Online Lender Corporate Presentation January 2013 CNSX Listed Issuer ( IOU ) Phil Marleau, CEO pmarleau@ioucentral.com (514) 789-0694 Ext. 225
Forward-Looking Statements Statements made in this presentation that describe the IOU Financial s or management s budgets, estimates, expectations, forecasts, objectives, predictions or projections of the future may be forward-looking statements, which can be identified by the use of the conditional or forward-looking terminology such as anticipates, believes, estimates, expects, may, plans, projects, should, will, or the negative thereof or other variations thereon. IOU Financial cautions that, by their nature, forward-looking statements involve risks and uncertainties, and that its actual actions and/or results could differ materially from those expressed or implied in such forward-looking statements, or could affect the extent to which a particular projection materializes. Many factors and assumptions could have an impact on the materialization of the company s projections, including, but not limited to, liquidity risks, risks inherent in growing a new business, dependence on third-party service providers, credit risks, competition, regulatory risk, and other factors that are beyond its control. IOU Financial cautions that the foregoing list of factors is not exhaustive. For more information on risks and uncertainties, and assumptions that would cause the company s actual results to differ from current expectations, please refer to the section s and Uncertainties of IOU Financial s most recent s Discussion and Analysis, which may be consulted at www.sedar.com ( MD&A). forwardlooking statements presented in the MD&A reflect IOU Financial s expectations as at the date of the MD&A. IOU Financial does not undertake any obligation to update publicly or to revise any such forward-looking statements, unless required by applicable legislation or regulation. 2
Investment Opportunity Each year, the majority of all small business who apply for a loan do not qualify for traditional bank financing. This void has created a large opportunity for alternative lenders like IOU. company leverages technology to underwrite loans based on real-time data and collect payments daily. Cap: Share Structure * Share Outstanding Warrants Options Total Share Fully Diluted $12.4 Million 31.0 Million 5.3 Million 2.0 Million 38.3 Million For the year ending December 31, 2012 IOU processed US$49.4 million in loan applications. This compares to US$17.5 million for all of 2011. For the year ending December 31, 2012 IOU has originated US$11.5 million in loans. This compares to US$2.4 million for all of 2011. As of December 31, 2012 the principal value of loans receivable amounted to $5.6 million versus $1.9 million at the end of 2011. Institutional Ownership: 24.7% Insider Ownership: 20.6% List of Institutional Shareholders: Dundee, US Global, Dancap, and Palos. * Share structure is pre current $5M equity financing Description: Based in Montreal with sales and lending operations in Atlanta, IOU Financial operates an Internet-based lending platform in the U.S. (www.ioucentral.com) aimed at store-front businesses that are overlooked by banks. IOU allows these businesses to obtain loans of up to $100,000. 3
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Highlights IOU Very few competitors in massively under-served market segment overlooked by banks. Scalable, fully automated lending platform with a proprietary underwriting algorithm. Application time less than 10 minutes. Businesses can know whether they qualify for a loan within minutes and can receive funding in as little as 2 days. Unique Online Model Underwriting based on real time data (not historical tax returns). System sources the cloud to create a borrower s financial profile. Principal and interest being repaid daily. Strong and growing flow of monthly loan applications are being generated online and through a growing base of business loan brokers across the U.S. Solid Track Record With Minimal Defaults Losses less than those experienced by credit card portfolios. Fully licensed to lend in all U.S. States that require licensing (with the exception of NV). 5
Leadership IOU Managed by an experienced team that spans all facets of the business Phil Marleau, CEO, has over twenty years of experience in the securities industry (Merrill Lynch and Scotia Capital). Mayco Quiroz, CFO, has over fifteen years of accounting experience (Harris Corporation and L Oreal). Robert Gloer, COO, has over twenty years of experience in lending (First Franklin Financial Corporation, a subsidiary of Merrill Lynch). Governed by an experienced Board of Directors Evan Price, Chairman, has led several high-tech companies, both private and public. Guy Charette, Director, has over 25 years experience in securities law. He is currently a director of Carpathian Gold (TSX-V listed company). Backed by investors with financial strength Equity backers include Dundee, Dancap, Palos, and US Global. All have extensive experience in the financial services industry. 6
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Massively Under-Served IOU Small businesses have always been underserved by banks even before the financial crisis. Banks are simply not fulfilling their role in the economy as providers of credit to small businesses. majority of all small businesses don t qualify for a bank loan. - Owner s credit is less than perfect; - Lack of collateral; - Amount of administration involved relative to the size of the loan; -Underwriting off of reported incomes. As of June 2008, micro-business loans (loans<$100,000) totaled $170.5 Billion. Source: Investment Program, Meeting the Capital Needs of American Small Business, November 2011. 8
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Credit Score Positioning fact that IOU looks holistically at a business s financial realities, with an emphasis on the business s day-to-day cash flow trends and real time data allows it to go deeper into the credit spectrum than traditional lenders. IOU Banks IOU MCA * * A Merchant Cash Advance (MCA) is a factoring type product. IOU recognizes that many small businesses are cash poor but cash flow rich. IOU allows these business to use the strength of their cash flows to borrow money. 10
Target Customer IOU IOU s customers are businesses that sell a large quantity of small ticket items to a large number of customers. Typically the businesses customers pay for products and/or services at the time of purchase. Typical Customers Convenient stores Hotels Retailers Medical & Dental Offices Purpose: Purchase new equipment; Invest in an increased workforce; Attend to repairs and maintenance; Expand their business; Purchase more inventory; Increase marketing efforts. Minimum Qualifications: 11 Just a Few Customers You May Recognize In business at least 2 years (as of Sept. 30, 2012 IOU s current customers had been in business an average of 12 years); Owner operated business; Personal guarantee; Steady cash flows. Restaurants Mechanics E-commerce Dry Cleaners
IOU Loan Product IOU IOU - Fixed Payment Loan Loan Size Term Cost per Dollar Borrowed Payment Pay Period Payment Method Security Pre-Qualification Time Funding Time US$5,000 to US$100,000 6 Months or 12 Months US$1.15 to US$1.25 Fixed Daily Direct Debit from Bank Account Personal Guarantee Instant As Little as 2 Business Days As of Sept. 30, 2012 IOU s customers had borrowed on average US$38,921 for an average term of 11.5 months. 12
IOU Versus Other Lenders IOU IOU versus Other Lenders Bank MCA * IOU Loan True Regulated Loan X Low Documentation Required X No Collateral Required X Improve Your Credit Score X Fast Decision Time X Affordable Rates X Automated Repayment System X X Business Keeps Payment Processor X Accessible to Many Businesses X * A Merchant Cash Advance (MCA) is factoring type product. 13
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Online Platform IOU IOU - Leveraging Traditional Lender Paper application entered into system by lender. Faxes back and forth. Data manually entered. Underwriter manually performs initial due diligence. Underwriter writes up loan case for credit committee and awaits their decision. Once approved, closing appointment is set, documents are manually executed, and check is written. IOU 10 minute online application directly entered into system by borrower. Online clicks. Data sourced from the cloud. System pre-approves or declines loan. Underwriter validates system decision and assigns loan for final signature. Once approved, email is sent, documents are executed online, and funds are electronically transferred. IOU s focus on technology and automation results in a highly scalable model. 15
System Architecture RailsApp Apache RailsApp Master DB IOU RailsApp CloudServer 2 Load Balancer Memcache CloudServer1 Slave DB Cloud Storage Apache RailsApp RailsApp CloudServer 3 Backup Memcache CloudServer N Network File System 16
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Solid Track Record With Minimal Defaults IOU Underwriting based on real time, cloud sourced data (not historical tax returns). Proprietary algorithm is used to qualify and assign a risk score, based on a multi-factor model, to each business. Underwriter ultimately validates and approves the electronic file. Principal and interest being repaid daily directly from a business s bank account helps the owner better manage their cash flows, thereby reducing the risk of default. All loans are essentially cash-flow secured and are backed by a General Security Agreement, a Personal Guarantee, and a Pre-Authorized Debit Agreement. For the nine-month period ending September 30, 2012 IOU wrote-off $7,295 of loans receivable, representing an annualized loss rate of 0.73% (net write-offs as a % of average gross loans). In 2011, net write-offs amounted to $15,855, representing an annualized loss rate of 1.64%. Losses less than those experienced by credit card portfolios. Strong underwriting standards and daily repayments equate to minimal defaults. 18
Underwriting Based on Real-Time Data IOU Owner Business / Borrower Macroeconomic and Industry factors Historic payment and delinquency patterns. Credit inquiries and credit extensions in most recent 12 months. Borrowing power (credit utilization rates). Years in operation. Stability of real-time cash flows. Crowd sourced data: Yelp, Angies List, Ebay, and other data sources such as health score ratings, professional licenses, BBB.org, Secretary of State, etc. Industry segmentation (NAICS code). Historical default rates for the industry. Current economic conditions for geographical region. System sources the cloud to create a borrower s financial profile and assign a proprietary risk score. 19
Collecting Payments Daily IOU Instead of collecting principal and interest on a monthly basis, IOU electronically collects principal and interest on a daily basis. This allows for: Real-time monitoring: Daily withdrawal of principal and interest allows IOU to monitor the financial health of its clients in real time. Early intervention: IOU can take action as soon as it is aware of any financial difficulties a client may be facing. Cash flow management: Businesses don't have to worry about managing cash flows to make next month's payment. Payment priority: Electronic (ACH) payments are processed ahead of checks. Daily repayments allow businesses to better manage their cash flows and repay their loan. 20
Collection Process IOU First failed payment - first day of a failed payment. IOU reaches out to the business owner(s) via a phone call, voicemail, email or text. - Goal is to find out reason for failed payment and advise owner a recovery payment + NSF fee will be posted that night. 3 consecutive failed payments - After three consecutive failed payments, ACH stops and system reverts to manual collection process - Collector initiates manual workout arrangements to get loan back on automated payment schedule. 21 payments in arrears - Collector reviews with management to determine if IOU should transfer loan to collection agency or continue workout arrangements with business owner. -Collection agency notifies the credit reporting agencies of the delinquent account by reporting the debt as a Collection Account and begins to send out collection letters and make collection calls. - In certain cases, the collection agency recommends that IOU file a lawsuit against the owner of the business. A successful lawsuit can allow IOU to garnish the owner s wages, freeze bank account and place a lien against their assets. 84 payments in arrears -Generally, when a loan reaches 84 payments in arrears it is charged-off IOU s books as a bad debt. Post charge-off - Loan is either sold in bad debt sale or transferred to a collection agency (if not already done so). - Future collections are considered recoveries. 21
Diversified Loan Portfolio IOU Portfolio by Industry (as of Sept. 30, 2012) Health Care & Social Assistance 29% Retail Trade 15% Food Services & Drinking Places 11% Food & Beverage Stores 11% Retail Services 8% Professional, Scientific, & Technical Services 8% Repair & Maintenance 4% Accommodation, Food Services, & Drinking Places 3% Health & Personal Care Stores 2% Other 9% Portfolio by State (as of Sept. 30, 2012) California 15% Florida 14% Georgia 10% New Jersey 8% New York 7% Minnesota 4% Illinois 4% Arizona 4% Ohio 4% Other 30% In addition to maintaining a diversified portfolio, IOU limits its exposure to any single loan. As of Sept. 30, 2012 the average loan balance in the portfolio was US$23,139. 22
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Sales Channels IOU Strong flow of applications achieved via two sales channels: Online (Direct): IOU has spent the past 12 months optimizing its site for search engines. Today IOU ranks on page 1 of Google for keywords such as instant business loan. Organic Search Link Building Public Relations Online (Direct) Wholesale: IOU has spent the past 12 months developing agent relationships with business loan brokers. IOU s roster of loan brokers has increased from 6 at the end of 2010 to 144 at the end of 2011. Bank Referrals Email Radio Ads Broker Strong flow of applications achieved with minimal to no marketing dollars. Client Referrals Print Ads Direct Mail 24
Wholesale Channel (Dec-31, 2010) IOU Washington Oregon Nevada California Montana Idaho Wyoming Utah Colorado North Dakota South Dakota Nebraska Kansas Minnesota Wisconsin Iowa Illinois Missouri Michigan Ohio Indiana Kentucky Tennessee New York Pennsylvania West Virginia Vermont New Hampshire Delaware Maryland Virginia North Carolina Maine Massachusetts Rhode Island Connecticut New Jersey Arizona New Mexico Oklahoma Arkansas Mississippi Alabama Georgia South Carolina Texas Louisiana Florida Alaska Hawaii = IOU Central GA Operations = Business Loan Brokers (As of Dec-31-2010) 25
Wholesale Channel (Dec-31, 2011) IOU Washington Oregon Nevada California Montana Idaho Wyoming Utah Colorado North Dakota South Dakota Nebraska Kansas Minnesota Wisconsin Iowa Illinois Missouri Michigan Ohio Indiana Kentucky Tennessee New York Pennsylvania West Virginia Vermont New Hampshire Delaware Maryland Virginia North Carolina Maine Massachusetts Rhode Island Connecticut New Jersey Arizona New Mexico Oklahoma Arkansas Mississippi Alabama Georgia South Carolina Alaska Texas Louisiana Florida Hawaii = IOU Central GA Operations = Business Loan Brokers (As of Dec-31-2011) 26
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Revenue Model IOU earns revenues from: Fees it charges its borrowers; IOU Interest payments it receives on loans it has funded; Gains on sale of loans it has funded; Servicing fees it charges third-party purchasers for servicing the loans; and Referral fees it earns from referring turned-down applications to third-party lenders. Detailed financial info is available on the SEDAR site under IOU Financial Inc. 28
Strong Growth in Loan Demand & Originations IOU $80,000,000 $70,000,000 $60,000,000 $50,000,000 $40,000,000 $30,000,000 $20,000,000 $10,000,000 $0 Cumulative Submitted Apps (US$) $16,000,000 $14,000,000 $12,000,000 $10,000,000 $8,000,000 $6,000,000 $4,000,000 $2,000,000 $0 Cumulative Closed Loans (US$) Since the launch of its site through Dec. 31, 2012, IOU Financial has surpassed US$70 million in loan demand (loan applications) and US$14 million in loan originations. 29
Leads to Growing Loan Portfolio $6,000,000 Principal Value of Commercial Loans Receivable (CDN$) $5,000,000 IOU $4,000,000 $3,000,000 $2,000,000 $1,000,000 $0 1Q2011 2Q2011 3Q2011 4Q2011 1Q2012 2Q2012 3Q2012 4Q2012 Eight straight quarters of portfolio growth. 30
Leads to Growing Revenues $400,000 Revenues by Quarter (CDN$) IOU $350,000 $300,000 $250,000 $200,000 $150,000 $100,000 $50,000 $0 1Q2011 2Q2011 3Q2011 4Q2011 1Q2012 2Q2012 3Q2012 Seven straight quarters of revenue growth. 31
Income Statement / Balance Sheet IOU Condensed Income Statement For the nine month period ended Sept. 30, 2012 Condensed Balance Sheet For the year ended December 31, 2011 Revenues $825,039 $141,606 Expenses ($2,114,071) ($2,656,657) Net Loss ($1,289,032) ($2,515,051) Sep-30-2012 Cash $613,248 Loan Receivables - Net $3,996,613 Other Assets $309,879 Total Assets $4,919,740 Total Liabilities $1,948,681 Shareholder s Equity $2,971,059 32
Effect of Leverage IOU Equity Capital + $0 Million + $5 Million + $10 Million Equity $3m $8 m $13 m Leverage Ratio 3:1 3:1 3:1 Debt $9 m $24 m $39 m Total Assets * $12 m $32m $52 m Annualized Revenue + $3.6 m $9.6 m $15.6 m * Assumes total assets are comprised mostly of loans receivable. +Assumes cost per dollar borrowed of $1.20. 33
Loan Sales IOU From time to time, IOU sells loans it has funded to third-party purchasers and retains the servicing rights. IOU charges the loan buyers a servicing fee for servicing the loans. Selling Loans: IOU generally sells loans to generate liquidity or for portfolio reallocation reasons. As an example of the latter, IOU may want to sell lower grade, higher yielding loans and fund higher grade, lower yielding loans or do the opposite. Buying Loans: Buyers purchase loans to generate income. Because buyers have information such as payment history, buyers may buy loans at a discount if the loans are late or pay a premium if the borrowers have demonstrated a good payment history. highly automated servicing module that IOU has built means that the cost of servicing these loans on an ongoing basis is nominal. 34
Industry Pointer A successful ramp up : Carfinco Loan Type: Carfinco Profile Consumer Car Loans IOU (December 31, 2011) Revenues $50.6 million Profit $17.1 million Profit Margin 33.8% Finance Receivables $143.3 million Total Assets $146.3 million Total Liabilities $111.3 million Shareholder s Equity $35.0 million Financial Leverage 3.18:1 Data (January 15, 2013) Cap $267 million P/E (Price/Earnings) 14.0X Source: Globe Investor 35
Summary Unique lending model with principal and interest being repaid daily directly from a business s bank account, thereby reducing the risk of default. ----------------------------- Scalable, fully automated lending platform with a proprietary underwriting algorithm. ----------------------------- Innovative web based underwriting based on real time data. ----------------------------- Experienced team in place that spans all facets of the business. ----------------------------- Strong institutional ownership. Massively underserved market segment overlooked by banks. ----------------------------- Strong flow of monthly loan applications being generated online and through a growing base of business loan brokers across the U.S. ----------------------------- Strong underwriting standards and solid risk management practices. ------------------- model has been validated over past two years. ----------------------------- Fully licensed to lend in all U.S. States that require licensing (with the exception of NV). Phil Marleau, CEO IOU Financial Inc. (514) 789-0694 ext. 225 pmarleau@ioucentral.com Contacts: Mayco Quiroz, CFO IOU Financial Inc. (514) 789-0694 ext. 298 mquiroz@ioucentral.com Robert Gloer, COO IOU Central Inc. (770) 314-3971 rgloer@ioucentral.com 36