Quarterly report pursuant to Section 13 or 15(d)

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

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SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
9 Months Ended
Jun. 30, 2020
Accounting Policies [Abstract]  
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

NOTE 2   - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

 

PRINCIPLES OF CONSOLIDATION

 

The accompanying consolidated financial statements contain the consolidated accounts of Cleartronic, Inc. and its subsidiaries, ReadyOp Communications, Inc. and VoiceInterop, Inc. All material intercompany transactions and balances have been eliminated. On February 14, 2020, the deconsolidation of VoiceInterop was completed and transactions through that date are recorded as discontinued operations. (See Note 10)

 

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, 2019 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 and nine months ended June 30, 2020 are not necessarily indicative of the results that may be expected for the fiscal year ending September 30, 2020.

 

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 and property and equipment, valuation of inventory and allowance for doubtful accounts.

 

CASH AND CASH EQUIVALENTS

 

For financial statement purposes, the Company considers all highly liquid investments purchased with original maturities of three months or less to be cash equivalents. The Company did not own any cash equivalents at June 30, 2020 and September 30, 2019.

 

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 $6,000 and $52,000 allowances for doubtful accounts as of June 30, 2020 and September 30, 2019, respectively.

 

PROPERTY AND EQUIPMENT

 

Property and equipment is recorded at cost and depreciated or amortized using the straight-line method over the estimated useful life of the asset or the underlying lease term for leasehold improvements, whichever is shorter onset the property and equipment is put into service.

 

ASSET ACQUISITION

 

In October 2019, the Company acquired a software platform from Collabria LLC. In exchange for this asset, the Company issued 12,000,000 shares of Common stock valued at $600,000.  This valuation was based on the historical cost of the software. The ReadyMed software platform of $600,000 to be amortized over three years, amortization expense recognized for the three month ended June 30, 2020 and 2019 was $53,050 and $0, respectively. The amortization expense for the nine month ended June 30, 2020 and 2019 was $138,082 and $0, respectively.

 

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 ended June 30, 2020 and 2019 was $0 and $16,299, respectively. The amortization expense for the nine month ended June 30, 2020 and 2019 was $10,878 and $48,897, respectively. As of June 30, 2020, ReadyOp software platform has been fully amortized.


The Collabria customer base was valued at $96,640 to be amortized over two years, amortization expense recognized for the three months ended June 30, 2020 and 2019 was $0 and $0, respectively. The amortization expense for the nine month periods ended June 30, 2020 and 2019 was $0 and $8,046, respectively. As of September 30, 2019, the Collabria customer base has been fully amortized.  


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. At June 30, 2020 and September 30, 2019, the Company had approximately $0 and $0, respectively in excess of FDIC insurance limits.

 

RESEARCH AND DEVELOPMENT COSTS

 

The Company expenses research and development costs as incurred.  

 

For the nine months ended June 30, 2020 and 2019, the Company had $114,993 and $157,789, respectively, in research and development costs from continuing operations.   For the three months ended June 30, 2020 and 2019, the Company had $28,192 and $44,248, respectively, in research and development costs from continuing operations.   

 

REVENUE RECOGNITION AND DEFERRED REVENUES

 

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

 

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

i. Identification of Contact with a customer;

ii. Identify the performance obligation of the contract

iii. Determine transaction price;

iv.Allocation of the transaction price to the performance obligations; and

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

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

 

In transactions in which hardware is sold to a customer, the Company recognizes the revenue when the hardware has been shipped to the customer. The hardware supplied by the Company does not require a related software license and can be operated and fully functional without the Company’s software.

 

From time to time clients request special training meetings. We send employees to these meeting and charge our clients on a per diem basis. These charges are recorded as consulting fees on our income statement.

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

 

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

 

The following table summarizes the revenues for the three and nine months ended June 30, 2020 and 2019, respectively:

 

 

For the three months ended

 

For the nine months ended

 

June 30, 2020

June 30, 2019

 

June 30, 2020

June 30, 2019

Licensing of ReadyOp Software

                $351,703

                $258,835

 

                $952,084

               $683,019

Sale of ReadyOp ACE IP Gateways

                    20,880

                    82,755

 

                    307,050

                    103,755

Licensing of ReadyMed Software

                 2,667

                -

 

                10,667

               -

Consulting Income

                        -

                    16,000

 

                      37,000

                    29,500

Pass-through Income

                            -

                    7,706

 

                      12,351

                    19,357

Total

 $375,250

 $ 365,296

 

               $1,319,152

             $835,631

 

EARNINGS PER SHARE

 

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

 

As of June 30, 2020 and 2019, we had no options and warrants outstanding.  

 

As of June 30, 2020 and 2019, the Company had 512,996 shares of Series A Convertible Preferred stock outstanding, which are convertible into 51,299,600 shares of common stock.

 

As of June 30, 2020 and 2019, we had 4,433,375 shares of Series C Convertible Preferred stock outstanding, which are convertible into 22,166,875 shares of common stock.

As of June 30, 2020 and 2019, we had 670,904 shares of Series D Preferred stock outstanding which are convertible into 3,354,520 shares of common stock.

 

As of June 30, 2020 and 2019, we had 3,000,000 shares of Series E Convertible Preferred stock outstanding which are convertible into 300,000,000 shares of common stock.

 

FAIR VALUE OF FINANCIAL INSTRUMENTS

 

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

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

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

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

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

Financial instruments consist principally of cash, accounts receivable, prepaid expenses and other current assets, accounts payable, accrued expenses and deferred revenue. The carrying amounts of such financial instruments in the accompanying consolidated balance sheet approximate their fair values due to their relatively short-term nature. The fair value of long-term debt is based on current rates at which the Company could borrow funds with similar remaining maturities. The carrying amounts approximate fair value. It is management’s opinion that the Company is not exposed to any significant currency or credit risks arising from these financial instruments.

 

INVENTORY

 

Inventory consists of components held for assembly and finished goods held for resale or to be utilized for installation in projects. Inventory is valued at lower of cost or net realizable value on a first-in, first-out basis. The Company’s policy is to record a reserve for technological obsolescence or slow-moving inventory items.  The Company only carries finished goods to be shipped along with completed circuit boards and parts necessary for final assembly of finished product. All existing inventory is considered current and usable. The Company recorded no reserve for obsolete inventory as of June 30, 2020 and September 30, 2019, respectively.

 

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

 

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 $5,497 and $1,797 during the three months ended June 30, 2020 and 2019, respectively, and $25,691 and $5,591 during the nine months ended June 30, 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 9.