Cleartronic, Inc. - Quarter Report: 2018 March (Form 10-Q)

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

_____________

FORM10-Q

Commission File Number: 000-55329

Cleartronic, Inc.

(Exact name of registrant as specified in it’s 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)

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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 __

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

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 12(a) of the Exchange Act [  ]

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:   203,899,190 shares as of May 21, 2018.

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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

March 31, 2018

(unaudited)

NOTE 1   -ORGANIZATION

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

The Company, through its wholly owned subsidiary 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. VoiceInterop is one of the Company’s operating subsidiaries.

In September 2014, the Company formed ReadyOp Communications, Inc. (a Florida corporation), as a wholly owned subsidiary to facilitate the marketing of ReadyOp software. The Company’s two operating subsidiaries are VoiceInterop, Inc. and ReadyOp Communications, Inc.

In November 2016, the Company cancelled its Licensing Agreement with Collabria LLC of Tampa, Florida (”Collabria”) and acquired all of the intellectual property related to Collabria’s command and control software, trade-named ReadyOp. In addition the Company acquired Collabria’s client list. In exchange for these assets the Company issued Collabria 3,000,000 restricted shares of the Company’s Series E Convertible Preferred stock. The Company assumed none of Collabria’s liabilities.

NOTE 2   - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

PRINCIPLES OF CONSOLIDATION

The accompanying unaudited interim consolidated financial statements contain the consolidated accounts of Cleartronic, Inc. and its subsidiaries, VoiceInterop, Inc. and 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, 2017 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 six months ended March 31, 2018 are not necessarily indicative of the results that may be expected for the fiscal year ending September 30, 2018.

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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.

Significant estimates include the assumptions used in valuation of deferred tax assets, estimated useful life of intangible assets, 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 ownany cash equivalents at March 31, 2018 and September 30, 2017.

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 provided $10,000 and $2,000 allowances for doubtful accounts as of March 31, 2018 and September 30, 2017, respectively.

ASSET ACQUISITION

In November 2016, the Company acquired the ReadyOp software platform and the Collabria customer base from Collabria LLC. In exchange for these assets the Company issued 3,000,000 shares of restricted Series E Convertible Preferred stock valued at $292,240.  This valuation was based on internal calculations and validated by a third party valuation expert. The ReadyOp software platform was valued at $195,600 to be amortized over three years, amortization expense recognized for the six and three month period ended March 31, 2018 was $32,600 and $16,301, respectively. The amortization expense for the six and three month period ended March 31, 2017 was $21,732 and $16,299, respectively. The Collabria customer base was valued at $96,640 to be amortized over two years, amortization expense recognized for the six and three month period ended March 31, 2018 and 2017 was $24,160 and $12,079, respectively. The amortization expense for the six and three month period ended March 31, 2017 was $16,108 and $12,081, respectively.

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.

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RESEARCH AND DEVELOPMENT COSTS

The Company expenses research and development costs as incurred.  For the six and three month ended March 31, 2018 and 2017, the Company had $122,575 and $59,618 and $47,214 and $28,514 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.

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.

Installation and integration services are recognized upon completion.

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 March 31, 2018 and 2017, we had no options and warrants outstanding.  As of March 31, 2018 and 2017, the Company had 566,496 shares of Series A  Convertible Preferred stock outstanding, respectively. As of March 31, 2018 and 2017, 40,750 shares of Series A Convertible Preferred stock outstanding are convertible into 4,075,000 shares of common stock and  525,746 shares of Series A Convertible Preferred stock outstanding are convertible after a two-year period from the issuance date. As of March 31, 2018 and 2017, we had 2,563,375 shares of Series C Convertible Preferred stock outstanding which are convertible into 12,816,875 shares of common stock, respectively. As of March 31, 2018 and 2017, we had 670,904 shares of Series D Preferred stock outstanding which are convertible into 3,354,520 shares of common stock. As of March 31, 2018 and 2017, we had 3,000,000 shares of Series E Convertible Preferred stock outstanding. As of March 31, 2018 and 2017, no shares of Series E Convertible Preferred stock outstanding are convertible into shares of common stock. 3,000,000 shares of restricted Series E Convertible Preferred stock outstanding are convertible after a two-year period from the issuance date.

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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:

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Level 1: Observable inputs that reflect unadjusted quoted prices for identical assets or liabilities traded in active markets.

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Level 2: Inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly.

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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 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.  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 March 31, 2018 and September 30, 2017, respectively.

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 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.  

ADVERTISING COSTS

Advertising costs are expensed as incurred. The Company had advertising costs of $2,147 and $1,835 during the three months ended March 31, 2018 and 2017, respectively, and $3,944 and $2,703 during the six months ended March 31, 2018 and 2017, respectively.

RECENT ACCOUNTING PRONOUNCEMENTS

In February 2016, the FASB issued ASU 2016-02, Leases, which will amend current lease accounting to require lessees to recognize (i) a lease liability, which is a lessee’s obligation to make lease payments arising from a lease, measured on a discounted basis, and (ii) a right-of-use asset, which is an asset that represents the lessee’s right to use, or control the use of, a specified asset for the lease term. ASU 2016-02 does not significantly change lease accounting requirements applicable to lessors; however, certain changes were made to align, where necessary, lessor accounting with the lessee accounting model. This standard will be effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. We are currently reviewing the provisions of this ASU to determine if there will be any impact on our results of operations, cash flows or financial condition.

In April 2016, the FASB issued ASU 2016–10 Revenue from Contract with Customers (Topic 606): identifying Performance Obligations and Licensing “ .The amendments in this Update do not change the core principle of the guidance in Topic 606. Rather, the amendments in this Update clarify the following two aspects of Topic 606: identifying performance obligations and the licensing implementation guidance, while retaining the related principles for those areas. Topic 606 includes implementation guidance on (a) contracts with customers to transfer goods and services in exchange for consideration and (b) determining whether an entity’s promise to grant a license provides a customer with either a right to use the entity’s intellectual property (which is satisfied at a point in time) or a right to access the entity’s intellectual property (which is satisfied over time). The amendments in this Update are intended render more detailed implementation guidance with the expectation to reduce the degree of judgement necessary to comply with Topic 606. We are currently reviewing the provisions of this ASU to determine if there will be any impact on our results of operations, cash flows or financial condition.

NOTE 3   - GOING CONCERN

The Company's condensed consolidated 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 believes the Asset Purchase Agreement with Collabria will allow the Company to generate additional income from the sale of ReadyOp software and will assist in expanding the distribution of the AudioMate AM360 line of IP gateway devices. 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 capital funding 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 condensed consolidated financial statements do not include any adjustments that might be necessary if the Company is unable to continue as a going concern.

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NOTE 4   - NOTES PAYABLE TO STOCKHOLDERS

As of March 31, 2018 and September 30, 2017, the Company had unsecured notes payable to stockholders totaling $147,543 and $134,087, respectively. These notes range in interest from 8% to 15% which are payable quarterly. The remaining balance of the notes mature on December 31, 2018.

In October 2017, the Company repaid the principal amount of $7,891 of a note payable to a shareholder. In February 2018, the Company paid $7,891 of principal and $248 of accrued interest as full payment of a note payable to a shareholder that matured on December 31, 2017.

In October 2017, the Company issued two promissory notes to a shareholder and director in the amount of $15,000 each.  The notes bear 8% interest and mature on December 31, 2018.

Interest expense on the notes payable to stockholders was $3,420 and $3,752 for the three months ended March 31, 2018 and 2017, respectively, and $6,838 and $8,930 for the six months ended March 31, 2018 and 2017, respectively.

NOTE 5 - EQUITY TRANSACTIONS

Preferred Stock Dividends

As of March 31, 2018 and September 30, 2017, the cumulative arrearage of undeclared dividends for Series A Preferred stock totaled $67,609 and $44,949, respectively.

Preferred stock issued for cash

In November 2016, the Company sold 525,746 shares of Series A Convertible Preferred stock to a private investor and director for $262,873 in cash.

Preferred stock issued for acquisition of assets

In November, 2016, the Board of Directors approved the Asset Purchase Agreement between the Company and Collabria LLC (“Collabria”). Under the terms of the Agreement, the Company acquired all of the intellectual property of Collabria, including its ReadyOp command, control and communication platform trade named ReadyOp (the “ReadyOp Platform”). In addition, the Company acquired Collabria’s customer base (“Collabria Client List”). The Company assumed no liabilities of Collabria under this Agreement. The terms of the Agreement called for the Company to issue 3,000,000 (Three million) shares of restricted Series E Convertible Preferred stock to Collabria with a fair value of $292,240. Shares of the Series E Convertible Preferred have the following conversion rights and provisions: After a period of two (2) years following the date of issuance, each one (1) share of Series E Preferred shall be convertible into one hundred (100) shares of fully paid and non-assessable Common Stock at the sole option of the holder of Series E Preferred.

Amendment to the Articles of Incorporation

In November 2016, the Board of Directors voted to amend the Company’s Articles of Incorporation to designate the Series A and Series E Convertible Preferred Stock setting forth the rights and preferences of the Series A and E Convertible Preferred Stock, par value $.00001 per share. Among other things, the Certificate of Designation for the Series A Preferred (i) provides for liquidation rights. Among other things, the Certificate of Designation of the Series E Preferred Stock; (i) provides that each share of Series E Preferred Stock shall be one hundred votes for any election or other vote placed before the shareholders of the Corporation

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NOTE 6 - 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 $11,631 and $11,203 for the three months ended March 31, 2018 and 2017, respectively, and $22,985 and $22,042 for the six months ended March 31, 2018 and 2017, respectively.

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.

In November 2016, the Company sold 525,746 shares of Series A Convertible Preferred stock to a private investor and director for $262,873 in cash.

In November 2016, the Company repaid the principal amount of $15,000 of a note payable to a shareholder.

In October 2017, the Company repaid the principal amount of $7,891 of a note payable to a shareholder.

In September 2017, the Company issued a promissory note to a shareholder and director in the amount of $35,000. The note bears interest at 8% per annum and matures on December 31, 2018.

In October 2017, the Company issued two promissory notes to a shareholder and director in the amounts of $15,000 each. The notes bear interest at 8% per annum and mature December 31, 2018.

In February 2018, the Company paid $7,891 of principal and $248 of accrued interest as full payment of a promissory note that matured on December 31, 2017.

NOTE 7 -    COMMITMENTS AND CONTINGENCIES

Obligation Under Operating Lease

The Company leases approximately 1,700 square feet for its principal offices in Boca Raton, Florida at a monthly rental of approximately $3,200. The lease, which provides for annual increases of base rent of 4%, expires on November 30, 2018. The Company also subleases office space for a satellite office in Tampa, Florida for engineering and support staff. The current sublease is month to month and has a base rent of $2,000 per month.

Rent expense incurred during the six months ended March 31, 2018 and 2017 was $22,985 and $22,042, respectively. Rent expense incurred during the three months ended March 31, 2018 and 2017 was $11,631 and $11,203, respectively.

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Revenue and Accounts Receivable Concentration

Approximately 16% and 15% of the Company’s revenues for the six months ended March 31, 2018 and 2017 were derived from one customer, respectively. As of March 31, 2018 one customer accounted for approximately 55% of the Company’s total outstanding accounts receivable. As of September 30, 2017, two customers accounted for approximately 24% of the Company’s total outstanding accounts receivable.

Letter of Intent and Spin-Off

In March 2018, the Company approved a Letter of intent to be issued by its subsidiary VoiceInterop, Inc. to CanniPlus Global, Inc. The Company also approved that the Company spin-off VoiceInterop into a separate company under a Form-10 registration to be filed with the United States Securities and Exchange Commission. As of the date of this filing, the transaction has not been completed.

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

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.

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 $3,000 and $7,253.50 as reimbursement of expenses associated with the filing of the Licensed Patent. The Company agreed to complete the first commercial sale of products to the retail customer on or before January 31, 2019 or USFRF has theright to terminate the agreement. In addition, the Company agreed that it will have made and tested a prototype by August 31, 2018 or USFRF has the right to terminate the agreement. 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:

  -and every year thereafter on the same date, for the life of the agreement or until it is terminated.

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.

NOTE 8 –     SUBSEQUENT EVENTS

In April 2018, the Board of Directors approved a share exchange agreement with an officer and director Richard J. Martin whereby Mr. Martin would exchange 53,500 shares of Series A Preferred stock for 1,070,000 shares of Series C Preferred stock.

In April 2018, the Board of Directors approved a special stock dividend for certain shareholders of the corporation. The resolution provided that each common shareholder shall receive .075 shares of VoiceInterop, Inc. for each one (1) share of Cleartronic common stock held by the shareholder, and each shareholder of Cleartronic Series C and Series D preferred stock shall receive .375 shares of VoiceInterop, Inc. common stock for each one (1) share of Series C or Series D Preferred stock held by the shareholder. The Board further resolved that the record date for the dividend distribution shall be the first business day following an effective statement from the SEC regarding a pending S-1 registration statement. As of the date of this filing, the transaction had not been completed.

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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”) 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.

In November, 2016, the Board of Directors approved the Asset Purchase Agreement between the Company and Collabria LLC (“Collabria”). Under the terms of the Agreement, the Company acquired all of the intellectual property of Collabria, including its ReadyOp command, control and communication platform trade named ReadyOp™ (the “ReadyOp Platform”). In addition, the Company acquired Collabria’s customer base (“Collabria Client List”). The Company assumed no liabilities of Collabria under this Agreement. The terms of the Agreement called for the Company to issue 3,000,000 (Three million) shares of the registrant’s Series E Convertible Preferred stock to Collabria. Shares of the Series E Convertible Preferred have the following conversion rights and provisions: After a period of two (2) years following the date of issuance, each one (1) share of Series E Preferred shall be convertible into one hundred (100) shares of fully paid and non-assessable Common Stock at the sole option of the holder of Series E Preferred.  As a result of this Agreement the Licensing Agreement between Collabria and the Company was cancelled effective November 30, 2016. The ReadyOp software will be marketed, sold and supported through the Company’s subsidiary ReadyOp Communications, Inc.

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FOR THE THREE MONTHS ENDED MARCH 31, 2018 COMPARED TO THE THREE MONTHS ENDED MARCH 31, 2017

Revenue

Revenues increased approximately 245% to $301,277 for the three months ended March 31, 2018 as compared to $87,155 for the three months ended March 31, 2017.   The primary reason for the increase in revenue was due to a CommandPhone project installed by VoiceInterop in the three months ended March 31, 2018. Deferred revenue increased by approximately 10% to $482,163 as of March 31, 2018 when compared to $438,909 as of September 30, 2017. Revenues from sales of VoiceInterop software, hardware and maintenance agreements increased to $112,144 during the three month period ended March 31, 2018, compared to sales of $41,467 for the three month period ended March 31, 2017. This increase in sales was due to a project sale of CommadPhone software and third-party hardware in the three months ended March 31, 2018. In the three month period ended March 31, 2017 the Company sold no software/hardware projects. Approximately 96% of VoiceInterop revenue was generated by sales of VoiceInterop IP Gateways and revenue from support contracts.

Cost of Revenue

Cost of revenues was $101,869 for the three months ended March 31, 2018 as compared to $53,672 for the three months ended March 31, 2017. The increase was due to an increase in sales by both VoiceInterop and ReadyOp Communications.  Gross profits were $199,408 and $33,483 for the three months ended March 31, 2018 and 2017, respectively. Gross margins increased to 65% from 38% for the three months ended March 31, 2018 and 2017, respectively. The primary reason for the increase in gross profit margin is the lower costs associated with ReadyOp software along with lower software and labor costs in completing a VoiceInterop project.

Operating Expenses

Operating expenses increased approximately 11% to approximately $302,654 for the three months ended March 31, 2018 compared to $273,213 for the three months ended March 31, 2017.  For the three months ended March 31, 2018, selling expenses increased   to $103,671 from $23,949 for the three months ended March 31, 2017, which was primarily due to increased marketing salaries associated with ReadyOp sales and increased commission expenses associated with VoiceInterop sales. General and administrative expenses decreased by $81,385 or approximately 42% which was primarily caused by lower payroll expenses associated with the ReadyOp software platform. Research and development expenses were $59,618 for the three months ended March 31, 2018 as compared to $28,514 for the three months ended March 31, 2017 due to development expenses associated with ReadyOp software and development expenses associated with a technology patent owned by the University of South Florida Research Foundation.

Loss from Operations

The Company’s net loss from operations decreased to $103,246 during the three months ended March 31, 2018 as compared to $239,730 for the three months ended March 31, 2017. The primary reason for the decrease was due to the increase in sales of VoiceInterop projects and higher revenues generated from the sale of ReadyOp software licenses.  

Net Loss Attributable to Common Stockholders

Net loss attributable to common stockholders was $117,903 for the three months ended March 31, 2018 as compared to a net loss of $254,657 for the three months ended March 31, 2017.

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FOR THE SIX MONTHS ENDED MARCH 31, 2018 COMPARED TO THE SIX MONTHS ENDED MARCH 31, 2017

Revenue

Revenues from operations were $504,035 for the six months ended March 31, 2018 as compared to $187,155 for the six months ended March 31, 2017. The increase was primarily due to the installation of a CommandPhone project by VoiceInterop and an increase in sales of ReadyOp software licenses.

Cost of Revenue

Cost of revenues was $140,440 for the six months ended March 31, 2018, as compared to $91,194 for the six months ended March 31, 2016.  This increase was primarily due to increase sales by VoiceInterop and ReadyOp Communications. Gross profits were $363,595 and $95,961 for the six months ended March 31, 2018 and 2017, respectively.  Gross margins increased to 72% from 51% for the six months ended March 31, 2018 and 2017, respectively. The increase in gross profits was primarily due lower costs associated with VoiceInterop software and labor and lower costs associated with ReadyOp software.

Operating Expenses

Operating expenses for the six months ended March 31, 2018 were $595,445 compared to $697,651 for the six months ended March 31, 2017. The decrease was primarily due to decreased amortization expense associated with the writing-off of the licensing agreement with Collabria LLC. partially offset by higher research and development expenses and higher selling expense.

Loss from Operations

The Company’s loss from operations decreased to $231,850 during the six months ended March 31, 2018 as compared to a loss of $601,690 for the six months ended March 31, 2017. The primary reason for this decrease was a decrease in amortization expense of approximately 80% to $56,760 from $278,172 for the six months ended March 31, 2018 and 2017, respectively

Net Loss Attributable to Common Stockholders

Net loss attributable to common stockholders was $249,253 and $626,189 for the six months ended March 31, 2018 and 2017, respectively. The decrease was primarily due to a reduction of approximately $221,000 in amortization expense associated with the writing-off of the Collabria LLC licensing agreement, a decrease in administrative expense offset by increases in selling and research and development expense. Net loss per common share was $(0.00) and $(0.00) for the six months ended March 31, 2018 and 2017 respectively.

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LIQUIDITY AND CAPITAL RESOURCES

Net cash used in operating activities was $35,111 for the six months ended March 31, 2018 compared to $182,258 for the six months ended March 31, 2017. This decrease was mainly attributable to the lower net loss of $226,593 for the six months ended March 31, 2018 as compared to $610,620 for the six months ended March 31, 2017 which was partially offset by lower amortization costs and deferred revenue.

Net cash provided by financing activities was $14,218 for the six months ended March 31, 2018 compared to $247,873 for the six months ended March 31, 2017. The decrease was primarily due to proceeds of $262,873 received from the issuance of Convertible Preferred stock in the six months ended March 31, 2017.

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 for cash and for the acquisition of the ReadyOp software platform. We believe that ReadyOp software platform will put the Company in a better position to cash flow positive.  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 $100,000 per month. In order for us to cover our monthly operating expenses, we would have to generate revenues of approximately $160,000 per month. Accordingly, in the absence of revenues, we will need to secure $100,000 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 $1,200,000 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.

Critical Accounting Estimates

See “Management’s Discussion and Analysis of Financial Condition and Results of Operations – Critical Accounting Estimates” in Part II, Item 7 of our Amended Annual Report on Form 10-K for the year ended September 30, 2017 for information regarding our critical accounting estimates.

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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 March 31, 2018. 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.  Management has approved a travel and entertainment policy that provides for approval of these expenses by independent parties, which mitigates the concerns regarding segregation of duties. The CEO’s travel and other expenses are approved by the Chairman of the Board. For all other employees, the CEO and CFO approve those expenses. Therefore, management believes we have adequate controls and segregation of duties over the approval of all expenses reimbursed to employees and consultants.

PART II - OTHER INFORMATION

Item 1. Legal Proceedings

There have been no material developments during the quarter ended March 31, 2018 in any material legal proceedings to which we are a party or of which any of our property is subject.

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

None

Item 3. Defaults upon Senior Securities

None

Item 5. Other Information

None

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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.

May 21, 2018

By: /s/ Michael M. Moore

       Michael M. Moore

       Principal Executive Officer

By:/s/ Larry M. Reid

        Larry M. Reid

        Principal Financial Officer and

        Chief Accounting Officer

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