Quarterly Report (10-q)

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

(Mark One)

[X]	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934

	For the quarterly period ended March 31, 2015

[ ]	TRANSITIONAL REPORT UNDER SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934

	For the transitional period from ______ to ______

Commission File No. 000-54988

PSM HOLDINGS, INC.

(Exact name of registrant as specified in its charter)

Delaware	90-0332127
(State or other jurisdiction of incorporation of organization)	(I.R.S. Employer Identification Number)

5900 Mosteller Drive, Oklahoma City, Oklahoma	73112
(Address of principal executive office)	(Zip code)

(Registrant’s telephone number, including area code): (405) 753-1900

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding twelve months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Yes [X] No [ ]

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 229.405 of this chapter) during the preceding twelve months (or for such shorter period that the registrant was required to submit and post such files).

Yes [X] No [ ]

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

Large accelerated filer [ ]	Accelerated filer [ ]
Non-accelerated filer [ ]	Smaller reporting company [X]

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yes [ ] No [X]

As of May 20, 2015, there were 27,507,759 shares of registrant’s common stock outstanding.

PSM HOLDINGS, INC.

Report on Form 10-Q

For the quarter ended March 31, 2015

TABLE OF CONTENTS

PART I - FINANCIAL INFORMATION		4

Item 1.	Financial Statements	4

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	24

Item 3.	Quantitative and Qualitative Disclosures about Market Risk	28

Item 4.	Controls and Procedures	28

PART II - OTHER INFORMATION		29

Item 1A.	Risk Factors	29

Item 6.	Exhibits	30

Forward-Looking Statements

This report contains statements that plan for or anticipate the future. Forward-looking statements include statements about the future of operations involving the mortgage brokerage or loan business, statements about our future business plans and strategies, and most other statements that are not historical in nature. In this report, forward-looking statements are generally identified by the words “anticipate,” “plan,” “intend,” “believe,” “expect,” “estimate,” and the like. Although management believes that any forward-looking statements it makes in this document are reasonable, because forward-looking statements involve future risks and uncertainties, there are factors that could cause actual results to differ materially from those expressed or implied. For example, a few of the uncertainties that could affect the accuracy of forward-looking statements include the following:

●

The competitive and regulatory pressures faced by us in the mortgage industry;

●

The hiring and retention of key employees;

●

Expectations and the assumptions relating to the execution and timing of growth strategies;

●

The assumption of unknown risks or liabilities from past or future business combination transactions;

●

Any decline in the economy;

●

A significant increase in interest rates;

●

A failure to increase our warehouse lines of credit to facilitate additional loan originations and related revenue;

●

A loss of significant capacity in our warehouse lines of credit;

●

The loss from any default on mortgage loans originated by us before they are sold to third parties;

●

The loss of branch offices from our network;

●

Uncertainty of the secondary mortgage market;

●

Inability to expand market presence through recruiting;

●

Failure to successfully generate loan originations or otherwise market our services;

●

Failure to meet minimum capital requirements to maintain our Full Eagle or licensing with HUD or other state regulatory agencies;

	●	Any default in our agreements with preferred shareholders; and
	●	Failure to raise sufficient funds for operating needs during periods of reduced cash flows.
	●	Failure to comply with debt covenants which could result in the immediate repayment of notes payable.

In light of the significant uncertainties inherent in the forward-looking statements made in this report, the inclusion of this information should not be regarded as a representation by us or any other person that our objectives and plans will be achieved.

Introductory Comment

Throughout this Quarterly Report on Form 10-Q, unless otherwise designated, the terms “we,” “us,” “our,” “the Company,” and “our Company” refer to PSM Holdings, Inc., a Delaware corporation, and its consolidated subsidiaries.

PART I - FINANCIAL INFORMATION

Item 1. Financial Statements

PSM HOLDINGS, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

	March 31, 2015 (Unaudited)			June 30, 2014
ASSETS
Current Assets:
Cash & cash equivalents	$	591,718		$	764,931
Accounts receivable - related party, net		-			683,992
Accounts receivable- non related party, net		1,512,860			43,974
Loans held for sale		43,630,170			15,416,781
Prepaid expenses		143,505			142,096
Other assets		4,265			16,058
Total current assets		45,882,518			17,067,832

Property and equipment, net		265,504			582,118

Cash restricted for surety bonds		732,500			755,701
Loans receivable		87,778			88,898
Employee advances		57,099			500
Intangible assets, net of accumulated amortization, March 31, 2015 - $117,349 and June 30, 2014 - $599,270		2,779,512			3,122,590
Security deposits		46,075			44,453

Total Assets	$	49,850,986		$	21,662,092


LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable	$	1,176,734		$	602,351
Line of credit - related party		140,411			-
Warehouse lines of credit payable- related party		43,134,349			14,942,781
Warehouse lines of credit payable- non related party		-			474,000
Short term financing		8,194			15,584
Notes payable - related party		120,000			-
Notes payable - non related party		750,000			-
Dividend payable – related party		492,155			82,500
Dividend payable – non related party		265,103			51,000
Accrued liabilities		1,052,610			643,915
Cash held in escrow for renovation loans		-			23,201
Total current liabilities		47,139,556			16,835,332


Total Liabilities		47,139,556			16,835,332

Stockholders' Equity:
Preferred stock, $0.001 par value, 10,000,000 shares authorized:
Convertible Series A, 3,700 shares outstanding at March 31, 2015 and June 30, 2014		4			4
Convertible Series B, 2,000 shares outstanding at March 31, 2015 and June 30, 2014		2			2
Convertible Series C, 1,800 shares outstanding at March 31, 2015 and June 30, 2014		2			2
Convertible Series D, 1,400 shares outstanding at March 31, 2015 and June 30, 2014		1			1
Convertible Series E, 822.5 shares and 0 shares outstanding at March 31, 2015 and June 30, 2014		1			-
Common stock, $0.001 par value, 400,000,000 shares authorized, 27,507,759 and 29,257,759 shares issued and outstanding at March 31, 2015 and June 30, 2014, respectively		27,508			29,258
Treasury stock, at cost: shares held 21,600 at March 31, 2015 and June 30, 2014		(22,747	)		(22,747	)
Additional paid in capital		25,676,027			25,696,013
Accumulated deficit		(22,969,368	)		(20,875,773	)
Total Stockholders' Equity		2,711,430			4,826,760

Total Liabilities and Stockholders' Equity	$	49,850,986		$	21,662,092

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

PSM HOLDINGS, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS

(UNAUDITED)

	For the three months ended March 31,						For the nine months ended March 31,
	2015			2014			2015			2014
Revenues:
Revenues - related party	$	-		$	465,282		$	234,012		$	5,412,804
Revenues - non related party		5,142,485			1,858,576			11,128,925			4,473,329
Total revenues		5,142,485			2,323,858			11,362,937			9,886,133

Operating expenses:
Selling, general & administrative		5,422,530			4,147,000			12,858,669			14,356,237
Depreciation and amortization		32,985			76,358			100,730			223,041
Total operating expenses		5,455,515			4,223,358			12,959,399			14,579,278

Loss from operations		(313,030	)		(1,899,500	)		(1,596,462	)		(4,693,145	)

Non-operating income (expense):
Interest expense		(29,969	)		(2,007	)		(48,615	)		(3,994	)
Interest and dividend income		1,722			1,953			4,804			5,455
Realized gain (loss) on sale or disposal of assets		(296,941	)		(18,628	)		(453,322	)		(18,628	)
Other income		-			38,000			-			88,500
Total non-operating income (expense)		(325,188	)		19,318			(497,133	)		71,333

Loss from continuing operations before income tax		(638,218	)		(1,880,182	)		(2,093,595	)		(4,621,812	)

Provision for income tax		-			-			-			-

Net loss		(638,218	)		(1,880,182	)		(2,093,595	)		(4,621,812	)

Dividends on preferred stock		(486,125	)		(85,500	)		(757,258	)		(256,500	)

Comprehensive loss	$	(1,124,343	)	$	(1,965,682	)	$	(2,850,853	)	$	(4,878,312	)

Net loss per common share and equivalents - basic and diluted loss from operations	$	(0.04	)	$	(0.07	)	$	(0.10	)	$	(0.17	)

Weighted average shares of share capital outstanding - basic & diluted		27,507,759			29,468,259			27,530,653			29,437,446

Weighted average number of shares used to compute basic and diluted loss per share for the three and nine month periods ended March 31, 2015 and 2014 is the same since the effect of dilutive securities is anti-dilutive.

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

PSM HOLDINGS, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENT OF CASH FLOWS

(UNAUDITED)

	For the nine months ended March 31,
	2015			2014
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss	$	(2,093,595	)	$	(4,621,812	)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization		100,730			223,041
Restricted cash		23,201			(402,989	)
Disposition of property and equipment		272,022			-
Disposition of intangible assets		296,941			-
Stock received from sale of assets		(124,250	)		-
Share based payment awards		72,573			34,837
Stock issued to third parties in lieu of cash		-			9,935
Stock issued to employees in lieu of cash		-			6,624
(Increase) decrease in current assets:
Accounts receivable		(784,894	)		336,417
Mortgage loans held for sale		(28,213,389	)		2,273,856
Prepaid expenses		(1,409	)		(144,822	)
Employee advances		(56,599	)		11,789
Other current assets		11,793			(10,143	)
Increase (decrease) in current liabilities:
Accounts payable		574,383			319,247
Accrued liabilities		408,694			(755,931	)
Renovation escrow		(23,201	)		151,310
Net cash used in operating activities		(29,537,000	)		(2,568,641	)

CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment		(10,000	)		(208,425	)
Cash received from (paid for) security deposits		(1,621	)		(11,341	)
Net cash used in investing activities		(11,621	)		(219,766	)

CASH FLOWS FROM FINANCING ACTIVITIES:
Cash borrowed (paid) on short term financing		(7,391	)		957,235
Cash paid for preferred dividends		(133,500	)		(256,500	)
Cash proceeds from warehouse lines of credit - non related party		1,609,894			58,577,202
Cash payments on warehouse lines of credit - non related party		(2,083,894	)		(60,405,732	)
Cash proceeds from warehouse lines of credit - related party		239,236,527			234,308,806
Cash payments on warehouse lines of credit - related party		(211,044,959	)		(234,722,052	)
Cash proceeds from the sale of preferred stock		787,200			-
Cash proceeds on loans receivable		141,531			-
Cash proceeds on note payable from related party		120,000			-
Cash proceeds on note payable from nonrelated party		750,000			-
Net cash provided by (used in) financing activities		29,375,408			(1,541,041	)

NET DECREASE IN CASH & CASH EQUIVALENTS		(173,213	)		(4,329,448	)

CASH & CASH EQUIVALENTS, BEGINNING BALANCE		764,931			4,515,618

CASH & CASH EQUIVALENTS, ENDING BALANCE	$	591,718		$	186,170

See Note 4 - Statement of Cash Flows Additional Disclosures

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

PSM HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

NOTE 1 – NATURE OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Company Background

As used herein and except as otherwise noted, the terms “Company” or “PSMH” shall mean PSM Holdings, Inc., a Delaware corporation.

The Company was incorporated under the laws of the State of Utah on March 12, 1987, as Durban Enterprises, Inc. On July 19, 2001, Durban Enterprises, Inc., created a wholly-owned subsidiary called Durban Holdings, Inc., a Nevada corporation, to facilitate changing the domicile of the Company to Nevada. On August 17, 2001, Durban Enterprises, Inc. merged with and into Durban Holdings, Inc., leaving the Nevada corporation as the survivor. The Company retained the originally authorized 100,000,000 shares at $0.001 par value.

On May 18, 2005, Durban Holdings, Inc. completed the acquisition of all of the outstanding stock of PrimeSource Mortgage, Inc., a Texas corporation, by a stock for stock exchange in which the stockholders of PrimeSource Mortgage, Inc. received 10,250,000 shares, or approximately 92% of the outstanding stock of the Company. Following the acquisition, effective May 18, 2005, the name of the parent “Durban Holdings, Inc.”, was changed to “PSM Holdings, Inc.” For reporting purposes, the acquisition was treated as an acquisition of the Company by PrimeSource Mortgage, Inc. (reverse acquisition) and a recapitalization of PrimeSource Mortgage, Inc. The historical financial statements prior to May 18, 2005, are those of PrimeSource Mortgage, Inc. Goodwill was not recognized from the transaction.

On December 14, 2011, PSM Holdings, Inc., created a wholly-owned subsidiary called PSM Holdings, Inc., a Delaware corporation, to facilitate changing the domicile of the Company to Delaware. On December 29, 2011, PSM Holdings, Inc. merged with and into PSM Holdings, Inc., leaving the Delaware Corporation as the survivor. The Company retained the originally authorized 100,000,000 shares at $0.001 par value.

Business Activity

The Company originates mortgage loans funded either directly off its warehouse lines of credit or through brokering transactions to other third parties. Approximately 95% of the Company’s mortgage origination volume is banked off of its current warehouse lines. The Company has relationships with multiple investors who purchase the loans funded on its warehouse lines. All of the Company’s lending activities are conducted by its subsidiary, PrimeSource Mortgage, Inc., a Delaware corporation (“PSMI”).

Historically, a significant portion of the Company’s business has been referral based and purchase orientated (versus refinance). The Company does not directly participate in the secondary markets and further does not maintain a servicing portfolio. Approximately 75% of total loan applications are generated from business contacts and previous client referrals. Realtor referrals and other lead sources account for the balance of loan applications.

The Company currently operates or is licensed in the following states: Arkansas, California, Colorado, Florida, Kansas, Missouri, Montana, New Jersey, New Mexico, North Dakota, Oklahoma, Oregon, Texas and Utah.

Basis of Presentation

The accompanying unaudited consolidated financial statements have been prepared in accordance with the rules and regulations of the Securities and Exchange Commission for the presentation of interim financial information, but do not include all the information and footnotes required by generally accepted accounting principles for complete financial statements. It is recommended that these consolidated financial statements be read in conjunction with the audited financial statements for the year ended June 30, 2014, which were filed with the Securities and Exchange Commission on October 14, 2014 on Form 10-K for the year ended June 30, 2014. In the opinion of management, all adjustments considered necessary for a fair presentation have been included. Operating results for the three and nine months ended March 31, 2015 are not necessarily indicative of the results that may be expected for the year ending June 30, 2015.

Summary of Significant Accounting Policies

The following summary of significant accounting policies of the Company is presented to assist in the understanding of the Company’s financial statements. The financial statements and notes are the representation of the Company’s management who is responsible for their integrity and objectivity. The financial statements of the Company conform to accounting principles generally accepted in the United States of America (GAAP). The Financial Accounting Standards Board (FASB) is the accepted standard-setting body for establishing accounting and financial reporting principles.

Principles of Consolidation

The consolidated financial statements include the accounts of PSM Holdings, Inc., its wholly-owned subsidiary WWYH, Inc., and WWYH's wholly-owned subsidiary Prime Source Mortgage, Inc. All material intercompany transactions have been eliminated in the consolidation.

Use of Estimates

Management uses estimates and assumptions in preparing financial statements. Those estimates and assumptions affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities, and the reported revenues and expenses. Accordingly, actual results could differ from those estimates. Significant estimates include the value of intangibles, estimated depreciable lives of property, plant and equipment, estimated valuation of deferred tax assets due to net operating loss carry-forwards and estimates of uncollectible amounts of loans and notes receivable.

Cash and Cash Equivalents

For the purposes of the statement of cash flows, cash and cash equivalents include cash on hand and cash in checking and savings accounts, and all investment instruments with an original maturity of three months or less.

Restricted Cash

The Company has certain cash balances set aside as collateral to secure various bonds required pursuant to the licensing requirements in some of the states in which it conducts business.

Accounts Receivable

Accounts receivable represent commissions earned and fees charged on closed loans that the Company has not received. Accounts receivable are stated at the amount management expects to collect from balances outstanding at period-end. The Company estimates the allowance for doubtful accounts based on an analysis of specific accounts.

Employee Advances and Loans Receivable

Employee advances and loans receivable are stated at the unpaid principal balance. Interest income is recognized in the period in which it is earned.

Loans Held For Sale

The Company originates all of its residential real estate loans with the intent to sell them in the secondary market. Loans held for sale consist primarily of residential first and second mortgage loans that are secured by residential real estate throughout the United States.

Although the Company does not intend to be a loan servicer, from time to time it is necessary that certain loans be serviced for a period of time. Even in these situations the Company intends to service the loan only for the amount of time necessary to get the loan sellable to a third party investor. As of March 31, 2015, the Company had four such loans that required servicing before they can be sold to an investor. Three of the four loans were performing and were carried on the books at their fair value, determined using current secondary market prices for loans with similar coupons, maturities and credit quality. One of the loans was delinquent. The delinquent loan had unpaid principle and interest of $1,415 as of March 31, 2015. The Company has been working with this borrower who has made the principal and interest payment each of the last eight months. As of March 31, 2015, the Company has not recorded any adjustment to the fair value of the remaining four loans as any accrued gain or loss would not be material to the Company.

As noted above, the fair value of loans held for sale is determined using current secondary market prices for loans with similar coupons, maturities and credit quality. Loans held for sale are pledged as collateral under the Company’s warehouse lines of credit. The Company relies substantially on the secondary mortgage market as all of the loans originated are sold into this market.

Interest on mortgage loans held for sale is recognized as earned and is only accrued if deemed collectible. Interest is generally deemed uncollectible when a loan becomes three months or more delinquent or when a loan has a defect affecting its salability. Delinquency is calculated based on the contractual due date of the loan. Loans are written off when deemed uncollectible.

Prepaid Expenses

Generally, prepaid expenses are advance payments for products or services that will be used in operations during the next 12 months. However, the Company engages an independent third party to perform a five-year outreach campaign to borrowers after their loan is funded. These amounts are capitalized and amortized equally each quarter over five years. Other prepaid expenses consist of prepaid insurance, rents and prepaid services provided by outside consultants. Prepaid expenses amounted to $143,505 and $142,096 at March 31, 2015 and June 30, 2014, respectively.

Property and Equipment

Property and equipment are stated at cost. Depreciation is provided using the straight-line method over the estimated useful lives of the assets as follows. Expenditures for maintenance and repairs are charged to expense as incurred.

Furniture, fixtures and office equipment (years)	5	-	7
Computer equipment (years)		5

Goodwill and Indefinite-Lived Intangible Assets

Goodwill acquired in business combinations is assigned to the reporting entity that is expected to benefit from the combination as of the acquisition date. Goodwill impairment is determined using a two-step process. The first step of the process is to compare the fair value of a reporting unit with its carrying amount, including goodwill. In performing the first step, the Company determines the fair value of its reporting entity by using a discounted cash flow ("DCF") analysis. Determining fair value using a DCF analysis requires the exercise of significant judgments, including judgments about appropriate discount rates, perpetual growth rates and the amount and timing of expected future cash flows. If the fair value of a reporting entity exceeds its carrying amount, goodwill of the reporting entity is not impaired and the second step of the impairment test is not required. If the carrying amount of a reporting unit exceeds its fair value, the second step of the goodwill impairment test is required to be performed to measure the amount of impairment, if any. The second step of the goodwill impairment test compares the implied fair value of the reporting entity’s goodwill with the carrying amount of that goodwill. The implied fair value of goodwill is determined in the same manner as the amount of goodwill recognized in a business combination. If the carrying amount of the reporting entity’s goodwill exceeds the implied fair value of that goodwill, an impairment loss is recognized in an amount equal to that excess.

The impairment test for indefinite-lived intangible assets involves a comparison of the estimated fair value of the intangible asset with its carrying value. If the carrying value of the indefinite-lived intangible asset exceeds its fair value, an impairment loss is recognized in an amount equal to that excess.

Long-Lived Assets and Intangible Assets with Definite Lives

Long-lived assets, including property and equipment and intangible assets with definite lives are tested for recoverability whenever events or changes in circumstances indicate that their carrying amount may not be recoverable. The carrying amount of a long-lived asset is not recoverable if it exceeds the sum of the undiscounted cash flows expected to result from the use and eventual disposition of the asset. If the carrying amount is deemed to not be recoverable, an impairment loss is recorded as the amount by which the carrying amount of the long-lived asset exceeds its fair value. Amortization of definite lived intangible assets is recorded on a straight-line basis over their estimated lives.

Income Taxes

Income taxes are provided for the tax effects of transactions reported in the financial statements and consist of taxes currently due plus deferred taxes related primarily to differences between the bases of certain assets and liabilities for financial and tax reporting. The deferred taxes represent the future tax return consequences of those differences, which will either be deductible or taxable when the assets and liabilities are recovered or settled. In addition, there is the deferred tax asset which represents the economic value of various tax carryovers.

Taxes Collected and Remitted to Governmental Authorities

When applicable, the Company collects gross receipts taxes from its customers and remits them to the required governmental authorities. Related revenues are reported net of applicable taxes collected and remitted to governmental authorities.

Advertising

Advertising costs are expensed as incurred. Advertising expenses were $140,832 and $413,319 for the three and nine months ended March 31, 2015, respectively, compared to $205,833 and $567,485 for the three and nine months ended March 31, 2014, respectively.

Share Based Payment Plan

The Company grants stock options and restricted stock units to certain executive officers, key employees, directors and independent contractors. Stock options have been granted for a fixed number of shares, vest equally over a three-year period and are valued using the Black-Scholes option pricing model. Stock grants have been awarded for a fixed number of shares with a value equal to the fair value of the Company’s common stock on the grant date. Stock-based compensation expense is recorded net of estimated forfeitures for the quarters ended March 31, 2015 and 2014 based on the stock-based awards that were expected to vest during such periods. Under the 2012 and 2015 Stock Incentive Plans, the Company can grant stock or options to employees, related parties, and unrelated contractors in connection with the performance of services provided to the Company by the awardees.

Revenue Recognition

The Company’s revenue is derived primarily from revenue earned from the origination and sale of mortgage loans. Revenues earned from origination of mortgage loans is recognized on the funding date of the loan. Loans are funded through warehouse lines of credit and are sold to investors, typically within 14 days. The gain or loss on the sale of loans is realized on the date the loans are sold.

Loss Per Common Share

Basic and diluted loss per common share is computed by dividing the loss available to common stockholders by the weighted average number of common shares outstanding during the period. Diluted loss per share does not reflect per share amounts that would have resulted if diluted potential Common Stock had been converted to Common Stock because the effect would be anti-dilutive. The weighted average number of common shares outstanding during the three and nine months ended March 31, 2015 and 2014 were 27,507,759, 27,530,653, 29,468,259, and 29,437,446, respectively. Loss per common share from continuing operations for the three and nine months ended March 31, 2015 and 2014 was $0.04, $0.10, $0.07 and $0.17, respectively.

Compensated Absences

The Company records an accrual for vacation at each period end. Other compensated absences are expensed as incurred.

Reclassification

Certain accounts in the prior-year financial statements have been reclassified for comparative purposes to conform with the presentation in the current-year financial statements.

Recent Accounting Pronouncements

The Company has evaluated the possible effects on its financial statements of the accounting pronouncements and accounting standards that have been issued or proposed by FASB that do not require adoption until a future date, and determined they are not expected to have a material impact on the consolidated financial statements upon adoption.

Other accounting standards that have been issued or proposed by FASB that do not require adoption until a future date are not expected to have a material impact on the consolidated financial statements upon adoption.

NOTE 2 – ALLOWANCE FOR DOUBTFUL ACCOUNTS

Accounts receivable is presented on the balance sheet net of estimated uncollectible amounts. The Company records an allowance for estimated uncollectible accounts in an amount approximating anticipated losses. Individual uncollectible accounts are written off against the allowance when collection of the individual accounts appears doubtful. The Company did not record an allowance for doubtful accounts as of March 31, 2015 or 2014.

NOTE 3 – PROPERTY AND EQUIPMENT

Property and equipment is summarized as follows:

	March 31,
	2015			June 30,
	(Unaudited)			2014
Fixtures and equipment	$	600,793		$	1,724,951
Less: Accumulated depreciation		(335,289	)		(1,142,833	)
Property and equipment, net	$	265,504		$	582,118

Depreciation expense for the three and nine months ended March 31, 2015 was $18,253 and $54,593, compared to depreciation expense for the three and nine months ended March 31, 2014 of $40,043 and $114,100.

NOTE 4 – STATEMENTS OF CASH FLOWS ADDITIONAL DISCLOSURES

Supplemental information for cash flows at March 31, 2015 and 2014 consist of:

	March 31,		March 31,
	2015		2014
	(Unaudited)		(Unaudited)
Supplemental Cash Flow Disclosures:
Cash paid for interest	$	48,615	$	3,994
Stock issued for services	$	-	$	16,559
Stock and stock options issued to employees as bonus	$	72,573	$	34,837

NOTE 5 – RELATED PARTY TRANSACTIONS

President/Chief Executive Officer and Director

The Company entered into an employment agreement with a Director, Kevin Gadawski, as its Interim Chief Operating and Chief Financial Officer effective February 7, 2013. Pursuant to the terms of the employment agreement, the Company agreed to pay an annual compensation of $240,000. On August 28, 2013, Mr. Gadawski assumed the role of President and Chief Executive Officer.

On March 26, 2015, PSM Holdings, Inc. (the “Company”) entered into an Executive Employment Agreement (the “Agreement”) with Mr. Gadawski to serve as its Chief Financial Officer, Chief Operating Officer, and Chief Executive Officer. In addition, Mr. Gadawski will also assume the roles of President, Chief Executive Officer, and Director of the Company’s wholly owned subsidiary PrimeSource Mortgage, Inc. (“PSMI”) upon approval and acceptance from the various state and federal agencies with which PSMI is licensed. The agreement is effective April 1, 2015 and the term of the Agreement is three years, ending on March 31, 2018. Under the Agreement, Mr. Gadawski’s annual base salary is $250,000 (“Base Salary”). If the Agreement is extended, the Base Salary will be reviewed no less frequently than annually, but at no time during the term of this Agreement will Mr. Gadawski’s Base Salary be decreased. If the Company is reasonably unable to pay the Base Salary for any pay period, the Company and Mr. Gadawski may agree that the Base Salary be paid with shares of common stock under the Company’s 2015 Stock Incentive Plan at a 25% discount to the fair market price of the stock at the end of the pay period. As a signing bonus for entering into the Agreement, the Company agreed to grant to Mr. Gadawski options to purchase up to 10,000,000 shares of common stock. Mr. Gadawski will be eligible to participate in any incentive bonus pool maintained for persons including executive officers of the Company. He will be eligible to receive an annual bonus as per the incentive bonus pool of up to 100% of the then applicable Base Salary, less applicable withholding taxes. In addition, the Company will provide Mr. Gadawski a car allowance in the amount of $750 per month as well as reimburse him for the cost of annual automobile insurance.

For the three and nine months ended March 31, 2015 the Company recorded compensation expense of $60,000 and $169,003, respectively. For the three and nine months ended March 31, 2014, the Company recorded compensation expense of $60,000 and $170,000 which included 26,494 shares of common stock received in lieu of cash compensation. The shares were discounted at 25% to the market on the date the compensation was earned. The Company also pays monthly health insurance premiums for the employee and his family currently in the amount of $292 per month.

Executive Vice-President and Director

The Company entered into an employment agreement with Mr. Jeff Smith, its Executive Vice-President effective January 1, 2011. Pursuant to the terms of the employment agreement, the Company agreed to pay an annual compensation of $200,000, a monthly car allowance of $700, and a monthly allowance of $1,290 for health benefits for Mr. Smith and his family. On January 1, 2014, the employment agreement was renewed for one year with annual compensation of $250,000. On December 24, 2014, the term of the employment agreement was amended to a month-to-month basis. For the three and nine months ended March 31, 2015 the Company recorded compensation expense of $23,157 and $122,636, a car allowance of $700 and $4,900, and monthly health insurance benefits currently at $292 per month. For the three and nine months ended March 31, 2014 the Company recorded $52,053 and $145,419 in compensation expense and $2,100 and $6,300 in car allowance. Effective January 31, 2015, Mr. Smith resigned from all positions with the Company and its subsidiaries, and accordingly his employment agreement was not renewed.

On September 12, 2014, the Company entered into a loan agreement with Mr. Smith (the “Lender”). Under the terms of the loan agreement, the Lender agreed to loan $120,000 for operating expenses of the Company and its operating subsidiary, as well as to fund growth of the Company. The funds were received by the Company on September 12, 2014. The loan is evidenced by a 10% Convertible Promissory Note which bears interest at 10% per annum and matures September 12, 2015, unless extended through mutual consent. The note is convertible at the per share rate of common stock sold pursuant to a Qualified Offering by the Company. The term “Qualified Offering” means one or more offerings (whether or not proceeds are received by the Company pursuant to such offering) of debt or equity securities of the Company to non-affiliates in the aggregate amount of at least $1,000,000 commenced after the note issuance date. The conversion price is determined by the lowest of either the offering price per common share or the conversion or exercise price for common stock in any such Qualified Offering. In addition, the Lender received four tenths (0.40) of one common stock purchase warrant for each $1.00 loaned to the Company (totaling 48,000 warrants). Each five-year warrant is exercisable at $0.40 per share, subject to adjustment in the event of the issuance of additional common shares or common stock equivalents at less than the exercise price. The warrants also provide for cashless exercise. The warrants are not transferable or assignable without the prior consent of the Company.

Former President/Chief Executive Officer and Director

The Company entered into an employment agreement with its former President/Chief Executive Officer effective January 1, 2011. Pursuant to the terms of the employment agreement, the Company issued 750,000 shares of Common Stock valued at $525,000 as a signing bonus to induce him to enter into the employment agreement, agreed to pay an annual compensation of $225,000, a monthly car allowance of $750, and a monthly allowance of $800 for health benefits for the officer and his family. On January 1, 2013, the annual compensation was increased to $275,000 pursuant to the terms of the employment agreement. On August 28, 2013, this individual resigned from all positions with the Company. As such, no compensation was paid for the current three and nine month periods. For the three and nine months ended March 31, 2014 the Company recorded (i) $2,696 and $140,196 in compensation expense, (ii) $0 and $4,500 in car allowance, and (iii) monthly health insurance benefits at approximately $345 per month.

Other Directors

On February 7, 2013, the Company entered into a two-year consulting agreement with an entity controlled by Michael Margolies, one of the Company’s directors. The agreement calls for compensation of $15,000 per month for strategic advisory and investor relation services. For the nine months ended March 31, 2015 and 2014, the Company recorded consulting expense of $0 and $60,000, respectively. In October 2013, the Company paid half of the consulting fee by the issuance of 39,741 shares of common stock that were issued at a 25% discount to the market on the date the compensation was earned.

In November 2013, Mr. Margolies agreed to temporarily suspend providing investor relation services to the Company. Effective April 1, 2015, the Company requested that Mr. Margolies begin providing services per the original consulting agreement. Mr. Margolies is also the managing member of the three entities that invested in the Company's Series A, Series C, and Series E preferred stock. These entities accrue dividends consistent with other investors in the Company's preferred stock. See Note 11 to the financial statements for a further discussion of the Company's preferred stock.

On November 13, 2014, the Company entered into a loan agreement with LB Merchant PSMH-1, LLC and LB Merchant PSMH-2, LLC, entities controlled by Michael Margolies, a director of the Company (the “Lenders”). Under the terms of the loan agreement, the Lenders agreed to loan $70,000 for operating expenses of the Company and its operating subsidiary, as well as to fund growth of the Company. The funds were received by the Company on November 13, 2014. The loan is evidenced by a 10% Convertible Promissory Note which bears interest at 10% per annum and matures November 13, 2015, unless extended through mutual consent. The note is convertible at the per share rate of common stock sold pursuant to a Qualified Offering by the Company. The term “Qualified Offering” means one or more offerings (whether or not proceeds are received by the Company pursuant to such offering) of debt or equity securities of the Company to non-affiliates in the aggregate amount of at least $1,000,000 commenced after the note issuance date. The conversion price is determined by the lowest of either the offering price per common share or the conversion or exercise price for common stock in any such Qualified Offering. The loans were repaid in December 2015 upon the completion of the Series E capital raise. In addition, the Lenders received four tenths (0.40) of one common stock purchase warrant for each $1.00 loaned to the Company (totaling 28,000 warrants). Each five-year warrant is exercisable at $0.40 per share, subject to adjustment in the event of the issuance of additional common shares or common stock equivalents at less than the exercise price. The warrants also provide for cashless exercise. The warrants are not transferable or assignable without the prior consent of the Company.

Mr. James Miller, one of the Company’s directors, is a principal stockholder of a management company that provides two revolving warehouse lines of credit to the Company. Amounts outstanding on the credit lines as of March 31, 2015 and June 30, 2014 were $43,134,349 and $14,942,781 which were offset by $43,630,170 and $14,942,781 of funding receivables as of March 31, 2015 and June 30, 2014, respectively (See Note 8). On December 1, 2014, the Company executed a note agreement with this management company to repay a line of credit provided by this related party. The note calls for monthly payments of $984.20 beginning December 1, 2014. The note also calls for a balloon payment on December 1, 2017. The Company made payments in December and January. The Company did not make February and March payments as it is working with the management company to reconcile amounts due between the parties. Amounts are not considered significant and both parties agree amounts will be fully reconciled and made current during the next quarter. The amount due on the line of credit at March 31, 2015 was $140,411.

Former Directors

On March 15, 2011, the Company entered into an employment agreement with a former director of the Company in connection with the acquisition of United Community Mortgage Corp. (now PrimeSource Mortgage, Inc.). The term of the employment agreement was for two years, with automatic one-year extensions unless notice was given by either party. The individual resigned as a director concurrent with the capital raise completed on February 5, 2013. The agreement provided for an annual base salary of $120,000 with increases based upon increases in originations at the respective branch and incentive payments upon securing additional branches for PSMI. The Company recorded total compensation expense of $17,500 and $89,590 for the three and nine months ended March 31, 2015 compared to total compensation expense of $30,000 and $90,000 for the three and nine months ended March 31, 2014.

On July 1, 2011, the Company entered into an employment agreement with a former director of the Company, in connection with the acquisition of Brookside Mortgage, LLC. The term of the employment agreement was for two years, with automatic one-year extensions unless notice is given by either party. The individual resigned as a director concurrent with the capital raise completed on February 5, 2013. The agreement provided for an annual base salary of $120,000 plus a bonus equal to 25% of the net profit earned by Brookside branch in excess of $400,000 annual profits earned. On November 1, 2012, the Company agreed to revise the employment agreement making the term at will with 60 days notice from either party and provided additional overrides based on production. The revised agreement was not executed. Effective January 16, 2014, this individual resigned from all positions with the Company. As such, the Company recorded no compensation expense for either the three or nine months ended March 31, 2015. In the prior year, the Company recorded total compensation expense of $10,412 and $98,571 for the three and nine months ended March 31, 2014.

On August 8, 2011, the Company entered into an employment agreement with a former director of the Company in connection with the acquisition of Fidelity Mortgage Company. The term of the employment agreement was for two years, with automatic one-year extensions unless notice is given by either party. The individual resigned as a director concurrent with the capital raise completed on February 5, 2013. After the resignation, the individual remained a regional vice president of one of the Company’s corporate lending centers. The agreement provided that for each full year of employment, a bonus equal to 12.5 basis points of the loan production and 50% of net profit of the Fidelity branch in excess of $500,000 earned would be paid to the individual. Bonuses were to be earned upon closing of each loan and paid on a fixed interval basis. On January 1, 2013, the Company amended the employment agreement to provide additional bonuses based on production and removed any bonus opportunity based on profitability. In January 2014, this individual resigned from all positions with the Company. As such, no compensation expense was incurred for the three or nine months ended March 31, 2015. For the three and nine months ended March 31, 2014, the Company recorded compensation expense of $92,415 and $474,421, respectively.

The Company leased an office space in a building that was 100% owned by this former director. The terms of the operating lease under a non-cancellable lease agreement were to expire on September 1, 2015, and required a monthly rent of $21,720. The lease was terminated upon the resignation of this former director in January 2014. Total rent paid for the office lease for the three and nine months ended March 31, 2015 was $0. The total rent paid for the three and nine months ended March 31, 2014 was $0 and $130,320, respectively.

Effective November 1, 2011, the Company entered into an employment agreement with a former director of the Company in connection with the acquisition of Iowa Mortgage Professionals, Inc. The individual resigned as a director concurrent with the capital raise completed on February 5, 2013. The term of his employment agreement was for two years, with automatic one-year extensions unless notice was given by either party. The agreement provided for an annual base salary of $120,000 plus a bonus equal to 25% of the net profit earned by the branch in excess of $400,000 annual profits earned. On March 11, 2013, the Company agreed to revise the employment agreement making the term at will with sixty days notice from either party and provided additional overrides based on production. The revised agreement was not executed. On January 31, 2014, this individual resigned from all positions with the Company. As such, no compensation expense was recorded for either the three or nine months ended March 31, 2015. For the three and nine months ended March 31, 2014, the Company recorded $18,829 and $98,920 in compensation expense, respectively.

This individual is the principal of a third party processing company that provided processing services for loans funded in our former Iowa branch. The per file fees charged were believed to be under market pricing. The fees were paid by the borrower at closing and were not paid directly by the Company. Upon this individual’s departure from the Company, the Company ceased utilizing any services from this third party processing company.

Other Employees

Effective January 1, 2013, the Company amended an employment agreement with the Vice President – Mountain Division. Under the new agreement, the term was modified to at will with 60 days notice from either party. The employee was paid an annual salary of $95,000 and received bonuses based on production. Additionally, the employee was eligible to receive 50% of the net profits of the Fidelity Mortgage branch on annual net income in excess of $500,000. On January 31, 2014, this individual resigned from all positions with the Company. As such, no compensation expense was recorded for either the three or nine months ended March 31, 2015. For the three and nine months ended March 31, 2014, the Company recorded total compensation expense of $42,325 and $251,476, respectively.

Loans Receivable

Loans receivable from a related party as of March 31, 2015 consists of:

			Balance due
			March 31,		Balance due
	Original		2015		June 30,
	Loan		(Unaudited)		2014
Secured loans to NWBO Corporation (NWBO)	$	167,000	$	87,778	$	88,898

Accrued interest due from NWBO		-		3,665		10,668
		167,000		91,443		99,566
Less allowance for uncollectible amounts		-		-		-
	$	167,000	$	91,443	$	99,566

The Company entered into two Commercial Security Agreements dated November 16, 2006 and February 16, 2007 (the “Security Agreements”) with Nationwide By Owner, Inc. (“Nationwide”), a Texas based company engaged in the business of providing proprietary technology to generate leads, securing the loan amount of $167,000 with 150,000 shares of the Company’s own Common Stock held by Nationwide. On June 15, 2012, the Company renegotiated the Security Agreements with Nationwide and agreed to amend (i) the annual interest rate on the Security Agreement to 6%, and (ii) the maturity date to December 31, 2013. On October 13, 2014, the Company extended the maturity date to April 15, 2015. The Company is talking with Nationwide about an additional note extension and formal repayment plan. The Company believes a formal repayment plan and note extension will be executed during the next calendar quarter. All other terms and conditions of the Security Agreement remained the same. The Company recorded interest income of $1,315 and $3,987 from the loan receivable from Nationwide for the three and nine months ended March 31, 2015 and $1,344 and $4,033 for the same periods in 2014. The principals of NWBO were also employees of the Company and notified the Company in March that they were resigning from all positions with the Company.

NOTE 6 –EMPLOYEE ADVANCES

From time to time the Company advances payroll amounts to employees. The advances are short-term in nature. Employee advances amounted to $57,099 and $500 as of March 31, 2015 and June 30, 2014, respectively.

NOTE 7 – INTANGIBLE ASSETS

Intangible assets consist of:

	March 31,
	2015 (Unaudited)			June 30, 2014
Intangible assets not subject to amortization:
FHA "Full Eagle" status	$	938,790		$	938,790
Goodwill		1,809,429			1,809,429
State licenses		31,293			31,293
		2,779,512			2,779,512
Less: Impairments		-			-
Total		2,779,512			2,779,512

Intangible assets subject to amortization:
Customer lists		117,349			117,349
Nationwide license		-			824,999
		117,349			942,348
Less: Accumulated amortization – Nationwide license		-			(483,862	)
Less: Accumulated amortization – customer lists		(117,349	)		(115,408	)
Total		-			343,078

Total Intangible assets, net	$	2,779,512		$	3,122,590

It is the Company’s policy to assess the carrying value of its intangible assets for impairment on an annual basis, or more frequently, if warranted by circumstances. The Company completed an annual impairment test of goodwill as of June 30, 2014 and no impairment losses were incurred. As of that date, the fair value of equity exceeded the carrying value (including goodwill) by 300%, indicating no impairment of goodwill. This test involved the use of estimates related to the fair value of the goodwill, and requires a significant degree of judgment and the use of subjective assumptions. The fair value of the goodwill and other intangible assets was determined using a discounted cash flow method. This method required management to make estimates related to future revenue, expenses and income tax rates.

The valuation methodology assumes the Company will generate an operating profit beginning in the next fiscal year ending June 30, 2015. Although the Company has made significant improvements in the last two quarters in maximizing revenue per funded loan and in reducing fixed and variable expenses, the Company has never generated an annual operating profit. The model further assumes the Company will double its current production volume over the next twelve months to levels it experienced during the fiscal fourth quarter of 2013.

Any of the following events or changes in circumstances, as well as the risk factors mentioned earlier in this report, could reasonably be expected to negatively affect our key assumptions:

●

Significant change in mortgage interest rates;

●

Loss of the Company’s primary warehouse lender;

●

Additional or new regulatory and compliance requirements that restrict our plan for growth;

●

The loss of key production personnel;

	●	Continued default on our obligation to preferred shareholders; or
	●	Failure to raise sufficient funds for operating needs during periods of reduced cash flows.

On April 14, 2006, the Company entered into a five-year renewable license agreement with Nationwide. The license agreement permits exclusive use of the technology to generate leads for the origination of mortgage applications for submission to PSMI. The initial cost of the license was $150,000 paid in cash, and issuance of 150,000 shares of the Company’s stock in favor of Nationwide and its principals, at a fair value for consideration received of $674,999 on the date of issue. The total consideration for the cost of the license amounted to $824,999. The principals of NWBO, who were also loan originators for the Company, have transitioned off of the Company’s lending platform. As such, the Company wrote off the remaining unamortized balance of this license as of March 31, 2015.

NOTE 8 – WAREHOUSE LINES OF CREDIT

The Company has three warehouse lines of credit available as of March 31, 2015 for its funding of mortgage loans for a short term period.

(i)

On August 3, 2008, the Company entered into a warehouse line of credit agreement with a related party mortgage banker for up to $1,000,000 bearing an annual interest rate of 5%. On October 13, 2013, the warehouse line of credit was increased to $75,000,000 for the purpose of funding residential mortgage loans. The warehouse line of credit matures on October 10, 2015. This line of credit did not have an outstanding balance as of March 31, 2015.

(ii)

On November 18, 2011, the Company entered into a “Repo” warehouse line of credit agreement with a related party mortgage banker for up to $5,000,000 bearing an annual interest rate of 5% for funding residential mortgage loans. Pursuant to the terms of the agreement, the Company could be required to repurchase the loan subject to certain terms and conditions. On October 13, 2013, the warehouse line of credit was increased to $75,000,000 and now matures on October 10, 2015. The outstanding balance on this line of credit as of March 31, 2015 was $43,134,349.

(iii)

On September 21, 2014, the Company entered into a warehouse line of credit with a mortgage banker for up to $1,000,000. The annual interest rate on the line is equal to the greater of either the Wall Street Journal Prime Interest Rate plus 1% or 5%. The warehouse line of credit matures on October 1, 2015. This line of credit did not have an outstanding balance as of March 31, 2015.

The warehouse lines of credit provide short term funding for mortgage loans originated by the Company’s branch offices. The warehouse lines of credit are repaid when the loans are sold to third party investors, typically within 14 days for most loans. Subsequent to March 31, 2015, approximately 98% of the loans outstanding on the credit lines have been purchased by the secondary investors.

The Company does not intend to hold and service the loans. The Company had $43,630,170 in loans held for sale against the warehouse lines of credit as of March 31, 2015.

NOTE 9 – NOTES PAYABLE

On February 18, 2015, the Company executed a Loan Agreement, Security Agreement, and Promissory Note (collectively the “Loan”) with an unrelated third party lender. The Loan requires monthly interest only payments at fourteen percent annually (14%) beginning March 1, 2015. The principle balance will become due on February 1, 2016. The amount of the Loan is $750,000 and can be increased to $1,000,000 at the sole discretion of the lender. The Loan is secured by all the Company’s tangible and intangible assets. The Company incurred legal fees and other loan costs of $50,000 in the aggregate which were deducted from proceeds received by the Company. The Loan restricts the amount of the proceeds that can be used to settle payables already incurred.

NOTE 10 – ACCRUED LIABILITIES

Accrued liabilities consisted of:

	March 31,
	2015 (Unaudited)		June 30, 2014
Credit card charges	$	87,580	$	53,938
Accrued payroll		634,976		481,324
Other liabilities		330,054		108,653
	$	1,052,610	$	643,915

NOTE 11 – STOCKHOLDERS’ EQUITY AND ISSUANCES

The Company’s capitalization at March 31, 2015 was 400,000,000 authorized common shares and 10,000,000 authorized preferred shares, both with a par value of $0.001 per share.

Preferred Stock

On November 26, 2014, the Company entered into a Stock Purchase Agreement dated effective November 24, 2014 (the “Series E SPA”) providing for the issuance and sale of up to $1,250,000 of the Company’s Series E 6% Convertible Preferred Stock (1,250 shares) at a purchase price of $1,000 per share (the “Series E Preferred Stock”). The first closing of the Series E SPA occurred on November 26, 2014, with 612.5 shares of Series E Preferred Stock being sold to LB Merchant PSMH-3, LLC, an entity controlled by Michael Margolies, a director and principal shareholder of the Company (the “Purchaser”). Each share of Series E Preferred Stock is convertible into a number of shares of common stock of the Company equal to the quotient of (i) $1,000 (subject to adjustment for stock splits, stock dividends, recapitalizations, and the like) plus the amount of accrued but unpaid dividends, divided by (ii) the conversion price then in effect. The initial conversion price is $0.01, subject to adjustment. The holders of Series E Preferred Stock are entitled to certain voting rights designated in the certificate of designation for the series. Holders of the shares of Series E Preferred Stock are entitled to receive cumulative cash dividends at the rate per share (as a percentage of the stated value per share) of 6% per annum from the date of issuance, payable quarterly in arrears on April 15, July 15, October 15 and January 15, beginning on January 15, 2015.

On December 15, 2014, the second closing of the Series E SPA occurred with 210 shares of Series E Preferred Stock being sold to the Purchaser. In total, the Company sold to the Purchaser 822.5 shares of Series E Preferred Stock convertible into 82,250,000 common shares. The holders of Series E Preferred Stock are entitled to certain voting rights designated in the certificate of designation for the series.

Holders of the Series E Preferred Stock will have demand and piggyback registration rights for the common stock issuable upon conversion of the Series E Preferred Stock. The registration rights are pari passu with the registration rights of the Company’s Series A 6% Convertible Preferred Stock (“Series A Preferred Stock”), Series B 6% Convertible Preferred Stock (“Series B Preferred Stock”), Series C 6% Convertible Preferred Stock (“Series C Preferred Stock”), and Series D 6% Convertible Preferred Stock (“Series D Preferred Stock”).

In connection with the first closing of the Series E SPA, the Company amended the Stock Purchase Agreement dated February 3, 2013 and amended on April 1, 2014 (the “Series A & B SPA”), entered into in connection with the sale of the Series A Preferred Stock and Series B Preferred Stock and also amended the original Stock Purchase Agreement dated April 1, 2014 (the “Series C & D SPA”), entered into in connection with the sale of the Series C Preferred Stock and Series D Preferred Stock. The amendments permitted the issuance of the Series E Preferred Stock senior to dividend and liquidation rights of the Series A Preferred Stock, Series B Preferred Stock, Series C Preferred Stock, and Series D Preferred Stock.

Pursuant to the provisions of the Certificates of Designation for the Series A Preferred Stock and Series B Preferred Stock regarding adjustments in conversion price, because the Company issued and sold additional shares at a price less than the current $0.24 conversion price of the Series A Preferred Stock and Series B Preferred Stock, the conversion price was adjusted to $0.10 per share. After this adjustment to the conversion price of the Series A Preferred Stock and Series B Preferred Stock, the Series A Preferred Stock and Series B Preferred Stock would convert into a total of 57,000,000 shares of Common Stock (adjusted from 24,782,609).

Pursuant to the provisions of the Certificates of Designation for the Series C Preferred Stock and Series D Preferred Stock regarding adjustments in conversion price, because the Company issued and sold additional shares at a price less than the current $0.08 conversion price of the Series C Preferred Stock and Series D Preferred Stock, the conversion price was adjusted to $0.04 per share. After this adjustment to the conversion price of the Series C Preferred Stock and Series D Preferred Stock, the Series C Preferred Stock and Series D Preferred Stock would convert into a total of 80,000,000 shares of Common Stock (adjusted from 40,000,000).

Default on Preferred Dividends

On January 23, 2015, an event of default occurred due to the Company’s non payment of dividends due the preferred holders on October 15, 2014 and January 15, 2015. After the occurrence of the default event, the preferred dividend rate automatically, as of January 23, 2015, increased to a rate per annum of 20% of the Stated Value (as defined in the Certificates of Designation for the Preferred Stock), payable in cash on a monthly basis on the 15^th day of each month until the event of default is cured, upon which the preferred dividend will return to a rate of 6% per annum of the Stated Value. The Company did not cure the default, nor make any additional or required dividend payments that were due February 15, 2015, March 15, 2015 or April 15, 2015.

Following is the status of the share based payment plans during the nine months ended March 31, 2015 and 2014:

2012 Stock Option/Stock Issuance Plan

On December 12, 2011, the stockholders of the Company authorized and approved the 2012 Stock Incentive Plan (the “2012 Plan”) to issue up to 6,000,000 shares of Common Stock of the Company at $0.001 par value per share. The 2012 Plan became effective January 1, 2012.

On March 26, 2015 (the “Effective Date”) the Board of Directors of the Company approved the 2015 Stock Incentive Plan (the “Plan”). Awards may be made under the Plan for up to 40,000,000 shares of Common Stock of the Company at $0.001 par value per share. All of the Company’s employees, officers and directors, as well as consultants and advisors to the Company are eligible to be granted awards under the Plan. No awards can be granted under the Plan after the expiration of 10 years from the Effective Date, but awards previously granted may extend beyond that date. Awards may consist of both incentive and non-statutory options, restricted stock units, stock appreciation rights, and restricted stock awards.

Options issued during the nine months ended March 31, 2015 and 2014 under either plan were as follows:

On February 12, 2015, the Board of Directors granted four-year options to various employees to purchase an aggregate of 1,900,000 shares of common stock at $0.035 per share vesting over a three-year period. The options were granted under the Company’s 2012 Stock Incentive Plan. The fair value of options was determined to be $59,396 calculated using the Black-Scholes option pricing model using the assumptions of risk free discount rates of 0.33%, volatility of 175.11%, a four-year term and dividend yield of 0%. Employees who were granted 100,000 of these options left the Company before executing the grant forms and for purposes of our summary of option table below only 1,800,000 of these options are reflected as awarded. The 100,000 option grants forfeited were valued at $3,126.

On February 5, 2015, the Board of Directors granted four-year options to ten employees to purchase an aggregate of 325,000 shares of common stock at $0.03 per share vesting over a three-year period. The options were granted under the Company’s 2012 Stock Incentive Plan. The fair value of options was determined to be $7,368 calculated using the Black-Scholes option pricing model using the assumptions of risk free discount rates of 0.33%, volatility of 171.85%, a four-year term and dividend yield of 0%. The Company has ended its relationship with both offices represented by these 10 employees and all options issuances have been forfeited and are not shown in the totals outstanding as of March 31, 2015 or listed as awarded in the summary option table below.

On February 20, 2014, the Company issued 250,000 incentive options to an employee. The options were granted under the 2012 Plan. The options vest equally over three years and were valued at $20,733 using the Black-Scholes option pricing model using the assumptions of risk free discount rates of 0.33%, volatility of 117.12%, a three-year term and dividend yield of 0%. In February 2015, the Company eliminated this individual’s position and all previously issued options were forfeited.

On November 4, 2013, the Company issued 26,494 shares of stock to an employee and 39,741 shares of stock to a consultant (both of who are directors) under the 2012 Plan in lieu of salary and cash compensation that were due these individuals for services provided the Company in October 2013.

On November 4, 2013, the Company granted 225,000 options as a signing bonus to three individuals. The options were granted under the 2012 Plan. The options vest equally over three years and were valued at $37,203 using the Black-Scholes option pricing model using the assumptions of risk free discount rates of 0.33%, volatility of 110.11%, a three-year term and dividend yield of 0%.

On November 4, 2013, the Company granted 125,000 incentive options to an employee. The options were granted under the 2012 Plan. The options vest equally over three years and were valued at $20,668 using the Black-Scholes option pricing model using the assumptions of risk free discount rates of 0.33%, volatility of 110.11%, a three-year term and dividend yield of 0%.

On September 5, 2013 the Company granted 325,000 options to various employees as a signing bonus. The options vest equally over three years and were valued at $78,663 using the Black-Scholes option pricing model using the assumptions of risk free discount rates of 0.33%, volatility of 97.8%, a three-year term and dividend yield of 0%. In April of 2014, all but one of the employees left the Company forfeiting 300,000 of the previously issued options.

On July 8, 2013, the Company granted 250,000 options to an employee of the Company. The options vest equally over three years and were valued at $47,061 using the Black-Scholes option pricing model using the assumptions of risk free discount rates of 0.33%, volatility of 91.6%, a three-year term and dividend yield of 0%. In June 2014 this individual resigned from the Company and all previously issued options were forfeited.

On July 1, 2013, the Company granted 125,000 options to an employee of the Company. The options vest equally over three years and were valued at $21,664 using the Black-Scholes option pricing model using the assumptions of risk free discount rates of 0.33%, volatility of 92.2%, a three-year term and dividend yield of 0%.

As of March 31, 2015, the Company has granted 5,466,671 shares of Common Stock or Common Stock Options valued at $891,708 to employees and a consultant under the 2012 Plan and 533,329 common shares remained unissued and available for future issuances under the 2012 Plan and 40,000,000 shares remained unissued and available for future issuance under the 2015 Plan.

A summary of stock option activity for the last two years is as follows:

	For the nine months ended March 31,
	2015					2014
				Weighted-				Weighted-
				Average				Average
	Number of			Exercise		Number of		Exercise
	Shares			Price		Shares		Price
Options outstanding at beginning of the period		3,160,000		$	0.17		275,000		0.38
Options granted		1,800,000			0.035		1,325,000		0.28
Options exercised		-			-		-		-
Options forfeited/expired		(741,667	)		0.24		-		-
Options outstanding at end of the period		4,218,333		$	0.10		1,600,000	$	0.30

Options exercisable as of March 31		233,333		$	0.31		25,000	$	0.40

Other Stock Issuances

The Company did not issue any common stock for either the three or nine months ended March 31, 2015. For the nine months ended March 31, 2014, the Company issued 26,494 shares to an employee and 39,741 shares to a consultant, both directors, in lieu of cash compensation due.

Retirement of Stock

On July 3, 2014, the Company closed the Asset Purchase Agreement by, between, and among the Company, and two former employees, directors and related parties, whereby certain assets valued at $227,752 were sold in exchange for 1,500,000 shares of our common stock. The Company valued the shares at $0.07 which was the closing price on July 3, 2014. The Company recorded a loss on the sale of assets in the amount of $121,251. The shares were retired and returned to treasury.

On July 14, 2014, the Company closed the Asset Purchase Agreement by, between, and among the Company, and a former employee, director and related party, whereby certain assets valued at $44,271 were sold in exchange for 250,000 shares of our common stock. The Company valued the shares at $0.071 which was the closing price on July 14, 2014. The Company recorded a loss on the sale of assets in the amount of $26,521. The shares were retired and returned to treasury.

Total common shares issued and outstanding at March 31, 2015 was 27,507,759

Warrant issuances

On September 12, 2014, the Company entered into a loan agreement with Jeffrey R. Smith, a director of the Company (the “Lender”). Under the terms of the loan agreement, the Lender agreed to loan $120,000 for operating expenses of the Company and its operating subsidiary, as well as to fund growth of the Company. The funds were received by the Company on September 12, 2014. The loan is evidenced by a 10% Convertible Promissory Note which bears interest at 10% per annum and matures September 12, 2015, unless extended through mutual consent. The note is convertible at the per share rate of common stock sold pursuant to a Qualified Offering by the Company. The term “Qualified Offering” means one or more offerings (whether or not proceeds are received by the Company pursuant to such offering) of debt or equity securities of the Company to non-affiliates in the aggregate amount of at least $1,000,000 commenced after the note issuance date. The conversion price is determined by the lowest of either the offering price per common share or the conversion or exercise price for common stock in any such Qualified Offering. In addition, the Lender received four tenths (0.40) of one common stock purchase warrant for each $1.00 loaned to the Company (totaling 48,000 warrants). Each five-year warrant is exercisable at $0.40 per share, subject to adjustment in the event of the issuance of additional common shares or common stock equivalents at less than the exercise price. The warrants also provide for cashless exercise. The warrants are not transferable or assignable without the prior consent of the Company.

Pursuant to the Preferred Series E Stock transaction in November and December 2014, and in accordance with the placement agent agreement, the Company issued warrants to purchase 13,160,000 shares of the Company’s Common Stock to the placement agent and its associates as placement fees in the above transaction. The warrants are exercisable at $0.011 and expire on November 26, 2019. The fair value of warrants was determined to be $124,698 calculated using the Black-Scholes option pricing model using the assumptions of risk free discount rates of 0.88%, volatility of 174.98%, a five-year term and dividend yield of 0%. Since the warrants were issued in conjunction with the capital raise, no expense was recorded in the accompanying financial statements as of March 31, 2015.

The 454,000 Common Stock Purchase Warrants issued in February and March 2014, as amended, contained provisions requiring adjustment to the exercise price in the event the Company were to issue or sell additional shares of Common Stock pursuant to convertible securities or Common Stock equivalents at a price per share less than the exercise price of these warrants. Given the exercise price of the Series E Preferred Stock of $0.01 (less than the exercise price of the Common Stock Warrants of $0.24), the adjusted exercise price of these warrants became $0.10 at the first closing of the Series E SPA.

The 76,000 Common Stock Purchase Warrants issued in September and November 2014 contained provisions requiring adjustment to the exercise price in the event the Company were to issue or sell additional shares of Common Stock pursuant to convertible securities or Common Stock equivalents at a price per share less than the exercise price of these warrants. Given the exercise price of the Series E Preferred Stock of $0.01 (less than the exercise price of the Common Stock Warrants of $0.40), the adjusted exercise price of these warrants became $0.125 at the first closing of the Series E SPA.

The Company has a total of 18,030,000 warrants outstanding as of March 31, 2015 at a weighted average exercise price of $0.05.

NOTE 12 – INCOME (LOSS) PER COMMON SHARE

The Company’s outstanding options and warrants to acquire common stock and unvested shares of restricted stock totaled 22,248,333 as of March 31, 2015. These common stock equivalents may dilute earnings per share.

Basic and diluted loss per common share is computed by dividing the loss available to common stockholders by the weighted average number of common shares outstanding during the period. Diluted loss per share does not reflect per share amounts that would have resulted if diluted potential Common Stock had been converted to Common Stock because the effect would be anti-dilutive. The weighted average number of common shares outstanding during the three and nine months ended March 31, 2015 and 2014 was 27,507,759, 27,530,653, 29,468,259 and 29,437,446, respectively. Loss per common share from continuing operations for the three and nine months ended March 31, 2015 and 2014 was $0.04, $0.10, $0.07 and $0.17, respectively.

NOTE 13 – COMMITMENTS

Nationwide By Owners License

The agreement between Nationwide and the Company calls for the establishment of a National Processing Center for the collection, origination and tracking of the sales lead database. Upon completion of a National Processing Center, the Company has also committed to provide year-end bonuses under the license agreement which the parties can elect to take in cash, stock, or any combination of the two. Bonus cash will be calculated by multiplying the annual net profit of the National Processing Center by the following percentage rates: 15% for the initial five-year term of the license agreement, 20% for the first automatic renewal term, 25% for the second automatic renewal term, and 30% for the third automatic renewal term and all subsequent annual renewal terms. Should the parties elect to take all or part of the bonus in common stock, the number of shares awarded will be calculated according to the base value of the shares as defined in the agreement. No accrual has been recorded for the year-end bonuses because the National Processing Center has not been established. As agreed to by Nationwide and the Company, the National Processing Center has been delayed indefinitely while Nationwide rolls out its new product offering and strategy discussed below.

Also, pursuant to the agreement with Nationwide, the Company has committed to pursue obtaining, in good faith and diligently, the appropriate licenses to originate mortgages in all 50 states of the United States.

Nationwide has dramatically evolved from their original model which focused solely on sale by owners. The revised model is now focused around a consumer-centric realtor model with a significant focus on mobile technology tools and social media marketing strategies. Nationwide expanded its initial Smart Sign technology into a proprietary software called eNfoDelivered^TM, which is now a lead acquisition, lead development, and lead delivery platform. A second proprietary software called Path2Sell Systems^TM was launched in August of 2013. These two platforms combine to provide PSMI access to the feature-rich toolkit of marketing tools mentioned above as well as training, administration, and support. While helping to add to a loan origination pipeline, Path2Sell Systems^TM allows a much greater focus on tools deliverable in each lending center/branch; tools specific to create greater leverage with local realtor and home builder contacts.

As of March 31, 2015, the Company was informed that the principals of Nationwide, who also managed a loan origination office for the Company, were resigning from employment with the Company. As such, during the period, we recorded a charge for the full unamortized balance of the license agreement in the amount of $296,941.

Employment agreements

The Company’s practice is to revise employment agreements as they become due to make the agreements at will requiring no more than 60 days termination notice by either party. The Company’s President & CEO has a three year employment agreement that became effective as of April 1, 2015.

Lease commitments

On April 8, 2013, the Company executed a five-year lease on approximately 4,000 square feet of office space for its corporate office location in Oklahoma City. The lease requires an initial deposit of $90,000 for build out of the office space and a monthly lease payment of $8,132 in year one, increasing to $8,636 in year five.

The Company leases office space for its branches and property and equipment under cancellable and non-cancellable lease commitments. The current monthly rent for office premises and property and equipment is $74,388. The leases expire between April 2015 and December 2018. Total rent expense recorded for the three and nine months ended March 31, 2015 was $218,442 and $557,243, respectively. Total rent expense recorded for the three and nine months ended March 31, 2014 was $190,674 and $730,820, respectively.

Total minimum lease commitments for branch offices and property and equipment leases at March 31, 2015 are as follows:

	Amount
For the year ended June 30,
2015	$	152,246
2016		317,718
2017		146,219
2018		149,067
2019		27,636
Total	$	792,886

NOTE 14 – FAIR VALUE MEASUREMENTS

The Company uses a hierarchy that prioritizes the inputs used in measuring fair value such that the highest priority is given to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurements) and the lowest priority to unobservable inputs (Level 3 measurements). The three levels of the fair value hierarchy are described below:

Level 1

Inputs to the valuation methodology are unadjusted quoted prices for identical assets or liabilities in active markets that the Company has the ability to access.

Level 2

Inputs to the valuation methodology include:

●

Quoted prices for similar assets or liabilities in active markets;

●

Quoted prices for identical or similar assets or liabilities in inactive markets;

●

Inputs other than quoted prices that are observable for the asset or liability; and

●

Inputs that are derived principally from or corroborated by observable market data by correlation or other means.

If the asset or liability has a specified (contractual) term, the Level 2 input must be observable for substantially the full term of the asset or liability.

Level 3

Inputs to the valuation methodology are unobservable and significant to the fair value measurement.

The asset’s or liability’s fair value measurement level within the fair value hierarchy is based on the lowest level of any input that is significant to the fair value measurement. Valuation techniques used maximize the use of observable inputs and minimize the use of unobservable inputs. See Note 1 for discussion of valuation methodologies used to measure fair value of investments.

The valuation methodologies described above may produce a fair value calculation that may not be indicative of net realizable value or reflective of future fair values. Furthermore, while the Company believes its valuation methods are appropriate and consistent with other market participants, the use of different methodologies or assumptions to determine the fair value of certain financial instruments could result in a different fair value measurement at the reporting date.

Other than cash, which is determined using Level 1 inputs, and intangible assets, which were determined using Level 3 inputs, the fair value of the assets and liabilities was determined using Level 2 inputs. The carrying amounts and fair values of the Company’s financial instruments at March 31, 2015 and June 30, 2014 are as follows:

	March 31, 2015 (Unaudited)				June 30, 2014
	Carrying		Fair		Carrying		Fair
	Amount		Value		Amount		Value
Financial assets:
Cash and cash equivalents	$	591,718	$	591,718	$	764,931	$	764,931
Restricted cash		732,500		732,500		755,701		755,701
Accounts receivable - related party		-		-		683,992		683,992
Accounts receivable - non related party		1,512,860		1,512,860		43,974		43,974
Loans held for sale		43,630,170		43,630,170		15,416,781		15,416,781
Prepaid expenses		143,505		143,505		142,096		142,096
Loans receivable		87,778		87,778		88,898		88,898
Intangible assets		2,779,512		2,779,512		3,122,590		3,122,590
Security deposits		46,075		46,075		44,453		44,453

Financial liabilities:
Accounts payable	$	1,176,734	$	1,176,734	$	602,351	$	602,351
Warehouse lines of credit - non related party		-		-		474,000		474,000
Warehouse lines of credit - related party		43,134,349		43,134,349		14,942,781		14,942,781
Preferred dividends payable- related party		492,155		492,155		82,500		82,500
Preferred dividends payable- non related party		265,103		265,103		51,000		51,000
Notes payable – related party		120,000		120,000		-		-
Notes payable – non related party		750,000		750,000		-		-
Accrued liabilities		1,052,610		1,052,610		643,915		643,915

NOTE 15 - INDUSTRY RISKS AND GOING CONCERN

These unaudited consolidated financial statements have been prepared by management on the basis of U.S. GAAP applicable to a going concern, which assumes the Company will continue to operate for the foreseeable future and will be able to realize its assets and discharge its liabilities in the normal course of operations. The Company is not current in paying all the costs and expenses of the parent company. Further, there is some uncertainty as to the Company’s ability to pay the dividends required to the Series A, B, C, D, and E preferred shareholders. Although dividends were paid as required through June 30, 2014 the Company did not make the dividend payments due by October 15, 2014 or January 15, 2015 in the amount of $133,500 and $137,633, respectively. As a result of missing two dividend payments, the Company is in default on the agreements and the preferred shareholders could exercise certain rights including increasing their board representation to board majority. While the dividends remain in default, the dividend rate increase from 6% to 20%. As such, for the three months ended March 31, 2015, an additional $486,125 in unpaid dividends were accrued. The Company has no immediate plans to cure the default of accrued dividends. These factors give rise to uncertainty about the Company’s continuing as a going concern.

In addition, the Company is dependent on the operations of its wholly owned subsidiary PSMI to generate the cash needed to meet the expenses of the Company. The mortgage industry has experienced significant change over the past several years including increased regulatory and compliance requirements, increases in historically low interest rates and the tightening of credit standards. All of this has led to flat origination volumes and a highly competitive recruiting environment for qualified and successful loan originators. These factors have also made it increasingly difficult for the Company’s wholly owned subsidiary, PSMI, to execute its recruiting strategies at the pace originally contemplated by management. The Company’s plan for sustainability involves cutting costs throughout the organization while growing revenue at PSMI to help support the costs and expenses of the parent.

Due to the full implementation of the fully delegated platform business model and cost cutting efforts, the Company’s operating results have improved over the prior periods. Even with these significant improvements in operations there exists doubt that anticipated growth will occur at the rate necessary to generate the additional cash required to service the obligations of the parent company. Management has implemented a fully delegated lending platform that generates increased revenue per loan, at the same time reducing costs throughout the organization including ceasing operations in locations that were not generating a profit.

Management is continuing to implement cost reduction strategies. Management may also pursue additional capital raises, which if successful, would be highly dilutive to the holdings of the current common shareholders.

NOTE 16 - CONCENTRATIONS

Concentration of Customer

The Company entered into two warehouse line of credit agreements with a mortgage banker whose Executive Vice President is a member of the Board of Directors of the Company, for up to $75,000,000 each, bearing annual interest rates of 5% each, for funding residential mortgage loans. Per the terms of the agreements, the Company could be required to repurchase the loans subject to certain terms and conditions. The outstanding combined balance on these two warehouse lines of credit as of March 31, 2015 was $43,134,349. Subsequent to March 31, 2015, approximately 98% of the loans outstanding on the credit lines have been purchased by investors.

Historically, the Company has recorded a significant portion of its total revenues from one investor, who is a related party. In October 2013, the Company began funding loans on its delegated platform which includes delivery options to multiple investors. This has significantly decreased the reliance on any one investor. As an example, for the nine months ended March 31, 2015, approximately 2.1% of total revenue was from loans sold to this related party investor, while during the same nine month period last year 54.8% of the Company’s revenue came from loans sold to this related party investor.

Concentration of Credit Risk

The Company maintains its cash in bank and financial institution deposits that at times may exceed federally insured limits. The Company has not experienced any losses in such accounts through March 31, 2015. As of March 31, 2015, the Company’s bank balances in some instances exceed FDIC insured amounts.

NOTE 17 – SUBSEQUENT EVENTS

Issuance of Stock Options

Pursuant to the employment agreement executed with Mr. Gadawski effective April 1, 2015, the Company issued Mr. Gadawski 10,000,000 stock options. The options were granted under the 2015 Plan. The options vest equally over three years and were valued at $337,798 using the Black-Scholes option pricing model using the assumptions of risk free discount rates of 0.97%, volatility of 186.90%, a three-year term and dividend yield of 0%.

Pursuant to the Consulting Agreement executed, effective April 7, 2015, the Company issued a consultant 1,000,000 stock options. The options were granted under the 2015 Plan. The options vest equally over three years and were valued at $52,904 using the Black-Scholes option pricing model using the assumptions of risk free discount rates of 0.97%, volatility of 190.82%, a three-year term and dividend yield of 0%..

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

Management’s Discussion and Analysis of Financial Condition and Results of Operations analyzes the major elements of our balance sheets and statements of income. This section should be read in conjunction with our Annual Report on Form 10-K for the year ended June 30, 2014, and our interim financial statements and accompanying notes to these financial statements filed with this report.

Overview

PSM Holdings, Inc. (the “Company” or “PSMH”) originates mortgage loans funded either directly off our warehouse lines of credit or through brokering transactions to other third parties. Approximately 95% of our mortgage origination volume is banked off of our current warehouse lines. We have relationships with multiple investors who purchase the loans funded on our warehouse lines. All of our lending activities are conducted by our subsidiary, PrimeSource Mortgage, Inc. (“PSMI”).

Historically, a significant portion of our business has been referral based and purchase orientated (versus refinance). We do not directly participate in the secondary markets and further do not maintain a servicing portfolio. Approximately 75% of total loan applications are generated from business contacts and previous client referrals. Realtor referrals and other lead sources account for the balance of loan applications.

We have retail offices located around the United States from which we derive revenue from the loan origination volume from these offices. We are able to leverage our warehouse lines of credit relationships with related parties in order to provide us the funding capacity to support our anticipated growth. PSMI is licensed in 16 states and operates out of approximately 22 offices around the country.

Current Environment

Regulatory changes from federal and state authorities have placed a significant amount of pressure on mortgage companies across the United States. The regulatory changes have applied operational pressure for deeper and more disciplined internal processes, limitations on loan officer compensation and increased compliance requirements all making it difficult for small to mid-market mortgage firms to operate profitably as independent businesses. This dynamic has spurred consolidation in the industry as many firms feel the need to join larger more established platforms. This industry shift has forced the remaining mortgage businesses to either make the financial investments in their business to operate in today’s environment or become part of a more stable, mature operation that is better suited to compete in a contracting market.

Plan of Operation

In May 2014, we rolled out our delegated lending platform to all of our field offices. Under our delegated model, we generate income in multiple ways including yield spread on originated loans, file fees and volume bonus or delivery incentives from investors. Our Capital Markets and field operations team is based in Murrieta, CA. We closed our first loan as a fully delegated lender in October 2013.

Like most lenders in our industry, our production volumes have fluctuated greatly over the last three years. The following table represents a production matrix reflecting our past production by number of loans and dollar volume:

Nine months ended March 31,	Number of		Dollar
	Loans		Production
2015		1,072	$	239,236,527
2014		1,620	$	292,886,008
2013		2,812	$	499,859,078

Some of this decline in volume was intentional as the Company has shut down or ended relationships with under-performing offices, some of which accounted for significant production in prior periods.

As a result of the market consolidation in the mortgage banking industry, we continue to recruit and onboard new entities, as well as work with existing offices to increase their loan originators, locations, and production. During the three months ended March 31, 2015, we added a total of two locations (Lindon, Utah and Chula Vista, California).

We will continue to recruit loan originators and existing mortgage banking or broker operations as we believe our current infrastructure can support a significant scaling of our operations without the need for additional resources or capital.

Results of Operations

Our consolidated results of operations for the three and nine months ended March 31, 2015, include the operating results of our wholly-owned subsidiary WWYH, Inc. (an inactive company) and results of operations of PrimeSource Mortgage, Inc. since its acquisition, effective March 16, 2011.

We reported a net loss of $638,218 and $2,093,595 for the three and nine months ended March 31, 2015 compared to a loss of $1,880,182 and $4,621,812 for the same period ended March 31, 2014. The decrease in our net loss is directly attributable to the migration to our delegated lending platform, the closure of under performing branches, continued cost containment and the addition of several productive and profitable offices.

Revenues

Total revenues increased by $2,818,627 and $1,476,804 to $5,142,485 and $11,362,937 for the three and nine months ended March 31, 2015, as compared to $2,323,858 and $9,886,133 for the same period in 2014. We closed 1,072 loans for a total loan production of $239,236,527 during the nine months ended March 31, 2015, as compared to 1,620 loans for a total production of $292,886,008 for the comparable prior year period. Our production was lower in the current fiscal year primarily due to reduced origination volumes throughout the industry as well as our closing certain production offices that were originating loans in the prior period. Our revenue per loan increased by $4,397, or 72% to $10,500 in the current period, compared to $6,103 in the prior period. The increase in revenue per loan in the current year is a direct result of more loans being originated and funded on our delegated platform. It is expected that our revenue per loan will continue to increase in future periods as our delegated lending platform continues to evolve.

Operating Expenses

Our total operating expenses increased by $1,232,157 and decreased $1,619,879 for the three and nine months ended March 31, 2015, to $5,455,515 and $12,959,399 as compared to $4,223,358 and $14,579,278 for the comparable periods in the prior year. The increase for the three month period is a direct result of our new Box Home Loans division we opened during the quarter. The decrease in operating expenses for the nine month period was primarily related to decreases in certain variable expenses such as commissions that were directly tied to revenue and production. Commission expense decreased by $1,940,302 for the nine months ended March 31, 2015, to $2,317,703. As a percentage of revenue, commission expense decreased to 20% from 43% in the prior nine-month period. The decrease in commission expense as a percentage of revenue is directly related to the Company making more commissions on each loan (higher revenue per loan) and due to the fact that the Company has moved more originators, especially branch managers, to salary only compensation plans. Salaries were $4,606,174 for the nine months ended March 31, 2015 compared to salaries of $4,387,707 for the comparable prior year period. The current period included salaries and costs associated with operational personnel, including underwriters, closers, shippers and funders required on our delegated lending platform. These individuals were only with the Company for part of the time during the prior period. These increases were offset somewhat by the elimination of salaries associated with the lending centers we closed in early 2014.

Advertising expense relates primarily to costs associated with generating leads and post-closing programs designed to maintain contact with borrowers. Advertising expenses were $140,832 and $413,319 for the three and nine months ended March 31, 2015, respectively, compared to $205,833 and $567,485 for the three and nine months ended March 31, 2014, respectively. The decrease was a result of lower loan volume and the termination of underperforming offices which were not on our platform during the current three and nine month periods. Total rent expense was $557,243 for the nine months ended March 31, 2015 compared to $730,820 for the nine months ended March 31, 2014. Professional and legal fees increased by $414,493 to $827,790 for the current nine month period versus $413,296 for the prior period. The increase was due to contract services the Company hired for its new Box Home Loans division in January 2015. Depreciation and amortization were $100,730 and $223,041 for the nine months ended March 31, 2015 and 2014, respectively. The reduction in both non cash charges is a result of the office closures in January and February of 2014, in which the Company wrote off certain intangible assets including customer lists, and then sold assets which were located in these offices in July 2014. Computers and systems expense was $244,874 for nine months ended March 31, 2015 compared to $275,292 for the prior period. Prior period expenses were higher due to having more loan originators.

Non-operating income (expense)

We incurred non-operating expense of $325,188 and $497,133 for the three and nine months ended March 31, 2015. The majority of this non-operating expense was for assets sold or disposed of at offices that have transitioned off the Company’s platform. The Company recorded a loss of $156,381 related to the sale of assets used by branch offices the Company closed in the first calendar quarter of 2014. We sold assets we were no longer using, with a book value of $278,881, for the return of 1,750,000 shares of our common stock that were valued at $0.07 per share based on the dates the sale agreements were executed. The Company also wrote off the unamortized balance of its license agreement with NWBO as the principals of NWBO, who were also employees of the Company, left the Company. The unamortized charge the Company incurred in the current quarter amounted to $296,941. There was no other significant non-operating income or expense transactions in either periods presented.

Liquidity and Capital Resources

Our cash and cash equivalents were $591,718 as of March 31, 2015, compared to $764,931 as of June 30, 2014. As shown in the accompanying consolidated financial statements, we recorded a net loss of $2,093,595 for the nine months ended March 31, 2015, compared to a net loss of $4,621,812 for the comparable prior year period. Our current assets were less than our current liabilities by $1,257,038 as of March 31, 2015. We have never generated an annual net income. We believe certain cost saving initiatives, closing of certain offices and originating and funding loans on our delegated platform will allow us to reduce our losses and ultimately achieve profitability. Our growth strategy includes adding additional branch offices and loan officers. There is no assurance that our current working capital will allow us to pursue our growth strategy and in order to expand our business we may need to sell additional shares of our Common Stock or borrow funds from private lenders to help finance the anticipated growth. There are no assurances that we can raise additional capital if necessary, and as such, our liquidity and capital resources may be adversely affected.

Operating Activities

Net cash used in operating activities for the nine months ended March 31, 2015 was $(29,537,000) resulting primarily from our increase in loans held for sale of $(28,213,389). Other items impacting our cash used in operating activities was our net loss of $(2,093,595), disposition of property and equipment of $272,022, disposition of intangible assets of $296,941, an increase in our accounts receivable of $(784,894) and increases in accounts payable and accrued liabilities of $574,383 and 408,694, respectively. In the prior nine month period, net cash used in operating activities was $(2,568,641), which included a net loss from operations of $(4,621,812). The prior period loss included non-cash charges for depreciation and amortization of $223,041, collection of accounts receivable of $336,417, sale of loans held for sale of $2,273,856, a reduction in accrued liabilities of $(755,931) and an increase in accounts payable of $319,247.

Investing Activities

Net cash used in investing activities for the nine months ended March 31, 2015, was $(11,621) compared to net cash used in investing activities of $(219,766) in the prior period. During the nine months ended March 31, 2015, we purchased property and equipment amounting to $(10,000) and were refunded security deposits of $(1,621). For the nine months ended March 31, 2014, we purchased property and equipment amounting to $(208,425) and paid security deposits of $(11,341). We do not currently have material commitments for capital expenditures and do not anticipate entering into any such commitments during the next twelve months.

Financing Activities

Net cash provided by financing activities for the nine months ended March 31, 2015, amounted to $29,375,408 compared to net cash used in financing activities of $(1,541,041) for the prior year. Cash paid for preferred dividends amounted to $(133,500) and $(256,500) for the nine months ended March 31, 2015 and 2014, respectively. In terms of our warehouse lines of credit for the nine months ended March 31, 2015, we received cash proceeds of $240,846,421 to fund our loan originations and made cash repayments of $(213,128,853) when loans were sold. In the prior nine month period, we received cash proceeds of $292,886,008 from our warehouse lines of credit and made cash payments of $(295,127,784). During the nine months ended March 31, 2015, we received cash proceeds of $120,000 on loans from related parties, $750,000 in loan proceeds from an unrelated party and $787,200 in proceeds from the sale of Series E preferred stock.

As a result of the above activities, we experienced a net decrease in cash of $173,213 for the nine months ended March 31, 2015. Our ability to continue as a going concern is still dependent on our success in attracting profitable and stable mortgage businesses to join our lending platform, expanding the business of our existing branches, our ability to raise temporary operating cash and controlling our costs as we execute our growth and expansion plans. During the past 15 months, we ended our relationship with three of our larger lending centers and eight smaller offices. These locations accounted for a significant portion of our total volume, and further accounted for a significant portion of our fixed overhead based on their heavy expense structure. At the time of their departure, none of the locations were generating enough volume to cover their expense structure and thus these operations contributed significantly to our decrease in cash and cash equivalents during the periods.

Critical Accounting Policies and Estimates

Management’s discussion and analysis of its financial condition and results of operations are based upon our unaudited consolidated financial statements, which have been prepared in accordance with United States generally accepted accounting principles. Our financial statements reflect the selection and application of accounting policies which require management to make estimates and judgments. (See Note 1 to our unaudited consolidated financial statements, “Nature of Business and Summary of Significant Accounting Policies”). We believe that the following paragraphs reflect accounting policies that currently affect our financial condition and results of operations:

Share Based Payment Plan

Under the 2012 and 2015 Stock Incentive Plans, we can grant stock or options to employees, related parties, and unrelated contractors in connection with the performance of services provided to us by the awardees. We use the fair value method to account for employee stock compensation costs and to account for share based payments to non-employees.

Revenue Recognition

Our revenue is derived primarily from revenue earned from the origination of mortgage loans that are funded on our warehouse lines of credit and sold to third party investors. Revenue is recognized as earned on the date the loan is funded.

Recent Accounting Pronouncements

We have evaluated the possible effects on it financial statements of the following accounting pronouncements:

Accounting Standards Update 2014-15 – Presentation of Financial Statements – Going Concern

In August 2014, the FASB issued ASU 2014-15, Presentation of Financial Statements-Going Concern. The amendments in this update provide guidance in GAAP about management’s responsibility to evaluate whether there is substantial doubt about an entity’s ability to continue as a going concern and to provide related footnote disclosures. In doing so, the amendments should reduce diversity in the timing and content of footnote disclosures. The amendments in ASU 2014-15 are effective for the annual period ending after December 15, 2016, and for annual periods and interim periods thereafter. We are currently evaluating the guidance under ASU 2014-15 and have not yet determined the impact, if any, on our consolidated financial statements.

Accounting Standards Update 2014-04 – Receivables-Troubled Debt Restructurings by Creditors (Subtopic 310-40): Classification of Certain Government-Guaranteed Mortgage Loans upon Foreclosure

In January 2014, the FASB issued ASU 2014-14, Receivables-Troubled Debt Restructurings by Creditors (Subtopic 310-40): Classification of Certain Government-Guaranteed Mortgage Loans upon Foreclosure. The amendments in this update should reduce diversity in practice by providing guidance on how to classify and measure certain government-guaranteed mortgage loans upon foreclosure. The amendments in ASU 2014-14 are effective for public business entities for annual periods, and interim periods within those annual periods, beginning after December 15, 2014. We are currently evaluating the guidance under ASU 2014-04 and have not yet determined the impact, if any, on our consolidated financial statements.

Accounting Standards Update 2014-12 – Compensation—Stock Compensation (Topic 718) Accounting for Share-Based Payments When the Terms of an Award Provide That a Performance Target Could Be Achieved after the Requisite Service Period

In June 2014, the FASB issued ASU 2014-12, Compensation—Stock Compensation (Topic 718) Accounting for Share-Based Payments When the Terms of an Award Provide That a Performance Target Could Be Achieved after the Requisite Service Period. The amendments in this update require that a performance target that affects vesting and that could be achieved after the requisite service period be treated as a performance condition. For all entities, the amendments in ASU 2014-12 are effective for annual periods and interim periods within those annual periods beginning after December 15, 2015. We are currently evaluating the guidance under ASU 2014-12 and have not yet determined the impact, if any, on our consolidated financial statements.

Accounting Standards Update 2014-14 – Receivables—Troubled Debt Restructurings by Creditors (Subtopic 310-40) Reclassification of Residential Real Estate Collateralized Consumer Mortgage Loans upon Foreclosure

In June 2014, the FASB issued ASU 2014-14, Receivables—Troubled Debt Restructurings by Creditors (Subtopic 310-40) Reclassification of Residential Real Estate Collateralized Consumer Mortgage Loans upon Foreclosure. The amendments in this update are intended to reduce diversity in practice by clarifying when an in substance repossession or foreclosure occurs, that is, when a creditor should be considered to have received physical possession of residential real estate property collateralizing a consumer mortgage loan such that the loan should be derecognized and the real estate property recognized. The amendments in ASU 2014-14 are effective for public business entities for annual periods, and interim periods within those annual periods, beginning after December 15, 2014. We are currently evaluating the guidance under ASU 2014-14 and have not yet determined the impact, if any, on our consolidated financial statements.

Accounting Standards Update 2013-11 – Income Taxes (Topic 740) Presentation of an Unrecognized Tax Benefit When a Net Operating Loss Carryforward, a Similar Tax Loss, or a Tax Credit Carryforward Exists

In July 2013, the FASB issued ASU 2013-11, Income Taxes (Topic 740) Presentation of an Unrecognized Tax Benefit When a Net Operating Loss Carryforward, a Similar Tax Loss, or a Tax Credit Carryforward Exists. The amendments in this update are expected to reduce diversity in practice by providing guidance on the presentation of unrecognized tax benefits and will better reflect the manner in which an entity would settle at the reporting date any additional income taxes that would result from the disallowance of a tax position when net operating loss carryforwards, similar tax losses, or tax credit carryforwards exist. The amendments in this update are effective for fiscal years, and interim periods within those years, beginning after December 15, 2013. We are currently evaluating the guidance under ASU 2013-11 and have not yet determined the impact, if any, on our consolidated financial statements.

Off-Balance Sheet Arrangements

We do not have any off-balance sheet arrangements that are reasonably likely to have a current or future effect on our financial condition, revenues, result of operations, liquidity, capital expenditures or capital resources.

Item 3. Quantitative and Qualitative Disclosures about Market Risk

This item is not required under Regulation S-K for “smaller reporting companies.”

Item 4. Controls and Procedures

Evaluation of Disclosure Controls and Procedures

Under the supervision and with the participation of our management, including our principal executive officer, who is also our principal financial officer, we conducted an evaluation of the effectiveness of our disclosure controls and procedures, as defined in Rule 13a-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), as of the end of the period covered by this report (the “Evaluation Date”). Based on this evaluation, Kevin Gadawski, our principal executive officer and principal financial officer, concluded as of the Evaluation Date that our disclosure controls and procedures were effective such that the information relating to PSM Holdings, Inc., including our consolidated subsidiaries, required to be disclosed in our SEC reports (i) is recorded, processed, summarized, and reported within the time periods specified in SEC rules and forms, and (ii) is accumulated and communicated to the Company’s management, including our principal executive officer and principal financial officer or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure.

Changes in Internal Control Over Financial Reporting

We regularly review our system of internal control over financial reporting and make changes to our processes and systems to improve controls and increase efficiency, while ensuring that we maintain an effective internal control environment. There were no changes in our internal control over financial reporting during the quarter ended March 31, 2015 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

PART II - OTHER INFORMATION

Item 1A. Risk Factors

We incurred a consolidated net operating loss from continuing operations of $2,093,595 for the nine months ended March 31, 2015. We have never achieved an annual profit. Unless we are able to reverse or mitigate the losses through onboarding profitable operations and making all current office locations profitable, we may not be able to be profitable or to continue operations under our current operating model.

Operating losses as reported in our current unaudited financial statements will make it more difficult to attract and onboard additional mortgage operations. If we are unable to onboard a significant number of new profitable operations, we may not generate sufficient revenues to continue current operations.

There are no assurances that we will be able to successfully recruit additional profitable mortgage operations to our platform, or that we will be able to successfully modify our current cost structure. If we are unsuccessful in these initiatives, our revenue and profitability may continue to decline and we may not have enough capital to continue to implement our growth plans. Further, we may be required to raise additional operating capital which would require the issuance of additional equity securities which would dilute our current shareholders.

We incurred a consolidated net operating loss from continuing operations of $2,093,595 for the nine months ended March 31, 2015. Unless we are able to reverse or mitigate these losses we may not be able to repay our current obligations including the Loan, dated February 18, 2015, which non-payment could result in the foreclose and sale of all of the Company’s (and all its subsidiaries’) assets.

If our revenue and profitability continue to decline we may not have enough capital to repay the February 18, 2015 loan with an unrelated third party lender (the “Loan”). The Loan requires monthly interest only payments at 14% beginning March 1, 2015. The principle balance will become due on February 1, 2016. The amount of the Loan is $750,000 and can be increased to $1,000,000 at the sole discretion of the lender. The Loan is secured by all of the assets of the Company (including intellectual property rights and licenses) and its subsidiaries as agreed to in the Security Agreement dated February 18, 2015, between the Company, and its subsidiaries, and the lender (the “Security Agreement”). Upon the occurrence of an event of default, the Lender has the right to foreclose on the assets of the Company. The security interest granted to the lender is guaranteed by the Company’s wholly-owned subsidiaries, WWYH, Inc., a Texas corporation (“WWYH”), and PrimeSource Mortgage, Inc., a Delaware corporation (“PSMI”), pursuant to the Guaranty Agreements dated February 18, 2015. Our failure to perform the obligations under the Loan could result in the forfeiture and sale of all of the Company’s and its subsidiaries assets.

An event of default occurred on our outstanding shares of preferred stock which grants the holders of Series A, C, and E Preferred Stock the right to control our board of directors.

On October 15, 2014, we failed to make mandatory dividend payments in the aggregate totaling $133,500 to the holders of Series A, B, C, and D Preferred Stock. On January 23, 2015, we failed to make mandatory dividend payments in the aggregate totaling $137,633 to the holders of Series A, B, C, D, and E Preferred Stock (the “Preferred Stock”). We did not have the cash available to pay the dividends we elected to allocate current cash flow to the on-boarding of new offices. The non-payment of these two dividends constitutes an event of default under the Certificates of Designation for the Preferred Stock.

Under the Certificates of Designation for the Preferred Stock, any unpaid dividends will accrue and the non-payment of dividends for two quarters constitutes an event of default. A one-time five business day cure period is allowed for the second non-payment. This is the second quarter we have failed to make dividend payments. If an event of default occurs, the holders of the Series A Preferred Stock, the Series C Preferred Stock, and the Series E Preferred Stock, voting together as a separate class, have the right to increase the number of directors of the Company to seven persons and then have the right to elect or appoint, remove and re-appoint four directors of the Company. Directors appointed by the holders of Series A Preferred Stock, Series C Preferred Stock, and the Series E Preferred Stock may only be removed by the holders of a majority of the Series A Preferred Stock, Series C Preferred Stock, and the Series E Preferred Stock voting jointly.

As a result of the event of default on the Preferred Stock, the dividend rate payable on the Preferred Stock has increased and we are subject to damages caused to the holders of the Preferred Stock.

After the occurrence of the event of default on the Preferred Stock, the preferred dividend rate automatically, as of January 23, 2015, increased to a rate per annum of 20% of the Stated Value (as defined in the Certificates of Designation for the Preferred Stock), payable in cash on a monthly basis on the 15^th day of each month until the event of default is cured, upon which event the preferred dividend will return to a rate of 6% per annum of the Stated Value. We are unable to make the required dividend payments and the increased dividend rate will substantially increase our payables to the holders of these shares of Preferred Stock. In addition, the holders of the Preferred Stock are entitled to legal and equitable remedies for damages caused by the failure to pay the dividends. Enforcement of these remedies by the holders of the Preferred Stock would have a detrimental effect on our financial condition and could negatively affect our ability to implement our current business plan or conduct operations.

See also “Item 1A – Risk Factors” as disclosed in Form 10-K for the year ended June 30, 2014, as filed with the Securities and Exchange Commission on October 14, 2014.

Item 6. Exhibits

4.1	2015 Stock Incentive Plan
10.1	Executive Employment Agreement with Kevin Gadawski, dated March 26, 2015
31.1	Rule 13a-14 Certification by Principal Executive Officer and Principal Financial Officer
32.1	Section 1350 Certification of Principal Executive Officer and Principal Financial Officer
101.INS	XBRL Instance Document
101.SCH	XBRL Taxonomy Extension Schema Document
101.CAL	XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF	XBRL Taxonomy Extension Definition Linkbase Document
101.LAB	XBRL Taxonomy Extension Label Linkbase Document
101.PRE	XBRL Taxonomy Extension Presentation Linkbase Document

SIGNATURES

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

	PSM HOLDINGS, INC.

Date: May 20, 2015	By:	/s/ Kevin Gadawski
		Kevin Gadawski, President, CEO & CFO (Principal Executive and Financial Officer)

Exhibit 4.1

PSM Holdings, Inc.

2015 STOCK INCENTIVE PLAN

THE 2015 STOCK INCENTIVE PLAN (the “Plan”) of PSM Holdings, Inc., a Delaware corporation, is hereby adopted by its Board of Directors as of March 26, 2015 (the “Effective Date”).

Article 1.

PURPOSES OF THE PLAN

Section 1.01 Purposes. The purposes of the Plan are (a) to enhance the Company’s ability to attract and retain the services of qualified employees, officers, directors, consultants, and other service providers upon whose judgment, initiative and efforts the successful conduct and development of the Company’s business largely depends, and (b) to provide additional incentives to such persons or entities to devote their utmost effort and skill to the advancement and betterment of the Company, by providing them an opportunity to participate in the ownership of the Company and thereby have an interest in the success and increased value of the Company.

Article 2.

DEFINITIONS

For purposes of this Plan, terms not otherwise defined herein shall have the meanings indicated below:

Section 2.01 Administrator. “Administrator” means the Board or, if the Board delegates responsibility for any matter to the Committee, the term Administrator shall mean the Committee.

Section 2.02 Affiliated Company. “Affiliated Company” means:

a) with respect to Incentive Options, any “parent corporation” or “subsidiary corporation” of the Company, whether now existing or hereafter created or acquired, as those terms are defined in Sections 424(e) and 424(f) of the Code, respectively; and

b) with respect to Nonqualified Options, Restricted Stock Units, Stock Appreciation Rights, and Restricted Stock Grants any entity described in paragraph (a) of this Section 2.02 above, plus any other corporation, limited liability company (“LLC”), partnership or joint venture, whether now existing or hereafter created or acquired, with respect to which the Company beneficially owns more than fifty percent (50%) of: (1) the total combined voting power of all outstanding voting securities or (2) the capital or profits interests of an LLC, partnership or joint venture.

Section 2.03 Base Price. “Base Price” means the price per share of Common Stock for purposes of computing the amount payable to a Participant who holds a Stock Appreciation Right upon exercise thereof.

Section 2.04 Board. “Board” means the Board of Directors of the Company.

Section 2.05 Change in Control. “Change in Control” means:

a) The acquisition, directly or indirectly, in one transaction or a series of related transactions, by any person or group (within the meaning of Section 13(d)(3) of the Securities Exchange Act of 1934, as amended) of the beneficial ownership of securities of the Company possessing more than fifty percent (50%) of the total combined voting power of all outstanding securities of the Company;

b) A merger or consolidation in which the Company is not the surviving entity, except for a transaction in which the holders of the outstanding voting securities of the Company immediately prior to such merger or consolidation hold as a result of holding the Company securities prior to such transaction, in the aggregate, securities possessing more than fifty percent (50%) of the total combined voting power of all outstanding voting securities of the surviving entity (or the parent of the surviving entity) immediately after such merger or consolidation;

c) A reverse merger in which the Company is the surviving entity but in which the holders of the outstanding voting securities of the Company immediately prior to such merger hold, in the aggregate, securities possessing less than fifty percent (50%) of the total combined voting power of all outstanding voting securities of the Company or of the acquiring entity immediately after such merger; or

d) The sale, transfer or other disposition (in one transaction or a series of related transactions) of all or substantially all of the assets of the Company, except for a transaction in which the holders of the outstanding voting securities of the Company immediately prior to such transaction(s) receive as a distribution with respect to securities of the Company, in the aggregate, securities possessing more than fifty percent (50%) of the total combined voting power of all outstanding voting securities of the acquiring entity immediately after such transaction(s).

e) In addition, a Change in Control will be deemed to have occurred if, at any time during any period of twelve (12) consecutive months during the term of any Option, as stated in the Option Exercise Documents, Restricted Stock Award Agreement, Restricted Stock Unit Agreement or Stock Appreciation Right Agreement under this Plan, individuals who at the beginning of such period constituted the entire Board do not for any reason constitute a majority of the Board, unless the election, or the nomination for election by the Company’s stockholders, of each new director was approved by a vote of at least a majority of the directors then still in office who were directors at the beginning of the period (but not including any new director whose election or nomination is in connection with an actual or threatened proxy contest relating to the election of directors of the Company).

Notwithstanding the foregoing, a transaction will not be deemed a Change in Control unless the transaction qualifies as a change in control event within the meaning of Section 409A of the Code.

Section 2.06 Code. “Code” means the Internal Revenue Code of 1986, as amended from time to time.

Section 2.07 Committee. “Committee” means a committee of two or more members of the Board appointed to administer the Plan, as set forth in Section 9.01.

Section 2.08 Common Stock. “Common Stock” means the Common Stock of the Company, subject to adjustment pursuant to Section 4.02.

Section 2.09 Company. “Company” means PSM Holdings, Inc., a Delaware corporation, or any entity that is a successor to the Company. Except where the context otherwise requires, the term “Company” shall include any of the Company’s present or future parent or subsidiary corporations.

Section 2.10 Disability. “Disability” means permanent and total disability as defined in Section 22(e)(3) of the Code. The Administrator’s determination of a Disability or the absence thereof shall be conclusive and binding on all interested parties.

Section 2.11 Effective Date. “Effective Date” means the date on which the Plan was originally adopted by the Board, as set forth on the first page hereof.

Section 2.12 Exchange Act. “Exchange Act” means the Securities and Exchange Act of 1934, as amended.

Section 2.13 Exercise Price. “Exercise Price” means the purchase price per share of Common Stock payable by the Optionee to the Company upon exercise of an Option.

Section 2.14 Fair Market Value. “Fair Market Value” on any given date means the value of one share of Common Stock, determined as follows:

a) If the Common Stock is then listed or admitted to trading on The NASDAQ Stock Market or another stock exchange which reports closing sale prices, the Fair Market Value shall be the closing sale price on the date of valuation on The NASDAQ Stock Market or principal stock exchange on which the Common Stock is then listed or admitted to trading, or, if no closing sale price is quoted on such day, then the Fair Market Value shall be the closing sale price of the Common Stock on The NASDAQ Stock Market or such exchange on the next preceding day on which a closing sale price is reported.

b) If the Common Stock is not then listed or admitted to trading on The NASDAQ Stock Market or a stock exchange which reports closing sale prices, the Fair Market Value shall be determined by the Administrator using (i) the last sale before or the first sale after the grant date; (ii) the closing price on the trading day before or on the grant date; (iii) the arithmetic mean (average) of the high and low prices on the trading day before or the trading day of the grant; (iv) an average of the stock price (determined either based on the arithmetic mean or the average of such selling price, weighted based on the volume of trading on each trading day during the period) over a fixed period occurring within 30 calendar days before or after the grant; or (v) any other reasonable valuation method using actual transactions.

c) If neither (a) nor (b) is applicable as of the date of valuation, then the Fair Market Value shall be determined by the Administrator in good faith using any reasonable method of evaluation in a manner consistent with the valuation principles under Section 409A of the Code, which determination shall be conclusive and binding on all interested parties.

Section 2.15 FINRA Dealer. “FINRA Dealer” means a broker-dealer that is a member of the Financial Industry Regulatory Authority.

Section 2.16 Grant Form. “Grant Form” means the Grant of Stock Option form signed by both parties with respect to either an Incentive Option or a Nonqualified Option.

Section 2.17 Incentive Option. “Incentive Option” means any Option designated and qualified as an “incentive stock option” as defined in Section 422 of the Code.

Section 2.18 Nonqualified Option. “Nonqualified Option” means any Option that is not an Incentive Option. To the extent that any Option designated as an Incentive Option fails in whole or in part to qualify as an Incentive Option, including, without limitation, for failure to meet the limitations applicable to a 10% Stockholder or because it exceeds the annual limit provided for in Section 5.07 below, it shall to that extent constitute a Nonqualified Option.

Section 2.19 Option. “Option” means any option to purchase Common Stock granted pursuant to this Plan.

Section 2.20 Option Exercise Documents. “Option Exercise Documents” means and includes the Option Exercise Form, the Grant Form, and any other agreements the Optionee is required to enter into to exercise options.

Section 2.21 Option Exercise Form. “Option Exercise Form” means the form identified as Exhibit A to the Grant Form.

Section 2.22 Optionee. “Optionee” means any Participant who holds an Option.

Section 2.23 Participant. “Participant” means an individual or entity that holds Options, Restricted Stock Units, Stock Appreciation Rights, or Restricted Stock Awards under this Plan.

Section 2.24 Performance Criteria. “Performance Criteria” means one or more of the following as established by the Administrator, which may be stated as a target percentage or dollar amount, a percentage increase over a base period percentage or dollar amount or the occurrence of a specific event or events:

a) Revenue;

b) Gross profit;

c) Operating income;

d) Pre-tax income;

e) Earnings before interest, taxes, depreciation and amortization (“EBITDA”);

f) Earnings per common share on a fully diluted basis (“EPS”);

g) Consolidated net income of the Company divided by the average consolidated common stockholders’ equity (“ROE”);

h) Cash and cash equivalents derived from either (i) net cash flow from operations, or (ii) net cash flow from operations, financings and investing activities (“Cash Flow”);

i) Adjusted operating cash flow return on income;

j) Cost containment or reduction;

k) The percentage increase in the market price of the Company’s common stock over a stated period; and

l) Individual business objectives.

Section 2.25 Restricted Stock Award. “Restricted Stock Award” means shares issued pursuant to the Restricted Stock Award Program in Article 8.

Section 2.26 Restricted Stock Award Agreement. “Restricted Stock Award Agreement” means the written agreement entered into between the Company and a Participant evidencing the grant of Restricted Stock Awards under the Plan.

Section 2.27 Service. “Service

Section 2.28 Restricted Stock Award Program. “Restricted Stock Award Program” means the program to issue restricted shares pursuant to Article 8.

Section 2.29 Restricted Stock Unit. “Restricted Stock Unit” means a right to receive an amount equal to the Fair Market Value of one share of Common Stock, issued pursuant to Article 6, subject to any restrictions and conditions as are established pursuant to Article 6.

Section 2.30 Restricted Stock Unit Agreement. “Restricted Stock Unit Agreement” means the written agreement entered into between the Company and a Participant evidencing the grant of Restricted Stock Units under the Plan.

Section 2.31 Service. “Service” shall mean the provision of services to the Company (or any Parent or Subsidiary) by a person in the capacity of an employee, a non-employee member of the board of directors or a consultant or independent advisor, except to the extent otherwise specifically provided in the documents evidencing the option grant.

Section 2.32 Service Provider. “Service Provider” means a consultant or other person or entity the Administrator authorizes to become a Participant in the Plan and who provides services to (i) the Company, (ii) an Affiliated Company, or (iii) any other business venture designated by the Administrator in which the Company or an Affiliated Company has a significant ownership interest.

Section 2.33 Stock Appreciation Right. “Stock Appreciation Right” means a right issued pursuant to Article 7, subject to any restrictions and conditions as are established pursuant to Article 7 that is designated as a Stock Appreciation Right.

Section 2.34 Stock Appreciation Right Agreement. “Stock Appreciation Right Agreement” means the written agreement entered into between the Company and a Participant evidencing the grant of Stock Appreciation Rights under the Plan.

Section 2.35 10% Stockholder. “10% Stockholder” means a person who, as of a relevant date, owns or is deemed to own (by reason of the attribution rules applicable under Section 424(d) of the Code) stock possessing more than 10% of the total combined voting power of all classes of stock of the Company or of an Affiliated Company.

Article 3.

ELIGIBILITY

Section 3.01 Incentive Options. Only employees of the Company or of an Affiliated Company (including members of the Board if they are employees of the Company or of an Affiliated Company) are eligible to receive Incentive Options under the Plan.

Section 3.02 Nonqualified Options; Restricted Stock Units and Stock Appreciation Rights. Employees of the Company or of an Affiliated Company, members of the Board (whether or not employed by the Company or an Affiliated Company), and Service Providers are eligible to receive Nonqualified Options, Restricted Stock Units, and Stock Appreciation Rights under the Plan.

Section 3.03 Section 162(m) Limitation. Subject to adjustment as to the number and kind of shares pursuant to Section 4.02, in no event shall any Participant be granted in any one calendar year any award that does not qualify as “performance-based compensation” under Section 162(m) of the Code. In granting awards which are intended to qualify under Section 162(m) of the Code, the Administrator shall follow any procedures determined by it from time to time to be necessary or appropriate to ensure qualification of the award under Section 162(m) of the Code (e.g., in determining the Performance Criteria).

Article 4.

PLAN SHARES

Section 4.01 Shares Subject to the Plan.

a) The number of shares of Common Stock that may be issued under this Plan shall be forty million (40,000,000) shares, subject to adjustment as to the number and kind of shares pursuant to Section 4.02. For purposes of this limitation, in the event that (a) all or any portion of any Options or Stock Appreciation Rights granted under the Plan can no longer under any circumstances be exercised, (b) any shares of Common Stock are reacquired by the Company pursuant to the Option Exercise Documents, or (c) all or any portion of any Restricted Stock Units granted under the Plan are forfeited or can no longer under any circumstances vest, the shares of Common Stock allocable to or covered by the unexercised or unvested portion of such Options, Stock Appreciation Rights or Restricted Stock Units or the shares of Common Stock so reacquired shall again be available for grant or issuance under the Plan. The following shares of Common Stock may not again be made available for issuance as awards under the Plan: (i) shares of Common Stock not issued or delivered as a result of the net settlement of outstanding Stock Appreciation Rights or Options, (ii) shares of Common Stock used to pay the Exercise Price related to outstanding Options, (iii) shares of Common Stock used to pay withholding taxes related to outstanding Options, Stock Appreciation Rights or Restricted Stock Units, or (iv) shares of Common Stock repurchased on the open market with the proceeds of the Option Exercise Price.

Section 4.02 Changes in Capital Structure. In the event that the outstanding shares of Common Stock are hereafter increased or decreased or changed into or exchanged for a different number or kind of shares or other securities of the Company by reason of a recapitalization, stock split, reverse stock split, reclassification, stock dividend, or other change in the capital structure of the Company, then appropriate adjustments shall be made by the Administrator to the aggregate number and kind of shares subject to this Plan, the number and kind of shares and the price per share subject to or covered by outstanding Option Exercise Documents, Restricted Stock Award Agreement, Restricted Stock Unit Agreement or Stock Appreciation Right Agreement and the limit on the number of shares under Section 3.03, all in order to preserve, as nearly as practical, but not to increase, the benefits to Participants.

Article 5.

OPTIONS

Section 5.01 Grant of Stock Options. The Administrator shall have the right to grant pursuant to this Plan, Options subject to such terms, restrictions, and conditions as the Administrator may determine at the time of grant. Such conditions may include, but are not limited to, continued employment or the achievement of specified performance goals or objectives established by the Administrator with respect to one or more Performance Criteria, which require the Administrator to certify in writing whether and the extent to which such Performance Criteria were achieved.

Section 5.02 Option Exercise Documents. Each Option granted pursuant to this Plan shall be evidenced by Option Exercise Documents which shall specify the number of shares subject thereto, vesting provisions relating to such Option, the Exercise Price per share, and whether the Option is an Incentive Option or Nonqualified Option. As soon as is practical following the grant of an Option, Option Exercise Documents shall be duly executed and delivered by or on behalf of the Company to the Optionee to whom such Option was granted. Each Option Exercise Document shall be in such form and contain such additional terms and conditions, not inconsistent with the provisions of this Plan, as the Administrator shall, from time to time, deem desirable.

Section 5.03 Exercise Price. The Exercise Price per share of Common Stock covered by each Option shall be determined by the Administrator, subject to the following: (a) the Exercise Price of an Incentive Option shall not be less than 100% of Fair Market Value on the date the Incentive Option is granted, (b) the Exercise Price of a Nonqualified Option shall not be less than 100% of Fair Market Value on the date the Nonqualified Option is granted, and (c) if the person to whom an Incentive Option is granted is a 10% Stockholder on the date of grant, the Exercise Price shall not be less than 110% of Fair Market Value on the date the Incentive Option is granted. However, an Option may be granted with an Exercise Price lower than that set forth in the preceding sentence if such Option is granted pursuant to an assumption or substitution for another option in a manner satisfying the provisions of Sections 409A and 424 of the Code.

Section 5.04 Payment of Exercise Price. Payment of the Exercise Price shall be made upon exercise of an Option and may be made, in the discretion of the Administrator, subject to any legal restrictions, by: (a) cash; (b) check; (c) the surrender of shares of Common Stock owned by the Optionee (provided that shares acquired pursuant to the exercise of options granted by the Company must have been held by the Optionee for the requisite period necessary to avoid a charge to the Company’s earnings for financial reporting purposes), which surrendered shares shall be valued at Fair Market Value as of the date of such exercise; (d) the cancellation of indebtedness of the Company to the Optionee; (e) the waiver of compensation due or accrued to the Optionee for services rendered; (f) provided that a public market for the Common Stock exists, a “same day sale” commitment from the Optionee and a FINRA Dealer whereby the Optionee irrevocably elects to exercise the Option and to sell a portion of the shares so purchased to pay for the Exercise Price and whereby the FINRA Dealer irrevocably commits upon receipt of such shares to forward the Exercise Price directly to the Company; (g) provided that a public market for the Common Stock exists, a “margin” commitment from the Optionee and a FINRA Dealer whereby the Optionee irrevocably elects to exercise the Option and to pledge the shares so purchased to the FINRA Dealer in a margin account as security for a loan from the FINRA Dealer in the amount of the Exercise Price, and whereby the FINRA Dealer irrevocably commits upon receipt of such shares to forward the Exercise Price directly to the Company; or (h) any combination of the foregoing methods of payment or any other consideration or method of payment as shall be permitted by applicable law.

Section 5.05 Term and Termination of Options. The term and provisions for termination of each Option shall be as fixed by the Administrator, but no Option may be exercisable more than ten (10) years after the date it is granted. An Incentive Option granted to a person who is a 10% Stockholder on the date of grant shall not be exercisable more than five (5) years after the date it is granted.

Section 5.06 Vesting and Exercise of Options. Each Option shall vest and become exercisable in one or more installments at such time or times and subject to such conditions, including without limitation the achievement of specified performance goals or objectives established with respect to one or more Performance Criteria, as shall be determined by the Administrator.

Section 5.07 Annual Limit on Incentive Options. To the extent required for “incentive stock option” treatment under Section 422 of the Code, the aggregate Fair Market Value (determined as of the time of grant) of the Common Stock with respect to which Incentive Options granted under this Plan and any other plan of the Company or any Affiliated Company become exercisable for the first time by an Optionee during any calendar year shall not exceed $100,000.

Section 5.08 Nontransferability of Options. Except as otherwise provided in this Section 5.08, Options shall not be assignable or transferable except by will, the laws of descent and distribution or to a revocable trust, and during the life of the Optionee, Options shall be exercisable only by the Optionee. At the discretion of the Administrator and in accordance with rules it establishes from time to time, Optionees may be permitted to transfer some or all of their Nonqualified Options to one or more “family members,” which is not a “prohibited transfer for value,” provided that (i) the Optionee (or such Optionee’s estate or representative) shall remain obligated to satisfy all income or other tax withholding obligations associated with the exercise of such Nonqualified Option; (ii) the Optionee shall notify the Company in writing that such transfer has occurred and disclose to the Company the name and address of the “family member” or “family members” and their relationship to the Optionee, and (iii) such transfer shall be effected pursuant to transfer documents in a form approved by the Administrator. For purposes of the foregoing, the terms “family members” and “prohibited transfer for value” have the meaning ascribed to them in the General Instructions to Form S-8 (or any successor form) promulgated under the Securities Act of 1933, as amended.

Section 5.09 Effect of Termination of Employment.

a) The following provisions shall govern the exercise of any Options held by the Optionee at the time of termination of employment, disability, or death:

(1) Should the Optionee’s employment be terminated for cause, then the Options shall terminate on the date of employment is terminated.

(2) Should the Optionee’s employment be terminated for disability, then the Optionee shall have a period of six (6) months following the date of such termination during which to exercise each outstanding Option held by such Optionee at the time of disability.

(3) If the Optionee dies while holding an outstanding Option, then the personal representative of his or her estate or the person or persons to whom the Option is transferred pursuant to the Optionee’s will or the laws of inheritance shall have six (6) months following the date of the Optionee’s death to exercise such Option.

(4) Should Optionee’s employment be terminated by reason other than for cause, disability, or death, then the Optionee shall have a period of thirty (30) days following the date of such termination during which to exercise each outstanding option held by such Optionee.

(5) Under no circumstances, however, shall any such Option be exercisable after the specified expiration of the option term.

(6) During the applicable post-Service exercise period, the Option may not be exercised in the aggregate for more than the number of vested shares for which the Option is exercisable on the date of the Optionee’s termination of employment. Upon the expiration of the applicable exercise period or (if earlier) upon the expiration of the Option term, the Option shall terminate and cease to be outstanding for any vested shares for which the Option has not been exercised. However, the Option shall, immediately upon the Optionee’s termination of employment, terminate and cease to be outstanding with respect to any and all Option shares for which the option is not otherwise at the time exercisable or in which the Optionee is not otherwise at that time vested.

b) The Administrator shall have the discretion, exercisable either at the time an Option is granted or at any time while the Option remains outstanding, to:

(1) extend the period of time for which the Option is to remain exercisable following Optionee’s termination of employment or death from the limited period otherwise in effect for that Option to such greater period of time as the Administrator shall deem appropriate, but in no event beyond the expiration of the Option term; and/or

(2) permit the Option to be exercised, during the applicable post-termination exercise period, not only with respect to the number of vested shares of Common Stock for which such Option is exercisable at the time of the Optionee’s termination of employment but also with respect to one or more additional installments in which the Optionee would have vested under the Option had the Optionee continued employment.

Section 5.10 Rights as a Stockholder. An Optionee or permitted transferee of an Option shall have no rights or privileges as a stockholder with respect to any shares covered by an Option until such Option has been duly exercised and certificates representing shares purchased upon such exercise have been issued to such person.

Article 6.

RESTRICTED STOCK UNITS

Section 6.01 Grants of Restricted Stock Units. The Administrator shall have the right to grant pursuant to this Plan Restricted Stock Units subject to such terms, restrictions, and conditions as the Administrator may determine at the time of grant. Such conditions may include, but are not limited to, continued employment or the achievement of specified performance goals or objectives established by the Administrator with respect to one or more Performance Criteria, which require the Administrator to certify in writing whether and the extent to which such Performance Criteria were achieved.

Section 6.02 Restricted Stock Unit Agreements. A Participant shall have no rights with respect to the Restricted Stock Units covered by a Restricted Stock Unit Agreement until the Participant has executed and delivered to the Company the applicable Restricted Stock Unit Agreement. Each Restricted Stock Unit Agreement shall be in such form, and shall set forth such other terms, conditions, and restrictions of the Restricted Stock Unit Agreement, not inconsistent with the provisions of this Plan, as the Administrator shall, from time to time, deem desirable. Each such Restricted Stock Unit Agreement may be different from each other Restricted Stock Unit Agreement.

Section 6.03 Vesting of Restricted Stock Units. The Restricted Stock Unit Agreement shall specify the date or dates, the performance goals, if any, established by the Administrator with respect to one or more Performance Criteria that must be achieved, and any other conditions on which the Restricted Stock Units may vest.

Section 6.04 Form and Timing of Settlement. Settlement in respect of vested Restricted Stock Units will be automatic upon vesting thereof. Payment in respect thereof will be made no later than thirty (30) days thereafter and may, in the discretion of the Administrator, be in cash, shares of Common Stock of equivalent Fair Market Value as of the date of exercise, or a combination of both, except as specifically provided in the Restricted Stock Unit Agreement.

Section 6.05 Rights as a Stockholder. Holders of Restricted Stock Units shall have no rights or privileges as a stockholder with respect to any shares of Common Stock covered thereby unless and until they become owners of shares of Common Stock following settlement in respect of such Restricted Stock Units, in whole or in part, in shares of Common Stock pursuant to their respective Restricted Stock Unit Agreements and the terms and conditions of the Plan.

Section 6.06 Restrictions. Restricted Stock Units may not be sold, pledged or otherwise encumbered or disposed of and shall not be assignable or transferable except by will, the laws of descent and distribution or pursuant to a domestic relations order entered by a court in settlement of marital property rights, except as specifically provided in the Restricted Stock Unit Agreement or as authorized by the Administrator.

Article 7.

STOCK APPRECIATION RIGHTS

Section 7.01 Grants of Stock Appreciation Rights. The Administrator shall have the right to grant pursuant to this Plan, Stock Appreciation Rights subject to such terms, restrictions and conditions as the Administrator may determine at the time of grant. Such conditions may include, but are not limited to, continued employment or the achievement of specified performance goals or objectives established by the Administrator with respect to one or more Performance Criteria, which require the Administrator to certify in writing whether and the extent to which such Performance Criteria were achieved.

Section 7.02 Stock Appreciation Right Agreements. A Participant shall have no rights with respect to the Stock Appreciation Rights covered by a Stock Appreciation Right Agreement until the Participant has executed and delivered to the Company the applicable Stock Appreciation Right Agreement. Each Stock Appreciation Right Agreement shall be in such form, and shall set forth the Base Price and such other terms, conditions and restrictions of the Stock Appreciation Right Agreement, not inconsistent with the provisions of this Plan, as the Administrator shall, from time to time, deem desirable. Each such Stock Appreciation Right Agreement may be different from each other Stock Appreciation Right Agreement.

Section 7.03 Base Price. The Base Price per share of Common Stock covered by each Stock Appreciation Right shall be determined by the Administrator and will be not less than 100% of Fair Market Value on the date the Stock Appreciation Right is granted. However, a Stock Appreciation Right may be granted with a Base Price lower than that set forth in the preceding sentence if such Stock Appreciation Right is granted pursuant to an assumption or substitution for another stock appreciation right in a manner satisfying the provisions of Section 409A of the Code.

Section 7.04 Term and Termination of Stock Appreciation Rights. The term and provisions for termination of each Stock Appreciation Right shall be as fixed by the Administrator, but no Stock Appreciation Right may be exercisable more than ten (10) years after the date it is granted.

Section 7.05 Vesting and Exercise of Stock Appreciation Rights. Each Stock Appreciation Right shall vest and become exercisable in one or more installments at such time or times and subject to such conditions, including without limitation the achievement of specified performance goals or objectives established with respect to one or more Performance Criteria, as shall be determined by the Administrator.

Section 7.06 Amount, Form and Timing of Settlement. Upon exercise of a Stock Appreciation Right, the Participant who holds such Stock Appreciation Right will be entitled to receive payment from the Company in an amount equal to the product of (a) the difference between the Fair Market Value of a share of Common Stock on the date of exercise over the Base Price per share of Common Stock covered by such Stock Appreciation Right and (b) the number of shares of Common Stock with respect to which such Stock Appreciation Right is being exercised. Payment in respect thereof will be made no later than thirty (30) days after such exercise, provided that such payment will be made in a manner such that no amount of compensation will be treated as deferred under Treasury Regulation Section 1.409A-1(b)(5)(i)(D). Such payment may, in the discretion of the Administrator, be in cash, shares of Common Stock of equivalent Fair Market Value as of the date of exercise, or a combination of both, except as specifically provided in the Stock Appreciation Right Agreement.

Section 7.07 Rights as a Stockholder. Holders of Stock Appreciation Rights shall have no rights or privileges as a stockholder with respect to any shares of Common Stock covered thereby unless and until they become owners of shares of Common Stock following settlement in respect of such Stock Appreciation Rights, in whole or in part, in shares of Common Stock pursuant to their respective Stock Appreciation Right Agreements and the terms and conditions of the Plan.

Section 7.08 Restrictions. Stock Appreciation Rights may not be sold, pledged or otherwise encumbered or disposed of and shall not be assignable or transferable except by will, the laws of descent and distribution or pursuant to a domestic relations order entered by a court in settlement of marital property rights, except as specifically provided in the Stock Appreciation Right Agreement or as authorized by the Administrator.

Article 8.

RESTRICTED STOCK AWARDS PROGRAM

Section 8.01 Restricted Stock Award Terms. Shares of Common Stock may be issued under the Restricted Stock Awards Program through direct and immediate issuances of Restricted Stock Awards without any intervening option grants. Each such stock grant shall be evidenced by a Restricted Stock Awards Agreement which complies with the terms specified below.

Section 8.02 Cost of Shares. Grants of Restricted Stock Awards under the Restricted Stock Awards Program shall be made at such cost as the Administrator shall determine and may be issued for no monetary consideration, subject to applicable state law.

Section 8.03 Vesting Provisions.

a) Restricted Stock Awards issued under the Restricted Stock Awards Program may, in the discretion of the Administrator, be fully and immediately vested upon issuance or may vest in one or more installments over the Participant’s period of Service or upon attainment of specified performance objectives.

b) Any new, substituted or additional securities or other property (including money paid other than as a regular cash dividend) which the Participant may have the right to receive with respect to the Participant’s unvested Restricted Stock Awards by reason of any stock dividend, stock split, recapitalization, combination of shares, exchange of shares or other change affecting the outstanding Common Stock as a class without the Company’s receipt of consideration shall be issued subject to (i) the same vesting requirements applicable to the Participant’s unvested Restricted Stock Awards and (ii) such escrow arrangements as the Administrator shall deem appropriate.

c) Unless specified otherwise in the Restricted Stock Awards Agreement, the Participant shall have full shareholder rights with respect to any Restricted Stock Awards issued to the Participant under the Restricted Stock Awards Program, whether or not the Participant’s interest in those shares is vested, and accordingly, the Participant shall have the right to vote such shares and to receive any regular cash dividends paid on such shares.

d) Should the Participant cease to remain in Service while holding one or more unvested Restricted Stock Awards issued under the Restricted Stock Awards Program or should the performance objectives not be attained with respect to one or more such unvested Restricted Stock Awards, then those shares shall be immediately surrendered to the Company for cancellation, and the Participant shall have no further shareholder rights with respect to those shares. To the extent the surrendered shares were previously issued to the Participant for consideration paid in cash or cash equivalent (including the Participant’s purchase-money indebtedness), the Company shall repay to the Participant the cash consideration paid for the surrendered shares and shall cancel the unpaid principal balance of any outstanding purchase-money note of the Participant attributable to such surrendered shares.

e) The Administrator may in its discretion waive the surrender and cancellation of one or more unvested Restricted Stock Awards (or other assets attributable thereto) which would otherwise occur upon the non-completion of the vesting schedule applicable to such shares. Such waiver shall result in the immediate vesting of the Participant’s interest in the Restricted Stock Awards as to which the waiver applies. Such waiver may be effected at any time, whether before or after the Participant’s cessation of Service or the attainment or non-attainment of the applicable performance objectives.

Section 8.04 Non-transferability. Restricted Stock Awards granted under the Restricted Stock Awards Program shall not be transferable until the shares are vested.

Section 8.05 Share Escrow/Legends. Unvested Restricted Stock Awards may, in the Administrator’s discretion, be held in escrow by the Company until the Participant’s interest in such shares vests or may be issued directly to the Participant with restrictive legends on the certificates evidencing those unvested shares.

Article 9.

ADMINISTRATION OF THE PLAN

Section 9.01 Administrator. Authority to control and manage the operation and administration of the Plan shall be vested in the Board, which may delegate such responsibilities in whole or in part to a committee consisting of two (2) or more members of the Board (the “Committee”), each of whom shall meet the independence requirements under the then applicable rules, regulations or listing requirements adopted by The NASDAQ Stock Market or the principal exchange on which the Company’s shares of Common Stock are then listed or admitted to trading. Members of the Committee may be appointed from time to time by, and shall serve at the pleasure of, the Board. The Board may limit the composition of the Committee to those persons necessary to comply with the requirements of Section 162(m) of the Code and Section 16 of the Exchange Act. As used herein, the term “Administrator” means the Board or, with respect to any matter as to which responsibility has been delegated to the Committee, the term Administrator shall mean the Committee.

Section 9.02 Powers of the Administrator. In addition to any other powers or authority conferred upon the Administrator elsewhere in this Plan or by law, the Administrator shall have full power and authority: (a) to determine the persons to whom, and the time or times at which, Incentive Options, Nonqualified Options, Restricted Stock Units, Stock Appreciation Rights, or Restricted Stock Awards shall be granted, the number of shares to be represented by each Option Exercise Documents, and the Exercise Price of such Options and the Base Price of such Stock Appreciation Rights; (b) to interpret the Plan; (c) to create, amend or rescind rules and regulations relating to the Plan; (d) to determine the terms, conditions and restrictions contained in, and the form of, Option Exercise Documents; (e) to determine the identity or capacity of any persons who may be entitled to exercise a Participant’s rights under any Option Exercise Documents under the Plan; (f) to correct any defect or supply any omission or reconcile any inconsistency in the Plan or in any Option Exercise Documents, Restricted Stock Awards Agreement, Restricted Stock Unit Agreement, or Stock Appreciation Right Agreement; (g) to accelerate the vesting of any Option, Restricted Stock Unit, Stock Appreciation Right, or Restricted Stock Award; (h) to extend the expiration date of any Option Exercise Documents; (i) subject to Section 9.03, to amend outstanding Option Exercise Documents to provide for, among other things, any change or modification which the Administrator could have included in the original agreement or in furtherance of the powers provided for herein; and (j) to make all other determinations necessary or advisable for the administration of this Plan, but only to the extent not contrary to the express provisions of this Plan. Any action, decision, interpretation or determination made in good faith by the Administrator in the exercise of its authority conferred upon it under this Plan shall be final and binding on the Company and all Participants. Notwithstanding any term or provision in this Plan, the Administrator shall not have the power or authority, by amendment or otherwise to extend the expiration date of an Option or Stock Appreciation Right beyond the tenth (10th) anniversary of the date such Option or Stock Appreciation Right was granted.

Section 9.03 Repricing Prohibited. Subject to Section 4.02, and except in connection with a corporate transaction involving the Company (including, without limitation, any stock dividend, stock split, extraordinary cash dividend, recapitalization, reorganization, merger, consolidation, split-up, spin-off, combination, or exchange of shares), neither the Committee nor the Board shall amend the terms of outstanding awards to reduce the Exercise Price of outstanding Options or the Base Price of outstanding Stock Appreciation Rights or cancel outstanding Options, Stock Appreciation Rights, or Restricted Stock Awards in exchange for cash, other awards or Options with an Exercise Price that is less than the Exercise Price of the original Options or Stock Appreciation Rights with a Base Price that is less than the Base Price of the original Stock Appreciation Rights, without approval of the Company’s stockholders, evidenced by a majority of votes cast.

Section 9.04 Limitation on Liability. No employee of the Company or member of the Board or Committee shall be subject to any liability with respect to duties under the Plan unless the person acts fraudulently or in bad faith. To the extent permitted by law, the Company shall indemnify each member of the Board or Committee, and any employee of the Company with duties under the Plan, who was or is a party, or is threatened to be made a party, to any threatened, pending or completed proceeding, whether civil, criminal, administrative or investigative, by reason of such person’s conduct in the performance of duties under the Plan.

Article 10.

CHANGE IN CONTROL

Section 10.01 Options and Stock Appreciation Rights. Vesting of all outstanding Options, Stock or Appreciation Rights shall accelerate automatically effective as of immediately prior to the consummation of the Change in Control. In connection with such acceleration, the Administrator in its discretion may provide, in connection with the Change in Control transaction, for the purchase or exchange of each Option or Stock Appreciation Right for an amount of cash or other property having a value equal to (i) with respect to each Option, the amount (or “spread”) by which, (x) the value of the cash or other property that the Optionee would have received pursuant to the Change in Control transaction in exchange for the shares issuable upon exercise of the Option had the Option been exercised immediately prior to the Change in Control, exceeds (y) the Exercise Price of the Option, and (ii) with respect to each Stock Appreciation Right, the value of the cash or other property that the Participant would have received had the Stock Appreciation Right been exercised immediately prior to the Change in Control. The Administrator shall have the discretion to provide in each Option Exercise Document other terms and conditions that relate to vesting of such Option or Stock Appreciation Right in the event of a Change in Control. The aforementioned terms and conditions may vary in each Option Exercise Document and may be different from and have precedence over the provisions set forth in this Section 10.01.

Section 10.02 Restricted Stock Units and Restricted Stock Awards. All Restricted Stock Units and unvested Restricted Stock Awards shall vest in full effective as of immediately prior to the consummation of the Change in Control. In connection with such acceleration, the Administrator in its discretion may provide, in connection with the Change in Control transaction, for the purchase or exchange of each Restricted Stock Unit or Restricted Share for an amount of cash or other property having a value equal to the value of the cash or other property that the Participant would have received had the Restricted Stock Unit or Restricted Share vested immediately prior to the Change in Control. The Administrator shall have the discretion to provide in each agreement other terms and conditions that relate to vesting of such Restricted Stock Units and Restricted Stock Awards in the event of a Change in Control. The aforementioned terms and conditions may vary in each agreement, and may be different from and have precedence over the provisions set forth in this Section 10.02.

Article 11.

AMENDMENT AND TERMINATION OF THE PLAN

Section 11.01 Amendments. The Board may from time to time alter, amend, suspend or terminate this Plan in such respects as the Board may deem advisable. No such alteration, amendment, suspension or termination shall be made which shall substantially affect or impair the rights of any Participant under an outstanding Option Exercise Documents, Restricted Stock Awards Agreement, Restricted Stock Unit Agreement, and Stock Appreciation Right Agreement without such Participant’s consent. The Board may alter or amend the Plan to comply with requirements under the Code relating to Incentive Options or other types of options which gives Optionees more favorable tax treatment than that applicable to Options granted under this Plan as of the date of its adoption. Upon any such alteration or amendment, any outstanding Option granted hereunder may, if the Administrator so determines and if permitted by applicable law, be subject to the more favorable tax treatment afforded to an Optionee pursuant to such terms and conditions.

Section 11.02 Plan Termination. Unless this Plan shall theretofore have been terminated, the Plan shall terminate on the tenth (10th) anniversary of the Effective Date and no Options, Restricted Stock Units, Stock Appreciation Rights, or Restricted Stock Awards may be granted under the Plan thereafter, but Option Exercise Documents, Restricted Stock Awards Agreement, Restricted Stock Unit Agreements, and Stock Appreciation Right Agreements then outstanding shall continue in effect in accordance with their respective terms.

Article 12.

TAXES

Section 12.01 Withholding. The Company shall have the power to withhold, or require a Participant to remit to the Company, an amount sufficient to satisfy any applicable Federal, state, and local tax withholding requirements with respect to any Options, Restricted Stock Units, Stock Appreciation Rights, or Restricted Stock Awards. To the extent permissible under applicable tax, securities and other laws, the Administrator may, in its sole discretion and upon such terms and conditions as it may deem appropriate, permit a Participant to satisfy his or her obligation to pay any such tax, in whole or in part, up to an amount determined on the basis of the highest marginal tax rate applicable to such Participant, by (a) directing the Company to apply shares of Common Stock to which the Participant is entitled as a result of the exercise of an Option or Stock Appreciation Right or vesting of a Restricted Stock Unit or Restricted Share, or (b) delivering to the Company shares of Common Stock owned by the Participant. The shares of Common Stock so applied or delivered in satisfaction of the Participant’s tax withholding obligation shall be valued at their Fair Market Value as of the date of measurement of the amount of income subject to withholding.

Section 12.02 Compliance with Section 409A of the Code. Options, Restricted Stock Units, Stock Appreciation Rights, and Restricted Stock Awards will be designed and operated in such a manner that they are either exempt from the application of, or comply with, the requirements of Section 409A of the Code such that the grant, payment, settlement or deferral will not be subject to the additional tax or interest applicable under Section 409A of the Code, except as otherwise determined in the sole discretion of the Administrator. The Plan and each Option Exercise Document, Restricted Stock Awards Agreement, Restricted Stock Unit Agreement, and Stock Appreciation Right Agreement is intended to meet the requirements of Section 409A of the Code and will be construed and interpreted in accordance with such intent, except as otherwise determined in the sole discretion of the Administrator. To the extent that an Option, Restricted Stock Unit, Stock Appreciation Right, or Restricted Stock Award, or grant, payment, settlement or deferral thereof is subject to Section 409A of the Code such Option, Restricted Stock Unit, Stock Appreciation Right, or Restricted Share will be granted, paid, settled or deferred in a manner that will meet the requirements of Section 409A of the Code, such that the grant, payment, settlement or deferral thereof will not be subject to the additional tax or interest applicable under Section 409A of the Code.

Article 13.

MISCELLANEOUS

Section 13.01 Involuntary Transfer. In the event of any transfer by operation of law or other involuntary transfer (including divorce or death) of all or a portion of any awards or shares granted pursuant to this Plan, whether vested or unvested, held by the record holder thereof, the Company shall have the right to purchase all of the awards or shares transferred at the greater of the purchase price paid by purchaser or the Fair Market Value of the awards or shares (as determined by the Board of Directors) on the date of transfer. Upon such a transfer, the person acquiring the awards or shares shall promptly notify the Secretary of the Company of such transfer. The right to purchase such awards or shares shall be provided to the Company for a period of thirty (30) days following receipt by the Company of written notice by the person acquiring the awards or shares. Within thirty (30) days of receiving notice of the transfer or proposed transfer, the Company shall notify the purchaser/acquirer or his or her executor of the price. If the purchaser/acquirer does not agree with the Company’s valuation, the purchaser/acquirer may have the valuation determined by an independent appraiser to be mutually agreed upon and paid for by the purchaser/acquirer and the Company.

Section 13.02 Shareholder Approval of the Plan. The Plan shall be approved by a majority of the outstanding securities entitled to vote by the later of (i) within twelve (12) months before or after the date the Plan is adopted, or (ii) prior to or within twelve (12) months of the granting of any Incentive Options or Nonqualified Options, or the issuance of any Restricted Stock Units, Stock Appreciation Rights, or Restricted Stock Awards. If any Incentive Options or Nonqualified Options is exercised, or any Restricted Stock Units, Stock Appreciation Rights, or Restricted Stock Awards is issued before security holder approval is obtained shall be rescinded if security holder approval is not obtained in the manner described in the preceding sentence.

Section 13.03 Excess Awards. Awards may be granted under the Plan which are in each instance in excess of the number of shares of Common Stock then available for issuance under the Plan, provided any excess shares actually issued under those programs shall be held in escrow until there is obtained shareholder approval of an amendment sufficiently increasing the number of shares of Common Stock available for issuance under the Plan. If such shareholder approval is not obtained within twelve (12) months after the date the first such excess issuances are made, then (i) any unexercised options granted on the basis of such excess shares shall terminate and cease to be outstanding and (ii) the Company shall promptly refund to the Participants the exercise or purchase price paid for any excess shares issued under the Plan and held in escrow, together with interest (at the applicable Short Term Federal Rate) for the period the shares were held in escrow, and such shares shall thereupon be automatically canceled and cease to be outstanding.

Section 13.04 Benefits Not Alienable. Other than as provided above, benefits under this Plan may not be assigned or alienated, whether voluntarily or involuntarily. Any unauthorized attempt at assignment, transfer, pledge or other disposition shall be without effect.

Section 13.05 No Enlargement of Employee Rights. This Plan is strictly a voluntary undertaking on the part of the Company and shall not be deemed to constitute a contract between the Company and any Participant to be consideration for, or an inducement to, or a condition of, the employment of any Participant. Nothing contained in the Plan shall be deemed to give the right to any Participant to be retained as an employee of the Company or any Affiliated Company or to interfere with the right of the Company or any Affiliated Company to discharge any Participant at any time.

Section 13.06 Application of Funds. The proceeds received by the Company from the sale of Common Stock pursuant to Option Exercise Documents, except as otherwise provided herein, will be used for general corporate purposes.

Section 13.07 Annual Reports. During the term of this Plan, the Company will furnish to each Participant who does not otherwise receive such materials, copies of all reports, proxy statements and other communications that the Company distributes generally to its stockholders, including, but not limited to, financial statements.

Section 13.08 Choice of Law and Venue. The Plan and all related documents shall be governed by, and construed in accordance with, the laws of the State of Delaware. Acceptance of an award shall be deemed to constitute consent to the jurisdiction and venue of the courts located in the State of Delaware for all purposes in connection with any suit, action or other proceeding relating to such award, including the enforcement of any rights under the Plan or any agreement or other document, and shall be deemed to constitute consent to any process or notice of motion in connection with such proceeding being served by certified or registered mail or personal service within or without the State of Delaware, provided a reasonable time for appearance is allowed.

Exhibit 10.1

Executive EMPLOYMENT AGREEMENT

This EXECUTIVE EMPLOYMENT AGREEMENT (the “Agreement”) entered into effective the 1^st day of April 2015 (the “Effective Date”), is by and between PSM Holdings, Inc., a Delaware corporation with principal offices in Oklahoma City, Oklahoma (the “Company”), and Kevin J. Gadawski, an individual residing in Dana Point, California (the “Executive”).

RECITALS:

WHEREAS, the Executive has served as Chief Financial Officer (“CFO”) and Chief Operating Officer (“COO”) of the Company since February 7, 2013, and as Chief Executive Officer (“CEO”) and President since August 28, 2013;

WHEREAS, the Executive has been an employee and compensated by the Company pursuant to an unwritten arrangement during those periods;

WHEREAS, the Company and the Executive desire to memorialize the terms and conditions of the employment arrangement of the Executive for service as an executive of the Company and as President and CEO of the Company’s wholly owned subsidiary PrimeSource Mortgage, Inc. (“PSMI”); and

WHEREAS, the Board of Directors of the Company (the “Board”) has approved the terms and conditions set forth in this Agreement;

NOW THEREFORE, in consideration of the mutual covenants and promises contained herein, and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged by the parties hereto, the Company agrees to employ the Executive, and the Executive agrees to perform services for the Company as an employee, upon the terms and conditions set forth herein.

1. TERM.

Executive’s term of employment (the “Initial Term”) under this Agreement shall be three (3) years, commencing on the Effective Date, and shall continue for a period through and including March 31, 2018, and shall expire after March 31, 2018, unless extended in writing by both the Company and Executive or earlier terminated pursuant to the terms and conditions set forth in this Agreement (the Initial Term and any extension thereof, the “Employment Term”). The terms of this Agreement shall be binding upon the parties hereto from the Effective Date throughout the Employment Term. The restrictive covenants in Sections 4(c), 9, and 10 hereof shall survive the termination of this Agreement.

2. TITLE AND DUTIES.

The Executive shall be employed and shall continue to serve as CEO, President, COO, and CFO of Company, and shall be appointed and serve as President and CEO of PSMI. The Executive shall perform such services consistent with his positions as might be assigned to him from time to time by the Board and which are consistent with the bylaws of the Company, including, but not limited to, service for any subsidiary, partnership, limited liability company, joint venture, trust or other enterprise or entity controlled by the Company. The Executive shall have such responsibilities and authority as is commensurate with such offices and as may be prescribed by the Board and bylaws of the Company. The Board shall have the right to review and change the duties, responsibilities, and functions of Executive from time to time as it may deem necessary or appropriate; provided, however, that such duties, responsibilities, and functions remain consistent with the Executives status as a senior executive officer of the Company. It is expected that Executive will devote virtually his full time to his duties associated with Company sufficient to reasonably perform them in a manner consistent with past practices.

3. LOCATION.

The Executive shall perform his services at the Company’s facilities in Dana Point, California, and as needed at its principal offices in Oklahoma City, Oklahoma, or at such other location as mutually agreed between the Company and the Executive.

4. EXTENT OF SERVICES.

a. Duty to Perform Services. The Executive agrees not to engage in any material business activities during the term of this Agreement except those that are for the benefit of the Company and its subsidiaries, and to devote not less than substantially all of his entire business time, attention, skill, and effort to the performance of his duties under this Agreement for the Company and any corporation or other entity controlled by the Company now or during the term of this Agreement. Notwithstanding the foregoing, the Executive may engage in charitable, professional and civic activities that do not impair the performance of his duties to the Company, as the same may be changed from time to time. In addition, Executive may serve on the board of directors of up to two companies not engaged in business which may reasonably compete with the business of the Company, provided that Executive shall not be required to render any material services on any committee or otherwise with respect to the operations or affairs of any such company. Nothing contained herein shall prevent the Executive from managing his own personal investments and affairs, including, but not limited to, investing his assets in the securities of publicly traded companies; provided, however, that the Executive’s activities do not constitute a conflict of interest, violate securities laws, or otherwise interfere with the performance of his duties and responsibilities as described herein. The Executive agrees to adhere to the Company’s published policies and procedures, or code of conduct, as each is adopted from time to time, affecting directors, officers, employees, and agents and shall use his best efforts to promote the Company’s interest, reputation, business and welfare.

b. Corporate Opportunities. The Executive agrees that he will not take personal advantage of any the Company business opportunities that arise during his employment with the Company and that might be of benefit to the Company. All material facts regarding such opportunities shall be promptly reported to the Board for consideration by the Company.

c. Non-Disparagement. The Executive agrees that, during the Employment Term and for one year thereafter, he shall not, in any communications with the press or other media or any customer, client or supplier of the Company, or any of Company’s affiliates, criticize, ridicule or make any statement which disparages or is derogatory of the Company, or any of Company’s respective directors or senior officers.

d. Representations Regarding Past Agreements. The Executive hereby represents and warrants to the Company that the execution, delivery and performance of this Agreement by the Executive does not and will not conflict with, or result in breach or default under, or require the consent of, any other party under any agreement to which the Executive is a party.

5. COMPENSATION AND BENEFITS.

a. Base Salary. The Executive’s annual base salary shall be $250,000 commencing on the Effective Date (the “Annual Base Salary”). The Annual Base Salary shall be payable in equal installments in accordance with the Company’s standard payroll practices. If this Agreement is extended pursuant to Section 1 above, the Executive’s Annual Base Salary shall be further reviewed no less frequently than annually for increases in the discretion of the Compensation Committee and/or Board, taking into account the compensation level for employees with similar skills and responsibilities at companies comparable to the Company, the financial condition of the Company, and the Executive’s value to the Company relative to other members of the executive management of the Company; provided, however, that at no time during the term of this Agreement shall the Executive’s Annual Base Salary be decreased from the Annual Base Salary then in effect except as part of an general program of salary adjustment by the Company applicable to all vice presidents and above. In the event the Company is reasonably unable to pay the Annual Base Salary for any pay period, the Company and Executive may agree that the Annual Base Salary be paid with shares of common stock under an equity compensation plan of Company effective at the time at a 25% discount to the fair market price of the stock at the end of the pay period.

b. Signing Bonus. As a signing bonus for the Executive entering into this Agreement, the Company shall grant to the Executive options to purchase up to 10,000,000 shares of common stock of the Company pursuant to the terms of the Company’s 2015 Stock Incentive Plan; provided that none of these options shall be exercisable until sufficient unreserved and unissued common shares of the Company are available for exercise of these options. Such options shall fully vest over three years with one third vesting on each anniversary from the Effective Date, will expire at 11:59 pm Pacific Time on March 31, 2019, and are exercisable at $0.036 per share. The maximum number of options granted shall be designated as incentive options, and the remaining options, if any, shall be designated as non-statutory options.

c. Incentive Bonus Pool. Executive will be eligible to participate in any incentive bonus pool maintained for persons including executive officers of the Company. The Executive will be eligible to receive an annual bonus as per the incentive bonus pool of up to 100% of the then applicable Annual Base Salary, less applicable withholding taxes.

d. Other Benefits. During the Employment Term, Executive will be entitled to participate in the employee benefit plans currently and hereafter maintained by the Company of general applicability to other senior executives of the Company, including, without limitation, the Company’s group medical, dental, vision, disability, life insurance, flexible-spending account, 401(k) and other plans. The Company shall also reimburse the Executive an amount allowable from time to time consistent with reimbursable amounts to other employees participating in Company’s group health insurance plan.

e. Withholding Taxes. The Company may make any appropriate arrangements to deduct from all benefits provided hereunder any taxes reasonably determined to be required to be withheld by any government or government agency. The Executive shall bear all taxes on benefits provided hereunder to the extent that no taxes are withheld, irrespective of whether withholding is required.

f. Vacation. Executive will be entitled to paid vacation of four (4) weeks per year in accordance with the Company’s vacation policy, with the timing and duration of specific vacations mutually and reasonably agreed to by the parties hereto.

g. Reimbursement of Business Expenses. The Company shall promptly reimburse the Executive for all reasonable travel, entertainment and other expenses incurred or paid by the Executive in connection with, or related to, the performance of his duties, responsibilities or services under this Agreement, upon presentation by the Executive of such supporting information and documentation as the Company may reasonably request in accordance with company policy and the requirements of the Internal Revenue Code.

h. Auto Allowance. The Company shall provide to Executive an automobile allowance of $750 per month for expenses incurred by Executive in connection with the leasing or acquisition of an automobile and shall reimburse the Employee for the cost to insure the vehicle and for mileage.

6. TERMINATION OF EMPLOYMENT.

a. Termination Due to Death. The Executive’s employment and this Agreement shall terminate immediately upon his death. If the Executive’s employment is terminated due to his death, his estate or his beneficiaries, as the case may be, shall be entitled to:

(i) payment of any unpaid portion of his Annual Base Salary through the date of such termination;

(ii) reimbursement for any outstanding reasonable business expenses he incurred in performing his duties hereunder;

(iii) the right to elect continuation coverage of insurance benefits to the extent required by law;

(iv) full and immediate vesting of any unexercised stock options or restricted stock grants;

(v) any pension survivor benefits that may become due pursuant to any employee benefit plan or program of the Company; and

(vi) payment of any accrued but unpaid benefits, and any other rights, as required by the terms of any employee benefit plan or program of the Company, this Agreement, or any other agreement between the Company and the Executive.

b. Termination Due to Disability. The Company may terminate the Executive’s employment at any time if the Executive becomes disabled, upon written notice by the Company to the Executive. For all purposes under this Agreement, “Disability” shall mean that the Executive, at the time the notice is given, has been unable to perform his duties under this Agreement for a period of not less than ninety (90) days during any 180-day period as a result of the Executive’s incapacity due to physical or mental illness. If the Executive’s employment is terminated due to his disability, he shall be entitled to:

(i) payment of any unpaid portion of his Annual Base Salary through the date of such termination;

(ii) reimbursement for any outstanding reasonable business expenses he has incurred in performing his duties hereunder;

(iii) the right to elect continuation coverage of insurance benefits to the extent required by law;

(iv) full and immediate vesting of any unexercised stock options or restricted stock grants; and

(v) payment of any accrued but unpaid benefits, and any other rights, as required by the terms of any employee benefit plan or program of the Company, this Agreement, or any other agreement between the Company and the Executive.

c. Termination for Cause.

The Company may terminate the Executive’s employment at any time for Cause, provided that it gives written notice of termination to the Executive as set forth below. If the Executive’s employment is terminated for Cause, as defined below, he shall be entitled to:

(i) payment of any unpaid portion of his Annual Base Salary through the date of such termination;

(ii) reimbursement for any outstanding reasonable business expenses he incurred in performing his duties hereunder through the date of such termination;

(iii) the right to elect continuation coverage of insurance benefits to the extent required by law; and

(iv) payment of any accrued but unpaid benefits and any other rights through the date of termination, excluding any severance package benefits, as required by the terms of any employee benefit plan or program of the Company, this Agreement, or any other agreement between the Company and the Executive.

For purposes of this Agreement, a termination for “Cause” shall mean: (i) the final conviction of Executive of, or Executive’s plea of guilty or nolo contendere to, any felony or a crime involving dishonesty, fraud, or moral turpitude; (ii) the indictment of Executive for any felony or a crime involving dishonesty, fraud, or moral turpitude which, in the reasonable good-faith judgment of the Board, has materially damaged, or could materially damage, the reputation of the Company or would materially interfere with the performance of services by the Executive; (iii) the willful commission of fraud, nonincidental misappropriation, embezzlement, or other dishonest act by Executive against the Company; (iv) Executive’s use of illegal drugs or alcohol on the Company’s premises, Executive’s use of illegal drugs or alcohol having an adverse effect on the performance of the Executive’s duties hereunder, or Executive’s use of illegal drugs or alcohol which, in the reasonable good-faith judgment of the Board, has materially damaged, or could materially damage, the reputation of the Company; (v) Executive’s willful failure, gross negligence, or gross misconduct in the performance of his duties to the Company; (vi) Executive’s gross malfeasance in the performance of his duties hereunder; (vii) Executive’s nonfeasance in the performance of his duties hereunder not cured within ten (10) business days after notice of such nonfeasance; (viii) Executive’s failure to follow a written order or direction from the Board which is both legal and reasonable; or (ix) Executive’s breach of this Agreement not cured within ten (10) business days after notice of such breach.

If the Company exercises its right to terminate the Executive for Cause, the Company shall: (1) give the Executive written notice of termination at least ten (10) business days before the date of such termination specifying in detail the conduct constituting such Cause, and (2) deliver to the Executive a copy of a resolution duly adopted by a majority of the entire membership of the Board, excluding interested directors, after reasonable notice to the Executive and an opportunity for the Executive to be heard in person by members of the Board, finding that the Executive has engaged in such conduct.

d. Involuntary Termination Without Cause or Constructive Termination Without Cause. Subject to the provisions of Section 12 below governing a Change of Control Termination, the Company may terminate the Executive’s employment at any time without Cause, provided that it gives written notice of termination at least ninety (90) days before the date of such termination. If the Executive’s employment is terminated without Cause, or if there is a constructive termination without Cause by which Executive terminates his employment (hereinafter “Good Reason”), as defined below, the Executive shall be entitled to receive from the Company the following:

(i) payment of any unpaid portion of his Annual Base Salary through the date of such termination plus three (3) months of Annual Base Salary payable upon such termination date;

(ii) reimbursement for any outstanding reasonable business expenses he incurred in performing his duties hereunder;

(iii) the right to elect continuation coverage of insurance benefits to the extent required by law;

(iv) full and immediate vesting of any unexercised stock options or restricted stock grants;

(vi) payment of amounts equal to any premiums for health insurance continuation coverage under any the Company health plans that is elected by the Executive or his beneficiaries pursuant to Section 498B of the Internal Revenue Code, at a time or times mutually agreed to by the parties, but only so long as the Executive is not eligible for coverage under a health plan of another Company (whether or not he elects to receive coverage under that plan).

For purposes of this Agreement, “Good Reason” shall mean a termination of the Executive at his own initiative following the occurrence, without the Executive’s prior written consent, of one or more of the following events not on account of Cause:

(1)

the removal of the Executive from or the failure to elect or re-elect the Executive to the position of an executive officer of the Company ;

(2)

a material reduction in the Executive’s then current Annual Base Salary;

(3)

a material diminution in the Executive’s authority, duties, or responsibilities;

(4)

a material diminution in the budget over which the Executive retains authority;

(5)

a material change in the geographic location at which the Executive must perform the services hereunder; or

(6)

any other action or inaction which constitutes a material breach by the Company of this Agreement.

In the event the Executive is terminated without Cause or there is Good Reason for his termination, the Executive shall provide the Company with written notice within ninety (90) days of the event and the Company shall have ten (10) business days to cure the default.

e. Voluntary Termination. If the Executive voluntarily terminates his employment on his own initiative for reasons other than his death, Disability, or Good Reason, he shall be entitled to:

(i) payment of any unpaid portion of his Annual Base Salary through the effective date of such termination;

(ii) reimbursement for any outstanding reasonable business expenses he has incurred in performing his duties hereunder;

(iii) the right to elect continuation coverage of insurance benefits to the extent required by law; and

(iv) payment of any accrued but unpaid benefits, and any other rights, as required by the terms of any employee benefit plan or program of the Company, this Agreement, or any other agreement between the Company and the Executive.

A voluntary termination under this paragraph shall be effective upon fifteen (15) days’ prior written notice to the Company unless the parties mutually agree to extend the effective date.

7. Mitigation and Offset.

If the Executive’s employment is terminated during the term of this Agreement pursuant to the provisions of paragraph 6(d), above, the Executive shall be under no duty or obligation to seek or accept other employment, and no payment or benefits of any kind due him under this Agreement shall be reduced, suspended or in any way offset by any subsequent employment. The obligation of the Company to make the payments provided for in this Agreement shall not be affected by any circumstance including, by way of example rather than limitation, any set-off, counterclaim, recoupment, defense, or other right that the Company may assert, or due to any other employment or source of income obtained by the Executive.

8. Entitlement to Other Benefits.

Except as expressly provided herein, this Agreement shall not be construed as limiting in any way any rights or benefits the Executive, his spouse, dependents or beneficiaries may have pursuant to any other employee benefits plans or programs.

9. NON-COMPETITION AND CONFIDENTIAL INFORMATION.

a. Executive Acknowledgment. Executive acknowledges that his position with the Company is special, unique and intellectual in character and his position in the Company will place him in a position of confidence and trust with employees and clients of the Company.

b. Non-Competition. Executive agrees that during the Employment Term and for a period of one (1) year thereafter, Executive will not directly or indirectly: (i) (whether as director, officer, consultant, principal, employee, agent or otherwise) engage in or contribute Executive's knowledge and abilities to any business or entity in competition with the Company; (ii) employ or attempt to employ or assist anyone in employing any person who is an employee of the Company or was an employee of the Company during the previous one year period; or (iii) attempt in any manner to solicit from any client business of the type performed by the Company or persuade any client of the Company to cease doing business or reduce the amount of business that such client has customarily done with the Company.

c. Confidentiality. Executive acknowledges that Executive will have access to certain proprietary and confidential information of the Company and its clients including, but not limited to, contemplated new products and services, marketing and advertising campaigns, sales projections, creative campaigns and themes and financial information of the Company. Executive agrees not to use or disclose any confidential information during the Employment Term or thereafter other than in connection with performing Executive's services for the Company in accordance with this Agreement.

d. Enforcement. Executive agrees that the restrictions set forth in this Section 9 are reasonable and necessary to protect the goodwill of the Company. If any of the covenants set forth herein are deemed to be invalid or unenforceable based upon the duration or otherwise, the parties contemplate that such provisions shall be modified to make them enforceable to the fullest extent permitted by law.

e. Equitable Relief. In the event of a breach or threatened breach by Executive of the provisions set forth in this Section 9, Executive acknowledges that the Company will be irreparably harmed and that monetary damages shall be an insufficient remedy to the Company. Therefore, Executive consents to enforcement of this paragraph by means of temporary or permanent injunction and other appropriate equitable relief in any competent court, in addition to any other remedies the Company may have under this Agreement or otherwise.

10. INTELLECTUAL PROPERTY.

a. Inventions. The Company has retained Executive to work essentially full time so that anything Executive produces during the Employment Term is the property of the Company. Any writing, invention, design, system, process, development or discovery conceived, developed, created or made by Executive, alone or with others, during the period of his employment hereunder and applicable to the business of the Company, whether or not patentable, registrable, or copyrightable, shall become the sole and exclusive property of the Company.

b. Disclosure and Cooperation. Executive shall disclose the same promptly and completely to the Company and shall, during the period of his employment hereunder and at any time and from time to time hereafter, (i) execute all documents requested by the Company for vesting in the Company the entire right, title and interest in and to the same, (ii) execute all documents requested by the Company for filing such applications for and procuring patents, trademarks, service marks or copyrights as the Company, in its sole discretion, may desire to prosecute, and (iii) give the Company all assistance it may reasonably require, including the giving of testimony in any suit, action, investigation or other proceeding, in order to obtain, maintain and protect the Company's right therein and thereto.

11. POST EMPLOYMENT OBLIGATIONS.

a. Company Property. All records, files, lists, including computer generated lists, drawings, documents, equipment and similar items relating to the Company's business which Executive shall prepare or receive from the Company shall remain the Company's sole and exclusive property. Upon termination of this Agreement, Executive shall promptly return to the Company all property of the Company in his possession. Executive further represents that he will not copy or cause to be copied, print out or cause to be printed out any software, documents or other materials originating with or belonging to the Company. Executive additionally represents that, upon termination of his employment with the Company, he will not retain in his possession any such software, documents or other materials.

b. Cooperation. Executive agrees that both during and after his employment he shall, at the request of the Company, render all assistance and perform all lawful acts that the Company considers necessary or advisable in connection with any litigation involving the Company or any director, officer, employee, shareholder, agent, representative, consultant, client or vendor of the Company.

12. Change of Control

a. Change of Control Defined. For purposes of this Agreement, “Change in Control” means:

(i) any person or entity becoming the beneficial owner, directly or indirectly, of securities of the Company representing forty (40%) percent of the total voting power of all its then outstanding voting securities;

(ii) a merger or consolidation of the Company in which its voting securities immediately prior to the merger or consolidation do not represent, or are not converted into securities that represent, a majority of the voting power of all voting securities of the surviving entity immediately after the merger or consolidation;

(iii) a sale of substantially all of the assets of the Company, or any consolidated subsidiary, or a liquidation or dissolution of the Company, or a consolidated subsidiary; or

(iv) individuals who, as of the date of the signing of this Agreement, constitute the Board of Directors (the “Incumbent Board”) cease for any reason to constitute at least a majority of such Board; provided that any individual who becomes a director of the Company subsequent to the date of the signing of this Agreement, whose election, or nomination for election by the Company stockholders, was approved by the vote of at least a majority of the directors then in office shall be deemed a member of the Incumbent Board.

b. Involuntary Termination Relating to a Change in Control. The Company may terminate the Executive’s employment without Cause or the Executive may terminate his employment for Good Reason, either upon thirty (30) day’s prior written notice, in the case of a Change of Control. In the event Executive’s employment is terminated on account of (i) an involuntary termination by the Company for any reason other than Cause, death, or Disability, or (ii) the Executive voluntarily terminates employment with the Company on account of a resignation for Good Reason, in either case that occurs (x) at the same time as, or within the twelve (12) month period following, the consummation of a Change in Control or (y) within the sixty (60) day period prior to the date of a Change in Control where the Change in Control was under consideration at the time of Executive’s termination date (a “Change of Control Termination”), then Executive shall be entitled to the benefits provided in subsection (c) of this Section 12. A Change of Control Termination shall be governed by this Section 12 and shall supersede the termination provisions of Section 6 hereof.

c. Compensation upon Involuntary Termination Relating to a Change in Control. Subject to the provisions of subsection (e) of this Section 12, in the event a termination described in subsection (b) of this Section 12 occurs, the Company shall provide that the following be paid to the Executive after his termination date, provided that Executive executes and does not revoke the Release:

(i) One (1) times the sum of the highest Annual Base Salary, paid in a single lump sum cash payment on the sixtieth (60th) day following Executive’s termination date.

(ii) With respect to any outstanding Company stock options held by the Executive as of his Termination Date, the Company shall fully accelerate the vesting and exercisability of such stock options, so that all such stock options shall be fully vested and exercisable as of Executive’s termination date, such options (as well as any outstanding stock options that previously became vested and exercisable) to remain exercisable, notwithstanding anything in any other agreement governing such options, until the later of (A) a period of one year after the Executive’s termination date, or (B) the original term of the option.

(iii) With respect to any Restricted Stock Units or Restricted Share Awards issued under a Plan and held by the Executive that are unvested at the time of his termination date, all such unvested Restricted Stock Units and Restricted Share Awards shall vest and settle not later than sixty (60) days following the Termination Date.

(iv) Executive shall receive any amounts earned, accrued or owing but not yet paid to Executive as of his termination date, payable in a lump sum, and any benefits accrued or earned in accordance with the terms of any applicable benefit plans and programs of the Company.

d. Consequence of a Change in Control. Notwithstanding the terms of any of the Company’s equity compensation plans (each a “Plan”), if, as of the date of a Change in Control, Executive holds stock options issued under a Plan that are not vested and exercisable, such stock options shall become fully vested and exercisable as of the date of the Change in Control if the acquirer does not agree to assume or substitute for equivalent stock options such outstanding stock options.

e. Release. Notwithstanding the foregoing, no payments or other benefits under this Section 12 shall be made unless Executive executes, and does not revoke, the Company’s standard written release (the “Release”) of any and all claims against the Company and all related parties with respect to all matters arising out of Executive’s employment by the Company (other than entitlements under the terms of this Agreement or under any other plans or programs of the Company in which Executive participated and under which Executive has accrued or become entitled to a benefit) or a termination thereof, with such release being effective not later than sixty (60) days following Executive’s termination date.

13. ARBITRATION.

Any dispute or controversy arising under or in connection with this Agreement shall, if either the Company or the Executive so elects within fifteen (15) business days after the dispute or controversy arises or if the Company and Executive jointly so elects, be settled by arbitration, in accordance with the Commercial Arbitration Rules procedures of the American Arbitration Association. Arbitration shall occur before a single arbitrator; provided, however, that if the parties cannot agree on the selection of such arbitrator within thirty (30) days after the matter is referred to arbitration, each party shall select one arbitrator and those arbitrators shall jointly designate a third arbitrator to comprise a panel of three arbitrators. The decision of the arbitrator shall be rendered in writing, shall be final, and may be entered as a judgment in any court in the State of Oklahoma. The Company and the Executive each irrevocably consent to the jurisdiction of the federal and state courts located in State of Oklahoma for this purpose. The arbitrator shall establish the extent of discovery permitted and shall be authorized to allocate the reasonable costs of arbitration between the parties. Notwithstanding the foregoing, the Company, in its sole discretion, may bring an action in any court of competent jurisdiction to seek injunctive relief in order to avoid irreparable harm and such other relief as the Company shall elect to enforce the Executive’s covenants herein.

14. INDEMNIFICATION.

The Company agrees that if the Executive is made a party, or is threatened to be made a party, to any action, suit or proceeding, whether civil, criminal, administrative, or investigative (a “Proceeding”), by reason of the fact that he is or was a director, officer or employee or the Company, or is or was serving at the request of the Company as a director, officer, member, employee or agent of another corporation, partnership, limited liability company, joint venture, trust or other enterprise, including service with respect to employee benefit plans, whether or not the basis of such Proceeding is the Executive’s alleged action in an official capacity while serving as a director, officer, member, employee or agent, the Executive shall be indemnified and held harmless by the Company to the fullest extent permitted or authorized by law and by the Company’s articles of incorporation and bylaws. To the extent consistent with the foregoing, this obligation to indemnify the Executive and hold him harmless shall continue even if he has ceased to be a director, officer, member, employee or agent of the Company or other such entity described above, and shall inure to the benefit of the Executive’s heirs, executors and administrators. The Company shall advance to the Executive all reasonable costs and expenses incurred by him in connection with a Proceeding within twenty (20) days after receipt by the Company of a written request for such advance. Such request shall include an undertaking by the Executive to repay the amount of such advance if it shall ultimately be determined that the Executive is not entitled to be indemnified against such costs and expenses.

Neither the failure of the Company (including its Board, independent legal counsel or stockholders) to have made a determination before such Proceeding concerning payment of amounts claimed by the Executive under the paragraph above that indemnification of the Executive is proper because he has met the applicable standards of conduct, nor a determination by the Company (including its Board, independent legal counsel or stockholders) that the Executive has not met such applicable standards of conduct, shall create a presumption that the Executive has not met the applicable standards of conduct.

Executive understands and acknowledges that the Company may be required in the future to undertake with the Securities and Exchange Commission to submit in certain circumstances the question of indemnification to a court for a determination of the Company’s right under public policy to indemnify Executive and the obligation to indemnify the Executive hereunder shall be expressly subject to the outcome of such determination.

15. General Provisions.

a. Notices. Any notice, demand, request, waiver or other communication required or permitted to be given pursuant to this Agreement must be in writing (including electronic format) and will be deemed by the parties to have been received (i) upon delivery in person (including by reputable express courier service) at the address set forth below; (ii) upon delivery by facsimile (as verified by a printout showing satisfactory transmission) at the facsimile number designated below (if sent on a business day during normal business hours where such notice is to be received and if not, on the first business day following such delivery where such notice is to be received); (iii) upon delivery by electronic mail (as verified by a printout showing satisfactory transmission) at the electronic mail address set forth below (if sent on a business day during normal business hours where such notice is to be received and if not, on the first business day following such delivery where such notice is to be received); or (iv) upon three business days after mailing with the United States Postal Service if mailed from and to a location within the continental United States by registered or certified mail, return receipt requested, addressed to the address set forth below. Any party hereto may from time to time change its physical or electronic address or facsimile number for notices by giving notice of such changed address or number to the other party in accordance with this section.

If to the Company at:		PSM Holdings, Inc.
		5300 Mosteller Drive, Suite 3
		Oklahoma City, OK 73112
		Attention: Michael Margolies, Chairman, Compensation Committee
		Facsimile No.:
		Email Address: mm@littlebanc.com

With a copy (which will not constitute notice) to:		Ronald N. Vance
		The Law Office of Ronald N. Vance & Associates, P.C.
		1656 Reunion Avenue
		Suite 250
		South Jordan, UT 84095
		Facsimile No. (801) 446-8803
		Email Address: ron@vancelaw.us

If to the Executive at:		Kevin J. Gadawski
		19 Terraza Del Mar
		Dana Point, CA 92629
		Facsimile No.:
		Email Address: kg@littlebanc.com

b. Legal Expenses. Except as provided in Section 13 (Arbitration), if any legal action or other proceeding is brought for the enforcement of this Agreement, or because of an alleged dispute, breach, default, or misrepresentation in connection with any of the provisions of this Agreement, the successful or prevailing party or parties will be entitled to recover reasonable attorneys’ fees and other costs incurred in that action or proceeding, in addition to any other relief to which it or they may be entitled.

c. Assignability and Binding Nature. No rights or obligations may be assigned or transferred by the Company except that such rights or obligations may, subject to the provisions of Section 12 (Change of Control), be assigned or transferred pursuant to a merger or consolidation in which the Company is not the continuing entity, or the sale or liquidation of all or substantially all of the assets of the Company, provided that the assignee or transferee is the successor to all or substantially all of the assets of the Company and such assignee or transferee assumes the liabilities, obligations, and duties of the Company, as contained in this Agreement, either contractually or as a matter of law. Notwithstanding any such assignment, the Company shall not be relieved from liability under this Agreement. The obligations of the Executive are personal and no rights or obligations of the Executive under this Agreement may be assigned or transferred by the Executive other than his right to receive compensation and benefits, provided such assignment or transfer is otherwise permitted by law.

d. Amendment. This agreement may be amended or modified only by a written instrument executed by both the Company and the Executive.

e. Exhibits. Any exhibit, schedule, or other attachment referenced in this Agreement is annexed hereto and is incorporated herein by this reference and expressly made a part hereof.

f. Pronouns. Whenever the context might require, any pronouns used herein shall include the corresponding masculine, feminine or neuter forms, and the singular forms of nouns and pronouns shall include the plural, and vice versa.

g. Captions. The captions appearing herein are for convenience of reference only and in no way define, limit or affect the scope or substance of any section hereof.

h. Time. All reference herein to periods of days are to calendar days, unless expressly provided otherwise. Any reference herein to business days shall mean any day other than Saturday, Sunday or other day on which commercial banks in the State of Oklahoma are authorized or required by law to remain closed. Where the time period specified herein would end on a weekend or holiday, the time period shall be deemed to end on the next business day.

i. Entire Agreement. This Agreement constitutes the entire agreement between the Company and the Executive and supersedes all prior agreements and understandings, whether written or oral relating to the subject matter hereof.

j. Severability. In case any provision hereof shall be held by a court or arbitrator with jurisdiction over the Company or the Executive to be invalid, illegal, or otherwise unenforceable, such provision shall be restated to reflect as nearly as possible the original intentions of the Company and the Executive in accordance with applicable law, and the validity, legality, and enforceability of the remaining provisions shall in no way be affected or impaired thereby.

k. Waiver. No delays or omission by the Company or the Executive in exercising any right hereunder shall operate as a waiver of that or any other right. A waiver or consent given by the Company or the Executive or any one occasion shall be effective only in that instance and shall not be construed as a bar or waiver of any right on any other occasion.

l. Governing Law. This Agreement shall be construed, interpreted, and enforced in accordance with the laws of the State of Oklahoma, without regard to its conflicts of laws principles.

m. Jurisdiction; Service of Process. If neither the Company or the Executive elects to be governed by the provisions of Section 13 (Arbitration), the parties to this Agreement, acting for themselves and for their respective successors and assigns, without regard to domicile, citizenship or residence, hereby expressly and irrevocably elect as the sole judicial forum for the adjudication of any matters arising under or in connection with this Agreement, and consent and subject themselves to the jurisdiction of, the courts of the State of Oklahoma located in County of Oklahoma, and/or the United States District Court, District of Oklahoma, in respect of any matter arising under this Agreement.

n. Counterparts. This Agreement may be executed in two or more counterparts, each of which shall be deemed an original but all of which together shall constitute one and the same instrument.

o. Full Knowledge. By their signatures, the parties acknowledge that they have carefully read and fully understand the terms and conditions of this Agreement, that each party has had the benefit of separate counsel, or has been advised to obtain separate counsel, and that each party has freely agreed to be bound by the terms and conditions of this Agreement. To the extent that a party elects not to consult with such counsel, the party hereby waives any defense to inadequate representation by counsel.

p. Construction. This Agreement shall be construed as though all parties had drafted it.

q. Non-Exclusivity of Remedies. The rights and remedies of the parties hereto shall not be mutually exclusive, and the exercise of one or more of the provisions of this Agreement shall not preclude the exercise of any other provision.

r. Remedies. In addition to being entitled to exercise all rights provided herein or granted by law, including recovery of damages, each of the parties hereto will be entitled to specific performance. Each of the parties agrees that monetary damages may not be adequate compensation for any loss incurred by reason of any breach of obligations described in the foregoing sentence and hereby agrees to waive in any action for specific performance of any such obligation the defense that a remedy at law would be adequate.

IN WITNESS WHEREOF, each of the parties hereto has executed this Executive Employment Agreement the respective days and year set forth below.

COMPANY:	PSM HOLDINGS, INC.


Date: March 30, 2015	By: /s/ Michael Margolies
	Michael Margolies
	Chairman, Compensation Committee

EMPLOYEE:


Date: March 30, 2015	/s/ Kevin J. Gadawski
	Kevin J. Gadawski

Exhibit 31.1

CERTIFICATIONS

I, Kevin Gadawski, certify that:

1.	I have reviewed this Form 10-Q quarterly report of PSM Holdings, Inc. for the quarter ended March 31, 2015;

2.	Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3.	Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4.	I am responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

	a.	Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under my supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to me by others within those entities, particularly during the period in which this report is being prepared;
	b.	Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under my supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
	c.	Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
	d.	Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5.	I have disclosed, based on my most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

	a.	All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
	b.	Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: May 20, 2015


/s/ Kevin Gadawski
Kevin Gadawski, President and Chief Financial Officer
(Principal Executive & Financial Officer)

Exhibit 32.1

CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350

AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the quarterly report of PSM Holdings, Inc. (the “Company”) on Form 10- Q for the quarter ended March 31, 2015, as filed with the Securities and Exchange Commission (the “Report”), the undersigned principal executive and principal financial officer of the Company, hereby certifies pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:

	(1)	the Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

	(2)	the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

Date: May 20, 2015



/s/ Kevin Gadawski
Kevin Gadawski, President and Chief Financial Officer
(Principal Executive and Financial Officer)

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