ThZeal - The Zeal

10-Q/A 1 f10q0913a1_sourcefinancial.htm QUARTERLY REPORT f10q0913a1_sourcefinancial.htm

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

FORM 10-Q/A

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

For the quarterly period ended September 30, 2013

¨	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 033-26828

SOURCE FINANCIAL, INC.

(Exact name of registrant as specified in its charter)

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

Level6/97 Pacific Highway

North Sydney NSW 2060

Australia

(Address of principal executive offices and zip code)

+61 2 8907-2500

(Registrant’s telephone number, including area code)

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

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 ¨

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

Large accelerated filer	¨		Accelerated filer	¨

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

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

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date. As of November 1, 2013, the Registrant had outstanding 9,961,632 shares of common stock outstanding.

Explanatory Note

This amendment is being filed to amend Item 1 (Financial Statements) of Part 1and Item 6 (Exhibits) of Part II to this Report.

PART I FINANCIAL INFORMATION

Item 1.

Financial Statements

SOURCE FINANCIAL, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

	September 30, 2013			June 30, 2013
	(Unaudited)			(Restated)
ASSETS

CURRENT ASSETS
Cash and cash equivalents	$	7,100,551		$	7,205,827
Trade receivables, net		28,192,664			27,008,840
Inventories		235,035			220,377
Deferred tax asset		186,180			718,767
Other current assets		1,326,207			820,726
TOTAL CURRENT ASSETS		37,040,637			35,974,537

NON-CURRENT ASSETS
Intangible assets, net		3,639,080			3,512,767
Deferred tax asset		1,516,610			988,860
Property, plant and equipment, net		575,726			578,136
Other assets		50,000			95,973
Goodwill		70,388			69,057
TOTAL NON-CURRENT ASSETS		5,851,804			5,244,793

TOTAL ASSETS	$	42,892,441		$	41,219,330

LIABILITIES AND STOCKHOLDERS' EQUITY

CURRENT LIABILITIES
Trade and other payables	$	5,233,635		$	5,250,399
Wholesale loan facility		27,019,113			25,669,388
Cash reserve		2,767,943			2,731,094
TOTAL CURRENT LIABILITIES		35,020,691			33,650,881

NON-CURRENT LIABILITIES
Shareholder loans		96,536			45,665
TOTAL NON-CURRENT LIABILITIES		96,536			45,665

TOTAL LIABILITIES		35,117,227			33,696,546

STOCKHOLDERS' EQUITY
Preferred stock, Series A, $0.01 par value, 10,000,000 shares authorized, no shares issued and outstanding		-			-
Preferred stock, Series B, $0.01 par value, 10,000,000 shares authorized, 5,000 issued and outstanding		50			50
Common Stock, $0.10 par value, 500,000,000 shares authorized, 9,961,632 shares issued and outstanding, respectively		996,163			996,163
Common stock to be issued		50,900			33,837
Additional paid-in capital		14,860,310			14,462,575
Other accumulated comprehensive loss		(913,393	)		(1,052,144	)
Accumulated deficit		(7,218,816	)		(6,917,697	)
TOTAL STOCKHOLDERS' EQUITY		7,775,214			7,522,784

TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY	$	42,892,441		$	41,219,330

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

SOURCE FINANCIAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE (LOSS) INCOME
FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2013 AND 2012
(UNAUDITED)

	September 30, 2013			September 30, 2012

Revenue	$	1,375,091		$	1,307,305
Cost of revenue		956,645			889,062
Gross Profit		418,446			418,243

Operating Expenses

Compensation expenses		117,553			154,929
Research and development expense		109,398			118,057
Bad debt expenses		220,993			6,950
Occupancy expenses		61,918			58,627
Depreciation expense		42,260			34,795
General and administration expenses		336,694			9,344
Total Operating Expenses		888,815			382,702
(Loss) Income from operations		(470,370	)		35,541

Other Income (Expense)
Interest income		26,839			30,168
Research and development grant		183,300			93,465
Finance costs		(660	)		(141	)
Total Other Income		209,479			123,492

(Loss) Income before provision of income taxes		(260,891	)		159,033

Provision for income taxes		40,229			4,928

Net (Loss) Income		(301,120	)		154,105

Other comprehensive income
Foreign currency translation		138,751			241,928

Comprehensive (Loss) Income	$	(162,369	)	$	396,033

Net (Loss) Income per share
Basic	$	(0.029	)	$	0.029
Diluted	$	(0.029	)	$	0.029

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

Basic		10,373,128			5,300,000
Diluted		10,373,128			5,300,000

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

SOURCE FINANCIAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2013 AND 2012
(UNAUDITED)

	September 30, 2013			September 30, 2012

Net (loss) income	$	(301,119	)	$	154,105
Adjustments to reconcile net (loss) income to net cash (used in) provided by operating activities:

Depreciation and amortization		178,601			170,293
Stock options and shares issued for compensation		124,921			-

(Increase) decrease in assets:
Trade receivables, net		(653,081	)		2,357,747
Inventories		(10,250	)		(2,472	)
Deferred tax asset		37,160			-
Other assets		(149,386	)		222,523
Increase (decrease) in current liabilities:
Trade payables		(116,052	)		(2,268,757	)
Net cash (used in) provided by operating activities		(889,206	)		633,439

CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of property, plant and equipment		(80,407	)		(202,768	)
Development of intangible assets		(146,640	)		-
Net cash used in investing activities		(227,047	)		(202,768	)

CASH FLOWS FROM FINANCING ACTIVITIES
Wholesale loan facility, net		841,919			(2,261,805	)
Capital Reserve		(61,362	)		192,122
Shareholder loans, net		95,816			(28,585	)
Net cash provided by (used in) financing activities		876,373			(2,098,268	)

Effect of exchange rate changes on cash and cash equivalents		134,604			138,261

Net decrease in cash and cash equivalents		(105,276	)		(1,529,335	)

Cash and cash equivalents at the beginning of the period		7,205,827			5,634,718

Cash and cash equivalents at the end of the period	$	7,100,551		$	4,105,383

SUPPLEMENTAL DISCLOSURES:
Cash paid during the period for:
Income tax payments	$	3,069		$	4,928

Interest payments	$	466,443		$	456,830

SUPPLEMENTAL SCHEDULE OF NON- CASH FINANCING ACTIVITIES:
Issuance of stock options	$	70,123		$	-
Restricted stock compensation	$	344,675		$	-

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

SOURCE FINANCIAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(UNAUDITED)

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

Balance June 30, 2013 (Restated)		10,300,000	$	1,030,000		5,000	$	50	$	14,462,575	$	(1,052,144	)	$	(6,917,697	)	$	7,522,784

Issuance of stock options		-		-		-		-		70,123		-			-			70,123

Compensation in respect of option and restricted stock granted to employees, directors and third- parties		170,632		17,063		-		-		327,612		-			-			344,675

Net loss for the three months ended September 30, 2013		-		-		-		-		-		138,751			(301,119	)		(162,368	)

Balance September 30, 2013		10,470,632	$	1,047,063		5,000	$	50	$	14,860,310	$	(913,393	)	$	(7,218,816	)	$	7,775,214

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

SOURCE FINANCIAL, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

SEPTEMBER 30, 2013

(UNAUDITED)

Note 1 – BASIS OF PRESENTATION AND ORGANIZATION

Basis of Presentation

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

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

Restatements

Subsequent to the issuance of the Company's financial statements for the fiscal year ended June 30, 2013, the Company determined that certain shares had been authorized for issuance prior to the merger on June 30, 2013 and presentation of the stockholders’ equity on the consolidated balance sheet had not been accounted properly in the Company’s financial statements. Specifically, the number of shares outstanding as of June 30, 2013 was 10,300,000, of which 338,368 is to be issued. The Company decided to restate the consolidated balance sheet and stockholders’ equity for the fiscal year ended June 30, 2013 which resulted in a change in the opening numbers for the three months ended September 30, 2013.

The effect of the restatements is as follows:

CONSOLIDATED BALANCE SHEET

	Reported			Restated
	June 30, 2013			June 30, 2013
Preferred stock	$	50		$	50
Common stock		996,164			996,163
Common stock to be issued		-			33,837
Additional paid in capital		14,496,411			14,462,575
Other comprehensive income		(1,052,144	)		(1,052,144	)
Accumulated deficit		(6,917,697	)		(6,917,697	)
Total Stockholders' Equity	$	7,522,784		$	7,522,784

Note 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Principles of Consolidation

The consolidated financial statements include the accounts of Source Financial, Inc. (“Source”) and its wholly owned subsidiaries: Moneytech Limited (“Moneytech”), Moneytech Finance Pty Ltd, mPayments Pty Ltd., Moneytech POS Pty Ltd., Moneytech Services Pty Ltd, WikiTechnologies, Inc., collectively referred to as the Company. Moneytech USA was formed Decembner 5, 2012 and WikiTechnologies, Inc. was acquired on June 30, 2013. All material intercompany accounts, transactions and profits were eliminated in consolidation.

Equity Investments

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

Use of Estimates

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

Exchange (Loss) Gain

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

Foreign Currency Translation and Comprehensive (Loss) Income

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

Reportable Segment

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

Revenue Recognition

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

Cost of Revenue

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

Research and Development

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

Income Taxes

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

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

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

Concentration of Credit Risk

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

Risks and Uncertainties

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

Contingencies

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

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

Cash and Cash Equivalents

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

Allowance for Doubtful Accounts

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

Inventory

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

Property, Plant & Equipment

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

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

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

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

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

	9/30/2013		9/30/2012
Depreciation, operating	$	42,260	$	34,795
Depreciation, cost of revenue		5,098		5,686
Total depreciation expense	$	47,358	$	40,481

Fair Value of Financial Instruments

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

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

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

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

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

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

Earnings per Share (EPS)

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

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

	9/30/13			9/30/12
Net (loss) income	$	(301,120	)	$	154,105

Weighted average shares outstanding – basic		10,373,128			5,300,000

Effect of dilutive securities:
Options issued		-			-

Weighted average shares outstanding – diluted		10,373,128			5,300,000

Net (loss) income per share – basic	$	(0.029	)	$	0.029

Net (loss) income per share – diluted	$	(0.029	)	$	0.029

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

Goodwill

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

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

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

Intangible Assets

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

Stock-Based Compensation

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

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

Recently Issued Accounting Pronouncements

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

Note 2 – TRADE RECEIVABLES, NET

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

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

Note 3 – DEFERRED TAX ASSETS

As of September 30, 2013 and June 30, 2013, the Company had deferred tax assets of $1,702,790 and $1,707,627 respectively. The Company had approximately $5,694,583 as of September 30, 2013 and $5,692,050 as of June 30, 2013 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.

The deferred tax asset as of September 30, 2013 and June 30, 2013 consists of the tax benefit of the NOL carryforward. Management believes that all NOLs will be utilized in the near future and therefore no allowance was provided. Accordingly, the company as of September 30, 2013 and June 30, 2013 has deferred tax asset of:

	9/30/2013		6/30/2013
Current deferred tax assets	$	186,180	$	718,767
Non current deferred tax assets		1,516,610		988,860
Deferred tax assets	$	1,702,790	$	1,707,627

Note 4 – OTHER ASSETS

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

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

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

Note 5 – INTANGIBLE ASSETS

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

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

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

Note 6 – GOODWILL

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

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

Note 7 – TRADE AND OTHER PAYABLES

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

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

Note 8 –CURRENT LIABILITIES

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

Wholesale Loan Facility

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

Cash Reserve

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

Note 9 – NON-CURRENT LIABILITY

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

Shareholders’ Loan

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

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

Note 10 –STOCKHOLDERS’ EQUITY

Preferred Stock

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

After June 30, 2018, the Class 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 Class B Preferred Share. The Class 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

Common Stock

The Company has 500,000,000 shares of Common Stock authorized at a par value of $0.10 as of September 30, 2013 and June 30, 2013. There were 9,961,632 shares issued and outstanding as of September 30, 2013 and June 30, 2013. The Company has 509,000 and 338,368 shares to be issued as of September 30, 2013 and June 30, 2013, respectively. Each Common Stock holder will have one (1) vote.

Note 11 – STOCK COMPENSATION

Restricted shares

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

	Number of Shares

Granted but not issued at June 30, 2013		338,368

Issued during quarter ended September 30, 2013		-
Granted during quarter ended September 30, 2013		170,632

Granted but not issued at September 30, 2013		509,000

Note 12 – STOCK OPTIONS

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

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

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

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

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

			Number of Stock Options

Outstanding at June 30, 2013			100,000

Granted			250,000
Exercised			-
Expired			-

Outstanding at September 30, 2013			350,000
Exercisable at September 30, 2013			41,249

Options outstanding at September 30, 2013 are as follows:

Weighted

Total

Average

Weighted

Remaining

Average

Total Options

Life

Exercise

Options

Exercise

Exercise Price

Outstanding

(Years)

Price

Exercisable

Price

$1.30 to $2.50

350,000

5.662

1.70

41,249

1.70

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

Note 13 – RELATED PARTY TRANSACTIONS

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

Note 14 – INCOME TAX

As of September 30, 2013, Moneytech had approximately $5,692,050 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. The deferred tax asset as of September 30, 2013 and June 30, 2013 consists of the tax benefit of the NOL carry forward. Management believes that all NOLs will be utilized in the near future and therefore no allowance was made.

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

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 Statements of Operations and Comprehensive (Loss) Income for the three months ended September 30, 2013 and 2012, respectively:

September 30, 2013	U.S		State		International		Total
Current	$	-	$	-	$	-	$	-
Deferred		-		-		40,229		40,229
Total	$	-	$	-	$	40,229	$	40,229
Total payables

September 30, 2012	U.S		State		International		Total
Current	$	-	$	-	$	-	$	-
Deferred		-		-		4,928		4,928
Total	$	-	$	-	$	4,928	$	4,928
Total payables

Reconciliation of the difference between the statutory U.S. Federal income tax rate and the effective rate is as follows:

	9/30/2013			9/30/2012
US statutory rates		34	%		34	%
Tax rate difference		(4	)%		(4	)%
Research and development capitalized		(12	)%		-	%
Other expenses (benefits)		(33	)%		(27	)%

Tax expenses at actual rate		(15	)%		3	%

Note 15 - GEOGRAPHIC SEGMENT INFORMATION

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

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

	Three Months Ended September 30, 2013										Three Months Ended September 30, 2012
	Australia		USA			Elimination		Consolidated			Australia		USA		Elimination		Consolidated
Revenue	$	1,373,452	$	1,639		$	-	$	1,375,091		$	1,307,305	$	-	$	-	$	1,307,305
Cost of Revenue		934,313		22,332			-		956,645			889,062		-		-		889,062
Total Expenses		592,395		296,420			-		888,815			382,702		-		-		382,702
Other Income (Expense)		210,139		(660	)		-		209,479			123,492		-		-		123,492
Net Income (Loss)		16,653		(317,773	)		-		(301,120	)		154,105		-		-		154,105
Assets		42,333,777		558,664					42,892,441			37,190,011		-		-		37,190,011
Debt		35,057,956		59,271					35,117,227			28,774,919		-		-		28,774,919

Note 16 – 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. The investment is accounted for by the equity method. For the period from inception to September 30, 2013, 360 incurred a loss and the Company therefore did not recognize any income or return from the investment.

Note 17 –COMMITMENTS

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

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

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

Note 18 –SUBSEQUENT EVENTS

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

●

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

PART II – OTHER INFORMATION

Item 6. Exhibits

The following exhibits are filed herewith:

Exhibit Number		Document

31.1		Certifications pursuant to Rule 13a-14(a) or 15d-14(a) under the Securities Exchange Act of 1934, as amended, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

31.2		Certifications pursuant to Rule 13a-14(a) or 15d-14(a) under the Securities Exchange Act of 1934, as amended, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

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

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

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

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

SIGNATURES

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

	SOURCE FINANCIAL, INC.

November 26, 2013	By:	/s/ Hugh Evans
		Hugh Evans Chief Executive Officer (Principal Executive Officer)

November 26, 2013	By:	/s/ Brian M. Pullar
		Brian M. Pullar Chief Financial Officer (Principal Financial and Accounting Officer)