Credit Analysis Report: IEG4 LIMITED

1. Credit Opinion: CONDITIONAL

IEG4 Limited demonstrates a substantial balance sheet with net assets of £1.78M and a healthy cash position of £1.74M, supporting basic creditworthiness. However, the significant erosion in shareholders' funds (down £461k or 20.6% from £2.24M to £1.78M) and cash depletion (down £1.03M or 37.2% from £2.76M to £1.74M) in FY2024 raises concerns about the current financial trajectory. The company's position within a group structure, with £1.16M owed by group undertakings, introduces intercompany dependency risk. Approval recommended with conditions around group guarantees and monitoring of cash preservation.

2. Financial Strength

Balance Sheet Composition (FY2024): - Total Assets: £4,438,054 - Total Liabilities: £2,659,960 - Net Assets/Shareholders' Funds: £1,778,094 - Share Capital: £1,100 (minimal equity base)

Equity Trajectory - Concerning Trend: | Year | Shareholders' Funds | YoY Change | |------|-------------------|------------| | 2024 | £1,778,094 | -£461,000 (-20.6%) | | 2023 | £2,239,092 | +£513,911 (+29.8%) | | 2022 | £1,725,181 | +£703,603 (+68.9%) | | 2021 | £1,021,578 | +£793,808 (+349%) | | 2020 | £227,770 | -£530,532 |

The 2024 decline reverses three years of strong equity growth. Retained earnings fell from £2,237,992 to £1,776,994, indicating the company generated a loss in the period. Without access to the profit and loss account (filed under small company exemptions), the drivers of this loss cannot be fully assessed.

Asset Quality: - Intangible Assets: £621,295 (newly capitalised development costs of £627,855 less amortisation of £6,560) - represents a significant bet on future product revenue - Tangible Assets: £29,682 (minimal fixed asset base) - Trade Debtors: £142,120 (down from £518,376 - improved collection or reduced revenue) - Group Undertakings Receivable: £1,158,951 (up from £446,323 - significant intercompany exposure) - Cash: £1,735,995 (strong but declining)

Liability Structure: - Trade Creditors: £94,499 - Deferred Income: £2,104,743 (up from £1,784,621 - 79% of current liabilities) - Accrued Expenses: £206,445

The dominance of deferred income in the liability structure is typical for software/service businesses receiving advance payments, but the £320k increase represents additional obligations to deliver.

Gearing & Leverage: The company appears debt-free with no disclosed borrowings. Liabilities consist primarily of trade creditors, deferred income, and accrued expenses rather than bank debt. This provides financial flexibility.

3. Cash Flow Assessment

Liquidity Position: - Current Assets: £3,787,077 - Current Liabilities: £2,659,960 - Net Current Assets: £1,127,117 - Current Ratio: 1.42x

The current ratio of 1.42x is adequate but has deteriorated from 1.96x in 2023. The quality of current assets must be scrutinised: £1.16M (30.5%) represents intercompany receivables dependent on group solvency.

Cash Flow Indicators: Cash declined £1,025,222 (37.2%) year-on-year. Potential drivers include: - Capitalised development expenditure of £627,855 (cash outflow for intangible assets) - Operating losses (indicated by declining retained earnings) - Increased intercompany lending (group undertakings receivable up £712,628)

Working Capital Analysis: - Working capital remains positive at £1.13M - Trade debtor days appear to have improved significantly (debtors down £376k) - However, the increase in deferred income suggests revenue recognition timing issues or upfront contract payments requiring future service delivery

Cash Runway: Assuming no further cash deterioration, the £1.74M cash balance provides a substantial buffer. However, if the FY2024 cash burn rate of approximately £85k per month continues, the cash position would be exhausted in approximately 20 months without corrective action or new funding.

4. Monitoring Points

Additional Monitoring Requirements:

1. Group Structure Risk: Obtain group guarantees from IEG Group Limited and IEG Holdings Limited. The £1.16M intercompany receivable represents 65% of trade debtors and other receivables combined - concentration risk requires mitigation.

2. Profitability Restoration: Request management accounts to assess whether FY2024 losses are temporary or structural. The shift from growth to decline requires explanation.

3. Intangible Asset Realisation: £621k in capitalised development costs requires assessment of recoverability. If products don't generate expected revenue, write-downs will further erode equity.

4. Lease Expiry: Property lease expires November 2025. Understand renewal terms and any financial impact.

5. Director Changes: Tim Darbyshire resigned 31 December 2024. Assess impact on management capacity and business continuity.

6. Deferred Income Servicing: £2.1M in deferred income represents contracted obligations. Monitor the company's ability to deliver these services without additional costs.

Conditions for Approval: - Parent company guarantee from IEG Group Limited - Quarterly management accounts submission - Cash balance not to fall below £1M without prior notification - Explanation of FY2024 trading performance and recovery plan