UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington,
D.C. 20549
FORM 10-K
(Mark One)
☒ ANNUAL
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal
year ended June 30, 2015
or
☐ 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 No.) |
|
|
|
Level 6/97
Pacific Highway
North Sydney NSW 2060
Australia |
|
|
(Address of principal executive offices) |
|
(Zip Code) |
Registrant’s
telephone number, including area code: +61 2 8907-2500
Securities registered under Section 12(b) of
the Act:
Title of each class: |
|
Name of each exchange on which registered: |
None |
|
None |
Securities registered
under Section 12(g) of the Act:
Common Stock,
$.001 par value
Indicate
by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes
o No
x
Indicate
by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes
x No
o
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 x No
o
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
x No
o
Indicate
by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§229.405 of this chapter) is not
contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. o
Indicate by check mark whether the registrant
is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions
of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule
12b-2 of the Exchange Act.
Large accelerated filer |
o |
|
Accelerated filer |
o |
Non-accelerated filer
(Do not check if a smaller reporting company) |
o |
|
Smaller reporting company |
x |
Indicate
by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes o No
x
The
aggregate market value of the voting and non-voting common equity of the registrant held by non-affiliates computed by reference
to the price at which the common equity was last sold, or the average bid and asked price of such common equity, as of the last
business day of the registrant’s most recently completed second fiscal quarter ended December 31, 2014 was $1,474,231.
As of September 15, 2015, the registrant
had outstanding 8,791,632 shares of common stock.
Documents Incorporated by Reference: None.
TABLE OF CONTENTS
CAUTIONARY
NOTE REGARDING FORWARD-LOOKING STATEMENTS
This
Annual Report on Form 10-K (this “Report”) contains “forward-looking statements” within the meaning of
the Section 27A of the Securities Act of 1933, as amended (the “Securities Act”), and Section 21E of the Securities
Exchange Act of 1934, as amended (the “Exchange Act”). Any statements about our expectations, beliefs, plans, predictions,
forecasts, objectives, assumptions, or future events or performance are not historical facts and may be forward-looking. These
statements are often, but not always, made through the use of words or phrases such as “anticipate,” “believes,”
“can,” “could,” “may,” “predicts,” “potential,” “should,”
“will,” “estimate,” “plans,” “projects,” “continuing,” “ongoing,”
“expects,” “intends,” and similar words or phrases. Accordingly, these statements are only predictions
and involve estimates, known and unknown risks, assumptions, and uncertainties that could cause actual results to differ materially
from those expressed in them. Our actual results could differ materially from those anticipated in such forward-looking statements
as a result of several factors more fully described in Item 1A of this Report under the caption “Risk Factors” and
elsewhere in this Report, including the exhibits hereto.
All
forward-looking statements are necessarily only estimates of future results, and actual results may differ materially from expectations.
The inclusion of this forward-looking information should not be regarded as a representation by us or any other person that the
future plans, estimates, or expectations contemplated by us will be achieved. We have based these forward-looking statements largely
on our current expectations and projections about future events and financial trends that we believe may affect our financial
condition, results of operations, business strategy, and financial needs. There are important factors that could cause our actual
results, level of activity, performance, or achievements to differ materially from the results, level of activity, performance,
or achievements expressed or implied by the forward-looking statements, including, but not limited to, statements regarding (i) our
asset growth and sources of funding; (ii) our expansion into different consumer segments; (iii) our financing plans;
(iv) the impact of regulations on us; (v) our exposure to market risks, including interest rate risk and equity price
risk; (vi) our exposure to credit risks, including credit default risk and settlement risk; (vii) our competition; (viii) our
projected capital expenditures; (ix) our capitalization requirements and level of reserves; (x) our liquidity; (xi) trends
affecting the economy generally; and (xii) trends affecting our financial condition and our results of operations. Examples
of these important factors, in addition to those discussed elsewhere in this Report, that could cause our actual results to differ
substantially from those anticipated in our forward-looking statements, include, among others:
| ● | Adverse
economic conditions in the United States, Australia and worldwide may negatively impact
our results; |
| ● | Our
business could suffer if our access to funding is reduced; |
| ● | We
face significant risks implementing our growth strategy, some of which are outside our
control; |
| ● | Our
financial condition, liquidity, and results of operations depend on the credit performance
of our loans; |
| ● | Loss
of our key management or other personnel, or an inability to attract such management
and personnel, could negatively impact our business; and |
| ● | We
operate in a highly regulated industry and continually changing federal, state, and local
laws and regulations could materially adversely affect our business. |
You
are, therefore, cautioned not to place undue reliance on such statements which should be read in conjunction with the other cautionary
statements that are included elsewhere in this Report. Any forward-looking statement speaks only as of the date on which it is
made and we undertake no obligation to update or revise any forward-looking statement to reflect events or circumstances after
the date on which the statement is made or to reflect the occurrence of unanticipated events, except as may be required under
applicable securities laws. You are advised, however, to consult any additional disclosures we make in our reports
filed with the Securities and Exchange Commission (“SEC”). This discussion is provided as permitted by the Private
Securities Litigation Reform Act of 1995.
Use
of Certain Defined Terms
Except
where the context otherwise requires and for the purposes of this Report only:
| ● | “AUD”
or “A$” refer to the legal currency of Australia; |
| ● | “Source,”
“Company,” “we,” “us,” and “our” refer
to the combined businesses of Source Financial, Inc., a Delaware corporation, and its
subsidiaries, Moneytech Limited, an Australian company (“Moneytech”) and
its subsidiaries. For all periods prior to June 30, 2013, the date of the Moneytech
Acquisition, these terms refer to Source Financial, Inc., and its predecessors and their
respective consolidated subsidiaries; |
| ● | “Exchange
Act” refers to the Securities Exchange Act of 1934, as amended; |
| ● | “SEC”
refers to the Securities and Exchange Commission; |
| ● | “Securities
Act” refers to the Securities Act of 1933, as amended; |
| ● | “Series
B Shares” refers to the Company’s Series B Preferred Stock; and |
| ● | “U.S.
dollars,” “dollars”, “USD” and “$” refer to
the legal currency of the United States. |
PART
I
Item
1. Business
Acquisition
of Moneytech Limited
Share
Exchange
On
June 30, 2013, Source Financial, Inc. (formerly known as Wiki Group, Inc.) acquired all of the outstanding shares of Moneytech Limited,
an Australian company (“Moneytech”) pursuant to a Share Exchange Agreement dated May 30, 2013 (the “Exchange
Agreement”) in exchange, for 5,300,000 shares of our common stock (the “Share Exchange”). As a result of the
Share Exchange, Moneytech became a wholly-owned subsidiary of our company, with the Moneytech shareholders owning in excess of
50% of our outstanding shares on a fully diluted basis.
Issuance
of Series B Shares
In
connection with our acquisition of Moneytech, we issued 5,000 shares of our Series B Preferred Stock to Hugh Evans, the Chairman
and Managing Director of Moneytech. The holder of the Series B Shares has the right, until June 30, 2018, to (A) elect the majority
of our Board of Directors and (B) vote on all other matters presented to the holders of common stock (the “Common Shareholders”),
with each Series B Share having a number of votes equal to 1,000 shares of common stock. After June 30, 2018, the Series B Shares
will have no voting rights and we will have the right to purchase the Series B Shares at a per share price equal to one tenth
of a cent ($0.001). As the holder of the Series B Shares, Mr. Evans will be able to elect a majority of our Board of
Directors until June 30, 2018, and as the holder of a majority of our outstanding voting shares, Mr. Evans has effective control
over our business, including matters requiring the approval of our stockholders, such as the approval of significant corporate
transactions.
As
a result of the consummation of the Share Exchange Agreement, the shareholders of Moneytech in combination with Hugh Evans, became
our controlling stockholders. Consequently, the Share Exchange has been accounted for as a recapitalization of Moneytech
effected by a share exchange in which for accounting and financial reporting purposes Moneytech is considered the acquirer. Consequently,
the historical consolidated financial statements of Moneytech are now our historical financial statements, and the assets and
liabilities of Source as of June 30, 2013, have been brought forward at their book value and no goodwill has been recognized.
Escrow
Arrangement Concerning WikiTechnologies and Separation Agreement
In connection with
the Share Exchange, our two principal stockholders prior to consummation of the share exchange deposited in escrow an aggregate
of 2,240,000 shares of our common stock (the “Escrow Shares”), and we deposited in escrow all outstanding
shares of the common stock of WikiTechnologies, Inc. (the “WTI Escrow Shares,”) our only operating subsidiary prior
to the Share Exchange. The terms of the escrow arrangement were such that if WikiTechnologies failed to achieve certain financial
benchmarks we could elect to retain the Escrow Shares by delivering the WTI Escrow Shares to the two stockholders.
On February 11, 2014, we entered into
a Separation Agreement with the two stockholders, pursuant to which (i) the WTI Escrow Shares were delivered to them, as a result
of which we no longer own any equity interest in WTI, and (ii) 2,140,000 of the Escrow Shares were cancelled, with the remaining
100,000 shares delivered to a noteholder of WTI. The cancellation of the 2,140,000 shares effectively increased the percentage
of our then outstanding shares owned by the former shareholders of Moneytech.
Corporate
History
Source
Financial, Inc., formerly known as Wiki Group, Inc., was incorporated on June 24, 1988 under the laws of the State of Delaware
under the name Windsor Capital Corp.
In February 2008,
we became an Internet person-to-person lending service as a result of our acquisition from Spider Investments, LLC, of all right,
title and interest in and to www.swapadebt.com, a person-to-person lending website, in consideration for shares of our
common stock.
On May 4, 2011, we
authorized a 10- for-1 forward split of our common stock and increased the number of our authorized shares of common stock to
750,000,000. On July 31, 2011, we authorized a 1-for-10 reverse stock split and reduced the number of our authorized
shares of common stock to 150,000,000.
On
February 10, 2012, pursuant to an Agreement and Plan of Merger (the “Merger Agreement”), we acquired all of the outstanding
equity of WikiPay, Inc., in exchange for shares of our Series A Preferred Stock (the “Series A Preferred Shares”)
convertible into sixty percent (60%) of our then outstanding shares of common stock on a fully diluted basis.
On
February 6, 2012, we increased the number of our authorized shares of common stock to 250,000,000.
On
December 7, 2012 we increased the number of our authorized shares of common stock to 500,000,000.
On
March 21, 2013, we effected a 1-for-100 reverse split of our authorized and issued common stock and changed our corporate name
to Source Financial, Inc.
On
October 3, 2013, we amended and restated our certificate of incorporation to decrease the number of our authorized shares of common
stock and preferred stock to 50,000,000 and 1,000,000, respectively.
On June 30, 2013,
we consummated the Exchange Agreement whereby Moneytech became a wholly-owned subsidiary of our company and the Moneytech shareholders
acquired in excess of 50% of our outstanding shares on a fully diluted basis.
On
February 14, 2014, pursuant to the Settlement Agreement, we relinquished our ownership interest in WikiTechnologies.
On July 16, 2015 we
amended our certificate of incorporation to decrease the number of our authorized shares of common stock from 50,000,000 to 12,000,000
shares and the number of our authorized shares of preferred stock from 1,000,000 to 10,000 shares.
The following chart reflects our organizational
structure:
Our
principal executive offices are located at Level 6/97 Pacific Highway, North Sydney NSW 2060, Australia, and our telephone number
is +61 2 8907-2500. Our Internet address is www.sourcefinancial.com. Information on, or accessible through, our website is
not part of this report.
Operational
Overview
We provide commercial
asset based lending, including accounts receivable, trade financing and other financial services to small to medium sized businesses
and individuals in Australia through Moneytech and its subsidiaries, 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. Moneytech has an AUD$50 million securitized wholesale debt facility
(the “Wholesale Facility,” “Receivables Purchase Agreement” or “RPA”) with the structured
finance division of Westpac Banking Corporation (“Westpac”), one of the four leading Australian banks. In April
2015, Moneytech issued AUD$25 million of notes subordinated to the RPA (the “Subordinated Notes”). Moneytech uses
the proceeds of the Subordinated Notes and the Wholesale Facility to offer asset based, trade finance or accounts receivable finance
and working capital solutions to small and medium enterprises (‘SME’s’) throughout Australia. Moneytech
has built a portfolio of more than 3,500 active high-quality business customers with its existing range of financing solutions
and has experienced strong organic growth since inception.
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.
The Moneytech Exchange provides significant benefits over traditional non-technology based systems such as:
| ● | Simple,
secure two factor authenticated login to initiate transactions through the web; |
| ● | Automatic
processing up to pre-approved limits; |
| ● | Same
day settlement for all transactions; |
| ● | Real-time
reporting for all parties to each transaction, allowing for easy record keeping, reconciliation
and auditing; and |
| ● | Parameters
can be assigned to each transaction to vary the cost, settlement timeframe and interest
rate, depending on the industry, product, payment terms or any other criteria. |
Moneytech
has invested approximately AUD$10 million developing this banking platform technology, including approximately AUD$1,606,739,
AUD$1,376,613 and AUD$1,161,340 in the fiscal years ended June 30, 2015, 2014 and 2013, respectively, and continues to invest
in research and development to expand and improve its technology and product suite to maintain and further its competitive position.
Although
the Moneytech Exchange was developed in conjunction with our commercial asset based lending business, it can be used to provide
a variety of money transfer services and we are in the process of allowing the public to access the Moneytech Exchange to effect
money transfers. In addition, Moneytech holds an Australian Financial Services License, or AFSL and is a BPAY Authorized PIM (“Bill
Pay” “Payment Institution Member”). As a BPAY PIM Moneytech is authorized by BPAY, Australia’s leading
bill payment service accepted by all the major Australian banks, to manage stored value accounts for BPAY customers. As the holder
of an AFSL, Moneytech is allowed to issue Non Cash Payment Products (which includes Visa cards, gift and prepaid cards, loyalty
rewards program cards) for the benefit of its business partners. As an AFSL holder, Moneytech is also authorized to operate
a financial services business in Australia and it currently provides advice regarding foreign exchange contracts and derivatives,
deals in foreign exchange contracts and derivatives and makes a market in foreign exchange contracts and derivatives.
For the fiscal years
ended June 30, 2015, 2014 and 2013 receivables financing accounted for approximately 81%, 89% and 87%, respectively, of total
revenue, and payment services accounted for approximately 17%, 9% and 11%, respectively, of total revenue.
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. As of the date of this Report, we do not have any understandings, commitments
or agreements with respect to any acquisitions. See “Business Strategy.”
Our
Services – Provision of Capital
Credit
Express
Moneytech
offers two products which provide small and medium sized businesses with access to capital – Credit Express and Confirmed
Capital. The underwriting criteria, fee structure and approval process for both of these products is discussed
below.
Credit
Express offers approved businesses, including retailers, resellers, wholesalers and manufacturers (“Buyers” or “Sellers”),
commercial lines of credit and provides them access to the Moneytech Exchange. The Moneytech Exchange allows pre-approved Buyers
and Sellers to automatically access financing up to pre-approved limits when a Buyer purchases inventory from a Seller. Moneytech’s
client may be either the Buyer or Seller, depending upon which party requests the financing and only the party which requests
the financing needs to be pre-approved.
Each
transaction is conducted electronically and is based on predetermined criteria to ensure that the Moneytech receivable is acceptable
to the provider of its Wholesale Facility. By utilizing Credit Express:
| ● | Buyers
are able to fund the purchase of inventory with Moneytech delivering the proceeds directly
to the Seller’s bank account; or |
| ● | Sellers
can fund working capital without having to wait for Buyers to pay invoices. After paying
the Seller directly for the goods, Moneytech assumes the risk and collects the money
from the Buyer, relieving the Seller of collection costs and cash flow challenges. |
Confirmed
Capital
Confirmed Capital
is unique because of its accounts receivable/asset based financing capability in that Moneytech funds 100% of the face amount
of invoices on the day each transaction is conducted. This is more flexible than other accounts receivable financiers who typically
provide a maximum of 80% of the invoice value and release funds periodically. Moneytech’s “Moneytech Exchange”
stores every invoice and payment entered into the system and automatically communicates with the major Australian banks multiple
times each business day. This enables Moneytech to check the status of each customer’s account automatically, facilitating
additional advances and enabling Moneytech to receive alerts advising it as to which customers are in default. This
ease of access decreases Moneytech’s risk of loss by allowing it to automatically monitor thousands of clients and increases
its efficiency.
For
both Credit Express and Confirmed Capital, customers have agreed repayment terms (which may include an interest free period) for
repayment of the amount advanced by Moneytech. In addition to an ownership or security interest in the goods which
are the subject of a transaction or an interest in the receivable, Moneytech often secures the credit provided by having its customer
grant liens on all or a portion of its assets, or by providing personal guarantees. Moneytech generates profits by
charging an interest on the amounts funded above its own cost of funds and by charging service fees on transactions and account
management fees. To the maximum extent possible Moneytech seeks to pass along to its customers at a mark-up, every
fee incurred by it under the Wholesale Facility. Further, if the Wholesale Facility requires that Moneytech deposit
funds to secure its lender, it requires its customers to fund such deposits.
Fee
Structure
Moneytech
has two primary ways of charging fees to clients for Credit Express and Confirmed Capital:
|
(a) |
Moneytech
charges an interest rate on amounts outstanding in excess of the rate incurred by Moneytech’s to access its
funds; and |
|
(b) |
Moneytech
charges an initial transaction fee when a customer is accepted and seeks to charge a fee for performing each transaction,
calculated as either a percentage of the transaction value or a fixed amount, or a combination of the two, but in all events
in excess of the corresponding fee charged Moneytech by its lender. |
The
actual fees charged to clients on an ongoing basis are usually a combination of the above, but depending on the terms of the facility
may be limited to only an interest rate or only a fee for conducting the transaction.
Pre-Approval
Process
Customers
seeking access to either Confirmed Capital or Credit Express are required to complete an application on-line or manually downloaded
from the Moneytech Exchange and furnish financial and other information concerning the applicant, all of which is input and stored
on the Moneytech Exchange. The application contains terms and conditions which applicants must review and acknowledge.
Moneytech
assesses the creditworthiness of each applicant using on-line verification services and in certain instances third party sources,
and regularly reviews and conducts audits of customer accounts.
Where
a customer displays a good credit history, Moneytech may offer an increased credit limit. In such cases, Moneytech
will issue the account holder a letter of acceptance subject to acceptance by the account holder. The letter of acceptance
states that in the event the offer is accepted, the account holder shall remain subject to the terms and conditions of the original
Buyer Account Application form and Moneytech Buyer Terms and Conditions. This ensures that Moneytech is in a position
to reduce the credit limit or put the account on hold in the event of default.
Underwriting
Standards
When
a new Business Account is opened, a credit limit must be established for all authorized Account members/users. This
is achieved by assessing each applicant’s personal circumstances. Determination of individual credit limits are based on
the assessment criteria described in Moneytech’s Statement of Credit Policy. The criteria are both qualitative
and quantitative, and include but are not limited to: current and historic financial performance of the business based on assessment
of its income statement and balance sheet, the net asset position of any individuals or entities providing guarantees in support
of the application, the tenure of the business, the industry in which the business operates, and credit reports from
reporting agencies on both the applicant and the principals or proprietors of the applicant.
No
credit limit must be set above that which this Credit Policy allows unless the Credit and Risk Committee approve it. The Managing
Director reserves the right to veto such approval. Generally speaking, unless the benefits associated with the proposed
Credit Limit significantly outweigh the risks involved, no such limit increases will be approved. For credit limits not in excess
of $50,000, the approval of the designated money manager and Moneytech’s national credit manager are required; for credit
limits in excess of $50,000 to $150,000, the approval of the money manager and one member of Moneytech’s Credit and Risk
Committee is required; and for credit limits in excess of $150,000, the approval of the money manager, two members of Moneytech’s
Credit and Risk Committee and Moneytech’s insurer is required.
There
is a constant review process where the credit limits of existing customers are re-assessed based on need and application by individual
Accounts. The credit limit re-assessment process is critical to ensuring customer growth within the confines of our
commercial risk framework. Accounts that change adversely against their original risk category must be reassessed and adjusted
with reference to the account holder’s circumstances and the then current assessment criteria.
The
Moneytech Exchange prevents customers from exceeding their credit limits except where the account is delinquent or when interest
or fees and charges are added to the account balance.
Collateral
Moneytech
routinely obtains liens on customer assets and also requires personal guarantees (other than public companies) which often are
secured by liens on individuals’ assets.
Profitability
Profitability for
the account of any customer is determined by measuring the difference between Moneytech’s revenue derived from the transaction
fees or interest rates charged to the customer and the interest rates and fees charged by Moneytech’s senior debt provider
to it. Moneytech internally targets a gross profit margin of 50% using these measures. Facilities may have
a higher or lower margin, depending on the amount of risk Moneytech determines (based on its credit and collections policy) is
present in the deal. Moneytech will target higher margins where it believes the risk is relatively higher, and will
accept lower margins where it has determined that the risk is relatively low.
Recent
and Historical Statistics as to Nonpayment
The
percentage of delinquent balances in our portfolio was 1.56% and 1.53% as of June 30, 2015 and 2014, respectively. The percentage
of delinquent balances in our portfolio averaged 1.69% and 1.77% in the fiscal years ended June 30, 2015 and 2014, respectively.
The average collection period in our portfolio was 52 days at June 30, 2015, up from 45 days at June 30, 2014 and 2013. Bad debts
as a percentage of amount funded was 0.03% and 0.40% in the fiscal years ended June 30, 2015 and 2014 respectively.
Actions
Taken in the Event of Nonpayment
In
the event of non-payment, a Moneytech staff member will first contact the Buyer to request prompt payment. If a payment
or an acceptable payment arrangement is not forthcoming, Moneytech will take such further actions as it deems appropriate, including
utilizing a collections agent to pursue the debt.
Our
Services -- Money Transfers and Payment Solutions; Foreign Exchange
mPayments
Pty Ltd – Payment Processing, Point of Sale and Payment Aggregation Solutions
The
Moneytech Exchange was initially developed to facilitate the movement and tracking of money against debtor and trade finance facilities.
The Moneytech Exchange can be used to allow members of the general public, for a fee, to conduct transactions and disburse funds
to multiple beneficiaries in real time particularly where existing transactional banking facilities are not adequate or are cost
prohibitive or inefficient.
There
are approximately 5,000 newspaper outlets in Australia which, in addition to newspapers and magazines, distribute cigarettes,
snacks and similar items. We are currently working with a product and service aggregator, pursuant to an arrangement whereby at
the cost of the store operator or service aggregator, the aggregator establishes kiosks in the storefronts of Australian newsagents,
in which the software is installed to bring in-store, online and mobile solutions for new financial products and services to be
promoted through the news agents in Australia. In addition to news agents, Moneytech seeks to install the hardware or software
necessary to access its system in pharmacies, other retail outlets and taxicabs. To date, Moneytech’s software has been
installed in over 800 outlets and in excess of 25,000 transactions are conducted monthly using its mPay software to pay a bill
or transfer money to a third party. Moneytech will continue to seek to install software necessary to access its system in kiosks
and transmission devices in other locations where the business owner seeks to provide its customers with the ability to transfer
funds or utilize their credit cards. Because the kiosk or associated hardware on which Moneytech’s software is
installed, is not controlled by Moneytech, in many instances the hardware is not exclusive to Moneytech and the store owner can
choose to offer competing services.
Card
Solutions
Moneytech
has secured an AFSL allowing it to further develop its financial services business and product suite. Moneytech is authorized
to distribute Visa and Electronic Funds Transfer at Point of Sale (“eftpos”) Gift and Prepaid Cards. To do this, Moneytech
has partnered with an Australian bank and Authorized Deposit taking Institution to deliver Gift and Prepaid Card solutions to
the market. Moneytech profits from gift card programs primarily by charging a fee for each card issued and fees for
each transaction conducted using the card. Moneytech has the ability to issue Non Cash Payment Products (which includes gift and
prepaid cards, loyalty and rewards programs) in its own right for the benefit of its business partners.
Moneytech’s
Card Solutions businesses is not currently producing significant amount of revenues. As these are service businesses,
they do not have the credit risk associated with Credit Express and Confirmed Capital. Moneytech will earn a fee on
all cards issued as part of a Card Solutions Program or each transmission of funds utilizing mPay.
Moneytech
will seek to expand its Card Solutions business by soliciting manufacturers, distributors and retailers interested in giving consumers
gift cards as an inducement for their patronage.
360
Markets Pty Ltd: Foreign Exchange Services
As
the holder of an Australian Financial Services License, or AFSL, Moneytech Limited is authorized to operate a financial services
business in Australia. The license authorizes the provision of financial product advice in foreign exchange contracts and derivatives,
dealing in foreign exchange contracts and derivatives and making a market in foreign exchange contracts and derivatives. Moneytech
Limited is not authorized to use the term ‘Broker’ by its AFSL and is not a participant member of a licensed market
that covers dealings in securities (e.g. Australian Securities Exchange) or derivatives (e.g. Sydney Futures Exchange).
To
facilitate the development of a foreign exchange business, 360 Markets Pty. Limited (“360 Markets”) was founded in
2010 in conjunction with a senior foreign exchange dealer previously employed by the Commonwealth Bank of Australia, the largest
Australian commercial bank. At the time 360 Markets was founded, Moneytech acquired a 37.5% interest therein. The balance
of the equity in 360 Markets was acquired by the individual responsible for its activities. Further, Moneytech granted
360 Markets a sublicense to engage in foreign exchange transactions in Australia as an Authorized Representative of Moneytech
and entered into an agreement with 360 Markets whereby Moneytech will receive a commission on revenues generated by 360 Markets
for services it provides to parties referred by Moneytech and Moneytech will pay 360 Markets a commission for services Moneytech
provides for clients referred by Moneytech. The amount of such referral fees is determined by negotiation between Moneytech
and the individual who owns the balance of the equity in 360 Markets and is generally based on the gross margin anticipated to
be generated. Thus, Moneytech will profit from the activities of 360 Markets through the receipt of referral fees and
as the holder of an equity interest therein. Moneytech intends to offer the services of 360 Markets to those of its
customers that engage in international transactions and have the need to purchase currencies other than Australian dollars.
360
Markets derives its revenue predominantly by buying and selling different currencies for its customers and charging prices in
excess of those paid to the two major financial institutions from which it acquires currencies. The “spread”
charged on a particular transaction is based on various factors, including, among others, the size of the transaction and the
significance of the customer relationship. 360 Markets will receive orders to buy or sell currencies at market plus
an agreed spread or by quotation. For orders where it quotes a price, it mitigates its foreign exchange risk by executing
the transaction with its supplier as soon after the order is received as is practical and by quoting a spread that is sufficiently
large to cover movements in the price during the period the quote is open. 360 Markets also offers its customers the
ability to buy and sell exchange traded foreign exchange derivatives which it sources from the same suppliers it uses for its
spot foreign exchange transactions. These are transacted on similar terms to the foreign exchange spot transactions
and currently form a minor part of its business. 360 Markets does not take any positions in foreign exchange or foreign
exchange derivatives as principal other than during the very short quotation period.
During
the year ended June 30, 2014 and the year ended June 30, 2015, 360 Markets generated revenues of $381,825 and $503,106, respectively.
Business
Strategy
In
Australia, the banking environment is dominated by the “Big Four” Australian banks --- Commonwealth Bank of Australia
(CBA), National Australia Bank (NAB), Australia and New Zealand Banking Group (ANZ) and Westpac Banking Corporation “Westpac”).
This oligopoly has resulted in a particularly risk averse and high priced lending environment, and many viable Australian business
are limited in both their access to capital and their options for obtaining business loans. The SME space is especially
under-serviced in this regard. This represents an opportunity for non-bank lenders, such as Moneytech, to target both
high growth and established Small to Medium Enterprises with unique financial solutions, including Confirmed Capital and Credit
Express.
Moneytech
believes it is in a strong position to capitalize on this opportunity, as:
|
1. |
Moneytech’s
product offerings (particularly Confirmed Capital and Credit Express) are unique and market leading in that they can finance
up to 100% of the value of an individual invoice and track the details of each transaction in real time utilizing Moneytech’s
proprietary Moneytech Exchange system. |
|
2. |
Moneytech’s
small size relative to the “Big Four” allows it to be more agile, responding to and developing opportunities which
the Australian banks are either unwilling or unable to develop or are too slow to respond to. |
|
3. |
Moneytech
has a full suite of financial products, both transactional and lending, all operated through the Moneytech Exchange, affording
it a competitive advantage over similar non-bank lenders. |
|
4. |
Moneytech
has an ongoing and historic entrepreneurial spirit with a customer focus, aiming to creatively and profitably satisfy customer
needs and exceed customer expectations in the delivery of financial products. |
To
capitalize on our opportunities in the Australian market we engage in marketing campaigns to increase the number of customers
served by Moneytech. As a first step in this effort, we have engaged a business development officer to develop a marketing program
and establish the relationships necessary to cross sell our services. Any significant increase in the number of customers served
and the volume of loans provided by us will require that we increase the credit facility we rely upon to service our customers.
If we are successful in obtaining financing to finance expansion of our business in Australia, we will seek to increase our Wholesale
Facility with Westpac or find another lender which will provide us with the credit necessary to expand our business at lower costs.
We cannot assure you that we will be successful in increasing our Wholesale Facility, that we will be able to find another lender
that will provide the necessary credit increase or that any increase will be on terms that will allow the expansion of our business
to be profitable.
A
number of our Australian customers regularly purchase goods from or supply goods to U.S. based counterparties or otherwise engage
in dollar denominated transactions. To enable us to serve the needs of these customers without the exchange rate risk
associated with AUD, we intend to seek to obtain a loan facility denominated in U.S. dollars from a U.S. institutional lender.
In
addition to expanding our asset based lending business in Australia, we are actively developing a money transfer business in Australia.
The Moneytech Exchange, developed to facilitate the movement and tracking of funds in connection with our debtor and trade finance
facilities, provides us with a platform to conduct financial transactions and disburse funds to and from multiple parties in real
time. We are currently working with HUBBED, a product and service aggregator, to establish kiosks in the storefronts of Australian
news agents, bringing in-store, online and mobile solutions for new financial products and services to be promoted through the
news agents. We also seek to have the hardware or software necessary to access our system in other retail outlets and taxi cabs.
Moneytech has already installed kiosks or the software necessary to access its system in more than 800 locations.
While
seeking to grow our businesses organically in Australia, we will also attempt to identify and acquire one or more asset based
lenders in Australia and the United States. Management believes that an acquisition in the U.S. would accelerate our
efforts to enter the U.S. market and provide us with a management team with knowledge of the U.S. market. An acquisition
of a traditional asset based lender in either Australia or the U.S. should allow us to upgrade the services such lender provides
to its customers, although we cannot assure you that such acquisition will result in upgrading the services furnished to such
lender’s customers. If we enter the U.S. market, we intend to aggressively market our asset based lending products
and money transfer solutions targeted at businesses while we commence a marketing and advertising campaign for our money transfer
products aimed at the consumer market in an effort to attract a large base of individual users, particularly those in the unbanked
community. As of the date of this Report, we do not have any understandings, commitments or agreements with respect to any
acquisitions.
Moneytech’s
Markets
Moneytech operates
in the commercial financial services market in Australia, targeting small to medium businesses (revenues between $1 million and
$100 million) for their asset based lending solutions (including trade and accounts receivable finance) generally seeking loans
of up to $5 million. Any business involved in the provision of products or services to other businesses which requires
funds to grow or that is not satisfied with its existing finance provider is a candidate for a Moneytech financial solution. Inasmuch
as Moneytech’s services are generally provided to smaller businesses which are not eligible for loans from larger, established
lenders, its customers are more likely to default than larger, more established borrowers. Businesses sourcing their
products overseas for resale to business in Australia are a particularly good fit, as Moneytech is able to assist them with the
payment of their overseas supplier, the hedging and conversion into a foreign currency, and the conversion of their receivables
into cash. When doing business with such customers, although Moneytech may provide foreign exchange services, it does
not assume the foreign exchange risk. If a client wishes to pay Moneytech in a currency other than the one provided
by Moneytech, the client will be required to enter a currency hedge for the protection of Moneytech.
Moneytech
believes that the number of potential customers for its financial services will increase as banks and other financial institutions
in Australia raise the minimum size of the loans they are willing to make and the categories of eligible potential borrowers.
Sales
and Marketing
To
date Moneytech has grown its credit line portfolio largely by word of mouth recommendations from its customers to other businesses. Moneytech
is actively seeking experienced business development officers (“BDOs”) to grow amounts funded. These BDOs
will work with providers of products and services to small and medium businesses, such as traditional banks, lawyers and accountants
to develop a referral network. As financing becomes available we will engage in select media advertising in key metropolitan markets
and increase our internet advertising.
The
Moneytech Exchange has been developed to the point where Moneytech can offer its customers funds transfer services (mPay)’s,
debit and gift cards solutions and foreign exchange services. In determining which of our products to devote our marketing
dollars, we will analyze the market potential for each of these products to determine which can more readily achieve positive
cash flow and allocate our marketing dollars accordingly.
Competition
The commercial finance
and financial service industry in Australia has traditionally been dominated by the Big 4 Australian banks— Commonwealth
Bank, Westpac Banking Corporation, Australia and New Zealand Banking Group and National Australia Bank. More recently, these banks
have been decreasing the loans and other financial services provided to smaller and medium sized businesses, preferring to service
larger customers or act as the lender to companies such as Moneytech which then deal directly with smaller businesses. Nevertheless,
the competition to provide financing to small and medium sized businesses remains intense. Competitive factors vary depending
upon the financial services products offered, the nature of the customer and geographic region. Competitive forces may limit our
ability to charge our customary fees and raise fees to our customers in the future. Pressure on our margins is intense and we
cannot assure you that we will be able to successfully compete with our competitors. We are currently an insignificant competitor
in our industry, which includes national, regional and local independent banks and finance companies and other full service financing
organizations. Many of these competitors are larger than we are and have access to capital at a lower cost than we do.
Government
Regulation
Australia
The
Australian Securities and Investments Commission (ASIC) regulates corporations, markets and financial services in Australia and
the Australian Prudential Regulatory Authority (APRA) oversees banks, credit unions, building societies, general insurance and
reinsurance companies, life insurance companies, friendly societies and most members of the superannuation industry. The
Reserve Bank of Australia serves as the central bank of Australia and is responsible for the payments system.
Receivables
and purchase order financing in the style provided by Moneytech in Australia is not subject to regulation in Australia, as confirmed
in an interpretation issued by the Australian Securities and Investment Commission concerning the exemption available to factoring
arrangements under the Corporations Act 2001.
Moneytech’s
payment services activity is considered a regulated financial activity and is conducted by virtue of having an Australian Financial
Services License (AFSL) and by being a member of BPAY. Moneytech’s foreign exchange services activity is considered
a regulated financial activity and is conducted by virtue of having an AFSL. An AFSL is granted by ASIC. As the holder
of an AFSL, Moneytech is authorized to conduct a financial services business providing financial product advice for deposit and
payment products, derivatives and foreign exchange contracts; dealing in these financial products for its own account or on behalf
of another person and making a market in foreign exchange contracts and derivatives to retail and wholesale clients. The
conditions of the license require compliance with various key person, financial services laws compliance measures, training, notification,
financial, reporting, dispute resolution and documentation requirements.
BPAY
is an electronic bill payment system in Australia which enables payments to be made through a financial institution’s on-line
or telephone banking facility to merchants who are registered BPAY billers. BPAY is not subject to regulation by the Australian
Payments Clearing Association or otherwise. BPAY is the registered trading name of BPAY Pty Ltd., a wholly-owned subsidiary of
CreditLink Services, which is owned by Australia’s four major banks.
Moneytech
Limited was accepted as a Payer Institution Member, or PIM, and was authorized to commence participating in the BPAY system commencing March
6, 2013. BPAY is offered by over 150 financial institutions and on more than 45,000 bills. The BPAY system
supports its members in the provision of BPAY payments to their customers. Its members work across the banking system
to provide seamless and convenient customer payments. There are three membership types: Participant Members, Associate
Members and Payer Institution Members. Participant Members are Australian deposit-taking Institutions (ADIs) who directly
settle their BPAY inter-institutional settlement obligations with other Participant Members. Associate Members are
ADIs who don’t directly settle their BPA inter-institutional settlement obligations, instead settling through a Payment
Member. Payer Institution Members (PIMs) are organizations, not necessarily ADIs, that manage stored value accounts
for customers. A PIM is represented by a Participant Member and cannot be a Biller Institution.
BPAY
members are required to comply with Rules and Operating Procedures established by BPAY, but are not otherwise subject to regulation
by any of the Australian regulatory bodies.
United
States
Non-bank
asset based lenders engaged in traditional factoring and accounts receivables/asset based lending activities are not subject to
federal and state regulation with respect to their finance activities. However, we cannot assure you that if we decide to
enter the U.S. marketplace, alternative assets based lenders, like us, will not become subject to federal and state regulation,
and impose regulatory requirements, which may limit the fees we may charge our customers and impose monetary penalties for violations
of such regulatory requirements, increasing the cost of conducting their businesses. Recent legislation adopted particularly
at the Federal level, such as the Dodd-Frank Act, which among other things, authorized various studies concerning the operations
of financial institutions and the effects of their activities on the U.S. economy following the disastrous consequences in 2008
resulting from defaults on collateralized obligations, and the creation of the Consumer Financial Protection Bureau, which was
created to regulate certain types of consumer financing transactions, and regulations adopted pursuant to such legislation, and
future legislative and regulatory initiatives may impose certain regulatory requirements on non-bank financial services companies
engaged in asset based lending and money transfers by individuals. If adopted, these laws also could:
| ● | Regulate
credit granting activities, including establishing licensing requirements, if any, in
various jurisdictions; |
| ● | Require
disclosures to customers; |
| ● | Govern
secured transactions; |
| ● | Set
collection, foreclosure, repossession and claims handling procedures and other trade
practices; |
| ● | Prohibit
discrimination in the extension of credit, and |
| ● | Regulate
the use and reporting of information related to a seller’s credit experience and
other data collection. |
Intellectual
Property
Our intellectual property,
which includes trademarks, copyrights, domain names and software and trade secrets, is key to our success. We have expended significant
amounts developing the software which constitutes the Moneytech Exchange. We have obtained no significant patents protecting
these or our other products but rely upon trade secret laws in Australia. We routinely seek to protect our proprietary
rights by entering into confidentiality and non-disclosure agreements with our employees, contractors, customers and other parties
with whom we conduct business in order to protect our proprietary information.
In addition to our
software we have developed and use trademarks registered in Australia, particularly relating to corporate, brand and product names. Registration
of a trademark in Australia affords the owner nationwide exclusive trademark rights in the registered mark in Australia and the
ability to prevent others from using the same or similar marks in Australia. However, to the extent a common law user has made
prior use of the mark in connection with similar goods or services in a particular geographic area, the nationwide rights conferred
by federal registration would be subject to that geographic area. We continue to seek to develop goodwill and
brand recognition for our trademarks in Australia, and we intend to register additional trademarks in foreign countries where
our products or services are or may be sold or used in the future. We cannot assure you, however, that our current
trademarks or any trademarks we may use or register in the future will afford us any significant competitive advantage.
In recent
years, many software companies have filed applications for patents covering their technologies. Many of these patents have yet
to be litigated. Other competitors may develop technologies that are similar or superior to our technology and may receive and
seek to enforce patents on such technology. We are not aware of any issued or pending patents that may be asserted against us.
Research
and Development
To
date we have invested approximately AUD$10 million developing the Moneytech Exchange, including approximately AUD$1,606,739, AUD$1,376,613
and AUD$1,161,340 in the fiscal years ended June 30, 2015, 2014 and 2013, respectively. The design and technical development of
The Moneytech Exchange and our payment services platform are completed and both are operational. Although we will continue to
upgrade and add additional functionality to The Moneytech Exchange and our payment services platform, we anticipate that our expenditures
on research and development will decrease substantiality as a percentage of our revenues.
Employees
As
of September 15, 2015, we had a total of 18 full time employees, 2 part time employees, 2 full-time contractors and 1 part-time
contractor.
None
of our employees are parties to a collective bargaining agreement. We consider our relationship with our employees to be satisfactory.
Item
1A. Risk Factors
The
purchase of our common stock involves a very high degree of risk.
In
evaluating us and our business, you should carefully consider the risks and uncertainties described below and the other information
and our consolidated financial statements and related notes included herein. The risks provided below may not be all the risks
we face. If any of events described in the risks below actually occurs, our financial condition or operating results
may be materially and adversely affected, the price of our common stock may decline, perhaps significantly, and you could lose
all or a part of your investment.
Risks
Related to Our Business
Adverse
economic conditions in Australia, the United States and worldwide may negatively impact our results.
We
are subject to changes in general economic conditions that are beyond our control. During periods of economic slowdown, delinquencies,
defaults, and losses, generally increase while collections decrease. These periods may also be accompanied by increased unemployment
rates and decreased consumer demand, which negatively impact businesses being lent to, weakening the collectability of the purchase
orders we finance, increasing the risk that an event of default from one of our customers will eventuate in a loss. In addition,
during an economic slowdown or recession, our servicing costs may increase without a corresponding increase in our finance charge
income. Furthermore, our business is significantly affected by monetary and regulatory policies of the Reserve Bank of Australia,
the Australian Federal Government and its agencies, the U.S. federal government and the US Federal Reserve. Changes in the policies
of the institutions are influenced by macroeconomic conditions and other factors that are beyond our control and could have a
material adverse effect on us through interest rate changes, costs of compliance with increased regulation, and other factors.
The
process we use to estimate losses inherent in our credit exposure requires complex judgments, including analysis of individual
industries, forecasts of economic conditions and how those economic conditions might impair the ability of our borrowers to repay
their facility. The degree of uncertainty concerning economic conditions may adversely affect the accuracy of our estimates, which
may, in turn, impact the reliability of the process and the quality of our assets.
Our
business could be negatively impacted if our access to funding is reduced.
We
have available an AUD$50 million Wholesale Facility with Westpac which is renewed annually on an agreed anniversary date. Our
borrowing limit under the RPA is AUD$50 million, subject to interim agreed upon limits determined by various tests and covenants. As
at June 30, 2015 the total amount drawn against the facility was $6,052,789. The facility has been renewed until December
31, 2015. In April 2015 we issued AUD$25 million in notes subordinated to the RPA and reduced the interim agreed upon credit limit
to AUD$25 million. We cannot guarantee that the RPA will be renewed on the current maturity date or thereafter, on reasonable
terms, or at all. We require additional capital or the expansion of our borrowing capacity to substantially increase the aggregate
amount of credit lines we provide. The availability of additional financing depends, in part, on factors outside of our control,
and the availability of bank liquidity in general. We may also experience the occurrence of events of default or breach of financial
covenants, which could reduce our access to funding. In the event of a sudden or unexpected shortage of funds in the banking system,
we cannot be sure that we will be able to maintain necessary levels of funding without incurring high funding costs, a reduction
in the availability of financing or the liquidation of certain assets.
Downsizing
our business would have a material adverse effect on our financial position, liquidity and results of operations.
Our
business could be negatively impacted if we no longer receive grants from the Australian Government.
A
significant portion of the amounts paid to develop the Moneytech Exchange represents funds received from the Australian Government
pursuant to a research and development grant program. Such grants represented approximately 43% and 45% of our research
and development budgets in the fiscal years ended June 30, 2015 and 2014, respectively. Although the acquisition of
Moneytech by us should not adversely impact Moneytech’s ability to qualify for such grants, as we grow, we may no longer
be eligible for such grants. The inability to receive grants in the future commensurate with those received in the
past could force us to reduce the amounts spent on research and development and could adversely affect our business and our financial
results.
Our
indebtedness and other obligations are significant and impose restrictions on our business.
We
have a significant amount of indebtedness and are dependent upon our Wholesale Loan Facility and the proceeds of our Subordinated
Notes.
Our
Wholesale Facility or RPA and the documents underlying the Subordinated Notes imposes various constraints on the operation of
our business, reduces operational flexibility and creates default risks. The RPA and Subordinated Notes contain a cash reserve
requirements which require us to deposit money in a bank account in accordance with an agreed upon formula. We are required to
hold these funds in restricted cash accounts to provide additional collateral for borrowings under the borrowing facilities. Additionally,
the receivables purchase facility and the Subordinated Notes contain various covenants requiring in certain cases minimum financial
ratios, asset quality, and portfolio performance ratios. Generally, these limits are calculated in respect of our clients as a
group; however for certain obligors, delinquency, net loss and dilution are calculated with respect to the individual obligor.
Failure
to meet any of these covenants could result in an event of default under the RPA or Subordinated Notes. If an event of default
occurs, the lender could elect to declare all amounts outstanding to be immediately due and payable, enforce its interest against
collateral pledged under the RPA or Subordinated Notes or restrict our ability to obtain additional borrowings under the RPA.
If
our debt service obligations increase, whether due to the increased cost of existing indebtedness or the incurrence of additional
indebtedness, we may be required to dedicate a significant portion of our cash flow from operations to the payment of principal
of, and interest on, our indebtedness, which would reduce the funds available for other purposes. Our indebtedness also could
limit our ability to withstand competitive pressures and reduce our flexibility in responding to changing business and economic
conditions.
We
purchase accounts receivable primarily from and make purchase order advances primarily to, small to medium companies, which present
a greater risk of loss than purchasing accounts receivable from and purchase order advances to larger companies.
Our
portfolio consists primarily of accounts receivable and purchase order advances from small to medium businesses with annual revenues
ranging from $5 million to $50 million. Compared to larger, publicly owned firms, these companies generally have more limited
access to capital and higher funding costs, may be in a weaker financial position and may need more capital to expand or compete.
These financial challenges may make it difficult for our clients to continue as a going concern. Accordingly, advances made to
these types of clients entail higher risks than advances made to companies who are able to access traditional credit sources. In
part because of their smaller size, our clients may:
| ● | Experience
significant variations in operating results; |
| ● | Have
narrower product lines and market shares than their larger competitors; |
| ● | Be
particularly vulnerable to changes in customer preferences and market conditions; |
| ● | Be
more dependent than larger companies on one or more major customers or suppliers, the
loss of which could materially impair their business, financial condition
and prospects; |
| ● | Face
intense competition, including from companies with greater financial, technical, managerial
and marketing resources; |
| ● | Depend
on the management talents and efforts of a single individual or a small group of persons
for their success, the death, disability or resignation of whom could materially harm
the client’s financial condition or prospects; and |
| ● | Have
less skilled or experienced management personnel than larger companies. |
Accordingly,
any of these factors could impair a client’s cash flow or result in other events, such as bankruptcy, which could limit
our ability to collect on the client’s purchased accounts receivable or purchase order advances, and may lead to losses
in our portfolio and a decrease in our revenues, net income and assets.
Our
financial condition, liquidity, and results of operations depend on the credit performance of the credit facilities we provide
to our customers.
While our underwriting
guidelines were designed to establish that the obligors on the receivables we purchase represent a reasonable credit risk, the
receivables we purchase nonetheless are likely to experience higher default rates than a portfolio of obligors comprised of large
companies. In the event of a default, the most practical alternative may be to engage in collection action against the obligor
or, if permitted under the terms of our agreement, the customer who sold the receivable to us. The realizable value of a receivable
may not cover the outstanding account balance and costs of recovery, and if collection of the receivables does not yield sufficient
proceeds to repay the receivables in full could result in losses on those receivables.
Our
allowance for purchased receivable losses and impairments may prove to be insufficient to absorb probable losses inherent in our
portfolio.
We maintain an allowance
for bad or doubtful debts that we believe is appropriate to provide for probable losses inherent in our portfolio. The determination
of the appropriate level of the allowance for bad or doubtful debts and impairment reserves inherently involves a high degree
of subjectivity and requires us to make significant estimates of current credit risks and future trends, all of which are subject
to change. Changes in economic conditions affecting clients, new information regarding our clients or their obligors, and other
factors, both within and outside of our control, may require an increase in the allowance for purchased receivable losses. Furthermore,
growth in our funding book generally would lead to an increase in the provision for purchased receivable losses. If the net write-offs
exceed the allowance for bad and doubtful debt, we will need to make additional provisions to increase the allowance for bad and
doubtful debt. There is no accurate method for predicting losses, and we cannot assure you that provision for bad and doubtful
debts will be sufficient to cover actual losses. Any increases in the allowance for bad and doubtful debts will result in a decrease
in net income and may have a material adverse effect on us.
Poor
portfolio performance may trigger credit enhancement provisions in our Receivables Purchase Agreement.
Our
RPA and the Subordinated Notes impose net loss ratio limits, dilution and day sales outstanding limits that, if exceeded, would
increase the level of credit enhancement requirements for that facility and redirect all excess cash to our lender. Generally,
these limits are calculated based on the aggregate portfolio performance across all clients; however, delinquency, net loss ratios
and dilutions are calculated with respect to some individual obligors.
If,
at any measurement date, a trigger was hit with respect to any financing, provisions of the financing agreements would increase
the level of credit enhancement requirements for that financing and redirect all excess cash to the credit provider. During this
period, excess cash flow, if any, from the Facility would be used to fund the increased credit enhancement levels rather than
being distributed to us. Once an impacted trust reaches the new requirement, we would return to receiving a residual distribution
from the trust.
There
is a risk that in the event portfolio performance was not adequate, triggering credit enhancement criteria, and that there was
not sufficient cash-flow from our business to satisfy the increase in enhancement required, that our credit provider could cease
its support of our business which would have a materially adverse effect on our business.
Competition
may adversely impact our results.
The financial services
sector in which we operate is highly competitive and could become even more so, particularly in those segments which are perceived
as providing higher growth prospects. Factors contributing to this include industry deregulation, mergers and acquisitions,
changes in customers’ needs and preferences, entry of new participants, development of new distribution and service methods
and increased diversification of products by competitors. For example, changes in the financial services sector have
made it possible for non-bank financial institutions to offer products and services traditionally provided by banks, such as automatic
payment systems, mortgages and credit cards.
The effect of competitive
market conditions may have a material adverse effect on our financial performance and position. For example, increasing
competition for customers can lead to a compression in our net interest margin, or increased advertising and related expenses
to attract and retain customers.
The asset backed lending
market is served by a variety of entities, including, banks, credit unions, and independent finance companies. Our competitors
may provide financing on terms more favorable to customers than we offer. Many of these competitors also have long-standing relationships
with potential clients.
We anticipate that we
will encounter greater competition as we expand our operations.
The
market for providing loans and other financial services to small to medium size businesses is highly competitive and we expect
that competition will increase. Current competitors have significantly greater financial, technical and marketing resources
than we do. We expect that more companies will enter this sector of the financial services market. We may not be able to compete
successfully against either current or future competitors. Increased competition could result in reduced revenue, lower margins
or loss of market share, any of which could significantly harm our business.
Failure
to obtain insurance on favorable terms may result in unexpected losses.
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. No assurances can be made that we will be able to continue to insure bad debt losses or
that we will be able to obtain policy coverage with premiums that are cost effective. If we are unable to renew our bad debt insurance
policy or the premiums for coverage become cost prohibitive, we may face larger than expected losses from bad debts.
Changes
in interest rates may adversely impact our profitability and risk profile.
Our
profitability may be directly affected by interest rate levels and fluctuations in interest rates. As interest rates change, our
gross interest rate spread on new facilities either increases or decreases because the rates we charge on the facilities we provide
is limited by market and competitive conditions, restricting our ability to pass on increased interest costs to the consumer.
Additionally, although the majority of our clients are small to medium businesses and are not highly sensitive to interest rate
movement, increases in interest rates may reduce the volume of facilities we originate.
A
security breach or a cyber attack could adversely affect our business.
In
the normal course of business, we receive, process and retain sensitive and confidential personal and business information and
may, subject to applicable law, share that information with third parties. Our facilities and systems, and those of third parties
to which we provide information, could be vulnerable to external or internal security breaches, acts of vandalism, computer viruses,
misplaced or lost data, programming or human errors, or other similar events. A security breach or cyber attack of our systems
could interrupt or damage our operations or harm our reputation. If third parties or our employees penetrate our network security
or otherwise misappropriate our customers’ confidential information or contract information, or if we give third parties
or our employees improper access to consumers’ confidential information or contract information, we could be subject to
liability. This liability could include investigations, fines, or penalties imposed by regulatory agencies, including the loss
of necessary permits or licenses. This liability could also include identity theft or other similar fraud-related claims, claims
for other misuses, or losses of personal information, including for unauthorized marketing purposes or claims alleging misrepresentation
of our privacy and data security practices.
We
rely on encryption and authentication technology both licensed from third parties and developed in house to provide the security
and authentication necessary to effect secure online transmission of confidential information. Advances in computer capabilities,
new discoveries in the field of cryptography, or other events or developments may result in a compromise or breach of the algorithms
that we use to protect sensitive data. A party who is able to circumvent our security measures could misappropriate proprietary
information or cause interruptions in our operations. We may be required to expend capital and other resources to protect against
such security breaches or cyber attacks or to alleviate problems caused by such breaches or attacks. Our failure to prevent security
breaches and cyber attacks, whether due to an external cyber-security incident, a programming error, or other cause, could damage
our reputation, expose us to mitigation costs and the risks of private litigation and government enforcement, disrupt our business,
or otherwise have a material adverse effect on our sales and results of operations.
We
apply underwriting criteria we have developed to assess the credit worthiness of each prospective customer.
We
rely upon our judgment in applying underwriting criteria we have developed to assess whether to extend financing to a particular
customer and the fees and other charges to assess such customer. If we exercise poor judgment in assessing the credit
quality of prospective clients or the underwriting criteria we choose to rely upon cause us to extend financing to clients which
later default, it would have a material adverse effect on our financial position, liquidity and results of operations.
We
depend on the accuracy and completeness of information about our clients and obligors and any misrepresented information could
adversely affect our business, results of operations and financial condition.
In
deciding whether to purchase particular receivables or to enter into other transactions with our clients and their obligors, we
rely on information furnished to us by or on behalf of our clients and counterparties, including financial statements and other
financial information. We are vulnerable to fraud by our customers and employees. We also rely on representations made by our
clients and counterparties as to the accuracy and completeness of that information and, with respect to financial statements,
on reports of independent third parties. If any of this information is intentionally or negligently misrepresented, such as a
fraudulent invoice, and such misrepresentation is not detected, purchased invoices may be worthless, or worth significantly less
than expected. Whether a misrepresentation is made by our client, another party, or one of our employees, we generally bear the
risk of loss associated with the misrepresentation. Any such misrepresented information could adversely affect our business, financial
condition, and results of operations.
We
are subject to operational risk, which may adversely impact our results.
Operational
risk refers to risks arising from day-to-day operational activities which may result in direct or indirect loss. These losses
may result from both internal and external events. We are highly dependent on information systems and technology and
there is a risk that these, or the services they use or depend on, might fail. Our daily operations are computer based. The
exposure to systems risks includes: complete or partial failure of information technology systems; inadequacy of internal or third
party information technology systems, due to, among other things, failure to keep pace with industry developments; and capacity
of the existing systems to effectively accommodate planned growth and integrate existing and future acquisitions and alliances. Any
failure in these systems could result in business interruption, the loss of customers, damaged reputation and weakening of our
competitive position and could adversely impact our business and have a material adverse effect on our financial condition and
loss of operations.
We
are potentially exposed to failings by third party providers, including outsourcing, to natural disasters, political, security
and social events and to failings in the financial services sector.
We
cannot assure you that any business we acquire will benefit from its acquisition by us.
We
cannot assure you we will realize any of the perceived benefits to our business from any future acquisitions. The past performance
of Moneytech is not necessarily indicative of future performance. The process of combining businesses acquired involves certain
risks, including exposure to unknown liabilities of the acquired companies, and may cause fundamental changes to their businesses
or in their operations. In addition, our operating results may be affected by the additional expenses we incur in integrating
them into our organization and the significant increase in expenses relating to financial statement preparation and compliance
with controls and procedures standards established by the Sarbanes-Oxley Act of 2002.
Our
inability to successfully manage the growth of our business may have a material adverse effect on our business, results of operations
and financial condition.
We
intend to continue our growth strategy to (i) expand our portfolio by increasing market penetration and market share through new
customer acquisitions and (ii) grow our other businesses such as our payments aggregation and processing business, our gift card
business and our foreign exchange business. Our ability to execute this growth strategy is subject to significant risks, some
of which are beyond our control, including:
| ● | The
inherent uncertainty regarding general economic conditions; |
| ● | Our
ability to obtain adequate financing for our expansion plans; |
| ● | The
prevailing laws and regulatory environment of each territory and country in which we
operate or seek to operate, and, To the extent applicable, laws and regulations, which
are subject to change at any time; |
| ● | The
degree of competition in new markets and its effect on our ability to attract new customers;
and |
| ● | Our
ability to recruit qualified personnel, in particular in areas where we face a great
deal of competition. |
As
part of our growth we expect to experience growth in the number of employees and the scope of our operations. This could result
in increased responsibilities for management.
Our
future success will be highly dependent upon our ability to manage successfully the expansion of our operations. Our ability to
manage and support our growth effectively will be substantially dependent on our ability to implement adequate improvements to
financial, inventory, management controls, reporting, and hire sufficient numbers of financial, accounting, administrative, and
management personnel. We may not succeed in our efforts to identify, attract and retain experienced accounting and financial personnel.
Our
future success also depends on our ability to address potential market opportunities and to manage expenses to match our ability
to finance operations. The need to control our expenses will place a significant strain on our management and operational resources.
If we are unable to control our expenses effectively, our business, results of operations and financial condition may be adversely
affected.
Our
growth strategies require significant capital investments and may require us to seek external financing, which may not be available
on terms favorable to us.
Our
business operations and growth strategies require substantial capital investments, the availability of which depends on our ability
to generate cash flow from operations, borrow funds on satisfactory terms and raise funds in the capital markets. Our ability
to arrange for financing to support our capital expenditures and the cost of such financing are dependent on numerous factors,
including general economic and capital markets conditions, interest rates and credit availability from banks or other lenders,
many of which are beyond our control. In addition, increases in interest rates or the failure to obtain external financing on
terms favorable to us will affect our financing costs and our results of operations. We may not be able to obtain financing in
amounts or on terms acceptable to us,
A
reduction in demand for our services and failure by us to adapt to such reduction could adversely affect our business and results
of operations.
The
demand for a particular service we offer may be reduced due to a variety of factors, such as regulatory restrictions that decrease
customer access to particular services, the availability of competing services or changes in customers' preferences or financial
conditions. Should we fail to adapt to significant changes in our customers' demand for, or access to, our services, our revenues
could decrease significantly and our operations could be harmed. Even if we do make changes to existing services or
introduce new services to fulfill customer demand, customers may resist or may reject such services. Moreover, the effect of any
change in our services on the results of our business may not be fully ascertainable until the change has been in effect for some
time and by that time it may be too late to make further modifications to such service without causing further harm to our business,
results of operations and financial condition.
Fluctuations
in exchange rates could adversely affect our business as well as result in foreign currency exchange losses in our US dollar financials.
Our
financial statements are expressed in U.S. dollars. The functional currency of Moneytech is Australian dollars. The value
of the Australian dollar against the U.S. dollar and other currencies is affected by, among other things, changes in political
and economic conditions and U.S. and Australian foreign exchange policies. Any material change in the exchange ratio between the
Australian dollar and the U.S dollar may materially and adversely affect our reported amounts in US dollars of cash flows, revenues,
earnings and financial position and the value of, and any dividends payable to, our shares of common stock in US dollars.
Loss
of our management and other key personnel, or an inability to attract such management and other key personnel, could negatively
impact our business.
The
successful implementation of our strategy depends in part on our ability to retain our experienced management team, particularly
Hugh Evans, our President and Chief Executive Officer and key employees, and on our ability to attract appropriately qualified
new personnel. Hugh Evans has extensive experience in the small business and consumer internet-based finance industry. He has
a proven track record of successfully operating our business. The loss of any key member of our management team or other key employees
could hinder or delay our ability to implement our growth strategy effectively. Further, if we are unable to attract appropriately
qualified new personnel as we expand, we may not be successful in implementing our growth strategy. In either instance, our profitability
and financial performance could be adversely affected. Experienced management and other key personnel in the financial services
industry are in demand and competition for their talents is intense. Furthermore, we do not maintain key person insurance on any
of our management personnel. Failure to attract and retain qualified employees or the loss of any member of our management may
result in a loss of organizational focus, poor operating execution or an inability to identify and execute potential strategic
initiatives. This could, in turn, materially and adversely affect our business, financial condition and results of operations.
Our
senior management lacks experience managing a public company and complying with laws applicable to a U.S. public company.
Our
senior management has no experience in complying with laws and regulations applicable to U.S. publicly-traded companies, including
the United States federal and state securities laws and regulations and the U.S. Sarbanes–Oxley Act of 2002. For example,
we are required to file periodic and other reports and to comply with U.S. securities and other laws, which did not apply to Moneytech
prior to the Share Exchange. These obligations can be burdensome and complicated, and failure to comply with such obligations
could have a material adverse effect on our company. In addition, we expect that the process of learning about such new obligations
as a public company in the United States will require senior management to devote time and resources to such efforts that might
otherwise be spent on the operation of our business.
The
obligations associated with being a public company will require significant resources and management attention, which will increase
our costs of operations and may divert focus from our business operations.
As
a publicly traded company, we are required to file with the SEC periodic reports containing our consolidated financial statements
within a specified time following the completion of quarterly and annual periods. As a public company, we incur significant legal,
accounting, insurance, and other expenses. Compliance with these reporting requirements and other rules of the SEC will increase
our legal and financial compliance costs and make some activities more time consuming and costly. Furthermore, the need to establish
the corporate infrastructure demanded of a public company may divert management’s attention from implementing our strategy,
which could prevent us from successfully implementing our strategic initiatives and improving our business, results of operations,
and financial condition. We have made, and will continue to make, changes to our internal controls and procedures for financial
reporting and accounting systems to meet our reporting obligations as a public company. However, we cannot predict or estimate
the amount of additional costs we may incur in order to comply with these requirements. We anticipate that these costs will materially
increase our total costs and expenses.
We
are required to make significant estimates and assumptions in the preparation of our financial statements and our estimates and
assumptions may not be accurate.
The
preparation of our consolidated financial statements in conformity with generally accepted accounting principles in the United
States of America (“GAAP”) requires our management to make significant estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the consolidated financial
statements, and the reported amounts of income and expense during the reporting periods. We use estimates and assumptions in determining
the residual values of delinquent receivables. Critical estimates are made by management in determining, among other things, the
allowance for loan losses, amounts of impairment, and valuation of income tax assets or tax refunds. If our underlying estimates
and assumptions prove to be incorrect, our financial condition and results of operations may be materially different from that
reported in our financial statements.
The
failure of third parties who provide products, services or support to us to maintain their products, services or support could
disrupt our operations or result in a loss of revenue.
We
are reliant on third parties to provide certain products, services and support that is material to our business. In the event
such parties become unwilling or unable to continue to provide such products, services or support to us, our business operations
could be disrupted and our revenue could be materially and adversely affected.
We
may not be successful at entering new businesses or broadening the scope of our existing service offerings.
We
may enter into new businesses that are adjacent or complementary to our existing businesses and that broaden the scope of our
existing service offerings. We cannot assure you that we will be successful in integrating the operations of any new businesses
we acquire with our existing businesses, or that the failure to integrate such businesses, or the operation of such acquired businesses,
will not have a material and adverse effect on our results operations, liquidity or capital resources.
Our
information technology may not support our future volumes and business strategies.
We
rely on our proprietary origination and servicing platforms that utilize database-driven software applications. We employ a team
of engineers, information technology analysts, and website designers to ensure that our information technology systems remain
on the cutting edge. However, due to the rapid changes in technology, there can be no assurance that our information technology
systems will continue to be adequate for our business or provide a competitive advantage.
Our
network and information systems are important to our operating activities and any network and information system shutdowns could
disrupt our ability to process applications, originate financing facilities, or service our existing portfolio, which could have
a material adverse impact on our operating activities. Shutdowns may be caused by unforeseen catastrophic events, including natural
disasters, terrorist attacks, large-scale power outages, software or hardware defects, computer viruses, cyber attacks, external
or internal security breaches, acts of vandalism, misplaced or lost data, programming or human errors, difficulties in migrating
technology facilities from one location to another, or other similar events. We cannot be certain that our disaster recovery plan
will function as intended, or otherwise resolve or compensate for such effects. Failure of our disaster recovery plan, if and
when experienced, may have a material adverse effect on our revenue and ability to support and service our customer base.
Failure
to protect our intellectual property rights may materially and adversely affect our competitive position and operations, and we
may be exposed to infringement or misappropriation claims by third parties.
Our
success is in part attributable to the technologies, know-how and other intellectual property that we have developed or acquired.
We rely upon a combination of trade secrets, confidentiality policies, non-disclosure and other contractual arrangements, and
trademark laws to protect our intellectual property rights. There can be no assurance that the steps we have taken to protect
our intellectual property rights are adequate to prevent or deter infringement or other misappropriation of our intellectual property.
We may not be able to detect unauthorized uses or take appropriate and timely steps to enforce our intellectual property rights.
Any significant infringement of our proprietary technologies and processes or our intellectual property rights could weaken our
competitive position and have an adverse effect on our operations. To protect our intellectual property rights, we may have to
commence legal proceedings or otherwise spend significant amounts of time and money. We cannot assure you that we will
prevail in such proceedings. The occurrence of any unauthorized use of or other infringement to our intellectual property rights,
it could result in potential damage to our competitive position.
We
may be subject to litigation involving claims of patent or trademark infringement or the violation of intellectual property rights
of third parties. The defence of intellectual property suits, patent opposition proceedings and related legal and administrative
proceedings can be costly and time-consuming and may significantly divert the efforts and resources of our technical and management
personnel. An adverse determination in any litigation or proceedings to which we become a party could subject us to significant
liability to third parties, require us to seek licenses from third parties, pay ongoing royalties, or redesign our products or
subject us to injunctions prohibiting the manufacture and sale of our products or the use of our technologies, which could materially
and adversely affect our business, financial condition or results of operations. Protracted litigation could also result in our
customers or potential customers deferring or limiting their purchase or use of our products until resolution of such litigation,
which could adversely affect our business.
Catastrophic
events may negatively affect our business, financial condition, and results of operations.
Natural
disasters, acts of war, terrorist attacks, and the escalation of military activity in response to these attacks or otherwise may
have negative and significant effects, such as imposition of increased security measures, changes in applicable laws, market disruptions,
and job losses. These events may have an adverse effect on the economy in general. Moreover, the potential for future terrorist
attacks and the national and international responses to these threats could affect our business in ways that cannot be predicted.
The effect of any of these events or threats could have a material adverse effect on our business, results of operations and financial
condition.
Regulatory
Risks
If
our asset-based financing business in Australia were to become subject to more extensive regulation under Australian law, our
business, financial condition, liquidity and results of operations would be materially and adversely affected.
Our
asset based lending activities, including factoring receivables and purchase order financing, are not subject to governmental
regulation in Australia, since we are deemed not to make loans. Nevertheless, if any of the transactions entered into
by us are deemed to be loans or financing transactions instead of a true purchase of accounts receivable, then various laws and
regulations we would become subject to numerous laws and regulations otherwise not applicable to our principal activities in Australia
and could limit the fees and other charges we are able to charge our customers and may further subject us to penalties under such
regulations. These laws and regulations would also:
| ● | Regulate
our credit granting activities, and require that we obtain additional licenses; |
| ● | Require
additional disclosures to customers; |
| ● | Govern
the manner in which we conduct secured transactions; |
| ● | Set
collection, foreclosure, repossession and claims handling procedures and other trade
practices; |
| ● | Prohibit
discrimination in the extension of credit, and |
| ● | Regulate
our use and reporting of information related to a seller’s credit experience and
other data collection. |
This
could have a material adverse effect on our business, financial condition, liquidity and results of operations.
If
we are found to be subject to or in violation of any laws or regulations, including those in Australia, the United States
and other jurisdictions governing money transmission, electronic funds transfers, money laundering, terrorist financing, sanctions,
consumer protection, banking and lending, it could be subject to liability, licensure and regulatory approval and may be forced
to change its business practices.
Moneytech’s
planned electronic payments business and money transfer business will be subject to the laws and regulations of Australia, and
those of the United States if we decide to engage in those businesses in the United States, including those governing money transmission,
electronic funds transfers, money laundering, terrorist financing, sanctions, consumer protection, banking and lending. The legal
and regulatory requirements that apply to our payments businesses vary from country to country. While we have programs focused
on compliance with applicable laws and regulations, there can be no assurance that we will not be subject to fines or other enforcement
actions in one or more jurisdictions or be required to make changes to our business practices or compliance programs to comply
in the future if our business should expand outside of Australia.
If
Moneytech were to become a money transmitter in the United States, it would become subject to restrictions on its investment of
customer funds, reporting requirements, bonding requirements, and inspection by state regulatory agencies. If Moneytech were found
to be in violation of money services laws or regulations, we could be subject to criminal or civil penalties, be forced to alter
our business practices or be required to obtain additional licenses or regulatory approvals that could impose substantial costs
on us. Any change to our business practices that makes our services less attractive to customers or prohibits the use of our services
by residents of a particular jurisdiction could harm our business.
We
also would be subject to various anti-money laundering and counter-terrorist financing laws and regulations around the world that
prohibit, among other things, involvement in transferring the proceeds of criminal activities. Any errors, failures or delays
in complying with federal, state or foreign anti-money laundering and counter-terrorist financing laws could result in significant
criminal and civil lawsuits, penalties and forfeiture of significant assets or other enforcement actions.
Entry
into the US market or that of any other country will require significant expenditures to develop necessary compliance programs.
We
have yet to determine what services we will offer and how we will provide such services were we to enter the U.S. money transfer
or finance markets. Before we could provide any such services we would have to determine what regulations would be
applicable to our business and develop appropriate compliance programs. We are likely to incur significant expenses
in determining what laws and regulations are applicable to our business and developing appropriate compliance programs.
Risks
Related to Our Common Stock and Our Status as a Public Company
There
is currently a limited trading market for our common stock and an active, liquid trading market for our common stock may not develop,
which could adversely affect the liquidity and price of our common stock.
Our
common stock is quoted on the OTCQX quotation service. There is currently a limited trading market for our common stock. If
an active, liquid trading market does not develop, you may have difficulty selling your shares of common stock at an attractive
price, or at all. An inactive market may also impair our ability to raise capital by selling our common stock and may impair our
ability to acquire other companies, products or technologies by using our common stock as consideration.
The
market price of our common stock could decline due to the large number of outstanding shares of our common stock eligible for
future sale.
Sales
of substantial amounts of our common stock in the public market, or the perception that these sales could occur, could cause the
market price of our common stock to decline. These sales could also make it more difficult for us to sell equity or equity-related
securities in the future, at a time and price that we deem appropriate.
Holders
of our shares, including members of our management, could choose to pledge their shares as collateral for loans and might not
be required to disclose such arrangements. A subsequent decline in the price of our shares could cause the lender to foreclose
upon the pledged shares and sell them into the market, leading to a further decline in the price of our shares.
Hugh
Evans, our President and Chief Executive Officer, has significant influence over us, including control over decisions that require
the approval of stockholders, which could limit your ability to influence the outcome of key transactions, including a change
of control.
Hugh
Evans, our Chief Executive Officer and President, owns a majority of our outstanding voting shares, and consequently has continue
effective control over our business, including matters requiring the approval of our stockholders, such as election of directors,
approval of significant corporate transactions and the timing and distribution of dividends, if any. In addition, his ownership
of the Series B Shares entitles him to elect a majority of our directors until July 1, 2018, and as a result Mr. Evans will control
our policies and operations, including, among other things, the appointment of management, future issuances of our common stock
or other securities, the payment of dividends, if any, on our common stock, the incurrence of debt by us, and the entering into
of extraordinary transactions.
Mr.
Evans may have interests that do not align with the interests of our other stockholders, including with regard to pursuing acquisitions,
divestitures, and other transactions that, in his judgment, could enhance his equity value, even though such transactions might
involve risks to our other stockholders. For example, Mr. Evans could cause us to make acquisitions that increase our indebtedness.
Mr. Evans will have effective control over our decisions to enter into such corporate transactions regardless of whether others
believe that any transaction is in our best interests. Such control may have the effect of delaying, preventing, or deterring
a change of control of our company, could deprive stockholders of an opportunity to receive a premium for their common stock as
part of a sale of our company, and might ultimately affect the market price of our common stock.
Since
our principal assets are located in Australia, and most of our officers and directors are not residents of the United States,
it may be difficult or impossible for you to bring an action against us or against these individuals in Australia in the event
that you believe that your rights have been infringed under the securities laws or otherwise, or to enforce any judgments rendered
against us or our officers and/or directors.
Our
principal assets are located in Australia, and all of our officers and all but one of our directors are not residents
of the United States. Therefore, it may be difficult to effect service of process on such persons in the United States, and it
may be difficult to enforce any judgments rendered by any courts of the United States against us or these officers and directors.
Furthermore, it may be difficult or impossible for you to bring an action against us or against these individuals in Australia
in the event that you believe that your rights have been infringed under the securities laws or otherwise. Even if you are successful
in bringing an action of this kind, the laws of Australia may render you unable to enforce a judgment against our assets or the
assets of our directors or officers that are not residents of the United States. There is doubt as to the enforceability in the
Commonwealth of Australia, in original actions or in actions for enforcement of judgments of U.S. courts, of civil liabilities
predicated solely upon federal or state securities laws of the U.S., especially in the case of enforcement of judgments of U.S.
courts where the defendant has not been properly served in Australia. As a result of all of the above, our shareholders may have
more difficulty in protecting their interests through actions against our management, directors or major shareholders compared
to shareholders of a corporation doing business entirely within the United States.
Certain
provisions of our amended and restated certificate of incorporation may have anti-takeover effects, which could limit the price
investors might be willing to pay in the future for our common stock. In addition, Delaware law may inhibit takeovers of us and
could limit our ability to engage in certain strategic transactions our board of directors believes would be in the best interests
of stockholders.
Certain
provisions of our amended and restated certificate of incorporation and bylaws could discourage unsolicited takeover proposals
that stockholders might consider to be in their best interests. Among other things, our amended and restated certificate of incorporation
and bylaws may include provisions that:
| ● | Do
not permit cumulative voting in the election of directors, which would otherwise allow
less than a majority of stockholders to elect director candidates; |
| ● | Limit
the ability of our stockholders to nominate candidates for election to our board of directors; |
| ● | Authorize
the issuance of “blank check” preferred stock without any need for action
by stockholders; and |
| ● | Limit
the ability of stockholders to call special meetings of stockholders. |
The
foregoing factors, as well as the significant common stock ownership by Hugh Evans, could impede a merger, takeover, or other
business combination or discourage a potential investor from making a tender offer for our common stock, which, under certain
circumstances, could reduce the market value of our common stock.
In
addition, Section 203 of the Delaware General Corporation Law (the “DGCL”), generally affects the ability of an “interested
stockholder” to engage in certain business combinations, including mergers, consolidations, or acquisitions of additional
shares, for a period of three years following the time that the stockholder becomes an “interested stockholder.” An
“interested stockholder” is defined to include persons owning directly or indirectly 15% or more of the outstanding
voting stock of a corporation.
We
currently do not intend to pay any dividends on our shares in the immediate future.
We
currently do not intend to pay dividends on our shares. We cannot give any assurance that we will declare dividends
of any amounts, at any rate or at all in the future. Future dividends, if any, will be at the discretion of our board of directors,
and will depend upon our results of operations, cash flow, financial condition, the terms of any bank loan, line of credit or
funding agreement to which we are party, as well as our capital needs, future prospects and other factors that our directors may
deem appropriate.
The
market price of our common stock may be volatile, which could cause the value of an investment in our common stock to decline.
The
market price of our common stock may fluctuate substantially due to a variety of factors, many of which are beyond our control,
including:
| ● | General
market conditions; |
| ● | Domestic
and international economic factors unrelated to our performance; |
| ● | Actual
or anticipated fluctuations in our quarterly operating results; |
| ● | Changes
in or failure to meet publicly disclosed expectations as to our future performance; |
| ● | Downgrades
in securities analysts’ estimates of our financial performance or lack of research
and reports by industry analysts; |
| ● | Changes
in market valuations or earnings of similar companies; |
| ● | Any
future sales of our common stock or other securities; |
| ● | Additions
or departures of key personnel; |
| ● | Fluctuations
in foreign exchange rates; |
| ● | Regulatory
developments in Australia affecting us or our competitors; and |
| ● | Release
or expiry of transfer restrictions on our outstanding shares. |
The
stock markets in general have experienced substantial volatility that has often been unrelated to the operating performance of
particular companies. These types of broad market fluctuations may adversely affect the trading price of our common stock. In
the past, stockholders have sometimes instituted securities class action litigation against companies following periods of volatility
in the market price of their securities. Any similar litigation against us could result in substantial costs, divert management’s
attention and resources, and harm our business or results of operations. For example, we are currently operating in, and have
benefited from, a protracted period of historically low interest rates that will not be sustained indefinitely, and future fluctuations
in interest rates could cause an increase in volatility of the market price of our common stock.
Item
1B. Unresolved Staff Comments
Not
applicable.
Item
2. Properties
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. In addition, we occupy an office on Albany Highway, Victoria Park, Western Australia on a month by month
basis. The monthly rent for the premises is AUD $1,420.
Management
believes the terms of the leases are consistent with market standards and were arrived at through arm’s-length negotiation.
Item
3. Legal Proceedings
From
time to time, we may become involved in various lawsuits and legal proceedings, which arise, in the ordinary course of business.
However, litigation is subject to inherent uncertainties, and an adverse result in these or other matters may arise from time
to time that may harm our business. We are currently not aware of any legal proceedings or claims that we believe will have a
material adverse effect on our business, financial condition or operating results.
Item
4. Mine Safety Disclosures.
Not
Applicable.
PART
II
Item
5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities.
Market
for Our Common Stock
Our
common stock is quoted on the OTCQX under the symbol “SRCF.” The OTCQX is a quotation service that displays real-time
quotes, last-sale prices, and volume information in over-the-counter (“OTC”) equity securities. An OTCQX equity security
generally is any equity that is not listed or traded on a national securities exchange.
Price
Range of Common Stock
The
following table shows, for the periods indicated, the high and low closing sale prices per share of our common stock as reported
by the OTCQX quotation service.
| |
High | | |
Low | |
Fiscal Year
2014 | |
| | |
| |
First
quarter ended September 30, 2013 | |
$ | 2.00 | | |
$ | 1.02 | |
Second
quarter ended December 31, 2013 | |
$ | 2.50 | | |
$ | 1.17 | |
Third
quarter ended March 31, 2014 | |
$ | 1.43 | | |
$ | 0.78 | |
Fourth
quarter ended June 30, 2014 | |
$ | 2.00 | | |
$ | 0.90 | |
| |
| | | |
| | |
Fiscal
Year 2015 | |
| | | |
| | |
First
quarter ended September 30, 2014 | |
$ | 1.35 | | |
$ | 0.55 | |
Second
quarter ended December 31, 2014 | |
$ | 0.70 | | |
$ | 0.20 | |
Third
quarter ended March 31, 2015 | |
$ | 0.33 | | |
$ | 0.26 | |
Fourth
quarter ended June 30, 2015 | |
$ | 1.03 | | |
$ | 0.22 | |
Approximate
Number of Equity Security Holders
As
of July 6, 2015, there were approximately 421 stockholders of record. Because shares of our common stock are held by depositaries,
brokers and other nominees, the number of beneficial holders of our shares is substantially larger than the number of stockholders
of record.
Dividends
Since
inception we have not paid any dividends on our common stock. We currently do not anticipate paying any cash dividends in the
foreseeable future on our common stock. Although we intend to retain our earnings, if any, to finance the exploration and growth
of our business, our Board of Directors will have the discretion to declare and pay dividends in the future.
Payment
of dividends in the future will depend upon our earnings, growth, capital requirements, and other factors, which our Board of
Directors may deem relevant.
Sales
of Unregistered Securities
Except
as disclosed in our Form 10-Qs and Form 8-Ks, we did not issue or sell any securities in transactions exempt from the registration
requirements of the Securities Act during the fiscal year ended June 30, 2015.
Purchases
of Our Equity Securities
No
repurchases of our common stock were made by our company or its affiliates during the fourth quarter of our fiscal year ended
June 30, 2015.
Equity
Compensation Plan Information
The
following table sets forth certain information as of June 30, 2015, our most recently complete fiscal year, with respect to compensation
plans (including individual compensation arrangements) under which our equity securities are authorized for issuance.
Equity
Compensation Plan Information |
|
Plan
category |
|
Number
of securities to be issued upon exercise of outstanding options, warrants and rights |
|
|
Weighted-average
exercise
price of outstanding options, warrants and rights |
|
|
Number
of securities remaining available for future issuance under equity compensation plans (excluding securities reflected in column
(a)) |
|
|
|
(a) |
|
|
(b) |
|
|
(c) |
|
Equity
compensation plans approved by security holders |
|
None |
|
|
|
— |
|
|
|
— |
|
Equity
compensation plans not approved by security holders |
|
|
350,000 |
|
|
$ |
1.96 |
|
|
|
2,150,000 |
|
Total |
|
|
350,000 |
|
|
|
|
|
|
|
2,150,000 |
|
The
outstanding options include options to purchase an aggregate of 225,000 shares granted to our non-employee directors under our
2013 Omnibus Incentive Plan, at an exercise price of $2.00 per share, of which a total of 172,812 were exercisable at June 30,
2015. See. “Executive Compensation – 2013 Omnibus Incentive Plan.”
Item
6. Selected Financial Data.
Not
applicable because we are a smaller reporting company.
Item
7. Management’s Discussion and Analysis of Financial Condition and Results of Operations
The
following discussion of our financial condition and results of operations should be read in conjunction with the audited and unaudited
financial statements and the notes to those statements included elsewhere in this Report. This discussion contains forward-looking
statements that involve risks and uncertainties. You should specifically consider the various risk factors identified in this
Report that could cause actual results to 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 and its subsidiaries, with a focus on utilizing leading
edge technology to deliver these services.
On
June 30, 2013, we acquired Moneytech in exchange for 5,300,000 shares of our common stock (the “Share Exchange”).
As a result of the Share Exchange, Moneytech has become our wholly-owned subsidiary, and the former shareholders of Moneytech
own in excess of 50% of our outstanding shares of common stock on a fully diluted basis. In connection with acquisition of Moneytech,
we issued 5,000 shares of our Series B Preferred Stock to Hugh Evans, the Chairman and Managing Director of Moneytech. The Series
B Shares enable Mr. Evans, until June 30, 2018, to (A) elect the majority of our Board of Directors and (B) vote on all other
matters presented to the holders of our common stock (the “Common Shareholders”), with each vote per Series
B Share equal to 1,000 shares of common stock. After June 30, 2018, the Series B Shares will have no voting rights and may be
redeemed by us for a per share price one tenth of a cent ($0.001).
The
Share Exchange was accounted for as a recapitalization of Moneytech effected by a share exchange, where Moneytech is considered
the acquirer for accounting and financial reporting purposes. Our net assets and liabilities as of the date of the consummation
of the Share Exchange were brought forward at their book value and no goodwill was recognized. Consequently, the historical consolidated
financial statements of Moneytech are now the historical financial statements of Source Financial, Inc.
Moneytech commenced operations
in 2003 as an Australian based, technology driven, commercial finance company. Moneytech has an AUD$50 million securitized wholesale
debt facility (the “Wholesale Facility,” “Receivables Purchase Agreement” or “RPA”) with Westpac
and in April 2015 issued AUD$25 million in Subordinated Notes. Moneytech uses the Wholesale Facility and the proceeds of 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. Moneytech has been in operation for over twelve years.
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.
The following chart
reflects our organizational structure.
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 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. 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.
Discontinued
operations
In February 2014, management
returned WikiTechnologies, Inc. to former management of the Company as per the terms of the Share Exchange Agreement dated May
30, 2013 and the Settlement Agreement dated February 11, 2014.
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 poor 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 correspondingly low levels of bad debt. We extend
Credit for a maximum of 122 days. Amounts outstanding beyond their due date are considered
overdue and amount 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 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, stockholder’s 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
Years
ended June 30, 2015 and 2014
The
following discussion of our results of operations constitutes management’s review of the factors that affected our financial
and operating performance for the years ended June 30, 2015 and 2014. This discussion should be read in conjunction with the consolidated
financial statements and notes thereto contained elsewhere in this report.
Set
forth below are certain items from our operating statements for the years ended June 30, 2015 and 2014:
|
|
For
the year ended |
|
|
$ |
|
|
% |
|
|
|
June
30 |
|
|
Increase |
|
|
Increase |
|
|
|
2015 |
|
|
2014 |
|
|
(Decrease) |
|
|
(Decrease) |
|
|
|
USD |
|
|
USD |
|
|
USD |
|
|
|
|
Revenue |
|
$ |
4,740,855 |
|
|
$ |
5,810,936 |
|
|
$ |
(1,070,081 |
) |
|
|
(18 |
)% |
Confirmed
capital and credit express |
|
|
3,845,695 |
|
|
|
5,177,446 |
|
|
|
(1,331,751 |
) |
|
|
(26 |
)% |
Interest
revenue |
|
|
2,350,643 |
|
|
|
3,731,020 |
|
|
|
(1,380,377 |
) |
|
|
(37 |
)% |
Fees |
|
|
1,487,166 |
|
|
|
1,338,627 |
|
|
|
148,539 |
|
|
|
11 |
% |
Other
revenue |
|
|
7,886 |
|
|
|
107,799 |
|
|
|
(99,913 |
) |
|
|
(93 |
)% |
Payment
services |
|
|
789,853 |
|
|
|
495,780 |
|
|
|
294,073 |
|
|
|
59 |
% |
Terminal
sales and transactions |
|
|
526,524 |
|
|
|
159,324 |
|
|
|
367,200 |
|
|
|
230 |
% |
Hubbed |
|
|
175,468 |
|
|
|
189,983 |
|
|
|
(14,515 |
) |
|
|
(8 |
)% |
Giftcard
program revenue |
|
|
87,861 |
|
|
|
144,925 |
|
|
|
(57,064 |
) |
|
|
(39 |
)% |
Other
revenue |
|
|
- |
|
|
|
1,548 |
|
|
|
(1,548 |
) |
|
|
(100 |
)% |
Other
revenue |
|
|
105,307 |
|
|
|
137,710 |
|
|
|
(32,403 |
) |
|
|
(24 |
)% |
360FX
customer referral |
|
|
103,966 |
|
|
|
93,470 |
|
|
|
10,496 |
|
|
|
11 |
% |
Foreign
exchange |
|
|
1,097 |
|
|
|
44,658 |
|
|
|
(43,561 |
) |
|
|
(98 |
)% |
Other
revenue |
|
|
244 |
|
|
|
(418 |
) |
|
|
662 |
|
|
|
(158 |
)% |
Cost
of revenue |
|
|
3,418,492 |
|
|
|
3,056,524 |
|
|
|
361,968 |
|
|
|
12 |
% |
Confirmed
capital and credit express |
|
|
2,276,848 |
|
|
|
2,235,368 |
|
|
|
41,480 |
|
|
|
2 |
% |
Interest
expense |
|
|
1,784,043 |
|
|
|
1,695,288 |
|
|
|
88,755 |
|
|
|
5 |
% |
Account
Issuing Expenses |
|
|
226,464 |
|
|
|
257,791 |
|
|
|
(31,327 |
) |
|
|
(12 |
)% |
Insurance |
|
|
231,627 |
|
|
|
189,468 |
|
|
|
42,159 |
|
|
|
22 |
% |
Other |
|
|
34,714 |
|
|
|
92,821 |
|
|
|
(58,107 |
) |
|
|
(63 |
)% |
Payment
services |
|
|
464,289 |
|
|
|
144,256 |
|
|
|
320,033 |
|
|
|
222 |
% |
Terminal
sales and transactions |
|
|
325,216 |
|
|
|
116,657 |
|
|
|
208,559 |
|
|
|
179 |
% |
Hubbed |
|
|
17,838 |
|
|
|
5,486 |
|
|
|
12,352 |
|
|
|
225 |
% |
Gift
card expenses |
|
|
121,235 |
|
|
|
22,113 |
|
|
|
99,122 |
|
|
|
448 |
% |
Other |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
Depreciation
and amortization |
|
|
673,416 |
|
|
|
676,339 |
|
|
|
(2,923 |
) |
|
|
(0 |
)% |
Other
cost of revenue |
|
|
3,939 |
|
|
|
561 |
|
|
|
3,378 |
|
|
|
602 |
% |
Gross
profit |
|
|
1,322,363 |
|
|
|
2,754,412 |
|
|
|
(1,432,049 |
) |
|
|
(52 |
)% |
Operating
expenses |
|
|
2,924,109 |
|
|
|
3,707,114 |
|
|
|
(783,005 |
) |
|
|
|
|
Compensation
expenses |
|
|
1,242,789 |
|
|
|
1,060,905 |
|
|
|
181,884 |
|
|
|
17 |
% |
Research
and development expense |
|
|
815,847 |
|
|
|
557,393 |
|
|
|
258,454 |
|
|
|
46 |
% |
Bad
debt expenses |
|
|
58,788 |
|
|
|
795,112 |
|
|
|
(736,324 |
) |
|
|
(93 |
)% |
Bad
debts recovered |
|
|
(142,389 |
) |
|
|
(3,234 |
) |
|
|
(139,155 |
) |
|
|
4,303 |
% |
Professional
expenses |
|
|
299,567 |
|
|
|
612,763 |
|
|
|
(313,196 |
) |
|
|
(51 |
)% |
Occupancy
expenses |
|
|
227,048 |
|
|
|
250,651 |
|
|
|
(23,603 |
) |
|
|
(9 |
)% |
Depreciation
expense |
|
|
56,115 |
|
|
|
61,716 |
|
|
|
(5,601 |
) |
|
|
(9 |
)% |
General
and administration expenses |
|
|
366,344 |
|
|
|
371,808 |
|
|
|
(5,464 |
) |
|
|
(1 |
)% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Loss)
income from operations |
|
|
(1,601,746 |
) |
|
|
(952,702 |
) |
|
|
(649,044 |
) |
|
|
68 |
% |
Other
income |
|
|
761,395 |
|
|
|
714,793 |
|
|
|
46,602 |
|
|
|
7 |
% |
(Loss)
income before income tax |
|
|
(840,351 |
) |
|
|
(237,909 |
) |
|
|
(602,442 |
) |
|
|
253 |
% |
Income
tax expense |
|
|
180,446 |
|
|
|
327,539 |
|
|
|
(147,093 |
) |
|
|
(45 |
)% |
Net
(loss) income from continuing operations |
|
|
(1,020,797 |
) |
|
|
(565,448 |
) |
|
|
(455,349 |
) |
|
|
81 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
result from discontinued operations |
|
|
- |
|
|
|
(301,280 |
) |
|
|
301,280 |
|
|
|
NA
|
|
Net
(loss) income |
|
|
(1,020,797 |
) |
|
|
(866,728 |
) |
|
|
(154,069 |
) |
|
|
18 |
% |
Other
comprehensive loss |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign
currency translation |
|
|
(1,250,283 |
) |
|
|
214,996 |
|
|
|
(1,465,279 |
) |
|
|
(682 |
)% |
Comprehensive
loss |
|
$ |
(2,271,080 |
) |
|
$ |
(651,732 |
) |
|
$ |
(1,619,348 |
) |
|
|
248 |
% |
The
following table reflects the movements in our revenues and cost of revenues in our functional currency; Australian Dollars, for
the years ended June 30, 2015 and 2014.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
% |
|
|
|
For
the year ended |
|
|
a$ |
|
|
% |
|
|
Revenue
/
Cost of |
|
|
|
June
30 |
|
|
Increase |
|
|
Increase |
|
|
revenue |
|
|
|
2015 |
|
|
2014 |
|
|
(Decrease) |
|
|
(Decrease) |
|
|
move |
|
|
|
AUD |
|
|
AUD |
|
|
AUD |
|
|
|
|
|
|
|
Revenue |
|
$ |
5,657,347 |
|
|
$ |
6,325,172 |
|
|
$ |
(667,825 |
) |
|
|
(11 |
)% |
|
|
(11 |
)% |
Confirmed
capital and credit express |
|
|
4,589,138 |
|
|
|
5,635,622 |
|
|
|
(1,046,484 |
) |
|
|
(19 |
)% |
|
|
(17 |
)% |
Interest
revenue |
|
|
2,805,066 |
|
|
|
4,061,196 |
|
|
|
(1,256,130 |
) |
|
|
(31 |
)% |
|
|
(20 |
)% |
Fees |
|
|
1,774,662 |
|
|
|
1,457,088 |
|
|
|
317,574 |
|
|
|
22 |
% |
|
|
5 |
% |
Other
revenue |
|
|
9,410 |
|
|
|
117,338 |
|
|
|
(107,928 |
) |
|
|
(92 |
)% |
|
|
(2 |
)% |
Payment
services |
|
|
942,545 |
|
|
|
539,654 |
|
|
|
402,891 |
|
|
|
75 |
% |
|
|
6 |
% |
Terminal
sales and transactions |
|
|
628,310 |
|
|
|
173,423 |
|
|
|
454,887 |
|
|
|
262 |
% |
|
|
7 |
% |
Hubbed |
|
|
209,389 |
|
|
|
206,795 |
|
|
|
2,594 |
|
|
|
1 |
% |
|
|
0 |
% |
Giftcard
program revenue |
|
|
104,846 |
|
|
|
157,750 |
|
|
|
(52,904 |
) |
|
|
(34 |
)% |
|
|
(1 |
)% |
Other
revenue |
|
|
- |
|
|
|
1,686 |
|
|
|
(1,686 |
) |
|
|
(100 |
)% |
|
|
(0 |
)% |
Other
revenue |
|
|
125,664 |
|
|
|
149,896 |
|
|
|
(24,232 |
) |
|
|
(16 |
)% |
|
|
(0 |
)% |
360FX
customer referral |
|
|
124,064 |
|
|
|
101,742 |
|
|
|
22,322 |
|
|
|
22 |
% |
|
|
0 |
% |
Foreign
exchange |
|
|
1,309 |
|
|
|
48,610 |
|
|
|
(47,301 |
) |
|
|
(97 |
)% |
|
|
(1 |
)% |
Other
revenue |
|
|
291 |
|
|
|
(456 |
) |
|
|
747 |
|
|
|
(164 |
)% |
|
|
0 |
% |
Cost
of revenue |
|
|
4,079,347 |
|
|
|
3,327,011 |
|
|
|
752,336 |
|
|
|
23 |
% |
|
|
23 |
% |
Confirmed
capital and credit express |
|
|
2,717,002 |
|
|
|
2,433,187 |
|
|
|
283,815 |
|
|
|
12 |
% |
|
|
9 |
% |
Interest
expense |
|
|
2,128,929 |
|
|
|
1,845,312 |
|
|
|
283,617 |
|
|
|
15 |
% |
|
|
9 |
% |
Account
Issuing Expenses |
|
|
276,405 |
|
|
|
280,604 |
|
|
|
(4,199 |
) |
|
|
(1 |
)% |
|
|
(0 |
)% |
Insurance |
|
|
270,243 |
|
|
|
206,235 |
|
|
|
64,008 |
|
|
|
31 |
% |
|
|
2 |
% |
Other |
|
|
41,425 |
|
|
|
101,036 |
|
|
|
(59,611 |
) |
|
|
(59 |
)% |
|
|
(2 |
)% |
Payment
services |
|
|
554,045 |
|
|
|
157,022 |
|
|
|
397,023 |
|
|
|
253 |
% |
|
|
12 |
% |
Terminal
sales and transactions |
|
|
388,086 |
|
|
|
126,980 |
|
|
|
261,106 |
|
|
|
206 |
% |
|
|
8 |
% |
Hubbed |
|
|
21,287 |
|
|
|
5,972 |
|
|
|
15,315 |
|
|
|
256 |
% |
|
|
0 |
% |
Gift
card expenses |
|
|
144,672 |
|
|
|
24,070 |
|
|
|
120,602 |
|
|
|
501 |
% |
|
|
4 |
% |
Other |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
Depreciation
and amortization |
|
|
803,599 |
|
|
|
736,192 |
|
|
|
67,407 |
|
|
|
9 |
% |
|
|
2 |
% |
Other
cost of revenue |
|
|
4,701 |
|
|
|
610 |
|
|
|
4,091 |
|
|
|
671 |
% |
|
|
0 |
% |
Gross
profit |
|
$ |
1,578,000 |
|
|
$ |
2,998,161 |
|
|
$ |
(1,420,161 |
) |
|
|
(47 |
)% |
|
|
|
|
Revenue
Presentation
currency - US$
Consolidated
revenue from continuing operations for the year ended June 30, 2015 was approximately $4,740,855, a decrease of $1,070,081 or
18% from our consolidated revenue from continuing operations for the year ended June 30, 2014 of $5,810,936. Confirmed capital
and credit express revenue decreased $1,331,751 or 26%. While our Payment services revenue increased $294,073 or 59% over the
previous fiscal year. We also experienced a decrease in Other revenue of $32,403 or 24%..
The
decrease in Confirmed Capital revenues was mainly attributable to the reduction of non-recurring interest and penalties paid by
customers in 2014 in connection with the work out of their 2014 defaulted loans. We did not experience any similar significant
defaults in fiscal 2015. The non-recurring revenue in 2014 year was $1,214,413 or 91% of the decrease in revenue in 2015 of $1,331,751.
The lines of credit we funded were approximately $186 million during the year ended June 30, 2015 and $200 million during the
year ended June 30, 2014. The reduction in lines of credit we funded in fiscal 2015 was a direct result of defaulted customers
which had not been replaced immediately.
The increase in payment services
revenue is primarily attributable to an increase in revenues in Mpos of $367,200 or 230%. Mpos provides point of sale terminals
for customers in Australia. During the year ended June 30, 2015 we entered into new terminal and merchant acquiring agreements
and sold or leased 598 new terminals to merchants. This activity took place in the second half of the year and the terminal sales
and transactions revenue earned from the new infrastructure amounted to $423,625. We anticipate terminal sales will increase 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 fiscal year. This will result in both increased terminal revenue and transaction revenue for Mpos. We also experienced
a decrease in gift card revenues of $57,064 or 39% and a decrease in Hubbed revenues of $14,515 or 8%. The gift cards decrease
is primarily attributable to lower card activity by our existing customers in fiscal 2015. The Hubbed revenues decrease is primarily
attributable to the change in exchange rate year on year.
Other
revenue decreased $32,403 and this is primarily attributable to a decrease in foreign exchange services for customers.
Functional
currency - A$
Consolidated
revenue from continuing operations for the year ended June 30, 2015 was approximately $5,657,347, a decrease of $667,825 or 11%
from our consolidated revenue from continuing operations for the year ended June 30, 2014 of $6,325,172. Revenue decreased primarily
as a result of a $1,046,484 or 19% decrease in Confirmed Capital and Credit Express revenues which was partially offset by an
increase in payment services revenues of $402,891 or 75%. A decrease in Other revenue of $24,232 or 16% accounts for the remainder.
The
decrease in Confirmed Capital revenues was mainly attributable to the reduction of non-recurring interest and penalties paid by
customers in 2014 in connection with the work out of their 2014 defaulted loans. We did not experience any similar significant
defaults in fiscal 2015. The non-recurring revenue in 2014 year was $1,321,871 or 126% of the decrease in revenue in 2015 of $1,046,484.
The lines of credit we funded were approximately $203 million during the year ended June 30, 2015 and $218 million during the
year ended June 30, 2014. The reduction in lines of credit we funded in fiscal 2015 was a direct result of defaulted customers
which had not been replaced immediately.
The increase in payment services
revenue is primarily attributable to an increase in revenues in Mpos of $454,887 or 262%. Mpos provides point of sale terminals
for customers in Australia. During the year ended June 30, 2015 we entered into new terminal and merchant acquiring agreements
and sold or leased 598 new terminals to merchants. This activity took place in the second half of the year and the terminal sales
and transactions revenue earned from the new infrastructure amounted to $505,519. We anticipate terminal sales will increase 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 fiscal year. This will result in both increased terminal revenue and transaction revenue for Mpos. We also experienced
a decrease in gift card revenues of $52,904 or 34% which is primarily attributable to lower card activity by our existing customers
in fiscal 2015. Slight changes in Hubbed and Other revenue account for the remainder.
Other
revenue decreased slightly and this is primarily attributable to a decrease in foreign exchange services for customers.
Cost
of Revenue; Gross Profit
Presentation
currency - US$
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 $3,418,492 in the year ended June 30,
2015, an increase of $361,968 or 12% from our cost of revenue of $3,056,524 for the year ended June 30, 2014. Costs of revenue
increased 12% primarily as a result of increases in Payment Services of 222% or $320,033 and increases in Confirmed Capital and
Credit Express costs of 2% or $41,480. A slight decrease of$2,923 in depreciation and amortization costs accounted for the remainder.
The
Payment Services cost increase of $320,033 is primarily attributable to an increase in costs of the new terminals deployed to
Mpos customers. We also experienced an increase in gift card costs of $99,122 or 448% and an increase in Hubbed costs of $12,352
or 225%. The gift cards increase is primarily attributable to a settlement payment related to breakage of $101,895 in June 2015.
The Hubbed costs increase is primarily attributable to increased transactions processed during the year following growth in news
agents serviced from 250 in fiscal 2014 to more than 800 in fiscal 2015.
The
increase in Confirmed Capital and Credit Express costs is mainly attributable to an increase of 5% or $88,755 in interest expense,
an increase of 22% or $42,159 in insurance costs, partially offset by a 63% or $58,107decrease in fees associated with new accounts
and a decrease in existing account expenses of 12% or $ 31,327. Our interest expense increased slightly 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 unused facility fee accounted for approximately $41,326
or 47% of the $88,755 increase. The increase in insurance costs of 22% is attributable to an increase in premium as a result of
increases in amounts funded. The decrease in fees associated with new accounts of 63% is mainly attributable to documentation
expenses in the prior year that were not repeated in the current year. Existing account expenses, which mainly include merchant
service costs charged to us when customers pay with credit cards decreased by 12% and this is primarily attributable to the change
in exchange rate year on year.
Our
gross profit from continuing operations, decreased $1,432,049 from $2,754,412 in the year ended June 30, 2014 to $1,322,363 in
the year ended June 30, 2015. This was primarily attributable to net interest margin and fee revenue decreases at Confirmed Capital
and Credit Express as described above.
Functional
currency - A$
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 $4,079,347 in the year ended June 30,
2015, an increase of $752,336 or 23% from our cost of revenue of $3,327,011 for the year ended June 30, 2014. Costs of revenue
increased 23% primarily as a result of increases in Payment Services of 253% or $397,023 and increases in Confirmed Capital and
Credit Express costs of 12% or $283,815. An increase of 9% or $67,407 in depreciation and amortization costs accounted for the
remainder.
The
Payment Services cost increase of $397,023 is primarily attributable to an increase in costs of the new terminals deployed to
Mpos customers. We also experienced an increase in gift card costs of $120,602 or 501% and an increase in Hubbed costs of $15,315
or 256%. The gift cards increase is primarily attributable to a settlement payment related to breakage of $121,593 in June 2015.
The Hubbed costs increase is primarily attributable to increased transactions processed during the year following growth in news
agents serviced from 250 in fiscal 2014 to more than 800 in fiscal 2015.
The
increase in Confirmed Capital and Credit Express costs off $283,815 is mainly attributable to an increase of 15% or $283,617 in
interest expense, an increase of 31% or $64,008 in insurance costs, partially offset by a 59% or $59,611decrease in fees associated
with new accounts and a decrease in existing account expenses of 1% or $ 4,199. Our interest expense increased slightly 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 unused facility fee accounted for
approximately $49,315 or 17% of the $283,617 increase. The increase in insurance costs of 31% is attributable to an increase in
premium as a result of increases in amounts funded. The decrease in fees associated with new accounts of 59% is mainly attributable
to documentation expenses in the prior year that were not repeated in the current year. Existing account expenses, which mainly
include merchant service costs charged to us when customers pay with credit cards, decreased 1% and accounted for the remainder.
Our
gross profit from continuing operations, decreased $1,420,161 from $2,998,161 in the year ended June 30, 2014 to $1,578,000 in
the year ended June 30, 2015. This was primarily attributable to net interest margin and fee revenue decreases at Confirmed Capital
and Credit Express 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 for the year ended June 30, 2015 was $58,788,
representing a decrease of $736,324 from bad debt expense of $795,112 for the year ended June 30, 2014. 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 as well as the write off in the prior year of a claim for the 2010 insurance year
denied by our insurers.
The
percentage of delinquent balances in our portfolio was 1.56% and 1.53% as of June 30, 2015 and 2014 respectively. The percentage
of delinquent balances in our portfolio averaged 1.69% and 1.77% in the years ended June 30, 2015 and 2014 respectively. The average
collection period in our portfolio was 52 days at June 30, 2015, up from 45 days at June 30, 2014 and 2013. Bad debts as a percentage
of amount funded was 0.03% and 0.40% in the years ended June 30, 2015 and 2014 respectively.
Our
total operating expenses from continuing operations (other than bad debt) increased by $92,474 or 3% from $2,915,236 in the year
ended June 30, 2014 to $3,007,710 in the year ended June 30, 2015. This increase is primarily attributed to compensation costs
($181,884 or 17%), research and development expense ($258,454 or 46%) and is offset by a decrease in professional expenses ($313,196
or 51%). The compensation costs increase reflects costs of adding our Management, Business Development officer, other staff and
non-executive directors that were not employed prior to June 30, 2014. These costs are expected to remain in fiscal 2016. The
research and development expense increase reflects increased expenditure on items that are not capitalized. The professional expenses
decrease primarily reflects a decrease in legal fees ($326,782). Legal fees have decreased because activity associated with the
Company’s registration statement has ceased following the withdrawal of our registration statement in the third quarter
2015 and a renegotiation of previously recorded legal fees. The general and administration expenses increase includes terminal
impairment losses of $28,051 which are not expected to be repeated in fiscal 2016.
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 the year ended June 30, 2015 we accrued
AUD $752,620 (USD $630,696) 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 continuing operations before tax for the year ended June 30, 2015 was $840,351, as opposed to a net loss of $237,909
for the year ended June 30, 2014. As a result of $180,446 in taxes incurred in the year ended June 30, 2015, we incurred a net
loss after tax for the year ended June 30, 2015 of $1,020,797, as compared to net loss after tax for the year ended June 30, 2014
of $565,448. 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.
Net
loss from discontinued operations.
In
January 2014, management decided to return the ‘Wiki Technologies’ entity to two former shareholders of the Company
in accordance with the terms set forth in the terms of the Share Exchange Agreement. Revenue and expenses, and gains and losses
relating to the discontinued business have been reclassified from the results of continuing operations and are reflected as net
loss from discontinued operations.
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 0.9187 and 1 to 0.8380 in the year ended June 30, 2014 and the year ended June 30, 2015,
respectively.
Comparison
of Balance Sheet Data as at June 30, 2015 and June 30, 2014
Set
forth below are certain items from our Consolidated Balance Sheets at June 30, 2015 and 2014:
| |
June
30 | | |
June
30 | |
| |
2015 | | |
2014 | |
| |
| | |
| |
Cash
and cash equivalents | |
$ | 8,075,078 | | |
$ | 10,730,743 | |
Trade
receivables, net | |
$ | 19,651,268 | | |
$ | 24,870,297 | |
Total
Assets | |
$ | 33,362,460 | | |
$ | 42,251,766 | |
| |
| | | |
| | |
Wholesale
Loan Facility | |
$ | 6,052,789 | | |
$ | 27,746,303 | |
Subordinated
notes, net | |
$ | 18,471,471 | | |
$ | - | |
Total
Liabilities | |
$ | 28,934,821 | | |
$ | 35,696,108 | |
| |
| | | |
| | |
Total
Stockholder's Equity | |
$ | 4,427,639 | | |
$ | 6,555,658 | |
Cash
and cash equivalents have decreased as a result of a reduction in monies received on behalf of customers which has resulted in
an equivalent decrease in our Trade and other payables.
AUD $25 million of Subordinated
Notes were issued in April 2015. The monies received from the issuance of these Subordinated Notes were used to repay the Wholesale
Loan Facility.
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 June 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 approximately AUD $1 million and the proceeds to the company were approximately AUD $24 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.
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.
Comparison
of the Statement of Cash Flows for the Fiscal Years Ended June 30, 2015 and 2014
Set
forth below are certain items from our Statement of Cash Flows for the years ended June 30, 2015 and 2014:
| |
For
the years ended | |
| |
June
30 | |
| |
2015 | | |
2014 | |
Net
cash (used in) provided by operating activities | |
$ | (2,787,916 | ) | |
$ | 4,814,761 | |
Net
cash (used in) investing activities | |
| (572,621 | ) | |
| (880,813 | ) |
Net
cash provided by (used in) financing activities | |
| 2,625,601 | | |
| (651,393 | ) |
Net
cash (used in) discontinued operations | |
| - | | |
| (65,288 | ) |
Effect
of exchange rate changes on cash and cash equivalents | |
| (1,920,729 | ) | |
| 307,649 | |
Net
cash (outflow) inflow | |
$ | (2,655,665 | ) | |
$ | 3,524,916 | |
Net
cash provided by (used in) operating activities
During
the year ended June 30, 2015, we used approximately $2,787,916 of cash in our operating activities. This reflects our net loss
from continuing operations of $1,020,797 plus $1,767,119 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 payables of $2,978,562 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 $729,531, subordinated notes costs amortization of $41,839,
stock options and shares issued for compensation of $143,061 and gain on equity method investment of $743.
During
the year ended June 30, 2014, we generated approximately $4,814,761of cash in our operating activities. This reflects our net
loss from continuing operations of $565,448 plus $5,380,209 provided by changes in operating assets and liabilities and adjustments
for non-cash items. Cash provided by working capital items was primarily impacted by an increase in trade payables of $3,157,082
due to an increase 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 $738,056 and stock options and shares issued for compensation
of $126,231.
Net
cash (used in) investing activities
During
the year ended June 30, 2015, net cash used in investing activities of $572,621 was primarily impacted by $518,155 in capitalized
costs incurred on the development of intangible assets, principally software related to The Moneytech Exchange and mPay.
During
the year ended June 30, 2014, net cash used in investing activities of $880,813 was primarily impacted by $753,547 in capitalized
costs incurred on the development of intangible assets, principally software related to The Moneytech Exchange and mPay.
Net
cash (used in) provided by financing activities
During
the year ended June 30, 2015, net cash provided by financing activities of $2,625,601 primarily reflects the 7 year subordinated
notes issued during the year providing $20,113,229, offset by a decrease in our borrowings under the Wholesale Loan Facility of
$18,078,542. Additions to our capital reserve accounts by our customers of $590,914 account for the difference.
During
the year ended June 30, 2014, net cash used in financing activities of $651,393 primarily reflects withdrawals from our capital
reserve accounts by our customers of $1,890,240. An increase in our borrowings under the Wholesale Loan Facility of $1,238,847
accounts for the difference.
Net
cash provided by discontinued operations
During
the year ended June 30, 2014, net cash used by discontinued operations of $65,288 primarily reflects the losses of the Wiki business
of $301,280 offset by adjustments for non-cash items and changes in operating assets and liabilities providing $91,899. Net cash
provided by financing activities of $150,000 and used by investing activities of $5,907 accounts for the difference.
Net
cash inflow
During
the year ended June 30, 2015, net cash decreased by $2,655,665 as compared to the year ended June 30, 2014, where net cash increased
by $3,524,916.
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 | |
| |
Jun
30, 2011 | | |
Jun
30, 2012 | | |
Jun
30, 2013 | | |
Jun
30, 2014 | | |
Jun
30, 2015 | |
| |
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 | ) | |
| | | |
| | | |
| | | |
| | |
Claims
denied | |
| (158,800 | ) | |
| (18,344 | ) | |
| No
claim submitted as credit losses do not exceed the policy 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 recognised 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 additional functionality to The Moneytech Exchange and will need to add additional personnel as we grow, the rate of growth
of these expenses should be less than the rate of growth of our revenue. Further, we anticipate that as we expand our portfolio
and increase the number of services we offer, the rate of growth in the lines of credit we service and in our revenues will exceed
the rate of growth in our operating expenses. There are a number of reasons for this, the most significant being that most of
the expense involved with any debtor/obligor is incurred when the relationship is established. In the absence of a default or
other triggering event, so long as a debtor/obligor is online, it generates revenue for us with little impact on our operating
expenses.
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.
The
preparation of financial statements in conformity with US GAAP requires management to make certain estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those
estimates. Significant estimates include collectability of accounts receivable and recoverability of long-term assets.
Allowance
for Doubtful Accounts
The
Company maintains reserves for potential credit losses on accounts receivable. Management reviews the composition of accounts
receivable and analyzes historical bad debts, customer concentrations, customer credit worthiness, current economic trends and
changes in customer payment patterns to evaluate the adequacy of these reserves.
Revenue
Recognition
Revenue
is recognized when persuasive evidence of an arrangement exists, delivery has occurred, the fee is fixed or determinable, and
collectability is probable. Revenue generally is recognized net of allowances for returns and any taxes collected from customers
and subsequently remitted to governmental authorities.
Concentration
of Credit Risk
Financial
instruments that potentially subject the Company to concentrations of credit risk are cash, accounts receivable and other receivables
arising from its normal business activities. The Company places its cash in what it believes to be credit-worthy financial institutions.
The Company has a diversified customer base, most of which are in Australia. The Company controls credit risk related to accounts
receivable through credit approvals, credit limits and monitoring procedures. The Company routinely assesses the financial strength
of its customers and, based upon factors surrounding the credit risk, establishes an allowance, if required, for uncollectible
accounts and, as a consequence, believes that its accounts receivable credit risk exposure beyond such allowance is limited.
Cost
of Revenue
Cost
of revenue includes; programs licensed; operating costs including costs of funds and related product support service centers to
drive traffic to our websites, costs incurred to support and maintain products and services, including inventory valuation adjustments;
costs associated with the delivery of consulting services; and the amortization of capitalized intangible software costs. Capitalized
intangible software costs are amortized over the estimated lives of the products.
Exchange
(Loss) Gain
During
the years ended June 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 and its wholly owned subsidiaries were maintained, and its financial statements were expressed, in AUD.
Such financial statements were translated into USD with the AUD as the functional currency. All assets and liabilities were translated
at the exchange rate at the balance sheet date, stockholder’s equity is translated at the historical rates and income statement
items are translated at the average exchange rate for the period. Transactions in foreign currencies are initially recorded at
the functional currency rate ruling at the date of transaction. Any differences between the initially recorded amount and the
settlement amount are recorded as a gain or loss on foreign currency transaction in the consolidated statements of operations.
The resulting translation adjustments are reported under other comprehensive income as a component of shareholders’ equity.
Recently
Issued Accounting Pronouncements
In
April 2015, the FASB issued ASU 2015-03, Simplifying the Presentation of Debt Issuance Costs which changes the presentation of
debt issuance costs in financial statements. ASU 2015-03 requires an entity to present such costs in the balance sheet as a direct
deduction from the related debt liability rather than as an asset. Amortization of the costs will continue to be reported as interest
expense. It is effective for fiscal years and interim periods within those fiscal years beginning after December 15, 2015. Early
adoption is permitted. The new guidance will be applied retrospectively to each prior period presented. The Company has early
adopted this pronouncement, there is no impact on comparative periods.
In
July 2015, the FASB issued ASU 2015-11, Inventory — Simplifying the Measurement of Inventory. ASU 2015-11 requires inventory
to be subsequently measured using the lower of cost and net realizable value, thereby eliminating the market value approach. Net
realizable value is defined as the “estimated selling prices in the ordinary course of business, less reasonably predictable
costs of completion, disposal and transportation.” ASU 2015-11 is effective for reporting periods beginning after December
15, 2016 and is applied prospectively. Early adoption is permitted. The Company is evaluating the impact, if any, of adopting
this new accounting guidance on its financial statements.
Other
recent accounting pronouncements issued by the FASB, including its Emerging Issues Task Force, the American Institute of Certified
Public Accountants, and the Securities and Exchange Commission did not or are not believed by management to have a material impact
on the Company's present or future consolidated financial statements.
Item
7A. Quantitative and Qualitative Disclosures About Market Risk.
Not
applicable because we are a smaller reporting company.
Item
8. Financial Statements and Supplementary Data.
The
financial statements start on page F-1.
Item
9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.
None
Item
9A. Controls and Procedures.
Evaluation
of Disclosure Controls and Procedures
Our
management is responsible for maintaining disclosure controls and procedures that are designed to ensure that information required
to be disclosed in the reports that the Company files or submits under the Securities Exchange Act of 1934 (the “Exchange
Act”) is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s
rules and forms. In addition, the disclosure controls and procedures must ensure that such information is accumulated and communicated
to the Company’s management, including its Chief Executive Officer and Chief Financial Officer, as appropriate, to allow
timely decisions regarding required financial and other required disclosures.
At June 30, 2015, an evaluation
of the effectiveness of our disclosure controls and procedures (as defined in Rules 13(a)-15(e) and 15(d)-15(e) of the Securities
Exchange Act of 1934 (the “Exchange Act”)) was carried out under the supervision and with the participation of Hugh
Evans, our Chief Executive Officer, and Brian Pullar, our Chief Financial Officer. Based on their evaluation of our disclosure
controls and procedures, they concluded that at June 30, 2015, such disclosure controls and procedures were effective.
Management’s
Annual Report on Internal Control over Financial Reporting
Our
management is responsible for establishing and maintaining adequate internal control over our financial reporting. Internal control
over financial reporting is a process designed to provide reasonable assurance to our management and board of directors regarding
the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with U.S.
generally accepted accounting principles.
Our
internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records
that in reasonable detail accurately and fairly reflect our transactions; (ii) provide reasonable assurance that transactions
are recorded as necessary for preparation of our financial statements; (iii) provide reasonable assurance that receipts and expenditures
of company assets are made in accordance with management authorization; and (iv) provide reasonable assurance that unauthorized
acquisition, use or disposition of company assets that could have a material effect on our financial statements would be prevented
or detected on a timely basis.
Because
of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections
of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because changes
in conditions may occur or the degree of compliance with the policies or procedures may deteriorate.
Our management has conducted
an evaluation, under the supervision and with the participation of Hugh Evans, our Chief Executive Officer, and Brian Pullar,
our Chief Financial Officer, of the effectiveness of our internal controls over financial reporting as of June 30, 2015. This
evaluation was based on criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission, or COSO, Internal
Control-Integrated Framework. Based upon such assessment, they concluded that our internal controls over financial reporting were
effective as of June 30, 2015.
This
Report shall not be deemed to be filed for purposes of Section 18 of the Securities Exchange Act of 1934, or otherwise subject
to the liabilities of that section, and is not incorporated by reference into any filing of the Company, whether made before or
after the date hereof, regardless of any general incorporation language in such filing.
This
annual report does not include an attestation report of our registered public accounting firm regarding internal control over
financial reporting. The rules of the Securities and Exchange Commission do not require an attestation of the Management’s
report by our registered public accounting firm in this annual report.
Changes
in Internal Controls
There
have been no changes in our internal control over financial reporting that occurred during the fourth quarter of our fiscal year
ended June 30, 2015 that have materially affected, or are reasonable likely to materially affect, our internal control over financial
reporting. Given the limitations of our accounting personnel, we need to take additional steps to insure that our financial statements
are in accordance with US GAAP.
Item
9B. Other Information
None.
PART
III
Item
10. Directors, Executive Officers and Corporate Governance.
Our
directors and executive officers are:
Name |
|
Age |
|
Position |
Hugh
Evans |
|
51 |
|
President,
Chief Executive Officer and a Director |
Brian
M. Pullar |
|
44 |
|
Chief
Financial Officer |
Klaus
Selinger |
|
62 |
|
Chairman
of the Board |
John
Wolfgang |
|
68 |
|
Director |
Hugh
Evans has served as Chief Executive Officer, President, Chief Financial Officer and a Director of the Company since
June 30, 2013. Mr. Evans founded Moneytech in 2003, and has served as its Chairman and Managing Director since its inception.
Mr. Evans has a commercial background in high growth businesses, mergers and acquisitions, and divestments, with a strong financial,
sales and technology focus.
Mr.
Evans was the founder and CEO of Agate Technology, which he developed and built to become a leading niche storage distribution
company in both Australia and New Zealand. Mr. Evans served as Chief Executive Officer of Agate Technology from 1991 to 1999.
Agate Technology was acquired by the South African conglomerate Siltek in 1999. Mr. Evans also has been responsible for the organization
and sale of three other technology businesses. The prior experience of Mr. Evans as an executive officer and director of Moneytech
Limited prior to the consummation of the Share Exchange qualifies him to serve as a director of our company.
Brian
Pullar has been our Chief Financial officer since October 16, 2013. Mr. Pullar is a Chartered Accountant (Australia and South
Africa) with nearly twenty years of experience in financial services. He was a Senior Vice President at Citigroup in Australia,
where he worked from June 2000 until January 2013. Having joined as an accountant within the finance function, his responsibilities
subsequently included Regulatory Reporting Manager (2.5 years), Financial Controller (4 years) and Product Controller (3 years).
He worked across the institutional stock broking / advisory, corporate and retail banking businesses.
Prior
to Citigroup he worked in London with Abbey National Treasury Services from September 1999 to April 2000, as a Project Accountant,
with Warburg Dillon Read from October 1998 to May 1999, as a Consultant, and from July 1997 to June 1998, as a Market Risk Analyst
with Credit Suisse Financial Products. From January 1994 to March 1997, Mr. Pullar was employed as a Trainee and Qualified Accountant
by Ernst and Young in Johannesburg and Los Angeles.
Mr.
Pullar’s skills include financial controlling, financial management, statutory accounts preparation, regulatory reporting
and capital requirements for banks and broker dealers, as well as product accounting and control, financial and regulatory systems
implementation and liaison with regulatory authorities.
Klaus
Selinger has served as a Director since June 30, 2013 and Chairman of the Board since July 2013. He has a background
in Financial Markets and Financial Systems, and has assisted in the development of complex financial solutions, including off-balance
sheet finance structures, venture capital raising and equity finance. Since 2009, Mr. Selinger has been a principal of Dequity
Partners, a financial services firm based in Sydney, Australia. Mr. Selinger was the Chief Executive Officer of Jacobsen Entertainment
Ltd, an Australian entertainment industry firm, formerly listed on the Sydney Australia Stock Exchange, from 2002 to 2003, and
Chief Executive Officer of Bioenergy Corporation Ltd, a PNG incorporated biofuel firm formerly listed on the Sydney Australia
Stock Exchange, from 1989 to 1991. He is a certified practicing accountant in Australia and in that capacity served as a member
of Charles J. Berg & Partners from 1972 to 1982, Mann Judd and Rowlands from 1984 to 1990.Mr. Selinger received a Bachelor
of Business degree in Accounting from the University of Technology, Sydney, Australia. Mr. Selinger’s varied management
experience with a number of listed companies qualifies him to serve as a director of our Company.
John
Wolfgang has served as a Director since June 30, 2013. From January 1, 2014 until December 31, 2014, he was a Senior
Consultant to UHY Advisors N.Y., Inc. For 45 years prior to January 1, 2014 Mr. Wolfgang was an audit partner of the accounting
firm of UHY LLP or its predecessor and served on the management committee of UHY LLP, which sets policy for the audit practice
of the firm, until December 31, 2012. Mr. Wolfgang has extensive experience in and has overseen the audits of listed public entities
operating globally and has experience in advising businesses with multi-national presence on complex tax and accounting issues.
Mr Wolfgang served on the Board of Directors of Urbach Hacker Young International Ltd (“UHYI”) for the past 26 years
Until October 31, 2014. Mr. Wolfgang was Chairman of the UHYI Board for 5 years until October, 2012. UHYI is the 23rd largest
global accounting and consulting networks with presence in 87 countries worldwide. Mr. Wolfgang serves as Chairman of the Audit
Committee. Mr. Wolfgang is qualified to serve as a director by virtue of his experience in auditing public companies and serving
on the boards of numerous private and public companies.
Each
of our Directors is elected annually and serves until his successor is duly elected and qualified or until his earlier death,
resignation or removal. Our officers are elected annually and serve at the discretion of our Board of Directors.
Director
Independence
Our
Board of Directors has determined that Klaus Selinger and John Wolfgang are "independent directors" within the meaning
of NYSE MKT Rule 803A.
Board
Committees
We
maintain the following committees of the Board of Directors: the Audit Committee, the Compensation Committee and the Nominating
Committee. Each committee is comprised of a majority of directors who are “independent” within the meaning of NYSE
MKT Rule 803A. Each committee acts pursuant to a separate written charter, and each such charter has been adopted and approved
by the Board of Directors. Copies of the committee charters are available on our website at sourcefinancial.com under the heading
“Investor Relations.”
Audit
Committee. Messrs. Wolfgang and Selinger are members of the Audit Committee. Mr. Wolfgang serves as Chairman of the Audit
Committee and also qualifies as an "audit committee financial expert," as that term is defined in Item 407(d)(5)(ii)
of Regulation S-K. The Board has determined that each member of our Audit Committee meets the financial literacy requirements
under the Sarbanes-Oxley Act and SEC rules and the independence requirements under NYSE MKT Rule 803A. We did not have an Audit
Committee prior to the acquisition of Moneytech on June 30, 2013.
Our
Audit Committee is responsible for preparing reports, statements and charters required by the federal securities laws, as well
as:
| ● | Overseeing
and monitoring the integrity of our consolidated financial statements, our compliance
with legal and regulatory requirements as they relate to financial statements or accounting
matters, and our internal accounting and financial controls |
| ● | Preparing
the report that SEC rules require be included in our annual proxy statement; |
| ● | Overseeing
and monitoring our independent registered public accounting firm's qualifications, independence
and Performance; |
| ● | Providing
the Board with the results of its monitoring and its recommendations; and |
| ● | Providing
to the Board additional information and materials as it deems necessary to make the Board
aware of significant financial matters that require the attention of the Board. |
Compensation Committee.
Messrs. Selinger (Chairman) and Wolfgang are members of the Compensation Committee.
The
Compensation Committee is responsible for:
| ● | Establishing
the Company’s general compensation policy, in consultation with the Company’s
senior management, and overseeing the development and implementation of compensation
programs |
| ● | Reviewing
and approving corporate goals and objectives relevant to the compensation of the CEO,
and evaluating the performance of the CEO at least annually in light of those goals and
objectives and communicating the results of such evaluation to the CEO and the Board,
and has the sole authority to determine the CEO’s compensation level based on this
evaluation, subject to ratification by the independent directors on the Board. In determining
the incentive component of CEO compensation, the Committee will consider, among other
factors, the Company’s performance and relative stockholder return, the value of
similar incentive awards to CEOs at comparable companies, the awards given to the CEO
in past years, and such other factors as the Committee may determine to be appropriate. |
| ● | Reviewing
and approving the compensation of all other executive officers of the Company, such other
managers as may be directed by the Board, and the directors of the Company. |
| ● | Overseeing
the Board’s benefit and equity compensation plans, overseeing the activities of
the individuals and committees responsible for administering these plans, and discharging
any responsibilities imposed on the Committee by any of these plans. |
| ● | Approving
issuances under, or any material amendments to, any stock option or other similar plan
pursuant to which a person not previously an employee or director of the Company, as
an inducement material to the individual’s entering into employment with the Company,
will acquire stock or options. |
| ● | In
consultation with management, overseeing regulatory compliance with respect to compensation
matters, including overseeing the Company’s policies on structuring compensation
programs to preserve related tax objectives. |
| ● | Reviewing
and approving any severance or similar termination payments proposed to be made to any
current or former officer of the Company. |
| ● | Preparing
an annual report on executive compensation for inclusion in our proxy statement for the
election of directors, if required under the applicable SEC rules. |
Corporate Governance Committee.
Messrs. Wolfgang (Chairman) and Selinger are members of the Corporate Governance Committee.
Our Corporate Governance
Committee’s purpose is to ensure the Company has appropriate ethical standards and corporate governance policies and
practices. The Committee is responsible for:
| ● | Governance
policies in light of best practice, regulatory developments and the needs of the company
including policies for continuous disclosure and dealings in securities. |
| ● | Delegation
of authority to the CEO & Managing Director to facilitate an efficient and timely
decision making process for managements day to day running of the business. |
Nominating
Committee. Our Nominating Committee is composed of Messrs. Wolfgang and Selinger. The purpose of the Nominating Committee
is to seek and nominate qualified candidates for election or appointment to our Board of Directors. The Nominating Committee will
seek candidates for election and appointment that possess the integrity, leadership skills and competency required to direct and
oversee the Company’s management in the best interests of its stockholders, customers, employees, communities it serves
and other affected parties.
A
candidate must be willing to regularly attend Committee and Board of Directors meetings, to develop a strong understanding of
the Company, its businesses and its requirements, to contribute his or her time and knowledge to the Company and to be prepared
to exercise his or her duties with skill and care. In addition, each candidate should have an understanding of all corporate governance
concepts and the legal duties of a director of a public company.
Stockholders
may contact the Nominating Committee Chairman, the Chairman of the Board or the Corporate Secretary in writing when proposing
a nominee. This correspondence should include a detailed description of the proposed nominee’s qualifications and a method
to contact that nominee if the Nominating Committee so chooses.
Stockholder
Communications
Any
stockholder who desires to contact any of our Directors can write to Source Financial, Inc., c/o Moneytech Limited, Level 6/97
Pacific Highway, North Sydney NSW 2060, Australia, Attention: Stockholder Relations. Your letter should indicate that you are
a Source Financial, Inc. stockholder. Depending on the subject matter, our stockholder relations personnel will:
| ● | Forward
the communication to the Director(s) to whom it is addressed |
| ● | Forward
the communication to the appropriate management personnel |
| ● | Attempt
to handle the inquiry directly, for example where it is a request for information about
the Company, or it is a stock-related matter; or |
| ● | Not
forward the communication if it is primarily commercial in nature or if it relates to
an improper or irrelevant topic |
Director
Compensation
Name
and Principal Position | |
Period | |
Year | | |
Salary
($) | | |
Bonus
($) | | |
Stock
awards
($) | | |
Option
awards ($) | | |
Non
Equity Incentive Plan Information ($) | | |
Nonqualified
deferred compensation earnings
($) | | |
All
other compensation ($) | | |
Total
($) | |
Klaus
Selinger | |
12
months | |
| 2015 | | |
| 50,000 | | |
| - | | |
| - | | |
| 50,492 | | |
| - | | |
| - | | |
| - | | |
| 100,492 | |
John
Wolfgang | |
12
months | |
| 2015 | | |
| 60,000 | | |
| - | | |
| - | | |
| 50,492 | | |
| - | | |
| - | | |
| - | | |
| 110,492 | |
Richard
Allely | |
10
months | |
| 2015 | | |
| 41,667 | | |
| - | | |
| - | | |
| 42,077 | | |
| - | | |
| - | | |
| - | | |
| 83,743 | |
Employee
directors do not receive any compensation for their services as directors. Non-employee directors receive an annual retainer of
$50,000, and the Chairman of the Audit Committee receives an additional $10,000 per annum. Non-employee directors also are eligible
to receive option grants from our company. The compensation committee will assist the directors in reviewing and approving the
compensation structure for our directors. In addition, non-employee directors are entitled to be reimbursed for their actual travel
expenses for each Board of Directors meeting attended.
On July 19, 2013, we granted
options to purchase 75,000 shares of common stock pursuant to the 2013 Omnibus Incentive Plan to each of Messrs. Klaus Selinger,
John Wolfgang and Richard Allely, our non-employee directors. The Options shall continue in force through June 30, 2020 (the "Expiration
Date"), unless sooner terminated as provided herein and in the Plan. Subject to the provisions of the Plan, the right to
exercise the Options shall vest as to 2,083 shares on September 30, 2013, and as to an additional 2,083 shares 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 August 31, 2016, and the exercise price per share of the Options vesting as of any date shall
be $2.00. The options will vest immediately upon the occurrence of a Change in Control, as defined in the 2013 Omnibus Incentive
Plan.
On September 9,
2015 our Board of Directors authorized the issuance of 160,000 restricted shares of common stock to Klaus Selinger, Chairman of
our Board of Directors, for services rendered at a fair value of $0.40 per share.
On September 9, 2015, our Board of Directors
granted options to purchase 75,000 shares of common stock pursuant to the 2013 Omnibus Incentive Plan to each of Messrs. Klaus
Selinger and John Wolfgang, our non-employee directors. The options vest in monthly installments on the last day of each calendar
month commencing October 31, 2015 until fully vested on September 30, 2016 and are exercisable to the extent vested commencing
March 9, 2016 at an initial exercise price of $0.40 per share. The expiration date of the options is September 9, 2025. The options
will vest immediately upon the occurrence of a Change in Control, as defined in the 2013 Omnibus Incentive Plan.
Risk
Oversight
Enterprise
risks are identified and prioritized by management and each prioritized risk is assigned to the full board for oversight. These
risks include, without limitation, the following:
Risks
and exposures associated with strategic, financial and execution risks and other current matters that may present material risk
to our operations, plans, prospects or reputation.
Risks
and exposures associated with financial matters, particularly financial reporting, tax, accounting, disclosure, internal control
over financial reporting, financial policies, investment guidelines and credit and liquidity matters.
Risks
and exposures relating to corporate governance; and management and director succession planning.
Risks
and exposures associated with leadership assessment, and compensation programs and arrangements, including incentive plans.
Board
Leadership Structure
The
Chairman of the Board presides at all meetings of the Board. The Chairman is appointed on an annual basis by at least a majority
vote of the remaining directors. Currently, the offices of Chairman of the Board and Chief Executive Officer are separated, with
Klaus Selinger as Chairman of the Board and Hugh Evans as our Chief Executive Officer.
Section
16(a) Beneficial Ownership Reporting Compliance
Section
16(a) of the Securities Exchange Act of 1934 requires our directors, executive officers and beneficial owners of more than 10%
of our common stock to file with the SEC reports of their holdings of, and transactions in, our common stock. Based solely upon
our review of copies of such reports and written representations from reporting persons that were provided to us, we believe that
our officers, directors and 10% stockholders complied with these reporting requirements with respect to our fiscal year ended
June 30, 2015.
Code
of Ethics
We
have adopted a code of ethics that applies to our Chief Executive Officer and Chief Financial Officer containing written standards
that are reasonably designed to deter wrongdoing and to promote:
| ● | Honest
and ethical conduct, including the ethical handling of actual or apparent conflicts of
interest between personal and professional relationships |
| ● | Full,
fair, accurate, timely and understandable disclosure in reports and documents that the
Company files with, or submits to, the Securities & Exchange Commission and in other
public communications made by the Company |
| ● | Compliance
with applicable governmental law, rules and regulations |
| ● | The
prompt internal reporting of violations of the code to an appropriate person or persons
identified in the code; and |
| ● | Accountability
for adherence to the code |
Item 11. Executive Compensation
The following summary compensation
table sets forth the total compensation earned by, paid to, or accrued for the year ended June 30, 2015 (“Fiscal 2015”),
to our principal executive officer and the commercial director of Moneytech, our principal operating subsidiary, the only
other individual whose total compensation was in excess of $100,000 for services rendered in all capacities for the year ended
June 30, 2015 (“Fiscal 2015”).
Summary
Compensation Table
Name and
Principal
Position | |
Period |
|
Year | | |
Salary
($) | | |
Bonus
($) | | |
Stock
awards
($) | | |
Option
awards
($) | | |
Non
Equity
Incentive
Plan
Information
($) | | |
Nonqualified
deferred
compensation
earnings
($) | | |
All
other
compensation
($) | | |
Total
($) | |
Hugh Evans | |
12 months |
|
| 2015 | | |
| 342,293 | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| 20,324 | | |
| 362,618, | 1 |
(CEO) | |
12
months |
|
| 2014 | | |
| 310,148 | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| 11,601 | | |
| 321,749 | 1 |
| |
|
|
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Mark Cameron | |
12
months |
|
| 2015 | | |
| 115,876 | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| 11,008 | | |
| 126,884 | |
(Commercial
Director, Moneytech) | |
12
months |
|
| 2014 | | |
| 120,399 | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| 11,137 | | |
| 131,536 | |
|
1 |
Of
the amounts ascribed to Mr. Evans as salary in the table above, during the years ended June 30, 2015 and 2014, we paid a company
controlled by Mr. Evans, $128,353 and $184,735, respectively. |
Executive
Compensation Policies as They Relate to Risk Management
Moneytech
has only been part of a public company since June 30, 2013. Its payment policies in respect of nearly all of its employees are
still indicative of those associated with a private company in Australia. The Compensation Committee and Management have considered
whether our compensation policies might encourage inappropriate risk taking by the Company’s executive officers and other
employees. The Compensation Committee has determined that the current compensation structure aligns the interests of the executive
officers with those of the Company without providing rewards for excessive risk taking by awarding a mix of fixed and performance
based or discretionary bonuses with the performance based compensation focused on profits as opposed to revenue growth.
Of
those employees which introduce new clients to the business or review the credit quality of clients, the compensation of credit
analysts is all fixed and salesman are paid predominately fixed salaries with small monthly bonuses.
During the fiscal years ended
June 30, 2015 and 2014, approximately 1.88% and 3.0%, respectively, of the total compensation paid to employees was paid in performance-based
compensation, including commissions and bonuses.
Equity
Awards; Option Exercises and Fiscal Year-End Option Value Table
None
of the named executive officers exercised any stock options during the year ended June 30, 2015, or held any outstanding stock
options as of June 30, 2015.
2013
Omnibus Incentive Plan
On
April 8, 2013, we approved and adopted an Omnibus Incentive Plan, which reserved 2,500,000 shares of common stock. This plan was
implemented to recognize and provide additional incentive to our directors, employees, consultants, advisors and affiliates to
establish and sustain our growth and financial success.
On July 19, 2013, we granted
options to purchase 75,000 shares of common stock pursuant to the 2013 Omnibus Incentive Plan to each of Messrs. Klaus Selinger,
John Wolfgang and Richard Allely, our non-employee directors, at an exercise price of $2.00 per share. The options vest as to
2,083 shares on September 30, 2013, and as to an additional 2,083 shares 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 August
31, 2016. The options will vest immediately upon the occurrence of a Change in Control, as defined in the 2013 Omnibus Incentive
Plan. The options expire on June 30, 2020. In May 2015, Richard Allely resigned. At that time, 41,660 options had vested. Upon
his resignation all vesting ceased and the vested options were subject to forfeiture if not exercised within three months of resignation.
The vested options were not exercised within the three month period and those options were forfeited.
On September 9, 2015, our Board of Directors
authorized the issuance of 960,000 restricted shares of common stock to Hugh Evans, our CEO, and 160,000 restricted shares of common
stock to Klaus Selinger, Chairman of our Board of Directors, as stock awards for services rendered.
On September 9, 2015, our Board of Directors
granted stock options to purchase a total of 2,225,000 shares of common stock to directors, officers and other employees pursuant
to our 2013 Omnibus Stock Incentive Plan, including options to purchase 1,000,000 shares granted to Hugh Evans, our CEO, options
to purchase 400,000 shares granted to Mark Cameron, Commercial Director of Moneytech Ltd., options to purchase 25,000 shares granted
to Brian Pullar, our CFO, and options to purchase 75,000 shares granted to each of Klaus Selinger and John Wolfgang, non-employee
directors. The options vest in monthly installments on the last day of each calendar month commencing October 31, 2015 until fully
vested on September 30, 2017 (except that the options granted to Messrs. Selinger and Wolfgang become fully vested on September
30, 2016), and are exercisable to the extent vested commencing March 9, 2016 at an initial exercise price of $0.40 per share, except
that the initial exercise price of the options granted to Mr. Evans is $0.44 per share. The options will vest immediately upon
the occurrence of a Change in Control, as defined in the 2013 Omnibus Incentive Plan. The expiration date of all of the options
is September 9, 2025.
Employment
Agreements
Hugh
Evans has served as Managing Director of Moneytech since March 1, 2004 pursuant to an Employment Agreement. The Employment
Agreement provides for a salary of $250,000 per annum, plus commissions, including a guaranteed annual contribution equal to 9.25%
of his salary to his superannuation fund. The Employment Agreement may be terminated by Moneytech or Mr. Evans upon four weeks
prior written notice and Moneytech may terminate Mr. Evans employment immediately for cause (as defined in the Employment Agreement).
The
Employment Agreement includes restrictive covenants which prohibit Mr. Evans personally or on behalf of any person, firm or company
(other than the Moneytech Group):
(a)
for a period of twelve months from the termination of his employment with Moneytech from (i) soliciting clients or customers of
Moneytech and its subsidiaries (the “Moneytech Group”) within Australia or New Zealand for any business conducted
by Moneytech Group, or (ii) soliciting, interfering with or endeavoring to entice away from Moneytech Group any person, firm or
company who at any time during the term of his employment was a customer or client of Moneytech Group; and
(b)
for a period of six months from the termination of his employment with Moneytech from (i) approaching, enticing, endeavoring to
entice away from the Moneytech Group any person, firm or company which during the six months before such termination was a director,
employee, consultant, agent, representative, associate or advisor to any company within the Moneytech Group, or (ii) accepting
any employment, which would require Mr. Evans to reveal any confidential information of the Moneytech Group without Moneytech
Group’s prior written consent.
Item
12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.
Security
Ownership
The following table sets
forth information about the beneficial ownership of our common stock as of September 11, 2015 by:
| ● | each
person known to us to be the beneficial owner of more than 5% of our common stock and
our series B preferred stock, our only voting securities |
| ● | each
named executive officer |
| ● | each
of our directors; and |
| ● | all
of our executive officers and directors as a group |
Unless
otherwise noted below, the address of each beneficial owner listed on the table is c/o Source Financial, Inc., Level6/97 Pacific
Highway, North Sydney NSW 2060, Australia. We have determined beneficial ownership in accordance with the rules of the SEC. Except
as indicated by the footnotes below, we believe, based on the information furnished to us, that the persons and entities named
in the tables below have sole voting and investment power with respect to all shares of common stock that they beneficially own,
subject to applicable community property laws, where applicable.
In computing the number of
shares of common stock beneficially owned by a person and the percentage ownership of that person, we deemed outstanding shares
of common stock subject to options or warrants held by that person that are currently exercisable or exercisable within 60 days
of September 11, 2015. We, however, did not deem these shares outstanding for the purpose of computing the percentage ownership
of any other person.
Applicable percentage voting power is
based on 8,791,632 shares of common stock and 5,000 shares of Series B Preferred Stock outstanding on September 11, 2015. Holders
of the Company’s Series B Shares are entitled to elect a majority of our Board of Directors through June 30, 2018 and vote
together with holders of common stock as a single class on all matters presented to holders of our common stock, with each vote
per Series B Share equal to 1,000 shares of common stock.
Shares Beneficially Owned |
| |
Common Stock | | |
Series B Preferred Stock | | |
| |
| |
Shares | | |
Percent | | |
Shares | | |
Percent | | |
Voting
Power (1) | |
Directors and Named Executive Officers: | |
| | |
| | |
| | |
| | |
| |
| |
| | |
| | |
| | |
| | |
| |
Hugh Evans | |
| 3,061,650 | (2) | |
| 34.82 | % | |
| 5,000 | | |
| 100 | % | |
| 58.45 | % |
Klaus Selinger | |
| 214,158 | (3) | |
| 2.36 | % | |
| - | | |
| - | | |
| 1.52 | % |
John Wolfgang | |
| 54,158 | (4) | |
| 0.60 | % | |
| - | | |
| - | | |
| 0.39 | % |
Mark Cameron | |
| 0 | (5) | |
| 0.00 | % | |
| - | | |
| - | | |
| 0.00 | % |
| |
| | | |
| | | |
| | | |
| | | |
| | |
All directors and executive officers as a group (5 persons, 3 of whom own shares) | |
| 3,329,966 | (2)(3)(4) | |
| 36.75 | % | |
| 5,000 | | |
| 100 | % | |
| 59.25 | % |
| |
| | | |
| | | |
| | | |
| | | |
| | |
Holders of More than 5% | |
| | | |
| | | |
| | | |
| | | |
| | |
Christopher John Taylor and Angus James Taylor ATF CTJ Super Fund (549,590) Christopher John Taylor and Angus James Taylor ATF The Taylor Family Superannuation Fund No.2 (80,090) | |
| 629,680 | | |
| 7.16 | % | |
| | | |
| | | |
| 4.57 | % |
*
Less than 1%
(1) |
Percentage total voting power represents voting power with respect to all shares of our common stock and Series B preferred stock, as a single class. Except as provided in the certificate of designation creating the Series B preferred stock or as may be required by law, the holder of Series B Shares and holders of common stock vote together as a single class on all matters upon which holders of common stock are entitled to vote with holders of Series B Shares entitled to 1,000 votes per share of Series B Shares through June 30, 2018 and each holder of common stock entitled to one vote per share of common stock. The holder(s) of Series B Shares are entitled to elect a majority of the members of our Board of Directors through June 30, 2018. |
|
|
(2) |
Includes 960,000 shares registered in the name of Mr. Evans, 2,001,514 shares of common stock registered in the name of BIX Holdings Pty Ltd ATF The Atherstone Trust & The Evans Family Superannuation Trust, a family trust of which Mr. Evans is the trustee and 100,136 shares owned by his wife. Does not include 41,640 shares which Mr Evans may acquire when he is first eligible to exercise options granted on March 9, 2016, that will have vested within 60 days and 8,328 shares which his wife may acquire, when she is first eligible to exercise options granted on March 9, 2016, that will have vested within 60 days. |
|
|
(3) |
Consists of 160,000 shares registered in the name of Mr. Selinger and 54,158 shares which he may acquire within 60 days upon exercise of options at an exercise price of $2.00 per share. Does not include 6,250 shares which Mr Selinger may acquire when he is first eligible to exercise options granted on March 9, 2016, that will have vested within 60 days. |
|
|
(4) |
Represents shares that may be acquired upon exercise of options at an exercise price of $2.00 per share. Does not include 6,250 shares which Mr Wolfgang may acquire when he is first eligible to exercise options granted on March 9, 2016, that will have vested within 60 days. |
|
|
(5) |
Does not include 16,656 shares which Mr Cameron may acquire when he is first eligible to exercise options granted on March 9, 2016, that will have vested within 60 days. |
Item
13. Certain Relationships and Related Transactions, and Director Independence
The
following is a summary of material provisions of various transactions we have entered into with our executive officers, directors
(including nominees), 5% or greater stockholders and any of their immediate family members or entities affiliated with them since
July 1, 2013. We believe the terms and conditions set forth in such agreements are reasonable and customary for transactions of
this type.
In
the years ended June 30, 2015, 2014 and 2013 we paid a company controlled by Mr. Evans $128,353, $226,076 and $209,500, respectively.
Of the amounts paid to a company controlled by Mr. Evans in the years ended June 30, 2015, 2014 and 2013, $128,353, $184,735 and
$163,289, respectively, related to the salary due him and attributed to him in the summary compensation table above.
Approval
of Related-Party Transactions
Transactions
by us with related parties are subject to a formal written policy, as well as regulatory requirements and restrictions. Our policy
has been revised to ensure compliance with all applicable requirements of the SEC concerning related-party transactions.
Under
our policy, our directors and director nominees, executive officers and holders of more than 5% of our common stock, including
their immediate family members, are not be permitted to enter into a related party transaction with us, as described below, without
the consent of our Audit Committee. Any request for us to enter into a transaction in which the amount involved exceeds $120,000
and any such party has a direct or indirect material interest, subject to certain exceptions will be required to be presented
to our Audit Committee for review, consideration and approval. Management will be required to report to our Audit Committee any
such related party transaction and such related party transaction will be reviewed and approved or disapproved by the disinterested
members of our Audit Committee.
Director
Independence
Our
Board of Directors has determined that Klaus Selinger and John Wolfgang are "independent directors" within the meaning
of NYSE MKT Rule 803A.
Item
14. Principal Accounting Fees and Services.
The
following is a summary of the fees billed to us Lichter Yu and Associates for professional services rendered for the fiscal years
ended June 30, 2015 and 2014:
| |
Fiscal
Year Ended | |
| |
June
30,
2015 | | |
June
30,
2014 | |
Audit
Fees | |
$ | 90,000 | | |
$ | 85,000 | |
Audit
Related Fees | |
$ | 3,857 | | |
$ | 3,857 | |
Tax
Fees | |
$ | 5,800 | | |
$ | 5,800 | |
All
Other Fees | |
| - | | |
| - | |
| |
$ | 99,657 | | |
$ | 95,157 | |
Audit
Fees. Consists of fees billed for professional services rendered for the audit of our consolidated financial statements and review
of interim consolidated financial statements included in quarterly reports and services that are normally provided in connection
with statutory and regulatory filings or engagements.
Audit
Related Fees. Consists of fees billed for assurance and related services that are reasonably related to the performance of the
audit or review of our consolidated financial statements and are not reported under "Audit Fees".
Tax
Fees. Consists of fees billed for professional services for tax compliance, tax advice and tax planning. These services include
preparation of federal and state income tax returns.
All
Other Fees. Consists of fees for product and services other than the services reported above.
Board
of Directors' Pre-Approval Policies
Our
Board of Directors' policy is to pre-approve all audit and permissible non-audit services provided by the independent auditors.
These services may include audit services, audit related services, tax services, and other services. Pre-approval is generally
provided for up to one year, and any pre-approval is detailed as to the particular service or category of services and is generally
subject to a specific budget. The independent auditors and management are required to periodically report to the Board of Directors
regarding the extent of services provided by the independent auditors in accordance with this pre-approval and the fees for the
services performed to date. The Board of Directors may also pre-approve particular services on a case-by-case basis.
Our
Board of Directors has reviewed and discussed with Lichter, Yu and Associates., our audited consolidated financial statements
contained in this Annual Report on Form 10-K for the fiscal years ended June 30, 2015 and 2014. The Board of Directors also has
discussed with Lichter, Yu and Associates the matters required to be discussed pursuant to SAS No. 61 (Codification of Statements
on Auditing Standards, AU Section 380), which includes, among other items, matters related to the conduct of the audit of our
consolidated financial statements.
Our
Board of Directors has received and reviewed the written disclosures and the letter from Lichter, Yu and Associates required by
Independence Standards Board Standard No. 1 (Independence Discussions with Audit Committees), and has discussed with Lichter,
Yu and Associates its independence from our company.
Our
Board of Directors has considered whether the provision of services other than audit services is compatible with maintaining auditor
independence. Based on the review and discussions referred to above, the Board of Directors determined that the audited consolidated
financial statements be included in our Annual Report on Form 10-K for our fiscal year ended June 30, 2015 for filing with the
SEC.
PART
IV
Item
15. Exhibits, Financial Statement Schedules.
(a)
The following documents are filed as part of this report:
(1)
Financial Statements
The
audited consolidated balance sheet of the Company and its subsidiaries as of June 30, 2015 and June 30, 2014, the related condensed
statements of operations, changes in stockholders’ equity and cash flows for the years then ended, the footnotes thereto,
and the report of Lichter, Yu and Associates,
independent auditors, are filed herewith.
(2)
Financial Statement Schedules: None
(3) Exhibits:
Exhibit
Number |
|
Description |
|
|
|
2.1 |
|
Agreement
and Plan of Merger dated February 10, 2012 (incorporated by reference to Exhibit 2.1 to Current Report on Form 8-K filed on
February 14, 2012). |
|
|
|
2.2 |
|
Share
Exchange Agreement (incorporated by reference to Exhibit 2.2 to Amendment No. 1 to Registration Statement on Form
S-1 (File No. 333-196225) filed on August 4, 2014). |
|
|
|
3.1 |
|
Amended
and Restated Certificate of Incorporation (incorporated by reference to Exhibit 3.1 to Annual Report on Form 10-K filed on
October 15, 2013). |
|
|
|
4.1 |
|
Form
of 12% convertible promissory note (incorporated by reference to Exhibit 4.1 to Annual Report on Form 10-K filed on May 1,
2013). |
|
|
|
10.1 |
|
Employment
Agreement between Moneytech and Hugh Evans (incorporated by reference to Exhibit 10.1 to Annual Report on Form 10-K filed
on October 15, 2013). |
|
|
|
10.2 |
|
Employment
Agreement between WikiTechnologies and Edward DeFeudis (incorporated by reference to Exhibit 10.2 to Annual Report on Form
10-K filed on October 15, 2013). |
|
|
|
10.3 |
|
Employment
Agreement between WikiTechnologies and Marco Garibaldi (incorporated by reference to Exhibit 10.3 to Annual Report on Form
10-K filed on October 15, 2013). |
|
|
|
10.4 |
|
Receivables
Purchase Agreement, as amended (incorporated by reference to Exhibit 10.4 to Annual Report on Form 10-K filed on October 15,
2013). |
|
|
|
10.5 |
|
Omnibus
Incentive Plan (incorporated by reference to Exhibit 10.1 to Current Report on Form 8-K filed on April 9, 2013). |
|
|
|
10.6 |
|
Restricted
Stock Option Agreement effective May 9, 2013 with Edward DeFeudis (incorporated by reference to Exhibit 10.1 to Quarterly
Report on Form 10-Q filed on August 5, 2013). |
|
|
|
10.7 |
|
Restricted
Stock Option Agreement effective May 9, 2013 with Marco Garibaldi (incorporated by reference to Exhibit 10.2 to Quarterly
Report on Form 10-Q filed on August 5, 2013). |
|
|
|
10.8 |
|
Stock
Option Agreement dated July 19, 2013 with Klaus Selinger (incorporated by reference to Exhibit 10.8 to Annual Report on Form
10-K filed on October 15, 2013). |
|
|
|
10.9 |
|
Stock
Option Agreement dated July 19, 2013 with John Wolfgang (incorporated by reference to Exhibit 10.9 to Annual Report on Form
10-K filed on October 15, 2013). |
|
|
|
10.10 |
|
Stock
Option Agreement dated July 19, 2013 with Richard Allely (incorporated by reference to Exhibit 10.10 to Annual Report on Form
10-K filed on October 15, 2013). |
10.11 |
|
Lease
dated September 13, 2011 for Suites 101A and 101B, Level 6, 97-103 Pacific Highway, North Sydney, Australia (incorporated
by reference to Exhibit 10.11 to Annual Report on Form 10-K filed on October 15, 2013). |
|
|
|
10.12 |
|
Lease
dated July 25, 2013 for Suite 8, 842 Albany Highway, Victoria Park, Australia (incorporated by reference to Exhibit 10.12
to Annual Report on Form 10-K filed on October 15, 2013). |
|
|
|
10.13 |
|
Escrow
Agreement (incorporated by reference to Exhibit 10.1 to Current Report on Form 8-K filed on July 5, 2013). |
|
|
|
10.14 |
|
Letter
Agreement dated May 28, 2013 with Hugh Evans concerning Series B Preferred Stock (incorporated by reference to Exhibit 10.2
to Current Report on Form 8-K filed on June 5, 2013). |
|
|
|
10.15 |
|
Service
Agreement dated April 19, 2013 by and among Source, WikiTechnologies and 24 Seven Technologies, Inc. (incorporated by reference
to Exhibit 10.15 to Annual Report on Form 10-K filed on October 15, 2013). |
|
|
|
10.16 |
|
Consulting
Agreement between Source and Market Street Investor Relations LLC, dated July 9, 2013 (incorporated by reference
to Exhibit 10.16 to Annual Report on Form 10-K filed on October 15, 2013). |
|
|
|
10.17 |
|
Note
Purchase Agreement with Robert Pearson dated October 31, 2012 (incorporated by reference to Exhibit 10.2 to Annual Report
on Form 10-K filed on May 1, 2013). |
|
|
|
10.18 |
|
Note
Cancellation Agreement dated November 15, 2012 (incorporated by reference to Exhibit 10.3 to Annual Report on Form 10-K filed
on May 1, 2013). |
|
|
|
10.19 |
|
Separation
Agreement dated February 11, 2014 (incorporated by reference to Exhibit 10.1 to Current Report on Form 8-K filed on February
18, 2014). |
|
|
|
10.20 |
|
Australian
Financial Services License. (Incorporated by reference to Exhibit 10.20 to Annual Report on Form 10-K/A filed on May
1, 2014). |
|
|
|
10.21 |
|
Distributor
Program Agreement between mPayments Pty Limited and Hubbed Pty Limited (incorporated by reference to Exhibit 10.21 to
Annual Report on Form 10-K/A filed on May 1, 2014). |
|
|
|
10.22 |
|
Referral
Agreement dated April 30, 2013 between Hubbed Pty Limited and Moneytech Services Pty Limited (incorporated by reference to
Exhibit 10.22 to Annual Report on Form 10-K/A filed on May 1, 2014). |
|
|
|
10.23 |
|
Letter
dated March 13, 2014 from Westpac extending and amending the Westpac Receivables Purchase Agreement. (Incorporated
by reference to Exhibit 10.23 to Annual Report on Form 10-K/A filed on May 1, 2014). |
|
|
|
10.24 |
|
Tripartite
Agreement dated January 13, 2013 by and among Moneytech Limited, Moneytech Services Pty Limited and 360 Markets Pty Limited
(incorporated by reference to Exhibit 10.24 to Annual Report on Form 10-K/A filed on May 1, 2014). |
|
|
|
10.25 |
|
Authorised
Representative Agreement dated September 3, 2012 between Moneytech Limited and 360 Pty Limited (incorporated by reference
to Exhibit 10.25 to Annual Report on Form 10-K/A filed on May 1, 2014). |
10.26 |
|
Employment
Agreement dated April 7, 2014 between Moneytech Services Pty Limited and David Frost.(incorporated by reference
to Exhibit 10.26 to Registration Statement on Form S-1 (File No. 333-196225) filed on May 23, 2014). |
|
|
|
10.27 |
|
Euler
Hermes Insurance Policy (incorporated by reference to Exhibit 10.27 to Registration Statement on Form
S-1 (File No. 333-196225) filed on May 23, 2014). |
|
|
|
10.28 |
|
Master
Agreement entered into on May 28, 2014 by and among Moneytech Limited, Moneytech Services Pty Limited, 360 Markets Pty
Limited and Jason Hugo. |
|
|
|
14.1 |
|
Code
of Ethics (incorporated by reference to Exhibit 14.1 to Form 10-K/A filed on May 1, 2014). |
|
|
|
16.1 |
|
Letter
from P.S. Stephenson & Co., P.C. (incorporated by reference to Exhibit 16.1 to Current Report on Form 8-K/A filed on September
27, 2013). |
21.1 |
|
Subsidiaries
(incorporated by reference to Exhibit 21.1 to Annual Report on Form 10-K/A filed on May 1, 2014). |
|
|
|
31.1 |
|
Certifications
of Chief Executive Officer pursuant to Rule 13a-14(a) or 15d-14(a) under the Securities Exchange Act of 1934, as amended,
as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. |
|
|
|
31.2 |
|
Certifications
of Chief Financial Officer pursuant to Rule 13a-14(a) or 15d-14(a) under the Securities Exchange Act of 1934, as amended,
as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. |
32.1 |
|
Certifications
of Chief Executive Officer pursuant to 18 U.S.C. SEC. 1350 (Section 906 of Sarbanes-Oxley Act of 2002) |
|
|
|
32.2 |
|
Certifications
of Chief Financial Officer pursuant to 18 U.S.C. SEC. 1350 (Section 906 of Sarbanes-Oxley Act of 2002) |
101.INS |
|
XBRL
Instance Document |
|
|
|
101.SCH |
|
XBRL
Taxonomy Extension Schema Document |
|
|
|
101.CAL |
|
XBRL
Taxonomy Extension Calculation Linkbase Document |
|
|
|
101.DEF |
|
XBRL
Taxonomy Extension Definition Linkbase Document |
|
|
|
101.LAB |
|
XBRL
Taxonomy Extension Label Linkbase Document |
|
|
|
101.PRE |
|
XBRL
Taxonomy Extension Presentation Linkbase Document |
SIGNATURES
Pursuant
to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report
to be signed on its behalf by the undersigned, thereunto duly authorized.
|
Source
Financial, Inc. |
|
|
|
|
By: |
/s/
Hugh Evans |
Dated:
September 17, 2015 |
|
Hugh
Evans |
|
|
President
and Chief Executive Officer |
|
|
(principal
executive officer) |
|
|
|
|
By: |
/s/
Brian M. Pullar |
Dated:
September 17, 2015 |
|
Brian
M. Pullar |
|
|
Chief
Financial Officer |
|
|
(principal
financial and accounting officer) |
Pursuant to the requirements
of the Securities Exchange Act of 1934, this report has been signed below by the following persons in the capacities on September
17, 2015.
Signature |
|
Title |
|
|
/s/
Hugh Evans |
|
President,
Chief Executive Officer and a Director |
Hugh
Evans |
|
(Principal
Executive Officer) |
|
|
/s/
Brian Pullar |
|
Chief
Financial Officer (Principal Financial and |
Brian
M. Pullar |
|
Accounting
Officer) |
|
|
/s/
Klaus Selinger |
|
Chairman
of the Board and a Director |
Klaus
Selinger |
|
|
|
|
/s/ John
Wolfgang |
|
Director |
John
Wolfgang |
|
|
SOURCE
FINANCIAL, INC. AND SUBSIDIARIES
CONSOLIDATED
FINANCIAL STATEMENTS
JUNE
30, 2015
INDEX TO
CONSOLIDATED FINANCIAL STATEMENTS
SOURCE
FINANCIAL, INC. AND SUBSIDIARIES
Consolidated
Financial Statements for the Years Ended June 30, 2015 and 2014 |
LICHTER, YU AND ASSOCIATES,
INC.
CERTIFIED PUBLIC ACCOUNTANTS
16133 VENTURA BLVD., SUITE 450
ENCINO, CALIFORNIA 91436
TEL (818)789-0265 FAX (818) 789-3949
Report of Independent Registered Public
Accounting Firm
Board of Directors and Stockholders
of
Source Financial, Inc. and Subsidiaries
We have audited the accompanying consolidated
balance sheets of Source Financial, Inc. and Subsidiaries (the “Company”) as of June 30, 2015 and 2014, and the related
consolidated statements of operations and comprehensive loss, stockholders’ equity, and cash flows for the years ended June
30, 2015 and 2014. These financial statements are the responsibility of the Company’s management. Our responsibility is
to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance
with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial
statements referred to above present fairly, in all material respects, the financial position of Source Financial, Inc. and Subsidiaries
as of June 30, 2015 and 2014, and the results of their operations and their cash flows for the years ended June 30, 2015 and 2014,
in conformity with accounting principles generally accepted in the United States of America.
/s/ Lichter, Yu and Associates,
Inc.
Encino, California
September 15, 2015
SOURCE
FINANCIAL, INC. AND SUBSIDIARIES
CONSOLIDATED
BALANCE SHEETS
| |
June
30,
2015 | | |
June
30,
2014 | |
ASSETS | |
| | |
| |
| |
| | |
| |
CURRENT ASSETS | |
| | |
| |
Cash
and cash equivalents | |
$ | 8,075,078 | | |
$ | 10,730,743 | |
Trade
receivables, net | |
| 19,651,268 | | |
| 24,870,297 | |
Terminal
financing receivables, current, net | |
| 111,364 | | |
| - | |
Inventories | |
| 157,144 | | |
| 18,450 | |
Deferred
tax asset | |
| 230,400 | | |
| 282,600 | |
Other
current assets | |
| 779,851 | | |
| 837,705 | |
TOTAL
CURRENT ASSETS | |
| 29,005,105 | | |
| 36,739,795 | |
| |
| | | |
| | |
NON-CURRENT
ASSETS | |
| | | |
| | |
Intangible
assets, net | |
| 2,914,253 | | |
| 3,632,536 | |
Deferred
tax asset | |
| 885,383 | | |
| 1,288,887 | |
Property,
plant and equipment, net | |
| 326,899 | | |
| 519,321 | |
Terminal
financing receivables, non-current, net | |
| 172,068 | | |
| - | |
Investment
in equity affiliates | |
| 681 | | |
| - | |
Goodwill | |
| 58,071 | | |
| 71,227 | |
TOTAL
NON-CURRENT ASSETS | |
| 4,357,355 | | |
| 5,511,971 | |
| |
| | | |
| | |
TOTAL
ASSETS | |
$ | 33,362,460 | | |
$ | 42,251,766 | |
| |
| | | |
| | |
LIABILITIES
AND STOCKHOLDERS' EQUITY | |
| | | |
| | |
| |
| | | |
| | |
CURRENT
LIABILITIES | |
| | | |
| | |
Trade
and other payables | |
$ | 3,114,185 | | |
$ | 7,023,958 | |
Wholesale
loan facility | |
| 6,052,789 | | |
| 27,746,303 | |
Cash
reserve | |
| 1,257,984 | | |
| 878,747 | |
TOTAL
CURRENT LIABILITIES | |
| 10,424,958 | | |
| 35,649,008 | |
| |
| | | |
| | |
NON-CURRENT
LIABILITIES | |
| | | |
| | |
| |
| | | |
| | |
Subordinated
notes, net | |
| 18,471,471 | | |
| - | |
Shareholder's
loan | |
| 38,392 | | |
| 47,100 | |
TOTAL
NON-CURRENT LIABILITIES | |
| 18,509,863 | | |
| 47,100 | |
| |
| | | |
| | |
TOTAL
LIABILITIES | |
| 28,934,821 | | |
| 35,696,108 | |
| |
| | | |
| | |
STOCKHOLDERS'
EQUITY | |
| | | |
| | |
Preferred
stock, $0.01 par value, 1,000,000 shares authorized, none issued and outstanding net | |
| - | | |
| - | |
Designated
as Series B Preferred stock, $0.01 par value, 5,000 shares authorized, 5,000 issued and outstanding | |
| 50 | | |
| 50 | |
Common
Stock, $0.001 par value, 50,000,000 shares authorized, 7,671,632 issued and outstanding at June 30, 2015 and 2014, respectively | |
| 7,672 | | |
| 7,672 | |
Additional
paid-in capital | |
| 15,170,976 | | |
| 15,027,915 | |
Other
accumulated comprehensive loss | |
| (2,115,049 | ) | |
| (864,766 | ) |
Accumulated
deficit | |
| (8,636,010 | ) | |
| (7,615,213 | ) |
TOTAL
STOCKHOLDERS' EQUITY | |
| 4,427,639 | | |
| 6,555,658 | |
| |
| | | |
| | |
TOTAL
LIABILITIES AND STOCKHOLDERS' EQUITY | |
$ | 33,362,460 | | |
$ | 42,251,766 | |
The
accompanying notes are an integral part of these consolidated financial statements
SOURCE
FINANCIAL, INC. AND SUBSIDIARIES
CONSOLIDATED
STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS
| |
Years
ended | |
| |
June
30,
2015 | | |
June
30,
2014 | |
| |
| | |
| |
Revenue | |
$ | 4,740,855 | | |
$ | 5,810,936 | |
Cost
of revenue | |
| 3,418,492 | | |
| 3,056,524 | |
Gross
profit | |
| 1,322,363 | | |
| 2,754,412 | |
| |
| | | |
| | |
Operating
Expenses | |
| | | |
| | |
| |
| | | |
| | |
Compensation
expenses | |
| 1,242,789 | | |
| 1,060,905 | |
Research
and development expense | |
| 815,847 | | |
| 557,393 | |
Bad
debt expenses | |
| 58,788 | | |
| 795,112 | |
Bad
debts recovered | |
| (142,389 | ) | |
| (3,234 | ) |
Professional
expenses | |
| 299,567 | | |
| 612,763 | |
Occupancy
expenses | |
| 227,048 | | |
| 250,651 | |
Depreciation
expense | |
| 56,115 | | |
| 61,716 | |
General
and administration expenses | |
| 366,344 | | |
| 371,808 | |
Total
operating expenses | |
| 2,924,109 | | |
| 3,707,114 | |
Loss
from operations | |
| (1,601,746 | ) | |
| (952,702 | ) |
| |
| | | |
| | |
Other
Income (Expense) | |
| | | |
| | |
Research
and development grant | |
| 630,696 | | |
| 617,922 | |
Interest
income | |
| 143,997 | | |
| 108,992 | |
Gain
on equity method investment | |
| 743 | | |
| - | |
Other
income (expense) | |
| (14,041 | ) | |
| (12,121 | ) |
Total
Other Income | |
| 761,395 | | |
| 714,793 | |
| |
| | | |
| | |
Loss
from continuing operations before income taxes | |
| (840,351 | ) | |
| (237,909 | ) |
| |
| | | |
| | |
Provision
for income taxes | |
| 180,446 | | |
| 327,539 | |
| |
| | | |
| | |
Net
loss from continuing operations | |
| (1,020,797 | ) | |
| (565,448 | ) |
| |
| | | |
| | |
Net
loss from discontinued operations | |
| - | | |
| (301,280 | ) |
| |
| | | |
| | |
Net
loss | |
| (1,020,797 | ) | |
| (866,728 | ) |
| |
| | | |
| | |
Other
comprehensive (loss) income | |
| | | |
| | |
Foreign
currency translation | |
| (1,250,283 | ) | |
| 214,996 | |
| |
| | | |
| | |
Comprehensive
loss | |
$ | (2,271,080 | ) | |
$ | (651,732 | ) |
| |
| | | |
| | |
Net loss
per share | |
| | | |
| | |
Basic
and Diluted: | |
| | | |
| | |
Continuing
operations | |
$ | (0.133 | ) | |
$ | (0.060 | ) |
Discontinued | |
| - | | |
| (0.032 | ) |
Total | |
$ | (0.133 | ) | |
$ | (0.092 | ) |
| |
| | | |
| | |
Weighted
average number of shares used in computing basic and diluted net (loss) per share: | |
| | | |
| | |
| |
| | | |
| | |
Basic | |
| 7,671,632 | | |
| 9,402,356 | |
Diluted | |
| 7,671,632 | | |
| 9,402,356 | |
The
accompanying notes are an integral part of these consolidated financial statements
SOURCE
FINANCIAL, INC. AND SUBSIDIARIES
CONSOLIDATED
STATEMENTS OF STOCKHOLDERS’ EQUITY
| |
Common
Stock | | |
Preferred
Stock | | |
Additional
Paid in | | |
Comprehensive | | |
Accumulated | | |
Stockholders' | |
| |
Shares | | |
Amount | | |
Shares | | |
Amount | | |
Capital | | |
Loss | | |
Deficit | | |
Equity | |
| |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| |
Balance June
30, 2013 | |
| 10,300,000 | | |
$ | 1,030,000 | | |
| 5,000 | | |
$ | 50 | | |
$ | 14,462,575 | | |
$ | (1,079,762 | ) | |
$ | (6,748,485 | ) | |
$ | 7,664,378 | |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Issuance
of stock options | |
| - | | |
| - | | |
| - | | |
| - | | |
| 194,979 | | |
| - | | |
| - | | |
| 194,979 | |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Change in
par value of shares | |
| - | | |
| (1,019,700 | ) | |
| - | | |
| - | | |
| 1,019,700 | | |
| - | | |
| - | | |
| - | |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Cancellation
of stock | |
| (150,000 | ) | |
| (150 | ) | |
| - | | |
| - | | |
| 150 | | |
| - | | |
| - | | |
| - | |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Cancellation
of stock | |
| (2,140,000 | ) | |
| (2,140 | ) | |
| - | | |
| - | | |
| (88,754 | ) | |
| - | | |
| - | | |
| (90,894 | ) |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Cancellation
of shares to be issued | |
| (338,368 | ) | |
| (338 | ) | |
| - | | |
| - | | |
| (560,735 | ) | |
| - | | |
| - | | |
| (561,073 | ) |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Net
gain (loss) for the year ended June 30, 2014 | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| 214,996 | | |
| (866,728 | ) | |
| (651,732 | ) |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Balance June
30, 2014 | |
| 7,671,632 | | |
| 7,672 | | |
| 5,000 | | |
| 50 | | |
| 15,027,915 | | |
| (864,766 | ) | |
| (7,615,213 | ) | |
| 6,555,658 | |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Issuance
of stock options | |
| - | | |
| - | | |
| - | | |
| - | | |
| 143,061 | | |
| - | | |
| - | | |
| 143,061 | |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Net
loss for the year ended June 30, 2015 | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| (1,250,283 | ) | |
| (1,020,797 | ) | |
| (2,271,080 | ) |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Balance
June 30, 2015 | |
| 7,671,632 | | |
$ | 7,672 | | |
| 5,000 | | |
$ | 50 | | |
$ | 15,170,976 | | |
$ | (2,115,049 | ) | |
$ | (8,636,010 | ) | |
$ | 4,427,639 | |
The
accompanying notes are an integral part of these consolidated financial statements
SOURCE
FINANCIAL, INC. AND SUBSIDIARIES
CONSOLIDATED
STATEMENTS OF CASH FLOWS
| |
Years
ended | |
| |
June
30,
2015 | | |
June
30,
2014 | |
| |
| | |
| |
Net
loss | |
$ | (1,020,797 | ) | |
$ | (866,728 | ) |
Net
loss from discontinued operations | |
| - | | |
| (301,280 | ) |
Net
loss from continuing operations | |
| (1,020,797 | ) | |
| (565,448 | ) |
| |
| | | |
| | |
Adjustments
to reconcile net loss to net cash (used in) provided by operating activities: | |
| | | |
| | |
Depreciation
and amortization | |
| 729,531 | | |
| 738,056 | |
Subordinated
notes costs amortization | |
| 41,839 | | |
| - | |
Stock
options issued for compensation | |
| 143,061 | | |
| 126,231 | |
Gain
on equity method investment | |
| (743 | ) | |
| - | |
| |
| | | |
| | |
(Increase)
decrease in assets: | |
| | | |
| | |
Trade
receivables, net | |
| 682,133 | | |
| 782,645 | |
Inventories | |
| (155,053 | ) | |
| 203,687 | |
Deferred
tax asset | |
| 180,508 | | |
| 327,547 | |
Financing
receivables | |
| (309,265 | ) | |
| - | |
Other
assets | |
| (100,568 | ) | |
| 44,961 | |
(Decrease)
increase in current liabilities: | |
| | | |
| | |
Trade
payables | |
| (2,978,562 | ) | |
| 3,157,082 | |
Net
cash (used in) provided by operating activities | |
| (2,787,916 | ) | |
| 4,814,761 | |
| |
| | | |
| | |
Cash
flows from investing activities | |
| | | |
| | |
Purchase
of property, plant and equipment | |
| (54,466 | ) | |
| (127,266 | ) |
Development
of intangible assets | |
| (518,155 | ) | |
| (753,547 | ) |
Net
cash used in investing activities | |
| (572,621 | ) | |
| (880,813 | ) |
| |
| | | |
| | |
Cash
flows from financing activities | |
| | | |
| | |
Wholesale
loan facility, net | |
| (18,078,542 | ) | |
| 1,238,847 | |
Capital
Reserve | |
| 590,914 | | |
| (1,890,240 | ) |
Proceeds
from issuance of subordinated notes, net | |
| 20,113,229 | | |
| - | |
Net
cash provided by (used in) financing activities | |
| 2,625,601 | | |
| (651,393 | ) |
| |
| | | |
| | |
Net
cash (used in) provided by continuing operations | |
| (734,936 | ) | |
| 3,282,555 | |
| |
| | | |
| | |
Cash
flows from discontinued operations | |
| | | |
| | |
Net
cash used in operating activities from discontinued operations | |
| - | | |
| (209,381 | ) |
Net
cash used in investing activities from discontinued operations | |
| - | | |
| (5,907 | ) |
Net
cash provided by financing activities from discontinued operations | |
| - | | |
| 150,000 | |
Net
cash used in discontinued operations | |
| - | | |
| (65,288 | ) |
| |
| | | |
| | |
Effect
of exchange rate changes on cash and cash equivalents | |
| (1,920,729 | ) | |
| 307,649 | |
Net
(decrease) increase in cash and cash equivalents | |
| (2,655,665 | ) | |
| 3,524,916 | |
Cash
and cash equivalents at beginning of period - continuing operations | |
| 10,730,743 | | |
| 7,140,539 | |
Cash
and cash equivalents at beginning of period - discontinued operations | |
| - | | |
| 65,288 | |
Cash
and cash equivalents at the end of the period | |
$ | 8,075,078 | | |
$ | 10,730,743 | |
| |
| | | |
| | |
Supplemental
disclosures | |
| | | |
| | |
Cash
paid during the period for: | |
| | | |
| | |
Income
tax payments | |
$ | - | | |
$ | - | |
Interest
payments | |
$ | 1,784,043 | | |
$ | 1,695,288 | |
| |
| | | |
| | |
Supplemental
schedule of non-cash financing activities: | |
| | | |
| | |
Issuance
of stock options | |
$ | 143,061 | | |
$ | 115,492 | |
Cancellation
of shares to be issued and recorded as other liability | |
$ | - | | |
$ | 560,735 | |
The
accompanying notes are an integral part of these consolidated financial statements
SOURCE
FINANCIAL, INC. AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
Note
1 – BASIS OF PRESENTATION AND ORGANIZATION
Basis
of Presentation
Source
Financial, Inc., formerly known as The Wiki Group, Inc., (the “Company” or “Source”) was incorporated
under the laws of the State of Delaware on June 24, 1988 as Windsor Capital Corp. Between March 2001 and January 2008 the Company
amended and restated its Articles of Incorporation and changed its corporate name to Energy Control Technology, Inc., 5Fifty5.com,
Inc., Swap-A-Debt, Inc., WikiLoan, Inc. and finally Wiki Group, Inc. on March 12, 2012.
Moneytech
Limited (“Moneytech”) was incorporated under the laws of Australia on September 9, 2003, and (through its wholly owned
subsidiaries Moneytech Finance Pty Ltd, mPayments Pty Ltd., Moneytech POS Pty Ltd. and Moneytech Services Pty Ltd.) offers working
capital, trade and debtor finance solutions, to small and medium sized businesses in Australia.
On
June 30, 2013, Source acquired Moneytech and its wholly owned subsidiaries, Moneytech Finance Pty. Ltd., mPayments Pty. Ltd.,
Moneytech POS Pty. Ltd. and Moneytech Services Pty. Ltd. pursuant to a Share Exchange Agreement. Under the terms of the Exchange
Agreement, all stockholders of Moneytech received a total of 5,300,000 shares of voting common stock of Source in exchange for
all outstanding shares of Moneytech. In addition, pursuant to a separate agreement, the President of Moneytech received 5,000
shares of Preferred Series B Stock. Under accounting principles generally accepted in the United States, the share exchange is
considered to be a capital transaction in substance, rather than a business combination. That is, the share exchange is equivalent
to the issuance of stock by Moneytech for the net monetary assets of Source accompanied by a recapitalization, and is accounted
for as a change in capital structure. Accordingly, the accounting for the share exchange will be identical to that resulting from
a reverse acquisition, except no goodwill will be recorded. Under share reverse takeover accounting, the post reverse acquisition
comparative historical financial statements of the legal acquirer, Source are those of the legal acquiree, Moneytech, which is
considered to be the accounting acquirer. Share and per share amounts stated have been retroactively adjusted to reflect the merger.
Organization
Moneytech
delivers its product offerings through ‘The Moneytech Exchange’, which is a real-time core banking platform, developed
in-house and which continues to be upgraded with the support of the Australian Federal Government’s Research and Development
program.
The
Moneytech Exchange serves as the backbone of its business in Australia by providing internet banking style access to Moneytech’s
customers and serving as the back-office systems to Moneytech’s staff.
The
Company offers a range of innovative financial products and services to businesses and consumers in Australia through its principal
operating subsidiaries, Moneytech Limited, mPayments Pty Ltd and Moneytech POS Pty Ltd. In fiscal 2013, the Company formed a new
corporation in the United States, Moneytech USA, Inc. It was inactive in fiscal 2014 and 2015.
When
used in these notes, the terms "Company," "we," "our," or "us" mean Source Financial,
Inc. and its subsidiaries.
Note
2 – DISCONTINUED OPERATIONS
In
connection with the Share Exchange, two of our shareholders prior to consummation of the share exchange, deposited in escrow an
aggregate of 2,240,000 shares of our common stock (the “Escrow Shares”), and we deposited in escrow all
outstanding shares of the common stock of WikiTechnologies, Inc. (the “WTI Escrow Shares,”) our only operating subsidiary
prior to the Share Exchange. The terms of the escrow arrangement were such that if WikiTechnologies failed to achieve certain
financial benchmarks we could elect to retain the Escrow Shares by delivering the WTI Escrow Shares to the two shareholders.
On
February 11, 2014, we entered into a Separation Agreement with the two shareholders, pursuant to which (i) the WTI Escrow Shares
were delivered to them, as a result of which we no longer own any equity interest in WTI, and (ii) 2,140,000 of the GD Escrow
Shares were cancelled, with the remaining 100,000 shares delivered to a noteholder of WTI (the “Noteholder”). The
cancellation of the 2,140,000 shares effectively increased the percentage of our then outstanding shares owned by the former shareholders
of Moneytech.
Revenue
and expenses, and gains and losses relating to the discontinued business have been reclassified from the results of continuing
operations and are reflected as net loss from discontinued operations in the statement of operations and comprehensive loss.
As
this is a non-reciprocal transfer of non-monetary assets with a certain group of shareholders, this transfer has been recorded
at the fair value of the asset transferred. Management believes the net book value of the assets transferred, which is the same
as the investment in Wiki Technologies, Inc., is the reasonable fair market value. It has been booked on transfer date at the
recorded amount (less any impairment on assets distributed) in accordance with modifications of the basic principle of using Fair
Value. As such no gain or loss on disposal has been reported.
The
assets and liabilities and operating results of the discontinued operation are summarized as follows:
NET RESULT
FROM DISCONTINUED OPERATIONS | |
For
the year ended | |
| |
June
30 | |
| |
2015 | | |
2014 | |
Revenue | |
$ | - | | |
$ | 2,647 | |
Cost
of Revenue | |
| - | | |
| 70,460 | |
Gross
Loss | |
| - | | |
| (67,813 | ) |
Operating
Expenses | |
| - | | |
| 234,027 | |
Loss
from operations | |
| - | | |
| (301,840 | ) |
Other
income | |
| - | | |
| 560 | |
Loss
before tax | |
| - | | |
| (301,280 | ) |
Tax | |
| - | | |
| - | |
Loss
after tax | |
$ | - | | |
$ | (301,280 | ) |
The
discontinued operations of Wiki Technologies, Inc. were reported in the United States of America segment in our geographic segment
information as per Note 19.
Note
3 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles
of Consolidation
The
consolidated financial statements include the accounts of Source Financial (“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 year ended June 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 June 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 11) and Subordinated Notes (see Note 13), 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 June 30, 2015 and 2014, the Company had insurance claims receivables
of $0 and $32,085, respectively.
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 June 30, 2015 and 2014,
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 June 30, 2015 and 2014, Property, Plant & Equipment consisted of the following:
| |
June
30 | | |
June
30 | |
| |
2015 | | |
2014 | |
Office
equipment | |
$ | 30,230 | | |
$ | 37,079 | |
Furniture
and fixtures | |
| 193,822 | | |
| 237,734 | |
Terminals | |
| 45,483 | | |
| 87,319 | |
Computers
and software | |
| 1,177,253 | | |
| 1,365,207 | |
Accumulated
Depreciation | |
| (1,119,889 | ) | |
| (1,208,018 | ) |
| |
$ | 326,899 | | |
$ | 519,321 | |
For
the years ended June 30, 2015 and 2014, depreciation expense consisted of the following:
| |
Years
ended | |
| |
June
30 | |
| |
2015 | | |
2014 | |
Depreciation,
cost of revenue | |
$ | 103,642 | | |
$ | 150,107 | |
Depreciation,
operating | |
| 56,115 | | |
| 61,716 | |
Total
depreciation expense | |
$ | 159,757 | | |
$ | 211,823 | |
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 June 30, 2015 and 2014, 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 years ended June 30, 2015 and 2014:
| |
Years
ended | |
| |
June
30 | |
| |
2015 | | |
2014 | |
| |
| | |
| |
Net
loss from continuing operations | |
$ | (1,020,797 | ) | |
$ | (565,448 | ) |
Net
loss from discontinued operations | |
| - | | |
| (301,280 | ) |
Net
loss | |
$ | (1,020,797 | ) | |
$ | (866,728 | ) |
Weighted
average number of shares used in computing basic and diluted net loss per share:
Basic | |
| 7,671,632 | | |
| 9,402,356 | |
Dilutive
effect of stock options | |
| - | | |
| - | |
Diluted | |
| 7,671,632 | | |
| 9,402,356 | |
| |
Year
ended | |
| |
June
30 | |
| |
2015 | | |
2014 | |
Net loss per
share | |
| | |
| |
Basic and
diluted: | |
| | |
| |
Continuing
operations | |
$ | (0.133 | ) | |
$ | (0.060 | ) |
Discontinued | |
| - | | |
| (0.032 | ) |
Total | |
$ | (0.133 | ) | |
$ | (0.092 | ) |
Options
to purchase up to 172,812 and 83,243 shares of common stock were anti-dilutive during the years ended June 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 June 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
In
April 2015, the FASB issued ASU 2015-03, Simplifying the Presentation of Debt Issuance Costs which changes the presentation
of debt issuance costs in financial statements. ASU 2015-03 requires an entity to present such costs in the balance sheet as a
direct deduction from the related debt liability rather than as an asset. Amortization of the costs will continue to be reported
as interest expense. It is effective for fiscal years and interim periods within those fiscal years beginning after December 15,
2015. Early adoption is permitted. The new guidance will be applied retrospectively to each prior period presented.
The Company has early adopted this pronouncement, there is no impact on comparative periods.
In
July 2015, the FASB issued ASU 2015-11, Inventory — Simplifying the Measurement of Inventory. ASU
2015-11 requires inventory to be subsequently measured using the lower of cost and net realizable value, thereby eliminating the
market value approach. Net realizable value is defined as the “estimated selling prices in the ordinary course of
business, less reasonably predictable costs of completion, disposal and transportation.” ASU 2015-11 is effective
for reporting periods beginning after December 15, 2016 and is applied prospectively. Early adoption is permitted.
The Company is evaluating the impact, if any, of adopting this new accounting guidance on its financial statements.
Other
recent accounting pronouncements issued by the FASB, including its Emerging Issues Task Force, the American Institute of Certified
Public Accountants, and the Securities and Exchange Commission did not or are not believed by management to have a material impact
on the Company's present or future consolidated financial statements.
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
4 – 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 June 30, 2015 and 2014, trade receivables consist of the following:
| |
June
30 | | |
June
30 | |
| |
2015 | | |
2014 | |
Trade
receivables | |
$ | 20,231,293 | | |
$ | 25,573,699 | |
Allowance
for bad debt | |
| (580,025 | ) | |
| (703,402 | ) |
Total
trade receivables, net | |
$ | 19,651,268 | | |
$ | 24,870,297 | |
AGE ANALYSIS
OF PAST DUE TRADE | |
June
30 | | |
June
30 | |
RECEIVABLES | |
2015 | | |
2014 | |
| |
| | |
| |
1
- 30 Days Past Due | |
$ | 665,728 | | |
$ | 695,116 | |
31
- 60 Days Past Due | |
| 86,328 | | |
| 59,212 | |
Greater
than 60 Days Past Due | |
| 916,106 | | |
| 890,205 | |
Total
Past Due | |
| 1,668,162 | | |
| 1,644,533 | |
Current | |
| 18,563,131 | | |
| 23,929,166 | |
Total
Trade Receivables | |
$ | 20,231,293 | | |
$ | 25,573,699 | |
Recorded
Investment > 60 Days and accruing | |
$ | 268,375 | | |
$ | 23,007 | |
ALLOWANCE
FOR DOUBTFUL DEBTS | |
Year
ended | | |
Year
ended | |
| |
June
30 | | |
June
30 | |
| |
2015 | | |
2014 | |
| |
| | |
| |
Allowance
for doubtful debts | |
| | |
| |
Beginning
balance | |
$ | 703,402 | | |
| 731,475 | |
Charge-offs | |
| (26,199 | ) | |
| (736,738 | ) |
Recoveries | |
| - | | |
| - | |
Provision | |
| 33,347 | | |
| 686,942 | |
Other
comprehensive income (fx differences) | |
| (130,525 | ) | |
| 21,723 | |
Ending balance | |
$ | 580,025 | | |
$ | 703,402 | |
| |
| | | |
| | |
Ending
balance - individually evaluated for impairment | |
$ | 552,180 | | |
$ | 667,508 | |
Ending
balance - collectively evaluated for impairment | |
$ | 27,845 | | |
$ | 35,894 | |
Reconciliation
to bad debts expense in the Statement of Operations
Provision | |
$ | 33,347 | | |
$ | 686,942 | |
Other
bad debt expenses / credits not reflected in provision | |
| 25,441 | | |
| 108,169 | |
Bad
debts expense per Statement of Operations | |
$ | 58,788 | | |
$ | 795,111 | |
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 | |
June
30 | | |
June
30 | |
| |
2015 | | |
2014 | |
| |
| | |
| |
Ending
balance | |
$ | 20,231,293 | | |
$ | 25,573,699 | |
Ending
balance - individually evaluated for impairment | |
$ | 639,279 | | |
$ | 1,079,337 | |
Ending
balance - collectively evaluated for impairment | |
$ | 19,592,014 | | |
$ | 24,494,362 | |
TRADE RECEIVABLES
ON A NON ACCRUAL BASIS | |
June
30 | | |
June
30 | |
| |
2015 | | |
2014 | |
| |
| | |
| |
Trade
receivables | |
$ | 639,279 | | |
$ | 1,079,337 | |
Total
Financing Receivables | |
$ | 639,279 | | |
$ | 1,079,337 | |
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 | |
| |
$ | 639,279 | | |
$ | 441,661 | | |
$ | 552,180 | | |
$ | 756,900 | | |
$ | 8,478 | |
Total | |
| | | |
| | | |
| | | |
| | | |
| | |
Trade
receivables | |
$ | 639,279 | | |
$ | 441,661 | | |
$ | 552,180 | | |
$ | 756,900 | | |
$ | 8,478 | |
| |
$ | 639,279 | | |
$ | 441,661 | | |
$ | 552,180 | | |
$ | 756,900 | | |
$ | 8,478 | |
| |
June
30, 2014 | |
| |
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 | |
$ | 1,079,337 | | |
$ | 797,842 | | |
$ | 667,508 | | |
$ | 1,354,838 | | |
$ | 78,488 | |
| |
$ | 1,079,337 | | |
$ | 797,842 | | |
$ | 667,508 | | |
$ | 1,354,838 | | |
$ | 78,488 | |
Total | |
| | | |
| | | |
| | | |
| | | |
| | |
Trade
receivables | |
$ | 1,079,337 | | |
$ | 797,842 | | |
$ | 667,508 | | |
$ | 1,354,838 | | |
$ | 78,488 | |
| |
$ | 1,079,337 | | |
$ | 797,842 | | |
$ | 667,508 | | |
$ | 1,354,838 | | |
$ | 78,488 | |
Note
5 – TERMINAL FINANCING RECEIVABLES, NET
The
Company, as lessor, entered into terminal lease agreements, which were recorded as sales type leases, during the year ended June
30, 2015. The following are balances due as of June 30, 2015 and June 30, 2014. The leases require monthly payments, have a term
of 30 months and bear interest at an effective rate of 12.49% per annum.
| |
June
30 | | |
June
30 | |
| |
2015 | | |
2014 | |
Current | |
$ | 111,364 | | |
$ | - | |
Non-current | |
| 172,068 | | |
| - | |
| |
$ | 283,432 | | |
$ | - | |
Terminal financing
receivables repayments schedule. | |
| |
| |
| |
12 months
ended: | |
USD
$ | |
June
30, 2016 | |
$ | 111,364 | |
June
30, 2017 | |
| 125,273 | |
June
30, 2018 | |
| 46,795 | |
| |
$ | 283,432 | |
Note
6 – INVENTORY
Inventory
consists of the following as of June 30, 2015 and 2014:
| |
June
30 | | |
June
30 | |
| |
2015 | | |
2014 | |
Terminals | |
$ | 146,650 | | |
$ | - | |
Prepaid
gift cards or other | |
| 10,494 | | |
| 18,450 | |
| |
$ | 157,144 | | |
$ | 18,450 | |
Note
7 – OTHER ASSETS
Other
assets consist of the following as of June 30, 2015 and 2014:
| |
June
30 | | |
June
30 | |
| |
2015 | | |
2014 | |
Research
& development grant receivable | |
$ | 555,289 | | |
$ | 555,780 | |
Insurance
claim receivable | |
| - | | |
| 32,085 | |
Prepayment | |
| 53,561 | | |
| 43,697 | |
Other
assets | |
| 171,001 | | |
| 206,143 | |
| |
$ | 779,851 | | |
$ | 837,705 | |
Note
8 – INTANGIBLE ASSETS
Intangible
assets consist of the following as of June 30, 2014 and 2015:
| |
June
30 | | |
June
30 | |
| |
2015 | | |
2014 | |
Moneytech
and mPayments software | |
$ | 5,874,178 | | |
$ | 6,608,596 | |
Accumulated
amortization | |
| (2,959,925 | ) | |
| (2,976,060 | ) |
| |
$ | 2,914,253 | | |
$ | 3,632,536 | |
The
intangible assets are amortized over 10-12 years. Amortization expense of $569,774 and $526,233 was included in cost of revenues
for the years ended June 30, 2015 and 2014, respectively.
Amortization
for the Company’s intangible assets over the next five fiscal years from June 30, 2015 is estimated to be:
Years ending
June 30, | |
| |
2016 | |
$ | 544,412 | |
2017 | |
| 544,412 | |
2018 | |
| 544,412 | |
2019 | |
| 544,412 | |
2020 | |
| 544,412 | |
Thereafter | |
| 192,193 | |
Total | |
$ | 2,914,253 | |
Note
9 – GOODWILL
As
of June 30, 2015 and 2014, the Goodwill was comprised of the following:
| |
June
30 | | |
June
30 | |
| |
2015 | | |
2014 | |
Acquisition
cost of Moneytech POS Pty Ltd. | |
$ | 82,560 | | |
$ | 101,265 | |
Fixed
assets received | |
| (45,994 | ) | |
| (56,414 | ) |
Liability
assumed | |
| 21,505 | | |
| 26,376 | |
Acquisition
cost assigned to goodwill | |
$ | 58,071 | | |
$ | 71,227 | |
Note
10 – TRADE AND OTHER PAYABLES
As
of June 30, 2015 and 2014, trade and other payables consist of the following:
| |
June
30 | | |
June
30 | |
| |
2015 | | |
2014 | |
Trade
payables | |
$ | 1,923,404 | | |
$ | 6,195,424 | |
Accrued
consulting costs | |
| 561,073 | | |
| 561,073 | |
Employee
benefits | |
| 245,159 | | |
| 161,906 | |
Other
liabilities | |
| 384,549 | | |
| 105,555 | |
Total
payables | |
$ | 3,114,185 | | |
$ | 7,023,958 | |
Note
11 – LINE OF CREDIT AND CASH RESERVE LIABILITIES
| |
June
30 | | |
June
30 | |
| |
2015 | | |
2014 | |
Wholesale
loan facility | |
$ | 6,052,789 | | |
$ | 27,746,303 | |
Cash
reserve liabilities | |
| 1,257,984 | | |
| 878,747 | |
| |
$ | 7,310,773 | | |
$ | 28,625,050 | |
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 and AUD$40 million as of June 30, 2015 and June 30, 2014, respectively. 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 years ended June 30,
2015 and 2014 was approximately USD $1,412,578 and USD $1,695,288 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
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
12 – SHAREHOLDER’S LOAN
| |
June
30 | | |
June
30 | |
| |
2015 | | |
2014 | |
Shareholder's
loan | |
$ | 38,392 | | |
$ | 47,100 | |
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
13 – SUBORDINATED NOTES, NET
| |
June
30 | | |
June
30 | |
| |
2015 | | |
2014 | |
Subordinated
notes issued | |
$ | 19,200,000 | | |
$ | - | |
Issuance
costs | |
| (766,873 | ) | |
| - | |
Subordinated
notes, net proceeds | |
$ | 18,433,127 | | |
$ | - | |
Issuance
costs amortised | |
| 38,344 | | |
| - | |
Subordinated
notes, net | |
$ | 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.
| |
Year
ended | | |
Year
ended | |
| |
June
30 | | |
June
30 | |
| |
2015 | | |
2014 | |
Issuance
costs amortized during the year | |
$ | 41,839 | | |
$ | - | |
Interest
paid during the year | |
| 325,277 | | |
| - | |
Reported
as Interest expense in cost of revenue | |
$ | 367,116 | | |
$ | - | |
Interest
expense charged to cost of revenue related to the notes for the year ended June 30, 2015 was USD $367,116.
Note
14 – STOCKHOLDERS’ EQUITY
Preferred
Stock
The
Company has 1,000,000 undesignated shares of Preferred Stock authorized, each having a par value of $0.01. There were 5,000 shares
of Series B Preferred Stock authorized, issued and outstanding as of June 30, 2015 and 2014 (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 has 50,000,000 shares of Common Stock authorized, each having a par value of $0.001, as of June 30, 2015 and 2014 after
giving effect to the authorized shares discussed below. There were 7,671,632 shares issued and outstanding as of June 30, 2015
and 2014.
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 Settlement agreement as further detailed in Footnote 2.
On
February 11, 2014, 100,000 of the shares returned in the Separation Agreement were issued to a note holder of Wiki as further
detailed in Footnote 2.
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.
Note
15 – STOCK COMPENSATION
Restricted
shares
On
July 23, 2013, the Company entered into a consulting agreement to promote the Company's image in both the industry and capital
markets. In connection with the agreements, the Company agreed to issue 170,632 shares of Common Stock valued at $2.02 (stock
price at grant date). During the year ended June 30, 2014, the Company determined that performance had not occurred and would
not be satisfactorily undertaken and consequently the Company terminated the agreement with the consultant and will not be delivering
170,632 shares of Common stock.
| |
Number
of Shares | |
| |
June
30 | | |
June
30 | |
| |
2015 | | |
2014 | |
Granted
but not issued at July 1 | |
| - | | |
| 338,368 | |
Issued during
nine months ended June 30 | |
| - | | |
| - | |
Granted during
nine months ended June 30 | |
| - | | |
| 170,632 | |
Cancelled
during nine months ended June 30 | |
| - | | |
| (150,000 | ) |
Granted
but not issued at June 30 | |
| - | | |
| 359,000 | |
The
shares granted but not issued at July 1 were cancelled due to non-performance as of June 30, 2014.
On
September 9, 2015 The Board of Directors awarded an Officer (960,000) and Director (160,000) restricted shares at a fair value
of $0.40 per share.
Note
16 – 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. As a result of the return of WTI, as further detailed in footnote 2, 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 had vested. Upon his resignation all vesting ceased and the vested options were subject to forfeiture
if not exercised within three months of resignation. The vested options were not exercised within the three month period 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.
The
Company recorded $143,060 and $194,979 option expense in the year ended June 30, 2015 and 2014, respectively.
The
following is a summary of the activity and position as of the year ended June 30, 2015 and 2014.
| |
Stock
Options | |
| |
Years
ended | |
| |
June
30 | |
| |
2015 | | |
2014 | |
Outstanding
at July 1 | |
| 350,000 | | |
| 100,000 | |
Granted | |
| - | | |
| 250,000 | |
Exercised | |
| - | | |
| - | |
Expired | |
| - | | |
| - | |
Outstanding
at June 30 | |
| 350,000 | | |
| 350,000 | |
Exercisable
at June 30 | |
| 172,812 | | |
| 101,990 | |
Options outstanding at June 30, 2015
and 2014 are as follows:
|
|
| |
| |
Weighted | |
| |
| |
|
|
|
| |
| |
Average | |
Weighted | |
| |
Weighted |
|
|
| |
| |
Remaining | |
Average | |
| |
Average |
|
|
| |
| |
Life | |
Exercise | |
| |
Exercise |
|
|
| |
Options | |
(Years) | |
Price | |
Options | |
Price |
Year |
|
Exercise
Price | |
(Outstanding) | |
(Outstanding) | |
(Outstanding) | |
(Exercisable) | |
(Exercisable) |
|
|
| |
| |
| |
| |
| |
|
2015 |
|
$1.30 to $2.50 | |
350,000 | |
4.41 | |
$1.96 | |
172,812 | |
$1.94 |
2014 |
|
$1.30
to $2.50 | |
350,000 | |
5.41 | |
$2.09 | |
101,990 | |
$1.90 |
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.
On
September 9, 2015 The Board of Directors awarded 2,225,000 options to Officers, employees and Directors. The options vest over
12 month (150,000 options) and 24 month (2,075,000 options) periods and may be exercised for a period of 10 years with exercise
prices of $0.40 (1,225,000 options) and $0.44 (1,000,000 options) per option.
Note
17 – RELATED PARTY TRANSACTIONS
During
the years ended June 30, 2015 and 2014, the Company paid a company controlled by the President of Moneytech for consulting services
$128,353 and $226,076, respectively. This arrangement was terminated as of January 31, 2015.
Note
18 – INCOME TAX
The
following is the income tax expense reflected in the Statement of Operations for the years ended June 30, 2015 and 2014:
INCOME TAX
EXPENSE | |
Years
ended | | |
Years
ended | | |
Years
ended | |
| |
June
30 | | |
June
30 | | |
June
30 | |
| |
2015 | | |
2014 | | |
2015 | | |
2014 | | |
2015 | | |
2014 | |
| |
Australia | | |
United
States | | |
Total | |
Income
tax expense - current | |
$ | - | | |
$ | - | | |
$ | - | | |
$ | - | | |
$ | - | | |
$ | - | |
Income
tax expense - deferred | |
| 180,446 | | |
| 327,539 | | |
| - | | |
| - | | |
| 180,446 | | |
| 327,539 | |
Total | |
$ | 180,446 | | |
$ | 327,539 | | |
$ | - | | |
$ | - | | |
$ | 180,446 | | |
$ | 327,539 | |
The
following are the components of income before income tax reflected in the Statement of Operations for the years ended June 30,
2015 and 2014:
COMPONENTS
OF INCOME BEFORE INCOME TAX | |
Years
ended | | |
Years
ended | | |
Years
ended | |
| |
June
30 | | |
June
30 | | |
June
30 | |
| |
2015 | | |
2014 | | |
2015 | | |
2014 | | |
2015 | | |
2014 | |
| |
Australia | | |
United
States | | |
Total | |
(Loss)
income from continuing operations | |
$ | (156,461 | ) | |
$ | 623,336 | | |
$ | (683,890 | ) | |
$ | (861,245 | ) | |
$ | (840,351 | ) | |
$ | (237,909 | ) |
Net
loss from discontinued operations | |
| - | | |
| - | | |
| - | | |
| (301,280 | ) | |
| - | | |
| (301,280 | ) |
(Loss)
income before Income tax | |
$ | (156,461 | ) | |
$ | 623,336 | | |
$ | (683,890 | ) | |
$ | (1,162,525 | ) | |
$ | (840,351 | ) | |
$ | (539,189 | ) |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Income
tax | |
$ | 180,446 | | |
$ | 327,539 | | |
$ | - | | |
$ | - | | |
$ | 180,446 | | |
$ | 327,539 | |
Effective
tax rate | |
| (115 | )% | |
| 53 | % | |
| - | % | |
| - | % | |
| (21 | )% | |
| (61 | )% |
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 years ended June 30, 2015 and 2014:
INCOME TAX
RATE RECONCILIATION | |
Years
ended | | |
Years
ended | | |
Years
ended | |
| |
June
30 | | |
June
30 | | |
June
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 | |
| 121 | % | |
| (26 | )% | |
| - | % | |
| - | % | |
| 23 | % | |
| 31 | % |
Research
and development grant eligible expenditure | |
| (156 | )% | |
| 25 | % | |
| - | % | |
| - | % | |
| (30 | )% | |
| (28 | )% |
Research
and development grant eligible amortisation | |
| (109 | )% | |
| 23 | % | |
| - | % | |
| - | % | |
| (20 | )% | |
| (27 | )% |
USA
losses | |
| - | % | |
| - | % | |
| (30 | )% | |
| (30 | )% | |
| (24 | )% | |
| (67 | )% |
Other | |
| (1 | )% | |
| 1 | % | |
| - | % | |
| - | % | |
| - | % | |
| - | % |
Tax
expenses at actual rate | |
| (115 | )% | |
| 53 | % | |
| - | % | |
| - | % | |
| (21 | )% | |
| (61 | )% |
The
following are the components of deferred tax reflected in the Statement of Operations for the years ended June 30, 2015 and 2014:
COMPONENTS
OF DEFERRED TAX EXPENSE | |
Years
ended | | |
Years
ended | | |
Years
ended | |
| |
June
30 | | |
June
30 | | |
June
30 | |
| |
2015 | | |
2014 | | |
2015 | | |
2014 | | |
2015 | | |
2014 | |
| |
Australia | | |
United
States | | |
Total | |
Tax
losses carried forward | |
$ | 204,548 | | |
$ | 331,073 | | |
$ | - | | |
$ | - | | |
$ | 204,548 | | |
$ | 331,073 | |
Doubtful
debts reserve | |
| (2,144 | ) | |
| 14,939 | | |
| - | | |
| - | | |
| (2,144 | ) | |
| 14,939 | |
Accruals | |
| (21,958 | ) | |
| (18,473 | ) | |
| - | | |
| - | | |
| (21,958 | ) | |
| (18,473 | ) |
| |
$ | 180,446 | | |
$ | 327,539 | | |
$ | - | | |
$ | - | | |
$ | 180,446 | | |
$ | 327,539 | |
The
following are the components of deferred tax reflected in the Balance Sheet as of June 30, 2015 and 2014:
COMPONENTS
OF DEFERRED TAX ASSET | |
June
30 | | |
June
30 | | |
June
30 | | |
June
30 | | |
June
30 | | |
June
30 | |
| |
2015 | | |
2014 | | |
2015 | | |
2014 | | |
2015 | | |
2014 | |
| |
Australia | | |
United
States | | |
Total | |
Tax
losses carried forward | |
$ | 875,244 | | |
$ | 1,303,475 | | |
$ | - | | |
$ | - | | |
$ | 875,244 | | |
$ | 1,303,475 | |
Doubtful
debts reserve | |
| 174,008 | | |
| 211,021 | | |
| - | | |
| - | | |
| 174,008 | | |
| 211,021 | |
Accruals | |
| 66,587 | | |
| 56,991 | | |
| - | | |
| - | | |
| 66,587 | | |
| 56,991 | |
| |
$ | 1,115,839 | | |
$ | 1,571,487 | | |
$ | - | | |
$ | - | | |
$ | 1,115,839 | | |
$ | 1,571,487 | |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Deferred
tax assets - current | |
$ | 230,400 | | |
$ | 282,600 | | |
$ | - | | |
$ | - | | |
$ | 230,400 | | |
$ | 282,600 | |
Deferred
tax assets - non current | |
| 885,439 | | |
| 1,288,887 | | |
| - | | |
| - | | |
| 885,439 | | |
| 1,288,887 | |
| |
$ | 1,115,839 | | |
$ | 1,571,487 | | |
$ | - | | |
$ | - | | |
$ | 1,115,839 | | |
$ | 1,571,487 | |
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 June 30, 2015, Moneytech had approximately $2,917,479 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 June 30, 2015, Source had NOL’s of approximately $13 million dollars to offset future taxable income in the US. Federal
NOLs can generally be carried forward 20 years. However, under Internal Revenue Code section 382 due to the change in ownership
there are certain limitations placed on the NOL carryover and Source may only use approximately $161,500 per year of the available
NOL. The deferred tax assets of the US entities at June 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
19 – GEOGRAPHIC SEGMENT INFORMATION
As
a result of the reverse merger on June 30, 2013 the Company operated in two regions: Australia and the United States of America.
As a result of the Separation Agreement, see Note 2, the Company now operates only in Australia. All inter-company transactions
are eliminated in consolidation.
For
the years ended June 30, 2015 and 2014, geographic segment information is as follows:
| |
Year
Ended June 30, 2015 | | |
Year
Ended June 30, 2014 | |
| |
Australia | | |
USA | | |
Elimination | | |
Consolidated | | |
Australia | | |
USA | | |
Elimination | | |
Consolidated | |
Revenue | |
$ | 4,740,855 | | |
$ | - | | |
$ | - | | |
$ | 4,740,855 | | |
$ | 5,810,936 | | |
$ | - | | |
$ | - | | |
$ | 5,810,936 | |
Cost of Revenue | |
| 3,418,492 | | |
| - | | |
| - | | |
| 3,418,492 | | |
| 3,056,524 | | |
| - | | |
| - | | |
| 3,056,524 | |
Total
Expenses | |
| 2,924,109 | | |
| - | | |
| - | | |
| 2,924,109 | | |
| 2,544,589 | | |
| 1,162,525 | | |
| - | | |
| 3,707,114 | |
Other
Income (Expense) | |
| 761,395 | | |
| - | | |
| - | | |
| 761,395 | | |
| 714,793 | | |
| - | | |
| - | | |
| 714,793 | |
Net
Income (Loss) before tax from continuing operations | |
| (840,351 | ) | |
| - | | |
| - | | |
| (840,351 | ) | |
| 924,616 | | |
| (1,162,525 | ) | |
| - | | |
| (237,909 | ) |
Discontinued
operations | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| (301,280 | ) | |
| - | | |
| (301,280 | ) |
Assets | |
| 33,362,460 | | |
| - | | |
| - | | |
| 33,362,460 | | |
| 42,251,766 | | |
| - | | |
| - | | |
| 42,251,766 | |
Debt | |
| 28,934,821 | | |
| - | | |
| - | | |
| 28,934,821 | | |
| 35,135,035 | | |
| 561,073 | | |
| - | | |
| 35,696,108 | |
Note
20 – 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 has 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 $743 has been reported in the Statement
of Operations and Comprehensive Loss for the year ended June 30, 2015. As a result of the current period 360 profits the Company
has recorded an Investment in equity affiliate of $681 in the Balance Sheet as at June 30, 2015.
Note
21 – COMMITMENTS
The
Company leases two offices in Australia under renewable operating leases expiring on August 31, 2016 and July 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. In addition we occupy an office on Albany Highway, Victoria Park, Western Australia. The
initial term of the lease for this space expires July 31, 2015, at which time the lease will continue on a month by month basis. The
monthly rent for the premises is AUD $1,420.
For
the years ended June 30, 2015 and 2014, the aggregate rental expense was USD $125,562 and USD $137,695, respectively.
Future
minimum rental payments required under operating leases as of June 30, 2015 are as follows:
| |
| |
USD
$ | |
Fiscal | |
2016 | |
$ | 130,511 | |
| |
2017 | |
| 21,597 | |
| |
| |
$ | 152,108 | |
Note
22 – SUBSEQUENT EVENTS
Management
has evaluated events subsequent through September 15, 2015 for transactions and other events that may require adjustment of and/or
disclosure in such financial statements.
As of 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 Director (160,000) restricted shares at a fair value
of $0.40 per share.
On
September 9, 2015 The Board of Directors awarded 2,225,000 options to Officers, employees and Directors. The options vest over
12 month (150,000 options) and 24 month (2,075,000 options) periods and may be exercised for a period of 10 years with exercise
prices of $0.40 (1,225,000 options) and $0.44 (1,000,000 options) per option.
F-24
Exhibit 31.1
CERTIFICATION OF PRINCIPAL EXECUTIVE
OFFICER PURSUANT TO
RULE 13A-14(a)/15d-14(a) OF THE SECURITIES
EXCHANGE ACT OF 1934, AS AMENDED
I, Hugh Evans, President and Chief Executive Officer of
Source Financial, Inc. (the "Company"), certify that:
1. I have reviewed this annual report on Form 10-K of the
Company;
2. Based on my knowledge, this report does not contain any
untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances
under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and
other financial information included in this report, fairly present in all material respects the financial condition, results
of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrant's other certifying officer and I are responsible
for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e))
for the registrant and have:
a. Designed such disclosure controls and procedures, or
caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating
to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly
during the period in which this report is being prepared;
b. Designed such internal controls over financial reporting,
or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance
regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance
with generally accepted accounting principles;
c. Evaluated the effectiveness of the registrant's disclosure
controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures,
as of the end of the period covered by this report based on such evaluation; and
d. Disclosed in this report any change in the registrant's
internal control over financial reporting that occurred during the registrant's most recent fiscal quarter that has materially
affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and
5. The registrant's other certifying officer and I have
disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and
the audit committee of registrant's board of directors (or persons performing the equivalent functions):
a. All significant deficiencies and material weaknesses
in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's
ability to record, process, summarize and report financial information; and
b. Any fraud, whether or not material, that involves management
or other employees who have a significant role in the registrant's internal control over financial reporting.
Date: September 17, 2015
|
/s/ Hugh
Evans |
|
Hugh
Evans |
|
President
and Chief Executive Officer |
Exhibit 31.2
CERTIFICATIONS OF PRINCIPAL FINANCIAL
OFFICER PURSUANT TO
RULE 13A-14(a)/15d-14(a) OF THE SECURITIES
EXCHANGE ACT OF 1934, AS AMENDED
I, Brian M. Pullar, Chief Financial Officer of Source Financial,
Inc. (the "Company"), certify that:
1. I have reviewed this annual report on Form 10-K of
the Company;
2. Based on my knowledge, this report does not contain any
untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances
under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other
financial information included in this report, fairly present in all material respects the financial condition, results of operations
and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrant's other certifying officer and I are responsible
for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e))
for the registrant and have:
(a) Designed such disclosure controls and procedures, or
caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating
to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during
the period in which this report is being prepared;
(b) Designed such internal controls over financial reporting,
or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance
regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance
with generally accepted accounting principles;
(c) Evaluated the effectiveness of the registrant's disclosure
controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures,
as of the end of the period covered by this report based on such evaluation; and
(d) Disclosed in this report any change in the registrant's
internal control over financial reporting that occurred during the registrant's most recent fiscal quarter that has materially
affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and
5. The registrant's other certifying officer and I have disclosed,
based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee
of registrant's board of directors (or persons performing the equivalent functions):
(a) All significant deficiencies and material weaknesses
in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's
ability to record, process, summarize and report financial information; and
(b) Any fraud, whether or not material, that involves management
or other employees who have a significant role in the registrant's internal control over financial reporting.
Date: September 17, 2015
|
/s/ Brian M. Pullar |
|
Brian M. Pullar |
|
Chief Financial Officer |
|
(principal financial officer) |
Exhibit 32.1
CERTIFICATION OF PRINCIPAL EXECUTIVE
OFFICER
PURSUANT TO 18 U.S.C. SECTION 1350
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY
ACT OF 2002
In connection with the Annual Report of Source Financial,
Inc., a Delaware corporation (the "Company"), on Form 10-K for the year ended June 30, 2015, as filed with the Securities
and Exchange Commission (the "Report"), Hugh Evans, Chief Executive Officer of the Company, does hereby certify, pursuant
to Section 906 of the Sarbanes-Oxley Act of 2002 (18 U.S.C. ss. 1350), that:
(1) The Report fully complies with the
requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
(2) The information contained in the
Report fairly presents, in all material respects, the financial condition and result of operations of the Company.
Dated: September 17, 2015
|
/s/ Hugh Evans |
|
Hugh Evans |
|
President and Chief Executive Officer |
|
(principal executive officer) |
A signed original of this written statement required by Section
906 has been provided to the Company and will be retained by the Company and furnished to the Securities and Exchange Commission
or its staff upon request.
Exhibit 32.2
CERTIFICATION OF PRINCIPAL FINANCIAL
OFFICER
PURSUANT TO 18 U.S.C. SECTION 1350
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY
ACT OF 2002
In connection with the Annual Report of Source Financial,
Inc., a Delaware corporation (the "Company"), on Form 10-K for the year ended June 30, 2015, as filed with the Securities
and Exchange Commission (the "Report"), Brian M. Pullar, Chief Financial Officer of the Company, does hereby certify,
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (18 U.S.C. ss. 1350), that:
(1) The Report fully complies with the
requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
(2) The information contained in the
Report fairly presents, in all material respects, the financial condition and result of operations of the Company.
Dated: September 17, 2015
|
/s/
Brian M. Pullar |
|
Brian
M. Pullar |
|
Chief Financial
Officer |
|
(principal
financial officer) |
A signed original of this written statement required by Section
906 has been provided to the Company and will be retained by the Company and furnished to the Securities and Exchange Commission
or its staff upon request.
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