Quarterly report pursuant to Section 13 or 15(d)

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Policies)

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SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Policies)
 3 Months Ended
Dec. 31, 2018
Accounting Policies [Abstract]  
PRINCIPLES OF CONSOLIDATION

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

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, 2018 included in the Company’s Annual Report on Form 10-K filed with the United States Securities and Exchange Commission. The unaudited interim consolidated financial statements should be read in conjunction with those financial statements included in the Form 10-K. In the opinion of management, all adjustments considered necessary for a fair presentation, consisting solely of normal and recurring adjustments have been made. Operating results for the three months ended December 31, 2018 are not necessarily indicative of the results that may be expected for the fiscal year ending September 30, 2019.
USE OF ESTIMATES

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

CASH AND CASH EQUIVALENTS

 

For financial statement purposes, the Company considers all highly liquid investments purchased with original maturities of three months or less to be cash equivalents. The Company did not own any cash equivalents at December 31, 2018 and September 30, 2018.
ACCOUNTS RECEIVABLE

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 $24,000 and $16,000 allowances for doubtful accounts as of December 31, 2018 and September 30, 2018, respectively.
ASSET ACQUISITION

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 three month period ended December 31, 2018 and 2017 was $16,299 and $16,299, respectively. The Collabria customer base was valued at $96,640 to be amortized over two years, amortization expense recognized for the three month period ended December 31, 2018 and 2017 was $8,046 and $12,081, respectively. As of December 31, 2018 the Collabria customer base has been fully amortized,
CONCENTRATION OF CREDIT RISK

CONCENTRATION OF CREDIT RISK

 

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

RESEARCH AND DEVELOPMENT COSTS

 

The Company expenses research and development costs as incurred.  For the three months ended December 31, 2018 and 2017, the Company had $52,448 and $62,957, respectively, in research and development costs from continuing operations.

REVENUE RECOGNITION AND DEFERRED REVENUES

REVENUE RECOGNITION AND DEFERRED REVENUES

 

In May 2014, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2014-09, "Revenue from Contracts with Customers (Topic 606)," which supersedes the revenue recognition requirements in Accounting Standards Codification 605, "Revenue Recognition." This ASU is based on the principle that revenue is recognized to depict the transfer of goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. The ASU also requires additional disclosure about the nature, amount, timing and uncertainty of revenue and cash flows arising from customer contracts, including significant judgments and changes in judgments and assets recognized from costs incurred to obtain or fulfill a contract. In August 2015, the FASB issued ASU No. 2015-14, which deferred the effective date of the new revenue standard by one year, and allowed entities the option to early adopt the new revenue standard as of the original effective date. There have been multiple standards updates amending this guidance or providing corrections or improvements on issues in the guidance. The requirements for these standards relating to Topic 606 are effective for interim and annual periods beginning after December 15, 2017. This standard permitted adoption using one of two transition methods, either the retrospectiveor modified retrospective transition method. The Company adopted these standards at the beginning of fiscal year 2019 using the modified retrospective method. The comparative information has not been restated and continues to be reported under the accounting standards in effect for those periods. The Company did not recognize any cumulative-effect adjustment to retained earnings upon adoption as the effect was immaterial. The current period impact of adoption of these standards on the Company's condensed consolidated statements of operations during the three months ended December 31, 2018 are described below.

 

The Company revenue recognition policy follows guidance from Accounting Standards Codification (ASC) 606, Revenue from contract with customers.   Revenue is recognized when the Company transferred promised goods and services to the customer and in the amount that reflect the consideration to which the company expected to be entitled in exchange for those goods and services.

 

The Company applies the following five-step model in order to determine this amount:

(i) Identification of Contact with a customer;

 


(ii ) Identify the performant obligation of the contract

 


(iii) Determine transaction price;

 


(iv) Allocation of the transaction price to the performance obligations; and

 


(v) Recognition of revenue when (or as) the Company satisfies each performance obligation.

 


The Company generates revenue primarily through the sale of integrated hardware and software licenses. The portion of the contract that is associated with ongoing hosting and related customer service is amortized monthly over the license period. The Company incurs certain incremental contract costs (referred to as deferred subscriber acquisition costs, net) including selling expenses (primarily commissions) related to acquiring customers. Deferred subscriber acquisition costs, net are included in prepaid and expenses and other current assets on the condensed consolidated balance sheet. Commissions paid in connection with acquiring new customers are determined based on the value of the contractual fees. Deferred subscriber acquisition costs, net balance as of December 31, 2018 was $18,000 which will be amortized over the license period.

 

In transactions in which hardware is sold to the customer, the Company recognizes revenue over the related software license period as the hardware cannot be used without a license and has no other alternative use.

 

The Company allocates the transaction price to each performance obligation based on a relative standalone selling price. Revenue associated with the sale and installation of system licenses is recognized once installation is complete.  

 

Customer billings for services not yet rendered are deferred and recognized as revenue as services are provided. These fees are recorded as current deferred revenue on the condensed consolidated balance sheet as the Company expects to satisfy any remaining performance obligations as well as recognize the related revenue within the next twelve months. Accordingly, the Company has applied the practical expedient regarding deferred revenue to exclude the value of remaining performance obligations if (i) the contract has an original expected term of one year or less or (ii) the Company recognizes revenue in proportion to the amount it has the right to invoice for services performed.

 

The impact from the adoption of the new revenue standard on the Company's condensed consolidated financial statements as of and for the three months ended December 31, 2018 was as follows:

 

Condensed Consolidated Statement of Operations (Unaudited)

               
               
               
   

For three

  

For three

  

For three

  
   

 months ended  

  

 months ended  

  

 months ended  

  
   

 December 31,

 

 December 31,

 

 December 31,

 
   

2018

  

2018

  

2018

  
   

 (As reported)

 

 (Prior to adoption)

 

 (Effect of adoption)

 
               
 

Revenue

 $         191,332

 $                209,332

 $                  (18,000)

  
 

Cost of Revenue

          49,122

             67,122

           (18,000)

  
 

Gross Profit

            142,210

                   142,210

                              -

 
   
 
               

 

Condensed Consolidated Balance Sheet (Unaudited)

               
   

December 31,

  

December 31,

  

December 31,

  
   

2018

  

2018

  

2018

  
   

 (As reported)

 

 (Prior to adoption)

 

 (Effect of adoption)

 
 

Current assets:

            
 

Prepaid expenses and other current assets

 $           18,688

 $                688

 $              18,000

 
 

Total current assets

             228,242

                  210,242            

                      18,000

 
   
 
 

Total assets

 $         296,673

 $           278,673

 $              18,000

 
   
 
 

Current liabilities:
 
 

Deferred revenue, current portion

 $         346,197

 $           328,197

 $              18,000

 
 

Total current liabilities

         1,364,478

               1,346,478

                      18,000

 
   
 
 

  Total liabilities

 $       1,520,918

 $         1,502,918

 $              18,000

 
   
 
EARNINGS PER SHARE

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 December 31, 2018 and 2017, we had no options and warrants outstanding.  As of December 31, 2018 and 2017, the Company had 512,996 and 566,496 shares of Series A Convertible Preferred stock outstanding, respectively. As of December 31, 2018, 512,996 shares of Series A Convertible Preferred stock outstanding are convertible into 51,299,600 shares of common stock. As of December 31, 2017, 40,750 shares of Series A Preferred stock was convertible into 4,075,000 shares of common, the balance was subject to a two-year waiting period before conversion.   As of December 31, 2018 and 2017, we had 4,433,375 and 2,563,375 shares of Series C Convertible Preferred stock outstanding, respectively which are convertible into 22,166,875 and 12,816,875 shares of common stock, respectively. As of December 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 December 31, 2018, we had 3,000,000 shares of Series E Convertible Preferred stock outstanding which are convertible into 300,000,000 shares of common stock.  As of December 31, 2017, we had 3,000,000 Series E Convertible Preferred stock outstanding which were subject to a two-year waiting period before conversion.
FAIR VALUE OF FINANCIAL INSTRUMENTS

FAIR VALUE OF FINANCIAL INSTRUMENTS

 

The Company adopted ASC topic 820, “Fair Value Measurements and Disclosures” (ASC 820), formerly SFAS No. 157 “Fair Value Measurements,” effective January 1, 2009. ASC 820 defines “fair value” as the price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. There was no impact relating to the adoption of ASC 820 to the Company’s consolidated financial statements.

ASC 820 also describes three levels of inputs that may be used to measure fair value:

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


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


§Level 3: Inputs that are generally observable. These inputs may be used with internally developed methodologies that result in management’s best estimate of fair value.

 

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.

INVENTORY

INVENTORY

 

Inventory consists of components held for assembly and finished goods held for resale or to be utilized for installation in projects. Inventory is valued at lower of cost or net realizable value on a first-in, first-out basis. The Company’s policy is to record a reserve for technological obsolescence or slow-moving inventory items.  The Company only carries finished goods to be shipped along with completed circuit boards and parts necessary for final assembly of finished product. All existing inventory is considered current and usable. The Company recorded no reserve for obsolete inventory as of December 31, 2018 and September 30, 2018, respectively.

ADVERTISING COSTS

ADVERTISING COSTS

 

Advertising costs are expensed as incurred. The Company had advertising costs of $2,297 and $1,797 during the three months ended December 31, 2018 and 2017, respectively.
RECENT ACCOUNTING PRONOUNCEMENTS

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.