LTMP Alltemp Inc (PK)

SOURCE FINANCIAL, INC.

(Exact name of registrant as specified in its charter)

 

Delaware		80-0142655
(State or other jurisdiction of incorporation or organization)		(I.R.S. employer identification number)

Large accelerated filer		¨				Accelerated filer		¨
Non-accelerated filer		¨		(Do not check if a smaller reporting company)		Smaller reporting company		x

PART I     FINANCIAL INFORMATION

 

Item 1.

Financial Statements

 

SOURCE FINANCIAL, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(RESTATED)

 

	September 30, 2013 (Restated) (Unaudited)					June 30, 2013 (Restated)
ASSETS
CURRENT ASSETS
Cash and cash equivalents		$	7,100,551			$	7,205,827
Trade receivables, net			28,192,664				27,008,840
Inventories			235,035				220,377
Deferred tax asset			186,180				718,767
Other current assets			1,326,207				820,726
TOTAL CURRENT ASSETS			37,040,637				35,974,537
NON-CURRENT ASSETS
Intangible assets, net			3,639,080				3,512,767
Deferred tax asset			1,648,753				1,130,454
Property, plant and equipment, net			575,726				578,136
Other assets			50,000				95,973
Goodwill			70,388				69,057
TOTAL NON-CURRENT ASSETS			5,983,947				5,386,387
TOTAL ASSETS		$	43,024,584			$	41,360,924
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Trade and other payables		$	5,233,635			$	5,250,399
Wholesale loan facility			27,019,113				25,669,388
Cash reserve			2,767,943				2,731,094
TOTAL CURRENT LIABILITIES			35,020,691				33,650,881
NON-CURRENT LIABILITIES
Shareholder loans			96,536				45,665
TOTAL NON-CURRENT LIABILITIES			96,536				45,665
TOTAL LIABILITIES			35,117,227				33,696,546
STOCKHOLDERS' EQUITY
Preferred stock, Series A, $0.01 par value, 10,000,000 shares authorized, no shares issued and outstanding			-				-
Preferred stock, Series B, $0.01 par value, 10,000,000 shares authorized, 5,000 issued and outstanding			50				50
Common Stock, $0.10 par value, 500,000,000 shares authorized, 9,961,632 shares issued and outstanding respectively			996,163				996,163
Common stock to be issued, 509,000 and 338,368 respectively			50,900				33,837
Additional paid-in capital			14,860,310				14,462,575
Other accumulated comprehensive loss			(938,469	)			(1,079,762	)
Accumulated deficit			(7,061,597	)			(6,748,485	)
TOTAL STOCKHOLERS' EQUITY			7,907,357				7,664,378
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY		$	43,024,584			$	41,360,924

 

The accompanying notes are an integral part of the unaudited consolidated financial statements

 

 

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SOURCE FINANCIAL, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE (LOSS) INCOME

FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2013 AND 2012

(UNAUDITED)

(RESTATED)

 

		September30, 2013  (Unaudited)  (Restated)				September 30,  2012 (Unaudited) (Restated)
Revenue		$	1,194,034			$	1,105,249
Cost of revenue			796,539				710,746
Gross profit			397,495				394,503
Operating Expenses
Compensation expenses			117,553				120,857
Research and development expense			109,398				119,391
Bad debt expenses			220,993				6,950
Occupancy expenses			59,072				52,943
Depreciation expense			21,309				11,055
General and administration expenses			339,540				47,507
Total operating expenses			867,865				358,703
Income (loss) from operations			(470,370	)			35,800
Other Income (Expense)
Interest income			26,839				30,168
Research and development grant			183,300				93,465
Finance costs			(3,729	)			(5,069	)
Total Other Income			206,410				118,564
(Loss) income before provision of income taxes			(263,960	)			154,364
Provision for income taxes			49,152				92,121
Net (loss) income			(313,112	)			62,243
Other comprehensive income
Foreign currency translation			141,293				237,800
Comprehensive (loss) income		$	(171,819	)		$	300,043
Net (loss) income per share
Basic		$	(0.030	)		$	0.012
Diluted		$	(0.030	)		$	0.012
Weighted average number of shares used in computing basic and diluted net (loss) income per share:
Basic			10,373,128				5,300,000
Diluted			10,373,128				5,300,000

The accompanying notes are an integral part of the unaudited consolidated financial statements

 

 

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SOURCE FINANCIAL, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY

(UNAUDITED)

(RESTATED)

 

		Common Stock								Preferred Stock								Additional Paid in Capital				Comprehensive Loss				Accumulated Accumulated Deficit				Total Stockholders' Equity
		Shares				Amount				Shares				Amount
Balance June 30, 2013 (Restated)			10,300,000			$	1,030,000				5,000			$	50			$	14,462,575			$	(1,079,762	)		$	(6,748,485	)		$	7,664,378
Issuance of stock options			-				-				-				-				70,123				-				-				70,123
Compensation in respect of option and restricted stock granted to employees, directors and third- parties			170,632				17,063				-				-				327,612				-				-				344,675
Net loss for the three months ended September 30, 2013			-				-				-				-				-				141,293				(313,112	)			(171,819	)
Balance September 30, 2013 (Restated)			10,470,632			$	1,047,063				5,000			$	50			$	14,860,310			$	(938,469	)		$	(7,061,597	)		$	7,907,357

 

The accompanying notes are an integral part of the unaudited consolidated financial statements

 

 

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SOURCE FINANCIAL, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2013 AND 2012

(UNAUDITED)

(RESTATED)

 

		September 30, 2013 (Unaudited) (Restated)				September 30, 2012 (Unaudited) (Restated)
Net (loss) income		$	(313,112	)		$	62,243
Adjustments to reconcile net (loss) income to net cash (used in) provided by operating activities:
Depreciation and amortization			178,601				170,293
Stock options and shares issued for compensation			124,921				-
(Increase) decrease in assets:
Trade receivables, net			(653,081	)			2,357,747
Inventories			(10,250	)			(2,472	)
Deferred tax asset			49,152				92,121
Other assets			(149,386	)			222,523
Increase (decrease) in current liabilities:
Trade payables			(116,052	)			(2,268,757	)
Net cash (used in) provided by operating activities			(889,207	)			633,698
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of property, plant and equipment			(80,407	)			(203,026	)
Development of intangible assets			(146,640	)			-
Net cash used in investing activities			(227,047	)			(203,026	)
CASH FLOWS FROM FINANCING ACTIVITIES
Wholesale loan facility, net			841,919				(2,261,805	)
Capital Reserve			(61,362	)			192,122
Shareholder loans, net			95,816				(28,585	)
Net cash provided by (used in) financing activities			876,373				(2,098,268	)
Effect of exchange rate changes on cash and cash equivalents			134,605				138,261
Net decrease in cash and cash equivalents			(105,276	)			(1,529,335	)
Cash and cash equivalents at the beginning of the period			7,205,827				5,634,718
Cash and cash equivalents at the end of the period		$	7,100,551			$	4,105,383
SUPPLEMENTAL DISCLOSURES:
Cash paid during the period for:
Income tax payments		$	-			$	-
Interest payments		$	466,443			$	456,830
SUPPLEMENTAL SCHEDULE OF NON-CASH FINANCING ACTIVITIES:
Issuance of stock options		$	70,123			$	-
Restricted stock compensation		$	344,675			$	-

 

The accompanying notes are an integral part of the unaudited consolidated financial statements

 

 

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SOURCE FINANCIAL, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

SEPTEMBER 30, 2013

(UNAUDITED)

Note 1 – BASIS OF PRESENTATION AND ORGANIZATION (RESTATED)

 

Basis of Presentation

The accompanying condensed consolidated financial statements were prepared in conformity with generally accepted accounting principles in the United States (“US GAAP”) and with the instructions to Form 10-Q.

 

Certain information and footnote disclosures normally included in financial statements prepared in accordance with U.S. GAAP have been condensed or omitted pursuant to U.S. GAAP rules and regulations for presentation of interim financial information. Therefore, the unaudited condensed interim consolidated financial statements should be read in conjunction with the audited annual financial statements for the years ended June 30, 2013 and 2012. Current and future financial statements may not be directly comparable to the Company’s historical financial statements.  However, except as disclosed herein, there have been no material changes in the information disclosed in the notes to the financial statements for the year ended June 30, 2013 included in the Company’s Annual Report on Form 10-K filed with the Securities and Exchange Commission. The unaudited consolidated financial statements should be read in conjunction with the financial statements included in the Form 10-K. In the opinion of Management, all adjustments considered necessary for a fair presentation, consisting solely of normal recurring adjustments, have been made. Operating results for the three months ended September 30, 2013 are not necessarily indicative of the results that may be expected for the year ending June 30, 2014.

 

Restatements

Subsequent to the issuance of the Company's financial statements for the three months ended September 30, 2013, the Company determined that certain transactions and presentation in the financial statements had not been accounted for properly in the Company's financial statements.  Specifically, the amount of the value available on the card for the consumer in certain gift card and similar programs had been improperly recognized in revenue and cost of revenues.  Also, the provision for income tax and deferred tax was incorrectly calculated.  The Company also used this opportunity to realign operating expenses and cost of revenue to conform to future financials filed.

 

The Company decided to restate the consolidated balance sheet as of September 30, 2013 and fiscal year ended June 30, 2013, consolidated statement of operations and comprehensive (loss) income, consolidated statement of stockholders’ equity, consolidated statement of cash flows for the three months ended September 30, 2013 and 2012 to give effect to these changes.

 

 

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The effects of these restatements and reclassifications are as follows:

 

BALANCE SHEET		Reported				Adjustments				Restated				Reported				Adjustments				Restated
		Sep 30, 2013				Sep 30, 2013				Sep 30, 2013				June 30, 2013				June 30, 2013				June 30, 2013
ASSETS
CURRENT ASSETS
TOTAL CURRENT ASSETS			37,040,637				-				37,040,637				35,974,537				-				35,974,537
NON-CURRENT ASSETS
Intangible assets			3,639,080				-				3,639,080				3,512,767				-				3,512,767
Deferred tax asset			1,516,610				132,143				1,648,753				988,860				141,594				1,130,454
Property, plant and equipment			575,726				-				575,726				578,136				-				578,136
Other assets			50,000				-				50,000				95,973				-				95,973
Goodwill			70,388				-				70,388				69,057				-				69,057
TOTAL NON-CURRENT ASSETS			5,851,804				132,143				5,983,947				5,244,793				141,594				5,386,387
TOTAL ASSETS		$	42,892,441			$	132,143			$	43,024,584			$	41,219,330			$	141,594			$	41,360,924
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
TOTAL CURRENT LIABILITIES			35,020,691				-				35,020,691				33,650,881				-				33,650,881
NON-CURRENT LIABILITIES
Shareholders loans							-												-
TOTAL NON-CURRENT LIABILITIES			96,536				-				96,536				45,665				-				45,665
TOTAL LIABILITIES			35,117,227				-				35,117,227				33,696,546				-				33,696,546
EQUITY
Preferred stock			50				-				50				50				-				50
Common stock			996,163								996,163				996,163								996,163
Common stock to be issued			50,900				-				50,900				33,837				-				33,837
Additional paid-in capital			14,860,310				-				14,860,310				14,462,575				-				14,462,575
Other accumulated comprehensive gain (loss)			(913,393	)			(25,076	)			(938,469	)			(1,052,144	)			(27,618	)			(1,079,762	)
Accumulated deficit			(7,218,816	)			157,219				(7,061,597	)			(6,917,697	)			169,212				(6,748,485	)
TOTAL EQUITY			7,775,214				132,143				7,907,357				7,522,784				141,594				7,664,378
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY		$	42,892,441			$	132,143			$	43,024,584			$	41,219,330			$	141,594			$	41,360,924

 

 

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STATEMENTS OF OPERATIONS		Reported				Adjustments				Restated				Reported				Adjustments				Restated
		Sep 30, 2013				Sep 30, 2013				Sep 30, 2013				Sep 30, 2012				Sep 30, 2012				Sep 30, 2012
Revenue		$	1,375,091			$	(181,057	)		$	1,194,034			$	1,307,305			$	(202,056	)		$	1,105,249
Cost of revenue			956,645				(160,106	)			796,539				889,062				(178,316	)			710,746
Gross profit			418,446				(20,951	)			397,495				418,243				(23,740	)			394,503
Operating expenses
Compensation expenses			117,553				-				117,553				154,929				(34,072	)			120,857
Research and development expense			109,398				-				109,398				118,057				1,334				119,391
Bad debt expenses			220,993				-				220,993				6,950				-				6,950
Occupancy expenses			61,918				(2,846	)			59,072				58,627				(5,684	)			52,943
Depreciation expense			42,260				(20,951	)			21,309				34,795				(23,740	)			11,055
General and administration expenses			336,694				2,846				339,540				9,344				38,163				47,507
Total operating expenses			888,815				(20,951	)			867,865				382,702				(23,999	)			358,703
(loss) Income from operations			(470,370	)			-				(470,370	)			35,541				259				35,800
Other income / (expense)
Interest income			26,839				-				26,839				30,168				-				30,168
Research and development grant			183,300				-				183,300				93,465				-				93,465
Other (expense) income			-				(3,069	)			(3,069	)			-				(4,928	)			(4,928	)
Finance costs			(660	)			-				(660	)			(141	)			-				(141	)
Total other income			209,479				(3,069	)			206,410				123,492				(4,928	)			118,564
(Loss) income from operations before income taxes			(260,891	)			(3,069	)			(263,960	)			159,033				(4,669	)			154,364
Income tax expense			40,229				8,923				49,152				4,928				87,193				92,121
Net (loss) income			(301,120	)			(11,992	)			(313,112	)			154,105				(91,862	)			62,243
Other comprehensive income			138,751				2,542				141,293				241,928				(4,128	)			237,800
Comprehensive (loss) income		$	(162,369	)		$	(9,450	)		$	(171,819	)		$	396,033			$	(95,990	)		$	300,043
Net (loss) income per share:
Basic		$	(0.029	)		$	(0.001	)		$	(0.030	)		$	0.029			$	(0.017	)		$	0.012
Diluted		$	(0.029	)		$	(0.001	)		$	(0.030	)		$	0.029			$	(0.017	)		$	0.012

 

 

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STATEMENTS OF CASH FLOWS		Reported				Adjustments				Restated				Reported				Adjustments				Restated
		Sep 30, 2013				Sep 30, 2013				Sep 30, 2013				Sep 30, 2012				Sep 30, 2012				Sep 30, 2012
Net income (loss)		$	(301,119	)		$	(11,993	)		$	(313,112	)		$	154,105			$	(91,862	)		$	62,243
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation & amortization			178,601				-				178,601				170,293				-				170,293
Stock options and shares issued for compensation			124,921				-				124,921				-				-				-
(Increase) / decrease in assets:
Trade receivables			(653,081	)			-				(653,081	)			2,357,747				-				2,357,747
Inventories			(10,250	)			-				(10,250	)			(2,472	)			-				(2,472	)
Deferred tax assets			37,160				11,992				49,152				-				92,121				92,121
Other assets			(149,386	)			-				(149,386	)			222,523				-				222,523
Increase/ (decrease) in current liabilities:
Trade payables			(116,052	)			-				(116,052	)			(2,268,757	)			-				(2,268,757	)
Net cash used in operating activities			(889,206	)			(1	)			(889,207	)			633,439				259				633,698
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of property, plant and equipment			(80,407	)			-				(80,407	)			(202,768	)			(258	)			(203,026	)
Purchase of subsidiary			(146,640	)			-				(146,640	)			-				-
Net cash used in investing activities			(227,047	)			-				(227,047	)			(202,768	)			(258	)			(203,026	)
CASH FLOWS FROM FINANCING ACTIVITIES
Net cash provided by financing activities			876,373				-				876,373				(2,098,268	)			-				(2,098,268	)
Net cash used in operations			(239,880	)			(1	)			(239,881	)			(1,667,596	)			-				(1,667,596	)
Effect of exchange rate changes on cash and cash equivalents			134,604				1				134,605				138,261				-				138,261
Net decrease in cash and cash equivalents			(105,276	)			-				(105,276	)			(1,529,335	)			-				(1,529,335	)
Cash and cash equivalents at the beginning of the period			7,205,827				-				7,205,827				5,634,718				-				5,634,718
Cash and cash equivalents at the end of the period			7,100,551				-				7,100,551				4,105,383				-				4,105,383
SUPPLEMENTAL DISCLOSURES:
Cash paid during the year for:
Income tax payments		$	3,069			$	(3,069	)		$	-			$	4,928			$	(4,928	)		$	-
Interest payments		$	466,443			$	-			$	466,443			$	456,830			$	-			$	456,830

 

 

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Note 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (RESTATED)

 

Principles of Consolidation

The consolidated financial statements include the accounts of Source Financial, Inc (“Source”) and its wholly owned subsidiaries Moneytech Limited (“Moneytech”), Moneytech Finance Pty Ltd, mPayments Pty Ltd., Moneytech POS Pty Ltd., Moneytech Services Pty Ltd, Moneytech USA and WikiTechnologies, Inc., collectively referred to as the Company.  Moneytech USA was formed and WikiTechnologies, Inc. was acquired on June 30, 2013.  All material intercompany accounts, transactions and profits were eliminated in consolidation.

Equity Investments

The Company uses the equity method of accounting for investments when the percentage of ownership of the investment is between 20% and 50%.  The Company includes the proportionate share of the profit or loss as part of the carrying value of the investment.

Use of Estimates

The preparation of financial statements in conformity with US GAAP requires management to make certain estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Significant estimates include collectability of accounts receivable, accounts payable, sales returns and recoverability of long-term assets.

Exchange (Loss) Gain

During the three months ended September 30, 2013 and 2012, the transactions of Moneytech and its wholly owned subsidiaries were denominated in foreign currency and were recorded in Australian dollar (AUD) at the rates of exchange in effect when the transactions occurred. Exchange gains and losses are recognized for the different foreign exchange rates applied when the foreign currency assets and liabilities are settled.

Foreign Currency Translation and Comprehensive (Loss) Income

The accounts of Moneytech and its wholly owned subsidiaries were maintained, and its financial statements were expressed, in AUD. Such financial statements were translated into USD with the AUD as the functional currency.  All assets and liabilities were translated at the exchange rate at the balance sheet date, stockholder’s equity is translated at the historical rates and income statement items are translated at the average exchange rate for the period.  Transactions in foreign currencies are initially recorded at the functional currency rate ruling at the date of transaction.  Any differences between the initially recorded amount and the settlement amount are recorded as a gain or loss on foreign currency transaction in the consolidated statements of operations. The resulting translation adjustments are reported under other comprehensive income as a component of shareholders’ equity.

Reportable Segment

The Company has one reportable segment.The Company’s activities are interrelated and each activity is dependent upon and supportive of the other. Accordingly, all significant operating decisions are based on analysis of financial products provided as a single global business.

Revenue Recognition

Revenue is recognized when persuasive evidence of an arrangement exists, delivery has occurred, the fee is fixed or determinable, and collectability is probable. Revenue generally is recognized net of allowances for returns and any taxes collected from customers and subsequently remitted to governmental authorities.

Cost of Revenue

Cost of revenue includes; programs licensed; operating costs including costs of funds and related product support service centers to drive traffic to our websites, costs incurred to support and maintain products and services, including inventory valuation adjustments; costs associated with the delivery of consulting services; and the amortization of capitalized intangible software costs. Capitalized intangible software costs are amortized over the estimated lives of the products.

 

 

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Research and Development

Research and development expenses include payroll, employee benefits, and other headcount-related expenses associated with product development. Research and development expenses also include third-party development and programming costs, localization costs incurred to translate software for international markets, and the amortization of purchased software code and services content. Such costs related to software development are included in research and development expense until the point that technological feasibility is reached, which for our software products, is generally shortly before the products are put into service. Once technological feasibility is reached, such costs are capitalized and amortized to cost of revenue over the estimated lives of the products.   Certain research and development costs are eligible for reimbursement by the Australian government.  Research and development expense is included as an operating expense and research and development grant income is reported as other income.

Income Taxes

The Company utilizes FASB Accounting Standards Codification (ASC) Topic 740, Income Taxes, which requires recognition of deferred tax assets and liabilities for the expected future tax consequences of events that were included in the financial statements or tax returns. Under this method, deferred income taxes are recognized for the tax consequences in future years of differences between the tax bases of assets and liabilities and their financial reporting amounts at each period end based on enacted tax laws and statutory tax rates applicable to the periods in which the differences are expected to affect taxable income. Valuation allowances are established, when necessary, to reduce deferred tax assets to the amount expected to be realized.

The Company follows FASB Interpretation No. 48, Accounting for Uncertainty in Income Taxes, (codified in FASB ASC Topic 740). When tax returns are filed, it is likely that some positions taken would be sustained upon examination by the taxing authorities, while others are subject to uncertainty about the merits of the position taken or the amount of the position that would be ultimately sustained. The benefit of a tax position is recognized in the financial statements in the period during which, based on all available evidence, management believes it is more likely than not that the position will be sustained upon examination, including the resolution of appeals or litigation processes, if any. Tax positions taken are not offset or aggregated with other positions. Tax positions that meet the more-likely-than-not recognition threshold are measured as the largest amount of tax benefit that is more than 50 percent likely of being realized upon settlement with the applicable taxing authority. The portion of the benefits associated with tax positions taken that exceeds the amount measured as described above is reflected as a liability for unrecognized tax benefits in the accompanying balance sheets along with any associated interest and penalties that would be payable to the taxing authorities upon examination. Interest associated with unrecognized tax benefits is classified as interest expense and penalties are classified in selling, general and administrative expenses in the statements of income.

At September 30, 2013 and 2012, the Company had not taken any significant uncertain tax positions on its tax returns for 2012 and prior years or in computing its tax provision.

Concentration of Credit Risk

Financial instruments that potentially subject the Company to concentrations of credit risk are cash, accounts receivable and other receivables arising from its normal business activities.  The Company places its cash in what it believes to be credit-worthy financial institutions.  The Company has a diversified customer base, most of which are in Australia.  The Company controls credit risk related to accounts receivable through credit approvals, credit limits and monitoring procedures.  The Company routinely assesses the financial strength of its customers and, based upon factors surrounding the credit risk, establishes an allowance, if required, for uncollectible accounts and, as a consequence, believes that its accounts receivable credit risk exposure beyond such allowance is limited.

Risks and Uncertainties

The Company is subject to risks from, among other things, competition associated with the industry in general, other risks associated with financing, liquidity requirements, rapidly changing customer requirements, limited operating history, foreign currency exchange rates and the volatility of public markets.

Contingencies

Certain conditions may exist as of the date the financial statements are issued, which may result in a loss to the Company but which will only be resolved when one or more future events occur or fail to occur.  The Company’s management and legal counsel assess such contingent liabilities, and such assessment inherently involves judgment.  In assessing loss contingencies related to legal proceedings that are pending against the Company or unasserted claims that may result in such proceedings, the Company’s legal counsel evaluates the perceived merits of any legal proceedings or unasserted claims as well as the perceived merits of the amount of relief sought or expected to be sought.

 

 

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If the assessment of a contingency indicates it is probable that a material loss has been incurred and the amount of the liability can be estimated, then the estimated liability would be accrued in the Company’s financial statements.  If the assessment indicates that a potential material loss contingency is not probable but is reasonably possible, or is probable but cannot be estimated, then the nature of the contingent liability, together with an estimate of the range of possible loss if determinable and material would be disclosed.  Loss contingencies considered to be remote by management are generally not disclosed unless they involve guarantees, in which case the guarantee would be disclosed.

Cash and Cash Equivalents

Cash and equivalents include cash in hand and cash in demand deposits, certificates of deposit and all highly liquid debt instruments with original maturities of three months or less.  At September 30, 2013, the Company had $7,100,551 in cash, all of which was on deposit in Australia and not covered by insurance.  At September 30, 2012, the Company had $4,105,383 in cash in Australia which was not covered by insurance.  The Company has not experienced any losses in such accounts and believes it is not exposed to any risks on its cash in bank accounts.

 

Allowance for Doubtful Accounts

The Company maintains reserves for potential credit losses on accounts receivable.  Management reviews the composition of accounts receivable and analyzes historical bad debts, customer concentrations, customer credit worthiness, current economic trends and changes in customer payment patterns to evaluate the adequacy of these reserves.

Inventory

Inventories are valued at the lower of cost (determined on a weighted average basis) or market.  Management compares the cost of inventories with the market value and allowance is made to write down inventories to market value, if lower.  As of September 30, 2013 and June 30, 2013, inventory only consisted of finished goods.

Property, Plant & Equipment

Property and equipment is stated at cost and depreciated using the straight-line method over the shorter of the estimated useful life of the asset or the lease term. The estimated useful lives of our property and equipment are generally as follows:

 

Computer software	3 to 10 years
Computer hardware	5 to 15 years
Furniture and equipment	3 to 5 years

 

As of September 30, 2013 and June 30, 2013, Property, Plant & Equipment consisted of the following:

 

		9/30/2013				6/30/2013
Office equipment		$	36,642			$	35,949
Furnitures and fixtures			234,568				249,770
Computers and software			1,344,219				1,282,317
Accumulated Depreciation			(1,039,702	)			(989,900	)
		$	575,726			$	578,136

 

As of September 30, 2013 and 2012, depreciation expense consisted of the following:

 

		9/30/2013				9/30/2012
Depreciation, operating		$	21,309			$	11,055
Depreciation, cost of revenue			26,049				29,426
Total depreciation expense		$	47,358			$	40,481

 

Fair Value of Financial Instruments

For certain of the Company’s financial instruments, including cash and equivalents, restricted cash, accounts receivable, accounts payable, accrued liabilities and short-term debt, the carrying amounts approximate their fair values due to their short maturities.  ASC Topic 820, “Fair Value Measurements and Disclosures,” requires disclosure of the fair value of financial instruments held by the Company.  ASC Topic 825, “Financial Instruments,” defines fair value, and establishes a three-level valuation hierarchy for disclosures of fair value measurement that enhances disclosure requirements for fair value measures.  The carrying amounts reported in the consolidated balance sheets for receivables and current liabilities each qualify as financial instruments and are a reasonable estimate of their fair values because of the short period of time between the origination of such instruments and their expected realization and their current market rate of interest.  The three levels of valuation hierarchy are defined as follows:

 

Level 1 inputs to the valuation methodology are quoted prices for identical assets or liabilities in active markets.

 

 

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Level 2 inputs to the valuation methodology include quoted prices for similar assets and liabilities in active markets, and inputs that are observable for the asset or liability, either directly or indirectly, for substantially the full term of the financial instrument.

Level 3 inputs to the valuation methodology are unobservable and significant to the fair value measurement.

The Company analyzes all financial instruments with features of both liabilities and equity under ASC 480, “Distinguishing Liabilities from Equity,” and ASC 815.

As of September 30, 2013, the Company did not identify any assets and liabilities that are required to be presented on the balance sheet at fair value.

 

Earnings per Share (EPS)

Basic EPS is computed by dividing income available to common shareholders and equivalents by the weighted average number of common shares and equivalents outstanding for the period. Diluted EPS is computed similar to basic net income per share except that the denominator is increased to include the number of additional common shares that would have been outstanding if all the potential common shares, warrants and stock options had been issued and if the additional common shares were dilutive. Diluted EPS is based on the assumption that all dilutive convertible shares and stock options were converted or exercised. Dilution is computed by applying the treasury stock method for the outstanding options and the if-converted method for the outstanding convertible preferred shares. Under the treasury stock method, options and warrants are assumed to be exercised at the beginning of the period (or at the time of issuance, if later), and as if funds obtained thereby were used to purchase common stock at the average market price during the period. Under the if-converted method, convertible outstanding instruments are assumed to be converted into common stock at the beginning of the period (or at the time of issuance, if later).

The following table sets for the computation of basic and diluted earnings per share for the quarters ended September 30, 2013and 2012:

 

		9/30/13				9/30/12
Net (loss) income		$	(313,112	)		$	62,243
Weighted average shares outstanding - basic			10,373,128				5,300,000
Effect of dilutive securities:
Options issued			-				-
Weighted average shares outstanding - diluted			10,373,128				5,300,000
Net (loss) income per share - basic		$	(0.030	)		$	0.012
Net (loss) income per share - diluted		$	(0.030	)		$	0.012

 

The options to purchase up to 41,249 shares of common stock were anti-dilutive during the quarter ended September 30, 2013.

Goodwill

Goodwill represents the excess of the purchase price over the fair value of the net assets acquired in a business combination. Goodwill is not amortized but is evaluated for impairment at the reporting unit level annually as of June 30, or more frequently if events or changes in circumstances indicate that impairment may exist.

Effective October 1, 2011, the Company adopted ASU 2011-08, which allows the Company to first assess qualitative factors to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying value. This step serves as the basis for determining whether it is necessary to perform the two-step goodwill impairment test. The two-step test first compares the fair value of the reporting unit to its carrying value. If the fair value exceeds the carrying value, no impairment exists, and the second step is not performed. If the fair value is less than the carrying value, the second step is performed to compute the amount of the impairment by comparing the implied fair value of reporting unit goodwill with the carrying amount of that goodwill. The adoption did not have a material impact on the consolidated financial statements.

 

 

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The Company evaluated its goodwill for impairment on September 30, 2013, and concluded there was no impairment as of that date.

Intangible Assets

The Company records identifiable intangible assets at fair value on the date of acquisition and evaluates the useful life of each asset.  Finite-lived intangible assets primarily consist of software development capitalized. Finite-lived intangible assets are amortized on a straight-line basis and are tested for recoverability if events or changes in circumstances indicate that their carrying amounts may not be recoverable. These intangibles have useful lives ranging from 1 to 10 years. No events or changes in circumstances indicate that impairment existed as of September 30, 2013.

Stock-Based Compensation

We recognize all share-based payments to employees and to non-employee directors as compensation for service on our board of directors as compensation expense in the consolidated financial statements based on the fair values of such payments. Stock-based compensation expense recognized each period is based on the value of the portion of share-based payment awards that is ultimately expected to vest during the period. Forfeitures are estimated at the time of grant and revised, if necessary, in subsequent periods if actual forfeitures differ from those estimates.

For share-based payments to consultants and other third-parties, compensation expense is determined at the “measurement date.” The expense is recognized over the vesting period of the award. Until the measurement date is reached, the total amount of compensation expense remains uncertain. We record compensation expense based on the fair value of the award at the reporting date. The awards to consultants and other third-parties are then revalued, or the total compensation is recalculated based on the then current fair value, at each subsequent reporting date.

Recently Issued Accounting Pronouncements

In July 2013, the FASB issued an accounting standards update intended to provide guidance on the presentation of unrecognized tax benefits, reflecting the manner in which an entity would settle, at the reporting date, any additional income taxes that would result from the disallowance of a tax position when net operating loss carryforwards, similar tax losses, or tax credit carryforwards exist. This accounting standard will be effective for the Company beginning June 1, 2014; early adoption is permitted. The Company has early adopted this guidance and the adoption did not have a material impact on the Company's consolidated financial position or results of operations.

Note 2 – TRADE RECEIVABLES, NET (RESTATED)

 

Trade receivables consist principally of accounts receivable and trade financing and other financial services to small to medium sized businesses and individuals, principally in Australia.  Trade receivables are recorded at the invoiced amount and net of allowances for doubtful accounts.  Trade receivables bear interest. The allowance for doubtful accounts represents management’s estimate of the amount of probable credit losses in existing accounts receivable, as determined from a review of past due balances and other specific account data. Account balances are written off against the allowance when management determines the receivable is uncollectible.

 

Collectability of trade receivables is reviewed on an ongoing basis. Debts which are known to be uncollectable are written off by reducing the carrying amount directly. A provision for impairment of trade receivables is raised when there is objective evidence that the consolidated entity or parent entity will not be able to collect all amounts due according to the original terms of the receivables. Significant financial difficulties of the debtor, probability that the debtor will enter bankruptcy or financial reorganization and default or delinquency in payments (more than 60 days overdue) are considered indicators that the trade receivable may be impaired. The amount of the impairment allowance is the difference between the asset’s carrying amount and the present value of estimated future cash flows, discounted at the original effective interest rate. Cash flows relating to short-term receivables are not discounted if the effect of discounting is immaterial.

 

All trade receivables must be paid within 122 days.Trade receivables not paid in full by this time are considered overdue and once 30 days past due are considered delinquent.

 

 

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As of September 30, 2013 and June 30, 2013, trade receivables consist of the following:

 

		9/30/2013				6/30/2013
Trade receivables		$	29,030,945			$	27,740,315
Allowance for bad debt			(838,281	)			(731,475	)
Total trade receivables, net		$	28,192,664			$	27,008,840

 

Note 3 – OTHER ASSETS

 

Other assets consist of the following as of September 30, 2013 and June 30, 2013:

 

Other current assets		9/30/2013				6/30/2013
Research and development grant receivable		$	595,776			$	401,852
Insurance claim receivable			274,751				269,556
Prepayment			96,352				66,922
Stock based deferred compensation			289,876				-
Other assets			69,453				82,396
		$	1,326,207			$	820,726

 

Other non current assets		9/30/2013				6/30/2013
Deferred payment processing cost		$	50,000			$	50,000
Prepaid gift card establishment fees			-				45,973
		$	50,000			$	95,973

 

Note 4 – INTANGIBLE ASSETS

 

Intangible assets consist of the following as of September 30, 2013 and June 30, 2013:

 

		9/30/2013				6/30/2013
Moneytech and mPayments software		$	5,964,274			$	5,239,641
Domain name			202,175				198,353
Accumulated amortization			(2,527,369	)			(1,925,227	)
		$	3,639,080			$	3,512,767

 

The intangible assets are amortized over 10-12 years. Amortization expense of $131,243 and $129,813 were included in cost of revenues for the quarters ended September 30, 2013 and 2012, respectively.

Note 5 – GOODWILL

 

As of September 30, 2013 and June 30, 2013, the Goodwill comprised of the following:

 

		9/30/2013				6/30/2013
Acquisition cost of Moneytech POS Pty Ltd.		$	100,072			$	98,180
Fixed assets received			(55,749	)			(54,695	)
Liability assumed			26,065				25,572
Acquisition cost assigned to goodwill		$	70,388			$	69,057

Note 6 – TRADE AND OTHER PAYABLES

 

As of September 30, 2013 and June 30, 2013, trade and other payables consist of the following:

 

		9/30/2013				6/30/2013
Trade payables		$	4,929,669			$	4,848,656
Employee benefits			259,155				279,646
Other liabilities			44,811				122,097
Total payables		$	5,233,635			$	5,250,399

 

 

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Note 7 –CURRENT LIABILITIES

 

		9/30/2013				6/30/2013
Wholesale loan facility		$	27,019,113			$	25,669,388
Cash reserve			2,767,943				2,731,094
		$	29,787,056			$	28,400,482

 

Wholesale Loan Facility

The Company has a secured line of credit with a bank in Sydney Australia for up to AUD $30,000,000 for the Company to use as of September 30, 2013 and June 30, 2013.  The line of credit is secured mainly by trade receivables.  Interest is charged at the bank’s reserve rate plus an agreed upon margin from the bank.  The agreement is currently set to expire on December 31, 2013 and can be renewed annually in September.   The Company has requested the renewal and is awaiting final bank approval.  Interest expense charged to cost of revenue related to the loan for the 3 months ended September 30, 2013 and 2012 was approximately USD $465,783 and USD $456,689 , respectively.

 

Cash Reserve

The Company is required to maintain certain cash reserves with its senior debt provider in accordance with the Receivables Purchase Agreement (RPA) between the parties. The Required Cash Reserve amount may be provided by the Company or its customers and is held in a ‘Cash Reserve Account’ with its senior debt provider in accordance with the RPA’s terms and conditions.  The Required Cash Reserve balance is adjusted based on the RPA and the total facility limit provided to the Company by the senior lender.

 

Note 8 – NON-CURRENT LIABILITY

 

		9/30/2013				6/30/2013
Shareholders loans		$	96,536			$	45,665
		$	96,536			$	45,665

 

Shareholders’ Loan

The company has a loan payable in the amount of AUD $50,000 to a shareholder.  The loan is due and payable on September 30, 2014.  Interest of 8% is only payable if Moneytech has positive retained earnings at the time of repayment.

The company has a loan payable in the amount of $50,000 to a shareholder.  The loan is due and payable on February 21, 2014 with interest of 12%.

Note 9 –STOCKHOLDERS’ EQUITY

 

Preferred Stock

The Company has 10,000,000 shares Preferred Stock authorized at a par value of $0.01 and there were 5,000 shares of Class B, Preferred Stock issued and outstanding as of September 30, 2013.  Under the terms of the Class B Certificate of Designation, the holder(s) of the Series B have the right, until June 30, 2018, to (A) elect the majority of the Company’s Board of Directors and (B) vote on all other matters to come before the holders of common stock (the “Common Shareholders ” ) with each vote per Series B Preferred Share equal to 1,000 shares of common stock.

 

After June 30, 2018, the Series B Preferred Shares shall have no voting rights and shall be redeemable by the Company for the sum of one tenth of a cent ($0.001) per Series B Preferred Share. The Series B Preferred Shares will not have any conversion rights and shall not be entitled to receive any dividends, distributions, or other economic or financial interest in the Company, and in the event of a liquidation, dissolution, or winding up of the Company, whether voluntary or involuntary, the holders of Series B Preferred, the holders of Series B Preferred Shares will be entitled to receive out of the Company’s assets, whether such assets are capital or surplus, of any nature, the sum of one-tenth of a cent ($0.001) per Series B Preferred Share, after payment to the holders of the Common Stock and the holders of any other series or class of the Company’s equity securities ranking senior to the Common Stock.

 

 

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Common Stock

The Company has 500,000,000 shares of Common Stock authorized at a par value of $0.10 as of September 30, 2013 and June 30, 2013.  There were 9,961,632 shares issued and outstanding as of September 30, 2013 and June 30, 2013.  The Company has 509,000 and 358,368 shares to be issued as of September 30, 2013 and June 30, 2013, respectively.  Each Common Stock holder will have one (1) vote.

 

Note 10 – STOCK COMPENSATION

 

Restricted shares

On July 23, 2013, the Company entered into a consulting agreement to promote the Company's image in both the industry and capital markets. In connection with the agreements, the Company was to issue 170,631 shares of Common Stock valued at $2.02 (stock price at grant date), and recorded $344,675 as deferred compensation. During the three months ended September 30, 2013, the Company amortized $54,798 as stock-based compensation.

 

		Number of Shares
Granted but not issued at June 30, 2013			338,368
Issued during quarter ended September 30, 2013			-
Granted during quarter ended September 30, 2013			170,632
Granted but not issued at September 30, 2013			509,000

 

Note 11 – STOCK OPTIONS

On April 19, 2013, the Company entered into an agreement with a software developer.  Upon achievement of certain milestones, the contractor can receive up to 100,000 Performance Based Stock Options at an exercise price of $2.50 per share.  The options vest and become exercisable immediately upon grant with a 3 year life.  As of September 30, 2013, 10,000 of the Performance Based Stock Options are vested.   The FV of the options was calculated using the following assumptions: estimated life of three years, volatility of 351%, risk free interest rate of .35%, and dividend yield of 0%. The grant date FV of options was $249,995.

On July 19, 2013, the Company granted 75,000 Stock Options to each of the three non-employee directors pursuant to the Omnibus Incentive Plan.  These Stock Options are exercisable at an exercise price of $2.00 per share.  The options vest as to 2,083 shares per non-employee director on September 30, 2013, and as to an additional 2,083 shares each on the last day of each calendar month thereafter through and including August 31, 2016, except that the right to exercise the Options shall vest as to an additional 2,095 shares on the last day of August 31, 2016.  The options become exercisable immediately upon vesting and continue in force through June 30, 2020 (the "Expiration Date"), unless sooner terminated as provided herein and in the Plan.   The FV of the options was calculated using the following assumptions: estimated life of seven years, volatility of 755 %, risk free interest rate of 2.02%, and dividend yield of 0%. The grant date FV of options was $454,500.

On August 22, 2013, the Company granted 25,000 Stock Options to an employee.  These Stock Options are exercisable at an exercise price of $1.30 per share.  The options vested and become exercisable immediately upon granting and continue in force through August 22, 2016 (the "Expiration Date"), unless sooner terminated as provided by the agreement.   The FV of the options was calculated using the following assumptions: estimated life of three years, volatility of 843%, risk free interest rate of .82%, and dividend yield of 0%. The grant date FV of options was $32,500.

 

 

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The Company recorded $70,123 option expense in the three months ended September 30, 2013.

The following is a summary of the activity and position as of September 30, 2013.

 

		Number of  Stock Options
Outstanding at June 30, 2013			100,000
Granted			250,000
Exercised			-
Expired			-
Outstanding at September 30, 2013			350,000
Exercisable at September 30, 2013			41,249

 

Options outstanding at September 30, 2013 are as follows:

 

Exercise Price				Total Options Outstanding				Weighted Average Remaining Life  (Years)				Total Weighted Average Exercise Price				Options Exercisable				Weighted Average  Exercise    Price
$	1.30 to $2.50				350,000				5.662			$	1.70				41,249			$	1.70

The fair value of the equity instruments granted was determined using the closing price on the day the shares were granted in the case of shares issued and using the Black and Scholes option valuation model in the case of share options granted.

 

Note 12 – RELATED PARTY TRANSACTIONS

 

During the three months ended September 30, 2013 and 2012, the Company paid a company controlled by the President of Moneytech for consulting services in the amount of $26,142 and $29,622, respectively.

 

Note 13 – INCOME TAX (RESTATED)

 

The following is the income tax expense reflected in the Statement of Operations for the three months ended September 30, 2013 and 2012:

 

INCOME TAX EXPENSE		September 30
		2013				2012
Income tax expense - current		$	-			$	-
Income tax expense - deferred			49,152				92,121
Total		$	49,152			$	92,121

 

 

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The following are the components of income before income tax reflected in the Statement of Operations for the three months ended September 30, 2013 and 2012:

 

COMPONENTS OF INCOME BEFORE INCOME TAX		September 30
		2013				2012
Income (loss) from USA operations		$	(317,773	)		$	-
Income from Australian operations			53,813				154,364
(Loss) income before Income tax		$	(263,960	)		$	154,364
Income tax		$	49,152			$	92,121
Effective tax rate			(18	)%			60	%

 

The Company did not have a United States tax paying entity during the three months ended September 30, 2012.

   

The following is a reconciliation of the provision for income taxes at the US federal income tax rate to the income taxes reflected in the Statement of Operations for the three months ended September 30, 2013 and 2012:

 

		September 30
INCOME TAX RATE RECONCILIATION		2013				2012
US statutory rates			34	%			34	%
Tax rate difference			(4	) %			(4	) %
Research and development			(12	) %			30	%
USA operations			(36	) %			-	%
Tax expenses at actual rate			(18	) %			60	%

 

The following are the components of deferred tax reflected in the Statement of Operations for the three months ended September 30, 2013 and 2012:

 

COMPONENTS OF DEFERRED TAX EXPENSE		September 30
		2013				2012
Tax losses carried forward		$	76,533			$	56,455
Doubtful debts reserve			(27,383	)			32,950
Accruals			2				2,717
			49,152				92,121

 

The following are the components of deferred tax reflected in the Balance Sheet as of September 30, 2013 and June 30, 2013:

 

COMPONENTS OF DEFERRED TAX ASSET		9/30/13				6/30/13
Tax losses carried forward		$	1,545,849			$	1,592,888
Doubtful debts reserve			251,484				219,442
Accruals			37,600				36,891
			1,834,933				1,849,221

 

		9/30/13				6/30/13
Deferred tax assets - current		$	186,180			$	718,767
Deferred tax assets - non current			1,648,753				1,130,454
			1,834,933				1,849,221

 

Deferred income taxes arise from temporary differences between the tax and financial statement recognition of revenue and expense. In evaluating the ability to recover the deferred tax assets within the jurisdiction from which they arise, the Company considered all available positive and negative evidence, including scheduled reversals of deferred tax liabilities, projected future taxable income, tax planning strategies and recent financial operations. In projecting future taxable income, the Company began with historical results adjusted for changes in accounting policies and incorporates assumptions including the amount of future pretax operating income, the reversal of temporary differences, and the implementation of feasible and prudent tax planning strategies. These assumptions require significant judgment about the forecasts of future taxable income and are consistent with the plans and estimate the Company are using to manage the underlying businesses. In evaluating the objective evidence that historical results provide, the Company consider three years of cumulative operating income (loss).

 

 

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As of September 30, 2013, Moneytech had approximately $5,152,830 in net operating loss (“NOL”) carry forward available to offset future taxable income in Australia.  The NOLs can be carried forward without expiration in Australia.  Management believes that all NOLs will be utilized in the near future and therefore no allowance was made.

As of September 30, 2013, Source had NOL’s of approximately $13 million dollars to offset future taxable income in the US.  Federal NOLs can generally be carried forward 20 years.  However, under Internal Revenue Code section 382 due to the change in ownership there are certain limitations placed on the NOL carryover and Source may only use approximately $161,500 per year of the available NOL.  The deferred tax assets of the US entities at December 31, 2013 were fully reserved.  Management believes it is more likely than not that these assets will not be realized in the near future.

 

Note 14 - GEOGRAPHIC SEGMENT INFORMATION (RESTATED)

 

As a result of the reverse merger on June 30, 2013 the Company operates in two regions: Australia and United States of America.

 

All inter-company transactions are eliminated in consolidation. For the quarter ended September 30, 2013 and 2012, geographic segment information is as follows:

 

		Three Months Ended September 30, 2013																Three Months Ended September 30, 2012
		Australia				USA				Elimination				Consolidated				Australia				USA				Elimination				Consolidated
Net Sales		$	1,192,395			$	1,639			$	-			$	1,194,034			$	1,105,249			$	-			$	-			$	1,105,249
Cost of Sales			774,207				22,332				-				796,539				710,746				-				-				710,746
Total Expenses			571,445				296,420				-				867,865				358,703				-				-				358,703
Other Income (Expense)			207,070				(660	)			-				206,410				118,564				-				-				118,564
Net Income (Loss)			4,661				(317,773	)			-				(313,112	)			62,243				-				-				62,243
Assets			42,465,920				558,664								43,024,584				36,979,867				-				-				36,979,867
Debt			35,057,956				59,271								35,117,227				28,774,919				-				-				28,774,919

 

Note 15 – EQUITY INVESTMENT

 

On January 16, 2013 the Company entered into an agreement whereby it received a 37.5% equity interest in 360 Market Pty. Limited (“360”) in exchange for allowing 360 to utilize certain license rights.  There was no exchange of cash or debt for the transaction and it was accounted for on the historical cost basis with a $0 value.  The investment is accounted for by the equity method since the Company obtained a 37.5% equity interest.  Due to the continuous loss from inception through September 30, 2013 incurred by 360,  the Company did not recognize any income or return from the investment as doing so would have created a negative carrying value in the investment account.  The Company discontinued using the equity method rather than establish a negative balance.  The investment retains a zero balance until subsequent investee profits eliminate all unrealized losses.  In addition, 360 has had a negative equity position since inception of the investment thereby precluding any other disclosure regarding our underlying position in the net equity of 360.

 

Note 16 –COMMITMENTS

 

The Company leases two offices under renewable operating leases expiring on August 31, 2014 and July 31, 2015.  The aggregate monthly rent is approximately $11,189.  For the three months ended September 30, 2013 and 2012, the rental expense was $35,648 and $33,015, respectively.

 

Future minimum rental payments required under operating leases as of September 30, 2013 are as follows:

 

June 30, 2014		$	106,478
2015			12,800
		$	119,278

 

 

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Note 17 –SUBSEQUENT EVENTS

Management has evaluated events subsequent through November 18, 2013 for transactions and other events that may require adjustment of and/or disclosure in such financial statements and these included:

 

·	On October 3, 2013 the Company amended and restated the certificate of incorporation to decrease the number of authorized shares of common stock and preferred stock to 50,000,000 and 1,000,000 respectively.  The Company also reduced the par value of the common stock to $0.001 from $0.10.

 

 

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Item 2.    Management’s Discussion and Analysis of Financial Condition and Results of Operations

The following discussion and analysis of our Company’s financial condition and results of operations should be read in conjunction with our unaudited consolidated financial statements and the related notes included elsewhere in this report and with the consolidated financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the year ended June 30, 2013. This discussion contains forward-looking statements that involve risks and uncertainties. Actual results and the timing of selected events could differ materially from those anticipated in these forward-looking statements.

 

Overview

Using cutting edge technology, we provide commercial trade financing, money transfer and other financial services to small and medium sized businesses and individuals.  Our services are offered in Australia through our subsidiary, Moneytech Limited and its subsidiaries and, in the United States through our subsidiary, WikiTechnologies, Inc.

On June 30, 2013, we acquired Moneytech in exchange for 5,300,000 shares of our common stock (the “Share Exchange”). As a result of the Share Exchange, Moneytech has become our wholly-owned subsidiary, and the former shareholders of Moneytech own in excess of 50% of our outstanding shares of common stock on a fully diluted basis. In connection with acquisition of Moneytech, we issued 5,000 shares of our Series B Preferred Stock to Hugh Evans, the Chairman and Managing Director of Moneytech. The Series B Shares enable Mr. Evans, until June 30, 2018, to (A) elect the majority of our Board of Directors and (B) vote on all other matters presented to the holders of our common stock (the “Common Shareholders ” ), with each vote per Series B Share equal to 1,000 shares of common stock. After June 30, 2018, the Series B Shares will have no voting rights and may be redeemed by us for a per share price one tenth of a cent ($0.001).

The Share Exchange was accounted for as a recapitalization of Moneytech effected by a share exchange, where Moneytech is considered the acquirer for accounting and financial reporting purposes. Our net assets and liabilities as of the date of the consummation of the Share Exchange were brought forward at their book value and no goodwill was recognized.  Consequently, the historical consolidated financial statements of Moneytech are now the historical financial statements of Source Financial, Inc.

A reorganization of the company structure was effected following the acquisition of Moneytech on June 30, 2013. The following chart reflects our organizational structure as of today:

 

Our objective is to become a leading provider of commercial lines of credit and financial services, in particular money transfer services, to small to medium businesses in Australia and the United States, and a provider of money transfer services to individuals in the United States.  We seek to differentiate our services by developing and utilizing cutting edge technologies to deliver our services.

 

Moneytech currently provides asset backed lines of credit in Australia using funds made available under its Receivables Purchase Facility (“RPA” or “Wholesale Loan Facility”) with one of the four leading Australian banks. We also provide payment aggregation and processing solutions in Australia. For the immediate future we intend to continue to focus on our asset backed credit solutions business in Australia while seeking to expand our money transfer businesses in Australia and the United States.  We plan to achieve our growth objectives by signing up new customers for our products in existing markets, expanding the services offered to our customers, entering new international markets, and continuing our research and development efforts to launch new technology driven financial products into both the Australian and United States markets.

 

 

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WikiTechnologies offers on-line financial services through two platforms: WikiPay, a simple, low-cost alternative to existing mobile and online payment solutions; and WikiLoan, a low-cost peer-to-peer lending solution.

 

Net income attributable to our shareholders, and the associated return on equity, are the primary metrics by which we judge the performance of our business. Accordingly, we closely monitor the primary drivers of net income:

·

Net financing income - We track the split between the fee, interest, finance charge and fee income earned on our assets and the interest, finance charges and fees incurred on our Wholesale Facility, and continually monitor the components of our yield and our cost of funds.  In addition, we monitor external rate trends, including the Reserve Bank of Australia cash rate.

·

Net bad debt losses - Other than our cost of funds, interest expense and related fees, the largest driver of business profitability is the minimization of bad debts.  Each asset backed line of credit is priced based on industry and individual customer risk profile.   Delinquencies negatively impact our business performance. Our profitability is directly connected to net credit losses; therefore, we closely analyze credit performance and seek to limit our exposure when feasible through the purchase of credit insurance.   Our target customer is a high quality corporate credit and has financing requirements (with regard to size of funding requirement) that places them outside the large Australian banks sphere of interest.  Our lending criteria result in a low level of overdue and delinquent balances and correspondingly low levels of bad debt.  Credit is extended for a maximum period of 122 days.  Any amounts unpaid after this are considered overdue and amounts overdue for greater than 30 days are considered delinquent.  We monitor credit quality in our portfolio by observing trends in average collection periods (using Days Sales Outstanding), delinquent balances as a percentage of the portfolio and single obligor concentration limits and expect our actual bad debt to be approximately 0.15% of amount funded.  We assess the recoverability of each delinquent balance specifically when determining the amount of doubtful debt reserve that is required.

·

Costs and expenses - We assess our operational efficiency using our cost-to-income ratio.  We perform extensive analysis to determine whether observed fluctuations in cost and expense levels indicate a trend or are the nonrecurring impact of large projects.  Our cost and expense analysis also includes a loan- and portfolio-level review of origination and servicing costs to assist us in assessing profitability by pool and vintage.  Portfolio volume and rate of turnover determine the magnitude of the impact of each of the above factors on our earnings, we also closely monitor new business volume and business growth.

The accounts of Source and its wholly owned subsidiaries are maintained, and its consolidated financial statements are expressed, in Australian dollars. Such financial statements were translated into United States Dollars with the AUD as the functional currency to prepare the consolidated financial statements included in this Report. All assets and liabilities were translated at the exchange rate at the balance sheet date, stockholder’s equity is translated at the historical rates and income statement items are translated at the average exchange rate for the period. Transactions in foreign currencies are initially recorded at the functional currency rate ruling at the date of transaction. Any differences between the initially recorded amount and the settlement amount are recorded as a gain or loss on foreign currency transaction in the consolidated statements of operations. The resulting translation adjustments are reported under other comprehensive income as a component of shareholders’ equity.

Results of Operations

The following discussion of our results of operations constitutes management’s review of the factors that affected our financial and operating performance for the three months ended September 30, 2013 (“Q1 2014”) and September 30, 2012 (“Q1 2013”).  This discussion should be read in conjunction with the consolidated financial statements and notes thereto contained elsewhere in this report.

 

 

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Set forth below are certain items from our operating statements for Q1 2014 and Q1 2013:

 

		Quarter Ended September  30, 2013				Quarter Ended September  30, 2012				Dollar Increase (Decrease)				Percentage Increase (Decrease)
Revenue		$	1,194,034			$	1,105,249			$	88,785				8	%
Confirmed capital and credit express			1,062,008				1,010,634				51,374				5	%
Interest revenue			667,400				621,372				46,028				7	%
Fees			336,909				388,172				(51,263	)			(13	)%
Other revenue			57,700				1,090				56,610				5,192	%
Payment services			103,759				81,755				22,004				27	%
Giftcard program revenue			22,698				27,233				(4,536	)			(17	)%
Other revenue			81,061				54,521				26,540				49	%
Other revenue			28,267				12,860				15,406				120	%
360FX customer referral			27,614				13,503				14,112				105	%
Foreign exchange			1,150				674				476				71	%
Other revenue			(497	)			(1,316	)			819				(62	)%
Cost of revenue			796,539				710,746				85,793				12	%
Confirmed capital and credit express			623,184				558,642				64,542				12	%
Interest expense			465,602				456,689				8,913				2	%
Insurance			38,071				65,251				(27,179	)			(42	)%
Account Issuing Expenses			58,481				35,991				22,491				62	%
Other			61,029				711				60,317				8,479	%
Payment services			16,064				(7,134	)			23,198				(325	)%
Gift card expenses			6,160				(7,134	)			13,294				(186	)%
Other			9,904				-				9,904				-
Depreciation and amortisation			157,292				159,238				(1,946	)			(1	)%
Gross profit			397,495				394,503				2,992				1	%

Compensation expenses			117,553				120,857				(3,304	)			(3	)%
Research and development expense			109,398				119,391				(9,993	)			(8	)%
Bad debt expenses			220,993				6,950				214,043				3,080	%
Occupancy expenses			59,072				52,943				6,129				12	%
Depreciation expense			21,309				11,055				10,254				93	%

General and administration expenses			339,540				47,507				292,033				615	%
(Loss) income from operations			(470,370	)			35,800				(506,170	)			(1,414	)%
Other income			206,410				118,564				87,846				74	%
(Loss) income before income tax			(263,960	)			154,364				(418,324	)			(271	)%
Income tax expense			49,152				92,121				(42,969	)			(47	)%
Net (loss) income $		$	(313,112	)		$	62,243			$	(375,355	)			(603	)%

 

Revenues

Consolidated revenues from operations for Q1 2014 were approximately $1,194,034, an increase of $88,785 or 8% from our consolidated revenues from operations for Q1 2013 of $1,105,249.  Excluding differences attributable to changes in foreign exchange rates, revenues increased 22%.  Excluding differences attributable to changes in foreign exchange rates, the increase resulted primarily from an increase in Confirmed Capital and Credit Express revenues (17%).  Excluding differences attributable to changes in foreign exchange rates, this was primarily attributable to an increase in interest revenue of (12%) and an increase in other revenue of (6%).  The increase in interest revenue primarily results from an increase in the lines of credit we funded from approximately AUD$60 million during Q1 2013 to AUD$74 million during Q1 2014.  The increase in other revenues results from fees charged to new Confirmed Capital customers to set up their accounts.

Cost of Revenue; Gross Profit

Our cost of revenue, which is composed principally of the fees and interest we pay on our RPA and the amortization expense of capitalized research and development costs, was $796,539 in Q1 2014, an increase of $85,793 or 12% from our cost of revenue of $710,746 for Q1 2013. Excluding differences attributable to changes in foreign exchange rates, cost of revenue increased 27%. Excluding differences attributable to changes in foreign exchange rates, the increase resulted primarily from an increase in Confirmed Capital and Credit Express Costs of (20%).  Excluding differences attributable to changes in foreign exchange rates, this was primarily attributable to an increase in interest expense (10%) and an increase in other costs (10%).  The increase in our interest expense primarily results from the growth in the volume of credit lines funded in the current period.  The increase in other costs results from fees incurred in setting up new Confirmed Capital customer accounts.

 

 

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The rates of interest charged to our customers decreased at a slower rate than the decrease in the rate of interest paid to the RPA, Nevertheless our gross profit only experienced a slight increase of $2,992 from $394,503 in Q1 2013 to $397,495 in Q1 2014 as a result of the increases in the other elements included in our cost of revenue.

 

Operating Expenses; Bad Debt Expense; Income from Operations

Apart from the costs under our RPA, the other significant factor in determining our overall profitability is our operating expenses, in particular our bad debt expense.  Our bad debt expense for Q1 2014 was $220,993, representing a substantial increase of $214,043 from bad debt expense of $6,950 for Q1 2013.  This increase is primarily attributable to the increase in doubtful debt reserve due to the bankruptcy and liquidation of the Harrisons pharmacies in Q1 2014.

The percentage of delinquent balances in our portfolio was 1.90% and 1.80% as of September 30, 2013 and 2012 respectively.  The percentage of delinquent balances in our portfolio averaged 1.97% and 1.77% in the three months ended September 30, 2013 and 2012 respectively.  The average collection period in our portfolio decreased from 45 days to 41 days during the three months ended September 30, 2013 and increased from 47 to 48 days during the three months ended September 30, 2012.  Bad debts as a percentage of amount funded was 0.39% and 0.01% in the three months ended September 30, 2013 and 2012 respectively.

Our total operating expenses (other than bad debt) increased by $295,119 or 84% from $351,753 in Q1 2013 to $646,872 in Q1 2014.  This increase is primarily reflected by the inclusion of costs associated with the Wiki business ($171,499 or 59%) and the issuance of restricted stock and options to employees, consultants and non-employee directors of the company ($124,921 or 43%).

Other Income; Provision for income taxes; net (loss) income

To date, our other income (expense) has consisted of financing costs other than those incurred under the RPA, offset by interest income on the cash reserves we are required to maintain under the RPA, and research and development grants received from the government. In Q1 2014 we accrued AUD$200,000 for research grants we expect to receive later this year from the Australian government.

The research and development grant payment is determined according to criteria set by the Australian government.  Grant processing and payment takes place annually and requires the filing of the Australian tax return prior to finalization and payment.  It is not a return of tax.  The company works with Ernst and Young in preparing the claim and the payment expected is accrued as income when the grant criteria are met.

 

Our net loss before tax for Q1 2014 was $206,410, as opposed to net income of $154,364 for Q1 2013. As a result of $49,152 in taxes incurred in Q1 2014 and $92,121 in taxes incurred in Q1 2013, we incurred a net loss after tax for Q1 2014 of $313,112, as compared to net income after tax for Q1 2013 of $62,243. Operations in Australia (Moneytech) remain profitable while operations in the United States (Wiki and Source) are not yet profitable. This is primarily attributable to a delay in marketing activity in Wiki while expenses continue to be incurred ($171,499) and non-cash expenses in Source ($124,921).

Other comprehensive income.

Our other comprehensive income consists of gains and losses in net asset value that occurs when movements in foreign exchange rates occur.  These gains or losses are primarily as a result of changes in the AUD/USD exchange rate.  We cannot and do not attempt to predict movements in these exchange rates.  The changes in net asset value occur because our net assets and operational activity are principally in Australian Dollars.  We do not hedge the foreign exchange rate exposure.  As operations in the United States expand the impact of foreign exchange rates on our results of operations will decrease.

The average AUD/USD exchange rates were 1 to 1.0385 and 1 to 0.9165 in Q1 2013 and Q1 2014, respectively.

 

Liquidity and Capital Resources

 

Our ability to offer asset backed credit lines is determined by the amount of our capital and the amount of funds we can borrow. We require a significant amount of liquidity to offer our asset backed credit lines and our rate of growth and profitability will, for the foreseeable future, largely be determined by our ability to raise equity or borrow funds with which to purchase receivables and the effective cost of such funds.

 

 

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Comparison of Balance Sheet Data as at September 30, 2013 and June 30, 2013

 

		September 30, 2013				June 30, 2013
Cash and cash equivalents		$	7,100,551			$	7,205,827
Trade Receivables			28,192,664				27,008,840
Total Assets			43,024,584				41,360,924
Wholesale Loan Facility		$	27,019,113			$	25,669,388
Total Liabilities			35,117,227				33,696,546
Total Equity		$	7,907,357			$	7,664,378

 

Comparison of the Statement of Cash Flows for the Three Months Ended September 30, 2013 and 2012

 

		Quarter  Ended				Quarter  Ended
		September   30, 2013				September  30, 2012
Net cash provided by (used in) operating activities			(889,207	)			633,698
Net cash provided by (used in) investing activities			(227,047	)			(203,026	)
Net cash provided by (used in) financing activities			876,373				(2,098,268	)
Exchange rate effect on cash			134,605				138,261
Net cash inflow (outflow)			(105,276	)			(1,529,335	)

 

Cash Provided by (Used in) Provided By Operating Activities

During the quarter ended September 30, 2013, we used approximately $889,207 of net cash in our operating activities. This reflects our net loss of $313,112 plus $576,095 used by changes in operating assets and liabilities net of adjustments for non-cash items. Cash used in working capital items was primarily impacted by an increase in trade receivables of $653,081, reflecting an increase in the volume of credit lines provided and other items which used $226,536. Adjustments for non-cash items consisted of depreciation and amortization in the amount of $178,601 and stock options and shares issued for compensation of $124,921.

 

During the quarter ended September 30, 2012, we generated approximately $633,698 of net cash from our operating activities. This reflects our net income of $62,243 plus cash provided by changes in operating assets and liabilities and adjustments for non-cash items. Cash provided by working capital items and other activities was primarily impacted by a decrease in trade receivables of $2,357,247, reflecting a decrease in the volume of credit lines provided, substantially offset by a decrease in trade payables of $2,268,757 and other items providing $311,902. Adjustments for non-cash items consisted entirely of depreciation and amortization $170,923.

 

Cash Provided by (Used in) Investing Activities

During the quarter ended September 30, 2013, net cash used in investing activities of $227,047 was primarily impacted by $146,640 in capitalized costs incurred on the development of intangible assets, principally software related to the Moneytech Exchange and mPay.  During the quarter ended September 30, 2012, net cash used in investing activities of $203,026 primarily reflects capitalized costs incurred on the development of intangible assets, principally software related incurred in the development of the Moneytech Exchange.

  

Cash Used in Financing Activities 

During the quarter ended September 30, 2013, net cash provided by financing activities of $876,373 primarily reflects an increase in our borrowings under the Wholesale Loan Facility of $841,919. Contributions to our capital reserve account received from our customers of $61,362 and loans advanced of $95,816 account for the difference.

During the quarter ended September 30, 2012 net cash provided by financing activities of $2,098,268 primarily reflects an increase in our borrowings under the Wholesale Loan Facility of $2,261,805.Contributions to our capital reserve account received from our customers of $192,192 and loans repaid of $28,585 account for the difference.

 

 

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Credit Facility

In 2005 we entered into a Receivables Purchase Agreement (the “Wholesale Facility” or the “RPA”) with one of the “Big Four” Australian Banks which has been renewed annually each year thereafter.  Pursuant to this Agreement we electronically offer eligible receivables to our lender for purchase on a nightly basis.  These offerings are then settled by the lender on a daily basis.  The funds we receive upon settlement are automatically and electronically delivered to our customers.  Our gross profit is represented by the difference between what we charge our customers in interest, finance charges and fees and what we pay to our lender. Our borrowing limit under the RPA is AUD$50 million, subject to interim agreed upon limits determined by various tests and covenants which currently limit our borrowing capacity to AUD $30 million.  As at September 30, 2013 the total amount drawn against the facility was $27,019,113.

   

We pay an interest rate on all borrowed monies under the RPA which is directly linked to the Reserve Bank of Australia cash-rate, a utilization fee charged on monies available to be borrowed but not utilized, an annual line fee and fees for electronically accessing the facility.  The Facility contains a number of covenants relating to our financial performance and performance of our receivables portfolio including but not limited to net profit targets, maximum dilution ratios, concentration limits, maximum delinquency ratios and cash reserve requirements.  As of the date hereof we are in compliance with all covenants imposed by the RPA.

  

We, in turn, provide our customers with funds provided by the RPA.  We charge each of our clients, interest at a rate above that charged by our lender and seek to have our clients pay a fee corresponding to each of the fees charged to us in respect of their loans.  To the extent that the RPA requires that we deposit monies into an account to partially secure repayment of our loans, we seek to have those funds advanced by our customers as a condition of their credit lines.  The cash reserve we are required to maintain pursuant to the RPA is included under Cash and cash equivalents on our balance sheet.

Commitments for Capital Expenditures

We do not have any commitments for capital expenditures.  Further, the design and technical development of the Moneytech Exchange is completed and it is operational. Although we will continue to upgrade and add additional functionality to the Moneytech Exchange and will need to add additional personnel as we grow, the rate of growth of these expenses should be less than the rate of growth of our revenue. Further, we anticipate that as we expand our portfolio and increase the number of services we offer, the rate of growth in the lines of credit we service and in our revenues will exceed the rate of growth in our operating expenses.  There are a number of reasons for this, the most significant being that most of the expense involved with any debtor/obligor is incurred when the relationship is established.  In the absence of a default or other triggering event, so long as a debtor/obligor is online, it generates revenue for us with little impact on our operating expenses.  We do anticipate a slight increase in the rate of growth of our operating expenses this year due to, among other factors, the fact that Moneytech’s operational financial statements do not include any of the expenses associated with being a public company nor the expenses to be incurred by WikiTechnologies

 

Off Balance Sheet Items

We do not have any off-balance sheet arrangements, financings, or other relationships with unconsolidated entities or other persons, also known as “special purpose entities” (SPEs).

 

Critical Accounting Policies

 

Use of Estimates

Our discussion and analysis of our financial condition and results of operations are based upon our consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States. The preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities. We continually evaluate our estimates, including those related to bad debts, recovery of long-lived assets, income taxes, and the impact of changes in currency exchange rates. We base our estimates on historical experience and on various assumptions that we believe to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Any future changes to these estimates and assumptions could cause a material change to our reported amounts of revenues, expenses, assets and liabilities. Actual results may differ from these estimates under different assumptions or conditions. While our significant accounting policies are described in Note 2 to our consolidated financial statements, we believe the following accounting policies are the most critical to aid you in fully understanding and evaluating our financial statements and our management’s discussion and analysis.

 

 

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The preparation of financial statements in conformity with US GAAP requires management to make certain estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Significant estimates include collectability of accounts receivable and recoverability of long-term assets.

 

Allowance for Doubtful Accounts

The Company maintains reserves for potential credit losses on accounts receivable. Management reviews the composition of accounts receivable and analyzes historical bad debts, customer concentrations, customer credit worthiness, current economic trends and changes in customer payment patterns to evaluate the adequacy of these reserves.

 

Revenue Recognition

Revenue is recognized when persuasive evidence of an arrangement exists, delivery has occurred, the fee is fixed or determinable, and collectability is probable. Revenue generally is recognized net of allowances for returns and any taxes collected from customers and subsequently remitted to governmental authorities.

 

Concentration of Credit Risk

Financial instruments that potentially subject the Company to concentrations of credit risk are cash, accounts receivable and other receivables arising from its normal business activities. The Company places its cash in what it believes to be credit-worthy financial institutions. The Company has a diversified customer base, most of which are in Australia. The Company controls credit risk related to accounts receivable through credit approvals, credit limits and monitoring procedures. The Company routinely assesses the financial strength of its customers and, based upon factors surrounding the credit risk, establishes an allowance, if required, for uncollectible accounts and, as a consequence, believes that its accounts receivable credit risk exposure beyond such allowance is limited.

 

Cost of Revenue

Cost of revenue includes; programs licensed; operating costs including costs of funds and related product support service centers to drive traffic to our websites, costs incurred to support and maintain products and services, including inventory valuation adjustments; costs associated with the delivery of consulting services; and the amortization of capitalized intangible software costs. Capitalized intangible software costs are amortized over the estimated lives of the products.

 

Exchange (Loss) Gain

During the three months ended September 30, 2013 and 2012, the transactions of Moneytech and its wholly owned subsidiaries were denominated in foreign currency and were recorded in Australian dollar (AUD) at the rates of exchange in effect when the transactions occurred. Exchange gains and losses are recognized for the different foreign exchange rates applied when the foreign currency assets and liabilities are settled.

 

Foreign Currency Translation and Comprehensive (Loss) Income

The accounts of Moneytech and its wholly owned subsidiaries were maintained, and its financial statements were expressed, in AUD. Such financial statements were translated into USD with the AUD as the functional currency. All assets and liabilities were translated at the exchange rate at the balance sheet date, stockholder’s equity is translated at the historical rates and income statement items are translated at the average exchange rate for the period. Transactions in foreign currencies are initially recorded at the functional currency rate ruling at the date of transaction. Any differences between the initially recorded amount and the settlement amount are recorded as a gain or loss on foreign currency transaction in the consolidated statements of operations. The resulting translation adjustments are reported under other comprehensive income as a component of shareholders’ equity.

 

 

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Item 4.

Controls and Procedures

a)	Disclosure controls and procedures

Our disclosure controls and procedures are designed to ensure that information required to be disclosed in reports that we file or submit under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported within the time periods specified in the rules and forms of the United States Securities and Exchange Commission.  Our Chief Executive Officer and Chief Financial Officer have reviewed the effectiveness of our “disclosure controls and procedures” (as defined in the Securities Exchange Act of 1934 Rules 13a-15(f) and 15d-15(f) as of the end of the period covered by this Report and have concluded that due to material weaknesses in our internal control over financial reporting as described below, our disclosure controls and procedures, as of the end of the period covered by this report, were not effective to ensure that information required to be disclosed by us in reports that we file or submit under the Exchange Act would be recorded, processed, summarized and reported within the time periods specified in Securities and Exchange Commission rules and forms and would be accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure.

Notwithstanding the ineffectiveness of our disclosure controls and procedures as of the end of the period covered by this Report as a result of the material weaknesses in our internal control over financial reporting, management believes that (i) this Report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which they were made, not misleading with respect to the periods covered by this Report and (ii) the consolidated financial statements, and other financial information, included in this Report fairly present in all material respects in accordance with generally accepted accounting principles ("GAAP") our financial condition, results of operations and cash flows as of, and for, the dates and periods presented.

b)	Management’s Remediation Initiatives

Prior to the consummation of the Share Exchange Agreement whereby we acquired Moneytech Limited, our Australian subsidiary, the accounting staff at Moneytech was adequate to perform the financial reporting obligations imposed upon it as a private company.  In the opinion of management, however, the financial staff at Moneytech was not sufficient to deal with the reporting obligations imposed as a result of its transformation to a public company.  The inadequacies of the financial staff resulted from a lack of sufficient personnel, which caused Moneytech to rely upon temporary employees and outside consultants, and the lack of familiarity of such persons with the obligations imposed upon a public company and US Generally Accepted Accounting Principles. Since consummation of the Share Exchange Agreement, our management has worked, and continues to work, to strengthen our internal control over financial reporting. We are committed to ensuring that such controls are operating effectively.

In an effort to remediate the identified material weaknesses and other deficiencies and enhance our internal controls over financial reporting, we hired a new CFO who has familiarity with US GAAP and who has installed new procedures to correct the material weaknesses and deficiencies in our reporting systems.  The CFO has already implemented controls that will improve our internal control and documentation related to our accounting policies and practices to identify, document and periodically assess whether all key judgments, conventions and estimates used conform to accounting principles generally accepted in the United States.  We are committed to remediating the material weaknesses that existed at the end of the period covered by this Report and believe that as a result of the actions we have taken, our internal controls over financial reporting are now effective and, consequently, our disclosure controls and procedures are now effective.

As our business grows in size and complexity, we will continue to actively identify, develop and implement additional measures to materially improve and strengthen our internal control over financial reporting and ensure that they remain effective.

c)	Changes in Controls

Except for the changes in our accounting staff and procedures described above, there have been no changes in our internal control over financial reporting since the end of the period covered by this report that have materially affected, or are reasonable likely to materially affect, our internal control over financial reporting.

 

 

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PART II     OTHER INFORMATION

Item 6.

Exhibits

  

The following exhibits are filed herewith:

 

Exhibit Number		Document
31.1		Certifications of Principal Executive Officer pursuant to Rule 13a-14(a) or 15d-14(a) under the Securities Exchange Act of 1934, as amended, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2		Certification  of Principal Financial Officer pursuant to Rule 13a-14(a) or 15d-14(a) under the Securities Exchange Act of 1934, as amended, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32.1		Certification of Principal Executive Officer  pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
32.2		Certification Principal Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

 

101.INS*		XBRL Instance Document
101.SCH*		XBRL Taxonomy Extension Schema
101.CAL*		XBRL Taxonomy Extension Calculation
101.DEF*		XBRL Taxonomy Extension Definition
101.LAB*		XBRL Taxonomy Extension Label
101.PRE*		XBRL Taxonomy Extension Presentation

 

* In accordance with Rule 406T of Regulation S-T, the XBRL information in Exhibit 101 to this quarterly report on Form 10-Q shall not be deemed to be “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, as amended (“Exchange Act”), or otherwise subject to the liability of that section, and shall not be incorporated by reference into any registration statement or other document filed under the Securities Act of 1933, as amended, or the Exchange Act, except as shall be expressly set forth by specific reference in such filing.

 

 

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SIGNATURES

 

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has caused this amendment to this report  to be signed on its behalf by the undersigned, thereunto duly authorized.

 

	SOURCE FINANCIAL, INC.
April 30, 2014	By:	/s/ Hugh Evans
		Hugh Evans Chief Executive Officer (Principal Executive Officer)
April 30, 2014	By:	/s/ Brian M. Pullar
		Brian M. Pullar Chief Financial Officer (Principal Financial and Accounting Officer)

 

 

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