THE FOLLOWING DISCUSSION SHOULD BE READ TOGETHER WITH THE INFORMATION CONTAINED
IN THE CONSOLIDATED FINANCIAL STATEMENTS AND RELATED NOTES INCLUDED ELSEWHERE IN
THIS ANNUAL REPORT ON FORM 10-K.
The following discussion reflects our plan of operation. This discussion should
be read in conjunction with the financial statements which are attached to this
report. This discussion contains forward-looking statements, including
statements regarding our expected financial position, business and financing
plans. These statements involve risks and uncertainties. Our actual results
could differ materially from the results described in or implied by these
forward-looking statements as a result of various factors, including those
discussed below and elsewhere in this report, particularly under the headings
"Special Note Regarding Forward-Looking Statements."
Unless the context otherwise suggests, "we," "our," "us," and similar terms, as
well as references to "Cleartronic," all refer to Cleartronic, Inc. and our
subsidiaries as of the date of this report.
Going Concern
On September 30, 2019, we had current assets of $282,628 and current liabilities
of $1,329,725. Our independent certified public accountants have stated in
their report on our audited consolidated financial statements for the fiscal
year end that there is a substantial doubt about our ability to continue as a
going concern. In the absence of significant revenue and profits, we will be
completely dependent on additional debt and equity financing. If we are unable
to raise needed funds on acceptable terms, we will not be able to execute our
business plan, develop or enhance existing services, take advantage of future
opportunities, if any, or respond to competitive pressures or unanticipated
requirements. If we do not obtain sufficient capital, we will not be able to
continue operations.
As of September 30, 2019, Cleartronic had an accumulated deficit of $16,221,110,
which included a net loss of $176,598 reported for the year ended September 30,
2019. Also, during the year ended September 30, 2019, we used net cash of
$69,357 for operating activities. These factors raise substantial doubt about
our ability to continue as a going concern.
While we are attempting to generate revenues, our cash position may not be
significant enough to support our daily operations. Management intends to raise
additional funds by way of an offering of our debt or equity securities.
Management believes that the actions presently being taken to further implement
our business plan and generate revenues provide the opportunity for Cleartronic
to continue as a going concern. While we believe in the viability of our
strategy to generate revenues and in our ability to raise additional funds, we
may not be successful. Our ability to continue as a going concern is dependent
upon our capability to further implement our business plan and generate
revenues.
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Results of Operations
Year Ended September 30, 2019, Compared to Year Ended September 30, 2018.
Revenues. Revenues increased 49% to $1,164,191 in 2019, from $782,232 during
2018. This increase of approximately $381,959 was primarily due to increased
sales of the ReadyOp software platform. Revenue from our other subsidiary,
VoiceInterop, Inc., decreased approximately 54% to $87,254 from $191,635.
Cost of Revenues and Gross Margins. Cost of revenues increased from $123,644 in
2018, to $246,117 in 2019. Gross margins increased by approximately 39% from
$918,074 in 2019 to $658,588 in 2018. The primary reason for the increase in
gross margin was due to lowering cost of revenue related to ReadyOp software
subscriptions.
Operating Expenses. Operating expenses increased approximately 11% in 2019, to
$1,225,734 compared to $1,104,229 during 2018. Operating expenses include
selling expenses, administrative expenses, research and development costs and
amortization expense.
Selling Expenses. Selling expenses increased approximately 42% from $420,123 in
2018, to $595,825 in 2019, primarily due to increased travel expenses and trade
show costs.
Administrative Expenses. Administrative expenses remain fairly consistent from
$348,330 in 2018, to $348,960 in 2019.
Research and Development Expenses. Research and development expenses decreased
approximately 7% to $207,707 in 2019, from $222,256 in 2018, due to decreased
development expense related to a technology license agreement with the
University of South Florida Research Foundation and decreased expense associated
with the ReadyOP software platform.
Amortization Expenses. Amortization expense was $73,242 in 2019 and $113,520 in
2018 a decrease of 35%. The decrease was primarily due to the ReadyOp Customer
List which was fully amortized in 2019.
Other Income and Other Expense. Interest and other expense increased from
$13,324 in 2018 to $17,871 in 2019. The increase was primarily due to an
increase in interest expense. Other income of approximately $253,480 was
attributable to the settlement of old accounts payable.
Net Loss. Net losses were $176,598 and $532,809 for 2019 and 2018,
respectively.
-12-
Liquidity and Capital Resources
Cash and cash equivalents increased by $27,285 during the fiscal year ended
September 30, 2019, to $27,698. Net cash used in operating activities for the
fiscal year ended September 30, 2019, was $69,357 as compared to $21,365 for the
fiscal year ended September 30, 2018. We funded our operating activities during
the most recent fiscal year through investing and financing activities that
generated net proceeds of approximately $96,642.
At September 30, 2019, our total liabilities were $1,479,543, which included
$264,855 in accounts payable, $123,300 in accrued expenses, $92,869 in notes
payable stockholders, $26,756 in customer deposits and $776,537 in deferred
revenue.
Based on our VoiceInterop business and the acquisition of the ReadyOp software
platform and the Collabria client list we have developed a business plan. The
business plan calls for us to continue to market and sell unified communications
hardware and software directly to enterprise customers. We intend to market the
ReadyOp™ software through commissioned sales representatives. We believe these
sales will increase the sales of the AudioMate 360 IP Gateway
We believe that in order to fund our business plan, we will need approximately
$1,380,000 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 have also had discussions with several securities
broker-dealers with respect to a private or public offering of our securities.
Although none of such discussions has resulted in any funding, we intend to
continue to have such discussions in the future. We also intend to continue to
seek private financing from certain of our existing stockholders and others.
Our current operating expenses are approximately $115,000 per month. In order
for us to cover our monthly operating expenses, we must generate approximately
$175,000 per month in revenue. Accordingly, in the absence of sufficient
revenues, we must raise $115,000 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 must secure $1,380,000 in equity or debt capital. If we are
unsuccessful in securing sufficient capital or revenues, we will be unable to
continue our business activities.
Investing Activities
Net cash used in investing activities was $0 for fiscal year ended September 30,
2019, and $0 in 2018.
Financing Activities
Net cash provided by financing activities was $96,642 during fiscal 2019. This
included $43,810 from installment loan-discontinued operations less repayment
of installment loan of $39,964, proceeds from the issuance of common stock of
$100,000 less dividends paid of $7,204. Net cash provided by financing
activities was approximately $14,218 during fiscal year 2018. This included
proceeds from Note Payable Stockholders of $30,000 less repayment of notes
payable stockholder of $15,782.
-13-
Critical Accounting Policies
Our consolidated financial statements and accompanying notes are prepared in
accordance with generally accepted accounting principles in the United States.
Preparing financial statements requires management to make estimates and
assumptions that impact the reported amounts of assets, liabilities, revenue,
and expenses. These estimates and assumptions are affected by management's
application of accounting policies. Critical accounting policies include
revenue recognition and impairment of long-lived assets.
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 retrospective or 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 adoption of these standards did not have a material impact on the
Company's consolidated statements of operations during the year ended September
30, 2019.
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:
-Identification of Contact with a customer;
-Identify the performance obligation of the contract
-Determine transaction price;
-Allocation of the transaction price to the performance obligations; and
-Recognition of revenue when (or as) the Company satisfies each performance
obligation.
-14-
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 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 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 adoption of this standard did not have a material impact on the Company's
consolidated statements of operations during the year ended September 30, 2019.
Inventory
Inventory consists of 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 and no reserve for
obsolescence was carried for the years ended September 30, 2019 and 2018.
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. The adoption of ASU
2016-02 will have a material impact on its balance sheet as the Company will
record material assets and obligations primarily related to its office space
lease. The Company expects to record right-of-use and the corresponding
operating lease liability of approximately $79,000 based on the present value of
the remaining minimum rental payments using discount rates as of the application
date. The Company also expects to record the right of use assets of
approximately $75,000 based upon the operations lease liability adjusted
deferred rent. The amount will be included in assets and liabilities from
discontinued operations. The Company does not expect to have a material impact
on its statement of income or statement of cash flows.
-15-
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 retrospective or 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 adoption of these standards did not have a material impact on the
Company's consolidated statements of operations during the year ended September
30, 2019.
Off-Balance Sheet Arrangements
We do not have any off-balance sheet arrangements.
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