MONTREAL, March 31 /CNW Telbec/ - For the three-month period ended January 31, 2011, IOU FINANCIAL INC. ("IOU Financial" or "the Corporation") (CNSX: IOU), formerly named MCO Capital Inc., did not record any income and incurred operating expenses of $36,580 consisting primarily of salaries, professional fees (including legal and accounting fees), business license fees as well as interest and bank fees. During the same period in 2010, the Company had recorded no income and incurred operating expenses of $40,200. Therefore, IOU Financial closed the first quarter of fiscal 2011 with a net loss of $36,580 or $0.004 per share, compared with a net loss of $40,200 or $0.004 per share during the same quarter of the previous year.
During the first quarter of fiscal 2011, operating activities used total cash of $112,917 consisting of the quarterly loss, coupled with an unfavourable net change of $76,337 in non-cash working capital items. This unfavourable variance is attributable to the recording of an additional amount of $41,506 in deferred charges associated with the transaction to acquire IOU Central Inc., as well as to the payment of $33,770 in accounts payable and accrued liabilities between October 31, 2010 and January 31, 2011. There were no investment or financing activities during the three-month period ended January 31, 2011.
At the end of the first quarter of fiscal 2011, total assets stood at $377,047 compared with $447,397 as at October 31, 2010. More precisely, the Corporation had current assets of $202,057 as at January 31, 2011, of which $181,898 was in cash and the balance consisted of sales taxes receivable and prepaid expenses. Long-term assets amounted to $174,990, including deferred charges of $149,990 and a $25,000 advance made to IOU Central Inc. during the last fiscal year. As at January 31, 2011, total liabilities, in the amount of $264,638, consisted primarily of interest-free advances from a related entity totaling $200,000, as well as accounts payable and accrued liabilities in the amount of $64,638. Shareholders' equity amounted to $112,409 as at January 31, 2011, compared with $148,989 three months earlier, this variance reflecting the net loss for the period.
Principal Events Subsequent to January 31, 2011
On February 28, 2011, the Corporation announced through a press release the completion of the acquisition, by way of a reverse takeover ("RTO"), of all of the outstanding shares of IOU Central Inc., a Canadian corporation owning a majority interest in IOU Central Inc. ("IOU USA"). Based in Delaware, IOU USA operates, throughout the United Stated, an Internet-based lending platform aimed at the segment of small businesses generating daily sales, but which are currently under-served by the traditional bank system. Accordingly, a total of 40,913,065 Class B Shares were issued to the shareholders of IOU Central and IOU USA, which became wholly-owned subsidiaries of the Corporation. In addition, the Corporation issued 2,000,000 Class B Shares to a related entity to convert its $200,000 loan into Class B shares. Finally, 331,870 additional Class B shares were issued to convert an amount of $33,187 in various debts due to other parties and 145,782 Class B Shares were issued to GC-Global Capital Corp. as a bridge loan extension fee.
Concurrently with these share issuances, on February 28, 2011, the Corporation proceeded with the consolidation of all its issued and outstanding Class B shares on the basis of one post-consolidated Class B share for every four pre-consolidated Class B share.
Immediately following the completion of the RTO transaction and stock consolidation, 347,938 Class B shares were issued to the Palos Merchant Bank L.P. ("Palos") in settlement of the then outstanding principal and accrued interest amounts in respect of a set of convertible debt notes, as initially issued to Palos by IOU Central Inc. in 2009, 2010 and 2011, and amended in early 2011. These notes were convertible into Class B shares upon request by the holder, and subject to the payment of a cash fee equal to 33.33% of the principal and accrued interest thereof.
There are currently 17,411,412 Class B Shares issued and outstanding, of which 10,228,255 are owned by IOU Central Inc.'s current shareholders.
The Corporation aims to complete the second tranche of a planned $5.0 million private placement by mid-April 2011, in order to raise an additional amount of up to $3.5 million to be used for working capital and lending purposes. In addition, for the remainder of the year 2011 and the following quarters, the Corporation plans to continue growing the business of its American subsidiary IOU USA in a reasonable and sustainable manner. Management expects that IOU USA's operating expenses will increase due, notably, to its significant planned investment in infrastructure and marketing initiatives to support its anticipated growth. Emphasis will also continue to be placed on raising capital to finance IOU USA's operations until it reaches profitability and becomes cash-flow positive.
IOU USA's core activity is to help build small businesses by providing them with the necessary capital they need to strengthen their operations and grow their business. Its goal is to provide these businesses with fast financing at affordable rates by allowing them to use the strength of their cash flows to borrow money. As a lender, IOU USA earns revenue from fees it charges its borrowers, interest payments it receives on loans it has funded, gains on sale of loans it has funded, as well as servicing fees it charges third-party purchasers for servicing the loans.
Management believes that investing in short-term loans offers above-average risk-adjusted returns for a well-diversified loan portfolio. Moreover, investing in short-term loans offers:
- Security, as loans are paid back daily out of the business' bank account and are personally guaranteed by the owner(s);
- Liquidity, as loans are repaid daily over 6 or 12 months; and
- Diversification, as the loan portfolio is comprised of many small loans.
The CNSX does not accept responsibility for the adequacy or accuracy of this release.
Philippe Marleau, President and Chief Executive Officer
Mayco Quiroz, Chief Financial Officer
IOU Financial Inc.