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 September 30, 2009




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


For the
transitional period from ______ to ______





Commission
File No.333-151807





PSM
HOLDINGS, INC.


(Exact name of
registrant as specified in its charter)





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





1112 N. Main Street,
Roswell, New Mexico 88201


(Address
of principal executive office) (zip code)





(575)
624-4170


(Registrant’s
telephone number, including area code)





Indicate
by check mark whether the registrant:  (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.


Yes [X]  No
o





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 12 months (or for such shorter period that the
registrant was required to submit and post such files). Yes o   No o




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 o
            Accelerated
      filer oNon-accelerated
      filer o
            Smaller
      reporting company [X](Do
      not check if a smaller reporting company)





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


Yes o No [X]




As of
November 16, 2009, there were 12,970,956 shares of registrant’s common stock
outstanding.





PSM
HOLDINGS, INC. AND SUBSIDIARY





TABLE
OF CONTENTS





Report on
Form 10-Q


For the
quarter ended September 30, 2009




PagePART
      I FINANCIAL INFORMATIONItem
      1. Financial Statements
                3Consolidated
      Balance Sheets at September 30, 2009 (Unaudited) and June 30,
      2009
                3Unaudited
      Consolidated Statements of Operations and Comprehensive Income for theThree
      Month Periods ended September 30, 2009 and 2008
                4Unaudited
      Consolidated Statements of Cash Flows for the Three Month Periods endedSeptember
      30, 2009 and 2008
                5Notes
      to the unaudited Consolidated Financial Statements
                6 –
      15Item
      2. Management's Discussion and Analysis of Financial Condition and Results
      of Operations
                16Item
      3. Quantitative and Qualitative Disclosures About Market
    Risk
                22Item
      4T. Controls and Procedures
                22PART
      II OTHER INFORMATIONItem
      5. Other Information
                23Item
      6. Exhibits
                23Signatures
      and Certifications
                24





2




PSM
      HOLDINGS, INC. AND SUBSIDIARYCONSOLIDATED
      BALANCE SHEETSASSETS
                                                              
                                                              September
      30,
                                                                2009
                                                              
                                                              
                                                              June
      30,
                                                                2009(UNAUDITED)Current
      Assets:Cash
      & cash equivalents
                                                              
                                                              $
                                                              42,011
                                                              
                                                              
                                                              $
                                                              83,158Accounts
      receivable, net of allowance for doubtful accounts of $12,500
      atSeptember
      30, 2009 and June 30, 2009
                                                              
                                                              
                                                              69,311
                                                              
                                                              
                                                              
                                                              90,415Marketable
      securities
                                                              
                                                              
                                                              48,902
                                                              
                                                              
                                                              
                                                              42,039Total
      current assets
                                                              
                                                              
                                                              160,224
                                                              
                                                              
                                                              
                                                              215,612Property
      and equipment, net
                                                              
                                                              
                                                              24,873
                                                              
                                                              
                                                              
                                                              27,516Loan
      receivable
                                                              
                                                              
                                                              94,855
                                                              
                                                              
                                                              
                                                              94,206NWBO
      License, net of accumulated amortization, September 30, 2009 -
      $203,951and
      June 30, 2009 - $189,218
                                                              
                                                              
                                                              621,048
                                                              
                                                              
                                                              
                                                              635,781Total
      Assets
                                                              
                                                              $
                                                              901,000
                                                              
                                                              
                                                              $
                                                              973,115LIABILITIES
      AND STOCKHOLDERS' DEFICITCurrent
      Liabilities:Accounts
      payable
                                                              
                                                              $
                                                              111,583
                                                              
                                                              
                                                              $
                                                              97,203Accrued
      liabilities
                                                              
                                                              
                                                              66,335
                                                              
                                                              
                                                              
                                                              9,268Total
      current liabilities
                                                              
                                                              
                                                              177,918
                                                              
                                                              
                                                              
                                                              106,471Long-term
      Liabilities:Due
      to related party
                                                              
                                                              
                                                              100,000
                                                              
                                                              
                                                              
                                                              110,000Total
      long-term liabilities
                                                              
                                                              
                                                              100,000
                                                              
                                                              
                                                              
                                                              110,000Total
      Liabilities
                                                              
                                                              
                                                              277,918
                                                              
                                                              
                                                              
                                                              216,471Commitment
      & contingencies
                                                              
                                                              
                                                              -
                                                              
                                                              
                                                              
                                                              -Stockholders'
      Equity:Common
      stock, $0.001 par value, 100,000,000 shares authorized,
      12,942,294issued
      and outstanding at September 30, 2009 and June 30, 2009
                                                              
                                                              
                                                              12,942
                                                              
                                                              
                                                              
                                                              12,942Preferred
      stock, $0.001 par value, 10,000,000 shares authorized, no shares
      issuedand
      outstanding at September 30, 2009 and June 30, 2009,
                                                              
                                                              
                                                              -
                                                              
                                                              
                                                              
                                                              -Treasuary
      stock, at cost (shares held: 179,495 at September 30, 2009 and June 30,
      2009)
                                                              
                                                              
                                                              (72,747
                                                              )
                                                              
                                                              
                                                              (72,747
                                                              )Additional
      paid in capital
                                                              
                                                              
                                                              4,244,502
                                                              
                                                              
                                                              
                                                              4,244,502Accumulated
      other comprehensive (loss) income, net of deferred tax
                                                              
                                                              
                                                              563
                                                              
                                                              
                                                              
                                                              (9,770
                                                              )Accumulated
      deficit
                                                              
                                                              
                                                              (3,562,178
                                                              )
                                                              
                                                              
                                                              (3,418,283
                                                              )Total
      stockholders' equity
                                                              
                                                              
                                                              623,082
                                                              
                                                              
                                                              
                                                              756,644Total
      Liabilities and Stockholders' Equity
                                                              
                                                              $
                                                              901,000
                                                              
                                                              
                                                              $
                                                              973,115The
      accompanying notes are an integral part of these unaudited consolidated
      financial
statements.


3


PSM
      HOLDINGS, INC. AND SUBSIDIARYCONSOLIDATED
      STATEMENTS OF OPERATIONSAND
      COMPREHENSIVE INCOME (UNAUDITED)For
      the three month period endedSeptember
      30,2009
                                            
                                            
                                            2008Revenues
                                            
                                            $
                                            936,397
                                            
                                            
                                            $
                                            857,857Operating
      expensesBrokerage
      commission
                                            
                                            
                                            825,761
                                            
                                            
                                            
                                            772,734Selling,
      general and administrative
                                            
                                            
                                            235,442
                                            
                                            
                                            
                                            216,351Depreciation
      and amortization
                                            
                                            
                                            17,375
                                            
                                            
                                            
                                            17,306Total
      operating expenses
                                            
                                            
                                            1,078,578
                                            
                                            
                                            
                                            1,006,391Loss
      from operations
                                            
                                            
                                            (142,181
                                            )
                                            
                                            
                                            (148,534
                                            )Non-operating
      income (expense):Interest
      expense
                                            
                                            
                                            (689
                                            )
                                            
                                            
                                            (2,816
                                            )Interest
      and dividend income
                                            
                                            
                                            2,479
                                            
                                            
                                            
                                            2,519Realized
      gain (loss) on sale of securities
                                            
                                            
                                            (3,504
                                            )
                                            
                                            
                                            511Total
      non-operating income (expense)
                                            
                                            
                                            (1,714
                                            )
                                            
                                            
                                            214Loss
      from continuing operations before income tax
                                            
                                            
                                            (143,895
                                            )
                                            
                                            
                                            (148,320
                                            )Provision
      for income tax
                                            
                                            
                                            -
                                            
                                            
                                            
                                            -Net
      loss
                                            
                                            
                                            (143,895
                                            )
                                            
                                            
                                            (148,320
                                            )Other
      comprehensive income
      (loss):Unrealized
      gain (loss) on marketable securities
                                            
                                            
                                            10,333
                                            
                                            
                                            
                                            (7,086
                                            )Comprehensive income
      (loss)
                                            
                                            $
                                            (133,562
                                            )
                                            
                                            $
                                            (155,406
                                            )Net
      loss per common share and equivalents-basic
      and diluted loss from operations
                                            
                                            $
                                            (0.01
                                            )
                                            
                                            $
                                            (0.01
                                            )Weighted
      average shares of share capital outstanding-
      basic & diluted
                                            
                                            
                                            12,942,294
                                            
                                            
                                            
                                            12,907,729Weighted
      average number of shares used to compute basic and diluted loss per share
      for the three months ended September 30, 2009 and 2008 are the same since
      the effect of dilutive securities is anti-dilutive.The
      accompanying notes are an integral part of these unaudited consolidated
      financial
statements.


4




PSM
      HOLDINGS, INC. AND SUBSIDIARYCONSOLIDATED
      STATEMENTS OF CASH FLOWS (UNAUDITED)For
      the three month period ended
                                      September
      30,2009
                                    
                                    
                                    2008CASH
      FLOWS FROM OPERATING ACTIVITIES:Net
      loss
                                    
                                    $
                                    (143,895
                                    )
                                    
                                    $
                                    (148,320
                                    )Adjustments
      to reconcile net loss to net cashused
      in operating activities:Depreciation
      and amortization
                                    
                                    
                                    17,375
                                    
                                    
                                    
                                    17,306Non-cash
      commissions contributed by an officer
                                    
                                    
                                    -
                                    
                                    
                                    
                                    63,430Share
      based payment awards
                                    
                                    
                                    -
                                    
                                    
                                    
                                    3,300(Gain)
      loss on sale of marketable securities
                                    
                                    
                                    3,504
                                    
                                    
                                    
                                    (511
                                    )(Increase)
      decrease in current assets:Receivables
                                    
                                    
                                    21,104
                                    
                                    
                                    
                                    (10,933
                                    )Accrued
      interest receivable
                                    
                                    
                                    (649
                                    )
                                    
                                    
                                    (136
                                    )Increase
      (decrease) in current liabilities:Accounts
      payable
                                    
                                    
                                    14,381
                                    
                                    
                                    
                                    (35,778
                                    )Accrued
      liabilities
                                    
                                    
                                    57,067
                                    
                                    
                                    
                                    2,142Bank
      overdraft
                                    
                                    
                                    -
                                    
                                    
                                    
                                    (4,792
                                    )Net
      cash used in operating activities
                                    
                                    
                                    (31,113
                                    )
                                    
                                    
                                    (114,292
                                    )CASH
      FLOWS FROM INVESTING ACTIVITIES:Acquisition
      of property and equipment
                                    
                                    
                                    -
                                    
                                    
                                    
                                    (2,680
                                    )Proceeds
      from loan and notes receivable
                                    
                                    
                                    -
                                    
                                    
                                    
                                    8,914Proceeds
      from sale of marketable securities
                                    
                                    
                                    8,783
                                    
                                    
                                    
                                    11,953Purchase
      of marketable securities
                                    
                                    
                                    (8,817
                                    )
                                    
                                    
                                    (11,489
                                    )Net
      cash provided by (used in) investing activities
                                    
                                    
                                    (34
                                    )
                                    
                                    
                                    6,698CASH
      FLOWS FROM FINANCING ACTIVITIES:Cash
      receipts from capital contributions
                                    
                                    
                                    -
                                    
                                    
                                    
                                    130,000Cash
      payment on loan from related party
                                    
                                    
                                    (10,000
                                    )
                                    
                                    
                                    -Net
      cash provided by (used in) financing activities
                                    
                                    
                                    (10,000
                                    )
                                    
                                    
                                    130,000NET
      INCREASE (DECREASE) IN CASH & CASH EQUIVALENTS
                                    
                                    
                                    (41,147
                                    )
                                    
                                    
                                    22,406CASH
      & CASH EQUIVALENTS, BEGINNING BALANCE
                                    
                                    
                                    83,158
                                    
                                    
                                    
                                    11,869CASH
      & CASH EQUIVALENTS, ENDING BALANCE
                                    
                                    $
                                    42,011
                                    
                                    
                                    $
                                    34,275See
      Note 3 - Statements of Cash Flows Additional DisclosuresThe
      accompanying notes are an integral part of these unaudited consolidated
      financial
statements.
  5




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





Company
Background


As used
herein and except as otherwise noted the term “Company” shall mean PSM Holdings,
Inc.





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
PSM Holdings, Inc. The historical financial statements prior to May 18, 2005,
are those of PrimeSource Mortgage, Inc. Goodwill was not recognized from the
transaction.





Business
Activity


PrimeSource
Mortgage, Inc., the wholly-owned subsidiary of PSM Holdings, Inc. was
incorporated February 15, 1991 under the laws of the State of
Texas.  PrimeSource Mortgage, Inc became a wholly owned subsidiary of
PSM Holdings, Inc., a Nevada corporation, on May 18, 2005. PrimeSource Mortgage,
Inc. acts as an agent or broker for mortgage lenders in real estate mortgage
loan transactions, and solicits and receives applications for secured or
unsecured loans. PrimeSource Mortgage, Inc. establishes Independent Network
Office Agreements with originators who act as an independent contractor to
originate mortgage applications for submission to lenders under the terms and
conditions provided in the Network Office Agreement. PrimeSource Mortgage, Inc.
pays the originators commissions and fees based on a split schedule accepted and
agreed to by PrimeSource Mortgage, Inc., the respective lenders and the
originators.  PrimeSource Mortgage, Inc. will then return to the
originator a percentage of the commission and fee split in stock
awards.  The Network Office Agreements are effective for a period of
30 days, and are automatically extended for 30 day periods until they are
cancelled.  The Company primarily operates and is licensed in the
following 20 states:  Arkansas, California, Colorado, Connecticut,
Florida, Georgia, Idaho, Iowa, Kansas, Louisiana, Missouri, Montana, Nebraska,
New Mexico, Oklahoma, South Dakota, Tennessee, Texas, Washington, and
Wyoming.





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. The audited financial
statements for the year ended June 30, 2009 were filed on September 28, 2009
with the Securities and Exchange Commission and is hereby incorporated by
reference. In the opinion of management, all adjustments considered necessary
for a fair presentation have been included. Operating results for the three
month period ended September 30, 2009 are not necessarily indicative of the
results that may be expected for the year ended June 30, 2010.





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 PSM Holdings, Inc.’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.


6




Principles of
Consolidation


The
consolidated financial statements include the accounts of PSM Holdings, Inc. and
its wholly-owned subsidiary PrimeSource Mortgage, Inc.  All material
intercompany transactions have been eliminated in 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 other non-current assets,
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 includes cash
on hand and cash in checking and savings accounts, and all investment
instruments with an original maturity of three months or less.





Accounts
Receivable


Accounts
receivable represent commissions earned on closed loans and fees charged to new
branch offices that the Company has not yet received payment. 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 and an assessment of the customer of
branch owner’s ability to pay. The Company recorded an allowance for doubtful
accounts of $12,500 as of September 30, 2009 and June 30, 2009.





Loan
Receivable


The loan
receivable is stated at the unpaid principal balance.  Interest income
is recognized in the period in which it is earned.





Investments in Marketable
Securities


Investments
consist of equity securities categorized as available-for-sale which includes
securities that are not classified in either the held-to-maturity category or
the trading category.  The securities are recognized at fair value,
with unrealized holding gains and losses included as other comprehensive income,
net of any deferred income taxes and reported as a net amount in a separate
component of stockholders’ equity until realized. Interest and dividends earned
on investment securities are recognized in the period in which they are
received. Interest and dividends are reported in the non-operating income
section of the Consolidated Statements of Operations.





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
                5-7
      yearsComputer
      equipment
                5 years




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 New Mexico 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.


7




Advertising


Advertising
costs are expensed as incurred. Advertising expense for the three months period
ended September 30, 2009 and 2008 was $2,538 and $1,395,
respectively.





Share Based Payment
Plan


Under the
2002 Stock Option/Stock Issuance Plan, 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. The Branch
Owner Stock Program provides for issuance of stock to branch owners for
outstanding performance. The Company uses the fair value method to account for
employee stock compensation costs and to account for share based payments to
non-employees.





Revenue
Recognition


The
Company’s revenue is derived primarily from revenue earned from the origination
of mortgage loans that are funded by third parties. The Company has a network of
independently owned branch offices that originate mortgage loans from which the
Company receives a percentage of the fees earned by the branch. Revenue is
recognized as earned on the later of the settlement date or the funding date of
the loan.





The
Company generated no revenue, and less than 1% of total revenues, from fees
charged to new branch offices for joining the network during the three months
period ended September 30, 2009 and 2008. The fee is recognized as revenue when
the new branch signs agreements to join the network, in accordance with
generally accepted accounting principles.





Beginning
in May of 2009, the Company receives a fee on the warehouse line of credit of
one eighth (1/8) of one percent of the loan amount on loans closed on the credit
line. The revenue is recognized as earned on the later of the settlement date or
the funding date of the loan.





Selling,
general, and administrative costs are charged to expense as
incurred.




Reclassification


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





Recent Accounting
Pronouncements


The
Company has evaluated the possible effects on it financial statements of the
following accounting pronouncements:





FASB ASC 305-10 – The FASB
Accounting Standards Codification and Hierarchy of Generally Accepted Accounting
Principles - This Standard supersedes FASB Statement Number 162, the Hierarchy of Generally Accepted
Accounting Principles and reorganizes the standards applicable to
financial statements of nongovernmental entities that are presented in
conformity with GAAP.  The purpose of the Codification is to provide a
single source of authoritative nongovernmental GAAP literature, and the
Codification is not intended to create new accounting standards or guidance. The
Codification includes portions of SEC content related to matters within the
basic financial statements for user convenience, but the Codification will not
contain all SEC guidance on accounting topics, and will not replace any SEC
rules or regulations.  The Codification supersedes all existing GAAP
other than as found in the SEC’s rules and regulations, and combines all
authoritative standards and guidance related to GAAP from levels A through D of
the current hierarchy from FASB, Emerging Issues Task Force (EITF), American
Institute of Certified Public Accountants (AICPA) and other private-sector
standard-setters, and reorganizes them into two levels – authoritative and
nonauthoritative.





The
Codification only contains authoritative GAAP and is divided into the following
five main areas:


·
            General
      Principles


·
            Presentation


·
            Financial
      Statement Accounts


·
            Broad
      Transactions


·
            Industry
      Topics


8


This
Standard is effective for companies with financial statement periods ending
after September 15, 2009.  The Company has adopted this statement as
of the this quarter.  The statement is not expected to have a
significant effect on the financial statements of the
Company.





FASB ASC 808-10 Accounting
for Collaborative Arrangements - The objective of this standard is to
define collaborative arrangements and to establish reporting requirements for
transactions between participants in a collaborative arrangement and between
participants in the arrangement and third parties. A collaborative arrangement
is a contractual arrangement that involves a joint operating activity. These
arrangements involve two (or more) parties who are both (a) active participants
in the activity and (b) exposed to significant risks and rewards dependent on
the commercial success of the activity. Participants in a collaborative
arrangement shall report costs incurred and revenue generated from transactions
with third parties in each entity’s respective income statement pursuant to the
guidance in Issue 99-19. An entity should not apply the equity method of
accounting under Opinion 18 to activities of collaborative arrangements.
Information related to individually significant collaborative arrangements
should be disclosed separately.




This
standard shall be effective for financial statements issued for fiscal years
beginning after December 15, 2008, and interim periods within those fiscal
years. This standard shall be applied retrospectively to all prior periods
presented for all collaborative arrangements existing as of the effective date.
The Company plans to adopt this standard prospectively as of the beginning of
the fiscal year in which this Statement is initially applied. This Standard
encourages, but does not require, comparative disclosures for earlier periods at
initial adoption. The statement is not expected to have a significant effect on
the financial statements of the Company.




FASB ASC 805-10 - Business
Combinations - This Standard applies to all transactions or other events
in which an entity (the acquirer) obtains control of one or more businesses (the
acquirer), including those sometimes referred to as “true mergers” or “mergers
of equals” and combinations achieved without the transfer of consideration, for
example, by contract alone or through the lapse of minority veto rights. This
Standard applies to all business entities, including mutual entities that
previously used the pooling-of-interests method of accounting for some business
combinations. This Standard replaces FASB Statement No. 141, Business
Combinations. This Standard retains the fundamental requirements in
Statement 141 that the acquisition method of accounting (which Statement
141 called the purchase method) be used for all business combinations and for an
acquirer to be identified for each business combination. This Standard defines
the acquirer as the entity that obtains control of one or more businesses in the
business combination and establishes the acquisition date as the date that the
acquirer achieves control. Statement 141 did not define the acquirer, although
it included guidance on identifying the acquirer, as does this Standard. This
Standard’s scope is broader than that of Statement 141, which applied only to
business combinations in which control was obtained by transferring
consideration. By applying the same method of accounting—the acquisition
method—to all transactions and other events in which one entity obtains control
over one or more other businesses, this Standard improves the comparability of
the information about business combinations provided in financial reports. This
Standard applies prospectively to business combinations for which the
acquisition date is on or after the beginning of the first annual reporting
period beginning on or after December 15, 2008. An entity may not apply it
before that date. The effective date of this Standard is the same as that of the
related FASB ASC 810-10, Non-controlling Interests in Consolidated Financial
Statements.  The statement is not expected to have a significant
effect on the financial statements of the Company.





FASB ASC 810-10 –
Non-controlling Interests in Consolidated Financial Statements—an amendment of
ARB No. 51 - This Standard applies to all entities that prepare
consolidated financial statements, except not-for-profit organizations, but will
affect only those entities that have an outstanding non-controlling interest in
one or more subsidiaries or that deconsolidate a subsidiary. Not-for-profit
organizations should continue to apply the guidance in Accounting Research
Bulletin No. 51, Consolidated Financial Statements, before the amendments made
by this Standard, and any other applicable standards, until the Board issues
interpretative guidance. This Standard amends ARB 51 to establish accounting and
reporting standards for the non-controlling interest in a subsidiary and for the
deconsolidation of a subsidiary. It clarifies that a non-controlling interest in
a subsidiary is an ownership interest in the consolidated entity that should be
reported as equity in the consolidated financial statements. Before this
Standard was issued, limited guidance existed for reporting non-controlling
interests. As a result, considerable diversity in practice existed. So-called
minority interests were reported in the consolidated statement of financial
position as liabilities or in the mezzanine section between liabilities and
equity. This Standard improves comparability
by eliminating that diversity. This Standard is effective for fiscal years, and
interim periods within those fiscal years, beginning on or after December 15,
2008 (that is, January 1, 2009, for entities with calendar year-ends). Earlier
adoption is prohibited. The effective date of this Statement is the same as that
of the related Statement 141(R). The Company plans to adopt this statement
prospectively as of the beginning of the fiscal year in which this Standard is
initially applied, except for the presentation and disclosure requirements. The
presentation and disclosure requirements shall be applied retrospectively for
all periods presented. The standard is not expected to have a significant effect
on the financial statements of the Company.




9





In May
2009, the FASB ASC 855-10, "Subsequent Events”.  This Standard sets
forth the period after the balance sheet date during which management of a
reporting entity should evaluate events or transactions that may occur for
potential recognition or disclosure in the financial statements, the
circumstances under which an entity should recognize events or transactions
occurring after the balance sheet date in its financial statements, and the
disclosures that an entity should make about events or transactions that
occurred after the balance sheet date. This Standard will be effective for
interim or annual period ending after June 15, 2009 and will be applied
prospectively. The Company has adopted the requirements of this pronouncement
for the three months period ended September 30, 2009.





NOTE 2 – PROPERTY AND
EQUIPMENT




Property
and equipment is summarized as follows:


September
      30, 2009 (Unaudited)
                          
                          
                          June
      30, 2009Fixtures
      and equipment
                          
                          $
                          114,563
                          
                          
                          $
                          114,563Accumulated
      depreciation
                          
                          
                          (89,690
                          )
                          
                          
                          (87,047
                          )Property
      and equipment, net
                          
                          $
                          24,873
                          
                          
                          $
                          27,516




Depreciation
expense for the three months period ended September 30, 2009 and 2008 was $2,643
and $2,574, respectively.




NOTE
3 – STATEMENTS OF CASH FLOWS ADDITIONAL DISCLOSURES


Three
      months ended September 30,2009
                      (Unaudited)
                    
                    
                    2008
                      (Unaudited)Cash
      paid for interest
                    
                    $
                    689
                    
                    
                    $
                    2,816Cash
      paid for income taxes
                    
                    $
                    -
                    
                    
                    $
                    -




Non-cash
investing and financing activities were as follows:


Three
      months ended September 30,2009
                                (Unaudited)
                              
                              
                              2008
                                (Unaudited)Stock
      issuance and transfers (Note 5):Stock
      transferred from Company President to branch owners
                              
                              $
                              -
                              
                              
                              $
                              63,430Stock
      issued to branch owners as a result of transfer from the Company
      President
                              
                              $
                              -
                              
                              
                              $
                              63,430





10




NOTE 4 – INVESTMENTS IN
MARKETABLE SECURITIES




Cost and
fair value of marketable securities at September 30, 2009 and June 30, 2009, are
as follows:


Cost
                                    
                                    
                                    Gross
                                      Unrealized
                                      Gains
                                    
                                    
                                    Gross
                                      Unrealized
                                      Losses
                                    
                                    
                                    FairValueSeptember
      30, 2009 (Unaudited)Available
      for Sale -Equity Securities
                                    
                                    $
                                    47,215
                                    
                                    
                                    $
                                    4,863
                                    
                                    
                                    $
                                    (3,176
                                    )
                                    
                                    $
                                    48,902June
      30, 2009Available
      for Sale -Equity Securities
                                    
                                    $
                                    50,685
                                    
                                    
                                    $
                                    1,029
                                    
                                    
                                    $
                                    (9,675
                                    )
                                    
                                    $
                                    42,039





Available
for sale securities are carried in the financial statements at fair value. Net
unrealized holding gains on available for sale securities in the amount of
$1,687 and net unrealized holding losses of $4,961 for the three month periods
ended September 30, 2009 and 2008, respectively, have been included in
accumulated other comprehensive income.  Estimated income tax related
to unrealized holding gains for the periods ending September 30, 2009 and 2008
was $0.





Proceeds
from the sale of securities available for sale during the three month period
ended September 30, 2009 were $8,783. Gross realized loss from the sale of
securities available for sale and included in the statement of operations was
$3,504.  The cost of securities sold is determined by specific
identification.





Proceeds
from the sale of securities available for sale during the three month period ended September 30,
2008 were $11,953. Gross realized gains from the sale of securities
available for sale and included in the statement of operations was
$511.  The cost of securities sold is determined by specific
identification.





Temporary
impairments


The
following table shows the gross unrealized losses and fair value of the
Company’s investments with unrealized losses that are not deemed to be
other-than-temporarily impaired, aggregated by investment category and the
length of time that individual securities have been in a continuous unrealized
loss position at September 30, 2009.





Less
      than 12 Months
                              
                              
                              More
      than 12 Months
                              
                              
                              TotalDescription
      ofSecurities
                              
                              FairValue
                              
                              
                              UnrealizedLosses
                              
                              
                              FairValue
                              
                              
                              UnrealizedLosses
                              
                              
                              FairValue
                              
                              
                              UnrealizedLossesMarketableEquity Securities
                              
                              $
                              9,963
                              
                              
                              $
                              (799
                              )
                              
                              $
                              9,465
                              
                              
                              $
                              (2,377
                              )
                              
                              $
                              19,428
                              
                              
                              $
                              (3,176
                              )Total
                              
                              $
                              9,963
                              
                              
                              $
                              (799
                              )
                              
                              $
                              9,465
                              
                              
                              $
                              (2,377
                              )
                              
                              $
                              19,428
                              
                              
                              $
                              (3,176
                              )





Marketable Equity
Securities


The
Company’s investments in marketable equity securities consist primarily of
investments in common stock of companies engaged in a variety of industries. The
industries and the Company’s investees are susceptible to changes in the U.S.
economy and the economies of their customers. The severity of the impairments in
relation to the carrying amounts of the individual investments is consistent
with market developments within the various industries.  The Company
evaluated the near-term prospects of the issuers in relation to the severity and
duration of the impairments. Based on that evaluation and the Company’s ability
and intent to hold these investments for a reasonable period of time sufficient
for a forecasted recovery of fair value, the Company does not consider these
investments to be other than temporarily impaired at September 30,
2009.


11


NOTE 5 – RELATED PARTY
TRANSACTIONS




The
Company leases office space in a building that is 100% owned by an LLC whose
members are the Company’s President and his immediate family. The Company rents
a vehicle that is owned by the Company’s President. The rental is on a
month-to-month basis and is cancellable at any time.  Monthly rental
payments are $500. During the three months ended September 30, 2009 and 2008,
the Company paid $1,500 and $1,000, respectively, under the rental
agreement.





The
Company had the following loan outstanding to a related party:


Original
      Loan
              
              
              Balance
      due
                September
      30, 2009 (Unaudited)
              
              
              Balance
      due
                June
      30, 2009Unsecured
      loans to NWBO Corporation(NWBO) bearing interest at 9.25% annually
      with no defined payment terms
              
              $
              167,000
              
              
              $
              90,890
              
              
              $
              90,890Accrued
      interest due from NWBO
              
              
              -
              
              
              
              3,965
              
              
              
              3,316167,000
              
              
              
              94,855
              
              
              
              94,206Less
      allowance for uncollectible amounts
              
              
              -
              
              
              
              -
              
              
              
              -$
              167,000
              
              
              $
              94,855
              
              
              $
              94,206





The
Company conducted business with the Roswell Branch office owned by a director of
the Company during the three month period ended September 30, 2009. The
branch owner served on the Company’s Board of Directors until July 1,
2009.  For the three month period ended September 30, 2008, commissions
paid under the branch agreement were $43,619, which included share based
payments of $4,847.  At June 30, 2009, the Company owed the branch owner
$9,670 in commissions.





The
Company conducted business with the Ruidoso Branch office which is owned by a
director of the Company.  For the three month period ended September
30, 2009, commissions paid under the branch agreement were $115.  At
September 30, 2009, the Company did not owe any commissions to the Ruidoso
Branch owner.  For the three month period ended September 30, 2008,
commissions paid under the branch agreement were $3,889. At June 30, 2009, the
Company did not owe the Ruidoso Branch any
commissions.    There were no share based payments during
the three month periods ended September 30, 2009 and
2008.





The
Company purchased certain services from one of the Company’s directors. Cash
payments for services purchased during the three month periods ended September
30, 2009 and 2008 included in selling, general, and administrative expenses were
$8,679 and $15,000, respectively.





The
following table represents the Company President’s contributions to the
Company:


Three
      months ended September 30,2009
                          (Unaudited)
                        
                        
                        2008
                          (Unaudited)Transfer of personal stock to branch owners in exchangefor
      services rendered
                        
                        $
                        -
                        
                        
                        $
                        63,430Cash
      contributions
                        
                        
                        -
                        
                        
                        
                        130,000Total
      Contributions from President to Company
                        
                        $
                        -
                        
                        
                        $
                        193,430




12




During
the three months period ended September 30, 2008, the Company’s President
committed to make loans to the Company in the form of transfers of his personal
stock of the Company to branch owners in exchange for services rendered during
the periods. As part of his commitment, he agreed to forgive 100% of the
resulting loans to the Company. Transactions under this agreement were as
follows:
 Three
      months ended September 30,2009
                            (Unaudited)
                          
                          
                          2008
                            (Unaudited)Fair
      value of stock transferred, recognized as commissionsin the
      financial
      statements
                          
                          $
                          -
                          
                          
                          $
                          63,430Loan
      amounts forgiven and recognized as additionalpaid in capital in
      the financial statements
                          
                          $
                          -
                          
                          
                          $
                          63,430


During
the year ended June 30, 2008, the Company entered into a revolving line of
credit from the Company’s President to the Holding Company for up to
$120,000.  The term of the promissory note is five years at an
adjustable interest rate of the Prime Rate minus 0.76%.  The balance
outstanding of the promissory note at September 30, 2009 and June 30, 2009 was
$100,000 and $110,000, respectively.





NOTE 6 –STOCK
ISSUANCE




Following
is the status of the share based payment plans during the quarter ended
September 30, 2009.





The
Company uses the fair value method to account for employee stock compensation
costs and to account for share based payments to non-employees.  The
fair value of each share granted/issued for services is estimated on the
grant/issue date using the Black-Scholes pricing model.





During
the three month period ended September 30, 2009, the Company did not issue any
shares under the 2002 Stock Option/Stock Issuance Plan. The Company has recorded
the commission expense of $58,184 payable to the branch owners for brokerage
commissions and professional and legal expense of $1,342. The Company has not
issued 29,882 common shares to the branch owners and consultant for brokerage
commission and professional and legal expenses as of September 30, 2009. The
fair value of 29,882 common shares was $59,526 and is recorded in brokerage
commissions and selling, general and administrative expenses in the accompanying
financial statements.





During
the three month period ended September 30, 2008, the Company issued a total of
6,000 shares under the 2002 Stock Option/Stock Issuance Plan. The market value
of the shares was $3,300 which was recorded as brokerage commission in the
accompanying financial statements.





During
the three month period ended September 30, 2009 and 2008, there were no options
granted under the 2002 Stock Option/Stock Issuance Plan and at September 30,
2009, there were no options outstanding under the plan.





NOTE 7 –
COMMITMENTS




Nationwide By Owners
License


On April
14, 2006, the Company entered into a five-year renewable license agreement with
Nationwide By Owner, Inc. (“NWBO”), a Texas based company engaged in the
business of marketing real property for sale by owners.  In the course
of its business, NWBO generates a proprietary system which produces a database
of sales leads containing home buyer and home seller information for persons
seeking financing on the purchase or refinancing of real property. The license
agreement permits exclusive use of the database to be used to generate leads for
the origination of mortgage applications for submission to PrimeSource Mortgage,
Inc.





The
initial cost of the license was $150,000 cash, plus the issuance of 150,000
shares of PSM Holdings, Inc. stock in favor of NWBO and its principals, at a
fair value for consideration received of $674,999 on the date of
issue.  The Company is amortizing the cost of the license over
fourteen years, which is the initial five-year period of the agreement, plus
three automatic three year renewal terms. Amortization expense recorded during
each of the three month periods ended
September 30, 2009 and 2008 was $14,732. Amortization expense to be recognized
for each of the years ending June 30, 2010 through 2019 is $58,929 and for
the year ending June 30, 2020 is $46,497.




13





The
agreement between NWBO and the Company calls for the establishment of a
National Processing Center for the collection, origination and
tracking of the sales lead database. As agreed to by NWBO and the Company, the
National Processing Center has been delayed until a written approval
has been obtained between NWBO and a national marketing company. There are
several on-going conversations taking place at this time, but no agreement has
been executed. NWBO continues to provide the platform that produces a database
of sales leads containing home buyer and home seller information for persons
seeking financing on the purchase or refinancing of real property for exclusive
use by the Company. 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.





Pursuant
to the agreement with NWBO, the Company has also committed to pursue obtaining,
in good faith and diligently, the appropriate licenses to originate mortgages in
all 50 states of the United States of America.





Historically
the Company has not gathered data on the number of leads and loans closed, and
commissions earned and paid, relating to the NWBO license since the branch
offices are independently owned and operated and may choose not to use these
lead generating opportunities.  Because some of the branches have
taken advantage of the NWBO opportunity, management has recently begun tracking
some of the results from those offices.  From the seven offices that
have used the NWBO technology, management believes there are approximately 20%
of the loans being derived from the NWBO signs.  However, management
also believes there are other benefits from the association for the branches in
the form of marketing exposure and the control of a transaction.  If a
prospective buyer calls the telephone number on the NWBO sign while looking for
a property, and if they are not already working with a realtor, the branch
office has the opportunity not only to generate the loan business, but may also
refer a lead prospect to a producing realtor in the market area.





The
Company has developed a method to measure the value of the NWBO license. 
The method is a computation based on income from new and existing branches and
an estimate of the value NWBO brings to each of the branches. The computation is
updated each quarter. The computed value of the license is compared to the
book value of the license at the end of each quarter to determine if there is
any impairment in the carrying value of the license is warranted. The book
value is determined by the original cost of the license less accumulated
amortization as of the end of the quarter. The value of the license
recorded on the balance sheet is book value. Pursuant to the computations, the
book value of the license was less than the computed value at September 30,
2009.





Lease
commitments


The
Company leases office space in a building that is 100% owned by an LLC whose
members are the Company’s President and his immediate family. The terms under
these lease agreements are that of month-to-month operating leases, and there
are no future non-cancelable lease commitments due by the Company. Total rents
paid during the three month periods ended September 30, 2009 and 2008 were
$9,360 and $9,000, respectively. The Company rents various property and
equipment under leases and rental agreements with cancellable terms. Total rents
paid under these agreements during the three month periods ended September 30,
2009 and 2008 were $3,131 and $1,974, respectively. This included $1,500 and
$1,000 paid to a related party during the three month periods ended September
30, 2009 and 2008, respectively.


14




NOTE 8 – LOSS PER COMMON
SHARE




Basic and
diluted loss per common share is computed by dividing the loss available to
common shareholders 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 has been converted to
common stock because the effect would be anti-dilutive.  The weighted
average number of common shares outstanding during the three month periods ended
September 30, 2009 and 2008 was 12,942,294 and 12,907,729 respectively. Loss per
common share for both the three month periods ended September 30, 2009 and 2008
was $0.01, respectively.





NOTE 9 – LINE OF
CREDIT





The
Company has two warehouse lines of credit.  On August 3, 2008, the
Company entered into a warehouse line of credit agreement for up to $1,000,000
bearing an annual interest rate of 5%. On June 11, 2009, the Company entered
into an additional warehouse line of credit for up to $1,000,000. The new
warehouse line of credit was modified on June 19, 2009 to increase the credit
line to up to $4,000,000. The annual interest rate on the new line is Wall
Street Journal Prime Interest Rate plus 1⁄2 %. The lines of credit provide short
term funding for mortgage loans originated by the branches.  The lines
of credit are repaid within 5 to 7 days, when the loan is sold. The Company does
not intend to hold and service the loans.  The lines are used strictly
to fund mortgage loans and not to provide operating funds for the Company. As of
September 30, 2009, the Company did not have any amounts outstanding for payment
against the lines of credit.





NOTE 10 – SUBSEQUENT
EVENT





Subsequent events have
been evaluated through November 16, 2009, thedate these
financial statements were issued.On October 20, 2009, the Board
of Directors authorized and approved the issuance of 29,882 shares of common
stock with a fair value of $59,526 to the branch owners and a consultant for
brokerage commissions and professional fees earned for the three months period
ended September 30, 2009.




15




ITEM
2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS





This
Management's Discussion and Analysis of Financial Condition and Results of
Operations includes a number of forward-looking statements that reflect
Management's current views with respect to future events and financial
performance. You can identify these statements by forward-looking words such as
“may,” “will,” “expect,” “anticipate,” “believe,” “estimate” and “continue,” or
similar words.  Those statements include statements regarding the
intent, belief or current expectations of us and members of its management team
as well as the assumptions on which such statements are based. Prospective
investors are cautioned that any such forward-looking statements are not
guarantees of future performance and involve risk and uncertainties, and that
actual results may differ materially from those contemplated by such
forward-looking statements.





Readers
are urged to carefully review and consider the various disclosures made by us in
this report and in our other reports filed with the Securities and Exchange
Commission.  Important  factors  currently  known  to
Management  could  cause  actual  results  to
differ  materially  from  those in
forward-looking  statements.  We undertake no obligation to
update or revise forward-looking statements to reflect changed assumptions, the
occurrence of unanticipated events or changes in the future operating results
over time. We believe that our assumptions are based upon reasonable data
derived from and known about our business and operations.  No
assurances are made that actual results of operations or the results of our
future activities will not differ materially from its
assumptions.  Factors that could cause differences include, but are
not limited to, expected market demand for our services, fluctuations in pricing
for materials, and competition.





Overview





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





We
conduct all of our business operations through our wholly-owned subsidiary,
PrimeSource Mortgage, Inc., a Texas corporation, (herein referred to as
“PrimeSource Mortgage”) which we acquired in May 2005.  Since 1991,
PrimeSource Mortgage has been engaged in the mortgage brokerage business and
since 2008 has also conducted business as a mortgage banker using a $1,000,000
warehouse line of credit. On June 11, 2009, we entered into an additional
warehouse line of credit for up to $1,000,000. The new warehouse line of credit
was modified on June 19, 2009 to increase the credit line to up to $4,000,000.
The annual interest rate on the new line is Wall Street Journal Prime Interest
Rate plus 1⁄2 %.





We
generate revenues through mortgage brokerage services by originating mortgage
loans that are funded directly by third parties selected by us from over fifty
institutional and private lenders.  We also generate revenues through
mortgage banking services with mortgage loans originated and funded by us
through a warehouse line of credit.  These loans are sold to third
parties within 5 to 7 days.  We have a number of independently owned
branch offices from which we derive revenue based on a percentage of commissions
generated on loans originated by these branch offices. We make available to
these branch offices our institutional and private lenders for the mortgage
brokerage business and our third party lenders and warehouse line of credit for
the mortgage banking business in order to assist them in originating and closing
new loans thereby generating commission revenue for us. We are licensed as a
mortgage brokerage and banking firm in 20 states and we currently operate in the
southwest, primarily in the states of New Mexico, Oklahoma, and
Texas.





On April
14, 2006, we entered into a five-year renewable license agreement with
Nationwide By Owner, Inc. (“Nationwide”), a Texas based company engaged in the
business of marketing real property for sale by owners and others. In the course
of its business, Nationwide operates a proprietary system which produces a
database of sales leads containing home buyer and home seller information for
persons seeking financing on the purchase or refinancing of real property. The
license agreement permits us exclusive use of the database which we use to
generate leads for the origination of mortgage applications for submission to
us. We have also agreed to establish a national processing center to expand
nationally the collection, organization and tracking of sales leads obtained
from the database. We have agreed with Nationwide to delay the establishment of
the processing center until Nationwide secures a national marketing
agreement.




The
Company continues to explore the possibility of potential mergers or
acquisitions. Management is currently engaged in preliminary discussions with
potentialmerger or
acquisition targets in our industry. However, no letter of intent or other
document has been prepared in connection with respect to any merger or
acquisition or similar transaction.




16





On October 22, 2009, we received a
letter from U.S. Department of Housing and Urban Development (HUD) requesting us
to provide certain information with respect to HUD’s annual audit for the period
ended June 30, 2009. We responded to HUD’s request and submitted the required
information for their review on November 10, 2009. However, if HUD is not
satisfied with our responses to their comments, HUD could take away our ability
to originate FHA loans and that could have an adverse effect in expanding our
business.





At the
present time we have no record of how many mortgage loan applications are
received. Each branch office maintains its own record-keeping system for
applications and whether or not to retain this information.  During
the three months ended September 30, 2009 and 2008, we closed 254 loans and 239
loans, respectively.  We experienced an increase of 6% in the number
of loans closed during the three months ended September 30, 2009 compared to the
same period in 2008. This increase was as a result of a net increase in the
number of new branches opened and improved production from the existing branches
during the three months ended September 30, 2009 compared to the same period in
2008.





The
branches are compensated by receiving 80% percent of the commission earned on
each loan they originate in cash and 10% of the commission earned in stock of
our Company.  The percentage paid to the branch remains the same on
all loans originated by the branch. Branches do not receive a greater percentage
as their production increases. An increase in branch production increases our
revenue. Increases in production through adding branches or increasing the
production of existing branches increases the revenue of our Company. We
continue to recruit new branches and work with existing branches to increase
their production. Management believes the cost to service new branches will not
increase greatly over current costs to service existing branches. We retain
approximately 10% of the commissions earned on loans generated by our branch
offices.





We have
failed to generate a profit during the three months ended September 30, 2009 and
2008 and for the fiscal years ended June 30, 2009 and 2008.  We believe the
primary reason for the losses over the past periods was that after the decision
was made to take the Company public through a reverse acquisition in 2005, five
of the top producing branch offices banded together and demanded more ownership
and a more beneficial split in revenue going forward. We made the decision not
to negotiate the demands of five top producing branches and agreed to let these
branches leave the network. This reduction in revenue was the primary reason for
the extensive losses. It has taken almost three years to replace the revenue
previously generated by these five branch offices through increased originations
and additional offices added to the network.  In addition, we have
incurred in excess of $406,838 over the last three years in legal and
professional costs to take the Company public through reverse
acquisition.





Operating
expenses consist primarily of commissions paid to the independent brokers on
mortgage loans generated by us or our branch offices, development costs
associated with adding new branch offices and servicing existing branch offices,
legal and professional fees related to us becoming a public company, and the
costs of putting on our annual convention. The annual convention provides
training for branch owners and markets our Company to potential branch owners
who attend.  Overhead expenses include wages, rent of office space,
and other administrative expenses.  Licensing costs to conduct
business in each state are included in taxes and licenses.





Results
of Operations





Our
consolidated results of operations for the three months ended September 30, 2009
and 2008 include the operating results of our wholly-owned subsidiary
PrimeSource Mortgage.





We
reported a net loss of $143,895 for the three months ended September 30, 2009
compared to a loss of $148,320 for the same period ended September 30, 2008. The
decrease in loss was principally attributable to the increase in revenue as more
fully explained below.




17





Revenues


Our total
revenues increased by $78,540 or 9.2% for the three month period ended September
30, 2009, as compared to the same period in 2008 (the “comparable prior year
period”).  Our revenues for the three month period ended September 30,
2009 increased primarily due to a net increase of three (3) branches in
operation as compared to the comparable prior year period. Some of the existing
branches also increased their production during this time period as their
businesses matured. Management believes adding strong producing branches is a
viable way to continue to increase revenues.





Operating
Expenses





Our total
operating expenses increased by $72,186 or 7.2% for the three month period ended
September 30, 2009, as compared to the comparable prior year period. This
overall increase was primarily due to an increase of $53,027 in brokerage
commissions earned by branches due to the increase in branch revenues during the
three month period ended September 30, 2009, as compared to the comparable prior
year period. Our general and administrative expenses for the three month period
ended September 30, 2009 increased by $19,090 or 8.8% as compared to the
comparable prior year period increased due to the increase in professional and
legal expense of $28,172 a decrease in investor relations expense of $19,920 and
increases in wages of $4,050 and website expenses of $7,058.





Non-operating income
(expense)





Our total non-operating expense
increased by $1,929 or 901.2% for the three month period ended September 30,
2009, as compared to the comparable prior year period. This overall increase was
primarily due to the increase in realized loss of $4,015 on sale of marketable
securities, decrease in interest expense of $2,127 and decrease in interest and
dividend income of $40 for the three month period ended September 30, 2009 as
compared to the comparable prior year period.





Other comprehensive income
or loss





Unrealized
gain for the three month period ended September 30, 2009, was $10,333 as
compared to an unrealized loss of $7,086 for the comparable prior year period.
Unrealized loss resulted due to the decrease in market value of the marketable
securities held at September 30, 2009 and 2008, respectively.





Liquidity
and Capital Resources





Our cash
and cash equivalents were $42,011 at September 30, 2009. As shown in the
accompanying consolidated financial statements, we recorded a loss of $143,895
for the three month period ended September 30, 2009, compared to loss of
$148,320 for the comparable prior year period. Our current liabilities exceeded
our current assets by $17,694 at September 30, 2009, and our net cash used in
operating activities for the three month period ended September 30, 2009, was
$31,112. We believe we have sufficient funds to conduct our operations for the
next operating cycle of 12 months. We expect to open fifteen additional branches
(four of which have already opened since July 1, 2009) during the current year,
while our existing branches continue to strengthen and mature due to the
upcoming recovery in mortgage business.  In order to expand our
business we may need to sell additional shares of our common stock or borrow
funds from private lenders.  Although we were successful in executing
two warehouse lines of credit for $4 million and $1 million for the interim
funding to close customer loans, there can be no assurance that we will be
successful in securing additional funding for customer loans and/or funding for
expansion or operations.





Due to
historical operating losses, our operations have not been a source of liquidity.
We will need to obtain additional capital in order to expand operations and
become profitable. In order to obtain capital, we may need to sell additional
shares of our common stock or borrow funds from private lenders. There can be no
assurance that we will be successful in obtaining additional
funding.


18




To the
extent that we raise additional capital through the sale of equity or
convertible debt securities, the issuance of such securities may result in
dilution to existing stockholders. If additional funds are raised through the
issuance of debt securities, these securities may have rights, preferences and
privileges senior to holders of common stock and the terms of such debt could
impose restrictions on our operations. Regardless of whether our cash assets
prove to be inadequate to meet our operational needs, we may seek to compensate
providers of services by issuance of stock in lieu of cash, which may also
result in dilution to existing shareholders. Even if we are able to raise the
funds required, it is possible we could incur unexpected costs and expenses,
fail to collect significant amounts owed to us, or experience unexpected cash
requirements that would force us to seek alternative financing.





Whereas
we have been successful in the past in raising capital, no assurance can be
given that these sources of financing will continue to be available to us and/or
that demand for our equity/debt instruments will be sufficient to meet our
capital needs, or that financing will be available on terms favorable to us. If
funding is insufficient at any time in the future, we may not be able to take
advantage of business opportunities or respond to competitive pressures, or may
be required to reduce the scope of our planned service development and marketing
efforts, any of which could have a negative impact on our business and operating
results. In addition, insufficient funding may have a material adverse effect on
our financial condition, which could require us to:


curtail
  operations significantly;
        sell
  significant assets;
        seek
  arrangements with strategic partners or other parties that may require the
  Company to relinquish significant rights to products, technologies or markets;
  or
        explore
  other strategic alternatives including a merger or sale of our
  Company.


Operating
Activities





Net cash
used in operating activities for the three month period ended September 30, 2009
was $31,113 resulted due to decrease in accounts receivable of $21,104, increase
in interest receivable of $649, increase in accounts payable of $14,381, and
increase in accrued liabilities of $57,067. We experienced a net loss from
operations of $143,895 for the three month period ended September 30, 2009, as
compared to a net loss from operations of $148,320 for the comparable prior year
period. The losses were primarily attributable due to the loss of five top
producing branches. The decrease in the loss between the two periods is the
result of an increase in branches as the Company continues to recover from the
loss of the five top producing branches. We believe the Company can become
profitable from the increased revenue that will be achieved by adding
branches.





Investing
Activities





Net cash
used in investing activities for the three month period ended September 30, 2009
was $34.  This was due to cash used to purchase of marketable
securities of $8,817 offset by receiving $8,783 in cash proceeds from the sale
of marketable securities. 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
used in financing activities for the three month period ended September 30, 2009
was $10,000. The cash was used for making a payment on the loan from a related
party.





As a
result of the above activities, we experienced a net decrease in cash of $41,147
for the three month period ended September 30, 2009.





The
President and the Chairman have provided support to fund our operations with
cash in the past but are not obligated to do so.  Our ability to
continue as a going concern is still dependent on our success in opening new
branches, maturing
the business of existing branches, capitalizing on the leads from NWBO
and closing them into mortgage loans, and obtaining additional financing from
financial institutions and from investors through the sale of our
securities.


19


Critical
Accounting Policies and Estimates





Management’s
discussion and analysis of the Company’s financial condition and results of
operations are based upon our 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 consolidated financial statements,
“Summary of Significant Accounting Policies.”) We believe the following
paragraphs reflect accounting policies that currently affect our financial
condition and results of operations:





Investments in Marketable
Securities





Investments
consist of equity securities categorized as available-for-sale which includes
securities that are not classified in either the held-to-maturity category or
the trading category.  As required by the Investments – Debt and
Equity Securities Topic of the FASB ASC, the securities are recognized at fair
value, with unrealized holding gains and losses included as other comprehensive
income, net of any deferred income taxes and reported as a net amount in a
separate component of stockholders’ equity until realized.





Share Based Payment
Plan





Under the
2002 Stock Option/Stock Issuance Plan, 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.  The
Branch Owner Stock Program provides for issuance of stock to branch owners for
outstanding performance.  The Company uses the fair value method
pursuant to the Compensation-Stock Compensation Topic of the FASB ASC to account
for employee stock compensation costs and to account for share based payments to
non-employees.





Revenue
Recognition





The
Company’s revenue is derived primarily from revenue earned from the origination
of mortgage loans that are funded by third parties.  The Company has a
network of independently owned branch offices that originate mortgage loans from
which the Company receives a percentage of the fees earned by the branch. The
revenue is recognized as earned on the later of the settlement date or the
funding date of the loan.





Recent Accounting
Pronouncements





The
Company has evaluated the possible effects on its financial statements of the
following accounting pronouncements:





FASB ASC 305-10 – The FASB
Accounting Standards Codification and Hierarchy of Generally Accepted Accounting
Principles - This Standard supersedes FASB Statement Number 162, the Hierarchy of Generally Accepted
Accounting Principles and reorganizes the standards applicable to
financial statements of nongovernmental entities that are presented in
conformity with GAAP.  The purpose of the Codification is to provide a
single source of authoritative nongovernmental GAAP literature, and the
Codification is not intended to create new accounting standards or guidance. The
Codification includes portions of SEC content related to matters within the
basic financial statements for user convenience, but the Codification will not
contain all SEC guidance on accounting topics, and will not replace any SEC
rules or regulations.  The Codification supersedes all existing GAAP
other than as found in the SEC’s rules and regulations, and combines all
authoritative standards and guidance related to GAAP from levels A through D of
the current hierarchy from FASB, Emerging Issues Task Force (EITF), American
Institute of Certified Public Accountants (AICPA) and other private-sector
standard-setters, and reorganizes them into two levels – authoritative and
nonauthoritative. The Codification only contains authoritative GAAP and is
divided into the following five main areas:


·
            General
      Principles


·
            Presentation


·
            Financial
      Statement Accounts


·
            Broad
      Transactions


·
            Industry
      Topics




This
Standard is effective for companies with financial statement periods ending
after September 15, 2009.  The Company has adopted this statement as
of this quarter. The standard is not expected to have a significant effect on
the financial statements of the Company.




20


FASB
ASC 808-10 Accounting for Collaborative Arrangements - The objective of
this standard is to define collaborative arrangements and to establish reporting
requirements for transactions between participants in a collaborative
arrangement and between participants in the arrangement and third parties. A
collaborative arrangement is a contractual arrangement that involves a joint
operating activity. These arrangements involve two (or more) parties who are
both (a) active participants in the activity and (b) exposed to significant
risks and rewards dependent on the commercial success of the activity.
Participants in a collaborative arrangement shall report costs incurred and
revenue generated from transactions with third parties in each entity’s
respective income statement pursuant to the guidance in Issue 99-19. An entity
should not apply the equity method of accounting under Opinion 18 to activities
of collaborative arrangements. Information related to individually significant
collaborative arrangements should be disclosed
separately.




This standard shall be
effective for financial statements issued for fiscal years beginning after
December 15, 2008, and interim periods within those fiscal years. This standard
shall be applied retrospectively to all prior periods presented for all
collaborative arrangements existing as of the effective date. The Company plans
to adopt this standard prospectively as of the beginning of the fiscal
year in which this Statement is initially applied. This Standard encourages, but
does not require, comparative disclosures for earlier periods at initial
adoption. The statement is not expected to have a significant effect on the
financial statements of the Company.




FASB ASC 805-10 -
Business Combinations - This Standard applies to all transactions
or other events in which an entity (the acquirer) obtains control of one or more
businesses (the acquirer), including those sometimes referred to as “true
mergers” or “mergers of equals” and combinations achieved without the transfer
of consideration, for example, by contract alone or through the lapse of
minority veto rights. This Standard applies to all business entities, including
mutual entities that previously used the pooling-of-interests method of
accounting for some business combinations. This Standard replaces FASB Statement
No. 141, Business Combinations. This Standard retains the fundamental
requirements in Statement 141 that the acquisition method of accounting
(which Statement 141 called the purchase method) be used for all business
combinations and for an acquirer to be identified for each business combination.
This Standard defines the acquirer as the entity that obtains control of one or
more businesses in the business combination and establishes the acquisition date
as the date that the acquirer achieves control. Statement 141 did not define the
acquirer, although it included guidance on identifying the acquirer, as does
this Standard. This Standard’s scope is broader than that of Statement 141,
which applied only to business combinations in which control was obtained by
transferring consideration. By applying the same method of accounting—the
acquisition method—to all transactions and other events in which one entity
obtains control over one or more other businesses, this Standard improves the
comparability of the information about business combinations provided in
financial reports. This Standard applies prospectively to business combinations
for which the acquisition date is on or after the beginning of the first annual
reporting period beginning on or after December 15, 2008. An entity may not
apply it before that date. The effective date of this Standard is the same as
that of the related FASB ASC 810-10, Non-controlling Interests in Consolidated
Financial Statements.  The statement is not expected to have a
significant effect on the financial statements of the Company.





FASB ASC 810-10 –
Non-controlling Interests in Consolidated Financial Statements—an amendment of
ARB No. 51 - This Standard applies to all entities that prepare
consolidated financial statements, except not-for-profit organizations, but will
affect only those entities that have an outstanding non-controlling interest in
one or more subsidiaries or that deconsolidate a subsidiary. Not-for-profit
organizations should continue to apply the guidance in Accounting Research
Bulletin No. 51, Consolidated Financial Statements, before the amendments made
by this Standard, and any other applicable standards, until the Board issues
interpretative guidance. This Standard amends ARB 51 to establish accounting and
reporting standards for the non-controlling interest in a subsidiary and for the
deconsolidation of a subsidiary. It clarifies that a non-controlling interest in
a subsidiary is an ownership interest in the consolidated entity that should be
reported as equity in the consolidated financial statements. Before this
Standard was issued, limited guidance existed for reporting non-controlling
interests. As a result, considerable diversity in practice existed. So-called
minority interests were reported in the consolidated statement of financial position
as liabilities or in the mezzanine section between liabilities and equity. This
Standard improves comparability by eliminating that diversity. This Standard is
effective for fiscal years, and interim periods within those fiscal years,
beginning on or after December 15, 2008 (that is, January 1, 2009, for entities
with calendar year-ends). Earlier adoption is prohibited. The effective date of
this Statement is the same as that of the related Statement 141(R). The Company
plans to adopt this statement prospectively as of the beginning of the fiscal
year in which this Standard is initially applied, except for the presentation
and disclosure requirements. The presentation and disclosure requirements shall
be applied retrospectively for all periods presented. The standard is not
expected to have a significant effect on the financial statements of the
Company.




In May
2009, the FASB ASC 855-10, "Subsequent Events”.  This Standard sets
forth the period after the balance sheet date during which management of a
reporting entity should evaluate events or transactions that may occur for
potential recognition or disclosure in the financial statements, the
circumstances under which an entity should recognize events or transactions
occurring after the balance sheet date in its financial statements, and the
disclosures that an entity should make about events or transactions that
occurred after the balance sheet date. This Standard will be effective for
interim or annual period ending after June 15, 2009 and will be applied
prospectively. The Company has adopted the requirements of this pronouncement
for the three months period ended September 30, 2009.


21




Off-Balance
Sheet Arrangements




During
the fiscal year ended June 30, 2009 and since that date we have not had any
off-balance sheet arrangements that are reasonably likely to have a current or
future effect on our financial condition, change in financial condition,
revenues or expenses, results of operations, liquidity, capital expenditures or
capital resources.




Item
3. Quantitative and Qualitative Disclosures about Market Risk





Not
required under Regulation S-K for “smaller reporting companies.”





Item
4T. Controls and Procedures





(a)
Evaluation of disclosure controls and procedures.





Our
management, with the participation of our chief executive officer and principal
financial officer, evaluated the effectiveness of our disclosure controls and
procedures pursuant to Rule 15d-15 under the Securities Exchange Act of 1934 as
of September 30, 2009. In designing and evaluating the disclosure controls and
procedures, management recognizes that any controls and procedures, no matter
how well designed and operated, can provide only reasonable assurance of
achieving the desired control objectives. In addition, the design of disclosure
controls and procedures must reflect the fact that there are resource
constraints and that management is required to apply its judgment in evaluating
the benefits of possible controls and procedures relative to their
costs.




Based on
our evaluation, our chief executive officer and principal financial officer
concluded that as of September 30, 2009 our disclosure controls and procedures
are designed at a reasonable assurance level and are effective to provide assurance
that information we are required to disclose in reports that we file or submit
under the Exchange Act is recorded, processed, summarized and reported within
the time periods specified in Securities and Exchange Commission rules and
forms, and that such information is accumulated and communicated to our
management, including our chief executive officer and principal financial
officer, to allow timely decisions regarding required disclosure.





(b)
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. Changes may include such activities as implementing new, more
efficient systems, consolidating activities, and migrating processes. There were
no changes in our internal control over financial reporting
that occurred during the period covered by this Quarterly Report on Form 10-Q
that have materially affected, or are reasonably likely to materially affect,
our internal control over financial reporting.




22




PART
II - OTHER INFORMATION





Item 5. Other Information





On
September 30, 2009, we issued 28,727 shares and on November 2, 2009, we
issued 28,662 shares to our branch owners under our Commission Plan B program
which represented commissions earned for the quarters ended June 30, 2009 and
September 30, 2009, respectively. These shares were issued without
registration under the Securities Act by reason of the exemption from
registration afforded by the provisions of Section 4(2) thereof, and Rule 506
promulgated thereunder, as a transaction by an issuer not involving any public
offering. There were a total of 3 accredited investors and 19 sophisticated
investors as defined Regulation D. Each investor delivered appropriate
investment representations with respect to these issuances and consented to the
imposition of restrictive legends upon the stock certificates representing the
shares. Each investor represented that he or she had not entered into the
transaction with us as a result of or subsequent to any advertisement, article,
notice, or other communication published in any newspaper, magazine, or similar
media or broadcast on television or radio, or presented at any seminar or
meeting. Each investor was provided a private placement memorandum
containing information required pursuant to Regulation D. Each participant
was also afforded the opportunity to ask questions of our management and to
receive answers concerning the terms and conditions of the transaction. No
underwriting discounts or commissions were paid in connection with the stock
sale.




Item 6. Exhibits




31.1
            
            Certification
      of Chief Executive Officer pursuant to Rule 13a-14 and Rule 15d-14(a),
      promulgated under the Securities and Exchange Act of 1934, as
      amended31.2
            
            Certification
      of Principal Financial Officer pursuant to Rule 13a-14 and Rule 15d-14(a),
      promulgated under the Securities and Exchange Act of 1934, as
      amended32.1
            
            Certification
      of Chief Executive Officer and Principal Financial Officer pursuant to 18
      U.S.C. Section 1350, as adopted pursuant to Section 906 of the
      Sarbanes-Oxley Act of 2002


23




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:
      November 16,
      2009
                  By:
                  /s/ JEFFREY R.
      SMITHJeffrey
      R. Smith, President
                    Chief
      Executive Officer