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+61 2 8907-2500

Registrant's telephone number, including area code

Securities to be registered pursuant to Section 12(b) of the Act: None

 

 

Securities to be registered pursuant to section 12(g) of the Act:

Common Stock, $0.001 par value

(Title of class)

Indicate by check mark if the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company.  See the definitions of “large accelerated filer,” “accelerated filer” and smaller reporting company in Rule 12b-2 of the Exchange Act. (Check one)

 

Large Accelerated Filer	o	Accelerated Filer	o
Non-accelerated Filer	o   (Do not check if a smaller reporting Company)	Smaller Reporting Company	x

 

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Table of Contents

 

		Page  Number
Cautionary Note Regarding Forward-Looking Statements
Item 1.	Business	1
Item 1A.	Risk Factors	11
Item 2.	Financial Information	22
Item 3.	Properties	34
Item 4.	Security Ownership of Certain Beneficial Owners and Management	34
Item 5.	Directors and Executive Officers	36
Item 6.	Executive Compensation	40
Item 7.	Certain Relationships and Related Transactions, and Director Independence	43
Item 8.	Legal Proceedings	44
Item 9.	Market Price of and Dividends on the Registrant’s Common Equity and Related Stockholder Matters	44
Item 10.	Recent Sales of Unregistered Securities	45
Item 11.	Description of Registrant’s Securities to be Registered	49
Item 12.	Indemnification of Directors and Officers	52
Item 13.	Financial Statements and Supplementary Data	53
Item 14.	Changes in and Disagreements with Accountants on Accounting and Financial Disclosure	53
Item 15.	Financial Statements and Exhibits	54

 

 

CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

 

    This registration statement contains forward-looking statements within the meaning of Section 27A of the Securities Act and Section 21E of the Exchange Act. Any statements about our expectations, beliefs, plans, predictions, forecasts, objectives, assumptions, or future events or performance are not historical facts and may be forward-looking. These statements are often, but not always, made through the use of words or phrases such as “anticipate,” “believes,” “can,” “could,” “may,” “predicts,” “potential,” “should,” “will,” “estimate,” “plans,” “projects,” “continuing,” “ongoing,” “expects,” “intends,” and similar words or phrases. Accordingly, these statements are only predictions and involve estimates, known and unknown risks, assumptions, and uncertainties that could cause actual results to differ materially from those expressed in them. Our actual results could differ materially from those anticipated in such forward-looking statements as a result of several factors more fully described under the caption “Risk Factors” and elsewhere in this registration statements, including the exhibits hereto.

 

   Any or all of our forward-looking statements in this registration statement may turn out to be inaccurate. The inclusion of this forward-looking information should not be regarded as a representation by us or any other person that the future plans, estimates, or expectations contemplated by us will be achieved. We have based these forward-looking statements largely on our current expectations and projections about future events and financial trends that we believe may affect our financial condition, results of operations, business strategy, and financial needs. There are important factors that could cause our actual results, level of activity, performance, or achievements to differ materially from the results, level of activity, performance, or achievements expressed or implied by the forward-looking statements, including, but not limited to, statements regarding (i) our asset growth and sources of funding; (ii) our expansion into different consumer segments; (iii) our financing plans; (iv) the impact of regulations on us; (v) our exposure to market risks, including interest rate risk and equity price risk; (vi) our exposure to credit risks, including credit default risk and settlement risk; (vii) our competition; (viii) our projected capital expenditures; (ix) our capitalization requirements and level of reserves; (x) our liquidity; (xi) trends affecting the economy generally; and (xii) trends affecting our financial condition and our results of operations. Examples of these important factors, in addition to those discussed elsewhere in this registration statement, that could cause our actual results to differ substantially from those anticipated in our forward-looking statements, include, among others:

 

	●	adverse economic conditions in the United States, Australia and worldwide may negatively impact our results;
	●	our business could suffer if our access to funding is reduced;
	●	we face significant risks implementing our growth strategy, some of which are outside our control;
	●	our financial condition, liquidity, and results of operations depend on the credit performance of our loans;
	●	loss of our key management or other personnel, or an inability to attract such management and personnel, could negatively impact our business; and
	●	we operate in a highly regulated industry and continually changing federal, state, and local laws and regulations could materially adversely affect our business.

 

   All forward-looking statements are necessarily only estimates of future results, and actual results may differ materially from expectations. You are, therefore, cautioned not to place undue reliance on such statements which should be read in conjunction with the other cautionary statements that are included elsewhere in this registration statement. In particular, you should consider the numerous risks described in the “Risk Factors” section of this registration statement. Further, any forward-looking statement speaks only as of the date on which it is made and we undertake no obligation to update or revise any forward-looking statement to reflect events or circumstances after the date on which the statement is made or to reflect the occurrence of unanticipated events.

    We undertake no obligation to publicly update any forward-looking statement, whether as a result of new information, future events or otherwise, except as may be required under applicable securities laws.  You are advised, however, to consult any additional disclosures we make in our reports filed with the Securities and Exchange Commission (“SEC”). This discussion is provided as permitted by the Private Securities Litigation Reform Act of 1995.

 

  Use of Certain Defined Terms

 

Except where the context otherwise requires and for the purposes of this registration statement only:

 

 

	●	“AUD” or “ AU Dollar” refer to the legal currency of Australia;
	●	“Source,” “Company,” “we,” “us,” and “our” refer to the combined businesses of Source Financial, Inc., a Delaware corporation, and its subsidiaries, Moneytech Limited, an Australian company (“Moneytech”) and its subsidiaries,  WikiTechnologies, Inc., a Delaware corporation (“WikiTechnologies” or”WTI”), and Moneytech USA, Inc., a Delaware corporation.  For all periods prior to June 30, 2013, the date of the Moneytech Acquisition, these terms refer to Source Financial, Inc., and its predecessors and their respective consolidated subsidiaries.
	●	“Exchange Act” refers to the Securities Exchange Act of 1934, as amended;
	●	“SEC” refers to the Securities and Exchange Commission;
	●	“Securities Act” refers to the Securities Act of 1933, as amended;
	●	“Series B Shares” refers to the Company’s Series B Preferred Stock; and
	●	“U.S. dollars,” “dollars”, “USD” and “$” refer to the legal currency of the United States.

 

All share and per share information in this registration statement give effect to a 1-for 100 reverse stock split of our common stock that became effective on March 21, 2013.

 

 

Item 1. Business

Acquisition of Moneytech Limited

Share Exchange

 

On June 30, 2013, Source Financial, Inc. (formerly known as Wiki Group, Inc.) acquired all of the outstanding shares of Moneytech  Limited, an Australian company (“Moneytech”) pursuant to a Share Exchange Agreement dated May 30, 2013 (the “Exchange Agreement”) we entered into with Moneytech, Marco Garibaldi (“Garibaldi”), Edward DeFeudis (“DeFeudis”) and Hugh Evans (“Evans”), individually as the beneficial owner of approximately 39.75% of the outstanding shares of Moneytech and on behalf of the other 49 shareholders of Moneytech (the “Moneytech Shareholders”), in exchange, for 5,300,000 shares of our common stock (the “Share Exchange”). As a result of the Share Exchange, Moneytech became a wholly-owned subsidiary of our company, with the Moneytech Shareholders owning in excess of 50% of our outstanding shares on a fully diluted basis.

 

Issuance of Series B Shares

 

In connection with our acquisition of Moneytech, we issued 5,000 shares of our Series B Preferred Stock to Hugh Evans, the Chairman and Managing Director of Moneytech. The holder of the Series B Shares has the right, until June 30, 2018, to (A) elect the majority of our Board of Directors and (B) vote on all other matters presented to the holders of common stock (the “Common Shareholders ” ), with each Series B Share having a number of votes equal to 1,000 shares of common stock. After June 30, 2018, the Series B Shares will have no voting rights and we will have the right to purchase the Series B Shares at a per share price equal to one tenth of a cent ($0.001).  Thus, as the holder of the Series B Shares, Mr. Evans will be able to elect a majority of our Board of Directors until June 30, 2018, and as the holder of approximately 55.25% of our outstanding voting shares, Mr. Evans has effective control over our business, including matters requiring the approval of our stockholders, such as the approval of significant corporate transactions.

 

As a result of the consummation of the Share Exchange Agreement, the shareholders of Moneytech in combination with Evans, became our controlling stockholders.  Consequently, the Share Exchange has been accounted for as a recapitalization of Moneytech effected by a share exchange in which for accounting and financial reporting purposes Moneytech is considered the acquirer. Consequently, the historical consolidated financial statements of Moneytech are now our historical financial statements, and the assets and liabilities of Source as of June 30, 2013, have been brought forward at their book value and no goodwill has been recognized.

 

  Escrow Arrangement Concerning WikiTechnologies and Attainment of Financial Benchmarks

 

In connection with the Share Exchange, Garibaldi, our former Chairman and Chief Technology Officer, deposited in escrow 1,120,000 shares of our common stock  (the “Garibaldi Shares”) and  DeFeudis, our former President, Chief Executive Officer and Chief Financial Officer, deposited in escrow 1,120,000 shares of our common  stock  (the “DeFeudis Shares,” together with the Garibaldi Shares, the “ GD Escrow Shares”), and we deposited in escrow all outstanding shares of the common stock of WikiTechnologies, Inc. (the “WikiTechnologies Escrow Shares,” and together with the GD Escrow Shares, the “Escrow Shares”).

 

During the term of the Escrow Agreement, the operations of WikiTechnologies, Inc. (“WTI”) were to be directed by Garibaldi and DeFeudis.  If during the twelve-month period commencing July 1, 2013 (the “Escrow Period”),  WTI achieved revenues of $4.2 million, a gross profit percentage of 25% and broke even (the “ Benchmarks ” ), the Garibaldi Shares and DeFeudis Shares were to be returned to Garibaldi and DeFeudis and the WikiTechnologies Escrow Shares were to be returned to us.  If the Benchmarks were not met during the Escrow Period, at our option, the Garibaldi Shares and DeFeudis Shares were to be cancelled, and the WTI Escrow Shares were to be delivered to DeFeudis and Garibaldi, and we would no longer own WTI. Further, if, at any point during the Escrow Period, we were to sell WTI, cause WTI to merge with another entity, or dispose of the assets of WTI, or take any other action to compromise the ability of WTI to meet the Benchmarks, the Benchmarks were to be deemed to have been achieved, and the Garibaldi Shares and DeFeudis Shares were to be returned to Garibaldi and DeFeudis. Under the terms of the Exchange Agreement, we were under no obligation to take affirmative action to further the objectives of WTI. In addition, the Exchange Agreement provided that at any time during the Escrow Period our Board of Directors in its discretion may determine that we will keep WTI and cause the Garibaldi Shares and DeFeudis Shares to be delivered to Garibaldi and DeFeudis.

 

Prior to the consummation of the Share Exchange, WTI was a technology company dedicated to making financial transactions simple, secure, social and affordable. Its principal product, WikiPay is a simple, low-cost alternative to existing mobile and online payment solutions.  WikiPay is a proprietary fee-based mobile Peer-to-Peer payment system that allows mobile and online Peer-to-Peer, Business-to-Consumer, Consumer-to-Business and Business-to-Business payments through its website www.wikipay.com and mobile website m.wikipay.com.  WikiPay empowers its users to perform real-time payments, scheduled payments, account inquiries for balance and transaction history, bill payment initiation, notifications and alerts, and transaction security verifications.

 

 

Immediately prior to the consummation of the Share Exchange, Source lacked the capital to aggressively market WTI’s services.  The growth of WTI’s business was subject to our ability to obtain financing to implement its business plan.

Separation Agreement

               On February 11, 2014, we entered into a Separation Agreement with Garibaldi and DeFeudis, pursuant to which (i) the WTI Escrow Shares were delivered to Garibaldi and DeFeudis, as a result of which we no longer own any equity interest in WTI, and (ii) 2,140,000 of the GD Escrow Shares were delivered to us for cancellation, with the remaining 100,000 shares delivered to a noteholder of WTI (the “Noteholder”) in payment of certain indebtedness.

 

                 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.

 

  On February 14, 2014,Garibaldi and Defeudis entered into lock-up agreements with us restricting the number of shares of our common stock which they may sell publicly during specified periods. See Item 11. “Description of Registrant’s Securities to be Registered – Shares Eligible for Future Sale.”

 

In addition, in connection with the Settlement Agreement:

 

1.  Evans and our company executed and delivered releases in favor of each of Garibaldi, DeFeudis and WTI, and each of Garibaldi, DeFeudis and WTI executed and delivered releases in favor of Evans and our company. In its release, WTI indemnified us against any claim that may be made by the Noteholder arising out of the actions of WTI.

 

2. Our designees serving on the Board of Directors of WTI delivered their resignations as directors of WTI.

              3. WTI executed and delivered an agreement granting us a right to acquire its technologies in the event WTI commences a voluntary case or proceeding under any applicable bankruptcy, insolvency, reorganization or other similar law or any other case or proceeding whereby it could be adjudicated a bankrupt or insolvent, or consents to the entry of a decree or order for relief in respect of an involuntary case or proceeding under any applicable bankruptcy, insolvency, reorganization or other similar law or to the commencement of any bankruptcy or insolvency case or proceeding against it, or the filing by WTI of a petition or answer or consent seeking reorganization or relief under any such applicable law, or the consent by WTI to the filing of such petition or to the appointment of or the taking possession by a custodian, receiver, liquidator, assignee, trustee, sequestrator or other similar official of WTI or of any substantial part of its property, or the making by WTI of an assignment for the benefit of creditors, or the taking of action by WTI in furtherance of any such action.

 

Corporate History

 

Source Financial, Inc., formerly known as Wiki Group, Inc., was incorporated on June 24, 1988 under the laws of the State of Delaware under the name Windsor Capital Corp.

In February 2008, we became an Internet person-to-person lending service as a result of our acquisition from Spider Investments, LLC, of all right, title and interest in and to www.swapadebt.com , a person-to-person lending website, in consideration for shares of our common stock. At the time of the acquisition, Edward DeFeudis was our Chairman, President and CEO, and was a principal in and the managing member of Spider. In connection with the acquisition, we also issued shares of our common stock to a company owned by Marco Garibaldi for services rendered and to be rendered by Mr. Garibaldi. As a result of the transaction, Mr. DeFeudis was the beneficial owner of shares representing approximately 49.8% of our then outstanding common stock, and Mr. Garibaldi was the beneficial owner of shares representing approximately 30.3% of our then outstanding common stock.

 

 

 On May 4, 2011, we authorized a 10 for 1 forward split of our common stock and increased the number of our authorized shares of common stock to 750,000,000.  On July 31, 2011, we authorized a 1-for-10 reverse stock split and reduced the number of our authorized shares of common stock to 150,000,000.

                On February 10, 2012, pursuant to an Agreement and Plan of Merger (the “Merger Agreement”), we acquired all of the outstanding equity of WikiPay, Inc. , in exchange for shares of our Series A Preferred Stock (the “Series A Preferred Shares”) convertible into sixty percent (60%) of our then outstanding shares of common stock on a fully diluted basis. At the time of the acquisition, Mr. Garibaldi, our then Chief Executive Officer, was the Chief Financial Officer and a director of WikiPay and the owner of 37% of the outstanding shares of WikiPay, and Mr. DeFeudis, our then Chairman, Chief Financial Officer and a director of our company, was the Chief Executive Officer and a director of WikiPay and the owner of approximately 35% of the then outstanding shares of WikiPay.  Of the shares of Series A Preferred Stock issued pursuant to the Merger Agreement, 37% were issued to Mr. Garibaldi and approximately 35% were issued to Mr. DeFeudis.

On February 6, 2012, we increased the number of our authorized shares of common stock to 250,000,000.

On December 7, 2012 we increased the number of our authorized shares of common stock to 500,000,000.

 

On March 21, 2013, we effected a 1-for-100 reverse split of our authorized and issued common stock and changed our corporate name to Source Financial, Inc.

On October 3, 2013, we amended and restated our certificate of incorporation to decrease the number of our authorized shares of common stock and preferred stock to 50,000,000 and 1,000,000, respectively.

On June 30, 2013, we consummated the Exchange Agreement whereby Moneytech became a wholly-owned subsidiary of our company and the Moneytech Shareholders acquired in excess of 50% of our outstanding shares on a fully diluted basis.

On February 14, 2014, pursuant to the Settlement Agreement, we relinquished our ownership interest in WikiTechnologies.

   

Our principal executive offices are located at Level 6/97 Pacific Highway, North Sydney NSW 2060, Australia, and our telephone number is +61 2 8907-2500. Our Internet address is www.sourcefinancial.com. Information on, or accessible through, our website is not part of this registration statement.

 

Operational 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.

 

 

Moneytech commenced operations in 2003 as an Australian based, technology driven, commercial finance company. Moneytech has an AUD$50 million securitized wholesale debt facility (the “Wholesale Facility,” “Receivables Purchase Agreement” or “RPA”) with the structured finance division of Westpac banking Corporation (“Westpac”), one of the four leading Australian banks . 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 built a portfolio of more than 5,000 high-quality business customers with its existing range of financing solutions and has experienced strong organic growth since inception.

 

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

 

	●	Simple, secure two factor authenticated login to initiate transactions through the web;
	●	Automatic processing up to pre-approved limits;
	●	Same day settlement for all transactions;

  

	●	Real-time reporting for all parties to each transaction, allowing for easy record keeping, reconciliation and auditing; and
	●	Parameters can be assigned to each transaction to vary the cost, settlement timeframe and interest rate, depending on the industry, product, payment terms or any other criteria.

 

Moneytech has invested approximately AUD$10 million developing this banking platform technology, including approximately AUD$1,161,344 and AUD$873,685 in the fiscal years ended June 30, 2013 and 2012, respectively, and continues to invest in research and development to expand and improve its technology and product suite to maintain and further its competitive position.

 

For the fiscal years ended June 30, 2013 and 2012 and the six months ended December 31, 2013, receivables financing  accounted for approximately 87%, 85% and 88%, respectively, of total revenue, and payment services  accounted for approximately 11%, 11% and 7% ,respectively, of total revenue.

               Moneytech is an Australian Financial Services License (“AFSL”) holder and BPAY (bill pay) Authorized PIM (“Payment Institution Member”). As a BPAY PIM Moneytech is authorized by BPAY, Australia’s leading bill payment service accepted by all the major Australian banks, to manage stored value accounts for BPAY customers.

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.  As of the date of this registration statement, we are not engaged in any negotiations, nor do we have any understandings, commitments or agreements with respect to any acquisitions. 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.   See “Business Strategy.”  

 

Our Services

 

Credit Express

 

Moneytech offers two products which provide small and medium sized businesses with access to capital – Credit Express and Confirmed Capital.   The underwriting criteria, fee structure and approval process for both of these products is discussed below.

Credit Express offers approved businesses, including retailers, resellers, wholesalers and manufacturers (“Buyers” or “Sellers”), commercial lines of credit and provides them access to the Moneytech Exchange. The Moneytech Exchange allows pre-approved Buyers and Sellers to automatically access financing up to pre-approved limits when a Buyer purchases inventory from a Seller. Moneytech’s client may be either the Buyer or Seller, depending upon which party requests the financing and only the party which requests the financing needs to be pre-approved.

 

 

Each transaction is conducted electronically and is based on predetermined criteria to ensure that the Moneytech receivable is acceptable to the provider of its Wholesale Facility.  By utilizing Credit Express:

 

	●	Buyers are able to fund the purchase of inventory with Moneytech delivering the proceeds directly to the Seller’s bank account; or
	●	Sellers can fund working capital without having to wait for Buyers to pay invoices. After paying the Seller directly for the goods, Moneytech assumes the risk and collects the money from the Buyer, relieving the Seller of collection costs and cash flow challenges.

 

Confirmed Capital

 

Confirmed Capital is unique because of its accounts receivable/asset based financing capability in that Moneytech funds 100% of the face amount of invoices on the day each transaction is conducted. This is more flexible than other accounts receivable financiers who typically provide a maximum of 80% of the invoice value and release funds periodically. Furthermore, Moneytech has the ability to electronically track transactions through the Moneytech Exchange which stores and processes information concerning the customer and its account debtors against individual invoices, decreasing Moneytech’s risk of loss and increasing its efficiency.

 

                For both Credit Express and Confirmed Capital, customers have agreed repayment terms (which may include an interest free period) for repayment of the amount advanced by Moneytech.  In addition to an ownership or security interest in the goods which are the subject of a transaction or an interest in the receivable, Moneytech often secures the credit provided by having its customer grant liens on all or a portion of its assets, or by providing personal guarantees.  Moneytech generates profits by charging an interest on the amounts funded above its own cost of funds and by charging service fees on transactions and account management fees.  To the maximum extent possible Moneytech seeks to pass along to its customers at a mark-up, every fee incurred by it under the Wholesale Facility.  Further, if the Wholesale Facility requires that Moneytech deposit funds to secure its lender, it requires its customers to fund such deposits.

Fee Structure

Moneytech has two primary ways of charging fees to clients for Credit Express and Confirmed Capital:

(a)	Moneytech charges an interest rate on amounts outstanding in excess of the rate incurred by Moneytech’s  to access its funds; and

(b)

Moneytech charges an initial transaction fee when a customer is accepted and seeks to charge a fee for performing each transaction, calculated as either a percentage of the transaction value or a fixed amount, or a combination of the two, but in all events in excess of the corresponding fee charged Moneytech by its lender.

The actual fees charged to clients on an ongoing basis are usually a combination of the above, but depending on the terms of the facility may be limited to only an interest rate or only a fee for conducting the transaction.

Pre-Approval Process

Customers seeking access to either Confirmed Capital or Credit Express are required to complete an application on-line or manually downloaded from the Moneytech Exchange and furnish financial and other information concerning the applicant, all of which is input and stored on the Moneytech Exchange.  The application contains terms and conditions which applicants must review and acknowledge.

Moneytech assesses the creditworthiness of each applicant using on-line verification services and in certain instances third party sources, and regularly reviews and conducts audits of customer accounts.

Where a customer displays a good credit history, Moneytech may offer an increased credit limit.  In such cases, Moneytech will issue the account holder a letter of acceptance subject to acceptance by the account holder.  The letter of acceptance states that in the event the offer is accepted, the account holder shall remain subject to the terms and conditions of the original Buyer Account Application form and Moneytech Buyer Terms and Conditions.  This ensures that Moneytech is in a position to reduce the credit limit or put the account on hold in the event of default.

 

Underwriting Standards

When a new Business Account is opened, a credit limit must be established for all authorized Account members/users.  This is achieved by assessing each applicant’s personal circumstances. Determination of individual credit limits are based on the assessment criteria described in Moneytech’s Statement of Credit Policy.  The criteria are both qualitative and quantitative, and include but are not limited to: current and historic financial performance of the business based on assessment of its income statement and balance sheet, the net asset position of any individuals or entities providing guarantees in support of the application,  the tenure of the business, the industry in which the business operates, and credit reports from reporting agencies on both the applicant and the principals or proprietors of the applicant.

 

No credit limit must be set above that which this Credit Policy allows unless the Credit and Risk Committee approve it. The Managing Director reserves the right to veto such approval.  Generally speaking, unless the benefits associated with the proposed Credit Limit significantly outweigh the risks involved, no such limit increases will be approved. For credit limits not in excess of $50,000, the approval of the designated money manager and Moneytech’s national credit manager are required; for credit limits in excess of $50,000 to $150,000, the approval of the money manager and one member of Moneytech’s Credit and Risk Committee is required; and for credit limits in excess of $150,000, the approval of the money manager, two members of Moneytech’s Credit and Risk Committee and Moneytech’s insurer is required.

 

There is a constant review process where the credit limits of existing customers are re-assessed based on need and application by individual Accounts.  The credit limit re-assessment process is critical to ensuring customer growth within the confines of our commercial risk framework. Accounts that change adversely against their original risk category must be reassessed and adjusted with reference to the Account users circumstances and the then current assessment criteria.

 

The Moneytech Exchange prevents customers from exceeding their credit limits except where the account is delinquent or when interest or fees and charges are added to the account balance.

 

Collateral

Moneytech routinely obtains liens on customer assets and also requires personal guarantees (other than public companies) which often are secured by liens on individuals’ assets.

Profitability

Profitability for the account of any customer is determined by measuring the difference between Moneytech’s revenue derived from the transaction fees or interest rates charged to the customer and the interest rates and fees charged by Moneytech’s senior debt provider to it.  Moneytech internally targets a gross profit margin of 50% using these measures.  Facilities may have a higher or lower margin, depending on the amount of risk Moneytech determines (based on its credit and collections policy) is present in the deal.  Moneytech will target higher margins where it believes the risk is relatively higher, and will accept lower margins where it has determines that the risk is relatively low.

Recent and Historical Statistics as to Nonpayment

 

The percentage of delinquent balances in our portfolio was 1.60% as of June 30, 2013 and 2012, respectively.  The percentage of delinquent balances in our portfolio averaged 1.85% and 2.24% in the fiscal year ended June 30, 2013 and 2012, respectively.  The average collection period in our portfolio decreased from 47 days at the beginning of Fiscal 2013 to 45 days at June 30, 2013 and remained constant at 47 days during the fiscal year ended June 30, 2012.  Bad debts as a percentage of amount funded was 0.21% and 0.05% in the fiscal years ended June 30, 2013 and 2012 respectively.

The percentage of delinquent balances in our portfolio was 2.00% and 1.60% as of December 31, 2013 and 2012 respectively.  The percentage of delinquent balances in our portfolio averaged 1.97% and 1.70% in the six months ended December 31, 2013 and 2012 respectively.  The average collection period in our portfolio increased from 45 days to 55 days during the three months ended December 31, 2013 and from 47 to 58 days during the three months ended December 31, 2012.  Bad debts as a percentage of amount funded was 0.23% and 0.07% in the three months ended December 31, 2013 and 2012, respectively.

 

Actions Taken in the Event of Nonpayment

In the event of non-payment, a Moneytech staff member will first contact the Buyer to request prompt payment.  If a payment or an acceptable payment arrangement is not forthcoming, Moneytech will utilize a collections agent to pursue the debt.

 

 

mPayments Pty Ltd – Payment Processing, Point of Sale and Payment Aggregation Solutions

 

The Moneytech Exchange was initially developed to facilitate the movement and tracking of money against debtor and trade finance facilities.  The Moneytech Exchange can be used to allow members of the general public to conduct transactions and disburse funds to multiple beneficiaries in real time particularly where existing transactional banking facilities are not adequate or are cost prohibitive or inefficient.  These activities which have yet to produce significant revenues, will be conducted by Moneytech’s subsidiary mPayments Pty Ltd (“mPay”), which  Moneytech anticipates will become an additional revenue source as businesses and, potentially individual consumers, seek both efficiencies and a point of difference in making payments.  There are approximately 5,000 newspaper outlets in Australia which, in addition to newspapers and magazines, distribute cigarettes, snacks and similar items. We are currently working with a product and service aggregator, to establish kiosks in the storefronts of Australian newsagents, bringing in-store, online and mobile solutions for new financial products and services to be promoted through the news agents in Australia.  Kiosks have already been installed and are operational in more than 100 of the 5,000 newsagents’ storefronts throughout Australia.

 

Card Solutions

 

Moneytech is authorized to distribute Visa and Electronic Funds Transfer at Point of Sale (“‘eftpos”) Gift and Prepaid Cards. To do this, Moneytech has partnered with another Australian bank and Authorized Deposit taking Institution to deliver Gift and Prepaid Card solutions to the market.

 

In addition, Moneytech recently applied for and secured its own AFSL allowing it to further develop its financial services business and product suite. Moneytech now has the ability to issue Non Cash Payment Products (which includes gift and prepaid cards, loyalty and rewards programs) in its own right for the benefit of its business partners. As an example, in 2012, Moneytech was engaged by a major computer reseller to manage and distribute a Gift Card cash back rewards program. The customers were offered a Gift Card as an incentive for purchasing certain laptops. This program resulted in the issuance and distribution of over 30,000 Gift Cards in a six month period.

 

Moneytech’s mPay and Card Solutions businesses which are not currently producing significant amount of revenues, represent significant growth opportunities without the credit risk associated with Credit Express and Confirmed Capital.  Moneytech will earn a fee on all cards issued or each transmission of funds, representing significant revenue opportunities.  Moreover, the technology necessary for these businesses has been completed.   

 

  360 Markets Pty Ltd: Foreign Exchange Services

 

Moneytech secured its entry into the Foreign Exchange market by acquiring a 37.5% equity interest in 360 Markets Pty. Limited (“360 Markets”). 360 Markets is a foreign exchange business started in 2010 by a senior foreign exchange dealer previously employed by the Commonwealth Bank of Australia, the largest Australian commercial bank.

 

As the holder of an Australian Financial Services License, or AFSL, Moneytech Limited is authorized to operate a financial services business in Australia. The license authorizes the provision of financial product advice in foreign exchange contracts and derivatives, dealing in foreign exchange contracts and derivatives and making a market in foreign exchange contracts and derivatives.  Moneytech Limited is not authorized to use the term ‘Broker’ by its AFSL and is not a participant member of a licensed market that covers dealings in securities (e.g. Australian Securities Exchange) or derivatives (e.g. Sydney Futures Exchange).  360 Markets Pty. Limited is authorized to engage in foreign exchange transactions in Australia as an Authorized Representative of Moneytech Limited.

Business Strategy

In Australia, the banking environment is dominated by the “Big Four” Australian banks --- Commonwealth Bank of Australia (CBA), National Australia Bank (NAB), Australia and New Zealand Banking Group (ANZ) and Westpac.  This oligopoly has resulted in a particularly risk averse and high priced lending environment, and many viable Australian business are limited in both their access to capital and their options for obtaining business loans.  The SME space is especially under-serviced in this regard.  This represents an opportunity for non-bank lenders, such as Moneytech, to target both high growth and established Small to Medium Enterprises with unique financial solutions, including Confirmed Capital and Credit Express.

 

 

Moneytech believes it is in a strong position to capitalize on this opportunity, as:

 

	1	Moneytech’s product offerings (particularly Confirmed Capital and Credit Express) are unique and market leading in that they can finance up to 100% of the value of an individual invoice and track the details of each transaction in real time utilizing Moneytech’s proprietary Moneytech Exchange system.
	2	Moneytech’s small size relative to the “Big Four” allows it to be more agile, responding to and developing opportunities which the Australian banks are either unwilling or unable to develop or are too slow to respond on.
	3	Moneytech has a full suite of financial products, both transactional and lending all operated through the Moneytech Exchange, affording it a competitive advantage over similar non-bank lenders.
	4	Moneytech has an ongoing and historic entrepreneurial spirit with a customer focus, aiming to creatively and profitably satisfy customer needs and exceed customer expectations in the delivery of financial products.

 

We intend to capitalize on our opportunities in the Australian market by initiating a marketing campaign to increase the number of customers served by Moneytech.  As a first step in this effort, we have engaged a business development officer, formerly with Commonwealth Bank of Australia, to develop a marketing program and establish the relationships necessary to cross sell our services.    Any significant increase in the number of customers served and the volume of loans provided by us will require that we increase the credit facility we rely upon to service our customers.  If we are successful in obtaining financing to finance expansion  of our business in Australia, we will seek to increase our Wholesale Facility with Westpac or find another lender which will provide us with the credit necessary to expand our business at lower costs. We cannot assure you that we will be successful in increasing our Wholesale Facility, that we will be able to find another lender that will provide the necessary credit increase or that any increase will be on terms that will allow the expansion of our business to be profitable.

A number of our Australian customers regularly purchase goods from or supply goods to U.S. based counterparties or otherwise engage in dollar denominated transactions.  To enable us to serve the needs of these customers without the exchange rate risk associated with AUD, we intend to seek to obtain a loan facility denominated in U.S. dollars from a U.S. institutional lender.

 

In addition to expanding our asset based lending business in Australia, we are actively developing a money transfer business in Australia.  The Moneytech Exchange, developed to facilitate the movement and tracking of funds in connection with our debtor and trade finance facilities, provides us with a platform to conduct financial transactions and disburse funds to and from multiple parties in real time.  

While seeking to grow our businesses organically in Australia, we will also attempt to identify and acquire one or more asset based lenders in Australia and the United States.  Management believes that an acquisition in the U.S. would accelerate our efforts to enter the U.S. market and provide us with a management team with knowledge of the U.S. market.  An acquisition of a traditional asset based lender in either Australia or the U.S. should allow us to upgrade the services such lender provides to its customers, although we cannot assure you that such acquisition will result in upgrading the services furnished to such lender’s customers.   As of the date of this registration statement, we are not engaged in any negotiations, nor do we have any understandings, commitments or agreements with respect to any acquisitions

Moneytech’s Markets

 

Moneytech operates in the commercial financial services market in Australia, targeting small to medium businesses (revenues between $1 million and $100 million) for their asset based lending solutions (including trade and accounts receivable finance) generally seeking loans of up to $5 million.  Any business involved in the provision of products or services to other businesses which requires funds to grow or that is not satisfied with its existing finance provider is a candidate for a Moneytech financial solution.  Businesses sourcing their products overseas for resale to business in Australia are a particularly good fit, as Moneytech is able to assist them with the payment of their overseas supplier, the hedging and conversion into a foreign currency, and the conversion of their receivables into cash.

 

Moneytech believes that the number of potential customers for its financial services will increase as banks and other financial institutions in Australia  raise the minimum size of the loans they are willing to make and the categories of eligible potential borrowers.

 

Sales and Marketing

 

To date Moneytech has grown its credit line portfolio largely by word of mouth recommendations from its customers to other businesses.  Moneytech is actively seeking experienced business development officers (“BDOs”) to grow amounts funded.  These BDOs will work with providers of products and services to small and medium businesses, such as traditional banks, lawyers and accountants to develop a referral network. As financing becomes available we will engage in select media advertising in key metropolitan markets and increase our internet advertising.

 

 

The Moneytech Exchange has been developed to the point where Moneytech can offer its customers funds transfer services (mPay)’s, debit and gift cards solutions and foreign exchange services.  Moneytech has begun to offer these services on a limited basis and will seek to increase its marketing of these services as the necessary funds become available.   In determining which product to market, we will analyze the market potential for each of these products to determine which can more readily achieve positive cash flow and allocate our marketing dollars accordingly.

 

  Competition

 

The commercial finance and financial service industry in Australia has traditionally been dominated by the Big 4 Australian banks— Commonwealth Bank, Westpac Banking Corporation, Australia and New Zealand Banking Group and National Australia Bank. More recently, these banks have been decreasing the loans and other financial services provided to smaller businesses, preferring to service larger customers or act as the lender to companies such as Moneytech which then deal directly with smaller businesses.  Nevertheless, the competition to provide financing to small and medium sized businesses remains intense. Competitive factors vary depending upon the financial services products offered, the nature of the customer and geographic region. Competitive forces may limit our ability to charge our customary fees and raise fees to our customers in the future. Pressure on our margins is intense and we cannot assure you that we will be able to successfully compete with our competitors. We are currently an insignificant competitor in our industry, which includes national, regional and local independent banks and finance companies and other full service financing organizations. Many of these competitors are larger than we are and have access to capital at a lower cost than we do.

 

Government Regulation

 

Australia

 

The Australian Securities and Investments Commission (ASIC) regulates corporations, markets and financial services in Australia and the Australian Prudential Regulatory Authority (APRA) oversees banks, credit unions, building societies, general insurance and reinsurance companies, life insurance companies, friendly societies and most members of the superannuation industry.  The Reserve Bank of Australia serves as the central bank of Australia and is responsible for the payments system.

Receivables and purchase order financing in the style provided by Moneytech in Australia is not subject to regulation in Australia, as confirmed in an interpretation issued by the Australian Securities and Investment Commision concerning the exemption available to factoring arrangements under the Corporations Act 2001.

Moneytech’s payment services activity is considered a regulated financial activity and is conducted by virtue of having an Australian Financial Services License (AFSL) and by being a member of BPAY.  Moneytech’s foreign exchange services activity is considered a regulated financial activity and is conducted by virtue of having an AFSL. An AFSL is granted by ASIC.  Moneytech Limited was granted AFSL number 421414 on August 10, 2012.  As the holder of an Australian Financial Services License, or AFSL, Moneytech is authorized to conduct a financial services business providing financial product advice for deposit and payment products, derivatives and foreign exchange contracts; dealing in these financial products for their own account or on behalf of another person and making a market in foreign exchange contracts and derivatives to retail and wholesale clients.  The conditions of the license require compliance with various key person, financial services laws compliance measures, training, notification, financial, reporting, dispute resolution and documentation requirements..

BPAY is an electronic bill payment system in Australia which enables payments to be made through a financial institution’s on-line or telephone banking facility to merchants who are registered BPAY billers. BPAY is not subject to regulation by the Australian Payments Clearing Association or otherwise. BPAY is the registered trading name of BPAY Pty Ltd., a wholly-owned subsidiary of CreditLink Services, which is owned by Australia’s four major banks.

 

Moneytech Limited was accepted as a Payer Institution Member , or PIM, and was authorized to commence participating in the BPAY system commencing  March 6, 2013.  BPAY is offered by over 150 financial institutions and on more than 45,000 bills.  The BPAY system supports its members in the provision of BPAY payments to their customers.  Its members work across the banking system to provide seamless and convenient customer payments.  There are three membership types: Participant Members, Associate Members and Payer Institution Members.  Participant Members are Australian deposit-taking Institutions (ADIs) who directly settle their BPAY inter-institutional settlement obligations with other Participant Members.  Associate Members are ADIs who don’t directly settle their BPA inter-institutional settlement obligations, instead settling through a Payment Member.  Payer Institution Members (PIMs) are organizations, not necessarily ADIs, that manage stored value accounts for customers.  A PIM is represented by a Participant Member and cannot be a Biller Institution.

BPAY members are required to comply Rules and Operating Procedures established by BPAY, but are not otherwise subject to regulation by any of the Australian regulatory bodies..

 

United States

Historically non-bank asset based lenders engaged in traditional factoring and accounts receivables/asset based lending activities have not been subject to federal and state regulation. However, we cannot assure you that if we decide to enter the U.S. marketplace, alternative assets based lenders, like us, will not become subject to federal and state regulation, and impose regulatory requirements, which may limit the fees we may charge our customers and impose monetary penalties for violations of such regulatory requirements, increasing the cost of conducting their businesses.  Recent legislation adopted particularly at the Federal level, such as the Dodd-Frank Act, which among other things, authorized various studies concerning the operations of financial institutions and the effects of their activities on the U.S. economy following the disastrous consequences in 2008 resulting from defaults on collateralized obligations, and the creation of the Consumer Financial Protection Bureau, which was created to regulate certain types of consumer financing transactions, and regulations adopted pursuant to such legislation, and future legislative and regulatory initiatives may impose certain regulatory requirements on non-bank financial services companies engaged in asset based lending and money transfers by individuals. If adopted, these laws also could:

 

	●	regulate credit granting activities, including establishing licensing requirements, if any, in various jurisdictions,
	●	require disclosures to customers,
	●	govern secured transactions,
	●	set collection, foreclosure, repossession and claims handling procedures and other trade practices,
	●	prohibit discrimination in the extension of credit, and
	●	regulate the use and reporting of information related to a seller’s credit experience and other data collection.

 

Intellectual Property

 

Our intellectual property, which includes software and trade secrets, trademarks, copyrights and domain names, software and trade secrets, is key to our success. We have expended significant amounts developing the software which constitutes the Moneytech Exchange.  We have obtained no significant patents protecting these or our other products but rely upon trade secret laws in Australia.  We routinely seek to protect our proprietary rights by entering into confidentiality and non-disclosure agreements with our employees, contractors, customers and other parties with whom we conduct business in order to protect our proprietary information.

 

            In addition to our software we have developed and use trademarks registered in Australia, particularly relating to corporate, brand and product names.   Registration of a trademark in Australia affords the owner nationwide exclusive trademark rights in the registered mark in the country of registration and the ability to prevent others from using the same or similar marks. However, to the extent a common law user has made prior use of the mark in connection with similar goods or services in a particular geographic area, the nationwide rights conferred by federal registration would be subject to that geographic area.   We continue to seek to develop goodwill and brand recognition for our trademarks in Australia, and we intend to register additional trademarks in foreign countries where our products or services are or may be sold or used in the future.   We cannot assure you, however, that our current trademarks or any trademarks we may use or register in the future will afford us any significant competitive advantage.

 

            In recent years, many software companies have filed applications for patents covering their technologies. Many of these patents have yet to be litigated. Other competitors may develop technologies that are similar or superior to our technology and may receive and seek to enforce patents on such technology. We are not aware of any issued or pending patents that may be asserted against us.

 

Research and Development

 

To date we have invested approximately AUD$10 million developing the Moneytech Exchange, including approximately AUD$1,161,344 and AUD$873,685 in each of the fiscal years ended June 30, 2013 and 2012, respectively. The design and technical development of The Moneytech Exchange and our payment services platform are completed and both are operational. Although we will continue to upgrade and add additional functionality to The Moneytech Exchange and our payment services platform, we anticipate that our expenditures on research and development will decrease substantiality as a percentage of our revenues.

 

 

  Employees

 

As of April 1, 2014, we had a total of 13 full time employees, 2 part time employees, 2 full-time contractors and 1 part-time program developer based in India.

  

 None of our employees are parties to a collective bargaining agreement. We consider our relationship with our employees to be satisfactory.

 

Reports to Security Holders

We intend to furnish our shareholders annual reports containing financial statements audited by our independent auditors and to make available quarterly reports containing unaudited financial statements for each of the first three quarters of each year.

 

The public may read and copy any materials that we file with the SEC at the SEC's Public Reference Room at 100 F Street, NE, Washington, D.C. 20549. The public may obtain information on the operation of the Public Reference Room by calling the SEC at 1-800-SEC-0330. The SEC maintains an Internet site that contains reports, proxy and information statements, and other information regarding issuers that file electronically with the SEC. The address of that site is www.sec.gov.

 

Item 1A. Risk Factors

The purchase of our common stock involves a very high degree of risk.

In evaluating us and our business, you should carefully consider the risks and uncertainties described below and the other information and our consolidated financial statements and related notes included herein. The risks provided below may not be all the risks we face.  If any of events described in the risks below actually occurs, our financial condition or operating results may be materially and adversely affected, the price of our common stock may decline, perhaps significantly, and you could lose all or a part of your investment.

 

Risks Related to Our Business

 

Adverse economic conditions in Australia, the United States and worldwide may negatively impact our results.

 

We are subject to changes in general economic conditions that are beyond our control. During periods of economic slowdown, delinquencies, defaults, and losses, generally increase while collections decrease. These periods may also be accompanied by increased unemployment rates and decreased consumer demand, which negatively impact businesses being lent to, weakening the collectability of the purchase orders we finance, increasing the risk that an event of default from one of our customers will eventuate in a loss. In addition, during an economic slowdown or recession, our servicing costs may increase without a corresponding increase in our finance charge income. Furthermore, our business is significantly affected by monetary and regulatory policies of the Reserve Bank of Australia, the Australian Federal Government and its agencies, the U.S. federal government and the US Federal Reserve. Changes in the policies of the institutions are influenced by macroeconomic conditions and other factors that are beyond our control and could have a material adverse effect on us through interest rate changes, costs of compliance with increased regulation, and other factors.

 

The process we use to estimate losses inherent in our credit exposure requires complex judgments, including analysis of individual industries, forecasts of economic conditions and how those economic conditions might impair the ability of our borrowers to repay their loans. The degree of uncertainty concerning economic conditions may adversely affect the accuracy of our estimates, which may, in turn, impact the reliability of the process and the quality of our assets.

 

Our business could be negatively impacted if our access to funding is reduced.

 

We have available an AUD$50 million Wholesale Facility with Westpac which is renewed annually on an agreed anniversary date.  Our borrowing limit under the RPA is AUD$50 million, subject to interim agreed upon limits determined by various tests and covenants.  As at December 31, 2013 the total amount drawn against the facility was $25,593,086.  The facility was recently renewed until December 31, 2014, and the interim agreed upon credit limit has been extended to AUD$40 million. We cannot guarantee that the RPA will be renewed on the current maturity date or thereafter, on reasonable terms, or at all. We require additional capital or the expansion of our borrowing capacity to substantially increase the aggregate amount of credit lines we provide. The availability of additional financing depends, in part, on factors outside of our control, and the availability of bank liquidity in general. We may also experience the occurrence of events of default or breach of financial covenants, which could reduce our access to funding. In the event of a sudden or unexpected shortage of funds in the banking system, we cannot be sure that we will be able to maintain necessary levels of funding without incurring high funding costs, a reduction in the availability of financing or the liquidation of certain assets.

 

  

Downsizing our business would have a material adverse effect on our financial position, liquidity, and results of operations.

 

Our business could be negatively impacted if we no longer receive grants from the Australian Government.

 

A significant portion of the amounts paid to develop the Moneytech Exchange represents funds received from the Australian Government pursuant to a research and development grant program.  Such grants represented approximately 45% of our research and development budgets in the fiscal years ended June 30, 2013 and 2012.  Although the acquisition of Moneytech by us should not adversely impact Moneytech’s ability to qualify for such grants, as we grow, we may no longer be eligible for such grants.  The inability to receive grants in the future commensurate with those received in the past could force us to reduce the amounts spent on research and development and could adversely affect our business and our financial results.

 

Our indebtedness and other obligations are significant and impose restrictions on our business.

 

We have a significant amount of indebtedness and are dependent upon our Wholesale Loan Facility.  Our Facility imposes various constraints on the operation of our business, reduces operational flexibility and creates default risks. Our receivables purchase facility contains a cash reserve requirement which requires us to deposit money in a bank account in accordance with an agreed upon formula. We are required to hold these funds in restricted cash accounts to provide additional collateral for borrowings under the borrowing facilities. Additionally, the receivables purchase facility contains various covenants requiring in certain cases minimum financial ratios, asset quality, and portfolio performance ratios. Generally, these limits are calculated based on the as a whole, however for certain obligors delinquency, net loss and dilution are calculated with respect to the individual obligor.

 

        Failure to meet any of these covenants could result in an event of default under the Facility. If an event of default occurs under the Facility, the lender could elect to declare all amounts outstanding to be immediately due and payable, enforce its interest against collateral pledged under the Facility or restrict our ability to obtain additional borrowings under the Facility.

 

            If our debt service obligations increase, whether due to the increased cost of existing indebtedness or the incurrence of additional indebtedness, we may be required to dedicate a significant portion of our cash flow from operations to the payment of principal of, and interest on, our indebtedness, which would reduce the funds available for other purposes. Our indebtedness also could limit our ability to withstand competitive pressures and reduce our flexibility in responding to changing business and economic conditions.

 

We purchase accounts receivable primarily from and make purchase order advances primarily to small to medium companies, which present a greater risk of loss than purchasing accounts receivable from and purchase order advances to larger companies.

 

Our portfolio consists primarily of accounts receivable and purchase order advances from small to medium businesses with annual revenues ranging from $5 million to $50 million. Compared to larger, publicly owned firms, these companies generally have more limited access to capital and higher funding costs, may be in a weaker financial position and may need more capital to expand or compete. These financial challenges may make it difficult for our clients to continue as a going concern. Accordingly, advances made to these types of clients entail higher risks than advances made to companies who are able to access traditional credit sources.  In part because of their smaller size, our clients may:

 

	●	experience significant variations in operating results;
	●	have narrower product lines and market shares than their larger competitors;
	●	be particularly vulnerable to changes in customer preferences and market conditions;
	●	be more dependent than larger companies on one or more major customers or suppliers, the loss of which could   materially impair their business, financial condition and prospects;

 

	●	face intense competition, including from companies with greater financial, technical, managerial and marketing resources;
	●	depend on the management talents and efforts of a single individual or a small group of persons for their success, the death, disability or resignation of whom could materially harm the client’s financial condition or prospects;   and
	●	have less skilled or experienced management personnel than larger companies.

 

 

Accordingly, any of these factors could impair a client’s cash flow or result in other events, such as bankruptcy, which could limit our ability to collect on the client’s purchased accounts receivable or purchase order advances, and may lead to losses in our portfolio and a decrease in our revenues, net income and assets.

 

  Our financial condition, liquidity, and results of operations depend on the credit performance of the credit facilities we provide to our customers.

 

            While our underwriting guidelines were designed to establish that the obligors on the receivables we purchase represent a reasonable credit risk, the receivables we purchase nonetheless are likely to experience higher default rates than a portfolio of obligors comprised of large companies. In the event of a default, the most practical alternative may be to engage in collection action against the obligor or, if permitted under the terms of our agreement, the customer who sold the receivable to us. The realizable value of a receivable may not cover the outstanding account balance and costs of recovery, and if collection of the receivables does not yield sufficient proceeds to repay the receivables in full could result in losses on those receivables.

 

  Our allowance for loan losses and impairments may prove to be insufficient to absorb probable losses inherent in our portfolio.

 

            We maintain an allowance for bad or doubtful debts that we believe is appropriate to provide for probable losses inherent in our portfolio. The determination of the appropriate level of the allowance for bad or doubtful debts and impairment reserves inherently involves a high degree of subjectivity and requires us to make significant estimates of current credit risks and future trends, all of which are subject to change. Changes in economic conditions affecting clients, new information regarding our clients or their obligors, and other factors, both within and outside of our control, may require an increase in the allowance for loan losses. Furthermore, growth in our funding book generally would lead to an increase in the provision for loan losses. If the net write-offs exceed the allowance for bad and doubtful debt, we will need to make additional provisions to increase the allowance for bad and doubtful debt. There is no accurate method for predicting losses, and we cannot assure you that provision for bad and doubtful debts will be sufficient to cover actual losses. Any increases in the allowance for bad and doubtful debts will result in a decrease in net income and may have a material adverse effect on us.

 

Poor portfolio performance may trigger credit enhancement provisions in our Receivables Purchase Agreement.

 

          Our RPA has delinquency, net loss ratio limits, dilution and Day Sales Outstanding limits that, if exceeded, would increase the level of credit enhancement requirements for that facility and redirect all excess cash to our lender. Generally, these limits are calculated based on the aggregate portfolio performance across all clients; however, delinquency, net loss ratios and dilutions are calculated with respect to some individual obligors.

 

If, at any measurement date, a trigger was hit with respect to any financing, provisions of the financing agreements would increase the level of credit enhancement requirements for that financing and redirect all excess cash to the credit provider. During this period, excess cash flow, if any, from the Facility would be used to fund the increased credit enhancement levels rather than being distributed to us. Once an impacted trust reaches the new requirement, we would return to receiving a residual distribution from the trust

 

There is a risk that in the event portfolio performance was not adequate, triggering credit enhancement criteria, and that there was not sufficient cash-flow from our business to satisfy the increase in enhancement required, that our credit provider could cease its support of our business which would have a materially adverse effect on our business,

 

  Competition may adversely impact our results, especially in Australia.

 

            The financial services sector in which we operate is highly competitive and could become even more so, particularly in those segments which are perceived as providing higher growth prospects.  Factors contributing to this include industry deregulation, mergers and acquisitions, changes in customers’ needs and preferences, entry of new participants, development of new distribution and service methods and increased diversification of products by competitors.  For example, changes in the financial services sector have made it possible for non-bank financial institutions to offer products and services traditionally provided by banks, such as automatic payment systems, mortgages and credit cards.

 

            The effect of competitive market conditions may have a material adverse effect on our financial performance and position, especially in Australia.  For example, increasing competition for customers can lead to a compression in our net interest margin, or increased advertising and related expenses to attract and retain customers.

 

 

           The asset backed lending market is served by a variety of entities, including, banks, credit unions, and independent finance companies. Our competitors may provide financing on terms more favorable to customers than we offer. Many of these competitors also have long-standing relationships with potential clients.

 

           We anticipate that we will encounter greater competition as we expand our operations.

 

The market for providing loans and other financial services to small to medium size businesses is highly competitive and we expect that competition will increase. Current competitors have significantly greater financial, technical and marketing resources than we do. We expect that more companies will enter this sector of the financial services market. We may not be able to compete successfully against either current or future competitors. Increased competition could result in reduced revenue, lower margins or loss of market share, any of which could significantly harm our business.

 

  Failure to obtain insurance on favorable terms may result in unexpected losses.

The receivables due Moneytech from its customers or their counterparties are insured pursuant to a policy issued by Euler Hermes, a Standard & Poor’s rated Trade Credit insurance provider.  Pursuant to this policy, Moneytech would bear the first $500,000 of losses incurred in any calendar year, after which any bad debt losses are borne by Euler Hermes.  This policy is renewed annually.  No assurances can be made that we will be able to continue to insure bad debt losses or that we will be able to obtain policy coverage with premiums that are cost effective. If we are unable to renew our bad debt insurance policy or the premiums for coverage become cost prohibitive, we may face larger than expected losses from bad debts.

Changes in interest rates may adversely impact our profitability and risk profile.

 

Our profitability may be directly affected by interest rate levels and fluctuations in interest rates. As interest rates change, our gross interest rate spread on new facilities either increases or decreases because the rates we charge on the facilities we provide is limited by market and competitive conditions, restricting our ability to pass on increased interest costs to the consumer. Additionally, although the majority of our clients are small to medium businesses and are not highly sensitive to interest rate movement, increases in interest rates may reduce the volume of facilities we originate.

 

  A security breach or a cyber attack could adversely affect our business.

 

            In the normal course of business, we receive, process and retain sensitive and confidential personal and business information and may, subject to applicable law, share that information with third parties. Our facilities and systems, and those of third parties to which we provide information, could be vulnerable to external or internal security breaches, acts of vandalism, computer viruses, misplaced or lost data, programming or human errors, or other similar events. A security breach or cyber attack of our systems could interrupt or damage our operations or harm our reputation. If third parties or our employees penetrate our network security or otherwise misappropriate our customers’ confidential information or contract information, or if we give third parties or our employees improper access to consumers’ confidential information or contract information, we could be subject to liability. This liability could include investigations, fines, or penalties imposed by regulatory agencies, including the loss of necessary permits or licenses. This liability could also include identity theft or other similar fraud-related claims, claims for other misuses, or losses of personal information, including for unauthorized marketing purposes or claims alleging misrepresentation of our privacy and data security practices.

 

          We rely on encryption and authentication technology both licensed from third parties and developed in house to provide the security and authentication necessary to effect secure online transmission of confidential information. Advances in computer capabilities, new discoveries in the field of cryptography, or other events or developments may result in a compromise or breach of the algorithms that we use to protect sensitive data. A party who is able to circumvent our security measures could misappropriate proprietary information or cause interruptions in our operations. We may be required to expend capital and other resources to protect against such security breaches or cyber attacks or to alleviate problems caused by such breaches or attacks. Our failure to prevent security breaches and cyber attacks, whether due to an external cyber-security incident, a programming error, or other cause, could damage our reputation, expose us to mitigation costs and the risks of private litigation and government enforcement, disrupt our business, or otherwise have a material adverse effect on our sales and results of operations.

 

We depend on the accuracy and completeness of information about our clients and obligors and any misrepresented information could adversely affect our business, results of operations, and financial condition.

 

 

            In deciding whether to purchase particular receivables or to enter into other transactions with our clients and their obligors, we rely on information furnished to us by or on behalf of our clients and counterparties, including financial statements and other financial information. We also rely on representations made by our clients and counterparties as to the accuracy and completeness of that information and, with respect to financial statements, on reports of independent third parties. If any of this information is intentionally or negligently misrepresented and such misrepresentation is not detected, the value of receivables or purchase order loans may be significantly lower than expected. Whether a misrepresentation is made by our client, another party, or one of our employees, we generally bear the risk of loss associated with the misrepresentation. Any such misrepresented information could adversely affect our business, financial condition, and results of operations.

 

We are subject to operational risk, which may adversely impact our results.

 

            Operational risk refers to risks arising from day-to-day operational activities which may result in direct or indirect loss. These losses may result from both internal and external events.  We are highly dependent on information systems and technology and there is a risk that these, or the services they use or depend on, might fail.  Our daily operations are computer based.   The exposure to systems risks includes: complete or partial failure of information technology systems; inadequacy of internal or third party information technology systems due to, among other things, failure to keep pace with industry developments; and capacity of the existing systems to effectively accommodate planned growth and integrate existing and future acquisitions and alliances.  Any failure in these systems could result in business interruption, the loss of customers, damaged reputation and weakening of our competitive position and could adversely impact our business and have a material adverse effect on our financial condition and loss of operations.

 

            We also are exposed to failings by third party providers, including outsourcing, to natural disasters, political, security and social events and to failings in the financial services sector.

 

We cannot assure you that any business we acquire will benefit from its acquisition by us.

 

We cannot assure you we will realize any of the perceived benefits to our business from the acquisition of Moneytech. The past performance of Moneytech is not necessarily indicative of future performance. The process of combining the organizations of private companies into a public company such as ours involves certain risks, including exposure to unknown liabilities of the acquired companies, and may cause fundamental changes to their businesses or in their operations. In addition, our operating results may be affected by the additional expenses we incur in integrating Moneytech into our organization and the significant increase in expenses relating to financial statement preparation and compliance with controls and procedures standards established by the Sarbanes-Oxley Act of 2002.

 

Our inability to successfully manage the growth of our business may have a material adverse effect on our business, results of operations and financial condition.

 

            We intend to continue our growth strategy to (i) expand our portfolio by increasing market penetration and market share through new customer acquisitions and (ii) grow our other businesses such as our payments aggregation and processing business, our gift card business and our foreign exchange business. Our ability to execute this growth strategy is subject to significant risks, some of which are beyond our control, including:

 

	●	the inherent uncertainty regarding general economic conditions;
	●	our ability to obtain adequate financing for our expansion plans;
	●	the prevailing laws and regulatory environment of each territory and country in which we operate or seek to operate, and, to the extent applicable, laws and regulations, which are subject to change at any time;
	●	the degree of competition in new markets and its effect on our ability to attract new customers; and
	●	our ability to recruit qualified personnel, in particular in areas where we face a great deal of competition.

 

As part of our growth we expect to experience growth in the number of employees and the scope of our operations. This could result in increased responsibilities for management.

 

Our future success will be highly dependent upon our ability to manage successfully the expansion of our operations. Our ability to manage and support our growth effectively will be substantially dependent on our ability to implement adequate improvements to financial, inventory, management controls, reporting, and hire sufficient numbers of financial, accounting, administrative, and management personnel. We may not succeed in our efforts to identify, attract and retain experienced accounting and financial personnel.

 

 

Our future success also depends on our ability to address potential market opportunities and to manage expenses to match our ability to finance operations. The need to control our expenses will place a significant strain on our management and operational resources. If we are unable to control our expenses effectively, our business, results of operations and financial condition may be adversely affected.

 

Our growth strategies require significant capital investments and may require us to seek external financing, which may not be available on terms favorable to us.

 

            Our business operations and growth strategies require substantial capital investments, the availability of which depends on our ability to generate cash flow from operations, borrow funds on satisfactory terms and raise funds in the capital markets. Our ability to arrange for financing to support our capital expenditures and the cost of such financing are dependent on numerous factors, including general economic and capital markets conditions, interest rates and credit availability from banks or other lenders, many of which are beyond our control. In addition, increases in interest rates or the failure to obtain external financing on terms favorable to us will affect our financing costs and our results of operations. We may not be able to obtain financing in amounts or on terms acceptable to us,

 

A reduction in demand for our services and failure by us to adapt to such reduction could adversely affect our business and results of operations.

The demand for a particular service we offer may be reduced due to a variety of factors, such as regulatory restrictions that decrease customer access to particular services, the availability of competing services or changes in customers' preferences or financial conditions. Should we fail to adapt to significant changes in our customers' demand for, or access to, our services, our revenues could decrease significantly and our operations could be harmed.  Even if we do make changes to existing services or introduce new services to fulfill customer demand, customers may resist or may reject such services. Moreover, the effect of any change in our services on the results of our business may not be fully ascertainable until the change has been in effect for some time and by that time it may be too late to make further modifications to such service without causing further harm to our business, results of operations and financial condition.

 

Fluctuations in exchange rates could adversely affect our business as well as result in foreign currency exchange losses in our US dollar financials.

 

Our financial statements are expressed in U.S. dollars. The functional currency of Moneytech is Australian dollars. The value of the Australian dollar against the U.S. dollar and other currencies is affected by, among other things, changes in political and economic conditions and U.S. and Australian foreign exchange policies. Any material change in the exchange ratio between the Australian dollar and the U.S dollar may materially and adversely affect our reported amounts in US dollars of cash flows, revenues, earnings and financial position and the value of, and any dividends payable to, our shares of common stock in US dollars.

 

Loss of our management and other key personnel, or an inability to attract such management and other key personnel, could negatively impact our business.

 

The successful implementation of our strategy depends in part on our ability to retain our experienced management team, particularly Hugh Evans, our President and Chief Executive Officer and key employees, and on our ability to attract appropriately qualified new personnel. Hugh Evans has extensive experience in the small business and consumer internet-based finance industry. He has a proven track record of successfully operating our business. The loss of any key member of our management team or other key employees could hinder or delay our ability to implement our growth strategy effectively. Further, if we are unable to attract appropriately qualified new personnel as we expand, we may not be successful in implementing our growth strategy. In either instance, our profitability and financial performance could be adversely affected. Experienced management and other key personnel in the financial services industry are in demand and competition for their talents is intense. Furthermore, we do not maintain key person insurance on any of our management personnel. Failure to attract and retain qualified employees or the loss of any member of our management may result in a loss of organizational focus, poor operating execution or an inability to identify and execute potential strategic initiatives. This could, in turn, materially and adversely affect our business, financial condition and results of operations.

 

Our senior management has no experience in complying with laws and regulations applicable to U.S. publicly-traded companies, including the United States federal and state securities laws and regulations and the U.S. Sarbanes–Oxley Act of 2002. For example, we are required to file periodic and other reports and to comply with U.S. securities and other laws, which did not apply to Moneytech prior to the Share Exchange. These obligations can be burdensome and complicated, and failure to comply with such obligations could have a material adverse effect on our company. In addition, we expect that the process of learning about such new obligations as a public company in the United States will require senior management to devote time and resources to such efforts that might otherwise be spent on the operation of our business.

 

The obligations associated with being a public company will require significant resources and management attention, which will increase our costs of operations and may divert focus from our business operations.

 

As a publicly traded company, we are required to file with the SEC periodic reports containing our consolidated financial statements within a specified time following the completion of quarterly and annual periods. As a public company, we incur significant legal, accounting, insurance, and other expenses. Compliance with these reporting requirements and other rules of the SEC will increase our legal and financial compliance costs and make some activities more time consuming and costly. Furthermore, the need to establish the corporate infrastructure demanded of a public company may divert management’s attention from implementing our strategy, which could prevent us from successfully implementing our strategic initiatives and improving our business, results of operations, and financial condition. We have made, and will continue to make, changes to our internal controls and procedures for financial reporting and accounting systems to meet our reporting obligations as a public company. However, we cannot predict or estimate the amount of additional costs we may incur in order to comply with these requirements. We anticipate that these costs will materially increase our total costs and expenses.

 

We are required to make significant estimates and assumptions in the preparation of our financial statements and our estimates and assumptions may not be accurate.

 

The preparation of our consolidated financial statements in conformity with generally accepted accounting principles in the United States of America (“GAAP”) requires our management to make significant estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the consolidated financial statements, and the reported amounts of income and expense during the reporting periods. We use estimates and assumptions in determining the residual values of delinquent receivables. Critical estimates are made by management in determining, among other things, the allowance for loan losses, amounts of impairment, and valuation of income tax assets or tax refunds. If our underlying estimates and assumptions prove to be incorrect, our financial condition and results of operations may be materially different from that reported in our financial statements.

 

The failure of third parties who provide products, services or support to us to maintain their products, services or support could disrupt our operations or result in a loss of revenue.

We are reliant on third parties to provide certain products, services and support that is material to our business. In the event such parties become unwilling or unable to continue to provide such products, services or support to us, our business operations could be disrupted and our revenue could be materially and adversely affected.

We may not be successful at entering new businesses or broadening the scope of our existing service offerings.

We may enter into new businesses that are adjacent or complementary to our existing businesses and that broaden the scope of our existing service offerings.

Despite our current level of indebtedness, we may still be able to incur substantial additional indebtedness. This could exacerbate the risks associated with our substantial indebtedness.

We and our subsidiaries may be able to incur substantial additional indebtedness in the future. The terms of the indenture governing our senior notes and the agreement governing our revolving credit facility limit, but do not prohibit, us or our subsidiaries from incurring additional indebtedness. If we incur any additional indebtedness the holders of that indebtedness will be entitled to share ratably with our other secured and unsecured creditors in any proceeds distributed in connection with any insolvency, liquidation, reorganization, dissolution or other winding-up of our business prior to any recovery by our shareholders. This may have the effect of reducing the amount of proceeds paid to you in such an event. If new indebtedness, including under our revolving credit facilities, is added to our current debt levels, the related risks that we and our subsidiaries now face could intensify, especially with respect to the demands on our liquidity as a result of increased interest commitments.

 

 

Our information technology may not support our future volumes and business strategies.

 

We rely on our proprietary origination and servicing platforms that utilize database-driven software applications. We employ a team of engineers, information technology analysts, and website designers to ensure that our information technology systems remain on the cutting edge. However, due to the rapid changes in technology, there can be no assurance that our information technology systems will continue to be adequate for our business or provide a competitive advantage. 

 

Our network and information systems are important to our operating activities and any network and information system shutdowns could disrupt our ability to process applications, originate financing facilities, or service our existing portfolio, which could have a material adverse impact on our operating activities. Shutdowns may be caused by unforeseen catastrophic events, including natural disasters, terrorist attacks, large-scale power outages, software or hardware defects, computer viruses, cyber attacks, external or internal security breaches, acts of vandalism, misplaced or lost data, programming or human errors, difficulties in migrating technology facilities from one location to another, or other similar events. We cannot be certain that our disaster recovery plan will function as intended, or otherwise resolve or compensate for such effects. Failure of our disaster recovery plan, if and when experienced, may have a material adverse effect on our revenue and ability to support and service our customer base.

 

Failure to protect our intellectual property rights may materially and adversely affect our competitive position and operations, and we may be exposed to infringement or misappropriation claims by third parties.

 

Our success is in part attributable to the technologies, know-how and other intellectual property that we have developed or acquired. We rely upon a combination of trade secrets, confidentiality policies, non-disclosure and other contractual arrangements, and trademark laws to protect our intellectual property rights. There can be no assurance that the steps we have taken to protect our intellectual property rights are adequate to prevent or deter infringement or other misappropriation of our intellectual property. We may not be able to detect unauthorized uses or take appropriate and timely steps to enforce our intellectual property rights. Any significant infringement of our proprietary technologies and processes or our intellectual property rights could weaken our competitive position and have an adverse effect on our operations. To protect our intellectual property rights, we may have to commence legal proceedings or otherwise spend significant amounts of time and money.  We cannot assure you that we will prevail in such proceedings. The occurrence of any unauthorized use of or other infringement to our intellectual property rights, it could result in potential damage to our competitive position. 

 

We may be subject to litigation involving claims of patent or trademark infringement or the violation of intellectual property rights of third parties. The defense of intellectual property suits, patent opposition proceedings and related legal and administrative proceedings can be costly and time-consuming and may significantly divert the efforts and resources of our technical and management personnel. An adverse determination in any litigation or proceedings to which we become a party could subject us to significant liability to third parties, require us to seek licenses from third parties, pay ongoing royalties, or redesign our products or subject us to injunctions prohibiting the manufacture and sale of our products or the use of our technologies, which could materially and adversely affect our business, financial condition or results of operations. Protracted litigation could also result in our customers or potential customers deferring or limiting their purchase or use of our products until resolution of such litigation, which could adversely affect our business.

 

Catastrophic events may negatively affect our business, financial condition, and results of operations.

 

Natural disasters, acts of war, terrorist attacks, and the escalation of military activity in response to these attacks or otherwise may have negative and significant effects, such as imposition of increased security measures, changes in applicable laws, market disruptions, and job losses. These events may have an adverse effect on the economy in general. Moreover, the potential for future terrorist attacks and the national and international responses to these threats could affect our business in ways that cannot be predicted. The effect of any of these events or threats could have a material adverse effect on our business, results of operations and financial condition. 

 

Regulatory Risks

 

If our asset-based financing business in Australia were to become subject to more extensive regulation under Australian law, our business, financial condition, liquidity and results of operations would be materially and adversely affected.

 

  Our asset based lending activities, including factoring receivables and purchase order financing, are not subject to governmental regulation in Australia, since we are deemed not to make loans.  Nevertheless, if any of the transactions entered into by us are deemed to be loans or financing transactions instead of a true purchase of accounts receivable, then various laws and regulations we would become subject to numerous laws and regulations otherwise not applicable to our principal activities in Australia and could limit the fees and other charges we are able to charge our customers and may further subject us to penalties under such regulations.  These laws and regulations would also:

 

	●	regulate our credit granting activities, and require that we obtain additional licenses,
	●	require additional disclosures to customers,

 

 

	●	govern the manner in which we conduct secured transactions,
	●	set collection, foreclosure, repossession and claims handling procedures and other trade practices,
	●	prohibit discrimination in the extension of credit, and
	●	regulate our use and reporting of information related to a seller’s credit experience and other data collection.

 

This could have a material adverse effect on our business, financial condition, liquidity and results of operations.

If we are  found to be subject to or in violation of any laws or regulations, including those in Australia, the United States and other jurisdictions governing money transmission, electronic funds transfers, money laundering, terrorist financing, sanctions, consumer protection, banking and lending, it could be subject to liability, licensure and regulatory approval and may be forced to change its business practices .

Moneytech’s planned electronic payments business and money transfer business will be subject to the laws and regulations of Australia, and those of the United States if we decide to engage in those businesses in the United States, including those governing money transmission, electronic funds transfers, money laundering, terrorist financing, sanctions, consumer protection, banking and lending. The legal and regulatory requirements that apply to our payments businesses vary from country to country. While we have programs focused on compliance with applicable laws and regulations, there can be no assurance that we will not be subject to fines or other enforcement actions in one or more jurisdictions or be required to make changes to our business practices or compliance programs to comply in the future if our business should expand outside of Australia.

 

If Moneytech were to become a money transmitter in the United States, it would become subject to restrictions on its investment of customer funds, reporting requirements, bonding requirements, and inspection by state regulatory agencies. If Moneytech were found to be in violation of money services laws or regulations, we could be subject to criminal or civil penalties, be forced to alter our business practices or be required to obtain additional licenses or regulatory approvals that could impose substantial costs on us. Any change to our business practices that makes our services less attractive to customers or prohibits the use of our services by residents of a particular jurisdiction could harm our business.

   

We also would be subject to various anti-money laundering and counter-terrorist financing laws and regulations around the world that prohibit, among other things, involvement in transferring the proceeds of criminal activities. Any errors, failures or delays in complying with federal, state or foreign anti-money laundering and counter-terrorist financing laws could result in significant criminal and civil lawsuits, penalties and forfeiture of significant assets or other enforcement actions.

 

Risks Related to Our Common Stock and Our Status as a Public Company

 

There is currently a limited trading market for our common stock and an active, liquid trading market for our common stock may not develop, which could adversely affect the liquidity and price of our common stock.

 

Our common stock is quoted on the OTCQB quotation service. There is currently a limited trading market for our common stock. If an active, liquid trading market does not develop, you may have difficulty selling your shares of common stock at an attractive price, or at all. An inactive market may also impair our ability to raise capital by selling our common stock and may impair our ability to acquire other companies, products or technologies by using our common stock as consideration.

 

The market price of our common stock could decline due to the large number of outstanding shares of our common stock eligible for future sale.

 

Sales of substantial amounts of our common stock in the public market, or the perception that these sales could occur, could cause the market price of our common stock to decline. These sales could also make it more difficult for us to sell equity or equity-related securities in the future, at a time and price that we deem appropriate.

 

 

 

Holders of our shares, including members of our management, could choose to pledge their shares as collateral for loans and might not be required to disclose such arrangements. A subsequent decline in the price of our shares could cause the lender to foreclose upon the pledged shares and sell them into the market, leading to a further decline in the price of our shares.

 

Hugh Evans, our President and Chief Executive Officer, has significant influence over us, including control over decisions that require the approval of stockholders, which could limit your ability to influence the outcome of key transactions, including a change of control.

 

Hugh Evans, our Chief Executive Officer and President, owns approximately 55.25% of our outstanding voting shares, and consequently has  continue effective control over our business, including matters requiring the approval of our stockholders, such as election of directors, approval of significant corporate transactions and the timing and distribution of dividends, if any. In addition, his ownership of the Series B Shares entitles him to elect a majority of our directors until July 1, 2018, and as a result Mr. Evans will control our policies and operations, including, among other things, the appointment of management, future issuances of our common stock or other securities, the payment of dividends, if any, on our common stock, the incurrence of debt by us, and the entering into of extraordinary transactions.

 

Mr. Evans may have interests that do not align with the interests of our other stockholders, including with regard to pursuing acquisitions, divestitures, and other transactions that, in his judgment, could enhance his equity value, even though such transactions might involve risks to our other stockholders. For example, Mr. Evans could cause us to make acquisitions that increase our indebtedness. Mr. Evans will have effective control over our decisions to enter into such corporate transactions regardless of whether others believe that any transaction is in our best interests. Such control may have the effect of delaying, preventing, or deterring a change of control of our company, could deprive stockholders of an opportunity to receive a premium for their common stock as part of a sale of our company, and might ultimately affect the market price of our common stock.

 

  Since our principal assets are located in Australia, and most of our officers and directors are not residents of the United States, it may be difficult or impossible for you to bring an action against us or against these individuals in Australia in the event that you believe that your rights have been infringed under the securities laws or otherwise, or to enforce any judgments rendered against us or our officers and/or directors.

 

             Our principal assets are located in Australia, and all   of our officers and  all but one of our directors are not residents of the United States. Therefore, it may be difficult to effect service of process on such persons in the United States, and it may be difficult to enforce any judgments rendered by any courts of the United States against us or these officers and directors. Furthermore, it may be difficult or impossible for you to bring an action against us or against these individuals in Australia in the event that you believe that your rights have been infringed under the securities laws or otherwise. Even if you are successful in bringing an action of this kind, the laws of Australia may render you unable to enforce a judgment against our assets or the assets of our directors or officers that are not residents of the United States. There is doubt as to the enforceability in the Commonwealth of Australia, in original actions or in actions for enforcement of judgments of U.S. courts, of civil liabilities predicated solely upon federal or state securities laws of the U.S., especially in the case of enforcement of judgments of U.S. courts where the defendant has not been properly served in Australia. As a result of all of the above, our shareholders may have more difficulty in protecting their interests through actions against our management, directors or major shareholders compared to shareholders of a corporation doing business entirely within the United States.

 

Certain provisions of our amended and restated certificate of incorporation may have anti-takeover effects, which could limit the price investors might be willing to pay in the future for our common stock. In addition, Delaware law may inhibit takeovers of us and could limit our ability to engage in certain strategic transactions our board of directors believes would be in the best interests of stockholders.

 

           Certain provisions of our amended and restated certificate of incorporation and bylaws could discourage unsolicited takeover proposals that stockholders might consider to be in their best interests. Among other things, our amended and restated certificate of incorporation and bylaws may include provisions that:

 

●

do not permit cumulative voting in the election of directors, which would otherwise allow less than a majority of stockholders to elect director candidates;

	●	limit the ability of our stockholders to nominate candidates for election to our board of directors;
	●	authorize the issuance of “blank check” preferred stock without any need for action by stockholders; and
	●	limit the ability of stockholders to call special meetings of stockholders; and

 

The foregoing factors, as well as the significant common stock ownership by Hugh Evans, could impede a merger, takeover, or other business combination or discourage a potential investor from making a tender offer for our common stock, which, under certain circumstances, could reduce the market value of our common stock.

 

In addition, Section 203 of the Delaware General Corporation Law (the “DGCL”), generally affects the ability of an “interested stockholder” to engage in certain business combinations, including mergers, consolidations, or acquisitions of additional shares, for a period of three years following the time that the stockholder becomes an “interested stockholder.” An “interested stockholder” is defined to include persons owning directly or indirectly 15% or more of the outstanding voting stock of a corporation.

 

We currently do not intend to pay any dividends on our shares in the immediate future.

 

We currently do not intend to pay dividends on our shares.  We cannot give any assurance that we will declare dividends of any amounts, at any rate or at all in the future. Future dividends, if any, will be at the discretion of our board of directors, and will depend upon our results of operations, cash flow, financial condition, the terms of any bank loan, line of credit or funding agreement to which we are party, as well as our capital needs, future prospects and other factors that our directors may deem appropriate.

 

The market price of our common stock may be volatile, which could cause the value of an investment in our common stock to decline.

 

The market price of our common stock may fluctuate substantially due to a variety of factors, many of which are beyond our control, including:

	●	general market conditions;
	●	domestic and international economic factors unrelated to our performance;
	●	actual or anticipated fluctuations in our quarterly operating results;
	●	changes in or failure to meet publicly disclosed expectations as to our future performance;
	●	downgrades in securities analysts’ estimates of our financial performance or lack of research and reports by industry analysts;

  

	●	changes in market valuations or earnings of similar companies;
	●	any future sales of our common stock or other securities;
	●	additions or departures of key personnel;
	●	fluctuations in foreign exchange rates;
	●	regulatory developments in Australia affecting us or our competitors; and
	●	release or expiry of transfer restrictions on our outstanding shares.

The stock markets in general have experienced substantial volatility that has often been unrelated to the operating performance of particular companies. These types of broad market fluctuations may adversely affect the trading price of our common stock. In the past, stockholders have sometimes instituted securities class action litigation against companies following periods of volatility in the market price of their securities. Any similar litigation against us could result in substantial costs, divert management’s attention and resources, and harm our business or results of operations. For example, we are currently operating in, and have benefited from, a protracted period of historically low interest rates that will not be sustained indefinitely, and future fluctuations in interest rates could cause an increase in volatility of the market price of our common stock.

 

 

Item 2: Financial Information

Management’s Discussion and Analysis of Financial Condition and Results of Operations

The following discussion of our financial condition and results of operations should be read in conjunction with the audited and unaudited financial statements and the notes to those statements included elsewhere in this registration statement. This discussion contains forward-looking statements that involve risks and uncertainties. You should specifically consider the various risk factors identified in this registration statement that could cause actual results to differ materially from those anticipated in these forward-looking statements.

Overview 

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

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

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

Moneytech commenced operations in 2003 as an Australian based, technology driven, commercial finance company. Moneytech has an AUD$50 million securitized wholesale debt facility (the “Wholesale Facility,” “Receivables Purchase Agreement” or “RPA”) with Westpac. 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 RPA with Westpac.  We also provide payment processing (money transfer) solutions in Australia.  For the immediate future we intend to continue to focus on our asset based lending solutions business in Australia while seeking to expand our money transfer businesses in Australia and enter into the United States market.  We plan to achieve our growth objectives by signing up new customers for our products in Australia, expanding the services offered to our customers, entering new international markets, and continuing our research and development efforts to launch new technology driven financial products into both the Australian and United States markets.

 

Discontinued operations

In January 2014, management decided to return the ‘Wiki Technologies’ business we operated before the June 2013 Share Exchange to Edward DeFeudis and Marco Garibaldi.  The decision was taken because revenue and profitability benchmarks set in the Share Exchange Agreement were unlikely to be met.  On February 14, 2014, the outstanding shares of Wiki Technologies, Inc.  were returned to Edward DeFeudis and Marco Garibaldi, and Edward DeFeudis and Marco Garibaldi relinquished their right to the 2,240,000 shares of our Common Stock held in escrow on their behalf,  of which 2,130,000 shares were returned to us for cancellation and 100,000 were issued to a noteholder of Wiki Technologies.

 

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 amount overdue for more than 30 days are considered delinquent.  We monitor credit quality within our portfolio by observing trends in “average collection periods” “Days Sales Outstanding,” delinquent balances as a percentage of our portfolio and single obligor concentration limits and expect our bad debt to be approximately 0.15% of amounts funded. We assess the recoverability of each delinquent balance when determining the required amount of bad debt reserve.

·

Costs and expenses - We assess our operational efficiency using our cost-to-income ratio.  We perform extensive analysis to determine whether observed fluctuations in cost and expense levels indicate a trend or are the nonrecurring impact of large projects.  Our cost and expense analysis also includes a loan- and portfolio-level review of origination and servicing costs to assist us in assessing profitability by pool and vintage.  Portfolio volume and rate of turnover determine the magnitude of the impact of each of the above factors on our earnings, we also closely monitor new business volume and business growth.

 

 

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

 

Results of Operations

Six months ended December 31, 2013 and 2012

The following discussion of our results of operations constitutes management’s review of the factors that affected our financial and operating performance for the six months ended December 31, 2013 (“First Half 2014”) and 2012 (“First Half 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 six months ended December 31, 2013 and 2012:

 

 

Revenue

Consolidated revenue from continuing operations for the First Half 2014 was approximately $2,714,213, an increase of $371,897 or 16% from our consolidated revenue from continuing operations for the First Half 2013 of $2,342,326.  Excluding differences attributable to changes in foreign exchange rates, revenue increased 30% in the First Half 2014 as compared to the comparable period in the prior year.  Excluding differences attributable to changes in foreign exchange rates, the increase resulted primarily from an increase in Confirmed Capital and Credit Express revenue (26%), an increase in other revenue (3%) and an increase in payment services revenue (1%).  The Confirmed Capital and Credit Express revenue increase is mainly attributable to an increase in interest revenue which increased by 25% from First Half 2013 to First Half 2014 and an increase in fees charged to new customers to set up their accounts which increased by 3% from First Half 2013 to First Half 2014.  Excluding differences attributable to changes in foreign exchange rates, Confirmed Capital and Credit Express revenue was 11% higher in First Half 2014 as compared to First Half 2013 as a result of settled penalties associated with the default of one Confirmed Capital customer.  The remainder of the increase in interest revenue primarily results from an increase in the lines of credit we funded from approximately AUD$122 million during the First Half 2013 to AUD$133 million during the First Half 2014.  The other revenue increase is primarily attributable to increases in referrals of Moneytech’s customers to the 360 Markets Foreign Exchange.  The payment services revenue increase 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 $1,497,715 in the First Half 2014, an increase of $88,711 or 6% from our cost of revenue of $1,409,004 for the First Half 2013.  Excluding differences attributable to changes in foreign exchange rates, costs of revenue increased 20%.  Excluding differences attributable to changes in foreign exchange rates, the increase is primarily the result of increases in Confirmed Capital and Credit Express costs (12%), increases in payment services costs (4%) 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 increase in interest expense (7%), an increase in costs associated with setting up the accounts of new customers (6%), a decrease in insurance costs (1%) and an increase in fees associated with existing accounts (1%).  The increase in our interest expense primarily results from the growth in the volume of credit lines funded in the current period.  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 $283,186 from $933,313 in the First Half 2013 to $1,216,498 in the First Half   2014.  This was primarily because net interest revenues and fee revenues in the Confirmed Capital and Credit Express businesses increased.  Net interest revenues increased primarily because lines of credit funded increased, net interest margins increased as a result of a lag in decreasing the interest rates charged to our customers as the rate interest charged under the RPA decreased and increased rates of interest received from one Confirmed Capital customer as a result of its default.

 

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 First Half 2014 was $251,252, representing an increase of $182,566 from bad debt expense of $68,686 for the First Half 2013.  We regularly evaluate the credit quality of our customers and this increase is primarily attributable to a determination to increase the reserve for one customer in First Half 2014 in accordance with our credit and collections policy.

 

Our total operating expenses from continuing operations (other than bad debt) increased by $552,112 or 65% from $847,511 in the First Half 2013 to $1,399,623 in the First Half 2014.  This increase primarily reflects costs associated with becoming a public company, including legal and accounting fees, and other costs, such as board expenses, associated with operating as a public company, including the issuance of restricted stock and options to employees, consultants and non-employee directors of the company ($178,356 or 21%) and other professional services ($304,885 or 36%).

 

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 First Half 2014 we accrued AUD $320,000 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 works with Ernst and Young in preparing the claim and the payment expected is accrued as income when the grant criteria are met.

Our net loss from continuing operations before tax for the First Half 2014 was $88,882, as opposed to net income of $251,888 for First Half 2013.  As a result of $177,323 in taxes incurred in the First Half 2014, we incurred a net loss after tax for the First Half 2014 of $266,254, as compared to net income after tax for the First Half 2013 of $84,504.  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.  The decision was taken because revenue and profitability benchmarks included in 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 ($230,277) and Other income $560 contributed to the net loss of $297,530.

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 between the beginning and end of the period covered by the relevant financial statements.  We cannot and do not attempt to predict movements in exchange rates and do not hedge our exchange rate exposure.  The changes in net asset value occur because our net assets and operational activity are principally in Australian Dollars.  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 1.0386 and 1 to 0.9225 in the First Half 2013 and the First Half 2014, respectively.

 

 

Comparison of the fiscal year ended June 30, 2013 (“Fiscal 2013”), to the fiscal year ended June 30, 2012 (“Fiscal 2012”)

 

Set forth below are certain items from our operating statements for the years ended June 30, 2013 and 2012:

All amounts, other than percentages, in U.S. dollars

 

		Year Ended June 30, 2013				Year Ended June 30, 2012				Dollar Increase (Decrease)				Percentage Increase (Decrease)
Revenue		$	5,305,130			$	4,171,622			$	1,133,508				27	%
Confirmed capital and credit express			4,626,538				3,546,579				1,079,959				30	%
Interest revenue			2,537,679				1,903,372				634,307				33	%
Fees			2,072,743				1,635,851				436,893				27	%
Other revenue			16,116				7,357				8,759				119	%
Payment services			565,036				461,903				103,133				22	%
Giftcard program revenue			382,432				461,893				(79,461	)			(17	)%
Other revenue			182,605				10				182,594				1,797,573	%
Other revenue			113,556				163,139				(49,584	)			(30	)%
360FX customer referral			75,511				4,677				70,835				1,515	%
Foreign exchange			2,944				155,966				(153,022	)			(98	)%
Other revenue			35,100				2,496				32,604				1,306	%
Cost of revenue			3,001,573				2,715,227				286,346				11	%
Confirmed capital and credit express			2,331,401				2,061,897				269,504				13	%
Interest expense			1,905,472				1,711,918				193,554				11	%
Insurance			169,203				161,764				7,439				5	%
Account Issuing Expenses			231,453				179,242				52,210				29	%
Other			25,273				8,972				16,301				182	%
Payment services			42,909				95,558				(52,649	)			(55	)%
Gift card expenses			18,969				95,558				(76,589	)			(80	)%
Other			23,939				-				23,939				-
Depreciation and amortisation			621,173				557,609				63,564				11	%
Other cost of revenue			6,090				163				5,927				-
Gross profit			2,303,557				1,456,395				847,162				58	%
Operating expenses
Compensation expenses			730,268				806,711				(76,443	)			(9	)%
Research and development expense			472,229				199,144				273,085				137	%
Bad debt expenses			393,774				78,038				315,736				405	%
Occupancy expenses			254,132				221,000				33,132				15	%
Depreciation expense			75,844				36,402				39,442				108	%
General and administration expenses			251,220				226,936				24,284				11	%
Income (loss) from operations			126,090				(111,836	)			237,926				(213	)%
Other income			441,908				369,423				72,485				20	%
Income before income tax			567,998				257,587				310,411				121	%
Income tax expense			305,246				179,647				125,599				70	%
Net income			262,752				77,940				184,812				237	%
Other comprehensive (loss)
Foreign currency translation			(826,704	)			(253,280	)			(573,424	)			226	%
Comprehensive (loss)		$	(563,952	)			(175,340	)			(388,612	)			222	%

 

Revenue

Consolidated revenues from operations for the year ended June 30, 2013 (“Fiscal 2013”) were approximately $5,305,130, an increase of $1,133,508 or 27% compared with consolidated revenues from operations of $4,171,622 for the year ended June 30, 2012, (“Fiscal 2012”).  Excluding differences attributable to changes in foreign exchange rates, revenue increased 28% for the year ended June 30, 2013 as compared to the year ended June 30, 2012.  Excluding differences attributable to changes in foreign exchange rates, the increase resulted primarily from an increase in Confirmed Capital and Credit Express revenue (26%) and an increase in payment services revenue (3%).  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 (16%) and an increase in fees charged to new customers to set up their accounts (11%).  Excluding differences attributable to changes in foreign exchange rates the increase in revenues primarily reflects the increase in the volume of the lines of credit we funded which grew from approximately US$162 million during Fiscal 2012 to approximately US$245 million during Fiscal 2013.  Excluding differences attributable to changes in foreign exchange rates, the payment services revenue increase is mainly attributable to an increase in revenues attributable to MPOS and mPay.  MPOS and mPay are subsidiaries of Moneytech which provide money transfer services in Australia.  MPOS was acquired in fiscal 2013 and mPay was developed internally and began generating revenue in fiscal 2013.

 

Cost of Revenue ; Gross Profit ;

 

Our cost of revenue, which is composed principally of the fees and interest we pay on our RPA and amortization expense of capitalized research and development costs, was $3,001,573 for Fiscal 2013, an increase of $286,346 or 11% from our cost of sales of $2,715,227 for Fiscal 2012.  Excluding differences attributable to changes in foreign exchange rates, costs of revenue increased 11%.  Excluding differences attributable to changes in foreign exchange rates, the increase is primarily the result of increases in Confirmed Capital and Credit Express costs (10%).  Excluding differences attributable to changes in foreign exchange rates, the increase in Confirmed Capital and Credit Express costs is mainly the result of an increase in interest expense (7%) and an increase in account issuing expenses (2%).   Excluding differences attributable to changes in foreign exchange rates these primarily result from the growth in the volume of credit lines funded as discussed above.  Because we were able to decrease the rates of interest charged to our customers at a slower rate than the decrease in the rate of interest paid by us, we were able to increase our gross profit from $1,456,395 in Fiscal 2012 to $2,303,557 in Fiscal 2013, a rate of increase which exceeded the growth rate in our revenues.

 

Operating Expenses; Bad Debt Expense; Income from Operations

The other significant factor in determining our overall profitability is our operating expenses, in particular our bad debt expense.  Our bad debt expense for Fiscal 2013 was $393,774, an increase of $315,736 or 405% from bad debt expense of $78,038 for Fiscal 2012.  We believe the level of bad debt experienced in Fiscal 2013, 0.21% of credit extended, is acceptable and the increase over Fiscal 2012 reflects the extraordinarily low level of bad debt experienced in Fiscal 2012, when bad debt expense was 0.05% of credit extended.

 

The percentage of delinquent balances in our portfolio was 1.60% as of June 30, 2013 and 2012, respectively.  The percentage of delinquent balances in our portfolio averaged 1.85% and 2.24% in the fiscal year ended June 30, 2013 and 2012, respectively.  The average collection period in our portfolio decreased from 47 days at the beginning of Fiscal 2013 to 45 days at June 30, 2013 and remained constant at 47 days during the fiscal year ended June 30, 2012.  Bad debts as a percentage of amount funded was 0.21% and 0.05% in the fiscal year ended June 30, 2013 and 2012 respectively.

 

Our total operating expenses (other than bad debt) increased by 20% from $1,490,193 in Fiscal 2012 to $1,783,693 in Fiscal 2013.  Excluding differences attributable to changes in foreign exchange rates, total operating expenses (other than bad debt) increased by 20%. Our ability to control the growth in our operating expenses, other than bad debt, from Fiscal 2012 to Fiscal 2013, while increasing the volume of our business enabled us to generate income from operations in Fiscal 2013 as compared to the loss from operations generated in Fiscal 2012.  The biggest increase was from the research and development cost that was not capitalized in Fiscal 2013 for Moneytech Exchange and mPay.

 

The design and technical development of the Moneytech Exchange and our payment services platform are completed and both products are operational for purposes of providing the services we currently offer. Although we will continue to upgrade and add additional functionality to the Moneytech Exchange and our payment services platform 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.  We do anticipate a slight increase in the rate of growth of our operating expenses this year due to, among other factors, the fact that Moneytech’s operational financial statements prior to June 30, 2013, do not include any of the expenses associated with being a public company nor the expenses incurred by WikiTechnologies before it was discontinued.

Other Income (Expense); Provision for income taxes; net income (loss)

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 government.

In both Fiscal 2012 and 2013, we received research grants from the Australia government.  During Fiscal year 2013 we received $526,962, as compared to $302,876 received in Fiscal 2012.  The increase was due to our increased costs for the development of mPay during Fiscal 2013.  Interest income increased from $109,899 to $114,309 due to the increase in cash reserves from Fiscal 2012 to 2013.  Other expenses increased from $14,797 to $182,566 due to costs related to the exchange agreement.

 

Our net income before tax for Fiscal 2013 was $567,998, a 121% increase from net income of $257,587 for Fiscal 2012. As a result of the income, we incurred $305,246 in taxes in Fiscal 2013 and $179,647 in taxes for Fiscal 2012.  Our net income for Fiscal 2013 of $262,752, as compared to net income after tax for Fiscal 2012 of $257,586 was mainly due to the increase in revenue.

Other comprehensive income.

Our other comprehensive income consists of gains and losses in net asset value that occur due to changes in foreign exchange rates.  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 exchange rates and do not hedge our foreign exchange rate exposure.  The changes in net asset value occur because our net assets and operational activity are principally in Australian Dollars. 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 1.0269 and 1 to 1.0323 in the fiscal years ended June 30, 2013 and 2012 respectively.

 

Liquidity and Capital Resources

 

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

 

 

Comparison of Balance Sheet Data as at December 31, 2013, June 30, 2013 and June 30, 2012

 

 

 

Cash Flow Comparison

 

After adjusting for the cash deemed used in operating activities as a result of the increase in the volume of credit lines we made available each year, we have produced positive net cash from operating activities every year since July 2009.  Our revenue generating activities have consisted primarily of making credit lines available to our customer and our principal cost of sales has consisted of interest charges and other fees payable under our Wholesale Facility.

 

Comparison of the Statement of Cash Flows for the Six Months Ended December 31, 2013 and 2012 :

Cash (Used in) Operating Activities

 

During the six months ended December 31, 2013, we used approximately $132,257 of net cash in our operating activities. This reflects our net loss from continuing operations of $266,254 partially offset by a net of $133,997 provided by changes in operating assets and liabilities and adjustments for non-cash items. Cash provided by working capital items was primarily impacted by an increase in other assets of $460,933 and adjustments for non-cash items of $536,043   Other assets increased mainly due to increases in grants receivable. Adjustments for non-cash items consisted of depreciation and amortization in the amount of $357,687 and stock options and shares issued for compensation of $178,356.

 

During the six months ended December 31, 2012, we used approximately $585,086 of net cash in our operating activities.  This reflects our net income of $84,504 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 a decrease in trade payables of $1,191,086, reflecting a decrease in buyer payments and sellers liabilities and other items providing $175,989. Adjustments for non-cash items consisted entirely of depreciation and amortization of $345,507.

  

Cash (Used) in Investing Activities

During the six months ended December 31, 2013, net cash used in investing activities of $395,928 primarily reflects $322,875 in capitalized costs incurred on the development of intangible assets,principally software related to The Moneytech Exchange and mPay.

 

During the six months ended December 31, 2012, net cash used in investing activities of $588,536 primarily reflects capitalized costs incurred on the development of intangible assets, principally software related to The Moneytech Exchange.

  

Cash Provided by Financing Activities 

During the six months ended December 31, 2013, net cash provided by financing activities of $429,299 primarily reflects an increase in our borrowings under the Wholesale Loan Facility of $457,395.  Withdrawals from our capital reserve accounts by our customers of $28,096 account for the difference.

During the six months ended December 31, 2012 net cash provided by financing activities of $807,650 primarily reflects an increase in our borrowings under the Wholesale Loan Facility of $531,199.  Contributions to our capital reserve accounts by from our customers of $347,921 and loans repaid of $71,470 account for the difference.

 

Cash (Used in) discontinued operations 

During the six months ended December 31, 2013, net cash used in discontinued operations of $65,287 primarily reflects the losses incurred by the Wiki business of $297,530, offset by adjustments for non-cash items and changes in operating assets and liabilities providing $88,149 and net cash provided by financing activities of $150,000.  Net cash used by investing activities of $5,906 accounts for the difference.

Net cash (outflow)

During the six months ended December 31, 2013, net cash decreased by $306,089 as compared to the six months ended June 30, 2013, where net cash decreased by $241,489.

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.

 

Comparison of the Statement of Cash Flows for the Fiscal Years Ended June 30, 2013 and 2012

 

Cash used in Operating Activities

 

For Fiscal 2013, we used approximately $2,855,751 of net cash in our operating activities.  This reflects our net income of $262,752 less $3,815,520 used by changes in operating assets and liabilities and adjustments for non-cash items providing $697,017.  Adjustments for non-cash items consisted entirely of depreciation and amortization. The increase in operating assets and liabilities was primarily the result of an increase in trade receivables of $3,555,934, reflecting the increase in the volume of credit lines we provided.

 

 

For Fiscal 2012, we used approximately $4,034,980 of net cash in our operating activities.  This reflects our net income of $77,940 less $4,706,931 used by changes in operating assets and liabilities and adjustments for non-cash items providing $594,011.  Adjustments for non-cash items consisted entirely of depreciation and amortization. Cash used in working capital items and other activities was primarily the result of an increase in trade receivables of $7,765,220 reflecting an increase in the volume of credit lines we provided offset by an increase in trade payables of $3,737,665 reflecting an increase in balances associated with the new Confirmed Capital business.

 

Cash Used in Investing Activities

 

During Fiscal 2013, net cash used in investing activities of $824,747 primarily reflects $747,580 in capitalized costs incurred on the development of intangible assets, principally software related to the Moneytech Exchange and mPay, $110,392 invested in our subsidiary  mPayments Pty Ltd. and $32,063 used to purchase property, plant and equipment, partially offset by $65,288 realized upon consummation of the Exchange Agreement.

 

During Fiscal 2012, net cash used in investing activities of $790,967 reflects $706,496 in capitalized costs incurred on the development of intangible assets, principally software related to the Moneytech Exchange and $84,471 used to purchase property, plant and equipment .

 

Cash Provided by Financing Activities

 

During Fiscal 2013, net cash provided by financing activities of $6,096,650 reflects an increase in our borrowings under the Wholesale Loan Facility of $3.906 million, contributions to our capital reserve account received from our customers of $2.360 million, partially offset by payments of loans.

 

During Fiscal 2012, net cash provided by financing activities of $7,751,988 consisted entirely of an increase in the amounts borrowed under the RPA.

Credit Facility

In 2005 we entered into a Receivables Purchase Agreement (the “Wholesale Facility” or the “RPA”) with Westpac Banking Corporation, 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 Westpac 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 December 31, 2013 the total amount drawn against the facility was $25,593,086.  The agreement is renewed annually on an agreed anniversary date, the latest of which was December 31, 2013.  In 2014, the facility was extended until December 31, 2014, and the interim agreed upon limit was been extended to AUD$40 million 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.

Insurance

As a condition of the RPA, the receivables due Moneytech from its customers or their counterparties are insured pursuant to a policy issued by Euler Hermes, a Standard & Poor’s rated Trade Credit insurance provider.  Pursuant to this policy, Moneytech would bear the first $500,000 of losses incurred in any calendar year, after which any bad debt losses are borne by Euler Hermes.  This policy is renewed annually.

 

 

Commitments for Capital Expenditures

We do not have any commitments for capital expenditures.

The design and technical development of The Moneytech Exchange and our payment platform are completed and they are operational. Although we will continue to upgrade and add additional functionality to The Moneytech Exchange and our payment platform, the rate of growth of these expenses should be less than the rate of growth of our revenue.

 

Off Balance Sheet Items

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

 

Critical Accounting Policies

Use of Estimates

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

  

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

 

Allowance for Doubtful Accounts

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

 

Revenue Recognition

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

 

Concentration of Credit Risk

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

 

Cost of Revenue

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

 

 

Exchange (Loss) Gain

During the six months ended December 31, 2013 and the fiscal year ended June 30, 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. Properties

Our corporate Australian headquarters are located at Level6/97 Pacific Highway, North Sydney NSW 2060 Australia, where we lease approximately 270 square meters of office and operations space pursuant to a lease agreement expiring in August 2014, subject to our right to renew for an additional three years.  The annual rent for the premises was initially AUD$125,490 and increases 4% per year.  In addition we occupy an office on Albany Highway, Victoria Park, Western Australia.  The initial term of the lease for this space expires July 31, 2015, at which time we can renew the lease for an additional 2 years.  The rent is AUD $1,375 per month subject to an inflation adjustment on August 1, 2014 and to a reset to market rate if we elect to renew the lease in August 2015.

 

Management believes the terms of the leases are consistent with market standards and were arrived at through arm’s-length negotiation.

 

  Item 4. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.

 

Change in Control

 

As a result of the issuance of 5,300,000 shares of common stock to the former shareholders of Moneytech, including the shares issued to Hugh Evans, the Chairman and Managing Director of Moneytech, and the issuance to Mr. Evans of 5,000 shares of Series B Preferred Stock, there has been a change in control of our company. Under the terms of the Series B Certificate of Designation, Mr. Evans, as the holder of the Series B Shares has the right, until June 30, 2018, to (A) elect the majority of our Board of Directors and (B) vote on all other matters presented to 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 Preferred Shares will have no voting rights and we may redeem the Series B Shares for a per share price of one tenth of a cent ($0.001.  The Series B Shares do not have any conversion rights and are not be entitled to receive any dividends, distributions, or other economic or financial interest in our company, and in the event of a liquidation, dissolution, or winding up of our company, whether voluntary or involuntary, the holders of Series B Shares are entitled to receive out of the assets of the company, whether such assets are capital or surplus of any nature, the sum of one tenth of a cent ($0.001) per Series B Share, after payment to the holders of the common stock and the holders of any other series or class of the equity securities of our company ranking senior to the common stock.

 

Security Ownership

 

The following table sets forth information about the beneficial ownership of our common stock as of  April 1, 2014 by:

 

	●	each person known to us to be the beneficial owner of more than 5% of our common stock and our series B preferred stock, our only voting securities;
	●	each named executive officer;
	●	each of our directors; and
	●	all of our executive officers and directors as a group.

 

 

Unless otherwise noted below, the address of each beneficial owner listed on the table is c/o Source Financial, Inc., Level6/97 Pacific Highway, North Sydney NSW 2060, Australia. We have determined beneficial ownership in accordance with the rules of the SEC. Except as indicated by the footnotes below, we believe, based on the information furnished to us, that the persons and entities named in the tables below have sole voting and investment power with respect to all shares of common stock that they beneficially own, subject to applicable community property laws, where applicable.

 

In computing the number of shares of common stock beneficially owned by a person and the percentage ownership of that person, we deemed outstanding shares of common stock subject to options or warrants held by that person that are currently exercisable or exercisable within 60 days of February 18, 2014. We, however, did not deem these shares outstanding for the purpose of computing the percentage ownership of any other person.

 

Applicable percentage voting power is based on 7,671,632 shares of common stock and 5,000 shares of Series B Preferred Stock outstanding on February 18, 2014. Holders of the Company’s Series B Shares are entitled to elect a majority of our Board of Directors through June 30, 2018 and vote together with holders of common stock as a single class on all matters presented to holders of our common stock, with each vote per Series B Share equal to 1,000 shares of common stock.

 

 

Holders of More than 5%
Christopher John Taylor and Angus James Taylor ATF CTJ Super Fund and Christopher John Taylor and Angus James Taylor ATF The Taylor Family Superannuation Fund No.2 PO Box 66 Manly NSW 2095 Australia			629,680				8.21	%			0				—				4.97	%

 

(1)

Percentage total voting power represents voting power with respect to all shares of our common stock and Series B preferred stock, as a single class. Except as provided in the certificate of designation creating the Series B preferred stock or as may be required by law, the holder of Series B Shares and holders of common stock vote together as a single class on all matters upon which holders of common stock are entitled to vote with holders of Series B Shares entitled to 1,000 votes per share of Series B Shares through June 30, 2018 and each holder of common stock entitled to one vote per share of common stock. The holder(s) of Series B Shares are entitled to elect a majority of the members of our Board of Directors through June 30, 2018.

 

 

	(2)	Represents shares of common stock registered in the name of BIX Holdings Pty Ltd ATF The Atherstone Trust & The Evans Family Superannuation Trust, a family trust of which Mr. Evans is the trustee.
	(3)	Represents shares that may be acquired upon exercise of options at an exercise price of $2.00 per share

 

 

Mr. Evans was the founder and CEO of Agate Technology, which he developed and built to become a leading niche storage distribution company in both Australia and New Zealand.  Mr. Evans served as Chief Executive Officer of Agate Technology from 1991 to 1999.  Agate Technology was acquired by the South African conglomerate Siltek in 1999. Mr. Evans also has been responsible for the organization and sale of three other technology businesses.  The prior experience of Mr. Evans as an executive officer and director of Moneytech Limited prior to the consummation of the Share Exchange qualifies him to serve as a director of our company.

 

Brian Pullar has been our Chief Financial officer since October 16, 2013. Mr. Pullar is a Chartered Accountant (Australia and South Africa) with nearly twenty years of experience in financial services.  He was a Senior Vice President at Citigroup in Australia, where he worked from June 2000 until January 2013.  Having joined as an accountant within the finance function, his responsibilities subsequently included Regulatory Reporting Manager (2.5 years), Financial Controller (4 years) and Product Controller (3 years).  He worked across the institutional stock broking / advisory, corporate and retail banking businesses.

 

Prior to Citigroup he worked in London with Abbey National Treasury Services from September 1999 to April 2000, as a Project Accountant, with Warburg Dillon Read from October 1998 to May 1999, as a Consultant, and from July 1997 to June 1998, as a Market Risk Analyst with Credit Suisse Financial Products. From January 1994 to March 1997, Mr. Pullar was employed as a Trainee and Qualified Accountant by Ernst and Young in Johannesburg and Los Angeles.

 

Mr. Pullar’s skills include financial controlling, financial management, statutory accounts preparation, regulatory reporting and capital requirements for banks and broker dealers, as well as product accounting and control, financial and regulatory systems implementation and liaison with regulatory authorities.

 

Klaus Selinger has served as a   Director since June 30, 2013 and Chairman of the Board since July 2013. He   has a background in Financial Markets and Financial Systems, and has assisted in the development of complex financial solutions, including off-balance sheet finance structures, venture capital raising and equity finance. Since 2009, Mr. Selinger has been a principal of Dequity Partners, a financial services firm based in Sydney, Australia.  Mr. Selinger was the Chief Executive Officer of Jacobsen Entertainment Ltd, an Australian entertainment industry firm, formerly listed on the Sydney Australia Stock Exchange, from 2002 to 2003, and Chief Executive Officer of Bioenergy Corporation Ltd, a PNG incorporated biofuel firm formerly listed on the Sydney Australia Stock Exchange, from 1989 to 1991. He is a certified practicing accountant in Australia and in that capacity served as a member of Charles J. Berg & Partners from 1972 to 1982, Mann Judd and Rowlands from 1984 to 1990.Mr. Selinger received a Bachelor of Business degree in Accounting from the University of Technology, Sydney, Australia.  Mr. Selinger’s varied management experience with a number of listed companies qualifies him to serve as a director of our Company.

 

 

Richard Allely has served as a   Director since June 30, 2013. He has held senior management roles with leading Australian & International companies, including Tenix Pty Limited (formerly Transfield Pty Limited), John Fairfax Holdings Limited, Boral Limited and James Hardie Industries Limited. For more than ten years prior to October 2012, Mr. Allely was the Managing Director and CEO of PMP Limited, the largest printing and distribution company in Australia and New Zealand listed on the ASX. Mr. Allely is currently a Non-Executive Director and Audit Committee Chairman for the PGA of Australia, and was recently appointed to the Advisory Board for Renoir Consulting Group. Mr. Allely has held a number of non-executive roles in the past including Chairman of Australian Property Monitors Pty Ltd and Independent member with the WorkCover Authority of NSW. He is a FCPA (Fellow Australian Society of CPA),  FCSA (Fellow Chartered  Institute of Company Secretaries Australia), and FAICD (Fellow Australian Institute of Company Directors).  Mr. Allely’s varied management experience with a number of listed companies qualifies him to serve as a director of our Company.

 

Each of our Directors is elected annually and serves until his successor is duly elected and qualified or until his earlier death, resignation or removal.  Our officers are elected annually and serve at the discretion of our Board of Directors.

 

  Director Independence

 

Our Board of Directors has determined that Klaus Selinger, John Wolfgang and Richard Allely are "independent directors" within the meaning of  NYSE MKT Rule 803A.

 

Board Committees

 

We maintain the following committees of the Board of Directors: the Audit Committee, the Compensation Committee and the Nominating Committee. Each committee is comprised entirely of directors who are “independent” within the meaning of NYSE MKT Rule 803A. Each committee acts pursuant to a separate written charter, and each such charter has been adopted and approved by the Board of Directors. Copies of the committee charters are available on our website at sourcefinancial.com under the heading “Investor Relations.”

 

Audit Committee . Messrs. Wolfgang, Selinger and Allely are members of the Audit Committee. Mr. Wolfgang serves as Chairman of the Audit Committee and also qualifies as an "audit committee financial expert," as that term is defined in Item 407(d)(5)(ii) of Regulation S-K. The Board has determined that each member of our Audit Committee meets the financial literacy requirements under the Sarbanes-Oxley Act and SEC rules and the independence requirements under NYSE MKT Rule 803A. We did not have an Audit Committee prior to the acquisition of Moneytech on June 30, 2013.

 

Our Audit Committee is responsible for preparing reports, statements and charters required by the federal securities laws, as well as:

 

	●	overseeing and monitoring the integrity of our consolidated financial statements, our compliance with legal and regulatory requirements as they relate to financial statements or accounting matters, and our internal accounting and financial controls;
	●	preparing the report that SEC rules require be included in our annual proxy statement;
	●	overseeing and monitoring our independent registered public accounting firm's qualifications, independence and performance;
	●	providing the Board with the results of its monitoring and its recommendations; and
	●	providing to the Board additional information and materials as it deems necessary to make the Board aware of significant financial matters that require the attention of the Board.

 

Compensation Committee . Our Compensation Committee is composed of Messrs. Selinger (Chairman), Wolfgang and Allely. The Compensation Committee is responsible for:

 

	●	establishing the Company’s general compensation policy, in consultation with the Company’s senior management, and overseeing the development and implementation of compensation programs.
	●	reviewing and approving corporate goals and objectives relevant to the compensation of the CEO, and evaluating the performance of the CEO at least annually in light of those goals and objectives and communicating the results of such evaluation to the CEO and the Board, and has the sole authority to determine the CEO’s compensation level based on this evaluation, subject to ratification by the independent directors on the Board. In determining the incentive component of CEO compensation, the Committee will consider, among other factors, the Company’s performance and relative stockholder return, the value of similar incentive awards to CEOs at comparable companies, the awards given to the CEO in past years, and such other factors as the Committee may determine to be appropriate.