, if any, had been issued and if the additional common shares were
dilutive.
Fair
Value of Financial Instruments
The
Company has adopted guidance issued by the FASB that defines fair value, establishes a framework for measuring fair value in accordance
with existing GAAP, and expands disclosures about fair value measurements. Assets and liabilities recorded at fair value in the
consolidated balance sheets are categorized based upon the level of judgment associated with the inputs used to measure their
fair value. The categories are as follows:
|
●
|
Level
I – Inputs are unadjusted, quoted prices for identical assets or liabilities in active markets at the measurement date.
|
|
|
|
|
●
|
Level
II – Inputs, other than quoted prices included in Level I that are observable for the asset or liability through corroboration
with market data at the measurement date.
|
|
|
|
|
●
|
Level
III – Unobservable inputs that reflect management’s best estimate of what market participants would use in pricing
the asset or liability at the measurement date.
|
The
following table summarizes fair value measurements by level at September 30, 2018 for assets and liabilities measured at fair
value on a recurring basis:
|
|
Level
I
|
|
|
Level
II
|
|
|
Level
III
|
|
|
Total
|
|
Cash
|
|
$
|
382,267
|
|
|
|
-
|
|
|
|
-
|
|
|
$
|
382,267
|
|
Loans receivable, net
|
|
$
|
-
|
|
|
|
-
|
|
|
|
3,730,691
|
|
|
$
|
3,730,691
|
|
MR.
AMAZING LOANS CORPORATION
NOTES
TO CONDENSED CONSOLIDATED UNAUDITED FINANCIAL STATEMENTS
SEPTEMBER
30, 2018
The
following table summarizes fair value measurements by level at December 31, 2017 for assets and liabilities measured at fair value
on a recurring basis:
|
|
Level
I
|
|
|
Level
II
|
|
|
Level
III
|
|
|
Total
|
|
Cash
|
|
$
|
704,006
|
|
|
|
-
|
|
|
|
-
|
|
|
$
|
704,006
|
|
Loans receivable, net
|
|
$
|
-
|
|
|
|
-
|
|
|
|
4,928,704
|
|
|
$
|
4,928,704
|
|
Loans
receivable are carried net of the allowance for credit losses, which is estimated by applying historical loss rates of our portfolio
and of other companies’ portfolios in the same industry with recent default trends to the gross loans receivable balance.
The unobservable inputs used to calculate the fair value of these loans include historical loss rates, recent default trends and
estimated remaining loan terms. Therefore, the carrying value of the loans receivable approximates the fair value.
Carrying
amounts reported in the consolidated balance sheets for other receivables, accounts payable, and accrued expenses approximate
fair value because of their immediate or short-term nature. The fair value of borrowings is not considered to be significantly
different than its carrying amount because the stated rates for such debt reflect current market rates and conditions.
Marketable
Securities
On
January 2, 2018, we purchased 500 shares of the common stock of Lending Club Corporation (“Lending Club”) for $2,092.
The security was classified as available-for-sale and had an unrealized loss of $194 prior to the sale. On March 19, 2018, we
sold 500 shares of Lending Club’s common stock for $1,898. At September 30, 2018 the marketable securities balance was $0.
On
June 16, 2017, we closed our tender offer to purchase shares of the common stock of OneMain Holdings, Inc. (“OneMain”),
pursuant to which we acquired 151,994 shares of the common stock of OneMain (the cost of which was valued at an aggregate of $3.55
million based on the closing price of the shares of OneMain’s common stock of $23.38 on June 15, 2017) in exchange for 3,039,880
shares of the Company’s common stock. The security was classified as available-for-sale and had an unrealized loss of $153,514
prior to the sale. On June 22, 2017, we sold 100% of the 151,994 shares of OneMain’s common stock in exchange for $3.4 million
in cash.
Loss
on Sale of Marketable Securities
The
Company sold securities classified as available for sale for net proceeds of $1,898 resulting in a loss on sale totaling $194
during the nine months ended September 30, 2018. The Company sold securities classified as available for sale for net proceeds
of $3,400,106 resulting in a loss on sale totaling $153,514 during the twelve months ended December 31, 2017.
Legal
Settlement and Related Fees
From
time to time, the Company may be involved in legal proceedings in the normal course of its business. The Company incurred one-off
legal settlements and related fees of $628,376 during the year ended December 31, 2017. Of this amount, $178,982 was in the form
of reductions to outstanding loan principal. These settlements related to an action by the State of Virginia under the Virginia
consumer lending program and a separate action by an individual customer. In addition, as part of the settlements, the annual
interest rate on all loans originated in Virginia have been reduced to 12% APR. As of September 30, 2018, there are $56,574 in
outstanding loans that originated in Virginia, which mature between February 2020 and February 2022. The Company is not involved
in any material legal proceedings at the present time.
Other
Comprehensive Income
The
Company’s other comprehensive income consists of unrealized gains (losses) on securities classified as available for sale
that are recorded as an element of shareholder’s equity but are excluded from net income.
Recent
Accounting Pronouncements
Recently
Issued or Newly Adopted Accounting Standards
In
May 2014, the FASB issued Accounting Standards Update (“ASU”) No. 2014-09,
Revenue from Contracts with Customers
.
The standard will eliminate the transaction and industry specific revenue recognition guidance under current GAAP and replace
it with a principles based approach for determining revenue recognition. ASU 2014-09 is effective for annual and interim
periods beginning after December 15, 2017. Early adoption is not permitted. The revenue recognition standard is required to be
applied retrospectively, including any combination of practical expedients as allowed in the standard. In April 2016, the FASB
issued ASU 2016-10,
Revenue from Contracts with Customers (Topic 606)
, which amends certain aspects of the Board’s
new revenue standard, ASU 2014-09, Revenue from Contracts with Customers. The standard should be adopted concurrently with adoption
of ASU 2014-09 which is effective for annual and interim periods beginning after December 15, 2017. Early adoption is permitted.
As we adopted these standards effective January 1, 2018, adoption of these changes has no impact on the consolidated financial
statements.
MR.
AMAZING LOANS CORPORATION
NOTES
TO CONDENSED CONSOLIDATED UNAUDITED FINANCIAL STATEMENTS
SEPTEMBER
30, 2018
In
November 2015, the FASB issued ASU No. 2015-17,
Income Taxes
(Topic 740). The amendments in ASU 2015-17 change the requirements
for the classification of deferred taxes on the balance sheet. Currently, GAAP requires an entity to separate deferred income
tax liabilities and assets into current and noncurrent amounts in a classified statement of financial position. To simplify the
presentation of deferred income taxes, the amendments in this ASU require that deferred tax liabilities and assets be classified
as noncurrent in a classified statement of financial position. The pronouncement became effective for the 2017 fiscal year. Adoption
of these changes had no material impact on the consolidated financial statements.
In
January 2016, the FASB issued ASU 2016-01,
Financial Instruments – Overall
(Subtopic 825-10): Recognition and Measurement
of Financial Assets and Financial Liabilities. The update intends to enhance the reporting model for financial instruments to
provide users of financial statements with more decision-useful information and addresses certain aspects of the recognition,
measurement, presentation, and disclosure of financial instruments. The new standard affects all entities that hold financial
assets or owe financial liabilities. For public business entities, the amendments in this update are effective for fiscal years
beginning after December 15, 2017, including interim periods within those fiscal years. Management is evaluating the impact of
the adoption of these changes will have on the consolidated financial statements.
In
February 2016, the FASB issued ASU 2016-02,
Leases (Topic 842),
which supersedes existing guidance on accounting for leases
in “Leases (Topic 840)” and generally requires all leases to be recognized in the consolidated balance sheet. ASU
2016-02 is effective for annual and interim reporting periods beginning after December 15, 2018; early adoption is permitted.
The provisions of ASU 2016-02 are to be applied using a modified retrospective approach. The Company is currently evaluating the
impact of the adoption of this standard on its consolidated financial statements.
In
July 2018, the FASB issued ASU No. 2018-10,
Codification Improvements to Topic 842, Leases
. The amendments in this Update
affect the amendments in Update 2016-02, which are not yet effective, but for which early adoption upon issuance is permitted.
For entities that early adopted Topic 842, the amendments are effective upon issuance of this Update, and the transition requirements
are the same as those in Topic 842. For entities that have not adopted Topic 842, the effective date and transition requirements
will be the same as the effective date and transition requirements in Topic 842. The Company has not yet selected a transition
method nor has it determined the effect of the standard on its ongoing financial reporting.
2.
LOANS RECEIVABLE
Loans
receivable consisted of the following at September 30, 2018 and December 31, 2017:
|
|
September
30, 2018
|
|
|
December
31, 2017
|
|
Loans receivable
|
|
$
|
4,663,363
|
|
|
$
|
6,160,881
|
|
Allowance for
credit losses
|
|
$
|
(932,672
|
)
|
|
$
|
(1,232,177
|
)
|
Loans receivable, net
|
|
$
|
3,730,691
|
|
|
$
|
4,928,704
|
|
A
reconciliation of the allowance for credit losses consist of the following at September 30, 2018 and December 31, 2017:
|
|
September
30, 2018
|
|
|
December
31, 2017
|
|
Beginning balance, January 1
|
|
$
|
1,232,177
|
|
|
$
|
1,212,441
|
|
Provision for credit losses
|
|
$
|
347,163
|
|
|
$
|
1,494,843
|
|
Loans charged
off
|
|
$
|
(646,668
|
)
|
|
$
|
(1,475,107
|
)
|
Ending balance
|
|
$
|
932,672
|
|
|
$
|
1,232,177
|
|
Basis of assessment:
|
|
|
|
|
|
|
|
|
Individually
|
|
$
|
-
|
|
|
$
|
-
|
|
Collectively
|
|
$
|
932,672
|
|
|
$
|
1,232,177
|
|
MR.
AMAZING LOANS CORPORATION
NOTES
TO CONDENSED CONSOLIDATED UNAUDITED FINANCIAL STATEMENTS
SEPTEMBER
30, 2018
The
following is an age analysis of past due receivables as of September 30, 2018 and December 31, 2017:
|
|
31-60
Days Past Due
|
|
|
61-90
Days Past Due
|
|
|
Greater
than
90 Days
|
|
|
Total
Past Due
|
|
|
Current
|
|
|
Total
Financing
Receivables
|
|
|
Recorded
Investment
> 90 Days
and not
Accruing
|
|
September 30, 2018
|
|
$
|
120,942
|
|
|
$
|
95,047
|
|
|
$
|
267,741
|
|
|
$
|
483.730
|
|
|
$
|
4,179,633
|
|
|
$
|
4,663,363
|
|
|
$
|
267,741
|
|
December 31, 2017
|
|
$
|
157,988
|
|
|
$
|
84,640
|
|
|
$
|
327,705
|
|
|
$
|
570,334
|
|
|
$
|
5,590,547
|
|
|
$
|
6,160,881
|
|
|
$
|
327,705
|
|
The
Company’s primary credit quality indicator is the customer’s Vantage model 1.0 credit score as determined by Experian
on the date of loan origination. The Company does not update the customer’s credit profile during the contractual term of
the loan.
The
following is a summary of the loan receivable balance as of September 30, 2018 and December 31, 2017 by credit quality indicator:
Credit
Score
|
|
September
30, 2018
|
|
|
December
31, 2017
|
|
550-575
|
|
$
|
2,444
|
|
|
$
|
12,911
|
|
576-600
|
|
$
|
54,681
|
|
|
$
|
86,883
|
|
601-650
|
|
$
|
2,282,906
|
|
|
$
|
2,992,076
|
|
651-700
|
|
$
|
1,748,596
|
|
|
$
|
2,326,006
|
|
701-750
|
|
$
|
403,819
|
|
|
$
|
543,433
|
|
751-800
|
|
$
|
117,445
|
|
|
$
|
152,042
|
|
801-850
|
|
$
|
37,826
|
|
|
$
|
34,607
|
|
851-900
|
|
$
|
15,646
|
|
|
$
|
12,923
|
|
|
|
$
|
4,663,363
|
|
|
$
|
6,160,881
|
|
3.
PROPERTY AND EQUIPMENT
At
September 30, 2018 and December 31, 2017, property and equipment consisted of the following:
|
|
September
30, 2018
|
|
|
December
31, 2017
|
|
Computer equipment
|
|
$
|
99,556
|
|
|
$
|
99,556
|
|
Furniture and fixtures
|
|
|
21,303
|
|
|
|
21,303
|
|
Leasehold improvements
|
|
|
2,000
|
|
|
|
2,000
|
|
|
|
$
|
122,859
|
|
|
$
|
122,859
|
|
Less accumulated depreciation and amortization
|
|
|
113,757
|
|
|
|
109,483
|
|
Total
|
|
$
|
9,102
|
|
|
$
|
13,376
|
|
Depreciation
of property and equipment amounted to $4,274 and $4,495 during the nine months ended September 30, 2018 and 2017, respectively.
Depreciation of property and equipment amounted to $1,425 and $1,451 during the three months ended September 30, 2018 and 2017,
respectively. Depreciation costs are included in the accompanying statements of operations in operating expenses.
4.
SENIOR DEBT
We
previously had a credit facility in the form of a line of credit with BFG Investment Holdings, LLC (“BFG”) in the
amount of $10,000,000 pursuant to a Loan and Security Agreement, as amended (the “BFG Loan Agreement”), among BFG
and certain of our wholly-owned subsidiaries. In connection with the BFG Loan Agreement, IEC SPV and certain of our other wholly-owned
subsidiaries entered into a profit-sharing agreement with BFG pursuant to which IEC SPV is required to pay BFG 20% of its net
profit (“Net Profit”) for a period beginning on June 11, 2012 and ending 10 years from the date the BFG Loan Agreement
is repaid in full. Net Profit is defined in the profit sharing agreement as gross revenue less (i) interest paid on the loan,
(ii) payments on any other debt incurred as a result of refinancing the loan through a third party, as provided in the BFG Loan
Agreement, (iii) any costs, fees or commissions paid on account of the loan (including loan servicing fees of 0.5% on eligible
consumer loans receivable), and (iv) charge-offs to bad debt resulting from consumer loans. All of IEC SPV’s loans receivable
as of September 30, 2018 were pledged as collateral for fulfillment of the Net Profit interest due.
Effective
as of July 15, 2015, BFG converted the credit facility from a revolving facility to a term loan and on August 21, 2015, we, through
certain of our wholly-owned subsidiaries, repaid the entire balance of principal and accrued interest under the BFG Loan Agreement.
There is currently no outstanding balance under the BFG Loan Agreement, but IEC SPV will be required to pay 20% of its Net Profit
to BFG until August 21, 2025 (10 years from August 21, 2015) or until we pay BFG $3,000,000 to terminate the profit-sharing agreement.
Net Profit for the nine months ended September 30, 2018 and 2017 was calculated at $14,241 and $0, respectively.
MR.
AMAZING LOANS CORPORATION
NOTES
TO CONDENSED CONSOLIDATED UNAUDITED FINANCIAL STATEMENTS
SEPTEMBER
30, 2018
On
June 8, 2018, MRAL Blockchain, a wholly owned subsidiary of the Company, entered into a Loan Agreement (the “IEC Ltd. Loan
Agreement”) with Investment Evolution Coin Ltd. (“IEC Ltd.”). Mr. Mathieson, the Company’s President,
Chief Executive Officer, Chief Financial Officer and sole director, and a significant stockholder of the Company, is IEC Ltd.’s
majority stockholder, Chief Executive Officer and sole director. IEC Ltd. is wholly owned by certain Company stockholders, including
Mr. Mathieson. Pursuant to the IEC Ltd. Loan Agreement, IEC Ltd. agreed to loan to MRAL Blockchain up to $20,000,000, as requested
from time to time by MRAL Blockchain pursuant to one or more drawdown notices. Any amounts borrowed under the IEC Ltd. Loan Agreement
are subject to a 12% per annum interest rate, and must be repaid by June 7, 2023. The outstanding balance of the loan facility
at September 30, 2018 is $0.
5.
STOCKHOLDERS’ EQUITY
As
of September 30, 2018, the aggregate number of shares which the Company had the authority to issue is 350,000,000 shares, of which
300,000,000 shares are common stock, par value $0.001 per share, and 50,000,000 shares are preferred stock, par value $0.001 per
shares. At September 30, 2018, the Company had 17,226,283 shares of common stock and 360,000 shares of Series H preferred stock
issued and outstanding. The Company’s Board of Directors is authorized at any time, and from time to time, to provide for
the issuance of preferred stock in one or more series, and to determine the designations, preferences, limitations and relative
or other rights of the preferred stock or any series thereof.
In
January 2017, the Company’s Board of Directors approved a stock repurchase program pursuant to which the Company may purchase
on the open market and at prevailing prices outstanding shares of the Company’s common stock with an aggregate value of
up to $2,000,000. During the nine months ended September 30, 2018, the Company purchased an aggregate of 237,166 shares under
the stock repurchase program for an aggregate purchase price of $56,038 and cancelled the 237,166 shares. During the year ended
December 31, 2017, the Company purchased an aggregate of 458,973 shares under the stock repurchase program for an aggregate purchase
price of $287,404 and cancelled the 458,973 shares. On October 30, 2017, our Board of Directors authorized the extension of the
stock repurchase program from December 31, 2017 to December 31, 2018 under the same terms. Management does not intend to repurchase
a significant number of shares pursuant to the stock repurchase program.
Common
Stock Dividends
Historically,
prior to 2017, we have not paid any cash dividends on our common stock. In May 2017, we announced the declaration of a cash dividend
of $0.005 per common share for the first quarter of 2017. The dividend was paid on August 21, 2017 to stockholders of record at
the close of business on June 5, 2017. In August 2017, we announced the declaration of a cash dividend of $0.005 per common share
for the second quarter of 2017. The dividend was paid on August 21, 2017 to stockholders of record at the close of business on
August 11, 2017. In October 2017, our Board of Directors declared a cash dividend of $0.005 per common share for the third quarter
of 2017 payable on November 20, 2017 to stockholders of record at the close of business on November 11, 2017. Future dividends,
if any, will be determined and paid annually instead of quarterly going forward in November each year as the administrative and
transfer agent costs and banking currency conversion fees for our predominately international shareholders results in quarterly
dividend costs being prohibitive. Payment of future dividends on our common stock, if any, will be at the discretion of our board
of directors and will depend on, among other things, our results of operations, cash requirements and surplus, financial condition,
contractual restrictions and other factors that our board of directors may deem relevant. We may determine to retain future earnings,
if any, for reinvestment in the development and expansion of our business.
Series
H Preferred Stock
During
the nine months ended September 30, 2018 and year ended December 31, 2017, the Company issued 360,000 and 1,292,089 of Series
H convertible preferred stock, respectively, with a par value of $0.001 per share. At September 30, 2018, 360,000 shares of Series
H convertible preferred stock were outstanding. On December 31, 2017, 1,292,089 Series H preferred shares outstanding on issue
converted into 5,168,356 common shares.
Description
of Series H Preferred Stock
Our
amended and restated articles of incorporation, as amended, authorize 10,000,000 shares of Series H preferred stock, of which
360,000 shares are outstanding as of June 30, 2018. There are no sinking fund provisions applicable to our Series H preferred
stock.
Ranking.
The Series H preferred stock ranks
pari passu
with any other series of preferred stock subsequently designated by the
Company and not designated as senior securities or subordinate to the Series H preferred stock.
Liquidation
Preference.
In the event of a liquidation or winding up of the Company, a holder of Series H preferred stock will be entitled
to receive $1.00 per share of Series H preferred stock.
Dividends.
The Series H Preferred Stock is not entitled to receive dividends.
MR.
AMAZING LOANS CORPORATION
NOTES
TO CONDENSED CONSOLIDATED UNAUDITED FINANCIAL STATEMENTS
SEPTEMBER
30, 2018
Voting.
The holders of the Series H preferred stock have 50 votes per share of Series H preferred stock held. The holders of Series
H preferred stock vote together with the holders of the outstanding shares of all other capital stock of the Company, and not
as a separate class, series or voting group.
Redemption
and Call Rights.
The Series H preferred stock have no redemption or call rights.
Conversion.
Holders of Series H preferred stock have the following rights with respect to the conversion of Series H preferred stock into
shares of the Company’s common stock:
●
At any time after June 6, 2018, and upon notice provided by the holder to the Company, a holder shall have the right to convert,
at face value per share, all or any portion of their Series H preferred stock into shares of the Company’s common stock
on the basis of 50 shares of common stock for each share of Series H preferred stock so converted (the “Conversion Ratio”).
●
If at any time after the date of issuance of the Series H preferred stock, in the event the Company shall (i) make or issue a
dividend or other distribution payable in common stock (other than with respect to the Series H preferred stock); (ii) subdivide
outstanding shares of common stock into a larger number of shares; or (iii) combine outstanding shares of common stock into a
smaller number of shares, the Conversion Ratio shall be adjusted appropriately by the Company’s Board of Directors.
●
If the common stock issuable upon the conversion of the Series H preferred stock shall be changed into the same or different number
of shares of any class or classes of stock, whether by capital reorganization, reclassification or otherwise (other than a subdivision
or combination of shares or stock dividend provided for elsewhere in the certificate of designations), then in each such event,
the holder of each share of Series H preferred stock shall have the right thereafter to convert such share into the kind and amount
of shares of stock and other securities and property receivable upon such capital reorganization, reclassification or other change
by holders of the number of shares of common stock into which such shares of Series H preferred stock might have been converted
immediately prior to such capital reorganization, reclassification or other change.
●
In each case of an adjustment or readjustment of the conversion ratio, the Company, at its expense, will seek to furnish each
holder of Series H preferred stock with a certificate, showing such adjustment or readjustment, and stating in detail the facts
upon which such adjustment or readjustment is based.
●
Promptly after the Company’s receipt of a conversion notice, and upon surrender of the Series H preferred stock certificate
for cancellation, the Company shall deliver to the holder a certificate representing the number of the Company’s shares
of common stock into which such Series H preferred stock is converted. No fractional shares shall be issued, and, in lieu of any
such fractional securities, each holder of Series H preferred stock who will otherwise be entitled to a fraction of a share upon
surrender shall receive the next highest whole share.
6.
CONCENTRATION OF CREDIT RISK
The
Company’s portfolio of finance receivables is with consumers living throughout Alabama, Arizona, California, Florida, Georgia,
Illinois, Kentucky, Louisiana, Maryland, Missouri, Nevada, New Jersey, New Mexico, Ohio, Oregon, Pennsylvania, Texas, Utah, Virginia
and Wisconsin and consequently, such consumers’ ability to honor their installment contracts may be affected by economic
conditions in these areas.
The
Company maintains cash at financial institutions which may, at times, exceed federally insured limits.
At
September 30, 2018, the Company had cash and cash equivalents exceeding insured limits by $38,867.
7.
COMMITMENTS AND CONTINGENCIES
Operating
Leases
The
Company entered into a new non-cancelable operating lease on August 1, 2017, with a term commencing on September 19, 2017 and
expiring on September 30, 2020, for an office property located at 3960 Howard Hughes Parkway, Las Vegas. The Company relocated
its principal offices from the property located at 6160 West Tropicana Avenue, Las Vegas office in September 2017. Monthly rental
payments under the new operating lease are $5,794, and the Company is responsible for its pro rata shares of operating expenses
and property taxes. Total rent expense for the nine months ended September 30, 2018 and 2017 was $47,477 and $52,715 respectively.
Total rent expense for the three months ended September 30, 2018 and 2017 was $11,761 and $23,826 respectively.
MR.
AMAZING LOANS CORPORATION
NOTES
TO CONDENSED CONSOLIDATED UNAUDITED FINANCIAL STATEMENTS
SEPTEMBER
30, 2018
Set
forth below is information regarding the Company’s future minimum rental payment as of September 30, 2018. Such payments
relate to the Company’s Las Vegas, NV lease.
12 Months Ending
|
|
|
12 Months Ending
|
|
|
|
|
|
|
|
September
30, 2019
|
|
|
September,
2020
|
|
|
Thereafter
|
|
|
Total
|
|
$
|
69,528
|
|
|
$
|
69,528
|
|
|
$
|
-
|
|
|
$
|
139,056
|
|
Legal
Matters
From
time to time, the Company may be involved in legal proceedings in the normal course of its business. The Company incurred one-off
legal settlements and related fees of $628,376 during the year ended December 31, 2017. Of this amount, $178,982 was in the form
of reductions to outstanding loan principal. These settlements related to an action by the State of Virginia under the Virginia
consumer lending program and a separate action by an individual customer. In addition, as part of the settlements, the annual
interest rate on all loans originated in Virginia have been reduced to 12% APR. As of September 30, 2018, there are $56,574 in
outstanding loans that originated in Virginia, which mature between February 2020 and February 2022. The Company is not involved
in any material legal proceedings at the present time.
Professional
Consulting Contract
On
July 1, 2017, the Company and Mr. Mathieson, the Company’s President, Chief Executive Officer, Chief Financial Officer and
sole member of our Board of Directors, and a significant stockholder of the Company, agreed to terminate, effective July 1, 2017,
the consulting contract dated January 1, 2017 between Mr. Mathieson and the Company (the “January 2017 Consulting Contract”)
pursuant to which the Company was required to pay Mr. Mathieson $1 annually in exchange for certain consulting services. Concurrently
with the termination of the January 2017 Consulting Contract, IEC and Mr. Mathieson entered into a new professional consulting
contract, effective as of July 1, 2017 (the “July 2017 Consulting Contract”). Pursuant to the terms of the 2017 Consulting
Contract, Mr. Mathieson agreed to provide regulatory and management consulting services as requested by the Company and/or IEC.
The July 2017 Consulting Contract had a term of 1.5 years and renewed automatically for successive one-year periods unless notice
of termination was provided 30 days prior to the automatic renewal date. In exchange for the services provided to the Company
and/or IEC by Mr. Mathieson, IEC agreed to pay him $1,200,000 annually in quarterly payments of $300,000 due in advance each quarter
and to provide health insurance benefits as well as a discretionary bonus to be determined by the Company’s Board of Directors,
which consists solely of Mr. Mathieson.
On
March 22, 2018, we entered into a new professional consulting contract with Mr. Mathieson (the “2018 Consulting Contract”)
and terminated the July 2017 Consulting Contract. Pursuant to the terms of the 2018 Consulting Contract, Mr. Mathieson agreed
to provide regulatory and management consulting services as requested by the Company and/or IEC, including the hiring and compensation
of IEC personnel, interaction with third party service providers and vendors and, as requested by the Company, other activities
that are designed to assist IEC in conducting business. The term of the 2018 Consulting Contract began as of July 1, 2018 and
continues indefinitely unless three months’ written notice of termination is provided by either party.
Pursuant
to the terms of the 2018 Consulting Contract, in exchange for Mr. Mathieson’s services, the Company agreed to pay Mr. Mathieson
an annual base salary of $600,000. Pursuant to the terms of the 2018 Consulting Contract, no bonus is to be paid to Mr. Mathieson
by the Company. Pursuant to the terms of the 2018 Consulting Contract, fees are to be paid quarterly in advance on July 1st, October
1st, January 1st and April 1st beginning on July 1, 2018. Unlike in prior years, the Company will not pay Mr. Mathieson’s
health insurance premiums or any bonuses. Mr. Mathieson will also receive reimbursement for all reasonable expenses incurred for
the benefit of IEC, including but not limited to travel expenses for him and his entourage, hotel expenses, communication, security
and entertainment expenses.
Pursuant
to the July 2017 and 2018 Consulting Contracts, the Company paid Mr. Mathieson $750,000 in cash and $0 in health insurance premiums
and costs for the nine months ended September 30, 2018. Pursuant to the January 2017 and July 2017 Consulting Contracts, the Company
paid Mr. Mathieson $300,000 in cash and $0 in health insurance premiums and costs for the nine months ended September 30, 2017.
Regulatory
Requirements
State
statutes authorizing the Company’s products and services typically provide state agencies that regulate banks and financial
institutions with significant regulatory powers to administer and enforce the law. Under statutory authority, state regulators
have broad discretionary power and may impose new licensing requirements, interpret or enforce existing regulatory requirements
in different ways, or issue new administrative rules. In addition, when the staff of state regulatory bodies change, it is possible
that the interpretations of applicable laws and regulations may also change.
MR.
AMAZING LOANS CORPORATION
NOTES
TO CONDENSED CONSOLIDATED UNAUDITED FINANCIAL STATEMENTS
SEPTEMBER
30, 2018
Net
Profit Interest
The
Company has a net profit interest agreement with a third party lender, under which the Company pays 20% of its subsidiary IEC
SPV’s net profit to the lender (see note 4).
8.
RELATED PARTY TRANSACTIONS
Chief
Executive Officer
During
the nine months ended September 30, 2018 and nine months ended September 30, 2017, the Company incurred compensation expense to
Mr. Mathieson, the Company’s President, Chief Executive Officer, Chief Financial Officer and sole director, and a significant
stockholder of the Company under professional consulting contracts of $750,000 and $300,000 respectively. During the nine months
ended September 30, 2018 and September 30, 2017, the Company paid in cash common share dividends in the amount of $0 and $69,000,
respectively, for our Chief Executive Officer. During the three months ended September 30, 2018 and three months ended September
30, 2017, the Company incurred compensation expense to our Chief Executive Officer under the professional consulting contracts
of $150,000 and $300,000, respectively.
Chief
Operating Officer
During
the nine months ended September 30, 2018 and nine months ended September 30, 2017, the Company incurred compensation expense to
our Chief Operating Officer of $168,077 and $172,500, respectively. During the nine months ended September 30, 2018 and September
30, 2017, the Company paid in cash common share dividends in the amount of $0 and $20, respectively, for our Chief Operating Officer.
During the three months ended September 30, 2018 and three months ended September 30, 2017, the Company incurred compensation
expense to our Chief Operating Officer of $53,077 and $57,500, respectively.
Issuance
of Series H Preferred Stock
On
June 8, 2018, the Company issued 360,000 shares of the Company’s Series H preferred stock at a price of $1.00 per share
to IEC Ltd. for an aggregate purchase price of $360,000. Mr. Mathieson, the Company’s President, Chief Executive Officer,
Chief Financial Officer and sole director, and a significant stockholder of the Company, is IEC Ltd.’s majority stockholder,
Chief Executive Officer and sole director. IEC Ltd. is wholly owned by certain Company stockholders, including Mr. Mathieson.
IEC
Ltd. Loan Agreement
On
June 8, 2018, MRAL Blockchain entered into the IEC Ltd. Loan Agreement with IEC Ltd. Mr. Mathieson, the Company’s President,
Chief Executive Officer, Chief Financial Officer and sole director, and a significant stockholder of the Company, is IEC Ltd.’s
majority stockholder, Chief Executive Officer and sole director. IEC Ltd. is wholly owned by certain Company stockholders, including
Mr. Mathieson.
Pursuant
to the IEC Ltd. Loan Agreement, IEC Ltd. agreed to loan to MRAL Blockchain up to $20,000,000, as requested from time to time by
MRAL Blockchain pursuant to one or more drawdown notices. Any amounts borrowed under the IEC Ltd. Loan Agreement are subject to
a 12% per annum interest rate, and must be repaid by June 7, 2023.
MRAL
Blockchain may cancel the loan offered pursuant to the IEC Ltd. Loan Agreement at any time by written notice to IEC Ltd. If MRAL
Blockchain cancels the loan in this manner, MRAL Blockchain must repay any outstanding principal and interest due under the IEC
Ltd. Loan Agreement on the cancellation date.
Each
of the following events is deemed to be an event of default under the IEC Ltd. Loan Agreement:
a)
A default under the IEC Ltd. Loan Agreement,
b)
Execution of a court’s or other authority’s order permitting seizure of any of MRAL Blockchain’s assets
c)
The IEC Ltd. Loan Agreement is terminated or liable to be terminated or is or becomes void, voidable, illegal, invalid or otherwise
unenforceable, or, in the reasonable opinion of IEC Ltd. is likely to become void, voidable, illegal, invalid or otherwise unenforceable,
d)
In the reasonable opinion of IEC Ltd., if there has been a material adverse change in the financial position of MRAL Blockchain,
or IEC Ltd.’s security for the loan is materially diminished or is in jeopardy,
e)
If a liquidator, provisional liquidator, official manager or a receiver or a receiver and manager is appointed for any of the
assets of MRAL Blockchain, or if any event or circumstance occurs whereby, in the reasonable opinion of IEC Ltd., any of the foregoing
could or is likely to occur,
f)
In the reasonable opinion of IEC Ltd., MRAL Blockchain is unable to pay its debts from its own money as they fall due,
g)
If a judgment for an amount of the lesser of $50,000 or 10% of the loan is signed or entered against MRAL Blockchain and remains
unsatisfied or is not appealed against for a period of seven days, and
h)
If any representation or warranty made by MRAL Blockchain proves to be materially incorrect.
If
an event of default occurs, the loan will, at the option of IEC Ltd., become and be payable to and recoverable by IEC Ltd. immediately.
As
at September 30, 2018, none of the facility has been drawn down under the IEC Ltd. Loan Agreement.
9.
SUBSEQUENT EVENTS
None.