Cleartronic, Inc. - Quarter Report: 2016 June (Form 10-Q)

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

_____________

FORM 10-Q

Commission File Number: 000-55329

Cleartronic, Inc.

(Exact name of registrant as specified in its charter)

                    Florida                                                    65-0958798

(State or other jurisdiction of incorporation or organization) (I.R.S. Employer Identification No.)

8000 North Federal Highway, Boca Raton, Florida                                       33487              

(Address of principal executive offices)                                                  (Zip Code)

561-939-3300

(Registrant’s telephone number, including area code)

(Former name, former address and former fiscal year, if changed since last report)

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 past 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      

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 (§232.405 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 X   No __

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Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company.

Large accelerated filer ____

Accelerated filer ____

Non-accelerated filer ____

 Smaller reporting company X

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ___   No X

APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY

PROCEEDINGS DURING THE PRECEDING FIVE YEARS:

Indicate by check mark whether the registrant has filed all documents and reports required to be filed by Sections

12, 13 or 15(d) of the Securities Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by a court. Yes ___ No ___

APPLICABLE ONLY TO CORPORATE ISSUERS:

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date:  200,570,447 shares as of August 15, 2016.

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PART I - FINANCIAL INFORMATION

Item 1. Financial Statements

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

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

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

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CLEARTRONIC, INC. AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements

June 30, 2016

NOTE 1   -ORGANIZATION

Cleartronic, Inc.  (the “Company”) was incorporated in Florida on November 15, 1999.

The Company, through one of its wholly owned subsidiaries VoiceInterop, Inc., designs, builds and installs unified group communication solutions, including unique hardware and customized software, for public and private enterprises and markets those services and products under the VoiceInterop brand name.

In March 2015, the Company amended its Licensing Agreement with Collabria LLC of Tampa, Florida (”Collabria”).  The Agreement grants the Company master distribution rights to market, sell and support Collabria’s command and control software, trade-named ReadyOp. ReadyOp software is designed for fast, efficient access to information and for communication with multiple persons, groups and agencies. This agreement will remain in effect for an initial term of five years unless either the Company or Collabria sooner terminates the agreement. Upon expiration of the agreement, the Company’s only obligation to Collabria shall be the payment of all outstanding obligations to Collabria. In September 2014, the Company formed ReadyOp Communications, Inc. (a Florida corporation), as a wholly owned subsidiary to facilitate the marketing of ReadyOp software. According to the terms of the agreement ReadyOp Communications will pay Collabria a royalty for all ReadyOp software sold, sales commissions for sales of ReadyOp software and a network/communication expense charge. The Company’s two operating subsidiaries are Voiceinterop, Inc. and ReadyOp Communications, Inc.

NOTE 2   -SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

PRINCIPLES OF CONSOLIDATION

The accompanying unaudited interim consolidated financial statements contain the consolidated accounts of Cleartronic, Inc., ReadyOp Communications, Inc. and VoiceInterop, 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, 2015 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 nine months ended June 30, 2016 are not necessarily indicative of the results that may be expected for the fiscal year ending September 30, 2016.

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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.

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.

The Company has an Accounts Receivable Purchase and Security Agreement with Bridgeport Capital Resources of Birmingham, AL. Under the terms of the agreement the Company sells certain acceptable accounts receivable to Bridgeport Capital at a discount to the receivable face value. Discounts can range between 2.25 and 6.25 percent depending on the length of time the receivable remains outstanding. At June 30, 2016 the Company had two invoices in the amount of $31,000 assigned to the factor.

CONCENTRATION OF CREDIT RISK

The Company currently maintains cash balances at one FDIC-insured banking institution. Deposits held in noninterest-bearing transaction accounts are insured up to a maximum of $250,000 at all FDIC-insured institutions.

RESEARCH AND DEVELOPMENT COSTS

The Company expenses research and development costs as incurred.  For the nine months ending June 30, 2016 and 2015, the Company had $8,636 and $3,027, respectively, in research and development costs from continuing operations.

REVENUE RECOGNITION AND DEFERRED REVENUES

Unified group communication solutions consist of three elements to be provided to customers: software licenses and equipment purchased from third-party vendors, proprietary hardware that is manufactured on contract to required specifications and installation and integration of the hardware and software into a cohesive communication source.

The Company's revenue recognition policies are in accordance with Accounting Standards Codification 605-10 “Revenue Recognition” (ASC 605-10). Revenue is recognized when persuasive evidence of an arrangement exists, delivery has occurred or services have been rendered, the contract price is fixed or determinable, and collectability is reasonably assured. No right of return privileges are granted to customers after shipment. The Company recognizes revenue for the elements separately as the sales of the equipment and software, installation and integration, and support services represent separate earnings processes that are generally specified under separate agreements.

Revenue from the resale of equipment utilized in unified group communication solutions is recognized when shipped. For software licenses, the Company does not provide any services that are considered essential to the functionality of the software, and therefore revenue is recognized upon delivery of the software, provided (1) there is evidence of an arrangement, (2) collection of the fee is considered probable and (3) the fee is fixed and determinable.

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The Company also provides support to customers under separate contracts varying from one to five years. The Company’s obligations under its service contracts vary by the length of the contract. In all cases the Company is the primary obligor to provide first level support to the client. If the contract has less than one year of service and support remaining on the contract it is classified as a current liability, if longer it is classified as a non-current liability.

EARNINGS PER SHARE

Basic income (loss) per common share is calculated using the weighted average number of shares outstanding during the periods reported. Diluted earnings per share include the weighted average effect of all dilutive securities outstanding during the periods presented. Diluted per share loss is the same as basic per share loss when there is a loss from continuing operations. Accordingly, for purposes of dilutive earnings per share, the Company excluded the effect of warrants and options.  

As of June 30, 2016 and 2015, we had outstanding options and warrants exercisable for an aggregate of 0 and 167 shares of common stock, respectively.  As of June 30, 2016 and 2015, we had 40,750 and 40,750 shares of Series A Convertible Preferred stock outstanding convertible into 4,075,000 and 4,075,000, common shares, respectively.  As of June 30, 2016 and 2015, we had 2,563,375 and 2,570,655 shares of Series C Convertible Preferred stock outstanding which are convertible into 12,816,875 and 12,853,275 shares of common stock, respectively. As of June 30, 2016 and 2015, we had 670,904 and 670,094 shares of Series D Convertible Preferred stock outstanding convertible into 3,354,520 and 3,354,520 common shares, respectively. As of June 30, 2016 and 2015 there was one convertible note outstanding in the amount of $12,625 and $43,000 respectively. The convertible note is convertible into shares of common stock at a discount to the current market price of the stock.

FAIR VALUE OF FINANCIAL INSTRUMENTS

The Company adopted ASC topic 820, “Fair Value Measurements and Disclosures” (ASC 820), formerly SFAS No. 157 “Fair Value Measurements,” effective January 1, 2009. 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.

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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 condensed 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.

The Company revalues its derivative liability at every reporting period and recognizes gains or losses in the interim condensed consolidated statement of operations that are attributable to the change in the fair value of the derivative liability.  The Company has no other assets or liabilities measured at fair value on a recurring basis.

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 market on a first-in, first-out basis. The Company’s policy is to record a reserve for technological obsolescence or slow-moving inventory items. For the six months ending June 30, 2016 and 2015, the Company had no reserve for technological obsolescence or slow-moving inventory items.  

EQUITY INSTRUMENTS ISSUED TO PARTIES OTHER THAN EMPLOYEES  FOR ACQUIRING GOODS OR SERVICES

The Company accounts for equity instruments issued to parties other than employees for acquiring goods or services under guidance of section 505-50-30 of  the FASB ASC.  Pursuant to FASB ASC Section 505-50-30, all transactions in  which goods or services are the consideration received for the issuance of equity instruments are accounted for based on the fair value of the consideration received or the fair value of the equity instrument issued, whichever is more reliably measurable.  The measurement date used to determine the fair value of the equity instrument issued is the earlier of the date on which the performance is complete or the date on which it is probable that performance will occur.  

The Company evaluates its convertible debt, warrants or other contracts to determine if those contracts or embedded components of those contracts qualify as derivatives to be separately accounted for in accordance with paragraph 810-10-05-4 of the FASB Accounting Standards Codification and paragraph 815-40-25 of the FASB Accounting Standards Codification. The result of this accounting treatment is that the fair value of the embedded derivative is marked-to-market each balance sheet date and recorded as a liability. In the event that the fair value is recorded as a liability, the change in fair value is recorded in the Statement of Operations as other income or expense. Upon conversion or exercise of a derivative instrument, the instrument is marked to fair value at the conversion date and then that fair value is reclassified to equity.

In circumstances where the embedded conversion option in a convertible instrument is required to be bifurcated and there are also other embedded derivative instruments in the convertible instrument that are required to be bifurcated, the bifurcated derivative instruments are accounted for as a single, compound derivative instrument.

The classification of derivative instruments, including whether such instruments should be recorded as liabilities or as equity, is re-assessed at the end of each reporting period. Equity instruments that are initially classified as equity that become subject to reclassification are reclassified to liability at the fair value of the instrument on the reclassification date. Derivative instrument liabilities will be classified in the balance sheet as current or non-current based on whether or not net-cash settlement of the derivative instrument is expected within 12 months of the balance sheet date.

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ADVERTISING COSTS

Advertising costs are expensed as incurred. The Company had advertising costs of $200during the three months ended June 30, 2016, and $2,222 during the three months ended June 30, 2015. For the nine months ending June 30, 2016 and 2015, the Company had $2,578 and $4,916 in advertising costs, respectively.

NOTE 3   -GOING CONCERN

The Company's financial statements are prepared using accounting principles generally accepted in the United States of America applicable to a going concern which contemplates the realization of assets and liquidation of liabilities in the normal course of business. The Company has not yet established an ongoing source of revenues sufficient to cover its operating costs and allow it to continue as a going concern.  The ability of the Company to continue as a going concern is dependent on the Company obtaining adequate capital to fund operating losses until it becomes profitable.  If the Company is unable to obtain adequate capital, it could be forced to cease operations.

In order to continue as a going concern, the Company will need, among other things, additional capital resources.  Management is currently seeking funding from significant shareholders and outside funding sources sufficient to meet its minimal operating expenses.   However, management cannot provide any assurances that the Company will be successful in accomplishing any of its plans.

The ability of the Company to continue as a going concern is dependent upon its ability to successfully accomplish the plans described in the preceding paragraph and eventually secure other sources of financing and attain profitable operations. The accompanying financial statements do not include any adjustments that might be necessary if the Company is unable to continue as a going concern.

NOTE 4   - NOTES PAYABLE TO STOCKHOLDERS

In November 2015, the Company entered into a promissory note for $50,000 with a stockholder and director of the Company. The note bears an 8% interest rate, is unsecured and is due on December 31, 2016. In June 2016, the stockholder converted $10,000 of the note into 500,000 shares of common stock. The market value of the shares on the date of conversion was greater than the conversion price resulting in loss on conversion of $5,000.

Interest expense on the notes payable to stockholders was $3,699 and $2,454 for the three months ended June 30, 2016 and 2015, respectively. Interest expense on the notes payable to stockholders was $10,535 and $12,980 for the nine months ended June 30, 2016 and 2015, respectively.

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NOTE 5 -    CONVERTIBLE PROMISSORY NOTE

In December 2015, the Company entered into a Convertible Promissory Note with a private investor in the principal sum of $150,000. The note matures on December 6, 2017 and carries a 10% Original Issue Discount and incurs a one-time 12% interest charge on March 6, 2016. The principal sum due to the investor shall be based on the consideration actually paid by the investor plus a 10% original issue discount on the consideration paid as well as any other interest or fees. The Company is only required to repay the amount funded and is not required to repay any unfunded portion of the note. The initial consideration paid by the investor was $25,000. The note is convertible into shares of the Company’s common stock at the greater of; (i) the variable conversion price (55% multiplied by the market price) that is equal to the average of the lowest trading  price of the Common Stock during the twenty five (25) trading days prior to the date of conversion or (ii) the fixed conversion price of $.00005 (iii) the investor has the right, at any time after 180 days after principal consideration has been paid to convert all or part of the outstanding principal along with interest and any fees into the Company’s common stock. The Company may repay the note at any time on or before 90 days from the effective date, after which the Company may not make further payments on the Note prior to the maturity date without written approval from the investor.

Beneficial Conversion Feature

In connection with the convertible note entered into in December 2015, the Company determined that a beneficial conversion feature existed on the date the note was issued. The beneficial conversion feature related to this note was valued as the difference between the effective conversion price (computed by dividing the relative fair value allocated to the convertible note by the number of shares the note is convertible into) and the fair value of the common stock multiplied by the number of shares into which the note may be converted.

In accordance with ASC 470 “Debt with Conversion and other Options”, the intrinsic value of the beneficial conversion features were recorded as a debt discount with a corresponding amount to additional paid in capital. The debt discount is amortized to interest expense over the life of the instrument. The Company recorded beneficial conversion features related to the December convertible note financing of approximately $20,455. Amortization of the discount from the beneficial conversion feature included in interest expense was $5,827 for the nine months ended June 30, 2016. In addition, the note specifies an Original Issue Discount of 10% of the principal due upon any repayment. Accordingly, the Company recognized interest expense and a related premium in the amount of $2,500 for the nine months ended June 30, 2016.

In June 2016 a convertible noteholder converted $4,125 and $8,250 in principal of a $25,000 note into 500,000 and 1,000,000 shares of common stock. In connection with the conversion the Company amortized $8,967 of the discount to interest expense. As of June 30, 2016, the principal balance of the note was  $12,625 and the discount balance was $6,376.

On November 23, 2015, a convertible note holder converted $10,000 in principal of a $43,000 note into 847,458 shares of common stock. On November 27, 2015, the Company repaid the remaining balance of the convertible note along with accrued interest and penalties for a total amount of $47,975. The remaining discount on the convertible note payable was recognized as interest totaling $13,779.

The Company had one convertible promissory note outstanding in the amount of $43,000 as of June 30, 2015.

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NOTE 6 -EQUITY

Common stock issued for conversion of notes payable

In May 2016, the Company cancelled 16,500 shares of common stock at $.06 per share for a total of $990.

In June 2016, a shareholder and director converted $10,000 of a $50,000 promissory note into 500,000 shares of common stock. The stock price on the date of conversion was $.03 per share which resulted in a loss on conversion of $5,000.

Common stock issued for conversion of preferred stock

In December 2015, two shareholders converted 7,280 shares of Series C Convertible Preferred stock into 36,400 shares of common stock.

Common stock issued for cash

In December 2015, a shareholder purchased 250,000 shares of common stock for $5,000 in cash.

NOTE 7 -RELATED PARTY TRANSACTIONS

The Company leases its office space from another entity that is also a stockholder. Rent expense paid to the related party was $10,669 and $10,696 for the three months ended June 30, 2016 and 2015, respectively and $31,758 and $39,185 for the nine months ended June 30, 2016 and 2015, respectively.

NOTE 8 -    SUBSEQUENT EVENTS

Management has evaluated subsequent events for the period from June 30, 2016 the date of these condensed consolidated financial statements, through the date of the filing of August 15, 2016 and there have been no material subsequent events during that period.

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

FORWARD-LOOKING STATEMENTS

The information set forth in this Management’s Discussion and Analysis contains certain “forward-looking statements,” including, among others (i) expected changes in our revenues and profitability, (ii) prospective business opportunities, and (iii) our strategy for financing our business. Forward-looking statements are statements other than historical information or statements of current condition. Some forward-looking statements may be identified by use of terms such as “believes,” “anticipates,” “intends,” or “expects.” These forward-looking statements relate to our plans, objectives, and expectations for future operations. Although we believe that our expectations with respect to the forward-looking statements are based upon reasonable assumptions within the bounds of our knowledge of our business and operations, in light of the risks and uncertainties inherent in all future projections, the inclusion of forward-looking statements in this prospectus should not be regarded as a representation that our objectives or plans will be achieved. In light of the risks and uncertainties, there can be no assurance that actual results, performance, or achievements will not differ materially from any future results, performance, or achievements expressed or implied by such forward-looking statements. The foregoing review of important factors should not be construed as exhaustive. We undertake no obligation to release publicly the results of any future revisions we may make to forward-looking statements to reflect events or circumstances after the date of this prospectus or to reflect the occurrence of unanticipated events.

Overview

Cleartronic, Inc. (the “Company,” formerly GlobalTel IP, Inc.) was incorporated in Florida on November 15, 1999. The Company operates through two wholly owned subsidiaries, VoiceInterop, Inc. and ReadyOp Communications, Inc.

VoiceInterop, Inc., designs, builds sells and installs unified group communication solutions for public and private enterprises. VoiceInterop also manufactures and markets a line of IP Gateways under the trade name AudioMate AM360. These gateways are sold direct to enterprises by the Company and indirectly through authorized dealers in North America and a number of foreign countries.

ReadyOp Communications, Inc. is a new subsidiary formed in September 2014, to market, sell and support ReadyOp software through a Software License Agreement with Collabria LLC of Tampa, Florida. The agreement was amended in March 2015 and grants the Company master distribution rights to use, market, sell, license and support Collabria’s emergency notification command and control software, trade-named ReadyOp™.  ReadyOp™ software is designed for fast, efficient access to information and for communication with multiple persons, groups and agencies.

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FOR THE THREE MONTHS ENDED JUNE 30, 2016 COMPARED TO THE THREE MONTHS ENDED JUNE 30, 2015

Revenues

Revenues increased approximately 62% to $173,931 for the three months ended June 30, 2016 as compared to $106,184 for the three months ended June 30, 2015.  The primary reason for this increase was the $130,075 in sales generated by ReadyOp software and ReadyOp hardware in the three months ended June 30, 2016 as compared to $62,000 sales in the three months ended June 30, 2015. VoiceInterop revenue declined approximately 9% to $40,381 for the three months ended June 30, 2016 as compared to $44,184 for the three months ended June 30, 2015, primarily because VoiceInterop hardware revenue declined approximately 25% from $29,901 to $22,154 for the three month periods ended June 30, 2015 and 2016, respectively. Revenue from VoiceInterop Maintenance Agreements increased to approximately $17,840 from approximately $14,024 for the three month periods ended June 30, 2016 and 2015, respectively.

Cost of Revenues

Cost of revenues was $44,483 for the three months ended June 30, 2016 as compared to $38,252 for the three months ended June 30, 2015. The increase was primarily due to increased network and communication costs associated with ReadyOp software. Gross profits were $129,448 and $67,932 for the three months ended June 30, 2016 and 2015, respectively. The primary reason for the improvement in gross profit margin is the lower costs associated with the sale of ReadyOp software and also the lower costs associated with VoiceInterop’s continuing maintenance agreements.

Operating Expenses

Operating expenses decreased approximately 13% to approximately $164,107 for the three months ended June 30, 2016 compared to $185,065 for the three months ended June 30, 2015.  For the three months ended June 30, 2016, selling expenses increased approximately 485% to $57,384 from $9,795 for the three months ended June 30, 2015 because of increased commissions and royalties paid on ReadyOp software sales. General and administrative expenses decreased by $15,130 or approximately 28% primarily caused by a decrease in professional fees associated with marketing, investor relations, and legal services. Research and development expenses were $8,636 for the three months ended June 30, 2016 as compared to $0 for the three months ended June 30, 2015, due to capital invested in product development. Amortization expenses decreased by approximately 65% to $35,167 from $100,000, in the three month periods ended June 30, 2016 and 2015, respectively. The decrease was due to the Company recognizing an impairment of the license agreement with Collabria LLC. The valuation of the agreement was reduced from $2,000,000 to $635,000.

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Loss from Operations

The Company’s loss from operations decreased to $34,660 during the three months ended June 30, 2016 as compared to $117,133 for the three months ended June 30, 2015. The primary reasons for the decrease was a decrease in amortization cost of $64,833, a decrease in administrative expense of $12,350, and an increase in gross profit of $61,516.

Net Loss

Other losses included in the net loss were losses on debt conversion, interest and dividend expenses . Net Loss per common share decreased to $0.00032 from $0.00080 for the three months ended June 30, 2016 and 2015, respectively.

FOR THE NINE MONTHS ENDED JUNE 30, 2016 COMPARED TO THE NINE MONTHS ENDED JUNE 30, 2015

Revenues

Revenues from operations were $453,323 for the nine months ended June 30, 2016 as compared to $209,606 for the nine months ended June 30, 2015. The increase was primarily due to sales of ReadyOp software and hardware generated by our operating subsidiary ReadyOp Communications, Inc.

Cost of Revenues

Cost of revenues was $150,530 for the nine months ended June 30, 2016, as compared to $88,447 for the nine months ended June 30, 2015.  This increase was due primarily to higher costs for network and communication expenses associated with ReadyOp software installations. Gross profits were $302,793 and $121,159 for the nine months ended June 30, 2016 and 2015, respectively. The increase in gross profits was primarily due to the higher gross margins generated by sales of ReadyOp software and hardware.

Operating Expenses

Operating expenses increased by $69,373 for the nine months ended June 30, 2016 to $431,601 compared to $362,228 for the nine months ended June 30, 2015. Selling expenses increased to $102,806 for the nine months ended June 30, 2016 compared with $31,184 for the nine months ended June 30, 2015. This increase was primarily due to higher rates of commissions and royalties paid on ReadyOp software. Administrative expenses decreased to $214,658 from $228,017 for the nine months ended June 30, 2016 and 2015, respectively. Research and development expense increased to $8,636 from $3,027 for the nine month ended June 30, 2016 and 2015, respectively. Amortization expense increased slightly to $105,501 from $100,000 for the nine months ended June, 30 2016 and 2015, respectively.

Loss from Operations

The Company’s loss decreased to $128,808 during the nine months ended June 30, 2016 as compared to a loss of $241,069 for the nine months ended June 30, 2015. The primary reason for this decrease was the increase in gross profits from $121,159 to $302,793 for the nine months ended June 30, 2015 and 2016, respectively.

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Net Loss

Net loss per common share increased to $0.00104 from $0.00058 for the nine months ended June 30, 2016 and 2015, respectively. The increased loss was primarily due substantially to the weighted average number of shares outstanding in nine month period ending June 30, 2015. The weighted average number of shares outstanding was 197,672,417 for the nine month period ended June 30, 2016 compared with 1,394,504,828 for the nine month period ended June 30, 2015.

LIQUIDITY AND CAPITAL RESOURCES

Net cash used in operating activities was $45,440 for the nine months ended June 30, 2016 compared to $157,307 for the nine months ended June 30, 2015. This decrease was mainly attributable to a lower net loss and collection of accounts receivable.

Net cash provided by financing activities was $43,300 for the nine months ended June 30, 2016 compared to $158,990 for the nine months ended June 30, 2015. The decrease was primarily due to less proceeds received from the issuance of stock and repayment of notes payable offset by the proceeds from convertible notes payable and notes payable to stockholders.  

Our obligations are being met on a month-to-month basis as cash becomes available. We have made a concentrated effort to restructure the company through the issuance of Preferred stock in exchange for cancellation of debt, issuance of stock in lieu of cash paid for services and exchanging preferred stock for common stock. We believe that this restructure will put the Company in a better position to secure an acquisition or consummate a merger with a private company. There can be no assurance that the Company’s efforts in this restructure will be successful or that present flow of cash will be sufficient to meet current and future obligations.

We have incurred losses since our inception and continue to require additional capital to fund operations and development. As such, our ability to pay our already incurred obligations is mostly dependent on the Company being able to have substantially increased revenues and raising substantial additional capital through the sale of its equity or debt securities. There can be no assurance that the Company will be successful in accomplishing any of the foregoing.

We believe that in order to fund our business plan, we will need approximately $1 million in new equity or debt capital. In the past, in addition to revenues and deferred revenues, we have obtained funds from the private sale of our debt and equity securities. We intend to continue to seek private financing from existing stockholders and others.

The costs to operate our current business are approximately $30,000 per month. In order for us to cover our monthly operating expenses, we would have to generate revenues of approximately $100,000 per month. Accordingly, in the absence of revenues, we will need to secure $30,000 in equity or debt capital each month to cover our overhead expenses. In order to remain in business for one year without any revenues we would need to secure $360,000 in equity or debt capital. If we are unsuccessful in securing sufficient capital or revenues, we would have to cease business in approximately 90 days.

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FORWARD-LOOKING STATEMENTS

The information set forth in this Management’s Discussion and Analysis contains certain “forward-looking statements,” including, among others (i) expected changes in the Company’s revenues and profitability, (ii) prospective business opportunities and (iii) its strategy for financing its business. Forward-looking statements are statements other than historical information or statements of current condition. Some forward-looking statements may be identified by use of terms such as “believes,” “anticipates,” “intends” or “expects.” These forward-looking statements relate to the Company’s plans, objectives and expectations for future operations. Although the Company believes that its expectations with respect to the forward-looking statements are based upon reasonable assumptions within the bounds of its knowledge of its business and operations, in light of the risks and uncertainties inherent in all future projections, the inclusion of forward-looking statements in this prospectus should not be regarded as a representation that the Company’s objectives or plans will be achieved. In light of the risks and uncertainties, there can be no assurance that actual results, performance or achievements will not differ materially from any future results, performance or achievements expressed or implied by such forward-looking statements. The foregoing review of important factors should not be construed as exhaustive. The Company undertakes no obligation to release publicly the results of any future revisions it may make to forward-looking statements to reflect events or circumstances after the date of this prospectus or to reflect the occurrence of unanticipated events.

Item 3. Quantitative and Qualitative Disclosures About Market Risk.

Not applicable.

Item 4. Controls and Procedures.

An evaluation was conducted by the registrant’s Chief Executive Officer (CEO) and Principal Financial Officer (“PFO”) of the effectiveness of the design and operation of the registrant’s disclosure controls and procedures as of June 30, 2016. Based on that evaluation, the CEO and PFO concluded that the registrant’s controls and procedures were effective as of such date to ensure that information required to be disclosed in the reports that the registrant files or submits under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported within the time periods specified in Securities and Exchange Commission rules and forms. If the registrant develops new business or engages or hires a Chief Financial Officer or similar financial expert, the registrant intends to review its disclosure controls and procedures.

Management is aware that there is a lack of segregation of duties due to the small number of employees dealing with general administrative and financial matters. However, at this time management has decided that considering the abilities of the employees now involved and the control procedures in place, the risk associated with such lack of segregation is low and the potential benefits of adding employees to clearly segregate duties do not justify the substantial expenses associated with such increases. Management may reevaluate this situation as circumstances dictate.

The was no change in the registrant's internal control over financial reporting identified in connection with the evaluation required by paragraph (d) of Rule 13a–15 or Rule 15d–15 under the Securities Exchange Act of 1934 that occurred during the registrant's last fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting.

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Item 4T. Controls and Procedures.

Reference is made to the response to Item 4 above.

PART II - OTHER INFORMATION

Item 2.  Unregistered Sales of Equity Securities and Use of Proceeds.

In December 2015, a shareholder purchased 250,000 shares of common stock for $5,000 cash.

In June 2016, a shareholder and director converted $10,000 of a promissory note into 500,000 shares of common stock.

There were no principal underwriters utilized in the sale or issuance of the aforementioned stock.

The registrant claimed exemption from the registration provisions of the Securities Act of 1933 with respect to the securities pursuant to Section 4(2) thereof inasmuch as no public offering was involved. The shares were not offered or sold by means of: (i) any advertisement, article, notice or other communication published in any newspaper, magazine or similar medium, or broadcast over television or radio, (ii) any seminar or meeting whose attendees have been invited by any general solicitation or general advertising, or (iii) any other form of general solicitation or advertising and the purchases were made for investment and not with a view to distribution. Each of the purchasers was, at the time of the purchaser’s respective purchase, an accredited investor, as that term is defined in Regulation D under the Securities Act of 1933, and had access to sufficient information concerning the registrant and the offering.

Item 6.  Exhibits.

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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.

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