The accompanying notes are an integral part of these condensed consolidated unaudited financial statements
The accompanying notes are an integral part of these condensed consolidated unaudited financial statements
The accompanying notes are an integral part of these condensed consolidated unaudited financial statements
The accompanying notes are an integral part of these condensed consolidated unaudited financial statements
The accompanying notes are an integral part of these condensed consolidated unaudited financial statements
Notes to Condensed Consolidated Financial Statements
December 31, 2021
(Unaudited)
NOTE 1 - ORGANIZATION
Cleartronic, Inc. (the "Company") was incorporated in Florida on November 15, 1999. All current operations are conducted through the Company's wholly owned subsidiary, ReadyOp Communications, Inc. ("ReadyOp"), a Florida corporation incorporated on September 15, 2014. ReadyOp facilitates the marketing and sales of subscriptions to the ReadyOp™ and ReadyMed ™ platform and the AudioMate IP gateways discussed below.
In March 2018, the Company approved the spin-off VoiceInterop into a separate company under a Form S-1 registration to be filed with the United States Securities and Exchange Commission. On May 13, 2019, VoiceInterop filed an S-1 registration with the United States Securities and Exchange Commission. All VoiceInterop transactions have been recorded as discontinued operations. On February 14, 2020, the distribution of shares was approved by FINRA and VoiceInterop was deconsolidated from Cleartronic, Inc.
In October 2019, the Company acquired the ReadyMed software platform from Collabria LLC. ReadyMed is a web-based secure communications platform initially designed for the healthcare industry. This includes hospitals, clinics, doctor's offices, health insurance companies, workers compensation insurance companies and many other segments of the healthcare industry. The Company offers both the ReadyOp and ReadyMed capabilities to clients and usually refers to the platform as ReadyOp to avoid confusion in the marketplace of two platforms.
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION
The accompanying consolidated financial statements contain the consolidated accounts of Cleartronic, Inc. and its subsidiary, ReadyOp Communications, Inc. All material intercompany transactions and balances have been eliminated.
BASIS OF PRESENTATION
The accompanying unaudited interim consolidated financial statements have been prepared in accordance with United States generally accepted accounting principles for interim financial information and with the instructions to Form 10-Q of Regulation S-K. They may not include all information and footnotes required by United States generally accepted accounting principles for complete financial statements. However, except as disclosed herein, there have been no material changes in the information disclosed in the notes to the financial statements for the year ended September 30, 2021 included in the Company's Annual Report on Form 10-K filed with the United States Securities and Exchange Commission. The unaudited interim consolidated financial statements should be read in conjunction with those financial statements included in the Form 10-K. In the opinion of management, all adjustments considered necessary for a fair presentation, consisting solely of normal and recurring adjustments have been made. Operating results for the three months ended December 31, 2021 are not necessarily indicative of the results that may be expected for the fiscal year ended September 30, 2022.
USE OF ESTIMATES
In preparing the financial statements, management is required to make estimates and assumptions that affect the reported amounts of assets and liabilities as of the date of the balance sheet and operations for the reporting period.
Although these estimates are based on management's knowledge of current events and actions it may undertake in the future, they may ultimately differ from actual results.
Significant estimates include the assumptions used in valuation of deferred tax assets, estimated useful life of property and equipment, valuation of inventory and allowance for doubtful accounts.
CASH AND CASH EQUIVALENTS
For financial statement purposes, the Company considers all highly liquid investments purchased with original maturities of three months or less to be cash equivalents. The Company did not own any cash equivalents on December 31, 2021 and September 30, 2021.
ACCOUNTS RECEIVABLE
The Company provides an allowance for uncollectible accounts based upon a periodic review and analysis of outstanding accounts receivable balances. Uncollectible receivables are charged to the allowance when deemed uncollectible. Recoveries of accounts previously written off are used to credit the allowance account in the periods in which the recoveries are made. When a client is invoiced, the amount is recorded as an asset in Accounts Receivable and as Deferred Revenue in Current Liabilities. When payment is received the amount is moved to Cash on the balance sheet. The amount listed as Deferred Revenue is amortized monthly over the license period.
The Company provided $10,000 and $10,000 allowances for doubtful accounts as of December 31, 2021 and September 30, 2021, respectively.
PROPERTY AND EQUIPMENT
Property and equipment are recorded at cost and depreciated or amortized using the straight-line method over the estimated useful life of the asset or the underlying lease term for leasehold improvements, whichever is shorter onset the property and equipment is put into service.
CONCENTRATION OF CREDIT RISK
The Company currently maintains cash balances at one FDIC-insured banking institution. Deposits held in non interest-bearing transaction accounts are insured up to a maximum of $250,000 at all FDIC-insured institutions. As of December 31, 2021 and September 30, 2021, the Company had $0 and $139,577, respectively, in excess of FDIC insurance limits.
RESEARCH AND DEVELOPMENT COSTS
The Company expenses research and development costs as incurred. For the three months ended December 31, 2021 and 2020, the Company had $49,260 and $30,789, respectively, in research and development costs.
REVENUE RECOGNITION AND DEFERRED REVENUES
The Company revenue recognition policy follows guidance from Accounting Standards Codification (ASC) 606, Revenue from contract with customers. Revenue is recognized when the Company transferred promised goods and services to the customer and in the amount that reflect the consideration to which the company expected to be entitled in exchange for those goods and services.
The Company applies the following five-step model in order to determine this amount:
i.
Identification of Contact with a customer;
ii.
Identify the performance obligation of the contract
iii.
Determine transaction price;
iv.
Allocation of the transaction price to the performance obligations; and
v.
Recognition of revenue when (or as) the Company satisfies each performance obligation.
The Company generates revenue primarily through the sale of integrated hardware and software licenses. The portion of the contract that is associated with ongoing hosting and related customer service is amortized monthly over the license period. The Company incurs certain incremental contract costs (referred to as deferred subscriber acquisition costs, net) including selling expenses (primarily commissions) related to acquiring customers. Deferred subscriber acquisition costs, net are included in prepaid and expenses and other current assets on the consolidated balance sheet. Commissions paid in connection with acquiring new customers are determined based on the value of the contractual fees. Deferred subscriber acquisition costs will be expensed as incurred on the date the revenue associated with the cost is recognized. As of December 31, 2021 and September 30, 2021, respectively, the Company recorded $0 and $41,283, respectively, in deferred subscriber costs, which is included as a component of prepaid expense.
In transactions in which hardware is sold to a customer, the Company recognizes the revenue when the hardware has been shipped to the customer. The hardware supplied by the Company does not require a related software license and can be operated and fully functional without the Company's software.
From time to time clients request special training meetings. We send employees to these meeting and charge our clients on a per diem basis. These charges are recorded as consulting fees on our income statement.
The Company allocates the transaction price to each performance obligation based on a relative standalone selling price. Revenue associated with the sale and installation of system licenses is recognized once installation is complete.
Customer billings for services not yet rendered are deferred and recognized as revenue as services are provided. These fees are recorded as current deferred revenue on the consolidated balance sheet as the Company expects to satisfy any remaining performance obligations as well as recognize the related revenue within the next twelve months. Accordingly, the Company has applied the practical expedient regarding deferred revenue to exclude the value of remaining performance obligations if (i) the contract has an original expected term of one year or less or (ii) the Company recognizes revenue in proportion to the amount it has the right to invoice for services performed.
EARNINGS PER SHARE
Earnings per share (“EPS”) are the amount of earnings attributable to each share of common stock. For convenience, the term is used to refer to either earnings or loss per share. EPS is computed pursuant to section 260-10-45 of the FASB Accounting Standards Codification. Pursuant to ASC Paragraphs 260-10-45-10 through 260-10-45-16, basic EPS shall be computed by dividing income available to common stockholders (the numerator) by the weighted average number of common shares outstanding (the denominator) during the period. Income available to common stockholders shall be computed by deducting both the dividends declared in the period on preferred stock (whether or not paid) and the dividends accumulated for the period on cumulative preferred stock (whether or not earned) from income from continuing operations (if that amount appears in the income statement) and also from net income. The computation of diluted EPS is similar to the computation of basic EPS except that the denominator is increased to include the number of additional common shares that would have been outstanding if the dilutive potential common shares had been issued during the period to reflect the potential dilution that could occur from common shares issuable through contingent shares issuance arrangement, stock options or warrants.
Pursuant to ASC Paragraphs 260-10-45-45-21 through 260-10-45-45-23 Diluted EPS shall be based on the most advantageous conversion rate or exercise price from the standpoint of the security holder. The dilutive effect of outstanding call options and warrants (and their equivalents) issued by the reporting entity shall be reflected in diluted EPS by application of the treasury stock method unless the provisions of paragraphs 260-10-45-35 through 45-36 and 260-10-55-8 through 55-11 require that another method be applied. Equivalents of options and warrants include non-vested stock granted to employees, stock purchase contracts, and partially paid stock subscriptions (see paragraph 260–10–55–23). Anti-dilutive contracts, such as purchased put options and purchased call options, shall be excluded from diluted EPS. Under the treasury stock method: a. Exercise of options and warrants shall be assumed at the beginning of the period (or at time of issuance, if later) and common shares shall be assumed to be issued. b. The proceeds from exercise shall be assumed to be used to purchase common stock at the average market price during the period. (See paragraphs 260-10-45-29 and 260-10-55-4 through 55-5.) c. The incremental shares (the difference between the number of shares assumed issued and the number of shares assumed purchased) shall be included in the denominator of the diluted EPS computation.
As of December 31, 2021 and 2020, we had no options and warrants outstanding.
As of December 31, 2021 and 2020, we had 512,996 shares of Series A Convertible Preferred stock outstanding, which are convertible into 51,299,600 shares of common stock.
As of December 31, 2021 and 2020, we had 3,341,503 and 4,433,375 shares of Series C Convertible Preferred stock outstanding, respectively, which are convertible into 16,707,515 and 22,166,875 shares of common stock, respectively.
As of December 31, 2021 and 2020, we had 670,904 shares of Series D Preferred stock outstanding which are convertible into 3,354,520 shares of common stock.
As of December 31, 2021 and 2020, we had 3,000,000 shares of Series E Convertible Preferred stock outstanding which are convertible into 300,000,000 shares of common stock.
The table below details the computation of basic and diluted earnings per share ("EPS") for the three months ended December 31, 2021 and 2020:
|
|
|
For the Three Months ended
December 31, 2021
|
|
For the Three Months ended
December 31, 2020
|
|
Net income attributable to common stockholders for the period
|
|
$
|
49,903
|
|
$
|
25,078
|
|
|
|
|
|
|
|
|
|
Weighted average number of shares outstanding
|
|
|
228,578,995
|
|
|
223,994,635
|
|
|
|
|
|
|
|
|
|
Basic earnings per share
|
|
$
|
0.00
|
|
$
|
0.00
|
The following table sets for the computation of diluted earnings per share:
|
|
|
For the Three Months ended
December 31, 2021
|
|
For the Three Months ended
December 31, 2020
|
|
Net income attributable to common stockholders for the period
|
|
$
|
49,903
|
|
$
|
25,078
|
|
Add: Preferred stock dividends
|
|
|
10,344
|
|
|
10,346
|
|
|
|
|
|
|
|
|
|
Adjusted net income
|
|
$
|
60,247
|
|
$
|
35,424
|
|
|
|
|
|
|
|
|
|
Weighted average number of shares outstanding
|
|
|
228,578,995
|
|
|
223,994,635
|
|
Add: Shares issued upon conversion of preferred stock
|
|
|
371,361,635
|
|
|
376,820,995
|
|
Weighted average number of common and common equivalent shares
|
|
|
599,940,630
|
|
|
600,815,630
|
|
|
|
|
|
|
|
|
|
Diluted earnings per share
|
|
$
|
0.00
|
|
$
|
0.00
|
FAIR VALUE OF FINANCIAL INSTRUMENTS
The Company measures the fair value of its assets and liabilities under ASC topic 820, "Fair Value Measurements and Disclosures". ASC 820 defines "fair value" as the price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. There was no impact relating to the adoption of ASC 820 to the Company's consolidated financial statements.
ASC 820 also describes three levels of inputs that may be used to measure fair value:
- Level 1: Observable inputs that reflect unadjusted quoted prices for identical assets or liabilities traded in active markets.
- Level 2: Inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly.
- Level 3: Inputs that are generally observable. These inputs may be used with internally developed methodologies that result in management’s best estimate of fair value.
Financial instruments consist principally of cash, accounts receivable, prepaid expenses and other current assets, accounts payable, accrued expenses and deferred revenue. The carrying amounts of such financial instruments in the accompanying consolidated balance sheet approximate their fair values due to their relatively short-term nature. The fair value of long-term debt is based on current rates at which the Company could borrow funds with similar remaining maturities. The carrying amounts approximate fair value. It is management's opinion that the Company is not exposed to any significant currency or credit risks arising from these financial instruments.
INVENTORY
Inventory consists of components held for assembly and finished goods held for resale or to be utilized for installation in projects. Inventory is valued at lower of cost or net realizable value on a first-in, first-out basis. The Company's policy is to record a reserve for technological obsolescence or slow-moving inventory items. The Company only carries finished goods to be shipped along with completed circuit boards and parts necessary for final assembly of finished product. All existing inventory is considered current and usable. The Company recorded no reserve for obsolete inventory as of December 31, 2021 and September 30, 2021, respectively.
ADVERTISING COSTS
Advertising costs are expensed as incurred. The Company had advertising costs of $5,025 and $3,532 during the three months ended December 31, 2021 and 2020, respectively.
RECENT ACCOUNTING PRONOUNCEMENTS
All newly issued accounting pronouncements but not yet effective have been deemed either immaterial or not applicable.
NOTE 3 - PROPERTY AND EQUIPMENT
At December 31, 2021 and September 30, 2021, property and equipment, net, is as follows:
|
|
|
December 31, 2021
|
|
September 30, 2021
|
|
Office Equipment
|
|
$
|
19,180
|
|
$
|
14,122
|
|
Less: Accumulated Depreciation
|
|
|
(3,545)
|
|
|
(2,731)
|
|
Total Property and Equipment, net
|
|
$
|
15,635
|
|
$
|
11,391
|
Depreciation expense for the three months ended December 31, 2021 and 2020, was $814 and $451, respectively.
NOTE 4 - EQUITY TRANSACTIONS
Preferred Stock Dividends
As of December 31, 2021 and September 30, 2021, the cumulative arrearage of undeclared dividends for Series A Preferred stock totaled $134,342 and $123,998, respectively.
NOTE 5 - RELATED PARTY TRANSACTIONS
Through December 1, 2021, the Company leased its office space from VoiceInterop the Company's former wholly owned subsidiary and now 96% owned by our shareholders for approximately $1,400 per month. On February 14, 2020, VoiceInterop was deconsolidated and is no longer our subsidiary. Rent expense incurred during the three months ended December 31, 2021 and 2020 was $5,886 and $4,473, respectively (See Note 6).
As of December 31, 2021, the Company advanced $51,187 to VoiceInterop, the Company's former wholly owned subsidiary and now 96% owned by our shareholders. The amount is included in due from related party on the consolidated balance sheet. The amount is due on demand and bears interest at 5% effective June 30, 2021.
NOTE 6 - COMMITMENTS AND CONTINGENCIES
Obligation Under Operating Lease
Through December 1, 2021, the Company leases approximately 1,700 square feet for its principal offices in Boca Raton, Florida at a monthly rental of approximately $3,500, which expired in November 2018. VoiceInterop executed a new 3-year lease with its current landlord on December 1, 2018 for the same office space. The lease provided one month free as a concession. The monthly rent is $3,630 and provides for annual increases of base rent of 4% until the expiration date. The lease expires on November 30, 2021. Upon the deconsolidation, the Company subleases the office space from VoiceInterop at approximately $1,400 per month.
On December 1, 2021, the Company signed a one year lease approximately 2,000 square feet for our principal offices in Boca Raton, Florida. The monthly rent is $2,200. The lease expires on November 30, 2022.
Rent expense incurred during the three months ended December 31, 2021 and 2020 was $5,886 and $4,473, respectively.
Revenue and Accounts Receivable Concentration
For the three months ended December 31, 2021, one customer accounted for 14% of the Company's revenues .
For the three months ended December 31, 2020, one customer accounted for 11% of the Company's revenues.
As of December 31, 2021, no customer accounted for more than 10% of the Company's total outstanding accounts receivable.
As of September 30, 2021, no customer accounted for more than 10% of the Company's total outstanding accounts receivable.
Major Supplier and Sole Manufacturing Source
During 2014, the Company developed a proprietary interoperable communications solution. The Company relies on no major supplier for its products and services. The Company has contracted with a single local manufacturing facility to provide completed circuit boards used in the assembly of its IP gateway devices. Interruption to the manufacturing source presents additional risk to the Company. The Company believes that other commercial facilities exist at competitive rates to match the resources and capabilities of its existing manufacturing source.
Employment Agreements
In December 2016, the Board of Directors accepted the resignation of Larry M. Reid as Chief Executive Officer of the corporation and appointed Mr. Reid as Chief Financial Officer. The Board also appointed Michael M. Moore as Chief Executive Officer.
Under the terms of an employment agreement effective on November 28, 2016, Mr. Moore as CEO receives an annual salary of $200,000. The term of agreement is for a one-year period beginning on the effective date and shall automatically renew and continue in effect for additional one-year periods.
Under the terms of an employment agreement effective on March 13, 2015, Mr. Reid as CFO receives an annual salary of $96,000. The term of agreement is for a one-year period beginning on the effective date and shall automatically renew and continue in effect for additional one-year periods. Effective October 1, 2021, the annual compensation increased to $104,000.
Exclusive Licensing Agreement
On May 5, 2017, the Company entered into an Exclusive Licensing Agreement with Sublicensing Terms (the "Agreement") with the University of Southern Florida Research Foundation, Inc. ("USFRF") relating to an exclusive license of certain patent rights in connection with one of USFRF's U.S. Patent Applications. Both parties recognize that the research and development work provided by the Company was sufficient for USFRF to enter into the Agreement with the Company.
The Agreement is effective April 25, 2017 and continues until the later of the date that no Licensed Patent remains a pending application or an enforceable patent or the date on which the Licensee's obligation to pay royalties expires.
The Company paid USFRF a License Issue Fee of $6,000 and $953 as reimbursement of expenses associated with the filing of the Licensed Patent. The company agreed to pay USFRF a royalty of 3% for sales of all Licensed Products and Licensed Processes and agreed to pay USFRF minimum royalty payments as follows:
|
|
Payment
|
Year
|
|
|
|
$ 1,000
|
2019
|
|
|
|
$ 4,000
|
2020
|
|
|
|
$ 8,000
|
2021
|
|
-and every year thereafter on the same date, for the life of the agreement.
In the event the Company proposes to sell any Equity Securities, then USFRF will have the right to purchase 5% of the securities issued in such offering on the same terms and conditions are offered to other purchasers in such financing. As of December 31, 2021 and 2020, the Company has recorded $2,000 and $2,953 for the minimum royalty for the fiscal year ended 2022 and 2021.
