News Column

SOURCE FINANCIAL, INC. - 10-Q - Management's Discussion and Analysis of Financial Condition and Results of Operations

May 15, 2014

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. 20 -------------------------------------------------------------------------------- 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. [[Image Removed]] 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. 21

-------------------------------------------------------------------------------- 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. 22 --------------------------------------------------------------------------------



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. 23 --------------------------------------------------------------------------------



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. 24 --------------------------------------------------------------------------------



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.

25 -------------------------------------------------------------------------------- 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 )% 26

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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. 27 -------------------------------------------------------------------------------- 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 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. 28 --------------------------------------------------------------------------------



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. 29 --------------------------------------------------------------------------------



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. 30 -------------------------------------------------------------------------------- The preparation of financial statements in conformity with US GAAP requires management to make certain estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Significant estimates include collectability of accounts receivable and recoverability of long-term assets. Allowance for Doubtful Accounts The Company maintains reserves for potential credit losses on accounts receivable. Management reviews the composition of accounts receivable and analyzes historical bad debts, customer concentrations, customer credit worthiness, current economic trends and changes in customer payment patterns to evaluate the adequacy of these reserves. Revenue Recognition Revenue is recognized when persuasive evidence of an arrangement exists, delivery has occurred, the fee is fixed or determinable, and collectability is probable. Revenue generally is recognized net of allowances for returns and any taxes collected from customers and subsequently remitted to governmental authorities. Concentration of Credit Risk Financial instruments that potentially subject the Company to concentrations of credit risk are cash, accounts receivable and other receivables arising from its normal business activities. The Company places its cash in what it believes to be credit-worthy financial institutions. The Company has a diversified customer base, most of which are in Australia. The Company controls credit risk related to accounts receivable through credit approvals, credit limits and monitoring procedures. The Company routinely assesses the financial strength of its customers and, based upon factors surrounding the credit risk, establishes an allowance, if required, for uncollectible accounts and, as a consequence, believes that its accounts receivable credit risk exposure beyond such allowance is limited. Cost of Revenue Cost of revenue includes; programs licensed; operating costs including costs of funds and related product support service centers to drive traffic to our websites, costs incurred to support and maintain products and services, including inventory valuation adjustments; costs associated with the delivery of consulting services; and the amortization of capitalized intangible software costs. Capitalized intangible software costs are amortized over the estimated lives of the products. Exchange (Loss) Gain During the three months and nine months ended March 31, 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. 31



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