Cleartronic, Inc. - Quarter Report: 2020 March (Form 10-Q)

The Company accounts for stock-based instruments issued for services in accordance with ASC 718 “Compensation – Stock Compensation.” ASC 718 requires companies to recognize in the statement of operations the grant-date fair value of stock options and other equity based compensation issued. The value of the portion of a stock award that is ultimately expected to vest is recognized as an expense over the requisite service periods using the straight-line attribution method.

ADVERTISING COSTS

Advertising costs are expensed as incurred. The Company had advertising costs of $14,816 and $1,497 during the three months ended March 31, 2020 and 2019, respectively, and $20,194 and $3,794 during the six months ended March 31, 2020 and 2019, 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 became effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. The Company adopted this standard effective October 1, 2019 which are fully discussed in Note 7.

NOTE 3   - GOING CONCERN

The Company's unaudited 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 acquisition of the ReadyOp software platform was a prudent purchase by the Company. Additional revenue has been generated for the Company and management believes revenue will continue to increase each quarter. 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.

On January 30, 2020, the World Health Organization declared the coronavirus outbreak a "Public Health Emergency of International Concern" and on March 10, 2020, declared it to be a pandemic. Actions taken around the world to help mitigate the spread of the coronavirus include restrictions on travel, and quarantines in certain areas, and forced closures for certain types of public places and businesses. The coronavirus and actions taken to mitigate it have had and are expected to continue to have an adverse impact on the economies and financial markets of many countries, including the geographical area in which the Company operates. While the closures and limitations on movement, domestically and internationally, are expected to be temporary, if the outbreak continues on its current trajectory the duration of the supply chain disruption could reduce the availability, or result in delays, of materials or supplies to and from the Company, which in turn could materially interrupt the Company's business operations. Given the speed and frequency of the continuously evolving developments with respect to this pandemic, the Company cannot reasonably estimate the magnitude of the impact to its consolidated results of operations.

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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 consolidated 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

Notes payable to Stockholders

As of March 31, 2020 and September 30, 2019, the Company had unsecured notes payable to stockholders totaling $78,159 and $92,869, respectively. These notes range in interest from 8% to 15% which are payable quarterly. One note with a principal balances of $17,588 is due on December 31, 2019.  As of the date of this report, the note is currently in default.

On September 30, 2019, the note holder converted $65,000 of note payable and $10,279 of accrued interest into an installment promissory note with a principal balance of $75,279.  The note is due on September 30, 2021 and bears an interest rate of 8%. This note requires a monthly payment of $3,405 for the next 24 months.  As of March 31, 2020 and September 30, 2019 the balance due was $60,571 and $75,279, respectively.        

Interest expense on the notes payable to stockholders was $2,936 and $3,922 for the three months ended March 31, 2020 and 2019, respectively, and $5,085 and $7,165 for the six months ended March 31, 2020 and 2019, respectively.

Installment Loan Payable

On December 14, 2018, VoiceInterop entered into a Business Loan Agreement with WebBank whereby VoiceInterop borrowed $59,751, of this amount $15,491 was recorded as debt issuance cost. The agreement calls for 308 installments of $194 paid over 432 days. The debt issuance cost is amortized over the life of the loan. As of March 31, 2020, the remaining loan balance of $18,429 was paid in full from the note payable dated October 8, 2019.

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On October 8, 2019, VoiceInterop entered into a Business Loan Agreement with WebBank whereby VoiceInterop borrowed $56,680, of this amount $13,080 was recorded as debt issuance cost. The debt issuance cost is amortized over the life of the loan. The agreement calls for 308 installments of $184 paid over 432 days. The Company used $18,429 of loan proceeds to pay off the remaining loan balance of WebBank loan dated December 14, 2018. As of February 14, 2020, the loan balance is $31,269, net of debt issuance cost of $10,688. The amount is included in VoiceInterop deconsolidation as of February 14, 2020 (See Note 8).

Note Payable

On December 2, 2019, the Company issued a promissory note in the amount of $50,000.  The note bear 6% interest and matured on February 29, 2020.  As of March 31, 2020 the loan balance of $50,000 and interest of $732 was paid in full.

Loan Payable – related party

During the six months ended March 31, 2020, the Company owed $16,262 to two officers, of which $7,262 is included in liabilities from discontinued operations.  The loan is non-interest bearing and payable on demand.  As of March 31, 2020 the loan balance of $9,000 was paid in full and $7,626 included in labilities from discontinued operations was deconsolidated as of February 14, 2020.  (See Note 6 and 8).  

NOTE 5 - EQUITY TRANSACTIONS

Common stock issued for cash

In December 2018, the Company sold 3,333,334 shares of common stock to unrelated parties for $75,000 in cash of which $25,000 was received by the Company on January 15, 2019.  

Common stock issued for Ready Med Platform

In October 2019, the Company acquired the software platform from Collabria LLC, a related party. In exchange for these assets the Company issued 12,000,000 shares of Common stock valued at the historical cost of the asset of $600,000 (See Note 2).  

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Preferred Stock Dividends

As of March 31, 2020 and September 30, 2019, the cumulative arrearage of undeclared dividends for Series A Preferred stock totaled $62,496 and $41,920, respectively.

Subscription Agreements between VoiceInterop, Inc., our wholly-owned subsidiary and private investors

During the year ended September 30, 2018, Voiceinterop committed to sell 600,000 shares of its common stock to private investors for $68,000. The shares issuance is contingent upon a spin-off of the Company from Cleartronic, Inc. into a separate company. As of February 14, 2020, the spin-off has been completed and the shares have been issued (See Note 8).

Declaration of Stock Dividend

On April 23, 2018, the board of Directors declared a stock dividend for common stock shareholders and for certain classes of preferred stock shareholder   of the Company. That each common shareholder would receive .075 shares of VoiceInterop common stock for each one (1) share of Cleartronic stock held by the shareholder, and that each shareholder of Series C and D Preferred stock shall receive .375 shares of VoiceInterop common stock for each one (1) share of Series C or Series D Preferred stock held by the shareholder.

The record date of the dividend distribution shall be defined as the first business day following an effective statement from the United States Securities and Exchange Commission (“SEC”) regarding a pending S-1 filing. On May 13, 2019 Voiceinterop filed an S-1 registration statement with the SEC which was approved on November 14, 2019. On February 14, 2020, the Company distributed 17,819,827 shares of VoiceInterop common stock to its shareholders (See Note 8).  The Company recorded $225,316 to additional paid in capital for deconsolidation of VoiceInterop, Inc.

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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 $7,794 and $12,025 for the three months ended March 31, 2020 and 2019, respectively.  Rent expense paid to the related party was $22,154 and $23,696 for the six months ended March 31, 2020 and 2019, respectively.

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 June 30, 2019.  The note was converted to an installment promissory note on September 30, 2019 (See below and Note 4).

During the three months ended December 31, 2019, the Company owed $16,262 to two officers, of which $7,262 is included in liabilities from discontinued operations.  The loan is non-interest bearing and payable on demand. As of March 31, 2020 the loan balance of $9,000 was paid in full and $7,262 included in liabilities from discontinued operations was deconsolidated as of February 14, 2020 (See Note 4 and 8).  

On September 30, 2019, the note holder converted $65,000 of note payable and $10,279 of accrued interest into an installment promissory note.  The note is due on September 30, 2021 and bears an interest rate of 8%.  The note requires a monthly payment of $3,405 for the next 24 months.  As of March 31, 2020 and September 30, 2019 the balance due was $60,571 and $75,279, respectively (See Note 4).  

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 $3,500, 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.

Rent expense incurred during the three months ended March 31, 2020 and 2019 was $7,794 and $12,025, respectively.  Rent expense incurred during the six months ended March 31, 2020 and 2019 was $22,154 and $23,696, respectively.

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VoiceInterop subleases part of its office space to two entities for approximately $1, 150 per month.  Sublease rental income received during three and six months ended March 31, 2020 was $2,300 and $5,750, respectively.  

The Company adopted the new lease guidance effective October 1, 2019 using the modified retrospective transition approach, applying the new standard to all of its leases existing at the date of initial application which is the effective date of adoption. Consequently, financial information will not be updated and the disclosures required under the new standard will not be provided for dates and periods before October 1. 2019.  We elected the package of practical expedients which permits us to not reassess (1) whether any expired or existing contracts are or contain leases, (2) the lease classification for any expired or existing leases, and (3) any initial direct costs for any existing leases as of the effective date. We did not elect the hindsight practical expedient which permits entities to use hindsight in determining the lease term and assessing impairment. The adoption of the lease standard did not change our previously reported consolidated statements of operations and did not result in a cumulative catch-up adjustment to opening equity. The adoption of the new guidance resulted in the recognition of operating lease assets of $75,078 and lease liability of $79,171.

The interest rate implicit in lease contracts is typically not readily determinable. As such, the Company utilizes its incremental borrowing rate, which is the rate incurred to borrow on a collateralized basis over a similar term an amount equal to the lease payments in a similar economic environment. In calculating the present value of the lease payments, the Company elected to utilize its incremental borrowing rate based on the remaining lease terms as of the October 1, 2019 adoption date. This rate was determined to be 23% and the Company determined the initial present value, at inception, of $79,171.

Operating lease asset and operating lease liability are recognized based on the present value of the future minimum lease payments over the lease term at the commencement date. The operating lease asset also includes any lease payments made and excludes lease incentives and initial direct costs incurred, if any.

The Company has elected the practical expedient to combine lease and non-lease components as a single component. The lease expense is recognized over the expected term on a straight-line basis. Operating leases are recognized on the balance sheet as operating lease asset, current operating lease liability and non-current operating lease liability.

The new standard also provides practical expedients and certain exemptions for an entity’s ongoing accounting. We have elected the short-term lease recognition exemption for all leases that qualify. This means, for those leases where the initial lease term is one year or less or for which the operating lease asset at inception is deemed immaterial, we will not recognize operating lease asset or lease liability. Those leases are expensed on a straight line basis over the term of the lease.

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As of February 14, 2020 the operating lease liabilities of $66,114 and lease assets of $62,226 were included in liabilities from discontinued operations and were deconsolidated.    

Revenue and Accounts Receivable Concentration

No customer accounted for more than 10% of the Company’s revenue for the six months ended March 31, 2020.  One customer accounted for 13% of the Company’s revenue for the six months ended March 31, 2019. As of March 31, 2020 two customer accounted for approximately 54% of the Company’s total outstanding accounts receivable with each customer represented 32% and 22%. As of March 31, 2019, two customers accounted for approximately 39% of the Company’s total outstanding accounts receivable with each customer represented 25% and 14%

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.

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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 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 the right 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.

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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 March 31, 2020, the Company has recorded $2,000 for the minimum royalty for the fiscal year ended 2020.

As of September 30, 2019, the Company has recorded $1,000 for the minimum royalty for the fiscal year ended 2019.

NOTE 8 – DISCONTINUED OPERATIONS

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 April 23, 2018, the board of Directors declared a stock dividend for certain shareholders of the Company. The Company will distribute to its shareholders owning Common Stock and Series C and D Preferred stock an aggregate of 17,819,627 shares of shares of Common Stock of Voiceinterop. That each common shareholder would receive .075 shares of Voiceinterop common stock for each one (1) share of Cleartronic stock held by the shareholder, and that each shareholder of Series C and D Preferred stock shall receive .375 shares of Voiceinterop common stock for each one (1) share of Series C or Series D Preferred stock held by the shareholder.

The record date of the dividend distribution shall be defined as the first business day following an effective statement from the United States Securities and Exchange Commission (“SEC”) regarding a pending S-1 filing. On May 13, 2019 Voiceinterop filed an S-1 registration statement with the SEC.  On November 14, 2019, Voiceinterop, Inc’s., S-1 Registration Statement was declared effective by Securities and Exchange Commission.

The Company’s history is being reviewed by the Financial Industry Regulatory Authority (“FINRA”) and as of the date of this filing the review is not been completed. No dividends can be distributed until that review is completed and approved by FINRA.  On February 14, 2020, the distribution of shares was approved by FINRA and completed and deconsolidation was completed. 

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The following table illustrates the reporting of the discontinued operations included in the Statements of Operations for the period from January 1, 2020 to February 14, 2020 and for the three months ended March 31, 2019.

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The following table illustrates the reporting of the discontinued operations included in the Statements of Operations for the period from October 1, 2019 to February 14, 2020 and for the six months period ended March 31, 2019.

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On February 14, 2020, the Company recorded $225,316 to additional paid in capital for deconsolidation of VoiceInterop, Inc. and discontinued operations are not presented.  

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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.

Impact of COVID-19 Outbreak 

On January 30, 2020, the World Health Organization declared the coronavirus outbreak a “Public Health Emergency of International Concern” and on March 10, 2020, declared it to be a pandemic. Actions taken around the world to help mitigate the spread of the coronavirus include restrictions on travel, and quarantines in certain areas, and forced closures for certain types of public places and businesses. The coronavirus and actions taken to mitigate it have had and are expected to continue to have an adverse impact on the economies and financial markets of many countries, including the geographical area in which the Company operates. While the closures and limitations on movement, domestically and internationally, are expected to be temporary, if the outbreak continues on its current trajectory the duration of the supply chain disruption could reduce the availability, or result in delays, of materials or supplies to and from the Company, which in turn could materially interrupt the Company’s business operations. Given the speed and frequency of the continuously evolving developments with respect to this pandemic, the Company cannot reasonably estimate the magnitude of the impact to its consolidated results of operations. We have taken every precaution possible to ensure the safety of our employees. Those precautions include, working remotely, no face to face meetings with clients, no public transportation travel, and social distancing with fellow employees.

Additionally, it is reasonably possible that estimates made in the financial statements have been, or will be, materially and adversely impacted in the near term as a result of these conditions.

Overview

Cleartronic, Inc. (the “Company”) was incorporated in Florida on November 15, 1999. The Company operates through its wholly owned subsidiary ReadyOp Communications, Inc. ("ReadyOp").

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 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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In March 2018, the Company approved the spin-off VoiceInterop, Inc.(“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.  On November 14, 2019, the S-1 registration statement was declared effective by the Securities and Exchange Commission. Therefore, the Company has presented the operations of this subsidiary as discontinued operations. The Company has requested and received approval by the Financial Industry Regulatory Authority (“FINRA”) for the distribution of VoiceInterop’s shares of common stock totaling 17,819,827 shares as a dividend to the Company’s shareholders.  Shareholders of record as of November 20, 2019 of the Company’s common stock and Series C and Series D Preferred stock will receive shares of VoiceInterop’s common stock. The distribution was completed on February 14, 2020.

In October 2019, the Company acquired the ReadyMed software platform from Collabria LLC, a communications software company based in Tampa, Florida. ReadyMed is a web based secure communication platform designed for the health care industry. This includes hospitals, clinics, doctor’s offices and health insurance companies and many other segments of the health care.  It provides hospitals with patient tracking capability within the hospital. It allows physicians to track patient progress after release from the hospital and allows for secure communication with the patient to track the healing process, record their recovery and monitor their progress.

The Acquisition Agreement provides for the acquisition of substantially all the assets and business operations of ReadyMed (the “Acquisition”). The assets acquired include the software platform, templates and forms for numerous business categories in the health care industry, and all contacts created by ReadyMed interested in licensing the ReadyMed platform. As consideration for the Acquisition, Cleartronic issued 12 million shares of its common stock to Collabria which valued at historical cost of $600,000.

FOR THE THREE MONTHS ENDED MARCH 31, 20120 COMPARED TO THE THREE MONTHS ENDED MARCH 31, 2019

Revenue

Revenues increased to $516,107 for the three months ended March 31, 2020 as compared to $279,003 for the three months ended March 31, 2019.   The primary reason for the increase in revenue was due to an increase in sales of ReadyOp ACE IP gateways from $2,000 in 2019 to $230,090 in 2020. This increase was primarily due to one client purchasing $212,000 of ReadyOp ACE IP gateways.  ReadyOp software revenue increased by approximately 19% from $233,851 in 2019 to $278,697 in 2020.  

Cost of Revenue

Cost of revenues was $132,118 for the three months ended March 31, 2020 as compared to $47,984 for the three months ended March 31, 2019. Gross profits were $383,989 and $231,019 for the three months ended March 31, 2020 and 2019, respectively. Despite the increase in revenues, gross margins declined approximately 9% from 83% for the three months ended March 31, 2019 compared to 74% for the three months ended March 31, 2020. The primary reason for the decrease was from sales of the Company’s ReadyOp ACE IP gateways which generate lower profit margins as compared to the licensing of ReadyOp software.

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Operating Expenses

Operating expenses increased approximately 2% to approximately $335,472 for the three months ended March 31, 2020 compared to $330,496 for the three months ended March 31, 2019. For the three months ended March 31, 2020, selling expenses decreased to $141,931 from $154,873 for the three months ended March 31, 2019. The slight increase was primarily due to increases in administrative and amortization expense offset by decreases in selling expense and in research and development expense. General and administrative expenses increased by $17,562 or approximately 18%. The increase is primarily due to an overall increase in operations. Research and development expenses were $31,072 for the three months ended March 31, 2020 as compared to $61,093 for the three months ended March 31, 2019. The decrease of 49% is primarily due to completing the development of our "Rectenna" project. Amortization expense increased by $30,377 or 186% primarily due to the acquisition of the ReadyMed software platform from Collabria, LLC valued at the historical cost of $600,000. 

Income (Loss) from Continuing Operations

The Company's income from continuing operations increased to $47,323 during the three months ended March 31, 2020 as compared to a loss of $105,591 for the three months ended March 31, 2019. The primary reason for the increase was increases in sales of ReadyOp ACE IP gateways accompanied by increases in licensing of ReadyOp software. 

Loss from Discontinued Operations

Loss from discontinued operations, decreased to $41,510 during the three months ended March 31, 2020 compared to a loss of $43,535 for the three months ended March 31, 2019.  Decrease is due to the Company completing the spinoff of Voiceinterop, Inc. Therefore, Voiceinterop was deconsolidated on February 14, 2020.  The result from operations for the second quarter of 2020 only includes the discontinued operations through February 14, 2020 resulting in a decrease on overall loss from discontinued operations.

Net Loss Attributable to Common Shareholders

Net loss attributable to common shareholders was $4,418 for the three months ended March 31, 2020 as compared to a net loss of $159,245 for the three months ended March 31, 2019. The decrease was primarily due to the increase in income from continuing operations for the three months ended March 31, 2020, which was $47,323 as compared to a loss of $105,591 for the three months ended March 31, 2019 . Net loss per common share was $(0.00) and $(0.00) for the three months ended March 31, 2020 and 2019, respectively.

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FOR THE SIX MONTHS ENDED MARCH 31, 2020 COMPARED TO THE SIX MONTHS ENDED MARCH 31, 2019

Revenue

Revenues from operations were $943,902 for the six months ended March 31, 2020 as compared to $470,335 for the six months ended March 31, 2019. The increase was primarily due to the increase in licensing of ReadyOp software which increased 43% from $424,183 to $608,381 in the six- month period ended March 31, 2019 and 2020, respectively.  In addition, sales of ReadyOp ACE IP gateways increased 1,262% from $21,000 to $286,170 in the six- month period ended March 31, 2019 and 2020, respectively.

Cost of Revenue

Cost of revenues was $249,422 for the six months ended March 31, 2020, as compared to $97,106 for the six months ended March 31, 2019. This increase was primarily due to higher costs associated with the ReadyOp ACE IP gateway due to higher costs for parts and materials. Gross profits were $694,480 and $373,229 for the six months ended March 31, 2020 and 2019, respectively. Despite the increase in revenues, gross margins decreased slightly to 73% from 79% for the six months ended March 31, 2020 and 2019, respectively. The decreases was primarily due to the lower profit margins from sales of ReadyOp ACE IP gateways as compared to higher margins generated from licensing of ReadyOp software.

Operating Expenses

Operating expenses for the six months ended March 31, 2020 were $655,830 compared to $585,312 for the six months ended March 31, 2019. For the six months ended March 31, 2020, selling expenses increased to $272,271 from $255,238 for the six months ended March 31, 2019. The 7% increase was primarily due to increased travel expenses prior to the Covid-19 pandemic. Amortization expense increased by $55,266 or 136%, primarily due to amortization  expenses associated with the acquisition of the ReadyMed software platform from Collabria LLC valued at the historical cost of  $600,000. Increases were also offset by the decrease in research and development expense as the Company completed the development of a “Rectenna” project.  

Income (Loss) from Continuing Operations

The Company’s income from continuing operations increased to $33,565 during the six months ended March 31, 2020 as compared to a loss of $222,197 for the six months ended March 31, 2019. The primary reason for this increase was the increase in revenue generated by sales of the ReadyOp ACE IP gateway and licensing of ReadyOp software.

Loss from Discontinued Operations

Loss from discontinued operations, increased to $64,939 during the six months ended March 31, 2020 compared to a loss of $38,089 for the six months ended March 31, 2019. The primary reason for the increase was due to decreased revenue generated by VoiceInterop. Revenue was $27,698 was for six months ended March 31, 2020 as compared to $57,060 in the six months ended March 31, 2019. Decrease in revenue was due to decrease in licensing of ReadyOp software offset in part by the increase in hardware revenues. Loss for discontinued operations also increased to $62,705 from $44,758 which was primarily attributable to the increase in professional fees offset by decrease in administrative expenses.  The professional fees increased due to filing of Registration statement and decrease in administrative expense is due to the Company completing the spinoff of Voiceinterop, Inc. Therefore, Voiceinterop was deconsolidated on February 14, 2020.  The result from operations for the quarter ended March 31, 2020 only includes the discontinued operations through February 14, 2020 resulting in a decrease on overall loss from discontinued operations.

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Net Loss Attributable to Common Stockholders

Net loss attributable to common stockholders was $51,946 and $280,749 for the six months ended March 31, 2020 and 2019, respectively. The decrease was primarily due to the increase in gross profit which was $694,480 and $373,229 for the six months ended March 31, 2020 and 2019 respectively. Net loss per common share was $(0.00) and $(0.00) for the six months ended March 31, 2020 and 2019 respectively.

LIQUIDITY AND CAPITAL RESOURCES

Net cash provided by operating activities was $75,139 for the six months ended March 31, 2020 compared to net cash used in operating activities was $127,750 for the six months ended March 31, 2019. This decrease was attributable to the lower net loss of $31,371 for the six months ended March 31, 2020 as compared to $260,286 for the six months ended March 31, 2019, and decreases in accounts receivable and inventory and an increase in amortization expense offset by decreases in accounts payable, accrued expenses and deferred revenue.

Net cash provided by financing activities was $7,102 for the six months ended March 31, 2020 compared to $129,260 for the six months ended March 31, 2019. The decrease was primarily due to proceeds of $100,000 received from the issuance of common stock in the six months ended March 31, 2019.

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 the ReadyOp software platform will continue to grow on a quarter to quarter basis putting the Company in a better position to become cash flow positive.  We also believe that the ReadyMed software platform will provide additional revenue. It is now being used by both the Departments of Health in two states.  We believe that the spin-off of VoiceInterop will also benefit the Company as VoiceInterop operations will no longer be a drain on cash flow. 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 these actions.

On January 30, 2020, the World Health Organization declared the coronavirus outbreak a "Public Health Emergency of International Concern" and on March 10, 2020, declared it to be a pandemic. Actions taken around the world to help mitigate the spread of the coronavirus include restrictions on travel, and quarantines in certain areas, and forced closures for certain types of public places and businesses. The coronavirus and actions taken to mitigate it have had and are expected to continue to have an adverse impact on the economies and financial markets of many countries, including the geographical area in which the Company operates. While the closures and limitations on movement, domestically and internationally, are expected to be temporary, if the outbreak continues on its current trajectory the duration of the supply chain disruption could reduce the availability, or result in delays, of materials or supplies to and from the Company, which in turn could materially interrupt the Company's business operations. Given the speed and frequency of the continuously evolving developments with respect to this pandemic, the Company cannot reasonably estimate the magnitude of the impact to its consolidated results of operations.

The costs to operate our current business are approximately $110,000 per month. In order for us to cover our monthly operating expenses, we would have to generate revenues of approximately $150,000 per month. However, in the absence of revenue, we would significantly reduce operations to a minimal sustainment level that would require approximately $25,000 per month. In order to remain in business for one year without any additional revenues we would need approximately $300,000. The Company’s current accounts receivable and pending invoices exceed this amount.

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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 Annual Report on Form 10-K for the year ended September 30, 2019 for information regarding our critical accounting estimates.

Item 3. Quantitative and Qualitative Disclosures About Market Risk.

Not applicable

Item 4. Controls and Procedures.

An evaluation was conducted by our chief executive officer (“CEO”) and chief financial officer (“CFO”) of the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended) as of March 31, 2020. Based on that evaluation, the CEO and CFO concluded that a change in our controls and procedures is needed  to ensure that information required to be disclosed in the reports that we file or submit under the Securities Exchange Act of 1934 (i) is recorded, processed, summarized, and reported within the time periods specified in Securities and Exchange Commission rules and forms, and (ii) is accumulated and communicated to our management, including our CEO and CFO, as appropriate to allow timely decisions regarding required disclosures.

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 is preparing a travel and entertainment policy that provides for approval of these expenses by independent parties, as required in the SEC rules cited above.  The CEO's travel and other expenses will be approved by the Chairman of the Board. For all other employees, the CEO and CFO will approve those expenses. Therefore, we will have adequate controls and segregation of duties over the approval of all expenses reimbursed to employees and consultants as required by the SEC regulation.

Change in Internal Controls over Financial Reporting

There 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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PART II - OTHER INFORMATION

Item 1. Legal Proceedings

There have been no material developments during the quarter ended March 31, 2020 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 15, 2020        

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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Exhibit 31.1

CERTIFICATION

I, Michael M. Moore, certify that:

1. I have reviewed this Quarterly Report on Form 10-Q of Cleartronic, Inc.;

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

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

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

(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under my supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under my supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report my conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. I have disclosed, based on my most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the Board of Directors:

(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: May 15, 2020

/s/ Michael M. Moore

Michael M. Moore, Principal Executive Officer

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CERTIFICATION

I, Larry Reid, certify that:

1. I have reviewed this Quarterly Report on Form 10-Q of Cleartronic, Inc.;

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

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

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

(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under my supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under my supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report my conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. I have disclosed, based on my most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the Board of Directors:

(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: May 15, 2020

/s/ Larry M. Reid

Larry Reid, Principal Financial Officer

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Exhibit 32.1

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

Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (subsections (a) and (b) of Section 1350, Chapter 63 of Title 18, United States Code), the undersigned officer of Cleartronic, Inc. (the “Company”), does hereby certify, to such officer’s knowledge, that the Quarterly Report on Form 10-Q for the quarter ended March 31, 2020 of the Company fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934 and information contained in the Form 10-Q fairly presents, in all material respects, the financial condition and results of operations of the Company.

May 15, 2020

By:  /s/ Michael M. Moore

Michael M. Moore

Principal Executive Officer

By:  /s/ Larry M. Reid

Larry M. Reid

Principal Financial Officer 

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