ThZeal - The Zeal

f10q0314_sourcefinancial.htm

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

FORM 10-Q

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

For the quarterly period ended March 31, 2014

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

For the transition period from to .

Commission File Number 000-55122

SOURCE FINANCIAL, INC.

(Exact name of registrant as specified in its charter)

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

Level 6 / 97 Pacific Highway

North Sydney NSW 2060

Australia

(Address of principal executive offices and zip code)

+61 2 8907-2500

(Registrant’s telephone number, including area code)

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

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes 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	o		Accelerated filer	o

Non-accelerated filer	o	(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 May 9, 2014, the Registrant had outstanding 7,671,632 shares of common stock, par value $0.001 per share.

SOURCE FINANCIAL, INC.

FORM 10-Q

TABLE OF CONTENTS

		Page
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS		ii
PART I	FINANCIAL INFORMATION	1
Item 1.	Financial statements	1
	CONSOLIDATED BALANCE SHEETS	1
	CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE (LOSS) INCOME	2
	CONSOLIDATED STATEMENT OF STOCKHOLDERS’EQUITY	3
	CONSOLIDATED STATEMENT OF CASH FLOWS	4
	NOTES TO CONSOLIDATED FINANCIAL STATEMENTS	5
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	20
Item 3.	Quantitative and Qualitative Disclosures about Market Risk	32
Item 4.	Controls and Procedures	32
PART II	OTHER INFORMATION	33
Item 1A.	Risk Factors	33
Item 5.	Other Information	33
Item 6.	Exhibits	34

SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

This document contains certain statements of a forward-looking nature. Such forward-looking statements, including but not limited to statements regarding projected growth, trends and strategies, future operating and financial results, financial expectations and current business indicators are based upon current information and expectations and are subject to change based on factors beyond the control of the Company. Forward-looking statements typically are identified by the use of terms such as “look,” “may,” “should,” “might,” “believe,” “plan,” “expect,” “anticipate,” “estimate” and similar words, although some forward-looking statements are expressed differently. The accuracy of such statements may be impacted by a number of risks and uncertainties that could cause actual results to differ materially from those projected or anticipated, including but not limited to those set forth herein and in our Annual Report on Form 10-K/A for the fiscal year ended June 30, 2013 filed on April 30, 2014.

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

PART I FINANCIAL INFORMATION

Item 1. Financial statements

SOURCE FINANCIAL, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

MARCH 31, 2014 AND JUNE 30, 2013

(UNAUDITED)

ASSETS	March 31, 2014			June 30, 2013
	(Unaudited)			(Restated)
CURRENT ASSETS
Cash and cash equivalents	$	7,546,870		$	7,140,539
Trade receivables, net		19,164,901			26,014,249
Inventories		210,850			220,377
Deferred tax asset		276,630			718,767
Other current assets		861,954			817,048
Net assets of discontinued operations		-			326,425
TOTAL CURRENT ASSETS		28,061,205			35,237,405

NON-CURRENT ASSETS
Intangible assets, net		3,504,142			3,314,413
Deferred tax asset		1,385,439			1,130,454
Property, plant and equipment, net		489,797			569,031
Other assets		-			45,973
Goodwill		69,723			69,057
TOTAL NON-CURRENT ASSETS		5,449,101			5,128,928

TOTAL ASSETS	$	33,510,306		$	40,366,333

LIABILITIES AND STOCKHOLDERS' EQUITY

CURRENT LIABILITIES
Trade and other payables	$	4,169,271		$	4,252,808
Wholesale loan facility		21,149,497			25,669,388
Cash reserve		820,208			2,731,094
Net liabilities of discontinued operations		-			3,000
TOTAL CURRENT LIABILITIES		26,138,976			32,656,290

NON-CURRENT LIABILITIES

Shareholder loans		46,096			45,665
TOTAL NON-CURRENT LIABILITIES		46,096			45,665

TOTAL LIABILITIES		26,185,072			32,701,955

STOCKHOLDERS' EQUITY
Preferred stock, $0.01 par value, 1,000,000 shares authorized		-			-
Designated as Series B Preferred stock, $0.01 par value, 5,000 shares authorized, 5,000 issued and outstanding		50			50
Common Stock, $0.001 and $0.1 par value, 50,000,000 shares authorized, 7,671,632 and 9,961,632 shares issued and outstanding at March 31, 2014 and June 30, 2013, respectively		7,672			996,163
Common stock to be issued, 509,000 and 338,368 respectively		509			33,837
Treasury stock		2,290			-
Additional paid-in capital		15,961,744			14,462,575
Other accumulated comprehensive loss		(1,007,199	)		(1,079,762	)
Accumulated deficit		(7,639,832	)		(6,748,485	)
TOTAL STOCKHOLDERS' EQUITY		7,325,234			7,664,378

TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY	$	33,510,306		$	40,366,333

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 AND NINE MONTHS ENDED MARCH 31, 2014 AND 2013

(UNAUDITED)

	FOR THE THREE MONTHS ENDED						FOR THE NINE MONTHS ENDED
	March 31, 2014			March 31, 2013			March 31, 2014			March 31, 2013

Revenue	$	1,448,936		$	1,331,089		$	4,163,149		$	3,673,405
Cost of revenue		689,164			787,870			2,186,879			2,196,874
Gross profit		759,772			543,219			1,976,270			1,476,531

Operating Expenses

Compensation expenses		270,341			178,767			639,415			500,169
Research and development expense		77,861			122,092			296,656			358,207
Bad debt expenses		291,638			46,270			542,890			114,956
Occupancy expenses		56,934			70,572			186,110			182,691
Depreciation expense		12,957			23,699			49,864			53,620
General and administration expenses		479,850			128,803			1,125,521			276,757
Total operating expenses		1,189,581			570,203			2,840,456			1,486,400
(Loss) income from operations		(429,809	)		(26,984	)		(864,186	)		(9,869	)

Other Income (Expense)
Interest income		27,407			28,725			80,629			82,818
Research and development grant		109,385			169,456			404,585			356,404
Finance costs		3			1			(281	)		(140	)
Other income		(4,985	)		(5,161	)		(7,628	)		(11,288	)
Total Other Income		131,810			193,021			477,305			427,794

(Loss) income from continuing operations before income taxes		(297,999	)		166,037			(386,881	)		417,925

Provision for income taxes		25,814			73,044			203,186			240,428

Net (loss) income from continuing operations		(323,813	)		92,993			(590,067	)		177,497

Net loss from discontinued operations		(3,750	)		-			(301,280	)		-

Net (loss) income		(327,563	)		92,993			(891,347	)		177,497

Other comprehensive income
Foreign currency translation		228,820			24,649			72,563			200,488

Comprehensive (loss) income	$	(98,743	)	$	117,642		$	(818,784	)	$	377,985

Net (loss) income per share
Basic and Diluted:
Continuing operations	$	(0.034	)	$	0.018		$	(0.058	)	$	0.034
Discontinued	$	-		$	-		$	(0.030	)	$	-
Total	$	(0.034	)	$	0.018		$	(0.088	)	$	0.034

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

Basic		9,400,632			5,300,000			10,104,849			5,300,000
Diluted		9,400,632			5,300,000			10,104,849			5,300,000

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

SOURCE FINANCIAL, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENT OF STOCKHOLDERS’EQUITY

MARCH 31, 2014

(UNAUDITED)

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

Balance June 30, 2013 (Restated)		10,300,000	$	1,030,000			5,000	$	50	$	-	$	14,462,575		$	(1,079,762	)		(6,748,485	)	$	7,664,378

Issuance of stock options		-		-			-		-		-		157,111			-			-			157,111

Compensation in respect of option and restricted stock granted to employees, directors and third- parties		170,632		17,063			-		-		-		327,611			-			-			344,674

Change in par value of shares		-		(1,036,592	)		-		-		-		1,036,592			-			-			-

Return of stock		-		(150	)		-		-		150					-			-			-

Return of stock		-		(2,140	)		-		-		2,140		(22,145	)		-			-			(22,145	)

Net (loss) income for the nine months ended March 31, 2014		-		-			-		-		-		-			72,563			(891,347	)		(818,784	)
Balance March 31, 2014		10,470,632	$	8,181			5,000	$	50	$	2,290	$	15,961,744		$	(1,007,199	)	$	(7,639,832	)	$	7,325,234

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

SOURCE FINANCIAL, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENT OF CASH FLOWS

FOR THE NINE MONTHS ENDED MARCH 31, 2014 AND 2013

(UNAUDITED)

	March 31, 2014			March 31, 2013

Net (loss) income	$	(891,347	)	$	177,497
Net (loss) from discontinued operations		(301,280	)		-
Net (loss) income from continuing operations		(590,067	)		177,497

Adjustments to reconcile net (loss) income to net cash provided by (used in) operating activities:
Depreciation and amortization		527,835			525,538
Stock options and shares issued for compensation		287,701			-

(Increase) decrease in assets:
Trade receivables, net		7,038,408			(3,889,869	)
Inventories		11,550			(132,286	)
Deferred tax asset		203,202			240,420
Other assets		157,206			(134,914	)
Increase (decrease) in current liabilities:
Trade payables		(123,435	)		(2,888,913	)
Net cash provided by (used in) operating activities		7,512,400			(6,102,527	)

Cash flows from investing activities
Purchase of property, plant and equipment		(82,532	)		(196,349	)
Development of intangible assets		(517,746	)		(567,074	)
Net cash used in investing activities		(600,278	)		(763,423	)

Cash flows from financing activities
Wholesale loan facility, net		(4,725,867	)		4,398,267
Capital Reserve		(1,920,403	)		2,458,640
Shareholder loans, net		-			(114,352	)
Net cash (used in) provided by financing activities		(6,646,270	)		6,742,555

Net cash provided by (used in) continuing operations		265,852			(123,395	)

Cash flows from discontinued operations
Net cash (used in) operating activities from discontinued operations		(177,618	)		-
Net cash provided by investing activities from discontinued operations		181,079			-
Net cash provided by financing activities from discontinued operations		-			-
Net cash provided by discontinued operations		3,461			-

Effect of exchange rate changes on cash and cash equivalents		71,730			141,743
Net increase in cash and cash equivalents		341,043			18,348
Cash and cash equivalents at the beginning of the period - from continuing operations		7,140,539			5,617,025
Cash and cash equivalents at the beginning of the period - from discontinued operations		65,288			-

Cash and cash equivalents at the end of the period	$	7,546,870		$	5,635,373

Supplemental disclosures
Cash paid during the period for:
Income tax payments	$	-		$	-
Interest payments	$	1,268,668		$	1,410,596

Supplemental schedule of non-cash financing activities:
Issuance of stock options	$	115,492		$	417,925
Restricted stock compensation	$	344,674		$	-

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

SOURCE FINANCIAL, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

MARCH 31, 2014

(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 financial statements and the notes thereto, included in the Company’s Annual Report on the Form 10-K/A for the fiscal 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/A filed with the Securities and Exchange Commission. The unaudited consolidated financial statements should be read in conjunction with the financial statements included in the Form10-K/A. 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 nine months ended March 31, 2014 are not necessarily indicative of the results that may be expected for the year ending June 30, 2014.

Note 2 – DISCONTINUED OPERATIONS

Our Board of Directors authorized the Settlement Agreement based upon an evaluation of the operations of WTI during which it became apparent that without significant additional financing WTI would not be able to generate significant revenues and become profitable, and thus was unlikely to satisfy the financial benchmarks specified in the Share Exchange Agreement by June 30, 2014. Accordingly, our Board of Directors determined that relinquishing our equity interest in WTI on the terms and subject to the conditions set forth in the Settlement Agreement was in the best interests of our company and its stockholders.

Revenue and expenses, and gains and losses relating to the discontinued business have been reclassified from the results of continuing operations and are reflected as net loss from discontinued operations in the statement of operations and comprehensive (loss) income.

As this is a non-reciprocal transfer of non-monetary assets with a certain group of shareholders, this transfer rescinds the business combination that took effect on June 30, 2013. It has been booked on sale date at the recorded amount (less any impairment on assets distributed) in accordance with modifications of the basic principle of using Fair Value. As such no gain or loss on disposal has been reported in the three and nine months ended March 31, 2014.

The assets and liabilities and operating results of the discontinued operation are summarized as follows:

ASSETS AND LIABILITIES OF DISCONTINUED OPERATIONS	March 31		June 30
	2014		2013
Current assets
Cash and cash equivalents	$	-	$	65,288
Other current assets		-		3,678
Total current assets		-		68,966
Non Current Assets
Fixed Assets		-		9,105
Intellectual property		-		198,354
Other assets		-		50,000
Total Non Current assets		-		257,459
Total Assets		-		326,425

Current Liabilities
Trade Creditors		-		3,000
Provisions and accruals		-		-
Intercompany liabilities		-		-
Total Current Liabilities		-		3,000
Non Current Liabilities
Shareholder loans		-		-
Total Non Current liabilities		-		-
Total Liabilities		-		3,000

Net Assets	$	-	$	323,425

NET RESULT FROM DISCONTINUED OPERATIONS	For the three months ended					For the nine months ended
	March 31					March 31
	2014			2013		2014			2013
Revenue	$	-		$	-	$	2,647		$	-
Cost of Revenue		-			-		70,460			-
Gross Profit (Loss)		-			-		(67,813	)		-
Operating Expenses		3,750			-		234,027			-
(Loss) from operations		(3,750	)		-		(301,840	)		-
Other income		-			-		560			-
(Loss) before tax		(3,750	)		-		(301,280	)		-
Tax		-			-		-			-
(Loss) after tax	$	(3,750	)	$	-	$	(301,280	)	$	-

The discontinued operations of Wiki Technologies, Inc. were reported in the United States of America segment in our geographic segment information as per Note 16.

Note 3 – 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, Moneytech USA and WikiTechnologies, Inc., collectively referred to as the Company. All material intercompany accounts, transactions and profits were eliminated in consolidation.

Equity Investments

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

Use of Estimates

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

Exchange (Loss) Gain

During the three and nine months ended March 31, 2014 and 2013, the transactions of Moneytech and its wholly owned subsidiaries were denominated in foreign currency and were recorded in Australian dollar (AUD) at the rates of exchange in effect when the transactions occurred. Exchange gains and losses are recognized for the different foreign exchange rates applied when the foreign currency assets and liabilities are settled.

Foreign Currency Translation and Comprehensive (Loss) Income

The accounts of Moneytech Limited and its wholly owned subsidiaries were maintained, and its financial statements were expressed, in AUD. Such financial statements were translated into USD with the AUD as the functional currency. All assets and liabilities were translated at the exchange rate at the balance sheet date, 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 March 31, 2014 and 2013, the Company had not taken any significant uncertain tax positions on its tax returns for 2013 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 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 March 31, 2014 and June 30, 2013, the Company had $7,546,870 and $7,140,539 in cash respectively, all of which was on deposit in Australia and 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 March 31, 2014 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 March 31, 2014 and June 30, 2013, Property, Plant & Equipment consisted of the following:

	March 31			June 30
	2014			2013
Office equipment	$	36,296		$	35,949
Furniture and fixtures		232,209			229,927
Computers and software		1,331,444			1,282,317
Accumulated Depreciation		(1,110,152	)		(979,162	)
	$	489,797		$	569,031

As of March 31, 2014 and 2013, depreciation expense consisted of the following:

	For the three months ended				For the nine months ended
	March 31				March 31
	2014		2013		2014		2013
Depreciation, operating	$	12,957	$	23,699	$	49,864	$	53,620
Depreciation, cost of revenue		33,290		26,508		85,273		82,444
Total depreciation expense	$	46,247	$	50,207	$	135,137	$	136,064

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 March 31, 2014, the Company did not identify any assets and liabilities that are required to be presented on the balance sheet at fair value.

Earnings per Share (EPS)

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

The following table sets for the computation of basic and diluted earnings per share for the three and nine months ended March 31, 2014 and 2013:

	For the three months ended March 31					For the nine months ended March 31
	2014			2013		2014			2013
Net (loss) income from continuing operations	$	(323,813	)	$	92,993	$	(590,067	)	$	177,497
Net result from discontinued operations		(3,750	)		-		(301,280	)		-
Net (loss) income	$	(327,563	)	$	92,993	$	(891,347	)	$	177,497

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

Basic		9,400,632			5,300,000		10,104,849			5,300,000
Dilutive effect of stock options		-			-		-			-
Diluted		9,400,632			5,300,000		10,104,849			5,300,000

	For the three months ended March 31					For the nine months ended March 31
	2014			2013		2014			2013
Net (loss) income per share
Basic and diluted:
Continuing operations	$	(0.034	)	$	0.018	$	(0.058	)	$	0.034
Discontinued	$	-		$	-	$	(0.030	)	$	-
Total	$	(0.034	)	$	0.018	$	(0.088	)	$	0.034

The options to purchase up to 83,243 shares of common stock were anti-dilutive during the three and nine months ended March 31, 2014.

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 March 31, 2014, 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 March 31, 2014.

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

There have been no new accounting pronouncements during the three and nine months ended March 31, 2014 that we believe would have a material impact on our financial position or results of operations.

Reclassification

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

Note 4 – TRADE RECEIVABLES, NET

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

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

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

As of March 31, 2014 and June 30, 2013, trade receivables consist of the following:

	March 31			June 30
	2014			2013
Trade receivables	$	20,134,524		$	26,745,724
Allowance for bad debt		(969,623	)		(731,475	)
Total trade receivables, net	$	19,164,901		$	26,014,249

Note 5 – OTHER ASSETS

Other assets consist of the following as of March 31, 2014 and June 30, 2013:

	March 31		June 30
Other current assets	2014		2013
Research & development grant receivable	$	331,956	$	401,852
Insurance claim receivable		177,837		269,556
Prepayment		62,600		66,922
Deferred compensation		145,335		-
Other assets		144,226		78,718
	$	861,954	$	817,048

	March 31		June 30
Other non current assets	2014		2013
Prepaid gift card establishment fees	$	-	$	45,973
	$	-	$	45,973

Note 6 – INTANGIBLE ASSETS

Intangible assets consist of the following as of March 31, 2014 and June 30, 2013:

	March 31			June 30
	2014			2013
Moneytech and mPayments software	$	6,281,345		$	5,239,641
Domain name		-			-
Accumulated amortization		(2,777,203	)		(1,925,228	)
	$	3,504,142		$	3,314,413

The intangible assets are amortized over 10-12 years. Amortization expense of $392,697 and $389,474 was included in cost of revenues for the nine months ended March 31, 2014 and 2013, respectively.

Note 7 – GOODWILL

As of March 31, 2014 and June 30, 2013, the Goodwill was comprised of the following:

	March 31			June 30
	2014			2013
Acquisition cost of Moneytech POS Pty Ltd.	$	99,126		$	98,180
Fixed assets received		(55,222	)		(54,695	)
Liability assumed		25,819			25,572
Acquisition cost assigned to goodwill	$	69,723		$	69,057

Note 8 – TRADE AND OTHER PAYABLES

As of March 31, 2014 and June 30, 2013, trade and other payables consist of the following:

	March 31			June 30
	2014			2013
Trade payables	$	4,049,263		$	3,854,065
Employee benefits		141,820			279,646
Other liabilities		(21,812	)		119,097
Total payables	$	4,169,271		$	4,252,808

Note 9 – CURRENT LIABILITIES

	March 31		June 30
	2014		2013
Wholesale loan facility	$	21,149,497	$	25,669,388
Cash reserve		820,208		2,731,094
	$	21,969,705	$	28,400,482

Wholesale Loan Facility

The Company had a secured line of credit under a Receivables Purchase Agreement (“RPA”) with a bank in Sydney Australia for up to AUD$40 million as of March 31, 2014 and up to AUD$30 million as of 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 renewed annually on an agreed anniversary date, the latest of which was December 31, 2013. In 2014, the facility limit was extended to AUD$40 million and renewed until December 31, 2014. Interest expense charged to cost of revenue related to the loan for the nine months ended March 31, 2014 and 2013 was approximately USD $1,268,668 and USD $1,410,596, respectively.

Cash Reserve

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

Note 10 – NON-CURRENT LIABILITY

	March 31		June 30
	2014		2013
Shareholders' loan	$	46,096	$	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.

Note 11 – STOCKHOLDERS’ EQUITY

Preferred Stock

The Company has 1,000,000 shares of Preferred Stock authorized, each having a par value of $0.01, as of March 31, 2014 and had 10,000,000 shares of Preferred Stock authorized, each having a par value of $0.01, at June 30, 2013. There were 5,000 shares of Series B Preferred Stock authorized, issued and outstanding as of March 31, 2014 and June 30, 2013 (the “Series B Preferred Shares”). Under the terms of the Series B Preferred Stock Certificate of Designation, the holder(s) of the Series B Preferred Shares have the right, until June 30, 2018, to (A) elect the majority of the Company’s Board of Directors and (B) vote on all other matters to come before the holders of common stock (the “Common Stock”) with each vote per share of Series B Preferred Stock equal to 1,000 shares of Common Stock.

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

Common Stock

The Company has 50,000,000 shares of Common Stock authorized, each having a par value of $0.001, as of March 31, 2014 and had 500,000,000 shares of Common Stock authorized, each having a par value of $0.10, as of June 30, 2013. There were 7,671,632 shares issued and outstanding as of March 31, 2014 and 9,961,632 shares issued and outstanding as of June 30, 2013. The Company has 509,000 and 338,368 shares to be issued as of March 31, 2014 and June 30, 2013, respectively. The company has 2,290,000 shares of Treasury stock as of March 31, 2014. The company had no Treasury stock as of June 30, 2013. Each share of Common Stock is entitled to one (1) vote.

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.

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

On February 11, 2014, 2,140,000 shares of the 2,240,000 shares which had previously been issued to Edward DeFeudis and Marco Garibaldi and deposited in escrow pursuant to the Share Exchange Agreement were cancelled, and the remaining 100,000 shares were transferred to a note holder of Wiki, as per the terms of the Settlement Agreement as further detailed in Footnote 2.

Note 12 – 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 170,632 shares of Common Stock valued at $2.02 (stock price at grant date), and recorded $344,675 as deferred compensation. During the three and nine months ended March 31, 2014, the Company amortized $71,476 and $199,339 respectively as stock-based compensation.

	Number of shares
Granted but not issued June 30, 2013		338,368
Issued during nine months ended March 31, 2014		-
Granted during nine months ended March 31, 2014		170,632
Granted but not issued March 31, 2014		509,000

Note 13 – 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 March 31, 2014, 14,500 of the Performance Based Stock Options are vested. As a result of the return of WTI, as further detailed in footnote 2, no additional shares can be vested. The Fair Value of the options was calculated using the following assumptions: estimated life of three years, volatility of 351%, risk free interest rate of .35%, and dividend yield of 0%. The grant date Fair Value of options was $249,995.

On July 19, 2013, the Company granted 75,000 Stock Options to each of the three non-employee directors pursuant to the Omnibus Incentive Plan. These Stock Options are exercisable at an exercise price of $2.00 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 Fair Value of the options was calculated using the following assumptions: estimated life of seven years, volatility of 755 %, risk free interest rate of 2.02%, and dividend yield of 0%. The grant date Fair Value of options was $454,500.

On August 22, 2013, the Company granted 25,000 Stock Options to a contractor. These Stock Options are exercisable at an exercise price of $1.30 per share. The options vested and 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 Fair Value of the options was calculated using the following assumptions: estimated life of three years, volatility of 843%, risk free interest rate of .82%, and dividend yield of 0%. The grant date Fair Value of options was $32,500.

The Company recorded $41,619 and $157,111 option expense in the three and nine months respectively ended March 31, 2014.

The following is a summary of the activity and position as of March 31, 2014.

	Number of Stock Options
Outstanding at June 30, 2013		100,000
Granted		250,000
Exercised		-
Expired		-
Outstanding at March 31, 2014		350,000
Exercisable at March 31, 2014		83,243

Options outstanding at March 31, 2014 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

5.162

1.70

83,243

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 14 – RELATED PARTY TRANSACTIONS

During the three and nine months ended March 31, 2014 and 2013, of the amounts payable to the President of Moneytech, the Company paid $76,422 and $34,808 (three months ended March 31, 2014 and 2013), respectively, and $198,871 and $140,751 (nine months ended March 31, 2014 and 2013), respectively, to a company controlled by the President.

Note 15 – INCOME TAX

The following is the income tax expense reflected in the Statement of Operations for the three and nine months ended March 31, 2014 and 2013:

INCOME TAX EXPENSE	For the three months ended				For the nine months ended
	March 31				March 31
	2014		2013		2014		2013
Income tax expense - current	$	-	$	-	$	-	$	-
Income tax expense - deferred		25,814		73,044		203,186		240,428
Total	$	25,814	$	73,044	$	203,186	$	240,428

The following are the components of income before income tax reflected in the Statement of Operations for the three and nine months ended March 31, 2014 and 2013:

COMPONENTS OF INCOME BEFORE INCOME TAX	For the three months ended						For the nine months ended
	March 31						March 31
	2014			2013			2014			2013
(Loss) income from continuing operations	$	(297,999	)	$	166,037		$	(386,881	)	$	417,925
Net loss from discontinued operations		(3,750	)		-			(301,280	)		-
	$	(301,749	)	$	166,037		$	(688,161	)	$	417,925

Loss from USA operations	$	(271,221	)	$	-		$	(1,078,312	)	$	-
Income from Australian operations		(30,528	)		166,037			390,151			417,925
	$	(301,749	)	$	166,037		$	(688,161	)	$	417,925

Income tax	$	25,814		$	73,044		$	203,186		$	240,428
Effective tax rate		(9	)%		44	%		(29	)%		57	%

The Company did not have a United States tax paying entity during the three and nine months ended March 31, 2013.

The following is a reconciliation of the provision for income taxes at the US federal income tax rate to the income taxes reflected in the Statement of Operations for the three and nine months ended March 31, 2014 and 2013:

INCOME TAX RATE RECONCILIATION	For the three months ended						For the nine months ended
	March 31						March 31
	2014			2013			2014			2013
US statutory rates		34	%		34	%		34	%		34	%
Tax rate difference		(4	)%		(4	) %		(4	)%		(4	) %
Research and development		(12	)%		14	%		(12	)%		27	%
USA losses		(27	)%		-	%		(47	)%		-	%
Tax expenses at actual rate		(9	)%		44	%		(29	)%		57	%

The following are the components of deferred tax reflected in the Statement of Operations for the three and nine months ended March 31, 2014 and 2013:

COMPONENTS OF DEFERRED TAX EXPENSE	For the three months ended					For the nine months ended
	March 31					March 31
	2014			2013		2014			2013
Tax losses carried forward	$	62,175		$	51,979	$	279,351		$	185,120
Doubtful debts reserve		(32,595	)		11,380		(68,729	)		52,488
Accruals		(3,766	)		9,685		(7,436	)		2,820
		25,814			73,044		203,186			240,428

The following are the components of deferred tax reflected in the Balance Sheet as of March 31, 2014 and June 30, 2013:

COMPONENTS OF DEFERRED TAX ASSET	March 31		June 30
	2014		2013
Tax losses carried forward	$	1,326,435	$	1,592,888
Doubtful debts reserve		290,887		219,442
Accruals		44,747		36,891
		1,662,069		1,849,221

Deferred tax assets - current	$	276,630	$	718,767
Deferred tax assets - non current		1,385,439		1,130,454
		1,662,069		1,849,221

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

As of March 31, 2014, Moneytech had approximately $4,794,973 in net operating loss (“NOL”) carry forward available to offset future taxable income in Australia. The NOLs can be carried forward without expiration in Australia. Management believes that all NOLs will be utilized in the near future and therefore no allowance was made.

As of March 31, 2014, 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 March 31, 2014 were fully reserved. Management believes it is more likely than not that these assets will not be realized in the near future.

Note 16 – 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 three months ended March 31, 2014 and 2013, geographic segment information is as follows:

	Three Months Ended March 31, 2014											Three Months Ended March 31, 2013
	Australia			USA			Elimination		Consolidated			Australia		USA		Elimination		Consolidated
Revenue	$	1,448,936		$	-		$	-	$	1,448,936		$	1,331,089	$	-	$	-	$	1,331,089
Cost of Revenue		689,164			-			-		689,164			787,870		-		-		787,870
Total Expenses		922,111			267,470			-		1,189,581			570,203		-		-		570,203
Other Income (Expense)		131,810			-			-		131,810			193,021		-		-		193,021
Net Income (Loss) before tax from continuing operations		(30,529	)		(267,470	)		-		(297,999	)		166,037		-		-		166,037
Discontinued operations		-			(3,750	)		-		(3,750	)		-		-		-		-
Assets		33,510,306			-			-		33,510,306			45,416,396		-		-		45,416,396
Debt		26,185,072			-			-		26,185,072			37,133,506		-		-		37,133,506

For the nine months ended March 31, 2014 and 2013, geographic segment information is as follows:

	Nine Months Ended March 31, 2014										Nine Months Ended March 31, 2013
	Australia		USA			Elimination		Consolidated			Australia		USA		Elimination		Consolidated
Revenue	$	4,160,975	$	2,174		$	-	$	4,163,149		$	3,673,405	$	-	$	-	$	3,673,405
Cost of Revenue		2,184,675		2,204			-		2,186,879			2,196,874		-		-		2,196,874
Total Expenses		2,063,454		777,002			-		2,840,456			1,486,400		-		-		1,486,400
Other Income (Expense)		477,305					-		477,305			427,794		-		-		427,794
Net Income (Loss) before tax from continuing operations		390,151		(777,032	)		-		(386,881	)		417,925		-		-		417,925
Discontinued operations		-		(301,280	)		-		(301,280	)		-		-		-		-
Assets		33,510,306		-			-		33,510,306			45,416,396		-		-		45,416,396
Debt		26,185,072		-			-		26,185,072			37,133,506		-		-		37,133,506

Note 17 – EQUITY INVESTMENT

On January 16, 2013 the Company entered into an agreement whereby it received a 37.5% equity interest in 360 Market Pty. Limited (“360”) in exchange for allowing 360 to utilize certain license rights. There was no exchange of cash or debt for the transaction and it was accounted for on the historical cost basis with a $0 value. The investment is accounted for by the equity method since the Company obtained a 37.5% equity interest. Due to the continuous loss from inception through March 31, 2014 incurred by 360, the Company did not recognize any income or return from the investment as doing so would have created a negative carrying value in the investment account. The Company discontinued using the equity method rather than establish a negative balance. The investment retains a zero balance until subsequent investee profits eliminate all unrealized losses. In addition, 360 has had a negative equity position since inception of the investment thereby precluding any other disclosure regarding our underlying position in the net equity of 360.

Note 18 – 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 USD $11,228. For the three months ended March 31, 2014 and 2013, the rental expense was USD $33,684 and USD $38,805, respectively. For the nine months ended March 31, 2014 and 2013, the rental expense was USD $101,052 and USD $116,415, respectively.

Future minimum rental payments required under operating leases as of March 31, 2014 are as follows:

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

Note 19 – SUBSEQUENT EVENTS

Management has evaluated events subsequent through May 15, 2014 for transactions and other events that may require adjustment of and/or disclosure in such financial statements. We have nothing to report in this regard.

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

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

Overview

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

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

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

Moneytech commenced operations in 2003 as an Australian based, technology driven, commercial finance company. Moneytech has an AUD$50 million securitized wholesale debt facility (the “Wholesale Facility,” “Receivables Purchase Agreement” or “RPA”) with Westpac banking Corporation (“Westpac”), one of the four leading Australian banks. Moneytech uses the Wholesale Facility to offer asset based, trade finance or accounts receivable finance and working capital solutions to small and medium enterprises (“SME’s”) throughout Australia. Moneytech has been in operation for over ten years and has operated profitably in five of the last six years.

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

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

Our objective is to become a leading provider of commercial lines of credit and financial services, in particular money transfer services, to small and medium businesses in Australia and the United States. 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 Receivables Purchase Facility (“RPA”). We also provide payment aggregation and processing solutions in Australia. For the immediate future we are seeking financing to expand Moneytech’s asset based credit solutions operations in Australia through a combination of strategic acquisitions and organic growth and we are considering introducing those operations in the United States, most likely through a strategic acquisition. With the addition of growth capital, Moneytech will seek to accelerate its growth by expanding its customer base, decreasing its cost of funds and achieving a greater degree of autonomy over its credit policies.

Discontinued operations

In February 2014, management returned the Wiki Technology, Inc entity (“WikiTechnologies” or ”WTI”), to Edward DeFeudis and Marco Garibaldi as per the terms of the Share Exchange Agreement dated May 30, 2013 and the Settlement Agreement dated February 11, 2014. Our Board of Directors authorized the Settlement Agreement based upon an evaluation of the operations of WTI during which it became apparent that without significant additional financing WTI would not be able to generate significant revenues and become profitable, and thus was unlikely to satisfy the financial benchmarks specified in the Share Exchange Agreement by June 30, 2014. Accordingly, our Board of Directors determined that relinquishing our equity interest in WTI on the terms and subject to the conditions set forth in the Settlement Agreement was in the best interests of our company and its stockholders.

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 continually monitor the components of our yield and our cost of funds. In addition, we monitor external rate trends, including the Reserve Bank of Australia cash rate.

Net bad debt losses - Other than our cost of funds- interest expense and related fees- the largest driver of business profitability is the minimization of bad debts. Each asset based line of credit is priced based on an industry and individual customer risk profile developed by us. Delinquencies negatively impact our business performance. Our profitability is directly connected to our net credit losses; therefore, we closely analyze credit performance and seek to limit our exposure when feasible through the purchase of credit insurance. Our target customer is a business that has financing requirements (in terms of size and time to funding) that make them poor candidates for loans from larger Australian commercial banks. Our lending criteria have, to date, resulted in a relatively low level of overdue and delinquent balances and correspondingly low levels of bad debt. We extend Credit for a maximum of 122 days. Amounts outstanding beyond their due date are considered overdue and 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 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 with the Australian Dollar as the functional currency to prepare the consolidated financial statements included in this Report. All assets and liabilities were translated at the exchange rate at the balance sheet date, stockholder’s equity is translated at the historical rates and income statement items are translated at the average exchange rate for the period. Transactions in foreign currencies are initially recorded at the functional currency rate ruling at the date of transaction. Any differences between the initially recorded amount and the settlement amount are recorded as a gain or loss on foreign currency transaction in the consolidated statements of operations. The resulting translation adjustments are reported under other comprehensive income as a component of shareholders’ equity.

Results of Operations

Three months ended March 31, 2014 and 2013

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, 2014 (“Q3 2014”) and 2013 (“Q3 2013”). This discussion should be read in conjunction with the consolidated financial statements and notes thereto contained elsewhere in this report.

Set forth below are certain items from our operating statements for the three months ended March 31, 2014 and 2013:

	For the three months ended						$				%
	March 31						Increase			Increase
	2014			2013			(Decrease)			(Decrease)

Revenue	$	1,448,936		$	1,331,089		$	117,847			9	%
Confirmed capital and credit express		1,310,784			1,117,377			193,407			17	%
Interest revenue		986,182			644,361			341,821			53	%
Fees		293,384			471,925			(178,541	)		(38	)%
Other revenue		31,218			1,091			30,127			2,761	%
Payment services		125,789			180,039			(54,250	)		(30	)%
Giftcard program revenue		51,462			176,845			(125,383	)		(71	)%
Other revenue		74,327			3,194			71,133			2,227	%
Other revenue		12,363			33,673			(21,310	)		(63	)%
360FX customer referral		17,139			30,488			(13,349	)		(44	)%
Foreign exchange		(4,934	)		150			(5,084	)		(3,389	)%
Other revenue		158			3,035			(2,877	)		(95	)%
Cost of revenue		689,164			787,870			(98,706	)		(13	)%
Confirmed capital and credit express		486,721			621,022			(134,301	)		(22	)%
Interest expense		383,899			509,608			(125,709	)		(25	)%
Insurance		57,314			70,925			(13,611	)		(19	)%
Account Issuing Expenses		37,768			32,337			5,431			17	%
Other		7,740			8,152			(412	)		(5	)%
Payment services		45,253			6,332			38,921			615	%
Gift card expenses		16,532			3,681			12,851			349	%
Other		28,721			2,651			26,070			983	%
Depreciation and amortization		157,190			156,332			858			1	%
Other cost of revenue		-			4,184			(4,184	)		-
Gross profit		759,772			543,219			216,553			40	%

Operating Expenses
Compensation expenses		270,341			178,767			91,574			51	%
Research and development expense		77,861			122,092			(44,231	)		(36	)%
Bad debt expenses		291,638			46,270			245,368			530	%
Occupancy expenses		56,934			70,572			(13,638	)		(19	)%
Depreciation expense		12,957			23,699			(10,742	)		(45	)%
General and administration expenses		479,850			128,803			351,047			273	%
(Loss) from operations		(429,809	)		(26,984	)		(402,825	)		1,493	%

Other income		131,810			193,021			(61,211	)		(32	)%

(Loss) income before income tax		(297,999	)		166,037			(464,036	)		(279	)%

Income tax expense		25,814			73,044			(47,230	)		(65	)%

Net (loss) income from continuing operations		(323,813	)		92,993			(416,806	)		(448	)%

Net result from discontinued operations		(3,750	)		-			(3,750	)	NA

Net (loss) income		(327,563	)		92,993			(420,556	)		(452	)%

Other comprehensive loss
Foreign currency translation		228,820			24,649			204,171			828	%
Comprehensive loss	$	(98,743	)		117,642			(216,385	)		(184	)%

Revenue

Consolidated revenue from continuing operations for Q3 2014 was approximately $1,448,936, an increase of $117,847 or 9% from our consolidated revenue from continuing operations for Q3 2013 of $1,331,089. Excluding differences attributable to changes in foreign exchange rates, revenue increased 26%. Excluding differences attributable to changes in foreign exchange rates, the increase is primarily the result of an increase in Confirmed Capital and Credit Express revenue (30%), a decrease in payment services revenues (3%) and a decrease in other revenue (1%). Excluding differences attributable to changes in foreign exchange rates, the Confirmed Capital and Credit Express revenue increase is mainly attributable to settled penalties associated with the default of one Confirmed Capital customer (39%). Lines of credit we funded decreased from approximately AUD$65 million during Q3 2013 to AUD$55 million during Q3 2014. The decrease in Payment Services revenues is mainly attributable to a decrease in gift cards revenues. Gift cards revenues have decreased because revenues recognized on gift card expiries decreased. Gift card expiry revenues decreased because Q3 2013 benefited from a large card program conducted in Fiscal 2012 that was not repeated in Fiscal 2013. The decrease in other revenues is primarily attributable to a decrease in activity with the 360 Markets Foreign exchange business. This customer referral revenue has decreased as a result of the loss of foreign exchange transaction activity associated with the confirmed capital customers who defaulted in Q2 and Q3 2014.

Cost of Revenue; Gross Profit

Cost of revenue from continuing operations, which is composed principally of the interest, fees and insurance we pay related to our RPA and the amortization expense of capitalized research and development costs was $689,164 in Q3 2014, a decrease of $98,706 or 13% from our cost of revenue of $787,870 for Q3 2013. Excluding differences attributable to changes in foreign exchange rates, costs of revenue increased 1%. Excluding differences attributable to changes in foreign exchange rates, the increase is primarily the result of decreases in Confirmed Capital and Credit Express costs (7%), increases in Payment services costs (6%) and increases in amortization of intangibles (3%). Excluding differences attributable to changes in foreign exchange rates, the Confirmed Capital and Credit Express cost decrease is mainly attributable to a decrease in interest expense. The payment services cost increase is mainly attributable to an increase in costs at MPOS and mPay and the increase in amortization is attributable to increased investment in intangibles. MPOS and mPay are subsidiaries of Moneytech which provide money transfer services in Australia.

Our profit from continuing operations, increased $216,553 from $543,219 in Q3 2013 to $759,772 in Q3 2014. This was primarily because net interest revenues and fee revenue in the Confirmed Capital and Credit Express business increased. Net interest and fee revenues increased because increased rates of interest were charged on the default of a Confirmed Capital customer.

Operating Expenses; Bad Debt Expense; Income from Operations

Apart from the costs under our RPA, the other significant factor in determining our overall profitability is our operating expenses, in particular our bad debt expense. Our bad debt expense for Q3 2014 was $291,638, representing an increase of $245,368 from bad debt expense of $46,270 for Q3 2013. We regularly evaluate the credit quality of our customers and this increase is attributable to changes in the specific assessment of several customer balances in line with our credit and collections policy.

The percentage of delinquent balances in our portfolio was 1.80% and 2.00% as of March 31, 2014 and 2013 respectively. The percentage of delinquent balances in our portfolio averaged 1.60% and 1.98% in the three months ended March 31, 2014 and 2013 respectively. The average collection period in our portfolio decreased from 55 days to 50 days during the three months ended March 31, 2014 and from 58 to 57 days during the three months ended March 31, 2013. Bad debts as a percentage of amount funded was 0.53% and 0.07% in the three months ended March 31, 2014 and 2013 respectively.

Our total operating expenses from continuing operations (other than bad debt) increased by $374,010 or 71% from $523,933 in Q3 2013 to $897,943 in Q3 2014. This increase is primarily reflected by the inclusion of costs associated with operating in the United States including the issuance of restricted stock and options to employees, consultants and non-employee directors of the company ($113,095 or 30%) and other professional services ($158,125 or 42%).

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, offset by interest income on the cash reserves we are required to maintain under the RPA, and research and development grants received from the Australian government. In Q3 2014 we accrued AUD $120,000 for research grants we expect to receive later this year from the Australian government.

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

Our net loss from continuing operations before tax for Q3 2014 was $297,999, as opposed to net income of $166,037 for Q3 2013. As a result of $25,814 in taxes incurred in Q3 2014, we incurred a net loss after tax for Q3 2014 of $323,813, as compared to net income after tax for Q3 2013 of $92,993. 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 during the quarter, primarily because of an increase in bad debts. Operations in the United States are not yet profitable. This is primarily attributable to the Wiki business not meeting targets and the subsequent decision to discontinue these operations.

Net loss from discontinued operations.

In January 2014, management decided to return the ‘Wiki Technologies’ entity to Edward DeFeudis and Marco Garibaldi set forth in the terms of the Share Exchange Agreement. The decision was taken because revenue and profitability benchmarks as per the Share Exchange Agreement were unlikely to be met. Revenue and expenses, and gains and losses relating to the discontinued business have been reclassified from the results of continuing operations and are reflected as net loss from discontinued operations.

Operating expenses ($3,750) contributed to the net loss of $3,750. Operating expenses were lower in Q3 2014 as compared to Q2 2014 because the business paid only essential items.

Other comprehensive income.

Our other comprehensive income consists of gains and losses in net asset value that occurs when movements in foreign exchange rates occur. These gains or losses are primarily as a result of changes in the AUD/USD exchange rate. We cannot and do not attempt to predict movements in these exchange rates. The changes in net asset value occur because our net assets and operational activity are principally in Australian Dollars. We do not hedge the foreign exchange rate exposure. 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 1.0387 and 1 to 0.8967 in Q3 2013 and Q3 2014, respectively.

Nine months ended March 31, 2014 and 2013

The following discussion of our results of operations constitutes management’s review of the factors that affected our financial and operating performance for the nine months ended March 31, 2014 (“Nine months 2014”) and 2013 (“Nine months 2013”). This discussion should be read in conjunction with the consolidated financial statements and notes thereto contained elsewhere in this report.

Set forth below are certain items from our operating statements for the nine months ended March 31, 2014 and 2013:

	For the nine months ended						$				%
	March 31						Increase			Increase
	2014			2013			(Decrease)			(Decrease)

Revenue	$	4,163,149		$	3,673,405		$	489,744			13	%
Confirmed capital and credit express		3,710,650			3,213,538			497,112			15	%
Interest revenue		2,602,560			1,876,967			725,593			39	%
Fees		1,012,969			1,331,793			(318,824	)		(24	)%
Other revenue		95,121			4,778			90,343			1,891	%
Payment services		339,397			392,992			(53,595	)		(14	)%
Giftcard program revenue		105,777			294,442			(188,665	)		(64	)%
Other revenue		233,620			98,550			135,070			137	%
Other revenue		113,102			66,875			46,227			69	%
360FX customer referral		69,494			59,616			9,878			17	%
Foreign exchange		43,961			918			43,043			4,689	%
Other revenue		(353	)		6,341			(6,694	)		(106	)%
Cost of revenue		2,186,879			2,196,874			(9,995	)		(0	)%
Confirmed capital and credit express		1,613,525			1,715,409			(101,884	)		(6	)%
Interest expense		1,268,669			1,410,595			(141,926	)		(10	)%
Insurance		133,955			167,325			(33,370	)		(20	)%
Account Issuing Expenses		124,926			122,945			1,981			2	%
Other		85,975			14,544			71,431			491	%
Payment services		95,384			3,608			91,776			2,544	%
Gift card expenses		26,812			(209	)		27,021			(12,929	)%
Other		68,572			3,817			64,755			1,696	%
Depreciation and amortization		477,970			471,918			6,052			1	%
Other cost of revenue		-			5,939			(5,939	)		-
Gross profit		1,976,270			1,476,531			499,739			34	%

Operating expenses
Compensation expenses		639,415			500,169			139,246			28	%
Research and development expense		296,656			358,207			(61,551	)		(17	)%
Bad debt expenses		542,890			114,956			427,934			372	%
Occupancy expenses		186,110			182,691			3,419			2	%
Depreciation expense		49,864			53,620			(3,756	)		(7	)%
General and administration expenses		1,125,521			276,757			848,764			307	%
(Loss) income from operations		(864,186	)		(9,869	)		(854,317	)		8,657	%

Other income		477,305			427,794			49,511			12	%

(Loss) income before income tax		(386,881	)		417,925			(804,806	)		(193	)%

Income tax expense		203,186			240,428			(37,242	)		(15	)%

Net (loss) income from continuing operations		(590,067	)		177,497			(767,564	)		(432	)%

Net result from discontinued operations		(301,280	)		-			(301,280	)	NA

Net (loss) income		(891,347	)		177,497			(1,068,844	)		(602	)%

Other comprehensive loss
Foreign currency translation		72,563			200,488			(127,925	)		(64	)%
Comprehensive loss	$	(818,784	)		377,985			(1,196,769	)		(317	)%

Revenue

Consolidated revenue from continuing operations for the Nine months 2014 were approximately $4,163,149, an increase of $489,744 or 13% from our consolidated revenue from continuing operations for the Nine months 2013 of $3,673,405. Excluding differences attributable to changes in foreign exchange rates, revenue increased 29%. Excluding differences attributable to changes in foreign exchange rates, the increase resulted primarily from an increase in Confirmed Capital and Credit Express revenue (27%) and an increase in other revenue (2%). Excluding differences attributable to changes in foreign exchange rates, the Confirmed Capital and Credit Express revenue increase is mainly attributable to an increase in interest revenue (29%) and an increase in fees charged to new customers to set up their accounts (3%). Excluding differences attributable to changes in foreign exchange rates, Confirmed Capital and Credit Express revenue was 21% higher in total as a result of settled penalties associated with the default of two Confirmed Capital customers. The lines of credit we funded were approximately AUD$187 million during the Nine months 2013 and AUD$188 million during the Nine months 2014. The other revenue increase is primarily attributable to increases in referrals of Moneytech’s customers to the 360 Markets Foreign Exchange business. The payment services revenue decrease is mainly attributable to a decrease in gift cards revenue and an increase in revenues at MPOS and mPay. MPOS and mPay are subsidiaries of Moneytech which provide money transfer services in Australia.

Cost of Revenue; Gross Profit

Our cost of revenue from continuing operations, which is composed principally of the interest, fees and insurance we pay related to our RPA and the amortization expense of capitalized research and development costs, was $2,186,879 in the Nine months 2014, a decrease of $9,995 or 0% from our cost of revenue of $2,196,874 for the Nine months 2013. Excluding differences attributable to changes in foreign exchange rates, costs of sales increased 13%. Excluding differences attributable to changes in foreign exchange rates, the increase is primarily the result of increases in Confirmed Capital and Credit Express costs (5%), increases in payment services costs (5%) and increases in amortization of intangibles (3%). Excluding differences attributable to changes in foreign exchange rates, the Confirmed Capital and Credit Express cost increase is mainly attributable to an in increase in costs associated with setting up the accounts of new customers (4%), an increase in interest expense (1%), a decrease in insurance costs (1%) and an increase in fees associated with existing accounts (1%). Our interest expense has increased slightly. Growth in the volume of credit lines funded in the first six months has been offset by decreases in the amounts funded in the third quarter as a result of the default of two confirmed capital customers. The payment services cost increase is mainly attributable to an increase in costs at Mpos and mPay and the increase in amortization is attributable to increased investment in intangibles.

Our profit from continuing operations, increased $499,739 from $1,476,531 in the Nine months 2013 to $1,976,270 in the Nine months 2014. This was primarily because net interest revenues and fee revenues in the Confirmed Capital and Credit Express business increased. Net interest revenues increased primarily because lines of credit funded increased, because net interest margins increased as a result of a lag in decreasing the interest rates charged to our customers as the rate of interest charged under the RPA decreased and because increased rates of interest were charged on the default of two Confirmed Capital customers.

Operating Expenses; Bad Debt Expense; Income from Operations

Apart from the costs under our RPA, the other significant factor in determining our overall profitability is our operating expenses, in particular our bad debt expense. Our bad debt expense for the Nine months 2014 was $542,890, representing an increase of $427,934 from bad debt expense of $114,956 for the Nine months 2013.

The percentage of delinquent balances in our portfolio was 1.80% and 2.00% as of March 31, 2014 and 2013 respectively. The percentage of delinquent balances in our portfolio averaged 1.85% and 1.80% in the nine months ended March 31, 2014 and 2013 respectively. The average collection period in our portfolio increased from 45 days to 50 days during the nine months ended March 31, 2014 and from 47 to 57 days during the nine months ended March 31, 2013. Bad debts as a percentage of amount funded was 0.29% and 0.06% in the nine months ended March 31, 2014 and 2013 respectively.

Our total operating expenses from continuing operations (other than bad debt) increased by $926,122 or 68% from $1,371,444 in the Nine months 2013 to $2,297,566 in the Nine months 2014. This increase is primarily reflected by the inclusion of costs associated with operating in the United States including the issuance of restricted stock and options to employees, consultants and non-employee directors of the company ($199,339 or 22%) and other professional services ($489,331 or 53%).

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, offset by interest income on the cash reserves we are required to maintain under the RPA, and research and development grants received from the Australian government. In the Nine months 2014 we accrued AUD $360,000 for research grants we expect to receive later this year from the Australian government.

Our net loss from continuing operations before tax for the Nine months 2014 was $386,881, as opposed to net income of $417,925 for Nine months 2013. As a result of $203,186 in taxes incurred in the Nine months 2014, we incurred a net loss after tax for the Nine months 2014 of $590,067, as compared to net income after tax for the Nine months 2013 of $177,497. No tax benefit has been recognised 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 (Moneytech) remain profitable while operations in the United States (Source) are not yet profitable. This is primarily attributable to the WikiTechnologies business not meeting targets and the subsequent decision to discontinue these operations.

Net loss from discontinued operations.

In January 2014, management decided to return the ‘Wiki Technologies’ entity to Edward DeFeudis and Marco Garibaldi as per the terms of the Share Exchange Agreement. The decision was taken because revenue and profitability benchmarks as per the Share Exchange Agreement were unlikely to be met. Revenue and expenses, and gains and losses relating to the discontinued business have been reclassified from the results of continuing operations and are reflected as net loss from discontinued operations.

Revenue $2,647, Cost of Revenue ($70,460), Operating expenses ($234,027) and Other income $560 contributed to the net loss of $301,280.

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. As operations in the United States expand the impact of foreign exchange rates on our results of operations will decrease.

The average AUD/USD exchange rates were 1 to 1.0386 and 1 to 0.9141 in the Nine months 2013 and the Nine months 2014, respectively.

Comparison of Balance Sheet Data as at March 31, 2014 and June 30, 2013

Set forth below are certain items from our Consolidated Balance Sheet at March 31, 2014 and June 30, 2013:

	March 31		June 30
	2014		2013

Cash and cash equivalents	$	7,546,870	$	7,140,539
Trade Receivables		19,164,901		26,014,249
Total Assets	$	33,510,306	$	40,366,333

Wholesale Loan Facility		21,149,497		25,669,388
Total Liabilities	$	26,185,072	$	32,701,955

Total Equity	$	7,325,234	$	7,664,378

Trade receivables, Total Assets, Wholesale Loan Facility and Total Liabilities have decreased as a result of the loss, as a result of their default, of two Confirmed Capital customers during the nine months ended March 31, 2014.

Set forth below are certain items from our Statement of Cash Flows for the nine months ended March 31, 2014 and 2013:

	For the nine months ended
	March 31
	2014			2013
Net cash provided by (used in) operating activities	$	7,512,400		$	(6,102,527	)
Net cash (used in) investing activities		(600,278	)		(763,423	)
Net cash (used in) provided by financing activities		(6,646,270	)		6,742,555
Net cash provided by discontinued operations		3,461			-
Exchange rate effect on cash		71,730			141,743
Net cash inflow	$	341,043		$	18,348

Net cash provided by (used in) operating activities

During the nine months ended March 31, 2014, we generated approximately $7,512,400 of net cash in our operating activities. This reflects our net loss from continuing operations of $590,067 plus $8,102,467 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 $7,038,408 and other assets of $371,958. Trade receivables decreased due to a decrease in credit lines provided as a result of the loss of two Confirmed Capital customers. Adjustments for non-cash items consisted of depreciation and amortization in the amount of $527,835 and stock options and shares issued for compensation of $287,701.

During the nine months ended March 31, 2013, we used approximately $6,102,527 of net cash in our operating activities. This reflects our net income of $177,497 less cash used by changes in operating assets and liabilities and adjustments for non-cash items. Cash used by working capital items and other activities was primarily impacted by an increase in trade receivables of $3,889,869 and an increase in buyer payments and sellers’ liabilities and other items using $2,915,693. Adjustments for non-cash items consisted entirely of depreciation and amortization $525,538.

Net cash (used in) investing activities

During the nine months ended March 31, 2014, net cash used in investing activities of $600,278 was primarily impacted by $517,746 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, 2013, net cash used in investing activities of $763,423 primarily reflects capitalized costs incurred on the development of intangible assets, principally software related incurred in the development of The Moneytech Exchange.

Net cash (used in) provided by financing activities

During the nine months ended March 31, 2014, net cash used in financing activities of $6,646,270 primarily reflects a decrease in our borrowings under the Wholesale Loan Facility of $4,725,867. Withdrawals from our capital reserve accounts by our customers of $1,920,403 account for the difference.

During the nine months ended March 31, 2013 net cash provided by financing activities of $6,742,555 primarily reflects an increase in our borrowings under the Wholesale Loan Facility of $4,398,267. Contributions to capital reserve accounts by our customers of $2,458,640 and loans repaid of $114,352 account for the difference.

Net cash provided by discontinued operations

During the nine months ended March 31, 2014, net cash provided by discontinued operations of $3,461 primarily reflects the losses made by the Wiki business of $301,280 offset by adjustments for non-cash items and changes in operating assets and liabilities providing $123,662. Net cash provided by investing activities of $181,079 accounts for the difference.

Net cash inflow

During the nine months ended March 31, 2014, net cash increased by $341,043 as compared to the nine months ended June 30, 2013, where net cash increased by $18,348.

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

Credit Facility

In 2005 we entered into a Receivables Purchase Agreement (the “Wholesale Facility” or the “RPA”) with one of the “Big Four” Australian Banks which has been renewed annually each year thereafter. Pursuant to this Agreement we electronically offer eligible receivables to our lender for purchase on a nightly basis. These offerings are then settled by the lender on a daily basis. The funds we receive upon settlement are automatically and electronically delivered to our customers. Our gross profit is represented by the difference between what we charge our customers in interest, finance charges and fees and what we pay to our lender. Our borrowing limit under the RPA is AUD$50 million, subject to interim agreed upon limits determined by various tests and covenants. As at March 31, 2014 our borrowing capacity was limited to AUD $40 million and the total amount drawn against the facility was $21,149,497. The agreement is renewed annually on an agreed anniversary date, the latest of which was December 31, 2013. In 2014, the facility interim agreed upon limit has been extended to AUD$40 million and renewed until December 31, 2014, subject to pricing approval.

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

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

Commitments for Capital Expenditures

We do not have any commitments for capital expenditures.

The design and technical development of The Moneytech Exchange is completed and it is operational. Although we will continue to upgrade and add additional functionality to The Moneytech Exchange and will need to add additional personnel as we grow, the rate of growth of these expenses should be less than the rate of growth of our revenue. Further, we anticipate that as we expand our portfolio and increase the number of services we offer, the rate of growth in the lines of credit we service and in our revenues will exceed the rate of growth in our operating expenses. There are a number of reasons for this, the most significant being that most of the expense involved with any debtor/obligor is incurred when the relationship is established. In the absence of a default or other triggering event, so long as a debtor/obligor is online, it generates revenue for us with little impact on our operating expenses.

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

Off Balance Sheet Items

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

Critical Accounting Policies

Use of Estimates

Our discussion and analysis of our financial condition and results of operations are based upon our consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States. The preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities. We continually evaluate our estimates, including those related to bad debts, recovery of long-lived assets, income taxes, and the impact of changes in currency exchange rates. We base our estimates on historical experience and on various assumptions that we believe to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Any future changes to these estimates and assumptions could cause a material change to our reported amounts of revenues, expenses, assets and liabilities. Actual results may differ from these estimates under different assumptions or conditions. While our significant accounting policies are described in Note 3 to our consolidated financial statements, we believe the following accounting policies are the most critical to aid you in fully understanding and evaluating our financial statements and our management’s discussion and analysis.

Allowance for Doubtful Accounts

Revenue Recognition

Concentration of Credit Risk

Cost of Revenue

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

Exchange (Loss) Gain

During the three months and nine months ended March 31, 2014 and 2013, 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.

Item 3. Quantitative and Qualitative Disclosures about Market Risk

Not applicable as the Company is a smaller reporting company

Item 4. Controls and Procedures

a)	Disclosure Controls and Procedures

Our disclosure controls and procedures are designed to ensure that information required to be disclosed in reports that we file or submit under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported within the time periods specified in the rules and forms of the United States Securities and Exchange Commission. Our Chief Executive Officer and Chief Financial Officer have reviewed the effectiveness of our “disclosure controls and procedures” (as defined in the Securities Exchange Act of 1934 Rules 13a-15(f) and 15d-15(f) as of the end of the period covered by this report and have concluded that the disclosure controls and procedures are effective.

b)	Changes in Internal Control over Financial Reporting

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

PART II OTHER INFORMATION

Item 1A. Risk Factors

Our business is subject to numerous risks and uncertainties including but not limited to those discussed in "Risk Factors" in our Annual Report on Form 10-K for fiscal year ended June 30, 2013, filed with the Securities and Exchange Commission on October 15, 2013 and as amended on April 30, 2014 which are incorporated by reference into this report.

Item 5. Other Information

None.

Item 6. Exhibits

The following exhibits are filed herewith:

Exhibit Number		Document

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

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

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

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

SIGNATURES

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

	SOURCE FINANCIAL, INC.

May 15, 2014	By:	/s/ Hugh Evans
		Hugh Evans Chief Executive Officer (Principal Executive Officer)

May 15, 2014	By:	/s/ Brian M. Pullar
		Brian M. Pullar Chief Financial Officer (Principal Financial and Accounting Officer)