Item 2. Management’s Discussion
and Analysis of Financial Condition and Results of Operations
The following discussion and
analysis of our Company’s financial condition and results of operations should be read in conjunction with our unaudited
consolidated financial statements and the related notes included elsewhere in this report and with the consolidated financial statements
and notes thereto included in the Company’s Annual Report on Form 10-K for the year ended June 30, 2015. This discussion
contains forward-looking statements that involve risks and uncertainties. Actual results and the timing of selected events could
differ materially from those anticipated in these forward-looking statements.
Overview
We provide commercial asset
based lending including accounts receivable and trade financing and other financial services to small to medium sized businesses
and individuals in Australia through Moneytech Limited and its subsidiaries, Moneytech POS Pty Ltd and mPayments Pty Ltd with a
focus on utilizing leading edge technology to deliver these services.
Moneytech commenced operations
in 2003 as an Australian based, technology driven, commercial finance company. Since 2005 Moneytech has had a securitized wholesale
debt facility (the “Wholesale Facility,” “Receivables Purchase Agreement” or “RPA”) with Westpac,
which had an AUD $40 million interim agreed upon limit but which was reduced to AUD $25 million in conjunction with the April,
2015 issuance by the Company of AUD $25 million of its subordinated debt securities. Moneytech Limited has been in operation for
over twelve years and has operated profitably in five of the last six years.
The Company issued AUD
$25 million of debt securities in a private placement completed in Australia in April 2015. The notes mature in 7 years and have
similar conditions, including financial covenants and use of proceeds, to the wholesale facility and are subordinate to that facility.
The costs of the Subordinated Note issuance were AUD $998,533 million and the proceeds to the company were AUD $24,001,467 million.
The Subordinated Notes bear interest at a rate of 4.65% per annum above the Australian BBSW rate. The BBSW rate as of the date
of settlement, April 10, 2015, was 2.26% per annum. The Notes can be redeemed early at increased cost to the Company or at the
request of the holder in the event of a change in control.
Moneytech uses the 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.
The advantages to the Company
of the issuance of the Subordinated Notes include removing reliance on a single source of funding with the uncertainty of an annual
renewal event and the removal of delays associated with wholesale facility approval requirements for new customers. Credit insurance
is required and obtained on the same terms as the existing wholesale facility.
The funding provided by
the Subordinated Notes provides the Company with the ability to identify and underwrite new customers according to the Companies’
existing policies. The proceeds will allow the Company to expand its commercial asset based lending activities.
To distinguish itself from
traditional asset based lenders, and to manage and facilitate the advance of money to its customers, Moneytech has developed, operates
and maintains its own real time core money transfer platform called The Moneytech Exchange. The Moneytech Exchange stores
and tracks every invoice and payment entered into the system and automatically communicates with the major Australian transactional
banks to settle thousands of transactions per day, in real time. The Moneytech Exchange is fully automated, real time and online.
Human intervention only occurs to manage exceptions and provide necessary transaction approvals or authorizations.
Our objective is to become
a leading provider of commercial lines of credit and financial services, in particular money transfer services, to small and medium
businesses, and individuals in Australia. We seek to differentiate our services by developing and utilizing leading
edge technologies to deliver our services. Moneytech currently provides asset based lines of credit in Australia
using funds made available under its RPA with Westpac and from the issuance of its Subordinated Notes. We also provide payment
processing (money transfer) solutions in Australia. We are seeking financing to expand Moneytech’s asset
based credit solutions operations in Australia through a combination of organic growth and strategic acquisitions and
we are considering introducing those operations in the United States, most likely through a strategic acquisition. We do not
have any understandings, commitments or understandings with respect to any acquisitions.
Principal factors affecting result of operations
Net income attributable to
our shareholders, and the associated return on equity, are the primary metrics by which we judge the performance of our business.
Accordingly, we closely monitor the primary drivers of net income:
|
·
|
Net financing income - We track the split between the interest income, finance charges and
fee income earned on the funds we lend and the interest, finance charges and fees incurred on our Wholesale Facility and Subordinated
Notes, and continually monitor the components of our yield and our cost of funds. In addition, we monitor external rate
trends, including the Reserve Bank of Australia cash rate.
|
|
·
|
Net bad debt losses - Other than our cost of funds- interest expense and related fees- the largest
driver of business profitability is the minimization of bad debts. Each asset based line of credit is priced based on
an industry and individual customer risk profile developed by us. Delinquencies negatively impact our business performance. Our
profitability is directly connected to our net credit losses; therefore, we closely analyze credit performance and seek to limit
our exposure when feasible through the purchase of credit insurance. Our target customer is a business that has financing requirements
(in terms of size and time to funding) that make them ineligible candidates for loans from larger Australian commercial banks.
Our lending criteria have, to date, resulted in a relatively low level of overdue and delinquent balances and corresponding minimizing
of bad debt. We extend Credit for a maximum of 122 days. Amounts outstanding beyond their due date are considered
overdue and amounts overdue for more than 30 days are considered delinquent. We monitor credit quality within our portfolio
by observing trends in “average collection periods” “Days Sales Outstanding,” delinquent balances as a
percentage of our portfolio and single obligor concentration limits and expect our bad debt to be approximately 0.15% of amounts
funded. We assess the recoverability of each delinquent balance and overall customer balances when determining the required amount
of bad debt reserve.
|
|
·
|
Costs and expenses - We assess our operational efficiency using our cost-to-income ratio. We
perform extensive analysis to determine whether observed fluctuations in cost and expense levels indicate a trend or are the nonrecurring
impact of large projects. Our cost and expense analysis also includes a loan- and portfolio-level review of origination
and servicing costs to assist us in assessing profitability by pool and vintage. Portfolio volume and rate of turnover
determine the magnitude of the impact of each of the above factors on our earnings, we also closely monitor new business volume
and business growth.
|
The accounts of Moneytech
and its wholly owned subsidiaries are maintained, and its consolidated financial statements are expressed, in Australian dollars. Such
financial statements were translated into United States Dollars to prepare the consolidated financial statements included in this
Report. All assets and liabilities were translated at the exchange rate at the date of each balance sheet, stockholders’
equity is translated at the historical rates as of the date of each balance sheet and income statement items are translated at
the average exchange rate for the period. Transactions in foreign currencies are initially recorded at the functional currency
rate ruling at the date of transaction. Any differences between the initially recorded amount and the settlement amount are recorded
as a gain or loss on foreign currency transaction in the consolidated statements of operations. The resulting translation adjustments
are reported under other comprehensive income as a component of shareholders’ equity.
Results of Operations
The following discussion of
our results of operations constitutes management’s review of the factors that affected our financial and operating performance
for the three months ended March 31, 2016 (“Q3 2016”) and 2015 (“Q3 2015”) respectively. This
discussion should be read in conjunction with the consolidated financial statements and notes thereto contained elsewhere in this
report.
Third quarter fiscal 2016 v third quarter
fiscal 2015
Set forth below are certain
items from our operating statements in our presentation currency, United Stated Dollars (“US$”), for the three months
ended March 31, 2016 and 2015:
|
|
For the three months ended
|
|
|
$
|
|
|
%
|
|
|
|
March 31
|
|
|
Increase
|
|
|
Increase
|
|
|
|
2016
|
|
|
2015
|
|
|
(Decrease)
|
|
|
(Decrease)
|
|
|
|
USD
|
|
|
USD
|
|
|
USD
|
|
|
|
|
Revenue
|
|
$
|
1,190,093
|
|
|
$
|
1,145,224
|
|
|
$
|
44,869
|
|
|
|
4
|
%
|
Confirmed capital and credit express
|
|
|
965,529
|
|
|
|
828,977
|
|
|
|
136,552
|
|
|
|
16
|
%
|
Interest revenue
|
|
|
637,705
|
|
|
|
473,959
|
|
|
|
163,746
|
|
|
|
35
|
%
|
Fees
|
|
|
326,393
|
|
|
|
354,152
|
|
|
|
(27,759
|
)
|
|
|
(8
|
)%
|
Other revenue
|
|
|
1,431
|
|
|
|
866
|
|
|
|
565
|
|
|
|
65
|
%
|
Payment services
|
|
|
213,643
|
|
|
|
289,253
|
|
|
|
(75,610
|
)
|
|
|
(26
|
)%
|
Terminal sales and transactions
|
|
|
158,847
|
|
|
|
251,093
|
|
|
|
(92,246
|
)
|
|
|
(37
|
)%
|
Hubbed
|
|
|
24,393
|
|
|
|
24,810
|
|
|
|
(417
|
)
|
|
|
(2
|
)%
|
Giftcard programrevenue
|
|
|
30,403
|
|
|
|
13,350
|
|
|
|
17,053
|
|
|
|
128
|
%
|
Other revenue
|
|
|
10,921
|
|
|
|
26,994
|
|
|
|
(16,073
|
)
|
|
|
(60
|
)%
|
360FX customer referral
|
|
|
10,341
|
|
|
|
26,744
|
|
|
|
(16,403
|
)
|
|
|
(61
|
)%
|
Foreign exchange
|
|
|
581
|
|
|
|
241
|
|
|
|
340
|
|
|
|
141
|
%
|
Other revenue
|
|
|
(1
|
)
|
|
|
9
|
|
|
|
(10
|
)
|
|
|
(111
|
)%
|
Cost of revenue
|
|
|
949,901
|
|
|
|
814,451
|
|
|
|
135,450
|
|
|
|
17
|
%
|
Confirmed capital and credit express
|
|
|
674,701
|
|
|
|
470,548
|
|
|
|
204,153
|
|
|
|
43
|
%
|
Interest expense
|
|
|
567,426
|
|
|
|
365,146
|
|
|
|
202,280
|
|
|
|
55
|
%
|
Account Issuing Expenses
|
|
|
36,944
|
|
|
|
37,086
|
|
|
|
(142
|
)
|
|
|
(0
|
)%
|
Insurance
|
|
|
63,959
|
|
|
|
67,406
|
|
|
|
(3,447
|
)
|
|
|
(5
|
)%
|
Other
|
|
|
6,372
|
|
|
|
910
|
|
|
|
5,462
|
|
|
|
600
|
%
|
Payment services
|
|
|
119,047
|
|
|
|
174,112
|
|
|
|
(55,065
|
)
|
|
|
(32
|
)%
|
Terminal sales and transactions
|
|
|
106,728
|
|
|
|
169,946
|
|
|
|
(63,218
|
)
|
|
|
(37
|
)%
|
Hubbed
|
|
|
3,181
|
|
|
|
764
|
|
|
|
2,417
|
|
|
|
316
|
%
|
Gift card expenses
|
|
|
9,138
|
|
|
|
3,402
|
|
|
|
5,736
|
|
|
|
169
|
%
|
Depreciation and amortization
|
|
|
155,426
|
|
|
|
162,605
|
|
|
|
(7,179
|
)
|
|
|
(4
|
)%
|
Other cost of revenue
|
|
|
727
|
|
|
|
7,186
|
|
|
|
(6,459
|
)
|
|
|
(90
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit
|
|
|
240,192
|
|
|
|
330,773
|
|
|
|
(90,581
|
)
|
|
|
(27
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating
|
|
|
763,716
|
|
|
|
810,821
|
|
|
|
(47,105
|
)
|
|
|
(6
|
)%
|
Compensation expenses
|
|
|
292,968
|
|
|
|
396,799
|
|
|
|
(103,831
|
)
|
|
|
(26
|
)%
|
Research and development expense
|
|
|
225,983
|
|
|
|
192,028
|
|
|
|
33,955
|
|
|
|
18
|
%
|
Bad debt expenses
|
|
|
20,944
|
|
|
|
7,762
|
|
|
|
13,182
|
|
|
|
170
|
%
|
Bad debts recovered
|
|
|
-
|
|
|
|
854
|
|
|
|
(854
|
)
|
|
|
(100
|
)%
|
Professional expenses
|
|
|
92,461
|
|
|
|
(6,159
|
)
|
|
|
98,620
|
|
|
|
(1,601
|
)%
|
Occupancy expenses
|
|
|
52,109
|
|
|
|
52,870
|
|
|
|
(761
|
)
|
|
|
(1
|
)%
|
Depreciation expense
|
|
|
7,610
|
|
|
|
13,148
|
|
|
|
(5,538
|
)
|
|
|
(42
|
)%
|
General and administration expenses
|
|
|
71,641
|
|
|
|
153,519
|
|
|
|
(81,878
|
)
|
|
|
(53
|
)%
|
Loss from operations
|
|
|
(523,524
|
)
|
|
|
(480,048
|
)
|
|
|
(43,476
|
)
|
|
|
9
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other income
|
|
|
199,020
|
|
|
|
170,196
|
|
|
|
28,824
|
|
|
|
17
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss before income tax
|
|
|
(324,504
|
)
|
|
|
(309,852
|
)
|
|
|
(14,652
|
)
|
|
|
5
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income tax expense
|
|
|
16,311
|
|
|
|
(13,702
|
)
|
|
|
30,013
|
|
|
|
(219
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
|
(340,815
|
)
|
|
|
(296,150
|
)
|
|
|
(44,665
|
)
|
|
|
15
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other comprehensive income / (loss)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency translation
|
|
|
198,277
|
|
|
|
(387,006
|
)
|
|
|
585,283
|
|
|
|
(151
|
)%
|
Comprehensive loss
|
|
$
|
(142,538
|
)
|
|
$
|
(683,156
|
)
|
|
$
|
540,618
|
|
|
|
(79
|
)%
|
Revenue
Consolidated revenue from operations
for Q3 2016 was approximately $1,190,093, an increase of $44,869 or 4% from our consolidated revenue from operations for Q3 2015
of $1,145,224. Revenue increased primarily as a result of a $136,552 or 16% increase in Confirmed Capital and Credit
Express revenues which was partially offset by decreases in Payment services revenues of $75,610 or 26% and other revenue of $16,073
or 60%.
The increase in Confirmed Capital and
Credit Express revenues is attributable to an increase of $163,746 or 35% in Interest revenue, an increase in other revenue of
$565 or 65%, offset by a decrease of $27,759 or 8% in fees. The increase in Interest revenues was attributed to increases in the
lines of credit we funded. The lines of credit we funded were approximately $39 million during Q3 2016 and $37 million during Q3
2015. The increase in lines of credit we funded in Q3 2016 was the result of the aggressive expansion of our customer base. The
decrease in fee revenue was primarily attributable to a deterioration in foreign exchange rates.
The decrease in payment services revenue is primarily attributable to a decrease in terminal sales and transactions
revenues of $92,246 or 37%, a decrease in Hubbed revenues of $417 or 2%, offset by an increase in Giftcard program revenues of
$17,053 or 128%. Terminal sales revenues decreased as fewer terminals were sold in Q3 2016 as terminal sales attributed to the
replacement of a fleet of terminals in Q3 2015 were not repeated. We provided 144 terminals to customers in Q3 2016, a decrease
of 216 terminals from the 360 terminals provided to customers in Q3 2015. The decrease in Hubbed revenues is attributable to a
decrease in the monthly account fees charged. The gift cards increase is primarily attributable to new card activity by our existing
customers in Q3 2016.
The decrease in Other revenue
of $16,073 is primarily attributed to a decrease in the volume of foreign exchange transactions done by our customers.
Cost of Revenue; Gross Profit
Cost of revenue from 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 $949,901 in Q3 2016, an increase of $135,450 or 17% from our cost of revenue
of $814,451 for Q3 2015. Costs of revenue increased 17% primarily as a result of increases in Confirmed Capital and
Credit Express costs of 43% or $204,153 which were partially offset by decreases in Payment Services costs of 32% or $55,065,
in depreciation and amortization costs of 4% or $7,179 and in Other costs of 90% or $6,459.
The increase in Confirmed
Capital and Credit Express costs of $204,153 is mainly attributable to an increase of 55% or $202,280 in interest expense. Decreases
in the costs associated with new accounts of 0% or $142, in insurance costs of 5% or $3,447 and increases in Other fees of 600%
or $5,462 account for the remainder. Our interest expense increased quarter over quarter as the volume of credit lines
funded increased and our cost of funding increased as a result of the issue of the Subordinated Notes.
The Payment Services cost
decrease of $55,065 is primarily attributable to a decrease in the number of new terminals deployed to Mpos customers. The decrease
in costs attributed to this decrease in terminals is $63,218. Slight increases in Hubbed costs of $2,417 and Gift cards costs of
$5,736 accounted for the remainder.
Our gross profit from operations,
decreased $90,581 from $330,773 in Q3 2015 to $240,192 in Q3 2016. This was primarily attributable to interest revenue
increases at Confirmed Capital and Credit Express being more than offset by the increases in our interest expenses and decreases
in the volume of foreign exchange transactions done by our customers as described above.
Operating Expenses; Bad Debt Expense; Income
from Operations
Apart from the costs under
our RPA and Subordinated Notes, the other significant factor in determining our overall profitability is our operating expenses,
in particular our bad debt expense. Our bad debt expense in Q3 2016 was $20,944, representing an increase of $13,182
from bad debt expense of $7,762 in Q3 2015. We regularly evaluate the credit quality of our customers and this increase is attributable
to changes in the assessment of several customer balances in line with our credit and collections policy.
The percentage of delinquent
balances in our portfolio was 1.50% and 2.02% as of March 31, 2016 and 2015, respectively. The percentage of delinquent
balances in our portfolio averaged 1.87% and 1.96% in Q3 2016 and 2015, respectively. The average collection period in our
portfolio was 58 days at March 31, 2016, up from 41 days at March 31, 2015. Bad debts as a percentage of amount funded was 0.01%
and 0.02% in Q3 2016 and 2015, respectively.
Our total operating expenses
(other than bad debt) decreased by $59,433 or 7% from $802,205 in Q3 2015 to $742,772 in Q3 2016. This decrease is
primarily attributable to compensation costs ($103,831 or 45%) and general and administration costs ($81,878 or 53%), offset by
increases in research and development expense ($33,955 or 18%) and professional expenses ($98,620 or 1,601%). There were also
slight changes in Occupancy (decrease $761) and depreciation (decrease $5,538). The compensation costs decrease reflects changes
in our annual and long service leave accruals in Q3 2015 that were not repeated in Q3 2016. The increase in professional expenses
reflects reductions of previously recorded legal fees in Q3 2015 following the completion of the registration statement and withdrawal
of the S1 in Q3 fiscal 2015 that were not repeated in Q3 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 Q3 2016 we accrued AUD $205,000 (USD $147,926) for research grants
we expect to receive later this year from the Australian government.
Under the Australian grant
program, we are eligible for government grants equal to 43% of the amounts spent on research and development. Grant processing
and payment takes place annually and payment of the grant is not discretionary if the applicable criteria are met. The company
prepares the claim and the expected payment is accrued as income when the grant criteria are met. Much of the related expense is
capitalized and amortized as a part of cost of revenues, generally over the following 10 years.
Our net loss from operations
before tax in Q3 2016 was $324,504, as opposed to a net loss of $309,852 in Q3 2015. As a result of $16,311 in
taxes incurred in Q3 2016, we incurred a net loss after tax in Q3 2016 of $340,815, as compared to net loss after tax in Q3
2015 of $296,150. No tax benefit has been recognized for the losses incurred in the United States because management
believes it more likely than not that these assets will not be realized in the near future. Operations in Australia
were not profitable as a result of a decrease in net interest margin, an increase in bad debts and an increase in non-cash stock
based compensation.
Other comprehensive income.
Our other comprehensive
income consists of gains and losses in net asset value that occur when movements in foreign exchange rates occur. These
gains or losses are primarily as a result of changes in the AUD/USD exchange rate. We cannot and do not attempt to predict
movements in these exchange rates. The changes in net asset value occur because our net assets and operational activity
are principally in Australian Dollars. We do not hedge the foreign exchange rate exposure. If we initiate operations
in the United States, the impact of foreign exchange rates on our results of operations will decrease.
The average AUD/USD exchange
rates were 1 to 0.7866 and 1 to 0.7215 in Q3 2015 and 2016, respectively.
The following table reflects
the movements in our revenues and cost of revenues in our functional currency, Australian Dollars (“A$”), for the three
months ended March 31, 2016 and 2015.
|
|
For
the three months ended
|
|
|
A$
|
|
|
%
|
|
|
%
Revenue
/
Cost of
|
|
|
|
March
31
|
|
|
Increase
|
|
|
Increase
|
|
|
revenue
|
|
|
|
2016
|
|
|
2015
|
|
|
(Decrease)
|
|
|
(Decrease)
|
|
|
move
|
|
|
|
AUD
|
|
|
AUD
|
|
|
AUD
|
|
|
|
|
|
|
|
Revenue
|
|
A$
|
1,649,891
|
|
|
A$
|
1,437,830
|
|
|
A$
|
212,061
|
|
|
|
15
|
%
|
|
|
15
|
%
|
Confirmed
capital and credit express
|
|
|
1,338,699
|
|
|
|
1,042,309
|
|
|
|
296,390
|
|
|
|
28
|
%
|
|
|
21
|
%
|
Interest
revenue
|
|
|
883,849
|
|
|
|
596,716
|
|
|
|
287,133
|
|
|
|
48
|
%
|
|
|
20
|
%
|
Fees
|
|
|
452,850
|
|
|
|
444,493
|
|
|
|
8,357
|
|
|
|
2
|
%
|
|
|
1
|
%
|
Other
revenue
|
|
|
2,000
|
|
|
|
1,100
|
|
|
|
900
|
|
|
|
82
|
%
|
|
|
0
|
%
|
Payment
services
|
|
|
296,025
|
|
|
|
361,340
|
|
|
|
(65,315
|
)
|
|
|
(18
|
)%
|
|
|
(5
|
)%
|
Terminal
sales and transactions
|
|
|
220,090
|
|
|
|
307,914
|
|
|
|
(87,824
|
)
|
|
|
(29
|
)%
|
|
|
(6
|
)%
|
Hubbed
|
|
|
33,837
|
|
|
|
36,631
|
|
|
|
(2,794
|
)
|
|
|
(8
|
)%
|
|
|
(0
|
)%
|
Giftcard
program revenue
|
|
|
42,098
|
|
|
|
16,795
|
|
|
|
25,303
|
|
|
|
151
|
%
|
|
|
2
|
%
|
Other
revenue
|
|
|
15,167
|
|
|
|
34,181
|
|
|
|
(19,014
|
)
|
|
|
(56
|
)%
|
|
|
(1
|
)%
|
360FX
customer referral
|
|
|
14,362
|
|
|
|
33,895
|
|
|
|
(19,533
|
)
|
|
|
(58
|
)%
|
|
|
(1
|
)%
|
Foreign
exchange
|
|
|
805
|
|
|
|
286
|
|
|
|
519
|
|
|
|
181
|
%
|
|
|
0
|
%
|
Cost
of revenue
|
|
|
1,316,593
|
|
|
|
1,016,780
|
|
|
|
299,813
|
|
|
|
29
|
%
|
|
|
29
|
%
|
Confirmed
capital and credit express
|
|
|
935,206
|
|
|
|
586,463
|
|
|
|
348,743
|
|
|
|
59
|
%
|
|
|
34
|
%
|
Interest
expense
|
|
|
786,521
|
|
|
|
457,717
|
|
|
|
328,804
|
|
|
|
72
|
%
|
|
|
32
|
%
|
Account
Issuing Expenses
|
|
|
51,247
|
|
|
|
45,441
|
|
|
|
5,806
|
|
|
|
13
|
%
|
|
|
1
|
%
|
Insurance
|
|
|
88,584
|
|
|
|
82,737
|
|
|
|
5,847
|
|
|
|
7
|
%
|
|
|
1
|
%
|
Other
|
|
|
8,854
|
|
|
|
568
|
|
|
|
8,286
|
|
|
|
1,459
|
%
|
|
|
1
|
%
|
Payment
services
|
|
|
164,933
|
|
|
|
217,840
|
|
|
|
(52,907
|
)
|
|
|
(24
|
)%
|
|
|
(5
|
)%
|
Terminal
sales and transactions
|
|
|
147,868
|
|
|
|
216,031
|
|
|
|
(68,163
|
)
|
|
|
(32
|
)%
|
|
|
(7
|
)%
|
Hubbed
|
|
|
4,415
|
|
|
|
(2,403
|
)
|
|
|
6,818
|
|
|
|
(284
|
)%
|
|
|
1
|
%
|
Gift
card expenses
|
|
|
12,650
|
|
|
|
4,212
|
|
|
|
8,438
|
|
|
|
200
|
%
|
|
|
1
|
%
|
Depreciation
and amortization
|
|
|
215,444
|
|
|
|
203,472
|
|
|
|
11,972
|
|
|
|
6
|
%
|
|
|
1
|
%
|
Other
cost of revenue
|
|
|
1,010
|
|
|
|
9,005
|
|
|
|
(7,995
|
)
|
|
|
(89
|
)%
|
|
|
(1
|
)%
|
Gross
profit
|
|
A$
|
333,298
|
|
|
A$
|
421,050
|
|
|
A$
|
(87,752)
|
|
|
|
(21
|
)%
|
|
|
|
|
Revenue
Consolidated revenue from operations
in Q3 2016 was approximately A$1,649,891, an increase of A$212,061 or 15% from our consolidated revenue from operations in Q3 2015
of A$1,437,830. Revenue increased primarily as a result of an A$296,390 or 28% increase in Confirmed Capital and Credit
Express revenues partially offset by decreases in Payment Services revenues of A$65,315 or 18% and Other revenue of A$19,014 or
56% accounts for the remainder.
The increase in Confirmed Capital and
Credit Express revenues was attributable to an increase of A$287,133 or 48% in Interest revenues, an increase of A$8,357 or 2%
in Fees and a slight increase in Other revenues of A$900 or 82%. The increase in Interest revenues was attributed to increases
in the lines of credit we funded. The lines of credit we funded were approximately A$54 million during Q3 2016 and A$47 million
during Q3 2015. The increase in lines of credit we funded in Q3 2016 was the result of the aggressive expansion of our customer
base. The increase in fee revenue was mainly attributable to an increase of A$33,512 in merchant service and surcharge fees as
new customers utilized their facilities, offset by a decrease in account application fees of A$16,500.
The decrease in payment services revenue is primarily attributable to a decrease in terminal sales and transactions
revenues of A$87,824 or 29%, a decrease in Hubbed revenues of A$2,794 or 8%, offset by an increase in Giftcard program revenues
of A$25,303 or 151%. Terminal sales revenues decreased as fewer terminals were sold in Q3 2016 as terminal sales attributed to
the replacement of a fleet of terminals in Q3 2015 were not repeated. We provided 144 terminals to customers in Q3 2016, a decrease
of 216 terminals from the 360 terminals provided to customers in Q3 2015. The decrease in Hubbed revenues is attributable to a
decrease in the monthly account fees charged. The gift cards increase is primarily attributable to new card activity by our existing
customers in Q3 2016.
The decrease in Other revenue
of A$19,014 is primarily attributed to a decrease in the volume of foreign exchange transactions done by our customers.
Cost of Revenue; Gross Profit
Cost of revenue from 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 A$1,316,593 in Q3 2016, an increase of A$299,813 or 29% from our cost of revenue of A$1,016,780
in Q3 2015. Cost of revenue increased 29% primarily as a result of increases in Confirmed Capital and Credit Express
costs of 59% or A$348,743 and an increase of 6% or A$11,972 in depreciation and amortization costs, partially offset by a decrease
in Payment Services costs of 24% or A$52,907 and a decrease in other costs of A$7,995.
The increase in Confirmed Capital and
Credit Express costs of A$348,743 is mainly attributable to an increase of 72% or A$328 804 in interest expense. Increases in the
costs associated with new accounts of 13% or A$5,806, insurance costs of 7% or A$5,847 and Other fees of 1,459% or A$8,286 account
for the remainder. Our interest expense increased quarter over quarter as the volume of credit lines funded increased
and our cost of funding increased as a result of the issue of the Subordinated Notes.
The Payment Services cost decrease of
A$52,907 is primarily attributable to a decrease in the number of new terminals deployed to Mpos customers. The decrease in costs
attributed to this decrease in terminals is A$101,650. This is offset by an increase in transaction costs of A$76,634 as new terminals
are used more actively than old terminals. Slight increases in Hubbed costs of A$6,818 and Gift cards costs of A$8,438 accounted
for the remainder.
Our gross profit from operations, decreased
A$87,752 from A$421,050 in Q3 2015 to A$333,298 in Q3 2016. This was primarily attributable to interest and fee revenue
increases at Confirmed Capital and Credit Express being more than offset by the increases in our interest expenses and decreases
in the volume of foreign exchange transactions done by our customers as described above.
Year to date fiscal 2016 v year to date
fiscal 2015
Set forth below are certain
items from our operating statements in our presentation currency, United Stated Dollars (“US$”), for the nine months
ended March 31, 2016 and 2015:
|
|
For the three months ended
|
|
|
$
|
|
|
%
|
|
|
|
March 31
|
|
|
Increase
|
|
|
Increase
|
|
|
|
2016
|
|
|
2015
|
|
|
(Decrease)
|
|
|
(Decrease)
|
|
|
|
USD
|
|
|
USD
|
|
|
USD
|
|
|
|
|
Revenue
|
|
$
|
3,743,294
|
|
|
$
|
3,424,264
|
|
|
$
|
319,030
|
|
|
|
9
|
%
|
Confirmed capital and credit express
|
|
|
3,153,666
|
|
|
|
2,895,014
|
|
|
|
258,652
|
|
|
|
9
|
%
|
Interest revenue
|
|
|
1,800,220
|
|
|
|
1,804,146
|
|
|
|
(3,926
|
)
|
|
|
(0
|
)%
|
Fees
|
|
|
1,334,297
|
|
|
|
1,085,990
|
|
|
|
248,307
|
|
|
|
23
|
%
|
Other revenue
|
|
|
19,149
|
|
|
|
4,878
|
|
|
|
14,271
|
|
|
|
293
|
%
|
Payment services
|
|
|
531,343
|
|
|
|
455,211
|
|
|
|
76,132
|
|
|
|
17
|
%
|
Terminal sales and transactions
|
|
|
388,006
|
|
|
|
288,489
|
|
|
|
99,517
|
|
|
|
34
|
%
|
Hubbed
|
|
|
92,901
|
|
|
|
111,134
|
|
|
|
(18,233
|
)
|
|
|
(16
|
)%
|
Giftcard program revenue
|
|
|
50,436
|
|
|
|
55,588
|
|
|
|
(5,152
|
)
|
|
|
(9
|
)%
|
Other revenue
|
|
|
58,285
|
|
|
|
74,039
|
|
|
|
(15,754
|
)
|
|
|
(21
|
)%
|
360FX customer referral
|
|
|
56,172
|
|
|
|
72,812
|
|
|
|
(16,640
|
)
|
|
|
(23
|
)%
|
Foreign exchange
|
|
|
1,774
|
|
|
|
958
|
|
|
|
816
|
|
|
|
85
|
%
|
Other revenue
|
|
|
339
|
|
|
|
269
|
|
|
|
70
|
|
|
|
26
|
%
|
Cost of revenue
|
|
|
2,722,413
|
|
|
|
2,306,423
|
|
|
|
415,990
|
|
|
|
18
|
%
|
Confirmed capital and credit express
|
|
|
1,977,599
|
|
|
|
1,556,791
|
|
|
|
420,808
|
|
|
|
27
|
%
|
Interest expense
|
|
|
1,672,714
|
|
|
|
1,231,472
|
|
|
|
441,242
|
|
|
|
36
|
%
|
Account Issuing Expenses
|
|
|
141,103
|
|
|
|
141,150
|
|
|
|
(47
|
)
|
|
|
(0
|
)%
|
Insurance
|
|
|
126,480
|
|
|
|
168,216
|
|
|
|
(41,736
|
)
|
|
|
(25
|
)%
|
Other
|
|
|
37,302
|
|
|
|
15,953
|
|
|
|
21,349
|
|
|
|
134
|
%
|
Payment services
|
|
|
280,104
|
|
|
|
229,204
|
|
|
|
50,900
|
|
|
|
22
|
%
|
Terminal sales and transactions
|
|
|
253,006
|
|
|
|
201,876
|
|
|
|
51,130
|
|
|
|
25
|
%
|
Hubbed
|
|
|
13,984
|
|
|
|
12,831
|
|
|
|
1,153
|
|
|
|
9
|
%
|
Gift card expenses
|
|
|
13,114
|
|
|
|
14,497
|
|
|
|
(1,383
|
)
|
|
|
(10
|
)%
|
Depreciation and amortization
|
|
|
461,303
|
|
|
|
513,242
|
|
|
|
(51,939
|
)
|
|
|
(10
|
)%
|
Other cost of revenue
|
|
|
3,407
|
|
|
|
7,186
|
|
|
|
(3,779
|
)
|
|
|
(53
|
)%
|
Gross profit
|
|
|
1,020,881
|
|
|
|
1,117,841
|
|
|
|
(96,960
|
)
|
|
|
(9
|
)%
|
Operating expenses
|
|
|
2,772,382
|
|
|
|
2,264,415
|
|
|
|
507,967
|
|
|
|
22
|
%
|
Compensation expenses
|
|
|
1,446,597
|
|
|
|
1,013,585
|
|
|
|
433,012
|
|
|
|
43
|
%
|
Research and development expense
|
|
|
616,302
|
|
|
|
523,418
|
|
|
|
92,884
|
|
|
|
18
|
%
|
Bad debt expenses
|
|
|
93,678
|
|
|
|
71,432
|
|
|
|
22,246
|
|
|
|
31
|
%
|
Bad debts recovered
|
|
|
-
|
|
|
|
(144,357
|
)
|
|
|
144,357
|
|
|
|
(100
|
)%
|
Professional expenses
|
|
|
197,846
|
|
|
|
220,097
|
|
|
|
(22,251
|
)
|
|
|
(10
|
)%
|
Occupancy expenses
|
|
|
179,260
|
|
|
|
168,353
|
|
|
|
10,907
|
|
|
|
6
|
%
|
Depreciation expense
|
|
|
23,345
|
|
|
|
47,469
|
|
|
|
(24,124
|
)
|
|
|
(51
|
)%
|
General and administration expenses
|
|
|
215,354
|
|
|
|
364,418
|
|
|
|
(149,064
|
)
|
|
|
(41
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss from operations
|
|
|
(1,751,501
|
)
|
|
|
(1,146,574
|
)
|
|
|
(604,927
|
)
|
|
|
53
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other income
|
|
|
604,657
|
|
|
|
500,556
|
|
|
|
104,101
|
|
|
|
21
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss before income tax
|
|
|
(1,146,844
|
)
|
|
|
(646,018
|
)
|
|
|
(500,826
|
)
|
|
|
78
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income tax expense
|
|
|
92,583
|
|
|
|
117,527
|
|
|
|
(24,944
|
)
|
|
|
(21
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Loss
|
|
|
(1,239,427
|
)
|
|
|
(763,545
|
)
|
|
|
(475,882
|
)
|
|
|
62
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other comprehensive loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency translation
|
|
|
(46,104
|
)
|
|
|
(1,285,719
|
)
|
|
|
1,239,615
|
|
|
|
(96
|
)%
|
Comprehensive loss
|
|
$
|
(1,285,531
|
)
|
|
$
|
(2,049,264
|
)
|
|
$
|
763,733
|
|
|
|
(37
|
)%
|
Revenue
Consolidated revenue from operations
in the nine months ended March 31, 2016 was approximately $3,743,294, an increase of $319,030 or 9% from our consolidated revenue
from operations in the nine months ended March 31, 2015 of $3,424,264. Revenue increased primarily as a result of a
$258,652 or 9% increase in Confirmed Capital and Credit Express revenues and an increase in Payment services revenues of $76,132
or 17% partially offset by a decrease in Other revenue of $15,754 or 21%.
The increase in Confirmed Capital and
Credit Express revenues was attributable to an increase of $248,307 or 23% in Fees, an increase in Other revenues of $14,271 or
293% and a decrease of $3,926 or 0% in interest revenues. The increase in fees is primarily attributable to an increase of $105,562
in account application fees as we aggressively expanded our customer base, an increase of $38,141 in merchant service fees as new
customers utilized their facilities, an increase of $63,497 in transaction fees related to the set-up of an account management
structure for a large corporate client and approximately $88,482 in dishonor fees as two customers entered administration during
the nine months ended March 31, 2016. The slight decrease in interest revenues was attributable to the deterioration in foreign
exchange rates resulting in decreases in the lines of credit we funded. The lines of credit we funded were approximately $134 million
during the nine months ended March 31, 2015 and $127 million during the nine months ended March 31, 2016.
The increase in payment services revenue is primarily attributable to an increase in terminal sales and transactions
revenues. During the nine months ended March 31, 2016 we sold or leased 254 new terminals to merchants using our new infrastructure.
The terminal sales and transactions revenue earned from the new infrastructure amounted to $99,517. We anticipate terminal sales
will continue in fiscal 2016 as a result of extending our customer base to a broader retail customer market and the marketing of
our new terminals for the full fiscal year. This will result in both increased terminal and transaction revenue for Mpos and mPay.
We also experienced a decrease in Hubbed revenues of $18,233 or 16% and a decrease in Gift card revenues of $5,152 or 9%. The decrease
in Hubbed and Giftcard revenues is attributable to the deterioration in foreign exchange rates in fiscal 2016.
Movements in other revenue
were not significant.
Cost of Revenue; Gross Profit
Cost of revenue from 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 $2,722,413 in the nine months ended March 31, 2016, an increase of $415,990 or 18% from our
cost of revenue of $2,306,423 in the nine months ended March 31, 2015. Cost of revenue increased 18% primarily as a
result of increases in Confirmed Capital and Credit Express costs of 27% or $420,808 and increases in Payment Services of 22% or
$50,900 partially offset by a decrease of 10% or $51,939 in depreciation and amortization costs and a decrease in other costs of
$3,779.
The increase in Confirmed Capital and
Credit Express costs of $420,808 is mainly attributable to an increase of 36% or $441,242 in interest expense, a slight decrease
of $47 in fees associated with new accounts costs, an increase of 134% or $21,349 in other expenses, partially offset by, a decrease
in insurance costs of 25% or $41,736. Our interest expense increased for the nine months ended March 31, 2016 over the
nine months ended March 31, 2015 as foreign exchange rate related decreases in the volume of credit lines funded were more than
offset by increases in our cost of funding as a result of the issuance of the Subordinated Notes.
The Payment Services cost
increase of $50,900 is primarily attributable to an increase in costs of the new terminals deployed to Mpos customers as well as
the costs of transactions undertaken on those terminals. Transaction costs increased as new terminals are used more actively than
old terminals. A slight increase in Hubbed costs of $1,153 and a slight decrease in Gift cards costs of $1,383 accounted for the
remainder.
Our gross profit from
operations, decreased $96,960 from $1,117,841 in the nine months ended March 31, 2015 to $1,020,881 in the nine months ended March
31, 2016. This was primarily attributable to the deterioration in the foreign exchange rate offsetting fee revenue
increases at Confirmed Capital and Credit Express and an increase in new terminals deployed using our new infrastructure in Payments
Services as described above.
Operating Expenses; Bad Debt Expense; Income
from Operations
Apart from the costs under
our RPA and Subordinated Notes, the other significant factor in determining our overall profitability is our operating expenses,
in particular our bad debt expense. Our bad debt expense in the nine months ended March 31, 2016 was $93,678, representing
an increase of $22,246 from bad debt expense of $71,432 in the nine months ended March 31, 2015. Bad debts recovered decreased
$144,357 during the quarter and this is attributable to the isolated nature of the recovery made in the nine months ended March
31, 2015. We regularly evaluate the credit quality of our customers and this decrease is attributable to changes in the assessment
of several customer balances in line with our credit and collections policy.
The percentage of delinquent
balances in our portfolio was 1.50% and 2.02% as of March 31, 2016 and 2015, respectively. The percentage of delinquent
balances in our portfolio averaged 1.87% and 1.81% in the nine months ended March 31, 2016 and 2015, respectively. The average
collection period in our portfolio was 58 days at March 31, 2016, up from 41 days at March 31, 2015. Bad debts as a percentage
of amount funded was 0.06% and 0.05% in the nine months ended March 31, 2016 and 2015, respectively.
Our total operating expenses
(other than bad debt) increased by $341,364 or 15% from $2,337,340 in the nine months ended March 31, 2015 to $2,678,704 in the
nine months ended March 31, 2016. This increase is primarily attributed to compensation costs ($433,012 or 43%) and
research and development expense ($92,884 or 18%) and is offset by a decrease in professional expenses ($22,251 or 10%) and a decrease
in general and administration expenses of ($149,064 or 41%). The compensation costs increase reflects stock ($448,000) and option
($228,807) based compensation awards amounting to $676,807 for services rendered by directors and employees. The decrease in general
and administration expenses is primarily attributable to a decrease in insurance costs of $44,207 and a deterioration in foreign
exchange rates.
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 nine months ended March 31, 2016 we accrued AUD 550,000 (USD
$397,430) for research grants we expect to receive later this year from the Australian government.
Under the Australian grant
program, we are eligible for government grants equal to 43% of the amounts spent on research and development. Grant processing
and payment takes place annually and payment of the grant is not discretionary if the applicable criteria are met. The company
prepares the claim and the expected payment is accrued as income when the grant criteria are met. Much of the related expense is
capitalized and amortized as a part of cost of revenues, generally over the following 10 years.
Our net loss from operations
before tax in the nine months ended March 31, 2016 was $1,146,844, as opposed to a net loss of $646,018 in the nine months
ended March 31, 2015. As a result of $92,583 in taxes incurred in the nine months ended March 31, 2016, we incurred
a net loss after tax in the nine months ended March 31, 2016 of $1,239,427, as compared to net loss after tax in the nine
months ended March 31, 2015 of $763,545. No tax benefit has been recognized for the losses incurred in the United States
because management believes it more likely than not that these assets will not be realized in the near future. Operations
in Australia were not profitable as a result of a decrease in net interest margin, an increase in bad debts and an increase in
non-cash stock based compensation.
Other comprehensive income.
Our other comprehensive income
consists of gains and losses in net asset value that occur when movements in foreign exchange rates occur. These gains
or losses are primarily as a result of changes in the AUD/USD exchange rate. We cannot and do not attempt to predict
movements in these exchange rates. The changes in net asset value occur because our net assets and operational activity
are principally in Australian Dollars. We do not hedge the foreign exchange rate exposure. If we initiate operations
in the United States, the impact of foreign exchange rates on our results of operations will decrease.
The average AUD/USD exchange
rates were 1 to 0.8573 and 1 to 0.7226 in the nine months ended March 31, 2015 and 2016, respectively.
The following table reflects
the movements in our revenues and cost of revenues in our functional currency, Australian Dollars (“A$”), for the nine
months ended March 31, 2016 and 2015.
|
|
For the nine months ended
|
|
|
A$
|
|
|
%
|
|
|
%
Revenue /
Cost of
|
|
|
|
March 31
|
|
|
Increase
|
|
|
Increase
|
|
|
revenue
|
|
|
|
2016
|
|
|
2015
|
|
|
(Decrease)
|
|
|
(Decrease)
|
|
|
move
|
|
|
|
AUD
|
|
|
AUD
|
|
|
AUD
|
|
|
|
|
|
|
|
Revenue
|
|
A$
|
5,180,314
|
|
|
A$
|
3,994,242
|
|
|
A$
|
1,186,072
|
|
|
|
30
|
%
|
|
|
30
|
%
|
Confirmed capital and credit express
|
|
|
4,364,333
|
|
|
|
3,359,793
|
|
|
|
1,004,540
|
|
|
|
30
|
%
|
|
|
25
|
%
|
Interest revenue
|
|
|
2,491,311
|
|
|
|
2,088,793
|
|
|
|
402,518
|
|
|
|
19
|
%
|
|
|
10
|
%
|
Fees
|
|
|
1,846,522
|
|
|
|
1,265,400
|
|
|
|
581,122
|
|
|
|
46
|
%
|
|
|
15
|
%
|
Other revenue
|
|
|
26,500
|
|
|
|
5,600
|
|
|
|
20,900
|
|
|
|
373
|
%
|
|
|
1
|
%
|
Payment services
|
|
|
735,321
|
|
|
|
547,497
|
|
|
|
187,824
|
|
|
|
34
|
%
|
|
|
5
|
%
|
Terminal sales and transactions
|
|
|
536,958
|
|
|
|
353,691
|
|
|
|
183,267
|
|
|
|
52
|
%
|
|
|
5
|
%
|
Hubbed
|
|
|
128,565
|
|
|
|
129,632
|
|
|
|
(1,067
|
)
|
|
|
(1
|
)%
|
|
|
(0
|
)%
|
Giftcard program revenue
|
|
|
69,798
|
|
|
|
64,174
|
|
|
|
5,624
|
|
|
|
9
|
%
|
|
|
0
|
%
|
Other revenue
|
|
|
80,660
|
|
|
|
86,952
|
|
|
|
(6,292
|
)
|
|
|
(7
|
)%
|
|
|
(0
|
)%
|
360FX customer referral
|
|
|
77,735
|
|
|
|
85,570
|
|
|
|
(7,835
|
)
|
|
|
(9
|
)%
|
|
|
(0
|
)%
|
Foreign exchange
|
|
|
2,455
|
|
|
|
1,091
|
|
|
|
1,364
|
|
|
|
125
|
%
|
|
|
0
|
%
|
Other revenue
|
|
|
470
|
|
|
|
291
|
|
|
|
179
|
|
|
|
62
|
%
|
|
|
0
|
%
|
Cost of revenue
|
|
|
3,767,524
|
|
|
|
2,690,333
|
|
|
|
1,077,191
|
|
|
|
40
|
%
|
|
|
40
|
%
|
Confirmed capital and credit express
|
|
|
2,736,782
|
|
|
|
1,804,908
|
|
|
|
931,874
|
|
|
|
52
|
%
|
|
|
35
|
%
|
Interest expense
|
|
|
2,314,853
|
|
|
|
1,429,478
|
|
|
|
885,375
|
|
|
|
62
|
%
|
|
|
33
|
%
|
Account Issuing Expenses
|
|
|
195,272
|
|
|
|
162,171
|
|
|
|
33,101
|
|
|
|
20
|
%
|
|
|
1
|
%
|
Insurance
|
|
|
175,035
|
|
|
|
195,817
|
|
|
|
(20,782
|
)
|
|
|
(11
|
)%
|
|
|
(1
|
)%
|
Other
|
|
|
51,622
|
|
|
|
17,442
|
|
|
|
34,180
|
|
|
|
196
|
%
|
|
|
1
|
%
|
Payment services
|
|
|
387,634
|
|
|
|
279,637
|
|
|
|
107,997
|
|
|
|
39
|
%
|
|
|
4
|
%
|
Terminal sales and transactions
|
|
|
350,133
|
|
|
|
248,014
|
|
|
|
102,119
|
|
|
|
41
|
%
|
|
|
4
|
%
|
Hubbed
|
|
|
19,353
|
|
|
|
14,966
|
|
|
|
4,387
|
|
|
|
29
|
%
|
|
|
0
|
%
|
Gift card expenses
|
|
|
18,148
|
|
|
|
16,657
|
|
|
|
1,491
|
|
|
|
9
|
%
|
|
|
0
|
%
|
Depreciation and amortization
|
|
|
638,393
|
|
|
|
596,783
|
|
|
|
41,610
|
|
|
|
7
|
%
|
|
|
2
|
%
|
Other cost of revenue
|
|
|
4,715
|
|
|
|
9,005
|
|
|
|
(4,290
|
)
|
|
|
(48
|
)%
|
|
|
(0
|
)%
|
Gross profit
|
|
A$
|
1,412,790
|
|
|
A$
|
1,303,909
|
|
|
A$
|
108,881
|
|
|
|
8
|
%
|
|
|
|
|
Revenue
Consolidated revenue from operations
in the nine months ended March 31, 2016 was approximately A$5,180,314, an increase of A$1,186,072 or 30% from our consolidated
revenue from operations in the nine months ended March 31, 2015 of A$3,994,242. Revenue increased primarily as a result
of an A$1,004,540 or 30% increase in Confirmed Capital and Credit Express revenues and an increase in Payment services revenues
of A$187,824 or 34% offset by a decrease in Other revenue of A$6,292 or 7%.
The increase in Confirmed Capital and
Credit Express revenues is attributable to an increase of A$581,122 or 46% in Fees, an increase of A$402,518 or 19% in interest
revenues and an increase in Other revenues of A$20,900 or 373%. The increase in fees is primarily attributable to an increase of
A$155,500 in account application fees as we aggressively expanded our customer base, an increase of A$234,461 in merchant service
and surcharge fees as new customers utilized their facilities, an increase of A$87,873 in transaction fees related to the set-up
of an account management structure for a large corporate client and A$128,516 in dishonor fees as two customers entered administration.
The increase in interest revenues was attributable to increases in the lines of credit we funded. The lines of credit we funded
were approximately A$156 million during the nine months ended March 31, 2015 and A$175 million during the nine months ended March
31, 2016.
The increase in Payment Services revenues is primarily attributable to an increase in terminal sales and transactions
revenues. During the nine months ended March 31, 2016 we provided 254 new terminals to merchants using our new infrastructure.
The terminal sales and transactions revenue earned from the new infrastructure amounted to A$536,958. We anticipate terminal sales
will continue in fiscal 2016 as a result of extending our customer base to a broader retail customer market and the marketing of
our new terminals for the full fiscal year. This will result in both increased terminal and transaction revenue for Mpos and mPay.
We also experienced a slight decrease in Hubbed revenues of A$1,067 or 1% and a slight increase in Gift card revenues of A$5,624
or 9%. Hubbed revenues remained stable as the absence of software development revenues of A$35,120 following completion of software
development activity in fiscal 2015 was offset by increased account monthly fee revenue of A$35,353 over the nine months ended
March 31, 2016. The gift cards increase is primarily attributable to new card activity by our existing customers in the nine months
ended March 31, 2016.
Other revenue increased A$6,292
and this is primarily attributable to a 9% decrease in foreign exchange customer referral revenues.
Cost of Revenue; Gross Profit
Cost of revenue from 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 A$3,767,524 in the nine months ended March 31, 2016, an increase of A$1,077,191
or 40% from our cost of revenue of A$2,690,333 in the nine months ended March 31, 2015. Cost of revenue increased 40%
primarily as a result of increases in Confirmed Capital and Credit Express costs of 52% or A$931,874, increases in Payment Services
of 39% or A$107,997 and an increase of 7% or A$41,610 in depreciation and amortization costs offset by a decrease in other costs
of A$4,290.
The increase in Confirmed
Capital and Credit Express costs of A$931,874 is mainly attributable to an increase of 62% or A$885,375 in interest expense, an
increase of 20% or A$33,101 in fees associated with new accounts costs, an increase of 196% or A$34,180 in other expenses, partially
offset by, a decrease in insurance costs of 11% or A$20,782. Our interest expense increased for the nine months ended
March 31, 2016 as compared to the nine months ended March 31, 2015 as the volume of credit lines funded increased and our cost
of funding increased as a result of the issue of the Subordinated Notes.
The Payment Services cost
increase of A$107,997 is primarily attributable to an increase in costs of the new terminals deployed to Mpos customers as well
as the costs of transactions undertaken on those terminals. Transaction costs increased as new terminals are used more actively
than old terminals. Slight increases in Hubbed costs of A$4,387 and Gift cards costs of A$1,491 accounted for the remainder.
Our gross profit from operations,
increased A$108,881 from A$1,303,909 in the nine months ended March 31, 2015 to A$1,412,790 in the nine months ended March 31,
2016. This was primarily attributable to fee revenue increases at Confirmed Capital and Credit Express and an increase
in new terminals deployed using our new infrastructure in Payments Services as described above.
Comparison of Balance Sheet Data as at March
31, 2016 and June 30, 2015
Set forth below are certain
items from our Consolidated Balance Sheet at March 31, 2016 and June 30, 2015:
|
|
March 31
|
|
|
June 30
|
|
|
|
2016
|
|
|
2015
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
7,866,380
|
|
|
$
|
8,075,078
|
|
Trade receivables, net
|
|
$
|
25,747,607
|
|
|
$
|
19,651,268
|
|
Total Assets
|
|
$
|
39,204,996
|
|
|
$
|
33,362,460
|
|
|
|
|
|
|
|
|
|
|
Wholesale Loan Facility
|
|
$
|
11,769,992
|
|
|
$
|
6,052,789
|
|
Subordinated notes, net
|
|
$
|
18,530,839
|
|
|
$
|
18,471,471
|
|
Total Liabilities
|
|
$
|
35,386,080
|
|
|
$
|
28,934,821
|
|
|
|
|
|
|
|
|
|
|
Total Stockholder's Equity
|
|
$
|
3,818,916
|
|
|
$
|
4,427,639
|
|
Trade receivables, net has
increased as new customers have utilized their facilities.
The increase in the Wholesale
Loan facility reflects increased customer lending.
Liquidity and Capital Resources
Our ability to offer asset
backed credit lines is determined by the amount of funds we can borrow which is influenced by the amount of our capital. We
require a significant amount of liquidity to offer our asset backed credit lines and our rate of growth and profitability will,
for the foreseeable future, largely be determined by our ability to raise equity or borrow funds to make available to our clients
and the effective cost of such funds.
Credit Facilities
Receivable Purchase Agreement
In 2005 we entered into a
Receivables Purchase Agreement (the “Wholesale Facility” or the “RPA”) with one of the “Big Four”
Australian Banks which has been renewed annually each year thereafter. Pursuant to this Agreement we electronically
offer eligible receivables to our lender for purchase on a nightly basis. These offerings are then settled by the lender
on a daily basis. The funds we receive upon settlement are automatically and electronically delivered to our customers. Our
gross profit is represented by the difference between what we charge our customers in interest, finance charges and fees and what
we pay to our lender. Our borrowing limit under the RPA is AUD$50 million, subject to interim agreed upon limits determined by
various tests and covenants. As at March 31, 2016 our borrowing capacity was limited to AUD $25 million and the total
amount drawn against the facility was $11,769,992. The agreement is renewed annually on an agreed anniversary date,
the latest of which was March 31, 2016. The facility has been renewed until December 31, 2016.
We pay an interest rate on
all borrowed monies under the RPA which is directly linked to the Reserve Bank of Australia cash-rate, a utilization fee charged
on monies available to be borrowed but not utilized, an annual line fee and fees for electronically accessing the facility. The
Facility contains a number of covenants relating to our financial performance and performance of our receivables portfolio including
but not limited to net profit targets, maximum dilution ratios, concentration limits, maximum delinquency ratios and cash reserve
requirements. As of the date hereof we are in compliance with all covenants imposed by the RPA.
We, in turn, provide our customers
with funds provided by the RPA. We charge each of our clients interest at a rate above that charged by our lender and
seek to have our clients pay a fee corresponding to each of the fees charged to us in respect of their loans. To the
extent that the RPA requires that we deposit monies into an account to partially secure repayment of our loans, we seek to have
those funds advanced by our customers as a condition of their credit lines. The cash reserve we are required to maintain
pursuant to the RPA is included under Cash and cash equivalents on our balance sheet.
Subordinated Notes
In April 2015 we issued AUD
$25 million of subordinated notes. The notes mature in 7 years and have similar conditions, including financial covenants and restrictions
as to use of proceeds, to the wholesale facility and are subordinate to that facility. The costs of the Subordinated Note issuance
were AUD $998,533 and the proceeds to the company were AUD $24,001,467. The Subordinated Notes bear interest at a rate of 4.65%
per annum above the Australian BBSW rate. The BBSW rate as of the date of settlement, April 10, 2015, was 2.26% per annum. The
Notes can be redeemed early at increased cost to the Company or at the request of the holder in the event of a change in control.
In conjunction with the note
issuance, the RPA interim agreed upon facility limit was decreased from AUD $40 million to AUD $25 million as of April 16, 2015
in an effort to reduce our unused facility fees.
Comparison of the Statement of Cash Flows
for the nine months ended March 31, 2016 and 2015
Set forth below are certain
items from our Statement of Cash Flows for the nine months ended March 31, 2016 and 2015:
|
|
For the nine months ended
|
|
|
|
March 31
|
|
|
|
2016
|
|
|
2015
|
|
Net cash (used in) operating activities
|
|
$
|
(5,939,249
|
)
|
|
$
|
(1,944,012
|
)
|
Net cash (used in) investing activities
|
|
|
(279,530
|
)
|
|
|
(468,710
|
)
|
Net cash provided by (used in) financing activities
|
|
|
6,044,659
|
|
|
|
(1,669,928
|
)
|
Effect of exchange rate changes on cash and cash equivalents
|
|
|
(34,578
|
)
|
|
|
(1,587,348
|
)
|
Net cash (outflow) inflow
|
|
$
|
(208,698
|
)
|
|
$
|
(5,669,998
|
)
|
Net cash (used in) operating activities
During the nine months ended
March 31, 2016, we used approximately $5,939,249 of cash in our operating activities. This reflects our net loss from operations
of $1,239,427 plus $4,699,822 used by changes in operating assets and liabilities and adjustments for non-cash items, principally
the increase in our trade receivables of $5,808,725. The increase in trade receivables is due to an increase in new customer funding.
Adjustments for non-cash items consisted of depreciation and amortization in the amount of $484,647, subordinated notes costs amortization
of $108,231, stock options and shares issued for compensation of $676,807 and gain on equity method investment of $54,082.
During the nine months ended
March 31, 2015, we generated approximately $1,944,012 of cash in our operating activities. This reflects our net loss from operations
of $763,545 plus $1,180,467 provided by changes in operating assets and liabilities and adjustments for non-cash items. Cash provided
by working capital items was primarily impacted by a decrease in trade receivables of $1,840,830 and decreases in trade payables
of $3,447,850 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 $559,091, stock options issued for compensation
of $113,607 and gain in equity method investment of $12,380.
Net cash (used in) investing activities
During the nine months ended
March 31, 2016, net cash used in investing activities of $279,530 was primarily impacted by $267,449 in capitalized costs incurred
on the development of intangible assets, principally software related to The Moneytech Exchange and mPay.
During the nine months ended
March 31, 2015, net cash used in investing activities of $468,710 was primarily impacted by $421,991 in capitalized costs incurred
on the development of intangible assets, principally software related to The Moneytech Exchange and mPay.
Net cash provided by (used in) financing
activities
During the nine months ended
March 31, 2016, net cash provided by financing activities of $6,044,659 primarily reflects an increase in our borrowings under
the Wholesale Loan Facility of $5,412,498. Additions to our capital reserve accounts by our customers of $632,161 account for the
difference.
During the nine months ended
March 31, 2015, net cash used in financing activities of $1,669,928 primarily reflects a decrease in our borrowings under the Wholesale
Loan Facility of $2,200,295, additions to our capital reserve accounts by our customers of $530,367 accounts for the difference.
Net cash inflow
During the nine months ended
March 31, 2016 net cash decreased by $208,698 as compared to the nine months ended March 31, 2015, where net cash decreased by
$5,669,998.
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
the amount of claims submitted to Euler Hermes in fiscal year 2015 and 2016, to date, and in claim years 2014 and 2015 (each claim
year ends on December 31) for reimbursement, the amounts recognized or denied, the payments received to date and amounts remaining
to be paid.
|
|
Fiscal year
|
|
|
Fiscal year
|
|
|
|
Jun 30,
2015
|
|
|
Jun 30,
2016
|
|
|
|
AUD
|
|
|
AUD
|
|
Opening balance
|
|
$
|
34,061
|
|
|
$
|
-
|
|
Claims recognised
|
|
|
-
|
|
|
|
-
|
|
Claims paid
|
|
|
(34,061
|
)
|
|
|
-
|
|
Claims denied
|
|
|
-
|
|
|
|
-
|
|
Closing balance
|
|
$
|
-
|
|
|
$
|
-
|
|
|
|
Claim year 2014
|
|
|
Claim year 2015
|
|
|
|
AUD
|
|
|
AUD
|
|
Claims submitted
|
|
|
|
|
|
|
Policy excess
|
|
No claim submitted as credit losses do
|
|
Claims denied
|
|
not exceed the policy excess of $500,000
|
|
Claims paid
|
|
|
|
|
|
|
Claims in progress
|
|
$
|
-
|
|
|
$
|
-
|
|
|
|
|
|
|
|
|
|
|
Progression toward the deductible
|
|
$
|
348,230
|
|
|
$
|
264,429
|
|
1. Claim years run January 1 to December 31 each year.
2. Claims are not submitted until the policy excess is reached.
Commitments for Capital Expenditures
We do not have any commitments
for capital expenditures.
The design and technical development
of The Moneytech Exchange is completed and it is operational. Although we will continue to upgrade and add functionality to The
Moneytech Exchange we will need to add additional personnel as we grow, the rate of growth of these expenses should be less than
the rate of growth of our revenue. Further, we anticipate that as we expand our portfolio and increase the number of services we
offer, the rate of growth in the lines of credit we service and in our revenues will exceed the rate of growth in our operating
expenses. There are a number of reasons for this, the most significant being that most of the expense involved with
any debtor/obligor is incurred when the relationship is established. In the absence of a default or other triggering
event, so long as a debtor/obligor is online, it generates revenue for us with little impact on our operating expenses.
In addition to the upgrade
and addition of functionality to The Moneytech Exchange, we will also incur expenditure on research and development of our payments
services platform and functionality.
Off Balance Sheet Items
We do not have any off-balance
sheet arrangements, financings, or other relationships with unconsolidated entities or other persons, also known as “special
purpose entities” (SPEs).
Critical Accounting Policies
Use of Estimates
Our discussion and analysis
of our financial condition and results of operations are based upon our consolidated financial statements, which have been prepared
in accordance with accounting principles generally accepted in the United States. The preparation of these financial statements
requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and
related disclosure of contingent assets and liabilities. We continually evaluate our estimates, including those related to bad
debts, recovery of long-lived assets, income taxes, and the impact of changes in currency exchange rates. We base our estimates
on historical experience and on various assumptions that we believe to be reasonable under the circumstances, the results of which
form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other
sources. Any future changes to these estimates and assumptions could cause a material change to our reported amounts of revenues,
expenses, assets and liabilities. Actual results may differ from these estimates under different assumptions or conditions. While
our significant accounting policies are described in Note 3 to our consolidated financial statements, we believe the following
accounting policies are the most critical to aid you in fully understanding and evaluating our financial statements and our management’s
discussion and analysis.
The preparation of financial
statements in conformity with US GAAP requires management to make certain estimates and assumptions that affect the reported amounts
of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported
amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Significant estimates
include collectability of accounts receivable and recoverability of long-term assets.
Allowance for Doubtful Accounts
The Company maintains reserves
for potential credit losses on accounts receivable. Management reviews the composition of accounts receivable and analyzes historical
bad debts, customer concentrations, customer credit worthiness, current economic trends and changes in customer payment patterns
to evaluate the adequacy of these reserves.
Revenue Recognition
Revenue is recognized when
persuasive evidence of an arrangement exists, delivery has occurred, the fee is fixed or determinable, and collectability is probable.
Revenue generally is recognized net of allowances for returns and any taxes collected from customers and subsequently remitted
to governmental authorities.
Concentration of Credit Risk
Financial instruments that
potentially subject the Company to concentrations of credit risk are cash, accounts receivable and other receivables arising from
its normal business activities. The Company places its cash in what it believes to be credit-worthy financial institutions. The
Company has a diversified customer base, most of which are in Australia. The Company controls credit risk related to accounts receivable
through credit approvals, credit limits and monitoring procedures. The Company routinely assesses the financial strength of its
customers and, based upon factors surrounding the credit risk, establishes an allowance, if required, for uncollectible accounts
and, as a consequence, believes that its accounts receivable credit risk exposure beyond such allowance is limited.
Cost of Revenue
Cost of revenue includes;
programs licensed; operating costs including costs of funds and related product support service centers to drive traffic to our
websites, costs incurred to support and maintain products and services, including inventory valuation adjustments; costs associated
with the delivery of consulting services; and the amortization of capitalized intangible software costs. Capitalized intangible
software costs are amortized over the estimated lives of the products.
Exchange (Loss) Gain
During the three months and
nine months ended March 31, 2016 and 2014, the transactions of Moneytech and its wholly owned subsidiaries were denominated in
foreign currency and were recorded in Australian dollar (AUD) at the rates of exchange in effect when the transactions occurred.
Exchange gains and losses are recognized for the different foreign exchange rates applied when the foreign currency assets and
liabilities are settled.
Foreign Currency Translation and Comprehensive
(Loss) Income
The accounts of Moneytech
and its wholly owned subsidiaries were maintained, and its financial statements were expressed, in AUD. Such financial statements
were translated into USD with the AUD as the functional currency. All assets and liabilities were translated at the exchange rate
at the balance sheet date, stockholders’ equity is translated at the historical rates and income statement items are translated
at the average exchange rate for the period. Transactions in foreign currencies are initially recorded at the functional currency
rate ruling at the date of transaction. Any differences between the initially recorded amount and the settlement amount are recorded
as a gain or loss on foreign currency transaction in the consolidated statements of operations. The resulting translation adjustments
are reported under other comprehensive income as a component of shareholders’ equity.