ALLTEMP, INC. - FORM 10-Q - November 12, 2015

Attached files

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EX-31.1 - CERTIFICATION - ALLTEMP, INC.	f10q0915ex31i_sourcefin.htm
EX-32.2 - CERTIFICATION - ALLTEMP, INC.	f10q0915ex32ii_sourcefin.htm
EX-32.1 - CERTIFICATION - ALLTEMP, INC.	f10q0915ex32i_sourcefin.htm
EX-31.2 - CERTIFICATION - ALLTEMP, INC.	f10q0915ex31ii_sourcefin.htm

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

FORM 10-Q

☒ Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the quarterly period ended September 30, 2015

☐ Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the transition period from to .

Commission File Number 000-55122

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)

Level 6 / 97 Pacific Highway

North Sydney NSW 2060

Australia

(Address of principal executive offices and zip code)

+61 2 8907-2500

(Registrant’s telephone number, including area code)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company.

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

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date. As of Nov 14, 2015, the Registrant had outstanding 8,791,632 shares of common stock, par value $0.001 per share.

SOURCE FINANCIAL, INC.

FORM 10-Q

CONTENTS

SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS		ii
PART I FINANCIAL INFORMATION		1
Item 1.	Financial statements	1
	Condensed consolidated balance sheet	1
	Condensed consolidated statement of operations and comprehensive loss	2
	Condensed consolidated statement of stockholders’ equity	3
	Condensed consolidated statement of cash flows	4
	Notes to condensed consolidated financial statements	5
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	19
Item 3.	Quantitative and Qualitative Disclosures about Market Risk	30
Item 4.	Controls and Procedures	30
PART II OTHER INFORMATION		31
Item 1A.	Risk Factors	31
Item 5.	Other Information	31
Item 6.	Exhibits	31

SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

This document contains certain statements of a forward-looking nature. Such forward-looking statements, including but not limited to statements regarding projected growth, trends and strategies, future operating and financial results, financial expectations and current business indicators are based upon current information and expectations and are subject to change based on factors beyond the control of the Company. Forward-looking statements typically are identified by the use of terms such as “look,” “may,” “should,” “might,” “believe,” “plan,” “expect,” “anticipate,” “estimate” and similar words, although some forward-looking statements are expressed differently. The accuracy of such statements may be impacted by a number of risks and uncertainties that could cause actual results to differ materially from those projected or anticipated, including but not limited to those set forth herein and in our Annual Report on Form 10-K for the fiscal year ended June 30, 2015 filed on September 17, 2015.

Readers are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date hereof. Except as required by the federal securities laws, we undertake no obligation to update forward-looking information. Nonetheless, the Company reserves the right to make such updates from time to time by press release, periodic report or other method of public disclosure without the need for specific reference to this Report. No such update shall be deemed to indicate that other statements not addressed by such update remain correct or create an obligation to provide any other updates.

PART I FINANCIAL INFORMATION

Item 1. Financial statements

SOURCE FINANCIAL, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEET

	September 30, 2015			June 30, 2015
	(Unaudited)

ASSETS
CURRENT ASSETS
Cash and cash equivalents	$	7,204,670		$	8,075,078
Trade receivables, net		24,404,534			19,651,268
Terminal financing receivables, current, net		123,778			111,364
Inventories		109,776			157,144
Deferred tax asset		210,300			230,400
Other current assets		782,076			779,851
TOTAL CURRENT ASSETS		32,835,134			29,005,105

NON-CURRENT ASSETS
Intangible assets, net		2,623,438			2,914,253
Deferred tax asset		790,309			885,383
Property, plant and equipment, net		282,427			326,899
Terminal financing receivables, non-current, net		164,002			172,068
Investment in equity affiliates		35,854			681
Goodwill		53,005			58,071
TOTAL NON-CURRENT ASSETS		3,949,035			4,357,355

TOTAL ASSETS	$	36,784,169		$	33,362,460

LIABILITIES AND STOCKHOLDERS' EQUITY

CURRENT LIABILITIES
Trade and other payables	$	1,955,549		$	3,114,185
Wholesale loan facility		12,667,828			6,052,789
Cash reserve		1,400,598			1,257,984
TOTAL CURRENT LIABILITIES		16,023,975			10,424,958

NON-CURRENT LIABILITIES
Subordinated notes, net		16,895,026			18,471,471
Shareholder's loan		35,043			38,392
TOTAL NON-CURRENT LIABILITIES		16,930,069			18,509,863

TOTAL LIABILITIES		32,954,044			28,934,821

STOCKHOLDERS' EQUITY
Preferred stock, $0.01 par value, 10,000 shares authorized, designated as Series B Preferred stock, 5,000 issued and outstanding at September 30, 2015 and June 30, 2015.		50			50
Common Stock, $0.001 par value, 12,000,000 shares authorized, 8,791,632 and 7,671,632 issued and outstanding at September 30, 2015 and June 30, 2015, respectively		8,792			7,672
Additional paid-in capital		15,643,102			15,170,976
Other accumulated comprehensive loss		(2,545,508	)		(2,115,049	)
Accumulated deficit		(9,276,311	)		(8,636,010	)
TOTAL STOCKHOLDERS' EQUITY		3,830,125			4,427,639

TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY	$	36,784,169		$	33,362,460

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

SOURCE FINANCIAL, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENT OF OPERATIONS AND COMPREHENSIVE LOSS

FOR THE THREE MONTHS ENDED SEPTEMBER, 2015 AND 2014

(UNAUDITED)

	Three months ended
	September 30, 2015			September 30, 2014

Revenue	$	1,249,573		$	1,143,170
Cost of revenue		933,315			816,818
Gross profit		316,258			326,352

Operating Expenses
Compensation expenses		747,304			337,124
Research and development expense		174,217			130,539
Bad debt expenses		10,244			85,625
Bad debts recovered		-			(17,672	)
Professional expenses		67,702			85,004
Occupancy expenses		66,663			62,523
Depreciation expense		8,055			18,430
General and administration expenses		52,829			126,952
Total operating expenses		1,127,014			828,525
Loss from operations		(810,756	)		(502,173	)

Other Income (Expense)
Research and development grant		119,757			152,675
Interest income		37,649			29,992
Gain on equity method investment		36,479			-
Other income (expense)		(4,965	)		(2,463	)
Total Other Income		188,920			180,204

Loss from operations before income taxes		(621,836	)		(321,969	)

Provision for income taxes		18,465			5,837

Net loss		(640,301	)		(327,806	)

Other comprehensive loss
Foreign currency translation		(430,459	)		(494,802	)

Comprehensive loss	$	(1,070,760	)	$	(822,608	)

Net loss per share
Basic and Diluted:	$	(0.081	)	$	(0.043	)

Weighted average number of shares used in computing basic and diluted net (loss) per share:

Basic		7,927,284			7,671,632
Diluted		7,927,284			7,671,632

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

SOURCE FINANCIAL, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY

(UNAUDITED)

	Common Stock				Preferred Stock				Additional		Comprehensive			Accumulated			Stockholders'
	Shares		Amount		Shares		Amount		Paid in Capital		Loss			Deficit			Equity

Balance June 30, 2015		7,671,632		7,672		5,000		50		15,170,976		(2,115,049	)		(8,636,010	)		4,427,639

Issuance of stock options		-		-		-		-		25,246		-			-			25,246

Stock-based compensation		1,120,000		1,120		-		-		446,880		-			-			448,000

Net loss for the three months ended September 30, 2015		-		-		-		-		-		(430,459	)		(640,301	)		(1,070,760	)

Balance September 30, 2015		8,791,632	$	8,792		5,000	$	50	$	15,643,102	$	(2,545,508	)	$	(9,276,311	)	$	3,830,125

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

SOURCE FINANCIAL, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS

(UNAUDITED)

	Three months ended
	September 30, 2015			September 30, 2014


Net loss	$	(640,301	)	$	(327,806	)

Adjustments to reconcile net loss to net cash (used in) operating activities
Depreciation and amortization		160,593			197,872
Subordinated notes costs amortization		36,237			-
Stock options issued for compensation		25,246			37,869
Stock-based compensation		448,000			-
Gain on equity method investment		(36,479	)		-

(Increase) decrease in assets:
Trade receivables, net		(6,696,447	)		2,150,114
Inventories		34,849			(3,857	)
Deferred tax asset		18,464			5,906
Financing receivables		(30,104	)		-
Other assets		(67,477	)		(116,014	)
(Decrease) increase in current liabilities:
Trade payables		(975,258	)		(2,774,288	)
Net cash used in operating activities		(7,722,677	)		(830,204	)

Cash flows from investing activities
Purchase of property, plant and equipment		(11,284	)		(1,497	)
Development of intangible assets		(94,921	)		(183,553	)
Net cash used in investing activities		(106,205	)		(185,050	)

Cash flows from financing activities
Wholesale loan facility, net		7,395,791			(2,645,463	)
Capital Reserve		261,288			501,649
Net cash provided by (used in) financing activities		7,657,079			(2,143,814	)

Effect of exchange rate changes on cash and cash equivalents		(698,605	)		(589,911	)
Net decrease in cash and cash equivalents		(870,408	)		(3,748,979	)
Cash and cash equivalents at beginning of period		8,075,078			10,730,743
Cash and cash equivalents at the end of the period	$	7,204,670		$	6,981,764

Supplemental disclosures
Cash paid during the period for:
Income tax payments	$	-		$	-
Interest payments	$	538,371		$	457,756

Supplemental schedule of non-cash financing activities:
Issuance of stock-based compensation	$	448,000		$	-
Issuance of stock options	$	25,246		$	37,869

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

SOURCE FINANCIAL, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Note 1 – BASIS OF PRESENTATION AND ORGANIZATION

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 financial statements and the notes thereto, included in the Company’s Annual Report on the Form 10-K for the fiscal year ended June 30, 2015. 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, 2015 included in the Company’s Annual Report on Form 10-K filed with the Securities and Exchange Commission. 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, 2015 are not necessarily indicative of the results that may be expected for the year ending June 30, 2016.

When used in these notes, the terms "Company," "we," "our," or "us" mean Source Financial, Inc. and its subsidiaries.

Note 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

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 and Moneytech USA, collectively referred to as the Company. 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, 2015 and 2014, 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 Limited 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, stockholders’ 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 business unit.

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.

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 uses the asset and liability method to account for income taxes as prescribed by Accounting Standards Codification (“ASC”) 740, Income Taxes. Deferred tax assets and liabilities are determined based on the difference between the financial statement and tax bases of assets and liabilities as measured by the enacted tax rates which will be in effect when these differences reverse. Deferred tax expense (benefit) is the result of changes in deferred tax assets and liabilities. Deferred income tax assets and liabilities are adjusted to recognize the effects of changes in tax laws or enacted tax rates in the period during which they are signed into law.

The Company may recognize the tax benefit from an uncertain tax position claimed on a tax return only if it is more likely than not that the tax position will be sustained on examination by the taxing authorities, based on the technical merits of the position. The tax benefits recognized in the financial statements from such a position should be measured based on the largest benefit that has a greater than 50% likelihood of being realized upon ultimate settlement. The authoritative standards issued by the Financial Accounting Standards Board (“FASB”) also provide guidance on de-recognition, classification, interest and penalties on income taxes, accounting in interim periods and requires increased disclosures. The factors used to assess the likelihood of realization are the Company’s forecast of future taxable income and available tax planning strategies that could be implemented to realize the net deferred tax assets. Under ASC 740, Income Taxes, a valuation allowance is required when it is more likely than not that all or some portion of the deferred tax assets will not be realized through generating sufficient future taxable income. Failure to achieve forecasted taxable income in applicable tax jurisdictions could affect the ultimate realization of deferred tax assets and could result in an increase in the Company’s effective tax rate on future earnings.

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

Loss contingencies, including litigation related contingencies, are included in the Consolidated Statements of Operations when the Company concludes that a loss is both probable and reasonably estimable. Legal fees related to litigation-related matters are expensed as incurred and included in the Consolidated Statements of Operations under the Selling, general and administrative line item. No amount for loss was recorded as of September 30, 2015 and 2014.

Cash and Cash Equivalents

The Company considers all highly liquid investments with original maturities less than or equal to three months at the date of purchase to be cash and cash equivalents. Cash and cash equivalents are stated at cost, which approximates fair value, and consist of bank deposits and certificates of deposit that are readily convertible into cash. The Company maintains its cash deposits and cash equivalents at well-known, stable financial institutions in Australia and not covered by insurance.

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.

Bad Debt Insurance

As a condition of the RPA (see Note 10) and Subordinated Notes (see Note 12), Moneytech maintains credit insurance on the receivables due Moneytech from its customers or their counterparties. Pursuant to this policy, Moneytech would bear the first $500,000 of aggregate losses incurred due to defaults in any calendar year, after which any bad debt losses are reimbursed by the insurance company. This policy is renewed annually. A receivable from the insurance company is recognized when the criteria set forth in the policy, inclusive of bad debt expenses in excess of $500,000 in any year, are met. The amount recorded as a receivable is offset against bad debt expense. As of September 30, 2015 and June 30, 2015 the Company had no insurance claim receivables.

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, 2015 and June 30, 2015, 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, 2015 and June 30, 2015, Property, Plant & Equipment consisted of the following:

	September 30			June 30
	2015			2015
Office equipment	$	27,593		$	30,230
Furniture and fixtures		176,913			193,822
Terminals		41,515			45,483
Computers and software		1,085,448			1,177,253
Accumulated Depreciation		(1,049,042	)		(1,119,889	)
	$	282,427		$	326,899

For the three months ended September 30, 2015 and 2014, depreciation expense consisted of the following:

	Three months ended
	September 30
	2015		2014
Depreciation, cost of revenue	$	22,305	$	29,130
Depreciation, operating		8,055		18,430
Total depreciation expense	$	30,360	$	47,560

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.

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, 2015 and June 30, 2015, 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 forth the computation of basic and diluted earnings per share for the three months ended September 30, 2015 and 2014:

	Three months ended
	September 30			September 30
	2015			2014

Net loss	$	(640,301	)	$	(327,806	)

Weighted average number of shares used in computing basic and diluted net loss per share:
Basic		7,927,284			7,671,632
Dilutive effect of stock options		-			-
Diluted		7,927,284			7,671,632

Net loss per share
Basic and diluted:	$	(0.081	)	$	(0.043	)

Options to purchase up to 143,650 and 120,737 shares of common stock were anti-dilutive during the three months ended September 30, 2015 and 2014 respectively.

Goodwill

Goodwill, which represents the excess of purchase price over the fair value of net assets acquired, is carried at cost. Goodwill is tested for impairment on an annual basis during the fourth quarter of each fiscal year or more frequently if events or changes in circumstances indicate that the asset might be impaired. The Company first performs a qualitative assessment to determine if the quantitative impairment test is required. If changes in circumstances indicate an asset may be impaired, the Company performs the quantitative impairment test. In accordance with accounting standards, a two-step quantitative method is used for determining goodwill impairment. In the first step, we determine the fair value of our reporting unit (generic pharmaceuticals). If the net book value of our reporting unit exceeds its fair value, we would then perform the second step of the impairment test which requires allocation of our reporting unit’s fair value to all of its assets and liabilities using the acquisition method prescribed under authoritative guidance for business combinations. Any residual fair value is allocated to goodwill. An impairment charge is recognized only if the implied fair value of our reporting unit’s goodwill is less than its carrying amount.

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, 2015.

Stock-Based Compensation

Stock-based compensation costs are recognized over the vesting period, using a straight-line method, based on the fair value of the instrument on the date of grant less an estimate for expected forfeitures. The Company uses the Black-Scholes valuation model to determine the fair value of stock options and the stock price on the grant date to value restricted stock. The Black-Scholes valuation model includes various assumptions, including the expected volatility, the expected life of the award, dividend yield, and the risk-free interest rate. These assumptions involve inherent uncertainties based on market conditions which are generally outside the Company’s control. Changes in these assumptions could have a material impact on share-based compensation costs recognized in the financial statements.

Recently Issued Accounting Pronouncements

There have been no new accounting pronouncements during the three months ended September 2015 that we believe would have a material impact on our financial position or results of operations.

Reclassification

Certain prior year amounts have been reclassified for consistency with the current period presentation. These reclassifications had no effect on the reported results of operations or cash flow.

Note 3 – TRADE RECEIVABLES, NET

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. The assessment includes actually incurred historical data as well as current economic conditions. 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 30 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.

Trade receivables that are past their normal payment terms are overdue and once 30 days past due are considered delinquent. Minimum payment terms vary by product. The maximum payment term for all products is 122 days. All trade receivables that are overdue are individually assessed for impairment.

Trade receivables are placed on non-accrual status when legal action commences. Payments received while on non-accrual status will be allocated to the oldest amount outstanding. Accrual of interest will not resume until all amounts owing have been settled.

As of September 30, 2015 and June 30, 2015, trade receivables consist of the following:

	September 30			June 30
	2015			2015
Trade receivables	$	24,927,321		$	20,231,293
Allowance for bad debt		(522,787	)		(580,025	)
Total trade receivables, net	$	24,404,534		$	19,651,268

AGE ANALYSIS OF PAST DUE TRADE RECEIVABLES	September 30		June 30
	2015		2015

1 - 30 Days Past Due	$	708,025	$	665,728
31 - 60 Days Past Due		424,681		86,328
Greater than 60 Days Past Due		1,360,039		916,106
Total Past Due		2,492,745		1,668,162
Current		22,434,576		18,563,131
Total Trade Receivables	$	24,927,321	$	20,231,293
Recorded Investment > 60 Days and accruing	$	703,960	$	268,375

ALLOWANCE FOR DOUBTFUL DEBTS	Three months ended			Three months ended
	September 30			September 30
	2015			2014

Allowance for doubtful debts
Beginning balance	$	580,025			711,437
Charge-offs		(14,213	)		(4,571	)
Recoveries		-			-
Provision		7,341			87,355
Other comprehensive income (fx differences)		(50,366	)		(54,932	)
Ending balance	$	522,787		$	739,289

Ending balance - individually evaluated for impairment	$	489,135		$	710,109
Ending balance - collectively evaluated for impairment	$	33,652		$	29,180

Reconciliation to bad debts expense in the Statement of Operations

Provision	$	7,341	$	87,355
Other bad debt expenses / credits not reflected in provision		2,903		(1,730	)
Bad debts expense per Statement of Operations	$	10,244	$	85,625

Bad debt expenses not reflected in the provision include direct costs associated with pursuing an overdue receivable. If these costs are recovered they result in a credit.

TRADE RECEIVABLE BALANCES ASSESSED FOR IMPAIRMENT	September 30		June 30
	2015		2015

Ending balance	$	24,927,321	$	20,231,293
Ending balance - individually evaluated for impairment	$	548,562	$	639,279
Ending balance - collectively evaluated for impairment	$	24,378,759	$	19,592,014

TRADE RECEIVABLES ON A NON ACCRUAL BASIS	September 30		June 30
	2015		2015

Trade receivables	$	548,562	$	639,279
Total Financing Receivables	$	548,562	$	639,279

IMPAIRED LOANS	September 30, 2015
	Recorded Investment		Unpaid principal balance		Related allowance		Average recorded investment		Interest income recognised

With no allowance recorded
Trade receivables	$	-	$	-	$	-	$	-	$	-
	$	-	$	-	$	-	$	-	$	-
With an allowance recorded
Trade receivables	$	548,562	$	361,127	$	497,372	$	545,360	$	-
	$	548,562	$	361,127	$	497,372	$	545,360	$	-
Total
Trade receivables	$	548,562	$	361,127	$	497,372	$	545,360	$	-
	$	548,562	$	361,127	$	497,372	$	545,360	$	-

IMPAIRED LOANS	June 30, 2015
	Recorded Investment		Unpaid principal balance		Related allowance		Average recorded investment		Interest income recognised

With no allowance recorded
Trade receivables	$	-	$	-	$	-	$	-	$	-
	$	-	$	-	$	-	$	-	$	-
With an allowance recorded
Trade receivables	$	639,279	$	441,661	$	552,180	$	756,900	$	8,478
	$	879,969	$	441,661	$	552,180	$	756,900	$	8,478
Total
Trade receivables	$	879,969	$	441,661	$	552,180	$	756,900	$	8,478
	$	879,969	$	441,661	$	552,180	$	756,900	$	8,478

Note 4 – TERMINAL FINANCING RECEIVABLES, NET

The Company, as lessor, entered into terminal lease agreements, which were recorded as sales type leases, during the three months ended September 30, 2015. The following are balances due as of September 30, 2015 and June 30, 2015. The leases require monthly payments, have a term of 30 months and bear interest at an effective rate of 12.49% per annum.

	September 30		June 30
	2015		2015
Current	$	123,778	$	111,364
Non-current		164,002		172,068
	$	287,780	$	283,432

Terminal financing receivables repayments schedule.

Years ending:
September 30, 2016	$	123,778
September 30, 2017		139,238
September 30, 2018		24,764
	$	287,780

Note 5 – INVENTORY

Inventory consists of the following as of September 30, 2015 and June 30, 2015:

	September 30		June 30
	2015		2015
Terminals	$	100,558	$	146,650
Prepaid gift cards or other		9,218		10,494
	$	109,776	$	157,144

Note 6 – OTHER ASSETS

Other assets consist of the following as of September 30, 2015 and June 30, 2015:

	September 30		June 30
	2015		2015
Research & development grant receivable	$	622,511	$	555,289
Prepayment		32,711		53,561
Other assets		126,854		171,001
	$	782,076	$	779,851

Note 7 – INTANGIBLE ASSETS

Intangible assets consist of the following as of September 30, 2015 and June 30, 2015:

	September 30			June 30
	2015			2015
Moneytech and mPayments software	$	5,453,395		$	5,874,178
Accumulated amortization		(2,829,957	)		(2,959,925	)
	$	2,623,438		$	2,914,253

The intangible assets are amortized over 10-12 years. Amortization expense of $130,233 and $150,312 was included in cost of revenues for the three months ended September 30, 2015 and 2014, respectively.

Amortization for the Company’s intangible assets over the next five fiscal years from September 30, 2015 is estimated to be:

Years ending September 30,
2016	$	506,411
2017		506,411
2018		506,411
2019		506,411
2020		506,411
Thereafter		91,383
Total	$	2,623,438

Note 8 – GOODWILL

As of September 30, 2015 and June 30, 2015, the Goodwill was comprised of the following:

	September 30			June 30
	2015			2015
Acquisition cost of Moneytech POS Pty Ltd.	$	75,358		$	82,560
Fixed assets received		(41,982	)		(45,994	)
Liability assumed		19,629			21,505
Acquisition cost assigned to goodwill	$	53,005		$	58,071

Note 9 – TRADE AND OTHER PAYABLES

As of September 30, 2015 and June 30, 2015, trade and other payables consist of the following:

	September 30		June 30
	2015		2015
Trade payables	$	767,387	$	1,923,404
Accrued consulting costs		561,073		561,073
Employee benefits		240,287		245,159
Other liabilities		386,802		384,549
Total payables	$	1,955,549	$	3,114,185

Note 10 – LINE OF CREDIT AND CASH RESERVE LIABILITIES

	September 30		June 30
	2015		2015
Wholesale loan facility	$	12,667,828	$	6,052,789
Cash reserve from customers		1,400,598		1,257,984
	$	14,068,426	$	7,310,773

Wholesale Loan Facility

The Company had a secured line of credit under a Receivables Purchase Agreement (“RPA”) with a bank in Sydney Australia for up to AUD$25 million as of September 30, 2015 and June 30, 2015. 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 renewed annually on an agreed anniversary date, the latest of which was December 15, 2014. The facility has been renewed until December 31, 2015. Interest expense charged to cost of revenue related to the loan for the three months ended September 30, 2015 and 2014 was USD $167,498 and USD $457,756 respectively.

On April 10, 2015 the Company issued AUD $25 million of subordinated notes. Subsequent to the issue of the subordinated notes, as of April 16, 2015, the RPA interim, agreed upon, facility limit was decreased from AUD $40 million to AUD $25 million.

Cash reserve from customers

The Company is required to maintain certain cash reserves with its senior debt provider in accordance with the RPA. 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 11 – SHAREHOLDER’S LOAN

	September 30		June 30
	2015		2015
Shareholder's loan	$	35,043	$	38,392

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, 2017. Interest of 8% is only payable if Moneytech has positive retained earnings at the time of repayment.

Note 12 – SUBORDINATED NOTES, NET

	September 30			June 30
	2015			2015
Subordinated notes issued	$	17,525,000		$	19,200,000
Issuance costs		(699,972	)		(766,873	)
Subordinated notes, net proceeds	$	16,825,028		$	18,433,127
Issuance costs amortised		69,998			38,344
Subordinated notes, net	$	16,895,026		$	18,471,471

In April 2015 the Company issued AUD $25 million of subordinated notes. The notes mature in 7 years and have similar conditions, including financial covenants and restrictions as to use of proceeds, to the wholesale facility and are sub-ordinate to that facility. The costs of the subordinated notes issuance were AUD $998,533 and the proceeds to the company were AUD $24,001,467. The subordinated notes bear interest at a rate of 4.65% per annum above the Australian BBSW rate. The BBSW rate as of the date of settlement, April 10, 2015, was 2.26% per annum. The notes can be redeemed early at increased cost to the Company or at the request of the holder in the event of a change in control.

	Three months ended
	September 30
	2015		2014
Issuance costs amortized during the year	$	36,237	$	-
Interest paid during the year		334,636		-
Reported as Interest expense in cost of revenue	$	370,873	$	-

Interest expense charged to cost of revenue related to the notes for the three months ended September 30, 2015 was $370,873.

Note 13 – STOCKHOLDERS’ EQUITY

Preferred Stock

The Company has 10,000 shares of Preferred Stock authorized, each having a par value of $0.01. Of the 10,000 shares, 5,000 were designated Series B Preferred Stock of which 5,000 shares were issued and outstanding as of September 30, 2015 and June 30, 2015 (the “Series B Preferred Shares”). Under the terms of the Series B Preferred Stock Certificate of Designation, the holder(s) of the Series B Preferred Shares 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 Stock”) with each vote per share of Series B Preferred Stock 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 Class 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.

Common Stock

The Company had 12,000,000 shares and 50,000,000 shares of Common Stock authorized, each having a par value of $0.001, as of September 30, 2015 and June 30, 2015 after giving effect to the change in authorized shares discussed below. All authorized shares have been retroactively restated for the reduction in both periods presented. There were 8,791,632 and 7,671,632 shares issued and outstanding as of September 30, 2015 and June 30, 2015.

On October 3, 2013, the Company amended and restated its 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.

On October 29, 2013, 150,000 shares which had previously been issued to contractors were cancelled because performance criteria relating to the issuance of these shares had not been met.

On February 11, 2014, 2,140,000 shares which had previously been issued to Edward DeFeudis and Marco Garibaldi were returned for cancellation as per the terms of the Separation agreement.

On February 11, 2014, 100,000 of the shares returned in the Separation Agreement were issued to a note holder.

On July 16, 2015 the number of authorized shares of common stock was reduced from 50,000,000 to 12,000,000 shares and the number of authorized shares of preferred stock was reduced from 1,000,000 to 10,000 shares.

On September 9, 2015 the Board of Directors awarded an Officer 960,000 and a Director 160,000 restricted shares at a fair value of $0.40 per share.

Note 14 – STOCK COMPENSATION

Restricted shares

On September 9, 2015 the Board of Directors awarded an Officer 960,000 and a Director 160,000 restricted shares at a fair value of $0.40 per share or $448,000. The restricted shares were awarded for services rendered.

Note 15 – STOCK OPTIONS

On April 19, 2013, the Company entered into an agreement with a software developer. Upon achievement of certain milestones, the contractor could receive up to 100,000 Performance Based Stock Options at an exercise price of $2.50 per share. The options vested and became exercisable immediately upon grant with a 3 year life. As of June 30, 2015, 14,500 of the Performance Based Stock Options are vested. No additional shares can be vested. The Fair Value 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 Fair Value 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 $2.02 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 Fair Value 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 Fair Value of options was $454,500. In May 2015, a non-employee director resigned. At that time, 41,660 options were vested. The vested options were not exercised within the three month period of his resignation and those options were forfeited.

On August 22, 2013, the Company granted 25,000 Stock Options to a contractor. These Stock Options are exercisable at an exercise price of $1.30 per share. The options vested and became exercisable immediately upon granting and continue in force through August 22, 2016 (the "Expiration Date"), unless sooner terminated as provided by the agreement. The Fair Value 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 Fair Value of options was $32,500.

On September 9, 2015, the Company granted 75,000 Stock Options to each of the two non-employee directors pursuant to the Omnibus Incentive Plan. These Stock Options are exercisable at an exercise price of $0.40 per share. The options vest as to 6,250 shares per non-employee director on October 31, 2015, and as to an additional 6,250 shares each on the last day of each calendar month thereafter through and including September 30, 2016. The options become exercisable for the first time on March 9, 2016, to the extent vested, and continue in force through September 9, 2025 (the "Expiration Date"), unless sooner terminated as provided herein and in the Plan. The Fair Value of the options was calculated using the following assumptions: estimated life of seven years, volatility of 94%, risk free interest rate of 1.91%, dividend yield of 0% and forfeiture rate of 10%. The grant date Fair Value of options was $38,892.

On September 9, 2015, the Company granted 1,000,000 Stock Options to Hugh Evans pursuant to the Omnibus Incentive Plan. These Stock Options are exercisable at an exercise price of $0.44 per share. The options vest as to 41,640 shares on October 31, 2015, and as to an additional 41,640 shares each on the last day of each calendar month thereafter through and including May 31, 2016 and as to an additional 41,680 shares on the last day of each calendar month thereafter through and including September 30, 2017. The options become exercisable for the first time on March 9, 2016, to the extent vested, and continue in force through September 9, 2025 (the "Expiration Date"), unless sooner terminated as provided herein and in the Plan. The Fair Value of the options was calculated using the following assumptions: estimated life of seven years, volatility of 94%, risk free interest rate of 1.91%, dividend yield of 0% and forfeiture rate of 10%. The grant date Fair Value of options was $256,066.

On September 9, 2015, the Company granted 1,075,000 Stock Options to employees pursuant to the Omnibus Incentive Plan. These Stock Options are exercisable at an exercise price of $0.40 per share. The options vest as to 44,771 shares on October 31, 2015, and as to an additional 44,771 shares each on the last day of each calendar month thereafter through and including May 31, 2016 and as to an additional 44,802 shares on the last day of each calendar month thereafter through and including September 30, 2017. The options become exercisable for the first time on March 9, 2016, to the extent vested, and continue in force through September 9, 2025 (the "Expiration Date"), unless sooner terminated as provided herein and in the Plan. The Fair Value of the options was calculated using the following assumptions: estimated life of seven years, volatility of 94%, risk free interest rate of 1.91%, dividend yield of 0% and forfeiture rate of 10%. The grant date Fair Value of options was $278,724.

The Company recorded $25,246 and $37,869 option expense in the three months ended September 30, 2015 and 2014, respectively.

The following is a summary of the activity in the three months ended September 30, 2015 and 2014.

	Three months ended
	September 30			September 30
	2015			2014
Outstanding at July 1		350,000			100,000
Granted		2,225,000			250,000
Exercised		-			-
Expired		-			-
Forfeitures		(75,000	)		-
Outstanding at September 30		2,500,000			350,000
Exercisable at September 30		143,650			120,737

Options outstanding at September 30, 2015 and June 30, 2015 are as follows:

Weighted

Average

Weighted

Remaining

Average

Life

Exercise

Options

(Years)

Price

Options

Price

As of

Exercise Price

(Outstanding)

(Exercisable)

September 30, 2015

0.40 to $2.50

2,500,000

9.48

0.54

143,650

1.93

June 30, 2015

1.30 to $2.50

350,000

4.41

1.96

172,812

1.94

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 16 – RELATED PARTY TRANSACTIONS

During the three months ended September 30, 2015 and 2014, the Company paid a company controlled by the President of Moneytech for consulting services $0 and $73,381, respectively. This arrangement was terminated as of January 31, 2015.

Note 17 – INCOME TAX

The following is the income tax expense reflected in the Statement of Operations for the three months ended September 30, 2015 and 2014:

INCOME TAX EXPENSE	Three months ended				Three months ended				Three months ended
	September 30				September 30				September 30
	2015		2014		2015		2014		2015		2014
	Australia				United States				Total
Income tax expense - current	$	-	$	-	$	-	$	-	$	-	$	-
Income tax expense - deferred		18,465		5,837		-		-		18,465		5,837
Total	$	18,465	$	5,837	$	-	$	-	$	18,465	$	5,837

The following are the components of income before income tax reflected in the Statement of Operations for the three months ended September 30, 2015 and 2014:

COMPONENTS OF INCOME BEFORE INCOME TAX	Three months ended						Three months ended						Three months ended
	September 30						September 30						September 30
	2015			2014			2015			2014			2015			2014
	Australia						United States						Total
Loss before Income tax	$	(87,014	)	$	(109,441	)	$	(534,822	)	$	(212,528	)	$	(621,836	)	$	(321,969	)

Income tax	$	18,465		$	5,837		$	-		$	-		$	18,465		$	5,837
Effective tax rate		(21	)%		(5	)%		-	%		-	%		(3	)%		(2	)%

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, 2015 and 2014:

INCOME TAX RATE RECONCILIATION	Three months ended						Three months ended						Three months ended
	September 30						September 30						September 30
	2015			2014			2015			2014			2015			2014
	Australia						United States						Total
US statutory rates		34	%		34	%		34	%		34	%		34	%		34	%
Tax rate difference		(4	)%		(4	)%		(4	)%		(4	)%		(4	)%		(4	)%
Research and development grant income		41	%		42	%		-	%		-	%		6	%		14	%
Research and development grant eligible expenditure		(60	)%		(36	)%		-	%		-	%		(8	)%		(12	)%
Research and development grant eligible amortisation		(44	)%		(34	)%		-	%		-	%		(4	)%		(14	)%
USA losses		-	%		-	%		(30	)%		(30	)%		(27	)%		(20	)%
Other		12	%		-	%		-	%		-	%		-	%		-	%
Tax expenses at actual rate		(21	)%		2	%		-	%		-	%		(3	)%		(2	)%

The following are the components of deferred tax reflected in the Statement of Operations for the three months ended September 30, 2015 and 2014:

COMPONENTS OF DEFERRED TAX EXPENSE	Three months ended						Three months ended				Three months ended
	September 30						September 30				September 30
	2015			2014			2015		2014		2015			2014
	Australia						United States				Total
Tax losses carried forward	$	19,328		$	37,702		$	-	$	-	$	19,328		$	37,702
Doubtful debts reserve		7,453			(13,824	)		-		-		7,453			(13,824	)
Accruals		(8,316	)		(18,041	)		-		-		(8,316	)		(18,041	)
	$	18,465		$	5,837		$	-	$	-	$	18,465		$	5,837

The following are the components of deferred tax reflected in the Balance Sheet As of September 30, 2015 and June 30, 2015:

COMPONENTS OF DEFERRED TAX ASSET	September 30		June 30		September 30		June 30		September 30		June 30
	2015		2015		2015		2015		2015		2015
	Australia				United States				Total
Tax losses carried forward	$	782,936	$	875,244	$	-	$	-	$	782,936	$	875,244
Doubtful debts reserve		151,877		174,008		-		-		151,877		174,008
Accruals		65,797		66,587		-		-		65,797		66,587
	$	1,000,609	$	1,115,839	$	-	$	-	$	1,000,609	$	1,115,839

Deferred tax assets - current	$	210,300	$	230,400	$	-	$	-	$	210,300	$	230,400
Deferred tax assets - non current		790,309		885,439		-		-		790,309		885,439
	$	1,000,609	$	1,115,839	$	-	$	-	$	1,000,609	$	1,115,839

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 estimates the Company are using to manage the underlying businesses. In evaluating the objective evidence that historical results provide, the Company considers three years of cumulative operating income (loss).

As of September 30, 2015, Moneytech had approximately $2,609,785 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, 2015, Source had federal NOL’s of approximately $15.4 million dollars to offset future taxable income in the US. Federal NOLs can generally be carried forward 20 years. However, for changes in ownership like the merger, Internal Revenue Code section 382 places limitations on the utilization of federal NOL’s generated prior to the change in ownership. As of September 30, 2015 Source had Federal NOL’s of approximately $13 million that were generated prior to the merger and Source may only use approximately $161,500 per year of these NOL’s. As of September 30, 2015 Federal NOL’s of approximately $2,381,237 had been generated subsequent to the merger and are not subject to the Internal Revenue Code section 382 limitation. The deferred tax assets of the US entities at September 30, 2015 were fully reserved. Management believes it is more likely than not that these assets will not be realized in the near future.

Note 18 – 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 at its fair value of $0. The investment is accounted for by the equity method since the Company obtained a 37.5% equity interest.

360 incurred continuous losses from inception through December 31, 2014, and as a result the Company did not recognize any income or return from the investment for the periods ended December 31, 2014 and earlier 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 for periods through December 31, 2014.

During the year ended June 30, 2015, 360 was profitable and absorbed its accumulated losses.

The Company expects this performance to continue and as a result the Company commenced recording 37.5% of the accumulated profits to date as income in the year ended June 30, 2015. A gain on equity method investment of $36,479 has been reported in the Statement of Operations and Comprehensive Loss for the three months ended September 30, 2015. As a result of the current period 360 profits the Company has recorded an Investment in equity affiliate of $35,854 in the Balance Sheet as at September 30, 2015.

Note 19 – COMMITMENTS

The Company leases two offices in Australia under renewable operating leases expiring on August 31, 2016 and October 31, 2015.

Our corporate Australian headquarters are located at Level6/97 Pacific Highway, North Sydney NSW 2060 Australia, where we lease approximately 350 square meters of office and operations space pursuant to lease agreements expiring in August 2016. The annual rent for the premises is AUD $168,725. During the three months ended we closed our office in on Albany Highway, Victoria Park, Western Australia and have no lease commitments with regard to these premises as of September 30, 2015.

For the three months ended September 30, 2015 and 2014, the aggregate rental expense was USD $32,496 and USD $37,558, respectively.

Future minimum rental payments required under operating leases as of September 30, 2015 are as follows:

Year ended

September 30, 2016

$107,256

Note 20 – SUBSEQUENT EVENTS

Management has evaluated events subsequent through November 12, 2015 for transactions and other events that may require adjustment of and/or disclosure in such financial statements. We have nothing to report in this regard.

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, 2015. 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

We provide commercial asset based lending including accounts receivable and trade financing and other financial services to small to medium sized businesses and individuals in Australia through Moneytech Limited and its subsidiaries, Moneytech POS Pty Ltd and mPayments Pty Ltd with a focus on utilizing leading edge technology to deliver these services.

Moneytech commenced operations in 2003 as an Australian based, technology driven, commercial finance company. Since 2005 Moneytech has had a securitized wholesale debt facility (the “Wholesale Facility,” “Receivables Purchase Agreement” or “RPA”) with Westpac, which had an AUD $40 million interim agreed upon limit but which was reduced to AUD $25 million in conjunction with the April, 2015 issuance by the Company of AUD $25 million of its subordinated debt securities. Moneytech Limited has been in operation for over twelve years and has operated profitably in five of the last six years.

The Company issued AUD $25 million of debt securities in a private placement completed in Australia in April 2015. The notes mature in 7 years and have similar conditions, including financial covenants and use of proceeds, to the wholesale facility and are subordinate to that facility. The costs of the Subordinated Note issuance were AUD $998,533 million and the proceeds to the company were AUD $24,001,467 million. The Subordinated Notes bear interest at a rate of 4.65% per annum above the Australian BBSW rate. The BBSW rate as of the date of settlement, April 10, 2015, was 2.26% per annum. The Notes can be redeemed early at increased cost to the Company or at the request of the holder in the event of a change in control.

Moneytech uses the proceeds of the Wholesale Facility and the Subordinated Notes to offer asset based, trade finance or accounts receivable finance and working capital solutions to small and medium enterprises (“SME’s”) throughout Australia.

The advantages to the Company of the issuance of the Subordinated Notes include removing reliance on a single source of funding with the uncertainty of an annual renewal event and the removal of delays associated with wholesale facility approval requirements for new customers. Credit insurance is required and obtained on the same terms as the existing wholesale facility.

The funding provided by the Subordinated Notes provides the Company with the ability to identify and underwrite new customers according to the Companies’ existing policies. The proceeds will allow the Company to expand its commercial asset based lending activities.

To distinguish itself from traditional asset based lenders, and to manage and facilitate the advance of money to its customers, Moneytech has developed, operates and maintains its own real time core money transfer platform called The Moneytech Exchange. The Moneytech Exchange stores and tracks every invoice and payment entered into the system and automatically communicates with the major Australian transactional banks to settle thousands of transactions per day, in real time. The Moneytech Exchange is fully automated, real time and online. Human intervention only occurs to manage exceptions and provide necessary transaction approvals or authorizations.

Our objective is to become a leading provider of commercial lines of credit and financial services, in particular money transfer services, to small and medium businesses, and individuals in Australia. We seek to differentiate our services by developing and utilizing leading edge technologies to deliver our services. Moneytech currently provides asset based lines of credit in Australia using funds made available under its RPA with Westpac and from the issuance of its Subordinated Notes. We also provide payment processing (money transfer) solutions in Australia. We are seeking financing to expand Moneytech’s asset based credit solutions operations in Australia through a combination of organic growth and strategic acquisitions and we are considering introducing those operations in the United States, most likely through a strategic acquisition. We do not have any understandings, commitments or understandings with respect to any acquisitions.

Principal factors affecting result of operations

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 interest income, finance charges and fee income earned on the funds we lend and the interest, finance charges and fees incurred on our Wholesale Facility and Subordinated Notes, 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 based line of credit is priced based on an industry and individual customer risk profile developed by us. Delinquencies negatively impact our business performance. Our profitability is directly connected to our 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 business that has financing requirements (in terms of size and time to funding) that make them ineligible candidates for loans from larger Australian commercial banks. Our lending criteria have, to date, resulted in a relatively low level of overdue and delinquent balances and corresponding minimizing of bad debt. We extend Credit for a maximum of 122 days. Amounts outstanding beyond their due date are considered overdue and amounts overdue for more than 30 days are considered delinquent. We monitor credit quality within our portfolio by observing trends in “average collection periods” “Days Sales Outstanding,” delinquent balances as a percentage of our portfolio and single obligor concentration limits and expect our bad debt to be approximately 0.15% of amounts funded. We assess the recoverability of each delinquent balance and overall customer balances when determining the required amount of bad debt reserve.

●

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 Moneytech 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 to prepare the consolidated financial statements included in this Report. All assets and liabilities were translated at the exchange rate at the date of each balance sheet, stockholders’ equity is translated at the historical rates as of the date of each balance sheet 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, 2015 (“Q1 2016”) and 2014 (“Q1 2015”) respectively. This discussion should be read in conjunction with the consolidated financial statements and notes thereto contained elsewhere in this report.

First quarter fiscal 2016 v first quarter fiscal 2015

Set forth below are certain items from our operating statements in our presentation currency, United Stated Dollars (“US$”), for the three months ended September 30, 2015 and 2014:

	For the three months ended						$			%
	September 30						Increase			Increase
	2015			2014			(Decrease)			(Decrease)
	USD			USD			USD
Revenue	$	1,249,573		$	1,143,170		$	106,403			9	%
Confirmed capital and credit express		1,050,267			1,027,405			22,862			2	%
Interest revenue		530,509			636,817			(106,308	)		(17	)%
Fees		501,976			388,737			113,239			29	%
Other revenue		17,782			1,851			15,931			861	%
Payment services		175,512			96,120			79,392			83	%
Terminal sales and transactions		135,114			19,195			115,919			604	%
Hubbed		31,773			56,451			(24,678	)		(44	)%
Giftcard program revenue		8,625			20,474			(11,849	)		(58	)%
Other revenue		23,794			19,645			4,149			21	%
360FX customer referral		23,269			18,846			4,423			23	%
Foreign exchange		525			530			(5	)		(1	)%
Other revenue		-			269			(269	)		(100	)%
Cost of revenue		933,315			816,818			116,497			14	%
Confirmed capital and credit express		683,081			605,810			77,271			13	%
Interest expense		538,370			457,756			80,614			18	%
Account Issuing Expenses		75,332			63,909			11,423			18	%
Insurance		58,818			70,147			(11,329	)		(16	)%
Other		10,561			13,998			(3,437	)		(25	)%
Payment services		96,511			31,565			64,946			206	%
Terminal sales and transactions		89,340			20,903			68,437			327	%
Hubbed		5,505			4,516			989			22	%
Gift card expenses		1,666			6,146			(4,480	)		(73	)%
Depreciation and amortization		152,539			179,443			(26,904	)		(15	)%
Other cost of revenue		1,184			-			1,184			-
Gross profit		316,258			326,352			(10,094	)		(3	)%
Operating expenses		1,127,014			828,525			298,489
Compensation expenses		747,304			337,124			410,180			122	%
Research and development expense		174,217			130,539			43,678			33	%
Bad debt expenses		10,244			85,625			(75,381	)		(88	)%
Bad debts recovered		-			(17,672	)		17,672			(100	)%
Professional expenses		67,702			85,004			(17,302	)		(20	)%
Occupancy expenses		66,663			62,523			4,140			7	%
Depreciation expense		8,055			18,430			(10,375	)		(56	)%
General and administration expenses		52,829			126,952			(74,123	)		(58	)%


Loss from operations		(810,756	)		(502,173	)		(308,583	)		61	%
Other income		188,920			180,204			8,716			5	%
Loss before income tax		(621,836	)		(321,969	)		(299,867	)		93	%
Income tax expense		18,465			5,837			12,628			216	%
Net Loss		(640,301	)		(327,806	)		(312,495	)		95	%
Other comprehensive loss
Foreign currency translation		(430,459	)		(494,802	)		64,343			(13	)%
Comprehensive loss	$	(1,070,760	)	$	(822,608	)	$	(248,152	)		30	%

Revenue

Consolidated revenue from continuing operations for Q1 2016 was approximately $1,249,573, an increase of $106,403 or 9% from our consolidated revenue from continuing operations for Q1 2015 of $1,143,170. Revenue increased primarily as a result of a $22,862 or 2% increase in Confirmed Capital and Credit Express revenues and an increase in Payment services revenues of $79,392 or 83%. An increase in Other revenue of $4,149 or 21% accounts for the remainder.

The increase in Confirmed Capital revenues was attributable to an increase of $113,239 or 29% in Fees and an increase of $15,931 or 861% in Other revenues and was offset by a reduction in interest revenue of $106,308 or 17%. The increase in fee revenue was mainly attributable to an increase of $129,192 in account application fees as we sought to aggressively expand our client base. The decrease in interest revenues was mainly attributed to the deterioration of foreign exchange rates and a reduction in the lines of credit funded. The lines of credit we funded were approximately $42 million during Q1 2016 and $57 million during Q1 2015. The reduction in lines of credit we funded in Q1 2016 was a direct result of the deterioration of foreign exchange rates and defaulted customers which had not been replaced.

The increase in payment services revenue is primarily attributable to an increase in terminal sales and transactions revenues. During the Q1 2016 we sold or leased 100 new terminals to merchants using our new infrastructure. The terminal sales and transactions revenue earned from the new infrastructure amounted to $135,114. We anticipate terminal sales will continue in fiscal 2016 as a result of extending our customer base to a broader retail customer market and marketing the new terminals for the full 2016 fiscal year. This will result in both increased terminal and transaction revenue for Mpos and mPay. We also experienced a decrease in Hubbed revenues of $24,678 or 44% and a decrease in Gift card revenues of $11,849 or 58%. The decrease in Hubbed revenues is attributable to the absence of software development revenues of $32,497 following completion of software development activity in fiscal 2015. The gift cards decrease is primarily attributable to lower card activity by our existing customers in Q1 2016.

Other revenue increased $4,149 and this is primarily attributable to a 23% increase in foreign exchange customer referral revenues.

Cost of Revenue; Gross Profit

Cost of revenue from continuing operations, which is composed principally of the interest, fees and insurance we pay related to funds borrowed and the amortization expense of capitalized research and development costs was $933,315 in Q1 2016, an increase of $116,497 or 14% from our cost of revenue of $816,818 for Q1 2015. Costs of revenue increased 14% primarily as a result of increases in Confirmed Capital and Credit Express costs of 13% or $77,271 and increases in Payment Services of 206% or $64,946. A decrease of $26,904 in depreciation and amortization costs accounted for the remainder.

The increase in Confirmed Capital and Credit Express costs is mainly attributable to an increase of 18% or $80,614 in interest expense. Our interest expense increased year over year as a slight decrease in the volume of credit lines funded year to date was offset by fee increases attributable to unused facility fees and the increased cost of funding related to the new Subordinated Notes. The increase in unused facility fee accounted for approximately $11,033 or 14% of the $80,614 increase.

The Payment Services cost increase of $64,946 is primarily attributable to an increase in costs of the new terminals deployed to Mpos customers. A slight increase in Hubbed costs of $ $989 and a slight decrease in Gift cards costs of $4,480 was not significant.

Our gross profit from operations, decreased $10,094 from $326,352 in Q1 2015 to $316,258 in Q1 2016. This was primarily attributable to net interest margin decreases at Confirmed Capital and Credit Express more than offsetting fee revenue increases at Confirmed Capital and Credit Express and terminal revenue increases at Payments Services as described above.

Operating Expenses; Bad Debt Expense; Income from Operations

Apart from the costs under our RPA and Subordinated Notes, the other significant factor in determining our overall profitability is our operating expenses, in particular our bad debt expense. Our bad debt expense in Q1 2016 was $10,244, representing a decrease of $75,381 from bad debt expense of $85,625 in Q1 2015. We regularly evaluate the credit quality of our customers and this decrease is attributable to changes in the assessment of several customer balances in line with our credit and collections policy.

The percentage of delinquent balances in our portfolio was 1.50% and 1.88% as of September 30, 2015 and 2014, respectively. The percentage of delinquent balances in our portfolio averaged 1.87% and 1.65% in Q1 2016 and 2015, respectively. The average collection period in our portfolio was 45 days at September 30, 2015, down from 47 days at September 30, 2014. Bad debts as a percentage of amount funded was 0.02% and 0.10% in Q1 2016 and 2015, respectively.

Our total operating expenses (other than bad debt) increased by $354,198 or 47% from $760,572 in Q1 2015 to $1,116,770 in Q1 2016. This increase is primarily attributed to compensation costs ($410,180 or 122%) and research and development expense ($43,678 or 33%) and is offset by a decrease in professional expenses ($17,302 or 20%) and a decrease in general and administration expenses of ($74,123 or 58%). The compensation costs increase reflects stock-based compensation awards amounting to $448,000 for services rendered by a director and Chairman and our Chief Executive Officer. These costs are not expected to recur in subsequent quarters of fiscal 2016. The decrease in general and administration expenses is primarily attributable to a decrease in insurance costs in the quarter of $44,207.

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

To date, our other expense (income) has consisted of financing costs other than those incurred under the RPA and in connection with the Subordinated Notes, offset by interest income on the cash reserves we are required to maintain under the RPA and the Subordinated Notes, and research and development grants received from the Australian government. In Q1 2016 we accrued AUD $165,000 (USD $119,757) for research grants we expect to receive later this year from the Australian government.

Under the Australian grant program, we are eligible for government grants equal to 43% of the amounts spent on research and development. Grant processing and payment takes place annually and payment of the grant is not discretionary if the applicable criteria are met. The company prepares the claim and the expected payment is accrued as income when the grant criteria are met. Much of the related expense is capitalized and amortized as a part of cost of revenues, generally over the following 10 years.

Our net loss from operations before tax in Q1 2016 was $621,836, as opposed to a net loss of $321,969 in Q1 2015. As a result of $18,465 in taxes incurred in Q1 2016, we incurred a net loss after tax in Q1 2016 of $640,301, as compared to net loss after tax in Q1 2015 of $327,806. No tax benefit has been recognized for the losses incurred in the United States because management believes it more likely than not that these assets will not be realized in the near future. Operations in Australia were not profitable as a result of a decrease in net interest margin and the lines of credit funded as well as the higher overhead associated with operating a listed company.

Other comprehensive income.

Our other comprehensive income consists of gains and losses in net asset value that occur 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. If we initiate operations in the United States, the impact of foreign exchange rates on our results of operations will decrease.

The average AUD/USD exchange rates were 1 to 0.9253 and 1 to 0.7258 in Q1 2015 and Q1 2016, respectively.

The following table reflects the movements in our revenues and cost of revenues in our functional currency, Australian Dollars (“A$”), for the three months ended September 30, 2015 and 2014.

	For the three months ended				A$			%			% Revenue / Cost of
	September 30				Increase			Increase			revenue
	2015		2014		(Decrease)			(Decrease)			move
	AUD		AUD		AUD

Revenue	$	1,721,649	$	1,235,457	$	486,192			39	%	39	%
Confirmed capital and credit express		1,447,047		1,110,346		336,701			30	%	27	%
Interest revenue		730,930		688,226		42,704			6	%	3	%
Fees		691,617		420,120		271,497			65	%	22	%
Other revenue		24,500		2,000		22,500			1,125	%	2	%
Payment services		241,819		103,880		137,939			133	%	11	%
Terminal sales and transactions		186,159		20,744		165,415			797	%	13	%
Hubbed		43,777		61,009		(17,232	)		(28	)%	(1	)%
Giftcard program revenue		11,883		22,127		(10,244	)		(46	)%	(1	)%
Other revenue		32,783		21,231		11,552			54	%	1	%
360FX customer referral		32,060		20,367		11,693			57	%	1	%
Foreign exchange		723		573		150			26	%	0	%
Other revenue		-		291		(291	)		(100	)%	(0	)%
Cost of revenue		1,285,912		882,760		403,153			46	%	46	%
Confirmed capital and credit express		941,144		654,717		286,427			44	%	32	%
Interest expense		741,763		494,711		247,052			50	%	28	%
Account Issuing Expenses		103,792		69,068		34,724			50	%	4	%
Insurance		81,038		75,810		5,228			7	%	1	%
Other		14,551		15,128		(577	)		(4	)%	(0	)%
Payment services		132,972		34,113		98,858			290	%	11	%
Terminal sales and transactions		123,091		22,590		100,501			445	%	11	%
Hubbed		7,585		4,881		2,704			55	%	0	%
Gift card expenses		2,296		6,643		(4,347	)		(65	)%	(0	)%
Depreciation and amortization		210,166		193,929		16,237			8	%	2	%
Other cost of revenue		1,631		-		1,631			-		0	%
Gross profit	$	435,737	$	352,697	$	83,039			24	%

Revenue

Consolidated revenue from continuing operations in Q1 2016 was approximately $1,721,649, an increase of $486,192 or 39% from our consolidated revenue from continuing operations in Q1 2015 of $1,235,457. Revenue increased primarily as a result of a $336,701 or 30% increase in Confirmed Capital and Credit Express revenues and an increase in Payment services revenues of $137,939 or 133%. An increase in Other revenue of $11,552 or 54% accounts for the remainder.

The increase in Confirmed Capital revenues was attributable to an increase of $271,497 or 65% in Fees, an increase of $42,704 or 6% in interest revenues and an increase in Other revenues $22,500 or 1,125%. The increase in fee revenue was mainly attributable to an increase of $178,000 in account application fees as we sought to aggressively expand our client base. The increase in interest revenues was attributed to increases in interest rates, which more than offset reductions in the lines of credit we funded. The lines of credit we funded were approximately $58 million during Q1 2016 and $61 million during Q1 2015. The reduction in lines of credit we funded in Q1 2016 was a direct result of defaulted customers which had not been replaced.

The increase in payment services revenue is primarily attributable to an increase in terminal sales and transactions revenues. During Q1 2016 we sold or leased 100 new terminals to merchants using our new infrastructure. The terminal sales and transactions revenue earned from the new infrastructure amounted to $186,159. We anticipate terminal sales will continue in fiscal 2016 as a result of extending our customer base to a broader retail customer market and the marketing of our new terminals for the full fiscal year. This will result in both increased terminal and transaction revenue for Mpos and mPay. We also experienced a decrease in Hubbed revenues of $17,232 or 28% and a decrease in Gift card revenues of $10,244 or 46%. The decrease in Hubbed revenues is attributable to the absence of software development revenues of $35,120 following completion of software development activity in fiscal 2015. The gift cards decrease is primarily attributable to lower card activity by our existing customers in Q1 2016.

Other revenue increased $11,552 and this is primarily attributable to a 57% increase in foreign exchange customer referral revenues.

Cost of Revenue; Gross Profit

Cost of revenue from continuing operations, which is composed principally of the interest, fees and insurance we pay related to funds borrowed and the amortization expense of capitalized research and development costs was $1,285,912 in Q1 2016, an increase of $403,153 or 46% from our cost of revenue of $882,760 in Q1 2015. Cost of revenue increased 46% primarily as a result of increases in Confirmed Capital and Credit Express costs of 44% or $286,427 and increases in Payment Services of 290% or $98,858. An increase of 8% or $16,237 in depreciation and amortization costs accounted for the remainder.

The increase in Confirmed Capital and Credit Express costs of $286,427 is mainly attributable to an increase of 50% or $247,052 in interest expense, an increase of 50% or $34,724 in fees associated with new accounts costs, an increase in insurance costs of 7% or $5,228, partially offset by a 4% or $577 decrease in other expenses. Our interest expense increased quarter over quarter as a slight decrease in the volume of credit lines funded year to date was offset by fee increases attributable to unused facility fees and the increased cost of funding related to the Subordinated Notes. The increase in unused facility fee accounted for approximately $15,202 or 6% of the $247,052 increase.

The Payment Services cost increase of $98,858 is primarily attributable to an increase in costs of the new terminals deployed to Mpos customers. A slight increase in Hubbed costs of $2,704 and a slight decrease in Gift cards costs of $4,347 was not significant.

Our gross profit from operations, increased $83,039 from $352,697 in Q1 2015 to $435,737 in Q1 2016. This was primarily attributable to fee revenue increases at Confirmed Capital and Credit Express more than offsetting net interest margin decreases at Confirmed Capital and Credit Express and an increase in terminals deployed by Payments Services as described above.

Comparison of Balance Sheet Data as at September 30, 2015 and June 30, 2015

Set forth below are certain items from our Consolidated Balance Sheet at September 30, 2015 and June 30, 2015:

	September 30		June 30
	2015		2015

Cash and cash equivalents	$	7,204,670	$	8,075,078
Trade receivables, net	$	24,404,534	$	19,651,268
Total Assets	$	36,784,169	$	33,362,460

Wholesale Loan Facility	$	12,667,828	$	6,052,789
Subordinated notes, net	$	16,895,026	$	18,471,471
Total Liabilities	$	32,954,044	$	28,934,821

Total Stockholders’ Equity	$	3,830,125	$	4,427,639

Trade receivables, net has increased as new customers have utilized their facilities.

The increase in the Wholesale Loan facility reflects increased customer lending.

Liquidity and Capital Resources

Our ability to offer asset backed credit lines is determined by the amount of funds we can borrow which is influenced by the amount of our capital. 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 to make available to our clients and the effective cost of such funds.

Credit Facilities

Receivable Purchase Agreement

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. As at September 30, 2015 our borrowing capacity was limited to AUD $25 million and the total amount drawn against the facility was $6,052,789. The agreement is renewed annually on an agreed anniversary date, the latest of which was December 31, 2014. The facility has been renewed until December 31, 2015.

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.

Subordinated Notes

In April 2015 we issued AUD $25 million of subordinated notes. The notes mature in 7 years and have similar conditions, including financial covenants and restrictions as to use of proceeds, to the wholesale facility and are subordinate to that facility. The costs of the Subordinated Note issuance were AUD $998,533 and the proceeds to the company were AUD $24,001,467. The Subordinated Notes bear interest at a rate of 4.65% per annum above the Australian BBSW rate. The BBSW rate as of the date of settlement, April 10, 2015, was 2.26% per annum. The Notes can be redeemed early at increased cost to the Company or at the request of the holder in the event of a change in control.

In conjunction with the note issuance, the RPA interim agreed upon facility limit was decreased from AUD $40 million to AUD $25 million as of April 16, 2015 in an effort to reduce our unused facility fees.

Comparison of the Statement of Cash Flows for the three months Ended September 30, 2015 and 2014

Set forth below are certain items from our Statement of Cash Flows for the three months ended September 30, 2015 and 2014:

	For the three months ended
	September 30
	2015			2014
Net cash (used in) provided by operating activities	$	(7,722,677	)	$	(830,204	)
Net cash (used in) investing activities		(106,205	)		(185,050	)
Net cash provided by (used in) financing activities		7,657,079			(2,143,814	)
Effect of exchange rate changes on cash and cash equivalents		(698,605	)		(589,911	)
Net cash (outflow) inflow	$	(870,408	)	$	(3,748,979	)

Net cash (used in) operating activities

During the three months ended September 30, 2015, we used approximately $7,722,677 of cash in our operating activities. This reflects our net loss from continuing operations of $640,301 plus $7,082,376 used by changes in operating assets and liabilities and adjustments for non-cash items, principally the increase in our trade receivables of $6,696,447. Cash provided by working capital items decreased primarily as a result of an increase in trade receivables of $6,696,447 due to an increase in new customer funding. Adjustments for non-cash items consisted of depreciation and amortization in the amount of $160,593, subordinated notes costs amortization of $36,237, stock options and shares issued for compensation of $473,246 and gain on equity method investment of $36,479.

During the three months ended September 30, 2014, we used approximately $830,204 of cash in our operating activities. This reflects our net loss from continuing operations of $327,806 plus $502,398 used by changes in operating assets and liabilities and adjustments for non-cash items. Cash provided by working capital items was primarily impacted by a decrease in trade receivables of $2,150,114 and decreases in trade payables of $2,774,288 due to a decrease in cash received on customer accounts that was not related to amounts funded by the Company. Adjustments for non-cash items consisted of depreciation and amortization in the amount of $197,872 and stock options of $37,869.

Net cash (used in) investing activities

During the three months ended September 30, 2015, net cash used in investing activities of $106,205 was primarily impacted by $94,921 in capitalized costs incurred on the development of intangible assets, principally software related to The Moneytech Exchange and mPay.

During the three months ended September 30, 2014, net cash used in investing activities of $185,050 was primarily impacted by $183,553 in capitalized costs incurred on the development of intangible assets, principally software related to The Moneytech Exchange and mPay.

Net cash provided by (used in) financing activities

During the three months ended September 30, 2015, net cash provided by financing activities of $7,657,079 primarily reflects an increase in our borrowings under the Wholesale Loan Facility of $7,395,791. Additions to our capital reserve accounts by our customers of $261,288 account for the difference.

During the three months ended September 30, 2014, net cash used in financing activities of $2,143,814 primarily reflects a decrease in our borrowings under the Wholesale Loan Facility of $2,645,463, additions to our capital reserve accounts by our customers of $501,649 accounts for the difference.

Net cash inflow

During the three months ended September 30, 2015 net cash decreased by $870,408 as compared to the three months ended September 30, 2014, where net cash decreased by $3,748,979.

Insurance

As a condition of the RPA and Subordinated Notes, the receivables due Moneytech from its customers or their counterparties are insured pursuant to a policy issued by Euler Hermes, a Standard & Poor’s rated trade credit insurance provider. Pursuant to this policy, Moneytech would bear the first $500,000 of losses incurred in any calendar year, after which any bad debt losses are borne by Euler Hermes. This policy is renewed annually.

The following tables show, since claim year 2010 (each claim year ends on December 31) the amount of claims submitted to Euler Hermes for reimbursement, the amounts recognized or denied, the payments received to date and amounts remaining to be paid.

	Fiscal year		Fiscal year		Fiscal year			Fiscal year			Fiscal year			Fiscal year
	Jun 30, 2011		Jun 30, 2012		Jun 30, 2013			Jun 30, 2014			Jun 30, 2015			Jun 30, 2016
	AUD		AUD		AUD			AUD			AUD			AUD
Opening balance	$	-	$	-	$	520,012		$	295,145		$	34,061		$	-
Claims recognised		-		520,012		18,344			37,432			-			-
Claims paid		-		-		(224,866	)		(139,717	)		(34,061	)		-
Claims denied		-		-		(18,344	)		(158,800	)		-			-
Closing balance	$	-	$	520,012	$	295,145		$	34,061		$	-		$	-

	Claim year 2010			Claim year 2011			Claim year 2012		Claim year 2013		Claim year 2014		Claim year 2015
	AUD			AUD			AUD		AUD		AUD		AUD
Claims submitted	$	960,068		$	615,720
Policy excess		(500,000	)		(500,000	)	No claim submitted as credit losses do not exceed the policy
Claims denied		(158,800	)		(18,344	)	excess of $500,000
Claims paid		(301,268	)		(97,376	)
Claims in progress	$	-		$	-		$	-	$	-	$	-	$	-

Progression toward the deductible		N/A			N/A		$	146,221	$	80,674	$	348,230	$	153,663

	1	Claim amounts for claim years 2010 and 2011 were recognized in the 2012 fiscal year. In fiscal year 2011, there was no expectation of a claim for claim year 2010. In fiscal 2012, there was a change in circumstances relating to a debt attributable to claim year 2010 which resulted in a claim becoming possible.
	2	Claim years run January 1 to December 31 each year.
	3	Claims are not submitted until the policy excess is reached

Commitments for Capital Expenditures

We do not have any commitments for capital expenditures.

The design and technical development of The Moneytech Exchange is completed and it is operational. Although we will continue to upgrade and add functionality to The Moneytech Exchange we 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.

In addition to the upgrade and addition of functionality to The Moneytech Exchange, we will also incur expenditure on research and development of our payments services platform and functionality.

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 3 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.

Allowance for Doubtful Accounts

Revenue Recognition

Concentration of Credit Risk

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 and nine months ended March 31, 2015 and 2014, 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, stockholders’ 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.

Item 3. Quantitative and Qualitative Disclosures about Market Risk

Not applicable as the Company is a smaller reporting company

Item 4. Controls and Procedures

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 the disclosure controls and procedures are effective.

Changes in Internal Control over Financial Reporting

There have been no changes in the Company’s internal control over financial reporting during the last quarterly period covered by this report that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

PART II OTHER INFORMATION

Item 1A. Risk Factors

Our business is subject to numerous risks and uncertainties including but not limited to those discussed in "Risk Factors" in our Annual Report on Form 10-K for fiscal year ended June 30, 2015 filed on September 17, 2015which are incorporated by reference into this report.

Item 5. Other Information

None.

Item 6. Exhibits

The following exhibits are filed herewith:

Exhibit Number		Document

31.1		Certifications 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		Certifications 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		Certifications pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

32.2		Certifications pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

SIGNATURES

In accordance with the requirements of the Exchange Act, the Company caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

	SOURCE FINANCIAL, INC.

November 12, 2015	By:	/s/ Hugh Evans
		Hugh Evans
		Chief Financial Officer (Principal Financial and Accounting Officer)

November 12, 2015	By:	/s/ Brian M. Pullar
		Brian M. Pullar
		Chief Financial Officer (Principal Financial and Accounting Officer)

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